Good morning, everyone. My name is Robert. I will be your conference operator for today. At this time, I would like to welcome everyone to the Workday Adaptive Insights Acquisition Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. Mr. Mike Magaro, you may begin your conference.
Great. Thank you so much. Good morning, everyone. Earlier this morning, Workday announced that it has entered into an agreement to acquire Adaptive Insights, a leading provider of cloud-based software to modernize business planning. The details of the transaction can be found in a press release issued at approximately 8:00 A.M. Eastern Time today. Joining me today to discuss the transaction are Aneel Bhusri, Workday's CEO, Tom Bogan, CEO of Adaptive Insights, and Robynne Sisco, Workday's Co-President and CFO. The purpose of today's call is to discuss the acquisition of Adaptive Insights. Aneel, Tom, and Robynne will review the proposed acquisition and the terms of the transaction. After our prepared remarks, we'll turn the call over to your questions.
You should be aware that our discussion and responses to your questions may contain forward-looking statements related to Workday, Adaptive Insights, and the acquisition of Adaptive Insights that involve substantial risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed or implied by such statements. All statements other than historical facts included in our discussion, including but not limited to statements regarding the timing and closing of the transaction, the potential benefits and financial impact of the transaction, Workday and Adaptive Insights' plans, objectives, expectations and intentions, the financial condition results of operations and business of Workday and Adaptive Insights, and any assumptions underlining any of the foregoing are forward-looking statements. Should any of these risks or uncertainties materialize, or should our assumptions prove to be incorrect, actual company results and actual effects of the transaction could differ materially from these forward-looking statements.
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. With that, let me turn the call over to Aneel.
Thanks, Michael. Good morning, everybody. Thank you for joining us bright and early and on such short notice. We could not be more excited to talk to you about our agreement to acquire Adaptive Insights. As you know, they are a leading provider of cloud-based software to modernize business planning. Since day one, our core focus has been centered on customer-driven innovation across finance and HR. We have broadened our offering to become an even more important and strategic business partner to our customers as digital transformation initiatives flow through corporations across the globe. We have firmly established our leadership in HCM, differentiating ourselves through scalability and customer satisfaction, and we continue to grow our business across the globe.
Over the last few years, we've seen strong signs of increasing transformation in the CFO organization and have been delivering against our unique vision of bringing planning transactions and analytics into one unified cloud system. We expect the adoption of cloud financial management suites in large enterprise to accelerate over the next several years, as I've talked about on previous earnings calls, as companies are increasingly embracing the modernization across core GL with a focus around financial planning and analytics. As you know, we launched Workday Planning a year and a half ago, and since then, we have seen great success with over 250 customers. Customers see great benefits with the workforce planning components and increasingly financial-related planning. Through the acquisition of Adaptive Insights, we'll accelerate our financial planning technology roadmap by two to three years and deliver new and advanced modeling capabilities to our customers.
With Workday's planning product being an intricate part of the HCM system, we'll focus our existing planning product on delivering against the current roadmap and strategy centered around workforce planning. That is why the acquisition is so exciting for all of our customers. Together, Workday and Adaptive will accelerate customers' transformation across the organization through a powerful combination of integrated planning and a complete finance suite of products. This combination will enable customers to leverage the power of cloud-first solutions and offer a dynamic, interactive, and collaborative approach to finance. They'll be able to make smarter, faster decisions and drive strong business value. That's just not our opinion. Adaptive has been consistently recognized as a leader in cloud strategic corporate performance management systems by many industry analysts.
I will end with Workday and Adaptive are the perfect complement, marrying Adaptive's robust modeling engine and technology with Workday's go-to-market expertise and large enterprise customers. We see a tremendous opportunity to accelerate growth globally, leveraging our ecosystem momentum across many geographies. We happen to know Adaptive Insights very well. I've known Tom Bogan, Adaptive's CEO, for many years, and we've been good friends, I think, for the last 15 years, and have tremendous respect for him and for their leadership team, products, and business they've built. Culture and values are everything to Workday, and importantly, we are in lockstep on that dimension. We're thrilled to welcome Adaptive Insights to the Workday family once this transaction closes. With that, I'd like to turn the call over to Adaptive Insights CEO and my good friend, Tom Bogan.
