Workday, Inc. (WDAY) Management Presents At Barclays Global Technology, Media And Telecommunications Conference (Transcript)

Dec. 07, 2021 12:07 PM ETWorkday, Inc. (WDAY)
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Workday, Inc. (NASDAQ:WDAY) Barclays Global Technology, Media and Telecommunications Conference Call December 7, 2021 9:10 AM ET

Company Participants

Doug Robinson - Co-President

Conference Call Participants

Raimo Lenschow - Barclays Capital

Raimo Lenschow

Welcome to our next session. Doug, thanks for joining us. To get everyone on the same picture, maybe give us a little bit of background on you and then we kind of go deeper into the Q&A session.

Doug Robinson

Yeah, sure. Thank you, Raimo. It's nice to be with you today, too. So, I'm Doug Robinson, Co-President of Workday. I've been with Workday – working on my 12th year now, Raimo. And I've had – pretty much prior to this most recent announcement as Co-President, pretty much every role in our go-to-market functions, in our sales organization, I sort of have grown up through the ranks in the sales org, and have led various teams, probably best known for, as part of a team, driving our medium enterprise business and some really nice CAGR growth over in the early years where we really dedicated a team to it, but have led large enterprise teams. I've done some roles and ops and strategy. And now, most recently, as Co-President, with Robynne Sisco, our Chief Financial Officer. And in that remit where we work together on really sort of driving our – we're all about focused on SGIs, our strategic growth initiatives, and so we have a lot of cross functional initiatives that we're driving together as a team.

Raimo Lenschow

Perfect. Okay, that's a really good summary. I'm really glad that you're joining us here today. I wanted to kind of go through more in the different functional areas. So, if you think about, first, your HR offering, can you just describe a little bit what you see in the market and maybe start with US and then we move over to internationally. You're the clear market leader. What are you seeing there in terms of your positioning and competition there. You answer, and then we do your international.

Doug Robinson

Yeah. That's specifically from an HR, HCM perspective.

Raimo Lenschow

HR, yeah.

Doug Robinson

First thing I'd share with you is that we're recognized having sort of first place in market share globally by IDC, but I think that we are certainly best known over the years for the dominance we had in the US markets, right? If you look at the US market, we now have a little over 50% of the Fortune 500. And really, I mentioned before the medium enterprise, but really significant traction also in medium enterprise in the US space.

From an international perspective, we don't have 50% market share, like we do in Fortune 500. In fact, one of the things we're really trying to focus, like, what I talk to internal teams, is to shift that focus to – let's go get the market dominance in Global 2000 and start to think and shift the sales organization into really focusing in on the great opportunity in front of us internationally. I think we have a playbook for international that's worked well for us.

We always sort of land first with product investment. International markets are not just one broad brushstroke. You're not US focused, then all of a sudden you're international. You have to invest and do the hard work in each of the markets that you need local and statutory reporting. And so, we make those investments, then we go in a push, pin, anchor account, and we go develop SI partnerships, and then we add sales capacity, and that's when we start to ramp up. And so, while the US is where maybe we got our name, international is where our opportunity is.

You could look at the UK, it's probably our most mature international market, and there we've got sort of similar. We've got 30% of the FTSE 100. We've got 650 customers in the UK. So, it's that playbook I described that we sort of now stamp out around different countries because it's not a simple brushstroke that you go international. That's the work we've been doing.

Raimo Lenschow

Where are we on that? As you know from my accent, I'm German and grew up in that kind of SAP dominates the world type stuff. Like, where are we on that product evolution for international because you do have to localize it, you do have to do the local payrolls, et cetera, to kind of be able to work there. So, where are you on that journey? Is the product ready and now you're doing sales or where are we there?

Doug Robinson

Yeah. Product is ready. And it's not that we just recently got it ready. I think it's a journey. There's never sort of one point in time. And I think you go back to 50% market share in the US Fortune 500. Well, guess what? Many of those, of course, are large, multinational organizations, and so the investments we had to make to support those customers with employees all over the globe – we are now in HR, we're in 175 different countries. And so, we've made that investment over a long period of time, a lot of work to get there. When I look at the international opportunity, I look at the big markets in Europe, certainly Germany, France and the UK are the really big ones that we're focused on and that we have product readiness that we're adding, and that's really where a lot of those investments are, around adding sales capacity there.

