Workday Inc (WDAY) 2019 Q3 法說會逐字稿

Welcome to Workday's Third Quarter Fiscal Year 2019 Earnings Call.

(Operator Instructions) And with that, I will hand it over to Mike Magaro, Vice President of Investor Relations.

Please go ahead.

Welcome to Workday's Third Quarter Fiscal 2019 Earnings Conference Call.

On the call, we have Aneel Bhusri, our CEO; Robynne Sisco, our Co-President and CFO; Chano Fernandez, our Co-President; and Tom Bogan, CEO, Adaptive Insights.

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 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 and documents we filed with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q for information on risks, uncertainties and assumptions 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, which we believe are useful as supplemental measures of Workday's performance.

These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.

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.

The webcast replay of this call will be available for the next 90 days on our company website under the Investor Relations link.

Also, the Customers page of our website includes a list of selected customers and is updated monthly.

Our fourth quarter quiet period begins on January 15, 2019.

Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2018.

And with that, let me hand it over to Aneel.

Thank you, Mike.

Good afternoon, everyone, and thank you for joining our Q3 earnings call.

I'm pleased to report that in our third quarter fiscal year 2019, we experienced an acceleration in net new ACV growth.

Our Human Capital Management business remains strong, and we had a great quarter for our Financial Management suite of applications.

Importantly, the business acceleration we enjoyed took place independent of the impact of the Adaptive Insights acquisition.

Starting with HCM.

We had another strong quarter as we continue to gain share in the market with an industry-leading true Cloud Platform, the deepest product capabilities, an unparalleled user experience and the highest level of customer success.

In Q3, some of the new HCM customers we added include Bank of Montréal, Glencore International and Piedmont Airlines, a subsidiary of American Airlines.

We continue to land marquee accounts partly due to our ability to support our customers' large volumes of data and transactions, a capability that neither of our legacy competitors has been able to consistently demonstrate in the cloud.

In Q3, we also saw accelerated growth for the Workday Financial Management suite of applications.

Subscription revenue once again grew over 50% with net new ACV of core financials growing over 60%.

We believe that a combination of our expanded set of offerings, the increasing acceptance of the cloud by the office of the CFO and our ever-increasing cohort of financial customers and production are collectively driving broader adoption of our Financial Management applications.

New Workday Financial Management customers in Q3 included Atlanta Braves Baseball, Spectrum Health, H&R Block, FOX and a large U.S.-based financial services organization.

In addition to the strong growth from our core finance suite of applications, Q3 was our first quarter with Adaptive Insights as part of Workday.

I'm pleased to report we got off to a great start together, accelerating the pace of adoption of cloud planning with early success in (inaudible) Adaptive Insights product to large enterprise customers.

Indeed, the early feedback on the Adaptive Business Planning Cloud offering from customers and prospects alike has been very positive with high interest and enthusiasm for the Adaptive offerings, and we are actively working to migrating many of our Workday Planning customers to Adaptive.

We're committed to unifying Adaptive Insights with Workday (inaudible).

While we continue to support Adaptive integrations with all ERP systems, we are on track for a 12- to 15-month delivery of the Power of One, which will benefit our customers with access to one source for data, one security model, one user experience and, of course, one Workday community that enables them to plan, execute and analyze on one platform.

And lastly, in Q3, we also experienced strong growth in our medium enterprise segment of our business.

As many of you know, we announced the Workday Launch program last year, which introduced fixed-fee, preconfigured application packages for U.S.-based medium enterprises.

Our ability to offer a full platform solution across HR, payroll and finance with lower implementation costs have enhanced our already strong competitive position and accelerated our growth in that segment of the market.

With the success of Workday Launch in the U.S., we are now planning to take that program overseas in fiscal year '20 to target medium enterprise businesses outside the U.S.

Our momentum and customer success was best captured at our annual user conferences: Workday Rising U.S. and in Europe.

Between our U.S. conference in Las Vegas last month and our European conference in Vienna 2 weeks ago, we welcomed more than 13,000 attendees, including almost 8,500 customer attendees, representing approximately 1,700 organizations.

At Workday Rising, we once again revealed our annual customer satisfaction rating, which came in at 98%.

