Q1 2026 Workday Inc Earnings Call
Welcome to workdays first quarter full year 2026 earnings call at this time, all participants are in a listen only mode.
We will conduct a question and answer session towards the end of the call.
During the Q&A please limit your questions to one.
Speaker Change: I will now hand, it over to Justin Furby, Vice President of Investor Relations.
Zane Rowe: Thank you operator, welcome to workdays first quarter fiscal 'twenty 'twenty six earnings conference call on the call we have Carl Eschenbach, our CEO Zane Rowe, our CFO and Garrett Cats, Meyer, our president product and technology.
<unk> prepared remarks, we will take questions.
Zane Rowe: Our press release was issued after close of market and is posted on our website, where this call is being simultaneously webcast.
Zane Rowe: 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.
Zane Rowe: These statements are subject to risks uncertainties and assumptions that could cause actual results to differ materially.
Zane Rowe: Please refer to the press release and the risk factors in the documents, we file with the Securities and Exchange Commission, including our fiscal 2025 annual report on Form 10-K for additional information on risks uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements.
Zane Rowe: In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of workdays performance.
Zane Rowe: These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release, and our Investor presentation and on the Investor Relations page of our website.
Zane Rowe: The webcast replay of this call will be available for the next 90 days on our company website under the Investor Relations link.
Zane Rowe: Additionally, the transcript of this call and our quarterly Investor presentation will be posted on our Investor Relations website. Following this call.
Zane Rowe: Our second quarter of fiscal 2026 quiet period begins on July 15th 2025.
Carl: Unless otherwise stated all financial comparisons in this call will be to our results for the comparable period of our fiscal 2025 with that I will hand, the call over to Carl.
Speaker Change: Thank you Jess and Hello to everyone joining us on our call today I am pleased to report that workday delivered a solid first quarter, we drove 13% subscription revenue growth and a non-GAAP operating margin of 30%. This performance was fueled by strong customer adoption across.
Speaker Change: <unk> key verticals geographies and customer segments, we all know the economic environment remains a bit uncertain, but I'm incredibly proud of how our teams are staying focused on our customer success and that is driving our results.
Speaker Change: Workdays value proposition remains highly relevant in today's market.
Speaker Change: Ceos I meet had three key priorities they wanted to drive efficiencies they need to be agile and responsive to market shifts and they want to unlock growth with innovation.
Speaker Change: And from our perspective, they are turning to workday for all three.
Speaker Change: We help manage and optimize their most critical assets that is their people and money on one platform with AI at the core.
Speaker Change: This unified approach reduces total cost of ownership and helps them move faster with greater precision.
Speaker Change: Our customers Trust that workdays AI is powered by the largest and cleanest finance it and HR dataset.
Speaker Change: Our AI is fueled by more than 70 million users under contract and one trillion transactions processed on our platform last year, which gives us a deep understanding of how people work.
Speaker Change: This enables us to deliver highly differentiated value to our customers I'll speak more about that in a moment.
Speaker Change: But first let's turn to our customer highlights for the quarter.
Speaker Change: In Q1, we established new HCM relationships with United Airlines pilot travel centers and mutual of Omaha Insurance company and it was another strong quarter of expansions with customers such as Fedex Cvs health as the stores and Chipotle.
Speaker Change: Our investments in financials continues to pay off with solid growth in both net new ACB and customers.
Speaker Change: More than 30% of our net new wins this quarter were once again full suite and in our focused industries of sled in healthcare it was more than 50%.
Speaker Change: Also had some strategic financials go live this quarter, including Bj's restaurants, essential health and Genesis cloud services.
Speaker Change: Our AI innovation continues to gain traction new ACB across our AI products more than doubled year over year in Q1, and roughly 25% of our customer expansions in the quarter included one or more of these products such as recruiting agent talent <unk>.
Speaker Change: Ability agent ever Soar and extend pro.
Speaker Change: Fantastic companies, including visa Labcorp in a on all selected our AI products.
Speaker Change: I'm also excited about the momentum we're building with the office of the CIO.
Speaker Change: We're driving increasing demand for extend pro which enables our customers to build AI applications on top of our platform.
Speaker Change: This continues to be one of our fastest growing products and it's amplifying innovation for our customers.
Speaker Change: While workday serves more than 60% of the fortune, 575% of our customers have fewer than 3500 employees.
Speaker Change: And we see a significant growth opportunity in the emerging and medium enterprise markets.
Speaker Change: In Q1, we launched Workday go specifically for these companies.
Speaker Change: It gets them up and running on our enterprise grade platform fast we're talking implementations in as little as 30 to 60 days with pre configured deployments.
Speaker Change: And it's not just the software they get the full support of our partner ecosystem and a clear fit.
Speaker Change: Fixed pricing model.
Speaker Change: It really move the needle for us in Q1, helping our emerging and medium enterprise teams deliver a strong quarter.
Speaker Change: Now, let's talk about industries.
Speaker Change: Excited to share that we now have five industries exceeding $1 billion in annual recurring revenue.
Speaker Change: Manufacturing and tech and media to industries that had a solid quarter in Q1 recently reached this milestone.
Speaker Change: They joined our three other billion dollar industries financial services, retail and hospitality and professional and business services.
Speaker Change: Like I've mentioned many times this shows the strength and diversity of our business.
Speaker Change: Our focus on the federal sector continues to pay off we are building a foundation for long term growth in this market.
Speaker Change: This was clear in the huge success of our third annual Federal Forum.
