Workday Inc (WDAY) 2019 Q1 法說會逐字稿

Welcome to Workday's First Quarter Fiscal Year 2019 Earnings Call.

(Operator Instructions) And with that, I will hand it over to Michael Magaro, Vice President of Investor Relations.

Welcome to Workday's First Quarter Fiscal 2019 Earnings Conference Call.

On the call, we have Aneel Bhusri, our CEO; and Robynne Sisco, our Co-President and CFO; and Chano Fernandez, our Co-President.

Following Aneel and Robynne's prepared remarks, we will take questions.

Our press release was issued after the close of market and is posted on our website where this call is being simultaneously webcast.

Statements made on this call include forward-looking statements 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 and documents we file with the Securities and Exchange Commission, including our most recent annual report on Form 10-K, for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements.

In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Workday's performance.

These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.

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

The webcast replay of this call will be available for the next 90 days on our company website under the Investor Relations link.

Also, the Customers page of our website includes a list of selected customers and is updated monthly.

Our second quarter quiet period begins on July 15, 2018.

Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2018.

With that, let me hand it over to Aneel.

Thank you, Michael.

I'd first like to thank everyone for joining our Q1 2019 earnings call.

I'm pleased to report that our first quarter of fiscal year 2019 got us off to a great start for the year.

We continue to see strong demand across our Human Capital Management and Financial Management suites of applications, and we saw solid performance across customer size, geography and industry.

Starting out with Workday HCM.

We had another strong quarter as we continue to lead the market with our true Cloud Platform.

In Q1, we added Inter IKEA Services, [Meijer] Great Lakes, Tyson Shared Services, Unisys Corporation and a Fortune 100 pharmaceutical company among the many new HCM customers in the quarter.

Our proven ability to support our customers' large volumes of data and transactions continues to be a big differentiator in our success.

We now have over 2,200 customers, and our commitment to their success is demonstrated by our industry leading 98% customer satisfaction rate and referenceability.

Notable go lives in Q1 included 21st Century Fox, F. Hoffmann-La Roche Ltd., Ingram Micro and PricewaterhouseCoopers to name a few.

Turning to Workday Financial Management.

We continue to expand the depth and breadth of our cloud-based finance system, and in combination with Workday Prism Analytics, Workday Benchmarking and Workday Planning, we are delivering a global solution that is essential for empowering business leaders.

We saw continued momentum for our suite of applications in Q1 with new Workday Financial Management customers, including Sprouts Farmers Market, Rivera and RaceTrac Petroleum, one of the largest private companies in the U.S. We believe these wins, when combined with our momentum from fiscal 2018, demonstrate the growing traction of our Financial Management applications across medium and large companies.

In fact, Gartner published its May 2018 Magic Quadrant for cloud core financial management suites for midsize, large and global enterprises, and once again, Gartner acknowledged Workday as a leader for cloud core financial management applications.

This year, we are proud of being recognized by Gartner and achieving the furthest overall position for completeness of vision.

As always, our key focus is bringing customers' lives successfully.

Among the many go lives of Q1, I would like to highlight Aon, who became an HCM customer in 2013 and since that time has added additional products, including Workday Financial Management.

Aon is now live on Financial Management in 28 countries, including Australia, Canada, Mexico, New Zealand and the U.S. A special kudos to their great effort and progress with their global deployments.

I'd now like to spend a few minutes talking about innovation.

As you know, innovation is a core value and part of our DNA at Workday.

First, I'm pleased to share that Forbes recently named Workday #2 on its list of the world's 100 Most Innovative Companies.

It's an honor to be recognized by Forbes and a testament to our customer-driven innovation.

In Q1, I'm pleased to announce that in just 3 hours, we moved all customers to Workday 30.

With this release, we expanded our global foundation and industry-specific capabilities in Workday Financial Management and delivered a set of new employee experience features in Workday HCM.

We also delivered against the road maps for Workday Prism Analytics by introducing data discovery capabilities.

In addition, we introduced the first Financials benchmarks and expanded our HR benchmarks through our Data-as-a-Service offering.

We continue to deliver against our unique vision of bringing planning, transactions and analytics into one unified cloud system.

As we look forward to the rest of fiscal year '19 and beyond, we will continue our relentless focus on innovation and expect to see continued momentum from our growing family of applications.

Switching to the people front.

