AP NEWS

Workday Announces Fiscal 2019 Third Quarter Financial Results

November 29, 2018

Total Revenues of $743.2 Million, Up 33.8% Year Over YearSubscription Revenue of $624.4 Million, Up 34.7% Year Over YearSubscription Revenue Backlog of $5.9 Billion, Up 31.0% Year Over Year

PLEASANTON, Calif., Nov. 29, 2018 (GLOBE NEWSWIRE) -- Workday, Inc. (NASDAQ: WDAY), a leader in enterprise cloud applications for finance and human resources, today announced results for the fiscal 2019 third quarter ended October 31, 2018.

Fiscal Third Quarter Results

-- Total revenues were $743.2 million, an increase of 33.8% from the third quarter of fiscal 2018. Subscription revenues were $624.4 million, an increase of 34.7% from the same period last year. -- Operating loss was $182.8 million, or negative 24.6% of revenues, compared to an operating loss of $80.1 million, or negative 14.4% of revenues, in the same period last year. Non-GAAP operating income for the third quarter was $49.7 million, or 6.7% of revenues, compared to a non-GAAP operating income of $50.1 million, or 9.0% of revenues, in the same period last year.1 -- Net loss per basic and diluted share was $0.70, compared to a net loss per basic and diluted share of $0.41 in the third quarter of fiscal 2018. Non-GAAP net income per diluted share was $0.31, compared to a non-GAAP net income per diluted share of $0.24 in the same period last year.2 -- Operating cash flows were $114.3 million and free cash flows were $58.9 million.3 -- Cash, cash equivalents, and marketable securities were $1.6 billion as of October 31, 2018. Unearned revenues were approximately $1.6 billion, a 27.8% increase from the same period last year.

Comments on the News

“We had a great third quarter and continue to see significant momentum across our suite of products,” said Aneel Bhusri, co-founder and CEO, Workday. “We extended our market leadership in HCM, welcoming more Fortune 500 customers to the Workday community, and accelerated adoption of Workday Financial Management as more finance organizations move to the cloud. As we look to the remainder of fiscal 2019, we are confident that our commitment to customer satisfaction and product innovation, coupled with our strong company culture, will continue to deliver meaningful growth and customer success.”

“We’re pleased with our strong performance in Q3, which resulted in accelerated growth across our core business metrics and gives us great momentum heading into year-end,” said Robynne Sisco, co-president and chief financial officer, Workday. “The strength in our business is allowing us to raise our fiscal 2019 outlook and we now expect subscription revenue of $2.375 to $2.377 billion, or growth of 33%. We continue to prioritize investing in long-term growth initiatives, while delivering solid operating and cash flow margins over time.”

Recent Highlights

-- Workday was ranked #1 on the FortuneFuture 50 list, which recognizes the global companies with the best prospects for long-term growth. In addition, Workday was ranked #3 on the list of the 100 Best Workplaces for Women by Fortuneand Great Place to Work Institute.

-- Building on the Adaptive Insights acquisition momentum, Workday announced it went live on Adaptive Insights Business Planning Cloud in just 10 weeks. In addition, Adaptive Insights announced it extended Business Planning Cloud with a new strategic workforce planning solution that empowers organizations to develop comprehensive workforce plans that seamlessly integrate with an organization’s larger plan.

-- Workday held its 12th annual customer conference, Workday Rising, in Las Vegas as well as its fifth annual European customer conference, Workday Rising Europe, in Vienna. Between both conferences, Workday welcomed more than 13,000 attendees as well as once again revealed its annual customer satisfaction rating, which came in at 98 percent.

-- Workday announced the general availability of its skills cloud, a universal skills language that helps organizations cleanse, understand, and relate job skills data. Using its skills cloud as a foundation in Workday HCM, Workday aims to help customers more easily tap talent inside and outside of their organizations.

-- Workday unveiled Workday People Analytics, which leverages augmented analytics powered by artificial intelligence to provide customers with key metrics - accompanied by explanatory narratives called stories - on the most critical activities in their business.

-- Demonstrating its ongoing commitment to comprehensive privacy legislation, Workday shared its privacy principles – privacy first, innovate responsibly, and safeguard fairness and trust – which enable customers to accelerate innovation in their workplaces while enabling the protection of their data.

