Workday Inc (WDAY) 2016 Q1 法說會逐字稿

Welcome to Workday's first-quarter earnings call.

(Operator Instructions)

With that, I will hand it over to Mike Haase.

Welcome to Workday's first-quarter FY16 earnings conference call.

On the call we have Aneel Bhusri, our CEO; and Mark Peek, our CFO.

Following their 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.

Statements made on this call includes forward-looking statements, such as those with the words will, believe, expect, anticipate and similar phrases that denote future expectation or intent regarding our financial results, applications, customer demand, operations and other matters.

These statements are subject to risks, uncertainties and assumptions.

Please refer to the press release and the risk factors in documents filed with the Securities and Exchange Commission, including our most recent annual report on Form 10-K for information on risks and uncertainties 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.

These non-GAAP financial measures, which are used as measures of Workday's performance, should be considered in addition to, and not as a substitute for or in isolation from, GAAP results.

Our non-GAAP measures exclude the effect on our GAAP results are share-based compensation, employer payroll tax-related items on employee stock transitions, amortizations of acquisition-related intangible assets and debt discount and issuance costs associated with our convertible notes.

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

Also, the customer's page of our website includes a list of selected customers and is updated at the beginning of each month.

The webcast replay of this call will be available for the next 45 days on our Company website under the Investor Relations link.

Our second-quarter quiet period begins at the close of business July 17, 2015.

Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our FY15.

With that, let me hand it over to Aneel.

Thank you, Mike.

Thanks to many of you for joining our Analyst Day last month.

I hope you took away from that day two things.

First is that we really see the world through the lens of the consumer Internet.

This is where the innovation is happening now.

And second, now that the cloud is the standard, it's time to look beyond just the platform.

Businesses that are looking to grow, it is absolutely critical that data and transactions are together in one single application in the cloud.

Workday was built this way on a clean sheet of paper 10 years ago.

Our customers can take action from within the system and can make real business decisions in a moment.

Only Workday customers can do this.

In the first quarter we took decision-making to new levels with the delivery of our first inside application, Workday Talent Insights.

Workday Insight apps apply data science and machine learning methods to help customers make smarter financial and people management decisions.

With Workday Talent Insights customers can confidently tackle talent-related challenges, such as identifying a top performer at risk of leaving the company, or pinpointing issues with hiring initiatives that could impact business performance.

Companies that use this can gain a competitive advantage on talent.

We also delivered Workday Professional Services Automation, a capability that allows organizations that manage projects to optimize project performance with one system that delivers insight and analytics on people, revenues, spend and profitability.

And our global payroll cloud continues to grow, both through integrations with our partners and with the delivery of our own applications.

I'm happy to share that Workday Payroll for the United Kingdom is now available, and Workday Payroll for France remains on track to be delivered in calendar year 2016.

All this innovation was delivered as part of our most recent release, Workday 24.

Workday Financial Management continues to see great customer adoption, and we expect this trend to continue.

Just in the last few weeks Gartner published new research on core financial management applications, and in this report Workday received the top scores for overall satisfaction with vendors and products, and likelihood of using the vendor and its products again.

Workday 24 included significant enhancements to our global foundation.

And we now have financials customers operating on a broad global basis.

Our customers are happy and successful, and our applications occasions continue to expand worldwide.

To say it more directly, Workday Financial Management is now ready for prime time.

We are ready to support the biggest companies in the world.

Moving into customer traction, we welcomed a record number of new customers in the quarter.

In total, we now have more than 925 customers.

Recent new wins included Coca-Cola, Dell and Hitachi.

In April the San Francisco Business Times ranked Workday number one for the largest companies on its annual list of best places to work in the Bay Area.

This was the fourth time we ranked number one on the list, and was the eighth consecutive year we appeared on the list.

Just prior, in March on the day of our 10-year anniversary we were ranked number 22 on Fortune Magazine's 100 Best Companies To Work For list.

These awards are incredibly special to Dave and I, and the entire Workday team.

We believe that if you have a good time at work, than product innovation and customer satisfaction and business success follows.

