Image source: Workday, Inc.
Workday, Inc. (WDAY 4.08%) released fiscal second-quarter 2017 results Wednesday after the market close, and the enterprise cloud application specialist is rightly pleased with its progress, as it continues to prioritize revenue growth and taking market share over its near-term profitability.
Workday's headline numbers
Quarterly revenue grew 33.6% year over year to $377.7 million, including a 36.9% increase in subscription revenue, to $306.2 million, and 21.3% growth from professional services, to $71.5 million. During the subsequent conference call, management also confirmed total derived billings -- or the sum of revenue and the sequential change in total unearned revenue -- were $431 million, up 38% from the same year-ago period.
By comparison, Workday's guidance provided last quarter called for lower revenue in the range of $371 million to $373 million, while assuming 35% to 36% growth in subscription revenue, to a range of $303 million to $304 million, and 15% to 17% growth in professional services. That guidance also called for total derived billings to grow a more modest 34% year over year, to around $420 million.
Based on generally accepted accounting principles (GAAP), that translated to a net loss of $108 million, or $0.55 per share. On an adjusted (non-GAAP) basis, which adds perspective by excluding items like stock-based compensation, Workday's net loss was $8.6 million, or $0.04 per share.
Digging deeper
Workday CEO Aneel Bhusri added, "We delivered record second-quarter results with solid customer momentum and strong competitive win rates. The results were well balanced across our key initiatives, as we saw consistent strength across product lines, industries, and geographies, and we are proud to welcome our new largest customer based in the APJ region."
To be sure, Workday continued to enjoy solid momentum with the global adoption of its Human Capital Management solution, including -- as I noted in my earnings preview earlier this week -- an expanded multiyear strategic partnership under which IBM will support its entire global workforce of over 350,000 employees. Workday also saw new HCM adopters including Kering (47,000 employees) and Repsol (30,000 employees) in the EMEA region, while at the same time welcoming Samsung as its first South Korean customer, as well as Qantas and Air New Zealand in the ANZ region. Workday also enjoyed a happy consequence of the impending close of Dell's acquisition of EMC, as Dell expanded its Workday subscription to bring its total employee count to 125,000.
Workday also achieved its second-strongest quarter in company history for securing new financial management customers, with almost a third of all new customers purchasing Workday Financial Management. Moreover, Bhusri revealed during the call that competitive win rates in the financial management arena are now similar to the typically high rates enjoyed in its core Human Capital Management space, which remain largely unchanged from last quarter.
Regarding newer product offerings, for which Workday's core HCM platform tends to serve as a gateway for upselling, Workday has already signed more than 50 customers for the new Workday Planning product, which is on track for general availability with the launch of Workday 27 next month. Management also promised more details on the impending launches of Workday Learning and Workday Student at the company's Financial Analyst Day, scheduled for Tuesday, Sept. 27, 2016.
Workday also acquired operational analytics and data discovery tools provider Platfora during the quarter. During the call, management noted the purchase was similar to Workday's previous acquisitions, as it was "focused on acquiring world-class technology and talent." In the coming quarters, Bhusri says Workday will focus on building Platfora's technology "into the fabric of our technology platform."
On guidance
Workday offered fresh color on what to expect for the remainder of the year. For the current (fiscal third) quarter, Workday expects total derived billings for the quarter to increase 31% year over year to $445 million. And as a result, fiscal Q3 revenue should be in the range of $398 million to $400 million, representing year-over-year growth of 30% to 31%. That includes 36% to 37% growth in subscription revenue, to a range of $331 million to $333 million, and professional services growth of just 7% -- albeit primarily as the company continues to push more services to its ecosystem.
For the full fiscal-year 2017, Workday now expects derived billings of $1.88 billion to $1.89 billion (up from previous guidance for $1.87 billion to $1.885 billion) and total revenue of $1.548 billion to $1.558 billion (up from $1.545 billion to $1.555 billion previously). The latter range now assumes fiscal 2017 subscription revenue of $1.278 billion to $1.285 billion, marking a slight increase to the bottom end of Workday's previous subscription revenue guidance range.
In the end, this was a straightforward beat-and-raise scenario from Workday, and you'll be hard pressed to find an investor willing to complain about these solid results.
