Welcome to Workday's first quarter fiscal year 2018 earnings call. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of the conference. With that, I will hand it over to Mike Magaro, Vice President of Investor Relations.
Welcome to Workday's first quarter fiscal 2018 earnings conference call. On the call, we have Aneel Bhusri, our CEO, Robynne Sisco, our CFO, and Chano Fernandez, our EVP of Global Field Operations. Following Aneel and Robynne's 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 include 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'll discuss non-GAAP financial measures, including non-GAAP operating profit and operating margins. These non-GAAP measures exclude the effect on our GAAP results of share-based compensation, employer payroll tax-related items on employee stock transactions, amortization of acquisition-related intangible assets, and debt discount and issuance costs associated with our convertible notes. We will also discuss free cash flows, which are defined as cash flows from operations less certain capital expenditures other than owned real estate projects.
These non-GAAP financial measures, which we believe are useful as supplemental measures of Workday's performance, 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. In addition, on today's call, we'll discuss our forward outlook for non-GAAP operating margin. A reconciliation of our forward outlook for non-GAAP operating margin with our forward-looking GAAP operating margin is not available without unreasonable efforts, as the quantification of stock-based compensation expense requires additional inputs, such as number of shares granted and market price, that are not ascertainable. The webcast replay of this call will be available for the next 45 days on our company website under the investor relations link.
The customers page of our website includes a list of selected customers and is updated monthly. Our second quarter quiet period begins at the close of business on July 14th, 2017. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2017. With that, let me hand it over to Aneel.
Thank you, Michael. I'd first like to also thank everyone for joining our Q1 2018 earnings call. I'm pleased to report that our first quarter of fiscal year 2018 was one of our strongest quarters to date. Indeed, net new ACV experienced our highest year-over-year growth rate in almost three years. Our human capital management business remains strong, with continued performance across customer size, geography, and vertical. We also had a strong quarter for our financial management suite of applications as we added 29 new core financial management customers. Starting out with Workday HCM, we had another strong quarter as we continue to lead the market with an industry-leading true cloud platform, the deepest product capabilities, an unparalleled user experience, and the highest levels of customer success. In Q1, we added Target, AECOM, Loews Hotels, and Puma, among a wave of new HCM customers.
We continue to land marquee Fortune 500 accounts, in part due to our proven ability to support our customers' large volumes of data and transactions, a capability that neither of our legacy competitors has been able to demonstrate in the cloud. While these new wins are very important to us, we remain equally focused on delivering excellent service to our current customers, and that includes delivering on our commitments to them. Amongst the many go-lives of Q1, I would like to highlight Qantas Airways, who became a customer in 2016 and went live after a nine-month project, covering all 45,000 employees and contractors in 26 countries. A special kudos to their great effort and excellent project team. We also saw strong momentum for the Workday financial management suite of applications.
We believe that a combination of our expanded set of offerings, the CFO's increasing comfort with the cloud, and our high levels of customer satisfaction are beginning to drive broader adoption of our financial management applications. To that end, new Workday financial management customers in Q1 included Nasdaq, Adventist HealthCare, and Nuffield Health, the largest not-for-profit healthcare provider in the U.K. I'm also delighted to report that in the first month of Q2, we saw two existing HCM customers, 21st Century Fox and CNA Financial Corporation, expand their use of Workday to include our financial management applications. Taken together with our Q1 success, we believe these wins collectively demonstrate both the growing momentum of our financial management applications amongst large companies and the benefit of having a happy HCM customer base.
In Q1, we also continued to add to our sales leadership team across the globe and are delighted to welcome Gonzalo Benedit as our new President of EMEA and APJ. Gonzalo brings a strong background in enterprise applications and will report to Chano Fernandez, our Executive Vice President of Global Field Operations. Shifting to the product development front, we moved all customers to Workday 28 during Q1. With this update, which by the way, took less than 5 hours for all of our customers, we expanded our global foundation and industry-specific capabilities in Workday Financial Management and delivered a suite of new features in Workday HCM that equip customers with even more flexibility to meet their performance management needs. We also continue to deliver against the roadmaps for Workday Planning and Workday Learning by adding new features that expand the global breadth and depth of these products.
