Taking a closer look at the results, WDAY generated $0.24 in EPS, comfortably topping the $0.15 Capital IQ Consensus. The degree of the EPS beat is roughly inline with its recent history of beats, which ranges from $0.08-$0.13. Gross margin did slip a bit to 73%, mainly due to a decline in its professional services margin. However, during the conference call last night, management stated that this was a normal seasonal decline due to costs associated with its annual Altitude partner conference.
In terms of the topline, revenue jumped 41% year/year to $525.3 million, easily exceeding the $507.4 million consensus. This marked the fourth quarter in a row in which WDAY has generated 40%+ subscription revenue growth. The growth has been driven by a combination of new customer adds, as well as increased investments from existing clients.
Regarding new customer wins, WDAY had several notable ones in the quarter. For instance, in its HCM (Human Capital Management) suite, it added Nordstrom, Qualcomm, and Humana to its client list. In fact, WDAY now has more than 30% of the Fortune 500 under its umbrella. And of that list, 17 are in the Fortune 50.
Additionally, the company had a solid performance from its Financial Management & Planning segment too. While growth has been more moderate in this business line, WDAY stated that it is seeing an increasing number of signs that indicate the financial market is growing more comfortable with cloud applications, much like CRM and HCM have.
Outside of the main headline numbers, it generated operating cash flows of $15.1 million for the quarter, totaling an impressive $376.4 million over the past twelve months. Free cash flow was a negative ($23.4) million, but, this was communicated by the company in its guidance last quarter. The reason is due to a combination of seasonally low collections combined with a seasonally high increase in expenses due to the annual employee compensation cycle.
WDAY also raised its FY18 outlook, guiding for subscription revenue of $1.75-$1.757 billion. For Q3, it guided for subscription revenue of $450-$452 million, representing growth of 33-34%. That would be a deceleration from its recent growth rates, but, the company is lapping some difficult comparisons from the year ago period.
All in all, it was another impressive performance from WDAY and the stock is responding accordingly.