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Ladies and gentlemen, welcome to Workday's Second Quarter Fiscal Year 2027 Earnings Call. [Operator Instructions]

I will now hand it over to Justin Furby, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Welcome to Workday's second quarter fiscal 2027 earnings conference call. On the call, we have Aneel Bhusri, our CEO; Garrit Kazmaier, our President, Product and Technology; Gabe Monroy, our Chief Technology Officer; 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 and solutions, 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 2026 annual report on Form 10-K 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 third quarter fiscal 2027 quiet period begins on October 15, 2026, and Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2026.

With that, I'll pass the call over to Aneel.

Thanks, Justin, and thanks, everyone, for joining us today. It's hard to believe I've been back in the CEO seat for 6 months. Time flies, we're having fun, and I'm having a lot of fun. This is a fun time to be back in the tech industry. Q2 was another strong quarter, and AI played an increasingly bigger role. AI products alone drove more than $100 million of new ACV, which accounted for more than 25% of all new ACV closed in the quarter and is starting to lift our core business, too, including our win rates. We had commercial success with AI in the quarter, including strong early returns with Flex credits, and we expect this to accelerate going forward. But I'm watching more closely is adoption. Today, more than 5,500 customers are using one or more of our organic agents. That's up more than 35% from last quarter.

As we continue to build organic agents on Workday, we're also deeply integrating acquired agents like those from Paradox, HiredScore, Evisort into our platform. And we've signed some of the world's largest brands to our Leidos program, which gives strategic customers Sana Enterprise free for a year. We've rolled it out to our own work made last month, and they're hooked. I expect these customers will be, too, and we know that if we deliver the value, monetization will follow. After two strong back-to-back quarters, I really like the momentum we have going into the second half of the year. Gerrit and our product and technology teams have our innovation engine humming again. While Rob and his team have done a phenomenal job building pipeline that will drive more new business. Dave will cover the numbers shortly, including the impact of AI adoption on our outlook for the second half and fiscal year '28.

I spent much of the past 6 months with customers. Last quarter, I told you I had met a single customers looking to replace Workday with something they're building internally or buying from a start-up. A quarter later, that hasn't changed. The reason is the deterministic rails I've talked about before. Our agents are lawful. They work inside the permissions, policies and business process a company already runs on. That's why our customers can trust them with the work that matters, and that's why we're seeing our organic agents really take off this year. One of those customers is BMO, a top 10 bank in North America. They piloted self-service agent with 500 employees in May and successfully rolled it out to all 55,000 employees in June. SSA gives BMO employees and managers a personal, intuitive way to get HR questions answered and work done faster and easier. And because it's native to Workday, the agent understands employee permissions and which HR policies apply to them.

That built-in context is exactly what makes this a responsible and scalable AI deployment for BMO. BMO is one of many. More customers are moving from pilots to production with our agents. But we know that no one company will build every agent. The future will be opened and CIOs need a trusted platform to connect at all. We're building for that world with Data Cloud and Developer Agent. Data Cloud lets customers use their Workday data alongside the other systems they run on, without copying or moving it. Customers see the value and demand is building. Developer Agent, which we announced at DevCon in June, makes it dramatically faster and easier for developers to build on Workday using natural language. It's one of the innovations I'm most excited about. I'll add just one thing, because I don't think it's fully understood. Workday is not just an enterprise apps company. We're an enterprise context platform. We were built that way from the start.

Agency contacts to do anything useful. Who reports to whom, what the policies are, how money moves. So whether a customer runs our agents or builds their own on top of Workday, we win either way. Gabe will go deeper on this shortly.

Finally, Rising is coming to Las Vegas, October 12 through the 15th. I have to tell you, Gerrit and his team have what me through our rising announcements, and it was loan away by how much innovation we have to show, not slides, live demos and customers talking about work our agents are already doing inside their business. That's the proof I care about most. We'll also be hosting our Financial Analyst Day at Rising, and I hope to see you all there.

To close, as many of you know, I'm an unabashed optimist, but I'm not leaning on optimism here. We're shipping air products. Our customers are adopting them rapidly. It's happening across the board from the agents we built ourselves to the ones we've acquired. This is Workday moment and never felt better about where we're headed.

With that, I'll hand it to my Vulcan Mine Mill friend, Gerrit.

Thanks, Aneel, and hello, everyone. In Q2, once again, we have accelerated our road map and added new AI capabilities across our platform. All of it builds on our unique growth model of work, and we keep moving more agents into production at scale. So let me put this into numbers for you. Nearly $600 million in ARR from our AI SKUs and that is up more than 200% year-over-year and up over 20% from last quarter.

Here is what this looks like in practice. In recruiting, more than 30 million candidates interacted with our talent acquisition agent and the automatically scheduled more than 8 million interviews last water alone. In functions like procurement and legal Workday Contract Intelligence Agent drove nearly 70% year-over-year growth in agreements processed. And NHR case resolution, more than 100 customers move Sana self-service agent into production last month. Since February, we have nearly doubled the tools and skills in the agent that run in production.

So now let's talk about three key innovation highlights from last quarter, Sana, Adaptive Decision Intelligence and our deployment and adoption agents. Let's talk about Sana Enterprise first. Sana Enterprises our AI workbench [indiscernible] HR, finance and IT to build, orchestrate and run AI across the entire end rise. In Q2, we have shipped 23 new capabilities in Sana that open up what customers can do with it. For example, our brand-new Sana Agent Builder lets any user create in action in natural language and then run it on a schedule or trigger it on a business event. Every one of those agent runs in a secure sandbox.

We now have one shared agent task inbox in Sana, where work is managed in one place, human or AI. And we have added custom MCP connectors. So Sana can connect to any third-party application out there. This innovation, it's already changing AI adoption inside and outside of Workday. Here is what we have done. We rolled out Sana Enterprise internally on August 4 and already have 12,000 active users on it. These workmates have built 22,000 custom agents in 3 weeks alone. Now this is what AI looks like when it's embedded into real work. We have also brought Workday Learning and Sana learn together into one product. It is in GA now with a learning admin agent, AI-based course generation and AI tutor for self-paced learning and MCP support as part of our open platform, and the results are clear.

In Sana, monthly active users grew almost 190% year-over-year and 78% of all published courses were created of AI. And we are taking the next major step to Sana Workday. As we have shared in the past, Sana is our vision for an eye driven work experience across Workday and beyond. With our unique meta-driven platform, we can now unlock all Workday processes for generative UI in Sana. So by work their [indiscernible] [ Gober, ] Sana's conversation AI experience will be the default home screen to Workday.

The second big AI innovation is Decision Intelligence. As you know, frontier models are good at analyzing data, but they sit on the sidelines of the operational system, they are detached from business [indiscernible]. They are working off downloaded spreadsheets, and they are unable to close the loop back to work actually happens. Adaptive decision intelligence is different. It is our AI agents for analytics and blending that runs analysis, generates plans and takes government action directly inside Workday, all based under our security model, audit trails and governance rules.

On July 31, Adaptive Decision Intelligence entered into GA. And this was one of the fastest products we have ever delivered from concept to general availability in four months, and it's built organically within Workday. Here is what we have shipped all AI agent-based, life analysis of blender scenario modeling, sensitivity analysis, recression models, version comparison and the recommendations that you can submit as government plan updates with approval, audit trails and staleness detection.

And as of today, 170 customers have already purchased it. And one AI customer told us, it gives finance teams answers they can actually defend. And you're not stopping here. We just kicked off the early adopter program, connecting adaptive decision intelligence directly into Workday Finance, to give it access to general lines, planned data and to our accounting center. Our customers can now tie AI to financial outcomes with transaction level evidence.

And next, we're going to move to the workforce analytics, connecting live people data with financial decisions in One AI agent experience. And our third AI highlight for this quarter is deployment and adoption agent. Deployment age momentum has been dynamite. As of today, we have more than 4,600 customers, almost 24,000 users and query volumes surging nearly 500% in Q2.

Mohegan Gaming is now live, and Mohegan says the downstream impact is priceless. Deployment age and deploys updates so rapidly that employees remain focused on their core business. And our long-term target is reduce deployment time with this agent by 80% to 90%. And once customers are live, adoption agent helps keeping them ahead of what's new. It surfaces the releases that matter and recommends the next step for their environment. Adoption agent entered GA just last week. We had more than 200 customers signed on in the first 3 days alone. With 20,000 release notes evaluated and achieved a 94% customer satisfaction rate. One customer solution Health used adoption agent on their latest release. They ran it across every functional area, and they have cut that release time down by 70%. And here is why this matters so much faster deployments, faster adoption and a lower cost to serve a feeling Workday goes momentum in the medium end price.

Workday go win rates and deal volume are both increasing in Q2. And here is one more note for you. Travel agent and Sana for ITSM have both moved into early adopter with the first customers already boarded. And the bottom line of this is this. The broad model of FERC is not a thesis. It is in production, it is compounding and you can see it in the numbers. A key part of this question is our open platform strategy, unlocking the power of Workday for our customers and for the entire ecosystem around us.

I'm going to pass it to our very own Gabe Monroy, Workday's CTO and the leader of our technology platform to share our progress here. Gabe, take it away.

Thanks, Gerrit. It's good to be here. Building on what Aneel said, it's almost as the Workday was built for AI 20 years ago. Having one day to model, one security model, one version for every customer from the start is an incredible advantage, and it's a big reason why I came to Workday. Over the last several years, we've modernized that foundation to handle the complexity of running AI at scale. We built tools that can query Workday using industry-standard analytics solutions and an MCP layer, so AI models can talk to our APIs in natural language. But access is only half of it. The stakes are different in the world of people and money. That's why we've updated our security model and built the agent system of record. So our agents act with the same permissions, rules and controls our customers already trust.

And Asian isn't just the model. It's identity, permissions, guardrails, logs and governance, all working together. That's what separates a lawless agent from a lawful one. A lawless agent will attempt to take action on its own. A lawful agent takes action because the system allows it. Inside Workday's deterministic rails, every step is checked against the security model, the business process framework and the compliance logic before it runs.

Now in Q2, we advanced our platform strategy in three ways, making it more open, extensible and lawful. Starting with being open. CIOs aren't going to settle for a single rigid AI stack. So we built Workday with three paths in. Developers building custom agents on their own AI stacks need safe governed access to Workday, both for querying data and for taking action. Data Cloud gives external agents and partners like Snowflake, AWS and Google, zero-copy access to HR and finance data. In Q2, we closed 6 deals with all customers choosing our premium Data Cloud Pro Edition. Data Cloud remains on track for GA in Q3. And at DevCon launched agent ready tools over MCP. These agent APIs allow third-party agents on any stack to safely get work done inside Workday, like updating an employee record or approving an invoice without breaking corporate rules.

Agent Ready tools are now available to early adopters through Workday Extend Pro with GA in Q3. Today, more than 1,600 customers use Workday across third-party services like Teams and Slack as well as Copilot and Gemini, which we added in Q1. Over 100 of those customers are already leveraging self-service agent directly in the tools they use every day. Whether a manager approved spend or logs and expense right in chat the underlying policy checks in compliance stay securely anchored inside Workday. And some work simply outgrows the chat bubble, travel and IT service management, which Gerrit mentioned earlier, they'll need a canvas. That work was in Sana, where we own both the reasoning engine and the experience. Whether a customer uses their own agent uses our agents with their own front door or Sana, we meet them wherever they work. And because all of it runs through Flex credits, we monetize every action happening on our rails, regardless of the path.

In Q2, custom apps built on Workday spend grew over 90% year-over-year. Even when building required specialized engineers. Our new developer agent removes that bottleneck. Now builders can generate policy-compliant workflows using plain language directly inside tools like cursor, codecs and quad code. This takes development time from weeks to minutes and opens up the platform to all builders. Customer uptake was intent. Developers have built more than 3,000 custom apps and agents since DevCon.

As we expand these plain language tools across our user base, we fundamentally shift our business model. You don't have to be an engineer to build on Workday. Finally, none of this matters if the transactions are not lawful. In Q2, we launched Asian Passport. It gives security teams a verified auditable record that an agent was tested against critical risks before it deployed and is monitored after. Cisco joined as a launch partner, bringing Cisco AI Defense to test agents against leading standards and protect them in production. We'll add more security partners and out of station stamps in coming months, giving CISOs the confidence required to write higher value work through Workday.

In short, our customers can work where they want build in plain language and trust every execution.

With that, I'll hand it to Rob.

Thanks, Gabe, and hello, everyone. Our customers trust Workday with the most important parts of their business, and we see it in the field every day. Companies on legacy HCM and ERP systems are realizing they can't get value from AI with modernizing their core. They want one platform they can trust with security and reliability, which is a big driver behind the demand for Sana Enterprise. AI is amplifying the value of the software stack customers already trust. You can see those tailwinds in our Q2 results. With more than 65% of the Fortune 500 running on Workday, we continue to bring on some of the world's leading brands.

In Q2, we formed new relationships with companies such as KPMG U.S., Danske Bank, BWX Technologies and Guidehouse. In medium enterprise, as you heard from Gerrit, Workday is taking off. Customer volume increased more than 5x over Q1. Across large and medium enterprises, AI is a key reason companies are modernizing their Core in Workday. In fact, over half of our net new wins in Q2 signed up for 1 or more AI solutions, and we're seeing even faster AI adoption across our base. As customers leverage our unmatched HR and finance context to truly unlock the value of AI in the enterprise.

Genesis is using our new financial audit agent, a Chief Accounting Officer described it as a first step towards the dream of getting a touchless audit. Seminal hard rock services is using payroll agent, automate complex back and compliance calculations for 28,000 employees. In [indiscernible] investment, one of our first 20 customers back in 2007 added Sana Enterprise to power an AI layer over the employee experience. This bolds on the other AI agents they recently added, including recruiting, contract intelligence and planning. Sana Enterprise had an exceptional launch in Q2. New customers included AstraZeneca, Novartis, Caterpillar and Delivery Hero Group. Since we combine Sana Learn with our core learning management system, we've seen a sizable jump in our overall learning business, which more than tripled quarter-over-quarter. Adaptive Decision Intelligence helped drive strong performance across the entire planning business and our ecosystem is moving fast with it. Partners have helped build more than 100 industry-specific use cases in a little over a month.

In late May, we made Sana Workday and Sana Health Service available to all our customers on our AI terms of service. That drove a surge in the number of customers that have signed universal main service agreement, which gives them access to our agents and our AI capabilities. That strategy clearly worked. More than half of our customer base has already migrated to the UMSA, and that momentum is accelerating. Our focus now shifts to driving adoption through Flex credits. We've already signed 200 customers this quarter, and we expect to significantly grow that number in the second half as R2 adds more GA agents and [indiscernible] platform and data cloud capabilities. We continue to see strong execution across the globe. North America, our largest market, had an exceptional quarter, anchored by U.S. large enterprise and another strong quarter in Canada. EMEA drove solid growth, the strong performance in France, Germany and the Nordics. AI now accounts for nearly 1/3 of new ACV in EMEA.

Japan also had a standout quarter, further proof that our continued investment there is paying off. I'm proud of the results our teams delivered across the business in Q2. Let me close where I started with trust. For more than 20 years, organizations have trusted Workday with their most critical work and now with the AI. That's a durable advantage, and it sets us up for an even stronger second half.

Now over to Zane.

Thanks, Rob. Good afternoon, everyone, and thank you for joining us. Building on Rob's remarks, our second quarter results reflect the continued strength of our platform as organizations rely on Workday to power their most critical HR and finance operations.

Subscription revenue in Q2 was $2.471 billion, up 14%. Professional services revenue was $178 million, resulting in total revenue of $2.649 billion, growth of 13%. Looking at our results by geography. U.S. revenue totaled $1.97 billion, an increase of 12%, while international revenue was $682 million, up 17%, benefiting from stronger performance over the last few quarters.

Turning to backlog. 12-month subscription revenue backlog or CRPO, ended the quarter at $9.03 billion, an increase of 14.2%. Growth was again fueled by expansion within our existing customer base with AI increasingly a driver alongside a steady contribution from new logos.

Total subscription revenue backlog ended Q2 at $27.4 billion, up 8% from a year ago. The year-over-year growth rate was impacted by a continued mix shift towards customer-based bookings versus net new and the mix of industries that drove our net new bookings. Gross revenue retention remained strong at 97% for the quarter and net expansion from existing customers once again led to about 60% of our subscription revenue growth. Non-GAAP operating income was $824 million for the quarter, representing a non-GAAP operating margin of 31.1%, driven by a combination of revenue outperformance and ongoing cost discipline. Our GAAP results in the quarter included a $374 million nonrecurring tax benefit related to an internal IP transfer. Operating cash flow totaled $520 million in the quarter, and free cash flow was $460 million. The year-over-year decline was impacted by the timing of the payroll calendar, which had an additional payroll run this Q2.

We repurchased $1.3 billion of shares during the quarter, completing the $5 billion repurchase plan that we discussed at our Financial Analyst Day last September, 6 months ahead of our target. Buybacks will continue to be an important part of our capital allocation philosophy, and our Board has recently approved a $4 billion open-ended share repurchase program. We ended the quarter with cash and marketable securities of $3.4 billion. Our headcount as of quarter end stood at 20,896 workmates around the globe.

Turning to our outlook. We are pleased with our first half results, and we now expect FY '27 subscription revenue of $9.94 billion to $9.95 billion, growth of 13%. For the third quarter, we expect subscription revenue of approximately $2.515 billion, growth of 12%. We expect Q3 CRPO growth of 11% to 12%. We lapped the Paradox acquisition in the third quarter, which added over 1 point to last year's Q3 CRPR growth. For Q3, we expect professional services revenue of $175 million. And for the full year, we expect $710 million. We continue to prioritize investment in AI alongside strategic investments in the core while driving efficiencies across the business. With that, we're increasing our FY '27 non-GAAP operating margin guidance to 31%.

For the third quarter, we expect a non-GAAP operating margin of approximately 30%. We expect to continue expanding margins while positioning ourselves for future growth. We expect Q3 GAAP operating margin to be approximately 18 percentage 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. Our FY '27 non-GAAP tax rate estimate remains 19%.

We are maintaining our FY '27 operating cash flow outlook of $3.45 billion, and we continue to expect FY '27 capital expenditures of approximately $270 million, resulting in free cash flow of $3.18 billion [indiscernible] 15%. As our Q2 progress demonstrates embedding AI across Workday's platform provides a significant opportunity to drive customer value.

[Audio gap]

extend with Data Cloud and our AI agents all of which are seeing great early demand. In addition, we expect our non-GAAP operating margin to expand by at least 2 percentage points next year. We're encouraged by the significant opportunity ahead to continue to deliver long-term earnings and free cash flow growth. We look forward to diving deeper into our platform innovation at our Financial Analyst Day on October 13 in Las Vegas, and we hope to see many of you there.

With that, I'll turn it back over to the operator to begin Q&A.

[Operator Instructions] And our first question comes from the line of Gabriela Borges with Goldman Sachs.

Zane, I really appreciate this early look into growth rate exiting '27 and then the longer-term upside potential. There are -- the question I want to ask about business twofold. One is tell us a little bit about how you're thinking about monetization for headless. And the second is, how do you as an executive team, think about the risks that some of the upside opportunities end up coming as a trade-off between some of the core. What I mean by that is do customers end up essentially negotiating hard on the core products or exerting pricing pressure on the core products such that you end up at a similar place even when adding new functionality. So maybe just those pieces together, I would appreciate your thoughts.

Yes. So I'll take the first part. On the head list transactions, we are pretty much indifferent whether somebody uses from a profitability perspective, I think it will show on a revenue perspective, whether a company buys our agent uses our APIs, which we get to monetize or goes through data cloud, which we get to monetize. So -- or the other option is to build their own agents using Workday Extend AI. So we feel like we're pretty covered in all ways that AI gets used, and it doesn't take away any opportunities. If anything, it grows our market opportunity than where it has been before. Second part, I'll probably ask Rob to weigh in. What I actually see, Gabriel, is that customers are making 5-year, 7-year decisions on new platforms and AI is a huge decision point for them. And if anything, it's impacting our win rates on the platform, because we're viewed as the much stronger player in terms of an AI vision and AI agents than our legacy competitors are that we all know so well.

Yes, Gabriel, from my side. We don't see compression on the call. What I see is customers starting with the AI discussion and wanting us to be the AI platform for agentics on HCM and on finance. And I think that's driving a broader conversation. And a much broader conversation to the value we offer. You can see it actually in the amount of uptake on the agents that we started to announce and bring to the far where customers -- this is where they actually want to see where HR is going and where finance is going in the future.

Yes. And just to add to what Rob said, our competitors don't have one data model across there are multiple versions of their applications. These legacy companies might have 6 or 7 different versions. And as a result, they can't aggregate the data model to drive the the AI models. And so we are just way ahead of where they can be, not just where they are now, but where they can ever be from that AI perspective in terms of driving outcomes using AI.

Hi, Gabriel, I'll just add. The early look into FY '28 is just to give you a target on how we're thinking about it. As you can tell, we have a number of initiatives in place, and we're very enthused by what we're seeing as early indicators in our AI products. Not all of that has been factored into our FY '28 outlook. So were as you can tell, very enthused on the upside there, but I just wanted to ahead of Financial Analyst Day, give you at least a baseline to see to let you see how we're thinking about it.

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

Appreciate you taking the question. A lot's changed over software over the past couple of months. We've seen the topics shift to the rise of open source, open weight models, some scientific cooperation between the Frontier labs and existing vendors. And Aneel, I'm curious where Workday fits within those discussions, if any of that, if any of those shift your view on where to focus, and I want to also give you a chance to respond to just some of the recent headlines around private equity interest, given we've all been feeling a number of questions there as well.

I obviously can't comment on the latter. On the former, we're going to do what's in the best interest of our customers. And so I'm going to ask Gerrit to talk about how we think about the different models, and we work with all of them, but we're trying to do what's best for our customers, both from our performance but also from a cost perspective.

As Aneel has said, right, we are really focused on driving the right ROI and economics for our customers. So as of today already, we deploy a large set of models for multiple vendors. We have small models, open rate models and large frontier models, all in the set of models that we use to build our AI systems and agents with. And quite frankly speaking, we are really excited about open weight models. So if they open up new opportunities for us for having own reinforcement learning, building on adapts over them they give us a much stronger optionality when you think about international and sovereignty. So it's a core tenant for us, as Aneel has said to be more agnostic and because of the different characteristic already, we get great benefit from them. And now as the benchmarks that are getting closer, we have signed the open [indiscernible] initiatives as well as auto companies. we truly see a real big upside for us and our customers to drive better ROI out of our investment. And last [indiscernible], we also started our own research foundation inside of Workday. So we have an own research lab, which specifically actually focuses on getting high accuracy HR and finance, AI systems in place. One of the things that this team is doing right now is actively actually exploring opportunities for us to not only use open weight models, but really to specialize them to our purposes and see what [indiscernible] get out of that.

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

I think this is probably for Aneel or Rob. Obviously, we can -- we hear the enthusiasm around the early progress on AI. I was just kind of curious if you can give us an idea, is AI crowding out some of your other products at this point in time, meaning when you go in and talk to a customer, you obviously want to talk about AI, you obviously want to get AI into their hands. Does that mean sometimes your salespeople have to put something they might have been thinking about a year ago on the shelf for now? And the reason I ask that is because your tone and your enthusiasm is obviously very apparent. But when I look at CRPO just for a proxy, that's more or less in line and Zane gave a guide for early guide in the last. For next year, that seems more or less in line with where people were kind of forecasting. So it seems more substitutive than incremental. So I was just wondering is there something from just a go-to-market perspective where there's a purposeful push with AI, whereas we're not going to try to load everything in every customer right now. Let's get them successful with AI. Even though that might mean we're not seeing as much incremental benefit. I hope that makes sense.

Yes. I'll start. Thank you for the question, Kirk. So first of all, you're right in that it's early days. The difference on these agents versus traditional applications they iterate and become better so much faster. So I'm very optimistic that we're going to see ramping up usage of these agents faster than we ever saw of our apps. And we're also new to the Flex credit consumption model. And that's a delayed gratification model that is, frankly, newer to Workday again, very optimistic we're seeing great early signs. But I think that's one of the reasons for cautious optimism going into next year because we are aggressively moving towards a hybrid model between subscription and and this consumption model. I don't actually see it as crowding out. I actually see it as customers -- new customers choosing Workday because of our Agentic strategy, existing customers, they have an AI budget. And now we have products that actually fit in that AI budget, which is a big win for us. But again, a lot of these AI products are consumption based. So we won't see the impact from revenue until months or a year down the road. So Rob, what do you want to add to that?

Yes, I would add there's a lot of excitement around AI. But our focus has really been about getting adoption. And when you look at bringing an agent, you got to harden them, so you've got to get them adopted. The more customers that go through early access to more customers that are adopting these products just get better really fast. And so that's how our merger has been around how do we get adoption for us. The more customers we have access to our agents, the more they're using those agents, and that's how we're measuring them and moving the company in that direction. And I think you can actually see it in the amount of new UMSAs we've signed. UMSAs have really started to take off. Customers really want that they need to have the UMSA to actually get into the AI world. And then you link that to the data play and the Extend Pro and what you're doing with the Developer Agent. As Aneel said, this is a [indiscernible], but our conversations are really good. And it's in almost every conversation, irrespective of the level of customer speaking to whether it's a C-level executive or the ACM team or the finance team really start to understand that Workday has really entered agentic world in a big way.

Kirk, and just to add to that. As we mentioned, we've got 5,500 customers using our organic agents and just over 200, I think, that have actually signed up for Flex credit. So that's the delay that Aneel is alluding to, and that's been factored into our CRPO guide as well as our revenue guide for the remainder of this year, but also our cautious optimism heading into FY '28 and beyond.

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

My question, I think, for Aneel and Gerrit and maybe Gabe, listen, Workday's approach to AI seems, at least to me, seems sincere and frankly, more thoughtful than some of your peers. But it's also more pragmatic. In other words, it makes sense in my understanding is simply it, AI is going to be part of everything you do, which again, sounds simple, but also an immense task. And frankly, the right move. It sounds like you're certainly on the way from your prepared remarks. But how much effort do you think it takes to accomplish that? And of course, it's a continuous effort. But when do you think you'll get to the point where you can see we've arrived as an AI platform. Is that going to take years, or just curious how you think about that?

I'll start. And I think both Gerrit and Gabe should weigh in. We are trying to be very thoughtful in the way that we're building our Agentic solutions. They're there meant to solve a anybody can solve the simple problems when I look at what we're doing with the self-service agent is really hard. What we're doing with the financial audit agent is really hard. But by building these agents and coming out the other end, they add tremendous value to our customers and frankly, from a competitive perspective, they're really, really hard for anybody to compete with because they're so deeply embedded in the bowels of Workday. I don't know when we arrive. I think we're arriving now, and I think it just gets better over the next couple of years, but it's all about adoption and customer success. We have to have agents that have real ROI, and that's been the lens we've been looking at it since I came back. We had a lot more agents when I came back. We killed a lot, or we rolled them into [indiscernible] agents. And the ones that we have right now, I'm very optimistic they're all very meaningful to our customers. But let's have Gerrit and Gabe add to that.

Yes, I had a couple of points on the top of the stack, if you will, and then Gabe on the platform side. But to give you a few concrete points on what are the key milestones that we are looking at that we truly believe our landmark moments for Workday as well as for the industry of moving into the AI era and enterprise SaaS. And one of the biggest one for us is how work is going to change in the work experience with Sana. You heard in the prepared remarks that Sana is going to be the default home screen for Workday coming rising this year. Rob spoke about the lighthouse program at Sana Enterprise, and I have shared this changed the world of work inside were there already. We have 24,000 agents being built in just 3 weeks. We really see this coming this rising as a key moment because the phase of SaaS and how work happens is going to fundamentally range. And frankly, we believe it's a stark difference to what that work experience is than what you get from generic jet Copilots because they're deeply tattered into the system of action and a system of work. Secondly, you heard you know that our agents are making a lot of progress. And when we say agents, we really mean AI systems that automate large parts of the value chains in HR and Finance. We just put Decision Intelligence into GA, which is truly a reimagination of how you collaborate with AI on enterprise data. We are about to bring new functionality to recruiting age, and you have heard earlier how much momentum that has already. We are making great progress in one of the areas that Aneel is most excited on financial audit and financial compliance agents, all of these agents are coming out either day out already or coming out of rising at the end of the year. And I think when we come together in the next call back and you look at the momentum we have built until then. I think there will be no question mark left anymore about Workday being in an AI company or not because the world of SaaS will have changed.

Gabe, over to you for platform.

Yes. And thanks for the question. In terms of just the time line view on this on the platform side, it's pretty obvious that the AI technology evolution has been at a frantic pace, right? We're seeing rapid and continuous evolution. And I don't really see an end to that. It's going to be continuous, constant evolution. And so the way we're looking at this is as these new integration patterns change, as protocols change, as identity approaches change, we're on a process of taking the new capabilities, pulling them into the platform, driving adoption, as Rob was mentioning, and then delivering outcomes and ROIs. And the key is going to be doing that continuously in a loop. That is the art of building AI systems. And that's going to be a long journey. This is not something that's going to end anytime soon.

And our next question comes from the line of Alex Zukin with Wolfe Research.

Probably another AI question here. But just it's great to hear about the agents and the data cloud opportunities that you're getting front of customers, but maybe just help crystallize us how you're monetizing? And maybe any specifics around like how many Flex credits does an onboarding or procurement agent actually go through, and what that could mean in terms of a net expansion in terms of spend at a customer that's deploying them or like a sales force yesterday talked about in order for customers to unlock AI functionality, they had to upgrade to a premium version that's 60% to 80% more in some cases. How do you see that with some of the MSA agreements we were talking about, Rob? And when should we think about that as a tailwind to numbers? Is that a 2020 -- fiscal '27 dynamics or the following year?

You said it's a question about AI, but you are hitting all of the cards here from sales of finance to car technology. So maybe let me start and then I hand it over to Rob and probably saying on the outlook question. What we are seeing is that the workload that these agents are driving quite substantial. When you heard about early the numbers and our volumes, we are driving recruiting already. And the key of the ambient agents, the agents that are running in the background, we see a substantial opportunity, but we are not comparing it to software spend. Actually, what we are modeling it against is the labor spend that companies have in those given roles already and think about what is the share of the agent that actually will get basically transferred from a labor spend into an AI agent spend for that specific task group. Right now though, and Rob has said it, so I want to repeat that. Our focus is really on adoption, adoption adoption, right? This is the way how you actually build great AI systems. And so what we are doing right now, and Rob spoke about it, right, we're incentivizing this with programs like the Sana Lighthouse program that we basically allow customers to use it for free in the first year self-service age and one of the most consequential agents we do we put out a promotion that we are not putting on a flexed meter until the end of August or September. So the question that you're asking, how does this translate now to sales and dollars right now, it's difficult to answer because this has not been our focus point. But then you ask me for the potential that we have because of how much work or it actually processes. It is incredibly substantial. And this is why San has said, right, we are so bullish as this being an upside because we can see on the 1 side, the usage increasing, and we sit on the inside that this represents significant monetization opportunity for us.

I mean you kind of said that, look, I'm super excited. We focus on the adoption side of things. Now we're starting to focus really on the consumption side of things. So as we move into this, the sales motion changes, and what you see with broad adoption of Sana self-service agents, it's going to rise all the other agents as well because it gives it a completely different look and feel on how you utilize Workday in the future? And what kind of users can work with Workday pretty much anyone. I watched the CFO and a COO look at the the intelligence agent. And it was just -- they were completely blown away. So I think the opportunity for us is really good. The back half of the year looks really positive for us. And I can't see that changing. And we are lockstep in making certain that these agents are to adopt them and consume them. The quality of the agent continues to improve all the time. And I think that's what he meant by it's a circle. It's a loop. And I think we've got a really good process on how to define that loop. So the field is excited by it. Every single one of my customer conversations is really, really interesting. And even customers that I've known for years that are not really in the HCM or finance space. We really want to understand what we're doing and one Workday to lead in the space of HCM and finance. And then lastly, I'd just say, don't say that we've also got agents like talent acquisition agent and a document where we actually measure by different statistics. And that -- if I look at the [ Telemacquisition ] agent, we had more than 30 million candidate interviews in Q2 with 8 million in view schedule. So the numbers are starting to show up, and it will continue to improve over the next months and quarters.

Yes, Alex, I would just add, this quarter, we talked about roughly $600 million in AI ARR, which is up from around just over 150 just a year ago. So we expect that trend to continue. As Aneel mentioned earlier on the call, this is all about customer success and customer value, and that's going to be the ultimate driver of our revenue. So we've got some of that built into the back half of this year, as you would expect, but really growing from FY '28 and beyond where the AI component becomes a significant part of our incremental ARR. So we're excited about the future, as you can tell, and we just want to be thoughtful as we monetize it.

And we will now take two more questions. Our next question comes from the line of Karl Keirstead with UBS.

