Workday Inc (WDAY) 2017 Q3 法說會逐字稿

Welcome to Workday's third-quarter FY17 earnings call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. With that, I will hand it over to James Redfern.

(technical difficulty) -- FY2017 earnings conference call. On the call, we have Aneel Bhusri, our CEO; Robynne Sisco, our CFO; Mark Peek and Phil Wilmington are Co-Presidents. Following Aneel and Robynne's 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 made on this call include forward-looking statements such as those with the words, will, believe, expect, anticipate and similar phrases that denote you 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, including non-GAAP operating profit and operating margins. These non-GAAP measures exclude the effect on our GAAP results of share-based compensation, employer payroll, tax-related items and employee stock transactions, amortization of acquisition related intangible assets and debt discount and issuance costs associated with our convertible notes. We will also discuss free cash flows, which are defined as cash flows from operations less certain capital expenditures other than owned real estate projects. 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.

In addition, on today's call, we will discuss forward outlooks and non-GAAP operating margins. A reconciliation of our forward outlook for non-GAAP operating margin with our forward-looking GAAP operating margin is not available without unreasonable efforts. As the quantification of stock-based compensation expense requires additional inputs such as number of shares granted and market price that are not ascertainable. 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 monthly.

The Webcast replay of this call will be available for the next 45 days on our Company website under the Investor Relations link. Our fourth-quarter quiet period begins at the close of business, January 15, 2017. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our FY2016. With that, let me hand it over to Aneel.

Thank you, James, and good afternoon, everyone. Thank you for joining our third-quarter analyst call today. I am pleased to report that Q3 was another strong quarter for Workday, as we saw healthy demand across all major geographies and industries. On the HCM front, we added great new customers including State Street Corporation; GE Appliances; Couche-Tard, the big retailer in Canada; Phillips Lighting, a spinout from existing customer, Phillips; Husqvarna with Deutschland in Germany; and KONE Corporation in Finland.

We also had an excellent quarter in terms of adoption of our financial suite of applications. As we mentioned at Workday Rising in September, we are thrilled to add Panera and Denny's to our growing list of large financials customers. Other additions in Q3 include Iowa State University, the Metropolitan Washington Airports Authority and Zillow.

Lastly, we also added a prominent large investment management company as a new financials customer. We will be disclosing their name in the upcoming months. As always, our key focus is bringing customers live successfully. More than 70% are in production, and recent deployments include Airbus Group, Centrica, First Financial Bank, ING Group, and Saint Luke's Health Systems.

In the third quarter, we also hosted our annual users conference, Workday Rising. The show was a smashing success by all accounts. Over 7,000 attendees including 4,300 customers representing 947 organizations. Additionally, we had over 600 prospects representing 254 organizations, our strongest prospect showing at Rising in the history of the Company. During the conference, we revealed our annual customer satisfaction rating, which this year came in at 97%. We continue to believe our ability to deliver high levels of customer success is a unique differentiator in our marketplace.

During Workday Rising, we also announced the general availability of three new products, Workday Planning, Workday Learning, and Workday Student. We are seeing strong demand across the board for these new applications, with particular excitement around Workday Planning. Indeed, one quarter of a move from its initial delivery, we have already signed up over 70 customers for our revolutionary new planning application. Just a few weeks ago, we had a similarly positive user conference in Barcelona for our European customers and prospects. Since the event technically happened in Q4, I will save the update on that event for our next earnings call.

I will end my comments with our view of the current market environment. During Q3, we saw no real change in the overall competitive dynamics in our key markets and our win rates against major competitors remain the same. We continue to lead with product differentiation, technology innovation, and real customer success, and this approach continues to work well for us.

However, one recent development worth mentioning is slippage of some large deals early in Q4. Specifically, we have seen a few multinational prospects delay their projects. Some may attribute the delay to global uncertainties, such as Brexit, the US presidential election and pending elections in other GA countries. We suspect and hope these are isolated events that will be short-lived, but felt it was noteworthy enough to mention on this call. Other than that, our pipeline for both HCM and financial product lines is healthy and growing as we head into the remainder of Q4 and then onto FY18. I will now pass it over to our great CFO, Robynne Sisco, who will share more color on the financial aspects of our business. Take it away, Robynne.

