Q3 2024 Workday Inc Earnings Call
First Speaker: In Q for additional information on risks uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements.
Speaker Change: In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of workdays performance.
Speaker Change: These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.
Speaker Change: You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release, and our Investor presentation and on the Investor Relations page of our website.
Speaker Change: 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.
Speaker Change #42: So the customers page of our website includes a list of selected customers and is updated monthly.
Speaker Change: Our fourth quarter of fiscal 2024 quiet period begins on January 15th 2024.
carl: 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.
carl: Thank you Justin and thank you everyone for joining our Q3 FY 'twenty four earnings call I am pleased to share that workday delivered another strong quarter, achieving 18% subscription revenue growth, 22% 12 month backlog growth and non-GAAP operating margin of 25%.
Speaker Change: These results were driven by broad based strength across net new and customer base teams medium and large enterprise and across regions, notably the U S and EMEA.
Speaker Change: I want to thank the more than 18300 workmates around the globe for partnering with our customers to help drive these impressive results.
Speaker Change: There is a clear sense of momentum across our business and it was on full display at workday rising in September.
Speaker Change: There, we unleash new AI innovation delivered product and partnership announcements and drew a record 28000 attendees in person and online.
Speaker Change: In fact over half of our active pipeline was touch by a rising event in San Francisco and just a couple of weeks go in Barcelona, We followed up with our largest ever EMEA rising event with over 4500 people in attendance.
Speaker Change: In speaking with customers prospects and partners at these events a few things stood out to me.
First talent continues to be a top C suite priority.
In this macro environment businesses are looking to scale and drive productivity.
Can't achieve both outcomes by simply hiring more.
Leaders are turning to workday to help them reskill and upskill their workforce, all while delivering a great employee experience that helps them reduce attrition and ultimately drives productivity.
Speaker Change: Second meters are continuing to consolidate their technology footprint on a true platform to realize total cost of ownership benefits, while also accelerating their operations.
Speaker Change: <unk> is perfectly positioned to benefit as the intelligent digital backbone businesses can rely on to manage their most precious assets there are people and their money.
Speaker Change: And finally, AI and in particular generative AI is becoming a business imperative.
Speaker Change: As a trusted partner and a market leader with over 65 million users under contract, we can uniquely drive efficiencies and improve the employee experience.
neil: And Neil will share more but I will say that is what we are doing and not just saying that is resonating with our customers.
Speaker Change: Simply put our value proposition has never been so relevant and powerful that's clear in the results our team delivered in Q3 and in the first half of FY 'twenty four.
Speaker Change: At our recent financial Analyst day, we talked about the diversity and durability of our business and how it helps us grow during times of headwinds and times of tailwind. This theme was evident in the wins we had this quarter.
Speaker Change: From a net new customer perspective, we once again saw strength in full platform deals.
We welcome customers like advent health dental <unk> systems.
Eston Methodist and lifespan as new full platform HCM and financials customers.
Speaker Change: And new HCM customers, such as Green King growing group, one automotive minor hotel group in the U S Department of energy helped us surpass 5000 core HCM customers on workday.
Speaker Change: Alongside healthy new customer activity, we had several strategic expansions and renewals in the quarter, including Magna International monitor lease global Sonoco products company and southwest Airlines.
Speaker Change: And I'm pleased to share that our create and closed business had another great quarter and is becoming a meaningful driver of our customer base sales teams growth.
Speaker Change: Now I want to highlight some of the key growth areas, we discussed with you at financial Analyst day.
Speaker Change: <unk> with international which represents over half our addressable opportunity in EMEA I am pleased to say that our leadership additions are driving improved and more consistent results. The team here once again delivered strong new ACB, particularly in the U K, Germany, France, and Spain and helped us.
<unk> the $1 billion.
Mark in the region.
When rates were robust against our competitors even in their own backyards, we had important new wins like Axa UK or really is group.
Speaker Change: And international schools, along with expansions at BBVA, Carl Zeiss and Tullis Global services among others.
Speaker Change: And in the Asia Pacific Region, Australia performed well with wins, such as Ramsay health care and Wesley Mission, Queensland, we.
Speaker Change: We still have work to do in APAC, but we're focused on it and I am delighted Simon has joined us to run the region. We're also making important investments in Japan to help expand our opportunity within one of the world's largest economies as part of this our leader in Japan will now report directly to Patrick player.
Our president of global sales.
Moving to financials, we're seeing proof that our go to market investments are continuing to pay off with healthy growth in both core financial customers and new ACB.
Speaker Change: New full platform wins are on the rise and our industry approach is contributing to this momentum.
Speaker Change: <unk> care for example grew new ACB over 50% in Q3 and roughly half of the healthcare deals we landed in the quarter were full platform.
Speaker Change: In local government also continues to outperform with strategic full platform wins at county of Kern County of Chesterfield and the Pennsylvania General Assembly.
Speaker Change: Our back to base motion in financials also delivered in Q3.
Speaker Change: Wins include a Clearwater analytics, Ochsner Clinic Foundation, and Concentrix, which expanded their workday HR footprint to include core financials. When it combined with web help a workday core financials customer in EMEA are.
Speaker Change: Our planning business also had a strong Q3, and we welcomed AWS as a planning customer along with NPR and stores Kogan group and finally, our win rates remain strong and we see a growing pipeline of opportunities to replace our legacy ERP competitors.
