Q1 2022 Workday Inc Earnings Call

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Welcome to work States first quarter fiscal year, 2020.2 earnings call. At this time all participants are in a listen only mode. We will conduct a question and answer session towards the end of the call I would now hand, it over to Justin Furby My call today on the Investor Relations. Thank you may begin.

Yeah.

Thank you operator, welcome to workdays first quarter fiscal 2020.2 earnings conference call on the call, we have Aneel butchery and channel Fernandez, our co Ceos Robbins, Cisco, our president and CFO and Peter Lamb, Our executive Vice President of product development.

Following prepared remarks, we will take questions are.

Our press release was issued after close of market and is posted on our website for this.

Policy and simultaneously webcast.

Before we get started we want to emphasize that some of our statements on this call, particularly our guidance are based on the information we have as of today and include forward looking statements regarding our financial results applications customer demand operations and other matters.

These statements are subject to risks uncertainties and assumptions, including those related to the impacts of the ongoing COVID-19 pandemic on our business and global economic conditions.

Please refer to the press release and the risk factors and documents, we filed with the Securities and Exchange Commission, including our 2020, 1 and annual report on form 10-K, and most recent quarterly report on form 10-Q for additional information on risks uncertainties and assumptions that may cause actual results to differ materially from those set forth and such statement.

In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as 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 results.

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

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

Also the customers page of our website includes a list of selected customers and is updated monthly.

Our second quarter quiet period begins on July 16, 2021.

Unless otherwise stated all financial comparisons and this call will be to our results for the comparable period of our fiscal 2020.1.

With that I will hand, the call over to Aneel.

Thank you Justin and good afternoon, everyone.

And for joining us today for our first quarter of fiscal year 'twenty 2 earnings call before we jump into our quarterly results first a huge congratulations to workday and voucher and my good friend, Phil Mickelson on winning the PGA championship over the weekend and it.

Amazing accomplishment and proving once again and in addition to being a great person fills 1 of the most talented golfers of all time.

I'm pleased to report that workday had a strong quarter, starting the year with significant momentum and positioning us well for a great fiscal year 'twenty 2 and.

And Q1, we saw an increase in demand across all product areas, while delivering strong non-GAAP operating margins of 25% showing the strength inherent and our underlying business model.

Our results support the acceleration and digital transformations across HR, and finance and Robin will share more shortly on how we plan to invest behind this opportunity.

Let me share some highlights starting with workday HCM and we continue to be the market leader with our differentiated suite of products and continued innovation, we're seeing an increase in demand as more and more organizations prioritize transition their HCM systems to cloud to deliver a world class employee experience.

And Q1, we welcome the ASR Global Las Vegas Sands Corp, Mattel, 5 below and <unk> and cost plus world market for the Workday family along with many other new HCM customers.

And even with all the sales momentum we continue to have over 7 per cent of our HCM customers and production with notable go lives and Q1, including film and AG University of Sydney and.

And Macquarie University to name a few.

Turning to Workday financial management, we saw momentum build in Q1 as companies increasingly prioritize digitalization within the office of the CFO and addition to on exploration and core financials bookings. We also saw strength across the portfolio with offerings, such as workday adaptor planning spend management, including workday strategic sourcing.

For lead on our Scout and our enterprise Finance solutions.

New customers and Q1 included Los Angeles Department of water and power Saks and St. Francis Health system, and incorporated with add on wins and.

And where enterprises.

Our focus on industry solutions was also a key contributor for our success during the quarter were a PSA solution was a key driver to our broader HR and thins platform win in Q1 and accounting for our Southern U S.

And our accounting center solution as part of our fence first win and National farmers Union mutual insurance.

Our strong position continues to get recognized by the market for the fifth year and a row workday was named the leader and the Gartner Magic quadrant for cloud core financial management suites for midsize large and global Enterprise last published on May 1st and this year.

Taking a step back and we continue to focus on delivering a global solution that enables business leaders to plan execute analyze all on 1 system.

And then this rapidly changing world our value proposition only continues to grow as we make advances on the innovation front.

And Q1, and we delivered our latest feature release Workday, 'twenty 'twenty, 1 or 1 with advancements across all product areas, including broadening the capabilities of workday extend and greater functionality and spend and supplier management.

