Q1 2021 Earnings Call

[music].

Welcome to work during its first quarter fiscal year 2021 earnings call.

All participants are in a listen only mode.

We will conduct a question and answer session towards the end the call.

Yeah, I will now handed over to Justin Furby Senior director of Investor Relations.

Welcome to workdays first quarter fiscal 2021 earnings conference call.

On the call we have Aneel bhusri, our CEO, Robin Cisco or co president and CFO.

I don't know Fernandez, our co president.

Hello, good or vice chairman.

Following prepared remarks, we'll take questions.

Our press release issued after close of market and its posted on our website, where this call is being simultaneously.

Some of our statements on this call, particularly our guidance are based on the information we have other today and include forward looking statements regarding our financial results application.

<unk> operation and other matters.

These statements are subject to risks uncertainties and assumptions, including those related to the impacts the ongoing Tobin 19 pad that make on her 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 annual report on form 10-K for additional information on risks uncertainties and assumption that may cause actual results to differ materially from those set forth in such statements.

In addition, during today's call he will discuss non-GAAP financial measures, which we believe are useful supplemental measures of workdays performance.

These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP result, you.

You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release, and all the Investor Relations page of our website.

The webcast replay of this call will be available to 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 an updated monthly.

Our second quarter quiet period begins on July 16th 2020, unless otherwise stated all financial comparisons in this call will be to our results for the comparable period up our fiscal 2020.

With that let me hand, it over to Aneel.

Thank you Justin and welcome to Workdays first quarter by 21 earnings Conference call.

Before we get into our results I want to express my sincere appreciation to our more than 12000 employees, who have responded in such a remarkable wait to support one another and our customers. During these uncertain times. This team continues to push forward across all areas of our business and I've never been more proud of them.

As we continue to navigate this period, we've stayed very focused on our core values as or north start that means our employees come first always without exception.

I also wanted to express my sincere, thanks, and gratitude to our customers many of whom are on the frontline and putting yourself in harm's way every day. Thank you from all of us or workday.

Over the past few months, we've worked closely with their customers configure their work they solutions to help them navigate new challenges and opportunities presented by this current environment. We've also heard from countless customers, who like us are using workday seamlessly closer books, 100% remotely so the first time ever.

We have health care customers, they're relying on worked H. redeployed critical people resources with greater agility.

We have heard from our planning customers, who are using our solution to dynamically adjust their financial workforce plans. In fact in late March we saw more than 30 ex increasing the number of scenario models that are customers were running.

These are just a few examples where workday has empowered our customers to better navigate this challenging in fluid environment, just before today's call we announced one more.

Worked in Salesforce had been great partners for a long time and now have countless joint customers when the pandemic kit.

Many had to flip to a completely remote workforce overnight closing offices schools services and more.

And others had a turn on a 24 by 17 in an instant.

Our HCM customers are leveraging the power of the day Didnt work day as a source of truth to manage their workforces, which is included things like identifying a central workers deploying people with relevant skill sets and more.

At the same time Salesforce has just announced work dot com, which is a powerful platform organizations to reopen safely I managed to logistics of returning to work.

So it only made sense to bring workday and worked out come together in a way that will simplify things for our customers immensely eliminating the need for reconciliation between various systems and more as they prepare their workforce and return to work safely and securely and this is just to start.

Now moving on to the business highlights from Q1, beginning with Workday HCM.

For the journey to the cloud continue despite the challenging backdrop Q1, we were selected US core HCM vendor one of the largest city governments the city of Los Angeles.

He also welcomed a utility company in EMEA with over 80000 employees.

Well as a large insurance company in Asia Pac with over 50000 employees among domain, new HCM customers in the quarter.

Turning to Workday financial management I'm pleased to say that we now have over 900 customers have selected us CIRCOR financial system.

We saw continued momentum in Q1, including a financials first when unfortunate 50 company Fannie Mae.

Other new financial customers included Louisville, Jefferson County Metro government.

Though as well as a large health care company with more than 60000 employees.

Amongst the many financials go lives in the quarter I would like to highlight Lithia Motors and race track Chile.

We also saw solid demand for our expanding suite of products that support the opposite the CFO and the chief procurement officer on the planning front, we expanded our partnership with Microsoft So workday customers can run workday adaptive planting Microsoft Azure cloud like.

Microsoft become the first workday customer on Azure as they adopt big after planning to help them with planning budgeting and forecasting.

Scott RFP had a solid first full quarter are under workday with multiple fortune 500 wins, including its largest ever transaction with a large health care company and wins at Lowe's and Albertsons.

One of the many benefits of the cloud so we can deploy our customers 100% virtually we showcased the strength of Q1 with more than 90 customer go lives in March and April.

Quite notably to these customers have more than 85000 fortys each.

Sardine Matheson in a p. J and John Lewis partnership in EMEA.

Turning to product we delivered our latest major released in March which included enhance workforce planning with workday adopted planning availability of workday assistant and intuitive chat bots, you've gotten employees, new machine learning based skills capabilities and work they attempt to verify current employees skills and supporting re skilling efforts and new data visualization and.

Benchmarking features with workday prism analytics.

In addition, we made great progress on our extensibility journey.

Just this past weekend, we moved our latest offering on workday cloud platform workday extend GA.

This is a significant milestone cross that we believe further increases our strategic positioning with customers and partners. In addition to our powerful integration capabilities customers can help build deep extensions from work. This core applications. As an example, within just a few short weeks one of our customers built an app on worked to extend that helped facilitate hazard page their workers.

On the front lines.

I'm confident that this period, but ultimately serve as a catalyst to accelerate the adoption of our growing platform supporting HR and finance systems in the cloud now more than ever companies are realizing the incredible importance of having agile flexible systems to support their mission critical business policies.

With that I'll turn it over to our co president Chano Fernandez over to you China.

Thank you and good afternoon, everyone I like this thing a few minutes providing updates on the fifth.

Before I do that I would first like to thank you were entire go to market team their responses setting.

So I may be biased I don't have they'd be D that you have to best steam in enterprise somewhere I have never been more coffee that deep dive right now having watched what dancing gauge waste eight of our mass.

Customers over the last few.

I suddenly you mentioned there were many highlights this quarter, including the financials first Winging April Fannie Mae.

The same day steel, what's accounting center, well fault, where new products will enable funny to account for.

Hi, there class Bill or 40.

The medium enterprise team also hot I know there center water continuing I'm going to year training, we have seen seems into it actually all of our knowledge.

I Preconfigured really meant approach, we streamlined cells that degree which has to dramatically reduce the cost would be probably.

In addition momentum we thought were back to based team continued in Q1, Wifi Pursing glass Neil HCV growth.

Formats, we thought were back to based team signed across customer segments products, including coughing.

I mean that running freezing.

That makes us Neely CV coming from installed customers being on the rights for us over the last few quarters. We continued to lot resources to better target the growing installed base of opportunity. We expect continued to lenient export orders year.

We had consumable sales momentum across all areas of the business entering F. Like 20, well, however, I scoping 19 for adults now across much global economy, we still higher than normal deal push outs, but you've been running industries most.

Including traveler hospitality health care.

All major geographies where effect.

What we saw a heavier impact our rest of world markets.

Making the decision to move on to working day has always being on a very.

But the one for companies one that is no bacon.

Even the importance of did see shield studied nature of partnership we thought where customers in disconcerting environment. There are companies that are only that decision process I stay focused fair so assessing responding to the immediate impacts their business.

Hey, Good news is that based on where we stand today most of the pipeline impact has been opportunities moving into later periods rather than deals all do better going that way, we said I guess expected impact being you do you see it's also important to note. We have seen improved prospecting H. me since April we have also seen healthy pipeline.

Gross 22, I said penalty shift from first half to both Q4 I named Blessingwhite 22. Finally, we have adopted that were messy in areas of focus they solution industry doubling down on the go to market. Most channels that we are confident with GE the best returns science sector.

Wearing ACO big market, but we feel very confident were positioning so no meaningful changes to competitive dynamics.

In addition, our discounting was in line with historical levels, most customers negotiations centered sit around more flexible payment terms to help east initial upfront caution that thing.

We'd be aware customer relations. So long term partnerships on were willing to leverage our balance sheet, where we think it makes sense.

We strongly believe a decent unprecedented environment on the ascent. Thanks import vessel, having a single sees things like execute ice based.

I kind of tell you how many prospects I have spoken with over the last few months left told me this environment.

Prepare their legacy ERP systems are for rapid change on the same time I was just spoken with many of our customers will have told me, yes help mission critical work being out in their business respond to these crises I have heard from many customers currently implementing were experiencing a faster more product.

Project or Fortunately mode basis.

There are many potential I'll pass it will determine what the pace of recovery would look like and we expect environment remained very clearly well they've white 21, yet despite some near term certainty where comprehend that asset recovery takes hold were incredibly well, let's see I'm not sure it won't be decade opportunity that we see.

