Workday, Inc.

Welcome to Workday's fourth quarter and full year 25 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 Investor Relations.

Thank you, Operator. Welcome to Workday's fourth quarter fiscal 2025 earnings conference call. On the call, we have Carl Eschenbach, our CEO, Zane Rowe, our CFO, 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 and 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 first quarter fiscal 2026 quiet period begins on April 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. Workday delivered another solid quarter in Q4, with 16% subscription revenue growth and 26% non-GAAP operating margin. These results are a testament to how businesses of all sizes, industries, and geographies are increasingly turning to Workday as their trusted partner. And I'm incredibly proud of how our teams executed in Q4 to deliver a solid year. As organizations look for ways to boost productivity and run more efficiently, our value proposition has never been stronger. Workday gives them the ultimate advantage, helping them manage what matters most, their people and their money. And with our unified platform, our customers can unlock value faster, reduce their total cost of ownership, and harness the power of AI across our best-in-class HR and finance solutions. On the AI front, we just launched the Aging System of Record. a centralized system to manage all of an organization's AI agents from workday and third parties alike. With this innovation, our customers will be able to manage their entire workforce, humans and digital, on our trusted platform. I'll talk more about this exciting announcement later in the call, but now let's turn to our customers and industry momentum in the quarter. During Q4, we welcomed incredible new customers, including Bayer, Henkel, Iberostar, the state of North Carolina, and First Citizens Bank and Trust Company. We also expanded with industry leaders, including Cisco, Mondelez, Sutter Health, and Toyota. Workday now serves more than 11,000 customers across industries and geographies. including more than 60% of the Fortune 500 and 30% of the Global 2000. And that says a lot about the strategic nature of our platform. Our industry focus is a huge contributor to this growth, and Q4 was no exception. In SLED, the City of Minneapolis, St. Louis County, and City University of New York all chose our full suite in Q4. We also signed our largest Workday Student Deal ever with the Minnesota State Colleges and Universities. This is a massive project to improve the experience for 270,000 students and 14,000 faculty. Workday Student is quickly gaining traction as the top choice for higher education institutions. We now have more than 135 customers and we expect roughly half of them will be live by the spring. After rapid adoption here in the U.S., we're excited to expand Workday Student into Canada and the Australia, New Zealand markets this year. We also have a growing opportunity with the U.S. federal government thanks to the administration's strong focus on driving efficiencies and IT modernization. Our recent wins at the DOE and DIA have helped set a solid foundation in this sector, opening up a number of exciting Fed opportunities. Financial services continues to be one of our largest industries. In Q4, we had significant expansions with Aon and Sallie Mae Bank, and we closed a large core FINS deal with a Fortune 500 organization. Healthcare also once again delivered, with notable full suite wins including North Mississippi Medical Center, Hackensack Meridian Health, and UnityPoint Health. More than 30% of our net new wins in the quarter were full suite, and across our focus industries of SLED and healthcare, that number climbs to 50%. We had a record number of core FINS wins in both Q4 and the full fiscal year. We now have over 6,100 core HCM and financials customers, and more than 2,000 of them are leveraging our full suite. Our investments in financials, both in innovation and go-to-market, continue to pay off with strong growth in new ACV and Q4. In addition to a record number of core financials wins, we saw strong momentum for our financial planning, accounting center, student, and procurement solutions. And we continue to see increasing demand for AI solutions. In fact, AI is front and center in every conversation I have with customers, prospects, and partners. They want to move beyond incremental productivity gains. They're also looking for ROI that helps them drive growth back into their business. Similar to Q3, we once again saw 30% of our customer expansions involve one or more AI SKUs, including Xtend Pro, Recruiting Agent, Evisort, and our recently rolled out Talent Mobility Agent. Xtend Pro, which enables our customers to build AI applications on top of our platform, continues to be one of our fastest-growing SKUs. In Q4, new ACV more than doubled over Q3. Developer Copilot, which is part of Xtend Pro, is delivering real results. We're hearing from customers that they're seeing productivity gains of over 50%. This is helping them build apps much faster. Recruiting Agent had an exceptional close to the year with wins at BP, Genpak, and many more. New ACV in Q4 nearly doubled from Q3, and this product continues to boost the average selling price of our core recruiting solution. In fact, in Q4, it was even higher than the 1.5x uplift we reported in Q3. a great example of customers willing to pay for high ROI solutions. Our approach to AI has always been customer-centric. While others rushed to charge for early-gen AI features, we integrated them into our core offering. Now that our AI has evolved and delivering tangible ROI, we have new monetization opportunities that will fuel our long-term growth. And perhaps more importantly, we are further distancing ourselves from the competition. With more than 1 trillion transactions processed on our platform in FY25, our AI leverages the world's largest and cleanest HR and financial data set. And the combination of this data, with our ability to understand the context behind it, puts Workday in a unique position. Following the announcements of our new role-based agents at Rising, we launched four more agents for contracts, payroll, financial auditing, and policy. These are not task-based agents like most of the market today. Our role-based agents contain a configurable set of skills that give them greater ability to support people in their roles. Each has multiple skills and can perform a large number of tasks. That's where true ROI is and where we see that customers are willing to pay. Over the past year, hundreds and maybe thousands of agents have been introduced into the market across a number of vendors. As more agents are deployed, organizations risk fragmented operations, increased security risks, and difficulty measuring the true value of their AI investments. At this point, there's no central place to manage agents, and there's a real risk of sprawl.