We also continued our investment and a world class user experience and smarter and more personalized search and workday people experience as well as extended capabilities and natural workspaces outside of workday, such as slack and Microsoft teams and.

And to further enable customers and optimizing the future of their employee experience this ever changing world.

And announced that we closed on the acquisition of peak on now we're workday company.

Sean a lot more color on pecan and in a few minutes, but we couldn't be more excited about the opportunity and we see what the pecan offerings and are excited to welcome them to pick on team to work day.

And our history innovation and empathy have always lead to greater customer satisfaction, which is at the heart of everything we do at Workday and <unk>.

And to be so grateful to our teams for of all support our customers and entirely new ways to ensure their success during these challenging times.

Underscoring this dedication and I'm pleased to announce our latest customer satisfaction score of 97%. The survey is particularly meaningful as it provides us feedback from our named and support contexts.

Those who are closest to engaging with the workday experience on a daily basis.

Switching to the people front as you all know we believe a key part of our success continues to be our vibrant company culture, which allows us to maintain high levels of employee satisfaction and greatly helps us attract and retain talent across all levels of the company.

As we look ahead, we see a tremendous opportunity in front of us and so part of it was more organizations across all industries and services backbone of their digital transformation efforts and this changing world.

And foundational delivering on that opportunity.

We are motivated and growing group of employees.

So as we move forward on this growth path and plan to increase our global workforce by more than 20% or 2500, new hires and in fiscal year 2020.2.

And doing so will have an even stronger foundation to scale and innovate on our path to $10 billion.

This quarter was a strong start for our fiscal year and set the stage for acceleration and our business and then look ahead my optimism for workday as future could it be higher.

For a great team in place and a significant global opportunity in front of US as a company is continuing to embark on their HR and finance transformation journeys with that I'll turn it over to my good friend and co CEO, China Fernandez over to you and China.

Thank you Aneel as Aneel mentioned, we're off to a strong start in FY 'twenty with meaningful new bookings acceleration, the first water and sort of any stacy on increasingly position and work as the backbone of the digital transformation.

Our Q1 bookings for 4 months combined with continuing strength in pipeline generation and provide us with increased confidence and driving accelerated new bookings growth and flight linkages.

This quarter's results were once again driven by strong execution on our high conversion rate.

We saw a pick up in net new business and book has grown.

<unk> financial customers and growth along with the overall environment.

I don't know where installed base team had another outstanding quarter sustaining the momentum we sold throughout last year, driven by solid renewal rates as well as strength across others.

As I need to mention we have notable outperformance from planning for financials analytics spend managed bank on our talent or for you.

From a geographic and standpoint, we saw outperformance in North America may be gate, while also driving healthy bookings growth across EMEA and.

Our medium and enterprise team also had an exceptional start the year at a weighted investments and that market continued to pay off.

And on what our strength continued in vertical market, such as professional and financial services health care, and education, and government where industry specific innovation and a dedicated go to market export are critical and so all of our success.

And so and he was previously said we have significant hiring plans and FY 'twenty, 2 and day sales and marketing organization on 1 of the biggest areas of the plant.

And these shifts as we look to accelerate and sustain long term growth.

Investments on rosebay and robot in nature, including what's carrying capacity pre sales and business development.

We're also investing and don't have to come and areas that just marketing and brand campaign focused on the office CFO.

During Q1, we began ramping up ace investment on and are very pleased with the healthy pipeline growth a day.

All right.

Based on day niche on returns we have seen we expect for steroid that based on its investment in the coming quarters and I look for what to update you on our progress.

Organizationally and I'm pleased to say that we have successfully integrated the people and sales teams into workday with both our installed base and maintenance sales teams now actively selling these solutions market.

Although the acquisition and just close in March we are very excited by the pipeline momentum.

We had a number of meaningful equal upsell deals with our customer base and Q1, and then suddenly it's already opening up doors for new significant customer relationships.

And ensuring customer success has always being a par value on workday I'm delighted to say that on where our customer success and services for many stations or for an incredibly well taking hundreds of customers life across all work for HCM and financial management offerings as well as all of our portfolio for all of their solutions.

Targeting the CFO CHL and CIO.

Our partner ecosystem, and it's also critical not only helping us.

