Q4 2021 Workday Inc Earnings Call
[music].
Welcome to workday fourth quarter and fiscal year 2021 earnings call. At this time all participants are in a listen only mode. We will conduct a question and answer session towards the end of the call and with that I will now and then did over to Mr. Justin Furby, Vice President of Investor Relations.
Please go ahead.
Welcome to workday as fourth quarter of fiscal 'twenty 'twenty, One earnings conference call.
On the call we have the Aneel butchery and channel Fernandez, our co Ceos, Robbins, and Cisco, our president and CFO and Peach Slant, our executive Vice President of the product development.
Following prepared remarks, we will take questions. Our press release was 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 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 condition.
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 for additional information on risks uncertainties and assumptions that may cause actual results to differ materially from those set forth and such statement.
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 and our earnings press release and on the Investor Relations page of our website.
The webcast 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 and is updated monthly.
Our first quarter quiet period begins on April 16th 'twenty 'twenty, one unless otherwise stated all financial comparisons and this call will be to our results for the comparable period of our fiscal 'twenty and 'twenty.
With that and we'll turn it over to China, what's the share go to market highlights and the quarter. He.
He will then turn it over to Aneel, who will provide updates on the strategy and innovation front and then Robyn will close with our financials and guidance. We will then open the line up for your questions.
Over to you channel.
Thank you Justin I hope all of you joining us today are in good health and that your families of doing well. He has been a challenging few months and they make a very significant cost what else the missing.
And that very strong growth through the year as companies increasingly realize that HR and finance part of the true backbone of their digital transformations day.
And this really Stacy and was leading to significant pipeline.
And as we enter FY, 'twenty, two where well, let's see scale and drive accelerated book.
Bookings growth.
Our solid results were driven by another quarter of strong execution I bare steel brakes, we once again drove the strength.
And no we're not yeah.
Burnt the college standouts in the patient government health care and the professional services market.
Both the large and medium enterprise teams outperformed driven by continued momentum and our installed base airports as well as improving per four months now we're net new business.
The strength, you know where H C. M solutions was a critical part of if you would thoughtful.
Our Q4 for four months with notable customer additions in the quarter.
The Nike <unk>.
And.
The company some worldwide Bulks and their price days instead of Avianca Brasil first front Bond Laboratory Corporation of America and become a retailer.
We also saw significant uptake across all of our newer solutions that support of the I'll say, the CA channel, including people analytics and <unk>.
The earnings and solid market base.
By leveraging these applications rabbani stations are addressing fundamentally rethinking the important questions like how Blaine.
And our bias helped reshape the workforce to meet today's demands and how.
The spot engagement rate and execution blind spots.
It seems plus solutions also had a strong quarter and continues to represent an increasing percentage of our new business mix. We have several of the strategic core beings winds and Q4, including a fortune 500 ranking.
Frankly and.
Which included and each center.
And you saw the state colleges and universities.
Century insurance, the University of Maryland on what each bar.
St Jude children's research, what's the thought.
And they're built University Medical center.
We are excited by the accelerating pipeline of beans opportunities, including emerging use cases enterprise finance the brother industries like retail and manufacturing where recent wins include one of the nations largest pizza chain, the zumiez and the sporting goods retailer with over 1000 stores.
And once again, the solid demand for our suite of products that support the office of the CFO and chief procurement officer equal and workday.
We're using analytics and that's what.
Workday of strength, each sourcing and our brothers and management auto sales.
Our installed base being also had another solid performance with more of them, 40% growth the new ACB bookings in Q4 against a very difficult comparison and more of them, 50% growth for full year FY 'twenty one of.
These themes execution was really kind of driving growth over the past year, and we remain very optimistic with average.
And the product portfolio, we can continue to increase customer wallet share in the years ahead.
Our customer success and services organization also execute it and credibly well, taking more than 200 of them.
Or H C M and beans customers night in the water.
During the customer such that it's always been a core body of the for us.
And I mean, I think that you're proud of how our services team and our partners average funding environment.
Environment has been to the light them virtually all of my heart.
A record number of workers the workday platform FY 'twenty.
Personally one of the Q4 highlights was around our pipeline and sports.
And we have described over the last two earnings force our pipeline generation has been improving since the onset of the bad debt.
I am pleased to say that trend continue meaningfully accelerated in Q4 with a record five day generation across all three regions, we still see some pipeline impact from Covid impacted industries.
Those headwinds appear to be net.
The pipeline the strength, we have seen alone with DSW station and new business demand right, our expectations that new business growth.
Generate FY 'twenty two.
The personal and outside I wanted to congratulate and make good spring Doc Robinson and his recent promotion to the EVP of robotic sales that has been incredibly impactful over his 10 years last workday. Most recently, serving as head of North America sales with any real estate property book.
Were he not only played at wendel and helping us.
