Workday, Inc. (NASDAQ:WDAY) Morgan Stanley Expertise, Media & Telecom Convention 2022 March 8, 2022 6:00 PM ET
Firm Members
Pete Schlampp – CSO
Convention Name Members
Keith Weiss – Morgan Stanley
Keith Weiss
Thanks everybody for becoming a member of us this afternoon. My identify is Keith Weiss. I run the U.S. Software program Analysis Group right here at Morgan Stanley, and more than happy to have us with us from Workday, Pete Schlampp, Chief Technique Officer.
Earlier than we get began, I’ve a short disclosure for vital private holdings and analysis disclosures, please have a look at the Morgan Stanley web site at www.morganstanley.com/researchdisclosures. There was a Secure Harbor assertion that Workday was going to point out, however after they do present it, take note of that as properly.
So, with that,–
Pete Schlampp
Thanks for the trouble. Keith, that was good. glorious.
Keith Weiss
Wonderful. So, Pete, thanks, once more, a lot for becoming a member of us. A very thrilling yr, we’re popping out at for Workday, each by way of demand ramping again and into kind of higher underlying fundamentals and growth of the answer portfolio. General, a extra balanced promoting movement, if you’ll, between kind of new clients and kind of upselling into current clients.
However earlier than we dig into all these subjects, I simply wished to kind of provide you with an opportunity to sort of introduce your self, I do not suppose loads of buyers know you. Particularly, can speak about kind of your background in in additional particularly the position of the Chief Technique Officer at Workday and what you are specializing in?
Pete Schlampp
Positive. Completely. Good to see you all. Thanks for coming and listening at this time. So, I — my identify is Pete Schlampp, I’m the Chief Technique Officer at Workday, I joined Workday six years in the past by way of an acquisition. It was an organization known as Platfora, which was a knowledge and analytics firm. After Workday acquired Platfora, I grew to become the Common Supervisor of our Analytics enterprise, which resulted in merchandise like Prism Analytics, it’s possible you’ll hear us speak about Prism Analytics, Individuals Analytics, Accounting Heart, which I hope we speak about so much at this time, as a result of it is an vital a part of our enterprise.
I then transitioned over and have become chargeable for world product growth. So, all of our product growth are reported to Aneel Bhusri, our CEO, and all of our merchandise throughout human capital administration and monetary administration.
After which only recently in November, took on this new position of Chief Technique Officer. And I will say, I feel it is a actually attention-grabbing time at Workday to be chargeable for technique. For those who’ve listened to us, currently, you hear us — you’ve got heard us speak about a, a aim of attending to $10 billion of income by our fiscal yr 2025 and we now have loads of alternative to get there. And I feel that my major job is to assist us sort of information the trail to $10 billion.
I will say it slightly bit higher than that, I will say, illuminate the trail to $10 billion. Why do I say that? As a result of what does this position imply? It is really all of our advertising at Workday. Its technique is company technique, it is M&A, and it is also, unusually sufficient, it is the consumer interface — it is all of the design for our consumer interface of our merchandise. So, I get a superb sort of cross part of issues.
However most — greater than something, it is actually, that path to $10 billion, is making selections alongside the way in which, all these alternatives that we now have, and I hope we speak about loads of them at this time, however making these selections and serving to us get there as quick and effectively as attainable.
Query-and-Reply Session
Q – Keith Weiss
Acquired it. Acquired it. I need to begin out sort of excessive stage slightly bit, kind of wanting again at FY 2022. It is a yr that, Aneel had been speaking about loads of a yr of acceleration seeing kind of the brand new enterprise speed up all year long that culminated in kind of a man for FY 2023 that does present that that that acceleration coming by means of onto this Russian income line, are you able to talks to us slightly bit about what’s sort of driving that that sort of rebound in spending and in acceleration? Is it kind of extra of a shift of focus in the direction of the again workplace? Is it a kind of a launch of pent-up demand that you simply guys have seen? Like what’s driving that broader demand surroundings for Workday proper now?
