James Redfern - VP, Corporate Development Aneel Bhusri - CEO Robynne Sisco - CFO Mark Peek - Co-President Phil Wilmington - Co-President.

Mark Murphy - JPMorgan Justin Furby - William Blair & Company Karl Keirstead - Deutsche Bank Brent Thill - UBS Richard Davis - Canaccord Genuity Kash Rangan - BofA Merrill Lynch Sanjit Singh - Morgan Stanley Nicole Hayashi - Goldman Sachs Brian Schwartz - Oppenheimer Steve Ashley - Robert W. Baird Kirk Materne - Evercore ISI.

Welcome to the Workday’s Second Quarter Fiscal 2017 Earnings Call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. With that, I will hand it over to Mr. James Redfern..

Welcome to Workday’s second quarter fiscal 2017 earnings conference call. On the call, we have Aneel Bhusri, our CEO, Robynne Sisco, our CFO, Mark Peek and Phil Wilmington, our Co-President. Following Aneel and Robynne’s prepared remarks, we will take questions.

Our press release was issued after closes market and is posted on our website where this call is being simultaneously webcast.

Statements made on this call include forward-looking statements, such as those with the words will, believe, expect, anticipate, and similar phrases that denote future expectation or intent regarding our financial results, applications, customer demand, operations, and other matters.

These statements are subject to risks, uncertainties, and assumptions.

Please refer to the press release and the risk factors in documents filed with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q, for information on risks and uncertainties that may cause actual results to differ materially from those set forth in such statements.

In addition, during today’s call, we will discuss non-GAAP financial measures including non-GAAP operating profit and operating margins.

These non-GAAP measures exclude the effect on our GAAP results of share-based compensation, employer payroll tax-related items on employee stock transactions, amortization of acquisition-related intangible assets, and debt discount and issuance costs associated with our convertible notes.

We will also discuss free cash flows which are defined as cash flows from operations less certain capital expenditures other than owned real estate projects. These non-GAAP financial measures, which are used as measures of Workday’s performance, should be considered in addition to, not as a substitute for, or in isolation from, GAAP results.

In addition on today’s call, we will discuss forward outlook for non-GAAP operating margins.

A reconciliation of our forward outlook for non-GAAP operating margins with our forward-looking GAAP operating margins is not available without unreasonable efforts as a quantification of stock-based compensation expense required additional inputs such as number of shares granted and market price that are not ascertainable.

You can find additional disclosers 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 45 days on our company website under the Investor Relations link.

Our third quarter quiet period begins at the close of business October 15, 2016. With that, let me hand it over to Aneel..

Thanks, James. Hello everyone. I'd also like to extend my welcome to our Q2 earnings call. And I'm pleased to report that we had a strong Q2 and a first half of fiscal year 2017. The results were well balanced across our key initiatives as we saw consistent strength across product lines, geographies and industries.

Starting with North America, we are pleased to report several key HCM customer wins. Building on its existing partnership with Workday, IBM will now use our Human Capital Management Suite to manage many of its global HR processes for more than 350,000 employees.

Additionally, in anticipation of its upcoming close of the EMC acquisition, Dell has added to its existing Workday subscription bringing its total employee count to over 125,000. Other notable HCM wins in North America included Duke Energy and University of Virginia.

Moving to the EMEA region, we had another excellent quarter with notable HCM wins including Kering with 47,000 employees and Repsol with 30,000 employees.

In July I had a chance to personally visit many of our European offices and came away very enthusiastic about the market opportunity, competitive dynamics and most importantly our growing and talented European team. Lastly, we had our strongest quarter ever in the APJ region.

I'm personally pleased to welcome Samsung as a global Workday customer, our first customer in South Korea. We also had a strong quarter in the ANZ region, welcoming two international airlines, Air New Zealand and Qantas to the family of Workday customers.

