Thank you everyone for joining us this morning. My name is Keith Weiss. I run the U.S. Software Equity Research franchise here at Morgan Stanley. Very pleased to have with us from Workday, Carl Eschenbach, the CEO. Carl, thank you for joining us.
Thank you. Great to be here. I was here last year with you as well. It's good to be back.
We like repeat customers here. Before we get started, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales rep. And from the Workday side of the equation, for important Workday disclosures, please see the company's IR website.
All right, so Carl, like you noted, it's been a full year as CEO. You've definitely pointed out to the investor community areas where you guys can lean in a little bit more aggressively, areas of potential strength that we hadn't been seeing. Maybe you could give us a kind of a rundown of what are the top two or three things you've learned about Workday over the last year, really being entrenched in the day-to-day operations?
Sure. Thank you, Keith, and thanks again. Great to see a lot of people here bright and early on a Monday morning. F irst and foremost, it's been an incredible 15 months. I think it's gone better than I could have ever even anticipated. You know, and Aneel is now in the exec chair role, and I think the year we had as co-CEOs was, was really well done.
I think if you want a blueprint for a co-CEO model, transitioning to a CEO and exec chair with a founder, I think we are probably the blueprint for doing so. O ver the last, you know, 15 months, I've spent a lot of time with three different parties around the world: our customers, our partners, and our employees.
I formed an opinion after meeting with so many people about where we should make investments. Let's start with the customers. Our customers truly trust us as a business partner. If you think about what we do, we support their most mission-critical and most important assets, their people and their finance. What I've learned is, spending time with customers, is they continue to lean into the partnership. They continue to think of us as a platform and an app simultaneously.
They continue to ask us to bring new solutions to market that they can leverage from Workday, and that's led to a lot of our thinking about how we invest in the business going forward. On the partner side, we have a great partner community, but historically, our partner community was really focused on driving deployments of the Workday platform.
We've taken a different approach, and we've leaned into the partners in a significantly different way and think about them as an ecosystem of partners to help us drive growth, to help us drive innovation, to help us drive deployments. Last year alone, our partners did a great job deploying our platform. 95% of Workday platforms, ERP or HCM, were deployed on time and on budget to our partner ecosystem.
At the same time, I think we need to open the aperture to figure out how we can leverage them to drive software subscription growth and to drive innovation as well. Then the last are our workmates, almost 19,000 workmates around the world. I couldn't be more proud of how they have executed in the last year, Keith.
To be honest, we brought a lot of change, a lot of transition, a lot of new strategies, a lot of new priorities to the company, and they've been very good at digesting them. One thing I've learned about the power of the Workday values and culture is, if you align them on a very specific mission, they can crush it.
I think if you look at our results throughout FY 2024, we had a hell of a year, capped off with a solid Q4, and I think we've set a really long-term, durable growth profile for the company that I think will continue for many years to come. So that's kind of formed my thinking about where we're gonna invest going forward, to continue to drive the business.
Got it. So that aligns with... At the analyst day, you talked to us about three key areas of growth that you see for the company on a go-forward basis. There was the financials opportunity, the international opportunity, and the partner channel.
Now, I was hoping we could dive into each one, maybe starting with financials. Can you, kind of lay out for us, like, not just the size of the opportunity, because we all know core financials is a big market, and it's a well-established market, but why now? Why is now the right time to be leaning in, to investing further? And what type of investments do you think you can make to help catalyze. Workday's ability to go after that opportunity?
S tarting with financials, you're right, it's a very large opportunity. It's more than 50% of our addressable market globally. Workday, since our early days as a company, we have been building out a financials platform. It's not like this is new.
Right.
We've been building the platform for well more than a decade. O n the technology side, I think the product has evolved to now being able to service some of the largest companies in the world on the financial side. At the same time, you know, a year ago, when we looked at this, I didn't think we were investing enough on the go-to-market side to capture that opportunity.
W e leaned in quite heavily and really built out a go-to-market organization, both direct and indirectly with our partners, to capture the, you know, financials opportunity. And I think that has coincided with now there is an openness from CFOs on a global basis to no longer say, "Should I move to the cloud, my financials and my system of record around financials?" It's now: When and how fast can I get there?
We estimate that only 20% to 25% of financials, right, has moved to the cloud, which represents a huge opportunity for us, going forward. W e think our go-to-market investment is inflecting with the financial community, saying, "I'm ready to move to the cloud," because they'll get better data insights, they'll get more innovation, and quite frankly, it will cost a lot less by running in a cloud environment as compared to running on-premise and maintaining those legacy ERP or financial systems.
