EX-99.1 2 wday-07312023x991.htm EX-99.1 Document

Exhibit 99.1
Workday Announces Fiscal 2024 Second Quarter Financial Results

Fiscal Second Quarter Total Revenues of $1.79 Billion, Up 16.3% Year Over Year
Subscription Revenues of $1.62 Billion, Up 18.8% Year Over Year
24-Month Subscription Revenue Backlog of $10.27 Billion, Up 22.7% Year Over Year
Total Subscription Revenue Backlog of $17.85 Billion, Up 32.5% Year Over Year

PLEASANTON, Calif., August 24, 2023 -- Workday, Inc. (NASDAQ: WDAY), a leader in enterprise cloud applications for finance and human resources, today announced results for the fiscal 2024 second quarter ended July 31, 2023.

Fiscal 2024 Second Quarter Results

•Total revenues were $1.79 billion, an increase of 16.3% from the second quarter of fiscal 2023. Subscription revenues were $1.62 billion, an increase of 18.8% from the same period last year.
•Operating income was $36.3 million, or 2.0% of revenues, compared to an operating loss of $34.1 million, or negative 2.2% of revenues, in the same period last year. Non-GAAP operating income for the second quarter was $421.4 million, or 23.6% of revenues, compared to a non-GAAP operating income of $301.6 million, or 19.6% of revenues, in the same period last year.1
•Basic and diluted net income per share was $0.30, compared to basic and diluted net loss per share of $0.25 in the second quarter of fiscal 2023. Non-GAAP basic and diluted net income per share was $1.45 and $1.43, respectively, compared to non-GAAP basic and diluted net income per share of $0.86 and $0.83, respectively, in the same period last year.2
•Operating cash flows were $425.3 million compared to $114.4 million in the prior year.
•Cash, cash equivalents, and marketable securities were $6.66 billion as of July 31, 2023.

Comments on the News

“We’re incredibly well positioned going into the second half of our fiscal year as Workday is increasingly seen as the system of trust for enterprises around the world,” said Carl Eschenbach, co-CEO, Workday. “Our customers – now representing more than 65 million users under contract – rely on Workday to manage critical business processes. Our growing customer base, continued global expansion, industry growth, and partner ecosystem momentum set us up for durable long-term success. These factors, combined with the diversity of our products, the strength of our value proposition, and our winning culture make Workday one of the most enduring software businesses of our time.”

“Workday delivered another strong quarter, driven by our ongoing focus on employees, customers, and innovation – including our leadership in AI and ML,” said Aneel Bhusri, co-founder, co-CEO, and chair, Workday. “We’re seeing continued momentum with more than 3,000 customers sharing their data with our ML models, more than 50 million ML inferences processed per day, and multiple generative AI capabilities in development including several that we plan to unveil next month at Workday Rising. We believe this momentum will continue to grow as more companies look to Workday as their trusted partner in responsible implementation of AI and ML.”

“The strength of our Q2 results and momentum going into the second half of our fiscal year highlight the compelling opportunity ahead for Workday,” said Zane Rowe, chief financial officer, Workday. “We are raising our fiscal 2024 subscription revenue guidance to a range of $6.570 billion to $6.590 billion, representing 18% year-over-year growth. We expect third-quarter subscription revenue to be $1.678 billion to $1.680 billion, or 17% growth. In addition, we are raising our fiscal 2024 non-GAAP operating margin guidance to 23.5%, and we plan on maintaining a disciplined approach of investing in long-term growth while expanding margins.”



Recent Highlights

•Workday announced continued momentum for Workday Financial Management with new customers including KinderCare, Metropolitan Community College, Nordic Consulting Inc., Palomar Health, and The Medical College of Wisconsin. Workday also announced new Workday Human Capital Management (HCM) customers including Commercial Vehicle Group, Mercy Aged and Community Care, SoftwareOne AG, and Symrise AG.
•Workday saw continued momentum across its net new and existing customer base, surpassing 65 million users and more than 5,000 core Workday Financial Management and Workday HCM customers.
•Workday saw notable industry growth in Q2, with retail and hospitality joining financial services at $1 billion in annual recurring revenue.
•Workday demonstrated continued leadership in AI and ML, announcing the company’s generative AI strategy, and its work with policymakers to help shape the European Parliament’s amendments to the proposed AI Act.
•Workday named a Customers’ Choice in the 2023 Gartner Peer InsightsTM Voice of the Customer for Financial Planning Software report.3
•Workday Adaptive Planning was recognized by SIIA as Best Financial Management Solution. Workday HCM was also named a leader in The Forrester WaveTM: Human Capital Management Q2 2023.
•Workday continued to add to its leadership bench with the appointment of Emma Chalwin to chief marketing officer.


