Workday, Inc. (NASDAQ:WDAY) Q4 2026 Earnings Call Transcript

Workday, Inc. (NASDAQ:WDAY) Q4 2026 Earnings Call Transcript February 24, 2026

Workday, Inc. beats earnings expectations. Reported EPS is $2.47, expectations were $2.32.

Operator: Ladies and gentlemen, welcome to Workday’s Fourth Quarter Fiscal Year ’26 Earnings Call. [Operator Instructions] I will now hand the call over to Justin Furby, Vice President of Investor Relations. Please go ahead.

Justin Furby: Thank you, operator. Welcome to Workday’s Fourth Quarter Fiscal 2026 Earnings Conference Call. On the call, we have Aneel Bhusri, our CEO; Gerrit Kazmaier, our President, Products and Technology; Rob Enslin, our President and Chief Commercial Officer; and Zane Rowe, our CFO. Following prepared remarks, we will take questions. Our press release was issued after close of market and is posted on our website, where this call is being simultaneously webcast. Before we get started, we want to emphasize that some of our statements on this call, particularly our guidance, are based on the information we have as of today and include forward-looking statements regarding our financial results, applications, customer demand, operations and other matters.

These statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our fiscal 2025 annual report on Form 10-K and our most recent quarterly report on Form 10-Q for additional information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today’s call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Workday’s performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.

You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release, in our investor presentation and on the Investor Relations page of our website. The webcast replay of this call will be available for the next 90 days on our company website under the Investor Relations link. Additionally, the prepared remarks of this call and our quarterly investor presentation will be posted on our Investor Relations website following this call. Our first quarter fiscal 2027 quiet period begins on April 15, 2026. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2025. With that, I’ll hand the call over to Aneel.

Aneel Bhusri: Thank you, Justin, and thanks to everyone for joining us today. It’s really nice to be back with all of you. Before I get into my remarks, I wanted to thank Carl for his service to Workday over the past 3 years. He brought the operational rigor and discipline that we needed at the time to make Workday a larger and more global company. That work helped us set the foundation for this next chapter for Workday, and we’re all grateful to him. In terms of chapters, we talk internally about this next chapter of Workday as Chapter 4. First was the founding of the company by Dave and myself back in 2005, based on the new idea of HR and finance in the cloud and built on a set of core values around employees, customers, innovation, integrity and fun.

The second chapter was a period of hyper growth that led to our success with many organizations around the world, and product and technology leadership in HR and finance. The third and most recent chapter, which started in 2023, was all about operational excellence and efficiency as we grew into a Fortune 500 global company. Well, Chapter 4 is now upon us, and it’s a return to focusing on innovation. When we founded Workday, we transformed the enterprise by reimagining HR and finance in the cloud. Now we have the opportunity to transform it again by reimaging HR and finance with AI, and taking advantage of this new vector of growth. You’ve all heard the narrative out there that HR and ERP will be replaced or relegated to the background by AI.

I personally just don’t see that happening. Our application domains are really, really hard to build. I’ve been working in the HR and ERP space for over 30 years. These are true systems of record that must process transactions with absolute accuracy and speed, enforce complex security models and comply with statutory and regulatory requirements all over the world. That kind of complexity is very hard to replicate. No amount of vibe coding is going to produce an HR or an ERP system. And importantly, our underlying business processes are deterministic by nature. There is a start and end to a business process. Its goal is to deliver consistent, auditable outcomes. AI for all of its incredible capabilities is probabilistic by nature. It reasons, predicts and recommends based on patterns and likelihoods.

Maybe it’ll eventually become a state machine, a system that follows the same steps and gets the same result every time, but it is not there today. You can’t have probabilistic outcomes in running a payroll, it needs to be 100% accurate and completed 100% of the time. So what is the future? It’s the marriage of deterministic enterprise apps with probabilistic AI that leads to 3 things: a redefined user experience that is prompt based, a greatly improved business process automation and execution platform with work done by agents and humans; and lastly, much deeper AI-generated insights. Taken together, these changes will lead to much better business outcomes and deliver far higher ROI for our customers. As you’ll hear from Gerrit, this hybrid world and architecture is exactly what Workday is building today, marrying the best system of record for HR and finance with the reasoning capabilities of domain-specific LLMs. That’s the future.

It’s like peanut butter and jelly, they just go together. And it’s all rooted in the trust we’ve built with our customers over the past 20 years from managing their systems and their most critical data. All you have to do is look back at the past year to know that this hybrid world is coming to fruition. We experienced accelerating agentic AI adoption across the solutions we acquired, HiredScore, Evisort, Paradox and most recently, Sana. They all had great Q4s, and I’m pleased to say that Sana is now seamlessly integrated into the Workday stack. It’s very cool. So as we move into fiscal year ’27, what should you expect from us? Our core enterprise apps and HR, finance and student will continue to thrive, recognizing that in some areas like HR, we have high levels of market share, so the growth will come from new apps sold to the customer base.

