Summary
Workday closed fiscal 2021's second quarter with total revenue of $1.06 billion, up 19.6% from $887.75 million in the same quarter a year earlier. First-half revenue reached $2.08 billion, up 21.5%. Subscription revenue made up 88% of total revenue in the quarter, and subscription revenue backlog stood at $8.60 billion, up 22.3%. Professional services revenue was essentially flat, which the 10-Q ties to deployment timing disrupted by COVID-19. Management still expects professional services growth to trail subscription growth as partners take on more implementations. Co-founder and co-CEO Aneel Bhusri said demand held up as organizations recognized how critical cloud systems are, and the 10-Q notes a favorable impact on new subscription bookings compared with the first quarter of fiscal 2021.
Profitability improved far more than the top line. The GAAP operating loss narrowed to $16.8 million, or negative 1.6% of revenue, from a loss of $122.5 million, or negative 13.8% of revenue, in the prior-year quarter. That is a 12.2 percentage point improvement in operating margin. The GAAP net loss was $28.02 million, or $0.12 per diluted share, and the first-half operating loss narrowed 34.4% to $161.2 million, with first-half operating margin up 6.6 percentage points to negative 7.7%. Non-GAAP results tell a different story. Second quarter non-GAAP operating income was $257.7 million, or 24.3% of revenue, against $117.5 million, or 13.2%, a year ago, and non-GAAP net income per diluted share was $0.84. The spread between the two sets of numbers stays wide, driven by share-based compensation and employer payroll taxes on stock transactions.
Cash generation was solid. Operating cash flow was $157.2 million for the quarter, up 56.7%, and $420.9 million for the first half, up 36.0%. Deferred revenue, current portion, rose 11.5% to $2.00 billion. Cash, cash equivalents and marketable securities totaled $2.75 billion as of July 31, 2020. Liquidity benefited from the July funding of the second $250 million tranche of the term loan, while the quarter also included a $250 million principal payment on the 2020 convertible notes. Management expects capital expenditures, excluding owned real estate projects, of about $280 million for fiscal 2021, mostly for data center infrastructure.
Guidance moved higher. For the full fiscal year 2021, Workday raised subscription revenue guidance to a range of $3.73 billion to $3.74 billion and lifted its non-GAAP operating margin outlook to 18.0%. For the third quarter, subscription revenue is guided to $948.0 million to $950.0 million. The company also said it does not expect to make additional investments in owned real estate projects during fiscal 2021, and it pointed to first-half performance while flagging that near-term uncertainty remains.
The main risks are tied to the pandemic. The 10-Q warns that a prolonged downturn could hurt new bookings, renewals, deployment timing, customer solvency and cash flow, and that customers may keep requesting payment timing concessions. Security breaches, unauthorized access to personal data, data center or infrastructure disruptions and service outages are listed risks, along with pricing pressure, industry consolidation and integration of acquisitions. The first-half margin gains lean on reduced travel, marketing and event spending, and management says that level of favorable impact should not continue long term. Headcount reached roughly 12,300, up from about 11,400 a year earlier, which keeps expense growth a live issue. Product news included Workday People Analytics, Workday Help and Workday Journeys, an expanded IBM partnership, the extension of Workday Launch to eligible large U.S. enterprises, and an entry into Mexico. Chano Fernandez was promoted to co-CEO alongside Aneel Bhusri, with Robynne Sisco remaining president and chief financial officer, and Workday was named a leader in the 2020 Gartner Magic Quadrant for Cloud Core Financial Management Suites for the fourth year in a row.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.06B | $1.02B | +4.3% | $887.8M | +19.6% |
| Research & development | $418.7M | $443.5M | -5.6% | $378.1M | +10.7% |
| Sales & marketing | $276.5M | $318.6M | -13.2% | $280.2M | -1.3% |
| General & administrative | $99.3M | $95.2M | +4.3% | $85.6M | +16.0% |
| Total operating expenses | $1.08B | $1.16B | -7.2% | $1.01B | +6.8% |
| Operating income (loss) | -$16.8M | -$144.5M | +88.4% | -$122.5M | +86.3% |
| Operating margin | -1.6% | -14.2% | +12.6 pp | -13.8% | +12.2 pp |
| Net income (loss) | -$28.0M | -$158.4M | +82.3% | -$120.7M | +76.8% |
| Net margin | -2.6% | -15.6% | +12.9 pp | -13.6% | +11.0 pp |
Risks
The company says COVID-19 has caused delayed purchasing decisions, reduced customer demand particularly in travel and hospitality and healthcare, lower renewal rates in small and medium-sized planning customers, and delayed payments. MD&A reports Q2 FY2021 new subscription bookings improved versus Q1 FY2021 and GAAP operating margin improved to (1.6)% from (13.8)%, but says the favorable margin impact is not expected to continue long term.
Typical sales cycles are six to twelve months and can extend for eighteen months or more, including as a result of COVID-19. Remote work and limited travel have interrupted sales activity, and deferrals by prospects could negatively affect future revenue growth because future revenue relies on new customer acquisition.
GDPR penalties can reach up to 4% of worldwide revenue, CCPA took effect January 1, 2020, and the July 2020 CJEU decision invalidated the Privacy Shield framework while creating uncertainty around Standard Contractual Clauses for data transfers to the United States. If the company or its customers cannot transfer data across borders, demand could decrease and operations could be restricted.
Oracle and SAP are larger, have greater name recognition, longer operating histories, larger marketing budgets, and significantly greater resources. Competitors may offer lower prices, price concessions, delayed payment terms, or financing terms, particularly during COVID-19, which could reduce sales, margins, or market position.
During the COVID-19 pandemic and expanded remote work, the company faces increased risk of COVID-19 themed phishing attacks, exploitation of cybersecurity flaws, and other security challenges from employees and service providers working on non-corporate managed networks.
As of July 31, 2020, there was $750 million outstanding under the term loan, and the company has $1.15 billion of 0.25% convertible senior notes due October 1, 2022. The credit agreement imposes covenants including a specific leverage ratio, and a breach could cause outstanding indebtedness to be declared immediately due and payable.
The company decided not to hold its two largest annual customer conferences for fiscal year 2021, Workday Rising and Workday Rising Europe, and transitioned Adaptive Live and Workday Elevate to digital. These measures could negatively affect its ability to develop and maintain widespread positive brand awareness.
The company states its historic revenue growth rates should not be viewed as indicative of future performance and growth rates have declined and may decline again as customer base and market penetration increase. MD&A reports subscription services revenue was $932 million for Q2 FY2021, up 23%, and total revenues were $1.06 billion for the quarter, up 19.6% per reported figures.
MD&A states the company currently derives a substantial majority of subscription services revenue from subscriptions to its HCM application. A decline in demand for or competition in HCM could disproportionately affect subscription services revenue, which was $932 million for Q2 FY2021, up 23%.
Some products use machine learning, artificial intelligence, and blockchain. The regulatory environment for these technologies is undeveloped and evolving, and future laws could impose costly compliance burdens, restrict permitted uses, or subject the company to litigation.
Competition is intense for engineers with machine learning and artificial intelligence experience, cybersecurity professionals, and senior sales executives. COVID-19 illness, remote work, immigration restrictions, and declines in the perceived value of equity awards could impair the company's ability to attract, train, and retain highly skilled employees.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Non-GAAP Operating Income
Subscription Revenue
Total Revenues
Operating Cash Flow
Summary, forecast, risks and KPIs are extracted from Workday, Inc.'s SEC filings for Q2 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.