| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2015
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Delaware | 20-2480422 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
6230 Stoneridge Mall Road Pleasanton, California | 94588 | |
| (Address of principal executive offices) | (Zip Code) | |
Title of each class | Name of each exchange on which registered | |
| Class A Common Stock, par value $0.001 | New York Stock Exchange | |
| Large accelerated filer | x | Accelerated filer | ¨ | |||
| Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | |||
Based on the closing price of the Registrant’s Common Stock on the last business day of the Registrant’s most recently completed second fiscal quarter, which was July 31, 2013, the
2015.
TABLE OF CONTENTS PART I Item 1. Item 1A. 6Item 1B. 26Item 2. 26Item 3. 26Item 4. 26 PART II Item 5. 27Item 6. 29Item 7. 31Item 7A. 45Item 8. 46Item 9. 76Item 9A. 76Item 9B. 77 PART III Item 10. 78Item 11. 78Item 12. 78Item 13. 78Item 14. 78 PART IV Item 15. 79
complexity.
Workday HCM
Designed for the largest organizations in the world, Workday Human Capital Management (Workday HCM) supports a company in organizing, staffing, paying, and developing its global workforce. This unified application includes Global Human Resources Management (Workforce Lifecycle Management, Organization Management, Compensation, Absence, and Employee Benefits Administration) and Global Talent Management (Goal Management, Performance Management, Succession Planning, and Career and Development Planning). Workday HCM also includes Project and Work Management designed to enable organizations to create and manage and track initiatives, build project plans and utilize project breakdown structures that include phases, tasks, and milestones.
Workday Payroll
Workday Payroll is a modern payroll application designed to address the full spectrum of enterprise payroll needs in the U.S. and Canada, and includes the control, accuracy and flexibility to support the unique needs of organizations. Workday Payroll allows customers to group employees, manage calculation rules and pay employees according to their organizational, policy and reporting needs. Workday Payroll is unified with Workday’s other applications using the same business process framework and core worker data including benefits, compensation, absences and other employee records. In this unified self-service application, employees can request time off, check online pay slips and make payment elections from the same system, using the same user interface.
Workday’s
UnifiedHCM
system.
2015.
Our patents begin to expire in 2017.
customers. Our third-party data applications, we may be subject to liabilities and our reputation and operating results may be adversely affected. operating results. that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The loss of one or more of our executive officers or key employees and any failure to develop an appropriate succession plan for these persons could have a serious adverse effect on our business. cooperative relationships among themselves or with third parties that may further enhance their product offerings or resources. If our competitors’ products, services or technologies become more accepted than our applications, if they are successful in bringing their products or services to market earlier than ours, or if their products or services are more technologically capable than ours, then our revenues could be adversely affected. In addition, some of our competitors may offer their products and services at a lower price. If we are unable to achieve our target pricing levels, our operating results would be negatively affected. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses or a failure to maintain or improve our competitive market position, any of which could adversely affect our business. operate on a variety of systems, we will need to continuously modify and enhance our applications to keep pace with changes in Internet-related hardware, iOS, Android and other mobile-related technologies and other software, communication, browser and database technologies. We may not be successful in either developing these modifications and enhancements or in bringing them to market in a timely fashion. We must also appropriately balance the product capability demands of our current customers with the capabilities required to address the broader market. Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our product development expenses. Any failure of our applications to operate effectively with future network platforms and technologies could reduce the demand for our applications, result in customer dissatisfaction and adversely affect our business.ITEM 1A. RISK FACTORS4Investing in our securities involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this report, including the consolidated financial statements and the related notes included elsewhere in this report, before making an investment decision. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that materially and adversely affect our business. If any of the following risks actually occurs, our business operations, financial condition, results of operations, and prospects could be materially and adversely affected. The market price of our securities could decline due to the materialization of these or any other risks, and you could lose part or all of your investment.Risk Factors Related to Our BusinessIf our security measures are breached or unauthorized access to customer data is otherwise obtained, our applications may be perceived as not being secure, customers may reduce the use of or stop using our applications and we may incur significant liabilities.Our applications involve the storage and transmission of our customers’ proprietary information, including personal or identifying information regarding their employees, customers and suppliers, as well as their finance and payroll data. As a result, unauthorized or excessive access or security breaches could result in the loss of information, litigation, indemnity obligations and other liabilities. While we have security measures in place designed to protect customer information and prevent data loss and other security breaches, if these measures are breached as a result of third-party action, employee error, malfeasance or otherwise, and someone obtains unauthorized access to our customers’ data, our reputation could be damaged, our business may suffer and we could incur significant liabilities. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any or all of these issues could negatively affect our ability to attract new customers, cause existing customers to elect to terminate or not renew their subscriptions, result in reputational damage, cause us to issue refunds or service credits or refunds to our customers for prepaid and unused subscription services, or result in lawsuits, regulatory fines or other action or liabilities, which could adversely affect our operating results.We depend on data centers and computing infrastructure operated by third parties and any disruption in these operations could adversely affect our business.We host our applications and serve all of our customers from data centers located in Ashburn, Virginia; Lithia Springs, Georgia; Portland, Oregon; Dublin, Ireland; and Amsterdam, the Netherlands. While we control and have access to our servers and all of the components of our network that are located in our external data centers, we do not control the operation of these facilities. The owners of our data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, or if one of our data center operators is acquired, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and possible service interruption in connection with doing so.In addition, we rely upon Amazon Web Services (AWS), which provides a distributed computing infrastructure platform for business operations, to operate certain aspects of our services, including our big data analytics application, and certainsuch as environments for development testing, training and sales demonstrations. Given this, along with the fact that we cannot easily switch our AWS operations to another cloud provider, any disruption of or interference with our use of AWS would impact our operations and our business could be adversely impacted.Problems faced by our third-party data center operations, with the telecommunications network providers with whom we or they contract, or with the systems by which our telecommunications providers allocate capacity among their customers, including us, or problems faced by AWS, could adversely affect the experience of ourcenterscenter operators could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by our third-party data centerscenter operators or any of the service providers with whom we or they contract may have negative effects on our business, the nature and extent of which are difficult to predict. Additionally, if our data centers or AWS are unable to keep up with our growing needs for capacity, this could have an adverse effect on our business. Any changes in third-party service levels at our data centers or at AWS or any errors, defects, disruptions, or other performance problems with our applications could adversely affect our reputation and may damage our customers’ stored files or result in lengthy interruptions in our services. Interruptions in our services might reduceadversely affect our revenues,reputation and operating results, cause us to issue refunds or service credits to customers for prepaid and unused subscription services, subject us to potential liability,liabilities, result in contract terminations, or adversely affect our renewal rates.Furthermore, our financial management application is essential to our customers’ financial projections, reporting and compliance programs.programs, particularly customers who are public reporting companies. Any interruption in our service may affect the5availability, accuracy or timeliness of these programs and as a result could damage our reputation, cause our customers to terminate their use of our applications, require us to indemnify our customers against certain losses and prevent us from gaining additional business from current or future customers.If we fail to manage our technical operations infrastructure, our existing customers mayor experience service outages and our new customers may experienceor delays in the deployment of our applications.We have experienced significant growth in the number of users, transactions and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the rapid provision of new customer deployments and the expansion of existing customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters, the evolution of our applications and to reduce infrastructure latency associated with dispersed geographic locations. However, the provision of new hosting infrastructure requires significant lead time. If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages. If our operations infrastructure fails to scale, customers may experience delays as we seek to obtain additional capacity.We have experienced, and may in the future experience, websitesystem disruptions, outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks (internal and external), fraud, spikes in customer usage and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. Our customer agreements typically provide service level commitments on a monthly basis. If we do not accurately predictare unable to meet the stated service level commitments or suffer extended periods of unavailability for our infrastructure requirements, our existingapplications, we may be contractually obligated to issue refunds or service credits to customers may experiencefor prepaid and unused subscription services, or we could face contract terminations. Any extended service outages that may subject us to financial penalties, financial liabilitiescould result in customer losses, and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation, revenues and adversely affect our revenues.Catastrophic events may disrupt our business.Our corporate headquarters are located in Pleasanton, California and ourwe have data centers are located in Ashburn, Virginia; Lithia Springs, Georgia; Portland, Oregon; Sacramento, California; Portland, Oregon; Dublin, Ireland; and Amsterdam, the Netherlands. We also rely on AWS’s distributed computing infrastructure platform. The west coast of the United States contains active earthquake zones and the southeast is subject to seasonal hurricanes. Additionally, we rely on our network and third-party infrastructure and enterprise applications, internal technology systems and our website for our development, marketing, operational support, hosted services and sales activities. In the event of a major earthquake, hurricane or catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our application development, lengthy interruptions in our services, breaches of data security and loss of critical data, all of which could have an adverse effect on our future operating results.Privacy concerns and laws or other domestic or foreign regulations may reduce the effectiveness of our applications and adversely affect our business.Our customers can use our applications to collect, use and store personal or identifying information regarding their employees, customers and suppliers. National and local governments and agencies in the countries in which our customers operate have adopted, are considering adopting, or may adopt laws and regulations regarding the collection, use, storage and disclosure of personal information obtained from consumers and individuals. These laws are particularly stringent in Europe. If Workday employees fail to adhere to adequate data protection practices around the usage of our customer’s personal data, it may damage our reputation and brand. In addition, the affected customers or government authorities could initiate legal or regulatory action against us in connection with such incidents, which could result in significant fines, penalties and liabilities.The costs of compliance with, and other burdens imposed by, privacy laws and regulations that are applicable to the businesses of our customers may adversely affect our customers’ ability and willingness to process, handle, store, use and transmit demographic and personal information fromof their employees, customers and suppliers, which could limit the use, effectiveness and adoption of our applications and reduce overall demand. Even the perception of privacy concerns, whether or not valid, may inhibit market adoption, effectiveness or use of our applications.In addition to government activity, privacy advocacy groups and the technology and other industries are considering various new, additional or different self-regulatory standards that may place additional burdens on us. If the processing of personal information were to be curtailed in this manner, our software applications would be less effective, which may reduce demand for our applications and adversely affect our business.6We have experienced rapid growth in recent periods.growth. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and operational controls or adequately address competitive challenges.We have recently experienced, and are continuing to experience, a period of rapid growth in our customers, headcount and operations. In particular, we grew from approximately 300 employees as of December 31, 2008 to more than 2600approximately 3,750 employees as of January 31, 2014,2015, and have also significantly increased the size of our customer base. We anticipate that we will significantly expand our operations and headcount in the near term, and will continue to expand our customer base. This growth has placed, and future growth will place, a significant strain on our management, general and administrative resources and operational infrastructure. Our success will depend in part on our ability to manage this growth effectively and to scale our operations. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. As we continue to grow, we also need to ensure that we maintain our corporate culture; that our policies and procedures evolve to reflect our current operations and are appropriately communicated to and observed by employees;employees, and that we appropriately manage our corporate information assets, including confidential and proprietary information. Failure to effectively manage growth could result in difficulty or delays in deploying customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties, and any of these difficulties could adversely impact our business performance and results of operations.We depend on our senior management team and the loss of one or more key employees or an inability to attract and retain highly skilled employees could adversely affect our business.Our success depends largely upon the continued services of our key executive officers. We also rely on our leadership team in the areas of product development, marketing, sales, services and general and administrative functions, and on mission-critical individual contributors in product development. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. We do not have employment agreements with our executive officers or other key personnelAn inability to attract and retain highly skilled employees could adversely affect our business and our future growth prospects.To execute our growth plan, we must attract and retain highly qualified personnel, and our managers must be successful in hiring employees who are a good cultural fit and have the competencies to succeed at Workday. Competition for these personnel is intense, particularly in the San Francisco Bay Area, and especially for engineers with high levels of experience in designing and developing software and Internet-related services and senior sales executives. We have, fromFrom time to time, we have experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications, and may neednot be able to source talentfill positions in otherdesired geographic areas. areas or at all.Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or otherhave and some of these companies their former employers may attempt to assert that these employees or Workday have breached their legal obligations, resultingoffer greater compensation packages. Particularly in a diversion of our time and resources. In addition,the San Francisco Bay Area, job candidates and existing employees carefully consider the value of the stock awards they receive in connection with their employment. If the perceived value of our stock awards declines, or if the mix of equity and cash compensation that we offer is unattractive, it may adversely affect our ability to recruit and retain highly skilled employees. IfJob candidates may also be threatened with legal action by their existing employers if we fail to attract new personnel or failhire them, which could have a chilling effect on hiring and result in a diversion of our time and resources. We must also continue to retain and motivate our current personnel,existing employees through our compensation practices, company culture and career development opportunities,opportunities. If we fail to attract new personnel or to retain our current personnel, our business and future growth prospects could be adversely affected.If we cannot maintain our corporate culture, we could lose the innovation, teamwork and passion that we believe contribute to our success, and our business may be harmed.We believe that a critical component of our success has been our corporate culture, as reflected in our core values: employees, customer service, innovation, integrity and fun. We have invested substantial time and resources in building our team. As we continue to grow and develop the infrastructure associated with being a public company, we will need to maintain our corporate culture among a larger number of employees. Any failure to preserve our culture could negatively affect our future success, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.7The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be adversely affected.The markets for HCMfinancial management and financial managementHCM applications are highly competitive, with relatively low barriers to entry for some applications or services. Our primary competitors are OracleSAP and SAP,Oracle, well-established providers of HCMfinancial management and financial managementHCM applications, which have long-standing relationships with many customers. Some customers may be hesitant to switch vendors or to adopt cloud applications such as ours, and prefer to upgrade the more familiar applications offered by these vendors that are deployed on-premise.maintain their existing relationships with competitors. SAP and Oracle and SAP are larger and have greater name recognition, much longer operating histories, larger marketing budgets and significantly greater resources than we do. These vendors, as well as other competitors, could offer HCMfinancial management and financial managementHCM applications on a standalone basis at a low price or bundled as part of a larger product sale. In order to take advantage of customer demand for cloud applications, legacy vendors are expanding their cloud applications through acquisitions, strategic alliances and organic development. For example, Oracle acquired Taleo Corporation, and SAP acquired SuccessFactors and Ariba, Inc. Legacy vendors may also seek to partner with other leading cloud providers, such as the alliance between Oracle and Salesforce.com. We also face competition from custom-built software vendors and from vendors of specific applications, some of which offer cloud-based solutions. These vendors include, without limitation: The Ultimate Software Group, Inc., Automatic Data Processing and Infor Global Solutions. We also face competition from cloud-based vendors including providers of applications for HCM and payroll services such as Ceridian; providers of cloud-based expense management applications such as Concur Technologies, Inc. (which was acquired by SAP); and providers of financial management applications such as NetSuite, Inc. We may also face competition from a variety of vendors of cloud-based and on-premise software applications that address only a portion of one of our applications. In addition, other companies that provide cloud applications in different target markets such as Salesforce.com and NetSuite, may develop applications or acquire companies that operate in our target markets, and some potential customers may elect to develop their own internal applications. With the introduction of new technologies and market entrants, we expect this competition to intensify in the future.Many of our competitors are able to devote greater resources to the development, promotion and sale of their products and services. Furthermore, our current or potential competitors may be acquired by third parties with greater available resources and the ability to initiate or withstand substantial price competition. In addition, many of our competitors have established marketing relationships, access to larger customer bases and major distribution agreements with consultants, system integrators and resellers. Our competitors may also establishIf the market for enterprise cloud computing developsgrows more slowly than we expect or declines,in recent years, our business could be adversely affected.The enterprise cloud computing market is not as mature as the market for on-premise enterprise software, and it is uncertain whether cloud computing will achieve and sustain high levels of customer demand and market acceptance.software. Our success will depend to a substantial extent on the widespread adoptioncontinued growth of cloud computing in general, and of HCMfinancial management and financial managementHCM services in particular. Many enterprises have invested substantial personnel and financial resources to integrate traditional enterprise software into their businesses, and therefore may be reluctant or unwilling to migrate to cloud computing. It is difficult to predict customer adoption rates and demand for our applications, the future growth rate and size of the cloud computing market or the entry of competitive applications. The continued expansion of the cloud computing market depends on a number of factors, including the cost, performance, and perceived value associated with cloud computing, as well as the ability of cloud computing companies to address security and privacy concerns. Further, the cloud computing market is less developed in many jurisdictions outside of the United States. If we or other cloud computing providers experience security incidents, loss of customer data, disruptions in delivery or other problems, the market for cloud computing applications as a whole, including our applications, may be negatively affected. If cloud computing does not achieve widespread adoption, or there is a reduction in demand for cloud computing caused by a lack of customer acceptance, technological challenges, weakening economic conditions, security or privacy concerns, competing technologies and products, decreases in corporate spending or otherwise, it could result in decreased revenues or growth rates and our business could be adversely affected.To date, we have derived a substantial majority of our subscription services revenues from our HCM application. Our efforts to increase usesales of our HCM application andas well as our other applications may not succeed, and may reduce our revenue growth rate.To date, we have derived a substantial majority of our subscription services revenues from our HCM application. Any factor adversely affecting sales of this application, including application release cycles, market acceptance, product competition, performance and reliability, reputation, price competition, and economic and market conditions, could adversely affect our business8and operating results. Our participation in the markets for our payroll, financial management big dataand analytics time tracking, procurement, employee expense management applications and recruiting is relatively new,more recent, and it is uncertain whether these areas will ever result in significant revenues for us. Further, the introduction of new applications beyond these markets may not be successful.If we are not able to provide successful enhancements, new features and modifications, our business could be adversely affected.If we are unable to provide enhancements and new features for our existing applications or new applications that achieve market acceptance or that keep pace with rapid technological developments, our business could be adversely affected. For example, we are focused on enhancing the features and functionality of our non-HCM applications to enhance their utility to larger customers with complex, dynamic and global operations. The success of enhancements, new features and applications depends on several factors, including the timely completion, introduction and market acceptance of the enhancements or new features or applications. Failure in this regard may significantly impair our revenue growth. In addition, because our applications are designed toOur applications must integrate with a variety of third-party technologies, and if we are unable to ensure that our solutions interoperate with such technologies, demand for our applications and our operating results could be adversely affected.Our applications must integrate with a variety of technologies and we will need to continuously modify and enhance our applications to adapt to changes in operating systems, hardware, software, communication, browser and database technologies. Any failure of our solutions to operate effectively with future technologies or our failure to respond to changes in a timely and effective manner could reduce the demand for our applications, result in customer dissatisfaction and harm our operating results and business.If our applications fail to perform properly, our reputation could be adversely affected, our market share could decline and we could be subject to liability claims.Our applications are inherently complex and may contain material defects or errors. Any defects in functionality or that cause interruptions in the availability of our applications could result in:loss or delayed market acceptance and sales;
Large customers often demand more configuration and integration services, or customized features and functions that we do not offer, which could adversely affect our business and operating results.
Large customers may demand more configuration and integration services, which increase our upfront investment in sales and deployment efforts, with no guarantee that these customers will increase the scope of their subscription. As a result of these factors, we must devote a significant amount of sales support and professional services resources to individual customers, increasing the cost and time required to complete sales.
Additionally, our applications do not currently permit customers to add new data fields and functions or to modify our code. If prospective customers require customized features or functions that we do not offer, and that would be difficult for them to deploy themselves, then the market for our applications will be more limited and our business could suffer.
We typically provide service level commitments under our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face contract terminations, which could adversely affect our revenues.
Our customer agreements typically provide service level commitments on a monthly basis. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our applications, we may be contractually obligated to provide these customers with service credits, refunds for prepaid amounts related to unused subscription services, or we could face contract terminations. Our revenues could be significantly affected if we suffer unscheduled downtime that exceeds the allowed downtimes under our agreements with our customers. Any extended service outages could adversely affect our reputation, revenues and operating results.
combination of the two. Our strategy is to work with third parties to increase the breadth of capability and depth of capacity for delivery of these services to our customers, and third parties provide a majority of our deployment services. If a customer iscustomers are not satisfied with the quality of work performed by us or a third party or with the type of professional services or applications delivered, then we could incur additional costs to address the situation, the profitability of that work might be impaired, and the customer’s dissatisfaction with our services could damage our ability to expand the number of applications subscribed to by that customer.our customers. We must also align our product development and professional services operations in order to ensure that customers’ evolving needs are met. Negative publicity related to our customer relationships, regardless of its accuracy, may further damage our business by affecting our ability to compete for new business with current and prospective customers.
fluctuations on the majority of our foreign currency transactions.
a minor impact on our revenue results for that quarter. However, such a decline will negatively affect our revenues in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our applications, and potential changes in our pricing policies or rate of renewals, may not be fully reflected in our results of operations until future periods. We may be unable to adjust our cost structure to reflect the changes in revenues. In addition, a significant majority of our costs are expensed as incurred, while revenues are recognized over the life of the customer agreement. As a result, increased growth in the number of our customers could result in our recognition of more costs than revenues in the earlier periods of the terms of our agreements. Our subscription model also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as revenues from new customers must begenerally are recognized over the applicable subscription term.
Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, and as a result, may not fully reflect the underlying performance of our business. Fluctuation in quarterly results may negatively impact the value of our securities. Factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed below:
model as we have used historically. Moreover, large customers, which are the focus of our sales efforts, may demand greater price concessions. As a result, in the future we may be required to reduce our prices, which could adversely affect our revenues, gross margin, profitability, financial position and cash flow. intellectual property rights that others may claim cover some or all of our technology or services. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business partners or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify applications, or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations. cloud-based applications. In addition, because we use Workday's financial management application, any problems that we experience with financial reporting and compliance could be negatively perceived by prospective or current customers, and negatively impact demand for our applications. many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the Code), our ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if we experience an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our profitability. If our customers must pay additional fines or penalties, it could adversely affect demand for our services.Our ability to predict the rate of customer subscription renewals or adoptions, and the impact these renewals and adoptions will have on our revenues or operating results, is limited.As the markets for our applications mature, or as new competitors introduce new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricingIn addition, our customers have no obligation to renew their subscriptions for our applications after the expiration of the initial subscription period. Our customers may renew for fewer elements of our applications or on different pricing terms. Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their dissatisfactionlevel of satisfaction with our pricing or our applications and their ability to continue their operations and spending levels. If our customers do not renew their subscriptions for our applications on similar pricing terms, our revenues may decline and our business could suffer. In addition, over time the average term of our contracts could change based on renewal rates or for other reasons.Our future success also depends in part on our ability to sell additional features or enhanced elements of our applications to our current customers. This may require increasingly costly sales efforts that are targeted at senior management. If these efforts are not successful, our business may suffer.Failure to adequately expand our direct sales force will impede our growth.We will need to continue to expand and optimize our sales infrastructure in order to grow our customer base and our business. We plan to continue to expand our direct sales force, both domestically and internationally. Identifying and recruiting qualified personnel and training them in the use of our software requires significant time, expense and attention. It can take nine months or longer before our sales representatives are fully-trainedfully trained and productive. Our business may be adversely affected if our efforts to expand and train our direct sales force do not generate a corresponding increase in revenues. In particular, if we are unable to hire, develop and retain talented sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenues.If we fail to develop widespread brand awareness cost-effectively, our business may suffer.We believe that developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our applications and attracting new customers. Brand promotion activities may not generate customer awareness or increase revenues, and even if they do, any increase in revenues may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses, we may fail to attract or retain customers necessary to realize a sufficient return on our brand-building efforts, or to achieve the widespread brand awareness that is critical for broad customer adoption of our applications.Our growth depends in part on the success of our strategic relationships with third parties.In order to grow our business, we anticipate that we will continue to depend on relationships with third parties, such as deployment partners, and technology and content providers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be effective in providing incentives to third parties to favor their products or services or to prevent or reduce subscriptions to our services. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of our current and potential customers, as our partners may no longer facilitate the adoption of our applications by potential customers.14If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our operating results may suffer. Even if we are successful, we cannot assure you that these relationships will result in increased customer usage of our applications or increased revenues.Adverse economic conditions may negatively impact our business.Our business depends on the overall demand for enterprise software and on the economic health of our current and prospective customers. The financial recession resulted in aAny significant weakening of the economy in the United States andor Europe and of the global economy, more limited availability of credit, a reduction in business confidence and activity, decreased government spending, and other difficulties that may affect one or more of the industries tosectors or countries in which we sell our applications. In addition, in the United States there has been pressure to reduce government spending. This mighta strong dollar could reduce demand for our applications from organizations that receive funding from the U.S. government and could negatively affect the U.S. economy, which could further reduce demand for our applications. Further, the economies ofproducts in countries in Europe have been experiencing weakness associated with high sovereign debt levels, weakness in the banking sector and uncertainty over the future of the Euro zone. We have operations in Ireland and current and potential new customers in Europe. If economicrelatively weaker currencies. These adverse conditions in Europe and other key markets for our applications continue to remain uncertain or deteriorate further, many customers may delay or reduce their information technology spending. This could result in reductions in sales of our applications, longer sales cycles, reductions in subscription duration and value, slower adoption of new technologies and increased price competition. Any of these events would likely have an adverse effect on our business, operating results and financial position. In addition, there can be no assurance that enterprise software spending levels willwould increase following any recovery.Our customers may fail to pay us in accordance with the terms of their agreements, necessitating action by us to compel payment.We typically enter into multiple year, non-cancelable arrangements with customers of our services. If customers fail to pay us under the terms of our agreements, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the terms of our contracts, including litigation. The risk of such negative effects increases with the term length of our customer arrangements. Furthermore, some of our customers may seek bankruptcy protection or other similar relief and fail to pay amounts due to us, or pay those amounts more slowly, either of which could adversely affect our operating results, financial position and cash flow.Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.Our success and ability to compete depend in part upon our intellectual property. We primarily rely on patent, copyright, trade secret and trademark laws, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate.In order to protect our intellectual property rights, weWe may be required to spend significant resources to monitor and protect theseour intellectual property rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our failure to secure, protect and enforce our intellectual property rights could seriously adversely affect our brand and adversely impact our business.We may be sued by third parties for alleged infringement of their proprietary rights.There is considerable patent and other intellectual property development activity in our industry. Our success depends upon our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry. From time to time, third parties may claim that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. In the future, othersthey may claim that our applications and underlying technology infringe or violate their intellectual property rights. However,rights, even if we may beare unaware of theSome of our applications utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.Some of our applications include software covered by open source licenses, which may include, by way of example, GNU General Public License and the Apache License. The terms of various open source licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our applications. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses, if we combine our proprietary software with open source software in a certain manner. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and services. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third party commercial software, as open source licensors15generally do not provide warranties or controls on the origin of the software. Many of the risks associated with usage of open source software cannot be eliminated, and could negatively affect our business.We employ third-party licensed software for use in or with our applications, and the inability to maintain these licenses or errors in the software we license could result in increased costs, or reduced service levels, which would adversely affect our business.Our applications incorporate certain third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third-party software and development tools from third parties in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of the software used in our applications with new third-party software may require significant work and require substantial investment of our time and resources. Also, toTo the extent that our applications depend upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our applications, delay new application introductions, result in a failure of our applications and injure our reputation. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties.Changes in laws and regulations related to the Internet or changes in the Internet infrastructure itself may diminish the demand for our applications, and could have a negative impact on our business.The future success of our business depends upon the continued use of the Internet as a primary medium for commerce, communication and business applications. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of therelating to Internet as a commercial medium.usage. Changes in these laws or regulations could require us to modify our applications in order to comply with these changes.laws or regulations. In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the Internet or commerce conducted via the Internet. These laws or charges could limit the growth of Internet-related commerce or communications, or generally, result in reductions in thenegatively impact demand for Internet-based applications such as ours.In addition, the use of the Internet as a business toolbusinesses could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of Internet activity, security, reliability, cost, ease of use, accessibility, and quality of service. The performance of the Internet and its acceptance as a business tool hasBusinesses have been adversely affected by “viruses,” “worms” and similar malicious programs and the Internet hashave experienced a variety of outages and other delays as a result of damage to portions of itsInternet infrastructure. If the use of the Internet is adversely affected by theseThese issues could negatively impact demand for our applications could suffer.We are obligated to develop and maintain proper and effective internal controls over financial reporting. We may not complete our analysis of our internal controls over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in the accuracy and completeness of our financial reports and the market price of our securities may be negatively affected.As a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and provide a management report on the internal controls over financial reporting, which must be attested to by our independent registered public accounting firm. If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.The process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 is challenging and costly. In the future, we may not be able to complete our evaluation, testing and any required remediation in a timely fashion. If we identify material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities could be negatively affected, and we could become subject to investigations by the New York Stock Exchange (NYSE), the SEC, or other regulatory authorities, which could require additional financial and management resources.The requirements of being a public company may strain our resources and divert management’s attention.16We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, (the Exchange Act), the Sarbanes-Oxley Act, the Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the listing requirements of the NYSE and other applicable securities rules and regulations. Compliance with these rules and regulations has increased and will continue to increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on our systems and resources. In particular, we have incurred and expect to continue to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act,Act. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. Although we have hired additional employees to comply with these requirements, we may need to hire more employees in the future, in particular accounting, financial and internal audit staff, which will increase our costs and expenses.In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, inWe will not be able to utilize a portion of our net operating loss or research tax credit carryforwards, which could adversely affect our profitability.As of January 31, 2014,2015, we had federal and state net operating loss carryforwards due to prior period losses, which if not utilized will begin to expire in 2025 and 20152016 for federal and state purposes, respectively. We also have federal research tax credit carryforwards, which if not utilized will begin to expire in 2025. These net operating loss and research tax credit carryforwards could expire unused and be unavailable to reduce future income tax liabilities, which could adversely affect our profitability.Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our customers, which could increase the costs of our services and adversely impact our business.The application of federal, state, local and international tax laws to services provided electronically is evolving. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time (possibly with retroactive effect), and could be applied solely or disproportionately to services provided over the Internet. These enactments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and ultimately result in a negative impact on our operating results and cash flows.In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us (possibly with retroactive effect), which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties and interest for past amounts. If we are unsuccessful in collecting such taxes from our customers, we could be held liable for such costs, thereby adversely impacting our operating results and cash flows.Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A17change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.Risks related to our Class A common stockOur co-foundersChairman and co-CEOsCEO have control over key decision making as a result of their control of a majority of our voting stock.OurAs of January 31, 2015, our co-founder and co-CEOChairman David Duffield, together with his affiliates, as of February 28, 2014, holdsheld voting rights with respect to 68.367.7 million shares of Class B common stock and 0.10.2 million shares of Class A Common Stock, and incommon stock. In addition, Mr. Duffield holds 0.1 million restricted stock units, which will be settled in an equivalent number of shares of Class A common stock. As of February 28, 2014,January 31, 2015, our co-founder and co-CEOCEO Aneel Bhusri, together with his affiliates, holdsheld voting rights with respect to 7.1 million shares of Class B common stock and 0.40.1 million shares of Class A common stock. In addition, Mr. Bhusri holds exercisable options to acquire 3.2 million shares of Class B common stock, 1.0 million shares of Class B restricted stock and 0.10.2 million restricted stock units, which will be settled in an equivalent number of shares of Class A common stock. Further, Messrs. Duffield and Bhusri have entered into a voting agreement under which each has granted a voting proxy with respect to certain Class B common stock beneficially owned by him effective upon his death or incapacity as described in our registration statement on Form S-1 filed in connection with our initial public offering. Messrs. Duffield and Bhusri have each initially designated the other as their respective proxies. Accordingly, upon the death or incapacity of either Mr. Duffield or Mr. Bhusri, the other would individually continue to control the voting of shares subject to the voting proxy. Collectively, the shares described above represent a substantial majority of the voting power of our outstanding capital stock. As a result, Messrs. Duffield and Bhusri have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, they have the ability to control the management and affairs of our company as a result of their positions as our co-CEOsChairman and CEO, respectively, and their ability to control the election of our directors. As board members and officers, Messrs. Duffield and Bhusri owe a fiduciary duty to our stockholders and must act in good faith in a manner they reasonably believe to be in the best interests of our stockholders. As stockholders, even as controlling stockholders, they are entitled to vote their shares in their own interests, which may not always be in the interests of our stockholders generally.The dual class structure of our common stock has the effect of concentrating voting control with our co-CEOs,Chairman and CEO, and also with other executive officers, directors and other affiliates; this will limit or preclude the ability of non-affiliates to influence corporate matters.Our Class B common stock has ten votes per share and our Class A common stock, which is the stock that is currently publicly traded, has one vote per share. Stockholders who hold shares of Class B common stock, including our executive officers, directors and other affiliates, together hold a substantial majority of the voting power of our outstanding capital stock as of February 28, 2014.January 31, 2015. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval until the conversion of all shares of all Class A and Class B shares to a single class of common stock on the date that is the first to occur of (i) October 11, 2032, or(ii) such earlier time:time as the shares of Class B common stock represent less than 9% of allthe outstanding shares of our Class A and Class B common stock; if agreed by the holders of the majority of the Class B common stock; orstock, (iii) nine months following the death of both Mr. Duffield and Mr. Bhusri.Bhusri, or (iv) the date on which the holders of a majority of the shares of Class B common stock elect to convert all shares of Class A common stock and Class B common stock into a single class of common stock. This concentrated control will limit or preclude the ability of non-affiliates to influence corporate matters for the foreseeable future.Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, our co-CEOsChairman and CEO retain a significant portion of their holdings of Class B common stock for an extended period of time, they could, in the future, continue to control a majority of the combined voting power of our Class A common stock and Class B common stock.Our stock price has been volatile in the past and may be subject to volatility in the future.The trading price of our Class A common stock has been volatile historically, and could be subject to wide fluctuations in response to various factors described below. These factors, as well as the volatility of our Class A common stock, could also impact the price of our convertible senior notes. The factors that may affect the trading price of our securities, some of which are beyond our control, include:overall performance of the equity markets;
Exercise of the warrants associated with our 2018 Notes or our 2020 Notes may affect the price of our Class A common stock.19In connection with our offering of the 2018 Notes, we sold warrants to acquire up to approximately 4.2 million shares of our Class A common stock at an initial strike price of $107.96, which become exercisable beginning on October 15, 2018. In connection with our offering of the 2020 Notes, we sold warrants to acquire up to approximately 3.1 million shares of our Class A common stock at an initial strike price of $107.96, which become exercisable beginning on October 15, 2020. The warrants may be settled in shares or in cash. The exercise of the warrants could have a dilutive effect if the market price per share of our Class A common stock exceeds the strike price of the warrants. The counterparties to the warrant transactions and note hedge transactions relating to the 2018 Notes and the 2020 Notes are likely to enter into or unwind various derivative instruments with respect to our Class A common stock or purchase or sell shares of our Class A common stock or other securities linked to or referencing our Class A common stock in secondary market transactions prior to the respective maturity of the 2018 Notes and the 2020 Notes. These activities could adversely affect the trading price of our Class A common stock.Delaware law and provisions in our restated certificate of incorporation and restated bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the market price of our Class A common stock.Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following:any transaction that would result in a change in control of our company requires the approval of a majority of our outstanding Class B common stock voting as a separate class;
ITEM 1B. UNRESOLVED STAFF COMMENTS None. |
None.
| High | Low | |||||||
Year ended January 31, 2013 | ||||||||
Third quarter (from October 12, 2012) | $ | 57.21 | $ | 45.05 | ||||
Fourth quarter | $ | 57.10 | $ | 46.00 | ||||
Year ended January 31, 2014 | ||||||||
First quarter | $ | 65.00 | $ | 50.26 | ||||
Second quarter | $ | 69.75 | $ | 59.87 | ||||
Third quarter | $ | 84.42 | $ | 67.78 | ||||
Fourth quarter | $ | 94.55 | $ | 70.84 | ||||
| High | Low | ||||||
| Year ended January 31, 2015 | |||||||
| First quarter | $ | 116.47 | $ | 64.21 | |||
| Second quarter | $ | 92.15 | $ | 65.75 | |||
| Third quarter | $ | 97.40 | $ | 75.23 | |||
| Fourth quarter | $ | 97.16 | $ | 76.36 | |||
| Year ended January 31, 2014 | |||||||
| First quarter | $ | 65.00 | $ | 50.26 | |||
| Second quarter | $ | 69.75 | $ | 59.87 | |||
| Third quarter | $ | 84.42 | $ | 67.78 | |||
| Fourth quarter | $ | 94.55 | $ | 70.84 | |||
| Base Period | ||||||||||||||||||||||||||||
Company/Index | 10/12/2012 | 10/31/2012 | 1/31/2013 | 4/30/2013 | 7/31/2013 | 10/31/2013 | 1/31/2014 | |||||||||||||||||||||
Workday, Inc. | 100 | $ | 99.61 | $ | 109.71 | $ | 128.67 | $ | 140.25 | $ | 153.77 | $ | 183.90 | |||||||||||||||
S&P 500 Index | 100 | 98.89 | 105.57 | 113.14 | 120.05 | 125.75 | 128.26 | |||||||||||||||||||||
S&P 1500 Application Software Index | 100 | 98.58 | 110.49 | 111.49 | 118.79 | 128.56 | 138.28 | |||||||||||||||||||||
Base Period | |||||||||||||||
| Company/Index | 10/12/2012 | 1/31/2013 | 1/31/2014 | 1/31/2015 | |||||||||||
| Workday, Inc. | $ | 100.00 | $ | 109.71 | $ | 183.90 | $ | 163.20 | |||||||
| S&P 500 Index | 100.00 | 105.57 | 128.26 | $ | 146.50 | ||||||||||
| S&P 1500 Application Software Index | 100.00 | 110.49 | 138.28 | $ | 151.34 | ||||||||||
| Year Ended January 31, | One Month Ended January 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||||||
Consolidated Statements of Operations Data: | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Subscription services | $ | 354,169 | $ | 190,320 | $ | 88,634 | $ | 4,814 | $ | 36,594 | $ | 13,746 | ||||||||||||
Professional services | 114,769 | 83,337 | 45,793 | 2,468 | 31,461 | 11,499 | ||||||||||||||||||
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Total revenues | 468,938 | 273,657 | 134,427 | 7,282 | 68,055 | 25,245 | ||||||||||||||||||
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Costs and expenses(1): | ||||||||||||||||||||||||
Costs of subscription services | 69,195 | 39,251 | 22,342 | 1,187 | 11,419 | 6,623 | ||||||||||||||||||
Costs of professional services | 107,615 | 77,284 | 43,026 | 2,717 | 28,445 | 13,882 | ||||||||||||||||||
Product development | 182,116 | 102,665 | 62,014 | 3,962 | 39,175 | 30,045 | ||||||||||||||||||
Sales and marketing | 197,373 | 123,440 | 70,356 | 3,771 | 36,524 | 20,875 | ||||||||||||||||||
General and administrative | 65,921 | 48,880 | 15,133 | 1,077 | 8,553 | 5,215 | ||||||||||||||||||
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| |||||||||||||
Total costs and expenses | 622,220 | 391,520 | 212,871 | 12,714 | 124,116 | 76,640 | ||||||||||||||||||
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Operating loss | (153,282 | ) | (117,863 | ) | (78,444 | ) | (5,432 | ) | (56,061 | ) | (51,395 | ) | ||||||||||||
Other income (expense), net | (17,549 | ) | (1,203 | ) | (1,018 | ) | (8 | ) | (57 | ) | 1,544 | |||||||||||||
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Loss before provision for income taxes | (170,831 | ) | (119,066 | ) | (79,462 | ) | (5,440 | ) | (56,118 | ) | (49,851 | ) | ||||||||||||
Provision for income taxes | 1,678 | 124 | 167 | 10 | 97 | 91 | ||||||||||||||||||
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Net loss | (172,509 | ) | (119,190 | ) | (79,629 | ) | (5,450 | ) | (56,215 | ) | (49,942 | ) | ||||||||||||
Accretion of redeemable convertible preferred stock | — | (568 | ) | (342 | ) | — | — | — | ||||||||||||||||
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Net loss attributable to common stockholders | $ | (172,509 | ) | $ | (119,758 | ) | $ | (79,971 | ) | $ | (5,450 | ) | $ | (56,215 | ) | $ | (49,942 | ) | ||||||
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Net loss per share attributable to Class A and Class B common stockholders, basic and diluted | $ | (1.01 | ) | $ | (1.62 | ) | $ | (2.71 | ) | $ | (0.20 | ) | $ | (2.22 | ) | $ | (2.28 | ) | ||||||
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Weighted-average shares used to compute net loss per share attributable to Class A and Class B common stockholders | 171,297 | 74,011 | 29,478 | 27,642 | 25,367 | 21,922 | ||||||||||||||||||
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| Year Ended January 31, | One Month Ended January 31, | Year Ended December 31, | |||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||
| Consolidated Statements of Operations Data: | |||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Subscription services | $ | 613,328 | $ | 354,169 | $ | 190,320 | $ | 88,634 | $ | 4,814 | $ | 36,594 | |||||||||||
| Professional services | 174,532 | 114,769 | 83,337 | 45,793 | 2,468 | 31,461 | |||||||||||||||||
| Total revenues | 787,860 | 468,938 | 273,657 | 134,427 | 7,282 | 68,055 | |||||||||||||||||
Costs and expenses(1): | |||||||||||||||||||||||
| Costs of subscription services | 102,476 | 69,195 | 39,251 | 22,342 | 1,187 | 11,419 | |||||||||||||||||
| Costs of professional services | 162,327 | 107,615 | 77,284 | 43,026 | 2,717 | 28,445 | |||||||||||||||||
| Product development | 316,868 | 182,116 | 102,665 | 62,014 | 3,962 | 39,175 | |||||||||||||||||
| Sales and marketing | 315,840 | 197,373 | 123,440 | 70,356 | 3,771 | 36,524 | |||||||||||||||||
| General and administrative | 106,051 | 65,921 | 48,880 | 15,133 | 1,077 | 8,553 | |||||||||||||||||
| Total costs and expenses | 1,003,562 | 622,220 | 391,520 | 212,871 | 12,714 | 124,116 | |||||||||||||||||
| Operating loss | (215,702 | ) | (153,282 | ) | (117,863 | ) | (78,444 | ) | (5,432 | ) | (56,061 | ) | |||||||||||
| Other income (expense), net | (30,270 | ) | (17,549 | ) | (1,203 | ) | (1,018 | ) | (8 | ) | (57 | ) | |||||||||||
| Loss before provision for income taxes | (245,972 | ) | (170,831 | ) | (119,066 | ) | (79,462 | ) | (5,440 | ) | (56,118 | ) | |||||||||||
| Provision for income taxes | 2,010 | 1,678 | 124 | 167 | 10 | 97 | |||||||||||||||||
| Net loss | (247,982 | ) | (172,509 | ) | (119,190 | ) | (79,629 | ) | (5,450 | ) | (56,215 | ) | |||||||||||
| Accretion of redeemable convertible preferred stock | — | — | (568 | ) | (342 | ) | — | — | |||||||||||||||
| Net loss attributable to common stockholders | $ | (247,982 | ) | $ | (172,509 | ) | $ | (119,758 | ) | $ | (79,971 | ) | $ | (5,450 | ) | $ | (56,215 | ) | |||||
| Net loss per share attributable to Class A and Class B common stockholders, basic and diluted | $ | (1.35 | ) | $ | (1.01 | ) | $ | (1.62 | ) | $ | (2.71 | ) | $ | (0.20 | ) | $ | (2.22 | ) | |||||
| Weighted-average shares used to compute net loss per share attributable to Class A and Class B common stockholders | 183,702 | 171,297 | 74,011 | 29,478 | 27,642 | 25,367 | |||||||||||||||||
(1) | Costs and expenses include share-based compensation expenses as follows (in thousands): |
Year Ended December 31, Costs of subscription services Costs of professional services Product development Sales and marketing General and administrative Year Ended January 31, One Month
Ended
January 31, 2014 2013 2012 2011 2010 2009 $ 2,408 $ 601 $ 230 $ 4 $ 55 $ 15 4,818 1,312 398 12 118 64 21,644 3,528 1,124 47 556 272 12,131 2,717 839 28 310 187 20,850 7,170 1,591 102 663 358
| As of January 31, | As of December 31, | |||||||||||||||||||
| 2014 | 2013 | 2012 | 2010 | 2009 | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 581,326 | $ | 84,158 | $ | 57,529 | $ | 30,887 | $ | 34,372 | ||||||||||
Marketable securities | 1,305,253 | 706,181 | 53,634 | 4,498 | 20,557 | |||||||||||||||
Working capital (deficit) | 1,601,768 | 629,528 | 37,934 | (4,065 | ) | 36,222 | ||||||||||||||
Property and equipment, net | 77,664 | 44,585 | 25,861 | 12,896 | 8,821 | |||||||||||||||
Total assets | 2,176,265 | 959,080 | 232,638 | 100,605 | 97,829 | |||||||||||||||
Total unearned revenue | 413,565 | 285,260 | 188,097 | 97,404 | 53,633 | |||||||||||||||
