Q2 2021 Workday Inc Earnings Call

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Gentlemen, thank you for standing by our conference will begin shortly once again, thank you for standing by our conference will begin shortly.

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Welcome to work day second quarter fiscal year 2021 earnings call. At this time, all participants are in listen only mode.

We will conduct a question and answer session towards the end of the cool and with that I'll now hand, it over Justin Furby Senior director of Investor Relations.

Welcome to workdays second quarter fiscal 21 earnings conference call.

On the call we have a deal bush free or co CEO.

John what Fernandez, our co CEO.

Robin Cisco or president and CFO.

Jumbo again, our vice chairman.

Impeach, Liam Burke Executive Vice President the product development.

Following prepared remarks, we will take question.

Our press release issued after close of market and is posted on our website, where this call is being simultaneously webcast.

Before we get started we want to emphasize that some of our statements on this call, particularly our guidance are based on the information we have as of today and include forward looking statements regarding our financial results.

Asian customer demand operations and other matters.

These statements are subject to risks uncertainties and assumptions, including those related to the impacts of the ongoing cobot 19 pandemic on our business and global economic conditions.

Please refer to the press release and the risk factors and documents, we file with the Securities and Exchange Commission, including our most recent quarterly report on form 10-Q.

Additional information on risk.

Uncertainties and assumptions that may cause actual results could differ materially from those set forth in such statements.

In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful supplemental measures of workdays performance.

These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP result.

You can find additional disclosures regarding these non-GAAP measures, including reconciliations to comparable GAAP results.

Our earnings press release, and all the Investor Relations page of our website.

A webcast replay of this call will be available for the next 90 days under a company website under the Investor Relations like.

Also the customers page of our website includes illicit selected customers and updated monthly.

Our third quarter quiet period begins October 16th 2020.

Unless otherwise stated all financial comparisons in this call will be to our results for the comparable period of our fiscal 2020.

With that let me hand, it over to Aneel.

[laughter]. Thank you Justin and welcome to Workday second quarter fiscal year 21 earnings Conference call.

This report that worked at delivered a strong second quarter, we sold the demand across all products areas and geography is.

Despite the challenging environment our success as a company continues to be driven by the Ford thinking companies don't expect more from their enterprise applications and she's worked answer partner for finance and HR.

I'm very proud of our workmates across the globe came together in such a remarkable way and mostly working from their home offices to drive these strong Q2 results.

We're obviously living and unique terms simultaneously now beginning to healthcare crisis, and economic crisis and social crisis.

This year will no doubt be one we will remember for all of our lives.

It's also a moment in time that businesses and their leaders are in a unique position to drive change pretty good and demonstrates that companies can and should have a so.

So that ends we have taken a leadership role in addressing social inequality, continuing to drive diversity and inclusion of work.

Helped none of US forward, we've recruited some of the most passionate and brightest minds from across workday.

And at solar energy guided by our Chief diversity officer currency or.

We afford guiding principles.

Number one building inclusive products and technologies.

For two hiring a developing diverse towns number three cultivating a cultural blogging and number four strengthening our communities are accelerator team is focused on helping us identified priorities that metrics.

Help us drive and measure success against these principles, we look forward to updating you on our progress in the near future.

Moving onto the business highlights we had another strong quarter for works HCM, where the migration to the cloud continues with notable customer additions, including air Lucky's IB State of Oklahoma, and German manufacturing leader decent group.

I'm also pleased to mentioned that we added one or largest us telecommunication services companies to our fortune 50 customer worst.

And there's always customer success remains a key differentiator for workday.

Q2, we had several it's Jim go lives, including General Motors, the Hartford, Eli Lilly Bridgestone Americas.

Turning to Workday financial management, we saw continued strong momentum across expanding product line in Q2.

Moving on financials first win at Comerica Bank and notable platform wins, where companies slipped at both core financials in HCM together, a sharp health care, the amenity collective and American financial group.

Among the many core financials go lives in the quarter I'd like to highlight Prisma helped in Nebraska medicine.

In addition, CFA and shelter insurance, both went lines as early adopters of Workday accounting center, new offerings at a serves as a key differentiator in several of our recent strategic core financials webs.

Im pleased to say that workday common center is on schedule to be commercially available. This fall.

In addition to the strong commercial success. This quarter. We also added the federal government agency with 4000 employees as a nation financials customer and this agency is partnering with us as we seek fed ramp authorization.

Indeed for many years, we are providing solutions for state local governments as well as numerous federal labs and deal de contractors and we view that several market as of next logical step in our market expansion. Our near term focus is on ensuring success with this initial partnership but we're excited by the longer term opportunity to serve the federal marketplace.

Turning some of our newer initiatives. We once again saw solid demand for expanding sweeter products that support the office of the CFO and Chief procurement officer coding Workday adopted planning prism analytics and spend management.

Where we now support more than 1000 procurement customers.

Scott RFP had another excellent quarter as companies are increasingly looking for the ability to get their arms around the supplier network and appreciate the rapid time to buy that solutions like shell to provide to them.

We need the three fortune 500 sourcing wins that we announced last quarter are all now lives and then production.

Turning to product development in Q2, we announced availability for workday help and Germans new solutions that extend the power of workday people experience our machine learning driven employee experience. In addition, we announced availability of people analytics, which leverages, our prism foundation to help empower HR business leaders to make better people.

Decisions. We also continue to help our customers with or returned to work planning during this time, including joint offerings with key partners.

As we announced that we had last quarter with Salesforce by the way congratulations on a great quarter, Mark and more recently with IBCM, where we announced availability of a joint solution to plan schedule and monitor our customers save returns in the workplace.

Last earnings call a share my belief that this environment will ultimately serve as another catalyst at solar is the adoption of finance and HR systems in the cloud our Q2 results and my conversations with business leaders. So just that companies are increasingly realizing the strategic importance.

Joel flexible systems to support their mission critical business processes now into the future.

Lastly.

Want to end on the exciting news that my great friend and colleague Chano Fernandez has been promoted to co CEO of workday.

And his expanded role channel will now oversee all of our customer facing activities, including sales customer services and support and many aspects of marketing charge on workday back to 2014, as our president of EMEA, let's take about more and more responsibilities over time, most recently as co president of the company.

He is an amazing values based leader and has driven us seems great success over the years, so move to co Ceos natural progression for him Workday and for me.

Personally thrilled to be as partner for this next chapter of Workday and for those of you have followed worked for a while you will hopefully remember that my co founder, Dave and I operate as co seals rules five years and remodel worked great for us and for the company I.

I wholeheartedly expect the cosio structural also worked great for China wouldn't be.

Congratulations China and a big thanks to you and your team for a great Q2 looking forward to being your partner for many years to come over to you.

Thank you Aneel I incredibly grateful to yourself days, an entire board for the trust you have placing me it's on mono.

Partnering with you what exception of where mates across the Gulf will not were exciting Jeremy Hey.

Before providing my update I wanted to begin by echoing on his comments I Express my stinks and appreciation to our sales team for a strong Q2.

I am pleased with our progress, especially into context. It helps the ongoing macro uncertainty any was did to see this solid performance across our segments Reagan's products.

Many businesses seem to be settling into these asserting environment and increasingly realizing the need to move for where we sit digital transformation initiatives. These along with our strong execution drove improving conversion rates in Q2 relative to what we experienced in the March April.

Thanks.

Our second quarter performance was broad based on included a strong results from both new.

Based teams in the large enterprise, we landed nine new real let's do so seeing H.C. and customers do real but the celsion themes deals.

We also saw strength as the patient and government team highlighted by doing a state of Oklahoma, and we have a growing pipeline state and local government opportunities.

