Workday, Inc. Q2 FY2021 Earnings Call

Welcome to Workday's Second Quarter Fiscal Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the call. And with that, I will now hand it over to Justin Furby, Senior Director of Investor Relations.

Welcome to Workday's second quarter fiscal '21 earnings conference call. On the call, we have Aneel Bhusri, our Co-CEO; Chano Fernandez, our Co-CEO; Robynne Sisco, our President and CFO; Tom Bogan, our Vice Chairman; and Pete Schlampp, our Executive Vice President of Product Development. Following 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. Before we get started, we want to emphasize that some of our statements on this call, particularly our guidance, are based on the information we have as of today and include forward-looking statements regarding our financial results, applications, customer demand, operations and other matters. These statements are subject to risks, uncertainties and assumptions, including those related to the impacts of the ongoing COVID-19 pandemic on our business and global economic conditions. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q for additional information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Workday's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, in our earnings press release and on the Investor Relations page of our website. The webcast replay of this call will be available for the next 90 days on our company website under the Investor Relations link. Also, the customers page of our website includes a list of selected customers and is updated monthly. Our third quarter quiet period begins on October 16, 2020. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2020. With that, let me hand it over to Aneel.

Thank you, Justin, and welcome to Workday's second quarter fiscal year '21 earnings conference call. I'm pleased to report that Workday delivered a strong second quarter with healthy demand across all product areas and geographies. Despite the challenging environment, our success as a company continues to be driven by the forward-thinking companies that expect more from their enterprise applications and choose Workday as their partner for finance and HR. I'm very proud of our workmates across the globe who came together in such a remarkable way, mostly working from their home offices to drive these strong Q2 results. We're living in unique times, navigating a healthcare crisis, an economic crisis, and a social crisis. This year will no doubt be memorable for all of us. It's also a moment when businesses and their leaders can drive change for good and show that companies can and should have a soul. To that end, we have taken a leadership role in addressing social inequality and continuing to enhance diversity and inclusion at Workday. We have recruited some of the most passionate and talented minds from across Workday into an accelerated team led by our Chief Diversity Officer, Karen Taylor. We have four guiding principles: first, building inclusive products and technologies; second, hiring and developing diverse talent; third, cultivating a culture of belonging; and fourth, strengthening our communities. Our accelerated team is focused on identifying priorities and metrics to help us drive and measure success against these principles. We look forward to updating you on our progress soon. Moving on to the business highlights, we had another strong quarter for Workday HCM, with notable customer additions, including Air Liquide, IBM, the State of Oklahoma, and German manufacturing leader, Thyssenkrupp. I'm also pleased to mention that we added one of the largest U.S. telecommunications services companies to our Fortune 50 customer list. As always, customer success remains a key differentiator for Workday. In Q2, we had several HCM go-lives, including General Motors, The Hartford, Eli Lilly, and Bridgestone Americas. Turning to Workday financial management, we saw continued strong momentum across the expanding product line in Q2, including a financials first win at Comerica Bank and notable platform wins where companies selected both core financials and HCM together at Sharp Healthcare, The Amenity Collective, and American Financial Group. Among the many core financials go-lives in the quarter, I would like to highlight Prisma Health and Nebraska Medicine. In addition, CNA and Shelter Insurance both went live as early adopters of Workday Accounting Center, a new offering that has served as a key differentiator in several of our recent strategic core financials wins. I'm pleased to say that Workday Accounting Center is on schedule to be commercially available this fall. In addition to the strong commercial success this quarter, we also added a federal government agency with 4,000 employees as an HCM and financials customer, and this agency has partnered with us as we seek FedRAMP authorization. For many years, we have provided solutions for state and local governments as well as numerous federal labs and DoD contractors, and we view the federal market as the next logical step in our market expansion. Our near-term focus is on ensuring success with this initial partnership, but we are excited by the longer-term opportunity to serve the federal marketplace. Turning to some of our newer initiatives, we saw solid demand for our expanding suite of products that support the office of the CFO and Chief Procurement Officer, including Workday Adaptive Planning, Prism Analytics, and Spend Management, where we now support more than 1,000 procurement customers. Scout RFP had another excellent quarter as companies are increasingly seeking the ability to manage their supplier network and appreciate the rapid time to value solutions like Scout can provide. The three Fortune 500 sourcing wins we announced last quarter are now all live and in production. Regarding product development, in Q2, we announced availability for Workday Help and Journeys, new solutions that enhance the power of Workday people experience, our machine learning-driven employee experience. We also announced availability of people analytics, which leverages our Prism foundation to help empower HR and business leaders to make better decisions regarding people. We continue to assist our customers with their return to work planning during this time, including joint offerings with key partners, such as our announcement last quarter with Salesforce, and more recently with IBM, where we announced a joint solution to plan, schedule, and monitor our customers' safe return to the workplace. In the last earnings call, I shared my belief that this environment will ultimately serve as a catalyst to accelerate the adoption of finance and HR systems in the cloud. Our Q2 results and my conversations with business leaders suggest that companies are increasingly realizing the strategic importance of having agile, flexible systems to support their mission-critical business processes now and in the future. Lastly, I want to share the exciting news that my great friend and colleague, Chano Fernandez, has been promoted to Co-CEO of Workday. In his expanded role, Chano will now oversee all of our customer-facing activities, including sales, customer service, support, and many marketing aspects. Chano joined Workday back in 2014 as our President of EMEA and has taken on more responsibilities over time, most recently as Co-President of the company. He is a remarkable values-based leader and has driven his teams to great success over the years. So, the move to Co-CEO is a natural progression for him, for Workday, and for me. I'm personally thrilled to partner with him in this next chapter for Workday. For those who have followed Workday for a while, you may remember that my Co-Founder, Dave, and I served as Co-CEOs for nearly five years, and that model worked exceptionally well for us and the company. I fully expect the Co-CEO structure will also be successful for Chano and me. Congratulations, Chano, and a big thank you to you and your team for a great Q2. I'm looking forward to being your partner for many years to come. Over to you.