Last week and the worlds biggest brands and he also establish high levels of the corporation of sales excellence across our North America region that have been great about the work based growth.
He and his new role that will lead out of robot sales force.
And directly to me, helping us accelerate our momentum while continuing to expand our international footprint.
Congratulation stack and I look forward to I worked with genius partnership.
Finally, before handing it over to Aneel and won't be half of our workday leadership team I would like the right things and all of our World remains of course the block.
And response to the challenging environment has been nothing short of amazing and your resiliency has set us up for a strong year.
With that I will turn it over to all work the founder and CEO of main Street.
Over to you Aneel.
Thanks, Shawn and thanks, everyone for joining today's call.
The last August we showed the exciting news and channels promotion to co CEO and.
The six months and I couldn't be happier with the positive impact of this change and.
China always been at the center of our go to market and customer facing activities, while allowing me more time to focus on our product strategy and innovation.
This increased focus could not have come out of more important time, our innovation cadence has accelerated and we're excited to continue to bring out of market, leading innovation and support our customers.
John will touch upon our successes and expanding our presence within our customer base a big part of the success was driven by the introduction of new products and indeed in the last few years, we have delivered 50% more in terms of monetize the solutions as compared to the prior three years.
And the trends around digital transformation and acceleration continue unabated and with the increasing GAAP of what traditional legacy ERP can deliver and what our customers need and where can I find itself and the unique position to not only help companies closest GAAP through a new class of enterprise management cloud, but also the truly serve as the backbone of their digital.
Transformation.
We are enabling digital transformation journeys for more than 8000 customers, including over 3500 core HR and finance customers and where.
Excited to go further with them on this journey and to embark on a new journey with our next wave of customers.
This concept of accelerated business changed has it been of core design principle since we founded the company.
Workday enables organizations to turn transactional silos and through a complete unified picture hardwired processes and to responsive automation and periodic into real time and continuous planning execution and analysis.
And our solutions aren't simply providing an exhilarating existing process, but we are helping thousands of companies fundamentally rethink the way they run their business.
Many of these customers have relied on workday to help them transform their organizations, including the hundreds of customers that went live in Q4, such as Caterpillar Comcast cable and Cisco systems P F Chang's and spectrum health.
The World of Finance is also being significantly impacted by the trends surrounding digital transformation list.
Listening to our customers and how they were dealing with all of this change we decided to design and build the accounting center.
And of our most exciting products and recent memory and one that is now generally available.
Built on the analytics engine, Workday accounting center, and Jess riches, and transforms operational transactions and two accounting.
Customers can gain insight into rich counting of detail with complete data lineage for drill back for source transactions empowering them to report faster and reduce time to close.
With this new offering as part of a broader suite of our enterprise finance solution that includes the prism analytics and planning and consolidations.
We're now able to address a broader part of the finance market, including product based industries, such as retail and manufacturing these of.
Industries must maintain their existing ERP and industry specific on premise systems, well want to use workday to bring corporate finance functions into the cloud.
It's one of the several of our emerging and exciting opportunities that grows our addressable market within the financial management solutions marketplace.
On the ATM front I'm proud to say that we are supporting customers and the efforts to prepare for a post pandemic world and.
Q4, we announced the vaccine management solution that provides leaders with the insights to create a healthier workforce and the safer workplace. We've also seen strong interest and other timing of solutions, such as five index and the <unk> central.
Which we announced last year and we're already have more than 500 customers live.
These customers are now equipped the better view and analyze the diversity and representation of the workforce and one centralized place.
One area and HCM that has accelerated during the pandemic as employee engagement with so many companies dealing with remote workers.
Getting a sense of how employees are feeling about the organization and their manager and their work became Paramount.
Well workday had been focused on employee engagement for several years and introduce capabilities such as pulse surveys, we realized we had the offer more capabilities to our customers.
That inside led us to become one of the the acknowledged market leader in this fast growing space and the company built around the machine learning first approach.
By bringing our product offerings together peak out of a lot of workday to greatly enhance our capabilities across several key areas, including understanding the voice of the employee.
Providing more robust capability and agile performance management, and becoming an engine to further our <unk> solutions is the most comprehensive on the market.
And looking forward to welcoming and the more than 250 pick unemployed, who will soon become workmates, including cofounder and CEO, Phil Chambers, who will continue as CEO Pecan and will report directly to Tom Bogan.
We're all excited about our future together.
As we look forward to work this next chapter.
By the opportunity that is in front of us and I'm very grateful to our employees for their dedication to innovation and customer success. During these very challenging times.
With that I'll turn it over to our president and CFO Robin and Cisco over the you Robyn.
Thanks, Neil and good afternoon, everyone.
As China, and Aneel mentioned, we executed incredibly well and the fourth quarter, demonstrating the strategic and mission critical nature of our solutions and the resiliency and our business during these unprecedented times.
Subscription revenue was one point of 1 billion and Q4 of our first ever quarter over the $1 billion, mark representing growth of 20%.
