Q3 2023 Workday Inc Earnings Call
Speaker 1: COVID-19 pandemic and recent macroeconomic events on our business and global economic conditions. Please refer to the press release and the risk factors in documents we file with the Securities and Exchange Commission, including our 2022 Annual Report on Form 10-K and our most recent quarterly report on Form 10-Q for additional information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of workday's 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, in our investor presentation, 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. Additionally, our quarterly investor presentation will be posted on our investor relations website following this call. Also, the customer's page of our website includes a list of selected customers and is updated monthly. Our fourth quarter fiscal 2023 quiet period begins on January 15, 2023. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2022. With that, I'll hand the call over to Anil.
Thank you Justin and welcome to Workday's third quarter fiscal 23 earnings conference call. I'm happy to report that we had a solid Q3 as we once again outperformed across our key operating metrics. There is no question that the macro environment presents increased uncertainty, but as we've said before, we are well positioned in this type of environment because our cloud finance and HR solutions are truly mission critical.
As our Q3 results showed, more and more organizations are selecting Workday as their trusted partner to help them successfully navigate today's changing world.
We remain confident in our ability to capitalize on the opportunity ahead and are pleased to announce our first ever share repurchase program with up to $500 million under authorization. This program will help reduce the rate of our share dilution going forward and is driven by our belief that our share price is undervalued given the long-term growth opportunity ahead. Barbara will share details shortly, but know that we feel confident that we'll reach a scale where we can roll out this repurchase program.
Canadian Tire Corporation and the state of Oklahoma.
For Workday Financial Management, we continue to see strong demand and momentum in Q3. Key new wins included a Fortune 200 provider of information technology solutions, Cincinnati Children's Hospital Medical Center, EZCorps, and Thomas Jefferson University. It's important to note that each of these customers have also selected us for HCM, reinforcing the power of the full Workday platform to help them manage their business.
providing further evidence that companies are going all in with us. Key financial management go-lives during the quarter included City of Baltimore and Medical University of South Carolina.
Q3 also saw us get back in person for Workday Rising, our annual customer conference for the first time since 2019. We had nearly 16,000 in-person and virtual attendees, and it was great to experience the energy and see firsthand how our community is growing and evolving. This was highlighted by the fact that this year's event had the largest percentage of senior leaders, finance and IT attendees ever.
One big takeaway from rising is that our innovation story is resonating with customers as we evolve to be more open and connected. While we've traditionally targeted the offices of the CHRO and CFO , we have placed increased focus recently on the office of the CIO, which presents another growth opportunity for us.
One solution in particular that was a popular topic among IT attendees was Workday Extend. Workday Extend lets customers and partners build their own unique solutions on top of Workday, which is a huge point of emphasis for CIOs and in their eyes possesses us even more as a true platform player.
While we announced general availability and workday extended 2020, we've continued to see accelerated demand for it over the last year as the need for organizations to quickly innovate and adapt in today's business environment increases.
We also announced new, more personalized UX enhancements.
that meet every type of work they use during the natural flow of their work, such as mobile devices, Microsoft Teams, and Slack.
which helps us to address another CIO priority as they are more focused than ever on driving increased employee engagement.
And finally, we further reinforce our leadership in artificial intelligence and machine learning with the announcement of next generation skills technology that allows customers to more easily and securely bring skills data in and out of workday. This helps customers leverage the full power of machine learning to gain deeper insights into workforce skills and deliver more personalized employee experiences.
In closing, we once again delivered a solid quarter with strength across a number of key growth initiatives, showcasing why Workday is the backbone of digital business. And while we expect that the macro uncertainty will cause our growth to moderate in the near term, we continue to believe we are well positioned to navigate this environment and emerge even stronger.
Driving constant innovation to address our customers' evolving needs has always been key to our success and will continue to be our focus in this environment.
With that, I'll turn it over to our co-CEO, Chano Fernandez. Chano, over to you.
Thank you, O'Neill, and thank you to everyone for joining today's call. I want to start off by offering my sincere thanks to the more than 17,500 quark mates that help us deliver another solid quarter.
Your relentless focus on the customer continues to push us and the broader work the community forward. Great job team!
