Workday Inc (WDAY) 2015 Q4 法說會逐字稿

Welcome to Workday's fourth-quarter earnings call.

(Operator Instructions)

With that, I will hand it over to Mike Haase.

Welcome to Workday's fourth-quarter FY15 earnings conference call.

On the call we have Aneel Bhusri, our CEO, and Mark Peek, our CFO.

Following their prepared remarks, we will take questions.

Our press release was issued after close of market and is posted on our website where this call is being simultaneously webcast.

Statements on this call include forward-looking statements such as those with the words will, believe, expect, anticipate and similar phrases that denote future expectation or intent regarding our financial results, applications, customer demand, operations, and other matters.

These statements are subject to risks, uncertainties, and assumptions.

Please refer to the press release and the risk factors in documents filed with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q, for information on risks and uncertainties that may cause actual results to differ materially from those set forth in such statements.

In addition, during today's call we will discuss non-GAAP financial measures.

These non-GAAP financial measures, which are used as measures of Workday's performance, should be considered in addition to, not as a substitute for or in isolation from, GAAP results.

Our non-GAAP measures exclude the effect on our GAAP results of share-based compensation, employer payroll tax related items on employee stock transactions, debt discount and issuance costs associated with our convertible notes and, for FY15, also exclude amortization of acquisition related intangible assets.

You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, in our earnings press release and on the Investor Relations page of our website.

Also, the customers page of our website includes a list of selected customers and is updated at the beginning of each month.

The webcast replay of this call will be available for the next 45 days on our Company website under the Investor Relations link.

Our first-quarter quiet period begins at the close of business April 16th, 2015.

Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our FY14.

For your planning purposes, we are hosting an Analyst Day on April 15th in San Francisco.

I will send more details, including a registration link, in the coming days.

With that, let me hand it over to Aneel.

Thank you, Mike.

I'll spend a couple minutes on a few highlights from FY15 and then share a brief outlook of key initiatives for FY16 before handing things over to Mark.

Last year we continued to see strong traction on a global level for human capital management.

We welcome to the Workday community Bank of America in the US, Unilever and Rolls Royce in Europe, Fast Retailing in Japan and, most recently, ING Bank in the Netherlands.

As more customers join the Workday community, we continue to expand our presence globally and announced our growth plans for both Germany and Japan, two very important markets where we see great opportunity.

On the financial side, we saw growing momentum over the year and Q4 marked our biggest quarter yet for new financial management customers.

We are extremely pleased to see customer adoption continue to accelerate and we expect more of the same in the year ahead.

As I've said before, welcoming new customers is only the first step and the most important work is helping them get live and gaining value on Workday.

At the end of FY15, more than 70% of our customers are live.

In Q4 alone we put 80 customers into production.

We're making good progress on this front and there is more work to be done.

I would like to the take this moment to thank our service partners, who have been instrumental to our customer success.

I'm also proud to share that we were voted the number-one company to work for on a local Bay Area Top Places list for the fourth consecutive year and also voted number one by our employees in the inaugural Great Rated Survey, conducted by A Great Place to Work.

Our happy employees are a big reason we achieved a 97% customer satisfaction rating for a third consecutive year.

As we continue to add talent to Workday, I'm pleased to announce that Phil Wilmington has joined our team to lead our worldwide sales organization.

A good friend and PeopleSoft veteran with deep expertise in our core markets of finance, HR and analytics, Phil worked closely with our regional leaders to continue to build our global sales teams.

Phil will report to our President and Chief Operating Officer, Mike Stankey.

On the product front, we had another excellent year driving innovation into our suite of applications.

We delivered Workday Recruiting last spring with Workday 22, and we've since seen strong demand for that application.

We made significant strides with Financial Management, adding breadth and depth in the product as well as critical industry-specific requirements.

Early in FY15, we announced the acquisition of the Identified team to helps us enhance our search capabilities and accelerate the delivery of predictive analytics and machine learning throughout our suite of applications.