The medium enterprise also had another solid quarter, continuing a more deepwater train.

From our raising our perspective, North America Netbacks were standouts and we had improved performance in Europe.

The back to based team delivered another solid quarter, we filler 50 or seeing growth again, this quarter driven by a strength across products, including morphine workforce on financial planning or using analytics leavening scout various be newly launched counting.

Okay.

It's early but we're also encouraged by pipeline creation from central footwear newest products, including help work they extend people analytics.

Going forward, we remain cautiously optimistic that market dynamics will its loaning to us we approach year and head into 22.

More importantly, we are extremely optimistic on the longer term opportunity that we can from these environment.

As a business is increasing and realize the importance of warranty navigating saving signs of change.

With that I would turn it over to our newly minted precedent robbing fiscal quarter throbbing over to you.

Thanks, John ill I look forward to continuing our partnership supporting you in your new Roe.

As a meal in China, both noted Q2 as a very solid quarter. Despite an uncertain environment driven by strong execution against a slightly improved market backdrop as many companies continue with our digital transformation initiatives.

I'm going to briefly recap our second quarter results.

Update our guidance for Q3 unemployed 21.

Then open up for your question.

Subscription revenue in the second quarter was 932 million at 23% year over year.

The outperformance was driven by strong renewals favorable new business linearity and a onetime benefit of $6 million for me acceleration of revenue on a customer contract.

Professional services revenue was 130 million and total revenue was 1.62 billion.

Total revenue outside the U.S. was 257 million, 24% of the total.

Subscription revenue backlog was 8.6 billion at the end of the second quarter growth of 22% year over year.

The backlog performance was driven by strong new HCV bookings across both net new an add on business.

In addition, we once again experienced strong renewals with gross retention over 95% and net retention, which include sales at the time of renewal over 100%.

Subscription revenue backlog that will be recognized within the next 24 month was 5.78 billion growth of 21%.

Our non-GAAP operating income for the second quarter was 258 million, resulting in a non-GAAP operating margin of 24%.

The operating margin outperformance was driven by a combination of topline overachievement slower hiring continued covered related moderation of operating expenses, including travel in marketing and some onetime credits related to cancel the events.

Due to operating cash flow was 157 million growth of 57% year over year, driven by solid collections and moderated spending.

We continue to work with customers, both new and existing that request more flexible payment terms, specifically in industries hardest hit by the pandemic.

This payment flexibility acts as a near term headwind to cash flow and unearned revenue. So it's important to keep in mind that it has no impact on our subscription revenue subscription revenue backlog or long term customer economics.

During the quarter, we settled our 2020 250 million dollar convertible notes using cash proceeds from the final funding of our term loan.

We exited our second quarter 2.8 billion of cash and marketable securities and have access to 750 million of unused capacity on our revolving line of credit.

Our total workforce at the end of the quarter was approximately 12300 employees slightly down from Q1.

Hiring in the quarter was focused primarily on a limited number of strategic positions to support our key growth initiatives.

This was offset by normal levels of employee attrition that had not yet been back filled by the end of the corridor.

We're extremely pleased with our results and execution in Q2, and while we remain cautious on the near term pace of recovery, we see significant long term opportunity ahead to support our growth aspiration.

Now turning to guidance, which despite our outperformance in Q2 continues to be governed by the assumptions, we outlined last quarter.

Specifically that we continue to face an uncertain and challenging environment, which we expect will remain in the near term with only slowly improving market dynamics as we approach yearend.

As a result of our strong Q2 performance, we are raising our f. why 21 subscription revenue estimate to be in the range of 3.73 billion to 3.74 billion, 20% to 21% growth.

We expect our Q3 subscription revenue to be 948 to 950 million 19% growth.

We now expect professional services revenue to be 525 million in fiscal 21, and 135 million in Q3.

As always our priority is to support our customers successful deployment and drive the highest levels of customer satisfaction.

In line with these goals, we expect a balanced approach in terms of partner and workday Prime to ensure our partner ecosystem continues to be healthy and active.

For Q3, we expect subscription revenue backlog growth in the high team.

We estimate Q3, non-GAAP operating margin to be approximately 19%.

For the full year, we now expect to non-GAAP operating margin of 18% up from our previous view of 16%.

Its full year margin improvement is largely the result of our topline over performance.

The GAAP operating margin is expected to be lower than the non-GAAP margin by approximately 26 percentage points in both the third quarter and the full year.

Our first 21 capital investments guidance remains unchanged at 280 million.

I'd like to close by thanking our amazing employees customers and partners for their continued support and hard work, which allowed us to deliver strong Q2 results. During these unprecedented times.

Our first half performance has reinforced our sense is a fundamental strength of our business and the long term opportunity, but we see ahead.

With that I'll turn it over to the operator to begin today.

Operator.

Thank you we will now be conducting a question and answer session you.

I'd like to ask some questions. Please press star one on your telephone keypad.

A confirmation telling will indicate your line is in the question of Q.

You may crest, starting to remove yourself from the Q for participants using speaker equipment and may be necessary to pick up your handset before pressing the star Keith.

One moment, please while we Paul for your question.

Okay.

Our first question has come from the line occur return of Evercore ISI. Please proceed with your question.

Yes, thanks, very much congrats on the quarter and congratulations to shawna on the promotion.

Well deserved.

I think about question is for Neil Neil I think there's some concern amongst investors that companies that were in the more traditional or back office categories, a software, maybe namely HCM and ERP would get shifted the back in line in terms of spending priorities due to Cove, Ed and I think with these results that thesis was clearly a bit faulty so I was.

I'm wondering if you could talk about how customers are thinking about workday relative to their other mission critical systems in terms of prioritization around spend and then why the conversations you're having today, maybe put you in a different category versus some of the traditional ERP vendors. Thanks.

Thanks for it so first of all I think the most important pieces were not an ERP vendor I think there's a lot of conversations with the ERP.

That are two to three year implementations that.

That the payback takes a long time, where were quick to implement HR and finance systems.

Really oriented towards employees and running the business and you know in a very agile environment. So on the HR side very simply.

With the pandemic and with all the other issues facing companies right now employees are front and center for everybody and you should think about HCM not just as a back office systems, but an employee engagement system, but also with the pandemic copies of hasn't changed their business processes radically changing them on a on a weekly.

Basis, and the legacy systems, just can't do that so.

So we saw some holdouts of companies that were working with legacy systems, just hey, we just need to make the plunge.

Going to the cloud, even though were the middle that pandemic.

Similarly on the finance side.

Its ability to source that starts to their planning system the ability to.

Recreate a generator clans on a on a really rapid basis based on the system adaptive that can go lives within a month.

And our core accounting system, where you can close the books without having anybody in the office completely remotely can be live in six to nine months and so I think.

I think.

Companies that are in a place to investor continue invest in this in these data transformation areas and they're embracing the cloud and.

Let me turn finance are still very important.

If I guess just a quick follow for Robynne Robynne, you mentioned, obviously that mostly outperformance on margins was serve due to the outperformance on the topline.

Or the change in guidance, rather was do that.

Forms on topline you in the back half the or do you expect to accelerate spent to accelerate hiring rather and and how should we think about sort of your your ability to.

Raised to spend more in the back half I guess are higher more in the back half. Thanks.

Yeah. So we said in the last call that we do expect to see slow improvements in Q4. So we've been planning all along to start reinvesting in the back half of the year and we continue to have that assumption. So we will start investing in areas like sales marketing product and technology.

As I mentioned before we did have some one time benefit in Q3 that we eat such as credits for canceled events. So we feel very good about our ability to invest in the back half of the year and execute against this investment plan.

