Q1 2023 Workday Inc Earnings Call
[music].
Hello, and welcome to Workdays first.
Fiscal 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.
On the call, we have Aneel Bush Street, and Ciano Fernandez, our co Ceos.
Arbor, Larson, our CFO and Pete <unk>, 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.
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 2023 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 and the census loss of life.
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 who have Uvalde, Texas, Buffalo, New York, Laguna Woods, California, and every other community that has endured since tragedy.
Everyone has the right to feel safe in the places where they learn live work worship.
Two simple day Aaron's.
Turning now to our business and coming off an exceptional fiscal year 'twenty two of acceleration in the business.
They reported solid Q1 results.
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.
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 Barbara will touch on later in the call.
Can you see strong demand for our products and are optimistic about the year.
We are mindful, however of the current macroeconomic and geopolitical environments and the impact these conditions could have on businesses globally.
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.
However, 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 Barker.
Barclays Callaway golf, and West, Tennessee, Healthcare, where just a few of the many new customers, who we welcomed last quarter.
While these new wins are very important to us we remain equally focused on ensuring our customers successfully go live.
Critical to our ability to drive customer satisfaction.
So we'll go lives in Q1 include Hy Vee can drill and Royal Bank of Canada, better known as RBC.
Moving the ability to support our customers' large volumes of data and transactions continues to be a.
Can differentiator in our success.
It's not just our scalability that differentiates us it's also our.
Our unique ability to innovate and deliver valuable insights to our customers across the office of the C. H.
Learning for example, we recently crossed the 2000 customer milestone.
We now have over 3100 recruiting customers.
We're also opening new markets with solutions.
Analytics, which now has over 500 customers worked at journeys, which has over 300 customers.
We're the clear market leader in HCM, something that we don't take for granted and we continue to find new ways to increase our strategic positioning within the opposite 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, and Mohit can travel game of authority along with several core financial customer go lives in the quarter, including advocate Aurora health.
Sentara healthcare.
Name a few.
Our strategy for many years now and one of our key Differentiators.
It's probably the organizations with a unified solution to plan execute and analyze their businesses in real time.
Our 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.
Presuming analytics nearing 1000 customers roughly 40% of our core financials customer.
As you know workday was founded on 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.
Example of this approach can be seen through our increased focused on supporting our customers evolving ESG initiatives.
They have quickly become a top priority in the boardroom.
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 through an ESG lens.
First as social reporting for ESG.
It will help our customers more easily track progress against goals and identify areas for improvement within workforce composition organizational health diversity and workforce investment.
The second is supplier and sustainability.
Customers to improve the scalability and resilience of their supply chains.
Scope three emissions across their suppliers.
And these two new solutions to our existing product portfolio.
Further strengthen our ability to be a strategic partner for our customers.
Holders on the risk.
Switching to the people front, we continue to invest heavily in our company culture.
And our belief that happy employees deliver the highest levels of satisfaction to our great customers.
That note in early April we announced 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.
Dublin site plays a critical role in our product development and customer service efforts.
To build on the already incredible group of employees, we have in Dublin.
As we look forward amid the backdrop of macro uncertainty.
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.
We've got a leadership position will only strengthen.
We have a proven track record of growth at scale, a robust business model with strong cash flow generation.
Values, driven culture that attracts the best talent and constantly.
It's always been a recipe for long term success for them.
With that I'll turn it over to our co CEO , China Fernandez over to your child.
Thank you O'neil and thank you to everyone for joining today.
Want to begin by extending especially on white count to more than 700, new Workmates that joined the company during Q1.
Recently had the opportunity to travel across several of our global offices and meet with many of our new unknown Workmates.
Say the energy within the company is amazing.
Look 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.
Danielle mentioned, we did see the timing of several Q1 peak deals pushed into future quarters.
So seeing Q2 pipeline.
Pipeline opportunities most of the second half.
We're confident in closing them later this year.
More broadly we see healthy overall pipeline positioning us to deliver a strong FY 'twenty as.
We remain focused on driving sustainable, 20% plus subscription revenue growth.
So I'm glad you graphic at some point in Q1, we had solid growth across several international markets highlighted by the UK, where we had significant wins at companies such as Barclays Natwest backing growth.