Convertible senior notes, net | 468,412 | — | — | — | — | |||||||||||||||
Total liabilities | 989,048 | 366,797 | 237,293 | 122,689 | 66,447 | |||||||||||||||
Redeemable convertible preferred stock | — | — | 170,906 | 75,555 | 75,555 | |||||||||||||||
Total stockholders’ equity (deficit) | 1,187,217 | 592,283 | (175,561 | ) | (97,639 | ) | (44,173 | ) | ||||||||||||
| Year Ended January 31, | One Month Ended January 31 | Year Ended December 31, | ||||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
Cash Flow Data: | ||||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 46,263 | $ | 11,214 | $ | (13,774 | ) | $ | (1,069 | ) | $ | (15,335 | ) | $ | (30,128 | ) | ||||||||
Free cash flows(2) | (29,577 | ) | (23,401 | ) | (34,756 | ) | (1,134 | ) | (24,109 | ) | (34,357 | ) | ||||||||||||
| Year Ended January 31, | One Month Ended January 31, | Year Ended December 31, | |||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||
| Costs of subscription services | $ | 6,053 | $ | 2,408 | $ | 601 | $ | 230 | $ | 4 | $ | 55 | |||||||||||
| Costs of professional services | 12,890 | 4,818 | 1,312 | 398 | 12 | 118 | |||||||||||||||||
| Product development | 63,938 | 21,644 | 3,528 | 1,124 | 47 | 556 | |||||||||||||||||
| Sales and marketing | 29,875 | 12,131 | 2,717 | 839 | 28 | 310 | |||||||||||||||||
| General and administrative | 43,292 | 20,850 | 7,170 | 1,591 | 102 | 663 | |||||||||||||||||
| As of January 31, | As of December 31, | ||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2010 | |||||||||||||||
| (in thousands) | |||||||||||||||||||
| Consolidated Balance Sheet Data: | |||||||||||||||||||
| Cash and cash equivalents | $ | 298,192 | $ | 581,326 | $ | 84,158 | $ | 57,529 | $ | 30,887 | |||||||||
| Marketable securities | 1,559,517 | 1,305,253 | 706,181 | 53,634 | 4,498 | ||||||||||||||
| Working capital (deficit) | 1,467,774 | 1,601,768 | 629,528 | 37,934 | (4,065 | ) | |||||||||||||
| Property and equipment, net | 140,136 | 77,664 | 44,585 | 25,861 | 12,896 | ||||||||||||||
| Total assets | 2,358,633 | 2,176,265 | 959,080 | 232,638 | 100,605 | ||||||||||||||
| Total unearned revenue | 632,744 | 413,565 | 285,260 | 188,097 | 97,404 | ||||||||||||||
| Convertible senior notes, net | 490,501 | 468,412 | — | — | — | ||||||||||||||
| Total liabilities | 1,232,658 | 989,048 | 366,797 | 237,293 | 122,689 | ||||||||||||||
| Redeemable convertible preferred stock | — | — | — | 170,906 | 75,555 | ||||||||||||||
| Total stockholders’ equity (deficit) | 1,125,975 | 1,187,217 | 592,283 | (175,561 | ) | (97,639 | ) | ||||||||||||
Year Ended January 31, | One Month Ended January 31 | Year Ended December 31, | |||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cash Flow Data: | |||||||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 102,003 | $ | 46,263 | $ | 11,214 | $ | (13,774 | ) | $ | (1,069 | ) | $ | (15,335 | ) | ||||||||
Free cash flows(2) | (1,643 | ) | (29,577 | ) | (23,401 | ) | (34,756 | ) | (1,134 | ) | (24,109 | ) | |||||||||||
(2) | Free cash flows, a non-GAAP financial measure, is defined as net cash provided by (used in) operating activities minus purchases of property and equipment, property and equipment acquired under capital leases and purchase of other intangible assets. Each adjusting item is separately presented on our consolidated statements of cash flows. See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for further information. |
2013, Recruiting in 2014 and Insight Applications in 2015. development, sales and marketing, and general and administrative expenses as a percentage of revenues to decrease over time as we grow our revenues, and we anticipate that we will gain economies of scale by increasing our customer base without direct incremental development costs and by utilizing more of the capacity of our data centers. 2015. applications. continue to develop, we expect the partners to increasingly contract directly with our subscription customers. As a result of this trend, and the increase of our subscription services revenues, we expect professional services revenues as a percentage of total revenues to decline over time. subscription services. Subscription services Professional services Total revenues Costs of subscription services Costs of professional services Product development Sales and marketing General and administrative Total operating expenses Operating loss Operating margin Costs of subscription services Costs of professional services Product development Sales and marketing General and administrative Total operating expenses Operating loss Operating margin Costs of subscription services Costs of professional services Product development Sales and marketing General and administrative Total operating expenses Operating loss Operating marginITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSYou should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors.”OverviewWorkday provides enterprise cloud applications forfinancial management, human capital management, (HCM), payroll, financial management and analytics.analytics applications designed for the world's largest companies, educational institutions, and government agencies. We offer innovative and adaptable technology focused on the consumer Internet experience and cloud delivery model. Our applications are designed for global enterprises to manage complex and dynamic operating environments. We provide our customers highly adaptable, accessible and reliable applications to manage critical business functions that enable them to optimize their financial and human capital resources.We were founded in 2005 to deliver cloud applications to global enterprises. Our applications are designed around the way people work today – in an environment that is global, collaborative, fast-paced and mobile. Our cycle of frequent updates has facilitated rapid innovation and the introduction of new applications throughout our history. We began offering our Human Capital Management (HCM) application in 2006. Since then we have continued to invest in innovation and have consistently introduced new services to our customers, including our Financial Management application in 2007, our Procurement and Employee Expense Management applications in 2008, our Payroll and mobile applications in 2009, our Talent Management application in 2010, our native iPad application and Workday integration platform in 2011, our Time Tracking and Grants Management applications in 2012, and Big Data Analytics in 2013.We offer Workday applications to our customers on an enterprise-wide subscription basis, typically with three-year terms and with subscription fees largely based on the size of the customer’s workforce. We generally recognize revenues from subscription fees ratably over the term of the contract. We currently derive a substantial majority of our subscription services revenues from subscriptions to our HCM application. We market our applications primarily through our direct sales force.We have achieved significant growth in a relatively short period of time. Our diverse customer base includes large, global companies and our direct sales force generally targets organizations with more than 1,000 workers. As of January 31, 2014, we had more than 600 customers. A substantial majority of our growth comes from new customers. Our current financial focus is on growing our revenues and expanding our customer base. While we are incurring losses today, we strive to invest in a disciplined manner across all of our functional areas to sustain continued near-term revenue growth and support our long-term initiatives. Our operating expenses have increased significantly in absolute dollars in recent periods, primarily due to our significant growth in employees. We had more thanapproximately 3,750 and approximately 2,600 and more than 1,700 employees as of January 31, 2015 and 2014, and 2013, respectively.We intend to continue investing for long-term growth. We have invested, and expect to continue to invest, heavily in our application development efforts to deliver additional compelling applications and to address customers’ evolving needs. In addition, we plan to continue to expand our sales and marketing organizations to sell our applications globally. We have madeexpect to make further significant investments in our data center infrastructure in fiscal 2014. We expect to continue this effort in fiscal 20152016 as we update our technology and plan for future customer growth. We are also investing in personnel to service our growth in customers.growing customer base. These investments will increase our costs on an absolute basis in the near-term. Many of these investments will occur in advance of experiencing any direct benefit from them and will make it difficult to determine if we are allocating our resources efficiently. As a result of these investments, we do not expect to be profitable in the near future. We expect our productSince inception, we have invested heavily in our professional services organization to help ensure that customers successfully deploy and adopt our applications. Additionally, we continue to expand our professional services partner ecosystem to further support our customers. We believe our investment in professional services, as well as partners building consulting practices around Workday, will drive additional customer subscriptions and continued growth in revenues. In addition, over time we expect professional services revenues and the cost of professional services as a percentage of total revenues to decline as we increasingly rely on our partners to deploy Workday applications and as the number of our existing customers continues to grow.27Fiscal Year EndOur fiscal year ends on January 31. References to fiscal 2014,2015, for example, refer to the year ended January 31, 2014.Components of Results of OperationsRevenuesWe primarily derive our revenues from subscription services fees and professional services fees. Subscription services revenues primarily consist of fees that give our customers access to our cloud applications, which include routine customer support at no additional cost. Professional services fees include deployment services, optimization services, and training.Subscription services revenues accounted for over 75%78% of our total revenues during fiscal 20142015 and represented over 90%96% of our total unearned revenue as of January 31, 2014.2015. Subscription services revenues are driven primarily by the number of customers, the number of workers at each customer, the number of applications subscribed to by each customer, and the price of our applications, and to a lesser extent, renewal rates. To date, revenues from renewals have not been a substantial component of revenues.The mix of the applications to which a customer subscribes can affect our financial performance due to price differentials in our applications. Compared to our other offerings, our HCM application has been available for a longer period of time, is more established in the marketplace and has benefited from continued enhancements of the functionality over a longer period of time, all of which help us to improve our pricing for that application. However, new products or services offerings by competitors in the future could impact the mix and pricing of our offerings.Subscription services fees are recognized ratably as revenues over the contract term beginning on the date the application is made available to the customer, which is generally within one week of contract signing. Our subscription contracts typically have a term of three years and are non-cancelable. We generally invoice our customers in advance, in annual installments. Amounts that have been invoiced are initially recorded as unearned revenue. Amounts that have not been invoiced represent backlog and are not reflected in our consolidated financial statements.OurThe majority of our consulting engagements are typically billed on a time and materials basis, and revenues are typically recognized as the services are performed. We offer a number of training options intended to support our customers in configuring, using and administering our services. In some cases, we supplement our consulting teams by subcontracting resources from our service partners and deploying them on customer engagements. As Workday’s professional services organization and the Workday-related consulting practices of our partner firmsApproximately 2% of our total revenues for year ended January 31, 2014 were derived from multiple-deliverable arrangements that were accounted for as a single unit of accounting, because some of our professional services offerings did not have standalone value when the related contracts were executed. In these situations, all revenue is recognized ratably over the term of the subscription contract. Additionally, in these situations, we defer the direct costs of the related professional services contract and those direct costs are amortized over the same period as the professional services revenues are recognized. As of January 31, 2014, less than 10% of our total unearned revenue balance represented multiple-deliverable arrangements accounted for as a single unit of accounting. For contracts executed subsequent to February 1, 2012, there was standalone value for all deliverables.Costs and ExpensesCosts of subscription services revenues. Costs of subscription services revenues consist primarily of employee-related expenses related to hosting our applications and providing customer support, the costs of data center capacity, and depreciation of owned and leased computer equipment and software.Costs of professional services revenues. Costs of professional services revenues consist primarily of employee-related expenses associated with these services, the cost of subcontractors and travel costs.travel. The percentage of total revenues derived from professional services was 24%22% in fiscal 2014.2015. The cost of providing professional services is significantly higher as a percentage of the related revenues than for our subscriptions.Product development. Product development expenses consist primarily of employee-related expenses.costs. We continue to focus our product development efforts on adding new features and applications, increasing the functionality and enhancing the ease of use of our cloud applications.Sales and marketing. Sales and marketing expenses consist primarily of employee-related expenses,costs, sales commissions, marketing programs and travel related expenses.travel. Marketing programs consist of advertising, events, corporate communications, brand building and product marketing activities. Commissions earned by our sales force that can be associated specifically with a non-cancelable subscription contract are deferred and amortized over the same period that revenues are recognized for the related non-cancelable contract.28General and administrative. General and administrative expenses consist of employee-related expensescosts for finance and accounting, legal, human resources and management information systems personnel, legal costs, professional fees and other corporate expenses.Results of OperationsRevenuesOur total revenues for fiscal 2015, 2014 2013 and 20122013 were as follows: Year Ended January 31, 2014 2013 2012 2013 to 2014
% Change 2012 to 2013
% Change (in thousands) $ 354,169 $ 190,320 $ 88,634 86 % 115 % 114,769 83,337 45,793 38 82 $ 468,938 $ 273,657 $ 134,427 71 104 Year Ended January 31, 2015 2014 2013 2014 to 2015% Change 2013 to 2014% Change (in thousands) Subscription services $ 613,328 $ 354,169 $ 190,320 73 % 86 % Professional services 174,532 114,769 83,337 52 38 Total revenues $ 787,860 $ 468,938 $ 273,657 68 71 Fiscal 2015 compared to fiscal 2014. Total revenues were $788 million for fiscal 2015, compared to $469 million for fiscal 2014, an increase of $319 million, or 68%. Subscription services revenues were $613 million for fiscal 2015, compared to $354 million for fiscal 2014, an increase of $259 million, or 73%. The increase in subscription revenues was due primarily to an increased number of customer contracts as compared to the prior year period. Professional services revenues were $175 million for fiscal 2015, compared to $115 million for the prior year period, an increase of $60 million, or 52%. The increase in professional services revenues was due primarily to a greater number of customers requesting deployment and integration services.Fiscal 2014 compared to fiscal 2013. Total revenues were $468.9$469 million for fiscal 2014, compared to $273.7$274 million for fiscal 2013, an increase of $195.2$195 million, or 71%. Subscription services revenues were $354.2$354 million for fiscal 2014, or 76% of total revenues, compared to $190.3$190 million, or 70% of total revenues, for fiscal 2013, an increase of $163.9$164 million or 86%. The increase in subscription services revenues was due primarily to the addition of new customers as compared to the prior year period. We had more than 600 customers as of January 31, 2014 compared to more than 400 customers as of January 31, 2013. Professional services revenues were $114.8$115 million for fiscal 2014, compared to $83.3$83 million for fiscal 2013, an increase of $31.5$32 million, or 38%. The increase in professional services revenues was due primarily to the addition of new customers and a greater number of customers requesting deployment and integration services.Fiscal 2013 compared to fiscal2012. Total revenues were $273.7 million for fiscal 2013, compared to $134.4 million for fiscal 2012, an increase of $139.2 million, or 104%. Subscription services revenues were $190.3 million, or 70% of total revenues, for fiscal 2013, compared to $88.6 million, or 66% of total revenues, for fiscal 2012. The increase in subscription services revenues was due primarily to the addition of new and larger customer contracts as compared to the prior year. We had more than 400 customers as of January 31, 2013 compared to more than 250 customers as of January 31, 2012. Professional services revenues were $83.3 million, or 30% of total revenues, for fiscal 2013, compared to $45.8 million, or 34% of total revenues, for fiscal 2012. The increase in professional services revenues was due primarily to a larger customer base requesting deployment and integration services.Core Operating ExpensesManagement usesWe use the non-GAAP financial measure of core operating expenses 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 our financial performance and the ability of operations to generate cash. Management believesWe believe that core operating expenses reflects our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business, as it excludes expenses that are not reflective of ongoing operating results. ManagementWe also believesbelieve that core operating expenses provides useful information to investors and others in understanding and evaluating our operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.The following discussion of our core operating expenses and the components comprising our core operating expenses highlights the factors that our management focuseswe focus upon in evaluating our operating margin and operating expenses. The increases or decreases in operating expenses discussed in this section do not include changes relating to share-based compensation, and certain other expenses, which consist of employer payroll taxestax-related items on employee stock transactions, amortization of acquisition-related intangible assets and an equity grant to the Workday Foundation.Information aboutReconciliations of our core operating expenses isto the nearest GAAP measure, total operating expenses, are as follows: Year Ended January 31, 2014 Core
Operating
Expenses(1) Share-Based
Compensation
Expenses Other
Operating
Expenses Total
Operating
Expenses (in thousands) $ 66,770 $ 2,408 $ 17 $ 69,195 102,141 4,818 656 107,615 158,928 21,644 1,544 182,116 184,359 12,131 883 197,373 43,773 20,850 1,298 65,921 $ 555,971 $ 61,851 $ 4,398 $ 622,220 $ (87,033 ) $ (61,851 ) $ (4,398 ) $ (153,282 ) (19 )% (13 )% (1 )% (33 )% Year Ended January 31, 2013 Core
Operating
Expenses(1) Share-Based
Compensation
Expenses Other
Operating
Expenses Total
Operating
Expenses (in thousands) $ 38,650 $ 601 $ — $ 39,251 75,972 1,312 — 77,284 99,137 3,528 — 102,665 120,723 2,717 — 123,440 30,460 7,170 11,250 48,880 $ 364,942 $ 15,328 $ 11,250 $ 391,520 $ (91,285 ) $ (15,328 ) $ (11,250 ) $ (117,863 ) (33 )% (6 )% (4 )% (43 )% Year Ended January 31, 2012 Core
Operating
Expenses(1) Share-Based
Compensation
Expenses Total
Operating
Expenses (in thousands) $ 22,112 $ 230 $ 22,342 42,628 398 43,026 60,890 1,124 62,014 69,517 839 70,356 13,542 1,591 15,133 $ 208,689 $ 4,182 $ 212,871 $ (74,262 ) $ (4,182 ) $ (78,444 ) (55 )% (3 )% (58 )% 29 Year Ended January 31, 2015 CoreOperatingExpenses(1) Share-BasedCompensationExpenses OtherOperatingExpenses TotalOperatingExpenses (in thousands) Costs of subscription services $ 96,219 $ 6,053 $ 204 $ 102,476 Costs of professional services 148,986 12,890 451 162,327 Product development 249,709 63,938 3,221 316,868 Sales and marketing 284,545 29,875 1,420 315,840 General and administrative 61,557 43,292 1,202 106,051 Total $ 841,016 $ 156,048 $ 6,498 $ 1,003,562 Operating loss (53,156 ) $ (156,048 ) $ (6,498 ) $ (215,702 ) Operating margin (7 )% (20 )% — % (27 )% Year Ended January 31, 2014 CoreOperatingExpenses(1) Share-BasedCompensationExpenses OtherOperatingExpenses TotalOperatingExpenses (in thousands) Costs of subscription services $ 66,770 $ 2,408 $ 17 $ 69,195 Costs of professional services 102,141 4,818 656 $ 107,615 Product development 158,928 21,644 1,544 $ 182,116 Sales and marketing 184,359 12,131 883 $ 197,373 General and administrative 43,773 20,850 1,298 $ 65,921 Total $ 555,971 $ 61,851 $ 4,398 $ 622,220 Operating loss $ (87,033 ) $ (61,851 ) $ (4,398 ) $ (153,282 ) Operating margin (19 )% (13 )% (1 )% (33 )% Year Ended January 31, 2013 CoreOperatingExpenses(1) Share-BasedCompensationExpenses OtherOperatingExpenses TotalOperatingExpenses (in thousands) Costs of subscription services $ 38,650 $ 601 $ — $ 39,251 Costs of professional services 75,972 1,312 — $ 77,284 Product development 99,137 3,528 — $ 102,665 Sales and marketing 120,723 2,717 — $ 123,440 General and administrative 30,460 7,170 11,250 $ 48,880 Total $ 364,942 $ 15,328 $ 11,250 $ 391,520 Operating loss $ (91,285 ) $ (15,328 ) $ (11,250 ) $ (117,863 ) Operating margin (33 )% (6 )% (4 )% (43 )% (1)Core operating expenses is a non-GAAP financial measure that excludes share-based compensation and certain other operating expenses from our total operating expenses calculated in accordance with GAAP. The other operating expenses excluded are employer payroll taxes on employee stock transactions and an equity grant to the Workday Foundation. (1) See “Non-GAAP Financial Measures” below for further information.
centers, an increase of sectors, as well as internationally. 2016. was $24 million and $14 million, respectively, for fiscal 2015 and 2014. money market funds. Net cash provided by (used in): Operating activities Investing activities Financing activities Effect of exchange rate changes Net increase in cash and cash equivalents Net cash provided by (used in) operating activities Purchases of property and equipment Property and equipment acquired under capital leases Purchase of other intangible assets Free cash flows headcount related and other operational expenses. We are actively evaluating construction alternatives for the leasehold land in Pleasanton and have not yet factored related development costs, if any, into our expected capital expenditures. understanding and evaluating our operating results and future prospects in the same manner as management, in comparing financial results across accounting periods and to those of peer companies and to better understand the long-term performance of our core business. expenses has certain limitations because it does not reflect all items of income and expense that affect our operations and are reflected in the GAAP measure of total operating expenses. 2013. 2013. 2015. 0.75% Convertible Senior Notes due 2018(1) 1.50% Convertible Senior Notes due 2020(1) Aggregate interest obligation(2) Capital lease obligations(3) Operating lease obligations: Facilities space(4) Facilities space with related party Contractual commitments Total 30Core operating marginCore operating margins, calculated using GAAP revenues and core operating expenses, improved from (19)% for fiscal 2014 to (7)% for fiscal 2015 and from (33)% for fiscal 2013 to (19)% for fiscal 2014 and from (55)% for fiscal 2012 to (33)% for fiscal 2013.2014. The improvement in our operating margin was primarily due to higher subscription services revenues in both fiscal 20142015 and 20132014 compared to prior fiscal years. The improvement in fiscal 2015 was also due to higher professional services revenues driven by improved utilization rates and increased demand for services, and improvements to operating leverage. In evaluating our results, we generally focus on core operating expenses. We believe that our core operating expenses reflect our ongoing business in a manner that allows meaningful period-to-period comparisons. Our core operating expenses are reconciled to the most comparable U.S. generally accepted accounting principles (GAAP) measure, “total operating expenses,” in the table above.Core operating expenses increased by $191.0$285 million, or 51% for fiscal 2015 compared to fiscal 2014, and by $191 million, or 52% for fiscal 2014 compared to fiscal 2013 and by $156.3 million or 75% for fiscal 2013, compared to fiscal 2012.2013. As quantified below, these increases for both periods were primarily due to higher employee-related costs driven by higher headcount.CostCosts of subscription servicesFiscal 20142015 compared to fiscal 2013.2014. Core operating expenses in costs of subscription services were $66.8$96 million for fiscal 2015, compared to $67 million for fiscal 2014, compared to $38.7 million for fiscal 2013, an increase of $28.1$29 million, or 73%43%. The increase was primarily due to an increase of $10.4$10 million in employee-related costs driven by higher headcount, an increase of $9 million in depreciation expense related to our data$8.8$6 million in service contracts expense to expand data center capacity, and an increase of $3 million in facility and IT-related expense.Fiscal 2014 compared to fiscal 2013. Core operating expenses in costs of subscription services were $67 million for fiscal 2014, compared to $39 million for fiscal 2013, an increase of $28 million, or 72%. The increase was primarily due to an increase of $10 million in depreciation expense related to our data centers, an increase of $9 million in employee-related costs driven by higher headcount and an increase of $6.6$7 million in service contracts expense to expand data center capacity.We expect that in the future, core operating expenses in costs of subscription services will continue to increase in absolute dollars as we improve and expand our data center capacity and operations.Costs of professional servicesFiscal 20132015 compared to fiscal 2012.Core operating expenses in costs of subscription services were $38.7 million for fiscal 2013, compared to $22.1 million for fiscal 2012, an increase of $16.6 million, or 75%. The increase was primarily due to an increase of $5.8 million in employee-related costs driven by higher headcount and an increase of $4.8 million in depreciation expenses for additional data center equipment. In addition, we had an increase of $2.9 million in service delivery costs and an increase of $1.5 million in facilities costs due to our increased data center capacity.Cost of professional servicesFiscal 2014 compared to fiscal 2013.2014. $102.1$149 million for fiscal 2015, compared to $102 million for fiscal 2014, a $47 million increase, or 46%. This increase was primarily due to increases of $36 million to staff our deployment and integration engagements and $4 million in facility and IT-related expenses.Fiscal 2014 compared to fiscal 2013. Core operating expenses in costs of professional services were $102 million for fiscal 2014, compared to $76.0$76 million for fiscal 2013, a $26.1$26 million increase, or 34%. This increase was primarily due to increases of $21.3$21 million to staff our deployment and integration engagements and $1.6$2 million in facility and IT-related expense.Due to the large increase in demand for our professional services versus the prior year, we have increased both our internal professional service staff as well as third-party supplemental staff. Over time, we expect costs of professional services as a percentage of total revenues to continue to decline as we increasingly rely on third parties to deploy our applications and as the number of our customers continues to grow. For fiscal 2015,2016, we anticipate professional services margins to be lower than fiscal 20142015 as we invest in deploying new customers inour financial management applications, medium-size enterprise, and in building our partnership ecosystem in the education and government categories, where the third party partner ecosystem is still maturing.Product developmentFiscal 20132015 compared to fiscal 2012.Core operating expenses in costs of professional services were $76.0 million for fiscal 2013, compared to $42.6 million for fiscal 2012, an increase of $33.4 million, or 78%. The increase was primarily due to additional costs of $30.7 million to staff our deployment and integration engagements. Due to the large increase in demand for our professional services versus fiscal 2012, we increased both our internal professional service staff as well as third party supplemental staff.Product developmentFiscal 2014 compared to fiscal 2013.2014.$158.9$250 million for fiscal 2015, compared to $159 million for fiscal 2014, compared to $99.1 million for fiscal 2013, an increase of $59.8$91 million, or 60%57%. The increase was primarily due to increases of $44.9$66 million in employee compensation costs due to higher headcount, $6.4$9 million in facility and IT-related expenses, $6 million in depreciation expense for our development cloud data center and $5 million in third party costs for hardware maintenance and data center capacity.Fiscal 2014 compared to fiscal 2013. Core operating expenses in product development were $159 million for fiscal 2014, compared to $99 million for fiscal 2013, an increase of $60 million, or 61%. The increase was primarily due to increases of $45 million in employee compensation costs due to higher headcount, $6 million in facility and IT-related expenses and $3.8$4 million in contracted costs for our development cloud data center.31We expect that in the future, product development expenses will continue to increase in absolute dollars as we improve and extend our applications and develop new technologies.Sales and marketingFiscal 20132015 compared to fiscal 2012.Core operating expenses in product development were $99.1 million for fiscal 2013, compared to $60.9 million for fiscal 2012, an increase of $38.2 million, or 63%. The increase was primarily due to an increase of $28.0 million in employee-related costs due to higher headcount and a $2.6 million increase in contractor costs as we supplemented our internal development professionals.Sales and marketingFiscal 2014 compared to fiscal 2013.2014.