Pete Schlampp
Proper. So, I have a look at — we had a unbelievable This autumn and even higher fiscal yr 2022. And the I feel the principle headline for me, as I have a look at the enterprise is it was actually broad based mostly. I feel many individuals consider Workday and the very first thing that involves thoughts is giant enterprise human capital administration. And that is who Workday was 5 years in the past, seven years in the past, 10 years in the past.
What has occurred within the final 5 years and actually, actually, every thing sort of got here collectively in FY 2022 was the multi dimensionality of the enterprise. It was human capital administration, it was monetary administration too with wins that, for example, U.S. Financial institution, Genpact, for example, with monetary administration. It was giant enterprises, medium enterprise. It was North America, it was worldwide and worldwide actually did contribute fairly a bit as properly.
And I feel one other one which’s actually near my coronary heart and I feel has been a very vital a part of the change for Workday, the reacceleration, that we have seen with Workday is just not solely the online new enterprise for us, but additionally the again to base enterprise as properly. And that is been a multi-year technique to get us to some extent the place we now have actually joyful clients, as , we speak about on a regular basis, but additionally the brand new merchandise to have the ability to promote again into the bottom, after which the mature go-to-market motions to have the ability to try this as properly.
So, I have a look at our confidence and with the ability to go and lift steering as we did for FY 2023 in a big method. And I really feel prefer it’s as a result of we glance throughout the enterprise and there is not these huge weak spots that we’re seeing is actually fairly broad based mostly.
Keith Weiss
Wonderful. I need to begin the dialog on the HCM facet of the equation. I feel that is the place I get the sort of most investor considerations and the core query they’re asking is on the web new facet of the equation, how a lot greenfield is left? You guys have been a dominant vendor in HCM, notably giant enterprises for some time now. Is there nonetheless that internet new alternative left on a go ahead foundation?
Pete Schlampp
Sure, so we now have now greater than 50% of the Fortune 500 is working Workday human capital administration. And after I say that I am — it’s core human capital administration, that is the system of report to your individuals, proper? A method to take a look at that as we bought 50% of the Fortune 500, the opposite method to take a look at that’s we bought 50% extra to go.
So, I feel — and even if you happen to have a look at you have a look at This autumn, quite a lot of Fortune 500 wins in HCM and there proceed to be extra within the pipeline as properly. So, there’s continued room to go giant enterprise HCM. However I feel the opposite factor that I requested everyone to consider on the on the HCM facet is core HCM is a — not huge sigh — a part of the of the full addressable marketplace for the workplace of the CHRO.
There are a number of different items of that. There’s payroll, there’s recruiting, there’s expertise optimization, there’s analytics, there’s — we may go on and on and on. And what we have executed as a enterprise is we now have near 4,000 human capital administration — core human capital administration clients. After which we now have a sequence of merchandise, every with giant standalone markets for them that we’re promoting again to these clients. So, the investments that we have revamped the previous few years, in merchandise like our studying merchandise, our expertise optimization, individuals analytics, workforce planning, our assist and journeys and onboarding capabilities. These are all new merchandise which are gaining momentum proper now. So, a number of alternative left for us within the in — what we might name the workplace of the CHRO market.
Keith Weiss
Acquired it. After which if you consider these upsell alternatives, any visibility to get us into; one, how penetrated are we in that sort of again to base movement inside the workplace of the CHRO. And of these I feel you’ve got talked about 5 totally different sorts of segments. Any of your favorites, if you’ll, — or any kind of the — a listing by way of what has probably the most momentum proper now?
Pete Schlampp
Sure, so the way in which I take into consideration this — I take into consideration this as sort of, three tranches of merchandise that we have created. There’s core human capital administration, you’ve got bought payroll and recruiting. And people are probably the most mature merchandise we now have. Payroll and recruiting have the very best penetration into the shopper base.
You’ve got then bought the second tranche of merchandise, I feel sort of represented by studying, for example, which has a couple of medium — I feel final time we talked about this, I feel we cited 45% penetration — 40% to 45% penetration, we are able to get the precise quantity later into the shopper base.