Thanks, Aneel. And good afternoon, everyone, and thank you for joining us. Let me start with our results for the third-quarter of FY2017. We were pleased to once again generate record quarterly revenues and solid derived billings growth. We continued to exhibit strong momentum in growing our business at scale, and we want to thank our employees for their continued dedication and our new and existing customers for their loyal support.

Our total revenue for the third quarter of FY17 was $410 million, an increase of 34% from a year ago. Within that number, subscription revenue grew 38% to $336 million. Our Q3 Professional Services revenue was $74 million or growth of 18%. Our total derived billings, which is the sum of revenue and the sequential change in total unearned revenue, were $454 million for the third quarter or growth of 33% over last year. Subscription billings, which is the sum of subscription revenue and the sequential change in total unearned revenue, grew 37% to $380 million.

Our non-GAAP operating profit for the third quarter was $4 million or an operating margin of 1%. This was better than we had expected and largely due to top line over-performance and slower than expected hiring during Q3. In the quarter, we did not see any material impact from FX changes, in general. While we are pleased with our margin performance in Q3, which indicates the increasing profitability of our model, we continue to prioritize top line growth over margins, given the large opportunities still ahead of us.

Our trailing 12-month operating cash flow for the quarter was $338 million, up 62% year over year. Our trailing 12-month free cash flow was $207 million, up 162% year over year. Note that in calculating our 12-month free cash flow, we have excluded $85 million related to our owned real estate investments as we consider such investments nonrecurring in nature.

We have over $1.9 billion of cash and marketable securities on our balance sheet, which continues to demonstrate the strength of our business and provides more than ample cash for our capital expansion and strategic M&A. In addition, total unearned revenue at the end of Q3 reached a milestone level of over $1 billion and is up 43% year over year. Current unearned revenue, which will be recognized over the next 12 months, was $900 million or annual growth of 44%.

The long-term nature of our contracts, combined with our high levels of customer satisfaction, is visible in our future subscription revenue and this continues to give us confidence in the sustained strength of our business. We added over 400 net new employees this quarter, bringing our total employee count to over 6,400. We continue to enjoy an employee turnover rate that we believe is among the lowest in our industry.

Let me now turn to guidance. As Aneel mentioned, during November, we saw expected close dates slip on some large contracts. These delays have impacted our subscription revenue estimates for Q4 and FY17. For FY17, we are raising the range of our estimated derived billings and now expect billings to be $1.887 billion to $1.892 billion or 32% growth. We estimate that our subscription revenue for FY17 will be $1.282 billion to $1.285 billion or growth of 38%. Additionally, we now expect Professional Services revenue for FY17 to be $278 million, representing growth of 19% and total revenue to be $1.560 billion to $1.563 billion, or 34% growth. We continue to expect annual backlog growth in excess of 50%.

Based on the FY17 guidance, we expect Q4 derived billings, which is the sum of total revenue and the sequential change in unearned revenue, to be approximately $630 million to $635 million or 25% to 26% annual growth. We expect Q4 subscription revenue to be $360 million to $363 million, or 38% to 39% growth year over year, with Professional Services growth slowing to 9% year over year to $67 million. As a result, we expect Q4 total revenue of between $427 million and $430 million or growth of 32% to 33%.

We continue to prioritize growth over margins while maintaining our long-term goal of 20% plus non-GAAP operating margins. We expect Q4 non-GAAP operating margins to be a loss of 2% to approximately breakeven, reflecting normal Q4 seasonality as annual sales compensation plans conclude. Our non-GAAP operating margin for FY17 is expected to be approximately 1%. The GAAP operating margin for the fourth quarter and FY17 is expected to be approximately 26 to 27 percentage points lower than the non-GAAP margin, due primarily to the impact of share-based compensation expense.

