Q3 2021 Workday Inc Earnings Call
[music].
Welcome to work day, <unk> third quarter fiscal year 2021 earnings conference call.
Hi, all participants are in a listen only mode. We will conduct a question and answer session towards the other calls and with that I would now hand, it over to Mr., Justin Furby, Vice President of Investor Relations. Please go ahead Sir.
Thank you operator welcome for Workday 20.
<unk> GAAP.
On the call we have Aneel Bhusri Chano Fernandez, our co Ceos, Robynne sisco, our president and CFO Tom.
But again, our vice chairman and Peach lamp executive Vice President for product development.
Following prepared remarks, we will take questions.
Our press release was issued after close of market and is posted on our web site for 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 applications customer demand operations and other matters.
These statements are subject to risks uncertainties and assumptions, including those related to the impacts of the ongoing COVID-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 risks uncertainties and assumptions that may cause actual results to 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 as 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 results.
You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and on the Investor Relations page of our web site.
The webcast replay of this call will be available for the next 90 days on our company website under the Investor Relations Link also.
Also the customers page of our website include the list of selected customers and is updated monthly.
Our fourth quarter quiet period begins on January 16th 2021 I'm.
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.
Thank you Justin and welcome to Workdays third quarter fiscal 21 earnings conference call.
I hope all of you joining us they are in good health I know your families for doing well. We've worked encouraged by the recent news regarding vaccines coming to market early next year.
We also know we can't lose sight of the fact that we find ourselves in a particularly difficult phase for this pandemic.
The health himself safety of all people its most important as we navigate these uncertain times.
I'm very proud of our team who continue to support our customers. Despite the challenges that persist.
And remain very optimistic about workday suppose pandemic future.
As we know business leaders are facing a myriad of different challenges right. Now indeed, we are experiencing a health economic and social crisis simultaneously there's.
There's a lot of uncertainty in the world that requires conversation and collaboration.
That's why in October we gathered global change makers together with our cost for community for virtual that we called conversations for a changing world.
We heard inspiring talks for the likes of screening Williams released for this phone, David Cameron and Trevor Noah.
And I was personally excited to have my friends and fellow Ceos, including Edina free minimum NASDAQ Chuck Robbins of Cisco assumption the dialog Microsoft Joyner event to share their thoughts on leadership and how they are dealing with the challenges of today.
Received excellent feedback on the event for more customers and prospects. Many of you mentioned some important takeaways.
First we heard the call that business leaders simply cannot opt out at this moment companies have to lean in and be part of the solutions that address the most pressing issues that our society is facing today.
Many other conversations also touched on diversity and inclusion and a growing commitment to re skilling the global workforce at workday, we need to continue to be a driving force for the question of opportunities in this digital economy for everyone not just a few.
And from a technology perspective, there was a common theme underpinning the conversations are event.
View that a must have ingredion for organizations going forward is to have a strong digital foundation and now is the time to accelerate that transition.
With this increased focus on digital acceleration we.
We believe that the flexible foundation and solutions that work it off for our uniquely suited to the needs of businesses. In these times built natively for the cloud where people at the center of all of our solutions with that view as a backdrop, let's jump into our Q3 results.
I'm pleased to report that workday delivered a solid Q3 as organizations increasingly look to the cloud to drive change for in these dynamic times. Indeed, our customers are using workday solutions to digitally accelerate and move their businesses for well also serving as our biggest advocates for new customers, helping others realize the power of workday navigate.
Their organizations through any environment.
To that end, we had another strong quarter for workday HCM with notable customer additions for the quarter, including Novartis drop King's speech.
C B C Bank, a fortune 500 telecommunications company.
And second all he just ropey our first notable win in Mexico since entering that market earlier this year.
We also celebrated several notable HCM go lives this quarter, including Walmart, who is now live across its 1.7 million employees globally and what we believe is the largest multi tenant worldwide cloud HCM deployments.
Also our strategic partner Accenture went live with Workday HCM and is now serving its more than half a million global employees.
Other notable Q3 go lives include U P S and general electric.
Turning to Workday financial management, we saw continued momentum across for applications portfolio and I'm pleased to say, we reached 1000 customers that have chosen workday for core finance.
Q3 financial management wins include the state of Washington University of Central Florida Fifth third Bank, The New York Times and Extendicare.
Amongst the many core financials go lives in the quarter I would like to highlight been sick or mercy health and progressive insurance.
We once again saw solid demand for our expanding suite of products that support the office of the CFO and chief procurement officer, including Workday adaptive planning prism analytics and spend management.
I'm also happy to share that we now have fully integrated scout RFP into the workday organization and have rebranded as workday strategic sourcing, which is part of our spend management pillar that is being led by scout co founder and CEO, Alex you could be which.
