Welcome to Workday's First Quarter Fiscal Year 2022 Earnings Call. At this time, all participants are in a listen only mode. We will conduct a question and answer session towards the end of the call. I would now hand it over to Justin Furby, Vice President of Investor Relations. Thank you.
You may begin.
Thank you, operator. Welcome to Workday's Q1 fiscal 2022 earnings conference call. On the call, we have Aneel Bhushri and Chano Fernandez, our Co CEOs Robin Sisco, our President and CFO and Pete Schlamp, our Executive Vice President of Product Development. Following prepared remarks, we will take questions. Our press release was issued after close of market and is posted on our website, where this call will be simultaneously webcast.
Before we get started, we want to emphasize that some of our statements on this call, particularly our guidance, are based on the information we have as of today and include forward looking statements regarding our financial results, applications, customer demand, operations and other matters. These statements are subject to risks, uncertainties and assumptions, including those related to the impacts of the ongoing COVID-nineteen pandemic on our business and global economic conditions. Please refer
to the press release and
the risk factors and documents we file with the Securities and Exchange Commission, including our 2021 Annual Report on Form 10 ks and most recent quarterly report on Form 10 Q for additional information on risks, 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 Q2 quiet period begins on July 16, 2021. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2021. With that, I will hand the call over to Anil.
Thank you, Justin, and good afternoon, everyone. Thank you for joining us today for our Q1 fiscal year 'twenty two earnings call. Before we jump into our quarterly results, first, a huge congratulations To Workday ambassador and my good friend, Phil Mickelson, I'm winning the PGA Championship over the weekend, an amazing accomplishment and proving once again In addition to being a great person, Phil is one of the most talented golfers of all time. I'm pleased to report that Workday had a strong quarter, Starting the year with significant momentum and positioning us well for a great fiscal year 2022. In Q1, we saw an increase in demand across all product areas, while delivering strong non GAAP operating margins of 25%, showing the strength inherent in our underlying business model.
Our results support the acceleration in digital transformations across HR and Finance, and Rob will share more shortly on how we plan to invest behind this opportunity. Let me share some highlights starting with Workday HCM. We continue to be the market leader with our differentiated suite of products and continued innovation. We're seeing an increase in demand as more and more organizations prioritize transition of HCM systems to cloud to deliver a world class employee experience. In Q1, we welcomed ASM Global, Las Vegas Sands Corp, Mattel, 5 Below Inc.
And Cost Plus World Market to the Workday family, along with many other new HCM customers. Even with all the sales momentum, we continue to have over 70% of our HCM in production with notable go lives in Q1 including Filman AG, University of Sydney and Macquarie University to name a few. Turning to Workday Financial Management. We saw momentum build in Q1 as companies increasingly prioritize digitalization within the office of the CFO. In addition to an acceleration in core financials bookings, we also saw strength across the portfolio with offerings such as Workday Adaptive Planning, Spend Management, including Workday Strategic Sourcing, formerly known as Scout and our Enterprise Finance Solutions.
New customers in Q1 included Los Angeles Department of Water and Power, Saks and St. Francis Health System Incorporated
with add
on wins at FHI and Werner Enterprises. Our focus on industry solutions was also a key contributor to our success during the quarter, where our PSA solution was a key driver to our broader HR and Fins platform win in Q1 at accounting firm RSM US. And our accounting center solution was part of a Fin's first win at National Farmers Union Mutual Insurance. Our strong position continues to get recognized by the market. For the 5th year in a row, Workday was named a leader in the Gartner Magic Quadrant for CloudCore Financial Management Suites for midsize, large and global enterprise last published on May 1 this year.
Taking a step back, we continue to focus on delivering a global solution that enables business leaders to plan, execute and analyze all in one system. And in this rapidly changing world, our value proposition only continues to grow as we make advances on the innovation front. In Q1, we delivered our latest feature release, Workday 2021 R1, with advancements across all product areas, including broadening the capabilities of Workday and greater functionality in spend and supplier management. We also continued our investment in world class user experience, Smarter and more personalized search and Workday people experience as well as extended capabilities in natural workspaces outside of Workday, such as Slack and Microsoft Teams. And to further enable customers in optimizing the future of their employee experience, this ever changing world, I'm proud to announce that we closed on the acquisition of Pecan, now a Workday company.
