Q4 2025 Workday Inc Earnings Call and Business Update
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Welcome to Workday's fourth quarter and full year 25 earnings call. At this time all participants are in a listen-only mode.
Speaker Change: 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.
Speaker Change: 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 Somers, our chief product officer. Following prepared remarks, we will take questions.
Speaker Change: Our press release was issued after close of market and is posted on our website, where this call is being simultaneously webcast.
Speaker Change: 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.
Speaker Change: These statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially.
Speaker Change: 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.
Speaker Change: 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 Workday's performance.
Speaker Change: These non-gap measures should be considered in addition to and not as a substitute for or in isolation from gap results.
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.
Speaker Change: 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.
Speaker Change: 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.
Carl Eschenbach: 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.
Speaker Change: 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 team's executed in Q4 to deliver a solid year.
Speaker Change: 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.
Speaker Change: And with our unified platform, our customers can unlock value faster, reduce our total cost of ownership, and harness the power of AI across our best-in-class HR and finance solutions.
Speaker Change: On the AI front, we just launched the Agent System of Record, a centralized system to manage all of an organization's AI agents from workday and third parties alike.
Speaker Change: With this innovation, our customers will be able to manage their entire workforce.
Speaker Change: 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.
Speaker Change: During Q4, we welcomed incredible new customers, including Bayer, Henkel, Iberostar, the state of North Carolina, and First Citizens Bank & Trust Company. We also expanded with industry leaders including Cisco, Mondelēz, Sutter Health, and Toyota.
Speaker Change: 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.
Speaker Change: Our industry focus is a huge contributor to this growth and Q4 was no exception.
Speaker Change: 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.
Speaker Change: This is a massive project to improve the experience for 270,000 students and 14,000 faculty.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Health care also once again delivered, with notable full suite wins including North Mississippi Medical Center, Hackensack Meridian Health, and UnityPoint Health.
Speaker Change: More than 30% of our net new wins in the quarter were full-sweep, 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.
Speaker Change: We now have over 6,100 core HCM and financials customers, and more than 2,000 of them are leveraging our full suite.
Speaker Change: Our investments in financials, both in innovation and go-to-market, continued 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.
Speaker Change: 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.
Speaker Change: They want to move beyond incremental productivity gains. They're also looking for ROI that helps them drive growth back into their business.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Developer Co-Pilot, 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.
Speaker Change: Recruiting agent had an exceptional close to the year with wins at BP, GenPAC, and many more.
New ACV in Q4 nearly doubled from Q3.
Speaker Change: And this product continues to boost the average selling price of our core recruiting solution.
Speaker Change: 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.
Speaker Change: While others rushed to charge for early-gen AI features, we integrated them into our core offering.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: And the combination of this data with our ability to understand the context behind it puts Workday in a unique position.
Speaker Change: Following the announcements of our new role-based agents at Rising, we launched four more agents for contracts, payroll, financial auditing, and policy.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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
Speaker Change: 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.
Speaker Change: That's what the Workday Agent System of Record aims to solve. It will manage a business's entire fleet of AI agents alongside their human workforce.
Speaker Change: all on a trusted platform. And it won't just manage Workday agents, it will also manage Customer Bill Agents and Partner Bill Agents.
Speaker Change: Since the launch, we've had strong interest from our customers and technology partners who'd like access to the Workday agent system of record to mitigate risk in the enterprise.
Speaker Change: Not only are we leaning into partners to drive increased pipeline for our core products, but we're also collaborating with them to create new lines of business through partner programs like Workday Wellness, where we signed five strategic partners in Q4.
Speaker Change: And we're innovating with them as well. Our Build on Workday program continues to gain traction. Since its launch at the end of June, we have 72 partners building and selling applications on the Workday platform.
Speaker Change: which brings together the power of Workday Recruiting Agent with the global candidate data pool of the largest talent company in the world to help our customers increase hiring efficiencies and drive better talent outcomes.
Speaker Change: Turning to international, we delivered solid performance across a number of our key geographies in Q4. We also hosted a record-breaking EMEA Rising in December with 5,000 attendees which helped drive momentum in the quarter.
