Release Date: May 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Workday Inc (WDAY, Financial) reported 19% subscription revenue growth and 18% 12-month backlog growth.
- The company achieved a non-GAAP operating margin of 26%, reflecting strong financial performance.
- Workday Inc (WDAY) closed several strategic deals, including a significant win with the Defense Intelligence Agency.
- The company continues to see strong performance in key verticals such as healthcare and public sector, with healthcare ACV growth exceeding 50% in Q1.
- Workday Inc (WDAY) is making significant investments in AI, with over 50 AI use cases live in production and 25 generative AI use cases on the roadmap.
Negative Points
- Workday Inc (WDAY) experienced increased deal scrutiny and slower headcount growth, particularly impacting large deals and renewals.
- The company saw fewer large deals closed in EMEA compared to the previous year, indicating regional challenges.
- Subscription revenue guidance for FY '25 was revised down to 17%, reflecting the impact of macroeconomic factors and deal scrutiny.
- Headcount growth at the time of renewals was lower than expected, which is anticipated to persist throughout the year.
- International markets, particularly EMEA, showed pockets of softness, affecting overall performance.
Q & A Highlights
Q: You talked about the extended sales cycles and smaller customer headcount growth. Was that primarily restricted to EMEA? Or did you see some of that in the U.S., too? And if the partner generation of new business continues, would you consider getting the guidance back on track?
A: We saw increased scrutiny on large deals and net new deals globally, not just in EMEA. This scrutiny was more pronounced for full platform deals involving multiple buyers. Regarding partners, we continue to see strong pipeline and business growth through our partner ecosystem, which is encouraging for future performance. (Carl M. Eschenbach, CEO & Zane C. Rowe, CFO)
Q: The aspect of the lower customer headcount growth, does it align with the slower headcount growth you're seeing across the base? Is it more pronounced at HCM than FINS?
A: We are seeing a slowdown in headcount growth across our customer base, which is below our expectations. This trend is consistent across both HCM and Financials, although it may appear more pronounced in HCM due to our larger installed base. (Zane C. Rowe, CFO & Douglas A. Robinson, Co-President)
Q: What buffers have you put into the guidance to ensure confidence in the full-year guide given the headwinds?
A: We have been thoughtful in our forecast methodology, accounting for the deal scrutiny and headcount trends. Our pipeline remains strong, and we have adjusted our guidance to reflect these dynamics. We believe the updated guidance is appropriate given the current environment. (Zane C. Rowe, CFO & Carl M. Eschenbach, CEO)
Q: On EMEA, do you think the lower wins are due to internal execution issues or external factors?
A: We believe the lower wins in EMEA are due to external factors, not internal execution. We have made significant improvements in our go-to-market strategy, pricing, and partner ecosystem in EMEA, and we remain bullish on our leadership and market approach. (Carl M. Eschenbach, CEO)
Q: How much of the deal scrutiny is attributed to full platform deals versus renewals?
A: The increased scrutiny is primarily on net new deals, especially full platform deals involving both HCM and Financials. Renewals have not seen the same level of scrutiny. (Carl M. Eschenbach, CEO)
Q: Are you seeing similar scrutiny and regional pressure in the mid-market?
A: Our medium enterprise business, particularly in the U.S., performed well. We are seeing strong full platform sales in this segment, supported by changes in pricing, packaging, and rapid delivery capabilities. The partner ecosystem is also contributing significantly to pipeline growth in the medium enterprise. (Carl M. Eschenbach, CEO)
Q: Typically, you don't get a margin raise alongside a revenue cut. Where did you find those efficiencies? And would you consider focusing more on margin upside?
A: We have been focused on scaling efficiently, leveraging AI, and being mindful of our investments. We continue to balance growth and margin expansion, and we believe there is more to come on both fronts. (Zane C. Rowe, CFO)
Q: Is the scrutiny on larger deals reflecting a slowdown in business cost optimization cycles? Are you seeing changes in the number of products being replaced in deals?
A: We are still seeing vendor rationalization and standardization on our platform within our customer base. The scrutiny is more pronounced in net new transformational projects, particularly in large enterprises. (Douglas A. Robinson, Co-President & Carl M. Eschenbach, CEO)
Q: Are there certain verticals seeing slower-than-expected headcount growth? Is this related to AI productivity gains?
A: We are seeing slower headcount growth in verticals like media and technology. While we have adjusted our forecast for headcount growth, we do not attribute this directly to AI productivity gains at this time. (Carl M. Eschenbach, CEO)
Q: How do you assess the seasonal versus persistent impacts on your business? What offsets do you see on the product side?
A: While Q1 is seasonally slower, we have adjusted our guidance to reflect persistent dynamics like deal scrutiny and headcount trends. We are encouraged by the early indicators from our AI-related products and innovations, which are growing rapidly and generating significant interest from customers. (Carl M. Eschenbach, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