Let me turn to CapEx. When calculating our free cash flow, we are excluding owned real estate projects as we consider these to be nonrecurring in nature. Excluding these projects, our CapEx in the third quarter was $28 million and $131 million on a trailing 12-month basis. We expect CapEx for FY17, excluding owned real estate projects, to be approximately $150 million. We continue to expect capital expenses related to our owned real estate investment projects for FY17 to be approximately $125 million. We expect operating cash flow growth to approximate growth in billings for FY17.

While we are early in our FY18 planning cycle, we are currently modeling 30% subscription revenue growth next year, which takes into account our expectation of a continued headwind from flexible terms. We expect FY18 subscription billings growth to be in the mid-20s. Due to the compounding effect of increasing seasonality and variability in the timing of recurring and renewal billings, we currently expect Q1 subscription billings growth rate in the low-teens. We remain committed to measured incremental non-GAAP margin improvement in FY18. With that, I will turn the call over to the Operator for Q&A. Operator?

(Operator Instructions).

Brent Thill, UBS.

Thank you. Good afternoon. Aneel, just on some of the slipped deals you mentioned on the multinational side. Can you just give us a sense, did those deals -- are they technically won or are they still kind of going through the technical bake-off, if you will? And a quick follow-up for Robynne.

It is still early; it was just the first month of the quarter, and so we are still waiting to see how it plays out. I would say there were a handful of large multinationals, a couple in the financial services space, that are trying to figure out what Brexit means and now what our presidential election means to them. And they said hey, we are going to hold off on making a final decision. I think in both cases, we are selected, so it is not a competitive dynamic, it is much more of an uncertainty issue. And this is coming directly from the CEO of these companies.

Okay. And Robynne, just when you mentioned the 30% subscription growth for 2018 and the headwinds still on flexible terms, can you just help us understand what -- are you seeing more of the same in terms of behavior from customers asking for these flexible terms? Is that -- or has that increased as of late?

No, it has not increased. We just expect that we will continue along the path that we have been on all this year, into next year, and that the compounding effect of multiple years of doing this will not flip until FY19, where it becomes a net neutral.

Great, thank you.

Justin Furby, William Blair & Company.

Yes, thanks. Just a quick question for either Aneel or Phil. Just on the guidance for next year, the 30% growth, do you think that we have hit a point where HR and international and some of the other non-financial markets can sustain that growth? Or do you feel like for you to hit that number or beat it, financials has to become a more meaningful part of the mix next year? Can you give any sense for what that mix looks like today on a new business basis? Thanks.

I would say we are pleased with how Q3 shaped up from a bookings perspective on financials. Maybe we will give a year-end look at the end of Q4. I think we expect financials to continue to perform well next year, but we are not looking for any step functions, increase in growth in financials. The HR business is very healthy, and it is growing very rapidly outside the US and growing quite nicely in the US. So I think the 30% number is one we feel comfortable with for at least the next few years, depending on -- I think the business can continue to grow at a nice clip, and maybe even reaccelerate when the financials really becomes a bigger part of the business.

Okay, got it. And then just for Robynne, just to be clear, Robynne, is the idea that in that 30% guidance, is that another 5 points of headwind, or what is the right way to think about FY18 in terms of the headwinds that you are baking in? Thank you.

Yes, the headwind we expect next year is not dissimilar from what we have experienced this current year.

Okay, thank you.

Mark Murphy, JPMorgan.

Yes, thank you very much. So Aneel, heading into Q4, how are you handicapping the ability of your quota carriers to deliver successfully on those targets for Workday financials, which were structured into the quotas for your broader sales teams earlier this year? And then I have a quick follow-up.

I would probably defer that one to Phil. He is closer to that detail.

Let me make sure I understand the question. In terms of -- when you say handicapping, in terms of predicting the ability for the model to perform?

Yes, correct. I believe they were given a portion of their quota for this year was allocated to financials, in some manner of speaking, and so I am just -- I think there was a bit of a change in that structure coming into this year. I am wondering how you think it will play out.

I think quotas were not product-specific, but responsibilities to carry the product line, you are accurate, we gave the responsibility to the entire product line to the sales force. We are pleased with the number of platform deals and the progress there. We have seen, as we said, a little bit slower in the large end of the market by some of the pushback we see now. But overall, we are pleased with the progress that the model has provided, and I think it will work going forward.