With that I would turn it over to Raleigh.

Thanks, Jonathan good afternoon, everyone.

Despite a challenging environment, we reported solid first quarter results, which we believe is a direct reflection of the mission critical nature of our solution I mean, it briefly recap our first quarter and provide updated guidance for Inphi 21, and then we'll open it up to your question.

We had our first ever 1 billion dollar revenue quarter in Q1.

Subscription revenue of 882 million at 26% year over year and professional services revenue of 136 million up 10%.

Total revenue outside the U.S. was up 30% to 256 million.

Subscription revenue backlog was 8.19 billion at the end of the first quarter growth of 20% year over year.

Subscription revenue backlog there will be recognized within the next 24 month with 5.52 billion because of 21%.

In Q1, our retention rates continue to be strong with gross retention over 95% and net retention, which include upselling at the time of renewal over 100%.

As John mentioned or add on business is growing rapidly and we see strong sales back into our customer base, both during and outside of the renewal process.

Our non-GAAP operating income for the first quarter was 130 million, resulting in a non-GAAP operating margin of 12.8%.

To help support our employees during these unprecedented times in April we paid a one time cash bonus equivalent to two weeks pay to all our non executive employing.

This added 79 million to our first quarter and full year F. right 21 expenses, both GAAP and non-GAAP. It was not contemplated in the guidance provided during our Q4 call.

Excluding this one time bonus payments, our Q1, non-GAAP operating margin would've been 20.6% well above our guidance driven by top line out performance lower spend on travel.

The non critical program delays and more measured hiring.

Q1, operating cash flow was 264 million growth of 26% year over year.

During Q1, we successfully added an integrated approximately 150 net new employees, bringing our total workforce at the ended the quarter roughly 12400.

And lastly in April we closed the 1.5 billion dollar credit facility comprised of a term loan and a revolving line of credit, which we believe strengthens our financial position and provides us greater flexibility as we plan for the future.

As of the end of Q1 500 million of the term loan had been funded.

Overall, we're pleased with our results and execution against a very challenging environments.

And now I'll turn the guidance.

When we provided our outlook in February it was very early in the covert 19 crisis, and we could not yet reasonably predict or quantify the potential impact to our fiscal year.

And the 90 day. Since then we've started to see an effect on our business on several fronts, including new business bookings GAAP and non-GAAP operating expenses and cash collections from customers.

The updated guidance, we are providing today takes into account these impacts based on what we have observed over the last few months.

Significant near term uncertainty still remains however, so we're providing wider than usual guidance ranges helped take that into account.

Built into our revised guidance is the expectation that the pace of recovery will be relatively slow, but Q2 and Q3 being the most challenging period, followed by a reasonable improvement in Q4.

Before providing our updated outlook I wanted to make a few high level comments around our business model.

First we primarily serve the large and medium enterprise market and although even the largest companies are not immune to the current economic environment, We believe there better positioned than SMB to whether this downturn.

Second well or licensing model is based on a number of workers within our customers organization. We have measures in place that help reduce near term volatility from employment changes.

As an example, our contracts it typically only trued up annually to account for increases and decreases in worker count.

In addition, our contracts have base minimum which limit our downside and it is only upon contract renewal, which is typically every three to five years that our customers have the opportunity to reset these base level.

And finally, we are very strategic to our customers, which makes our products incredibly sticky.

As a result, well we may see some moderation in retention rates in the near term like we do the increase bankruptcies and reduction in base worker count during renewals, we expected our retention rates will remain high and we will continue to update you on this metric as we move through the year.

With that as a backdrop, we're lowering our f. why 21 subscription revenue estimate to be in the range of 3.67 billion to 3.69 billion or 19% growth.

We expect our Q2 subscription revenues to be 913 to 915 million or 21% growth.

We now expect professional services revenues to be 500 million in fiscal 2000 128 million in Q2.

As always our priority is to support our customers successful deployment and drive the highest level a customer satisfaction.

In line with these goals, we expect to balance approach in terms of partner and workday Prime to ensure our partner ecosystem continues to be healthy an active.

For Q2, we expect subscription revenue backlog growth in the mid to high teens.

Given the current uncertainty around net new business renewal rate and potential changes to contract durations. During the remainder of the year, we will only be providing Q2 backlog guidance at this time.

Now moving to margin.

We estimate Q2, non-GAAP operating margin to be approximately 19%.

For the full year, we now expect to non-GAAP operating margin of 16%.

From our prior view a 14.5%.

This margin improvement reflects our expectation of lower operating expenses versus our original plan, even as we continue to invest and position ourselves to emerge from this period as an even stronger company.

GAAP operating margin is expected to be lower than the non-GAAP margins by approximately 26 percentage points in the second quarter and 27 percentage points for the full year.

All right. That's why 21 capital investment guidance, excluding unrealized state is now 280 million down from our prior view, a 350 million a several large least real estate projects have been postponed.

We currently do not expect to invest any further in owned real estate during that's why 21.

That's why 21 non-GAAP tax rate remains unchanged at 19%.

We had strong operating cash flow in Q1, but we have received and continue to receive Chris from some existing and new customers for flexible payment terms.

As always customer relationships and customer retention or a top priority for us.

During this challenging time, we're committed to providing flexibility to those customers that have been hit hardest by dependent Nick so that we can emerge stronger together.

Our ability to remain flexible in the area of cash is critical and supporting these goals and we will therefore, ses operating cash flow guidance for the remainder of this fiscal year.

In closing, we're confident in the fundamental strength of our business model. The resiliency of our customer base and then the long term shift of HR and financial applications to the cloud.

We plan to operate with agility, while continuing to drive innovation to support sustainable long term growth.

With that I'll turn it over to the operator to begin the Q and a process.

Operator.

Thank you at this time, we will be conducting a question and answer session.

He would like to ask a question. Please press star one on your telephone keypad.

On top formation tone will indicate your line is and the question in queue.

You May press star too if you would like to remove yourself from the Q.

Well participate using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.

Our first questions come from the line of Kirk return of Evercore ISI. Please proceed with your questions [laughter].

Thanks very much in the hope you all are doing well I really want to ask Aneel why she is still on the long drive contest on on some guy, but I guess I'll keep it to a good business.

Thanks for now.

Sean on you mentioned that yes customers, obviously deferring decisions I'll pick up surprising to anybody is that just a matter of just business confidence in me in sort of managing budgets and can you talk a little bit about whether or not that conversations different if you're having an HCM discussion versus the financials discussion or its more.

Yeah, it's more so it's pretty similar across both those product offerings.

[noise] and on the 18 months since he's a good question, but I would say that so far we haven't seen a while well fees that sadly moral unless I state done deal there like call. It in both cases, there is significant ROI that we deliver till where customers a significant business benefits, but both of these are.

As you know very important to stance on the driver so that changed very like called financed situation. So it could be the need to have more agility on a perfect. That's for the second just changed.

Well, we seeing out what are they dice doesn't know what Larry either Ace Yang or fantasies. This Saturday model resi I stayed in the near term by calling.

In terms of El <unk> overall I'm.

Alright, great care.

Hey, Good places to go.

No in terms of the overall I think you asked about the pipeline Wolf if I'm right.

Correct, yes. Thank you.

Yeah well.

You know certainly as we said in time on the prepared remarks, our pipeline has definitely more around I in some cases don't push out a quarter or to maybe that auction to price.

Really not significantly no changes in the medium enterprise, but I would say wouldn't hopping that date that yet to really cool. These say you know occupancy at this point in time.

Definitely this is something that might seeing is carefully monitoring.

If I can if that's one quick follow up you you mentioned, but back to the base growth is really healthy you this quarter and I'm just curious given the fact that there's some your customers might be pushing back you know bigger decisions for now you are you able to serve toggle the salesforce to just focus maybe more on this back to base opportunities with the.

In your existing customer base, you would seem that the hit rate on those might be a little bit higher until some of the uncertainty dies down. Thanks very much we're taking the questions.

Yeah. Thanks to you parents as you know we already this significant investments at the beginning of each year to prepare for you covered a decline from the box to the base because we have happy customer base that great such said well desk at U.S. solutions. So definitely inductee mine was already present. So we felt that were so it's very would prepare for it and as we say we had a good.

Gross induct back to basics estimating in Q1, but we also have to saying Q in Q4 as well so we seek to prepare for that that market Moshe.

If I could just had one one or one comment too to Kurtz question. You know we did go through similar environment with a week in a way to another then we.

And we really focused in on a couple of things one was a quick.

Payback for for customers and rapid implementation cycles, where we could get HR up and running.

In six months in financials, maybe the in a little bit longer than that and we're just dusting off that playbook and using it again to for for the net new business I think that's important to recognize no.