As you all know, we believe a key part of our success continues to be our vibrant company culture, which allows us to maintain high levels of employee satisfaction and greatly helps us attract and retain talent across all levels of the company.

And we believe this investment in our people continues to pay off.

We are once again recognized globally as one of the best workplaces by Great Place to Work Institute, ranking #1 in the U.K.; #2 in Ireland, our largest office outside the U.S.; and #3 in Germany.

A very special thank you to our employees who make these rankings possible.

We are very proud that even as we maintain our very fast pace of employee growth around the world, our company culture remains strong.

All in all, this quarter was a strong start to our fiscal year.

I will now turn it over to Co-President and CFO, Robynne Sisco.

Over to you, Robynne.

Thanks, Aneel, and good afternoon, everyone.

As Aneel mentioned, we continue to execute well against our long-term market opportunity, differentiating ourselves through our technology and uniquely purposed customer success model.

We are very pleased with our first quarter results delivering total revenue of $619 million, reflecting year-over-year growth of 29%.

Our subscription revenue was $522 million, up 31%.

Subscription revenue outperformance was primarily driven by solid net new ACV growth against a difficult comparison a year ago.

Professional Services revenue came in at $96.5 million, representing growth of 20%.

We continue to see strong performance outside the U.S. with total revenue up 43% to $139 million, representing 22% of total revenue.

Subscription revenue backlog was $5.2 billion, growth of 31%, also against a very difficult comparison period a year ago.

Consistent with prior quarters, approximately 2/3 of the subscription revenue backlog balance will be recognized over the next 2 years.

Our non-GAAP operating profit for the first quarter was $81 million, resulting in a non-GAAP operating margin of 13.1%.

The strength reflects strong top line growth, record gross margins and the benefit of overall spend being slightly lower than expected.

We did not see any material impact from FX changes within the quarter.

We achieved record high cash flow from operations of $184 million in Q1.

Our trailing 12 months operating cash flow was also a record high at $470 million, up 28% year-over-year.

Our trailing 12-month free cash flow was $310 million, up 24% year-over-year.

Note that in calculating our trailing 12 months free cash flow, we have excluded $135 million related to our owned real estate projects as we consider these investments nonrecurring in nature.

As always, our cash flow results can vary with the timing of customer invoicing as well as seasonal and varying spending patterns.

Moving to the balance sheet.

Total unearned revenue at the end of Q1 grew 18% year-over-year to over $1.4 billion.

As expected, current unearned revenue grew 22% to $1.32 billion, which was in line with the low 20s growth we discussed in our Q4 call.

The corresponding sequential decline in current unearned revenue from Q4 was the expected result of our compounding seasonality as Q1 continues to represent the smallest portion of our annual net new ACV.

Non-current unearned revenue was down 21% year-over-year, consistent with the trend that started last year as we continue to see fewer customers electing to pay more than 1 year of ACV upfront.

We continued to invest in our people and in attracting top talent to Workday.

During Q1, we successfully added and integrated approximately 360 net new employees to Workday, bringing our total workforce at the end of the quarter to almost 8,600.

Operationally, we executed exceptionally well in the first quarter, delivering overperformance on both the top and bottom line.

We're extremely pleased with our results and have gotten off to a great start for fiscal 2019.

I'll now turn to guidance.

Our focus remains centered on driving strong sustainable growth, and we will continue to prioritize both new customer acquisitions and long-term contract economics, which will likely result in continued quarter-to-quarter variability in some of our business metrics, but which will serve us well in the long run.

Based on our outperformance in Q1 but keeping in mind we still have difficult first half comps from last year, we are raising our fiscal 2019 outlook and providing Q2 guidance as follows.

For subscription revenue, we're raising our full year estimate to be in the range of $2.275 billion to $2.290 billion.

We expect our Q2 subscription revenue to be $557 million to $559 million or 28% to 29% growth with sequential improvement in Q3 and Q4 of approximately 4.5% and 6.5%, respectively.

Similar to last year, this pattern reflects our increasing seasonal trends towards larger Q4s.

We still expect professional services revenue to be approximately $405 million in fiscal 2019 as we continue to prioritize driving the highest levels of customer success above professional services revenue expansion.

For Q2, we expect services revenue of $104 million.

