Workday, Inc.

Welcome to Workday's fiscal 2025 first quarter earnings call. At this time, all participants are in 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 Investor Relations. Thank you. You may begin.

Welcome to Workday's first quarter fiscal 2025 earnings conference call. On the call, we have Carl Eschenbach, our CEO, Zane Rowe, our CFO, Doug Robinson, our co-president, and David Sommers, our chief product officer. 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 2024 annual report on Form 10-K 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 second quarter fiscal 2025 quiet period begins on July 15, 2024. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2024. With that, I'll hand the call over to Carl.

Thank you, Justin, and thank you all for joining us today. I'm pleased to report our solid financial performance for the quarter, including 19% subscription revenue growth 18% 12-month backlog growth, and non-GAAP operating margin of 26%. Over the past six quarters, we've made several key investments across the business, as well as important organizational changes to set the foundation for durable growth and continued margin expansion. In Q1, we continued to build on a number of important growth initiatives, including go-to-market changes that will help us further expand our total addressable market. And in the quarter, we closed several strategic deals, including a landmark federal win at the Defense Intelligence Agency. We also held our annual Innovation Summit, where we hosted 25 industry analysts and showcased our organic innovation engine, which continues to be one of the key strengths of our company. We already are seeing tremendous feedback from the event, with lots of positive industry analyst coverage on the product roadmaps and the future of Workday. Our first quarter is always our seasonally slowest. We had clear areas of outperformance, including healthcare, public sector, and continued strength in financials and full platform wins. But we also closed fewer large deals than last Q1, notably in EMEA. When purchase decisions are being made, our win rates remain strong. But within the quarter, we experience increased deal scrutiny as compared to prior quarters. And we are seeing customers committing to lower headcount levels on renewals compared to what we had expected. We expect these dynamics to persist in the near term, which is reflected in our revised FY25 subscription revenue guidance. While we can't control the macro, we are focusing on what's in our control, and that is innovation, scaling our go-to-market engine and partner ecosystem and delivering customer value. We remain confident we're doing the right things to build a long-term durable business with balanced growth and margin expansion. With the emergence of AI, the shifting talent landscape, and pressure to realize operational efficiencies, organizations across geographies and industries are turning to Workday as their trusted platform to elevate humans and supercharge work. We made several key developments in Q1 that strengthen our position, and I'll share a few highlights. Let's start with customers. Our customers truly bring the power of Workday to life. A great example is our new partnership with the Defense Intelligence Agency. The DIA is the key intelligence agency for national defense in the United States. Workday will support the DIA on its mission to rapidly accelerate recruitment and onboarding efforts and create a diverse, trusted, and agile workforce. With Workday, they'll be able to identify, integrate, and direct skills and expertise to solve emerging intelligence problems when and where they are most needed. Not only is this a significant new win, but more importantly, it unlocks an incredible market opportunity for Workday in the federal government and we expect it to increase our pipeline over the coming quarters. In fact, the DIA was on stage at our federal forum event in Washington, D.C. yesterday discussing digital transformation in the government. Now, in its second year, the forum drew a record crowd of over 600 decision makers across more than 70 agencies from the world of government and policy. This is up 100% from our federal forum last year, and the momentum we are building here is exciting. And speaking of momentum, we continue to take share in financials. bolstered by our go-to-market and platform investments combined with our compelling value proposition of having a single, secure platform to manage both your people and money. In Q1, new financial management customers and full platform customers both increased more than 20% over Q1 of last year. And more than 90% of our nearly 2,000 FINS customers are now leveraging the power of our HCM platform as well. In Q1, we added several full platform HCM and FINS customers, including Baptist Health, Covenant Health Systems, the City of Milwaukee, and Owning Group, the largest privately held staffing company in the U.S. We also had a number of expansions within the office of the CFO, including Alliance Bernstein, Hospital Sisters Health System, and John Muir Health. During Q1, we also expanded our leadership in HCM, adding new relationships with organizations including ALS Group USA, Carhartt, and one of the largest PNC insurers in the world, which expanded its core financials footprint to add HCM. And we had several strategic HCM expansions and renewals, including ING Bank, Sandvik AB, and Vallejo Management Services. Beyond the Winds, we celebrate when our customers go live on our platform. In Q1, ASDA, Electrolux, Topgolf, County of Richland, Apex Group, and LVHN all successfully went live on Workday. Customers trust Workday to help them navigate huge transformations. They did so with the cloud and now they're turning to us to help them responsibly leverage AI to drive productivity, efficiency, and cost savings. Workday gives them the ultimate advantage. We've been delivering AI capabilities to our customers for nearly a decade. We've built AI into the core of our platform, which means AI features and functionality are embedded natively in all of our applications. And with more than 65 million users generating more than 800 billion transactions per year on our platform, the volume of clean, trusted data that Workday and our ecosystem can leverage for AI is truly unmatched. We continue to make significant investments to further enhance our leadership in this area and deliver trusted and responsible AI innovations that drive meaningful business results. We now have more than 50 AI use cases live in production and 25 generative AI use cases on our roadmap to help our customers make confident decisions faster, increase efficiencies, and make their people more productive. In Q1, several new innovations went live for early access customers, including AI-powered content generation capabilities with growth plans, job descriptions, and knowledge-based articles. These automate repetitive tasks and put information in the hands of the right people faster. We also released AI-enabled payroll insights, which help payroll professionals detect anomalies faster and more accurately to save money and reduce risk. Perhaps the best example here is our talent optimization solution, which leverages Workday's Skills Cloud. This is an AI-first SKU where we have seen strong attach rates on new deals and have significant momentum selling back to our customer base as well. I'm pleased to share that over half of our core customer base has now licensed this product, making it one of our