Workday FY Conference Summary Company Overview - **Company**: Workday (NasdaqGS: WDAY) - **Industry**: Enterprise Software, specifically focusing on Human Resources (HR) and Finance solutions Key Points and Arguments Market Potential - Workday operates in a Total Addressable Market (TAM) of approximately **$200 billion** with only **4-5%** market penetration, indicating significant growth opportunities [4][6] - The company aims to expand its portfolio, particularly in frontline work, which encompasses around **3 billion workers globally** [6][12] Growth Strategies 1. **Portfolio Expansion**: - Workday is broadening its service offerings in finance, including new modules for revenue management and cost management [7][8] 2. **Geographic Expansion**: - Focus on increasing presence in Europe with localized offerings and new data centers, as well as entering the Indian market [10][12] 3. **Targeting Mid-Market**: - Workday is simplifying its services to better cater to mid-market companies (1,000 to 3,000 employees) with new packages like Workday Go and Workday Accelerated [12][11] Technology and Innovation - Workday is committed to leveraging AI to transform user experience and automate backend processes, with **1.2 billion AI actions** already executed in the core platform [20][24] - The company has structured its AI strategy around three pillars: enhancing user experience, automating backend processes, and creating an open platform for integration [18][22] Data and AI - Workday emphasizes the importance of data, context, and process for AI value generation, creating a high barrier to entry for competitors [28][30] - The company has a unique advantage due to its comprehensive data set across HR and finance functions, which is essential for effective AI implementation [28][24] Monetization Strategy - Introduction of **Flex Credits** as a new monetization model for AI features, allowing customers to pay based on usage rather than a fixed seat-based model [39][40] - This model aims to balance customer value with Workday's revenue generation, allowing for flexibility in AI feature consumption [41][46] Acquisitions - Workday has made strategic acquisitions to enhance its AI capabilities, including the acquisition of **Sana** for AI-driven user experience and **Pipedream** for connectivity [50][53] - The focus is on integrating these acquisitions to create a comprehensive ecosystem that enhances the Workday platform [54][55] Financial Discipline - Workday maintains a balance between innovation and margin efficiency, leveraging operational leverage to invest in both organic and inorganic growth [58][60] - The company is confident in its ability to continue expanding investments in AI while also improving margins [60][61] Additional Insights - The discussion highlighted the misconception that AI can operate effectively without a strong data and process foundation, emphasizing the need for accuracy in enterprise applications [32][36] - Workday's approach to AI is not just about better dashboards but about fundamentally transforming business processes [36][37] This summary encapsulates the key insights from Workday's FY conference, focusing on its market potential, growth strategies, technological innovations, and financial discipline.

Financial Data and Key Metrics Changes - Workday reported Q3 subscription revenue of $2.244 billion, reflecting a 15% increase year-over-year. Total revenue reached $2.432 billion, up 13% [19][20] - The 12-month subscription revenue backlog (CRPO) was $8.21 billion, increasing by 17.6% [20] - Non-GAAP operating income for Q3 was $692 million, with a non-GAAP operating margin of 28.5% [20] - Operating cash flow for Q3 was $588 million, representing a growth of 45% [20] - The company ended the quarter with $6.8 billion in cash and marketable securities [22] Business Line Data and Key Metrics Changes - In Human Capital Management (HCM), Workday added new customers including Sunnybrook Health Sciences Center and Magnum Ice Cream Company, with strong full-suite adoption [8] - The company saw that half of all net new global deals in Q3 included both HR and finance solutions [8] - Workday Go contributed to strong new customer growth, particularly in the medium enterprise segment [8] Market Data and Key Metrics Changes - U.S. revenue in Q3 totaled $1.825 billion, up 12%, while international revenue was $607 million, up 13% [19] - Healthcare became the sixth industry to exceed $1 billion in ARR, with significant wins in the sector [10] - The company reported strong performance across EMEA, APAC, and Japan, with notable wins in these regions [16] Company Strategy and Development Direction - Workday is focused on integrating AI into its platform, with over 75% of core customers using Workday Illuminate AI [9] - The company aims to make Workday the "new front door to work" by combining enterprise knowledge, AI agents, and HR and finance