Q1 2022 Workday Inc Earnings Call
[music].
Welcome to work States first quarter fiscal year 'twenty 'twenty 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, Vice President of Investor Relations. Thank you may begin.
Yeah.
Thank you operator, welcome to workdays first quarter fiscal 2022 earnings conference call.
On the call we have Aneel Bush free and channel Fernandez, our co Ceos Robbins, Cisco, our president and CFO and Peach Slant, our executive Vice President of product development.
Following prepared remarks, we will take questions.
Our press release was issued after close of market and is posted on our website, where this call is being financed.
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.
Please refer to the press release and the risk factors and documents, we file with the Securities and Exchange Commission, including our 2021 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 in such statements.
In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of 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 in our earnings press release and on the Investor Relations page of our website.
The webcast replay of this call will be available for the next 90 days on our company website under the Investor Relations line.
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 in this call will be to our results for the comparable period of our fiscal 2021.
With that I will hand, the call over to Aneel.
Thank you Justin and good afternoon, everyone.
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 investor and my good friend, Phil Mickelson on winning the PGA championship over the weekend and amazing accomplishment and proving once again that.
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.
In Q1, we saw an increase in demand across all product areas, while delivering strong non-GAAP operating margins of 25% showing the strength inherent in our underlying business model.
Our results support the acceleration of digital transformations across HR and finance.
<unk> will share more shortly on how we plan to invest behind this opportunity.
Let me share some highlights starting with workday HCM, 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.
From a world class employee experience.
Q1, we welcomed the ASR Global Las Vegas Sands Corp, Mattel 5 below Inc, and cost plus world market to the workday family along with many other new HCM customers.
Even with all of the sales momentum we continue to have over 7% of our HCM customers in production with notable go lives in Q1, including field on AG University of Sydney.
And our core 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. In addition to on exploration core financials bookings. We also saw strength across the portfolio with offerings, such as workday adaptor planning spend management, including workday strategic sourcing.
Probably not on our scout and our enterprise Finance solutions.
New customers in Q1 included Los Angeles Department of water and power Saks and St. Francis Health system incorporated with add on wins.
And where enterprises.
Our focus on industry solutions was also a key contributor to our success during the quarter were a PSA solution was a key driver to our broader HR on thins platform win in Q1 on accounting firm RSM U S.
And our accounting center solution as part of our fence first win at National Farmers Union mutual insurance.
Our strong position continues to get recognized by the market for the fifth year in a row Workday was named a leader in the Gartner Magic quadrant for cloud core financial management suites from midsize large and global enterprises last published on May 1st of this year.
Taking a step back 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.
Proposition only continues to grow as we make advances on the innovation front.
In Q1, we delivered our latest feature release, we're paying 2021 are 1 with advancements across all product areas, including broadening the capabilities of workday extend and greater functionality and spend on supplier management.
We also continued our investment in a world class user experience smarter and more personalized search and workday people experience as well as extended capabilities and natural workspaces outside of workday.
Such as slack or Microsoft teams.
And to further enable customers on optimizing the future of their employee experience this ever changing world.
We did announce that we closed on the acquisition of peak on now a workday company.
Channel a lot more color on pecan in a few minutes, but we couldn't be more excited about the opportunity we see with the pecan offerings and are excited to welcome to pick on team to work day.
And our history innovation apathy have always lead to greater customer satisfaction, which is at the heart of everything we do at workday.
Turning to be so grateful to our teams who are all supporting customers in entirely new ways to ensure their success during these challenging times.
Underscoring this dedication 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 support contracts.
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 to partner with more organizations across all industries and service the backbone of their digital transformation efforts in this changing world.
Foundational delivering on that opportunity.
We are motivated and growing group of employees.
As we move forward on this growth path plan to increase our global workforce by more than 20% or 2500, new hires in fiscal year 2022.
In doing so we will have an even stronger foundation to scale and innovate on our path to $10 billion.
This quarter was a strong start to our fiscal year and set the stage for acceleration in our business as I look ahead, my optimism for workday as future could it be higher we have a great team in place and a significant global opportunity in front of us as companies continue to embark on their HR and finance transformation journeys with that I'll turn it over to Mike.
Good friend and co CEO channel Fernandez over to your channel.
Thank you Aneel as Aneel mentioned, we're off to a strong start in FY 'twenty with meaningful new bookings acceleration the first quarter as organizations increasingly position on work.
Backbone of digital transformation our.
Our Q1 bookings outperformed months combined with continuing strength in pipeline generation provide us with increased confidence in driving accelerated new bookings growth in FY 'twenty 2.
