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

Welcome back. We have Zane from Workday and Justin, who I invited on stage, but he doesn't want to be near me. So he gave me the [indiscernible]. But really, a great pleasure to have the team here. And Zane and I have known each other for a long time. I did not cover him when he was the CFO of United Airlines, but I did work with him at VMware and now Workday. And so it's been great to have the history with you and watch your success. Thanks again for being here. And I guess...

Brent, thank you, and thanks to everyone here. I know you're 30 feet from a lot of sun and beautiful weather and yet we're here in what looks like a classroom. But thanks for all of you for being here.

I am working on getting the windows space next year. So you shouldn't be in the interior, you guys should be in the -- we'll work on that.

So maybe we just start with the reaction last week. I think everyone was maybe a little surprised by the reaction and just to get your thoughts about what happened in the quarter, kind of your view and maybe how you think about just the -- your thoughts on what happened?

Sure. Yes. No, happy to get started. We are very pleased with the performance in Q1 coming off what was a strong Q4, we set up for the year. And as you know, in SaaS, Q1 is an important quarter, and we feel really good about where the business is and the performance in the quarter. We hit all of our guided metrics, if not exceeded the metrics that we share externally. So net-net, we feel good about where the business is, the growth in the business, both the customer base and the net new are performing well. If there's anything, I think where there is some criticism is probably around us not because we outperformed. We didn't increase the guide for the year. Our subscription guide, we held at $8.8 billion. We feel good about that guide. Obviously, we recognize, as we mentioned on the call that there is an uncertain macro that a number of our customers are containing with both existing and prospective customers. So we wanted to be thoughtful around the year and the progress that we expect to make through the course of the year. But again, we actually felt good about the quarter. I think if there's anything, we saw a run-up heading into the quarter, and if there is any sort of "disappointment", it may have been on the CRPO number, which again was in line with our expectations and with what we believe will be a good launch pad for the rest of the quarters as we expect continued growth quarter-by-quarter for the remainder of the year, in particular, in the back half of the year. We highlighted sequential growth expectations on our fourth quarter call, and we're within those expectations for the second quarter as well. So net-net, we feel good. But if there's anything there, I think there may have been some disappointment around us not increasing the guide necessarily. And then the CRPO number is obviously one that's closely watched. We've mentioned in the past where we've come in higher than expectations, driven by renewal activity. CRPO is very dependent upon both existing and expected renewal activity as well as early renewal activity. It's got a big duration component there. And we mentioned in the quarter, our early renewal activity came in as expected. But where we've exceeded expectations in the past, it's been around this renewal activity. And we mentioned the first quarter came in line with expectations. So net-net, we feel good about the quarter. We feel good about the year, and we'll just continue to execute to make that numbers.

And Q1s are always met with new quota assignments territories, there's always a little reshuffle, but it didn't sound like there was really any big reshuffle on the go-to-market team in Q1, correct?

Correct. No, that's exactly right. We feel good about the areas we're in, the business we're in. Obviously, a number of the areas, we see great opportunity like Fed and even state and local, which we recognize are areas that are more prone to some of the macro and some of the conversation out there. But we feel great about where we're growing the business with Rob coming on as part of the team, he's really taken -- he's our President and leading our growth opportunities, and he's got tremendous experience looking at different parts of the globe, different industries. -- how our product matches up with our competitive dynamics, but also where the product can grow around the world. So we feel really good about where we are. No changes on the sales front.

And speaking to Rob, I mean, he's got obviously, a great playbook having worked for one of your other primary competitors. So he's got a good playbook. Many have asked is he -- where is he at? Is he through his listening tour? Is he now in the execution tour? How would you characterize kind of where he is at in his?

Yes. So I think the listening tour lasted about a week and now he's into executing and working with the team. I got an email from him and he's in this morning. He's in Europe right now. He's really taken a holistic view of the business. I mean, Rob, again, is a known commodity out there. He is diligent. He is very thoughtful. He works well with all of our partners and has a great presence around the globe. So he's identified growth opportunities around the globe and different ways that we can think about executing at speed, going to market faster using different types of resources to go to market around the globe and really thinking about verticals, segments and looking at really the entire product portfolio, -- we were also very pleased to have Garrett Katzmeier joining us from Google, who's worked previously with Rob in one of the companies that you didn't mention. And he and Rob have really gone through the portfolio and really thinking about where we're developing, how are we developing and how do we go to market. So it's been great to team with them, to pair with them. They're a great -- both of them are great adds to the executive team, and we're excited about the energy and the view that they bring to the company. So he's hitting the ground running and working hard right at this minute.