$184.4$285 million for fiscal 2015, compared to $184 million for fiscal 2014, compared to $120.7 million for fiscal 2013, an increase of $63.7$101 million, or 53%55%. The increase was primarily due to increases of $47.2$68 million in employee compensation costs due to higher headcount and higher commissionable sales volume, $5.9$17 million in advertising, marketing and event costs, $4.2 million in travel expenses and $4.2$7 million in facility and IT-related expenses and $6 million in travel.Fiscal 2014 compared to fiscal 2013. Core operating expenses in sales and marketing were $184 million for fiscal 2014, compared to $121 million for fiscal 2013, an increase of $63 million, or 52%. The increase was primarily due to increases of $47 million in employee compensation costs due to higher headcount and higher commissionable sales volume, $6 million in advertising, marketing and event costs, $4 million in travel and $4 million in facility and IT-related expenses.We expect that sales and marketing expenses will continue to increase in absolute dollars in the future as we continue to invest in sales and marketing by expandingthe expansion of our domestic and international selling and marketing activities buildingto build brand awareness and attractingattract new customers.General and administrativeFiscal 20132015 compared to fiscal 2012.Core operating expenses in sales and marketing were $120.7 million for fiscal 2013, compared to $69.5 million for fiscal 2012, an increase of $51.2 million, or 74%. The increase was primarily due to increases of $35.9 million in employee-related costs driven by higher headcount, $5.0 million in advertising, marketing and event costs, and $3.2 million in travel expenses.General and administrativeFiscal 2014 compared to fiscal 2013.2014.$43.8$62 million for fiscal 2015, compared to $44 million for fiscal 2014, an increase of $18 million, or 41%. The increase was primarily due to $12 million in higher employee compensation costs due to higher headcount, $4 million in higher professional services costs including consulting, legal and audit and $2 million in facility and IT-related expenses.Fiscal 2014 compared to fiscal 2013. Core operating expenses in general and administrative were $44 million for fiscal 2014, compared to $30.5$30 million for fiscal 2013, an increase of $13.3$14 million, or 44%47%. The increase was primarily due to $10.6$11 million in higher compensation costs due to higher headcount and $2.1$2 million in higher professional services costs including consulting, legal and audit.We expect general and administrative expenses will continue to increase in absolute dollars as we further invest in our infrastructure and incur additional employee-related costs, professional feessupport our global expansion.Share-Based Compensation ExpensesShare-based compensation expenses were $156 million, $62 million and insurance costs related to the growth of our business$15 million in fiscal 2015, 2014 and international expansion.Fiscal 2013, respectively. The increase in share-based compensation expenses for fiscal 2015 compared to fiscal 2012.Core operating expenses in general and administrative were $30.5 million for fiscal 2013, compared to $13.5 million for fiscal 2012, an increase of $17.0 million, or 126%. The increase2014 was primarily due to $10.0 million in higher employee-related costs driven by higher headcount. Also contributing to the change was a $4.9 millionan increase in professional services coststhe number of employees, as well as a change in the timing of the cycle in which we transitionedgrant additional equity awards to being a public company.Share-Based Compensation ExpensesShare-based compensation expensesexisting employees which resulted in grants that were $61.9 million, $15.3 million and $4.2 millionmade earlier in the fiscal year in fiscal 2014, 2013 and 2012, respectively.2015 relative to fiscal 2014. The increase in share-based compensation expenses for fiscal 2014 compared to fiscal 2013 was primarily due to grantsan increase in the number of restricted stock units to existing and new employees during fiscal 2014. During fiscal 2015, 2014 weand 2013, the realized $0.3 million excess tax benefits related to share-based compensation expenses.were immaterial. The increase in share-based compensation expensesnext grant to existing employees is planned for the first quarter of fiscal 2013 compared to fiscal 2012 was primarily due to equity grants in fiscal 2013 when the market value of our common stock was significantly higher than when the fiscal 2012 grants were made.Many of the fiscal 2014 grants occurred in August 2014 and thus we expect share-based compensation expenses in fiscal 2015 to increase as we will have a full year of expense recognition related to these grants and we expect to make additional share grants in fiscal 2015.Other Operating ExpensesOther operating expenses, which consist of employer payroll taxtax-related items on employee stock transactions for fiscal 2015 and 2014, amortization of acquisition-related intangible assets for fiscal 2015 and a one-time charge related to our contribution of 500,000 shares of Class A common stock to the Workday Foundation in fiscal 2013, were $4.4$6 million, $4 million and $11.3$11 million, respectively. Employer payroll taxestax-related items on employee stock transactions substantially increased beginning in April 2013 after the expiration of the lock-up period instituted for our initial public offering. Before fiscal 2014, the employer payroll taxtax-related charges on employee stock transactions waswere not included in other operating expenses as it wasthey were not material.Other Expense, NetOther expense, net, was $17.5$30 million, $18 million and $1 million for fiscal 2015, 2014 and 2013, respectively. The increase in other expense, net for fiscal 2015 and 2014 compared to $1.2 million for fiscal 2013, an increase of $16.3 million. The increaseprior periods was primarily due to the interest expense related to our June 2013 issuance of 0.75% convertible senior notes due JulyOctober 15, 2018 (2018 Notes) and 1.50% convertible senior notes due JulyOctober 15, 2020 (2020 Notes, and together with the 2018 Notes, referred tothe Notes), as Notes), includingwe incurred a full period of interest expense in fiscal 2015.We issued the Notes in June 2013, and therefore incurred interest on the Notes for only a portion of fiscal 2014. We did not incur interest expense for the Notes in fiscal 2013 as they had not yet been issued. The contractual cash interest expense32was $6 million and $4 million, respectively, for fiscal 2015 and 2014. The non-cash interest expense related to amortization of the debt discount and amortization of debt issuance costs of $14.4 million.Liquidity and Capital ResourcesAs of January 31, 2014,2015, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling $1.9 billion, which were held for working capital purposes. Our cash equivalents and marketable securities are comprisedcomposed primarily of U.S. agency obligations, U.S. treasury securities, money market funds,U.S. corporate securities, commercial paper, and U.S. corporate securities.We have financed our operations primarily through sales of equity securities, customer payments, and issuance of debt. In July 2013, we issued Notes which provided us with net proceeds of $584.3 million. In January 2014, we sold 6.9 million shares of our Class A common stock in a follow-on offering which provided us with net proceeds of $592.2 million. Our future capital requirements will depend on many factors, including our customer growth rate, subscription renewal activity, the timing and extent of development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced services offerings, and the continuing market acceptance of our services. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, and intellectual property rights. We may choose to seek additional equity or debt financing.Our cash flows for fiscal 2015, 2014 2013 and 20122013 were as follows: Year Ended January 31, 2014 2013 2012 (in thousands) $ 46,263 $ 11,214 $ (13,774 ) (682,633 ) (670,118 ) (56,195 ) 1,133,610 685,537 96,978 (72 ) (4 ) 8 $ 497,168 $ 26,629 $ 27,017 Year Ended January 31, 2015 2014 2013 (in thousands) Net cash provided by (used in): Operating activities $ 102,003 $ 46,263 $ 11,214 Investing activities (404,167 ) (682,633 ) (670,118 ) Financing activities 19,455 1,133,610 685,537 Effect of exchange rate changes (425 ) (72 ) (4 ) Net increase (decrease) in cash and cash equivalents $ (283,134 ) $ 497,168 $ 26,629 In evaluating our performance internally, we focus on long-term, sustainable growth in free cash flows. We define free cash flows, a non-GAAP financial measure, as net cash provided by (used in) operating activities minus purchases of property and equipment, property and equipment acquired under capital leases and purchasepurchases of other (non-acquisition-related) intangible assets. See “Non-GAAP Financial Measures” below for additionalfurther information.Our free cash flows for fiscal 2015, 2014 2013 and 20122013 were as follows: Year Ended January 31, 2014 2013 2012 (in thousands) $ 46,263 $ 11,214 $ (13,774 ) (60,725 ) (15,898 ) (4,999 ) (115 ) (18,717 ) (15,983 ) (15,000 ) — — $ (29,577 ) $ (23,401 ) $ (34,756 ) Year Ended January 31, 2015 2014 2013 (in thousands) Net cash provided by operating activities $ 102,003 $ 46,263 $ 11,214 Purchases of property and equipment (103,646 ) (60,725 ) (15,898 ) Property and equipment acquired under capital leases — (115 ) (18,717 ) Purchase of other intangible assets — (15,000 ) — Free cash flows $ (1,643 ) $ (29,577 ) $ (23,401 ) Operating ActivitiesManagement usesWe use cash provided by (used in) operating activities as a key financial matric. For fiscal 2014, cashmetric. Cash provided by operating activities was $46.3$102 million, as compared to $11.2$46 million and $11 million, respectively, for fiscal 20132015, 2014 and a use of cash in operating activities of $13.8 million for fiscal 2012.2013. The increase in cash flows compared to prior fiscal years resulted primarily from increased cash collections driven by growth in sales tocustomer demand for our customers.services. This increase in collections in both fiscal 20142015 and 20132014 was partially offset by increases in our operating expenses, which was primarily driven by increased headcount.33Investing ActivitiesCash used in investing activities for fiscal 2015, 2014 and 2013 and 2012 was $682.6$404 million, $670.1$683 million and $56.2$670 million respectively, andwhich was primarily the result of the timing of purchases and maturities of marketable securities and of capital expenditures of $60.7$104 million, $15.9$61 million and $5.0$16 million, respectively. Following the initial public offering of our Class A common stock in October 2012, the issuance of our Notes in JulyJune 2013 and our follow-on offering of Class A common stock in January 2014, we purchased a significant amount of marketable securities. In addition, during fiscal 2015, we paid $10 million to purchase 1.4 million shares of series D preferred stock in a private company, and received proceeds of $53 million from the sale of available-for-sale securities. During fiscal 2014, we paid $10.0$10 million to purchase a leasehold interest in land in Pleasanton adjacent to our existing office space and $5.0$5 million to acquire patents. We expect capital expenditures will be approximately $100$150 million for fiscal 2015.2016. We expect that these capital outlays will largely be used to expand the infrastructure of our data centers and to build out additional office space to support our growth.Financing ActivitiesFor fiscal 2015, cash provided by financing activities was $19 million, primarily as a result of $36 million of proceeds from the issuance of common stock from employee equity plans, partially offset by $10 million in principal payments on our capital lease obligations and $8 million of Class A common share repurchases for tax withholdings on vesting of restricted stock.For fiscal 2014, cash provided by financing activities provided $1.1was $1 billion, primarily as a result of $584.3$584 million in net proceeds from issuance of the Notes, $592.2$592 million in net proceeds from our follow-on offering of Class A common stock, $92.7$93 million in proceeds from the issuance of warrants related to the Notes and $23.7$24 million in proceeds from issuance of our Class A common stock from the exercise of stock options and the purchase of shares under the Employee Stock Purchase Plan (ESPP).employee equity plans. These proceeds were partially offset by $143.7$144 million to purchase convertible senior notes hedges and $12.1$12 million in principal payments on our capital lease obligations. We purchased the convertible senior notes hedges to offset potential economic dilution to our Class A Common Stockcommon stock upon any conversion of the Notes.For fiscal 2013, financing activities provided $685.5$686 million, primarily as a result of $684.6$685 million of net proceeds from our initial public offering of Class A common stock in October 2012 and $10.4$10 million in proceeds from the exercise of stock options,employee equity plans, partially offset by $9.5$9 million in principal payments on our capital lease obligations.For fiscal 2012, financing activities provided $97.0 million primarily as a result of $95.0 million of net proceeds from issuance of Series F redeemable convertible preferred stock and $6.3 million in proceeds from the exercise of stock options, partially offset by $4.3 million in principal payments on our capital lease obligations.Free Cash FlowsIn addition to cash provided by (used in) operating activities, management useswe use free cash flows as a key financial matric.metric. Free cash flows increased by $28 million to $(2) million for fiscal 2015, compared to $(30) million for fiscal 2014 and decreased by $6.2$7 million to $(29.6)$(30) million for fiscal 2014, compared to $(23.4)$(23) million for fiscal 2013, and improved by $11.4 million to $(23.4) million for2013. The improvement in fiscal 2013,2015 as compared to $(34.8) million for fiscal 2012.2014 was primarily due to increased sales and related cash collections, partially offset by increased capital expenditures and higher operating expenses, driven primarily by increased headcount. The reduction in free cash flows in fiscal 2014 as compared to fiscal 2013 was primarily due to a significant increase in cash paid for property and equipment and payments made for a leasehold interest and patents, partially offset by increased sales and the related cash collections. The increase in free cash flows in 2013 was primarily due to increased sales and the related cash collections.Non-GAAP Financial MeasuresRegulation S-K Item 10(e), “Use of non-GAAP financial measures in Commission filings,” defines and prescribes the conditions for use of non-GAAP financial information. Our measures of core operating expenses, core operating margin and free cash flows each meet the definition of a non-GAAP financial measure.Core Operating ExpensesWe define core operating expenses as our total operating expenses excluding the following components, which we believe are not reflective of our ongoing operational expenses. In each case, for the reasons set forth below, management believeswe believe that excluding the component provides useful information to investors and others in•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 in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. For restricted share awards, the amount of share-based compensation expenses is not reflective of the value ultimately received by the grant recipients. Moreover, determining the fair value of certain of the share-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of the related share-based awards. Unlike cash compensation, the value of stock options and the Employee Stock Purchase Plan, which is an element of our ongoing share-based compensation expenses, is determined using a complex formula that incorporates factors, such as market volatility and forfeiture rates, that are beyond our control.•Other Operating Expenses. Other operating expenses included employer payroll taxes on employee stock transactions for fiscal 2014 and a one-time charge related to our contribution of equity to the Workday Foundation for fiscal 2013. The amount of employer payroll taxes on share-based compensation is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of the business. During fiscal 2013, Workday granted 500,000 shares of common stock to the Workday Foundation. The Workday Foundation is a non-profit organization established to provide grants and humanitarian relief, employer matching contributions and to support volunteerism and social development projects. This grant resulted in a one-time charge of $11.3 million, which was recorded to the General and administrative expenses line of the consolidated statements of operations. Management does not expect to make future grants of shares to the Foundation and therefore considers this charge non-recurring. As such, management believes it is useful to exclude this one-time charge in order to better understand the ongoing expenses of our core business and to facilitate comparison of our results across periods.Share-Based Compensation Expenses. Although share-based compensation is an important aspect of the compensation of our employees and executives, we believe it is useful to exclude share-based compensation in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. For restricted share awards, the amount of share-based compensation expenses34is not reflective of the value ultimately received by the grant recipients. Moreover, determining the fair value of certain of the share-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of the related share-based awards. Unlike cash compensation, the value of stock options and shares issued under the Employee Stock Purchase Plan, which is an element of our ongoing share-based compensation expenses, is determined using a complex formula that incorporates factors, such as market volatility and forfeiture rates, that are beyond our control.Other Operating Expenses. Other operating expenses included employer payroll tax-related items on employee stock transactions for fiscal 2015, and 2014, amortization of acquisition-related intangible assets for fiscal 2015 and a one-time charge related to our contribution of equity to the Workday Foundation for fiscal 2013. The amount of employer payroll tax-related items on share-based compensation 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 our ongoing operations. During fiscal 2013, Workday granted 500,000 shares of common stock to the Workday Foundation. The Workday Foundation is a non-profit organization established to provide grants and humanitarian relief, employer matching contributions and to support volunteerism and social development projects. This grant resulted in a one-time charge of $11 million, which was recorded to the General and administrative expenses line of the consolidated statements of operations. We do not expect to make future grants of shares to the Workday Foundation and therefore consider this charge as non-recurring. As such, we believe it is useful to exclude this one-time charge in order to better understand the ongoing expenses of our core business and to facilitate comparison of our results across periods.Free cash flowsWe define free cash flows as net cash provided by (used in) operating activities minus purchases of property and equipment, property and equipment acquired under capital leases and purchasepurchases of other (non-acquisition-related) intangible assets. Management usesWe use free cash flows as a measure of financial progress in our business, as it balances operating results, cash management and capital efficiency. When calculating free cash flows, we subtract the gross value of all equipment acquired in the period, even when acquired under capital leases, so that we can evaluate our progress on free cash flows independent of our capital financing decisions.Management believes We believe information regarding free cash flows provides investors and others with an important perspective on the cash available to make strategic acquisitions and investments, to fund ongoing operations and to fund other capital expenditures.Limitations on the use of Non-GAAPnon-GAAP financial measuresA limitation of our non-GAAP financial measures of core operating expenses, core operating margin and free cash flows is that they do not have uniform definitions. Our definitions will likely differ from the definitions used by other companies, including peer companies, and therefore comparability may be limited. In addition, other peer companies may not publish these or similar metrics. Thus, our non-GAAP measures of core operating expenses, core operating margin and free cash flows should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP. Additionally, in the case of share-based compensation, if we did not pay out a portion of compensation in the form of share-based compensation and related employer payroll taxes,tax-related items, the cash salary expense included in costs of revenues and operating expenses would be higher, which would affect our cash position. Further, the non-GAAP measure of core operatingWe compensate for these limitations by reconciling core operating expenses to the most comparable GAAP financial measure and reviewing these measures in conjunction with GAAP financial information. Management encouragesWe encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view our non-GAAP financial measures in conjunction with the most comparable GAAP financial measures.See “Results of Operations—Core Operating Expenses” for a reconciliation of the non-GAAP financial measure of core operating expenses to the most comparable GAAP measure, “total operating expenses,” for fiscal 2015, 2014 2013 and 2012.See “Liquidity and Capital Resources” for a reconciliation of free cash flows to the most comparable GAAP measure, “net cash provided by (used in) operating activities,” for fiscal 2015, 2014 2013 and 2012.35BacklogWe generally sign multiple-year subscription contracts for our applications. The timing of our invoices to the customer is a negotiated term and varies among our subscription contracts. For multiple-year agreements, it is common to invoice an initial amount at contract signing followed by subsequent annual invoices. At any point in the contract term, there can be amounts that we have not yet been contractually able to invoice. Until such time as these amounts are invoiced, they are not recorded in revenues, unearned revenue or elsewhere in our consolidated financial statements. To the extent future invoicing is considereddetermined to be certain, we consider the contractthose future subscription invoices to be non-cancelable backlog. Future invoicing is considereddetermined to be certain when we have a fully executed non-cancelable contract and invoicing is not dependent on a future event such as customer funding or the delivery of a product. The amount of non-cancelable subscription contract backlog was $636.1$965 million as of January 31, 2014.We expect that the amount of backlog relative to the total value of our contracts will change from year to year for several reasons, including the amount of cash collected early in the contract term, the specific timing and duration of large customer subscription agreements, varying invoicing cycles of subscription agreements, the specific timing of customer renewals, changes in customer financial circumstances and foreign currency fluctuations. Backlog may also vary based on changes in the average non-cancelable term of our subscription agreements. Accordingly, we believe that fluctuations in backlog are not a reliable indicator of future revenues and we do not utilize backlog as a key management metric internally.Contractual ObligationsThe following table summarizes our consolidated principal contractual cash obligations as of January 31, 2014: Payments Due by Period Total Less than
1 Year 1-3
Years 3-5
Years More than
5 Years $ 350,000 $ — $ — $ 350,000 $ — 250,000 — — — 250,000 35,904 6,375 12,750 11,321 5,458 13,574 9,901 3,673 — — 59,109 12,894 13,578 7,554 25,083 22,414 2,179 4,668 4,890 10,677 4,358 4,358 — — — $ 735,359 $ 35,707 $ 34,669 $ 373,765 $ 291,218 Payments Due by Period Total Less than1 Year 1-3Years 3-5Years More than5 Years0.75% Convertible Senior Notes due 2018(1)$ 350,000 $ — $ — $ 350,000 $ — 1.50% Convertible Senior Notes due 2020(1)250,000 — — — 250,000 Aggregate interest obligation(2)29,529 6,375 12,750 8,696 1,708 Capital lease obligations(3)3,293 3,293 — — — Operating lease obligations: Facilities space(4)119,271 16,684 44,004 24,779 33,804 Facilities space with related party 50,990 4,868 10,969 11,455 23,698 Contractual commitments 6,896 6,896 — — — Total $ 809,979 $ 38,116 $ 67,723 $ 394,930 $ 309,210 (1) Represents aggregate principal amount of the notes, without the effect of associated discounts.
| (2) | Represents estimated aggregate interest obligations for our outstanding Notes that are payable in cash. |
| (3) | Includes principal and imputed interest. |
| (4) | For the 95-year lease we entered in January 2013, the cash obligations exclude the potential annual rental increases based on the increases to the Consumer Price Index (CPI). (See more information under “commitments” below). We expect to make higher rent payments over the lease term due to increases in the CPI. |
in length. Our arrangements do not contain general rights of return. Our subscription contracts do not provide customers with the right to take possession of the software supporting the applications and, as a result, are accounted for as service contracts.
2012. of adoption.Subscription Services RevenuesSubscription services revenues are recognized ratably over the contractual term of the arrangement beginning on the date that our service is made available to the customer, assuming all other revenue recognition criteria have been met.Professional Services RevenuesProfessional services revenues are generally recognized as the services are rendered for time and material contracts, or on a proportional performance basis for fixed price contracts. The majority of our professional services contracts are on a time and materials basis. Training revenues are recognized as the services are rendered.Multiple Deliverable ArrangementsFor arrangements with multiple deliverables, we evaluate whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, we account for each deliverable37separately and revenue is recognized for the respective deliverables as they are delivered. If one or more of the deliverables does not have standalone value upon delivery, the deliverables that do not have standalone value are generally combined with the final deliverable within the arrangement and treated as a single unit of accounting. Revenue for arrangements treated as a single unit of accounting is generally recognized over the period commencing upon delivery of the final deliverable and over the remaining term of the subscription contract.Subscription contracts have standalone value as we sell the subscriptions separately. In determining whether professional services can be accounted for separately from subscription services, we consider the availability of the professional services from other vendors, the nature of our professional services and whether we sell our applications to new customers without professional services. AsAll of January 31, 2012, we did notour professional services have standalone value for the professional services related to the deploymentas of our financial management application. This was due to the fact that we had historically performed the majority of these services to support our customers’ deployments of this application. In fiscal 2013, we determined that we had established standalone value for the deployment services related to our financial management application. This was primarily due to the growing number of partners that were trained and certified to perform these deployment services, the successful completion of a significant deployment engagement by a firm in our professional services ecosystem and the sale of several financial management cloud application subscription arrangements to customers without our deployment services. Because we established standalone value for our deployment services related to our financial management application in fiscal 2013, such service arrangements entered into after February 1, 2012 are being accounted for separately from subscription services.When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple deliverable arrangement accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. VSOE and TPE do not currently exist for any of our deliverables. Accordingly, for arrangements with multiple deliverables that can be separated into different units of accounting, we allocate the arrangement fee to the separate units of accounting based on our best estimate of selling price. The amount of arrangement fee allocated is limited by contingent revenues, if any.We determine our best estimate of selling price for our deliverables based on our overall pricing objectives, taking into consideration market conditions and entity-specific factors. We evaluate our best estimate of selling price by reviewing historical data related to sales of our deliverables, including comparing the percentages of our contract prices to our list prices. We also consider several other data points in our evaluation, including the size of our arrangements, the cloud applications sold, customer demographics and the numbers and types of users within our arrangements.Deferred CommissionsDirect sales commissions are deferred when earned and amortized over the same period that revenues are recognized for the related non-cancelable cloud application services contract. The commission payments are paid in full after the customer has paid for its first year of service. During fiscal 2014,2015, we deferred $19.4$23 million of commission expenditurescommissions and we amortized $10.0$16 million to sales and marketing expenses in the accompanying consolidated statements of operations. During fiscal 2013,2014, we deferred $12.8$19 million of commission expenditures and we amortized $6.5$10 million to sales and marketing expense.expenses in the accompanying consolidated statements of operations. Deferred commissions on our consolidated balance sheets totaled $29.3$37 million and $19.9$29 million at January 31, 2015 and 2014, and 2013, respectively.Convertible Senior NotesIn accounting for the issuance of the Notes, we separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes as a whole. This difference represents a debt discount that is amortized to interest expense over the terms of the Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the Notes, we allocated the total amount incurred to the liability and equity components. Issuance costs attributable to the liability components are being amortized to expense over the respective terms of the Notes, and issuance costs attributable to the equity components were netted with the respective equity component in additional paid-in capital.Recent Accounting PronouncementsIn February 2013,On May 28, 2014, the Financial Accounting Standards Board (FASB)FASB issued ASU 2013-02,Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income2014-9 regarding ASC Topic 606, Revenue from Contracts with Customers. The standard requires entitiesprovides principles for recognizing revenue for the transfer of promised goods or services to present information about reclassification adjustments from accumulated other comprehensive incomecustomers with the consideration to which the entity expects to be entitled in their financial statementsexchange for those goods or footnotes.services. The guidance iswill be effective for our fiscal periodsyear beginning after December 15, 2012. We adopted this new guidance on February 1, 20132017. Early adoption is not permitted. We are currently evaluating the accounting, transition and it did not have andisclosure requirements of the standard and cannot currently estimate the financial statement impact on our consolidated financial statements.38ITEM 7A.Quantitative and Qualitative Disclosures about Market Risk