Switching over to the financial management market, I'm excited to report that we had our second best quarter ever in terms of adding new financial management customers. In fact nearly one third of all new customers purchased Workday financial management.

Some of our notable financial management wins in Q2 included Raising Cane's, the large restaurant chain, large healthcare institutions including Arkansas Children's hospital and Eisenhower Medical Centre, the Telenor Group in Norway and high tech growth companies such as Pivotal Software and AMP Dynamics.

And from a competitive perspective our win rates in the financial management arena are now similar to our traditional win rates in the HCM space, which largely remain unchanged. Equally exciting on the financial management front, we’re very encouraged by the rapid adoption of Workday planning.

To date we have signed over 50 customers for Workday planning with the product headed to general availability with Workday 27 available this September. Of course much of our traction is due to our continued strong levels of customer success and we continue to enjoy the highest levels of customer satisfaction in our industry.

In Q2 we saw the following customers go live with Workday. LSU, easyJet, Trinity Health, Western Digital, Goodyear Tire & Rubber Company, the American National Red Cross and many others. Earlier this month, we closed the acquisition of Platfora, a leading big data provider of operational analytics and data discovery tools.

The acquisition was similar to others we have completed in the past and was focused on acquiring world-class technology and talent. We are excited to have many highly talented people join us from Platfora, focused on building the Platfora technology into the fabric of our technology platform.

I wanted to take a minute to extend a big welcome to the Platfora crew, our new colleague at Workday. You'll hear more about Platfora and our other new offerings such as planning, learning and student system at Workday Rising our Annual User Conference, which takes place in late September in Chicago this year.

We hope to see many of you there at our Financial Analyst Day, which takes place on Tuesday, September 27. If you haven't registered, please consider joining us. It promises to be a great event as we're expecting more than 6,000 attendees. And then we'll head to Barcelona in November to host Workday Rising for our customers based in Europe.

On a final note, I wanted to reiterate what I said on our Q1 earnings call. Fiscal year 2017 is shaping up to be a great year for Workday with a particularly strong pipeline in the second half of the year.

Indeed the pipeline looks strong across the Board for both Q3 and Q4, including a significant jump in medium and large financial management opportunities. I look forward to reporting back to you on our results after the end of Q3. And now I'll turn it over to our awesome CFO, Robynne Sisco. Take it away Robynne..

Thanks, Aneel. Good afternoon, everyone and thank you for joining us. Let me start with our results from the second quarter of fiscal 2017, which continued our positive start to the year. In the second quarter, we generated record quarterly revenues and once again delivered strong derived billings growth.

Workday continues to grow at a remarkable rate given our scale and after another strong quarter, we want to thank our employees for their continued dedication and our new and existing customers for their loyal support.

As Aneel pointed out, we continue to demonstrate strong momentum with new customers while seeing continued strength in renewals and add-on product sales to existing customers. Our total revenue for the second quarter of fiscal 2017 was $378 million, an increase of 34% from a year ago. Within that number subscription revenue grew 37% to $306 million.

Our Q2 professional services revenue was $71 million, or a growth of 21%. Our total derived billings, which is the sum of revenue and the sequential change in total unearned revenue were $431 million for the second quarter or a growth of 38% over last year.

Derived subscription billings, which is the sum of subscription revenue and the sequential change in total unearned revenue, grew 42% to $359 million. Next I'll turn to operating expenses and our results of operations. Our non-GAAP operating profit for the second quarter was $6 million or an operating margin of 1.6%.

This was better than we had expected and largely due to topline over performance and strength in our gross margin. In the quarter, we did not see any notable impact from FX changes in general or Brexit in particular.

While we are pleased with our margin performance in Q2, which indicates the increasing profitability of our model, we have not changed our focus on growth over margins given the large opportunities still ahead of us. Our trailing 12 month operating cash flow was $319 million, up 62% year-over-year.