Earnings Call Details

Workday plans to host a conference call today to review its fiscal 2019 third 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.

1 Non-GAAP operating income excludes 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.

2 Non-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, non-cash interest expense related to our convertible senior notes, and income tax effects. See the section titled “About Non-GAAP Financial Measures” in the accompanying financial tables for further details.

3 Free cash flows are defined as operating cash flows minus capital expenditures (excluding owned real estate projects). See the section titled “About Non-GAAP Financial Measures” in the accompanying financial tables for further details.

About Workday

Workday is a leading provider of enterprise cloud applications for finance and human resources. Founded in 2005, Workday delivers financial management, human capital management, and analytics applications designed for the world’s largest companies, educational institutions, and government agencies. Organizations ranging from medium-sized businesses to Fortune 50 enterprises have selected Workday.

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.” A reconciliation of our forward outlook for non-GAAP operating margin with our forward-looking GAAP operating margin is not available without unreasonable efforts as the quantification of share-based compensation expense, which is excluded from our non-GAAP operating margin, requires additional inputs such as number of shares granted and market price that are not ascertainable.

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding Workday’s fiscal year 2019 subscription revenue projections and growth, products, and customer success. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plans,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and assumptions. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. Risks include, but are not limited to: (i) risks related to our ability to successfully integrate Adaptive Insights’ operations or failure to achieve the expected benefits of this or any other acquisition transaction; (ii) our ability to implement our plans, objectives, and other expectations with respect to the Adaptive Insights business or that of any other acquired company; (iii) breaches in our security measures, unauthorized access to our customers’ data or disruptions in our data center operations; (iv) our ability to manage our growth effectively; (v) competitive factors, including pricing pressures, industry consolidation, entry of new competitors and new applications, and marketing initiatives by our competitors; (vi) the development of the market for enterprise cloud services; (vii) acceptance of our applications and services by customers; (viii) adverse changes in general economic or market conditions; (ix) delays or reductions in information technology spending; and (x) changes in sales, which may not be immediately reflected in our results due to our subscription model. Further information on 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 quarter ended July 31, 2018 and our future reports that we may 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.

© 2018. 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, January 31, 2018 2018 ------------- ------------- Assets Current assets: Cash and cash equivalents $ 540,430 $ 1,134,355 Marketable securities 1,041,709 2,133,495 Trade and other receivables, net 486,044 528,208 Deferred costs 70,608 63,060 Prepaid expenses and other current assets 132,488 97,860 Total current assets 2,271,279 3,956,978 Property and equipment, net 735,443 546,609 Deferred costs, noncurrent 151,150 140,509 Acquisition-related intangible assets, net 332,583 34,234 Goodwill 1,377,615 159,376 Other assets 132,229 109,718 ----------- - ----------- - Total assets $ 5,000,299 $ 4,947,424 - --------- - - --------- - Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 28,779 $ 20,998 Accrued expenses and other current liabilities 131,170 121,879 Accrued compensation 205,602 148,247 Unearned revenue 1,460,650 1,426,241 Current portion of convertible senior notes, net 229,684 341,509 Total current liabilities 2,055,885 2,058,874 Convertible senior notes, net 961,139 1,149,845 Unearned revenue, noncurrent 109,694 110,906 Other liabilities 40,432 47,434 ----------- - ----------- - Total liabilities 3,167,150 3,367,059 Stockholders’ equity: Common stock 220 211 Additional paid-in capital 4,049,785 3,354,423 Treasury stock (178,801 ) — Accumulated other comprehensive income (loss) 3,768 (46,413 ) Accumulated deficit (2,041,823 ) (1,727,856 ) ----------- - ----------- - Total stockholders’ equity 1,833,149 1,580,365 ----------- - ----------- - Total liabilities and stockholders’ equity $ 5,000,299 $ 4,947,424 - --------- - - --------- -