processes [14] - Workday is expanding its market presence, including new initiatives in the Middle East and India [92] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's momentum and the strength of its business model, particularly in the face of potential economic challenges [30] - The company anticipates a subscription revenue growth of approximately 14% for FY26, with a target of 12%-15% CAGR through FY28 [24][25] - Management highlighted the importance of data quality, integrity, and security as key factors for enterprise adoption of AI solutions [32] Other Important Information - Workday announced the acquisition of Sana, an AI-native platform, and Pipedream, a low-code integration platform, to enhance its AI capabilities [15] - The company is accelerating its share repurchase program, with plans to repurchase an additional $3.6 billion through the end of FY27 [21] Q&A Session Summary Question: Feedback on venture-backed vibe-coding startups - Management noted that while some startups are experiencing a slowdown, Workday's established infrastructure and data quality continue to attract customers [30][32] Question: Mechanisms to maintain ACV growth amid layoffs - Management explained that they focus on selling additional solutions to existing customers and have protections in place for headcount reductions [36][39] Question: Early success with AI solutions - Management reported that AI solutions contributed 1.5 points of growth to ARR, with strong demand for AI products among new and existing customers [43][44] Question: Feedback on Paradox and Sana acquisitions - Management indicated strong early interest in both acquisitions, with Paradox already generating sales shortly after the acquisition [50][52] Question: Go-to-market strategy for Paradox - Management confirmed that Paradox can be sold independently of Workday's platform, allowing for broader market penetration [58] Question: Confidence in DIA go-live milestones - Management expressed high confidence in meeting DIA contract requirements, which are expected to contribute $15 million in Q4 [68][69] Question: International growth rates - Management acknowledged that international growth rates are comparable to U.S. growth, with a strong pipeline building in international markets [99]

Financial Data and Key Metrics Changes - Workday reported Q3 subscription revenue of $2.244 billion, reflecting a 15% increase year-over-year. Total revenue reached $2.432 billion, up 13% [19] - Non-GAAP operating margin for Q3 was 28.5%, with non-GAAP operating income of $692 million [20] - The 12-month subscription revenue backlog (CRPO) was $8.21 billion, increasing by 17.6% [19] - Total subscription revenue backlog at the end of the quarter was $25.96 billion, up 17% [20] - Operating cash flow for Q3 was $588 million, representing a growth of 45% [20] Business Line Data and Key Metrics Changes - In Human Capital Management (HCM), Workday added new customers including Sunnybrook Health Sciences Center and Fuji Electric, with strong full-suite adoption [8] - AI products contributed over 1.5 points of Annual Recurring Revenue (ARR) growth this quarter, with more than 75% of core customers using Workday Illuminate AI [9] - Workday Go is driving strong new customer growth, particularly in the medium enterprise segment, with a major expansion announced [8] Market Data and Key Metrics Changes - U.S. revenue in Q3 totaled $1.825 billion, up 12%, while international revenue was $607 million, up 13% [19] - Healthcare became the sixth industry to exceed $1 billion in ARR, with significant wins in the sector [10] - The company saw strong performance across EMEA, APAC, and Japan, with notable wins in these regions [16] Company Strategy and Development Direction - Workday aims to unify HR and Finance on one intelligent platform, leveraging AI to help organizations adapt quickly and make better decisions [7] - The company is focused on increasing AI talent and entering new markets, including the Middle East and India [20] - Workday is committed to driving efficiencies while scaling the business globally, with a focus on targeted investments for long-term growth [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the momentum of the business heading into Q4 and FY27, citing strong customer engagement and ROI from Workday solutions [30] - The company is optimistic about AI-driven growth investments and expects to achieve a subscription revenue CAGR of 12%-15% through FY28 [24] - Management acknowledged some impacts from fiscal funding in certain sectors but emphasized strong execution across the portfolio [23] Other Important Information - Workday closed the acquisition of Paradox, which contributed to CRPO growth and was not included in backlog guidance [20] - The company plans to repurchase an additional $3.6 billion in shares through the end of FY27, leading to a total of $5 billion in repurchases [21] Q&A