Indeed, these two new offerings continue to perform very well in terms of new sales. Workday Planning now has over 140 customers as it continues to be one of the best new product launches in our company's history. Workday Learning has experienced a similar ramp and now enjoys a base of over 165 customers. As we look forward to the rest of fiscal year 2018 and beyond, we will continue our relentless focus on innovation and expect to see continued momentum for our growing family of applications. On the heels of the success of Workday Planning and Workday Learning, we are seeing increased levels of activity around Workday Financial Performance Management, a new SKU we introduced at the start of the fiscal year, and high levels of interest in Workday Prism Analytics, our advanced analytics offering that will become available with Workday 29 in the fall.
Stay tuned for some other exciting offerings that we will discuss in the upcoming months. I would like to end on a note about a topic that is near and dear to me and Dave and the rest of the management team, continuing to build a values-based organization that stands the test of time. In the past year alone, we have invested heavily in manager and leadership training, including an off-site leadership summit where our 1,200 people managers spent two full days learning about our way of managing and leading at Workday. We also continue to invest in development programs for our individual contributors who drive much of the performance of the company. We believe this investment in our people continues to pay off.
In the quarter, we were named one of the 100 best companies to work for by Fortune and Great Place to Work Institute for the third consecutive year, ranking number 18 on this year's list. We ranked number 1 in the large company category of the San Francisco Business Times Best Places to Work in the Bay Area list, and ranked number 1 on the Great Place to Work Institute's list of Ireland's Best Workplaces for 2017 in the best large company category. 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 great start to our fiscal year. With that, over to you, Robynne.
Thanks, Aneel, good afternoon, everyone. As Aneel mentioned, we continue to execute against our large and growing addressable market. The momentum from the fourth quarter continued into the first quarter, with strong product adoption for both HCM and financials. Let's start with our top-line results for the first quarter. We delivered total revenue of $480 million, reflecting year-over-year growth of 38%. Our subscription revenue was $400 million, up 43%, which represents our third consecutive quarter of accelerated subscription revenue growth. Subscription revenue outperformance was driven by strong net new ACV growth, as well as better than normal linearity within the quarter. Professional services revenue came in at $80 million, representing growth of 19%. We continue to be excited by the expansion of our global footprint. Total revenues outside the U.S. grew 58% to $97 million, reaching 20% of the total revenue for the first time.
We're still early in our expansion outside of the U.S., this will be an area of continued investment for us. Our non-GAAP operating profit for the quarter was $61 million, resulting in an operating margin of 12.7%. The strength reflects higher top-line growth, improvement in our gross margins, and the benefit of overall spend being lower than expected. We did not see any material impact from FX changes within the quarter. We achieved a record high for cash flow from operations of $180 million in Q1. Our trailing 12-month operating cash flow was $368 million, up 12% year-over-year. Our trailing 12-month free cash flow was $251 million, up 32% year-over-year. Note that in calculating our 12-month free cash flow, we've excluded $118 million related to our own real estate investments, as we consider such investments non-recurring in nature.
As always, our cash flow results can vary with the timing of customer invoicing, as well as seasonal and varying spending patterns. Our business model clearly demonstrates strong economics as we scale, we are confident in our ability to deliver future operating margin and cash flow improvement over time. It is important to reiterate, however, that given the large growth opportunities still ahead of us, we will continue to prioritize growth over near-term margin improvement. Moving to the balance sheet, total unearned revenue at the end of Q1 grew 31% year-over-year to $1.2 billion. Current unearned revenue, which will be recognized over the next 12 months, was approximately $1.1 billion, or strong annual growth of 37%. Even with a very strong Q1 on a sequential basis, current unearned was relatively flat, a result of the compounding seasonality we're seeing over time.
Non-current unearned revenue was down 6% year-over-year, driven primarily by fewer customers electing to pay more than one year of subscription fees up front. As we discussed last quarter, as part of our adoption of the new accounting standard ASC 606, we are pleased to provide two new quarterly subscription revenue disclosures. The first disclosure, referred to as our remaining performance obligations under ASC 606, we will simply refer to as our subscription revenue backlog. This number represents all future revenue from existing customer subscription contracts, regardless of contractual billing schedules. This means that amounts already billed, which are on our balance sheet in the form of unearned revenue, are included in the subscription backlog number, as are amounts that will be billed at later dates in accordance with the underlying contracts.
