Hey, guys. Welcome to our next session. I'm really happy to have Carl here. We go back many years, actually.
We do, Raimo. It's great to be here. Thank you for having us.
I need to be careful not to ask VMware questions, you know?
Yes, exactly.
After all those years. But,
It was a long run there, for sure.
The one question I always had, and I'm sorry, it's not a Workday-specific question. Well, maybe it is actually over time, like, or will be. What if you're running now an application software company, and before you were on the infrastructure side, like, how, what's the similarities, what's the differences that, you know, now that you're kind of running it, like, you're realizing, Oh, shoot, this is slightly different, or I need to think about it differently?
That's a great question. So I actually think there's differences, yet there's a lot of similarities, and people probably wouldn't necessarily think about the similarities, but I'll articulate them.
On the difference side, listen, we are selling an application, and that application touches a lot of users. In our case, over 65 million users are on our platform across HCM and finance. It's a very large set of data that you can gain access to. So you're really engaged with the user community a lot more than if you're selling infrastructure like VMware. You're not engaging, and you're facing off and creating an employee experience for someone. So there is some differences. Now, that being said, what I'd recognize now, a year into the role, there is a lot more in common than there is in differences.
What I mean by that is, Workday, I think, is unique in that we're both an application and we're a platform. We're an infrastructure player.
So when we go in and we speak to customers, historically, if you're selling infrastructure, you're selling to the CIO, the office of the CIO. In applications, in our case, most of the time you were selling to the office of the CFO or the office of the CHRO. Now, we're selling to the office of the CIO as well-
-because we see the CIO as a buyer or an influencer, whether it's a financial ERP replacement or it's an HCM replacement. An example was, you know, here in San Francisco, back in September, we had our Rising user conference, and we had more people from the office of the CIO than we did from the office of the CHRO or the office of the CFO.
Oh, wow!
So, there is a lot of similarities, but I think what is super unique about Workday is there are very few software companies that can call themselves both an application and a platform, and I think that's what exactly we are.
. And then, sorry, and it's, you know, only tangentially related to Workday, but, like, Aneel has been trying to get you to come from the board and be more on the executive side for many years. Like, what trick did he use to get you? Or, like, what excited you to kind of come back into an executive role?
, I get asked this question quite a lot, as you can imagine, Raimo.
So listen, I was on the board for 5 years, so I was able to have, you know, a firsthand view into the company, the culture, the value system, which is really important to me. I've known Aneel for many years outside of being on the board, just being in the industry for, I guess, both of us, as long as we have been now. And, you know, when I finally made a decision, along with my wife, because she was part of the decision to jump back into an operating role after an amazing journey at Sequoia for 6 years, I looked around the market and tried to really do an analysis where, where I thought I had the best fit, my background, my experience, and which company probably aligned to my values and my culture expectations.
That led me to make the decision to jump back into an operating role, and join Workday. And here we are, one year later. It's hard to believe it's been already a year, four-
... earnings calls later. The time has gone fast, and that decision was probably, you know, every one of these decisions, I call them crucible decisions in your life, right? This one was one. When I left VMware to join Sequoia, was another. I look at this, and I couldn't be more excited and pleased with the decision. I feel quite blessed to be part of such an iconic, durable, software company like, like Workday.
No, I kind of mentioned. And then-
Aneel says he got me at a weak moment. He was after me for five years. He caught me in a weak moment, and I said yes, and I don't know if it was a weak moment. I think of it as a moment of strength where I said, ", let's go do this. I'm ready to jump back in for one more run.
That must be exciting as well, . And then, now we're kind of doing more Workday questions, so I need to, kind of point out that if you, you know, think about the safe harbor statement, you need to kind of look it up on their webpage. I'm not gonna read it out, so, like, now the Workday questions are coming. Like, but, more high level, Carl, for you, like, Workday has been one of... You know, I call it the top three, like the Salesforce, the ServiceNow and the Workday, like the, the SaaS runners that really scaled up and created, like, some good, strong businesses. For you as the CEO coming in now, like, you know, you want to leave your mark. You know, this is kind of what you want to stand for, for the Carl Eschenbach era of Workday.
What are the things that are on your mind around that one?
. So one of the priorities for me is to make sure I preserve, protect, and extend the incredible value system that Workday has had from the founders. You know, David and Aneel set out 18 years ago. They had six core values. It's something I've leaned into. When I said earlier, it attracted me to the company. I wanna make sure I preserve and protect them as long as I'm here. I wanna make sure I have a mission and a goal to make sure that when I leave Workday, I leave it in a better place than when I entered.