Okay. And then as a follow-up, Aneel, I think we do not normally hear about deal slippage early in the quarter. I think commonly, we hear about that at the end of the quarter. I think because presumably, the deals could still be closed later in this quarter. So I am just wondering, are you conveying that it is just going to be a little more back-end loaded a quarter, or do you see the potential for that slippage to maybe extend a bit beyond the end of Q4 here into next year?

You know, I would say that I hope it is a back-end loaded quarter. We will see how this uncertainty subsides, and I would say we do not see any of that uncertainty in the mid-market, you know, medium-sized companies that are mostly US based. But people that -- entities that are global and particularly in financial services, they have expressed that uncertainty, and I think the dust will settle and we will end up on a really good note in Q4. But we are conservative, and when we see something happen in the marketplace, we feel like it is our duty to share that with investors.

Okay, thank you very much.

Raimo Lenschow, Barclays.

Thanks for taking my question. Two quick questions. Aneel, one of your competitors pointed out weakness in the HR space, weakness in the international side and they cited more issues around data, where the data is residing post Brexit, et cetera. Is that what you see, or is it really like more macroeconomic uncertainty that is playing out there? I saw you on stage yesterday at AWS, congratulations. It is now the second cloud provider that you are working with. How do you see long-term infrastructure strategy playing out now with two guys that you want to work with going forward? Thank you.

Sure. On the first one, the data sovereignty issues have not really been raised with Workday, and I think it is because we have such a good story in Europe for data sovereignty. We have the two data centers, and we have an ability for European customers to keep all of their data in Europe without having anything leaked back to the US. So that has not been an issue, and I would not call it macroeconomic concerns. I think it is macro-political concerns, waiting to see what happens in Italy, waiting to see what happens in France. There is just some uncertainty. I personally believe this uncertainty will go away, and it is early enough in the quarter where we can -- where we have time to make it up. But there is definitely uncertainty in the marketplace that, candidly, we have not seen from that political environment in quite some time.

Okay, and on the data center side?

Oh, on the data center side? We basically have two partnerships, one for [deb] test with IBM, public cloud with Amazon. In the case of Amazon and AWS, we are on the hook for delivering a pair of Canadian data centers, so we are going to launch in Canada with Amazon. I suspect for data sovereignty issues coming up, we will also have other customer-facing data center opportunities that will also go into the public cloud.

Our view is pretty simple. Over time, the players out there are building great infrastructure, and the more we can leverage it, rather than having to build it ourselves, the more it allows us to focus on building great applications. When we started Workday, there really was not a public cloud to leverage. Now as there is, we need to make sure that we take advantage of it so that we really can put our efforts into where we differentiate our products, and running infrastructure is not that. So I think you will -- you are not going to see any more announcements. I think we have pretty much set who we are going to work with, those two vendors, and from here on out, we are going to hopefully work more closely with both of them.

Perfect. Thank you.

Kirk Materne, Evercore ISI.

Yes, thanks very much. Aneel, I was wondering on the planning side, obviously, a great early start with 70 customers on planning. About how long is it going to take to get some of those customers into production to start sort of fueling or providing more of an example for others, that it works, and also start to make the financial sale potentially more strategic as you integrate planning into it? I am trying to get a sense on when we could start seeing some of these planning customers up and running. Thanks.

We will start seeing planning customers go live en masse in the Q1 time frame, is my best guess, based on our current set of go-lives. I think the more points -- proof points we have, the more people are buying into it; the message is definitely working. We have a lot of very exciting large companies in the pipeline for financials, and planning is a key component of it. We just need to see those through to fruition, see them close out. But it clearly changed the dynamic of the conversation, and I think going live with a bunch of customers in Q1 will only help that.

If I could ask a really quick other one to Robynne. Just with these infrastructure partnerships with IBM and now, AWS, does that change anything we should be thinking about from a CapEx perspective, longer term? I assume it probably does not move the needle all that dramatically, but I was just curious. Thanks.