At the end of Q1, our subscription revenue backlog was $4.0 billion, with two-thirds expected to be recognized within the next two years and the remaining balance to be recognized thereafter. We are providing the amount of our subscription revenue within the quarter that was in the unearned revenue balance at the beginning of the quarter. For Q1, $361 million of our $400 million of subscription revenue, or 90%, came from the balance sheet. This compares to Q1 of last year, where $251 million of our $280 million of subscription revenue, also 90%, came from the balance sheet. We believe the new disclosures are good proof points in the predictability and longevity of our business and that they will be helpful over the long term.
We also believe, however, that there are significant limitations in trying to deduce current period performance using these metrics, as they will fluctuate in the short term based on many factors, including seasonality, contract durations, invoicing terms, the timing of renewals, and other contractual dynamics. Subscription revenue growth continues to be one of the best indicators of our performance from a top-line perspective. We continued to see the annual dollar value of contracts from renewing customers exceed the original contract value during Q1, supporting our thesis that satisfied customers become long-term customers, which will drive long-term shareholder value. We continue to invest in our people and in attracting top talent to Workday. During Q1, we successfully added and integrated approximately 250 net new employees to Workday, bringing our total workforce at the end of the quarter to almost 6,900.
Operationally, we executed exceptionally well in the first quarter, delivering over-performance on both the top and bottom line. We're extremely pleased with our results and have gotten off to a great start for fiscal 2018. I'll now turn to guidance. As a reminder, all our financial reporting and guidance is under the new ASC 606 accounting standard, and all growth rates are calculated using the restated historical numbers provided last quarter. Based on our strong Q1 results, we are raising our fiscal 2018 outlook and providing Q2 guidance as follows. For subscription revenue, we're raising our full-year estimate to be in the range of $1.705 billion-$1.720 billion, or growth of 32%-33%. We expect our Q2 subscription revenue to be $420 million-$423 million, or 37%-38% growth, with sequential improvement in Q3 and Q4 of 3% and 5% respectively.
This pattern reflects our increasing seasonal trends towards larger Q4s. We expect professional services revenue to be approximately $333 million in fiscal 2018 and $85 million in Q2. We estimate the total revenue for fiscal 2018 will be $2.038 billion-$2.053 billion, or growth of 29%-30%, with Q2 total revenue in a range of $505 million-$508 million, or growth of 35%-36%. For non-GAAP operating margins, we now estimate Q2 and full-year operating margins of 6%-7%. 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. We expect non-GAAP operating margins to decline quarter-over-quarter in Q3 to approximately 4%, primarily due to continued headcount growth and seasonal marketing spend before sequentially improving in Q4.
The GAAP operating margin is expected to be lower than the non-GAAP margin by approximately 25 to 27 percentage points in each remaining quarter and for the entire fiscal year. We still expect strong operating cash flow of $420 million, or growth of 20%. As you know, following our seasonally strong Q4s, Q1 is consistently our strongest cash collections quarter, and correspondingly, Q2 is traditionally our weakest. We are currently expecting cash flow from operations in Q2 to be negative, driven by the combination of seasonally low collections and the seasonally high sequential increase in expenses driven by our annual employee compensation cycle mentioned earlier. There is no change to our fiscal 2018 plans for capital expense for our owned real estate projects or other CapEx provided on our last call. 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. Our progress wouldn't be possible without a shared goal. We're off to a great start to the year and look forward to updating you on our progress throughout the year. Operator, let's begin the Q&A process.
If you would like to ask a question during this time, please press star then the number one on your telephone keypad. We'll pause just a moment to compile the Q&A roster. Your first question comes from Justin Furby with William Blair. Your line is open.
Thanks, guys. Congrats. Apologies for my voice. Maybe Robynne, just to start, can you give a sense for this new metric on the subscription backlog for Q1, what the year-over-year compare looks like? Was it a similar sort of growth rate that you saw in terms of Q4 on backlog or any more context around Q1 would be helpful. Then I've got a follow-up for Aneel. Thanks.
Sure, Justin. If you look back to when we were disclosing backlog previously, if you take that backlog number and add in the unearned balance, you'll get a total number that was fairly comparable to the new disclosure under 606. Last quarter, we disclosed that amount to be $3.8, then you've got disclosures for every year-end previous to that. You've got some pretty good points of comparability there if you look back in time.
Right. I was just wondering, Robynne, for Q1 of last year, what that might have looked like in terms of the year-over-year growth, not sequential.