I think I can do that because of my experience. You know, my experience operating at scale with some of my prior companies, understanding international markets, understanding, you know, the finance organization, having stepped into the CFO role for-
A while at VMware as a public company, understanding, you know, go-to-market. And I just think if you combine that, understanding scale, but understanding what a growth mindset means as well, if you combine those two, I think we can grow at scale. We can continue to find operating leverage in the business. We've expanded our operating margins quite significantly this year, and we said we'll be up over, you know, this year, next year.
So I just think it's the operating experience and, and everything that I've amassed over the years in selling to the C-suite. Like, I really enjoy selling to the C-suite. That's what we do all day long here at Workday, and I think it's something that I can have a big impact and influence on. I also would say those 6 years on my hiatus from the first 30 of operating to 6 years in the venture community with Sequoia, which was just another amazing journey. I got to sit on some of the fastest-growing, you know, boards of our generation, whether it's, you know, Snowflake or Palo Alto Networks or Zoom or UiPath or-
I can go on and on. I had a front row seat to just better understand how to operate at a pace and scale in hypergrowth mode. So if I can bring that mindset and that growth mindset, yet driving operating leverage in the business to a company like Workday, we can build a durable business for, you know, quite a long time and expand margins. And I think that's the impact I can bring to Workday, and hopefully the first year is playing out, and we're seeing that in the business.
But we're also maintaining and preserving the amazing culture that I got to join.
Okay, and then, I wanna spend most of my, the next, 20 minutes then on growth, but, like, one question I wanted to kind of sneak in first is, like, there is growth and there's margins, and you mentioned already, you know, you had good mar- you have good margin next year. You kind of said you would kind of have margin expansion, expansion, going forward. But how do you think about that balance of growth margin, of growth and margins?
So I think, you know, just a couple months ago at our Financial Analyst Day, at our user conference, we talked about this durable three-year model that we've built you know, growing the business top line on subscription revenue from, you know, 17%-19%, being able to maintain that there over the next few years while expanding margin.
And I think that's through operating leverage, it's through alternative routes to market. So I do truly believe, I said from the day I was fortunate enough to join the company, I think, you know, most people think if you're gonna go for growth, it comes at the expense of operating margin, and I don't think that's the case at Workday. I think we can continue to grow even at scale, at the same pace, and expand operating margins at the same time. We have a lot of resources. We have a lot of headcount. We're being creative in thinking about alternate routes to market, which gives us operating leverage
So I truly believe we can do both at the same time. While most don't think that that's an equation that works, I respectfully disagree, and I think we've proved it this year. And, you know, our guidance as we think about FY 2025 also would reflect the same thing, so, I also think about Operating margin as something that's a choice.
Right? When it comes to operating margin, it is a choice, and what I mean by that, we can choose to really drive operating margin up significantly, or we can be smart about it and use, you know, our, our operating, you know, cash to go and drive growth
Right? So I think about expanding margins and also, as long as we continue to see opportunities like we see around our Financials platform, our international build-out, you know, in many other areas of investment that we're making, I think we're gonna moderate our operating margin growth, and we're gonna continue to grow the top line at the same pace we are today, which is, which is a pretty good equation.
If we see something different, the choice might be move more towards operating margin, but right now, I see enough growth opportunity, we're gonna invest in the business.
. That's a good message for shareholders then. , . The, let's double-click on, on the two big, growth engines, which is HR and finance, and let's start with HR. Like, how do you think about the growth opportunity there? And I think I just want to start with, like, I think there seem to be still a lot of big accounts out there, because I think we at Barclays, we only started the journey with you guys kind of a few quarters ago. Like, you know, when you came in there, how did you... And, and looked at this again with a fresh pair of eyes, like, how did you think about growth in HR?
, so it's interesting. As I reflect on, you know, making a decision to join Workday, one of the things in speaking to a couple people about the opportunity, everyone was always like, "You know, HCM, that market, right? It's very mature. There isn't a lot of growth left.
When I started to do my own analysis, now that I'm obviously inside the company, not just in a board capacity, but in an operating role, when you look at the opportunity around HCM, it still exists. Let me just give you some numbers that I just share with people, just to show that there is a true TAM out there that we can go after, and not just gain market share, but grow the business around HCM. Today, we have about 50% of the Fortune 500 companies-
... using Workday. We have about 25% of the Global 2000 using Workday.
