10-QPeriod: Q3 FY2020

Workday, Inc. Quarterly Report for Q3 Ended Oct 31, 2019

Filed December 4, 2019For Securities:WDAY

Summary

Workday, Inc.'s (WDAY) Form 10-Q for the period ending October 31, 2019, reveals a period of continued revenue growth, albeit with ongoing net losses. Total revenues increased by 26% year-over-year for the quarter and 30% for the first nine months, driven primarily by subscription services, which now represent 85% of total revenues. Despite revenue growth, the company reported net losses for both the quarter and the year-to-date period, consistent with its strategy of reinvesting in product development and global expansion. The adoption of ASC 842 (Leases) had a notable impact on the balance sheet, introducing significant operating lease right-of-use assets and liabilities. Financially, the company's liquidity remains robust with substantial cash and marketable securities. Operating cash flow improved year-over-year. However, investors should note the significant share-based compensation expenses, which impact GAAP profitability, though the company also presents non-GAAP metrics to offer a view of operational performance excluding these and other non-cash items. The company continues to manage a significant amount of remaining performance obligations for subscription contracts, indicating future revenue potential.

Financial Statements
Beta
Revenue$938.10M
R&D Expenses$401.74M
Operating Expenses$1.05B
Operating Income-$110.25M
Interest Expense$16.12M
Net Income-$115.73M
EPS (Basic)$-0.51
Shares Outstanding (Basic)228.46M

Key Highlights

  • 1Total revenues increased by 26% to $938.1 million for the three months ended October 31, 2019, and by 30% to $2.65 billion for the nine months ended October 31, 2019.
  • 2Subscription services revenue, the primary revenue driver, grew 28% year-over-year for the quarter and 32% for the nine-month period.
  • 3The company reported a net loss of $115.7 million for the three months ended October 31, 2019, and $352.7 million for the nine months ended October 31, 2019.
  • 4Operating cash flow improved significantly, with $258.0 million provided in the three months ended October 31, 2019, compared to $114.3 million in the prior year.
  • 5As of October 31, 2019, Workday had $2.1 billion in cash, cash equivalents, and marketable securities.
  • 6The adoption of the new lease accounting standard (ASC 842) resulted in the recognition of approximately $279 million in operating lease right-of-use assets and $307 million in operating lease liabilities on the balance sheet as of February 1, 2019.
  • 7The company has substantial remaining performance obligations of approximately $7.19 billion from subscription contracts as of October 31, 2019, indicating future revenue potential.

Frequently Asked Questions

Workday's primary revenue source is subscription services, which accounted for 85% of total revenues in the nine months ended October 31, 2019. Subscription services revenue grew by 32% to $2.26 billion for the nine-month period compared to the same period last year, demonstrating strong growth in its core business.

No, Workday reported a net loss of $352.7 million for the nine months ended October 31, 2019, and a net loss of $115.7 million for the three months ended October 31, 2019. This reflects the company's ongoing investment in growth, particularly in product development and sales and marketing, as stated in the Management's Discussion and Analysis.

Workday maintains a strong liquidity position with $2.1 billion in cash, cash equivalents, and marketable securities as of October 31, 2019. The company generated positive cash flow from operations, with $567.5 million for the nine months ended October 31, 2019, indicating effective management of its working capital and investments.

The adoption of ASC 842, effective February 1, 2019, led to the recognition of significant operating lease right-of-use assets and liabilities on the balance sheet, totaling approximately $289 million and $305 million respectively as of October 31, 2019. This accounting change impacts the balance sheet but, according to the company, did not have a material impact on the statement of operations.