Workday Inc (WDAY) 2020 Q1 法說會逐字稿

Welcome to Workday's First Quarter Fiscal Year 2020 Earnings Call.

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

Welcome to Workday's First Quarter Fiscal 2020 Earnings Conference Call.

On the call, we have Aneel Bhusri, our CEO; Robynne Sisco, our Co-President and CFO; Chano Fernandez, our Co-President; and Tom Bogan, our Executive Vice President of the Business Planning Unit.

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 filed 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

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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 Customer page of our website includes a list of selected customers and is updated monthly.

Our second quarter quiet period begins on July 15, 2019.

Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2019.

With that, let me hand it over to Aneel.

Thank you, Michael.

I'd first like to thank everyone for joining our Q1 2020 earnings call.

I'm pleased to report that our first quarter fiscal year 2020 got us off to a great start for the year.

We continue to attract new customers, and many of our current customers are growing their investments with us.

Our customer satisfaction rating remains amongst the highest in enterprise software, and the success of our customers is a cornerstone of our long-term business strategy.

Let's start with some of the highlights from Q1, beginning with Workday HCM.

Momentum for this application suite remained strong as organizations continue their transitions to the cloud.

In Q1, we added Carl Zeiss AG, Cisco Systems, Daimler Trucks North America, Old Mutual Limited and Procter & Gamble, 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.

Notable go-lives in Q1 included Enterprise Holdings and Tyson Shared Services.

Turning to Workday Financial Management.

We saw continued momentum in Q1 with over 50% customer and net new ACV growth.

New customers included Advocate Aurora Health Systems and E*TRADE Financial Corporation.

In addition, during the quarter, many existing customers expanded their relationship with Workday.

Legg Mason, for example, a leading investment management firm, expanded their use of Workday Financial Management to include all of their affiliates.

Lastly, we also had a large Fortune 500 scale insurance company add Financial Management to become a full platform customer.

As always, getting customers live and on budget is core to our business.

Amongst the many go-lives of Q1 for financials, I would like to highlight Sprouts Farmer Market and NASDAQ.

Q1 results for our third quarter with the Adaptive Insights Business Planning Cloud and customer demand continues to reinforce our confidence in the long-term opportunity.

We added approximately 150 stand-alone Adaptive deals and, once again, saw success selling into the large enterprise market, with approximately 50 deals representing both Platform sales and Planning add-ons.

New customers selecting Adaptive Insights Business Planning Cloud in Q1 included Advocate Aurora Health Systems, Airbus, AstraZeneca, AutoZone Parts, H&R Block and the Ohio State University.

We are pleased that our customer and product momentum continues to get recognized by leading industry analysts.

This month, Gartner published its 2019 Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large and Global Enterprises, and Gartner named Workday as a leader for the third year in a row.

Also in Q1, I'm pleased to announce we have moved all customers to Workday 32.

With this update, we delivered more than 500 new features, including deeper investments in Workday Learning and Workday Recruiting, finance-focused machine learning capabilities to help resource managers align skill resources to projects and deeper integration between Workday and Adaptive Insights.

Indeed, we are well on our way for a goal of bringing Adaptive Insights fully into the Power of One.

And last but not least for Q1, we're pleased to share that we were once again ranked #1 on San Francisco Business Times' Best Places to Work in the Bay Area list.

This is the seventh time Workday has been ranked #1 on the list.

Workday also ranked #1 on the U.K.'s Best Large Workplaces list by Great Place to Work Institute.

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

I'll now turn over to our Co-President and CFO, Robynne Sisco.

Over to you, Robynne.

Thanks, Aneel, and good afternoon, everyone.

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

We are very pleased with our first quarter results delivering total revenue of $825 million, reflecting year-over-year growth of 33%.

Our subscription revenue was $701 million, up 34%, and Professional Services revenue came in at $124 million, up 29%.

We continued to see our long-term opportunity expanding outside of the U.S. with revenue up 42% to $197 million.

Our non-U.

S. revenue now represents a record 24% of total revenue.

Subscription revenue backlog was $6.8 billion, growth of 30% year-over-year, driven by strong performance across net new bookings, add-on business and renewals, with net retention once again over 100%.

Subscription revenue backlog that will be recognized within the next 24 months was $4.56 billion, growth of 29%.

Our non-GAAP operating income for the first quarter was $108 million, resulting in a non-GAAP operating margin of 13.1%.

Operating cash flow in Q1 was $209 million.