You won a very large airline called United. I know that was probably heavily contested. You're also the CFO of United. You must have been the primary salesperson. There's no commission payout, right?

Well, there's definitely no commission payout. I found that in fact, I didn't even get invited to club. So no commission and no trip to club tied to that one. But interestingly enough, it was the team and we're -- it's obviously a brand we're incredibly fond of and thrilled to have them as a customer. It was one of the...

And he did not fly Delta yesterday. He was -- I was on his flight with him. So we were on United together. He's united all in.

Exactly. I am, for sure. No, it's a great team. And I will tell you, obviously, I had some conversations with the team at United. And it was really about our team delivering. I actually was not actively involved. Obviously, I had a few conversations at the appropriate time, but I was not actively involved. And I think it just highlights the presence of the team, the fact that yes, it was heavily contested. And we're obviously thrilled to have them as a customer and very pleased with what we will be doing with them. But I think it's really a testimony to the team that worked on that account, but also more broadly, our go-to-market opportunity and the product itself is one that resonates across industries, including airlines.

Yes. We didn't talk about this post the call, but when you think about the -- some of the concern around SLED, state, local and education, when you think about the exposure to your business, I don't know if you've ever broken that out what percent that is of the business.

Yes. We have not broken it out, both on the Fed side and then state and local, tremendous opportunity for us. I mean, one of the characteristics of state and local when we win, we typically go in with the full suite. And with the platform we have, enabling state and local communities to leverage that suite and really thinking about the future and even leveraging the AI and Agentic AI themselves is terrific. Now obviously, it is an area that, as we discussed, has some challenges ahead as a category. But within that, we've got customers that are thrilled to be customers, and we've got opportunities there that we still believe we can execute on through the course of the year. So it's small and growing but definitely a focus for us, very exciting opportunity.

Okay. Carl has made a lot of changes. He's brought a lot of great people on -- when you think about the team, is the team now kind of set where you want for the next chapter of this journey. I know there's been some changes. But is this the team now, most of the pieces in Rob's end, you've got.

Yes. I mean I couldn't be more pleased to be a part, but it's not just the executive team. It's the 19,500 workmates that I have the privilege of working with. And really, anywhere you go, for those of you who know anyone who works at Workday, we have this incredibly strong culture, this incredible attitude that is around the customer and what we're doing with the customer. And obviously, Carl bringing in some new talent and people that I feel very privileged to work alongside. We're focused on executing, delivering results, growing the business. I can't imagine a more exciting time, candidly, to be a part of this business with what we're able to do with the platform, all of the conversation around AI, Agentic AI what we're doing with our system of record and how we're growing the business is exciting with all these verticals. I know it's still early. We've got a number of growth metrics that we talk about publicly, and we're executing against those, whether it's partners, international, our full suite opportunities, AI itself. And we've got just a long list of initiatives and candidly, a lot of work to do and to execute against. But this is a great time to be in this part of the business and to see the growth and value we're delivering to our customers, but we're also benefiting from ourselves.

On AI, do you think you'll just monetize that through the platform and embedded and just it's going to sell your platform? Or do you feel like, hey, there's all these add-ons we can layer in. There's been maybe some confusion about ultimately, what you think that looks like? I know it's early stage.

Yes. No, it's a great question. Early on, we wanted to spend time with our customers and think about the philosophy of adoption and having customers feel like they can actually use the technology. Our agents and what we do with AI has such a tremendous ROI to it. You really want your customers to embrace that and to recognize that as part of the sale. There are a number of different ways that we think of monetization today, whether it's in some cases, it's documents or otherwise in other cases, it is tied to headcount or other means. We believe there's great opportunity just in thinking about renewal rates as well as net new business and how we benefit from that. All that being said, in other cases, we have a recruiter agent that has deliverables that are tremendous for the customer, and we obviously share those benefits with them and charge for that. So I think it's still early days as you think about monetization, even with the APIs we have within Workday within the platform. If you think about where we go and as we extend that with partners and others, there are plenty of opportunities to leverage that bolt-on Workday applicability and to drive value and to drive monetization. So we've got a thoughtful process internally, but it's really about adoption and leveraging customers and having them recognize that value that we'll ultimately share with them.