Earnings Call Details

Workday plans to host a conference call today to review its fiscal 2024 second quarter financial results and to discuss its financial outlook. The call is scheduled to begin at 1:30 p.m. PT/4:30 p.m. ET and can be accessed via webcast. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 90 days.

Workday uses the Workday Blog as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

1Non-GAAP operating income and non-GAAP operating margin exclude share-based compensation expenses, employer payroll tax-related items on employee stock transactions, and amortization expense for acquisition-related intangible assets. See the section titled “About Non-GAAP Financial Measures” in the accompanying financial tables for further details.

2Non-GAAP net income per share excludes share-based compensation expenses, employer payroll tax-related items on employee stock transactions, amortization expense for acquisition-related intangible assets, and income tax effects. See the section titled “About Non-GAAP Financial Measures” in the accompanying financial tables for further details.

3Gartner, “Voice of the Customer for Financial Planning Software,” May 2023.

Gartner Disclaimer

Gartner and Peer InsightsTM are trademarks of Gartner, Inc. and/or its affiliates. All rights reserved. Gartner Peer Insights Customers’ Choice constitute the subjective opinions of individual end-user reviews, ratings, and data applied against a documented methodology; they neither represent the views of, nor constitute an endorsement by, Gartner or its affiliates. Gartner does not endorse any vendor, product or service depicted in this content nor makes any warranties, expressed or implied, with respect to this content, about its accuracy or completeness, including any warranties of merchantability or fitness for a particular purpose.



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 are built with artificial intelligence and machine learning at the core to help organizations around the world embrace the future of work. Workday is used by more than 10,000 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.

© 2023 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.

Use of Non-GAAP Financial Measures

Reconciliations of non-GAAP financial measures to Workday’s financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled “About Non-GAAP Financial Measures.” The Company has not provided a reconciliation of its forward outlook for non-GAAP operating margin with its forward-looking GAAP operating margin in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. The Company is unable, without unreasonable efforts, to quantify share-based compensation expense, which is excluded from our non-GAAP operating margin, as it requires additional inputs such as the number of shares granted and market prices that are not ascertainable.

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding Workday’s full-year fiscal 2024 subscription revenues and non-GAAP operating margin, third quarter subscription revenue, growth and expansion, innovation, momentum, opportunity, demand, strategy, and investments. These forward-looking statements are based only on currently available information and our current beliefs, expectations, and assumptions. Because forward-looking statements relate to the future, they are subject to risks, uncertainties, assumptions, and changes in circumstances that are difficult to predict and many of which are outside of our control. If the risks materialize, assumptions prove incorrect, or we experience unexpected changes in circumstances, actual results could differ materially from the results implied by these forward-looking statements, and therefore you should not rely on any forward-looking statements. Risks include, but are not limited to: (i) breaches in our security measures or those of our third-party providers, unauthorized access to our customers’ or other users’ personal data, or disruptions in our data center or computing infrastructure operations; (ii) service outages, delays in the deployment of our applications, and the failure of our applications to perform properly; (iii) the impact of recent macroeconomic events, including inflation and rising interest rates, on our business, as well as our customers, prospects, partners, and service providers; (iv) our ability to manage our growth effectively; (v) competitive factors, including pricing pressures, industry consolidation, entry of new competitors and new applications, advancements in technology, and marketing initiatives by our competitors; (vi) the development of the market for enterprise cloud applications and services; (vii) acceptance of our applications and services by customers and individuals, including any new features, enhancements, and modifications, as well as the acceptance of any underlying technology such as machine learning and artificial intelligence; (viii) our ability to implement our plans, objectives, and other expectations with respect to any of our acquired companies; (ix) the regulatory risks related to new and evolving technologies such as machine learning and artificial intelligence; (x) our reliance on our network of partners to drive additional growth of our revenues; (xi) adverse changes in general economic or market conditions; (xii) the regulatory, economic, and political risks associated with our domestic and international operations; (xiii) delays or reductions in information technology spending; and (xiv) changes in sales, which may not be immediately reflected in our results due to our subscription model. Further information on these and additional risks that could affect Workday’s results is included in our filings with the Securities and Exchange Commission (“SEC”), including our Form 10-Q for the fiscal quarter ended July 31, 2023, and other reports that we have filed and will file with the SEC from time to time, which could cause actual results to vary from expectations. Workday assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.

