Workday, Inc. (WDAY) Q1 2023 Earnings Call Transcript

Thank you, operator. Welcome to Workday's First Quarter Fiscal 2023 Earnings Conference Call. On the call, we have Aneel Bhusri and Chano Fernandez, our co-CEOs; Barbara Larson, our CFO; and Pete Schlampp, our Chief Strategy Officer. 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. 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, application, customer demand, operation and other matters. These statements are subject to risks, uncertainties and assumptions, including those related to the impacts of the ongoing COVID-19 pandemic and recent macroeconomic events 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 2022 annual report on Form 10-K and our most recent quarterly report on Form 10-Q, 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, in our investor presentation 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. Starting with this quarter and going forward, we will be posting a quarterly investor presentation on our Investor Relations website following each quarter's call. Also, the Customers page of our website includes a list of selected customers and is updated monthly. Our second quarter fiscal 2023 quiet period begins on July 16, 2022. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2022.

Thank you, Justin, and welcome to Workday's First Quarter Fiscal Year '23 Earnings Conference Call. Before we begin, we are heartbroken by the recent acts of violence and the senseless loss of life. There are no words to explain the pain the parents, children, families and loved ones of the victims must be feeling. Our thoughts are with them and the people of Uvalde, Texas; Buffalo, New York; Laguna Woods, California and every other community that has endured such tragedy. Everyone has the right to feel safe in the places where they learn, live, work, worship and do simple day errands. Turning now to our business and coming off an exceptional fiscal year '22 of acceleration in the business. Workday reported solid Q1 results, delivering subscription revenue growth of 23%. During the quarter, we continue to see companies across our target geographies and industries select Workday as they move their finance and HR systems to the cloud. At the same time, several key opportunities that we had expected to close in Q1 were pushed to later in the year, impacting backlog performance. Barbara will touch on that later in the call. We continue to see strong demand for our products and are optimistic about the year. We are mindful, however, of the current macroeconomic and geopolitical environments and the impact these conditions could have on businesses globally. With that in mind, our focus remains on what we can control, which is to continue to drive innovation as we broaden our offering to become an even more strategic partner to our customers, deliver the industry's top levels of customer support, and cultivate our culture, which remains foundational to all that we do. Now I'd like to share some of the business highlights from Q1, starting with Workday HCM. Barclays, Callaway Golf and West Tennessee Healthcare were just a few of the many new customers that we welcomed last quarter. While these new wins are very important to us, we remain equally focused on ensuring our customers successfully go live, which is critical to our ability to drive customer satisfaction. Notable go-lives in Q1 include Hy-Vee; Kyndryl; and Royal Bank of Canada, better known as RBC. Our proven ability to support our customers' large volumes of data and transactions continues to be a significant differentiator in our success. It's not just our scalability that differentiates us. It's also our unique ability to innovate and deliver valuable insights to our customers across the office of the Chief Human Resources Officer. In learning, for example, we recently crossed the 2,000 customer milestone. We now have over 3,100 recruiting customers. We're also opening new markets with solutions with Analytics, which now has over 500 customers; Workday Journeys, which has over 300 customers. We're a clear market leader in HCM, something that we don't take for granted. We continue to find new ways to increase our strategic positioning within the office of the Chief Financial Officer. We once again saw continued strength across the board. Highlights included key full suite wins at American University, Lehigh Valley Hospital and Mohegan Tribal Gaming Authority along with several core financial customer go-lives in the quarter, including Advocate Aurora Health and Sentara Healthcare, to name a few. Our strategy for many years now and one of our key differentiators is providing organizations with a unified solution to plan, execute and analyze their businesses in real time. That strategy is clearly resonating in the market with Workday Adaptive Planning now being used by nearly 6,000 organizations globally, including nearly 75% of our core financial customers. Prism Analytics nearing 1,000 customers is roughly 40% of our core financials customers. As you know, Workday was founded on a core set of values that help guide our decisions as we look to do what's right for our employees, the customers we serve, and the world around us. The example of this approach can be seen through our increased focus on supporting our customers' evolving ESG initiatives. We have quickly become a top priority in the boardroom and for the office of the CFO, especially considering the most recent and upcoming SEC disclosure requirements. In Q1, we announced two new solutions that will be available this year to further help companies view their businesses through an ESG lens. The first is social reporting for ESG to help our customers more easily track progress against goals and identify areas for improvement within workforce composition, organizational health, diversity and workforce investments. The second is supplier and sustainability. We help customers to improve the sustainability and resilience of their supply chains, testing Scope 3 emissions across their suppliers. Adding these two new solutions to our existing product portfolio further strengthens our ability to be a strategic partner of customers and shareholders on their ESG. Switching to the people front, we continue to invest heavily in our company culture to sustain our belief that happy employees deliver the highest levels of satisfaction to our great customers. On that note, in early April, we announced exciting expansion plans for our European headquarters in Dublin, Ireland. We intend to create 1,000 new jobs over the next two years, which will increase our overall Ireland-based workforce by approximately 60% in addition to breaking ground on a new European headquarters building. The Dublin site plays a critical role in our product development and customer service efforts. We decided to build on the already incredible group of employees we have in Dublin. As we look forward, amid the backdrop of macro uncertainty, we're comforted by the fact that, as a company, we've been through these cycles before, most recently navigating the pandemic, and as a younger company, the 2008-2009 financial crisis. Each time, we have come out stronger and remain confident in the fundamentals of our business and our long-term strategy. We believe that our leadership position will only strengthen. We have a proven track record of growth at scale, a robust business model with strong cash flow generation, a value-driven culture that attracts the best talent and has always been a recipe for long-term success for us. With that, I'll turn it over to our Co-CEO, Chano Fernandez.