Maybe I'll direct this one to Zane. Zane, you gave us a preliminary look at 200 bps of margin expansion next year, a little bit more than I was modeling. And actually, a greater pace of expansion than you're guiding to this year. I'm assuming there's no big change in the prioritization on investing. So perhaps you'll probably address this at the Investor Day, but a couple of things that might be driving that.

Yes, Karl, thanks for the question. As Anil mentioned earlier this year, this was the year where we intentionally invested heavily in AI and brought in some great talent and feel like we're doing a lot in that area. And I think we've done a credible job prioritizing and then leveraging size and scale and really being thoughtful on how we drive just thoughtful expenses in the future. So it's a continuation of that doing, I think, a pretty good job utilizing AI ourselves internally and expect that trend to continue. So it's really been about the team focusing on what matters and rethinking what we are doing and as importantly, what we're not doing where we're not going to be spending money in the future. And it's that kind of focus that I think is also driving the increase. And we believe that the 2 points for next year is a good starting point. As you know, we've increased to 31% this year, and we believe we can continue to see that improvement as well as leaning in as much as we have in investments in critical areas around AI and our platform.

Yes. I would just add, we're leveraging AI internally, and we're doing more with flat headcount. That's the goal. And I think that's a really important direction for us to head.

And our final question comes from the line of [ Samik Chaterjee ] with JPMorgan.

You talked a lot today about the organic agents and the adoption curve you see there. Maybe if you can sort of dive into the acquired acquisitions that you've done and particularly the acquired agents and how you're thinking about the road map there in terms of integration finest of making to a product and then the monetization on that front? And particularly, how should we expect that to impact your fiscal '28 sort of financial outlook as well? Any thoughts on that front would be helpful.

Well, I'll just say that they're all doing well, but most importantly, they're all deeply integrated already. We don't ever buy technology and just leave it on the outside. We deeply integrate it right away, so we can deliver that unified experience. Maybe, Gerrit, you want to talk about where the products are headed?

Yes, awesome. So it's a great question because actually, we kind of spoke about it earlier, the big products that you can think of is a higher score on the recruiting side in paradox. They actually both are part of our talent acquisition agent now. So they are basically agentic skills as we evolve our AI systems. And both of them have tremendous momentum. I'm going to hand it over to Rob in a second to talk about that. But we are not really thinking about this as, hey, this is separate from the core. As Aneel said, we have a really good M&A regime that we look for strong technical fit. And so as we move forward with Workday recruiting, HiredScore and Paradox, they are an integral part of that, and they're all coming together under the row-based agent for talent acquisition. Again, right this whole idea. This is the embodiment of an actual recruiter with all of these skills. And on the Sana side, which had an absolutely blowout quarter as well gangbuster growth. We put it into GA in a combined product. So Workday Learning and Sana Learning is actually one product now. It's in GA already, and it's driving substantial growth for our customers. But as we take it to them, we don't put rates as Workday and others. This is the learning agent from Workday. This is the recruiting agent from Workday and those acquisitions, they are just widening the breadth of skills these agents have. Rob?

Yes. I'd simply say, I mean, we drove more than $100 million of new ACV with our AI products, just 25% of all new ACV. So if you just look at those numbers. And then we -- our ARR numbers are up at 600 -- close to $600 million now. More than half of the new into signed up for AI solutions. So our AI solutions are really paying off. And as Gerrit said, I think it's really important to point out, they are integrated into the Workday Foundation. It's one core, it's one view for our customers, and that allows us to deliver the agents even on top of that.

And ladies and gentlemen, thank you for your participation on today's conference. You may now disconnect.

Ladies and gentlemen, welcome to Workday's First Quarter Fiscal Year '27 Earnings Call. [Operator Instructions] I will now hand it over to Justin Furby, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Welcome to Workday's First Quarter Fiscal 2027 Earnings Conference Call. On the call, we have Aneel Bhusri, our CEO; Gerrit Kazmaier, our President, Product 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 in the documents we file with the Securities and Exchange Commission, including our fiscal 2026 annual report on Form 10-K 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 disclosure 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 second quarter fiscal 2027 quiet period begins on July 15, 2026. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2026. With that, I'll hand the call over to Aneel.

Thanks, Justin, and thanks to everyone for joining us today. It's great to be with all of you. I now have a full quarter under my belt since returning as CEO, and I truly feel the energy building at Workday every day, both around our path forward on AI and the company as a whole.

We're in New York City this week for the Sana AI Summit, where we brought together some of the brightest minds in AI with our top customers. It's an incredible event, and it was great to see a few of you there. A few weeks ago, we hosted our top industry analysts at our Annual Innovation Summit, typically a skeptical group. They came away generally impressed by the pace of innovation and by our renewed focus on operating like a start-up. One of them even called it the reinvention of Workday.

Indeed, their reaction to our vision and execution around AI told me that we are absolutely on the right path. So do our Q1 results. We had a great first quarter. In fact, it was the best first quarter of new ACV growth in 5 years, anchored by the strength of our core business and the traction we're seeing with AI. Following slower ACV growth in fiscal year '26, we're seeing momentum once again building in the business. I'm confident in our ability to drive accelerated new ACV bookings this year as we bring new agents to market for our customers and drive even greater adoption.

Last quarter, I mentioned I came back to help Workday lead again during the biggest technology transformation of our lives. After being back for 3 months, I have even more conviction that this is Workday's moment to lead. But to do it, we need to operate differently than we have been. And coming back, I was very focused on returning Workday to a start-up orientation and a growth mindset. Indeed, I watched a lot of Steve Jobs videos where he talked about his management approach when he returned as CEO. What struck me most wasn't about what Apple built after he returned, which was obviously incredible. It was more about his management philosophy.

There was one interview in particular from All Things D where he called Apple the biggest start-up in the world and said it was the start-up mindset he brought back, fewer layers, faster decisions, the best ideas winning, more ownership. We're trying to emulate that start-up playbook. As a great philosopher Yogi Berra once said and apropos that we were in New York City this week, it's like deja vu all over again. And so we're going back to our founding principles. I've said before, Chapter 4 is a refounding moment for Workday.

With AI, we are essentially a start-up again. We're a start-up sitting on one of the most important enterprise platforms ever built and the trust of more than 11,500 customers. We need to embrace that mindset. It's all about focus and trust, clear ownership and the best ideas winning. That's how we are leading Workday now, and it's how Dave and I led the company early on. As part of this mindset, we've simplified our priorities to 3: number one, build and deliver the AI future; number two, grow with our customers; and number three, live our values.

We've also streamlined ownership across the organization so every Workmate knows exactly how their work connects, fewer things done with greater focus. A dedicated AI agent factory, building agents across all of our application areas, clear ownership and accelerated development of our AI APIs. We've got the right people to do it. We have some incredible leaders from the companies we've acquired now in key roles at Workday. One of them is Joel Heelmark, the founder of Sana, who we named our Chief AI Officer just today.

That's by design. These leaders know the start-up mindset, and they're helping Workday move faster and stay focused. I've also thought a lot about how Workday wins in this new chapter. I've met with dozens of customers since I've been back, and I keep hearing the same thing. Not one of them is looking to replace Workday with something they're building internally or from a start-up. Instead, they were looking to us first for AI solutions for the HR and finance world and hopefully, IT in the future. It's really our opportunity for the taking, but we need to execute flawlessly and with speed.

We have all the requisite components, one data model for all customers, one security model and a true cloud architecture. Our business process framework gives AI the rails it needs to operate safely and accurately inside the enterprise. And over the past several years, we have completely rewritten our tech platform to be AI native in the way we manage transactions, reports and UI requests. That's basically the foundation we've spent 21 years building and now it's been modernized for AI down to the core OMS.

And we're delivering the results as well. Q1 was our first quarter with both Sana and Paradox fully integrated. With Sana, we're giving our customers a completely new Workday experience. It's a new front door to Workday that is simple and modern. The Sana platform is also the foundation for everything we're building in AI going forward. Joel and his team have created something remarkable and the integration has gone further and faster than I anticipated. We've already proven that customers trust Workday deliver AI through agents we acquired. This is a year we prove that they also buy the agents we're building organically, agents that only Workday can build, and Gerrit will share more on that momentum in a moment.

And while there are some who believe that AI can disrupt Workday, I see something different. Our chance to once again be a disruptor with AI clearly driving that disruption. To that point, Gerrit will talk about Sana for ITSM and the new travel agent we announced today at the Summit. These are early examples of what it looks like when we use Sana to rapidly innovate on top of our data and context. What ties all this together is one simple truth. Customers don't want AI for AI's sake. They want AI that adds value to how they run their businesses. Our early adopter customers are already seeing that, and they want more from Workday.

To close, I am confident that Workday is ready for this AI moment. Our core business is strong, our AI strategy is working and our execution is accelerating, starting with Q1. Seeing the agents Gerrit is building and the success Rob is having selling and deploying them with customers, I couldn't be more confident in our path ahead and ability to lead. Gerrit, over to you.

Awesome. Thanks, Aneel, and hello to everyone. For AI, the world model, it is like the Holy Grail. Today, a large language model, it just predicts the next token in a sentence. And the world model, it is the step change needed for it to understand the physics of its real environment. It's about how things actually work and the laws that govern them.

On Workday's platform, we have over 80 million users under contract and approximately 1.4 trillion transactions annually. That is giving us a set of data and context that no other competitor can replicate. For more than 20 years, we have been on the journey of building the world model of work. And here is what we have done. We have mapped the patterns of work at scale. Who approves what, how money moves, how people get hired, assessed, developed and scheduled for their work and the policies, the processes and the exceptions around them.

And here is the key insight for you. This world model of work, it is the best context engine for Agentic HR, finance and beyond. It unlocks unmatched enterprise-grade accuracy for AI automation. All of this is adding up to agents that our customers can trust to perform actual work inside real business processes. And you can see that clearly in the impact that they are delivering already for our customers. In Q1, for example, we have supported 14 million hiring processes with our recruiting agent. That is up 44% year-over-year. And we have analyzed more than 1.1 million contracts with contract intelligence. That is up 53% from last quarter. Now that is the world model of work at work.

And while we're driving all of this amazing impact, the pace of innovation here at Workday, it is accelerating. We now have 20 organic agents in GA or EA, and the number of customers using these agents has more than doubled quarter-over-quarter with over 4,000 customers using at least one organically developed agent as of today. And here are just a few highlights for you. Deployment agent is now being used in our first end-to-end customer projects. It is designed to deliver an estimated 30% reduction in implementation hours and costs. And in our next wave of AI-driven projects, we are aiming to get that reduction up to 50%.

And here is why this is so important. This reduction in time and in cost of deployment, it is removing a historic barrier to choose Workday, particularly in the mid-market segment. Further, customers like the University of Arkansas System, GE Vernova and Mohegan, they are using deployment agent across their Workday systems to instantly resolve issues and answer questions. So admins, they can spend their time moving their projects forward.

Also, we are seeing a super fast takeoff of our self-service agent. This quarter, our first Fortune 500 customers are expected to go live on self-service agent. And we will take another big step at the end of this month. All HCM and finance customers on our AI terms of service, they will get Sana for Workday and our self-service agent as a part of their existing contract.

So now let's talk about our accelerating AI business momentum. In Q1, our new ACV from Agentic AI products, it grew more than 200% year-over-year. And we are also approaching USD 500 million in ARR from our Agentic AI solutions. But we are not stopping here. AI, it lets us break free from the narrow definition of legacy business applications that lead to frustrating user experience breaks and outsized spend for so many companies out there. With Sana as our AI platform, we are pushing the boundaries of HR and finance and IT with new AI solutions.

Just today, here in New York City, we announced 2 new Agentic solutions from Workday that proved this out. Sana Travel Agent brings business travel planning, booking and expenses into a single conversational experience. With more than 5 million expense reports processed monthly on Workday and much of it is travel, this agent, it takes on the heavy lifting. It can automatically handle bookings, receipts, policy checks and expenses. So employees get a more seamless travel experience and finance teams, they get real-time visibility into current spend and future travel commitments.

We have also announced Sana for ITSM, which automates workflows for employee on and offboarding, access changes and everyday IT requests. Many service requests start with employee life cycle changes that Workday already knows about, like joining a company, moving across teams or even exiting. And with the key data, the work identity, the org chart, job profiles and so much more running on Workday, we inherently know the chain of approvals, the required policies and the right work context. That allows us to simplify and automate ITSM requests at a whole new level.

Lastly, let's take a look at the Workday platform and our AI momentum there. Workday Extend Pro enables customers to build their own AI-powered solutions on our platform, taking advantage of our AI APIs. In Q1, Extend Pro continued to be one of the fastest-growing products with new ACV nearly doubling year-over-year. And here is our approach. At Workday, we embrace the AI ecosystem, and we design for openness. So our customers and our partners, they can build their own AI innovations without locking them in into a single vendor stack.

We are giving our customers choice and 3 clear paths to run agents on the Workday platform designed to meet them wherever they are. First, our customers can build their own AI agents with Workday's agent-ready tools. These are a new class of Workday connectors and APIs that are purpose-built for autonomous consumption by AI agents at enterprise scale and available via open standards like MCP. Second, our customers can plug in Workday agents into their agentic front door using the A2A protocol. And already in Q1, we have made self-service agent available in Microsoft Teams, Microsoft Copilot and Google Gemini.

And third, they can use Workday's agents in Sana for the fully optimized work experience where Workday provides the reasoning, the context and the ultimate AI user experience. It's the AI workbench for work. These options give our customers and partners the flexibility to adopt AI the way that best fits their business. So stay tuned for our upcoming developer conference, DevCO, the first week of June in Las Vegas. There, we will announce new Workday AI platform innovations.

And here is the bottom line of all of this. Enterprise AI starts to pay off when agents can perform actual work with the same approvals, security, policy and guardrails that govern the rest of the business. That's exactly the future we are delivering for our customers, powerful AI agents harnessing the world's model of work built on an open platform. And with that, over to you, Rob.

Thank you, Gerrit, and hello, everyone. We're proud that more than 11,500 customers around the world trust Workday for the most important parts of their business from payroll to closing the books. And as Aneel said, growing with our customers is one of our top priorities. You see that in our results. In Q1, expansions once again drove roughly 60% of our subscription revenue growth with customers like Queensland University of Technology, Rakuten Group and Bank OZK expanding their relationships with Workday.

We also continue to go deeper in federal and had a record turnout at our fourth annual Fed forum in D.C. last month with nearly 600 attendees. And in Q1, we kicked off the next phase of our contract with the Defense Intelligence Agency. Also in Q1, net new business drove 40% of our subscription revenue growth. We formed new relationships around the world with key brands, including Harley-Davidson, Del Monte, Australian Gas Infrastructure Group, Smiths Group, Artland Dental and ACHM Hotels by Marriott.

State and local government was also a standout this quarter, where we signed statewide deals with the State of Delaware and the Commonwealth of Massachusetts. Turning to AI. The numbers this quarter tell a clear story. More than 1/4 of new ACV from customer base expansions came from AI and expansion deals that included AI were over 50% larger on average. The pattern is consistent. Customers who adopt our AI go deeper on the platform.

The University of Arkansas System is a great example. They have 21 institutions, including research universities, community colleges and an academic medical center, all on a single Workday instance. They process over 2 million transactions a month. And in Q1, they used our deployment agent to cut support tickets and uncover configuration insights at once required manual searches. Deployment agent has significantly increased the operational velocity and allowed them to scale Workday with less reliance on external consultants.

Our Flex Credits pricing model is quickly gaining traction. With Flex credits, we've unified AI monetization across Workday, one model for agents, AI APIs and data cloud. It makes AI adoption simpler for our customers. While still early in the journey, we're seeing a growing mix of AI monetization coming through Flex credits. And as we bring our new Agentic innovations and acquired agents onto the model throughout the year, this will become a more meaningful part of how we grow.

We're also continuing to make progress outside of North America. In APAC, we expanded our operations into Vietnam, which opens up a brand-new market for Workday. This strategic expansion is made possible by 5 global and regional partners, all dedicated to meeting the growing local demand in Vietnam for digital transformation. And in EMEA, we launched an EU-based data residency in Frankfurt. This was a significant milestone for European customers with data sovereignty requirements.

We're also expanding Workday GO globally to help these customers get up and run faster in a more standardized way. EMEA is now our second largest region for medium enterprise, which we define as 500 to 3,500 employees. And new ACV in that segment grew by more than 50% in the quarter. Workday GO is now available in France, Germany and the U.K. with an additional 14 countries available through our partner network.

Speaking of partners, our ecosystem continues to be a meaningful driver of our growth. In Q1, roughly 30% of net new ACV was sourced by partners. We also hit several milestones worth mentioning, including Insperity's HRScale solution is now generally available, bringing Workday to the PEO market for the first time to deliver full-service HR for growing businesses. Workday recognition powered by Achievers is live, and we expanded our Workday Wellness program with Morgan Stanley at Work and PerkSpot.

The momentum this quarter was broad across expansions, net new AI and international. We are growing with our customers and continuously evolving to meet their needs. Now over to Zane to share more on the financials.

Thanks, Rob, and thank you to everyone for joining today's call. As Rob mentioned, our results this quarter demonstrate ongoing customer adoption across our platform as enterprises around the globe turn to Workday to manage and empower their most important assets. Subscription revenue in Q1 was $2.354 billion, up 14%. Professional services revenue was $188 million, resulting in total revenue of $2.542 billion, growth of 13%.

From a geographic perspective, U.S. revenue in Q1 totaled $1.89 billion, up 13% and international revenue totaled $649 million, up 16%. 12-month subscription revenue backlog, or cRPO, was $8.81 billion at the end of Q1, growing 15.5%. This was driven by continued customer expansion, bolstered by our AI solutions and growth from new customers. Total subscription revenue backlog at the end of Q1 was $27.29 billion, up 11%.

Gross revenue retention rates remained strong at 97% in the quarter. Net customer expansion rates remained consistent with what we observed last quarter, contributing roughly 60% of our subscription revenue growth for Q1. Non-GAAP operating income for the first quarter was $809 million, representing a non-GAAP operating margin of 31.8%. Margin strength was the result of the revenue outperformance combined with favorable spend versus expectations.

Q1 operating cash flow was $696 million, growth of 52% and free cash flow for the quarter was $616 million, growth of 46% and in line with our expectations. We repurchased $1.6 billion of our shares during the quarter and had $1.3 billion in remaining authorization as of April 30. We ended the quarter with $4.4 billion in cash and marketable securities. Our headcount as of quarter end stood at 20,834 Workmates around the globe.

Now turning to guidance. We remain focused on driving adoption of our Agentic solutions across HR and finance, while expanding into adjacent market opportunities, providing a foundation for long-term growth. We are pleased with our performance in Q1, and we are reiterating our FY '27 subscription revenue outlook of $9.925 billion to $9.950 billion, growth of 12% to 13%. We expect Q2 FY '27 subscription revenue to be approximately $2.455 billion, growth of 13%. We anticipate cRPO to increase between 13.5% and 14.5% in Q2.

For Q2, we expect professional services revenue of $180 million. As Aneel mentioned, we are streamlining how we operate the business and are focused on investing in areas with the highest returns. We are increasing our FY '27 non-GAAP operating margin guidance to 30.5%. For Q2, we expect a non-GAAP operating margin of approximately 30%. We expect Q2 GAAP operating margin to be approximately 19 percentage 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 are maintaining our FY '27 operating cash flow outlook of $3.45 billion, and we continue to expect FY '27 capital expenditures of approximately $270 million, resulting in free cash flow of $3.180 billion, growth of 15%. In closing, we remain focused on the potential for AI to transform our HCM and finance solutions. While still early in this journey, we are beginning to see the benefits from AI to our business model across both the top and bottom line, and we are executing on a framework to drive long-term growth while expanding GAAP and non-GAAP margins.

We look forward to updating you on our progress in the quarters ahead. With that, I'll turn it back over to the operator to begin Q&A.

[Operator Instructions] And our first question comes from the line of Keith Weiss with Morgan Stanley.

Congratulations on a really nice start to the fiscal year. A lot of really bullish signals that we're getting on sort of the AI adoption. I wanted to ask a broader question. And maybe, Aneel, I'll ask you to kind of do my job for me because I'm trying to create a broader argument.

You said at the beginning of your remarks that nobody is looking to sort of rebuild the core Workday system and that core transactional engine. And I agree, and I think most investors agree with that statement. I think where more of the concern is the additional functionality that Workday can be selling to these organizations, which kind of drives growth, that there's a new competitive dynamic there and maybe a new value proposition there. And I think where investors perhaps are getting it wrong is assuming that because the cost of software development is coming down with cogeneration tools, there's a change, a significant change in sort of the TCO of getting that additional capability from Workday versus building it themselves.

And I think what investors get wrong is they're looking at it too narrowly in terms of what creates that TCO. So can you help kind of round out that equation of when your customers are looking for those innovations, obviously, the innovations have to be there, but they're also looking for a good TCO. How does Workday now stack up in that TCO versus building it yourself using these Agentic cogeneration tools?

So first of all, Keith, thank you for all the time that you spent on Workday. I know it's your last call, and we very much appreciate all the time you spend with us and wish you all the best in whatever you choose to do next. So I guess I'd answer it in 3 prongs, and I'd hand it over to Gerrit.

When I look at the world of Agentic in enterprise, we have this concept of lawful and lawless agents, lawful being done the right way, lawless going directly against the data and getting results that bypass security or bypass the business process framework. I have yet to meet a single customer that wants to do things in a lawless way. They all have to follow lawful. If they follow lawful, there are 3 paths for us to be successful.

One, the best path is for us to sell our own agents, and there's a clear TCO on those agents. And I think we've defined that, and we're seeing the success with those agents. Second is they can use Extend Pro to build their own AI applications, again, leveraging our platform. And the third is as we roll out these AI APIs on a consumption basis, that's the way that third parties could build Agentic applications, but they still have to use the rails, the security, the governance, the business process framework to make sure they're doing it in a lawful way.

And again, I'll just say there's not a single customer that wants to do things in a lawless way now in the world of HR and finance. And so I don't know if you want to add anything, Gerrit, but I think it's, I think I feel pretty well covered, Keith, in having a solution for whatever customers would like to do.

Yes. And I think Aneel said it well. First of all, we embrace the ecosystem of builders. Actually, we provide APIs as part of the Workday platform, so customers can continue to build their own solutions and partners can continue to build own innovations that are part of the Workday platform and ecosystem. That in itself for us is a huge accelerant and value add and captured in our API Flex credit model.

But I think the real point here, Keith, is that for differentiated AI solutions that drive real value, which are not just augmentations, but actually redefining how HR and finance operates by taking big labor spends and making them smaller software spends, you need to have the 3 ingredients that only Workday has. One is the world model of work, our compounding data set, which lets you actually contextualize AI systems. Secondly, what Aneel spoke about, all of the deterministic business process logic that defines policy, compliance, correctness in the key processes from managing people to closing the books.

And then thirdly, not to forget, it's all about being deeply embedded in the flow of business, right? Us providing that as part of the business processes as they happen, financial transactions, hiring decisions, pay cycles allows us to actually automate the work in the background and not just being a side panel that comes in without a true integration in the flow of work. So we feel really strong about both our platform and openness and the differentiation of our first-party agents.

Outstanding. That's helpful guys. And Aneel and team, it's really been a privilege covering Workday over these past 2 decades and seeing what you guys have built here. So thank you very much.

And our next question comes from the line of Gabriela Borges with Goldman Sachs.

I would love to hear a little bit more about the feedback you're getting from customers as you deploy Agentic. Sometimes what we notice is there's a gap between how these products and technologies perform in a sandbox or on a demo versus what customers are actually able to implement. So maybe just walk us through when you present some of the newer technologies like Sana or some of the organic Agentic development, what is the gap that you have to work with customers on? Or what are the limiting factors to them fully getting the value out of the agent? And how do you work with the customer to solve them?

I'll put it to Gerrit and to Rob. I think there's a piece for both of them in that.

Yes. First of all, what we, Gabriela, is that for us, the big difference is we engage on very specific problems when we speak about AI. We are not coming in generically with a broad exploration of what may be possible. We are solving concrete problems in the value chain from hire to retire to our financial processes from record to report, and that makes it very focused and value specific. So that alone in itself allows us to avoid that POC-driven unclear ROI scenario.

And because of all of the success that we have in that space, we can actually guide customers to the best practices, right? We know how Chipotle, 7-Eleven and so many others have transformed hiring, how NetApp transformed procurement. And that allows us to have a very specific value-oriented conversation. So what we are seeing actually right now is a very fast takeoff on our first-party agents. And frankly, for us, the challenge is how do we meet this demand curve, right?

So we are now starting to provision self-service agent to all of our customers because actually, we got so many inbound requests that we felt it's easier for us just to turn a default on than to have services engagement being wrapped around it. And the last part before I hand it over to Rob, I think what you are pointing to, the true change is changing in the business processes and the operating model of companies when they decree a much higher degree of automation. And that's not a technology change, right? That's a workforce transformation that's happening at multiple levels at the same point in time.

And this is why we've created our forward deployed engineers and our AI consultants. So they go in and they're not just bringing the technology, but they are really engaging on the business process transformation itself and guide our customers through it. Rob?

Yes. I would just add, Gabriela, that we've had, I don't know, maybe 100 customer touch points between Aneel, myself and Gerrit in the last 3 months. And the feedback from all of them have been overwhelming, actually positive, where these customers are really focused on how our agents can help them in the flow of work and what they're doing.

And certain agents have had tremendous success early on like deployment agent where existing customers can see the value immediately and they're actually selling to other customers and customers are your best sales folks. So I would say that's super optimistic, and they all come in with questions on where we are and they all leave with how do we actually get started. As Gerrit said, with Sana as the front door, we're launching that in a big way. And then I'd say with Sana Enterprise, we're more focused on use cases, working with our customers to build use cases that add tremendous value to them. The uptake there on big brand names has been incredible. We ran the Sana Lighthouse program and the demand has been, as I said, overwhelming early on, I would say, the same here.

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

Aneel, maybe you could speak to just the early progress. I know last quarter, there was commentary just around reprioritizing growth. This quarter, you mentioned best new ACV 1Q in 5 years. So maybe just speak to the progress and what you're seeing within FlexCredit or Agentic usage or some of the efforts there and then Zane, maybe just to complement how you're able to expand margin while still prioritizing growth at the moment.

So I guess I'd say a lot of the right work was already being done when I came back. Gerrit and team were on the right path, building the right agents, building the right infrastructure and we're now seeing the fruits of those efforts. And we're just getting more focused on what those efforts are, right? We're focused on building organic agents, and that's going extremely well with self-service agent and deployment agent.

The acquired agents continue to be strong. And as we roll out more of those agents, we're going to see continued momentum. But we're also doing some really great work on the APIs, which is going to be the way we monetize the headless transaction. So the pieces are coming into place. It's really about reprioritizing to be AI first and AI native as opposed to AI being part of our story.

When you go through a technology transition, and I'm old enough to have been through a lot of them, you've got to put that technology transition front and center. And our core business is strong. But the 150th feature in HR or finance is not going to move the needle for our business. The next Agentic application will. I don't know if you want to add anything to that, Gerrit.

I think you said it well. And like Aneel has described, what we have changed at Workday and have laser focus now is either building APIs for AI or building AI agents. And that allows us really to be fully focused on the biggest opportunity ahead of us.

So Michael, I'll just add on the margin side. Obviously, we're very pleased with the revenue performance in Q1, which always helps you on margin. The same being said, as Aneel said, coming back with focus and the teams across the company are focused on how we work faster, how we stay focused in each area and disciplined in where we make hires and the work that they're doing.

And on top of that, we're recognizing the benefits on AI ourselves. So within Gerrit's team and R&D, we're seeing tremendous productivity improvements, whether it's our customer success business, we're seeing productivity improvements there, a lot of Rob's team on go-to-market as well. And we're using our own products, as you would expect us to. So very pleased with the progress we're seeing, enabled us to move up the guide 50 bps over the course of the year, and we look forward to continuing to increase our margins over time. So we remain focused in both the top line and the bottom line and investing in key areas here.

Yes. And if I could just say, this is more aspirational than anything else. I'd love to see us continue the growth that we had in Q1, but keep headcount as close to flat for the year as possible because we are getting the benefits of using our own products and other AI tools. And I think that's where I think I'm hopeful and believe that we're going to have additional margin expansion as we get those benefits. And I would say that's different than what my view was coming in 3 months ago.

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

Aneel and team, a really nice job on the execution this quarter. But I actually have a question related to the Sana AI Summit today in New York. Your new Chief AI Officer, Joel Hellermark, talked about not playing it safe in what is a technology paradigm shift. This all sounds good, and Workday has a leadership position. And Aneel, you know this as well as anybody, the innovator's dilemma is a strong force.

So with that context, I sort of have a high-level question for Gerrit and maybe, Aneel, if you want to join in, too. Gerrit, how do you, as the product leader at Workday, ensure that you do not only enable this paradigm shift happening with Workday, but actually lead through it. And is it possible to do that while leveraging the leadership presence you have built since the last paradigm shift? Or do you have to sort of abandon stuff?

Yes. Thank you for that question, and thank you for attending Sana AI Summit today here in New York, truly a landmark moment, I think, for us and for the industry. And what you have heard today, I just want to break it down very clearly. So we all understand what we say, we are not playing it safe and driving deep AI innovation.

For AI, it's all about understanding what the key value levers are. And as we have said earlier, right, with Workday's world model of work, we have a set of data which allows us to rethink business processes that weren't part of Workday's remit today. And because of the AI leverage that we are getting that Zane described in just productivity, we can execute so fast.

So today, what you've heard that we announced our travel agent. We didn't do travel before, but we did expenses. We did projects. We have the worker profile and the pay cycle, right? So now we can actually venture in this new area by just bringing this together in one seamless experience without taking on a high degree of functional development cost in the travel space because through AI, the data that we have and the productivity leverage, we can bring it together on the Workday platform.

And I think the even bigger one, I think this was the context that Joel spoke about. We also launched Sana for ITSM today. And it's all about being really intentional here. The most complex, the most expensive journeys in ITSM are related to the employee life cycle. Those are all events that we have inherently in the Workday platform already, recruiting, onboarding, offboarding, team changes, relocations. Now taking that and actually extending that out now to the complete workflow automation that sits beyond HR service delivery to IT service delivery suddenly feels super natural.

Basically, AI makes us boundaryless or limitless, right, in the opportunities that we can pursue. And when Joel spoke today at the Sana AI Summit is that we think of ourselves as an AI challenger, not as a defendant. And we are putting intentional investments into areas where we know we have all of the benefits already at Workday today to go out and disrupt places.

And I would just add to what Gerrit said, John, and echo what you said about thank you for attending the event earlier. Playing it safe is not, not playing it safe is not like we're going to take risk with security or governance. It's more that I think AI sort of resets competitive boundaries, and we can make bets in a bunch of new markets. All the bets don't need to work. If we make 3 or 4 bets and 2 of them work, that's a huge success.

And I think that what you're going to see is us is, first of all, doubling down on what we're doing in AI within our HR and finance world, but also taking some bets that expand our TAM because they're there for the taking. Our data model with HR and finance happens to be a very robust data model that really captures every business object under the sun to build other applications. And I think that's one of the reasons why we have that flexibility.

I got to say this is one of the first times I've heard an application company talk about things, and it's not restrictive when it comes to AI. It's actually expansive. So it's still early, but thanks for those answers.

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

Gentlemen, I wanted to ask about deployment agent, reducing the cost and time of deployment. I remember the impact of launch years ago, which was targeted at the mid-market, but then we saw it become a competitive weapon even in the low end of enterprise. How would you compare deployment agent perhaps to launch as an incremental unlock helping to reduce TCO and make you even more competitive, but also could it positively impact seasonality of your business and being able to sign deals even later into the calendar year for customers that might want to go live by the beginning of their next fiscal year. Any additional thoughts about deployment agent would be great.

I think it's Rob and Gerrit.

Yes, let me go first. So I mean, for deployment agent with new implementations and Workday GO, we're seeing, what are the numbers you're seeing?

30% on current projects and 50% reduction in the projects that we are just starting now.

And so that, and that will continue to improve and change the whole dynamics around implementation and speed to implementation. So it goes to your point early on about can customers go live faster? For sure, we would definitely think that's a possibility, and we'll definitely get there much quicker. The hard work in implementations, master data testing and that becomes just so much more effective and faster. So that's a benefit.

And the part that I'm really quite excited as well is the existing customers that are deploying deployment agent. I mentioned the state of Arkansas and the benefits that they receive, the existing customers using the deployment agent when they want to change configuration and they want to do things. They don't have to go out to RFP. They don't have to go talk to a systems integrator. They can see what they need to do themselves. And that makes it very self-service in these large institutions. And that enables them to move much faster to deploy different business models as well. So I think there's broad coverage with it, and there's going to be a broad impact with it as well.