And then you definitely’ve bought a complete host of recent merchandise. In truth, simply we simply went GA on a brand new one known as scheduling, which these are all merchandise which are within the 10%-ish penetration base into the shopper base, all nice alternatives.
The opposite factor that we have not talked about but, however I — you requested me what my favorites are. And we have adopted some merchandise — we have acquired some merchandise. We have made a number of acquisitions just lately, we acquired — a number of years in the past, we acquired adaptive planning, which has been extremely vital for us, I am certain we’ll speak about financials shortly speak about that then.
This final yr, we acquired an organization by the identify of Peakon, which is in regards to the voice of the worker. And we additionally acquired an organization known as VNDLY. Two, extremely, really all three of these, if you happen to take all three of these, three merchandise extremely well-suited for the time.
As we went into COVID and the world bought turned the wrong way up, CFOs wished to get a deal with on their enterprise, they wished to have the ability to plan extra, they wished to give you new methods to take a look at a enterprise — really what we noticed, we talked to you about this earlier than, Keith, we noticed in that week, when — in that month, the primary month of COVID in United States, we noticed the variety of plans created in adaptive planning, enhance by 30x, I feel was really 36 instances what it was the earlier month.
What that meant was CFOs companies throughout the shopper base have been saying, let me do that situation, let me do that situation, let me do that situation over and time and again. And that hasn’t modified, proper? Like sure, it is come down from that, that absolute peak, however large spike in individuals wanting to have the ability to perceive their enterprise extra, proper? So, extremely properly fitted to the time.
Okay, so then then we go into COVID, as properly and folks — then we begin hitting this, this crucial for expertise, and with the ability to perceive your expertise your staff and know the way are they feeling at any given time, creating communication along with your staff. So, we acquired Peakon. We really checked out our personal capabilities internally and we knew that this was an extremely sizzling area. And we stated, we all know that we’re not going to have the ability to advance our capabilities quick sufficient. So, we went out to market we acquired a best-in-class functionality round Peakon, and that is across the voice of the worker. Good for the time.
Lastly, VNDLY. VNDLY is a — what’s historically often called a vendor administration system. That is about managing your workforce that’s not full time staff. You may not know — many individuals do not know this, however I will cite a statistic for you, in — inside the US Fortune — inside the Fortune 500 of the workforce, 46% of the Fortune 500 workforce is what could be often called non-employee labor. So, that is 10 staff contract staff gig, SoW work. And that’s quickly going throughout 50%.
So, with VNDLY, you possibly can — why we purchased that as we noticed this development taking place within the market, you possibly can handle not solely your full-time worker base inside Workday, the system of report, however now additionally this — what we name the non-employer, the prolonged workforce as properly.
So, I took longer than most likely what you need it, however my favorites are — I assume I will give extra consideration to those that we simply that we simply introduced in. However there’s simply loads of alternative throughout this whole portfolio.
Keith Weiss
Proper. And I wished to the touch base on that by way of how huge of a development driver that emerge, as a result of in — simply within the convention alone, we have talked to Qualtrics, who has an worker expertise, we talked to Amy Hood from Microsoft this morning was speaking in regards to the Viva, which is their product in that area.
So, two questions on that, like one, how huge of a requirement driver is that proper now by way of that focus of the company on worker expertise and tying that into sort of retention and attracting higher staff? Two, are these the individuals we must always take into consideration is the aggressive surroundings there’s it Microsoft could be Viva and Qualtrics worker expertise or is the Workday with Peakon is that several types of options?
Pete Schlampp
Properly, I do not suppose that there is a matter perhaps earlier than two weeks in the past. I will say this earlier than two weeks in the past, I do not suppose there was a subject on CEOs’ minds that was extra vital than expertise, truthfully. You go to any CEO and say, what are you fearful about? What are you fascinated about proper now? And so they’re fascinated about their individuals? How do they maintain their individuals? How do they rent extra individuals?
