Q1 2023 Workday Inc Earnings Call
Hello, and welcome to Workdays first.
Full year 2023 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. During the Q&A. Please limit yourself to one question with that I'll hand, the call over to Justin Furby, Vice President Investor Relations.
Thank you operator.
Welcome to workdays first quarter fiscal 2023 earnings conference call.
On the call, we have Aneel Bush Street, and Shanna <unk> Fernandez, our co Ceos.
Barbara Larson, our CFO and Peach Slam, our chief strategy Officer.
Following prepared remarks, we will take questions. Our press release was issued after close of market and is posted on our website, where this call is being simultaneously webcast.
Before we get started we want to emphasize that some of our statements on this call, particularly our guidance are based on the information we have as of today and include forward looking statements regarding our financial results applications customer demand operations and other matters.
These statements are subject to risks uncertainties and assumptions, including those related to the impact of the ongoing COVID-19 pandemic and recent macroeconomic events on our business and global economic condition.
Please refer to the press release and the risk factors in documents, we file with the Securities and Exchange Commission, including our 2022 annual report on Form 10-K, and our most recent quarterly report on Form 10-Q for additional information on risks uncertainties.
The 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 our Investor presentation 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.
Starting with this quarter and going forward, we will be posting a quarterly investor presentation on our Investor Relations website following each quarters call.
Also the customers page of our website includes a list of selected customers and is updated monthly.
Our second quarter fiscal 'twenty 'twenty three quiet period begins on July 16, 2022, unless otherwise stated all financial comparisons in this call will be to our results for the comparable period of our fiscal 2022.
With that I'll hand, the call over to Aneel.
Thank you Justin and welcome to Workdays first quarter fiscal year 'twenty three earnings conference call.
Before we begin we are heartbroken by the recent acts of violence in a census loss of life. There are no words to explain the pain. The parents children families and loved ones of the victims must be feeling.
Our thoughts are with them and the people that you've already Texas Buffalo, New York than it was California and every other community that has endured such tragedy.
Everyone has a right to feel safe in the places where they learn live work worship.
Just do simple day Aaron's.
Turning now to our business and coming off an exceptional fiscal year 'twenty two of acceleration in the business Workday reported solid Q1 results delivering subscription revenue growth of 23%.
During the quarter, we continued to see companies across our target geographies and industries like workday as they move their finance and HR systems to the cloud.
At the same time several key opportunities that we had expected to close in Q1 were pushed to later in the year impacting backlog performance, which Barbara will touch on later in the call.
We continue to see strong demand for our products and are optimistic about the year.
We're mindful however of the current macroeconomic and geopolitical environments and the impact these conditions could have on businesses globally.
With that in mind, our focus remains on what we can control.
Which is to continue to drive innovation as we broaden our offering to become an even more strategic partner to our customers.
The industry's top levels of customer support and cultivate our culture, which remains foundational to all that we do.
Now I'd like to share some of the business highlights from Q1, starting with Workday HCM.
Barclays Callaway golf, and West, Tennessee, Healthcare, where just a few of the many new customers, how we walk them last quarter.
While these new wins are very important to us we remain equally focused on ensuring our customers successfully go live which is critical to our ability to drive customer satisfaction will go lives. In Q1 include Hy Vee can drill N ream.
Bank of Canada, better known as RBC.
Our proven ability to support our customers' large volumes of data and transactions continues to be a significant differentiator in our success.
It's not just our scalability that differentiates us. It's also our unique ability to innovate and deliver valuable insights to our customers across the office of the C. H R O.
And learning for example, we recently crossed the 2000 customer milestone and we now have over 3100 recruiting customers. We're also opening new markets with solutions, such as people analytics, which now has over 500 customers and worked at journeys, which has over 300 customers.
We're the clear market leader in HCM is something that we don't take for granted.
I need to find new ways to increase our strategic positioning within the opposite the CH Rowe.
Turning to our offerings for the office of the CFO . We once again saw continued strength across the board.
Highlights included key full suite wins at American University, Lehigh Valley Hospital, Mohegan trouble game of authority, along with several core financials customer go lives in the quarter, including advocate Aurora health and Sentara healthcare to name a few.
Our strategy for many years now and one of our key Differentiators.
