Release Date: November 26, 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 financial performance in Q3 with 16% subscription revenue growth and non-GAAP operating margins of 26%.
- The company experienced strong customer expansions, particularly in government and higher education sectors, with 90% of wins being full suite.
- Workday Inc (WDAY) continues to see significant demand for its AI solutions, with more than 30% of customer expansions involving AI products.
- The company has a robust partner ecosystem, which has grown nearly 5x in 18 months, contributing to over 10% of net new ACV in Q3.
- International growth remains a compelling opportunity, with strategic partnerships formed in regions like APAC and EMEA, despite some economic headwinds.
Negative Points
- There is increased deal scrutiny in EMEA, impacting the pace of decision-making and potentially affecting revenue growth.
- Some strategic deals in Q3 have future product deliverables, delaying revenue recognition until FY26, which slightly impacts near-term results.
- The company faces challenges in maintaining growth rates as numbers get larger, with potential pressure on margins.
- Q1 FY26 subscription revenue growth is expected to be slightly lower due to the leap year impact, creating a headwind.
- Despite strong performance, Workday Inc (WDAY) continues to face economic headwinds in certain regions, particularly in Europe.
Q & A Highlights
Q: Can you elaborate on the deliverable issue in Q4 and its impact on fiscal 2026 guidance?
A: Zane Rowe, CFO: Several strategic deals in Q3 had product deliverables that delayed revenue recognition, impacting Q4 by approximately $8 to $10 million. This will contribute about half a point to growth in the second half of FY26. These are key strategic deals, and we expect them to drive demand, particularly in the federal government sector.
Q: How do you view the impact of the US Federal business reaching an inflection point, especially with potential government spending cuts?
A: Carl Eschenbach, CEO: We see a significant opportunity in the federal sector, with over 80% of HCM and ERP still on-premises. The push for efficiency should drive demand for cloud solutions like Workday, which can offer economies of scale and efficiency.
Q: With Rob Enslin joining as President, will there be any changes to the partner strategy?
A: Carl Eschenbach, CEO: Rob's extensive experience and existing relationships with our partners will enhance our strategy. We have a six-month overlap with Doug Robinson to ensure a smooth transition, and I expect no negative impact on our go-to-market strategy.
Q: Can you discuss the AI monetization strategy and its impact on future growth?
A: Carl Eschenbach, CEO: We have a multipronged approach to AI monetization, with customers willing to pay for solutions like Recruiter Agent and Talent Optimization due to their tangible ROI. New AI agents like Expense Agent and Successor Agent will be priced based on customer value, supporting sustainable growth.
Q: What informs the Q4 guidance, and how does it relate to growth and margin expectations for next year?
A: Zane Rowe, CFO: We have a solid pipeline and momentum, particularly in AI solutions. Q4 is historically our largest quarter, and we expect to balance top-line growth with margin expansion, aiming for over 30% margins in the next two years.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