Did pay off from that.

You know in the future.

Thank you.

Thank you. Our next question is coming from a line of Kash Rangan of Bank of America Merrill Lynch Merrill Lynch. Please proceed with your question.

Thank you very much congratulations on the work 15, when a fantastic quarter and congrats your channel on your promotion.

Question for you Aneel arch auto whoever wants to take this.

As you look at.

The causes workday, rising which has tended to be big event.

And if we ask you have together.

Serve as a great opportunity for building a pipeline how are you thinking about gotten to 21, assuming the calendar county is going to be just fine.

As far as the forward looking out of business. The buildup pipeline for makes good business initiatives and also if you can just spend a minute on we have been picking up in the field that there's pent up demand for integrated HCM financial system, but note that if you didn't do it.

You've got stuck isn't as a customer so how are you seeing that in your pipeline and what is the it's the adoption of financial center related with HCM into Fortune 500 segment of the market.

Is that poised to accelerate in calendar 2000, <unk>. Thank you so much in congrats.

I think China was the right person to answer those questions. So.

The first to the thanks co CEO. Thank you cash nights your nicely.

Yes.

So from from rising first that the if you youre right. We made the decision to feel it's on hold on pricing next year, which is hopefully assays to get to that it again instead, what we're doing you seem to have you seen especially on to eat anything that we as explore it most pressing challenges facing businesses right now, which we think is more appropriate at this time.

But I would latest went to highlight that rising.

Hi claimed been there for us it prime many OEM customers some latest stage as cash.

Right.

Glenn perspective kind of looking next year, we've seen man right not the to what we saw in Q1, which is encouraging and we're moving closer to treat called levels, but we are in jet white box beef from a pipeline perspective.

With that began scene, but here have been did hurt because we already called out like travel we thought at the retail.

There is little lateral areas I'm very encouraged by in terms of fighting built like what we're seeing a state on milk government vertical financial services technology media, a more broadly on up what installed base. The pipeline also down once you know a synergies faster, which can also maybe help for year end us there have been stuff.

Hi, Thanks to support day event.

Okay, well debacle just this year.

Out of the financial sub pent up demand, possibly financially, it's even the fortune 500 side, but the market if that is the case.

What we're seeing very no financials is that.

If you talk to some of our partners on we're seeing directly ourselves there on a number of evaluations going on.

At this point in time, so a we've seen signposts main clearly on the financial side is reflected as one undiscounted customers that we'd be name mentioning that as well we are expecting us and he was mentioning that as we turned a corner from call it through to the number of evaluations that.

Our hopping harping on taking place now EEMEA sintering getting all.

The environment remains certainty.

Cash.

Got to call out, but certainly you did it ended up with automation is out there.

How should increase on clearly companies have realized this environment.

Yes, actually D that and he was talking about that cannot be now need assistance.

Thanks, so much and hide robin as well.

Thank you. Our next question is something the line or Mark Murphy with JP Morgan. Please proceed with your question.

Thank you very much and that's how I know I wanted to.

Hey, Congratulations you've had the Midas touch in every single roll a that we've seen and just can't wait to see how it builds from from here.

I just had a question on the imprint of the pandemic on Workday financial because we've heard some any anecdotes of how modernizing finance is gonna be necessary from a survival standpoint, and I'm curious if that is overcoming the hesitation that we've always seen.

To to change of course system like that amidst a pretty uncertain environment.

Well I guess I'll just leave it at that.

No.

Yes, Mark.

Kind of would've been commenting with cash right. So what I can say that I think companies. This is anecdotal but are realizing that they need to more than rights and to finance will see stance against simultaneous having challenges remotely synergies you're having challenges to.

Basic you'd maybe changes required I can tell you call customers are attending the having people sneaky going to their business to Delano Sunday boards on being able to provide the finance of numbers right when they're all species, our close so clearly the the understanding in the need for the most Denise let's let me say shoney's there as you would.

Safe from our survive our perspective right to be able to accomplishing what these fast I would also again repeat myself, saying that said the number of evaluations that we are seeing out there on our partners seeing has increased with the financial sites again, we think caveats, Phil is difficult and DC eight healthy overall environment, which is quite uneven completed.

When it falls.

We might be expected that these my views on synergies you want your therein.

70 to say yet.

Thank you very much.

Thank you. Our next question has come from a line of Keith Weiss How are you Morgan Stanley. Please proceed with your question.

Excellent. Thank you guys for taking the question and a very nice quarter.

Question for a aneel and related to China. Congratulations on the under new role I know with trying to now becoming a co CEO you Apache in your role changing at all and how do you guys speak about kind of dividing up the responsibilities between the two you <unk> are you going to move into something that's like more strategic in nature.

I was going to be working on sort of the day to day operations or like how do you guys proceed that working with the Judy it's going to use now.

Well. So you know channel is taking on all customer services.

And a lot of marketing too and that's that's half the company and.

You know for me I'm I'm more of a product person and strategy person and I personally would like to get back to.

Working with our product teams and our and our venture teams and our strategy teams on.

Where we go with the future and then it's Super important that we maintain the.

The great culture that we haven't so working with employees is critical to so.

You know much like it was with with me and Dave.

Two like minded people are better than one in the CEO job and it was my best experience at work day, when Dave and I would co CEO, so I'm I'm thrilled to be able to.

Sure the wall, which auto and he's a much stronger operational leader than I am So he is going to.

Take over the things that are that he's really great up and overtime well, we'll figure it out were great friends and we'll we'll figure out the you know the right mix over time.

Okay.

Yeah go ahead.

I know you go first.

No no I was going I was a a close out China to comment on that too.

I'm very excited about the you know the opportunity clearly on everything for lessons hits on the I'm, Dave and the rest of the both I think we're quite complementary.

You know, we get to that in our own very well.

Good point of views on kind of each others say already asked but but 70, you know really really excited to be.

Contributing as much as income.

On the go to market.

Estimate relationship that's a whole from India, we see soon to customer success the services.

Okay with the support.

Driving the company going forward with as a political being them on the rest of the safety Committee things all I think it's a good oh verticals is one we have right now quite keen costs to be honest, but that allow us potentially to play to the strengths that we we both of us hop so.

That's great.

Yes, and no sounds good and if I can sneak one last one in China, you mentioned I'm encouraged by the strength, you're seeing the new products and you talked about workday extend oh, it seems like a pretty exciting solution set in that it can really expand the Tam pretty greatly for her work day can you talk to US one of that about some of the initial use cases and kind of workload.

Are you seeing people put on on extend platform.

I'm going to handle but as I went to position on the product because I think is much better placed to answer that one did.

Yeah. Thanks for the question. So first thing I would remind you is that extend is is more than a revenue opportunity for us it's an opportunity for us to.

Find ways to become more efficient in R&D, because as we provide these tools to our customers, they're able to extend workday in ways that they need in their unique situations and set them up having to actually go in and build product for them. So that's that's great not said Weve you know this quarter, we we've seen some great wins some great.

Early wins with a with extend and pipeline is looking great as well.

You know we've been.

Seeing lots of use cases, I think we have about 100 different applications live today.

One of them that just went live this quarter was a company that had built a self assessment capability inside of extended so employs consult assess as they were getting ready to return to work and determine whether they were running so extended about any type of use case, just extending the surface area of workday.

Okay. Thank you.

Thank you. Our next question has come from the line up Heather Bellini with Goldman Sachs. Please proceed with your question.

Great. Thank you so much for taking my question, then again chano congrats on the promotion I'm just I I had a question.

