SaaS-based financial and human resources enterprise services provider Workday (NASDAQ: WDAY) recently reported results for a strong first quarter that beat estimates. It was also its first ever $1 billion revenue quarter.
Workday’s first quarter revenues grew 23.4% to $1.02 billion, ahead of the Street’s forecast of $1.003 billion. Non GAAP EPS was $0.44, ahead of the market’s forecast of $0.37.
GAAP net loss increased to $158.4 million compared to loss of $116.3 million a year ago. It included $79 million in one-time bonus payment of two-weeks’ pay for all non-executive employees to tide over the crisis. During the quarter, Workday added 150 new employees, bringing its total workforce to 12,400.
By segment, Subscription services revenues grew 25.8% to $882 million, ahead of the market’s forecast of $830 million. Professional services revenues grew 10% to $136.4 million.
Cash, cash equivalents, and marketable securities were $2.6 billion as of April 30, 2020.
Workday primarily serves a large and medium enterprise market that is better positioned than SMBs to weather this downturn. Its licensing model is based on the number of workers but also has base minimums to limit the downside. While there may be some moderation in retention rates in the near term due to increased bankruptcies and reduction in base work accounts, Workday does expect retention rates to remain high as it believes that it is very strategic to its customers.
For the second quarter, Workday expects subscription revenue of $913-$915 million or 21% growth $873-$875 million and professional services revenues of $128 million. Workday lowered its subscription revenue guidance for FY21 to $3.67-$3.69 billion or 19% growth from $3.755-$3.770 billion. It expects professional services revenue of $500 million in FY21. For Q2, total revenue is expected to be $1.041-$1.043 billion, ahead of analyst estimates of $1.037 billion.
The guidance range is slightly wider than normal and assumes that Q2 and Q3 will be the most challenging periods with improvement in Q4.
Workday’s Customer Traction
During the quarter, Workday was selected as the core HCM vendor by the City of Los Angeles, one of the largest city governments. It added several new HCM customers including insurance company Jardine Matheson with over 50,000 employees in APJ and utility company John Lewis Partnership with over 80,000 employees in EMEA. Workday expects the COVID crisis to lead to a growing emphasis on its sweet spot of learning and talent marketplace.
Workday’s Financial Management product has over 900 customers Fortune 50 company Fannie Mae, Louisville/Jefferson County Metro Government, Okta, as well as a large healthcare company with over 60,000 employees. Accounting Center is one of the new products gaining traction that will enable customers to analyze their robust loan portfolio. Workday expects the COVID crisis to be a catalyst for people to switch from on-premise into the cloud for finance.
Last year in November, Workday acquired online procurement platform Scout RFP for $540 million. During its first full quarter under Workday, Scout RFP achieved multiple Fortune 500 wins, including a large healthcare company and wins at Lowe’s and Albertsons.
Workday’s New Partnerships and Products
For its Enterprise Planning product, Workday expanded its partnership with Microsoft so that Workday customers can run Workday Adaptive Planning on Microsoft Azure Cloud. Microsoft will be adopting Workday Adaptive Planning for its global finance teams to help them with their planning, budgeting, and forecasting. A partnership was also announced with Salesforce.com to help organizations safely return to work.
In March, it made several product enhancements. It enhanced workforce planning with Workday Adaptive Planning. It added new machine learning-based skills capabilities with Workday HCM to verify current employee skills and support reskilling efforts. It also announced new data visualization and benchmarking features with Workday Prism Analytics. It made available Workday Assistant, an intuitive chatbot to guide employees.
Workday’s PaaS Strategy with Extend
Last month, Workday moved Workday Extend, formerly called Workday Cloud Platform, to General Availability. The Extend platform allows customers and partners to build and customize to build applications and extensions on top of the delivered capabilities in Workday to meet their unique business needs. Workday is now bringing its two extensibility solutions—Workday Extend and Workday Integration Cloud—together under a single portfolio. Last year, Workday Integration Cloud reportedly supported over 115 million customer integration requests.
Workday Extend has been in limited general availability for several quarters and customers have used it to build several mini apps or extensions. One of its customers has built an app to track cases of COVID around the globe for manufacturing plants. A major media customer worked with Workday services to build and deploy an app for its essential employees to log hazard pay during the pandemic.
A Workday partner is beginning work on an app to support the return to workplaces as COVID-19 restrictions ease. The app will offer an organization’s employees a convenient way—within Workday—to self-assess every day for possible symptoms, and help determine if it’s safe to work at the office.
In addition, IBM and PwC are creating Workday Extend apps to help Workday customers navigate the effects of COVID-19.
Workday Extend is focused on extensibility for its customers and not on opening up an ISV community to build commercial applications. Over 50 customers had built over 90 different solutions on the Extend platform. Workday expects Extend to be a high growth contributor in FY22 and beyond. With this development, Workday has cemented its position as a top cloud stock.
Its stock is trading at $183.43 with a market capitalization of $43 billion. It hit a 52-week high of $226.83 in July last year and a 52-week low of $107.75 in March this year.