T here's another dynamic that's actually helping us as well. We have some competitors out there who are saying to their customers, "You need to move off your existing legacy platform to a new platform." And even when they're asking their customers to do that, they're not moving directly to the cloud, they're moving to an on-premises upgrade by 2027.
As that happens, it's opened up a tremendous opportunity for us to engage it with customers, a lot more than we probably would've otherwise, if they'd enforced this migration. So I think our competitors, it's the cheapest, marketing opportunity we've had this year, is to leverage some of their voice into the market.
And then the last thing I'd say is, as you know, with our penetration rate, and our success around HCM, we're seeing people realize the benefit of having a single platform across both HCM and financials, to do financial and people planning, and actually leverage its common data set, especially when it comes to AI, to drive better insight, and, you know, output from moving financials to the cloud in conjunction with HCM.
So there's a number of different factors, and I think they're all coming together. Those investments we started last year are about a year old. They take a while to really, you know, obviously materialize, but it's something we're gonna continue to invest in as we go into FY 25.
Got it. And you bring up an important, important point at the end there about the time it takes these investments to mature. I think one of the conversations we're gonna be having a lot throughout the TMT conference is that of timing. Where should investor expectations be in terms of how quickly can these things roll out, whether it's investments in sales capacity or investments in generative AI?
When it comes to the investments that you're making in sort of the sales capacity to go to market around the core financials channel, how should investors be thinking about the timeframes for payoff on that, or the timeframes that we could actually see those investments start to yield better growth?
Yeah. On financials, as you know, some of these financial sales cycles are quite long. They could be 12-18 months long, when someone says, "Hey, I'm gonna invest in a major capital project to move my financials to the cloud," especially as you go up into the large enterprise and the bigger companies. In the mid-market, it can happen pretty fast.
Right.
That being said, these investments in the build-out of this direct sales force will take time. We're seeing early signs of that investment paying off, which is why we continue to lean into it. But, Keith, these sales cycles, right, being as long as they are, sometimes it leads to productivity ramp that can be 12 to 18 months long for this dedicated sales force.
That's specific to the enterprise. In the medium enterprise, we're seeing it much shorter. It can then be anywhere from nine to 12 months. So I think, you know, we're building this for the long term, we're not building it for the short, short term, this quarter or next quarter. These investments will pay off, and we look at it every single quarter across four dimensions of this financials investment. Number one, what does our pipeline look like?
As long as it continues to build, we'll continue to lean in. We look at it in number of new logos. You know, last week on our earnings call, we said we saw a nice uptick in new logos for financials. We look at it in new ACV. We also saw a big uptick in new ACV on a year-over-year basis.
And the fourth, which is a direct impact to this build-out of our financials go-to-market strategy, is we are seeing a significant uptick in what we describe as full platform sales. Full platform sales is when a customer comes and says, "I'm gonna buy HCM, and I'm gonna buy financials at a single time." And the good thing is, today we sell to three different personas, Keith.
We sell to the office of the CHRO, we sell to the office of the CFO, and we also now sell to the office of the CIO. And then you go into medium enterprise, they buy everything at once, and then they wrap financials and workforce planning around it. So, it takes time, but we see clear evidence, in the last 12 months, that these investments are paying off, and we'll continue to lean into this financials opportunity because I feel like it's coming our way.
Got it. One last question. This is a little bit broader than just financials, but this is also taking place in a macro backdrop that has been pretty cautious in terms of spending throughout 2023. What are you seeing in terms of your customers' willingness to lean into these investments, your customers' willingness to spend as we head into 2024?
Yeah. So listen, I think you've seen our business. We like to say it's very diverse, it's durable, and it's resilient, and I think you've seen that resiliency play out in the last year. And even heading into this year, we're, you know, projecting really solid growth once again this year, while expanding operating margins.
From a customer perspective, listen, you guys know the statistics probably better than I do, so I think $5 trillion being spent on IT, with the biggest portion of that going into software and the fastest-growing market opportunity. So they're spending money it's just on what are they spending money? I say that because if you have a strong value proposition, like I think we have, whether it's a headwind or tailwind, we'll continue to execute well, and people will lean into us.
