Workday Inc Q3 2025 Earnings Call Transcript

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

Question: Kirk Materne - Evercore ISI Institutional Equities - Analyst : Yeah. Thanks very much. Zane, I was wondering, can you just talk a little bit more about the deliverable issue in the Q4? And how much of that is also weighing on, I realize it's a preliminary guide for fiscal 2026, but how much of that plays into that guide relative to sort of the mid-teens guide you guys have talked about for fiscal 2027? Can you just provide a little bit more color on that as -- and maybe when that came about just because I think people are obviously concerned it's more directional in nature than perhaps one time in nature? Thanks.

Question: Kirk Materne - Evercore ISI Institutional Equities - Analyst : If I can ask a quick follow-up just on Rob's appointment, Carl. I assume that Rob's on-board. You you've made a lot of changes since you came on board. I assume you and Rob are thinking in the same way, so that as we start next year, there's not necessarily any kind of sort of restart or reshuffling of the decks in terms of your partner strategy, et cetera.

Question: Kirk Materne - Evercore ISI Institutional Equities - Analyst : Thanks, Carl. Happy Thanksgiving, guys. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 26, 2024 / 9:30PM, WDAY.OQ - Q3 2025 Workday Inc Earnings Call

Question: Mark Murphy - JPMorgan Chase & Co - Analyst : Thank you very much. Carl, there was a comment at the Analyst Day that the US Federal business is reaching an inflection point and, I understand you closed a defense agency in Q3, but I'm curious how those agencies might be interpreting, if you've heard anything, the stated plans of this Department of Government efficiency to try to strip $2 trillion in spending out? We're getting a lot of questions on that. And whether you think that -- that might be impacting any of their budgeting spending behavior going into next year? And I have a quick follow-up.

Question: Mark Murphy - JPMorgan Chase & Co - Analyst : Okay. That's great to hear. And then Zane, as a quick follow-up, I'm also wondering, subsequent to the interest rate cuts and moving past the US Election, is there any possibility you might have detected stabilization or any uptick in any employment indicators in your customer base? I know I think generally it's been kind of sluggish and moving sideways, but I wasn't sure if you might have seen any recent renewals where any of that feels different than it did a couple of quarters ago or even any payroll runs without any of that data might look different?

Question: Mark Murphy - JPMorgan Chase & Co - Analyst : Okay. Well understood. Thank you very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 26, 2024 / 9:30PM, WDAY.OQ - Q3 2025 Workday Inc Earnings Call

Question: Kash Rangan - Goldman Sachs Group, Inc. - Analyst : Carl, with, Rob joining you guys, you're going to be outnumbered with Rob and Zane, and you're going to have to learn cricket. So if you need a primer, please let me know.

Question: Kash Rangan - Goldman Sachs Group, Inc. - Analyst : T20, that's it. Great. So moving on to business, it's good to see the company reiterate, the 15% growth rate, compounding in fiscal `26 and `27. I'm curious, what do you make -- as the numbers get bigger, it -- I guess, the margin becomes a little bit harder to maintain the same growth rate. So are we building in any inflection point with AI monetization or core getting better perhaps in `26 and `27? Give us a recap of why you still feel confident with these numbers, over the next couple of years. Thank you so much. And that's it for me.

Question: Kash Rangan - Goldman Sachs Group, Inc. - Analyst : Thank you, Zane and Carl. Happy Thanksgiving.

Question: Michael Turrin - Wells Fargo Securities, LLC - Analyst : Sorry, I was on mute, the old unmute trick, apologies for that.

Question: Michael Turrin - Wells Fargo Securities, LLC - Analyst : Given there's a few moving pieces you're contemplating and it's not that -- that's not the case across software, maybe if you could add some more context and what informs the Q4 guide given just a bigger seasonal profile for Workday there. Any commentary and if there's any FX impact or other layers to consider and anything you can just add around how that close to the year, could inform your views on the trade-off between growth and margin into next year as it all progresses is helpful. Thank you.

Question: Michael Turrin - Wells Fargo Securities, LLC - Analyst : Thanks very much.

Question: Brad Zelnick - Deutsche Bank AG - Analyst : Great. Thank you so much. Guys, it's really great to hear about many of the strategic wins, seeing the partner leverage shining through. But I wanted to ask about Europe, where frankly, we picked up some mixed things in talking to partners. Can you just talk a little bit about what's happening there in that theater? And if you could distinguish between environment and execution and any more granularity would be helpful. Thank you.

Question: Brad Zelnick - Deutsche Bank AG - Analyst : Excellent, thank so much.