And I don't know Aneel or Robin. This is best for you, but just related to the pace of business throughout the quarter. You guys. Obviously had very good result, you gave you know rightly so conservative guidance for the quarter, but can you talk about kind of how the pace of business evolved over the course of the quarter.

If you could share with us and I just have a quick follow up thank you.

Robin.

Oh, yeah. So we actually had her had really good linearity. This quarter. So you know on our earnings call last time I'm, China had mentioned that he was starting to see more sales activity. In May then we had seen in April and we saw continued execution throughout the quarter strongly the equity, which Uh huh.

And to our topline beat.

And you know good close rates really strong close rate and the China anything you would add to that in terms of what you were saying.

No I see was just sunny performance throughout the quarter.

No I'd be part of course.

You know holistic water close all that's a whole or how to drill out completely straight line and there I'll say that every month with better winiarski, but generally the broad it'll show, finishing it doesn't seem army housing see marching April last week of mandate on housekeeping Hogan.

Right, but I said before it's not going remains to be down starting in the near term, which is all such little if they don't wear out right.

Again to be it seems like we have seen season, if articles that has been obviously.

Right right. Thank you and then Neil just a follow up on your introductory comments <unk>.

Do you think that's what we're going through and just the desire to have more modern systems. Do you think this will actually salaried people desire to move financials to the cloud I know that that's been a market that you can probably longer than people thought to really really make a wholesale shift or is this is this kind of an excel.

One of that trend you think based on what you're hearing.

I definitely think it is.

The need for agility flexibility.

Is so critical in today's world and you know maybe if you were running your business last couple of years and the word werent many.

External factors your core accounting system is probably fine, but well that she thinks the bigger driver for us it's the broadening.

Oh for five years ago, we would go in with.

Our core accounting messaging to the customer wasn't ready to replace core accounting.

You know we didn't have any also talk some about today, we can start with planning.

Do you have the conversation about core economy, but could talk about scout we've been talking about prism analytics.

We now have the end suite that to you know took a number of years the legacy vendors to build.

On premise and now we have it in the cloud and you know three four years ago. We just did we didn't have that scope or that breadth and today, we do and I think that's a big part of why people are moving then they don't want it just move their core accounting system. They want to look at procurement. They want to look at planning to what to look at analytics and and then you know increasingly now for certain sort of industries.

The work that accounting center.

So we had that altogether.

We now have.

A basket of products that meets the needs a pretty much everybody and they they can they can move for with comfort that we can cover their full needs not just not just one part of their needs and I really do you think the bigger driver.

Great. Thank you.

[noise] [noise] [noise]. Thank you. Our next question is when a line of Alex Zukin RBC capital markets. Please proceed with your question [noise].

Hey, guys. Thanks for taking my question congratulations on the quarter and try to really thrilled for you as well.

So maybe a Neil <unk> one of the interesting things and you touched on it I think in answering kirks question, but I wanted to dig a little deeper one of the interesting things. We've picked up recently in our field work is this increasing shift of power back to the HR executive and department to your point as more executives are getting concerned about employee engagement talent management mental health diversity.

Solution and this new kind of remote a world and I guess the question is what are you seeing from this are you seeing this in the field actually starting to impact sales cycles pipelines conversation and does this impact the secular growth trajectory of the H.C.M. business.

As we kind of come out of this crisis or longer term.

In terms of the secular growth I, that's a hard one to predict but I would say that.

Uh huh.

Well, but I've never I've never had so many CEO conversations on on the HCM product line.

And I think the issue of employee health mental health a physical health.

How are they doing working remotely or how are they worked on their projects. The this new world of skills and you know it different world around talent.

Become a number one priority so the CEO. So that is definitely elevating the CHF two or more.

Position within the company.

And then.

Maybe just one for for Robin can you talk about that 6 million dollar accelerated payment term and also any just FX impacts on kind of the guidance headwinds or tailwinds.

Yeah Sure said the 6 million was the result of a workday customer who was acquired by a non workday customer.

And therefore, they wanted to terminate their contracts at the pre paid the remaining balance of the contract which should have gone several more years and that caused an acceleration of the rest of the revenue across the contract. So you know one time event I'm on that front and I am sorry, Alex It was the second part of your question.

No just related to FX in terms of the tailwinds or the headwinds with respect to the guide.

Yeah, really no no FX impacts to call out.

Perfect. Thank you guys and congrats again.

Well now take two more questions.

Our next question is something a lot of Matt Pfau with William Blair. Please proceed with your question.

Hey, Greg on the quarter guys and thanks for taking my question wanted to ask on Workday launch in the expansion of the solution a large enterprises and maybe first of all is is this a response to perhaps the demand for faster time to value solutions driven by Cove. It or is this something that was sort of always in the works freak over there.

Then what's the scope of this in terms of the type of large enterprises that could potentially use work they've launched to to get up and running thanks.

Uh huh.

Yeah. Thanks for your question, Montana, I mean, he was always kind of on the works once the knowledge was more proving I mean day immediate winter price across the board on clearly that offering was basically the resulting good outcomes in terms of both fine to body lump W.P. a cost.

So the idea was always to expand to be more out there fair archon did a price by nowhere more on the nowhere and large enterprise.

Customers that you could say something today at 4007 to 8000 employees kind of what we are implementing it is each can be across all back because once you have basically they say she will stay of the full offering and again, we provide both the main d., but tying to body lumpiness of any.

Last Sunday select 60 basis.

And does it do anything to your market opportunity in terms of potentially accelerating adoption are reaching customers that you can reach previously.

He can he can definitely help on on those customers that are looking for more.

Crossties on if you don't frame that will impact faster, we get ROI, we kept trying to body and I'm also on those customers that are looking for a fixed cost sometimes in terms of the opening of the limitation.

Okay, So definitely accelerated let's start with those markets where bike.

Great. Thanks, guys appreciate it.

Thank you. Our next question has come from the line of Scott Berg with Needham and company. Please proceed with your question.

Hi, This is Ryan Macdonald on for Scott Berg, Thanks for taking your questions and congrats on a great quarter could you provide a little more color on the on adaptive sales and the continued traction you see there compared maybe but those strong results you saw in Q1 and then also help pipeline is looking into the back half the year for that.

[noise] tell me what no.

Yeah sure thanks to the quite thanks to the question Ron So.

We continue to make excellent progress with adaptive and I'd characterize it as a first of all love straight selling a workforce planning into the of workday. The broader worked a customer base I think that's an area that our teams have seen avago success. This environment.

Really you know a increases the importance of the criticality of doing effect of workforce planning for many organizations, whether it be location headcount planning skill planning training diverse. They I think those are all aspects that are important to our customers, but we've also seen yeah.

Significant increase in interest in getting in modern financial planning systems for organizations that are I think we talked last time.

About.

The customer activity running multiple scenarios you know because kogut.

Perhaps not same levels, but that continues as customers think about their business and rum CAPNA towards that are essential to understand what their businesses are doing going forward.

So we've seen strong customer demand, that's a Neal said adaptive and scout both have rapid times to value and that's a that's important in this environment.

Excellent and then just as a follow up for Robin on rather than just wondering if you've seen requests for flexible payment or billing terms from customers persist through second quarter, and I guess and early third quarter here at all.

Yeah. So we continue to see those requests we got an initial wave when could fit first hit and you can imagine, but we do continue to see request from customers.

Some new customers, we see some requests upon renewals we continue to evaluate those on a case by case basis and to get released where it may.

I have to our hardest hit customers and I do expect if that will likely continue through the rest of this year [laughter].

Excellent. Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This will conclude workday second quarter 2021 earnings call. Thank you again for joining us.