Thank you, Aneel, and thank you to everyone for joining today. I want to begin by extending a special welcome to the more than 700 Workmates that joined the company during Q1. I recently had the opportunity to travel across several of our global offices and meet with many of our new and long-time Workmates. I must say the energy within the company is amazing. I look forward to seeing what we can achieve together in FY '23 and beyond. We delivered a solid first quarter as momentum across both our net new and customer-based teams continued, and we once again drove very strong renewals, a testament to the strategic nature of our solutions and our commitment to customer satisfaction. As Aneel mentioned, we did see the timing of several Q1 key deals pushed into future quarters, and we've also seen some Q2 pipeline opportunities move to the second half, but we are confident in closing them later this year. More broadly, we see a healthy overall pipeline, positioning us to deliver strong FY '23 as we remain focused on driving sustainable 20%-plus subscription revenue growth. From a geographic standpoint, in Q1, we had solid growth across several international markets, highlighted by the U.K. where we have significant wins at companies such as Barclays and NatWest Banking Group; in France, where we drove strategic wins at Accor and Orange S.A.; and in the Nordics and Netherlands, where we increased our footprint with companies such as Booking.com and Scandic Hotels. In the U.S., we saw strength across multiple areas, including the medium enterprise, where our broad portfolio of solutions across the Chief Human Resources Officer and Chief Financial Officer is driving our success. In the large enterprise, in addition to some of the new core HR and financial management wins, we expanded our strategic footprint with several of our existing customers, such as Voya, Advanced Auto Parts, and one of the world's largest technology companies. Our customer base motion continues to drive strong momentum, and we're very excited about the growth we see ahead. Industry is another area of significant opportunity, including emerging industries like the U.S. federal government as well as established ones such as health care, where we're the market-leading provider for both cloud-based HCM and financial solutions. Some of our most strategic transactions having go-lives in Q1 came from our health care team, including wins at Lehigh Valley Hospital, Health Research Inc., and West Tennessee Healthcare as well as financial services go-lives at Advocate Aurora Health and Sentara Healthcare. There is clear momentum looking forward as our significant base of reference customers, along with our targeted product investments in areas like supply chain, clearly pay off. Another key growth opportunity is across our partner ecosystem, which from day one has been critical to our customers' success. Not only do our partners help ensure successful deployments, but through the extensibility of our platform, they're also accelerating our product road map. A great example is Huron Consulting, which leveraged industry expertise and operational supply chain knowledge to develop a demand planning solution on Workday Adaptive Planning, purpose-built for the health care industry. Using this solution, Dayton Children's Hospital is able to make data-driven decisions and ensure physical supplies, resources, and space are available when patients need them most. This is just one of several areas of innovation we've seen from our ecosystem. Over the course of Q1, we deepened our partnerships with multiple systems integrators, like Accenture, Deloitte, and PwC, to not only launch new partner-built solutions but to align our core innovation plans to scale and accelerate over the coming quarters. Helping us drive this effort and our overall ecosystem strategy is our new Chief Partner Officer, Sam Alkharrat, who brings more than two decades of experience to the role and who will report directly to me. Welcome, Sam. In closing, we enter Q2 with healthy pipelines and a positioning across the offices of the Chief Human Resources Officer and Chief Financial Officer that is as strategic as ever. We remain squarely focused on executing against our growth opportunities and in laying the foundation to support the durable 20%-plus subscription revenue growth on our path to $10 billion in revenue.

