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

All right. Well, thank you, everyone, for joining our next session today at our Citi Global Virtual Technology Conference. My name is Dan Jester. I'm one of the software analysts here at Citi, and I'm very pleased to host our next section with Workday. We have Tom Bogan from Workday, the Vice Chairman of Workday. And before we kick off, I just want to hand it over to him to read the safe harbor statement.

All right. Thanks, Dan. And before we get started, this Workday presentation may include forward-looking statements. So please note that our safe harbor statement that you see here applies, which is also available on our IR website via our latest earnings release -- press release.

Great. So Tom, you've been in the software industry a long time, and I think investors -- many investors are familiar with you, but some may not.

And so just to kind of kick off the conversation, I think it'd be helpful to give folks a little bit of background about yourself and about what you're doing at Workday today.

Great. Thanks, Dan. And yes. So I've been part of Workday now for 2 years. I came over with the Adaptive Insights acquisition that we completed in August of 2018. And I had joined Adaptive early in 2015 as CEO, and we had built the company up. We were initially venture-funded, and we're actually in the process -- as many investors know, we're in the process of an IPO. We're 3 days away from going public and agreed to become part of Workday. And as I've shared with many people, that decision really was about the specifics of that transaction but was also the opportunity to become part of Workday, which I've always seen as an extraordinary company making important differences. Prior to Adaptive, my background was deep in enterprise software. I was Chairman of Citrix Systems for about 10 years, a member of that Board for about 13 years, Chairman of Apptio. I was a venture investor at Greylock Partners, which is actually where Aneel and I met, and have been around enterprise software for a long time. And now as part of Workday worked -- we initially ran the Adaptive business as a separate business unit and are now fully integrated inside Workday. As many investors know, we did an acquisition of a company called Scout RFP last December. So I've been working with the Scout team, running that business and working on the planned integration to broaden Workday.

Great. And so you just reported earnings a few weeks back. And clearly, it's a very interesting time and a lot of challenges that companies are working through. So maybe to kind of set the stage for our conversation, just maybe recap very quickly how the second quarter progressed for Adaptive and Scout, specifically, and how you're framing the current fiscal year for -- in that side of the house for Workday.

Yes. It's certainly -- as everybody knows, this was an extraordinary quarter. In terms of the transitions and the business disruptions that we've seen over the last 2 quarters, they're frankly largely unprecedented. And so when we look across our Workday business and we look at the second quarter, we were really pleased with the result and really -- the progress that we saw in Q2. And as we all know, every software company entered Q2 with a high degree of uncertainty. At the end of April, which was the end of our first quarter, there were still -- we were in the early stages of COVID, we were determining how we can best work from home, we were trying to assess the impact on our business. From the Adaptive side, what we saw in our customer base were people running multiple scenarios, and it just makes sense. They're trying to figure out and determine what was going to be the impact of their business. We saw as much as a 30x increase in the number of scenarios our customers were running to try and determine what was going to happen with their business. And as we progress through the second quarter, I think there was a level of comfort that teams achieved with understanding how they were going to operate effectively. And we found that we could engage with customers, we could sell remotely. Even more importantly, we were able to do customer implementations remotely, which maybe at the beginning of this, was somewhat of a question mark. But between investments that our customers made, what our teams did to make that experience effective for customers, we were really pleased with the progress we saw over the course of the second quarter.

Great. So maybe let's dive in a little bit to Adaptive because, as you mentioned, planning in this environment seems like there is a significant need for all sorts of stakeholders to do planning. So since Adaptive was purchased by Workday, can you just walk us through how the product has evolved and where we are today versus where we were prior to the acquisition?

Yes. I would characterize it as a continuation and acceleration of the journey we were on pre-acquisition. So we had initiated a number of investments to improve the enterprise readiness, the security, the scalability, the performance of the platform. And those are investments we started 3 and 4 years ago. With the Workday acquisition, what we saw was the ability to engage with the Workday large enterprise customers, particularly around workforce planning. Workforce planning was an opportunity with our large ECM base to engage with customers around the workforce planning. And then as we came into the current environment, workforce planning has become even more critical, whether it be thinking about geography planning, skills planning, thinking about diversity and how organizations were planning around those diversity and other important elements of their strategic workforce plan. The ability to sell Adaptive into those customers and engage in those customers with their strategic workforce planning was probably something that we underappreciated coming into the acquisition. So it's really been effective for our business.

