Workday, Inc. (WDAY) Earnings Call Transcript & Summary

Please welcome Vice President of Investor Relations, Justin Furby.

Thank you. Thank you, and welcome to Workday Rising and Financial Analyst Day 2022. It is great to be with you all here live in beautiful, sunny, cheery Orlando, Florida for our first in-person Analyst Day in 3 years. And I have to say, I've had the opportunity to walk the floor for the last 10 minutes, and I must say this group ages pretty well. Well, we, too, at Workday, have aged pretty well over the last few years. And as you'll hear throughout the day, our business has scaled considerably since Rising 2019. And that scale has created unique opportunities for us as we think about the next phase of our growth. Before we launch into today's program, I'm going to spend a couple of minutes orienting you on what to expect today for the next couple of hours. To kick things off, you'll hear from our co-CEOs, Aneel Bhusri and Chano Fernandez, who will bring you up to speed on the momentum we've seen in our business and share a bit about our strategy going forward. Then we'll hear from executives across our Strategy and Product and Technology organization on how our relentless innovation continues to expand our market opportunity. We will then go to a short break. And when we return, you'll hear how we're capitalizing all of the innovation to drive enduring profitable growth. And unfortunately, our Co-President, Doug Robinson, was unable to join us today. So for you, you'll be graced by Chano Fernandez the second time for the second section. Barbara will then bring us home on the financial model. And then we'll invite everyone up on stage for Q&A. And we'll have plenty of time to take your questions here in the room. And for those of you here in Orlando at the conclusion of the Q&A, we'll also have a networking reception just outside these doors here. So 2 last things before we get going. First, I just want to recognize that this event takes a lot to put on and would not be possible without the tireless efforts of multiple people, including the fantastic Anne Bawden on the IR team; our [ Designer Extraordinaire Kyle Scutter ]; Danielle Davis in our events team and lots of other people that have helped put this day forward. One last housekeeping item. This is our safe harbor statement. Today's presentation may contain certain forward-looking statements. Some of the matters we'll be discussing today include forward-looking statements regarding our products, strategies, operations, opportunities or financial items that are based on the information we have as of today and our current beliefs with respect to the future of our business. These statements are subject to risks, uncertainties and assumptions. And our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Further information on risks that could affect our results are included in our most recent filings with the SEC, which are available on our IR web page. Okay. With that out of the way, it is my privilege to welcome on to the stage our Co-Founder and Co-CEO, Aneel Bhusri.

Well, welcome, everybody. It's great to see so many familiar faces back in person. Who would have thought the last time we had this event 3 years ago, it would be another 3 years. And I would say during the pandemic, I wasn't sure if it was going to be 3 years or 5 years or 7 years. Who knew? But it's great to be back in person. The world obviously looks very different than it did in 2019. As we come out of the pandemic, I think it's -- as a CEO and talking to a lot of CEOs, we were all hoping after the pandemic, we might get a breather. And instead, we've come into this world where there's so much geopolitical stuff going on. You saw the CPI report today. We've got inflation. I mean it's -- we went from the pandemic to now, what looks like, a tough economic time. So -- but this is becoming old hat for Workday. We've been around long enough to have seen these storms before and weather them. And all we can do is the best we can do. We can't control what happens with the overall economy. We just adjust our business accordingly. What we do -- what we can do is focus on taking care of our people, which I'm very proud of what we did during COVID. We struck the balance of making sure our employees were safe, but also running a solid business during that period of time. And I think we innovated new ways to take care of our customers. With an example of Walmart, and GE, they went live within weeks of each other with not a single person on site. If you had told me before COVID, we could do that, I wouldn't have believed it. But that's actually become some of our best practice work now is our ability to do a lot of work remotely. Although I will say that I, for one, I'm tired of being on Zoom. What we have done, let me just click through this a little bit just to show you the growth we've had since then. What we have done is really focused on continuing to build the foundation. During the last 3 years, we hired 5,000 people. We didn't freeze, we didn't stop innovating. It was tougher to innovate because we're all in different places and we wouldn't get the collaboration. And I'm already seeing it come back really quickly as people are back in the office. I was in Boulder with Chano and the management team last week and our Board of Directors and there were 400 people in the office, and you could just feel the energy of people coming back in the office. We'll be more flexible with how many days people in the office, but we do expect them to come back in starting in early October. And during that period of time, we grew subscription revenues from $2.8 billion to $5 billion, I mean, 80% growth in subscription revenues. And I give Chano and Doug a ton of credit. Our product folks were continuing to build great products. And then our services people really jump through the hoops, you'll hear from Sheri Rhodes later today, to make sure that our customers were still happy and feeling well taken care of even though we couldn't be there in person. From a customer momentum perspective, HR continues to chug along. I know there's always been questions about how mature is this product line. As we dig deeper into the market, as we dig deeper into the medium enterprise opportunity, which has now become a fairly sizable run rate business, you'll hear more about that later, the international opportunity, now the federal opportunity, we still believe there's a ton of room in HR. Now we are over 50% of the Fortune 500. So we get invited to all the dances to compete. And when we compete, like our chances to compete the win rates have remained consistently high during COVID. There were -- there was -- we had win rates going into COVID, they pretty much stayed that way coming out of COVID. The big change, though, is financials really started picking up as we started exiting COVID. We had a great second quarter following a great first quarter. Obviously, we had the big Salesforce.com win, that was a big one for us. But even American Electric Power is another Fortune 500 company. So we're starting to see the flywheel effects. I spent today with KeyBank, who is now live on Workday Financials, a fairly sizable bank. We're diving deeper into financial services, and there's clearly a road map that we can build to really become, I believe, the dominant player for financials in financial services. And there's always been this talk and sometimes you guys write about it about, well, back office can get put on hold during the pandemic and maybe again in a recession. So the first thing I would take issue with is I really just don't see us as back office. That is a client server mindset. When I sit down with a CEO today, one of the top 3 or 4 items is always my talent, my people, my employee engagement. And it all starts with, I've got to change the way I'm running my HR side, I got to move from administrative to truly being a talent-driven organization. You'll hear about what we're doing with skills. But that is the top 5 and you can just look at any survey. So in today's world where we moved away from an asset-centric world to a people-centric world, I don't believe HR is back office. I think it is a front office application and the CHRO has a seat at the table with the CEO almost as much as anybody else in the business. And I think similar things are happening with finance. Finance was put under the gun during COVID. Who knew how the plans were going to evolve. We were changing our plans on a monthly basis. No one had been through this before, and finance had to step up. Now in some cases, that meant projects were delayed because they were just trying to keep the lights on. But as we come out of the pandemic, people realize the weaknesses of the legacy systems, the weaknesses of planning and execution, analytics systems not being connected, old line planning system, old line execution system. They couldn't keep up with the changes in business. And so we're actually seeing people come to market now who have been really cautious before because they realized they can't keep doing business the way that they do. So I do think that, that focus on being mission-critical is really core to who we are. These are mission-critical systems. Maybe they're not the ones that are the most exciting systems that have been called historically back office, but I really think that, that has changed. And I attribute that change and our strong execution to why we were able to weather the pandemic the way we did and why we've been weathering this new economic realities to where we are. Chano's going to get up now shortly and talk about the market landscape from a customer perspective and a growth strategy and I'll be around for questions. Again, great to see so many friendly faces here. I hope you're all enjoying being in Orlando and being together. This is my first in-person meeting other than our sales kickoff a few months ago. So I'm having a ball. And it is different being able to walk around rather than not being able to move because you can't -- because the Zoom camera doesn't follow. So with that, I'm going to give it to you, Chano.

Thank you, Aneel. He was telling me he felt a bit rusty on a stage, but I don't think so, he's really authentic. Anyhow, as Aneel said, great seeing many of you, some of you that have joined us for years before and welcome to all of you that is the first time that are at the Financial Analyst Day. I mean -- I'm really lucky to spend significant time talking to customers. And honestly is the best part of my job, all of them maybe talking to you. On my countless conversations with customers, what I can tell you is that a lot has evolved in terms of the needs from the customers during the last few years. But there is something that clearly states they're very strong. And that is digital transformation remains at the top of their agendas. And if you had opportunity to walk the corridors and talk to them, hopefully, that gets reconfirmed, right? And clearly, there are a few core challenges that cuts across, I would say, the C-suite, geographies and industries. And that is customers are facing tremendous amount of change. And the ability that they have in order they need to adapt and be agile is more important than ever. And there is where I feel that we are partnering and supporting them. And they're facing much more complexity as well, which is really impacting the way they're managing their businesses and the way they are managing their workforces, too. As Aneel shared before and commented also this morning, customers are really the driving force behind all the innovation we're building. And we're committing to really helping them to thrive and adapt in the changing world and the changing economy that they're going through. And many of you know, we strive to maintain a 95% customer satisfaction rating for our customers. And I'm pleased to announce that in 2022, we did it again as we have for the last 13 years in a row, which we are very pleased about. Because this is why we exist. We exist to provide the right solutions to deliver a great experience for our community of change makers. And that is what is relevant and important to us. So I want to touch base on a few of the growth opportunities as we may -- we move to the new -- next phase, which is to be coming, as you know, a $10 billion company and basically ensuring that through that journey we'll keep a 20% plus subscription revenue growth. And we covered this last year and last time we worked together and at that time through Zoom, but I think it is important because these are the drivers that are moving our growth going forward, which we'll cover much more in detail. But as well, the strategies and the key initiatives we're mainly focused on and what we're driving most of the investments that we're doing. Clearly, office of the CHRO, where our strategy is to keep winning the core here, right, and keeping and maintaining, expanding our leadership position. When it comes to the office of the CFO, what we're focused on is expanding market share and becoming the dominant player in the services-based industries. And hopefully, we'll show you some data later on that will give you a little bit more confidence on the progress that we're having in that journey. International, as we always say, is crucial to driving both Office of the CHRO and Office of the CFO growth and a key growth vector for us going forward. And today, medium enterprise remains a very strong fit and ones where platform or suite platform, as we describe it, Office of the CHRO and Office of the CFO is super relevant and is the way those companies are buying. So a few other areas of focus you're going to hear on today and potentially these are more ones that we have commented less or least on the past, right? We have a massive opportunity to deliver value through our winning partnerships. And if you've been through at the conference, you've been hearing about industry-driven partnerships, and you've been hearing about the industry accelerators. And those we are building them with our SIs. And again, that's a great opportunity of growth going forward that Sam will touch base on. So with that as a high-level set up, let's get more into detail, and I want to welcome on stage, Peter Schlampp, our Chief Strategy Officer. Pete?

