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Workday (WDAY) Earnings & Revenues Surpass Estimates in Q4

Zacks Equity Research

Workday Inc. WDAY reported fourth-quarter fiscal 2020 non-GAAP earnings of 50 cents per share, which beat the Zacks Consensus Estimate by 25% and surged 22% year over year.

Robust growth can primarily be attributed to an improvement of 23.8% in revenues, which amounted to $976.3 million. The top line outpaced the Zacks Consensus Estimate for revenues by 1.1%. The upside was driven by solid growth in subscription and professional services revenues.

Quarter in Detail

Subscription services revenues (86% of total revenues) rallied 24.7% year over year to $839.7 million on the back of expanding customer base. The figure surpassed management’s guidance of $828-$830 million.

Workday ended the fiscal fourth quarter with 45% of the Fortune 500, precisely 60% of the Fortune 50, as HCM customers and penetration in the Global 2000 clientele of up to 20%.

Management is optimistic regarding the growing clout of Workday Financial Management, Business Planning Cloud, and Workday Prism Analytics offerings. Further, synergies from Adaptive Insights acquisition and strength in product suite drove revenues in the reported quarter.

Backlogs from Subscription revenues came in at $8.29 billion, up 23% year over year, primarily on the back of growth in net new bookings and deal renewals, and net retention of customers.
 

Workday, Inc. Price, Consensus and EPS Surprise

Workday, Inc. Price, Consensus and EPS Surprise

Workday, Inc. price-consensus-eps-surprise-chart | Workday, Inc. Quote

During the reported quarter, Workday concluded acquisition of Scout RFP. The buyout is anticipated to aid customers in enhancing source-to-pay solution and optimizing spend.

Professional services revenues (14% of total revenues) grew 18.7% from the year-ago quarter to $136.6 million and surpassed management’s guidance of $134 million.

Revenues outside the United States improved 33% to $244 million and contributed 25% to total revenues.

The company witnessed rapid deployment of HCM solution in the fiscal fourth quarter. The company added 16 Global 2000 and 11 Fortune 500 companies in the reported quarter.

Key deal wins include Southwest Airlines, Wells Fargo and Spain-based multinational bank Banco Bilbao Vizcaya Argentaria or BBVA. Moreover, companies like Prudential Company of America, the U.K.-based Natwest Group and Spain-based Banco Santander, went live with Workday’s HCM solutions during the fiscal fourth quarter.

Margin Highlights

Non-GAAP expenses pertaining to Product development, Sales and marketing, and General and administrative climbed 23.9% year over year to $621.3 million. As a percentage of revenues, the figure came in at 63.6%, flat on a year-over-year basis.

The company generated non-GAAP operating income of $116.6 million, up 25.8% year over year.

Non-GAAP operating margin expanded 10 bps on a year-over-year basis to 11.9% on higher revenue base.

Balance Sheet & Cash Flow

Cash, cash equivalents and marketable securities were $1.94 billion as of Jan 31, 2020, compared with $2.10 billion as of Oct 31, 2019.

Workday generated operating cash flow of $297.1 million compared with prior-quarter figure of $258 million.

As of Jan 31, 2020, total unearned revenues (including non-current portion) were $2.31 billion, up 18.5% from the year-ago quarter.

Fiscal 2020 at a Glance

In fiscal 2020, the company reported revenues of $3.63 billion, up 28.5% from fiscal 2019. Subscription revenues accounted for 85.4% of total revenues, while professional revenues made up the rest. The Zacks Consensus Estimate was pegged at $3.62 billion.

The company generated approximately $864.6 million cash from operating activities in fiscal 2020, which increased from $606.7 million in fiscal 2019.

Guidance

For first-quarter fiscal 2021, Workday expects subscription revenues in the range of $873-$875 million (indicating year-over-year growth of 25%). Professional services revenues are projected at $137 million.

The company raised fiscal 2021 guidance for subscription services revenues. It now expects subscription services revenues in the range of $3.755-$3.770 billion (previously $3.73 billion). For fiscal 2021, Scout RFP is anticipated to contribute less than 1% to subscription services revenue growth. Professional services revenues are projected to be around $580 million.

The company anticipates non-GAAP operating margin to be approximately 14.5%, up from the prior guidance of 14%. The guidance takes dilution of 150 bps margin from acquisition of Scout RFP, into account.

Over the long-term, Workday is committed to achieve non-GAAP operating margin of more than 25%.

Zacks Rank & Stocks to Consider

Workday currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Dropbox, Inc. DBX, Microchip Technology Incorporated MCHP and Garmin Ltd. GRMN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Dropbox, Microchip and Garmin is currently pegged at 22.2%, 13.28% and 7.35%, respectively.

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