Workday, Inc.

Welcome to Workday's third quarter fiscal year 2022 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 call. During the Q&A, please limit your questions to one. With that, I will now hand it over to Mr. Justin Furby, Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you, operator. Welcome to Workday's third quarter fiscal 2022 earnings conference call. On the call, we have Anil Bushri and Chana Fernandez, our co-CEOs, Robin Sisco, our co-president and CFO, and Pete Schlampe, our chief strategy officer. Following 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. Before we get started, we want to emphasize that some of our statements on this call, particularly our guidance, are based on the information we have as of today and include forward-looking statements regarding our financial results, applications, customer demand, operations, and other matters. These statements are subject to risks, uncertainties, and assumptions, including those related to the impacts of the ongoing COVID-19 pandemic on our business and global economic conditions. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our 2021 annual report on Form 10-K and most recent quarterly report on Form 10-Q for additional 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 customer's page of our website includes a list of selected customers and is updated monthly. Our fourth quarter quiet period begins on January 16, 2022. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2021. With that, I'll hand the call over to Anil.

Thank you, Justin, and good afternoon, everyone. Thank you for joining us today for our third quarter fiscal year 22 earnings call. I'm pleased to report that Workday had another strong quarter. As we highlighted at our analyst day in September, we continue to expand our addressable market with a broadening product portfolio and multiple go-to-market levers to drive sustainable growth on our path to $10 billion and beyond. As we've discussed throughout this year, our expectation has been for accelerating growth. While not every expectation comes to fruition, this one certainly has, even faster than we expected. And we're optimistic on the momentum we see as we head into our all-important Q4 and prepare for a great year in fiscal year 23. Rodman will provide more details shortly, but we are pleased to provide a preliminary view of 20% subscription revenue growth for next year. And with continued execution, we see opportunity to grow even faster. Before I hand it off to Chano to provide details on our go-to-market success in Q3, I want to quickly touch on highlights from the quarter. Starting out with our industry-leading Workday HCM products, we had another strong quarter as we continue to attract new customers and also having strong success growing our relationship with our existing customers. In Q3, we added Asda Stores Limited, ConocoPhillips, Northern Trust, Toll Brothers, and Vichay Electronic, among many other new HCM customers. Normal-goal lives in Q3 included the state of Iowa and five below, to name a few. In addition to strong growth from core HCM, our recently acquired PECON solution, newly named Workday PECON Employee Voice, delivered another record quarter. We're seeing the benefits having recently rolled out PECON globally across our own organization, and we couldn't be more excited about the long-term potential to help our customers better listen to and engage with their own employees. We also continue to see strong traction across our financial management suite of applications. Our growing product portfolio, combined with digital acceleration in the office of the CFO, is driving broader adoption of our financial management applications. To that end, new Workday financial management customers in Q3 include the City of Philadelphia, the World Health Organization, Wintrust, Memorial Healthcare, and Diversified Restaurant Group. Of course, one of the big drivers behind our continued strong customer adoption is our relentless focus on innovation by staying at the forefront of large trends that are secular drivers of future growth. One trend that has been accelerated by the demands of the pandemic is the future of work, which requires new ways of thinking about workforce composition and how to manage different types of workers. We expect to accelerate our efforts in this area with the proposed acquisition of Venly, a leading next-generation cloud-based vendor management solution platform. Workday and Bentley together will deliver a comprehensive total workforce optimization solution that brings an integrated approach to managing all types of workers. It will help customers bridge the gap between internal and external workforce management while enabling a holistic workforce strategy that delivers full visibility into the entire workforce and managing and planning for labor needs while also helping to control compliance and security risks. We look forward to expanding our efforts in this area and will share more information after the deal closes which we expect to occur in our fourth quarter. Looking ahead to fiscal year 23 and beyond, we have an amazing growth opportunity in front of us, and we see unique opportunity to accelerate our path forward by further ensuring that our purpose, strategic vision, and pride roadmap are in lockstep with our go-to-market strategy. To help us do that, we've announced a series of important organizational updates, the first two in late October and two more today that I'm excited to share with you. To help Charter further articulate Workday's strategic vision, Pete Schlampp has been appointed as our first-ever Chief Strategy Officer. Pete has successfully led our industry-leading product organization for the past two years. During that time, he implemented a robust product portfolio strategy that's contributed to our current momentum, both in terms of delivered innovation and financial success. His ability to set a strategic vision and execute makes him the perfect fit for this new role, overseeing and evangelizing our growth strategy going forward. Second, we are creating tight alignment across our product and technology organizations under the leadership of Cheyenne Chakraborty, who is now EVP of product and technology. Under Cheyenne's leadership the past two years, the technology team has infused Workday with game-changing innovations like machine learning, enable customers and partners to innovate in our platform with Workday Extend, build strategic cloud partnerships, and help ensure that Workday is amongst the most reliable, scalable, and secure platforms in the industry. His long and successful track record in delivering industry-leading innovations, along with his deep understanding of customer needs, makes him the ideal leader to map out our combined product and technology path going forward. And earlier today, we announced a couple more changes. First, we are pleased to share that Doug Robinson, UBP of Global Sales, has been promoted to co-president of Workday. Doug will serve as co-president alongside Robin Cisco. As co-president, Doug will continue to lead our global sales organization, but also take on an expanded leadership role across the company, helping to spearhead cross-functional initiatives that will help Workday reach new heights. And finally, we're also happy to share that Barbara Larson, SVP of Accounting, Tax, and Treasury, is being promoted to Chief Financial Officer, effective February 1st of next year, reporting to Robin. The transition of the CFO role from Robin to Barbara is part of Workday's strategic succession planning, an approach that focuses on developing leaders from within, Barbara has been a rising star since joining Workday more than seven years ago. During that time, she has held several leadership positions across our finance and product organizations, providing her with the right foundation to step into the CFO role and lead our finance organization into the future. With Barbara's move to CFO, Robin will now focus more on her co-president responsibilities. This will include an increased emphasis on engaging with some of our most strategic FINS customers and prospects to increase Workday's footprint within the office of the CFO, in addition to continuing to lead her current organization. It's an exciting time to be at Workday, and we're looking forward to the impact Pete, Cheyenne, Barbara, Doug, and Robin will continue to make as we all strive to inspire a brighter Workday for all. As I look ahead, my optimism for Workday's future couldn't be higher. We have a great team in place and a significant global opportunity in front of us as companies continue to embark on their HR and finance transformation journeys. With that, I'll turn it over to our co-CEO, Chano Fernandez. Over to you, Charo.