Thank you, Chano, and welcome, everybody, to Orlando. Thank you for coming out here. It is great to be back at our first Financial Analyst Day since 2019. Since then, lots has changed, including almost doubling our subscription revenue since that point. It's amazing to think that we've come that far in just the amount of time since we've been together. My role is Chief Strategy Officer and the objective of that is to help us chart the course to $10 billion and beyond as efficiently and as quickly as possible. And I got to tell you, it is a great time to be responsible for strategy here at Workday. I want to, first of all, just talk about our opportunity. And our opportunity for truly long-term growth, I believe, is pretty incredible. Our opportunity has, in fact, increased about 20% in the last year to $125 billion. So of that, approximately $20 billion of expansion, let me drill into that just a little bit, the majority actually is coming out of the human capital management market which might be a bit of a surprise. So let's talk about that a bit. So if you go into that 3/4 of the expansion that comes from HCM, about 9% -- or about $9 billion of that is coming from organic growth of the market itself and about $6 billion of that is coming from new markets that we've gotten into in the HCM space. If you look at the rest of that, then it's financial management. As you think about the financial management market, the majority of that has been organic growth. And we've spent a lot of time improving our product market fit within the financial management market. By the way, I should mention that the financial management market is clearly a larger market to begin with, to grow on and we've been increasing our product market fit in that market so that we can increase our win rates. So not only is our market opportunity very significant but we are according to Gartner, the market share leader in cloud-based ERP from a revenue standpoint coming in at 19.1%. And as you look at those 3 top companies up there, we are the only one of those 3 that is gaining share according to Gartner. So that's the cloud ERP market. Gartner also, of course, measures who is the leader in the market. We have been lucky enough to be the leader year after year in Cloud Human Capital Management suites. They also have a new Magic Quadrant this year as well. We are a leader as in the Service-Centric ERP space as well. And as we speak, Gartner is in the process of delivering a new planning Magic Quadrant as well. So opportunity, share, leadership from an innovation, vision and execution standpoint. And the result of that is we get to have massive scale as a business. I thought this was a really interesting view of our business. If you think about now, we announced that we have 60 million users using Workday on a regular basis. And so if you look at Okta's at Work Report, which measures unique logins into software, if you look at the enterprise software players, we are second only to Microsoft 365, which is pretty incredible. So you can see what we have to handle from a scale standpoint, from the infrastructure, but also this has implications on what we're going to be able to do and build going forward when it comes to data, and it plays right into our -- the points of leverage that we look at in our business model. So let's talk about that. Our business model is thriving and it is because we look at these points of leverage that we can take. And it begins with what we do at the core. Fundamentally, what Workday does is we take offline processes, and we digitize them. And what we do is we look for processes that are common processes across different industries and then we can leverage those across customers within industries. And if customers have differences between their different businesses, we ask them to configure not customize. That allows us to kind of stamp it at once and apply it over and over and over again. We win -- once we have that, we win systems of record. Those systems of record are very sticky for our customers. They are the heart of the customers' data. They are the digital system or record of truth of what's happening in their physical world. Once we have a customer, we focus maniacally on their customer success. And you'll see that today, if you have a chance to go and speak to our customers at Rising, just ask a couple of them, and you'll see how much we focus on their success. That comes through our CX organization. We make sure that it comes through with our partners. It also comes through in our focus on our user experience as well. We want them to love Workday, and continue to come back to us. We build our products on a single platform. From a technology standpoint, that's fantastic. One of the big benefits of that is a single data model. So all the data goes into a single data model across all of those applications. That allows us also to build applications that work better together than they do stand-alone. That's a big differentiator for us. It also, if you think about it from a data model standpoint, allows us to leverage this data, and I'll talk about that in a second. As all of these applications work, as all these transactions happen, we record it in the Workday service. And when we do that, we can leverage that data to build better applications, but also to do machine learning on it. And when we're able to do machine learning on it, we're able to do a few things. One is provide better personalized experiences, better insights, more automated workflows. Finally, when we get all the way up this step -- all the way up these points of leverage, we get to a point where our customers love us, we've got the best applications, the best data, we've earned the right to sell more products back to those customers. So let's talk about the office of the CHRO for a second. A couple of areas that we think that we are uniquely different in the office of the CHRO. First of all, starting with the fact that we are the most trusted brand in HR software. Over 50% of the Fortune 500 are now using Workday as their core system of record for HR. And as you get higher up the stack in the Fortune 100, Fortune 50, et cetera, that percentage actually gets higher. And again, we've really focused on that because we believe our customers are our best marketers and our best salespeople. Our customers trust us, they come to events like Rising and they want to hear about what the new things are that they can use, what's the new value that they can get out of Workday. We also have the broadest portfolio of HR software that I mentioned together works -- before, work better together. We have the world's most scalable people data cloud. We talked about today having over 1,500 customers live on the Skills Cloud and over 5.7 billion verified skills on the Skills Cloud. Nobody comes close, nobody touches that. And that innovation goes into our products like recruiting and learning, the talent marketplace and other products in the future. And we did that by building an ML foundation, machine learning foundation, underneath that will allow us to add more ML in the future, like the Skills Cloud that will be very hard to replicate in the space. So as I mentioned, we focus on landing those core systems of record, those core HCM wins. But once we do that, we're able to then invest, sell more of our other products and invest in making those products better. I'll talk, for instance, about recruiting, where we are becoming an industry standard, but we still see significant opportunity ahead. So we have just announced 2 new products in this space, Candidate Engagement and Messaging. Candidate Engagement, think of it as like the CRM for recruiting. So we can add more products even into the subproduct spaces. Learning, where we are quickly becoming an industry leader. We're opening up new opportunities there with our connected learning platform by introducing Cloud Connect for Learning. This is a business that is driving significant new attach rates because companies are investing so much in reskilling their employees right now. And then the Talent Optimization market. We are leveraging that skills foundation that we had to create one of the fastest-growing SKUs that we have -- ever had at Workday. As I mentioned, over 1,500 customers today using the Talent Optimization product. And this is only half the story. Just earlier this year, in February, we closed the acquisition of VNDLY which enabled us to bring in the extended workforce into this sphere. Now the extended workforce, those are contingent workers, gig workers, statement of work type of labor. And as macro conditions change, workers want more flexibility, employers want more flexibility as well and projections are that nearly half of the U.S. workforce by 2027 is going to be the extended workforce. So now Workday is the one system of record for all of your full-time, hourly and extended workforce. And we can sell our products back into that population as well. We're increasingly pursuing innovation to address the frontline workers. And that includes things like payroll and time tracking, absence management, scheduling. And that's enabling us to go into markets -- areas that have high frontline worker counts, areas like the U.K., France, Germany and Australia, as well as industries like retail, hospitality, health care and manufacturing. You're going to see a lot more of this in the presentation from David and Terrance in just a little while. Okay, let's switch over to the office of the CFO. The headline here is we are all in on industry. If you heard us this morning, you heard us talk about industry, industry, industry, and that is what's really driving our growth inside the office of the CFO. We are leading in the service-based industries. Those industries where people are at the center of their business. And having the proximity to our human capital management system is a huge benefit when it comes to selecting the financial management products. We also have focused on building a system, where planning, execution, and that's the transactional part of the system and analysis are together in a single system, enabling customers to do that cycle. We like to say everybody plans. Everybody does plan, execute and analyze. And having that in a single system, being able to make those cycles faster is a huge benefit and a differentiator for us in our space. You heard Chano talk about our value proposition and how important adaptability is right now. Change is coming at businesses everywhere. And having a system that enables our customers to change is incredibly important for them. And so we, especially on the office of the CFO, it's important that our products are easily changeable. When something changes, customers can make changes to the -- our product in hours not weeks or months. And finally, the composability of our platform is also a large differentiator. When I say composability, I mean the ability to take other clouds and connect them together with the Workday system. And that is by using products like Extend and Prism and Adaptive. That composability enables our customers to bring together data from the back office, the middle office and the front office altogether in a single system, giving CFOs visibility into the entire business. So this is an example of the financial services industry, being able to, for instance, take policy and claims, get loans, deposits and credit cards. Pull that in via accounting center gives the CFO visibility across the entire landscape of the business. And so this morning, we announced industry accelerators from Workday. And what those are, it's our way to involve our GSI partners as well as our ISV ecosystem to drive more value for our customers on an industry basis. And our key partners in this that we announced today, Accenture, Deloitte, KPMG and PwC, are all in with us. They're bringing their industry expertise into this program. What are they? 3 parts to the program. One is we want to accelerate the CFO's transition to the cloud. And so we're taking all the expertise that we've had for years within those industries and our partners have had within those industries and essentially making templates, packaged services solutions, et cetera, to allow our customers to move to the cloud faster, that's one. Two, the software ecosystem are creating specialized connectors to the different clouds and on-premises systems to essentially make that front, middle and back office connect faster. And three, a set of industry-specific solutions that we are developing, but also our partners are developing and our customers are developing together that essentially are -- make it a better fit for their industry. So this all accounts for -- it all comes down to a better focus on industry. And you heard in our last earnings call a few weeks ago, are us getting to the point where we have our first industry where we have a $1 billion run rate in our subscription revenue, which is financial services. But this is the first. We think about it as the first. We've got a few more that are right behind it. Again, those very service-centric industries, health care, government, professional services and education. And then as we continue to move on, we'll see the other industries that we focus a lot on in -- with our Human Capital Management solutions, tech and media, retail and hospitality, government and transportation. So let's talk just for a second about M&A, but I'm going to be a little bit -- I'm not going to give you exactly what you want. I'm going to start by saying our primary focus at Workday is to innovate organically. Everything I just told you about how we build things together, products work better together, et cetera, that happens because we focus on organic innovation. You're going to hear from Sayan and Terrance and David talk about that in a little while. But in certain cases -- in a few cases, we do pursue M&A where we can get into a market faster. There's a technology that's unique or we need to deepen our expertise in a certain industry vertical. A couple of examples. So with Platfora and with Stories, we were able to take technology, bring that in, and that yielded businesses for us like Prism, Accounting Center, People Analytics. Peakon, Voice of the Employee, VNDLY, extended workforce. Those were markets that had gotten -- they had gotten a head start. We looked at them, they were ahead of us. We weren't going to be able to get to where they were in time. So we said those were the right acquisitions for us in those 2 spaces or you could look at Zimit, which helped us in the professional services industry because that is a service-based CPQ or configure price quoting system. So we are very specific, there's a high bar when we decided to do M&A. And again, the culture needs to be right, the talent needs to be right, the product has to be right, the team has to be right. There's a high bar there. So we are, as you can hopefully tell from my talk, we're really excited about our long-term opportunities. We feel like we have great sustainable differentiation. These points of leverage that are going to serve us well for some time and an expanding opportunity for us to take advantage of. So now I'm going to turn it over to Sayan, who's going to talk about how we're investing in our applications and our technology. Thanks very much.

Good afternoon, everyone. Since the last time we've met, I've taken on a new role leading all of Product and Technology at Workday. And I thought some of the key reasons that we took [ PT ] and made it P&T are really salient to the conversation we're having today. A lot of what we need to do going forward involves cross-cutting initiatives that touch both the platform and the applications. In fact, all of our most critical initiatives span both technology and product teams. And increasingly, the lines between our applications and our platform are becoming blurred. We're delivering and will be delivering applications that fall outside of traditional enterprise boundaries. We're talking more about that in a minute. But overall, we believe that by bringing these teams together, we'll see increased alignment, increased efficiency and greater leverage. Pete just spoke about our significant market expansion opportunities across a number of growth vectors and how we're uniquely positioned, whether by industry, by geography or by persona. We've grown by every measure, and some of that success is because we've never been content to stand still with our platform. Workday has always been focused both on what we need now and what we need in the future, what's going to carry us to $10 billion and what's going to carry us beyond that. Our fundamental goal is to make Workday the preferred business operating platform for the present and future to support our customers in their continued success. We evolved our architecture to the point where it supports some of the largest customers in the world, more than 60 million users on the platform, and it's growing. And the great thing about our architecture is that because of some of the foundational decisions that we made right at the start, we've been able to continue to evolve to meet every challenge we face so far and to do so in a way that really hasn't been disruptive to our customers. So I'd like to take a quick look at what we got right from the start, how we create a platform that's built for change and illustrate these founding principles that are still at the heart of our incredibly exciting journey. We began in the cloud. And as we all know in those days, the public cloud was immature. So we built our own data centers to deliver a best-in-class service to our customers. We started with an in-memory object model, and that was different than anything our competitors were doing at the time. And that approach has given us a lot of advantages down the road. By deeply integrating business processes into the platform, we gave our customers flexibility and adaptability to solve their current problems but also future problems. By deeply integrating machine learning into the platform instead of making it a feature or an application, we gave every customer the ability to improve and speed their decision-making. This is all at the heart of what we refer to as our intelligent data core. And that's where we integrate data, security, workflow and processing together, and we've done that from the very beginning. We've also placed all customers on a single code line. That ensures that everyone is running the exact same version of Workday everywhere. They're updated all the time and no customer was left behind, and there are no disruptive upgrades. We are also reliable with the best-in-class SLA at 99.7% and an actual measured performance year-to-date, of 99.97%. We're scalable. We serve, as I mentioned, over 60 million users right now and over 440 billion transactions a year, and that's growing by 67% year-over-year. We're performant, over 96% of all transactions at Workday completed in less than a second. And our user experience is ambient. We're accessible from wherever you are. So that's the web and that's native mobile, of course, but that's also SMS or it can be a natural workspaces like Teams or Slack. And of course, we're secure. Security is paramount at Workday. All Workday apps are governed under a common configurable security model, and our cloud experience is governed by privacy and security foremost. Our architecture has evolved as our customers and their needs have grown and changed. Well, it might be recognizable from afar to somebody in 2005. It's unrecognizable in the detail now. We've converted our monolithic structure into horizontally scaled microservices. That's improved resilience and performance. We've also integrated our acquired solutions like planning and analytics to handle these workloads that our original architecture wasn't optimized for. And all this has happened and continues to happen behind the scenes. It's ideally without our customers ever really noticing unless and until they tap into our latest features and see the benefits from this ongoing commitment to innovation. By any metric you want to consider, so that's number of customers, it's number of users, numbers of transactions, our data under management, we continue to grow all while supporting and innovating for our customers. The existential question we asked ourselves at the founding of Workday was can we effectively deliver a cloud platform for managing the money and people of the world's largest and most demanding companies? And over the last 17 years, we've answered that question again and again with a resounding yes. So now we have to answer a different question. How do you build on this success, not be complacent and continue to be transformative? And so in this next phase, we will do that by providing nonlinear leverage, both for Workday and for our customers by harnessing our own innovation and the innovation across the industry. Our customers have firsthand experienced the benefits of the evolution of our products and technology, but now they get to experience the revolution that builds on that. One evolution was offering our customers the ability to leverage a public cloud alongside of our own data centers. But the revolution will be public cloud first, where we blend the innovations that Workday delivers with the continuous innovation from our public cloud partners. And the public cloud provides us with unique advantages. It makes global expansion easier, it allows our customers to more easily meet local or regional data residency requirements and it decreases Workday's own capital expenditures and our time to market. The public cloud maximizes the effectiveness of our solutions as well. These hard boundaries of specific applications fitting specific categories are blurring. Our unique architecture allows us to build apps that combine different kinds of workloads, and it more effectively solves our customers' business problems. And public cloud helps us deploy, optimize and scale these applications more effectively. It also gives us access to technology that strengthens many of our own offerings. In many cases, we can replace components that we used to develop ourselves with public cloud options. It's -- the key innovation of yesterday becomes the undifferentiated heavy lifting of tomorrow, and we are able to move our own development resources forward. You've all seen today evolution in how we've launched Workday Extend to put the power of our own development platform into our customers' and partners' hands. They can build their own applications for their specific needs, but with the same look and feel as Workday, they can leverage our security model, our business process flows and allows them to operate with much higher speed, better security and lower cost and alternatives. Already, we have over 750 applications built on Extend, allowing customers to reduce or simplify their technology footprint, to address immediate or novel problems or to differentiate their business operationally or culturally. With Extend, they also get Workday Orchestrate and that allows them to drive complex business processes into Workday or drive complex business processes out of Workday. You've probably also heard our announcement today about Workday App Builder, which provides that same set of Extend capabilities to the business user not just the developer. Our revolution is going to be an API-first platform, opening up many, many more possibilities for customers and partners to use Workday as a fundamental building block of their enterprise. And finally, machine learning. You've seen our evolution since the beginning. Workday has always built ML into the fabric of our platform with capabilities like Skills Cloud. From the outset, we realized that ML was not a feature, it wasn't an application, it was actually a transformation of the traditional software paradigm. And the revolution will be that we'll take this to its logical conclusion. ML will be at the heart of everything we do. This is going to enable our customers, of course, to make better decisions faster. But it also allows us to use ML to optimize, secure and operate our own service. And we'll do all of this while staying true to our founding values. We'll make sure that these technologies augment and enable people. They reduce bias rather than perpetuating it. All of these revolutions will show you how we continue to deliver on our promise to innovate on behalf of all of our customers. We've evolved our platform while holding true to the central principles that are unique to Workday and have been essential in our success to date. And now we're embarking on a revolutionary journey, allowing our customers to get far more out of Workday as a platform, leveraging it as an essential foundation for how they operate their enterprise. With that, I think I've set the stage for how our customers are taking advantage of the capabilities we provide them. And that doesn't matter whether that's in financials, HR, planning, analytics, procurement or beyond. So I'm going to hand it over to our GM of Financials, Terrance Wampler. Thanks, Terrance.