And Brad, since you asked about launch, so launch is a method, which basically has a scope of Workday and an implementation method that allowed us to super streamline it. Now deployment agent is actually applying AI to automate that entire process. So it's the next logical step, if you think about it from improving that method further to make it AI automated.

And the mission of that team, right, the mission statement itself is the $0 deployment of Workday in a month. So we are doing exactly what you already have led to. We are taking now the launch scope and basically drive it with deployment agent to significantly increase the automation, which directly translates to the reduction in project time and customer cost at virtually the same amount.

And we are still at the beginning of that. We are super confident that with that, we can completely squash migration complexity and deployment times for customers to a degree. But the whole consideration in the mid-market, for instance, if you move to Workday or not because time of migration, cost of migrations are a consideration. Our ambition is to make this a completely nonissue. And with that, unlock for our customers Workday at scale.

And our next question comes from the line of Alex Zukin with Wolfe Research.

Maybe just a quick 2-parter. Aneel, for you, it's rare when Q1 has a net new ACV acceleration. It sounded like it was something kind of was a little bit different this quarter, particularly on the net new side. So maybe just dive in, what are you seeing out there in the demand environment? That's not happening for every other application software company clearly. So kind of what do you think is different from a Workday perspective that drove that incrementally better execution?

And then, Zane, just maybe any high-level commentary on how much, if any, DIA benefit you guys saw in the quarter that I think Rob alluded to in the prepared remarks. And just kind of when do you think we'll start to see some of this accelerating bookings that seemingly is kind of happening under the hood actually reflect in some of the cRPO dynamics?

So I'd say, first of all, one quarter does not make a year. So we're optimistic heading out of Q1, but we've got a lot to play for, for the rest of the year. I do think, candidly, I think there were some deals that slipped from Q4. We always talk about how the deals slipped from Q4, we'll close them in Q1. Well, Rob's team really did close a lot of great business in Q1.

But the reality is if you look at the split, the AI products are driving the growth. And what's exciting to me is that the organic products are showing great promise and they're getting early acceptance and deployment, but they're still in the early days. And I think towards the second half of the year when they're deeper into general availability and more customers are using it, and we're on the Flex Credit model. I think it just, it's all goodness this year as we build towards that AI growth. And Rob has done a great job of making sure the sales force and services teams are aligned to driving that growth, not just out of the core, but really focused on the AI growth.

Yes, Alex, as you touched on, we were pleased to see DIA come into the first quarter. As Aneel alluded to, it was a great quarter for a number of reasons with linearity. We recognized some DIA revenue, not significant, but some DIA revenue in the quarter. And unlike last year, we expect to recognize that revenue over the course of the year. If you recall, last year, it was back-end loaded.

So we're pleased with how we'll recognize that revenue over the course of the year. And then as Aneel mentioned, with a lot of the Flex credit sales and the momentum we have in our sales and in AI, we expect to see those bookings ramp up over the course of the year. So have a larger booking impact into the second half and we would expect because of the recognition of revenue to see that impact FY '28 to a greater degree.

And our next question comes from the line of Brent Thill with Jefferies.

Aneel, for Sana, when does this start to get fully integrated? And when do you feel like this starts to have an impact on deals? And maybe the answer is right now? And a second follow-up with Rob and Zane, just on the quarter, just to follow on on Alex's point. Were there any, were there less changes to the sales go-to-market this Q1 than you've had maybe in past Q1s? And I know you mentioned there are some slip deals, but perhaps there's also less tinkering with the go-to-market team that gave them more time in the field to sell or...

So on the first one, it's available today. It's fully integrated. We need to move more customers on to our equivalent of the innovation services agreement. But the uptake has been super rapid. On the Sana learning piece, that was also a good, we also had a good quarter there. And the rest of Sana is more about what comes next with some of these newer applications. I don't know, Gerrit, if you want to add anything. But it is now the new front end for Workday. I mean that is de facto default that is the new front end for Workday.

Yes. The only piece to add is that at the end of May, we're going to provision Sana for Workday and self-service agent to all of our customers on our current AI terms of service and make it basically the default deployed solution as part of their contract, further unlocking it. So it's going to be a huge surge for us again.

Yes. And on the field, was there less changes year-over-year, I would say we were very prepared for coming into financial year 2027. We had planned this very early on. We knew that we needed to move to a denser model with customer base because of the agents and what we're doing with organic, inorganic agents and agents. So we were super ready for that.

And we had broad-based success on a global basis. North America did really well. EMEA came back strong. Our international business with Europe was very good. Japan was very good. We had a strong net new quarter and a strong large enterprise quarter. So I would say we were ready for whatever changes we put in place, and it was not disruptive, obviously, and we had very good linearity all through Q1.

We will now take 2 more questions. Our next question comes from the line of Karl Keirstead with UBS.

Okay. Great. Maybe, Rob, just sticking with you. Just as investors and I watch the number of risks pick up in the tech sector, and we worry a little bit about seat compression spilling over into the non-tech sector. I just wanted to ask you what you're seeing in terms of seat growth versus module expansion as drivers of that nice overall expansion that you highlighted on the call.

Yes. So I would say we see a long runway with the value sales and the agents and what we're doing with Flex credits, the launch of Sana into the market and broad-based. We see that, and we said early on, I think last quarter, we mentioned that the back half of the year, we continue to see, and that we definitely continue to see that.

On the FSE expansion, I mean, we continue to see expansion in the overall when we look at the amount of customers. As we acquire net new customers, we bring in new customers on board, and we continue to do pretty well in the net new space, and I still think there's opportunity there. But I would say, ultimately, a broader part of our business is going to move to the Flex credit type environment with APIs and consumption.

Karl, I'll just add, we've commented over the last number of quarters on, as it relates to FSEs. And as Rob alluded to, it's been flat or marginally up. And this quarter, I'd say flattish. But to your point on the technology sector, obviously, we've got a diverse customer base. I mean we've seen any declines in the tech sector more than offset in other areas. So there's been a balance. There's definitely been movement. We did see it in the tech sector specifically, but we've been flattish. And as I pointed out in my prepared remarks, we've seen good net expansion more broadly. So it's not a meaningful part of our revenue growth.

Yes. And I think it's really important to recognize that if FTE count does go down, it's being replaced by AI is replacing labor, not software right now. And as long as we do what we are doing right now and continue to execute, we're a beneficiary of the shift to Agentic work.

And our final question comes from the line of Raimo Lenschow with Barclays.

Congrats from me as well. Just a quick one for Zane. RPO, like cRPO, like as we expected, RPO was slightly lower growth. Can you talk a little bit about, is that kind of customers signing shorter contracts or there's a duration effect? Can you just talk to the puts and takes there?

Yes, happy to. I mentioned on the last call as well, we've actually seen real consistency in duration and RPO at the highest level is more driven by the mix of customer base versus net new offerings. And over the last couple of quarters, I've called out that we've been pleased with the growth on customer base as a mix. And the duration for each of those has been pretty consistent. But when you do a renewal, it tends to have a slightly shorter duration than a net new offering. So it's simply been that mix that's driven any difference between cRPO and RPO.

Ladies and gentlemen, thank you for your participation on today's conference. You may now disconnect.

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.

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.

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 David 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.

While Chapter 4 is now upon us and its 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 relocated 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 in force 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 audible 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 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 Peter Butter and Jelly, they just go together. And it stall-rooted in the trust we've built with our customers over the past 20 years for managing their systems in 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 in agentic AI adoption across the solutions we acquired, [indiscernible] Score, Evisort, Paradox and most recently, Sana. They all had great Q4, 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 to 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?

Thanks, Aneel, and hello, everyone. Anil described the opportunity really well. AI's changing our 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 risk creating lawless agents that may have vast capability, but they have 0 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 great accuracy and business outcomes. Based on this, we leverage AI for entirely new business processes. Be it built 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 analysts and every employee, their own AI HR business partner agent.

So now let's look at some real customer AI usage and work today. We master 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 and 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 the 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 [indiscernible] customers are already using them and get real ROI. With our self-service agent, early access customers have reduced HR [indiscernible] volume by 25% and increase their employee productivity by 20%.

And with our [indiscernible] 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 projects 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 use experience that brings super intelligence to work.

And with that, I'll turn it over to Rob.

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. On payroll to closing the books, and that trust continues to show up in a high retention rate 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 Sona, since the acquisition closed in November. We're starting to see customers go all-in on agents and agentic workloads, 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 credit 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 Credit 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 4 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's Children Hospital, the State of New York Unified Court System and Sargent and Landi. We're seeing particularly strong momentum in net new medium enterprise deals. Any 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, Slade 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 Lira Health, Empathy and Avid 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.

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 Sona, Paradox and other Workday agents as well as our Data Cloud, which ramp and 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 Instructions] And our first question comes from the line of Mark Murphy with JPMorgan.

Aneel, welcome back to the CEO role. I'm curious how you -- how are your picture 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 more organic AI product road map, maybe trying to achieve a 0 day close kind of a vision or a agentic consolidation or some other type of truly breathtaking outcomes.

Well, it's good to be back Mark. It's good to hear a 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.

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 I 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 test and [indiscernible] 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 for the Sana AI user experience. So we are thinking about both back-end automation and AI front-end innovation.

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

Sorry about that. Aneel, 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 into the opportunity to sort of reset the bar. Just kind of trying to get some perspective on what went into the full year guide.

Yes. I guess, first of all, Kirk, it's good to hear a voice. And I'm back in the side, it's only been a few weeks, I'm pretty optimistic about this year. I would hope that we significantly surpassed 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 Credit 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.

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's excited about us beating it.

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

Excellent. And 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 going to take more of a back seat. 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?

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 to agents. And I'm super bullish. It's not that I'm new to what we've been doing. I have been closed 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 Asana or a Paradox or Hired Score, we might do it, but that's not -- our focus really right now is on the organic development of agents.

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.

Excellent. Super helpful, guys.

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

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 -- oh, by the way, welcome back, Aneel, it's good to see you.

On the last call, 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.

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.

Yes. But that's just -- that's -- let's say, it was $20 million instead of $15 million. It's a $25 million decline and 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?

No, I mean, look, I mean, 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 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.

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

Great. And 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.

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 a client server. I'm old enough. That 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's building, I do see the organic agents really coming to market. They're in early access right now. But there are 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 FT 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 also be all the third-party agents that get built that leverage our APIs that will also be based on that Flex Credit 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.

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

Perfect. And 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?

Yes, Raimo. Look, we continue to see progress in our European business. We've had a couple of really solid quarters. Asian 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.

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

Great. It seems one of the key questions on Workday seems to be whether you're able to offset just the 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 our expansion rates your 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 there's any way for us to size any impacts on CRPO there.

Yes. Look, I think some of the deals that moved from Q4, as I said, we see in 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 Credit 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.

When 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, a 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 [indiscernible] 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 than on basically true business returns. And we have both of these agents, right, back-end automation and new value scenarios.

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

Okay. Aneel, welcome back to the arena. I had a question for you, maybe zooming out a little bit. So this is a broader question. Anil, 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 live through a good analogy.

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 thrown 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 that 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 was 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 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 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 is getting built on top of.

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

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?

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 and 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.

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 is 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 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.

And 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?

Yes, I'll turn it over to Rob.

Brent, yes, and Brent, it's pretty simple with Patrick moving on the regional leaders who have real confidence in and have been doing a really good job of 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 for deployment engineers to drive consumption faster, and we want to get that up into the market with incredible amount of speed. And so that's really the focus and around the changes.

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.

And we will now take 2 more questions. Our next question comes from the line of Alex Zukin with Wolfe Research.

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 multi-system agent 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?

So on the first question, Alex, I think you should think of us as an evolving layer on top of hyperscale 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 on that as well as it relates to Flex Credits. And then Zane can answer the second part of the question.

Yes. So -- the model that Anil 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 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 capture or recapture the value on our side via simple API calls. If they want to get richer information like you has 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 macro system, 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 [indiscernible] API, and if you know a customer or a partner or a [indiscernible], 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 more APIs, data context or highly differentiated agent APIs, which are basically aggregating large chunks of work across HR and finance for you already.

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.

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

Aneel and Gerrit, I wanted to link together a couple of the points you're making. Does [indiscernible] is AI being built on top of cloud and then the potential for work dates to monetize any other vendor or a corporate built tool that extracts return 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 sack 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?

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, they're 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.

Gabriela, I think it's a great question. So it allows us to really cut through the [indiscernible] 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 law less AI, which has no understanding of enterprise processes, compliance, determines and 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 by modal, smart model and dump data. It's actually about an AI-enabled ERP and that's the intelligence later Daniel 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 the 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.

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.

Okay. Welcome to our next session. Really happy to -- I need to get my questions all right. Here we go. Really happy to have Gerrit from Workday. We were joking earlier that we do it in German, but we won't.

Fellow German.

Yes. The 2 Germans talking about the World Cup next year. Just maybe introduce yourself briefly, like you have an interesting background as well, and like introduce yourself and then talk about what excited you about joining Workday.

Yes, happy to. So I'm Gerrit, President of Product and Technology at Workday, other than just being a fellow German. I worked 11 years at SAP, headed up SAP's data-based business, BI business, planning business, HANA, maybe some of you know that piece of technology. After that, worked at Google, here right around the corner. And then from Google joined Workday 9 months ago, 9 months in the making. And what excited me about Workday is that, look, the bottom line is I have seen enterprise application and how they are creating value, and I have seen how planet-scale AI systems are engineered. And for me, it's obvious what's infrastructure and what's value generation. And I think we're now at the point where the pace of being focused on infra model turns over to AI business applications. And I do think it's a time where Titans fall and Titans get created, and I think Workday is in an awesome position to be one of the new Titans. So who wouldn't want to be a part of that?

Yes. No, exactly. Yes. No, that sounds good. And the -- let's start with the core business. Like talk a little bit about the opportunities you're seeing there? And kind of what do you think in terms of innovation to kind of capture some of that opportunity?

Yes. Sounds good. Raimo, I think that's one of the big things that I personally think people are confused about because we say, "Well, Workday is so penetrated, so present and it's such a narrow space in HR and finance." But if you do just simple math, right, the TAM that we're operating in is roughly $200 billion, just do -- you're a smart analyst, do the back of the envelope on Workday's top line, right? We had 5%, 4% market penetration of that, right? So there is an incredible amount of space for us to grow, and we started to aggressively pursue that.

And when you approach a market, you can roughly segment it in 3 major ways. One is expanding the portfolio. One of the big initiatives that we are driving is going into frontline work. So roughly $3 billion work on the planet are falling in the frontline work category. Workday has a very narrow offering in that space. Even Workday customers may use other solutions in that. So for us, very important that we capture that space around our customers and beyond that.

We have other areas like in finance, where we are massively expanding our footprint. We add new services for revenue management, for subscription services, a new expenses module, profitability and cost management. So we are really broadening the suite. That's category number one. And that's going to allow us to just realize much more of the potential that we have right around our core suite.

Secondly, it's all about markets and segments. Workday, as you all know, is a concentrated business when you think about it geographically. In Europe, where you and I come from, right, there is so much potential for us to grow. So we have a focused plan for Europe with country localization, with really bringing our offering fully market ready to the big economies in Europe. We just launched also new data centers in Europe with our EU Sovereign Cloud. We have new local partnerships with local implementation partners.

And even beyond that, geographically speaking, we just launched India with a data center and a sales presence there. So in the second bucket, it's really being focused on tapping into more markets and specifically being super successful in Europe.

And then thirdly, you can also think about the market segments, right? And if you think about roughly the SaaS space, of course, there is the large enterprise space, there is the medium enterprise space, and there is the small enterprise space. Workday is super successful in large enterprises. But then when you now look into the lower down segment, specifically in mid-market, we actually -- we have the same win rates in mid-market that we have in LE, roughly speaking. And that's because if you're a company which is 1,000 employees to 3,000 employees, you are more like a company, which has 5,000 to 10,000 employees than you are like a company with 50 to 500 employees.

So Workday has an incredibly well-fitting product in that space. We just had to simplify our contracting, simplify our services model, simplify basically how we take this to market in a packaged way. We just launched it as Workday GO and now the new Workday accelerated package that will unlock for us much more of the opportunities in medium enterprise space. So expansion of the suite, geographic expansion and laser focus on mid-market are 3 immediate and very actionable growth vectors for us.

Yes. And then if you look at the product or the core products, is there anything on the technology platform that you think you want to change? Or like, I mean, Workday started obviously later than a lot of the bigger ups guys, they are more modern. But if you look at the platform, is there anything you're kind of thinking?

Yes. Look, that's -- the reality is that if you write a line of code today, it's legacy tomorrow. So when we say the technology stack, to a large degree, this is actually the global scale of Workday, right? So when we think about Workday's ability as a cloud-only vendor, you say some of the competitors are newer. Actually, many of them are older, right?

No, no. I meant to say that. Yes, yes.

I, actually, see all of them are like 50-plus years old. And actually, we are not -- I'm not worried as much about it. I'm a technologist. But when we think about technology going forward, we really have to think about it in terms of AI. And when you think about AI value generation, it's much lesser about how the application is written. It's much more about how do you leverage the data set that you have, how much do you leverage the process model that you have, how much are you able to contextualize AI in a certain process setting. And so there are many things which are basically happening outside of how the core application stack is written itself.

But also truth to be told, even before me joining, Workday already was in a major journey to renovate it's core application stack with Kubernetes-based open standard programming languages, all augmented around the core. And one of the people I was fortunate enough to bring with me from Google, Gabe Monroy, he now leads our technology platform. He ran cloud run times at Google. So he's very proficient in that space. And we will still be always investing in our core and maturing it. But then to the core of your question, when we think about innovation at the current technology cycle, that question actually is not really the determinant factor anymore.

Yes. Okay. Makes sense. And then I don't know how much Justin briefed you, but like on our side...

Very little.

Yes, yes. On the investor side, there's like this big debate going on about what's going to happen to these big system of records in this new AI world? What's the future of SaaS? How do you -- like you're more a technologist, like how do you think about that debt debate? And what's the situation you see for Workday there as well?

Yes. Specifically -- I mean, we can talk in general and specifically. So I think what we have to be clear on when you say system of record, system of record is, of course, not an unattractive position, right? So the path is from system of record to system of action. That is the interesting piece, right? So how can I actually drive processes, value creation, user engagement with the data set that I have, right? So that's clearly the path.

What we do at Workday, right? We structured our AI strategy in 3 key ways. The first one is AI is first and foremost going to completely transform the user experience. So AI is going to be the new UI. And I'm sure you have seen we acquired a company called Sana. So we are really quickly moving that space from a completely AI-driven user experience for Workday and beyond.

The second piece of that is that a complete automation of all back-end processes. So when you think about HR and finance department of one almost, right, where you have complete AI-driven automation that is being surfaced through a conversational experience but drives massive efficiency gain and productivity gains at a platform layer. Workday is in an incredible position there because Workday already has 80 GA features out with customers, organically developed. We have roughly 1.2 billion AI actions year-to-date in the core platform already taking place. And we're using all of that to now build purpose-built AI agents to drive this automation. Right now, we have roughly 10 organically, meaning non-acquired agents in the hands of our customers. We have 5x of that already in the road map, launching very quickly. And if you combine that with the acquisitions that we have made selectively in the recruiting space, in the contract management space, we are really having an incredible portfolio together already for the identification of the core system.

And the third pillar of our AI strategy is really centered around that idea of an open platform. Every large platform is an integration platform by definition. In Workday, we have hundreds of billions of API calls towards our platform today. So it's super relevant because it is such a key piece, people and money inside of an organizational context.

So on the third pillar of our strategy, we are now unlocking our platform by making our data objects accessible through standard APIs called Workday Data Cloud. We have a new agent builder where people can build very quickly in a nontechnical way, agentic automation. We acquired Pipedream, which basically supports this with 3,000 connectors into the enterprise fabric. And that allows the CIOs if you think about the CHRO, the CFO, the CIO as the third key persona to innovate on top of the Workday platform. And we feel incredibly good about all 3 because ultimately, it goes back to where we started that the real differentiation in AI comes from data and process context. And because Workday being born in the cloud, we have one data model, we have one process model shared across all tenants, that's a huge advantage.

I wanted to stay on that data comment you made. We just had Salesforce on earlier, and we had Ali from Databricks yesterday.

You had them all. Okay.

Yes, we had them all. What was interesting is like the importance of data came up again and again. And especially like you guys sit on a treasure trove of information that kind of keeps growing. And you said you wanted to be open as well -- we wanted to be open, but kind of maybe talk about that importance of data, what you do with data? How you enable your customers to work better with the data as a kind of a way to...

Yes. I think it also builds back to your question around the risk of being disrupted from a small startup in that space. And I think it really comes from, a, I think when we say data, I think that's incomplete. Now if you are coming from a data company, it's what you have to say is everything is data. And guess what, that was the story before AI as well, right? So everything is data. So in the AI space, it's not just data, it's data, it's context and it's process, right? It's always those 3 things coming together for AI value generation.

And when we think about what we are doing that sets us uniquely apart in an enterprise context is when we say the Workday data advantage, if you will, it really comes from, a, of course, having an incredibly broad and an incredibly deep data set of all functions in HR and finance, which gives us a lot of information that we can use to build and contextualize AI systems.

But the second point is key, right, that much of what's happening in a business process is nothing that you can train a model on, right? It's not like the database is going away. The databases are just getting consumed in the models itself. And the reason for it being is that, one, it's highly churning data, right, the transactions, if you will. They are not just flowing directly into model training because guess what, model training takes very long. It's very expensive.

Secondly, enterprise data, who belongs -- who is the owner of the enterprise? It is the customer, right? You cannot just like in the public domain, upstream it into a big model. It doesn't work that way. Third issue is it's highly proprietary in the semantics, but there is no common definition of what it means, right? It's a customer specific definition of what it means.

And then the third element to that being is that now you need to understand how you take out of your data, the right patterns with the right process context at the right point in time. And this is why you need data, plus context, plus process. And that effectively creates an incredibly high barrier to entry for AI. For AI, it's fairly easy to enter a space where you just draft off the public domain. Coding is a terrific example. Coding is great because the models are incredibly proficient in codes because they are trained on a public web. If you go to HR and finance, none of this applies, right? Because they're not trained on the world's finance data. It doesn't exist in a form, right? And secondly, when you want to run a process like a financial close or supply onboarding, what data means in that moment and what data you need is very different, actually.

And I want to also add one last point to that because I do think there's also one big misconception about data in the enterprise space. There is one #1 criteria which defines the acceptance of AI in enterprise and that's accuracy.

What did you say?

Accuracy.

Accuracy. Yes.

Again, right, we have to see where AI is successful and where it's not. AI is successful in coding because you generate code, the developer understands the code, sees it and corrects it. He understands the output modality and is proficient in it. So if it's 80% or 90%, correct, it's a nonissue. It's great actually, right? Because you have this 80%, 90%. Now you're an analyst. If I were to show you a dashboard, and I would tell you, it's 80% correct. I'm not telling you what's not correct, right? But it's 80% correct. Could you use that?

I'll call Sheldon. Sorry, no. Yes.

Of course, not. It's absolutely unusable, right? Or if you would run a payroll run. And you would say, "Well, the payroll run is 80% correct." I'm not going to tell you which employees I didn't pay correctly. You have to figure it out. But it's 80% correct. It's clearly unviable, right? It doesn't work that way.

And if you now put all of those 4 things together, right, you actually do understand that as a start-up without a data, without the business process platform, without the business process context and without having the ability to guarantee the accuracy of that at 100%, you're practically not playing. And I think that that's why you actually see us innovating. And frankly, not much happening in the space around it. Most people who say, I for finance say better dashboards. And this is not the AI transformation that I'm talking about.

Yes, yes, yes. Yes, it's funny because like in my first life, I was a PwC guy doing SAP systems. Every time someone says like, "Oh, vibe coding can do this." I was like, "You haven't seen processes."

Exactly, [indiscernible] business process. You got to be 100% correct.

Moving on a little bit here, like if you do all this innovation in Workday, you're getting more AI, you get more agents. How do you think about monetization?

Yes, of course, it's added value that we want to capture. And we really want to strike the right balance between very easy to adopt, very transparent, very predictable to budget and of course, giving us a real opportunity to partake in the value creation for AI. And the reality is that when we think about this from a business model that seat-based models have limitations, obviously, right, because a part of the value promise of AI is that actually seat-based monetization has changed from a large spend on people to a software spend.

So what we launched is a concept called Flex Credits. Flex Credits basically is our way for monetizing usage, AI assist in our platform. And so a customer basically gets the opportunity to use AI credits, Flex Credit as part of their Workday system. And they are basically the currency to pay for all of Workday's AI feature. We have AI features that basically then consume Flex Credits as customers are using the AI features and customers have the opportunity to buy more Flex Credits as they expand their usage.

So very simply put, one of the most common cases in AI in HR is employee service delivery. By the way, they're seeing fantastic results with that, right? So customers really reducing their contact rates for their service centers through self-service AI for employee service delivery. And now when the agent is engaging with an employee, right, helping them managing a benefit or another change in their work life, it basically then consumes these Flex Credits as monetized usage. And the way we have structured is, again, right, making it super simple, super transparent, super easy to budget. And the key for us really is to make it universal across any AI.

So what we want to enable our customers with is that once they are using Flex Credits, they can use all of our AI models, all of our AI agents without differentiation. It's simple that way. And secondly, on our side, right, it allows us to constantly introduce new AI features and new AI agents into that model that customers then can consume. So it's really striking a nice balance of customer value and value on our side.

Yes. Okay. And then the -- how do you think about that equation then like that comes up on our side, a lot is like P times Q. So if I think about you guys, historically, you priced on a number of people on the platform, AI might reduce that number. But then, obviously, you're adding a lot more value, and you talked about the Flex Credits there. How do you see about that dynamic? Because on our side, there's that concern, well, less employees, good luck to Workday. But like it does feel like actually with Flex Credit, agents, et cetera, you cannot have a very, very big offset there.

Yes, 100%. It's just basically a shift in where value accrues right? In AI, the value doesn't accrue as much anymore at the user level. It accrues actually at the outcome level that you're driving through AI. And obviously, you need to have a mechanism that allows you to capture the value where you're creating it. So we have both. We're going to have -- we still have our seat-based, FSE-based model for the entire employee base because for many of our products, this is still that the value accrues and it doesn't go away.

From recruiting to learning, there's still so much which the -- the value capture and the value accrual is happening on a per seat basis, the most natural way how customers want to buy, how they perceive value. But when you think about AI, right, it's really about complementing that with an outcome-based model that basically monetizes usage of AI. And since we have both, right, we can strike a very nice balance across the 2. And we are already doing this. Evisort, the company that we have acquired for Contract Intelligence, it very naturally accrues value on a per-contract basis. So that's how it's being sold, right?

And basically, what we do is now allowing our customers to use that on Flex Credits as a currency to pay for it. But from a user -- from a customer perspective, it's the most natural way, right? When we say, for instance, employee case management, right, the most natural way to say, okay, well, it's a number of cases that the system is handling or this is the most natural way for me how to size and describe value for it. So it's about balance having both models because both make sense. And I think the reality is, right, I don't think in these doomsday prediction that it's going to be one or the other, right? I think these are very reductionist views of the world. The reality is that usage-based pricing for us will continuously increase with the proliferation of AI. Seat-based model definitely is going to change in certain domain. But even if you're looking at our global market index in Workday, where we are tracking more people coming on the Workday platform or less, we are still seeing that growth at the same point in time, right?

So the narrative is out there, and I think it will apply to segments for sure. But I don't think it's going to be a title shift, black and white picture of tomorrow. I think, actually, it makes us -- puts us in a strong position that we can serve both modality under one commercial model or one contract with our customers.

Yes, yes. Okay. Perfect. Makes sense. You mentioned a few acquisitions -- a few of the acquisitions that happened for you guys. Talk a little bit, like you kind of walked -- part of that -- you were part of like some of the acquisitions, but talk a little bit about like what you acquired, how that fits in? And what's the path forward for you?

Yes, it's really for us about striking the ideal balance between organic and inorganic innovation, right? So both are things that you want to maximize fully, right? So as I said, right, we have 10 organic agents, 50 on the road map. So there's a lot of stuff happening. And like I said, for payroll, for case management, for planning, an incredible amount of number who our customers are getting tremendous value from. But we, of course, we also look in the market based on our rubric.

Our rubric is quite simple. First of all, does it help us to really make AI the new UI? Secondly, does it help us to drive agentic innovation to really automate big process change? Or thirdly, does it allow us to create an open ecosystem around the Workday platform? Now we acquired Sana because it is truly a leading AI experience that we see already. I'm using it every day, right?

I played with it. It's a cool stuff.

It's amazing. And if you look at their engagement numbers, it's amazing how much engagement they drive. Now connecting it to all of Workday, it truly puts us into a position where we have the leading AI experience on top of Workday. And secondly, put us in a position, right, where we have now a way how we can truly redefine the vast majority of someone's Workday by not only connecting Workday to it, but all of the other enterprise systems underneath it.

Secondly, when you think about the best agents, look, when you look at a company like Paradox, right, they have a fantastic recruiting AI system. It's a perfect complement. They are scheduling tens of millions of job interviews already annually. They are super significant. Now when we think about that capability and think about adding it to the recruiting AI that we have now, recruiting platform, it's just such a strong synergy, right? It would be almost foolish for us to say, "Let's just build this ourselves," right? And why would we, right? It's right there. And it's doing exactly what we needed to do, and it's deeply integrated in the Workday system already. So it's like a match made in heaven. And of course, we pursued that.

And on the platform side, what we acquired was 2 very small assets, Flowwise for agent building and Pipedream for connectivity. And here is the bottom line, right? As I said, right, we have hundreds of billions of API calls against our platform. Many of the workflows that CIO drives today around HR and finance are not yet things they could solve with Workday. For instance, when you hire someone, what do you want to do next? You want to send them a batch, you want to provision a notebook, get them hooked up on a mobile plan, send them to security training, typically what we would call employee onboarding and IT management. That is the process triggered out of Workday.

Our customers are waiting for us to give them an AI agent builder, so we can do the AI first and a connectivity suite so they can build that up across the entire enterprise landscape. And the Flowise and Pipedream, they get exactly that. It's unified with our Workday Extend platform and we have already thousands of apps on it, incredible momentum. And I think this is just going to unlock so many more scenarios for us on the AI platform consumption side. And we're going to remain acquisitive, right? I'm going to push hard on organic innovation as well as if we see something that really makes a marked difference in AI as the new UI, agents for work or an open platform ecosystem, those are things that are going to remain relevant for us.

Yes. And then when you -- it was funny when you joined Workday, I kind of initially felt, I think he got the timing off because...

Why would you say that?

Because I remember like Workday spent compared to the other SaaS guys so much more money on research and development. Like you're very, very technology driven, like research, development-driven organization way more than the others. And then a little bit of the pressure came so that he has to come down. So I was like, "Oh, he comes and his budget gets kind of reduced," maybe, I don't know. How do you think about that dynamic about...

All investors as concerned as you are about my well being. I love it.

Yes. No, no. But how do you think about that dynamic about like having the pressure on -- or like having to deliver like margin expansion, while at the same time, there's so much that needs to be done on your side.

Yes. I -- this is not Workday specific for me. And all of the companies I've worked and I always felt there's that idea that there is a trade-off between innovation and margin efficiency. And I think it all comes down to execution excellence. The reality is we have lots of operating leverage across everything, our entire operating expenses. And you just saw this here, right? We pursued aggressive M&A. We delivered on our margin goals, and we invested into organic innovation.

And I think the net of that is that it's the practice of being incredibly disciplined and executing very well on the top and the bottom line of your business because if you do, there is so much leverage that we have across the Workday business that at no point in time, I felt constraint in the ability to invest in innovation or I felt being tapped out on opportunities to free up more capital to redeploy towards innovation areas. So I'm feeling very confident about.

And it is funny. I think it wasn't in Toyota, like way back then, we actually blasted that myth that you can't innovate and be margin efficient at the same point in time. I truly subscribe that you can. And you can expect us continuing that way next path, right? We are aggressively expanding our investments into AI, into our core platform, as I said earlier, in our expansion and we're going to also increase our margin as we guided in the framework that we gave out by just realizing more of our operating leverage.

Yes Okay. Perfect. That's actually a very good closing statement, and we have 2 Germans on stage, so we need to finish on time.

I like it. Awesome.

Great. Thank you. Thanks for joining.

Thank you for having me. Thank you.

Thank you.

My pleasure.

Welcome to Workday's Third Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] I will now hand it over to Justin Furby, Vice President of Investor Relations. Please go ahead.

Thank you operator. Welcome to Workday's Third Quarter Fiscal 2026 Earnings Conference Call. On the call, we have Carl Eschenbach, our CEO; Zane Rowe, our CFO; and Gerrit Kazmaier, our President, Product and Technology. 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 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 fourth quarter fiscal 2026 quiet period begins on January 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 will hand the call over to Carl.

