Workday Inc at Goldman Sachs Technology and Internet Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Likewise. Thank you for doing this with us. Wanted to first understand, it's been almost a year with this pandemic, and we learn every day something new. What has Aneel Bhusri learned about COVID? What are the big lessons that you want to share with us on running a company of Workday's size? Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director Yes. Going into it in March of last year, it was a jump into the great unknown. And we modeled our business at various levels of new bookings, 25, 50, 75, just not knowing what would happen. And 10 months later, after the first couple of months, which were tough, 10 months later, our business has been really resilient and it's held up nicely. Digital acceleration and digital transformation continue. And I'm really proud of our people. I think they've been really resilient as well. We decided very early on to give everybody a 2-week bonus just to get issues out of the way, financial issues out of the way for our employees. And then we asked them to double down on taking care of our customers. And I couldn't be more pleased. I'd like to be out of the pandemic. I'd like to be back in the office, but our company has really stepped up. And if I have a takeaway during this pandemic, not knowing what was going to be prioritized and what wasn't. Definitely a lot of our applications were high priorities. HR continued to be a high priority from an employee engagement perspective. Planning jumped through the roof. I mean people were doing plans almost every week trying to figure out how their business was going to look over the coming months. Core financials, probably we'll get some steam going into the recovery but did okay. And then the analytics side has been very strong and -- so across the board, very pleased. I would say one of the things I'm most proud of is we took companies like Walmart and GE live during the pandemic without a single person on site. And if you had told me that, that was a possibility a year ago, I would have told you were crazy. There's no way to do it without anybody on site. It's a testament to our people, but I also think it's a testament to our cloud technology, we were able to do that.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. You don't have to answer this question, but the retailer, you're talking about dots and circles, red color, is it -- am I up in the ZIP code? Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director What's that? Guessing?

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Okay. We're buying a lot of electronics during this pandemic, a lot of customer service engagements as well. Starting with the new year, everybody has prognostications. Goldman Sachs' economist -- chief economist is very bullish, a big recovery. What is your demand -- from your perspective, how does demand environment look like? How happy are you with acquiring the pipelines [should got going] into calendar '21? Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director I'm quite pleased actually. I think the first half of the year, while people are getting vaccinated, we'll still see a subdued demand environment like we have since March, and I think that's across all IT. It's not specific to Workday, with the exception of Zoom or Teams. Like those are the 2 players that gained a lot of momentum during the pandemic. For the rest of us, we're just happy that we're still in demand. I'm optimistic that the second half of this year is going to be strong, that the second half of FY '22, as people are going back into the office or getting back to their priorities. I think HR is just going to continue to chug along. Our customer base motion is very strong, but I think finance will come back in a big way. And all the data from Gartner and others suggest that financial transformation is next on the docket, and I feel like we're very well positioned to take that on. And in the interim, we're selling financial planning. We're selling financial analytics. We're selling, now with Scout, best-in-class procurement solution. So there's a lot of things that keep us busy until the market really comes back in the second half of the year. But I'm bullish. And everybody I talk to just is looking to get back to as much of a normal world as possible.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. I'm curious to get your perspective on what aspects of business go back to pre-COVID, what aspects of business stay where they -- how they got transformed during COVID? What are the things that don't change, are more permanent and -- not permanent but lasting? Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director Every one of these downturns, we were talking about it, whether it was 2001, 2002 or '08, '09 or this one has its own set of characteristics. I think in this case, the cloud has now just become so mainstream and it really is the only platform that works when you have to work remotely. You have to scale up. You have to start new businesses. And so I think like many trends, things that are going into a downturn, there are new trends, tend to get accelerated as the downturn subsides, and things that were slowing down get crushed. And so I think it is kind of the death knell of legacy technology and, I don't know, that's obviously self-serving but I think it's actually right. In terms of going back, I'm a big believer that we're going to be back in the office. I know that in the case of Workday, that's what I'm asking. Maybe a handful of people can work remotely. It's hard to collaborate. It's hard to really have a great culture and an inspired workforce if you're just on Zoom every day. And I think in the early days, people were excited about this remote work, but 10 months into it, most people want to get back into the office. And so I don't see a change. I think instead of having remote work, I think it's more likely that we'll let employees work from home 1 to 2 days a week. Because I do think there's some mental health and -- one of the benefits of the pandemic, you're always looking for silver lining, has been family time. Everybody talks about it, but maybe 5 days is too much family time. 1 to 2 days is a good amount. So I think that will change. Travel, my guess, is 75% will come back. I think about all my sales travel. And I continue to believe being in person with customers is really important, being in person employees is really important. But there's a lot of meetings that don't have to be in person that you can do over Zoom, especially check-in meetings during an implementation. I used to fly out for all those. And now I think, Zoom works really well for the 1-hour status meeting. So I would say that we get to 75%. I think that probably stays pretty constant.