Welcome to Workday's third quarter fiscal year 2021 earnings conference 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. With that, I would now hand it over to Mr. Justin Furby, Vice President of Investor Relations. Please go ahead, sir.
Thank you, operator. Welcome to Workday's third quarter fiscal 2021 earnings conference call. On the call, we have Aneel Bhusri and Chano Fernandez, our Co-CEOs, 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 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 in 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.
The Customers page of our website includes a list of selected customers and is updated monthly. Our fourth quarter quiet period begins on January 16th, 2021. 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 third quarter fiscal 2021 earnings conference call. I hope all of you joining us today are in good health and that your families are doing well. We at Workday are encouraged by the recent news regarding vaccines coming to market early next year. We also know we can't lose sight of the fact that we find ourselves in a particularly difficult phase of this pandemic, and the health and safety of all people is most important as we navigate these uncertain times. I'm very proud of our team, who continue to support our customers despite the challenges that persist, and remain very optimistic about Workday's post-pandemic future. As we know, business leaders are facing a myriad of different challenges right now. Indeed, we are experiencing a health, economic, and social crisis simultaneously.
There's a lot of uncertainty in the world that requires conversation and collaboration. That's why in October, we gathered global change makers together with our customer community for a virtual event we called Conversations for a Changing World. We heard inspiring talks from the likes of Serena Williams, Reese Witherspoon, David Cameron, and Trevor Noah. I was personally excited to have my friends and fellow CEOs, including Adena Friedman of Nasdaq, Chuck Robbins of Cisco, and Satya Nadella of Microsoft, join our event to share their thoughts on leadership and how they are dealing with the challenges of today. We received excellent feedback on the event from our customers and prospects, many of whom mentioned some important takeaways. First, we heard the call that business leaders simply cannot opt out of this moment.
Companies have to lean in and be part of the solutions that address the most pressing issues that our society is facing today. Many of the conversations also touched on diversity and inclusion and a growing commitment to reskilling the global workforce. At Workday, we need to continue to be a driving force for the creation of opportunities in this digital economy for everyone, not just a few. From a technology perspective, there was a common theme underpinning the conversations at our event, a view that a must-have ingredient for organizations going forward is to have a strong digital foundation, and now is the time to accelerate that transition.
With this increased focus on digital acceleration, we believe that the flexible foundation and solutions that Workday offer are uniquely suited to the needs of businesses in these times, built natively for the cloud and with people at the center of all of our solutions. With that view as a backdrop, let's jump into our Q3 results. I'm pleased to report that Workday delivered a solid Q3 as organizations increasingly look to the cloud to drive change during these dynamic times. Indeed, our customers are using Workday solutions to digitally accelerate and move their businesses forward, while also serving as our biggest advocates to new customers, helping others realize the power of Workday to navigate their organizations through any environment.
To that end, we had another strong quarter for Workday HCM, with notable customer additions in the quarter, including Novartis, DraftKings, CTBC Bank, a Fortune 500 telecommunications company, and Tecnologías Rappi, our first notable win in Mexico since entering that market earlier this year. We also celebrated several notable HCM go lives this quarter, including Walmart, who is now live across its 1.7 million employees globally in what we believe is the largest multi-tenant worldwide cloud HCM deployment. Our strategic partner, Accenture, went live with Workday HCM and is now serving its more than half a million global employees. Other notable Q3 go lives include UPS and General Electric. Turning to Workday Financial Management, we saw continued momentum across our applications portfolio, and I'm pleased to say we've reached 1,000 customers that have chosen Workday for core finance.
Q3 financial management wins include the State of Washington, University of Central Florida, Fifth Third Bank, The New York Times, and Extendicare. Amongst the many core financials go lives in the quarter, I would like to highlight Bon Secours Mercy Health and Progressive Insurance. We once again 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. I'm also happy to share that we now have fully integrated Scout RFP into the Workday organization and have rebranded as Workday Strategic Sourcing, which is part of our Spend Management pillar that is being led by Scout Co-Founder and CEO Alex Yakubovich.
The team had a record quarter with several big wins at Fortune 500 accounts that included a biopharmaceutical company, a food distributor, and a large grocery store chain with over 100,000. A major update in September, which included availability of Workday Talent Marketplace, enabling employers with skills-based talent matching to connect people with relevant work and growth opportunities. We also announced the availability of Workday Accounting Center and more intelligent planning capabilities, both milestones in our continued investments for the office of the CFO.
