Summary
Workday's fiscal 2021 first quarter, ended April 30, 2020, paired solid top-line growth with a wider GAAP loss. Total revenue rose 23.4% to $1.02 billion. Operating loss was $144.5 million, or negative 14.2% of revenue, and it widened from the prior-year quarter. The operating margin improved from the prior-year quarter, but the improvement was not enough to offset higher costs. Net loss was $158.4 million, wider than the prior-year quarter. Net loss per diluted share was $0.68. The quarter showed the tension between Workday's growth engine and its spending plans.
Operating cash flow was $263.7 million, up 26.1% from the prior-year quarter. Deferred revenue, current portion, was $2.01 billion, up 16.0% from the prior-year quarter. Those metrics suggest the subscription model still converts revenue into cash and future revenue. The company closed a $750 million term loan and a $750 million revolving credit facility. It funded $500 million of the term loan and may fund the remaining $250 million until July 15, 2020. The 2020 convertible notes mature in the second quarter of fiscal 2021, which will require a $250 million cash outflow. Liquidity is a focus as the company manages through the pandemic. The cash flow improvement came from stronger sales and collections, partially offset by higher cash operating expenses.
Non-GAAP operating income was $130.5 million, or 12.8% of revenue, compared with $107.7 million, or 13.1%, in the prior-year quarter. Non-GAAP net income per diluted share was $0.44, compared with $0.43. Non-GAAP operating expenses rose 24% to $888 million, driven by higher headcount and a one-time employee bonus. Management cut fiscal 2021 subscription revenue guidance to $3.67 billion to $3.69 billion, citing the near-term impact from COVID-19. For the second quarter, it guided to subscription revenue of $913.0 million to $915.0 million. It raised fiscal 2021 non-GAAP operating margin guidance to 16.0%. The company also said it expects GAAP and non-GAAP professional services margins to be lower in fiscal 2021 than in fiscal 2020 as it invests in customer success.
Operational highlights included more than 90 virtual customer go-lives in March and April, including two organizations with more than 85,000 employees. Workday delivered its 2020 Release 1 with more than 400 new features, moved Workday Extend to general availability, rebranded Adaptive Insights as Workday Adaptive Planning, and scheduled a digital Workday Rising for Oct. 7-8, 2020. It also hosted Adaptive Live virtually on May 20, with more than 2,500 online attendees. Headcount grew to about 12,400 from 11,000 a year earlier. A one-time cash bonus for most employees added significant expense in the quarter. Workday also made donations to COVID-19 relief causes and appointed Michael C. Bush to its board.
Risks are mostly tied to COVID-19. Workday began seeing unfavorable impacts to new subscription bookings in March 2020. Management warned about delayed purchasing decisions, reduced customer demand, reduced spend, and delayed payments. Because the software subscription industry is seasonal, with the fourth quarter carrying a larger share of annual new business, a prolonged downturn could hit future bookings harder. Other risk factors include security breaches, service outages, competitive pricing pressure, and execution on international expansion. The company also faces execution risk on acquisitions and data center investments. The extent of the pandemic's impact remains highly uncertain, and Workday said the effect may not be fully reflected in results until future periods. The quarter showed the subscription model still generating revenue growth, operating cash flow growth, and deferred revenue growth, but the wider GAAP loss and cautious guidance frame the near-term outlook.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.02B | $976.3M | +4.3% | $825.1M | +23.4% |
| Research & development | $443.5M | $422.2M | +5.0% | $347.8M | +27.5% |
| Sales & marketing | $318.6M | $306.6M | +3.9% | $272.9M | +16.7% |
| General & administrative | $95.2M | $108.8M | -12.5% | $84.5M | +12.7% |
| Total operating expenses | $1.16B | $1.12B | +3.6% | $948.4M | +22.6% |
| Operating income (loss) | -$144.5M | -$146.1M | +1.1% | -$123.4M | -17.1% |
| Operating margin | -14.2% | -15.0% | +0.8 pp | -14.9% | +0.8 pp |
| Net income (loss) | -$158.4M | -$128.0M | -23.8% | -$116.3M | -36.2% |
| Net margin | -15.6% | -13.1% | -2.4 pp | -14.1% | -1.5 pp |
Risks
The COVID-19 pandemic is disrupting global economies and Workday's operations, with the majority of global offices temporarily closed and most employees working remotely. The filing states the company has experienced and may continue to experience delayed purchasing decisions and reduced customer demand, particularly in travel and hospitality and healthcare, plus reduced renewal rates within its subset of small and medium-sized planning customers and delayed payments.
Travel restrictions and remote work have interrupted sales activity, and Workday notes its typical sales cycles are six to twelve months but can extend for eighteen months or more, including as a result of the pandemic. MD&A discloses that beginning in March 2020 the company began experiencing unfavorable impacts to new subscription bookings, causing it to reduce its fiscal 2021 subscription revenue outlook.
Workday derives a substantial majority of subscription services revenue from subscriptions to its HCM application, and its subscription model is largely based on customers' employee headcount. The filing warns that significant reductions in force by customers during the COVID-19 pandemic could reduce subscription services revenue upon renewal or potentially outside of the renewal period.
In April 2020 Workday entered a credit agreement providing a $750 million term loan and $750 million revolving facility, with $500 million outstanding under the term loan as of April 30, 2020. The agreement requires compliance with specified covenants including a leverage ratio, and the 1.50% convertible senior notes become due in Q2 fiscal 2021, resulting in a $250 million cash outflow.
The markets for financial management and HCM applications are intensely competitive, with Oracle and SAP described as larger, more recognized, and significantly better resourced. The filing notes competitors may offer lower prices or, particularly during the pandemic, price concessions and delayed payment terms that are more enticing to potential customers.
Workday discloses an increased risk of cybersecurity-related events such as COVID-19 themed phishing attacks and other security challenges as most employees and service providers work remotely from non-corporate managed networks. It also notes it may inherit additional security risks from acquired companies as it integrates them.
Competition for highly skilled employees, especially engineers with machine learning and artificial intelligence experience and senior sales executives in the San Francisco Bay Area, is intense. The filing notes delays in hiring and onboarding during the pandemic and warns that key personnel illness could impair management of the business.
Privacy and data protection laws including the GDPR (with penalties up to 4% of worldwide revenue) and the CCPA, which took effect January 1, 2020, impose compliance burdens and uncertainty around data transfers such as Privacy Shield and Standard Contractual Clauses. The filing warns such costs and restrictions could reduce demand and impair Workday's ability to grow its customer base.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Non-GAAP Operating Income
Summary, forecast, risks and KPIs are extracted from Workday, Inc.'s SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.