Our trailing 12 month free cash flow was $178 million, up 130% year-over-year. Note that in calculating trailing 12 month free cash flow, we have excluded $26 million in capital spend related to our owned real-estate projects as we consider such projects non-recurring in nature.

We have approximately $2.1 billion of cash and marketable securities on our balance sheet, which demonstrates the strength of our business and provides more than ample cash for our capital expansion and strategic M&A. In addition, unearned revenue on our balance sheet at the end of Q2 was $979 million, up 43% year-over-year.

Current unearned revenue, which will be recognized over the next 12 months was $855 million or annual growth of 42%. The combination of strong unearned revenue, Q2 year-over-year growth and backlog of well over 50% and our high levels of customer satisfaction continues to give us confidence in the sustained strength of our business.

During the quarter, we also added over 450 net new employees bringing our total employee count to over 6,000. We continue to benefit from an employee turnover rate that we believe is among the lowest in our industry.

Now let me turn to guidance; for the third quarter of fiscal 2017 we expect derived billings to be approximately $445 million or 31% growth year-over-year. We expect Q3 subscription revenue to be $331 million to $333 million or 36% to 37% growth, with professional services growing only 7% to $67 million.

As a result, we expect Q3 total revenue of between $398 million and $400 million or growth of 30% to 31%. For fiscal 2017, we anticipate derived billings of $1.88 billion to $1.89 billion or 32% growth and total revenue of $1.548 billion to $1.558 billion or 33% to 34% growth.

We expect subscription revenue from fiscal 2017 will be $1.278 billion to $1.285 billion or 38% growth. The timing of revenue recognition can be impacted by the timing of when contracts are signed within the quarter, the amount of cash we bill and various other contractual terms, all of which are factored into our guidance.

Professional services revenue is expected to be $270 million to $273 million for the year. We continue to prioritize growth over margins while maintaining our long-term goal of 20% plus non-GAAP operating margins.

While the positive margin we achieved in Q2 reflects the financial strength of our model, we are continuing to invest in our business and do not anticipate maintaining that level of profitability next quarter or for the full year.

We expect expenses related to the Platfora acquisition, which closed in early Q3 to impact our Q3 operating margins by approximately 250 basis points. Taking that into account, we expect our Q3 non-GAAP operating margins to be a loss in the range of 2% to 3%.

We continue to expect that non-GAAP operating margins will be approximately breakeven for fiscal 2017, inclusive of the financial impact of the Platfora acquisition.

The GAAP operating margin for the third quarter and the full year is expected to be approximately 25 percentage points to 26 percentage points lower than the non-GAAP margin, due primarily to the impact of share-based compensation expense. Finally, let me turn to CapEx.

When calculating our free cash flow, we are excluding owned real-estate projects as we consider these to be non-recurring in nature. Excluding these projects, our CapEx in the second quarter was $27 million and $141 million on a trailing 12-month basis.

We expect CapEx for fiscal 2017 excluding owned real-estate projects to be approximately $160 million. This is lower than our previous estimate as we are starting to see the benefits of investments in our technology platform, which have driven higher levels of infrastructure utilization.

We continue to expect capital expenses related to our owned real-estate project for FY '17 to be approximately $125 million. Operating and free cash flow excluding these projects are expected to grow at least as fast as billings for fiscal 2017. With that, I'll turn the call over to the operator for Q&A.

Operator?.

[Operator Instructions] Your first question comes from the line of Mark Murphy of JPMorgan..

Yes, thank you very much. And first off, congratulations on a very strong quarter. So, Aneel, some of your partners are noticing a pretty remarkable difference in terms of HR leaders wanting to do a full suite upgrade of both HCM and financials, and they are suggesting that Workday is clearly shining in those situations.

And one of them actually had said the mix of the platform conversations increased from one out of 25 a few quarters ago to one out of four today.

And I'm just curious, does that track to your observations across the business and maybe can you see a future point where a majority of the deals would be platform discussions?.

