Workday(WDAY) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (unaudited) This section presents Workday's unaudited condensed consolidated financial statements for the quarterly period ended July 31, 2024, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, with accompanying notes on accounting policies, business combinations, and debt Condensed Consolidated Balance Sheet Highlights (in millions) | Account | July 31, 2024 | January 31, 2024 | | :--- | :--- | :--- | | Total current assets | $9,200 | $9,939 | | Total assets | $16,234 | $16,452 | | Total current liabilities | $4,513 | $5,055 | | Total liabilities | $7,889 | $8,370 | | Total stockholders' equity | $8,345 | $8,082 | Condensed Consolidated Statement of Operations Highlights (in millions) | Metric | Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | Six Months Ended July 31, 2024 | Six Months Ended July 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $2,085 | $1,787 | $4,075 | $3,471 | | Operating income | $111 | $36 | $175 | $16 | | Net income | $132 | $79 | $239 | $79 | Condensed Consolidated Statement of Cash Flows Highlights (in millions) | Cash Flow Activity | Six Months Ended July 31, 2024 | Six Months Ended July 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $943 | $703 | | Net cash used in investing activities | $(603) | $(1,098) | | Net cash used in financing activities | $(715) | $(52) | - On March 29, 2024, Workday acquired HiredScore, Inc., a provider of AI-powered talent orchestration solutions, for a total purchase consideration of $530 million in cash[40] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 17% year-over-year revenue increase for both the three and six-month periods ended July 31, 2024, driven by strong subscription services growth, and details operating margin expansion, strong operating cash flow growth of 34%, and a 21% increase in total subscription revenue backlog to $21.6 billion - Workday's strategy focuses on driving sustainable, long-term subscription revenue growth by adding new customers, expanding its footprint with existing customers, innovating with AI, expanding internationally, and growing its partner ecosystem[95] Financial Results Overview (in millions, except percentages) | Metric | Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $2,085 | $1,787 | 17% | | GAAP operating income | $111 | $36 | 207% | | Non-GAAP operating income | $518 | $421 | 23% | | Operating cash flows | $571 | $425 | 34% | - The company has experienced a moderation of revenue growth rates due to increased deal scrutiny and lengthening sales cycles, particularly for new business, as a result of macroeconomic uncertainty[98] - Total subscription revenue backlog increased by 21% year-over-year, reaching $21.6 billion as of July 31, 2024, up from $17.8 billion a year prior. The 12-month subscription revenue backlog grew 16% to $6.8 billion[100][106] Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily from foreign currency exchange rate fluctuations and interest rate changes, with a sensitivity analysis indicating a 100 basis point rate change would impact the investment portfolio's value by approximately $60 million - The company's most significant foreign currency exposures are the euro, British pound, Canadian dollar, and Australian dollar, utilizing foreign currency derivative hedging to mitigate these risks[141] - An immediate 100 basis point increase or decrease in interest rates would result in an approximate $60 million market value reduction or increase, respectively, in the company's investment portfolio as of July 31, 2024[142] - The company's Senior Notes have fixed annual interest rates, protecting them from economic interest rate exposure, while borrowings under the 2022 Credit Agreement are subject to variable rates based on SOFR, exposing the company to market risk from changes in index rates[143] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of July 31, 2024, with no material changes in internal control over financial reporting during the quarter - Based on management's evaluation, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[145] - There were no material changes in the company's internal control over financial reporting during the most recently completed fiscal quarter[146] PART II. OTHER INFORMATION Legal Proceedings Workday is involved in various legal proceedings and claims arising in the ordinary course of business, but management does not expect the outcomes to have a material adverse effect on its financial condition or operations - The company is regularly involved in legal claims and proceedings related to competition, intellectual property, data privacy, and other matters[148] - Based on current knowledge, management believes that the amount or range of reasonably possible liability from outstanding legal matters will not have a material adverse effect on the company's business or financial condition[148] Risk Factors This section details significant risks facing the company, including potential compromises of IT systems, reliance on third-party data centers, global economic volatility, intense competition, challenges with integrating new technologies like AI, and risks from its dual-class stock structure - Key risks include compromises of IT systems, unauthorized access to customer data, and failures of third-party technical infrastructure[151][153] - The company faces intense competition from Oracle and SAP, which have greater resources and long-standing customer relationships[157] - The use of new and evolving technologies like AI presents risks of reputational harm, increased litigation, and challenges with a rapidly changing legal and regulatory environment[164] - The dual-class stock structure concentrates a substantial majority of voting power with the company's Co-Founders, David Duffield and Aneel Bhusri, limiting the influence of other stockholders on corporate matters[197] - Global economic and geopolitical volatility could negatively impact customer spending, lengthen sales cycles, and adversely affect financial results[155] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities for the period and detailed its share repurchase activity for the three months ended July 31, 2024, totaling approximately 1.4 million shares repurchased for about $309 million - There were no unregistered sales of equity securities during the period[206] Issuer Purchases of Equity Securities (Three Months Ended July 31, 2024) | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | May 2024 | 279 | $240.49 | | June 2024 | 739 | $214.45 | | July 2024 | 369 | $227.28 | | Total | 1,387 | N/A | - As of July 31, 2024, approximately $59 million remained available for repurchase under the February 2024 Share Repurchase Program, with a new $1.0 billion program authorized in August 2024[207] Defaults Upon Senior Securities This item is not applicable as the company has not defaulted upon any senior securities - Not applicable[208] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[209] Other Information This section discloses that during the quarter, a director, Wayne A.I. Frederick, adopted a Rule 10b5-1 trading arrangement for the potential sale of up to 3,657 shares of Class A Common Stock - Director Wayne A.I. Frederick adopted a Rule 10b5-1 trading plan on July 12, 2024, for the sale of up to 3,657 shares of Class A Common Stock, with an expiration date of July 14, 2025[210] Exhibits This section lists the exhibits filed as part of the Form 10-Q, including the Restated Certificate of Incorporation, an offer letter, CEO and CFO certifications, and Inline XBRL data files - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[211]