Workday, Inc.

Hello. Welcome to Workday's fiscal 2025 third 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 Q&A, please limit your questions to one. I will now hand it over to Justin Furby, Vice President of Investor Relations. Mr. Furby, you may begin.

Thank you, Operator. Welcome to Workday's third 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 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, the transcript of this call and 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 fourth quarter fiscal 2025 quiet period begins on January 15, 2025. 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 another quarter of solid financial performance in Q3, with 16% subscription revenue growth and non-GAAP operating margins of 26%. These results are a testament to the strong customer relationships we have across industries, the growing demand of our AI innovation, and the power of our ecosystem around the world. More and more organizations are consolidating on the Workday platform for a few key reasons. They want to reduce total cost of ownership, simplify their operations, and harness the power of AI across our best-in-class HR and finance solutions, and provide employees with an amazing user experience. Workday gives them the ultimate advantage. That was evident in Q3 by the growth we had in full suite, and in our net new wins last customer expansions across geographies, and segments along with industries. Several industries were strong in the quarter, and government and higher education were two of the standouts. Roughly 90% of the wins in these industries were full suite. In Q3, the Defense Intelligence Agency expanded its business with Workday. In Lake County, Illinois, Maryland General Assembly, New Jersey Institute of Technology, and University System of Georgia all chose Workday to modernize their systems and meet the rising expectations of their constituents. This quarter, professional and business services became the third industry to exceed $1 billion in annual recurring revenue, alongside financial services and retail and hospitality. Advantage Solutions, Connells Limited, and Flight Center Travel Group all selected Workday. And in healthcare, we had a huge full suite win with Common Spirit Health, one of the largest nonprofit healthcare systems in the U.S., as well as Community Health System and Valley Children's Healthcare. From a product perspective, our HCM solutions are really setting the pace when it comes to the future of work. In the quarter, we had wins with Brookshire Grocery Company, IOI Group, ProMoc, Royal Mail, team health, just to name a few. We're also continuing to invest in our financials business, and that's driving demand for our full suite. More than 35% of our new core customers in Q3 were full suite. And in Q3, we were again named a leader in the 2024 Gartner Magic Quadrant for cloud HCM suites for 1,000-plus employee enterprises. Cloud ERP for service-centric enterprises, and financial planning software. And speaking of planning, that business had a great Q3. We either expanded or formed new relationships with some fantastic organizations like Deloitte, the Fitness and Lifestyle Group, Motion Picture Association, and Tenant Healthcare. And we were thrilled to have AWS go live on planning in Q3. AI is top of mind for every CEO right now, and they're all looking for the right partner to guide them through this transformation. That's where Workday comes in. Our customers know that an investment in Workday is an investment in AI, and we're seeing a ton of excitement and demand for our AI solutions. In Q3 alone, more than 30% of our customer expansions involved one or more AI solutions, including talent optimization, Extend Pro, and Recruiter Agent powered by HiredScore. Teleoptimization remains one of our fastest growing SKUs and is driving tangible value. Customers have experienced up to 39% reduction in turnover. Recruiter Agent, in particular, had a huge quarter with wins at Johnson Controls, Cox Enterprises, and UofL Health. In fact, the team closed more new logos in Q3 than in its 12-year history, and our new ACV more than quadrupled compared to Q2. And what's awesome is that Recruiter Agent is boosting the average selling price of our core recruiting solution by almost 150%. It's clear that customers are ready to invest in AI that's built for their very specific needs and delivers real results. They want solutions that are easy to implement, quickly provide value, without the need of a ton of IT support. This growing demand shows the huge opportunity we have to grow and monetize this part of our business. So let's talk about how we're going to capture this opportunity with our innovation. With more than 70 million users under contract, generating more than 800 billion transactions a year on our platform, Our AI leverages the world's largest and cleanest HR and finance data set. In our industry, where decisions are high stakes and complex, the quality and quantity of our data is a critical differentiator. And the combination of this data with our ability to understand the context behind it enables Workday to unlock value in a way that no competitor can do. At Rising, we unveiled Illuminate, the next generation of Workday AI. With Illuminate, we're unlocking a whole new level of productivity and human potential by accelerating manual tasks, assisting every employee, and ultimately transforming entire business processes. As part of Illuminate, we launched a set of new AI agents that uniquely transform some of the most complex business processes in HR and finance. such as recruiting, expense management, and succession planning. Recruiter agent is available now. Expense agent is expected to become available by the end of the year, and several more will soon follow. We believe optimize agent, which is coming out next year, is going to be a true game changer. It pinpoints bottlenecks, inefficiencies, and areas where processes aren't running as smoothly as they could be. The possibilities with this are endless, and I'm