The organizations with a unified solution to plan execute and analyze their businesses in real time.
That strategy is clearly resonating in the market with workday adaptive planning now being used by nearly 6000 organizations globally.
Nearly 75% of our core fins customers and prism analytics, nearing 1000 customers, including roughly 40% of our core financials customer base.
As you know workday was found around a core set of values to help guide our decisions as we look to do what's right for our employees the customers, we serve and the world around us.
An example of this approach can be seen through our increased focus on supporting our customers evolving ESG initiatives, which have quickly become a top priority in the boardroom and for the office of the CFO , especially considering the most recent and upcoming SEC disclosure requirements.
Q1, we announced two new solutions that will be available this year to further help companies view their businesses.
And ESG lens. The first is social reporting for ESG, which will help our customers more easily track progress against goals and identify areas for improvement within workforce composition organizational health diversity and work force investment.
The second is supplier and sustainability.
Just help customers to improve their sustainability and resilience of their supply chains and assessed scope three emissions across our suppliers.
And these two new solutions to our existing product portfolio.
Further strengthen our ability to be a strategic partner for our customers and shareholders on their ESG journey.
Switching to the people front, we continue to invest heavily in our company culture to sustain our belief that happy employees deliver the highest levels of satisfaction to our great customers.
That note in early April .
Now it's exciting expansion plans for our European headquarters in Dublin, Ireland, we intend to create 1000, new jobs over the next two years, which will increase our overall, Ireland based workforce by approximately 60%. In addition to breaking ground on our new European headquarters building.
The Dublin site plays a critical role in our product development and customer service efforts. We're excited to build on the already incredible group of employees, we have in Dublin.
As we look forward amid the backdrop of macro uncertainty.
I'm comforted by the fact that as a company we've been through these cycles before most recently navigating the pandemic and as a younger company. The 2008 2009 financial crisis. Each time, we've come out stronger and remain confident in the fundamentals of our business and our long term strategy and believe that our leadership position will only strengthen.
We have a proven track record of growth at scale, a robust business model with strong cash flow generation and the values driven culture that attracts the best talent and constantly innovate.
There's always been a recipe for long term success for us with that I'll turn it over to our co CEO , China Fernandez over to your child.
Thank you Aneel and thank you to everyone for joining us today I want to begin by extending especially on white count more than 700, new Workmates that joined the company during kilowatt I recently had the opportunity to travel across several of our global offices and meeting with many of our new launch I'm Workmates.
I must say the energy within the company is amazing.
Forward to seeing what we can achieve together FY 'twenty three and beyond.
We delivered a solid first quarter as momentum across both our net new customer base teams continually and we once again drove very strong renewal was a testament to the strategic nature of our solutions and our commitment to customer satisfaction.
And he did mention we did see the timing of several Q1 P deals pushed into future quarters.
It also seems like you do pipeline opportunities most of the cycle, but we're confident in closing them later this year.
More broadly we see healthy overall pipeline, what's he's getting us to deliver a strong FY 'twenty three as we remain focused on driving sustainable 20% plus subscription revenue growth.
From a geographic at some point in Q1, we had solid growth across several international markets highlighted by the UK, where we have significant wins at companies such as Barclays I'm, not Westpac and grow in.
France, where people drove steady launch.
Core Orange SA.
In the Nordics, Netherlands, where we increased our footprint with companies such as booking that call and it's candid what else.
In the U S. We saw strength across multiple areas, including the medium enterprise, where our broad portfolio of solutions across eight C. H R. O a CFO is driving our success.
In the large enterprise in addition to some of the new core HR and financial management wins, we expanded our strategic would bring with them at all of our existing customers such as boy out.
Advanced auto parts.
One of the worlds largest technology companies.
Our customer base most of them continues to drive strong momentum and we're very excited by the growth we see ahead.
Industry is another area of significant opportunity, including emerging industries like the U S. Federal government as well as established ones such as health care, where we are the market leading provider for both cloud based HCM financials solutions side.
Some of our malls just tried these transactions go lives in Q1 came out of our health care team.
Wins at Lehigh Valley Hospital Health Research, Inc, and West, Tennessee, healthcare as well as finished go lives at Volcker Aurora Health.
Tyra Health care.
