Q2 2022 Workday Inc Earnings Call
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Yes.
Yes.
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Welcome to workdays second quarter fiscal year 2022 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 will now hand, it over to Mr. Justin Furby, Vice President of Investor Relations.
Thank you operator.
Welcome to workdays second quarter fiscal 'twenty 'twenty two earnings conference call.
On the call we have aneel push rate in China Fernandez, our co Ceos Robin Cisco, our president and CFO and Peach Slam, our executive Vice President of product development.
Following prepared remarks, we will take questions our press release.
This was issued after close of market and is posted on our website, where this call is being simultaneously webcast.
Before we get started we want to emphasize that some of our statements on this call, particularly our guidance are based on the information we have as of today and include forward looking statements regarding our financial results.
Applications.
Or demand operations and other matters.
These statements are subject to risks uncertainties and assumptions.
Those related to the impacts of the ongoing COVID-19 pandemic on our business and global economic conditions.
Please refer to the press release.
Release, and the risk factors and documents, we filed with the Securities and Exchange Commission, including our 'twenty 'twenty. One 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.
Guarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and on the Investor Relations page of our website.
The webcast replay of this call will be available for the next 90 days on our company website under the Investor Relations link.
Also the customers page of our website includes.
A list of selected customers and is updated monthly.
Our third quarter quiet period begins on October 16, 2021.
Yes, 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. Thank you for joining us today for our second quarter fiscal year 'twenty two earnings call.
I'm pleased to report that Q2 was one of our strongest quarters in company history.
Combined with Q1. This was the best first half of the year in terms of ACB growth in over three years.
We came.
Came into the year expecting our business to accelerate but the pace of digital acceleration across HR, and finance and exceeding even our own expectations.
Our leadership position continues to strengthen driven by a broadening of our product portfolio and exceptional execution.
The growing workday customer community now includes 55 million users.
Users and 50% of the Fortune 500.
Of which approximately 90% are live on workday.
Challenged or more shortly on our go to market success and Robin will provide specifics in our res growth outlook for the second half of the year, but let me share for some of the highlights from Q2.
Let's start with Workday HCM.
Our position as an innovator and market leader with our differentiated suite of products has never been stronger.
We continue to attract new customers and many of our current customers continue to grow their investments with us in Q2, we welcomed Cvs health Iberdrola below management services, California, Pizza kitchen and Heidelberg.
<unk> cement AG to the workday family along.
Along with many other new HCM customers.
While these new wins are very important to us we remain equally focused on delivering excellent service to our current customers and that includes delivering on our commitments to them.
<unk> the Medicalized for Q2, I would like to highlight Harman International.
Industries Bj's wholesale club in old Dominion.
In addition to the strong growth from core HCM. This was our first full quarter with Pecan I am pleased to report we got off to a great start delivering the largest quarter in <unk> history with early success selling back into our installed base a true Testament to the incredible pecan products.
Product and even better pecan team.
We also continue to see strong traction for our financial management suite of applications. We believe that a combination of our expanded set of offerings, including planning spend management and accounting center and the acceleration of digital transformation by the office of the CFO of.
Are collectively driving.
Broader adoption of our finance offerings in fact, the highlight in Q2 was nearly 50% ACB growth and the workday adaptive planning business showcasing our strategy of meeting customers, where they are continues to drive significant success.
In addition, we continue to see momentum build in our core financial deployments.
<unk> financial customers and <unk>.
Q2 included Cinemark, USA University of Wisconsin system and wise markets.
Notable core friends go lives, including the University of Southern California, Keybanc, North America, and Fox Corporation.
Moving on to the innovation front, we are focused on broadening our platform and extending our product capabilities to create additional.
Levers for long term growth as a recent example, and to continue seizing on the great opportunity. We have internationally this quarter, we announced our intent to deliver workday payroll for Australia, and Germany. As you know our country specific payrolls are very compelling to customers and we're excited to deliver these new solutions as levers of growth for these markets.
We also recently announced that Workday has achieved ready status for the federal risk and authorization management program or fed ramp at a moderate impact level with full authority to operate estimated for spring 2022 with.