Current unearned revenue was $1.73 billion in Q1, up 31% year-over-year, while total unearned revenue grew 29% to $1.83 billion.

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

During Q1, we successfully added and integrated approximately 400 net new employees, bringing our total workforce at the end of the quarter to almost 11,000.

Operationally, it was another strong quarter of execution in Q1.

We're extremely pleased with our results and have gotten off to a great start for fiscal 2020.

I'll now turn to guidance.

Our focus remains centered on driving strong durable growth, and we will continue to invest in our products and other areas of the business to support our long-term growth aspirations.

Based on our overperformance in Q1, but keeping in mind, we faced very difficult second half comps from last year, we are raising our fiscal 2020 outlook and providing Q2 guidance as follows.

For subscription revenue, we're raising our full year estimate to be in the range of $3.045 billion to $3.06 billion.

We expect our Q2 subscription revenue to be $746 million to $748 million or 32% growth, with sequential improvement in Q3 and Q4 of approximately 4.7% and 5.7%, respectively.

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

We still expect professional services revenue to be $500 million in fiscal 2020 as we continue to prioritize driving the highest levels of customer success.

For Q2, we expect services revenue of $124 million.

For non-GAAP operating margins, we estimate Q2 to be 10%, and we still anticipate 12.3% margins for the full year as we remain committed to 200 basis points of margin expansion even as we continue to aggressively invest for continued growth.

The sequential decline in the 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 27 percentage points in each remaining quarter and for the full year.

We still expect subscription revenue backlog to follow the pattern we laid out in our Q4 call with high 20s growth in the first half and low 20s growth in the second half.

We continue to see a healthy pace of cloud migrations across HR and finance, but as we look at the full year, we're seeing more opportunities move into the back part of the year, specifically shifting into Q4.

There is no change to our operating cash flow guidance in FY '20 of approximately $790 million or 30% growth.

As a 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.

We are excited to have recently begun occupying our new Pleasanton development center, which will house more than 2,200 employees and also be home to our new customer center.

We continue to expect the FY '20 capital outlay for our owned real estate projects will be approximately $130 million, of which $94 million relates specifically to the development center.

There is no change to our fiscal '20 plans of $280 million for other capital investments to support customer growth and continued business expansion.

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 of the company, but our progress wouldn't be possible without a shared goal.

We're off to a great start for FY '20 and look forward to updating you on our progress throughout the year.

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

(Operator Instructions) Our first question comes from the line of Kash Rangan from Bank of America.

Congratulations on a spectacular start to the fiscal year.

One question for Robynne.

If you look at the deferred revenues, I know that you don't guide to deferred revenues and billings.

They're not exactly representative of this kind of business, but nonetheless, I just wanted to understand if there were certain factors that might have driven better, much better than the typical seasonality we have seen in deferred revenues.

And one for you, Aneel, that you mentioned 50 platform deals with Adaptive.

Are these fairly large corporations?

Or as the next few years unfold for the company, how do you see Planning playing out alongside Financials.

Does one synergize the other?

And just want to get your broader thoughts on the adoption of Planning and Financials.

Well, I'll take that -- thanks, Kash.

I'll take the second part first.

A lot of the traction we saw with Adaptive in the suite market was in large companies, and I mentioned several of them that were either add-ons or -- add-ons or part of platform deals: AstraZeneca, Airbus and H&R Block.

I mean, these are big organizations that are embracing the Adaptive Business Planning Cloud.

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

Yes.

I think that's right, Aneel.

And from our perspective, we've seen a lot more traction with the larger companies working with the broader Workday sales team, and it's -- as we know, those are longer sales cycles.

But the early traction with those customers is very encouraging.

Kash, on your deferred revenue question, nothing particular to call out in Q1 outside of just the strong performance that we had overall.

And as you know, just a reminder that unearned balance can vary with contract terms and renewal timing as well.

And if I could sneak one, Aneel.

Any broad comment on the replacement cycle you're seeing in core HCM, whether it's legacy SaaS or legacy on-prem?

It looks like there's a bit of an acceleration, not an inflection point in that journey.

And maybe I'm wrong about it, but I just wanted to get your comment on that.

Yes.

I don't think we're seeing an inflection point or a reacceleration.

I think the HR product line continues to do very well, and we're now on main street in terms of the types of customers that are looking to move to the cloud.

And with the high levels of customer satisfaction and the proven points of us customers being live, I think it just bodes well for Workday.