Thanks, Chano, and good afternoon, everyone. As Aneel and Chano mentioned, we had a solid start to the year as organizations across the globe continue to choose Workday as their strategic partner in driving their finance and HR digital transformations. Subscription revenue in Q1 was $1.27 billion, up 23% year-over-year. Professional services revenue was $163 million, up 14%. Total revenue outside of the U.S. was $360 million, representing 25% of total revenue. The 24-month backlog at the end of the first quarter was $7.97 billion, reflecting growth of 21%. Growth was driven by solid new annual contract value and strong renewals with growth in net revenue retention rates over 95% and over 100%, respectively. As Aneel and Chano mentioned, we saw the timing of several deals, including a few large ones, pushed from Q1 into future quarters in FY '23, which impacted our 24-month and total subscription revenue backlog growth by approximately 1 percentage point. Total subscription revenue backlog was $12.65 billion, up 26%. Our non-GAAP operating income for the first quarter was $289 million, resulting in a non-GAAP operating margin of 20.1%. Margin overachievement was driven by a combination of top-line overperformance and the timing of certain expenses. As expected, we made significant investments across the business in Q1 and began to transition back to the office as well as resuming travel and in-person events. We had a strong start to the year for cash flow with Q1 operating cash flow of $440 million. During the quarter, we raised $3 billion in cash through a public debt offering at attractive fixed interest rates, enabling us to repay existing debt while also providing additional flexibility as we plan for the future. We prepaid our $694 million floating rate term loan in April and intend to pay the principal balance of our $1.15 billion convertible debt in cash when it comes due in October. When this occurs, our non-GAAP diluted share count will decrease by roughly 8 million shares. Due to the late Q3 timing, this share reduction will not be fully reflected in our non-GAAP weighted average share count until Q4. Our largest investments continue to be in our people and attracting top talent to Workday. During the quarter, we successfully added and integrated over 700 net new employees, ending Q1 with more than 15,900 employees. The strong hiring is a testament to our culture, our global brand, and the significant growth opportunity that we have ahead. Overall, we are pleased with the solid company-wide execution in Q1 and remain focused on leveraging our leadership position to drive sustainable 20%-plus subscription revenue growth on our path to $10 billion in revenue. Turning now to guidance, which reflects continued momentum across our business while also taking into account a more back-end weighted year than we originally anticipated. We are raising our guidance for FY '23 subscription revenue to be in the range of $5.537 billion to $5.557 billion, representing 22% year-over-year growth. We expect our Q2 subscription revenue to be $1.353 billion to $1.355 billion, 22% year-over-year growth, with sequential growth in Q3 of approximately 4.5%. We still expect professional services revenue to be $650 million in FY '23 as we continue our tight alignment with our growing partner ecosystem to help ensure our customers have successful implementations that support the highest levels of customer satisfaction and business value. For Q2, we expect professional services revenue of $164 million. We expect the 24-month backlog to grow approximately 20% year-over-year in Q2 of FY '23. We continue to expect FY '23 non-GAAP operating margins of 18.5%. For Q2, we expect non-GAAP operating margins of 17.5%, which reflects typical seasonality as a result of our annual employee compensation cycle, which took effect at the beginning of Q2. Investing for long-term growth remains our priority, and we'll continuously evaluate growth/margin trade-offs, but we have confidence in the strength of our business model and in achieving 25% non-GAAP operating margins at $10 billion in revenue. The GAAP margins for the second quarter and the full year are expected to be approximately 22 and 24 percentage points lower, respectively, than the non-GAAP margins. The FY '23 non-GAAP tax rate remains at 19%. As a result of our recent debt IPO, we are lowering our FY '23 guidance for operating cash flows to $1.61 billion, which takes into account approximately $55 million of cash interest payments associated with the debt. We continue to expect capital expenditures of $475 million this year 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.