Raimo Lenschow

Okay, that's interesting. So, let's switch gears a little bit and talk about financials then. So, HR, we're on the journey, everyone's really comfortable. Where are you on that financials journey?

Doug Robinson

From a financials perspective, I would say it's sort of similar to the journey we were on with HR. We see ourselves as a market leader, certainly in service-based industries, service-based financials. Similar to HR and that story around our multinational customers taking us internationally, our financials customers have done that too. I think like Netflix, Aon. Aon is probably a great example because, for us, they're in 60-plus countries and they were one of our early financials’ customers here in the US. And that's what's driven our market readiness and our product investments on an international basis. So, whereas before I said HCM, we're in 175 different countries. In financials, we're not quite there. We're at 120-ish, give or take a few countries now, and we believe that we've got an opportunity to similarly disrupt with what we provide in terms of financials and HCM on the international stage.

Raimo Lenschow

And so, the product that's there is just now referenceable customers as kind of the way forward – referenceable customers and then just kind of create that big wave that you have country by country?

Doug Robinson

Yeah. Sales capacity is a big part of that investment. And I think it's fair to say with a cloud platform that cuts right to the heart, of course, system of record, you're never really done with the R&D investments for markets. And as markets evolve and requirements in markets evolve, we'll always continue that investment. But yeah, that's -- the message to deliver is certainly the Western European countries, we've got market readiness and continuing to invest in market readiness.

Raimo Lenschow

Yeah. And, Doug, if you think about the impact of the pandemic, when I was at PwC and used to implement these systems like 20 years ago, financial change project was always kind of something like, I'm volunteering for root canal treatment and nobody really kind of wants to do it necessarily. Pandemic seemed to be a little bit of a trigger that people realized, okay, I need to modernize, I need to do something. Is that what's kind of playing out in real life and do you see that in the customer conversations?

Doug Robinson

The pandemic has accelerated, I believe is a fair way to describe it – accelerated – maybe a better way to say, accelerated the recognition of the need to replatform, the need to drive business agility into these systems. There was a new financials customer just last summer where the CFO on the day that we closed the opportunity talked to me about, he had employees sneaking into the office to download reports and then sneaking back home at the time their office was closed just so that they could complete some quarter-end processing. And so, the lack of information access, the lack of agility in the legacy systems, I think it's shined a spotlight on it for a lot of CFOs that we call on.

And I think there's momentum. We share an opinion with this opinion that Gartner has, which is they see, in serving their clients, that 30 – there were many projects planned for 2024 and 2025 and that they saw 30% of those now pulled into 2023. These are big projects as you just described the root canal analogy. These are big, they're transformational, and you don't wake up one day and say, boy, I'd really like to replace my general ledger. It's when the business imperative sort of resonates that they say it's time to make a change, and there has to be a better way. We think we're well positioned.

I've got a lot of respect for our competitors. But we've got two large competitors that we think it's more of the same, and it doesn't provide that agility that the customers are increasingly looking for.

I think the cloud, particularly for financials, it's really changed. It is about data and it's about agility. And so, it's not just can you do close and consolidate, record, report, procure to pay, it's about getting on a modern platform that's agile, and that's where we're seeing the receptivity for financials, is can you now continuously plan, can you slice your business in new ways, and while you may go to market this way today, tomorrow you want the ability to go to market in entirely new ways. And can you take advantage of that or are your systems a barrier to you, your speed of execution? That's where I think we tend to shine.

Raimo Lenschow

Yeah. Do you see that in terms of – since you're kind of responsible for sales, do you see that in pipeline build, how fast fields move forward with pipeline? Is there a change or is it just more, but the same speed or more slightly thicker or like how does this play out in real life for you?

Doug Robinson

Well, the last part I'll hit right off the bat, which is sales cycle duration, we actually haven't seen those accelerate. In other words, from the time you have a qualified opportunity and both companies agree to go on a journey together of evaluation, we haven't really seen a material change in that. And I think that's not surprising as you – again, as we described how disruptive those projects can be.

But there has been a shift into two fundamental ways. I think we talked about this at the beginning of this fiscal year. So, coming out of our Q4 of our fiscal year 2021, in February timeframe, we've got pipeline growth. And I think we – public disclosure, we had our largest pipeline build ever in Q4 of calendar 2020. And that pipeline build that we saw last year that gave us great confidence around our commitment to 20% plus subscription revenue growth, getting back up and over 20%, was a result of that. And we've seen that momentum continue throughout this fiscal year.