I've been on the road a lot the last few months, including Workday Rise in Europe , which just dropped up in Stockholm, and Workday Rise in the US back in September . I've had the opportunity to spend time with hundreds of customers and prospects.
and there are a couple of key themes emerging.
First, despite all the challenges that companies are facing today, they increasingly realize the pressing need to modernize their HR and financial systems.
The executives that I speak with have different viewpoints on what the macroeconomic climate will look like in the year ahead. But one thing they agree on is that the change is constant, and it's nearly impossible to navigate with legacy systems.
Second, there is a clear desire to consolidate and prioritize Xpend across an organization's more strategic technology vendors.
Given our positioning as the backbone of digital business across HR and finance, this trend has led to more and more companies going all in with Workday as they look to harness the power of their data across the enterprise.
And when I look at our solid Q3 results across both the large and medium enterprise, it's a direct validation of these themes being seen across organizations of all sizes.
From a geographic standpoint, we saw solid results across North America with a number of core HR and Fins, Wins that Anil mentioned.
in addition to several strategic expansions across the Fortune 500.
The ABA also outperformed with wins at Bank of Queensland, Fletcher Building, Ono Pharmaceutical, and Krip.com to name a few.
And in May we had a number of important wins and expansions including SGS, Allianz Medical Group and Equinity.
Our customer base sales team once again saw outstanding growth, a direct reflection of the trust that customers are placing in us, and a validation of our strategy.
We draw very strong renewal rates in Q3 and we close a number of strategic expansions at companies such as Accenture, University of Maryland, the State of Nebraska, Pecan Pay, Puma and Viet Corporation.
As we share that at our recent analyst day, our customer base momentum is being driven by our broad portfolio.
Solutions such as journeys, help and telling optimization, for example, has seen a strong adoption as customers look to support employee experience. Solutions such as journeys, help and telling optimization, for example, has seen a strong adoption as customers look to support employee experience. Solutions such as journeys, help and telling optimization, for example, has seen a strong adoption. Solutions such as journeys, help and telling optimization, for example, has seen a strong adoption. Solutions such as journeys, help and telling optimization,
while our scheduling, time tracking, and payroll solutions are all resonating as customers increasingly focus on labor optimization.
Another product such as planning, extent, accounting center, really, and where spend management solutions are all contributed to these quarters' strengths across the customer base.
Our industry focus continues to pay off. In Q3, nowhere was this more evident than the healthcare vertical, where we had a strong growth in new ACV and where we surpassed half a billion dollars in annual recurring revenue.
By far, the two largest costs for healthcare organizations are labor and materials.
And by leveraging our full suite of HCM, FINs and supply chain solutions, they are able to help optimize FIN across these critical areas.
In fact, all of our larger Q3 healthcare wins were full suite and including workday supply chain management.
We also saw healthy momentum within the professional services industry highlighted by the aforementioned expansion at Accenture as we continue to co-innovate across the Guarded platform including significant new developments in the Skills Cloud, Public Cloud, and Accessibility.
Other strategic wins in the professional services industry included neuroscience and read global, which was a full suite win.
Our expanding partner ecosystem is also becoming an increasingly important driver of our growth.
Ito's strategy is driving co-innovation across the platform, which increases the differentiation of our solutions, enables even faster innovation to address real-time customer challenges, and allows our partners to leverage their deep industry and solution insights to differentiate in the market.
Examples of recent partner-driven innovation built on the Wartee platform include Accentures, the E-DOT Revenue Operations Solution, which integrates CPQ capabilities with Wartee's Villing and Revenue Automation.
to enable seamless quote-to-cash functionality for software and technology companies.
Another great example is Employee Document Management, built by partner Canos on a worthy extent, which provides our customers with advanced document generation, access control storage, and finely tuned document retention rules.
These are just a few several solutions that were recently released by our partnered ecosystem and we have dozens more on the roadmap.
As we move into our fourth quarter, the environment remains uncertain, which has led to increased scrutiny and the lengthening of certain cell cycles.
particularly with the net new opportunities.
While we aren't immune to this and see signs that it will persist into next year, we are confident in our diverse pipeline and are focused on executing in Q4 and laying a strong foundation for Fy24 and beyond.