We've definitely seen that trend Mark in the midmarket and we saw it in Q4 last year, Q1 of this year and now with Q2 -- in Q2 this year we saw healthy number of platform deals, maybe I'll ask Phil to comment on more detail, but it's definitely a rising trend. It's predominately a midmarket trend right now meaning companies up to 10,000 employees.

And we obviously hope it moves up market..

Yes, Mark, I think that trend does exist. Nearly one third of our transactions this quarter included financials. I think that's an indicator of that trend and we see that in the pipeline in the second half of the year.

So we're optimistic about the trend that you're seeing in talking with our partners and we think that will be substantiated going forward in the second half of the year..

And I might just add that I think that NetSuite ultimate partnership, which now is obviously thrown in the air again with Oracle’s acquisition of NetSuite, I think that was in reaction to the success we were having in that mid market with platform deals that was their response.

And I’m not sure they really have one now, given this recent acquisition of NetSuite by Oracle..

Thank you. And if I may, I had a quick follow-up question for Robynne. So we did notice the acceleration in the deferred revenue growth that you have acceleration in the total billings, and there was even more acceleration in the subscription billings growth and it occurred against a tough comparison.

I was wondering is it -- mathematically, can we read into that, is that a validation I guess of Aneel's comments on the prior call that the net new ACV bookings could accelerate this fiscal year?.

Yes, Mark, that’s exactly right. In fact, we saw that accelerated growth in both Q1 and Q2 and we expect it for the full fiscal year as well..

Thank you very much..

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

Thanks and congratulations on a stunning billings number. I had two questions I guess. The first is for Aneel.

And I'm wondering, Aneel, if you think about -- if you think -- whether or not you think HR can grow 30% a year for the medium term? So the next three to five years, do you think it can do that growth when you consider international and payroll and learning and recruiting and some of the other products and then I have got one follow up..

I think that's a reasonable number when you do include international and new products. International business has really picked up momentum. We were very pleased with what we saw and particularly, in APJ, that was really the most exciting quarter we've had as a company in that region. So I think that that sets up for future growth.

Anything else to add? Do you feel good about that number, Phil?.

Phil has to sign up for that number..

Okay, I let Phil sign up for it too then..

Well, I appreciate. Let me sign up for that Justin. I think the key there is, as you touched on it, is international. But it’s also exciting the growth we're seeing in adoption rate of new products. Recruiting has been very, very solid. Payroll attach rates continue to increase. Learning management is very solid.

So the increases in awareness and acceptance there, I think is another key to that establishing or continuing that performance rate..

Okay, got it. And then the second question is either for Phil or Aneel.

I'm wondering if you think we will look back a few years from now and we'll be able to point to a quarter or a year where we can say wow financials really kicked in meaningfully, or do you think instead it's more of a continued grind over the next several quarters? And I guess I'd love to hear any more color around pipeline in terms of building -- what the growth looks like there year over year.

And can you give any sense for the mix? Are we at a point where it's a quarter or 20% of new ACV? Thanks..

So, my perspective is Q4 of last year was the first wild quarter on financials when we had, I think, 40 financial customers, and it was almost like a step-up in terms of momentum, and that has continued into Q1 and Q2.

I know there’s a lot of focus on Fortune 500 wins, but we’re looking at it from a pure ACV and revenue momentum, and it’s growing really rapidly. It’s become a very important part of our business.

So I think it actually happened in Q4, and I’m hoping for another step function in another 12 to 15 months when the financials begin to take off internationally as well. Right now, we’re just getting our first wave of financial customers outside the U.S., but I think that will take off down the road to.

Anything you want to add?.

No, I think the second part of your question was, are we seeing pipeline growth and we’re seeing significant pipeline growth year-over-year. So I think, as Aneel said, Q4 of last year began to show the acceptance of our financial product. We’ve prepared ourselves for a long grind however. I think that’s how we prepared our field organization.