Great. And so workforce planning, clearly understand the use case in this type of environment. Any other use cases that have emerged over the past 12 months that have been surprising? Or anything that you're seeing in terms of maybe new use cases emerging as the pandemic has evolved?

Yes. I wouldn't call it new use cases, but I think the ability of cloud planning products to accelerate holistic company-wide planning is a trend that we've seen, and it continues to accelerate, particularly in the COVID environment, because the importance of having a holistic company-wide plan in this environment is even more critical than it was historically because of the sensitivity of the various elements. So the best planning practice that we see from organizations are capturing their key performance indicators in Adaptive. They become assumptions and operating assumptions in the plan, and we can measure how we're performing against those performance indicators. So we've seen increases in sales planning, operational planning. We have customers that are using Adaptive platform to do airline route profitability analysis, to do marketing spend effectiveness and analysis, to do robust sales planning across their organization in addition to the workforce and financial planning use cases that we see. So the notion of putting planning in the cloud really is a game changer from the way -- even companies that were using legacy on-prem planning systems, a lot of their model logic was in spreadsheets, so in Excel. And the ability to take that model logic put in a robust modeling platform like Adaptive to coordinate that across the organization and then be able to have everybody on -- with a single source of truth connected to each other, being able to share information, being able to do robust reporting and analytics from that platform, that's really powerful.

And maybe just focusing just on new business, and then we'll come back to selling into the base. But on new business today, I mean what are you seeing in terms of attach rates? And maybe we can kind of divide and conquer here. So an HCM-led deals and financials-led deals and then platform deals, kind of how do attach rates vary across the sales motions?

Yes. They're strong really across the board, and we think of sales motions on new business from 2 perspectives. There's the attached motion where we're selling with the entire Workday platform whether it be HCM and FINS or maybe just HCM. And it's more likely -- if it's an HCM deal, we'll probably attach workforce planning to that deal, but that presents an opportunity to then sell into those customers for financial planning use case down the road. So it presents an upsell opportunity for us. The attach rates have increased, and they've continued to improve and increase as we become part of Workday. And then we still have the motion of what we call planning first, which is selling into non-Workday customers, selling planning. And it's a way for us to land, particularly with finance teams, to land with finance teams to be able to sell down our planning capability before they're willing to -- they're perhaps ready to engage in other parts of the Workday platform. So we've seen success with both of those.

Are there examples of a planning first transaction that then led to a broader Workday sale either HCM or financials? Or is it maybe too early for that to have emerged yet?

No. We've had about -- we've had several customers. We've had a number of customers who started as planning customers. There's a large restaurant chain that started as a planning customer then became a Workday financials customer. We've had 2 nonprofits, not-for-profits, large not-for-profits that I can think of that started with Adaptive and became Workday customers more broadly. So there very much is the notion of being able to engage sell planning first and then be able to have a relationship that extends beyond planning with those customers.

Got you. And then when you're going back into the base and a current HCM customer who could obviously use planning, can you just talk about selling back into the base, how you're going about it and sort of what's the momentum look like given some of the macro headwinds that we're facing?

Yes. In this world, I mean as we were discussing earlier, Dan, the workforce planning opportunity is really significant. Everybody really recognizes that we just have to think more strategically about our human resources and the ability to plan around those human resources. So the motion of selling back into our HCM base, particularly workforce planning, has been really effective. And we have a number of customers that we were able to engage with. And frankly, we've learned a lot. I think about our 2 years as part of the Workday -- being part of the Workday journey, we've learned a lot about workforce planning and what customers really want and how to deliver meaningful value to those customers for their workforce planning problems. For financial customers, we always been -- we'll try to extend to a financial planning application, and that's a different part of the organization so it requires some work to get there. But as you know, I think for many of our customers, it's the brand promise of Workday and being able to come into those customers as part of a broader Workday relationship is important to those customers and I think powerful when we're selling back to the base. I didn't hear that.

Sorry. I'm mute. Sorry. So as you think about going back into the base, any differences you would flag between kind of mid-market and enterprise? Or are there any specific verticals that have kind of -- that you'd call out as being significantly strong?