China will add more color on Pecan in a few minutes, but we couldn't be more excited by the opportunity we see with the Pecan offerings and are excited to welcome the Pecan team to Workday. In our history, innovation and empathy have always led to greater customer satisfaction, which is at the heart of everything we do at Workday. I continue to be so grateful to our teams who have all supported customers in entirely new ways to ensure their success during these challenging times. Underscoring this dedication, I'm pleased to announce our latest customer satisfaction score of 97%. The survey is Particularly meaningful as it provides us feedback from our names, support contacts, those who are closest to engaging with the Workday experience on a daily basis.
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. As we look ahead, we see a tremendous opportunity in front of us to partner with more organizations across all industries and serve as a backbone of their digital transformation efforts in this changing world. And foundational to delivering on that opportunity will be a motivated and growing group of employees. So So as we move forward on this growth path, we plan to increase our global workforce by more than 20% or 2,500 new hires in fiscal year 2022. In doing so, we'll have an even stronger foundation to scale and innovate on our path to $10,000,000 This quarter was a strong Our fiscal year and set the stage for acceleration in our business.
As I look ahead, my optimism for Workday's future could be higher. We have a great team in place and a significant global opportunity in front of us as companies continue to embark on their HR and finance transformation journeys. With that, I'll turn it over to my good friend and Co CEO, Chano Fernandez. Over to you, Chano.
Thank you, Anil. As Anil mentioned, we're off to a strong start in FY 2022 with meaningful new bookings acceleration in the Q1 as organizations increasingly position Workday as the backbone of their digital transformation. Our Q1 bookings outperformance combined with continuous strength in pipeline generation, provide us with increased confidence in driving accelerated new bookings growth in FY 22. This quarter's results were once again driven by a strong execution and high conversion rate. We saw a pickup in net new business as bookings from new HCM and financial customers improved along with the overall environment.
And our installed base team had another outstanding quarter, sustaining the momentum we saw throughout last year, driven by solid renewal rates as well as strength across solutions. As Anil mentioned, we have notable outperformance from planning, core financials, analytics, Spend management and our talent portfolio. From a geographic standpoint, we saw outperformance in North America and APA, while also driving healthy bookings growth across EMEA. Our medium enterprise team also had an exceptional start to the year as our investments in that market continue to bail and our strength continued in vertical markets such as professional and financial services, Healthcare and Education and Government, where industry specific innovation and a dedicated go to market effort are critical to our success. As Anil previously said, we have significant hiring plans in FY 2022 and the sales and marketing organization is one of the biggest areas of plan headcount additions as we look to accelerate and sustain long term growth.
The investments are broad based and global in nature, including quota carrying capacity, presales and business development. We're also investing in known Some areas such as marketing and brand campaign focus on the office of the CFO. During Q1, we began ramping up this investment and are very pleased with the healthy pipeline growth that they help drive. Based on the initial returns we have seen, we expect to accelerate the pace of these investments in the coming quarters, and I look forward to updating you on our progress. Organizationally, I'm pleased to say that we have Successfully integrated the people sales teams into Workday with both our installed base and menu sales teams now actively selling this solution in Although the acquisition just closed in March, we are very excited by the pipeline momentum.
We had a number of meaningful people upsell deals within our customer base in Q1 and the solution is already opening up doors for new significant customer relationships. Ensuring customer success has always been a core value at Workday, I am delighted to Say that our customer success and services organizations have performed incredibly well, taking hundreds of customers live across our core Centimeters and Financial Management offerings as well as our portfolio of broader solutions targeting the CFO, CHRO and CIO. Our partner ecosystem is also critical, not only helping take customer side, but co innovating on the guar tape platform, enabling acceleration of our pace of innovation and engaging even more strategically with our partners. Finally, on behalf of the entire Bark Day leadership team, I would like to say thanks to all of our Bark Mates across the globe. Thank you for a terrific start to FY 2022 and let's keep the momentum going.