With this team, we have created a new series of decision-making applications called Workday Insight Applications, which we announced at Workday Rising and which will begin to hit the market this year.

Looking forward to 2016, we are very excited about our prospects for a great year.

Our ATM product continues to be the market leader, our financial applications are gaining momentum, and our push into analytics is bringing real value to our customers.

At the same time, we will continue to expand our market coverage across the globe and add industry capabilities beyond our current education and government initiative.

In summary, we feel very confident about our business, our team and the opportunities ahead.

With that, I will now turn it over to Mark.

Thanks, Aneel, and good afternoon, everyone.

We finished an outstanding FY15 with a great fourth quarter generating record revenues, billings and trailing 12 months operating cash flows.

Before I go to the details of the fourth quarter and take a look ahead to FY16, let's spend a little time looking back on our accomplishments this past year.

FY15 was a year of tremendous success financially and across our operating metrics.

Total revenues increased 68% to $788 million and subscription revenues increased 73% to $613 million.

Total unearned revenue for the year increased 53% to $633 million, and we generated operating cash flows of more than $100 million for the year.

Non-cancelable subscription backlog at year end was $965 million, so combined with unearned subscription revenue, we have $1.570 billion of subscription revenue to be recognized in future periods, or more than 2.5 times our FY15 subscription revenue.

The year-over-year increase in total unearned subscription revenue plus backlog was 53%.

We ended the year with nearly $1.9 billion of cash.

Operating cash flows for the year were $102 million and free cash flows were a negative $2 million, so we are running a model that is now essentially breakeven, including run rate CapEx spend.

For the full year, we improved our non-GAAP operating margin to a negative 6.7% from 18.6% last year.

We are making a conscious decision to invest in product and market expansion and do not anticipate this pace of margin improvement in the near future.

We still believe we are a couple years away from positive non-GAAP operating margin.

However, we expect continued progress in cash flow generation in 2016 ahead of these operating margins.

We added nearly 1,150 net new employees during the year, a 44% increase from the beginning of the year, and ended this year with about 3,750 people.

We are pleased with our FY15 accomplishments.

We want to thank our employees, our partners, and our customers.

Now I will walk you through the financial details.

Total revenues for the fourth quarter were $226 million, an increase of 59% from a year ago.

The vast majority of our sales are currently in US dollars, so there is minimal impact from exchange rates.

In FY16, we are offering subscription contracts in six foreign currencies, and expect a higher percentage of non-US dollar bookings than in prior years.

Subscription revenues for our cloud applications were $182 million, an increase of 64% from last year.

The weighted average duration of new contracts signed in our fourth quarter was 3.9 years.

This was higher than our historical pattern, driven by several large contracts with longer terms.

Our professional services revenue was $44 million, an increase of 43% compared to last year.

Job one continues to be the successful deployment of our cloud applications, whether by our ecosystem partners or us.

We mentioned last quarter that we were targeting a very aggressive goal of 75 customers going live during Q4.

We exceeded this goal with 80 go-lives and over 70% of our customers are now live in production.

Total unearned revenue at quarter end was $633 million, up 25% sequentially and 53% from a year ago.

Over 95% of our unearned revenue is from subscription fees.

Short-term unearned revenue was $547 million, an increase of 24% sequentially and 64% from last year.

Long-term unearned revenue was $86 million, increases of 28% sequentially and 6% from last year.

As compared to the third quarter, the cash billed in the first year as a percent of the annual contract value increased about 400 basis points, adding about $4 million to the derived billings calculation.

Renewal rates continue to be strong but billings of renewals signed this quarter continued to be less than 10% of total billings.

I also wanted to provide you with color on our subscription backlog.

As a reminder, most of our subscription agreements are for three years and are non-cancelable.

In a typical contract, the first year of a multi-year contract is billed and recorded on our balance sheet as unearned revenue.

The non-cancelable unbilled portion of the contract remains off our balance sheet as backlog until billed.