Speaker Change: Attendance was up 65% at this year's event and we had some great conversations with senior government leaders about the critical need for transforming the federal workforce, especially in the key areas such as AI security and skills.
Speaker Change: We're also very proud of our leadership in higher education.
Speaker Change: We were just named a leader in our first ever Gartner Magic quadrant for higher education student information system software as a service.
Speaker Change: In Q1, we were thrilled to welcome Center College BOE Valley College in Gan and University as new customers and we're seeing great success with Workday student go lives, including the University of Arkansas system, which is now fully live at 14 institutions across the entire.
Speaker Change: Your state.
Speaker Change: In an environment, where everyone is trying to do more with less workday gives our customers the ultimate advantage.
Speaker Change: AI is built directly into our platform and as always on greater than 60% of our customers are already leveraging workday illuminate AI.
Speaker Change: We're excited by the adoption we are seeing but we are even more excited about the strong ROI our customers are getting from our AI solutions.
Speaker Change: Looking at Western Union, a long time, <unk> customer using <unk> AI powered contract management solution, which was made available through workday in Q1.
Speaker Change: We're able to process contract, 65% faster, while reducing associated outside legal spend by almost 70% just incredible results. The <unk> team had a fantastic Q1, and they're just getting started.
Speaker Change: Customers are clearly willing to pay for these types of results, which opens up significant new AI monetization opportunities to help fuel our long term growth and set us apart from the competition.
Speaker Change: When we look at our roadmap our focus is on delivering innovation to drive meaningful ROI for our customers. In fact, our agents must meet specific T CEO or a total cost of ownership requirements with our early adopter customers before we even bring them to market.
Speaker Change: Just this week, we announced a wave of new AI agents that harness the power of our unmatched data set to help amplify talent potential reduce costs accelerate decision, making and mitigate risk.
Speaker Change: And do keep us at the forefront of AI innovation, we're really excited to welcome Peter Bayless, as our new Chief Technology Officer.
Speaker Change: Peter will lead our AI and ml initiatives driving our vision forward with his background at Stanford and Google Cloud. He has a proven track record of AI innovation is scale and I couldnt be more excited he chose workday.
Speaker Change: Partners continue to be a critical driver of our success extending the power of our platform fueling pipeline growth and bringing new innovations to our customers in.
Speaker Change: In Q1, we once again saw great contributions from our partners with more than 20% of our net new HCV in the quarter coming from partner sourced pipeline.
Speaker Change: Partners are also critical in helping us expand into new markets and meet the diverse needs of our global customers.
Speaker Change: In Q1, we signed our first volume managed service provider partnership with the mutual group to serve the mutual insurance industry.
Speaker Change: Additionally, our global payroll connect program now supports payroll delivery and 187 countries and territories. Thanks to 'twenty nine partners building integrations.
Speaker Change: And through our partnership with strata our customers can manage up to 60 global payrolls, all under a single workday contract on.
Speaker Change: On the innovation front, we're seeing strong momentum in our bill on Workday program in Q1 alone. We added 25, new partner apps to the workday marketplace.
Speaker Change: Our community of customer and partner developers has nearly doubled over the past year, a testament to the power of building on the workday platform.
Speaker Change: And in just two weeks will host thousands of them at our developer conference Dev Con in Las Vegas.
Speaker Change: Our investments in our global strategy are helping us better serve our existing customers and attract new ones and make our operations even more efficient in Q1, we saw solid growth across EMEA Asia Pacific and Japan.
Speaker Change: In EMEA, we had notable net new wins with <unk> health care and global manufacturer Georg Fischer, and we expanded with semi conductor equipment manufacturer ASML and insurance provider Aviva.
Speaker Change: We also had a major financials expansion with the Cat line as this relationship continues to grow.
Speaker Change: As part of our ongoing investment in the U K, we went live on the AWS U K public cloud, making it possible for our customers to access Workday solutions locally, we also announced a new location for our EMEA headquarters in Dublin, which will bring our local workforce.
Speaker Change: More than 2000 employees together.
Speaker Change: APAC had a strong start to with wins as Swinburne University of technology, The University of Melbourne in Australia, Collins Foods, and PPL pharma and finally, Japan kicked off the year with new wins at Mitsubishi Motors, Pepco and <unk>.
Speaker Change: In Q1, we saw the diversity and durability of our business firsthand with multiple levers driving long term growth looking ahead, we're staying close to our customers as they navigate the macro environment No company is immune to these challenges and.
Speaker Change: We are watching across particular markets, such as sled and our international business.
Speaker Change: That said, we've got a compelling value proposition and our teams are focused on controlling what we can and that is delivering innovation and strong ROI for our customers.
Speaker Change: The future of work has evolved during the pandemic it was about where people work and how they collaborated today, it's about how humans and AI agents work together and how companies manage to human and digital workforce as one.
Speaker Change: I believe no company is better positioned than workday to lead this shift.
Speaker Change: With our expertise our unparalleled data and a platform built with AI at its core we're ready to shape the future of work I want to give a heartfelt. Thank you to our customers for their continued trust and workday two are incredible partners and especially to our workmates around the <unk>.
Speaker Change: World.
Speaker Change: Your hard work and commitment gave us such a solid start to the year and I couldnt be more grateful with that I'll turn it over to Zane.
Zane Rowe: Thanks, Carl and thank you to everyone for joining today's call.
Zane Rowe: Our solid Q1 results highlight the ongoing progress across our strategic growth areas and the continued efficiencies we're driving throughout the business.
Speaker Change: Turning to results subscription revenue in the first quarter was $2 $5 9 billion.