With that, I will turn it over to our President CFO, Robynne Sisco. Over to you, Robynne.
Thanks, Chano, and good afternoon, everyone. As Anil and Chano mentioned, we delivered a solid Q1 driven by strong execution against an improving market backdrop as organizations look to accelerate the pace of their digital transformations across HR and Finance. Subscription revenue in the Q1 was $1,030,000,000 up 17% year over year, driven by strong new business sales, favorable in quarter linearity and an over performance on customer renewals. Professional services revenue was $143,000,000 and total revenue came in at $1,180,000,000 Revenue outside the U. S.
Was $292,000,000 representing 25% of the total. 24 month backlog at the end of the Q1 was $6,590,000,000 growth of 20%, driven by strong new bookings across both net new and add on business. As I discussed on the last earnings call, The amount of ACV coming up for renewal in FY 2022 is relatively flat from last year. This dynamic is purely a function of the mix of historical contract lengths that created a headwind to 24 month backlog growth in Q1 of a couple of percentage points, an impact that we expect will persist throughout this fiscal year before we return to a more normal level of renewals growth in FY2023. Total subscription revenue backlog at the end of Q1 was $10,080,000,000 growth of 23%.
Our non GAAP operating income for the Q1 was $289,000,000 resulting in a non GAAP operating margin of approximately 25%. Margin overachievement was driven by a combination of top line overperformance and favorable expense variances. Specifically, it took longer to ramp up hiring and external resources, and we had lower than expected costs related to Pecan. We have very ambitious investment targets for the remainder of the year in support of our growth aspirations and have confidence in our ability to continue to ramp these investments throughout the year. Operating cash flow in Q1 was $452,000,000 growth of 72%, driven by a combination of operating margin expansion and strong customer collections.
As Anil mentioned, our biggest investment continues to be in our people and in attracting top talent to Workday. During Q1, we began to ramp the pace of hiring, successfully adding and integrating roughly 600 net new employees, including over 250 from Pecan, bringing our total workforce at the end of the quarter over 13,100 employees. Overall, we are very pleased with the momentum we saw in Q1 and we're continuing to invest to support growth as the environment normalizes. Turning now to guidance. Based on our over performance in Q1, we are raising our FY 2022 outlook and providing Q2 guidance as follows.
For subscription revenue, we're raising our full year estimate to be in the range of $4,425,000,000 to $4,440,000,000 growth of 17%. As a reminder, pecan is expected to add less 1 percentage point to our overall subscription revenue growth in FY 2022. We expect our Q2 subscription revenue to be 1 point $95,000,000,000 to $1,097,000,000,000 18 percent year over year growth, with sequential growth in Q3 and Q4 of approximately 3% and 4.5%, respectively. We still expect professional services revenue to be $590,000,000 in FY 2022 as we continue to prioritize driving the highest levels of customer success. For Q2, we expect professional services revenue of 145,000,000 Taking into account the renewal headwinds I mentioned earlier, we expect 24 month backlog growth of 17% in Q2.
Investing for growth remains our number one priority. As Anil mentioned, we expect an increased pace of hiring across the company in FY 2022 as well as a ramp of non headcount spending with a focus on sales, marketing and product, specifically targeted at accelerating demand generation, enhancing our market position and advancing our strategic product roadmap. Given that, we expect margins to moderate throughout the year with a Q2 non GAAP operating margin of 20% and a full year non GAAP operating margin in the range of 18% to 19%. The GAAP margins for the Q2 and the full year are expected to be approximately 24 percentage During Q1, we completed the $171,000,000 purchase of 5 buildings at our Pleasanton campus. This purchase is important to our headquarters strategy and affords us control of our core campus buildings.
