Workday, Inc. (WDAY) Management Presents at Morgan Stanley 2020 Cloud Secular Winners Virtual Conference (Transcript)

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Workday, Inc. (NASDAQ:WDAY) Morgan Stanley 2020 Cloud Secular Winners Virtual Conference June 1, 2020 3:00 PM ET

Company Participants

Leighanne Levensaler – CMO and EVP

Conference Call Participants

Keith Weiss – Morgan Stanley

Keith Weiss

Thank you. Welcome to our afternoon session at the Cloud Secular Winners. My name is Keith Weiss. I run the Software Equity Research Group here in the U.S. I’m very pleased to have with us from Workday, Leighanne Levensaler, CMO and EVP of Corporate Strategy, to talk to us about Workday, about where Workday has come from, where Workday is going, and why Workday continues to be — well, I’m going to tell you continues to be one of our favorite Secular stories in this space, I’m going to get Leighanne’s view on how you guys are going to sort of tackle that secular opportunity.

Question-and-Answer Session

Q – Keith Weiss

So, to begin with, thank you for joining us this morning, and maybe to start off with, you’ve worked with Workday since sort of the earliest days of the company. Could you talk to us a little bit about kind of that initial vision, what you guys were trying to get done, and what has gotten done by Workday on that vision in the last 10 years, and maybe frame out how you guys think about the next 10 years, what’s the big challenges and the opportunities ahead for Workday over those next 10 years?

Leighanne Levensaler

Okay. Well, first of all, thank you Keith for having me, and thanks everyone for joining. It’s really a pleasure. It’s great to be here with you. We’re all at home. You should see my background right now. It’s a playroom, so I’ll spare you that.

Many of us have been at Workday for a long time, like myself, and I’ll be here 11 years in September, so quite a long time. We get asked this question all the time, people want to know sort of the magic of the success, and I think really from my perspective it’s an outcome of our workmates’ focus and commitments to our core values, and really couple that with the discipline we have around strategy and execution, we simply take care of our employees. They take care of our customers. We do business with integrity. We’re fanatical about innovation, and we like to have a lot of fun along the way, just trying to run a profitable business.

[Best interests] [Ph] since our founding, and we believe it’ll be true in the next 10 to 20 years, which will help ensure success. Like I know your models don’t plan that far out, neither do ours, but it’s not uncommon for prospective customers to ask us about like our 10-year vision. And we generally share when they as us that, we generally share that we’re committed to making the world work and business better, and empowering others to do the same, and that technology will surely change, right? Business practices will definitely evolve, but our culture will be the thing that endures. So, what we set out to do was to put people at the center of enterprise software. I believe we’re doing that. We’ll continue to do that as we move forward, embracing the most contemporary or even vanguard technologies to serve our customers, and to really solve business problems, and we’re maniacally focused, which I think you know.

Keith Weiss

Right, got it. So the world is obviously undergoing a lot of change right now, and pretty rapid change with COVID-19. As your role as head of strategy, how does this near-term shock change the way you guys are thinking about how the longer term opportunity unfolds for you guys? Any changes that you’re starting to see in customers’ behavior or expecting to see in customer behavior that’s going to be more permanent over the next couple of years?

Leighanne Levensaler

Yes, absolutely. I mean this crisis is a really strong catalyst for the move to the cloud, and an accelerant for most companies’ digital transformation efforts. So I think you’ve probably seen some of the cartoons or memes around that, “Who initiated your digital transformation?” And COVID is like the choice, but we’re hearing from CIOs who really wish that they had everything in the cloud right now. So, the organizations with on-premise systems, for like their HR and financial systems, which are mission-critical systems, they tell us that it’s been — they’re ill-equipped to deal with all this change right now, and if you’re running on-premise you’re really struggling because you need to people on site to support these systems. So, you don’t have that agility, you need to be responsive to make those changes, and if you just think about all the business requirement changes, I know what we’re doing here, all the process changes, policy changes, work, reporting requirements that have changed just through in the last few months in dramatic fashion, in heck days. That wasn’t part of anyone’s plan, and if you’re not on the frontline like us, we’re knowledge workers; the worker experience is 100% digital now. Not all companies were prepared. So, now every company is getting very serious about digital, getting very serious about broad-reaching automation for cost, for safety reasons. We’re also seeing something really that we’ve been focused on for quite some time, is re-skilling, that’s taking center stage.