It's it's very similar though we don't I'm from that perspective, and there is there's a way through it.

Thank you all.

Our next question comes to align and Keith Weiss of Morgan Stanley. Please proceed with your question [laughter].

Excellent. Thank you guys for taking the question and everybody is a safe and healthy out there.

A question for I think I, either China or Neil.

One of the thing that I get asked a lot by investors is the priority for core ATM in core financials, when we get to the other side to discover 19 crisis, you talked a little bit about sort of the the conversations you're having with your customers on where they think sort of these TCM investments in financials investments well.

Fall on there kind of priority or stack. If you will once the spending opens up against those IP budgets start to get spent again.

Well I think first and foremost on the finance side I think this this crisis will be a catalyst for people switching from on premise into the cloud for finance and we're already seeing.

The growth rates, but into the growth rates at healthy levels, but I've talked to lots of CIO said, you know I wish I had everything in the cloud right now.

I'm struggling with my on premise, both because of the labor required and people required to be on site and because of systems are really not very agile are flexible.

And you know, we see our customers coming up with new reports with.

New Workstreams all these things that they are able to do and workday. So I think it's going to be a high priority on the finance side on HR, Oh, you know HR to its going to continue to be healthy I think what we're gonna see is.

A growing emphasis on.

On the on the.

Area of skills the skills cloud learning.

Talent marketplace, all the areas, where we're going to have over 30 million people unemployed. We've got to get these folks back to work and we got to get them.

We got to get them, the right skills and I think a lot of companies are going to be working probably alongside.

Some of the states and local governments to figure out how to get these get these folks back to work and and that will that we'll be right up our sweet spot.

John you want anything.

No.

And then a press one follow up for for Robin first of all Super pool. All of you guys to get that Boeing installed employees, well hooking up with the Morgan Stanley CFO and maybe you guys could have a chat.

[laughter] antibody, but nonetheless, the full year operating margins still come up versus your prior expectation definitely from what we had in our model how should we think about like in and it makes a lot of sense right. There's no travel going on in a lot of events are coming out into the equation. How should we think about the durability of that margin gain it does that 60% if you will.

As we move our model forward indefinitely 22 is that new base and then it's going to grow from there or is this a more a temporal step up.

Yeah, you know that's a great question teeth, and it's given all the unknowns that we're facing right now it's really hard for us to look into F. why 22 at this time and we certainly do plan as we start to see recovery, particularly in in Q4, hopefully that will continue to invest in the business, though I'm not sure.

This is the new baseline, but you know we certainly believe that we are showing the the value of our business model and how it can leverage as we scale, but we still have a lot of important work to do and we've got a long term very massive opportunity ahead of US do we will continue to invest.

Got it excellent. Thank you guys.

Our next question something in the line of Heather Bellini Goldman Sachs. Please proceed with your question.

Great. Thank you so much for taking my question and hope you and your families are all doing well I just had two I was wondering if you could talk to us about how your salespeople and your partners are you know kind of dealing with lead Gen. In this environment kind of how how they adopted if there's if there's some stuff.

You could share with us there on on on how they might be in creative on that front and then Robin I know this isn't something that you normally commenting on anymore, but just given the environment and your comments about twoq and Threeq, you being up probably the more challenging quarters that you're going to face any high level comments, even about how to think about unearned revenue.

You try and for a for the fourth of July quarter. Thank you.

Yeah, I'm Heather so.

I think we definitely expect that honor and will lag behind our backlog growth right and we'll continue to do that and you know part of that has to do with the fact that you know it's kinda when I vote. Both mentioned, we're trying to be more flexible on cash, particularly for customers that have been most.

Impacted and try to mention that a lot of his new customer negotiations really that's what they're pushing on and so we really want to use our our balance sheet to help them out during this time and so as you know that will impact the billing and honored as well as the cash flow and you should expect to that throughout the rest of this year.

The good news is that actually doesn't impact our revenue recognition profile.

We think it's a it's a good investment and that flexibility has and we believe we'll continue to allow us to maintain our discounting levels.

Hey, there in terms of there. Thanks for your question I hope you're doing well.

Being so how see too in terms of your question on the management, we're still seeing obviously you had to prove out during the course of Q1 to a full universe 12 environment.

But the reality is that we have always had a pretty significant portion of our cell cycle dot virtually anyhow pretty good having to presuppose show on Tuesday morning of our software on so what has changed that we have for the entire process. There 20.

In terms of what we have that state I say Seo myself my remarks, we had I see that were meshy.

Yes for whose by some assuming industry, we clearly focus more than doubled down on those go to market motions that the we have more confidence that we guilt best returns you're in D. Science I'm, obviously, you kind of seeing came up with some more and solid surging industries or some some solutions like it would be planning or freezing.

They're running or skout to south emotions that that we've seen will produce better results.

Great. Thank you.

Our next questions come from the line of Mark Murphy of JP Morgan. Please proceed with your questions [noise].

Yes. Thank you I'll add my congrats I am interested in how you would characterize the environment. So far in the month of May.

Just in terms of generating pipeline and booking new business. It should we think of that as being a kind of a night and day difference versus late March early April or.

Oh is it something you'd call directionally, better, but it'll still kind of take some time to take to get back to the.

Original plan. So I'm just trying to understand a if you think it's improving or degrading kind of like between late March and the month to me.

Hey, Mark 70 days, but were still be no I wouldn't normally engagement levels.

I'm also be dog wouldn't Omar I blame builds.

But there are being a significant have taking engage being well see decent demand relative to I would say four weeks ago.

So much about where activity as I said it now focusing a set of industries, where were seeing the greatest near term demand.

We also continued dialogue in part because that are more impacted by calling to ensure that what policies. You asked we emerge from this environment Clark.

Okay, and then as a follow up Robin I'd say, it's understandable that did your withdrawing the subscription backlog I got into the back half.

But that said just considering that you still landed essentially within the original Q1 guidance for subscription backlog I think surprisingly and during a real chaotic period of time is do you see high audits that that backlog growth is going to end up.

Say materially below this type of glide path that you're on or it is the confidence a little better than that but it's just kind of such a wide range of potential outcomes. At this point that it's hard to know yeah market <unk>, let me.

Let me just let me let me start let me start with this I think what everybody needs a recognizes that no one knows how it's going to play out over the next couple of quarters. You know, we don't know if there's going to be another outbreak.

And so.

Everything that we are saying is our best information at this point in time, Keith I mean.

If you know how it's going to play out. Please let me know [laughter].

So with that in a rough robyn jump in but but I think that has to be the backdrop on on everything right now.

Yeah, that's right and as you know the backlog to tighten that new it's also tied to renewal and then it type situation and we really haven't seen you know we don't have any yet to predict how to play out over the back half of the or could we just have far less visibility.

Sorry, sorry realize that was mark sorry, Mark.

Yeah. Thank you Neil you can call me he called me Keith it's not all the key I Hope you [laughter] take care you. So.

Thank you our next questions come from the line of Kash Rangan of Bank of America. Please proceed with your questions.

Hey, Thank you very much I'm curious that are that the net new ACB growth of 50 person within your base, how does that compare to a recent quarters and how sustainable. This is and also curious what kinds of products are you, having the biggest who trade with wouldn't be installed base. Thanks. So much.

Well the Latino answer the first part I would say that.

It's a lot of the not surprisingly the customers that are adding or adding onto core HR and core finance.

In this environment and Tom can come on to comment on it.

Both planning and.

Scott RFP have been very strong solutions.

People are really struggling with with the legacy planning tools and you know I mean I even look at worked at how many plants. We generated in the last couple of months because no. One knows how this is all going to shake out.

Well, it's got RFP. It's a quick it's a quick implementation that can get you can get in control of your of your spend you know.

Very.

Global and unified way and that's another thing that that's been doing well, but maybe I'll, let Tom comment and then shuttle common.

Yes, thanks to nail that trade what we've seen is a real uptick in interest in planning companies are running as you would expect so significantly more scenarios is as the Neal said I think there was a period of time in March we saw about a 30 ex increase.

In the terms a number of scenarios that our customers are running so it's not surprising so I think the importance of planning and particularly cloud based planning solutions, where the whole team can be connected to lets quickly Oh, yeah has resonated with customers. We've seen tremendous interest of workforce planning everybody's youre thinking through what the.

The next generation workforce looks like there's obviously fundamental changes being driven to both location and the the way we work and that requires a focus on workforce planning.

And then as Neal mentioned I think we've also seen a lot of interest in our sourcing products.

Because of periods like this companies are extremely focused on waste every can save money.

You know as Charles mentioned in his script, we had the what we saw the largest still ever and scouts history. This quarter.

So I think there's a lot of resonates with customers.

And we're seeing that up chain channel.