I'd like to extend huge appreciation to all of our talented workmates.

And finally, as I mentioned, we just had our 10th birthday.

As I think about the business, the first 10 years of our cloud leadership, we're betting the next 10 on the marriage of cloud and data.

And of course, we will continue to take care of our customers.

We are excited about what's ahead.

Mark, over to you.

Thanks Aneel, and good afternoon everyone.

We started FY16 with a strong first quarter, generating record quarterly revenues, record 12-months operating cash flows and generating $50 million in free cash flow over the last 12 months.

We added a record number of new customers during the quarter.

And as Aneel discussed, we are very pleased with the market traction for financials and anticipated continued growth throughout the year.

The attach rate for payroll is very strong, at about 50% of our total customer base and about half of them are live.

Over the past year the attach rate for payroll is even higher with customers with annual contract values greater than $1 million.

In our customer accounts, we do not categorize payroll as a financials application, but in most of our customers the payroll function resides within the finance organization, which increases brand awareness.

We've also seen a high attach rate with our recruiting application and about half of our new customers in recent quarters buying recruiting and over 50 recruiting customers now live.

We have a strong balance sheet, which allows us to invest, with more than $1.9 billion of cash and marketable securities.

And we have $653 million of total unearned revenues.

We're pleased with our first quarter accomplishment and want to thank our employees, our partners and our customers.

I'll now walk you through the financial details.

We're now of $1 billion run rate Company with total revenues for the first quarter of $251 million, an increase of 57% from a year ago.

The vast majority of our sales are currently in US dollars, so there's minimal impact from exchange rates.

As mentioned last quarter, we are offering subscription contracts in six foreign currencies and expect the higher percentage of non-US dollar bookings in FY16 than in prior years.

Subscription revenues for our cloud applications were $201 million, up 63% from last year.

The weighted average duration of new contract signed in our first quarter was four years, up slightly from the prior quarter.

We once again closed several large contracts with longer terms.

Professional services revenues were $50 million, an increase of 38% compared to last year.

Job one continues to be the successful deployment of our cloud applications, whether by our ecosystem partners or us.

Total unearned revenues at quarter end were $653 million, up 3% sequentially and 41% from a year ago.

Over 95% of our unearned revenues are up from subscription fees.

Short-term unearned revenues were $572 million, an increase of 5% sequentially and 47% from last year.

Long-term unearned revenues were $81 million, a decrease of 5% sequentially and up 10% from last year.

Renewal rates continue to be very strong, 100% to be exact, with billings from renewals signed during the quarter at just over 10% of total billings.

Looking ahead to the second quarter of FY16, the strength of our business model and continued momentum provide very good revenue visibility, and we expect a solid quarter.

Total revenues for the second quarter are expected to be within a range of $270 million to $274 million, or growth of 45% to 47% as compared to last year.

Subscription revenues are anticipated to be within a range of $217 million to $219 million, reflecting year-over-year growth of 51% to 52%.

Second-quarter derived billings, or the sum of revenue plus the sequential change in total unearned revenue, are expected to be within a range of $290 million to $295 million.

For the year we anticipate total revenues of approximately $1.125 billion to $1.145 billion, or growth of approximately 43% to 45%.

Subscription revenues are anticipated to be within a range of $906 million to $920 million, reflecting year-over-year growth of 48% to 50%.

Derived billings for the year are anticipated to be within a range of $1.35 billion and $1.365 billion, or just under 60% of total billings expected in the second half of the year.

We had more than 4,100 employees at the end of our first quarter and continue to anticipate ending FY16 with more than 5,000 people.

As a reminder, approximately two-thirds of our total expenses are employee-related.

Let's spend a few minutes on operating expenses and our results of operations.

Unless otherwise noted, all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results within the tables posted on our IR website.

Our first-quarter gross margin was 71.4%, up slightly from the fourth quarter.

The subscription gross margin increase sequentially by about 50 basis points to 85.3%, and includes the costs related to providing our cloud applications, compensation and related expenses for operations staff, and data center networking and depreciation.