I think if there's anything that I would say about this quarter it's that all the product lines are beginning to kick in and take some of the pressure off HCM, and I hope that continues.

And we have a question from the line of Brent Bracelin from KeyBanc.

One for Aneel and a follow-up for Robynne.

Aneel, my question is on the demand drivers for cloud financials in the Fortune 50.

Given the increasing number of proof points over the last year within the Fortune 500, what are the remaining objections you're fielding from the larger enterprises?

And when would you expect to see some of the larger Fortune 50s begin to go down a path to embrace cloud financials?

Well, I'd separate out.

You said Fortune 500 and Fortune 50s in there.

The Fortune 50s are really hard to predict, and we have a few of them.

I will keep my comments to the broader Fortune 500.

I believe we're saying -- seeing a very similar adoption pattern for Fortune 500s as we did in HR 5 or 6 years ago.

The more reference customers we have, the more that customers are facing painful upgrades of their legacy systems, the more that the regulations change with things like 606.

Those are all catalysts.

And I do think that the cloud is now viewed as the preferred deployment option versus on-premise even for CFOs.

And whether that's through planning or through core accounting, I think that, that is happening as well, and that's been the case in HR and CRM for a while.

It's beginning to happen in finance now.

So a lot of things.

No one thing to point out.

Certainly good to hear.

And then as a follow-up for Robynne, you talked about more opportunities shifting into kind of Q4.

My question here is just is this tied to a handful of larger lands that are shifting because of complexity?

Is it more geo-specific?

What are the factors there that you should point us to as we think about some opportunities shifting in the quarters there, in the second half?

Brent, this is Chano speaking.

I don't think there is 1 single factor.

I would just say that, particularly large deals, the timing move quarter-to-quarter.

And as we are becoming larger companies, those tend to navigate more and more towards the back-end part of the deal -- of the year, sorry.

But overall, the pipeline is healthy, and the quality of the global opportunities remain strong.

Okay.

So it's not geo-specific then?

Nothing to highlight really specific thing.

And we have a question from the line of Mark Murphy from JPMorgan.

I'll add my congrats.

Robynne, just following up on the prior question about more opportunities moving into Q4.

At the same time, you're raising guidance and I think you're reaffirming the subscription backlog guidance.

So I just wanted to clarify, are you highlighting the same trend that's been there, I think, for many years of the business just becoming a little more Q4 seasonal?

Or were you intending to call out some type of maybe more meaningful change in this fiscal year?

No.

Nothing more meaningful, Mark.

I mean, as you know, in the past, there have been times when we've called out specific trends that we're seeing just to help our analysts and investors understand the dynamics that impact some of the metrics that you track.

For example, last year, we talked about the difficult first half comps, what we're seeing in terms of larger deals flowing into the second half of the year.

We're actually seeing a similar dynamic this year, but they're just flowing into Q4 instead of more evenly spread across Q3 and Q4.

So we thought it might be helpful for you to just highlight that as you look at how to model our business, but it's nothing really unusual.

It's just the continuation of the trend that we've been seeing.

Okay.

Great.

And then as a quick follow-up, Aneel.

When you secure a Planning win with a large organization like an Airbus or an AstraZeneca, do you see that as a precursor to a core financials win in the future?

Or do you have enough data to know whether that increases the odds that you'd be able to win core financials from that organization in the future?

I think it's still early, but if you look at -- if they have HR and Planning, so they are more than just 1 Workday product in the customer account, then I think it bodes well for finance.

Then the account has a chance just to default to a Workday platform.

If it's just stand-alone Planning, I think it's probably harder to predict at this point.

Tom, if you want to add anything.

No.

I agree.

I think all those accounts are opportunities to engage with the customer and develop a more holistic relationship, but I think it's more likely to advance if it's an HCM and Planning deal.

And we have a question from the line of Keith Weiss from Morgan Stanley.

This is Sanjit Singh for Keith Weiss.

And congrats from us as well on a strong start to the year.

Robynne, may -- if I maybe kick off with a cash flow-related question.

We looked at the billings performance this quarter and the deferred revenue performance, all very strong at 30% plus.

And the -- it seemed -- on the cash flow side though, it seemed to underpace the growth in billings as well as in overall cash flow.

Can you give us a sense of why cash flow grew 14% year-over-year versus the 30% type of growth you saw in deferred revenue?

Yes.