All right. Thank you, folks. So I'm Terrance Wampler, I'm the Group GM for OCFO product area. I've been at Workday for 3 years now, but I was at Oracle for 25 years before that, building financial software. So over the next few minutes, what I want to do with you guys is kind of introduce you to our product strategy, our vision for what we want to do around our OCFO buying center. I want to talk to you about a few key product innovations that we're delivering. And then I also want to give you a few customer success stories. So with that, let's get started. So the first thing we want to talk about is we have our vision. And our vision is to unlock the potential of the processes, people and data for every CFO. Now what we mean by that is we basically want to help finance evolve into a high-functioning collaborative team that the business trusts and respects. We move them into a strategic adviser role out of kind of that transaction operator role. Now the way that we're going to do that is by a simple 4-part product strategy. So the first thing we're going to do is we're going to meet our customers where they are. What that means for us is some of what Pete talked about, we're going to go really deep in industry. And the way we're going to go deep in the industry is a combination of building out very specific industry features within our product set. And second, by making sure that we integrate to industry-specific ISVs in a meaningful way that our customers can use and that shows we understand their IT ecosystem as we go forward. The second thing we're going to do is enable organizational agility. And we're going to do that by allowing them to adapt to change, and we'll talk about some of the ways that works inside our system. Third is we're going to deliver trusted business intelligence or business insight. And we're going to do that by making sure that we can unite data across the customer's ecosystem in a meaningful way for them. And finally, we're going to create intelligent business processes by essentially infusing them with machine learning and making sure that we can eliminate risk and all manual intervention as we go through and do it. Okay. So Sayan had referred to Workday as a fundamental building block for our customers' enterprise. One of the really neat things about our architecture is that we can use those building blocks to actually build out across industries. And let's talk about how we're going to do that. So first, as we automate most of this back-office processing, finance can then focus on the analysis of the middle and front offices. And the middle office is kind of where the magic is at. So that's where they're going to be able to do their cost and profitability analysis. This is where they're going to be able to do their risk management. This is where they're going to be able to do revenue optimization. This is even where they're going to do some business modeling and figure out what they might do and where they might grow. And of course, that front office is going to be where the industry-specific applications, the ISV solutions usually, they're the customer-facing things that we have. So as we go forward, one of the things you'll see is the middle office is where finance can be a little bit more strategic. And it gets really industry-specific really fast. But we think that we're really well positioned to support this middle office revolution. And we think we can do that because we have a set of product capabilities by industry within these solutions in the middle office, but we also have the ability with our intelligent data hub to be able to deliver virtual ledgers and other things for these customers. Now Sayan had talked about the idea that with our intelligent data core, our partners as well as our customers can actually blend data and they can even build out their own applications in this kind of middle office. So some examples around that is we have PwC build out Funds Transfer Pricing for banking. We've had Workday Services build out Net Patient Revenue for hospitals. And we even had Huron build out Demand Planning for professional services. So some good examples about how we're building, plus we're partnering with our ISVs and our SIs to actually get these comprehensive industry solutions for the OCFO. Now to illustrate some very specific examples of what we're investing in within product, let's talk about a few examples. So first is for professional services. And there, we're building out CPQ for services. So I think about this as like a guided selling solution where I'm going to be able to figure out pricing, quoting, that sort of in an automated way. And because it's for services, what I want you guys to imagine is a really complex statement of work that somebody does on a project being highly automated and how you build it out, just like you might for a product, CPQ. Another example is in health care, and we're building out Mobile Inventory User Experience. This is where a nurse or another first responder can basically order or at least check inventory levels for really important things like medicine or medical supplies. And they do it on their phone because nobody has time to actually go to a laptop or something else. And then finally, we're making a big investment around Subscription Management. And this is where you're going to be able to go construct your innovative product offerings because you're looking for that continuous revenue model and you want to be able to have that recurring model happen. And so let's take a little bit of a dive into what that solution looks like. So first, today, virtually every industry is either moving to adopt or at least incorporate a subscription model into their business, right? And so as these people try to figure out this predictable recurring revenue and build that model, they're going to need a subscription management solution. So while this is going to be targeted at first for some specific industries, we think this will apply to lots of places that might have embedded services or other things in their business. Now as they do this, you can see here we're going to have the ability to see their new customers, new subscriptions, their renewals, their average contract value and other things. But also remember that we're going to be adding some of that intelligence, some of that machine learning, and we're going to be able to drive things like take action on revenue, take action on billing, help you with forecasting and collection activities. All right. Now the next thing we want to talk about is details around enabling the agility in your organization. And one key for us to be able to do that is our adaptable cloud architecture. And a great example for us is in our planning solution. So what's happened here is we have customers that are modeling lots of dimensions and doing lots of things over time. But we now have customers that are modeling huge complex models up to 100,000 levels or planning activities as they do it. And we also have customers that are doing planning around workforce management and they're modeling this around hundreds of thousands of employees. So it has a high scale and companies can do a lot of adoption. And to kind of illustrate this agility at scale in action, I want to give you a reference. So Team Car Care who is the largest Jiffy Lube franchiser, they have about 500 stores and around 5,000 employees. Well, they're basically using our Predictive Planning Capability to forecast how many guests per day per half hour increment they're going to have in their stores. And the way they're increasing accuracy is by emerging historical guest data and guest visits with external data like weather. And then they can predict how people will come into the office. And you can imagine that affects workforce scheduling as well as it has financial repercussions. It also has them think about business models about how to entice people in on days that might be slow with some sort of incentive or discount. So really powerful stuff and how to be agile in terms of what you're building. Okay. Now we think a key to improving the lives of finance. We're going to unleash the potential of their people. So we think a key to improving the lives of finance professionals is to be able to provide them with accurate, timely information that they trust. So this is all about unleashing the potential of that data that's usually are already curated by finance. And we think this starts with a unified reporting platform where the enterprise and operational data is connected to that people and finance details. And we think we're really well suited to do that. Now another good example to give you a customer case of this is one of our customers in the trucking industry. They provide local long distance and international move services. One of the things they've done is they've leveraged our Prism Analytics solution to basically mix data from their fleet management, their billing system, their customer satisfaction and even their operation systems to basically generate a general manager dashboard that works for each of their depots. But what's really nice about this is now these managers can view a profit and loss by each driver. And with this, they can determine which drivers are most profitable, they can figure out and make recommendations on whether that driver should lease or buy the truck. And then they can even figure out whether drivers should be able to receive an advance on their pay as they go. So improving employee satisfaction, profitability, all those kind of things. Now Workday Accounting Center has been at the core of our intelligent data model here for a while. We introduced this in 2021 and it was primarily a solution for our financial services organizations as they're trying to bring loan data or other business data into their accounting environment and need a better, more powerful way to do that. But we're about 1.5 years later now, and we have almost 100 customers, and they're mostly large enterprise customers, and they're across about 7 industries that we're talking about. And to give you guys some data points about what's happening here, Fannie Mae, they've processed around 350 billion rows of loan data through our Accounting Center already. And then in another example, Sharp Healthcare, they've taken their medical record system, and they've paired that with some of the people in finance data and Workday. And now they have visibility into their entire patient revenue process at a nice level. And so that's that middle office kind of merging with that data core that we're talking about. Okay. Now finally, what we're going to get to is our Intelligent Business Process. We're at Workday taking a very holistic approach to how we're going to enable this intelligent automation. And we're going to do it through the entire life cycle of a transaction, and we're going to do it across all key flows. So it's pervasive for us in what we're doing. And by doing so, we're not only going to be able to automate these business transactions so that they accurately process by themselves. But we're also going to provide recommendations on what might need to be changed in configuration, policy or even a transaction. So we have a combination of things where we have automated transactions. So think about things like journals or expense receipts or purchase orders or invoices and cash applications. But we also have recommendation solutions, so things like Journal Insights that will identify anomalies in accounting patterns or Expense Protect, which actually looks for fraud and expense items. And more importantly, we're actually really excited to be looking at additional use cases. So things like self-reconciling accounts or predictive planning or supplier contract reviews or even flux analysis. So we think that's great. And we see incredible adoption and interest from our customers in these solutions. So we're getting a lot of help, and we're getting the models to be built out because we're using a lot more data. Okay. So we really think these innovations that I spoke of are helping usher in a new era of finance for our customers. And we think we're going to be able to unlock the potential of the people, processes and data of every CFO. All right. David, with that, I'll turn it over to you for CHRO.

