Workday Announces Fiscal 2023 Third Quarter Financial Results

Fiscal Third Quarter Total Revenues of  $1.60 Billion , Up 20.5% Year Over Year Subscription Revenues of  $1.43 Billion , Up 22.3% Year Over Year 24-Month Subscription Revenue Backlog of  $8.62  Billion, Up 21.1% Year Over Year Total Subscription Revenue Backlog of  $14.10 Billion , Up 28.5% Year Over Year PLEASANTON, Calif. ,  Nov. 29, 2022 -  Workday, Inc.  (NASDAQ: WDAY), a leader in enterprise cloud applications for finance and human resources, announced results for the fiscal 2023 third quarter ended October 31, 2022.

Fiscal 2023 Third Quarter Results Total revenues were  $1.60 billion , an increase of 20.5% from the third quarter of fiscal 2022. Subscription revenues were  $1.43 billion , an increase of 22.3% from the same period last year.

Operating loss was  $26.3 million , or negative 1.6% of revenues, compared to an operating income of  $23.9 million , or 1.8% of revenues, in the same period last year. Non-GAAP operating income for the third quarter was  $314.2 million , or 19.7% of revenues, compared to a non-GAAP operating income of  $332.2 million , or 25.0% of revenues, in the same period last year. 1

Basic and diluted net loss per share was  $0.29 , compared to basic and diluted net income per share of  $0.17  in the third quarter of fiscal 2022. Non-GAAP basic and diluted net income per share was  $1.01  and  $0.99 , respectively, compared to non-GAAP basic and diluted net income per share of  $1.15  and  $1.10 , respectively, in the same period last year. 2

Operating cash flows were  $408.7 million  compared to  $384.7 million  in the prior year.

Cash, cash equivalents, and marketable securities were  $5.49 billion  as of  October 31, 2022 .

Comments on the News

"We delivered another solid quarter, demonstrating how our cloud finance and HR solutions are vital for global organizations navigating today's changing world," said  Aneel Bhusri , co-founder, co-CEO, and chairman, Workday. "There is no question that the current macro environment presents increased uncertainty, but, due to the great work of our employees and our continued innovation, we are confident in the long-term opportunity and our ability to navigate the road ahead."

"Our strong third-quarter results illustrate how global organizations are continuing to choose Workday as the backbone of their digital transformation in the face of constant change," said  Chano Fernandez , co-CEO, Workday. "As we look ahead, we will continue to focus our efforts on industry investments and driving innovation with our open and connected partner ecosystem, which are critical to our customers' success."

"We delivered solid third-quarter results, a testament to strong execution across the company as well as the strategic and mission-critical nature of our solutions," said  Barbara Larson , chief financial officer, Workday. "Our updated outlook reflects the ongoing momentum in our business and the power of our business model, while continuing to balance the current environment. We are raising the low end of our fiscal 2023 subscription revenue guidance to a range of  $5.555 billion  to  $5.557 billion , or 22% growth. We are also raising our fiscal 2023 non-GAAP operating margin guidance to 19.2%, reflecting our commitment to delivering healthy growth and profitability."

Recent Highlights

Workday announced that its Board of Directors approved a share repurchase program, with a term of 18 months, to purchase up to  $500 million  of shares of its Class A common stock.

Workday  announced  its vision for a more open and connected partner ecosystem, which includes the launch of  Industry Accelerators , a new industry program that accelerates customer enterprise cloud transformations with partners.

Workday  announced  new technology and user experience innovations aimed at helping customers meet evolving business and employee needs, including low-code/no-code app development functionality in Workday Extend, the Company's app building solution that helps developers to more quickly and easily build apps on Workday.

Workday  introduced  next-generation skills technology, built on an AI/ML foundation, that allows organizations to easily and securely bring skills data in and out of Workday to deliver more personalized employee experiences.