The team had a record quarter several big wins at Fortune 500 accounts that included a biopharmaceutical company, a food distributor and a large grocery store chain with over 100000 employees.
Turning to product we delivered our latest major update in September which include availability of workday talent marketplace, enabling employers with skilled space talent matching to connect people with relevant work in growth opportunities. We also announced the availability of Workday accounting center and more intelligent planning capabilities, both milestones and are continuing.
Investments for the office for the CFO.
And lastly, with our focus on value inclusion belonging in equity or five we announced five central and Vive index to solutions provide the organizations with critical insights to drive positive change in building a workforce that's as diverse as the world.
In closing I would like to thank our employees customers and partners, who continue to push us for despite these extremely challenging times as I look ahead to the other side of this pandemic my optimism for workday at our ecosystem couldn't be higher.
With that I'll turn it over to my friend and co CEO Chano Fernandez over to you China.
Thank you Aneel before providing my update I would like to once again, thank our field umbrella their services teams for another solid performance in Q3.
I'm pleased with the continued progress that we have made this year, especially in the context of the ongoing.
I know I will walk me I'm sure you get burned off our customers for us when you safe to do so in person.
But in the meantime, we are focused on building a maturing pipeline growth seen deals and successfully implementing a supporting customers all fully there chwalk way.
For the second quarter in that role, we simple investment rates exceed our expectations as if any sales continued to boost for work with their HCM and financials digital transformations. We have several other <unk> E weighted index their water, including multiple robots those housing.
Seeking ways, a fortune 500 port speeds when I speak said.
What accounting center once again late I mean for example, a notable HR themes lots for wins, you're not ready to pay shell Goberman team is there.
The meeting went their price also hot I know there is strong water I'm from a geographic perspective, the U.S. and adopt free yards were standouts.
We have no last few years in flow were focused go to market push we think our installed base I am very pleased with the success has to do that.
For the fourth quarter in the role our installed based team generated 50 per cent blast growth, new ACB bookings driven by strength across products, including morphine finance just some works for signing basically not only decreased net earning on workday study.
Source.
Mueller products, including accounting center Workday extent on people analytics on to getting to that or for all.
The irony were excited about their long term prospects.
I worked for part it sounds good deal for US starting in Q4, and we don't expect is 50 per cent less growth to persist going for but we still see significant opportunity to drive meaningful growth for a lot when installed base sales team for many years to GAAP.
As we head into Q4, we remain cautiously optimistic we continued to face near term impacts the net newbies, but she could that mean starting industries. So we have seen a strength in the store base theme.
Partially offset ace and were encouraged by improvements in our bottom line.
As we prepare for next year, we are increasing the pace of outerwear sales a marketing investment.
We believe now is the time to do so because we see a meaningful opportunity on the other side up calling on we're investing now just GAAP utilized on that opportunity.
With that I would turn it over total are pressing CFO robynne sisco over to you Robby.
Thanks, John.
Neil in China, both noted we executed well in the third quarter driving strong result, as many companies continue to pursue strategic HR and finance transformation, despite the uncertain environment.
Subscription revenue in the third quarter was 969 million a 21% year over here with the outperformance driven by favorable linearity and strong retention, which remained over 95% on a gross basis and over 100 per se on a net basis.
Professional services revenue was 137 billion and total revenue was 1.106 billion.
Revenue outside the U.S. was 272 million or 25% of the total.
Subscription revenue backlog with 8.87 billion at the end other third quarter growth of 23% year over year.
The outperformance was driven by better than expected booking strength in our installed base, James partially offset by net new business headwinds.
In addition backlog benefited from a year over year increase in contract duration, which we do not expect to persist in Q4.
Subscription revenue backlog will be recognized within the next 24 months was 5.94 billion growth of 21%.
Our non-GAAP operating income for the third quarter was 268 million, resulting in a non-GAAP operating margin of 24%.
The margin outperformance was driven by a combination of top line Overachievement.
Can you covered related operating expense savings and more back end loaded hiring versus expectations.
You free operating cash flow was 294 million growth at 14%.
As a reminder, we continue to work with our current interest customers that require more flexible payment terms, which remains a near term headwind to cash flow and unearned revenue. So it has no impact on our subscription revenue subscription revenue backlog for a long term customer economics.
We exited the third quarter with 2.9 billion of cash and marketable securities and have access to an additional 750 million through our unused revolving line of credit.
Our total workforce at the end of the quarter was approximately 12400 employees.
We expect our hiring to pick up in the fourth quarter, and then ask why 22 across all areas, primarily in sales and marketing and R&D as we invest for future growth.
We're extremely pleased with our results and execution in Q3, particularly given the challenging environment and we see significant longer term opportunity ahead to support our growth aspirations.
Now turning to guidance, which despite our outperformance in Q3 continues to incorporate the near term uncertainty we see in the market.
