Workday Q2 sees pent-up demand breaking through in Financials

Given that there might have been an Amazon-shaped elephant in the room, Workday’s post-Q2 results analyst call yesterday was a thoroughly upbeat affair, as well it might given the strength of the numbers on show. Overall revenue was $1.26 billion, up 18.7% year-on-year. Subscription revenue was $1.11 billion, an increase of 19.5%.

From an HCM perspective, new wins in the quarter included CVS Health, Iberdrola, Valeo Management Services, California Pizza Kitchen and HeidelbergCement AG, while go live occurred at Harman International Industries, BJ's Wholesale Club and Old Dominion

From a core Financials perspective, wins included Cinemark USA, University of Wisconsin System and Wise Markets, while go-lives included the University of Southern California, KeyBanc North America and Fox Corporation.

This was the first quarter with analytics and employee engagement firm Peakon under the Workday umbrella and according to co-CEO Chano Fernandez, the acquisition has been driving business. Overall though, Fernandez sees wider macro-changes:

What you're seeing is more projects taking place. That is obvious. Some customers are doing what they call kind of a phase zero, which is this mapping of the processes and understanding what would be the future compared with the kind of processes that they do have today and they're working with the system integrators. But I think those (a) are being worked faster because there is more urgency there for transformation [given the] difficult business that customers have been facing during the pandemic phase. And (b) clearly, there are many more projects taking place, as well, around financial transformation which is gradually improving is what we're seeing there as more customers are moving Financials to the cloud.

Vaccine Economy impetus

From the point of view of fellow co-CEO Aneel Bhusri, there’s a detectable positive aspect emerging from the Vaccine Economy as it takes shape:

As we exit running the businesses for the pandemic and try to run business in a more normalized way, the demand for core financial systems is coming back. And we saw that this quarter. It was a strong quarter for core financial systems. 

But the overall corporate worldview is evolving, he added, particularly among those who had perhaps not embraced the need for digital transformation pre-pandemic:

I think the mindset for companies that hadn't gone through the transformation was that it was really hard to run their business with the remote workforce or a hybrid workforce, or whatever model they had to go to, without the flexibility and ability to work from home with that systems like Workday offer. If you're on legacy systems, it was a really hard time. And so, I think folks have said, 'Hey, even if we are still dealing with some of the issues around the pandemic, we got to get on with it. We got to move on to the modern system'.

That's been a big driver for growth, he said:

There's no question there was some pent-up demand that's impacted the first half of the year, but I really think the pandemic forced a key change and a change in mindset about how quickly people had to get into the cloud and move into the digital transformation project for HR and Finance.

But it’s still an evolving environment out there, admitted Bhusri:

Time will tell. Right when we thought we were coming out of the pandemic, we get hit with the Delta variant. So, it's just such a changing, unpredictable world right now. The last data that I saw from Gartner suggested that projects from this year and for some of next year would be pushed out, and projects from '24 would be pulled into '23. And I think our pipeline suggests that the pipeline's getting better for Financials, and it should continue to get better. And I think going into next year more projects will get pulled into next year.

My take

Another strong quarter making up a powerful first half of the year.