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

Three Months Ended Nine Months Ended October October 31, 31, 2018 2017 2018 2017 ------------ ----------- ------------- ------------- Revenues: Subscription services $ 624,416 $ 463,568 $ 1,712,224 $ 1,297,831 Professional services 118,773 91,821 321,328 262,739 ---------- - --------- - ----------- - ----------- - Total revenues 743,189 555,389 2,033,552 1,560,570 ---------- - --------- - ----------- - ----------- - Costs and expenses(1): Costs of subscription services 103,310 71,898 271,078 197,627 Costs of professional services 119,691 91,657 330,124 260,834 Product development 318,003 239,588 874,427 657,130 Sales and marketing 246,156 176,121 641,391 503,782 General and administrative 138,784 56,184 259,533 163,085 ---------- - --------- - ----------- - ----------- - Total costs and expenses 925,944 635,448 2,376,553 1,782,458 ---------- - --------- - ----------- - ----------- - Operating loss (182,755 ) (80,059 ) (343,001 ) (221,888 ) Other income (expense), net 26,617 (3,742 ) 24,382 (4,467 ) ---------- - --------- - ----------- - ----------- - Loss before provision for (benefit from) income taxes (156,138 ) (83,801 ) (318,619 ) (226,355 ) Provision for (benefit from) income taxes (2,807 ) 1,745 (4,722 ) 5,767 ---------- - --------- - ----------- - ----------- - Net loss $ (153,331 ) $ (85,546 ) $ (313,897 ) $ (232,122 ) - -------- - - ------- - - --------- - - --------- - Net loss per share, basic and diluted $ (0.70 ) $ (0.41 ) $ (1.46 ) $ (1.12 ) - -------- - - ------- - - --------- - - --------- - Weighted-average shares used to compute net loss per 217,694 209,188 215,588 206,715 share, basic and diluted

(1) Costs and expenses include share-based compensation expenses as follows: Costs of subscription services $ 10,205 $ 6,899 $ 26,603 $ 19,170 Costs of professional services 15,702 9,956 39,012 27,278 Product development 86,304 59,116 230,169 167,068 Sales and marketing 38,720 25,517 93,699 74,618 General and administrative 57,993 20,991 99,163 63,656

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

Three Months Ended October Nine Months Ended October 31, 31, 2018 2017 2018 2017 ------------ ------------- ------------- Cash flows from operating activities Net loss $ (153,331 ) $ (85,546 ) $ (313,897 ) $ (232,122 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 57,602 34,727 138,492 100,025 Share-based compensation expenses 187,971 122,479 467,693 351,790 Amortization of deferred costs 18,165 14,519 51,586 42,165 Amortization of debt discount and issuance costs 12,342 12,257 47,971 25,992 Other (30,990 ) (1,133 ) (45,173 ) 5,052 Changes in operating assets and liabilities, net of business combinations: Trade and other receivables, net (9,379 ) 19,070 54,565 59,463 Deferred costs (33,226 ) (19,245 ) (69,775 ) (50,063 ) Prepaid expenses and other assets (5,985 ) (11,355 ) (2,943 ) (23,373 ) Accounts payable (12,148 ) (7,383 ) 1,793 2,830 Accrued expenses and other liabilities 63,896 59,171 60,341 49,788 Unearned revenue 19,379 6,470 (34,508 ) 7,632 ----------- - ----------- - Net cash provided by (used in) operating activities 114,296 144,031 356,145 339,179 Cash flows from investing activities Purchases of marketable securities (89,294 ) (930,783 ) (1,523,636 ) (1,829,231 ) Maturities of marketable securities 369,771 372,389 1,711,652 1,185,730 Sales of marketable securities 3,388 32,886 945,685 222,823 Owned real estate projects (37,302 ) (27,616 ) (126,072 ) (80,151 ) Capital expenditures, excluding owned real estate (55,427 ) (36,356 ) (157,635 ) (105,477 ) projects Business combinations, net of cash acquired (1,447,600 ) — (1,474,337 ) — Purchase of other intangible assets — — (1,000 ) — Purchases of non-marketable equity and other (29,375 ) (5,272 ) (32,775 ) (10,722 ) investments Sales and maturities of non-marketable equity and 17,771 294 17,771 1,026 other investments Other (11 ) (1,000 ) (11 ) (1,000 ) Net cash provided by (used in) investing activities (1,268,079 ) (595,458 ) (640,358 ) (617,002 ) Cash flows from financing activities Proceeds from borrowings on convertible senior notes, — 1,132,101 — 1,132,101 net of issuance costs Proceeds from issuance of warrants — 80,805 — 80,805 Purchase of convertible senior notes hedges — (175,530 ) — (175,530 ) Payments on convertible senior notes (3 ) — (350,008 ) — Proceeds from issuance of common stock from employee 2,767 1,974 44,064 36,501 equity plans Other (60 ) (36 ) (176 ) (112 ) ---------- - ----------- - ----------- - Net cash provided by (used in) financing activities 2,704 1,039,314 (306,120 ) 1,073,765 Effect of exchange rate changes (213 ) (322 ) (795 ) 261 ---------- - ----------- - ----------- - Net increase (decrease) in cash, cash equivalents, (1,151,292 ) 587,565 (591,128 ) 796,203 and restricted cash Cash, cash equivalents, and restricted cash at the 1,695,818 750,532 1,135,654 541,894 beginning of period ---------- - ----------- - ---------- - ----------- - Cash, cash equivalents, and restricted cash at the $ 544,526 $ 1,338,097 $ 544,526 $ 1,338,097 end of period - -------- - - --------- - - -------- - - --------- -