Our updated for 21 guidance is as follows.
We are raising our EPS for 21 subscription revenue estimate to be in the range of 3.773 billion to 3.775 billion for 22% growth.
We expect our Q for subscription revenue to be 991 to 90 to 93 million 18% growth.
We continue to expect professional services revenue to be 525 million in fiscal 21, and 121 million in Q4.
For Q4, we expect subscription revenue backlog growth of 14% to 16% as we faced a very difficult comparison for a strong Q4 last year.
We estimate Q for non-GAAP operating margin to be approximately 15% as we expect to increase our pace of hiring and our marketing and brand investments.
For the full year, we now expect to non-GAAP operating margin of 19%.
The GAAP operating margin is expected to be lower than the non-GAAP margin by approximately 26 percentage points in both for fourth quarter and the for year.
Right, that's why 21 capital investment guidance remains unchanged at 280 million.
We are still in our planning process for us why 22, and because the near term uncertainty remains higher than normal we plan to provide guidance. After we get through our very important for Q4.
Keep in mind, however that while we have seen some recent stability in the underlying environment headwinds due to cope with remain particularly to net new bookings.
And given our subscription model these headwinds that have impacted us all year well be more fully EBITDA next year subscription revenue weighing on our growth in the near term.
From a margin standpoint. This year, we have demonstrated for long term scalability inherent in our model.
Investing for growth remains priority number one however, and it quite 22, we expect to increase our pace of hiring across all areas, but with a focus on sales marketing and product investments that are specifically targeted at accelerating pipeline growth.
In closing I'm incredibly proud of all our Workmates, who have remained focus on helping our customers, allowing us to deliver strong results. During these turbulent times.
With that I'll turn it over to the operator to begin the queue in line.
Operator.
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At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to move your questions from the queue for parts.
Since using speaker equipment, it may be necessary feed a pick up your handset bill for pressing the star key one moment, while we poll for questions.
Our first question comes from the line of Kirk Materne with Evercore ISI you May proceed with your question.
Thanks, very much and congratulations on the quarter a net.
Ill in shot I was kind of curious you guys mentioned sort of the bookings outlook is getting better you feel good about pipeline build you have conversations started to get a little bit more.
I'll be just about the long term, meaning you know things are definitely still not normal today, but when people are making investments on your technology, they're making you know decade long investment. So I was just kind of curious about how you feel about the confidence in sort of the pipeline build you know maybe versus three months ago, and what do you think needs to happen so that on the net new sales.
Right, Yeah that starts to pick up meeting what are people talking to you about like Hey, we just need to know is it another quarter. Another six months just kind of curious what do you think needs to happen you. Other kind of you know get back to full guns are blazing on that front. Thanks.
Well so so the you know the first.
First comment I'd make is a it really depends on which industry you're talking to there.
There are a number of companies that are.
And whether the storm retailers to come.
For these and as much as possible there trying to get back to some level of normal even though we know we're in the we're and frankly, probably the worst part of the pandemic consist seems like we figured out how to work in the pandemic.
And those those conversations are indeed, a very similar to what they were pretty pandemic and people are very focused on digital acceleration and growth.
Got that future state on the platform side, but then we do have customers, who are who are really being impacted by Michael that whether they're in hospitality or.
For transportation and for them. They are still on the sidelines and and I think you know that there will be a there'll be a few outliers here or there, but I think the.
The best way to look at it is the world is trying to get back to normal, but there's a couple of sectors that are having a hard time getting back to normal.
Okay.
And then maybe if I could just had one follow up for Oh go ahead, John Im sorry.
I was going to say were trying to line when I think.
No I think that's summarized it well I think from my perspective, we continue to see improvements relative to the south to fund any day.
And while it's early we're starting to see some of the new where products are having a positive impact that so feel good about what we have in key for cycling on the maturity of the deciding.
I wasn't quite fine asset growth was Oh, that's on Yonah, but of course, we remain cautiously optimistic looking Atlanta for what's Gonna hopping line.
And so with the second wave for call. It helps et cetera are moving slower.
[laughter], if I could add one comment though Kurt.
You know there's just there's been some other companies have talked about how there it's been slow down in the back office I don't I don't share that point of view.
Thank you for your legacy provider, where most of your revenue is coming I think people if anything are saying like I really got to get off those legacy platforms and.
And so so so for us.
There are there are definitely companies and their their product line for us that I think are actually being accelerated by by the pandemic, where people just want to get off even faster than what they were planning on getting off before.
That's helpful and I guess, just one quick follow up for Sean I'll just around the sales in hiring comments are there any particular product areas into other geographies that you see could you know that theres, a big opportunity, where it's more of a function of just not having enough sort of sales bandwidth I was just wondering if any maybe one or two here either geography its indoor.
Product line has come up I realize you're going expand everywhere, but anything that stands out for you on that front.
