Workday(WDAY) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Subscription revenue in Q4 was $1.76 billion, up 18%, and full-year FY '24 subscription revenue was $6.6 billion, growing 19% [42] - Professional services revenue was $162 million in the quarter and $656 million for the year [42] - Total revenue in Q4 was $1.92 billion and for the full year was $7.26 billion, both growing 17% [42] - U.S. revenue in Q4 totaled $1.44 billion, up 16%, and international revenue totaled $478 million, growth of 21% [42] - 12-month subscription revenue backlog (CRPO) was $6.62 billion at the end of Q4, representing growth of 20% [43] - Non-GAAP operating income for the fourth quarter was $461 million, resulting in a non-GAAP operating margin of 23.9% [44] - Full-year non-GAAP operating income was $1.74 billion, reflecting a non-GAAP operating margin of 24% [44] - Q4 operating cash flow was $996 million, with full-year operating cash flow of $2.15 billion, growth of 30% [44] Business Line Performance - Extend saw new ACV double year-over-year in Q4, with over 850 Extend customers [20] - Health care grew new ACV over 50% in Q4, capping off a strong FY '24 [14] - Full platform wins in Q4 included Australian Stock Exchange, Boyd Gaming Corporation, and others [19] - HCM deployments in Q4 included AT&T, Northern Trust, and Whataburger [20] - Financial Management go-lives in Q4 included American University, Sagility Operations, and UMass Memorial Health [20] Market Performance - International markets, particularly EMEA and APAC, showed strong growth, with Japan driving strong new ACV growth in Q4 [13][22] - The U.K., Spain, and France delivered healthy new ACV growth in Q4 [21] - The U.S. Federal business saw the appointment of a new leader, Lynn Martin, to accelerate growth [24] Company Strategy and Industry Competition - The company is focusing on AI, with significant investments in AI capabilities and the planned acquisition of HiredScore [10][18] - Workday is expanding its international presence, with over half of its addressable opportunity in international markets [13] - The company is investing in industry-specific solutions, particularly in health care, education, government, and financial services [35] - Workday is enhancing its platform with AI-driven features, including generative AI use cases and AI-powered talent acquisition [18][34] Management Commentary on Business Environment and Future Outlook - Management highlighted the importance of trust in AI development and deployment, with Workday committed to responsible AI practices [10] - The company is optimistic about FY '25, with a focus on durable subscription revenue growth and margin expansion [41][46] - Management emphasized the strength of the company's partner ecosystem and its role in driving growth [25][27] Other Important Information - Workday repurchased $136 million of its shares in Q4 and authorized a new $500 million share repurchase program [45] - The company ended the quarter with $7.8 billion in cash and marketable securities [45] - Workday's FY '25 guidance includes subscription revenue of $7.725 billion to $7.775 billion, representing growth of 17% to 18% [46] Q&A Session Summary Question: Impact of new products and partnerships on growth rate [52] - The company reiterated its FY '25 guidance, reflecting confidence in its strategic growth initiatives, including AI, international expansion, and partnerships [56][57] Question: AI's impact on productivity, particularly in HR and talent management [59] - AI is expected to drive productivity gains, especially in talent acquisition, with the integration of HiredScore enhancing recruiting and internal mobility processes [60][61] Question: Subscription revenue beat and CRPO dynamics [63] - Subscription revenue came in ahead of guidance, with CRPO growth influenced by early renewals and strong demand [64][65] Question: Confidence in platform deals and pipeline for FY '25 [68] - The company is confident in its full platform approach, with strong growth in medium enterprise and large enterprise deals, particularly in health care and government [69][70] Question: Backlog growth and early renewals [72] - Backlog growth is influenced by early renewals, with variability expected quarter-to-quarter [74][75] Question: Vertical strategy and industry focus [79] - Health care, retail, hospitality, and financial services are key verticals driving growth, with strong performance in professional services and medium enterprise deals [80][82] Question: Large enterprise vs. medium enterprise traction [86] - Both large enterprise and medium enterprise segments showed strong growth in Q4, with medium enterprise snapping back after a soft first half of the year [89][90] Question: Margin and free cash flow outlook [92] - The company is balancing growth investments with margin expansion, targeting a non-GAAP operating margin of 24.5% in FY '25 [93][97] Question: CRPO growth and early renewal impact [100] - CRPO growth in Q4 included 1.5 points from early renewals, with variability expected in future quarters as the company laps periods of strong renewal activity [101][103] Question: Sales rep productivity and hiring plans [106] - The company is pleased with the productivity of new sales reps focused on Financials, with continued investment in go-to-market and product development [107][108] Question: Subscription revenue reacceleration and pipeline visibility [110] - The company is optimistic about subscription revenue growth in FY '25, driven by investments in Financials, international expansion, and AI [111][113]