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]

Core Insights - Workday, Inc. has been recognized as a Leader in the Gartner Magic Quadrant for Cloud HCM Suites for 1,000+ Employee Enterprises for the tenth consecutive year, achieving the highest position for Ability to Execute [1][4]. Company Overview - Workday is an AI platform designed for managing people, money, and agents, serving over 11,000 organizations globally, including more than 65% of the Fortune 500 [8]. Business Transformation - Workday is facilitating business and HR transformation by integrating human talent with AI capabilities, empowering over 6,200 HR customers worldwide to enhance workforce management and drive growth [2][3]. AI Integration - The company’s solutions leverage a unified data core and Workday Illuminate, which simplifies complex data, automates processes, and enhances decision-making, thereby improving operational efficiency [6]. Workforce Management - Workday provides a comprehensive view of the total workforce by unifying data from various employment types, which aids organizations in better planning and decision-making [6]. Talent Acquisition - The introduction of Paradox, a conversational AI candidate experience agent, expands Workday's AI-powered talent acquisition suite, enabling organizations to streamline hiring processes [6]. Partner Ecosystem - Workday's extensive partner ecosystem enhances customer value by integrating payroll data with third-party providers in over 180 countries and offering insights into wellness program effectiveness [6]. Market Segmentation - Workday is expanding its offerings to cater to specific market segments, including Workday GO for small and midsize businesses and Workday Government for U.S. Government entities [6].

Core Viewpoint - Market concerns regarding artificial intelligence (AI) as a threat to Workday's business model have negatively impacted its stock price, despite the company reporting better-than-expected fiscal results [1][2] Company Performance - Workday's Q2 revenue increased nearly 13% year over year to $2.35 billion, with subscription revenue climbing 14% to $2.17 billion, and adjusted earnings per share (EPS) rising 26% to $2.21, surpassing analyst expectations [8] - The company's 12-month subscription revenue backlog grew by 16% to $7.91 billion, while total subscription revenue backlog rose nearly 18% to $25.37 billion [8] - Workday ended the quarter with $8.19 billion in cash and marketable securities, $3 billion in debt, and generated operating cash flow of $616 million and free cash flow of $588 million [10] AI Integration - Over 75% of sales to new customers included an AI solution, and 30% of sales to existing customers did, leading to a more than doubling of new net annual contract value from AI products year over year [5] - Workday's primary AI platform, Workday Illuminate, is designed to provide customers with a comprehensive human resource and finance database, along with AI agents for various tasks [6] Strategic Moves - Workday announced its agreement to acquire Paradox, an AI company aimed at simplifying the hiring process, as part of its strategy to enhance its AI capabilities [7] Market Outlook - Management raised its fiscal 2026 guidance slightly, expecting revenue growth of 13% to approximately $9.515 billion and subscription revenue growth of about 14% to $8.815 billion, with the new figures reflecting contributions from the Paradox acquisition [11] - CEO Carl Eschenbach characterized market fears about AI disrupting seat-based SaaS models as "completely overblown," attributing slower customer headcount growth to previous over-hiring rather than AI's impact [12] Valuation - Workday's stock trades at a forward price-to-sales (P/S) ratio of 6.2 and a forward price-to-earnings (P/E) ratio of 25, which is considered attractive given projected mid-teens percentage revenue growth and strong earnings growth [15]

Financial Data and Key Metrics Changes - Workday reported a 14% growth in subscription revenue, totaling $2,169 million for Q2 [28] - Total revenue for Q2 reached $2,348 million, reflecting a 13% increase [28] - Non-GAAP operating margin was 29%, with non-GAAP operating income of $680 million [30] - Cash flow from operations for Q2 was $616 million, an 8% growth [31] - The twelve-month subscription revenue backlog (CRPO) increased by 16.4% to $7,910 million [29] 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 [11] - More than 70% of new customers purchased an AI SKU, contributing to over 100% year-over-year growth in net new AI SKUs [50][92] - Professional services revenue was $179 million, contributing to the overall revenue growth [28] Market Data and Key Metrics Changes - U.S. revenue for Q2 totaled $1,760 million, up 13%, while international revenue reached $584 million, an 11% increase [29] - The company saw strong performance in Europe, particularly in the UK and Germany, with no significant headwinds from macroeconomic factors [59] - The government sector is experiencing a significant opportunity for modernization, with Workday launching a dedicated subsidiary, Workday Government [15][16] Company Strategy and Development Direction - Workday is focusing on AI-driven solutions, with a roadmap aimed at delivering purpose-built AI solutions for HR and finance [17] - The company is making strategic acquisitions, including the recent agreement to acquire Paradox, enhancing its recruiting capabilities [19][80] - Workday is expanding its global footprint, particularly in India, and is investing in new markets and industries [26][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to leverage its market position and strong customer base to capitalize on AI opportunities [46][50] - The company anticipates continued growth in subscription revenue, increasing its FY 2026 guidance to $8,815 million, reflecting a 14% growth [32] - Management acknowledged potential challenges in the SLED market but remains optimistic about overall performance and momentum heading into the second half of the year [60][68] Other Important Information - Workday's gross revenue retention rate remained healthy at 97% [30] - The company ended the quarter with $8,200 million in cash and marketable securities [31] - Workday's headcount stood at approximately 19,500 as of July 31 [32] Q&A Session Summary Question: Market concerns regarding SaaS and AI disruption - Management believes concerns about AI disruption to SaaS models are overblown, emphasizing Workday's strong customer base and AI adoption [46][50] Question: Crosscurrents affecting growth - Management noted that while there are macroeconomic factors to monitor, the international business performed well, particularly in Europe [58][60] Question: Workday Government subsidiary - The subsidiary was launched to demonstrate commitment to the government sector and to provide a secure cloud environment tailored to their needs [74][75] Question: Acquisition of Paradox - The acquisition is seen as a strategic move to enhance Workday's recruiting platform, with expected synergies and growth opportunities [80][87] Question: AI product influence on win rates - AI solutions are significantly influencing sales, with over 70% of new sales including AI products, contributing to strong growth [92][93] Question: Notable wins in Q2 - Significant wins included the University of Virginia and Nationwide Insurance, showcasing strong performance across various sectors [94][95]