This quarter's results were once again driven by strong execution on our high conversion rate.
We saw a pickup in net new business bookings from new HCM customers.
Customers in growth along with the overall environment on.
On our 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 solutions.
I need to mention we had notable outperformance from planning or financial analytics spend managed bank on our talent portfolio.
From a geographic it standpoint, we saw outperformance in North America may be gate, while also driving healthy bookings growth across EMEA.
Our medium enterprise team also had an exceptional start the year at a weighted investments in that market continued to pay off.
On our strength continued in vertical market, such as professional financial services health care and education on government, where industry specific innovation on a dedicated go to market exports are critical to our success.
As I previously said, we have significant hiring plans FY 'twenty 2 on the sales and marketing organization is 1 of the biggest areas.
Yes, as we look to accelerate and sustain long term growth.
Investments our growth base on gorilla in nature, including what our carrying capacity resales on business development.
We're also investing and don't have to come in areas such as marketing on 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 help right.
Based on the initial returns we have seen we expect to accelerate that based on its investment in the coming quarters on a look forward to updating you on our progress.
Organizationally I am pleased to say debt, we had successfully integrated the people sales teams into workday with both our installed base on maintenance of games now actively selling this solution market.
The acquisition adjusted close in March we are very excited by the pipeline momentum.
We had a number of meaningful people upsell deals with our customer base in Q1.
So this to me is already opening up doors for new significant customer relationships.
Ensuring customer success has always being a core value on workday I'm delighted to say that our customer success on services of any Stacy on stop performed incredibly well.
Hundreds of customers live across all of our core HCM on financial management offerings as well as our portfolio grows their solutions targeting the CFO CA Charl and CIO.
Our partner ecosystem is also critical not only helping take us from our side, but co innovating on the workday platform, enabling acceleration with our basic innovation engaging even more strategically with our partners.
Finally on behalf of the entire Workday leadership team I would like to say, thanks to all of our workmates across the globe.
Thank you for a terrific start last week 22, unless kicked the momentum volume with that I will turn it over to our president and CFO Robin physical over to you in Raleigh.
Thanks, John and good afternoon, everyone.
So Neil in China mentioned, we delivered a solid Q1, driven by strong execution against an improving market backdrop as organizations look to accelerate the pace of their digital transformations across HR and finance.
Subscription revenue in the first quarter was $1.3 billion up 17% year over year, driven by strong new business sales favorable in quarter linearity and an 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 with $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 ACB coming up for renewal in FY 'twenty 2 is relatively flat from last year.
This dynamic is purely a function of the mix of historical contract link that created a headwind to 24 month backlog growth in Q1, a couple of percentage points and.
An impact that we expect will persist throughout this fiscal year before we return to a more normal level of renewals growth in 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.
Margin 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 in support of our growth aspirations and have confidence in our ability to continue to ramp these investments throughout the year.
Operating cash flow in Q1 was 452 million growth of 72% driven by a combination of operating margin expansion and strong customer collections.
Okay.
As Aneel mentioned, our biggest investment continues to be in 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.
Our total workforce 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 in the range of $4.45 billion to $4.$4.4 billion growth of 17%.
As a reminder, peak on is expected to add less than 1 percentage point to our overall subscription revenue growth in FY 'twenty 2.
We expect our Q2 subscription revenue to be 1 point on 95 billion to 1 point on 97 billion, 18% year over year growth with sequential growth in Q3, and Q4 of approximately 3% and 4.5% 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% in Q2.
Investing for growth remains our number 1 priority is.
Neil mentioned, we expect an increased pace of hiring across the company in FY 'twenty, 2 as well as the ramp of non head count spending with a focus on sales marketing and product.
Specifically targeted at accelerating demand generation, 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 a full year non-GAAP operating margin in 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 Pleasanton campus.
This purchase is important to our headquarters strategy and affords us control on our core campus buildings.
We do not expect any further unreal estate investments for the remainder of the year and we continue to expect $270 million on 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 call.
A confirmation tone will indicate your line is on the question queue. You May Press Star 2 channel. Your question from the queue from participants using speaker equipment on 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 Kirk.
Correct that's right.
With Evercore ISI you May proceed with your question.
Okay. Thanks, very much and congrats on the good start to the year.
Neal I wanted to go back just from your comments not only this quarter, but actually last quarter about sort.
The building pipeline and sort of the opportunity to excel bookings accelerate bookings in the back half of the year.
How are you feeling about that opportunity, you're obviously investing against that opportunity. So I assume you still feel good about it but you know 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.
Just give us some more color 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 to make sure. There's no change in the longer term thought process.