Speaker Change: Despite the continued macro headwinds in EMEA, our two largest markets, the UK and Germany, had their strongest quarter of the year. This shows what I've said many times. When customers are ready to make a spending decision, Workday is the choice.
Speaker Change: In the DOC region, we've formed some fantastic new relationships in our competitors' backyard. In Q4, with great German companies like Bayer and Henkel selecting Workday Core HCM.
Speaker Change: In APAC, we had several important wins including Binance, Nine Entertainment, and Jing Dong.
Speaker Change: And in Japan, we're continuing to build the foundation to grow in this important market with the opening of our Osaka office.
Speaker Change: I want to thank my workmates, our customers, and our partners for helping us and FY25 strong.
Speaker Change: I'd also like to recognize Doug Robinson for helping us close the quarter on a high note. Thank you, Doug, for your dedication to building this company.
Speaker Change: Before we close I'd like to share a couple other leadership updates. After 10 incredible years, Cheyenne Chakraborty has decided to retire from Workday.
Speaker Change: He has been a driving force for our innovation strategy and we can't thank him enough for the impact he has had.
Speaker Change: With Cheyenne's retirement from Workday, we're excited to welcome Garrett Kasmeier as our new president of product and technology.
Speaker Change: Garrett joins us from Google, where he led data analytics and BI for Google Cloud.
Speaker Change: Prior to that, he spent nearly 11 years with SAP. With his expertise in AI, data, ERP, and enterprise business processes, Garrett is the ideal person to lead our product and technology strategy.
Speaker Change: Gara will start on March 10th and Cheyenne will stay on as an advisor through the end of May to help with the transition.
Speaker Change: It's been a year of change at Workday, and we'll continue to evolve in the coming years to go after the massive opportunity ahead of us.
Speaker Change: Our recent restructuring was a tough but necessary decision that will help us invest in the business to meet our customers' needs.
Speaker Change: We're entering FY26, our 20th year in business, with an amazing team, renewed energy, and a clear view of how we can fulfill our founder's vision to revolutionize enterprise software, this time with AI.
Zane Rowe: Thank you again for joining us, and with that, I'll hand it over to Zane.
Zane Rowe: Thanks Carl, and thank you to everyone for joining today's call.
Zane Rowe: Our Q4 results were driven by solid performance across key growth areas of the business, including continued momentum with Full Suite and our financial solutions, growing demand for our AI SKUs, and strong execution across key industries.
Zane Rowe: Turning to results, subscription revenue in Q4 was $2.04 billion, up 16%, benefiting from favorable linearity of new ACV bookings within the quarter.
Zane Rowe: Whole year FY25 subscription revenue was $7.718 billion, growth of 17%.
Zane Rowe: Total revenue in Q4 was $2.21 billion, growth of 15%, and for the full year was $8.45 billion, up 16%.
Zane Rowe: U.S. revenue in Q4 totaled $1.66 billion, up 15%, and international revenue in the quarter was $556 million, growing 16%.
Zane Rowe: For the full year, U.S. revenue was $6.33 billion, up 16%, and international revenue was $2.11 billion, up 17%.
Zane Rowe: 12-month subscription revenue backlog, or CRPO, was $7.63 billion at the end of Q4, growing 15%. Early renewal activity in the quarter was slightly higher than expected and contributed to the outperformance.
Zane Rowe: Total subscription revenue backlog at the end of Q4 was $25.06 billion, up 20%, and gross revenue retention rates remained strong at 98%.
Zane Rowe: Non-GAAP operating income for the fourth quarter was $584 million, representing a non-GAAP operating margin of 26.4%.
Zane Rowe: Full year non-GAAP operating income was $2.19 billion, reflecting a non-GAAP operating margin of 25.9%.
Zane Rowe: Gap operating income in the quarter was impacted by a 75 million dollar charge primarily related to the previously announced restructuring.
Zane Rowe: Q4 operating cash flow was $1.11 billion, resulting in full year operating cash flow of $2.46 billion, growth of 15%.
Zane Rowe: We repurchased $99 million of our shares during the quarter, and $700 million for the full year, helping drive annual dilution below 1% for the year.