There is clear momentum looking forward, that's where significant base of reference customers along with our targeted product investments in areas like supply chain are clearly paying off.
Another key growth opportunities across our partner ecosystem, which from day, one has been critical to our customers' success.
Not only do our partners help ensure a successful deployment.
The extensibility of our platform are also accelerating our product roadmap. A great example is pardon me your own consulting leverage the industry expertise and operational supply chain knowledge to the battle at the mine planning solution work they adaptive planning purpose built over there.
Health care industry using this solution. They don't children's hospital is able to make data driven decisions I mean sure.
Supplies resources in our space are available when patients need air balls. This is just one of several areas of innovation, we've seen from our ecosystem.
Over the course of Q1, we deepen our partnerships with multiple systems integrators like Accenture, Deloitte Pwc to not only launch new partner solutions, but to align our call innovation plans to scale and accelerate over the coming quarters, helping us IDE drives these.
And for our overall ecosystem study is our new Chief partner Officer, Some odd Corrado, who brings more than two decades of experience to the role.
He reports directly to me why it comes on.
In closing, we entered Q2 with a healthy pipeline and positioning across the offices of the CH Airlines CFO Betty systems fatigue as ever we remain squarely focused on executing against our growth opportunities I mean laying the foundation to support the durable, 20% plus subscription revenue growth.
Our boss 10 billion in revenue.
With that I will turn it over to our CFO Barbara Larson.
Over to you Barbara.
Thanks, Shannon and good afternoon, everyone as Aneel in China, I mentioned, we had a solid start to the year as organizations across the globe continue to choose workday as their strategic partner in driving their finance and HR digital transformations.
Subscription revenue in Q1, with 1.27 billion up 23% year over year and professional services revenue was $163 million up 14%.
Total revenue outside of the U S with $360 million, representing 25% of total revenue.
24 month backlog at the end of the first quarter was $7 97 billion growth of 21%.
It was driven by solid new ACD and strong renewals with gross and net revenue retention rates over 95% and over 100% respectively.
The mainland China mentioned, we saw the timing of several deals, including a few large ones pushed from Q1 into future quarters in FY 'twenty three which.
Which impacted our 24 month and total subscription revenue backlog growth by approximately one percentage point.
Total subscription revenue backlog was $12 six 5 billion up 26%.
Our non-GAAP operating income for the first quarter with 289 million, resulting in a non-GAAP operating margin of 21%.
Margin over achievement was driven by a combination of topline over performance and the timing of certain expenses Asics.
As expected, we made significant investments across the business in Q1 and began to transition back to the office as well as presenting travel and in person events.
We had a strong start to the year for cash flow with Q1 operating cash flow of $440 million.
During the quarter, we raised 3 billion in cash through a public debt offering at attractive fixed interest rate, enabling us to repay existing debt, while also providing additional flexibility as we plan for the future.
We prepaid our $694 million floating rate term loan in April and intend to pay the principal balance of our 1.15 billion dollar convertible debt in cash when it comes due in October when this occurs our non-GAAP diluted share count will decrease by roughly 8 million shares due to the.
A late Q3 timing this share reduction will not be fully reflected in our non-GAAP weighted average share count until Q4.
Our largest investments continue to be in our people and attracting top talent to workday during the quarter, we successfully added and integrated over 700, net new employees and in Q1 with more than 15900 employees.
Strong hiring is a testament to our culture, our global brand and a significant growth opportunity that we have a hat.
Overall, we are pleased with the solid company wide execution in Q1 and remain focused on leveraging our leadership position to drive sustainable 20% plus subscription revenue growth on our path to 10 billion in revenue.
Turning now to guidance, which reflects continued momentum across our business. While also taking into account a more backend weighted year than we originally anticipated.
We are raising our guidance for FY 'twenty three subscription revenue to be in the range of 5.537 billion to $5 557 billion, representing 22% year over year growth.
We expect our Q2 subscription revenue to be 1.353 billion to $1 355 billion, 22% year over year ground.
With sequential growth in Q3 of approximately four 5%.
We still expect professional services revenue to be 650 million in FY 'twenty three as we continue our tight alignment with our growing partner ecosystem to help ensure our customers have successful implementations that support the highest levels of customer satisfaction and business value.