Just listening to Tom it sounds like that's it or baby <unk>. This is the case or maybe just not because the shift a cloud based financial could accelerate course corporate is that right or are too optimistic <unk> well I think I think generally you know and there's going to walk written about this period of time access.

I wouldn't read any trends that were already in place and certainly the trend towards our cloud based applications.

The need to and how effective it is during a period of time like this where people have to work remotely.

You know as is Chano and others have stated there is uncertainty in the short term in terms of yeah, what the uptick in terms of adoption of enterprise applications will be in the short term, but there's no question in the intermediate and longer terms of that there will be chat wins towards you won't be adoption of cloud based comp.

Well in place planning and cloud based applications more generally.

Thank you got all cash we've seen the 50 per same last at Neal ACB growth in that bucket debates emotionally foray in Q1. That's that's today that went to school. So far I think DC or pieces have I'll panel or.

Hey, we having a happy customer base and certainly the investments we've done when they go to market motion to cover.

That to our customer base I ask when of course, they increase a little there so to the skill set that people want that suddenly see offerings that we have to date workday.

Thank you. Our next question is comes the line of Brent Bracelin Viper Sandler. Please proceed with your question.

Thank you and good afternoon, I'm going to follow up on kind of Microsoft relationship I know you guys first announced the global partnership back in the summer 2016. So my question here, what what how is the Microsoft relation ship evolved over the last three plus years and maybe the new scope <unk>.

What are your working with them on today.

So we've had a great partnership with Microsoft for a long time will you.

Really around Officethree hundred 65 and were roughly around teams and this was built on that.

Having.

Azure into the mix right now just for just for adaptive.

But that's it's also the first time that Microsoft has become a.

The work that customer all the Lincoln is going to work the customer for quite some time. So just adding it's just the natural progression over partnership.

They.

Works also great companies, such as a great CEO, we'd like to do more with them.

Awesome and then just a quick follow up relative to the concessions that you're getting some of the most heavily impacted customers I know Robin you talked about the base minimum or not really being up for negotiation every three to five years, but I. Just wondering are you proactively looking to kinda work with these customers that are.

Are impacted or is it something where it's non negotiable and you really don't really see a change there and until that is up for renewal.

Brent I mean, we believe we're taking all of our customer request on a one off one by one basis case by case, but really the vast majority of the quest forgetting or along payment deferrals, not renegotiating contracts, but just deferring payments. So we have not really run into an issue with customers trying to rina.

Okay. Thanks.

Time, although certainly that couldn't be case, some that are most most impacted by that.

Got it makes sense. Thank you.

Yes.

[laughter]. Our next question has come from the line of David Hynes of Canaccord. Please proceed with your question.

Hey, Thanks, very much guys. Congrats on the results maybe I'll take the other partnership question and Yoki can you talk a little bit about a more about work dot com, what you're doing with salesforce when it could mean.

The workdays business and maybe how you see that opportunity evolving over time.

Can you get to me.

Sorry.

You know Mark Mark has been Oh driving.

Oh, the contact management piece for for sometime around a contact tracing and.

Yeah, we actually had started that thinking in that work all the way back to Sars, So and the sales force applications. The other day as a content management started contact contact management application. So it's really well suited to that.

Mark has the same goal and fill for us as a single that we do we want to enable our customers to.

Get get their people back to work safely and so what we're doing is we have all the data about employees locations.

What their weather.

Learning in terms of them the learning content and Salesforce has a whole set of things with work dot com around contact Tracy.

Right and skills or shifts and we're just making sure that the two technologies are completely sake. So customers don't have to reconcile between the two and interview and so if you're a joint customer.

Hopefully this the solutions really going to help you manage your way back into the office.

And as I think.

All of you know on the phone I mean Salesforce has been one of our best part is it's not our best partner almost since the day, we started workday.

Sure.

Okay. That's helpful. And then maybe a follow up for Robin. So a few folks have hit on back to the base strength in the queue and Anna and I, just want to tie that into net revenue retention.

<unk> gross retention has always been really strong right that 95%, but on the net side.

He is the consistent commentary about north of 100% just out of practice or are you actually seeing improvement there and I guess could you get anymore granular on on a number for net revenue retention.

Yeah. The way, we actually measure net revenue if we only count add on sales at the renewal point and so now that we're really focused more on selling back into the base and that's happening during renewal cycles that it's happening a lot more than ever outside of renewal cycles, and that's not captured in the net retention rate. So okay. So I think it.

We're actually looking at a better way to measure it now that we're doing so many add ons outside of renewals and we'll probably make a change there over the coming quarters, but you know for now I would just think of it as long as the way we are calculating it remains over 100% that's great news and then on top of that we're selling a lot more into the base outside of the.

This renewal cycle.

Right, Okay that makes a lot more sandy disguise Dizzy I'm going to ask I'm going ask Pete slump, our head of applications to weigh in on the Salesforce partnership to he's closer to the to what we're actually doing from a product perspective, Peter it'd be great.

[noise] [noise] [laughter].

[noise] for.

Oh.

[music].

[noise] please.

Yes.

Pete Pete your your.

I think your your volume is only on how though not on [laughter].

Better.

Got you have a your but you need to eat them you do basically got it.

So think of the two.

Salesforce has the data about the workplace and workday has stayed about the workforce and some of the most rich data that we have is a is data about skills and so as companies are going through these big transformations that are happening with workers with all the sort of southern demands in certain areas that they didn't have before.

And vice versa.

Being able to make those transitions quickly and use that skill data, it's still a central so when we think about getting companies back to the workplace safely securely.

And the people back stapling secured by the data, bringing its datasets together.

Whether that's in a sales forces.

And your command center in the what Dot Com Command center or whether it's within the work the application set itself and that's how we're going to and that's how we're going to really start things off is with the data integration and then develop more applications as we go forward.

Okay got it makes sense thanks for all the color.

[noise], we have time for two more questions.

Next question comes from the line of Scott Berg of Needham and company. Please proceed with your question.

Hi, everyone. Thanks for taking my question I only have one here in essence of time.

Aneel or maybe China, probably nailed wanted to see.

If you had some additional comments on workday extend now that it's a finally available in G.A. trying to understand the revenue model will be going forward kind of how is it evolved today versus the initial no less than two years ago in Indian vision customers or other companies building commercial last check we could actually sell off of it.

Mike what happens on for sat Com [noise].

Well I'll take a crack that I'm just send it over to Pete.

Hopefully p. gets its technology like the side.

[laughter] season Pete.

[noise]. So work they extend is really focused on a extensibility for our customers.

And we're not looking to open up.

Hi, then I SV community to build commercial applications, our customers are getting great value from extend I mean, weve you had extend in.

And limited availability limited general availability for several quarters and so we really got a good handle on the use cases and now what we're seeing customers doing is building I call them more Minneapolis, ER and extensions they've done a lot or a lot of it around covert 19, whether it's to track essential workers to track one of the one of our customers.

Oh, it's tracking cases.

Cobot around the globe for manufacturing plants. So it's it's a it's really whatever the our customers wants to do and extend our business model, but definitely not ice vsan and p. what else would be what else you we add to that.

Okay. So you take that have them you think figured out here after working from home for the last two months.

The.

Really I think the success, we've had so far I like 50 50 customers using it over 90.

Different solutions built on the on the platform already and we're going into this is this just curious with a lot of existing momentum as we think about the products we think about.

Really extending.

The entire use of the entire surface workday.

All the application. So we haven't worked and then enabling our customers.

Yes, and so we continue to open up.

Surface areas and the different possibilities that customers can develop on Oh [laughter].

And I guess I guess, it just to come back to the to the revenue question or the bookings question I still wouldn't expect much for fiscal year 21, but I do think it can be a decent contributor in fiscal year 22 and beyond.

And at a high growth in a high growth high growth contributor.

Excellent that's all I have thanks for taking my question.

[noise]. Our next question is coming from the line of Brian Schwartz of Oppenheimer. Please proceed with your questions [noise].

Hi, Thanks for taking my question Chano I had a follow up question I think it was to have there's about the marketing fine on the lead generation you commented on what the timing could be for these sales cycles, but can you shed light on what youre, saying in terms of the values are the deal values holding up at a similar rate.

As you've seen in the past as they are progressing through the final towards closing thanks.

[noise]. Thank you for your question, Brian I would say, it's very early days.

Seeing no she's oh significance to comment all set any when a morning toward the pipeline timing for hi, there I know nature I want to this year.

Pipeline coming in from if White 22 at this point in time be happy we bought it just went to 25 cents become more docs deals in terms of how do you. Even one environment. We are in due course thing we need to be able to progress those deals I'm finally closing.

But nothing to highlight intensive change some don't steel side, they're being close either that or do you know the are shrinking or are they haven't that's the ratio or any kind of things like and those that don't know Brady we need for definitely I think they're trained up more data points isn't that recipe due on Q3, but right now that's what I can.