Thank you, Anil, and thank you to everyone for joining us today. I want to start by offering my congratulations to Pete, Siam, Barbara, and Doug. You're all amazing leaders and fantastic colleagues who have worked tirelessly to push us forward as a company, and your promotion to these roles is incredibly well-deserved. As Anil mentioned, we delivered a solid Q3, driven by a strong execution combined with healthy demand for financials and HCN solutions. The strong conversion rates that we experienced in the first half of the year continued in Q3, driving net new business acceleration that once again outpaced our expectations. In addition, our pipeline generation remained very healthy. setting us up incredibly well to achieve our full year acceleration targets and providing incremental confidence in our goal of sustaining 20% plus subscription revenue growth on our path to $10 billion in revenue. Strength in Q3 was once again broad-based, with solid growth in landing new core HR and Fins customers. Performance in North America remained strong across the large enterprise, while the medium enterprise and international markets brought growth, significant outperformance. EMEA was a highlight, with the standard results in the UK, Spain, and Switzerland. In addition to solid performance from our land sales team, the momentum within our customer base team continued in Q3, driving continued strength in net revenue retention. We once again saw a very strong renewal performance, and our customer-based team drove strength, cross-selling a number of solutions aimed at the CHRO and CFO, including core fins, learning, people analytics, planning, and spend management. We were also excited by the strength we saw with PICO. which has been part of Workday now for a couple of quarters, and which drove record performance, including the signing of its largest ever deal. Customer-based expansions with Picon in Q3 included Banco Santander and Diner Trucks North America, and new Picon First customers, including Holland & Barrett and S3. And Xtend had another fantastic quarter with wins of Bristol-Myers Squibb, Cardinal Health, Burlington Stores, and US Foods. Not only does the extensibility of our platform help us go deeper with our customers, it also allows us to engage our partner ecosystem in very strategic ways. A great example of this is through our partnership with Deloitte, who built an emissions planning model in Workday Adaptive Planning to address critical sustainability objectives related to carbon reduction for governments in Asia-Pacific. This ESG solution has global applicability and is one of several examples of partners adding their IP to enhance the value of the Workday platform. Our industry approach is winning in the market, and strengthening our government vertical was one of the many highlights in Q3. As Anil mentioned, we were selected by the City of Philadelphia for financial management, in addition to planning, pricing, expense management, and several other solutions. We also signed platform HCN and things deals with the city of Worcester, Massachusetts, and the county of Mobile, Alabama. And we had wins across a number of other state, city, and local governments, both in the US and internationally. Successes such as these highlight the importance of taking an industry approach. And we expect to continue to make significant investments across key industries from both a product and go-to-market standpoint. As we've discussed throughout this year, we're investing aggressively in our go-to-market effort, and we made continued progress on this front in Q3, adding global sales capacity across both our net new and customer-based teams. we're also accelerating our investment across key brand and marketing initiatives. These investments, which we expect will continue in Q4 and into FY23, are focused on sustaining 20% plus subscription revenue growth. In closing, I would like to thank the more than 14,200 global workmates who have enabled us to drive such a strong Q3 and year-to-date results. We are very well positioned as we enter the all-important fourth quarter, and we have arrived set on record pipeline generation targets as we look to lay the foundation for a strong FY23. And now, I will turn it over to our co-president and CFO, Robin Sisco. Over to you, Robin.