Zane Rowe: The timing and amount of our repurchase activity in the quarter was impacted by trading constraints. We had 802 million dollars in remaining authorization as of year-end.
Zane Rowe: We ended the year with $8 billion in cash and marketable securities.
Zane Rowe: Our headcount as of January 31st was approximately 20,400 workmates, not reflecting the restructuring that took place in early February, which we expect will reduce our workforce by approximately 8%.
Now turning to guidance.
Zane Rowe: We're pleased with the execution we are driving across several of our key strategic areas. And given our solid performance in the fourth quarter, we continue to expect FY26 subscription revenue of approximately $8.8 billion, growth of 14%.
Zane Rowe: This outlook incorporates the impact of the continued strengthening of the U.S. dollar, which is a roughly $20 million incremental headwind since we provided guidance last quarter.
Zane Rowe: We anticipate Q1 FY26 subscription revenue to be approximately $2.05 billion, growth of 13% or 14% when normalizing for the effect of the leap year last Q1.
Zane Rowe: We expect CRPO to increase between 14.5% and 15.5% in Q1.
Zane Rowe: We expect subscription revenue to increase roughly 5.5% sequentially in Q2. We continue to expect a slightly faster pace of year-over-year subscription revenue growth in the second half of FY26 relative to the first half.
Zane Rowe: This is driven by continued momentum across our investment initiatives in addition to revenue building from certain deals We closed in FY 25 and discussed on our last earnings call
Zane Rowe: We anticipate FY26 professional services revenue of approximately $700 million as we continue to leverage our partner ecosystem. For Q1, we expect professional services revenue of $165 million.
Zane Rowe: We expect FY26 non-gap operating margins of approximately 28%. This outlook incorporates an accelerated pace of AI investment across our platform and targeted investments across key areas of the business.
Zane Rowe: We will also continue to drive efficiencies and look for improvements in operating our business at scale. For Q1, we expect a non-gap operating margin of 28%.
Zane Rowe: Gap operating margin for the first quarter is impacted by the previously announced restructuring. We expect to incur an additional restructuring expense of approximately $180 million in the quarter, which will be excluded from our non-gap results.
Zane Rowe: We expect the gap operating margins to be approximately 30 and 21 percentage points lower than our Q1 and full-year FY26 non-gap operating margins, respectively.
The FY26 non-GAAP tax rate is expected to be 19%.
Zane Rowe: We expect FY26 operating cash flow of $2.75 billion, which includes roughly $180 million of cash outflows related to the restructuring, which we expect will be incurred in the first half of FY26.
Zane Rowe: We expect FY26 capital expenditures of approximately $250 million, down slightly from FY25.
Zane Rowe: We enter the new fiscal year with clear momentum and are focused on investing strategically to support our medium-term objectives of mid-team subscription revenue growth
Zane Rowe: and 30% non-gap operating margin, while building the foundation to support enduring growth and margin expansion. With that, I'll turn it back over to the operator to begin Q&A.
Thank you.
Speaker Change: We will now be conducting the question and answer session. Please limit your questions to one.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For those using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: First question is from Mark Murphy from J.P. Morgan. Please go ahead.
Mark Murphy: Thank you very much, congrats, it's nice to see the CRPO dollars added.
figure, I believe, reached its highest level ever.
Speaker Change: I wanted to ask if you can walk us through the vision and the scale of the investment that you think is required for the agent system of record.
Mark Murphy: I'm curious if a chunk of the savings from the restructuring are going to be redirected into building that agent system of record and then do you, you know, relating to that, do you have any Lighthouse customers that are...
Mark Murphy: You know raising their hand in some way saying we want to manage Entire fleets of agents including some third-party agents using that product
Aneel Bhusri, Zane Rowe, Justin Furby, Carl Eschenbach
Carl Eschenbach: Yeah, hi Mark, this is Carl. Before I answer your question, if you don't mind, I'd just like to again thank my workmates, partners, and customers on a really good Q4 and a solid FY25 finish.
Carl Eschenbach: The diversity and durability of our business and the demand for the Workday platform.