fired up about it. Beyond the agents Workday is delivering, we're collaborating with our partners to support agent-to-agent communication for employee self-service needs. Salesforce is a great example here. So is our recent partnership with Microsoft on its M365 co-pilot employee self-service agents. We also updated Workday Assistant with our Gen AI co-pilot. Employees can use it to ask questions in natural language about anything from their pay and benefits to company policies and get quick, personalized answers. More than 2,000 of our HCM customers are using the currently available Workday Assistant to improve efficiencies, including one of our customers who has been able to cut down HR case volumes by almost 30%. We believe the new co-pilot will help drive even further increase in productivity, allowing employees and HR departments to focus on more strategic work. CIOs get super excited when we talk about Workday Assistant. Other solutions out there require organizations to take sensitive data like payroll information and move it outside their core systems. That is a big risk and no one wants to take it. With Workday, everything stays secure within our trusted platform. Continuing to accelerate our AI roadmap, we closed our acquisition of Evasort, a leading document intelligence platform. Consider this. Over 80% of business data is unstructured, making it difficult to search, analyze, or use effectively. This includes critical information locked away in contracts, invoices, and policy documents just to name a few. With Evisort's powerful AI, our customers can now unlock critical insights from this untapped data, empowering them to make faster, more informed business decisions. The strength of the Workday platform continues to draw interest from customers and partners alike. We've now got over 1,000 customers building their own custom applications on our Workday platform using Xtend. making it one of our fastest-growing products ever. In fact, new ACV for Xtend more than doubled within a quarter compared to last year. Xtend Pro, which allows you to build AI-first apps with our AI Gateway and Developer Copilot, is having an even greater impact, with its average selling price double that of Xtend Essentials. Our partner ecosystem has grown nearly 5x in just 18 months, and is more diverse than ever. Our partners are becoming increasingly critical to our growth, sourcing over 10% of our net new ACV in Q3 and a similar percentage of our new pipeline. We've seen rapid adoption of our Built on Workday program, which we launched less than six months ago. We've already got over 40 partners on board, and partners like Kano's are generating revenue from it. At Rising, we announced Workday Wellness, which gives companies real-time insights into how their employees are using their benefits. This helps them design more tailored benefits programs right within Workday HCM to improve the overall employee experience. We're excited to have Guardian, the Hartford, Mutual of Omaha, and Unum already signed on as strategic partners. International growth continues to be one of Workday's most compelling opportunities. This past quarter, I spent time with customers and our amazing workmates in the UK, Ireland, Germany, France, and Japan. The energy and excitement is incredible. In Q3, we formed a new strategic partnership with NTT Data, one of the most influential system integrators in Japan. And in APAC, We formed new relationships with Estia, a major Australian aged care provider, and Flight Center, a leading Australian travel and leisure brand. We also expanded our footprint with United Overseas Bank, one of the largest banks in Singapore. Over in EMEA, we faced the same deal scrutiny we've called out the last few quarters, but we had our largest ever public sector win with the Department for Science, Innovation, and Technology in the UK. That's generating a lot of interest from other UK public agencies. We also had major wins with big enterprises like Decathlon in France and Goldbeck in Germany. And we're gearing up for Rising EMEA in Amsterdam in just a few weeks. The relationship we are building around the world point to the significant long-term potential of our international business. While only 25% of our revenue comes outside the U.S. today, we're laying the groundwork for something much bigger. Before I wrap up, I wanted to give you a quick update on the team. We recently announced that Doug Robinson, who has been an incredible leader over the past 14 years, will be retiring at the end of the fiscal year. I can't thank Doug enough for the tremendous impact he's had on Workday. We're excited to have him continue in an advisor role to the company. With Doug's retirement, I'm thrilled to welcome Rob Insland to Workday as our new President, Chief Commercial Officer. Workday continues to be a magnet for great talent and Rob is another great example. He's a world-class executive with more than 30 years of experience in the enterprise space. He brings fantastic customer and partner relationships and a proven track record of success. He's the perfect person to lead our go-to-market efforts as we move into the next phase of growth. As you can see, it's been a busy quarter. We have a clear target between now and FY27 of driving mid-teen subscription revenue growth while expanding non-GAAP operating margins to 30%. We plan to achieve this by continuing to innovate and take share in our core markets, while also streamlining operations across the company. But what really excites me is the opportunity we have ahead of us as we lead our customers through the AI revolution and help them transform their organizations for the future of work. I'm incredibly grateful to my workmates for their contributions this quarter. With our amazing culture, continuous innovation, and the trust of our customers, Workday is in a fantastic position to drive sustainable, profitable growth at scale. Thanks again, and to those of you joining us in the U.S., happy Thanksgiving. With that, I'll hand it over to Zane.