Q3 2022 Workday Inc Earnings Call

November 18, 2021

[music].

Okay.

Welcome to workdays third quarter fiscal year 2022 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 cold during the Q&A. Please limit your questions to one with that I will now hand, it over to Mr. Justin Furby, Vice President of Investor.

Relations. Thank you Sir you may begin.

Thank you operator.

Welcome to workdays third quarter fiscal 2022 earnings conference call.

On the call, we have Aneel Bush Street, and Shanna Fernandez, our co Ceos Rob.

Robbins, Cisco, our co president and CFO and teach slam our chief strategy Officer.

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 conditions. Please.

Please refer to the press release and the risk factors and documents, we file with the Securities and Exchange Commission, including our 2020. One annual report on Form 10-K, and 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 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.

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 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 a list of selected customers and is updated monthly.

Our fourth quarter quiet period begins on January 16, 2022.

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

With that I'll hand, the call over to Aneel.

Thank you Justin and good afternoon, everyone. Thank you for joining us today for our third quarter of fiscal year 'twenty two earnings call.

I'm pleased to report that workday had another strong quarter as well.

Let it at our analyst day in September we continue to expand our addressable market with a broadening product portfolio and multiple go to market levers to drive sustainable growth on a path to $10 billion and beyond.

As we've discussed throughout this year, our expectation has been for accelerating growth.

Well not every expectation comes to fruition. This one certainly has even faster than we expected and we are optimistic on the momentum we see as we head into the all important Q4.

To prepare for a great year in fiscal year 'twenty three.

Robert will provide more detail shortly but we were pleased to provide a preliminary view, 20% subscription revenue growth for next year and with continued execution, we see off.

Turning to grow even faster.

Before I hand, it off to Charles about the details of our go to market success in Q3, I want to quickly touch on the highlights from the quarter.

Starting out with our industry, leading workday HCM products, we had another strong quarter as we continue to attract new customers and also having strong success growing our relationships with our existing customers in Q3, we added as the stores limited Conoco Phillips Northern Trust toll brothers Michel electronic among many.

Other new HCM customers.

Go lives in Q3 included the state of Iowa, and five below to name a few.

In addition to the strong growth from core HCM, our recently acquired Pecan solutions newly named Workday Pecan employee voice.

Another record quarter, we're seeing the benefits of having recently rolled out globally across our own organization and we couldn't be more excited about the long term potential to help our customers better listen to and engage with their own employees.

We also continue to see strong traction across our financial management suite of applications, our growing product portfolio combined with digital acceleration and the office of the CFO.

Driving broader adoption of our financial management applications.

You Workday financial management customers Q3 includes the city of Philadelphia, The World Health Organization, When Trust Memorial Health care and diversified restaurant group.

Yeah.

Of course, one of the big drivers behind our continued strong customer adoption is our relentless focus on innovation by staying at the forefront of large trends that are secular drivers of future growth.

Trend that has been accelerated by the demands of the pandemic is the future of work, which requires new ways of thinking about workforce composition and how to manage different types of workers.

We expect to accelerate our efforts in this area with the proposed acquisition of <unk>, a leading next generation cloud based vendor management solution platform.

We're paid and belly together will deliver a comprehensive total workforce optimization solution that brings an integrated approach to managing all types of workers, who help customers bridge the gap between internal and external workforce management.

They bring a holistic workforce strategy that delivers full visibility to their entire workforce in managing and planning for labor needs, while also helping to control compliance and security risks.

We look forward to expanding our efforts in this area and we'll share more information after the deal closes, which we expect to occur in our fourth quarter.

Looking ahead to fiscal year, 'twenty, three and beyond we have an amazing growth opportunity in front of us with a unique opportunity to accelerate our path forward, but further ensuring that our purpose strategic vision and product roadmap are in lockstep with our go to market strategy.

Help us do that we've announced a series of important organizational updates. The first two in late October and two more to say that I'm excited to share with you.

Hell charter further articulate workday strategic vision Peach.

<unk> has been appointed as our first ever Chief strategy Officer.

He has successfully led our industry leading product organization for the past few years.

During that time, we implemented a robust product portfolio strategy has contributed to our current momentum both in terms of delivered innovation and financial success.

His ability to set a strategic vision and execute makes him a perfect fit for this new role overseeing and evangelizing our growth strategy going forward.

Second, we're creating tighter alignment across our products and technology organizations under the leadership of Cheyenne Chuck about the who is now EVP of product and technology.

Understands leadership the past few years the technology team has infused workday with game changing innovations like machine learning enable customers and partners to integrate in our platform with more data and build strategic cloud partnerships and help ensure that workday is amongst the most reliable scalable and secure platforms in the industry.

His long and successful track record in delivering industry, leading innovations along with his deep understanding of customer needs. It makes him the ideal leader to map out our combined product and technology path going forward.

And earlier today, we announced a couple of more changes first we were pleased to share that Doug Robinson EVP of global sales.

Promoted to co president of Workday.

Doug will serve as co president alongside Robert Cisco as co President Doug will continue to lead our global sales organization, but also take on an expanded leadership role across the company, helping to spearhead cross functional initiatives that will have workday reached new heights.

And finally, we're also happy to share their Barbara Larson SVP of accounting tax and Treasury is being promoted to Chief Financial Officer effective February one of next year reporting to Robyn.

The transition of the CFO role from Robyn to Barbara as part of Workday strategic succession planning approach that focuses on developing leaders from within.

Barbara has been a rising star since joining workday more than seven years ago.

During that time, she has held several leadership positions across our financing product organizations, providing her with the right foundation to step into the CFO role.

Organization into the future.

With borrowers moved to CFO Robin will now focus more on her co president responsibilities. This will include an increased emphasis on engaging with some of our most strategic fence customers.

Respects to crease workdays footprint within the office of the CFO. In addition to continuing to lead her current organization.

It's an exciting time to be at Workday, and we're looking forward to the impact Pete Cheyenne, Barbara Doug and Robin will continue to make as we all strive to inspire a brighter workday for all.

As I look ahead, my optimism for workdays future couldn't be higher.

We have a great team in place and a significant global opportunity in front of US as companies continue to embark on their HR and finance transformation journeys with that I'll turn it over to our co CEO child Fernandez over there in China.

Thank you O'neil and thank you to everyone for joining us today I want to start by offering my congratulations to beat Siam Barbara and that you are all amazing leaders and fantastic colleagues, who have worked tirelessly to push us forward as a company on your promotion busiest rolls is incredibly well this year.

As Aneel mentioned, we delivered a solid Q3, driven by strong execution combined with healthy demand for financials at H C N solutions.

Conversion rates that we experienced in the first half of the year continued in Q3, driving net new business acceleration, but once again outpaced our expectations.

In addition, our pipeline generation remained very healthy setting us up incredibly well to achieve our full year acceleration target and providing incremental confidence in our goal of sustaining 20% plus subscription revenue growth on our bus with $10 billion in revenue.

Our strength in Q3 was once again broad based with solid growth in London, New core HR fins customers for.

Performance in North America remained strong across the large enterprise when the medium enterprise and international markets both growth significant outperformance.

Mail was a highlight with a standout results in the U K, Spain and Switzerland.

In addition to solid performance from our launch sales team the momentum we think our customer base team continued in Q3 driving continued strength in net revenue retention.

We once again saw a very strong renewals for four months.

Our customer base team drove strength cross selling a number of solutions and the CH Arrow and CFO.

Clothing core fins learning people analytics planning and spend management.

We were also excited by the strength, we saw with people, which has been part of workday now for a couple of quarters on which drove record for four months, including the signing of its largest ever deal.

Customer base expansions with peak in Q3 included Banco Santander.

Trucks, North America, our new people first customers, including colon lung Barrett I S T.

I'm extend had another fantastic quarter with wins of Bristol Myers Squibb, Cardinal health borrowings in our stores and U S foods.

Not only does the extensibility of our platform help us go deeper with our customers. It also allows us to engage our partner ecosystem in very strategic ways.

An example of this is through our partnership with Deloitte, who built on emissions planning model in what they are planning to address critical sustainability objectives related to carbon reduction for ballroom is in Asia Pacific.

These ESG solution has global applicability and its one of several examples of partners, having their IP to enhance the value of the workday platform.