For Q2, we expect professional services revenue of a $164 million.
We expect the 24 month backlog to grow approximately 20% year over year in Q2 of FY 'twenty three.
We continue to expect FY 'twenty three non-GAAP operating margins of 18, 5% for Q2, we expect non-GAAP operating margins of 17, 5%, which reflects typical seasonality as a result of our annual employee compensation cycle, which took effect at the beginning of Q2.
Investing for long term growth remains our priority and we will continuously evaluate growth margin trade offs, but we have confidence in the strength of our business model and then achieving 25% non-GAAP operating margins of $10 billion in revenue.
The GAAP margins for the second quarter and the full year are expected to be approximately 22, and 24 percentage points lower respectively than the non-GAAP margins.
That's why 23 non-GAAP tax rate remains at 19%.
As a result of our recent debt IPO, we are lowering our FY 'twenty three guidance for operating cash flow to $1 six 1 billion, which takes into account approximately 55 million of cash interest payments associated with the debt.
We continue to expect capital expenditures of 475 million this year and to support our customer growth and continued business expansion.
And finally, I'll close by thanking our amazing employees customers and partners for their continued support and hard work with that I'll turn it over to the operator to begin Q&A.
Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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Our first question today is coming from Mark Murphy from J P. Morgan Your line is now live.
Oh, Thank you very much and congrats.
Congrats on the prism guidance for the year I'm curious if if there were any common characteristics across the opportunities that slips them for instance by G O or by vertical and it and just at a higher level how much of a spread do you see in terms of your customers' business confidence or their willingness to invest.
With the pipeline built if you were to compare and contrast that in North America versus Europe today.
Tony you want to take that on.
Sure Hi, Mark.
I would not call. It one particular area, where their byproduct or radio in terms of the deals that push in Q1.
Like we mentioned eat including central thought were largely at opportunities.
Each of these species where for different reasons not necessarily macro related.
We are focused on closing them later in the year.
We are definitely mindful that the environment, particularly in Europe remains on the same thing and we could continue to monitor it but we have solid results across regions in Q1, including several international markets.
Okay.
The next question today is coming from car shrunken from Goldman Sachs. Your line is now live.
Thank you so much for the clarity Aneel and channel and then a question for you what are the tactics that you're pursuing to do.
To weather through this potential people call. It a downturn, maybe you call it something different whether it's G. T M product investments hiring how are the tactics changing it.
A question for China on the on the deal front, what are you hearing from customers as to what they're looking for in order to get the clarity. So they could go forward and.
Close these deals with workday. Thank you so much once again.
Well you know in terms of tactics are the pipeline is very high.
E.
We don't control the macro economic environment, but.
Move to the cloud is continuing our win rates are.
Hi.
We're being smart about the way, we hire and probably.
You know, helping customers with ways to continue their deployments and.
And think through.
<unk>.
The value proposition, maybe in a way that we haven't had to do every downturn you've got to think through that.
The the value proposition in terms of payback and it's probably more important now and so we're just dusting off that playbook.
I don't know, whether you want to add there.
Okay.
What I, what I would say in terms of what I'm hearing from customers I'm, just coming back from Davos right now and I have many feel conversations there is that digital transformation investments weren't they've been at the core of those remain very strategic priority.
Suddenly Morningstar very close the deals that are push sudden launch once you know we are very confident that they're going to closing in the second half didn't know really macro related reasons at this point in time.
Other facts that I cannot cash is like Hey, you know to be the Suncor. We may we really started a strong and you know on May you know seems to be a very good first month's uptick Q2 for us.
Yeah.
Thank you. Your next question today is coming from Kirk return from Evercore ISI. Your line is now live.
Yeah. Thanks for taking the question Chuck I just follow up on that last point, you made which was you feel confident in these deals closing later in the year, so they werent macro related but.
There seems to be some concern from you all that the macro is getting worse.
So I'm just kind of where these just deals that maybe you should've been earmarked to close in the back half there to begin with and they just needed more time, but it's you know they're not freaking out about the macro or you know things have deteriorated in terms of their confidence level in their business and they need some time to get their cash in or whatever it might be as far as sort of a separate yes.