There's a challenge out there that everyone is facing. Number one, everyone is trying to drive productivity gains, Keith, everybody. Number two, they're also trying to save costs, right? Starting with the latter. We are a platform, and we're seeing people consolidate onto our platform, so there's a total cost of ownership benefit we can give customers. So to your point, if people are pulling back on their spending, and you can show a really strong total cost of ownership or ROI story, they will lean in. And then there's this whole notion of talent. Talent is now a C-level discussion.
Right.
Everyone understands that they want to drive productivity gains, but you can't do it by incrementally adding one head count at a time. So what you need to do is you need to upskill and reskill, and I think we are the platform to help people upskill and reskill our workforce and think about a skills-based economy more than ever. So I think while there's maybe reticence on spending, if you have a strong value proposition, they'll still spend, and I think we've shown that for the last year, and we think about that going into FY 25.
Right. And you mentioned priority, and leading a little bit to pitch my CIO survey, 'cause in our CIO survey, we did see a rising priority of ERP projects. S omething we're hearing from systems integrators that these on-premise systems are really starting to become a drag for their customers, really starting to get in the way of other initiatives and sort of other modernization initiatives. Does that match with what you're hearing from your customer base as well, that there's more of an impetus, more of a priority for core financials right now?
There is no doubt about that, Keith. I think it's probably even more pronounced in certain industries or industry verticals that we focus on. People have moved HCM to the cloud, but we talked about earlier, you know, only a subset has moved financials to the cloud, and I think it's holding back their business priorities. They don't have agility, they don't have the right data insights, they don't have the right cost structure because they're running these on-premises, you know, solutions.
There is no doubt, there is a movement to the cloud for both ERP and financials. W e're seeing that come, you know, come across in spades every single quarter. In fact, it's accelerating how many people are moving to the cloud. Another way that we look at that is there's evidence from our partner ecosystem.
If we look at where they're investing most around Workday right now, it's around their financials practice. Because they see the opportunity, just like they saw on HCM, to build these big deployment practices, they see it around financials. So our partner ecosystem is leaning quite heavily into building out their capabilities to drive these deployments.
Got it. I want to go to the second point in terms of your, your core growth drivers, international. You, you talk a lot about, there's a mismatch between how much business Workday does in international versus how big the market opportunity is in international, and there's catch-up to be done. What do you think was the historical kind of blockage, if you will? Like, what, what kept Workday from doing more internationally, and, and how do you plan to fix that?
Yeah. Well, first, you know, to Workday's credit, which is what's given me the opportunity to even be here, is they crushed the U.S. market when it comes to HCM. And they have a tremendous market share there, when it comes to HCM. And if you look at it, it's reflected in our revenues. We get 75% of our revenues in the U.S., and 25% of our revenues outside the U.S.
Outside the U.S. means international, and that includes Canada, Europe, and all of Asia Pacific. That being the case, 50% of the total addressable market, more than 50%, is outside the U.S., so we have a mismatch. So I see that not as a negative, but as a huge opportunity, which is another area of investment we made starting last year.
We decided to really lean into the international market because we see that opportunity, and as you saw in our Q4 results, you saw our international execution and our growth start to go up. So what we've done is we've leaned into the international opportunity with investments. Number one, there's no substitution for great people, period, end of story.
We have a President of Europe who's come in and put new leaders in the UK, in Germany, in France, and in the Nordics. We have a new leader that we hired to run APAC for us. We just hired and announced a new president of Japan. And all of them are great leaders with tremendous experience, and with that, they bring great talent with them. So it starts with the people, number one.
Number two, we're focused on expanding and leveraging the ecosystem more broadly than we've ever done before. We've announced partnerships in the last year with the likes of Alight, and ADP. A lot of people, Keith, would probably wonder, would we ever really partner with ADP? When you look at the global payroll footprint, they have a big footprint, and we've now decided to lean in and partner with them.
W e're taking a different approach to partnering when it comes to payroll, because we don't have local payroll in geographies around the world. The third area is partners. If you go outside the U.S., a lot of the software industry is driven through partners in a strong ecosystem, internationally. So we're leaning into that. We now co-sell, resell, and joint sell opportunities with partners around the world.
We haven't had that in the past. We have a referral program. We launched a referral partner program. We expected to have somewhere between 100 and 150 partners sign up for the referral program internationally, and we've expanded way beyond that, and they're driving new pipeline growth for us that we wouldn't otherwise have. And then lastly, is I think about co-innovation as we go internationally into these markets.