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : I'm curious with respect to this travel thing, what I was trying to get at was some of the (inaudible) with [70%] of travel back, what are your -- you speak with a lot of CEOs of Fortune 500 companies. You've got 50% market share among Fortune 500. Big market share, S&P 500, Fortune 2000, irregardless what you [type]. What are your peers telling you about how they see the economy opening up? And what are their plans to let employees come back in? Or do they believe that people should be given the chance to work remotely? Or do they also believe, like you, that we should come back to the office and get back (inaudible). What are their thoughts? Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director There's a -- I think the tech sector and probably financial services are the 2 sectors that have largely stayed work-from-home. But many of the companies and CEOs I talked to, they are in some hybrid [mode] already where people are going into the office. If you're a retailer, you've got people in the stores. If you're a Walmart, if you're a Target. if you're a health care provider, you obviously have people in the office. And so -- and you haven't seen people getting sick in the workplace. As I talk to CEOs, they've all adopted really, really great protocols. And so I sense people are optimistic about, hey, we got through this period of time. It's been a really sad time. Not as many people -- so many people did not have to die. It's really sad. And we all want to get past this world and get people vaccinated. But coming out of it, I think people are optimistic. And I'd say the thing that I'm proudest of, the CEOs that I know, the Satya Nadellas, the Mary Barras, the Doug McMillons, they really are not just about the bottom line. They are really investing and taking care of their employees, their customers, their local communities. They are embracing stakeholder capitalism in a really enlightened way. And I feel very lucky to call all 3 of them customers and friends. But it's a new generation of CEOs that is, in some areas, where government might have not picking signs of the government or government might have dropped the ball. Companies are stepping in, and these companies have a soul. And I think companies need to have a soul. And so if anything, there's been an awakening that companies need to do more in their communities and for their employees and for their customers. I think it's a great trend. Frankly, it's a positive trend for Workday. But I just think it's a good trend all around. It's not just about the bottom line.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Yes, very much -- very relevant in these times, and he's going to be on later on today as well. So... Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director I didn't give him credit for being the first person 10 years ago who really get me to focus in on stakeholder theory. I really have not spent much time thinking about it. It was kind of the body of the value system and culture, but stakeholder theory and stakeholder capitalism is a lot more intentional than -- and I like that intentional nature. And I actually think the best companies in the world have to migrate that way. So this is not a tax. It's actually -- it makes it more competitive. It makes people want to do business with you. It makes your employees more loyal to you. There's a lot of really good reasons to do it.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : I mean you could take anything that you have made a strong commitment whether it's environment, sustainability, corporate governance, gender equality, pay equality, whatever it is it that you've been consumed at. Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director So I think the one thing we get knocked down would be governance since we still have our dual-class building. But for the rest, we have an increasingly young population of employees, and they hold us accountable to be not just a great company to work at but to be a great corporate citizen. So we are -- we've been carbon-neutral for many years now. Now we're actually trying to go back and become carbon-neutral since our inception much like Microsoft is doing. You know that from a diversity perspective, we've been very focused on that. Half of the management team for the last 5 years have been female. We need to do a better job with people of color, no question about it. We're publishing our data. Given that we're the HR provider, we actually view it as our responsibility to help all of our customers get a handle and publish their data as well. And again, it comes back to companies having a soul and having a purpose beyond the bottom line. And so I am a big believer in most of the ESG trends. The governance one, I think, is really -- it's really very specific to each individual company and how they want to run their business. And for us, we have a specific way, informed by what happened to our past company. So -- but I think ESG and stakeholder capitalism just go hand in hand. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 12, 2021 / 5:10PM, WDAY.OQ - Workday Inc at Goldman Sachs Technology and Internet Conference (Virtual)

