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Workday Inc.  (NASDAQ:WDAY)
Q3 2018 Earnings Conference Call
Nov. 29, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Workday's Third Quarter Fiscal Year 2019 Earnings Call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of the call.

And with that, I will hand it over to Mr. Mike Magaro, Vice President of Investor Relations. Please go ahead.

Michael Magaro -- Vice President, Investor Relations

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 the 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 file 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 15th, 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.

Aneel Bhusri -- Chief Executive Officer

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 of fiscal year 2019, we experienced an acceleration in net new ACV growth. Our human capital management business remained 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 and unparalleled user experience and the highest levels of customer success.

In Q3, (Technical Difficulty) some of the new HCM customers we added include Bank of Montreal, Glencore International and Piedmont Airlines, a subsidiary of American Airlines. We continue to land marquee accounts in part (ph) due to our proven ability to support our customer's large volumes of data and transactions, a capability that neither of our legacy competitors has been able to consistently demonstrate in 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 for core financials growing over 60%. We believe that a combination of our expanded set of offerings, the increasing acceptance of the cloud by the (Technical Difficulty) office (ph) of the CFO and our ever-increasing cohort of financial customers and production are collectively driving broader adoption of our financial management applications.

New (ph) Workday financial management customers in Q3 included Atlanta Braves baseball, Spectrum Health, H&R blogs, Fox and a large US based financial services organization. In addition to the strong growth from our core (Technical Difficulty) 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 (Technical Difficulty) Adaptive Insights product to large enterprise customers.

Indeed, the early feedback on the Adaptive business planning cloud offerings from customers and prospects alike has been very positive with high interest and enthusiasm for the Adaptive offerings. And we are actively working in migrating many of our Workday planning customers to Adaptive. We're committed to unifying Adaptive Insights (Technical Difficulty) Workday (Technical Difficulty) while we will continue to support Adaptive integrations with all ERP systems we are on track for a 12 months to 15 months 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 us 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 reconfigured application packages for US based medium enterprises.

Our ability to offer a full platform solution across HR payroll and finance with lowered 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 US, we are now planning to take that program overseas in fiscal year '20 to target medium enterprise businesses outside the US. Our momentum and customer success was best captured at our annual user conferences, Workday Rising in US and in Europe. Between our US 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 (ph) 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, core value (Technical Difficulty) and the Workday team works hard every day to help our customers to run their business more efficiently and make better decisions along the way.

On the product front, we continue to push technology in patients with our most recent focus on embedding AI and machine learning -- (Technical Difficulty) fabric of the Workday platform. With Workday Prism Analytics, data hub, finance and HR systems, (Technical Difficulty) we're leveraging the acquisition of (Technical Difficulty) 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 (ph) in their workforce, and an understanding of the most likely drivers of those trends. It will leverage powerful artificial intelligence, machine learning and augmented analytics technologies to provide dynamically credit 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, a university skills ontology that helps organizations cleanse, understand and relate job skills data.

We believe our investment in innovation and our people (ph) continue to pay off. In the quarter, we were ranked number one on Fortune's Future 50 list, which recognizes the world's most forward-looking, innovative companies that are best (Technical Difficulty) future.

From day one innovation has been in our (Technical Difficulty) the products built also we (Technical Difficulty) the launch our company, our customers, our industry into future, and employees will always be our number one core value, happy employees, (Technical Difficulty) the best product to make customer happy. On that note I'm also pleased to share that Fortune and Great Place to Work announced this month that Workday is number three 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 consumer (ph) referenceability and expect to continue to gain market share globally. And we are an early leader in cloud financial management, with a strong set of offerings for CFOs who are looking to modernize our financial analysis and planning systems.

Both HCM and financial management will continue to be the primary drivers of growth in 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.

Robynne Sisco -- Co-President, Chief Financial Officer

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 Insight, 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 certain 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 (ph) metric separately going forward. Instead, as with all key products, we will give you milestones 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 under $24 million, up 35% year-over-year. Approximately $4 million of the over performance 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 US 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 point 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 (ph) in (Technical Difficulty) from Q4 and very strong renewals, with net retention once again over 100%.