Speaker Change: On the partner front, we've always recognized the vital role our ecosystem plays in our customer success and it starts would go lives.
Speaker Change: HCM go lives. This quarter included American electric power, Dave and Busters, and Iberdrola, along with financials go lives at Northshore University Health system solution health and wise markets.
Speaker Change: Increasingly we are leaning into our partner ecosystem and other strategic ways, our skills accelerator partnership with Accenture, which we announced at EMEA rising is a great example, accenture will be reselling, our skill solution, providing their own services expertise on top of the workday skills cloud.
Speaker Change: We also announced a partnership with ADP to extend the capability of workday HCM with Adp's payroll and smart compliance solutions in key global markets and.
Speaker Change: And we announced AI marketplace at rising, which allows us to innovate with our ecosystem of partners to deliver trusted and responsible AI solutions for our customers most compelling use cases.
Speaker Change: Finally, we see strong momentum from our partner referral program, we launched earlier this year we've.
Speaker Change: We've already exceeded our full year targets for the number of partners that have signed on and while it's early we are starting to see a positive impact to our pipeline.
Speaker Change: Another key investment area is around AI, which we've been building into our platform for nearly a decade as I mentioned at rising we demonstrated our leadership with new announcements in demos that illustrated how AI will shape the future of work.
Speaker Change: I won't steal aneel stander he'll be joining in just a minute to share more.
aneel stander: In closing, we had another quarter of strong and consistent performance amidst a dynamic environment the diversity and mission critical nature of our business continues to fuel our success as.
Speaker Change: As we move through Q4, we have a solid pipeline and clear momentum for our solutions and while we are clearly focused on delivering in the near term we have our sights set on delivering durable 17% to 19% subscription revenue growth over the long term, while expanding margins with.
Aneel: That I will turn it over to my co CEO and good friend Aneel, who will share more about our AI strategy and innovation highlights from the quarter and Neil over to you.
Thank you Carl and to everyone joining today's call.
As you heard Karl mentioned, an increasing number of organizations across all industries and geographies are continuing to place their trust in workday, which is why we remain focused on delivering the innovation our customers need to thrive in today's environment.
Speaker Change: For the last couple of quarters, we've highlighted our long standing and differentiated approach to AI, including.
Including generative AI.
That is driven by our platform strategy unrivaled dataset emphasis on being human centric and commitment to delivering responsible and trustworthy solutions.
Speaker Change: At Workday rising in September our leadership in this space with showcase in a big way as we unveiled a series of new AI capabilities that will help redefine the way our customers work.
Speaker Change: On the generative AI front, we announced several new capabilities that will benefit all users with an emphasis on increasing productivity.
Growing and retaining talent.
Streamlining business processes, and driving better decision, making.
Examples of the use cases, we previewed which we expect to be available next year include the ability to generate job descriptions in minutes versus hours Analysing correct contracts for faster more accurate revenue recognition.
Speaker Change: Great employee growth plans to foster and retain talent and provide texaco generation capabilities to increase productivity of App development and work to extend.
Speaker Change: Another way, we're infusing generative AI into our platform is through our investment in conversational AI, while we're still export phase with this technology, we believe conversational AI will fundamentally change how users interact with workday by enabling them to easily surface information they need in and interact with data through simple conversation.
Speaker Change: We're also leveraging generative AI to create a conversational experience for workday adaptive planning customers. The use of conversational text will simplify the process of servicing key planning insights.
Speaker Change: Labeling users to make quicker and more strategic decisions about their businesses.
Speaker Change: Additionally, we announced enhancements to work to extend which continues to be a critical solution to help bring the workday platform to life for our customers and partners.
Speaker Change: In fact, we've seen an increase of more than 70% in the number of apps built by customers and partners with extend in the last year alone at.
Speaker Change: At rising we unveiled worked AI gateway, which is available on work to extend our AI gateway. It provides developers with access to work. These AI services to enhance their ability to build intelligent and responsible apps on the workday platform.
Speaker Change: Turning to the office of the <unk>, we introduced several new features within workday HCM that leverage AI, many with a focus on elevating the manager experience by providing them with the tools and insights they need to effectively lead and foster the career growth of their teams.
One example is manager insights hub.
Which leverages AI to surface personalized recommendations.
And make it easier for managers to identify the best opportunities for their employees based on skills interests to improve talent mobility unemployed engagement.
Speaker Change: And while we will continue to deliver on the promise of AI for our customers. Many of our partners and other enterprise companies are delivering on the promise of AI as well as Carl mentioned, we announced our AI marketplace to help harness the AI innovation happening across our ecosystem to date, we have 15 early adopters and that number will increase over time as we expand to include.
Speaker Change: <unk> tailored solutions delivered by our partner ecosystem workday related capabilities, and third party products and native AI powered workday extend apps.
Speaker Change: Of course, none of these AI advancements can truly be effective without the right safeguards and regulations in place.
Speaker Change: Building on our continued efforts to advocate for smart AI policy at the federal level.
Josh Lennon: Workday as Josh Lennon Vice President of productivity technology was invited to testify before Congress on AI and the future of work.
Speaker Change: <unk> spoke to the potential of AI to enhance our workers collaborate and amplify human potential and the steps workday is taking to deploy these technologies in a trustworthy and responsible manner.
