10-QPeriod: Q2 FY2021

Workday, Inc. Quarterly Report for Q2 Ended Jul 31, 2020

Filed August 28, 2020For Securities:WDAY

Summary

Workday, Inc. reported strong revenue growth for the second quarter and first half of fiscal year 2021, driven by its core subscription services. Total revenues increased by 20% and 21% year-over-year for the respective periods, with subscription services showing a 23% and 24% increase. Despite this top-line growth, the company reported a net loss for both periods, consistent with its strategy of investing heavily in product development and sales and marketing for long-term expansion. The company highlighted a favorable impact on operating margins due to revenue growth outpacing headcount growth and reduced operating expenses stemming from the COVID-19 pandemic, particularly in travel and event spending. Financially, Workday ended the quarter with a robust cash and cash equivalents balance of over $1.2 billion, bolstered by significant cash generated from operations. The company also successfully refinanced its debt obligations, with the conversion of its 2020 Notes and the addition of a new $750 million term loan facility. Looking ahead, Workday continues to focus on expanding its customer base and investing in innovation, anticipating further revenue growth while managing expenses for long-term profitability.

Financial Highlights

48 data points
Beta

Revenue

$1.06B

Net Income

-$28.02M

-2.6% Net Margin

EPS (Diluted)

$-0.12

Total Assets

$7.50B

Cash & Equivalents

$1.25B

Free Cash Flow

$157.21M

Financial Statements
Beta
Revenue$1.06B
R&D Expenses$418.68M
Operating Expenses$1.08B
Operating Income-$16.75M
Interest Expense$19.30M
Net Income-$28.02M
EPS (Basic)$-0.12
EPS (Diluted)$-0.12
Shares Outstanding (Basic)236.00M
Shares Outstanding (Diluted)236.00M

Key Highlights

  • 1Total revenues increased by 20% to $1.06 billion for Q2 FY21 and by 21% to $2.08 billion for the first half of FY21 compared to the prior year periods.
  • 2Subscription services revenue, the primary revenue driver, grew by 23% to $932 million for Q2 FY21 and by 24% to $1.81 billion for the first half of FY21.
  • 3Despite revenue growth, Workday reported a net loss of $28 million for Q2 FY21 and $186 million for the first half of FY21, consistent with ongoing strategic investments.
  • 4Cash flow from operations remained strong, showing $157 million for Q2 FY21 and $421 million for the first half of FY21, demonstrating effective cash generation.
  • 5The company ended the period with a healthy liquidity position, with cash and cash equivalents and marketable securities totaling $2.8 billion.
  • 6Workday's operating margins showed improvement, with GAAP operating margins increasing from -13.8% to -1.6% for Q2 FY21, and non-GAAP operating margins improving significantly from 13.2% to 24.3% for the same period.
  • 7The company successfully managed its debt, completing the conversion of its 2020 Notes and securing a new $750 million term loan facility.

Frequently Asked Questions

Workday's primary revenue source is subscription services, which accounted for approximately 88% of total revenues in the third quarter of fiscal year 2021. This segment performed strongly, with subscription services revenue growing by 23% year-over-year for the three months ended July 31, 2020, and 24% for the six months ended July 31, 2020.

No, Workday reported a net loss on a GAAP basis for both the three months ended July 31, 2020 ($28 million) and the six months ended July 31, 2020 ($186 million). This is consistent with their strategy of investing heavily in product development and sales and marketing to drive long-term growth.

The COVID-19 pandemic had a mixed impact. It led to reduced operating expenses, particularly in travel, marketing, and event spending, which favorably impacted operating margins. While new subscription bookings saw a favorable impact as companies recognized the need for digital transformation, the company acknowledged potential risks to new business wins, renewals, and customer solvency if economic uncertainty persists.

Workday ended the quarter with a strong financial position. Total assets stood at over $7.5 billion as of July 31, 2020. The company maintains robust liquidity, with cash, cash equivalents, and marketable securities totaling $2.8 billion. Operating activities generated significant cash flow, with $157 million in the third quarter and $421 million in the first half of the fiscal year.