As mentioned in my opening remarks, total non-cancelable subscription backlog as of the end of FY15 was $965 million, up 52% from $636 million at the end of FY14.

Total future subscription revenue, which includes total unearned subscription revenue plus subscription backlog, was $1.570 billion, a 53% increase from approximately $1 billion at the end of FY14.

Looking ahead to the first quarter and full year of FY16, the strength of our business model and continued momentum provide very good revenue visibility and we expect a solid first quarter.

Total revenues for the first quarter are expected to be within a range of $242 million to $245 million, or year-over-year growth of 51% to 53%.

Subscription revenues are anticipated to be within a range of $195 million to $197 million, or growth of 58% to 60%.

We also anticipate our first-quarter derived billings, or the sum of revenue plus the sequential change in total unearned revenue, to be $255 million to $260 million.

I'll remind you the that we face a very difficult comp for the first quarter as compared to last year, when we had several significant large signings earlier in the year than expected.

For the year, we anticipate total revenues of approximately $1.115 billion to $1.140 billion, or growth of 42% to 45%.

Subscription revenues are anticipated to be within a range of $900 million and $920 million, reflecting year-over-year growth of 47% to 50%.

Derived billings for the year are anticipated to be within a range of $1.340 billion and $1.360 billion, with just under 60% of total billings expected in the second half of the year.

We ended the year with approximately 3,750 full-time employees, an increase of nearly 1,150 for the year.

During FY16, we expect to end the year with more than 5,000 employees.

Approximately two-thirds of our total expenses are employee related.

Let's spend a few minutes on operating expenses and our results of operations.

Unless otherwise noted, all references to our expenses and operating results are on a non-GAAP basis and are reconciled in the tables posted on our IR website.

Our fourth-quarter gross margin was 71.2%, up 165 basis points from the third quarter, driven by our mix of subscription revenues growing faster than professional services.

The fourth-quarter subscription gross margin increased slightly to 84.8%, and includes the costs related to providing our cloud applications, compensation and related expenses for our operations staff and data center networking and depreciation.

We expect subscription revenue will increase as a percentage of total revenue over time, but that our gross margin will likely fluctuate from quarter to quarter.

The professional services gross margin decreased by 540 basis points sequentially.

As we guided last quarter, fourth-quarter utilization rates and the professional services gross margin decreased from the third quarter driven by normal holiday season slowing.

We anticipate professional services margins will be lower in FY16 as compared to FY15, as we invest in programs to ensure ongoing customer success.

Our fourth-quarter operating loss was $8.6 million, or a negative 3.8% of revenue, in line with our guidance.

Product development expense in the fourth quarter was $71 million, up 8% sequentially and up 55% from a year ago.

We continue to invest in our product development for solutions such as student and professional services automation as well as strengthening and extending our suite of HR, payroll and, in particular, financial management applications.

Sales and marketing expense was $81 million, up 13% sequentially and up 45% from last year.

The sequential increase was driven largely from higher variable comp.

General and administrative expense was $18 million, up 16% sequentially and 29% year over year.

The sequential increase is largely a result of increased headcount and seasonal corporate expenses.

The net loss per share was $0.06 on 186 million weighted average shares.

Given our net loss, all outstanding stock options, warrants and common stock equivalents are anti-dilutive and not included in the loss-per-share calculation.

Taking into account our adjustments to GAAP operating income that Mike referenced at the start of the call, we currently expect our fiscal first-quarter non-GAAP operating margin to be within a range of negative 4% to negative 6% of total revenue.

For the year, we plan to ramp up our investments and expect a modest improvement in our 2016 non-GAAP operating margin, but continuing to operate at a loss for the year.

The GAAP operating margin for the first quarter is expected to be approximately 20 to 22 percentage points lower than the non-GAAP margin.

For the full FY16, the GAAP operating margin is expected to be approximately 23 to 25 percentage points lower than the non-GAAP margin.

Long-term profitability and cash flow generation are important goals, but we believe our focus today needs to be on market expansion, continued product innovation and growth.