And understanding the voice of the worker is completely vital there. The answer that — so Peakon is totally different. Sure, it — I’d contemplate Qualtrics a direct competitor in the very best of breed area, not Viva. We are able to get all of it into an worker expertise, however not price it. However I’d say the distinction, in fact, between what Qualtrics does is Qualtrics is a survey expertise platform or a survey platform or an expertise platform. Peakon may be very particularly constructed for workers and the voice of the worker and I will provide you with an instance. It is not only a survey that you simply get each week, however it’s an nameless survey between the employer and the worker round a set of questions which are constantly altering. After which staff can provide their reply of how do I really feel proper now about, as an example, our return to the workplace technique.
And managers can go in and so they can create conversations — nameless conversations with staff, proper within the cell app. It is not only a survey, it is really making a connection between staff and the employer. So, very particular to the HR area.
And I will simply — I will say one final thing, Keith, since you touched on aggressive — on rivals. Look, our enterprise continues to be centered on human capital administration, monetary administration, and our major rivals within the area are Oracle and SAP. And I feel you requested this query final week, in regards to the aggressive surroundings. And so I am simply going to go forward and reply it, which is our aggressive numbers have been extremely constant, extremely constant, really, a part of my job is to go in and have a look at that and see and see how we’re trending. We have — I really feel actually, actually good about the place we’re at and so they’ve been trending positively for some time now. So, feeling actually good in regards to the aggressive area
Keith Weiss
Acquired it. And a superb segue to the monetary facet of the equation. Are you able to simply speak about — I feel when loads of buyers are fascinated about digital transformation, the main target is rather more entrance workplace, however in my conversations with you guys, Aneel particularly, he sees extra of an onus on — pay attention, monetization of purposes is throughout the board, proper? Popping out of COVID, there’s an actual impetus to ensure again workplace, entrance workplace, mid workplace is all sort of within the cloud. Why is that? Why did it turns into rather more vital to have that trendy cloud-based monetary suite within the cloud post-COVID?
Pete Schlampp
For a number of causes, however I feel one among my favourite anecdotes is one among our clients that went they went full distant, as all of us did in at first of COVID. And so they have been telling us, that is the primary time that we have closed the books utterly remotely. No person’s within the workplace, can we do it? And so they have been capable of do it on Workday and so they had the boldness to have the ability to try this on Workday.
In the meantime, you had many shoppers who had not moved from — the market was in case individuals do not know but, do not know this — it was all on premises, proper? It was all on premises, ERP, sitting in a knowledge heart, and folks simply fearful that, can I really do it? Can we really be — can we perform nonetheless as an organization utterly remotely on this new world? And so sure, I feel that this must really feel such as you had the safety to have the ability to try this was a key driver.
The opposite one is agility. And that is the place issues like planning come into play, proper? And in order that want rapidly to have the ability to have a look at many various eventualities in your enterprise, decide what the precise path is, have all the info at your fingertips. Really, that could be a huge driver to have all of your information at your fingertips. That is what drives — that is what’s driving the market there.
I will cease, I will emphasize — perhaps slightly anecdote for us for a second. So, we talked about that U.S. Financial institution — we simply gained U.S. Financial institution, they have been our human capital administration buyer. And so they simply moved over to monetary administration or we simply gained that in This autumn, and that is our largest monetary companies wins to date for enterprise financials.
Why would they try this? So, what is the driver proper now to make that transfer? They’d legacy methods throughout your entire financial institution. They’d a an outdated GL, that they had an outdated analytic system. They didn’t have a single view of the entire information in a single place. And what they wished was they wished — and so they considered can we proceed to go on premises, can we have a look at different options which are within the cloud? I will not identify different rivals. However what they beloved about Workday was the truth that the entire information was in a single system.
And it was our product accounting heart, you all have heard us, perhaps have not. However there is a product known as accounting heart and the purpose of accounting heart is to have the ability to mixture the entire information from the operational methods, the entrance workplace methods, the center workplace methods, carry that every one into Workday, run accounting on it, roll it up into the GL into the “again workplace system”, after which have a visibility throughout all of that. And that was the driving force, proper? That was the driving force of digital transformation was, it was information? How will we get it multi function system? How do I’ve one single pane of glass?
