Workday (NASDAQ:WDAY) released earnings for its second fiscal quarter on Aug. 27 after market close. After the release of the earnings report, CEO Aneel Bhusri, CFO Mark Peek, and Investor Relations Officer Michael Haase participated in an earnings call, detailing important facets of the business in the past quarter, and outlining the trajectory going forward. Here are five key takeaways from the call.
Workday is adding big new customers
Aggressive growth is built into Workday's share price, and securing new, large clients is essential to expanding its business in line with projections. According to CEO Aneel Bhusri, the company is in the process of making large enterprises a bigger portion of its customer base. During the call, Bhusri outlined major successes in targeting large enterprise customers:
While our new customers come from a wide range of industries, we have recently seen particularly strong adoption from financial services. In June, we announced that Unum, a Fortune 500 company and leading provider of financial protection benefits throughout the workplace, selected Workday for both HR and finance. In the second quarter, we welcomed two more extremely notable Fortune 500 financial services companies. The one we can mention is Bank of America, one of the nation's leading financial institutions, and our new largest customer to date.
Adding Bank of America, and the unnamed large, mystery company, to its customer base represents a big step forward for Workday, as it seeks to not only serve bigger companies but also bolster its presence in the financial services industry. Later in the call, Bhusri took time to clarify that the other, unnamed large company that had recently contracted with Workday was not McDonald's, as had been rumored.
The company has large customers that are also working as deployment partners
In keeping with the theme of growth, Bhusri was keen to point out that some of Workday's largest customers have also teamed with the company as service partners:
We're also seeing some really positive growth in our services ecosystem. On our last call, I showed that [Hewlett-Packard] went live as our largest customer in production. Since then in Q2, HP announced enterprise application services for Workday. HP will leverage its expertise from cloud, mobile, analytics, and big data combined with the hands on experience it gained from rolling out Workday internally to offer deployment services to new Workday customers.
Bhusri also noted that CSC, an IT services and solutions provider with more than 70,000 employees, had recently become a deployment partner. The desired takeaway here is that Workday has big customers that are not only satisfied with its product, but also actively working to help new customers transition to, and maintain, the company's cloud-based HCM solutions.
The company doesn't view Oracle and SAP's cloud offerings as credible
Perhaps the biggest question mark about Workday's future is what will happen to its business when Oracle and SAP AG begin using their resources to be more competitive in the cloud HCM market. During the question and answer segment, Bhusri was asked whether he had noticed any changes in the competitive landscape with regard to Oracle and SAP. Bhusri said he hadn't seen much change, outside of the competitors offering customers the ability to move certain legacy applications to the cloud. On the quality of Oracle and SAP's respective cloud platforms, Bhusri was dismissive:
But at the end of the day, that still puts pressure on their cloud offerings being credible offerings. And I still don't see that being the case. At least, not right now.
Workday Recruiting is doing well
Workday is in the process of adding, and expanding the reach of, new applications in its enterprise capital management suite. While many of the company's applications are included in its central HCM suite, it also sells separate, add-on SKUs that can be used in conjunction with the main system. Workday Recruiting, an app designed to streamline the talent acquisition process, launched in May. Asked about the SKU's attach rate among Workday customers, Bhusri said he didn't think there was enough data to provide a concrete answer, but he also clarified that the product was seeing good uptake:
I would just say it's among the best we've seen across the history, whether it's expenses or procurement or payroll. I mean, recruiting is right there at the top.
Strong buy rates would suggest that Workday's customers are satisfied with its products and looking to further automate their businesses with the company's software. Along these lines, success for Workday Recruiting would seem to bode well for the company's goal of improving sales for its financial management suite.
Workday has confidence in its ability to grow its financial products
Workday has targeted the financial management software market as an area in which it expects to grow significantly. Here's Bhusri on converting existing customers to its financials software:
Increasingly, we are seeing as the financial products get traction, the interest in customers -- in particular non-manufacturing customers -- to look at getting the whole suite together of HR and financial products in particular, say in our mid-market segment, customers would tend to choose fewer, rather than more, vendors, and we've seen a nice set of trends in that marketplace.
This statement suggests that Workday has a strong opportunity to sell its financial management suite to its existing customer base; however, the cited preference for fewer vendors also highlights one of the challenges facing the company as it attempts to move upmarket, as it finds itself in heightened competition with Oracle and SAP AG. Workday made significant progress in its last fiscal quarter, but the uncertainties facing the future of its business remain mostly undiminished.
Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Apple, Bank of America, and McDonald's and owns shares of Apple, Bank of America, and Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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