Yes, you're right.

Thank you very much.

Ladies and gentlemen, thank you for your participation on today's conference. This will conclude work that's first quarter fiscal year 2021 call. Thank you again for joining us and have a great evening.

[noise] repeat you can you can I'm you know.

[music].

[music].

[music].

Welcome to work its first quarter fiscal year 2021 earnings call.

So it all participants are in listen only mode.

We will conduct a question and answer session towards the end the call.

I will now handed over to Justin Furby Senior director of Investor Relations.

Welcome to workdays first quarter fiscal 2021 earnings conference call.

On the call we have Aneel bhusri, our CEO Robin Cisco or co president and CFO Chano Fernandez, our co president and Tom Bogot or Vice Chairman.

Well in prepared remarks, we will take question.

Our press release issued after close of market and this puts it on our website.

This call is being simultaneously.

Some of our statements on this call, particularly our guidance are based on the information we held as of today and include forward looking statements regarding our financial results.

Occasion customer demand operation and other matters.

These statements are subject to risks uncertainties assumptions, including those related to the impacts of the ongoing Tobin Nike and then make on our business and global economic conditions.

Please refer to the press release and the risk factors and documents, we filed with the Securities and Exchange Commission, including our most recent annual report on form 10-K for additional information on risk.

She is an assumption that may cause actual results to differ materially from those set forth in such statements.

In addition, during today's call he will discuss non-GAAP financial measures, which we believe are useful supplemental measures of workdays performance.

Non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP result.

You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results.

Our earnings press release, and all the Investor Relations page of our website.

The webcast replay of this call will be available to the next 90 days on our company website under the Investor Relations link.

Also the customers page of our website includes the list is lots of customers and an updated monthly.

Our second quarter quiet period begins on July 16, 2020.

Otherwise stated all financial comparisons in this call will be to our results for the comparable period of our fiscal 2020.

Let me hand, it over to Aneel.

Thank you Justin and welcome to Workdays first quarter by 21 earnings Conference call.

Before we get into our results I want to express my sincere appreciation to our more than 12000 employees. We have responded in such a remarkable way to support one another and our customers. During these uncertain times. This team continues to push forward across all areas of our business and I've never been more proud of them.

As we continue to navigate this period, we've stayed very focused on our core values as or Northstar that means our employees come first always without exception.

I also wanted to express my sincere, thanks, and gratitude to our customers many of whom are on the front line and putting yourself in harm's way every day. Thank you from all of Us I workday.

Over the past few months, we've worked closely with their customers configure their work they solutions to help them navigate new challenges and opportunities presented by this current environment.

We've also heard from countless customers, who like us are using workday seamlessly closer books, 100% remotely. So the first time ever with health care customers, they're relying on workday to redeploy critical people resources with great agility.

And we have heard from our planning customers, who are using our solution to dynamically adjust their financial workforce plans. In fact in late March we saw more than 30 ex increased the number of scenario models that are customers were running.

These are just a few examples where workday has empowered our customers to better navigate this challenging in fluid environment. Just report today's call we announced one more.

Worked and Salesforce I've been great partners for a long time and now have countless joint customers when the pandemic kit.

Many had to flip to a completely remote workforce overnight closing offices schools services and more and others had a turn on a 24 by 17 in an instant our HCM customers are leveraging the power of the date and workday as a source of truth to manage their workforces, which has included things like identifying a central workers to point people with relevant skill sets.

And at the same time Salesforce has just announced work dot com, which is a powerful platform organizations to reopen safely I managed to logistics a return to work.

I would only made sense to bring workday and worked out come together in a way that will simplify things for our customers immensely eliminating the need for reconciliation between various systems and more as they prepare their workforce and returned to work safely and securely and this is just to start.

Now moving on to the business highlights from Q1, beginning with Workday HCM, where the journey to the cloud continued despite the challenging backdrop in Q1, we were selected as core HCM vendor one of the largest city governments the city of Los Angeles, We also welcomed a utility company in EMEA with over 80000 employees as well.

As a large insurance company in Asia Pac with over 50000 employees among the many new HCM customers in the quarter.

Turning to Workday financial management I'm pleased to say that we now have over 900 customers have selected us CIRCOR financial system.

You saw continued momentum in Q1, including a financials first when unfortunately 50 company Fannie Mae.

Other new financial customers included legal Jefferson County, Metro government popped up as well as a large health care company with more than 60000 employees.

Next the many financials go lives in the quarter I would like to highlight Lithia Motors race track Charlie.

We also saw solid demand for our expanding suite of products that support the opposite the CFO and the chief procurement officer on the planning front, we expanded our partnership with Microsoft So work that customers can run workday adaptive planting Microsoft Azure cloud.

Microsoft become the first workday customer on Azure as they adopt workday adaptive planning to help them with planning budgeting and forecasting.

Scott RFP had a solid first full quarter are under workday with multiple fortune 500 wins, including its largest ever transaction with a large health care company and wins at Lowe's and Albertsons.

One of the many benefits of the cloud is that we can deploy our customers 100% virtually we showcased the strength of Q1 with more than 90 customer go lives in March and April.

Notably to these customers have more than 85000 fortys each.

Charging matheson in a p. J and John Lewis partnership.

Turning to product we delivered our latest major released in March which included enhance workforce planning with workday adopted planning availability of workday assistant and intuitive chat bots forgotten employees, new machine learning base skills capabilities and workday.

If I heard employ skills and supporting re skilling efforts and new data visualization and benchmarking features workday prism analytics.

In addition, we made great progress our extensibility journey.

Just this past weekend, we moved our latest offering on workday cloud platform workday extend GA.

This is a significant milestone cross that we further increases our strategic positioning with customers and partners. In addition to our powerful integration capabilities customers can help build deep extensions from work. This core applications. As an example, within just a few short weeks one of our customers built an app on work to extend that help facilitate hazard pay to their workers.

On the front lines.

I'm confident that this period will ultimately serve as a catalyst to accelerate the adoption of our growing platform supporting HR finance systems in the cloud now more than ever companies are realizing the incredible importance of having agile flexible systems to support their mission critical business processes.

With that I'll turn it over to our co president Chano Fernandez over to you China.

Thank you need good afternoon, everyone I'd like to seeing a few minutes, providing an update on the fit.

Before I do that I would first like to thank you our entire go to market team in response to setting environment. So I may be biased I don't have maybe that's the best testing in enterprise somewhere.

I've never been more asking that deep dive right now having watched what dancing games with eight of our mass.

Customers over the last few months.

I need mentioned there were many highlights this quarter, including the financials first leaning April finding they keep the same day steel what's accounting center, one of our new products that will enable Fannie Mae accounts for <unk>.

No.

The medium enterprise team also hot I know there extend our water continuing a multiyear trend we have seen seems seems would actually all of our lounge.

I think on fees are really meant approach, we streamline sales that degree which has dramatically reduced costs the broad.

In addition momentum we thought were back to based team continued in Q, while we are seeing glass Neil HCV growth.

Formats, we thought were back to based game plan across customer segments products, including core themes.

Now turning on pricing on anything.

That makes us unique coming from multiple customers being on the rights for us over the last few quarters, we continued to our resources to better target the growing installed base opportunity we have spec.

Union.

For orders year.

We had consumable sales momentum across all areas of the business entering what 20, well however, as called 19 force adult now across much global economy, we still higher than normal deal push outs, but you are running industries most.

Including travel and hospitality and healthcare or major geographies where effect.

We saw a heavier impact our rest of world markets.

Making the decision to move on to working day has always being on a very strong E. One for companies one that is not thinking.

Even the importance of that official spent the nature of the partnership with our customers in disconcerting environment. There are companies are prolonging efficient process I stay focused first on assessing its funding the immediate impacts their business.

Thank goodness is that based on where we stand today most of the pipeline impact has been opportunities moving into later periods Robbins on deals on Dominik going away with that I guess expected impact being you do you see it's also important to note we have seen in drilling prospects engagements in April we have also seeing healthy pipe.

Gross or 22 separate Kennedy shift from trusts have to both you for mining Lifepoint 20 to find any we have adopted our messaging areas of focus by so those two industry doubling down on the go to market. Most channels that we are confident with GM. The best returns a science.

Wearing a competitive market, but we feel very confident were positioning so no meaningful changes to competitive dynamics you well.

In addition, our discounting was in line with historical levels as most customers negotiations centered.

Rob more flexible payment terms to help ease the initial upfront cash spending.

We feel where customer relations. So long term partnerships on were willing to leverage our balance sheet, where we think it makes sense.

We strongly believe that these unprecedented environment onea sensing import vessel, having a single system line execute on a nice business.

I'll tell you how many prospects I have spoken with over the last few months left told me this environment highlighting.

Their legacy RPC since our rapid change.