[noise].

[music].

Okay. Dr question and answer session towards the end of the call and with that I will now and it over to Jocelyn Furbee senior director of any dresser relation.

Welcome to work day second quarter, if that's cool 21 earnings conference call.

On the call we have ideal butchery Arco C E O.

Fernandez Arco C E O.

Robin Cisco, our president and CFO.

Combo again or vice chairman.

In Peach land or executive Vice President the product development.

Following prepared remarks, it'll take questions.

Our press release was issued after close to the market and it posted on our website, where this call is being simultaneously webcast.

Before we get started we want to emphasize that some of our statements on this call, particularly or guidance are based on the information we have as of today and include forward looking statements regarding our financial results applications customer demand operations and other matters.

These statements are subject to risks uncertainties, an assumption, including those related to the impact of the ongoing Cove at 19 pandemic on our business and global economic conditions.

Please refer to the press release and the risk factors in documents, we file with the Securities and Exchange Commission, including our most recent quarterly report on form 10-Q for additional information on risk uncertainties and assumptions that may cause actual results to defer materially from those set forth ends up statement.

In addition, during today's call, we will discuss <unk> financial measures, which we believe are useful at supplemental measures of workdays performance.

Vietnam got measures should be considered an addition to and not as a substitute for or in isolation from gap resolved.

You can find additional disclosures regarding these non got measures, including reconciliations with comparable gap results in our earnings press release, and all the Investor Relations page of our website.

The web cats replay of this call will be available for the next 90 days on our company website under the Investor Relations link.

Also the customers page of our website includes the list of selected customers ended updated monthly.

Alright third quarter quiet period begins on October 16th 2020.

Unless otherwise stated all financial comparisons in this call will be to our results for the comparable period of our physical 2020.

With that let me hand, it over to a meal.

[laughter]. Thank you Justin and welcome to work day second quarter, Cisco, You're 21 earnings conference call.

Police report that worked at delivered a strong second quarter withheld to demand across all products here isn't geography's.

Despite the challenging environment are successful the company cause she has to be driven by the for thinking companies don't expect more from their enterprise applications and she was worked as her partner financing H R.

I'm very proud of our workmates across the globe came together in such a remarkable way and mostly working from their home officers to drive the strong you too results.

We're obviously living in unique times sample town, so now I'm getting a health care crisis, and economic crisis social crisis.

This year old no doubt B, one we remember for all of our lives.

There's also a moment in time their businesses and their leaders or in a unique position to drive changed very good and demonstrated that companies can and should have a soul.

To that and we have taken a leadership role an address and social inequality I'm teaching him to drive diversity and inclusion I worked at.

Help move US forward, we've recruited someone the most passionate and brothers finds from across work day.

Sort of energy got hit by our Chief Diversity Officer parents here, we have for guiding principles.

Number one building inclusive products and technologies.

[noise] to hiring in developing diverse talents.

Three cultivating a cultural belonging.

Number for strengthening our communities.

Our accelerator team is focused on helping us identify priorities are metrics. They will help us drive and measure success against these principles. We look forward to updating you on our progress in the near future.

Moving onto the business highlights we had another strong quarter for work the H M or the migration to the cloud continues with notable customer editions, including <unk> I'd be the state of Oklahoma and German manufacturing leader piece recruit.

I'm also please dimension that we added one of the largest U S telecommunications services companies to Unfortunately 50 customer list.

Yeah, there's always customer success remains a key differentiator for work day and.

Cute you we have several age Jim go lives in crude in general Motors, the Hartford, Eli Lilly and Bridgestone America's.

Turning to work day financial management, we saw continued strong momentum across the expanding product line in Q too.

[noise] financials first winter Co America Bank, and notable plethora wins, where companies slipped it both court financials, an H M. Together at sharp health care humidity collective and American financial group.

Among them any core financials go lives in the quarter I would like to highlight prison My health in Nebraska Medicine.

In addition, CNA and shelter insurance Boltzmann line does earlier doctors I've worked at accounting center, new offering the Serbs is a key differentiator and several of our recent strategic court financials webs.

I'm pleased to say that worked at accounting center, Arizona scheduled to be commercially available. This fall.

In addition to the strong commercial success. This quarter. We also added a federal government agency with 4000 employees is named salmon financials customer and this agency is part of it with us as we speak bedroom authorization.

For many years when you provided solutions for state and local governments as well as numerous federal labs and D. O D contractors and we'd be able to several market is the next logical step and our market expansion are near term focuses on ensuring successful. This initial partnership but we're excited by the longer term opportunity to serve the federal marketplace.

Turning to some of our newer just lives and once again saw solid demand for expanding sweet of products that support the office of the CFO and Chief procurement officer encoding workday adopted planning prism analytics and spend management.

Now support more than 1000 procurement customers.

<unk> had another excellent quarter as companies aren't Christians I'm looking for the ability to get their arms around the supplier network and I appreciate the wrapped in time to value that solutions like Scouts you provided to them.

Indeed, the three unfortunate 500 sourcing Wednesday, we announced last four are all now lives in in production.

Turning to product development, and Q2, we announced availability for workday help and journeys new solutions that extend the power of workday people experience machine learning driven employee experience.

<unk> availability of people analytics, which liver does are presumed foundation telephone power HR in business leaders to make better people decisions. We also continue to help our customers with their returned to work planning during this time, including join offerings with key partners such as the announcement, we had last quarter, which salesforce by the way congratulations on the great.

Mark and we're recently with IBM, where we announced the availability of a joint solution to plan schedule and monitor our customer safe return to the workplace.

<unk> call I sure my beliefs Circus environment will ultimately serve as another cabalistic soldiering adoption or financing HR systems in the cloud are cute too results of my conversations with business leaders suggest that companies are increasingly realizing the strategic importance I'm, having agile flexible systems to support their mission critical business processes.

Now in in the future.

Lastly.

I want to end on the exciting news stomach great friend and colleague tunnel Fernandez has been promoted to Cove C O a workday.

And it was expanded role channel and that will receive all of our customer facing activities, including sales customer services and support and many aspects of marketing channel trying to work day back in 2014 is our president of them, yet and it's taken out of more and more responsibilities over time, most recently as co president of the company.

He has an amazing values basically there is driven as teams great success over the years. So the move to Cove C O as in natural progression for him for work day and for me.

Personally thrilled to be his partner for a snack childproof workday and for those of you have followed worked there for awhile you will hopefully remember that my co founder, Dave and I, operator, co seals for almost five years and the model work right for us and for the company.

I wholeheartedly expect the coaxial structure will also were great for China wouldn't be.

Congratulations Toronto and a big Thanks to you and your team for a grant Q too I'm looking forward to being your partner for many years to come over to you.

Thank you anyway.

Could I think really grateful to yourself <unk> on the entire board or the trust you have placing me it's owner.

Partner with you with exceptional workmates across the Gulf.

<unk> journey.

Before providing my update I wanted to begin by echoing onions comments unexpressed, My stinks appreciation <unk> teen for a strong key too.

I am pleased with all our progress, especially in the context of the I'm going macro uncertainty I name was get to see the solid or four months across that were segments <unk>.

Many businesses seem to be settling into this starting environment I mean, basically realizing they need to move for what we say a detailed transformation initiative.

Along with that with a strong execution <unk> Racine cute do relative to what we experienced in the March April 9th Street.

Our second order or four months Bliss broke base and included a strong results from both Neil.

<unk>.

In the latching there priced we landed nine robots to salad Saint H C M. As in there robot Selsyn things deals.

We also silly strength.

<unk> and government team highlighted by doing at the state of Oklahoma, and we have a Boeing pipeline state and local government opportunities.