Yeah, we have not disclosed Q1 of last year.
Okay. I thought I'd try. Aneel, I haven't asked this question in at least a few years. I wanted to take a shot at it again. Just based on what you see today in terms of financials and traction and pipeline, how long do you think it is before that product line would reach parity with HCM from a new booking standpoint? When we get there, whenever it is, what sort of growth story do you think Workday is at that point? Thanks.
You ask these questions that are hard to predict. It's still several years down the road. We've seen really nice pipeline growth in financials. We talked about the two big wins. Actually, I'd put Nasdaq in the three big wins, Nasdaq, 21st Century Fox, and CNA. We're beginning to see that market move, and that market is bigger. At the same point, though, the HCM market has a lot of legs in front of it, and if you look at the re-acceleration in the subscription growth rate, that's still primarily driven by HR. HR needs to slow down for finance to reach parity at some point, and we're not seeing that. We don't want to see that.
I'd say it's clearly down the road, but now the finance business is becoming more predictable, and it's growing faster, but the HR business is really holding its own right now.
Okay, got it. Thank you very much.
Your next question comes from Kash Rangan from Merrill Lynch. Your line is open.
Hey, congratulations on the strong operating margin performance, besides other things. A couple of questions for you, Robynne and Aneel. One is, you said that the ACV growth rate was the fastest in almost 3 years. Can you help us understand what exactly drove ACV growth rate, and what could have been otherwise a seasonally slow Q1? Also, is this a precursor that deferred revenue growth and how we calculate billings should also accelerate just because ACV growth rate was so solid? If I could, actually, someone asked the backlog question, so this is the only question for me. Thank you so much.
In terms of Q1, I'd say it was strong execution, and I'll turn it over to Chano in a second to talk about it, but very strong sales execution. I do think that we're seeing this phenomenon, especially in the large companies in the market that are out in the market for an HR system. We're just so far ahead of our main competitors in terms of proof points of success. If you're a Fortune 500 company, we've got dozens of, actually, over 100 points of success, and not just winning the account, but the customer's actually in production, and our competition has very little. We just saw some of those actually trickle into Q1, which historically hasn't seen a lot of Fortune 500 accounts, but we did as well. Maybe, Chano, you want to add something to that?
I think companies continue to move to the cloud, and clearly as the leader in HCM Financials, we continue to gain share. I think the momentum from Q4 continuing Q1 on both medium enterprise and large enterprise were strong. Clearly, as Aneel mentioned, we are at the beginning of our global expansion. We had a record quarter outside of the U.S., and we continue really excited about the opportunity ahead of us.
Kash, on your billings question, as you know, we stopped guiding that because we don't believe that the billings number really correlates to any meaningful metrics that are good to gauge our current period performance. It will continue to vary as it has against the other metrics that we do manage to like net new ACV.
I appreciate that, Robynne. Nonetheless, ACV growth rate should lead to something else accelerating as the rest of the year progresses, I would assume, right? It has a lag effect, I would assume.
Kash, the thing to understand is that given now that the revenue recognition rules have changed, we're not as focused on getting a year's worth of cash or more than a year's worth of cash up front. Right? It doesn't impact revenue recognition, and frankly, that gives us more tools in the bag to potentially lower discount rates, right? There's only so many knobs you have, and not pushing the customers on cash means we might be able to avoid some additional discounting. We're just not focused on collecting cash in the same way that it's just kind of odd because your name is Kash, but we're not focused as collecting as much cash as we have historically.
Wonderful.
It doesn't matter to revenue recognition anymore.
Thank you so much.
Your next question comes from Alex Zukin with Piper Jaffray. Your line is open.
Yeah, thanks, guys. This is Scott Wilson on for Alex. Aneel, maybe one for you and then a follow-up for Robynne, Aneel, a large competitor of yours over the last month or two has announced fairly significant changes to their senior leadership of their HCM competitive alternative. Just curious if you have any thoughts on these changes, and if as a result, you've seen any change in the competitive field dynamics.
Our large competitors change their leadership in the field on what seems a pretty regular basis. I think the previous individual was a high-quality person, if I think the company's SAP. I'm not sure what that means other than our win rate against both SAP and Oracle has been consistently high, and I think it'll continue to remain consistently high.