[noise], well, where are you, making investments carrying a number of areas. We can so some marketing is more to help out where growth there for us I run the store base for especially the world markets, including eyewear, Amy Bush in other countries medium into price some of the vertical markets as well, we're moving forward, we finance sales.
On day, and settles down you would areas like fended uncalled for me, so I'd say speed across the board right, but from a go to market perspective for us and we're seeing today I say to my script that now is the time to do so so we kinda stressing our pipeline for next year and maybe into your after.
I'm basically copy dice and those investments.
Okay, great. Thank you all.
Our next question comes from the line other Mark for Murphy with JP Morgan You May proceed with your question.
Yes, Thank you and I'll add my congrats Aneel just on that last comment you made I'm curious in a year or two when we look back on the response to the pandemic do you think it will have been larger tailwind for the H.C.M. side of the business because companies.
Have to adjust to remote workforces and all the re skilling or do you see it more on the financial side because of a greater need to.
Compress planning cycles, and you know close the books remotely in other words, where do you think the pain has been more acute or is it more on the HR side or more on the finance side.
You know I think it's going I think it's going to play out differently for for the different product area. So for HR ever.
Everybody is worried about employee engagement and remote workforce is right now and so you know we continue to see.
A very strong Oh continued momentum in HR and finance, we had an excellent quarter showing finance, but I do believe there are some bigger projects that are being.
Held off until post pandemic and so you know that the idea of starting a big project debt a fortune 500 company.
We're getting those but probably not as much as I think we'll get post pandemic and I think I think when people come out pandemic, they'll say I want to get rid of every legacy piece of technology I've got.
Got to move into the income.
This world of agile.
Agile flexible systems that that support all different kinds of work environments, and then with our financial system, we have been able to close books remotely I.
I would say the one the one area that continues to be very strong.
The finance side is planning because people are under a lot of pressure to to come up with a new plans on a regular basis I don't know how many times, we've gone through a new planning cycle for some and then it started but it's such a fluid challenging environment. So it's putting a lot of pressure on planning and I think that that is driving that need for for financials and then another area that we.
We're seeing.
A strong except.
Acceptance is actually in the area of Scout and procurement I guess people are trying to get a handle on their supply chains and their cost during during this environment. So but I didn't core accounting is going to have a pop post pandemic.
Okay, Great and net Robin if I can sneak in just a very quick one and with the understanding that you are holding off on the guidance is this this 14% to 16% subscription backlog growth guidance for Q4, I I Arithmetically I feel like perhaps if that's a reasonable starting point on unmet how we.
Maybe you could think about subscription revenue growth in fiscal year 22, just given you know that'd be the glide path that exiting the year and it's a pretty big bookings number right that that's kind of waterfalls into the out year.
I mean is there anything you would say to kinda dissuade us from <unk> at a high level just thinking about it along those lines.
Oh.
Well Mark I would just say that you know obviously, we'll be in a better position to talk about halfway trying to subscription revenue. After we get through Q4, particularly given how uncertain. The environment is in the backlog guidance as I mentioned before considers our tough compare from Q4 of last year, where we accelerate in both net new bookings growth and backlog growth and weak for.
Face that tough compare an environment, where we still see net new business wins.
Right now we're focused on continuing to execute well for Q4, well really have a better view an f. free 21 on our next earning call and we'll share that with you then.
Great. Thank you.
Our next question comes from the line of David.
James with Honda Ford You May proceed with your question.
Yeah, Hey, thanks, guys. So aneel I think you hit on this a little bit last question right, but the challenge that we're hearing from exacts today is around kind.
Kind of employee engagement and preserving culture during the pandemic and look I think a lot of that falls in the suite C suite, but but some of it also to the HR. So I'm curious if there are opportunities.
That that or other considerations that kind of influence how you think about your ATM product roadmaps.
As you know work from home or work from anywhere kind of becomes more permit.
Well you don't.
I've said this in the past if there are trends that are are you.
Beginning to take hold to be for a you know an economic downturn in many cases, they tend to get accelerated.
And I'm talking to like telemedicine being one of those where telemedicine had been around for a long time.
Pandemic kits and all of a sudden it's exploding.
This idea of a talent marketplace first internal and external is one of those areas for us where if you're in a low higher mode. As a company you trying to get work done you really trying to understand the skills you have amongst employees what skills for they need to add with Reskilling again, and learning and ER and how can you source.
That work that work that needs to get done from your from your existing employee base for this idea of a talent marketplace. It's definitely gains traction and the idea of this gig work or a project based work I think it's getting traction faster because of.
Because of the environment and I'd throw a I'd throw a rescheduling into that as well the other the other piece is much is much deeper understanding of trying to get a sense of how employees are feeling about.
Their work environment, we all heard mental health as an issue in the workforce today.