The medium enterprise also hot I know, there's Sunday quarter, continuing a multi border train.

From my reading, our perspective, North America in APEC, whereas standouts and we had in there for months in Europe.

The box to bass theme the neighborhood I know, there's Sony quarter, we silver 50 or sing growth again these clutter.

[noise] by a strength across the products and clothing or fins workforce on financial planning or anything analytics learning Scout RSP newly lounge counting center.

It's early but we're also encouraged like I blanked creations from <unk> newest products, including help.

They extent people and I didn't <unk>.

Going for where we remain close shouldn't be optimistic at market dynamics Willis no need to as we approach yeah, and I hit implant like 22.

Importantly, we are extremely optimistic on the longer term opportunity that we've come from this environment as business. They seem pretty soon you realize the importance of work day navigating I'm saving science of change.

With that I would turn it over to our newly minted Preston robbing Cisco Congress robbing over to you.

Thanks Channel I look forward to continuing our partnership according you and your new <unk>.

As in England, China. Both noted two two is a very solid quarter, despite and uncertain environment driven by strong execution against the slightly improves market backdrop as many companies continued with their digital transformation initiative.

I'm going to briefly recap our second quite a result.

Update our guidance for Q3 in FY 21, and then opened it up for your question.

Subscription revenue in the second Carter was 932 million at 23% ear every year.

The outperformance was driven by strong renewals favorable new business linearity and at one time benefit of $6 million from my acceleration of revenue on a customer contract.

Professional services revenue was 130 million and total revenue with 1.062 billion.

Total revenue outside the U S with $257 million, 24% of the total.

Description of Avenue backlog with eight six O.

At the end of the second quarter because of 22% ear every year.

The backlog performance was driven by strong new ACD bookings across both net new and add on business.

In addition, we once again experienced strong Reynolds with gross retention over 95 per cent and net retention, which includes sales at the time of renewal over 100%.

Subscription revenue backlogs that won't be recognized within the next 24 months with 578 billion growth of 21%.

Or non gap operating income for the second quarter with 258 million, resulting in a non gap operating margin of 24%.

The operating margin outperformance was driven by a combination of topline over achievement.

Slower hiring continued covered related moderation of operating expenses, including travel and marketing and some one time credits related to canceled events.

You too operating cash flow was $157 million cause I'm, 57% year over year, driven by solid collections and moderated spending.

We continued to work with customers, both new and existing that request more flexible payment terrible specifically and industries hardest hit by the pandemic.

This payment flexibility X as in near term headwind to cash flow and unknown revenue, though it's important to keep in mind that it has no impact on our subscription revenue subscription revenue background or long term customer economics.

During the quarter, we settled or 2020 $250 million convertible using cash proceeds from the final funding of our term lamp.

We exited our second quarter with two $8 billion of cash in marketable securities and have access to $750 million of unused capacity on a revolving line of credit.

Our total workforce at the end of the quarter was approximately 12300 employees slightly down from Q1.

Hiring in the quarter was focused primarily on a limited number of strategic positions to support our key growth initiatives.

This was offset by normal levels of employee attrition that had not yet been backfill by the end of the quarter.

We're extremely pleased with our results in execution into too and while we remain cautious on the near term pace of recovery, we say significant longterm opportunity ahead to support our growth aspiration.

Now turning the guidance, which despite our outperformance and killed continues to be governed by the assumptions, we outlined last quarter.

Specifically that we continue to face and uncertain and challenging environment, which we expect will remain in the near term with only slowly improving market dynamics as we approach here and.

As a result of our strong cue to performance, we're raising our FY 21 subscription revenue estimate to be in the range of $373 billion to $374 billion, 20% to 21% growth.

We expect our Q3 subscription revenue to be $948 million to $950 million, 19% correct.

We know expect professional services revenue to be $525 million in fiscal 21, and 135 million and Q3.

As always our priority is to support our customers successful deployment and drive the highest level of customer satisfaction.

In line with these goals, we expect a balanced approach in terms of partner in workday Prime's to ensure our partner ecosystem continues to be healthy and active.

Four Q3, we expect subscription revenue backlog growth and the high team.

We estimate Q3 non gap operating margin to be approximately 19%.

For the full year, we know expect a non gap operating margin of 18% up from our previous view at 16%.

Is full year margin improvement is largely the result of our topline over performance.

The gas operating margin is expected to be lower than the non gap margin by approximately 26 percentage points and both the third quarter and the full year.

R. F Y 21 capital investments guidance remains unchanged at $280 million.

I'd like to close by thinking are amazing employees customers and partners for their continued support and hard work, which allowed us to deliver strong cue to result during the unprecedented times.

Our first half performance has reinforced our confidence and the fundamental strength of our business in the long term opportunity that we see ahead.

With that I'll turn it over to the operator to begin Q&A.

Operator.

Thank you we will now be conducting the question and answer session.

I'd like to ask some questions. Please press star one on your telephone keypad.

A confirmation telling them will indicate your line isn't the question Q.

He may press star to to remove yourself on the cute for participants using speaker equipment and make me necessary to pick up your hands that before pressing the star Keith.

One moment, please while we Paul for your question.

Alright first question was come from the line of Kirk return a Evercore ISI. Please proceed with your questions.

Yes, thanks, very much congrats on the quarter and congratulations to <unk> on the promotion.

Well deserved.

I think my question is for Neil Neil I think there were some concerned amongst investors that companies that we're in the more traditional back office categories of software, maybe namely HCM and ERP would get shut up to the back of the line in terms of spending priorities due to cove, It and I think with these results that thesis was clearly a bit faulty so I was.

Wondering if you could talk about how customers are thinking about workday relative to their either mission critical systems in terms of privatization around spanned and then why the conversations you're having today, maybe put you in a different category versus some of the traditional ERP vendors. Thanks.

Oh, thanks for it so first of all I think the most important pieces were not in ERP vendor I think there's a lot of connotations with ERP.

That are two to three year implementations that.

That the payback takes a long time, we're quick to implement HR and finance systems.

Really oriented towards employees and running the business and and a very agile environment. So on the HR side very simply.

With a pandemic and with all the other issues facing companies right now employees are front and center for everybody and.

And you should think about HCM not just says.

Back office system, but an employee engagement system.

But also with the pandemic companies I've had to change their business processes radically and they're changing them on a on a weekly basis and the legacy systems just can't do that.

So we saw some holdouts of companies that we're working with legacy systems, a Saturday, we just need to make the plunge and.

Go into the cloud, even though we're in the middle of a pandemic.

Similarly on the finance side.

The ability to start surfing, they're planning system the ability to.

Recreate and generated plans on on a really rapid basis based on the system adaptive that can go live within a month.

And our core accounting system, where you can close the books without having anybody in the office completely remotely can be live in six to nine months and so I think.

I think.

Companies that are in a place to investor continued invest.

And these data transformation areas and there are embracing the cloud and.

Oh, you're charged finance are are still very important.

If I could have just a quick call for Robyn Robyn you mentioned, obviously that mostly outperformance on margins was due to the outperformance on the top line.

Or the change in guidance, rather was doing that.

Four months on top line in the back after the or do you expect to accelerate spent to accelerate hiring rather and and how should we think about serve your your ability to.

Raised to spend more in the back after I guess or hire more in the back up thanks.

Yeah. So we said and the last call that we do expect to see small improvements in Q4. So we've been planning all along to start reinvesting in the back half of the year.

And we continue to have that assumption. So we will start investing in areas like sales marketing products in technology and as I mentioned before we did have some one time benefits in situ.