Thank you, Aneel. I'm incredibly grateful to you, Dave, and the entire Board for the trust you have placed in me. It's an honor. I'm thrilled to partner with you and our exceptional workmates across the globe on our exciting journey ahead. Before providing my update, I wanted to begin by echoing Aneel's comments and express my thanks and appreciation to our field team for a strong Q2. I am pleased with our progress, especially in the context of the ongoing macro uncertainty, and it was good to see the solid performance across our segments, regions, and products. Many businesses seem to be settling into this uncertain environment and increasingly realizing the need to move forward with their digital transformation initiatives. This, along with our strong execution, drove improving conversion rates in Q2 relative to what we experienced in the March-April timeframe. Our second quarter performance was broad-based and included strong results from both net new and back-to-base teams. In the large enterprise, we landed nine new global 2,000 HCM customers and two Global 2000 financials deals. We also saw strength in our education and government team, highlighted by the win of the State of Oklahoma, and we have a growing pipeline of state and local government opportunities. The medium enterprise also had another solid quarter, continuing a multi-quarter trend. From a regional perspective, North America and APAC were standouts, and we had improving performance in Europe. The back-to-base team delivered another solid quarter with over 50% growth again this quarter, driven by strength across products, including financials, workforce and financial planning, Prism Analytics, learning, Scout RFP, and newly launched Accounting Center. It's early, but we're also encouraged by pipeline creation from some of our newest products, including Health, Workday Extend, and People Analytics. Going forward, we remain cautiously optimistic that market dynamics will slowly improve as we approach year-end and head into FY '22. More importantly, we are extremely optimistic about the longer-term opportunity that will come from this environment, as businesses increasingly realize the importance of Workday in navigating and driving times of change. With that, I will turn it over to our newly minted President, Robynne Sisco. Congrats, Robynne. Over to you.

