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Workday (WDAY) Earnings & Revenues Beat Estimates in Q1

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Workday Inc. (WDAY - Free Report) delivered first-quarter fiscal 2019 non-GAAP earnings of 33 cents per share, which beat the Zacks Consensus Estimate of 26 cents. The figure also improved 13.8% year over year.

Strong growth can primarily be attributed to 28.9% jump in revenues, which totaled $618.6 million. The figure surpassed the Zacks Consensus Estimate for revenues of $609 million. The robust top-line performance was driven by solid growth in subscription and professional revenues.

Subscription revenues (84% of total revenues) surged 30.6% year over year to $522.1 million, on the back of expanding customer base and robust net new ACV growth. The figure surpassed the guidance of $514-$516.

Professional services revenues (16% of total revenues) grew 20% from the year-ago quarter to $96.5 million and were better than the guidance of $93 million.

Revenues outside the United States climbed 43% to $139 million, representing a record 22% of total revenues in the quarter.

Workday’s shares have gained 25.4% year over year, outperforming the industry’s 22.1% rally.

Business Highlights

During the quarter, Workday extended capabilities and tools in Workday HCM with new customer experience.

Workday has more than 2,200 customers. During the quarter, the company added Inter IKEA Services, Great Lakes, Tyson Shared Services and Unisys Corporation as its new HCM customers. The clientele now includes two Fortune 500 customers, one of which is a Fortune 100 company. Some other new financial management customers include Sprouts Farmers Market, Rivera and Race Truck Petroleum, one of the largest private companies in the United States.

During the quarter, Aon, an HCM customer in 2013, became live on financial management in 28 countries, including Australia, Canada, Mexico, New Zealand and the United States.

The company announced the availability of new data discovery capabilities in Workday Prism Analytics and Workday Cloud Platform, the first offering delivered on Workday Data-as-a-Service, during the quarter.

Workday was placed in the Leaders quadrant of “Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large, and Global Enterprises” by Gartner.

Workday announced partnership with Slack to help customers to complete tasks more efficiently and effectively by engaging with Workday from within the Slack interface. This will enhance security and improve functionality of Workday’s user interface.

Operating Results

Gross margin expanded 50 basis points (bps) from the year-ago quarter to 75.2%, primarily owing to favorable mix toward higher-margin subscription revenues.

The company reported non-GAAP operating profit of $80.8 million compared with $60.9 million in the year-ago quarter. Non-GAAP operating margin came in at 13.1% during the quarter as compared with 12.7% reported in the year-ago quarter.

Balance Sheet

Cash, cash equivalents and marketable securities were $3.36 billion as of Apr 30, 2018.

Operating cash flows were $184.2 million and free cash flows were $135.4 million.

Unearned revenues were more than $1.4 billion, up 18% from the year-ago quarter. Current unearned revenues (that will be recognized over the next 12 months) were more than $1.32 billion, representing annual growth of 22%.

Non-current unearned revenues declined 21% year over year as fewer customers opted for paying more than one year of subscription fees upfront.

Subscription revenue backlog, which represents all future revenues from existing customer subscription contracts, both on and off-balance sheet, was $5.2 billion, up 31% year over year.

Guidance

For second-quarter fiscal 2019, Workday expects subscription revenues in the range of $557-$559 million (up 28% to 29%), while professional services revenue expectation is $104 million.

Workday anticipates non-GAAP operating margin of 9-10%.

For fiscal 2019, Workday raised subscription revenues guidance. The company now expects subscription revenues in the range of $2.275-$2.290 billion (previously $2.265-$2.280). Professional services revenue expectation remains unchanged at $405 million.

The company continues to expect non-GAAP operating margin to be almost 12%.

The company anticipates operating cash flow growth for fiscal 2019 to be roughly 30%.

Zacks Rank & Other Stocks to Consider

Workday carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the broader technology sector include NVIDIA Corporation (NVDA - Free Report) , Texas Instruments Incorporated (TXN - Free Report) and Groupon, Inc. (GRPN - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA, Texas Instruments and Groupon have a long-term expected EPS growth rate of 10.3%, 9.6% and 6.5%, respectively.

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