Welcome to Workday's First Quarter Fiscal 2021 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 Vice Chairman. 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 is being simultaneously webcast. 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-19 pandemic on our business and global economic conditions. Please refer to the press release and the risk factors in documents we file with the Securities and Exchange Commission, including our most recent annual report on Form 10-K for additional information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Workday's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, in our earnings press release and on the Investor Relations page of our website. The webcast replay of this call will be available for the next 90 days on our company website under the Investor Relations link. Also, the Customers page of our website includes the list of selected customers and is updated monthly. Our second quarter quiet period begins on July 16, 2020. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2020. With that, let me hand it over to Aneel.

Thank you, Justin, and welcome to Workday's First Quarter FY '21 Earnings Conference Call. Before we get into our results, I want to express my sincere appreciation to our more than 12,000 employees who have responded in such a remarkable way to support one another and our customers during these uncertain times. This team continues to push forward across all areas of our business, and I've never been more proud of them. As we continue to navigate this period, we have stayed very focused on our core values as our North Star. That means our employees come first, always and without exception. I also wanted to express my sincere thanks and gratitude to our customers, many of whom are on the front lines and putting themselves in harm's way every day. Thank you from all of us at Workday. Over the past few months, we've worked closely with our customers to configure their Workday solutions to help them navigate new challenges and opportunities presented by this current environment. We've also heard from countless customers who, like us, are using Workday to seamlessly close their books 100% remotely for the first time ever. We have healthcare customers that are relying on Workday to redeploy critical people resources with great agility, and we have heard from our Planning customers who are using our solution to dynamically adjust their financial workforce plans. In fact, in late March, we saw a more than 30 times increase in the number of scenario models that our customers were running. These are just a few examples where Workday has empowered our customers to better navigate this challenging and fluid environment. Just before today's call, we announced one more. Workday and Salesforce have been great partners for a long time and now have countless joint customers. When the pandemic hit, many had to flip to a completely remote workforce overnight, closing offices, schools, services, and more. And others had to turn on a 24/7 team in an instant. Our HCM customers are leveraging the power of the data in Workday as a source of truth to manage their workforces, which has included things like identifying essential workers, deploying people with relevant skill sets, and more. And at the same time, Salesforce has just announced Work.com, which is a powerful platform for organizations to reopen safely and manage the logistics of returning to work. So it only made sense to bring Workday and Work.com together in a way that will simplify things for our customers immensely, eliminating the need for reconciliation between various systems and more as they prepare their workforce and return to work safely and securely. This is just a start. Now moving on to the business highlights from Q1, beginning with Workday HCM, where the journey to the cloud continued despite the challenging backdrop. In Q1, we were selected as the core HCM vendor for one of the largest city governments, the City of Los Angeles. We also welcomed a utility company in EMEA with over 80,000 employees as well as a large insurance company in Asia Pac with over 50,000 employees among the many new HCM customers in the quarter. Turning to Workday Financial Management, I'm pleased to say that we now have over 900 customers that have selected us as their core financial system. We saw continued momentum in Q1, including a Financials first win, a Fortune 50 company, Fannie Mae. Other new Financial customers included Louisville-Jefferson County Metro Government, Okta, as well as a large healthcare company with more than 60,000 employees. Amongst the many Financials go-lives in the quarter, I would like to highlight Lithia Motors and RaceTrac Petroleum. We also saw solid demand for our expanding suite of products that support the office of the CFO and the Chief Procurement Officer. On the Planning front, we expanded our partnership with Microsoft, so Workday customers can run Workday Adaptive Planning on Microsoft Azure Cloud. Microsoft became the first Workday customer on Azure as they adopt Workday Adaptive Planning to help them with planning, budgeting, and forecasting. Scout RFP had a solid first full quarter under Workday with multiple Fortune 500 wins, including its largest-ever transaction with a large healthcare company and wins at Lowe's and Albertsons. One of the many benefits of the cloud is that we can deploy our customers 100% virtually, and we showcased the strength in Q1 with more than 90 customer go-lives in March and April alone. Quite notably, two of these customers have more than 85,000 employees each: Jardine Matheson in APJ and John Lewis Partnership in EMEA. Turning to product, we delivered our latest major release in March, which included enhanced Workforce Planning with Workday Adaptive Planning; availability of Workday Assistant, an intuitive chatbot to guide employees; new machine learning-based skills capabilities with Workday HCM to verify current employee skills and support reskilling efforts; and new data visualization and benchmarking features with Workday Prism Analytics. In addition, we made great progress on our extensibility journey. Just this past weekend, we moved our latest offering on Workday Cloud Platform, Workday Extend, to GA. This is a significant milestone for us that we believe further increases our strategic positioning with customers and partners. In addition to our powerful integration capabilities, customers can now build deep extensions from Workday's core applications. As an example, within just a few short weeks, one of our customers built an app on Workday Extend that helped facilitate hazard pay to their workers on the front lines. I'm confident that this period will ultimately serve as a catalyst to accelerate the adoption of our growing platform, supporting HR and finance systems in the cloud. Now more than ever, companies are realizing the incredible importance of having agile, flexible systems to support their mission-critical business processes. With that, I'll turn it over to our Co-President, Chano Fernandez. Over to you, Chano.