So, that coupled with – really, since the start of the pandemic, we saw really strong conversion rates. So, if you have really solid pipeline growth and really consistent performance on your conversion rates from beginning of quarter to end of quarter, that's the kind of thing that gives me as a leader of our sales organization a lot of confidence to say, we see it, we see what's in front of us, and we feel good about our ability to drive that kind of growth rate for a sustained period of time.

Raimo Lenschow

You mentioned competition already. Can you talk a little bit about, in HR and financials, still the same old and same playbooks that we've seen before?

Doug Robinson

Yeah. For our two main competitors, it's more of the same. They've had sort of similar tactics over a period of time. I think what we worry about more or keep our eye on more is always disruption from underneath, is new entrants to markets is what you have to constantly be aware of and you have to make sure you're continuing to stay at the very edge, two years ahead of where our customers are in terms of innovation.

Counter to that, though, I think it's worth mentioning that the barriers to entry for this market, serving these sort of complex enterprise class systems and the platform of where we're at today, there are barriers to entry and it's not getting easier to be a new market entry. If you think about GDPR and Schrems and the amount of data egress and data sovereignty and data cannot leave countries, all over the world, that problem is only getting more and more complex, and that's where our large investments and our long years of experience handling those requirements gives us an advantage.

But in terms of the two big competitors, I've got a lot of respect for them. They're much larger incumbents, but their tactics remain largely the same. There tends to be a compete on price. That has been consistent over a number of years.

And what we really tried to drive in our engagements with clients is making sure we parse, is this merely a lift and shift from your data center to a public cloud, AWS, Azure, or GCP? Are you merely taking the same software that had great rigidity and a lot of customizations and merely having it in somebody else's data center? If that's the case, what business value do you actually get from that? And how does that help you transform your office of the CFO? Or how does that transform how you engage with employees and drive innovation? As long as I've been here, almost 12 years, it's been that kind of discussion every time. And can we can we drive the conversation to our points of differentiation.

Raimo Lenschow

I wanted to switch gear a little bit. Over the last couple of years, your product portfolio has expanded quite a bit. Now, we have like planning. With Scout, we go deeper into procurement. Can you talk a little bit about that? What it does to sales motion in terms of revisiting clients, upselling, cross selling at renewal points or in between renewal points, like talk to that a little bit?

Doug Robinson

Yeah, it's a good question. I think the headlines tend to get – when we do my interactions in sessions like this tend to be with our earnings callbacks, there's lots of questions about what you mentioned, which is our Adaptive Planning acquisition, Scout RFP which is strategic sourcing, and then most recently, our Peakon for employee engagement. And those give us adjacencies or new areas for us to go back to our core customers and talk about these innovative new products.

But sometimes lost in that discussion is, about two years ago this time, we had a cannon shot of innovation, organic innovation. I tend to go to SKUs, these are really solutions, but for sake of discussion, seven new SKUs introduced and all of them have attach rates into our customer base less than 10% right now. There's great opportunity there to go back to that base, and drive the new organic innovation in addition to the acquired products.

And we recorded or we shared this information at our financial analyst day that we now have 40% of ACV bookings are from our customer base, this motion you're asking me about. It's just a few years earlier that it was 20%/80%, 20% customer base, and now it's 40%. And so, what it highlights for me, if you own the core, the core system of record of either financials or human capital management, it's not a foregone conclusion, but you have the opportunity to own it all. So, if you take great care of customers, you keep innovating, you keep really high net retention rates, gross retention rates, you have the opportunity to own it all. And so, it was particularly prescient certainly in the pandemic, that back to the base motion.

Raimo Lenschow

In a way, I always thought it probably helped you in the pandemic to kind of do better because, initially, I was worried, it's like, who on earth will do like a big financial transformation project in the middle of a pandemic, but that upsell/cross sell probably – I don't want to say safety, but it helps you a lot.

Doug Robinson

This is a very public setting. So I like your comments. I don't know that I want to – I think it's fair to say that it was a huge factor in last fiscal year's success. And you're right. Net new transformational projects were disrupted in 2020. No doubt about it. And you can't hide from that.