Our industry approach is winning in the market and strengthening our government vertical was one of the many highlights in Q3.

So Neil mentioned, we were selected by the city of Philadelphia for Finance up manifesting. In addition to planning for anything extend spend management and several other solutions. We also signed platform HCM and fins deals with the city of Worcester, Massachusetts, and the country of mobile, Alabama, and we have to.

Wins across a number of older State C D.

I know part of Golar remains both in the U S and internationally.

This is such a nice highlight the importance of taking an industry approach.

We expect to continue to make significant investments across key industries from both a product and go to market at some point.

As we've discussed throughout this year, we're investing aggressively in our go to market absolutely.

Made continued progress on this front in Q3, adding global sales capacity across both our mcneill and customer base.

We're also accelerating our investment in across key brands, our marketing initiatives and these investments, which we expect to we continue in Q4 and into FY 'twenty three our focus on sustaining 20% plus subscription revenue growth.

In closing I would like to thank the more than 14200 global Workmates will have enabled us to drive such a strong Q3 and year to date results. We are very well positioned as we enter the all important fourth quarter and we have our eyes set on record pipeline generation target as we look to lately.

Foundation for a strong FY 'twenty three.

And now I would turn it all worked through our compressing our CFO Robin Cisco over to you Robin.

Thanks, John and good afternoon, everyone.

First I'd like to say that I could not be more excited about the leadership changes and I'm incredibly proud to share the president title had done in the past the CFO mantel to Barbara.

Look forward to continuing to partner with both of them.

As Neill in China mentioned, we reported a strong third quarter once again accelerating subscription revenue growth as organizations across the globe look to workday as their strategic partner in driving their HR and finance digital transformations.

Subscription revenue in Q3 was one $1 7 billion up 21% year over year, driven by healthy new business sales and strong customer renewals with breast retention once again over 95%.

Professional services revenue was $156 million, resulting in total revenue of $1 three 3 billion.

Revenue outside the U S with 336 million, a 23% year over year and representing 25% of the total.

24 month backlog at the end of the third quarter was 7.12 billion growth of 20%.

Total subscription revenue backlog was $10 97 billion up 24%.

Our non-GAAP operating income for the third quarter with $332 million, resulting in a non-GAAP operating margin of 25%.

Margin over achievement was driven by a combination of top line out performance, some favorable expense variances and significantly more backend loaded hiring in the quarter than we anticipated.

Operating cash flow in Q3 was $385 million growth at 31% driven by the margin strength combined with very strong collections.

Our largest investments continue to be in our people and in attracting top talent to workday.

In the third quarter, we meaningfully ramped up the pace of hiring successfully adding and integrating approximately 800 net new employees, bringing our total employee count to over 14200 at the end of Q3.

Overall, we're extremely pleased with our results and execution in Q3, and we're very well positioned as we enter our final quarter of the year.

Turning now to guidance.

Based on our strong Q3, and the continued momentum we're seeing in our business. We are raising our FY 'twenty two outlook and providing Q4 guidance as follows.

For subscription revenue, we're raising our full year estimate to be in the range of $4 53 billion to $4 $5 5 billion approximately 20% growth.

For Q4, we expect subscription revenue of one point to one 6 billion to $1 to one 8 billion, 21% growth and we project 24 month backlog growth of 19.5%.

We still expect professional services revenue to be $590 million in FY 'twenty, two with $145 million in Q4, as we continue to prioritize driving the highest levels of customer success.

Based on our Q3 outperformance, we now expect full year FY 'twenty, two non-GAAP operating margins of 22%.

For Q4, we estimate non-GAAP operating margins of 16% as we continue the pace of hiring and breadth of investment and begin our new performance cash bonus program in Q4.

The GAAP operating margin is expected to be lower than the non-GAAP operating margin by approximately 24 percentage points in Q4 and for the full year.

We're updating our FY 'twenty two guidance for operating cash flow to 165 billion growth of 30% and we still expect $270 million of other capital investments in FY 'twenty two to support our customer growth and continued business expansion.

While we're early in our FY 'twenty three planning cycle and have an important Q4 to close we'd like to provide a preliminary and high level view of FY 'twenty three.

We currently expect subscription revenue of approximately 544 billion growth of 20% year over year.

We expect subscription revenue in Q1 of FY 'twenty three to increase approximately 2.5% sequentially from Q4 FY 'twenty two.

As we shared at our recent analyst day, we are focused on driving sustainable subscription revenue growth of 20% or higher on our path to $10 billion in revenue.

Given the strength of our market position and the accelerating trends, we see across HR and finance digital transformation, we expect to increase the pace of our topline focused investments.

Taking into account these investments are expected of COVID-19 related cost savings phasing out.

And the full year impact of our new bonus program. We continue to expect FY 'twenty three non-GAAP operating margin of 18%.

Investing for growth will remain our focus and we'll continuously evaluate gross margin tradeoffs, but we currently expect to resume margin expansion. After next year, putting us on a path to reach 25% margin at $10 billion in revenue.

I'll close by thanking our amazing employees customers and partners for their continued support and hard work.

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. If you would like to ask a question. Please process star one on your telephone keypad, a confirmation tone will indicate your line is another question queue. You May press star two to remove your question from the queue for participants using speaker equipment it may be necessary.

I refer you to pick up your handset before pressing the star keys. Please limit yourself to one question one moment, while we poll for questions.

First question comes from the line of Kirk <unk> with Evercore ISI you May proceed with your question.

Oh, thanks, Thanks, very much and congrats on the quarter and congrats to everyone. That's on their promotions.

Alan Shantou first of all thank you all for the preliminary look ahead to fiscal 'twenty, three but yeah. China can you just talk a little bit more about what you're seeing in the pipeline today that gives you confidence in that in that 20% plus outlook for subscription revenue growth just kind of curious if it's the volume of deals youre seeing in the pipeline pick up the size of deals and maybe if you could just.

Add a little color on the core financial opportunities as well that'd be great. Thanks, so much.

Oh, China.

Yeah, Curt attached for your question I think not only did we see a strengthening in Q3, new business, but the pipeline momentum that we have described the last several quarters continued as well with the strength I would say across regions.

Solutions as well.

I think it's a much more balanced and predictable pipeline when compared to a few years ago as our product portfolio has expanded.

We have seen really healthy momentum across both motions landing and expanding.

So we have our sights set on.

I know the record pipeline quarter in Q4 to help lay out a foundation for a solid FY 'twenty three and beyond the.

The trends, we are seeing our pipeline and support our our view that the momentum in the business is sustainable and support our goal of sustaining 20% plus subscription revenue growth in.

In terms of core fins.

Really a contributor to the strong quarter, we have both the core fins on the finished plus category as a whole cart.

That's great I guess, just a quick follow up for Robyn It Robin or is there still is the 24 month backlog number is still being weighed down by lower renewal cohort cohort and kiss remind us what that is and maybe when that normalizes that stope pointed out right now.

Yeah Curt so.

A call come in to this year, we discussed a couple of point headwind to 24 month backlog growth. This entire year stemming from the flattish renewal base that we saw coming into the year for the most part that's played out as we thought although our really strong renewal rates throughout the year have somewhat offset that dynamic to give us the results that we've been.

Reporting to date on this front when we look ahead to FY 'twenty three we are expecting to return to a more normalized rate of growth in our renewal base and therefore expect that that headwind goes away.

Super Thanks, so much congrats.

Yeah.

Our next question comes from the line of cash Redon with Goldman Sachs. You May proceed with your question.

Alright. Thank you very much it's great to see how you promote internal talents starting with Doug. Its a very long list is it's great that you were able to create the next generation of management quoting.

This channel and Barbara problems et cetera.

Question has to do with the net new ACB back to the base Reuben on it for two years and there's no stopping already.

The slowing down of momentum in that business aspect can you talk a either China or aneel about the opportunities ahead as the product portfolio continues to build and still keep adding new customers, but they're getting the best opportunity continues to be vibrant can you just expand a little bit more about how.

You plan to make it even more of a focus going forward. Thank you so much and congrats on a.

Very strong quarter.

Well I might just touch on the new products and John can touch on go to market piece I think one of the great things we've had both through internal development and through acquisition. Most recently picked on in November.

