Workday revenues rise as deals come under more scrutiny, but continue to close

Stuart Lauchlan Profile picture for user slauchlan August 26, 2022 Audio mode
Summary:
No July slowdown for Workday as deals continue to close, including with a cloud counterpart...

Bhusri Fernandez
(Bhusri and Fernandez)

Workday turned in a strong set of Q2 numbers yesterday and, unlike close counterpart Salesforce earlier this week, is holding firm on its guidance for the year as deals continue to close, albeit with more scrutiny.

For the quarter, the firm turned in revenues of $1.54 billion, up 22% year-on-year. Subscription revenue was $1.37 billion, up 23%. Net loss was $64.158 million.

While acknowledging the same uncertainties about the wider economic climate and the impact on decision-making cycles as other tech firms of late, co-CEO Chano Fernandez said that there is still activity:

While the near-term market environment remains uncertain and we are not immune to it, we continue to see organizations of all sizes prioritizing their investments with Workday to continue their digital backbone transformation and drive increased agility and flexibility…As we move through the second half of the year, we expect the environment to remain uncertain, and we see signs that in certain deal cycles, particularly some of our more strategic opportunities, there is increased scrutiny and potentially longer sales cycles as buyers do extra work before making investment decisions during these uncertain times.

That scrutiny can take different forms, he added:

It's just more scrutiny around the implementation timeframe and the readiness they have on their side or on the partner side or on our side in terms of resources. It also means many times prioritization on projects and usually when that happens, we typically come out on top because we are mission-critical and again on the ROI [Return on Investment] and the TCO [Total Cost of Ownership]…It also means an additional level of approval or two additional levels of approvals of going up to the Board, depending on the level of approval.

So, those are some of the things that it typically means - around business case, around management approvals, around prioritization of projects, and around reassurance in terms of success and implementations and availability of resources and cost of opportunities, impact on potentially other investments or opportunities they are managing or considering.

Customers

Co-CEO Aneel Bhusri noted that the Q2 numbers included the closure of a couple of the larger deals that the firm had been waiting on in Q1, but which had been delayed. Notable Q2 HCM wins included Electrolux, First Student, Groupe Adeo, Korean Air and Raymond James, while go-lives included Cox Enterprises, Southwest Airlines and United Overseas Bank.

On the finance management front, wins included Apex Fund Company; Dave & Busters, Express LLC, and the State of Vermont, while key go-lives in Q2 included Comerica Bank, RSM and the University of Virginia.

Bhusri also pointed to the addition of “two Fortune 500 core financial management customers”, one of which was American Electric Power, while the other was Salesforce:

Already a longtime Workday HCM customer and partner, Salesforce's expanded use of Workday now includes Workday Financial Management along with Accounting Center, Workday Adaptive Planning, Prism Analytics and more. Our growing partnership reinforces the opportunity we have to help support customers in the cloud. With this broad relationship, Salesforce becomes more of an increasing number of high-profile customers to expand from Workday HCM to both HCM and financial management.

Interestingly Workday does not appear to have seen a slowdown in business in July, something that has been cited by a number of companies in recent earnings calls. In fact, Bhusri said of July:

It was about as strong a month as we could have hoped for.

He added:

I think one thing that's different about Workday and some of the other cloud companies is that we're still very lightly penetrated in our installed base. When I look at how much revenue we drive, it's not as high as some of our peers in the cloud, and so that's always a good place to sell during tough economic times.

One sector that already had longer sales cycles is government, where Workday’s new FedRAMP status opens up new opportunities. Bhusri said:

It can be very meaningful over time, but it's going to take some time for it to develop. Those sales cycles are longer than commercial sales cycles. They always have been. And so, now as we have gotten that FedRAMP certification, now the sales cycles begin and they can be 12, 18, 24 month sales cycles. But it's a meaningful opportunity. There's a lot of ex-PeopleSoft customers still running PeopleSoft there. So it's one that we invested in, because we see it as a big opportunity, but also going to be patient in that, it takes a while for the pipeline to develop.

Meanwhile there’s more reason to be optimistic just around the corner. Just as Salesforce is gearing up for Dreamforce, its biggest face-to-face sales opportunity off the year, so too Workday is readying itself for its own Rising gathering, of which Bhusri argued:

Rising is a great opportunity for us. We always do better when we're in-person. It’s just that simple. It’s a chance to get reconnected with customers, make sure we’re doing a good job for them. But equally importantly, as the product portfolio has grown, it’s a chance to showcase some of the newer products and have that customer base motion continue to thrive.

That leaves Fernandez to emphasize an upbeat outlook despite the ongoing macro-economic uncertainties:

We felt good about the new pipeline build that we saw in the quarter across solutions and across geographies and barring any meaningful changes in the macro, we feel good about the pipeline we have for the second half. Certainly, we are never satisfied and we are focused on continuing to build pipeline, particularly with some of the faster sales motions like our customer base motion and our land first motions, because we can certainly create new opportunities, and we can still close them within the fiscal.

My take

It’s good to end the week on a note of optimism. As both Fernandez and Bhusri noted, the instability of the wider macro-environment means nothing can be taken for granted. But I was cheered by one point that Bhusri made about selling into happy customers. There’s room for land-and-expand for Workday as its widens its footprint and happy customers are always more receptive to spending more. Onwards!

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