Question: Brad Sills - BofA Securities - Analyst : Hello, great. Thank you so much. I wanted to ask a question around some of the strengths you're seeing in government and higher ed. Obviously, this has been going on for quite some time, and you cited some platform deals there that are going well. Just curious, what's working in that vertical? Is there a certain application that you found that is really driving that kind of combined Fins plus HCM glue, if you will? And are there others that are kind of up and coming that we should be thinking about that might become the next source of strength across the verticals?

Question: Brad Sills - BofA Securities - Analyst : Wonderful, thanks, Carl.

Question: Karl Keirstead - UBS Investment Bank - Analyst : Okay, great. Thanks. Maybe Zane, a couple for you on the outlook for next year. Just first of all, on Q1, you mentioned that it will likely be sub 14%. So that would be, call it, a 150 bps-plus [decel] from the second half this year. Typically, it doesn't fall that quickly. So it seems to me there must be some -- maybe some onetime issues there. Maybe you could unpack the Q1 performance that you expect? And then secondly, on the second half acceleration, I'm just curious, you had mentioned it's a function of the strategic wins finally ramping, but also emerging AI. Are you able to rank REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 26, 2024 / 9:30PM, WDAY.OQ - Q3 2025 Workday Inc Earnings Call order, which is the bigger driver of that second half acceleration? And if it is AI, maybe help us get a little visibility into what you're seeing to give you the confidence that you can monetize second half next year? Thank you.

Question: Karl Keirstead - UBS Investment Bank - Analyst : Okay, great. That color is helpful. Thank you both.

Question: Brent Thill - Jefferies LLC - Analyst : Thanks. Zane, on the guide, are you taking the same methodology as you've had before? Or are you injecting a little more conservatism given the guidance had to be walked down a few times now. Everyone's asking a new guide or kind of the same pipe that you're looking at? You -- can you give us any color on that methodology?

Question: Brent Thill - Jefferies LLC - Analyst : Okay. Great. And then quickly for Carl. With Rob coming on, there have been a lot of questions about is impact usually when you bring someone new in at his caliber, there tend to be changes. And I know you've already made a lot of proactive positive changes for the go-to-market. But how do you kind of give confidence to investors that or there's -- not another way turbulence that comes through with another go-to-market [exec]? How do you -- how should we think about that?

Question: Brent Thill - Jefferies LLC - Analyst : Great, thanks.

Question: Raimo Lenschow - Barclays - Analyst : Thank you. Can I go back to the AI question for the acceleration for the next half. Carl, how is your thinking in terms of monetization changing in industry? If you think about a lot of players in eurospace are kind of seeing it more as a -- as an add-on solution, as a kind of bundled add-on solution that is coming in there, how do you make sure you kind of get paid for those solutions? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 26, 2024 / 9:30PM, WDAY.OQ - Q3 2025 Workday Inc Earnings Call

Question: Raimo Lenschow - Barclays - Analyst : Okay. Perfect. And then, Carl, one for you -- Zane, sorry, one for you. On the cash flow side, you kind of didn't change the cash flow guidance. Can you talk a little bit about the puts and takes like this quarter and what drove the guidance decision? Thank you.

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

Question: Alex Zukin - Wolfe Research, LLC - Analyst : Hi, guys. Thanks for taking my question. I want to -- maybe just the first one on the quarter itself. Your quarter ended during a pretty anxious time in the marketplace. And I'm wondering if the election either caused any kind of late minute deal slippage, or just incremental friction, in the quarter itself that maybe unwound, if you will post. And maybe comment both on that. And the conversation with customers as we're coming out of it, you got asked the question on the federal vertical, obviously, in Doge. But any other verticals that you feel incrementally more positive about would also be interesting. And I have a quick follow-up.

Question: Alex Zukin - Wolfe Research, LLC - Analyst : Perfect. And then as we think about the deliverables, kind of taking a little bit of a change of pace in terms of [online] for the impact to numbers. Was that a -- was that a surprise in terms of you were able to sign these larger deals, and you knew you were going to sign them, but you didn't necessarily know that they would ask for these incremental things and -- or you -- help us understand that because it's the first time we're kind of hearing of this thing, if you will, impacting the quarter really for any of the companies, at least that I cover. So I'd love to just understand a little bit was the mechanics and logistics of this issue?

Question: Alex Zukin - Wolfe Research, LLC - Analyst : So it doesn't -- basically, it doesn't change the ACV. It's just a timing element that maybe moves a little bit to the latter period?

Question: Alex Zukin - Wolfe Research, LLC - Analyst : Perfect. Thank you guys.