We've leveraged local resources to co-innovate for both on the product side and the deployment side. For example, I think it was a month or two ago, Keith, we announced a deeper partnership with a company called Kainos. And Kainos now has the ability in the medium enterprise to deploy a full Workday platform, HCM and financials, in less than four months.
So there's a time to value opportunity there as well. So, international is a huge opportunity for us. We need to invest in the product side a little bit to make sure it's localized and globalized to meet certain, you know, local requirements, especially on the financial side, but we're leaning into it.
It's just a huge opportunity for us, and that's another investment we started last year that is starting to pay signs. We're seeing the growth start to accelerate a bit internationally, and we're gonna continue to lean into that as we go into FY 25 as well.
Got it. Can I play devil's advocate for a second? I'm going to play devil's advocate for a second. So I think a lot of investors historically have thought, in the U.S., the main competitor here is Oracle, and that's in your backyard, your sweet spot of more services-oriented type of engagements.
In Europe, it's dominated by SAP. They're more on the manufacturing side, and Workday is not really able to go after those more process industries, if you will. Is that still the dynamic, and is that something that's always going to weigh against, like, your ability to do better in international business?
So I'll start with answering the last question. There are industries, like manufacturing, that we've been very clear that we're not going to go into.
Right.
That has not changed. That being said, if you look at our biggest growth vectors in the business, it's in industries that we are doing very, very well: healthcare, education, state, local government. And if you look at the European market in general, Keith, we all like to talk about the large enterprise or what we call the Fortune 500 or the Global 2000, but Europe is primarily a Medium Enterprise market, and one of our fastest-growing market segments is the Medium Enterprise.
The reason for that is some of the competitors you'd mentioned, I don't think they have a full platform architecture and suite like we have that combines both financials and HCM into a single solution. It's one platform, one dataset, one data model. So I think when it comes to international and our focus on the Medium Enterprise, we're doing extremely well.
When you back that up with rapid deployment services from both us and our partners, that's what's sustaining and keeping our growth at the level we're seeing. So yes, there are certain areas that we won't go into, like manufacturing, but everything else is, you know, open and fair game for us.
I think, you know, if I think about competing against those two big competitors, our competitive win rates in the last year has ticked up every single quarter. So if we get a seat at the table, and we have an opportunity to compete, we're doing extremely well.
Got it. That's clear. On the last growth vector that you. We're still on question number two, by the way. But the last growth vector you talked about was the partner opportunities, and you've mentioned a couple of them, but what's really been impressive is the scope of activity on the partner side of the equation.
It's referral partners, it's co-selling, and all of this really didn't take place within the Workday model. Can you start with just the expanse of just, like, the number of partner programs that you guys have rolled out over the past 12 months?
It's been another number of them, which is why I said earlier on, the thing I've been super impressed with is my workmates at Workday and their openness and willingness to try new models and really lean into some strategic initiatives we have to drive growth. But you know, historically, our partners have deployed Workday, and they've done it extremely well.
I said earlier, Keith, they deploy 95% of our projects on time and on budget, and we want them to continue to do that. But we also want to seek and get reciprocity back from them to help us drive subscription growth. So we launched a referral program, which is going super well. They're bringing lots of new pipeline to us that we hope materializes in FY 2025.
At the same time, we're doing things like co-sell and resell, where we're meeting in the channel with folks like Alight or with ADP, and we're driving, you know, joint solutions into the market. Sometimes we have the best-of-breed solution, sometimes they have payroll we don't have, and it's a great outcome for everybody, so that's another opportunity. We're also doing co-innovation. So, I think it was in Rising back in November in Europe at our user conference, we announced a co-innovation with Accenture around our Accenture Skills Cloud-
Right
... which is an amazing opportunity for people, say, who want to move to a skills-based, you know, workplace. How do you do that? Partner with someone like Accenture, who leverages Workday Skills Cloud to drive that. So there's co-innovation happening. And then we're also thinking about, how do we open up the aperture? Everyone talks about operating leverage at the company level.
I think about operating leverage on the go-to-market side, and how do we think about driving operating leverage through new routes to market? For example, we're in the AWS Marketplace. I don't think people would have ever thought you're selling, you know, HCM or financials through the AWS Marketplace. We're doing that, and we'll announce more, you know, in the coming, you know, probably days or weeks on how we can go to market there.
We announced a partnership last quarter, it was on our earnings call last week, with someone called Insperity. Insperity is a PEO, which is downmarket, serving, if you will, the 50-500 community, where people are outsourcing their employment services to them. We're the underpinning for them moving forward.