Speaker Change: At the application level workday products continue to be recognized for the innovation that we deliver to customers for the office of the <unk> work.
Speaker Change: It was named a leader in the Gartner Magic quadrant for cloud HCM suites for 1000, plus employee enterprises workday was positioned highest for ability to execute and it marked the eighth consecutive year, we were recognized as a leader.
Speaker Change: Additionally, workday Ventolin was named a 2023 top HR product of the year by human resource executive.
Speaker Change: The award recognized <unk> ability to provide organizations with a full set of capabilities for and then lifecycle management of external workers and its ability to integrate with workday HCM to support full visibility into head count spend and more.
Speaker Change: And for the office of the CFO Workday was named a leader in the 2023 Gartner Magic quadrant for cloud ERP for service centric enterprises based on completeness of vision and ability to execute this is the second year in a row that workday was recognized as a leader.
Speaker Change: In closing I want to thank the entire workday team for their incredible efforts in Q3.
Speaker Change: We have an amazing opportunity in front of us and I remain confident in our ability to capitalize on it.
In large part to our more than 18300 workmates.
We are relentlessly focused on driving innovation across the entire workday platform to actively address our customers' finance and HR needs.
Zane Rowe: With that I'll turn it over to our CFO Zane Rowe over to using.
Aneel: Thanks, Aneel and thank you to everyone for joining today's call.
Speaker Change #42: As Colin Aneel mentioned Q3 was a strong quarter, highlighting the durability of our business and ongoing market adoption for cloud financials and HCM.
Speaker Change: Turning to results subscription revenue in Q3 was $1 69 billion up 18% year over year professional services revenue was $175 million leading.
Speaker Change: Leading to total revenue of $1 $87 billion growth of 17%.
Speaker Change: U S revenue totaled $1 4 billion growing 17% and international revenue totaled $462 million growing at the same rate.
Speaker Change: As we've highlighted we see significant long term international opportunities, which we expect over time will become a more meaningful driver of our growth.
Speaker Change: As we discussed at our recent financial Analyst day, we are providing our 12 months subscription revenue backlog or CRP O, which was $6 5 billion at the end of Q3 representing growth of 22%.
Speaker Change: The result was driven by strong new ACD bookings and healthy renewals with gross and net revenue retention rates of over 95% and over 100% respectively.
Speaker Change: Early renewals in the quarter exceeded our expectations, adding more than a point of growth to 12 month backlog and early renewals from prior quarters also continued to benefit backlog growth in Q3.
Speaker Change: 24 months subscription revenue backlog was $10 $5 8 billion at the end of Q3 up 23%.
Speaker Change: Early renewals in the quarter added nearly two points of growth to the results.
Speaker Change: Total subscription revenue backlog at the end of the quarter was $18 45 billion.
Up 31%.
Backlog benefits from increased contract duration, which speaks to our customers' continued commitment to our platform.
Speaker Change: Our non-GAAP operating income for the third quarter was $462 million.
Resulting in a non-GAAP operating margin of 24, 8%.
Margin strength relative to our guidance was driven by revenue outperformance and the timing of certain expenses and investments, which we expect to build in the fourth quarter.
Q3, operating cash flow was $451 million growing 10%.
During Q3, we repurchased $148 million of our shares at an average price of $218 35 per share and we had $139 million in remaining authorization under our buyback program as of quarter end.
Speaker Change: We intend to execute on the remaining authorization of a buyback during Q4.
Speaker Change: We ended the quarter with $6 9 billion in cash and marketable securities.
Speaker Change: We continue to invest in growth areas in the business and we ended October with over 18300 workmates around the globe.
Now turning to guidance.
Following our continued momentum in Q3, we are raising our full year FY 'twenty for subscription revenue guidance to $6 $5 $98 billion.
Representing 19% year over year growth.
We expect Q4 subscription revenue to be $175 5 billion reps.
Representing 17% year over year growth.
We now expect professional services revenue of $158 million in Q4 and $652 million for the full year.
Speaker Change: In Q4, we expect 12 month backlog to grow approximately 19%. This includes our current outlook for early renewals in the quarter. We plan to continue disclosing our 12 month 24 month, and total backlog, but intend to provide guidance on 12 months going forward.
Speaker Change: We are raising our FY 'twenty non-GAAP operating margin guidance to 23, 8% and for Q4, we expect a non-GAAP operating margin of approximately 23, 5% as we ramp up our key investment areas.
Speaker Change: GAAP operating margins for the fourth quarter and full year are expected to be approximately 20, and 22 percentage points lower than the non-GAAP margins respectively.
The FY 'twenty four non-GAAP tax rate remains at 19%.
We are raising our FY 'twenty for operating cash flow outlook to $1 97 5 billion.
Growth of 19% year over year.
In addition, we now expect FY 'twenty for capital expenditures of approximately $250 million.
Speaker Change: As we discussed at our recent financial Analyst day, we see considerable opportunity to drive durable profitable growth over the longer term the financial framework, which we shared in September is further bolstered by our Q3 performance and the momentum we see building across key growth areas of our business.
Speaker Change: In light of the continued uncertain macro and incorporating our Q4 outlook. We currently expect FY 'twenty five subscription revenue of approximately $7 75 billion to $7 775 billion.
Representing growth of 17% to 18%.