Carl Eschenbach: has continued to help us drive towards our goal of delivering durable growth at scale and expanding operating margins. Again, thank you to everyone. So let me start by answering your question around investments.
Carl Eschenbach: As we said in my prepared remarks, you know, a restructuring is never something easy to do, but we thought it was absolutely necessary for us.
Carl Eschenbach: to be able to reinvest back in specifically into the product and technology organization around our aging system of record that we announced two weeks ago.
Carl Eschenbach: and from our partner community who want to build agents and understand there is a risk of them entering the enterprise in an uncontrolled way, so there's no doubt.
and David, who runs ProductForce. Anything to add there?
David Somers: Yeah, no, I mean, I think we've been extremely pleased with the response that we've gotten and you mentioned this Carl, not with just customer response in terms of agent system of record, but also from partners.
And yeah, they're, I think that's one of the...
David Somers: agents, and we see a lot of interest in both of those areas, whether that's customer-built agents or even third-party partner-built agents being managed.
David Somers: within the agent system of record. So once again, a significant opportunity we see to deliver value to our customers there.
Thanks, David. Yep.
Thank you.
Speaker Change: The next question is from Akash Ranjan from Goldman Sachs. Please go ahead.
Speaker Change: Thank you very much and congrats on the nice finish to the year. Carl, one question for you. You guys have tremendous visibility in your business. Your backlog is CRPO three times over, right? But on the flip side, as you have contracts that come up for renewal,
Speaker Change: And as you overlay your AI, Upsal, on top of that, what are the opportunities for the company to, upon the renewal, to attach?
Speaker Change: itself and its impressive list of AI products so as to ensure that you're able to grow to meet your goals. Thank you so much. That's it for me.
Speaker Change: Yeah, thank you, Cash, and thank you for the question. Yeah, we do have good visibility for the next, you know, many years on the renewal opportunity we have here at Workday. That being said...
Speaker Change: As you know, we do not wait for the renewal opportunity to sell back into our customer base. For example, we highlighted again for the second consecutive quarter that we were able to sell an AI SKU back into our customer base.
Speaker Change: more than 30% of those transactions, which is, you know, the second quarter in a row. And specifically, the uptake we're seeing.
Speaker Change: on a recruiter agent and Xtend Pro allow us to sell back into that customer base. Both of them almost doubled quarter over quarter.
but more importantly, cash.
Speaker Change: As we've been doing the last couple years, we're not waiting for renewal to sell back into the customer base.
Speaker Change: the products and SKUs we have today. We also know that we have a number of new AI agent SKUs that we'll be rolling out over the next 6 to 12 months and they also give us a great opportunity to sell back into that customer base, so we're excited about the customer base.
C-R-P-O
Zane Rowe: The other thing I should probably highlight, Zane, is the fact that our create and close momentum in the quarter where we did not see an opportunity in the pipeline that we ended up selling back into our customer base was the strongest we'd seen all year, so that was another good selling motion.
Speaker Change: and I was really proud of how the team executed on creating opportunities in a given quarter and closing them at the same time.
Speaker Change: Good proxy for S&B business, I take it. Thank you so much, Carl and Zane. Thank you.
Speaker Change: The next question is from Kirk Maturne from Evercore ISI. Please go ahead.
Kirk Maturne: Yeah, thanks very much and congrats on that. Nice finish to the year.
Speaker Change: I think this one's probably for Zane. Zane, obviously your get-ins for the year sort of infers a little bit of acceleration from the first half to the second half. You went through some of the reasons why.
Speaker Change: Just two sort of two-part question around that. I guess one...
Speaker Change: In the back half of the year, are you guys expecting much contribution from some of the agent revenue or some of the agents that you've put out over the last six months?
Kirk Maturne: Secondly, you know, you had a strong fourth quarter. Do you feel better about that sort of opportunity or sort of just the visibility, I guess, into the back half of the year today versus three months? I know 4Q is a big bookings quarter for you, so I think that your visibility is perhaps a little bit better today than it was then. I'll just reiterate guidance, so I'd infer that, but I was wondering if you could just put a little bit more color around that. Thanks. Of course, Kirk. I'll start, then I think Carl will probably want to add to it. I mean, as you point out, we were very pleased.