The same time also spoken with many of our customers filming yes help mission critical work.

In their business respond to these crises.

I've heard from many customers currently implementing we're experiencing a faster more product project off poignant remote basics.

There are many potential outcomes and when determining what the pace of recovery will look like.

Our next environment remained very clearly well that's why 21, yet despite some near term 70 were confident that asset recovery takes hold learning trending well, we'll see I'm not sure multi decade opportunity that we see ahead with that I would turn it over to Raleigh.

Thanks, Jonathan good afternoon, everyone.

And challenging environment, we reported solid first quarter results, which we believe that direct reflection of the mission critical nature of our solution.

I mean, it briefly recap our first quarter and provide updated guidance by 21, and then we'll open it up to your question.

We had our first ever 1 billion dollar revenue quarter in Q1.

Subscription revenue of 882 million at 26% year over year and professional services revenue of 136 million up 10%.

Total revenue outside the U.S. was at 30% to 256 million.

Subscription revenue backlog with 8.19 billion at the end of the first quarter growth of 20% year over year.

Subscription revenue backlog there will be recognized within the next 24 month with 5.52 billion growth of 21%.

In Q1, our retention rates continue to be strong with Chris retention over 95% and net retention, which include selling at the time of renewal over 100%.

As John mentioned or add on business is growing rapidly and we see strong sales back into our customer base of Gary and outside of the renewal process.

Our non-GAAP operating income for the first quarter was 130 million, resulting in a non-GAAP operating margin of 12.8%.

To help support our employees during these unprecedented times in April we paid a onetime cash bonus equivalent to two weeks pay to all our non executive employing.

This added 79 million to our first quarter and full year endpoint 21 expensive, both GAAP and non gap that was not contemplated in the guidance provided during our Q4 call.

Excluding this onetime bonus payments, our Q1, non-GAAP operating margin would've been 20.6% well above our guidance driven by topline out performance lower spend on travel and non critical program delays and more measured hiring.

Q1, operating cash flow was 264 million growth of 26% year over year.

During Q1, we successfully added an integrated approximately 150 net new employees, bringing our total workforce at the ended the quarter roughly 12400.

And lastly in April we closed the 1.5 billion dollar credit facility comprised of a term loan under revolving line of credit, which we believe strengthens our financial position and provides us greater flexibility as we plan for the future.

As of the end of Q1 500 million of the term loan had been funded.

Overall, we're pleased with our results and execution against the very challenging environment.

And now I'll turn the guidance.

When we provided our outlook in February very early in the covered 19 crisis, and we could not yet reasonably predict or quantify the potential impact to our fiscal year.

And the 90 day. Since then we've started to see an effect on our business on several fronts, including new business bookings GAAP and non-GAAP operating expenses and cash collections from customers.

The updated guidance, we're providing today takes into account these impacts based on what we have observed over the last few months.

Significant near term uncertainty still remains however, so we are providing wider than usual guidance ranges helped take that into account.

Built into our revised guidance, if the expectation that the pace of recovery will be relatively slow with Q2 and Q3 being the most challenging period, followed by a reasonable improvement in Q4.

Before providing our updated outlook I wanted to make a few high level comments around our business model.

First we primarily serve a large and medium enterprise market and although even the largest companies are not immune to the current economic environment. We believe there better position then SMB whether this downturn.

Second while our licensee model is based on the number of workers within our customers organization.

Have measures in place that help reduce near term volatility from employment changes.

As an example, our contracts it typically only trued up annually to account for increases and decreases in worker count.

In addition, our contracts have base minimum which limit our downside and it is only upon contract renewal, which is typically every three to five years that our customers have the opportunity to reset these base level.

And finally, we are very strategic to our customers, which makes our products incredibly sticky.

As a result, while we may see some moderation and retention rates in the near term like we do the increase bankruptcies and reduction in base worker count during renewal.

We expect that our retention rates will remain high and we will continue to update you on this metric as we move through the year.

With that as a backdrop, we're lowering our f. why 21 subscription revenue estimate to be in the range at 3.67 billion to 3.69 billion or 19% growth.

We expect our Q2 subscription revenues to be 913 to 915 million or 21% growth.

We now expect professional services revenues to be 500 million in fiscal 21, and 128 million in Q2.

As always our priority is to support our customers successful deployment and drive the highest level a customer satisfaction.

In line with these goals, we expect to balance approach in terms of partner and workday Prime to ensure our partner ecosystem continues to be healthy an active.

For Q2, we expect subscription revenue backlog growth in the mid to high teens.

Given the current uncertainty around net new business renewal rate and potential changes to contract duration. During the remainder of the year, we will only be providing Q2 backlog guidance at this time.

Now moving to margin.

We estimate Q2, non-GAAP operating margin to be approximately 19%.

For the full year, we now expect to non-GAAP operating margin of 16% up from our prior view a 14.5%.

This margin improvement reflects our expectation of lower operating expenses versus our original plan, even as we continue to invest and position ourselves to emerge from this period as an even stronger company.

GAAP operating margin is expected to be lower than the non-GAAP margins by approximately 26 percentage points in the second quarter and 27 percentage points for the full year.

All right. That's why 21 capital investments guidance, excluding unrealized state is now 280 million down from our prior view a 350 million.

Several large least real estate projects have been postponed.

We currently do not expect to invest any further in owned real estate during flight 21.

That's why 21 non-GAAP tax rate remained unchanged at 19%.

We had strong operating cash flow in Q1, but we have received and continue to receive request from some existing and new customers for flexible payment term.

As always customer relationships and customer retention or a top priority for us.

During this challenging time, we're committed to providing flexibility to those customers that had been hit hardest by the pandemic. So that we can emerge stronger together.

Our ability to remain flexible and the area of cash is critical and supporting these goals and we will therefore, ses operating cash flow guidance for the remainder of this fiscal year.

In closing, we're confident in the fundamental strength of our business model the resiliency of our customer base and in the long term shift of HR and financial applications to the cloud.

We plan to operate with agility, while continuing to drive innovation to support sustainable long term growth.

With that I'll turn it over to the operator to begin the Q and a process.

Operator.

Thank you at this time, we will be conducting a question and answer session.

I would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is and the question Q.

You May press star too if you would like to remove yourself from the Q.

For participant using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.

Our first questions come from the line of Kirk return of Evercore ISI. Please proceed with your questions.

Thanks very much in the hope you all are doing well.

I really want to ask Andy alight. Thanks, Phil on the long drive contest on Sunday, but I guess I'll keep it too.

Business.

Sean you mentioned that.

Customers, obviously deferring decisions I'll pick up surprising to anybody is that just a matter of.

Business confidence in me in sort of managing budgets and can you talk a little bit about whether or not that conversations different if you're having an HCM discussion versus a financial discussion or its more yeah. It's more said, it's pretty similar across but those product offerings.

[laughter].

And on the 18 months since he is a good question, but I would say that so far we haven't seen a while all season it sounds to me more or less by state done deal there I call. It.

In both cases, theres significant ROI that we delivered to or customers significant business benefits, but both of these are.

Very important assistance on the drivers of that changed very like call financing ratio. So it could be the need to have more agility platform is equities changed.

And what we're seeing out what are they dice doesn't know what Larry either ace Yang or fanciest necessarily more or less impacted in the near term by calling.

Thanks.

Thanks, Paul barrel, sorry, guys care.

Hey, good place you got.

No in terms of the overall I think you asked about the pipeline Wolf.

Right.

Correct, yes. Thank you.

Yes, well yes.

Yes, we stated on the prepared remarks, our pipeline has definitely more around.

Signed cases push out what are too maybe that auction to price I'm really not significantly no changes in their video enterprise.

I would say, we don't happy not to date that yet to really coal. These same accurately at this point in time.

This is something that lighting is carefully monitoring.

If I get US one quick follow up you mentioned, but back to the base growth is really healthy.

This quarter and I'm just curious given the fact that there's some your customers might be pushing back you know bigger decisions for now.

Are you able to serve toggle the salesforce to focus maybe more on this back to base opportunities within your existing customer base. It seemed like the hit rate on those might be a little bit higher until some of the uncertainty dies down thanks very much for taking the questions.

Yeah. Thanks to you care as you know we already be significant investments at the beginning of the year to prepare for to cover the decline the box to debate because we have happy customer base that great subset well desk at U.S. solutions will definitely inductee Mount was already increasing so we felt that were so it's very would prepare for it and as we say we had a good.

Growth in Dr. Bates customary in Q1, but we also have to saying you in Q4 as well so we seem to prepare for that market Moshe.

If I could just had 111 comment too to kirks question.

We did go through a similar environment with always in a way to nine and we.

And we really focused in on a couple of things one was a quick.

Payback for for customers and rapid implementation.

Goals, where we could get HR up and running.

Six months and financials, maybe the in a little bit longer than the that were just dusted off that playbook and using it again.

