Workday turns in solid Q1 despite some buying decision pushback due to macro events

A solid Q1 for Workday as the firm turned in revenues of $1.43 billion, up 22.2% year-on-year, with an operating loss of $72.8 million. Subscription revenues were up 23% year-on-year to $1.27 billion.

But the company was impacted by some deferred buying decisions, said co-CEO Aneel Bhusri:

Several key opportunities that we had expected to close in Q1 were pushed to later in the year, impacting backlog performance…We continue to see strong demand for our products and are optimistic about the year. We’re mindful, however of the current macro-economic and geo-political environments and the impact these conditions could have on businesses globally.

That uncertainty isn’t stopping expansion however, he added, pointing to plans to create 1000 new jobs at Workday’s European HQ in Dublin:

As we look forward, against the backdrop of macro-uncertainty, we have been comforted by the fact that as a company, we've been through these cycles before, most recently having navigated the pandemic and, as a younger company, the 2008-2009 financial crisis. Each time we've come out stronger and remain confident in the fundamentals of our business and our long-term strategy, believe that our leadership position will only strengthen.

He added: 

It's not our first rodeo through a downturn. Go back [and Workday co-founder] Dave [Duffield] and I weathered lot of storms at PeopleSoft. [Co-CEO] Chano [Fernandez] has weathered a lot of storms. As long as you have the right value proposition. We weathered the storm in 2008, 2009, which is about the worst economic environment I've ever seen.

And while demand was somewhat suppressed during the first period of COVID we weathered that's storm too. So we'll just figure out a way. Our products are not choices. I mean, you have to have world class HR, financial ERP systems to run your business. So, I think demand goes forward and there'll be some companies that are cautious, and we just need to figure out where they spend in our sales cycles.

Pipeline

For his part, Fernandez, fresh from Davos, added:

We did see the timing of several Q1 key deals push into future quarters and we’re also seeing some Q2 pipeline opportunities move to the second half, but we’re confident in closing them later this year. More broadly, we see healthy overall pipeline positioning us to deliver a strong FY2023 as we remain focused on driving sustainable 20% plus subscription revenue growth.

He went on:

[The deferred decisions did] include some of our larger opportunities. Each of these pushes were for different reasons, not necessarily macro-related, and we are focused on closing them later in the year. We are definitely mindful that the environment, particularly in Europe, remains uncertain and we continue to monitor it, but we have solid results across regions in Q1, including several international markets.

And he noted:

Some of the large tiers that pushed [back] they’re not really due to macro. For example, C-level executive changes that happened in the last month. Some of those that are key decision-makers just want to review the whole process to feel comfortable, particularly through the implementation process as a whole…The confidence comes from having the discussion [with decision-makers] and remaining close to these deals in terms of the commitment from customers, that they remain strategic and a priority on the part of those being done in the second half of the year.

Fernandez concluded:

When some of the deals are because of C-level executive changes, there is not much we can do about it in terms of anticipating some of those. We certainly are here to partner with our customers on a long-term basis, and we want to ensure that we have the confidence in the new executives in terms of the overall implementations on deployment plans. 

All that said, new customer wins during Q1 included Barclays, Callaway Golf and West Tennessee Healthcare in HCM, while go-lives included Hy-Vee, Kyndryl and Royal Bank of Canada. In Financials, new wins included American University, Lehigh Valley Hospital, and Mohegan Tribal Game Authority, with go-lives numbering Advocate Aurora Health and Sentara Healthcare among others.

My take

Keep on keeping on. Focus on yesterday’s post-results analyst call inevitably fell on the pushed back deals, although as Fernandez emphasized at one point, there weren’t that many of them.

It will take a few quarters for more clarity to emerge on any longer term impact from macro-world events. As Bhusri observed:

We'll know a lot more over the next three quarters. We'll know a lot more. That’s not a great answer, but we'll know a lot more coming out of Q4 what real demand was like. When I look back at the COVID environment, it took one to two quarters before people got their arms around that environment. And then they kind of went back to business.

I suspect the same thing will happen here. It's going to take a little bit of time for companies to get their arms around the new environment and then they'll get back to business. And I frankly think this new environment's not going to be as traumatic as COVID was. That, at least from my perspective, was a lot more challenging.

Onwards!