Workday, Inc. (WDAY) Earnings Call Transcript & Summary

Welcome to our afternoon session at the Cloud Secular Winners. My name is Keith Weiss. I run the software equity research group here in the U.S., and very pleased to have with us, from Workday, Leighanne Levensaler, CMO and EVP of Corporate Strategy, to talk to us about Workday, about where Workday has come from, where Workday is going and why Workday continues to be -- well, I'm going to tell you, it continues to be one of our favorite secular stories in this space. I'm going to get Leighanne's view on how you guys are going to sort of tackle that secular opportunity. So to begin with, thank you for joining us this morning.

And I maybe need to start off with, you've worked with Workday since sort of the earliest days of the company. Can you talk to us a little bit about kind of that initial vision, what you guys were trying to get done? And what has get -- gotten done by Workday on that vision over the last 10 years? Maybe frame out how you guys think about the next 10 years. What's the big challenges and opportunities ahead for Workday over those next 10 years?

Great. Well, first of all, thank you, Keith, for having me, and thanks, everyone, for joining. It's really a pleasure. It's great to be here with you. We're all at home. You should see my background right now, it's a playroom. So I'll scare you with that. Many of us who have been at Workday for a long time, like myself, I'll be here 11 years in September. So quite a long time. We get asked this question all the time. People want to know sort of the magic of the success. And I think really from my perspective, it's an outcome of our Workmates focus and commitments to our core values and really coupled that with the discipline we have around strategy and execution. We simply take care of our employees. They take care of our customers. We do business with integrity. We're fanatical about innovation. And we'd like to have a lot of fun along the way. Just trying to run a profitable business. That's been true since our founding, and we believe it will be true in the next 10 to 20 years, which will help ensure success. Like, I know your models don't plan that far out, neither do ours, but it's not uncommon for a prospective customer to ask us about like our 10-year vision. And we generally share -- when they ask us that, we generally share that we're committed to making the world of work and business better and empowering others to do the same and that technology will surely change, right? Business practices will definitely evolve. But our culture will be the thing that endures. So we -- what we set out to do was to put people at the center of the enterprise software. I believe we're doing that, and we'll continue to do that as we move forward, embracing the most contemporary or even Vanguard technologies to serve our customers and really solve business problems, and we're maniacally focused which, I think, you know.

Right. Got it. So the world is obviously undergoing a lot of change right now and pretty rapid change with COVID-19. As your role as Head of Strategy, how does this near-term shock change the way you guys are thinking about how the longer-term opportunity unfolds for you guys? Any changes that you're starting to see in customers' behavior or expecting to see customer behavior that's going to be more permanent over the next couple of years?

Yes, absolutely. I mean this crisis is a really strong catalyst for the move to the cloud and an accelerant for most companies' digital transformation efforts. So I think you've probably seen some of the cartoons or memes around that, who initiated your digital transformation and COVID is like the choice. But we're hearing from CIOs who really wish that they had everything in the cloud right now. So the organizations with on-premise systems for like their HR and financial systems, which are mission-critical systems, they tell us that it's been -- they're ill-equipped to deal with like all this change right now. And if you're running on-premise, you're really struggling because you need to put people on-site to support these systems. You don't have that agility. You need to be responsive to make those changes. And if you just think about all the business requirement changes, I know what we're doing here, all the process changes, policy changes, work, reporting requirements that have changed just in the last few months with -- in dramatic fashion in heck days. That wasn't part of anyone's plan. And if you're not on the front line, like us, we're knowledge workers, the worker experience is 100% digital now. Not all companies were prepared. So now every company is getting very serious about digital, getting very serious about broad-reaching automation for cost, for safety reasons. We're also seeing something really that we've been focused on for quite some time is reskilling. That's taking center stage. We believe this crisis, if anything, the economic crisis that has accompanied this, health crisis, is that our -- if our economy is going to recover, if we're going to get these 30 million people back to work, they need to have the right skills. And we think we're well suited to help our customers, our products, our services and just really address that opportunity and really capture more ways for us to partner and offer value to our customers going forward. So this has definitely been an accelerant on all those fronts, which we have been actively pursuing in earnest, as you know.

