Workday Inc Q2 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Kirk Materne - Evercore ISI Institutional Equities - Analyst : Yes. Thanks very much. And I appreciate the early update on the midterm outlook as we look forward to seeing you guys out in Vegas in a few weeks. But Carl, can you just talk about where you think you can get some additional efficiency at scale while still investing obviously in places like international. I'm sure you'll go through this a little bit at the Analyst Day. But I was just kind of curious. Where are some places that you guys can continue to get that efficiency because I know you're not going to want to stop investing in some of these green shoots that you're seeing right now?

Question: Kirk Materne - Evercore ISI Institutional Equities - Analyst : Great. Thank you very much, guys. I'll turn it over.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc. - Analyst : Hi. Thank you very much. Good to see that you guys have taken a more balanced approach to growth and margin. One short-term question, one long term, if I could. Short term, the impact of elections and potentially lower rates, how do you see this playing out, Carl? I know that you were not here eight years ago, but Aneel famously warned about volatility in the upcoming Q4 back then and ended up surprising us on the upside as contract activity and renewal activity happened on the upside. So what is your take on the short term? And then one for you, Zane. Longer term, the expansion in margin, how comfortable can we get that it's not coming at the expense of the ability to reinvigorate growth if you do see that opportunity open up if we get a better spending environment? Thank you so much.

Question: Kasthuri Gopalan Rangan - Goldman Sachs Group, Inc. - Analyst : Wonderful. Thank you so much. Well done.

Question: Mark Ronald Murphy - JPMorgan Chase & Co - Analyst : Thank you so much. Carl, how would you characterize the cross-currency of AI on the software landscape in Workday itself at the moment? The reason I ask is you're sitting on this wealth of data. You have the sole ability to unlock it. You're not overcharging for AI services like others are. And I'm wondering if that is giving you some type of advantage in the actual AI product adoption and usage somehow under the radar. But then on the other side of the ledger, as you do re-tweak the growth in margin, the midterm target, do you sense any customers pausing to digest application purchases broadly just as they're trying to understand the GPU landscape, the AI landscape at the infrastructure layer?

Question: Mark Ronald Murphy - JPMorgan Chase & Co - Analyst : Thank you very much.

Question: Brent John Thill - Jefferies LLC - Analyst : Thanks. Carl, many have asked your confidence in mid-teens growth. What is giving you that underpinning of that the market is going to be there versus continuing to ratchet that number down, which you have lowered that growth rate a bit? What is still giving you the confidence that, that market is still in place?

Question: Brent John Thill - Jefferies LLC - Analyst : Thanks, Carl.

Question: Bradley Hartwell Sills - BofA Securities - Analyst : Wonderful. Thank you so much. I wanted to ask a question, Carl, on some of the comments you made earlier. It sounds like you took a hard look at some of the growth initiatives to determine which ones are going well and which ones perhaps could be sources of upside that they're now backing that 15% -- or sorry, that mid-teens rather growth outlook. Just curious for some color, if you will, on what were some of the puts and takes. What were some of those growth initiatives that you felt more bullish about after having gone through the one-year review process? Which are ones that could perhaps be potential sources of incremental growth in the future? Thank you so much.

Question: Bradley Hartwell Sills - BofA Securities - Analyst : Thanks so much, Carl and Zane. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 22, 2024 / 8:30PM, WDAY.OQ - Q2 2025 Workday Inc Earnings Call

Question: Michael James Turrin - Wells Fargo Securities, LLC - Analyst : Great. Thanks very much. Appreciate you taking the questions. I was hoping to go back to what drove the change in tone towards more margin here. I think its what investors have been hoping for, but maybe you could speak to the thought process there and confidence you have in managing the trade-offs and giving a bit more margin here but making sure you're still well positioned for any rebound. Thanks.