Our products that we can sell back to our really broad based financial HR customer base and on the finance side. We did the same thing with scout.

Uh huh.

And it's and we hope to do that would limit and planning.

Planning, it's been across both product lines that really has changed the game. We have these really powerful add on products.

That are best in class that are attractive to customers. So maybe you could talk about how we're doing that.

Yeah.

Yeah. Thank you Kash and thank you Aneel I think the value proposition of the innovation on the solutions that are young and Pete and the team are building is just is.

It's just fantastic right and I would say it's no single solution was the one driving the momentum gosh. It is really broad based strength across day.

The full portfolio of HR financial solutions, and I think that drove his strengths as well in the renewal rates from our customer base, which I believe this speaks to how strategic we are for for our customers right.

So we were expecting this momentum to continue on and we share with you on what analyst day that 10 billion opportunity that we're seeing our customer base and of course, expanding as we keep adding more customers and we keep planning to keep having some of the investments that we're doing in cross border market gosh, those going into customer base obviously.

We've been highlighting we are planning to strengthen next year the land motion so clearly of solutions around people.

It should be sourcing planning and clearly ability going forward as well. So we are pretty excited by two percentage to be higher on the customer base.

Robert Thank you so much.

Yeah.

Our next question comes from the line of Mark Murphy with J P. Morgan you May proceed with your question.

Yes. Thank you very much and I'll add my congrats to everyone, who is taking on a new role, Doug Barbara up sheets and say on a much much deserved.

I wanted to ask Robyn I'm looking at the sequential change in the 24 months subscription backlog for Q3, it's actually a bigger number than that we've seen the last couple of years.

So I'm just curious.

If what we're seeing is the conversion of that pipeline build.

I think you had said was starting maybe nine to 12 months ago. As you expected or are you seeing something that's converting faster or in period.

Like from pecan or other products or is.

Is it maybe something else, that's driving that sequential strength.

Yeah, Mark I mean, maybe I'll just point out a few things even though we really are seeing strength across all of our business in multiple different ways and the few things that I'll call out is our conversion rates have remained on the higher side right and so that has certainly helped us convert more pipeline. We also.

So as we as we strengthen our sounds notion on some of our acquired companies or products that we can sell them independently those tend to have shorter cycles and so we're seeing an impact there as well and then lastly, I'll call out. We just have seen really really strong renewals really really strong renewals had uplift.

To those renewals and so that has really helped us with our sequential growth in backlog as well.

Okay. So the three different legs to the stool.

Thank you Robin and then just a very quick follow up you had announced a major new HCM.

Logos.

I think Aneel commented on.

Conoco Phillips.

We're their trusted toll brothers big companies.

Any comment on who are the incumbents, where and just trying to that you said the pipeline generation remain healthy should we infer that you.

Here, you see pretty strong indications among the fortune 500 for Q4.

I would say on your first question won't with incumbents, where usually as usual, 80% where those are coming from mainly two legacy competitors right is no difference here Mark.

To your question on the pipeline expecting into Q4, I would just say that there is good strong pipeline great momentum usually some of the largest logos.

And to lean in our largest quarter, which is Q4.

Understood. Thank you very much.

Our next question comes from the line of Brad Zelnick with Deutsche Bank. You May proceed with your question.

Great. Thank you so much and I Echo my congratulations as well on a strong performance in Q3 I wanted to follow up on Kirks question on backlog and the flat renewal cohort this year.

How we should think about the growth and what's due to renew which Rob and I know you characterized as being more normal, but even if not numerically it and I know the more exciting part of that equation is what youre going to the growth that you were able to add onto these renewal opportunities and expand them, but how should we think about the typical upsell cadence meaning.

How often might you see customers new <unk>.

Modules and new features and capabilities when they're made available maybe interest cycle versus upon renewal like is the renewal itself more often than not a.

At the time that you will see them expand versus you know co terming midterm. Thank you.

Yeah, we're seeing that dynamic shift a little brown over that over the years as we focus more on building the customer base team, they're having continuous conversations with those customers outside of the renewal cycle. So where if you go back separately several years I'd say three to four years most of the add on business came during the renewal cycle and we.

Really seen that change with the investments and the back to base and go to market and now the conversations are continuing so we're seeing a lot less add on just in the renewal cycle and more add ons. Just you know as products become available RF customers need shift, but the Renault is still.

Great opportunity to engage in a conversation with those customers. So you know it still is an opportunity for us to sell but less dependent on that renewal cycle to actually get add on business and I don't know China do you have anything you would add to that from the go to market side.

That's exactly the dynamics, we've been seeing in the shift would be.

During these last few years, so it's less dependent on those spring launch cycles with customers are adding new solutions.

Thank you if I could maybe sneak in one quick follow up for you Robyn seeing the the growth in total backlog exceeding that of 24 months backlog, we actually had picked up from partners just in general beyond even workday customers looking to go longer and longer duration in anticipation of inflation and price increases just.

Curious if you have any comments on duration that youre seeing from maybe commercial accounts, where I know government tend to do larger deals what if anything is there to comment on on duration. Thank you.

Yeah, you're absolutely right.

Total backlog growth exceeds the 24 month, it's because we've seen duration lengthened and we've seen that fairly consistently over the last several quarters and even the last several years, where the total outpaces. The 24 months. So I do think that there is a trend there of inking larger contracts.

But they do tend to move around by industry and by customer and as we've said before we are happy to have a contract length.

Our customers are comfortable with we won't do one Andrew three years, but any anything about that we really lead to them. So it's not something that we manage to but we're certainly happy when customers want to connect tests for longer periods of time.

Awesome. Thank you again.

Our next question comes from the line of Brad Sills with Bank of America. You May proceed with your question.

Oh, great. Thanks, guys and I'll Echo the congratulations on a nice Q3.

I wanted to ask a question about just the general environment of the office of HR.

It would seem that with the great resignation of a difficult hiring environment that you'd see an increased focus on digital transformation projects for more productivity in general offer HR. So I'm curious if that is manifesting in your pipeline not just for core HR core HCM, but the productivity tools like learning analytics recruiting pecan is that.

Reflected in your pipeline do you think that's something that might be coming based on what you're hearing.

And the opposite HR. Thank you.

Pete you want to take that one up.

Yes.

I think your question is spot on what we are seeing the trends towards as you said kind of spurred by the great resignation happening with the pandemic.

All of those things are generating trends that we're seeing in demand from our customers for.

Our products like learning I would also put I'd also call out our talent optimization SKU, which is composed of the career hub and the talent marketplace to allow employees to move within a.

Within the company.

Uh huh.

Learning as I said before and also you know also mentioned the Bentley.

Tend to acquire that we announced today as well, which allows companies to be able to kind of flex their workforce.

Based upon these these talent demand. So we're definitely seeing that from a from a demand standpoint from our customers and and we've had great great quarters.

Great quarter, this last quarter as well with all of those products.

Thanks, so much.

Our next question comes from the line of.

D J Hynes with Canaccord you May proceed with your question.

Yeah.

Hey, Thanks for taking the question.

Maybe I could build off Pete's commentary you brought up <unk>. So it seems like a good segue to ask a question there.

The product seems to be kind of a crossover between HR and finance. So can you talk a little bit about like where the buying center resides there and and really what the pinpoint is like how it organizations typically manage that process. If they didn't have a platform of my family.

Yes.

Start with with the buying centers the buying center is has traditionally.

Ben in the procurement space, but has more recently been trending towards the HR space.

So actually that's that's a it was.

A great fit for us because we sell to both of those buyers and it really for us looked like a nice kind of piece of the puzzle between our human capital management, our financial management and our.

<unk> spend management solutions.

Traditionally this has been solved the better management.

Our systems have been around for a while finally is really a second generation cloud based vendor management system, great focus on the user experience configure ability and the and the one thing I will also mention there is that it's it is deployed by enterprises, but also oh about 50%.

The time deployed by a managed service providers and Bentley happens to have a great relationship with managed service providers as well and we see that as a channel for us to continue to use as we go forward.

Yeah, yeah, Okay. It makes sense.

And then Robin maybe a follow up for you I think kind of coming into this year, we had talked about that new bookings acceleration this year, leading to faster subscription growth next year.