Speaker Change: Up 13% or 15% when adjusted for the leap year compare.
Speaker Change: Professional services revenue was $181 million, resulting in total revenue of $2 two 4 billion.
Speaker Change: Growth of 13%.
Speaker Change: From a geographic perspective U S revenue in Q1 totaled 168 billion.
Speaker Change: Up 13% and international revenue totaled $559 million also up 13%.
Speaker Change: 12 months subscription revenue backlog or <unk> was 763 billion at the end of Q1, increasing 15, 6%. This includes approximately half a point of growth from subscription contracts related to implementation and testing environments, which we referred to as tenants.
Speaker Change: While these short term contracts have and continue to be part of our subscription revenue. We are now including them in <unk> as they have grown with the business.
Speaker Change: Total subscription revenue backlog at the end of the quarter was 20 462 billion up 19% and gross revenue retention rates remained a strong 98%.
Speaker Change: non-GAAP operating income for the quarter was $677 million.
Speaker Change: Our non-GAAP operating margin of 32%.
Speaker Change: The outperformance versus guidance was the result of moderated head count growth along with revenue outperformance.
Speaker Change: GAAP operating income in the quarter of $39 million was impacted by $166 million charge related to the restructuring which occurred earlier in the year.
Speaker Change: Q1, operating cash flow was 457 million growth of 23%.
Speaker Change: We repurchased $293 million of our shares during the quarter and had $509 million in remaining authorization as of April 30th.
Speaker Change: In addition, our board has approved a new $1 billion open ended buyback authorization.
Speaker Change: We ended the quarter with $8 billion in cash and marketable securities.
Speaker Change: Our current head count, which incorporates the previously announced restructuring stands at approximately 19300.
Speaker Change: Now turning to guidance, our Q1 subscription revenue performance and progress across key initiatives Carl highlighted earlier positions us well for the year and we are reiterating our subscription revenue guidance of $8 8 billion.
Speaker Change: Our outlook benefits from our diverse set of opportunities and the important role our platform plays across our customer base and partner ecosystem.
Speaker Change: While there is heightened macro uncertainty, particularly across certain markets and verticals, we haven't seen this meaningfully impacts our business and our growth prospects.
Speaker Change: Though it's early in the year and the environment remains fluid, we remain focused on execution and our strategic initiatives.
Speaker Change: We anticipate Q2, FY 'twenty six subscription revenue to be approximately $2 $1 6 billion.
Speaker Change: <unk> growth of 13%.
Speaker Change: We continue to expect a slightly faster pace of subscription revenue growth in the second half of the year, particularly in Q4, driven in part by revenue from product deliverables associated with previously closed deals.
Speaker Change: We expect <unk> to increase between 15% and 16% in Q2. This includes approximately of points of growth from the previously discussed tenant contracts. We expect a similar quarterly impact of approximately one percentage point to <unk> growth for the remainder of the year.
Speaker Change: We continue to expect FY 'twenty six professional services revenue of approximately $700 million.
Speaker Change: For Q2, we expect professional services revenue of $180 million.
Speaker Change: We expect FY 'twenty six non-GAAP operating margin of approximately 28, 5%.
Speaker Change: This outlook accounts for Q1 outperformance along with continued investments across key growth areas, including AI, our partner ecosystem and targeted international markets.
Speaker Change: In addition, it includes our ongoing efforts on growing efficiently.
Speaker Change: We continue to position the business to drive long term growth and margin expansion.
Speaker Change: For Q2, we expect non-GAAP operating margin of 28%.
Speaker Change: We expect GAAP operating margins to be approximately 20, and 21 points lower than our Q2 and full year FY 'twenty six non-GAAP operating margins respectively.
Speaker Change: The FY 'twenty six non-GAAP tax rate is expected to be 19%.
Speaker Change: We are maintaining our FY 'twenty six operating cash flow outlook of $2 75 billion.
Speaker Change: And we continue to expect FY 'twenty six capital expenditures of approximately $250 million.
Speaker Change: Entering Q2, our teams remain dedicated to delivering value to our customers driving innovation and strategically investing in our key growth areas to deliver on our medium and long term objectives with that I'll turn it back over to the operator to begin Q&A.
Speaker Change: Thank you.
Speaker Change: We will now conduct.
Speaker Change: A question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is.
Speaker Change: And for the question and answer session.
Speaker Change: If you'd like to remove your question. Please press star two.
Speaker Change: Please hold while we.
Speaker Change: Poll for questions.
Kurt: Our first question comes from the line of Kurt <unk>.
Speaker Change: <unk> with Evercore ISI. Please proceed with your question.
Speaker Change: Yes, thanks, very much and congrats on the solid start to the year guys.
Speaker Change: Can you just talk a little bit about the environment out. There. Obviously you guys are keeping your guidance. You mentioned you are keeping an eye on EMEA in the sled market.
Speaker Change: International was up sort of in line with the U S. This quarter. So I think people are going to have a question I realize there is some mechanical reasons why revenue accelerates in the back half of the year, but why do you guys. What are you seeing in your pipeline or your backlog that gives you the confidence to serve reiterate the full year guide given what seems to be a more choppy macro versus.
Speaker Change: Three months ago. Thanks.
Speaker Change: Hi, Kurt Thanks for the question before I dive in and answer that I just wanted to take a quick minute to thank all my Workmates, our partners and customers for a really solid start to FY 'twenty six.
Speaker Change: As you can see by our results, we're really seeing the value of the workday platform come to life.