Thank you, Justin, and thank you all for joining us today. I'm pleased to report that Workday delivered solid Q3 results, with 15% subscription revenue growth and 28.5% non-GAAP operating margin. Our teams executed well, and our value proposition is clearly resonating with organizations around the world. I've been on the road a lot lately, meeting with our customers and prospects, and they're all saying the same thing. They see the potential of AI but they're stuck with disconnected systems, bad data and closed platforms. That's where Workday gives them the ultimate advantage by unifying HR and finance on one intelligent platform, we deliver business-ready AI that helps organizations adapt quickly make better decisions and deliver outcomes that truly matter.

Now let's turn to our customer highlights for the quarter. In Q3, we continued to grow across industries, segments and geographies. In HCM, we added new customers, including Sunnybrook Health Sciences Center Fuji Electric and The Magnum Ice Cream company. For financials also performed well, driving strong full suite adoption. In fact, half of all net new global deals in Q3 included both HR and finance, with key wins such as Ardent Health, Kelly Services and specialized. We also expanded with customers such as CommonSpirit Health, Levi Strauss and Novartis. And consistent with recent quarters, our customers' head count levels continue to grow modestly. And our momentum isn't just from large enterprises. Workday GO is helping us drive strong new customer growth and continued ACV momentum in the medium enterprise. Just last week, we announced a major expansion of Workday GO, including global payroll, an expanded partner network and a new AI powered deployment agent that can cut implementation time by up to 25%.

Customers of all sizes and industries tell us that an investment in Workday is an investment in their AI strategy. More than 75% of our core customers are using Workday Illuminate AI, driving well over 1 billion AI actions on the Workday platform this year alone and adoption keeps growing. More than 3/4 of net new deals and 35% of customer expansions included one or more AI products. Among the standouts, Evisort delivered another record quarter and Extend Pro grew net new ACV by more than 50% year-over-year. Altogether, our AI products added more than 1.5 points of ARR growth this quarter. That doesn't include Paradox, which we closed in Q3 and is already off to a strong start. And with the rollout of Flex Credits early next year, we're making it even easier for our customers to adopt our AI and platform innovation. Our customer footprint spans every major industry.

Tech and media and financial services, 2 of our $1 billion industries were standout performers in the quarter. And in Q3, Healthcare became our sixth industry to exceed $1 billion in ARR with strategic wins like Ardent Health, Ascendian and Northeast Georgia Medical Center. One of my favorites this quarter was a major win back at a large U.S. health insurer. They were a long-time Workday customer that moved to a competitor several years ago and quickly regretted it. Now they're back with Workday in choosing our full suite with a 10-year commitment. Our public sector momentum was also strong in Q3. And despite the weeks long government shutdown, engagement across federal agencies remained high. The Department of Energy's successful go live in Q3 is a great example. There the first cabinet level agency to bring their core HR systems into our FedRAMP authorized cloud. We're also nearing completion of the first phase of our work with the DIA. This opens up an important long-term opportunity, both with the agency and across the intelligence community and Department of War.

In SLED, we welcome new customers, including the county of San Luis Obispo, the City of Concord and Cleveland State University, and we expanded with Cornell University, which added both core financials and student. While we had a number of successes across our Fed, SLED and health care teams, we also saw some isolated impacts within institutions that rely heavily on federal grants, primarily in higher ed. However, when they are ready to move forward, our win rates are very strong, and we're excited by the long-term opportunity ahead. Across all of these industries, we're delivering innovation that's changing how work gets done, and the market is taking notice. Gartner just named Workday, a leader in 3 Magic Quadrants, including cloud ERP for service-centric enterprises, cloud HCM suite for 1,000-plus employee enterprises and the first-ever MQ for cloud ERP finance, giving us the highest placement for both ability to execute and completeness of vision.

If you joined us at Workday Rising, you saw how our organic innovation is only accelerating. We introduced new illuminate agents that tackle some of the toughest challenges at work from performance reviews and workforce planning to financial close. These purpose bill agents are powered by our unmatched HR and financial data and context which is what makes them highly accurate, actionable and trusted. And now we have more than 150 customers, including Target, Accenture and Netflix using our agents and agent system of record in early access. At the same time, we're opening up our platform so customers and partners can create their own AI-powered apps and agents with Workday build.

And with Workday Data Cloud, along with our partners, including data bricks, Salesforce, Snowflake and now Google Cloud, customers can unlock even more insight and value from their Workday data. We're also accelerating our innovation through strategic acquisitions. We just closed acquisition of Sana, an AI-native platform with an incredible team. They're going to help us completely reimagine our user experience for the age of AI. Our vision is very simple and straightforward, make Workday the new front door to work by bringing together enterprise knowledge, AI agents and all the HR and finance processes our customers run every day. This will make it easier than ever to find answers, take action and learn right in Workday. Customer feedback on this vision has been absolutely incredible and Sana Learn brings hyper-personalized skill development and AI-generated content creation to Workday Learning. I can't wait for our customers to get their hands on it.

We're not stopping there. Last week, we announced the intent to acquire Pipedream a low-code integration platform for AI agents with more than 3,000 prebuilt connectors to the world's most widely used business applications like Sana, Jira and Slack. When you combine that reach with Workday's trusted data, deep business context and the capabilities from Sana and Flowise, our agents move from surfacing insights to truly getting work done. So hopefully, you're seeing a theme here. While other vendors confuse the market with thousands of overlapping general purpose agents, we're focused on what we do best, and that is building powerful agents for HR and finance that deliver real ROI and measurable business value.

Turning to international. We delivered solid performance across EMEA, APAC and Japan in Q3. We just wrapped up our largest EMEA rising yet. There we announced the new Workday EU sovereign cloud which will let customers run our AI-powered HR and finance solutions entirely within the EU, keeping their data local, secure and fully controlled. Also in Q3, we established a new AI center of excellence in Dublin, which is one of our major R&D hubs, and we announced a new office in Dubai. A few of the great wins we had across EMEA in Q3 included Bayer, ING Bank and Tandem Bank. APAC also had a strong quarter with wins at Genesis Energy DBS Bank and MGM Grand Paradise. And we continue to build on our success in Japan with new and expanded relationships with Pioneer Corporation, Hoshino Resorts and Eisai. Our partners continue to play a critical role in our success. Once again, in Q3, and more than 20% of our net new ACV was sourced from partners, a testament to the strength of our ecosystem.

In Q3, we brought on new Workday Wellness partners, including Chime, Spring Health and Strata to expand the value we deliver to our joint customers. We also expanded our partnership with Microsoft to help joint customers securely manage their people and agents across both of our platforms. We're living in a new era of work powered by AI and Bill on trust, and Workday is made for this moment. The momentum in our business and the energy I'm seeing across our customer community gives me a ton of confidence in what's ahead. A huge thank you to our global work meats, our customers and our partners for helping us deliver another solid quarter. As we head into Q4, we're focused on finishing strong and setting ourselves up for an even more impactful FY '27.

With that, I'll turn it over to Zane.

Thanks, Carl, and thank you to everyone for joining today's call. Our Q3 results were driven by continued progress across several key growth initiatives as we accelerate innovation throughout the platform and bring exciting AI solutions to market.

Turning to results. Subscription revenue in the third quarter was $2.244 billion, up 15%. Professional services revenue was $188 million, resulting in total revenue of $2.432 billion, growth of 13%. U.S. revenue in Q3 totaled $1.825 billion, up 12%. International revenue totaled $607 million, up 13%. 12-month subscription revenue backlog or CRPO, was $8.21 billion at the end of Q3, increasing 17.6%. We closed the Paradox acquisition in the quarter, which added over a one point of CRPO growth and was not included in our backlog guidance. Excluding Paradox, CRPO came in slightly above the high end of our outlook.

Total subscription revenue backlog at the end of the quarter was $25.96 billion, up 17%, and gross revenue retention rates remained healthy at 97%. Non-GAAP operating income for the third quarter was $692 million, representing a non-GAAP operating margin of 28.5%. We remain focused on making targeted investments to support long-term growth. This includes increasing our AI talent, both organically and inorganically, entering new markets such as the Middle East and India and vesting in the medium enterprise. While we make these investments, we're also continue to drive efficiencies as we scale the business globally.

Q3 operating cash flow was $588 million, growth of 45%, in line with our expectations. As we discussed at our recent financial Analyst Day, we intend to accelerate the pace of our buyback. We made good progress in Q3, repurchasing $803 million of our shares during the quarter and $1.4 billion year-to-date. We plan to repurchase an additional $3.6 billion through the end of FY '27, leading to $5 billion in total repurchases. As of October 31, we had $4.4 billion remaining under our current authorization. We ended the quarter with $6.8 billion in cash and marketable securities. Our head count as of October 31 stood at 20,588 workmates around the globe, including roughly 600 workmates from the Paradox acquisition.

Now turning to guidance. For Q4, we expect subscription revenue of $2.355 billion, growth of 15%, which includes revenue from the Sana acquisition and the expected delivery on the first phase of the DIA contract. We expect FY '26 subscription revenue of $8.828 billion, growth of 14%. Our Q4 subscription revenue guidance is consistent with our view from last quarter, excluding the expected contribution from Sana. While we did see some impact in Fed and SLED tied to fiscal funding, this was offset by strong execution across the portfolio, including the Paradox acquisition. We expect CRPO to increase between 15% and 16% in Q4. This includes approximately 0.25 point of expected growth from the Sana acquisition or about $20 million. And over 1 point of impact from tenants, which we begin to lap in Q1.

For Q4, we expect professional services revenue of $168 million. And for the full year, we expect it to be $715 million. We are executing well against our efficiency goals and expect a non-GAAP operating margin of at least 28.5% for Q4 and approximately 29% for the full year. We're optimistic about the AI-driven growth investments we are making and have ample capacity to continue to invest while we drive further efficiencies, consistent with the framework from our Financial Analyst Day. We expect GAAP operating margins to be approximately 19 and 21 points lower than our Q4 and full year FY '26 non-GAAP operating margins, respectively. The FY '26 non-GAAP tax rate is expected to be 19%. We are increasing our FY '26 operating cash flow outlook to $2.90 billion, and we continue to expect capital expenditures of approximately $200 million, resulting in free cash flow of $2.70 billion, growth of 23%.

Looking beyond this year, as we shared in our recent financial Analyst Day, we are targeting a subscription revenue CAGR of 12% to 15% through FY '28, along with continued margin expansion on both a GAAP and non-GAAP basis. For FY '27, specifically, we continue to expect subscription revenue growth of approximately 13%, also consistent with the view we shared in September at our Analyst Day. We are confident in this growth rate based on the momentum we see across the business as reflected in our Q3 performance as well as our Q4 CRPO guidance. We are optimistic about our growth initiatives and our recent acquisitions and look forward to updating you with formal guidance for FY '27 next quarter. We currently expect our Q1 FY '27 subscription revenue growth to be approximately 14% year-over-year and flat sequentially, reflecting typical seasonality from Q4 as well as the expected revenue from DIA in Q4, which doesn't extend into Q1.

We believe that the completion of this first phase sets us up for a larger opportunity with the DIA and the broader defense and intelligence communities. We remain on track and confident in our ability to achieve the financial framework we laid out at our Analyst Day back in September, including subscription revenue growth, non-GAAP margins and stock-based compensation. In closing, I'd like to thank our workmates, customers and partners around the globe that help deliver this quarter's results. We enter Q4 well positioned to close the year with strength and remain focused on our long-term opportunity of driving durable growth while expanding operating margins.

With that, I'll turn it back over to the operator to begin Q&A.

[Operator Instructions] Our first question is from Mark Murphy with JPMorgan.

And I'll add my congrats on a very nice performance. Carl, we're hearing some feedback that the venture-backed VIBE coating startups have started seeing a slowdown or at least as some of them have or elevated churn. And it's happening because companies are finding it's pretty difficult to operationalize them and put them into production use I'm wondering if you're seeing any signs of some of that novelty wearing off for this third-party VIBE coating products. And if so, do you see any accelerated adoption of Workday Extend where presumably, they'd have all the security and all the other infrastructure already in place?

Yes. Mark, thanks for the question. And before I answer, I just wanted to say the following. Q3, Mark, was another solid quarter for Workday reflecting in the strength. And as I always like to say, the diversity and durability of our business. Our customers are seeing clear ROI from Workday, and they're engaging more than ever, and we had more than 1 billion AI actions year-to-date and it's only growing faster and faster. We feel really good about the momentum of the business as we head into Q4 and into FY '27. And I'm truly grateful for all the work, both our partners and our workmates have done to get us to this point in the year. It's been a really good year for us so far.

And Mark, I really appreciate your question. It's similar to what Kash asked last quarter when you talked about all of this potential disruption coming from these AI start-ups to more mature and larger SaaS companies like Workday. And at the time, I said I thought it was a completely overblown narrative, and I thought it was flat out wrong. And quite frankly, fast forwarding 90 days, I think that's playing out exactly like we thought it would. When I spend time with CXOs around the world that both customers and prospects they talk about 3 things that's hindering or slowing down enterprise adoption of AI. It is data quality, it's data integrity and its security. And by the way, none of these are an issue for Workday. As you know, we have one of the largest and cleanest and most highly curated data sets for HR and finance in the industry. No questions asked.

And we have the security compliance and controls in place because today, we onboard a large portion of the world's workforce, and we can apply those same process and procedures to your workforce in the future, both human and digital. And when we spend time with our customers, while maybe they're enamored with these point solutions, they're ultimately coming back to the vendors they trust, who have been in their infrastructure for a long time, had that data set and drives real business outcomes. The narrative we've been hearing in the last couple of quarters is changing, and it's coming back to those who are highly penetrated in the enterprise already providing value and are deeply trusted by our customers. So I agree with what you're seeing, we're seeing it. We're hearing it and it's reflected in customers continuing to be on Workday for their future.

Our next question is from Kirk Materne with Evercore ISI.

Congrats on the solid quarter. Carl, the other narrative that often comes up these days is clients see a big customer laying off people. And I know you guys commented that your customers are growing head count slowly right now. What are the mechanisms that you guys have if a customer were to have to laugh people to be able to keep growing ACV with them? Cross-sell, upsell, are there discounts that go away? I just -- can you just explain that a little bit? Because I think people believe there's sort of a linear relationship between a number on a per seat basis. And I realize it's probably a little bit more complicated that especially at the high end of your business.

Thanks, Kirk. I appreciate the question. And yes, in my prepared remarks, I once again want to articulate and share that on a net basis, the head count of our customer base is up year-over-year. So while there are some layoffs out there, we're still growing head count across our customer base. And what we're doing, use edit. We are selling back into our base, and we're focused not on just seats, but actually revenue per seat. And what we have now more than ever is we have a whole bunch of new solutions, both organically innovative solutions and solutions that we got through acquisition that we're selling back into our customer base, whether it's ever sort it's hired score, now it's Sun and now it's Paradox, now it's Flowwise. We have so much more to sell back into our customer base and that drives strength for us and offset any potential impact we might see from head count reductions in our customers. .

Also, our customers do true-ups with us both annually on their headcount. And we do have floors and minimums that the customer can bring their head count down and that gives us some protection. But overall, we're still seeing growth in head count year-over-year. And we're selling just a lot more back into our customer base because they're betting on our platform, and they're using us as a consolidation platform across all of their point solutions to drive a better total cost of ownership.

Kirk, I'd just add, if you look at the aggregate, it is a net positive, but it's not a significant amount of our growth. So there are lots of elements, as Carl alluded to, that go into that growth number, and this is just one of them.

Our next question is from Keith is with Morgan Stanley.

Congratulations on the solid quarter. I wanted to ask about some of the early success you guys are seeing with your AI solutions. Carl, I think on the call, you said 1.5 points of growth in ARR, all rig coming from the AI solutions. Can you give us any rules of thumb that you're starting to see that could help us maybe model this out a little bit in terms of what type of uplift do you see on a typical deal or for a typical customer when they're buying the AI solutions? Or how broad is this? Like what percentage of your customer base has already bought into the solutions and how far do we have to go? Just something to help us extrapolate that early success into what this might look like in a year from now we are 2 years from now?

Yes. Thanks for the question, Keith. And we gave some of the statistics at FAD just 90 days ago. That's why we called out again this quarter. our AI solutions are adding 1.5 points of growth to our ARR, and we're also trying to give you some color specifically on the strength of our AI solution. So for example, 75% of our new sales included in AI solution, 35% of our sales back to our customer base includes AI. So we're seeing really good traction, and we're seeing really good early indications of demand from some of our acquired companies like Sana and Paradox. So overall, our AI momentum is as strong if not stronger than ever, and it's being reflected in how our customers are buying our product, both at time of new sales as well as our ability to sell back into our customer base. So I couldn't be more excited about where we're at. Things like Evisort had a record quarter. We're seeing an acceleration in growth in Evisort. In Extend Pro, we call that out. It once again grew 50% year-over-year. And then when we sell back into our customers, for example, when we sell something like a higher score recruiting agent, it's a significant uptick over what we would sell our standard recruiting SKU for.

Got it. Any sense on how much of an uplift it is versus the standard?

Yes. On, for example, on hired score, for every dollar of recruiting we sell, we sell about $2.50 of hired score on top of it.

Our next question is from Michael Turrin with Wells Fargo.

I appreciate you asking -- I appreciate you taking the question and I got on the results as well. I guess just a 2-parter for me. I guess just -- I wanted to zoom in on some of the early feedback around Paradox and Sana. Just what you're hearing from customers coming out of rising? And if that can help the Workday business model continued to evolve towards just some of the questions around AI and agent capabilities. that you're offering alongside the Flex Credits program. And then, Zane, maybe just coming out of rising an update on how you're thinking about the trade-offs between growth and margin given some of the recent additions in the product portfolio and some of that feedback there as well.

Yes. So maybe I'll start, and then I'll kick it over to both Gerrit and Zane specifically to follow up on the questions. So first, as you know, we've closed the Paradox acquisition in October. And within 2 weeks, we were already off and selling it and had a small impact in the quarter, a few million dollars over a 2-week period just by our sales force going out and selling that into the market. I will tell you, coming out of rising EMEA. The demand and excitement for Paradox and being a Workday product and selling on our paper was very, very strong.

On Sana, similar feedback from our customers. They see this as an extremely powerful AI solution across multiple dimensions, starting with learning. We can now sell their AI learning platform back into and on top of our 4,000 customers that have Workday learning today. And then obviously, we're going to refresh our UI/UX leveraging the Sana platform going forward. So the early indications, specifically on these 2 recent acquired companies is as strong as anything we've seen when we acquire a company? And maybe, Gerrit, you can talk specifically about Sana because that one is off the charts right now from a demand and from an excitement from our customers.

Yes. And as Carl has said, we are seeing tremendous interest around the 3 main vectors of Sana, one, as Carl has said, the leading AI learning platform. So very natural for us to bring this to our customers, of which we have a very scaled base of Workday Learning customers, which are using an and are excited about Sana as a learning AI experience platform on top of that, very natural, very immediate interest. And secondly, what Carl has mentioned, Sana is also now being developed into the leading UI experience for Workday. So you can think about a complete conversational experience around the Workday platform. Workday being the innovation leader and our customers are tremendously excited about the massive simplification that brings to them. And if you imagine every employee having access to HR and finance AI at scale. What that means in cost reduction.

On the other side, you can see what drives that interest. And thirdly, Sana goes much more beyond that. And I would recommend you look at the big picture with also Pipedream, adding 3,000 connectors to the Sana platform, which now allows our customers to take Sana knowledge management actions and Workday and the actions that Pipedream adds to really drive enterprise-wide AI transformation with that model. And we see very strong customer interest across all of those 3 vectors.

Michael, this is Zane. I'll just add. As you can hear between Carl and Gerrit, we're thrilled with the early success that we're seeing from both Paradox and Sana. So as it relates to our financial framework, I'd say no change at all. We continue to invest in AI, both organically and inorganically and are pleased with the investments we're making there and at the same time, recognizing the efficiencies and scale that we're driving across the business. So we're still driving that within the framework and very pleased with the progress we're making there.

Our next question is from Brent Thill with Jefferies.

Just with Paradox. I know that SAP and other ERP install bases are using that. Is your vision that you can sell this anywhere that you're going to be agnostic to whatever platform is running in the back? How are you thinking about that from a go-to-market?

Yes. Thanks, Brent. We are super excited about the go-to-market capabilities we have around Paradox. Number one, we can sell it back into our customers, right, as an attachment to our already strong recruiting platform including something like hired score. Now we have Paradox, who we have the industry-leading AI recruiting platform out there today. At the same time, this is now a new product that is a land-only product for our sales force who can now go and sell Paradox not only on top of Workday or back into our installed base, but also into our competitors' environment. In fact, a significant portion of their existing customers aren't Workday today. And we're going to continue to leverage that go-to-market model, so it gives us another land product without someone having to decide completely on Workday, HR or finance, they can go just with Paradox. And I've seen that come up multiple times just in the first 60 days of us having this great asset.

Okay. Zane, real quick, just on CRPO, is there anything to consider in the guide that you're maybe highlighting is a headwind, tailwind? Any change to how you're thinking about that in terms of how we should think about modeling it?

No. I mean I think it's fairly clean, Brent. I mean obviously, we feel good about what we saw in the third quarter. I mentioned that Paradox was over 1 point of that. we feel very confident. I mean, obviously, as always, CRPO, the number of factors, both the net new business as well as renewal activity and just the volume that you get in any particular quarter. So we think we've got great strength heading into the fourth quarter. We've got terrific coverage on our expected subscription growth heading into next year, which I alluded to as you think about even between the fourth quarter and the first quarter, so no, we feel good about the CRPO growth as well as the coverage. So net-net, we feel good even on a sequential basis. I did call out how much of that was signed as well, which is a very small impact on revenue for the fourth quarter.

Our next question is from Karl Keirstead with UBS.

Maybe we can just continue that conversation. So if we try to take your 4Q CRPO 15 to 16 and normalize it by deducting maybe some of the onetime stuff. So just so I've got the thinking right, maybe 1 point year-over-year from the tenant contracts, maybe 1 point year-over-year from Paradox and 1/4 from Sana. So maybe 2.25 points from more unusual stuff to back out to get to more normalized. Is that roughly the right math?

Yes, Karl, I mean, there are lots of things you can sort of move around within that COP growth. I mean I think you've got it sort of generally in line. But again, there are other variables within the timing on renewal activity and things like that. One other call out I'll make if you're trying to understand sort of those components between the organic and the inorganic component in the fourth quarter is, I'd say, that both Sana and Paradox contribute roughly 1.5 points to our Q4 subscription revenue growth. So just to help you contextualize that. I mean, as I mentioned, in my prepared remarks, absent Sana, we believe our Q4 was consistent with our view just a quarter ago. So we feel great about the activity there. But that helps you understand sort of the components of Q4 and the CRC RPO growth heading into the quarter and into next year.

Okay. And maybe just in the spirit of a follow-up on 4Q, this time on subreps, it sounds like it's embedding a view of reaching those DIA go-live milestones. I'm assuming that given that there's just 2 months left in the fiscal year, you and Carl are feeling pretty good about that. Obviously, the shutdown, I suspect didn't help, but can you just maybe express confidence level in hitting those DIA go-lives?

Yes, it's a great call out. We're highly confident. Just to give you a sense of size on that one, it's a roughly $15 million in the fourth quarter. We feel great about the progress we've been making all year. We're tracking it very closely, and it's embedded in our forecast for the fourth quarter.

Yes. Yes, Karl, we're tracking really well towards the contract requirements that give us that $15 million in Q4, and we're already talking to them about an expansion of taking that platform to the next level, which opens up a whole bunch of different opportunities across a broader Department of Defense or Department of War. We're really excited about the momentum we're seeing with the federal government in this DIA project or the first phase of it is really openings up to a great opportunity going forward. And as I said, we're already negotiating a follow-on to take that platform to the next level with further security requirements they're asking us for.

Our next question is from Brad Sills with Bank of America.

It's clear from all the announcements and what we saw out of the conference was that you're really going for with AI, the Sana acquisition, Paradox, more recently, Pipedream, that partnership with Microsoft I mean, how should we read that? Should we think of this as kind of a year where you're building the foundation for AI and agents and that 1.5% points of growth coming from AI goes materially higher, perhaps in fiscal '21? Or is this more of a '27 event just given where you are with all the great innovation that you're kind of bringing together and the time it might take for that to kind of sink into the sales cycle and pipelines?

Yes. Thanks for the question, Brad. I'm going to turn it over to Gerrit to give some color, and then I'll talk about in the context of growth.

Yes. So I think, first of all, fast this is a continuation. As Carl has said, we have 1.4 billion AI actions already in production in the Workday platform today. So we have been doing this at Workday extremely successfully. And now we are just taking the next steps and leading AI technology to help our customers become truly driven enterprises. And specifically, the vectors of our innovation is with Paradox and in a bigger picture frontline, fully bringing AI automation to the entire hiring journey.

If you put that together with our recruiting agent, Paradox as a candidate engagement agent in connection with each other, it basically builds the AI-driven talent suite. What they're doing with Sana is we're acquiring leading knowledge management in a leading agent orchestrator to be the AI experience layer across Workday. So very important, when we think about adoption that our conviction is, AI is going to be the new UI and that all of the legacy vendors who are not having leading experiences are going to get relocated through that.

And thirdly, what you mentioned about Pipedream, right? Our ambition and our customers' requirements are actually taking us much broader than Workday is in finance and HR and really looking for enterprise-wide orchestration. We think about it as an enterprise AI fabric that we are creating through Pipedream with Sana, as the experience layer on top, built on top of Workday's business process platform.

Yes, Brad, the only color I'd add there is, clearly, we're going all in on AI, and it's for the following reason. We're uniquely positioned versus everyone else out there today. We have the data right? We have the context of the data, and we're built in the business workflow. And our customers are saying, time again, they no longer want to even evaluate point AI solutions. They want to do it on the back of a trusted platform. Therefore, we go when we get something like Paradox, we get Pipedream, we get Sana, last year, Evisort. Before that, we get HiredScore. And it's not just our customers who are saying they believe in our platform, it's partners. To your point, we're partnering with Microsoft. So as they start to build agents, they see the most secure, reliable and trusted way to onboard their agents is through Workday in our agent system of record because no one has more experience in onboarding employees Workday and now we're taking that to the digital worker as well.

Our next question is from Brad Zelnick with Deutsche Bank.

Great. Brad, following Brad. Congrats guys on a good quarter and thanks for taking the question. My question is about Workday GO, where we continue to hear really good things, particularly in MA and emerging enterprise. So it was interesting to see it soon to be more broadly available. Perhaps looking at AI from a different angle, is there anything different Workday needs to deliver from an AI product perspective for downmarket customer versus large enterprise?

Yes. Let me have Gerrit take that, and then I'll talk more about Workday GO and the big announcement we had a rising EMEA last week.

Yes. And specifically, the AI side, Brad, there are 2 things to consider, right? One is that also medium-sized companies want to benefit from the best AI. So of course, they're going to get the full power of birthdays, AI agents also delivered in Workday GO. That's the first part, very important. And secondly, we are specifically innovating around Workday GO with specific models. Think about the whole configuration administration, management of the system, set up complexity. We are working and announced a new deployment agent, which already is slashing deployment time and complexity down by a significant degree. It's a key investment theme for us. and just connecting it back to the broader partner network, specifically with Workday GO to new managed services like payroll, we are working on payroll AI that is equally being connected into our ASO with our partners that are providing these services to also drive payroll automation, payroll simplification, benefits management across the Workday go global partner network, and that's specifically being created. All from that angle to make the mid-market customer run at the scale of birthday, but with unmatched simplicity.

Yes. And Brad, we announced Workday GO, as I call it, 2.0 last week at EMEA rising. And I will tell you, to Gerrit's point, was unbelievable with 3 key components to it. We now offer global payroll, if a customer wants it, by the way, if they don't want to use a managed global payroll service from Workday, they can bring their own payroll. We have a partner network that's going to help us take Workday GO to the market around the world and resell it on our behalf, and then we have that AI deployment agent. Also included in Workday GO is a payroll agent to help people simplify how they're managing their payroll activity across the enterprise. Workday GO, I will tell you, is on fire. People are excited about it. and people are leaning into Workday down market as we aggressively go attack that market segment around the world.

Our next question is from Alex Zukin with Wolfe Research.

Maybe just a quick 2-parter. Carl, first for you, when you think about the commentary for next year, it's great to hear about the kind of reiterating the confidence and the growth rate of 13%. But since Analyst Day, is there anything that maybe you've seen that gives you even more confidence when you're talking with customers around things like budgets or their demand environments as we head into 2026 or propensity allocate more from the AI budget specifically to Workday that you can kind of comment on that gives you that confidence?

Yes. Thanks, Alex, for the question. As Zane said in his prepared remarks, we feel really good about our midterm guide that we laid out for next year. And we think the approximate 13% guide on subscription revenue next year is solid. That being said, we feel really good about all the acquired companies and the momentum we're seeing early on with them as well as the organic innovation that we have coming out of our super strong product and technology organization. We haven't even talked about it, but we're also entering new markets like we've done in the last couple of years in the federal market here in the U.S. taking that to the public sector around the world.

We announced entrance into the Middle East. And next week, we have a strong team led by Rob, our President of Customer Operations, going and launching our efforts in India. So we're really excited about all the growth vectors that we have going into next year as well as all the momentum we have around our AI solutions, both organic solutions and these inorganic solutions that we're getting through M&A.

Perfect. And then maybe just, Zane, as a follow-up, if we think about next year's guide that 13% and the acquisitions that you've made over the last couple of months. A, kind of how much do we think kind of comes from inorganic there? And then the pace of M&A, are we kind of through -- like should we think about this pace continuing at kind of current course and speed of these exciting technology tuck-ins? Or do you need to digest the ones that you've made here over the course of the next few weeks, months, quarters?

Sure. Yes. Look, I'll start with -- as we think about the acquired revenue, I mean, first off, as you know and as you can see here, when we acquire companies, they quickly become part of the broader portfolio. if you look at the acquired revenue, I'd say it probably contributes approximately one point into next year. But as you can tell, there's a lot more that we're doing around it and the whole portfolio benefits. So it's more significant synergy, if you want to think about it more broadly. But on the acquired revenue, I'd call it sort of roughly 1 point heading into next year.

And then we have a high bar on M&A. And as we've talked about all along. I mean, we've kept consistent and think about the technology, the culture the people and how they integrate either -- whether it's through adjacencies or tuck-ins for different reasons. So I'd say no change in how we think about that and no change in how we incorporate that inorganic growth.

Our next question is from Raimo Lenschow with Barclays.

International is a big kind of driver for you. And you mentioned a little bit of that, but like if I look at the growth rate, there's not that much difference between U.S. and [indiscernible], can you talk a little bit what you saw in the quarter? And maybe there was more on the pipeline build, et cetera.

Yes. Thanks, Raimo. I hope you're well. So yes, we were really pleased with our international performance. And when I say international performance, it's across the 3 major regions that we describe as international. Europe, APAC in Japan. All 3 of those markets had a really good quarter for us. We've historically been talking about our performance in Europe when we talked about our international results. But this quarter, we're talking about it in the context of Europe, APAC and Japan because all 3 delivered solid results in the quarter.

I think that's driven by 2 things. Number one, on the product side, we continue to internationalize and localize our product to serve all of these markets. Number two, we're leveraging a strong network of partners out there around the world to enter these markets. And the third is we continue to attract great talent to lead our Workday efforts around the world. The international market had great results and we expect that momentum to continue as we see customers more and more lean into Workday for their platform of choice across HR and finance.

Our last question is from Kash Rangan with Goldman Sachs.

As is my last Workday earnings call is also hitting, so congrats on the Q3 results, Carl and Zane. I wonder it's fair that you guys are seeing quite a bit of AI momentum. And I agree with you AI disruption risk seems to be little overstated. But I think we can look at the numbers and say that AI, there is some tangible contribution your backlog, 12-month backlog growth rate, although it did include that [indiscernible] did do a little better as these acquisitions the anniversary of they are growing very nicely, that should lead to an acceleration of the organic growth as well. But that effect conceptually, you put your thinking on top, you're thinking hats on -- sorry, down of the plate is calculated. If you were to rebuild a company on an AI native stock in HCM company AI native stack today, what would that functionality be able to do? That is what would that stack be able to do that could be disruptive that you can do as a Workday customer with the tools that Workday is providing both organically or through these combinations of acquisition?

Kash, thanks for the question. And let me say thank you. Going all the way back to our founders, David and Neil and all of our workmates over the last 20 years. We just want to thank you for your continued coverage of Workday. I know this is your last call with us. And I just want to say thank you. And Neil said hello, and he also wanted to send this regard as well as do I and everyone else. You've been a great analyst for us, and we really appreciate your support over the years. And we all hope you enjoy your next phase of life, which you're telling us is retirement. I hope that's the case, and you really do go out and spend some quality time with your amazing wife and family. With that, I'll hand it over to my friend, Gerrit, to talk about how he would build a new HCM or finance platform around AI going forward.

