01—Abstract
Summary
Summary of the 10-K filed March 22, 2013. Cited figures are marked; the original filing is the authoritative source.
Workday's first 10-K, covering the fiscal year ended January 31, 2013, shows a company that grew revenue rapidly but remains deeply unprofitable.
Total revenues reached $273.7 milliona, up 104% from $134.4 million, with subscription revenues rising 115% to $190.3 million and making up 70% of the total. Net loss widened to $119.2 million from $79.6 million, an operating margin of roughly -43%. The company has more than 400 customers and more than 1,750 employees, and management states it does not expect to be profitable in the near future.
Balance sheet strength improved sharply after the October 2012 IPO, which raised $684.6 millionb in net proceeds at $28.00 per share. Cash, cash equivalents and marketable securities totaled $790.3 million at year end, against $366.8 million of total liabilities. Unearned revenue of $285.3 million (up from $188.1 million) and a subscription backlog of $434 million give visibility into future revenue, though the company says backlog is not a reliable indicator and it does not use it as a key management metric.
Operating cash flow turned slightly positive at $11.2 millionc, helped by customer prepayments rather than earnings. The key investor considerations are the concentrated governance structure and the path to profitability. Co-founders David Duffield and Aneel Bhusri, through Class B shares carrying ten votes each, control more than 95% of the voting power, and the company is an emerging growth company with reduced disclosure requirements.
Management expects capital expenditures of about $80 milliond in fiscal 2014 and a rise in absolute R&D, sales and marketing spending. The April 10, 2013 lock-up expiration could add significant selling pressure, since about 21.0 million options and 140.2 million Class B shares are subject to release.
02—Key points
Key Highlights
- Revenue grew 104% to $273.7 million in FY2013, with subscription revenue up 115% to $190.3 million (70% of total revenue).
- Net loss widened to $119.2 million (-43.6% net margin) from $79.6 million, and management does not expect profitability in the near future.
- The October 2012 IPO raised $684.6 million net, leaving $790.3 million in cash and marketable securities at January 31, 2013.
- Unearned revenue rose to $285.3 million and subscription backlog reached $434 million, supporting near-term revenue visibility.
- Co-founders Duffield and Bhusri, plus other insiders holding Class B stock with ten votes per share, control more than 95% of voting power; the dual-class structure lasts until 2032 or other specified triggers.
- Lock-up expiration on April 10, 2013 could release about 140.2 million Class B shares and about 21.0 million options, creating meaningful share overhang.
- Customer count exceeded 400 and headcount exceeded 1,750, with expected capex of about $80 million in FY2014 for data center and office expansion.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2013, Workday, Inc. lost $0.44.
- Revenue$273.7M100.0%
- Cost of revenue−$116.5M42.6%
- Gross profit$157.1M57.4%
- Operating costs−$275.0M100.5%
- Operating income−$117.9M43.1%
- Interest, other & tax−$1.9M0.7%
- Net income−$119.8M43.8%
04—Financials
Financial Highlights
Figures from 10-KFY2013filed March 22, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $273.66M$134.43M | +103.6% |
| Cost of Revenue | $116.53M$65.37M | +78.3% |
| Gross Profit | $157.12M$69.06M | +127.5% |
| R&D Expenses | $102.67M$62.01M | +65.6% |
| Operating Expenses | $391.52M$212.87M | +83.9% |
| Operating Income | -$117.86M-$78.44M | −50.3% |
| Interest Expense | $1.36M$976K | +39.7% |
| Net Income | -$119.76M-$79.97M | −49.8% |
| EPS (Basic) | $-1.62$-2.71 | +40.2% |
| Shares Outstanding (Basic) | 74.01M29.48M | +151.1% |
05—Questions
Frequently Asked Questions
How fast is Workday growing and what is driving it?
Total revenue grew 104% year over year to $273.7 million. Subscription revenue grew 115% to $190.3 million, driven by new and larger customer contracts, and the customer count rose from more than 250 to more than 400. Professional services revenue grew 82% to $83.3 million as the customer base requested deployment and integration work.
When does Workday expect to become profitable?
Management states that it does not expect to be profitable in the near future. It is investing heavily in application development, sales and marketing, and data center infrastructure, and expects these costs to rise in absolute dollars. It expects R&D, sales and marketing, and G&A as percentages of revenue to decline over time as revenue scales. The company has never been profitable since its 2005 inception, with an accumulated deficit of $401.9 million.
How much cash does Workday have and is it at risk of needing more capital?
Workday had $790.3 million in cash, cash equivalents and marketable securities at January 31, 2013, after the IPO. Operating cash flow was slightly positive at $11.2 million, largely from customer prepayments. Management does not currently expect a funding need, but it notes it may need additional financing for acquisitions or growth and that future equity issuance could dilute shareholders.
What risks come from the dual-class share structure?
Class B shares carry ten votes each and are held mainly by the co-founders, executive officers, directors and affiliates, who together hold more than 95% of voting power. This lets co-CEOs David Duffield and Aneel Bhusri control the election of directors and major transactions, including mergers or asset sales. Class A public shareholders have limited influence, and the structure runs until October 11, 2032 or earlier triggers.
What should investors watch for in the coming year?
Key items include the April 10, 2013 lock-up expiration, which could allow large share sales; capital expenditures of about $80 million in FY2014; Workday's ability to keep subscription revenue growing while managing professional services costs; and the company's competitive position against Oracle, SAP, and cloud rivals such as Ceridian, Concur and NetSuite. The company is also an emerging growth company, so it has reduced disclosure requirements, and it must add Section 404 internal control reporting for fiscal 2014.
06—Continue