As you hopefully know by now, customer success is a core value (inaudible), and the Workday team works hard every day to help our customers run their business more efficiently and make better decisions along the way.

On the product front, we continue to push technology innovation with our most recent focus on embedding AI and machine learning [fabric with] the Workday platform.

With Workday Prism Analytics, data hub (inaudible), we're leveraging the acquisition of (inaudible) to offer Workday People Analytics, a new application that will give executives, organization leaders and HR business partners a view into the most critical trends in their workforce and an understanding of the most likely drivers of those trends.

And we'll leverage powerful artificial intelligence, machine learning and augmented analytics technologies to provide dynamically created metrics accompanied by explanatory narratives, what we call stories.

Our customers continue to benefit from our continuous innovation cycle.

During the quarter, we announced the availability of Workday 31, which among the many new features included skills cloud, our university skills ontology that helps organizations cleanse, understand and relate job skills data.

We believe our investment in innovation and our (inaudible) will continue to pay off.

In the quarter, we were ranked #1 on Fortune's Future 50 list, which recognizes the world's most forward-looking innovative companies that are best (inaudible) future.

From day 1, innovation has been in our core (inaudible), from the products built to the culture we foster, we've always had our eyes set on (inaudible) our customers, our industry into the future.

And employees (inaudible) #1 core value.

Happy employees build the best product to make customers happy.

On that note, I'm also pleased to share that Fortune and Great Place to Work announced this month that Workday is #3 on the list of 100 Best Workplaces for Women.

As we look to the future, we have firmly established our leadership in HCM where we differentiate ourselves through innovation, scalability and [customer flexibility] and expect to continue to gain market share globally.

And we are an early leader in cloud financial management with a strong set of offering for CFOs who are looking to modernize their financial analysis and planning systems.

Both HCM and Financial Management will continue to be the primary drivers of growth near term, with a strong foundation for future growth drivers in Workday Prism Analytics, Adaptive Insights, Business Planning Cloud and the Workday Cloud Platform.

All in all, a great quarter with strong momentum heading into Q4 and the year-end.

And now over to you, Robynne.

Thanks, Aneel, and good afternoon, everyone.

As Aneel discussed, we delivered strong performance in Q3 resulting in accelerated growth across our core business metrics and giving us great momentum heading into year-end.

On today's call, I'll touch on the highlights from our third quarter, update our guidance for Q4 and provide a preliminary high-level view of FY '20.

Given this is our first quarter with Adaptive Insights, we are providing an additional level of transparency during this call to assist in your understanding of how Adaptive Insights impacted our Q3 results across our [own] key metrics.

Internally, however, we are not tracking Adaptive Insights differently from any other products, so you should not expect us to guide or report [any] metric separately going forward.

Instead, [as a key] product, we will give you milestone updates as and when it makes sense to do so.

For Q3, we delivered total revenue of $743 million, reflecting year-over-year growth of 34%.

Our Q3 subscription revenue was $124 million, up 35% year-over-year.

Approximately $4 million of the overperformance is attributable to the finalization of the deferred revenue haircut related to the Adaptive Insights acquisition.

The remaining upside was driven by very strong performance across our product suite.

Revenue outside the U.S. was up 47% to $170 million, representing 23% of total revenue.

Subscription revenue backlog was $5.9 billion, growth of 31% year-over-year.

Approximately $140 million of this increase or 3 percentage points growth relates to the inclusion of the Adaptive Insights backlog balance.

The remaining growth was driven by an acceleration of net new bookings growth, including a few deals that pulled in from Q4 and very strong renewals with net retention once again over 100%.

Our 24 months subscription backlog was $4.02 billion, a growth of 31%.

Approximately $125 million or 4 points of growth relates to the inclusion of Adaptive Insights.

Our non-GAAP operating profit for the third quarter was $49.7 million, an operating margin of 6.7%.

The margin upside from our guidance was primarily a result of the strong revenue performance.

Third quarter cash flow from operations was $114 million.

As we noted in our guidance last quarter, cash flow in the second half of this year is impacted by onetime acquisition-related payments with the majority of the impact occurring in Q3.

Total unearned revenue at the end of Q3 grew 28% year-over-year to $1.57 billion.