Congrats on raising the guidance for the year. I'm curious if there were any common characteristics across the opportunities that slipped, for instance, by geography or by vertical. And just at a higher level, how much of a spread do you see in terms of your customers' business confidence or their willingness to invest or the pipeline build, if you were to compare and contrast that in North America versus Europe today?

Sure. Mark, I would not call it one particular area, whether by product or region in terms of the deals that pushed in Q1. Though as we mentioned, it included some of our larger opportunities. Each of these pushes were for different reasons, not necessarily macro-related, and we are focused on closing them later in the year. We are definitely mindful that the environment, particularly in Europe, remains uncertain and we continue to monitor it. But we had solid results across regions in Q1, including several international markets.

Aneel, a question for you. What are the tactics that you're pursuing to weather through this potential, people call it downturn, maybe you call it something different, whether it's go-to-market, product investments, hiring? How are the tactics changing? And I guess, a question for Chano on the deal front. What are you hearing from customers as to what they're looking for now in order to get clarity so they could go forward and close these deals?

In terms of tactics, the plan is continuing. We're being smart about the way we hire and probably helping customers think through value proposition in a way that we hadn't had to do. In every downturn, you've got to think through the value proposition in terms of payback, and it's probably more important now. We're just dusting off that playbook. Chano, anything you want to add there?

What I would say in terms of what I'm hearing from customers, I'm just coming back from Davos right now, and I had many CEO conversations there, is that digital transformation investments, being at the core of those, remain very strategic and a priority. We're certainly monitoring very closely the deals that push, some large ones. We are very confident that they're going to close in the second half. There are no really macro-related reasons at this point in time. The other fact that I can add is that in May, we really started strong, and May seems to be a very good first month of Q2 for us.

Chano, I'd like to follow up on your last point about your confidence in these deals closing later this year. You mentioned they aren't related to macro issues, yet there appears to be some concern that the macro situation is worsening. Were these deals originally expected to close in the latter half of the year and just require more time? Are you not worried about the macro situation or have confidence levels in their business decreased, causing them to need more time for funding? I want to clarify what you observe from customers regarding their concerns since you mentioned there are still strategic deals alongside these particular deals now pushed to the second half of the year. This is an important distinction, especially since there seem to be conflicting messages about macro conditions from various software companies currently.

I understand, Kirk. Certainly, there is uncertainty in the macro, as Aneel has highlighted, and that is one point we can't control. What I was trying to clarify is that some of the large deals that pushed, they are not really due to macro. For example, C-level executive changes that happened in the last month and some of those key decision makers just want to review the overall process to be comfortable, particularly through the implementation process as a whole. So that is a typical reason on a couple of deals that really pushed. The confidence comes from having the discussion and remaining close to these deals in terms of the commitment from customers that they remain strategic and a priority and that part of those being done in the second half of the year.

I mean, obviously, you mentioned in the call, some of the deal delays that you're seeing. We've been fielding a number of questions around downturn scenarios. One of the things that you had already previously started to focus on is the back-to-the-base selling motion in some of the additional products that you've brought into the portfolio. Is that something you feel can help if some of these delays extend? I'm just wondering if that helps you diversify at all from a sales perspective. And you had some useful customer adoption stats around some of the modules in the prepared remarks. So maybe we can point back to some of those as well.

Michael, we feel confident with our sales strategy and go-to-market strategy. As it happened at the onset of COVID, we adjusted to those motions that we felt were stronger. For example, customer base; for example, medium enterprise and some others like planning. We will definitely be watching and monitoring the situation very closely right now. If we feel that we need to prioritize one area over another, we will be doing the same.

Following on the last question, as we think about that white space opportunity in the installed base and the degree to which having done such a great job selling into the base the last couple of years, I'm just wondering to what extent it might actually create a challenge if the backdrop is to deteriorate, thinking that there's perhaps a limit to just how much product the customer base can absorb. Is there any reason that we shouldn't think that with additional products that you guys keep innovating, and in some cases acquiring, that there's opportunity or limits perhaps even in the ability to sell back into the base?

From a product perspective, we are still in the early stages of engaging with our existing customer base, and many of our earlier customers are using only one or two modules. Therefore, I don't see any limitations on the potential market size opportunity.