Kash, thank you for ending on such a beautiful question. So let's just look at the core principles of building AI systems at scale, right? And let's just look at what it really is. The first thing that you need is a vast set of data, which basically describes the domain, the domain of finance, the domain of HR and you need a vast set of data that basically codifies how their data is being used, right? That is ingredient number one. If you look at AI at scale, it's about learning and using parents. So you need to have that global database.

Secondly, you need to have strong semantics and clarity about what data we present. So you need to have both a data model that defines. What data element represents what entity in the business? What do they relate on? And what are the rules for these business entities because data is not created equal they have integrity, they have meaning, they have purpose. And you need to have a business process system, which basically tells you how to activate this data in a way so it can drive towards a business outcome. Even more so, you need to have clarity on what that business outcome is. Those are the basics of building a successful solution.

Now take a look at Workday. We are the only scaled SaaS and [indiscernible] in the cloud with a consolidated data set. Our 50 million to 75 million users that we have contribute to a uniform data model, which is completely clean. We have all of the process data in a pharma business process description codifying 70,000 core business process architypes which are instantiated across all of our customers and thousands of variations. We have ample data of usage and how these processes are being used in the business and most importantly, the domain knowledge to specify what are the target outcomes to drive. So if you were to build a system that is built for enterprise AI at scale, it would look like Workday. And what we are doing right now specifically is that we're opening up our core and basically integrate reasoning models and AI systems to automate these processes [indiscernible] or Sana on top to lead the experience AI innovation on top of that. And if you look at all of that in aggregate, it truly is the AI stack for the enterprise of the future.

Thank you. This concludes our question-and-answer session. Ladies and gentlemen, thank you for your participation on today's conference. I'll now turn it over to Mr. Eschenbach for final comments.

Thank you, operator, and thank you, again, for all of you who joined us today. Thank you for those who will continue to look into Workday and watch our results and provide guidance and input to everyone out there in the market. For those celebrating, I want to wish all of you a Happy Thanksgiving. Close by once again expressing my depreciation to all of our work made to our customers and partners for their continued commitment to Workday. We'll see you all next quarter, if not before. And again, for those celebrating Happy Thanksgiving.

This concludes conference. You may disconnect your lines at this time. Thank you again for your participation.

Please welcome Investor Relations Vice President, Justin Furby.

Hello. Thank you everybody. Welcome to Workday Rising. Welcome to Financial Analyst Day. This is our biggest conference ever. I don't know what the growth is, but I think it's pretty significant. I know this is our biggest Analyst Day event, which is good because this is by far the largest room that we've ever had.

So thank you for not making it look too ridiculous and for showing up. We are glad that you made the trip out in all seriousness. This is an important event for us. We try to make it as open as we can for you all. I hope you took on the innovation keynote this morning, saw a lot of the organic and some of the inorganic innovation that we're delivering. I hope you spent some time with customers and prospects, and I hope you didn't spend too much time with the employees because try to keep them out of trouble. And for those of you that are not here that are on the webcast, thank you as well for listening in. We hope to pack a lot in over the course of the next couple of hours.

You're going to hear from several members of our leadership team, including Carl, Zane, Rob, Gerrit, Peter and Aashna on the innovation front. We're going to walk through strategy, we'll talk about a lot of the innovation that we're delivering, which hopefully, you were able to see this morning. We'll share some of that today as well.

Rob is going to talk about how we're going to market as we think about the next wave of growth, and Zane and Carl will come on and talk about how that all comes together in terms of a durable financial model that drives both growth and continued margin progression. We will then wrap with Q&A.

So we should have plenty of time to get as many questions here in the room as possible. And then for those of you that are here in the room, at the end of the event, we will have a networking event outside these doors with many of our leadership team as well.

So before I bring Carl on, I do have to go through the obligatory safe harbor statement, which I won't read in full, but in summary, some of the matters that we'll be discussing today do include forward-looking statements, which are subject to risks, uncertainties, assumptions and actual results that may differ. Further information on risks that could affect our results are included in our most recent filings with the SEC, which are available on our IR web page. So with all that out of the way, it is my pleasure to bring on stage our fearless leader, our CEO, Carl Eschenbach. Welcome. Welcome.

Good afternoon, everyone. How's everyone doing? All right. Let's -- can we tweak that, I mean when you say that at the conference where you have 30,000 people are like, yes, how are you doing?

I think they were -- I think they were really inspired by my opening, Carl. I think that's what it was.

I'd like you reading the disclaimer. I think it's probably because -- and I was thinking about this walking over here this afternoon, from the hotel. I think in the last month, we've been together a lot of us now 3x earnings less than a month ago, some of you are with us at Kash's big Goldman Sachs conference last week, and here we are again today. So it's exciting to see all of you, and thanks for those joining us online.

Great. So we're going to do it a little different. We'll do a little more informal. We're going to hit some of the kind of big picture areas that we get a lot of questions around. But maybe before we do that, Carl, just kick us off. It's been -- you're coming up on year 3. I know I've been here for about 6 years. So I've seen sort of 3 years before in the 3 years since you've come on. And a lot has changed, right? I think as a company, we're moving a lot faster. A lot of new talent has come into the company, our growth profile and where we drive growth has really evolved in a lot of ways. So maybe share a few top 2 or 3 things just observations over the journey so far.

Yes. Listen, Justin. It's been an incredible 3 years. It will be 3 years in November, December. And I'm so grateful that my Exec Chair and Co-Founder, Aneel kept nagging at me if I'm honest, for many years to say, come and join me on this journey and move from the Board into a role in serving the company and operating capacity. And I couldn't be more grateful and thankful for him not stopping that pursuit. It's been an incredible experience, and I couldn't be prouder if I'm honest, Justin, of what you and all of the workmates around the world have done over the last 3 years. I remember doing a couple of calls with a lot of you when I first joined.

And one of the things I immediately started to talk about was what I described as the diversity and durability of the business. And I think it's something today, if you look at our business today, we don't have a single, if you will, industry, we don't have a single market segment, we don't have a single geography in the world that is our anchor tenant for growth. We truly serve all market segments now. We're really pushing international. We've leaned heavily into, if you will, going into industries and verticals, we've leaned into the federal government. You'll hear more about that today, and we recognize that we have a really good asset in our financials platform.

And with it pulls through a full suite approach to how we sell into the market. And I think that's all really started to materialize over the last 3 years. And at the conference this week, and you'll hear Gerrit and the amazing team we have on the product and technology side and Aashna and Peter come up here and talk about, we have big aspirations going forward. We want to be and we aspire to be the #1 enterprise AI platform to manage your people, your money and your agents.

And we think we're uniquely positioned to do that. And I can't wait to share more with the folks here. For those of you who joined us earlier this morning, you saw the innovation engine is alive and well here at Workday, probably bigger, bolder and more aggressive than it's ever been before.

And the last thing I'd say is talent. Yes, we have some incredible talented people at Workday that have been here a very long time, and we've been able to, I call us sometimes a talent magnet, been able to recruit and ask people to join us on this journey. And as we've done that, the last thing I'd say is an observation is we've accelerated everything we're doing, whether it's how we build products, how we go to market, how we partner, how we engage with our customers. We're getting great talent. And one of the greatest business strategies I'd like to talk about is speed, and we're moving faster than ever even at scale. That's some, I guess, initial observations.

Yes, that's great. So you kind of teed this up already, and I think a lot of folks hopefully joined the keynote this morning, but maybe share some of that -- we had a lot of announcements that obviously came out today. Maybe share a few of the sort of top of mind that you think are really important as we think about where we're going.

Yes. So you see here on this slide, and again, I don't want to steal the thunder of the amazing people coming up here next. But we really leaned in to this year's innovation keynote. And I think displayed probably the most bold bodacious vision we've ever outlined for technology innovation. We clearly are bringing to market the most powerful agents that serve our markets in finance, in HR and in industries we actually announced some industry agents today as well as planning agents. And what I hope everyone recognize is, in the industry right now, it's not about the quantity of agents you're bringing to market. It's the quality of agents and they have to drive real business value. They have to drive real outcomes. And that's what we displayed today. We displayed the ones we announced last year that are readily available, and then we talked about a whole bunch of new ones we're bringing to market as well. And we talked about the expansion of our agent system of record today.

Next, we also want to make sure no customer is left behind in this transition with AI. And what I mean by that is we are doubling down our investment on our core products because a lot of times these days, everyone go student body right and only talks about AI. When in fact, we have 11,000 customers stronger using our core products, leveraging it more than ever and asking us more. They run their business on Workday. They pay their employees on Workday, they provide benefits, and we need to continue to lean into that going forward to make sure they're getting the best value they can out of the existing platform.

And then last, like we're blowing up the aperture on the Workday platform. And today was an amazing example of announcements, where the largest companies -- most innovative companies in the world are coming together with us to be part of the Workday platform. Whether it was today, we saw Satya on stage with us in Microsoft, right? We saw Microsoft come out and talk about engaging and building an agent on top of Workday. We saw Snowflake be part of our data cloud that we announced, same with Salesforce, same with Databricks. And I can go on and on. So the platform is resonating. And today was just a glimpse into what we think is possible in the future.

And then last, you probably all saw by this point, we made it very strategic and what could potentially be one of the most impactful acquisitions we've made in the history of Workday with Sana Labs. Sana Labs is a way for you to enter Workday, to start Workday and be in Workday for your entire work day. This is the new front door. The new UI for Workday is AI. And Sana Labs is going to give us that, and it's going to be super powerful, and we'll hear more about that shortly.

Yes, that's great. Maybe just staying, Carl, on the platform. I know that's been a big part of kind of your sort of vision on where you want to take the company. Talk a little bit about what that means as we continue down this path? I know we're going to talk about the ecosystem. But just what does it mean for Workday in terms of our revenue, just the way we engage customers and partners?

Yes. Listen, I grew up, most of my career before coming to Workday, 3 years ago, in companies that were truly platform companies, and I love platform companies in enterprise software, I think the holy grail is to become a platform company. It means people are building in through and on top of you. And that's what we want to become. At the same time, being a great applications company. There are very few companies in our industry who can say they have both the best applications and they're a platform company, and we're 1 of them. And it just continues to proliferate from here earlier this -- I guess, a couple of months ago, we announced Flowise. Now we're allowing people in a low-code way in an open source platform to build agents on top of Workday.

The economy just continues to grow around us because we are a platform, just look at our partner ecosystem, Justin. A year ago, if we were sitting here, we'd be talking about 600 to 650 partners in our ecosystem. Today, we have over 1,300. We have new partnerships we're announcing on a regular basis I'll speak about, and as we grow our partner ecosystem, our TAM starts to expand as well and create value, value for Workday, value for our partners and value for our customers.

Yes. The TAM is an area where I think most of the folks in this room know, look as a large -- ERP as a large market, but maybe sort of dimensionalize it a little bit more in terms of how you think about attacking it? What are kind of the areas that -- where we're focused around?

Yes. So this first slide I'm going to share with you is something we update every year here at Financial Analyst Day. Our TAM, last year, we sat here, we showed you a number of about $160 billion, so it's growing slightly over 10% on an annualized basis. So in our core platform of products that we offer, our TAM has expanded this year to be about $188 billion across HCM, across financials, across planning and all the associated products that we offer in the market, and we have product market fit. Now what we're doing to really attack this, Rob will spend a lot more on this, is we're going at it both at the product side and on the go-to-market side.

On the go-to-market side, we're leaning heavily into the medium enterprise. We're leaning into U.S. Federal. I just walked over from a U.S. federal forum, a Summit they're having across the street. We're focusing internationally on how to build more aggressively our go-to-market strategy and leverage partners. We're going vertical and industries. And we're also leaning heavily -- more heavily than ever into serving frontline workers that are out there like the acquisition, for example, of Paradox. So this is an incredible opportunity for us, but it's a very small opportunity when you think about what we have in the future because the next one is to expand that ecosystem.

And as we like to talk about it, we talk about an ecosystem that's becoming an economy. Now as I said, we have 1,300 partners, 2,500 of them are here this week at Rising, record number of partners here in last year -- or last quarter, it drove 20% of our net new ACV, something we disclosed to you at our Q2 earnings call. And we're creating new partnerships. Not one, maybe one out of all of these, and it's just a smither of them was on this slide last year. These are new types of partners we're forming as we expand our ecosystem to truly become an economy like we've done with DailyPay, our most recent partnership with Chime, we've done a wellness platform so we can bring all of these benefits that today, our customers need and want to them through the Workday platform. This just continues to expand. And then there's more layer, there's one more wrapper, I think that expands it even further. It's AI.

And AI is an accelerant for Workday. It gives us an incredible opportunity to provide more value for Workday, our partners and our customers. This is how I think about expanding from a core that we sit here and talk about in years past to an economy to leveraging AI in the future.

Yes. I want to talk about AI in a couple of ways. I know there's a lot of anxiety. I can sort of feel the anxiety coming this way from the stage around it and what it means for enterprise software and just businesses like ourselves. So talk about -- I know you have a very strong position around this. So share what that looks like. And then I want to talk a little bit more about how that -- what that means for us from a [indiscernible].

Yes. I think I shared this -- where's -- Kash is here. He asked me this on the earnings call. He asked me at the conference. And I hate to be so direct, but I think this whole narrative that's out there in the market that AI is eating the software world is completely overblown and completely overhyped. I don't think it's true at all, Jason -- or Justin, I just don't believe it. In fact, last I checked, AI is software, right? And data is important when it comes to training AI to drive good results. And I actually think for some people, we're not naive, AI will be a headwind, right? For us, it's a tailwind, we're uniquely positioned with 11,000 customers, 97% retention rate. We sit where we have the opportunity to sit on 75 million desktops.

I think we are uniquely positioned as well as anyone in the industry to take advantage of this tectonic shift in transition we're going to. That's what I believe. And let me give you a picture that kind of represents what's happened in the past and what we think will happen in the future. Go back to on-premise software, the old ERP days where everyone talked about everything is on-premises. And then the world was moving to cloud. And as that happened, the software world was going to be in trouble. Actually, what happened, there's still on-premise software, and there's a new software model called SaaS. It expanded and, oh, by the way, something else happened. Look at the growth in headcount. The head count in our economy only grew faster. And then if you think into the future, the SaaS world, it's not going away. What's going to happen? It's going to expand.

And all of this AI opportunity is going to exist and there's going to be some people that are pure AI and then there's going to be others who are SaaS companies have an incredible incumbency that get to expand on top of what they're doing. And oh, by the way, yes, headcount is still going to grow. And at the end of the day, I think we all agree, if you have the data and you have the customers and they trust you will be a winner on the other side of that. That's how we think about the future of software and where it's going.

Yes, that's great. And I know there's -- and I think we have a slide on here about just sort of the data to your point on what -- where we are and where we're going?

So let me talk about that because if we all agree, AI is only as good as the data we're training off of, let me just show you this slide. Over the last 5 years, we've gone from 46 million contracted users on our platform to 75 million today. Over the last 5 years, the number of annual transactions happening on the Workday platform has gone from under 200 billion to 1 trillion in the last year. This is why we are in a unique and privileged position to drive AI outcomes for our customers better than anyone. And you all tell me, are the largest, most sophisticated, most successful companies in the world, going to go out to a venture backed, VIBE coded AI company and implemented as our ERP platform, their HCM platform, their planning platform, they're not. Those people are coming to us because we're already there and saying, how can you, Workday, help us leverage the platform and take us and help us on the journey in AI. That's what I think is going to happen.

Yes. No, that's great. I want to keep going. I know there's an area that you're on a lot of calls with me, Carl, and we get a lot of feedback. We've shared some anecdotes around AI momentum and I know we'll share a little bit about here today. But one of the questions we get is, well, what is that really mean to the broader Workday business in terms of driving growth?

Yes. So you've all been asking us for additional disclosures around how AI is growing, and we've decided to do that. But I'm going to start with what we've already been talking to you about. Most recently, we've announced that 75% of our existing customers today are already using a Workday Illuminate feature or function. On earnings call just a few weeks ago, we said 75% of our net new customers include AI as their first purchase. And 30% of our sales back to our customer base are buying AI. And our AI new ACV has been doubling year-over-year. What we decided to do is go further and show you what this actually looks like.

So let's take a look at this. In the last year, our growing AI momentum has gone from over $250 million to greater than $450 million, growing 50% year-over-year. This is across all of our products that now are being powered by AI. And there's a disclaimer down below that you'll see that will be provided to you.

Let's take it a step further. Let's look in the last year what's happened. Very specifically to what I call our agentic AI SKU. So these are our agents. These are things like our talent mobility agent, this is our recruiting agent, our contract intelligent agent, our contract negotiation agent. So just in the last year, it's gone from less than $50 million to more than $150 million in ARR exiting Q2. And when you pull this together, this is growing right now in driving about 1.5 percentage points of ARR growth in the overall business. And this is on the $150 million number. I'm not even counting the $450 million in aggregate, where we're selling other products that are AI as well. This is on the agent SKU side. And what we're going to do on an annual basis, continue to update this and provide more clarity and color.

So you can see the path we're on and how well we're executing on our AI strategy. And then we'll give you more anecdotal evidence and talk about it as growth and other things like we've been doing in the last couple of quarters. Our AI momentum is super, super energized right now and it was all evident today on stage at the innovation keynote.

Yes, that's great. Okay. So I want to close, and I'm sure we'll get a lot of questions about that later. But I want to close now on something that I know is super important to you, which is leadership and bringing talent in. And we brought a lot of folks in over the last year. I know Rob, who will be here spending time with us, Gerrit on the product and technology side, Peter from my hometown of Omaha and a number of other folks that have come on. And so maybe just talk about what that -- what that means? And what are you solving for when you're bringing on this talent and what it means for the future?

Yes. So first, I hope you all saw, if you were there this morning, you saw Aneel on stage. It's always a pleasure to have Aneel come and talk about his vision of where enterprise software is going. It's not common 20 years into a business that you have a founder that's still around, and we get to leverage his incredible mind. And as my friend and the co-founder and the executive, you have the Chair of the company, it's just so good to have them part of the team.

Yes, we have brought in a lot of new people. You'll see him today. Peter, who runs product and technology for -- Gerrit will be here, and we'll also bring up some other folks like Rob, who's been here almost a year running go-to market. But it doesn't stop there. We've added other people you might not see today, but you'll get to know to run and drive our medium enterprise. We hired a GM of the medium enterprise business. We hired a person to come in and run our platform business, he was running the platform business at Google. So we have recruited some incredible talent over the last many years.

And if you look at this slide, it's new talent with existing talent that has been here for a while. And how they've come together and worked is something I'm super proud of. In fact, the working, the interworking between Gerrit and Rob in the field and the product team at Workday has never been stronger. They run QBRs every quarter with the leadership across each of their respective functions. They dive deep into the market needs and customer needs. It's an incredible relationship that's been established in a short amount of time, and it's driving growth overall for our company.

Now everyone sometimes we put these slides up and some of you investors say, Carl, how do you manage all these people? These are not all direct reports. There are 6 or 7 that are direct reports to mine, but I think it's critically important that we showcase the incredible talent we have at this company because these are the people that are going to lead us into the future, Justin. And I couldn't be prouder to be associated with all of them and get to serve alongside them.

Yes. Awesome. Great. Well, Carl, thank you for the conversation. I'm going to exit stage left. I know you've got a few comments and then we'll bring Zane up here in a second.

Yes. Okay. Great. Thank you, Justin. Yes. Thank you. So before I bring my dear friend and a great CFO up to stage, I'd just like to make a couple maybe closing comments on my opening section and some opening comments on the next section. I think you know me. You know how energetic I am, how optimistic I am. And I couldn't be more energetic or optimistic about Workday and our future and what we're doing. We have 20,000 workmates here at Workday, who are working hard to propel us for the long term. They're doing incredible work. They're bringing incredible innovation to market. Our customers are deep loyalists to us. Our partners are coming to us. They want to partner. We are in an incredible position to thrive for many years and decades to come.

Folks, I want to be clear, there's something special happening here at Workday. There's 30,000 people at this conference this week, wanting to hear about what we're doing to help them navigate the future. It's been an amazing 20 years, but I will tell you, the next 20 at Workday is going to even be stronger. And before I bring Zane up, one closing thought and one opening comment. We are absolutely continue to be focused on driving durable growth at scale and at the same time, expanding operating margins. I remember when I started, they said, you can't do that and you're not going to drive margins, well we have.

And I honestly believe, and I think a lot of my workmates believe we are underappreciated and we're undervalued. And we have many different ways we can invest in Workday, and we're going to place that bet on ourselves. You're going to see what we're doing from an innovation. You're going to see our financial framework the best use of our capital to drive growth of the company and get the return on that capital is to invest in ourselves and I'd like to bring Zane up to talk more about that with me. Zane, please join me.

Thanks, Carl. Hi, everybody. Good to see so many of you here. I know this is a great event, a big rising and I think what many, many percent more than what we had last year.

Yes, I think I didn't share a statistic, but I think we have more than 40% growth in new companies at Rising for the first time. That's pretty impressive.

Yes. No, it's great. I see this room is expanded too. I've actually met a number of people outside, and it's such a beautiful day in San Francisco. Many of you here know we've closed Howard Street. So I actually think next time we just do it right out there with the -- out in the open.

Yes, that would be fun. Let's do it. That's really cool. Lots of energy outside there.

That's for sure. Well, I think Carl stole a lot of my thunder here on the financial framework we're about to present. But what I thought we'd do Carl, it's just been a few minutes on the KPIs. As Carl mentioned earlier, been here almost 3 years. exciting times. And I know since day 1, we've been talking about some of these key initiatives. And I think just spend a few minutes, you're going to hear a lot more later on this afternoon in a number of these categories. So we're not going to spend a lot of time on it. But first and foremost, AI. Carl mentioned $150 million with emerging agentic AI growing at over 200%. And of course, we've got a great crew back here. We've got Peter, we've got Aashna, and of course, Gerrit, who are going to talk a lot more about agents and the agentic opportunities that we have ahead and when you just talk to everyone around here at this conference, you're going to see a lot more visible. And I think versus last year's call, we actually see practitioners using it, and we're very excited about the path ahead.

So a lot more to come on AI. On international, Rob is going to talk about the continued growth opportunity in international. If you look back over the last 12 months, we've had 15% growth. So growing consistently with the company. We've talked about it publicly, where we've leaned in, in some quarters and said, look, it exceeded expectation in some quarters, a little bit shy of expectations in others. But again, a big international contingent here, and we've got another Rising coming up later this year.

Yes. So probably have 5,000 in Barcelona in a couple of months. It's all on the road.

Exactly. Keep it going. And then, of course, FINS in full suite. We talk a lot about FINS in full suite, 20% growth here. Of course, this is our core FINS product plus our planning product. And then some of the adjacencies, we've got Extend, Extend Pro and then Evisort that fill out that combination. So nice growth. This is over $2 billion on a run rate. So we see nice growth there. And Carl, you talked about partners. I can't be more pleased with the partners. This is like 5x -- 1,300-plus is 5x the number of partners that we had just a few years ago. It's so impressive from deployment all the way to go to market. And then this ecosystem that you talked about, it's really exciting times.

Yes. For sure.

And then, of course, medium enterprise, new to this list, but we've been focused on medium enterprise for some time now, whether it's the pricing, the packaging, the product, the go-to-market. Carl, maybe if you want to mention a little bit more actually putting even more behind that.

I mean, if you look at the opportunity we have in the aggregate of TAM, a significant portion of it is in the medium enterprise. And it's been an area of focus for ours. And in fact, we have thousands of customers that are under 3,500 employees. I don't think we talk about it enough, but we launched something Workday go earlier this year, which really transforms how we think about the medium enterprise or sometimes we even call it the emerging enterprise, which is 500 employees or greater. And we're leaning into it with new pricing, new packaging, new deployment services and capabilities acceleration of value for our customers with how we're deploying both direct and indirectly with our partners and then how we sell. And we hired, as I mentioned earlier, Zane, someone to come in, a really seasoned executive, a former CEO, to be the GM of that market segment globally for us.

So I'm super excited about the medium enterprise, and we're going to push hard into that market. And it's harder we've been pushing the more success we have and it also drives 2 points up, Zane, a lot of full suite sales.

Exactly.

And then on M&A, I think you guys have seen what we've done since last year, Zane, with Evisort, HiredScore, we did Flowise. We announced Paradox for frontline, high-volume recruiting. And then obviously, today, we're super excited about what Sana brings to us.

Yes. No, some great growth opportunities there and great growth ahead with that. So as we look at those KPIs and obviously, we talk about those emerging trends, that's what's helped drive this durable growth which obviously we're very proud of. Going back to FY '23, we were just under $6 billion and expecting just over $8.8 billion this year. Now I'll point out the obvious, which is that this does not include Sana. Sana is smaller, but we have great aspirations and expectations for future years, but none of the guidance you see here includes our most recent proposed acquisition.

But what I do want to highlight is the increase here on an annual basis, you can see it's $1 billion and then $1.1 billion and $1.1 billion again. So we feel good about the growth here, the diversity of the growth, obviously leaning in a couple of the areas here, whether it's customer base, product adoption, new customer growth, the ramp of the growth areas that we've talked about and then monetization of AI, and you're going to hear Gerrit talk a little bit more about Flex Credits as we think forward and look forward, a great opportunity ahead on the Flex Credits.

Yes, super excited about the new pricing model for our AI solutions, and we'll dive deeper into that here.

Right. And then if we take a look at the opportunity that, that is presented in expanding our margins. And we've always talked about durable growth, but growth at the same time expanding margins. And here, if you go back to just FY '23 on a non-GAAP basis, just over 20% in operating margin and expect it to climb 3 points on a year-over-year basis to 29% and at the end of this year.

So a lot of work by the team here. Obviously, we've been investing at the same time. We've got strong gross retention, which obviously helps. We do look at efficiencies across the business. We've talk a lot about the investments, but at the same time, we put just as much energy into thinking about people, process and systems and some of the efficiencies we can get out of the business at the same time. So it's been a great balance. And obviously, we're quite proud of the growth that you see here and a lot more to come just in a few slides as we look to the future.

Yes. No doubt, Zane, I want to give Workday and our workmates a really big pat in the back for helping us drive this efficiency in the business. It's not been easy. But I will tell you, other side of all the changes we've made inside the business, we're moving faster than ever. That's why I said initially one of my observations are, the bigger we're getting, the faster we're moving because more efficient, we're more streamlined and we're just operating at a scale and pace bigger and faster than I've seen in a long time. So I'm really proud of the team. This is not easy, but the team is pulling it off, and we're not going to stop here either, Zane.

Yes. No, we'll keep going. I highlighted AI here as with a lot of companies we focus on, not in just our products that we produce, but also what we do across every function. We all have AI plans. We call it everyday AI, and we're pushing AI literally across the enterprise as well.

And in addition, I know we have -- there's not a conversation we have where we don't talk about SBC and how we're managing stock-based compensation. We take it very seriously as you look on the progress we've made here from 21% in FY '23, expecting 17%, off 1 point year-over-year into the end of this year and still on track for the 15% that we mentioned this time last year when we talked about how focused we are and how we're managing SBC.

Yes, Zane, thanks to all of you. This has been a hot topic of discussion in the last 3 years. I don't know if we've ever had a call where this wasn't brought up. And we said we were going to address it. And you can see we're doing that. We're trending to exactly what we said exiting next year, FY '26, trending to '27 to 17%. So we're doing that. At the same time, there's an incredible war for talent out there. And when you see some of the people up here on stage, whether it's retaining people like Aashna or recruiting people like Gerrit and Peter, we have to be able to lean in and invest and make sure that they feel like they're an equity owner in the company.

So we're going to continue to trend this. We'll talk more about this in a couple of minutes, but I also, Zane, I don't want to over-rotate because it is very powerful when you're going out and recruiting the type of talent we're getting into the business, and we need to be able to leverage equity and stock to get them to join Workday. So we're going to keep pushing this down, but we're also going to continue to use it as a way to attract the best talent in the industry.

Agreed. So now as we look forward, this has been sort of the progress to date. We wanted to lay out a framework here that you can understand and as we set up our financial framework. So if you look at our key assumptions here, we've laid out 3 cases as we look ahead. There's a low, a mid, and a high case. And of course, there are a number of factors that could go into each of them, but we've highlighted 2 key levers here that we talk about a lot with all of you. One is the macro and the second is the ramp of the growth areas. And as I mentioned, there are a lot more that go into this. But if you think about laying out these cases, in the case of macro, we'd say similar to today.

So to ground you on the mid-case, the macro is what we're experiencing, where it's a stable macro similar to what we're experiencing today. And then as we think about the correlation with that and the growth there, I'd say it's continued progress that we've made -- that we are making and will make in our growth areas as we expect given the current environment. So that's how we're setting up the growth profile.

At the same time, we're looking at margin. And I could say the same under each of these cases with the mid case, for instance, the current pace is balancing both growth on the top line and growth in operating margin. At the same time, we're always investing in AI. So I don't want you to ever think regardless of the case or the way that we think about sort of the low, mid and high, we'll continue to invest in AI and continue to grow this business, but just thinking about it in these different cases.

And in addition, I would also highlight that when it comes to M&A, we're always -- we remain acquisitive. But as you know, we have a high bar with M&A. And we believe that under each of these scenarios, M&A would play an important role as well as, obviously, our organic innovation and growth.

Yes. I guess 2 things here, Zane. So first, I want to make sure we don't stop investing in AI, right? Even if you go to the low end of this, Zane, and let's say the macro slows and we have to moderate because our growth areas aren't growing as fast as we can or we want, we're going to continue to lean in to investing in AI because of what I just laid out earlier, our unique position because even in down markets, the people who recover fastest on the other side when things turn are the ones who never stopped investing in innovation right, and in technology, and that's exactly what we're going to do here.

The second thing I really like about this framework for the last 3 years, you've asked me directly, and Zane directly, when I'm not in the room. Listen, Carl is a growth guy, he wants to keep pushing he wants to keep growing the business. And is that going to come at the expense of operating margins and driving efficiencies in the business? And the answer was always, no. And I think we've proved that. We continue to lean in, we continue to invest. But if things slow, we'll accelerate our margins faster, but we'll continue to invest in the business. And I think this lays out a great framework of how we think about the business over the next few years. And I'd also say, Zane, it's not all siloed here.

Exactly.

You could see a stable macro environment, but we see an acceleration of our growth areas, and then we accelerate our investments. But it's a good framework on how we're thinking about the next 2 or 3 years.

Agreed. And with that, I know you guys are all waiting for the numbers, here they are. Our targeted financial framework for FY '28. So as you can see here, we've kept to the low, mid- and high scenario that we just laid out for all of you. And on the top line, we have subscription revenue CAGR through FY '28. So that ranges from 12% to 15% in each of these scenarios. And then we have a non-GAAP operating margin for FY '28 and that ranges from 33% to 36%. And then as we've committed to you, we will adjust accordingly, and our target here is a non-GAAP rule of 48%. So 5 points higher than what you see our expectations are for this year. So we've always talked about that balance and this would include growth within FY '28 on the top line for subscription revenue with a non-GAAP operating margin that would total 48%.

And for many of you, you also asked about SBC, and we continue to talk about our commitment to managing that lower, so over that same period, we expect to have SBC as a percent of revenue, somewhere between 13% and 14% depending on timing and then committing a target rule of 35%, which would be the non-GAAP rule of less the SBC, and that would be 9 points higher than what you see today.

So a meaningful step in each of these categories under each of these scenarios to drive value in the business, both on the top line and on the bottom line.

Yes. And I think this is a really good framework. We really thought a lot about this. I do want to anchor you on the mid numbers there, 13% to 14% because I know immediately you start to think about FY '27. And I want to anchor you to the 13% number. We want to put a number out there that we feel very confident in that we can hit. I think you have continuously challenged us and question whether or not we're going to meet the numbers we put out there, we can hit 13%. And if the tailwinds start to really pick up and our growth areas start to accelerate, we'll try to grow and expand from 13%, all the way up to the high end and we'll update you when that happens. But I want to anchor you where we're focused and what we're delivering for both this year and into next year. Zane, I think it's really important that people understand that.

Agreed. And we'll, of course, update you later this year in our fourth quarter call as to more details looking into FY '27. So this is the framework through FY '28. And then I couldn't be more pleased, of course, with the Board having approved an incremental $4 billion in buyback. As you see on the slide here, we mean it when we say we're investing in the business and want to continue to drive this business, but also recognize capital allocation is important, and many of you have talked about buybacks and we think this is a good time to put our money where our mouth is as it relates to that, and we're going to be buying back $5 billion through FY '27.

Yes, with a lot of that being accelerated in the earlier part of that journey.

Exactly.

