Investment Rating - The report does not explicitly provide an investment rating for the industry or specific companies covered. Core Insights - The report highlights the global distribution of enterprise software spending, indicating that the US accounts for approximately 56% of sales, with Western Europe at 23% in CY24, showing minimal change from CY20 [15] - The exposure of software and cloud companies to China is relatively low, with the report suggesting that tariffs or actions on software will not have a significant impact [14][12] - The report expresses concerns about deglobalization, noting that regions like the EU may attempt to promote local software industries through regulations and tariffs [14][12] Summary by Sections Global Exposure of Enterprise Software - Enterprise software spending has remained stable globally from CY20 to CY24, with most companies generating more revenue outside North America [2] - The US market is the largest revenue driver for most companies, except for SAP, which has similar revenue exposure in Western Europe and North America [14][12] Microsoft and Oracle Exposure - Microsoft has a 22% exposure to Western Europe and 11% to Asia/Pacific, with China accounting for only 1.8% of Azure revenue [22][28] - Oracle's global exposure mirrors that of enterprise software, with 21% in Western Europe and 10% in Asia/Pacific [33][35] SAP and Adobe Global Presence - SAP has equal revenue exposure to the US and Western Europe, with 37% in North America and 37% in Western Europe [40][41] - Adobe has become more global over the past four years, with a revenue mix of 56% in North America and 23% in Western Europe by CY24 [42][45] Salesforce and Workday International Growth - Salesforce has increased its international revenue percentage from CY20 to CY24, now at 64% in North America and 20% in Western Europe [46][48] - Workday remains predominantly North American, generating 77% of its revenue in North America in CY24, although it is working to expand its international presence [51][54]

Core Viewpoint - Workday is positioned to potentially continue its earnings-beat streak in the upcoming report, having surpassed earnings estimates consistently in recent quarters [1][5]. Earnings Performance - In the last reported quarter, Workday achieved earnings of $1.92 per share, exceeding the Zacks Consensus Estimate of $1.75 per share, resulting in a surprise of 9.71% [2]. - In the previous quarter, the company was expected to report earnings of $1.72 per share but delivered $1.89 per share, leading to a surprise of 9.88% [2]. Earnings Estimates and Predictions - There has been a favorable change in earnings estimates for Workday, with a positive Earnings ESP of +2.24%, indicating increased analyst optimism regarding its near-term earnings potential [5][8]. - The combination of a positive Earnings ESP and a Zacks Rank of 3 (Hold) suggests a high likelihood of another earnings beat, with historical data showing that such combinations lead to positive surprises nearly 70% of the time [6][8]. Earnings ESP Explanation - The Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate, with the Most Accurate Estimate reflecting the latest analyst revisions, which may be more accurate than earlier predictions [7]. - A negative Earnings ESP can reduce predictive power but does not necessarily indicate an earnings miss [9]. Importance of Earnings ESP - Monitoring the Earnings ESP is crucial for assessing the likelihood of a stock beating consensus estimates, as many companies may beat estimates without significant stock movement [10].

Investment Rating - The report indicates a positive outlook for AI investments in manufacturing, with 96% of manufacturers increasing their AI investments and two-thirds already utilizing generative AI across multiple business functions [4][12]. Core Insights - The manufacturing industry is entering a new phase of AI deployment that focuses on addressing human-centric challenges and enhancing workforce capabilities [5][8]. - AI is seen as a strategic lever that will reshape the manufacturing industry by prioritizing people alongside technology [55]. Summary by Sections A New Phase for AI in Manufacturing - The manufacturing sector is increasingly adopting AI, with a significant number of companies already implementing generative AI [4]. - The next phase of AI will tackle new challenges, particularly those related to labor shortages and organizational changes [6][8]. Elevating Human Potential in Manufacturing - AI's impact is expanding beyond production to include HR, finance, and operations, enhancing employee engagement and retention [14][15]. - Smart factories are reported to have reduced training times significantly, indicating a shift towards more humanistic applications of AI [14]. Democratizing AI Benefits Across Manufacturing Organizations - The next-gen AI framework, Workday Illuminate, aims to bring clarity and democratize AI benefits across the organization [24][27]. - This framework facilitates a shift from isolated AI applications to a comprehensive business-wide ecosystem [27]. Cheat Sheet: Three Ways Manufacturers Using AI Will Thrive 1. Manufacturers will leverage skills-based talent management to address labor challenges and empower employees in their career development [34][41]. 2. AI will enhance mission-critical functionalities without adding IT burdens, allowing IT departments to focus on strategic contributions [42][44]. 3. A human-machine mindset will be adopted, emphasizing collaboration between human workers and AI agents to foster innovation and creativity [48][52]. Closing: AI Is More Than Technology - The report emphasizes that AI is not merely a technological tool but a strategic asset that can transform the manufacturing landscape by focusing on human-centric challenges [55][56].