Sort of what you're seeing or seeing from say customers getting concerned because you just said there there still cheap strategic deals versus maybe you know these particular deals that are now going to fall in the back half there sorry, I think it's an important point to make because I think people are hearing conflicting things on the macro from different software companies right now.
I understand of Kirk.
Certainly there is some uncertainty in the macro Sunny has highlighted that at one point you cant control when.
I was trying to clarify is that some of the large deals that push.
There are no really due to macro for example is C level is that with these changes the hopping in the last months on silent those theyre acting different shoemaker.
Went to review their own process to feel comfortable particularly through the implementation process as a whole.
So that is a typical racism Oh, you know a couple of deals that really bush.
The confidence comes having the discussion around remaining close to these deals in terms of the commitment from customers that they remain a strategic priority I'm bottle.
It's been done in the second half of the year.
Yeah.
Thank you. Our next question is coming from Michael <unk> from Wells Fargo Securities. Your line is now live.
Thank you for taking the question appreciate it I mean, obviously you you mentioned in the call. Some of the deal delays that you're seeing we've been fielding a number of questions around downturn scenarios and one of the things that you had already previously started to focus in on it is the back to the base selling motion and some of the additional product that you've brought into the portfolio is that something new.
You feel can help if some of these delays extend I'm just wondering if that helps you diversify at all from a sales perspective, and you had some useful customer adoption stats around some of the modules in the prepared remarks, so maybe we could point back to some of those as well. Thank you.
Michael we're still confident with our Celsis strategy and go to market strategy I see happening they almost they don't call me, we got yesterday to those motions that we felt that were stronger for it.
<unk> customer base.
But medium enterprise.
Some others like planning, so we definitely will be watching and monitoring the situation very closely and right now I mean, if we feel that we need to prioritize one area over another one we will be doing the same.
Okay.
Oh.
Thank you. Our next question is coming from Brad Zelnick from Deutsche Bank. Your line is that a lot.
Great. Thank you so much and apologize if there's background noise I'm just hearing in airports, but following on the last question as you know.
We think about that white space opportunity in the installed base and the degree to which having done such a great job selling into the base. The last couple of years.
Just wondering you know to what extent it might actually create a challenge.
If the backdrop is to deteriorate thinking that's yours, perhaps a limit to how much product that the customer base can absorb is is there any reason that we shouldn't think that with additional products.
You guys keep innovating and in some cases, requiring that theres opportunity.
Or limits, perhaps even in it and the ability to sell back into the base.
I would say from a product perspective.
We're still in the early days of going back to the base and.
A lot of our earlier customers are just running one or two modules. So there there's no I.
I don't really see any constraint on the market size.
Opportunity trying to if you want to add anything to that.
I couldn't believe what would you said that Neal I think today, our solutions are incredibly important in enabling our customers to approach their business with that your lithium at that stability.
And I believe that our slot as we're bringing value and they've seen does value because they remained very happy we have a huge opportunity in our customer base that we've been quantified at our last analyst day, I mean, yes increase because there's so much innovation that's coming through.
Thank you. Our next question is coming from Brad Sills from Bank of America. Your line is not a lot.
Oh, great. Thanks, guys for taking my question.
Wanted to ask about planning it it's an area that we keep hearing from the channel standing out as relatively strong you've called it out now for a couple of quarters.
If you could help understand help us understand you know what's going on there or is this just progress that you've made recently with integrating you're planning to core fins, you know what what's behind the strength in planning. Thank you.
You know what I would say at a product level. The product does continue to get better and you know what now works across multiple use cases, not just financial planning, but work force planning and I do think the pandemic and maybe this this this macro environment are causing companies to think a lot more about planning and re planning.
Almost a motive continuous planning and that puts a lot of pressure in the legacy tools and I think our our products are really well suited for this this environment of.
Changing the plan every every few months, maybe even sooner to reflect what's a pretty dynamic business environment out there.
Thank you. Our next question is coming from Alex Zukin from Wolfe Research. Your line is now live.
Hey, guys. Thanks for taking the question. So I wanted to maybe just disentangle a little bit first on the on the push deals you know how many of those were kind of HCM versus financials, and then within the commentary about the deals in the quarter that pushed versus the pipeline commentary is.
Maybe things taking longer is the pipeline commentary more geared towards what you're seeing or hearing out of the macro and have you recalibrated your.