W ell, that's a market Workday would never go down into, right, to serve this, an SMB market, and now we get access to that, and everyone who lands on top of them, we monetize it as well. So there's lots of opportunity for us to expand what we're doing with partners to drive operating leverage and drive growth going forward. And, you know, we're going into our sales kickoff conference, here this week. Actually, it starts today. I'll be flying there right after this to Vegas.
I look at how many partners at our sales kickoff conference, because we include them, it's up significantly over this time last year because they see the opportunity to invest back in Workday, and they see us leaning into them more than ever.
Got it. Got it. So if we pull this all together, a really right market opportunity in Fin, 75% still on premise, making the investments to go after that from a go-to-market side of the equation. You have partners that are bringing this more to bear, bringing you more pipeline, letting you into international regions. At the Analyst Day, this all summed up into a growth outlook of 17% to 19%.
Through the next several years. That was a little bit below how Workday had been talking about growth. They had been talking about durable 20+% growth. How much of that is sort of the macro that we're in, the investments that you're making, trying to kind of reset a bar on a go-forward basis, versus you coming in as a new CEO and saying:
"Hey, listen, this is a more durable rate of growth on a go-forward basis?" Or maybe said another way, is 20% still possible at some point, or was that a different type of company than the one that you were looking at?
Yeah. So I think, you know, what we laid out at Financial Analyst Day back in September was a midterm durable growth, you know, opportunity. We said we can maintain growth 17%-19% over the next three years, scaling to $10 billion. Which, oh, by the way, Keith, I'd remind people, you know, not a lot of people maintaining growth as they get bigger and scaling to $10 billion, all while expanding operating margin by 500 basis points in the last year.
W e're doing all of these investments and expanding operating margin simultaneously, and we think we can maintain this growth based on some of the strategic initiatives that we just talked about, over the next few years. Listen, we think we have a rich opportunity. We have a big market. We're gonna lean into these investments.
We're gonna be operationally efficient and prudent. We review these, you know, initiatives every single quarter. If they're paying off, we'll continue to lean in, and we'll continue to be smart about where we're hiring to make sure we can meet those goals. Do we have aspirations to get to 20% at, you know, $10 billion? Sure, I'd sit here and say, why wouldn't we want to get there?
But we're building a long-term, durable business that's highly profitable, throwing off good free cash flow, expanding margin, all while maintaining growth at a similar rate we're doing today over the next three years. That's a pretty damn good business.
Yes, definitely. W e've made it 27 minutes without talking about generative AI, and I think that's gonna probably be the record for any presentation I give this week. To a certain extent, it speaks to the raft of growth opportunities ahead of Workday, outside of generative AI.
It also speaks to, I think, a little bit of an investor debate on to what degree can Workday really participate in generative AI? To what degree can they monetize it? Can you walk us through kind of how you're approaching the generative AI opportunity, where we're gonna see it in your portfolio, and then I think from an investor perspective, most importantly, what's the monetization potential?
I'm surprised you didn't get to that question first, Keith.
Yes.
But we're there, so let's answer it.
I'm trying to be disciplined.
The AI opportunity is real. It's real for the industry, and it's real for us, and we're taking a multipronged approach to how we think about AI. Number one, we think about it from a platform. For the last decade, we've built in AI into our platform. It's not bolted on. We're not going out and using third-party large language models. It's built into the core of what we do every single day, so we're taking a platform approach.
At the same time, we have an AI gateway that allows people to leverage third-party AI solutions and LLMs, and bring them in on top of us if they want to as well. But we're, we're focused on a platform approach. Nothing's changed. We've been doing this for the last decade plus around AI, number one. Number two, data, data, data.
The output of your AI models is only as good as the data you're using to train off of. At Workday, we have a highly curated model. Everybody is on the same code base all the time, HCM financials. We have 65 million users. Now, we've upped this number in the last month, processing 800 billion transactions a year. That's the data set that we get to train off of.
It's unprecedented in the industry for the, you know, solutions we're serving for our customers to have that high of a quality data set. You look at our competitors, some of them you mentioned earlier, they're on premises, they're in the cloud, they're multi-cloud. It isn't as clean and curated as data set as we have.
Right.