With this achievement, we materially advanced our position to help federal agencies axillary.
Digital transformation in order to help them modernize.
And is there business systems and gain real time insights to address critical challenges across their organizations.
Switching to the people front, we continue to invest heavily in our company culture to sustain our believe that happy employees deliver the highest levels of satisfaction to our great customers on that note starting in Q4 of this year, we will be extending our.
Our cash bonus plan companywide to further ensure our people feel valued motivated and properly recognized Robin will update you later on our margin expectations for the back half of the year. This is a direct reflection of our business momentum and the confidence we have in our work means to grow the business at $10 billion in revenues and beyond.
With our outstanding first.
Excluding a 22, we are seeing acceleration in our business as I look ahead my optimism for the future couldn't 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 our co CEO chatter Fernandez over to.
Half of that.
Thank you Neil and thank you to everyone for joining us today as Aneel mentioned, we had a fantastic Q2, driven by very strong execution.
Which combined with a rapidly improving demand environment for enterprise management cloud solution is.
Discussing our net new business.
Ian Chau generate even faster pace than we expected.
The strength in Q2 was broad base highlighted by large enterprise outperformance and solid growth in landing new core HR and finance customers.
We also saw strength in landing new customers across <unk>.
The expanded portfolio of solutions targeting the office of the CFO and Charles.
For example, our planning on work the extra FTE sourcing distances drove significantly strengthening winning new reaction, they're priced customers since Q2 income.
Including the largest planning the first deal in our history.
And equally drove significant new railroad activity in EMEA.
<unk> as a gateway into setting core HCM solutions.
<unk> overtime.
In addition to solid performance from our land held steam and momentum we've been seeing with our customer base being also continued in Q.
As companies look to workday as a trusted strategic partner.
We had another quarter of strong greenwash performance on our customer base being drove strength cross selling a number of solutions such as core themes.
<unk> spend management helped people extend an hour.
Our talent portfolio.
For example in planning, we signed deals with Google with one of the world's largest telecommunications company and a fortune 100 distribution company.
And expand management, we had a number of items wins at companies such as <unk> Mercy health.
CME group on Ralph Lauren.
We also had a number of notable extended customer space wins in the quarter, including a fortune 100 manufacturer a fortune 50 energy company on one of the worlds largest box.
People, even get landing new logos is a powerful solution.
Excel back to our customers. We had notable other deals this quarter, including updates on Perkin Elmer.
From a geographic standpoint, our performance was strong globally with North America outperforming across all segments, including significant strength from our large.
The medium enterprise teams and from industry, such as healthcare and higher education.
In international markets EMEA was a standout driving healthy acceleration EMEA ACB bookings with particular outperformance in continental Europe, including outstanding performance.
France and Spain.
We are seeing improving market dynamics and pipeline momentum across our rest of world region.
We expect those trends to continue as we move into the back half of the year.
As we've discussed over the last few quarters, we're investing aggressively.
Aggressively our go to market.
Our largest area of headcount investment in the first half of FY 'twenty due within sales and marketing as we added significant new robot sales capacity across both our net new on the installed base team <unk>.
Including a doubling down in international markets.
We're also accelerating our expand across key brands, our marketing initiatives.
These investments, which we expect we continue in the second half of the year, our focus on driving growth in FY 'twenty three and beyond.
Sure.
We're very pleased with the evolution, we're seeing in our pipeline.
Which again saw solid growth in Q2.
In closing I would like to thank the more than 13000 Global walk me will have enabled us to drive such a strong Q2 and first half results.
Our broad and differentiated suite of solutions is winning in the market.
We're encouraged.
Incredibly well positioned as we entered the second half of the year.
Let's keep the momentum going.
Now I will turn it over to our president and CFO Robin Cisco over to you Robin.
Thanks, Chad and good afternoon, everyone.
As Aneel Antonio mentioned, we delivered an incredibly strong Q.
Driven by exceptional execution against a rapidly improving market backdrop as organizations accelerate the pace of digital transformation across HR and finance.
Subscription revenue in the second quarter was 111 billion up 20% year over year, driven by very strong new business.