Even the remote working so.
Within prison and within our our people analytics, we can do sentiment analysis and get a sense of.
You know what the polling questions that we do out of her HR system get a sense of how people are doing and I think you will see.
More investment from us in a in a fairly significant way in employee engagement to really understand how were doing as you know company by company, how were doing or how they're doing a relative relative to engage in their employees in a positive way.
GAAP and I've heard out one last thing is the big investment we're making in.
In our <unk> and sharing our bide our.
Our vibe work value value inclusion blogging inequity, creating an index.
Helping companies get a handle on their diversity and how that can be better.
And that definitely has been accelerated by you know.
For the environment, we live and so quite actually quite a few changes as a result of this.
Herman.
Yeah, Yeah, no that makes sense and if I could ask maybe one quick follow up for it for China any way to frame kind of what percentage of new customer relationships land outside of core HR today, and maybe how that compares to say two years ago or something when the product portfolio is narrower.
I mean, clearly there is a David there is a higher percentage nothing out there today under strain is anything. It's just that are 18 bowls, we seeing net new customers to ask what we see now were installed base customers for some of those that were any city HCM customers are moving more to the financial signal and that is to me.
Got wrong core accounting insistence on core find out it's just where we announced we had heat housing customers, but I think even most important as well that means that those are nice I'm I'm happy I'm definitely we have no maybe more levers penetrate the officials to see a fall we are planning on for.
For pure me and those are really helping customers navigate James These times that so we've been talking about how many more finance sign shiny worsening starting even our sales to customers. We today. So clearly all of those products are giving us a bigger h. and and you know they're more lending in the area.
Non deal fees and to see it falls on debt, where before that's again, where I would for 40 is for all their uncertainty Dean Tracy's, that's what on the customer for them, we know that because he sees things moving do simple things like those in debt books for most of the items, having flexible on a giant kind of systems to help them navigate these time has significantly increased honestly.
Said before when I see on the pipeline, we remain cautiously optimistic that there's going to be et cetera for slowly on to that strength that we're seeing right now.
Yes, okay, great. Thanks for taking my questions.
Our next question comes from the line other Alex Zukin with RBC you May proceed with your question.
Hey, guys. Thanks for taking the question maybe just the first one for for you Aneel and Charnaux, yes.
Yes, yes.
Clearly the installed base selling is is inflecting. This year, 50% growth is quite quite an achievement I guess, what where are we in that journey in terms of the as we look to Q4 and beyond how much room left is there in terms of installed base monetization and if we think longer term.
Maybe aneel like when does that new HCV headwind start to turn I know you know I'm not asking you to predict the the course of the pandemic, obviously, but just when you wouldn't use it as easy as when you start comping.
You know some of the the total that impact the quarters for next year or do you see something changing before then.
Yeah, I'll address the product for the product component I Hope I hope the idea of.
So based showing just continues to get stronger and stronger because we're adding more and more skews to the portfolio that we can go back to our customers are happy.
They've been made a bet on workday there are more things, we can do for them.
And so you see it in.
Additional skews were bringing to market. The most recent one being.
The total marketplace, but also the workday accounting center, so we're constantly coming with skews.
To to offer to our installed base in terms of the sales motion and how that works for I'll leave that to China.
Yeah, but you should think of you shouldn't think of the product line is static you should think other product line is as ever growing because there's still there's a lot of opportunity in HR for new modules and there's tons of opportunity and findings for new modules.
Yeah, I completely agree with Aneel, Alix and hope you're doing well I mean, there are many many new solutions that are that we brought to market lately I mean, even come close moving token where theyll be sourcing are you seeing even for all that's like learning or freezing analytics and workforce planning theres still file.
In terms of a definitive patient ratios that we see in one day areas like <unk> like clearly favorable to the north South if I were more penetrated products. These day and we're adding new products may help people than anything else. So what are they saying so we had a we had a great opportunity going forward are there in terms of how do we see on day net new site.
I mean clearly for lead a you know of course next year, I mean, especially the H. One we have 70 better calls nishu call well what has happened. This year certainly as you know we see that that you know south enough downhole, the going away would help us out, especially in the us but in the rest of world.
I'm, obviously, you know some of these new products, even to penetrate new customers that south that basically different levers that we didn't have to day majestically, scoring charter for finance sales I'm definitely last but no need for each we you know it sounds that these rational for more mostly heat 30 pest today, hopefully we have a a theater.
And moving up better place.
Clearly as we get into a world with their each day.
The other side of it and if I see on average they don't know right. So those vertical for US we will be opening up I mean, obviously some of the new markets that were open.
Like federal.
So we'd be contributing so yes. So there are a number of levers that would say hey, you know the price of the world. That's only sound all side definitely more and more risky use somebody new industries or they seem to season tends to be nearing 10, so that'd be not be much asked me if I may make but it would be opening again hopefully get into cost next year.