Really this crisis, if anything, the economic crisis that has accompanied this health crisis is that our — if our economy is going to recover, if we’re going to get these 30 million people back to work they need to have the right skills, and we think we’re well suited to help our customers, our products, our services, just really address that opportunity and really capture more ways for us to partner and offer value to our customers going forward. So, this has definitely been an accelerant on all those fronts which we have been actively pursuing in earnest, as you know.

Keith Weiss

Right. On that front, a lot of investors, when we were thinking about the COVID-19 crisis there’s a group of beneficiaries that were pretty obvious to us. Stuff like collaboration software or video conferencing software, like a Zoom, or the remote desktop software that lets people work from home, or the firewalls on the other side of the equation where you could actually terminate those VPN connections, and there was another class of software that is starting to emerge, we’re starting to understand afterwards was also really useful and necessary, and mission critical for companies to deal with this pace of change. Could you talk to us about how Workday fits into that dynamic? Like how are your customers using HCM, how are your customers Financial or Planning to help them through this crisis currently? What makes Workday mission critical in that scenario?

Leighanne Levensaler

Well, our responsibility is to help them run the business, right. And so it’s — whether it’s in an office, or a storefront, or a factory it’s the help — or their homes, to run their business. And that’s everything from the accounting to closing the books, to planning, to tracking their people, managing the processes around their people. I mean its business continuity, these are mission critical systems. So those don’t go away in a crisis. If anything, they are called upon with a greater sense of intensity and urgency. So for example is, during COVID when you’re trying to understand where your people are, which location, what skills they have, what their schedule is, where they can be, where they shouldn’t be; I mean we are the source of truth. We are the system of record.

So, we see our customers using us to do basic tracking, surveying, reporting, and then on the more strategic aspects, nobody has, as I mentioned earlier, nobody plans are as they intended them to me for this year, right, for this quarter, last quarter. So we see our customers doing just a ton of scenario modeling, re-forecasting, re-plan, just trying to understand where they can make changes to their business, and that’s all done through our capabilities that we offer through our solutions around your people and your money, really the lifeblood of an organization, and so, in that way we’ve seen sort of business continuity, making sure you can run, but then also this additional layer of strategic adaptation or being able to pivot around those things that are big levers for you.

Keith Weiss

Got it, that makes sense. Wanted to dig into the HCM side of the equation, I would say probably the biggest investor concern that I hear about Workday is penetration o HCM. You guys came out of the gate targeting large enterprises, and had done a great job in penetrating those large accounts. I think you’re in approximately 45% of the Fortune 500 now Workday HCM, which is like twice the share of your nearest competitor, and so, the concern for investors is that market opportunity tapped down, have you guys reached the kind of the end of the runway in getting those large customers onboard. So the question is, one, how should we think about the remaining sort of large enterprise opportunity for HCM? And two, what are the adjacent opportunities we should be thinking about that can keep HCM going outside of just those core large enterprises?

Leighanne Levensaler

Okay, it’s great question. Glad you asked. I mean we still have an incredible opportunity with the remaining 150 or so of the Fortune 500 companies that are ready to move to the cloud, have not moved to the cloud yet, and for companies that are at that size and that complexity, Workday is far ahead of our competitors in getting these organizations live and in production, and realizing the value and the reliable service levels that we do at an extraordinarily huge scale. On the other end, the medium enterprise market in the U.S. and the rest of the world is a huge growth area for us. We’ve had success with Workday Launch, which is our preconfigured deployment approach. That’s really been key to our global expansion strategy overall, but is certainly even in medium enterprise in North America.

For the past three years, we’ve helped hundreds of medium enterprise companies really go live, get live quickly, successfully, in a predictable timeframe, at predictable cost. We’re able to actually deploy HCM and Financials by more than one-third the cost and time, depending on the customer situation, but it’s really been a great advantage for us. Also important to note, on that second part of your question, that the HCM market continues to grow, it is certainly not static. The way people work, we were just talking about that, how we manage them, how we develop them, how we support them. That’s vibrant, it’s dynamic. If I think about the new products that we’re launching just this year, didn’t even exist a few years ago as a category, or as part of any market scope or sizing.