Okay.
So just just remember that subscription revenues lag bookings.
Bookings growth and we accelerated bookings growth in Q1, and frankly more than on more than even I had expected.
And my usual optimism so.
So it takes a while for that accounting to catch up with.
The acceleration in net new business from the net new business and better than expected.
Yes.
The better than expected performance across really all products.
Leaves us with a lot of optimism and then of course, we had a great renewals quarter too I might add.
Ill turn it over to China, but.
I think that that exploration is already started.
Yeah. Thank you Aneel Hi, Kirk.
We have a healthy pipeline looking ahead of Q2 across both HCM and fins on across both net new on the installed base teams on.
Based on where we stand today, we feel very confident in how the rest of the year should be performing in terms of supporting our accelerated bookings.
On definitely having a strong second half right.
As you know we have increased seasonality in the second half of the year ex it relates to new ACD bookings and that's no different this year with a meaningful part of the pipeline. The strength. We've had the last few quarters targeted to close in the second half. So I would say based on where we are today I'm excited about both Q2 on it.
Second half.
We expect the strong results of growth across both.
That's that's great in China.
China, if I could ask just 1 follow up you mentioned on the <unk>.
Head count additions quota bearing reps.
International is still only 25 per cent or so of your revenue.
Can we expect that there'll be a pretty heavy investment in some of these international regions and are they starting to perk up a.
Pretty nicely for you all at this point in time.
Yeah, you should be expecting that part of that quota carrying reps that we're hiring will be 70 across net new international installed base.
Some would be the verticals that we're playing on we're seeing already acceleration in Q2 in international in terms of booking we should be especially in debt, we'd see a strong pipeline there for months and been at less than last year again with these for US now to execute it and of course as the market is more recovering on opening.
All the Covid kind of headwinds that we saw last year, particularly on the net new I would be expecting that menu to be performing better in 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.
I'm going to ask a big picture question I don't know if it's better for our dealer channel, 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, we're just getting much more balance clearly we've been talking traditionally debt you know the day installed base on sounds a bit more land business Lewis representing deeper staying on forward new business bookings excuse me represented more today on definitely balancing out as we see.
It's basically more lending products, we said people nowadays scout.
So you should be that balancing out honestly, it's kind of hard for me to say what is exactly going to be equal, but 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. So net new logos is accelerate the impact.
Clearly as well that we're playing we're playing these days and non molecule. We signed up these products. When you know on trying to meet the customers where they RMB journey when they are not ready to do our part of the transformation the breadth of our portfolio today significantly stronger umbro there on that is allowing us to play a significantly.
Moshe on not only on when installed base, but also some of the net new logos to.
Yeah. Okay. That's helpful and then a follow up to <unk> 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 the HR engine 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 what do you think what have been the biggest challenges there.
So why don't I take that 1 as you can see you can take that 1 on probing. Please sorry, sorry, China. When you look across the entire company you start to accelerate in Q1, we had over 600 net new hires from 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 coming.
Coming out of Q1, and you should expect it to accelerate.
All areas.
In Q2, and then stay at that heightened pace for the rest of the year in China I don't know if you want to add anything specific to sales to that.
No. The only thing I would add maybe to sales is that is being already unimportant area of investment in terms of hiring in Q1 for fiscally day, the highest 1 we've been having across the company on.
And we then what you tend to just 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.
Yeah.
Excellent. Thank you guys for taking the question and a really nice start to come from the year sounds like momentum is coming back in a really big way.
Question for Robyn.
These subscription models are tricky and you're you've been warning us about the impacts of a weaker ex free base. This year in gross dollar.
On the sort of debt.
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 that 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 absolute 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 of bookings growth youre talking about or is it the ARPA growth like a couple of points to specific to which 1.
24 month backlog growth.
Okay, Okay debt.
That's super helpful. And then like underlying that that's just about contracts up for renewal like debt the renewal rates themselves those are staying pretty solid.
Yes, that's correct in fact, we had an over performance of renewal rate from Q1. So we feel really good about that that this is just the scheduled renewals, which is purely a factor of terms of previous deals and again just to reiterate no impact on this flat flattened the renewal base to subscription revenue just backlog.
Got it okay. So it sounds like the factors that you guys have in your control are all doing really well are actually outperforming its just the timing on contract renewals that are creating a little bit of a drag.
That's correct on the <unk>.
24 meant background remember, yes, and the total backlog that sounds well.
Perfect.
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 Robin 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 from the 22 with a stronger renewal based on what does that mean for backlog growth next year.
