October 1, 2020

Workday, Inc. (WDAY) Management Presents at Citi’s 2020 Global Technology Virtual Conference (Transcript)

Workday, Inc. (NASDAQ:WDAY) Citi’s 2020 Global Technology Virtual Conference September 9, 2020 11:40 AM ET

Company Participants

Tom Bogan – Vice Chairman

Conference Call Participants

Daniel Jester – Citi

Daniel Jester

All right. Well, thank you, everyone for joining our next session today at our Citi Global Virtual Technology Conference. My name is Dan Jester. I’m one of the software analysts here at Citi and I’m very pleased to – our next section with Workday. We have Tom Bogan from Workday, the Vice Chairman of Workday and before we kick-off, I just want to hand it over to him to read the Safe Harbor statement.

Tom Bogan

All right. Thanks, Dan. And before we get started this Workday presentation may include forward-looking statements. So please note that our Safe Harbor statement that you see here applies, which is also available on our IR website via our latest earnings release, press release.

Daniel Jester

Great. So Tom you’ve been in the software industry a long time and I think in investors, many investors are familiar with you, but some may not. And so, just to kind of kick off the conversation, I think it’d be helpful to give folks a little bit of background about yourself and about what you’re doing at Workday today.

Tom Bogan

Great. Thanks, Dan. And yes, so I’ve been part of Workday now for two years. I came over with the Adaptive Insights acquisition that we completed in August of 2018. And I had joined Adaptive early in 2015 as CEO. And we had built the company up. We were initially going to fund it and we’re actually in the process as many investors know, we’re in the process of an IPO. We’re three days away from going public and agreed to become part of Workday.

And as I’ve shared with many people, that decision really was about the specifics of that transaction, but it was also the opportunity to become part of Workday of which I’ve always seen as an extraordinary company making important differences.

Prior to Adaptive, my background was deep in enterprise software. I was Chairman of Citrix Systems for about 10 years, a member of that board for about 13 years, Chairman of Apptio. I was a venture investor at Greylock Partners which is actually where Neil and I met and have been around enterprise software for a long time.

And now as part of Workday work, we initially ran the adaptive business as a separate business unit and are now fully integrated inside Workday. As many investors know we did an acquisition of a company called Scout RFP last December. So, I’ve been working with the Scout team running that business and working on the planned integration to probably Workday.

Daniel Jester

Great. And so you just reported earnings a few weeks back and clearly it’s a very interesting time and a lot of challenges that companies are working through. So maybe to kind of set the stage for our conversation, just maybe recap very quickly how the second quarter progressed for Adaptive and Scout specifically and how you’re framing the current fiscal year for that side of the house for Workday?

Tom Bogan

Yes. It’s certainly as everybody knows this was an extraordinary quarter. In terms of the transitions and the business disruptions that we’ve seen over the last two quarters they’re frankly largely unprecedented. And so when we look across our Workday business and we look at the second quarter we were really pleased with the result. And really we were really pleased with the result and really the progress that we saw in Q2.

And as we all know, every software company entered Q2 with a high degree of uncertainty. At the end of April, which was the end of our first quarter, there were still – we were in early stages of COVID. We were determining how we can best work from home. We were trying to assess the impact on our business.

From the adaptive side, what we saw in our customer base were people running multiple scenarios and it just makes sense. They were trying to figure out and determine what was going to be the impact of their business. We saw as much as a 30x increase in the number of scenarios our customers were running to try and determine what was going to happen with their business.

And as we progressed through the second quarter, I think there was a level of comfort that teams achieved with understanding how they were going to operate effectively. And we found that we could engage with customers, we could sell remotely, even more importantly we were able to do customer implementations remotely, which maybe at the beginning of this was somewhat of a question mark.

But between investments that our customers made with our teams did to make that experience effective for customers, we were really pleased with the progress we saw over the course of the second quarter.

Daniel Jester

Great. So maybe let’s dive in a little bit to Adaptive, because as you mentioned, planning in this environment seems like there is a significant need for all sorts of stakeholders to do planning. So, since Adaptive was purchased by Workday, can you just walk us through how the product has evolved and where we are today versus where we were prior to the acquisition?

Tom Bogan

Yeah. I would characterize it as a continuation and acceleration of the journey we were on pre-acquisition. So, we had initiated a number of investments to improve the enterprise readiness, the security, scalability, the performance of the platform. Those are investments we started three and four years ago. With the Workday acquisition, what we saw was the ability to engage with the Workday large enterprise customers particularly around workforce planning.