For the full year subscription revenue was $3 seven 9 billion growth of 22%.
Professional services revenue was 125 million for Q4 and $530 million for the full year.
Fourth quarter revenue outside the U S with 283 million, representing 25 per cent of total revenue.
Subscription revenue backlog was 10 point O 9 billion growth of 22% and our first ever quarter above $10 billion and backlog.
Yeah. The performance was driven by better than expected new bookings against the very difficult comparison, and addition to strong renewals with growth and net retention rates over 95 per cent and 100% respectively.
The backlog also benefited from a notable lengthening of the average contract duration for both new customers and renewals.
Subscription revenue backlog that will be recognized within the next 24 months with 6.53 billion growth of 19%.
Our non-GAAP operating income for the fourth quarter was $211 million, resulting in a non-GAAP operating margin of 19%.
For the year non-GAAP operating income was a record $867 million or 20% of total revenue up more than 650 basis points from FY 'twenty.
This expansion was driven by a continued scale and efficiencies.
Reduced pace of hiring and other COVID-19 related moderation of expenses, including reduced spend for travel and events.
Operating cash flow for Q4 was 554 million growth of 86%, bringing our full year operating cash flow to 1.2 dollars 7 billion, 47% growth.
Record cash flow results were driven by strong cash collections as well as of the substantial operating margin expansion.
Our total work force at the end of the year stood at more than 12005 hundred employees and we have begun to ramp up hiring for FY 'twenty two.
Overall, we are very pleased with the strong company wide execution and our seasonally most important quarter.
Turning now to guidance.
Although the environment remains uncertain, we are encouraged by our momentum in recent quarters and have seen an improvement in both close rates and pipeline growth.
We're cautiously optimistic that the environment will continue to improve as we move through FY 'twenty sales driving a faster pace and the digital transformation initiatives across the HR and finance.
We are focused on driving accelerated bookings growth this year, which we expect will ultimately result in a faster pace of future subscription revenue growth.
When thinking about our subscription revenue growth for FY 'twenty. Two however, keep in mind that while we executed well this past year, we still experienced headwinds to new bookings.
As I mentioned in the last quarter. These headwinds have implications for this year the subscription revenue growth given the lag effect caused by subscription revenue accounting rules inherent and SaaS businesses.
With that context, we expect FY 'twenty to subscription revenue to be and the range of $4. Three 8 billion to 4.4 O billion, representing 16% year over year growth.
This guidance includes the pending pecan acquisition, which we anticipate closing later this quarter and is expected to contribute less than one percentage point to our subscription revenue growth and FY 'twenty two.
For the first quarter of FY 'twenty, two we expect subscription revenue to be between one point of one 8 billion and one point O to O billion, representing 16% year over year growth at the high end.
Keep in mind that because of the leap year in FY 'twenty. One we have one less day of revenue recognition and Q1 than we did in the year ago period, representing a nearly $12 million impact to the Q1 subscription revenue and affecting both our sequential and year over year growth rates, we expect subscription revenue.
And to sequentially increase from the previous quarter by just under 6% and Q2, and approximately 4% and Q3 and four 5% and Q4.
From a backlog perspective last year, we saw lengthening of overall contract duration and providing more predictability and our future revenue, while also adding to total backlog growth during the FY 'twenty one.
Well, we have historically guided to total backlog given the variations and contract lengths are difficult to forecast and can impact total backlog growth by several percentage points in either direction.
And now feel it's appropriate to guide to 24 month backlog, which will help isolate fluctuations and contract duration.
When considering 24 month backlog and keep in mind that the two primary drivers of growth, our net new bookings and the timing of renewals.
For FY 'twenty, two we believe net new bookings will have a positive impact on backlog growth given our expectation of new business Reacceleration.
When we look at the historical impact of renewals on backlog growth, we have consistently seen growth each year and the amount of ACB up for renewal, making renewals of positive contributor to backlog growth.
In FY 'twenty two however, the ACB up for renewal is relatively flat compared to FY 'twenty one.
This dynamic is purely a function of the mix of historical contract lengths, but will serve as a headwind on both the 24 month and total backlog growth for this fiscal year.
From what we see today this headwind will not persist beyond FY 'twenty, two and we expect the renewal base will grow again in FY 'twenty three.
With all of this as context, we expect the 24 month backlog to grow approximately 18% in Q1 of FY 'twenty two.
We're expecting professional services revenue to be approximately 139 million and Q1 and $590 million for the full year.
This represents a return to growth and professional services revenue driven by our expectation of improved new business trends.
We will continue our tiger linemen with our growing partner ecosystem to help ensure customers have successful implementations and support the highest levels of customer satisfaction and business value.
From the margin standpoint, this past year, we demonstrated the long term scalability inherent in our model.
