Thank you everyone for sticking with us all the way to day four of the Morgan Stanley TMT Conference. Really pleased to have with us this morning, from Workday, both co-CEOs, both Aneel Bhusri and Carl Eschenbach. I believe this is your first investor conference as CEO of Workday, as co-CEO with Aneel here at Workday, yeah. Really, really excited to kick off the conversation. Before we do that, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. Aneel, to start off, I've been talking to some of my contacts at Workday, and there's an excitement that got kicked off that when Carl got hired, and I'm hearing about a buzz, and I'm hearing about people really reinvigorated about Workday with this hire. What do you think that, like?
What did Carl catalyze? Like, well, what is it that people are getting excited about with Carl coming on board? I'm sorry to talk about you like that.
No, no, it's great.
He's right in front of you.
It's great.
Yeah, I'm gonna lead now, Keith.
Yeah, exactly. You know, I've said it before, I've been chasing Carl for five years. He's been on our board for five years. I knew that if we could get Carl to Workday, it would be transformational. I don't think there's a better operating executive in the entire software industry. Now, I've seen him in action for three months, and that's absolutely the case. I think as a founder CEO, I took it as far as I could, and coming out of COVID, we're probably a little bit tired. Carl brings this, first of all, just in who he is, this level of energy, he calls it giddy up. He's gotten all of us to have more giddy up.
He also brings a vision for what, especially the go-to-market side will look like from where we are today to being a much bigger company. People are just excited about that. You know, it's infectious, there's a path to building a huge company here. You know, for me, I'm excited. I get to go back to do the product and technology work that is more my.
Sure
My bailiwick. You know, Carl's really driving the company with energy, passion, and a vision for how to scale this company. I love what he says, you know, we can grow the top line and the bottom line. As a founder entrepreneur, I was always focused on the top line, and the bottom line to kind of took care of itself, but we have opportunities there.
Got it. Carl, to you, I mean, you've been an investor for the past, couple of years. Taking a CEO role, you're making an investment. This is how you're gonna invest your time over the next five, 10 years. What made Workday the right investment for you? Where did you see the opportunity for improvement? Coming in as a CEO, obviously you see something that you think you can improve within the overall Workday story.
Yeah. Thanks, Keith. There were a number of reasons I decided to jump back in the game with Aneel. I was fortunate enough for five years to sit on the board and serve Aneel in the board, and I had a front row seat on the business. The thing that first and foremost attracted me was the value and culture system that Aneel and his, you know, co-founder Dave built over the last 18 years, and how we treat our people, how we focus on customers. They have this line inside the company, "They're great and good people, but they like to kick ass." I will tell you, I've got to witness that, and that really attracted me.
Also the opportunity, if I'm honest, now I can talk about Aneel, I wish he wasn't here right now, but to get to work alongside someone like Aneel, one of the best product strategists I've seen in enterprise software in my career, get to work alongside of him, I think was a special opportunity. On the business, as you know, I sit on lots of boards coming into this role and got to see, you know, a front row of many companies. I think this business that Workday has built is really durable. What I mean by that, when you look at the strength of its installed base of customers and the opportunity to sell back into it with all of our solutions, I think that's really impressive. I like the diversity of the business, Keith.
Diversity in who we're selling to. We have these four segments as I think about the business, a large enterprise business that really built the core foundation of Workday. The medium enterprise business is accelerating, which is what we call our mid-market. We also sell across many of different industry verticals. They verticalize the business because we have strength in certain verticals, so that's working. Last is, you know, there's not many companies that have actually built two systems of record and have the opportunity to not just sell our core product that got us, you know, to where we were, you know, first five or 10 years, HCM, but now we also have this powerful FINS business that's taking off as well.