So because Q4 is such a high volume collections quarter, it's not always easy to predict how much we're going to get in Q4 versus Q1.

And so we saw an overperformance in cash collections in Q4, which took some cash out of Q1.

So we still feel really good about our guide for the year, but Q1 was a little bit of a lower cash flow quarter for us than usual.

But you should expect that to pick up later in the year.

Great.

That's very helpful.

And maybe, Aneel, for you.

As we think more broadly about the platform, it seems like each of the various HCM financials, financial plannings, seems to be performing well.

As I look back to PeopleSoft all those years ago, you guys, I think, brought on supply chain on -- at the later stages of the PeopleSoft story.

Is that an area where the platform can move next in sort of serving more of the sort of manufacturing-type vertical?

Any thoughts on that?

I'd say it's on the radar, but I wouldn't say that we're going to announce anything imminently.

There's -- that's a big undertaking.

We still have more work to do to really establish ourselves as leaders outside of HR.

We want that same leadership position for Financials, for Planning.

I think with Planning, with Adaptive, we're 1 of the 2. And then with Prism Analytics, we saw 70% or almost 70% growth this past quarter.

So I don't feel the need for another growth engine at this point, frankly.

I think it'd be a distraction.

We have a lot of work to do on the products side, especially as we take all the products into the world of machine learning.

But I'd ask that question every year, and some of you might get a different answer.

Your next question comes from the line of Justin Furby from William Blair & Company.

Chano, I wanted to ask about just your efforts selling back to the base.

I think there's been a bit more of a focus around that over the last several quarters.

I'm wondering if you're seeing any sort of measurable impact, whether retention rates or bookings mix, or if it's more incremental.

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

Thanks, Justin.

That customer base efforts or add-ons is tracking well.

We see increased adoption around many different products lines: Recruitment Learning, clearly, Prism, Planning, Expenses and some others.

We're very happy as well with the retention rates.

We have commented again over 100% on a net basis.

So those efforts, we feel that they're paying off.

They're still early days, but clearly, as the opportunities increase, not only domestic here in the U.S. but also internationally, with a larger customer base, we see a huge opportunity there based on our great customer satisfaction and proven solution adoption, and that's a great opportunity for us going forward.

Okay.

Great.

And then Aneel, I think you mentioned Legg Mason, which if I remember right is a -- was an Oracle win and it sounds like a win-back for you guys.

I'm just wondering if you could speak more broadly on whether you're seeing more of those types of opportunities in your pipeline from Oracle SAP.

And if so, what do you think is driving that?

I'd probably rather not comment on that.

We won Legg Mason for the full organization.

Without going into all the competitive dynamics, they were happy with what they had rolled out initially and decided to broaden their use of Workday, and that's probably best to leave it there.

There are failed cloud implementations.

There are also cloud implementations of best-of-breed products tied back to legacy core HR and finance that are on-premise, all those create opportunities for us.

So it all comes back to having happy customers and having projects that are successful.

And as we stay focused on that and other people don't have successful outcomes, hopefully, they do look to Workday.

And we have Mark Moerdler from Bernstein Research.

Again, as you've heard, congrats on the quarter.

I've got 2 questions.

The first is can you give us a bit more color on services?

Specifically, how have you seen the Workday delivered services shifting from HCM to Financials?

What I'm really trying to understand is how your -- how the process of moving in terms of getting the partners to deliver not just on the HCM side but on the full financial side themselves.

Are you seeing the clients able to -- the partners be able to build and implement better and bigger implementations of Financials?

So where are you on both of those journeys?

And then a follow-up question.

We have -- I might have to get back to you with some of the specific data, but finance is definitely now more than half of the ecosystem.

Well more than half of the ecosystem is the partner ecosystem.

That was the case for HR many years ago.

And I'm going to guess it's better than 80-20 for HR.

I'm not quite sure where it is for finance, probably tracking close to that.

But the partners of all -- to a large partner have all embraced Financials.

And in some cases, some of the firms that were late to embracing HR have made up by embracing finance early.

And then we've got the boost from these partners embracing Adaptive.

So feel very good about the partner engagement on Financials.

And our stated goal is that our services is there to support our customers and therefore, customer satisfaction, but we really count on our partners to take on the bulk of the implementation work.

That makes sense, and that's very helpful.

And as a follow-up, where are you on moving the existing Planning customers over to Adaptive?

Yes.

We've made -- this is Tom.

We've made excellent progress, and I think at this point, we have had conversations with probably 75% of the customers.