Current unearned revenue was $1.46 billion, up 29% year-over-year.

Our biggest investment continues to be in our people and in attracting top talent to Workday.

During Q3, we successfully added and integrated over 1,000 net new employees, including over 500 from Adaptive Insights, bringing our total workforce at the end of the quarter to over 10,200.

We are very pleased with our operational execution in Q3 and feel well positioned going into our historically strongest quarter.

Now let's turn to guidance.

The continued strength in our business is allowing us to raise our Q4 and fiscal 2019 outlook as follows: For subscription revenue, we're raising our full year estimate to be in the range of $2.375 billion to $2.377 billion or growth of 33%.

We expect our Q4 subscription revenue to be $663 million to $665 million or 35% to 36% growth.

We expect professional services revenue to be approximately $433 million in fiscal 2019 and $112 million in Q4.

We, therefore, estimate that total revenue for fiscal 2019 will be $2.808 billion to $2.810 billion or growth of 31% with Q4 total revenue in the range of $775 million to $777 million or growth of 33%.

We are expecting non-GAAP operating margins of approximately 10% for both Q4 and the full year.

The GAAP operating margins are expected to be lower than the non-GAAP margins by approximately 27 percentage points in both Q4 and fiscal '19.

Given the strength in the business, we now forecast short-term unearned revenue to grow approximately 26% in Q4.

We are maintaining our operating cash flow guidance of $550 million for the full year but believe there may be some upside to that number depending on Q4 linearity and timing of collections.

We are also maintaining our capital expenditure guidance for the year of $200 million for our owned real estate projects and another $200 million for all other CapEx.

Please note that next year we will no longer be providing color around short-term unearned revenue growth rates.

We did this in fiscal '19 as a bridge until our peers transition to the new reporting requirements around the remaining performance obligations, what we call subscription revenue backlog.

While this new metric is not perfect, we believe it's a better gauge of the health of our business over the long term, primarily because unlike unearned revenue and billings, it's not impacted by varying contractual invoicing terms.

While we are early in our FY '20 planning cycle and still have an important Q4 to close, we'd like to provide a preliminary and high-level view of FY '20.

We remain confident in our ability to sustain strong long-term revenue growth given the secular market trends towards cloud adoption and our established leadership position.

We are currently planning for FY '20 subscription revenue of approximately $3.0 billion to $3.01 billion.

We continue to expect pronounced and compounding seasonality towards Q4 with our Q1 being the seasonally slowest in terms of net new bookings.

We'd expect subscription revenue in Q1 of FY '20 to grow approximately 4% sequentially from Q4.

We continue to prioritize growth over margin expansion and have made and will continue to make significant product and other investments next year and beyond.

While FY '20 still faces some margin headwinds from the Adaptive acquisition, we do expect to return to more normal levels of operating margin expansion.

We are currently planning for FY '20 non-GAAP operating margin of 12%, which represents an estimated 200 basis points improvement year-over-year.

With that, I'll close by thanking our amazing customers, partners and employees for their continued support and hard work, which allowed us to deliver great results in the third quarter and have set us up for a strong finish to the year.

Operator, let's now begin the Q&A process.

(Operator Instructions) Your first question comes from the line of Brad Zelnick from Credit Suisse.

This is Kevin Ma on for Brad Zelnick.

I just wanted to ask on pro services that reaccelerated pretty substantially this quarter.

You've been taking out what you originally guided for the Adaptive contribution.

Can you give us any color on how much of that was from incremental synergies and uptake in financials or any other drivers?

Yes.

So what you see in the pro serv growth is kind of seasonal patterns that are pretty normal for us.

That number can ebb and flow based on the number of implementations going on at any given time, how many of those were priming.

So really, just normal, normal levels of growth there.

Your next question comes from the line of Mark Murphy with JPMorgan.

I was trying to ask you on the platform deals that our fieldwork has been showing a real increase there on the deals that include both HR and Financials.

And it's been not only in the mid-market, but also in the portion of enterprise that kind of gets up towards 10,000 or 20,000 employees.

So just curious from what you're seeing how tangible is that trend toward the platform purchases if you look at the bookings mix.

And then when you take a look at the pipeline for next year, do you see that accelerating in terms of the platform consideration?