Products for us, like Talent Optimization, which is our Talent Marketplace solution, People Analytics, People Experience, these are incredibly valuable right now. They also increase the market size of HCM for us, the market opportunity. They’re great for selling back into our base, and I’m sure we’ll talk about that as well, and we also couldn’t have predicted the value of these during COVID, but as I just mentioned, these are incredibly valuable solutions around understanding your people and being able to redeploy based on skill set or being able to re-skill based on new needs or plan, re-plan your workforce. Many organizations are reducing their workforce during this time, they’re pausing their hiring. So just a reallocation of the right people doing the right work to ensure the business can move forward, these are what our solutions are designed to do. So, we don’t see any shortage of opportunities to pursue organically or even through acquisition over time, because the ever-changing needs of organizations and their people just create opportunity and create market.

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Keith Weiss

Got it. Can you talk a little bit about sort of the domestic opportunity versus the international opportunity and kind of where you are with each?

Leighanne Levensaler

So, the domestic opportunity with respect to HCM, or just more broadly?

Keith Weiss

I mean HCM and more broadly, but HCM is the more developed part of the solution portfolio like that’s probably the tip of the spear, right?

Leighanne Levensaler

Well, I think in terms of our penetration, we are less than 20% penetrated on the Global 2000 internationally or rest of the world.

Keith Weiss

Right.

Leighanne Levensaler

And so, there is just an incredible opportunity there. The rest of the world is very medium enterprise, sensitive too in terms of outside of a few key markets where there is density of multinational corporations. There is a heavy emphasis on medium enterprise. So, the combination of a few things we’ve already discussed are really important for us as we look for those global expansion opportunities.

Keith Weiss

Right.

Leighanne Levensaler

Both in HCM and financial managements, and I would say that our platform being able to really sell; excuse me, the full value of plan, execute, analyze all in the cloud on one solution, plays well certainly across the different market segments, but medium enterprise and rest of the world we feel like we have a strong position in market as we’re in early days.

Keith Weiss

Yes.

Leighanne Levensaler

We’re still early days outside of North America, while we’ve been in some markets for quite some time, there’s just an opportunity, again, half of our adjustable markets abounds there.

Keith Weiss

Yes, and I would imagine the kind of the distribution capability lagged and international versus what you’ve already built out in the U.S.?

Leighanne Levensaler

I would say it varies. I mean we’re painting with a broad brush strokes. So we’ve been in some markets in the U.K. and Australia, and we’ve been much longer, and so, I think it is a hyper local discussion when you get into that, but absolutely, yes, we’re less mature in some markets, and more mature and others outside of North America.

Keith Weiss

Okay, got it. So I turn the gears a little bit to the financials offering. We’ve seen a lot of traction in the last couple of years with the financial offerings, I think in 4Q ’20, you guys talked about the strongest financial quarters you guys have ever seen, and it’s one of the biggest markets in software, and it turn it definitely in terms of packaged applications, but thus far it seems like there’s been a little bit of a relative lagger versus other parts of the software equation to come to the cloud. One, where do you think we are on kind of that willingness of enterprises to move financials into the cloud? And has COVID-19 have any impact on that? Do you think that’s going to be — is it going to accelerate or sort of holdback that move to the cloud at all?

Leighanne Levensaler

Yes, for sure, for earlier comments, I mean, we now have over 900 customers that have selected us as our core financial system, and we just continue to March up market we just announced, we just had our earnings, customers like Fannie Mae, it’s Fortune 50 organization.

Keith Weiss

Right.

Leighanne Levensaler

We’ve had great success with our industry focus both on the product side and the go-to-market side. We have an intense focus on healthcare, financial services, professional services. These are all very strong industries for us. With respect to COVID, organizations are just realizing how inflexible their systems are when they needed it in the most. I actually saw that the Hackett Group had some research earlier last month I guess now last month in May. That the biggest disruption for finance during the crisis was actually not the transition to remote work, but the real challenge was the big demand for forward-looking information. So it’s not surprising that our solutions like Workday adaptive planning is really resonating with customers.

Our solution enables customers to actually transition from that annual budgeting or monthly sort of more predictable from the use of high level drivers to really much more granular drivers from modeling just to few scenarios to modeling many different possible outcomes, possible scenarios, which would include like your revenue projections in your cash flow. We’re seeing customers’ huge uptick and the customers that are already using adaptive planning, a huge increase in the volume of the scenarios that they’re running. We’re experiencing that ourselves. We drink our own champagne, we use our own product.

Keith Weiss

Right.

Leighanne Levensaler

We’re also seeing in terms of on the prospect side, huge interest in workforce planning for the reasons we mentioned earlier, and I can tell you as a long suffering work development specialist, which is actually my way back background; I’m thrilled organizations are now really focused on continuous planning. There’s an incredible amount of organizational change. They’re also getting serious about the future workforce needs, right?