Thanks, Chano. I look forward to continuing our partnership and supporting you in your new role. As Aneel and Chano both noted, Q2 was a very solid quarter despite an uncertain environment, driven by strong execution against a slightly improved market backdrop as many companies continued with their digital transformation initiatives. I'm going to briefly recap our second quarter results, update our guidance for Q3 and FY '21, and then open it up for your questions. Subscription revenue in the second quarter was $932 million, up 23% year-over-year. The outperformance was driven by strong renewals, favorable new business linearity, and a one-time benefit of $6 million from the acceleration of revenue on a customer contract. Professional services revenue was $130 million, and total revenue was $1.062 billion. Total revenue outside the U.S. was $257 million, 24% of the total. Subscription revenue backlog was $8.60 billion at the end of the second quarter, growth of 22% year-over-year. The backlog performance was driven by strong new ACV bookings across both net new and add-on business. In addition, we once again experienced strong renewals with gross retention over 95% and net retention, which includes upsells at the time of renewal, over 100%. Subscription revenue backlog that will be recognized within the next 24 months was $5.78 billion, growth of 21%. Our non-GAAP operating income for the second quarter was $258 million, resulting in a non-GAAP operating margin of 24%. The operating margin outperformance was driven by a combination of top-line overachievement, slower hiring, continued COVID-related moderation of operating expenses, including travel and marketing, and some one-time credits related to canceled events. Q2 operating cash flow was $157 million, growth of 57% year-over-year, driven by solid collections and moderated spending. We continue to work with customers, both new and existing, that request more flexible payment terms, specifically in industries hardest hit by the pandemic. This payment flexibility acts as a near-term headwind to cash flow and unearned revenue, though it's important to keep in mind that it has no impact on our subscription revenue, subscription revenue backlog, or long-term customer economics. During the quarter, we settled our 2020 $250 million convertible note using cash proceeds from the final funding of our term loan. We exited our second quarter with $2.8 billion of cash and marketable securities and have access to $750 million of unused capacity on our revolving line of credit. Our total workforce at the end of the quarter was approximately 12,300 employees, slightly down from Q1. The hiring in the quarter was focused primarily on a limited number of strategic positions to support our key growth initiatives. This was offset by normal levels of employee attrition that had not yet been backfilled by the end of the quarter. We're extremely pleased with our results and execution in Q2. And while we remain cautious about the near-term pace of recovery, we see significant long-term opportunity ahead to support our growth aspirations. Now turning to guidance, which, despite our outperformance in Q2, continues to be governed by the assumptions we outlined last quarter, specifically, that we continue to face an uncertain and challenging environment, which we expect will remain in the near term with only slowly improving market dynamics as we approach year-end. As a result of our strong Q2 performance, we are raising our FY '21 subscription revenue estimate to be in the range of $3.73 billion to $3.74 billion, 20% to 21% growth. We expect our Q3 subscription revenue to be $948 million to $950 million, 19% growth. We now expect professional services revenue to be $525 million in fiscal '21 and $135 million in Q3. As always, our priority is to support our customers' successful deployments and drive the highest levels of customer satisfaction. In line with these goals, we expect a balanced approach in terms of partner and Workday primes to ensure our partner ecosystem continues to be healthy and active. For Q3, we expect subscription revenue backlog growth in the high teens. We estimate Q3 non-GAAP operating margin to be approximately 19%. For the full year, we now expect a non-GAAP operating margin of 18%, up from our previous view of 16%. This full-year margin improvement is largely the result of our top-line overperformance. The GAAP operating margin is expected to be lower than the non-GAAP margin by approximately 26 percentage points in both the third quarter and the full year. Our FY '21 capital investment guidance remains unchanged at $280 million. I'd like to close by thanking our amazing employees, customers, and partners for their continued support and hard work, which allowed us to deliver strong Q2 results during these unprecedented times. Our first half performance has reinforced our confidence in the fundamental strength of our business and the long-term opportunity that we see ahead. With that, I'll turn it over to the operator to begin Q&A.

Our first question comes from Kirk Materne of Evercore ISI. Please proceed with your questions.