Two l's favorable end quarter linearity at an over performance on customer renewals with gross retention once again over 95%.
Professional services revenue was $147 million, resulting in total revenue of $1.2.6 billion.
Revenue outside the U S was.
$818 million of 24% year over year, and representing 25% of the total.
24 month backlog at the end of the second quarter was $6 eight 8 billion growth of 19%.
Total subscription revenue backlog was $10.5.8 billion up 20.
It was 3%.
Our non-GAAP operating income for the second quarter was $292 million, resulting in a non-GAAP operating margin of 23%.
Margin over achievement was driven by a combination of top line outperformance and favorable expense variances.
Three operating cash flow in Q2 was 198 million growth of 26%.
In addition to strong profitability from our core operations. During Q2, we also recognized a nearly $100 million mark to market gain from the successful IPO of one of our ventures portfolio companies.
<unk>.
We will continue to see mark to market adjustments from our equity investments, we expect gains of this magnitude will be extremely rare.
Our largest investments continue to be in our people and in attracting top talent to workday.
In the first half of the year, we successfully added and integrated.
More than 900, net new employees, bringing our total employee count to over 13400 at the end of Q2.
We've made important progress towards our full year target of adding 2500 employees and expect the pace of hiring to increase throughout the back half of FY 'twenty two.
Overall, we're extremely pleased with the momentum we saw in Q2, and we're very well positioned as we enter the important back half of the year.
Now turning to guidance.
Based on our strong Q2, and the momentum we're seeing in our business, we are raising our FY 'twenty two outlook and providing Q3 guidance.
As follows.
For subscription revenue, we're raising our full year estimate to be in the range of $4.5 billion to $4 five 1 billion, 19% growth.
For Q3, we expect subscription revenue of $1.105.6 billion to 1.158 billion.
20% growth at the high end and we expect 24 months backlog growth of 19%.
Yeah.
We still expect professional services revenue to be $590 million in FY 'twenty two as we continue to prioritize driving the highest levels of customer success.
For Q.
We expect professional services revenue of $150 million.
Investing for growth remains our number one priority.
In addition to the increased pace of hiring in the back half of FY 'twenty. Two we also expect to ramp non head count spending with investments specifically targeted at accelerating demand generation.
<unk> enhancing our market position and advancing our strategic product roadmap.
Additionally, the new bonus plan and Neil mentioned will take effect on November one and is expected to impact our Q4 margins by approximately 300 basis points.
Given that backdrop, we expect non.
<unk> operating margins of 21% in Q3 <unk>.
16% in Q4, and 21% for the full year.
The GAAP operating margin is expected to be lower than the non-GAAP margin by approximately 24 percentage points in Q3, and 25 percentage points in Q4 and for the full.
Full year.
Given our strong performance, we're also raising our FY 'twenty to operating cash flow guidance to $1.5 billion.
We continue to expect $270 million of other capital investments to support our customer growth and continued business expansion.
Non-GAAP I'll close by thanking our amazing employees customers and partners for their continued support and hard work.
We're off to a very strong start in the first half of the year and our focus remains on driving accelerated bookings growth.
We look forward to hosting our virtual analyst day on September 21, where we will share insights.
Strategic innovation and growth initiatives as we look ahead to FY 'twenty three and beyond.
With that I'll turn it over to the operator to begin Q&A.
Thank you at this time, we'll be conducting a question and answer session.
If you'd like to ask a question. Please press star one on your telephone.
Keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Your first question comes from the line of Kirk <unk> with Evercore ISI. Please proceed with your question.
Sure. Thanks, very much and congrats on a really good quarter, great to see the acceleration in ACD growth.
Neil and Shadow I was wondering can you just talk.
Talk a little bit more about what you've seen over the last six months.
I know you were both more upbeat about the pipeline heading into this year, but when you talk about a quarter of this magnitude from a growth perspective can you talk about maybe what happened in the GOR that you werent expecting whether those deals coming in at a faster cadence deal cycles getting shorter deals growing perhaps at the end of the deal meaning more add ons were multi product deals.