For non-GAAP operating margins, we now estimate Q2 to be in the range of 9% to 10%, and we still anticipate 12% margins for the full year as we prioritize continued investment in our growing business over margin outperformance.

The sequential decline in non-GAAP operating margin from Q1 reflects typical seasonality and is primarily a result of our annual employee compensation cycle, which took effect at the beginning of Q2.

The GAAP operating margin is expected to be lower than the non-GAAP margin by approximately 24 percentage points in each remaining quarter and for the entire fiscal year.

We still expect short-term unearned to follow the pattern we laid out on our Q4 call.

We also still expect strong operating cash flow growth of 30% for the year.

As reminder, Q2 traditionally generates limited operating cash flows.

This is due to the combination of seasonally low collections and the seasonally high sequential increase in expenses, resulting from our annual employee compensation cycle mentioned earlier.

There is no change to our fiscal 2019 plans for capital expense for our development center project or other CapEx provided on our last call.

And finally, I'll close by thanking our amazing customers, partners and employees for their continued support and hard work.

We are still in the early stages of executing against our long-term vision as a company, but our progress wouldn't be possible without a shared goal.

We're off to a great start and look forward to updating you on our progress throughout the year.

Operator, let's begin the Q&A process.

(Operator Instructions) Your first question comes from the line of Justin Furby with William Blair & Company.

I guess just 2 quick ones.

Maybe first for Robynne.

I think, at the end there, you just reiterated your current deferred guidance, which I think is high 20s for Q2.

Can you just remind us why that steps up so much from what you just printed in Q1?

And then I've got a quick follow-up for Aneel.

Yes, Justin.

So we actually said mid-20s for Q2, and the reason it steps up is we do get a slight tailwind in Q2 from some of the contracts that we entered into a few years ago that have step-up payments.

So that's the primary driver there.

And then, Aneel, I guess, it seems like from the guidance you guys are sort of implying that subscription revenue growth, at least if you look at the balance on the year, is pretty stable from what you just printed in Q1.

And I'm just wondering is that a reflection of Financials and some of these emerging products or sort of at a point where they're offsetting any potential slowdown in HCM.

Or what gives you confidence around that stabilizing subscription growth?

I think we have a lot of growth factors, Financials (inaudible) percent again year-on-year, and it continues to be now a fairly healthy and becoming a more sizable business.

And we're seeing good uptake on Prism Analytics and Planning.

And I'm very optimistic probably not for the rest of this year, but I'm very optimistic about the Workday Cloud Platform going into next year.

The demand continues to grow.

We're beginning to do the pricing and packaging, and I suspect it has the ability to just be another booster for us going forward.

So just a lot of fires, a lot of irons in the fire in terms of continued growth.

And then I'd say the last piece is the HCM business continues to be healthy, and in particular, we are doing quite well outside the U.S. where the markets are probably 2 or 3 years behind or maybe even 5 years behind in cloud adoption.

So we're seeing that first wave of big companies moving to the cloud with Workday overseas, and there's a lot more opportunity there.

Your next question comes from the line of Keith Weiss with Morgan Stanley.

Excellent.

One clarification question and then one broader question for perhaps Aneel.

Did I hear right?

On the call, you said that your new ACV you did grow in Q1 because it was sort of a step down in terms of billings for what we saw on Q1 versus what we saw last year.

So we don't have much visibility into what new ACVs looks like, but our back-of-the-envelope math would suggest that's not the case.

But you did say new ACV growth grew in Q1.

And then the broader question, just on sort of how machine learning is starting to impact the product portfolio.

Are you starting to see people pick up some of that functionality, starting to be more of a differentiator or more in use within the product functionality?

And how is that impacting, if at all yet, how people are using the solutions today?

We've had some machine learning capabilities for now multiple years in areas like retention risk and talent scorecard and customer collections.

I'd say the uptake is -- I think there's a lot of hype around machine learning.

We're providing the technology for our customers to use.

They're still getting comfortable with it.

I think the tech vendors are out selling and marketing it probably ahead of where customers are in terms of using it, but it's picking up.

And it's definitely a differentiator because I think many customers have plans to use it in the next 12 to 18 months once they get their data and processes in order, and a big part of that is getting clean data getting -- going forward.

In some cases, they're coming off of systems where they don't have clean data, so it takes a while to up ramp it.

Keith, on your first question, we did see net new ACV growth over Q1 of last year, so we're really pleased with the Q1 performance, particularly on a tough comparable.