Got it. Then Robynne, maybe a bigger picture question for you. I think some people have kind of been trying to get at this. Setting aside invoicing flexibility and billings seasonality, it would seem as though bookings growth is outpacing billings growth and even subscription revenue growth, given it's been the strongest in the past three years. What is the metric that you would point us to to judge your quarterly success, I guess?
Scott, we believe that the best top-line metric is really subscription revenue growth. While there is a little bit of a lag effect there, because we guide, we think that's the best insight to give you in terms of how we're doing.
Got it. Great. Thanks, guys.
Your next question comes from Karl Keirstead from Deutsche Bank. Your line is open.
Thanks. Maybe two questions for Robynne. Robynne, back on the seasonality issue, if you look at total deferred revenues, it was, I think, down 2%. Year ago, it was +3%. Maybe that's an example of the seasonal impacts that you've been highlighting. I guess my question is, as we look out through the rest of fiscal 2018, should we expect in 2Q and 3Q to have that similar dynamic, sort of less sequential DR growth compared to the year ago, then 4Q perhaps better? Just directionally, does that make sense? Then I've got a separate follow-up.
I think what we're seeing, well, I know what we're seeing, is our compounding seasonality, right? If you look at one of our large peer companies, you see the exact same dynamics. It's just because they're a little more mature than we are. It took us a little while to hit that. I don't think for this year we would expect sequential declines in the next few quarters over the year. Over time, we certainly could more closely follow the pattern of our larger peer on that front.
Okay. That's helpful. Then maybe a separate question on the services side. It looks like that's where a decent chunk of the revenue outperformance versus your guide came in Q1. Your guide, Robynne, for services of $85 million in 2Q suggests that growth will be pretty good. Is there anything happening on the services side worth calling out? Thank you.
We're just seeing very strong new contracts on the services side and good execution. Nothing really in particular, just continued growth on that front. If you look at the year-over-year growth, we still are seeing declines because, as you know, we view professional services as a vehicle more for customer success, getting customers live, than for driving revenue growth.
Got it. Okay. Thank you very much.
Your next question comes from Kirk Materne with Evercore. Your line is open.
Thanks very much. Aneel, I've obviously heard a lot about the bigger deals over the last quarter or two, I was kind of curious just on your commentary around the commercial business. Some of your efforts in the mid-market and how those are going. Maybe just an update on the competitive environment there. Thanks.
We had a very strong quarter competitively against both Ultimate and NetSuite. I think that probably the part that we anticipated was the NetSuite one. Our win rate is the highest it's been against NetSuite in some time. At the same point, the number of competes against NetSuite dropped pretty significantly. I do think that they're in some disarray over there. We're not seeing them as much in a competitive market. Part of it is we're also moving upmarket, when we do see them, our win rate expanded in Q1.
If I could just ask a really quick follow-up for Robyn. Just Robyn, on cash flow, you guys obviously outperformed this quarter. Not only on cash flow, but on margins. You're leaving the cash flow guide sort of in place for the full year. I assume some of that's just seasonality through the year. You mentioned that you sort of maybe were a little bit too conservative on spending in the first quarter, I expect you guys might be accelerating a little bit on that front. Can you just talk about the factors that led to leaving cash flow growth for the full year or guidance for the full year alone?
Yeah, Kirk. We were very pleased with our cash flow results for Q1. They were in line with what we had expected for the quarter. As Aneel mentioned previously, we have less of a focus on getting multiple years of cash up front from customers. That is also a factor in our annual guide for cash flow. The year is early, so we just need to see how it unfolds over time.
Understood. Thanks for answering the questions.
Your next question comes from Keith Weiss with Morgan Stanley. Your line is open.
Hi, this is Sanjit Singh for Keith Weiss. Robynne, I noticed in the press release you certainly called about the margin, the cash flow performance. Dovetailing from the previous question, have you guys thought about introducing sort of a framework? Some of your SaaS peers have done something similar where they look at various scenarios of growth, 20%, 30%, and then give investors sort of a framework about how to think about margin expansion and margin levels over time. Have you guys thought about introducing that now that we're sort of in positive operating margin territory now for Workday?
It's something we have thought about and that we will do at some point in time. We're not quite ready yet, but we realize that it's important to give you some more longer-term visibility. You'll hear more from us on that front at some point in time.
Great. As a quick follow-up, on the international side of the business, delivered some healthy growth. I was wondering if you could give us a sense of sort of the penetration, what your view of penetration rates are in the U.S. versus Europe versus maybe rest of world. Where do you see the opportunities at HCM, and how long will it take for financials to follow? Thank you.