Core Insights - Workday, Inc. plans to announce its fiscal 2026 first quarter financial results on May 22, 2025, after market close [1] - A conference call will be held at 1:30 p.m. Pacific Time to discuss the financial results and business outlook [1] Company Overview - Workday is an AI platform designed for managing people, money, and agents, with AI at its core [3] - The platform serves over 11,000 organizations globally, including more than 60% of the Fortune 500 [3]

Core Viewpoint - Workday's stock performance has shown resilience, with a recent increase and positive projections for upcoming financial results, indicating potential growth opportunities in the human resources software sector [1][2]. Company Performance - Workday's stock closed at $243.39, reflecting a +1.49% change from the previous day, outperforming the S&P 500's gain of 0.58% [1]. - Over the past month, Workday shares have appreciated by 2.69%, surpassing the Computer and Technology sector's gain of 0.6% and the S&P 500's loss of 0.84% [1]. Financial Projections - The upcoming EPS for Workday is projected at $1.99, representing a 14.37% increase year-over-year [2]. - Revenue is expected to reach $2.22 billion, marking an 11.34% increase from the same quarter last year [2]. - For the full year, analysts anticipate earnings of $8.41 per share and revenue of $9.48 billion, reflecting changes of +15.21% and +12.21% respectively from the previous year [3]. Analyst Estimates - Changes in analyst estimates for Workday are crucial as they reflect short-term business trends and analysts' confidence in the company's performance [4]. - The Zacks Consensus EPS estimate has decreased by 1% in the past month, and Workday currently holds a Zacks Rank of 3 (Hold) [6]. Valuation Metrics - Workday has a Forward P/E ratio of 28.51, which is higher than the industry average of 25.98 [6]. - The PEG ratio for Workday stands at 1.46, indicating a favorable growth outlook compared to the Internet - Software industry average PEG ratio of 2.2 [7]. Industry Context - The Internet - Software industry, part of the Computer and Technology sector, has a Zacks Industry Rank of 143, placing it in the bottom 43% of over 250 industries [8].

Financial Data and Key Metrics Changes - The company reported Q1 2025 adjusted EPS of $1.57 and adjusted EBITDA of $102 million, which fell below guidance due to higher than expected benefits costs [5][6] - The average number of paid worksite employees increased by 0.7% year-over-year to 306,023, but growth was slightly below guidance due to delays and cancellations in new client starts [5][6] - Gross profit per worksite employee decreased to $338 per month from $378 in Q1 2024, attributed to an 8.4% increase in benefits costs per covered employee [6][9] Business Line Data and Key Metrics Changes - Client retention improved to 91% in Q1 2025 from 88% in Q1 2024, indicating strong client loyalty despite market challenges [20] - Client net hiring was slightly positive but significantly weaker compared to historical norms [6][20] - The company experienced a 3% increase in worksite employees paid from new client sales compared to Q1 2024, despite overall hiring challenges [5][6] Market Data and Key Metrics Changes - A client survey indicated that 66% of respondents expect the economic climate to negatively affect their business, up from 29% in January [16] - The percentage of clients expecting to add employees in the coming quarter decreased to 34% from 43% [16] - The Northeast region showed better results compared to other areas, but overall trends were consistent across the nation [70] Company Strategy and Development Direction - The company is focusing on mitigating benefits cost challenges through pricing adjustments and plan design changes, with a forecasted benefits cost per covered employee range of 6.5% to 7.5% for the full year [10][35] - The strategic partnership with Workday is a key focus, with a go-to-market plan established to target mid-market businesses, which is expected to significantly drive growth starting in 2026 [30][31] - The company aims to leverage the Workday partnership to enhance service offerings and client engagement, particularly for businesses with 150 to 5,000 employees [88] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment over the unexpected rise in benefits costs but remains optimistic about future profitability improvements in 2026 [10][64] - The company anticipates a modest improvement in worksite employee growth throughout the year, barring significant changes in the macroeconomic environment [36] - Management noted that the current period of uncertainty is less likely to be a temporary spike, suggesting a more cautious approach to forecasting [86] Other Important Information - Operating expenses were managed slightly below budget, with a 2% increase year-over-year, primarily due to investments in the Workday partnership [11][12] - The company returned $23 million in cash dividends and repurchased 224,000 shares at a cost of $19 million in Q1 [12] - The effective tax rate for the quarter was 29%, consistent with the previous year [12] Q&A Session Summary Question: Can you elaborate on the onboarding pauses mentioned in Q1? - Management noted a dramatic reversal in small business optimism due to government actions, leading to delays and cancellations in onboarding new clients [40][41] Question: What is the expected cadence of spending for the Workday partnership? - The company anticipates stable spending throughout the year, with costs expected to decrease in subsequent years as the project matures [45][48] Question: What actions from Washington could improve customer sentiment? - Management believes that stabilizing the tax system and regulatory environment could significantly boost confidence among clients [53][54] Question: How quickly can pricing adjustments be made in response to healthcare costs? - Pricing changes are already being implemented, with expectations for improved margins as the year progresses [63][64] Question: Are there regional or industry differences in healthcare costs and hiring hesitancy? - The company has observed better results in the Northeast, but overall trends are consistent across the nation [70] Question: What is the expected profitability from the Workday partnership? - Management anticipates higher upfront pricing and ongoing revenue contributions from the new joint solution, though specific figures are still being analyzed [78][79]