It's a huge differentiator for us. A third thing is trust. I mentioned trust early on, that I recognize this in our customers' feedback, is absolutely they trust us, and we're taking a very ethical, and responsible, and safe approach to delivering human-centric AI solutions to the market. We support regulation, we lean into it, and we have the opportunity going forward to prove that to our customers, just like we have for the last 19 years.
When it comes to monetization, we're taking a multipronged approach. We're being very measured, and we're being very thoughtful. We're not like everyone else out there who's rushed in the last 12 months to go to their customers and say: Give us a 20% or 30% increase because we have AI. I said it's built into the platform.
We're trying to turbocharge the Workday platform by bringing our customers AI solutions, and we get paid for that in a multitude of ways. Number one, if you look at what we get at renewal rate, or at the time of renewal, we have an Innovation Index that we get from our customers to continue to drive our innovation and fuel our growth. They pay for that, so we think they are deserving of AI. Number two, we can see in our competitive win rates.
I mentioned earlier that in the last year, every single quarter, our competitive win, win rates have gone up, and up, and up. And the feedback from customers is: Workday, thank you for taking the approach you're taking to AI, and thank you for building it into the platform. This is a differentiation from your competition.
So our competitive win rates and our renewal rates continue to go up, and I think a lot of that has to do with our approach to AI. The second-pronged approach is we're focused on bringing solutions to market. When they provide true value for our customers, and they're willing to pay for these AI solutions, we'll monetize them.
An example would be Talent Optimization. It's one of the fastest-growing SKUs in the history of Workday, and it's 100% AI-driven. We have an Extend platform. Extend allows developers to actually write and build applications on top of Workday. Last quarter, we announced Extend Pro.
Extend Pro allows them to do it and actually includes our AI Gateway, so you can bring in, I mentioned earlier, other AI solutions or large language models on top of us, and we saw that SKU in one quarter bypass what we were doing on Extend, the base platform alone. It also gives you access to a whole bunch of new, if you will, AWS services. The third way we're monetizing it and approach will be through an AI Marketplace.
At Rising last year, we announced 15 partners who would be part of our AI Marketplace, who are building on top of the Workday platform, but it's highly curated and highly supported by Workday, and because our pro customers trust us, they will lean into those solutions, so we don't have to do it all ourselves, and I think we can monetize it by being a toll collector through the marketplace.
Last week, Keith, we announced an acquisition on our earnings call of HiredScore. HiredScore is a 100% AI-driven talent sourcing solution. I think now we have got the best talent acquisition and sourcing platform in the industry.
We can identify customers, we can engage with them, we can recruit them faster, and once you recruit them, we can retain them better than anyone else through internal mobility based on skills, and that is all AI-driven. So we will be monetizing that and selling that right back into our customer base around solutions like recruiting, which recruiting has an 80% attach rate today to our core HCM.
There's no reason we can't bring recruiters more solutions around AI, and that's something we'll be doing with HiredScore. So it's, it's a thoughtful, methodical approach. Without going after our customers day one, we'll monetize it where we see the opportunity. We have the marketplace, and then we'll bring new solutions to market, like HiredScore and other things as we see fit.
Got it. So a lot of irons in the fire there. Probably more so than investors are realizing. I'm gonna open up for questions in a minute, so if the mic runners could get into position. While they're getting in position, one last question.
You mentioned trust amongst your customers, and trust with these new innovations, I think is gonna be an interesting equation, in that, a lot of people are trying to push these innovations into the solutions quickly, and the enterprise is still trying to figure out, are they secure, right? Are they giving us the right answers? Are they, are the optimization something that we can rely on?
Where do you think your customers are in that process of getting trust in these generative AI solutions, and how does Workday ensure that when you put that optimization in, you put that generative AI in, that it's spitting out something that's verifiable and correct?
We've been talking about trust for quite a while at Workday, and it was part of our Rising user conference in San Francisco, where we had 15,000 customers with us. We talked a lot about trust and the importance of trust, and I talked about my engagement with the customer was, they trust us. We need to maintain that trust by having a highly secure, highly resilient platform, number one. We didn't talk about security, but security is critically important.
Number two, you have to do it in a responsible, ethical, and safe way, and we use this term, we take a human-centric approach. We're always gonna have a human in the loop, if you will, as we think about AI. And number three, our customers are absolutely looking at AI and generative AI solutions this year. A lot of them are doing experimentation-
Right.
and that experimentation will be done first with partners they trust, which is why I think we have a really unique advantage.