On our side, but for innovating on the workday basketball and enabling acceleration with our basic innovation engaging even more strategically with our partners.

And finally on behalf of the entire Workday leadership team I would like to say thanks for all of our Workmates across the globe.

Thank you for a terrific start last week 22, and let's keep the momentum volume.

With that I will turn it all over total our president and CFO Robin physical over to you and Raleigh.

Thanks, John and good afternoon, everyone.

And as Aneel and China mentioned, we delivered a solid Q1, driven by strong execution against and improving market backdrop as organizations look to accelerate the pace of their digital transformations across HR and finance.

Subscription revenue and the first quarter was 1.3 billion up 17% year over year, driven by strong new business sales favorable and quarter linearity and and over performance on customer renewals.

Professional services revenue was 143 million and total revenue came in at 1.18 billion.

Revenue outside the U S was 292 million representing 25 per cent of the total.

24 month backlog at the end of the first quarter was $6.5 9 billion growth of 20% driven by strong new bookings across both net new and add on business.

As I discussed on the last earnings call the amount of a C V coming up for renewal and FY 'twenty 2 is relatively flat from last year.

This dynamic is purely a function of the mix of historical contract links that created a headwind to 24 month backlog growth in Q1, a couple of percentage points and.

And impact that we expect will persist throughout this fiscal year before we return to a more normal level of renewals growth and FY 'twenty 3.

Total subscription revenue backlog at the end of Q1 was $10.8 billion growth of 23%.

Our non-GAAP operating income for the first quarter was $289 million, resulting in a non-GAAP operating margin of approximately 25 per cent.

March and over achievement was driven by a combination of topline over performance and favorable expense variances.

Specifically it took longer to ramp up hiring and external resources, and we had lower than expected costs related to pick on.

We have very ambitious investment targets for the remainder of the year and support of our growth aspirations and have confidence and our ability to continue to ramp for these investments throughout the year.

Operating cash flow and Q1 was 452 million growth of 72% driven by a combination of operating margin expansion and strong customer collections.

Okay.

And as Aneel mentioned, our biggest investment continues to be and our people and in attracting top talent to workday.

During Q1, we began to ramp the pace of hiring successfully adding and integrating roughly 600 net new employees, including over 250 from peak on bringing our total work force at the end of the quarter over 13100 employees.

Overall, we are very pleased with the momentum we saw in Q1, and we're continuing to invest to support growth as the environment normalizes.

Turning now to guidance.

Based on our over performance in Q1, we are raising our FY 'twenty 2 outlook and providing Q2 guidance as follows.

For subscription revenue, we're raising our full year estimate to be and the range of 4 point for 2.5 billion to $4.4 for 1 billion growth of 17%.

As a reminder, peak on is expected to add less than 1 percentage point to our overall subscription revenue growth and FY 'twenty 2.

We expect our Q2 subscription revenue to be 1.1, 95 billion to 1 point on 97 billion, 18% year over year growth with sequential growth in Q3, and Q4 of approximately 3% and for 5% respectively.

We still expect professional services revenue to be 590 million in FY 'twenty 2 as we continue to prioritize driving the highest levels of customer success.

For Q2, we expect professional services revenue of $145 million.

Taking into account the renewal headwinds I mentioned earlier, we expect 24 month backlog growth of 17% and Q2.

Investing for growth remains our number 1 priority.

And as Aneel mentioned, we expect an increased pace of hiring across the company and FY 'twenty 2 as well as the ramp of non head count spending with a focus on sales marketing and product.

And specifically targeted at accelerating demand generation and enhancing our market position and advancing our strategic product roadmap.

Given that we expect margins to moderate throughout the year with a Q2 non-GAAP operating margin of 20% and our full year non-GAAP operating margin and the range of 18% to 19%.

The GAAP margins for the second quarter and the full year are expected to be approximately 24 percentage points lower than the non-GAAP margins.

There is no change to our FY 'twenty to operating cash flow guidance of $1.2 billion.

During Q1, we completed the $171 million purchase of 5 buildings at our Pleasant and campus.

This purchase is important to our headquarters strategy and affords us control of our core campus buildings.

We do not expect any further owned real estate investments for the remainder of the year and we continue to expect 270 million and other capital investments to support our customer growth and continued business expansion.