Thanks, Chano, and good afternoon, everyone. First, I'd like to say that I could not be more excited about the leadership changes, and I'm incredibly proud to share the president title with Doug and to pass the CFO mantle to Barbara. I look forward to continuing to partner with both of them. As Neil and Shanno mentioned, we reported a strong third quarter, once again accelerating subscription revenue growth as organizations across the globe look to Workday as their strategic partner in driving their HR and finance digital transformation. Subscription revenue in Q3 was $1.17 billion, up 21% year over year, driven by healthy new business sales and strong customer renewals, with gross retention once again over 95%. Professional services revenue was $156 million, resulting in total revenue of $1.33 billion. Revenue outside the U.S. was $336 million, up 23% year-over-year, and representing 25% of the total. 24-month backlog at the end of the third quarter was $7.12 billion, growth of 20%. Total subscription revenue backlog was $10.97 billion, up 24%. Our non-GAAP operating income for the third quarter was $332 million, resulting in a non-GAAP operating margin of 25%. Margin overachievement was driven by a combination of top line-out performance, some favorable expense variances, and significantly more back-end loaded hiring in the quarter than we anticipated. Operating cash flow in Q3 was 385 million, growth of 31%, driven by the margin strength combined with very strong collections. Our largest investments continue to be in our people and in attracting top talent to Workday. In the third quarter, we meaningfully ramped up the pace of hiring, successfully adding and integrating approximately 800 net new employees, bringing our total employee count to over 14,200 at the end of Q3. Overall, we're extremely pleased with our results and execution in Q3, and we're very well positioned as we enter our final quarter of the year. Turning now to guidance. Based on our strong Q3 and the continued momentum we're seeing in our business, we are raising our FY22 outlook and providing Q4 guidance as follows. For subscription revenue, we're raising our full year estimate to be in the range of 4.533 billion to 4.535 billion, approximately 20% growth. For Q4, we expect subscription revenue of 1.216 billion to 1.218 billion, 21% growth. and we project 24-month backlog growth of 19.5%. We still expect professional services revenue to be 590 million in FY22, with 145 million in Q4, as we continue to prioritize driving the highest levels of customer success. Based on our Q3 outperformance, we now expect full-year FY22 non-GAAP operating margins of 22%. For Q4, we estimate non-GAAP operating margins of 16% as we continue the pace of hiring and growth investments and begin our new performance cash bonus program in Q4. The GAAP operating margin is expected to be lower than the non-GAAP operating margins by approximately 24 percentage points in Q4 and for the full year. We are updating our FY22 guidance for operating cash flow to 1.65 billion, growth of 30%, and we still expect 270 million of other capital investments in FY22 to support our customer growth and continued business expansion. While we're early in our FY23 planning cycle and have an important Q4 to close, we'd like to provide a preliminary and high-level view of FY23. We currently expect subscription revenue of approximately $5.44 billion, growth of 20% year-over-year. We expect subscription revenue in Q1 of FY23 to increase approximately 2.5% sequentially from Q4 FY22. As we shared in our recent analyst day, we are focused on driving sustainable subscription revenue growth of 20% or higher on our path to $10 billion in revenue. Given the strength of our market position and the accelerating trends we see across HR and finance digital transformation, we expect to increase the pace of our top-line focused investments. Taking into account these investments, our expectation of COVID-related cost savings phasing out, and the full year impact of our new bonus program, we continue to expect FY23 non-GAAP operating margins of 18%. Investing for growth will remain our focus and we'll continuously evaluate growth margin trade-offs, but we currently expect to resume margin expansion after next year, putting us on a path to reach 25% margins at $10 billion in revenue. I'll close by thanking our amazing employees, customers, and partners for their continued support and hard work. With that, I'll turn it over to the operators to begin Q&A.