Our 24-month 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% (ph). 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 one-time 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 a 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 a growth of 31% with Q4 total revenue in the range of $775 million to $777 million or a 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 2019. 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 2019 as a bridge until our peers transition to the new reporting requirements around 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 (ph) terms.

While we are early in our FY 2020 planning cycle, and still have an important Q4 to close, we'd like to provide a preliminary and high level view of FY 2020. We remain confident in our ability to sustain strong long-term revenue growth given the secular market trends toward the cloud adoption and our established leadership position.

We are currently planning for FY20 subscription revenue of approximately $3.0 billion to $3.01 billion. We continue to expect a pronounced and compounding seasonality toward Q4 with our Q1 being the seasonally slowest in terms of net new bookings. We'd expect subscription revenue in Q1 of FY 2020 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 2020 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 FY20 non-GAAP operating margins of 12% which represents an estimated 200 basis point 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.

Questions and Answers:

Operator

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

Kevin Ma -- Credit Suisse -- Analyst

Thank you. This is Kevin Ma on for Brad Zelnick. Congrats on the quarter, guys. I just want to ask on pro services that we accelerated pretty substantially this quarter, even taking out what you originally guided for the Adaptive contribution. Can you give any color on how much of that was from incremental synergies and uptake in financials or any other drivers?

Robynne Sisco -- Co-President, Chief Financial Officer

Yes. So what you see in the Proserv (ph) 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, and so really just normal -- normal levels of growth there.

Kevin Ma -- Credit Suisse -- Analyst

Got it. Okay, that's it from me. Thank you.

Operator

Your next question comes from the line of Mark Murphy with J.P. Morgan. Your line is open.

Aneel Bhusri -- Chief Executive Officer

Mark, you there?

Mark Murphy -- J.P. Morgan -- Analyst

I'm here.

Aneel Bhusri -- Chief Executive Officer

Okay.

Robynne Sisco -- Co-President, Chief Financial Officer

Go ahead, Mark.

Mark Murphy -- J.P. Morgan -- Analyst

Yeah. I was trying to ask you on the platform deals that -- our field work 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 toward 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 -- when you take a look at the pipeline for next year, do you see that accelerating in terms of the platform consideration?

Aneel Bhusri -- Chief Executive Officer

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 two different systems and rather have one unified system.

And now, what we're seeing is that trend began to move up market, probably more driven by financials moving up market. And so I would expect that to continue and become a bigger part of our business. Chano, anything to add?

Chano Fernandez -- Co-President

No, I think that's correct. Hi, Mark. From a pipeline perspective, the financials 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.

Mark Murphy -- J.P. Morgan -- Analyst

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 the kind of the blowout results in Q3. Is the confidence in Q4 equally high or were the deals that pulled in to Q3 material enough to kind of change that Q4 setup at all?

Chano Fernandez -- Co-President

Thank you, Mark. I think we commented, we're pulling 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, we're still early in the quarter, but we're positive about the outlook.

Mark Murphy -- J.P. Morgan -- Analyst

Thank you very much.

Operator

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

Sanjit Kumar Singh -- Morgan Stanley -- Analyst

Hi, this is Sanjit Singh for Keith. Congrats on a really strong quarter. I had two questions. First, on the 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, whether it's new ACV (ph) wins or further extension of the base. Any details there would be appreciated.

Aneel Bhusri -- Chief Executive Officer

I'd turn that question over to Chano.

Chano Fernandez -- Co-President

Thanks for the question. We are happy with the momentum in the international business, the foundation that we have created and via strong customer referenceability and we had a hugely successful Rising Europe, in Vienna. Our footprint across Europe and Asia is really still expanding and is early days as those markets are behind the US in terms of cloud's 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.