ITEM 7A. Quantitative and Qualitative Disclosures about Market RiskForeign currency exchange riskOur results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro and British Pound Sterling. Due to the relative size of our international operations to date and the fact that the majority of our international contracts are currently in U.S. dollars, our foreign currency exposure has been fairly limited. We expectanticipate that our international operationsexposure to continue to grow in the near termforeign currency fluctuations will increase over time, and we expect to begininitiated a limited hedging program focused on certain currencies in fiscal 2015. For fiscal 20152016 and beyond, we expect the percentagenumber of contracts denominated in currencies other than the U.S. dollars to increase.Interest rate sensitivityWe had cash, cash equivalents and marketable securities totaling $1.9 billion as of January 31, 2014.2015. Cash equivalents and marketable securities were invested primarily in U.S. agency obligations, U.S. treasury securities, U.S. corporate securities, commercial paper, and money market funds, and corporate securities.funds. The cash, cash equivalents and marketable securities are held for working capital purposes. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.Our cash equivalents and our portfolio of marketable securities are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fluctuate due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our marketable securities as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.An immediate increase of 100-basis points in interest rates would have resulted in an $8.5a $2 million market value reduction in our investment portfolio as of January 31, 2014.2015. All of our investments earn less than 100-basis points and as a result, an immediate decrease of 100-basis points in interest rates would have increased the market value by $1.4$2 million as of January 31, 2014.2015. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive income, and are realized only if we sell the underlying securities.At January 31, 2013,2014, we had cash, cash equivalents and marketable securities totaling $790.3 million.$1.9 billion. The fixed-income portfolio was also subject to interest rate risk; however, the risk was not material.39ITEM 8.CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
San Francisco, California 25, 2015 San Francisco, California 25, 2015 Assets Current assets: Cash and cash equivalents Marketable securities Accounts receivable, net of allowance for doubtful accounts of $783 and $613 Deferred costs Prepaid expenses and other current assets Total current assets Property and equipment, net Deferred costs, noncurrent Goodwill and acquisition related intangible assets, net Other assets Total assets Liabilities and stockholders’ equity Current liabilities: Accounts payable Accrued expenses and other current liabilities Accrued compensation Capital leases Unearned revenue Total current liabilities Convertible senior notes, net Capital leases, noncurrent Unearned revenue, noncurrent Other liabilities Total liabilities Commitments and contingencies (Note 10) Stockholders’ equity: Preferred stock, $0.001 par value; 10 million shares authorized as of January 31, 2014 and January 31, 2013; no shares issued and outstanding as of January 31, 2014 Class A common stock, $0.001 par value; 750 million shares authorized as of January 31, 2014 and January 31, 2013; 91 million and 26 million shares issued and outstanding as of January 31, 2014 and January 31, 2013 Class B common stock, $0.001 par value; 240 million shares authorized as of January 31, 2014 and January 31, 2013; 92 million and 140 million shares issued and outstanding as of January 31, 2014 and January 31, 2013 (including 2 million and 3 million shares subject to repurchase, legally issued and outstanding as of January 31, 2014 and January 31, 2013) Additional paid-in capital Accumulated other comprehensive income Accumulated deficit Total stockholders’ equity Total liabilities and stockholders’ equity Revenues: Subscription services Professional services Total revenues Costs and expenses(1): Costs of subscription services Costs of professional services Product development Sales and marketing General and administrative Total costs and expenses Operating loss Other expense, net Loss before provision for income taxes Provision for income taxes Net loss Accretion of redeemable convertible preferred stock Net loss attributable to Class A and Class B common stockholders Net loss per share attributable to Class A and Class B common stockholders, basic and diluted Weighted-average shares used to compute net loss per share attributable to Class A and Class B common stockholders ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAWORKDAY, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS47495051525354Report of Ernst & Young LLP, Independent Registered Public Accounting FirmThe Board of Directors and Stockholders of Workday, Inc.We have audited the accompanying consolidated balance sheets of Workday, Inc. as of January 31, 20142015 and 2013,2014, and the related consolidated statements of operations, comprehensive loss, cash flows, and redeemable convertible preferred stock and stockholders’stockholders' equity (deficit) for each of the three years in the period ended January 31, 2014.2015. These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Workday, Inc. at January 31, 20142015 and 2013,2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 31, 2014,2015, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Workday, Inc.’s internal control over financial reporting as of January 31, 2014,2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework), and our report dated March 31, 201425, 2015 expressed an unqualified opinion thereon./s/ Ernst & Young LLP March 31, 201440Report of Ernst & Young LLP, Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Workday, Inc.We have audited Workday, Inc.’s internal control over financial reporting as of January 31, 2014,2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework), (the COSO criteria). Workday, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, Workday, Inc.maintained, in all material respects, effective internal control over financial reporting as of January 31, 2014,2015, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the fiscal 20142015 consolidated financial statements of Workday, Inc. and our report dated March 31, 2014 25, 2015expressed an unqualified opinion thereon./s/ Ernst & Young LLP March 31, 201441CONSOLIDATED BALANCE SHEETS(in thousands, except share and per share data) January 31, 2014 2013 $ 581,326 $ 84,158 1,305,253 706,181 92,184 67,437 16,446 9,816 28,449 16,710 2,023,658 884,302 77,664 44,585 20,797 18,575 8,488 8,488 45,658 3,130 $ 2,176,265 $ 959,080 $ 6,212 $ 2,665 17,999 13,558 55,620 27,203 9,377 12,008 332,682 199,340 421,890 254,774 468,412 — 3,589 12,972 80,883 85,920 14,274 13,131 989,048 366,797 — — 90 26 91 136 1,761,156 993,933 269 68 (574,389 ) (401,880 ) 1,187,217 592,283 $ 2,176,265 $ 959,080 January 31, 2015 2014 Assets Current assets: Cash and cash equivalents $ 298,192 $ 581,326 Marketable securities 1,559,517 1,305,253 Accounts receivable, net of allowance for doubtful accounts of $1,262 and $783 188,357 92,184 Deferred costs 20,471 16,446 Prepaid expenses and other current assets 42,502 28,449 Total current assets 2,109,039 2,023,658 Property and equipment, net 140,136 77,664 Deferred costs, noncurrent 20,998 20,797 Goodwill and acquisition-related intangible assets, net 34,779 8,488 Other assets 53,681 45,658 Total assets $ 2,358,633 $ 2,176,265 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 10,623 $ 6,212 Accrued expenses and other current liabilities 24,132 17,999 Accrued compensation 56,152 55,620 Capital leases 3,207 9,377 Unearned revenue 547,151 332,682 Total current liabilities 641,265 421,890 Convertible senior notes, net 490,501 468,412 Capital leases, noncurrent — 3,589 Unearned revenue, noncurrent 85,593 80,883 Other liabilities 15,299 14,274 Total liabilities 1,232,658 989,048 Commitments and contingencies (Note 11) Stockholders’ equity: Preferred stock, $0.001 par value; 10 million shares authorized as of January 31, 2015 and January 31, 2014; no shares issued and outstanding as of January 31, 2015 and January 31, 2014 — — Class A common stock, $0.001 par value; 750 million shares authorized as of January 31, 2015 and January 31, 2014; 105 million and 91 million shares issued and outstanding as of January 31, 2015 and January 31, 2014 104 90 Class B common stock, $0.001 par value; 240 million shares authorized as of January 31, 2015 and January 31, 2014; 83 million and 92 million shares issued and outstanding as of January 31, 2015 and January 31, 2014 (including 1 million and 2 million shares subject to repurchase, legally issued and outstanding as of January 31, 2015 and January 31, 2014) 82 91 Additional paid-in capital 1,948,300 1,761,156 Accumulated other comprehensive income (loss) (140 ) 269 Accumulated deficit (822,371 ) (574,389 ) Total stockholders’ equity 1,125,975 1,187,217 Total liabilities and stockholders’ equity $ 2,358,633 $ 2,176,265 See Notes to Consolidated Financial Statements42CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data) Year Ended January 31, 2014 2013 2012 $ 354,169 $ 190,320 $ 88,634 114,769 83,337 45,793 468,938 273,657 134,427 69,195 39,251 22,342 107,615 77,284 43,026 182,116 102,665 62,014 197,373 123,440 70,356 65,921 48,880 15,133 622,220 391,520 212,871 (153,282 ) (117,863 ) (78,444 ) (17,549 ) (1,203 ) (1,018 ) (170,831 ) (119,066 ) (79,462 ) 1,678 124 167 (172,509 ) (119,190 ) (79,629 ) — (568 ) (342 ) $ (172,509 ) $ (119,758 ) $ (79,971 ) $ (1.01 ) $ (1.62 ) $ (2.71 ) 171,297 74,011 29,478 Year Ended January 31, 2015 2014 2013 Revenues: Subscription services $ 613,328 $ 354,169 $ 190,320 Professional services 174,532 114,769 83,337 Total revenues 787,860 468,938 273,657 Costs and expenses(1): Costs of subscription services 102,476 69,195 39,251 Costs of professional services 162,327 107,615 77,284 Product development 316,868 182,116 102,665 Sales and marketing 315,840 197,373 123,440 General and administrative 106,051 65,921 48,880 Total costs and expenses 1,003,562 622,220 391,520 Operating loss (215,702 ) (153,282 ) (117,863 ) Other expense, net (30,270 ) (17,549 ) (1,203 ) Loss before provision for income taxes (245,972 ) (170,831 ) (119,066 ) Provision for income taxes 2,010 1,678 124 Net loss (247,982 ) (172,509 ) (119,190 ) Accretion of redeemable convertible preferred stock — — (568 ) Net loss attributable to Class A and Class B common stockholders $ (247,982 ) $ (172,509 ) $ (119,758 ) Net loss per share attributable to Class A and Class B common stockholders, basic and diluted $ (1.35 ) $ (1.01 ) $ (1.62 ) Weighted-average shares used to compute net loss per share attributable to Class A and Class B common stockholders 183,702 171,297 74,011 (1) Costs and expenses include share-based compensation expenses as follows:
| Year Ended January 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
Costs of subscription services | $ | 2,408 | $ | 601 | $ | 230 | ||||||
Costs of professional services | 4,818 | 1,312 | 398 | |||||||||
Product development | 21,644 | 3,528 | 1,124 | |||||||||
Sales and marketing | 12,131 | 2,717 | 839 | |||||||||
General and administrative | 20,850 | 7,170 | 1,591 | |||||||||
Net loss Other comprehensive income (loss), net of tax: Changes in foreign currency translation adjustment Net change in unrealized gains (losses) on available-for-sale investments Other comprehensive income (loss), net of tax: Comprehensive loss Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization Share-based compensation expenses Amortization of deferred costs Amortization of debt discount and issuance costs Donation of common stock to Workday Foundation Other Changes in operating assets and liabilities: Accounts receivable Deferred costs Prepaid expenses and other assets Accounts payable Accrued expense and other liabilities Unearned revenue Net cash provided by (used in) operating activities Cash flows from investing activities: Purchases of marketable securities Maturities of marketable securities Purchases of property and equipment Purchase of cost method investment Purchase of other intangible assets Other Net cash used in investing activities Cash flows from financing activities: Proceeds from initial public offering, net of issuance costs Proceeds from follow-on offering, net of issuance costs Proceeds from borrowings on convertible senior notes, net of issuance costs Proceeds from issuance of warrants Purchase of convertible senior notes hedges Proceeds from issuance of common stock from employee equity plans Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs Principal payments on capital lease obligations Other Net cash provided by financing activities Effect of exchange rate changes Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of period Cash and cash equivalents at the end of period Supplemental cash flow data: Cash paid for interest Non-cash investing and financing activities: Property and equipment acquired under capital leases Accretion of redeemable convertible preferred stock Vesting of early exercised stock options Purchases of property and equipment, accrued but not paid Balances as of January 31, 2011 Issuance of Series F redeemable convertible preferred stock, net of issuance costs Issuance of common stock under employee equity plans Vesting of early exercised stock options Grant of restricted stock award Share-based compensation Accretion of redeemable convertible preferred stock issuance costs Other comprehensive loss Net loss Balances as of January 31, 2012 Issuance of common stock under employee equity plans Vesting of early exercised stock options Grant of restricted stock awards Share-based compensation Conversion of preferred stock to common stock Initial public offering, net of issuance costs Donation of shares to Workday Foundation Accretion of redeemable convertible preferred stock issuance costs Other comprehensive income Net loss Balances as of January 31, 2013 Issuance of common stock under employee equity plans Follow-on offering, net of issuance costs Vesting of early exercised stock options Vested restricted stock units net Shares withheld for tax withholding on vesting of restricted stock Share-based compensation Exercise of warrants Excess tax benefits from share-based compensation Purchase of convertible senior notes hedges Issuance of warrants Equity component of convertible senior notes Other comprehensive income Net loss Balances as of January 31, 2014 Year Ended January 31, 2015 2014 2013 Costs of subscription services $ 6,053 $ 2,408 $ 601 Costs of professional services 12,890 4,818 1,312 Product development 63,938 21,644 3,528 Sales and marketing 29,875 12,131 2,717 General and administrative 43,292 20,850 7,170 See Notes to Consolidated Financial Statements43CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(in thousands) Year Ended January 31, 2014 2013 2012 $ (172,509 ) $ (119,190 ) $ (79,629 ) (72 ) (4 ) 9 273 69 (11 ) 201 65 (2 ) $ (172,308 ) $ (119,125 ) $ (79,631 ) Year Ended January 31, 2015 2014 2013 Net loss $ (247,982 ) $ (172,509 ) $ (119,190 ) Other comprehensive income (loss), net of tax: Changes in foreign currency translation adjustment (525 ) (72 ) (4 ) Net change in unrealized gains on available-for-sale investments 116 273 69 Other comprehensive income (loss), net of tax: (409 ) 201 65 Comprehensive loss $ (248,391 ) $ (172,308 ) $ (119,125 ) See Notes to Consolidated Financial Statements44CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended January 31, 2014 2013 2012 $ (172,509 ) $ (119,190 ) $ (79,629 ) 34,695 17,722 9,319 61,851 15,328 4,182 12,219 11,368 7,099 14,395 — — — 11,250 — 678 56 60 (25,037 ) (12,970 ) (39,025 ) (21,071 ) (17,153 ) (12,036 ) (25,876 ) (9,877 ) (4,909 ) 3,547 (65 ) 2,195 35,066 17,582 9,260 128,305 97,163 89,710 46,263 11,214 (13,774 ) (1,587,240 ) (765,797 ) (63,282 ) 983,242 111,577 13,086 (60,725 ) (15,898 ) (4,999 ) (2,000 ) — (1,000 ) (15,000 ) — — (910 ) — — (682,633 ) (670,118 ) (56,195 ) — 684,620 — 592,241 — — 584,291 — — 92,708 — — (143,729 ) — — 23,692 10,370 6,265 — — 95,009 (12,129 ) (9,453 ) (4,296 ) (3,464 ) — — 1,133,610 685,537 96,978 (72 ) (4 ) 8 497,168 26,629 27,017 84,158 57,529 30,512 $ 581,326 $ 84,158 $ 57,529 $ 4,886 $ 1,315 $ 898 $ 115 $ 18,717 $ 15,983 $ — $ 568 $ 342 $ 3,043 $ 2,447 $ 395 $ 1,613 $ — $ — Year Ended January 31, 2015 2014 2013 Cash flows from operating activities: Net loss $ (247,982 ) $ (172,509 ) $ (119,190 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 59,205 34,695 17,722 Share-based compensation expenses 156,048 61,851 15,328 Amortization of deferred costs 19,288 12,219 11,368 Amortization of debt discount and issuance costs 24,171 14,395 — Donation of common stock to Workday Foundation — — 11,250 Other 2,924 678 56 Changes in operating assets and liabilities, net of business combinations: Accounts receivable (96,876 ) (25,037 ) (12,970 ) Deferred costs (23,514 ) (21,071 ) (17,153 ) Prepaid expenses and other assets (15,524 ) (25,876 ) (9,877 ) Accounts payable 1,120 3,547 (65 ) Accrued expense and other liabilities 3,964 35,066 17,582 Unearned revenue 219,179 128,305 97,163 Net cash provided by (used in) operating activities 102,003 46,263 11,214 Cash flows from investing activities: Purchases of marketable securities (1,737,840 ) (1,587,240 ) (765,797 ) Maturities of marketable securities 1,419,454 983,242 111,577 Sales of available-for-sale securities 53,182 — — Business combinations, net of cash acquired (26,317 ) — — Purchases of property and equipment (103,646 ) (60,725 ) (15,898 ) Purchase of cost method investment (10,000 ) (2,000 ) — Purchase of other intangible assets — (15,000 ) — Other 1,000 (910 ) — Net cash provided by (used in) investing activities (404,167 ) (682,633 ) (670,118 ) Cash flows from financing activities: Proceeds from initial public offering, net of issuance costs — — 684,620 Proceeds from follow-on offering, net of issuance costs — 592,241 — Proceeds from borrowings on convertible senior notes, net of issuance costs — 584,291 — Proceeds from issuance of warrants — 92,708 — Purchase of convertible senior notes hedges — (143,729 ) — Proceeds from issuance of common stock from employee equity plans 36,239 23,692 10,370 Principal payments on capital lease obligations (9,759 ) (12,129 ) (9,453 ) Shares repurchased for tax withholdings on vesting of restricted stock (8,291 ) (3,806 ) — Other 1,266 342 — Net cash provided by (used in) financing activities 19,455 1,133,610 685,537 Effect of exchange rate changes (425 ) (72 ) (4 ) Net increase (decrease) in cash and cash equivalents (283,134 ) 497,168 26,629 Cash and cash equivalents at the beginning of period 581,326 84,158 57,529 Cash and cash equivalents at the end of period $ 298,192 $ 581,326 $ 84,158 Supplemental cash flow data: Cash paid for interest $ 6,869 $ 4,886 $ 1,315 Cash paid for taxes 943 — — Non-cash investing and financing activities: Property and equipment acquired under capital leases $ — $ 115 $ 18,717 Accretion of redeemable convertible preferred stock — — 568 Vesting of early exercised stock options 1,887 3,043 2,447 Purchases of property and equipment, accrued but not paid 8,776 1,613 — See Notes to Consolidated Financial Statements45CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCKAND STOCKHOLDERS’ EQUITY (DEFICIT)(in thousands, except share data) Redeemable
Convertible
Preferred Stock
Shares Amounts Convertible
Preferred Stock
Shares Amount Common Stock
Shares Amount Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income (Loss) Accumulated
Deficit Total
Stockholders’
Equity
(Deficit) 22,954,545 $ 75,555 67,586,395 $ 68 28,065,481 $ 27 $ 99,344 $ 5 $ (202,151 ) $ (102,707 ) 7,435,149 95,009 — — — — — — — — — — — — 7,758,894 6 2,536 — — 2,542 — — — — — — 395 — — 395 — — — — 100,000 — — — — — — — — — — — 4,182 — — 4,182 — 342 — — — — — — (342 ) (342 ) — — — — — — — (2 ) — (2 ) — — — — — — — — (79,629 ) (79,629 ) 30,389,694 $ 170,906 67,586,395 $ 68 35,924,375 $ 33 $ 106,457 $ 3 $ (282,122 ) $ (175,561 ) — — — — 4,621,908 3 2,416 — — 2,419 — — — — — 2 2,445 — — 2,447 — — — — 1,240,000 — — — — — — — — — — 15,328 — — 15,328 (30,389,694 ) (171,474 ) (67,586,395 ) (68 ) 97,976,089 98 171,443 — — 171,473 — — — — 26,162,500 26 684,594 — — 684,620 — — — — 500,000 — 11,250 — — 11,250 — 568 — — — — — — (568 ) (568 ) — — — — — — — 65 — 65 — — — — — — — — (119,190 ) (119,190 ) — — — — 166,424,872 $ 162 $ 993,933 $ 68 $ (401,880 ) $ 592,283 — — — — 8,689,384 10 23,682 — — 23,692 — — — �� — 6,900,000 7 592,234 — — 592,241 — — — — — 1 3,042 — — 3,043 — — — — 41,775 — — — — — — — — — — — (3,806 ) — — (3,806 ) — — — — — — 61,851 — — 61,851 — — — — 1,350,000 1 — — — 1 — — — — — — 342 — — 342 — — — — — — (143,729 ) — — (143,729 ) — — — — — — 92,708 — — 92,708 — — — — — — 140,899 — — 140,899 — — — — — — — 201 — 201 — — — — — — — — (172,509 ) (172,509 ) — — — — 183,406,031 $ 181 $ 1,761,156 $ 269 $ (574,389 ) $ 1,187,217 Redeemable
Convertible
Preferred Stock
Shares Amounts Convertible
Preferred Stock
Shares Amount Common Stock
Shares Amount Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income (Loss) Accumulated
Deficit Total
Stockholders’
Equity
(Deficit)Balances as of January 31, 2012 30,389,694 $ 170,906 67,586,395 $ 68 35,924,375 $ 33 $ 106,457 $ 3 $ (282,122 ) $ (175,561 ) Issuance of common stock under employee equity plans — — — — 4,621,908 3 2,416 — — 2,419 Vesting of early exercised stock options — — — — — 2 2,445 — — 2,447 Grant of restricted stock awards — — — — 1,240,000 — — — — Share-based compensation — — — — — — 15,328 — — 15,328 Conversion of preferred stock to common stock (30,389,694 ) (171,474 ) (67,586,395 ) (68 ) 97,976,089 98 171,443 — — 171,473 Initial public offering, net of issuance costs — — — — 26,162,500 26 684,594 — — 684,620 Donation of shares to Workday Foundation — — — — 500,000 — 11,250 — — 11,250 Accretion of redeemable convertible preferred stock issuance costs — 568 — — — — — — (568 ) (568 ) Other comprehensive income — — — — — — — 65 — 65 Net loss — — — — — — — — (119,190 ) (119,190 ) Balances as of January 31, 2013 — $ — — $ — 166,424,872 $ 162 $ 993,933 $ 68 $ (401,880 ) $ 592,283 Issuance of common stock under employee equity plans — — — — 8,689,384 10 23,682 — — 23,692 Follow-on offering, net of issuance costs — — — — 6,900,000 7 592,234 — — 592,241 Vesting of early exercised stock options — — — — — 1 3,042 — — 3,043 Vested restricted stock units, net — — — — 41,775 — — — — — Shares withheld for tax withholding on vesting of restricted stock — — — — — — (3,806 ) — — (3,806 ) Share-based compensation — — — — — — 61,851 — — 61,851 Exercise of warrants — — — — 1,350,000 1 — — — 1 Excess tax benefits from share-based compensation — — — — — — 342 — — 342 Purchase of convertible senior notes hedges — — — — — — (143,729 ) — — (143,729 ) Issuance of warrants — — — — — — 92,708 — — 92,708 Equity component of convertible senior notes — — — — — — 140,899 — — 140,899 Other comprehensive income — — — — — — — 201 — 201 Net loss — — — — — — — — (172,509 ) (172,509 ) Balances as of January 31, 2014 — — — — 183,406,031 $ 181 $ 1,761,156 $ 269 $ (574,389 ) $ 1,187,217 Issuance of common stock under employee equity plans — — — — 3,952,173 4 36,235 — — 36,239 Vesting of early exercised stock options — — — — — — 1,887 — — 1,887 Vested restricted stock units, net — — — — 1,057,851 1 — — — 1 Shares withheld for tax withholding on vesting of restricted stock — — — — — — (8,292 ) — — (8,292 ) Share-based compensation — — — — — — 156,048 — — 156,048 Excess tax benefits from share-based compensation — — — — — — 1,175 — — 1,175 Other — — — — — — 91 — — 91 Other comprehensive income — — — — — — — (409 ) — (409 ) Net loss — — — — — — — — (247,982 ) (247,982 ) Balances as of January 31, 2015 — — — — 188,416,055 $ 186 $ 1,948,300 $ (140 ) $ (822,371 ) $ 1,125,975 See Notes to Consolidated Financial Statements46Note 1.Overview and Basis of Presentation
2015.Note 1. Overview and Basis of PresentationCompany and BackgroundWorkday provides enterprise cloud applications forfinancial management, human capital management, (HCM), payroll, financial management and analytics.analytics applications designed for the world's largest companies, educational institutions, and government agencies. We offer innovative and adaptable technology focused on the consumer Internet experience and cloud delivery model. Our applications are designed for global enterprises to manage complex and dynamic operating environments. We provide our customers highly adaptable, accessible and reliable applications to manage critical business functions that enable them to optimize their financial and human capital resources. We were originally incorporated in March 2005 in Nevada and in June 2012, we reincorporated in Delaware.Fiscal YearOur fiscal year ends on January 31. References to fiscal 2014,2015, for example, refer to the year ended January 31, 2014.Basis of PresentationThese consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The consolidated financial statements include the results of Workday, Inc. and its wholly-owned subsidiaries.For the consolidated statements of operations for the years ended January 31, 2013 and 2012, to conform to the current year’s presentation, we separated Revenues into Subscription services revenues and Professional services revenues and Costs of revenues to Costs of subscription services and Costs of professional services. This change had no impact on Total revenues or Total costs and expenses. In addition, for the consolidated statements of operations we renamed Research and development to Product development. Product development includes all costs related to research and development activities.Use of EstimatesThe preparation of consolidated financial statements in conformity with GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, the determination of the relative selling prices for our services, the recoverability of deferred commissions, and certain assumptions used in the valuation of equity awards.awards and the fair value of assets acquired and liabilities assumed through business combinations. Actual results could differ from those estimates and such differences could be material to our consolidated financial position and results of operations.Segment informationWe operate in one operating segment, cloud applications. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker, who is the chief executive officer, in deciding how to allocate resources and assessing performance. Our chief operating decision maker allocates resources and assesses performance based upon discrete financial information at the consolidated level. Since we operate in one operating segment, all required financial segment information can be found in the consolidated financial statements.Note 2.Summary of Significant Accounting Policies
in length. Our arrangements do not contain general rights of return. Our subscription contracts do not provide customers with the right to take possession of the software supporting the applications and, as a result, are accounted for as service contracts.Note 2. Summary of Significant Accounting PoliciesRevenue RecognitionWe derive our revenues primarily from subscription services fees and from professional services fees, including training. We sell subscriptions to our cloud applications through contracts that are generally three yearsWe commence revenue recognition for our cloud applications and professional services when all of the following criteria are met:There is persuasive evidence of an arrangement;