Well, there's no question that for medium enterprise buyers really for the last several years that the platform solution is a really popular solution.

They need to move HR and finance to the cloud.

They prefer not to have 2 different systems.

They'd rather have one unified system.

And now what we're seeing is that trend begin to move upmarket, probably more driven by financials moving upmarket.

And so I would expect that to continue and to become a bigger part of our business.

Chano, do you have anything to add?

No, I think that's correct.

From a pipeline perspective, the Financial Management continues to grow as a percentage of the mix.

Although given, of course, the sustained solid growth in HCM, the mix shift is moving slowly.

Okay.

And Chano, if I may, just a quick follow-up.

I think at Rising, you commented that the pipeline was particularly strong for Q4, so I think it's a little surprising to see kind of the blowout results in Q3.

Is the confidence in Q4 equally high?

Or were the deals that pulled into Q3 material enough to kind of change that Q4 setup at all?

Thank you, Mark.

I think we commented we pulled in some business forward from our Q4 quarter, but we have similar levels of pipeline coverage as of last year.

So I think it's going to be a question of execution.

It's still early in the quarter, but we're positive about the outlook.

Your next question comes from the line of Keith Weiss with Morgan Stanley.

This is Stan for Keith.

I had 2 questions.

First on international, on the 47% growth there, it seems like that's getting a lot of momentum.

Aneel, you mentioned about the opportunity to further penetrate the mid-market, but any sort of color you can provide on what's driving the strength in the international side of the house?

Was it new HCM wins or further expansion of the base?

Any detail there would be appreciated.

I'd turn that question over to Chano.

We are happy with the momentum in the international business, the foundation that we have created and the strong customer referenceability, and we had a hugely successful Rising Europe in Vienna.

Our footprint across Europe and Asia is really still expanding, and it's early days as those markets are behind the U.S. in terms of cloud adoption, which is clearly a great opportunity over time.

I believe there are a couple of emerging geographies where we still have work ahead of us in terms of establishing consistency, but we are very focused on improving the great opportunity ahead of us in international.

I appreciate the comments, Chano.

And then maybe as my follow-up, Aneel, you mentioned net new ACV growth of 60%-plus in Financial Management is sort of ahead of revenue growth.

And could we -- I know we've been hesitant to call this out before, but it feels like a bit of an inflection.

And I was wondering how you are sort of interpreting the strong Financial Management performance this quarter.

Does this feel like a different type of environment for Financial Management versus some of the previous times where we've seen a bit of an uptick and then maybe a little bit of a leveling out?

Any sort of comments there?

Well, I'm going to be careful to not draw any conclusions from one quarter.

We have been growing the business at over a 50% clip on the subscription revenue side now for quite some time.

The medium enterprise business continues to be very strong for financials.

I think sometimes people discount how good that opportunity is for us, not just in the U.S., but across the globe.

And we are continuing to see the move amongst large enterprises.

I won't say that all Fortune 500 accounts are showing up at once, but the rate of Fortune 500 accounts showing up to evaluate financials for the cloud is definitely picking up.

So ask again after every quarter and we can start looking at patterns, but I don't want to draw any conclusions just out of one quarter, but very pleased.

I do think that one of the things that CFOs are paying attention to by nature are fairly risk-averse crowd.

We're now over 500 customers who are using Workday Financials, and I think 70% of them are live and in production.

And so now there's a cohort of very happy customers using the system to close their books and run their business, so CFOs can ask their peers about Workday and financials in the cloud.

And a few years ago, that was a much smaller universe of companies you could talk to.

Your next question comes from the line of Justin Furby with William Blair & Company.

I guess, I just wanted to follow up on the financials commentary.

I guess, if you look competitively, Aneel or Chano, what -- how do you feel about sort of your win rate in that market versus what you see on the HR side of things?

And I'm curious, I know it's pretty early with Adaptive, but what the conversations -- if those conversations have changed at all now that, that business is inside of Workday and how that changes the dynamic, particularly in the enterprise if it's changed at all yet?

So on the first one, our win rates are relatively similar for HR and finance, and that's been the case for quite some time.

In the finance market, there are -- the only overlap and really main competitors in the finance is Oracle.