Now, I'm always the person who thinks there's opportunity everywhere, so I gotta be careful.
But that, to me, says in the Global 2000, there's still, you know, 1,750 customers left. If you look at it, you know, in the Fortune 500, there's another, you know, 250 there. That's 2,000 customers who aren't Workday customers on HCM today.
That's just a population of 2,500 customers. If you look at how we go to market, we go to market in industry verticals. So what's not in there? Healthcare.
Education's not in there. State and local government, right? They're all markets that are really large that aren't part of, you know, the first equation I gave you.
And then the other side of it is we've moved down market, and we sell into the medium enterprise, and that is a very rich market for us to sell into, HCM. That being said, that business is doing well, but we are really leaning into the financials business, investing heavily on go-to-market, on product innovation, internationalization, to grow the financials business. And ultimately, what we wanna see, right, in the financials is a newer business, so it's growing slightly faster.
But ultimately, what we wanna do is we wanna sell a full platform into the market.
Where we're not talking about HCM, we're not talking about financials. We're talking about the, you know, Workday enterprise digital backbone supporting your two most important resources, your people and your finance, and they're one and the same. And so it's HCM opportunity, it's Fins opportunity, but the real opportunity we're seeing now is our ability to sell the full platform into a customer at any given time, on new logos, and then selling financials back into that HCM customer base.
. And then, I have to say, like, since you joined, and look, you know I'm German, so I like... if you mention Europe, but I have heard Europe more and international expansion a lot more. Like, what's the status quo? When you walked in there and looked at it, and the emperor was obviously, like, very global as wel
What did you see that ready for, like, "Okay, we can do more here?
So we've started with some of the basics. You know, 75% of the revenue for Workday comes from the U.S.
When we say international, we mean, you know, Canada, all of Europe, Asia Pacific, and then South America. So 75% of the business-
Pretty much, .
Is U.S. 25% is international, yet when you look at the TAM, right, the addressable opportunity is actually more than 50% is outside of the U.S.
So we made a decision, right, that we are gonna invest pretty heavily in the international market opportunity. Quite frankly, it started with people. We have a new president of all of Europe.
She's done an amazing job bringing great talent in. When you hire great talent at the top, they bring great talent with them
We have a new leader in the UK, Ireland market. We have a new leader for the northern, you know, Nordics. We have a new leader in Germany, your home. you know, area. We have a new leader in Southern Europe, so they are firing on all cylinders. And for the last 3 quarters, the consistency and predictability that they've brought to the business is, I think, something we're really excited about. We're doing the same now in APJ. We have some work to do there. We just hired a new leader. We hired a—we have a president. We hired Simon, who was the president of Adobe-
... APJ, and now he's joined us to run that market with us. We just announced him on the last earnings call. And then the other thing we're doing as we go international is we're not trying to do it, you know, organically through our own sales force and hiring one rep at a time. It doesn't scale
So we're leaning into the partners a lot. We're leaning into building out our ecosystem. We're leaning into global payroll providers like ADP, like Alight. You know, we sat on stage. I was, you know, fortunate to sit on stage with Maria, the CEO of ADP. No one would've thought, you know, Workday and ADP would've sat together, and then we realized we have such overlapping customers, right? Especially on a global basis for global payroll. Why aren't we partnering and doing more to bring our customers more, more value?
So we're leaning into partners, too. So internationally, it's a big investment area. It starts with people. We're gonna innovate on the product side, and we're gonna build out our partner ecosystem to drive the growth.
And then, okay, anything more on the product side that you need to work on? Like, you know, payroll is very, like, country by country. It's a-
It's a very challenging market.
I think just in general, with our product, think about something like financials, right? If you go into, you know, Germany or you go into France, the requirements and the regulatory, you know,
... things people have to meet on the finance side is different by country. So we have to continue to internationalize and localize our financials product, for example, as we go into those markets. We've got to build, you know, data centers in markets.
Right? So we now have built on top of AWS in Germany and in Singapore and Australia, so we are internationalizing the product by being in country and in market with our cloud provider. So there's a lot that still has to take place with the products, but I think we're doing quite well in you know addressing a lot of the requirements we need globally.