We do not Any further owned real estate investments for the remainder of the year and we continue to expect $270,000,000 of other capital investments to support our customer growth and continued business expansion. And finally, I'll close by thanking our amazing employees, Customers and partners for their continued support and hard work. We're off to a great start for FY 2022 and our focus remains on driving accelerated With that, I'll turn it over to the operator to begin Q and A.
At this time, we will be conducting a question and answer session. A confirmation tone will indicate your line is in the question Our first question comes from the line of Kurt Materne with Evercore ISI. You may proceed with your question.
Okay. Thanks very much and congrats on the good start to the year. Neil, I want to go back to sort of your comments, not only this quarter, but actually last Quarter about sort of the building pipeline and sort of the opportunity to accelerate bookings in the back half of the year. Just How are you feeling about that opportunity? You're obviously investing against that opportunity, so I assume you still feel good about it.
But maybe how should we think about that playing out over the years. It could be perhaps a little bit more back end loaded. Just give us some more color on that idea because I think everybody hears your enthusiasm on The pipeline and the buildup, but obviously the Q2 doesn't necessarily reflect that. So just want to make sure there's no change in the longer term thought process. Thanks.
Well, so just remember that subscription revenues lag bookings growth and We accelerated bookings growth in Q1, and frankly, more than even I had expected in my usual optimism. So it takes a while for that accounting to catch up with the acceleration in net new business. But the net new business and better than expected performance across really all products It leaves us with a lot of optimism. And then, of course, we had a great renewals quarter, too. I might turn it over to Chano, But I think that acceleration has already started.
Yes. Thank you, Anil. Hi, Kirk. We have healthy pipelines looking ahead for Q2 across both HCM and Fins and across How the rest of the year should be performing in terms of supporting our accelerated bookings and definitely having a strong second half, right? As you know, we have increased seasonality in the second half of the year as it relates to new ACV bookings, and that's no different this year With a meaningful part of the pipeline strength we've had the last few quarters targeted to close in the second half.
So I would say, based on where we are today, I'm excited about both Q2 and the second half, and we expect strong results across both.
That's great. And Chana, if I could ask you just one follow-up. You mentioned on the headcount additions, quota bearing reps, International is still only 25% or so of your revenue. Can we expect that there'll be a pretty heavy investment in some of these international regions? And Are they starting to perk up pretty nicely for you all at this point in time?
Yes, you should be expecting that part of that quota Carrying reps that we are hiring will be certainly across net new international and store base, some of the verticals that we are playing. And we're seeing already acceleration in Q2 in international in terms of booking. We should be expecting that with the strong pipeline Performance we ended at end of last year. Again, it is for us now to execute. And of course, as the market is more Recovering and opening after the COVID kind of headwinds that we saw last year, particularly net new, I would be expecting that net new
Our next question comes from the line of D. J. Hynes with Canaccord. You may proceed with your question.
Hey, thanks guys. I'm going to ask a big picture question. I don't know if it's better for Anil or Jono. But one of the questions I sometimes get from investors that If this business is going to double over the next 4 to 5 years, say, what do you think the mix of land versus expand looks like to get there?
That's definitely a question for Chano.
Yes, I would say it would just get much more balanced. Clearly, we've been talking traditionally that the installed base and some of the more land business was 20% of our new business bookings is clearly represented more today and definitely is balancing out as we see especially more landing products with TECO, Nowadays, Scout, Planning. So You should be that balancing out. Honestly, it's kind of still hard for me to say when it's exactly going to be equal, but because we certainly want it to remain very Strong on both fronts, and we're very excited right now that menu bookings or menu logos is accelerating. But clearly, as well, we're playing these days We're seeing these products when trying to meet customers where they are in the journey, when they're not ready to do a part of the transformation.
The breadth of our portfolio today is significantly stronger and broader, and that is allowing us to play
And then a follow-up Kirk's question around the hiring. Look, I think the margin upside may and you guys alluded to this that Say that it's been a bit harder than expected to kind of ramp back up the HR engine. Like where would you say you are in terms of getting the pace of hiring back up to kind of Pre COVID or maybe faster levels and what do you think what have been the biggest challenges there?