Thanks, Aneel. I greatly appreciate the warm welcome, and it's truly an exciting day for Adaptive Insights, our customers, and our employees. Adaptive Insights is at the center of a significant opportunity to help organizations transform business planning
Into a strategic and competitive advantage by enabling organizations to respond to changing business conditions with confidence and agility through digital transformation. In organizations of all sizes, everybody plans. Whether it's the corporate planning process driven by finance or plans driven by functional leaders, planning is mission-critical across an enterprise. Our Business Planning Cloud was designed to enable holistic, collaborative planning across the enterprise. We believe that the market opportunity for our cloud-based planning platform is largely untapped because most organizations still rely on spreadsheets and other manual processes to plan. Our solutions are capable of addressing opportunities at companies of all sizes and are a modern replacement for legacy planning tools used by larger enterprises, where data and information is static and inaccessible by most employees. Our platform is easy to use.
It has powerful modeling capabilities, enables insights from analytics, facilitates rapid iterative planning processes, and offers fast time to value and low total cost of ownership for our customers. This value proposition, coupled with recent investments in our platform scale and security, along with new enterprise sales capability, allows us to address the needs of a wide range of organizations, from large enterprises and smaller businesses, whether they use legacy planning tools or spreadsheets and manual processes to plan. Our Business Planning Cloud already integrates with Workday HR and financials, and we already share a number of customers. We're headquartered in Palo Alto with approximately 500 employees, and we have offices around the world. As of April 30th, we had over 3,800 customers across all customer segments, with trailing 12-month revenue of $114 million and subscription revenue growth in our latest quarter of 33%.
It's very exciting to be here today to join forces with Workday. As Aneel said, I've known Workday and Aneel for many years. I've always admired what they've built and the customer-centric focus that they have. Joining forces with Workday accelerates our vision to modernize business planning on the promise of digital transformation for our customers. The synergy and combination of Workday and Adaptive Insights are powerful, with a primary focus on go-to-market, speed of innovation, and robust distribution capabilities in large enterprise. This is an exciting future for our joint employees, for our customers, and for our partners. We believe that our shared commitment to customer success and similar cultures make our companies a great fit. I want to thank our Adaptive Insights team members for all of your amazing work to bring us to this exciting point.
I can't wait to see what Adaptive Insights and Workday are going to do together. Let me hand the call over to Robynne.
Thank you, Tom. As Aneel and Tom mentioned, we couldn't be more excited about bringing together Workday and Adaptive Insights. This powerful combination accelerates our opportunity to support customers' digital transformation initiatives to modernize business planning. Under the terms of the definitive agreement, Workday will acquire all of the outstanding shares of Adaptive Insights for approximately $1.55 billion, including approximately $150 million in unvested equity issued to Adaptive Insights employees. We plan to fund the acquisition with cash from the company's balance sheet. We expect the transaction to close in Q3, subject to customary closing conditions. Adaptive Insights currently generates a non-GAAP operating loss, as well as operating cash flow losses.
These losses, along with purchase accounting adjustments, adoption of ASC 606, and transaction fees and expenses related to this acquisition, are expected to reduce our FY 2019 non-GAAP operating margin target, which we previously guided at 12%, and reduce our operating cash flow growth, which we previously guided at 30%. We plan to update our FY 2019 guidance during our second quarter earnings call. In the meantime, we encourage you to review Adaptive Insights' most recent public S1 filing for historical financial trends. Our management teams are excited about the synergies, both from a product and go-to-market standpoint, especially as it relates to our ability to accelerate growth globally by leveraging our ecosystem and momentum across geographies. We have high expectations that this combination will yield a significant business over time. With that, I'd like to open up the call for questions.
Thank you. A reminder, at this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. Again, that's star and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Mr. Alex Zukin from Piper Jaffray. Your line is open.
Hey, guys. Thanks for taking my question. I wanted to ask about the approximate split of the customer base for Adaptive Insights between SMB and enterprise. Also, any thoughts just initially on go-to-market strategy in terms of Adaptive Insights sales organization taking on primary responsibility for selling financials, and/or do you anticipate to be able to sell planning as a standalone product as well?