Thank you, Aneel, and good afternoon, everyone. I'd like to spend a few minutes providing an update from the field. Before I do that, I would first like to thank our entire go-to-market team for their response to this new selling environment. Though I may be biased, I've long held the belief that we have the best sales team in enterprise software. And I have never been more confident in that belief than right now, having watched our teams engage with and take care of our customers and prospective customers over the last few months. As Aneel mentioned, there were many highlights in the quarter, including the Financials first win in April at Fannie Mae. Key to signing this deal was Accounting Center, one of our new products that will enable Fannie Mae to account for and analyze their vast loan portfolio. The medium enterprise team also had another stellar quarter, continuing a multiyear trend we have seen since the introduction of our Launch program, a preconfigured deployment approach with a streamlined sales and delivery, which has dramatically reduced the cost to deploy. In addition, momentum with our back-to-base team continued in Q1. With over 50% new ACV growth, performance with our back-to-base team spans across customer segments and products, including core Financials, Adaptive Planning, Learning, and Prism Analytics. The mix of new ACV coming from installed customers has been on the rise for us over the last few quarters. We continue to add resources to better target the growing installed base opportunity, and we expect to continue to lean into this effort in the quarters and years ahead. We had considerable sales momentum across all areas of the business entering FY '21. However, as COVID-19 forced a lockdown across much of the global economy, we saw higher-than-normal deal pushouts, particularly in industries most impacted, including travel, hospitality, and healthcare. All major geographies were affected, though we saw an earlier impact in our Rest of World markets. Making the decision to move on to Workday has always been a very important and strategic one for companies and one that is not taken lightly. Given the importance of the decision and the strategic nature of the partnership with our customers, in this uncertain environment, there are companies that are prolonging that decision process as they focus first on assessing and responding to the immediate impacts to their business. The good news is that based on where we stand today, most of the pipeline impact has been opportunities moving into later periods rather than deals altogether going away, with the largest expected impact to be in Q2 and Q3. It's also important to note we have seen improved prospect engagement since April. We have also seen healthy pipeline growth for FY '22 as opportunities shift from the first half to both Q4 and into FY '22. Finally, we have adapted our messaging and areas of focus by solution and industry, doubling down on the go-to-market motions that we are confident will yield the best returns in these times of uncertainty. We are in a competitive market, but we feel very confident in our positioning and saw no meaningful changes to competitive dynamics in Q1. In addition, our discounting was in line with historical levels as most customers' negotiations centered around more flexible payment terms to help ease the initial upfront cash burden. We view our customer relations as long-term partnerships, and we are willing to leverage our balance sheet where we think it makes sense. We strongly believe that this unprecedented environment only strengthens the importance of having a single cloud system to plan, execute, and analyze your business. I cannot tell you how many prospects I have spoken with over the last few months who have told me this environment has highlighted how ill-prepared their legacy ERP systems are for rapid change. At the same time, I have also spoken with many of our customers who have told me just how mission-critical Workday has been in helping their business respond to this crisis. And I have heard from many customers currently implementing, where they are experiencing a faster and more productive project on a fully remote basis. There are many potential outcomes that will determine what the pace of recovery will look like, and we expect the environment will remain very fluid throughout FY '21. Yet despite some near-term uncertainty, we are confident that as the recovery takes hold, we're incredibly well positioned to capture on the multi-decade opportunity that we see ahead of us.