Workforce planning was an opportunity with our large ECM base to engage with customers around the workforce planning. And then, as we came into the current environment, our workforce planning has become even more critical whether it be thinking about geography plan, skills – and skills planning, thinking about diversity and how organizations were planning around those diversity and other important elements of their strategic workforce planning.

The ability to sell Adaptive into those customers and engaging those customers with their strategic workforce planning was probably something that we underappreciated coming into the acquisition. So it’s really been effective for our business.

Daniel Jester

Great. And so, workforce planning clearly understands the use case in this type of environment. Any other use cases that have emerged over the past 12 months that have been surprising or anything that you’re seeing in terms of maybe new use cases emerging as the pandemic has evolved?

Tom Bogan

Yes. I wouldn’t call it new use cases but I think the ability of cloud planning projects to accelerate holistic copy-wide planning is a trend that we’ve seen, and it continues to accelerate particularly in the COVID environment because of the importance of having a holistic company-wide plan in this environment is even more critical than it was historically because of the sensitivity of the various elements.

So the best planning practice that we see from organizations are capturing their key performance indicators and adapt that they become assumptions and operating assumptions in the plan. And we can measure how we’re performing against those performance indicators.

So we’ve seen increases in sales planning, operational planning. We have customers that are using adaptive platform to do airline route profitability analysis, to do marketing spend effectiveness and analysis, to do robust sales planning across their organization in addition to the workforce and financial planning use cases that we see.

So the notion of putting planning in the cloud really is a game changer from the way – even companies that were using legacy on-prem planning systems, a lot of their model logic was in spreadsheets, they were in Excel.

And the ability to take that model logic, put it in a robust modeling platform like Adaptive to coordinate that across the organization and then be able to have everybody on – with a single source connected to each other, being able to share information, being able to do robust reporting and analytics from that platform, that’s really powerful.

Daniel Jester

And maybe just focusing just on new business and then we’ll come back to selling into the base. But on new business today, I mean, what are you saying in terms of attach rates? And maybe we can kind of divide and conquer here. So in HCM-led deals, in financials-led deal and in platform deals, how do the attach rates vary across the sales motion?

Tom Bogan

Yeah. They’re strong really across the board. And we think of sales motions on new business from two perspectives. There’s the attached motion where we’re showing with the entire Workday platform whether it be HCM and FINS or maybe just HCM. And it’s more likely, if it’s an HCM deal, we’ll probably attach workforce planning to that deal, but that presents an opportunity to then sell into those customers for financial planning use case down the road. So it presents an upsell opportunity for us.

The attach rates have increased and they continue to improve and increase as we become part of Workday. And then we still have the motion of what we call planning first, which is selling into non-Workday customers, selling, planning.

And it’s a way for us to land – particularly with finance teams to land with finance teams to be able to sell them our planning capability before they’re willing to – perhaps ready to engage in other parts of the Workday platform. So we’ve seen success within those.

Daniel Jester

Are there examples of a planning first transaction that then led to a broader Workday failure, HCM or financials, or is it maybe too early for that to have emerged yet?

Tom Bogan

No. We’ve had about – we’ve had several customers. We’ve had a number of customers who started these planning customers. There’s a large restaurant chain that’s restaurant chain that’s carried as a planning customer then became a Workday financials customer.

We’ve had two nonprofits, not for profits, large not for profits that I can think of started with Adaptive and became Workday customers more broadly. So there very much is the notion of being able to engage self-planning first and then be able to have a relationship that extends beyond planning with those customers.

Daniel Jester

Got you. And then when you’re going back into the day and a current HCM customer who could obviously use planning, can you just talk about selling back with the base, how you’re going about it and sort of what’s the momentum looks like given some of the macro headwinds that we’re facing?

Tom Bogan

Yes. In this world, I mean as we were discussing earlier, Dan, the workforce planning opportunity is really significant that everybody really recognizes that we just have to think more strategically about our human resources and the ability to plan around those resources. So the motion of selling back into our HCM base particularly workforce planning has been really effective. And we have a number of customers that we were able to engage and engage with.

And frankly, we’ve learned a lot. I think about our two years as part of the Workday – being part of the Workday journey. We’ve learned a lot about workforce planning and what customers really want and how to deliver meaningful value to those customers for their work – workforce planning, workforce planning problems. For financial customers, we always then – we’ll try to extend to a financial planning application and that’s a different part of the organization so it requires some work to get there.

But, as you know, I think for many of our customers, it’s the brand promise of Workday It’s the brand promise of Workday. And being able to come in to those customers as part of the broader Workday relationship is important to those customers. And I think powerful when we’re selling back to the base. I didn’t hear that.