For the net new business I think that's important recognize no.

It's it's very similar tollway donor derived from that perspective, and there is there's a way through it.

Thank you all.

Our next question something of a line of Keith Weiss of Morgan Stanley. Please proceed with your question.

Excellent. Thank you guys for taking the question and.

Everybody is safe and healthy out there.

A question for I think I had a China or Neil.

One of the thing that I get asked a lot by investors is the priority for core HCM in core financials, when we get to the other side to discover 19 crisis can you talk just a little bit about sort of the conversations you're having with your customers on where they think sort of these DCM investments in financials investments will.

Fall on their kinda priority stack, if you will.

Once the Dod spending opens up against what those IP budgets start to get spent again.

Well I think first and foremost on the finance side I think this this crisis will be a catalyst for people switching from on premise into the cloud for finance and we're already seeing.

The growth rates, but.

The growth rates at healthy levels, but I've talked to watch the CIO since that you know I wish I had everything in the cloud right now.

Struggling with my on premise, both because of the labor required and people required to be on site and because of systems are really not very agile are flexible and.

We see our customers coming up with new reports with.

New work streams. All these things that they are able to do and workday. So I think it's going to be a high priority on the finance side on HR.

Mark is going to continue to be healthy I think what we're going to see is.

Our growing emphasis on.

On the of the.

Area of skills the skills cloud learning.

Talent marketplace, all the areas, where we're going to have over 30 million people unemployed. We've got to get these folks back to work and we got to get them.

We got to get them, the right skills and I think a lot of companies are going to be working probably alongside.

Some of the states and local governments to direct how to get these these folks back to work and that will that we'll be right up our sweet spot.

Tony what I think.

No.

And then press one follow up for for Robin.

First of all Super Cool.

Guys to get that Boeing installed the employees.

Oh Lucky up with the Morgan Stanley CFO, and maybe you guys could have a chat.

And but but nonetheless, the full year operating margin still come up versus your prior expectation definitely from what we had in our model how should we think about it makes a lot of sense right that there is no travel going on in a lot of events are coming out of that equation. How should we think about the durability of that margin gain does that 60% if you will.

As we move our model forward indefinitely 22 is that new base and then that's going to grow from there or is this a more a temporal step up.

Yeah, you know that's a great question, Keith and his given all the unknown that we're facing right now it's really hard for us to look into F. why 22 at this time and we certainly do plan as we start to see recovery.

Particularly in in Q4, hopefully that will continue to invest in the business, though I'm not sure did this is the new baseline, but you know we certainly believe that we are showing the the value of our business model and how it can leverage as we scale, but we still have a lot of important work to do.

And we've got a long term very massive opportunity ahead of us that we will continue to invest.

Got it thank you guys.

Our next question something in the line of Heather Bellini of Goldman Sachs. Please proceed with your question.

Great. Thank you so much for taking my question and hope you and your families are all doing well I just had two I was wondering if you could talk to us about how your salespeople and your partners are you know kind of dealing with lead Gen. In this environment kind of how how they adopted if there's if there's some stuff.

You can share with us there on on.

Might being creative on that front and then Robyn I know this isn't something that you normally commenting on anymore, but just given the environment in your comments about Twoq Threeq, you being up probably the more challenging quarters that you're going to face any high level comments, even about how to think about unearned revenue trends for for the fourth of July quarter.

Thank you.

Yeah, I'm Heather so.

I think we definitely expect that honor and will lag behind our backlog growth right and we'll continue to do that and you know part of that has to do with the fact that you know it's kind of and I. Both both mentioned, we're trying to be more flexible on cash, particularly for customers that have been most.

Impacted and trying to mention that a lot of his new customer negotiations really that's what they're pushing on and so we really want to use our our balance sheet to help them out during this time. It. So as you know that will impact.

Billing and the unearned as well as the cash flow.

And expect to that throughout the rest of this year. The good news is that actually doesn't impact our revenue recognition profile.

We think it's a it's a good investment and that flexibility has and we believe we'll continue to allow us to maintain our discounting levels.

Hi, there in terms of Dan. Thanks for your question I Hope, you're doing well keeping how see too in terms of your question on the management. We're still seeing obviously you had to people. It during the course of Q1 to a full U verse while environment.

But the reality is that we have always had a pretty significant portion will fall, where so cycle not fair 20, anyhow printing grabbing that process. Both show on Tuesday morning of our software and so we'll have to change that we have evolved entire process severe 20.

In terms of what we had that state as I said online. So my remarks, we had I see that were Meshy hang Ao Brasil folks, whose by so assuming industry, we clearly but was more than doubled down on those go to market motions that we have more confidence that we Jill best returns you're in D. Science, obviously, you kind of seeing kit.

Welcome to some more and solid surging industries or some solutions like it could be planning or pricing.

Turning or skout to southeast emotions that we've seen will produce better results.

Great. Thank you.

Your next question is coming from the line of Mark Murphy of JP Morgan. Please proceed with your questions.

Yes. Thank you I'll add my congrats I am interested in how you would characterize the environment. So far in the month of May.

Just in terms of generating pipeline and booking new business. It should we think of that as being kind.

Kind of a night and day difference versus late March early April or.

Is it something you'd call directionally, better, but it'll still kinda takes some time to get back to the <unk>.

It will plan. So I'm just trying to understand if you think it's improving or degrading kind of lit between.

March and the month to me.

Hey, Mark.

70 days.

But were still below our normal engagement levels.

I'm also be dollar normal pipeline builds.

But there as being a significant half taking engage being plus 50 cent demand relative to let's say four weeks. It go.

So much of our activity as I said, it now focusing assembly industries, where were seeing the greatest near term demand.

But we also continue dilo converting caused that are more impacted by calling to ensure that what policies young.

We emerge from this environment Clark.

Okay, and then as a follow up Robin I'd say, it's understandable that did your withdrawing the subscription backlog guidance in the back half.

But that said just considering that you still landed essentially within the original Q1 guidance for subscription backlog I think surprisingly and during a real chaotic period of time is do you see high audits that that backlog growth is going to end up.

Say materially below this type of glide path that you're on.

Its the confidence a little better than that but it's just kind of such a wide range of potential outcomes. At this point that it's hard to know yeah market.

Let me.

Let me just let me let me start let me start with this I think what everybody needs are recognized is that no. One knows how it's going to play out over the next couple of quarters. We don't know if there's going to be another outbreak.

And so.

Everything that we're saying is our best information at this point in time Keith.

If you know how it's going to play out. Please let me now [laughter].

So with that Robyn jump in but but I think that has to be the backdrop on on everything right now.

Yeah, that's right and as you know that backlog is tight to net new it's all sit tight so renewal and then it type situation.

We really havent seen.

We don't have any yet to predict those things play out over the back half of your can we just have far less visibility.

Sorry, sorry realize that was mark sorry, Mark.

Yes.

You can call me tell me Keith it's not all the kids I Hope you will [laughter].

Take care you so.

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

Hey, Thank you very much I'm curious.

The net new ACB growth of 50% within your base, how does it compared to recent quarters and how sustainable is and also curious what kinds of products are you, having the biggest could trade with wouldn't the installed base. Thank you so much.

Well I'll, let a lot channel answer the first part I would say that.

It's a lot of the not surprisingly the customers that are adding or adding onto core HR Corp. finance.

In this environment and Tom can come on to comment on it.

Both planning and.

Scott RFP have been very strong solutions.

People are really struggling with the legacy planning tools and I mean, I, even look at work there how many players we generated in the last couple of months because no. One knows how this is all going to shake out.

What's got RFP, it's a quick it's a quick implementation that can give you can get in.

Control of your of your spend in.

Very.

Global and unified way and that's another thing that that's been doing well, but maybe I'll, let Tom comment and then shuttle comment.

Yes.

Yes, Thanks, Neal that's right what we've seen.

Real uptick in interest implanting companies are running as you would expect significant thing more scenarios as Neal said I.

I think there was a period of time in March we saw about 30 ex increase.

In the terms a number of scenarios that our customers are running so it's not surprising so I think the importance of planning and particularly cloud based climate solutions, where the whole team can be conducted to lets quickly.

He has resonated with customers, we've seen tremendous interest of workforce planning everybody's thinking through what the next generation workforce looks like there's obviously fundamental changes being driven to both location and the the way we work and that requires a focus on workforce planning.

And then as Neal mentioned I think we've also seen a lot of interest in our sourcing products because of periods. Like this companies are extremely focused on ways stuff, we can save money.

As John mentioned in his script, we had the what we saw the largest still ever and scouts history. This quarter. So I think there's a lot of resonates with customers.

And we're seeing that uptake channel.

Just listen listen to Tom It sounds like that or maybe this is the case or maybe just not because the shift a cloud based financial.