Makes sense and then maybe just a quick one for Robynne.
See if you you talk about the kind of investing for growth a.
Strategy, which which makes a lot of sense given all the things that you just mentioned, but I guess from a 50 I know, we're not guiding but if you look at the margin expansion. This year clearly are they going to be is expecting anything close to that Nick for next year, but it is the guidance or or or the the color that you're providing is it fair to assume kind of a flat margin trajectory.
For a dip in margins for worse or just a a much smaller expansion.
Yeah. So you know you said, Alex investing for growth remains our top priority and we have a lot of opportunity ahead that we're excited about and you know we've been talking about how we're going to pick up the pace of investment in Q4 EPS through next year, and we May think about our 19% non-GAAP margin guidance for this year and that's almost 600 basis.
Its point improvement over half way 20, and under normal circumstances that would take two to three years for us to have that kind of margin expansion, but obviously this is Ben every day.
Me here, so we still need to get through Q4 and finalize our plan for next year. That's for we have a better for you, but certainly you can expect our pace apparent you pick up and wait 22 silicone free benefits that we saw this year likely to subside, particularly in areas like travel any bands.
Given all that it'd be reasonable to see our margins next year coming off this year as Michael and you can see that investment starting to have an impact when you consider our two for margin guidance and then the last thing to keep in mind is that as we increase the pace of investment you'll see an immediate impact on our expenses, one other resulting impact to revenue from.
Those investments are going to take a little longer.
Understood. Thank you so much and I hope you guys are all staying safe and well.
Our next question comes from the line of Mark Mobley with Bernstein Research you May proceed with your question.
Thank you and congratulations on a good quarter and there was a lot of hard work went into it. So two questions. If you don't mind kind of what the worldwide locked down continuing how do you think about driving meal deal generation do we need to see a return to traveling conferences to fill the top of the funnel what do you replace the in Peru.
For the meeting at conferences or is it just hiring more bodies and more advertising I mean, how does the business model from a sales point of view changing and then a follow up.
Yeah, no. It's a great question I mean, I don't know.
If I look at the pipeline and again remaining cautiously optimistic if we had not only a good keeps moving tranches execution. We had a very good Q3 in terms of pipeline cash right, what kind of again shooting for kind of same dynamics into two for especially the focus around I think we're putting all we're doing these investments.
So some marketing that they're not only need more and more feet on the street clearly very small feet on the street that they're planning on centers that we see opportunity for growth.
Obviously, you socialists went around marketing investments.
Sunday and so its just for to support asking theres about where lightning and demand generation there for us, especially next year and as I say the hereafter right eating if I can put that strength when I do I think the issue of course, you have net new customers. They are contributing and you have let's say new products for rescue use on total day things.
For baseball, if EBITDA trend that would say that the team has done great products into the share.
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Did did he has done a great job on managing their shortly after these falling and we got a lot of NAV means I clearly if you would ask me the team would be actions and I would be interested they need for their customers because I think that definitely standards of what we do but that but I think we you know we are striving very nicely.
The other steadily never anyone do better and more efficiently. So again major to be not be called World delight. If you ask me I don't see moving out even pull back to see me I'm unable to travel is then people dance anymore therapy defeat the person that that people are trying other before thats a bunch of steel that that would be that would be for.
Other than we'd also multi but but I'm like DHL day being he has had a good for four months on this environment Mark.
Perfect really helpful question, we focus more on deals often but wanted to ask about the process of driving customers to go lives. How is the lockdown change the complexity or the time it takes to drive customers to alive condition.
Yeah, well I I would like to give a big shout out to I mean, Kevin He Ti leasing services, because they die fantastic job with a 190 customers go index. This quarter, but I think you know some of those are significant and relevant price would seem more my line. It immediately affiliates line.
Moving to Syria, what accenture with over 500000 employees or you're seeing would you be asked for GE or you're seeing for recipes insurance or finance sales finance just for financing so going nicely when spirit.
There's no minor accomplished CK that it's a testament that they could work close.
The services steel begun denied for live remotely we wouldn't be pandemic 80 for saying I'm signaling. These estimates were acknowledged on deposit anything for doing that.
I really sexy for them.
Performance.
So I'm I'm all those are happy to be honest so that's.
That's a that's a great place to be.
Good perfect. Thank you.
Our next question comes from the line of Keith Bites with Morgan Stanley You May proceed with your question.
Hi, This is Josh bear on for Keith with with all of the conversation around pipeline and building pipeline and optimism there.
I guess I'm wondering what's the strength in results how should we think about the current pipeline today versus how it how compared to pretty Cove. It.
Well I think Kate Thank you Josh for your question. This is John speaking if the question is how we or it's already up be called examples there now.