We also expect to expand our FY 'twenty five non-GAAP operating margins from FY 'twenty four levels.
Speaker Change: Our outlook contemplates incremental investments across our key growth initiatives, while delivering continued margin expansion as we scale and optimize the business.
Speaker Change: The confidence in our outlook is supported by the advocacy and support of our customers partners and Workmates are all key contributors to our success with that I'll turn it back over to the operator to begin Q&A.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Information tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Most of time, we ask that participants limit themselves to one question.
One moment, please while we poll for questions.
Thank you. Our first question is from Mark Murphy with Jpmorgan. Please proceed with your question.
Thank you very much congrats on a great result.
Thinking back on the Ryzen conference the energy and enthusiasm was pretty remarkable.
Speaker Change: When you look back on that how did you feel about the pipeline generation coming off of rising and through November on the fitness side of the business I noticed you mentioned.
AWS planning win in that timeframe.
And do you see any early signs that might validate that the hiring wave you've had of these fins dedicated sales reps can drive some bookings traction as they begin to ramp up.
In the next couple of quarters.
Yes, let me start and then Doug I'll ask you. If you have anything to add so thanks for the question Mark Let me first start by saying. Thank you to our work made some partners around the world for delivering our third consecutive outstanding quarter here in FY 'twenty four we often talk about the diversity and durability of our business and it was.
Once again on full display here in Q3.
Our value proposition continues to resonate more than ever with our customers and this gives us a very resilient and durable business. So just thank you to everyone for helping achieve another outstanding quarter.
Speaker Change: To answer your question Mark as it relates to rise and yes, you're exactly right. There was a tremendous amount of energy and enthusiasm enthusiasm coming out of the conference and there was a lot of energy around that the financials are solution that we're bringing to market and I will tell you. It wasn't just from our customers, but it was also from our partners who continue to invest in building out there.
Practice around financials.
As you know for the last 10 months, we've talked multiple times about our investment in the financials business and we are seeing early dividends and I say early because we still have a lot of opportunity to grow the business going forward, but we see early dividends that those investments are paying off number one our pipeline around things continues to grow number.
Speaker Change: Two we continue to sell both to net new logos, our financials and back into our customer base number three all of the hiring we've done on our things go to market sales reps are actually impacting not just thin sales, but also helping us drive full platform sales, we talked about full platform sales.
Speaker Change: Being up again this quarter and I think that is just the strength of our financials.
Speaker Change: In conjunction with what we already have as strong HCM business and lastly, I would say planning continues to do quite well, we did announced last quarter, we talked about Exxon landing a large financials deal in this quarter, we talked about AWS, which is a very significant land for us as well. So overall, we see.
Defense opportunity.
<unk> quite large we talked about only 25% of financials moving to the cloud, which just represents a huge opportunity for us and we are really pleased with our win rates against our competition there.
Thank you very much.
Thank you. Our next question is from Kash Rangan with Goldman Sachs. Please proceed with your question.
Alright, Thank you very much.
Congratulations.
Wonderful finished the third quarter.
<unk> been in the seat for a little under a year actually close to a year you've cycled through one full.
Speaker Change: Alright, and conference you had a chance to speak with partners check the pulse of the customer you went through a tough year macro everybody. So that gives the session. Thank you.
Speaker Change: So where does that leave you with respect to your refreshed assessment of the next three to four years versus where you started thank you so much and congrats to the entire team.
Yes.
Here by the way.
Yeah.
Neil you want to answer that quite often and know how of course.
neil: So first of all cash. Thank you for your your nice words and thank you for the question. So let me start talking about workday.
Speaker Change: I appreciate you, saying almost a year I can't wait till December hedge because then it's officially a year and we no longer talk about it in terms of months. So we're almost a full year into this journey with my partner and Neil Let me start by talking about workday.
Speaker Change: One thing that I recognized when I was on the board for five years that have had an incredible culture and strong values and that is more evident to me than ever before and that's what it continues to excite me about workday as a whole as it relates to if you will or refresh outlook of the business and the opportunity I see many ahead in a number of them are.
Already leaning into.
Throughout this year first our international opportunity we spoke in my prepared remarks around the performance of our EMEA team.
Speaker Change: Growing the business significantly year over year and driving predictable results. We continue to see strong potential to the partner ecosystem that we're building and how we're getting leverage from them. So that's a huge opportunity for us.
Speaker Change: Third as I just spoke about in answering Mark's question around financials financials represents a large opportunity for us that we're leaning into heavily.
Speaker Change: We've hired a lot of sales reps throughout this year and if we continue to see the early results that we're seeing you know the first three quarters of this year Zane and I will continue to fund additional growth on things and especially on the go to market side and last I think you know one thing that I really come to recognize and appreciate Neil talks.
Speaker Change: Our unrivaled dataset that we have compared to our competition out there and that is paying dividends for us today, especially in the terms. When you think about AI and generative AI No. One has an enterprise enterprise, Florida language model like Workday has and it is driving tangible and productive results for our customers through general.
[noise] of AI.
Okay wonderful. Thank you so much.
Thank you. Our next question is from Kirk <unk> with Evercore ISI. Please proceed with your question.
Kirk <unk>: Yes, thanks, very much and I'll echo the congrats on the quarter of Carlisle or Aneel actually I was wondering if you guys could just talk about where G&A is in the decision making tree for your customers right now meaning has it sort of sprung did the top so that your leadership in that category is having.