Any unreleased services, features, or functions referenced in this document, our website, or other press releases or public statements that are not currently available are subject to change at Workday’s discretion and may not be delivered as planned or at all. Customers who purchase Workday services should make their purchase decisions based upon services, features, and functions that are currently available.


Workday, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)

July 31, 2023January 31, 2023
Assets
Current assets:
Cash and cash equivalents$1,435,690 $1,886,311 
Marketable securities5,221,401 4,235,083 
Trade and other receivables, net1,270,936 1,570,086 
Deferred costs198,677 191,054 
Prepaid expenses and other current assets254,990 225,690 
Total current assets8,381,694 8,108,224 
Property and equipment, net1,221,834 1,201,254 
Operating lease right-of-use assets262,140 249,278 
Deferred costs, noncurrent415,687 420,988 
Acquisition-related intangible assets, net263,056 305,465 
Goodwill2,840,044 2,840,044 
Other assets350,860 360,985 
Total assets$13,735,315 $13,486,238 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$88,814 $153,751 
Accrued expenses and other current liabilities259,426 260,131 
Accrued compensation425,911 563,548 
Unearned revenue3,308,998 3,559,393 
Operating lease liabilities98,810 91,343 
Total current liabilities4,181,959 4,628,166 
Debt, noncurrent2,977,845 2,975,934 
Unearned revenue, noncurrent60,463 74,540 
Operating lease liabilities, noncurrent192,138 181,799 
Other liabilities48,357 40,231 
Total liabilities7,460,762 7,900,670 
Stockholders’ equity:
Common stock263 259 
Additional paid-in capital9,637,303 8,828,639 
Treasury stock(323,695)(185,047)
Accumulated other comprehensive income (loss)(6,780)53,051 
Accumulated deficit(3,032,538)(3,111,334)
Total stockholders’ equity6,274,553 5,585,568 
Total liabilities and stockholders’ equity$13,735,315 $13,486,238 




Workday, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

Three Months Ended July 31, Six Months Ended July 31,
2023202220232022
Revenues:
Subscription services$1,623,939 $1,367,335 $3,151,848 $2,639,411 
Professional services162,827 168,463 319,230 331,044 
Total revenues1,786,766 1,535,798 3,471,078 2,970,455 
Costs and expenses (1):
Costs of subscription services255,684 244,982 494,711 477,904 
Costs of professional services192,416 178,103 370,833 348,002 
Product development609,677 547,835 1,210,134 1,089,344 
Sales and marketing524,186 458,701 1,042,823 888,002 
General and administrative168,546 140,255 336,120 274,124 
Total costs and expenses1,750,509 1,569,876 3,454,621 3,077,376 
Operating income (loss)36,257 (34,078)16,457 (106,921)
Other income (expense), net45,555 (32,789)72,264 (52,952)
Income (loss) before provision for (benefit from) income taxes81,812 (66,867)88,721 (159,873)
Provision for (benefit from) income taxes3,152 (2,709)9,925 6,458 
Net income (loss)$78,660 $(64,158)$78,796 $(166,331)
Net income (loss) per share, basic$0.30 $(0.25)$0.30 $(0.66)
Net income (loss) per share, diluted$0.30 $(0.25)$0.30 $(0.66)
Weighted-average shares used to compute net income (loss) per share, basic261,191 254,355 260,026 253,071 
Weighted-average shares used to compute net income (loss) per share, diluted264,435 254,355 262,923 253,071 
    