So why don't I take that one? So as you can see
Yes, take that one, Robin, please.
Sorry, Chano. When we look across the entire Company, you saw us accelerate in Q1. We had over 600 net new hires and while 250 came from Pecan, 350 were organic and that compares to relatively flat ish headcount last year. So we feel good that we are ramping and we feel really good about the pace of hiring coming out of Q1, and you should expect it to accelerate across all areas in Q2 and then stay at that heightened pace for the rest to the year. And China, I don't know if you want to add anything specific to sales to that.
No. The only thing I would add maybe to sales is that it's being Already an important area of investment in terms of hiring in Q1, potentially the highest one we've been having across the company. And we've been our intent is just to keep ramping up as we go throughout the year.
Yes, great. Okay. Thank you, guys. Congrats on a good start.
Our next question comes from the line of Keith Weiss with Morgan Stanley. You may proceed with your question.
Excellent. Thank you guys for taking the question and really nice start to the year. It sounds like momentum is coming back in a really big way. Question for Robin, because these subscription models are tricky and you've been warning us about the impacts of a weaker expiry base this year and gross dollar, sort of the growth from the renewal base is basically flat from last Is that impact even across the year? Is that something that we're going to deal with each and every quarter?
Or is there any kind of seasonality to that that we should be thinking about.
Yes, Keith. So that will impact every quarter throughout this year. And while the impact will bounce around a little bit, We do expect it will be a couple of points throughout the year. But keep in mind, when we look at historical renewal levels, there's a range of normal growth. So quantifying the exact impact, not it's difficult to be very precise, but we wanted to give you a feeling for the magnitude, but we do that will persist every quarter throughout this year and that will return to more normal levels next year.
Got it. And when you talk about
a couple of points, is that a couple of points of Bookings growth you're talking about or is it the RPO growth? A couple of points specific to which one?
24 month backlog
growth. Okay. That's super helpful. And then like underlying that, that's just about contracts For renewal, like the renewal rates themselves, those are staying pretty solid?
Yes, that's correct. In fact, we had an over performance of renewal rates in Q1, so we feel really good about This is just scheduled renewals, which is purely a factor of terms of previous deals. And again, just to reiterate, no impact on this flattened renewal base to subscription revenue, just backlog.
Got it. Okay. So it sounds like
the factors that you guys have in your control are all doing really well or actually outperforming. It's just the timing on contract Renewal of that are creating a little bit of a drag.
That's correct. On the 24 month backlog number, yes.
And the total backlog number as well. Perfect.
That's super helpful. Thank you so much.
Our next question comes from the line of Kash Rangan with Goldman Sachs, you may proceed with your question.
Thank you. Robin, I have a question for you. Just extending your logic with the renewal base Being a little bit challenged this year, but your net news is starting to accelerate. So going into next year, down to 'twenty two with a stronger renewal base. So what does that mean for backlog growth next year.
And also, I think, Aneel or Sean, maybe on previous quarterly earnings conference call, you talked about financials migrations being pulled in by a year or 2. Can you just give us an update as to what you've seen so far with respect to customers' intent to move a little quicker on CorFINS migration. Thank you so much. Congratulations.
So Kash, as I've mentioned before, the impact from last year's new business headwinds is more Fully felt this year across key metrics such as backlog. As Anil talked about, we feel confident in our ability to accelerate new bookings growth this year and Q1 results really underscore that. But keep in mind that the bookings acceleration this year will take time. It has to compound into the model to be able to offset the cumulative headwinds from last year. So as we execute against our bookings targets this year, the first thing you should expect to see is Stabilization in the backlog number, as we move through the year.
Now there will still be some quarter to quarter fluctuations, but Stabilization is really the precursor to reaccelerated growth. A little too early to talk about whether that happens next Here or not, we have to move through the year and see how we finish.