I agree with what you said, Aneel. I think our solutions are incredibly important in enabling our customers to approach their business with agility and adaptability. I believe that as far as we're bringing value and they're seeing that value because they remain very happy, we have a huge opportunity in our customer base that we even quantified on our last Analyst Day. It has just increased because there is so much innovation that is coming through.

I wanted to ask about Planning. It's an area that we keep hearing from the channel standing out as relatively strong. You called it out now for a couple of quarters. If you could help us understand what's going on there? Is this just progress that you've made recently with integrating Planning to core financials? What's behind the strength in Planning?

At the product level, it continues to improve and now supports multiple use cases beyond just financial planning, including workforce planning. I believe the pandemic and the current macro environment are leading companies to focus more on planning and re-evaluating strategies, almost creating a need for continuous planning, which places significant stress on traditional tools. Our products are particularly well-equipped to address the demands of planning more frequently, possibly even in response to the shifting dynamics of the business landscape.

So I want to maybe just disentangle a little bit. First, on the push deals, how many of those were kind of HCM versus Financials? And then within the commentary about the deals in the quarter that pushed versus the pipeline commentary of maybe things taking longer, is the pipeline commentary more geared towards what you're seeing or hearing out of the macro? And have you recalibrated your kind of thoughts around the year based on that?

Chano?

Yes. Alex, we commented or I said that we didn't see any particular difference in terms of product or region in terms of the deals that pushed in Q1. All we said is that there were a couple of large opportunities. What we said in terms of the pipeline is some pipeline from Q2 moved as well to the second half of the year but that we still see a strong pipeline and good momentum, and we've been creating a good pace that gives us confidence to deliver on the goals that we do have for FY '23.

I want to shift to discussing margins. The operating margins in Q1 were certainly a highlight and exceeded expectations. Can you explain what contributed to those improved margins in Q1? The full year guidance remains unchanged; why not increase the operating margins in that guidance? Additionally, could you clarify your approach for this year given the current economic environment? There’s widespread concern about the economy and the sustainability of growth. How flexible can your team be with operating expenses to safeguard those operating margins and maintain free cash flow this year if we face a tougher economic situation?

Thanks for the question, Keith. From a margin perspective in Q1, the overperformance we saw there was really around the timing of certain expenses and those pushing out to later in the year, which is why you see us holding our full year guide. It's still really early in the year. In terms of levers, hiring is always going to be a lever for us. We continue to hire, but we're continuing to monitor the environment around us. We're remaining confident in terms of the long-term opportunity we have ahead of us, and that these type of environments could provide us with an opportunity to really leverage our brand, our strategic positioning, and our model.

I guess given the environment that you're seeing right now and some of the deals that are moving around for whatever the reasons are, have you changed your strategy around investing on the go-to-market side this year? Is there anything there that maybe helped you one way or the other on a positive or maybe less positive framework?

Chano?

Thank you, Scott, for your question. As we said, we remain very confident on the long-term opportunity. We are certainly going to be cautiously monitoring the environment. We are confident as well in our sales strategy from a go-to-market perspective, but we will be fine-tuning that as the situation evolves and as the year moves on either in terms of the investments that it requires or balancing investments from one area of weakness to one area that we may perceive we have more strength and energy during this environment.

I'm looking forward to more than just the HR system eventually. The question about whether the commentary indicates it's not related to macro factors suggests that you experienced an unusual quarter regarding sales execution, possibly due to bad luck with how the different deals came together. Are you learning anything from the root cause analysis of what happened this quarter? Does it prompt you to consider breaking down deals into smaller sizes to facilitate selling by product, among other adjustments?

Great question, Raimo, and thank you for becoming our customer. Thank you for your partnership. When some of the deals are because of C-level executive changes, there is not much we can do about it in terms of anticipating some of those. We certainly are here to partner with our customers on a long-term basis, and we want to ensure that they have the confidence of the new executives in terms of the overall implementations on the program and plans. That's what we're doing going through this process. In terms of our ability to split or break those deals into smaller ones, we feel that on some of these, the value of the solution is really when it applies to the whole customer base or the customers. So clearly, our medium enterprise motion is thriving, and that's providing much more stability to have smaller deal components that will yield a better outcome overall in terms of the business out there.