If you look at the diversity of the business, I think we have a very durable business and it's predictable over time. This is why I think both Aneel and I think, you know, we see a vision well beyond $10 billion at scale. We can, you know, grow both top line and bottom line. For me, what I think I can bring is, listen, you know, I spent my first 30 years in an operating role, the last seven as an investor. Actually, pretty funny, it's similar to Aneel. He was an operator, went to Greylock and came back and obviously started Workday. I think, you know, my operating experience, my understanding of go-to-market, my international experience building out international, go-to-market strategies, I think is something I bring.
I do think about, I have a growth mindset, but at the same time, I also think about how we can drive margin, and I think we have the opportunity to do both here, which is quite unique, in how we run the business. I think I can bring a lot. I've been through a couple cycles, ups and down, and had to manage through them. Depending on what happens, you know, on a go-forward basis, I think we can manage through anything we're confronted with on the economy side.
Outstanding. Let's dig into some of those opportunities. You highlighted.
I like your socks, by the way.
Thank you. It's a World Wildlife Fund.
Yeah, it's nice.
All my socks come from, donations to the World Wildlife Foundation. It's true.
No, no, it is.
Yeah. Carl, you highlighted international. International has been relatively flat at about 25% of revenues for the past couple years. I know there's been some recent leadership changes there. There's some of it's macro that just Europe has lagged a little bit in cloud adoption, some of it is execution. What's the opportunity in Europe, and how do you sort of jumpstart that to be an increasing contribution to the overall business?
Yeah. I think, you know, the statistic we share with folks is right now 25% of our business comes from outside the U.S., but it represents more than 50% of our opportunity or TAM. Yeah, we have seen more macro headwinds in Europe, which we've called out, which is why some of our international growth has been down, but I also think the opportunity is very large, and we haven't executed well, if I can say that, and with Aneel sitting here next to me. We have made leadership changes. We've brought in a new leader for our European operations. As well, if you go down one level, we brought in a new leader to run the U.K., you know, Northern Europe, and the German market, the DACH market.
We did the same over, if you will, Keith, in APJ, where we promoted someone from internal to lead our efforts internationally, and I think he's gonna do a really good job. At the same time, while we fix the go-to-market motion, you know, now that we have, you know, Aneel just laser beam focused on the product side, I think you're gonna see more localization, internationalization of the product as we go into, for instance, APJ and service South Korea and Japan. Just last week, we announced an expansion of a partnership with a company called Alight, which is a payroll provider in six new cities across Europe. It's both go to market, I see the opportunity, and on the product side, and Aneel is leading the effort on the product, and I'll lead the go-to-market side.
We should drive international growth faster than we've seen historically.
Yeah, it's a little bit of a chicken and egg thing. Without the right leadership, we didn't necessarily make the investments on the product side, so we do have some product gaps to fill, but they'll get filled pretty quickly now that, now that we have confidence in the, in the sales leadership internationally.
Yeah. Got it. A high level kind of macro question. The, the exposure to back office seemed to be a little bit of a drag during COVID.
God, I hate calling it back office. It's not back office.
Okay.
We'll get.
Yeah, Keith, I was gonna apologize-
It seemed in financials that.
It seemed to have a little bit of a headwind during COVID. Now it seems like there's more of a tailwind behind those types of projects today, even though the sort of underlying kind of macro conditions are weakening. Can you help us kind of understand that push and pull of what we've seen over the past couple years?
Yeah. first of all, I really do bristle at the term back office because I think the.
I'm crossing it off my list then.
The areas have changed. HR and finance were back office 20 years ago. Today, you talk to any CEO, what's in their top five list of priorities? Talent. Every CEO will tell you it's talent. HR has transformed from being about payroll and benefits to being about talent and learning and employee engagement. During COVID, that was front and center for all CEOs. They didn't know.
Right
How their employees were doing. They had to train them remotely. All the things that make HR become a lot more strategic. That's why I think HR did quite well during COVID. I think of finance now no longer as the, you know, as the regulatory system that generates 10-Qs and 10-Ks. It's really the business partner. The CFO is the business partner to the CEO in running the business, and so it's about the analytics, it's about planning. I believe both of those functions have moved to not necessarily the front office, but they're strategic. Front office being sales, but they're strategic, and they're not viewed as back office.