Thanks, Chano, and good afternoon, everyone. Despite a challenging environment, we reported solid first quarter results, which we believe is a direct reflection of the mission-critical nature of our solutions. I'm going to briefly recap our first quarter and provide updated guidance for FY '21, and then we'll open it up to your questions. We had our first-ever $1 billion revenue quarter in Q1 with subscription revenue of $882 million, up 26% year-over-year, and professional services revenue of $136 million, up 10%. The total revenue outside the U.S. was up 30% to $256 million. Subscription revenue backlog was $8.19 billion at the end of the first quarter, growth of 20% year-over-year. Subscription revenue backlog that will be recognized within the next 24 months was $5.52 billion, growth of 21%. In Q1, our retention rates continued to be strong with gross retention over 95% and net retention, which includes upselling at the time of renewal, over 100%. As Chano mentioned, our add-on business is growing rapidly, and we see strong sales back into our customer base both during and outside of the renewal process. Our non-GAAP operating income for the first quarter was $130 million, resulting in a non-GAAP operating margin of 12.8%. To help support our employees during these unprecedented times, in April, we paid a onetime cash bonus equivalent to 2 weeks' pay to all our nonexecutive employees. This added $79 million to our first quarter and full year FY '21 expenses, both GAAP and non-GAAP, that were not contemplated in the guidance provided during our Q4 call. Excluding this onetime bonus payment, our Q1 non-GAAP operating margin would have been 20.6%, well above our guidance, driven by top line outperformance, lower spend on travel, some noncritical program delays, and more measured hiring. Q1 operating cash flow was $264 million, growth of 26% year-over-year. During Q1, we successfully added and integrated approximately 150 net new employees, bringing our total workforce at the end of the quarter to roughly 12,400. And lastly, in April, we closed a $1.5 billion credit facility comprised of a term loan and a revolving line of credit, which we believe strengthens our financial position and provides us greater flexibility as we plan for the future. As of the end of Q1, $500 million of the term loan had been funded. Overall, we're pleased with our results and execution against a very challenging environment. And now I'll turn to guidance. When we provided our outlook in February, it was very early in the COVID-19 crisis, and we could not yet reasonably predict or quantify the potential impact to our fiscal year. In the 90 days since then, we've started to see an effect on our business on several fronts, including new business bookings, GAAP and non-GAAP operating expenses, and cash collections from customers. The updated guidance we are providing today takes into account these impacts based on what we have observed over the last few months. Significant near-term uncertainty still remains; however, so we are providing wider-than-usual guidance ranges to help take that into account. Built into our revised guidance is the expectation that the pace of recovery will be relatively slow, with Q2 and Q3 being the most challenging periods, followed by a reasonable improvement in Q4. Before providing our updated outlook, I wanted to make a few high-level comments around our business model. First, we primarily serve the large and medium enterprise market. And although even the largest companies are not immune to the current economic environment, we believe they are better positioned than SMBs to weather this downturn. Second, while our licensing model is based on the number of workers within our customers' organizations, we have measures in place that help reduce near-term volatility from employment changes. As an example, our contracts are typically only trued up annually to account for increases and decreases in worker counts. In addition, our contracts have base minimums, which limit our downside. And it is only upon contract renewal, which is typically every 3 to 5 years, that our customers have the opportunity to reset these base levels. And finally, we are very strategic to our customers, which makes our products incredibly sticky. As a result, while we may see some moderation in retention rates in the near term, likely due to increased bankruptcies and reduction in base worker counts during renewals, we expect that our retention rates will remain high. And we will continue to update you on this metric as we move through the year. With that as a backdrop, we are lowering our FY '21 subscription revenue estimate to be in the range of $3.67 billion to $3.69 billion or 19% growth. We expect our Q2 subscription revenue to be $913 million to $915 million or 21% growth. We now expect professional services revenue to be $500 million in fiscal '21 and $128 million in Q2. As always, our priority is to support our customers' successful deployment and drive the highest levels of customer satisfaction. In line with these goals, we expect a balanced approach in terms of partner and Workday primes to ensure our partner ecosystem continues to be healthy and active. For Q2, we expect subscription revenue backlog growth in the mid- to high teens. Given the current uncertainty around net new business, renewal rates, and potential changes to contract durations during the remainder of the year, we will only be providing Q2 backlog guidance at this time. Now moving to margins. We estimate Q2 non-GAAP operating margin to be approximately 19%. For the full year, we now expect a non-GAAP operating margin of 16%, up from our prior view of 14.5%. This margin improvement reflects our expectation of lower operating expenses versus our original plan, even as we continue to invest and position ourselves to emerge from this period as an even stronger company. The GAAP operating margin is expected to be lower than the non-GAAP margin by approximately 26 percentage points in the second quarter and 27 percentage points for the full year. Our FY '21 capital investments guidance, excluding owned real estate, is now $280 million, down from our prior view of $350 million as several large leased real estate projects have been postponed. We currently do not expect to invest any further in owned real estate during FY '21. The FY '21 non-GAAP tax rate remains unchanged at 19%. We had strong operating cash flow in Q1, but we have received and continue to receive requests from some existing and new customers for flexible payment terms. As always, customer relationships and customer retention are a top priority for us. During this challenging time, we're committed to providing flexibility to those customers that have been hit hardest by the pandemic so that we can emerge stronger together. Our ability to remain flexible in the area of cash is critical in supporting these goals, and we will therefore cease operating cash flow guidance for the remainder of this fiscal year. In closing, we are confident in the fundamental strength of our business model, the resiliency of our customer base, and in the long-term shift of HR and financial applications to the cloud. We plan to operate with agility while continuing to drive innovation to support sustainable, long-term growth. With that, I'll turn it over to the operator to begin the Q&A process.