So I was wondering if you just add a little bit more color of that and kind of why do you see that.
Continuing into the back half of the year, what gives you confidence around the pipeline. Thanks.
So I'll just make a couple of comments about what I hear from other Ceos, and then I'll turn it over to Toronto.
No.
For the most part deals are pretty optimistic about.
About the future of their business and they also realize that they have to jump on board of the of digital transformation for both HR and finance.
So despite what's been going on with the pandemic. The mindset is back to business and so we saw that in the pipeline and we saw it in.
People taken actions, they're not sitting on the sidelines anymore, and maybe China can add.
Add to that.
Hi, Kerry hope, you're well and I think to unpack a little bit the strength in Q2 was truly broad based.
Highlighted by solid growth in London, New corner chart, I'm seeing customers, we have significantly strength across the business as we mentioned, but I would call out with call out the locked in their.
Price team.
A key outperformer.
There was also a strong performance across regions.
Ciccarelli with a healthy bumps blocking EMEA and continental Europe.
And we also show good dynamic in terms of landing and new products within the office of the CFO.
Things on it.
Were good contributors as well.
Last but not least there was study for four months and our install base being on renewals.
So lots of hold he was quite.
Quite across the board the very positive I would just highlight we didn't use that like the acceleration of the transformation we need to get this.
Coming back to the table and really is coming back across the financials Fang H D Inc.
This is where we're seeing.
And what it is reflected as well in the pipeline when we look at the second half.
If I could just have one follow up for Robin Robin.
Obviously, a really impressive quarter across the board when we look at the.
CRM P O growth a 24 month backlog I assume that's still has some of that headwind from the expiry base on it. So if we're gonna apples to apples it back that would probably been above 20% on this quarter. If we try to normalize for that is that fair and I assume that expiry base headwind should dissipate a little.
But as we get into fiscal 'twenty three.
Yeah, Kurt we discussed last quarter still holds which is that we're seeing an impact of roughly a couple of point to the 24 month backlog throughout FY 'twenty, two and you're correct that we don't expect that dynamic in FY 'twenty three at all and just as a reminder, this dynamic has no impact on.
<unk>, new ACD bookings subscription revenue or how we run the business and our focus continues to be on accelerating our new ACD bookings were really pleased with our progress on that front and you're seeing that show up in the backlog growth numbers, even despite the headwinds that we have this year on renewals.
Great. Thank you all.
Your next question comes from the line of Brad Sills with Bank of America. Please proceed with your question.
Oh, great. Thanks, so much for taking my question and congratulations on a real nice Q2 I wanted to ask a question kind of goes back to comments, you've made last quarter aneel around really the strategy with spin is to surround.
Surround the account surround the transactional system with some of these peripheral systems youre seeing real strength in planning it sounds like procurement is really ramping.
What point is there a.
A potential.
Migration that happens when you have is it one or two of these modules they are running it for a year or more.
Is there a certain tipping point when you might expect some of those conversions on the core transactional system over time, well definitely it doesn't hurt to have a combination of HCM, maybe a few financial modules in there, but I think the more important dynamic is that.
As a as we as we.
Exit running the businesses for the pandemic and try to run business in a more normalized way the demand for our core financial systems is coming back.
And we saw that we saw that this quarter. It was a strong quarter for core financial systems.
We saw it we saw the entry point with planning being up over 50% as a really strong indicator of what.
What we might see over the next few quarters.
It's really it's more than just one dynamic it's across the board. So we saw strength in the add on modules. We also did see strength in core accounting as well.
I'd like to highlight accounting center is a really important product for.
For some of the large volume.
Our customers we have out there in.
Particularly in areas like financial services.
That continues to get great traction and great reviews, just opening up more doors for us for core accounting.
That's great to hear and one more if I may please and you know in the past.
A year ago, you talked about some pandemic headwinds since then you've obviously seen those.
Prove.
What are you hearing from the opposite the HR manager and the opposite the CFO in terms of willingness to make investments now in digital transformation now that we're kind of exiting things clearly your results are showing that those projects are coming back in the back office.
I mean, I think the mindset for companies that hadn't gone through the transformation was that it was really hard to run their.