In France, where people drove strategic accor.
<unk> Orange SA I mean in the Nordics, and Netherlands, where we increased our footprint with companies such as booking that call and scan data what else.
In the U S. We saw strength across multiple areas, including the medium enterprise, where our broad portfolio of solutions across CA <unk> and CFO is driving our success.
In the large enterprise in addition to some of the new core HR on financial management wins, we expanded our strategic footprint with several of our existing customers such as Voya.
Advanced auto parts.
One of the worlds largest technology companies.
Our customer base molecule 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 establish ones such as health care.
We are the market leading provider of cloud based HCM and financial solutions.
Our most strategic transactions that can go lives in Q1 came out of our healthcare team.
<unk> wins at Lehigh Valley Hospital.
Research Inc.
West, Tennessee healthcare.
Well as speeds go lives at volt Aurora health.
Tyra Health care.
And there is clear momentum looking forward.
Our 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 narrowing.
Not only do our partners hubs ensure successful deployment through the extensibility of our platform are also accelerating our product roadmap.
A great example is partnering Huron consulting leverage they industry expertise operational supply chain knowledge to develop a demand planning solution work. They adopted planning purpose built for the healthcare industry.
This solution. They don't children's hospital is able to make data driven decisions I mean sure physical supplies resources in our space are available when patients need air malls. 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, who not only launch new partner solutions, but to allowing our call innovation plans to scale and accelerate over the coming quarters.
Being a sub drives these efforts on our overall ecosystem strategy is our new chief partner Officer.
Im odd correct, who brings more than two decades of experience to the role who will report directly to me welcome Sam.
In closing, we enter Q2 with healthy pipelines and our positioning across the offices of the CA <unk> CFO that is strategic 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.
On our path to $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 inland Ciano 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 was 127 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 growth 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 lens pushed from Q1 into future quarters in FY 'twenty three.
Which impacted our 24 months and total subscription revenue backlog growth by approximately one percentage point.
Total subscription revenue backlog was $12 65 billion up 26%.
Our non-GAAP operating income for the first quarter with $289 million, resulting in a non-GAAP operating margin of 21%.
And over achievement was driven by a combination of topline over performance and the timing of certain expenses.
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 at $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 one <unk> one 5 billion 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.
In 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, ending Q1 with more than 15900 employees.
The strong hiring is a testament to our culture, our global brand and a significant growth opportunity that we have ahead.
Overall, we are pleased with the solid companywide 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 553 7 billion to 555 7 billion, representing 22% year over year growth.
We expect our Q2 subscription revenue to be 135, 3 billion to $1 355 billion, 22% year over year growth 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 margin 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 at $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.
The FY 'twenty, three and 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 flows to 161 billion, which takes into account approximately $55 million of cash interest payments associated with that.
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.
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Our first question today is coming from Mark Murphy from Jpmorgan. Your line is now live.
So thank you very much.
Congrats on the <unk> guidance for the year.
I'm curious if there were any common characteristics across the opportunities that slipped.
For instance, by Geo or by vertical and 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 builds if you were to compare and contrast that in North America versus Europe today.
Hi.
Sure Hi, Mark.
I would not call. It one particular area, where their byproduct core radio in terms of the deal set push in Q1.
We mentioned it included central about where larger opportunities.
Each of these pushes 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 uncertain and we could continue to monitor it but we had solid results across regions in Q1, including several international markets.
Thank you next question today is coming from <unk> <unk> from Goldman Sachs. Your line is now live.
Thank you so much for the clarity Aneel and Jonathan a question for you.
What are the tactics that you're pursuing.
To weather through this potential.
People call it a downturn, maybe you call it something different.
TTM.
Investments hiring how are the tactics changing it I guess a question for China on the deal front. What are you hearing from customers as to what Theyre looking for in order to get clarity. So they could go forward.
Both of these deals with Barclays. Thank you so much.
Well you know in terms of tactics tripling.
Oh it is continuing.
We're being smart about the way, we hire and probably.
Helping customers with ways to continue there.
Think through.
Value proposition, maybe in a way that we had.
Every downturn you got to think through that.
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 have anything you want to add there.