Could accelerate per square is that right or are too optimistic.

Well I think I think generally there's kind of walk written about this period of time accelerating trends that were already in place and certainly the trend towards cloud based applications.

The need to and how effective it is during a period of time like this where people have to work remotely.

You know as Chango and others, who have stated there is uncertainty in the short term in terms of.

Yeah, what the uptick in terms of adoption of enterprise applications will be in the short term, but there's no question in the intermediate and longer terms.

It will be chat went towards the adoption of cloud based.

Well based planning and cloud based applications more generally.

Thank you got all cash we've seen the 50 per same last at Neal HCP growth in the back to base emotionally King for Q1.

That's destiny that with discos, so far on I think DC.

I'll panel.

Hey, we having a happy customer base and certainly the investments we done when they go to market motion to cover.

Our customer base and ask when of course, they increase up but all of their solutions set on the but what that solution offerings that we have today, it's working.

Thank you. Our next question is comes the line of Brent Bracelin of Piper Sandler. Please proceed with your question.

Thank you and good afternoon, I'm going to follow up on the Microsoft relationship I know you guys first announced the global partnership back in the summer 2016. So my question here.

What what how is that Microsoft relation shifts evolved over the last three plus years and maybe the new scope of what you're working with them on today.

So we've had a great partnership with Microsoft for a long time will.

Really around office 365 and were roughly around teams.

This is built on that.

Having.

Azure into the mix right now just for just for adaptive.

But that's it's also the first time that.

Microsoft has become a.

Who work that customer, although linked and it's been a work the customer for quite some time. So just adding it's just the natural progression over partnership.

Marks also great companies, such as a great CEO, we'd like to do more with them.

Awesome and then just a quick follow up relative to the concessions that you're giving some of the most heavily impacted customers I know Robin you talked about the base minimum or not really being up for negotiation every three to five years, but I. Just wondering are you proactively looking to kind of work with these customers that are.

Impacted or is it something where it's non negotiable and you really don't really see a change there and until that is up for renewal.

Brent I mean, we believe we're taking all of that our customer request on a one off one by one basis case by case, but really the vast majority of the quest for getting or along payment deferral not renegotiating contracts that just deferring payment. So we have not really run into an issue with customers trying to really go.

Okay. Thanks.

Time, although certainly that couldn't be case some that are.

Most.

Most impacted by that.

Got it makes sense. Thank you.

Yes.

Our next question has come from the line of David Hynes of Canaccord. Please proceed with your question.

Hey, Thanks, very much guys congrats on the results.

Maybe I'll take the other partnership question.

Can you talk a little bit about more about work dotcom, what you're doing with Salesforce, what it could mean for workdays business and maybe how you see that opportunity evolving over time.

Can you guys you mean.

Sorry.

Mark has been a.

Driving.

The contact management piece for for some time around contact Tracy.

And.

And we actually had started that thinking in that work all the way back to Sars. So.

And the Salesforce applications. The other day as a content management, sorry contact contact management application, so it's really well suited to that.

Mark has the same goal and so for us as a single that we do we want to enable our customers to.

Get their people back to work safely and so what we're doing as we have all the data about employees locations.

What their weather.

Learning in terms of the learning content and Salesforce has a whole set of things with worked out come around contact tracing.

Right and skills shifts and we're just making sure that the too.

Technologies are completely six so customers don't have to reconcile between the two and if so if you're a joint customer.

Hopefully this the solutions really going to help you manage your way back into the office.

And.

I think.

All of you know on the phone I mean, Salesforce has been one of our best partners if not our best partner almost since the day, we started workday.

Sure.

Okay. That's helpful. And then maybe a follow up for Robin. So a few folks have hit on back to the base strength in the queue and and I just want to tie that into net revenue retention.

Gross retention has always been really strong rate of 95%, but on the net side is that consistent commentary about north of 100% just out of practice or are you actually seeing improvement there and I guess could you get anymore granular on on a number for net revenue essentially.

Yeah. The way, we actually measure net revenue is the only count add on sales at the renewal point and so now that we're really focused more on selling back into the base and that's happening during renewal cycles, but it's happening a lot more than ever outside of renewal cycle and that's not captured in the net retention rate. So okay. So I think it.

We're actually looking at a better way to measure it now that we're doing so many add ons outside of renewals and we'll probably make a change there over the coming quarters, but you know for now I would just think of it as long as the way we are calculating it remains over 100% that's great news and then on top of that we're selling a lot more into the base outside of the.

This renewal cycle.

Right. Okay that makes a lot more sandy do you guys do you see I'm going to ask I'm going to us Peach lamp, our head of applications to weigh in on the Salesforce partnership to he's closer to the to what we're actually doing from a product perspective, Peter Let me great.

[laughter].

Sales for us.

For.

Oh.

Yes.

Please.

Yes.

Pete Pete Euro.

You are I think your your volume is.

Not on [laughter].

Better.

Got you have a year, but you need you to Musuem basically got it.

So as I think of the two.

Salesforce has the data about the workplace and workday has stayed about the workforce and some of the most rich data that we have is is data about skills and so as companies are going through these big transformations that are happening with workers with all the some southern demands in certain areas that they didn't have before and.

Vice versa.

Being able to make those transitions quickly and use that skill data is so essential so when we think about.

Getting companies back to the workplace safely securely and people back safe when it's a curated by the data, bringing if you datasets together.

Whether thats in a sales forces hub.

And our command center in the work Dot Com Command center or whether it's within the work the application set itself and that's how we're going to and that's how we're going to really start things off as with the data integration and then develop more applications as we go forward.

Okay got it makes sense, thanks to all the color.

Okay.

We have time for two more questioners.

Sure.

Next question comes from the line of Scott Berg of Needham and company. Please proceed with your question.

Hi, everyone. Thanks for taking my question I only have one here in essence of time.

Aneel or maybe China, probably Neil just wanted to see a if you had some additional comments on workday extent now that it's a finally available in GA trying to understand the revenue model of and going forward kind of how is it evolved today versus the initial no less than two years ago in do you envision customers.

Or other companies building commercial labs, certainly could actually sell off of it like what happens on for sat com.

Well I'll take a quick cracked that I'm just send it over to Pete.

But hopefully peak gets its technology like with club.

[laughter] season Pete.

So work they extend is really focused on extensibility for our customers.

And we're not looking to open up.

Hi, then I SV community to build commercial applications, our customers are getting great value from extend I mean, we had extend in.

And limited availability limited general availability for several quarters and so we really got a good handle on the use cases and now what we're seeing customers doing is building I call them more many ops and extensions they've done a lot or a lot of it around kobin 19, whether it's to track essential workers to track one of the one of our customers.

Oh, it's tracking cases of cobot around the globe for manufacturing plants. So it's it's really whatever that our customers want to do and extend our business model, but definitely not ice fees and Pete what else would be what else should we add to that.

Thanks.

Hey, guys have them you think figured out here after working from home for the last two months.

The.

Really I think the success, we've had so far as like the highlight 50 50 customers using it over 90.

Different solutions built on the on the platform already we're going into this as the J period with a lot of existing momentum as we think about the products we think about.

Really extending the entire used the entire surface up the workday platform every all the applications that we haven't worked and then enabling our customers.

Yes, and so we continue to open up new surface areas and that just because of the different possibilities that customers can develop on properly Oh.

[music].

I guess I guess, it just to come back to the to the.

Revenue question or the bookings question I still wouldn't expect much for fiscal year 21, but I do think he can be a decent contributor in fiscal year 22 and beyond.

No not at a high growth high growth high growth contributor.

Excellent that's happening state your question.

Our next question is coming from the line of Brian Schwartz of Oppenheimer. Please proceed with your questions [noise].

Hi, Thanks for taking my question Chano I had a follow up question I think it was to how there's about the marketing fine on the lead generation.

You commented on what the timing could be for these sales cycles, but can you shed light on what youre seeing in terms of the values are the deal values holding up at a similar rate as you've seen in the past as they are progressing through the final towards closing thanks.

[noise]. Thank you for your question Brad.

I would say, it's very early days, we've seen no shift of significance decremental set any when a morning total pipeline timing for hi, there I know nature I want to this year or pipeline coming in from flight 22 at this point in time, we have been we bought it just went to 25 cents.

The calendar docs deals in terms of value even on the environment. We are in due course thing we need to be able to progress those deals. Some of finally closing, but nothing to highlight intensive change those deals site, there being close either that or do you know the are shrinking or out of the haven't desk the ratio or any kind of seeing slight.

Okay and dose.

No Brady we need floor definitely up these are trained to more data points. During the rest of Q2 luckier funny, but right now that's what I can share Brian.

Thank you very much.

Ladies and gentlemen, thank you for your participation on today's conference. This will conclude workdays first quarter fiscal year 2021 call. Thank you again for joining us and have a great evening.