We expect subscription revenue to increase is a percentage of total revenue over time, but that our gross margin will likely fluctuate from quarter to quarter.

Professional services gross margin was down slightly from the fourth quarter.

We continue to expect professional services gross margin to be lower in FY16 as compared to the prior year, as we invest in programs to ensure ongoing customer success.

Our first-quarter operating loss was just over $2 million, or a negative 0.8%.

The impact of the strong dollar had a $3.7 million, or 145 basis point favorable impact on our operating loss for the quarter.

Product development expense in the first quarter was $76 million, up 8% sequentially and up 42% from a year ago.

We continue to invest in new solutions, such as Professional Services Automation and Insight applications, as well as strengthening and extending our suite of HR, payroll, and in particular financial management applications.

Sales and marketing expenses were $86 million, up 6% sequentially and up 40% from last year.

The sequential increase was largely due to increased headcount and marketing activities.

We were about 100 people short in our hiring objective to support these areas, and we intend to work hard to make up the shortfall over the next quarter.

General and administrative expense was $19 million, up 6% sequentially and up 41% from last year.

The net loss per share was $0.02 on 187 million weighted average shares.

Given our net loss, all outstanding stock options, warrants and common stock equivalents are anti-dilutive and not included in the loss per share calculations.

Taking into account our adjustments to GAAP operating income that Mike referenced at the start of the call, we currently expect the non-GAAP operating margin for our second quarter and for the full year to be within a range of a negative 2% to a negative 4% of total revenue.

The GAAP operating margins for the second quarter and the full year 2016 are expected to be approximately 24 to 26 percentage points lower than the non-GAAP operating margin.

Other expenses were $1 million for the quarter.

For your modeling, our quarterly non-GAAP interest expense from our convertible notes is approximately $1.6 million.

From a GAAP perspective, the Q2 interest expense including $6.3 million of non-cash amortizations reflecting the discount and issuance cost of the note, is approximately $7.9 million.

The interest payments on the notes are made during our fiscal second and fourth quarters.

Now onto our balance sheet and statements of cash flow.

Cash and marketable securities at quarter end were just over $1.9 billion, up $64 million sequentially.

Operating cash flows were $94 million for the first quarter and $174 million for the trailing 12 months.

Free cash flows were $64 million for the first quarter and $50 million for the trailing 12 months.

It was relatively light CapEx quarter, but we continue to expect spending of $150 million during FY16.

As mentioned before, we acquired a leasehold interest in land in Pleasanton adjacent to our existing office space.

We are actively evaluating our alternatives for this site, but potential development costs are not yet factored into our CapEx guidance.

For the second quarter we expect the operating cash flows for the trailing 12 months ended July 31 to be approximately $160 million.

To summarize, we're very pleased with our solid first quarter.

Looking ahead, we're investing for the long term and see a very large opportunity in front of us.

You should expect us to continue making significant investments in our product development and global market expansion to maximize our long-term growth opportunities.

With that, let's begin the Q&A process.

(Operator Instructions)

Mark Murphy, JPMorgan.

Yes, thank you very much and congratulations on the results.

Aneel, you had commented last month that, I believe you have 13,000 servers today, and you see that growing potentially as high as 70,000 servers in the next three years.

And so I had two questions on that.

First, how different have you found the transactional intensity to be in financials versus in core HCM?

So does that mix of servers over time shift dramatically toward financials due to the processing intensity?

And then secondly, just directionally, what do you think will happen to the MySQL database footprint over time within your infrastructure layer?

Sure, Mark.

That was actually Stan Swete who went through those numbers at the meeting.

So I'd probably defer that question back to Stan.

I can offer up a couple high level comments.

His estimates were based on utilization of roughly around 5%, and with our open stack project and elastic cloud that is well underway, we hope to do quite a bit better than that.

No question that the financials involve a lot more processing, in particular around the analytics.

And the analytics around financials are much higher.

So I think the best thing to do is just to have Stan -- we will get Stan to get back to you on a more specific answers to those questions.