Speaker Change: In our new wins and expansions, we continued to accelerate AI innovation and adoption with our customers and the growth of our partner ecosystem was once again quite strong specific to your question, let's just talk about the macro to start we have continuously said that the workday value proposition resonates weather.
Speaker Change: We're in times of a headwind or a tailwind because of the strong ROI in TCR, we bring our customers our customers are looking to continuously.
Speaker Change: Solid eight on top of the workday platform and at the same time as we go through this AI Revolution, Theyre investing us because they know a path to leveraging AI is through the workday platform. We did say there is a couple of industries, we're keeping our eye on specifically sled as well as we're keeping our eye on the <unk>.
Speaker Change: National business, let me talk about sled first as you know higher Ed is always one of our strong for industry verticals and once again that was the case in Q1 at the same time. We also know there is some headwind in that industry based on some of the grants in some of the funding they get from the federal government.
Speaker Change: So it's just something we're keeping our eye on it didnt necessarily have an impact on us in Q1.
Speaker Change: And there could be some adjacent.
Speaker Change: Impact also on healthcare, if a health care system as part of a bigger University on international as I indicated in my prepared remarks, we had a really solid quarter. Once again internationally. We saw solid results out of EMEA and we saw solid results out of APAC, but it's something we know that could get impacted depending.
Speaker Change: What's going on in the macro environment. So that's why we just want to give some color as to how we're thinking about the rest of the year what gives us conviction. It's more of the same if you can if you will Kirk we continue to see progress across many of our key initiatives and investment areas, whether it's AI, where we talked about.
Speaker Change: 100% growth year over year growth in AI, 25% of our sales back to our customer base, including AI solution or whether it's how we're pushing financials deeper into the market and that includes full suite lands, which once again represented more than 30% of our new wins were full suite and are really key.
Speaker Change: <unk>, we're seeing more than 50% full suite lands like health care and higher education, we continue to get benefit from our partners. This quarter our partners grew.
Speaker Change: The impact on our business by more than 20%. So think about that two years ago. We said that comment it would be zero percent. We continue to focus on our international operation because of the big opportunity. There and also we're really excited about the early momentum since we've doubled down our efforts around the U S Federal government.
Zane Rowe: All of that comes together to help us feel confident to reiterate the guide of $8 eight for the rest of the year Hey, Kirk. This is Zane I'll just add obviously, we came in ahead of our our guide in Q1. So we feel really good about the starting point here for the year I'll point out. We've also we will benefit from some.
Zane Rowe: FX tailwind if you recall last quarter, we talked about $20 million of headwind. We've now got about $10 million of tailwind as we as we look out for the remainder of the year and again as you pointed out tied to product deliverables and the team are doing a great job in those areas, whether it's wellness or our DIY contract, we expect to see it.
Zane Rowe: Increased year over year subscription revenue growth improvements by the quarter heading into the fourth quarter. So we feel good about the setup here for the year notwithstanding the fact, obviously it is an uncertain macro.
Speaker Change: Okay. Thanks, guys I appreciate the answer thanks Kirk.
Zane Rowe: Thank you.
Speaker Change: Our next question comes from the line of Brad Sills with Bank of America. Please proceed with your question.
Brad Sills: Oh, great. Thank you so much I wanted to ask a question on Workday go it sounds like an exciting opportunity here.
Zane Rowe: What could this do to unlock the medium enterprise given these shorter implementation cycles and is there a certain segment that youre targeting workday go.
Zane Rowe: Specifically within medium enterprise that we should think about.
Speaker Change: Yes, Hi, Brian Hope you're well thanks for the question as you know we've continuously talked about the importance of the medium enterprise or what we also described as our emerging enterprise and last quarter, we have doubled down our efforts and we've now launched our workday go as our campaign to focus on these new markets.
Zane Rowe: Emerging markets for us.
Zane Rowe: It brings together better pricing and packaging it brings together more services, both by us and our partners, allowing us to deploy faster and it also brings to market all of the enterprise strength, we have right with the workday platform, but taking it down market into this very big opportunity it's something.
Zane Rowe: We've been investing in for quite some time, both on the go to market side as we carved out a sales force to focus on it and we're doing the same as we focus on how to make the product.
Zane Rowe: More deliverable for that market segment, both through pricing packaging in the acceleration of deployment deployments now between us and our partners can be done as little as 60 days, which is a significant change from what we've seen in the past. This is all being encompassed under the workday go.
Zane Rowe: Initiative that we launched last quarter.
Speaker Change: Wonderful Thanks, Carl and one more if I may please just on the macro is there any difference in kind of tone or outlook with the opposite CFO versus HR are you seeing any differences there with regard to kind of your comments on the macro.
Carl: No I don't think so Brad I wouldn't delineate between the two.
Carl: I think this is an environment, we've been dealing with it last year I think I called that this is the new norm I think that played out exactly the same in Q1 as it has in the past.
Carl: There is no doubt every now and again, we have to do.
Carl: Double click on things for our customers as they navigate the choppiness in the market, but I don't think theres any difference between the buying centers, we're selling into.
Carl: Wonderful Thank you Carl.
Carl: Thank you.
Speaker Change: Our next question comes from the line of Mark Murphy with Jpmorgan. Please proceed with your question.
Speaker Change: Yes. Thank you so much.
Speaker Change: First off Carl I'm wondering if you can comment on the adoption of extended <unk> Pro are you seeing signs of.
Speaker Change: Customers building deeper.
Speaker Change: Customization, there or are you seeing any ecosystem revenue.
Speaker Change: Turning on from Isps and partners or.