Keith Weiss

Right.

Leighanne Levensaler

What do we need to be successful? How do we continue to be agile and adapt? They’re planning for this notion of remote work. We were talking about it before, we kicked off the call formerly.

Keith Weiss

Right.

Leighanne Levensaler

The impact of automation to their workforce to how they run their business, the new skill requirements, and even just in this world new team constructs, what does that mean? What does that look like with people that are inside and outside your enterprise that you’re trying to get a body of work done. So that’s an incredible opportunity. We think another opportunity and we’re seeing a lot of interest in around a strategic sourcing. So sourcing to control your costs, save money with Scout RFP which is an acquisition we made at last part of 2019. It’s really a — and we had invested in Scout before. So I’ve known them for quite some time. I was on the venture side for a while; fantastic culture, fantastic solution. We were just seeing what it was doing for customers in market and saw the synergies, incredible synergies what we were doing with procure-to-pay, but with Scout is a super quick implementation, and it enables organizations to be able to like clearly track, measure, report on their sourcing impact and all their supplier trends. So between planning, workforce planning and Scouts, we had COVID has really created the sense of urgency and excitement around getting these high value products in quickly.

Keith Weiss

So we talked a little bit about HCA and we talked about financials a little bit. I think most investors look at those as the like the landing products for Workday. I’m worried you’re going to get in the door with a new customer. Is that still the case or do these newer products like it and adaptive planning or the strategic sourcing from Scout RFP. Does that create new potential landing points for you guys within these customers?

Leighanne Levensaler

Yes, and that’s how we’re really referring to is land opportunities with your — and they can actually be solution either way, as part of an expand or a land.

Keith Weiss

Right.

Leighanne Levensaler

They can sourcing and planning can actually be deployed as customers prepare for their core financial management and HCM implementations, or if they already have HCM, they’re one of the – part of our large customer base with HCM and want to begin their journey with us for financial management with an initial focus and very quick wins with some of the most strategic leavers in the business particularly now in light of COVID, around continuous planning and scenario modeling, and really just like we were talking about optimizing their spend with Scout on their suppliers, which there is a lot of opportunity there to optimize. We think there are incredible opportunities for us because we know with our focus on customer experience and really partnering with our customers to make sure that they’re receiving value, not just deliver value, but they’re experiencing that value and how we connect with them. We feel like if we can get in, help drive some real impact of the business when they’re ready to make their core administrative systems for HCM and financials that we’re going to be a good choice for them, right?

Keith Weiss

Right.

Leighanne Levensaler

Because they’ve seen how we operate. They understand our availability, our reliability, and our commitment. So they just give us more opportunities to engage and meet customers where they are and truly solution for them based on their needs. So — versus like this sort of very product centric view of the world. We’re looking at a total solution for the office of the CFO, the office of CHR, office of CIO, that’s how we’re approaching them.

Keith Weiss

Got it. I’m going to try to get you in a little bit of trouble here, but on the most recent conference call have to try, right?

Leighanne Levensaler

[Indiscernible]

Keith Weiss

You guys talked about a really interesting win with Microsoft, where it was a partnership, right?

Leighanne Levensaler

Yes.

Keith Weiss

That’s a planning, it’s going to be running on Azure, but also Microsoft is going to be using [technical difficulty] organization. Can you talk to us a little bit of how that partnership came to be, what’s the important parts for Workday in there and sort of how you expect that partnership to evolve going forward?

Leighanne Levensaler

Well, I mean, I think in the spirit of partnership, they have a real business need, and we have an elegant solution to meet their business needs. We wanted to expand our — we already had a pre-existing partnership with Microsoft. This is an expansion of that.

Keith Weiss

Right.

Leighanne Levensaler

We’ve been working with them on teams and around security in a number of fronts, but expanding that with Azure for planning as well and making that commitment. So it is a multifaceted partnership and relationship, but really born out of a need that they have around their business, and we want to get in and serve them and serve them well in that capacity, so expanding our partnership on that front as well.

Keith Weiss

Got it.

Leighanne Levensaler

I’m really excited. We did a CIO Tour talking to some shared CIOs with the Microsoft team last year, and we have said there’re such great synergies and some of these larger organizations that are Microsoft Shop. So we know there’s a lot of opportunity to continue to grow this relationship as well.