Workday was  named  a Leader in the 2022 Gartner® Magic Quadrant™ for Cloud HCM Suites for 1,000+ Employee Enterprises for the seventh consecutive year and positioned the highest for overall Ability to Execute. 3

About Workday

Workday  is a leading provider of enterprise cloud applications for finance and human resources, helping customers adapt and thrive in a changing world. Workday applications for financial management, human resources, planning, spend management, and analytics have been adopted by thousands of organizations around the world and across industries – from medium-sized businesses to more than 50% of the  Fortune  500. For more information about Workday, visit  workday.com .

© 2022 Workday, Inc. All rights reserved. Workday and the Workday logo are registered trademarks of Workday, Inc. All other brand and product names are trademarks or registered trademarks of their respective holders.

Workday, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

October 31, 2022 January 31, 2022

Assets

Current assets:

Cash and cash equivalents $      1,575,955 $      1,534,273

Marketable securities

3,916,130 2,109,888 Trade and other receivables, net 1,040,468 1,242,545

Deferred costs

171,100 152,957 Prepaid expenses and other current assets 266,622 174,402 Total current assets 6,970,275 5,214,065 Property and equipment, net 1,219,127 1,123,075 Operating lease right-of-use assets 268,110 247,808 Deferred costs, noncurrent 359,624 341,259 Acquisition-related intangible assets, net 326,670 391,002

Goodwill

2,840,044 2,840,044

Other assets

405,937 341,252

Total assets

$    12,389,787 $    10,498,505 Liabilities and stockholders' equity Current liabilities:

Accounts payable

$           75,803 $           55,487 Accrued expenses and other current liabilities 334,961 195,590

Accrued compensation

406,799 402,885

Unearned revenue

2,815,599 3,110,947 Operating lease liabilities 90,237 80,503 Debt, current — 1,222,443 Total current liabilities 3,723,399 5,067,855 Debt, noncurrent 2,974,979 617,354 Unearned revenue, noncurrent 63,736 71,533 Operating lease liabilities, noncurrent 196,078 182,456

Other liabilities

22,487 24,225

Total liabilities

6,980,679 5,963,423 Stockholders' equity:

Common stock

257 251 Additional paid-in capital 8,400,756 7,284,174

Treasury stock

(110,382)

(12,467)

Accumulated other comprehensive income (loss)

104,114 7,709

Accumulated deficit

(2,985,637)

(2,744,585)

Total stockholders' equity 5,409,108 4,535,082 Total liabilities and stockholders' equity $    12,389,787 $    10,498,505 Workday, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Revenues:

Subscription services

$      1,432,393 $      1,171,517 $      4,071,804 $      3,317,140

Professional services

166,710 155,746 497,754 445,517

Total revenues

1,599,103 1,327,263 4,569,558 3,762,657 Costs and expenses  (1) :

Costs of subscription services 259,397 200,700 737,301 575,646 Costs of professional services 176,396 159,024 524,398 462,652

Product development

565,727 455,615 1,655,071 1,341,482 Sales and marketing 470,196 366,323 1,358,198 1,050,974 General and administrative 153,708 121,656 427,832 347,391 Total costs and expenses 1,625,424 1,303,318 4,702,800 3,778,145 Operating income (loss)

(26,321)

23,945 (133,242)

(15,488)

Other income (expense), net 4,163 21,557 (48,789)

115,491 Income (loss) before provision for (benefit from) income taxes (22,158)

45,502 (182,031)

100,003 Provision for (benefit from) income taxes 52,563 2,090 59,021 (2,623)

Net income (loss)

$          (74,721)

$            43,412 $        (241,052)

$          102,626 Net income (loss) per share, basic $              (0.29)

$                0.17 $              (0.95)

$                0.42 Net income (loss) per share, diluted $              (0.29)

$                0.17 $              (0.95)

$                0.40 Weighted-average shares used to compute net income (loss) per share, basic 255,753 248,468 253,975 246,348 Weighted-average shares used to compute net income (loss) per share, diluted 255,753 254,760 253,975 253,917 (1) Costs and expenses include share-based compensation expenses as follows:

Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Costs of subscription services $           25,598 $           21,340 $           76,918 $           62,478 Costs of professional services 26,577 29,105 79,999 83,331