What I would say in terms of what I'm hearing from customers I'm, just coming back from Davos right now may have many CEO conversations there.
Digital transformation investments why aren't they being at the core of those remain various strategic priority.
We're 70 and wanting to have a very close the deals that push some large ones.
We are very confident that theyre going to closing in the <unk>.
Have they are not really macro related reasons at this point in time.
The other facts that I cannot cash is like.
To give suncor, we may we really started strong.
And you know on May <unk> seems to be a very good first month of Q2 for us.
The next question today is coming from Kirk <unk> 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 im just kind of where these just deals that maybe should have been earmarked to close in the back half here to begin with and they just needed more time, but theyre not freaking out about the macro or things have deteriorated in terms of their confidence level in their business and maybe some time to get their cash in or whatever it might be as far as sort of separate yes.
Sort of what youre seeing or seeing from say customers getting concerned because you. Just said there there is still true strategic deals versus maybe 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 the kirch settlement.
There is some uncertainty in the macro spending.
I did that at one point, we can't control, what I was trying to clarify.
Is that some of the.
The large deals that push.
There are no really due to macro for example is C level executive changes the hopping in the last months sinus.
Final dose Directv if Michel make Gary just wanted to review the overall process to feel comfortable particularly through the implementation process as a whole.
So that is the typical ratio.
A couple of deals that really push.
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.
Oh.
Those being done in the second half of the year.
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 mentioned in the call. Some of the deal delays that youre 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 is the back to the base selling motion and some of the additional product that you've brought into the portfolio is that something.
Do 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 feel confident with our Celsis strategy and go to market strategy actually hopping at the onset of Covid we are.
Yesterday to those motions that we felt that were stronger.
Example, customer base.
On both medium enterprise and suddenly there's 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 now live.
Great. Thank you so much and apologize for the background noise I'm just curious in airport following on the last question.
Do 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 to what extent it might actually create a challenge.
If the backdrop is to deteriorate thinking that there's perhaps a limit to how much product.
Customer base can absorb is there any reason that we shouldnt think that with additional product that you guys keep innovating and in some cases requiring that theres opportunity.
Linda perhaps even in the ability to sell back into the base.
I would say from a product perspective.
So 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 is no.
Not really see any constraint on the market size.
Opportunity, John if you want to add anything to that.
I believe what would you said that Neal I think our solutions are incredibly important banking, enabling our customers to approach their business, we thought you lithium stability.
I believe that our slot as we're bringing value and they've seen the value because they remained very happy we have a huge opportunity in our customer base that we have been quantified on our last analyst day, I mean, yes increase because there is so much innovation that is coming through.
Thank you. Our next question is coming from Brad Sills from Bank of America. Your line is now live.
Oh, great. Thanks, guys for taking my question.
Wanted to ask about planning, 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 what's going on there or is this just progress that you've made recently with integrating planning to core fins.
What's behind the strength in planning thank you.
I would say at a product level the product does continue to get better and now works across multiple use cases, not just financial planning, but workforce 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 replanting in almost.
Motive continuous planning and that puts a lot of pressure in the legacy tools and I think our products are really well suited for this environment of.
Engineered plan every every few months, maybe even sooner to reflect whats 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.
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.
Maybe things taking longer is the pipeline commentary more geared towards what youre seeing or hearing out of the macro and have you recalibrated your.
Your kind of thoughts around the year based on that.
Shadow.
Yes, hi.
Hi, Alex we commented or I said that.
We didn't see any particular difference in terms of product will resume in terms of the deals that push in Q1. All we said is that there were a couple of large opportunities.
We said in terms of the pipeline is 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 base that it gave us confidence to deliver on the goals that we do have four.
But when you see.
Thank you. Our next question is coming from Keith Weiss from Morgan Stanley . Your line is that right.
Excellent. Thank you guys for taking the question.
Maybe taking the other side of the income statement Youre talking a little bit about margins.
Operating margins in Q1, where we are 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 not why not sort of push 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 as you can hear we're all very nervous about the economy were are very nervous about the durability of growth how nimble can you guys.
B 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 margin perspective in in Q1. The over performance. We saw there was really around the timing of certain expenses and those 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 of levers hiring is always going to be a lever for us we continue to hire but 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.