Good afternoon, everyone. I'm David Somers. I'm the Group General Manager for the Office of the CHRO products here at Workday. And my background is in innovation through start-ups, and I joined Workday 4 years ago through the acquisition of my company Rallyteam. And it takes an innovation mindset to really leverage the Workday platform capabilities that Sayan just walked everybody through a bit ago. And that's exactly what we've done in my group in the Office of the CHRO to execute on our mission, which is to create the future of work. And we've not only built what our customers need to adapt and evolve today, but what they rely on to revolutionize the way they hire, develop and optimize their talent. As you've heard today, we are the market leader in the HCM space, and that affords us a unique opportunity to really expand our footprint across our customer base. And today, I want to dive a little bit further into a few of those opportunities for you. First, with Skills Cloud and the product innovation and growth that surrounds that. Second, empowering the frontline worker and the manager. And finally, expanding our scope from beyond the traditional workforce to the extended workforce. Here at Workday, we believe that skills are the foundation for the future of work. And it's because of the Workday platform that we're able to put skills at the center of everything we do. With our continued investment in machine learning-enabled applications, we've seen significant momentum and adoption across our customer base. We have over 1,300 customers live today on Skills Cloud. And since its launch in 2018, the use of skills has grown from roughly 25 million instances across all customer tenants to more than 5.7 billion today. And our customers use this data to understand the capabilities of their workforce and run their business. So we've accelerated our road map, and we've delivered product features like recommended skills on jobs and skill assessments. If you listen to the keynote this morning, I made a big announcement, we've opened up our Workday Skills Cloud and we've delivered a set of APIs and prebuilt ontology mappings that allow for a bidirectional flow of skills with third-party systems. With Workday, customers can make skills the foundation for their entire talent strategy. In fact, we're the only vendor who can really do this. And to do this, you need more than just a list of skills. You actually need a robust and scalable skills infrastructure. You need skills and machine learning capabilities actually embedded within all of your application footprint. You need sophisticated annotation technology. And finally, you need performant tooling to review and manage things like skill mappings. Skills also drive many of the application innovations and growth here at Workday. An example of this is in Talent Optimization. We're revolutionizing the way people manage their careers. And up until now, careers have been defined by HR teams really from the top down. Our Talent Optimization solution creates a connected talent experience, linking skill development to career opportunities. This really shifts the dynamic and puts career pathing back into the hands of the employee. Once again, if you listen to the keynote, we're actually going to take this one step further, we're bringing all employee performance, data and feedback data into a continuous agile performance process. This will give managers a more active role in developing and coaching their teams, enabling more meaningful one-on-ones and positively affecting things like employee attrition. And not to steal Chano's thunder, but there's so much momentum with our Talent Optimization solutions. It's one of our fastest-growing products ever, and we're just getting started. And we've also leaned into our market leadership in HCM to become the market leader in recruiting with nearly 75% of our customer base using Workday Recruiting today. But there's so much more opportunity in the broader recruiting market and we're expanding our road map even further. With the addition of new products like Candidate Engagement and Messaging, we're providing a powerful way to personalize recruitment marketing activities and really open up the communication channels between recruiters and candidates. Another long-standing market that's being transformed with the advent of skills is that of learning. Delivering learning based on current skill levels, business needs and career aspirations makes it more relevant and impactful for both the learner and the organization. And we're quickly becoming a leader in learning, and we're really taking advantage of the current market disruption with the legacy vendors in that space. We've seen significant momentum in this area as well, and we now have more than 2,000 learning customers. Over the last few years, we've seen firsthand how critical the frontline workforce is to business continuity. So we've continued to innovate and deliver new products like scheduling and labor optimization. These products leverage AI at their core, and we can generate things like the optimal shift schedules that match worker preferences with business constraints in Workday HCM and finance and even third-party systems. Workday is uniquely positioned to support the frontline worker. Everything from tactical check-in, check-out to shift swapping and the ability to get paid when they need it, all with an effortless intuitive experience. And everything is tuned to the modality that they use most, mobile. And our workforce management investments in time tracking, absence and scheduling are also key for industry growth into retail and hospitality as well as manufacturing. And we continue to expand our global payroll capabilities along with regionalizing HCM features in places like Germany and Australia to gain more market traction. And over time, we expect to enhance regional and global features in these areas, along with deepening our partner relationships in major markets, which Sam will talk about here in just a bit. And finally, the extended workforce is a key strategic lever that's becoming more and more important to many of our customers. With VNDLY now fully integrated into Workday HCM, we're enabling our customers to streamline sourcing and management of their contingent, freelance and outsourced talent. Today, Workday acts as a hub triggering downstream systems and reporting for visibility and insight. And our near-term road map includes enabling direct sourcing of extended labor and assigning required learning as well as connecting skills and talent mobility programs. And as we continue to expand the product, we'll infuse machine learning across the VNDLY application. This will allow customers to determine the optimal path for hiring talent, either full-time or contingent based on real-time labor costs and skill availability. Our strategy for the office of the CHRO is well aligned with our customers' most pressing needs with our investments in Workday's skills platform, focus on empowering the frontline workers and managers and expanding beyond the traditional workforce to the extended workforce. This really puts us on a solid growth trajectory. And with that, we're going to head into a 5-minute break. And when we return, you're going to hear about how we're capitalizing on all of this great innovation that we just talked about. Thank you. [Break]

Please welcome Chief Customer Officer, Sheri Rhodes.

I'm Sheri Rhodes, Workday's Chief Customer Officer, which actually means customer success, Workday Professional Services support and education. And I've actually had the good fortune of also being a customer and a practitioner of Workday, previously at Western Union, at Symantec and most recently as Workday's CIO. So I took this role. So from a customer experience perspective, we have over 16,000 certified resources in our network that know how to deliver Workday value. 95% customer satisfaction. Actually, Aneel talked about that in the keynote for 13 years and running, especially in these changing environments. And also 95% on-time deployments, which we feel really proud of between our partners and ourselves from a Workday Professional Services standpoint. So the evolving customer experience has changed. We have the pandemic, we have adapting customer needs and we just have changing business. So we're really focused on evolving that in 3 primary ways. One is on just rebuilding customer intimacy. So we're doing that in 3 ways. One, we have strategic executive sponsors on hundreds of our key accounts, and we're reconnecting with those customers. We have in-person conferences resuming, Rising obviously being one of them, which we were truly excited about amongst a number of other marketing events. And then we have the sales partnership. We've spent a lot of time in the last 12 months, making sure that best practices, processes and tools between service and sales, so the sales to service handoff is smooth. Then that brings us to flexibility of our customer needs. So during the pandemic, 2 years, we were delivering mostly in a virtual mode as well as hybrid. Now we have virtual, hybrid, in-person. So it's really at the customer's preference in terms of how we deploy our services. And then also education. For 2 years, we were virtual-only. So we're back into in-person classes or online or hybrid. So we have options for our customers, it's really their choice. And then the evolving business model. So we have a wrapper service we call Workday Success Plans that includes advanced services such as advisory services, architecture support. And It's really ramping the customer for the life cycle of their relationship. And then two, we have a whole new community experience coming on board, which is our digital online portal. And so that comes out in November. It's really combining knowledge management, support and collaboration for our customers all in one place, so they don't have to go to multiple front doors. And actually, our volume in the digital community has grown 45% just in the last few months. So we see an uptick of users there as well. So we have proven methodology. We have Launch, which is our prescriptive methodology as well as Your Way, which is more customized depending on more complex customers. And Launch has really taken off. We have over 500 customers that have been touched by Launch since we went live a couple of years ago. And it's a really good savings from a customer perspective. We have 35% to 40% time to deployment as well as cost savings. So we really see an uptick in our medium enterprise business, but also we see that our large enterprise customers are embracing that as well because it comes with a preconfigured kind of baseline tenet, so customers don't have to overthink their processes. And it's worldwide, which is great, and we deployed to multiple countries, including Malaysia, Japan. There's multiple countries that have been enhanced this year as well. So really, that brings me to customer satisfaction will always be the goal, but we're at an inflection point with our customers. We're constantly growing as a base. And so it means we need to look at things differently. And that's where my partner, Sam is going to come in and talk about our new partner organization.

Good afternoon. My name is Sam Alkharrat. I'm the new Chief Partner Officer for Workday. What does that mean, you might ask? I think you've heard over the last hour or so, lots of sound bites about our partners and how they thread across our entire engagements. So you've heard Pete talk about working with partners for our package solutions. You've heard how we co-innovate together. You've heard how we go to market together a little bit. And then we talked about innovation. And now Sheri just shared with you the evolution of our customer experience. We feel the evolution of our customer experience has to go hand-in-hand with the evolution of our partner ecosystem. Our partners have always played a critical role in every step of the engagement in earning trust and delivering value to our customers. We want to continue to do that, and we want to accelerate it going forward. So in my role as Chief Partner Officer, I'm focused on enabling a strategy and executing and operationalizing how we engage with our partners in order for them to bring value at every step of the journey for our customers and accelerate the Workday value as well. But before I get there, I've been on board for about 5 months, and I just wanted to share with you a couple of observations as I talk to customers and as I talk to partners. First of all, I just want to say that all of our partners are all in on Workday. Every single partner I talk to sees Workday as a Tier 1 partner and a Tier 1 solution in their portfolio, which means we can grow together. We're relevant. We move the needle together. And I think that's really important. But they were looking to do more with us. They want to be able to build new solutions with us on our platform. They want to be able to drive down industry depth with us and increase the solutions. They want to sell with us, and they want to go to market with us in so many ways. And ultimately, they want to increase the level of capacity and consulting and be able to drive more services into the customer base. But when I talk to customers, it really resonates because it's very, very well aligned what they're looking for. So our customers are looking for higher level of SI capacity. They're looking for more industry depth. They're looking for faster time to value. And they have an increasing need of app and platform integrations. So the 2 agendas really, really align very well. And then as I spend more time with the executive team, everybody is leaning in to drive an unmatched partner experience of our new program going forward. So let me tell you a little bit about our strategy, which is really 3 differentiating capabilities anchored with 1 unified partner program. The first area I want to talk about is the innovation area. You've heard a lot about that today. You've heard from Sayan around how we have a public cloud, API first. You've heard about ISVs. You've heard about office of the CFO. You've heard about industry accelerators. All of those really coming from a co-innovation perspective. We can accelerate our innovation vector with partners because they have deep industry experience, and they offer our customers connectivity, they can connect, integrate and build new applications in our platform. And we're starting to see that happening. You've heard 750 applications on Extend and accelerating. You've seen we've announced yesterday the industry accelerators with our partners. That's just the beginning. We're seeing a tremendous acceleration of that. And ultimately, where that really matters is that it drives consumption of Workday. And that's really important because once you land, you consume, you're more sticky and you expand. And I think that's what solutions do for you. And they solve more complex problems and use cases especially when you talk about things like the office of the CFO. The second area is our partners want to grow with us, which means they want to launch co-sell, resell programs. They want to go into international markets with us. They want to have the ability to go to customers and sell together. So recently, we started with AWS. You've heard about the public cloud first strategy, especially for our net new customers. We're starting to co-sell with AWS, and we're seeing some tremendous welcoming from the customer base and the net new base. So there's migrations and then there's also net new. And what we're seeing is that it's much easier for the customers to be able to make a decision when the solution and the selling motion is integrated. That's going to drive more Land motion for us, and that's going to drive higher velocity of net new logos. So that capability is super important. And then finally, when we talk about services, that's something our ecosystem has traditionally done very, very well in delivering to our customers and delivering to the expectations of our customers. But that requires now higher level of investments in education and certifications and being able to get partners into the system and onboard them very, very quickly into production. The faster and the more efficient we can do that and the better experience we can provide, the better we can do the first 2, just innovate and sell together. So that machinery is all now anchored into a partner program which we also announced earlier this morning. So our new partner program is set to launch next year. We'll be unifying a lot of these motions. We'll bring in our channel, ISV, service partners, CSVs and cloud service providers and our software partners all into a single program. We will drive tracks and tiers, and we will make sure there's performance metrics that drives competency for our customers. Ultimately, we do see the demand to double the consulting capacity in the market over the next 2 years. That will drive a lot more adoption of Workday and a lot more advocacy for Workday as well. So that's in short the strategy. I hope this is helpful. There's a lot more to come in this area. And I could just have to say, like being 5 months here, it really feels good. And it feels like this is a great opportunity for us to transform our partner landscape. Thank you for listening, and I invite Chano back to stage.