Keith Weiss

Okay, excellent. I want to talk about the installed base opportunity. It’s something that you guys have been focusing on a lot more of these coming up, you gave a lot more focus. Last year, I think you had seven users you guys rolled out within that upsell opportunity. And then you also have sort of Adapted Insights, which is a recent acquisition and Scout RFP which is recent acquisition, all create additional upsell opportunities. Could you talk to us a little bit about some of the progress you’ve been making both in terms of the solution portfolio, but also in the distribution capability, how has that been evolving to sort of increase the velocity and sort of the efficacy with which you guys can upsell into your installed base?

Leighanne Levensaler

Yes, I mean we have thank you for mentioning that we’ve made not only considerable product investments, but also investments in marketing, which is now the group that I’m part of to help support our value proposition that we have with our customers, existing customers and are soon to be our hopeful customers, helping companies plan, execute and analyze all in one solution. And so, in marketing very specifically and I’ll move to the products that we’re changing our approach to the way we plan and we operate as partners, our evolution of marketing products to Personas, I think we did a really nice job of Persona based marketing, and that this evolution has been going on for several years. It’s not in recent months, but to marketing full solutions, and really having this orientation around buying centers and buy industry, we talked a little bit about industry. We’ll talk more about that. That actually, that is requiring behavior changes and reorganization and good things for us to support our — how we want to continue to deliver value to our customers or existing customers and live more fully into that vision and value proposition we’re offering the market. And so, as you think about the product side as these new products come out of, we have several products this in this next release for us, for our customers for September that are coming out of limited availability and into market. We expect our customers are going to adopt them and deploy more from us to help align with their objectives.

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We actually, we know these solutions matter to our customers, they didn’t just sort of fall out of the Sky or we will then just cooked up in a lab somewhere. Our customers have a very active role in the strategy and product development process here. We have advisory councils and we use our advisory councils, they’re not marketing advisory councils, they’re actually product councils, and we’ve done early discovery work with these customers. So even before we decided to invest any money at all, or decided to go into these new product areas, our customers were with us telling us what they needed. So we feel confident while they’re very early, these products are very early in their stage of development, we feel like they’re striking the right chord, they’re going to meet some needs and we’ve been successful with our early adopters. So, as we go into general availability, we’ll have those proof points. So we’re optimistic although it is new products or new products, so we have to get a lot of proof points there.

Keith Weiss

Got it, got it. And any you talked about the repositioning from a marketing standpoint on Personas versus marketing individual products. Any changes on the like the sales side of the equation to focus the sales guys more so on the upsell, and I guess the environment still focused on the upsell versus new customers, then any particular changes being made to focus sales guys more so on kind of farming existing accounts versus what had been a very traditional strong focus on getting new customers in the door?

Leighanne Levensaler

Yes and I think we’ve been sharing on our updates to analysts that that we have increased our investment and our resources and customer base selling, our back to base selling as well. So, in many ways, marketing is just better aligning with that notion, to try to support that notion with demand gen and events and experiences that we create. We’re also I would say that there’s with our customer success organization are focused around the customer experience and the customer journey. We’re learning so much of that and that is really truly cross functional led out of our with Emily McEvilly, our Chief Customer Officer, but very sincere effort across the board and organizations to realign around that customer journey. And so it’s about delivering value. It’s about aligning around their product roadmaps and their strategy, meeting them where they are given delivering the right messages, the right services, and of course selling to them, right. So it’s a full company initiative. And we’re making investments across the board.

Keith Weiss

Got it, got it. And any feel you can give us on how far along into that opportunity or how big the opportunities and the base is in terms of penetrations of sort of these upsell products, or what the remaining kind of opportunity within the installed bases for further upsell given your current portfolio?

Leighanne Levensaler

I can speak more anecdotally than mathematically here. Again, we’re developing capabilities that we know are important to their business. They are the most strategic things that they want to be focused on right now. We enjoy an excellent relationship with our customers in terms of getting them live in production on time, we have a predictable track record. And so, when they’re ready, we’re ready. And so we feel confident about the opportunity, but it is early days. So we’re learning on some of those newer add-on products. Overall, though with a healthy, vibrant customer base and new capability, we see that as a tremendous growth lever for us. It’s one of our key growth factors as our customer base.

Keith Weiss

Got it, got it. Let’s switch gears a little bit to talk about the R&D spend and sort of what that’s focused on within Workday. When we look at our models, you’re spending about 30% of revenues on R&D, which is basically about twice that of what we see from peers like ServiceNow or Salesforce.com on a percentage of revenue basis, could you talk to us about why it’s relatively higher at Workday versus your peers and could you give us some kind of sense of what that goes towards, is that about the new solutions upsell to the base is about getting into new product categories, could you help us understand kind of where those investments are targeted?