. Okay. And then, last question on HCM, before I go into financials, and it's a hedge fund question, so I apologize in advance. But if you look at the lower end of the HCM market, there were, you know, some of them that reported Q3 results. They had some issues with kind of... You know, and it's more like the early parts of the cycle, like hiring slowed down, which basically meant was a problem for those vendors. Did you see anything on the enterprise side there, or was there anything, any change to the demand environment there?
No, I think they're in slightly a different market. They're quite a bit downmarket from us.
A lot of that is payroll. It's a payroll business, and for the most part they have some HCM capabilities, but it's mostly payroll, and as the economy pulled back and we felt a little headwind, you know, people were hiring less, so I think it has more of a direct impact on them.
You know, we like to think about our value proposition only starting to resonate that much more, you know, when the macro is like we're facing today. We say the macro isn't any bette
-than what it was two or three quarters ago. It's, it's not any worse. We see scrutiny on, you know, most deals, especially big transformational deals like Workday is selling into. But I couldn't be more proud of our sales force. We know how to navigate the market
We understand the steps to close, and our value proposition is aligning with the C-suite. Talent and the war for talent and driving productivity through reskilling and upskilling your workforce is a C-suite discussion.
Right? Total cost of ownership, it's a value play. Most people don't think of Workday as someone that can go in and talk about a total cost of ownership play
But what's happened over the last, you know, 5-10 years, people have been buying best-of-breed solutions, and now they're looking to cut costs, and one way to do that is to consolidate onto a platform. So we're seeing a lot of consolidation of these, you know, best-of-breed solutions out there to best of suite or onto our platform, and it's a total cost of ownership play. It's a very simple sales motion that we have, and if you can save people money and give them a better experience and drive down their operating costs and model, it's a great outcome. And then I do think... Listen, we can't leave this conversation without mentioning AI.
I think AI is another C-suite initiative. While people maybe aren't implementing it today, they're trying to think about how to leverage it to drive productivity gains.
That plays directly into what we're doing as we think about it, either from a financials perspective, and automating the hell out of the financials platform, or we're thinking about around HCM, and how we can drive better productivity with the existing resources you have. So our value proposition is resonating, and it's different than the people you mentioned.
. And then, I mean, as we are on AI, the one thing, the more work you do, the more you realize you need clean data, you need a good data set. You are a system of record, like, for two big parts of the organization. Like, does that help you kind of to be, like, a foundational part of what's going on there?
I'm biased.
But I think the bias in this case is real. Our data is a moat-
-compared to our competition. It's a unified, highly curated data model with 65 million users on top of it, processing 500 billion transactions a year.
People talk about large language modells that are off the internet. They're training. We're training for AI and GenAI off of our own data, and I think the output of your AI is only as good as your data strategy, and we have-
Exactly, .
a very powerful data moat that no one else has. Our competitors, they have some on-premise, they have some in the cloud, they have some on single tenant, they have some on multi-tenant. We have a platform where all customers are highly curated, running on the same data set, the same data model that we're training off of. We have what I describe as an enterprise large language model.
That differentiates us from everyone out there in the market. I will tell you, both existing customers, when they think about AI and when we're in new competitive deals, that is a big differentiator of us versus everyone else.
Where are you on the productization, like, on kind of coming up with products around that and how you monetize them? That's kind of the other big question and-
You know, one of your SaaS competitors was on stage earlier, but, you know, the price increases we hear there are, like, kind of staggering, like, which I'm not quite sure in reality you get that through.
Like, how do you think about that?
So a couple things. So first, right, you know, we think, you know, AI and you know, the earlier version, machine learning, right, should be built into the system, not bolted on
For a decade, we've been doing AI and machine learning on that data set because we're fortunate to have that data set. As it relates to how you're gonna monetize it, I think, quite frankly, Raimo, we've taken quite a different approach. So first, we already have over 40 different use cases in the market around AI and GenAI.
What we haven't done is we haven't rushed to market and said: We're gonna charge you, Mr. Customer, a 30% increase for the Workday copilot. Right?
I mean, we just haven't done it. We've been very thoughtful about how we think about pricing. We haven't rolled out a whole bunch of uplifts or any SKUs specifically around GenAI. Some of our products, like Talent Optimization, our Skills Cloud, are built leveraging AI.
