Workday, Inc.

Welcome to Workday's Fiscal 2024 Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of the call. During the Q&A, please limit your questions to one. I will now hand it over to Justin Furby, Vice President of Investment Relations.

Thank you, Operator. Welcome to Workday's Fourth Quarter Fiscal 2024 Earnings Conference Call. On the call, we have Carl Eschenbach, our CEO, Anil Bushri, our Executive Chair, Zane Rowe, our CFO, and Doug Robinson, our Co-President. Following prepared remarks, we will take questions. Our press release was issued after close of market and is posted on our website, where this call is being simultaneously webcast. Before we get started, we want to emphasize that some of our statements on this call, particularly our guidance, are based on the information we have as of today and include forward-looking statements regarding our financial results, applications, customer demand, operations, and other matters. These statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially. Please refer to the press release and the risk factors in documents we file with the Securities and Exchange Commission, including our fiscal 2023 annual report on Form 10-K, and our most recent quarterly report on Form 10-Q for additional information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of workday's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, in our earnings press release, in our investor presentation, and on the investor relations page of our website. The webcast replay of this call will be available for the next 90 days on our company website under the investor relations link. Additionally, our quarterly investor presentation will be posted on our investor relations website following this call. Also, the customers page of our website includes a list of selected customers and is updated monthly. Our first quarter fiscal 2025 quiet period begins on April 15, 2024. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2023. With that, I'll hand the call over to Carl.

