10-QPeriod: Q2 FY2014

Workday, Inc. Quarterly Report for Q2 Ended Jul 31, 2013

Filed September 6, 2013For Securities:WDAY

Summary

Workday, Inc. (WDAY) filed its Form 10-Q for the period ending July 30, 2013, detailing significant financial and operational risks for investors. The company, operating as an emerging growth company, highlighted potential limitations on utilizing net operating loss and tax credit carryforwards, which could impact future profitability. Additionally, Workday cautioned about evolving tax laws related to electronic services, which could increase costs for both the company and its customers. The filing also underscored the significant debt incurred from two convertible senior notes offerings totaling $600 million. The potential for conversion of these notes could lead to dilution of existing stockholders' equity. Furthermore, the company's stock price has historically been volatile, influenced by market conditions, company performance, and analyst recommendations. Workday explicitly stated its intention to retain all future earnings for business expansion, meaning no dividends are expected for the foreseeable future, and investors must rely on stock appreciation for returns.

Financial Highlights

42 data points
Beta

Revenue

$107.56M

62.1% Gross Margin

Net Income

-$35.98M

-33.5% Net Margin

EPS (Diluted)

$-0.21

Total Assets

$1.51B

Cash & Equivalents

$437.43M

Free Cash Flow

-$12.92M

Financial Statements
Beta
Revenue$107.56M
Cost of Revenue$40.75M
Gross Profit$66.80M
R&D Expenses$41.17M
Operating Expenses$139.84M
Operating Income-$32.28M
Interest Expense$3.88M
Net Income-$35.98M
EPS (Basic)$-0.21
Shares Outstanding (Basic)173.38M

Key Highlights

  • 1Workday is operating as an Emerging Growth Company, availing itself of certain exemptions from reporting requirements.
  • 2Significant risk highlighted regarding the potential inability to utilize net operating loss and research tax credit carryforwards, impacting future profitability.
  • 3The company has issued $600 million in convertible senior notes (2018 and 2020 maturities), introducing potential dilution risks upon conversion.
  • 4Workday acknowledges historical stock price volatility and warns of potential future fluctuations due to various market and company-specific factors.
  • 5The company does not intend to pay dividends, prioritizing reinvestment of earnings for business growth.
  • 6Founders/Co-CEOs David Duffield and Aneel Bhusri, along with affiliates, maintain significant control over voting power due to a dual-class stock structure.
  • 7The IPO in October 2012 raised approximately $684.6 million in net proceeds, which are being invested in short-term, investment-grade securities pending their use.

Frequently Asked Questions

The primary financial risks include potential limitations on utilizing net operating loss and tax credit carryforwards, which could negatively impact profitability. Additionally, the company has significant convertible debt obligations ($600 million total) which could lead to stock dilution if converted. Investors should also note the absence of dividend payments as Workday plans to retain earnings for growth.

Workday has issued $350 million in 0.75% convertible senior notes due 2018 and $250 million in 1.50% convertible senior notes due 2020. If these notes are converted, it could dilute the ownership interest of existing Class A common stockholders. The company may also face challenges in repaying or refinancing this debt, which could impact its financial flexibility.

Workday has a dual-class stock structure where Class B shares have ten votes per share, while Class A shares (publicly traded) have one vote per share. The co-founders and co-CEOs, David Duffield and Aneel Bhusri, along with their affiliates, hold a substantial majority of the voting power through Class B shares. This concentrated control limits the ability of non-affiliate shareholders to influence corporate matters, including the election of directors and significant corporate transactions, until at least 2032.

Workday explicitly states that it has no intention of paying cash dividends on its capital stock for the foreseeable future. The company plans to retain all future earnings to finance the operation and expansion of its business. Investors seeking returns will need to rely on potential stock price appreciation.