Daniel Jester

Sorry. On mute, sorry. So as you think about going back into the day, any differences you would flag between kind of mid-market and enterprise? Are there any specific verticals that have kind of, that you’d call as being significantly strong?

Tom Bogan

Yes. I think in terms of selling to the base, it really – it’s not really vertical-specific. It really. And when we think about the planning solution, it’s not targeted to specific verticals. So it really is a horizontal solution. Our financial strategy is a little bit more fine-tuned for verticals whereas in planning we sell a platform which is a modeling platform, which is a reporting and analytics platform that can be sold into any vertical. So it’s a little bit less vertical specific. I think there are a couple of areas that we’ve seen really good traction recently.

And I would say, state local as an area where across Workday, we’ve seen really good momentum and that’s really extended to our planning solutions as well. And then, for planning, we’ve also had really, really good – a lot of success in higher education as well. And there are a number of large higher education customers where we’ve had compete some wins and have achieved success there.

Daniel Jester

Great. And then on just the competitive environment, can you kind of comment as to how that has evolved? Specifically the planning and when Adaptive and Workday win, what are the factors that gets you to win in a specific transaction versus competitive.

Tom Bogan

Yes. I think competitively we probably see Oracle and Anaplan the most. And I think that would be true across the spectrum of opportunities whether it be large enterprise opportunities or mid-enterprise opportunities. And I would say they are the cutters we see the most and we’re really pleased with our win rates against both of those competitors.

When we win, it really is about ease of use and it’s time for value. And the ability to implement the Adaptive platform get up and running and deliver real value in a very short period of time. I think you say is a real differentiator for us and I think the other thing is one of the areas that, as we said that we’ve made a lot of investment is around enterprise, readiness, scalability, secure – enterprise security and we’ve had tremendous success this year with some of the largest enterprise customers in the world. And that’s an area that we see those investments paying off.

Daniel Jester

And for a typical enterprise deal, how quickly can you get a client up and running?

Tom Bogan

Yes. It depends of course on the client. I think if the client has a good perspective on the way they want to do their planning, we have customers that are up and running in four to six weeks. I think of a very large software company, one of the largest public software companies. And from start to finish in that project we were up and running in six weeks.

And I think that is a demonstration of the tremendous time to value we have in the adapted platform. For other bigger companies with more complex use cases, it’ll take longer. It really depends on the customer the amount of time, the investment they can make.

It can certainly be three to six months in a more complex use case but I think the feedback we have from our customers is compared to other solutions they’ve used, it tends to be much – a much more rapid implementation time.

Daniel Jester

Got you. And just a reminder for the listeners, if you have any questions please send me an e-mail and I’ll do my best to incorporate that into the flow. I think now it makes sense to maybe turn to Scout and sort of the [indiscernible] of the house. So I think most people understand the planning journey but procurement is a new one or a newer one. So maybe kind of lay the groundwork for how Workday is planning to win in this market.

Tom Bogan

Yeah. So we’ve had a procurement solution for a number of years. And one of the areas that we thought we had an opportunity to really differentiate with a best-in-class solution was insourcing. And so we acquired Scott RFP last December. It was a really early stage venture-backed company with world-class technology and a relatively limited revenue portfolio at that point in time. Tremendous team, the founders and leaders are a great cultural fit for Workday.

And when – as an aside, when I look at our two acquisitions, be it Adaptive or Scout, I think of acquisitions I’ve done – been on the buy and sell side of a lot of acquisitions over the course of my career, and I really think of the culture and fits as kind of a super food in acquisitions. It really is the thing that can make a big difference in both the Adaptive and the Scout cases, that is really important.

So the Scout team is, as I’ve said, tremendous cultural fit, rate a best-in-class sourcing and a really strong position particularly around indirect sourcing and is really an important problem. And then maybe similar to planning, we see many of our customers coming from spreadsheet use cases where rather than using a sourcing system, they use spreadsheets to track your auctions and bids and keep track with sourcing.

And in Scout, we have a highly intuitive user interface. We’re making the investments to integrate with our entire spend management stack really focused on things like supplier management. We have a supplier object in, in our procurement software we have supplier object and in Scout we’re making those, obviously one really trying to provide seamless integration to our customers.

And we’ve seen a lot of interest from the Workday customer base and we’ve really focused during this period of time on building particularly our Workday related pipeline both in terms of connecting to new deals as well as selling into the installed base. And I think, Dan, we’ve also benefited from having been through the Adaptive journey.

That was the first big acquisition that we did. I think there’s muscle that you require going through all acquisitions. So I think we did that. As a company, I think we did that in Adaptive and I think that served us well as we’ve gone through the Scout journey.