Congrats on the quarter and congratulations to Chano on the promotion. Well deserved. I think my question is for Aneel. Aneel, I think there was some concern amongst investors that companies that were in the more traditional back-office categories of software, maybe namely HCM and ERP, would get shoved to the back of the line in terms of spending priorities due to COVID. And I think with these results, that thesis was clearly a bit faulty. So I was wondering if you could talk about how customers are thinking about Workday relative to their other mission-critical systems in terms of prioritization around spend? And then why the conversations you're having today maybe put you in a different category versus some of the traditional ERP vendors?

Thanks, Kirk. So first of all, I think the most important piece is we're not an ERP vendor. I think there's a lot of connotations with ERP that are 2- to 3-year implementations where the payback takes a long time. We're quick to implement HR and finance systems really oriented towards employees and running the business in a very agile environment. So on the HR side, very simply, with the pandemic and with all the other issues facing companies right now, employees are front and center for everybody. You should think about HCM, not just as a back-office system, but as an employee engagement system. But also with the pandemic, companies have had to change their business processes radically, and they're changing them on a weekly basis. The legacy systems just can't do that. So we saw some holdouts of companies that were working with legacy systems just decide, 'Hey, we just need to make the plunge and go into the cloud even though we're in the middle of the pandemic.' Similarly, on the finance side, the flexibility that starts their planning system, the ability to recreate and generate plans on a really rapid basis based on a system adaptive that can go live within a month and our core accounting system where you can close the books without having anyone in the office completely remotely can be live in 6 to 9 months. I think companies that are in a place to invest continue to invest in these data transformation areas, and they're embracing the cloud. HR and finance are still very important.

I have a quick follow-up for Robynne. You mentioned that the outperformance in margins was primarily due to the strong performance on the top line, which also influenced the change in guidance. Looking at the second half of the year, do you plan to increase hiring? How should we consider your capacity to spend or hire more during this period?

Yes, Kirk. So we said in the last call that we do expect to see slow improvements in Q4. So we've been planning all along to start reinvesting in the back half of the year, and we continue to have that assumption. So we will start investing in areas like sales, marketing, product, and technology. And as I mentioned before, we did have some one-time benefits in Q3 that won’t repeat such as credits for canceled events. So we feel very good about our ability to invest in the back half of the year and to execute against those investment plans and a good payoff from that in the future.

Our next question has come from the line of Kash Rangan of Bank of America Merrill Lynch. Please proceed with your questions.

Congratulations to the Workday team on a fantastic quarter, and congratulations to Chano on your promotion. I have a question for either Aneel or Chano. Looking ahead to your user conference Workday Rising, which has historically been a significant event that helps build your pipeline, how are you approaching the calendar year 2021, especially since the outlook for calendar year 2020 appears positive for business growth? Additionally, we have heard from the field about strong demand for an integrated HCM financial system in the cloud. How do you perceive this demand in your pipeline? What is the adoption rate of financials integrated with HCM among Fortune 500 companies, and is this expected to accelerate in calendar year 2021?

I think Chano is the right person to answer those questions. So I'll refer to the Co-CEO.

Thank you, Kash. So from a rising perspective, you are right, we made the decision to pivot and hold off Rising until next year, which is hopefully safe to get together again. Instead, what we are doing is introducing a special digital event that will explore the most pressing challenges facing businesses right now, which we think is more appropriate at this time. But I would like to highlight that Rising isn't necessarily a big pipeline builder for us. The primary focus there is customers and later stage prospects, Kash. From a pipeline build perspective, I'm kind of looking out to next year; we've seen improvement relative to what we saw in Q1, which is encouraging, and we're moving closer to pre-COVID levels, but we aren't yet quite back to this from a pipeline build perspective. And with the biggest impact here in the verticals, we've already called out, like travel, hospitality, and retail. But there are also a lot of areas I'm very encouraged by in terms of pipeline build, like what we are seeing in state and local government verticals, financial services, technology, and media, and more broadly on our installed base team pipeline, also that one accelerates faster, which can also help for year-end faster build-up pipeline to support the event on the back of this year.