Our first questions come from Kirk Materne of Evercore ISI.

I hope you all are doing well. Chano, you mentioned that customers are deferring decisions. That's not surprising to anyone. Is it just about business confidence in managing budgets? Can you discuss whether the conversation changes when discussing HCM versus Financials, or is it pretty similar across both product offerings?

Regarding HCM and Financials, that's a good question. However, I would say we haven't observed one being more or less affected by COVID compared to the other. In both areas, we provide significant ROI and business advantages to our customers. Both systems are crucial, and the reasons for change differ among companies and situations. It could relate to the need for increased agility, a pressing issue, or an executive transition. Our data indicates that neither HCM nor Financials is particularly more or less influenced by COVID in the short term. As for the overall situation—please go ahead, Kirk.

And if I may, please go ahead.

In terms of the overall, I think you asked about the pipeline move, if I'm right?

Correct. Yes.

Yes. Well, certainly, as we've said on the prepared remarks, our pipeline has definitely moved around. In some cases, deals pushed out a quarter or two maybe in the large enterprise and really not significant or no changes in the medium enterprise, but I would say we don't have enough data yet to really call this accurately at this point in time. Definitely, this is something that my team is carefully monitoring.

If I could just ask one quick follow-up. You mentioned the back-to-the-base growth was really healthy this quarter. And I was just curious, given the fact that some of your customers might be pushing back bigger decisions for now, are you able to sort of toggle the sales force to focus maybe more on those back-to-base opportunities within your existing customer base? It would seem that the hit rate on those might be a little bit higher until some of the uncertainty dies down.

