Total revenues were $743.2 million, an increase of 33.8% from the third quarter of fiscal 2018. Subscription revenues were $624.4 million, an increase of 34.7% from the same period last year.

Operating loss was $182.8 million, or negative 24.6% of revenues, compared to an operating loss of $80.1 million, or negative 14.4% of revenues, in the same period last year. Non-GAAP operating income for the third quarter was $49.7 million, or 6.7% of revenues, compared to a non-GAAP operating income of $50.1 million, or 9.0% of revenues, in the same period last year.¹

Net loss per basic and diluted share was $0.70, compared to a net loss per basic and diluted share of $0.41 in the third quarter of fiscal 2018. Non-GAAP net income per diluted share was $0.31, compared to a non-GAAP net income per diluted share of $0.24 in the same period last year.²

Operating cash flows were $114.3 million and free cash flows were $58.9 million.³

Cash, cash equivalents, and marketable securities were $1.6 billion as of October 31, 2018. Unearned revenues were approximately $1.6 billion, a 27.8% increase from the same period last year.

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

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

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

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

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

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

Assets

Current assets:

Cash and cash equivalents

Marketable securities

Trade and other receivables, net

Deferred costs

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Deferred costs, noncurrent

Acquisition-related intangible assets, net

Goodwill

Other assets

Total assets

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities

Accrued compensation

Unearned revenue

Current portion of convertible senior notes, net

Total current liabilities

Convertible senior notes, net

Unearned revenue, noncurrent

Other liabilities

Total liabilities

Stockholders’ equity:

Common stock

Additional paid-in capital

Treasury stock

Accumulated other comprehensive income (loss)

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 income (expense), net

Loss before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Net loss

Net loss per share, basic and diluted

Weighted-average shares used to compute net loss per share, basic and diluted

Costs and expenses include share-based compensation expenses as follows:

Costs of subscription services

Costs of professional services

Product development

Sales and marketing

General and administrative

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

Other

Changes in operating assets and liabilities, net of business combinations:

Trade and other receivables, net

Deferred costs

Prepaid expenses and other assets

Accounts payable

Accrued expenses 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

Sales of marketable securities

Owned real estate projects

Capital expenditures, excluding owned real estate projects

Business combinations, net of cash acquired

Purchase of other intangible assets

Purchases of non-marketable equity and other investments

Sales and maturities of non-marketable equity and other investments

Other

Net cash provided by (used in) investing activities

Cash flows from financing activities

Proceeds from borrowings on convertible senior notes, net of issuance costs

Proceeds from issuance of warrants

Purchase of convertible senior notes hedges

Payments on convertible senior notes

Proceeds from issuance of common stock from employee equity plans

Other

Net cash provided by (used in) financing activities

Effect of exchange rate changes

Net increase (decrease) in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at the beginning of period

Cash, cash equivalents, and restricted cash at the end of period

Supplemental cash flow data

Cash paid for interest, net of amounts capitalized

Cash paid for income taxes

Non-cash investing and financing activities:

Vesting of early exercised stock options

Purchases of property and equipment, accrued but not paid

Non-cash additions to property and equipment

Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows

Cash and cash equivalents

Restricted cash included in Prepaid expenses and other current assets

Restricted cash included in Other assets

Total cash, cash equivalents, and restricted cash

Costs and expenses:

Costs of subscription services

Costs of professional services

Product development

Sales and marketing

General and administrative

Operating income (loss)

Operating margin

Other income (expense), net

Income (loss) before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Net income (loss)

Net income (loss) per share ⁽¹⁾

GAAP net loss per share is calculated based upon 217,694 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 238,590 diluted weighted-average shares of common stock.

Other operating expenses include total employer payroll tax-related items on employee stock transactions of $4.2 million and amortization of acquisition-related intangible assets of $19.3 million.

We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the interim reporting periods. For fiscal 2019, we have determined the projected non-GAAP tax rate to be 17%.

Costs and expenses:

Costs of subscription services

Costs of professional services

Product development

Sales and marketing

General and administrative

Operating income (loss)

Operating margin

Other income (expense), net

Income (loss) before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Net income (loss)

Net income (loss) per share ⁽¹⁾

GAAP net loss per share is calculated based upon 209,188 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 235,341 diluted weighted-average shares of common stock.

Other operating expenses include total employer payroll tax-related items on employee stock transactions of $2.9 million and amortization of acquisition-related intangible assets of $4.8 million.

Costs and expenses:

Costs of subscription services

Costs of professional services

Product development

Sales and marketing

General and administrative

Operating income (loss)

Operating margin

Other income (expense), net

Income (loss) before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Net income (loss)

Net income (loss) per share ⁽¹⁾

GAAP net loss per share is calculated based upon 215,588 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 237,293 diluted weighted-average shares of common stock.

Other operating expenses include total employer payroll tax-related items on employee stock transactions of $23.2 million and amortization of acquisition-related intangible assets of $29.7 million.

We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the interim reporting periods. For fiscal 2019, we have determined the projected non-GAAP tax rate to be 17%.

Costs and expenses:

Costs of subscription services

Costs of professional services

Product development

Sales and marketing

General and administrative

Operating income (loss)

Operating margin

Other income (expense), net

Income (loss) before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Net income (loss)

Net income (loss) per share ⁽¹⁾

GAAP net loss per share is calculated based upon 206,715 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 232,918 diluted weighted-average shares of common stock.

Other operating expenses include total employer payroll tax-related items on employee stock transactions of $15.7 million and amortization of acquisition-related intangible assets of $14.5 million.

Net cash provided by (used in) operating activities

Capital expenditures, excluding owned real estate projects

Free cash flows

Net cash provided by (used in) operating activities

Capital expenditures, excluding owned real estate projects

Free cash flows

Share-based compensation expenses. Although share-based compensation is an important aspect of the compensation of our employees and executives, management believes it is useful to exclude share-based compensation expenses to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. Share-based compensation expenses are determined using a number of factors, including our stock price, volatility, and forfeiture rates that are beyond our control and generally unrelated to operational decisions and performance in any particular period. Further, share-based compensation expenses are not reflective of the value ultimately received by the grant recipients.

Other operating expenses. Other operating expenses includes employer payroll tax-related items on employee stock transactions and amortization of acquisition-related intangible assets. The amount of employer payroll tax-related items on employee stock transactions is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of the business. For business combinations, we generally allocate a portion of the purchase price to intangible assets. The amount of the allocation is based on estimates and assumptions made by management and is subject to amortization. The amount of purchase price allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition and thus we do not believe it is reflective of ongoing operations.

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

Income tax effects. We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the interim reporting periods. In projecting this long-term non-GAAP tax rate, we utilize a three-year financial projection that excludes the direct impact of share-based compensation and related employer payroll taxes, amortization of acquisition-related intangible assets, and amortization of debt discount and issuance costs. The projected rate considers other factors such as our current operating structure, existing tax positions in various jurisdictions, and key legislation in major jurisdictions where we operate. For fiscal 2019, we have determined the projected non-GAAP tax rate to be 17% after including our acquisition of Adaptive Insights, Inc., which did not have a significant impact to this rate. We will periodically re-evaluate this tax rate, as necessary, for significant events, based on our ongoing analysis of the 2017 U.S. Tax Cuts and Jobs Act, relevant tax law changes, material changes in the forecasted geographic earnings mix, and any significant acquisitions.