Okay.

And finally, I'll close by thanking our amazing employees customers and partners for their continued support and hard work.

We're off to a great start for FY 'twenty, 2 and our focus remains on driving accelerated bookings growth.

With that I'll turn it over to the operator to begin Q&A.

At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star 1 on your telephone keypad.

A confirmation tone will indicate your line is and the question queue. You May press starts should share them over for questions from the queue for participants using speaker equipment and may be necessary for you to pick up your handset before pressing the star key 1 moment, while we poll for questions.

Our first question comes from the line of Kurt <unk>.

And with Evercore ISI you May proceed with your question.

Okay. Thanks, very much and congrats on the good start to the year you Aneel.

Neal I wanted to go back to some of your comments that you know not only this quarter, but actually last quarter about it.

And that's for the building pipeline and sort of the opportunity to excel book accelerate bookings and the back half for the year. Just how are you feeling about that opportunity, you're obviously investing against that opportunity. So I assume and still feel good about it but and maybe how should we think about that playing out over the year or is it going to be perhaps a little bit more back end loaded you'll just give us some more.

All are on that idea because I think everybody here is your enthusiasm on the pipeline and the buildup, but obviously the second quarter. It doesn't necessarily reflect that so just want make sure there's no change and the longer term.

Process. Thanks.

Well, so just just remember that subscription revenues lag book.

Bookings growth and we accelerated bookings growth and Q1, and frankly more than on more than even I had expected and Oh and Mike.

Optimism so.

So it takes a while for that accounting to catch up with.

And the acceleration and net new business for the net new business and better than expected.

And.

And then better than expected performance across really all products.

And you know leaves us with a lot of optimism and then of course, we had a great renewals quarter, 2 and Mike and Mike turn it over to China, but.

I think that our exploration has already started.

Yes, Thanks for Aneel, Hi, Kirk.

And we have a healthy pipeline looking ahead up for Q2 across both HCM and fins and across both net new store base teams.

And based on where we stand today, we feel very confident and how the rest of the year should be performing in terms on supporting our accelerated bookings.

And on definitely having a strong second half right.

As you know we have increased seasonality and the second half of the year as it relates to knee and I used to be book is and that's no different this year with a meaningful part of the pipeline and strength with hot the last few quarters targeted to close in the second half. So I would say you know based on where we are today and excited about both Q2.

And the second half and we expect the strong results of growth across both.

That's that's great and China.

And if I could ask just 1 follow up you mentioned on the.

Head count additions are quota bearing reps.

International is still only 25 per cent or so of your revenue.

And we expect that there'll be a pretty heavy investment and some of these international regions and are they starting to perk up.

Yeah, you should be expected and that's part of that quota carrying reps that we're hiring will be set on the across net new international and installed base.

Some would be the verticals that we're playing and we're seeing over and the acceleration in Q2 in international in terms of booking and we should be especially and that we'd see a strong pipeline there for months and been at less than last year again with these for us and I'll do execute it and.

Of course as the market is more recovering on opening I'll share the COVID-19 kind of headwinds that we saw last year, particularly on the net new I would be expecting that menu to be performing better and our international markets going forward.

That's great. Thank you all.

Our next question comes from the line of D. J Hynes with Canaccord you May proceed with your question.

Hey, Thanks, guys.

And then I ask a big picture question I don't know if it's better for Aneel on China, but 1 of the questions I, sometimes get from investors that.

Is this business is going to double over the next 4 to 5 years say, what do you think the mix of land versus expand looks like to get there.

That's definitely a question for China.

Yes, I would say and we just get much more balance clearly we've been talking traditionally that's a you know the day installed base and some of the more land business Lewis representing when people are staying home for our new business bookings excuse me and represented more today and definitely its balancing out as well.

See especially more lending products, and we say and people nowadays and scout our planning. So you shouldn't be that balancing out honestly, it's kind of hard for me to say what is exactly going to be equal.

And we because we sit on that 1 needs to remain very strong on both fronts and we're very excited right now that net new bookings for menu Lola is accelerating but clearly as well that we're playing we're playing these days and on most of them. We signed up these products. When you know on trying to meet customers, where they are on the journey when they're not ready to do our part of the transfer.