What's the updated guide in view of next year at 'twenty, and 'twenty and I realize it's a preliminary view of next year and any good preliminary do you embed some conservatism, but is it fair to assume that if Q4 ends up.

How youre planning, we could still see subscription acceleration next year.

Yeah, Vijay I mean, we certainly see upside from the 20%, but to your point Q4 is going to be a really important quarter for us in shaping the subscription revenue next year. So we're really focused on executing against Q4, and we'll have a new look for all of you on the next earnings call when when we see how we can.

Q4.

Of course, it makes perfect sense. Thank you guys.

Our next question comes on line.

Michael <unk> with Wells Fargo Securities You May proceed with your question.

Hey, there. Thanks. Good afternoon. Appreciate you taking the question you mentioned 800 net new hires during the quarter or is there any further commentary you can add just on the pace of hiring into Q4 are you finding you're able to stay on pace with that 2500 target to start off the year and is there any difference between U S and international there too.

To call out thank you.

And we were Super pleased with the hiring in the quarter we've been.

Really ramping our recruiting engine and our process throughout the year. It honestly took us a little longer than we had hoped given the market. When we came into the year, but we're really excited to make such great progress in Q3, and it's certainly our hope and our goal to actually have similar hiring in.

Q4, so that we can get really close to that 2500 net new.

New employees for the whole year, it's a challenging market, but we feel like we've got the momentum to do that and so we're really focused on executing.

Great. Thank you.

Our next question comes from the line of Brad Reback with Stifel. You May proceed with your question.

Great. Thanks, very much Robin as we think about the renewal pool returning towards its normal growth cadence next year is that linear over the course of the year will that be somewhat more back end loaded understanding that <unk> always had seasonality, but just that year over year growth opportunity.

Yeah, Brad you know, that's a really hard thing to predict because one of the things that we're seeing one dynamic we're seeing as we have more add on business outside renewal cycles is renewals moving around.

Gordon at cornerstone if somebody wants to add on several products their renewals two quarters away, it's highly likely that there just kind of do an early renewal renewal and wrap it all in so we don't see anything unusual in any one quarter that I would call out, but it is a dynamic that fairly difficult for us to predict and we do.

Some variation quarter to quarter, but overall.

In terms of looking at the whole year.

We're excited to return to a normal growth rate and not be facing the headwinds we face this year.

That's great thanks very much.

Our next question comes from the line of Brent bracelet with Piper Sandler You May proceed with your question.

Good afternoon, and thank you here I wanted to go back to the 22 outlook in guide up here I know you guys were clearly optimistic at the September analyst day, but if I just rewind nine months ago. I think you entered the year guiding to 16% subscription growth you've now had two key.

Orders are accelerating subscription growth and you're raising the outlook for next year, It's a pretty big change in nine months is the story here driving the optimism for next year, all about the $10 billion cross sell in the base or is there. Other factors that are really driving kind of the optimism here in the business and I.

Some optimism to couple of months ago, but love to kind of understand the pace of change that you've seen here this year and the momentum that you're you're kind of looking forward to next year. Thanks.

Well I'd say that the pandemic was a once in a lifetime event and in many ways quite a bit quite a bit obviously sat in a negative.

On the business side that did change everything.

Whether it's the.

The shift to remote work or hybrid work.

Or as you look at the broader base of contingent workers and the great resignation as you call. It.

And I think what it would enforce customers who do wish to look at their platforms and saying are we ready for this new world.

And in many cases they weren't.

And we were fortunate that.

The way that we built our cloud products and the solutions. We have are a perfect fit for where the world is headed.

And I think we're benefiting from that.

And increasingly.

In a labor constrained world.

World.

What we're doing with <unk>, what we're doing with them.

We are doing with our own products in terms of helping people optimize their human capital is huge and we.

Also during the pandemic, we saw a lot of big financial projects being put on hold and now those are slowly coming back. So there's optimism that even more of the financial products are going to be coming back financial projects should be coming back next year.

And as you think about the role of competition here do you think youre in a better position to gain share next year based on the moves that you've made here and that's part of the optimism or do you think this is more of a broader industry recovery that you're expecting next year. That's all I had thanks.

I think it's both but.

The other day, we started out with zero customers and our main competition has thousands of customers. So every customer we've gotten has been.

It's been out at a competitors' expense.

And we've now passed 50% market share on the HCM side of the Fortune 500.

We're getting that same kind of momentum in financials and I do think it's coming at the expense of what I would consider to still be legacy competitors I don't think they've quite yet.

We made the transition to the cloud.

Okay.

Our next question comes from the line of frontal with Jefferies. You May proceed with your question.

Thanks, I was wondering if you could just drill a little bit into planning I think last quarter, you mentioned, 50% CV growth.

Any stat or any update there and just directionally. It seems like with all the supply chain concerns. There's a there's a tremendous opportunity for you to to help a lot of companies out there at this point any color around that business, we would be greatly appreciate it.

Planning continues to be a very meaningful growth driver for us one of the bigger components, you'll defense glass on the acceleration was seen this quarter.

We did not call out the specific growth rate. This time, our momentum remains very strong and we feel really good how we are competing and winning in this market.

And despite all the strength we have seen funding over the last couple of years, we have significant on turnover opportunity. We shared at our analyst day, only about 30% of our customers having attached financial planning on about 10% attached work force planning. So we have a lot of opportunity ahead.

Okay.

Thank you.

Right.

We will now take two more questions.

Our next question comes from line of Karl Keirstead with UBS. You May proceed with your question.

Thank you maybe a couple for Robin Robin.

If you could elaborate on the 24 month backlog guide for four Q.

Strong number, but it's a similar growth rate to <unk>, yet it's at two point easier compare anything else on your on your mind as you.

Thought through the inputs to that <unk> got.

Yeah, I mean, I would just say that we're really really pleased to be providing the preliminary view, 20% revenue growth for FY 'twenty, three but keep in mind to achieve that we need to sustain healthy bookings growth, which we fully expect to do in Q4.

Backlog is going to move around it's not a perfect measure for several reasons, including the renewal headwind this year, but we feel really good about the momentum in our business and our outlook.

And we certainly would hope to overachieve the backlog guy, but we'll have to see how we how Q4 goes.

Yep, Okay that sounds good and then as a follow up congrats on the on the couple of what looks like relatively small acquisitions, maybe I missed it but robin any any financial impact from these two deals once they close that we should keep in mind with respect to either you know revs or margins or backlog to call out or image.

Cereal.

Yeah I mean these companies are both really early in their growth cycles, and therefore really minimal impact on our revenue guide for next year and we do however, expect us to be high growth markets and so we are therefore planning on investing in those spaces to support the growth opportunity and all of those incremental investments.

Well, it's the transaction costs were generally in existing expense basis for both have all been captured in our margin guidance for both Q4 and FY 'twenty three.

Yep got it figured that was the case thanks for the answers Robyn.

Our next question comes from the line of Derrick Wood with Cowen and co. You May proceed with your question.

Oh, great. Thanks for squeezing me in.

Some companies have talked about more accentuated summer seasonality just curious how linearity track for you in Q3.

And then you keep.

Depending on how Q4 is such an important quarter.

Any any any color on linearity, there and just any anecdotes you give around what you're seeing in terms of larger enterprise opportunities as you head into the end of the year.

China.

We haven't seen any particular shapes your internal sales linearity.

It was good strong order I mean, clearly our first months. If all is all of US use release more quiet, but he was good and solid if I compare to last year and two years ago. I think we had a good September over the old, but I wouldn't say nothing normally, especially our call out there.

Q4.

I mean, they are always very large deals in the pipeline for both I would say HCM and financials.

Of course, there is a solid come by billing across a very deep number different solutions geography, some do not.

Whole portfolio on volume business across medium enterprise and customer base that we'd get to stability, but clearly you know floor for us delivering good solid quarter in keeping with the same conversion ratio.

<unk> be great launch opportunities that are lined up for Q4. So we're excited about them, but of course, we have to execute uploading them basically to us.

The teams know that they can do.

And if I could squeeze one more in.

You talked about how youre pleased with your own hiring even though it's a tough market.

Ask about how you're feeling about your partners and how well staffed they are in.

To support your accelerated growth in up there if you see any reason for them to be having any constraints on their own staffing.