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : That's great. That's great. And do you see this sustaining once we get, hopefully, the day comes when we get past the pandemic? Are these behaviors starting to persist? Are people going to look at the category the way they've looked at it? And you look at (inaudible) my employees. I have got to know where they are, et cetera. Does it stay a priority past the vaccination? Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director Yes, I think there's areas -- it's -- it was a wake-up call during the pandemic about how many people just required training to stay current, right? And this was kind of a good environment for training, so our learning app has had a great run. So when I think about the HR world, there are only so many core HR systems you can sell. And we do have a strong market share amongst the Fortune 500 companies. A lot of market opportunities still in that medium enterprise space, a lot of opportunity globally, but more importantly, we're not standing still. We're coming out with new HR modules all the time whether it's around people experience. We're working on the scheduling application, people analytics, workforce planning. And so all of those add up to a significant increase in our spend that each customer can spend with Workday as we continue to increase the footprint. And when you are the core HR provider versus a point solution, the customer looks to you first when they look at those point solutions. And if you've got something that's reasonably good, they're going to choose you. So I think this motion will continue for a long time. And as you think, we've entered this new world where everybody really does care about their employees. I don't think that's going back. I don't think that's going back to just statutory regulatory. The -- as you know from Michael Bush and all the data, companies that are great places to work have outperformed the regular stock market by 3x over 20 years. Well, if you're going to be a great place to work, you need a great HR foundation -- HR system foundation, and we think that's Workday. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 12, 2021 / 5:10PM, WDAY.OQ - Workday Inc at Goldman Sachs Technology and Internet Conference (Virtual)

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : In the same way, do customers that run their financials in the cloud end up being better investments as well because of certain efficiency? What I'm going with is, how important is cloud-based financials in this environment that we're going through right now? And how do you see this as a priority? We've been talking about this for a long time, right? I mean is this an accelerant or not? How do you see this? Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director I think it's actually an accelerant. I would say that going into the pandemic, we were very pleased with financials. Maybe we didn't have as many Fortune 500 wins, but when we were looking at our new bookings, they were growing at 40% to 50% a year and it's a huge market, so we were very happy with that. For the customers that had moved to Workday in the cloud for finance, they are very happy and you can talk to them. They were able to close their books remotely. They're able to do their planning and transactions all without having anybody in the office to go through audits. It's just a much easier world. If you hadn't gone through the transition and the financial transformation, I do think some companies said, "Hey, that's a big project to take on without people in the office. Let's wait until we're out of the pandemic." What we heard from Gartner is that while there was a delay in fiscal year '21 and there will be some delay in fiscal year '22, they see projects from fiscal year '24 and '25 getting pulled into fiscal year '23. Like people realize, "Okay. These systems don't work in this pandemic. They have not worked well for us. And as soon as we're able to, we need to change them out." So I really think when we get back to being healthy, you'll see the Fortune 500 really start moving in mass to financing the cloud. What we heard from Gartner was that inquiries on core financials was down 10% year-over-year, but inquiries into planning, I think, was up 30% year-over-year. So it's all about the modules. But I think there's going to be quite a bit of pent-up demand and we're gearing up for that. And we see it in the pipeline.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Aneel, you mentioned fake cloud. I've never heard that. I'm kidding. Of course, [I heard about fake cloud]. Where are we with -- I'm not going to say fake cloud financials. But just legacy, let's say, financials legacy competitors. Is that customer base now better able to discern what's truly cloud, what is not? And how clear do you think is the Workday value proposition to customers when it comes to financials to the cloud today? Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director I think the value proposition is pretty clear. And I made a point of not picking on competitors during the pandemic. It doesn't feel very seemly to do that. But I would just say that as we look at the competitive marketplace, whether it's HR or finance, frankly we tend to see Oracle in most places, but I think they tend to see us in most places. And frankly, other than pockets of Europe, we just don't see SAP very often. I think they're probably just fine as a company. They're relying on manufacturing and distribution. But in terms of core HR and core finance in the cloud, it's really become us and Oracle. And the buyers are smarter. They do a lot of reference calls. And I think actually, Oracle has done a decent job transitioning their products to cloud. It took them probably longer than they expected. But you never discount Oracle. They're hypercompetitive and technology-savvy company. And so it's a huge market to carve up between 2 companies. So I feel very good about that. Win rates, get asked this question all the time. They have been surprisingly consistent and resilient for the last 5 or 6 years. They just haven't changed that much. And I do think referenceability is a big part of that. I would just say, again, that it's more -- when we go at -- when we go into a deal, it's much more -- even in an SAP account, it tends to be more us versus Oracle than SAP for HR and Finance.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. This is another question like this. What is Aneel excited about in 2021? What does he think about pipelines they have for 2021? I suppose I didn't ask you the question. Is there anything else you want to amplify on that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 12, 2021 / 5:10PM, WDAY.OQ - Workday Inc at Goldman Sachs Technology and Internet Conference (Virtual) Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director We'll get a better picture of our pipeline post the -- our fourth quarter close. But all the lead-generation activities we've had are all trending in the right direction. And I do think as some of the industries like hospitality and transportation come back online and start getting momentum, that will be another area of pickup. We've seen quite a bit of pickup in health care and in higher ed, in state and local government and in the financial services. So very pleased with where the pipeline is going right now.