Sales to be there, but we have not yet that day they'd be called the levels of course, we see that we are getting closer but I think what you should think Keith it cautiously optimism for on our point of view in terms of what we're seeing on the line generation like Michael in creation to help us for the new album growth.
Oh resources study for and looking for a budding obviously, they're easy simple ways by splitting for no five that is creating more near term certainty for which we didn't know no debt what is gonna be day impact or auto he's going to take a basically for all of us. They don't give side right. So I I guess, there you see situation, where we would like.
No more as Wellington, So fast you know hosting environment going have evolving recognizing that we've seen gradually improves me at least for our business with the new ground for seven station incident. He ran a much better place right now that revenue.
I'm day, Aki Archie for timeframe.
Great and I'm, just curious if you have any insights into or what you're seeing internationally as there's different a.
Different covert waves and lock down government unresponsive in different countries is there any difference and in buying behavior that you're seeing in different geographic locations. Thanks.
Thank you John No, we still see a big opportunity ahead for us.
I think the wrestled for markets and were setting you optimistic around the opportunity I'm done your non Additionally, we are making would be far well for would investments that we're making right now planning to make because.
Because we you know see contribution lost at the international revenue make sales continues to grow higher and we see continued to growing higher media I don't right. Clearly there are countries that have been going on something on those down into has had some impact on socket wins in terms of the net new business and maybe I'm of course.
When you sold basis no Kid does.
Not just teaching the U.S. I see where amazing you prepare to other fantastic getting into rationale I have there been any did either she be still there and he's really striving for instance, these findings creation I should give you know what really excited again I'm flowers for they're getting into the other thing inside of those markets are opening intensive.
Being a significant growth total.
Jeremy for one.
Well there. Our next question comes from the line of Karl Keirstead with you before you May proceed with your question I.
Thank you I've got two for Robynne Robynne. If you don't line can we go back to the Fourq.
For Q subscription backlog guidance of 14 to 16. So that's that's a seven to nine point de sell from Threeq, you, but it's actually only a one point tougher compare so maybe you could elaborate on the compare comment you made maybe you meant on the the net new ACB front and then also is there any duration compress.
And that might be impacting that for Q1 number and if not just just generally whether this reflects a demand backdrop that feels just incrementally tougher perhaps than what workday saw in twoq and threeq. Thanks.
Yeah. So backlog was certainly important forward looking metric is not a precise age as you know it's impacted by things like duration, which made are going to your second question. Now we did see increased duration in Q3 that we do not expect to repeat in Q4. So that's part of it but for the timing of renewals have an impact which can move.
Around and so those are things that just to keep into account when you're looking at our guide we have seen some stability in the firemen over the past couple of quarters, which along with the strong execution has helped drive solid backlog for adult assay coronary, but the guidance does not consider this tough compare and when we look at last two for we did access.
Other eight net new bookings and we accelerate the backlog growth and so that's the tough compare that we're facing in an environment that remained very very uncertain and so we've taken all that into account in our guide and we'll obviously be able to tell him for next quarter, but you know Q4 is a big quarter for us and were right now focused on.
Keating against that right. Okay. That's helpful. Robin Thanks for unpacking that a little bit and then my second question is just on the go lives that to Aneel.
I commented on earlier kind of an amazing go live quarter for workday actually if I caught them all a wall.
Wal Mart Accenture U.P.S.G.E., that's that's a lot of very large go lives did did any of those are collectively did they trigger any milestones that might have impacted the threeq numbers in anyway. Thank you.
I don't know if they trigger any milestones in terms of.
The number of I leave that to you robynne.
You know again as Tom mentioned, just a very appreciative and proud of Emily and her team and our and I'd say our business partners as well.
Who figure out how to get these large customers live during during this pandemic.
And one of those going live in the quarter would be terrific.
Terrific having for them go live.
And the same in the same timeframe was really really remarkable per day.
From a services perspective, and and bars I know, they're also very happy.
And maybe I'll just add that you know and as you know most of our implementations are run by our partners and denim for adult and professional services revenue to workday. So yeah, we do prime about 20% of them and while we do have some revenue they can get driven by milestone on fixed fee contract there really wasn't.
Anything to call out in the quarter in terms of big milestones net trading revenue got it okay. Thanks very much.
Our next question comes from the line of Brad Zelnick with Credit Suisse. You May proceed with your question.
Excellent. Thank you so much for taking my questions. Firstly, you mentioned Workday accounting Center, a few times, which we've been hearing about more recently from the field can you help us understand what exactly is it how do you see it impacting your competitive positioning and perhaps what is it replacing and why.
Tony you want to take that when you take that one.
Well, if we want to take that might be.
Yeah, Pete you're taking on other than maybe a channel just talking about where where we're competing.
Yes, so accounting centers been really important for us in being able to open up certain verticals, especially like the financial services vertical for financials and you did hear us earlier talk about how.