Investing for growth remains priority number one however, and in FY 'twenty two we expect to increase our pace of hiring across the company, but with the focus on sales and marketing and product specifically targeted at accelerating pipeline growth and advancing our strategic product roadmap.
Included in these investments our increased marketing and brand campaign as well as significant planned growth and quota carrying rep capacity.
With this context, and an estimated 100 basis point dilution from Pecan and we expect our FY 'twenty two non-GAAP operating margin to be 17%.
We estimate non-GAAP operating margins of approximately 19% and Q1 and expect the normal seasonal sequential decline in Q2, as we invest and our people to our annual compensation process.
The GAAP margins for the first quarter and the full year are expected to be approximately 26, and 24 percentage points lower respectively than the non-GAAP margins.
Further we expect our stock based compensation expense as a percentage of revenue will decline by approximately one 5% of this year starting of multiyear trend of improvement and this metric.
The FY 'twenty, two non-GAAP tax rate remains at 19%.
We expect operating cash flow and FY 'twenty two to be approximately $1 2 billion down slightly from record levels and FY 'twenty, one driven by the ramp and growth investments.
We expect to invest approximately 170 million and Q1 of FY 'twenty two for owned real estate investments as we finalize the purchase of five buildings that are pleasant and campus that we currently lease.
This purchase is important to our headquarters strategy and affords the control of our core campus buildings.
We expect to spend roughly 270 million and FY 'twenty two to support all other capital needs.
This includes investments and leased facilities corporate it infrastructure and customer data centers to support our continued business expansion.
These data center investment along with other investments, we're making and our technology and platform, including our entrance into the federal market and our expanded use of the public cloud.
Specced and to reduce our non-GAAP subscription gross margins to slightly under 85% and FY 'twenty two.
And finally, the close by thanking our amazing employees customers and partners for their continued support and hard work, which allowed us to deliver great results during an unprecedented year.
We are more confident than ever and the long term opportunity ahead and look forward to keeping you apprised of our progress throughout the year.
With that I'll turn it over to the operator to begin Q&A.
At this time, we'll be conducting a question and answer session.
I would like to ask the question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary for you to think the peer handset before pressing the star keys.
Limit yourself to one question one moment, while we poll for questions.
The first question comes from the line of cash Reagan with Goldman Sachs. You May proceed with your question.
Alright. Thank you very much team I'm trying to reconcile the strength of the quarter. Congratulations that's that's the.
Fantastic quarter, you've seen accelerating backlog growth for the past four quarters and you were talking about the accelerating our pipeline and growth going forward and yet I completely understand the new business bookings force more challenged but I'm also kind of reconcile all the positives against the the.
The outlook for fiscal 'twenty, the subscription revenue growth or maybe if you could just shed a little bit finer light and how we should expect the shape of fiscal 'twenty two to two.
And to unfold and obviously the point of smoked Bacon that are getting out of fiscal 'twenty, two and 23.
We could see even better trend. So can you just paint the shape of the recovery and where do we bottom out in terms of subscription revenue growth of when when are we likely to see the acceleration based on all of the the good things. We're hearing from you guys. Thank you so much once again and congrats.
Yeah.
Thanks, and thanks cash for the question and I'll take the first pass wishes.
The metric that we run the business on and Workday is.
And it was growth in bookings and we're really excited about what we see over the next 12 months.
Subscription growth bookings is a derivative of that number and as you know the surf.
And the accounting is based on multiple years.
Backing into that so I wouldn't look too much.
Subscription gross bookings and then I would try and figure out what we're actually doing and this next year, which is a which is.
Of Reacceleration on the on the bookings front and and.
And then maybe I'll ask a channel and Robin the out of few comments to that.
Yeah. So you know.
And you know.
Subscription revenue. This year is really a direct result of the headwinds and that neither.
Net debt, we experienced last year and since then.
And you know previewing this the last couple of quarters.
So that's an important point and I don't think we know that we'd been thanks for awhile now that our goal has been to flatten the decline and growth curve and then ultimately reaccelerate and as you can tell by the fact that our Q1 net revenue guide growth is the same as our full year. This is the of weeks, but expect to flatten that curve, which is a really positive thing.
And then yes.
The Aneel point, if we can re accelerate and the bookings growth, which we absolutely believe we can then that will ultimately lead potentially to the subscription revenue acceleration, but theres a lag there. So it's kind of takes some time.
Uh huh.
Wonderful. Thank you so much.
Our next question comes from the line of Mark Murphy with J P. Morgan you May proceed with your question.
Thank you yeah, great to hear all of the positive news I'm wondering if you can provide any insight into the internals of the financial.
Business the last two to three quarters. The is it safe to assume that that bookings mix of the core general ledger softened up a bit just because of macro uncertainty and maybe that pivoted more toward a planning and scout and those other areas. The just trying to understand the magnitude of any shift there and.
And then moving forward what do you think is the main catalysts that of that of finance team is focused on to say now where.
