Reconciliation of GAAP to Non-GAAP Data
About Non-GAAP Financial Measures (cont'd)
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. Although we exclude the amortization of acquisition-related intangible assets from these non-GAAP measures, management believes that it is important for
investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.
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
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 2024 and 2023, we determined the projected non-GAAP tax rate to be 19%, which reflects currently available information, as well as other factors and
assumptions. We will periodically re-evaluate this tax rate, as necessary, for significant events, based on our ongoing analysis of the 2017 U.S. Tax Cuts and Jobs Act,
relevant tax law changes, material changes in the forecasted geographic earnings mix, and any significant acquisitions.
Additionally, with regards to free cash flows, Workday's management believes that reducing cash provided by (used in) operating activities by capital expenditures is meaningful
to investors and others because it provides an enhanced view of cash flow generation from the ongoing operations of our business, and it balances operating results, cash
management, and capital efficiency.
The use of the non-GAAP measures of non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss) per share, and free cash flows have
certain limitations as they do not reflect all items of expense or cash that affect Workday's operations. Workday compensates for these limitations by reconciling the non-GAAP
financial measures to the most comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in
isolation from, measures prepared in accordance with GAAP. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including
peer companies, and therefore comparability may be limited. Management encourages investors and others to review Workday's financial information in its entirety and not rely
on a single financial measure.View entire presentation