Thank you, Sam. It's great having you here, driving and accelerating our sales efforts through the channel partner strategy and it's great to be working with you again. So that's all fantastic. All right. So what am I covering today? So we're going to be focusing on our growth vectors. How are those impacting basically strategy and we're making them tangible and hopefully, they will provide some good insights for you and some questions later on, I'm sure. The first one is clearly our largest growth vector today is broadening Land opportunity. This is still our biggest one, as I say. So it's still landing new customers today. For some of you that were here in our last in-person analyst conference at Rising in 2019, our fiscal year '20, you saw that still our Land business was at that point 80% of our business. So the majority of our business was actually coming from Land new ACV at that point in time. And clearly, the business has both, right? And obviously, today and with the purposeful investment that we've been doing both, I would say, growing innovation and solutions and investing on our customer base sales teams, that balance is different today, and that mix is different today, and it's more a 60-40. Obviously, even the balance is much more different than it was a few years back ago. The pie has increased. So still our Land business today is larger than it was in FY '20 in terms of absolute value. We now have 4,450 customers over that number that are core HCM or core FINS customers or clearly both on an individual basis. So that's great. But it is still head of -- great opportunity ahead of us. We have 32,000 customers identified in our CRM system, Salesforce in this case, as you can imagine, that we know they are a good fit for us. And as we keep broadening our sales efforts and go-to-market and our opportunity portfolio that basically pie becomes larger as well. So we have tremendous great opportunity in front of us still to go for. And as you know, as we're broadening basically the innovation and the portfolio that we do have, it's increasing as well the number of SKUs we land when we get into a new customer. So you can see how that has evolved. And obviously, needless to say, more SKU usually tends to drive larger deals and more stickiness that at the end of the day is what we're looking for, right? And another dynamic that we've seen as we've been innovating and expanding our product portfolio is like we've been able to land in different ways. If you look what happened a few years ago, we were landing like in the U.S. large enterprise and core HCM. And today, it's much more diverse across geographies, across solutions, across segments, which, again, I think, diversified the business, but as well derisk the business, if you want to look at that way. And one of the areas where we're being -- putting more focus on and it has been having an impact is really industry, as you heard before, right? And there are a number of reasons why we go deep on industry, we really penetrate in the front, in the middle, in the back office. We become much more meaningful. And as you heard from Terrance before, so really, this becomes much more strategic, right? And when we're landing industry, what we see is that the average [ HSP ] or average share value of our landing is 50% higher than when we land on our noncore verticals or noncore industries. So that's meaningful. Medium enterprise as well has been very strategic. We've been highlighting that one important to us. And for those of you in the room that are not that familiar with our business, medium enterprise for us is businesses that are under 3,500 employees. We sell the same solution that we sell to the largest of our customers. But we become much more prescriptive on scope, and we become much more -- we do it in a way, as Sheri was mentioning before Launch, which is much more predictable in terms of time frames and fixed costs and some of the different approaches. So faster time to value at the end of the day. And what we do in medium enterprise, it is different than our competitors. We try to go with an approach to value that is a full suite of platform, meaning that these customers are usually consuming majority of thing HCM and financials at the same time. Whereas our competitors try to go either one or the other on a single basis. And in fact, over the last 12 months, roughly 50% of our new ACV landed basically from medium enterprise customers. International. We've been highlighting internationals have become a very critical growth driver to what we do, and we're having very solid momentum in international. In Europe, which is a bit more mature for us, we've been focusing our strategy and doubling down in a number of core countries that we call them Tier 1 countries. And those are France, U.K. and Germany. Needless to say, those are the largest and most significant geographies that we do have. And the efforts are paying off. What we're seeing in the last period is 100% basically growth in new ACV coming from countries in EMEA. APJ, clearly less mature than it is our strategies in EMEA. So we don't have that strategy in Tier 1 countries, but it's been really a good contributor to our growth. So if you look at the last 12-month period, we drove a 70% increase in new ACV landing deals in our APJ business. And finally, through acquisitions like Adaptive Planning or Peakon. What we've been trying to do it again, is landing differently with our customers, and those have been really helping us out on not getting on cold relationships, and we've been seeing how we've been expanding and increasing win rates, but also the same wing, we're going to try to get those customers, our core HCM or core financial customers. So we're seeing an acceleration with our Planning First customers, becoming core financials, core HCM customers. All right. Let's transition now to a second growth vector that I wanted to cover with you today, which is accelerating the expand opportunity which is -- we see our customer base sales motion as a truly significant opportunity for us over the coming years to go, right? And a few years ago, we had much more smaller sales coverage and a much more smaller set of portfolio of innovation to sell into our customer base. So that business was just representing 20% of our business as you saw before. Today, and thanks to all the product innovation but also as well to the customer base sales teams go-to-market investments that we've been doing, that business represents 40% plus and really is growing at a very rapid clip. I think we had some comments for you that we did on our last earnings call, and that was really meaningful what we saw there in Q2. So one of the key success to this motion is obviously, well, I would say that having a very referenceable and happy customer base. Hopefully, you have the experience to touch on that one or make it more tangible over here at the Rising. But also that we had a great customer base, over 50% of our Fortune 500 and over 25% of the Global 2000. But as we said before, Lands remains a key focus to keep just increasing this number of core of customers that we do have. But it's not just our customer base, the one that is growing. So if I work this slide out from left to right and maybe next year, I don't know if it's going to fit here, you see a different set of solutions. You see some of those, if you start on the left, solutions like Extend, like Scheduling, like Messaging, like Candidate Management, like Accounting Center that are less than 10% penetrated. Then you see solutions in the middle, the orange one, we are increasing and good maturity, but we still have a great opportunity and way to go to keep expanding on some of those and are basically under 50% penetrated. And those are Procurement, Prism Analytics, people, [indiscernible], Learning and some of the others. But even our most mature products, we are still doing well, and we are still tracking to do investments in places like payroll like in Germany or payroll in Australia or then tracking on some of the other investments because we do see opportunity ahead. But what is important, I think, to know is that momentum is cross base across solutions. So when you look at it, the #1 sales stop solution in our customer base represents less than 15% of the ACV. And the top 10 represents less than 2/3 of the ACV. I don't know how you feel, but I like kind of that view of a very balanced business but diversified under risk business. And we're increasing the deal sizes and it has increased significantly during the last few years. I mean, a few years ago, I couldn't think that -- or it was -- you were not seeing us doing $1 million upsell on our customer base, right? And today, we -- those are quite normal and quite frequent. So the deal sizes have increased during the last few years, over 45% in average in our customer base. And again, is attributed basically as a record to the strategy we've been putting on the go-to-market, but also as well the innovation that has been coming from the product teams. So both. Customer base is also obviously a key driver for financial expansion. And that is clearly a big strategic focus for us, as you do know and are familiar with. It requires a different level of focus because the finance deals, they tend to take longer and they require a different -- a bit of a different go-to-market motion. But we're making a good dent. And I don't think there is an inflection point, but there is some good gradual and very positive trend that is happening out there. So I think that we're seeing that in industries like financial services, technology, retail and hospitality. And some of these are -- some of that were latest customers that have converted or have come from core HCM customers to core FIN customers. I really like as well one motion that we do have in customer base, which is the digital AEs, right? So what are the digital AEs? Well, clearly, as our deals have been increasing in our customer base, the -- most of the AEs tend to focus customer base sales on the larger deal transactions. But we don't want to leave anything on the table, and we want to make sure that we capture the value from those that are moving at very high speed and velocity deals. So we introduced the customer base AEs that are helping us out with those transactions. And that they're working on deals around planning, or on deals around Peakon and we've seen, for example, a 50% increased attachment Peakon deals coming through the digital AEs. It's also a great way for creating future AEs, as you can imagine. So hopefully, more to talk in the future, but we're very excited about this motion that we just put in place beginning of this year and this initiative. I want to bring this section a halt just giving you a real example of a customer, right? This company landed as an HCM customer 10 years ago. Over the years, they replaced a number of [ HCN ] silo systems to drive simplification, agility, flexibility and recently became a financial customer taking on beyond core financials, of course, on Prism, Accounting Center, basically Analytics thing and some others to drive their business forward with some more M&A integration and some expansion that they were having with -- having going through. So now all to all, this customer has increased their spend with us by a factor of 25x since they became a customer. And clearly, it's been a combination of expanding the solution with us and the growth that we've been experiencing as well as a company, right? But this is a real true example. All right. I wanted to cover the evolving industry opportunity that we do have because as we've been saying, industry is becoming much more important, not only from a product investment but also from a go-to-market point of view. And when we think about industry, it really cuts across both our Land and our Expand motions. So as we scale our market, we're thinking how do we scale it through industry, right? And that's important for some of the reasons that I mentioned before. It's important as well because our messaging, planning, execute and analyze -- planning, analyze and execute resonates very well when we go to some of these industry place. And it's a great combination between the strategic product fit that we do in the go-to-market for the partners' efforts that we're doing and some of the innovation that we're building with them. So let me touch base on some of the industries and how we're bringing this strategy to basically to life, right? Financial services, I think, is a great testament to it. I mean we are present in over 70% of the Fortune 500 in financials. We've seen a very significant step change sort of financial services customers that are taking on to financial customers during the last -- during the recent time. And as we expand here, it creates a much broader opportunity as well for some of the other office of the CHRO solutions that we do have. And as well, we are thinking a good way to expand, potentially focus on some of our most mature international countries for industries like financial services. So it's our first industry becoming a $1 billion, but I think with a much more room to grow and to keep growing and certainly not the last one, but again, a great example. What about health care as our next industry that I wanted to highlight. We have significant momentum in this industry, 60% attach rate in this industry for financial management and supply chain management. And since we started the journey in this industry back in 2015 -- journey, meaning we put focus in terms of we're going to create more product focus and depth there. But we're also going to do investment on our customers, on our sales teams. We have increased our customer base in terms of number of count of customers by 10x. So certainly one that is very significant to us and one we see a lot of customers being HCM, financials, supply chain management customers. Education and government is the next industry I wanted to cover. This is the one -- one of our most mature ones, is the one having the highest attach rate in terms of our financial management solutions, 75% attach rate. We are on our journey on the Student as you don't know -- as you do know, and we've been highlighting how many customers have been going live on the solution. We're seeing that those operational systems are now in a good momentum. And you can see the momentum that is there and is palpable for being ripped out and we're continuously driving forward growth there. And again, Student being a good anchor for an industry to move HCM, financials [indiscernible] Student. We've also been doing well in state and local. And as you recently hear heard from us, we are starting our journey in the federal market where we see that's a $2 billion opportunity. But again, it's going to be a medium long-term opportunity, nothing that would be impacting significantly in the short term. Professional services is an industry where we have a significant number of HCM customers. It's an industry where it makes a lot of sense from a financials perspective we to put -- to have a play on. Because if you think what that industry is about, it's about the combination of talent and skills allocating those to the right projects and basically how you're measuring and monitoring and managing that, right? So clearly, some where we are seeing as well some of our HCM customers becoming financial customers and where you're going to see us keep investing forward from a [ debt ] perspective. Retail and Hospitality. This is our largest industry in terms of employees or workers in the system. As you can imagine, we have more than 50% of the Fortune 100 retail and hospitality customers, and these are very large. We had significant momentum in FINS that we're driving in this industry as well. Accounting Center is the big driver for it, too, as it is in financial services and some other industries. While we are not significantly mature here, you should look for us to keep expanding and deepening our go-to-market presence in this industry going forward within hospitality. Landing always give you person or the customers, they are obviously on some of the latest ones. Well, I want to close on some of the really exciting stories from Q2, right, especially on technology and media. Again, another industry, very similar to financial services, where we have 70% of our Fortune 500 in technology and media customers are our HCM customers and where we see a great opportunity ahead. And of course, in Q2, we announced the Salesforce becoming a core financial customer. That's a big milestone, I think, for us and potentially for the industry. So we're excited about the momentum that we can be driving into this industry. So hopefully, these anchors which I commented before on a high level that we aim to become -- continue to gain market share on the Office of the CFO as a whole, strong industry-driven play, including with support from our partners, but as well clearly be the dominant cloud FINS player in the services-based industries. And I think we're making good progress as those systems or legacy systems are becoming more in time for reaping a replace. So I hope if I want to leave you with one message, it's like, yes, we had a good -- great market momentum overall right now. But clearly, we are not short of opportunity ahead. There is a lot that we can still capture out there. A lot of work to do, but we're excited about for the opportunity that is ahead of us and in front of us, and we appreciate your support. So with that, I want to hand things over to my dear friend and CFO, Barbara Larson.