Session Summary Question: Feedback on venture-backed vibe-coding startups - Management noted that while there is interest in point solutions, customers are returning to trusted vendors like Workday due to data quality and security concerns [31] Question: Mechanisms to maintain ACV growth amid layoffs - Management highlighted that they are focused on selling back into their customer base with new solutions, which helps offset any potential impacts from headcount reductions [36] Question: Early success with AI solutions - Management reported that AI solutions are adding significant growth to ARR, with 75% of new sales including an AI solution [43] Question: Feedback on Paradox and Sana acquisitions - Early feedback from customers has been very positive, with strong demand for both acquisitions and their integration into Workday's offerings [51] Question: Go-to-market strategy for Paradox - Workday plans to sell Paradox not only to existing customers but also to competitors' environments, expanding its market reach [59] Question: Confidence in DIA go-live milestones - Management expressed high confidence in meeting DIA contract requirements, which are expected to contribute significantly to Q4 revenue [68]

Financial Data and Key Metrics Changes - Workday reported a 15% growth in subscription revenue, totaling $2.244 billion for Q3 2026, with total revenue reaching $2.432 billion, reflecting a 13% increase [17] - Non-GAAP operating margin stood at 28.5%, with non-GAAP operating income of $692 million [18] - The 12-month subscription revenue backlog (CRPO) increased by 17.6% to $8.21 billion, while total subscription revenue backlog rose 17% to $25.96 billion [18] Business Line Data and Key Metrics Changes - The Human Capital Management (HCM) segment saw new customer additions, including Sunnybrook Health Sciences Center and Fuji Electric, contributing to strong full-suite adoption [6] - More than 75% of core customers are utilizing Workday Illuminate AI, with over 1 billion AI actions executed on the platform this year [7] - AI products contributed over 1.5 points to Annual Recurring Revenue (ARR) growth in Q3 [8] Market Data and Key Metrics Changes - Healthcare became the sixth industry to exceed $1 billion in ARR, with significant wins including Arden Health and Northeast Georgia Medical Center [9] - International revenue totaled $607 million, up 13%, with strong performances across EMEA, APAC, and Japan [17][15] - The U.S. revenue for Q3 was $1.825 billion, reflecting a 12% increase [17] Company Strategy and Development Direction - Workday aims to enhance its AI capabilities through strategic acquisitions, including the recent acquisition of Sana, which will improve user experience and AI integration [12] - The company is focused on expanding into new markets, including the Middle East and India, while also investing in medium enterprises [18] - Workday's vision is to unify HR and finance processes on a single platform, leveraging AI to drive better decision-making and operational efficiency [5] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business momentum and the ability to achieve financial targets, with a subscription revenue growth forecast of approximately 14% for FY26 [20] - The company anticipates continued growth in AI-driven solutions, with expectations for a subscription revenue CAGR of 12%-15% through FY28 [22] - Management acknowledged some impacts from fiscal funding in the public sector but emphasized strong execution across the portfolio [20] Other Important Information - Workday's operating cash flow for Q3 was $588 million, a 45% increase, and the company ended the quarter with $6.8 billion in cash and marketable securities [18] - The company plans to repurchase an additional $3.6 billion in shares, totaling $5 billion in buybacks [19] Q&A Session Summary Question: Feedback on venture-backed vibe-coding startups - Management noted that while there are challenges with operationalizing these solutions, customers are returning to trusted vendors like Workday for reliable data and security [27][28] Question: Mechanisms to maintain ACV with customers facing layoffs - Management highlighted that customer headcount is still growing year-over-year, and they are focused on selling additional solutions to existing customers to offset any potential impacts from layoffs [30] Question: Early success with AI solutions - Management reported that AI solutions are contributing significantly to ARR growth, with 75% of new sales including AI products [32][33] Question: Feedback on Paradox and Sana acquisitions - Early feedback from customers has been very positive, indicating strong demand for both AI solutions and the integration of these acquisitions into the Workday ecosystem [36][38] Question: International growth performance - Management expressed satisfaction with international performance across EMEA, APAC, and Japan, attributing success to product localization and strong partner networks [60][61]