Lastly, with our focus on value, inclusion, belonging, and equity or VIBE, we announced VIBE Central and VIBE Index, two solutions providing organizations with critical insights to drive positive change in building a workforce that's as diverse as the world. In closing, I would like to thank our employees, customers, and partners who continue to push us forward despite these extremely challenging times.
As I look ahead to the other side of this pandemic, my optimism for Workday and our ecosystem couldn't be higher. With that, I'll turn over to my friend and Co-CEO, Chano Fernandez. Over to you, Chano.
Thank you, Aneel. Before providing my update, I would like to once again thank our field and broader services teams for another solid performance in Q3. I'm pleased with the continued progress that we have made this year, especially in the context of the ongoing uncertainty. I know our workmates are anxious to get back in front of our customers and prospects when it is safe to do so in person. In the meantime, we are focused on building a maturing pipeline, closing deals, and successfully implementing and supporting customers, all in a fully virtual way. For the second quarter in a row, we saw conversion rates exceed our expectations as organizations continue to push forward with their HCM and financials digital transformations.
We had several strategic wins in the third quarter, including multiple Global 2000 HCM wins, a Fortune 500 core fins win at Fifth Third Bank, where Accounting Center once again played an important role, and notable HR fins platform wins in our education and government CMS. The medium enterprise also had another strong quarter. From a geographical perspective, the U.S. and the DACH regions were standouts. We are now a few years into our focused go-to-market push within our installed base. I am very pleased with the success it has driven. For the fourth quarter in a row, our installed base team generated 50% plus growth in new ACV bookings, driven by strength across products including core fins, financials and workforce planning, Prism Analytics, learning, and Workday Strategic Sourcing. Newer products, including Accounting Center, helped Workday Extend and People Analytics contributed to the performance.
Although early, we're excited about their long-term prospects. Our comparisons get tougher starting in Q4, and we don't expect the 50%+ growth to persist going forward. We still see significant opportunity to drive meaningful growth from our winning install-based sales team for many years to come. As we head into Q4, we remain cautiously optimistic. We continue to face near-term impacts to the net new business, particularly in certain industries. We have seen strength in the install-based team help partially offset this, and we're encouraged by improvements in our pipeline. As we prepare for next year, we are increasing the pace of our sales and marketing investment. We believe now is the time to do so because we see a meaningful opportunity on the other side of COVID, and we're investing now to capitalize on that opportunity.
With that, I will turn it over to our President and CFO, Robynne Sisco. Over to you, Robynne.
Thanks, Chano. As Aneel and Chano both noted, we executed well in the third quarter, driving strong results as many companies continued to pursue strategic HR and finance transformations despite the uncertain environment. Subscription revenue in the third quarter was $969 million, up 21% year-over-year, with the outperformance driven by favorable linearity and strong retention, which remained over 95% on a gross basis and over 100% on a net basis. Professional services revenue was $137 million, and total revenue was $1.106 billion. Revenue outside the U.S. was $272 million, 25% of the total. Subscription revenue backlog was $8.87 billion at the end of the third quarter, growth of 23% year-over-year. The outperformance was driven by better than expected bookings as strength in our install-based team helped partially offset net new business headwinds.
In addition, backlog benefited from a year-over-year increase in contract duration, which we do not expect to persist in Q4. Subscription revenue backlog that will be recognized within the next 24 months was $5.94 billion, growth of 21%. Our non-GAAP operating income for the third quarter was $268 million, resulting in a non-GAAP operating margin of 24%. The margin outperformance was driven by a combination of top-line over-achievement, continued COVID-related operating expense savings, and more back-end-loaded hiring versus expectations. Q3 operating cash flow was $294 million, growth of 14%. As a reminder, we continue to work with our hardest hit customers that require more flexible payment terms, which remains a near-term headwind to cash flow and unearned revenue, though it has no impact on our subscription revenue, subscription revenue backlog, or long-term customer economics.
We exited the third quarter with $2.9 billion of cash and marketable securities and have access to an additional $750 million through our unused revolving line of credit. Our total workforce at the end of the quarter was approximately 12,400 employees. We expect our hiring to pick up in the fourth quarter and into FY 2022 across all areas, but primarily in sales and marketing and R&D as we invest for future growth. We're extremely pleased with our results and execution in Q3, particularly given the challenging environment, and we see significant longer-term opportunity ahead to support our growth aspirations.
Now turning to guidance, which despite our outperformance in Q3, continues to incorporate the near-term uncertainty we see in the market. Our updated FY 2021 guidance is as follows. We are raising our FY 2021 subscription revenue estimate to be in the range of $3.773 billion-$3.775 billion, or 22% growth.