Thank you, Chano. I'm Barbara Larson, the CFO of Workday. And most of my time with this community has been over Zoom. So it's great to be here in person at Rising. And for all of you that are joining remotely, thanks for being part of our event today, and look forward to meeting you in person soon, too. So today, you've heard about our strategy, how we're uniquely positioned to capture the market. You heard how we continue to innovate and move our platform forward. You've heard how we're strategically going to market to drive broad-based adoption of our solutions. So now I want to bring that all home and talk about the opportunities and how they translate to enduring, profitable and responsible growth. We've been on an incredible journey, which has led to healthy subscription revenue growth over the last several years. And despite our growth in scale, we're still in the early days of our opportunity. As Pete shared, our TAM is $125 billion in size. And even with our market leadership in the cloud, we continue to be less than 5% penetrated into our addressable market opportunity. In HCM, we're the clear market leader with more than 50% of the Fortune 500. We've seen acceleration there from mid-teens growth to low 20s. Driving that acceleration are several of the strategic growth drivers you've heard today, our customer base sales motion, medium enterprise, international and continued execution landing new -- large enterprise HCM customers in the U.S. Even with that strong momentum at scale, we still see significant opportunity going forward with less than 10% market penetration in HCM. In FINS, we continue to take share, and our industry-first approach is clearly resonating. Q2 was a great validation of that. We had several important wins. You heard Chano talk about Salesforce, American Electric Power and many others. We scaled this business to greater than $1.2 billion in trailing 12-month subscription revenue, and we're still in the early days. As you all know, this market has lagged HCM from a cloud adoption perspective. The growth rate has moderated slightly from low 30s to high 20s as we felt some impacts of COVID still felt on our FINS business. But we've never felt better about where we are in our FINS journey today and our strategy going forward. Another way to think about the opportunity is from a geographic perspective. Nearly half of our global opportunity sits in the U.S. market. We've seen acceleration here driven by customer base, office of the CFO and medium enterprise. And even with this success, we continue to see significant runway and are less than 10% penetrated into our opportunity. International is growing faster and still in the early days of market adoption. Despite the challenging market environment, international growth accelerated to 26% and we're still early in the journey here. We see significant long-term opportunity, particularly across our Tier 1 markets. Another way to look at the opportunity is through the lens of some of our strategic growth initiatives. As you heard today, we see clear momentum in medium enterprise, customer base, and industry. But we have a significant runway across each of those areas as well. In the mid-market, only 15% of that is penetrated on a logo basis, and we're even earlier days in our opportunity to expand that footprint. And speaking of customer base, we have the opportunity to continue to grow as our product portfolio and our customer community expands. And we have greater than $10 billion of incremental opportunity to sell back into our customers. From an industry standpoint, we also see significant opportunity ahead. In fact, in the U.S. market, nearly 80% of the total workforce is centered in service-based industries, which, as you know, is our focus with FINS. And when you put all of that opportunity together, it drives our conviction in our goal of sustaining 20% plus subscription revenue growth on our path to $10 billion. So driving enduring growth remains our priority, and we feel great about the opportunity we have ahead. And the strength of our business model also enables us with the opportunity to drive profitable growth. This is anchored in our best-in-class gross revenue retention rate, which has averaged 98% over the last 5 years. So companies have different ways of calculating this. So let's be clear, Workday's definition excludes growth from things like employee count and price increases. And it includes down sell that you might see within our customer base and, of course, customer churn. The strength of this metric is key to our model, as well as our long-term growth and profitability. Said another way, we've averaged just 2% churn over the last 5 years. And when you look at the medium software company, approximately 8%, which is still very good, that 6-point difference is significant, and it compounds over time. So on this slide, we've got 2 companies, both at $5 billion in annual revenue at the same point in time. Company A has 2% churn like Workday, it's growing 20% year-on-year. Company B has the same new ACV bookings, but company B has 8% churn instead of 2%. So you see the compounding effect. Every year, the difference between company A and company B's revenue increases. And by the time you get to the end of year 4, company A has $1.5 billion or 16% higher revenue than company B. And that gap becomes more pronounced as the business continues to scale. So solid retention is one of the powerful drivers of scale, but it's also a powerful driver of margin expansion because renewals in most businesses, including ours, has a very high margin. Strong gross retention provides the foundation for customer expansion opportunities. Customers are not only staying with Workday. They're going all in with Workday, fueling our continued growth in the number of strategic relationships. One of the ways we measure this is looking at customers with greater than 3 million in ARR. This has grown at a CAGR of mid-20s over the last several years and even faster growth with customers that have more than $5 million in ARR. And if you think about that longer term, so many companies are just getting started on Workday. So you heard throughout the day, our portfolio continues to expand. At the same time, we've increased our focus on our customer base sales motion. Those 2 things combined with solid 98% gross retention have driven a 7 percentage point improvement in net revenue retention over the last 4 years. And we continue to see momentum in the customer base sales motion. We've been investing aggressively in sales and marketing, given all the opportunity we see ahead. And even as we do that, we continue to see a very efficient cost to acquire. Those economics drive our decision to continue to invest in sales and marketing. We've also driven long-term return on our R&D investments. Over the last 5 years, we've driven leverage through increased scale across the portfolio. And looking forward, we see continued opportunity to drive leverage in R&D, but not at the cost of innovation. We plan to make incremental investments in R&D just not at the same pace as revenue growth. Similar to R&D, we're driving nice gross margin expansion as well as a result of the mix shift to subscription revenue, combined with healthy subscription gross margin. As we look to the future, we continue to expect subscription revenue to outpace growth in services. And as you heard Sam say earlier, we're investing in the ecosystem, which will continue to drive mix shift towards subscription. Given the strength of our model and the leverage we've seen across the business, our overall non-GAAP operating margin and operating cash flow margin have expanded nicely over the last several years. As we've been talking about since the last Analyst Day, our FY '23 margins are impacted by a few things, including our company-wide performance-based cash bonus, increased hiring and certain costs like return to office, travel, in-person events, layering back into our business model. However, as we look out to FY '24, we expect margin expansion to resume driven by the same levers that I've already touched on, primarily R&D and gross margin expansion. From there, we continue to expect operating margin to scale to approximately 25% and operating cash flow margin to expand to 35%. That leads to both operating profit and cash flow growing at a high 20s CAGR over the next several years. But that's really just one point on our journey. By no means are we done there. Profitable growth remains our priority, and we see significant opportunity well beyond $10 billion. Given the strength of our model, as we continue to scale, we see opportunity for continued margin expansion from there. Now our 25% operating margin target at $10 billion is non-GAAP, which is one of the primary ways we think about the business. GAAP results are another way we measure the business, and we've seen the delta between GAAP and non-GAAP margin narrow over time. The primary driver of that is stock-based comp. As we scale as a company and the pace of our headcount growth moderates, we expect stock-based comp as a percent of revenue to come down and trend in line with our tech peers. So while we remain confident in our strategy to sustain enduring and profitable growth, we're also dedicated to doing so while also maintaining our long-held commitment for responsible growth. When Workday was founded in 2005, we set out to redefine the enterprise software industry and to do what's right as we did it. We built the company on a core set of values that 17 years later, still guide our decisions and our actions. This includes how we show respect for our employees, how we innovate for customers and how we care for the world around us. We measure success not only in financial terms, but how we operate in the world. Our ESG commitments are focused across 3 main stakeholders: employees, customers, community. So I'll start with employees. We begin by working hard to create a culture where we can attract and retain the most diverse and inclusive workforce possible. Once they're on board, we nurture a best-in-class employee experience, giving our workmates the opportunity to provide honest feedback on a weekly basis with Workday Peakon Employee Voice. These insights have helped us identify what's working and what's not and help us improve and build a great place for everyone to work. And finally, VIBE is our commitment to value inclusion, belonging and equity for all. A key part of that has been our goal to increase Black and Latinx employees in the U.S. by 30% and to double our leadership representation by 2023. We've exceeded our target for the overall representation and we are well on our way to meeting our leadership goal. Moving to customer. We develop solutions that are specifically designed to help our customers gain insights about equity within their workforce, to improve sustainability and resilience of their supply chains and to help them manage their emissions reduction targets and improve their overall ESG performance. We also strive to care for the world around us. And Workday has done an incredible amount in this space. We've established science-based climate targets throughout our entire value chain, taking part in a global commitment to limit warming to 1.5-degree Celsius. We've achieved Net-Zero emissions in 2020 and lifetime Net-Zero Carbon Footprint in 2021. And we're constantly working to advance policies that support the transition to a low carbon economy. So before we head into Q&A, I'm going to close by recapping a few of the key takeaways from today. First, as we scale so too does our opportunity. Our market leadership position and relentless focus on innovation uniquely position us to continue taking share for many years to come. Second, our strategic growth areas of the business have clear momentum. Medium enterprise, international, industry and customer base provide us with a foundation for future growth. And finally, our financial model is powerful, and it provides us with the opportunity to become one of the largest, most profitable software companies, all while holding true to our core values. So with that, we're going to take a brief moment to get set up for Q&A, and I'll be right back with the rest of the team in a minute.

Okay. Great. Well, we are going to transition to Q&A. And without further ado, I'm going to go over to Mark Murphy from JPMorgan.

Great show. Thanks for having us here. So I wanted to ask you the first customer I bumped into today is with the Fortune 500 company, and I walked them to registration and then found out he works in the IT department of his company. So not HR, not financing. The company hadn't sent anyone from HR or finance to this conference. So I'm just wondering how common is that trend where you see IT getting involved? And is that opening up a different type of -- kind of greasing the skids for broader and deeper discussions with some of these companies?

Well, I'd say that since we started the company, we wanted to have a deeper relationship with IT. In many cases, some of our early customers were driven by IT, like Dave Smoley, Flextronics or [indiscernible]. But in the last 2 years, we made a concerted effort to really engage with IT, not just because they're involved with the projects, but because Extend is really an opportunity for us to work with them and have them put their resources into the projects with the extensions that they can build together. And so IT is coming, and now there's something that's really in it for them other than being somebody that watches out over the project.

Alex Zukin from Wolfe. Congrats on throwing a great show. I guess, Aneel, I'll use a word that I know a lot of us dread, and it's not recession, it's actually the word inflection. And we've asked you, I think, for the last 7 years about an inflection in the opportunity for financials. But it does seem like with the signing of Salesforce, with the signing of more than even a handful of Fortune 500 customers, maybe that's happening. And I want -- you talked about not being considering yourself back office anymore. Are you feeling or sensing from customers this kind of the shift in the imperative for digital transformation to the back office to -- it's a tough question because the nomenclature used. But talk about that and talk about maybe if you can, kind of what was the journey with Salesforce specifically to adopt Workday Financials?

Yes. So let's start with just the general mindset. I do think that -- I'm not sure there ever has been or will be an inflection point on finance. It's been a steady grower. Some quarters, it's 30%. Some quarters, it's 50%. Last quarter, it was very high, a couple of big deals swing that. It's not like HR where everybody decided that once they were going to tear it out because the legacy systems were so bad. I think the reality is the legacy systems for finance are not heavy user-based systems. They're more used by just accountants. Planning might be different. And so the desire of CFOs to change systems was not as high as it was around HR, which touches every employee in the company. Having said that, these times where change is really on us, whether it's planning or whether it's agility or now it's ESG, it really shows how broken those legacy systems are, which is why I think we're seeing that uptick. And I'd also say it's also the maturity of the product. Salesforce, AEP, these are Fortune 500 companies, we needed to match Fortune 500 functionality in financials, which we did in HR several years ago, and now we've done it in finance. And so I do think that bodes well going forward. The Salesforce cycle, when it started 5 years ago, there's always a complexity of Oracle in there because Oracle was the database partner. So we had some fits and starts. This last one started about 14 months, is that right, Chano?

Yes, a year ago.

And it was -- they went into great detail into the technology, into everything, into a real deep dive. Sayan was part of that. And I think they came out and said, this is the right direction for them to go. And this was at the highest level. This was Brett Taylor, this was Amy, this was a new CIO one from UPS. They all got on board and got comfortable with it. But it was a long sales cycle, which, frankly, even the big HR ones are that way, too.

And then maybe just one. If you think about the last time we were at the Analyst Day, there was a thought that HCM could grow kind of in the mid-teens and FIN financial is going to grow 30-plus percent and that was kind of the calculus to get to that 20%. Given the TTM growth figures that we just saw, is that calculus different? Is it -- was it different but it's going to go back to that 15%, 30%?

No, I think HCM has turned out to be more resilient. And I credit Chano and team with really identifying the opportunities, both in medium enterprise and going back to the customer base. And then I think finance had a bit of a lull because of COVID. And I think that there's a reason why our growth rate has been higher than 20%, and that's largely because, frankly, both have been working and I see upside. I don't see upside on as much on HR from where we've been because it didn't really take a hit during COVID, and I don't see it taking a hit now. I think the upside is on finance. And it's not just core accounting now. It's planning. It's procurement. It's products that we didn't have before, like Accounting Center that we now have this really broad suite to go into the office of the CFO. They don't have to buy it all at once. They can buy it -- they can start with planning and move on. So it's a much different game than it was 4 or 5 years ago.