But it was it was very telling for us, that the receptivity – and it, for me, really shined a spotlight on the fact that, again, if we take great care of customers, we've got this path with them to help them innovate, to help them innovate their way through some of the disruption that we saw last year. And what's exciting for me now is, even in spite of that, sort of back to the base motion, I mentioned it was 40% of ACV, it's a really balanced picture now. So, it's still 60% net new, but you're not living and dying by quarter to quarter that net new win. It's a really balanced picture between those sort of two motions, if you will.

Raimo Lenschow

Makes sense. And it's good to see as well. What does it mean to your sales organization, though? Because I would assume like, in the olden days, you had like a bunch of elephant hunters and they had like a big contract. Now, you almost need probably a bigger overlay. Do you have like more of a hunter farmer kind of setup because you can revisit a lot more than in the past? Like, how do you change the sales organization to kind of kind of take this opportunity and drive it?

Doug Robinson

So, we focus on multiple entry points into customers, and we actually drive – increasingly, we drive specialization and great focus. So whether that's planning first or sourcing first or Peakon, or core HCM or core financials, you have five ways to now land with a customer. And you described the overlay and specialist. I think overlay is part of our strategy. But if you're doing a good job by way of enablement and really baking into the DNA of the sales organization, and that goes beyond just salespeople, right, all the supporting functions, the pre-sales consultants, if you're doing a good job on that, you actually need less overlays over time. And so, you could have dedicated sales forces focused on those motions that I just described, those five different entry points into customers. And then, the teams are supported by pre-sales consultants with product expertise or market expertise in those various swim lanes. So that's one.

I would say the second area that the sales force has evolved over time is certainly around industry specialization. And so, in human capital management, it is, by and large, a horizontal application. But the minute you transition over to financials, it does require an industry focus, an industry point of view and an industry value prop. And so, that's another way that I'd say our sales force has really evolved over time, not just who's focused on which of the entry points, but also having teams that are striped to healthcare, to FSI, to professional business services, to higher education, to the – the fifth being public sector or state and local government. And then increasingly, next year, into the federal market opportunity here in the US. And then, so that's the second.

And maybe I'll round that out with a third, which is you now have a team that wakes up every day and says I'll land first with one of these new applications that Workday has acquired over the last several years. You have cut employees who wake up every day and say, I will now engage with a small set of existing core customers to expand that back to the base motion, then a set of sellers who really wake up and say my remit is really focused on taking market share and net new core system of record opportunities.

Raimo Lenschow

It must be good for you as the person in charge with the ultimate responsibility to deliver numbers to have a much broader set up that should help you to sleep slightly better at night because it's a much more balanced approach, I guess?

Doug Robinson

Even when I'm in a hotel room in Dallas out there traveling to meet customers. But, yes, it's certainly the case that the balanced picture, I think, just helps you drive a more predictable business. And that's what we all strive for, of course.

Raimo Lenschow

On that notion of sales, where are you investing at the moment? I'm suspecting it's kind of international and some of the stuff that you mentioned, but I just wanted to hear from you, as we're coming off the pandemic and started investing again, what are the focus areas for you?

Doug Robinson

Yeah. I look at really international expansion and medium enterprises, real growth opportunities for us. And I mentioned that 50% of the Fortune 500. We've disclosed it before, I don't know if I mentioned it here, but we have less than 25% of that Global 2000. And if you look at sort of our large addressable market of 33,000, companies, we have 11%, 12% – on a unit basis, 11%, 12% market share. So, that's the great opportunity, is to take this platform to the masses. So, I think about international and I think about net new in international expansion, I think that's definitely a priority area. At the same time, what last year showed us and this year is that, again, with focus comes revenue. And so, that back to the base motion, we still are investing in sales capacity there because what you essentially have the ability to do is have each sales representative cover less accounts. Therefore, they go deeper with those accounts. They drive better customer intimacy, customer relationships, and we get more ingrained to understand what business strategy is this customer trying to drive? And then and only then do we say what of our enabling technologies could be applicable here to help them achieve their goals.

So, there's investment in both, but I think it's fair to say net new in international gets the attention for sure, from my thinking.

Raimo Lenschow

And on that note in terms of sales investment, you can almost say yes or no as an answer if you kind of want to do that. If I look at Workday historically, you guys have always, in my view, over-indexed on R&D and you've talked about it in the past a little bit in terms of there's so much product that is needed you'd never finish. But compared to like a salesforce or a ServiceNow, you're over indexed on R&D. And I almost felt sorry for more like you because you had – looked like you were under-indexing on sales and marketing. Kind of think about it, R&D spend as a percent of revenue, sales and marketing spend as percent of revenue, I do sense – and now the yes or no answer comes in, I do sense a slight change that the product portfolio seems now kind of very broad. And yes, you can still expand it, but it's much, much broader than it was. And so, there seems to be a little bit more focus now on expanding sales capacity, et cetera. Is that observation kind of half correct? Or how do you think about that?