Product development

149,279 135,591 449,764 395,345 Sales and marketing 61,186 55,645 180,233 158,121 General and administrative 51,556 39,437 146,795 111,197 Total share-based compensation expenses $         314,196 $         281,118 $         933,709 $         810,472 Workday, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Cash flows from operating activities:

Net income (loss)

$           (74,721)

$             43,412 $         (241,052)

$           102,626 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 91,854 87,127 274,395 254,973 Share-based compensation expenses 314,196 278,995 933,709 808,349 Amortization of deferred costs 44,830 35,482 126,515 100,844 Non-cash lease expense 23,359 21,407 68,318 64,706 (Gains) losses on investments (3,833)

(25,222)

20,746 (125,479)

Other

3,251 4,408 15,373 (4,225)

Changes in operating assets and liabilities, net of business combinations:

Trade and other receivables, net 61,885 6,649 200,008 171,257

Deferred costs

(56,552)

(50,654)

(163,023)

(129,758)

Prepaid expenses and other assets 2,435 18,050 (31,447)

(21,047)

Accounts payable

18,116 (12,007)

20,884 (4,117)

Accrued expenses and other liabilities 47,061 2,498 41,253 (24,109)

Unearned revenue

(63,213)

(25,491)

(302,936)

(158,465)

Net cash provided by (used in) operating activities 408,668 384,654 962,743 1,035,555 Cash flows from investing activities:

Purchases of marketable securities (2,310,915)

(722,275)

(5,651,005)

(2,317,040)

Maturities of marketable securities 2,181,147 674,246 3,767,509 2,303,478 Sales of marketable securities 19,988 — 53,355 27,286 Owned real estate projects (181)

(4)

(446)

(171,498)

Capital expenditures, excluding owned real estate projects (58,665)

(33,335)

(286,013)

(190,912)

Business combinations, net of cash acquired — (60,645)

— (739,865)

Purchase of other intangible assets (700)

— (700)

— Purchases of non-marketable equity and other investments (3,250)

(26,720)

(20,173)

(84,526)

Sales and maturities of non-marketable equity and other investments 4,513 1,874 11,674 5,169

Other

— — — 1 Net cash provided by (used in) investing activities (168,063)

(166,859)

(2,125,799)

(1,167,907)

Cash flows from financing activities:

Proceeds from issuance of debt, net of debt discount — — 2,978,077 — Repayments and extinguishment of debt (1,149,622)

(9,384)

(1,843,605)

(28,205)

Payments for debt issuance costs — — (7,220)

— Proceeds from issuance of common stock from employee equity plans, net of taxes paid for shares withheld 710 1,894 85,002 76,381

Other

(161)

(33)

(538)

(409)

Net cash provided by (used in) financing activities (1,149,073)

(7,523)

1,211,716 47,767 Effect of exchange rate changes (920)

50 (1,750)

(85)

Net increase (decrease) in cash, cash equivalents, and restricted cash (909,388)

210,322 46,910 (84,670)

Cash, cash equivalents, and restricted cash at the beginning of period 2,497,043 1,092,929 1,540,745 1,387,921 Cash, cash equivalents, and restricted cash at the end of period $        1,587,655 $        1,303,251 $        1,587,655 $        1,303,251 Workday, Inc.

Reconciliation of GAAP to Non-GAAP Data

Three Months Ended October 31, 2022 (in thousands, except percentages and per share data)

(unaudited)

GAAP

Share-Based Compensation Expenses Other Operating Expenses  (2)

Income Tax and Dilution Effects  (3)

Non-GAAP

Costs and expenses:

Costs of subscription services $  259,397 $   (25,598)

$   (14,100)

$            — $   219,699 Costs of professional services 176,396 (26,577)

(623)

— 149,196

Product development

565,727 (149,279)

(1,899)

— 414,549 Sales and marketing 470,196 (61,186)

(9,206)

— 399,804 General and administrative 153,708 (51,556)

(531)

— 101,621 Operating income (loss)

(26,321)