Leighanne Levensaler

Well, we’ve always been focused on innovation. I mean last year, we were really honored Fast Company named us one of the most innovative workplaces and that’s because we invest a lot in R&D. So our workmates can partner with our customers to innovate to actually help them achieve what they’re trying to achieve as a business and organizations, but as I shared earlier, we’re committed to building for this ever changing world of work. So the types of solutions, the markets, the categories that we’re in, they’re not static at all. They demand new sets of features and new capabilities. There’s also that means opportunity for us. We just talked about the upside of that too. You can monetize, you can create new offerings to offer existing customers. So it goes both ways. That said, we have shared in public forums that we expect over time that will come below that 30% levels as we start to achieve some scale and some of our newer emerging products. So we do expect to achieve that.

Keith Weiss

Got it. And could you tell us a little bit about the balance of that R&D spend. How do you guys think about which product area is sort of you go into vis-à-vis inorganic investment in R&D, and in which, what times it doesn’t make more sense to sort of pull out that the wallet if you will, and payout for Adaptive Insights or Scott RFP to get that head start into the marketplace?

Leighanne Levensaler

Well, it’s a really long winded answer from a strategist. So I’ll try to give you the short answer. It’s so conditional to what the needs are in the market where we are in terms of material products, technology that’s required for those capabilities, right. So if it’s transactional in nature and rests heavily on some of our core constructs and organic approach might make the only sense whereas if it’s a new set of features that require different technology then we have expertise in or that we have previously built. You might look on market for that. Not always, but you might look on market for that. And then there’s opportunistic right, there’s just opportunistic, so it’s hard to give a simple answer on that, but I will say with any new investment area, we do go through that methodical build by continue to partner or bolster investment or increase, go-to-market presence together, we go through that work with Workday Ventures, the opportunity to strategically invest in a company to as a nurture, an early stage company to nurture as they go through their growth. So, we have a full range of options to look at, but I think the thing, I can impress upon you is that we go through that full analysis, and so, with all those conditions, we make our decisions.

Keith Weiss

Got it, got it. Shifting gears a little bit and you brought this up earlier, the vertical strategy and as it’s sort of like the head of strategy and sort of kind of pick your brain in terms of we see this a lot in application companies that you reach a certain scale and then you shift towards a more verticalized strategy. Can you talk to us about why we see that more so often? Like, what’s the opportunity when you start to verticalize, number one; and number two, what’s the Workday take on that, what’s kind of your current efforts in terms of getting that verticalization?

Leighanne Levensaler

Yes, I really liked the way you asked that question, because that’s what I try to impress upon. Our team or people impressed upon me as well is the importance of having that deep empathy and understanding of who you’re connecting with your customers and their needs, and that’s often through the industry lens, but as you know, our HR why now and frankly, this has been going on for many years for us, but why is it showing up more now, externally. The requirements for HR are largely horizontal or agnostic, industry agnostic in nature. There are exceptions to that for sure, high volume and retail and others, but they are HCM applications serve all industries. And we have a really diversified customer base, including some of the largest global most complex organizations, but with financial management application, there tends to be or there is much more vertical specific product requirements and oftentimes unique go-to-market considerations as well, which is why you’re seeing it so prominent now in our market presence. So, an example is in healthcare, which is a dedicated vertical for us, has been for a few years in a market where we’ve driven a lot of success.

One of the requirements that is really important to a CFO, when they’re thinking about core financial management system is really that supply chain solution that can help them procure and consume clinical materials inside of their network of hospitals, we built this functionality which has really helped us serve the broader fins market within healthcare. And then like in higher education, we built functionality like grants management and student functionality, and financial services, we built average daily balance in our accounting center solution, which is coming out which frankly will, we believe will have broader applicability, the accounting center that is across multiple industries over time, but we’ve been on this journey around our industry strategy for a number of years. And I think the learnings here is that it’s really an evolution mentality. It’s an approach that requires alignment, cross product, go-to-market, fully cross functional. And the services and customer success organizations are also involved. It’s really critical that you have alignment and for us, it’s changed the way we’re planning now, right how we think about planning through that industry lens as well.