Some of the customers who had implemented the Workday Planning product, it's operating successfully for them, so they'll be a little bit slower in their migration.

But we have several successful customers.

For example, Bucknell University is up, is live, running on Adaptive.

And we have 5 or 6 other customers who have already converted and gone live.

And we have a question from John DiFucci from Jefferies.

This is Samad Samana on for John.

A couple of questions.

One, for Aneel, the 50% net new ACV growth for Financials is really impressive.

I was curious, if we were to stratify that for mid-market customers versus large enterprise, how would that growth rate look?

And then I have maybe a follow-up question for Robynne.

Chano, on that first one?

I wouldn't know exactly.

I need to come back to you on that one.

What I can tell you is that the momentum continues in terms of seeing Financials moving more upmarket, and there's a good strength there.

We had a great quarter in terms of large Financials customers, particularly in health care, financial services, to mention some.

We saw a good momentum continuing in terms of financial first move that we highlighted in Q4 and, as well, some good progress in terms of our ACN customer base coming out of, again, being very happy with the product and the partnership, considering us for financials.

And the pipeline at around those opportunities since they're pretty healthy going forward.

Great.

And then, Robynne, I guess, from a bit of a CFO's perspective, if you think about the adoption for Financials, how do you think in terms of all the changes we've seen?

If I think about even ASC 606, as some of that lessens, do you think that adoption for Financials should continue to increase as a result of that as well as CFOs maybe have less to deal with from a regulatory standpoint?

Maybe just help us understand from your perspective on Financials adoption as well.

Yes.

That's a great, Samad.

I do think there has been some distraction around some of these big accounting changes, including 606 and then, more recently, the lease accounting changes, which was I know a lot of work for public companies, finance organizations.

It will be interesting to see as the companies get beyond that if that frees them up to make system changes.

I do believe that one of the things that these accounting changes really highlight is how difficult it is to implement these changes if you are on a legacy on-premise financial system where customers who are in the cloud.

And even more specifically on Workday Financials, we've built in all the functionality that they needed to adopt and account properly under the standard going forward, and we did that internally ourselves as well, we're using all of the lease accounting functionality to adopt that at the beginning of our Q1.

So I do think that it will highlight the need for CFOs and businesses to move to the cloud.

So I do expect some positive momentum coming out of that.

But the timing of that is unclear as a lot of companies will move along their own time lines.

And we have a question from the line of Alex Zukin from Piper Jaffray.

Two quick ones for me.

Robynne, maybe just one more time on the linearity of the pipeline through the year, if you could talk to -- are you saying that the -- this is a question of the comps being just more difficult on the 3Q period versus last year?

Or is it something about the size of some very large -- and pace of some very large transactions that could make 4Q -- or could make the year more back-end-loaded?

And which -- where would that show up?

Is it a -- should we look at 2 years ago from a billings linearity or deferred linearity to get a better sense than -- than on the year ago period?

And I've got a quick follow-up.

Yes.

Alex, so really 2 different things.

One, wanted to highlight the difficult comps from last year for the back half, right, just overall.

But my comment specifically about Q4, and then I'll turn it over to Chano to add what he wants, is when we look at our net new ACV for the year, a higher percent of it is landing in Q4 than what we've seen in the last few years.

Now this is just a continuation of a trend that we've been seeing, but I did want to call it out because it will impact your backlog.

It will impact unearned, which will impact other metrics that you derive from those.

So I just wanted to make sure that you had the visibility that we were seeing with that dynamic.

Chano, anything you want to add?

Thank you, Robynne.

Not much.

I would say, Alex, that, as you know, we come off of a very strong FY '19, particularly a strong Q4.

And some of the large transactions that will be certainly larger cycles in terms of how long it take us to get there will also and will happen more materially around the Q4 time frame again this year.

So that potentially has an impact of what we're commenting here on the year linearity.

Nothing else to highlight.

But I think that's a normal cycle and trend as we are becoming a larger company, I would say.

Got it.

And then maybe just, Aneel, a quick one for you.

Now you're seeing the strong -- really strong continued traction with Adaptive, your first much larger acquisition.

As you think about the broader aperture of your Financials suite and you think about organic versus inorganic innovation around that suite, how do you -- do you feel even better now about your ability to add functionality there through M&A to accelerate your vision?

Or just maybe any comments about how you think about that for the future.