Three Months Ended October Nine Months Ended October 31, 31, 2018 2017 2018 2017 ---- -------------------- ----- ------------------- Supplemental cash flow data Cash paid for interest, net of amounts capitalized $ 1 $ 18 $ 34 $ 64 Cash paid for income taxes 633 651 3,839 3,259 Non-cash investing and financing activities: Vesting of early exercised stock options $ — $ 106 $ — $ 670 Purchases of property and equipment, accrued but not 60,8 47,055 60,80 47,055 paid 00 0 2,31 649 2,679 1,276 Non-cash additions to property and equipment 4

October 31, 2018 2017 ---------- ------------ Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows Cash and cash equivalents $ 540,430 $ 1,336,984 Restricted cash included in Prepaid expenses and other current assets 3,966 — Restricted cash included in Other assets 130 1,113 Total cash, cash equivalents, and restricted cash $ 544,526 $ 1,338,097 - ------- - ---------

Workday, Inc.Reconciliation of GAAP to Non-GAAP DataThree Months Ended October 31, 2018(in thousands, except percentages and per share data)(unaudited)

Amortizatio Share-Based Other n of Debt GAAP Compensation Operating Discount Income Tax Non-GAAP Expenses Expenses and Effects (3) (2) Issuance Costs ------------- ----------- ----------- ---------- ----------- ---------- Costs and expenses: Costs of subscription services $ 103,310 $ (10,205 ) $ (11,432 ) $ — $ — $ 81,673 Costs of professional services 119,691 (15,702 ) (495 ) — — 103,494 Product development 318,003 (86,304 ) (3,082 ) — — 228,617 Sales and marketing 246,156 (38,720 ) (7,717 ) — — 199,719 General and administrative 138,784 (57,993 ) (758 ) — — 80,033 Operating income (loss) (182,755 ) 208,924 23,484 — — 49,653 Operating margin (24.6 )% 28.1 % 3.2 % — % — % 6.7 % Other income (expense), net 26,617 — — 12,341 — 38,958 Income (loss) before provision (156,138 ) 208,924 23,484 12,341 — 88,611 for (benefit from) income taxes Provision for (benefit from) (2,807 ) — — — 17,870 15,063 income taxes Net income (loss) $ (153,331 ) $ 208,924 $ 23,484 $ 12,341 $ (17,870 ) $ 73,548 Net income (loss) per share(1) $ (0.70 ) $ 0.96 $ 0.11 $ 0.06 $ (0.12 ) $ 0.31

GAAP net loss per share is calculated based upon 217,694 basic and diluted weighted-average shares of (1) common stock. Non-GAAP net income per share is calculated based upon 238,590 diluted weighted-average shares of common stock. Other operating expenses include total employer payroll tax-related items on employee stock (2) transactions of $4.2 million and amortization of acquisition-related intangible assets of $19.3 million. We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision (3) to provide better consistency across the interim reporting periods. For fiscal 2019, we have determined the projected non-GAAP tax rate to be 17%.