The accelerating growth will come from the agents we built on top of Workday, both inorganic and organic. If FY ’26 proved that customers trusted Workday to buy our acquired agents, we believe that FY ’27 and beyond will prove that customers will buy our organically built agents that are in early access today. Across the board, these new agents are deeply embedded into the Workday core, are meaningful in their scope and have significant ROI attached to each and every one of them. Those of you who know me know that I’m an unabashed optimist. I truly believe that our investments in agentic AI will enable Workday to reaccelerate growth, increased customer satisfaction and set us up for long-term leadership. I will end by saying that I’m excited to be back.

This is a fun time to be a product person. And now I’ll turn it over to my friend and leader of all things, ERP and AI. Gerrit?

Gerrit Kazmaier: Thanks, Aneel, and hello, everyone. Aneel described the opportunity really well. AI is changing how work gets done, and we are unlocking its transformative power for HR and finance. The foundation for enterprise AI is taking the right action inside a governed business process with the right permissions, oversight and policy configuration, whether that’s hiring and onboarding, payroll or the financial close. Simply connecting powerful language models directly to enterprise data, well, that risks creating lawless agents that may have vast capability, but they have zero guardrails. We are building Workday as a context and tools engine for AI with deep HR and finance data, a business process framework and a strong security model to deliver enterprise-grade accuracy and business outcomes.

Based on this, we leverage AI for entirely new business processes. We build for enterprise AI transformation where, for instance, every employee can have a career coach who develops them along their journey. Every sales team can have an AI contract agent specialized in every engagement. Every candidate can have an AI personal job search agent. Every finance professional, their personal AI analyst. And every employee, their own AI HR business partner agent. So now let’s look at some real customer AI usage in Workday. We measure every time an AI model produces a result in Workday as an AI action. In full year ’26, we delivered 1.7 billion AI actions across the Workday platform and this is all organically developed AI in Workday. You can also see this incredible momentum commercially.

In Q4, we generated over $100 million in new ACV from emerging AI products, that’s growing over 100% year-over-year, and our overall ARR from these solutions is now over $400 million. We expect AI usage and business impact to continue to expand meaningfully in FY ’27. Today, we have 12 new organically developed role-based agents that are now starting to move into general availability for all our customers. And more than 400 customers are already using them and get real ROI. With our Self-Service Agent, early access customers have reduced HR case volume by 25% and increased their employee productivity by 20%. And with our R1 release in March, in addition to our Self-Service Agent, Planning Agent, Deployment Agent, Payroll Agent and Business Process Optimize Agent are all entering into general availability for all our customers.

And here is another real highlight for us, the release of Sana Core and Sana Enterprise into general availability. Sana Core brings conversational AI directly into Workday, so employees can get answers and complete tasks using Workday agents. Sana Enterprise extends the same experience beyond Workday by connecting enterprise tools, like Outlook and Google Drive and so many more, so employees can find information, create agents and automate workflows all in one place. That will create an entirely new way for our 75 million users to engage with Workday. Sana Core and Sana Enterprise went into GA on February 15, which we executed with world-class speed from project start to finish in just 3 months. We used AI to dramatically accelerate our product innovation cycle time.

We accelerated key API development by roughly 30x on Workday’s core platform using AI. More than 75% of our software engineers are using AI coding assistance and more than 50% of the committed code is AI generated. We have seen an incredible 22% growth in engineering output over the last 6 months, measured by the number of code updates we delivered. Our strategy is to build new business processes designed around virtually unlimited AI reasoning, to automate entire business processes into the background with AI agents and to deliver a beautiful AI-first user experience that brings super intelligence to work. And with that, I’ll turn it over to Rob.

Robert Enslin: Thanks, Gerrit, and hello, everyone. It’s great to be on the call today. As we look back at Q4, one thing is very clear, our customers trust Workday with the parts of their business that have to run flawlessly, from payroll to closing the books. And that trust continues to show up in our high retention rates and in customers expanding the use of the platform year after year. With over 11,500 global customers, expansions remain our largest growth engine. In the quarter, we expanded with customers like Anthropic, Ally Financial and Otis Elevator. In Q4, AI played an increasingly meaningful role. It was involved in roughly half of our customer-base transactions. And expansion deals that included AI were nearly 50% larger on average.

While it’s still early days, we’ve seen great initial traction with Sana, since the acquisition closed in November. We’re starting to see customers go all-in on agents and agentic workflows, and Accenture is a great example. They’re reinventing HR and recruiting at scale, using our AI solutions to elevate the employee and candidate experience, while driving improvements in productivity, speed and agility. Accenture has also been a key design partner for us, helping to develop our Agent System of Record. And with our Flex Credits pricing model, customers can better align their spend with the value they’re getting. Accenture, Nike and Merck are among the first of nearly 50 customers signing on to use our new model. We expect Flex Credits adoption to continue to grow as we expand our AI road map and mature the model.