Sanjit Kumar Singh -- Morgan Stanley -- Analyst

I appreciate the comments, Aneel. And then maybe as my follow-up, Aneel, you mentioned that net new ACV growth of 60% plus in financial management, that's sort of ahead of revenue growth and can (inaudible) I know we've been hesitant to call it 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 have seen a bit of an uptick and then maybe a little bit of a leveling off, any sort of comments there?

Aneel Bhusri -- Chief Executive Officer

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 US, but across the globe and we are continuing to see the move among 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 the 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 is 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, you know, a few years ago that was a much smaller universe of companies you could talk to.

Sanjit Kumar Singh -- Morgan Stanley -- Analyst

Thank you very much.

Operator

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

Justin Furby -- William Blair & Company -- Analyst

Thanks, guys. Can you hear me?

Robynne Sisco -- Co-President, Chief Financial Officer

Yes, we can.

Justin Furby -- William Blair & Company -- Analyst

Okay, great. I guess just -- Hi, I just wanted to follow up on the financials commentary, I guess, and if you look competitively, Aneel or Chano what -- how do you feel about sort of your win rates in that -- 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 the business is inside of Workday, and how that changes the dynamic, particularly in the enterprise, if it's changed at all yet?

Aneel Bhusri -- Chief Executive Officer

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 finance is Oracle. SAP doesn't have their products in the cloud. Ultimate is just an HR competitor and we see NetSuite less and less.

So it's -- it is a slightly different competitive landscape, but our win rates are pretty similar. You know, in terms of Adaptive, there is a high degree of interest among the Workday enterprise customers and 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, you want to add anything to that?

Tom Bogan -- Chief Executive Officer

Yeah, 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 have had a number of conversations that is 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.

Justin Furby -- William Blair & Company -- Analyst

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 you've talked about in some time, but it seems like that's getting closer to a market that's starting to inflect and curious, sort of those two products, Prism and Student, how you think about them for next year? Thanks.

Aneel Bhusri -- Chief Executive Officer

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 used 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 --

Robynne Sisco -- Co-President, Chief Financial Officer

Triple digits.

Aneel Bhusri -- Chief Executive Officer

Triple digit year-over-year growth, and as we begin to mature the capabilities and grow the used cases, we honestly expect that to continue, and as we've done some analysis, we've had one of our longtime strategy folks, Derrick (ph), bought to 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 into turning it into a product line. There is a clear path to building a $1 billion business there on Prism that might not have been as obvious to us a little while ago.

In terms of Student systems, we are very focused on getting the first four or five 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.

Justin Furby -- William Blair & Company -- Analyst

Super helpful. Thanks, guys.

Operator

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

Alex Zukin -- Piper Jaffray -- Analyst

Hey, guys, thanks for taking my question and congratulations on a really strong quarter. Just two from 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 financial business and then I have a quick follow-up on Adaptive?

Aneel Bhusri -- Chief Executive Officer

So basically additional HR into HR.

Chano Fernandez -- Co-President

While financials into the HR customer base, right?

Aneel Bhusri -- Chief Executive Officer

And I think -- and additional HR into HR.

Chano Fernandez -- Co-President

Yeah. Hi, 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, you know, 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 set up of the go-to market customers based in this year, we have seen a good acceleration of business there, especially as last year (ph) our customer base is more significant, and that is growing and particularly taking advantage of being a happy customer base.

Alex Zukin -- Piper Jaffray -- Analyst

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

Aneel Bhusri -- Chief Executive Officer

I would say both are -- 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 -- you know, taken significant traction in terms of the offering, and you know, not only their subscription, but basically the implementation fixed fee services and we are taking time to value there are really shortening and really good customer base, basically referenceability.

So that is tracking very well. We continue to do well in terms of the large enterprise momentum activity both in the US and internationally.

Alex Zukin -- Piper Jaffray -- Analyst

Perfect. And then, Robynne, just a quick follow-up on Adaptive, if I may. Is it possible to get the -- just the contribution to subscription revenue -- revenue and deferred revenue or unearned revenue in the quarter from Adaptive?