We sell some of them, but we're gonna be a little bit more measured, as to how we talk to our customers about charging them for all of these uplifts from AI or GenAI. We believe our customers are entitled. They pay us an annual subscription fee. We have an innovation index that they pay us each year to help us drive innovation, and we think it's important that we give back to them a lot of what we're doing in AI and GenAI. That being said, if we have a new product, and we have a number of them that we announced at Rising, we'll go to market, we probably will charge for them, but it's only if we think it's a fair value for our customers.
Then the last thing is, I think, you know, we're one of the most trustworthy companies out there in software, and our customers really do love us. I don't say that, you know, just 'cause I'm sitting here. They really do love us, and they trust us, and we wanna be careful we don't have the have and have-not
Right? All right, you can get this, but give me 30% uplift, right? And then the last thing is, not you, but as soon as you start to mention this, all of a sudden, the Street starts to say, "Where's that 30% uplift you're getting for all of the...
No one's really shown that yet.
We're gonna be metered in how we do it.
. , . It's funny, it's funny you say that because, like, every time I go into the field, and you talk about Workday, it's like the good people, you know? It's like, it's, you go to HR-
They're not-
Like, Workday, the good people, you know?
We wanna add value to our customers.
And by the way, that dialogue I just articulated to you, I think we're monetizing AI, gen AI, in our data set another way.
That's through our competitive win rates.
, exactly. .
Right? Our competitive win rates against our competition continue to creep up. Another really solid quarter in Q3 against our big competitors, and I think we just have a different approach of how we engage and how we think about pricing our products and making sure our customers are extracting as much value as they can from their Workday platform.
I wanted to shift gear. The last few minutes, I want to talk about financials. We haven't talked enough about it. The real—it seems to be like the way you talk about it, but I was also at Moscone, and I saw the buzz there. It felt like an early Salesforce conference. Like, and you know, you were kind of very established. Like, is there like a fundamental change to how people think about financials now? Or like. It does feel different than like over the last 10 years when everyone was asking, "Is there an inflection point?
But now it does feel like it's slowly coming together.
I appreciate the recognition that you saw it rising. It was something I think a lot of people recognized. It wasn't just an HCM conference, it was HCM and-
... you know, Cloud ERP or enterprise platform conference. I think it's for probably three reasons. The first is, we have leaned into this market.
Mm-h
One of the biggest investments we made, in the last, you know, nine months, is built out a rather significant, and we're still in the process of adding more capacity, on the go-to-market side for quota-carrying reps around financials
We have leaned into it. This sales force only gets paid on selling financials, whether it's the core platform or it's things like planning or Adaptive Planning product. So we have a dedicated sales force, and our core sellers also get paid for selling financials, obviously.
We're seeing this really unique dynamic because the financial sales teams only get paid for selling financials. There's this really interesting interworking inside the company, where they're pushing the core reps to make sure they're going out-
and selling financials as well, which is why one of the fastest-growing parts of our business is around full platform sales, not HCM, not fins, both simultaneously. So we're leaning into it.
Pipeline's looking good. Our win rates are going up. I think, number one, it's our investment in us talking about it aggressively in the market, that we're in this business, and we have a great product. And we are gonna lean into this opportunity. The second is, different from HCM, only 25% of financials or ERP workloads have moved to the cloud.
. , it's a lot, .
We're still in the early days. We're in an inflection point of moving, you know, people's financials to the cloud.
For good reasons. A lot of CFOs and financial leaders are a bit more conservative. They don't wanna do that. I think our investment, us pushing hard on the market, our partners coming along and building services around it, which you saw at Rising.
... and the fact that our customers or our target customers are finally moving to the cloud, is coming together, and it's all working in our favor. And the last one is working in our favor, which is probably weird to say about a competitor or competitors. Our competitors are also out there talking to their customers about end-of-lifing a lot of things that are on premise, you have to move to the cloud. And when they do it, when they do that, it's one of the best marketing events that's happened for us in quite a while.
Because we now have a seat at the table. Every time someone looks to move their financials to the cloud, we're gonna be in those competitive deals, and our competitive win rates are up, and we're winning more than we're losing. We're thankful that there's this migration happening-
... both from a customer perspective and our competitors forcing people to migrate.
. , , . That's like, that's our German friends, huh? , okay. .
I'm not sure. Our Germans, probably so.
, , . I can mention it, . Carl, I think our time is up, so I really enjoyed our conversation. Like, great to have you back.
No, it's great to be here.
Thank you.
Thank you for having us, and thank you, everyone, for your interest in Workday.
Thank you.
Thank you.
Thank you.