2012. This difference represents a debt discount that is amortized to interest expense over the terms of the Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the Notes, we allocated the total amount incurred to the liability and equity components. Issuance costs attributable to the liability components are being amortized to expense over the respective terms of the Notes, and issuance costs attributable to the equity components were netted with the respective equity component in additional paid-in capital. property rights, and we may also incur liabilities if we breach the security and/or confidentiality obligations in our contracts. To date, we have not incurred any material costs, and we have not accrued any liabilities in the accompanying consolidated financial statements, as a result of these obligations. We have entered into service-level agreements with a majority of our customers warranting defined levels of uptime reliability and performance and permitting those customers to receive credits or refunds for prepaid amounts related to unused subscription services or to terminate their agreements in the event that we fail to meet those levels. To date, we have not experienced any significant failures to meet defined levels of reliability and performance as a result of those agreements and, as a result, we have not accrued any liabilities related to these agreements in the consolidated financial statements. of adoption.Subscription Services Revenues47Subscription services revenues are recognized ratably over the contractual term of the arrangement beginning on the date that our service is made available to the customer, assuming all revenue recognition criteria have been met.Professional Services RevenuesProfessional services revenues are generally recognized as the services are rendered for time and materials contracts, or on a proportional performance basis for fixed price contracts. The majority of our professional services contracts are on a time and materials basis. Training revenues are recognized as the services are rendered.Multiple Deliverable ArrangementsFor arrangements with multiple deliverables, we evaluate whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, we account for each deliverable separately and revenue is recognized for the respective deliverables as they are delivered. If one or more of the deliverables does not have standalone value upon delivery, the deliverables that do not have standalone value are generally combined with the final deliverable within the arrangement and treated as a single unit of accounting. Revenue for arrangements treated as a single unit of accounting is generally recognized over the subscription services period, which is considered the final deliverable.Subscription services contracts have standalone value as we sell the subscriptions separately. In determining whether professional services can be accounted for separately from subscription services, we consider the availability of the professional services from other vendors, the nature of our professional services and whether we sell our applications to new customers without professional services. AsAll of January 31, 2012, we did notour professional services have standalone value for the professional services related to the deploymentas of our financial management application. This was due to the fact that we had historically performed the majority of these services to support our customers’ deployments of this application. In fiscal 2013, we determined that we had established standalone value for the deployment services related to our financial management application. This was primarily due to the growing number of partners that were trained and certified to perform these deployment services, the successful completion of a significant deployment engagement by a firm in our professional services ecosystem and the sale of several financial management cloud application subscription arrangements to customers without our deployment services. Because we established standalone value for our deployment services related to our financial management application in fiscal 2013, such service arrangements entered into after February 1, 2012 are being accounted for separately from subscription services.When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple deliverable arrangements accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. VSOE and TPE do not currently exist for any of our deliverables. Accordingly, for arrangements with multiple deliverables that can be separated into different units of accounting, we allocate the arrangement fee to the separate units of accounting based on our best estimate of selling price. The amount of arrangement fee allocated is limited by contingent revenues, if any.We determine our best estimate of selling price for our deliverables based on our overall pricing objectives, taking into consideration market conditions and entity-specific factors. We evaluate our best estimate of selling price by reviewing historical data related to sales of our deliverables, including comparing the percentages of our contract prices to our list prices. We also consider several other data points in our evaluation, including the size of our arrangements, the cloud applications sold, customer demographics and the numbers and types of users within our arrangements.Costs of Subscription ServicesCosts of subscription services primarily consist of costs related to providing our cloud applications, compensation and other employee-related expenses for data center staff, payments to outside service providers, data center and networking expenses and depreciation expenses.Costs of Professional ServicesCosts of professional services primarily consist of costs related to providing deployment services, optimization services and training and include compensation and other employee-related expenses for professional services staff, costs of subcontractors and travel.Cash and Cash EquivalentsCash and cash equivalents consist of highly liquid investments with original maturities of three months or less. Our cash equivalents generally consist of investments in U.S. treasury securities, U.S. agency obligations, money market funds and commercial paper. Cash and cash equivalents are stated at fair value.48Marketable SecuritiesOur marketable securities consist of U.S. agency obligations, U.S. treasury securities, commercial paper, money market funds, U.S. corporate securities, commercial paper, and certificates of deposit.money market funds. We classify our marketable securities as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date. We may sell these securities at any time for use in current operations or for other purposes, such as consideration for acquisitions, even if they have not yet reached maturity. As a result, we classify our investments, including securities with maturities beyond twelve months as current assets in the accompanying consolidated balance sheets. All marketable securities are recorded at their estimated fair value. Unrealized gains and losses for available-for-sale securities are recorded in other comprehensive income (loss). We evaluate our investments to assess whether those with unrealized loss positions are other-than-temporarily impaired. We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. Realized gains and losses and declines in value judged to be other-than-temporary are determined based on the specific identification method and are reported in other expense, net in the consolidated statements of operations.Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable are recorded at the invoiced amount, net of allowancesan allowance for doubtful accounts. The allowance for doubtful accounts is based on our assessment of the collectability of accounts. We regularly review the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice and the collection history of each customer to determine the appropriate amount of our allowance. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified. For all periods presented, the allowance for doubtful accounts activity was not significant.Deferred CommissionsDeferred commissions earned by our sales force are those that can be associated specifically with a non-cancelable cloud application servicessubscription contract. Direct sales commissions are deferred when earned and amortized over the same period that revenues are recognized for the related non-cancelable cloud application servicessubscription contract. The commission payments are paid in full after the customer has paid for its first year of service.Amortization of deferred commissions is included in sales and marketing in the accompanying consolidated statements of operations.Property and EquipmentProperty and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the lease term.GoodwillBusiness CombinationsWe use our best estimates and Acquisition-Related Intangible AssetsWe determine and allocate the purchase price of an acquired companyassumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed as of the acquisition date. Our estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill.In addition, uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination date.as of the acquisition date. We continue to collect information and reevaluate these estimates and assumptions quarterly and record any adjustments to our preliminary estimates to goodwill provided that we are within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.Goodwill and Acquisition-Related Intangible AssetsAcquisition-related intangible assets with a finite life are amortized over their estimated useful lives. Goodwill is tested for impairment at least annually, and more frequently upon the occurrence of certain events. We completed our annual impairment test in our fourth quarter, which did not result in any impairment of the goodwill balance.Unearned Revenue49Unearned revenue primarily consists of customer billings in advance of revenues being recognized from our cloud applicationssubscription contracts. We generally invoice our customers for our cloud applicationssubscription contracts in annual or multi-year installments. Our typical payment terms provide that customers pay a portion of the total arrangement fee within 30 days of the contract date. Unearned revenue also includes certain deferred professional services fees that are accounted for as a single unit of accounting with cloud applications fees and are recognized as revenues over the same period as the related cloud applications contract. Unearned revenue that is anticipated to be recognized during the succeeding 12-month period is recorded as current unearned revenue and the remaining portion is recorded as noncurrent.Convertible Senior NotesIn June 2013, we issued 0.75% convertible senior notes due July 15, 2018 (2018 Notes) with a principal amount of $350.0 million. Concurrently, we issued 1.50% convertible senior notes due July 15, 2020 (2020 Notes) with a principal amount of $250.0 million (together with the 2018 Notes, referred to as the Notes). In accounting for the Notes, we separated them into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes as a whole.Advertising ExpensesAdvertising is expensed as incurred. Advertising expense was $8.7$20 million, $6.5$9 million and $3.9$7 million for fiscal 2015, 2014 and 2013, and 2012, respectively.Share-Based CompensationAll share-based compensation to employees is measured based on the grant-date fair value of the awards and recognized in our consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). We estimate the fair value of stock options granted and shares issued under our employee stock purchase plan using the Black-Scholes option-pricing model. For restricted stock awards and units and performance-based restricted stock units, fair value is based on the closing price of our common stock on the grant date. Compensation expense is recognized over the vesting period of the applicable award using the straight-line method.Compensation expense for non-employee stock options is calculated using the Black-Scholes option-pricing model and is recorded as the options vest. Non-employee options subject to vesting are required to be periodically revalued over their service period, which is generally the same as the vesting period.Income TaxesWe record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. As we expand internationally, we will face increased complexity in determining the appropriate tax jurisdictions for revenue and expense items, as a result, our unrecognized tax benefits will likely increase in the future. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results. The provision for income taxes includes the effects of any accruals that we believe are appropriate, as well as the related net interest and penalties.50Warranties and IndemnificationOur cloud applications are generally warranted to perform materially in accordance with our online help documentation under normal use and circumstances. Additionally, our contracts generally include provisions for indemnifying customers against liabilities if our cloud applications contracts infringe a third party’s intellectualForeign Currency ExchangeThe functional currency for certain of our foreign subsidiaries is the U.S. dollar, while others use local currencies as their functional currency. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars for those entities that do not have U.S. dollars as their functional currency are recorded as part of a separate component of the consolidated statements of comprehensive loss. Foreign currency transaction gains and losses are included in the consolidated statements of operations for the period. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at the average exchange rate during the period. Equity transactions are translated using historical exchange rates.Concentrations of Risk and Significant CustomersOur financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities and accounts receivable. Our deposits exceed federally insured limits.No single customer represented over 10% of accounts receivable in the consolidated financial statements as of January 31, 20142015 or 2013.2014. No single customer represented over 10% of total revenues for any of the periods in the consolidated financial statements.In order to reduce the risk of down time of our enterprise cloud applications, we have established data centers in various geographic regions. We have internal procedures to restore services in the event of disaster at one of our current data center facilities. We serve our customers and users from data center facilities operated by third parties, located in Ashburn, Virginia; Lithia Springs, Georgia; Portland, Oregon; Dublin, Ireland; and Amsterdam, the Netherlands. Even with these procedures for disaster recovery in place, our cloud applications could be significantly interrupted during the implementation of the procedures to restore services.In addition, we rely on Amazon Web Services (AWS), which provides a distributed computing infrastructure platform for business operations, to operate certain aspects of our services, including our big data analytics application, and certainsuch as environments for development testing, training and sales demonstrations. Any disruption of or interference with our use of AWS would impact our operations.Recently Issued and Adopted Accounting PronouncementsIn February 2013,On May 28, 2014, the FASB issued ASU 2013-02,Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income2014-9 regarding ASC Topic 606, Revenue from Contracts with Customers. The standard requires entitiesprovides principles for recognizing revenue for the transfer of promised goods or services to present information about reclassification adjustments from accumulated other comprehensive incomecustomers with the consideration to which the entity expects to be entitled in their financial statementsexchange for those goods or footnotes.services. The guidance iswill be effective for our fiscal periodsyear beginning after December 15, 2012. We adopted this new guidance on February 1, 20132017. Early adoption is not permitted. We are currently evaluating the accounting, transition and it did not have andisclosure requirements of the standard and cannot currently estimate the financial statement impact on our consolidated financial statements.Note 3.Marketable Securities
Amortized Cost | Unrealized Gains | Unrealized Losses | Aggregate Fair Value | ||||||||||||
| U.S. agency obligations | $ | 1,303,829 | $ | 422 | $ | (16 | ) | $ | 1,304,235 | ||||||
| U.S. treasury securities | 180,559 | 91 | (1 | ) | 180,649 | ||||||||||
| U.S. corporate securities | 99,618 | 27 | (13 | ) | 99,632 | ||||||||||
| Commercial paper | 89,984 | — | — | 89,984 | |||||||||||
| Money market funds | 142,137 | — | — | 142,137 | |||||||||||
| $ | 1,816,127 | $ | 540 | $ | (30 | ) | $ | 1,816,637 | |||||||
| Included in cash and cash equivalents | $ | 257,120 | $ | — | $ | — | $ | 257,120 | |||||||
| Included in marketable securities | $ | 1,559,007 | $ | 540 | $ | (30 | ) | $ | 1,559,517 | ||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Aggregate Fair Value | |||||||||||||
U.S. agency obligations | $ | 1,125,170 | $ | 334 | $ | (50 | ) | $ | 1,125,454 | |||||||
U.S. treasury securities | 536,747 | 88 | (47 | ) | 536,788 | |||||||||||
Commercial paper | 62,997 | — | — | 62,997 | ||||||||||||
U.S. corporate securities | 11,771 | 6 | — | 11,777 | ||||||||||||
Money market funds | 90,159 | — | — | 90,159 | ||||||||||||
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| $ | 1,826,844 | $ | 428 | $ | (97 | ) | $ | 1,827,175 | ||||||||
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Included in cash and cash equivalents | 521,956 | 3 | (37 | ) | 521,922 | |||||||||||
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Included in marketable securities | $ | 1,304,888 | $ | 425 | $ | (60 | ) | $ | 1,305,253 | |||||||
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At January 31, 2013, marketable securities consisted of the following (in thousands):
| Amortized Cost | Unrealized Gains | Unrealized Losses | Aggregate Fair Value | |||||||||||||
U.S. agency obligations | $ | 614,171 | $ | 64 | $ | (11 | ) | $ | 614,224 | |||||||
U.S. treasury securities | 65,174 | 5 | — | 65,179 | ||||||||||||
Commercial paper | 64,538 | 1 | — | 64,539 | ||||||||||||
Certificates of deposit | 250 | — | — | 250 | ||||||||||||
U.S. corporate securities | 8,128 | — | (1 | ) | 8,127 | |||||||||||
Money market funds | 17,395 | — | — | 17,395 | ||||||||||||
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| $ | 769,656 | $ | 70 | $ | (12 | ) | $ | 769,714 | ||||||||
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Included in cash and cash equivalents | $ | 63,533 | $ | — | $ | — | $ | 63,533 | ||||||||
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Included in marketable securities | $ | 706,123 | $ | 70 | $ | (12 | ) | $ | 706,181 | |||||||
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Amortized Cost | Unrealized Gains | Unrealized Losses | Aggregate Fair Value | ||||||||||||
| U.S. agency obligations | $ | 1,125,170 | $ | 334 | $ | (50 | ) | $ | 1,125,454 | ||||||
| U.S. treasury securities | 536,747 | 88 | (47 | ) | 536,788 | ||||||||||
| Commercial paper | 62,997 | — | — | 62,997 | |||||||||||
| U.S. corporate securities | 11,771 | 6 | — | 11,777 | |||||||||||
| Money market funds | 90,159 | — | — | 90,159 | |||||||||||
| $ | 1,826,844 | $ | 428 | $ | (97 | ) | $ | 1,827,175 | |||||||
| Included in cash and cash equivalents | $ | 521,956 | $ | 3 | $ | (37 | ) | $ | 521,922 | ||||||
| Included in marketable securities | $ | 1,304,888 | $ | 425 | $ | (60 | ) | $ | 1,305,253 | ||||||
immaterial.
| January 31, | ||||||||
| 2014 | 2013 | |||||||
Current: | ||||||||
Deferred professional service costs | $ | 3,555 | $ | 1,654 | ||||
Deferred sales commissions | 12,891 | 8,162 | ||||||
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Total | $ | 16,446 | $ | 9,816 | ||||
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Noncurrent: | ||||||||
Deferred professional service costs | $ | 4,357 | $ | 6,843 | ||||
Deferred sales commissions | 16,440 | 11,732 | ||||||
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Total | $ | 20,797 | $ | 18,575 | ||||
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| January 31, | |||||||
| 2015 | 2014 | ||||||
| Current: | |||||||
| Deferred professional service costs | $ | 3,606 | $ | 3,555 | |||
| Deferred sales commissions | 16,865 | 12,891 | |||||
| Total | $ | 20,471 | $ | 16,446 | |||
| Noncurrent: | |||||||
| Deferred professional service costs | $ | 1,254 | $ | 4,357 | |||
| Deferred sales commissions | 19,744 | 16,440 | |||||
| Total | $ | 20,998 | $ | 20,797 | |||
| January 31, | ||||||||
| 2014 | 2013 | |||||||
Computers, equipment and software | $ | 75,867 | $ | 28,770 | ||||
Computers, equipment and software acquired under capital leases | 38,912 | 39,300 | ||||||
Furniture and fixtures | 7,782 | 4,689 | ||||||
Leasehold improvements | 15,885 | 6,581 | ||||||
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| 138,446 | 79,340 | |||||||
Less accumulated depreciation and amortization | (60,782 | ) | (34,755 | ) | ||||
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Property and equipment, net | $ | 77,664 | $ | 44,585 | ||||
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| January 31, | |||||||
| 2015 | 2014 | ||||||
| Computers, equipment and software | $ | 139,569 | $ | 75,867 | |||
| Computers, equipment and software acquired under capital leases | 34,112 | 38,912 | |||||
| Furniture and fixtures | 13,082 | 7,782 | |||||
| Leasehold improvements | 47,496 | 15,885 | |||||
| 234,259 | 138,446 | ||||||
| Less accumulated depreciation and amortization | (94,123 | ) | (60,782 | ) | |||
| Property and equipment, net | $ | 140,136 | $ | 77,664 | |||
| Cash | $ | 74 | |
| Prepaid expenses and other current assets | 150 | ||
| Identified intangible assets acquired: | |||
| Developed technology | 3,600 | ||
| Goodwill | 23,824 | ||
| Total assets acquired | 27,648 | ||
| Accrued expenses and other current liabilities | (1,257 | ) | |
| Deferred tax liabilities | — | ||
| Total liabilities assumed | (1,257 | ) | |
| Net assets acquired | $ | 26,391 | |
| January 31, 2014 and 2013 | ||||
Acquired purchased technology | $ | 600 | ||
Customer relationship assets | 338 | |||
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| 938 | ||||
Less accumulated amortization | (938 | ) | ||
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Acquisition related intangible assets, net | — | |||
Goodwill | 8,488 | |||
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Goodwill and acquisition related intangible assets, | $ | 8,488 | ||
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| January 31, | |||||||
| 2015 | 2014 | ||||||
| Acquired developed technology | $ | 4,200 | $ | 600 | |||
| Customer relationship assets | 338 | 338 | |||||
| 4,538 | 938 | ||||||
| Less accumulated amortization | (2,071 | ) | (938 | ) | |||
| Acquisition-related intangible assets, net | 2,467 | — | |||||
| Goodwill | 32,312 | 8,488 | |||||
| Goodwill and acquisition-related intangible assets, net | $ | 34,779 | $ | 8,488 | |||
| January 31, | ||||||||
| 2014 | 2013 | |||||||
Issuance cost of convertible senior notes | $ | 10,625 | $ | — | ||||
Acquired land leasehold interest, net | 9,991 | — | ||||||
Technology patents, net | 4,865 | — | ||||||
Others | 20,177 | 3,130 | ||||||
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Total | $ | 45,658 | $ | 3,130 | ||||
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| January 31, | |||||||
| 2015 | 2014 | ||||||
| Issuance cost of convertible senior notes | $ | 8,543 | $ | 10,625 | |||
| Acquired land leasehold interest, net | 9,886 | 9,991 | |||||
| Technology patents, net | 3,942 | 4,865 | |||||
| Cost method investment | 10,000 | — | |||||
| Other | 21,310 | 20,177 | |||||
| Total | $ | 53,681 | $ | 45,658 | |||
2015 | $ | 1,028 | ||
2016 | 1,027 | |||
2017 | 1,027 | |||
2018 | 889 | |||
2019 | 520 | |||
Thereafter | 10,365 | |||
|
| |||
Total | $ | 14,856 | ||
|
|
| 2016 | $ | 1,027 | |
| 2017 | 1,027 | ||
| 2018 | 889 | ||
| 2019 | 520 | ||
| 2020 | 463 | ||
| Thereafter | 9,902 | ||
| Total | $ | 13,828 | |
prices for comparable instruments. We validate, on a sample basis, the derived prices provided by the independent pricing vendors by comparing their assessment of the fair values of our investments against the fair values of the portfolio balances of another third-party professional’s pricing service. To date, all of our marketable securities can be valued using one of these two methodologies.
| Fair Value Measurements as of January 31, 2014 | ||||||||||||
Description | Level 1 | Level 2 | Total | |||||||||
U.S. agency obligations | $ | — | $ | 1,125,454 | $ | 1,125,454 | ||||||
U.S. treasury securities | 536,788 | — | 536,788 | |||||||||
Commercial paper | — | 62,997 | 62,997 | |||||||||
U.S. corporate securities | — | 11,777 | 11,777 | |||||||||
Money market funds | 90,159 | — | 90,159 | |||||||||
|
|
|
|
|
| |||||||
| $ | 626,947 | $ | 1,200,228 | $ | 1,827,175 | |||||||
|
|
|
|
|
| |||||||
Included in cash and cash equivalents | $ | 521,922 | ||||||||||
|
| |||||||||||
Included in marketable securities | $ | 1,305,253 | ||||||||||
|
| |||||||||||
| Fair Value Measurements as of January 31, 2013 | ||||||||||||
Description | Level 1 | Level 2 | Total | |||||||||
U.S. agency obligations | $ | — | $ | 614,224 | $ | 614,224 | ||||||
U.S. treasury securities | 65,179 | — | 65,179 | |||||||||
Commercial paper | — | 64,539 | 64,539 | |||||||||
Certificates of deposit | — | 250 | 250 | |||||||||
U.S. corporate securities | — | 8,127 | 8,127 | |||||||||
Money market funds | 17,395 | — | 17,395 | |||||||||
|
|
|
|
|
| |||||||
| $ | 82,574 | $ | 687,140 | $ | 769,714 | |||||||
|
|
|
|
|
| |||||||
Included in cash and cash equivalents | $ | 63,533 | ||||||||||
|
| |||||||||||
Included in marketable securities | $ | 706,181 | ||||||||||
|
| |||||||||||
Fair Value Measurements as of January 31, 2015 | ||||||||||||
| Description | Level 1 | Level 2 | Total | |||||||||
| U.S. agency obligations | $ | — | $ | 1,304,235 | $ | 1,304,235 | ||||||
| U.S. treasury securities | 180,649 | — | 180,649 | |||||||||
| U.S. corporate securities | — | 99,632 | 99,632 | |||||||||
| Commercial paper | — | 89,984 | 89,984 | |||||||||
| Money market funds | 142,137 | — | 142,137 | |||||||||
| $ | 322,786 | $ | 1,493,851 | $ | 1,816,637 | |||||||
| Included in cash and cash equivalents | $ | 257,120 | ||||||||||
| Included in marketable securities | $ | 1,559,517 | ||||||||||
| Fair Value Measurements as of January 31, 2014 | ||||||||||||
| Description | Level 1 | Level 2 | Total | |||||||||
| U.S. agency obligations | $ | — | $ | 1,125,454 | $ | 1,125,454 | ||||||
| U.S. treasury securities | 536,788 | — | 536,788 | |||||||||
| Commercial paper | — | 62,997 | 62,997 | |||||||||
| U.S. corporate securities | — | 11,777 | 11,777 | |||||||||
| Money market funds | 90,159 | — | 90,159 | |||||||||
| $ | 626,947 | $ | 1,200,228 | $ | 1,827,175 | |||||||
| Included in cash and cash equivalents | $ | 521,922 | ||||||||||
| Included in marketable securities | $ | 1,305,253 | ||||||||||
| January 31, 2014 | ||||||||
| Carrying Amount | Estimated Fair Value | |||||||
0.75% Convertible senior notes | $ | 281,359 | $ | 434,875 | ||||
1.50% Convertible senior notes | 187,053 | 319,219 | ||||||
| January 31, 2015 | January 31, 2014 | ||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||
| 0.75% Convertible senior notes | $ | 295,276 | $ | 407,750 | $ | 281,359 | $ | 434,875 | |||||||
| 1.50% Convertible senior notes | 195,225 | 299,063 | 187,053 | 319,219 | |||||||||||
Note 10. Convertible Senior NotesConvertible Senior NotesIn June 2013, we issued 0.75% convertible senior notes due July 15, 2018 (2018 Notes) with a principal amount of $350.0$350 million. The 2018 Notes are unsecured, unsubordinated obligations, and interest is payable in cash in arrears at a fixed rate of 0.75% on January 15 and July 15 of each year, beginning on January 15, 2014. The 2018 Notes mature on July 15, 2018 unless repurchased or converted in accordance with their terms prior to such date. We cannot redeem the 2018 Notes prior to maturity.Concurrently, we issued 1.50% convertible senior notes due July 15, 2020 (2020 Notes) with a principal amount of $250.0$250 million (together with the 2018 Notes, referred to as the Notes). The 2020 Notes are unsecured, unsubordinated obligations of Workday, and interest is payable in cash in arrears at a fixed rate of 1.50% on January 15 and July 15 of each year, beginning on January 15, 2014. The 2020 Notes mature on July 15, 2020 unless repurchased or converted in accordance with their terms prior to such date. We cannot redeem the 2020 Notes prior to maturity.56The terms of the Notes are governed by Indentures by and between us and Wells Fargo Bank, National Association, as Trustee (the Indentures). Upon conversion, holders of the Notes will receive cash, shares of Class A Common Stock or a combination of cash and shares of Class A Common Stock, at our election.For the 2018 Notes, the initial conversion rate is 12.0075 shares of Class A Common Stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $83.28 per share of Class A Common Stock, subject to adjustment. Prior to the close of business on March 14, 2018, the conversion is subject to the satisfaction of certain conditions as described below. For the 2020 Notes, the initial conversion rate is 12.2340 shares of Class A Common Stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $81.74 per share of Class A Common Stock, subject to adjustment. Prior to the close of business on March 13, 2020, the conversion is subject to the satisfaction of certain conditions, as described below.Holders of the Notes who convert their Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the Indentures) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the Indentures), holders of the Notes may require us to repurchase all or a portion of their Notes at a price equal to 100% of the principal amount of the Notes, plus any accrued and unpaid interest.Holders of the 2018 Notes and 2020 Notes may convert all or a portion of their Notes prior to the close of business on March 14, 2018 for the 2018 Notes and March 13, 2020 for the 2020 Notes, in multiples of $1,000 principal amount, only under the following circumstances:if the last reported sale price of Class A Common Stock for at least twenty trading days during a period of thirty consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the respective Notes on each applicable trading day;
| January 31, 2014 | ||||||||
| 2018 Notes | 2020 Notes | |||||||
Principal amounts: | ||||||||
Principal | $ | 350,000 | $ | 250,000 | ||||
Unamortized debt discount(1) | (68,641 | ) | (62,947 | ) | ||||
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|
|
| |||||
Net carrying amount | $ | 281,359 | $ | 187,053 | ||||
|
|
|
| |||||
Carrying amount of the equity component(2) | $ | 74,892 | $ | 66,007 | ||||
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| |||||
| January 31, 2015 | January 31, 2014 | ||||||||||||||
| 2018 Notes | 2020 Notes | 2018 Notes | 2020 Notes | ||||||||||||
| Principal amounts: | |||||||||||||||
| Principal | $ | 350,000 | $ | 250,000 | $ | 350,000 | $ | 250,000 | |||||||
Unamortized debt discount(1) | (54,724 | ) | (54,775 | ) | (68,641 | ) | (62,947 | ) | |||||||
| Net carrying amount | $ | 295,276 | $ | 195,225 | $ | 281,359 | $ | 187,053 | |||||||
Carrying amount of the equity component(2) | $ | 74,892 | $ | 66,007 | $ | 74,892 | $ | 66,007 | |||||||
(1) | Included in the consolidated balance sheets within Convertible senior notes, net and amortized over the remaining lives of the Notes on the straight-line basis as it approximates the effective interest rate method. |
(2) | Included in the consolidated balance sheets within additional paid-in capital, net of |
| 2018 Notes | 2020 Notes | |||||||
Contractual interest expense | $ | 1,633 | $ | 2,333 | ||||
Interest cost related to amortization of debt issuance costs | 876 | 420 | ||||||
Interest cost related to amortization of the debt discount | 8,265 | 4,834 | ||||||
| Year Ended January 31, | |||||||||||||||
| 2015 | 2014 | ||||||||||||||
| 2018 Notes | 2020 Notes | 2018 Notes | 2020 Notes | ||||||||||||
| Contractual interest expense | $ | 2,625 | $ | 3,750 | $ | 1,633 | $ | 2,333 | |||||||
| Interest cost related to amortization of debt issuance costs | 1,408 | 674 | 876 | 420 | |||||||||||
| Interest cost related to amortization of the debt discount | 13,916 | 8,172 | 8,265 | 4,834 | |||||||||||
of our Class A Common Stockcommon stock and are exercisable upon conversion of the Notes. The Purchased Options have initial exercise prices that correspond to the initial conversion prices of the 2018 Notes and 2020 Notes, respectively, subject to anti-dilution adjustments substantially similar to those in the Notes. The Purchased Options will expire in 2018 for the 2018 Notes and in 2020 for the 2020 Notes, if not earlier exercised. The Purchased Options are intended to offset potential economic dilution to our Class A Common Stockcommon stock upon any conversion of the Notes. The Purchased Options are separate transactions and are not part of the terms of the Notes.
