Workday(WDAY) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Subscription revenue in Q3 was $1.959 billion, reflecting a 16% increase year-over-year [29] - Total revenue for the quarter reached$ 2.160 billion, also up 16% [29] - Non-GAAP operating income was $569 million, resulting in a non-GAAP operating margin of 26.3% [30] - The 12-month subscription revenue backlog (cRPO) was$ 6.98 billion, increasing by 15% [29] - Total subscription revenue backlog at the end of the quarter was $22.19 billion, up 20% [29] Business Line Data and Key Metrics Changes - Professional services revenue was$ 201 million, contributing to the total revenue growth [29] - More than 35% of new core customers in Q3 opted for the full suite of services [13] - The healthcare sector saw significant wins, including a major deal with CommonSpirit Health [12] Market Data and Key Metrics Changes - US revenue totaled $1.62 billion, while international revenue was$ 537 million, both growing at 16% [29] - The professional and business services sector became the third industry to exceed $1 billion in annual recurring revenue [11] - Government and higher education sectors showed strong performance, with 90% of wins in these industries being full suite [10] Company Strategy and Development Direction - The company aims for mid-teens subscription revenue growth through FY27 while expanding non-GAAP operating margins to 30% [27] - Focus on AI solutions is a key part of the strategy, with over 30% of customer expansions involving AI products [14] - The company is investing in its Financials business to drive demand for the full suite [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the federal government market, noting a significant opportunity as many systems remain on-premises [49] - The company anticipates a strong Q4 with a solid pipeline and expects to maintain its growth trajectory despite economic headwinds [75] - Management highlighted the importance of AI in driving future growth and customer engagement [62] Other Important Information - The company repurchased$ 157 million of its shares during the quarter [30] - The acquisition of Evisort, a document intelligence platform, was completed, enhancing AI capabilities [20] - A new strategic partnership was formed with NTT Data in Japan, expanding international growth opportunities [24] Q&A Session Summary Question: Can you discuss the deliverable issue in Q4 and its impact on FY26 guidance? - Management noted that strategic deals in Q3 had product deliverables that would affect revenue recognition, expecting a ramp-up in FY26 [38][39] Question: How is the federal business responding to government efficiency plans? - Management believes the focus on efficiency will drive demand for cloud solutions, positioning the company favorably in the federal market [49] Question: What is the outlook for employment indicators in the customer base? - Management indicated no significant changes in employment indicators but noted a moderation in expectations [52] Question: How confident is the company in maintaining mid-teen growth rates? - Management expressed confidence due to strong Q3 performance, AI momentum, and strategic partnerships [61][62] Question: What is the company's approach to AI monetization? - The company takes a multipronged approach, integrating AI into core offerings and pricing based on customer value [110][112]