Summary
Workday's fiscal 2021 third quarter, which ended Oct. 31, 2020, produced total revenues of $1.11 billion, up 17.9% from the prior-year quarter. Subscription revenue was $968.5 million, up 21.3%, and subscription revenue backlog reached $8.87 billion, up 23.4%. Subscription services accounted for 88% of total revenues in the quarter, so the mix stayed heavily weighted toward recurring contracted work. Revenue for the first nine months of fiscal 2021 was $3.19 billion, up 20.2% from the comparable period a year earlier. Management described new subscription bookings in the quarter as solid despite the uncertain environment.
Profitability improved sharply year over year. The GAAP operating loss was $14.08 million, or negative 1.3% of revenues, compared with an operating loss of $110.25 million, or negative 11.8% of revenues, in the prior-year quarter. Net loss narrowed to $24.34 million from $115.73 million a year earlier. Diluted loss per share was $0.10 for the quarter and $0.89 for the nine months. Non-GAAP operating income was $268.1 million, or 24.2% of revenues, against $142.6 million, or 15.2%, in the same period last year, and non-GAAP net income per diluted share was $0.86 versus $0.53. For the nine months, non-GAAP operating margin improved to 20.6% from 13.9%.
Cash generation followed the earnings trend. Operating cash flow was $293.80 million in the quarter, up 13.9% from $258.00 million a year earlier, and $714.70 million for the nine months, up 25.9% from $567.48 million. Cash, cash equivalents, and marketable securities totaled $2.95 billion as of Oct. 31, 2020. Deferred revenue, current portion, was $2.00 billion, up 11.4% from $1.80 billion a year earlier.
Expense growth was restrained. GAAP operating expenses rose 7% in the quarter, and the increase included an $83 million rise in employee related expense that was partly offset by a $26 million drop in travel because of the pandemic.
Operationally, financial management reached 1,000 customers, a useful marker for a product that is still much smaller than the human capital management base. Workday counted more than 190 virtual customer go-lives in the quarter, including Accenture, which went live on Workday HCM with more than 500,000 employees. Workday 2020 Release 2 added Workday Accounting Center and machine learning driven predictive forecasts for Workday Adaptive Planning, and the company introduced VIBE Central and VIBE Index to support belonging and diversity programs. Workday was named in the Leaders quadrant of the 2020 Gartner Magic Quadrant for Cloud Financial Planning and Analysis Solutions for the fourth consecutive year. Scout RFP was rebranded Workday Strategic Sourcing. Headcount was roughly 12,400 at quarter end, up from 11,800 a year earlier.
Guidance covers the full fiscal year 2021, not the next quarter. Management raised its fiscal 2021 subscription revenue outlook to a range of $3.773 billion to $3.775 billion. The company also said it will increase the pace of investment as it enters the fourth quarter, and it does not expect the favorable margin effect from COVID-19 related expense moderation, chiefly lower travel, to continue over the long term. Investment priorities named in the filing include data center capacity and equipment, product development, and global sales expansion, particularly in Europe and Asia.
That leaves a real tension. Part of the margin gain came from spending that was suppressed rather than from durable operating leverage, and the company said the same dynamic is unlikely to repeat at this scale. The risk list is long. A prolonged pandemic could hurt new business, customer renewals, sales and marketing, revenue growth rates, customer deployments, customer solvency, and product development. Security breaches or unauthorized access to customer personal data, service outages, data center disruption, competitive pricing pressure, and delays or reductions in information technology spending all appear as well. The capital structure also changed shape. The 2022 notes became convertible at the holders' option during the fourth quarter of fiscal 2021 and were reclassified to current liabilities, with $1.15 billion of principal payable on Oct. 1, 2022 if the notes are not converted. There were no outstanding borrowings under the $750 million revolving credit facility as of Oct. 31, 2020.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.11B | $1.06B | +4.1% | $938.1M | +17.9% |
| Research & development | $420.0M | $418.7M | +0.3% | $401.7M | +4.5% |
| Sales & marketing | $302.9M | $276.5M | +9.5% | $286.8M | +5.6% |
| General & administrative | $102.0M | $99.3M | +2.8% | $88.9M | +14.8% |
| Total operating expenses | $1.12B | $1.08B | +3.8% | $1.05B | +6.8% |
| Operating income (loss) | -$14.1M | -$16.8M | +16.0% | -$110.3M | +87.2% |
| Operating margin | -1.3% | -1.6% | +0.3 pp | -11.8% | +10.5 pp |
| Net income (loss) | -$24.3M | -$28.0M | +13.1% | -$115.7M | +79.0% |
| Net margin | -2.2% | -2.6% | +0.4 pp | -12.3% | +10.1 pp |
Risks
The ongoing COVID-19 pandemic has caused delayed purchasing decisions and reduced demand, particularly in travel and hospitality and healthcare, and may reduce renewal rates among small and medium-sized planning customers. MD&A attributes the favorable operating margin for the three months ended October 31, 2020 partly to COVID-19 expense moderation that is not expected to continue long term.
Future revenue relies on new customer acquisition, and COVID-19 has interrupted face-to-face selling; typical sales cycles are six to twelve months but can extend for eighteen months or more. The company says unfavorable impacts to new subscription bookings caused it to reduce its fiscal 2021 subscription revenue outlook.
Privacy rules such as GDPR, CCPA, and the newly passed CPRA impose significant compliance costs. The July 2020 invalidation of the Privacy Shield and uncertainty around Standard Contractual Clauses may require additional contractual and technical safeguards for EU data transfers, increasing costs and potentially decreasing demand.
Workday faces intense competition from Oracle and SAP, which are larger with greater resources, and legacy vendors are expanding cloud offerings. Competitors may offer lower prices, price concessions, delayed payment terms, or other terms that are more enticing, especially during COVID-19, which could reduce sales and margins.
Competition is intense for highly skilled engineers with machine learning and AI experience, cybersecurity professionals, and senior sales executives. The perceived value of equity awards affects recruiting and retention, and remote work plus immigration and travel restrictions during COVID-19 may further limit hiring.
The 2022 Notes became convertible at holders' option during the fourth quarter of fiscal 2021 because the stock price exceeded 130% of the conversion price for more than 20 trading days in the 30 days ended October 31, 2020, and were reclassified to current liabilities. The Credit Agreement also imposes a leverage covenant, and the company had outstanding borrowings under the Term Loan as of October 31, 2020.
COVID-19 remote work has increased cybersecurity risks, including COVID-19 themed phishing attacks and exploitation of flaws from non-corporate managed networks. A breach involving customer or user data could lead to regulatory actions, litigation, service credits, and customer loss.
The company did not hold its two largest annual customer conferences for fiscal 2021, Workday Rising and Workday Rising Europe, and delayed some corporate advertising, which may hinder brand awareness and customer acquisition.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Non-GAAP Operating Income
Subscription Revenue
Summary, forecast, risks and KPIs are extracted from Workday, Inc.'s SEC filings for Q3 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.