I think that was one of the reasons why the business held up during COVID. They were still viewed as important initiatives. You wanted to engage your employees, you needed a modern HR system. Finance was doing great going into COVID. It took a pause because those are viewed as bigger projects and ones that I think companies felt slightly uncomfortable doing with everybody being remote, where, you know, we took Walmart and GE live during COVID. We were able to figure that out for HR. As we come out of COVID, you know, finance transformation is a huge topic. I see our finance business picking up again. Salesforce was a huge win for us. That's a... It's not just another tech company, it's also a, you know, Fortune 250 scale company.
Mm-hmm.
I only see good things about our finance business going forward. The reality was during COVID, those projects were viewed as big projects and a little scary to do a finance change while at COVID, and now it's coming back.
Right. On the Q4 call, you guys talked about a small restructuring you did. I think it was about 3% of headcount, which is never easy for any company to do. You made an interesting comment that the restructuring wasn't about cost reductions.
Yeah.
What was the restructuring about?
I'll answer the first part of it, but then I'll turn it over to Carl. We already had in the works a plan to basically optimize R&D. You know, we hired a lot during COVID. Coming out of COVID, the skills we need are just different. They're much more AI, ML skills, and we need to really build up that capability. Carl got here and said, "You know, we need to look at that across the company." That was, you know, that was something that, I don't know if you want to comment on it. It was the right time to optimize across the company.
Yeah, my philosophy on this is, listen, to Aneel's point, a lot of people were hired in the last two years, and when we sat down at a company level and looked at cross-functioning all the requirements we have to focus on growth, we call it our SGIs, our strategic growth initiatives, we didn't necessarily think all of our headcount was optimized against the biggest projects to drive growth. While we were gonna do some, you know, restructuring and optimizing in R&D, Aneel and I just said, "Why don't we look at it across the company?" Because the last thing I think you want to do as a company is do multiple cuts. It just doesn't put a good feeling inside the company and people walk around on eggshells. We did it once.
The interesting thing, to Aneel's comment during the earnings, we took that headcount, we now have aligned it against our strategic growth initiatives in R&D, in product and technology, as well as go-to-market. All that headcount is going back into either quota-carrying capacity or what Aneel is focused on, the product and technology to drive innovation. We're reinvesting it. That's why we call it more of an optimization exercise than a restructuring or a cost-saving exercise. It's resonated well with the company. To Aneel's, you know, defense, he's never done this at the company in nine years, it wasn't something we took lightly. We treated our Workmates on the way out very generously and ethically, and I think they left very proud of, you know, their experience at Workday.
Outstanding. Outstanding. Aneel, you gave me the entrée into this conference. We can't not talk about generative AI.
Yeah.
In, in all of these sessions. What does it mean to Workday, and where can the functionality and the capabilities that are enabled by generative AI and large language models, where can they enhance.
Yeah
The Workday portfolio?
I would first of all say that we shouldn't just discard traditional AI and ML, and it's funny calling it traditional AI 'cause that's relatively new.
Right.
They're solving different use cases. Traditional AI and ML, you throw a bunch of data at it gives you a recommendation. It's either basically automating, drudgery work or, it's giving you insight into a process that would take humans a decade to analyze.
Right
The machines can analyze it in minutes. That is, that train needs to continue to go forward, and generative AI is not gonna replace that. Generative AI is really an amazing technology, and I spent some time with Sam Altman earlier this week from OpenAI at really at content. You know, free-form content. Without giving away all of the details, I think you'll see in six or seven months from us our first wave of generative AI use cases and either prototypes or actually in production. I'll just share one that's a simple one. Performance reviews. People hate writing performance reviews.