It helped us in the fifth third bank win this quarter and a few of the previous bank wins that we've had in previous quarters.
So to answer your question what is it accounting center is a way for our customers to bring in all of their operational data and bring it into workday and insecurity, then do accounting on it and have that accounting roll up into their GL.
So if.
If you were a for instance.
In the insurance industry and you wanted to take a look at something that is happening at the geo level, but you want to go all the way back control back to the individual policies in claims for instance, you'd be able to do that right inside of workday.
It's replacing a lot of data management infrastructure that would otherwise have to be managed by the CFO and the CIO and ER and our customers are finding that the value of having it in a single system and being able to do all the analysis and get their answers right there and for them.
Cool. Thank you very much for that maybe if I could just ask a follow up of Chano. Another pipeline question and I appreciate your comments, which sounds very encouraging, but maybe just to dig a little bit deeper as you analyze and scrubbed the pipeline and you look at opportunities that are pushing out versus may be shrinking in size, but still.
Closing versus competitive losses, I'm, sorry to bring those up but if you if you break it down into various stages and consider things like time to close and forecast accuracy and how that's all changing what are some of the more detailed takeaways that you can share that tell the story of what's actually happening in the field and then the environment right now and ultimately support your comp.
That's.
Well in this environment and thank you for the question Brad This environment, the most viki and it seemed like that we can see kind of push opportunities more than any other thing you know a few quarters ahead and that of course common sense because of the uncertainty of the environment basically some cash source maybe menu.
Customers in some industries, especially the hottest indices. There is yes that more uncertainty you know they are more basically balancing out for each other projects that that should be a start of anything at all which posted last night on off right. So I would say that the high it seems like there are potentially E.
Sales you know all things had solutions opportunities going five moving to a few quarters more than more than any other change right. We haven't seen any changes in terms of complexities that kind of momentum or over there. Thank you for bringing up but that's the one that of course you know.
For the benefit of these uncertain.
Right. So we remain very focused on day to him and if I'd been patiently for some maturing we have had great commercial freight rates racism debt last quarter's keeps lumpy free but when we look forward I'm again looking up in the system before we got a free perspective in terms of you know how.
Different all this uncertainty and the simple way would it be more.
Thank you so much for the color and for taking the questions.
Ill now be taking two more questions. Please limit yourselves to one question. Thank you. Our next question comes for the line up for sale with Jefferies. You May proceed with your question.
Robin not to dwell on the T. for back on guide, but I don't think you've ever seen a 800 point B cell line at the mid point. So I think I was just asking.
You know did something happen in Q3 were somebody's deals got pulled into the backlog from Q4 or.
We realized obviously the environment, but I think I was just trying to reconcile this tonight.
Thank you we haven't seen it in the model in the past.
Yeah. So you know no nothing happened to the backlog and I'm sorry pipe line in Q4 still looks good.
Where we continue to execute well when you look at the combination of duration.
Which helped us in Q3, and Q2 and I'm very very tough compare from last year and pre Coa days and all the uncertainty that we're seeing and the law of large numbers and this is just our best view right now for <unk> and so that's obviously our biggest quarter of the year a lot of uncertainty still out there even though we have.
Same thing stabilized and so we're just focused on execution. This is the best debt that we have so far in terms of our view into backlog and we'll obviously update you next quarter.
Thank you.
[noise] for next question comes from the line of Daniel Jester with Citi. You May proceed with your question.
Great. Good afternoon, Thanks for squeezing me in.
Just maybe a bigger picture question on M&A, you scallop has obviously done well adapted for done well overtime now that you've incorporated the businesses. How does that change how you think about inorganic activity, especially given the comments on the call today about sort of ramping investments I'm into next year. Thanks.
You know I I don't know if it changes for view I think it just gives us confidence that if we find the right.
The right kind of a company that is a good fit culturally that is a innovative [noise].
Growth company, and that's complementary from a technology perspective, not overlapping that a debt that is something that we now feel very comfortable.
Yeah, Tom Mogens really led that.
That effort that we feel comfortable we can integrate those companies into workday.
But also with the commitment that overtime, we will harmonize for technologies, so that we don't become a.
You know a frankenstein like some of our legacy competitors have become.
It's really important that we can maintain that that unified view across for applications and so that that's a.
Yeah that that's key to driving and so I I think you'll see more from us for sure are coming down the pipe, but I also think they are going to fit the bigger because they're going to put the adaptive and scout models, it's not going to be a I'm just doing a big acquisition that is overlapping technology wise I debt does that actually slows or so.
Great appreciate the color best of luck in the fourth quarter.
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Ladies and gentlemen, thank you for your participation on today's conference. This will conclude workday third quarter fiscal year 2021 earnings conference call. Thank you again for joining us.
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