With that, I will turn it over to our CFO , Barbara Larson.
Over to you of our bra.
Thanks, Chano, and good afternoon, everyone.
As Anil and Chano mentioned, we delivered solid Q3 results in the face of continued economic uncertainty, a testament to strong execution across the company as well as the strategic and mission critical nature of our solutions.
Subscription revenue in Q3 was $1.43 billion, up 22% year over year. And professional services revenue was $167 million, up 7%.
Total revenue outside of the US was $394 million, representing 25% of total revenue.
24-month backlog at the end of the third quarter was $8.62 billion, growth of 21 percent.
The result was driven by solid new business sales and strong renewals, with gross and net revenue retention rates over 95% and over 100% respectively.
Total subscription revenue backlog at the end of Q3 was $14.10 billion, up 28 percent.
Our non-GAAP operating income for the third quarter was $314 million, resulting in non-GAAP operating margin of 19.7%.
Margin overachievement was driven by revenue outperformance, favorable cost variances across the business, and the timing of certain expenses shifting into Q4.
Q3 operating cash flow was $409 million, growth of 6%.
Our cash flow this quarter was impacted by a $55 million semi-annual interest payment associated with our Q1 debt offering. 62 billion that
We also paid off the principal balance on our $1.15 billion convertible debt with cash in October , resulting in a reduction to our non-GAAP diluted share count of roughly 8 million shares.
Given the late Q3 timing, this share count reduction will be fully reflected in our non-gap weighted average share count in Q4. In our non-gap weighted average share count in Q4.
During the quarter, we successfully added approximately 600 net new employees, ending Q3 with a global workforce of more than 17,500.
We expect a strong moderation of hiring as we move into Q4, but will continue to add key talent across strategic growth areas of the business, notably go-to-market and product and technology.
Overall, we're extremely proud of the strong company-wide performance in Q3 and we're focused on executing in Q4, our seasonally strongest quarter of the year.
Now, turning to Guidance, which reflects both the continued momentum in our business, while also balancing an uncertain macro environment.
With that context, our guidance for FY23 subscription revenue is now $5.555 billion to $5.557 billion, representing 22% year-over-year growth.
We expect Q4 subscription revenue to be $1.483 billion to $1.485 billion, 21% year-over-year growth.
We now expect professional services revenue to be $645 million in FY23, with the slight reduction driven by the delay of a large project.
For Q4, we expect professional services revenue of $147 million.
We expect 24 month backlog to grow approximately 19% year over year in Q4.
We expect Q4 non-dap operating margin of approximately 17.5%, which includes some expenses that shifted out of Q3.
Our FY23 Non-Gap Operating Margin Guidance is now 19.2%.
operating margins for both the fourth quarter and the full year are expected to be approximately 23 percentage points lower than the non-gap margins.
This includes a change to our employee stop plan that will take effect in Q4 to provide more flexibility to our employees during the open trading window each quarter.
Our vesting date will move from the 15th to the 5th of each month for all outstanding grants, resulting in an acceleration of stock-based compensation expense of approximately $30 million in Q4. This change will result in reduced stock-based compensation expense by the same amount over the next few years and has no impact on our dilution.
The FY23 non-GAAP tax rate remains at 19%.
We are maintaining our FY23 guidance for operating cash flow of $1.64 billion, but are reducing our capital expenditures outlook to approximately $375 million, reflecting the timing of certain data center and real estate investments being pushed out to future periods.
And as Anil mentioned, we are pleased to announce a share repurchase program with authority to repurchase up to $500 million in shares over an 18 month period.
We will continue to prioritize allocating capital towards organic innovation, followed by targeted M&A.
But given our strong balance sheet and free cash flow, we intend to use a portion of our capital towards the repurchase of shares, enabling us to partially offset future dilution from employee stock programs.
This repurchase program is a direct reflection of our confidence in the business and our view that our shares are currently undervalued.
While we are early in our planning cycle for next year and have an important Q4 ahead, we'd like to provide a preliminary view of FY24.
As discussed at our Financial Analyst Day, we have a significant long-term opportunity and multiple growth levers that drive our goal of sustaining 20% plus subscription revenue growth on our path to $10 billion in revenue.
