Workday, Inc. Quarterly Report for Q3 Ended Oct 31, 2018

Summary

Workday, Inc. reported a solid increase in total revenues for both the three and nine months ending October 31, 2018, driven primarily by strong growth in subscription services. The company's focus remains on expanding its customer base and investing in product development to sustain long-term growth, despite incurring net losses. Significant investments in headcount and infrastructure, coupled with the acquisition of Adaptive Insights, led to higher operating expenses. While GAAP operating margins declined, the company continues to leverage non-GAAP measures to present operational performance. The balance sheet reflects a substantial increase in goodwill and acquisition-related intangible assets due to the Adaptive Insights acquisition, alongside a decrease in cash and marketable securities due to investing activities, including the acquisition. Financially, Workday continues to invest heavily for growth, leading to ongoing operating losses. The acquisition of Adaptive Insights in August 2018 for $1.5 billion significantly impacted the balance sheet, increasing goodwill and intangible assets. Cash flow from operations remained positive but saw a decrease compared to the prior year's comparable period, largely due to increased operating expenses and the Adaptive Insights acquisition costs. Investing activities used substantial cash, primarily for the acquisition and capital expenditures. The company's liquidity remains strong with significant cash, cash equivalents, and marketable securities available.

Key Highlights

• 1Total revenues increased by 34% year-over-year for the third quarter ($743M) and 30% for the first nine months ($2.0B).
• 2Subscription services revenue, the primary revenue driver, grew by 35% for the quarter and 32% year-to-date.
• 3The company acquired Adaptive Insights, Inc. for $1.5 billion in August 2018, significantly increasing goodwill and acquisition-related intangible assets.
• 4Operating expenses increased substantially, both on a GAAP and non-GAAP basis, driven by higher headcount and the Adaptive Insights acquisition.
• 5Net losses continued, with a loss of $153.3 million for the quarter and $313.9 million for the nine months.
• 6Cash provided by operating activities was $114.3 million for the quarter and $356.1 million year-to-date, a decrease year-over-year for the quarter.
• 7Investing activities consumed significant cash, primarily due to the Adaptive Insights acquisition ($1.4 billion outflow in the quarter).
• 8As of October 31, 2018, Workday had $5.9 billion in remaining performance obligations for subscription contracts, expected to be recognized over the next 24 months and beyond.

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