Great. Right. On that front, a lot of investors, when we were thinking about the COVID-19 crisis, there was a group of beneficiaries that were pretty obvious to us, stuff like collaboration software or video conferencing software, like a Zoom, or remote desktop software that lets people work from home or the firewalls on the other side of the equation, where you could actually terminate those VPN connections. And there was another class of software that is starting to emerge, and we were starting to understand afterwards, was also really useful and necessary, mission critical for companies to deal with this pace of change. Can you talk to us about how Workday fits into that dynamic? Like, how are your customers using HCM? How are your customers using financials or planning to help them through this crisis currently? What makes Workday mission critical in that scenario?

Well, our responsibility is to help them run the business, right? And so it's -- whether it's in an office or a storefront or a factory, it's to help them -- or their homes to run their business. And that's everything from the accounting to closing the books, to planning, to tracking their people, managing the processes around their people. I mean it's business continuity. These are mission-critical systems. So those don't go away in a crisis. If anything, they are called upon with a greater sense of intensity and urgency. So for example is during COVID, when you're trying to understand where your people are, which location, what skills they have, what their schedule is, where they can be, where they shouldn't be, I mean, we are the source of truth. We're the system of record. So we see our customers using us to do basic tracking, surveying, reporting. And then on the more strategic aspects, nobody is -- as I mentioned earlier, nobody's plans are as they intended them to be for this year, right, for this quarter, last quarter. So we see our customers doing just a ton of scenario modeling, reforecasting, replan, just trying to understand where they can make changes to their business. And that's all done through our capabilities that we offer through our solutions around your people and your money, really the lifeblood of an organization. And so in that way, we've seen sort of business continuity, making sure you can run, but then also this additional layer of strategic adaptation or being able to pivot around those things that are big levers for you.

Got it. Got it. That makes better sense. Wanted to dig into the HCM side of the equation. I would say probably the biggest investor concern that I hear about Workday is penetration of HCM. You guys had -- came out of the gate targeting large enterprises and had done a great job in penetrating those largest accounts. I think you're in approximately 45% of the Fortune 500 now running Workday HCM, which is like twice the share of your nearest competitor. And so the concern for investors is, is that market opportunity tapped down? Have you guys reached kind of the end of the runway in getting those large customers onboard? So the question is, one, how should we think about the remaining sort of large enterprise opportunity for HCM? And two, what are the adjacent opportunities we should be thinking about that can keep HCM going outside of just those core large enterprises?

Okay. It's a great question. I'm glad you asked. Well, we still have an incredible opportunity with the remaining 150 years or so of the Fortune 500 companies that have -- are ready to move to cloud, have not moved to the cloud yet. And for companies that are at that size and that complexity, Workday is far ahead of our competitors in getting these organizations live and in production and realizing the valuable -- value and the reliable service levels that we can do at extraordinary scale. On the other end, the medium enterprise market in the U.S. and the rest of the world is a huge growth area for us. We've had success with Workday Launch, which is our preconfigured deployment approach. That's really been key to our global expansion strategy overall, but it's certainly even in medium enterprise in North America. For the past 3 years, we've helped hundreds of medium enterprise companies really go live -- get live quickly, successfully in a predictable time frame at predictable costs. We were able to actually deploy HCM and financials by more than 1/3 of the cost and time, depending on the customer situation. But it's really been a great advantage for us. It's also important to note, on the second part of your question, that the HCM market continues to grow. It is certainly not static. The way people work, we were just talking about that, how we manage them, how we develop them, how we support them. That's vibrant. It's dynamic. If I think about the new products that we're launching just this year, didn't even exist a few years ago as a category or as any part of any market scope or sizing. Products for us, like talent optimization, which is our Talent Marketplace solution, People Analytics, People Experience, these are incredibly valuable right now. They also increase the market size of HCM for us and the market opportunity. They're great for selling back into our base. And I'm sure we'll talk about that as well. And we also couldn't have predicted the value of these during COVID, but as I just mentioned, these are incredibly valuable solutions around understanding your people and being able to redeploy based on skill set or being able to reskill based on new needs or plan, replan your workforce. Many organizations are reducing their workforce during this time. They're pausing their hiring. And so just a reallocation of the right people doing the right work to ensure the business can move forward, these are what our solutions are designed to do. So we don't see any shortage of opportunities to pursue organically or even through acquisition over time because these -- the ever-changing needs of organizations and their people just create opportunity and create market.