While this remains our multi-year goal, given the continued macro uncertainty, we believe it's prudent to provide a preliminary FY24 subscription revenue range of approximately $6.5 billion to $6.6 billion or 17 to 19% year-over-year growth.
This outlook takes into account the lengthening of sales cycles that we're currently seeing impact our net new business.
From a margin standpoint, we currently expect FY24 non-GAAP operating margin expansion of 150 to 200 basis points from FY23 levels.
placing us firmly on track to our target of 25% non-GAAP operating margin and 35% operating cash flow margin at $10 billion in revenue.
The expected margin expansion is driven by the scalability of our model, a strong moderation of hiring, and ongoing expense discipline. We plan to operate the business with agility and will continue to appropriately balance growth investments based on what we see in the underlying market environment.
And finally, 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.
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One moment please while we pull for questions.
Our first question is from Cash Rangan with Goldman Sachs. Please proceed with your question.
Thank you so much and fabulous, fabulous quarter given the macroeconomic conditions. I was wondering if you could give us some perspectives. In some sense, this is a recession that everybody has been expecting. Nobody's going to be surprised. I was wondering if you could offer some insights into how Workday has been able to execute so well during a tough time other software companies are facing headwinds.
And to make sure they get some relief next year if the economy doesn't improve, could you do even better considering that your results are actually quite impressive. Thank you so much.
Well, I don't think we'll comment next year just quite yet, Cash, but thank you for the kind comments. I think the value proposition of our products works in a downturn just as it does in a good market, just like it did in 2008, 2009 and every other downturn. Chano, do you want to add anything?
I think I agree with what you said, Anil. I believe the mission-critical applications of our solutions really resonates with our customers as they are modernizing their HR and finance solution. And as I said on my comments as well, Cash, there is a consolidation of expense across strategic and already vendors and we clearly are being one of those these days.
Thank you so much.
Our next question is from Kirk Maturny with Evercore. Please proceed with your question.
Oh yeah, thanks very much and I'll echo the congrats on a really nice quarter in a tough environment. I guess Shauna, you talked about some deal cycles extending. I was just wondering if you could talk a little bit about what you're seeing at the top of the funnel. Obviously you guys sort of came out perhaps of the COVID recession a little bit later than some others. Yeah, I think there's a fear out there that once you get through this current wave of deals in your pipeline.
you know that there might be some sort of you know cliff in terms of net new buildings but you know it sounds like you guys feel pretty good about your pipeline so I was wondering if you did sort of expand on that thanks.
Thank you for your question, Kurt.
Overall, companies continue to prioritize HCN and financial transformations, and we see ongoing momentum in important growth areas like our customer-based team, where there is a clear market trend, as I said, towards consolidation of vendors and as well the medium enterprise. There is good pipeline momentum, but maybe, Doug, you can add some color in terms of pipeline on deal dynamics overall.
Yeah, I think, well, you captured two of it, which is, you know, I described Kurt as
We've got diversity of revenue streams. So as Chano mentioned, medium enterprise.
performed well. We've got the customer-based motion and that was a theme that I certainly heard at our customer conferences. Is our large customers wanting to consolidate rationalized number of suppliers and expand their footprint with us. So I think that certainly helps. In terms of like top of the funnel, sort of the core of your question, it's really interesting in that our Q3 pipeline build.
So the pipe we're building now, which is largely about next year, met our internal targets.
So we're seeing project formation at the same time. We're seeing some projects along it because I think Chano mentioned this But they tend to be large enterprise net new those projects have extra steps to complete at the same time at the at the top end the Starting of projects is meeting the goals that we've established internally
Thank you all.
Our next question is from Mark Murphy with JP Morgan. Please proceed with your question.
Yes, thank you very much and I'll add my congrats. I'm interested in whether it's possible that the volatility of this type of environment where you have so many vectors moving around, inflation, interest rates, FX, supply chain issues.
Is it possible that it's coming together in a way that really elevates the workday value prop with integrated planning, cloud-based? Maybe more so than in the smooth sailing environment that we had in the last decade. Because as Cash mentioned, you're navigating your way through this very well.