(1) Costs and expenses include share-based compensation expenses as follows:
Three Months Ended July 31, Six Months Ended July 31,
2023202220232022
Costs of subscription services$29,988 $25,090 $59,250 $51,320 
Costs of professional services28,754 25,838 58,794 53,422 
Product development161,975 147,181 331,909 300,485 
Sales and marketing66,632 59,878 146,755 119,047 
General and administrative64,563 50,020 124,664 95,239 
Total share-based compensation expenses$351,912 $308,007 $721,372 $619,513 



Workday, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

Three Months Ended July 31, Six Months Ended July 31,
2023202220232022
Cash flows from operating activities:
Net income (loss)$78,660 $(64,158)$78,796 $(166,331)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization71,415 92,695 141,856 182,541 
Share-based compensation expenses351,912 308,007 721,372 619,513 
Amortization of deferred costs52,094 42,258 100,982 81,685 
Non-cash lease expense24,283 22,911 48,157 44,959 
(Gains) losses on investments(865)16,499 7,276 24,579 
Other(43,872)11,413 (81,460)12,122 
Changes in operating assets and liabilities:
Trade and other receivables, net(183,387)(324,841)289,928 138,123 
Deferred costs(68,509)(64,742)(103,304)(106,471)
Prepaid expenses and other assets25,447 (9,885)6,635 (33,882)
Accounts payable2,483 (4,142)(55,827)2,768 
Accrued expenses and other liabilities36,003 25,065 (187,311)(5,808)
Unearned revenue79,600 63,278 (264,520)(239,723)
Net cash provided by (used in) operating activities425,264 114,358 702,580 554,075 
Cash flows from investing activities:
Purchases of marketable securities(1,585,332)(1,329,471)(3,473,222)(3,340,090)
Maturities of marketable securities1,239,613 984,887 2,471,442 1,586,362 
Sales of marketable securities25,495 28,237 47,678 33,367 
Owned real estate projects(1,366)(245)(1,688)(265)
Capital expenditures, excluding owned real estate projects(63,753)(168,598)(122,529)(227,348)
Purchase of other intangible assets— — (9,500)— 
Purchases of non-marketable equity and other investments— (1,900)(10,500)(16,923)
Sales and maturities of non-marketable equity and other investments— 95 — 7,161 
Net cash provided by (used in) investing activities(385,343)(486,995)(1,098,319)(1,957,736)
Cash flows from financing activities:
Proceeds from issuance of debt, net of debt discount— — — 2,978,077 
Repayments and extinguishment of debt— (30)— (693,983)
Payments for debt issuance costs— — — (7,220)
Repurchases of common stock(138,647)— (138,647)— 
Proceeds from issuance of common stock from employee equity plans, net of taxes paid for shares withheld90,196 83,302 87,296 84,292 
Other(145)(185)(405)(377)
Net cash provided by (used in) financing activities(48,596)83,087 (51,756)2,360,789 
Effect of exchange rate changes218 (145)89 (830)
Net increase (decrease) in cash, cash equivalents, and restricted cash(8,457)(289,695)(447,406)956,298 
Cash, cash equivalents, and restricted cash at the beginning of period1,456,291 2,786,738 1,895,240 1,540,745 
Cash, cash equivalents, and restricted cash at the end of period$1,447,834 $2,497,043 $1,447,834 $2,497,043 


Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended July 31, 2023
(in thousands, except percentages and per share data)
(unaudited)

GAAPShare-Based Compensation Expenses
Other Operating Expenses (2)
Income Tax and Dilution Effects (3)
Non-GAAP
Costs and expenses:
Costs of subscription services$255,684 $(29,988)$(14,688)$— $211,008 
Costs of professional services192,416 (28,754)(1,425)— 162,237 
Product development609,677 (161,975)(4,543)— 443,159 
Sales and marketing524,186 (66,632)(11,035)— 446,519 
General and administrative168,546 (64,563)(1,572)— 102,411 
Operating income (loss)36,257 351,912 33,263 — 421,432 
Operating margin2.0 %19.7 %1.9 %— %23.6 %
Other income (expense), net45,555 — — — 45,555 
Income (loss) before provision for (benefit from) income taxes81,812 351,912 33,263 — 466,987 
Provision for (benefit from) income taxes3,152 — — 85,575 88,727 
Net income (loss)$78,660 $351,912 $33,263 $(85,575)$378,260 
Net income (loss) per share, basic (1)
$0.30 $1.35 $0.13 $(0.33)$1.45 
Net income (loss) per share, diluted (1)
$0.30 $1.33 $0.13 $(0.33)$1.43 
(1)GAAP and non-GAAP net income per share are both calculated based upon 261,191 basic and 264,435 diluted weighted-average shares of common stock.
(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 $12.1 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 2024, the non-GAAP tax rate is 19%.


Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended July 31, 2022
(in thousands, except percentages and per share data)
(unaudited)

GAAPShare-Based Compensation Expenses
Other Operating Expenses (2)
Income Tax and Dilution Effects (3)
Non-GAAP
Costs and expenses:   
Costs of subscription services$244,982 $(25,090)$(14,596)$— $205,296 
Costs of professional services178,103 (25,838)(775)— 151,490 
Product development547,835 (147,181)(2,236)— 398,418 
Sales and marketing458,701 (59,878)(9,388)— 389,435 
General and administrative140,255 (50,020)(628)— 89,607 
Operating income (loss)(34,078)308,007 27,623 — 301,552 
Operating margin(2.2)%20.1 %1.7 %— %19.6 %
Other income (expense), net(32,789)— — — (32,789)
Income (loss) before provision for (benefit from) income taxes(66,867)308,007 27,623 — 268,763 
Provision for (benefit from) income taxes(2,709)— — 53,773 51,064 
Net income (loss)$(64,158)$308,007 $27,623 $(53,773)$217,699 
Net income (loss) per share, basic (1)
$(0.25)$1.21 $0.11 $(0.21)$0.86 
Net income (loss) per share, diluted (1)
$(0.25)$1.21 $0.11 $(0.24)$0.83 
(1)GAAP net loss per share is calculated based upon 254,355 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 254,355 basic and 262,931 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 $21.5 million and employer payroll tax-related items on employee stock transactions of $6.1 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 was 19%. Included in the per share amount is a dilution impact of $0.03 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
Six Months Ended July 31, 2023
(in thousands, except percentages and per share data)
(unaudited)

GAAPShare-Based Compensation Expenses
Other Operating Expenses (2)
Income Tax and Dilution Effects (3)
Non-GAAP
Costs and expenses:
Costs of subscription services$494,711 $(59,250)$(30,360)$— $405,101 
Costs of professional services370,833 (58,794)(4,440)— 307,599 
Product development1,210,134 (331,909)(15,800)— 862,425 
Sales and marketing1,042,823 (146,755)(24,784)— 871,284 
General and administrative336,120 (124,664)(4,163)— 207,293 
Operating income (loss)16,457 721,372 79,547 — 817,376 
Operating margin0.5 %20.8 %2.2 %— %23.5 %
Other income (expense), net72,264 — — — 72,264 
Income (loss) before provision for (benefit from) income taxes88,721 721,372 79,547 — 889,640 
Provision for (benefit from) income taxes9,925 — — 159,106 169,031 
Net income (loss)$78,796 $721,372 $79,547 $(159,106)$720,609 
Net income (loss) per share, basic (1)
$0.30 $2.77 $0.31 $(0.61)$2.77 
Net income (loss) per share, diluted (1)
$0.30 $2.74 $0.30 $(0.60)$2.74 
(1)GAAP and non-GAAP net income per share are both calculated based upon 260,026 basic and 262,923 diluted weighted-average shares of common stock.
(2)Other operating expenses include amortization of acquisition-related intangible assets of $42.4 million and employer payroll tax-related items on employee stock transactions of $37.1 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 2024, the non-GAAP tax rate is 19%.


Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Six Months Ended July 31, 2022
(in thousands, except percentages and per share data)
(unaudited)