Yes. Got you. On the Fins one, well, already Fins is a key part Of the reacceleration story, we are seeing more and more of these opportunities coming to market. And not only did we have several The expense wins in Q1, as Anil mentioned, we have solid Fins pipeline growth as well. There are also emerging opportunities through our enterprise Finance solution, where we are now much better positioned to go after product based industries like retail and manufacturing.
And we had nice wins here in Q1, including burner tracking, for example. I would like to highlight the momentum isn't limited just to core financials, which
I'm referring to. It is
also a broader solution set which I'm referring to, it is also a broader solution set that we are selling into the office of the CFO. As you know, includes Planning, which we had a very strong quarter in Q1. Spend management had another fantastic quarter in Q1. Analytics, so So we're really trying to make the best out of the product portfolio with both our installed base customers and menu logos.
Wonderful. Thank you so much. Congrats again.
Our next question comes from the line of Brent Bressler with Piper You may proceed with your question.
Thank you. Perhaps for Chano or Neil here. I wanted to go back to this Acceleration in bookings here in Q1. I think we were thinking bookings would reaccelerate in the second half In part on easier compares, but it came here in Q1. So walk me through the drivers of the acceleration.
It sounds like Fins is part of it, but are you seeing just shortening sales cycles? Are you seeing enterprise appetite to kind of invest in the office of The CFO pick up more than you anticipated. Can you just walk through other factors that kind of drove the Expected acceleration here in Q1. I know the compare wasn't as easy as the compares are going forward. So just walk us through factors there that
So maybe I'll give a high level perspective from Talking with whole host of CEOs and then I think a big part of it was also terrific I think everybody is beginning to look forward now. I won't say everybody, but a lot of industries are looking Including airlines, including travel companies, we seem to be putting the pandemic as much behind us as we can and people are looking forward to the future. And when they do that, It bodes well for us. And I think that's what happened. It probably happened a quarter earlier than we expected where The return to normalcy would begin to show up in not just the pipeline, but actually in deals closed.
I also think for Q1, it was terrific execution, and I'll defer to Chano on that topic.
Yes. Thank you, Anil. I think, first of all, great execution by Doug Robinson and the team. So thank you guys for what you did. Clearly, the momentum is back.
And we said last year, we were Producing good pipeline generation during the second half last year and kind of already been Q2 last year. Some of that pipeline, of course, was Mature to be closing already in Q1. I think the major factor, it came back significantly net new logos, And that produced a big part of the acceleration. Financials really, both in our installed base and Sanofi Logos, help out with the acceleration. The breadth of the product portfolio, as I said, with SaaS solutions, I mentioned, they are planning, the spend management, among others, Beacon Had a very good quarter as well, though of course, we only had kind of 4 or 6 weeks that really were part of our quarter.
So there were a number of different elements. Rest of the world, both EMEA and APA, I commented on my prepared remarks that both of them still accelerating bookings. So I think it was a balanced picture across solutions, financials and HCM, Net new installed base and I would say geographies as well. So it was around this quarter. I think companies are realizing that Worthy is really the true backbone to support the digital transformation.
And message seems to be resonating, momentum is there. So we just Need to keep executing upon that momentum.
Helpful color. That's all I had. Thanks.
Our next question comes from the line of Karl Keirstead with UBS. You may proceed with your question.
Great. Thanks. Hey, Robin, I'm just thinking about your 3rd quarter and 4th quarter subscription revenue growth guidance. When I look back over the last 4 years, Workday's got a pattern where Your 3Q sequential growth in subscription revenues is in line with or actually above 4Q. So the guidance that you gave us for 3% sequential growth in 3Q and 4.5% for 4Q implies a little bit more of a 4Q SKU than we've seen in the past.
And I'm wondering if you could just address that. And does that imply that perhaps the total bookings acceleration that Aneel and Chano have been talking about is perhaps a little bit more of a 4Q phenomenon. Thank you.