Kirk Maturne: with the strength in Q4 in a variety of areas, most notably some of the newer opportunities that we have, in particular around AI. As it relates to your first question on agents, we haven't built in, I'd say, a meaningful amount of dollars tied to agents, just as we expect to roll them out through the course of the year. So there's not a meaningful amount attributed to agents. I also called out the fact that, you know, we've got a little bit more headwind related to FX.
It's that aggregate level that we focus on.
Kirk Maturne: that will not be available to the second half of the year. They were the policy agent, contract agent.
Kirk Maturne: financial audit agent and payroll agent and we don't see them attributing a whole lot to you know the current guidance we have for FY 26 because they'll be in early access at rising later this year.
Shiver. Thank you all.
Thanks Kurt.
Speaker Change: Next question is from Brad Sills from Bank of America. Please go ahead.
Brad Sills: Oh, wonderful. Thank you so much. I wanted to ask a question about international. We haven't heard from a lot of companies that Europe was a source of strength this quarter, and I know it's been a focus area for you. So I would love to get some color as to where you're seeing strength in Europe. How do you feel about the feet on the street that you have over there? Which countries are working nicely in the go-to-market and some of the progress, and which ones would we expect to see more progress from going forward? Thank you.
Speaker Change: Yeah, thanks Brad. As you know, we've called out for the last couple of years. We have a significant opportunity internationally.
Speaker Change: You guys know the math, 75% of our revenue comes from the U.S. and only 25% outside of the U.S. Yet, more than 50% of our addressable market is outside of the U.S. and that hasn't changed.
Speaker Change: Specifically as we think about EMEA, I think for the entire year we've called out that it was more of a headwind than a tailwind compared to the years past.
Speaker Change: And that was, quite honestly, no different for us in Q4. That being said, the teams had a really strong finish to the year in Europe, specifically in two of the biggest markets, both the UK and Germany, delivered really solid results.
Speaker Change: Now, we wouldn't say one quarter of strength is a trend, so we expect more of the same in FY26, but we do expect to continue to invest in the business internationally because of the size of the market we have to go after. And we expect, when customers do ultimately make a decision to move forward with a large transformation project,
Speaker Change: with Hankel and Bayer, and they were, you know, out there for many quarters, and they finally decided to move forward and selected us. So that's just an example.
Speaker Change: of the momentum when someone does make a decision that we have around our solution and the value we're bringing to our customers and prospects.
Speaker Change: Hey Brad, and just to tie that to our forecast as we look at FY26, we're not considering any meaningful change in the environment, at least from the macro perspective in Europe, so we're still very pleased with the product that we're continuing to build there, the team we have on the go-to-market side and our deliverables, but we're not expecting any material change, at least from the environment.
Understood. Wonderful. Thanks so much, Zane and Carl. Thanks, Brad.
Speaker Change: The next question is from Ramo Lencho from Barclays. Please go ahead.
Hey, perfect, congrats from me as well.
Speaker Change: Any expectations for a change in go-to-market now with Rob Enslin kind of finally coming on board and you know I'm thinking more international as well since you have that success is there any change or are you doubling down on that one the way you do it? Thank you
Speaker Change: Hi Raimo, thanks for the question. First, I just want to again thank Doug Robinson for 14 years of service here at Workday.
Speaker Change: He was an incredible asset, and I think we all get to see here at Workday because of his success. So I just want to thank him again. And I actually think between, you know, Rob now on board for, you know, three months, and Doug, we've had a seamless and smooth transition.
Speaker Change: Rob obviously has a tremendous amount of experience, especially internationally, and he's already spent time.
Speaker Change: around, you know, both Europe and he's been in Japan already and he'll be traveling more over the next coming months in international markets to help us expand and take advantage.
Speaker Change: of the opportunity we have, but also the deep network that he has across customers.
Speaker Change: as well as partner communities so that being said not a lot of changes as you saw from our Q4 performance
Speaker Change: I think the go-to-market engine is working really well under the leadership of Patrick, who's our Chief Revenue Officer. And I think Rob will just make tweaks or refinements to the go-to-market motion to only improve it from here, but no major changes at this time.