SAP doesn't have a product in the cloud.

Ultimate is just an HR competitor, and we see NetSuite less and less.

So it is a slightly different competitive landscape, but our win rates are pretty similar.

In terms of Adaptive, there's a high degree of interest amongst the Workday enterprise customers in Adaptive Insights, not just the ones who had already signed up for Planning, but ones that our HR customers maybe not quite ready to switch out core financials but looking at Planning as a first step to moving financials into the cloud.

So Tom and I couldn't be more thrilled as to how the Adaptive products are being received by the historical Workday customer base.

Tom, do you want to add anything to that?

Yes, I think that's right, Aneel.

I think both the receptivity on the part of the Workday customers who bought Planning and the conversations we've had with them in terms of moving to the Adaptive platform.

But I think from an Adaptive perspective, what we've seen is a lot of interest in the Workday large enterprise customer base, and we've had a number of conversations that are certainly in many cases in the early stages, but they've been extremely constructive, and we're very optimistic about the potential to grow that business as we move forward.

Okay.

Great.

Super helpful.

And then just as a follow-up either for Aneel or Chano, I know that you've been sort of throttling the selling effort on Prism this year.

When you look out to next year, I'm just curious sort of what your expectations are there.

And then Student is one that I don't know if we've talked about in sometime, but it seems like that's getting closer to a market that's starting to inflect.

And just curious, sort of those 2 products, Prism and Student, how you think about them for next year.

So I would say on Prism, we're less and less throttling our willingness to sell.

It's much more about making sure that the use cases fit where we are with the products, but the product line is one of the fastest-growing product lines from a net new ACV perspective we've ever seen.

Can I say what numbers, Robynne?

I mean, it's...

Triple digits.

Triple-digit year-over-year growth.

And as we begin to mature the capabilities and grow the use cases, we honestly expect that to continue.

And as we've done some analysis, we've had one of our longtime strategy folks, Derek Butts, do some real analysis on many of our new initiatives.

And one of the surprises was the upside we see on the Prism business as we turn an offering into a product line.

And People Analytics is one of those first steps to turning it into a product line.

There's a clear path to building a billion-dollar business there on Prism that might not have been as obvious to us a little while ago.

In terms of student systems, we're very focused on getting the first 4 or 5 large universities into production.

And after that, we can think more about scaling the business, but that's where we are right now, very focused on building out the capabilities and getting those large universities live in the coming quarters.

Your next question comes from the line of Alex Zukin with Piper Jaffray.

Just 2 for me.

So maybe first, Aneel, on financials, can you talk about the activity around selling into the HR base versus net new logos?

And then as you think about the pipeline for both 4Q and next year, how do you think about it in terms of -- or how does it compare in terms of the mid-market financials versus the enterprise financials business?

And then a quick follow-up on Adaptive.

So basically additional HR into HR.

Well, financials into the HR customer base.

And I think additional HR into HR.

Yes.

Alex, this is Chano speaking.

Regarding financials into our customer base, we are very happy with the progress there.

We clearly have the mapping within our key verticals.

And I would say that we have great engagement with the majority of the customers.

Clearly, how are those going to be falling on particular quarters is yet to be seen, but the progress is on a positive track.

In terms of our HR add-on business or additional extensions of the product set into the customer base, if I understood your question correctly, I would say that since the setup of the go-to-market customers base in this year, we have seen a good acceleration of business there, especially after our customer base is more significant and is growing and particularly taking advantage of being a happy customer base.

Got it.

And maybe just on the pipeline, just finishing up on the second part of that question, in terms of financials on mid-market versus enterprise.

I would say both are similarly -- basically similar percentage or similar mix as we've been having before, so there is good activity in both levels.

Clearly, since our launch of our go-to-market into medium enterprise launch activities, the mid-enterprise has been -- taken significant traction in terms of the offering and not only the subscription but basically the implementation of fixed-fee services, and we're taking time to value there, really shortening and really good customer base and basically referenceability.

So that is tracking very well.

We continue to do well in terms of the large enterprise momentum and activity both in the U.S. and international.

Perfect.

And then Robynne, just a quick follow-up on Adaptive if I may.