Other expenses were $2.1 million, up slightly compared to the third quarter.

For your modeling, our quarterly non-GAAP interest expense from our convertible notes is approximately $1.6 million.

From a GAAP perspective, the Q1 interest expense, including $6.2 million of non-cash amortizations reflecting the discount and issuance cost of the notes, is approximately $7.8 million.

The interest payments on the notes are made during our fiscal second and fourth quarters.

Now on to our balance sheet and statements of cash flows, cash and short-term investments at quarter end were nearly $1.9 billion, up $23 million sequentially.

Operating cash flows were $48 million for the fourth quarter, and $102 million for the year.

Free cash flows for the quarter were $11 million and for the year, a negative $2 million.

Capital expenditures during FY16 are anticipated to be approximately $150 million, as we continue building our data centers to support customer growth and expand our office space.

As mentioned before, we acquired a leasehold interest in land in Pleasanton adjacent to our existing office space.

We are actively evaluating our alternatives for this site, but potential development costs are not yet factored into out CapEx guidance.

To summarize, we are very pleased with our solid fourth-quarter performance and our accomplishments during FY15.

Looking ahead, we are investing for the long term, and see a very large opportunity in front of us.

You should expect us to continue making significant investments in our product development and global market expansion to maximize our long-term growth opportunities.

With that, let's begin the Q&A process.

(Operator Instructions)

Your first question comes from the line of Jennifer Lowe with Morgan Stanley.

Great.

Thank you.

Mark and Aneel, you hear you mentioned on the call that (technical difficulty) 70% of your customers were live at this point.

I was curious if you could get a little more granular there and talk about your financial customer go live and to the extent you have seen more customers go live, what's the feedback been like from those customers as they start to really use the product?

In the last earnings announcement we mentioned that over 50 of our customers are live on financials and the feedback has been very positive.

I was actually on a call with a well-known financial services company yesterday that had just gone live with HR and financials and very happy.

They embraced some of new mobile capabilities on expenses, very pleased with the analytics and reporting.

So generally, especially given the strength of the fourth quarter, we're feeling very good about the financial products.

Great.

And maybe just a follow-up on that.

I think one of the things you've talked about as you get more confident in these implementations being successful on the financial side there was opportunities to get more engagement from the partner channel potentially there.

I was just curious if (technical difficulty) what the engagement's been like with partners in financials.

We're seeing a significant uptick in interest from all the partners in financials.

In some cases, newer partners who are maybe late to the game in human capital management are now leading with building financials practices.

It's all heading in the right direction.

Thank you.

Your next question comes from the line of Heather Bellini with Goldman Sachs.

Hi.

Thanks.

This is Nicole Hayashi in for Heather.

Thanks for taking my question.

Just had a question around your sales force.

With Phil as your new head of sales and his focus on building out the global team, does this change how you're approaching the way you structure your sales force internationally?

And could you remind us of how the sales team is structured abroad compared to the US?

It really doesn't change much.

Our President, Mike Stankey, had been running worldwide sales as part of a broader set of responsibilities and that was increasingly taking up quite a bit of his time, and so we decided to bring Phil on board to just focus on worldwide sales, but the rest of the structure basically stays in place and Phil reports to Mike.

Phil is a seasoned veteran who is terrific with customers, terrific with -- will be terrific with our team and we're very excited to have him on board and he and Mike have a great working relationship.

Great.

Thank you.

Your next question comes from the line of Walter Pritchard with Citi.

Yes, hi.

This is Tyler Radke actually calling in for Walter Pritchard.

I just wanted to get a little more color on your billings guidance.

As I look at Q1, I know that you have some tough comps but it just seems that there's something else that maybe -- I just want to know if there's something else that we should be thinking about.

If I look at it on a sequential basis, it's kind of implying decline 25% to 30%.

I just wanted to know if there's anything we should be thinking about, whether it's FX or anything else we should be considering.