Got it. Could you talk a little bit about sort of the domestic opportunity versus the international opportunity and kind of where you are with each?

So the domestic opportunity with respect to HCM or just more broadly?

I mean HCM and more broadly. But HCM is the more developed part of the solution portfolio. Like that's probably the tip of the spear, right?

Well, I think in terms of our penetration, we are less than 20% penetrated on the Global 2000 internationally or rest of the world. And so there's just an incredible opportunity there. The rest of the world is very medium enterprise sensitive too in terms of outside of a few key markets where there's a density of multinational corporations. There's a heavy emphasis on medium enterprise. So the combination of the few things we've already discussed are really important for us as we look for that global -- those global expansion opportunities both in HCM and financial management. And I would say that our platform, being able to really sell the full value of plan, execute, analyze, all in the cloud and one solution plays well certainly across the different market segments. But medium enterprise and rest of the world, we feel like we have a strong position in market as we're early days. We're still early days outside North America. While we've been in some markets for quite some time, there's just opportunity, again, half of our addressable market, a balance there.

Yes. And I would imagine the kind of the distribution and capability lags in the international versus what you've already built out in the U.S.

Yes. I would say it varies. I mean we're painting with a broad brushstrokes. So we've been in some markets in the U.K. and Australia, and we've been much longer. And so I think it is a hyper local discussion when you get into that. But absolutely, yes, we're less mature in some markets and more mature in others outside of North America.

Okay. Got it. So turning gears a little bit to the financials offering. We've seen a lot of traction in the last couple of years of the financial offerings. I think in 4Q '20, you guys talked about the strongest financial quarters you guys have ever seen. And it's one of the biggest markets in software and definitely in terms of packaged applications. But thus far, it seems like it's been a little bit of a relative laggard versus other parts of the software equation to come to the cloud. One, where do you think we are on kind of that willingness of enterprise to move financials into the cloud? And has COVID-19 have any impact on that? Do you think that's going to be -- is it going to accelerate or sort of hold back that move to the cloud at all?

Yes, for sure for earlier comments. I mean we now have over 900 customers that have selected us as their core financial system, and we just continue to march upmarket. We just announced, we just had our earnings, customers like Fannie Mae, it's a Fortune 50 organization. We've had great success with our industry focus, both on the product side and the go-to-market side. We have an intense focus on health care, financial services, professional services. These are all very strong industries for us. With respect to COVID, organizations are just realizing how inflexible their systems are when they need it the most. I actually saw that the Hacker Group had some research last -- earlier last month, I guess, now last month in May, that the biggest disruption for finance during the crisis was actually not the transition to remote work, but the real challenge was the big demand for forward-looking information. So it's not surprising that our solutions like Workday Adaptive Planning is really resonating with customers. Our solution enables customers to actually transition from that annual budgeting or monthly sort of more predictable, from the use of high-level drivers to really much more granular drivers for modeling just a few scenarios to modeling many different possible outcomes, possible scenarios, which would include like your revenue projections and your cash flow. We're seeing customers -- huge uptick in the customers that are already using Adaptive Planning, a huge increase in the volume of the scenarios that they're running. We're experiencing that ourselves. We drink our own champagne. We use our own product. We're also seeing, in terms of on the prospect side, huge interest in Workforce Planning for the reasons we mentioned earlier. And I can tell you as a long suffering work development specialist, which is actually my way back background, I'm actually -- I'm thrilled organizations are now really focused on continuous planning. They have -- there's an incredible amount of organizational change. They're also getting serious about the future workforce needs, right? What do we need to be successful? How do we continue to be agile and adept? They're planning for this notion of remote work. We were talking about it before we kicked off the call formally, the impact of automation to their workforce to how they run their business, the new skill requirements and even just in this world, new team constructs, what does that mean, what does that look like with people that are inside and outside your enterprise that you're trying to get a body of work done. So that's an incredible opportunity. We think another opportunity, and we're seeing a lot of interest in -- around the strategic sourcing. So sourcing to control your costs, save money. With Scout RFP, which is an acquisition we made last part of 2019, it's really -- and we had invested in Scout before. So I've known them for quite some time. I was on the venture side for a while. Fantastic culture, fantastic solution, we were just seeing what it was doing for our customers in market and I saw the synergies -- incredible synergies we were doing with procure-to-pay. But with Scout, it's a super-quick implementation, and it enables organizations to be able to like clearly track, measure, report on their sourcing impact and all their supplier trends. So between Planning -- Workforce Planning and Scout, we have -- COVID has really created the sense of urgency and excitement around getting these high-value products in quickly.

