Summary
Workday's fiscal 2024 second quarter, ended July 31, 2023, showed total revenue of $1.79 billion, up 16.3% from the prior-year quarter. Operating income was $36.3 million, or 2.0% of revenue, up 206.4% and a swing to a profit. Operating margin was 2.0%, up 4.2 percentage points. Net income was $78.66 million, up 222.6%. Diluted EPS was $0.30, up $0.55. Operating cash flow was $425.3 million, up 271.9%. Deferred revenue, current portion, was $3.31 billion, up 14.5%. These GAAP results reflect a quarter in which revenue growth and expense moderation combined to produce profitability.
On a non-GAAP basis, operating income was $421.4 million, or 23.6% of revenue. Non-GAAP basic and diluted net income per share were $1.45 and $1.43. Subscription revenue backlog totaled $17.85 billion, up 32.5%, and 24-month subscription revenue backlog was $10.27 billion, up 22.7%. Cash, cash equivalents, and marketable securities were $6.66 billion as of July 31, 2023. Headcount reached 17,887, up 6%. Workday said it surpassed 65 million users under contract and more than 5,000 core Workday Financial Management and Workday HCM customers. More than 3,000 customers share data with its ML models, and it processes more than 50 million ML inferences per day.
For the six months ended July 31, 2023, total revenue was $3.47 billion, up 16.9%. Operating cash flow was $702.6 million, up 26.8%. Operating margin was 0.5%, up 4.1 percentage points. The company attributed the margin improvement to higher revenue, moderation of operating expenses, and a decrease in depreciation from a change in estimated useful lives of data center equipment from 3 years to 5 years.
For the full fiscal year 2024, Workday raised subscription revenue guidance to $6.570 billion to $6.590 billion, representing 18% year-over-year growth. For the third quarter of fiscal 2024, it guided subscription revenue to $1.678 billion to $1.680 billion, or 17% growth. The company also raised full-year non-GAAP operating margin guidance to 23.5%. It expects capital expenditures of approximately $300 million in fiscal 2024. Management said it plans a disciplined approach of investing in long-term growth while expanding margins.
Workday announced new Financial Management customers including KinderCare, Metropolitan Community College, Nordic Consulting, Palomar Health, and The Medical College of Wisconsin. New HCM customers included Commercial Vehicle Group, Mercy Aged and Community Care, SoftwareOne AG, and Symrise AG. The company highlighted retail and hospitality joining financial services at $1 billion in annual recurring revenue. It also pointed to its generative AI strategy and work with policymakers on the European Parliament's proposed AI Act. Workday named Emma Chalwin chief marketing officer.
The outlook carries familiar enterprise software risks. Macroeconomic events, including higher inflation, Federal Reserve interest rate increases, instability in the global banking system, geopolitical factors, and the remaining effects of COVID-19, have created uncertainty. Workday warned that it has experienced and may continue to experience lengthening sales cycles and revenue growth rates, particularly within net new opportunities. Continued economic uncertainty could hurt customer renewals, collections, sales and marketing efforts, customer deployments, and product development. The company also cites security breaches, unauthorized access to personal data, data center disruptions, service outages, competition, reliance on partners, and regulatory risks tied to new technologies such as machine learning and artificial intelligence.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.79B | $1.68B | +6.1% | $1.54B | +16.3% |
| Research & development | $609.7M | $600.5M | +1.5% | $547.8M | +11.3% |
| Sales & marketing | $524.2M | $518.6M | +1.1% | $458.7M | +14.3% |
| General & administrative | $168.5M | $167.6M | +0.6% | $140.3M | +20.2% |
| Total operating expenses | $1.75B | $1.70B | +2.7% | $1.57B | +11.5% |
| Operating income (loss) | $36.3M | -$19.8M | +283.1% | -$34.1M | +206.4% |
| Operating margin | 2.0% | -1.2% | +3.2 pp | -2.2% | +4.3 pp |
| Net income (loss) | $78.7M | $136.0K | +57738.2% | -$64.2M | +222.6% |
| Net margin | 4.4% | 0.0% | +4.4 pp | -4.2% | +8.6 pp |
| Diluted EPS | $0.30 | $0.00 | +$0.30 | -$0.25 | +$0.55 |
| Net retention rate | 95.0% | 95.0% | ±0.0 pp | — | — |
Risks
Global economic and geopolitical volatility, inflation, rising interest rates, and instability in the global banking system may delay customer purchasing decisions and reduce demand. MD&A states Workday has experienced and may continue to experience lengthening of certain sales cycles and revenue growth rates, particularly within net new opportunities.
Longer sales cycles and deferrals of buying decisions, especially in net new opportunities, could slow future revenue growth. MD&A links this to continued economic uncertainty and possible negative impact on customer renewals, collections, and deployments.
Workday is increasingly embedding AI and ML, including large language models and generative AI, into offerings, which may create ethical, legal, and reputational risks. The filing cites a lawsuit alleging its products and services enable discrimination and notes the New York City Automated Employment Decision Tools law effective July 5, 2023 may force customers to disclose sensitive employment-discrimination analyses.
The enterprise cloud applications market is intensely competitive, with primary competitors Oracle and SAP and other vendors such as UKG, ADP, Infor, Ceridian, Microsoft, Anaplan, and Coupa. The filing also says generative AI is expected to intensify competition, and competitors may offer lower prices or more flexible terms.
Workday depends on key employees and recently had executive changes, including Chano Fernandez resigning as Co-CEO in December 2022, Carl Eschenbach being appointed Co-CEO, and Barbara Larson stepping down as CFO in June 2023 with Zane Rowe appointed CFO. The filing says such changes may disrupt the business and hurt retention.
Workday has faced security events, including an August 2022 fix in Workday Recruiting for an issue that temporarily made certain information discoverable to unintended parties, requiring customer notification, internal investigation, and third-party penetration testing. The filing also notes increased supply chain attacks and remote work risks.
Revenue growth rates have declined and may decline again as the customer base and market penetration increase, and forecasting growth is difficult amid macroeconomic uncertainty. Workday plans expenses on estimates, so slower growth could cause spending to be misaligned with actual performance.
Privacy concerns and evolving domestic and foreign laws on cloud computing, cross-border data transfer, and data localization may reduce adoption and increase compliance costs. International operations also face stricter data privacy requirements and potential government audits.
Workday depends on its network of partners to drive growth and provide a majority of deployment services, but partners may fail to perform, favor competitors, or misrepresent products. MD&A notes professional services revenues decreased 3% for the quarter and 4% year to date as Workday expands and leverages service partners.
Workday has substantial indebtedness, including $3.0 billion of senior notes issued in April 2022 and a $1.0 billion revolving credit facility with no outstanding revolving loans as of July 31, 2023. Covenants and rising interest rates could make refinancing difficult or reduce cash available for other purposes.
The dual-class structure gives Class B holders, including co-founders David Duffield and Aneel Bhusri, a substantial majority of voting power as of July 31, 2023. This limits non-affiliates from influencing corporate matters and could delay or prevent a change in control.
The November 2022 Share Repurchase Program authorizes up to $500 million of Class A stock repurchases over 18 months, but there is no assurance it will enhance long-term stockholder value. Repurchases reduce cash available for working capital, debt repayment, capital expenditures, and acquisitions.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Total Subscription Revenue Backlog
24-Month Subscription Revenue Backlog
Gross Revenue Retention
Net Revenue Retention
Total Revenues
Users under contract
Summary, forecast, risks and KPIs are extracted from Workday, Inc.'s SEC filings for Q2 FY2024 (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.