Yeah. We are still in early days globally for HCM. Clearly, the U.S. markets are more mature, but opportunities outside of the U.S. remain robust. I think Aneel commented on the financial traction and following the HCM 1 going forward.
I would add that Nuffield Health in the U.K. is a great data point. It's a very large healthcare organization in the U.K., and they subscribe to all of our HR and financial products. It's not a medium size, it's a large enterprise that chose us for finance in the U.K., and I think that's a good sign and a good start to selling financials outside the U.S.
Your next question comes from Mark Murphy with JPMorgan. Your line is open.
Yes, thank you very much. I'll add my congratulations. Aneel, in the past, you have mentioned one of the drivers of your opportunity set being the cycle of the legacy deployments of PeopleSoft and SAP that are becoming fully depreciated or outdated or are for some reason being sunsetted. I'm just curious what you're observing there in terms of the vintaging of those replacement cycles in HCM, in financials. I think what some of us are trying to get at is just the sustainability of this incredible wave of large deal wins that you've had, and whether this feels sustainable for a while to you.
We're now getting into the later versions, not the really old versions, but the later versions of the legacy systems coming off maintenance. I do believe that's a factor. I'm not sure what's happened the past two quarters, but activity has definitely picked up. There's no question about it in Q4 and Q1. My other hypothesis is that the cloud, at least for HR, is clearly moving to Main Street, and it's becoming more accepted. Historically, retail has not been one of the industries that's been an early adopter of new technology. It's been historically technology and financial services. The high tech and the fin services worlds have been early adopters. Now as it's getting to some of these markets like healthcare and retail, I think it's telling you that we're moving into another level of adoption of HR in the cloud.
At the same time, the systems, even the most current legacy systems, are coming off maintenance. I think there are a couple of factors at work right now.
Also, as a follow-up to that, I wanted to ask, are you seeing cases where you can allow companies to put a Workday Financials kind of a front end on top of a legacy financials back end with the help of connectors, if you will, kind of creating a reporting layer on top of that existing financial system as a preliminary step to ultimately displacing the general ledger in the future?
Absolutely. That was actually a big driver of our financial performance management SKU, which we introduced at the start of the sales year. Be able to bring in not just the finance reporting, but actually planning analysis and consolidations into an environment likely that's already an HR customer, and come back for the GL later. That is a newer initiative, but the products are actually fairly mature, with the exception of planning that's getting mature quickly. We're definitely getting traction with that message and with that offering. So I think you'll just see continued pushing of that offering into our customer base, into our prospect base.
Thank you.
Your next question comes from Mark Marcon with RW Baird. Your line is open.
Good afternoon, and let me add my congratulations. On the HCM side, I missed the total number of new logos that you may have brought on board. I was wondering if you could talk a little bit more about the source of growth there, splitting it out between new logos versus existing clients bringing on new modules.
We didn't announce the HCM number, and we'll do it from time to time. We announced the financials number just because there seems to be so much interest in that number. I think just at a high level, a lot of that growth was driven by new accounts as opposed to selling back into the install base. That still is a big opportunity in front of us. There's definitely some of it every quarter, but most of Q1 was landing new accounts.
Great. With regards to the big accounts that you ended up mentioning, like Target, did they bring you on for all modules, or was it primarily the HCM backbone?
I'm not exactly sure. I know it's core HR. I believe it's at least a couple other modules. We'll get back to you on that one. I mean. Some of these larger ones, they start out with the core HR project, come back for payroll and recruiting and learning later. We'll get to the exact details of that. We may be in the call back.
Super. Thanks.
Your next question comes from Richard Davis with Canaccord. Your line is open.
Thanks. I think I recall at the Analyst Day, there was some discussion about opening up and building out a platform strategy where you have your partners and ISVs and things like that. Where are we on that angle? Thanks.
Well, I alluded in my script that there was other exciting announcements coming down the path this year. I'll probably just leave it right there.
There you go.
I would just say that we've been working on that initiative since David Clarke committed to it at that financial analyst meeting in the fall. We'd actually been working on it for a while before that, just stay tuned.
Got it. Just a real quick follow-up. You guys have done a good job of building a good reputation for a good culture. Are you guys on track in terms of hiring for your sales and development staff? How does that feel these days?