Is it possible to get just a contribution to subscription revenue, revenue and deferred revenue or unearned revenue in the quarter from Adaptive?

Well, so if you recall last quarter, we did talk about what we felt the contributions from Adaptive would be in terms of subscription revenue, and we were 4 million ahead of that number this quarter because of the finalization of the deferred revenue haircut, which came in lower than we had originally anticipated.

We mentioned also at the time last quarter that we expected Adaptive to contribute [$24 million in Q4.

That number would now be $27 million] at the time last quarter that we expected Adaptive (corrected by company after the call) with the change in the haircut value, but we're actually not going to be updating those numbers now or going forward.

Because as you can imagine, given the cross-selling of the product across both companies, the lines have really already blurred in terms of what's purely Adaptive and what's organic Workday.

So we don't think that makes sense to break out anymore.

In terms of unearned, we also gave color last quarter that we expected 25% short-term unearned growth for Q3 and Q4.

3 percentage points of that were attributable to Adaptive, including their balances into our balance sheet.

And so all of the upside from that, both the 29% we delivered this quarter and the 26 we're guiding for next quarter is strength across our product suite that we're expecting.

Your next question comes from the line of Ross MacMillan with RBC Capital Markets.

Aneel, I'm just curious, your HCM momentum remains very strong, and you made commentary I think back at -- the management team made commentary at Rising about how much was still left in the Fortune 500, Global 2000.

And I just wondered from your perspective how do you think about the durability of that HCM business in terms of sustaining what you would like to see as a target rate of growth?

I think it continues to be a very healthy business.

We're not quite yet at 200 of the Fortune 500.

We're at 50% of the Fortune 50.

I think we can do -- I think we can do a lot better.

Without being negative on our competition, the reality is they don't have proof points of large companies in production and we're beginning to -- where we continue to see the network effect of large companies who are happy with Workday referencing to other large companies who haven't made a choice yet in the cloud.

So I think there's still a lot of opportunity for us, especially as we get outside North America, where depending on the geography, they're 3 to 5 years behind in cloud adoption, and they're looking across the globe to see what their peers have done.

A multinational thinks like a multinational, independent of where they're based, and they want to have successful deployments.

And as you look at the multinationals in the other geographies and they see a lot of successful Workday deployments, it's impacting their decisions.

So there's still a lot of opportunity in front of us.

I'd add the other piece.

What we saw in Q3 with the success of medium enterprise really accelerating growth as well with the Workday Launch program reducing the cost of implementation, most of the world outside of the top -- the largest 10 countries, most of the world is a medium enterprise world.

Even in markets like Germany, the bulk of the economy is driven by a group called Mittelstand, basically the bulk of the economy are medium enterprise companies.

And now that we've got a better cost story there on the implementation side, I think it opens up that opportunity as well.

That's great.

And then just to follow up, Robynne.

Just you mentioned a few things that impacted the strength in the quarter, net new bookings, accelerations and deal pull forward and then renewals.

Just on renewals, were you saying renewals that pulled forward or just renewals were at very healthy levels, maybe were larger?

What was the implication you were trying to drive on renewals?

Yes.

Just renewals that came up within the quarter were very strong, and we continue to meet or exceed our target of 100% net renewal and 95% gross renewals.

So we're very pleased with our renewal performance in Q3.

Your next question comes from the line of Richard Davis with Canaccord.

So we sent our guys in the field to talk to some of the vendors and stuff, and we were asking about like digital transformation and stuff.

The most interesting was they couldn't really -- a lot of -- they've got different definitions of it, right?

So -- and then the other question that we had -- we asked was, when they did have troubles with that, they had -- the biggest hangup was when HR and finance were not like working as a team.

So Aneel, you've been around long enough to see this before as, whatever, reengineering problem.

Where are we in that process in the market in terms of educating people on this?

I mean, it's more than cloud.

But where do you draw the line?

And where do you pull in your systems integrators?

And how do you see that evolving?

I think in particular -- it's a great question, Richard.

In particular, in companies that are not manufacturing companies but people-based industries, HR and finance need to work absolutely hand-in-hand because the biggest asset and the biggest expense for these companies are their people.