fastest growing ever. Continuing to accelerate our AI roadmap, we closed the acquisition of HiredScore in Q1, giving us a comprehensive AI-powered talent acquisition and internal mobility offering. Our shared customers are realizing a 25% increase in recruiter capacity with AI, one of the many reasons we're so excited about this combination. We closed our first joint deal this quarter, and we're rapidly building pipeline, particularly across our base of more than 4,000 recruiting customers. The power of Workday is our platform, and that gives us a ton of flexibility. to fuel growth, for example, in industries. This is a key foundational element and a major differentiator for us. We've been focusing on deepening our purpose-built offerings in key verticals, including healthcare, public sector, financial services, and professional services. As you can see in the logos from this quarter, healthcare once again performed very well. with new ACB growth exceeding 50% in Q1. At the same time, our professional and business services vertical is already well on its way to eclipsing $1 billion in annual recurring revenue. In Q1, we released a natively built configure price quote solution for services businesses, which integrates with CRM platforms to streamline the quoting process. Our research shows that for 95% of our customers, quoting is still happening in spreadsheets today, so this is going to significantly increase their efficiencies. Public sector was another highlight in Q1. In addition to the DIA, we continued to excel in state and local government, closing full platform wins with the cities of North Las Vegas, Milwaukee, and Palm Bay. and Monroe and Washington counties. And in education, we had a record number of Workday student go-lives in Q1 and now have taken 20 new customers live so far this year, including Iowa State University, University of Arkansas System, and Wake Forest University. Global expansion continues to be a key growth driver for Workday. We're focused on investing at all levels to build our regional businesses with local leadership, go-to-market, and product enhancements. For instance, this quarter, our native payroll solution for customers in Australia became generally available. And our global payroll platform is now available for early adopters as we extend the power of Workday with strategic partners like ADP, Alight, and more. On the go-to-market side, we begin holding Workday Elevate events across APAC, Japan, and EMEA in Q1, and will continue throughout Q2. These events bring together thousands of prospects and customers, generating new pipeline and deepening our existing relationships. And just last week, we announced our plans to invest more than 550 million pounds in in our UK operations over the next three years. We also announced that in early 2025, our customers will be able to access our core HCM financials and adaptive planning solutions locally on the AWS cloud in the UK. Not only are we enabling compliance with data residency requirements, we're also boosting performance and helping businesses scale for the future. So as you can see, we're continuing to invest for our growth and I'm energized by how we'll be able to empower more UK organizations with the power of our platform. And while it was a more challenging quarter in some of our international markets, we saw strength in France, the Netherlands, and Japan. Key international wins in Q1 included OCP Group, Knight Frank, and Amman Resorts. Our partner ecosystem is a powerful driver of customer success, and it continues to grow in both breadth and depth. Across the board, we're seeing continued growth in our referral and co-selling efforts, with our partners sourcing more pipeline and closing more ACV in Q1 than all of FY24 through our sales program. This points to increasing ecosystem-led growth, which is a key priority. We have over 200 co-sell and referral partnerships that are helping expand our routes to market. One of the partners that we signed in Q1 that I'm particularly excited about is Google. Under our new partnership, GCP customers will have access to Workday products through the Google Cloud Marketplace. We're off to a fast start. and we expect to have our first transaction via the marketplace this month. We also recently expanded our relationship with AWS to include co-innovation across industries and enhance go-to-market investments. We've built over $75 million of active ACV pipeline with AWS, and the expanded partnership should only accelerate that. And in Q1, we formed a new reseller agreement with Kyriba, that enables Workday customers to integrate with a network of over 1,000 global banks. This dramatically reduces the time, complexity, and cost needed to integrate and adapt with changing banking requirements. Partners are critical to helping us accelerate and broaden our innovation footprint. In two weeks, we'll welcome 1,200 partners and customers to Las Vegas for DEVCON, our annual developer conference. DevCon, as well as our developer ecosystem, has grown by more than 50% since last year, which is a testament to the momentum we're building across our platform. At the event, we'll be announcing new ways for partners to build, distribute, and monetize their applications on the Workday platform. We are also launching several other components of the program to enable us to embed partner solutions within Workday in ways we've never done before. With our cloud-native platform in Workday Extend, we are enabling AI innovation not just from Workday, but our customers and partners as well. We now have more than 900 Extend customers and 1,600 apps, delivering significant value across our ecosystem of customers and partners. Workday Extend Pro which includes AI Gateway as well as Developer Co-Pilot launching later this year, enables our customers and partners to build AI-first apps that leverage the power of our platform. There is clearly an appetite to build AI-first apps on top of Workday. More than 50% of our Q1 Xtend ACV was from Xtend Pro, making it another one of our fastest-growing SKUs. And our AI Marketplace, which is going live next month, gives our customers access to the best of Workday AI and solutions from third-party partners together in one place. These are just a few of the latest examples of the breadth of our innovation in the reach of our platform. Now to close, as I've said many times, we have a durable business with multiple levers to drive long-term growth. With our leadership and investment in AI, our unique ability to address organizations' most critical challenges, and the deep relationships we have with our customers and partners, Workday remains well positioned to extend our market leadership. This is exactly what drew me to Workday and what continues to excite me. We also have a diverse business, serving more than 10,500 customers across industries. which now includes more than 60% of the Fortune 500, an incredible milestone and a testament to the strategic nature of our platform. And yet, we're just getting started. With more than 40,000 organizations in our addressable market and a continued opportunity to expand our footprint and deliver even more value within our existing customer base. Moving into Q2, We are well positioned to achieve our objectives in the near term while continuing to build for the long term. I'd like to thank our customers who put their trust in us, our partners, and especially my 19,400 workmates around the world for helping drive Workday forward. With that, I'll hand it over to Zane.