That’s how we think we’ll continue to earn the business. It’s a tough fight of financials. We prepared ourselves for that, but we’re optimistic about what the pipeline holds in the second half of the year..

Got it. Thanks very much guys and congrats..

And your next question comes from the line of Karl Keirstead of Deutsche Bank..

And one for Robynne. Aneel, obviously one of the big market events in the last three months was as you even flagged Oracle acquiring NetSuite, you talked a little bit about the impact on the payroll. But on the financial side, obviously there is some overlap.

It might be good for you to take a moment, if you don't mind, to remind us how the target market might differ. How frequently your financials business overlaps with NetSuite, and whether really you'll think it has any effect on the trajectory of financials at Workday. And then my follow-up is for Robynne.

Robynne, there was an unusual $14.5 million non-GAAP other expense item below the margin line. If you don't mind just explaining what that was. Thank you..

So if people go back to 2011, 2012 right before we went public, I actually had predicted that Oracle would buy NetSuite in the next 12 months, so I got the timing wrong. But it was -- to me that was set up to happen at some point. So we’ve been preparing for it probably longer than most.

I think the puzzling thing for me about the acquisition is that when you look at Oracle’s traction in Cloud applications and you listen to how their leaders talk about it, it’s primarily a mid-market phenomenon and I can just say from the Workday perspective, Oracle doesn’t compete well in large enterprises because their products are not proven at scale.

So they seem to be doubling down on the mid-market with an acquisition of NetSuite. We probably see NetSuite in 20% of our opportunities that would be my best guess. They are definitely an SMB to mid-market player. I’ve got a lot of respect for what they’ve done in that segment, we do bump into them.

I think more than anything else it calls a question whether Fusion actually was working and whether this becomes the primary platform for Oracle Apps going forward because otherwise it’s thoroughly confusing and confusion is very good for Workday.

So I think this anytime a company has confused us to which product to buy from a competitor and we’re very clear about which one we have, we only have one code line, I think it bodes well for us.

And that’s based on what happened when Taleo was acquired and Success Factors was acquired, that both of those have led to a lot of defections over to Workday..

Karl, your question about the other income charges, we took a $15 million write-off this quarter on an investment we made in a private company, which recently recapitalized with a private equity firm. So that was a one-time isolated charge and you should not expect that to repeat in future quarters..

Got it. That’s helpful. Thank you both..

Your next question comes from the line of Brent Thill of UBS..

Thanks. Aneel, just on the financials option among the larger enterprises.

What, from your perspective, is the hurdle that you need to clear before you start to see that really start that the fly will continue to spin there? Is there lighthouse wins that still need to come live? What needs to happen? I'm not saying it has to happen overnight, but what are you seeing that gives you confidence that may start to kick in in the back half of the year?.

They’re in the pipeline and they’re in the pipeline in a much bigger way than they ever have been before. The Aon project is going well and that was our, I would say our second lighthouse account after Netflix and Netflix has been live with Workday Financials for several years now and Aon is now on that path.

So in sectors like healthcare and education and government, those have already turned over where we have some of the largest healthcare and government and higher aided institutions already running Workday. It’s now just getting it into the general commercial area.

They’re in the pipeline and Phil and I are going to spend the next couple of quarters making sure we get a couple of those done. So I can stop having to answer this question. But I’m very, very confident that the trend is continuing.

At the end of the day, if you fast forward five years from now and you see what happened in the shift from Mainframe to Client Server almost every day left Mainframe and went to Client Server. Almost everybody is leaving Client Server and going to the Cloud. It happened in CRM first. It happened in HR second.

It’s now happened consistently in the mid-market in Financials and then the next place for it to happen is in large enterprise and that's very, very similar to the HR adoption pattern as well. We didn’t talk about it because a lot of that adoption pattern happened while we are a private company, but it's happening exactly the same way..

And there's a lot of excitement about the upcoming planning solution; many say that's the impetus for them to replace financials. Can you just give us a sense of timing and what you are seeing? And I would assume, Phil, you are having conversations with clients already that are yielding financial wins in this quarter given that is on its way..