Keith Weiss
And we have positively heard, from our channel conversations, comparable issues about accounting heart, that could be a key catalyst for patrons to — it is a key innovation in kind of — and it isn’t very, that again workplace, versus the GL tends to be much less of a like innovation pushed extra of an occasion pushed kind of sale. However that is an innovation that is really driving extra deal with that is really serving to us run our enterprise higher, proper?
Pete Schlampp
Accounting heart has been transformational in our monetary companies enterprise, and our win charges have considerably elevated in FSI due to accounting heart. And I really have a look at that as simply the primary business that we will — that we’ll use a counting heart for it in that method. And I feel you are proper, so changing a GL for the sake of changing GL, what do you get? You get it within the cloud, you get extra reliability, that is all good. It is all goodness. However when you’ll be able to pull all the info collectively and run analytics on it and have and hook that as much as a planning system. That is innovation of added worth, proper?
Keith Weiss
It is extra agility for the enterprise.
Pete Schlampp
Sure, extra agility for the enterprise and that’s a cause to maneuver, proper?
Keith Weiss
Can I pose — one of many naked circumstances I hear from buyers with regards to financials, Workday is doing properly promoting financials into current HCM clients. Workday will get internet new enterprise within the mid-market, however in contrast to different SaaS shops which have been very profitable ServiceNow actually rolling over BMC or Salesforce rolling over [indiscernible], Workday, HCM rolling over PeopleSoft, you guys cannot roll over Oracle or SAP the identical method, proper. It’s so a lot more durable to displace an Oracle and SAP than it was within the different and that simply makes the trail ahead for financials that rather more tough.
Pete Schlampp
Properly, I’d say these different markets that you simply simply talked about, very totally different markets, proper? promoting to a CFO whose job it’s to be conservative, is totally different than promoting to a CIO whose job it’s to innovate on a regular basis, proper?
However nonetheless, the market is shifting and it has moved. The — I do not suppose that we’re ever going to take a look at the historical past of Workday’s monetary enterprise and say, hey, there was a second in time the place there was an inflection level is sustained momentum and we have seen that we noticed it earlier than COVID There was a pause, in fact, proper at COVID, as a result of individuals weren’t determined to do giant transformations at that second. However we have picked proper again up from the place we have been. And it is only a continued sort of tempo of change there — of continued momentum in our financials enterprise and as we stay up for pipelines, it is the identical factor.
Keith Weiss
I need to contact on the change within the sellings movement, if you’ll, if we went again three years in the past, I feel the combination would have been nearer, like 8020 by way of 80% of the enterprise coming from internet new clients 20% from upsell. Over the previous three years, you guys actually expanded that again to base movement. The worry was that was — since you needed to, there was so much in that new enterprise to be executed in 2020. Nevertheless it’s been much more resilient. 2021 was one other actually good yr of lively base.
Are you able to discuss to us about what structurally modified and kind of your go-to-market to even out that again to base versus internet new? And the way sturdy ought to that be on a go-forward foundation?
Pete Schlampp
Sure, so it’s — I need to be — every time I get this query, I all the time need to be tremendous clear. We’re we need to exit and make new clients on a regular basis. It is our major movement. That is what we’re all the time making an attempt to do and that enterprise actually got here again for us in FY 2022. And it was and when as we glance ahead, we’re actually feeling nice about that too.
However throughout COVID, one of many issues that we did do is we, we realized to promote again into our very joyful clients ,97% satisfaction price and that is they’re asking us to promote extra to them. And we began figuring that out.
A pair issues occurred. One is we created the portfolio of merchandise to have the ability to promote again to them. So, we really developed software program, in some circumstances, we acquired merchandise. After which the opposite facet is we realized the right way to do the go-to-market movement as properly. So, advertising again to our base, it is really having account reps which are particularly devoted to that. And that is one thing that we’re really persevering with to speculate much more in going ahead.
Unidentified Analyst
[indiscernible]
Pete Schlampp
Let me repeat that. So, our aim is to get $10 billion by rising above 20% year-over-year and the way we get there. You draw your personal timeline for that.