Summary of Key Points from the Conference Call Company Overview - The company discussed its unique position in the software industry, particularly in the context of the transition from on-premises software to cloud-based solutions and SaaS models [1][2] - The company has seen significant growth in its user base, increasing from 46 million contracted users to 75 million over the past five years [4] AI and Software Growth - The company highlighted the expanding opportunities in AI, stating that 75% of existing customers are using AI features, and 75% of new customers are purchasing AI as their first product [6] - AI-related annual contract value (ACV) has grown from over $250 million to more than $450 million, representing a 50% year-over-year increase [7] - The company emphasized that AI is integral to its product offerings and is driving growth, contributing approximately 1.5 percentage points to overall annual recurring revenue (ARR) growth [8] Talent Acquisition and Leadership - The company has made significant hires in leadership positions to drive growth, including a new GM for the medium enterprise segment and a former Google executive to lead the platform business [12][13] - The collaboration between new and existing talent is noted as a key strength for future growth [12] Financial Performance and Projections - The company expects to achieve over $8.8 billion in revenue for the current year, up from just under $6 billion in 2023 [37] - Non-GAAP operating margins are projected to increase from just over 20% in FY2023 to 29% by the end of the current year [41] - The company has set a target for subscription revenue CAGR through FY2028 to range from 12% to 15% [54] Capital Allocation and Share Buybacks - The company announced a $5 billion share buyback program through FY2027, emphasizing its commitment to returning capital to shareholders [59][62] - The focus remains on organic investment, particularly in AI, while also considering M&A opportunities that align with its strategic goals [66][67] Market Expansion and New Offerings - The company is focusing on expanding its presence in the medium enterprise market and has launched Workday Go to cater to this segment [33][90] - A new consumption-based pricing model called flex credits was introduced, allowing customers to pay based on usage, which is expected to enhance customer value and capture revenue [88] Data Integrity and AI Differentiation - The company is investing in improving data integrity and context, which is crucial for effective AI implementation in enterprise settings [93][96] - The unique architecture of Workday allows for the integration of AI into business processes, enhancing operational efficiency and effectiveness [84][96] Conclusion - The company is optimistic about its future, citing strong customer loyalty, innovative capabilities, and a robust growth strategy [15][16] - The leadership team is committed to driving durable growth while expanding operating margins, positioning the company for long-term success in the evolving software landscape [15][41]

Financial Data and Key Metrics Changes - Workday reported a 14% growth in subscription revenue, totaling $2,169 million for Q2 2026, with total revenue reaching $2,348 million, reflecting a 13% increase [28][29] - Non-GAAP operating margin stood at 29%, with non-GAAP operating income of $680 million [30][33] - Cash and marketable securities at the end of the quarter were $8,200 million, with operating cash flow of $616 million, an 8% growth [31][32] Business Line Data and Key Metrics Changes - Approximately 30% of net new deals were full suite offerings, with this number rising to over 50% in sectors like SLED and healthcare [10][12] - More than 70% of core customers are utilizing Workday Illuminate, with over 30% of customer-based deals including AI products [12][15] - The financial services sector saw significant expansions, including new relationships with Nationwide Insurance and others [12][13] Market Data and Key Metrics Changes - U.S. revenue increased by 13% to $1,760 million, while international revenue grew by 11% to $584 million [29] - The twelve-month subscription revenue backlog (CRPO) reached $7,910 million, up 16.4% year-over-year [29][30] - Strong performance was noted in EMEA, particularly in Germany and the UK, with notable wins in APAC, including a deal in Vietnam [24][122] Company Strategy and Development Direction - Workday is focusing on AI-driven solutions and expanding its platform capabilities, including the acquisition of Paradox to enhance its recruiting suite [16][78] - The company is investing in organic innovation and strategic acquisitions to strengthen its market position and deliver greater value to customers [16][21] - Workday Government was launched to cater specifically to the needs of the U.S. government, emphasizing