We expect our Q4 subscription revenue to be $991 million-$993 million, 18% growth. We continue to expect professional services revenue to be $525 million in fiscal 2021 and $121 million in Q4. For Q4, we expect subscription revenue backlog growth of 14%-16% as we face a very difficult comparison from a strong Q4 last year. We estimate Q4 non-GAAP operating margin to be approximately 15% as we expect to increase both our pace of hiring and our marketing and brand investments. For the full- year, we now expect a non-GAAP operating margin of 19%. The GAAP operating margin is expected to be lower than the non-GAAP margin by approximately 26 percentage points in both the fourth quarter and the full- year. Our FY 2021 capital investments guidance remains unchanged at $280 million.
We are still in our planning process for FY 2022, because the near-term uncertainty remains higher than normal, we plan to provide guidance after we get through our very important Q4. Keep in mind, however, that while we have seen some recent stability in the underlying environment, headwinds due to COVID remain, particularly to net new bookings. Given our subscription model, these headwinds that have impacted us all year will be more fully evident in next year's subscription revenue, weighing on our growth in the near- term. From a margin standpoint, this year we have demonstrated the long-term scalability inherent in our model. Investing for growth remains priority number one, however, in FY 2022, we expect to increase our pace of hiring across all areas, but with a focus on sales, marketing, and product investments that are specifically targeted at accelerating pipeline growth.
In closing, I'm incredibly proud of all our workmates who have remained focused on helping our customers, allowing us to deliver strong results during these turbulent times. With that, I'll turn it over to the operator to begin the Q&A. Operator?
Our first question comes from the line of Kirk Materne with Evercore ISI. You may proceed with your question.
Thanks very much, and congratulations on the quarter. Aneel and Chano, I was kind of curious, you guys mentioned sort of the bookings outlook is getting better. You feel good about pipeline build. Have conversations started to get a little bit more upbeat just about the long term, meaning, things are definitely still not normal today, but when people are making investments on your technology, they're making decade-long investments. I was just curious about how you feel about the confidence in sort of the pipeline build, maybe versus three months ago. What do you think needs to happen so that on the net new side, that starts to pick up? Meaning, what are people talking to you about, like, "Hey, we just need to" Is it another quarter, another six months?
Just curious what you think needs to happen to get back to full guns a-blazing on that front. Thanks.
The first comment I make is, it really depends on which industry you're talking to. There are a number of companies that have weathered the storm, retailers, tech companies, and as much as possible, they're trying to get back to some level of normal, even though we know we're in, frankly, probably in the worst part of the pandemic. It just seems like we figured out how to work in the pandemic. Those conversations are indeed very similar to what they were pre-pandemic, and people are very focused on digital acceleration and getting to that future state on the platform side. We do have customers who are really being impacted by COVID, whether they're in hospitality or transportation. For them, they're still on the sidelines.
I think there'll be a few outliers here or there, but I think the best way to look at it is, the world is trying to get back to normal, but there's a couple sectors that are having a hard time getting back to normal.
Maybe if I could just add one follow-on. Oh, go ahead, Chano. Sorry.
I was going to say, would Chano add anything?
No, I think that summarized it well. I think from a pipeline perspective, we continue to see improvements relative to the start of the pandemic. While it's early, we're starting to see some of the newer products having a positive impact. We feel good about what we have in Q4 pipeline and the maturity of this pipeline. It's also quite balanced across products and geographies. Of course, we remain cautiously optimistic looking as well on what's going to happen in terms of with this second wave of COVID and how things are moving forward.
If I could add one comment, though, Kirk. There's been some other companies that have talked about how there's been a slowdown in the back office. I don't share that point of view. I think if you're a legacy provider where most of your revenue is coming, I think people, if anything, are saying, like, "I really got to get off those legacy platforms." For us, there are definitely companies, and there are product lines for us that I think are actually being accelerated by the pandemic, where people just want to get off even faster than what they were planning on getting off before.
That's helpful. If I could ask just one quick follow-up for Chano. Just around the sales and hiring comments, are there any particular product areas and/or geographies that you see that there's a big opportunity where it's more of a function of just not having enough sort of sales bandwidth? I was just wondering if any, maybe one or two, either geographies and/or product lines come up. I realize you could expand everywhere, but anything that stands out to you on that front?