Speaker Change: I guess any impact on win rates already is it something you sort of expect to continue to build I was just kind of curious everybody serve piloting AI right now, but I'm kind of curious.
Speaker Change: Your leadership has actually putting you in a position for your win rates to get stronger as we head into 'twenty four thanks.
Speaker Change: I do think it will position us for our win rates to get stronger in 24 at this point I don't think people are making decisions yet just purely on AI.
I think it's a.
It's something that every customer looks at to make sure that theyre going to be covered.
Speaker Change: With a new deployment or our customer knowing that workday has has them in a strong place, but they're still looking first and foremost running their business and moving off of crappy legacy applications into the cloud.
And we are.
We're unmatched in that category and then when we add the AI stuff I think it just checks that AI box, but I would say that despite all the hype it still in the early days of actual large scale deployments of AI in HR and finance. We're ready. We're just we're waiting I don't know doug's with US Doug you want to add anything on whats happening in the sales cycles I think it.
Speaker Change: Does come out in the sales cycle, but in a different way. So we talked talent optimization and optimization of the entire sort of value prop of it is build off of AI and ml. So while they're not saying show me. Your Gen. III. They are showing that they are saying show me, how I'm going to move to a skills based economy, how am I going to Reskill My workforce and then it.
Speaker Change: Gives us a chance to showcase the innovation that we've got.
Great. Thank you.
Thank you. Our next question is from Brent Thill with Jefferies. Please proceed with your question.
love soda: Hi, This is love soda on for Brent Thill. Thank you for taking our question.
This one's for you.
Early renewal activity has been fairly robust this year.
And it's supported backlog growth.
Yes, as you look out over the next few quarters.
Could you just talk about your expectations for early renewals, but those continue to be a T.
<unk> backlog growth yes.
Yes. Thanks for the question as we've communicated over the last number of quarters. We've been very pleased with not only our backlog growth that our new HCV growths in the renewal activity. Both the scheduled renewal activities grow nicely as well as the early renewal activity and as I mentioned in my prepared remarks, we have some of that contemplated into the upcoming.
Speaker Change: Quarter and candidly into next year as well I will point out that over the last 12 months, we have seen elevated growth rates in scheduled renewals, which has obviously helped without backlog, but we're very pleased I'll point out that we guide to obviously subscription revenue. So we're focused on subscription revenue and I've given you an indicator of subscription revenue growth heading into FY 'twenty.
Speaker Change: <unk>, we feel good about backlog and renewals as well and just the overall health of the business Karl.
Yeah, the only thing I'd add Neil.
I think we always wanted to reiterate that our customers are driving the early renewals based on demand.
Speaker Change: And if they want to buy additional skus to consolidate on our best of breed platform.
We're not going to wait till a renewal cycle too.
Sell them additional products, we're going to do it when the customer is ready.
Speaker Change: Last quarter, we saw a nice uptick in skus being sold back into our customer base to drive if you will these early renewals like talent optimization accounting center prism and extend our just four examples of where customers are demanding more from us and we're driving those early renewals more than we are we don't Incent our sales force to do early renewals.
It's all based on customer demand.
Got it thank you.
Thank you. Our next question is from Brad Sills with Bank of America. Please proceed with your question.
Wonderful. Thanks, so much for taking my question here.
One of the things that stands out to me here is the strength in financials and you called out you know full full platform wins here as a contributor so.
Speaker Change: Great execution, there I'm just wondering you know with these types of deals where you're seeing big organizations commit to the full platform both.
That HCM.
Are you finding that there's just an increased comfort level with the cloud for financials, such that they are willing to make that leap now versus say in the past or is this simply just a function of you you're focusing more on those types of deals with some of the investments we've been making just curious to get some color on.
Speaker Change: Why now for that strengthen and full platform deals, particularly sense. Thank you.
Thanks for the question this is Doug answering.
First and foremost.
We still think 25% of the market is all thats moved financials to the cloud. So it's still early innings, but the recent quarter pipeline build suggests that it's that it's growing and it's more consistent performance.
Speaker Change: Performance and you look at verticals, where it's really popping up I think we even called this out but health care alone grew over 50% in the quarter.
Speaker Change: And over 50% of those deals were full platform. So there's enterprises like advent health with 80000 employees 46 different hospitals that sort of massive scale buying into full transformation human capital management financials and supply chain.
On the workday platform.
And one other thing I'd add is as we have really leaned into the midmarket or medium enterprise those customers have a tendency to side on a full platform approach between both financials and HCM and that business had a really good quarter for us in Q3, both in the U S and in Europe, and those customers are absolutely leaning into.
Full platform decision.
Given time, when youre looking at transforming their business.
Great to hear thank you so much.
Thank you. Our next question is from Alex.
With Wolfe Research. Please proceed with your question good.
Good morning.
Yeah, Hey, guys. Thanks for taking the question I guess.
First of all congratulations on a really strong quarter.
It looks like you accelerated some European subscription bookings, which I know was the metric.
Speaker Change: We're not supposed to look at but we do at the same time as your incremental growth on sales and marketing.
Speaker Change: Actually you are way more efficient so I guess, what I want to ask about it.
Think about that.
The matrix for next year I mean, we talked you talked about the growth algorithm, how do you stack rank, which of those priorities you need to kind of hit on to get there.