Are you specifically talking about the first quarter or for the full year?

Yes, for Q1.

For Q1.

It's a difficult comp.

If you recall, Q1 of last year actually grew substantially sequentially over Q4 and we attributed that to a number of contracts that we hadn't anticipated would come in during the first quarter and that were pulled forward.

So it was a very strong quarter, as we laid out a year ago.

But no, other than the fact that renewals is beginning to kick in, but still is -- net new renewals in a quarter are still going to be well less than 10% of billings in every given quarter.

So most of the billings are coming from the existing deferred revenue, backlog rolling in and then new sales that we make.

Okay.

Great.

And then if I could ask one more, and maybe I missed this, but can you talk about how performance was on a geographic basis in the quarter?

I saw in the press release you're talking about rolling into more markets in Europe and just kind of wanted to get your thoughts on how you approach that and what the decision process looked like.

Well, I'm pleased to say that performance was strong across all regions in the fourth quarter.

We were lumpy during the rest of the year but the fourth quarter was strong in North America.

It was strong in Europe and it was strong in Asia-Pac.

Asia-Pac had a particularly strong fourth quarter.

Really, it was an across-the-board success.

The big new market that we announced earlier this year was Germany and we're beginning the ramp-up of resource.

We believe our products are ready for the German market and as you know, it's the biggest economy of Europe and we're, with the win of Fast Retailing in Japan, we're also beginning to gain traction in Japan, which for us is our biggest economy in Asia.

Next question?

Your next question comes from the line of Raimo Lenschow with Barclays.

Thanks for taking my question.

A couple of quick ones, if I may.

First, Aneel, can you talk a little bit about what you're seeing in your customer conversations.

You talk about the bigger guys, about their thinking of standardizing on Workday.

I remember back in the old PeopleSoft days, you guys were kind of a little bit to standard so you wouldn't get fired to kind of pick Workday while all the other guys were a little bit of a risk and a little extra work involved there.

Are you back at that kind of level again, that Workday's kind of the de facto standard?

If you have a conversation with the client that's kind of you are the basically first call?

I'd like to think of us as the de facto standard.

I like the way you characterize it.

Our existing customers, specific to your question, are very happy.

We run a 97% customer satisfaction.

I think what has evolved over time as we go through renewals, as they get live on Workday, they're definitely coming back and looking at additional modules, whether it's expanding into payroll or recruiting or expenses.

Expenses in particular has been a hot product the last few quarters.

They're definitely expanding their Workday footprint.

We're seeing the early signs of what we call platform deals, where customers are either buying HR and financials together up front or expanding out of HR into the financials realm.

So this all comes down to getting customers into production and customers being happy.

If they are -- if they're live and they're happy, they'll come back to you as a vendor for more products and I think it's -- in many ways there's a lot of noise out there about lots of other things, but this is all about making customers successful and it's a pretty simple formula.

And then two quick ones for Mark.

First on modeling for the professional services part, we're hearing more and more from the partner ecosystem about them kind of gearing up, et cetera.

Should we kind of start thinking at some point that the growth for your service business should be slowing down more meaningfully?

I think when you derive the growth from professional services after you back out subscription, you'll see that there's some deceleration.

That said, we are still going to continue to aggressively grow our own service providers.

Part of this is that we have some customers in HCM and in platform deals that just want to use Workday to have one provider and just to have one supplier to go live.

But then in products such as financials, we are still continuing to do about 50% of the new implementations, the new deployments, and so as financials continues to grow, we'll still continue to have a large presence in professional services.

Sorry.

One last quick one from me.

Sorry about that.

A lot of clients are asking on the operating cash flow for Q4 and looks like receivables was the big drag there.

Can you talk a little bit, was there anything specific going on?

No, it was really just the result of the seasonal volumes for the fourth quarter.

Our DSO, as we calculate it, which is based on -- which includes the change in deferred revenue, was essentially the same as it was a year ago in the low 30s days category.

So no concerns with receivables.