Formation, and the breadth of our portfolio today significantly stronger umbro, there and that is allowing us to play a significantly larger and most of them not only on when installed base, but also some of the net new logos to yes.

Yeah, Okay, that's helpful and and that's all up to correct. Some restaurant on a on the hiring look I think.

The margin upside May and you guys alluded to this that say that you know it's been a bit harder than expected to kind of ramp back up to HR engine and like where would you say you are in terms of getting the pace of hiring back up to kind of pre COVID-19 or maybe faster levels and and what do you think what had been the biggest challenges there.

So why don't I take that 1 and you can see you take that 1 and drove increased sorry, sorry, China and when you look across the entire company your size to accelerate in Q1, we had over 600 net new hires and about 250 came from peak on 350 were organic and that compares to.

Relatively flat ish head count last year. So we feel good that we are ramping and we feel really good about the pace of hiring and coming.

Coming out of Q1, and you should expect it to accelerate.

And all areas.

And in Q2, and then stay at that heightened pace for the rest of the year in China and I don't know if you want to add anything specific to sales for that.

No. The only thing I would add maybe to sales is that he's being us already unimportant area of investment and potential hiring in Q1 for basically day, the highest 1 we'd be having and across the company on.

And we've been our intent is just to keep ramping up as we go throughout the year.

Yeah, great. Okay. Thank you guys congrats on a good start.

Our next question comes from the line of Keith Weiss with Morgan Stanley You May proceed with your question.

Excellent. Thank you guys for taking the question and a really nice start to change for the year sounds like momentum is coming back and a really big way.

A question for Robyn and because.

These subscription models are tricky and and and <unk> been warning us about the impacts of a weaker excrete base this year and and gross dollar.

And sort of the.

Growth from from the renewal base is basically flat from last year is that is that impact even across the year is that something that we're going to deal with each and every quarter or is there any kind of seasonality to that and we should be thinking about.

Yeah, Keith so that will impact every quarter throughout this year and while the impact will bounce around a little bit we do expect it'll be a couple of points throughout the year, but keep in mind. When we look at historical renewal levels, There's a range of normal growth and so quantifying the exact impact not you know.

Not.

It's difficult to be very precise that we wanted to give you a feeling for the magnitude, but we do expect that will persist every quarter throughout this year and that will return to more normal levels next year.

Got it and then when you talk about a couple of points is that a couple of points on bookings growth youre talking about or is it the RP O growth like what it was a couple of points for specific to which 1.

24 month backlog growth.

Okay. That's super helpful. And then like underlying that that's just about contracts up for renewal the renewal rates themselves those are staying pretty solid.

Yeah. That's correct in fact, we had and over performance of renewal rates from Q1. So we feel really good about that that this is just and scheduled renewals, which is purely a factor of terms of previous deals and again just to reiterate no impact on this flat and flattened and renewal base to subscription revenue backlog.

Yeah.

Got it okay, and so it sounds like the factors that you guys have and in your control are all doing really well are actually outperforming and it's just the timing on on contract renewals that are creating a little bit of a drag.

That's correct on the on the 24 month background and summer, yes and.

And the total backlog and that sounds well.

Perfect. That's super helpful. Thank you so much.

Our next question comes from the line of Kash Rangan with Goldman Sachs. You May proceed with your question.

Thank you Robert and I have a question for you just extending your logic with the renewal base being a little bit challenging this year, but your net new are they starting to accelerate so going into next year calendar 'twenty 2 with a stronger renewal based on what does that mean for backlog growth for next year and.

And also I think on the U R chop and maybe on previous quarterly earnings conference calls you've talked about.

Financial migrations being pulled in by a year or 2 and you just give us an update as to what you've seen so far with respect to customers intend to move a little quicker on core fits migration and thank you so much congratulations.

So cash is and I've mentioned before the impact from last year's and new business headwind is more fully felt the share across key metrics such as backlog.

And then Neil talked about would feel confident and our ability to accelerate new bookings growth. This year and Q1 results really underscore that but keep in mind that the bookings acceleration. This year will take time and it has to compound into the model to be able to offset the cumulative headwinds from last year. So as we execute against our bookings target for this year. The first thing and you should expect to see.