Yeah.

One.

I mean, we're please hold the partnership progressing D. B I think that around 800 resources through the ecosystem in Q3.

They continue to be ramping up new resources. During Q4, so we've been very happy as well how much they are investing on training and ramping up these resources that they see the opportunity I will just remind you all of you that they keep deploying around 180% cloud software.

Our solution portfolio.

We clearly are doing much more with Dana mentioned. This example of the ESC solution around planning for public sector basically in the Asia Pacific region that I think is one that they can be deployed globally. So that relationship we're reading with building with our partners. These days.

Beyond implementation is building out new solutions in IP join me and they keep really investing for most of the large case size say what do they say you know out of the top three kind of history of these practices. So we were pleased how they're how they're doing and they keep investing we think what are the future together.

Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This will conclude workdays third quarter fiscal year 2022 earnings call. Thank you again for joining US today you may disconnect your lines at this time.

Okay.

Hum.

[music].

Welcome to workdays third quarter fiscal year 2022 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. During the Q&A. Please limit your questions to one with that I will now hand, it over to Mr. Justin Furby, Vice President of Investor Relations.

Thank you Sir you may begin.

Thank you operator.

Welcome to workdays third quarter fiscal 2022 earnings conference call.

On the call we have Aneel Bush rate in China Fernandez, our co Ceos Robbins.

Robyn Cisco, our co president and CFO and Peach Slam, our chief strategy Officer.

Following prepared remarks, we will take questions.

Our press release was issued after close of market and is posted on our website.

This call is being simultaneously webcast.

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 2021 annual report on Form 10-K, and 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.

Fourth 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 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 a list of selected customers and is updated monthly.

Our fourth quarter quiet period begins on January 16, 2022.

Unless otherwise stated all financial comparisons in this call will be to our results for the comparable period of our fiscal 2021.

With that I'll hand, the call over to Aneel.

Thank you Justin and good afternoon, everyone. Thank you for joining us today for our third quarter of fiscal year 'twenty two earnings call.

I am pleased to report that Workday had another strong quarter as we highlighted at our analyst day in September we continue to expand our addressable market with a broadening product portfolio and multiple go to market levers to drive sustainable growth on a path to $10 billion and beyond.

As we've discussed throughout this year, our expectation has been for accelerating growth.

Not every expectation comes to fruition. This one certainly has even faster than we expected and we are optimistic on the momentum we see as we head into the all important Q4.

Prepare for a great year in fiscal year 'twenty three.

Robert will provide more detail shortly but we are pleased to provide a preliminary view of 20% subscription revenue growth for next year.

And with continued execution, we see opportunity to grow even faster.

Before I hand, it off to charter to provide details of our go to market success in Q3, I want to quickly touch on the highlights from the quarter.

Starting out with our industry, leading workday HCM products, we had another strong quarter as we continue to attract new customers and also having strong success growing our relationship with our existing customers. In Q3, we added Asda stores limited Conoco Phillips Northern Trust toll brothers and Michelle electronic among many.

Other new HCM customers Novo.

Notable go lives in Q3 included the state of Iowa, and five below to name a few.

In addition to the strong growth from core HCM, our recently acquired Pecan solution newly named Workday Pecan employee voice delivered another record quarter.

Seeing the benefits have recently rolled out pecan globally across our own organization.

Couldn't be more excited about the long term potential to help our customers better listen to and engage with their own employees.

We also continue to see strong traction across our financial management suite of applications, our growing product portfolio combined with digital acceleration and the office of the CFO is driving broader adoption of our financial management applications.

New Workday financial management customers in Q3 includes the city of Philadelphia, The World Health Organization, When Trust Memorial Health care and diversified restaurant group.

Yes.

One trend that has been accelerated by the demands of the pandemic is the future of work, which requires new ways of thinking about workforce composition and how to manage different types of workers.

We expect to accelerate our efforts in this area.

<unk> acquisition of <unk>.

Leading next generation cloud based vendor management solution platform.

We're paying belly together will deliver a comprehensive total workforce optimization solution that brings an integrated approach to managing all types of workers to help customers bridge the gap between internal and external workforce management, while enabling a holistic workforce strategy that delivers full visibility to their entire workforce in managing and planning for labor needs.

While also helping to control compliance and security risks.

We look forward to expanding our efforts in this area and we'll share more information to help with no closes, which we expect to occur in our fourth quarter.

Looking ahead to fiscal year, 'twenty, three and beyond we have an amazing growth opportunity in front of us with a unique opportunity to accelerate our path forward by further ensuring that our purpose strategic vision and product roadmap are in lockstep with our go to market strategy.

US do that we've announced a series of important organizational updates. The first two in late October and two more to say that I'm excited to share with you.

To Hell chartered further articulate workday strategic vision.

<unk> has been appointed as our first ever Chief strategy Officer.

He has successfully led our industry leading product organization for the past few years during.

During that time, he implemented a robust product portfolio strategy that has contributed to our current momentum both in terms of delivered innovation and financial success.

The ability to set a strategic vision and execute makes him the perfect fit for this new role overseeing and evangelizing our growth strategy going forward.

Second we are creating tighter alignment across our product and technology organizations under the leadership of Cheyenne, Chuck <unk>, who is now EVP of product and technology.

Understand leadership the past few years, the technology team has infused workday with game changing innovations like machine learning enable customers and partners to innovate in our platform with more data and build strategic cloud partnerships and help ensure that workday is amongst the most reliable scalable and secure platforms in the industry.

His long and successful track record in delivering industry, leading innovations along with his deep understanding of customer needs makes him the ideal leader to map out our combined product and technology path going forward.

And earlier today, we announced a couple of more changes.

First we are pleased to share that Doug Robinson EVP of global sales has been promoted to co president Workday Doug.

Doug will serve as co president alongside Robert Cisco as co President Doug will continue to lead our global sales organization.

So take on an expanded leadership roles across the company, helping to spearhead cross functional initiatives that will help workday reached new heights.

And finally, we're also happy to share that Barbara Larson.

<unk> of accounting tax and Treasury is being promoted to Chief Financial Officer effective February one of next year reporting to Robyn.

The transition of the CFO role from Robinson, Barbara as part of Workday strategic succession planning and approach that focuses on developing leaders from within.

<unk> has been a rising star since joining workday more than seven years ago.

During that time, she has held several leadership positions across our finance and product organizations, providing her with the right foundation to step into the CFO role and lead our finance organization into the future.

With Barnes group's CFO, Robert will now focus more on her co president responsibilities. This will include an increased emphasis on engaging with some of our most strategic fence customers and prospects to increase workplace footprint within the office of the CFO. In addition to continuing to lead our current organization.

It's an exciting time to be at Workday, and we're looking forward to the impact peak Cheyenne Barbara Doug and Robin will continue to make as we all strive to inspire a brighter workday for all.

As I look ahead, my optimism for workdays future could it be higher.

Thank you Neil and thank you to everyone for joining us today I want to start by offering my congratulations to beat Siam Barbara and.

You are all amazing leaders and fantastic colleagues, who have worked tirelessly to push us forward as a company and you have promotional business rolls is incredibly well this year.

Neil mentioned, we delivered a solid Q3, driven by a strong execution combined with healthy demand for financials and HCM solutions.

Strong conversion rates that we experienced in the first half of the year continued in Q3, driving net new business acceleration, but once again outpaced our expectations.

In addition, our pipeline generation remained very healthy.

Setting us up in credit.

Now to achieve our full year acceleration target and providing incremental confidence in our goal of sustaining 20% plus subscription revenue growth on our bus with $10 billion in revenue.

Our strength in Q3 was once again broad based with solid growth in London, New core HR and finance customers.

Performance in North America remained strong across the large enterprise, while the medium enterprise and international markets both growth significant outperformance.

<unk> was a highlight with a standout results in the UK, Spain and Switzerland.

In addition to solid performance from our land sales team the momentum we think our customer base team continued in Q3 driving continued strength in net revenue retention.

We once again saw a very strong reading what for four months.

Our customer base team drove strength cross selling a number of solutions aimed at the <unk> and our CFO.

Clothing core fins learning people analytics planning and spend management.

We were also excited by the strength, we saw with people, which has been part of workday now for a couple of quarters.