Perfect.

Thank you.

Your next question comes from the line of Brent Thill with UBS.

Aneel, just wanted to follow up on Phil coming in to run sales.

Historically, when you have a change in sales management there's always been a transitional period.

It sounds, if I interpreted your comments in the call correctly, that there are really no major changes in quotas or alignment of sales force as Phil rolls on.

I just want to be clear that, that was the case.

No, Mike Stankey continues to run our worldwide field operations.

We had not had the role of worldwide sales before, so think of it is insertion of a new layer given how big the scale of our worldwide operations are now today.

But nothing else changes.

Okay.

And maybe if you could talk a little bit through the advancement as you move to Europe, what you're seeing there.

You laid out a few of the countries that you'd like to become bigger in, but now that one of your primary competitors has declared the cloud is the way to go, is this a sense evangelizing, helping potentially, some of the sales cycles move along a little faster than perhaps in the past where the traditional perpetual vendors really didn't evangelize at the level that they're moving now.

I think it's a very good question and absolutely, no one's debating cloud versus on-premise anymore.

It's about the validity of different vendors' cloud strategies and actually cloud offerings.

Not what they say they're going to do, but what they can do now.

That's really where we are today.

We can demonstrate customer success with customers in production in every part of the world and our competitors still struggle with that.

Thank you.

Your next question comes from the line of John DiFucci with Jefferies.

Thanks.

Quick question for Mark and then one for Aneel.

Mark, just back to the accounts receivables that Raimo mentioned, you had a sequential uptick of about $70 million versus last couple years, more like 5. Would it be logical to assume that this is because you had an uptick in large deals this year relative to the last two?

I know it's your fiscal fourth quarter and I assume you're doing more large deals and most of your deals are large deals anyway.

Did you see a difference this year and should we assume this to be supportive, this uptick, this greater uptick, to be supportive of cash flow next quarter?

Yes, it's certainly our expectation, John, is that it will be clearly a tailwind for us for cash flow for Q1 because we'll collect all of that increase.

In addition to just the increased volume that we had in the fourth quarter as we mentioned on the call, there was about 400 basis points more cash billed up front on contracts with this quarter which also had -- gave us a little bit of lift in both billings and in accounts receivable.

Okay.

And was the sequential uptick, did it have anything to do with more large deals or a greater mix of large deals this year than -- larger deals than the last couple?

More that we've always experienced in-quarter seasonality towards the back part of the quarter and so there's always an impact of if it didn't get booked before January it was going to end up in accounts receivable.

And so we had a heavier volume, heavier percentage of seasonality in the quarter touch in January this year than last.

Okay.

Great.

And Aneel, on the expansion and some of the movement into Germany specifically as the largest economy, or I don't know if the UK's the largest, but one of the largest economies in Europe, can you remind us where your data centers are.

I know at one point I think you had some operations in Amsterdam.

Can you remind us where they are in Europe and if that is an issue at all, if you have anything in Germany or if you plan to put anything in Germany, if that's been an issue at all for customers as to where your data centers actually reside.

I believe we have -- our two data centers are in the Netherlands and in Dublin.

To date, those have not been -- it's not been an issue selling to German companies.

It's still early on for us so we'll find out more and we'll go from there, but so far, so good.

They're far more focused on the data centers not being in the US rather than where they are in Europe.

Okay.

Great.

Thanks a lot, guys.

The next question comes from the line of Katherine Egbert with Piper Jaffray.

Hi, good afternoon.

At the risk of beating a dead horse, I just want to ask one more question about Europe.

How big of a market expansion would you say is it for you to go into Germany and Japan?

And then also, does your guidance for this fiscal year contemplate any FX as you move to more currencies?

So on the first ones, if you look at the G8 countries, Germany and Japan are both on that list.

A good proxy for the size of the market opportunity for us is the size of the economy.

So obviously those are two very big geographies that we really did not have much of a presence of the last few years.