I'm just wondering if you see any effect of that. Maybe it's increasing some of your wind rates, and maybe it builds up a little pent-up demand for sometime in the future when the environment starts to improve.
Well, I guess I'd start with I wish that was the case across the board. We definitely see
some, you see in the downturn, you see some movement to, well, I gotta get on the right stuff to help me manage through these volatile environments.
At the same time, there are other customers that are just cautious in making new decisions, and so I think they tend to balance each other out.
I'm not sure it's a big boost for us or a big negative for us. We're all seeing the same environment.
But there are definitely customers who are behind on making the transition. So, like, this is a catalyst to make that transition. And then there are others who already made the transition that...
Maybe think, hey, let's be cautious on follow-on purchases.
on follow-on purchases. John , away they go.
Thank you for that.
Thank you.
Our next question is from Keith Weiss with Morgan Stanley . Please proceed with your question.
Thanks. This is Josh Baer on for Keith. I was hoping you could expand a bit on the macro assumptions that are embedded in that FY24 subscription revenue guidance range. Just wondering what areas get worse, what stays the same when thinking about different geographies as well as new business from new logos or expansion and renewals from existing customers.
for Keith. I was hoping you could expand a bit on the macro assumptions that are embedded in that FY24 subscription revenue guidance range. Just wondering what areas get worse, what stays the same when thinking about different geographies as well as new business from new logos or expansion and renewals from existing customers. Thanks.
Hi Josh, thanks for your question. So the guidance range that we provided is our best view at this time. It takes into account the continued momentum across important growth areas such as customer base, medium enterprise, but also balancing that with lengthening sales cycles that we're seeing impact our business, particularly our net new opportunities.
So given the uncertainty environment, we've provided an estimated subscription revenue range with that low end of the range, assuming a larger impact to sales cycles than we're currently seeing today.
That's really helpful. Thank you. You're welcome.
Our next question is from Brad Zellnick with Deutsche Bank. Please proceed with your question.
Can we go to the next question, please?
Our next question is from Alex Zukin with Wolf Research. Please proceed with your question.
Hey guys, thanks for asking the question and I'll extend my congratulations not only on the quarter but on the prescriptiveness of the guide both on top and bottom line in what is clearly a very uncertain and tenuous environment. So I guess maybe just the first one, if we look at the patterns emerging in the sales cycles in the business.
I guess Anil or Chano, can you guys compare and contrast this with from a pipeline perspective going into 4Q, you know, what are you expecting the impacts to be in your biggest quarter on bookings, on new ACV growth, on ACV, you know, and maybe Fins versus HCM specifically where you feel a little bit, you know, better or compare and contrast that I think would be super helpful.
Well, let me just offer a high-level commentary. I spent a lot of time with other CEOs.
this is not 2008-2009.
You know, no one sees the world coming to an end like they did at that time. I think right now we're in a world of caution.
where no one's quite sure what's going to happen, but things don't feel really bad.
But caution and stopping can sometimes look the same. So it's kind of hard to predict right now. Every CEO I talk to...
They're still relatively feeling positive about their business, but worried about the economic economy.
underpinnings of what the Fed is doing and the potential recession. And so I think the word that I keep coming back to is everybody's cautious.
I don't know how that reflects in the pipeline and Q4 and other quarters, but this is not an end of the world scenario, not at least yet like 0809.
Yeah, thank you, Alex, for your question. I would say first, when it comes to HCN or FINs, we don't see any significant difference between one or the other, so they're proportionally impacted given the several macro environment. When it comes to Q4, I would say we have the pipeline to execute on the quarter. Of course, you know, that usually will not manifest ormeat infprints we'd often observe.
as a prioritization because those projects have been already prioritized, but it may happen some lengthening of cell cycles, as we said before, particularly on net new deals and opportunities, that they're more scrutinized than those, right? And I've already commented on the growth pipeline for.
for next year.
Perfect. And then I guess if I think about what you're saying around net new and how well I think you're doing on renewals and selling into the base specifically, is it fair to assume that you know in the near term there could be a bit more bookings concentration coming from existing customers and kind of how well how important is that dynamic that informs you know some of your
Margin commentary for next year given it should be a little bit easier. It should be a little bit more predictable to sell into the base
Yeah Alex, it is fair to assume that there will be more concentration on the customer base and areas like medium enterprise as we said before and then hence we'll put more focus on our both marketing environments and such go-to-market environment into those areas of course that will potentially provide higher yield on these times.