And also I think on you or John maybe on previous quarterly earnings conference calls you've talked about.
Financial migrations being pulled in by a year or 2 could 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. Thank you so much congratulations.
So cash is on I've mentioned before the impact from last year's new business headwind is more fully felt the share across key metrics such as backlog.
And then Neil talked about we feel confident in 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 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 you should expect to see.
He is stabilization in the backlog number and as we move through the year.
Now there will still be some quarter to quarter fluctuations.
Stabilization is is really the precursor to reaccelerate our growth a 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 on the Phoenix 1.
We're already seeing CS.
Keep part of the Reacceleration story I mean, we are seeing more on more of these opportunities coming to market on.
Not only did we have several strategic expense wins in Q1, as Neil mentioned, we have solid fiennes pipeline growth as well.
There are also emerging opportunities through our enterprise finance solution. While we are now much better positioned to go after product based industries like retail and manufacturing and we have nice wins here in Q1, including government tracking for example.
You know I would like to highlight the momentum isn't limited to core financials, which had referred to it is also a broader solution set that we're selling into the office of the CFO.
As you know includes planning, which we had a very strong quarter in Q1 spend management had another fantastic quarter and Q1 analytics. So we're really trying to make the best out on the product portfolio with both our installed base customers on many levels.
Wonderful. Thank you so much congrats again.
Our next question will come from the line of Brian from Russell and with Piper Sandler You May proceed with your question.
Thank you.
Perhaps for tunnel or Neil here I wanted to go back to this acceleration in bookings here in Q1, I think we were thinking bookings would reaccelerate in the second half in part on easier compares but it came here in Q1. So walk me through the drivers of the acceleration 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 in the office of 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 wasn't as easy as the compares are going forward. So.
Just walk us through factors, there that drove accelerated bookings.
So maybe I'll give a high level perspective from.
Talking with a whole host of Ceos, and then you know.
I think a big part of it was also a terrific execution.
But by chance team.
I think everybody is beginning to look forward now I wont say, everybody, but a lot of industries are looking forward now including.
Including airlines, including travel companies.
You seem to be putting the pandemic.
As much behind this as we can and.
And people are looking forward to the future on when they do that it bodes well for us.
That's what happened to it probably happened a quarter earlier than we expected we're.
The return on a normalcy would begin to show up and not just the pipeline, but actually.
Actually on deals close, but I also think you know for Q1. It was it was terrific execution and I'll defer to China on that topic.
Yes, Thank you aneel.
I think first of all great execution by Dr. Robbing song on the team. So thank you guys from would you be clear.
Clearly the momentum is back on we said last year, we were producing good pipeline generation during the second half last year on 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.
<unk> and that produce a big part of the acceleration financials really bolstering our installed based on some net new logos help out with the acceleration.
The breadth of the product portfolio as I say it would sound solutions I mentioned they are planning.
It spend managed me I'm on while they are speak on had a very good quarter as well of course, we only have kind of for 6 weeks that really were part of our quarter. So there were a number of differing elements and rest of the world both EMEA on a P. A.
I I made on 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 geographies as well. So it was around this quarter I think companies on.
And I think that's a worthy.
What are these really the true backbone to support the digital transformation.
On the message seems to be rests on 19 will make the mix. There. So we just need to keep executing up on that momentum.
Helpful color, that's all I had thanks.
Our next question comes from the line of Karl Keirstead with UBS. You May proceed with your question.
Great. Thanks, Hey, Robyn I'm, just thinking about your third quarter on fourth quarter.
Subscription revenue growth guidance, when I look back over the last 4 years.
Workday has got a pattern where youre your 3 Q sequential growth in subscription revenues is in line with or actually above 4 <unk>. So the guidance that you gave us a 4.3% sequential growth in <unk> and 4 and a half for <unk> implies a little bit more of a <unk> SKU than we've seen in the past.
I'm wondering if you could just address that and does that imply that perhaps the the total bookings acceleration that.
And Neil on 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 of seasonality and as always we expect Q4 to be our most significant quarter lot of the sequential growth has to do with linearity within the quarter. We saw strong inquiry linearity for example in Q2 and that's harder for us to predict.
Further out we are so you know we're still early in the year, we will give you better guidance around Q3 and Q4 at the next call, but we just wanted to.
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 here Robyn on on cash flow Workday has done it looks like about $1 billion of operating cash flow in the last 2 quarters I don't think we've ever seen that so you mentioned the higher margins on 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 margin as we build out our models for the full fiscal year. Thanks a lot.
Yeah. 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 in 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.
$2 billion, Okay terrific. Thanks, a lot for that.