Core Insights - Tech companies are increasingly investing in cloud software vendors, showcasing a trend of collaboration among them [1] - Veza has successfully raised $108 million in a financing round, with a valuation exceeding $800 million [2] - Snowflake has utilized Veza's software for access management, highlighting the importance of controlling data access to mitigate security risks [3] Group 1: Investment Trends - Major tech firms like Google, Amazon, Microsoft, and Nvidia are making significant investments in AI startups, while cloud software vendors are also becoming aggressive in corporate investing [1] - The collaboration among software vendors, as seen in Veza's funding round, indicates a strategic shift towards collective investment efforts [1] Group 2: Veza's Business Model - Veza's software assists companies in managing employee access to various internal technologies, which is crucial for maintaining security [2][3] - The company has integrated with over 250 technologies, enhancing its value proposition in the market [4] Group 3: Security and Access Management - Snowflake's use of Veza emphasizes the need for effective access management to prevent over-provisioning, which can lead to increased security risks [3] - The ability to manage permissions for new hires and departures is a key feature of Veza's software, allowing for better control over corporate data access [3]

Company Performance - Workday's stock closed at $224.87, reflecting a +1.76% change from the previous trading day's close, outperforming the S&P 500's daily gain of 1.67% [1] - Over the past month, Workday shares have decreased by 12.59%, which is worse than the Computer and Technology sector's loss of 9.93% and the S&P 500's loss of 6.57% [1] Upcoming Earnings - Workday's upcoming EPS is projected at $1.99, indicating a 14.37% increase compared to the same quarter last year [2] - The Zacks Consensus Estimate for revenue is $2.22 billion, representing an 11.34% increase from the year-ago period [2] Annual Estimates - For the annual period, earnings are anticipated at $8.42 per share and revenue at $9.48 billion, reflecting increases of +15.34% and +12.28% respectively from the previous year [3] Analyst Estimates - Recent changes to analyst estimates for Workday often reflect shifting short-term business dynamics, with upward revisions indicating analysts' positive outlook on the company's operations [4] Zacks Rank - Workday currently holds a Zacks Rank of 3 (Hold), with a 0.9% decline in the Zacks Consensus EPS estimate over the past month [6] Valuation Metrics - Workday's Forward P/E ratio is 26.25, which is higher than the industry average of 24.08 [7] - The PEG ratio for Workday is 1.35, compared to the average PEG ratio of 1.96 for Internet - Software stocks [7] Industry Ranking - The Internet - Software industry, part of the Computer and Technology sector, has a Zacks Industry Rank of 79, placing it in the top 32% of all industries [8]

Group 1 - The article expresses a positive view on Workday's business and its growth in the cloud software sector [1] - The author highlights the importance of identifying high-quality companies with strong competitive advantages and solid management for long-term investment [1] - The focus is on companies that have a history of creating shareholder value, indicating a preference for sustainable growth [1] Group 2 - The author has a beneficial long position in Workday, ServiceNow, and HubSpot, indicating confidence in these companies' future performance [1]

Group 1 - The article discusses a positive outlook on Workday (WDAY), highlighting a recommendation for a buy rating based on expected higher multiples due to the company's growth potential [1] - The author emphasizes a fundamentals-based approach to value investing, arguing against the misconception that low multiple stocks are inherently cheap [1] - The focus is on identifying companies with long-term durability, steady growth, and strong balance sheets, while acknowledging the risks associated with overpaying for successful companies [1] Group 2 - The article does not contain any disclosures regarding stock positions or plans to initiate positions in the mentioned companies [2] - It clarifies that the opinions expressed are personal and not influenced by any business relationships with the companies mentioned [2] - The article also notes that past performance does not guarantee future results and that no specific investment advice is being provided [3]