You know looking at the right conditions to modernize the general Ledger, and maybe maybe bite off a bigger chunk that would give you a tailwind.
Yeah.
And so that's a great question, Marc let me just.
So some of Gartner data that we got a few months ago and I.
And I guess I think it's instructive for out of the market's working today so moving.
And on the snow the core accounting or core finance inquiries were down 14%.
Core planning inquiries were up I think close to 30 per cent.
And as of the.
Pandemic eases, what they also said was that well many of the core accounting projects, we're going to be delayed.
The ones that were in 'twenty, three and 'twenty, four and 25, and we're getting sucked Ford because people realize that they needed to start on the digital transformation journey for financials and so.
While it's been a tough time for financials during the pandemic.
And I actually think from from here on now and it's going to get it sort of on it but I really want of.
What what channel comment on this.
Thank you and Andrew and thank you. Thank you Mark Twain space and they are key part of the Reacceleration of the story Mark and we are seeing more of these opportunities coming to market.
And not only did we see proof of minutes and our feeds business and Q4 seven of these strategic wins that we mentioned, but we also have sort of seen pipeline growth as well.
It is broader than of course feed and so as you highlight the ease of broader solution set that we're selling into the office of the CFO. We chose the inclusive and include salaries and monitoring and analytics and our planning solution and says I need more tied I D.
Were really meeting our customers, where they are and the journey.
And they arent married and opportunities to lower the entire enterprise finance solution, which should never used breathing and accounting center, where we are now better positioned to go after brother based industries like retail and manufacturing and that opportunity with the hot before so we're widening our addressable market.
Excellent. Thank you very much.
And if I could I would just add one more thing that you know we had a business plan going into the year pre COVID-19.
And without going into the detail of some.
And I can't go into the details of how close you were.
But we were and shutting distance of our original plan around around.
Oh, the overall business and a few of told me that in April of last year, I would not leave that and so.
It's a great Testament to our team, but also the fact of digital transformation is accelerating and the.
The folks that were not on cloud platforms realized they needed to be and so it's a it's one of the drivers of our optimism going forward.
Thank you.
Our next question comes from the line of Keith Weiss with Morgan Stanley You May proceed with your question.
Excellent. Thank you guys and it's.
And it's good to hear the momentum is coming back and into the business.
Kind of I guess, it would probably be a question for you. This quarter you guys saw good durability and that upsell of road, the new ACD up over 40% on a year on year basis, and if I'm not mistaken and this is the first quarter that you're you're anniversarying of a really tough comp I think you guys told us it was like 50 per cent.
And the quarter ago, so how.
How does that like.
Can you talk to the balance sort of whether that's the that type of strength. It is possible or it could be durable into the year ahead can you continue to see that type of growth coming from the upsell motion and any sense you could give us in terms of what percentage of the overall kind of new businesses that represent today.
Yeah. Thank you Keith.
Highlighted we had another fantastic quarter with 40% plus growth in the eyes on sales.
Sales and that makes the kind of 50 per cent for the whole year.
And that it was really dreaming of across a lot of different products, including coffee and finance sales work force planning is the analytics learning and one of the strategic sourcing of south of the newer products will continue to do Nick of time and centered around people and the extent and help also contributed especially in the last quarter that those products, where we are and the year.
And in the beginning of the year. So we see nice the strengthening pipeline deals from our installed base teams and there is a lot of momentum on the say for.
For us the entry to into FY 'twenty, two and definitely there is a thesis of attempting area of where we are strengthening our investments as well that of robbing needs come and doing instead of instead of our investments so what the carriers.
So in terms of the mix and <unk>.
It is becoming a much more significant contributor of on where our new business even of what 'twenty one isn't the studies coming from the upsell and the cross sell.
We expect that over the medium term our growth will be coming pretty suddenly more balance between net new and installed base sales.
We haven't I don't need the opportunities, we believe will accelerate the tier and we're seeing signs of that being the piping of split of PS.
Got it.
And with the here and then maybe one for Rob and just on the margin side of the equation definitely understand that there is some.
So I mean, there there's some inorganic pressures that you have on the operating margins go in and into the your head and then there's also just a reacceleration and spend against a subscription revenue line the advertisers off the balance sheet versus kind of marks what's going on and in real time and then there's also some sort of the teeny spending and and.
And the light that didn't take place and and FY 'twenty one of that take place and FY 'twenty two could you help us all of those last two can you help us kind of foot how much comes from the first versus the second life or more pointedly, what's the overhang and that you guys experienced from sort of teeny coming back.
Well you know the kidney and.
We don't expect it to really come back until near the end of the year.
Keith and even though we're not quite sure exactly you know we don't believe it's going to come back of 100%. So we expect that pace. The continued to be slow here. So we really are.