Business with a remote workforce or a hybrid workforce or whatever model they had to go to without the flexibility.
And and ability to work from home with the cloud systems like Workday offer if youre on legacy systems. It was a really hard time and so.
I think folks have said hey Ah.
Even if we are still dealing with some of the issues around the pandemic, we gotta get on we got to get on with it we've got to move on to the modern systems and that's that's been a real big driver for us.
Great to hear thanks, so much Neil.
Your next question comes from the line of Keith Weiss with.
Morgan Stanley. Please proceed with your question.
Excellent. Thank you guys for taking the question.
Very nice quarter.
A couple of questions kind of.
Multi part question digging into.
And nature of the strength that you guys have been seen in this first half of the year and it's really an.
In two parts one in terms of.
Is what you're seeing just kind of a release of pent up demand like last year was it calendar 'twenty was a very difficult year to get these big enterprise transactions across the line. So I'm, assuming a lot of it.
And how can the pipeline or is there more of a combination of sort of pent.
Demand and revenue.
New business coming into the pipe or sort of new digital transformation initiatives getting an extra boost.
What happened last year and then similarly.
Last year, one of the real bright spots was how well the upsell motion needs at the base motion.
Cropped up overall growth.
The company has.
Has that sustained.
With sort of new business ramping up have you been able to keep that good balance of new business in the door as well as upsells and into FY 'twenty. Two thank you I'll take the first part I think it is a bit of both Theres No question there was some.
Pent up demand that's impacted the first half of the year, but I really think it.
The pandemic.
The change.
And a change in mindset about how quickly people had to get into the into the cloud and move move into the digital transformation projects for HR and finance.
So while it might have slowed down last year I think it's picked up but now I think it's gonna be that way going forward and.
Even companies that had waited for a long time are now acting today, so a bit of pent up demand, but I think more.
Positive change in the marketplace going forward.
Tony you want to add to that.
I would just say that.
You know joined it with healthy.
The new logo activity to your question, Keith we're seeing a very solid quarter with significant growth rates in one on one of your store base.
I need this is not just one single solution right. When you look at Cros accounting center or held for things or people.
You know people analytics stated all contributing.
Forgetting.
The Upselling and cross selling we think a satisfied customer base remains very healthy.
You know, it's really the business, having good momentum on all engines.
Excellent outstanding it guys. Thank you.
Your next question comes.
From the line of Mark Murphy with J P. Morgan. Please proceed with your question.
Yeah, Thank you and I'll add my congrats to.
So robin and I are thinking was that the pipeline inflection that you saw a couple of quarters back.
Would not convert to bookings really until later.
For this year and into next year, just given the upside did did you see it a.
A bit faster cycle of pipeline conversion than normal or do you kind of still see it lining up a relatively more toward year end.
Yeah, well as you know, we always havent really important in.
Strong back half of the year and that's not changing this year. We did have very very good pipeline conversion rates in Q2, and maybe China I'll, let you comment on on that being a on the frontline there.
Hi, Mark clearly signals the land motions convert faster right the Guardia strategic sourcing.
Or some of the planning or people Standalone motions.
Those will be converted to cluster them done decor H T hang on car finance sales products.
But obviously the strength coming already from the pipeline that it was built during the second half of last year has already started to play out and will play out more during.
During the second half at D C. Here.
Okay understood. Thank you and then just a quick follow up for you I was wondering about the cadence of finance teams are there you know we know that they paused their spending during the pandemic.
And you know they've been wanting to accelerate their move to the cloud do you think that.
Is the part of this you know kind of remained inconsistent where they might pull in some of the projects. They had planned in 2020 for 2025, I'm I'm I'm sort of wondering with with the Delta variant headlines in the news there is that going to intensify that or defer that a bit or.
Or have a more of a.
No.
Issue from the Delta variant.
Time will tell.
Right. When we thought we were coming out of the pandemic, we get hit with the Delta variant. So it's just such a.
Changing unpredictable world right now the last data that I saw from Gartner suggested that projects. This.