Speaker Change: The ability to go after adjacencies without having to do that direct product investments.
Speaker Change: Love to hear about how you're feeling about that extend opportunity.
Speaker Change: Yes. Thanks for the question Mark we are absolutely really excited about what's happening around extend and extend pro for the last couple of years, we've been talking about opening up the aperture of the workday platform to allow our customers and partners.
Speaker Change: To innovate on top of our platform and that is paying off last quarter our extend pro.
Speaker Change: Skew more than doubled year over year, and we're seeing more and more both customers and partners leverage add to drive innovation and drive AI applications on the workday platform, where that shows up as it shows up in our workday marketplace, where we had a nice extension of our partners, bringing more and more applications into it to <unk>.
Speaker Change: Sell back to our customers. So we are absolutely excited about the platform approach that we have here at workday, We think it's very significant and if you think about it it's not just extend and extend pro.
Speaker Change: Work in a wellness platform, where we can now partner closer with our benefits.
Speaker Change: Partners or it's things like our global payroll connect we're now through a number of different partners. We can integrate into the workday platform of global payroll platform that can service up to 180 countries around the world. So there's many ways. We are thinking about how we can leverage the platform and how we.
Speaker Change: Can extend innovation, both to our customers and partners and at the same time, we're actually monetizing it too.
Zane Rowe: That's great to hear and then Zane just as a quick follow up.
Zane Rowe: Mentioned, some pretty impressive new logos in <unk>.
Brad Sills: In HCM and I think also is there any approximation for the growth rates in HCM.
Brad Sills: Versus <unk>, plus or the spread between the two or any I'm. Just wondering if you see the fins dedicated sales specialists, maybe ramping the bookings in a way where structure.
Brad Sills: Structurally where you think things would be would be outgrowing HCM in the next couple of years or not.
Brad Sills: Yes, I would just say look we're focused candidly on full suite as a great sales motion in one of our many strengths.
Brad Sills: Both the <unk> and <unk>, both performed really well in particular this quarter. We had as you pointed out a number of things and since plus opportunities in <unk>.
Brad Sills: A great sales motion there.
Speaker Change: Yes, Mark I'll double click on the things as you know we built out a sales force over the last couple of years to focus on selling things and we saw this quarter really good success in our thin sales motion both the number of new units.
Speaker Change: <unk> in new ACB growth year over year, and most importantly, <unk> point, what we're seeing is that pull through in full suite wins, which was 30% of our new wins and in our bigger markets greater than 50% of new sales were full suite, which include both HCM and financials. So we're definitely seeing it pay off.
Speaker Change: Congrats on that and also the amazing margin performance.
Speaker Change: Thanks, Mark Thanks, Mark.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Brian <unk> with Jefferies. Please proceed with your question.
Brian: Good afternoon Zane when you went through the reduction in force I think you indicated that you hope to hire all of those employees back.
Brian: Questions or any given the environment, we're in and some of the uncertainty here.
Brian: Is that still the plan you had really good margin upside how do you think about.
Brian: Cost control in this environment.
Speaker Change: Sure Brent I mean as always we believe we can continue to scale the business and we're consistently looking for efficiencies in the business all of that being said as Karl mentioned on the last call I believe our intention is to grow back we're very thoughtful in those hires and Carl mentioned a couple that.
Speaker Change: Key hires that we've made over the last number of weeks and continue to focus on key growth areas in the business in particular in AI and within our PMT organization. So we continue to focus on organic growth and continue to.
Speaker Change: Filled out the workforce. So we feel good about that all that being said, we're very prudent about where we're hiring how we're hiring in the areas where growing yes, I'd just add Brent. The one thing we are doing as we continue to invest in the business, we see a tremendous opportunity around AI, we're investing heavily in our product and technology organization and we.
Speaker Change: We also continued to invest heavily on the go to market side, So we get better quota carrying capacity and coverage around the world. So our investments aren't slowing down at all.
Speaker Change: Okay. Just a quick follow up Karl let last quarter, you mentioned, a number of really impressive wins in Europe, and I know thats been an area that you're really focused on improving your your efficiency.
Speaker Change: Can you give us an update on what you saw in Europe, what the pipeline looks like and how youre thinking about that thanks.
Speaker Change: Yes, sure Brent So if you recall last quarter, we talked about having a really solid growth quarter in Europe after to be honest most of last year, having a tougher year internationally, we saw a nice rebound and we came right back at the beginning of this year with a solid quarter in Q2, I'm sorry in Q1.
Speaker Change: Here and that was both in EMEA as well as in APAC and we expect that to continue throughout the year at the same time I did call out. It's one of the areas, we're going to keep a close eye on because we do understand there could be more of a macro headwind in those markets should things change materially as people start to think about whether theyre going to invest.
Speaker Change: And U S centric or U S headquarter technology.
Speaker Change: Companies, but right now we're really pleased with the performance I will tell you our competitive win rates are very strong I always say when customers. Finally decides to move forward. The big project around either H R or finance or our full platform. The wins rates, we have our incredibly strong. So we're really pleased with.
Brian: What's going on and we're going to keep forging ahead because of the incredible opportunity we see both in EMEA and APAC and also I should say, Japan as well.
Brian: Great. Thanks.
Speaker Change: Thank you. Our next question comes from the line of Michael <unk> with Wells Fargo. Please proceed with your question.
Speaker Change: Okay, great. Thanks, very much I. Appreciate you taking the question I realize there is more focus on the CRP metric.
Speaker Change: Results there came in fairly strong for the quarter and for the.