So we talked a little bit about HCM. We talked about financials a little bit. And I think most investors look at those as the -- like the landing products for Workday of where you're going to get in the door with a new customer. Is that still the case? Or do these newer products, like in Adaptive Planning or the strategic sourcing from Scout RFP, does that create new potential landing points for you guys within these customers?

It's -- and that's what we're really referring to as -- is land opportunities with your -- and they can actually be solutioned either way as part of an expand or a land. They can -- sourcing and planning can actually be deployed as customers prepare for their core financial management and HCM implementations. Or if they already have HCM, they're one of a -- part of our large customer base with HCM and want to begin their journey with us for financial management with an initial focus and very quick wins with some of the most strategic levers in the business, particularly now in light of COVID, around continuous planning and scenario modeling, and really just like we were talking about optimizing their spend with Scout on their suppliers, which -- there's a lot of opportunity there to optimize. We think there are incredible opportunities for us because we know with our focus on customer experience and really partnering with our customers to make sure that they're receiving value, not just deliver value, but they're experiencing that value and how we connect to them, we feel like if we can get in, help drive some real impact of the business that when they're ready to make their core administrative systems or HCM and financials, that we're going to be a good choice for them, right? Because they've seen how we operate. They understand our availability, our reliability and our commitment. So they just give us more opportunities to engage and meet customers where they are and truly solution for them based on their needs. So first is like this is a sort of very product-centric view of the world. We're looking at a total solution for the office of CFO, the office of CHR, the office of CIO. That's how we're approaching it.

Got it. I'm going to try to get you in a little bit of trouble here. But on the most recent conference call -- I have to try it, right? On the most recent conference call, you guys talked about a really interesting win with Microsoft, where -- it was a partnership, right, where Adaptive Planning is going to be running on Azure? But also Microsoft is going to be using Adaptive Planning in their own organization. Can you talk to us a little bit of how that partnership came to be in? What's the important part of -- parts for the Workday in there and sort of how you expect that partnership to evolve going forward?

Well, I mean, I think in the spirit of partnership, we -- they have a real business need, and we have an elegant solution to meet their business needs. We wanted to expand our -- we already had a preexisting partnership with Microsoft. This is an expansion of that. We've been working with -- on Teams and around security in a number of fronts, but expanding that with Azure for planning as well and making that commitment. So it is a multifaceted partnership and relationship, but really born out of the need that they have around their business. And we want to get in and serve them and serve them well in that capacity. So expanding our partnership on that front as well. I'm really excited. I've been -- we did a CIO tour, talking to some shared CIOs with the Microsoft Team last year. And we have such great synergies in some of these larger organizations that are Microsoft Shop. So we know there's a lot of opportunity to continue to grow this relationship as well.

Perfect. Excellent. I want to talk about the installed base opportunity. It's something that you guys have been focusing on a lot more or at least from a -- of a lot more focus. Last year, I think you had 7 new SKUs that you guys have rolled out within that upsell opportunity. And then you also have sort of Adaptive Insights, which is a recent acquisition, and Scout RFP, which is a recent acquisition, all created additional upsell opportunities. Can you talk to us a little bit about some of the progress you've been making, both in terms of the solution portfolio, but also in the distribution capability? How has that been evolving to sort of increase the velocity and sort of the efficacy with which you guys can now sell into your installed base?