We're really making investments, Kirk, in a number of areas within sales and marketing. It's more to help our growth efforts around the install base, rest of the world markets, including our ME push in other countries, medium enterprise. Some of the vertical markets as well, where we're moving forward with financials, some of the newer areas like federal government. It's a bit across the board, right? Clearly from a global market perspective. We think, as I said on my script, that now is the time to do so we can strengthen our pipeline for next year and even the year after, and basically capitalize on those investments.
Okay, great. Thank you all.
Our next question comes from the line of Mark Murphy with JP Morgan. You may proceed with your question.
Yes, thank you. I'll add my congrats. Aneel, just on that last comment you made, I'm curious, in a year or two when we look back on the response to the pandemic, do you think it will have been a larger tailwind for the HCM side of the business because companies have to adjust to remote workforces and all the reskilling? Do you see it more on the financial side because of a greater need to compress planning cycles and close the books remotely? In other words, where do you think the pain has been more acute? Is it more on the HR side or more on the finance side?
I think it's going to play out differently for the different product areas. For HR, everybody is worried about employee engagement and remote workforces right now. We continue to see very strong continued momentum in HR. On finance, we had an excellent quarter selling finance, but I do believe there are some bigger projects that are being held off until post-pandemic. The idea of starting a big project at a Fortune 500 company, we're getting those, but probably not as much as I think we'll get post-pandemic. I think when people come out pandemic, they'll say, "I want to get rid of every legacy piece of technology I've got, and I've got to move into this world of agile, flexible systems that support all different kinds of work environments." With our financial system, we've been able to close books remotely.
I would say the one area that continues to be very strong on the finance side is planning, because people are under a lot of pressure to come up with new plans on a regular basis. I don't know how many times we've gone through a new planning cycle since the pandemic started, but it's such a fluid, challenging environment that it's putting a lot of pressure on planning, and I think that is driving that need for financials. Another area that we're seeing strong acceptance is actually in the area of scout and procurement, because people are trying to get a handle on their supply chains and their costs during this environment. I think core accounting is going to have a pop post-pandemic.
Okay, great. Robynne, if I can sneak in just a very quick one, with the understanding that you're holding off on the guidance. This 14%-16% subscription backlog growth guidance for Q4, arithmetically, I feel like perhaps that's a reasonable starting point on how we maybe could think about subscription revenue growth in fiscal year 2022, just given that'd be the glide path exiting the year, and it's a pretty big bookings number, right? That kind of waterfalls into the out year. Is there anything you would say to kind of dissuade us from, at a high level, just thinking about it along those lines?
Well, Mark, I would just say that, obviously, we'll be in a better position to talk about FY 2022 subscription revenue after we get through Q4, particularly given how uncertain the environment is. The backlog guidance, as I mentioned before, considers our tough compare from Q4 of last year, where we accelerated both net new bookings growth and backlog growth. We face that tough compare in an environment where we still see net new business headwinds. Right now, we're focused on continuing to execute well through Q4. We'll really have a better view in FY 2021 on our next earning call, and we'll share that with you then.
Great. Thank you.
Our next question comes from the line of David Hynes with Canaccord . You may proceed with your question.
Yeah. Hey, thanks, guys. Aneel, I think you hit on this a little bit last question, but the challenge that we're hearing from execs today is around employee engagement and preserving culture during the pandemic. Look, I think a lot of that falls in the C-suite, but some of it also to HR. I'm curious if there are opportunities or considerations that kind of influence how you think about your HCM product roadmap, as work from home or work from anywhere kind of becomes more permanent.
Well, I've said this in the past. If there are trends that are beginning to take hold before an economic downturn, in many cases, they tend to get accelerated. I'm talking about telemedicine being one of those, where telemedicine had been around for a long time. The pandemic hits, all of a sudden it's exploding. This idea of a talent marketplace, first internal and then external, is one of those areas for us where if you're in a low hire mode as a company, you're trying to get work done, you're really trying to understand the skills you have amongst the employees, what skills do they need to add with re-skilling and learning, and how can you source that work that needs to get done from your existing employee base. This idea of a talent marketplace has definitely gained traction.
The idea of this gig worker, project-based work, I think is getting traction faster because of the environment we're in. I'd throw re-skilling into that as well. The other piece is much deeper understanding of trying to get a sense of how employees are feeling about their work environment. We all have heard mental health is an issue in the workforce today, given the remote work. Within Prism and within our people analytics, we can do sentiment analysis and, with the polling questions that we do out of our HR system, get a sense of how people are doing. I think you'll see more investment from us in a fairly significant way in employee engagement to really understand how we're doing as company by company, how we're doing, or how they're doing, relative to engaging their employees in a positive way.