Mm-hmm
The way that we're using generative AI is to look at, taking in input, either a combination of maybe a Zoom review, a review done over Zoom, all the data that you already track in Workday, from a performance perspective, and then actually writing the performance report that nobody likes to write. In our early trials, it works really well. You would think it's written by a human except there's no grammar errors.
Yeah.
I mean, it's pretty, it's pretty flawless. We've got 30 use cases we're looking at. We're surveying our customers to figure out which are the ones that have the biggest impact. The difference between us and the consumer internet is our data is absolutely clean, and it's normalized. You know, in ChatGPT, you can ask it questions, and you get some wacky answers at times because the internet is the Wild Wild West still. Maybe it's actually getting wilder. Our data is absolutely constrained, normalized. It's clean, and as a result, we can produce pretty powerful results.
Right.
Anytime you wanna do something that generates content, you think, in a work setting.
Right
You can think about how we might use it for that. We've got cases I don't wanna share, although I know SAP and Oracle couldn't do it anyways, you know, they're dinosaurs. I do think that for vendors that didn't really make the leap to cloud, generative AI is gonna be impossible.
Right. No, that makes sense. The new use cases that come out from generative AI, I think one of the things that investors have been a little underwhelmed with when we saw traditional AI we'll call it, come into work sets, like when Salesforce started talking about Einstein and Adobe started talking about Sensei, was it wasn't separately monetized. It's, it was just improving the overall platform on a go-forward basis. Do you think these use cases could be monetized separately?
I don't think they can be monetized separately. I think it changes the win rate.
Okay
Protects pricing. I think both of those are really powerful, and I really think it will impact the win rate pretty substantially. I would go back to, you know, we approached AI and ML differently. We traditional AI and ML differently. We embedded it in the core, and then we built apps on top. Our two hottest selling apps in the world of HR are Talent Optimization and Skills Cloud. Those are both based and built on machine learning and AI. In the case of Skills Cloud, you know, we're moving from a world of jobs and roles to a job of skills, and it takes these massive amounts of jobs and breaks it down into a set of skills.
Right.
We now track, I think, 1 billion skills. There's no way you could, a human could do that in any reasonable amount of time. Might take them 10 years. Accenture's our great case study. They, they did this for all the skills that Accenture has internally, and now we're going to our customers and showing what you could do once you break down the job to skills, then you can do matching to the skills you're looking for in hiring as opposed to, "I want a software engineer," you can say, "I want a specific set of skills. I want five years of job. I want..." You know. That's all based on AI.
Right.
For us, that's a brand-new product that is a very expensive SKU that is really popular with our customers.
Yeah. Keith, just one thing to add is I think, you know, Aneel touched on a little bit about the competition. While people say they potentially can do, you know, AI, ML, I think we are unique. We have a multi-tenant cloud. Everything is on the same platform.
Yeah
Where our competitors have single-tenant on-premise a lot. To be able to do what Aneel is articulating really well, you need a big.
Yeah
Data set. We have that. We have 60 million+ users on our platform today that's curated, it's normalized, and it's all on a you know, single-tenant cloud that gives us a significant advantage. We're gonna be a lot more vocal about some of the things Aneel spoke about. I think we've been a little bit quiet about our capabilities, but I think you're gonna see us amp up our messaging 'cause we think we can drive a transformation in the industry around this, you know, AI, ML message, better than our competition. You'll see more from us.
Yeah. I think there was some fear about AI and ML a couple years ago, and that fear has dissipated because if you're not using it, you're at a competitive disadvantage.
Right.
That makes sense. Got it. I wanna dive into sort of, HCM and then the FINS side of the equation. One of the real upside surprises for investors over the past couple of years, I think it was in Analyst Day 2018 or 2019, you put up a framework of the growth of the company, and you put HCM as a mid-teens grower. We came back at the most recent Analyst Day and said, "Listen, this is growthier than what we expected," like, and, this is a 20% grower. What changed? What enabled you guys to get that confidence?