We’re also investing in our customer base motion, including forward-deployed engineers to activate agents faster and with less friction for our customers. Turning to net new. We formed several strategic relationships in the quarter, including Boston Children’s Hospital, the State of New York Unified Court System and Sargent & Lundy. We’re seeing particularly strong momentum in net new medium enterprise deals. ME customers drove roughly 60% of net new ACV in FY ’26. To accelerate time to value in the segment, we’re expanding Workday GO globally, helping customers get up and running faster in a more standardized way. At the same time, some net new large enterprise deals are taking longer to close, particularly in Fed, SLED and health care and across parts of the commercial market.

While this impacted the volume of net new deals that closed in Q4, most opportunities remain active in our pipeline and a few have already closed in Q1. As we look at our international business, we see significant opportunities ahead. We’re making good progress in Canada, EMEA, ASEAN and Japan. We’ve been investing in local talent, partners, product localization and new routes to customers with Workday resellers. While there’s still work to do, we believe international will become a much bigger part of our growth story over time. And partners play an important role in scaling. In Q4, about 25% of our net new ACV was sourced through our partner ecosystem. They’re helping customers go live faster, expand more efficiently on Workday and enhance the value of our platform.

Workday Wellness is a great example of how we’re expanding employee services, while creating new revenue streams with partners. In Q4, we welcomed Lyra Health, Empathy and Airvet to the program. As we move into FY ’27, the team and I are focused on turning all of the innovation Gerrit talked about into tangible outcomes for our customers, faster time to value, broader adoption and deeper platform commitments. We are well positioned to build on this momentum and play an even more important role as customers modernize their HR and finance operations. And with that, I’ll hand it over to Zane to share more details on our results.

Zane Rowe: Thanks, Rob, and thank you to everyone for joining today’s call. As Rob mentioned, our results this quarter reflect the deep trust customers place in Workday to manage their most critical assets. This is creating durable expansion opportunity, particularly as adoption of our AI solutions accelerate. Turning to results. Subscription revenue in Q4 was $2.360 billion, up 16%. And full year FY ’26 subscription revenue was $8.833 billion, growth of 14%. Revenue in the quarter benefited from the successful delivery of the DIA contract, which added nearly 1 point to Q4 subscription revenue growth. Total revenue in Q4 was $2.532 billion, growth of 15%, and for the full year was $9.552 billion, up 13%. U.S. revenue in Q4 totaled $1.91 billion, up 15%, and international revenue in the quarter was $626 million, growing 13%.

For the year, U.S. revenue was $7.18 billion, up 13%, and international revenue was $2.38 billion, up 12%. 12-month subscription revenue backlog or cRPO was $8.83 billion at the end of Q4, growing 15.8%. Total subscription revenue backlog at the end of Q4 was $28.1 billion, up 12%. Average contract duration in the quarter was down year-over-year, driven by a higher mix of renewal and customer base activity. Gross revenue retention rates remained strong at 97%, demonstrating the mission-critical nature of our platform and our high customer satisfaction. In addition, net expansion rates remained consistent through FY ’26, contributing roughly 60% of our subscription revenue growth for the quarter and the full year. Non-GAAP operating income for the fourth quarter was $774 million, representing a non-GAAP operating margin of 30.6%.

Margin strength was the result of solid revenue growth, ongoing efficiencies we are driving across the business and a slightly slower ramp in hiring. Full year non-GAAP operating income was $2.82 billion, reflecting a non-GAAP operating margin of 29.6%. Q4 operating cash flow was $1.28 billion, resulting in full year operating cash flow of $2.94 billion, growth of 19%. Free cash flow for the quarter was $1.22 billion, and for the year, it was $2.78 billion, up 27%. We repurchased $1.5 billion of our shares during the quarter and $2.9 billion for the full year. We had $2.9 billion in remaining authorization as of quarter end. We ended the year with $5.4 billion in cash and marketable securities. Our head count as of January 31 was 21,070 workmates around the globe.

Now turning to guidance. We are focused on driving adoption of our agentic solutions, including Sana, Paradox and other Workday agents as well as our data cloud, which ramp in availability throughout the year. We expect FY ’27 subscription revenue of approximately $9.925 billion to $9.950 billion, growth of 12% to 13%. We anticipate Q1 FY ’27 subscription revenue to be approximately $2.335 billion, growth of 13%. As we mentioned last quarter, this year’s sequential performance is impacted by the DIA contract, which added nearly 1 point to Q4 subscription revenue growth and is not expected to continue in Q1. We expect cRPO to increase between 14.5% and 15.5% in Q1. We expect subscription revenue to increase roughly 5% sequentially in Q2. We anticipate FY ’27 professional services revenue of approximately $710 million as we continue to leverage our partner ecosystem.