Yes, that is right. In the short term, in the next several years, we do not expect any meaningful impact at all. Longer term, obviously, we hope that we will get margin improvement based on these partnerships.

Keith Weiss, Morgan Stanley.

Thank you guys for taking the question. Question about the guidance, particularly Q1 guidance and for FY18. Is there an extra layer of conservatism because of these slipped deals that are being applied to those guidance? You talked about renewal base. I guess another way of asking the question, would Q1, would that drop down and sufficient billings growth, would that be as steep if it was not for the conservatism around slipped deals, or is that more so just with renewal based dynamic?

Yes, it is really just about the compounding seasonality that we have in Q1, as we get more and more seasonal each year. And then you have variability in when renewals come up and other such things in the billings cycle. So it really does not have anything to do with the deal slippage that we are seeing today. And keep in mind that we are early in our planning cycle for 2018; we do the substantial amount of our FY17 business will be done in Q4, and so we really need to see how Q4 plays out. And we will give you more details about FY18 in the next earnings call.

Got it. So that is the level of seasonality that we should probably be thinking about longer term in our models, just Q1 being much more seasonal than we have seen historically?

Yes, that is correct.

Got it, and then maybe one for Aneel. In terms of some of the M&A activity that has been going on in the SI -- with your SI partners, could you talk to us about how some of those relationships are developing, post some of that acquisition? And whether the strengthening of those relationships is living up to your expectations?

Well, it is still early. The two big ones, Wipro's purchase of Appirio and Accenture's purchase of DayNine; I am not even sure of they have closed yet. But the early signals are pretty positive. They are both leaving -- Accenture and Wipro are both leaving Appirio and DayNine basically intact and letting them operate. And that is really what we had hoped they would do. We wanted them to let those well-functioning smaller organizations operate, but with the resources and connections of a large organization. So at this point, we are hopeful. It has definitely brought us into strategic conversations with both Accenture and Wipro. We love the fact that big players are doubling down on the Workday ecosystem. So far, so good is what I would say, but we are watching it very carefully.

Excellent. Thank you very much.

Heather Bellini, Goldman Sachs.

Great, thank you. Aneel, I had a question and I was wondering -- a little bit of a follow-up, I will attach to it. If we look back to since you went public, you had a tendency of really exceeding your full year forecast by a wide margin. And over the last few years, we have seen the magnitude of those beats compress. I am just wondering is this because financials maybe has taken a little bit longer to really take off than you thought, or is there something behind that, that we should be thinking about?

Honestly, I think it is more than anything else, it is just the law of large numbers. We are now a big organization, 6,400 people. We do a better job of planning, our market is easier to predict, and I think we come in pretty close to where we planned. I am very happy with where financials has taken off in the marketplace, in terms of platform deals in the mid-market. Would I like to see more traction in large enterprises? Absolutely.

To me, it is just a matter of time, and when that large enterprise market really takes off, right now, it is -- we are getting some nice wins like Denny's and Panera, and the big financial services company that we are not allowed to mention yet. I think as those companies go live, we are going to see a step function in the way that people adopt financials, and that will be an important point for us along our trajectory. I do not envision a world in three or four years where people are running SAP and Oracle and PeopleSoft financials systems; I just do not see that being the case. If you look at historically, the mid-market is where technology adoption happens first, we saw it. NetSuite's been successful; that market is already shifted over to the cloud. It is just a matter of time before the high-end shifts over, as well. When it happens, I think we have a pretty good sense, I would love to see it happen faster, but we do not control when the market flips.

Thank you.

Pat Walravens, GMP Securities.

Great, thank you. I have two. So Phil, just sort of big picture, I am wondering if you are satisfied with the performance of the sales organization and the changes you have made, and if there is anything else that you think -- any other changes you think you need to make for next year. And then I guess, maybe Aneel, so have you seen any benefits yet from Oracle's acquisition of NetSuite?

I guess on the first part, we are pleased with the progress of the sales force. I think there are always things that you are looking to do to improve and to make more efficient and effective your distribution channel, but I do not foresee any major changes that we would make going forward. We are pleased with the progress. I think staying the course, the additions that we will make will be in markets of expansion. We are very pleased with the progress we made in EMEA and APJ; we will continue to pursue those. But no major changes on the horizon.