Yes so just in terms of planning product, it goes into general availability in September. So just a month away. We signed over 50 customers. We put that in the press release that was higher than what we had expected. We have signed it and it definitely changes the conversation.

The product line it's the first time where planning and transactions have come together in a unified way. All the other time it's been through acquisitions, different security models, different user interfaces, data going back and forth. We’re the first one to do it in a unified way and many customers don’t actually believe it’s possible.

Now they see it coming into production. I think they’re quite excited and Phil can talk about what we’re seeing on the demand side as a result of planning..

There are certainly pipeline increases it relates to both financials and human capital management. I think it’s brought together with planning, forecasting and budgeting. Organizations don’t think of it just as Human Capital Management solutions or just as financial.

What are they spending on money on? They’re spending their money on their employee base. They’re trying to plan for that process. They’re trying to be predictable. All of those things are brought together through planning, forecasting and budgeting. The line is blurred between what’s HCM and what’s financials to the CFO or to the executive team.

And those are the conversations that we’re now having and that’s why the makeup of the second half pipeline and next year’s pipeline is very exciting because it’s not just the discussion of HCM or a discussion, a different discussion about Financials.

It's a discussion about the platform that Workday brings to the table for our customers currently and for our prospects and forecasting, budgeting and planning is really the application that bridges those two areas of concern for our customers..

Thank you..

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

Thanks very much. So when you acquired Platfora, I was disappointed because that was like one of the best companies in big data. So congratulations to your bizdem guys, but disappointing for us. But in any case, the question to you guys, you historically rewrite a lot of the companies you've acquired in terms of their software.

Do you need to do that for Platfora? Because to me it was a pretty cool ingestion engine as well as actually all the way into the analytics layer, but if you could talk a little bit about how that's going to fit into your business because it was actually a pretty legit company..

Well, thank you for that Richard. Historically we really haven’t rewritten the underlying architectures of the products we’ve acquired. We’ve basically rewritten the interfaces so that it can be sewn into the Workday architecture in a unified way. It’s what we did with GridCraft with their collaborative spreadsheets.

It’s what we've done with MediaCore and the video technology. So we'll rewrite the part that fits into the Workday piece, but the core technology usually stays pretty similar to where it was and that’s exactly what I would expect out of Platfora. They have world-class technology. There’s no need to rewrite it.

I think what we need to do is to make it work in a true multi-tenant cloud environment. They were supporting on-premise cloud both on a multitenant and single-tenant way and we’re going to drive it towards a multi-tenant used case where it’s really lined up against Workday data and the third party data that we bring in.

The real power of the Platfora platform is now our ability to bring in third-party data and analyze it in a deep way.

The Workday analytics are very powerful, but they’re really good on Workday data and as we're trying to move into this big data world where companies want to bring in third party data, we felt like we needed a data discovery and insight tool that can help us do that.

And we did an exhaustive search led by James Redfern and the product team and sold on Platfora. So they really have done a phenomenal job building up this platform. And you'll hear a lot more about our plans to pull it together at Rising. They will be featured in the keynote..

Okay. I will be there for that, but thank you very much. That's good color. Thanks a lot..

Your next question comes from the line of Kash Rangan of BofA Merrill Lynch..

That's the longest firm name. Congrats guys on the quarter.

Aneel, one very simple and strategic question for you, when you look at Microsoft acquiring LinkedIn and another company apparently also was interested in acquiring LinkedIn, how do you think that changes the landscape more particularly? And also more generally speaking, as you step back and look at the immense amount of M&A that has happened since you actually presented at our conference, how do you see Workday's role in the evolution that's going on in the cloud industry, which is actually quite breathtaking from an M&A perspective? Thank you so much..