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. Please limit yourself to one question. One moment while we poll for questions. Our first question comes from the line of Kirk Maturin with Evercore ISI. You may proceed with your question.

Thanks very much, and congrats on the quarter, and congrats to everyone that's on their promotions. Neil and Shano, first of all, thank you all for the preliminary look ahead to fiscal 23. But, Neil and Shano, can you just talk a little bit more about what you're seeing in the pipeline today that gives you confidence in that 20% plus outlook for subscription revenue growth? Just kind of curious if it's the volume of deals you're seeing in the pipeline pick up, the size of deals, and maybe if you could just add a little color on the core financial opportunities as well, that'd be great. Thanks so much.

Chano?

Yeah, Kurt, thanks for your question. I think not only did we see a strengthening in Q3 new business, but the pipeline momentum that we have described the last several quarters continued as well. with strength, I would say, across regions and solutions as well. And I think it's a much more balanced and predictable pipeline when compared to a few years ago, as our product portfolio has expanded and as we have seen really healthy momentum across both motions, landing and expanding. So we have our sights set on another record pipeline quarter in Q4 to help lay out the foundation for a solid FY23 and beyond. The trends within our pipeline support our view that the momentum in the business is sustainable and support our goal of sustaining 20% plus subscription revenue growth. In terms of core fins, it was really a contributor to the strong quarter we have, both core fins and the fins plus category as a whole, Kurt.

That's great. If I could ask just a quick follow-up for Robin. Robin, is there still, is the 24-month backlog number still being weighed down by a lower renewal cohort? And can you just remind us what that is and maybe when that normalizes, if that's still playing out right now?

Yeah, Kirk. So, as you'll recall, coming into this year, we discussed a couple-point headwind to 24-month backlog growth this entire year, stemming from the slattish renewal base that we saw coming into the year. For the most part, that's played out as we thought, although our really strong renewal rates throughout the year have somewhat offset that dynamic to give us the results that we've been reporting to date on this front. When we look ahead to FY23, we are expecting to return to a more normalized rate of growth in the renewal base and therefore expect that that headwind goes away.

Super. Thanks so much. Congrats.

Our next question comes from the line of Kash Ragan with Goldman Sachs. You may proceed with your question.

Hi, thank you very much. It's great to see how you promote internal talent, starting with Doug. It's a very long list. It's great that you're able to create the next generation of management, including Sean and Barbara and Robin, et cetera. My question has to do with the net new ACV back to the base. We've been at it for two years and there's no stopping of any or no slowing down of momentum in that business aspect. Can you talk either Chano or Anil about the opportunities ahead as the product portfolio continues to build and you still keep adding new customers, but again, the base opportunity continues to be vibrant. Can you just expand a little bit more about how you plan to make that even more of a focus going forward? Thank you so much and congrats on a very strong quarter.

Well, I might just touch on the new products, and John can touch on the go-to-market piece. You know, I think one of the great things we have had both through internal development and through acquisition, most recently Pecan and now Bentley, are products that we can sell back to our really broad-based financial HR customer base. And on the finance side, we do the same thing with Scout. And, you know, we hope to do that with Zimit. And planning has been across both. product lines, that really has changed the game. We have these really powerful add-on products that are best in class that are attractive to customers. And maybe Chama can talk about how we're doing that.

Yeah, thank you, Cash, and thank you, Anil.