GAAPShare-Based Compensation Expenses
Other Operating Expenses (2)
Income Tax and Dilution Effects (3)
Non-GAAP
Costs and expenses:   
Costs of subscription services$477,904 $(51,320)$(30,922)$— $395,662 
Costs of professional services348,002 (53,422)(4,674)— 289,906 
Product development1,089,344 (300,485)(15,247)— 773,612 
Sales and marketing888,002 (119,047)(23,434)— 745,521 
General and administrative274,124 (95,239)(3,241)— 175,644 
Operating income (loss)(106,921)619,513 77,518 — 590,110 
Operating margin(3.6)%20.9 %2.6 %— %19.9 %
Other income (expense), net(52,952)— — — (52,952)
Income (loss) before provision for (benefit from) income taxes(159,873)619,513 77,518 — 537,158 
Provision for (benefit from) income taxes6,458 — — 95,601 102,059 
Net income (loss)$(166,331)$619,513 $77,518 $(95,601)$435,099 
Net income (loss) per share, basic (1)
$(0.66)$2.45 $0.31 $(0.38)$1.72 
Net income (loss) per share, diluted (1)
$(0.66)$2.45 $0.31 $(0.44)$1.66 
(1)GAAP net loss per share is calculated based upon 253,071 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 253,071 basic and 263,224 diluted weighted-average shares of common stock. The numerator used to compute non-GAAP diluted net income per share was increased by $2.6 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 $43.1 million and employer payroll tax-related items on employee stock transactions of $34.4 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 was 19%. Included in the per share amount is a dilution impact of $0.06 from the conversion of GAAP diluted net loss per share to non-GAAP diluted net income per share.


About Non-GAAP Financial Measures

To provide investors and others with additional information regarding Workday’s results, we have disclosed the following non-GAAP financial measures: non-GAAP operating income (loss), non-GAAP operating margin, and non-GAAP net income (loss) per share. Workday has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. Non-GAAP operating income (loss) and non-GAAP operating margin differ from GAAP in that they exclude share-based compensation expenses, employer payroll tax-related items on employee stock transactions, and amortization expense for acquisition-related intangible assets. Non-GAAP net income (loss) per share differs from GAAP in that it excludes share-based compensation expenses, employer payroll tax-related items on employee stock transactions, amortization expense for acquisition-related intangible assets, and income tax effects.

Workday’s management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate Workday’s financial performance. Management believes these non-GAAP financial measures reflect Workday’s ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in Workday’s business. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating Workday’s operating results and prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.

Management believes excluding the following items from the GAAP Condensed Consolidated Statements of Operations is useful to investors and others in assessing Workday’s operating performance due to the following factors:

•Share-based compensation expenses. Although share-based compensation is an important aspect of the compensation of our employees and executives, management believes it is useful to exclude share-based compensation expenses to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. Share-based compensation expenses are determined using a number of factors, including our stock price, volatility, and forfeiture rates, that are beyond our control and generally unrelated to operational decisions and performance in any particular period. Further, share-based compensation expenses are not reflective of the value ultimately received by the grant recipients.
•Other operating expenses. Other operating expenses includes employer payroll tax-related items on employee stock transactions and amortization of acquisition-related intangible assets. The amount of employer payroll tax-related items on employee stock transactions is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of the business. For business combinations, we generally allocate a portion of the purchase price to intangible assets. The amount of the allocation is based on estimates and assumptions made by management and is subject to amortization. The amount of purchase price allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition and thus we do not believe it is reflective of ongoing operations. Although we exclude the amortization of acquisition-related intangible assets from these non-GAAP measures, management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.
•Income tax effects. 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. In projecting this long-term non-GAAP tax rate, we utilize a three-year financial projection that excludes the direct impact of share-based compensation and related employer payroll taxes, amortization of acquisition-related intangible assets, and amortization of debt discount and issuance costs. The projected rate considers other factors such as our current operating structure, existing tax positions in various jurisdictions, and key legislation in major jurisdictions where we operate. For fiscal 2024 and 2023, we determined the projected non-GAAP tax rate to be 19%, which reflects currently available information, as well as other factors and assumptions. We will periodically re-evaluate this tax rate, as necessary, for significant events, based on our ongoing analysis of the 2017 U.S. Tax Cuts and Jobs Act, relevant tax law changes, material changes in the forecasted geographic earnings mix, and any significant acquisitions.

The use of non-GAAP operating income (loss), non-GAAP operating margin, and non-GAAP net income (loss) per share measures have certain limitations as they do not reflect all items of expense that affect Workday’s operations. Workday compensates for these limitations by reconciling the non-GAAP financial measures to the most comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. Management encourages investors and others to review Workday’s financial information in its entirety and not rely on a single financial measure.



For further information: Investor Relations Contact: Justin Furby, ir@workday.com; Media Contact: Stacey Johnson, media@workday.com