And on the financials, pent-up demand possibly for financials HCM in the Fortune 500 segment of the market, if that is the case?

What we're seeing right now in financials is that, if you talk to some of our partners, and we're seeing it indirectly ourselves, there are a number of evaluations going on at this point in time. So a, we've seen some improvement, clearly, on the financial side. And it's reflected in some of the customers that we've been mentioning. But as what we are expecting, as Aneel was mentioning, that as we turn the corner from COVID and due to the number of evaluations that are happening and taking place now, it may accelerate. Again, the environment remains uncertain and fluid, so it's difficult to call out. But certainly, the number of evaluations out there has increased as companies have realized this environment, the need for that flexibility and agility that Aneel was talking about, and that cannot be on our legacy systems.

Our next question comes from the line of Mark Murphy with JPMorgan. Please proceed with your questions.

And Chano, I wanted to say congratulations. You've had the Midas touch in every single role that we've seen, and I just can't wait to see how it builds from here. I just had a question on the impact of the pandemic on Workday financials. Because we've heard so many anecdotes of how modernizing finance is going to be necessary from a survival standpoint. And I'm curious if that is overcoming the hesitation that we've always seen to change a core system like that amidst a pretty uncertain environment. Well, I guess I'll just leave it at that.

Chano?

Yes, Mark, I've been discussing this with Kash. I believe companies are recognizing the need to upgrade their financial systems. Some are struggling to manage their records remotely, and others are finding it difficult to implement necessary changes. I've heard from customers who have had people enter their businesses to download reports and provide financial data while their offices are closed. It's clear that there is an understanding of the need for modernization from a survival perspective to carry out these tasks. Additionally, I want to emphasize that the number of evaluations we're seeing on the financial side has increased, but it's important to note that the overall environment is unpredictable and fluid. We might expect this to lead to acceleration in the future, but it's too early to say for sure.

Our next questions come from the line of Keith Weiss, Morgan Stanley. Please proceed with your questions.

Excellent. Very nice quarter. A question for Aneel and related to Chano, congratulations on the new role. Aneel, with Chano now becoming Co-CEO, do you imagine your role changing at all? And how do you guys think about kind of dividing up the responsibilities between the two of you? Are you going to move into something that's more strategic, and Chano is going to be working on sort of the day-to-day operations? Or how do you guys foresee that working with the two of you as Co-CEOs now?

Well, Chano was taking on all of customer services and a lot of marketing too. And that's half the company. For me, I'm more of a product person and strategy person, and I personally would like to get back to working with our product teams and our venture teams and our strategy teams on where we go in the future. It's super important that we maintain the great culture that we have. So working with employees is critical, too. So much like it was with me and Dave, two like-minded people are better than one in the CEO job. It was my best experience at Workday when Dave and I were Co-CEOs. I'm thrilled to be able to share the role with Chano. He's a much stronger operational leader than I am, and he's going to take over the things that he's really great at. Over time, we'll figure it out. We're great friends, and we'll figure out the right mix over time.

I'm very excited about the opportunity, clearly, and I'm really thankful, as I said, to Aneel, Dave, and the rest of the Board. I think we are quite complementary, and we get along very well. We have good points of view on each other's areas. But certainly, I'm really excited to be contributing as much as I can more from a broader go-to-market, customer relationship as a whole, from acquisition to customer success to services and, clearly, to support and driving the company going forward with the support of Robynne and the rest of the Executive Committee team. I think it's a good breakout that we have right now. It's quite a clean cut, to be honest, while allowing us potentially to play to the strengths that both of us have. So it's great.

It sounds great. And if I could sneak one last one in. Chano, you mentioned you're encouraged about the strengthening you're seeing in the new products. Can you talk to us a little bit about some of the initial use cases and kind of workloads that you're seeing people put on the extend platform?

I'm going to hand over that one to Pete Schlampp from the product because I think he's in a much better place to answer that one.