We're leaning in -- this is why I said we think the best investment we can make in the future of Workday is in ourselves. And this is an additional $4 billion on top of the $1 billion we already have out there. So it's $5 billion to FY '27. And this isn't to drive down dilution, it's because I think it's a great investment for our company in our business.

Totally agree. And with the strength of the balance sheet and the progress we're making in the business, we, of course, see free cash flow per share CAGR of over 20% over the next number of years as well, targeting free cash per share of $15 in FY '28. So great growth on the free cash flow. We know so many of you, both in the room and outside the room, think this is one of the most important variables out there, and that's obviously what we're focusing on. So before we...

Yes. We're excited about it.

And before we have others join, I just want to obviously go over our capital allocation philosophy here. First and foremost, as Carl has stressed our primary focus is organic investment, in particular, in AI, growing our platform and you're going to meet some of the key talent that we have investing in the key talent around the globe for the company. So we're going to be driving value through that. Along with that, whether we're partnering or otherwise thinking about M&A, we'll consistently have the culture alignment, the team and technology, adjacent markets and just great opportunities as we think more broadly around M&A. But nothing has changed. If you look at this list, whether it's Flowise, Paradox, Evisort, HiredScore, they all fit this paradigm that we invest in and are very excited about Sana soon to join that list.

You should have added Sana. It's been disclosed.

Yes, it has. And then, of course, returning capital to shareholders through share repurchases, and we've made a big step forward in that regard. We'll actually have less share count through FY '27 and couldn't be more pleased with the $5 billion buyback that we'll be executing against over the next number of years.

Yes. Thanks Zane for laying that capital allocation strategy and philosophy out, we're going to innovate in 3 ways: Organically, inorganically and the go-to-market. We're going to continue to be inquisitive through acquisition, and we're going to bet on ourselves as much as we're betting on anything else in the market going forward. We're an innovative company at scale. And speaking of innovation, it gives me great pleasure for Zane and I to welcome to stage our President of Product and Technology, Gerrit Kazmaier. Gerrit, welcome.

Thank you, Zane. Thanks Carl. Hello, everyone. It's great to be here. This is my first Rising. I have just joined in March, so it's been 6 months by now. And it's my first Financial Analyst Day. So please go gentle on me. I'm a first timer here, okay, is that a deal? Good. There was no louder -- aloud answer, by the way. So I want to quickly introduce myself here for a second, right, because I'm new and some of you may not know me. I've joined in March, as I have said, before that -- well, way before that, I was working at SAP, started my career at SAP actually and left SAP as the President of all database analytics, business intelligence and planning portfolio for SAP, joined Google Cloud, and I was the Vice President and General Manager of Google's Data Cloud, so all of the data services and analytics services. So I've seen both the world of global business processes and the world of planet scale data and AI technology.

And there is one opportunity that uniquely attracted me to Workday. But I'm going to go into that in a second and just talk about some of the other factors, which were main decision pieces for me to join Workday. And one, You just saw it, right, working with Carl, working with Aneel, working with Rob, a world-class leadership team is a unique opportunity in itself. Rob and I actually worked together in our past. Rob was at Google beforehand, and we also crossed paths at SAP. So I have immense trust in the leadership team here at Workday. And you're going to see also a few of the leaders in product and technology later today, like Aashna, who leads CHRO, an incredible leader at Workday for, I think, 12 years and Peter, who joined me from Google as our new CTO. So we have an amazing leadership team at Google -- here at Workday. And very importantly, right, what I think also Carl has said, right, the Workday values, for me they mean a lot, right? I'm not sure how you look at these things. I'm a very competitive person, I want to go out there, I want to kicka** and win, but I want to do it the right way. And that is, I think, unique Workday.

As I said, there is a unique moment right now in the market happening. I know business processes, and I know AI. And no matter you know how you criticize 1 study, right? You all saw the MIT report, the Stanford AI Index, the McKinsey Report that is being here shown on the slide. There was a JPMorgan study also not too long ago. they all come repeatedly back with the same finding, right? So we can't ignore the pattern. And the pattern is that enterprises, while they spend a lot of money on AI, they are getting very marginal returns, surprisingly marginal returns for the amount of effort and investment.

And with all my experience, I know there are actually very good reasons for that. The primary reason being is that the recipe for AI, for the public domain for consumer technology, if you will, the recipe is very different than the recipe for enterprise, fundamentally different. It starts with 1 big difference from how you actually build AI from the get-go. Enterprise data is proprietary. You cannot just upstream it into a model. That's what you're calling the process, to make the models smarter you upstream data into it. And that just doesn't work with proprietary enterprise data. Also models, when they complete tasks, they need to provide it with a lot of context information, right?

They're not like going off on their own and do work. When you use ChatGPT or Google Gemini and give it a prompt. Basically, you give it context, and it starts operating. But if you wanted to accomplish a complex sequence of tasks, you have to basically constantly refresh and keep that context exactly what it needs to be. That is a major system engineering effort. This is not trivial, right? We're talking sophisticated sorts, sophisticated ranking and so forth.

And last but not least, on a data plane alone, most enterprise data, it is not even AI-ready. It's inconsistent, it's fragmented. It has all of the issues which make it practically impossible to even use it into a real AI process.

This is why this DIY AI, basically, some vendors, they just give customers a box of Legos and call it the Agent Builder or whatever. And basically, it means, well, you give you the infrastructure, but you actually have to figure out AI alone; doesn't work, not in enterprise.

The second piece, business processes are complex. They run organizations, they have systems, whether it's hire to retire on the HR side, whether it's quote to cash, you pick yours, right, source to pay. All of these processes are long running and an orchestration of a complex network of actions and systems. And you cannot just superficially slap AI across off that, right, on legacy APIs and have to hope that this would reconfigure transform the process itself.

The key is that AI actually needs to be brought into that stateful workflow model itself to operate it, concept on to -- concept like a Copilot on the site, you have to actually reengineer it with AI first in mind. And that's the unique opportunity that I see in Workday. Workday has the benefit of being born in the cloud, which means it has a consistent uniform data foundation across all our tenants. It was multi-tenant from day 1. All of the things that you have heard earlier about, the 1 trillion business transactions that 75 million users on Workday. They're all contributing to this pristine clean business data set that Workday basically has and truly understand best how people and money are moving through organizations. That is unique.

Secondly, what you heard about and we are expanding our core, right? Workday strategically extended that data set again and again and again. And when you think about what we talked about today about frontline, right, that's basically more signal, more information, a wider funnel feeding our data backbone at Workday to build differentiated AI with.

And secondly, it's the ability to build now these AI models, these AI systems directly into the business process model itself. This is that truly differentiated AI actually is being built on when you rethink the process of how it's being done. And this is where you see the great examples that we shared earlier today where you actually change how frontline is managed, changed how financial close is being done. When you actually take a massive amount of inefficiency or labor costs, if you will, and compress it down into software costs very efficiently. That's ultimately the AI opportunity.

So our 3 pillars. I'm going to quickly touch on those, and hand it over to Aashna to take you through the first 2. Building the best AI agents really means that we have a world-class AI engineering team building AI systems. This is not basically automating the legacy that's truly rebuilding. And Peter, our CTO, he and his team are working on the front tier of that business AI system building. It means that when you see the agents that we're going to talk about later here today, they are not just single task trivial agents, right? It's pretty easy to automate a quick demo or give a model a quick run into something superficial. It's actually pretty hard if you want the model to behave like a recruiter, like a manager, like an IT clerk, like a financial analyst and you actually build a system that can accomplish all of these tasks and actually work collaboratively with other agents on accomplishing a bit of big business goal.

Secondly, expanding our core, expanding our business. It's a good business for us because Workday is a household name in North America but internationally, not so much yet. I'm from Europe, right? And there is such a big opportunity for Workday to take our existing application footprint and bringing it there. But secondly, there are also so many untapped areas that we are just growing into like frontline work. And lastly, something that Workday did not yet really pursue a platform business. Today, we announced Flex Credits, a consumption-based pricing model, which truly allows us to, a, deliver value to our customer in a usage-based way, but also to capture value on a usage basis, a very powerful model.

And we have added a number of services into it, which allows us and our customers to build AI better, build apps faster and take their Workday data, and integrated with the data ecosystem around them all on a usage-based model. So very quickly, these agents, right, you may wonder, right, oh great, this is a slide, and it doesn't have 10,000 agents on it, right? And there are other vendors who are saying, we have 100,000 agents.

That is exactly why AI goes wrong on the enterprise level, right? It's very easy to publish a slew of trivial, low accuracy, unreliable agents at scale. It's very hard to make AI proficient at real business tasks. And we are taking on the most complex processes in HR, in finance and in planning. And all of the agents that you are seeing here, we put them to the test with our customers. So they all deliver real results, reducing the time that managers spend on managing shift work, speeding up financial close, getting payroll faster compliant and done with fewer arrows. All of them are proven on a hard ROI measure and they all achieved a very high degree of autonomy.

When I talked about expanding the core of our platform, we built a new unit around Workday GO, our mid-market segment that builds the right packaging, the right pricing, the right service model, to really take the great brand that Workday has and bring it to all mid-market customers, a tremendous opportunity. It requires that we build a business like a true business soup-to-nuts and that's exactly what we're doing with Workday GO. And as Carl has said, we had a terrific leader who is leading this unit now. And I can tell you only a few weeks in, the potential is gigantic for us.

Same with international expansion, we're going to announce more points of presence, more regions. We're going to make Workday more available around the globe and build up a global sales presence around it. We are going into federal in the U.S. and in other public sector entities around the globe. And last but not least, taking Workday to the billions, billions of frontline worker out there.

And today, maybe the most innovations that we have launched organically all around Workday built. Workday Data Cloud, together with Snowflake, Databricks and Salesforce, a new way for our customers to activate their enterprise data by building the most open, the most connected data ecosystem in the industry. We launched a number of new tools for application and integration building, and most importantly we built integration with Flowise, a small acquisition, but the key for Flowise is that you have the most beautiful, the most powerful AI agent designer just outside of the enterprise. And we brought this model, and we deeply integrated it into the Workday platform so that every Workday customer can now build AI-driven workflows backed by Workday's data, backed by our process model, backed by our security, and automate tasks like never before.

You can forget in all of the legacy workflow building in the world. This is a much better way, much easier, and we are 100% convinced that this is changing the way how customers think about Workday automation, not just for Workday but across the entire enterprise landscape.

And lastly, before hand over to Aashna, you heard the announcement on Sana. I know some of you may have questions about it, and I'm excited to take some of them later. It's going to be a game changer. It's the new front day to work, and that's a statement of true conviction. AI predominantly is going to revolutionize how people interface with software. That's where a lot of it value truly lies. And we had the opportunity with Sana to bring a company to us who has completely rethought how people interface with information and with AI-based actions by bringing them together 1 experience. And we're going to bring this across the entire Workday platform for every customer, every worker out there. And that's going to work for Workday and even beyond. A massive potential for us. And with that, I would like to hand it over to Aashna Kircher, our CHRO, our General Manager and Senior Vice President. Aashna, over to you.

Thank you, Gerrit. Great to be with all of you again. So Gerrit spoke to our vision and our strategic opportunity ahead. And I'd love to bring this to life with some examples, starting with AI, and AI starts with getting the data right. Gerrit talked about the challenges with enterprise data accuracy and context. And Workday's unique advantage in our architecture, governance, integrated workflows and most importantly, customer trust. We don't take those for granted. We're continuing to help customers achieve the highest levels of data integrity and strategically widening Workday's data moat.

In HR, this means reinforcing our data foundation. Take for example, jobs, skills, organizations or many other data points that are part of our HR backbone for customers' organizations today. We're investing to make these data foundations even stronger. For example, investing in Workday's intelligent job hub which streamlines job structures to keep customer architecture agile and market-ready to make sure that the data doesn't get stale or Workday Skills Cloud, 1 of our beachhead data sets with over 3,000 customers today, which helps organizations understand their people, and helps organizations drive workforce planning, internal mobility and faster hiring, or organizations as a data set.

We're investing in organizational modeling and mass changes, think about a customer who is going through an acquisition. We are helping them create simple experiences and high-performance processing for structural changes, a key part of how businesses evolve in the HR world, considering impacts on organizational health and on cost. But it's not just about HR, it's also about finance, and we're investing in the same data foundation in our financial products. Accounting Center is the foundational step to verify that core accounting data is correct and auditable. It automates billions of detailed entries confirming that financial information has a high degree of confidence and integrity.

Over 400 customers have achieved massive efficiencies using accounting center up to a 70% reduction in manual journal entries. An accounting center has been critical to some of our large customers like Fannie Mae, Salesforce and U.S. Bank in their decision to move to Workday Financials. In finance, we're also investing in enabling operational data to flow through Workday with strategic industry partners.

For example, Trintech for financial close and financial services industries, Zora for order to cash in tech and media and Kinaxis for a unified supply chain view, which we just added last week. These partners bring operational data like a customer's order history and contract life cycle directly into Workday, which creates an even richer and stickier data set for us. This unified data foundation with complete business process context, that's our AI differentiator. That's what allows us to build the deep domain agents that you just heard Gerrit talk about, and I'll touch on in a moment.

These are purpose-built agents that orchestrate complex business processes and drive real outcomes for our customers. And you can see the incredible progress and momentum that we've seen. We've accelerated our organic execution in the past year. We've also made investments in AI leadership across our teams. And this morning, we announced our next wave of road map for these agents. Our road map is tied to Workday's goals. So deepening our suite and expanding into growth segments.

And we'll talk more in just a second about our monetization plan via Flex Credits. So bear with me, I'm going to go rapid fire and highlight a few of the agents, but not quite all of them.

So we started with recruiting and talent mobility agents. These were built on our HiredScore acquisition. And we're seeing real results. A large automaker cut candidate streaming time by 70%. Advent Health decreased hiring manager decision time by 40%. And we've been able to monetize that value with the HiredScore business more than tripling since the acquisition. I can't stress enough our strength in talent acquisition, a giant market in its own right with a ton of opportunity ahead, and we just added Paradox into that equation.

Last year's Evisort acquisition gave us the power to connect structured and unstructured data at unprecedented scale. This is what powers our contract intelligence agent, which reduces contract execution time by 65% and accelerates both sales cycles and supplier onboarding. We're only a few quarters into selling this product, and customers can't get enough, and think about how many documents tie into Workday, from sales to lease, to procurement. And on the HR side, statements of work, policy documents, employee agreements, the opportunities are endless.

So we recently delivered a new set of capabilities to our customers. And hopefully, some of you got to see our end-to-end agent demo in the keynote this morning. We strategically identified other areas for driving significant efficiency gains for our customers. For example, our payroll agent, which proactively flags issues before payday, reduces errors and expedites compliance up to 4x faster or our financial audit agent, which automates the very painful process of gathering audit evidence. It's designed to process auditor requests, retrieve relevant documentation and package it up automatically. Our early adopter customers using our financial audit agent have seen the potential to save up to 900 hours on audits per year.

For contingent labor, which sits right in between HR and procurement. Our Contingent Sourcing Agent rediscovers talent within a company's existing workforce. This is another example of getting tremendous value out of our acquisitions. It's powered by VNDLY for contingent workforce management and HiredScore. And our agent accelerates sourcing by proactively finding top contingent talent. By connecting our market-leading recruiting platform for traditional labor with the best platform for contingent labor. We're able to provide our customers with that end-to-end solution to drive talent acquisition.

And finally, our last example currently with early adopters, our Planning Agent, which flags variances and proposes adjustments, dramatically reducing cycle times by as much as 30%. Our early adopter customers cut that data exploration time by 30%, saving roughly 100 hours a month, all while simplifying administration and lowering the cost of ownership. But we also announced our next wave of agents this morning, including our Employee Sentiment Agent, built on Pecan, which has the world's largest data set of its kind, with over 1 billion responses around employees sentiment.

And it proactively addresses workforce issues to reduce costly employee turnover, or our new Performance Agent, which draws on data across Workday and other systems like Salesforce, giving managers comprehensive data-driven assistance building that performance culture that powers businesses.

Or our Case Agent which automates HR service delivery to reduce operational efficiency and reduce HR costs -- increase operational efficiency, excuse me, which reviews similar HR cases and applies the right regional and business compliance context. That's something that only Workday can do, and it drafts a tailored response, resolving cases faster and lowering the number of support requests.

And finally, our new Financial Close Agent, which helped streamline the entire close process. It coordinates closed tasks across teams, flags issues in real time and helps transform the process into a simplified and efficient workflow.

You can see this isn't back-office plumbing. It's CEO-level business transformation. We help organizations plan, hire, pay and close end to end on 1 platform with AI at the core. This deep domain AI builds on the strength of the Workday suite to transform HR, finance and the critical markets in between, like planning, VNDLY, payroll and more. And their strategic markets that unify operational data, increasing the value of our platform and widening our data moat, making our foundation stronger and growing value for customers and Workday. Hopefully, you can see we're not interested in a couple of percentage points efficiency. We're looking for dramatic gains.

And this is what allows us to strategically expand our core business to win in key markets like medium enterprise, international markets and even specific industries like federal and frontline, where you already heard some teasers today. Rob is going to talk a little bit more about our go-to-market enablement in these areas.

But let's go deep on some examples around product investment. Starting with our medium enterprise investment. Now our platform has historically been perceived as too complex for midsized companies. We are actively simplifying our product and delivery to increase ease of use and reduce total cost of ownership, transforming how midsized companies deploy, adopt and optimize our platform.

We are reducing operational costs with AI. We know deployment of cost are a major driver of TCO. So we've invested in a deployment assistant to drastically accelerate deployment and time to value for go live a new feature adoption. We've also invested in our BP Optimize Agent, which helps customers get more value out of Workday. So this takes a look at the processes that are in a particular tenant and helps recommend suggestions and make changes on behalf of customers for them to get the most value. It surfaces bottlenecks, it shows peer benchmarks, and it recommends real-time configuration change.

One of our EA customers experienced a 90% improvement in business process efficiency with our BP Optimize Agent. In finance and payroll for medium enterprise customers, we're actively invested in reducing integration complexity. We'll come back to payroll in just a moment.

But in finance, we announced our new revenue center for medium enterprise. We know any customers don't want the added cost of a third core system to manage revenue. They want it tied directly to their ERP. Our Revenue Contract Agent automatically extracts key financial data from contracts with AI.

Let's turn to international markets. We're expanding Workday's addressable market in key countries. And this starts with regional cloud platform coverage for increased performance for users in proximity to their region and data regulatory compliance. We support multiple global regions and are adding Japan, India and the Middle East over the next 15 months. We're also strengthening our Sovereign Cloud offering for EMEA. Our second pillar of internationalization is localization and compliance. In finance, we support over 175 countries with preconfigured tax and reporting templates for over 55 of those countries. And our new global tax hub, which comes early next year, will provide a central place to manage multi-entity compliance. It will integrate with our comprehensive partner ecosystem, including the likes of Vertex, Avalara, Thomson Reuters and Kyriba for global tax, e-invoicing and bank connectivity.

In HR, I said we'd come back to payroll. For international payroll, we offer native payroll for Commonwealth countries. Australia and Ireland are now live, and we actually just announced the intent to build New Zealand today. Our global payroll Connect hub links Workday with third-party providers across 187 countries with 27 partners. And our Global Payroll Connect solution cuts deployment time from 200 hours to at least half of that. These investments are about accelerating market penetration, driving global revenue and continuing, I'm going to say it again, to build our data moat. We're also investing in marketplace solutions that accelerate time to market in international for us. These take advantage of the build platform, and they are rocket ship accelerators for these markets.

For example, companies in Japan have a unique way of assessing employee performance. An app for multi-rater performance management offers us in a scalable, low-cost way. PwC has built apps to help customers comply with global regulations like Right to Work app in the U.K. and sickness and recovery management for the Netherlands. And we actually just signed an opportunity with keynotes to support an EU pay transparency app for EMEA. Peter is going to talk a little bit more about the build platform as well.

So let's switch to industries. A key focus -- and our investment here is helping us drive higher win rates and increased TAM, starting with federal. We recently announced Workday Government Cloud, our dedicated infrastructure to meet the highest security standards unlocking this massive and very, very complex market. We are focused also on meeting the unique needs of the federal sector. We're actively engaged with the Office of Personnel Management, or OPM, to align our offerings with their standards for HR. This direct collaboration is crucial, and it validates our ability to serve a market with a very high barrier to entry. This work positions us to capture a substantial share of a historically very underserved market.

Beyond federal, we're also continuing to make Workday a platform to serve our customers' total workforce, serving every type of worker for every kind of work. HCM gave us employees. VNDLY gave us contingent workers. And now we're moving beyond our 75-plus million users to the billions of users in the global economy, specifically frontline workers. We already have a significant footprint in industries like retail, hospitality, manufacturing, but the opportunity to continue to expand is massive. This market wants AI-driven mobile-first solutions. And our platform is uniquely positioned to deliver them.

Our Frontline Agent now with early adopters, cuts the shift replacement process from 15 minutes to 2, saving managers an estimated 90% of their time, on time sheet approvals. And guess what? We just announced our intent to acquire a company about 3 weeks ago with a large customer foothold in this market.

Our intent to acquire Paradox is a big step forward actually on a lot of the fronts that we've talked about today, deep domain AI, broad customer fit and a wedge for us into the frontline market. Workday and Paradox will provide an end-to-end talent acquisition suite giving customers the AI advantage to find, hire and onboard every worker. Paradox is leading conversational AI streamlines the candidate experience. We've been partners since 2021 and share over 200 joint customers already. This brings a dedicated candidate experience agent built on nearly a decade of candidate data into Workday. And the results speak for themselves, with a 70-plus percent application conversion rate. And Paradox's experience has powered more than 189 million AI-assisted candidate conversations.

Paradox brings a proven at scale, deep domain agent and data set to Workday, especially for candidate experience in the frontline, which adds to our growing list of native Workday built agents in areas where we have the data and context to be highly differentiated.

But our agents and core are only as strong as the enterprise AI platform powering them and allowing us to expand our ecosystem. To talk more about our AI platform, please join me in welcoming Peter Bailis, our Chief Technology Officer. Thank you.

All right. Thank you, Aashna. This is month 4 for me. As Gerrit mentioned, I joined from Google. And 1 of the reasons why I joined Workday is actually the incredible asset we have, which we talk about a lot, but just to put it in perspective, we really are the best application in the world for people and money. But meaningfully, we've got trillion transactions a year running through our platform, which is incredibly high volume. That's not just good for our business, but when you think about AI, AI is all about teaching these models that are trained on trillions of tokens on the public Internet and all the books available, how to do work, how to actually make AI work for people in these workflows. So when you think about the platform that we have, taking that data and taking that context and putting it to work is an unbelievable opportunity. And you see that in the road map that we've got, the agents that Aashna mentioned and also our plans for the platform. So data is the fuel for AI, the work we're doing to open up this platform and open up our context is letting both our dev teams and our partners and our customers' dev teams build like never before. This is such a big shift in how we think about Workday from kind of the siloed monolithic application. So we thought of it as an ERP category, I got my box and my ERP software, it runs, everything is sitting inside of it. It's got proprietary language, proprietary extensions. You can build a great business in that model as we have for the last 20 years.

With AI, and our new leadership team, thinking about the technical strategy of the company, it's time to open this up and open up in a way that's not a free for all, but a way that benefits from the governance and the trust and the security model, we spent the last 20 years building.

So it's a pretty amazing time to build. And I want to talk about what we're doing on the platform side as well as what we just announced this morning with Sana to really, really take that people and money assets, the data and the context put it to work.

So first one, we're doing a lot with our data. You may have seen some of these partnership announced, but a great example of this, we've done at the kind of corporate level and Workday Wellness. So Workday Wellness takes our data. There's thousands of customers run their benefits through Workday. We partner with some of the leading benefits providers, MetLife, Sun Life, Unum, Chime and we -- Cigna, right, huge names. And what they can do is because they've got the benefits data and the worker data sitting in Workday, we can make it easier for our customers to onboard as employers and easier for employees to onboard as well through a data exchange with these providers.

Another great example at the corporate level, we've announced this DailyPay partnership. So incredibly important problem. Over half of Americans are living paycheck to paycheck. And the turnover that results from this estimated to be $1 trillion annually for worker turnover. So what DailyPay does for its customers is let you essentially have more financial stability based on your pay, and by opening up that Workday data for that payroll, 75 million employees, you can get a live view from DailyPay into an employee's financial status. And this makes this type of financial benefit far more broadly available and applicable. And instead of having to build custom one-off integrations, right? We're able to tap into this amazing source of data and go power what Carl will call the Workday economy, in this case, having a tangible impact on these workers especially those that are on that paycheck to paycheck basis.

Now I'm kind of a geek, so I'm going to just talk a little bit developers, right? We talked about Workday Build this morning. Build is a huge shift in terms of how we approach our ecosystem. We've always had, since even I think the Cape Clear acquisition back in 2008, an integration strategy. You got to put my people data and sync it over to this system and sync it over this. It's a very bulk transfer kind of 2,000s era protocols.

Build, we basically are blowing up the developer platform and making it far more accessible. So no matter what you want to build and how you want to build, the tooling of choice, you can use cutting-edge standards to go and build on Workday. And most importantly, you can do this without leaving the security perimeter or the confines of your most sensitive assets in the enterprise.

And some of the most amazing tech here is enabling us to do this in a zero-copy way so that you can go and run analytics on top of that data, which is incredibly sensitive, payroll, employment records, performance reviews without having to worry about who's touching this and are the right people getting access to the right data. That's a huge, huge change. Open standards, but with security.

So what this looks like -- you've heard a lot about Flowise, but we're very proud of Flowise, incredible open-source tool, 40,000 GitHub stars. We had a CIO and the CIO keynote talking about how she was building agents using Flowise. She encouraged the community to try it out. It's literally that easy to drag and drop and create agents. And we've integrated the Flowise agent builder into Workday.

So you want to go build processes and workflows on top of Workday business processes. You can go and do that and run with your permission system or permission model and that trust that you come to expect from Workday.

Extend, we talked about Extend. We build applications. We've got a lot of people who build applications. Partners can build applications, custom build applications, the extend applications live alongside the Workday applications running in our platform. And this is an incredible SKU for us. Tons of customer adoption, we announced 3,000 Extend apps in production. Workday is an application of many of our users, Extend is the way to go build new apps. Orchestration, those 1 trillion transactions, they run through something called a business process. It's a customizable definition of what work means. How do you go pay someone, how do you promote someone? How do you change a job.

Every organization is different, business processes reflect that. So with Orchestrate, you have an ability to go run those programmatically to go and chain business processes to go call external systems. And then finally, we'll talk a little bit more about this, the data cloud. I mean this is like probably the biggest announcement of Build, making it easier to get access to that data in a way that is secure zero-copy and incredibly powerful.

Now developers are excited about this because we've built a really phenomenal developer experience here, including a Copilot. You never hear us about coding tools and coding assistance, those are fantastic. We've done is given our Workday developers a developer Copilot that gets Workday, that understands what is a business process, how do we do a SOAP integration versus a GraphQL integration versus a number of acronyms I will spare you from, right? It gets you started fast and it gets you into production faster.

The most important point for Build and the most important message I want you take away for Build, though, because it's next one. Build is built on open standards. We are embracing the best standards across the board for maximum connectivity. Historically, you want to build an application on Workday, you're going to have to learn how to do things the Workday way. We have some really cool technology for doing generative UI and building in place with things like XO and OMS acronyms you may have heard about if you followed us for a while.

With Build, we're going straight to open standards. We're expanding our coverage and our aspiration that all of Workday, every business process has a API with a REST endpoint for GraphQL. For agents, we're embracing MCP. This is the way you expose tools, agents for use. And on the data side, we're embracing JDBC. So you can run SQL queries against Workday, never done that before. You can do Iceberg, so you can go run bulk analytics at scale without copying your data. This is an incredible -- like 1 customer said, this is a total 180 from the original Workday tech direction, which is much more on keeping this all secure, but also putting up more barriers. And we're able to do this within again, that Workday platform, thanks to the new technologies such that all that people data, all that money data, all that context remains secure within Workday.

And with the Flex Credits system, we can monetize this. You want to run our app, we can monetize that. You want to run your app, you can monetize that. The platform becomes the product, maybe for the first time in Workday history. Now this is more than just tooling. The tooling is pretty cool. It's pretty kicka**. I think the team has made a ton of progress on the fundamentals exposing Workday in this more standard way. We also have an incredible community. On the partner side, we have over 500 partners engaged, and this isn't just hitting your traditional large enterprise HCM use cases. It's going to medium enterprise, international. As one example, Makse Group built a bank account connector application to one-click install from the Workday marketplace into your Workday instance and takes the process of literally weeks to go and get your bank accounts connected to the back-end financial systems. It's just one-click install, takes an hour. This is huge for ME as well because it means that a lot -- medium enterprise of this, because a lot of the overhead of configuring Workday, it's such a powerful system, such a powerful toolkit, we can let partners lower that barrier to entry, especially for those regionalized use cases and ME use cases where you see that turnkey solutions, not just on Workday to build all of this, we've got an ecosystem that's making it easier and faster to get started. That is amazing.

On the community side, the team has done an awesome job on the developer community. There's certifications, there's upscaling. I mean the headline here and the real proof of the community is how is it growing. And in the last year, we more than doubled the developers engaged in our developer community, which shows more and more people are building on Workday. And frankly, more and more developers are betting their careers on Workday as well.

I'll talk briefly about Workday Data Cloud. We had talked about AI. I believe that I -- I came here because I believe we have the best data in context to feed AI. You see it in our agents, but this data cloud announcement is unbelievable. So Data Cloud is really 3 things.

We'll go to the next slide. First, it's a data lake. So we're adopting Apache Iceberg, you get zero-copy scaled analytics on top of your Workday data. You can process them Spark, you can process it in Hadoop, if you still run that thing, you can process it in your SQL warehouse. Your data doesn't leave Workday and you could run analytics queries. The alternative here. I won't -- I'll spare you the details, but it is a painful process, and you're making copies all the time. Here, it's seamless, zero-copy, done.

Second, I want to clear my Workday data, I want to use fancy language SQL, the lingua franca of data. I can go hit Workday's live data through our JDBC endpoint. So I want to get a live snapshot from my application, from a reporting and so on, I can do that now, never possible before. Always had to do it through bespoke APIs or do a SOAP integration. I mean, it is so simple now to go clear that data. And finally, we have Prism to go manage all of this because as you know, data needs management. We have access controls, governance, reporting, Prism plays an important role in bringing that structure around this ecosystem.

And look, the ecosystem is real. You heard it from Sridhar, who came on stage, Snowflake CEO, we've really partnered with the best in the data industry, Snowflake, Databricks, Salesforce to make this real, and they are incredibly excited because their customers. And our joint customers, they're so hungry for this. This eliminates so much ETL tool and processing and was lovely to have Sridhar here, talk about his vision for this.

Final piece I want to talk about this one, I'm over the moon about is our announcement made this morning about our intent to acquire Sana, okay? So Sana, you can think of this as an AI-native platform. They started in learning. They have a kicka** learning platform. It's basically the most beautiful learning platform you can imagine. The leading companies, and these AI labs that use Sana to create internal content, you go onboard through Sana, you sales, enable it through Sana. It's kind of unparalleled in its quality of user experience, and we're going to sell a lot of it.

But the really, really cherry on top is what Sana does for workers. So you can think of Sana as enterprise search over all of your data, workflows on top of those different systems and then agents to go and automate more of those tasks. So we hear from Sana customers that have adopted their agent products. They literally have their new browser tab pointing to Sana. And you can think of this as, say, a ChatGPT but connected to all of your enterprise data. So I can go and ask, what was the status of that latest Salesforce -- or that latest sales opportunity, pulls from Salesforce, pulls them Google Drive, pulls from my calendar, pulls from e-mail to go and answer my questions. And this is such a game changer for Workday because Workday, look, let's face it. It's an ERP system. It's a system for people to go manage their people and money, with Sana it becomes the place where more and more work happens.

Sana customers are in the platform 7 times per day on average, and that transitions Workday to the place where work is done. That's an incredible opportunity with AI, and we're so excited to offer this to our customers. One, for learning as a separate sort of add-on within the Workday Learning platform. But as Gerrit mentioned, with Flex Credits this morning. With Flex Credits, one, they're included allotment and your base SKU. Two, with Sana agents, there's something we can offer to every single 1 of our 75 million users. No extra SKU, no add-on charge, pay for what you use, and we think people are going to use a lot of this. It's an incredible product incredible environment. And as you saw from Joel this morning, an incredible team. They have such a talent-dense team in Sweden. Joel is a visionary leader. And together, we're going to light up a new Workday for Workday. So with that, I want to turn it over to Rob for an update on our go-to-market strategy, but I'll leave you one final message.

Workday as a platform is open like never before. We are cooking on our AI agents. We're making it easier than ever for our partners to go build on them with acquisitions like Paradox and Sana, we'll get even stronger bench, an even stronger set of capabilities. So stay tuned. Over to Rob.