I think, you know, the value proposition of the innovation and the solutions that Sayan and Pete and the team are building is just fantastic, right? And I would say no single solution is the one driving the momentum, Cash. It is really broad-based strength across the full portfolio of HR and financial solutions. And I think that drove strength as well in the renewal rates and our customer base. which I believe speaks to how strategic we are for our customers, right? So we're expecting this momentum to continue, and we share with you our analyst data, 10 billion opportunity that we're seeing our customer base, and of course, expanding as we keep adding more customers. And we keep planning to, you know, keep adding some of the investments that we're doing across go-to-market cash, those going to customer base, obviously. And as we've been highlighting, we are planning to strengthen for next year the lab motions, clearly of solutions around PECON, work the strategy sourcing, planning, and clearly Binley going forward as well. So we are pretty excited by the opportunity ahead on the customer base.

Bravo. Thank you so much.

Our next question comes from the line of Mark Murphy with JPMorgan. You may proceed with your question.

Yes, thank you very much, and I'll add my congrats to everyone who's taking on a new role. Doug, Barbara, Pete, and Sayan, much, much deserved. I wanted to ask Robin, I'm looking at the sequential change in the 24-month subscription backlog for Q3. It's actually a bigger number than we've seen the last couple of years. So I'm just curious if what we're seeing is the conversion of that pipeline build that I think you had said was starting maybe nine to 12 months ago, as you expected, or are you seeing something that's converting faster or in period, like from Pecan or other products, or is it maybe something else that's just driving that sequential strength?

Yeah, Mark. I mean, maybe I'll just point out a few things, even though we really are seeing strength across all of our business in multiple different ways. But the few things that I'll call out is our conversion rates have remained on the higher side, right? And so that has certainly helped us convert more pipeline. We also, as we strengthen our sales motion on some of our acquired companies or products that we can sell online, independently, those tend to have shorter cycles. And so we're seeing an impact there as well. And then lastly, I'll call out, we just have seen really, really strong renewals, really, really strong renewals and uplift to those renewals. And so that has really helped us with sequential growth and backlog as well.

Okay. So three different legs to the stool. Thank you, Rob. And then just a very quick follow-up. You had announced some major new HCM logos I think Anil commented on ConocoPhillips, Northern Trust, and Toll Brothers, big companies. Any comment on who the incumbents were? And just trying to – you said the pipeline generation remained healthy. Should we infer that you see pretty strong indications among the Fortune 500 for Q4?

I would say on your first question of who the incumbents were, usually, as usual, 80% of those are coming from our main two legacy competitors, right? It's no difference here, Mark. To your question on the pipeline expecting into Q4, I would just say that there is good, strong pipeline, great momentum. Usually, some of the largest logos tend to lean in our largest quarter, which is Q4.

Understood. Thank you very much.

Our next question comes from the line of Brad Zelnick with Deutsche Bank. You may proceed with your question.

Great. Thank you so much, and I echo my congratulations as well on a strong performance in Q3. I wanted to follow up on Kirk's question on backlog and the flat renewal cohort this year and just how we should think about the growth and what's due to renew, which, Robin, I know you characterized as being more normal. But even if not numerically, and I know the more exciting part of that equation is the growth that you're able to add on to these renewal opportunities and expand them. But how should we think about the typical upsell cadence? Meaning, how often might you see customers take new modules and new features and capabilities when they're made available, maybe intra-cycle versus upon renewal? Like, is the renewal itself more often than not the time that you'll see them expand versus... you know, co-terming midterm. Thank you.

Yeah, we're seeing that dynamic shift a little, Brad, over the years as we've focused more on building the customer-based team. They're having continuous conversations with those customers outside of the renewal cycle. So where if you go back several years, I'd say three to four years, most of the add-on business came during the renewal cycle. And we've really seen that change with the investments in the back-to-base go-to-market business. And now those conversations are continual. So we're seeing a lot less add-on just in the renewal cycle and more add-ons just as products become available or as customers' needs shift. But the renewal is still a great opportunity to engage in a conversation with those customers. So it still is an opportunity for us to sell, but less dependent on that renewal cycle to actually get add-on business. And I don't know, Chano, do you have anything you would add to that from the go-to-market side?