Doug Robinson

I think it's a fair way to look at it. I guess first and foremost, we tend to land large, right? Historically, if you think about it, we land with – nobody buys an HR system for a department. Similarly, financials. These tend to be enterprise-wide deployments. So, I think part of that was, we have always historically had a really efficient sales motion. And so, our revenue, our ACV per account executive probably best-in-class, certainly in the industry. But you think about that, just by the very nature of having some of these acquired products that you actually are driving market share gain and driving a land first motion, those tend to be smaller transactions than a full ERP project. And so, that, in and of itself, would suggest to you that sales expense goes up. But at the same time, I would say, on the R&D side, what we build is where we are building something that's enduring, that we're building a platform that can serve the largest, most complex organizations in the world. And so, that does require significant R&D spend.

I'll go beyond the yes, no answer to that and suggest to you that you are right to suggest that, over time, we actually see R&D as a percent of revenue coming down. And I could do a dance here, but an increased investment in sales and marketing. That is something that – to drive our initiative of $10 billion in revenue, it's something we have to do and it's something we're excited to do.

Raimo Lenschow

And last question for me is, if you think about – and I don't know if you follow the thinking from our side, in terms of, 'oh, my God, like, I need to look at Workday again and some of the others because back office spending is coming back, and so it's getting more exciting and you need to kind of own, like, a Workday, et cetera, again.' And then, if you look at the last set of results, not for you guys, but for some of the other names a little bit of a disappointment that it didn't come through there quickly. Like, do you think people just kind of forget sales cycles. And you mentioned earlier, the sales cycle hasn't really changed that much. It's more like the pipeline is building, people are coming back, but there's still a lot of process change needed. So, you need to go for that cycle. So, it's like, it's getting better, but people need to understand the math. Is that fair from your perspective? Does that make sense?

Doug Robinson

I think so. The bookings growth that we have now, we're very pleased with. But the bookings growth we have now shows up later in our business model. And I think sometimes that's – certainly, most savvy investors understand our business model. But I think sometimes that's lost on what – the great work we're doing now, the accelerating bookings that we've had shows up in our revenue model down the road. And so, I think that's part of what you're describing. But, yeah, I think that's the case, certainly.

Raimo Lenschow

Yeah. Okay. For the second question, what's the biggest surprise potential for you for next year? What are you most excited about?

Doug Robinson

This is where my IR guy would tell me that I have to say everything's great. But I'll try to do better than that. We've got a lot of irons in the fire, certainly, right now. I think when I look at next year, I think I'm excited to see financials. I'm excited to see the customer base team. And I think I've said international probably 15 times. I think there's really exciting opportunity there. We talked about that in our Q3 earnings call that Europe, in particular, EMEA was really strong in Q3. And so, we've coupled that execution with pipeline. It feels like that has some good opportunity for us next year. And I think, increasingly, I'll mention one more, which is Extend. I think there's – it's often not talked about, but the ability to take our – the power of single code line multi-tenant SaaS is that you're always current, the pace of innovation is much stronger than the way others have approached cloud before. So, that will always be an advantage for Workday.

But now you talk about the ability to extend through configuration, not customization, but be able to extend our application with SIs, Accentures, Deloittes of the world and with customers to extend the application on their own, and then ISVs to tap into and have Workday open the aperture, I think, are under the umbrella of Workday Extend. I think there's a lot of opportunity there. I think there's an opportunity for a pleasant surprise next year and it start to get on the radar of investors.

Raimo Lenschow

That's a perfect closing statement. And investor relations will be happy with you.

Doug Robinson

Yeah, I guess in the end, I sort of covered it all, didn't I?

Question-and-Answer Session

Raimo Lenschow

Yeah. All right. Doug, I really enjoyed our session. Thanks for joining us from on the road. It worked really well. And I really enjoyed our conversation. Thank you.

Doug Robinson

It was my pleasure. Thanks, Raimo.

Raimo Lenschow

Thank you.

End of Q&A

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