In both cases we actually have large multi-nationals running big populations of employees or their finances in those countries.

The big change is that we're pursuing companies headquartered in those countries and we had a very big win in Japan with Fast Retailing.

I think you'll see us announce some big wins in Germany in the upcoming months.

The criteria's the same.

These companies are frustrated with their legacy systems.

They're looking for a better way and they're looking for a way to ensure that they get into production with their systems relatively quickly and we think we've got a great story for them and a great solution for them.

And Katherine, with respect to currency and guidance, it really relates more to billings, frankly, than revenue, just because of the subscription model.

We plan in local currency and we have a plan rate that doesn't change for each of the theater leaders, but then when we guided, we moved to spot rate and then our plan, as we take down contracts that are denominated in foreign currency, will be to hedge the future billings so that we don't have a lot of exposure outside of when the contract was signed as to future billings.

Okay.

So it sounds like guidance does take some of that into account.

At least at spot rates.

Got it.

Okay.

Thanks.

The next question comes from the line of Jason Maynard with Wells Fargo.

Hey, good afternoon, guys, and congratulations on a good closeout to the end of the year.

Aneel, I really had two questions and they were centered on first just cross-selling of additional products into the base.

I apologize if you guys covered this at the start of the call.

Just curious if there are any data points or metrics, trends that you're seeing in terms of uptake by your existing customers of recruiting, analytics, things of that nature.

And then the second piece of the question is, cross-selling with financials into HR and inter customer buying behavior.

Are they looking to buy both products simultaneously, or do you still see customers, are you seeing customers saying let's do HCM first (technical difficulty) with the cloud and then we'll go to financials.

Have we hit that point yet in the cycle where customers are looking to make a decision on both fronts?

Thank you.

I'd segment the market into the medium-size companies or the mid-market versus the large Fortune 500 companies.

The medium-sized companies are probably more prone to buy things as a platform.

They've got simpler businesses.

For them, having one solution covering all functional areas from one vendor is easy.

Large companies tend to do the projects separately.

We've seen some of the large companies do them together but I think post the ERP wave people are more focused on doing one thing at a time and getting them successful.

In terms of attach rate, whether it's part of the initial sale or a follow-on sale, recruiting has done extremely well.

Recruiting and payroll are our strongest products in terms of add-ons to HR.

We had a very good quarter in the fourth quarter for our analytics.

We signed up 12 new analytic -- 12 new customers for analytics, far and away our best quarter.

Our view is that's because of the announcement of the inside applications.

Previous to that, the big data platform was really a set of tools but our customers were really looking for applications.

With the emergence of the Insight applications they see real value from those solutions that they can use in the same way that they used the Workday apps for HR and finance.

So I would expect the trend on the analytic side to continue to improve and gain momentum.

Okay.

Great.

Thanks for the color.

Appreciate it.

Your next question comes from the line of Brian White with Cantor Fitzgerald.

Aneel, I'm wondering if you could set the stage for FY16 in terms of what Workday plans to accomplish in overseas markets?

How do we think about the growth overseas relative to the Company's total revenue guidance of up 42% to 45%.

I'll leave the second part for Mark.

Our strategy as we go into a new market is very simple.

We will land four or five accounts.

We'll get them successful, meaning we'll get them live.

We'll get them very referenceable and happy and then they help us open up the rest of the market.

It's the way we opened up the UK.

It's the way that we're opening up -- the way we opened up the Netherlands.

It's the way we're opening up France.

With France it's Lafarge and Sanofi.

It's the same way we'll open up Germany.

What's critical for us are to land those handful of accounts and, very importantly, get them into production quickly and happy because a happy customer is your best sales advocate.

So that's what we're doing, both in Germany and Japan.

And on the growth rates --

On the growth rates it's relatively straightforward.

We've established quotas for each of the geographies and each of -- to the extent we have verticals in E&G and in financials.

The core HCM product is still the lion's share of the overall quota in North America.

However, the growth rate is slower there just because of the product has been out there longer and it's a much larger number.