Yes. I think in terms of selling to the base, it really -- it's not really vertical-specific. It really -- and when we think about the planning solution, it's not targeted specific verticals, it really is a horizontal solution. Our financials strategy is a little bit more fine-tuned for verticals. Whereas in planning, we sell a platform, which is a modeling platform, which is a reporting and analytics platform that can be sold into any vertical. So it's a little bit less vertical-specific. I think there are a couple of areas that we've seen really good traction recently. And I would cite state and local as an area, where across Workday, we've seen really, really good momentum, and that's really extending to our planning solutions as well. And then for planning, we've also had really good -- a lot of success in higher education as well, and there are a number of large higher education customers where we've had competes and wins and have achieved success there.

Great. And then on just the competitive environment, can you kind of comment as to how that has evolved, specifically the planning? And when Adaptive and Workday wins, what are the factors that get you to win in a specific transaction versus a competitor?

Yes. I think competitively, we probably see Oracle and Anaplan the most, and I think that would be true across a spectrum of opportunities whether it be large enterprise opportunities or mid-enterprise opportunities. And I would say they are the competitors we see the most, and we're really pleased with our win rates against both of those competitors. When we win, it really is about ease of use and it's time to value. And the ability to implement the adapt the platform, get up and running and deliver real value in a very short period of time, I think, is a real differentiator for us. And I think the other thing is one of the areas that, as we said, that we've made a lot of investment is around enterprise readiness, scalability, enterprise security. And we've had tremendous success this year with some of the largest enterprise customers in the world, and that's an area that we see those investments paying off.

And for a typical enterprise deal, how quickly can you get a client up and running?

Yes. It depends, of course, on the client. I think if the client has a good perspective on the way they want to do their planning, we have customers that are up and running in 4 to 6 weeks. I think of a very large software company, one of the largest public software companies, and from start to finish in that project, we were up and running in 6 weeks. And I think that is a demonstration of the tremendous time to value we have in the Adaptive platform. For other companies with more complex use cases, it'll take longer. It really depends on the customer, the amount of time, the investment they can make. It can certainly be 3 to 6 months in a more complex use case, but I think the feedback we have from our customers is compared to other solutions they've used, it tends to be much more rapid implementation time.

Got you. And just a reminder for the listeners, if you have any questions, please send me an e-mail, and I'll do my best to incorporate that into the flow. I think now it makes sense to maybe turn to Scout and sort of the procurement side of the house. So I think most people understand the planning journey, but procurement is a new one or a newer one. So maybe kind of lay the groundwork for how Workday is planning to win in this market.

Yes. So we've had a procurement solution for a number of years, and one of the areas that we thought we had an opportunity to really differentiate with a best-in-class solution was in-sourcing. And so we acquired Scout RFP last December. It was a really early-stage venture-backed company with world-class technology and a relatively limited revenue portfolio at that point in time. Tremendous team. The founders and leaders are a great cultural fit for Workday. And when -- as an aside, when I look at our 2 acquisitions, be it Adaptive or Scout, I think of acquisitions I've done -- been on the buy and sell side of a lot of acquisitions over the course of my career, and I really think of culture and fit as kind of a super food in acquisitions. It really is the thing that can make a big difference in both the Adaptive and the Scout cases. That was really important. So the Scout team is, as I said, a tremendous cultural fit, great, a best-in-class sourcing product and a really strong position, particularly around indirect sourcing. And it's a really important problem. And then maybe similar to planning, we see many of our customers coming from spreadsheet use cases where rather than using a sourcing system, they use spreadsheets to track auctions and bids and keep tracking sourcing. And in Scout, we have a highly intuitive user interface. We're making the investments to integrate with our entire spend management stack, really focused on things like supplier management. We had a supplier object in our procurement software. We had a supplier object in Scout. We're making those obviously, one, really trying to provide seamless integration to our customers. And we've seen a lot of interest from the Workday customer base. And we've really focused, during this period of time, on building, particularly our Workday-related pipeline both in terms of connecting to new deals as well as selling into the installed base. And I think, Dan, we've also benefited from having been through the Adaptive journey, that was the first big acquisition that we did. I think there's muscle that you require going through all acquisitions. And I think we did that -- as a company, I think we did that in Adaptive, and I think that served us well as we've gone through the Scout journey.