Robynne Sisco -- Co-President, Chief Financial Officer

Well, so if you'll recall last quarter, we did talk about what we thought 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 that time last quarter that we expected Adaptive to contribute $22 million in Q4, that number would now be $25 million, 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 products 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.

Alex Zukin -- Piper Jaffray -- Analyst

Understood. Okay, thank you so much. Congrats again.

Operator

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

Ross MacMillan -- RBC Capital Markets -- Analyst

Thanks so much. Congrats from me as well on super strong numbers, 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, the -- 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?

Aneel Bhusri -- Chief Executive Officer

Yeah, I think it's -- 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, we're 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, you know, depending on the geography they are 3 years to 5 years behind in cloud adoption and they're looking across the globe to see what their peers have done, and multinational, things like the multinational independent of where they're based and they want to have successful deployments and as they look at the multinationals in the other geographies and they see a lot of successful Workday deployments, it's impacting their decision.

So, there is still a lot of opportunity in front of us. And 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 the Mittelstand (ph), the 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.

Ross MacMillan -- RBC Capital Markets -- Analyst

That's great. And then just a follow-up, Robynne, just you mentioned a few things that impacted the strength in the quarter, net new bookings, acceleration, some deal pull forward and then renewals, just on renewals were you're 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? Thank you.

Robynne Sisco -- Co-President, Chief Financial Officer

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 renewal. So we are very pleased with our renewal performance in Q3.

Ross MacMillan -- RBC Capital Markets -- Analyst

That's great, thanks so much and congrats again.

Operator

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

Richard Davis -- Canaccord -- Analyst

Hi, thanks. Yes, so we sent our guys out in the field to talk to some of the vendors and stuff and we were asking them about like digital transformation and stuff, though what was interesting was, they couldn't really -- they got different definition 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 hang up 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 a 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? Thanks.

Aneel Bhusri -- Chief Executive Officer

Well, 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, 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 our effectively our business operating system are 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 are 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 it's -- I do think that the digital digitization and reengineering as both product lines become market ready or have been market ready happening together as a real positive trend.

Richard Davis -- Canaccord -- Analyst

Great, that's super helpful. Thanks man.

Operator

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

Kash Rangan -- Bank of America -- Analyst

Hi, thank you very much. Congratulations on a fantastic quarter. I guess I'll ask the macro question since I assume it's not been asked. So Aneel, I think last year, or maybe two years back, you were rightly prophetic in the caution that you saw going into your Q4 results and it ended up that the business environment was largely more supportive than we all feared and we had a nice two-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 for calendar '19? What are the things that you're hearing from your customers, specifically?

Aneel Bhusri -- Chief Executive Officer

You know, 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 -- of what gives them pause is just rhetoric, some companies are worried about the aspects of a potential trade war. And 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 expected it to be doing, but there is this hangover of uncertainty coming from the political environment, that's not just limited to the US, but somewhat happening everywhere, and I don't think any of us really know what, how to factor that in or predict it.

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

Kash Rangan -- Bank of America -- Analyst

Congrats on the results, I'll ear (ph) to the next question . Thank you very much.

Operator

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

Scott Berg -- Needham -- Analyst

Hi, everyone thanks for taking my question. I guess I just have one at the moment and I don't know if Aneel or Chano wants 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 sell financials going forward? I know we all know it's going to help that platform generically over the next 2 years to 3 years as customers become more comfortable with the entire ecosystem, but is there maybe a direct tie that you can tie it from one to the other?

Aneel Bhusri -- Chief Executive Officer

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 were to 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 two 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've 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 were 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 the two companies coming together. So I feel very fortunate. You want to add anything, Tom?

Tom Bogan -- Chief Executive Officer

Just that there's -- we continue to have momentum, we added approximately 200 new customers this quarter and we agree that there is a great opportunity to sell financials behind that, most of those are 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 there are the opportunity to sell Adaptive to those customers.