Yes, thanks, Kirk. As you know, we made significant investments at the start of this year to address the demand from our loyal customer base, which has a strong range of SKUs and solutions. We have definitely seen an increase in that demand, and we felt well-prepared for it. We experienced good growth in our back-to-base customers in Q1, and we saw similar results in Q4. Therefore, we are confident in our readiness for that market situation.

If I could add a comment to Kirk's question, we experienced a similar situation in 2008 and 2009, where we focused on a few key areas. One was ensuring quick payback for customers and rapid implementation cycles, allowing us to set up HR in about six months and Financials in a bit longer. We're now revisiting that approach for the new business. It's important to acknowledge that the current situation bears similarities to 2008 and 2009, and there is a path forward.

Our next questions come from the line of Keith Weiss of Morgan Stanley.

Hope everybody is safe and healthy out there. This is a question for, I think, either Chano or Aneel. One of the things that I get asked a lot by investors is the priority for core HCM and core Financials when we get to the other side of this COVID-19 crisis. Can you talk to us a little bit about sort of the conversations you're having with your customers on where they think sort of these HCM investments and Financials investments will fall on their kind of priority stack, if you will, once the spending opens up again, once those IT budgets start to get spent again?

Well, I think, first and foremost, on the finance side, I think this crisis will be a catalyst for people switching from on-premise into the cloud for finance. And we were already seeing the growth rates at healthy levels, but I've talked to lots of CIOs, who said, 'I wish I had everything in the cloud right now.' I am struggling with my on-premise, both because of the labor required and people required to be on site and because those systems are really not very agile or flexible, and we see our customers coming up with new reports with new work streams, all these things that they're able to do in Workday. So, I think it's going to be a high priority on the finance side. On HR, HR is going to continue to be healthy. I think what we're going to see is a growing emphasis on the area of skills, the Skills Cloud, Learning, Talent Marketplace. All the areas where we're going to have over 30 million people unemployed, we've got to get these folks back to work, and we've got to get them the right skills. I think a lot of companies are going to be working probably alongside some of the states and local governments to figure out how to get these folks back to work, and that will be right up our sweet spot. Chano, do you want to add anything?

No.

I have a follow-up for Robynne. Firstly, it's impressive that you provided that bonus to all employees. I'll connect you with the CFO at Morgan Stanley for a potential discussion. Regarding the full year operating margins, they are coming in different from our previous expectations based on our model. How should we view the sustainability of that 16% margin increase as we project into FY '22? Is that the new baseline that will continue to grow, or is this more of a temporary improvement?

Yes, that's a great question, Keith. Given all the unknowns we're facing right now, it's really hard for us to look into fiscal year '22 at this time. We do plan to invest in the business as we start to see recovery, particularly in Q4 hopefully. We're not certain if this is the new baseline, but we believe we are demonstrating the value of our business model and how it can scale. However, there is still a lot of important work ahead of us, and we have a significant long-term opportunity. Therefore, we will continue to invest.

Our next questions come from the line of Heather Bellini of Goldman Sachs.

Hope you and your families are all doing well. I just had two. I was wondering if you could talk to us about how your salespeople and your partners are kind of dealing with lead gen in this environment, kind of how have they adapted, if there's some stuff you can share with us there on how they might be creative on that front. And then, Robynne, I know this isn't something that you normally comment on anymore, but just given the environment and your comments about Q2 and Q3 being probably the more challenging quarters that you're going to face, any high-level comments even about how to think about unearned revenue trends for the July quarter?

Yes, Heather. So I think we definitely expect that unearned will lag behind our backlog growth, right, and will continue to do that. And part of that has to do with the fact that, as Chano and I both mentioned, we're trying to be more flexible on cash, particularly for customers that have been most impacted. And Chano mentioned that a lot of his new customer negotiations, really, that's what they're pushing on. So we really want to use our balance sheet to help them out during this time. And so as you know, that will impact the billings and the unearned as well as the cash flow. And you should expect to see that throughout the rest of this year. The good news is that actually doesn't impact our revenue recognition profile, and so we think it's a good investment. And that flexibility has and we believe will continue to allow us to maintain our discounting levels.