Brian: Q2 guide, but the billings growth, we're looking at looks maybe a touch lighter in terms of Q1 I realize it tends to step down seasonally but were there any impacts from some of the different deal types. You've mentioned, we should be mindful of and maybe just walk us through the delta were seeing between backlog and billings and how that could progress throughout the rest of the year.
Speaker Change: Yes, Michael.
Brian: The key there is first off it was in line with our expectation and as you pointed out we actually feel very good about <unk> and <unk> growth. As you also mentioned billings itself does vary on a quarter to quarter basis in those growth rates will vary based on things like payment terms and invoices and things like that.
Brian: Look over the last number of quarters. Many of the industries that we've been growing into are those where they either have longer deployment times or otherwise will allow more flexible payments like education and a lot of the growth areas that we've seen in the business. So for that reason you tend to see a little bit of a drag as it relates to the growth in billings, our unearned revenue.
Brian: So we feel good about it I mean, it's in line with what our expectations, where it's in line with our Ocs guide for the full year. So we're very comfortable with the growth that we're seeing in those industries and in those businesses.
Brian: And just as a follow up if I may and then you mentioned the new buyback for an additional billion could.
Speaker Change: Could you just walk through how youre thinking about capital allocation, a more fluid backdrop, it sounds to us like Youre seeing good success with the higher score recruiting agent capabilities. So just how youre thinking about use of capital in the current environment.
Brian: First and foremost is organic growth and the investments that Carl and I have been talking about for a number of years now into the business. So first and foremost we are focused on that we remain very inquisitive.
Brian: Think of as being quite successful in a number of the strategic inorganic growth opportunities that we've had.
Brian: All that being said, we keep a high bar to that and we consider that.
Brian: Part of part of a broader strategy, but it's something that we are.
Brian: Closely following and and keep them keep an eye on and then in addition to that we're always looking at dilution and returning capital to shareholders through buybacks. So that's how we think about it in that order. Please so obviously have the opportunity to add to the buyback amount as you know we've got just over $500 million less.
Brian: Left in the prior buyback and we thought the timing was good to add to that this quarter.
Brian: Thank you.
Speaker Change: Our next question comes from the line.
Brian: Gentlemen, with Deutsche Bank. Please proceed with your question.
Speaker Change: Great. Thank you so much for taking the question.
Speaker Change: With 25% of customer expansions involving AI and with more products coming down the pipe what level can that number maybe get to and what are you hearing from customers about their <unk> plans and how workday fits into that.
Speaker Change: Yes, sure Brad Yes, we're pleased with our ability to sell the existing AI solutions back into our customer base.
Brian: Last three quarters, it's varied from 25% to 30% of our sales back to base included in AI SKU. So our customers clearly, they're seeing the value that we're bringing them and then as you stated just this week, we announced seven new agents that we'll be bringing to market over the next three to six months as well and what we're hearing from customers is hey.
Brian: We see workday as an incredible platform that has a clean set of data the context behind the data and we also are in the middle of the workflow of everything they do in workday. So they are saying to us we see that value. We know were going to bet on workday as an investment in the future of our AI strategy.
Speaker Change: G M.
Speaker Change: And we're pretty excited about the future of AI, both in our agent strategy as well as our agent system of record to deliver AI to our customers and they're betting on us with their wallets as you can see by our growth on a year over year basis. It was up a 100% and we continue to have the opportunity to sell back into our customer.
Speaker Change: Base.
Speaker Change: That's very helpful and just a quick point of clarification Zane if I may because I've gotten this question from a couple of folks the half a point of contribution to <unk> from services and implementation that you mentioned people are asking if that was already.
Speaker Change: Contemplated in the guide that you had given us and if that was in Q4 any any further clarification I think it would be helpful. Helpful. Thank you sure no. It's a good call out again. These are the tenants. So they have not been included and Werent included in the forecast and they will be included prospectively through the course of FY 'twenty six as I mentioned it was about a half point.
Speaker Change: In the first quarter and about a point for the second quarter, we would expect it to continue on at that run rate beyond the second quarter for the remainder of the year. These are short duration contracts, we're actually including it in part because it's going to become part of the sales motion. We believe that it can grow with the business and we also would expect that.
Speaker Change: Duration to increase as the sales teams have opportunity to focus on it as well.
Speaker Change: Makes perfect sense. Thanks again, thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Karl Keirstead with UBS. Please proceed with your question.
Karl Keirstead: Okay, Great I'll take it back to AI Carlin, saying congrats on the ACD performance around AI products. So I just wanted to ask how you're advising investors to think about the timeframe when youll see real monetization of these products when it can be.
Karl Keirstead: Needle moving is it later this year are you pointing people to next year some thoughts there would be helpful. Thanks.
Speaker Change: Yes. Thanks for the question Karl listen I think we're already seeing strong adoption of our AI solutions by our customers. The growth is up 100% year over year, our customers and our ability to sell back into our customer base is largely driven by AI because they see the value of the agents we have out there today whether.
Speaker Change: So recruiting agent, whether it's talent optimization, whether it's leveraging extend pro for them to build AI solutions on top of the workday platform and just last quarter for the first time, we fully integrated <unk> into workday and we saw significant growth in that platform last quarter, a more than a 100% year or.
Karl Keirstead: For years, So we think it's already moving the needle for us and we're really pleased with the traction we have and the value our customers are seeing from our AI solutions and it's only going to get stronger as we bring to life our agent system of record and the additional seven agents that we announced earlier this week become readily.
Karl Keirstead: Available in the second half of the year.