That's exactly the dynamics we've been seeing and the shift we've been observing during these last few years. So it's less dependent on those renewal cycles when customers are adding new solutions.

Thank you. If I could maybe sneak in one quick follow-up for you, Robin. Seeing the growth and total backlog exceeding that of 24-month backlog, we actually had picked up from partners just in general, beyond even Workday, customers looking to go longer and longer duration in anticipation of inflation and price increases. Just curious if you have any comments on duration that you're seeing from maybe commercial accounts, or I know government tend to do larger deals. What, if anything, is there to comment on duration? Thank you.

Yeah, you're absolutely right that when the total backlog growth exceeds the 24-month, it's because we've seen durations lengthen. And we've seen this fairly consistently over the last several quarters and even the last several years where the total outpaces the 24 months. So I do think that there is a trend there of inking larger contracts, but they do tend to move around by industry and by customer. And as we've said before, you know, we are happy to have a contract length of you know, that our customers are comfortable with. We won't do one under three years, but anything above that, we really leave to them. So it's not something that we manage to, but we're certainly happy when customers want to commit to us for longer periods of time.

Awesome. Thank you again.

Our next question comes from the line of Brad Sills with Bank of America. You may proceed with your question.

Oh, great. Thanks, guys. And I'll echo the congratulations on a nice Q3. I wanted to ask a question about just the general environment of the Office of HR. It would seem that with the great resignation and a difficult hiring environment that you'd see an increased focus on digital transformation projects for more productivity in general for HR. So I'm curious if that is manifesting in your pipeline, not just for core HR, core HCM, but the productivity tools like learning, analytics, recruiting, PECAN. Reflected in your pipeline. Do you think that's something that might be coming based on what you're hearing in the office of HR?

Thank you Pete you want to take that one up?

Yeah I think your question is spot-on what we are seeing the the trends towards as you said kind of spurred by the great resignation happening with the pandemic and all of those things are generating trends that we're seeing in demand from our customers for our products like learning. I'd also call out our talent optimization SKU, which is composed of the career hub and the talent marketplace to allow employees to move within the company. Learning, as I said before, and also I'll also mention the Bendley program, intent to acquire that we announced today as well, which allows companies to be able to kind of flex their workforce based upon these talent demands. So we're definitely seeing that from a demand standpoint from our customers, and we've had a great quarter this last quarter as well with all those products.

Thanks so much.

Our next question comes from the line of DJ Hines with Canaccord. You may proceed with your question.

Hey, thanks for taking the question. Maybe I could build off Pete's comment there. He brought up Venly, so it seems like a good segue to ask the question there. The product seems to be kind of a crossover between HR and finance. So can you talk a little bit about where the buying center resides there and really what the pain point is? How would organizations typically manage that process if they didn't have a platform like Fenley?

Yes, I'll start with the buying center. The buying center has traditionally been in the procurement space but has more recently been trending towards the HR space. So actually, it was a great fit for us because we sell to both of those buyers. And it really, for us, looked like a nice kind of piece of the puzzle between our human capital management, our financial management, and our spend management solutions. Traditionally, this has been solved. The vendor management systems have been around for a while. Venly is really a second-generation cloud-based vendor management system. Great focus on the user experience configurability. And the one thing I will also mention there is that it is deployed by enterprises, but also about 50% of the time deployed by managed service providers. And Bentley happens to have a great relationship with managed service providers as well, and we see that as a channel for us to continue to use as we go forward.

Yeah, yeah, okay, makes sense. And then, Robin, maybe a follow-up for you. I think coming into this year we had talked about That new bookings acceleration this year leading to faster subscription growth next year. With the updated guide and view of next year, we're at 20 and 20, and I realize it's a preliminary view of next year, and any good preliminary view embeds some conservatism. But is it fair to assume that if Q4 ends up how you're planning, we could still see subscription acceleration next year?

Yeah, DJ, I mean, we certainly see upside from the 20%, but to your point, Q4 is going to be a really important quarter for us in shaping the subscription revenue next year. So we're really focused on executing against Q4, and we'll have a new look for all of you on the next earnings call when we see how we've closed Q4.

Yeah, of course. Makes perfect sense. Thank you, guys.

Our next question comes from the line of Michael Turin with Wells Fargo Securities. You may proceed with your question.