Yes. I mean we have -- thank you for mentioning that. We've made not only considerable product investments, but also investments in marketing, which is now the group that I'm part of, to help support our value proposition that we have with our customers, our existing customers and our soon to be our hopeful customers, helping the companies plan, execute and analyze all in one solution. And so in marketing very specifically, and I'll move to the product side, we are changing our approach to the way we plan and we operate as far as our evolution of marketing products to personas. I think we did a really nice job of persona-based marketing. And to -- and this evolution has been going on for several years, it's not in recent months, but to marketing full solutions and really having this orientation around by in-centers and by industry. We talked a little bit about the industry. We'll talk more about that. That actually -- that is requiring behavior changes and reorganization and good things for us to support our -- how we want to continue to deliver value to our customers, our existing customers, and live more fully into that vision and value proposition we're offering the market. And so as you think about the product side, as these new products come out of -- we have several products this -- in this next release for us, for our customers for September that are coming out of limited availability and into market. We expect our customers are going to adopt them and deploy more from us to help align with their objectives. We actually -- we know these solutions matter to our customers. They didn't just sort of fall out of the sky or weren't just cooked up in a lab somewhere. Our customers have a very active role in the strategy and product development process here. We have advisory councils, and we use our advisory councils. They're not marketing advisory councils. They are actually product councils. And we've done early discovery work with these customers. So even before we decided to invest any money at all or decided to go into these new product areas, our customers were with us, telling us what they needed. So we feel confident -- while they're very early, these products are very early in their stage of development. We feel like they're striking the right chord, they're going to meet some needs. And we've been successful with our early adopters. So as we go into general availability, you'll have those proof points. So we're optimistic, although it is new products. So we have to get a lot of proof points there.

Got it. Got it. And any -- you talked about the repositioning from a marketing standpoint on personas versus marketing individual products. Any changes on the -- like the sales side of the equation to focus the sales guys more so on the upsell? And I guess, the environment itself focuses -- the people off -- on the upsell versus new customers? Then any particular change is being made to focus sales guys more so on kind of farming the existing accounts versus what had been a very traditional strong focus on getting new customers in the door?

Yes. And I think we've been sharing on our updates to analysts that we have increased our investment and our resources in customer-based selling or back-to-base selling as well. So in many ways, marketing is just better aligning with that notion to try to support that notion with demand gen and events and experiences that we can recreate. We're also -- I would say that there's -- with our customer success organization and our focus around the customer experience and the customer journey, we're learning so much of that, and that is really truly cross-functional, let out of our -- with Emily McEvilly, our Chief Customer Officer, but very sincere effort across the board and the organizations to realign around that customer journey. And so it's about delivering value. It's about aligning around their product road maps and their strategy, meeting them where they are, giving -- delivering the right messages, the right services, and of course, selling to them, right? So it's a full company initiative, but we -- and we are making investments across the board.

Got it. Got it. And any feel you could give us on how far along into that opportunity or how big the opportunity within the base is in terms of penetrations of sort of these upsell products or what the remaining kind of opportunity within the installed base is for further upsell, given your current portfolio?

I can speak more anecdotally than mathematically here. Again, we're developing capabilities that we know are important to their business. They are the most strategic things that they want to be focused on right now. We have -- we enjoy an excellent relationship with our customers in terms of getting them live, in production, on time. We have a predictable track record. And so when they're ready, we're ready. And so we feel confident about the opportunity, but it is early days. So we're learning on some of those newer add-on products. Overall, though, with a healthy, vibrant customer base and new capability, we see that as a tremendous growth lever for us. It's one of our key growth factors is our customer base.

Got it. Got it. I want to switch gears a little bit to talk about the R&D spend and sort of what that's focused on within Workday. When we look at our models, you're spending about 30% of revenues on R&D, which is basically about twice that of what we see from peers like a ServiceNow or a Salesforce.com on a percentage of revenue basis. Can you talk to us about why it's relatively higher at Workday versus your peers? And could you give us some kind of sense of what that goes towards? Is that about the new solutions to upsell into the base? Is it about getting into new product categories? Can you help us understand kind of the -- where those investments are targeted?

Well, we've always been focused on innovation. I mean last year, we were really honored. Fast Company named us one of the most innovative workplaces. And that's because we invest a lot in R&D. So our Workmates can partner with our customers to innovate and to actually help them achieve what they're trying to achieve as a business and organizations. But as I shared earlier, we're committed to building for this ever-changing world of work. So the types of solutions, the markets, the categories that we are in, they are not static at all. They demand new sets of features and new capabilities. There's also -- that means opportunity for us. We just talked about the upside of that, too. You can monetize, you can create new offerings to offer existing customers. So it goes both ways. That said, we have shared in public forums that we expect over time that we'll come below that 30% level as we start to achieve some scale in some of our newer emerging products. So we do expect to achieve that.