Your your kind of thoughts around the year based on that.
[noise] channel.
Yes.
Hi, Alex.
Common data, what I said that we.
We didn't see any particular difference in terms of product for radio in terms of the deals that push in Q1. All we said is that there were a couple of large opportunities.
What we said in terms of the pipeline and some pipeline from Q2 move us well to the second half of the year.
We still see a strong pipeline and good momentum we've been creating a good space.
He gave us confidence to deliver on the goals that we do have four four then went to when you see.
Thank you. Our next question is coming from Keith Weiss from Morgan Stanley . Your line is that a lot.
Excellent. Thank you guys for taking the question maybe.
Maybe taking the other side of it he can stay minutes talking a little bit about margins I think operating margins in Q1, where we're definitely a highlight exceeded expectations.
Can you talk to us.
Barbara can you talk to us a little bit about what enabled those better margins in Q1. The full year guide doesn't really move why why why not why why not sort of pushed more operating margin through into the full year Guide and then maybe you could help us just basically understand your guys' stance and how youre going to approach this year.
Given the macro backdrop is as you can hear we're all very nervous about the economy were all very nervous about the durability of growth. How nimble can you guys be with that Opex line to protect those operating margins and protect that free cash flow throughout this year, if we do get into a more difficult macro climate.
Thanks for the question Keith from a margin perspective in in Q1. The over performance. We saw there was really around the timing of certain expenses I noticed pushing out to later in the year, which is why you see us holding our full year guide, it's still really early in the year and then in <unk>.
Terms are the levers and hiring is always going to be a lever for us we continue to hire bad we're continuing to monitor the environment around us. We're remaining confident in terms of the long term opportunity. We have ahead of us and that these type of environments.
Could provide us with an opportunity to really leverage our brand our strategic positioning and our motto.
Thank you. Your next question is coming from Scott Berg from Needham and company. Your line is now live.
Hi, everyone. Thanks for taking my questions.
I guess, given the environment that you're seeing right now in some of the.
Deals that are moving around for whatever the reasons are have you changed your strategy around investing in the go to market side. This year is there anything there that maybe helped your hand, one way or the other on a positive or maybe less positive.
Yeah.
Hello. Thank you Scott Yeah. Thank you Scott for your question as we said we remain very confident until they don't turn opportunity. We are certainly going to be cautiously monitoring the environment. We are confident that let them ourselves to strategy from a go to market perspective, but we would be fine tuning that one.
As this situation he said Bobby I asked three years moving all either in terms of the investments that he requires four items, there's a balancing investments from one area wouldn't ask too on the area that we May proceed we have more to stay inside of energy getting decent environment.
Okay.
Thank.
Thank you. Our next question is coming from Raimo <unk> from Barclays. Your line is now live.
Thank you and I'm looking forward to a more than HR system eventually.
Christian in China on if you look at if the commentary is it's not macro related then you cut off how to kind of odd quarter in terms of see what execution, but because it looks like you've got very unlucky in terms of how the different deals came together is there anything you're learning from when you did the route.
Cause analysis are you learning from from what happened this quarter and does it kind of also maybe trigger for you like an approach to kind of break down deals into smaller sizes.
Got it more sort of by product by product et cetera anything.
Great question Raimo and thank you for for becoming a customer. Thank you for the partnership right.
And when some of the deals are.
Because those C level executive changes there is no much we can do about it in terms of self anticipate they sign with those we certainly are here to partner with our customers from a long term basis, and we want to ensure that they have the confidence they need like securities in there and so they have their own implementation Sunday bromine plants, and that's where we are.
Doing going to Bang Wednesday, with the cycles in terms of our ability to split or break those deals seem to as more of a once a week.
We fill down with some of these the value of this is Lucy only really applies to the whole customer base with the customers. So clearly our medium enterprise most young ascribing Raimo and I'll just give you a much more stability to having you know its more of the components that will you know a better and better outcome over at all.
In terms of.
The business out there.
Okay.
Thank you next question is coming from Brent Thill from Jefferies. Your line is now lives.
Thanks.
Many are asking your confidence in getting these deals close in the back half of the year. When I think many economists are expecting the macro to even get even even a little bit different in terms of the headwinds.
What's giving you that confidence that you.
