10-QPeriod: Q3 FY2018

Workday, Inc. Quarterly Report for Q3 Ended Oct 31, 2017

Filed November 30, 2017For Securities:WDAY

Summary

Workday, Inc. (WDAY) reported its third-quarter fiscal year 2018 results for the period ending October 31, 2017. The company demonstrated robust revenue growth, with total revenues increasing by 34% year-over-year to $555.4 million. This growth was primarily driven by a strong performance in subscription services, which saw a 37% increase to $463.6 million, indicating continued demand for Workday's core cloud applications. While the company is still operating at a net loss of $85.5 million for the quarter, the results show improvements in operating leverage, with GAAP operating margin improving from -25.6% to -14.4%. Non-GAAP operating margin also saw significant improvement, rising to 9.0% from 1.9% in the prior year period. The company ended the quarter with a strong liquidity position, holding $3.2 billion in cash, cash equivalents, and marketable securities, and generated positive free cash flow of $107.7 million for the quarter. The company also successfully issued $1.15 billion in convertible senior notes in September 2017, strengthening its financial flexibility.

Financial Highlights

41 data points
Beta

Revenue

$555.39M

Net Income

-$85.55M

-15.4% Net Margin

EPS (Diluted)

$-0.41

Total Assets

$4.56B

Cash & Equivalents

$1.34B

Free Cash Flow

$144.03M

Financial Statements
Beta
Revenue$555.39M
R&D Expenses$239.59M
Operating Expenses$635.45M
Operating Income-$80.06M
Interest Expense$12.29M
Net Income-$85.55M
EPS (Basic)$-0.41
Shares Outstanding (Basic)209.19M

Key Highlights

  • 1Total revenues increased by 34% year-over-year to $555.4 million for the third quarter.
  • 2Subscription services revenue grew by 37% to $463.6 million, highlighting strong demand for Workday's cloud offerings.
  • 3GAAP operating loss narrowed to $80.1 million from $105.9 million in the prior year period.
  • 4Non-GAAP operating margin improved significantly to 9.0% from 1.9% in the prior year period.
  • 5The company maintained a strong liquidity position with $3.2 billion in cash, cash equivalents, and marketable securities as of October 31, 2017.
  • 6Positive free cash flow of $107.7 million was generated for the three months ended October 31, 2017.
  • 7A significant issuance of $1.15 billion in 0.25% convertible senior notes occurred in September 2017.

Frequently Asked Questions

Workday's primary source of revenue is subscription services, which accounted for 83% of total revenues in the third quarter. This segment grew by a strong 37% year-over-year, reaching $463.6 million, indicating continued demand and successful customer acquisition for their cloud-based financial management and human capital management applications.

No, Workday is not yet profitable on a GAAP basis. The company reported a net loss of $85.5 million for the three months ended October 31, 2017. However, the GAAP operating loss narrowed significantly compared to the prior year period, and the company's non-GAAP operating margin showed substantial improvement, suggesting progress towards profitability.

Workday maintains a strong liquidity position with $3.2 billion in cash, cash equivalents, and marketable securities as of October 31, 2017. The company generated positive free cash flow of $107.7 million for the quarter. In September 2017, Workday also successfully issued $1.15 billion in convertible senior notes, which provides additional financial flexibility for future investments and operations.

The primary operating expenses for Workday are employee-related costs, which are driven by headcount growth, as well as costs associated with product development, sales, and marketing. While these expenses have increased in absolute terms due to investments in growth, the company is also experiencing improvements in operating leverage. Non-GAAP operating expenses increased by 24% year-over-year for the quarter, but the company's revenue growth of 34% outpaced this increase, leading to improved non-GAAP operating margins.