Yes, Carl, so we're not seeing any massive changes in trends of seasonality. And as always, we expect Q4 to be our most significant quarter. A lot of the sequential growth has to do with linearity within the quarter. We saw a strong in quarter linearity, example, in Q2, and it's harder for us to predict, the further out we are. So we're still early in the year.
We'll give you better guidance Around Q3 and Q4 at the next call, but we just wanted to make sure you guys saw what we were seeing. But We don't see anything massively different, but it will really be tied to the linearity of how the deals flow within the quarter.
Okay. That makes sense. And if it's okay to ask a follow-up to you, Robin, on cash flow, Workday has done, it looks like About $1,000,000,000 of operating cash flow in the last two quarters. I don't think we've ever seen that. So you mentioned the higher margins and the good collections, but Anything else funky going on, Robin, around cash flow?
And any thoughts you could provide us in terms of the relationship between Cash flow and operating margins as we build out our models for the full fiscal year? Thanks a lot.
Yes. So Part of our flattish operating cash flow this year is due to the margin contraction that we expect to happen throughout the year, so that will become a headwind on cash flow growth year over year. We've done really well on cash, and Certainly, I see some upside to our guide, but our biggest cash flow month is January. In fact, the last 2 weeks of January, where we have a very significant amount of annual invoices come due. And so We need to just take a wait and see attitude as we go through the year, but I certainly see some upside from our guide of $1,200,000,000
Okay, terrific. Thanks a lot for that.
Our next question comes from the line of Mark Moerdler with Bernstein Research. You may proceed with your question.
Thank you very much and congratulations on the strong start to the year. Hopefully, we see that continue to accelerate. So two questions. First, you're guiding up full year margins, while guiding to strong employee hiring throughout the year, acceleration and then sustain of that. Is the margins due to a bit more a little bit less P and E for the rest The year or is it stronger revenue expectation or is this something else, Lynn?
I got a follow-up.
Yes. There's actually several things in there, Mark. So as you know, 1% of our revenue or our margin raise was tied to the increase in our revenue Guidance rates as well. And then as I mentioned earlier, we have really ambitious investment plans and we have strong confidence that we can reach our hiring goals for the year, but the Timing of that hiring is going to cause some potential variability into the margins throughout the year. And the last thing I'll mention is, As you said, we still are getting some COVID related benefits in our expenses this year, particularly from travel, as well as office related expenses and the lull in the hiring we saw last year.
So we expect that savings to significantly moderate as we get into the back half of the year.
That makes sense. Going back to the question in terms of the cadence, when you last quarter you called out the strength in the Pipeline growth. And it sounded like there was the pipeline was more was less mature, but because of the fact it built later in the versus earlier in the year. You've talked about how that pipeline has continued, but where are we in that maturation process? Is the maturation process online or is it accelerating in terms of because we saw a strong Q1, does it have any effect In terms of when that should fall out, what are you seeing in terms of the stuff that's in the pipeline and where it's driving toward close?
Thanks.
Yes, Mark, I wouldn't say there are any significant Change of notice in the pipeline clearly as we have more significant business with our installed base and we have Higher land motion of SKUs and products, those tend to have faster Sales cycles and really they accelerate and mature faster than big transformational projects. So that can make skew a little bit, of course, that pipeline that we can be creating within the Order, we can close even at the end of the quarter or maybe next quarter. That is clearly not the majority of our pipeline. The rest of the pipeline that we were creating last year, for some of our, let's say, most significant cycles will still take this 6 to 12 months, and you should be playing see some of those playing mostly during the second half of this year.
That makes sense. Thank you very much and congrats.
Our next question comes from the line of Scott Berg with Needham
I guess I have 2 shorter ones.
First of all, probably for Chano, as you look at the deal composition this quarter, are there any difference Maybe in terms of size or number of modules that customers are buying on your initial lands versus maybe what you saw pre pandemic, Our work has seemed to show that you're adding maybe more modules on that upfront sale than previously.
