- Subscription Revenue: $1.903 billion, up 17% year-over-year.
- Professional Services Revenue: $182 million, contributing to total revenue of $2.085 billion, up 17% year-over-year.
- US Revenue: $1.56 billion, up 16% year-over-year.
- International Revenue: $524 million, up 18% year-over-year.
- 12-Month Subscription Revenue Backlog (CRPO): $6.8 billion, up 16% year-over-year.
- Total Subscription Revenue Backlog: $21.58 billion, up 21% year-over-year.
- Non-GAAP Operating Income: $518 million, resulting in a non-GAAP operating margin of 24.9%.
- Operating Cash Flow: $571 million, up 34% year-over-year.
- Share Repurchase: $309 million repurchased at an average price of $223.10 per share; new $1 billion share repurchase program authorized.
- Cash and Marketable Securities: $7.4 billion as of July 31.
- Headcount: Over 19,900 employees globally.
- FY25 Subscription Revenue Guidance: $7.7 billion to $7.725 billion, approximately 17% growth.
- Q3 FY25 Subscription Revenue Guidance: $1.955 billion, approximately 16% growth.
- FY25 Professional Services Revenue Guidance: $680 million to $690 million.
- Q3 FY25 Professional Services Revenue Guidance: $175 million.
- Q3 FY25 CRPO Growth Guidance: 14% to 15%.
- FY25 Non-GAAP Operating Margin Guidance: 25%.
- Q3 FY25 Non-GAAP Operating Margin Guidance: 25.25%.
- FY25 Operating Cash Flow Guidance: $2.35 billion.
- FY25 Capital Expenditures Guidance: Approximately $330 million.
- FY26 and FY27 Subscription Revenue Growth Guidance: Mid-teens growth.
- FY26 and FY27 Non-GAAP Operating Margin Guidance: Expanding to 30%.
Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Workday Inc (WDAY, Financial) reported a solid quarter with 17% subscription revenue growth and 16% 12-month backlog growth.
- The company achieved a 25% non-GAAP operating margin, indicating strong operational efficiency.
- Workday Inc (WDAY) expanded its customer base with notable wins including JB Hunt, Nissan, Target, and Trinity Health.
- The company crossed the 2000 customer milestone in Workday Financial Management, showcasing its growing influence in the financial sector.
- Workday Inc (WDAY) continues to innovate with AI, introducing new capabilities in HCM and financial management, which are expected to drive future growth.
Negative Points
- The macroeconomic environment remains challenging, with moderated headcount growth within the customer base.
- Despite strong performance, the company has slightly moderated its pace of subscription revenue growth in its medium-term plans.
- There is ongoing deal scrutiny, particularly in the EMEA and APAC regions, which could impact future growth.
- The company faces competition in the AI space, and while it has a strong data set, it needs to continuously innovate to maintain its edge.
- Workday Inc (WDAY) has adjusted its medium-term outlook, reflecting a balance between growth and margin expansion, which may indicate cautious optimism about future market conditions.
Q & A Highlights
Q: Can you talk about where you think you can get additional efficiency at scale while still investing in areas like international growth?
A: Over the last 2.5 years, we've expanded our operating margin by 500 basis points and plan to increase it by another 500 basis points over the next few years. We're finding efficiencies in our global workforce strategy, leveraging new offices in India and Costa Rica, and focusing on quota-carrying capacity and software development. We're also using AI in our finance organization, call centers, and software development to drive efficiencies. Additionally, our partner ecosystem and financial sales force are starting to scale, contributing to operational efficiencies.
Q: How do you see the impact of elections and potentially lower rates playing out in the short term?
A: We can't predict the future impact of elections, but the current macro environment hasn't changed from Q1. We believe this is the new norm for IT spending. Regardless of the macro environment or elections, we will continue to grow our business due to our strong value proposition.
Q: How would you characterize the cross-currency AI landscape and Workday's position in it?
A: We are taking a measured approach to monetizing AI, focusing on competitive win rates, high renewal rates, and customer satisfaction. We're not rushing to market with price uplifts but will introduce new SKUs where justified. Customers recognize the value of AI when they partner with Workday due to our clean, highly curated data sets in HR and finance, which is a significant differentiator.
Q: What gives you confidence in maintaining mid-teens growth despite lowering the growth rate slightly?
A: Several factors give us confidence: the success of our partner ecosystem, international opportunities, the financials market, and ongoing innovation. We also remain inquisitive about M&A opportunities that can help maintain our growth.
Q: What drove the change in tone towards more margin expansion while ensuring you're well-positioned for any rebound?
A: The current environment is the new norm for IT spending. Our growth initiatives and operational efficiencies give us confidence in driving durable growth while investing in the business. We've come to a better understanding of the costs and returns of our growth areas, allowing us to balance investment and margin improvement.
Q: Are you seeing slower headcount growth broaden out to more verticals, and how does this impact your medium-term growth outlook?
A: The assumptions for headcount growth have remained consistent with Q1. We consider this the new norm and have incorporated it into both our FY25 guidance and medium-term outlook. It has not significantly impacted revenue or bookings.
Q: Are there specific areas within financials that you're particularly excited about?
A: Accounting Center is selling well across industries, not just financial services. Student is another area that changes the game in higher education, driving full suite opportunities. Workforce planning is also gaining momentum, showing a tight correlation between our HCM and financials platforms.
Q: How do you balance growth between the lower end and higher end of the market?
A: We've had success in large enterprises and are pushing into medium enterprises aggressively. We're seeing success with full suite deals in this market, aided by modified pricing, packaging, and accelerated deployment capabilities. Our partners are also helping drive faster adoption in the medium enterprise market.
Q: How do you see the current IT spending environment affecting your medium-term outlook?
A: We believe the current environment is the new norm for IT spending. While things could change, we are prepared to update our model if we get tailwinds. For now, we are basing our medium-term outlook on this new norm.
Q: How do you think about the mix between R&D and sales and marketing for future efficiencies?
A: We see opportunities for efficiencies in both R&D and sales and marketing. We're leveraging AI to help with innovation and process improvements. As we grow globally, we aim to balance our workforce and investments across these areas to drive both innovation and efficiency.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