Focusing more when you look at the increases and her spending around head count right. We were relatively flat and hiring last year and we did some strategic hiring and relatively flat we're gonna be hiring now across all areas of the company with as I mentioned specific focus on investment sales as well as and product and to take advantage of the.
The great opportunity that we see in front of us we're going to spend more and non had non head count wise and marketing right, which we think now's the time and see great momentum and the pipeline generation. We think we can help that out by turning of the dialog and things and and then investments and infrastructure.
The technology data and there's really just across the board.
And just.
And just amazing growth opportunity ahead of us and now it's the time for us to and best towards that.
Right. So is it. This is just like the this is subscription model right. The the the the subscription line reflects what happened last year in terms of of billings and deferred revenue buildup of you'd need to invest this year for a better demand environment and that that mismatch. That's what's pressuring your margins and in the year ahead.
And that's exactly right right. Your investment always has to take place before you're going to see the the impact and your subscription revenue line and if you look at if you take out the impact of Pecan and.
And of 100 basis points, we're largely back on the trajectory of where you were sort of last year.
And so we're just getting back to business and back to normal and we feel really good debt now the time to make the assessment.
Got it got it it makes sense. Thank you so much.
Our next question comes from the line of Kirk.
Evercore ISI proceed with your question.
Yeah. Thanks, very much congrats on the result, and that's great to hear about the the pipeline builds going into this year, Oh longest long shot and I was wonder if you could just talk a little bit about the international market opportunity.
What you've seen and that theater and those theaters, maybe also where you think core fins is internationally. Obviously you know the U S H and take out first and then since it's been sort of trailing and I'm kind of curious whether or not core fins and you can maybe land at more of a at the same time, maybe not the same accounts, but at the same time of proportion.
The way and some of these international markets that are a little bit smaller banks.
Thank you Kurt and.
As you know unless you're saying where much of your of the AC and penetrating international markets, where that the well we are in the U S, but and we see a big opportunity and the rest of the world and we.
We are very optimistic around these opportunity and what it means for us.
I think we also saw a bit more impact from Covid and the rest of the world market that we have seen here and the U S. I think is really when we get to the other side of the coffee, we should see accelerated momentum that is fully reflected on the numbers and why I believe so because of the good news is that the pipeline is 70, improving and the rest of the.
The world markets and I expect that there would be a key contributor to the acceleration. This year too in terms of financials I would say that I don't see the copies and he says I speak in terms of lagging behind after the selling H C M Kirk and.
And you know, we're seeing good win and see international and see them and FERC costs, mainly financial services and professional services and and hospitality and now we think the price by now so we are expecting of slowdown with the accounting center that we kind of seem to broader industry and some sort of lack of industry, but in Asia and with more focus on.
And the services industries, and Jim and sign up for the most mature countries like the U K I would say, France, and Germany. We've seen we have already of nice customer base of core fins customers and.
That said you know there are becoming basically happy end of of friends.
Thank you.
Our next question comes from the line of Brad Sills with Bank of America Securities. You May proceed with your question.
Oh, Great Hey, guys and thanks, so much for taking my question.
I wanted to ask about the vertical you know our pipeline, obviously, you're seeing some real success and some of these key verticals for fins and and as you know financials is not a one size fits all and and you've done a tremendous job of adding more vertical functionality and I think seeing some of the traction and some of these verticals that you're citing and with some of these wins here.
I guess my question is if you look across the verticals, where you've made investment per fins, you know where do you feel best is there one that that is wrapping and perhaps faster than others, where perhaps the the vertical of functionality is ahead of the others are others that we should expect to you know more and in the future of any commentary on just.
The vertical of pipeline across the different key verticals for fence. Thank you so much.
Oh, the that's the Utah.
Thank you Aneel.
And it seems there of three I would highlight.
One would be the only financial services.
The other one would be healthcare and those are very significant deals for us and the other one would be of state and local and Goldman me not spend at all and.
Those three and where we've made investments we're seeing very good traction in terms of the maturity of the solution by Aeterna sales all of our customer wins and our conversion ratios.
That's great. Thanks, so much.
Our next question comes from the line of.
Brian Russell and with Piper Sandler you May proceed with your question.
Thank you and the good afternoon for me obviously, the the success, you're having upselling add ons and the installed base is very encouraging here, which leads and my question on Pecan and I know, it's still very early but as you think about this employee experience market. It is moving fast and Microsoft.
The Big Splash last month, and say P did of partial spin a qual tricks youre seeing new VC funding and the culture and Palatis next net.
Zinc.
And what's been the early feedback so far and peek on how is the difference and how quickly could you used a scale of the attach rate and the installed base.
I'll take the first two parts and the channel address and the third this is the hot space Theres No question about it.
And we actually had a good offerings and the space.
And then COVID-19.
Covid hit and the the demand for more.
Born inside of the two how employees were feeling during this period of time just exploded and.
And pecan and others.
And you look at all of the Magic quadrants and.