I would say the highest difference or the most significant difference is there is the highest composition from menu logos That of course that we didn't see in the pandemic, there is a higher composition from financials and you know and then some of the landing SKUs. Clearly, Our medium enterprise team continues to execute really, really well and they had another phenomenal quarter And they are usually customers, tends to consume more SKUs to start with, when they become the partnership But other than that, I wouldn't say that there are significant difference to highlight.
Got it. And then my follow-up question is for Robin on the outperformance of the renewals that you called out. My guess is you called it out because it was significant enough Call out, but any additional color there maybe on what the outperformance was like or anything that you noticed from The renewals this period that might be able to be carried forward, say, to future periods?
Yes, Scott. So we were very pleased with the renewals in Q1 with gross retention once again over 95%. As you know, over the past year, we saw some impacts from increased Bankruptcies in the medium enterprise space as well as an increase in customers lowering worker counts, even as some other customers actually continue to increase worker counts. So as we approach this year, we assumed we'd see some improvements in the bankruptcies and workers' trends, and we are really pleased to see over performance in Q1 on this front. So we're off to a really good start and expect strong renewals to continue through the year.
Great. That's all I have. Thanks for taking my questions.
We will now be taking 2 more questions. Our next question comes from the line of Doug Jones with Bank of America Securities. You may proceed with your question.
Great. Thanks guys I wanted to ask the question on the Fins pipeline strength another way, if I could, please. It sounds like you're seeing wider lands coming into the pipeline And I assume that's due to the progress you've made in all these add on modules and vertical applications, planning, sourcing. There's a lot in there. But are customers starting with more departmental wins still?
Is this kind of any color on just where they're What those pipeline deals look like for Fins in particular? Or are you seeing a move towards wider multi deals that are coming into the pipeline and customers going bigger initially across more organizations with Fins. Thank you.
Yes. Thanks for your question. I think not necessarily we're seeing more departmental wins clearly on some large customers. We are playing some A mental starting point of view, but I think what we're seeing in Phoenix is the just the maturation of the pipeline that we've been working on right now. We're becoming a much more prominent and referenceable solution in the market with many more references and customers really appreciate that Kuarte is Big player in the enterprise financials cloud offering right now.
Then of course, the broader offer that we have Today in terms of the number of SKUs that we have around Fins, that is much more complete than it was in the past. And last but not least, I would Enterprise Finance helping us out to address markets that we certainly we could not address before. I mean, in some areas like Financial Services, clearly Accounting Center has been very strategic and very significant for us to have Very formidable Fins offering. So I would say it's a combination of different factors. I don't think it's just one single factor.
Even I would say some of the investments that we've been starting to do around brand awareness and the office of the CFO are Helping out as well in some of our international markets with our Fins solutions. So it's many different factors, not just one single thing.
That's great to hear. Thanks, Chano.
Thank you.
Our next Question comes from the line of Brian Schwartz with Oppenheimer. You may proceed with your question.
Thank you very much for taking my questions and congratulations on a real good start I just have one question for Chano. It's on the back to work. And I'm just wondering in your conversations or maybe in the pipeline Composition, do you sense businesses are still holding back on certain initiatives, whether it's either in HCM or FINS that could get prioritized when more and more employees return to the office later this year. Thanks.
Yes. Thank you, Brian, for your question. I think so. We'll need to see how it plays out. What we're certainly Seeing, Anil was commenting in some of our conversations with C level executives and our customers.
They clearly have been prioritizing employee engagements I'm back to work and kind of the HR offerings. But right now, we're seeing as well how they start to reconsider and there is some sort of pent up demand, I would say in terms of overdue projects on the office of the CFO that should have been done, that they're starting to get it done. So I think is that what we're seeing in terms of that digital acceleration transformation as a whole, and we play very well on that one as the enterprise back on that transformation.
That's helpful. Thank you, Chano.
Thank you.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude today's Workday's 1st quarter Fiscal Year 2022 Earnings Conference Call. Thank you for your participation. Enjoy the rest of your day.