Got it. And could you talk to us a little bit about the balance of that R&D spend. How do you guys think about which product areas sort of you go into vis-à-vis an organic investment in R&D? And in which -- at what times does it make more sense to sort of pull out the wallet, if you will, and pay up for a Adaptive Insights or a Scout RFP to get that head start into the marketplace?

Well, that's a -- it's a really long-winded answer from a strategist. So I'll try to give you the short answer. It's so conditional to what the needs are in the market, where we are in terms of maturity and product technology that's required for those capabilities, right? So if it's transactional in nature and rests heavily on some of our core constructs, an organic approach might make the only sense. Whereas if it's a new set of features that require different technology than we have expertise in or that we have previously built, you might look on market for that, not always, but you might look on market for that. And then there's opportunistic, right? There's just the opportunistic. So it's hard to give a simple answer on that. But I will say, with any new investment area, we do go through that methodical build by continue to partner and bolster investment or increase go-to-market presence together. We go through that work with Workday Ventures, the opportunity to strategically invest in a company too as a nurturer, an early-stage company to -- as they go through their growth. So we have a full range of options to look at, but I think that thing I can impress upon you was that we go through that full analysis. And so with all those conditions, we make our decisions.

Got it. Got it. Shifting gears a little bit. And you brought this up earlier, the vertical strategy. And as a -- sort of like the Head of Strategy, sort of kind of pick your brain in terms of -- we see this a lot in the application companies. But then you reach a certain scale and then you shift towards a more verticalized strategy. Can you talk to us about why we see that more so often? Like what's the opportunity when you start to verticalize, number one? And number two, what's the Workday take on that? What's kind of your current efforts in terms of getting that verticalization?

Yes. I really liked the way you asked that question because that's what I try to impress upon, our team, our people impress upon me as well, is the importance of having that deep empathy and understanding of who you're connecting with your customers and their needs, and that's often through the industry lens. But as you know, our HR, why now -- and frankly, this has been going on for many years for us. But why is it showing up more now externally. The HR business, the requirements for HR are largely horizontal or agnostic -- industry agnostic in nature. There are exceptions to that, for sure, high volume in retail and others, right? They -- our HCM applications serve all industries, and we have a really diversified customer base, including some of the largest global, most complex organizations. But with financial management application, there tends to be -- or there is much more vertical-specific product requirements, and oftentimes, unique go-to-market considerations as well, which is why you're seeing that so prominent now like in our market presence. So an example is in health care, which is a dedicated vertical for us, has been for a few years in a market where we've driven a lot of success. One of the requirements that is really important to a CFO, when they're thinking about a core financial management system, is really that supply chain solution that can help them procure and consume clinical materials inside of their network of hospitals. We built this functionality, which has really helped us serve the broader FINS market within health care. And then like in higher education, we built functionality like grants management and student functionality. And financial services, we built average daily balance in our Accounting Center solution, which is coming up, which, frankly, we believe, will have broader applicability, the Accounting Center, that is, across multiple industries over time. But we've been on this journey around our industry strategy for a number of years. And I think the learnings here is that it's really an evolution mentality. It's an approach that requires alignment, cross-product, go to market, fully cross-functional. And the services and customer success organizations are also involved. It's really critical that you have alignment. And for us, it's changed the way we're planning that, right? How we think about planning through that industry lens as well. And another -- one area that's becoming increasingly important is having this alignment externally as well with our partner ecosystem, who very much align vertically, right? They have their practices vertically. So that's another reason. And we spent a lot of time talking about this with you all during our Analyst Day last fall. We think about the verticals in different maturity levels. So again, not the broad brushstroke. There are different phases of maturity. So this year, we began our go-to-market effort within our -- within the financial services industry because we had the product readiness, the capability there to serve. So it's not really something that's like, well, we just flipped on this light switch, and okay, all of a sudden, let's put up a dedicated sales folks, so that they're going to be ready. There are actually years of work ahead on that product side. And we started to enable those resources now in the go-to-market because we had that readiness and our presales organization developing that expertise. And so that's really -- you might even start with presales, and in certain industries, it started with presales to have that kind of deep expertise, so they can build that connection and for the understanding of the needs. So this -- we think this is a foundation setting, and we're starting that foundation work in other verticals right now if you think like technology and media, retail and hospitality, really strong industries for us on the HCM side. Have unique requirements, unique go-to-market and ecosystem needs when you think about it from financial management. So this is an important part of our journey and increasing our presence within the office of the CFO for a decade to come. So very, very important to us.