Heather Bellini, Goldman Sachs.

Great, thank you.

Aneel, I wanted to go back to the comment you said about -- talking about payroll and the success you have had there thus far.

Given it resides in people's financials, when they think about financials.

Who are you displacing for payroll?

And as you get your foot in the door, what are you seeing about how the adoption of this offering is helping you expand into more financial RFPs?

If there's anything you could share with us that you noticed over the last year or so.

That's a great question.

I don't know the exact percentages, but quite a few times we see payroll as part of the finance organization.

We displace the same legacy systems that we do for HR in finance, SAP, PeopleSoft, Oracle.

Probably in the order of PeopleSoft /Oracle then SAP.

When you get to the midmarket, we displace ADP.

And in those cases the customer is usually bringing some payroll operations back in-house.

It's really the same cast of characters with the addition of ADP as it is for the HCM world.

In terms of opening the door to financials, absolutely it does.

To date we've done minimal marketing to our customer base, something that we will greatly increase over the next few quarters.

We wanted to market to them in the right way, and at a time we felt that the products were ready for them.

And so going through the payroll and HR lens and into our customer base is a great way to sell financials.

Great, thank you.

Walter Pritchard, Citi.

Hi.

Mark, you've typically given us some updates around material milestones in financials.

And if you're at 100 was the last one.

Should we expect to hear -- I'm trying to understand what the milestone should be that we hear, and anything else you can offer up to help us understand some of the traction that you are seeing there?

It sounds like you are excited about from the [call -- today's] comments on the call.

Sure, Walter.

At the Analyst Day in mid-April we talked about 135 financials customers.

And so you should expect to hear from us when we hit 1000 total customers and then some other milestone in financials.

And we'll probably let you know how many financial customers we have when we hit 1000 total customers.

I think the next milestone would be 100 live financial customers as one that we would like to highlight.

Yes.

Okay, great.

Thanks.

(Multiple speakers) We're making great progress towards that every day.

Karl Keirstead, Deutsche Bank.

Thank you.

Aneel, Workday is now large enough that single deals don't move the needle too much, but a quick check on Google suggests that combined headcount of Coca-Cola, Dell and Hitachi might be over 0.5 million.

So those are big, big clients.

And I just wanted to ask you, did they all drop in the April quarter?

Was that the quarter when those deals were signed?

And is Workday taking over the entirety of the ATM needs for those entities?

I know maybe you are guarded in terms of how much you can disclose about single deals, but any color might be helpful given how large those organizations are.

Thank you.

I believe we're taking over all of the core HR functions.

I'm not sure about payroll for all those companies.

We don't have payroll products in all the markets, so we'll have to get back to you on that.

But it's for their entire populations as it relates to HR.

And in terms of the quarter, Mark?

They all were deals that were signed inside this quarter.

Okay, great.

Congrats on those deals.

Raimo Lenschow, Barclays.

Thanks for taking my question.

Question for Mark.

Mark, the operating cash flow this quarter was very good.

Can you talk a little bit about the drivers here and how you think about cash for the rest of the year?

Thank you

Sure.

The biggest driver, of course, for cash flow in Q1 was the large accounts receivable balance that we had at the end of the fourth quarter based on the seasonality of the fourth quarter.

We've been at this stage where we have been operating cash flow breakeven and driving free cash flow, and over the last trailing 12 months is now $50 million of free cash flow.

When you look ahead to the second quarter, we expect there to be a seasonal decline.

We guided $160 million on a trailing 12-month basis, which is actually on a trailing 12 also a decline.

And that's largely due to the fact that in Q1 of this year our billings as compared to Q4 were down sequentially whereas a year ago they were actually up sequentially.

But we expect strong cash flow characteristics.

So it's just the nature of our business, particularly as we get more and more maturity into the renewal cycle.

Thank you.

Brent Thill, UBS.

Good afternoon.

Question for Aneel and one for Mark.

For Aneel, on the three large deals that you mentioned, are those all HR or is there a component beyond HR that they are taking?