To provide us with an opportunity to really leverage our brand our strategic positioning and our model.
Thank you. Our next question is coming from Scott Berg from Needham <unk> Company. Your line is now live.
Hi, everyone. Thanks for taking my questions.
I guess, given the environment that youre 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 the positive or maybe less positive.
Hello. Thank you Scott. Thank you Scott for your question as we said we remain very confident on the voluntary opportunity. We are certainly going to be cautiously monitoring the environment. We are confident that well on our sales strategy from a go to market perspective, but we will be fine tuning.
As the situation is evolving as the year is moving on either in terms of the investments that are required for items in terms of balancing investments from one area of weakness to any area that we may proceed we have more sustained energy given the decent environment.
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 more than HR system eventually.
Yeah.
Christian in China.
If you look if the commentary is it macro related then you kind of how to kind of odd quarter in terms of Seo to 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 root cause analysis Youre learning from from what happened this quarter and does it kind of also maybe trigger for you like an approach to kind of breakdown deals into smaller sizes.
Got it more by product by product et cetera anything.
Great question, Ryan Thank you for for becoming a customer. Thank you for the partnership.
And then finally the deals are because those C level executive changes there is no much we can do about it in terms of anticipate these final dose. We certainly are here to partner with our customers on a long term basis, and we want to ensure that they have the confident that new executives in turn so the overall implementations on the bromine plant.
And that's what we're doing today with the with the cycles in terms of our ability to split or break those deals into us more of one with.
We filled in with some of these the value of this Lucy only really when it 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.
The ability to having more of the components that will a.
A better and better outcome overall in terms of the business out there.
Okay.
Thank you next question is coming from Brent Thill from Jefferies. Your line is now live.
Thanks.
You're 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 can argue that.
Bush beyond from what you can tell right now.
So we this is not our first.
Our first rodeo through a downturn.
And go back to.
No David I, whether a lot of storms and people soft channels, whether a lot of storms.
As long as you have the right value proposition.
The storm in OE dollars, 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.
So we will we will.
Figure out a way that our products are not.
Are not choices I mean, you you have to have world class.
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 on Ian Greg.
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 is that these transformation projects remain a strategic priority and we 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 before that this isn't your first rodeo and 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.
How does that unfold in terms of them getting back on track getting on schedule how quickly does it typically take.
For this kind of short term dislocation to ameliorate.
Well I would say the first thing is just.
Q1, so there's no forcing function to close deals on a customer's behalf for Q1.
We will 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 the Covid environment. It took one or two quarters before people got their arms around that environment and then they kind of went back to business.
Suspect the same thing will happen here, it's going to take a little bit of time for companies to get their arms around.
The new environment.
And.
And they'll then they'll get back to business and I frankly think this this new environment is not going to be as.
Dramatic as Covid was that at least from my perspective was a lot more challenging.
Hello, you want to add anything.
Our site.
Thank you we have time for two more questions. Our next question is coming from Mark <unk> from Bernstein Research. Your line is now live.
Thank you very much I appreciate it.
Take some time.
My question.
To ask on other macro issues, specifically are you seeing any impact or has any effect on the results reported results from FX are you seeing any issues either in pressure on salaries or ability.
To 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, yes, I would actually be stronger on the second part which is.
<unk>.
Uh huh.
The funding environment for startups or.
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.
We have this boomerang program, where we're actually recruiting people.
You 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 Matt Pfau from William Blair. Your line is now live.
Okay, great to follow up on that commentary around the startups in the funding environment Trian up how are you feeling about potentially making some acquisitions with valuations coming in there specifically been a lot of funding over the past two years and the HR software space anything Thats interesting out there for you to.
Plug it into your platform. Thanks.
A lot of things that are interesting, but I can't really.
Can't really talk about our M&A strategy in detail, let's 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 massive transformational acquisitions.
Bet the ranch, that's not that's not who we are so when you look at the last couple of years, whether it's <unk> or pecan or adaptive to extent, we can find those kinds of situations or scout, we will continue to pursue those.
And maybe in this environment there are more.
Cost effective acquisitions.
But we're not we're not looking at.
Some of the bigger ones that you've got.
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.