Pete such as credits for cancelled event. So we feel very good about our ability to invest in the back half of the year and to execute against his investment plan.

Did pay off from that.

In the future.

Thank you.

Thank you. Our next question is come from the line of cash Ranket Bank of America Merrill Lynch Merrill Lynch. Please proceed with your questions.

Thank you very much congratulations I'm divorced 15, let a fantastic quarter and congrats your channels on your promotion.

Question for you any of our childhood whoever wants to take this.

You look at you use it causes workout rising which is send it to be.

That's.

Okay, I forget together with serve as a great opportunity for building a pipeline how are we thinking about kind of 21, assuming that calendar 20th.

Gonna be just fine.

As far as the forward local.

Business to build a pipeline from Mexico business initiatives and also if you can just spend a minute on.

We haven't picking up into the field that there is pent up demand for I upgraded H T M financial system with the code that if you didn't do it.

You got stuck as a customer so how are you seeing that in your pipeline and what is the adoption of financial it's integrated with H T. M. In the fortunate farmers segment of the market.

Is that poised to accelerate and Calvert to 21. Thank you so much and congratulations.

I think China was the right person to answer those questions. So.

The furniture Kosta yeah. Thank you cash nice nice one [laughter].

So from throwing a rising perspective, you you're right. We made the decision to people it's on hold off pricing onto the next year with cheese, hopefully safe to get together game I instead of what we're doing this interview seeing especially all detail event that we'll explore most pressing challenges spacey business is right now, which we finished.

At this time.

But but I would like just went through the highlight of rising.

Pipeline been there for us it primary all year theories customers Sunday just statement.

From from a pipeline perspective, I kind of looking up the next year, we've seen both men relative towards the sewing coupon which is encouraging.

<unk> three coffees levels, but we haven't get quite back disease from a pipeline in perspective.

With the biggest seem quite hear being diversity cause we already callout.

Travel, let's be thought it'd be retail.

A lot of Irish I'm very encouraged by in terms of by the Bill.

What we're seeing it stayed on no cause the government Archie call financial services technology media Ah more broadly installed <unk> pipeline also <unk>.

<unk> cluster of which kind of so maybe be helpful for us.

Type thing.

D E V.

Day of the back of this year.

Kind of the financial sub depend on demand, possibly.

<unk> H T M unfortunate five two sides of the market if that is the case.

What we're seeing right now financial.

If you if you talk to some of our apartment or something we're seeing indirectly ourselves there on a number of evaluations going on at this point in time. So we've seen shiny proof main clearly on the financial Sytem is reflected as one of the south the customers that we've been named mentioning that is what we're expecting us and he was mentioning that as we turned a corner from cover.

Two two the number of evaluations better are happening harping on taking place now in May Asiderite getting all.

The environment remains the same thing.

Fluids cash so it's difficult to call out, but Saturday did a number of evaluations out there.

Has increased on killing companies have realized it's environment that need for that flexibility agility that in English talking about it that cannot be.

Houston.

Thanks, so much and hide Robyn as well.

Thank you. Our next question is come from the light of Mark Murphy, just J P. Morgan. Please proceed with your questions.

Okay. Thank you very much and ciano I wanted to.

Gratulation you've had the Midas touch in every single role.

We've seen and just can't wait to see.

How it builds from from here.

I just had a question on the imprint of the pandemic unworthy of financial because we've heard so many anecdotes of how modernizing finance is gonna be necessary from our survival standpoint.

And I'm curious if that is overcoming the hesitation that we've always seen.

Two to change of course system like that amidst a pretty uncertain environment.

Well I guess I'll just leave it at that.

Donna.

Yes, Mark.

Kind of would've been commenting with cash right.

What I can say that I think companies and this is anecdotal at our realizing they need to pull that right from the financial assistance again simultaneous having challenges because people can remotely synergies you're having challenges too.

Basically made the changes require I continue calm customers that are attending.

People sneaking onto their business to download some divorce being able to provide the finance of numbers right. When they are lcc's are closed so clearly the understanding and the need for the most of it wasn't me Stacey only Sir as you would say from.

Perspective, right to be able to accomplish penalties fast.

I would also again repeat myself, saying that the number of evaluations that we're seeing out there on our partners scene has increased from the financial sites again with the caveat so.

<unk> anticipate holiday overall environment, which is quite uneven absolute is when a bold.

We might be expecting that despite previews incineration with you there and.

Saturday to say yet.

Thank you very much.

Thank you. Our next question is coming from the line to pay for White collar you Morgan Stanley. Please proceed with your question.

Excellent. Thank you guys for taking the question and very nice quarter.

Question for annealing and related to China, Congratulations on the new rule.

Trying to now becoming a cushy you mentioned your role changing at all and how do you guys speak about kind of dividing up the responsibilities between the two you.

Are you going to move into something that's like more strategic and you're trying to is gonna be working on sort of the day to day operations or like how how do you guys proceed out working with you idiots because he is now.

Well, so channel was taking on all customer services.

And a lot of marketing too and.

That's half the company and.

For me I'm I'm more of a product person and strategy person and I personally would like to get back to.

Working with our product teams in our in our venture teams and our strategy teams on.

Where we go with the future and then it's Super important that we maintain the.

Great culture that we have and so I'm working with employees is critical too so.

Much like it was with me and Dave.

To like minded people are better than one in the CEO job and it was my best experience at work day, when David <unk>, So I'm I'm thrilled to be able to.

Sure the wall with channel and.

Much stronger operational leader than I am so he's going to.

Take over the things that are that he's really great up and over time.

We'll figure it out where great friends, and we'll figure out the right mix overtime.

I think I said.

Go ahead, sorry go ahead.

Oh No you go first.

No no no I was good.

I would like childhood, a comment on that too.

I'm very excited about the <unk>.

The opportunity Kimberly I'm very thankful as I said toenail update on the rest of the both I think we're quite complimentary yam.

And we get to their own very well.

Good point of views I'm kind of each other areas but.

But certainly trailed it really excited to be clever contributing as much as a combo.

Throw a vehicle to market customer relationship as a whole throne de-acquisition too customer success services.

To support.

Driving the company going forward with this robbing them under recipe Acerbity comedy theme. So I think it's a good.

Nobody counts the one we have right now quite clean cut to be honest, but but allow us potentially to play to the strength that we we both of us <unk>.

That's great.

No that sounds great.

If I can sneak one last one.

China you mentioned.

Courage by the strength that you seem to new products and you talked about workday extend.

It seems like a pretty exciting solution said in that it can really expanded damn pretty greatly for for work day can you talk to this one is that about some of the initial use cases and kind of workload is that you're seeing people put on on the extent platform.

I'm going to handle but I went to peevish snapped from the product because I think that's better place to to answer that will fit.

Yeah. Thanks for the question. So first thing I would remind you is that extend is is more than a revenue opportunity for us it's an opportunity for us to.

Find ways to become more efficient and R&D because as we provide these tools to our customers. They are able to extend worked in ways that they need in there unique situations instead of us having to actually go and build product for them. So that's that's great that said we've.

This quarter, we we've seen some great when some great.

Early wins with with extend and pipeline was looking great as well.

We've been.

Seeing lots of abuse cases, I think we have about 100 different applications live today.

One of them that just went live this quarter was a company that had built a self assessments capability inside of extend so employs consult assess as they were getting ready to return to work and determine whether they were ready so.

Extended about any type of use case, just extending the surface area of work back.

Okay cool thank you guys.

Thank you. Our next question is comfortable the line up Heather Bellini with Goldman Sachs. Please proceed with your question.

Great. Thank you so much for taking the question then again, China Oh, Congrats on the promotion just I I I had a question.