I think my personal view is that large acquisitions are really difficult, and frankly, a lot of things fell in place with Adaptive.

Number one, we knew the team really well.

Tom and I are close friends, going back 15 years.

We had very similar corporate cultures, very similar focus on customers.

And then the products and technology were very complementary.

We knew the space.

We were pretty far behind where Adaptive was.

So there is a lot of things that fell into place to make that work.

I just don't think there's a lot more targets out there like that.

So you could see us continue to do smaller M&A, but the big ones will have to be -- will have to pass through a very tight filter on cultural fit, on technology compatibility, on limited overlap in terms of both revenue and technology.

So I wouldn't see that as a precursor for us doing a whole bunch more large acquisitions.

And we have a question from Heather Bellini from Goldman Sachs.

I just wanted to follow up on Planning.

It seems like you guys are having a lot of really good success there.

And I know you've only owned the asset for a little less than 1 year, but I'm wondering if you could talk a little bit about how the selling motion has changed since you've owned it, if it's a shorter sales cycle for you given how well you know these customers already when you're going into your installed base with it.

And maybe any comment on your ability to sell this like as an add-on to what -- as a suite sale versus stand-alone traction.

Yes.

Thanks, Heather.

This is Tom.

So there are 2 fundamental selling motions.

The first is a stand -- where we're selling Planning on a stand-alone basis, and that's analogous to the way we sold the product prior to the acquisition by Workday.

We continue to have a lot of success with that selling motion, a lot of interest from customers.

And the business there -- we continue to be very pleased with the business there.

I think in the 9 months since the acquisition, the biggest change has been in Adaptive's ability to penetrate larger customers and have meaningful conversations.

These are often platform deals, and I'll let Chano comment on that as well, or their Planning upsells to existing customers.

And I believe the credibility that we have being part of Workday has really accelerated our ability to have meaningful conversations with those customers.

Yes.

Completely agree, Tom.

I think, yes, the decision planning cycles are shorter than a normal financial cycles.

So you see a couple of motions there.

One is those customers that will be going with Adaptive on a stand-alone basis, even some of our ACN or financial customer base is starting with.

And you see those where, basically, they see Adaptive as critical solution for them to make a decision to move forward with us, either on a Financial transformation or an HR transformation.

And that is certainly an asset that we didn't have a significant strength before.

And that was, I would say, a gap.

And it is much more complementary now.

So clearly, it's great, the power that it's giving us in terms of not just the Adaptive Planning stand-alone business but, obviously, for customers making broader decisions with Workday.

Well now, I would just add that the 3 we highlighted in the press release were all existing Workday customers, and they bought it as an add-on.

Airbus, AstraZeneca and H&R Block, all were already existing Workday customers.

So that wasn't even part of a platform deal.

So that's also a very exciting new development for us.

And we have Derrick Wood from Cowen and Co.

Aneel, you mentioned trying to get new machine learning capabilities woven into the platform.

Where are you guys in this journey?

And how should we think about the monetization?

How do you get monetization out of it?

Does it give you pricing leverage, what the revenue capture is?

Well, we are -- we have been, for the last 3 years, basically sewing in the machine learning capabilities into the platform rather than making it a feature app by app, right?

You could add machine learning to 1 specific app, but it's not leveraged by the rest of the application.

So we're taking the longer-term approach of building it into the fabric.

And today, we've got several examples of where it's shown up.

In the career planning world, the system can make recommendations for the next move you should take or the next course you should take on the learning side.

In the finance world, a lot of automation around the audit process.

So it's coming to life really rapidly, and we're going to unveil a whole more -- a whole wave of more capabilities at our next user conference.

I don't see it as pricing -- we're not going to charge extra for it.

It's hard to say -- it's hard to see charging 1 price for the products with machine learning and then charging less if they don't have machine learning.

I think it's going to be a core capability that is just required just to be competitive.

And so maybe it gives us pricing leverage because we'll be ahead of our competition.

I think it's very likely that we are already ahead and we'll just extend that gap, and we'll see if that gives us some pricing leverage.

Okay.

And I guess just staying on the product question.

Do you have any update on your platform efforts?

I know it's a long build-out cycle, but are there certain milestones we should be looking at as you roll this out to the market?

Well, so we now are up to almost 100 customers that have signed on for being either a pilot customer or actually using the platform in production.

Very simply, the path to being in full GA, right now, we're in limited GA, is just opening up the full platform from an API perspective.