If you recall in Q1 last year, we said we had our strongest net new ACV growth in almost a year, so really difficult comp, but we were still able to beat that for this current year.

It's one of the reasons, frankly, that we wanted to give you guys some color around unearned balances in what we were seeing this year, is because we did see, just with existing contracts a lot of variation, so we thought that it was important that we share that with you.

So the results that you're seeing are really due to the variation that we knew coming into the year on existing contracts.

Your next question comes from the line of Ross MacMillan with RBC.

Maybe one for Robynne just to clarify.

You'd helped us last quarter with the unearned balance trend through this year, and I guess, you gave us the view on Q2 after Justin's question.

Can you just remind us what we should expect in Q3 and Q4?

And then, Aneel, I just had maybe one for you on international HCM.

You made some comments on that, and I was just curious, from a competitive standpoint, would love to get your views on how the, call it, 2 big incumbents stack up internationally.

So Ross, on your unearned question, so what we said last quarter was for Q2, mid-20s current unearned growth, which you should take as 25%.

For Q3 and Q4, we said low 20s in current unearned growth, which is about 20% to 22%.

In terms of international HCM, I think I'll offer up a point of view and then ask Chano to jump in.

Over the last several years, the competitive win rates have remained pretty consistent, and we definitely see more of Oracle in the U.S. We see Oracle pretty much -- they're the competitor we see the most.

We see SAP more in Europe than we do -- in other parts than we do in the U.S. And maybe Chano can talk in more detail about what we're seeing competitively.

Yes.

I think you're right, Aneel.

Basically, the opportunity there is fantastic, is absolutely amazing, and we're very pleased with some of the large new customers that we've been winning into international markets.

The win rates remain very strong, a little bit behind the U.S. but is more a question of maturity.

Clearly, as Aneel said, the difference is more that the stronger competitor there is potentially the local one because of the higher installed base.

And as you know, we're just trying to gain this new business, which is really half (inaudible) income and some legacies in place.

But the most mature markets are having similar win rates as the U.S. ones and the ones that we are more starting earlier, we're starting with really flagship customers in those markets, a few points behind as part of the maturity in terms of win ratios but very strong ones.

And your next question comes from the line of Alex Zukin with Piper Jaffray.

Maybe, Robynne, first for you.

When you think about your pipeline and the potential seasonality for '19, does it strike you as any more or less back-end loaded than it has been historically?

And how should we think about the progression of kind of subscription backlog through the year.

And then one -- just a quick follow-up for Aneel on the platform opportunity.

Yes.

Alex, with regard to seasonality, we have seen a trend of more back-end loaded years, and we don't expect that to be any different this year.

It is still early in the year, so we just finished our first quarter.

It's our seasonally lowest first quarter.

So we really need to see how the year unfolds, but we do see that trend overall continuing.

And then with regard to backlog, you'll see somewhat similar trends as last year, flat from Q4 to Q1, which is what we predicted and which did occur, a slight uptick in Q2.

Q3 will be flattish again, and then we'll get a big jump in Q4 due to the seasonal high of that quarter, so fairly consistent with what you saw last year in terms of trending.

Great.

And then, Aneel, you mentioned some ramping excitement around the platform opportunity.

Can you maybe talk about what you're seeing from either your partners or existing customers versus what's driving that enthusiasm?

Well, as much as we're trying to keep it out of the sale cycle, customers are excited about it, and they want to talk about it.

So we are showing our customers and prospects the evolution of the Workday Cloud Platform, where it was a year ago and where it is today, and we made tremendous progress.

I think where it's getting more exciting for me is as we're working through the pricing models, and they're going to be very fair to the customers, probably some combination of access fee and then a usage model, you can see how that scales into a nice business over time.

I also think that there are good partners in our ecosystem.

We've got a great partnership with Salesforce.

There are some companies within the broader ecosystem that, frankly, are burning our compute cycles, and we have somewhat of a free rider problem.

This is not the indirect access issue.

They're burning our computer cycles that we're -- compute cycles that we're paying for.

And in the -- with the Workday Cloud Platform, where we work some of the partnership dynamics, so at least it's a fairer model for us.

As a system of record, we have so many different systems hitting our system, and we just need to make sure that it's in the best interests of Workday, our customers and our shareholders.

