News of the Week (August 21 - 25)

News of the Week (August 21 - 25)

17 min read

1. Earnings Roundup

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a) Workday (WDAY)

Results vs. Expectations:

  • Beat revenue estimate by 1.1% & beat guide by 1.1%.
  • Beat EBIT estimate by 6.8% & beat guide by 8.1%.
  • Beat $0 GAAP EBIT guide by $36.3M.
  • Beat $.01 GAAP EPS estimate by $.29.
  • Beat $1.26 EPS estimate by $.19.

Full year Guidance:

  • Raised full year subscription revenue guide by 0.3%.
  • Raised full year revenue guide by 0.2%.
  • Raised EBIT guide by 2.2% while raising EBIT margin guidance as well.
  • Raised GAAP EBIT margin guide by about 50% while raising GAAP EBIT margin guidance as well.
  • Reiterated $1.65 billion free cash flow (FCF) guide.

Next quarter guidance was slightly ahead across the board.

Balance Sheet:

  • $6.6B in cash & equivalents.
  • $3B in debt.
  • Diluted shares up 4% Y/Y while basic shares rose 2.7% Y/Y.

Results Context:

  • Gross revenue retention remains over 95%.
  • Workday is a vendor for over half of the Fortune 500.
  • Its 19.1% 3-year revenue CAGR compares to 18.3% Q/Q and 19% Y/Y.
  • Timing of cash collections and expenses propped up margins a bit this quarter.

Macro:

Budget scrutiny continues to hold back growth, but leadership praised its sales team’s ability to overcome that challenge by staying “close to customers.” Its domestic pipeline is healthy and points to a strong second half of the year while recent product events abroad are showing signs of building a robust international pipeline. Early renewals were ahead of estimates while contract duration lengthened to offer evidence of macro headwinds easing. This, according to leadership, is thanks to the mission critical nature of its platform, its vendor consolidation capabilities and the aforementioned strong sales team execution.

AI:

Workday spoke on its human centric approach to AI and how its massive data set is an ideal asset to participate in the wave. Still, it will not directly monetize the products it’s working on here. It will take more of an Amazon approach by indirectly enjoying expected boosts to win and renewal rates thanks to the incremental value. AI/ML inferences rising 60% Y/Y illustrates how this strategy is working. It’s also pleased with the developments in the EU on its planned AI act. The proposed legislation “includes many Workday suggestions” in it.

Customer Wins and Expansions this Quarter Included:

  • Airbus, Dell, Nike, Rite Aid and 7-11 expansions.
  • New wins with customers like the University of Florida.
  • Retail and Hospitality is the company’s  second customer group to reach $1 billion in annual recurring revenue (ARR) (joining financial services).

b) Intuit (INTU)

Results vs. Expectations:

  • Beat revenue estimate by 2.7% & beat guide by 2.7%.
  • Beat -$0.28 GAAP earnings per share (EPS) estimate by $0.60 & beat guide by $0.64. GAAP EPS rose from -$0.20 to $0.32 Y/Y.
  • Beat $1.44 EPS estimate by $0.21 & beat guide by $0.20. EPS rose from $1.10 to $1.65 Y/Y.
  • Beat EBIT estimate by 8.6%.

Initial Fiscal Year 2024 Guidance:

  • Met full year revenue estimate for about 11% Y/Y growth.
  • Beat EBIT estimate by 1.3%.
  • Beat $8.87 GAAP EPS estimate by $0.65.
  • Beat $15.96 EPS estimate by $0.36.
  • The guide was called prudent in response to uncertain macro.

Next quarter guidance was slightly weak across the board, but the upbeat full year guide makes that less concerning.

Balance Sheet:

  • $3.6B in cash & equivalents.
  • $6.1B in debt. $4.2 billion is due within 15 months and the company is exploring refinance opportunities to ladder out these maturities.
  • Roughly stable share count Y/Y.
  • Dividend payments rose 15% Y/Y.

Results Context:

Q3 is seasonally strong for Intuit’s business model as it coincides with the U.S. tax filing season. The Q/Q growth for this reason is irrelevant. Over a 3-yr period, Intuit’s revenue compounding of 14.2% compares to 26% last quarter and 21.5% 2 quarters ago. Small/Medium Business (SMB) and self-employed revenue growth led for Intuit at 21% Y/Y while Credit Karma revenue fell 11% Y/Y as macro headwinds hurt its lending and insurance businesses. It’s seeing stability across Credit Karma’s products and still is confident in 20%-25% annual growth for the segment.

AI:

Intuit’s AI approach is similar to many other large tech companies that are not directly operating in the model or app building segment. It plans to use its treasure trove of customer data to transform its tax, accounting and other tools from requiring significant manual work to requiring none. To this company, AI means automation.

With 100 million customers, thousands of relevant financial data points per account and integrations with industry leading large language models (LLMs) (as well as its own), it’s easy to see how Intuit will infuse more value into its suite over time. This won’t simply come via more automation, but by gleaning unique cross-selling data to offer better access to its offerings. For example, if I know your cash flow data, I can probably approve a loan for you more frequently and at lower rates.

Mailchimp:

While Mailchimp is largely considered a poor acquisition, the company is still LEADING with this offering as its main go-to-market tool as it expands into new geographies. Paid customer growth continues to accelerate while quarterly retention set a 2 year high this quarter. Maybe Alex Chriss (PayPal’s new CEO) wasn’t so silly to want to buy this after all. They did overpay, but the product seems to be plugging in very nicely to the rest of the business. Revenue here rose by a mid-teens percentage Y/Y.

Intuit is now adding generative AI tools to Mailchimp to fully automate campaign creation and real-time promotions. As an aside, Mailchimp’s full year of revenue contribution vs. 3 quarters in fiscal 2022 added 3 percentage points to its 24% full year, company-wide growth rate.

License-Based Desktop Transition:

Intuit is moving its license-based desktop customers to recurring subscriptions while it raises desktop pricing to accelerate this change. It’s 2/3 of the way through the transition which will serve as a tailwind to its online ecosystem growth next year as it wraps up the shift.

Final notes:

  • Tax season timing volatility has led to some odd seasonality in its results since 2019.
  • TurboTax will expand into business taxes.
  • Will spend $700 million in deferred debt payments next year which will be a margin headwind.

c) Autodesk (ADSK)

Results vs. Expectations:

  • Beat revenue estimate by 2.2% & beat guide by 2.2%.
    • Its 13.9% 3-yr revenue CAGR compares to 12.7% Q/Q & 13.6% 2 Qs ago.
  • Beat EBIT estimate by 6.9% & crushed FCF estimate.
  • Beat GAAP EPS estimate by $0.17 & beat guide by $0.20.
  • Beat EPS estimate by $0.18 & beat guide by $0.19.