If I were to add one last thing, is the big investment we're making in sharing our VIBE work, value, inclusion, belonging, and equity. Creating an index, helping companies get a handle on their diversity and how they can be better. That definitely has been accelerated by the environment we live in. Actually, quite a few changes as a result of this environment.
Yeah. No, that makes sense. If I could ask maybe one quick follow-up for Chano. Any way to frame what percent of new customer relationships land outside of core HR today and maybe how that compares to, say, two years ago or something when the product portfolio was narrower?
Clearly, David, there is a higher percentage landing out there today, and that trend, if anything, is accelerating both within net new customers and as well within our install-based customers, or some of those that were initially HCM customers are moving more to the financials overall. That is clearly around core accounting systems or core financials, where we announced we had hit 1,000 customers. I think even most important as well, that many of those are live and happy. Definitely, we have now many more levers to penetrate the office of the CFO with planning and procurement. Those are really helping customers to navigate through change in these times. We've been talking about how many more plannings and Workday Prism Analytics, and it was referring even our sales customers are doing today.
Clearly all those products are giving us a bigger edge and they are more landing in the area and on the office of the CFO than they were before. Again, our portfolio is broader, and certainly the interest is as well on the customers of moving off the legacy systems to even do simple things like closing their books remotely and having flexible and agile cloud systems that help them navigate through these times has significantly increased. As we said before, and what I see on the pipeline, we remain cautiously optimistic that there is going to be a surround post-COVID onto that trend that we're seeing right now.
Yeah. Okay, great. Thanks for taking my questions.
Our next question comes from the line of Alex Zukin with RBC. You may proceed with your question.
Hey, guys. Thanks for taking the question. Maybe just the first one for you, Aneel and Chano. Clearly the install-based selling is inflecting this year. 50% growth is quite an achievement. I guess, where are we in that journey in terms of the, as we look to Q4 and beyond, how much room left is there, in terms of install-based monetization? If we think longer term, maybe Aneel, when does that new ACV headwind start to turn? I know I'm not asking you to predict the course of the pandemic, obviously, but just is it as easy as when you start comping some of the COVID-impacted quarters next year, or do you see something changing before then?
I'll address the product component. I hope the idea of install-based selling just continues to get stronger and stronger because we're adding more and more SKUs to the portfolio that we can go back to our customers. They're happy. They made a bet on Workday. There are more things we can do for them. You see it in the additional SKUs we're bringing to market, the most recent one being the Talent Marketplace, but also the Workday Accounting Center. We're constantly coming with SKUs to offer up to our install base. In terms of the sales motion and how that works, I'll leave that to Chano. You shouldn't think of the product line as static.
You should think of the product line as ever-growing, because there still is a lot of opportunity in HR for new modules, and there's tons of opportunity in finance for new modules.
Yeah, I completely agree with Aneel, Alex, and hope you're doing well. There are many new solutions that we've brought to market lately. Of course, we've been talking Workday Strategic Sourcing. If you think even products like learning or Prism Analytics or workforce planning, they're still far away in terms of the penetration ratios that we see in other areas like clearly payroll or recruiting or some of our more penetrated products these days. We're adding new products like health or Workday People Analytics or Workday Spend Management. We had a great opportunity going forward there. In terms of how do we see it on the net new side, clearly, of course, next year, and especially H1, we'll have certainly better comps, an easier comp to what has happened this year.
Certainly, we'll see that some of the lockdowns hopefully going away will help us out, especially as well in the rest of the world, obviously some of these new products, even to penetrate new customers with some of the basically different levers that we do have today, not just with core HR or core financials. Definitely last but not least, if we, some of the distressed or more mostly hit verticals today, that hopefully there will be a better place, clearly as we get into a world where there is a little bit more the outside of the vaccine and a better state overall, right? Those verticals will be opening up. Then obviously some of the new markets that we're opening, right, like federal, and so will be contributing. Yeah.
There are a number of levers, I would say, rest of the world, as always, some of definitely more and more SKUs. Some of the new industries, or let's say industries in terms being new in terms of that did not be much at play during the pandemic, but would be opening again, hopefully during the course of next year.
Makes sense. Maybe just a quick one for Robynne. You talk about the kind of investing for growth strategy, which makes a lot of sense given all the things that Chano just mentioned. I guess, I know we're not guiding, if you look at the margin expansion this year, clearly, I don't think anybody's expecting anything close to that for next year. Is the guidance or the color that you're providing, is it fair to assume kind of a flat margin trajectory, a dip in margins, or just a much smaller expansion?