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]

Core Viewpoint - Workday's stock experienced a decline following its fiscal 2026 Q1 results, despite showing revenue growth and adjusted profitability that exceeded analysts' expectations. The market's disappointment stemmed from the company's guidance, which indicated lower-than-expected subscription revenue growth [1][5][6]. Financial Performance - Workday reported a revenue increase of nearly 13% year-over-year, reaching $2.24 billion [2][4]. - The company's net income on a GAAP basis fell to $68 million ($0.25 per share) from $107 million the previous year, but on a non-GAAP basis, earnings improved by 28% to $2.23 per share [4]. - Analysts had anticipated earnings of $2.01 per share, indicating that Workday's adjusted profitability significantly outperformed expectations [5]. Market Expectations - The market had high expectations for Workday's growth due to its involvement in AI, leading to disappointment when the company forecasted subscription revenue of $2.16 billion for the current quarter and $8.8 billion for fiscal 2026, both representing around 14% year-over-year growth [5][6]. - Analysts predict continued growth of approximately 13% for fiscal 2026 and 2027, with earnings per share expected to rise by 20% in fiscal 2026 and 16% in fiscal 2027 [11]. Client Engagement and AI Adoption - Workday's revenue growth was bolstered by product expansions among existing clients, including CVS Health, Chipotle, and FedEx, as well as new clients like United Airlines and Mutual of Omaha Insurance [8][9]. - A notable 25% of client expansions during the quarter involved at least one AI offering, highlighting the company's successful integration of AI solutions [10]. Valuation and Investment Potential - Despite the stock's recent decline, it is considered undervalued, with a five-year forward PEG ratio slightly above 1, suggesting it may be a bargain for investors [12][13]. - The company's prospects remain strong, driven by its focus on AI and a growing client base that is increasingly adopting its solutions [13].

Core Insights - Workday announced a new unified AI developer toolset at Workday DevCon 2025, aimed at enhancing productivity and enabling developers to customize AI applications on the Workday platform [1][2] - The new toolset addresses the challenges developers face in delivering sophisticated AI applications amidst a fragmented AI landscape, allowing for seamless integration of AI capabilities [2] - Workday's Developer Copilot, a conversational AI tool, has been shown to increase developer productivity by over 50% and will now include new features to further assist developers [3] Developer Tools and Features - The new AI developer toolset includes capabilities such as AI Widgets, which allow developers to add AI-powered features to applications, enhancing user experience in HR and finance [4] - Developers can connect third-party agents to the Workday Agent System of Record (ASOR) for improved agent collaboration and management [4] - A new command-line interface (CLI) tool, Workday Developer CLI, will help automate development tasks and integrate Workday into DevOps workflows [3] Data and Integration - Workday Illuminate, built on a dataset of over 1 trillion transactions annually, provides deep contextual understanding to transform business operations [4][6] - Expanded AI Gateway APIs will enable developers to integrate new Workday AI services into applications, allowing for natural language queries and document intelligence [4] Availability and Adoption - The Agent Gateway will be available to early adopter customers by the end of 2025, with other new features and services also set to launch by the same timeframe [7] - Workday serves over 11,000 organizations globally, including more than 60% of the Fortune 500, indicating a strong market presence and potential for widespread adoption of the new tools [8]

Core Insights - Workday has launched the Workday Agent Partner Network, a global ecosystem that connects AI agents from various industry leaders to its Agent System of Record (ASOR), enhancing productivity and collaboration [1][6][12] - The introduction of the Agent Gateway will facilitate seamless integration of AI agents from Workday and its partners, streamlining workflows across platforms [2][8] - Workday's platform aims to manage people, money, and AI agents together, reflecting the evolving nature of the workforce that now includes both humans and AI [3][4] Company Developments - Workday's ASOR will provide tools for hiring, onboarding, and managing AI agents, ensuring they operate securely and efficiently [5][6] - The Workday Marketplace now features agents from Workday and its partners, allowing customers to easily discover and deploy AI solutions tailored to their business needs [10] - Workday Illuminate, the next generation of its AI, leverages extensive HR and financial data to enhance business operations and decision-making [11][14] Industry Trends - The workforce is increasingly composed of both human employees and AI agents, necessitating a rethinking of management practices and compliance measures [4][5] - Major partners like AWS, Deloitte, and PwC are collaborating with Workday to develop AI agents that can transform enterprise workflows and improve decision-making across various functions [12][12][12] - The integration of AI agents into business processes is seen as a critical step towards managing the future workforce effectively [6][12]

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].