Another one area that’s becoming increasingly important is having this alignment externally as well as with our partner ecosystem who very much aligned vertically, right? They have their practices vertically. So that’s another reason. And then we just spend a lot of time talking about this with you all during our Analyst Day last fall. We think about the verticals in different maturity levels. So again, not the broad brushstrokes that are different phases of maturity. So this year, we began our go-to-market effort within the financial services industry, because we had the product readiness, the capability there to serve. So it’s not really something that’s like, well, we just flipped on this light switch and okay, all of a sudden, let’s put up a dedicated sales focus there and we’re going to be ready. Actually years of work ahead on that product side and we started to enable those resources now on the go-to-market because we had that readiness and our pre-sales organization developing that expertise. And so, that’s really — you might even start with pre-sales and in certain industries to start with pre-sales to have that kind of deep expertise so they can build that connection empathy understanding of the needs. So this, we think this is a foundation setting, and we’re starting that foundation work in other verticals right now. If you think like technology and media, retail and hospitality, really strong industries for us on the HCM side, have unique requirements, unique go-to-market and ecosystem needs when you think about it from financial management. So this is an important part of our journey and increasing our presence within the Office of the CFO for decades to come, so very, very important to us.

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Keith Weiss

Got it, got it. So you mentioned how did vertical strategies and needs to kind of optimize the solution or build-up the solution for specific vertical and the business processes that are specific to that vertical, it would seem that Workday Extend would be a part of that as well in terms of helping you to get into those industries that have more specific requirements. If I think about that, right, it seems like there’s those are two sides of the equation. One is you guys got to do some of the work in terms of virtualization. The other side of the equation is you have to give the companies themselves the opportunity to do the work or the partners to do the work and get that, how do those two sides of the equation work within Workday Extend is now GA but Extend versus like more formal verticalization strategy?

Leighanne Levensaler

I think you’re thinking about it the right way. I might add in there that our partners I mean, our solutions are highly configurable. And so what you’ll find is that we’re present in other industries, where our partners have just done a lot of configuration with their deep industry expertise to support their customers, but Workday Extend allows our customers and partners to develop applications to complement financial management. So like an immediate benefit to us, from a strategic standpoint is that we’ve actually closed deals recently where extensibility was of keen interest and importance to them for the reasons you mentioned. And these prospects, they’re delighted to hear that apps that they create, so not just what we deliver will run reliably and securely in our cloud because again, we’re in the business of mission critical applications with highly sensitive business information. So, this is just not about a development toolset, and this is really the reason that we have brought this capability to market. It is about that distribution, the security and the reliability that we can offer in our cloud and our commitments to our customers around them.

That said, customers and partners can also create new UI pages, new experiences, they can extend our data model and our workflow for their own customer specific nuances which might not be industry but customer specific, because maybe they had built some proprietary customized app on that, they want to enjoy that same feature set in a Workday context or industry nuances, for example, like billing, right. Some configuration processes around billing, which is very customer and industry specific. So that’s how we’re thinking about Extend. So I would extend partner into that, your mindset around that as well.

Keith Weiss

Got it, got it. That makes a ton of sense. One last topic from me, and then I want to leave a little time to open up, we got some questions from the webcast, that I want to make sure we hit as well. Big topic across software and across technology over the last couple of years has been AIML technologies. And I think within software, there’s still a debate in terms of how those get monetized right on one side of the equation, the more bearish it’s like, “Listen, this is just a new programming methodology.” There’re new capabilities, but that’s what software is all about. That’s why you’re charging a subscription to your end customer is that you’ve promised to give them evolving capabilities over time. This is just part and parcel of those evolving capabilities. The other side of the equation is like, no, these are new fundamental, new sort of work being done and we should be able to charge extra. How does Workday think about that like how does the AIML capabilities come into your solution portfolio? And two, how do you guys think about the monetization of that work?

Leighanne Levensaler

We’ve taken an approach of embedding and applying machine learning to everything we do now. So rather than delivering it as a separate application with a separate monetization strategy, it’s just part of how our system operates, and it’s a very disruptive, machine learning is a very disruptive technology where we believe it’s table stakes for enterprise software now, and just as it already is, with our consumer applications, I mean you don’t you abandon consumer applications that aren’t hyper-personalized, don’t offer suggestions, don’t pre-complete things for you, right, but don’t know your past behavior. You just abandon them, right? And so, again, taking that everybody the workers that we serve 40 million plus workers, they have those experiences, they want to come to work and have those same type of experience in their solutions. And those are data hungry applications, right, they rely on data and smart and smart algorithms.