Heather, thank you for your question. I hope you’re doing well and staying healthy. Regarding demand generation, our sales team had to switch to a completely virtual environment during Q1. However, a significant part of our sales cycle was already conducted virtually, especially during presales and software demonstrations. What has changed is that we've transitioned the entire process to a virtual format. As I mentioned, we adjusted our messaging and focus areas based on solutions and industries. We are concentrating more on our go-to-market strategies that we believe will provide the best returns in the current environment. We're also placing greater emphasis on certain industries and solutions, such as Planning, Prism, Learning, and Scout, which we anticipate will yield better outcomes.

Our next questions come from the line of Mark Murphy of JPMorgan.

I'll add my congrats. I am interested in how you would characterize the environment so far in the month of May, just in terms of generating pipeline and booking new business. Should we think of that as being kind of a night-and-day difference versus late March, early April? Or is it something you'd call directionally better, but it will still kind of take some time to get back to the original plans? So I'm just trying to understand if you think it's improving or degrading kind of between late March and the month of May.

Chano?

Mark, it's early days, but we're still below our normal engagement levels and also below our normal pipeline builds. But there has been a significant uptick in engagement and positive sentiment relative to, I would say, four weeks ago. So much of our activity, as I said, is now focusing on certain industries where we're seeing the greatest near-term demand, but we also continue dialogue in verticals that are more impacted by COVID to ensure that we're well positioned as we emerge from this environment, Mark.

Okay. And then as a follow-up, Robynne, I'd say it's understandable that you're withdrawing the subscription backlog guidance in the back half. But that said, just considering that you still landed essentially within the original Q1 guidance for subscription backlog, I think, surprisingly and during a really chaotic period of time, do you see high odds that that backlog growth is going to end up, say, materially below this type of glide path that you're on? Or is the confidence a little better than that, but it's just kind of such a wide range of potential outcomes at this point that it's hard to know?

Yes. Mark, it's pretty wide, I think...

Let me start with this. I think what everybody needs to recognize is that no one knows how it's going to play out over the next couple of quarters. We don't know if there's going to be another outbreak. And so everything that we are saying is our best information at this point in time, Keith. I mean if you know how it's going to play out, please let me know. So with that, Robynne, jump in, but I think that has to be the backdrop on everything right now.

Yes, that's correct. The backlog is connected to net new business, renewals, and duration. However, we currently lack sufficient data to accurately predict how these factors will affect the latter half of the year, as our visibility is quite limited.

Sorry. I realized that was Mark. Sorry, Mark.

Yes. It's fine, Aneel. You can call me Keith. It's fine.

Our next questions come from the line of Kash Rangan of Bank of America.

I'm curious, the net new ACV growth of 50% within your base, how does that compare to recent quarters? And how sustainable is this? And also curious, what kinds of products are you having the biggest hit rate with the installed base?

Well, I'll let Chano answer the first part. I would say that it's not surprising that the customers who are adding are focusing on core HR and core finance. In this environment, and Tom can provide more insight, both Planning and Scout RFP have been very effective solutions. People are facing challenges with the outdated Planning tools. I've seen how many plans we've created in the last couple of months because there's uncertainty about how everything will develop. With Scout RFP, the implementation is quick, allowing you to manage your spending efficiently on a global scale, and that has also been successful. But maybe I'll let Tom and then Chano provide their comments.