Speaker Change: And then what prevents kind of like maybe what are some of the areas that you see leaning into on a lot of incremental spending perspective.
That might be.
Temporarily incurring margins.
You want me to start saying then you can add color.
Speaker Change: So one of the biggest investments we've talked about a number of times already here is our investment in our financials go to market build out.
Speaker Change: That is paying early dividends I do think it's important to remember that a lot of these hires that have happened over the last three quarters of this year arent fully ramped and don't hit full productivity until next year. So as they come up to speed right. I think we'll see continued growth in the financials and overall business as we head into next year.
Speaker Change: Because of this build out we're doing this year, we do continue to lean into our partner organization. We're hiring a number of people to manage all of the partners. We're bringing on an example would be you know this year. When we launched a referral program. We had a goal of signing up a 100 partners in our referral program and through three quarters, we already have 150 partner.
Speaker Change: Who have signed up and it brought us hundreds of new leads and new opportunities both here and in our international business and we will continue to lean into that and then I think aneel in Cheyenne, we'll continue to lean into investing.
Speaker Change: In the product side as we see a great opportunity to leverage that data set and model that we talked about to drive AI solutions and new skus into the market. So I think it's a little bit more of the same and we will continue to lean into the investments. We made this year as long as we continue to see the early signs are there.
Alex: They are producing the results we want Alex I'll, just add as Carl's alluding to obviously, there's significant sales and marketing expense ahead of this at the same time, we're investing in other key areas just around the globe. We're also looking at the product side, we are being very disciplined about how we think about that incremental growth and that incremental investment.
Speaker Change: Heading into next year, which is why the outlook I gave aligns nicely with the framework that we have and we're confident that as you've seen this year will be very thoughtful on where we spend and how we spend so as you've seen our guide increase from 23 earlier in the year to now 23 eight as we look to next year, we have the benefit of expanding not only our revenue base, but also our.
Speaker Change: Margins throughout the course of next year. So we feel very good about where the businesses where those investments are all pointed out obviously that as you know in this business.
Speaker Change: The bookings come well ahead of the revenue. So we would expect to see revenue continue to bode beyond FY 'twenty five.
Speaker Change: Perfect and then maybe just if I squeeze in another one for Aneel coming out of the analyst day. It did feel like at least on the macro front there were no.
Gathering storm clouds.
Whether it was the Gulf of potential for government shutdown or labor strife or.
Speaker Change: Macro concerns did you feel maybe coming out of the quarter and as you look at.
Speaker Change: So the kind of the big selling season, but some of those.
Speaker Change: It has indeed have then then maybe there is more of a conservative optimism that youre kind of thing on the horizon.
Speaker Change: I don't see conservative optimism I'd kind of just see it's it's.
Speaker Change: Par for the course I mean, we've just been in this dynamic I think dynamics the right word.
Some are complicated world now since since before Covid and.
What I'm proud of the team and I'm going to defer this question to Carl on to Doug is how they've executed through this.
Really challenging time, that's just very.
I don't want to say unpredictable, but it's not it's not predictable.
Speaker Change: Yeah, No I think you said it well I don't I don't think we see any improvement in the macro or do we see it getting any worse, it's pretty consistent with what we've seen all year long.
Speaker Change: And I'll just echo with Neil says I, just wanted to give a hat tip to Doug and Patrick and our sales teams around the world for their understanding of how to navigate some of these choppy waters.
Speaker Change: We've said in the past we continue to see heightened scrutiny on some deals, particularly net new but our teams have figured out how to navigate that and close a lot of business. The first three quarters of the year and even when opportunities may slip. They don't leave our pipeline. They just move out a quarter or two because once people make a decision to do a.
Speaker Change: <unk> around HCM or financials, it's not if they're going to do it's when and I think that was very evident in both this quarter. The first three quarters of the year I should say and I think that will continue going forward, but our teams are are very skilled and very good at closing business.
Speaker Change: As they call it each quarter I couldn't be more proud of them.
Speaker Change: We will definitely have kept you guys from us here congratulations.
Thank you.
Thank you. Our next question is from Raimo <unk> with Barclays. Please proceed with your question.
Perfect. Thank you congrats from me as well.
Probably you touched already on the partner.
Build out.
Can you just double click on that one as well.
What's the appetite at the moment on the partner side too.
Speaker Change: Our head count around you, obviously economic times of Thompson Davis.
Speaker Change: As I said, usually need probably company only realizing now what's going on.
Sure.
Is that kind of.
Very much in investment mode on their side or is there a path from Delphi that could potentially be a headwind for you going forward, but congrats from me as well there. Thank you.
Speaker Change: Thank you Raimo and thank you for the question as it relates to the investments are partners are making I do think they are investing in workday they already have very.
Speaker Change: Well established mature HCM practices, but if you were at rising and you spent time talking to our partners in the ecosystem. There. What you would've heard is a lot of them see the opportunity just like we do in financials and they are investing heavily on building out their financials practice around workday.
Speaker Change: And that was evident both at rising here in the U S. In just a few weeks ago at rising in EMEA. So there is no doubt our partners are really leaning into us and Oh by the way I mentioned it earlier, they're also bringing lots of opportunities to us because for the first time. This year, we're giving them an incentive to bring it says net new opportunities as part of <unk>.