I'll take the second part, and then I'd ask Tom to weigh in on the split. It's still early days in figuring out sales planning, but the clear opportunity is to take the Adaptive product, which has undergone some significant transformation over the last couple of years, and sell it upmarket through our fairly sizable sales force. We plan to leave Adaptive Insights as a fairly standalone company, but they've got a fairly small group of enterprise sales reps, and we have a huge group of enterprise sales reps, so I think there's going to be tremendous synergy there. I'll turn it over to Tom about the split.
Yeah, thanks. 23% of our business is enterprise, 43% mid-market, and just over a third of our business is SMB.
Great. Thank you, guys.
Thank you. Your next question comes from the line of Scott Berg from Needham. Your line is open.
Hi, everyone. Thanks for taking my question. I guess this is probably for Aneel. Aneel, this is your first acquisition of what I consider to be a front-end application technology, and it's a sizable one. I guess two-part question is, one, how do you integrate it with your current technology stack, or do you leave some of the technology separate? Secondly, does this signal a willingness to do more of these going forward? Thanks.
I don't really know how to comment on the second part. We're very focused on just making sure that the coming together of Adaptive and Workday works great. It was a unique opportunity. As you all know, planning has been really central to our strategy for the last several years. Simply put, we wanted to be in the market now with a robust financial planning solution, looked at our own solution, said that's three years away, the market's happening now, and Adaptive is a great company. It has to hit a very high strategic bar, which Adaptive did, and it has to be a great cultural fit. There are just not that many of those opportunities out there. As it relates to bringing the companies together, at the end of the day, it's much tougher to bring together companies that are two transactional platforms.
That's where you have overlapping workflows and overlapping systems of record. In this case, the planning system is really an engine that over time will be able to harmonize the user interface, the security model, and the metadata and data models to be a seamless, unified solution for our customers. That's possible because of the way that the Adaptive product was written and the way our product was written. It's a nice adjacency that makes it actually more straightforward to bring into the Workday technology and have it feel like still a power of 1 type product.
Thank you. Your next question comes from the line of Karl Keirstead from Deutsche Bank. Your line is open.
Thank you, Robynne. As we take a shot, maybe before you report your next earnings regarding the impact that the Adaptive deal might have on your margins and operating cash flow, we obviously have through their S1, through their April quarter, but looking forward, was there any material inflection in Adaptive's cash flow or operating margin performance that you'd call out as we take a shot at modeling the impact on Workday? Thank you.
No, I would just encourage you to follow their trends. They've been making great progress on both the margin front and the cash flow front. We expected that would continue if they were independent and will continue as combined with Workday. So it will really be these other changes I discussed about the adoption of 606, which obviously has revenue and margin implications, as well as the purchase accounting adjustments.
Got it. Okay. Thank you, Robynne.
Thank you. Your next question comes from the line of Mr. Justin Furby from William Blair & Company. Your line is open.
Hey, guys. This is actually Vinayan for Justin. Thanks for taking my questions. I guess I just wanted to ask, is there any overlap in customers between you and Adaptive Insights? Just sort of a strategy around what's sort of the future of Workday Planning in terms of how that integrates, both from the existing customer front as well as new customers? Thanks.
Tom can correct me. I think Mike Magaro has as well. I think there are 30 to 40 joint customers. That's-
Yep
about 10% of our financial customer install base. In terms of our strategy, it's what I articulated in the opening remarks. Workday Planning is now really going to focus in on workforce planning, which is a key requirement for many of our mega HR customers, and it's a product that's very exciting to them. We're going to have Adaptive continue to focus on their strength, which is financial planning and sales planning. Really, that's the strategy, and over the next several months, we'll roll out a roadmap on how the technologies come together more closely from a user experience, security model, and data model perspective. That's really the bifurcation. We're going to focus Workday's efforts on workforce planning, and Adaptive is continuing to do what they're doing extremely well in financial planning and sales planning.
Perfect. Thanks.
A reminder, if you have questions, especially for our investors who are listening right now, if you have questions, please press star, then the number 1 on your telephone keypad. There are no further questions at this time. Please continue.
Perfect. Thank you so much. Appreciate everyone's time this morning. Thanks again for joining us. We look forward to answering your questions, I guess, over the next several weeks and months. We will be out on the road proactively this week, we'll see many of you at conferences and whatnot. Thanks again for joining us, we'll talk again soon.
This concludes today's conference call. You may now disconnect. Have a good day, everyone.