On the NetSuite front, I would love to say yes to your question, but it is too early. It is too early. I think we will know a lot more -- ask that question again at the end of Q4 where we have some competes against NetSuite, and I think we will be able to answer that in a more definitive way.

Okay, will do. Thank you.

Karl Keirstead, Deutsche Bank.

Great, thanks. Aneel, you mentioned that with respect to financials, you are not really looking for a step function growth in FY18. But maybe I am wrong, but it feels like in prior calls, you sort of suggested we were getting closer to an inflection point, so I just want to clarify. Is this you being a little bit more conservative around the financial trajectory, perhaps in light of this uncertainty you flagged? Thank you.

No, no, and I did not say I did not expect -- if that is what came across, I do not know when it is going to happen, that step function. It could happen in FY18, all the signs are there in the pipeline. The pipeline has grown really nicely. We have seen the traction with planning. We have now got a large number of financial customers live on the system, so all the things are happening. When does a large number of Fortune 500 accounts close in the same quarter? I am not going to try to predict that. Do I think there is a chance that we have a step function in 20 -- in the next fiscal year? Absolutely. The market -- (multiple speakers).

Thank you.

The market is there.

Got it, understand. If I could do a follow-up with Robynne. Robynne, if I could just go back to Keith's question around the guide for Q1 subscription billings. It is a fairly marked change from the subscription billings growth you just posted. So do you mind just elaborating on the key reasons why it is decelerating so much, if it is seasonality, what is causing that? If it is renewal activity, what is causing that? Maybe a little more color might help us. Thank you.

Sure, so we are seeing increasing seasonality, more deals coming in the back half of the year, and we have seen that over multiple years. So we have a compounding effect of that happening. In addition to that, we have fairly significant variability in the renewals, as well as other things like, for example, if a customer pays more than one year ahead, then we will not get a billing the next year. So there is a lot of complexities with the billings, and when we look at the scheduled billings for Q1 of this year, they are a smaller proportion of our billings number than they were a year ago. So it is actually a lot of dynamics.

Okay, and is it also fair to say that you are not assuming that some of these slipped deals that Aneel talked about are going to close in Q1, that it will be 2Q or after? Is that also the case?

Well, the deals Aneel was talking about were really slippage from November to later in Q4. So not impactful to FY18, but impactful to our Q4 revenue estimates, given we will get less revenue on those deals since they will close later in the quarter.

Okay, I understand. Thank you both.

Alex Zukin, Piper Jaffray.

Hey, guys. Thanks for taking my question. I wanted to ask about the progress of your efforts to move down market. And particularly, also strategically, is it part of some of the uncertainty around the timing of this financials uptick in the -- at the larger enterprise level that is driving this push down market?

No, I think I have been pretty consistent on the earnings calls in the past. Our win rates against SAP and Oracle are quite a bit higher than they are against NetSuite and Ultimate. I think that is -- against NetSuite and Ultimate, they were both above 50% this quarter, but it is not as high as it is against SAP and Oracle. Frankly, it is because we are so focused on the high-end of the market, and yet there is a lot happening in the middle market, and it is just getting more competitive in that segment. The biggest impact there is reducing the cost of implementation. We have been bringing out new tooling. I think you are going to see the real focus on the mid-market, it is hard to make major changes during a sales year, go-to-market changes, programatic changes. I think you will see the real focus on what we are doing as we launch FY18, selling and support.

Got it, and then maybe one for Phil. This question has been asked a couple times. Just one more time, I guess. Do you anticipate -- from our partner checks, we picked up that you guys did beef up your financial overlay sales team. Would you consider at all a dedicated financial sales motion sometime next year?

I think the financial overlay decision we made is the right decision, and when you say we beefed it up, we did it at the beginning of the year. We are pleased with the progress that -- the expertise that, that brings to our regions. I think we stay focused on that being a strategy going forward.

Got it. Thanks, guys.

Steve Ashley, Robert W. Baird.