I think specific to those deals, I think several included recruiting.

I will have to check with you on that.

They are all core HR.

And we've seen high attach rates on both payroll and recruiting, but I'll get back to you on the details of that one.

Okay, that's great.

And Mark, just on the billings guide for the year.

When you look at the billings growth last year, obviously you face a tough compare, but the guidance, at least a low end kind of assumes effectively a cut in the growth rate, a pretty material deceleration.

I'm just curious, other than the big comp, is there anything else we should be aware of that may be impacting that billings forecast you gave for FY16?

It's a combination of factors.

The first is that the large deals, although they are becoming a more routine for us, they still are unpredictable as to which quarter they are going to fall.

And so when we look ahead to the pipeline, particularly ahead to the quarter, we take into account the probability of having some of the larger accounts fall within a given quarter, or within the fiscal year.

We also, as we grow we have largely been a core HR North America to rely on most of our bookings.

This year we have more of an impact from both financials, and particular from Europe.

There is some impact of FX looking ahead on European bookings, since we're now selling in other currencies.

But for the most part, it's -- we feel strong across all of the sectors of the business, and its largely just the result of the numbers keep getting bigger.

Great, thanks.

Brendan Barnicle, Pacific Crest Securities.

Great, thanks so much.

I had two for Aneel.

Aneel, in the past you've talked about moving into vertical markets.

And now that you've got analytics up and ramping, when might we start to see some of those vertical-specific products?

And then second, as you expand out these offerings, when do you have to start to maybe change the go-to-market strategy and reorganize the sales force to reflect the diversity of the products?

Thanks.

As it relates to the vertical, or we call them industry initiatives, we began that a few years ago by first building public sector and education functionality into our HR and financial product lines and then announcing the student system, and we are well along the way in delivering the student system.

For the foreseeable future, you'll see the industry initiatives more in the core HR and financial products.

We announced the availability and capability of professional services automation.

That's an important financials feature for professional services and software into companies, or any company that derives revenue off of projects.

We talked about average daily balance and other financial services capabilities, and that's helping our finance product do very well in financial services.

And we have inventory coming later this year that will open up the doors more broadly for healthcare.

So for the time being beyond the student system, it's really more about billing the industry-specific capabilities for our financial products and opening up the doors in that way.

From a go-to-market perspective we are still aligned by products, but we do now have specialists in the services and sales organization that understand the needs around education and government, finance services, healthcare and a couple other industries that are tying the product back to specific value propositions for the customers.

Justin Furby, William Blair & Company.

Hi, guys.

Thanks.

Couple questions.

First for Mark.

It sounds like you guys had a record number of Q1 signs and some large deals clearly as part of that.

I'm wondering why last year, if you look at the numbers, you added something like $100 million of incremental billings year over year and this year it's something closer to $60 million.

Would seem to imply that deal sizes in aggregate are coming down.

And I guess, is that the right takeaway?

And what drives, if you look at your Q4 versus Q1, do you think you're starting to look more like an enterprise software company with bigger Q4s, weaker Q1s?

And then I have a follow-up for Aneel.

To answer the last part of your question first, we're seeing a much seasonality.

And I think part of it is our presence in the market is becoming stronger and there are just more cycles at the end of the fourth quarter as enterprises spend their budgets and begin to formulate projects so they can start them to begin the new year.

On a year-over-year basis, a year ago we had -- what dominated the call was the fact that we had several large deals that really brought in $15 million to $20 million of additional billings from the second quarter into the first quarter.

So that has some impact.

It was a bit of a tough comp for us in Q1.

Okay.

And then Aneel, you guys talk a lot about the 95%-plus customer retention metric, or customer satisfaction metric.

And it seems like that's really important internally.

I'm just wondering as you now hit a $1 billion run rate, how big of a governor that becomes on your overall growth profile?

And I would love your thoughts on the partner ecosystem as well, and whether you think they are big enough or if you have to start adding net new partners into the mix?