For Q1, we expect professional services revenue of $180 million. We expect FY ’27 non-GAAP operating margin of approximately 30%. And for Q1, we expect a non-GAAP operating margin of 30.5%. This outlook incorporates an accelerated pace of AI investment across both product and go-to-market. We expect the Q1 GAAP operating margin to be approximately 19 points lower than our non-GAAP operating margin, and the full year FY ’27 GAAP operating margin to be approximately 18 to 19 points lower. The FY ’27 non-GAAP tax rate is expected to be 19%. We expect FY ’27 operating cash flow of $3.450 billion, and capital expenditures of approximately $270 million, resulting in free cash flow of $3.180 billion, growth of 15%. As Aneel mentioned, we are focused on what we believe is a generational opportunity for AI to revolutionize our HCM and finance solutions as well as open new markets.

While we remain committed to our medium-term subscription revenue growth targets, we are prioritizing incremental investments in our agentic AI road map to capture a larger market opportunity. We remain focused on both GAAP and non-GAAP margin expansion, albeit at a slower pace in the near term than what we previously communicated. We believe this investment will drive a more durable growth profile that optimizes for long-term operating profit and free cash flow. We look forward to sharing our progress over the next several quarters. With that, I’ll turn it back over to the operator to begin Q&A.

Operator: [Operator Instructions] And our first question comes from the line of Mark Murphy with JPMorgan.

Q&A Session

Mark Murphy: Aneel, welcome back to the CEO role. I’m curious how you — how your picture is shaping the next chapter for Workday, specifically as it relates to differentiating the AI strategy. And for example, I’m wondering if you see some ways to push a more aggressive pace or a more organic AI product road map, maybe trying to achieve a zero-day close kind of a vision or agentic consolidation or some other type of truly breathtaking outcomes.

Aneel Bhusri: Well, it’s good to be back, Mark. It’s good to hear your voice. I’m very optimistic about what we’re doing on the agentic front. And you highlighted 2 use cases that we’re actually building. I’m going to turn it over to Gerrit in a second. But when I look at where our business is today, the core is rock solid. We built these great HR and financial applications and they continue to grow. And we have this opportunity to build these agentic solutions on top. We’ve already shown that the acquired solutions are generating pretty rapid growth. And as the organic solutions, which are even more deeply embedded and frankly harder for anyone else to replicate as they come to market, and we get the customer adoption we’re seeing, I’m very bullish on where we’re headed. I’m going to turn it over to Gerrit to talk about those 2 use cases.

Gerrit Kazmaier: Yes. Thank you, Aneel. And as Aneel has said, we have a very big ambition for what we describe as lights out finance. So we are looking at a full automation of all the key processes across our suite, including HR. But since you specifically asked about the finance base, the model that we are looking at is supplying continuous AI to the finance processes. So think about a compliance autopilot which continuously tests and verifies ledger and transactions, all based on analysis of all transactions that are coming in and then even optimizing them with our document and contract intelligence, for instance, for real-time bookings, making sure they are set at the right value at the right discount rates with your supply chain.

Those are just a few select examples, and I think you can all summarize them under the lights out finance vision. And you heard me earlier mentioning that, but I still want to come back to that one more time, all coming together through the Sana AI user experience. So we are thinking about both back-end automation and AI front-end innovation.

Operator: And our next question comes from the line of Kirk Materne with Evercore ISI.

S. Kirk Materne: Aneel, welcome back. I guess Gerrit outlined a lot of progress you guys have been making on agentic, yet the guide for next year seems fairly conservative, a little bit below what people were thinking about. Does that reflect, I guess, just your general view that some of the agentic offerings are going to take a little while to sort of make their way into your account base? Or were some of the execution issues in the fourth quarter, you’re trying to account for that in the guidance? I was wondering if you could give us some color. Obviously, coming in, you have the opportunity to sort of reset the bar. Just kind of trying to get some perspective on what went into the full year guide.

Aneel Bhusri: Yes. I guess — first of all, Kirk, it’s good to hear your voice. I’m back in the saddle, it’s only been a few weeks. I’m pretty optimistic about this year. I would hope that we significantly surpass that. But I’m an optimist, but I see the opportunities on the agentic front that probably are more second half based in terms of the agents coming into production and being used by customers. And I love our Flex Credits model, which is moving towards this consumption model. So I’ll probably put that over to Zane in terms of where we came out, but I’m very optimistic about this year. And I don’t know if you remember me when I was a CEO before, but I do try to be conservative on the guide and then beat it.

Zane Rowe: Kirk, just to add to that, I mean, we still feel like we’ve got good momentum, the guide hasn’t changed materially from what we indicated 90 days ago, and I’d say business in general is similar to what we saw. Rob called out a few areas within the quarter. We mentioned, obviously, you’re lapping a DIA contract that did have some impact in the fourth quarter, and we still believe in our federal business and are excited about what that will bring to this upcoming fiscal year. So not a big shift or change. Obviously, we called out some of what we saw in the fourth quarter, and we expect to see some of those transactions and deals still come to fruition through FY ’27. And then as Aneel alluded to, we’re excited about Flex Credits, but recognize that’s probably more of a second half motion.