This year and for summer next year would be pushed out a project from 24 would be pulled into 'twenty, three and so and I think our pipeline suggests that the pipeline is getting better for financials.
And it should continue to get better and I think going into next year more projects will get pulled into next year.
From good thank you.
Your next question comes from the line of D. J Hynes with Canaccord. Please proceed with your question.
Hey, Thanks, guys and congrats on the on the nice start here through the second half the first half of the Europe.
I wanted to ask about the hiring environment.
Progress on that front two questions, maybe one for Robin and one for China. So Robin you're at 900 net new employees of I think you said 2500 targeted.
How does the seasonality right, 35% in the first half 65% in the second half compare to kind of internal plans as well as.
Prior year's end and then.
Sean I'll, just given the head count ramp expected in the second half if.
If I gave you 10, new sales reps, how would you allocate them between hunters versus back the base reps and maybe you could talk about maybe how that might be different that would have been in a year or two ago.
So on over her overall hiring D. J. So as you know we came into.
For the year with really really aggressive hiring plans I would've hoped we would have been a little further along than 900 at this point, but it took us some time to really ramp the recruiting engine because as you know we had paused hiring a lot of last year. So we had to get that going.
Not surprising that we are going to be backend loaded we feel really good.
Our recruiting engine right now we feel good that we're going to be able to accelerate hiring into the back half of the year and we're still targeting those 2500 hires. So we feel good about where we are but maybe a little bit of a slower start than what we had hoped coming into the year.
Okay.
Thanks Scott.
And just more generally what is done you are not giving me some more head count that Tim because I know if I wouldnt be to play out with the 10 I would say that the first thing kind of ankle and I will be looking at geographically unclearly, we're allocating more cells capacity today.
International markets, where we see a significant opportunity ahead. This is not just for you know second half.
These year, but purely FY 'twenty, three and beyond as well so that would be first I mentioned the.
The second one would be clearly you know, yes between a balance between net new logo on the installed base, but also you need to consider that we have some of the land first motions across a P, calling or planning or strategic sourcing.
So those plays into account as well and we see opportunity clearly a curled names across nearly all activity across your store base and staying with the land motion. So.
No balanced picture across those I'm clearly with a more PV investment, we think in our international markets down within North America today.
Yeah, Okay perfect. That's helpful color. Thank you guys.
Yeah.
Your next question comes from line of Brad Reback with Stifel. Please proceed with your question.
Great. Thanks very much.
Think about the $1.1 billion of 24 month backlog increase.
Kris year over year.
Are we at a point now where half of that from new customers versus growth at existing any sort of color on that would be super helpful.
Yeah, Brad So as you can imagine the bigger we get and the longer we've been in business. It will shift that backlog component more towards renewables.
Then that news so that shift has been something that has been in process for quite some time. This.
This yours is different as we pointed out earlier that we actually have flat renewals year over year, and so we're getting a little bit more of a proportion towards net new this year, but we expect that that trend will.
We will reverse.
Wells next year, as we get back to more normalized renewables growth.
Great. Thanks very much.
Your next question comes from the line of Michael.
Terrorists with Keybanc. Please proceed with your question.
That's great congrats.
The quarter very nice so.
Yeah.
It's a nice margin beat and raise on the year. It seems like it's more than just revenue upside and this is despite.
It has been very aggressive hiring lots of discussions of investment. So so so is this a change at all in your operating.
<unk> philosophy or structure, such that you're able to get this margin upside and.
We're accelerating revenue too.
Well you know a good part of our margin raise was the over performance on the top line. So that's a very big chunk of it and we had some expenses you know slipped from Q2 into the back half of the year.
Some of our program attic spend and as I just mentioned before we are hoping to do a little faster hiring. So we have some savings from that as well as we look at next year, though you know keep.
Keep in mind that a lot of the hiring we're doing this year is going to have a full year impact next year. Some of the programs, we're getting kind of put in place in the back half of this year will roll into next.
Year, we also expect that certain costs will layer back in such as travel returned to office and hopefully in person events that we can start doing again.
Additionally, the bonus program that Aneel talked about with about a 300 basis point impact on margin that will continue into next.