Perfect, thank you, congrats.
Speaker Change: The next question is from Michael Turin from Wells Fargo. Please go ahead.
Michael Turin: Okay, great. Thanks very much. I appreciate you taking the question.
Speaker Change: I just want to go back to the margin potential relative to the guidance and how you're thinking about that. It's clear there are product areas you can reinvest in, too. I don't think we would have expected.
Speaker Change: all of the leverage from the headcount reduction and potentially flow into the initial guide for the upcoming year. But can you just kind of speak to the tradeoffs you're evaluating currently and then how we should think about those in the context of the overall margin potential of workday from here? Thank you.
Speaker Change: Yeah, Michael, we've obviously laid out a midterm plan to get to 30% plus.
through FY 27 and you know what we've
allows us to get there.
Carl Eschenbach: Candidly, you know, as Carl mentioned earlier, we see tremendous opportunity in AI, so we're, I think, doing a good job balancing those investments.
Speaker Change: We've got David here and his team leaning as heavily as they ever have into our AI investments and our and our strategy surrounding AI and concurrently while we do that, seeing opportunities to continue to scale the business obviously as you grow in the mid-teens that allows you and affords you that opportunity to continuously think about balancing investments with margin appreciation and that's what we're focused on and we're literally looking at every part of the organization on how we scale, how we think of efficiencies and at the same time how we continue to...
to the presentation.
Very clear. Thank you. Thank you.
Speaker Change: Next question is from Brent Sill from Jefferies. Please go ahead.
Brent Sill: Thanks. Carl, on federal, you've mentioned, you know, some good wins and you feel the momentum there. I think there's been also some concerns. Could things kind of go a little sideways until they figure out the exact direction where they're going with the new administration? I'm just curious if you could lay out how you think that plays out for you over the next year.
Brent Sill: Yeah, thanks Brent. As you know, over the last 18 months, we've started to lean into the federal business and opportunity more aggressively than we've historically done and the reason for that is
Brent Sill: If you look at the federal government, while they spend a tremendous amount of money on technology
Brent Sill: The systems they have, specifically ERP, HCM, or financial systems, are very antiquated. In fact, the majority of them are still on-premises.
which means they're inefficient.
Brent Sill: And as we think about DOGE and what that could potentially do going forward, if you want to drive efficiency in the government, you have to upgrade your systems. And we find that as a really rich opportunity.
Brent Sill: And in the last year, we've laid the groundwork with a couple significant wins, for example, at the Department of Energy and the DIA, to allow us to springboard our momentum in the federal market moving forward. So yes, there's some uncertainty, but there's still tremendous opportunity. And if you want to drive efficiencies across the government,
Brent Sill: There is a starting point called on-premises solution, getting them to the cloud, and as we speak to the customers, all of them are looking to leverage Workday and what we have in our Best of Breed platform and applications to better service them more efficiently.
Thank you.
Speaker Change: The next question is from Alex Zukin from Wolf Research. Please go ahead.
Alex Zukin: Hey guys, congrats on a solid end to the year. I guess maybe just a two-parter for me.
Alex Zukin: Maybe first, Carl, on the agentic front, we're all trying to kind of grapple with what this means from a TAM expansion point for the systems of record.
Alex Zukin: Was there a change in calculus that accompanied the RIF in terms of seeing something that made you want to move faster to free up more? Or was that always kind of in the cards for the previous margin guidance? Thank you, guys.
Yeah, sure, maybe I'll start.
So, we are quite excited about the opportunity to bring
agents, and specifically role-based agents, into the enterprise.
Alex Zukin: To do that, you need to bring them in very similar to you bringing your human workforce today, which no one is better at than Workday. We're taking that same framework to securely onboard.
Alex Zukin: Right new agents in digital workers in the same way we have done with human workers in the past
Alex Zukin: So, if there's ever a shift from human workers to digital workers, we're going to still be able to capture the revenue for that as they land on our workday aging system of records. So, we think the monetization opportunity we have...
Alex Zukin: for both our own role-based agents as well as David said earlier
new agents
Alex Zukin: either that our customers are building, our partners, or even in some cases, our competitors, they have to somehow come into the enterprise, and they're going to do that.