Our partner system -- our partner ecosystem is definitely big enough, but like us they have to keep up with the hiring to meet the demand from the customers and it's something we monitor pretty carefully.

But we've got several large partners all investing heavily in Workday.

Deloitte, Accenture, IBM, Aon Hewitt, Price Waterhouse, KPMG all the big shops are making big investments in Workday.

They are beginning to do it outside of North America as well.

So we see the investment there, and you see the percent of the Workday work in the ecosystem continues to trend favorably downwards.

They all have hiring to do, and it's a tough market to hire fast in.

Okay, great.

Thank you

Rick Sherlund, Nomura.

Thanks.

Two questions.

First, are there any pressure with these big contracts to defer billings?

If it takes a year or two to roll the system out and they are paying for it upfront, is there any pressure to kind of change the terms that might affect your billings?

Second, Aneel, I've heard you talk about the value proposition of the software being the predictive capabilities because of in-memory.

I'm just curious after analytics, if there are products that you can monetize that you would anticipate going forward, maybe financial planning, but there could be a lot of real-time systems that we might consider being incremental in the future in separate products?

Okay, I can take the first part of the question, Rick.

Certainly the larger the customer, and also the larger the relationship where perhaps they are taking on some additional functionality, we're willing to work on the billing terms.

But for the most part, and on average, we are on a dollar-weighted average we're still billing one year of ACV upfront.

So it doesn't have a significant impact on the model.

But from time to time we'll work with customers in special circumstances.

And it's also reflected in the other terms and conditions of the contract.

I would just add that we don't get a ton of that sort of pressure from commercial organizations.

We get a lot more of it from state and local companies that are trying to fit things in fiscal budgets.

And it's working with them to jump through hoops to get through their budget approval cycles, which are different than commercial organizations.

As it relates to the in-memory analytic capability, for the time being the real focus will continue to be on these inside applications.

We've announced -- or we've delivered the first one, Talent Insights.

We're planning on delivering several more for the rest of the year.

But I would hope within two to three years we've got 30 to 40 of these applications, beginning with the cross-industry coverage of HR and finance applications, but then moving into industry-specific analytic solutions as well.

And what we see from our customers is great interest in learning more and beginning to subscribe for these new offerings.

There's a lot of work for us to do just on these inside apps to build a full portfolio of it before we think about applications outside of that framework.

Ross MacMillan, RBC Capital Markets.

Thanks very much.

One for Mark and one for Aneel.

So Mark, I think we're all trying to go back to the billings number and think about your comment about 100% renewing billings and then think about last year's incremental net new and this year's incremental net new.

And I guess one thing we haven't talked about is pricing on deals.

I'd be curious to get a sense for your comments around pricing on either new business or renewing business.

And then Aneel, I was just curious when you think about the progress with financials, are there any incremental capitalists that you see over the next 6 to 12 month that could really spur adoption, whether it's inside apps or anything else that you see in the product pipeline that could really create a catalyst for adoption?

Thanks.

Yes I'll start with pricing and tackle renewals first.

Our renewals rhythm is still at the very early stages.

And so it's not yet material part of the overall billings model.

That's said, for the last several quarters it's been over 10% of billings.

What we are seeing is that, A, customers renew.

B, they tend to renew at rates that are ahead of the original rates from their original contract.

And C, it's an interesting time for them to consider additional products.

And we're finding that we can add payroll or add recruiting during that time horizon.

But again it's early stages of the renewals market for us because for most of our history we were taking three- to five-year long contracts.

On the new business, we've maintained relatively good discounting discipline.

And the overall aggregate discounts really haven't moved much in the last year-plus.

We face competitive pressure on pricing, but our customers see the value proposition in actually being the vendor that can deliver a product and a service.

And on the second part, I think in some ways we've been our own worst enemy.

We're very careful about announcing products and making sure that they truly are ready for the customer environment, something our competitors don't always do.

We really want to make sure that if a customer subscribes to the Workday financial products that it will work and they will be happy and referenceable.

And we feel like we have reached that milestone.