Workday, Inc.Reconciliation of GAAP to Non-GAAP DataThree Months Ended October 31, 2017(in thousands, except percentages and per share data)(unaudited)

Amortizatio Share-Based Other n of Debt GAAP Compensation Operating Discount Non-GAAP Expenses Expenses and (2) Issuance Costs ------------ ----------- ---------- ---------- ---------- Costs and expenses: Costs of subscription services $ 71,898 $ (6,899 ) $ (2,468 ) $ — $ 62,531 Costs of professional services 91,657 (9,956 ) (200 ) — 81,501 Product development 239,588 (59,116 ) (3,780 ) — 176,692 Sales and marketing 176,121 (25,517 ) (598 ) — 150,006 General and administrative 56,184 (20,991 ) (683 ) — 34,510 Operating income (loss) (80,059 ) 122,479 7,729 — 50,149 Operating margin (14.4 )% 22.1 % 1.3 % — % 9.0 % Other income (expense), net (3,742 ) — — 12,257 8,515 Income (loss) before provision for (benefit (83,801 ) 122,479 7,729 12,257 58,664 from) income taxes Provision for (benefit from) income taxes 1,745 — — — 1,745 Net income (loss) $ (85,546 ) $ 122,479 $ 7,729 $ 12,257 $ 56,919 Net income (loss) per share (1) $ (0.41 ) $ 0.59 $ 0.04 $ 0.02 $ 0.24

GAAP net loss per share is calculated based upon 209,188 basic and diluted weighted-average shares of (1) common stock. Non-GAAP net income per share is calculated based upon 235,341 diluted weighted-average shares of common stock. (2) Other operating expenses include total employer payroll tax-related items on employee stock transactions of $2.9 million and amortization of acquisition-related intangible assets of $4.8 million.

Workday, Inc.Reconciliation of GAAP to Non-GAAP DataNine Months Ended October 31, 2018(in thousands, except percentages and per share data)(unaudited)

Amortizatio Share-Based Other n of Debt GAAP Compensation Operating Discount Income Tax Non-GAAP Expenses Expenses(2) and Effects(3) Issuance Costs ------------- ----------- ----------- ---------- ----------- ----------- Costs and expenses: Costs of subscription services $ 271,078 $ (26,603 ) $ (19,671 ) $ — $ — $ 224,804 Costs of professional services 330,124 (39,012 ) (2,715 ) — — 288,397 Product development 874,427 (230,169 ) (15,839 ) — — 628,419 Sales and marketing 641,391 (93,699 ) (11,336 ) — — 536,356 General and administrative 259,533 (99,163 ) (3,356 ) — — 157,014 Operating income (loss) (343,001 ) 488,646 52,917 — — 198,562 Operating margin (16.9 )% 24.0 % 2.7 % — % — % 9.8 % Other income (expense), net 24,382 — — 47,970 — 72,352 Income (loss) before provision (318,619 ) 488,646 52,917 47,970 — 270,914 for (benefit from) income taxes Provision for (benefit from) (4,722 ) — — — 50,740 46,018 income taxes Net income (loss) $ (313,897 ) $ 488,646 $ 52,917 $ 47,970 $ (50,740 ) $ 224,896 Net income (loss) per share(1) $ (1.46 ) $ 2.27 $ 0.25 $ 0.22 $ (0.33 ) $ 0.95

GAAP net loss per share is calculated based upon 215,588 basic and diluted weighted-average shares of (1) common stock. Non-GAAP net income per share is calculated based upon 237,293 diluted weighted-average shares of common stock. Other operating expenses include total employer payroll tax-related items on employee stock (2) transactions of $23.2 million and amortization of acquisition-related intangible assets of $29.7 million. We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision (3) to provide better consistency across the interim reporting periods. For fiscal 2019, we have determined the projected non-GAAP tax rate to be 17%.

Workday, Inc.Reconciliation of GAAP to Non-GAAP DataNine Months Ended October 31, 2017(in thousands, except percentages and per share data)(unaudited)

Amortizatio Share-Based Other n of Debt GAAP Compensation Operating Discount Non-GAAP Expenses Expenses and (2) Issuance Costs Costs and expenses: Costs of subscription services $ 197,627 $ (19,170 ) $ (3,222 ) $ — $ 175,235 Costs of professional services 260,834 (27,278 ) (1,485 ) — 232,071 Product development 657,130 (167,068 ) (19,344 ) — 470,718 Sales and marketing 503,782 (74,618 ) (3,398 ) — 425,766 General and administrative 163,085 (63,656 ) (2,755 ) — 96,674 Operating income (loss) (221,888 ) 351,790 30,204 — 160,106 Operating margin (14.2 )% 22.5 % 2.0 % — % 10.3 % Other income (expense), net (4,467 ) — — 25,992 21,525 Income (loss) before provision for (benefit (226,355 ) 351,790 30,204 25,992 181,631 from) income taxes Provision for (benefit from) income taxes 5,767 — — — 5,767 Net income (loss) $ (232,122 ) $ 351,790 $ 30,204 $ 25,992 $ 175,864 Net income (loss) per share (1) $ (1.12 ) $ 1.70 $ 0.15 $ 0.03 $ 0.76