Perfect. Congrats, guys. Thanks again. Thank you. Thank you. Thank you.
Our next question is from DJ Hines with Canaccord. Please proceed with your question.
Hey, thanks guys. Maybe building off Alex's last question there. I mean, there's lots of interesting partner commentary in the script.
I'm curious about the level of collaboration you have with partners on what they're working on with extend or an industry accelerators and assuming you have visibility there. Maybe you could talk a bit about where you draw the line on what work they might own or build directly versus what you let go to partners.
Pete, you want to talk about the product side first and then Sean can talk about the partner side?
Sure.
Thanks again for that question.
As you heard us talk about, the momentum with Xtend that we've seen recently has been great. We talked about that a lot, both in Stockholm and in Orlando at our user conferences this year. Now over 750 applications in production.
When it comes to where that momentum is coming from, it is customers and it is partners as well. Partners are beginning to build on the Xtend platform and Xtend Workday applications, as well as build new applications that connect with HCM and financials. So far, our customers have been getting value.
through both of those. The question of where do we draw the line between what is ours and what is our partners, I'll hand over to Chano.
Yeah, I think as I commented on some of my prepared remarks, I mean clearly driving co-innovation with our partners across the platform is very critical and important. You would say, where do you draw the line?
When something is kind of, we define the last mile in a particular industry, or we need some more content-driven, specific understanding of that value-add in that industry with a partner, there's what we see an opportunity to collaborate with our partners. I mentioned some of the solutions that we're building with Sano Dang for different industries like the revenue operations solution.
and partners take just advantage of the maturity of Xtend to bring that value add that is resonating with our customers. So we are really pleased, as you can imagine, that customers, partners can differentiate and bring additional offering to our customers.
Yeah, makes sense. And then Barbara, maybe I could sneak in a follow up for you. The vibe acts great to see.
You know, us analysts always ask for more. Why not be more aggressive given where the stock is, the strength of the balance sheet, expect a cash generation next year. Like what were the considerations there?
I'll answer that one because I think Barbara probably wanted to do more. You just don't know what you're going into in a tough economic environment.
Cash is king. And so we wanted to be
conservative and you know if we come out
in a good market environment in the next six to nine months, you definitely could see more, but there's.
The.
You know, there's just a balance of risk.
Yes, perfect. Okay, thank you guys. Congrats.
Our next question is from Raimo Luncho with Spark
Hey, thank you. Thank you, congrats from me as well.
The channel be the one thing that we seeing in the industry at the moment is that there seems to be more Money in HR post pandemic with a great reshuffle etc. Could that are you seeing that in terms of like? Interests of pockets or where customers are and do you think that's kind of more a short-term thing? And we're at the back part of of that trend or do you think?
HR, HTM strategically is having a new position in the enterprise. Thank you.
Thank you, Raymond, for your question. I think both of them, to be honest, have some good tailwind out of the pandemic. Clearly, of course, that nets out of balance out with the macro environment we are living into. But I would say that some of the financial transformations, we see those in the market and they are taking place as we speak as a dynamic of companies having a tough time to just navigate through their finance modernization or honestly doing simple things like closing their books online.
create tailwind for the HCM value proposition as a whole.
Yeah, and then one follow up is, if you think about selling in this kind of slightly more chopper environment, can you talk a little bit maybe about the steps you take in terms of sales execution to kind of make sure you continue to deliver in this market and thinking about higher pipeline coverage, kind of making sure you kind of time the deals better, etc. Where are we on that journey of implementing these kind of recession handbooks?
customers.
right at Q1. Of course, we've always done business cases with our customers. But entering tougher environments, it comes down to TCL hard dollars that you can take out system rationalization productivity. So I think it's showing up.