Daniel Jester

And you just mentioned that it was relatively small from a revenue perspective but can you share any metrics in terms of kind of how much you think Scout will contribute this year or how fast it’s growing in the portfolio, kind of any measures to help us think about kind of the impact it could have over the next year or two?

Tom Bogan

Yes. I – we can share growth. We haven’t broken out specific revenue for Scout, although we’ve said it’s not a significant component of our revenue. But the growth certainly is much faster. It’s an element of our FINS plus growth, where we’ve talked about substantial growth numbers in our FINS plus growth. So it’s an important contributor to that as is planning.

So, no. It’s still relatively small part of our business but higher growth rates. And we think, over time, we’ll develop a more holistic strategy around spend management. And we think that that will be important to our customers and our customer base going forward.

Daniel Jester

Okay. And so, can you just give us an update on to the actual integration of Scout into the platform. So, I guess, first, kind of Scout into Workday in its totality and then maybe we can kind of go product-by-product from there.

Tom Bogan

Yes. So, what we did, we aligned the two teams on determining the best way to integrate the Scout stack with the Workday stack at the beginning, obviously, different technology platforms. You expect that with the acquisitions. And so you want to figure out the right connection points.

And our team did an architectural summit back in January, in which we laid out a road map that we thought would be an 18, 24-month road map to really do reach complete integrations. We’ve been really successful executing against that. So, I think we’ll – we’ve achieved some of the milestones probably a little bit faster than we expected.

We think there’s a really strategic element around suppliers. So, both our Workday procurement products and the Scout stack had a notion of supplier. And we thought it was important to connect those. So that’s one of the areas that we did quite a bit of work. It’s also important to have single sign on, one security model integrated user experience.

The user interface and experience, that takes a little bit longer. There’s obviously development lead times associated with that. But those are the areas that we focus on. Like planning, we can sell sourcing into customers before we sell other Workday products.

I think if I look across our customer base, probably maybe 30% or 40% of them have other Workday products and maybe half or a little more than half of them are Scout only. So that represents an opportunity to sell into those customers. It’s the first entry point for Workday with those customers.

Daniel Jester

And how much does Scout help in terms of selling financial first deal? And maybe talk about are there synergies between Adaptive and Scout that feels like in this world of supply chain re-imagination that a lot of companies are doing that the planning aspect and the procurement aspect feel like there could be a lot of overlap and opportunities to help your customers win if they were interconnected. So could you just talked about those?.

Tom Bogan

Yes. So great question. And, yeah, we think the – we think there are logical connection points between procurement, planning, supply chain, and there will be opportunities to take advantage of as we move forward. Right now, the focus on both the planning team and the Scout team has really been rich, seamless integration with the entire Workday staff.

We want somebody to have a really seamless experience if they’re using our planning product or sourcing product processing the rest of the Workday stack. I think there’s probably – in the short term there’s less of a direct connection to sourcing to sell the full financial stack. It’s probably a little bit more pronounced on the planning side that is on the sourcing side.

I do think there’s a connection in terms of selling a broader spend management solution and getting sourcing allows us to look at extending the spend management capabilities with those customers. And then, Joe, as you point out, there will be opportunities to more tightly integrate planning and sourcing over time and we’ll work on that. But the priorities right now are seamless integration and experience for our customers when they’re using the full Workday stack.

Daniel Jester

Okay. And then for – since you’ve acquired Scout on the new deal either on the platform side or the financial side, maybe just comment a bit on attach rates and how quickly you’ve been able to integrate that into the new customer sales process.

Tom Bogan

Yes. It’s early days. And it does take – there is a lead time associated with getting knowledge out with our broader Workday reps and making sure everybody has the capability. We’re supporting that with Scout’s specific resources. We’re also supporting on the planning side, the planning specific resources.

But I’d say it’s early days. We’ve had success with – I think we talked about three customers last quarter that were large Workday customers where we were successful with Scout. But we’ve really encouraged by pipeline build And the pipeline build for Scout in the Workday customer that is whether it be new opportunities where it’s part of a more of a platform deal or selling back to the Workday base. We’re encouraged by the results that we’ve seen there.

Daniel Jester

Okay. And on the last call, I think it was mentioned that a Fortune 500 did a one quarter implementation of the sourcing and procurement. I mean, how representative is that of how you think implementations can go for – going forward?

Tom Bogan

Well, they’re customer-specific. But the Scout time to value is extraordinary. If we think it’s strong in planning side. it’s extraordinary on – it’s extraordinary in the Scout time. We have many customers that we can do implementation with phone support, large sophisticated customers, and get them up and running in a matter of weeks. It really – it is a really intuitive product, elegant user interface, and we can deliver very rapid time to value.