Which drove record per four months, including the signing of its largest ever deal.

Customer base expansions with peaking in Q3 included Banco Santander.

Trucks, North America, and new people first customers, including colon Embarek on SP.

Extent had another fantastic quarter with wins of Bristol Myers Squibb, Cardinal health borrowings on our stores and U S foods.

Not only does the extensibility of our platform help us go deeper with our customers. It also allows us to engage our partner ecosystem in very strategic ways.

An example of this is through our partnership with Deloitte, who built an emissions planning model in walk the adaptive planning to address critical sustainability objectives related to carbon reduction for governments in Asia Pacific. This ESG solution has global applicability.

One of several examples of partners, having their IP to enhance the value of the platform.

Our industry approach is winning the market strengthening our government vertical it was one of the many highlights in Q3.

As Daniel mentioned, we were selected by the city of Philadelphia for Financial Management. In addition to planning bracing extend spend management and several other solutions. We also signed platform HCM deals with the city of Wister, Massachusetts, and the country of mobile, Alabama, and we had one.

And it's across a number of other state.

I know part of Golar remains both in the U S and internationally.

Successes such as this highlight the importance of taking an industry approach and we expect to continue to make significant investments across the industries from both a product and go to market standpoint.

As we've discussed throughout this year, we're investing aggressively in our go to market and we made continued progress on these fronts in Q3, adding global sales capacity across both our met Neil and customer base.

We're also accelerating our investment across key brands, our marketing initiatives and these investments, which we expect to we continue in Q4 into FY 'twenty three our focus on sustaining 20% plus subscription revenue growth.

In closing I would like to thank the more than 14200 global Guac mix will have enabled us to drive such a strong Q3 and year to date results. We are very well positioned as we enter the all important fourth quarter and we have already set a record pipeline generation targets as we look to lately.

<unk> for a strong FY 'twenty three.

And now I will turn it over to our compressing our CFO Robin Cisco over to you Robin.

Thanks, John and good afternoon, everyone.

First I'd like to say that I could not be more excited about the leadership changes and I am incredibly proud to share the president title was done.

In the past the CFO mantel to Barbara I look forward to continuing to partner with both of them.

As Neal and Gino mentioned, we reported a strong third quarter once again accelerating subscription revenue growth as organizations across the globe look to workday as their strategic partner in driving their HR and finance digital transformation.

Subscription revenue in Q3 was one $1 7 billion or 21% year over year, driven by healthy new business sales and strong customer renewals with breast retention once again over 95%.

Professional services revenue was $156 million, resulting in total revenue of $1 33 billion.

Revenue outside the U S with $336 million or 23% year over year, and representing 25% of the total.

24 month backlog at the end of the third quarter was $7, one 2 billion growth of 20%.

Total subscription revenue backlog was $10 97 billion up 24%.

Our non-GAAP operating income for the third quarter with $332 million, resulting in a non-GAAP operating margin of 25%.

Margin over achievement was driven by a combination of top line out performance, some favorable expense variances and significantly more backend loaded hiring in the quarter than we anticipated.

Operating cash flow in Q3 was $385 million growth at 31% driven by the margin strength combined with very strong collections.

Our largest investments continue to be in our people and in attracting top talent to workday and.

Overall, we're extremely pleased with our results and execution in Q3, and we're very well positioned as we enter our final quarter of the year.

Turning now to guidance.

Based on our strong Q3, and the continued momentum we're seeing in our business. We are raising our FY 'twenty two outlook and providing Q4 guidance as follows.

For subscription revenue, we're raising our full year estimate to be in the range of $4 53 billion to $4 535 billion approximately 20% growth.

For Q4, we expect subscription revenue of one point to one 6 billion to $1 to one 8 billion, 21% growth and we project 24 months backlog growth of 19, 5%.

We still expect professional services revenue to be $590 million in FY 'twenty, two with $145 million in Q4, as we continue to prioritize driving the highest levels of customer success.

Based on our Q3 outperformance, we now expect full year FY 'twenty non-GAAP operating margins of 22%.

For Q4, we estimate non-GAAP operating margin of 16% as we continue the pace of hiring and growth investments and begin our new performance cash bonus program in Q4.

The GAAP operating margin is expected to be lower than the non-GAAP operating margin by approximately 24 percentage points in Q4 and for the full year.

While we're early in our FY 'twenty three planning cycle and have an important Q4 to close we'd like to provide a preliminary and high level view of FY 'twenty three.

We currently expect subscription revenue of approximately 544 billion growth of 20% year over year.

We expect subscription revenue in Q1 of FY 'twenty three to increase approximately two 5% sequentially from Q4 FY 'twenty two.

As we shared at our recent analyst day, we are focused on driving sustainable subscription revenue growth of 20% or higher on our path to $10 billion in revenue.

Given the strength of our market position and the accelerating trends, we see across HR and finance digital transformation, we expect to increase the pace of our topline focused investments.

Taking into account these investments are expectant of Covid related cost savings phasing out.

On a full year impact of our new bonus program. We continue to expect FY 'twenty three non-GAAP operating margins of 18%.

Investing for growth will remain our focus and we will continuously evaluate gross margin tradeoffs, but we currently expect to resume margin expansion. After next year, putting us on a path to reach 25% margins at $10 billion in revenue.

I'll close by thanking our amazing employees customers and partners for their continued support and hard work.

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

At this time, we will 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 true move your question from the queue for participants using speaker equipment it may be necessary.

For you to pick up your handset before pressing the star keys. Please limit yourself to one question one moment, while we poll for questions.

First question comes from the line of Kirk <unk> with Evercore ISI you May proceed with your question.

Oh, thanks, very much and congrats on the quarter and congrats to everyone. That's on their promotions aneel.

Neil and Shadow first of all thank you all for the preliminary look ahead to fiscal 'twenty, three but yes, China can you just talk a little bit more about what you're seeing in the pipeline today that gives you confidence in that in that 20% plus outlook for subscription revenue growth just kind of curious if it's the volume of deals youre seeing in the pipeline pick up the size of deals and maybe if you.

Just add a little color on the core financial opportunities as well that'd be great. Thanks, so much.

Ah trial.

Yes, Kurt Thanks for your question I think not only did we see a strengthening in Q3, new business, but the pipeline momentum that we have described the last several quarters continued as well with the strength I would say across regions.

<unk> solutions as well.

I think it's a much more balanced and predictable pipeline when compared to a few years ago.

Our product portfolio has expanded as we have seen really healthy momentum across both motions landing and expanding.

So we have our sights set on I know the record pipeline quarter in Q4 to help lay out the foundation for a solid FY 'twenty three and beyond.

The trends, we are seeing our pipeline and support our view that the momentum in the business is sustainable and support our goal of sustaining 20% plus subscription revenue growth in terms of core fins.

It was really a contributor to the strong quarter, we have both core fins on the finished glass category as a whole cart.

That's great if I could ask just a quick follow up for Robin Robin or is there still is the 24 month backlog number is still being weighed down by lower renewal cohort cohort and just remind us what that is and maybe when that normalizes.

I'll point out right now.

Yeah, Curt so as you know.

Coming into this year, we discussed a couple of point headwind to 24 month backlog growth. This entire year stemming from the flattish renewal base that we saw coming into the year.

The part that's played out as we thought although our really strong renewal rates throughout the year have somewhat offset that dynamic to give us the results that we've been.

Reporting to date on this front when we look ahead to FY 'twenty three we are expecting to return to a more normalized rate of growth in the renewal base and therefore expect that that headwind goes away.

Super Thanks, so much congrats.

Yeah.

Our next question comes from the line of cash Redon with Goldman Sachs. You May proceed with your question.

Alright. Thank you very much it's great to see how you promote internal talents starting with Doug its a very long list and it's great that you were able to create the next generation of management coating with shell.

<unk> and Barbara <unk>.

Albert et cetera.

It has to do with the net new ACB back to the base.

I've been on it for two years, and there's no stopping or really no slowdown in momentum in that business aspect can you talk a either China or aneel about the opportunities ahead as the product portfolio continues to build and still keep adding new customers, but they're getting the best opportunity continues to be vibrant can you just expand a little.

But more about how are you.