And then you expect to see the revenue come in ratably beyond that. So that sort of an overview of the guide, but no shift in guidance philosophy other than, as you can tell, Aneel is excited about us beating it.

Operator: And our next question comes from the line of Keith Weiss with Morgan Stanley.

Keith Weiss: Welcome back, Aneel. It’s great to be talking to you again in the CEO role. In the conversation and talking about the sort of organic innovation, should part of our takeaway be that the M&A strategy is going to take more of a backseat? It seemed pretty prominent throughout FY ’26 or calendar year ’25. Should we expect you guys to be moving away from M&A in those — and buying the AI technology and moving more towards organic growth? And then maybe like a follow-up for Zane. Within that 12% to 13% growth that we’re looking for in FY ’27 on the subscription revenue line, can you give us any indication on what the inorganic contribution to that number might be?

Aneel Bhusri: Well, so in terms of acquisitions, I’m not going to say we’re not going to do any, but we’re leaning in pretty heavily on organic development and organically built agents. And I’m super bullish. It’s not that I’m new to what we’ve been doing. I have been close with Gerrit over the last 18 months and I’m really excited about what’s coming out to market. So that is our primary focus. But we’ll be opportunistic if we see another company that’s exciting like a Sana or a Paradox or HiredScore, we might do it, but that’s not — our focus really right now is on the organic development of agents.

Zane Rowe: And Keith, as it relates to the guide, similar to how we framed our guide in the past, I’d say not a material component of that is inorganic. As Aneel alluded to, we’re focused on organic growth. And were there to be anything more significant, we’d call it out similar to what we did last year as far as its impact on our overall growth trajectory. But not much expected in the FY ’27 outlook as we have it presented today.

Operator: And our next question comes from the line of John DiFucci with Guggenheim.

John DiFucci: I have a lot of questions for Gerrit, but I’m going to ask a question because it wasn’t asked yet for Zane, and I think it has to be addressed. On the last conference call — by the way, welcome back, Aneel. It’s good to see you. On the last call, Zane, you said there’d be a $15 million in nonrecurring revenue in the fourth quarter, but your guide implies a $25 million sequential decline in subscription in 1Q, which doesn’t really seem to make sense for a subscription model. I mean you did say it’s a full — even if it was a full 1% impact to subscription in the first — in the fourth quarter, that would be $20 million. Still $20 million and a $25 million decline. I don’t know, can you just help explain what’s going on there because I know I’m going to have to do that.

Zane Rowe: Sure, John. I’ll help you out. Yes, as we called out in the fourth quarter, we had the DIA contract, which is not included in our forecast for Q1. So sequentially, there is an impact there. As you note, as with any sort of year that we have less days in Q1 as well, which brings sort of a natural seasonal component to our typical Q1. And then in addition to that, Rob called out some of the deals that pushed from Q4. Many of them closed in Q1. But a lot of them also are expected to close through the course of the year. So nothing material beyond what I called out with the DIA contract that clearly had a benefit in Q4 and is not expected to continue in Q1.

John DiFucci: Yes. But that’s just — let’s say, it was $20 million instead of $15 million, it’s a $25 million decline. In a subscription model, I don’t — unless you — some people just didn’t renew this quarter at the end of the quarter, but I think somebody said in the prepared remarks that — I think it was Rob that the retention rates were high as they always are for you guys. So I just — I don’t know, maybe it’s just prudent, but it doesn’t make sense that excluding the DIA deal, even the 2 days delta between the fourth and the first quarter — I don’t mean to dwell on this, it’s just important. It’s just numbers here. Is it just prudence? Is that what we should be thinking?

Zane Rowe: No, I mean, look, we haven’t changed our guidance philosophy. The days do matter as you think about the sequential growth, as I called out with DIA. I’d actually say we’ve seen good consistency on the renewal side as well. So gross retention remains at 97%. And then obviously, we’re focused on executing well in Q1. So we’ll continue to focus on that, but nothing more than that as you think about the sequential decline, at least, that you’re calling out this year.

Operator: And our next question comes from the line of Brad Zelnick with Deutsche Bank.

Brad Zelnick: Welcome back, Aneel. It’s great to have you back to the party. My question for you, I appreciate the ’27 guidance and the need to invest given the moment. But specifically, any finer details you can provide as to where those dollars are going? And how much time do you envision that it takes to stabilize growth overall? I think in response to Kirk’s question, you talked about in the back half, seeing agentic adoption kick in. But I think investors at this time are really focused on total company growth across all app software. And just any insight you can provide on seeing the agentic offerings, particularly the organic ones, translate to overall acceleration.

