Workday shares rose 2.52% following the close, and after, it exceeded Wall Street expectations and produced strong results, especially considering the economic climate and the spate of layoffs announced by other tech firms. Total revenues were $1.6 billion, up 20.5% year over year. Subscription revenues contributed $1.43 billion, up 22.3% year over year. It still posted an operating loss of $ 26.3 million (1.6% of revenue). However, its operating cash flow remained very strong at $408.7 million.
Barbara Larson, CFO of Workday, announced a raised outlook for the full year, commenting, “We delivered solid third-quarter results, a testament to strong execution across the company as well as the strategic and mission-critical nature of our solutions.
“Our updated outlook reflects the ongoing momentum in our business and the power of our business model while continuing to balance the current environment. We are raising the low end of our fiscal 2023 subscription revenue guidance to a range of $5.555 billion to $5.557 billion, or 22% growth. We are also raising our fiscal 2023 non-GAAP operating margin guidance to 19.2%, reflecting our commitment to delivering healthy growth and profitability.”
However, Larson was more reserved about 2024, indicating a subscription revenue range of approximately $6.5 billion to $6.6 billion or 17% to 19% year-over-year growth. When asked why, Larson commented, “The guidance range we provided is our best view at this time. It takes into account the continued momentum across important growth areas such as customer base, medium enterprise, but also balancing that with lengthening sales cycles that we’re seeing impact our business, particularly our net new opportunities. So given the uncertain environment, we provided an estimated subscription revenue range with that low-end of the range, assuming a larger impact to sales cycles than we’re currently seeing today.” (Sourced from SeekingAlpha.com)
Solid Q3 news
Aneel Bhusri, co-founder, co-CEO, and chairman, of Workday, commented, “We delivered another solid quarter, demonstrating how our cloud finance and HR solutions are vital for global organizations navigating today’s changing world. There is no question that the current macro environment presents increased uncertainty, but, due to the great work of our employees and our continued innovation, we are confident in the long-term opportunity and our ability to navigate the road ahead.”
Bhusri also announced its first share repurchase program allocating $500 million under authorisation. Bhusri commented, “This program will help reduce the rate of our share dilution going forward and is driven by our belief that our share price is undervalued given the long-term growth opportunity ahead.”
With tech stocks plummeting, this could be a smart move, with the inevitable rebound once the recession ends. That is despite or perhaps because Workday is still performing well as organisations look to digitally transform.
Workday continues to win clients, winning Cloud HR contracts from Intermountain Healthcare, SGS and Texas Roadhouse. The revenue tap continued to flow with go-lives at Best Buy, Canadian Tire Corporation and the State of Oklahoma. The picture was the same for financial management, with wins at Cincinnati Children’s Hospital Medical Center, EZCorp and Thomas Jefferson University, all of whom also chose HCM. There were also finance go-lives at the City of Baltimore and the Medical University of South Carolina.
The company also held Workday Rising and Workday Rising Europe, followed in Q4. At Workday Rising, it announced Industry accelerators. It revealed Workday Extend, which enables partners and customers to extend the workday solution with new solutions using a low code/no code platform. It also unveiled its next-generation skills technology, enhancing its Skills Cloud with AI/ML technology to deliver more personalised experiences.
Enterprise Times; What does it mean
While there was a slightly more cautious note sounded by Workday because of the longer Sales cycles, Larson noted, “There is an underlying confidence in the Workday leadership team around mid-market sales.”
Chano Fernandez, Co-CEO Workday, added, “Our value proposition is strong and resonates a quicker time to value, fixed cost of implementations. Very predictive ones across HCM and Finance in the mid-market. It brings good ROI and total cost of ownership in terms of the financials and HCM transformation as a whole. That is a value proposition that mid-market is taking on at a faster clip as they are modernizing and developing their systems on the platforms.”
While the note of caution is sensible, Workday remains quietly confident about the outlook. The buyback comes from a position of confidence and strength. It bodes well for the long-term value of the shares and the company. While slower than companies such as Salesforce, opening up its platform and focusing on specific industries bodes well for the future. Many other companies are now adopting this industry-first approach.