It is stabilization in the backlog number and as we move through the year and now there will still be some quarter to quarter fluctuations and the staple stabilization is is really the precursor to re accelerated growth and little too early to talk about whether that happens next year or not we have to move.

Through the year and see how we finish.

Yes.

On the on the Phoenix, 1 well.

Well already feed and seed is a key part of the Reacceleration and story and we are seeing more and more of these opportunities coming to market and.

Not only did we have several strategic wins in Q1 as Aneel mentioned, we have solid fiennes pipeline growth as well.

And there are also emerging opportunities through our enterprise finance solution, where we have now much better positioned to go after product based industries like retail and manufacturing and we have nice wins here in Q1, including burner tracking for example, and.

And you know I would like to highlight the momentum isn't limited to core finance yours, which I'm, referring to it is also a broader solution set that we're selling into the office of the CFO and <unk>.

As you know includes planning, which we had a very strong quarter and Q1 spend monitoring had another fantastic quarter and Q1 and Olympics.

So we're really trying to make the best out on the product portfolio with both our installed base customers on net new logos.

Wonderful. Thank you so much congrats again.

Our next question will come from the line of Brian Russell and with Piper Sandler You May proceed with your question.

Thank you, perhaps for China or Aneel here I wanted to go back to this acceleration in bookings here in Q1, I think we were thinking bookings would reaccelerate and the second half and part on easier compares but it came here in Q1, So walk me through the drivers of the acceleration.

And it sounds like things as part of it but are you seeing just shortening sales cycles are you seeing enterprise appetite to kind of invest and the opposite the CFO pick up more than you anticipated can you just walk through other factors that kind of drove the unexpected acceleration here in Q1, I know the compare weapons.

He is the compares are going forward. So just walk us through factors there that drove accelerated bookings.

Yeah.

So maybe I'll give a high level perspective from.

Talking with a whole host of Ceos and.

And then you know what.

A big part of it was also a terrific execution.

By chance team.

I think everybody is beginning to look for now I wont say, everybody, but a lot of industries are looking for now including <unk>.

Including airlines, including travel companies.

We seem to be putting the pandemic.

As much behind this and as we can and and people are looking for to the future and when they do that it bodes well for us and I think that's what happened to it.

Really happened a quarter earlier than we expected we're.

The return on a normalcy would begin to show up and not just for pipeline, but actually actually and deals close but I also think you know for Q1 and was it was terrific execution and all.

I'll defer to China on that topic.

Yeah. Thank you Aneel.

I think first of all great execution by Dr. Robbing song and the team. So so thank you guys for debate.

Clearly the momentum is back on and we said last year, we were producing good pipeline generation during the second half last year and kind of already been Q2 last year some of that pipeline and of course with the mature to be closing already in Q1, I think that the major factor it came back significantly menu.

Gross and that produce a big part of the acceleration finance sales really bolting on winning store based on so on net new logos help out with the acceleration.

And the breadth of the product portfolios and they say it would sound solutions I mentioned, they are planning and.

It spend managed me I'm on well there speak on had a very good quarter and as well of course and now we only have kind of for 6 weeks that really were part of our quarter. So there were a number of differing and I mentioned and the rest of the world both EMEA and APAC.

<unk> made and might be I commented on my prepared remarks that both of them still accelerating bookings. So I think it was a it was a balance picture across solutions finance sales on HCM net new on installed base and I would say yoga fleets as well. So it was a a rounded quarter I think companies on realized.

And that's what are these really the true backbone to support the digital transformation.

And you know and message share it seems to be rest and 19, we might do mix. There. So we just need to keep executing and hold that momentum.

Helpful color, that's all I had thanks.

Yeah.

Our next question comes from the line of Karl Keirstead with UBS. You May proceed with your question.

Oh, great. Thanks, Hey, Robyn and I'm, just thinking about your third quarter and fourth quarter.

Scripts and revenue growth guidance, when I look back over the last for years.

Workday has got a pattern, where you're you're 3 Q sequential growth and subscription revenues is in line with or actually above for for Q. So the guidance that you gave us for a 3% sequential growth and <unk> and for and a half for for Q implies a little bit more of a for Q SKU than we've seen in the past and.

I'm wondering if you could just address that and does that imply that perhaps the the total bookings acceleration debt and Neil and China. We've been talking about is perhaps a little bit more of a <unk> phenomenon. Thank you.

