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Enterprise cloud applications provider for human resource and finance, Workday Inc. (WDAY - Snapshot Report) reported fiscal second-quarter 2015 loss of 33 cents per share, wider than the Zacks Consensus Estimate of a loss of 29 cents per share. The reported loss was also wider than a loss of 19 cents reported by the company in the year-ago quarter.

Quarter Details

Revenues surged 73.7% from the year-ago quarter to $186.8 million, which surpassed the Zacks Consensus Estimate of $176.0 million. Subscription revenues (76.9% of revenues) soared 77.1% year over year to $143.7 million in the quarter. Professional revenues (23.1% of revenues) increased 63.1% year over year to $43.1 million.

During the second quarter, customer count for Human Capital Management surpassed the 700 mark. The professional services business has been able to maximize its customer satisfaction and is therefore a primary revenue growth driver.

The company’s focus on aggressively selling its products paid rich dividends and is reflected in the sales growth of the company. Moreover, the high renewal rates as well as shorter term contracts are expected to be beneficial for the company in the long run.

Operating expenses rose sharply to $181.1 million from $98.3 million reported in the year-ago quarter. Product development costs surged 87.7% on a year-over-year basis to $76.7 million in the second quarter while sales & marketing expense surged 78.5% y/y to $78.3 million. General & administrative expenses, on the other hand, surged 92.4% to $26.2 million in the reported quarter.

As a result of higher operating expenses, Workday reported an operating loss (including share- based compensation) of $59.9 million, wider than a loss of $31.5 million reported in the year-ago quarter.

Net loss was $61.3 million in the reported quarter as compared to a net loss of $32.4 million reported in the year-ago quarter.

 


In Jun 2014, the company had announced plans to employ 200 personnel in Ireland over the next three years.

During the quarter, two of Workday’s customers, Hewlett-Packard (HPQ - Analyst Report) and CSC joined the company’s partner ecosystem to help more customers make the transition to cloud apps for human resources and gain the full business value from Workday Human Capital Management.

Balance Sheet & Cash Flow

Cash & cash equivalents and marketable securities were $1.82 billion in the reported quarter. Cash outflow during the quarter was $9.0 million.

Guidance

For fiscal third quarter 2015, the company expects its GAAP operating margin to be approximately 21% to 23%, lower than the non-GAAP operating margin. Whereas the non-GAAP operating margin is expected to be between - 6% to - 9% of total revenue.

Revenue is expected to be in the range of $200 million to $205 million, reflecting a growth of 56% to 60% in comparison to the prior year. Subscription revenues are expected to be in a range of $156 million to $160 million, representing a year-over-year growth of 65-70%.

For full year fiscal 2015, revenue is expected to range between $760 million and $770 million, thus representing year-over-year growth of 62%-64%. Subscription revenues are expected to range between $592 million and $602 million, representing year-over-year growth of 67%-70%.

The company expects to invest approximately $100 million to $110 million in Capex in fiscal 2015.

Recommendation

Workday reported mixed results in the second quarter of fiscal 2015. We believe that Workday’s innovative product pipeline will help it to gain significant footprint in the human resource and finance markets. However, intensifying competition from large established players such as Oracle Corp (ORCL - Analyst Report), Automatic Data Processing, Inc. (ADP - Analyst Report) and SAP AG in both of its operational markets is a concern.

Currently, Workday has a Zacks Rank #3 (Hold).
 

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