I'd say a couple things. Number one, everything comes from having a great product and super happy customers.
Mm-hmm.
Happy customers wanna buy from the vendor that is their core system of record, right? I'd say the big changes, two big changes. We began to have a more concerted effort selling into the customer base. We really didn't have that motion. We were so focused on net new. Carl's taken that to a new level. Secondly, we came out with a whole bunch of really compelling SKUs, like Talent Optimization, like the Skills Cloud. We've got scheduling that's AI and ML driven coming down the pike. We've come out with a whole bunch of new modules and our win rates are super high, and the price points are, discount rates are way better than they would be on the initial sale.
Yeah
You know, customers, Carl said this a bunch of times during tough economic cycles, they tend to lean in with the vendors that they know are gonna be around for a long time, and we benefit from that.
Right.
Yeah.
Carl, one of the things I think that really, for me, I thought of as something that you did extremely well at VMware was, every year, like we would talk to customers, and on these ELA cycles, you got VMware customers to buy more and more product from you. VMware's also had a really broadening solution portfolio. Is that a motion you think you could bring to Workday in terms of being able to sort of get that motion?
Yeah, you already have.
Aneel's laughing at me up here or with me, I hope. No, no doubt. Like, I think, listen, Workday, you know, $7 billion at scale, really solid growth, great company, but I think Aneel and I would agree, on the go-to-market side, there's innovation we can do. Most people think of innovation purely on technology, either organic innovation or inorganic innovation through M&A, but I actually think there are some things we can do. We are in the process right now of looking at our go-to-market strategy, and we're gonna modify some things. We're gonna sell differently. An example is something you talked about. Typically at Workday, when a renewal would come up, that's when we'd add new products.
When a customer wants to add new products, even if it's midstream of a, you know, a contract, we'll open it up, restructure it, add the new products, and then we'll co-term their existing, you know, footprint. We're doing things like that. I also think on the go-to-market side, there's some unique things we can do with our partner ecosystem. We have a number of partners that have literally built billion-dollar franchises on the back of implementing and installing Workday. We're really, you know, happy for them, and we're gonna continue to lean in on them in that partnership. We're also gonna start to look for reciprocity in how they can drive this to market.
Another example is, last week we announced an expansion of our partnership with Amazon and AWS, where now Workday's gonna be sold through the Amazon Marketplace, which has never been done in the past. There's a lot of customers who have a lot of dollars to spend on their contracts, their frame contracts with Amazon. Now you can, for example, go use your dollars against a Workday spend, and we can implement that on AWS. There's a lot of innovation we're gonna do on the go-to-market side. It's started already, but, you know, it takes a while. I'm confident the teams are open to it and willing to think differently about how we go to market. I think you'll see a number of changes, you know, over the coming, you know, six-12 months, no doubt.
Right. Outstanding. on the financial side, we do a quarterly CIO survey, and we've asked the question for probably seven, eight years now of when you make your next ERP purchase, like, do you wanna do it in the cloud or do you not wanna do it in the cloud? It's really over the past two years, we've seen it flip.
Yeah
The majority of CIOs are saying that we wanna do the next generation in cloud. Is my survey correct? Are you seeing that?
Absolutely. For a couple reasons. Legacy vendors are not investing in the on-premise products. They haven't been touched in years. The world's changing. Those systems are just falling further and further behind.
Yeah.
Secondly, the cloud is now shown to be more secure than on-premise. It's also shown to be on parity functionality-wise. If legacy is standing still and cloud's moving forward. You can see where this goes. You know, even Oracle has kinda given up on selling on-premise, so it's cloud versus cloud now.
Got it.
Keith, the other thing, I was just telling Aneel this morning, I spent the last two days in New York City, with customers and prospects, and every single customer engagement had both HCM and financials in the conversation. What we're seeing is, because of the strength of our install base, we can sell, you know, our financials back into that install base. As we're talking to net new customers, especially in the medium enterprise, that market segment, they're looking at going with a full platform solution from someone like Workday. I think that's something we haven't seen in the past, and it's something we're leaning into. On the Fin side, we talked about the optimization exercise, and I talked about quota-carrying capacity.
