Workday announced strong figures in its Q3 fiscal 2024 results, ending 31st October. Workday shares rose strongly, contradicting some of the concerns raised by the market and a fall in share price over the last month. The share price closed at $266.68, a rise of 14.05% over the last five days.
Carl Eschenbach, co-CEO of Workday, commented, “Workday delivered a strong quarter, demonstrating how organizations across industries and geographies are continuing to place their trust in Workday. The momentum across our business is palpable, powered by our AI innovation, strength in full platform deals, expanding partner ecosystem, and international growth – with EMEA surpassing $1 billion annual recurring revenue in the quarter. Now, with over 5,000 core Workday HCM customers, more companies around the world are turning to Workday to manage their most precious assets: their people and money.”
The key figures from the results were:
- Total revenue was $1.87 billion, up 16.7% y/y
- Subscription revenue was $1.67 billion, up 18.1% y/y
- Operating income was $87.9 million, or 4.7% of revenues, up from a loss of $26.3 million the previous year
- Free cash flows were $390.8 million compared to $349.8 million in the prior year
- Cash, cash equivalents, and marketable securities were $6.88 billion as of October 31, 2023
It is perhaps the return to profitability whilst maintaining strong growth that has returned the confidence of the market. The future also looks bright with Zane Rowe, Chief Financial Officer of Workday, stating, “Following our continued momentum in the third quarter, we are raising our fiscal 2024 subscription revenue guidance to $6.598 billion, representing 19% year-over-year growth. We are also raising our fiscal 2024 non-GAAP operating margin guidance to 23.8%. Our focus is centered on investing to drive durable long-term growth while expanding margins.”
Business highlights
The quarter also saw Workday reaching some significant milestones. It now has more than 5,000 core Workday Human Capital Management (HCM) customers. At its twin Rising conferences, it welcomed 15,000 attendees to Workday Rising in the US and 4,000 attendees at Workday Rising EMEA. As Eschenbach noted, the firm now has $1 billion ARR in the region.
Workday is also seeing customer growth across the portfolio of its solution. It has signed up several customers who have purchased both HCM and Finance, including AdventHealth, Bentley Systems, Houston Methodist, and Lifespan.
In Europe the growth continues to win deals in the UK, Germany, France, and Spain especially, with new wins such as AXA UK, Aurelius Group, and international schools. In APAC, growth is slower, but Workday recently appointed Simon Tate to head up the region and is expecting to see increased growth there. Successes such as Ramsay Health Care and Wesley Mission Queensland will help with this.
Eschenbach also noted that the partner referral program, launched earlier this year, is starting to reap benefits, which should help maintain or even accelerate growth. Eschenbach noted, “We’ve already exceeded our full-year targets for the number of partners that have signed on, and while it’s early, we are starting to see a positive impact to our pipeline,” during the analyst call (Source: The Motley Fool).
At Rising, the firm announced significant investment into AI, including, as Aneel Bhusri explained, “…new capabilities that will benefit all users with an emphasis on increasing productivity, growing and retaining talent, streamlining business processes, and driving better decision-making.
“Examples of the use cases we previewed, which we expect to be available next year, include the ability to generate job descriptions in minutes versus hours, analyze and correct contracts for faster and more accurate revenue recognition, create employee growth plans to foster and retain talent and provide text-to-code capabilities to increase productivity of app development in Workday Extend.” (Source: The Motley Fool).
Enterprise Times: What does this mean
Another strong set of results from Workday, better than many expected. Importantly, with the partner referral program and growing momentum in EMEA and investment in APAC, the future looks good. Gross and net retention is also high at 95% and 100%, respectively, and there was also a 22% growth in backlog.
What wasn’t mentioned in the results announcement or analyst call, although it was in Q4 (on November 2nd), was a reference to the outage that Workday suffered in its Portland data centre, which brought several customers offline. It was due to a power failure and a backup failure. Workday did communicate during the outage, but has not yet published any details about how it intends to further mitigate the risk in future.