Our next question comes from the line of Smart mobile share 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.
Adding up the 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.
Let's see a need for the rest of the year or is it stronger revenue expectation or is it something else and then I've got a follow up.
Yeah, there's actually several things in there mark.
So as you know 1% of our revenue or our margin.
Reyes was tied to the increase in our revenue guidance.
Our guidance range 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 as you said, we still are getting some COVID-19 related benefits on our expenses this year, particularly from travel and office related expenses and the lull in the hiring we saw last year. So we expect that savings to significantly moderate.
As we get into the back half of the year.
That makes sense going back to the question in terms of the cadence would you.
Last quarter, you called out the strength in 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 has continued but where are we in 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 towards close thanks.
Just a few channel, yes markup sorry.
Sorry.
Mark I wouldn't say there are any significant changes of note is in the pipeline clearly as we have more significant business with our installed base and we have a higher non promotion of skus on products those tend to have a faster site sales cycles.
And really they accelerate on mature fast they're done big transformational projects. So that can make a skew a little bit of course that 5 line that we can be creating we think day order. We can close even on the order of maybe next quarter that is clearly not the majority of our pipeline.
The rest of the pipeline that were created last year on 4 central footwear lets say most significant cycles. We list the take the 6 to 12 months and you should be playing.
Some of those claim.
Mostly during the second half of this year.
That makes sense. Thank you very much and congrats.
Our next question comes from the line.
Scott Berg with Needham <unk> Company you May proceed with your question.
Okay.
Hi, everyone.
Thanks for taking my questions I guess I have 2 shorter ones first of all probably for channel 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 sale than previously.
Yes.
I would say they didnt day highest deferring some of 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 from financials.
And you know on being on the London, Skus clearly our medium enterprise team continues to execute really really well and they had another screen them on a quarter on.
On you know they are usually customers tends to consume more skus crew start with.
When they become the partnership with Barclays right ability than that I wouldn't say that they're not all that.
Significant difference to highlight.
Got it and then my follow up question is to Robyn.
<unk> for the renewals that you called out my guess is you called it out because it was significant enough to call out, but any additional color there maybe on what the outperformance was like or anything that you've noticed from the renewals just curious that might be able to be carried forward to future periods.
Yeah, Scott. So we were very pleased with the renewals in Q1 with gross retention once again over 95%.
As you know over the past year, we saw some impacts from increased bankruptcies in the medium enterprise space as well as an increase in 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 in 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.
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 questions.
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 I assume that's due to the progress you've made in all of these add on modules and vertical applications planning sourcing there's a lot in there.
But our customers starting with more departmental wins still is this kind of.
Any color on just where they are.
Those pipeline deals look like for furniture in 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.
Across more organizations with Vince Thank you.
Yeah. Thanks for your question.
I think not necessarily but we're seeing more departmental wins clearly on sand largest customers who airplanes on departmental starting point of view, but I think what we're seeing in 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 the reference at once.
Assuming the market with many more references on cash.
Customers said really appreciate in the acquired base is a big player in the enterprise financials cloud.
Offering right now being of course, the broader offer that we have today in terms of the number of Skus that we have around themes that is much more complete that he was in the past on last but not least I would say you know enterprise say finance, helping yourself to address markets that we have 70, if we could not address before.
And then in some areas like financial services, clearly accounting center has been various strategy I'm very significant for us to have.
On a very formidable.
Since all free 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 some of the investments that we've been starting to deliver on brand awareness on the office of the CFO are also helping out as well in some of our international markets. We see our <unk> solutions. So you see from many of these.
From factors just 1 single thing.
That's great to hear thanks channel.
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's on the back to work and I'm just wondering in your conversations or maybe in the pipeline comp composition do you sense businesses are still holding back on certain initiatives, whether it's either an HCM or fan.
That could get prioritized when more and more employees return to the office later this year. Thanks.
Yes. Thank you Brian for your question.
I think so we need to see how it plays out where we are suddenly seeing on any wesco, maintaining some how are conversations.
C level executives on top of our customers have clearly been prioritizing employee engagement some of them back to work on kind of the HR offerings, but right now we're seeing as well how do you start to reconsider on there is some sort of pent up demand I would say in turn so overdue projects from the office of the CFO.
Could have been done that theyre starting to get it done so I think that what we're seeing in terms of debt.
Digital acceleration transformation as a whole and we play very well on that 1 last day enterprise backbone that transformation.
That's helpful. Thank you China.
Thank you.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude today's workdays first quarter.
Full year 2022 earnings conference call. Thank you for your participation enjoy the rest of your day.
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