One of the big questions we got is you went through one of the biggest reductions in force recently, and that's always painful to go through, but you were very clear, we're going to hire everyone back, if not more. and severance as well, in this kind of weird environment, you're seeing this in state and local and like do you tap air brakes on that? Or are you just plowing forward and staying committed to that rehiring plan?

Yes. I think that's a nice setup. So we -- just to be clear, obviously, we did have a reduction in force earlier. And as you pointed out, those are never easy as a company to go through. It was roughly 7.5% of our workforce. And at the time, we mentioned our intention is to invest back in the business and ultimately, have the same amount of people working. Now part of that is I do not want this taken out of context because it is about being thoughtful with growth and how we think about where those hires would come from and where they would ultimately go within the organization. We're not to a tight time frame or a time line on how we hire back. We're a growing company, and we have great aspirations on the AI front as well as becoming continuously more efficient and effective at everything we do, whether it's on product development, go-to-market in every aspect of the business. So clearly, not to be taken out of context. We will be hiring back. We wanted to make sure everyone understood that this is not us reducing. This is us, in fact, growing but different ways in different geographies and focused on specific areas. But we're very thoughtful in every hire we make in understanding what are the opportunities for that hire? Are we -- do we need that type of role in that position years from now? How do we think about AI? How do we think about where we are around the globe. So there's a lot more that goes into it. I don't want to make it sound like, "Oh, we're just going to hire for the sake of hiring." That's the complete opposite. We're very diligent about bringing people into the company ensuring that they're driving incredible ROI and growth for the business.

We know you're hiring because one of my friends just got hired and she's very excited. So...

Well, she's no doubt, a great individual and good talent. So...

So Europe has been very high on your radar to improve the cadence. Obviously, you have a very large competitor that's sitting there in Germany that has held center court for a long time. Talk through what's happening there, what you're seeing the signs of success last quarter, I think you highlighted some pretty big accounts even in Germany that you called out but what's happening in the Europe opportunity set?

Yes. I mean we still feel great about Europe. Now I say that if you recall, a year ago, we talked about being more challenged in general in EMEA. And over the last number of quarters, we've seen good success, including in Q1. And as I mentioned, Rob is there right now, and we'll have a Board meeting in London next week. So we're focused on that part of the world and that geography. We've seen great success, and we continue to develop our go-to-market as well as our product set around that area, and we're very pleased with the team we have there and the growth opportunities. We are mindful of the fact that our competitors there, plural, but we feel great about what we can do against them in certain cases and how we can partner with others. We've got great partners in Europe as well and how we're executing there is important to us. So we -- it's a focus area for us. We're 25% international. Our expectation is to continue to grow that percentage in Europe is 1 of the key areas that we'll be doing that.

Just back to capital allocation. You've been very open that you'd love to do more M&A, but you're not going to just do M&A for the sake of M&A. You've also increased the buyback and I would assume, I mean, it's been frustrating. Stock hasn't really done anything. How are you thinking about this balance with the stock that's come off? Maybe it's been overexaggerated you guys take advantage of that. How do you think about that?

Yes. So obviously, we announced last week a new authorization for $1 billion. So buybacks will continue to be a part of our capital allocation strategy. Look, first and foremost, we'll invest in the business where we believe it's the right thing to do, and we remain focused on that and focused on executing. We've got a number of key growth drivers in the business. And with Carl at the helm, we're focused every day on how we're progressing against those. What are we achieving? And there's a sense of energy across the company because we do believe there's a great opportunity here on growth and where we're taking the business. In addition to that, as you pointed out, we remain very active as it relates to acquisitions with HiredScore and Evisort being 2 acquisitions that we're thrilled with coming in last year. It's a high bar on the acquisition side, and we want to make sure there's great cultural fit, there's great technical fit, and it can truly augment and accelerate our portfolio. And there are companies out there that we believe will fit into that. But again, it's a high bar, and we're not going to acquire companies just for the sake of growth. We'll be very thoughtful around that. And in addition to that, as you mentioned, we also have buybacks. We've now increased the cadence of the authorization as well as of the buybacks, and that's one of the levers that we have as we think about capital allocation. So first and foremost, though, we're focused on executing and hitting our growth targets.

You love all your product children equally, but if you had one that is standing out right now inside the portfolio, who would you point to just as the current standout in the classroom?