Yeah, Karl so we're not seeing any massive changes in trends and seasonality and as always and we expect key for it to be our most significant quarter no a lot of the sequential growth has to do with linearity within the quarter and we saw strong inquiry and linearity for example, and Q2 and it's harder for us to predict.

And the further out we are so you know we're still early in the year, we'll give you better guidance around Q3 and Q4 at the next call, but we just wanted to.

And make sure you guys saw what we were saying, but we don't see anything massively different but it will really be tied to the linearity of how the deal flow in the quarter.

Okay that makes sense and if if it's okay to ask a follow up to Robin on on cash flow a workday has done it looks like about $1 billion of operating cash flow and the last 2 quarters I don't think we've ever seen that so you mentioned the higher margins and the good collections, but anything else funky going on.

Robin around cash flow and any any thoughts you could provide us in terms of the relationship between cash flow and operating margins as we build out our models for the full fiscal year. Thanks a lot.

Yeah, and so it's part of our flat ish operating cash flow. This year is due to the margin contraction that we expect to happen throughout the year, so that will become a headwind on cash flow growth year over year.

We've done really well on cash and.

Certainly I see some upside to our guide, but our biggest cash flow month is January and fact, the last 2 weeks of January we have where we have a very significant amount of annual invoices come due and so we need to just take a wait and see attitude as we go through the year, but I certainly see some upside from our guide of 1 point.

And $2 billion, Okay terrific. Thanks, a lot for that.

Our next question comes from the line of Smart <unk> with Bernstein Research you May proceed with your question.

Thank you very much and congratulations on the strong start to the year.

Hopefully, we see that continue to accelerate so 2 questions first you're guiding up full year margins, while guiding to strong employee hiring throughout the year acceleration and then sustain of that.

Is the margins due to a bit more.

Bit less T and need for the rest of the year or is it stronger revenue expectation or is it something else and then and I got a follow up.

Yeah, there's actually several things and their mark.

So as you know 1 per cent of our revenue and margin.

Reyes was tied to the increase and our revenue guidance.

The strength as well.

And then as I mentioned earlier, we haven't really ambitious investment plans and we have strong confidence that we can reach our hiring goals for the year, but the timing of that hiring is.

It's going to cause some potential variability into the margins throughout the year and the last thing I'll mention is and you said, we still are getting some COVID-19 related benefits and our expenses this year, particularly from travel and office related expenses and the law and the hiring we saw last year. So we expect that savings to significantly moderate.

As we get into the back half of the year.

But that makes sense.

Going back for the question in terms of the cadence when you last quarter, you called out the strength and the pipeline growth and it sounded like there was the pipeline was more was less mature, but because of the fact that later in the year versus earlier in the year.

<unk> talked about how that pipeline and continue but where are we and that maturation process as the maturation process online or is it is it.

Hello reading in terms of because we saw a strong Q1.

You know does it have any effect in terms of when that should fall out what are the what are you seeing in terms of the stuff that's in the pipeline and where it's driving toward close thanks.

That's your total markup and.

Sorry.

Mark I wouldn't say there are any significant changes of note this and the pipeline clearly as we have more significant business with our installed base and we have a higher non for motion of Skus and products those tend to have a faster site sales cycles.

And really they accelerate on mature faster and at times, you know big transformation on projects. So that can make a you know skew a little bit of course that pipeline that we can be creating within the order. We can close even on the quarter or maybe next quarter and that is clearly not the majority of our pipeline.

The rest of the pipeline that were created last year and for central for where let's say most significant cycles will take these 6 to 12 months and you should be playing.

Some of those claim and mostly during the second half on this year.

That makes sense. Thank you very much and congrats.

Our next question comes from the line.

Got and Berg with Needham and company you May proceed with your question.

Okay.

Hi, everyone and congrats.

And thanks for taking my questions I guess I have 2 shorter ones first of all probably for China.

As you look at the deal composition this quarter or are they any difference maybe in terms of size or number of modules that customers are buying on your initial lands versus maybe what you saw pre pandemic.

Work has seem to show that you're adding maybe more modules on that upfront sales than previously.

Yes.