GAAP net loss per share is calculated based upon 206,715 basic and diluted weighted-average shares of (1) common stock. Non-GAAP net income per share is calculated based upon 232,918 diluted weighted-average shares of common stock. Other operating expenses include total employer payroll tax-related items on employee stock (2) transactions of $15.7 million and amortization of acquisition-related intangible assets of $14.5 million.

Workday, Inc.Reconciliation of GAAP Cash Flows from Operations to Free Cash Flows(A Non-GAAP Financial Measure)(in thousands)(unaudited)

Three Months Ended Nine Months Ended October 31, October 31, 2018 2017 2018 2017 ----------- ----------- ----------- ----------- Net cash provided by (used in) operating activities $ 114,296 $ 144,031 $ 356,145 $ 339,179 Capital expenditures, excluding owned real estate projects (55,427 ) (36,356 ) (157,635 ) (105,477 ) Free cash flows $ 58,869 $ 107,675 $ 198,510 $ 233,702 - ------- - - ------- - - ------- - - ------- -

Trailing Twelve Months Ended October 31, 2018 2017 ----------- Net cash provided by (used in) operating activities $ 482,693 $ 448,910 Capital expenditures, excluding owned real estate projects (193,694 ) (137,755 ) --------- - --------- - Free cash flows $ 288,999 $ 311,155 - ------- - - ------- -

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 net income (loss) per share, and free cash flows. 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) differs from GAAP in that it excludes share-based compensation expenses, employer payroll tax-related items on employee stock transactions, and amortization of 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 of acquisition-related intangible assets, non-cash interest expense related to our convertible senior notes, and income tax effects. Free cash flows differ from GAAP cash flows from operating activities in that it treats capital expenditures (excluding owned real estate projects) as a reduction to cash flows.

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 and the ability of operations to generate cash. 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, as they exclude expenses that are not reflective of ongoing operating results. 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. Additionally, management believes information regarding free cash flows provides investors and others with an important perspective on the cash flows generated by normal recurring activities to make strategic acquisitions and investments, to fund ongoing operations, and to fund other capital expenditures.

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.

-- Amortization of debt discount and issuance costs. Under GAAP, we are required to separately account for liability (debt) and equity (conversion option) components of the convertible senior notes that were issued in private placements in June 2013 and September 2017. Accordingly, for GAAP purposes we are required to recognize the effective interest expense on our convertible senior notes and amortize the issuance costs over the term of the notes. The difference between the effective interest expense and the contractual interest expense, and the amortization expense of issuance costs are excluded from management’s assessment of our operating performance because management believes that these non-cash expenses are not indicative of ongoing operating performance. Management believes that the exclusion of the non-cash interest expense provides investors an enhanced view of Workday’s operational performance.

-- 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 interim 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 2019, we have determined the projected non-GAAP tax rate to be 17% after including our acquisition of Adaptive Insights, Inc., which did not have a significant impact to this rate. 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.

Additionally, we believe that the non-GAAP financial measure free cash flows is meaningful to investors because we review cash flows generated from or used in operations after deducting certain capital expenditures that are considered to be an ongoing operational component of our business. Capital expenditures deducted from cash flows from operations do not include purchases of land and buildings or construction costs of our new development center and of other owned buildings. We exclude these owned real estate projects as they are infrequent in nature. For the current fiscal year, these costs primarily represent the construction of our new development center, which is anticipated to be completed in fiscal 2020.

The use of non-GAAP operating income (loss) and non-GAAP net income (loss) per share measures has certain limitations as they do not reflect all items of income and 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.

Investor Relations Contact:Michael Magaro+1 (925) 379-6000 Michael.Magaro@Workday.com

Media Contact:Nina Oestlien +1 (415) 828-3034 Nina.Oestlien@Workday.com

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