Do you plan to make it even more of a focus going forward. Thank you so much and congrats on a.

Very strong quarter.

Our products that we can sell back to our really broad based financial HR customer base and on the finance side. We did the same thing with scout.

Uh huh.

And we.

We hope to do that would limit and.

Planning has been across both product lines that really has changed the game. We have these really powerful add on products.

That are best in class that are attractive to customers. So maybe you could talk about how we're doing that.

Yeah. Thank you Kash and thank you Aneel I think the value proposition of saying no.

And the solution set side, yes, Pete and the team are building is guess is just fantastic right I would say it's no single solution was the one driving the momentum cash it is really broad based strength across the.

The full portfolio of HR financial solutions.

And I think that drove the strength as well in the renewal rates from our customer base, which I believe it speaks to how strategic we are for for our customers right.

So we were expecting this momentum to continue and we share with you on what analyst day that 10 billion opportunity that we're seeing our customer base and of course, expanding as we keep adding more customers.

And we keep planning to keep having some of the investments that we're doing across both the market cash those going into customer base obviously.

We've been highlighting we are planning to strengthen for next year. The land motion So clearly of solutions around people.

It should be sourcing planning and clearly.

Finally going forward as well so we are pretty excited by 2% maybe higher.

On the customer base.

Robert Thank you so much.

Our next question comes from the line of Mark Murphy with Jpmorgan. You May proceed with your question.

Yes. Thank you very much and I'll add my congrats to everyone, who is taking on a new role Doug Barbara.

Pete and say on a much much deserved.

I wanted to ask Robyn I'm looking at the sequential change in the 24 months subscription backlog for Q3, it's actually a bigger number than that we've seen the last couple of years.

So I'm just curious.

What we're seeing is the conversion of that pipeline build that I think you had said was starting maybe nine to 12 months ago.

As you expected or are you seeing something thats converting faster or in period.

From pecan or other products are.

Is it maybe something else, that's driving that sequential strength.

Yeah, Mark I mean, maybe I'll just point out a few things even though we really are seeing strength across all of our business in multiple different ways and a few things that I'll call out.

Our conversion rates have remained on the higher side and so that has certainly helped us convert more pipeline. We also as we as we strengthen our sales notion on some of our acquired companies or products that we can sell them independently and those tend to have shorter cycles and so we're.

Seeing an impact there as well and then lastly, I'll call out we just have seen really really strong renewals really really strong renewals and up less to those renewals and so that has really helped us with our sequential growth in backlog as well.

Okay. So the three different legs to the stool.

Thank you Robin and then just a very quick follow up that you had announced some major new HCM.

Logos.

I think Neil commented on.

Conoco Phillips.

We're their trusted toll brothers big companies.

Any comment on two of the incumbents, where and just trying to that you said the pipeline generation remain healthy should we infer that.

You see pretty strong indications among the fortune 500 for Q4.

Yeah.

I would say on your first question was with incumbents, where usually as usual 80% of those are coming from mainly two legacy competitors right now.

<unk> here Mark.

To your question on the pipeline expecting into Q4, I would just say that there is good strong pipeline great momentum usually some of the largest logos.

Tend to lean in our largest quarter, which is Q4.

Understood. Thank you very much.

Our next question comes from the line of Brad Zelnick with Deutsche Bank. You May proceed with your question.

Great. Thank you so much and I Echo my congratulations as well on a strong performance in Q3 I wanted to follow up on Kirks question on backlog and the flat renewal cohort. This year, just how we should think about the growth and what's due to renew which Rob and I know you characterized as being more normal, but even if not numerically and I know the more.

Being part of that equation is what youre going to the growth that you are able to add onto these renewal opportunities and expand them, but how should we think about the typical upsell cadence meaning.

How often might you see customers.

New modules and new features and capabilities when they're made available maybe interest cycle versus upon renewal.

The renewal itself more often than not.

At the time that youll see them expand versus <unk>.

Co terming midterm. Thank you.

Yeah, we're seeing that dynamic shift a little Brad over that over the years as we focus more on building the customer base team, they're having continuous conversations with those customers outside of the renewal cycle. So where if you go back separately several years. Its a three to four years most of the add on business came during the renewal cycle and.

We've really seen that change with the investments and the back to base and go to market and now the conversations are continuing so we're seeing a lot less add on.

Just in the renewal cycle and more add ons, just you know as products become available or as customers' needs.

Shift, but the renewal is still a great opportunity to engage in a conversation with those customers. So it still is an opportunity for us to sell but less dependent on that renewal cycle to actually get add on business and I don't know China do you have anything you would add to that from a go to market side.

That's exactly the dynamics, we've been seeing in the ships we have been observing.

Serving during these last few years, so it's less dependent on those spring launch cycles with customers are not adding new solutions.

If I could maybe sneak in one quick follow up for you Robyn seeing the the growth in total backlog exceeding that of 24 month backlog, we actually had picked up from partners just in general beyond even workday customers looking to go longer and longer duration.

Dissipation of inflation and price increases just curious if you have any comments on duration that youre seeing from maybe commercial accounts, where I know government tend to do larger deals what if anything is that a comment on duration. Thank you.

Yeah, you're absolutely right.

Total backlog growth exceed the 24 months, because we've seen duration lengthened and we've seen that fairly consistently over the last several quarters and even the last several years, where the total outpaces. The 24 months. So I do think that there is a trend there of inking larger contract.

<unk>.

But they do tend to move around by industry and by customer and as we've said before.

We are happy to have a contract length.

Our customers are comfortable that we won't do one Andrew three years.

Anything above that we really lead to them. So it's not something that we manage to.

Really happy when customers want to connect test for longer periods of time.

Awesome. Thank you again.

Our next question comes from the line of Brad Sills with Bank of America. You May proceed with your question.

Great. Thanks, guys and I'll Echo the congratulations on a nice Q3.

I wanted to ask a question about just the general environment of the office of HR.

It would seem that with the great resignation in a difficult hiring environment that you'd see an increased focus on digital transformation projects for more productivity in general offer HR. So I'm curious if that is manifesting in your pipeline not just for core HR core HCM, but the productivity tools like learning analytics recruiting pecan is that.

<unk> reflected in your pipeline do you think that's something that might be coming based on what you're hearing.

And the office of HR. Thank you.

Pete you want to take that one up.

Yes.

I think your question is spot on what we are seeing the trends towards as you said kind of spurred by the great resignation happening with the pandemic.

All of those things are generating trends that we're seeing in demand from our customers for.

Our products like learning I would also put I'd also call out our talent optimization SKU, which is composed of the career hub and the talent marketplace to allow employees to move within.

Within the company.

<unk>.

Learning as I said before and also you also mentioned the Bentley.

Our intent to acquire that we announced today as well, which allows companies to be able to kind of flex their workforce base.

Based upon these these talent demand. So we're definitely seeing that from a from a demand standpoint from our customers and and we've had great great quarters.

A great quarter, this last quarter as well with all of those products.

Sure. Thanks, so much.

Our next question comes from the line of D. J Hynes with Canaccord you May proceed with your question.

Hey, Thanks for taking the question.

Maybe I could build off Pete's commentary you brought up <unk>. So it seems like a good segue to ask a question there.

The product seems to be kind of a crossover between HR and finance. So can you talk a little bit about like where the buying center resides there.

And really what the pinpoint is like how it organizations typically manage.

Is that process if they didn't have a platform of my family.

Yes, I'll start with with the buying center of the buying center is has traditionally.

Ben in the procurement space, but has more recently been trending towards the HR space.

So actually that's.

It was a great fit for us because we sell to both of those buyers.

And it really for us looked like a nice kind of piece of the puzzle between our human capital management, our financial management and our.

Spend management solutions.

Traditionally this has been solved the better management.

Our systems have been around for a while <unk> is really a second generation cloud based vendor management system, great focus on the user experience configure ability and the and the one thing I will also mention there is that it's it is deployed by enterprises, but also about 50%.

At a time deployed by managed service providers and Bentley happens to have a great relationship with managed service providers as well and we see that as a channel for us to continue to use as we go forward.

Yeah, Yeah, Okay makes sense.

And then Robin maybe a follow up for you I think kind of coming into this year, we had talked about that new bookings acceleration this year, leading to faster subscription growth next year.

