A strong set of Q3 2021 numbers from Workday saw the firm beat Wall Street expectations and raise full year outlook for the second time, albeit with a cautious note struck about the potential long tail impact of the pandemic through 2022.
Total revenues for the quarter were up 17.9% year-on-year to $1.11 billion with subscription revenue up 21.3% to $968.5, while revenue outside the US was $272 million, 25% of the total. The firm reported 50%+ growth in new ACV [Actual Cash Value] bookings, while operating loss was dramatically down on the same quarter last fiscal year, from $110.3 million to $14.1 million.
Joining CEO and co-founder Aneel Bhusri on the post-results analyst conference call was the firm’s co-CEO Chano Fernandez at the end of his first few months in the role. Fernandez discussed the operational story of the quarter:
We are focused on building a maturing pipeline, closing deals and successfully implementing and supporting customers, all in a fully virtual way. For the second quarter in a row, we saw conversion rates exceed our expectations as organizations continued to push forward with their HCM and Financials digital transformations. We had several strategic wins in the third quarter, including multiple global 2000 HCM wins, a Fortune 500 core Financials win and Fifth Third Bank, with Accounting Center once again playing an important role, and notable HR/Financials platform wins in our education and government teams.
Significant HCM customer wins during the quarter included Novartis, DraftKings, CTBC Bank, and Tecnologias Rappi, the firm’s first notable win in Mexico since pushing into that market earlier this year. There were also two headline-grabbing go-lives to be notched up, said Bhusri:
We also celebrated several notable HCM go-lives this quarter, including Walmart, who is now live across its 1.7 million employees globally and what we believe is the largest multi-tenant worldwide cloud HCM deployment. Also our strategic partner Accenture went live with Workday HCM and is now serving its more than 0.5 million global employees.
In Financial Management, customer wins included the State of Washington, University of Central Florida, Fifth Third Bank, The New York Times and Extendicare, with Bon Secours Mercy Health and Progressive Insurance picked out as highlights among go-lives.
Despite the ever present shadow of the pandemic, the vibe Bhusri appears to be getting from customers and CEO peers is that if it's not exactly business as usual, then at least it’s ‘keep calm and carry on’. He cited a virtual gathering Workday hosted called ‘Conversations From A Changing World’:
We heard the call that business leaders simply cannot opt out of this moment. Companies have to lean in and be part of the solutions that address the most pressing issues that our society is facing today. Many of the conversations also touched on diversity and inclusion and a growing commitment to re-skilling the global workforce. At Workday, we need to continue to be a driving force for the creation of opportunities in this digital economy for everyone, not just a few.
And from a technology perspective, there was a common theme underpinning the conversations at our event, a view that a must-have ingredient for organizations going forward is to have a strong digital foundation and now it’s the time to accelerate that transition.
Organizations are still concerned about employee engagement and remote workforces, he said, which is a driver of continued HR business momentum, as well as a need to shake off old restrictive HCM offerings:
I think people, if anything, are saying, ‘I really got to get off those legacy platforms’ and so for us, there are definitely companies and product lines for us that are actually being accelerated by the pandemic, where people just want to get off even faster than what they were planning on getting off before.
In Finance, there may be some more caution in play:
I do believe there are some bigger projects that are being held off until post-pandemic. The idea of starting a big project at a Fortune 500 company, we're getting those, but probably not as much as I think we'll get post-pandemic. I think when people come out of the pandemic, they'll say, ‘I want to get rid of every legacy piece of technology I've got and I've got to move into this world of agile, flexible systems that support all different kinds of work environments’.
I would say the one area that continues to be very strong on the finance side is planning, because people are under a lot of pressure to come up with new plans on a regular basis. I don't know how many times we've gone through a new planning cycle since the pandemic started, but it's such a fluid, challenging environment that it's putting a lot of pressure on planning and I think that is driving that need for Financials. And then another area where we're seeing strong acceptance is actually in the area of Scout RFP and procurement, because people are trying to get a handle on their supply chains and their costs during this environment. I think core accounting is going to have a pop post-pandemic.
A lot depends on which industry an organization is operating in, added Bhusri:
There are a number of companies that can weather the storm - retailers, tech companies - and as much as possible, they're trying to get back to some level of normal. Even though we know we're in frankly probably in the worst part of the pandemic, it just seems like [they] figured out how to work in the pandemic. Those conversations are very similar to what they were pre-pandemic and people are very focused on digital acceleration and getting to that that future state on the platform side.
But then we do have customers who are really being impacted by COVID, whether they're in hospitality or transportation, and for them, they're still on the sidelines. I think there'll be a few outliers here or there, but I think the best way to look at it is the world is trying to get back to normal, but there's a couple of sectors that are having a hard time getting back to normal.
And that contributes to some inevitable uncertainty around next year and through to 2022. As Bhusri noted, vaccines appear to be on the horizon which should go some way to achieving what Fernandez characterized as a desire among Workday reps to get back in front of the customers in person. But the latter was left to strike a note of pragmatic caution when he said:
Our comparisons get tougher starting in Q4 and we don’t expect a 50%-plus growth to persist going forward. But we still see significant opportunity to drive meaningful growth from a winning installed-based sales team for many years to come.
As we head into Q4, we remain cautiously optimistic. We continue to face near-term impacts to the net new business, particularly in certain industries. So, we have seen a strength in the store-base team help partially offset this and we are encouraged by improvements in our pipeline.
As we prepare for next year, we are increasing the pace of our sales and marketing investment. We believe now is the time to do so because we see a meaningful opportunity on the other side of COVID and we are investing now to capitalize on that opportunity.
A strong end to calendar 2020, a year we'll all be happy to see the back of. Momentum is still there among customers and prospects, albeit tempered by pandemic considerations, and while the pipeline isn’t, as Fernandez noted, running at pre-COVID rates, Workday continues to rack up progress and traction in its markets. The note of caution struck by both co-CEOs about the ongoing uncertainties in 2021 through to 2022 is sensible given that decision lead times in the enterprise space are still lengthy, despite the much-vaunted acceleration of transformation programs that we hear about from all sides at present. There are still a lot of unknowns to be dealt with by everyone in the coming months, but Workday goes into calendar 2021 in good shape.