Beyond them and so it's a performance based plans so could vary with our results, but we expect that impact to remain fairly consistent through next year. If we achieve our targets keep in mind, though that the impact from the plan on margins will vary over time based on top line growth hiring and performance against our goals. So just.
Keep all of those things in mind, when you think about longer term margins.
That's really helpful. Thanks, and then it sounds like this is going.
Very well can you give us some.
Some sense of where guidance.
A C V is coming in relative to H T M. A C.
So we saw growth in both.
Fans and N H C M. A C D and both contributed to our over achievement.
And this year, both contributed to our guidance raise and we're seeing really strong growth across both of those in our pipeline as well.
I didn't mean, a total I'm not trying to pull that out of I'm, just saying in terms of individual deals coming in.
Larger levels, and then HCM for individual customers.
In terms of pricing.
We are still in.
In the world of HCM, we felt absolutely the biggest companies in the world like like a Cvs health and in finance.
The bigger companies haven't yet moved to the cloud with her.
The beginning too.
So right now I'd say the average HCM customer at the high end is bigger than the finance customer, but that's that's changing and they will equalize over time, okay. Thanks.
[laughter].
Your next question comes from line of Alex Zukin with Wolfe Research. Please proceed with your question.
Thanks, guys for taking the question so I guess one element.
That seems interesting is there is a lot more of these new land motions around I think you mentioned planning you mentioned peak on spend management I wanted to get a better understanding how much of the bookings is this kind of is now coming from this new land motion because it does feel.
Feel like the opportunity for dollar based net expansion our expansion and going back into those customers is going to be higher and so you kind of are opening up this new.
It's a little bit different than historically, when you had such a large land that the upsell was more difficult.
Yeah, let's see yeah.
Yeah clearly.
Clearly on it the majority of the dollars that of course is still coming from the core HCM under core fins transformation. That's a hole this land motions or clearly prove do you know what.
We're providing as much more significant volume upselling, particularly.
The installed base, but as well getting us into new customers that were.
We're expecting to cross sell later on went on where paccar products.
Of course, the minority of the ACB. He's obviously it stemmed from the big bigger transformation projects.
Understood and then Robin maybe kind of Dovetailing on.
Michael's question is it possible to get a little bit more color on some of the.
The tailwind on margins this year and how to think about them layering out of the model for next year, particularly as we get back to some of those pre COVID-19 go to market motions and travel.
Hum.
With the bonus pool.
Yeah, Yeah, so and in addition to.
Commentary answering Michael's question I guess, the the only thing I would add is that we still have a six months to go until we're in the next year things like travel and how much. It comes back are still uncertain. So.
So it's a little hard to predict right now above and beyond the drivers that I mentioned earlier, but we'll share more with you on FY 'twenty.
Margins are at a later date, when we get closer and we've closed another quarter or two.
Would add that I do think our travel and entertainment.
Entertainment budgets I think those are those will change going forward, even when we get out of the pandemic. We've just learned how to work smarter without having to have people on site everywhere.
Three months you can do a lot of work from from your office or from at home and then you can concentrate the few trips on really meaningful activity. So.
I don't think that's specific to work do you think that's specific to <unk>.
A lot of companies that were just used to.
Spending a lot of money on travel that that probably will not spend like that again.
Perfect.
We will now take two more questions. Your next question comes from the line of Raimo lunch out with Barclays. Please proceed with your question.
Hey, Thank you thanks for squeezing me in and congrats EMEA as well.
Channel.
Talk a little bit about the importance of the new payrolls that you announced.
I think Germany, and Australia, just in terms of the international build out the crews we all agree that the peak opportunity. The question is like in terms of financial functionality.
All functionality you quite yet.
Yet to kind of <unk>.
Capitalize on that and then I had one follow up.
Yeah, Raimo, we you know, we we really understand market knowledge, how important local payrolls are to our strategy and our customers I mean, if you look at a favor for your money and you know the country well our workforce management over there and the number of manifest.
Can you drink companies when we're providing dang our solutions around HCM Harbin payroll is a tremendous importance for us to capture a bigger part of the market I could say this thing out of Australia. So this is expansion really into these markets is very significant and critical toward a strict T K.