Thank you, Justin, and thank you everyone for joining us today. I'm pleased to share that Workday delivered a solid Q4, achieving 18% subscription revenue growth in a non-GAAP operating margin of 24%. These results were driven by momentum across the business and capped off a year of strong execution by our nearly 19,000 workmates across the globe. Over the course of the last year, we've made key investments across our leadership team, go-to-market and partner ecosystem, and our platform, positioning us to drive enduring growth in FY25 and beyond. I couldn't be prouder of what we've accomplished over the last year, particularly in an environment where deal scrutiny remains high. I'd like to thank our customers, partners, and especially my fellow workmates, for making these results possible. My belief in the opportunity ahead for Workday and our value proposition has only gotten stronger in the 14 months since I've joined. With the emergence of AI, shifting talent landscape, and pressure to realize operational efficiencies, leaders are turning to Workday as their trusted platform to manage their most critical assets, their people and their money. Customers have come to trust us with helping them navigate these huge transformations from the cloud to AI. In fact, the theme of building trust took center stage at the World Economic Forum annual meeting in Davos last month. Throughout my conversations, it was clear to me that leaders see the business benefits of implementing AI, but they also recognize building trust is key. Workday stands apart in our commitment to the responsible development of AI technologies, its responsible deployment within our own company, and our advocacy for its regulation. We've been delivering AI capabilities to our customers for nearly a decade, building AI into the core of our platform, and we're making significant investments to further enhance our leadership in this area. Workday Skills Cloud, for example, uses AI to gain insights into an organization's current skills and identify skills needed for the future, allowing for smarter decisions about talent across the company. In our upcoming R1 release, many of the generative AI use cases we showcase at Rising will be put into the hands of early adopters, including job descriptions and knowledge articles. To further accelerate our AI roadmap, today we're excited to announce our planned acquisition of Hired Score, which provides AI-powered talent orchestration solutions. Hired Score's technology delivers data-driven insights to help improve recruiting and internal mobility processes. The combination of our data set and Workday Skills Cloud with Hired Score's solution will provide customers with a transparent, AI-powered talent acquisition and internal mobility offering. Not only is the technology compelling, but Hired Score and Workday share a commitment to responsible AI development, including a focus on explainability and transparency. We are absolutely thrilled about the potential of what we can do together. Now let's move into the performance from the quarter. which reflects the diversity and durability of Workday's business. As we shared at our Financial Analyst Day, our net new business is driven by a balanced mix of new customer wins and expansions within our install base, which speaks to the significant opportunity that we have ahead. From a net new customer perspective, we once again saw strength in full platform deals. We welcome customers like Australian Stock Exchange, Boyd Gaming Corporation, HHS, Ronstadt, UHS of Delaware, and VXI Global Solutions as full platform HCM and financials customers. And new HCM customers this quarter included Crane Company, El Corte Ingles, Hitachi Astimo, Hungry Jacks, Kohler Co., Onse, and Swisscom. Alongside healthy net new customer activity, our customer-based team again delivered in Q4. We had several strategic expansions and renewals in the quarter, including BJ's, Goodyear, and Graystar Global Enterprise. And we had a number of core financial management expansions across our HCM customer base, including Ally Financial, Huntington Bank, Intermountain Health, in store title guarantee. Our create and close motion also had another great quarter, and it's becoming an important driver of our customer-based sales team's growth. From a solutions perspective, we saw healthy uptake across our portfolio, including Xtend, where new ACV doubled year over year in Q4. We now have more than 850 Xtend customers, And I'm pleased to share that roughly one-third of our extend new ACVs signed in Q4 was from our new professional SKU, which includes AI Gateway, as well as Workday Developer Co-Pilot, launching later this year. Beyond the winds, we celebrate when our customers go live on our platform, and I'm pleased to share that in FY24, over 95% of our deployments went live on time. In Q4, we had several strategic HCM deployments, including AT&T, Northern Trust, and Whataburger, alongside notable financial management go-lives, including American University, Sigility Operations, and UMass Memorial Healthcare. To propel our land and expand business, we continue to invest in several growth areas. I'll share a few highlights from those areas now, starting with international. Today, international represents over half of our addressable opportunity, yet is a quarter of our revenues. We're working to change that, and we're seeing early signs of progress. In EMEA, our leadership additions continue to drive improved and more consistent results. I spent a couple weeks visiting our teams in Europe this past quarter, And I have to tell you, I am fired up by the momentum we're building. In Q4, our teams once again delivered healthy new ACV growth across key markets, such as the UK, Spain, and France. We also closed our first deal in EMEA with our Alight co-sell partnership, and we continue to build pipeline with important partnerships alongside ADP and Alight, in addition to our broader referral and co-sell ecosystem. In the Asia-Pacific region, Australia delivered once again, and I'm pleased to share that Japan, which is a key investment priority, drove strong new ACV growth in Q4. While it's still early days for us in this market, we're focused on growing it. To help lead the way, I'm delighted to welcome Chikara Perucci as our new leader of the Japanese market to help us win in one of the world's largest economies. Chikara brings over 25 years of experience in both SaaS security and cloud services from across Japan and APAC. He reports directly to Patrick Blair, our president of global sales. Moving to financials, we're seeing continued proof that our go-to-market and platform investments are paying off with healthy growth in core financials customers and new ACV in a robust pipeline looking forward. We drove a record number of new full platform wins in both Q4 and FY24, and our industry approach is a clear driver of this momentum. Healthcare, for example, again grew new ACV over 50% in Q4, capping off a fantastic FY24. Our innovation in key areas such as supply chain is differentiating us in the market and is driving industry awards such as the recent recognition in best of class in enterprise resource planning for the seventh year in a row. We're also pleased to share that Gartner named Workday a leader in the 2023 Gartner Magic Quadrant for financial planning software for the second time since the category's inception last year. Our education and government teams also drove continued success in FY24, and higher ed was a standout in Q4 with a number of full platform wins including Oregon State University, Portland Community College, and the College of William and Mary. And to help accelerate our trajectory in the U.S. federal business, I'm delighted to welcome Lynn Martin as our new federal leader. Lynn has more than 30 years' experience in the public sector, most recently running Google's U.S. federal business, and before that, running VMware's public sector team for close to a decade. Supporting our progress around many of these investment areas is our partner ecosystem, where our focus is delivering customer outcomes, growing our business through referrals and co-selling, and building differentiated solutions. During Q4, we announced a strategic partnership with Insperity that delivers on all three of these priorities. Through this partnership, Workday will become the platform powering Insperity's PEO service for SMB organizations, effectively opening up a new market opportunity for us. It's a terrific example of how we're innovating our go-to-market strategy to drive growth. Another great example is the Spark and Grow offering, which we launched with Kainos. It helps our emerging and medium enterprise customers to go live on Workday in less than four weeks. We've seen incredible demand for this offering and we're just getting started. These are two great examples of momentum that is building across our ecosystem, which I'm pleased to share now includes more than 200 partners that have been onboarded to refer new sales leads and co-sell with us. We launched this pilot program last May and we've seen momentum building throughout the year with a nice uptick in Q4 partner-driven pipeline generation. In closing, I'm incredibly proud of our team's strong execution throughout FY24, all while navigating a dynamic environment and embracing important changes we've rolled out across the business. We enter FY25 with a strong foundation and a clear strategy to support durable growth while at the same time continuing to drive efficiencies across the business. As I said on my first Workday earnings call one year ago, we have the opportunity to be one of the largest, most enduring, and profitable software businesses of our time. I've never been more convinced in that belief. Before I turn the call over, I'd like to take a minute to acknowledge Anil, who recently moved into a new role as executive chair. Anil, it has been an incredible 14 months, and I'm truly grateful for your partnership and the trust you put in me to lead what you and Dave started nearly 19 years ago. Your technology vision and your commitment to work a special culture and values have put this company in an incredible position. I am excited for what we'll achieve together next. Thank you for continuing to be in my corner, not just in guiding the applications and platform development, but also as a friend. Anil, over to you.