Workday turned in a strong Q3 while announcing it is to acquire external workforce management firm VNDLY for $510 million. The acquisition is intended to provide organizations with a single unified system of record to manage their entire workforce, both internal employees and outside contractors. Co-CEO Aneel Bhusri explained:
One trend that has been accelerated by the demands of the pandemic is the future of work, which requires new ways of thinking about workforce composition and how to manage different types of workers. We expect to accelerate our efforts in this area with the proposed acquisition of VNDLY.
Workday and VNDLY together will deliver a comprehensive total workforce optimization solution that brings an integrated approach to managing all types of workers. We'll help customers bridge the gap between internal and external workforce management while enabling a holistic workforce strategy that delivers full visibility into entire workforce and managing and planning for labor needs, while also helping to control compliance and security risks
The move reflects a change in behaviors, argue Chief Strategy Officer Pete Schlampp:
The buying center has traditionally been in the procurement space but has more recently been trending towards the HR space. That was a great fit for us because we sell to both of those buyers. [VNDLY] looked like a nice piece of the puzzle between our Human Capital Management, our financial management, and our spend management solutions.
The better management of systems have been around for a while. VNDLY is really a second-generation cloud-based vendor management system [with] great focus on the user experience configurability. One thing I will also mention there is that it is deployed by enterprises, but also about 50% of time deployed by managed service providers. VNDLY happens to have a great relationship with managed service providers as well and we see that as a channel for us to continue to use as we go forward.
Steady as we go
For Q3, the firm reported total revenues were $1.33 billion, an increase of 20.0% year-on-year. Subscription revenue was $1.17 billion, up 21.0%. Net income was $43.4 million, against a loss of $24.34 million for the same period last year.
Co-CEO Chano Fernandez said:
We delivered a solid Q3, driven by a strong execution combined with healthy demand for financials and HCN solutions. The strong conversion rates that we experienced in the first half of the year continued in Q3, driving net new business acceleration that once again outpace our expectations. In addition, our pipeline generation remained very healthy, setting us up incredibly well to achieve our full-year acceleration targets and providing incremental confidence in our goal of sustaining 20% plus subscription revenue growth on our path to $10 billion in revenue.
Strength in Q3 was once again broad-based with solid growth in landing new core HR and FINS customers. Performance in North America remained strong across the large enterprise, while the medium enterprise in international markets both drove significant outperformance. EMEA was a highlight, with standout results in the UK, Spain and Switzerland. In addition to solid performance from our land sales team, the momentum within our customer base team continued in Q3, driving continued strength in net revenue retention. We once again saw a very strong renewal performance and our customer base team drove strength cross-selling a number of solutions aimed at the CHRO and CFO, including Core FINS, Learning, People Analytics, Planning and Spend Management.
I said the pandemic was a once in a lifetime event and in many ways, quite a bit obviously sad and negative. On the business side, it did change everything, whether it's the shift to remote work or hybrid work, or as you look at the broader base of contingent workers and the Great Resignation. I think what it forced customers to do was to look at their platforms and say, ‘Are we ready for this new world?’. And in many cases, they weren't.
We were fortunate that the way that we built our cloud products and the solutions we have are a perfect fit for where the world is headed and I think we're benefiting from that. Increasingly in a labor-constrained world, what we're doing with Peakon, what we're doing with VNDLY, what we're doing with our own products in terms of helping people optimize their human capital, is huge. And also, during the pandemic we saw a lot of big financial projects being put on hold, and now those are slowly coming back. So, there's optimism that even more of the financial projects should be coming back next year.
A solid quarter with growth continuing at a steady pace. The share price took a tumble on Wall Street as once again investors expectations ran ahead of themselves, seemingly particularly in relation to subscription revenue forecasts. But the reality is that Workday’s product strategy is in tune with the changing nature of the world of work with the VNDLY acquisition the latest example in action. Onwards.