Your next question comes from the line of Brent Bracelin with KeyBanc Capital.

Question really around international Financials opportunity with Aon now being live in 28 countries.

Wondering if you could talk a little bit about the Financials opportunity, pipeline activity internationally given Aon now -- is now live in those 28 countries.

Well, Aon was a big milestone for us, to your point, for a complex global financial services company proving out that Workday is a strong platform.

And I think if you talk to the folks at Aon, they're very pleased with both the implementation and now their experience post going live.

The first wave of larger financial services opportunities, I think, will still be in the U.S., U.S.-based multinationals, but we are beginning to see the pipeline emerge in markets that are natural markets like the U.K., like Australia, like Canada, which are more similar to the U.S. And over time, you'll see the large multinationals in the rest of the world emerge as well, but that's the pattern that we're seeing and I very much expect to continue to see over the next 12 to 18 months.

I don't know if you want to add anything, Chano.

No, I think you commented it all.

Yes.

Very helpful.

And then one quick follow-up for Robynne.

Financials business growing north of 50% year-over-year again.

As you think about the pipeline for the rest of the year, do you think the mix between kind of mid-market and larger financial customers will be similar?

Or as you think about growth there, sustainability of growth in Financials, what's that mix between large and mid-market going to look like here based on the pipeline so far?

Yes.

So we're really pleased with what we're seeing in the pipeline in the large enterprise for Financials.

The medium enterprise continues to be a great steady run rate business for us.

I expect the mix to move around a little bit given the number of large deals we get in any given quarter.

But in general, I think it will slowly creep up into the large enterprise over time.

Definitely on the dollar perspective, on the customer account, that really doesn't -- that's not really what drives our model.

So definitely on the dollar side, you'll see it continue to trend more towards large enterprise.

And your next question comes from the line of Adam Holt with MoffettNathanson.

First, a numbers question for Robynne, and then I had a product question for Aneel.

On the numbers question, I just wanted to dig in a little bit to the seasonality of the business.

So understanding that Q1's a small quarter, seasonally weak quarter, et cetera.

You think some of that would get picked up year-on-year and that the billings and bookings numbers were sub-10% by our calcs.

Would you expect triangulating what you said about deferred revenue current and the backlog that bookings will actually accelerate on a year-on-year basis through the year?

It looks like they should, but I want to make sure that's right.

Yes.

I mean, definitely, we have a tougher compare in the first half than in the second half, so we would expect to see that later this year.

Having said that, it's early days, so we'll need to see how the year unfolds.

But I think you're looking at it in the right way.

And Aneel, we've been hearing some good things about Financials in the market -- sorry, the Planning product in the marketplace, both with respect to pulling forward the Financials business but also as a stand-alone.

Are you seeing -- can maybe walk us through in a little bit more detail what you're seeing there?

Are you seeing more of a Trojan horse strategy around Planning plus Financials?

And are you actually starting to see Planning deals outside of the Workday base?

Or are they still largely in the base?

Well, we won't sell Planning stand-alone, at least not at this point in time.

We will sell a subset of Financials with Planning that would include consolidation and reporting.

But really, the predominant model is Planning, either with HR or Planning either with Financials.

And frankly, it's a compelling application in both cases.

On the HR side, we've had very significant uptake and interest on the Workforce Planning side.

And on Financials, it's -- I'd argue Planning is the strategic application now for the CFO's office, and it drives the execution system.

I'd say the 2 strategic pieces are Planning and the analysis piece with Prism Analytics.

And those 2 together have definitely created a lot more interest in the Workday Financials suite.

And I think, let me add, Aneel, in many cases, we are seeing more and more of them together, which is a great opportunity just for the interest of our customers [remain] Planning.

Basically, assumptions was also bringing third-party data from other [systems] in combination of -- so that's basically enhancing the opportunity going forward as we increase our customer base and the opportunity for selling through within them.

And your next question comes from the line of Kash Rangan with Bank of America Merrill Lynch.

Nice top line growth.

Aneel, I was curious to see, as you have the cohort of customers that signed contracts 2 to 3 years back that come up for renewals, what does the prospect for attaching new modules, just Prism Analytics, Planning and Financials, look like?

And how do you -- could that have a materially positive effect in the second half of this year?

Or is it still too early to talk about attach rate of new modules on existing contracts?