Kash Rangan -- Bank of America -- Analyst

Thanks for taking my question.

Operator

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

Kirk Materne -- Evercore -- Analyst

Thank you very much, and congrats on the quarter. Maybe actually for Tom, just a follow-up on that line of thinking around the 200 customers you have -- you know, it seems to us talking to a lot of the partners in the field that you're right now planning is something that CFOs are very engaged in talking about, do you, is there any way that you can sort of give -- I don't know a estimate or sort of your thoughts on, you know, after someone buys in the planning or connected 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 dialog with CFOs and you know and ultimately -- so that when ultimately they decide to move their generalize (ph) 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 quarter to 8 quarter lag before they're ready to make another decision in financials or can it come faster based on some of your experience or your conversations?

Tom Bogan -- Chief Executive Officer

Yeah, I think we do see the thesis that companies are willing to move to a cloud-based planning system earlier than perhaps they are 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 and financials, but Chano, I would say that the timing is probably a little bit more customer situational.

Chano Fernandez -- Co-President

I agree, Tom. Kirk, I think 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's a thing it's kind of really, really relevant.

If you think that -- you know, it's early days, but we had a quarter where we were in double digits, some 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-months to 6-months time frame cycles of implementations, then I think we'll be in a great position to go back and have some -- a discussion about our point of view on why it makes sense to extent, and there is a good business volume benefits in taking on to the full financial platform, but it's early days, so we will be -- I guess we'll be learning, but we are very excited how that's looking.

Kirk Materne -- Evercore -- Analyst

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 nine that you focus on. You know, are you seeing a lift kind of across all nine or few kind of pulling ahead based on either your 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? Thanks.

Aneel Bhusri -- Chief Executive Officer

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.

Chano Fernandez -- Co-President

The other one I would say Aneel, beyond (ph) our core verticals on healthcare related (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.

Aneel Bhusri -- Chief Executive Officer

Super. Thanks so much.

Operator

We will take our final question from John DiFucci with Jefferies. Your line is open.

Samad Samana -- Jefferies -- Analyst

This is Samad Samana on for John, just a couple of questions. First, you mentioned the acceleration in 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.

Aneel Bhusri -- Chief Executive Officer

All of the above.

Samad Samana -- Jefferies -- Analyst

Okay. That's great.

Aneel Bhusri -- Chief Executive Officer

(multiple speakers) accelerated across the board.

Samad Samana -- Jefferies -- Analyst

Okay, great, thanks for that. 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 something to maybe help us understand who the adopters of that is, it looks like it's up considerably year over year?

Aneel Bhusri -- Chief Executive Officer

Why don't we come back to you on that with some 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 healthcare has been an interesting -- an interesting space for us that 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 some 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 across industry and across product line so far.

So it's -- that's what we like it to be, we are not seeing any areas where it's not interesting.

Samad Samana -- Jefferies -- Analyst

Great. Well, I appreciate you taking my questions and congrats on an awesome quarter.

Aneel Bhusri -- Chief Executive Officer

Thank you.

Operator

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.

Duration: 52 minutes

Call participants:

Michael Magaro -- Vice President, Investor Relations

Aneel Bhusri -- Chief Executive Officer

Robynne Sisco -- Co-President, Chief Financial Officer

Kevin Ma -- Credit Suisse -- Analyst

Mark Murphy -- J.P. Morgan -- Analyst

Chano Fernandez -- Co-President

Sanjit Kumar Singh -- Morgan Stanley -- Analyst

Justin Furby -- William Blair & Company -- Analyst

Tom Bogan -- Chief Executive Officer

Alex Zukin -- Piper Jaffray -- Analyst

Ross MacMillan -- RBC Capital Markets -- Analyst

Richard Davis -- Canaccord -- Analyst

Kash Rangan -- Bank of America -- Analyst

Scott Berg -- Needham -- Analyst

Kirk Materne -- Evercore -- Analyst

Samad Samana -- Jefferies -- Analyst

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