Yeah. You said, Alex, investing for growth remains our top priority, and we have a lot of opportunities ahead that we're excited about. We've been talking about how we're going to pick up the pace of investments in Q4 and through next year. When you think about our 19% non-GAAP margin guidance for this year, that's almost 600 basis point improvement over FY 2020. Under normal circumstances, that would take two to three years for us to have that kind of margin expansion. Obviously, this has been a very unique year. We still need to get through Q4 and finalize our plan for next year before we have a better view. Certainly, you can expect our pace of hiring to pick up in FY 2022.
Some of the COVID benefits that we saw this year are likely to subside, particularly in areas like travel and events. Given all that, it'd be reasonable to see our margins next year coming off of this year's levels. You can see that investment starting to have an impact when you consider our Q4 margin guidance. The last thing to keep in mind is that as we increase the pace of investment, you'll see an immediate impact on our expenses, while the resulting impact to revenue from those investments are going to take a little longer.
Understood. Thank you so much. Hope you guys are all staying safe and well.
Our next question comes from the line of Mark Moerdler with Bernstein Research. You may proceed with your question.
Thank you. Congratulations on a good quarter. I know it's a lot of hard work went into it. Two questions, if you don't mind. Chano, with the worldwide lockdown continuing, how do you think about driving new deal generation? Do we need to see a return to travel and conferences to fill the top of the funnel? What do you replace the in-person meeting and conferences, or is it just hiring more bodies and more advertising? How's the business model from a sales point- of- view changing? A follow-up.
Yeah, no, it's a great question. If I look at the pipeline, again, remaining cautiously optimistic, we had not only a good Q3 in terms of execution, we had a very good Q3 in terms of pipeline creation, right? We're kind of, again, shooting for kind of same dynamics into Q4, especially the focus around the pipeline, we're doing these investments around sales and marketing, that they're not only more feet on the street. Clearly, there is more feet on the street that we're planning on scenarios where we see opportunity for growth. Obviously, it's also as well around marketing investments and branding and so on and so forth to support us in terms of our pipeline and demand generation efforts, specifically next year or, as I say, the year after, right?
If I look at that trend, and when I look at pipeline creation, of course, you have net new customers there contributing, and you have, of course, let's say, net new products or SKUs onto the install base both, right?
Yep.
If I look at the trend, I would say that the team has done a great.
Hey, Robert, I just sent you a.
The team has done a great job on managing it virtually up to this point, and we've got a lot of learnings. Clearly, if you would ask me, the team will be anxious, and I would be anxious to get in front of customers, because I think that that plays better to what we do. I think we are thriving very nicely in the model, and we're certainly learning on doing better and more efficiently. Again, better to be in a pre-COVID world, though if you ask me, I don't think we're going to ever go back to similar levels of travel. It's going to be potentially more 30%-50% less that people traveled before. Still, that would be better than do it all fully remotely. Pipeline creation, it has had a good performance on this environment, Mark.
Perfect. Really helpful. Question, we've focused more on deals often, but wanted to ask about the process of driving customers to go live. How has the lockdown changed the complexity or the time it takes to drive customers to a live condition?
Well, I would like to give a big shout-out to Emily McEvilly and the team within services because they've done a fantastic job with over 190 customers going live this quarter. I think some of those are significantly relevant, right. When you think Walmart, 1.7 million employees going live during this period, or Accenture with over 500,000 employees, or you think of UPS or GE, or you think Progressive Insurance or financials, all going live during this period, those are no minor accomplishment, right. I think that is a testament to the good work of the services team of bringing them live fully remotely, and we were doing pre-pandemic 80%. Secondly, it's a testament to our technology and the possibility to doing that through a really flexible and with great performance and scalability technology.
All those are happy, to be honest. That's a great place to be.
Good. Perfect. Thank you.
Our next question comes from the line of Keith Weiss with Morgan Stanley. You may proceed with your question.
Hi. This is Josh Baer for Keith. With all of the conversation around pipeline and building pipeline and optimism there, I guess I'm wondering, with the strength in results, how should we think about the current pipeline today versus how it compared to pre-COVID?
Well, thank you, Josh, for your question. This is Chano speaking. If the question is are we already at pre-COVID levels, we're not. We'd love to be there, but we are not yet at the pre-COVID levels. Of course, let's say that we are getting closer. I think what you should think is very cautiously optimizing from our point- of- view in terms of what we're seeing on demand generation and pipeline creation to help us to deliver our growth or results starting in Q4 and looking forward. Obviously, there is the second wave as well in front of us that is creating more near-term uncertainty, for which we do not know yet what is going to be the impact or how long it's going to take basically for all of us to get on the other side, right?