Many are asking your confidence in getting these deals closed in the back half of the year when I think many economists are expecting the macro to even get stiffer in terms of the headwinds. What's giving you that confidence that these are going to push beyond from what you can tell right now?

Yes. We have experience navigating downturns. I recall how Dave and I faced many challenges at PeopleSoft. Chano has also handled numerous difficult situations. If you offer the right value proposition, you can endure tough times. We managed to get through the 2008-2009 recession, which was one of the toughest economic periods I've encountered. Even though demand was reduced during the early phase of COVID, we managed to handle that as well. We will find a way. Our products are essential; having excellent HR, financial, and ERP systems is critical for running a business. I believe demand will continue to grow. Some companies may be cautious, so we need to determine how to best allocate our sales efforts.

If I may add, Aneel. Brent, when we are talking about some of these large deals, it's not that we're talking about many. What we are doing is continuing to feel, to continue to work these deals through our sales process. We are staying very close to our prospects. What we are hearing directly from them is that these transformation projects remain strategic, a priority, and they are going to happen. That's what's keeping me confident.

You mentioned before that this isn't your first rodeo. You've seen this before, and I recall you going through this before. For those who haven't been through it before, can you talk a little bit about the deals that get pushed out, how does that unfold in terms of them getting back on track, getting on schedule? How quickly does it typically take for this kind of short-term dislocation to ameliorate?

Well, I would say the first thing is this Q1, so there's no forcing function to close deals on the customer's behalf for Q1. We'll know a lot more over the next three quarters. I know it's not a great answer, but we'll know a lot more coming out of Q4 what real demand was like. When I look back at the COVID environment, it took one to two quarters before people got their arms around that environment, and then they kind of went back to business. I suspect the same thing will happen here. It's going to take a little bit of time for companies to get their arms around the new environment, and then they'll get back to business. I frankly think this new environment is not going to be as traumatic as COVID was. That, at least from my perspective, was a lot more challenging.

That's fine.

I would like to inquire about the macroeconomic issues. Specifically, are there any effects on the reported results due to foreign exchange? Are you experiencing any challenges related to salary pressures or the ability to hire stemming from inflation in the U.S.?

I'll take that one, Mark. In terms of FX, we actively hedge our balance sheet subscription revenue as well as certain expenses. In Q1, there was some impact due to FX, but it wasn't material given our hedging program. In terms of the inflation perspective regarding costs, it definitely continues to be a very competitive market for talent. Based on our strong hiring over the last couple of quarters, we feel good about our ability to attract and retain talent globally.

Yes. That would actually be stronger on the second part, which is the funding environment for startups—early-stage companies, if you're watching that market, has really dried up. There's always a return to quality and stability during these environments. We have this Boomerang program where we're actually recruiting people who might have left in the last couple of years and gone to a startup; now that startup doesn't look so good. We've been pretty successful in getting people actually back to the company.

To follow up on that commentary around the start-ups and the funding environment drying up, how are you feeling about potentially making some acquisitions with valuations coming in? There's specifically been a lot of funding over the past two years in the HR software space. Anything that's interesting out there for you to plug into your platform?

There are a lot of things that are interesting, but I can't really talk about our M&A strategy in detail other than to say that we're always going to be looking for companies that have a great product, a great team, cutting-edge technology. But we're not looking for those massive transformational acquisitions that bet the ranch. That's not who we are. When we look at the last couple of years, whether it's VNDLY or Peakon or Adaptive, to the extent we can find those kinds of situations or Scout, we will continue to pursue those. Maybe in this environment, they're more cost-effective acquisitions, but we're not looking at some of the bigger ones that have really dropped in price.

Our first question today is coming from Mark Murphy from JPMorgan. The next question today is coming from Kash Rangan from Goldman Sachs. Your next question today is coming from Kirk Materne from Evercore ISI. Our next question is coming from Michael Turrin from Wells Fargo Securities. Our next question is coming from Brad Zelnick from Deutsche Bank. Our next question is coming from Bradley Sills from Bank of America. Our next question is coming from Raimo Lenschow from Barclays. Our next question is coming from Mark Marcon from Baird. Our next question is coming from Mark Moerdler from Bernstein Research. Our final question today is coming from Matt Pfau from William Blair. Thank you. We've reached the end of our question-and-answer session. And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.