Speaker Change: As part of our referral program, so yes, the investments happening.
Okay perfect. Thank you.
Thank you. Our next question is from Derrick Wood with TD Cowen. Please proceed with your question.
Derrick Wood: Great. Thank you I guess for Carl or Aneel I wanted to ask about traction with extend and how that plays into the AI opportunity for you.
Speaker Change: I think you've talked about this is the platform that helps integrate and workday bottles at the third party AI models that helps.
A lot of private data.
And that Youll look to may be introduced near new tiered pricing per extend but can you just talk about how you expand helping to drive AI monetization for you guys and the medium term.
Speaker Change: So so extend has been one of our best kept secrets before the AI gateway for the last several years.
For the longest time customers wanted extensibility and.
And instead, we had to frankly build every feature they wanted into the product and we give them extend and theyre able to.
Speaker Change: Develop the features that are unique to their own business and basically that same story plays out with AI, where.
Speaker Change: I think we've got a great strategy for embedding AI into our products, you'll see a series of new Skus over time.
Speaker Change: Built on they are built around AI technologies, but the AI gateway around extend unleashes partners and <unk>.
Speaker Change: And customers to do AI things that maybe very unique to their business that we would never build into our core products. So it's been it's been huge and.
And I also think you'll see <unk> leverage the <unk>.
<unk> gateway and continue to build.
Products, using using that technology, which will only extend our ecosystem and make.
Speaker Change: Make our customers even happier with the offerings that they have in front of them I think I think <unk>.
Speaker Change: Extend as kind of a secret weapon for us, especially now with gateway.
And we are monetizing it.
We will continue to monetize it maybe Doug wants to talk about how we're monetizing it and how much more we can do I think the best example of that is the Accenture skills club that we announced with Accenture This quarter Neil.
Doug: Essentially they've taken extend and build IP on top of it and then they are also taking workday journeys workday skills cloud workday learning and reselling it on behalf of workday into the market to different customers. So their packaging it up with a set of services around it and then driving revenue on our behalf. So there's <unk>.
Lots of exciting opportunities like that that's just one example.
Great. Thank you.
Thank you. Our next question is from Karl Keirstead with UBS. Please proceed with your question.
Karl Keirstead: Okay, Great maybe I'll direct this one to Zane Zane out of the Investor Day, There was some degree of investor angst about the margin outlook and yet.
Speaker Change: Here Tonight, you've raised your full year margins and you're guiding to up margins next year. Just curious has your thought process changed at all in terms of the.
Speaker Change: Opex trajectory over the next several years, perhaps it's not quite as front end loaded as you were thinking does this imply maybe you feel a little bit better about the revenue outlook and that's flowing through to <unk>.
Speaker Change: Perhaps a better than expected margin outlook next year look to get a little bit more color into sort of contrast, it to the investor day commentary.
Karl: Sure Karl Yeah happy to happy to answer that I thought you're going to ask me about my first five months here, but I'll go ahead with the with the margin question instead.
Speaker Change: Say no change from the framework that we discussed but as you pointed out obviously, we've been pleased with the revenue we've seen through the course of the year, obviously, increasing our margin outlook for the year and then.
Speaker Change: Leaning into the margin increasing into next year as well so it's a little bit of all of the above we feel confident with our strategy with the revenue growth. We've seen we're always going to be thoughtful as we articulated at our financial analyst day around those investments that we're making but we want to have the capacity to make those investments where we.
Speaker Change: Believe it makes sense and that we expect to do that.
Speaker Change: Slide 25, and well beyond that I've also pointed out previously that where we see opportunities to increase that operating margin will continue to do that and let it drop to the bottom line as well so broadly speaking no change in our outlook, but youre right in pointing out that when we have those opportunities, we'll let it drop to the bottom line.
Okay. Thank you thanks.
Thank you. Our next question from Pat Walraven with JMP Securities. Please proceed with your question.
Oh, great. Thank you.
And the only Carl.
I'm wondering how you see your partnership evolving when Neil takes the executive chair role in January.
Speaker Change: And then Neal any lessons from Dave's transition to chair back in two.
<unk> thousand 14.
Okay.
Wow, Okay. So.
Second one caught me off guard a little bit I'll, just I'll answer the second one first.
Everything is a continuum and I still talk to Dave almost weekly and he's still the touchstone for a lot of things that happened at workday.
Speaker Change: But when he said to me when I became the CEO that can only be one captain of the ship.
Speaker Change: And I'd say the same thing about Carl I'm excited about Carl being the captain of the ship and frankly, what I've seen over the last.
Almost a year.
Just nine days away from the year December 10th was the date.
<unk>.
Karl is amazing and he is driving the business in ways that I never could have and so I'm really happy.
Transitioning back to you.
Our product and innovation and strategy role, which is which is.
Speaker Change: Really how workday got started with Dave and I and those are my roots, so I'm very excited and.
Speaker Change: Our working relationship has been great, but I think more importantly, and I would say this is the same with David I.
Speaker Change: Workday as a company built on friendship it was first Dave and I and now, it's Carl and I and I think that's really powerful and that's what makes me very confident and optimistic about the future.
Speaker Change: Yes, and the only thing I want to add as Neil is going to be sticking around and he is truly I know, we like to use the Rockstar term here at workday. He is the rock a rock star in the software industry and just watching in Neil's energy to last three or four months diving deep into <unk>.