314,196 26,359 — 314,234

Operating margin

(1.6) % 19.6 % 1.7 % — % 19.7 % Other income (expense), net 4,163 — — — 4,163 Income (loss) before provision for (benefit from) income taxes (22,158)

314,196 26,359 — 318,397 Provision for (benefit from) income taxes 52,563 — — 7,933 60,496 Net income (loss)

$   (74,721)

$   314,196 $     26,359 $     (7,933)

$   257,901 Net income (loss) per share, basic  (1)

$       (0.29)

$         1.23 $         0.10 $       (0.03)

$         1.01 Net income (loss) per share, diluted  (1)

$       (0.29)

$         1.23 $         0.10 $       (0.05)

$         0.99 (1)

GAAP net loss per share is calculated based upon 255,753 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated  based upon 255,753 basic and 261,777 diluted weighted-average shares of common stock. The numerator used to compute non-GAAP diluted net income per share  was increased by $0.9 million for after-tax interest expense on our convertible senior notes in accordance with the if-converted method.

(2)

Other operating expenses include amortization of acquisition-related intangible assets of $21.2 million and employer payroll tax-related items on employee stock  transactions of $5.2 million.

(3)

We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the reporting periods.  For fiscal 2023, the non-GAAP tax rate is 19%. Included in the per share amount is a dilution impact of $0.02 from the conversion of GAAP diluted net loss per share  to non-GAAP diluted net income per share.

Workday, Inc.

Reconciliation of GAAP to Non-GAAP Data

Three Months Ended October 31, 2021 (in thousands, except percentages and per share data)

(unaudited)

GAAP

Share-Based Compensation Expenses Other Operating Expenses  (2)

Income Tax and Dilution Effects  (3)

Non-GAAP

Costs and expenses:

Costs of subscription services $   200,700 $   (21,340)

$   (12,859)

$            — $  166,501 Costs of professional services 159,024 (29,105)

(1,043)

— 128,876

Product development

455,615 (135,591)

(2,870)

— 317,154 Sales and marketing 366,323 (55,645)

(9,642)

— 301,036 General and administrative 121,656 (39,437)

(772)

— 81,447 Operating income (loss)

23,945 281,118 27,186 — 332,249

Operating margin

1.8 % 21.2 % 2.0 % — % 25.0 % Other income (expense), net 21,557 — — — 21,557 Income (loss) before provision for (benefit from) income taxes 45,502 281,118 27,186 — 353,806 Provision for (benefit from) income taxes 2,090 — — 65,133 67,223 Net income (loss)

$     43,412 $   281,118 $     27,186 $   (65,133)

$   286,583 Net income (loss) per share, basic  (1)

$         0.17 $         1.13 $         0.11 $       (0.26)

$         1.15 Net income (loss) per share, diluted  (1)

$         0.17 $         1.10 $         0.11 $       (0.28)

$         1.10 (1)

GAAP net income per share is calculated based upon 248,468 basic and 254,760 diluted weighted-average shares of common stock.

Non-GAAP net income per share is calculated based upon 248,468 basic and 262,577 diluted weighted-average shares of common stock. The numerator used to compute non-GAAP diluted net income per share was increased by $1.3 million for after-tax interest expense on our convertible senior notes in accordance with the if-converted method.

(2)

Other operating expenses include amortization of acquisition-related intangible assets of $19.7 million and employer payroll tax-related items on employee stock transactions of $7.5 million.

(3)

We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the reporting periods. For fiscal 2022, the projected tax rate was 19%. Included in the per share amount is a dilution impact of $0.02 from the conversion of GAAP diluted net income per share to non-GAAP diluted net income per share.

Workday, Inc.