Analysts' reports there they're the leader the they're the best and we looked at what we were doing and said we could get there, but not in the other than the time that mattered because of the market is happening now and these guys for the the market leader. So we couldnt be more thrilled to have them as as a as part of workday and that's become a super.
High priority items for every CEO of CHF row to understand our employee sentiment.
In terms of in terms of you know the other thing out of that is.
They were a very cool machine learning first application. They they countered on that machine learning and drive them to better insights and that's the that's the way that we want to go as well so.
And we're super excited about the synergy on that front and in terms of of upsell opportunity of all 10 of them are channel.
Yeah, Brent to me he has not closed yet right. So I just wanted to mention debt, but we are really excited when the deal closes. We are cautiously optimistic that he is going out of yes. The basketball we have some great. There means that off of that piece and the scout. The 70 are going very well and if they need it.
And this is such a whole of the space. They had a great solution and a majority of their fresh since he's seen Europe, but.
And he already has a nice day flagships novel in the U S and really we started with distribution in China, and the U S and <unk>.
And how should we be optimistic that this is gonna be fantastic, what we kind of do better.
Great well it sounds that sounds good and I will be watching this one closely thanks.
And I would just like to add that and say getting even though it has no closed the.
The initial customer feedback is very good.
Our next question comes from the line of.
But the very cool research you May proceed with your question.
Thank you very much and congratulations on the quarter Robin I think you mentioned this a bit but could you give a little additional color last quarter, you discussed the expectation of contract duration decreasing for billings and and both on the new contract side and on the renewal side can you give us a little more color on how big of an impact.
Did this did this really have and how do you see that in terms of the pipeline in terms of what you think those contracts and they're gonna be they can be shorter or the gonna be a return to what we've seen in the past. Thank you.
Yeah, Mark you know when we were forecasting total backlog and it's really hard for us to forecast the duration.
And you saw that this past quarter, and Q4 and the best way to to really measure that impact and if you look at the 24 month backlog growth. It was 19% and Q4 and the total backlog growth was 22% right. So that differential in growth rate is due to increased and duration, which we had not been.
Able to foresee when we first entered into the corner and had our earnings call. So yeah. That's frankly, one of the big reasons, we decided to move more of driving 24 month backlog is because that really takes a lot of that guesswork around duration coming out and we did see of lengthening on durations and Q4 across both net and.
New contracts as well as renewals, which was the really interesting dynamic.
Overall, we let our customers drive the length of contracts, if they want but we see longer contracts and the positive for us and.
You know you don't have renewal risk and often right. So if customers are entering the longer contract and then renewing under longer contracts and that takes away some of the risk to your your revenue for non renewals. So we like that dynamic and we just aren't going to let our customers continue to drive that so it's difficult to predict and I don't know I'm trying to if you Wanna add and.
The thing to what you're saying.
And I would just say debt.
And as we said we have the standup Godfrey items in place for contracts, but we really don't incentivize our sales teams and so on the total contract value and so it's really driven more customers than any of the C. Right. So I think that the fact that customers are signing the there are no longer contracts with signing some things can be five to seven years younger.
Is the is rare and the enterprise software and really speaks to the strategic nature of what the antitrust the customer space on the apps.
Makes sense. Thank you very much.
Our next question comes from the line of Brian Schwartz with Oppenheimer. You May proceed with your question.
Yeah, Hi, Thanks for taking my question this afternoon and real nice job on of the corridor channel I have one question for you is just around the increase and the sales and hiring comments. This fiscal year I was just wondering if theres any particular product area or geography, where you see that there's a big opportunity, where it's more a function of just not having enough of the.
Sales bandwidth does anything stand out to you as you increase your growth investments and this year's physical plant. Thanks.
Thank you, Brian I mean, we're making investments and a number of our as we see sales and marketing helping support our girl sales force because we see the opportunity is clearly there and reducing the IRS language store base team and the rest of the world markets, our I'm going to enforcing need market to push the new countries.
Some of the vertical markets and then some new areas like the fact that aren't Goldberg of me. So he is clearly across the organization. So so you know there will be marketing and pre sales and kind of sick with Eastman and sort of being marketing and brand investments as well. So really this is about driving the pipeline and bookings growth.
And you know I'm basically chased it opportunity that would be and creating and we have of hydro flask and bass and bass and capitalizing on that lots of at least of beat the across the board.
Thank you.
Okay.
Our next question comes from the line of Brad Reback with Stifel. You May proceed with your questions.
Great. Thanks very much.
And you guys think about the acceleration of the potential for acceleration in billings in fiscal 'twenty three and beyond.
Does the.
Cause the the underlying sort of foundation of that between the split between HCM and financials look different going forward or do you expect it to be similar to where we are today.
Yeah.
Well I would just say hum.
You know the of the Asia of World was already.
Pre pandemic full and to the mode of club first and almost every function and HR was moving to the cloud as clear as I could.