Gosh, I need a clicker. Also Thanks, Peter. Super excited to be at Workday. It's 10 months now that I've been at Workday. So you can see there's a lot of new action, I would say. But what's really -- what I'm really pumped at right now. And I think you guys saw this morning if you're in the innovation audience, what -- where we are and what we're doing. And so I've been traveling the world kind of talking to customers, understanding from workmates to what we need to really drive global expansion, our Medium Enterprise business, and where growth is going to come from.

But Gerrit and I have also been working with the products because we've been aligning what we want to do in the product to this growth agenda. We actually spend time with our teams together quite a few times once a quarter at least, building out their plan and deciding how we're going to go after the market. So this is kind of a really a team effort to make things happen. And it's setting us up with announcements today for what I believe is an incredible growth opportunity at Workday. I think it's something that I haven't seen in a long time in this industry. I feel so pumped with the opportunity to take to our customers to just think about changing the way we do things in the application business.

And if you look at the opportunity, we, even at our scale, still do a significant amount of our business with new customers. We have lots of markets to capture in the new business space. We have billions of opportunity in the customer base. And these 2 engines are net new and customer base have created a durable kind of growth model for our go-to-market engine. And in many cases, we're just getting started in some of these industries. If you look at Workday Federal, that's such an untapped opportunity. And we're only getting started in.

If you look at the medium enterprise, we're super strong in the United States. It's incredible how Workday have grown the net new business in the U.S., but we have huge opportunities international to drive medium enterprise, and I'll go through that as well. In industries, we're getting started globally in how to drive industries, full suites and unique opportunity for us across the world. But for me, the most exciting opportunity, is truly taking AI and the remarkable position we are in with AI to the next level, and we'll showcase some of that. If you haven't had enough of it today, we'll showcase a little bit more. So let's talk a little bit about net new and customer base, and that's how we orient our go-to-market teams.

If you look at it, 40% of our business today still comes from net new customers. Think about that, 60% comes from existing customers. Think about this engine grinding through net new customers at 40%. We have 11,000 customers today, 6,000 at the core, 65% Fortune 500, and we believe there's still 70,000 customers out there in our TAM. And this is especially strong in the Medium Enterprise. And then you got this engine that's driving 60% of the growth through the customer base. You think about all the announcements you made and how that's going to drive the customer base as net new comes through, we will do that in both net new and in the customer base. So there is a significant opportunity with funds, with HCM, with agents, with the Workday Build, with what we're going to do with Sana to actually continue a huge opportunity here at Workday.

The platform is another significant lever. If you look at how we've taken it from an extend to a totally open environment, the ability to build agents, understand data in an open, trusted extensible way. We think that, that is unique. And I think we don't -- we speak a lot about the data model. But if you just think about the foundation data model that was built here for the last 20 years means that every customer in the world has the same data model, the same object, the same definition of that object, whether you're in FINS or in HCM is only one object. And that allows us to do things in AI that's remarkable. I think there are no application businesses in the world that have such a clean, pure curated data model. And that allows us to build Illuminate agents as Aashna presented earlier on, that adds tremendous value to our customers.

We know what value -- we know how to target the agents, we know which agents to build because we understand the process model. With Workday Build and Flowise, our customers, our partners can now create and scale new solutions.

Workday Build gives our partners a completely new opportunity. And with customers that expands this conversation, Workday Build expands a conversation with a CIO, advances new revenue streams, makes it easier to use Workday, right? So how will we continue to drive growth in both net new and in the customer base. The platform, as I said, so we'll start with customers at the center of everything we do. That's how we built the last couple of months with this team is to focus on what our customers want and how do we accelerate the growth with them because of the needs that they have.

We'll drive it with the AI momentum that we spoke about. We'll expand in key markets, especially with medium enterprise. We're doing a lot of work on medium enterprise with work they go to change the direction. We continue to expand our international business, and we're going to continue to spend an ecosystem, and we'll continue to expand industries. And that will be the focus of our go-to-market growth model that will continue to drive across both product and technology and the go-to-market.

That's how we think about these things. This, I believe, is a game changer. We announced it today, we thought long and hard about how to create a competitive pricing model for AI that our customers would understand, that our customers would understand the value that they get. We wanted customers to be able to drive their AI strategy at their pace. We wanted it to be simple, predictable and completely transparent, no hidden fees, no lock licenses, no user base cost, no bolt-ons, Flex Credits, it's a way to consume AI, it's a way to consume APIs, it's a way to consume storage and it's all fungible, interchangeable, completely transparent.

The customer as a console, can see what they're using, and whenever we deliver an AI or an API feature or function, they have access to it immediately without having to go through a commercial discussion with us. So all the agents that you saw that for Feb 1, those customers that have the base model, when they get the moment it gets released, they can turn it on. And we've both full calculators for the customer, consoles for the customer and for the salespeople to be able to explain it. That will be completely transparent ROI usage.

And that will mean our engineers are going to have to build the best products in the world. So with this model, we believe it lowers the barriers to entry, drives really durable growth because as consumption increases, customers will buy more credits. More usage will happen. And that's why we believe this model of simple, flexible, transparent is the right approach for us.

It's going to be a game changer in the market. Our salespeople are fired up. Patrick did some work with customers. They -- I'll tell you the feedback from our customers is being super positive. I think they've all been struggling to understand this, and we think we will unleash a new set of areas for Workday's growth.

If we look at the international market, when you look at the U.K. playbook, we've got a great business in the United Kingdom. It's -- we're taking this playbook that we used in the U.K. as the major lever to continue to drive growth across the world. So you think about it. We have -- we are the HCM leader. We have a verticalized go-to-market model in the U.K. We have an emerging enterprise model. We had a strong first half and we're going to continue to invest in this playbook as we take it around the world. There's some incredible proof points of wins that we have. Some of the names are up there, but you just think about Decathlon in France, they're running FINS. They are implementing FINS.

If I look at DBS Bank in Singapore, in Asia, Development Bank of Singapore, FINS and HCM. And there you can read out the names of this -- Masan Group in Vietnam. Incredible opportunity, one of the largest companies in that area, all going with financials and in their case, HCM as well. So full suite. We've entered new markets, India. We announced the leader in India. We have millions of users in India already. But now we have a direct sales model, channel partner model in India that we're lightening up in that market. We think that's an incredible opportunity that we haven't -- that's untouched. We will announce the Middle East, probably just before [indiscernible] tax and for us, opening these markets continues to be critical for expansion in our net new and our customer base.

So we're doing this faster than ever. As an example, I think Aashna mentioned it. We'll have a data center up in the first half in India, and we're doing the same in the Middle East. We added some significant talent. Jess, Sunil, Volker, Arvind, these are all leaders, proven skill sets, know how to accelerate businesses. And we're super excited to attract this kind of talent to Workday. We will also announce the leader for the Middle East. At the same time, we announced that we're entering into the Middle East. So super excited about that.

Our medium enterprise continues to be a core growth engine for us. Over 50% of our TAM is in the medium enterprise. As I said earlier, on the U.S. is leading the way. It fuels 40% -- full suite fuels 40% of the deals in the net new medium enterprise business. And FINS is 50% of the deals. Financials is 50% of our deals in medium enterprise. With our umbrella of Workday GO and bringing on a max vessel to be the product manager for medium enterprise, you're going to start to see speed and agility driving across the medium enterprise with solution sets that actually map to those, services that map to what medium enterprise customers want and integrating them from a different way we do large enterprise.

Today, we already have customers going live in 60 days with our partners under Workday GO. And that momentum, we believe, will continue to accelerate specifically with net new it's already showing that it was the right idea. It's been the right brand. We've got the whole company behind that. If we look at industries, I mean, this is something which is game-changing. And definitely differentiates us in a significant way. Today, we have over 5 industries with more than $1 billion in ARR.

Super, super durable go-to-market model in this. We think other industries will scale to that. We mentioned what we're going to do with frontline workers that attaches to many industries that will continue to drive over 70% of the workforce of the globe coming to play when we actually bring frontline workers into play. Our federal business, we launched Workday government as a separate own entity to really focus on U.S. federal. We spoke about the data center, the solution set that we have with employees working on mission important stuff for U.S. Federal.

We believe that's a $2 billion opportunity just in HCM alone. And we have an opportunity in financials as well. We also think we'll be able to take -- we know we'll be able to take our public sector of our business, state and local business, and student business to places like the U.K., we're already in Australia, in certain cases. So there's a unique opportunity with the government. And in Singapore, we're already running a significant part of the government there already for both HCM and finance.

And if you look at Paradox, Paradox is a -- Paradox together with HiredScore and our Recruiting Agent showcases that we have but by far leading in a world of recruiting and all aspects of recruiting as you complete the whole recruiting cycle even with contingent worker. A piece that I'm super pumped with and the work that we've done is all around the ecosystem and the partners, right? So we've got 21,000 certified consultants around the world, implementing Workday, driving the -- driving the projects down. We actually launched the deployment assistant, guess what, to drive the cost of projects down. We've got to do more in that space. If you look at on the sales side with partners, 20% ACV sourced through partners now, 10% of customer base expansion source to partners.

We have over 100 apps on Workday Build. Those apps customers are selling Aashna mentioned EU pay transparency. We're actually reselling that. So Kainos built it, Workday are going to sell it into market. So differentiated plays. Kainos is a significant business on Workday Build. And I actually believe that Workday Build will absolutely expand this footprint in a significant way because you don't need to actually understand Workday. You're going to have all these open source tools available to you, these agent builders, which you can -- you can use Flowise now, get on the website, build yourself an agent, you'll see how easy it is right. So this will open up new revenue streams, new opportunities for us in a significant way.

In -- we opened up a reseller, for the first time, we're allowing channel resellers to resell Workday. We've closed quite a few deals in Asia. That's a success model for us. We're launching it now in Europe and in India, we launched it from day 1. So channel reselling will become a motion in the marketplace, which specifically will be, in my opinion, super successful in the medium enterprise. And strategic partnerships, we've mentioned that a couple of times. But strategic partnerships around Chime, DailyPay, earned wage access, right?

This is the wellness solutions. This is actually an economy monetizing data that adds value to our customers, employees. Again, it's an incredible opportunity in the market. Today, we're already -- this business is already bigger than $100 million ARR. And this business, we believe, will continue to expand because the information value that we're adding our customers is incredible. I want to wrap by going back to where we started, but I want to basically say I believe that coming out of Rising. This is an amazing opportunity for ourselves, go-to-market, customer-facing organization to do -- to provide next level changes in how we go to market and the value that they see and this is probably one of the most exciting times I've had working in this industry, taking solution sets and thinking about how to actually just reinvent them in the industry. You can just imagine a front-end, where you actually going to Workday, which looks like the search tool or a natural language processing.

Nobody else in the industry can do that. And I think it's going to ignite our sales teams. It's going to ignite our customers, and it's going to be a massive differentiator for us. Thank you. And now I'm going to ask Carl, Zane and Gerrit to join me. I could feel them waiting at the back here.

Okay. Okay. Great. We are going to -- while they're getting ready, we're going to go around the room. We went a little long, but we'll try to get to as many as we can. Let me give them a second. I'm going to go with Kirk Materne first while they're getting set up, Kirk.

We have never studied this, okay? It's the first time choreography.

Kirk Materne with Evercore. So I appreciate you all having us here, a lot to digest at this event and the keynote earlier. Maybe I'll start, and maybe this might be for Gerrit, but if I came to Workday 5 or 6 years ago, there would be that frank and soft picture on the screen where it'd say, hey, look, you can't acquire and you can't bolt on new technologies to an older core and really innovate. And I'm sure if I went down to the Valley today, people would say, "well, Workday's buying Sana and they're just putting a new skin on an old core," like that's not how you do it. Can you just talk architecturally why M&A makes sense in the age of AI, for you all? Meaning, why is the combination of Sana in the core better than, say, a native AI solution because I think the pushback is going to continue to be like these native guys are going to come out nowhere so I'd love for you to answer that, if you could. And then just 1 clarification, Zane, I assume the revenue guidance includes M&A, just an easy 1 for you.

Okay. Let me start. Yes. So great question. So first of all, how you integrate with AI is different from how you integrate business -- classical business applications, if you will, right? For AI integration model really is contingent on, a, having a unified data stream in which you can integrate both data assets to build AI models with. And then secondly, to your question about the core, what is the surface that you're giving in AI system to interact with.

So if Workday would have just left the core as it is, right, what you said, right, just basically trying to bring AI over on top of it, that would be very ineffective. And quite frankly, I think as I said, this is, I think, what you see from many vendors. What Workday has done basically is provide a system which allows 2 things: one, that we constantly accumulate and curate the right business context for AI models, you can think of that like. Think of that like a Google search engine inside of Workday that AI model used to understand what's going on in the business context.

That's something that Workday has built as a part of its core. And the second thing that Workday has built is basically opened up the workflow model that Workday has, right, the business processes with APIs. So it's not driven by a classical UI anymore, but through APIs like MCP, the model context protocol, right? Now an AI agent, can understand the context from that context service I was speaking about, and then basically find the right business process API to take an action on. So there is system engineering work in the core of Workday to interface with AI. And what we have done, right, and what Peter is focusing, what I'm focusing on actually is the art of designing an AI system, AI systems are complex, right?

You have to think about many, many components. And how you build them in a way, so you can leverage all of that rich investment in the 70,000 business task at Workday has because the challenge, just to tip it off and produce it, right, why not in the AI native start-up. My question would be, well there is it? The reality is, right, that VIBE coding, code generation, they are really good for a specific set of tasks, if you will, right? They are very good for functional augmentation. They're very good for small stand-alone apps. But when you think about a very large network of 70,000 of tasks that interface with each other.

Basically, you need to build a process model for that. You have a process model architecture, but you have a state model for that you need to have a very scalable, very efficient way, very resilient way of providing that in the cloud, right, with high margins and high reliability. And all of this is the foundation that we are leveraging. You can think about AI last comment as an accelerant. AI is going to make everyone faster. No question about it. I'm a software engineer. I learned the trade early on, and I've worked as a developer for many, many years. AI is going to make every developer faster and every developer more productive. But that means every developer.

We at Workday, we have now thousands of engineers using Cursor, Bolt, all of the latest and greatest AI engineering tools. So all of our engineers, they're getting 10x faster as well, right? So we have 10,000 people in product and technology. If they get 10x faster, we're going to outrun any start-up with 10 people going 10x faster.

And Kirk, just to be clear, our philosophy around AI and acquisitions hasn't changed. So as you look at that framework, it includes M&A as it always has, especially tuck-in M&A, we would call out anything larger than that, were it to apply. As I mentioned earlier today, it does not -- none of our guidance includes Sana, obviously, at least for this year.

Right in the middle here, here Mark Murphy with JPMorgan. Great show. Thanks for having us. So to me, the rocket ship in the portfolio, based on everything you show on screen is actually HiredScore and the Recruiting Agent. You have this 250% growth in 5 quarters. And I think it's underappreciated. It also feels like a vector where machine learning is ultra leverageable. I mean the metrics that you're showing makes it look like there's a bigger efficiency gain adopting that then if a developer is adopting GitHub Copilot or Cursor based upon those metrics.

Can you talk about what is happening there that is driving such a vector in the recruiting arena. And almost more importantly, is that a precursor to what's going to happen in other adjacencies when you say, okay, there's an agentic model that is starting to click and it's starting to fire. Is that what it's going to look like elsewhere with that kind of hyper growth rate?

Yes. Maybe I'll start. Thanks for the question, Mark. Yes. So the Recruiting Agent, obviously, we acquired about 18 months ago through the acquisition of HiredScore, and it's been a rapid growing part of our AI strategy. And it's quite simple. You put in a Recruiting Agent and you pretty quickly can see a 50% increase in productivity of your recruiters. So it's as much as the cost avoidance as people are still growing their headcount, they're avoiding having to hire additional recruiters because of the power of the recruiting platform itself called HiredScore.

On top of that, there's additional value. customers see an acceleration in time to hire of up to 40% when they put in the Recruiter Agent. So it's driving productivity or people and it's driving acceleration of people as you onboard them. And I think what's really powerful is how we didn't stop there because that's for back-office workers. It's for white-collar workers. And with our announcement last month that we announced that earnings a few weeks ago. And with the addition of Paradox, we've taken a conversational AI approach to the front-line worker, which means it's mobile first. And now we have the best suite from an AI recruiting platform in the industry from back office workers to frontline workers across all types of workers and full-time employees contingent and gig workers. And all of those are quantifiable.

If you saw some of the demos, I don't know if, Mark, you were at the session today, we showed the demo one of the customers of Paradox is Chipotle. And they talked about the value that they get out of the platform today and how quickly they can continue to bring people up in a very rapid way. And then we took it a step further. We showed a agent specific to the industry, how you can start to optimize your workforce when you need more people because people are calling in sick. So it all starts to come together. And it's very quantifiable. This is why I said in my talk earlier with Justin, it's not about the quantity of agents, it's the quality of agents. And if you can drive 2 business outcomes, people lean in and buy into it.

And maybe, Carl, to add to that -- to your question, we have multiple agents where we see that momentum Contract Intelligence Agent, incredible momentum, taking down contracting times, efficiency gains, 65% and greater. I think Admin Health, one of our customers took their contracting cycle from 1 week down to 1 day. And per your question, right, the recipe always is if you have high volumes of work, where human labor usually is the major bottleneck either in time or cost, right? AI can come in and basically take that inefficiency and turn it into a much lesser softer spend compared to what a human spend would be. That's what we are seeing across the domain, recruiting, contracting frontline work all of our agents.

And like Carl has said, right, we differentiate by basically our quality criteria for releasing AI is measured by ROI. Basically, we set a business objective and saying, what does this agent need to return for it to be financially viable. And once it meets that metric, we release it. And we have incredible momentum for you to look at.

And Mark, I just want to make sure you understand. Yes, Recruiting Agent is growing, but we announced last quarter, Evisort's growing 100% quarter-over-quarter, and it's not $1 million. It's growing fast. Extend Pro is growing, it's doubling. The amount of people wanting to integrate, build agents or bring up their own AI solutions into Workday is doubling year-over-year. So it's not an agent. It's our entire suite that we brought to market over the last year, and I think that's only going to accelerate with all the great announcements you heard today.

And customers have wanted the consolidation in these areas that don't want pitch solutions all over the place because it's really hard to stitch them together. So even if you're in a financial institution, like one of the large banks, you need frontline workers. That's an important part of your hiring. It's not only that you need higher score for the skilled work as you need both. And so this is completing I would say what our customers have really been looking for.

It's Brent Thill with Jefferies. Zane on the margin guide, good to see the commitment to mid-30%. Maybe you can help us walk through how you get to that level. And one of the questions we've gotten is, back when you announced the RIF you mentioned you would hire all those people back. You've hired about 1,000 of the 1,750 back, I believe. So are you still committed to hiring back? Or are you going to slow the head count pace? Is that 1 element to help on the margins?

Yes. Brent, I'd say, first and foremost, most growth helps all, right? So as we grow, we get more efficient and the whole platform becomes more efficient. We are hiring right now, and how we hire and where we hire is what makes the difference as well. I mean we're becoming more and more global, so we're doing more hiring internationally as we follow this on and as we you see whether it's go-to-market and a lot of the -- even the AI and the acquisitions are international.

So you'll see us do a little bit more of that. And over the last number of years, we've shown progress across a number of areas, and we're very thoughtful in where we grow, how we scale the business, how we look at each functional area, with the people, the process and the systems I talked about. So look, I mean, we are very thoughtful. We are hiring back. I think we were more vague on the timing. I believe we'll continue to see that growth. But all that being said, we're also being very thoughtful about those investments.

And where we see more growth, we'll invest more and where we see less we'll pull back. And that's what you've seen us do over the last period of time here, and that's what you should see us continue to do for the next number of years. But with that same diligence and then we highlighted all the AI that we're building into our own products. I mean we're using AI across this company, and we're leaning in heavily and the teams are getting far more productive, that is not just being productive, it's actually then holding them to that, and driving that productivity across the org. So it's going to be a lot of work. I mean, trust me, we don't put up these numbers and say that they're easy gets, but we'll continue to be diligent in how we grow the top line and then at the same time, grow the bottom line.

Raimo Lenschow from Barclays. Rob and Carl, one for you. As you go out here and meet the clients, international going down market, et cetera. It's not that these markets don't have solutions at the moment or they have something. So it's kind of a replacement market. What are you seeing in your customer conversations about like what's driving the change there? Where are they with their old solutions like first-generation solutions and et cetera, to kind of -- due to change and come over to you guys.

Yes. I mean, I'd say on the international markets, first of all, we are super successful in the U.K., in Australia and New Zealand. Canada and the U.S., obviously, with the full suite. And what I would say in a number of these markets, the differentiation and why some of the changes happen is because the industry solutions are unique to how we operate. They haven't seen it in areas like student and state and local and so on health care. So those great changes where customers will actually replace the solution.

But the customers are getting tired of some of the older solutions out in the market. And they're looking for new opportunities with new companies with new ideas that are future-proof the ERP system for the world of AI. And we feel like it's now ready and ripe for us to go into those markets and look for those replacements.

With HCM, we kind of lead the world with finances. Clearly, we have to differentiate with what we're doing in AI, and that's going to make a huge difference.

Yes, I think Rob said it well, I'd say -- I'd add 2 things. Listen, we've gone down market. A lot of these people are in, let's call it, 1,000 to 3,500 number of employees. They have multiple point solutions. And if they expect to continue to grow and scale over time, they're looking to consolidate all those point solutions, which is where we often talk about our full suite momentum in the medium enterprise. They can come to us, they can replace NetSuite and maybe another HCM provider into a full platform from Workday and give their users an incredible experience.

And the second thing I'd say is a lot of the people that we engage with and we inflect with at that stage are people that want to grow well into the future, and they know they're not going to do it on their current model. Some of them actually are a -- it's a business model decision. They're working with an EOR, an employer of record and they're saying, no, we're bringing that in-house because we're scaling, we want to go bigger, bolder, faster and we need a platform to do that. So I think it's a business model, and I think it's a consolidation play around one platform, delivering all your services from HR to finance and planning.

And I think that's a different discussion than a lot of them are having today. And the last thing is there's typically 1 buyer. In the enterprise, up here, we all go and talk to HR, we go talk to finance, right? We talk to the IT organization. There, you find someone who owns all operations and all systems and it's a faster, quicker sale.

Brad Sills over here, Bank of America. Thanks so much for hosting a great event. A lot of great innovation on display here at the conference. I wanted to ask a question of you, Zane, on the margin framework here with the different levels of margin expansion at different levels of growth assumption. What are some of those discretionary investments that you could either pull back on in a lower growth environment or -- sorry, accelerate in a lower growth environment or pull back on in a lower growth environment? And I guess just, it sounds like AI is not discretionary. That is something you'll continue to invest in any scenario. So just where are the discretionary areas of investment?

Sure. Yes. As we -- if you recall, I shared on the first slide, all the KPIs that we look at with a number of the growth vectors in the company. And much like all of you look at your portfolio, we have a portfolio of great opportunities and assets as well. And candidly, as we look at some of them that maybe aren't growing as much and then others that are, as we look across all of those KPIs and look across that portfolio, there are always opportunities, whether it's leaning more into those that are growing more, looking at more countries, thinking about that partner relationship a little bit differently.

Or otherwise, on the other side of it, if you're growing a little bit slower, we look at how many resources we're putting into that part of the product. And Gerrit and the team are doing a great job in P&T, really assessing all of that, doing a zero-based budget on where are we putting our resources where are they paying dividends and how can we continue to gain efficiencies throughout the organization.

So what we've committed to is regardless of the growth, you're going to see improvement. In some cases where we're growing more, it may be through more tuck-in acquisitions, other elements that may have slight dilution if you think about margin, but then you're getting that higher growth rate. And at the same time, if things cool off a little bit, we'll continue to find opportunities to pull back where we're not seeing the returns that we would otherwise expect. And that's the dynamic -- candidly, that's a dynamic we've had all along, but that's how we look at the next number of years, and we feel like we've got this broad portfolio and tremendous opportunities.

And what I really appreciate is this is the team. I mean we're 20,000 strong that when you say, look, we really need to conserve here or lean in here, everyone gets on and does it. So it's an impressive opportunity ahead and a great organization to continue to drive that performance.

And Brad, I'll give you one more that we don't often talk about, but it's happening real time inside the business today. And it's what I describe as organizational efficiencies and organizational design. And what I mean by that, both Rob and Gerrit in the last couple of months have rolled out new organizational models. And as we've done that, we've taken silos, if you will, of operating people in each of Rob's functions. Now there's one operating model for all the customer operations globally.

Gerrit had a bunch of fragmentation around the platform, around the UI, around the UX, around security. We're consolidating and streamlining the organization model. And with that comes efficiencies. We don't need more headcount to drive the business forward. We have enough headcount, but we weren't aligned in the right way to really drive the business in the most efficient, effective way because as you grow, silos emerge. And to grow faster, the silos need to come down, and I think we're doing that.

I got the mic. Alex, you'll be next. Kash from Goldman Sachs. A terrific financial framework, and I really love the confidence you have in the business, you're buying back stock, margins up to the right. More of a technology question. You've seen that in prior tech cycles that there is a disruptive architecture, disruptive business model, Workday itself grew on the heels of that disruption.

As you look at this cycle ahead, there is a view, and I would love to get your talk to this view that the SaaS to AI architectural transition is very disruptive. There is a new stack for AI, and it's about the context, compute and models. And that SaaS gets relegated to just basically a data context layer. You open up the APIs, there's going to be a new breed of agents. The value is not short of that agent technology. And the VCs are very excited about this new opening up. In fact, some of them have been posting on X saying that SaaS CEOs, better watch out. You're going to be whatever, right? What is wrong with that argument?

That -- there's something right and there is something wrong in that argument. And well, I guess it makes a good headline if you are one of these AI start-ups.

So what's right about this argument, Kash? Of course, you need to architect differently for AI, right? And this is my big criticism with a lot of the other vendors who are not doing this. They basically need to have legacy and AI and to hand it both over to the customer and saying, there you go. And this is, I think, where there is such a big of a disconnect between the excitement and the promise of AI in the enterprise space, and the real value delivery.

So that's the truth, right? AI requires dedicated engineering. And that's why at Workday, right, we have dedicated AI engineering, building an AI-ready core, right? So that's a part of it, right? You need to do the heavy work. It's genuinely changing major parts of the stack. And then that comes to probably this argument is just completely wrong. And that is that just because how you engineer an AI system changes, also means that suddenly everything that you have described on a semantic level, right, how a business process operates, what that business process is. We just talked about recruiting and contracting, right? How these functions operate, what the business context is, what follows after what, right? What are the steps? That conceptual model, right, that still needs to exist somewhere.

Now you could be a radicalist, right, and saying, well, I'm just going to assume. I'm just going to assume. Everything is going to just sit right into the model, right? And theoretically, in thousands of years, right, I don't know, right? You don't know what happens in a thousand of year, maybe, right, that's possible. But today, there is a single piece of research, frontier AI that indicates that we were anywhere close to being there.

So what every vendor is doing basically is building a system that runs a workflow with AI on the site and constantly basically making sure the AI stays connected to the process. It's the other way around, right? It's not like the AI is driving the process and using the APIs. The process is running and driving an AI thing now to replace points where human judgment came in, right? That's the breakthrough of AI. It's computational judgment in a way, right? It takes what we humans do and gives it a computational form.

And we have processes like in recruiting, where you got a resume, is it a good hire or bad hire? I don't know. On contracting, right, what are good terms, what are bad terms. On shift management, someone calls and say, what do I need to do, right? That then these processes are run instead of stopping and saying, well, I'm not going to ask a human. It's basically having an AI operator, taking that part over and making it automatic. That's the current state of AI as it exists. It replaces that piece.

And tell you, a very good question, right? What it requires now for the vendors of the future is saying, we design a business process system that works with an AI co-intelligence on its side, but which is designing a workflow model, which basically constantly drives the AI and not the other way around.

Yes, Kash, let me -- I am not entirely as smart or technical as that young man over here to my left. That's why I hired him. But let me just simplify it for how I think about it. Most AI solutions in the enterprise are very task-oriented. They're accelerating tasks that we do as humans. That's the tip of the iceberg. There's going to be a whole bunch of that. The real power is when we transform the business process and the workflows of the business. That's where you start to get step function change and efficiencies. That's the power of AI. And to do that, you have to have the workflow, the data and the context. We have all.

Everything else is task oriented. You play with ChatGPT, you play with Gemini, it's all tasks. The real business value is when you transform business through the use of AI. And quite frankly, we're not even engaging with it. It's happening on our behalf, and we don't even know it. That's real AI in the enterprise, and that's what we're doing.

I don't know how to follow Kash's question. But if I think about the kind of two things that really stood out to me today, it was the Sana acquisition and the way that you described it both as a UI for the new Workday as almost like an enterprise search capabilities as well as an Agentic system. so first, I just want to understand how we think about the monetization of Sana, whether that's something that's just AI diffusion to everyone that's -- this is the way we're all going to interface and interact with Workday in the future?

And then secondly, the AI, both the $450 million ARR and the, I think, the $150 million or $100 million Agentic. As we think about the transition to a platform, the monetization model going towards more consumption transactional, how much of the growth kind of prism that you've laid out, when do we see that consumption element start to actually kind of layer in and factor into the model as a percentage of the growth rate?

So a couple of things. I think Sana monetization and the revenue. Yes. We are incredibly excited about Sana. And because of -- in most technology innovation cycles, there is also a profound change in basically how people are consuming information. Think about mobile, for instance, right, an iOS, right?

We think about Sana like the iOS for enterprise in the future. And we see it being like a power combination with Workday because we have incredible distribution. We have 75 million users already. And you can ask 100% expect us to leverage that to bring Sana as an experience to every one of them.

Now the beautiful thing about Sana is that it's not just an incredible enterprise search and enterprise action experience. It also gives us the opportunity to encompass many, many more workflows that people are not doing in Workday today. People engage with Sana today on average 7 times a day in the current form. We truly believe, right, if we bring this to all of our customers and we open up that AI extensibility for them, that many, many, many things that they are doing today with legacy ticket-based automation, programmed exits, DIY AI systems, they will just naturally fall into this, right, because it's so easy. The art of good engineering is making it so easy that people almost fall into success with it, right? They cannot even imagine another way of doing this anymore. And that's what we are creating with the Sana experience.

And for the commercial monetization option before I hand it over to Rob, I mean Flex Credits, every customer gets a part of that in their base subscription, which means that it's always on, right? You don't need to do anything. It's just there. It's working for you. But it's a base entitlement. And as you go beyond that, customers can subscribe to more as the usage expands. So maybe, Rob, if you want to add to that.

Yes. So when you think about Flex Credits, the growth comes almost immediately. So because customers have -- they have all the agents, APIs, they have available allotment with their base installation. They switch it on and then they start consumption usage. So when you look at -- we released, say, we had 4 agents, we're going to have like 12. When we hit Feb, we had another 14. You've got 36 agents. So -- and Workday was producing APIs, right? And so when you talk about Sana is going to be running a Flex Credit model against that. And the more they use it, the more we're going to get usage on the model, the more it's going to drive revenue growth into the future.

So the model is going to be massively dependent on the quality of the applications and the usage that companies drive. The go-to-market model will change because customers will have access to it. The beauty is now we have to activate the customer, let them know what's coming, the value that they're going to get. And then our teams are going to work with them on value equations. This is what the value is. This is how our producers. We have calculators for customers. Customers will have access to the calculators themselves. And so we believe that there will be a flywheel, not only with agents, but with creating agents, building agents with Flowise and then driving the whole Workday build economy.

So as more and more marketplace opportunities come, maybe it's driving more APIs and more usage. And that's how we think we're going to drive it. And it's a unique opportunity to drive immediacy because it's built on top of existing solutions at customers and the value is very, very clear.

I just want to add on learning. Sana is a significant part to our learning application. One of the things that new learning needs is experience. People don't want to work with content stuck in filing cabinets anymore. They don't think it's that high quality. So Sana allows individuals to create learning journeys for themselves on the fly. So if you want to learn, well, I don't really understand what prompting is, and I want to understand prompting with Workday, it will create a learning experience for you immediately.

And when you think about us going into the medium enterprise, the medium enterprise don't need the filing cabinets. I can tell you that now. What they need is an experience. And so when we spoke about getting really focused around the medium enterprise as well, it's bringing those solutions down and really in consumption pieces that will drive when the CEO looks at and says, "Oh, I can use Workday now. Oh, I can create a learning journey. Anybody can do that. Oh, my business analyst can create an agent. You serious, show me." Sana is basically a no-code agent builder. Flowise is a low-code agent builder. And that's going to be game-changing in many, many markets that we go after.

Yes. And on the business model, Zane and I laid out a framework, and thanks to the work of Julie and her FP&A team along with...

Ali.