Karl Keirstead: Okay. Thanks, and then maybe for Zane if you don't mind I can go back to the margins, obviously, 30% pretty outstanding Youre already at the fiscal 'twenty seven targets. So at first blush, it's easy to conclude that maybe that your target has an upward bias, but maybe you could talk through how you and carl or thinking about that growth Mark.
Speaker Change: <unk> trade off in the next two years.
Speaker Change: Your desire to let more of that revenue upside flowed to the bottom line. Thank you.
Karl Keirstead: Yeah sure Karl I'd say first off yeah.
Speaker Change: It wasn't just a one point isolated pointed out there, but I appreciate the call out on Q1.
Speaker Change: We continue to do a number of things to drive efficiencies in the business all that being said as we've highlighted earlier.
Speaker Change: Part of the first quarter success was around those investments that we're making in the business and we've outlined the guide for 2008 and a half. So we have obviously thought about what that looks like through the course of the year as we continue to invest we're well on track and on our way to the 30% that we've called out for our upcoming fiscal year I don't want to get ahead of ourselves.
Speaker Change: As far as our.
Speaker Change: Our ability to achieve that because we see tremendous returns on investment in the business and obviously working with an uncertain macro all that being said, we remain focused on growth and margin expansion and expect to grow that beyond the 30% in future fiscal years as well okay. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Rishi.
Speaker Change: Yes.
Speaker Change: RBC. Please proceed with your question.
Speaker Change: Wonderful. Thanks, so much for taking my questions and nice to see kind of continued resilience in the business.
Speaker Change: I hate to keep sneaking into the background, but it's obviously an important inbound that we keep getting so maybe two macro focused question.
Speaker Change: Number one just to be clear if we think about trends you saw within the quarter would you characterize anything different you saw in the month of April, especially because that was post liberation day on the institution of tariffs if anything to call out there and maybe what you've seen so far this month and then just another quick follow up on the macro.
Zane Rowe: Yes. Thanks for the question Rishi I tried to you know.
Zane Rowe: Capture all of this in my opening comments and then the earlier question. It didn't have any material impact on the quarter. As you can see we had really solid results and a great start to the year.
Zane Rowe: And I don't think much changed as we exited.
Zane Rowe: At the quarter or here early in this quarter, but as I said, we are keeping an eye on certain industries, where we do have a large footprint and we have a lot of momentum that's around state local government.
Zane Rowe: In higher Ed as well as for keeping an eye on the international market to see if theres any blow back from some of the things we're doing.
Zane Rowe: At the macro level here in the U S, but I wouldn't say any big change at this time.
Zane Rowe: But as we always say no one is immune to the potential headwinds that we're facing and we're keeping our eye on them, but let's go back to the value proposition. We have it's extremely strong people see the ROI in workday, they see us as a consolidation platform and they say <unk> is a safe bet for their AI strategy going forward.
Speaker Change: Okay. Thanks, that's really helpful and maybe just to continue on that line of thinking.
Speaker Change: And uncertain macro means customers are going to be a little bit more uncertain, you do have a pretty distinct.
Speaker Change: Clear ROI story that you can tell.
Karl Keirstead: Especially now leveraging a lot of the.
Karl Keirstead: The AI that you're building and there is opportunity to drive real cost savings and efficiency gains maybe how should we be thinking about your ability or how are you thinking about adapting our go to market adapting your messaging kind of around those value propositions and maybe leaning into that more just given what we're seeing out there. Thank you.
Rishi: Yes, Rishi I'd say.
Rishi: We continue to drive a strong narrative and a strong value proposition into our customers both existing and net new around an ROI and a total cost of ownership business benefit.
Karl Keirstead: Workday platform.
Karl Keirstead: You do have more headwinds more people want to consolidate on a platform and a platform. They trust. They do it with workday. They also want to make sure that they are betting on the future of AI and are betting on that future with workday. So everywhere. We look in every conversation with our customers the ROI and total cost of ownership narrative comes up.
Rishi: And we have one of the strongest in the industry and I think that shows through in our results here in Q1.
Rishi: And shows the start to the year and I think that narrative will play out the rest of the year as well.
Rishi: Very helpful. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Alex Zukin with Wolfe Research. Please proceed with your question.
Alex Zukin: Hey, guys. Thanks for taking the question I guess, maybe just.
Rishi: With respect to some of the AI and <unk> launches Carl you talked about already seeing.
Rishi: Some tailwind in terms of adoption of your customer base, maybe where are you guys. Most enthusiastic on that front.
Rishi: Or do you expect that to start to drive maybe maybe not obviously the next two quarters, but over the next 12 months, where do you maybe see the potential for a materiality for growth acceleration.
Rishi: And do you think that it will be.
Rishi: Kind of more adopted maybe down market or up market.
Rishi: In terms of your customer base.
Speaker Change: Thanks for the question, Alex I'm actually going to bring <unk>, our new president and product and technology into the mix here and have him talk about the excitement. He has around our AI strategy and then I'll talk about the growth vectors.
Alex: Yeah, It sounds great. So.
Speaker Change: I am really excited we're really excited because to be approaching AI in a unique way or we are not just driving automation over existing Apis, but really going to the core of the business process and innovating at the car.
Rishi: You talked about the sort of youre doing differently recruiting space, which applies to small and large customers with our recruiting H and customers get a net 54% increase in recruiter capacity out of that no matter. The business size, you talked about our contract intelligence agent, which basically speeds up the vertical of any legal document driven a car.
Rishi: <unk> <unk>.