Got it.
to take, you know, be first mover, if you will, when it comes to AI. The other thing I'd say is this: the office of the CHRO plays a really big role in AI and generative AI, because a lot of the use cases you can take advantage of to drive skills, to drive faster enablement, to drive growth plans, to think about how quickly you can go out and recruit people based on AI and matching skills to opportunities. I think the CHRO is in a unique position to be a thought leader when it comes to AI, and if you talk to CHROs, I think they'll clearly say they trust Workday.
Got it. And maybe flipping the question around, like, are you, as an organization, Workday, using a lot of external generative AI tools yet, or is Workday still in that same kind of experimentation phase that you're talking about your customers being in?
We're leveraging AI to drive operational efficiencies inside the company. We're leveraging them around our customer success platform-
Yeah.
In our support platform, and in R&D, we're leveraging Copilot to help drive you know, better productivity with our developers.
Got it.
To be honest, we're in the early phases of that. We're in the experimental phase as well.
Right.
We also need to make sure that you can quantify those investments. One of the things I think eventually is gonna come out with all of this AI and Generative AI, while people may be spending money on it, it's not gonna be long before a CFO comes back and say: "Where's the business benefit? Where's the productivity gains we're getting?
Right.
Where's the operational efficiencies by leveraging these technologies? I think you just have to be careful you don't go after it too fast. You have to lean into it. It's real, it's here, and it's gonna drive a step function change in human productivity, but you have to be thoughtful how you do it, and you got to be able to quantify the impact it's gonna have.
Got it. Do we have any questions from the audience for Carl? We have one right up here.
Carl, I'm Mike Lippert with Baron Capital.
Hi, Mike.
I wanna follow up on what Keith gave a shot to, which I know every investor is talking about. We're all in the hallways talking about it. 20% to 17% to 19%
What changed? Is it the market, Workday's execution, product fit not exactly right, new management, yourself now as the, as the CEO, simply investor relations, setting numbers low enough that you know you can beat them? If you can give us any insight as to what changed from the 20% subscription revenue growth that we believe was durable to the number that we have today. Thank you.
Yeah, I think it's a combination of all the things you mentioned, quite frankly. You know, when myself and, and Zane, the CFO of the company, who's here, looked at the numbers over the next three years, looking at that 20% number, we didn't have a clear line of sight to that 20% number. W e decided to put a number out there, and our objective is to share with all of you a number and deliver.
We've done it for five consecutive quarters. We've put a number out there, we've delivered or slightly beat our guidance, and we've increased operating margin. That being said, all of these investments we're making, that I just articulated, are to help us either maintain or maybe ultimately accelerate growth in due time if all of these investments pay off. So I think it's a combination.
Do we have aspirations of getting to 20%? Yeah, but I'm not gonna put a number out there that we don't have clear line of sight to, and until we can see, all these investments paying off. And oh, by the way, let's not forget, I'm gonna go back to this time and time again, so I apologize for doing it. We're saying we're gonna grow the business 17% to 19% over the next three years and expand operating margin. Even sustaining growth at our scale is not the easiest thing to do, but we're very confident in our investments and our ability to do so.
Do we have one last question for Carl? All right, so I'm gonna squeeze in one last question in a minute. I'm gonna give you the CFO question on margins. I f we think about the investment envelope that you guys are operating in, there's definitely big buckets of investments that you wanna make in go-to-market and partners and international and the like.
Should we, as investors thinking about it, is there's a absolute amount of investment you're gonna make if you guys outperform on the top line, that will drop through to operating margins? Or, listen, we're gonna sort of manage the operating margins. If we're doing better than expected on the top line, that gives us more envelope for investment.
Keith, listen, we talk about profitable and durable growth. That's our focus, and I think we've laid out a really good plan over the next three years, as I just said, to maintain our growth and expand operating margin. Let me go back, make sure everyone caught this. In the last year, our operating margins have expanded by 500 basis points in a year.
500 basis points in a year while making all these investments to maintain our current growth rate. And as long as we see the opportunity, which absolutely I do, we're gonna keep making investments. We're gonna be smart about it. If those investments aren't paying off, we'll pull back. And let's not forget, we said we'll have 25+% operating margins over the next few years.
Even though we're guiding to 24.5, there's still headroom for us to expand operating margins, all at the same time while maintaining investment in the growth opportunity that we see ahead.
Got it. I think that's a great point to end on, the 25% plus. T hank you, Carl, so much for joining us.
Thank you, Keith. Thanks for having us. Appreciate it.