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. Another question here. What will drive financial acceleration that -- I guess there's an assumption there. What will drive financial acceleration? Who will you take share from? And in what portion of the market do you have the clear right to win, the R-I-G-H-T to win? That's a really good question. Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director Good question. I think when I look at our success with financials, we have the right for all the services industries to be that provider, financial services, health care, higher ed, state and local government. If it's a service -- industry business services, we should do very well. And in terms of who we take share from, well, there's only 2 other companies in this space. And so just like HR, every time we win, we're taking somebody away from SAP or Oracle, sometimes AAP, but usually, it's SAP or Oracle, and it's the same in the world of finance. I think with our finance -- our enterprise finance product, which is basically a combination of consolidation and planning, we don't actually have to be the core finance solution. So even in manufacturing accounts, we can go in or a retail account where we're not the underlying ERP system but still sell enterprise finance so people can use our consolidations, our planning or analytics on top of a legacy general ledger. So I think we're really well positioned. I said this many times. 5 years ago, we'd go in and try to pitch core accounting. If they didn't want it, well, we left. Now we say, well, you want to start planning. You want to start with enterprise finance. You want to start with Scout and procurement. There's a lot of ways for us to get in. And if we do a good job, and we've penetrated a lot of those applications, we should hopefully be the call when they switch out their core accounting system. So we definitely surround strategy and it's working. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 12, 2021 / 5:10PM, WDAY.OQ - Workday Inc at Goldman Sachs Technology and Internet Conference (Virtual)

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : I've got a dumb question. Accounting center, is that same as consolidation? Or is it different? Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director It's different. I think it more of it as something that can sit on top of the general ledger and do all of your accounting and take it from multiple ledgers and be that solution for high volume, high trends actual level industries like a retail or financial services is probably the best one where it absorbs the applications from everything else. And it's effectively a combination in a place where you do your analysis and your reporting. So it's a very powerful application. It's helped us win. Every time we've introduced it into a financial services deal, we tend to do very well.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : Got it. In the past, the competitive offerings from Oracle and SAP were not competitive. Today, they may be inferior products but they at least have a cloud alternative. Do you expect your HR business growth rate to be lower going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 12, 2021 / 5:10PM, WDAY.OQ - Workday Inc at Goldman Sachs Technology and Internet Conference (Virtual) Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director I think the growth is less about the competition. As I said earlier, win rates have stayed very consistent. There are some parts like the Fortune 500 market, we have 50%. It tells you there's some level of maturity in that marketplace. And then it's the law of large numbers but it's not the win rates. They've come up with -- Oracle has a viable product. I don't honestly believe that SuccessFactors was ever meant to be a system of record. And from what I can, it's still struggling to be a system of record. So as they transition to the cloud, it's not like we're standing still. We're adding all these new capabilities that are at the cutting edge, whether it's in the areas of employee engagement or learning or skills cloud. We're just years ahead of them from a state-of-the-art capability. If you're a seller that just wants a cloud solution and you don't care about best-in-class capabilities, maybe they're a good fit and maybe price is an issue. But for the folks that really are engaged in trying to be a world-class HR organization, I think we're really well positioned. And we just stay ahead from a -- there's a lot of innovation still left in this industry, and our job is to continue to innovate and be the innovation leader.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : That's a good thing. Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director I'm very bullish on people analytics. And in many ways, our Prism Analytics came out and it was a great analytic platform, but our customers want apps on top of those platforms. And so our people analytics is an app on analytics that fits what customers want from us. Bullish on people experience, PeX. Basically, effectively a next-generation employee portal. Tied to that is Workday Help, which is a help capability for HR. So that PeX a help combination plus people analytics. But the one I think that's probably going to be the biggest driver will be the skills cloud and the talent marketplace. That is the biggest in terms of addressable market. That is the most visionary area for HR leaders. They really want to first, create internal talent marketplaces. They really want to get an economical understanding of all the skills in their company, and we -- I think we really have nailed it. I think we've nailed it. They're a great leader there, [David Summers], who's really driven us to great places. And that is just -- that is the next-generation of talent and that's a massive market.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc., Research Division - Analyst : I believe yes. Aneel Bhusri - Workday, Inc. - Co-Founder, Co-CEO & Director We have 2 of these a year. So one of them is with you and then one other is -- I forgot. I've to do -- also to do one with your previous employer because they're such a great and important customer to us. But I always enjoy being with you. And I can't wait to see you in person and keep up that singing career.