Speaker Change: AI driving our product and technology strategy has been amazing and I can't wait to see him continue to do that even as he steps into this new capacity he is a.
Speaker Change: He is truly a genius when it comes to product and product strategy. He is not going anywhere period I know he's my boss as executive chair.
Speaker Change: But I also wanna be as sometimes in telling me he's not going anywhere.
Okay, great. Thank you both.
Yeah.
We will now take two more questions.
Our next question is from Scott Berg with Needham <unk> Company. Please proceed with your question.
Scott Berg: Hi, everyone. Congrats on the really nice quarter here and thanks for taking my question I guess my question is probably for Doug I know, it's early and I know that workday has had.
Speaker Change: AI interwoven into the platform for obviously, a couple of years, but with a renewed sense of kind of customer interest in this space last six months I guess, what are you seeing now for an appetite to actually pay for some advanced or incremental functionality around some of the gen. AI technologies out there I think a lot of the questions. We get is around.
Speaker Change: From investors is what customers actually pay for this now that you have maybe three to six months under your hat.
Viewpoint, there would be helpful. Thank you al.
I'll answer it from a broader AI perspective, and I think the answer is yes customers will pay for where they see business value and if you remember at analyst day, we highlighted that in the previous 12 months talent optimization increased attached to 45% from 35% in just 12 months I look at the top.
Speaker Change: Three skus that sold within the quarter of Q3 and talent optimization was right in those in that top three so I think there they are willing to pay for business value and.
Speaker Change: We're seeing a lot of energy in some ways. It feels like early days of Workday and I was part of early days of workday, where our customers.
Come with great energy to co innovate with us and.
What can we do together and they share some of the things they are experimenting with and we share some of the things we're experienced with but we've talked about this for several quarters in a row. There is a desire to consolidate vendors.
Speaker Change: Vendors and to consolidate onto a platform and leverage that platform. So I do think there is a willingness to pay and I do think it shows up in the results.
Speaker Change: If I could add one other thing I would just say that the point solutions that are being created by startups are proving that customers are willing to pay for.
I only AI native.
The equivalent of co pilots.
These companies are getting substantial deals done and they are adding I think they're adding value and they're part of our ecosystem and it's a good proof point that.
Speaker Change: Is that customers are willing to pay for it if they see the value.
Great. Thank you for taking my question.
Thank you. Our final question is from Brian Schwartz with Oppenheimer <unk> Company. Please proceed with your question.
Brian Schwartz: Thank you very much this question for Carl or dog, just wanted to tap into what you are hearing in the C suite in terms of prioritizing spend for next year. If we think about this year clearly there was a prioritization on technologies that drove efficient same business cost optimization do you have any early.
Speaker Change: Read on how the C suite at large enterprises are thinking about prioritizing spur.
Spending for next year. Thank you.
Yeah. Thanks, Brian for the question, Doug Let me start and then you go Okay. So I think theres, probably three demand we're seeing right now out of the C suite number one talent talent is clearly your C suite priority and companies are all focused right now on Reskilling and Upskilling their workforces and.
Speaker Change: We're also really focus on driving a better employee experience to keep the employees around longer and therefore drive better productivity. So I would say talent is the suite C suite priority.
Speaker Change: Other thing I would say is leaning into something you mentioned is they are looking to consolidate and they're looking to consolidate their it spend and in doing so they're driving more of a platform approach and I think we have a platform where people are consolidating on top of and when you do that you have a better total cost of ownership and I know, we've talked a little bit about AI.
Speaker Change: On this call and we will continue to do so for many years to come but I think AI is really becoming a business imperative and theyre all trying to figure out how to leverage it and I think as they do so they're going to lean towards vendors, who they trust like workday to be able to deliver those AI solutions and really drive impact.
Speaker Change: To their employees in their overall productivity gains are seeking as a company.
Doug: That's what we're seeing but Doug youre out there touching even more customers and I. So I'd like you to respond to well you've covered mind, but I'd say I'd say.
Doug: I agree with your best of suite versus best of breed, Yes. There is a desire for that which is a consolidation play in.
Speaker Change: And you touched on the other one I was going to hit which is.
A renewed energy around efficiency and productivity.
This application so get employees in and out drive great efficiency in that by the way has the side effect of driving a better employee experience and so while there's all this talent and skills and employee experience focus there's cio's come into our corporate visit center and saying how do I get more productivity, how do I get more efficiencies and that's where the gen AI.
Conversations get really interesting.
Doug.
Thank you.
Ladies and gentlemen, thank you for your participation on today's conference I will now turn it back to Mr. Ashwin Bulker for Mr. Aschenbach for final comments.
Bakr: Sure or Bakr that works to no problem. Thank you operator, and thank you to everyone for joining today's call and a special thanks to our Workmates customers and partners around the globe that continued at fewer workdays success Q3 was another strong quarter highlighted by durable mission critical nature of our platform.
Speaker Change: Only reinforces the excitement we have both in Q4 and the opportunity. We have ahead, we're all well positioned here at workday and we're focused on executing in Q4 and laying the foundation for a durable growth in FY 'twenty, five and beyond with that I'll hand, it back over to the operator to close today's call.
Speaker Change: And I hope everyone has a great evening and a happy holiday season.
Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.
Okay.