Alex Zukin: to a system of record and we believe we're uniquely positioned with our gateway to onboard all agents into the enterprise and we will be able to monetize that. It's also important to note
Alex Zukin: that we have multiple ways to monetize AI. Today, we're monetizing in the platform because we have a lot of functionality around AI in the platform itself. We're monetizing it through some of the things we rolled out in the last year, the Recruiter Agent, Xtend Pro, we have things like Eversort.
Alex Zukin: and all of these new agents now we're bringing to market is another way for us to monetize it. And it's both seat-based and consumption-based. So we have lots of opportunity to monetize it, and we're excited about what the future looks like, specifically after our last two quarters of performance around AI.
Speaker Change: Alex, and I'll just add as it relates to the margin profile, there's no change in thought and in process. We have our parameters and obviously we have a framework that we work by. Carl's talked about
Carl Eschenbach: The opportunity that we have in AI, and you know, we've always talked about growing our top line as well as our operating margin in order to get there, and we see this as a tremendous opportunity to not only invest in the company, but also think about, you know, different ways that we can scale the business and obviously become more efficient in a variety of areas. So I'd say no balance there, sorry, no change there in how we think about that balance.
Not only for the next year, but in years beyond.
Thank you. Thank you.
Speaker Change: The next question is from John DeFucci from Guggenheim. Please go ahead.
John DeFucci: Thank you. I think my question has sort of been touched on guys, but it's something that I struggled with the last couple of years actually.
Speaker Change: And we all know that the last couple of years have been challenging, not just for you, but for everybody.
Speaker Change: But we've always thought of Worthy as a good house in a tough neighborhood.
Speaker Change: Your core business of large transformational deals just hasn't been prioritized in recent years, but you've done a good job We think anyway of doing a lot of things like
Speaker Change: to offset that, like leaning into partners in a way you never did, going down market.
Speaker Change: and Doug would have a big part of that too, and continued selling back into the base.
Speaker Change: I guess my question, and I think it's just a general question, but are we now at a point where the numbers are doable? And if, when things improve, meaning things you don't have control over, you'll come out of this actually stronger than you were during the post-COVID sort of Mardi Gras period.
Speaker Change: Hi John, thanks for the question. I think you touched on what we're seeing in the market and the opportunity for us going forward. If you just look at some of the areas we've invested in the last few years, we focus on driving our AI solutions back into our customer base.
Speaker Change: And that motion is working, and not just for AI SKUs, but many of our other SKUs, like our financial SKUs, whether it's sourcing, whether it's planning, whether it's accounting center.
Speaker Change: Or, a second area of focus is to drive our Finns business back into our customer base.
That's working really well.
Speaker Change: And then this quarter, we had record impact from our partners where they contributed greater than 15% to our new ACB in the quarter.
Speaker Change: So, all of these areas that we've been focused on and we're leaning into, we're starting to see pay off. Now, we've got to keep that going as we go into FY26, but we're pretty optimistic about the investments we've made, the results we're seeing, and the momentum we carry into the new year.
Speaker Change: Carl, is Global Payroll Connect, is that part of what's happening too? Are you seeing...
Speaker Change: benefit from that yet or is that just still still too early?
Speaker Change: Yeah, we are. We have more than 150 partners now part of Global Partner Connect already today. Yeah, real quickly, since October when we launched that, this is David, by the way, we've, Global Payroll Connect's been in 150 deals.
Speaker Change: Since we launched back in October. We now have well over 22 partners now leveraging and building on top of GPC Already as well, and there's a whole slew in in the pipe
Speaker Change: that are looking to build on top of that capability as well.
Speaker Change: Yeah, and the other things, David, we're doing is on the platform side. Workday Wellness has momentum where benefits providers can now build into the platform. We see momentum around, obviously, you know, Workday Extend and Extend Pro, and built on Workday platform, we have many of our partners now building and innovating on top of the platform. So our platform approach is clearly paying off.
as people look to consolidate on Workday.
Speaker Change: start to actually pay dividends in a lot of things we've been talking about, including as we look at, you know, AI and what other agents that we think we're going to build. And we've got, you know, lots of plans to build more there as well.