Yes. Thanks for the question. The first thing I would remind you is that Extend is more than a revenue opportunity for us. It's an opportunity for us to find ways to become more efficient in R&D because as we provide these tools to our customers, they're able to extend Workday in the ways that they need in their unique situations, instead of us having to build products for them. So that's great. That said, we've seen some great wins this quarter with Extend, and the pipeline is looking great as well. We've been seeing lots of use cases. I think we have about 100 different applications live today. One of them that just went live this quarter was a company that had built a self-assessment capability inside of Extend, so employees could self-assess as they were getting ready to return to work and determine whether they were ready. So Extend is about any type of use case, just extending the surface area of Workday.

Our next question has come from the line of Heather Bellini with Goldman Sachs. Please proceed with your questions.

And again, Chano, congrats on the promotion. Just I had a question, and I don't know Aneel or Robynne, if this is best for you, but just related to the pace of business throughout the quarter. You guys obviously had very good results. You gave rightly so conservative guidance for the quarter. But can you talk about how the pace of business evolved over the course of the quarter, if you could share with us? Then I just have a quick follow-up.

Robynne?

Yes, so we actually, Heather, had really good linearity this quarter. Chano had mentioned before that he was starting to see more sales activity in May than we had seen in April. We saw continued execution throughout the quarter, strong linearity, which added to our top-line beat and good close rates, really strong close rates. And so Chano, anything you would add to that in terms of what you were seeing?

No, I think it was a solid performance throughout the quarter. A big part of how the quarter closed out as a whole. It's hard to draw a completely straight line, Heather, and say that every month put better linearity. But clearly, the broader observation is that the environment has improved since March and April, as we commented, and has kept improving since then. But as I said before, the market remains fluid in the near term, which is also reflected in our outlook price. And again, the biggest impact we still see in the verticals that has been hardest hit.

Great. Right. And then, Aneel, just to follow up on your introductory comments, do you think that what we're going through and just the desire to have more modern systems, do you think this will actually accelerate people's desire to move financials to the cloud? I know that that's been a market that's taken probably longer than people thought to really make a wholesale shift. Is this kind of an accelerant of that trend, do you think, based on what you're hearing?

I definitely think it is. The need for agility and flexibility is so critical in today's world. Maybe if you were running your business the last couple of years, and there weren't many external factors, your core accounting system is probably fine. But I actually think the bigger driver for us is the broadening of the fleet. Four to five years ago, we were dealing with our core accounting message. And if the customer wasn't ready to replace core accounting, we didn't have anything else to talk to them about. Today, we can start with Planning. We can have the conversation about core accounting, but we could talk about Scout. We can talk about Prism Analytics. We now have the end-to-end suite that took a number of years for legacy vendors to build on-premise, and now we have it in the cloud. Three to four years ago, we just didn’t have that scope for that breadth. Today, we do. I think that's a big part of why people are moving. They don't want to just move their core accounting system. They want to look at procurement. They want to look at Planning. They want to look at analytics and then increasingly now for certain set of industries, the Workday Accounting Center. When you put that all together, we now have a basket of products that meets the needs of pretty much everybody, and they can move forward with comfort that we can cover their full needs, not just one part of their needs. I really do think that's the bigger driver.

Our next questions come from the line of Alex Zukin with RBC Capital Markets. Please proceed with your questions.

Congratulations on the quarter. And Chano, really thrilled for you as well. So maybe, Aneel, one of the interesting things, and you touched on it in answering Kirk's question, but I want to dig a little deeper. One of the interesting things we picked up recently in our fieldwork is this increasing shift of power back to the HR executive and department. To your point, as more executives are getting concerned about employee engagement, talent management, mental health, diversity, and inclusion in this new kind of remote world, and I guess the question is, what are you seeing from this? Are you seeing this in the field actually starting to impact sales cycles, pipelines conversation? And does this impact the secular growth trajectory of the HCM business as we come out of this crisis or longer term?