Question: Michael James Turrin - Wells Fargo Securities, LLC - Analyst : Thanks. Very clear. Nice job. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 22, 2024 / 8:30PM, WDAY.OQ - Q2 2025 Workday Inc Earnings Call

Question: Raimo Lenschow - Barclays - Analyst : Hey. Thank you. For the long-term outlook from me as well. Carl, if you think about the growth in the market, and I get it that you kind of -- what we see now is what we have in there. If you compare the current times and what you're assuming your planning assumption to, what we've seen in the past in terms of spending behaviors and to take bubbles away, is this kind of what you think is kind of also long term something that will continue like this? Or is this like for the foreseeable future, let's kind of work with the planning assumptions that there could be a better market at some point in the future? We don't know when, but at some point. Just trying to understand, like has the market changed towards kind of a different growth trajectory? Or is it just like what we see in the economy at the moment?

Question: Raimo Lenschow - Barclays - Analyst : Perfect. And then a question for Zane. If you think about like Workday historically has been probably over-indexing on R&D and probably under-indexing a little bit on sales and marketing. As we think about the efficiencies going forward, et cetera, how do you think about that mix between those two major drivers? Thank you.

Question: Raimo Lenschow - Barclays - Analyst : Thank you.

Question: Karl Emil Keirstead - UBS Investment Bank - Analyst : So you set your midterm free cash flow margin target at 25%, which was pretty well right on top of your non-GAAP operating margin target. So given that you're raising the latter by 500 bps to 30%, I can imagine some people on the call will just raise the free cash flow margin up to 35% to keep that relationship solid. I don't know whether you want to comment on that or maybe punt to the Investor Day. But just on this call, is there any reason why that correlation between those two metrics might be different than what you were thinking a year ago? Thank you.

Question: Karl Emil Keirstead - UBS Investment Bank - Analyst : See you, then.

Question: Aleksandr J. Zukin - Wolfe Research, LLC - Analyst : Hey, guys. Sorry, it was on mute. Can you hear me now? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 22, 2024 / 8:30PM, WDAY.OQ - Q2 2025 Workday Inc Earnings Call

Question: Aleksandr J. Zukin - Wolfe Research, LLC - Analyst : Guys, thanks for taking the question. I guess maybe for me, you talked about -- a little bit about the vertical, what you're seeing from a pipeline perspective. Should we expect kind of the same vertical strength that we saw in the first half to drive the bookings strength in the second half? And then on the midterm targets, particularly on margins, should we expect that to be linear? Should we expect that to be more back-end loaded? And M&A in the context, it sounds like there's no change to the kind of M&A strategy that you guys have conducted. I just want to be sure that's what you're implying in the midterm target setting.

Question: Aleksandr J. Zukin - Wolfe Research, LLC - Analyst : Perfect. And then maybe just if I sneak one more in. If I think about the construction of the growth curve over the next couple of years, when we think about your success going down market versus some of the trends we're seeing in large enterprise. What percentage of -- how do we think about that balance? We used to ask that question about financials versus HCM. But if we actually recast it more to the lower end of the market versus the higher end of the market? How would you characterize it? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 22, 2024 / 8:30PM, WDAY.OQ - Q2 2025 Workday Inc Earnings Call

Question: James Derrick Wood - TD Cowen - Analyst : Thanks. I guess for Zane, I know you called out pockets of slower headcount growth during renewals in Q1. So I'd be curious; A, are you seeing this broaden out to more verticals aside from the ones you called out last quarter in tech and retail? And B, are you able to quantify what the degree of change is? Like what was the average headcount growth historically? And what are you thinking the new normal is? And did you adjust for these assumptions in your new medium-term growth outlook?

Question: James Derrick Wood - TD Cowen - Analyst : Okay. Thank you.

Question: Brad Zelnick - Deutsche Bank AG - Analyst : Great. Thanks so much. My question is for Carl or perhaps Doug. Curious if there are specific areas within fins that you're particularly excited about because we still keep hearing great things about Accounting Center not just in financial services but across verticals and even down market. But what would you call out as particularly exciting that can compel customers to adopt and maybe even drive upside ahead?

Question: Brad Zelnick - Deutsche Bank AG - Analyst : Awesome. Very helpful color. Keep up the good work. Thanks, guys.