Aneel Bhusri: So I think the business is very stable right now. What I’m very focused on is reaccelerating growth. And you don’t get many chances in the career to go through 2 technology waves where I was there at the start of the cloud. I was actually there at the start of client server. I’m old enough. I was there for that, too. And AI is just a huge opportunity for Workday to reaccelerate growth. The core is stable. It’s more about getting to higher growth rates. So I’m pretty optimistic. And as I’ve seen what Gerrit is building, I do see the organic agents really coming to market. They’re in early access right now. But they’re a consumption-based model, so there’s a delay before we see the actual revenue from it. I think we end this year, the second half of this year really strongly, and we set up a really amazing following year where we turn into a consumption platform just like the hyperscalers.

And that’s a material change from the FC model we’ve had for the entire time I’ve been part of the company. And I’m really excited to get to that place where it’s — and it won’t just be our agents. It will also be all the third-party agents that get built, that leverage our APIs that will also be based on that Flex Credits consumption model, too. So there’s a lot of upside that I see coming forward. But I would just start with — or end with what I started with, the core is very stable. Our systems are embedded in our customer sites. We have long-term contracts. It’s our opportunity now to build on top of that.

Operator: And our next question comes from the line of Raimo Lenschow with Barclays.

Raimo Lenschow: Aneel, welcome back as well from me. Quick question on — for Rob, actually, like your — one of your mandates was to kind of think about more international, international build-out. Can you talk a little bit about what you’ve seen there in terms of progress?

Robert Enslin: Yes, Raimo, thank you. Look, we continue to see progress in our European business. They’ve had a couple of really solid quarters. ASEAN been solid as well in growth. So the Southeast Asian model. We’ve actually opened up India, where we’ve closed 1 or 2 deals already. And our Canadian business is actually doing really, really well. So I feel like we’re doing a really focused job on driving those markets, and we’ll continue to see that benefit come through in 2027. And my expectation is that these organic agents will actually help us reignite as well in our customer base in Europe and in Australia, New Zealand and parts of Asia as well, including Japan.

Operator: And our next question comes from the line of Michael Turrin with Wells Fargo.

Michael Turrin: It seems one of the key questions on Workday seems to be whether you’re able to offset just lower seat growth environment if that’s the world we’re in with more product expansion. I think Gerrit mentioned $400 million now in emerging AI ARR. I was just wondering if there’s anything else you can tell us around how that impacts the economic profile of those customers who are adopting, are expansion rates you’re observing great? Or any quantification around how much? And just as a small second part on Rob’s comment on 4Q deal elongation, I’m wondering if there’s any way for us to size any impacts on cRPO there.

Robert Enslin: Yes. Look, I think some of the deals that moved from Q4, as I said, we see them closing. We don’t see them moving out of our pipeline. We just see them elongated. I think we’re covering that pretty well with these new products that we sold into the nonorganic agents, which were a significant part of our Q4 business. And as we bring the different releases of organic agents on board, we already have the consumption Flex Credits model in action in Q4. We saw some success with customers I mentioned in my script. And we’ll continue to see as we launch more of these organic agents that the consumption model will actually apply, and that’s why we’re pretty positive about the back half of the year as well.

Gerrit Kazmaier: And we see on the AI agent side, on the economic equation, you can basically see it in 2 key models, if you will. On the one side, the agents are really delivering efficiency gains and to a large degree, transferring labor costs into software costs. We just talked about Self-Service Agent, which we have just put into general availability in 3 months. And our early access customers have already seen a more than 20% reduction in case volume, right? So those are not people anymore who have to answer these cases, but the Self-Service Agent processing them autonomously. Payroll Agent, which is now going into GA, one of our big organically developed agent in payroll compliance, payroll corrections. It’s a huge back-office spend doing that automated and highly accurate.

It’s a huge efficiency gain for these companies. So that’s basically category #1. Then you have category #2, right? A lot of the agents that we are doing are really leveraging AI to solve unsolved business problems. Think about contract intelligence, document-driven accounting. The reality is that customers don’t have an army of lawyers and contract experts matching every transactions against all of their supply chain contracts. But now with our AI model, they can basically make sure they optimize their spend in procurement and have real net savings based on having full contextual awareness of all of their commitments, all of their supply chain and the transactions happening in real time. So those are delivering ROI then on basically true business returns.

And we have both of these agents, right, back-end automation and new value scenarios.

Operator: And our next question comes from the line of Karl Keirstead with UBS.

Karl Keirstead: Aneel, welcome back to the arena. I had a question for you, maybe zooming out a little bit. So this is a broader question. Aneel, you were the disruptor 20 years ago, and you and others forced incumbents at the time, Oracle and PeopleSoft, et cetera, to react and in many cases, it took them years to actually pivot and some, frankly, didn’t make it. So I just wanted to ask you whether you think a number of SaaS companies are going to have to do something similar and rearchitect their cores, AI enable their cores. And how challenging do you think that process might be? And is the period 20 years ago that you lived through a good analogy?