It's Brent Thill with Jefferies. Aneel, on your vision of the back office, you mentioned you don't view yourself as back office, but can you give us your 5-year vision of what you think you look like and how this is evolving? And then Barbara, just on the comment on margin, you drew a little arrow up on '24. What's your sense, is that 100 basis points, is it 150? How do you think -- how should we interpret that in terms of your arrow on the screen?

So I'll take a crack at the first one and then I'd love to hear from Pete and Sayan as well. Our vision for the next 5 years is not that different than it was when we started the company. We wanted to be the ERP provider for the service industries. Recognizing that HR, we could be the provider for all industries. But with finance, we were not going to target the manufacturing and supply chain industries. And that vision remains intact. I think what's changed and what continues to change is the focus of where we invest. Transactions are still very important. But they will, over time, just be table stakes. And what's become much more important is planning on the front end. And then what I think you'll see over time and you saw it in the keynote today, more and more of our investment is going into machine learning and AI to give our customers insight. They're generating all this data, both within a customer and across customers. And there's tons of insight into that data that they can use to predict where the business is going in the future. Before, humans just couldn't get through that data quick enough. And by the time they got through it, the world had already changed. With machine learning, they can get through that data in nanoseconds and have real insight as to where their business or where their people are going. And I think it's a future of really smart applications as opposed to just automation. But actually smart applications that help guide the business and then humans apply their judgment to guide the business in the way that they want to. I don't know, Peter or Sayan, if you want to add anything.

Aneel said a lot of it there, which is we've been talking for years about 2 main buyers, 2 main people within the organization whose needs to be satisfied, the CHR and the CFO. I talked earlier today about the opportunity that we have in both those markets. They're both continuing to grow for us. By the way, you saw that in terms of the size of the opportunity. We are growing the opportunity within the office of the CHRO through entering new markets within the office of the CHRO. And I think that there are other markets that we could continue to grow in there, but it's still serving the needs of the CHRO. On the CFO side, we are just continuing to go there, right? And as you see us in the next 5 years, there's going to be much more emphasis on industry. So as we go deeper into the office of the CFO, we need to start to be more specific for the needs of the CFO by their industry, right? And you'll see us, as we have in the past few years, introduce new capabilities. Some of them are going to be monetizable on a per-industry basis. But as we choose those areas that we go into and that we develop into, we're going to make sure that all of those are things that are need to have, right? They're going to be very important capabilities for the CFO and the CHRO. There's enough of us for us to choose that we don't need to choose things that aren't must-have areas. And then the last thing I'll say is data, right? I think that you see this theme that goes through all of the innovation that we've had for the past few years. Data is this through line through all of that ML, accounting centers, skills, et cetera. It is like leveraging that platform, that space that we have to collect all that data together. And there's many more opportunities that we'll have -- I think, monetizable opportunities that we'll have because of data going forward.

Yes, I think there's a couple of secular trends that have been moving in our direction and are continuing to accelerate in our direction. One is the company was really founded on the idea that human capital was at the center, whether that was financials or HCM. And what we're seeing is a transformation where every business is a human capital-centric business. A lot of businesses didn't use to characterize themselves that way. Certainly coming out of the last couple of years, everyone is characterizing themselves that way, and that really plays into a lot of what we believe in from the very beginning. And then second, a lot of the areas of operation in the business are learning how to work more effectively together. You can't think of recruiting and learning and contingent workforce and planning and scheduling and time tracking and financials and projects separately anymore. You have to think about how do you drive that all the way through and have oversight and have the flexibility and speed to move. And so we have more and more customers saying, we actually believe in the full vision of why you've stitched all this stuff together.

Talk about the margins.

Yes. And then I'll go ahead and answer the margin. We aren't providing specific guidance in terms of our FY '24 guidance. But we wanted to reiterate that we do expect margin to expand next year, and we're focused on executing the second half of this year, and we'll provide an update.

Great. Kirk Materne with Evercore. Thanks for having us and nice to see you all in person. I have a couple of questions, related questions on just the industry focus, both from a development perspective and then a go-to-market perspective. I guess I'll start maybe Pete, on just the development side of the house. How high up are you guys thinking about going when you think about sort of the system of engagements in certain industries, right? There are certain people that have verticals specific functionality that are more at maybe the front of the house, but that's going to interoperate with you all. So how do you think about sort of building it yourself versus maybe partnering with people that are more entrenched in those areas? And then Chano, I was hoping you could just talk about sort of the go-to-market as you get more industry-focused? How are you tweaking the sales model perhaps to make sure that your salespeople can sort of speak the language of industry? So that was it.

Sure, I'll take a crack at it, and I don't know if Sayan has other things to say about this as well. In terms of the systems of engagement, we are focused again on the areas that are relative to people and their financials, right? If you saw us have on the slide today, you saw us talk about the front office, middle office and the back office and being able to tie those things together mostly from a data standpoint. And that is in service -- let's talk about the CFO. That's in the service of the CFO getting visibility into what's going on in the front office. It is not -- let's say, in the retail industry, it is not to become the front office, the system engagement for the front office, but it's for the CFO to get visibility into that area. So that's not an area that we're going to go. But certainly, do we want to be the system of engagement for accounting, for treasury, for those areas within the CFO? For sure. Do we want for employees? Do we want to be the system engagement for employees? Yes. For HR business partners, for the analysts, et cetera? Absolutely. And so those are areas that we think about for the system of engagement and where we should win.

Specifically on the industry capabilities, it's more things like funds transfer pricing for financial services, average daily balance, the really unique flow-through pieces of functionality that you need to -- that are unique to those industries, in health care, supply chain, and we've been at all those things I just talked about for a while, but it's actually bringing them all together in the industry story, and that's really under Chano.

Yes. I think, Kirk, we've been having dedicated go-to market teams on some industries like E&G and health care, you see some of the data here before those have been paying off. More recently on financial services, it's starting to pay off, and we see a step change in the size of customers that are moving. Clearly, that would not be happen with the maturity that this man and the team have to bring in from the product perspective and that brings a great point of view and the value across. Obviously, it gets enhanced with what we're doing now with partners and some of the industry accelerators and the SI to bring and have a more comprehensive solution. So clearly, as that maturity gets there and those legacies get ready more for ripping off, we are seeing and we are having more dedicated go-to-market teams. In some cases, as I mentioned, we are thinking taking some of the FSIs broader in international. Of course, in some of the mature countries, obviously, U.K. would be a good start with to go. And those investments, what we're seeing is that they're paying off, right? And again, you can nurture at the beginning, some of dedicated go-to-market teams with maybe some industry, spokesperson that might be overlay resources. But we try to minimize that a period of time and then more medium, long term is really a couple of specific resources because when you have those dedicated teams, as you say, they get the value proposition, they get the language, but they need to basically do it as they're just working very focused on those motions. We are also looking into -- does it make sense and to do it and to apply it to customer-based sales teams that are dedicated for industry as we're getting much more success in some of these industries. So just not land but also some of the expand motion as we are converting more new customers from HCM into financial customers.

Phil Winslow, Credit Suisse. Great to see you all again in-person. So Chano, a question for you. One of the numbers that really stood out was the 50% contribution from medium enterprises. When you think about Workday, we always think about the largest -- large enterprises being customers, so I think that number really jumped out to me. I guess a question there, what are sort of the learning benefits that's driving that inflection in that business? And when you think about sort of the growth algorithm going forward, sort of the core, so speaking larger enterprise versus the mid enterprise, how do we think about that? And then Barbara, in terms of unit economics, is there any sort of difference that you see versus call it, that core large enterprise base in this medium enterprise base?

Yes. So great question. First of all, it's been during the last 12 months and its new ACV on land coming from medium enterprise, right? So we've been riding on that secular trend, as Sayan was saying, and we commented this on our earnings calls. We're going to try to leverage on those during the pandemic on those segments and those solutions that will provide higher yield. So what happened during the pandemic, obviously, you saw financials having more of a financial -- core financials of headwind. You see some large enterprise companies being a little bit more concerned on doing those transformations while they were being done remote. So we -- I think the team did a phenomenal job on focusing and driving that effort through medium enterprise that prove much more resiliency, right? And those medium enterprise customers have been buying both the financials and basically HCA at the same time. And then Sheri and the teams did a great job on really being very prescriptive on the time to value and on the scope of the solution and the fixed cost implementations that provided a great value proposition. So I think that has been a great segment. And it's shown us to be honest, that it can be a great opportunity for us going forward. I believe as well that there's been some weakened basically situation from time with the competitors playing on that segment that I don't know if we're taking advantage of, but we've been really gaining market share. So we're going to keep doubling down on that one. It's a great segment for us. And that does not mean that we don't have a great opportunity in large enterprise, we do. And the second thing is some of those medium enterprise deals are still in ASV because again, you saw the number of solutions we land with 9. Much of that is driving from medium enterprise. So you still see $1 million-plus deals there, more than 1 or 2 in ACV. So don't get mistaken that it's medium enterprise and they're tiny and they're not really contributing. They truly are.

And just one thing to add about medium enterprise. There's only a handful of countries in the world that have large populations of Fortune 500 countries -- Fortune 500 companies. So when you get outside the U.S. many of the markets like Germany and France and Spain and in Asia, they are medium enterprise markets. So that is that. As we become more international, we're going to sell more medium enterprise business.

And I'll just layer in on the unit economics CAC. I think I would say, between medium enterprise, large enterprise, they're relatively similar, so no meaningful difference. And I would just say the same for churn. Again, they are large -- they're still large companies. It's not like it's S&P, where you typically see larger churn.

Good point.

Raimo Lenschow from Barclays. I don't want to pitch Aneel against Chano on stage here now, but a quick question, as you think about and involved as a company, like Workday always has been very heavy on product innovation, product development because there's such a big market that you're going against. And if I look at your ratios compared to the peers, you always spend a lot more, which kind of is paying off now. On the sell side, though, you always kind of spend less than the other guys. And Chano, I'm sure you kind of do the metrics on your sales productivity, et cetera. What's the argument or what's the thinking for the long run, not just core macro kind of ignore that, but more in the long run in terms of doubling down more on sales as you have more product to sell there and changing that ratio in a slightly different direction?

Yes, I think Chano and I are exactly in the same page. As we get more synergies from the rest of the business, we're investing in sales and marketing. Different than our companies that are viewed as peers in the cloud, not SAP and Oracle, but our peers in the cloud, we set out to build something huge. I mean ERP is not -- it's not a single area of product and it's super complicated, especially finance. So we needed a massive R&D investment to get it going. And as we start getting economies of scale through Sayan's efforts and just critical mass, I'd rather -- I personally -- I mean, Barbara and I have this conversation all the time. I personally wouldn't want to keep driving up margin, the operating margin. I'd rather put it now back into sales and marketing as we get more global opportunity and, frankly, a fairly benign competitive environment. I mean it's not benign. We have 2 big competitors. But our world hasn't changed. We've got the same competitors we had 17 years ago when we started the company. There's no Amazon. There's no Google. Microsoft competes at the low end. We've got a pretty static competitive environment. So we should be racing on and getting as much market share as we can. Chano, I think he see this exactly the same.

Completely the same.

I don't know who agree with what you write, Raimo.

It's Mark Marcon from Baird. Thanks for doing this, it's been tremendous. I'm wondering, can you talk a little bit about 2 different things. One would basically be what you're seeing in terms of the international Global 2000 in terms of their recognition to digitize their systems and to go for the best-in-class solutions that are out there, particularly on HCM, but also in terms of financials. That's -- to what extent are we starting to see an inflection there? That's number one. And then number two, what are the implications with regards to CapEx on a long-term basis as you continue to move more towards the public cloud? And then in addition to that, thinking about APIs and partnerships?

Yes, I can take the one on the Global 2000. I think we shared today -- well, I think we shared today 25% basically penetration Global 2000. If you go back a few years ago, we were certainly under 20% or was 17%, 18%. So we are making progress there as those companies are understanding better the benefits of moving to the cloud in the different markets they do operate and they do have different maturities. As you know, where those are based. We are expecting, based on our pipeline and the conversation we're having to keep making progress there. Both I would say in HCM perspective, as some of those as well are realizing that their legacy systems on the financial side, they are not really built up any longer to keep coping with the business. And I expect to be gradual. But some of those are again have become financial customers and expecting that, that trend will continue.

And maybe how about Europe versus Asia Pacific?

Sorry?

Like how would you compare international Asia Pacific versus Europe in terms of adoption?