With the updated guide in view of next year at 'twenty, and 'twenty and I and I realize it's a preliminary view of next year and any good preliminary do you embed some conservatism, but is it fair to assume that if Q4 ends up.

How youre planning, we could still see subscription acceleration next year.

Yes, DJ I mean, we certainly see upside from the 20%, but to your point Q4 is going to be a really important quarter for us in shaping the subscription revenue next year. So we're really focused on executing against Q4, and we will have a new look for all of you on the next earnings call when when we see how we can.

Q4.

Of course, it makes perfect sense. Thank you guys.

Our next question comes from the line of Michael <unk> with Wells Fargo Securities. You May proceed with your question.

Hey, there. Thanks. Good afternoon. Appreciate you taking the question you mentioned 800 net new hires during the quarter is there any further commentary you can add just on the pace of hiring into Q4 are you finding you're able to stay on pace with that 2500 target to start off the year and is there any difference between U S and international there too.

To call out thank you.

And we were Super pleased with the hiring in the quarter we've been.

Really ramping our recruiting engine in our process throughout the year. It honestly took us a little longer than we had hoped given the market. When we came into the year, but we're really excited to make such great progress in Q3, and it's certainly our hope and our goal to actually have similar hiring in.

Q4, so that we can get really close to that 2500.

Net new employees for the whole year.

Challenging market, but we feel like we've got the momentum to do that and so we're really focused on executing.

Great. Thank you.

Our next question comes from the line of Brad Reback with Stifel. You May proceed with your question.

Yeah Brad.

Really hard thing to predict because one of the things that we're seeing one dynamic we're seeing as we have more add on business outside renewal cycles is renewals moving around.

Gordon at cornerstone if somebody wants to add on several products their renewals two quarters away. It is highly likely that there just kind of do an early renewal renewal and wrap it all in so we don't see anything unusual in any one quarter that I would call out but it is a dynamic that's fairly difficult for us to protect and we do.

Some variation quarter to quarter, but overall.

In terms of looking at the whole year.

We're excited to return to a normal growth rate and not be facing the headwinds we face this year.

That's great thanks very much.

Our next question comes from the line of Brent bracelets with Piper Sandler You May proceed with your question.

Orders are accelerating subscription growth and you're raising the outlook for next year, It's a pretty big change in nine months is the story here driving the optimism for next year all about 10.

<unk> 10 billion cross sell in the base or is there other factors that are really driving kind of the optimism here in the business and I know some optimism to couple of months ago, but love to kind of understand the pace of change that you've seen here this year and the momentum that you're kind of looking forward to next year.

Yeah.

Well I said the pandemic was a once in a lifetime event and in many ways quite a bit quite a bit obviously sat and negative on the business side that did change everything.

Whether it's.

The shift to remote work or Harvard work.

Or as you look at the broader base of contingent workers.

Resignation as you call it.

And I think what it would enforce customers should do is to look at their platforms and so are we.

For this new world and in many cases they werent.

We were fortunate that the.

The way that we built our cloud products and the solutions. We have are a perfect fit for where the world is headed.

And I think we're benefiting from that.

And increasingly.

In a labor constrained world.

World.

What we're going to pick on what we're doing with Bentley.

We are doing with our own products in terms of.

People optimize their human capital is huge.

Also during the pandemic, we saw a lot of big financial projects be put on hold and now those are slowly coming back. So there's optimism that even more of the financial products are going to be coming back financial projects will be coming back next year.

Right.

It's both but the other day, we started out with zero customers and our main competition has thousands of customers. So every customer we've gotten has been.

It's been out at a competitors' expense.

We've now passed 50% market share on the HCM side of the Fortune 500.

We're getting that same kind of momentum in financials and.

I do think it's coming at the expense of what I would consider to still be legacy competitors I don't think they've quite yet.

Well, we made the transition to the cloud.

Our next question comes from the line of frontal with Jefferies. You May proceed with your question.

Thanks, I was wondering if you could just drill a little bit in the planning and I think last quarter, you mentioned, 50% ACB growth.

Any stat or any update there and just directionally it seems like with all the supply chain concerns.

Theres a tremendous opportunity for you to to help a lot of companies out there at this point any color around that business would be would be greatly appreciate it.

Planning continues to be a very meaningful growth driver for us one of the bigger components defense glass the acceleration we've seen this quarter.

We did not call out the specific growth rate. This time, our momentum remains very strong we feel really good how we're competing and winning in this market.

Despite all of the strength, we have seen running over the last couple of years, we have significantly turn opportunity we shared.

Analyst day, only about 30% of our customers, having a touch financial planning on about 10% attached workforce planning. So we have a lot of opportunity ahead.

Okay.

Thank you.

Okay.

We will now take two more questions. Our next question comes from line of Karl Keirstead with UBS. You May proceed with your question.

Oh, Thank you maybe a couple for Robin Robin.

Maybe you could elaborate on the 24 month backlog guide for <unk>.

A really strong number but it's a similar growth rate to <unk>, yet, it's a two point easier compare anything else on your on your mind as you.

Thought through the inputs to that <unk> guide.

Backlog is going to move around it's not a perfect measure for several reasons, including the renewal headwind this year, but we feel really good about the momentum in our business and our outlook.

And we certainly would hope to.

Overachieve, the backlog Guy, but we'll have to see how we how Q4 goes.

Yep, Okay that sounds good and then as a follow up congrats on the on the couple of what looks like relatively.

Small acquisitions, maybe I missed it but robin any any financial impact from these two deals once they close that we should keep in mind with respect to either you know revs or margins or backlog to call out or immaterial.

Yeah. I mean these companies are really early in their growth cycles, and therefore really minimal impact on our revenue guide for next year.

Do you have or expect us to be high growth markets and so we are therefore planning on investing in those spaces to support the growth opportunity and all of those incremental investments as well as transaction costs were generally in existing expense bases for both have all been captured in our margin guidance for both Q4 and FY 'twenty three.

Yep got it figured that was the case thanks for the answers Robyn.

Our next question comes from the line of Derrick Wood with Cowen and co. You May proceed with your question.

Oh, great. Thanks for squeezing me in.

Some companies have talked about more accentuated summer seasonality just curious how linearity track for you in Q3, and then you keep.

Depending on how Q4 is such an important quarter.

Any any any color on linearity, there and just any anecdotes you gave around what youre seeing in terms of larger enterprise opportunities as you head into the end of the year.

Hello.

Okay.

We haven't seen any particular shapes your internet sales linearity.

It was good strong order I mean, clearly our first monthly for all is all of US use release more quiet, but he was good and solid if I compare to last year and two years ago. I think we had a good September overall, but I wouldn't say nothing noise, especially our call out there.

In Q4.

I mean, there are always very large deals and do use cases in the pipeline for both I would say HCM and financials and of course, there is a solid.

By playing across a very deep number different solutions geographies.

Our portfolio on volume business across medium enterprise and customer base that we'd get to stability, but clearly you know four for us delivering good solid quarter is keeping with the same conversion ratios.

<unk> be great large opportunities that are lined up for Q4. So we're excited about them, but of course, we have to execute uploading them basically to us.

The teams know that they can do.

And if I could squeeze one more in.

You talked about how youre pleased with your own hiring even though it's a tough market wanted to ask about how you are feeling about your partners and how well staffed they are in.

To support your accelerating growth in up there have you see any reason for them to have be having any constraints on their own staffing.

Yeah.

One.

We're pleased how the partners are progressing well.

Around 800 resources to the ecosystem in Q3.

They continue to be ramping up new resources. During Q4, so we've been very happy as well how much they're investing on training and ramping up into resources that they see the opportunity I will just remind you all of you that they keep it growing around 80% Plaza footwear.

Our solution portfolio.

We clearly are doing much more with Dana mentioned. This example of the ESC solution around planning for public sector basically in the Asia Pacific region that I think is one that they can be deployed globally. So the relationships, we're reading with building with our partners. These days.

Beyond implementation is building out new solutions in IP join me and <unk>.

They keep really investing for most of the large case size say what do they say you know out of the top three kind of a strategic practices. So we were pleased how they're how they're doing and they keep investing we think what are the future together.

Thank you.

Q3 2022 Workday Inc Earnings Call

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