Got it. Got it. So you mentioned how the vertical strategies and the needs to kind of optimize the solution or build out the solution for a specific vertical and the business processes that are specific to that vertical. It would seem that Workday Extend would be a part of that as well in terms of helping you to get into those industries that have more specific requirements. And if I think about that right, it seems like there's -- those are 2 sides of the equation. One is you guys got to do some of the work in terms of verticalization. The other side of the equation is you have to give the companies themselves the opportunity to do the work or the partners to do the work, get that -- how do those 2 sides of the equation work within Workday, like Extend is now GA, but Extend versus like the more formal verticalization strategy?

Yes. I mean, I think, you're thinking about it the right way. I might add in there that our partners -- I mean, our solutions are highly configurable. And so what you'll find is that we are present in other industries where our partners have just done a lot of configuration with their deep industry expertise to support the customers. But Workday Extend allows our customers to -- and partners to develop applications to complement financial management. So like an immediate benefit to us is -- from a strategic standpoint is that we've actually closed deals recently where extensibility was of keen interest and importance to them for the reasons you mentioned. And these prospects, they're delighted to hear that the apps that they create, so not just what we deliver, will run reliably and securely in our cloud. Because again, we're in the business of mission-critical applications with highly sensitive business information. So this is just not about a development tool set. And this is really the reason that we have brought this capability to market. It is about that distribution, the security and the reliability that we can offer in our cloud and our commitments to our customers around them. That said, customers and partners can also create new UI pages, new experiences. They can extend our data model and our workflow for their own customer-specific nuances, which might not be industry- but customer-specific because maybe they had built some proprietary customized app on that and want to enjoy that same feature set in a Workday context or industry nuances, for example, like billing, right, some configuration processes around billing, which is very customer- and industry-specific. So that's how we're thinking about Extend. So I would extend partner into that -- your mindset around that as well.

Got it. That makes a lot of sense. One last topic from me, and then I want to leave a little time to open up. We've got some questions from the webcast that I want to make sure hit as well. A big topic across software and across technology over the last couple of years has been AI/ML type technologies. And I think within software, there's still a debate in terms of how those get monetized, right? On one side of the equation, the more [ spares ] like, listen, this is just a new programming methodology. There's new capabilities. But that's what software is all about. That's why you're charging a subscription to your end customer is that you promised to give them evolving capabilities over time. And this is just part and parcel of those evolving capabilities. The other side of the equation is like, no, these are new fundamental, new sort of work being done and we should be able to charge extra. How does Workday think about that? Like, one, how does the AI/ML capabilities come into your solution portfolio? And two, how do you guys think about the monetization of that work?