So, it’s obviously close to the LinkedIn folks. Reed Hopkins, one of my very dear friends. I think it’s a really good marriage of those two companies. It doesn’t impact Workday in anyway. We’ve already talked about how we’re going to continue to partner with LinkedIn and Microsoft is becoming increasingly important partner to us.

So I don’t think it really changes any dynamics on that front. On the M&A front, every company has to pursue whatever strategy best suits them.

We've historically been an organically driven company, much like an Amazon and Apple where they will do acquisitions here or there, but for the most part they're going to organically build things out and I think that’s still the right path for us. You'll see us make acquisitions like Platfora.

You'll see us find other ways to get into new markets, but we’re pretty comfortable with our current strategy and staying the course that we’re on..

Thank you very much..

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

Hi this is Sanjit Singh for Keith Weiss. Congrats on an excellent quarter. Actually I wanted to revisit the mid-market commentary. A number of the challenge has obviously point to you guys having some nice traction there.

In terms of the NetSuite Oracle question, I was actually wanted to get your view on whether you think that's actually an opportunity for Workday. Aneel, you mentioned last quarter that you were looking to lower the cost of implementations and really start to focus on that market.

And given potential disruption with the acquisition, how much of a near to medium opportunity is the mid market for Workday?.

It’s very sizable, I think the more we've dug into it, we’re very competitive in that world and we’ve done quite well, but that market is far more sensitive to the cost of implementation than the large enterprise market is and we’ve been working on from very powerful tooling led by Annrai O’Toole, who is one of the principals at Cape Clear and has been with us since Cape Clear became part of Workday.

We’re going to showcase some of that tooling to you at the Analyst Day in September at Workday Rising.

Those tools are the critical piece for us to be more successful and gain even greater market share in that mid-market, bringing down the cost and implementation by 50%, 60% with these toolings, giving those customers less configuration choices, but most of them don’t want them anyways and that’s the way the -- that’s the way the ultimate of the NetSuite’s really keep the implementation costs down.

The software costs are pretty comparable. So I think it’s a huge opportunity for us and we just have to tackle these implementation costs..

That's really interesting. Robynne, a question for you.

In terms of the full-year billings guidance, is there any color can you provide in terms of the split between professional services billings and subscription billings, particularly on the subscriptions billings piece? How we should think about that in terms of contributing to overall billings from a growth rate or from a dollar perspective?.

Yes, you can think of the professional services billings is largely equal to revenue and the rest is all subscriptions billings..

Got it. That makes ton of sense. Thank you..

Your next question comes from the line of Heather Bellini of Goldman Sachs..

Great, thanks. This is Nicole Hayashi in for Heather. Aneel or Phil, year to date, we have seen some public companies that have missed their quarters due to failed financials implementations by your competitors.

Could you talk about how difficult it is to successfully go live, and how you plan to handle the relationship with third-party resellers for financials in particular since you expect professional services growth to be slower for the fiscal year? Thanks..

Well, number one, we don’t have any resellers of our financial products. We sell everything direct. We have implementation partners, which I think that’s probably what you mean. In terms of success rates, we’ve had near-perfect success with deploying financials at large medium-sized, large and medium-sized companies.

So I think in many cases, our success record is much stronger than any of the legacy providers. Actually, I would say the same about NetSuite, I think the cloud providers in general just do a much better job of getting customers into production. And our timelines are typically six to nine months.

So not something we’re really focused on or worry about..

Okay, great. Thanks.

And, Robynne, I might have missed this, but could you comment on duration this quarter and how it's trended compared to last year or last quarter?.

Yes Nicole, so our duration, our weighted average duration is still around four years, which has been the case for quite some time. So no meaningful change this quarter..

Great. Thank you..

You next question comes from the line of Brian Schwartz of Oppenheimer..

Yes hi, thanks for taking my question here today. Aneel, in the press release and the commentary, you talked about the strength and the quarter results being balanced across your products and geographies and verticals. I wanted to follow up on that comment and ask you how you would assess that strength of those items across your pipeline momentum.