You know really focusing with our customers on the HR side. There's no doubt tight labor markets
And so that's driving, I think, you know, the TCO on that side of it. And it was touched on earlier by Neil, you know, we had a really good Q3 as it relates to financials. So Fins Plus performed well. And those are ROI driven as well. And those are companies looking for, sure, it might start with an aging and, you know, retiring older systems, but it pivots pretty quickly when they engage with us through that.
plan, execute, analyze, and offering up more business agility in an uncertain environment. So those are the things from a go-to-market, from a field deployed resources standpoint, that we're spending a lot of time with customers on the business case.
and offering up more business agility in an uncertain environment. So those are the things from a go-to-market, from a field deployed resources standpoint that we're spending a lot of time with customers on, on the business case. Thank you, well done.
Thank you. Our next question is from Brad Sells with Bank of America Securities. Please proceed with your question.
Oh great, thank you so much. I wanted to ask a question around you know backlog for next year. I think Chano you made some comments that you feel good about Q4, pipelines you know heading into Q4. The question on everyone's mind is really what about next year? There's a lot of moving parts in your conversations with you know Office of CFO , Office of HR, you know what are they saying with regard to budgets for next year? Do you feel pretty confident that you can sustain this kind of growth you know into next year?
what happens on some of the new local cell cycles that might put some lengthening and clearly even though they might be building right now, may even fall outside of next year or some of them that just may be pushing forward. But right now we're having most of those discussions and you know, overall we feel good given the momentum we have and given the momentum on the new pipeline bill.
and the conversations we're engaging with, the strength of our customer base, our medium enterprise and the diversity of our business as that was commented. But clearly, we are cautiously unit monitoring what's going on in the environment. Thanks, Jonathan. One more if I may please. Just on the verticals, you called out some strengthened financials, healthcare. Is there a case to be made that perhaps you guys have more exposure to more resilient...
in silica valley we definitely have a bunch of tech companies but we're not exposed to tech the way maybe
a newer company might be where they got a huge amount of exposure to just tech companies. And our tech companies tend to be the mature large company. So I don't think there's any particular sector that's held us up. I would say financial services is strong though. You know the one beneficiary of rising interest rates is the financial services sector and they continue to grow and we have a very strong presence there.
Thanks, Adeel. Our next question is from Brentville with Jeffrey. Please proceed with your question. Thank you for your question.
Thanks, Neil. Just to follow up on the verticals, a number of the partners have been talking about strength in state and local government and higher ed. I'm curious if you could drill in on those two to give us a sense of what you're seeing right now in both those sectors. I might turn that one over to Doug to talk about. Sorry about that. I was on mute. The question was around education and government. Is that
I'll stay down local and hire it. Yeah, so both performed well in the quarter. We had a number of...
student workday student deals, which for a while there, we were doing a number of financials, HCM on the higher ed side, but we took down some student deals in the quarter and showed really nice growth in Q3. And so you feel good about, you know, both of those both of those verticals right now.
Robert, can I just follow up real quick? I'm international. It was the lowest growth in five quarters. Is there anything to point out in Europe versus the US, kind of just the classic, still over what we've been hearing, or is there anything specific on an execution? Can you just compare and contrast what you're seeing?
I would say clearly the environment is more uncertain in Europe . Obviously, you know, on top of everything else going on in the world, we have energy as a big challenge. And where we see, let's say, an increased signs of deals and sell cycles lengthening, that tends to happen in Europe . And I would say in general, we're more cautious overall what's going on there in the near relative terms than in Europe .
about slowness in the enterprise segment a couple different times. We talked about the mid-market being, I guess, relatively untouched. Can you help us kind of understand maybe what's going on in the mid-market to not really see any weakness today? I think that's an interesting kind of a change, at least relative to what we're seeing out there. And then as we think about the guidance within the mid-market, is the slowness or maybe additional macro uncertainty that we're talking low on.
case or additional approvals, clearly those are on the larger deals and larger companies that we usually tend to see more. Our value proposition is strong and resonates and quicker time to value, fixed cost of implementations, very predictive ones across HCN and finance in the mid-market, brings good ROI, brings good total cost of ownership in terms of the financials and making transformation as a whole and that is a value proposition that the market is taking the sale now.
Ladies and gentlemen, thank you for your participation in today's conference. This will conclude Workday's third quarter fiscal year 2023 earnings call. Thank you again for joining us. Thank you for joining us today.
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