Aneel Bhusri: It’s a great question. I think it’s — I do think it’s different. So in the transition from client server to cloud, it was basically throwing away the old architecture and building a new architecture. In this move from cloud to AI, the difference is AI is built on cloud, right? Every cloud company out there is moving towards AI, but every AI company is actually built on the cloud. By the way, every — one of these AI leaders actually runs Workday just for what it’s worth, Anthropic, Google and OpenAI, all run Workday. So it’s orthogonal to that last transition because it’s about the data, not about the process. I think the keys for all the enterprise apps companies are #1 to make sure that they have the right data model to inform the large language models and make sure they’re getting the best reasoning results.

And in order to do that, it’s a big investment in APIs. And we’re pretty far along on that path, but I think that’s going to be the case for all the SaaS companies. The second piece is identifying where the savings are going to come for from customers because every technology transition is about ROI and productivity gains. If there’s no ROI or productivity gain, there is no technology transition that really amounts to anything. And so we’re working really hard to figure out how do we improve business process execution for our customers at a lower cost. And I think that’s where the agentic model fits in. What can agents do to replace human labor and then obviously, longer term, we’ve got to figure out what we’re going to do with those — with the humans that are displaced.

I think that’s an important thing to think about. But it’s a different mindset. It’s a role-based mindset as it relates to these agents, what roles are going to get replaced by agentic solutions and how will that improve the way work gets done. So — but it is different than the last generation because cloud is not getting replaced, it’s getting built on top of.

Operator: Our next question comes from the line of Brent Thill with Jefferies.

Brent Thill: Zane, on the operating margin guide, I think the Street was looking for perhaps a little more move up. I know you mentioned go-to-market and AI. Is there anything else that we should consider on the guide on op margin why you’re not seeing any operating improvement on margin?

Zane Rowe: Yes, Brent, obviously, as you’ve heard, we’re focused on the investments, in particular, with AI thinking through both the engineering side, the delivery adoption side and all of the go-to-market elements. And I think with Aneel coming in, it gives us a chance. We’ve made good progress over the last 3 years. We’re not done yet. We’ll continue to focus on margin and efficiencies and growing that number. But with this year, we really want to anchor in. We think this is the opportunity to dig in and to really grow the business and lean in more on that side, leveraging AI and the capabilities that we have organically. So it’s just a focus on that. Again, we feel like we’ve got opportunities beyond this year to continue to grow it, and we’ll just see how the year progresses.

Aneel Bhusri: Yes, I’m optimistic on upside to the margin guidance, Brent. By the way, good to hear your voice. I’m optimistic on that, but it’s predicated on believing in our growth story, which I completely believe in. And margins will grow with reaccelerated growth. And as we get these organic agents working with our inorganic agents — by the way, the inorganic agents, I don’t think we get enough credit for how well they’ve done in a very short amount of time. And I’m particularly excited about what we’re going to see with Sana, both as our new user experience, prompt-based user experience for all employees in the organization, but also as we move into some new areas that you’ll hear about down the road. I think that, that growth is going to drive incremental margin upside that probably not easy to lock in right now, but I see it coming down the path.

Brent Thill: Aneel, if I can just ask one quick follow-up. Just you’ve had some departures, Patrick Blair, Head of Sales. Can you talk through how you’re working through that transition with some of the sales changes in the field?

Aneel Bhusri: Yes, I’ll turn it over to Rob.

Robert Enslin: Yes. Brent, it’s pretty simple with Patrick moving on, the regional leaders, we have real confidence in and have been doing a really good job over the last couple of years, especially bringing on new solutions and products and driving their business. They’ll report directly into me. And it’s all about — in AI, it’s all about speed of decision-making and urgency. It allows us to move faster and it puts a lot of the decision-making right at the customer where we want it. We’re also — tying into that, it also allows us to build activation engines for where we’re going with forward-deployment engineers to drive consumption faster, and we want to get that out into the market with incredible amount of speed. And so that’s really the focus around the changes.

Aneel Bhusri: Yes. I would just say that I’m excited that Rob has flattened the organization. And in this world, flatter organizations move faster. And I’m excited about where the sales organization is headed.

Operator: And we will now take two more questions. Our next question comes from the line of Alex Zukin with Wolfe Research.

Aleksandr Zukin: Aneel, welcome back as well from me. Maybe a quick tech one for you. You talked about monetizing first-party agents, both organic and inorganic. But I wanted to ask you specifically how you’re thinking about monetizing third-party agents. You have data cloud. As you see more kind of investment construction going across these kind of multi-system agentic frameworks, how do you guys make sure that you monetize that for the value and the data context that you provide? And then, Zane, I just — really simple one for you, should we still think about the 35% operating margin targets for fiscal ’28 as on the table or not?

