Workday (WDAY) Q2 Earnings & Revenues Beat Estimates, Up Y/Y

Workday WDAY reported second-quarter fiscal 2022 non-GAAP earnings of $1.23 per share, which outpaced the Zacks Consensus Estimate by 57.7% and increased 46.4% year over year.

Revenues of $1.26 billion increased 18.7% year over year and surpassed the Zacks Consensus Estimate by 1.4%. The upside was aided by solid growth in subscription services’ revenues.

Top Line Details

Subscription services revenues (88.3% of total revenues) rallied 19.5% year over year to $1.11 billion on the back of an expanding customer base.

Workday customer community now includes more than 50% of the Fortune 500, of which, roughly 90% are using Workday products regularly.

Workday, Inc. Price, Consensus and EPS Surprise

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

Subscription revenue backlog was $10.58 billion, up 23% year over year. In fiscal second quarter, gross retention rate exceeded 95%.

Professional services’ revenues (11.7% of total revenues) increased 12.8% from the year-ago quarter to $146.9 million.

Revenues outside the United States climbed 24% year over year to $318 million and contributed 25% of total revenues.

The company witnessed rapid deployment of the HCM solution in the fiscal second quarter, which was selected by the likes of CVS Health CVS, Iberdrola, Valeo Management Services, California Pizza Kitchen and HeidelbergCement AG. Harman International Industries, BJ’s Wholesale Club BJ and Old Dominion were the notable go lives in the reported quarter.

Apart from its core, HCM Workday witnessed strong growth from Peakon. The company reported 50% ACV growth in the Workday Adaptive Planning business.

In financials, customer wins were Cinemark U.S.A., University of Wisconsin System and Wise Markets. Notable core FINS go-lives included the University of Southern California, KeyBanc North America and Fox Corporation.

Workday expanded its partnership with Alphabet’s GOOGL division Google to include Google Cloud, in addition to Google’s expanded use of Workday applications.

Workday also announced it plans to deliver Workday Payroll for Australia and Germany in the reported quarter.

Operating Expenses

Product development expenses increased 9% year over year to $311.2 million. Sales and marketing expenses surged 35.4% year over year to $296.2 million. General and administrative expenses increased 18.7% year over year to $77 million.

As percentage of revenues, product development expense declined 220 basis points (bps) to 24.7%. Sales and marketing expenses as percentage of revenues increased 290 bps to 23.5%.General and administrative expenses as percentage of revenues were unchanged at 6.1%.

Workday reported fiscal second-quarter non-GAAP operating income of $291.8 million, up 13.2% year over year. Consequently, non-GAAP operating margin came in at 23.2%, down 110 bps year over year.

Balance Sheet & Cash Flow

Cash, cash equivalents and marketable securities were $3.31 billion as of Apr 30, 2021, compared with $2.99 billion as of Apr 30, 2021.

Total debt (current plus non-current) was $1.86 billion as of Jul 31, 2021, compared with $1.87 billion as of Apr 30, 2021.

Workday generated operating cash flow of $198.5 million compared with the prior quarter’s figure of $452.4 million.

Guidance

For third-quarter fiscal 2022, Workday expects subscription revenues of $1.156-$1.158 billion (indicating year-over-year growth of 20% at the high-end). Professional services revenues are projected to be $150 million. The company anticipates a non-GAAP operating margin of 21%.

This Zacks Rank #3 (Hold) company now expects fiscal 2022 subscription services’ revenues to be $4.50-$4.51 billion compared with earlier guidance of $4.43-$4.44 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company continues to project professional services revenues of $590 million. Workday anticipates non-GAAP operating margin to be 21%.

Workday raised its fiscal 2020 operating cash flow guidance to $1.5 billion.

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