2015 2016 2017 2018 2019 Thereafter Less amount representing interest and taxes Less current portion Noncurrent and Stockholders’ Equity All of our Class A and Class B shares will convert to a single class of common stock upon the date that is the first to occur of (i) October 11, 2032, (ii) such time as the shares of Class B common stock represent less than 9% of the outstanding Class A and Class B common stock, (iii) nine months following the death of both Mr. Duffield and Mr. Bhusri, and (iv) the date on which the holders of a majority of the shares of Class B common stock elect to convert all shares of Class A common stock and Class B common stock into a single class of common stock. Balance as of January 31, 2013 Stock option grants Stock options exercised Stock options canceled Balance as of January 31, 2014 Vested and expected to vest as of January 31, 2014 Exercisable as of January 31, 2014 $12.73. $81.65. Balance as of January 31, 2013 Restricted stock units granted Restricted stock units vested Restricted stock units forfeited Balance as of January 31, 2014 Exchange to determine the fair value of our common stock at each meeting at which awards were approved. Stock Options Expected volatility Expected term (in years) Risk-free interest rate Dividend yield ESPP Expected volatility Expected term (in years) Risk-free interest rate Dividend yield Weighted-average grant date fair value per shareNote 11. Commitments and ContingenciesLeasesWe lease office space under noncancelablenon-cancelable operating leases in the U.S. and overseasother countries with various expiration dates. Certain of our office leases are with an affiliate of our co-CEO, DavidChairman, Mr. Duffield, who is also a director and significant stockholder of Workday. In addition, we lease certain equipment and related software from an affiliate of Mr. Duffield (see Note 16) and from various third parties. The equipment lease terms contain a bargain purchase option, therefore, the leases are classified as capital leases.On17).In January, 30, 2014, we entered into a 95-year lease to lease a 6.9-acre parcel of vacant land, under which we paid a one-time $0.5 million transfer fee for obtaining the lease, and a prepayment of $1.5$2 million for base rent from commencement through December 31, 2020. Annual rent payments of $0.2 million plus increases based on increases in the consumer price index begin on January 1, 2021 and continue through the end of the lease. If construction does not commence by June 30, 2015, we will be required to make additional payments to the lessor, ranging from $0.2 million to $1.0$1 million based on the length of the delay. As of January 31, 2014,2015, the future minimum lease payments by year under non-cancelable leases are as follows (in thousands): Capital Leases Operating
Leases Operating Leases
with Related Party $ 9,901 $ 12,894 $ 2,179 3,673 8,546 2,306 — 5,032 2,362 — 4,116 2,417 — 3,438 2,473 — 25,083 10,677 13,574 59,109 22,414 (608 ) — — 12,966 $ 59,109 $ 22,414 9,377 $ 3,589 Capital Leases OperatingLeases Operating Leaseswith Related Party2016 $ 3,293 $ 16,684 $ 4,868 2017 — 22,584 5,424 2018 — 21,420 5,545 2019 — 15,221 5,667 2020 — 9,558 5,788 Thereafter — 33,804 23,698 3,293 $ 119,271 $ 50,990 Less amount representing interest and taxes (86 ) 3,207 Less current portion 3,207 Noncurrent $ — The facility lease agreements generally provide for rental payments on a graduated basis and for options to renew, which could increase future minimum lease payments if exercised. We recognize rent expense on a straight-line basis over the period in which we benefit from the lease and have accrued for rent expense incurred but not paid. Rent expense was $11.0$21 million, $5.5$11 million and $3.4$6 million for fiscal 2015, 2014 and 2013, and 2012, respectively.Legal MattersWe are a party to various legal proceedings and claims which arise in the ordinary course of business. In our opinion, as of January 31, 2014,2015, there was not at least a reasonable possibility that we had incurred a material loss, or a material loss in excess of a recorded accrual, with respect to such loss contingencies.Note 11.Common Stock and Stockholders’ Equity (Deficit)Note 12. Common StockCommon StockIn connection with our initial public offering in October 2012 (IPO), we amended our certificate of incorporation to provide for Class A common stock, Class B common stock and preferred stock. Upon the closing of the IPO, all shares of our then-outstanding redeemable convertible preferred stock and convertible preferred stock automatically converted into an aggregate of 98.0 million shares of Class B common stock and an aggregate of 42.1 million shares of our then-outstanding common stock converted into an equal number of Class B common stock.In January 2014, we completed our follow-on offering, in which we issued 6.9 million shares of our Class A common stock at a public offering price of $89.00 per share. We received net proceeds of $592.2$592 million after deducting underwriting discounts and commissions of $21.2$21 million and other offering expenses of $0.7$1 million.59As of January 31, 2014,2015, there were 91.1105 million shares of Class A common stock and 92.383 million shares of Class B common stock outstanding. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock can be converted into a share of Class A common stock at any time at the option of the holder.Employee Equity PlansOur board of directors adopted the 2012 Equity Incentive Plan (EIP) in August 2012 which became effective on October 10, 2012 and serves as the successor to our 2005 Stock Plan (together with the EIP, the Stock Plans). Pursuant to the terms of the EIP, the share reserve increased by 9.2 million and 8.3 million shares, respectively on March 31, 2014 and 2013. As of January 31, 2015, we had approximately 49.7 million shares of Class A common stock available for future grants under the EIP.We also have a 2012 Employee Stock Purchase Plan (ESPP). Under the ESPP, eligible employees are granted options to purchase shares at the lower of 85% of the fair market value of the stock at the time of grant or 85% of the fair market value at the time of exercise. Options to purchase shares are granted twice yearly on or about June 1 and December 1 and exercisable on or about the succeeding November 30 and May 31, respectively, of each year. We commenced our first purchase period under the ESPP on June 1, 2013. Pursuant to the terms of the ESPP, the share reserve increased by 1.8 million shares on March 31, 2014. As of January 31, 2015, 3.4 million shares of Class A common stock were available for issuance under the ESPP. For fiscal 2015, 400,986 shares of Class A common shares were purchased under the ESPP at a weighted-average price of $65.33 per share, resulting in cash proceeds of $26 million.Donation to the Workday FoundationIn August 2012, with approval of the board of directors, we donated 500,000 shares of Class B common stock to the Workday Foundation. We incurred a share-based charge of $11.3$11 million for the value of the donated shares, which was recorded in general and administrative expense in fiscal 2013.Stock OptionsThe Stock Plans provide for the issuance of incentive and nonstatutory options to employees and non-employees. We have also issued nonstatutory options outside of the Stock Plans. Options issued under the Stock Plans generally are exercisable for periods not to exceed 10 years and generally vest over five years. A summary of information related to stock option activity during fiscal 2015 is as follows (in millions, except share and per share data): OutstandingStockOptions Weighted-AverageExercisePrice AggregateIntrinsicValueBalance as of January 31, 2014 20,706,207 $ 3.93 $ 1,773 Stock option grants — — Stock options exercised (3,668,932 ) 2.74 Stock options canceled (373,718 ) 9.56 Balance as of January 31, 2015 16,663,557 $ 4.06 $ 1,256 Vested and expected to vest as of January 31, 2015 16,371,996 $ 3.99 $ 1,236 Exercisable as of January 31, 2015 13,054,231 $ 3.12 $ 997 The total grant-date fair value of stock options vested during fiscal 2015, 2014 and 2013 was $20 million, $27 million and $7 million, respectively. The total intrinsic value of the options exercised during fiscal 2015, 2014 and 2013 was $311 million, $566 million and $70 million, respectively. The intrinsic value is the difference between the current fair value of the stock and the exercise price of the stock option. The weighted-average remaining contractual life of vested and expected to vest options as of January 31, 2015 is approximately 6.0 years.60As of January 31, 2015, there was a total of $37 million in unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately 2.2 years.The options that are exercisable as of January 31, 2015 have a weighted-average remaining contractual life of approximately 5.8 years. The weighted-average remaining contractual life of outstanding options at January 31, 2015 is approximately 6.0years.Common Stock Subject to RepurchaseThe equity plansStock Plans allow for the early exercise of stock options for certain individuals as determined by the board of directors. We have the right to purchase at the original exercise price any unvested (but issued) common shares during the repurchase period following termination of services of an employee. The consideration received for an exercise of an option is considered to be a deposit of the exercise price and the related dollar amount is recorded as a liability. The shares and liabilities are reclassified into equity as the awards vest. As of January 31, 20142015 and 2013,2014, we had $6.4$4 million and $9.4$6 million respectively, recorded in liabilities related to early exercises of stock options.Employee Equity PlansOur board of directors adopted the 2012 Equity Incentive Plan in August 2012 which became effective on October 10, 2012 and serves as the successor to our 2005 Stock Plan (together with the 2012 Equity IncentivePlan (EIP)). Pursuant to the terms of the EIP, the share reserve increased by 8.3 million shares on March 31, 2013. As of January 31, 2014, we had approximately 43.7 million shares of Class A common stock available for future grants under the EIP.Employee Stock Purchase PlanOur board of directors adopted the 2012 Employee Stock Purchase Plan (ESPP) in August 2012, which became effective on October 10, 2012. The ESPP was approved with a reserve of 2.0 million shares of Class A common stock for future issuance under various terms provided for in the ESPP. Under the ESPP, eligible employees are granted options to purchase shares at the lower of 85% of the fair market value of the stock at the time of grant or 85% of the fair market value at the time of exercise. Options to purchase shares are generally granted twice yearly on June 1 and December 1 and exercisable on the succeeding November 30 and May 31, respectively, of each year. We commenced our first purchase period under the ESPP on June 1, 2013. As of January 31, 2014, 1.8 million shares of Class A common stock were available for issuance under the ESPP. For fiscal 2014, 189,885 shares of Class A common shares were purchased under the ESPP at a weighted-average price of $52.88 per share, resulting in cash proceeds of $10.0 million.Stock OptionsThe EIP provides for the issuance of incentive and nonstatutory options to employees and non-employees. We have also issued nonstatutory options outside of the EIP. Options issued under the EIP generally are exercisable for periods not to exceed 10 years and generally vest over four or five years.A summary of information related to stock option activity during fiscal 2014 is as follows (in millions, except share and per share data): Outstanding
Stock
Options Weighted-
Average
Exercise
Price Aggregate
Intrinsic
Value 29,856,042 $ 3.19 $ 1,499 74,050 60.78 (8,689,384 ) 1.57 (534,501 ) 9.24 20,706,207 $ 3.93 $ 1,773 20,007,366 $ 3.81 $ 1,715 13,978,141 $ 2.56 $ 1,216 The total grant-date fair value of stock options vested during fiscal 2014, 2013 and 2012 was $27.2 million, $6.6 million and $2.5 million, respectively. The total intrinsic value of the options exercised during fiscal 2014, 2013 and 2012 was $566.2 million, $69.8 million and $19.6 million, respectively. The intrinsic value is the difference between the current fair value of the stock and the exercise price of the stock option. The weighted-average remaining contractual life of vested and expected to vest options as of January 31, 2014 is approximately 6.8 years.As of January 31, 2014, there was a total of $58.7 million in unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately 3.1 years.The options that are exercisable as of January 31, 2014 have a weighted-average remaining contractual life of approximately 6.5 years. The weighted-average remaining contractual life of outstanding options at January 31, 2014 is approximately 6.8 years.Restricted Stock AwardsThe EIP providesStock Plans provide for the issuance of restricted stock awards to employees. Restricted stock awards generally vest over five years. Under the EIP, 1.0 million restricted awards of Class B common stock are outstanding with weighted average grant date fair value of $12.85,$12.89, all of which are subject to forfeiture as of January 31, 2014.2015. During fiscal 2014,2015, 0.3 million shares of restricted stock awards vested with weighted average grant date fair value of $12.34.As of January 31, 2014,2015, there was a total of $12.9$10 million in unrecognized compensation cost related to restricted stock awards, which are expected to be recognized over a weighted-average period of approximately 3.82.8 years.Restricted Stock UnitsThe EIP providesStock Plans provide for the issuance of restricted stock units to employees. Restricted stock units issued under the 2005 Stock Plan generally vest over five years and restricted stock units issued under the EIP generally vest over four years. During fiscal 2014,2015, we issued 3.93.7 million restricted stock units of Class A common stock under the EIP with a weighted average grant date fair value of $71.35.A summary of information related to restricted stock units activity during fiscal 20142015 is as follows: Number of Shares Weighted-Average
Grant Date Fair Value 163,400 $ 48.82 3,919,524 71.35 (49,275 ) 52.92 (66,921 ) 67.34 3,966,728 $ 70.72 Number of Shares Weighted-AverageGrant Date Fair ValueBalance as of January 31, 2014 3,966,728 $ 70.72 Restricted stock units granted 3,724,136 81.65 Restricted stock units vested (1,055,785 ) 70.64 Restricted stock units forfeited (225,947 ) 75.11 Balance as of January 31, 2015 6,409,132 $ 76.93 As of January 31, 2014,2015, there was a total of $251.0$413 million in unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted-average period of approximately 3.53.0 years.61Performance-based Restricted Stock UnitsWe granted 106,320 shares of performance-based restricted stock units (PRSUs) during the year ended January 31, 2015, with a weighted average grant date fair value per share of $83.77. The PRSU awards, which were granted to all employees, include performance conditions related to company-wide goals and service conditions. Following a change in the performance condition in January 2015, these PRSU awards will vest if the performance conditions are achieved for the year ended January 31, 2016 and if the individual employee continues to provide service through the vesting date of March 15, 2016.As of January 31, 2015, there was a total of $9 million in unrecognized compensation cost related to all performance-based restricted stock units, which is expected to be recognized over a weighted-average period of approximately one year.Share-Based Compensation to EmployeesAll share-based payments to employees are measured based on the grant date fair value of the awards and recognized in the consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). We estimate the fair value of equitystock option awards and shares issued under the ESPP using the Black-Scholes option-pricing model. We determine the assumptions for the option-pricing model as follows:Fair Value of Common StockPrior to our IPO, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at each meeting at which awards were approved. The factors included, but were not limited to: (i) contemporaneous third-party valuations of our common stock; (ii) the prices, rights, preferences and privileges of our preferred stock relative to those of our common stock; (iii) the lack of marketability of our common stock; (iv) our actual operating and financial results; (v) current business conditions and projections; and (vi) the likelihood of achieving a liquidity event, such as an IPO or sale of our company, given prevailing market conditions.Since our IPO, we have used the market closing price for our Class A common stock as reported on the New York Stock Exchange.Risk-Free Interest RateThe weighted-average, risk-free interest rate is based on the rate for a U.S. Treasury zero-coupon issue with a term that approximates the expected life of the option grant at the date closest to the option grant date.Expected TermThe expected term represents the period that our share-based awards are expected to be outstanding. The expected term assumptions were determined based on the vesting terms, exercise terms and contractual lives of the options.VolatilityWe determine the price volatility factor based on the historical volatility data of our peer group, as we currently do not have a sufficient trading history for ourgroup's common stock.Dividend YieldWe have not paid and do not expect to pay dividends.AssumptionsThe estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period the estimates are revised. We consider many factors when estimating expected forfeitures, including the types of awards and employee class. Actual results, and future changes in estimates, may differ substantially from our current estimates.The assumptions used for the periods presented were as follows: Year Ended January 31, 2014 2013 2012 54.8% – 55.8% 54.3% – 61.1% 58.1% – 59.1% 6.11 5 – 6.4 5 – 6.4 0.9% – 1.8% 0.8% – 1.0% 0.9% – 2.7% 0% 0% 0% Year Ended January 31, 2014 2013 2012 27.7% – 30.4% n/a n/a 0.5 n/a n/a 0.1% n/a n/a 0% n/a n/a $52.88 – 68.43 n/a n/a 62 Year Ended January 31, Stock Options 2015 2014 2013 Expected volatility n/a 54.8% – 55.8% 54.3% – 61.1% Expected term (in years) n/a 6.11 5 – 6.4 Risk-free interest rate n/a 0.9% - 1.8% 0.8% - 1.0% Dividend yield n/a —% —% Year Ended January 31, ESPP 2015 2014 2013 Expected volatility 32.8% – 37.7% 27.7% – 30.4% n/a Expected term (in years) 0.5 0.5 n/a Risk-free interest rate 0.01% - 0.1% 0.1% n/a Dividend yield —% —% n/a Weighted-average grant date fair value per share $64.12 – 72.26 $52.88 – 68.43 n/a Note 12.Other Expense, Net
| Year Ended January 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
Interest income | $ | 1,992 | $ | 560 | $ | 68 | ||||||
Interest expense(1) | (19,618 | ) | (1,363 | ) | (976 | ) | ||||||
Other income (expense) | 77 | (400 | ) | (110 | ) | |||||||
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Other expense, net | $ | (17,549 | ) | $ | (1,203 | ) | $ | (1,018 | ) | |||
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| Year Ended January 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Interest income | $ | 2,960 | $ | 1,992 | $ | 560 | |||||
Interest expense(1) | (31,060 | ) | (19,618 | ) | (1,363 | ) | |||||
| Other income (expense) | (2,170 | ) | 77 | (400 | ) | ||||||
| Other expense, net | $ | (30,270 | ) | $ | (17,549 | ) | $ | (1,203 | ) | ||
(1) | During fiscal 2015 and 2014, interest expense includes the contractual interest expense related to the 2018 Notes and 2020 Notes, non-cash interest related to amortization of the debt discount and amortization of debt issuance costs (see Note |
| Year Ended January 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
Domestic | $ | (49,652 | ) | $ | (119,793 | ) | $ | (78,721 | ) | |||
Foreign | (121,179 | ) | 727 | (741 | ) | |||||||
|
|
|
|
|
| |||||||
Total | $ | (170,831 | ) | $ | (119,066 | ) | $ | (79,462 | ) | |||
|
|
|
|
|
| |||||||
We did not record an income tax provision for deferred taxes for any of the periods presented because we provided a full valuation allowance against our deferred tax assets.
| Year Ended January 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Domestic | $ | (93,619 | ) | $ | (49,652 | ) | $ | (119,793 | ) | ||
| Foreign | (152,353 | ) | (121,179 | ) | 727 | ||||||
| Total | $ | (245,972 | ) | $ | (170,831 | ) | $ | (119,066 | ) | ||
| Year Ended January 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
Federal | $ | 60 | $ | (160 | ) | $ | 60 | |||||
State | 178 | 42 | 38 | |||||||||
Foreign | 1,440 | 242 | 69 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 1,678 | $ | 124 | $ | 167 | ||||||
|
|
|
|
|
| |||||||
| Year Ended January 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Current: | |||||||||||
| Federal | $ | 90 | $ | 60 | $ | (160 | ) | ||||
| State | 106 | 178 | 42 | ||||||||
| Foreign | 2,128 | 1,440 | 242 | ||||||||
| Total | $ | 2,324 | $ | 1,678 | $ | 124 | |||||
| Deferred: | |||||||||||
| Federal | $ | — | $ | — | $ | — | |||||
| State | — | — | — | ||||||||
| Foreign | (314 | ) | — | — | |||||||
| Total | (314 | ) | — | — | |||||||
| Provision for income taxes | $ | 2,010 | $ | 1,678 | $ | 124 | |||||
| Year Ended January 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
Effect of: | ||||||||||||
Foreign income at other than U.S. rates | (25.4 | ) | 0.3 | (0.3 | ) | |||||||
Intercompany transactions | (36.8 | ) | — | — | ||||||||
Research tax credits | 12.7 | — | — | |||||||||
State taxes, net of federal benefit | 1.9 | 5.0 | 5.2 | |||||||||
Changes in valuation allowance | 16.1 | (37.8 | ) | (38.7 | ) | |||||||
Stock Compensation | (3.9 | ) | (2.4 | ) | (1.1 | ) | ||||||
Other | (0.6 | ) | (0.2 | ) | (0.3 | ) | ||||||
|
|
|
|
|
| |||||||
| (1.0 | )% | (0.1 | )% | (0.2 | )% | |||||||
|
|
|
|
|
| |||||||
| Year Ended January 31, | ||||||||
| 2015 | 2014 | 2013 | ||||||
| Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
| Effect of: | ||||||||
| Foreign income at other than U.S. rates | (22.5 | ) | (25.4 | ) | 0.3 | |||
| Intercompany transactions | (0.2 | ) | (36.8 | ) | — | |||
| Research tax credits | 6.9 | 12.7 | — | |||||
| State taxes, net of federal benefit | 0.6 | 1.9 | 5.0 | |||||
| Changes in valuation allowance | (15.9 | ) | 16.1 | (37.8 | ) | |||
| Stock compensation | (4.0 | ) | (3.9 | ) | (2.4 | ) | ||
| Other | (0.7 | ) | (0.6 | ) | (0.2 | ) | ||
| (0.8 | )% | (1.0 | )% | (0.1 | )% | |||
the tax deduction is realized on the income tax returns.
| January 31, 2014 | January 31, 2013 | |||||||
Deferred tax assets: | ||||||||
Unearned revenue | $ | 26,079 | $ | 28,346 | ||||
Other reserves and accruals | 16,751 | 11,960 | ||||||
Federal net operating loss carryforwards | 82,006 | 87,222 | ||||||
State and foreign net operating loss carryforwards | 23,221 | 22,888 | ||||||
Property and equipment | 11,753 | 6,196 | ||||||
Share-based compensation | 12,092 | 3,797 | ||||||
Research and development credits | 21,763 | — | ||||||
Other | 2,642 | 138 | ||||||
|
|
|
| |||||
| 196,307 | 160,547 | |||||||
Valuation allowance | (130,462 | ) | (158,003 | ) | ||||
|
|
|
| |||||
Deferred tax assets, net of valuation allowance | 65,845 | 2,544 | ||||||
Deferred tax liabilities: | ||||||||
Intercompany transactions | (61,701 | ) | — | |||||
Other prepaid assets | (4,144 | ) | (2,544 | ) | ||||
|
|
|
| |||||
| (65,845 | ) | (2,544 | ) | |||||
|
|
|
| |||||
Net deferred tax assets | $ | — | $ | — | ||||
|
|
|
| |||||
As
January 31, 2015 | January 31, 2014 | ||||||
| Deferred tax assets: | |||||||
| Unearned revenue | $ | 29,093 | $ | 26,079 | |||
| Other reserves and accruals | 16,337 | 16,751 | |||||
| Federal net operating loss carryforwards | 82,434 | 82,006 | |||||
| State and foreign net operating loss carryforwards | 23,047 | 23,221 | |||||
| Property and equipment | 18,864 | 11,753 | |||||
| Share-based compensation | 34,009 | 12,092 | |||||
| Research and development credits | 38,738 | 21,763 | |||||
| Other | 4,767 | 2,642 | |||||
| 247,289 | 196,307 | ||||||
| Valuation allowance | (177,211 | ) | (130,462 | ) | |||
| Deferred tax assets, net of valuation allowance | 70,078 | 65,845 | |||||
| Deferred tax liabilities: | |||||||
| Intercompany transactions | (61,389 | ) | (61,701 | ) | |||
| Other prepaid assets | (7,255 | ) | (4,144 | ) | |||
| Other | (783 | ) | — | ||||
| (69,427 | ) | (65,845 | ) | ||||
| Net deferred tax assets | $ | 651 | $ | — | |||
adjust the valuation allowance accordingly.
| Year Ended January 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
Unrecognized tax benefits at the beginning of the period | $ | 15,577 | $ | 10,705 | $ | 8,598 | ||||||
Additions for tax positions taken in prior years | 1,928 | 1,392 | — | |||||||||
Reductions for tax positions taken in prior years | (10,982 | ) | — | — | ||||||||
Additions for tax provisions related to the current year | 70,567 | 3,480 | 2,107 | |||||||||
|
|
|
|
|
| |||||||
Unrecognized tax benefits at the end of the period | $ | 77,090 | $ | 15,577 | $ | 10,705 | ||||||
|
|
|
|
|
| |||||||
| Year Ended January 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Unrecognized tax benefits at the beginning of the period | $ | 77,090 | $ | 15,577 | $ | 10,705 | |||||
| Additions for tax positions taken in prior years | 3,946 | 1,928 | 1,392 | ||||||||
| Reductions for tax positions taken in prior years | (49 | ) | (10,982 | ) | — | ||||||
| Additions for tax positions related to the current year | 7,676 | 70,567 | 3,480 | ||||||||
| Unrecognized tax benefits at the end of the period | $ | 88,663 | $ | 77,090 | $ | 15,577 | |||||
Includedpotential benefits included in the balance of unrecognized tax benefits at each January 31, 2015, 2014 2013 and 2012 are potential benefits of $2.1 million, $1.7 million and $1.7 million, respectively,2013, which if recognized, would affect the tax rate on earnings. We do not expect anybelieve that it is reasonably possible that a decrease of up to $2 million in unrecognized tax benefits related to an acquired subsidiary may be recognized due to a lapse in statute of limitations which may occur within the next 12 months.
| Year Ended January 31, | ||||||||||||||||||||||||
| 2014 | 2013 | 2012 | ||||||||||||||||||||||
| Class A | Class B | Class A | Class B | Class A | Class B | |||||||||||||||||||
Basic and diluted net loss attributable to Class A and Class B common stockholders per share: | ||||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Allocation of distributed net loss attributable to common stockholders | $ | (64,985 | ) | $ | (107,524 | ) | $ | (12,955 | ) | $ | (106,803 | ) | $ | — | $ | (79,971 | ) | |||||||
Denominator: | ||||||||||||||||||||||||
Weighted-average common shares outstanding | 64,528 | 106,769 | 8,006 | 66,005 | — | 29,478 | ||||||||||||||||||
Basic and diluted net loss per share | $ | (1.01 | ) | $ | (1.01 | ) | $ | (1.62 | ) | $ | (1.62 | ) | $ | — | $ | (2.71 | ) | |||||||
| Year Ended January 31, | |||||||||||||||||||||||
| 2015 | 2014 | 2013 | |||||||||||||||||||||
| Class A | Class B | Class A | Class B | Class A | Class B | ||||||||||||||||||
| Basic and diluted net loss attributable to Class A and Class B common stockholders per share: | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Allocation of distributed net loss attributable to common stockholders | $ | (133,736 | ) | $ | (114,246 | ) | $ | (64,985 | ) | $ | (107,524 | ) | $ | (12,955 | ) | $ | (106,803 | ) | |||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average common shares outstanding | 99,070 | 84,632 | 64,528 | 106,769 | 8,006 | 66,005 | |||||||||||||||||
| Basic and diluted net loss per share | $ | (1.35 | ) | $ | (1.35 | ) | $ | (1.01 | ) | $ | (1.01 | ) | $ | (1.62 | ) | $ | (1.62 | ) | |||||
| Year Ended January 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
Shares subject to outstanding common stock options and warrants(1) | 20,706 | 31,206 | 30,561 | |||||||||
Shares subject to repurchase | 1,709 | 2,916 | 2,927 | |||||||||
Shares subject to unvested restricted stock awards and units | 4,999 | 1,503 | 100 | |||||||||
Redeemable convertible preferred stock | — | — | 30,390 | |||||||||
Convertible preferred stock | — | — | 67,586 | |||||||||
Convertible senior notes | 7,261 | — | — | |||||||||
Warrants related to the issuance of convertible senior notes | 7,261 | — | — | |||||||||
|
|
|
|
|
| |||||||
| 41,936 | 35,625 | 131,564 | ||||||||||
|
|
|
|
|
| |||||||
| Year Ended January 31, | ||||||||
| 2015 | 2014 | 2013 | ||||||
| Outstanding common stock options and warrants (1) | 16,664 | 20,706 | 31,206 | |||||
| Shares subject to repurchase | 1,164 | 1,709 | 2,916 | |||||
| Unvested restricted stock awards, units, and PRSUs | 7,283 | 4,999 | 1,503 | |||||
| Shares related to the convertible senior notes | 7,261 | 7,261 | — | |||||
| Shares subject to warrants related to the issuance of convertible senior notes | 7,261 | 7,261 | — | |||||
| 39,633 | 41,936 | 35,625 | ||||||
(1) | Warrants to purchase 1.4 million shares were outstanding as of January 31, 2013 and were exercised during fiscal 2014. |
| Year Ended January 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
United States | $ | 394,564 | $ | 226,006 | $ | 111,574 | ||||||
International | 74,374 | 47,651 | 22,853 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 468,938 | $ | 273,657 | $ | 134,427 | ||||||
|
|
|
|
|
| |||||||
| Year Ended January 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| United States | $ | 657,085 | $ | 394,564 | $ | 226,006 | |||||
| International | 130,775 | 74,374 | 47,651 | ||||||||
| Total | $ | 787,860 | $ | 468,938 | $ | 273,657 | |||||
We currently lease certain office space in Pleasanton, California under various lease agreements with an affiliate of Mr. Duffield. The term of the agreements is 10 years commencing in fiscal 2014 and the total rent due under the agreements was $1.3 million for fiscal 2014, and $23.7 million in total.