Yes. Thanks, Aneel. That's right. What we've seen is a real uptick in interest in Planning. Companies are running, as you would expect, significantly more scenarios, as Aneel said. I think there was a period of time in March, we saw about a 30 times increase in terms of the number of scenarios that our customers are running. So it's not surprising. So I think the importance of planning, and particularly cloud-based planning solutions, where the whole team can be connected to holistically, has resonated with customers. We've seen tremendous interest in Workforce Planning. Everybody is thinking through what the next-generation workforce looks like. There's obviously fundamental changes being driven to both location and the way we work, and that requires a focus on Workforce Planning. And then, as Aneel mentioned, I think we've also seen a lot of interest in our sourcing products. Because in periods like this, companies are extremely focused on ways that we can save money. As Chano mentioned in the script, we saw the largest deal ever in Scout's history this quarter. So I think there's a lot of resonance with customers, and we're seeing that uptake. Chano?

Just listening to you, Tom, it sounds like maybe this is the case, and maybe this is not the case. The shift to cloud-based Financials could accelerate post COVID. Is that right or too optimistic?

I believe that this time has accelerated existing trends, particularly the shift towards cloud-based applications, which have proven to be effective during remote work periods. While there is uncertainty regarding the immediate increase in the adoption of enterprise applications, it is clear that in the medium to long term, there will be favorable conditions for the growth of cloud-based planning and applications. Chano?

Thank you, Tom. Kash, we've observed over 50% new ACV growth in our back-to-base strategy in both Q4 and Q1, which is the data we've shared so far. This reflects the satisfaction of our customer base and the investments we've made in our go-to-market strategy to better serve them, as well as the expansion and enhancement of our solution offerings at Workday.

Our next questions come from the line of Brent Bracelin of Piper Sandler.

I wanted to follow up on kind of the Microsoft relationship. I know you guys first announced the global partnership back in the summer of 2016. So my question here, how has the Microsoft relationship evolved over the last 3-plus years and maybe the new scope of what you're working with them on today?

We have enjoyed a strong partnership with Microsoft for many years, particularly with Office 365 and more recently with Teams. This partnership is now expanding to include Azure specifically for Adaptive. Additionally, this marks the first time Microsoft has become a Workday customer, although LinkedIn has been a customer for a while. This development is a natural progression of our partnership. I believe Microsoft is an excellent company, and Satya is an outstanding CEO. We are eager to explore further opportunities with them.

Awesome. And then just a quick follow-up relative to the concessions that you're giving some of the most heavily impacted customers. I know, Robynne, you talked about the base minimum not really being up for negotiation every 3 to 5 years. But I'm just wondering, are you proactively looking to kind of work with these customers that are impacted? Or is it something where it's nonnegotiable, and you really don't see a change there until that is up for renewal?

Yes, Brent. We are addressing each customer request individually and on a case-by-case basis. However, most of the requests we receive are for payment deferrals rather than contract renegotiations. At this time, we haven't encountered issues with customers attempting to renegotiate base levels, although that may apply to some who are significantly affected.

Our next questions come from the line of David Hynes of Canaccord.

Congrats on the results. Maybe I'll take the other partnership question. Aneel, can you talk a little bit more about Work.com, what you're doing with Salesforce, what it could mean for Workday's business and maybe how you see that opportunity evolving over time? Can you guys hear me?

Mark has been leading the contact management efforts related to contact tracing for a considerable time, starting back with SARS. The Salesforce application ultimately serves as a contact management tool, making it highly suitable for this purpose. Mark and Salesforce share the same objective as we do: to help our customers safely return their employees to work. We have comprehensive data regarding employees, locations, and their learning experiences. Salesforce offers various tools with Work.com for contact tracing, skill tracking, and shift management. We are ensuring that both technologies are fully integrated, so customers do not have to manage both separately. For our joint customers, this solution will assist in their transition back to the office. As you may know, Salesforce has been one of our strongest partners since the inception of Workday.

Sure. Okay. That's helpful. And then maybe a follow-up for Robynne. So a few folks have hit on back-to-the-base strength in the Q&A, and I just want to tie that into net revenue retention. Gross retention has always been really strong, right, at 95%. But on the net side, is consistent commentary about north of 100% just out of practice? Or are you actually seeing improvement there? And I guess could you get any more granular on a number for net revenue retention?