Yes, that's a great question. Clearly, Europe much more mature. But if you go -- we -- the countries that we define Europe as Tier 1, as the one we've seen, we're seeing because we're doubling down on that one, seeing very significant increased growth, right? I mentioned in the last period, 100% basically increase in new ACV. What I would say when you go to APJ, obviously, Australia and New Zealand in terms of cloud penetration is a different stage than some other geographies. But obviously, Singapore, I would say, is following, but it's a much smaller market, right, than some others. So that's how we compare it.

Michael Turrin of Wells Fargo. Thank you for hosting. Disappointed there aren't any big ears on stage. But one of the questions we've been asking across enterprise software who is overmonetizing versus undermonetizing. You have a very compelling set of slides on just where you are in terms of penetration. I think we're getting the question just in terms of how you go back to customers in an environment like this and sell effectively. Back in the days, given these often our larger deals upfront. You've obviously added a lot more in terms of new product. And so just in having some of the customer conversations you're having currently, are there any observations you can share in terms of what gives you that right of preference to go back to customers now and engage on some of the new products and some of the innovations you've been working towards?

Yes. As Aneel was saying, it's mission-critical applications, right? So at the end of the day, the customers are renewing is because they're seeing value in the applications we're driving. So what we've been trying to do, I mean, times like this is go back to playbooks where we go more to tangible basically ROIs and return on investments, which is with customers we do appreciate. We leverage our customer -- referenceable customer base in terms of sharing with each other the use cases and how they're driving value. Sometimes, as I said, I had to talk to too many customers. I was talking to a CHRO and a CIO of a very global large bank, and they say, listen, the business case just goes on its own, just for compliance. Sometimes that is underappreciated. Don't get me wrong, they're seeing a lot of value in terms of managing their workforces and helping them on to bring them back to work and I'm managing their talent and so on and so forth. But just on compliance and data points and retiring all those legacy systems that they need to report on and they maintain because a hell of a lot of money these days. So it's working with them in partnership, so they do understand that. even some of our referenceable customer base and go through those playbooks. We drive significant value, and they would -- we would not be having those retention ratios. We would not be mission critical or adding value. So that's why we're trying to ensure that we train our go-to-market teams to leverage now, and we work with our partners that they do understand as well.

I would start. It all starts with happy customers, right? Everything that you asked about starts with happy customers. And I think you get the sense, customers are pretty happy here. And in a challenging economic environment, they tend to favor the safe choice versus start-ups for these new modules or any of these other products and fewer is better. So that trend really benefits us during a tough time where we see large companies saying, we looked at 2 or 3 of these companies. We're not surely going to be around. We're just going to go with what you have. We know you're going to be around and we know you're our trusted partner and by the way, we're happy. And I think that's -- if you guys take away one thing from this conference is take away happy customers, and that is our golden goose.

We also see that for a customer that's renewing who's been on Workday for 3 years, I'd say with core HCM and then they turn on talent optimization, they have amassed that data. The minute they turn on talent optimization, the ML was already has the data set to work on. So they're seeing immediate value in that second phase.

Derrick Wood at Cowen. I got a financial question and then a higher level question. So Barbara, just to get some clarification, that 20% growth, is that organic, does that include potential acquisitions and is that an average? Or is that kind of a commitment to do at least 20% every year until you hit $10 billion? And then you gave operating cash flow margin targets. Any color on kind of CapEx percentage of revenue? And then just as kind of a toss-up to you guys from a broader perspective, I mean, I know we're early in the conference this week, but just would be curious what you're hearing from customers from a macro standpoint, a demand standpoint. Is there pressure in budgets? Is there more decision-makers involved? Or is there a lot of confidence that projects are high priority? Just would love to hear any color you've gotten so far.

So I'll take the financial ones first. So we are targeting to sustain 20%-plus subscription revenue growth on our path to $10 billion, and that is a view based on the opportunity we have in front of us, it's organic. So M&A would be on top of that. Of course, we're carefully watching the environment. And to the extent things materially worsen, that could have an impact on our growth rate, but it remains our focus.

Can I say one thing? You used the word commitment, I would say it's our plan because we do not control the outside world. But our plan in a relatively moderated world, which -- who knows where we're headed right now is that. But that commitment is -- that's out of our control.

And you had CapEx too as well, yes. So CapEx clearly, this year is an investment year. We do expect it to go down as a percent of revenue. I think the right way to think about it is probably around 5% or 6%, which is -- 5% or 6%, which is what we saw prior to this year.

On the customer question, I would say we will know more at the end of the week. There are a lot of meetings that are going to be taking place after we're done with the keynotes, right? No much more update than what we said on our earnings Q2 call.

Brad Zelnick with Deutsche Bank right over here. Thanks so much to Justin and Andy and all of you for a great in-person event. I wanted to ask about Extend because it's something that's slowly becoming a lot more prominent, I think, to the Workday story, something we hear a lot about in speaking to partners and even customers. And my questions are more in trying to understand the prioritization and how you monetize. Is it about winning more business and driving win rates because you're better able to solve the customer problem? Is it about having partners that can develop applications themselves and monetize in that way? What are the different ways that it drives success for Workday and its customers? And maybe for Sam, in particular, as you think about the partner strategy and industries and how important that is, where does Extend play and fit into that?

Why don't I start. The answer is yes and yes. And yes, on a bunch of other things as well. Extend is a paid product, one. Two, Extend allows us to create solutions in industries that increase win rates, increase presentation rates as well. We talked this morning, I don't know if you were at the keynote at this morning, but we talked about the -- just the explosion of solutions that are being created in the greater ecosystem. 25 packaged solutions this year, but 750 production applications now. We had DevCon this year. Second annual, we had over 1,000 people there. We had just lots and lots of kind of people getting trained and coming into the ecosystem. So Extend is a way for us to unlock a lot of different things that we need to do in the product. Last thing I'll say is Extend also makes it so Sayan and team doesn't have to build some things that otherwise customers would be asking us for. So sometimes there's these really unique requirements that a customer has and that they might be asking us, Hey, could you please build this thing and it would get in the way of the product road map? Instead, Sayan can focus on much higher value things that we can sell to all customers and a customer can use Extend to kind of unlock those use cases.

Yes, it absolutely helps us address the long tail feature set, as Pete has mentioned. And I also think it gives customers the ability to really engage with Workday. I think one of the challenges as we've transitioned to the cloud in a lot of cases is it's happening outside of the IT department, right? You're getting a lot of leverage, but a lot of the knobs and levers that the IT organizations used to traditionally have with their software applications got taken away. And by giving them Extend, they are able to help fit and close gaps between what is delivered in the product and what the enterprise needs in a very strategic way. And then, of course, I'll let Sam talk to the partners, which, of course, are...

Yes. Well, I mean, thank you for the question. Our partners are obviously super excited about Extend and where it's going. It allows them to do several things. First of all, I think it's building a developer community out there, which is something that is going to help us all kind of build the long tail and make sure that we're not doing everything on our own. Second, it's really giving our partners the ability to differentiate because they have deep expertise in these industries. They've done it for decades. And they want to differentiate themselves from each other, if you will, as they go to the customer. And so they are really uptaking Extend and they're writing new applications, and they're writing new workloads. They're integrating at the data level, at the business process level. So they're creating a lot of use case scenarios that otherwise we wouldn't be able to do. And then at some point, we're going to take those to market and they'll start to monetize those as well. So building the solution and accelerating that innovation but also taking it to market is super attractive to our partners.

Okay. We're going to take 2 more as comfortable as those chairs look up there. So just questions I'm going to go over here.

It's John DiFucci from Guggenheim. Brad kind of took my question, but just a follow-up with this question. How do you actually monetize it, though? Like how is it priced? Because Sam, we're out there talking to partners. They really are excited because they see it as something that they can build the business around. They can not only -- it supplement their implementation services, but they can even do it, take a book out of Chano's -- take a page out of Chano's book and go back to their base and sell more things to what they need. So it's pretty exciting and something I've been asking Aneel questions over the last more than 10 years probably on this. Like when are you going to open this up because it's something unique? It's really cool. And he would turn to his tech people and say, when are we going to open this up because it's really cool.

And then Sayan finally said, yes.

But how do you monetize -- like what is -- how is it actually priced? Like how are -- how is it going to be?

Well, we see 2 ways of doing it. If you look at the Deloitte's Accelerate to Zero solution, for example, right? It's a Deloitte sold solution on Deloitte's paper but it wraps into with a channel motion for our adaptive product. And so as they go and sell the use case for the ESG reporting, the Adaptive Workday product is sold as part of that motion. So that's one motion is on partner paper monetizing their IP on top of us as a platform, right? But then the other motion of that is us reselling partner solutions. We're piloting with a few of those right now to try and figure out where do we want to selectively do this and where do we not want to do this. And so our ability to also go to customers in potentially areas that were either missing or customers want that we don't have and then be able to wrap a partner solution in that allows us to monetize it as a Workday SKU, for example, and then pay the royalty back to the partner.

Yes. But the vast majority right now comes directly out of customers. How are we charging the customers, Chano?

We use an SKU.

Is it based on -- how many CPUs you're running? Or is it...

It is based -- it's a calculation based on organizational size plus usage. So if I'm a small organization, and I'm using it a lot, or if I'm a large organization, right? And so both knobs are in that calculation.

As they're building more and having more developers and building more use cases and Extend, it grows, of course, right?

Yes.

And if I could, just a quick follow-up. The -- so this whole -- your infrastructure, like I said, I always thought it was really cool. But I also think there's a cost to it, too. And I think that's part of what your R&D is, part of that cost, it's embedded in there somewhere. I'm wondering if you could share at all maybe Barbara, like what is the cost of maintaining your proprietary infrastructure, which is unique and has made -- has given you the flexibility? It's given the flexibility in it from a technical perspective? But is there any way that you can break that out or even roughly?

Well, I mean a lot of that is in our cost of subscription. Beyond that, that's not something that we've broken out.

It's not broken out, but every application vendor has some level of proprietary technology. There's not a single one SAP Oracle, ServiceNow, Salesforce, we all have proprietary development platforms. I think ours is purpose-built and really cool for what we do in HR and finance. There are components that Sayan looks at replacing over time that are now probably available on open source, and we're constantly doing that. But everybody has their proprietary development platform that's purpose-built for applications.

And I think on staying again on the monetization, more as one that has a lot of room to expand. It's usually not one that you land is small because we may discuss a use case for something they want to do, again, as the end increase usage. So saying adding more and they see more use cases and they're contributing as a long tail or potential basically upside on Expand.

Brad Sills here, BofA Securities. Thanks so much for a wonderful event. I wanted to ask one on FINS and verticals here as well. Financials, 70% penetration in the Fortune 500, 75% penetrated in education. How did you get that far along in those verticals? One thing I noticed on those slides was that Accounting Center seemed to be the common theme. Is that simply what's required here. You turn that AI, ML engine to fill in the blanks on some of those processes that Accounting Center can manage? And then the second question would be on customer satisfaction. How do you achieve those kinds of scores because we often don't hear that as the case from other big ERP vendors. So it seems to be a real differentiator.

Okay. I'll take the industry, and maybe Aneel, I'll let you comment on the customer satisfaction. First, on the financials. On Financial Services, what I shared, Brad, is like we have 70% of the Fortune 500 as customers, right? And that we've seen a significant step change in what those customers have been taking on to core financial management and financial plus and that we see there's a good opportunity for us to keep going forward. But there is a lot of room there for attaching financials to our core HCM customer, especially because of the value proposition on Accounting Center. It is true on ENG, as you commented, we already have on our current customer base there, the 75% attachment on financials because usually those customers, they tend come to us because we do have a student as a value proposition. They may take it today or they implement it down the road. That's once they've done the full year HCM financials, but they like the operational system as enhancing the value proposition. So their financial management has that attached on our customer base today. But clearly, there is a tremendous opportunity there we haven't touched yet. And I mentioned state and local, which is outside of E&G of course, the opportunity that will come with [indiscernible].

Sheri, you want to take that one?

Yes. So on customer side, I would say a couple of things. One, we talked to a core value for the company. So every single employee in the company is focused on customers. So that is super helpful. I would also say we try to make sure that all of our deployment methodologies, it's -- we want to make the customer go live as quickly as possible, right? So time to value, like we talked about earlier, is super important. And the sooner the customer can realize value, the happier they are. And then we maintain those relationships for the life cycle of the account.

Okay. So we are going to close it there. Thanks, everybody, for joining. For those of you in-person, again, we're going to have happy hour networking right outside these doors. And for everybody else on the webcast, thank you, and have a good evening.