We talked about being 15 to 18 months away at the time of the IPO.

We're now a little bit over two years past the IPO.

Workday 24 really feels like a seminal release for us in many ways, functionality and scalability-wise.

So what we need to do now is just to kick start the pipeline building engine.

And I think the activities that we can do to drive that are marketing towards our very happy customer base of over 900 HR customers, doing some pretty aggressive ad campaigns and awareness campaigns.

It doesn't have -- the product line doesn't have the awareness or anywhere near the awareness of the HR product line, so we have some work to do there.

So those are a couple things we can do to kick start the pipeline building.

I will say that we have several Fortune 250 accounts that are in various stages in the pipeline right now.

And having been part of those conversations, our current product and the roadmap over the next 12 months holds up very well for getting these companies live in the timeframe that they are looking, and leaving one of the legacy finance systems.

So our belief that the financials are ready for prime time is being proven out in the market.

And we'll see the success over the next few quarters as some of these big deals begin to turn from pipeline into reality.

Thank you.

Jason Maynard, Wells Fargo.

Hey, guys.

Good afternoon.

I actually had two question.

One, Aneel, was drilling down onto your prime time comment for the financials.

With this new added capability in the maturation, how would you sort of describe the sweet-spot customer now for this release?

And I know you provided some pretty good detail back at the April Analyst Meeting around this, but if you had to zero in and say okay, we can now tackle this scenario in a real repetitive way that we can build sales motions around that?

Appreciate some color there, and then I have a follow up.

I think for the time being, if the customer is a non-supply chain, non-manufacturing base customer we have a pretty good chance of being able to support them, both from a scale perspective and a functionality perspective, both finance functionality as well as the global foundation.

The global foundation continues to evolve over time, just like it did for HR.

But we feel very confident about that.

And I would hope over the upcoming months to year we would have a vehicle for being able to sell our financials into the manufacturing and supply chain worlds as well.

Maybe the follow-up question, then would be, do you think we're at the point in the cycle where customers buying criteria requires HR and financials to be procured from the same vendor?

Or are customers still making these cloud selections sort of independently, I'm going to look at the entirety of the HR suite and I'm going to look at the financials suite?

And do you see any synergy yet in your cross-selling activity, going back your customer base and saying okay, let's bring financials to the account?

Thanks.

We have definitely seen the trend in the midmarket towards buying a platform, buying HR and finance from the same vendor, and we obviously love that trend.

I would say when you go up-market, I would expect that same trend to continue.

It's still relatively early in the days of selling finance to large-scale companies running in a pure cloud environment.

I think if you were to look at the Fortune 500 data or Fortune 1000 data, my guess is with 135 customers and the number we have live, we're well ahead of our two legacy competitors.

But that just tells you it's still early on.

I sure hope, and I think the market will drive to suites.

There's a natural fit between HR and finance organizationally and in terms of the data that is used, especially for a non- manufacturing company.

Most of the expenses is a people-related expense.

So if the midmarket is any precursor to what's going to happen in large companies, we definitely see a shift towards buying the full platform.

Great.

Thank you.

Operator, we're going to take one more question, please.

Thanks.

John DiFucci, Jefferies.

Thank you.

Thanks for taking my question.

I just have one.

It sounds like you signed several marquee names this quarter, but billings rose certainly moderated and that's where some of the questions are here.

We realize we shouldn't really just be focusing on just quarterly results alone, but in the recent quarter did heated competition play a greater role than it has -- than has been the case previously?

I think, Aneel, you've mentioned some of the almost irrational tactics by Oracle, and then we've heard about some of them in the field, too.

Are we seeing any of that in these results?

I don't think it's any different in terms of their tactics in the first quarter than it has been in previous quarters.

I mean, I would say every quarter is an ebb and a flow.

I would say right now Oracle has their act together better than SAP.

SAP seems to be in a bit of disarray.

So from our mind, that sort of all evens out.

Okay.

Thank you.

Okay, thank you.

We would like to thank you for your participation in today's earnings call.

You may now disconnect, and have a great day.