Workday Inc (NASDAQ:WDAY) Q3 2020 Earnings Conference Call - Final Transcript

Dec 03, 2019 • 04:30 pm ET


Workday Inc (NASDAQ:WDAY) Q3 2020 Earnings Conference Call - Final Transcript


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Robynne Sisco

attracting top talent to Workday. During Q3, we successfully added and integrated over 400 net new employees, bringing our total workforce at the end of the quarter to more than 11,800. We are focused on maintaining operational efficiencies that will allow us to drive long-term enduring growth. Q3 was a solid quarter that positions us well as we head into our seasonally strongest and most important quarter of the year. Before providing updated guidance, I want to briefly touch on the Scout RFP acquisition, which we expect to close later this quarter. We're excited about the opportunity we see ahead in the broader spend management category and believe Scout's best-of-breed technology will accelerate our positioning in the market. It is important to note however that Scout's revenue base is still relatively small and when combined with the timing of the transaction and the required purchase accounting adjustments, it has a negligible impact on our fourth quarter revenue outlook.

With that, I will now turn to guidance. Our focus remains centered on investing to support our long-term growth opportunity. Based on our over performance in Q3, but keeping in mind we face another very difficult comparison in the fourth quarter, we are providing guidance as follows.

For subscription revenue, we're raising our FY '20 estimate to be in the range of $3.085 billion to $3.087 billion or 29% growth. We expect our Q4 subscription revenue to be $828 million to $830 million, representing 23% growth. We are raising our professional services revenue guidance to $529 million for fiscal '20, as we continue to focus on driving the highest levels of customer success. For Q4, we expect professional services revenue of $134 million. We now expect FY '20 non-GAAP operating margins of approximately 13%, up from our prior guidance of 12.3%. This guidance incorporates estimated expenses related to the pending Scout RFP acquisition.

The GAAP operating margin is expected to be lower than the non-GAAP margins by approximately 27 percentage points [Phonetic] in Q4 and for the full year. We still expect subscription revenue backlog growth in the low-20s in the fourth quarter and there is no change to our FY '20 operating cash flow guidance of $790 million. We have slightly lowered our FY '20 capital expense forecast for both owned real estate and all other capital expenditures, driven largely by the push-outs of certain projects into FY '21. We now expect the FY '20 capital outlay for our owned real estate projects to be $110 million and our outlay for all other capital expenditures to be $250 million.

While we are early in our FY '21 planning cycle and still have an important Q4 to close, we'd like to provide a preliminary and high level view of FY '21. As a reminder, and as we discussed in detail at our recent Analyst Day, we have a lot of new products coming to market in FY '21, including Workday Cloud Platform, People Analytics and our employee experience solution. Given the timing