The majority of that is going into Fin sales, so we're doubling down on both selling back into the installed base, building a larger Fin sales organization.
Right.
For net new, we're expanding dramatically as well.
Yeah
Because we see the product has, you know, come to parity. There is an openness and willingness with the CFO community, who's historically been a bit conservative, to start to think about that movement to the cloud. When they do, we get at least a seat at the table to have those conversations.
Yeah.
Medium enterprise for us for finance has been strong for quite a bit, because the customers don't wanna make multiple decisions, so they buy.
Exactly
HR and finance together.
Okay.
What we're now seeing is that with wins like Salesforce and Comerica and other big banks, it's going into the Fortune 500.
Okay.
An example is State of Georgia, Aneel, where we did a full platform, you know, for the whole state.
Right
which is a lot of employees.
Right.
I'll share with you my theory.
Right.
You guys bought Adaptive Insights.
Yep.
At the time you bought Adaptive Insights, a lot of investors kinda scratching their head. It was like, "Was that the right one to buy?" It seems to me like that gave you guys more entree into the mid-market and gave you an avenue to the mid-market. What I've seen since then is you took Adaptive Insights, you added Accounting Center, and then you had FINS, and all three of those came together and that became a transformational type of FINS solution for the larger enterprises.
Yep
... it's starting to go up.
Yep. No, absolutely. It also allows customers... In the old days, if they didn't wanna trade out their accounting system, that was the end of the conversation. Now we can start with, "Hey, do you wanna start with planning?
Okay.
Right? If you wanna go all in, we can do the plan, execute, analyze, and that message really resonates. The other thing we did with Adaptive is we took it up market. last year, we actually landed Exxon.
Okay
For a planning deal.
Yeah
Across the company, that's, I mean, that was, that's a Fortune 500 kinda customer that Adaptive never touched before.
Yeah.
With our engineering effort and our sales effort, we've been able to take Planning up. I would just say, without sharing the details, at some point we will, that from a financial perspective, that acquisition has been more than a home run.
Yeah. Definitely.
It's scaled to be a very large business.
Right. One last topic I wanna squeeze in here before we have to close out the session is the balancing growth and profitability. You guys have done a very nice job of steadily bringing up operating margins. Given sort of the scope of the opportunity, given sort of the tipping you were kinda seeing in financials, are you still gonna be able to do that or do you need to sort of gear more towards the opportunity and lean a little bit more into growth?
Listen, I think the optimization example that we just articulated earlier is a perfect example of how we can continue to invest in the business but be smarter about where those investments go.
Mm-hmm
To drive growth. We think this is, you know, long-term, a 20% sustainable business, on our path to, you know, $20 billion... or $10 billion in revenue.
You said 20.
Yeah. Aneel's gonna hold me to that as he becomes my exec Chair. At the same time, continue to expand margins, which is what we announced, you know, 200 basis points, last quarter. I think we can do both. Everyone thinks one has to come at the expense of the other. I think the operating leverage we have here at Workday and the strength of our install base into motion with both HCM and FINS, I think this is a very unique opportunity for a company to continue to grow, at an unprecedented rate compared to others at scale.
Yeah. I mean, we got to 20% operating margins without really being focused on operating margins.
Right.
Yeah, exactly.
What we saw during COVID was when we stopped traveling and stopped hiring and got it, I think it got as high as 23, 24. We realized how scalable and the business model is and how much leverage there is. Now Carl's using those tools to tweak it.
Right. Well, unfortunately that takes us to the end of our time. Tons of exciting stuff going on at Workday. Thank you so much for coming and joining and sharing that with us. Carl, super excited to have you on board.
Thank you. Appreciate it.