So we definitely see that as a big advantage for us, and we see companies beginning to leverage what they did in HR and say, hey, we've already got the work structures in place.

We've got the security model in place.

Why not look at Workday first for financials, and we would have all the unified reporting and analytics we'd like.

And then you throw in Adaptive Planning, and we've got effectively our business operating system while working together.

So I think it's beginning to play that way.

And for companies that haven't chosen to do HR until now, they're definitely looking at HR and finance together where 5 years ago people were just not doing that.

They were just looking at HR.

So I do think that digitization and reengineering as both product lines become market ready or have been market ready happening together is a real positive trend.

Your next question comes from the line of Kash Rangan with Bank of America.

I guess, I'll ask the macro question since I assume it's not been asked.

So Aneel, I think last year or maybe 2 years back, you were rightly prophetic in the caution that you saw going into Q4 results, and it ended up that the business environment was largely more supportive than we all feared.

And we had a nice 2-year run.

Now we're back again at those kinds of crossroads with a similar list of topics that are not pertinent necessarily to Workday but to investors that keep wondering if this good stretch of results can really sustain the momentum going into calendar '19.

So since you have the purview of talking to decision-makers, CFOs, CEOs that really -- and your product touches practically millions and millions of end users, what is your feel for what's on the minds of CEOs and CFOs as they prioritize Workday in their budgets account in '19?

What are the things that you're hearing from your customers specifically?

I generally hear that business is good, and the uncertainty in the global political environment gives them pause.

And I just don't know how much of what gives them pause is just rhetoric.

Some companies are worried about the aspects of a potential trade war.

So will that factor in the way they're thinking?

Well, right now, it seems like bluster back and forth.

So I would say if you just separate out the business cycles, it still seems like we're in a good part of the global growth economy cycle.

I mean, it seems like most economies are doing well.

I think Europe is doing surprisingly well based on what people expect it to be doing, but there's this hangover off uncertainty coming from the political environment that's not just limited to the U.S. but somewhat happening everywhere.

And I don't think any of us really know how to factor that in or predict it.

So I would say stay tuned.

And right now, we're just trying to ignore it and the world -- the new normal in the world is political volatility and, hopefully, doesn't have a huge amount of impact on our business.

Your next question comes from the line of Scott Berg with Needham.

I guess, I just have one at the moment, and I don't know if Aneel or Chano want to take it.

But can you tell us about some of the lessons you've learned with Adaptive in the portfolio today with regards to how it can help you solve financials going forward?

I know we all know it's going to help that platform generically over the next 2 to 3 years as customers become more comfortable with that entire ecosystem, but is there maybe a direct tie that you can tie it from one to the other?

Well, I'd say the number one takeaway so far is our companies have very, very -- we had hoped that they had very similar value systems and cultures, and they do.

And if you look at the history of acquisitions in the technology field in particular, I think that's the biggest determinant of success and failure.

So from that part, the 2 companies are working extremely well.

I think, largely, the thesis that Planning was going to open the doors for Workday have played out, and the other thing that we knew going in is that Adaptive Planning was far ahead of Workday Planning has turned out to be true, which is why we put all of our eggs in the Adaptive Planning basket and why we're moving capabilities like sales planning and workforce planning to Adaptive.

It's all played out.

And what we were hoping to see was interest in large enterprises in the Adaptive product who had been historically Workday customers.

And all those things have happened.

So Tom and I, we're talking about it earlier today.

It's really played out the way we had hoped to play out, and that's not always the case with 2 companies coming together, so feel very fortunate.

You want to add anything, Tom?

Just that there's -- we continue to have momentum.

We added approximately 200 new customers this quarter, and we agreed that there's a great opportunity to sell financials behind that.

Most of those customer additions are stand-alone customers, but we've also seen a lot of residents, a lot of interest as I said earlier in existing Workday customers and the opportunity to sell Adaptive to those customers.

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

Maybe actually for Tom, just to follow up on that line of thinking around the 200 customers you have.

It seems to us, talking to a lot of the partners in the field that right now planning is something that CFOs are very engaged in and talking about.

Do you -- is there any way that you can sort of give, I don't know, a guesstimate or some of your thoughts on after someone buys in the Planning or connect their planning vision, how long after that do you think they're ready to make another decision around financials?