Good stuff. Thanks guys. Yep, thanks John.
We will now take two more questions.
The next question is from Carl Kersted from UBS.
Please go ahead.
Carl Kersted: Okay, great. I just wanted to go back to the point around your decision to reinvest what appears to be most of the savings from the headcount cuts, and in particular...
Carl Kersted: Where are those new dollars being freed up to invest in? It sounds certainly like AI, but are there any other new investment areas that you'll direct the funds to? Maybe an uptick in certain sales rep capacity. So maybe you could describe what's getting cut, what's getting increased to help us understand how the spending mix is changing as a result of the headcount cut. Thank you.
Zane Rowe: Yeah, sure, Carl. I'll start and then Zane, obviously, add anything on the investment or margin front there.
Zane Rowe: So, I would expect that this time next year, we will have more head count at Workday than we did prior to the restructuring.
Zane Rowe: which shows you that we are continuing to invest in the business.
Zane Rowe: And there's probably multiple areas we're looking to invest. Yes, it's in AI and the product and technology organization as we expand our agent system of record and we bring more and more role-based agents into the market. We continue to invest.
Zane Rowe: internationally and when I say invest internationally it's not just in go-to market but it's on the product side and it's also to build out more capacities in locations like India and Costa Rica as we look to service a more global footprint of customers.
Zane Rowe: And then two more areas of focus, we're going to continue under Rob and Patrick, continue to build out go-to-market capacity from a sales perspective.
Zane Rowe: And then, as you've seen, the momentum we have around our partner...
Zane Rowe: ecosystem is something we want to continue to invest in because you know we're already seeing great uptick like 15% of our new ACB this quarter coming from our partners so
Zane Rowe: They're the key areas that we're focusing our investments on and we are going to lean heavily into the opportunity and the TAM that we see in front of us.
Zane Rowe: Yeah, Carl, I would just add it's, you know, it's not like it's sort of binary as far as there are a number of areas that we were always investing in and obviously what you see here is a more of a mixed shift.
Zane Rowe: into AI and into some of those growth elements. And at the same time, really across the company, we're all looking at how we scale, how we build in efficiencies, as well as invest in both people, process, and systems to continue to drive that next leg of growth. So a lot of these investments are investments that also scale and will enable us to grow our margin beyond just FY27. So we feel good about the balance. We're also becoming more global,
Zane Rowe: globe to balance that out as well. Okay. Thank you both. Thanks, Carl.
Speaker Change: The next question is from Keith Weiss from Morgan Stanley. Please go ahead.
Speaker Change: Hey Carl, hey Zane. This is Chris Quintero on for Keith here. Thanks for taking our questions. I actually wanted to go back to the Asian partnership you announced with Salesforce last year, which is super interesting, but didn't hear you call it out in the prepared remarks. So just curious to hear maybe how that integration has gone and has it contributed at all to potentially better win rates at all?
David Somers: David, you want to take the partnership with Salesforce? Sure, I'll jump on that. Yeah, and Chris, good talking to you. Yeah, I mean, we continue to work on that partnership with Salesforce.
David Somers: Some of the innovation that we just recently announced in terms of agent system of record and actually understanding and working with them through issues like how do you get an agent from Salesforce to talk to an agent on the workday side.
David Somers: We're still progressing with Salesforce on that. I would say the partnership is going really well. It still, once again, continues to be early days in that partnership.
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Excellent. Thanks so much.
Speaker Change: Ladies and gentlemen, thank you for your participation in today's conference. I'll now turn it over to Mr. Eschenbach for final comments.
Carl Eschenbach: Thank you operator and again thank you all for joining today's call.
Speaker Change: To close, Q4 was another solid quarter, capping off a really good year for Workday. Our results...
and the increasing relevance of Workday's platform.
Speaker Change: And with our Illuminate AI strategy, our new agent, and most importantly, our new agent system of record, we're unleashing new innovation across our platform that will continue to drive exceptional outcomes for our customers.
Speaker Change: and partners and continue to fuel our growth. With that said, I'll turn the call back over to the operator to close out today's call.