I guess there is this situation where we would like to know more as well in terms of how is the environment going to be evolving, recognizing that we're seeing gradual improvement, at least for our business and what we deliver, and we have stabilization and certainly we're in a much better place right now than we were at the beginning of the pandemic back in March, April timeframe.
Great. I'm just curious if you have any insights into what you're seeing internationally as there's different COVID waves and lockdown government responses in different countries. Is there any difference in buying behavior that you're seeing in different geographic locations? Thanks.
Thank you, Josh. No, we still see a big opportunity ahead of, all of us in the rest of the world markets, and we're certainly optimistic around the opportunity. That's why we're making a big part of our investments that we're making right now and planning to make, because the contribution of the international revenue continues to grow higher, and we see it continuing to growing higher over the medium and long term, right? Clearly, there are countries that have been going and suffering a lockdown, and that has had some impact and some headwinds in terms of the net new business. Maybe, and of course, our install base is not yet as large as it is in the U.S. I think we were amazingly prepared to have a fantastic year in international ahead of the pandemic.
The leadership is still there and is really thriving in terms of this pipeline creation and executing, and we're really excited again as we are getting onto the other end, and some of those markets are opening in terms of being a significant growth contributor to our journey forward.
Okay, our next question comes from the line of Karl Keirstead with UBS. You may proceed with your question.
Thank you. I've got two for Robynne. Robynne, if you don't mind, can we go back to the 4Q subscription backlog guidance of 14%-16%? That's a 7-9 point decel from 3Q, but it's actually only a one point tougher compare. Maybe you could elaborate on the compare comment you made. Maybe you meant on the net new ACV front. Also, is there any duration compression that might be impacting that 4Q number? If not, just generally whether this reflects a demand backdrop that feels just incrementally tougher perhaps than what Workday saw in 2Q and 3Q. Thanks.
Backlog while certainly important forward-looking metric, is not a precise gauge, as you know. It's impacted by things like duration, which, and maybe I'll go to your second question now, we did see increased duration in Q3 that we do not expect to repeat in Q4. That's part of it. Also, the timing of renewals have an impact which can move around. Those are things that just to keep into account when you're looking at our guide. We have seen some stability in the environment over the past couple of quarters, which along with the strong execution, has helped drive solid backlog results the past few quarters. The guide does consider this tough compare. When we look at last Q4, we did accelerate net new bookings and re-accelerate the backlog growth.
That's the tough compare that we're facing in an environment that remains very, very uncertain. We've taken all of that into account in our guide, and we'll obviously be able to tell you more next quarter. Q4 is a big quarter for us, and we're right now focused on executing against that quarter.
That's helpful, Robynne. Thanks for unpacking that a little bit. My second question is just on the go lives that Aneel commented on earlier. Kind of an amazing go live quarter for Workday, actually, if I cut them all, Walmart, Accenture, UPS, GE, that's a lot of very large go lives. Did any of those or collectively, did they trigger any milestones that might have impacted the 3Q numbers in any way? Thank you.
I don't know if they triggered any milestones in terms of the number. I'll leave that to you, Robynne. As Chano mentioned, just very appreciative and proud of Emily and her team and I'd say our business partners as well, who figured out how to get these large customers live during this pandemic. One of those going live in a quarter would be terrific. Having four of them go live in the same timeframe is really remarkable from a services perspective. As far as I know, they're all still very happy.
Maybe I'll just add that, as you know, most of our implementations are run by our partners and don't result in professional services revenue to Workday. We do prime about 20% of them, and while we do have some revenue that can get driven by milestone on fixed-fee contracts, there really wasn't anything to call out in the quarter in terms of big milestones net driving revenue.
Got it. Okay. Thanks very much.
Our next question comes from the line of Brad Zelnick with Credit Suisse. You may proceed with your question.
Excellent. Thank you so much for taking my questions. Firstly, you mentioned Workday Accounting Center a few times, which we've been hearing about more recently from the field. Can you help us understand what exactly is it? How do you see it impacting your competitive positioning? Perhaps, what is it replacing and why?
Chano, you want to take that one on?
Pete, why don't you take that one? Pete.
Well, Pete, why don't you take.
It might be.
Yeah, Pete.
Sure.
Can take it on and maybe Chano just talk about where we're competing.