Okay.

I'll take a crack at it, and then I'll ask Chano to pipe in as well.

I think just taking a step back, the most important thing to recognize is we now have 2,200 happy customers.

And for really the first time in a concerted way, we're actually looking at selling back to those customers.

And the renewal is just one moment in time to sell back, like it tends to be a good one to add new modules, but Chano has put in place a strong customer base sales team so that we're engaging in more on those new modules rather than just renewal time anytime that they see an opportunity within an existing customer.

Yes.

I would add that you've seen that out of that loyal customer base, we had enjoyed good attach rates on more mature products.

Like it could be on recruiting, payroll and tracking.

We're seeing great growth, very high double-digit growth rates in areas like learning.

They have been out there for quite some time now.

And we're experiencing the same, but it's more earlier days in Planning -- where Planning not so early and clearly high double-digit growth as well and as well in areas like Prism being more newer product.

So we're very excited about the opportunity that lies ahead.

And if you're looking a few, basically, quarters forward, I would expect similar attach rates that we've been enjoying on the other solutions as far as managing to keep the customer focus and satisfaction that we've been doing.

And your next question comes from the line of Brian Schwartz with Oppenheimer.

Quick question for Robynne.

Actually, 2 questions.

One on the gross margin, which hit a record here.

Wondering if you still have room for more efficiency gains from these levels.

And then the second question, I wanted to just follow up.

I think you mentioned in your introductory commentary that you didn't spend all the budget that you're planning for in Q1, and I was wondering if you maybe could just share with us what area of the business that you didn't fully allocate the spend on in the quarter.

Yes.

Brian, so where we came up slightly short on our expenses for the quarter was really in the timing of our hiring.

So we didn't quite hire to plan.

We do plan on catching up.

Our focus is on investing back in the business, not on margin expansion, so it is our goal to actually reinvest any of our top line overperformance and catch up on hiring and other spend.

In terms of gross margin, if you look at subscription gross margin, we think there may be some opportunity there, but we're at pretty high numbers at the 87, which was our mid-term goal.

It will be a little lumpy just based on timing of capital spend and other such things, but we will continue to get total gross margin expansion just as the mix continues to shift more towards subscription versus professional services.

So we do expect continued efficiencies based on the mix shift for sure.

And your next question comes from the line of Kirk Materne with Evercore ISI.

Apologies for the background noise.

But Aneel, I was curious on the Financials side if there any verticals that you guys are -- I know you guys have a targeted approach to a slight number of verticals.

I was wondering, when you look at your pipeline, some of the enthusiasm from customers, if there are any verticals that are standing out to right now.

And maybe just start there.

Sure.

Not really much of a change there.

I think anytime we put a vertical focus on selling, we tend to do well usually because we always back it up with product.

So health care continues to do well for us.

Financial services continues to do well.

Our first industry foray was a public sector with higher ed and state and local government.

We had a series of very nice higher ed wins that we weren't allowed to disclose by name, but they were prominent universities choosing our Financials.

And the last area of technology, I think with changes like 606 and other accounting changes, it just creates an impetus for people to look at changing their systems.

So really, it's the world outside of manufacturing and supply chain, the services-based economies.

They're all, at some point, going to be upgrading their financial system, and I think we're a good fit for those services-based companies.

And if I could just ask one quick follow-up.

Just when you look at the macro environment right now, which seems very healthy, has that changed the thought process at all from CFOs and executives around how fast they might want to move around taking financials to the cloud?

Or is it still sort of very -- sort of methodical approach to it from your point of view and no real change because of how the economy is doing broadly?

I'd love to say that we're big enough that we can look at the data and see economic trends.

And frankly, I just don't think we're there yet.

It's still -- we're still driven by some big wins in a given quarter.

I think, frankly, what's driving CFOs is more a focus on operational efficiency first and where the legacy systems are falling down, but more importantly now, moving towards analysis and prediction as to try to get ahead of the curve with these faster and faster business cycles.

And they're a conservative bunch to be sure, and I think they have been more cautious than the HR or the sales worlds.

But they're coming around.

And I think what people are realizing is that, look, if you're on the legacy system, those systems are not changing.

The vendors that sell those legacy systems aren't adding new capabilities there.

So those systems are falling behind, and at some point, you don't have a choice.

And I think that's really what's changed the mindset of CFOs.