Great. Thanks very much. I was wondering if you would have any interest in quantifying the impact of the slipped deals to the billings guidance you gave to the fourth quarter.

No, I mean, really, the main impact was on revenue because we saw slippage within the quarter.

Right, okay. And then my other question --

We do not know how the deals will shake out, whether they will still close in this quarter or not, and we are just going to be conservative until we get better data.

Great. And then the other -- my follow-up is you are becoming more of a platform. You have acquired Platfora, you are offering data as a service. Does this change how you go to market, relative to the IT department, and does it change the timing and your relationship with them going forward? Thanks.

I think it probably elevates our visibility with IT earlier on in the sales cycle than just HR. The platform deal in itself does that. At the end of the day, when people look at Platfora, I think at first blush, they look at it as a vehicle for us to have a financial data warehouse. So really it -- what we see in the platform deals, is those are much more likely to get to, not just a CFO, but even to the CEO, and IT is a part of that. But if it gets to the CEO, it has to go through IT, as well. So that is really the dynamic we see, where early on, we were just really focused on HR accounts, we were selling to HR. We still had a deal with IT, but we did not really often have to go into the CEO's office. Frankly, we love going to the CEO's office. We get to position ourselves much more strategically, and that is the change with platform and both financials and a broader platform story.

Thank you.

We have time for two more questions. Ross MacMillan, RBC Capital Markets.

Thanks so much. One for Robynne, one for Aneel. Robynne, just so I am clear on this point, when you say that subscription billings growth next year will be in mid-20s. If we had not had the slipped deals, would we be thinking about the same growth rate just off a slightly higher base, or did you actually modify your thoughts at all around subscription billings next year as a result of these slipped deals? And then I have a follow-up.

We have not modified our current view of next year for these slipped deals that we saw in November. And again, it is early days, and Q4 and how we deliver in Q4, will have a significant impact on next year. So we will have better information for you on FY18 at next quarter's call.

Great. And Aneel, I wondered if you could just comment on the S4 HANA SEP public cloud edition that they plan on launching next year. I do not know if you have seen any of that in-market, but would just love your early thoughts around that. Thanks.

We have seen it in market from time to time. Until it is actually out and live in production, they are always -- I think both of our large competitors are really good at marketing well before the product is available. I do not see it being impactful. Frankly, I think as SAP gears up to launch financials in the cloud, that might be impactful in a positive way because it will signal that financials are truly going into the cloud. Right now, it is just us and Oracle competing for business.

I do not want to throw our competitors under the bus, as much as I would enjoy doing that. It is worth digging into both of these vendors, their ability to actually run these -- run their customer's data center operations, I mean run their data center operations for customers. I think if you dig out, you will find that there is quite a few problems as they move into the cloud.

Thanks.

Derrick Wood, Cowen and Company.

Aneel, just curious if this cautiousness you saw impacting Q4 on a few deals, is that really relegated to just a few deals? Or do you see the dialogue around the election uncertainty spreading in a broader way?

You know, I think time will tell. The good and the bad for me is I have had access to a lot of CEO's over the last couple months. I am part of a business council, and I really do not think anybody in the business council expected the US election to play out the way it did. Independent of who they wanted it to play out with, people did not see that coming. The rhetoric around trade agreements and some of the protectionism for Brexit, real issues as Brexit starts getting put into place for institutions that have a significant presence. Especially financial services institutions based in Europe, what that means to them.

So I believe this will dissipate, and I believe on our Q4 call, we will be talking on a very positive tone, but we saw enough of it that we felt like it was definitely worth flagging. And hopefully, it goes away, and we have two months to make sure it goes away, but our typical closing patterns on a -- for Q4 in terms of monthly, we saw it slip, so we wanted to highlight it to you.

Great. If I could squeeze one more in, Robynne. Just on Q3, I know we will see the domestic versus international in the Q, but can you give us any color as to how growth trended between the two geographies?

Yes, we had a strong showing oversees and so you should expect that, that international percent of revenue to continue to slowly tick-up. Obviously, we have the law of large numbers in the US, and so it will be a while before you see any major moves. But it should continue to trend upward.

Thank you.

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