Yeah. Accounting Center's been really important for us in being able to open up certain verticals, especially like the financial services vertical for financials. You did hear us earlier talk about how it helped us in the Fifth Third Bank win this quarter and a few of the previous bank wins that we've had in previous quarters. To answer your question, what is it? Accounting Center is a way for our customers to bring in all of their operational data and bring it into Workday and secure it, then do accounting on it and have that accounting roll up into their GL.
If you were, for instance, in the insurance industry and you wanted to take a look at something that is happening at the GL level, but you wanted to roll all the way back, and drill back to the individual policies and claims, for instance, you'd be able to do that right inside of Workday. It's replacing a lot of data management infrastructure that would otherwise have to be managed by the CFO and the CIO. Our customers are finding it's a value of having it in a single system and being able to do all the analysis and get their answers right there in front of them.
Cool. Thank you very much for that. Maybe if I could just ask a follow-up of Chano, another pipeline question. I appreciate your comments, which sound very encouraging, but maybe just to dig a little bit deeper, as you analyze and scrub the pipeline and you look at opportunities that are pushing out versus maybe shrinking in size but still closing, versus competitive losses, sorry to bring those up. If you break it down into various stages and consider things like time to close and forecast accuracy and how that's all changing, what are some of the more detailed takeaways that you can share that tell the story of what's actually happening in the field and in the environment right now, and ultimately support your confidence?
On this environment, thank you for the question, Brad. On this environment, the most key, let's say, impact that we can see is kind of push opportunities more than any other thing, a few quarters ahead. That, of course, comes because of the uncertainty of the environment and basically some customers, mainly new customers in some industries, especially the hardest hit industries. There is just more uncertainty, and they are more basically balancing out which are the projects that they should be starting, if any at all, and which ones are the ones that are not, right? I would say that the highest impact there potentially is potential push opportunities going farther into a few quarters, more than any other change, right? We haven't seen any changes in terms of competitive and kind of momentum over there. Thank you for bringing it up.
That's the one that, of course, is more dependent on this uncertain environment than any other, right? We remain very focused on the deal and department creation efforts and maturing. We have had great conversion rates and ratios on these last two quarters, Q2 and Q3. When we look forward, and again, we are looking optimistically to Q4, we got to be respectful in terms of how is the role of this uncertainty and this second wave going to be evolving.
Thank you so much for the color and for taking the questions.
We will now be taking two more questions. Please limit yourself to one question. Thank you. Our next question comes to the line of Brent Thill with Jefferies. You may proceed with your question.
Robynne, not to dwell on the Q4 backlog guide, I don't think you've ever seen an 800-point decel at the midpoint. I think everyone's just asking, did something happen in Q3 where some of these deals got pulled into the backlog from Q4? We realize obviously the environment, but I think everyone's just trying to reconcile this. I think we haven't seen it in the model in the past.
Yeah. Nothing happened to the backlog. I'm sorry, the pipeline in Q4 still looks good. We continue to execute well. When you look at the combination of duration, which helped us in Q3 and Q2, very tough compare from last year in pre-COVID days and all the uncertainty that we're seeing and the law of large numbers. This is just our best view right now, Brent. It's obviously our biggest quarter of the year. A lot of uncertainty still out there, even though we have seen things stabilize. We're just focused on execution. This is the best that we have so far in terms of our view into backlog, and we'll obviously update you next quarter.
Thank you.
Our next question comes from the line of Daniel Jester with Citi. You may proceed with your question.
Great. Good afternoon. Thanks for squeezing me in. Just maybe a bigger picture question on M&A. Scout has obviously done well. Adaptive has done well over time. Now that you've incorporated those businesses, how does that change how you think about inorganic activity, especially given the comments in the call today about sort of ramping investments into next year? Thanks.
I don't know if it changes our view. I think it just gives us confidence that if we find the right kind of company that is a good fit culturally, that is an innovative growth company, and that's complementary from a technology perspective, not overlapping. That is something that we now feel very comfortable. Tom Bogan's really led that effort. That we feel comfortable we can integrate those companies into Workday, but also with the commitment that over time, we will harmonize the technologies so that we don't become a Frankenstein, like some of our legacy competitors have become. It's really important that we can maintain that unified view across our applications. That's key to driving it. I think you'll see more from us for sure coming down the pike, but I also think they're going to fit the Adaptive and Scout models.
I don't see us doing a big acquisition that is overlapping technology-wise. That actually slows us down.
Great. Appreciate the color. Best of luck in the fourth quarter.
Ladies and gentlemen, thank you for your participation on today's conference. This will conclude Workday's third quarter fiscal year 2021 earnings conference call. Thank you again for joining us.