Right now, we're building out the APIs for very specific use cases, making sure those first wave of customers are successful and then adding a new set of APIs to open up additional use cases.

And you'll just see over time that -- I -- think of it -- maybe it won't take as long, but Gmail was in beta forever, even though it was a great product.

I think we're going to be in some form of limited GA for some time just as the breadth of APIs increases.

But if the APIs that are there meet your needs, then it's full GA.

So I think that's the -- maybe that's not a clear way to describe it, but we have work to do on the APIs.

The rest of the platform looks very strong.

And we have a question from Brian Schwartz from Oppenheimer.

Either for Chano or Aneel, I was wondering if you can share with us, it's an industry question, on what you're seeing on demand trends and the pipeline momentum in the federal government.

And then as we think about Financial Management in the federal government, is it possible to either compare or contrast the adoption trends that you're seeing for that industry versus what you're seeing in the commercial area?

Yes.

This will be really simple and really short.

We don't sell to the federal government.

There's a whole set of unique accounting requirements and even HR requirements that almost make it a completely different product line.

Now if the federal government continues down the path to acting more like commercial organizations, that would open up a brand-new market for us.

And we do have some quasi federal agencies that are Workday customers because they actually tend to operate more like a commercial entity.

But right now, it's not a focal point for us.

And we have Scott Berg from Needham.

Everyone, congrats on a good quarter.

Just 1 question for me, and I don't know who wants to take it.

But we heard in the quarter that, I assume it was Workday Ventures, made an investment in one of the large RPA, robotic process automation, vendors that's out there.

And that company subsequently bought both your Financials and HR platform and is using it to reduce the implementation times by 50% or better.

I just wanted to know, is this the technology you guys are looking to bring into your own implementation cycles?

Because I know that has been a large focus to reduce implementation time frames and costs over the last 2 years.

Yes.

I would say that's in the TBD category.

We make investment in a lot of interesting technologies.

This new world of automation is definitely interesting to us, but we haven't made any decision yet to bring it into our own platform.

And some of the estimates in terms of reduced time, we haven't been able to validate those ourselves.

So we continue to invest heavily in our technologies to reduce the cost of implementation.

And if some of this RPA stuff can reduce the cost of implementation, reduce the time, we definitely would embrace it but unclear at this point.

It's an exciting new area but unclear that it's something that we're going to bring in closer to Workday.

Our next question comes from the line of Raimo Lenschow from Barclays.

Quick question for Aneel.

If you look at the competitive landscape, like one of your competitors -- large competitors is trying to force their client base over to a kind of non-value-add upgrade.

Do you see anything of that showing up in your conversations already?

Or is that something that's still going to come?

Any time a customer is facing an upgrade from a legacy platform, they tend to look around, and all we want to do is just be -- just to be in the mix of conversations.

There definitely are customers that probably don't come to market, but increasingly, customers are smart about their choices.

And so I do think that those kinds of tactics just drive customers into a decision-making process, and they look at alternatives and hope we do well as part of those evaluations.

Customers don't like the -- they don't want to be forced to do anything.

But I think if they're being pushed to move into the cloud, if I were them, I'd say, "Hey, take a look at all the alternatives that are out there before you make a decision."

And we will take our final question from Brad Reback from Stifel.

Can you give us a sense of how the renewal pipeline looks for the remainder of the year and the opportunity that can afford you to sustain the strong upsell you saw in the current quarter?

Yes.

This is Chano.

The renewal pipeline is looking very strong for the remainder of the year.

We, at this point, have no reason to feel other than confident with the same kind of renewal ratios in terms of a net basis that we've been sharing with you.

And Chano, on that point, how is your confidence on the ability to upsell with this much broader product set than these customers saw when they first signed their deals?

As I commented before, having a broader customer base with a broader set of products when you have the customer satisfaction ratios that we're enjoying is just a blessing, right?

Because clearly allows us to have conversations with the customers that are already seeing value in some of the products and investments they've done with Workday.

And we have to trust to prove basically the opportunity for them to get value of the additional solutions that we bring to market.

So we feel very confident, and we've been sharing with you some of the attach ratios on very high rates that we've been experiencing on this area of products, so around 70% or 70% plus on products like Time Tracking, Recruiting, Payroll and others that have been longer in the market.

We have no reason to believe that some of the other products that are just newer will not get to the same ratios over time.

We now conclude the call.

Thank you for joining Workday's Q1 Earnings Conference Call.

Have a good night.