Rishi: We have customers like Netapp analyzed more than 90000 contracts this way and soft thousands of hours on outside legal spend.
Rishi: And you honestly don't see any limited applicability of price broadly and we introduced <unk> 12 <unk>.
Rishi: Every key leverage point in our business process from hire to retire.
Rishi: As well as in procure to pay and order to cash. So have you intentionally covering the full value of lifecycle and bring it broadly to market.
Rishi: Thanks, Garrett and as far as growth, we see it across all of our.
Rishi: Mark as segments and industries I don't think it is highly differentiated in one versus the other.
Rishi: We're seeing adoption across all of the segments of our AI solutions and we expect that to continue as we bring more and more agents and our agent system of record to life over the next six to 12 months.
Speaker Change: Excellent and maybe just as a follow up then I guess from a capital allocation perspective, how are you looking or thinking about increasingly.
Speaker Change: Tuck ins or strategic opportunities in the context of accelerating.
Speaker Change: Are these.
Speaker Change: AI or <unk> solutions as they come up.
Speaker Change: Increasingly yes, Alex I mean, we remain highly inquisitive Garrett and team are always looking at opportunities to accelerate the technology to bring in.
Speaker Change: Additional talent and of course, I'm always looking for more returns. So I think it complements well we remain very active in complementing the terrific team we have here at workday.
Speaker Change: With tuck ins and other potential acquisitions, so nothing changed on the philosophy. There I think we've got a good track record and we will continue to keep a high bar, but look for some great opportunities.
Speaker Change: Excellent. Thank you guys.
Speaker Change: Thank you.
Speaker Change: And we have time for two more questions.
Speaker Change: Our next question comes from Derek.
Speaker Change: Derrick Wood TD Cowen. Please proceed with your question.
Speaker Change: Great. Thanks, Karl I know the U S. Federal business is still small, but you have been making bigger investments into this vertical over the last year.
Speaker Change: In light of dose could you just give us a sense of how the opportunities are shaping up and is this something that may take a little longer to get off the ground.
Speaker Change: Or are there, perhaps some new transformation opportunities opening it up just curious how you see the U S that opportunity trending both near and longer term.
Speaker Change: Yeah. Thanks Derrick.
Speaker Change: Right over the last couple of years, we have leaned much more aggressively into the federal market.
Speaker Change: We hired a new leader last year, and I think when as having a tremendous impact on our go to market initiatives and driving our product and technology teams to deliver a highly secure platform for the federal government I will tell you. We're very pleased with the level of conversations, we're having and the depth of conversations.
Speaker Change: We're having across all civilian agencies Dod in.
Speaker Change: In the intelligence community they absolutely see the value of workday to help them modernize and antiquated infrastructure that sits on premises today and we think that represents a really huge opportunity for us going forward and we should remember GE does not mean government elimination it means government.
Speaker Change: <unk> and in our conversations with them. They are saying they are willing to invest to drive efficiencies in our federal business and create a new employee experience for our U S federal employees.
Speaker Change: Great real quick for Jane.
Speaker Change: Restructuring complete.
Speaker Change: Are there any other meaningful charges to be expected beyond Q1.
Speaker Change: Yes, and no so.
Speaker Change: Primarily complete.
Speaker Change: No additional charges beyond Q1.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: And our last question comes from Scott Berg.
Speaker Change: <unk> Company. Please proceed with your question.
Scott Berg: Hi, everyone. Thanks for taking my questions I guess, just one for me.
Speaker Change: The release of agents and more agents on the platform are these technologies today.
Speaker Change: I guess how are these technologies impacting your sales cycles, one hand can see them slowing sales cycles down because there's something new to evaluate trying to understand how it fits into our customers' business process, but on the other hand could speed up sales process with the company's ability to get to the final efficiency output more quickly, but how are you seeing.
Speaker Change: These kind of impact those sales cycles today.
Speaker Change: Let's start with selling back to our customer base, we actually see it accelerating our sales cycle. We now have the ability we've talked in the past about creating and closing opportunities within the same quarter or within a 90 day window, we're seeing that happen in large part because of the agents we have.
Speaker Change: <unk> and the value our customers seeing them. So it actually accelerates our ability to sell back into our customer base or net new opportunities I don't think gets elongated at all our sales cycles and again I just wanted to reiterate our customers tell us they are betting on their AI strategy with workday, because they understand that value.
Speaker Change: Our data in the context of the data and the fact that the workflow is built directly into the workday platform. AI is built in it's not bolted on workday and Theyre all leaning into us for the future of their AI strategy.
Speaker Change: Thank you.
Speaker Change: We have reached the end of the question and answer session.
Speaker Change: Uh huh.
Speaker Change: Therefore.
Speaker Change: Thank you for your participation and I'll now turn it over to Mr. Aschenbach for final comments.
Mr. Aschenbach: Thank you operator and again, thank you all for joining the call today.
Mr. Aschenbach: Pleased with our start to FY 'twenty six as we delivered another solid quarter. The diversity of our business continues to be a powerful asset driving balanced performance across new and existing customers industries and geographies.
Mr. Aschenbach: And our illuminate strategy is strongly resonating as more customers recognize that investing in the workday platform is a strategic investment in their AI future.
Mr. Aschenbach: On one of the largest and cleanest HR and financial data sets in our industry with that I will turn the call back over to the operator to close out.
Speaker Change: Thank you and ladies and gentlemen. This does concludes today's conference you may disconnect. Your lines at this time and thank you for your participation have a great day.
Mr. Aschenbach: Okay.
Mr. Aschenbach: Yeah.