a commitment to modernization and AI integration [14][70] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's momentum, driven by AI innovation and a unified platform, while acknowledging macroeconomic challenges in certain sectors [25][56] - The company anticipates continued growth in subscription revenue, increasing its FY 2026 guidance to $8,815 million, reflecting a 14% growth [32][34] - Management highlighted the importance of customer trust in navigating AI transitions, positioning Workday as a key partner in this area [100][49] Other Important Information - Workday's headcount as of July 31 was approximately 19,500, with ongoing efforts to attract top talent [31][21] - The company is expanding its partner ecosystem, with over 20% of net new ACV sourced from partners in the last quarter [22] - Workday is actively pursuing growth opportunities in India, with plans to establish a local data center and expand its team [24][122] Q&A Session Summary Question: Market concerns regarding SaaS and AI startups - Management believes concerns about AI disruption to SaaS models are overblown, emphasizing Workday's strong market position and customer base [45][49] Question: Crosscurrents affecting growth - Management noted strong performance in Europe despite macroeconomic challenges, while observing some headwinds in the SLED market [56][58] Question: Workday Government subsidiary - The subsidiary was established to demonstrate commitment to the government sector and to provide a secure cloud environment [70][71] Question: Acquisition of Paradox - The acquisition is seen as a strategic move to enhance Workday's recruiting capabilities, with expected synergies and growth opportunities [78][84] Question: AI product engagement and win rates - Engagement with AI products is strong, with significant growth in adoption rates among customers [88][90] Question: International market performance - Management expressed satisfaction with growth in international markets, particularly in Europe and Japan, and highlighted plans for expansion in India [122][121]

Financial Data and Key Metrics Changes - Workday reported a 13% growth in subscription revenue, totaling $2,059 million for Q1 FY 2026, with total revenue reaching $2,240 million, also up 13% [28][30] - Non-GAAP operating margin for the quarter was 30.2%, while GAAP operating income was impacted by a $166 million restructuring charge, resulting in a GAAP operating income of $39 million [30][31] - The twelve-month subscription revenue backlog (CRPO) increased by 15.6% to $7,630 million, and total subscription revenue backlog rose by 19% to $24,620 million [29][30] Business Line Data and Key Metrics Changes - More than 30% of net new wins in Q1 were full suite, with over 50% in focused industries like healthcare and SLED [11][43] - New ACV from AI products more than doubled year-over-year, with approximately 25% of customer expansions including AI solutions [12][88] - Professional services revenue was $181 million, contributing to the overall revenue growth [28] Market Data and Key Metrics Changes - U.S. revenue in Q1 totaled $1,680 million, up 13%, while international revenue also grew by 13% to $559 million [28][29] - The company saw notable wins in EMEA and APAC, with significant expansions in various sectors including healthcare and manufacturing [24][25] Company Strategy and Development Direction - Workday is focusing on AI integration and innovation, with a strong emphasis on delivering ROI for customers [20][26] - The launch of Workday Go aims to accelerate deployment for medium enterprises, allowing implementations in as little as 30 to 60 days [14][51] - The company is investing heavily in AI and expanding its partner ecosystem to drive growth and innovation [21][72] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining guidance despite macroeconomic uncertainties, citing strong customer demand and the value proposition of the Workday platform [40][42] - The company is closely monitoring specific markets like SLED and international business for potential impacts from the macro environment [25][108] - Management highlighted the importance of AI in driving customer engagement and future growth, with expectations for continued strong adoption [88][98] Other Important Information - Workday ended the quarter with $8 billion in cash and marketable securities and announced a new $1 billion open-ended buyback authorization [31] - The company is maintaining its FY 2026 operating cash flow outlook of $2,750 million and capital expenditures of approximately $250 million [35] Q&A Session Summary Question: Can you discuss the current macro environment and how it affects guidance? - Management noted that the Workday value proposition remains strong, with customers consolidating on the platform for better ROI and TCO, despite some headwinds in specific industries [40][41] Question: What is the potential impact