Unidentified Analyst
Thanks.
Pete Schlampp
Thanks, Justin. Wonderful. Correction. Thanks.
Keith Weiss
I wished to the touch on M&A technique. The — I’d say the cadence of M&A inside Workday has picked up over the previous couple of years. You talked about adaptive insights and Peakon, VNDLY, additionally Scout RFP was put in there from a sort of, product technique perspective.
How are you guys considering on sort of the purchase versus construct determination since you guys additionally spend so much on R&D. That is one among — been one of many hallmarks of Workday may be very sturdy R&D-focused on kind of growing loads of natural product to make all of it work collectively and all be a part of the identical information?
Pete Schlampp
Sure. Our major movement for innovation is natural, and as we construct — and it’ll proceed to be that method for some time. We’re — we construct a best-in-class service and we’re creating obstacles as we try this.
It requires natural funding. As we go into new worldwide areas from on the HCM facet, as we construct in new — as we make — as we go into the full addressable market, we make it Workday addressable market by including new areas inside the human capital administration facet, that every one requires extra funding.
Final yr, we made three acquisitions as I talked about, they have been all nice. However as I look ahead, there is not any quota, there is not any sure quantity that we will do. There’s nothing that I take into consideration that method. It truly is timing. Is it a superb match. And that is a superb expertise match, it is a good market match, it is a good tradition match. We have been actually profitable with the transactions that we now have executed. And loads of that’s as a result of the groups are nonetheless round. So, it’s going to be a mixture, however actually no particular quota or quantity that we’re going for there.
Keith Weiss
I imply is there any method that we may sort of characterize the inner R&D focus tends to be extra on sort of the core options and increasing out the applicability and the TAM of financials and HCM and perhaps kind of the analytics portfolio? After which there’s sort of modules round kind of these core methods that you simply’d be extra more likely to purchase? Or is it not that black and white?
Pete Schlampp
Actually not that black and white. And I feel if you happen to look, traditionally on the acquisitions that we have made, loads of them have been timing based mostly, quick, fast paced markets, that we all know that we’re not going to have the ability to organically develop ourselves within the time when the market is going on. And we exit and we have a look at a finest in school resolution to have the ability to plug in. That is that — that is actually what drove many of the latest acquisitions.
Keith Weiss
Acquired it. So, we’re working in the direction of the tip of our allotted time slot, however which means to go away on one sort of, ultimate query with you. As we glance ahead into FY 2023, calendar 2022, what are the initiatives or kind of issues that you simply’re seeing within the market that you simply’re most enthusiastic about by way of driving the story additional, serving to you kind of illuminate that kind of clear illumination of the trail in the direction of $10 billion on a go-forward foundation?
Pete Schlampp
Sure, I feel proper now there are some actually vital market developments that we’re . You’ve got bought the expertise crucial. You’ve got bought the voice of the worker changing into increasingly more vital. You’ve got a transfer from being actually a resume-based market for expertise to a skills-based market for expertise. That is an enormous transition.
You’ve got bought what I talked about from full-time worker combine to a extra non-employee mixture of the workforce. On the monetary facet, you’ve got bought this drive for automation inside the financials enterprise. These are all giant forces which are taking place exterior of Workday. They’re taking place — and so they’re driving our enterprise ahead.
These are sort of the exterior issues which are taking place. So, I consider Workday and all our alternatives, there’s 4 key classes I consider. I consider the back-to-base buyer movement, which is kind of giant. We’ve — we proceed to construct new merchandise internally, and we now have the power to promote them out. It’s successful the workplace of the CFO actually by means of an business centered lens. And so ensuring that we’re hitting the industries that we’re going into and driving our financials enterprise to that. It is the midsize enterprise, a big alternative there, and the final one is worldwide. Enormous open area for us to develop internationally as properly.
Keith Weiss
Excellent. Pete, thanks a lot for becoming a member of us. It has been an important dialog.
Pete Schlampp
Sure, it was nice. Thanks, everyone.