We didn’t need to rewrite our solution to offer the customers benefits of machine learning. We did make investments, significant investments, but we have a unique advantage because of our power of one architecture. This is one source of truth, one source of data, not disparate bespoke applications, and so the algorithms we did invest in and we are — continue to invest in are constantly fed with well structured enterprise data and all the associated metadata from every interaction, every click, every decision, every transaction, all from a single source and that is the best possible fuel you can have for machine learning, this pristine dataset. And so, all of these signals really are actions represent a business decision, and then the outcome can then be applied. The machine can use that to refine and sharpen its predictions. You’ve been around us for us, and those of you on the call. We’re really fond of describing this as a virtuous cycle, but we have the predictions, they’re going to lead to better judgment for humans, and better judgment is going to help you arrive at better decisions, which ultimately impact the business with better business outcomes, that kind of thinking or virtuous cycles just simply not possible with standalone machine learning applications that are sort of abstracted or bespoke to your core systems. So, our machine learning capabilities are just centered around the user, and we have different features, whether it’s anomaly detection or insights or automation or personalization, just make sure that user’s experience with Workday caters to their need to protect what they want, and give them quick access to things, that’s on the like the very basic level. We believe that we’re just saving users time, making them more effective. We think that that’s one of the most valuable things we can do, and we think that, that is table stakes for enterprise software.

Keith Weiss

Got it. All right, three questions that we got online. We have about a minute left. We’ll do speed round. I think you’re not going to answer a couple of these. So, one question was about the breakdown on R&D, any help you could give us understanding like how much of R&D is focused on core HCM versus core financials and maybe sort of the emerging product categories and kind of like rough split or view on that?

Leighanne Levensaler

No, I actually don’t have the rough slip, but I would say that because of the power of one architecture that I just mentioned, that we have core services that serve all application areas, and so, our investments are extremely optimized too, right. We don’t replicate or have redundancy across those. And so that gives us a great advantage, but I don’t have any guidance on structured. I would also say that we do planning for our releases and our investments, and that shifts, that tends to shift over time based upon where we are in cycles with newer products and so on and so forth. So it’s not a static kind of distribution or governance structure.

Keith Weiss

Got it, got it. Question two was, historically we’ve talked about Workday being like 80% into new customers, 20% into the installed base. You guys have made a lot of progress over the last, of course, I think you talked about 50% growth in new ACV into the install base, any update on that kind of 80, 20 split or any kind of view on where that should go on a go-forward basis?

Leighanne Levensaler

Yes, well, just hearkening back to my earlier comments with this emphasis on both new products, new capabilities to sell into our customers and a solution orientation, as well as a growing customer base. We expect that to continue to increase that more to sell our existing customers that we know is are really well aligned to their strategic objectives. So we see that as a great growth opportunity for us.

Keith Weiss

Right, got it. And last one, I think this is a good one to end on. What is it about sort of good the Workday architecture or sort of like the Workday solution set that has enabled you guys to stay ahead of the — what had been big incumbent on-premise vendors? I guess the question could be looked at in two ways, like what does Workday do to stay ahead of them, but also why has it been so hard for those guys to pivot into a cloud-based format as enabled you guys to just be differentiated in that perspective?

Leighanne Levensaler

I think it goes back to starting in the cloud, being born in the cloud, and making choices about your architecture, metadata environment in memory, some of the early decisions that have served us extraordinarily well from both the speed and scale. And then the culture that we have been very focused on innovating with them for our customers. So, innovation and customers being core values of ours. I’ve just connecting with them. So, having the right kind of technology architecture to this changing orientation to be able to support that, I mean, our product looks nothing like under the covers or above or below the waterline like it did certainly when I started almost 11 years ago, but 15 years ago when it started, so we can continue to change and be relevant and valuable to our customers as their worlds change and as technology changes, and that is not just a technology choice, not just a business model choice, it’s a mindset and a culture and in a way of operating that we have really embraced, and we think it’s going to serve us well like I said earlier for the 20-year plus horizon that we don’t have quite modeled out yet.

Keith Weiss

Got it, got it, understanding. Unfortunately that is the end of our allotted time period. Leighanne, thank you so much for joining us, it has been a very interesting, fascinating conversation. Hope all of you on the audience have found value in this as well, and hope you’re all staying safe out there, and if you have any questions about Workday or anyone else in the universe, feel free to give me a call or someone else on the team a call, and Leighanne again, thank you very much for the time.

Leighanne Levensaler

Thank you, Keith. Thank you everybody. Stay safe, take care everyone. Bye-bye.