Now you've given us a ton of color here today on the product momentum in your pipeline, so won't ask for any more for that. But is there anything that you can comment on in terms of specific geographies or specific industries that are surprising you in terms of momentum building in the pipeline? Thanks..

So I’d say it’s been part of an ongoing theme for the last four or five quarters, actually tied almost specifically to when Chano Fernandez took over our European operations, Europe has just been on a run now for multiple quarters and has become a high growth, highly predictable business.

And as I mentioned in the prepared comments, I had a chance to spend a week in Europe and visit all our offices. And the momentum there is very clear. The customers are happy. The meetings I got were at the senior levels of the largest companies in Europe just wasn’t the case two years ago.

So we feel like we’ve now entered a really exciting phase in Europe and Chano is beginning that same assault on the APJ market.

Rob Wells is our leader in Australia and New Zealand working for Chano and you win brands like Air New Zealand and Qantas, and you make them successful and in Commonwealth Bank of Australia, those markets are beginning to take off.

And then, of course, with the recent win with Samsung in Korea, Samsung is probably the most important company in Korea and one of the most important ones in the world.

So we’re opening up these international markets and landing bigger accounts and I would have expected if you’d asked me 12 months ago, how would you open up Korea? I wouldn’t have said we’d open it up by winning Samsung, and I would have hoped we would have gotten some good traction Australia.

But to get Qantas as a name brand account really, I don’t think you can do any better. So compare it to candidly to some of the stumbles we had in PeopleSoft growing internationally, kudos to Phil and to Chano, our entries into Europe and to Asia Pacific have been much more fruitful than they had been in our past lives..

Operator, we have time for two more questions..

Yes, we will now take two more questions. The first question coming from the line of Steve Ashley of Robert W. Baird..

Thanks so much. I'd just like to circle back to planning, a follow up on Brett's question. You talked about having 50 people who have already signed up for it. And just to clarify, are HCM only customers buying planning? And what kind of uplift or add-on sales ACV might that be? Thank you..

HCM-only customers can buy Planning. Financial-only customers can buy Planning and Financial and HR customers can buy Planning. So we sell them to any Workday customer.

If it’s HCM-only, it probably gears more towards workforce planning, but many of the accounts we’ve signed are actually for our Financial Planning and analysis and Phil do you want to talk about ACV and the mix between HR and financial customers as it relates to Planning?.

In terms of the ACV, in terms of the percentage of the transaction, I think it’s very comparable with other add-on products that you’ve seen with recruiting to HR, expenses into the financial suite of products. So it’s in that range.

I think to your question of who is buying it, it goes back to the comment I made earlier in terms of it is the product that blends together for us, the platform approach of HR and Financials. Headcount Planning talks about the dollars that companies are going to spend, and it involves the financial end of the organization.

So it’s a perfect mix for us to be able to combine our conversations with our HR customers as well as the financial side of the organization..

Okay. Thank you..

And your last question comes from the line of Kirk Materne of Evercore ISI..

Thanks very much for squeezing me in, and congratulations on the quarter. Robynne, I had a question for you. Obviously the pipeline of bigger deals is going up, and that's obviously great. I was just wondering how you are contemplating some of these deals in the guidance.

Meaning, do you feel pretty good about the cadence to get those deals to close, and how you have thought about that as you laid out the guidance for the back half of the year. I'm just trying to get a sense on the upside relative to what has to happen to meet your guidance. Thanks..

Yes, as we had mentioned in last quarter call, we are seeing ourselves a little more backend-loaded this year. Having said that, how these deals get signed within the quarter, particularly Q4, given that that’s our seasonal high, is a big driver for revenue within the quarter.

So that’s something that, you have taken into account in the guidance and we’ll really have to see how that plays out..

Okay. Great. Thanks for the color..

We thank you for your participation in today’s earnings call. You may now disconnect and have a great day..