We measure net revenue by only counting add-on sales when they occur at the renewal point. Currently, we are focusing more on selling back into our customer base, which is increasing not only during renewal cycles but also significantly outside of those periods. However, this additional activity isn't reflected in the net retention rate. We're looking at a better approach to measure this aspect as we expand our add-ons outside of renewals, and we may implement changes in the upcoming quarters. For now, it's important to note that as long as our calculation stays above 100%, that's positive news. Additionally, we are making more sales to our base customers outside of renewal cycles.

DJ, I'm going to ask Pete Schlampp, our Head of Applications, to weigh in on the Salesforce partnership too. He's closer to what we're actually doing from a product perspective.

Peter? That would be great.

Yes. Thanks, Aneel. And good question, David. As I think about Salesforce and Workday, Salesforce has all this rich information about the workplace, and Workday has the data about the workforce. And some of the most rich data that we have is data about skills. And so as companies are going through these big transformations that are happening with workers, with all of a sudden some demands in certain areas that they didn't have before and vice versa, being able to make those transitions quickly and use that skill data is so essential. So when we think about getting companies back to the workplace safely, securely, and their people back safely and securely, it's about the data and bringing these two data sets together, whether that's in Salesforce's command center, in the Work.com command center or whether it's within the Workday application set itself. And that's how we're going to really start things off, is with the data integration and then develop more applications as we go forward.

The next question comes from the line of Scott Berg of Needham Company.

I only have one here in essence of time. Aneel or maybe Chano, probably Aneel. Just wanted to see if you had some additional comments on Workday Extend now that it's finally available in GA. Trying to understand the revenue model of it going forward, kind of how has it evolved today versus the initial announcement two years ago? And do you envision customers or other companies building commercial apps that they could actually sell off of it, like what happens on Force.com?

I'll briefly address this before handing it over to Pete. We hope Pete's technology works better this time. Workday Extend is primarily aimed at enhancing adaptability for our customers, and we're not planning to establish an independent software vendor community for building commercial applications. Our clients are finding significant value in Extend. It's been in limited general availability for several quarters now, allowing us to understand its use cases well. Customers are creating more mini apps and extensions, particularly in response to COVID-19. For instance, one of our customers is monitoring COVID cases globally for their manufacturing facilities. It's all about what our customers wish to achieve to enhance their business model, but we are definitely not focusing on ISVs. Pete, do you have anything else to add?

Thanks, Aneel. You'd think I'd have the mute function figured out after working from home for the last two months. I want to highlight the success we've achieved so far, with over 50 customers using the platform and more than 90 different solutions built on it already. We're entering this GA period with significant existing momentum. As we consider the products, we're focused on extending the entire use of the Workday platform and all the applications we offer, enabling our customers to expand those as well. We continue to explore new areas, which opens up various possibilities for our customers to develop on top of the funnel.

And I guess just to come back to the revenue question or the bookings question, I still wouldn't expect much for fiscal year '21. But I do think it can be a decent contributor in fiscal year '22 and beyond and a high-growth contributor.

Our next questions come from the line of Brian Schwartz of Oppenheimer.

Chano, I had a follow-up question. I think it was to Heather's about the marketing funnel and the lead generation. You commented on what the timing could be for these sales cycles, but can you shed light on what you are seeing in terms of the values? Are the deal values holding up at a similar rate as you've seen in the past as they are progressing through the funnel towards closing?

Thank you for your question, Brian. I would say it's very early days, and we haven't observed any significant shifts to comment on. As I monitor the pipeline for this year and the new pipeline from fiscal year 2022, we have managed to qualify some substantial deals in terms of value, even amidst the current environment. However, we need to advance those deals and ultimately close them. There hasn't been any indication that these deals are shrinking or have reduced duration. We certainly need to see more significant trends and additional data points throughout the rest of the second and third quarters. But for now, that's what I can share, Brian.

Ladies and gentlemen, thank you for your participation on today's conference. This will conclude Workday's First Quarter Fiscal Year 2021 Call. Thank you again for joining us, and have a great evening.