These aren't enough push beyond from what you can tell right now.
You know we we've this is not our first our it's not our first rodeo through a downturn.
And go back to.
You know David I, whether a lot of storms and people soft China was weather a lot of storms.
As long as you have the right value proposition, we weather the storm and OE to nine which was which was about the worst economic environment I've ever seen.
And while demand was somewhat suppressed during the first period of Covid, we weather that storm too.
And so you know well.
We'll just figure out a way they are our products or not.
<unk> are not choices I mean, you you have to have world class.
H, our financial ERP systems to run your business and so I think demand goes goes forward and.
There'll be some companies that are cautious and we just need to figure out where to spend our sales cycles.
If I may add I mean right.
It took them on some of these large deals it's not that we're talking dose. Many so what we're doing is to continue to feel to continue to work. These deals through our sales process and we're staying very very close to what prospects and what we are hearing directly from Bang you've got these transformation projects remain a strategic.
Our priority are going to happen. So that's what's giving me confidence.
Thank you. Our next question is coming from Mark more Koning from Baird. Your line is now live.
Good afternoon, and thanks for taking my question.
You mentioned you know before that this isn't your first rodeo and you know you've seen this before and I recall you going through this before for those who haven't been through it before can you talk a little bit about the deals that get pushed out like how does that unfold in terms of them getting back on track getting on schedule how quickly does it.
It typically take you know for this kind of short term dislocation to ameliorate.
Well I would say the first thing is.
It's just Q1, so there's no forcing function to close deals on the customer's behalf for Q1.
We'll know a lot more over the next three quarters, we'll know a lot more I'm just not a great answer, but we'll know a lot more coming out of Q4, what real demand was like when I look back at it the COVID-19 environment. It took one or two quarters before people got their arms around that environment and then they kind of went back to business and.
And I suspect the same thing will happen here, it's going to take.
Little bit of time for companies to get their arms around.
The new environment, and then they'll then they'll get back to business and I frankly think this this new environment is not going to be as.
Traumatic as as Covid was that at least from my perspective was a lot more challenging.
So I know you want to add anything.
Our site.
Yeah.
Thank you we have time for two more questions. Our next question is coming from Mark Moore from Bernstein Research. Your line is now live.
Thank you very much I appreciate you can take some time.
My question I'd like to ask on the other macro issue specifically are you seeing any impact or has any effect on our results. Our reported results from FX are you seeing any issues either in pressure on our salaries or ability to.
The higher due to inflation pressure in the U S. Thank you.
I'll take that one mark in terms of FX, we actively hedge our balance sheet subscription revenue as well as certain expenses in Q1, there was some impact due to FX, but it wasn't material given our hedging program.
And then on the inflation perspective in terms of cost it definitely continues to be a very competitive market for talent, but based on our strong hiring over the last couple of quarters, we feel really good about our ability to attract and retain talent globally, yeah, I would actually be stronger on the second part which is.
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The funding environment for startups and early stage companies, if you're watching that market has really dried up.
And there's always a return to quality and stability during these environments.
So we have this boomerang program, where we're actually recruiting people who might have left in the last couple of years and gone to a startup now that cerberus. It looks so good and we've been pretty successful getting people actually back back to the company.
Thank you. Our final question today is coming from the South from William Blair. Your line is now a lot.
Hey, great to follow up on that commentary around the startups in the funding environment drying up how are you feeling about the potentially making some some acquisitions with valuations coming in there, they're specifically been a lot of funding over the past two years and the HR software space anything that's interesting out there for you to.
Plug it into your platform. Thanks.
There are a lot of things that are interesting, but I can't really.
I can't really talk about our M&A strategy in detail other than to say that we're.
We're always going to be looking for companies that have a great product a great team cutting edge technology, but we're not looking for those you know massive transformational acquisitions.
That bet the ranch, that's not that's not who we are so when we look at the last couple of years, whether its van Lee or pecan or adaptive to extent, we can find those kinds of situations where scout. We we will continue to pursue those.
And and you know maybe in this environment there are more.
Ah you know cost effective acquisitions.
But we're not we're not looking at are some of the bigger ones that you know have really really dropped in price.
Thank you we've reached end of our question and answer session and ladies and gentlemen that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.