Matter of fact, he said that we do have for growth, we think our international markets. So we feel very good about it obviously, it's going to take US a you know a couple of years to develop a dose, but even today customers knowing that that is what would a strategy. We think that is going to open more doors for consideration on some customers that are looking more for a provide they're done.
Anyway, we can close the loop as well in terms of the debate on the workforce management on time tracking on scheduling as a whole right. When it comes to finance, yes, we just keep they've been doing a improvements in terms of all where international capabilities. I think if you look at some of the analysts there highlighting those sign up the customers as well.
Altair highlighting those too.
And we just keep becoming a stronger in terms of our financial SaaS solution from an international perspective in terms of the local regulation. Some angle basically they don't conversations does not require so that in some cases right now as highlighted today more strength than any of the things when some of our.
Our customers are are becoming why are they customers I'm honestly is also a great point that many of growing successfully life in EMEA with our financial solutions and those are working very nicely I'm, becoming referenced have all customers for us.
Perfect perfect perfect. That's very clear. Thank you and then one follow up Mike when we talked with the system.
Well, great IDC, they are seeing a lot more activity of people sketching out.
Yes, mapping all processes et cetera, which is kind of a first step to kind of to watch like changing the finance system. What are you seeing there in terms of how quickly those kind of projects are evolving in terms of.
And also kind of showing up for you guys or are we still in the same pre pandemic cadence of like six to nine months.
Lead time are kind of trying to sketch out what you wanted to do and how you want to do it and then doing it or do you see an acceleration here because people realize there is a little bit more urgency here. Thank you and congrats from me as well.
Okay.
It's a great question and what we're seeing is I think more projects taking place.
That is obvious as you were saying some customers that are doing what they call kind of a place zero, which is these mapping the processes and understanding what it would be the you know the near the future compared to with the us east kind of processes that they do have today.
And they're working with the system integrate doors, but I think those are being worked faster because there is more urgency there for transformation being older planes that and difficulties that some customers have been facing during the pandemic phase I'm be clearly and you know there are many more projects taking place as well around the financial transformation.
Formation, we should gradually improve things, what we're seeing there as more customers aren't willing to finance those to the cloud.
Perfect. Thank you.
Your final question comes from the line of Scott Berg with Needham and company. Please proceed with your question.
Hi, everyone congrats on the quarter.
And thanks for taking my question.
So first off you just announced the company achieved ready status for the fed ramp program, how should we think about the sales opportunity in that segment and what products do you expect those customers will adopt them us.
Well, if it's a if it's already in motion we already have.
Customers in the federal government, they're more quasi federal agencies and full favorite agencies that are using workday.
And as we go through the cycle you know, it's a long sales cycle, but those sales cycles, who will begin and we're fully on the schedule middle of next year. So I would start with thank.
Have you seen the pipeline building and hopefully some good good wins beginning to happen.
As agencies first and then full agencies are sometime next year.
You know in in in terms of HR and financials, there where were a good fit we're gonna find we're gonna find requirements that we're gonna have to build specifically for federal government.
Thank you will stop but we are in general a good fit for both for both solutions.
<unk> for the federal government.
Right. Thank you.
Just one more quick one you mentioned that a little bit earlier, but I'm kind of I'm talking about Australia, and Germany and the expansion there.
With payroll.
Can you give us a little bit of color on you know how much further should we expect.
The company to take its payroll functionality.
Kind of after those two markets are complete.
You know I I didn't I'd expect that we're going to continue to invest in payroll integration across.
Oh.
We might add one or two more payrolls over the next few years, but you're not going to see us add 10.
You know on unless we unless we find a great company to acquire which we havent, which we haven't seen yet.
We are doing is going country by country, and where we don't have a payroll really trying to build a tighter tighter integration.
But honestly, what most of our customers do with with their global payroll.
Man's anyways.
Awesome. Thank you.
Ladies and gentlemen, thank you for your participation on today's conference.
This will conclude workdays.
Second quarter fiscal year 'twenty two earnings call. Thank you again for joining us.
Yeah.
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