Aneel Bhusri: So on the first question, Alex, I think you should think of us as an evolving layer on top of hyperscalers. And in the same way that they charge for consumption of compute cycles and application cycles, we’re going to continue to flex that muscle. There are some vendors out there, including some of our peers that would consider them, at some level, parasites on Workday. They get a free ride on our underlying system of record, and we’re going to put an end to that. If you run stuff off of Workday, whether it’s from our agents or third-party agents, there will be — there’s a consumption model tied to it. And Gerrit’s really been the driver of that. So I’m going to ask Gerrit to weigh in on that as well as it relates to Flex Credits. And then Zane can answer the second part of the question.

Gerrit Kazmaier: Yes. So the model that Aneel has described really works that we have a tiered pricing structure for AI or programmatic access to the Workday platform. And the way how you should think about that is that we capture consumption in the form of API calls. They are monetized on Flex Credits. That’s the most basic unit. So if a third-party agent chooses to access that layer, they can basically be captured or we capture the value on our side via simple API calls. If they want to get richer information like you just indicated, we also have data cloud. Data cloud, again, is available on Flex Credits. It provides richer context. And if third parties want to aggregate agents, right? Because we shouldn’t think about APIs like in the old days where you have modern agents and legacy APIs. APIs and agents are eventually one and the same thing, right?

Our agents, they’re all exposed as APIs because we embrace the open ecosystem. You can use them in Microsoft. You can use them in a Google Gemini. And those APIs, those agent APIs, they have a premium price tag to them, right, because they complete meaningful work. They are not just a simple SOAP or REST API. And if you’re now a customer or a partner or an ISV, you have all of these choices, right? You can subscribe to our applications and we capture that on Workday pricing. You can build your own agents and then you can decide whether you want to consume raw APIs, data context or highly differentiated agent APIs, which are basically aggregating large chunks of work across HR and finance for you already.

Zane Rowe: Alex, just to add the framework question that you asked. As we’ve discussed the intent here with incremental investment is to move up our growth. And we’re holding to the range between 12% and 15% that we highlighted at our last Financial Analyst Day, but we believe these initiatives will move us higher on that range than where we otherwise would have been. With that, as I mentioned earlier, we’re investing more into this fiscal year, and we’ll update later on in the year at our next financial analyst update on where we believe, a, the growth would be and then where we believe the — accordingly sort of operating margin would be at that point in time as well. If you recall, there is a sliding scale and Aneel’s focus is on driving the growth more so than just hitting that operating margin exclusively.

Operator: And our final question comes from the line of Gabriela Borges with Goldman Sachs.

Gabriela Borges: Aneel and Gerrit, I wanted to link together a couple of the points you’re making. This idea of AI being built on top of cloud and then the potential for Workday to monetize any other vendor or corporate built tool that extracts richer information out of Workday. My question to you is how do you manage the risk that vendors or customers build solutions next to Workday that leverages all the domain experience that you’ve built, but ultimately, Workday becomes part of this biggest stack such that the incremental value is being accrued in the intelligence way, which would be outside Workday? Maybe just talk to us a little bit about how you manage and mitigate against that type of risk?

Aneel Bhusri: Well, I’d first of all say that the API layer that ultimately will become the same with the agentic layer, whether we have the apps on top or a third-party have apps on the top, it’s our intelligence layer. It’s our metadata, it’s our security model, it’s our data model. It’s our business process framework, and people underestimate the power of our business process framework. There’s 20 years of knowledge into these HR and financial applications that even with the best AI, it’s going to take 5, 6, 7 years to replicate, and we’re not standing still. So we want to get to a model where we’re pretty much indifferent if it’s third parties or us building the apps on top, we get compensated either way through the consumption model. Gerrit?

Gerrit Kazmaier: Gabriela, I think it’s a great question. So it allows us to really cut through the chase, I think. Look, the reality is, the question is where this intelligence system is being built and what’s driving that? And from what we see, I think what research shows today that the idea that you create just a big model and connect it to a database of data and it just figures everything out is utterly unviable, right? It just creates a completely lawless AI which has no understanding of enterprise processes, compliance, determinism, repeatability. So you basically have to build an HR and finance system for AI, right? So that’s the intelligence layer, right? It’s not bimodal, smart model and dump data. It’s actually about an AI-enabled ERP.

And that’s the intelligence layer that Aneel spoke about that we are building. We are opening that up via APIs at the same point in time because we believe in the openness of the ecosystem and the openness of the engagement layer, right? And we are great partners with all of the AI companies out there. But at the same point in time, the reason why they’re working with us, and as Aneel put it, why they use Workday is because you need to have an HR AI and an AI finance system. And that’s the intelligence that we are building where we create value and frankly, where we capture value.

Operator: And ladies and gentlemen, this concludes our question-and-answer session as well as today’s call. We thank you for your participation, and you may now disconnect.