| Quarter ended | ||||||||||||||||||||||||||||||||
| January 31, 2014 | October 31, 2013 | July 31, 2013 | April 30, 2013 | January 31, 2013 | October 31, 2012(1) | July 31, 2012 | April 30, 2012 | |||||||||||||||||||||||||
Consolidated Statements of Operations Data: | ||||||||||||||||||||||||||||||||
Total revenues | $ | 141,866 | $ | 127,872 | $ | 107,555 | $ | 91,645 | $ | 81,519 | $ | 72,618 | $ | 62,702 | $ | 56,818 | ||||||||||||||||
Operating loss | (47,976 | ) | (40,399 | ) | (32,283 | ) | (32,624 | ) | (30,678 | ) | (40,868 | ) | (26,360 | ) | (19,957 | ) | ||||||||||||||||
Net loss | (55,982 | ) | (47,534 | ) | (35,978 | ) | (33,015 | ) | (30,944 | ) | (41,310 | ) | (26,881 | ) | (20,055 | ) | ||||||||||||||||
Net loss attributable to common stockholders | (55,982 | ) | (47,534 | ) | (35,978 | ) | (33,015 | ) | (30,944 | ) | (41,471 | ) | (27,087 | ) | (20,256 | ) | ||||||||||||||||
Net loss per share attributable to common stockholders, basic and diluted | (0.32 | ) | (0.27 | ) | (0.21 | ) | (0.20 | ) | (0.19 | ) | (0.67 | ) | (0.78 | ) | (0.61 | ) | ||||||||||||||||
| Quarter ended | |||||||||||||||||||||||||||||||
January 31, 2015 | October 31, 2014 | July 31, 2014 | April 30, 2014 | January 31, 2014 | October 31, 2013 | July 31, 2013 | April 30, 2013 | ||||||||||||||||||||||||
| Consolidated Statements of Operations Data: | |||||||||||||||||||||||||||||||
| Total revenues | $ | 226,273 | $ | 215,070 | $ | 186,780 | $ | 159,737 | $ | 141,866 | $ | 127,872 | $ | 107,555 | $ | 91,645 | |||||||||||||||
| Operating loss | (50,384 | ) | (51,466 | ) | (61,769 | ) | (52,083 | ) | (47,976 | ) | (40,399 | ) | (32,283 | ) | (32,624 | ) | |||||||||||||||
| Net loss | (59,466 | ) | (59,912 | ) | (69,215 | ) | (59,389 | ) | (55,982 | ) | (47,534 | ) | (35,978 | ) | (33,015 | ) | |||||||||||||||
| Net loss per share | (0.32 | ) | (0.33 | ) | (0.38 | ) | (0.32 | ) | (0.32 | ) | (0.27 | ) | (0.21 | ) | (0.20 | ) | |||||||||||||||
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A.CONTROLS AND PROCEDURES
Exhibit No. | Exhibit | Incorporated by Reference | Filed Herewith | |||||||||
| Form | File No. | Filing Date | Exhibit No. | |||||||||
| 3.1 | Restated Certificate of Incorporation of the Registrant. | 10-Q | 001-35680 | October 31, 2012 | 3.1 | |||||||
| 3.2 | Restated Bylaws of the Registrant. | 8-K | 001-35680 | March 13, 2013 | 3.1 | |||||||
| 4.1 | Form of Registrant’s Class A common stock certificate. | S-1/A | 333-183640 | October 1, 2012 | 4.1 | |||||||
| 4.2 | Form of Registrant’s Class B common stock certificate. | S-8 | 333-184395 | October 12, 2012 | 4.9 | |||||||
| 4.3 | Amended and Restated Investors’ Rights Agreement, dated October 13, 2011, by and among the Registrant certain security holders of the Registrant. | S-1 | 333-183640 | August 30, 2012 | 4.2 | |||||||
| 4.4 | 2018 Indenture dated June 17, 2013 between Workday, Inc. and Wells Fargo Bank, National Association. | 8-K | 001-35680 | June 17, 2013 | 4.1 | |||||||
| 4.5 | 2020 Indenture dated June 17, 2013 between Workday, Inc. and Wells Fargo Bank, National Association. | 8-K | 001-35680 | June 17, 2013 | 4.2 | |||||||
| 10.1 | Form of Indemnification Agreement. | S-1 | 333-183640 | August 30, 2012 | 10.1 | |||||||
| 10.2† | 2005 Stock Plan, as amended and form of stock option and stock option exercise agreement. | 10-Q | 001-35680 | June 5, 2013 | 10.12 | |||||||
| 10.3† | 2012 Equity Incentive Plan. | S-8 | 333-187665 | April 1, 2013 | 4.4 | |||||||
| 10.4 | 2012 Equity Incentive Plan form of agreements. | S-1 | 333-183640 | August 30, 2012 | 10.3 | |||||||
| 10.5† | 2012 Employee Stock Purchase Plan. | S-1 | 333-183640 | August 30, 2012 | 10.4 | |||||||
| 10.6† | Offer Letter between Michael A. Stankey and the Registrant, dated September 4, 2009. | S-1 | 333-183640 | August 30, 2012 | 10.5 | |||||||
| 10.7† | Offer Letter between James P. Shaughnessy and the Registrant, dated July 7, 2011. | S-1 | 333-183640 | August 30, 2012 | 10.6 | |||||||
| 10.8† | Offer Letter between Mark S. Peek and the Registrant, dated April 9, 2012, as amended May 22, 2012. | S-1 | 333-183640 | August 30, 2012 | 10.7 | |||||||
| 10.9 | Offer Letter between James J. Bozzini and the Registrant dated December 4, 2006 | X | ||||||||||
ExhibitExhibit
No. Incorporated by Reference Filed
Herewith Form File No. Filing Date Exhibit No. 10.10 Office Lease Agreement, dated September 18, 2008, between Registrant and 6200 Stoneridge Mall Road Investors, LLC S-1 333-183640 August 30, 2012 10.8 10.11 Restated and Amended Pleasanton Ground Lease by and between San Francisco Bay Area Rapid Transit District and CREA/Windstar Pleasanton, LLC and related assignment agreement dated January 30, 2014. X 10.12 Sub-Sublease, dated September 22, 2008, between Registrant and E-Loan, Inc. S-1 333-183640 August 30, 2012 10.9 10.13 Form of Warrant to Purchase Class B Common Stock, dated May 19, 2008, issued by the Registrant to Flextronics International Management Services Ltd., as amended. S-1 333-183640 August 30, 2012 10.10 10.14 Stock Restriction Agreement, by and among the Registrant, David A. Duffield and Aneel Bhusri. S-1/A 333-183640 October 1, 2012 10.11 10.15 Form of Convertible Bond Hedge Confirmation (2018) 8-K 001-35680 June 17, 2013 99.1 10.16 Form of Warrant Confirmation (2018) 8-K 001-35680 June 17, 2013 99.2 10.17 Form of Convertible Bond Hedge Confirmation (2020) 8-K 001-35680 June 17, 2013 99.3 10.18 Form of Warrant Confirmation (2020) 8-K 001-35680 June 17, 2013 99.4 10.19 Form of Additional Convertible Bond Hedge Confirmation (2018) 8-K 001-35680 June 24, 2013 99.1 10.20 Form of Additional Warrant Confirmation (2018) 8-K 001-35680 June 24, 2013 99.2 10.21 Form of Additional Convertible Bond Hedge Confirmation (2020) 8-K 001-35680 June 24, 2013 99.3 10.22 Form of Additional Warrant Confirmation (2020) 8-K 001-35680 June 24, 2013 99.4 21.1 List of Subsidiaries of Registrant. X 23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. X 24.1 Power of Attorney (see page 81 to this Report) X
Exhibit No. | Exhibit | Incorporated by Reference | Filed Herewith | |||||||||
| Form | File No. | Filing Date | Exhibit No. | |||||||||
| 3.1 | Restated Certificate of Incorporation of the Registrant | 10-Q | 001-35680 | October 31, 2012 | 3.1 | |||||||
| 3.2 | Restated Bylaws of the Registrant | 8-K | 001-35680 | March 13, 2013 | 3.1 | |||||||
| 4.1 | Form of Registrant’s Class A common stock certificate | S-1/A | 333-183640 | October 1, 2012 | 4.1 | |||||||
| 4.2 | Form of Registrant’s Class B common stock certificate | S-8 | 333-184395 | October 12, 2012 | 4.9 | |||||||
| 4.3 | 2018 Indenture dated June 17, 2013 between Workday, Inc. and Wells Fargo Bank, National Association | 8-K | 001-35680 | June 17, 2013 | 4.1 | |||||||
| 4.4 | 2020 Indenture dated June 17, 2013 between Workday, Inc. and Wells Fargo Bank, National Association | 8-K | 001-35680 | June 17, 2013 | 4.2 | |||||||
| 10.1 | Form of Indemnification Agreement | S-1 | 333-183640 | August 30, 2012 | 10.1 | |||||||
| 10.2† | 2005 Stock Plan, as amended and form of stock option and stock option exercise agreement | 10-Q | 001-35680 | June 5, 2013 | 10.12 | |||||||
| 10.3† | 2012 Equity Incentive Plan | S-8 | 333-187665 | April 1, 2013 | 4.4 | |||||||
| 10.4 | 2012 Equity Incentive Plan form of agreements | S-1 | 333-183640 | August 30, 2012 | 10.3 | |||||||
| 10.5† | 2012 Employee Stock Purchase Plan | S-1 | 333-183640 | August 30, 2012 | 10.4 | |||||||
| 10.6† | Offer Letter between Michael A. Stankey and the Registrant, dated September 4, 2009 | S-1 | 333-183640 | August 30, 2012 | 10.5 | |||||||
| 10.7† | Offer Letter between James P. Shaughnessy and the Registrant, dated July 7, 2011 | S-1 | 333-183640 | August 30, 2012 | 10.6 | |||||||
| 10.8† | Offer Letter between Mark S. Peek and the Registrant, dated April 9, 2012, as amended May 22, 2012 | S-1 | 333-183640 | August 30, 2012 | 10.7 | |||||||
| 10.9 | Offer Letter between James J. Bozzini and the Registrant dated December 4, 2006 | 10-K | 001-365680 | March 31, 2014 | 10.9 | |||||||
| 10.1 | Office Lease Agreement, dated September 18, 2008, between Registrant and 6200 Stoneridge Mall Road Investors, LLC | S-1 | 333-183640 | August 30, 2012 | 10.8 | |||||||
| 10.1 | Restated and Amended Pleasanton Ground Lease by and between San Francisco Bay Area Rapid Transit District and CREA/Windstar Pleasanton, LLC and related assignment agreement dated January 30, 2014 | 10-K | 001-365680 | March 31, 2014 | 10.11 | |||||||
| 10.1 | Sub-Sublease, dated September 22, 2008, between Registrant and E-Loan, Inc | S-1 | 333-183640 | August 30, 2012 | 10.9 | |||||||
Exhibit No. | Exhibit | Incorporated by Reference | Filed Herewith | |||||||||
| Form | File No. | Filing Date | Exhibit No. | |||||||||
| 10.1 | Stock Restriction Agreement, by and among the Registrant, David A. Duffield and Aneel Bhusri | S-1/A | 333-183640 | October 1, 2012 | 10.11 | |||||||
| 10.2 | Form of Convertible Bond Hedge Confirmation (2018) | 8-K | 001-35680 | June 17, 2013 | 99.1 | |||||||
| 10.2 | Form of Warrant Confirmation (2018) | 8-K | 001-35680 | June 17, 2013 | 99.2 | |||||||
| 10.2 | Form of Convertible Bond Hedge Confirmation (2020) | 8-K | 001-35680 | June 17, 2013 | 99.3 | |||||||
| 10.2 | Form of Warrant Confirmation (2020) | 8-K | 001-35680 | June 17, 2013 | 99.4 | |||||||
| 10.2 | Form of Additional Convertible Bond Hedge Confirmation (2018) | 8-K | 001-35680 | June 24, 2013 | 99.1 | |||||||
| 10.2 | Form of Additional Warrant Confirmation (2018) | 8-K | 001-35680 | June 24, 2013 | 99.2 | |||||||
| 10.2 | Form of Additional Convertible Bond Hedge Confirmation (2020) | 8-K | 001-35680 | June 24, 2013 | 99.3 | |||||||
| 10.2 | Form of Additional Warrant Confirmation (2020) | 8-K | 001-35680 | June 24, 2013 | 99.4 | |||||||
| 21.1 | List of Subsidiaries of Registrant | X | ||||||||||
| 23.1 | Consent of Independent Registered Public Accounting Firm | X | ||||||||||
| 24.1 | Power of Attorney (see page 81 to this Report) | X | ||||||||||
| 31.1 | Certification of Periodic Report by Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 31.2 | Certification of Periodic Report by Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 32.1* | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 32.2* | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 101.INS | XBRL Instance Document | X | ||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | X | ||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
| ||||||||||||
| † | Indicates a management contract or compensatory plan. |
| * | As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Annual Report on Form 10-K and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of Workday, Inc. under the Securities Act of 1933 or the Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in such filings. |
| WORKDAY, INC. | |
| /s/ Mark S. Peek | |
Mark S. Peek Chief Financial Officer | |
Signature | Title | Date | ||
/s/ David A. Duffield
|
| March | ||
| David A. Duffield | ||||
| /s/ Aneel Bhusri
|
| March | ||
| Aneel Bhusri | (Principal Executive Officer) | |||
| /s/ Mark S. Peek | Chief Financial Officer | March 25, 2015 | ||
| Mark S. Peek |
(Principal Financial and Accounting Officer) | |||
/s/ A. George Battle
| Director | March | ||
| A. George Battle | ||||
| /s/ Christa Davies
| Director | March | ||
| Christa Davies | ||||
| /s/ Michael M. McNamara
| Director | March | ||
|
| |||
/s/ George J. Still, Jr. | Director | March 25, 2015 | ||
| George J. Still, Jr. |
| |||
|
| |||
EXHIBIT INDEX
| Exhibit No. | Exhibit | Incorporated by Reference | Filed Herewith | |||||||||
| Form | File No. | Filing Date | Exhibit No. | |||||||||
| 3.1 | Restated Certificate of Incorporation of the Registrant. | 10-Q | 001-35680 | October 31, 2012 | 3.1 | |||||||
| 3.2 | Restated Bylaws of the Registrant. | 8-K | 001-35680 | March 13, 2013 | 3.1 | |||||||
| 4.1 | Form of Registrant’s Class A common stock certificate. | S-1/A | 333-183640 | October 1, 2012 | 4.1 | |||||||
| 4.2 | Form of Registrant’s Class B common stock certificate. | S-8 | 333-184395 | October 12, 2012 | 4.9 | |||||||
| 4.3 | Amended and Restated Investors’ Rights Agreement, dated October 13, 2011, by and among the Registrant certain security holders of the Registrant. | S-1 | 333-183640 | August 30, 2012 | 4.2 | |||||||
| 4.4 | 2018 Indenture dated June 17, 2013 between Workday, Inc. and Wells Fargo Bank, National Association. | 8-K | 001-35680 | June 17, 2013 | 4.1 | |||||||
| 4.5 | 2020 Indenture dated June 17, 2013 between Workday, Inc. and Wells Fargo Bank, National Association. | 8-K | 001-35680 | June 17, 2013 | 4.2 | |||||||
| 10.1 | Form of Indemnification Agreement. | S-1 | 333-183640 | August 30, 2012 | 10.1 | |||||||
| 10.2† | 2005 Stock Plan, as amended and form of stock option and stock option exercise agreement. | 10-Q | 001-35680 | June 5, 2013 | 10.12 | |||||||
| 10.3† | 2012 Equity Incentive Plan. | S-8 | 333-187665 | April 1, 2013 | 4.4 | |||||||
| 10.4 | 2012 Equity Incentive Plan form of agreements. | S-1 | 333-183640 | August 30, 2012 | 10.3 | |||||||
| 10.5† | 2012 Employee Stock Purchase Plan. | S-1 | 333-183640 | August 30, 2012 | 10.4 | |||||||
| 10.6† | Offer Letter between Michael A. Stankey and the Registrant, dated September 4, 2009. | S-1 | 333-183640 | August 30, 2012 | 10.5 | |||||||
| 10.7† | Offer Letter between James P. Shaughnessy and the Registrant, dated July 7, 2011. | S-1 | 333-183640 | August 30, 2012 | 10.6 | |||||||
| 10.8† | Offer Letter between Mark S. Peek and the Registrant, dated April 9, 2012, as amended May 22, 2012. | S-1 | 333-183640 | August 30, 2012 | 10.7 | |||||||
| 10.9 | Offer Letter between James J. Bozzini and the Registrant dated December 4, 2006 | X | ||||||||||
| 10.10 | Office Lease Agreement, dated September 18, 2008, between Registrant and 6200 Stoneridge Mall Road Investors, LLC | S-1 | 333-183640 | August 30, 2012 | 10.8 | |||||||
ExhibitExhibit
No. Incorporated by Reference Filed
Herewith Form File No. Filing Date Exhibit No. 10.11 Restated and Amended Pleasanton Ground Lease by and between San Francisco Bay Area Rapid Transit District and CREA/Windstar Pleasanton, LLC and related assignment agreement dated January 30, 2014. X 10.12 Sub-Sublease, dated September 22, 2008, between Registrant and E-Loan, Inc. S-1 333-183640 August 30, 2012 10.9 10.13 Form of Warrant to Purchase Class B Common Stock, dated May 19, 2008, issued by the Registrant to Flextronics International Management Services Ltd., as amended. S-1 333-183640 August 30, 2012 10.10 10.14 Stock Restriction Agreement, by and among the Registrant, David A. Duffield and Aneel Bhusri. S-1/A 333-183640 October 1, 2012 10.11 10.15 Form of Convertible Bond Hedge Confirmation (2018) 8-K 001-35680 June 17, 2013 99.1 10.16 Form of Warrant Confirmation (2018) 8-K 001-35680 June 17, 2013 99.2 10.17 Form of Convertible Bond Hedge Confirmation (2020) 8-K 001-35680 June 17, 2013 99.3 10.18 Form of Warrant Confirmation (2020) 8-K 001-35680 June 17, 2013 99.4 10.19 Form of Additional Convertible Bond Hedge Confirmation (2018) 8-K 001-35680 June 24, 2013 99.1 10.20 Form of Additional Warrant Confirmation (2018) 8-K 001-35680 June 24, 2013 99.2 10.21 Form of Additional Convertible Bond Hedge Confirmation (2020) 8-K 001-35680 June 24, 2013 99.3 10.22 Form of Additional Warrant Confirmation (2020) 8-K 001-35680 June 24, 2013 99.4 21.1 List of Subsidiaries of Registrant. X 23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. X 24.1 Power of Attorney (see page 81 to this Report) X 31.1 Certification of Periodic Report by Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 X 31.2 Certification of Periodic Report by Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 X
| ||||||||||||
| /s/ Jerry Yang | ||||||||||||
| Jerry Yang | ||||||||||||
Exhibit No. | Exhibit | Incorporated by Reference | Filed Herewith | |||||||||
| Form | File No. | Filing Date | Exhibit No. | |||||||||
| 3.1 | Restated Certificate of Incorporation of the Registrant | 10-Q | 001-35680 | October 31, 2012 | 3.1 | |||||||
| 3.2 | Restated Bylaws of the Registrant | 8-K | 001-35680 | March 13, 2013 | 3.1 | |||||||
| 4.1 | Form of Registrant’s Class A common stock certificate | S-1/A | 333-183640 | October 1, 2012 | 4.1 | |||||||
| 4.2 | Form of Registrant’s Class B common stock certificate | S-8 | 333-184395 | October 12, 2012 | 4.9 | |||||||
| 4.3 | 2018 Indenture dated June 17, 2013 between Workday, Inc. and Wells Fargo Bank, National Association | 8-K | 001-35680 | June 17, 2013 | 4.1 | |||||||
| 4.4 | 2020 Indenture dated June 17, 2013 between Workday, Inc. and Wells Fargo Bank, National Association | 8-K | 001-35680 | June 17, 2013 | 4.2 | |||||||
| 10.1 | Form of Indemnification Agreement | S-1 | 333-183640 | August 30, 2012 | 10.1 | |||||||
| 10.2† | 2005 Stock Plan, as amended and form of stock option and stock option exercise agreement | 10-Q | 001-35680 | June 5, 2013 | 10.12 | |||||||
| 10.3† | 2012 Equity Incentive Plan | S-8 | 333-187665 | April 1, 2013 | 4.4 | |||||||
| 10.4 | 2012 Equity Incentive Plan form of agreements | S-1 | 333-183640 | August 30, 2012 | 10.3 | |||||||
| 10.5† | 2012 Employee Stock Purchase Plan | S-1 | 333-183640 | August 30, 2012 | 10.4 | |||||||
| 10.6† | Offer Letter between Michael A. Stankey and the Registrant, dated September 4, 2009 | S-1 | 333-183640 | August 30, 2012 | 10.5 | |||||||
| 10.7† | Offer Letter between James P. Shaughnessy and the Registrant, dated July 7, 2011 | S-1 | 333-183640 | August 30, 2012 | 10.6 | |||||||
| 10.8† | Offer Letter between Mark S. Peek and the Registrant, dated April 9, 2012, as amended May 22, 2012 | S-1 | 333-183640 | August 30, 2012 | 10.7 | |||||||
| 10.9 | Offer Letter between James J. Bozzini and the Registrant dated December 4, 2006 | 10-K | 001-365680 | March 31, 2014 | 10.9 | |||||||
| 10.10 | Office Lease Agreement, dated September 18, 2008, between Registrant and 6200 Stoneridge Mall Road Investors, LLC | S-1 | 333-183640 | August 30, 2012 | 10.8 | |||||||
| 10.11 | Restated and Amended Pleasanton Ground Lease by and between San Francisco Bay Area Rapid Transit District and CREA/Windstar Pleasanton, LLC and related assignment agreement dated January 30, 2014 | 10-K | 001-365680 | March 31, 2014 | 10.11 | |||||||
| 10.12 | Sub-Sublease, dated September 22, 2008, between Registrant and E-Loan, Inc | S-1 | 333-183640 | August 30, 2012 | 10.9 | |||||||
| 10.14 | Stock Restriction Agreement, by and among the Registrant, David A. Duffield and Aneel Bhusri | S-1/A | 333-183640 | October 1, 2012 | 10.1 | |||||||
Exhibit No. | Exhibit | Incorporated by Reference | Filed Herewith | |||||||||
| Form | File No. | Filing Date | Exhibit No. | |||||||||
| 10.15 | Form of Convertible Bond Hedge Confirmation (2018) | 8-K | 001-35680 | June 17, 2013 | 99.1 | |||||||
| 10.16 | Form of Warrant Confirmation (2018) | 8-K | 001-35680 | June 17, 2013 | 99.2 | |||||||
| 10.17 | Form of Convertible Bond Hedge Confirmation (2020) | 8-K | 001-35680 | June 17, 2013 | 99.3 | |||||||
| 10.18 | Form of Warrant Confirmation (2020) | 8-K | 001-35680 | June 17, 2013 | 99.4 | |||||||
| 10.19 | Form of Additional Convertible Bond Hedge Confirmation (2018) | 8-K | 001-35680 | June 24, 2013 | 99.1 | |||||||
| 10.20 | Form of Additional Warrant Confirmation (2018) | 8-K | 001-35680 | June 24, 2013 | 99.2 | |||||||
| 10.21 | Form of Additional Convertible Bond Hedge Confirmation (2020) | 8-K | 001-35680 | June 24, 2013 | 99.3 | |||||||
| 10.22 | Form of Additional Warrant Confirmation (2020) | 8-K | 001-35680 | June 24, 2013 | 99.4 | |||||||
| 21.10 | List of Subsidiaries of Registrant. | X | ||||||||||
| 23.10 | Consent of Independent Registered Public Accounting Firm | X | ||||||||||
| 24.10 | Power of Attorney (see page 81 to this Report) | X | ||||||||||
| 31.10 | Certification of Periodic Report by Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 31.20 | Certification of Periodic Report by Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 32.1* | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 32.2* | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 101.INS | XBRL Instance Document | X | ||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | X | ||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
| † | Indicates a management contract or compensatory plan. |
| * | As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Annual Report on Form 10-K and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing |
85