Reconciliation of GAAP to Non-GAAP Data

Nine Months Ended October 31, 2022 (in thousands, except percentages and per share data)

(unaudited)

GAAP

Share-Based Compensation Expenses Other Operating Expenses  (2)

Income Tax and Dilution Effects  (3)

Non-GAAP

Costs and expenses:

Costs of subscription services $   737,301 $   (76,918)

$  (45,022)

$             — $   615,361 Costs of professional services 524,398 (79,999)

(5,297)

— 439,102

Product development

1,655,071 (449,764)

(17,146)

— 1,188,161 Sales and marketing 1,358,198 (180,233)

(32,640)

— 1,145,325 General and administrative 427,832 (146,795)

(3,772)

— 277,265 Operating income (loss)

(133,242)

933,709 103,877 — 904,344

Operating margin

(2.9) % 20.4 % 2.3 % — % 19.8 % Other income (expense), net (48,789)

— — — (48,789)

Income (loss) before provision for (benefit from) income taxes (182,031)

933,709 103,877 — 855,555 Provision for (benefit from) income taxes 59,021 — — 103,534 162,555 Net income (loss)

$  (241,052)

$   933,709 $  103,877 $  (103,534)

$   693,000 Net income (loss) per share, basic  (1)

$        (0.95)

$         3.68 $        0.41 $        (0.41)

$         2.73 Net income (loss) per share, diluted  (1)

$        (0.95)

$         3.68 $        0.41 $        (0.49)

$         2.65 (1)

GAAP net loss per share is calculated based upon 253,975 basic and diluted weighted-average shares of common stock. Non-GAAP net income  per share is calculated based upon 253,975 basic and 262,742 diluted weighted-average shares of common stock. The numerator used to compute  non-GAAP diluted net income per share was increased by $3.5 million for after-tax interest expense on our convertible senior notes in accordance  with the if-converted method.

(2)

Other operating expenses include amortization of acquisition-related intangible assets of $64.3 million and employer payroll tax-related items on  employee stock transactions of $39.5 million.

(3)

We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the  reporting periods. For fiscal 2023, the non-GAAP tax rate is 19%. Included in the per share amount is a dilution impact of $0.08 from the  conversion of GAAP diluted net loss per share to non-GAAP diluted net income per share.

Workday, Inc.

Reconciliation of GAAP to Non-GAAP Data

Nine Months Ended October 31, 2021 (in thousands, except percentages and per share data)

(unaudited)

GAAP

Share-Based Compensation Expenses Other Operating Expenses  (2)

Income Tax and Dilution Effects  (3)

Non-GAAP

Costs and expenses:

Costs of subscription services $   575,646 $   (62,478)

$  (40,195)

$            — $   472,973 Costs of professional services 462,652 (83,331)

(9,211)

— 370,110

Product development

1,341,482 (395,345)

(25,573)

— 920,564 Sales and marketing 1,050,974 (158,121)

(36,512)

— 856,341 General and administrative 347,391 (111,197)

(6,091)

— 230,103 Operating income (loss)

(15,488)

810,472 117,582 — 912,566

Operating margin

(0.4) % 21.5 % 3.2 % — % 24.3 % Other income (expense), net 115,491 — — — 115,491 Income (loss) before provision for (benefit from) income taxes 100,003 810,472 117,582 — 1,028,057 Provision for (benefit from) income taxes (2,623)

— — 197,954 195,331 Net income (loss)

$   102,626 $   810,472 $  117,582 $  (197,954)

$   832,726 Net income (loss) per share, basic  (1)

$         0.42 $         3.29 $        0.48 $        (0.81)

$         3.38 Net income (loss) per share, diluted  (1)

$         0.40 $         3.19 $        0.46 $        (0.85)

$         3.20 (1)

GAAP net income per share is calculated based upon 246,348 basic and 253,917 diluted weighted-average shares of common stock.

Non-GAAP net income per share is calculated based upon 246,348 basic and 261,734 diluted weighted-average shares of common stock. The numerator used to compute non-GAAP diluted net income per share was increased by $3.9 million for after-tax interest expense on our convertible senior notes in accordance with the if-converted method.

(2)

Other operating expenses include employer payroll tax-related items on employee stock transactions of $60.1 million and amortization of acquisition-related intangible assets of $57.5 million.

(3)

We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the reporting periods. For fiscal 2022, the non-GAAP tax rate was 19%. Included in the per share amount is a dilution impact of $0.07 from the conversion of GAAP diluted net income per share to non-GAAP diluted net income per share.

SOURCE Workday Inc.