Great. Well, we've taken an approach of embedding and applying machine learning to everything we do now. So rather than delivering it as a separate application with a separate monetization strategy, it's just part of how our system operates, and it's a very -- machine learning is a very disruptive technology. We believe it's table stakes for enterprise software, just as it already is with our consumer applications. I mean you don't -- you abandoned consumer applications that aren't hyper-personalized, don't offer suggestions, don't pre-complete things for you, right? But don't know your past behavior. You just abandoned them, right? And so again, taking that everybody -- the workers that we serve, 40 million-plus workers, they have those experiences. They want to come to work and have those same type of experience in their solutions. And those are data-hungry applications, right? They rely on data and smart algorithms. We didn't need to rewrite our solution to offer the -- our customers benefits of the machine learning. We did make investments, significant investments. But we have a unique advantage because of our power of one architecture. This is one source of truth, one source of data, not disparate bespoke applications. And so the algorithms, and we did invest and we are and continue to invest in, are constantly fed with well-structured enterprise data and all the associated metadata from every interaction, every click, every decision, every transaction, all from a single source. And that is the best possible fuel you can have for machine learning, this pristine data set. And so every -- all of these signals really -- or actions represent a business decision. And then the outcome can then be applied, the machine can use that to refine and sharpen its predictions. You've been around us for a while, so -- and those of you on the call, we're really fond of describing this as a virtuous cycle. We have good predictions, they're going to lead to a better judgment for humans. And that better judgment is going to help you arrive at better decisions, which ultimately impact the business with greater -- better business outcomes. That kind of thinking or virtuous cycle is just simply not possible with stand-alone machine learning applications that are sort of abstracted or bespoke to your core systems. So our machine learning capabilities are just centered around the user. And we have different features, whether it's anomaly detection or insights or automation or personalization, just make sure that users experience with Workday, caters to their need, to protect what they want and give them quick access to things. That's on like the very basic level. We believe that we're just saving users' time, making them more effective. We think that, that's one of the most valuable things we can do, and we think that, that is table stakes for enterprise software.

Got it. Got it. All right. Three questions that we've got online. We have about a minute left, so we'll do speed round. I think you're not going to answer a couple of these. So one question was about the breakdown of R&D. Any help you could give us an understanding like how much of R&D is focused on core HCM versus core financials and maybe sort of the emerging product categories, any kind of like rough split or a view on that?

I actually don't have the rough split, but I would say that because of the power of one architecture that I just mentioned that we have core services that serve all application areas. And so our investments are extremely optimized too, right? We don't replicate or have redundancy across those. And so that gives us quite a great advantage. But I don't have any guidance on structure. And I would also say that we do planning for our releases and our investments. And that shifts -- that tends to shift over time based upon where we are in cycles with newer products and so on and so forth. So it's not a static kind of distribution or governance structure.

Got it. Got it. Question 2 was, historically, we've talked about Workday being like 80% into new customers, 20% into the installed base. You guys have made a lot of progress over the last couple of quarters. I think you talked about 50% growth in new ACV into the installed base. Any update on that kind of 80/20 split or any kind of view on where that should go on a go-forward basis?

Yes. Well, just harkening back to my earlier comments, with this emphasis on both new products, new capability to sell into our customers and to -- and a solution orientation as well as a growing customer base, we just -- we will -- we expect that to continue to increase. We have more to sell our existing customers that we know are really well aligned to their strategic objectives. So we see that as a great growth opportunity for us.

Right. Got it. And last one, I think this is a good one to end on. What is it about sort of the Workday architecture sort of like the Workday solutions set that has enabled you guys to stay ahead of the -- what had been big incumbent on-premise vendors. I guess the question could be looked in 2 ways. Like what does Workday do to stay ahead of them? But also, why has it been so hard for those guys to pin it into the cloud-based format that has enabled you guys to just be differentiated in that perspective?

Well, I think it goes back to starting in the cloud, being born in the cloud and making choices about your architecture, your metadata environment, in-memory, some of the early decisions that have served us extraordinarily well from both the speed and scale. And then I -- then the culture that we have of being very focused on innovating with and for our customers. So innovation and customers being core values of ours, just connecting with them. So having the right kind of technology architecture to have this changing orientation to be able to support that. I mean, our product looks nothing like under the covers or above or below the waterline like it did, certainly when I started almost 11 years ago, but 15 years ago when it started. So we can continue to change and be relevant and valuable to our customers as their worlds change and as technology changes. And that is not just a technology choice, not just a business model choice, it's a mindset and a culture and a way of operating that we have really embraced. And we think it's going to serve us well, like I said earlier, for the 20-year plus horizon, that we don't have quite modeled out yet.

Got it. Got it. Unfortunately, that takes us to the end of our allotted time period. Leighanne, thank you so much for joining us. It's been a very interesting and fascinating conversation. Hope all of you on the audience found value in this as well. And hope you're all staying safe out there. And we'll -- if you have any questions about Workday or anyone else in the universe, feel free to give me a call or give someone on the team a call. And Leighanne, again, thank you very much for the time.

Thank you, Keith. Thank you, everybody. Stay safe. Take care, everyone. Bye-bye.