It's now a matter of when, not if.

And so they're looking for the capabilities that would give them business advantage rather than just updating the platform technology wise.

And that's why Planning and Prism Analytics have been so powerful for us.

I don't really see it as then -- that has not come up in any of the sales cycles that's been tied to the economy.

Frankly, we did quite well during '08, '09 because we were viewed as a way to save money, and so that -- so I haven't -- didn't see it -- we didn't grow as fast, but we still grew healthy during that economic downturn.

So I'm not sure that we're super tied to macro cycles.

Your next question comes from the line of Mark Marcon at R. W. Baird.

Basically, I have 2 questions.

One would be with regards to Financials.

Just coming off of the last comment that you've just made in terms of the CFO attitudes, where would you say we are with regards to kind of the trajectory of your Financials relative to HCM a few years ago?

Do you think we are where we were 4 or 5 years ago as it relates to HCM when we're just looking at the trajectory of the Financial subscription, particularly with Aon having good success?

It's hard to unpack it because we're a much larger company now as well, so we have a much larger sales force.

But if I were to guess looking at all the data in terms of adoption rates, I think we're probably 5 years behind where HR was in terms of adoption and maybe even a year or 2 later.

So when I go back to 5 years -- 5, 6 years ago, cloud HR amongst large companies was beginning to take off.

We had our first big customer, was Flextronics in 2008.

By 2011, 2012, it was becoming more mainstream, and that's the time we went public in 2012.

It feels about that in terms of the number of companies coming to market and the pace of growth of the pipeline, which bodes well.

I've been saying about 4 or 5 years behind the last couple of years, but the data has moved around quarter-to-quarter.

I think now we've got trend lines that say it's probably 5 years behind and maybe slightly further behind outside the U.S., but it's growing nicely.

And now it's the consistent businesses, which is a big change in the last couple of years.

And that sounds like it bodes really well in terms of like the seriousness of some of the proposals that are out there as it relates to the fourth quarter and basically, the selling cycle for this year.

I believe so.

It's still early.

It's Q1.

Q1 on both HCM and Financials is rarely a quarter where you see the big Fortune 500 accounts close.

We always (inaudible)...

No, I'm not talking about closing.

I'm talking about the seriousness of the discussions in advance of that.

Yes -- no, and I totally agree with you that the thing is we won't know if they were truly serious until the fourth quarter on some of these big ones.

But I think they are.

And the way that the pattern of the fourth quarter last year worked, those ended up being serious discussions, and we had a wave of big companies join us.

And don't I think -- I think, if anything, it's going to be better this year.

That's great.

And then just with regards to HCM internationally, can you just talk a little bit about how you would size that relative to the U.S and if there's anything that we should take into account with regards to differences in terms of margins that we should expect?

The only data point I have is from a previous life at PeopleSoft, where PeopleSoft was not as global as SAP in that mid- to late 90s time frame.

I think it was 60-40 U.S. versus rest of the world on the HR side.

I think it's reasonable to see us at 50-50 at some point in the not-so-distant future on the HR side, and we're not anywhere close to that right now.

I don't know, Chano, you want to add anything to that.

I think you're right on that assumption.

That would be my expectation a few years from now.

We are still opening, as you saw, quite significant markets.

Like markets like Italy, we just really enter this year.

I mean, we clearly have kind of on excess of 300 already multinationals present there but really going into the market and making investments, we have just done a couple of months ago.

So that tells you that they are still key markets where we are still early, and clearly, that lies a great opportunity ahead.

We are looking in terms of pipeline today and growth and in terms of large, basically, customers and flagship companies talking to us is quite exciting and quite engaging and support a very growth, basically, factor going forward.

And your last question comes from the line of Brad Reback with Stifel.

I'm not sure if I missed it.

Did you guys provide the Financial Management and the Planning customer adds in the quarter?

No, we did not this time.

Is that something you can provide?

No, I mean, we'll announce when we have significant milestones on that front, but we don't intend to provide it at this time.

Okay.

And then, Robynne, on the headcount side, I think you grew about 25%, which is a little faster than any quarter last year.

Was that meaningful -- meaningfully below plan or just modestly below plan?

It was modestly below plan.

We actually came into Q1 with a really good pipeline of candidates, really good momentum on the growth, so it was slightly below.

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

You may now disconnect, and have a great day.