Finance was not at the same place.
And so.
During the pandemic, we saw the companies that we're moving to finance and the cloud continuing.
Continuing with all of the people, saying.
And let's just wait till we get out of the pandemic and then and then want to move forward the.
Most of the optimist of things that I've learned over the last 12 months around finances the.
And once that where are the customers that were using the legacy finance systems were.
Sure.
Ah, we're challenged to run their business and and.
Ted we weighted to move through of modern.
Finally and system.
And if you look at all of the Gartner data of that means that the finance is gonna be a pretty hot area over the next two and three years.
And any one channel.
No.
I think we still improved mingle and you know I used to be and Q4 across both of the areas.
And it's more and car even the pipeline of science across both HCM and fins plus the one both for new opportunities as well as the semi truck show and the installed base. So I guess, the we see opportunities of both.
Great. Thank you very much.
And.
And if I could add just one just one one thing that.
You know we are.
And actually saw companies that were.
Struggling with their legacy finance systems are.
During the pandemic, just just actually accelerate there the requirements to go to a cloud based solution and.
Uh huh.
Very lowly penetrated the market right now so.
We just have a lot of upside and I know it had been the pied Piper and I'm talking about finance for probably a decade at this point and I really think of finance transformation.
This is upon us.
Great Good luck.
We will now take two more questions. Our next question comes from the line of Brent Thill with Jefferies. You May proceed with your question.
Thanks, Robin you mentioned youre going to be leaning back into the sales hiring this year I'm. Just curious if you can just maybe give us the shape of the curve of of of hiring and specifically in sales this year versus kind of last year and I just wanted to clarify that I think he said it was pretty flat.
Can you just give us any color around what you anticipate doing in the this fiscal year. Thanks.
Yeah, absolutely. So when you look back over our head count growth and FY 'twenty. One it was pretty flat I think the incremental hires where maybe a few hundred across the whole year will be significantly more this year across all areas and those are weighted heavily towards sales and product more so than any other organization.
So we do expect to invest a lot there and.
Yeah, I'll hand, it over to China and to talk about where some of those investments will incur but it won't be a significant acceleration of hiring and.
And that by 'twenty two.
Yeah, I think what were mostly flat because you commented on and you see our as I said before so and its installed base is fresh of the world to support of the medium enterprise market Air Force some new areas like the Gulf of Maine, and clearly we you know we are putting plans in place for a set of rate in there and you know and bringing the people on board.
As soon as possible and of course, and you know there would be some growth compared to what we have nice of you right now like where we're going.
And of all into double and with the high double digit growth, but I thought I guess you know some nice at single digit growth something hopefully continue the trend.
Titus iteration of investments and sales, we I've never used that opportunity ahead, and the pipeline that we've been creating.
Thank you.
Our next question comes from the line of D. J Hynes of Canaccord. You May proceed with your question.
Hey, Thanks, guys and Neal in your prepared remarks, you quantified the increase and the number of Skus you guys have made over the last three years or anything he said it was up 50%.
Do you have any data that says you know all of our average customer is using this many modules and and maybe how that might compare to your best customers and I'm and I'm wondering if there's any way to kind of put that comparison with with spend the per employee right. It would just be helpful to help kind of think about the capacity for the cross sell opportunity.
T J I don't have that exact data and what I do have inside of data and I'm sure all of our channel about what percentage of our new bookings and Q4 came from new products.
I think that's a that's a more telling.
And the data point on you know how long of these new products doing within our customer base. The channel what do you think.
Yeah. That's the main the main data we track in terms of of the gross debt so and that.
A significant part of the growth that we'd be commenting, 50% plus last year and your store base is coming through and that's 50 per Singles' day, New solutions that we've been delivering over the last three years to the market right. So those are contributing significantly when you look at the pipeline, it's kind of a pretty similar and the conversion rates and also hired.
They're purely we knowing every customary.
The white space, we do have do you only use of the we know that the medium enterprise customers simple quite a number of higher skus seats of saving to start wisdom and knowledge deployment that we have for medium and enterprise, but we did increase and force in terms of both product and innovation and the sales capacity that we'd be up out of it.
The installed base those penetration of ratios in terms of how the new HQ use are progressing and moving the work. The best performance years, you start doing very nicely and I hope and provide some much more deepening formation when diesel.
Coming and financing a lot of news day.
Yeah, Okay, great. That's helpful. Thank you.
And I would add Keith that.
We are of a lot of upside would pick out of the this area of employee engagement is one of the hottest areas and the market right now we were already and that market with our own pulse surveys, but clearly the market one of them more.
And this company during the pandemic.
Grew far more rapidly than workday did and I'm excited to bring this great capability to our customers.
Ladies and gentlemen.
And have reached the end of today's question and answer session. This book called Workday fourth quarter of fiscal year 2021 earnings call. Thank you again for joining us.
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