Hey there. Thanks. Good afternoon. I appreciate you taking the question. You mentioned 800 net new hires during the quarter. Is there any further commentary you can add just on the pace of hiring into Q4? Are you finding able to stay on pace with that 2,500 target to start off the year? And is there any difference between U.S. and international there to call out? Thank you.

We were super pleased with the hiring in the quarter. We've been really ramping our recruiting engine and our process throughout the year. It honestly took us a little longer than we had hoped given the market when we came into the year. But we were really excited to make such great progress in Q3. And it's certainly our hope and our goal to actually have similar hiring in Q4 so that we can get really close to that 2,500 net new employees for the whole year. It's a challenging market, but we feel like we've got the momentum to do that, and so we're really focused on executing.

Great. Thank you.

Our next question comes from the line of Brad Reback with SEPL. You may proceed with your question.

Great. Thanks very much. Robin, as we think about the renewal pool returning towards its normal growth cadence next year, is that linear over the course of the year, or will that be somewhat more back-end loaded, understanding that 4Q always has seasonality, but just that year-over-year growth opportunity?

Yeah, Brad, you know, that's a really hard thing to predict because one of the things that we're seeing, one dynamic we're seeing as we have more add-on business outside renewal cycles is renewals moving around. quarter to quarter, so if somebody wants to add on several products, their renewal is two quarters away, it's highly likely that they're just gonna do an early renewal and wrap it all in. So we don't see anything unusual in any one quarter that I would call out, but it is a dynamic that's fairly difficult for us to predict, and we do expect some variation quarter to quarter, but overall, in terms of looking at the whole year, we're excited to return to a normal growth rate and not be facing the headwind that we faced this year.

That's great. Thanks very much.

Our next question comes from the line of Brent Braceland with Piper Sandler. You may proceed with your question.

Good afternoon and thank you here. I wanted to go back to the 22 outlook and guide up here. I know you guys were clearly optimistic at the September analyst day. But if I just rewind nine months ago, I think you entered the year guiding to 16% subscription growth. You've now had two quarters of accelerating subscription growth, and you're raising the outlook for next year. It's a pretty big change in nine months. Is the story here driving the optimism for next year all about the 10 billion cross sale in the base? Or is there other factors that are really driving kind of the optimism here in the business. And I know some optimism to a couple of months ago, but love to kind of understand the pace of change that you've seen here this year and, and the momentum that you're, you're, you're kind of looking forward to next year. Thanks.

Well, I, you know, I said the pandemic was a once in a lifetime event in many ways, you know, quite a bit, quite a bit, obviously sad and negative on the business side. It did change everything. whether it's the shift to remote work or hybrid work, or as you look at the broader base of contingent workers and the great reservation, as you call it. And I think what it would have forced customers to do was to look at their platforms and say, are we ready for this new world? And in many cases, they weren't. And we were fortunate that the way that we built our cloud products and the solutions we have are a perfect fit for where the world is headed. And I think we're benefiting from that. And increasingly, in a labor-constrained world, what we're doing with Pecan, what we're doing with Venly, what we're doing with our own products in terms of helping people optimize their human capital is huge. And also, during the pandemic, we saw a lot of big financial projects being put on hold, and now those are slowly coming back. So there's optimism that even more of the financial products are going to be coming back, financial projects are going to be coming back next year.

As you think about the role of competition here, do you think you're in a better position to gain share next year based on the moves that you've made here and that's part of the optimism or do you think this is more of a broader industry recovery that you're expecting next year? That's all I had, thanks.

I think it's both, but at the end of the day, we started out with zero customers and our main competition had thousands of customers. So every customer we've gotten has been at a competitor's expense. And we've now passed 50% market share on the HCM side of the Fortune 500. We're getting that same kind of momentum in financials. And I do think it's coming at the expense of what I would consider to still be legacy competitors. I don't think they've quite yet fully made the transition to the cloud.

Our next question comes from the line of Brent Till with Jefferies. You may proceed with your question.

Thanks. I was wondering if you could just drill a little bit into planning. I think last quarter you mentioned 50% ACV growth. Any stat or any update there? And just directionally, it seems like with all these supply chain concerns, there's a tremendous opportunity for you to help a lot of companies out at this point. Any color around that business would be greatly appreciated.