Because it seems like an incredible way for you guys to have just that much more dialogue with CFOs, and ultimately -- so that when ultimately they decide to move their general ledger to the cloud, you're involved in that account.

So I don't know, I'm just trying to get a sense on it.

Is there a 6 to 8 quarter lag before they're ready to make another decision in financials?

Or can it come faster based on similar experience or your conversations?

Yes.

I think we do see the thesis that companies are willing to move to a cloud-based planning system earlier than perhaps they are with financials.

We do see that playing out.

So we're very encouraged by the conversations we've had with customers and prospects around moving their planning to the cloud.

I think the decisions around when they're ready to move their financials to the cloud are really dependent company to company.

And while I agree that there are opportunities, particularly when we have satisfied customers and we do an effective job of engaging with those customers, we believe that will result in follow-up on opportunities in financials.

But Chano, I'd say that the timing is probably a little bit more customer situational.

I agree, Tom.

Kirk, I think the most important thing is the feedback we're getting from our prospects and customers so far regarding the capabilities and scalability of Adaptive Planning Cloud is super positive.

That, I think, is kind of really relevant.

If you think that -- it's early days, but we had a quarter where we were in double digits, so Planning customers over 10,000 employees.

Clearly, some of those are not yet financial customers, but we expect that some of those are going to see time to value on Planning on 4 to 6 months time frame cycles of implementations.

And I think we'd be in a great position to go back and have a discussion about our point of view and why it makes sense to extend.

And there is a good business value and benefits in taking on to the full financial platform, but it's early days.

So I guess we'll be learning, but we're very excited how it is looking.

And maybe just one follow-up actually on financials, which seems to be building some momentum.

I guess, when you look at the acceleration in that, is there any one particular vertical that seems to be sort of taking off in front of some of the others.

I know you guys have 9 that you focus on.

Are you seeing a lift kind of across all 9 or a few kind of pulling ahead based on either just more customer references in those?

I'm just kind of curious if you have the entire sort of strategies moving ahead or there's a couple that are going to be sort of lead dogs in this movement longer term?

Well, financial services has definitely began to pick up.

There's no question about that.

Business services was already an interesting segment as was the tech segment.

But financial services has been slow to move to the cloud and not just for finance but for HR, and I'd say that's the area that's picking up very nicely.

And that's a huge market for financials.

The other one I would say, Aneel, is the (inaudible) were core verticals on health care.

(inaudible) has been clearly PSA, professional services automation, around more business services, that seems to be performing really well given now the strength of our solution portfolio there.

We will take our final question from John DiFucci with Jefferies.

This is Samad Samana on for John.

Just a couple of questions.

First, you mentioned the acceleration of net new ACV.

I was wondering if you could maybe give us some additional color on whether it accelerated when you look at it broken out for mid-market and enterprise and maybe by geo.

And then did it accelerate both for HCM and financials?

And then I have a follow-up question.

All of the above.

It accelerated across the board.

Okay, great.

And then just one follow-up.

I think at Rising Europe, in the Q&A, I think, Aneel, you mentioned that the company had 100 customers for Prism already and about half of those are in production.

I'm curious if you've started to see any type of patterns emerging in terms of what type of customers adopting.

Are they more platform oriented on Workday already?

Are they mostly HCM only?

Anything by vertical or by size?

Just maybe help us understand who the adopters of that is, it looks like it's up considerably year-over-year.

Why don't we come back to you on that with a more thoughtful answer.

Right now, it's -- I'd characterize it more as early innovators in a new product category.

They're all HR customers, but there's quite a few finance customers as well.

And what we're seeing is the opportunity to bring in third-party operational data to do analysis so health care has been an interesting -- an interesting space for us.

They bring in patient data or procedure data to do the analysis with HR and finance data as well.

So let us come back to you with a more thoughtful response.

I don't think it's a big enough sample set yet to draw any big conclusions.

The big conclusion I draw is that it's cross-industry and cross-product line so far.

So it's what we like it to be.

We're not seeing any areas where it's not interesting.

Ladies and gentlemen, thank you for your participation on today's conference.

This will conclude Workday's third quarter earnings call.

Thank you, again for joining us.