I would say they Didnt day highest defense for the most significant difference is there is the highest compensation from net new logos that of course, but we didn't see the pandemic. There is a higher compensation for all much finance sales and.

And you know on being and sound and the landing S. Skus and clearly our medium enterprise team continues to execute really really well and they had another screen them and a quarter on.

And you know they are usually customers tends to consume more skus to start with.

And when they become the partnership with Workday ability and then that I wouldn't say that they're not all that.

Significant difference to highlight.

Got it and then my follow up question just for Robin on the outperformance for the renewals that you called out.

Yes, as you called it out because it was significant enough to call out, but any additional color there and maybe on what the outperformance was like or or anything that you've noticed from the renewals. This period that might be able to be carried forward and say that to future periods.

Yeah, Scott. So we were very pleased with and renewals in Q1 with gross retention once again over 95 per cent.

For the past year, we saw some impacts from increased bankruptcies and the medium enterprise space as well as an increase and customers lowering worker counts, even if some other customers actually continued to increase worker counts.

So as we approach this year, we assumed we'd see some improvement and the bankruptcies and workers trends and we're really pleased to see over performance in Q1 on this front. So we're off to a really good start and expect strong renewals to continue through the year.

Okay.

Great. That's all I have thanks for taking my questions.

<unk>.

We will now be taking 2 more questions.

Our next question comes from the line of Joseph <unk> with Bank of America Securities. You May proceed with your question.

Oh, great. Thanks, guys for taking my question I wanted to ask the question on the fins pipeline strength another way if I could please it sounds like youre seeing wider lands coming into the pipeline for fins and and I.

And I assume that's due to the progress you've made and and all of these add on modules and vertical applications planning sourcing, there's a lot and there.

But our customers starting with more departmental wins still is this kind of you know.

Any color on just where they are.

And what those pipeline deals look like for fins and particular.

Or are you seeing a move towards being a wider multi department deals that are coming into the pipeline and customers going bigger initially and cross more organizations with Vince. Thank you.

Yeah. Thanks for your question.

I think cash not necessarily we're seeing more departmental wins clearly on some larger customers, who are playing and some departmental starting point of view, but I think what we're seeing and Fiancee's day, you know adjusted maturation with the pipeline that would be working on right now we'd be coming on much more prominent on on reference at once.

Solution and the market with many more references and.

Customers said really appreciate it and the required base is a big player in the enterprise finance and sales cloud.

I'll frame right now they know of course, they brought their offer that we have today in terms of the number of Skus that we have around themes and that is much more complete that he was in the past and last but not least I would say you know enterprise say finance, helping yourself to address markets that <unk> 70, if we could not address before.

And then and sang areas like finance and services clearly accounting center has been various strategic and very significant for us to have a you know a very formidable.

And so on friends. So I would say, it's a combination with different factors I don't think it's just 1 single factor you think I would say it sounds like the investments that we've been starting to grow around brand awareness and the office of the CFO are also helping out as well and some of our international markets, We'd say, our <unk> solution and so you see and many of these for.

Factors and have just 1 single team.

That's great to hear thanks Shannon.

Thank you.

Our next question comes from the line of Brian Schwartz with Oppenheimer. You May proceed with your question.

Thank you very much for taking my questions and congratulations on a real good start to the year I just have 1 question for China. It is.

On the back to work and I'm just wondering in your conversations or maybe on the pipeline composition and do you sense businesses are still holding back on certain initiatives, whether it's either and HCM or fans that could get prioritized when more and more employees returned to the office later this year. Thanks.

Yes, Thank you Brian for your questions.

I think so and we need to see how it plays out of and we're certainly seeing I need wesco, maintaining some of our conversations.

And C level executives and top of our customers have clearly been prioritizing employee engagement and back to work and kind of the HR offerings, but right now we're seeing as well how do you start to reconsider and there is some sort of pent up demand I would say and turns so overdue projects from the office of the CFO debt.

They have been done that they're starting to get it done so I senior debt, where we're seeing in terms of debt.

Digital acceleration transformation as a whole and we play very well on that 1 and I've seen for price backbone that transformation.

That's helpful. Thank you for China.

Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude today's workdays first quarter fiscal.

Fiscal year, 2020.2 earnings conference call. Thank you for vegetation and enjoy the rest of your day.

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