I mean, planning continues to be a very meaningful growth driver for us. One of the bigger components of the Fins Plus and the acceleration was in this quarter. While we did not call out the specific growth rate this time, our momentum remains very strong. We feel really good how we are competing and winning in this market. And despite all the strength we have seen in planning over the last couple of years, we have significant long-term opportunity. As we shared at our analyst day, only about 30% of our customers having attached financial planning and about 10% attached workforce planning.

So we have a lot of opportunity ahead. Thank you.

We will now take two more questions. Our next question comes from the line of Carl Kirsten with UBS. You may proceed with your question.

Thank you. Maybe a couple for Robin. Robin, maybe you could elaborate on the 24-month backlog guide for 4Q. Really strong number, but it's a similar growth rate to 3Q, yet it's a two-point easier compare. Anything else on your mind as you thought through the inputs to that 4Q guide?

Yeah, I mean, I would just say that we're really pleased to be providing the preliminary view of 20% sub-revenue growth for FY23. But keep in mind, to achieve that, we need to sustain healthy bookings growth, which we fully expect to do in Q4. Backlog's going to move around. It's not a perfect measure for several reasons, including the renewal headwind this year, but we feel really good about the momentum in our business and in our outlook. And we certainly would hope to overachieve the backlog guide, but we'll have to see how Q4 goes.

Yep. Okay, that sounds good. And then as a follow-up, Congrats on the couple of what looks like relatively small acquisitions. Maybe I missed it, but Robin, any financial impact from these two deals once they close that we should keep in mind with respect to either revs or margins or backlog to call out or immaterial?

Yeah, I mean, these companies are both really early in their growth cycles and therefore really minimal impact on our revenue guide for next year. We do, however, expect those to be high-growth markets, and so we're therefore planning on investing in those spaces to support the growth opportunity, and all those incremental investments, as well as transaction costs for Vindley and existing expense spaces for both, have all been captured in our margin guidance for both Q4 and FY23.

Yeah, got it. Figured that was the case. Thanks for the answers, Robin.

Our next question comes from the line of Derek Wood with Cowan & Co. You may proceed with your question.

Great. Thanks for squeezing me in. Some companies have talked about more accentuated summer seasonality. Just curious how linearity track for you in Q3. And then, you know, you keep hearing how Q4 is such an important quarter. Any color on linearity there and just any anecdotes to give around what you're seeing in terms of larger enterprise opportunities as you head into the end of the year?

Chano?

We haven't seen any particular shifts in terms of linearity. I mean, it was It was good, strong order. I mean, clearly our first month is August. Usually it's more quiet, but it was good and solid if I compare it to last year and two years ago. And then we had a good September overall, but I wouldn't say nothing, no special call out there. You know, in Q4, I mean, there are always very large deals. In this case, in the pipeline for both, I would say HCN and financials. and of course there is a solid come pipeline across a very deep number different solutions geographies and and you know the whole portfolio and volume business across medium enterprise and customer base that will give the printability but clearly you know for for us the delivering good solid quarter is keeping with the same conversion ratios and execution on the great large opportunities that are lined up for q4 so we're excited about them but of course We have to execute upon them and basically do as the teams know that they can do.

If I could squeeze one more in, you talked about how you're pleased with your own hiring, even though it's a tough market. I want to ask about how you're feeling about your partners and how well-staffed they are to support your accelerating growth and if you see any reason for them to be having any constraints on their own staffing.

Yeah. answer that one um i mean we're pleased how the partners are progressing they they added around 800 resources to the ecosystem in q3 and they continue to be ramping up new resources during q4 so we feel very happy as well how much you know they're investing on on training and ramping up these resources that they see the opportunity i will you know just remind all of you that they keep deploying around 80 plus of our uh you know solution portfolio um we clearly are doing much more with them i mentioned this example of the esc solution around planning you know for for public sector basically in the asia pacific region that i think you know is one that they can be deployed globally so the relationship we're really with building with our partners these days is you know beyond implementation is building up new solutions and ip jointly and they keep really investing and for most of the largest size Workday is, you know, out of the top three kind of strategic practices. So we, you know, we are pleased how they're doing and they keep investing within Workday's future together.

Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This will conclude Workday's third quarter fiscal year 2022 earnings call. Thank you again for joining us today. You may disconnect your lines at this time.