I'll answer the development piece, I'll ask Chano to comment on sales. We continue to hire very well on the development front. I would say that Silicon Valley is just more challenging than it has been, both in terms of not just competition, but just the cost of living here. We've been relying more on places like Boulder, Colorado, and Dublin, Ireland, to begin building out our development organization. We're finding the talent. It's maybe not all in Silicon Valley the way it was five to seven years ago.
Got it. Thank you.
On the sales front, the company's becoming more attractive as appealing to customer satisfaction and innovation. We're on track. We just continue to be focused on the right mix between culture performance and cultural fit.
Super. Thank you so much.
Your next question comes from Brad Reback with Stifel. Your line is open.
Thanks very much. A little while ago, you guys filed a mixed shelf. Can you give us some sense of what use of proceeds might be for, given the magnitude of the balance sheet right now?
Yeah, Brad, we actually had a shelf registration that expired just a short time ago, and so this was just replacing that before we filed our next 10-Q, which will be tomorrow. There's no current intended use for that shelf registration at this time.
Great. Thanks very much.
At this time, we have only time for two more questions. Our next question comes from Ross MacMillan with RBC Capital Markets. Your line is open.
Thanks a lot. My congratulations as well. Apologies for my voice. One for Aneel and one for Robynne. Aneel, coming into this year, you had alluded to the fact that you're going to be as focused on maybe selling edge financial applications as core financial applications, but it sounds like Q1 got off to a stronger start on the core financial applications. I was just curious as to whether that was driven by any additional incentives, whether it was for the sales force, whether it was driven by just deals closing faster than you expected. Just curious for any color around why we maybe got positively surprised on the strength of Financial Management core in Q1.
I would attribute it to two things. Chano has brought focus to financial sales. Not that we didn't have it before, but I would say more intense focus to financial sales, and we just executed really well. I'd also say that the strength of financials wasn't limited to core financials. It included strength and planning, which we alluded to in the script. Expenses, projects, really across the board. Not just limited to core finance. It was just a strong quarter across the board, and I think it's a couple things. There's no question the finance market's moving into the cloud. We're all trying to figure out the pace at which it's moving into the cloud. What we're seeing is we're beginning to see healthy levels of adoption, and our sales force getting more focused and getting better, frankly, at selling financials.
Great. Thanks. Well, one for you. Just on the contracted recurring backlog. I heard you give us something on duration, but it was a little confusing to me. It sounded like you gave us a two-year recognition, and then beyond two years. I thought we were maybe going to get something more like an average duration. Maybe you could just recap on what you said and how we should think about your disclosure on duration going forward. Thanks.
Sure, Ross. What I said was that two-thirds of that $4 billion number would be recognized as revenue over the next two years. We thought long and hard about what the right disclosure should be to give you guys some color around term. You have a lot of information around what's going to roll off over the next 12 months, including subscription revenue guidance from us, including the unearned current balance on the balance sheet. We thought that giving you a little further out would help give you some color on that duration. The disclosure requirements are pretty flexible on what we can do. We were trying to find something that was quite useful.
As our peers adopt next year, if there are other conventions that seem to emerge along that front, then we'll certainly take a look and reevaluate the way we're disclosing it at that time.
Great. Thank you.
Our final question comes from Pat Walravens with JMP Securities. Your line is open.
Hi, this is Mathew Spencer on for Pat. Thank you for taking my question. If you wouldn't mind, could you please just explain some of the demand drivers you're seeing within learning, and also who in particular are you competing against there? Thanks.
I'd tell you it's the same demand drivers we're seeing across the other products, right? It's the benefits of moving to the cloud, the better user experience. I'd add that our learning product is just different from what else is on the marketplace. It's a lot more than just the administration and tracking of classes. It's the ability to create content, track that content, and really engage the employee base on how they're learning within the organization, much more like a corporate YouTube. I think in some places, we're replacing some of the best-of-breed players, and in other places, we're coexisting for the time being. We're not really necessarily focused on replacing. We're focused on delivering learning to our customer base. If they choose it to replace an existing system, great. I know we've replaced SuccessFactors learning quite a few times.
I suspect that we're replacing Cornerstone in some places. In other places, we partner with Cornerstone.
That's helpful. Thank you very much.
We thank you for your participation in today's earnings call. You may now disconnect, have a great day.