of Workday Go on medium enterprises? - Workday Go is designed to accelerate deployment and improve pricing and packaging for medium enterprises, allowing for faster implementations [51][52] Question: How is the adoption of Xtend and XtendPro progressing? - Adoption of Xtend and XtendPro is increasing, with significant growth in partner applications and customer customizations [58][60] Question: What are the growth rates for HCM versus Financials? - Both HCM and Financials are performing well, with a strong sales motion for full suite offerings contributing to overall growth [62][64] Question: How is the company approaching capital allocation in the current environment? - The focus remains on organic growth and strategic investments, with a commitment to returning capital to shareholders through buybacks [84][85] Question: What is the outlook for AI product monetization? - Strong adoption of AI solutions is already being seen, with expectations for continued growth and monetization opportunities in the near future [98][99]

Financial Data and Key Metrics Changes - Workday reported a 13% growth in subscription revenue, totaling $2,059 million for Q1 2026, with a non-GAAP operating margin of 30% [6][27] - Total revenue for the quarter reached $2,240 million, also reflecting a 13% increase [27] - The twelve-month subscription revenue backlog (CRPO) was $7,630 million, up 15.6%, while total subscription revenue backlog increased by 19% to $24,620 million [28][29] - Non-GAAP operating income was $677 million, with a GAAP operating income of $39 million impacted by a $166 million restructuring charge [29][30] - Operating cash flow grew by 23% to $457 million [30] Business Line Data and Key Metrics Changes - More than 30% of new wins in Q1 were full suite, with over 50% in focused industries like healthcare [11] - New ACV across AI products more than doubled year over year, with approximately 25% of customer expansions including AI solutions [11][17] - Workday Go was launched to target medium enterprises, enabling faster implementations in as little as 30 to 60 days [12][13] Market Data and Key Metrics Changes - U.S. revenue totaled $1,680 million, up 13%, while international revenue also increased by 13% to $559 million [27][28] - The company saw notable wins in EMEA and APAC, with significant expansions in various sectors [22][23] Company Strategy and Development Direction - Workday's strategy focuses on leveraging AI to drive efficiencies and innovation for customers, positioning itself as a leader in the evolving future of work [25] - The company is investing heavily in AI and expanding its partner ecosystem to enhance its offerings [19][22] - Workday aims to capture growth opportunities in emerging and medium enterprises through initiatives like Workday Go [12][13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macroeconomic uncertainties but expressed confidence in the company's value proposition and customer demand [24][40] - The company reiterated its subscription revenue guidance of $8,800 million for FY 2026, expecting continued growth in the second half of the year [32][44] - Management highlighted strong ROI and total cost of ownership as key selling points for customers navigating economic challenges [110][113] Other Important Information - Workday's AI solutions are seeing strong adoption, with a 100% year-over-year growth in AI-related sales [88][99] - The company has a new $1 billion open-ended buyback authorization, reflecting its commitment to returning capital to shareholders [31][84] Q&A Session Summary Question: Can you discuss the current environment and your confidence in maintaining guidance? - Management noted that the Workday value proposition resonates in both headwinds and tailwinds, with strong ROI driving customer consolidation on the platform [40][44] Question: What impact do you expect from Workday Go on medium enterprises? - Workday Go is designed to accelerate deployment and improve pricing and packaging for medium enterprises, with implementations now possible in as little as 60 days [50][52] Question: How is the adoption of Xtend and XtendPro progressing? - Xtend and XtendPro are seeing increased customer and partner engagement, with significant growth in applications being developed on the Workday platform [57][59] Question: What are the growth rates for HCM versus Financials? - Both HCM and Financials are performing well, with full suite wins being a strong sales motion, particularly in key markets [62][64] Question: How is the company approaching capital allocation in the current environment? - The focus remains on organic growth and strategic investments, with a high bar for any inorganic growth opportunities [83][84] Question: What is the timeline for monetization of AI products? - Strong adoption of AI solutions is already being seen, with significant growth expected as new agents are introduced [98][99]