And I don't know and he'll or Robyn that this is best for you, but just related to the pool since business throughout the quarter you guys. Obviously had very good resolved.

Right wing, so conservative guidance for the quarter, but can you talk about kind of how the place of business.

Of all over the course of the quarter. If you could if you can share with us and I just have a quick follow up thank you.

Robin.

Yeah, So we actually Heather had really good linearity this quarter.

Earnings call last time, I I'm trying to had mentioned that he was starting to see more sales activity in may and we had seen in April and we saw continued execution throughout the quarter strung linearity, which added to our topline beat.

And good close rates really strong clothes rates and China anything you would add to that in terms of what you were seeing.

No I think it was a sonic performance throughout the quarter.

And that'll be part of course.

Holistic quarter close all of us a whole.

It's hard to draw completely straight line in there I will say that every month, but better linearity, but generally they probably don't check my checking account the environment Hassium, let's see March or April we commend data getting proven city and state right.

Except before if I could remains familiar sort of thing in the near term, which is O <unk>.

Without the price.

Again convenience in fact, we have seen season <unk> has been put landscape.

Great Great. Thank you and then you'll just to follow up on your introductory comments.

Do you think that's what we're going through and just the desire to have more modern system can you think this will actually accelerate people desire to move financial to the cloud I know that's been a market that's taken probably longer than people thought to really really make a wholesale shift is this is this kind of an accelerant.

And all that trend when you think based on what you're hearing.

I definitely think it is.

The need for agility flexibility.

Is so critical in today's world and.

Maybe a few or whether your business last couple of years and there weren't many.

Extra factors your core accounting system is probably fine.

But I actually think the bigger driver for us as the broadening.

Four five years ago, we would go in with.

Cora counting message and that's the customer wasn't ready to replace court counting.

We didn't have anything else to talk to them about today, we can start with planning.

You can have the conversation about court county, but we could talk about scout, we could talk about prison analytics.

We now have the <unk> sweet.

It took a number of years, so legacy vendors to build.

On premise and now we have it in the cloud three four years ago. We just did we didn't have that scope for that breath and today, we do and I think that's a big part of why because we're moving that they don't want to just move their corporate accounting system. They want to look at procurement. They want to look at planning they want to look at analytics.

And then.

Really know for certain sort of industries.

Accounting Center.

So we had that altogether.

Now have.

A basket of products that needs to needs a pretty much everybody and they can they can move forward with comfort that we can cover their full needs not just not just one part of it.

I really do you think that's the bigger driver.

Great. Thank you.

Thank you. Our next question is coming from an online of Alex Chicken RBC capital markets. Please proceed with your question.

Hey, guys. Thanks for taking my flesh and congratulations on the quarter in China really thrilled for you as well.

So maybe O'neill one of the interesting things and you touched on it I think in answering Kirk's question, but I want to dig a little deeper one of the interesting things we picked up recently in our field work is this increasing shifted power back to the HR executive in Department to your point is more executives are getting concerned about employee engagement talent management mental.

Health diversity included in in this new kind of remote.

World.

The question is what are you seeing from this are you seeing this on the field actually started impact sales cycles pipelines conversation and does this impact a secular growth trajectory of the HCM business as we kind of come out of this prices or longer term.

In terms of the secular growth that's a hard one to predict but I would say that.

Alright, well, but I've never I've never had so many CEO conversations on on the HCM product line.

And I think the issue of employee health.

Mental health physical health.

How are they doing working remotely how are they working on their projects.

This new world of skills and.

Different worlds around talent.

Become a number one priority so the Ceos. So that is definitely elevating the C. H M O two a month.

Physician within the company.

And then.

Maybe just one for for Robyn can you talk about that $6 million accelerated.

Payment term and also any.

Just FX impacts on kind of the guidance headwinds or tailwind.

Yeah sure. So the $6 million was the result of a workday customer who was acquired by a non workday customer.

And therefore, they wanted to terminate their contracts so they prepaid the remaining balance of the contract which should have gone several more years and that caused an acceleration of the rest of the revenue across the contract. So one time event on that front and I'm sorry, what was the second part of your question.

No just related to FX in terms of the tailwind or the headwinds.

With respect to the guide.

Yeah really no no FX impacted Colorado.

Perfect. Thank you guys and congrats again.

We all know take two more questions.

Our next question, Wisconsin the line of mass Val William Blair. Please proceed with your questions.

Hey, congrats on the corner guys and thanks for taking my question wanted to ask on Workday launch in the expansion of the solution a large enterprises.

Maybe the first of all is this a response to perhaps the demand for faster time to value solutions dripping by Cove. It or is this something that was sort of always in the works pretty cove. It and then what's the scope of this in terms of the type of large enterprises that could potentially use workday wants to get up and running thanks.

Hello.

Yes.

For your question Mutt I mean, he was always kind of on the works one's knowledge was proving.

Enterprise across the board on clearly the adult framework, resulting include out punch in terms of both <unk> W. D of course, so the idea was always to expand to upbeat more updated out there on vouch enterprise nowhere morland nowhere and a large enterprise.

Customers that you could say something today that 4007 to 8000 employees kind of what we are implementing it is can be across all of our T costs.

You have basically the if I can sensation of day of the full offering and again will provide both the main demob title Badiola based of any.

Cause Sunday some of 60 basis.

It doesn't do anything to your market opportunity in terms of potentially accelerating adoption or reaching customers that you can reach previously.

He can definitely help on on those customers that are looking for more.

<unk> that will impact Buster weekend, Roy we kept trying to audio I'm also on those customers that are looking for a fish cause sometimes in terms of the opening of the implementation hospital. So pricey, so definitely can be an accelerator monsanto's Marcus blanket.

Great. Thanks, guys I appreciate it.

Okay.

Thank you. Our next question is come from the line of Scott Bird with need them in company. Please proceed with your questions.

Alright. This is wrong Mcdonald's on for Scott Bird, Thanks for taking our questions and congrats on a great quarter could you provide a little more color on the adaptive sales and the continued traction you see there compare if maybe you could those strong results you saw on Q1, and then also how pipeline is looking into the back half of the year for that.

You want.

Yeah sure.

Thanks have a question Ron so.

<unk> continued make excellent progress with adaptor.

[noise] characterized as.

First of all the strength selling workforce planning into the workday, the broader workday HTM customer base.

That's an area that our team sustainable Bob of success.

[noise] environment really.

Increases the importance of a criticality of doing effective workforce planning for many organizations, whether it be location head count planning skill planning training diversity I think those are all aspects that are important to our customers, but we are also seen.

Significant increase in interest in getting modern financial planning systems for organizations.

I think we talked last time.

About.

The customer activity running multiple scenarios.

<unk>.

Perhaps Bob same levels for that continues as customers think about their business. Some rum combinatorx that are essential to understand what their businesses are doing going forward.

So we've seen a strong customer demand Neal said.

<unk> and scout both have rapid times to value.

And that's that's important in this environment.

Excellent and then just as a follow up for Robyn a rubber I'm just wondering if you've seen request for flexible payment or billing terms from customers persists through a second quarter and I guess into early third quarter here at all.

Yeah. So we continued to see this request we got an initial wave winco firsthand as you can imagine, but we do continue to see request from customers.

Some new customers, we see some request upon renewals we continue to evaluate those on the case by case basis and to give relief when it makes sense.

To our hardest hit customers and I do expect that that will likely continued through the rest of this year.

Excellent. Thank you.

Ladies and gentlemen, thank you for your participation on today's conference that will conclude workday second quarter 2021 earnings call.

Thank you again for joining.