So the growth rates in Europe and in APAC will be stronger but it won't necessarily be reflected in revenue for some period of time until it builds.

I'd say the other dynamic that's happening is that the partners, especially our large global partners, are embracing us around the globe much more so than several years ago.

As we go into a new market like Germany, whether it's our big partners like Accenture, Deloitte, IBM, Aon Hewitt, PWC, KPMG, they don't need convincing that Workday is going to be successful in that market.

They're ready to make the investment and ramp their skills in that market and that's also a key enabler for future growth.

Great.

Thank you.

Your next question comes from the line of Steve Ashley with Robert Baird.

Steve, your line is open.

Please proceed with your question.

Thank you so much.

I would just like to ask on the core HCM product, how much mobile usage are you seeing from customers?

If you were to take a given cohort, does the amount of mobile usage from a customer change over time?

Thanks.

I think it's really customer by customer and it really depends on the IT philosophy of rolling out mobile capabilities.

We have customers, Mike Stankey mentioned that MGM is 80% mobile in their use of Workday.

We have people ranging that high.

And then there are other customers where they've been frankly slow to roll out mobile independent of Workday.

It really is based on that.

I can tell you within Workday, I personally do almost everything off the iPad and the iPhone.

I probably get on the desktop two or three times a month and I think that's what we aim for, that for most of the work that you need the to do, you can do it on the mobile devices.

The biggest improvement over the last few updates has been the push on mobile expenses.

We really can do everything you need to do for expenses on your phone, whether it's an Android or an iPhone.

That was high on the list and now we're seeing once again growing traction of the expenses product.

Terrific.

Thanks so much.

Operator, we're going to take two more questions, please.

Certainly.

Your next question comes from the line of Kirk Materne with Evercore.

This is actually Patrick [Falfone] on for Kirk.

Congratulations on a nice fiscal year.

Can you all talk about when some of the initial inside apps will be generally available?

And how are you all thinking about pricing there?

Thanks.

So they're going to -- the first wave are going to roll out during the rest of the year.

They don't necessarily have to be tied to a specific update but they probably will be.

You'll see them coming out with Workday 25 in more earnest.

We've got one right now in preview with customers, which is our retention application and when it's ready for release we'll put it out there.

Much like we price our other add-on modules, the way we'll price these inside applications it will be a percentage of HCM for the HCM apps; it will be a percentage of the finance suite for finance apps.

You'll get access to whatever inside apps are relevant to the underlying applications that you've already subscribed to.

Great.

Thanks.

Your final question comes from the line of Rob Breza with Sterne Agee.

This is Ryan McDonald on for Rob Breza.

First of all, can you discuss if you're seeing any changing dynamics in the competitive landscape, and particularly with SAP as their integration of Concur is taking place?

I would say we really haven't seen any real change.

They're both very aggressive on price.

I would say that if there's anything to pay attention to -- and I'd encourage all of you to dig in and see where these two companies have production references.

We now have our first wave of companies that failed deploying one of the two legacy cloud applications and then came to Workday and that's a good -- that's a trend that bodes well for us.

So again, it's not just about selling applications, it's getting customers live.

We've seen some of the projects that the legacy vendors fail and those customers will come back to Workday.

Finally, as you discuss the headcount increases that you're expecting to make for FY16, can you talk about what the primary areas you'll be adding headcount to this year?

Sure.

It's largely, when you look at a P&L, it's largely across the board.

But the focus will be on market expansion, and so on a percentage basis, so in Europe, Asia-Pacific, and also in product development as we continue to focus on financials, on Insight apps, on professional services automation and our other products.

So we're just continuing to grow and as I mentioned in the prepared remarks, we expect to be to 5,000 people by the end of next year.

Great.

Congrats again on the great quarter.

Okay.

Thanks, everyone.

We look forward to seeing you April 15th at our Analyst Day.

Again, we thank you for your participation in today's earnings call.

You may now disconnect and have a great day.