In terms of the secular growth, that's a hard one to predict. But I would say that it’s part of our goal. I've never had so many CEO conversations on the HCM product line. The issue of employee health, mental health, physical health, how are they doing working remotely, how are they working on their projects, this new world of skills, and a different world around talent, it's working to become a number one priority for the CEOs. So that is definitely elevating the CHRO to a position within the company.

And then maybe just one for Robynne. Can you talk about that $6 million accelerated payment term and also any sort of FX impacts on the guidance, headwinds, or tailwinds?

Yes, sure. The $6 million was a result of a Workday customer who was acquired by a non-Workday customer, and therefore, they wanted to terminate their contract. So they prepaid the remaining balance of the contract, which should have gone several more years, and that caused an acceleration of the rest of the revenue across the contract, so a one-time event on that front. I'm sorry, Alex, what was the second part of your question?

Just related to FX, in terms of the tailwinds or the headwinds with respect to the guide?

Yes. Really no FX impact to call out.

Our next question has come from the line of Matt Pfau with William Blair. Please proceed with your questions.

Congrats on the quarter, guys. I wanted to ask on Workday Launch and the expansion of the solution to large enterprises. Maybe first of all, is this a response to perhaps the demand for faster time-to-value solutions driven by COVID, or is this something that was sort of always in the works pre-COVID? And then what's the scope of this in terms of the type of large enterprises that could potentially use Workday Launch to get up and running?

Chano?

Yes, thanks for your question, Matt. I mean, it was always in the works once Launch was more proven in the medium enterprise across the board. That offering was resulting in good outcomes in terms of both time-to-value and predictability of cost. The idea was always to expand a bit more into the upper and large enterprise. Right now, we're more on the lower end of large enterprise with the initial customers. You could say something between 4,000 to 7,000 to 8,000 employees, kind of what we are implementing it. It can be across all verticals. Once you have the packetization of the full offering, we will provide both mainly both time-to-value and predictability of cost, sometimes on a fixed fee basis.

And does it do anything to your market opportunity in terms of potentially accelerating adoption or reaching customers that you couldn't reach previously?

It can definitely help on those customers that are looking for more proactive and predicted offerings that will impact faster, quicker ROI, quicker time-to-value and also on those customers that are looking for a fixed cost, sometimes in terms of the offering of the implementation and have surprises. So definitely, it can be an accelerator on some of those markets we're applying.

Our next questions come from the line of Scott Berg with Needham Company. Please proceed with your questions.

This is Ryan MacDonald on for Scott Berg. Congrats on a great quarter. Could you provide a little more color on Adaptive sales and the continued traction you see there compared maybe to the strong results you saw in Q1? And then also how pipeline is looking into the back half of the year for that?

Yes. So thanks for the question, Ryan. We continue to make excellent progress with Adaptive. I would characterize it as first, a lot of strength selling Workforce Planning into the broader Workday HCM customer base. Our teams have seen a lot of success. This environment really increases the importance of the criticality of doing effective workforce planning for many organizations, whether it be location, headcount planning, skills planning, training, or diversity. Those are all aspects that are important to our customers. We've also seen a significant increase in interest in getting modern financial planning systems for organizations. I think we talked last time about the customer activity running multiple scenarios because of COVID. Perhaps not at the same levels, but that continues as customers think about their business and run combinatorics that are essential to understand what their businesses are doing going forward. We've seen strong customer demand. As Aneel said, Adaptive and Scout both have rapid times to value, and that's important in this environment.

Excellent. And then just as a follow-up for Robynne. Robynne, just wondering if you've seen requests for flexible payment or billing terms from customers persist throughout second quarter and I guess into early third quarter here at all?

Yes. We continue to do those requests. We got an initial wave when COVID first hit, as you can imagine, but we do continue to see requests from customers. Some new customers, we see some request upon renewals. We continue to evaluate those on a case-by-case basis and to give relief where it makes sense to our hardest-hit customers. I do expect that this will likely continue through the rest of this year.

Ladies and gentlemen, thank you for your participation in today's conference. This will conclude Workday's second quarter 2021 earnings call. Thank you again for joining us.