Daniel Jester

Okay. And again, just in the competitive environment, can you maybe comment on that? And then, again, same as planning, when someone takes Scout, why are they taking that relative to other sourcing products that are out there?

Tom Bogan

Yes. It’s, again, ease of use time to value. Probably most of our customers are coming from spreadsheets as we discussed earlier. And so, it really is having a complete system where all the information is one place. We can run the process. It’s really intuitive suppliers who love it. So suppliers who are part of the bidding and sourcing process who love using Scout. So it really is a very intuitive interface. And again, we can deliver rapid time to value.

Daniel Jester

And a lot of the focus, at least from what I’ve seen on the sourcing procurement side, is on the indirect procurement, right, buying, like office furniture and things like that. Is there an opportunity in direct procurement or is that something that, maybe given Workday is focused more on people-centric organization versus the manufacturing organization, may be isn’t going to be as big of an opportunity as it might be maybe for others?

Tom Bogan

Yes. We think it’s important over time. In the short term we’re very focused on indirect procurement and that really is aligned – how they align with our Workday customer base as well. So we think that’s a significant opportunity and there’s plenty of marketing opportunity to execute against there. So that’s where we’re focused. But there’s certainly opportunities for direct procurement over time. So…

Daniel Jester

And then – Go ahead. Go ahead [indiscernible].

Tom Bogan

Yes.

Daniel Jester

I was just going to pay for Scout and for Adaptive just generally, can you comment about if a customer takes those product, what kind of ACV boost they can provide maybe in generic terms? I suspect you’re not going to be able to give us any specifics, but how should we be thinking about those contributions overall in terms of our modeling of Workday going forward?

Tom Bogan

Yes. They’re both – they’re smaller than the average ACV side on the Workday side as you would expect. But I think what’s important is they both have moved up substantially post-acquisition. So on the planning side we’ve seen significant increase in large deals and although we don’t want to disclose ACV methods planning, they – qualitatively there’s been a very substantial increase in deal size post-acquisition.

We see the same thing on Scout. Early days on Scout because we’re only eight or so months into the acquisition and some of that is in the way we analyzed And some of that is in, the way we analyzed the pipeline and what we see in the pipeline opportunity. But we’ve seen increases in ACB size in both in the pipeline and the deals that we have for. I think a meaningful impact in both cases for both finding and sourcing.

Daniel Jester

If you think about how Adaptive ramp in its pipeline build right after you acquired it versus the ramp that you’re seeing now in Scout in the pipeline build. Can you compare and contrast, is one faster than the other or is it because we’re in COVID now that maybe it’s not a like-of-like comparison.

Tom Bogan

Yes. There are some differences but I’d say the Scout side is faster. I think there are two elements, I think one is as we were discussing earlier. We learned from the acquisition so we did build more muscle memory over the course of the acquisition and I think we learned how to be super effective engaging the Workday sales force.

We’ve learned that on the planning site. And I think we applied those learnings to Scout. So we were able to move faster on the Scouts side. COVID has certainly been a suppressor on demand across the board. And so but I think despite that we’ve seen a significant pipeline built on the sourcing site. So we’re really pleased, really pleased with what we’re seeing.

Daniel Jester

All right. So we’re coming up to our stop here. So, I wanted to ask one more question. Over the next 12 months and what are the things that investors should be really focused on with regard to either Adaptive or Scout, either key milestones or metrics or product evolution. What should we be looking forward from here?

Tom Bogan

Yes. I think its continuation, rich integration with the entire Workday staff. So that there’s a seamless experience across the entire set of Workday products. That’s really important to our customers. As we said earlier, there’s a brand process associated with Workday. It means something. There’s an experience, there’s a news to interface.

And it’s important that all elements of [indiscernible] and capability we deliver to customers meet that expectation. I extend that question perhaps to the broader opportunity for Workday. And when I think about this environment we’re in, and I really think about it as an acceleration of the trends that we’re seeing. That we would have seen over a longer period of time. And work-from-home, I think has demonstrated to companies, the importance of cloud applications.

And I truly believe that we’ll see an acceleration of cloud applications if not in the short-term certainly in the intermediate and longer term. And it’s one of those – it’s one of those transformations that we believed was inevitable. But I think it’ll happen at a quickened pace as a result of the experience we’re going through now with COVID.

Daniel Jester

Right. Well, that takes us to our full time. So Tom, I really appreciate your attendance, your time, your insight here. This is a great conversation and look forward to speaking to you again. And for all the folks on the line, I will see you on the next session. Thank you very much.

Tom Bogan

All right. Thanks, man. Enjoy.

Question-and-Answer Session

Q –

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