No. I mean that's a hard one because I truly think it's the power of the portfolio and more to come on the Agentic side, as you mentioned, with the product set. The way we're thinking about AI is having it deeply integrated into the portfolio and driving business performance and the success and value that customers are getting are really how I look at it and how I think about what we're delivering and what we're driving. Recruiter Agent just being an example of a product that's easy to demonstrate the ROI behind. But I candidly think it's the portfolio and the data set that we have and the ability for customers to leverage that data set with AI, both with the Agentic opportunities we'll present to them. also using Extend and Extend Pro, which allows them, whether it's themselves or through partners, to leverage what we have on that data set and with those processes and develop their own AI, that's what I think is so compelling. And the full sweet wins that we've talked about as well, where we deliver both HCM and FINS to customers. In certain verticals, our full suite wins are a huge percent of our total wins and that enables companies to leverage both when you think about their human capital as well as their financials. So very exciting when you think about where AI is going, in particular on Agentic side and how these agents are going to be working with individuals and with part employee base in driving change. I mean we haven't -- if you look back at how HR and financials have been managed over the years, this is an opportunity to truly transform that, and we'll be doing that from the platform layer and not just some layer on top.

A lot of the partners will say, Extend is their killer app. I think did you give stats out about Extend Pro growth recently?

We didn't -- we talked about -- it's part of our AI sort of compilation, we've got a few AI targets and areas where we're public, and we talked about being 2x what it was just a quarter ago, and that obviously includes some of the other SKUs as well. But to your point, Extend Pro in the marketplace itself, we've got over 1,000 partners that work with us in both from deployment to go to market. And then obviously, with AI and the platform, and we're very excited about that and working with our partners so that they can leverage it and continue to have this ecosystem of partners thrive.

Okay. That's great. We get a lot of questions to you about what does the mid-market mean to Workday?

Yes. It's a great opportunity for us. We're very excited. As many of you know, we're over 65% of the Fortune 500. So the mid-market is an opportunity for us, both on simply growth and growth around the globe, but also allowing customers and as we continue to think about packaging and pricing and deployment times and just AI, it's just an opportunity for us to leverage all the strengths of the platform but at a different scale and size so that mid-market companies can ultimately grow and become large enterprises themselves obviously facilitated by our technology that can scale tremendously for them. So we've been heavily focused on the product side. And how we think about pricing and packaging and that product so that it is desirable for mid-market. It can be deployed faster than ever before and can leverage AI for our mid-market customers. So it's an area of interest for us. And I mentioned full suite earlier, it's also an area where we do very well with full suite. So the medium enterprise, one package that they can leverage.

Financials always gets a lot of questions. You're winning some really big financial deals some are coming to live, some aren't live. I know Salesforce has been talking about trying to get live. When do you think all this concern about can it scale go away? Are we at that point where hey, you can address any Fortune 500 now with financials? Or is this -- is there still a couple of mile markers you need to debt to get proof to those customers.

Yes. No. I mean, look, we've got some great customers in production today and working with it today to your point, sales force will be live very soon. In fact, I just did a video for them because I'll be in Europe next week. So they're going to be live very soon. We're excited about partnering with customers of all sizes. I believe the product scales, that's never an issue. It's more around the opportunities with large enterprise and the types of business, obviously, it financials itself aligns with certain businesses at that size and scale very nicely. So we continue to develop a product. It's one that has grown nicely over the years, and it's an area that we are focused on. Along with full suite. I mentioned that we're selling the package together, which is obviously a great way for us to sell as well. So if anything, we're focused on full suite as well as financials. But I think the scaling question has gone away.

Most underappreciated part of the story that you breathe and see every day that we can't see? What would you say -- yes, how would you characterize?

I was waiting for your finish.

Open-ended questions. What are we missing? What do you see that we can't see?

No. Look, I mean behind the scenes, the execution and the passion of the customer base as well as the employee base. And I know we've talked about all of these growth areas and where we are in sort of early innings in some of them, whether it's international growth, the AI opportunity. When you see the commitment of our what we call workmates, which are 19,500 workmates in delivering the product and what it does for customers when you're in our CXC and you have a conversation with the customer about helping them solve whatever issue they have, and we have a wide variety of customers around the globe in different verticals and different sectors, dealing with different things. And what we're able to deliver for them is something I get very excited about, and you just have to be in one of those customer meetings to recognize there's tremendous value that we can add and that's sort of the behind the scenes part of what we're driving, how customers are benefiting and ultimately, what we'll be executing against. And that's what ultimately delivers value, we believe.

Great. Zane, we're out of time. Thanks again for being here. Appreciate it.

Thank you, Brent. This was terrific. Always appreciate it. Thank you, everybody.