A combination of Ali -- I'm getting there, dude. A combination of Ali, who runs strategy and then Rob as well as Gerrit, we have these interlocks where we think about, hey, what have we seen in the early traction of our AI adoption? You saw the $450 million in aggregate million now, $150 million here. And then we look at what we have coming in the road map, and we have factored that into the growth plans we articulated, but it's still early.

Like who knows some of these like HiredScore took off way faster than we anticipated. Evisort is doing that. So we're going to keep updating and iterating on our model between that interlock that takes place between our strategy team, our FP&A team, our go-to-market team and our product team and then Zane and I look at that, and that's what gives us the framework and the rubric to think about how we're guiding in the future.

And obviously, we'll continue to be transparent with that as we build momentum, especially with the Flex Credits.

You got the full set. It was a good question.

Stefan Slowinski from BNP Paribas. Zane, I just wanted to follow up on that financial model, the 20% earnings growth and free cash flow growth per share out to 2028 is certainly impressive. But just wanted to maybe double-click on the top line outlook and how you see that growth CAGR and growth path through to 2028. Do you see a potential, I guess, slowdown into next year from the implied growth at the end of this year?

Is there anything that you're seeing there in particular? Or is that just kind of caution at this point? And then any potential reacceleration in 2028? Is that when we could see Flex Credits come through or more of the AI tranche contributions driving higher growth? Anything on the kind of trajectory there would be appreciated.

Yes. I'd say, look, I mean, we'll give you a lot more insight towards the end of this year and how to think about FY '27. We're very excited about the longer-term growth, both the organic growth that you've seen, the go-to-market opportunities and then the inorganic growth that we've highlighted just more recently, obviously, we've got some great opportunities to continue to grow this business.

We don't want to get ahead of ourselves, which is why we laid out the framework the way we did. But as you can tell, and Carl mentioned earlier, we've got a heavy growth bias. And with that free cash flow, the reason we laid it out the way we did is because of the rule of, you can actually drive free cash flow under a wide variety of growth rate scenarios. And that's what we're here to execute against. Our natural bias is to grow more. And obviously, we talk about growth a lot when we talk about all of these tremendous opportunities. And that's what translates into the strength of the business and the strength of the free cash flow in the business.

And then, of course, with the -- including that buyback, we see tremendous opportunity on free cash flow growth per share, and we continue to be diligent on that front, too. So more to come later on this year as we look into next year. But as you can tell here, we're very excited about the growth beyond.

Okay. Kind of at the risk of some groans in the room, we're going to have time for two more questions, and then we do have time on the other side of this. So I'm going to go right here.

Justin is literally on his knees here, just trying to hide from us, I'm convinced.

Karl Keirstead at UBS. So maybe a two-parter. So the decision to trim your fiscal '27 from 15 to 13. Is That just good advice from folks in this room to have more conservative guidance? Or Zane did something perhaps change in the last year? I know it's not a super robust environment. So maybe it's that -- it proved to be a little bit tougher than you thought.

And then maybe the second part is, to be clear, in that revenue guidance, how much AI uptake are you assuming in there? Like when are these Flex Credits really going to kick in? And is that -- would you deem that to be a big contributor to your fiscal '28 outlook?

Yes, I'll start, and I know Carl is going to be anxious to jump in on this one, too.

I like responding to Karl.

No, I mean, obviously, I wouldn't say there's been a shift in guidance. I think what over the last year or so, a, I'll point out that we have held to a number that we put out here a year ago. All that being said, we always take criticism, thoughts and advice from anyone in this room. So we're always good listeners.

Look, as Carl mentioned, we want to put out a number that we feel good about, both with the things that we can and the things we can't control. And there's a lot out there, and we've experienced it this year with certain elements where you can control, and we can lean in more and other things -- other elements that you just can't. And we believe we've got a good guide. We believe we've got a very strong diverse business, and that's what we've articulated.

There are a range of outcomes. And those of you who we spend a lot of time with always tell us, look, what we care about is where you are 3 years from now and the investments you're making to deliver 3, 4, 5, 6 years from now. And that's what we're focused on.

And in a few instances, there are areas where we otherwise -- if you wanted to dial up growth more 1 year versus another, you may change your view on that. You may not do some of the go-to-market actions and some of the geographical growth that we're doing today because we know those are only going to pay off 2 or 3 years down the line. And those are the types of things where we're optimizing for the midterm. We want to be thoughtful around what next year looks like.

We love to always beat, raise and continue to drive growth in the business, and that's what we'll execute against. But we just -- the dialogue that we had with Carl was that was a good number to put out there. It's within the framework that we feel very good about. I know you'll chime in on that.

Yes, Karl, this is not about FY '27. We tried to lay out a framework for the next 3 years. We tried to give you a number that we feel good about, and we think we're going to be able to hit. And I anchored you to 13% because I feel really good about 13% next year. And if things go our way, we hope to drive that north of there.

And I don't want to keep putting a number out there, like I do every quarter with all of you and your question is, are you going to get there? You're going to get there? We get there, we get there, we get there. We're putting a number out there. I feel really good about it. It's durable growth at scale for the next few years. And I think we're going to drive really strong results against that.

And then as far as the Flex Credits is, listen, it's early. We just launched it today. It actually goes into production in the new year, really in February. We don't know the impact it's going to have. But as I said, we're planning for it to have impact on the business. If it accelerates faster, that will take us north of the 13% that we're guiding for right now, at least for the next few years and take us towards the high end of the range. But I don't want to put a number out there, Karl, that you don't believe or we don't have confidence and conviction that we can hit, and we can hit these numbers over the next few years.

This is Keith Weiss from Morgan Stanley, right in the middle here.

Right in the middle.

Exactly. Tried to hide but I couldn't. Thank you for an excellent presentation. One of the things that struck me was the scope of what you guys are trying to do now. And it's not just the TAM number. You gave us a huge TAM number of $188 billion, but it's the types of things that you're looking to do going forward, right? It's not just about managing people and managing the finances, which was the core of Workday, but you're also now going to manage the agents.

And a lot of us think of agent management is something that's more technical, maybe like ServiceNow does that. You're also looking to automate workflows across the organization. And we used to think of that as like a workflow automation platform, maybe a UiPath does that. And now Sana, it makes it seem like you guys want to be the user interface into what information workers do all day long. And we thought of that as something that Microsoft does or maybe Slack does within Salesforce. So it seems like the extent of what you guys are trying to do is much broader. How do you think about your right to win? When you talk to customers, what makes you guys feel comfortable that Workday is the right platform for doing these parts of the equation that a lot of us thought would go elsewhere. A lot of us thought would go to other types of vendors.

Yes. Well, I'll let Gerrit start and then I'll follow-up.

Definitely. Thank you, Carl.

Because we wouldn't go into these markets if we didn't think we had a right to win and if our customers weren't asking us to enter these markets. Really important, Keith.

Yes. So first of all, you're right to win. Definitely, Keith, look, we are playing to win. We are at the table because we want to run it. So specifically to your question, right, the place that we are calling, if you so will.

First of all, with Sana, let's just work back from the experience. There is not a single solution today in the market, which does what we can do together with Sana. Sana basically is going to revolutionize the entire UI experience for Workday in the ERP space overall. And yes, that will allow us that we can accomplish tasks that we couldn't before. We just talked about this, right? AI gives everyone incredible attitude, including us.

So of course, when we have the best user experience for the AI age as an enterprise solution, of course, we're going to leverage that to go into areas where we are not as today. Our customers will build their agents, like Rob has said, with Sana's no-code agent creator, our partners will build them, right?

We are seeing this today with the Workday Marketplace. It is natural for us, right? And Workday has been doing this, right? Workday expanded from white collar to contingent to Git work, now to frontline. Those are all extensions to our platform, right? And Sana is basically driving this from the user experience first by creating this knowledge and AI experience that, frankly, no one has today. This does not mean that we are going into office productivity at all, right? You can give Sana a document in Word, you can link a Google Doc into it. That's all part of the ecosystem, right? And you're not trying to be a productivity suite at all.

Secondly, when you spoke about what we think about our platform strategy and workflow automation and if this model looks like a UiPath or ticket automation system, people are doing this with Workday today. And it's what Carl has said, right, enterprises are complex. Every enterprise platform is an integration platform.

I worked at SAP. I have seen and done it firsthand. I worked at Google. I've seen it from the other side firsthand. Regardless of who you are in that space, customers are building, extending and working with your platform in various ways and build own workflows with it. So we have customers coming to us and tell us, we want to do more with the assets that we have in Workday because two of our key assets, workforce and financials live inside you.

You're running major processes for us from writing the invoice to closing the books, from recruiting to someone going to retirement. These are large process chains. And us offering is then extensibility, that is the definition of right to win. I think it's comical that some vendors say, we have an IT-based solution, and we're going to offer an automation suite around you, right? It makes zero sense. It's the wrong people. It's other ones building it. The context model is different. It's truly us fulfilling what I think is an unmet need. And as I've said, I believe because we are doing this in a much modern way that everyone else is doing it, it will naturally expand. But our core focus is going to be around people and money.

To your last point, agents. maybe a misconception here, right? We are not trying to be a technical infrastructure control play for AI. You said it, right? There are companies doing, the hyperscalers are doing it. Quite frankly, everyone has them, right? Everyone has one version of an agent control tower. That is not our strategy at all with agent system of record.

Agent system of record is fulfilling 2 very important needs. One is enterprise AI security. When you log in, if your company is using Workday through Okta, do you know what Okta does? It checks in Workday if you're currently employed at your company, right? If your user principle is still valid and still exists. So there is an interconnection between the security model and your workforce model.

And with AI, it's going to be the same. You heard this today with Microsoft Entra ID integrating in Workday. So we have the same integration on the security plane between your digital workforce and Workday as you have with your human workforce.

And then secondly, we talked about AI accuracy. Giving AI organizational context matters a great deal because an AI agent behaves differently if it's supporting a sales team in North America than when it's supporting a services team in Germany. In that context, where does it exist, right? All of that information about all of this process model, it exists in Workday. We are not a technical infrastructure player. We are a business application platform.

And in ASOR, we are giving AI agents, our own and for party agents, the business context. We are a business control plane, if you will, for AI. And that's uniquely valuable. It doesn't exist in the industry. And that's why you see Microsoft, Snowflake, all of these other vendors partnering with us because they understand this allows them to take AI from a tech play to an enterprise play.

Yes. And Keith, the only thing I'd add, Gerrit said it so well. You mentioned we're doing a lot. We are, but there's nothing that we're doing that is not tightly aligned or coupled to the core platform of Workday.

Exactly.

We're bringing a new front door to Workday. We're optimizing workflows in Workday. We're bringing agents to market for planning, for finance, for HR, for industries around Workday. We're not going into an analytics market. We're not going into some new ITSM market. We are focused on driving value that our customers are asking us to deliver in their existing platform. So it sounds like a lot, but it's all in the desire and hope of driving deep value to our customers in the adjacent markets that they're asking us for.

Okay. We are going to -- I'm going to turn it back to Carl just for a few closing remarks, and then we'll...

Yes. Well, first, I'd like to thank, where's Justin and Annie, the 2 people, give them a round of applause for putting this time. They do an amazing job. And as you can imagine, there's a tremendous amount of work and effort that leads up to a Financial Analyst Day. And I sit up here with, I think, 3 of the strongest leaders in our industry. Them, along with the other 20,000 workmates that I get to serve alongside of they're working hard.

And I'll say it again, we're underappreciated, and we're undervalued. And we're going to innovate like we've never done before, and we're going to drive our customers and our industry well into the future. Thanks for joining us at our FAD. Thank you.

Good morning, everybody. It's day 3 of Goldman Sachs Communacopia and Technology Conference. Thanks for your support of the conference. This -- since the rebranding and the relaunch of the conference in 2022, this is the fourth year in a row, I think we've had you for fourth year in a row, and attendance is up not by software industry standards, but by our industry standards, it's up very nicely. We crossed 3,000 plus. It feels so busy and the room is full here. On that note, welcome to Goldman Sachs Communacopia and Technology Conference.

Thank you, Kash. Thanks, It's great to be back. Good to see a lot of friends in the audience here. Also, I'd like to congratulate you, Kash, 31 years in the industry, the last 5 here at Goldman Sachs. You've been a friend to many of us for decades at this point. You've had an incredible career. You've made all of us better. You've been tough at times, but you're always fair. And I just think -- you've done an incredible job helping the software industry as a whole be highlighted as a tech sector that people should really pay attention to in the past and going forward. So how about a round of applause for Kash.

Thank you. That's very kind of you. very kind of you. It's all possible only when you cover great companies, and I've had the pleasure of knowing you for a very, very long time since the VMware IPO. And Carl is one of these -- probably the only CEO that I know who has worn the following hats, COO, CFO CEO, venture capitalist, Board member to have a dozen public companies at some point in time or the other. I cannot think of somebody who has worn all these hats and has multiple roles of experience. And someone that I look up to, he's a great leader and very inspirational and someone who is fun to spend quality time with, which is exactly what we're going to do in the next 30 minutes.

Thank you, Kash. It's been an amazing career. I feel blessed every day I wake up, I pinch myself and wonder how this kid from Pennsylvania have gotten this industry 37 years ago, and here we are. So I'm grateful for sure.

Congratulations.

So give us a bit of assessment since you took over as CEO, what are the milestones the company has been able to accomplish and then we can talk about the go forward.

Okay, sure. Well, it's been an incredible journey, Kash. It's hard to believe in 3 months, it will be 3 years. It feels like just yesterday, I joined Aneel and the Workday team to step in and serve in an operating role and step off the Board. It's been an incredible journey. It's been exciting. It's been everything I expected and then some. When I joined almost 3 years ago, Workday was a company that just did an incredible job in the large enterprise, if you will, crushing the HCM market, specifically in North America. And when I came in, I wanted to leverage that strength and that position as a company.

But I also knew there was a tremendous amount of opportunity outside of that. And very quickly, we embarked upon a number of growth initiatives and strategies. In no particular order, we really leaned into our partner ecosystem, Kash. We had partners that deployed our software, but they weren't really driving innovation. They weren't looking as a platform and building solutions on top of us. We now call this the Workday economy. We don't call it an ecosystem almost every 6 months, the number of partners working with us is doubling. So we've leaned into partners. We've leaned into our international opportunity.

We think we have a tremendous opportunity to grow our business internationally. We only get 25% of our business. We're almost $10 billion in revenue outside the U.S., which is pretty amazing for someone of our scale. And we're not stopping what we've done in the last 3 years. Most recently, we announced we're entering the India market and putting a platform in a cloud there to offer that, and we're going to be going into many markets. So international has been a big push for us. We've entered the U.S. federal market in an aggressive way. Just about 2 years ago, we brought in a great leader. She's built out that business. We think there's a massive opportunity in the U.S. federal government to really upgrade and transform what I would describe an antiquated infrastructure in the federal government. It's all on-premises. We will move to the cloud.

And then most recently, we launched actually the Workday Government subsidiary, a subsidiary of Workday so that we can really target that market. So that's been a really big push for us. I said we crushed the HCM market, and we continue to do so, but also now we've leaned pretty heavily into our financials business. And the financials business, we can sell a financials platform. But really, what it drives is what we describe as a full suite sale into our customer base where they buy both HCM and financials and our accounting center at one time. So that's been a really big push for us and quite frankly, been very, very successful.

And then 2 other areas in the last 3 years. I think we've moved from being a company that is an apps company to an apps and a platform company. And there are very few, I think, enterprise software companies that can say they're both an apps company and a platform company at the same time. We can say that. We have one of the most robust platforms in the industry that runs 2 of the industry-leading apps, but people are now consolidating on top of us. And obviously, I'm sure we'll talk about it. I'm sure you have questions, but we're leaning heavily, heavily into AI. And we think we're uniquely positioned compared to most out there to take advantage of our incredible moat that we have around our data and the incumbency of our customers.

And last Kash, I'd say, I think I said it here last year, and I'll repeat it because I think it's still the same. We've become an incredible magnet for talent. The talent that we can recruit to bring into Workday is really incredible. We've done it on the go-to-market side. We've done it on the product side. We've done it in different functions across the company. And these people have come in and very quickly engaged with the existing set of executives and drove the company forward. And in the end, 5 years out, I think we will be by far the #1 enterprise AI platform managing our customers, people, money and agents. That's what we'll be 5 years from now.

Yes. I want you to talk a little bit more about that 5-year out 2030, your best prognostication. I know you had a high-level assessment of the money people, et cetera. Talk a little bit more about how you see that playing out.

Yes. I think, Kash, right now, we're incredibly well positioned. I'm surprised you didn't ask this as a first question. There's this whole damn narrative out there, quite frankly.

Oh that's my next question.

I won't answer it. But...

Every CEO has gotten that question...

I'm going to wait because I'll jump off the stage and start running around and such a bunch of craft. That being said, I think why we're uniquely positioned and why the next 5-year journey is going to be incredible is, number one, we have a massive installed base of customers. We have more than 11,000 customers with a gross retention rate of 97% to 98%. They're not going away, number one. We have the cleanest and largest set of data around HR and finance in the industry, bar none. We are on the desktop of 73 million users, 73 million users. Think about that. And we have the opportunity to go back and continue to drive innovation into our customers. It's an incredible position we are in. We don't have just the data, though. We have the context of the data. We know why it exists. We know how it interacts with other sets of data. No one else has that.

And the last thing is a lot of people come in and their workflows. They have workflows. We're in the workflow, but we have the data and the context of the data. Those 3 things give us a unique advantage. And last, I'd say, we're a system of record. We're a system of engagement. We're a system of action and now, Kash, we're a system of intelligence with AI built into the platform. No one else can claim those 4 things.

That's a neat position. And this kind of line of reasoning as to why a SaaS company is relevant in the AI world is just starting to form this context, data, the workflow, et cetera. What are the things that the company is doing under your leadership to take these advantages and mold them in a very tight tas to make it like solidly bulletproof for that.

Yes, I think there's a few things. So first, we're making sure the core platform continues to be innovated on top of. Very quickly, we all jump and talk about AI, and we're going to do it, and there's no one leaning more into it than us. But we have 6,000 HCM customers and 11,000 customers in total that are using our platform and they expect value from us. So we're innovating on the core. We can't leave the core behind, because what we have with our incumbency with our customers is 20 years of trust. They have trusted us with their most mission-critical data, their people and their money. And that's a privileged position that we're in. And if we innovate on top of the core, continue to drive value into our customers, they will look to us as they are today for their AI partner.

And on the AI front, I think it's a stack that gives us differentiation. Number one, we're building first-party agents, our own agents that are very enterprise-focused, domain-specific around HR and finance. We've rolled out a whole bunch of them. We have 13 of them we've announced. We'll showcase them next week at our big user conference here in San Francisco. But we have incredible enterprise agents that drive real business value. When you drop down out of the agent strategy have, we have something we announced earlier this year called an Agent System of Record. And I will tell you, this is something that is resonating not just with our customers, but with the ecosystem or as I described it, the Workday economy.

We have people like Microsoft and Google, who have agent builder platforms who say, we need to onboard these agents into the enterprise in a very secure, safe, compliant way. We need to make sure they have access rights just like employees. And they're coming to us and saying, "Hey, we want to partner with you because you own the majority of the enterprise, and we're going to onboard agents in the same way we did humans. We're going to align them to org charts. We're going to align them to management, and then we're actually going to have to manage the total workforce.

So the Agent System of Record as the orchestration layer is going to be super powerful. Our partners, Accenture and Deloitte and many others are coming to us and saying, you're the on-ramp. Because today, everyone is talking about agents, and I call it agent sprawl. At some point, the CIOs are waking up and saying, what's going on? Where are these agents coming from? What data are they getting access to? What are the privilege rights? What are the -- like it's changing rather quickly, and you're going to need something to be able to onboard those agents.

And then the last thing is because we are a true platform, most recently, we acquired a company called Flowise, which is a low-code open source agent builder platform. So now what we're starting to see is both customers and partners saying they want to build their own first-party agents on top of Workday because they want access to the data, and now we deliver that platform. So it's a stack from our own agents to the agent system of record. And then finally, the low-code, no-code development platform for people to build on top of us. That's what differentiates us. And what do they all get access to? Data, right? AI, one talks about AI, AI, AI, right? Yes. It's super powerful. But I always like to say we don't hallucinate. We're not training off the Internet. We're training off a highly curated set of data.

Yes. So let's talk about seats. It's the easiest conclusion to make. Perhaps it's prematurely wrong, but the conclusion is seats under pressure because of AI. And every SaaS company that has been through the post-pandemic correction has seen seat-based growth come under a lot of pressure. Mark talked about it yesterday, and I'm sure we're going to hear about it from other SaaS companies as well. What is your thought? Is the seat compression just a function of overbuying during the bubble and we're just kind of working through that? Or is there something structural by way of employment? And the employment numbers don't seem to make it very easy. Jobs added was the slowest pace that we've seen in quite some time. What is going on in your customer base from a seats perspective? How -- what is the outlook for seat-based growth?

Yes. Thanks for the question, Kash. As I said, you're always tough but fair, and this was the very first question you asked me on our earnings call just 3 weeks ago. So first, I fundamentally disagree with this narrative, and I don't know where it started that like SaaS companies and more specifically, seat-based companies are in trouble. They're going away. I just fundamentally don't believe and I think it's completely overblown. And if you go talk to our customers, that's not what they're saying. And for people, Kash, who are rightsizing their organizations are doing a restructuring, right?

When you talk to the leaders and I talk to my peers, they're not doing it because of AI. They're doing it because from the pandemic in 2021 through 2024, we overhired. We were zealous. We wanted all these employees, and we're rightsizing the business. Now that being said, we can't be naive. AI will drive further economies of scale and better productivity for all of the employees. So we can't be naive either, right, Kash. And we've been very transparent before AI really started to emerge in the enterprise, we talked about now 1.5 years ago where we saw a moderation of our headcount growth. And even last quarter, our headcount growth in our employee or in our customer base actually accelerated again.

The 74 million, that's great to know.

Yes. It's moderating. It's not growing. And the year-over-year growth isn't as fast because now we got to lap all the hiring people. But the overall headcount in our 11,000 customers actually continues to grow. So it's not like we're going away. And by the way, the other thing I think we need to remember, and it goes back to the earlier conversation, Kash, we're in such a unique position. I think we need to think about it from the context of how much TAM expansion are we seeing because of AI in the enterprise, right? I think that number so much outweighs the moderation in headcount growth that we're thinking about it completely wrong. And this is why I think some SaaS companies maybe will have bigger or more structural challenges than us. But I think we're uniquely positioned. I view it as a tailwind to us. Will we see moderation in headcount growth? Yes. But the opportunity outside of just pure seat-based license.

It's more about it. You sound fired up.

Yes, because you know why -- take this right away and take this -- I mean, I get asked this question all the time. Every day, like you're going to -- what's happening in the Workday. I'm like nothing, we're doing pretty well. Like we have an incredible franchise, Kash. And I just think it's completely overblown. People aren't taking out their employees because of AI or solely because of AI. People are rightsizing their business from overhiring in the past. And now we have the opportunity to go back and leverage AI and actually sell back into our installed base and our installed base is huge Kash. So I just don't see it happening.

Yes, I am -- it's a bit irritating. We got to address it. It's our cross to bear, and we'll continue to push the message out there. I mean we are selling -- our AI solutions are doubling year-over-year. Some of them are doubling quarter-to-quarter. So when you have that incumbency in that installed base, it's an incredible opportunity to innovate and drive right back into your customer base to sell them more. So I think that's the opportunity for us. Again, I fundamentally believe AI will transform a lot of jobs. We know what happens in call centers, customer success, maybe marketing, maybe sales and lead development. And obviously, we see the power of it when it comes to software development. So again, it's happening. I'll tell you a quick interesting story. I was talking to a CIO, Kash.

By the way, this is high energy, right? I mean this is...

I'm fired up...

I love it all.

I was talking to a CIO, Kash, and they have 10,000 software developers. And I was just asking them, and I'll say a Fortune 10 company to be safe, but it's probably even higher than that. I said, how is AI going? He said it's going incredible. We're getting incredible productivity gains. I said, what are you getting? And he said, we're getting about -- we can quantify 30% productivity gains. And I said, okay, that's great. So what are you going to do with those 3,000 people that might be impacted? He said absolutely nothing. They are moving on to more productive work, taking out the mundane of what they do every day, and they're going to do work they love. They're not getting rid of them, right?

So I don't know. I think it's completely overblown. It's our responsibility and my responsibility at Workday to prove the market wrong in this context and show how we're monetizing next week at our Financial Analyst Day. Hopefully, you're there. We're going to do some further disclosures on our AI growth and how we're doing. It's pretty damn impressive.

So Carl, let's talk about the AI agents that are doing so well, they're doubling sequentially, doubling year-over-year. What are these agents exactly? And how are customers getting value from these agents?

Yes. So we talk about a recruiting agent all the time. This is a company we acquired last year called HiredScore. There's a recruiting agent. You plug this in and you can very easily drive business value in the tune of 50% productivity gain for your recruiters. So right, think about that. And the onboarding, right, of those new employees accelerates by 40% to 50% as well. So it's very quantifiable. We have a contract negotiation agent, right, with a company of Evisort that we acquired, have all these contracts. Now you're going after a new customer and someone's got to sit down in red line, which is a tedious task we all know. Now you can automate all of that because you have all your contracts, what you want in the contracts and you can do that. That's another example.

We're rolling out a business process agent, which looks at your workflows of your business and we'll automate it and clean it up so that someone else does you don't need process mining, you can do it, for example, with an agent is another one. We're rolling out a payroll agent. Think about payroll administration. Payroll administration, there's a bunch of people who look at payroll, answer calls, what's going on today. You can automate that. That's another example. So we have 13 of these we're rolling out. We financial audit agent. Like if you look at financial audits, only a little bit of variation changes each and every year, you can automate that.

So again, we are -- what we are focused on is enterprise-grade agents, Kash, that drive true business value. And the thing we're focused on, which is different than a lot of our peers out there, we're focused on quality of agents, not quantity. These people come out and say, we've launched 20 or 40 or 100 new agents. They're thin veneers just wrapped around something, it's not true business value. And people aren't really getting that in return when they go to the enterprise to monetize it, they're not getting it back. And we're focused on quality, not quantity and business value outcomes for our customers.

That's great. I can see that there's a lot of innovation. It's a very different discussion than a year back, just in the space of 1 year. And I recall that there are points in time when there is maximum skepticism. And we've been through -- you and I have been through these cycles many times before. And I fondly recollect, maybe not so fondly, but 2016, February 7, Tableau and LinkedIn, these are public companies at one point. They had missed their quarters and the stocks were down 50% that day. And it led to a derating of the sector. And then we had the birth of AWS or at least the scaling of AWS and people said, AWS is going to get into the application space, and they're going to commoditize. You were at VMware at the time. Remember the fighting the fight. [indiscernible] a deal with AWS.

I dealt with AWS, but more importantly, VMware, I remember 6 times we were going to be taken out. We were going out of business. Every open source hypervisor that came out was going to crush us going all the way back to 2002, right, whether it was Zen, KBM, whether it was OpenStack, you don't need this anymore. It doesn't happen.

Yes. And you'll be happy to know that all the good work you did at VMware is showing up in Broadcom, we had Hock Tan yesterday. I mean that business is thriving. It's doing really well.

Yes, I hear it's doing well.

So the point is when there's maximum skepticism, those are times that create fertile ground for a debate. And I think AWS is going to commoditize software debate was one that we lived through, not only that, but AWS is going to commoditize Microsoft and Azure and the whole stack. and actually, what ended up happening was AWS created a platform for Workday to scale its business, Salesforce. And the SaaS universe found a way to scale to an orders of magnitude that was just not possible given their infrastructure. So how do you see this AI thing? So how is Workday working with the cloud ecosystem to help scale your AI footprint?

Yes. So historically, we've run our own data centers. And even to this day, most of our clients are on our own data centers, but we are migrating to the public cloud. We're migrating to both to AWS and Google, depending on where the customers want to go for obvious competitive reasons. Some of them don't want to go to one or the other. So we are rapidly migrating to the public cloud, leveraging their infrastructure, leveraging their continuity, right, and all of the data centers they have around the world for disaster recovery and making sure you have the right amount of uptime. So we are absolutely leveraging it.

There are partners as well. Google has now, as I said earlier, they have an application development framework for building agents, and now they're going to integrate that on top of our agent system of record to how to onboard it, right? They're a customer. So we are absolutely leaning heavily into partnering with all the hyperscalers. Again, we're on AWS and Google. We don't run on Azure at this time, but we do partner with them and Satya and his team are working closely with us to bring their agent platform on top of Workday going forward. So yes, the hyperscalers are going to play a critical role going forward, and we're going to leverage everything they can do for us.

Thomas Kurian was here yesterday, talked about how they're scaling their AI footprint and the tremendous work they're doing with TPUs and the models have come a long way, certainly.

And we use all the models. We can -- they're interchangeable for us from an LLM perspective. We can go and use any of the different models out there.

Do you have a view -- since you mentioned it, there are so many models, right? It was a 1-horse race many years ago, and that became a 2-horse race and then there were 3, then there were 5, there were 6, there are 7.

Listen, I like all my partners. I'm not [indiscernible] going to win. I think they're all going to do well. There's enough opportunity out there for all of them. We use them all. But I don't know if I'm in a position to say who's going to win or lose because someone will hear that Carl said this, and then I'll get a phone call about 20 minutes.

They're all probably worked at customers. So many of them work.

Yes, exactly. That's why I'm not answering.

And it's too early to have a view on these things, right? It's just extremely nascent. I wanted to ask you about your AI monetization strategy. How does your pricing strategy evolve? You could argue that the SaaS industry has gone through a fairly simple pricing, added value, ARPU goes higher, sell more seats. But then all of a sudden, there's this AI thing. How do you value an AI agent? How do you price an AI agent versus a seat? How are you thinking about the pricing model for AI and how that kind of factors into the growth algorithm?

Yes. It's a great question. I think 2 years, we sat on this stage when we talked about AI monetization and our strategy. And at that time, most people were just basically saying we have some copilots and we have some bots that you can take advantage of. And for that, we're going to raise your pricing or subscription pricing by 20% or 25% per seat. And very quickly, that became the model. We decided not to do that. We believe there are table stakes when it comes to AI that you need to be built into the platform and your customers should get them as part of their subscription fee, and we didn't rush to market and raise prices at all.

And I think a lot of people questioned us. I will tell you, fast forward to today, that goodwill has come back in spades for us. People appreciated it. We have so much AI built into the core of the platform that they get as part of the platform. 75% of our customers are using AI that's in the platform today already, 75%. Now that being said, when we have to bring out a new agent that drives true business value, we're going to monetize it. We're going to monetize it in a multipronged way. Sometimes it's seat-based. Sometimes it's consumption-based and sometimes it's volume-based. So we have multiple pricing models. Our pricing model is working. I said, Kash, we're growing our business, our AI business 100% year-over-year. Things like Evisort for contract intelligence and negotiation agents growing 100% quarter-over-quarter. Extend Pro, which allows people to bring in AI agents and bring in other platforms on top of our platform is growing 100% a year.

So I think our pricing strategy is working well. We will provide a further -- again, come next week, we'll provide a further update on our AI pricing strategy and monetization strategy going forward. But I'm really pleased we didn't rush to market. Sometimes being first isn't always the best. We got goodwill from our customers. Now our customers pay us for the value, and then we're going to take it one step further that we'll bring to market next week, our price...

I'm looking forward to it so much and I wonder if you'll go a few steps hard to actually quantify the AI book of business, which is like the next disclosure that companies like the other companies in SaaS space have put a disclosure and a target, not that it's helped tremendously because...

Come next week.

Okay. So stay tuned for that. I think the key aspect of the confidence building process, at least from the investor community is understanding that your base business has stabilized, first of all. The good news is that Workday is a system of record. The perception is that the space you play in is the least susceptible to AI disruption that may be different than other application spaces. So you've got a solid base of defense you need to establish that your core business is steady. And then when the AI monetization kicks in, you've got a massive installed base. And I don't know if you know Byron Deeter.

I know Byron really well.

You know him really well. I figured he's the guy that came with a rule of 40, 50, 60, whatever. He's such an amazing partner to Goldman Sachs and someone that I worked with 10, 12 years. We had him on stage a couple of days back with Ashim and a couple of other VCs, all of -- that you know from -- in fact, Brady is going to be here, by the way, today. So he said it best. He said, people are so nervous about SaaS, trading at 5x revenue. Some of them are going to go to 3 and some of them are going to go to 10. I thought that was the single most interesting simple takeaway that companies are going through this transition. And remember, Adobe in November 2011 was written off. They were not going to make it. Autodesk was written off. Intuit was written off. And the incumbency is such a powerful thing that when you look through the lens of an old man like me that has lived through these cycles, I would not be...

Again, this is why you got me all fired up earlier, Kash. We have things that other people don't have. We have incumbency. It's super powerful. I'd look out in this audience, I don't think anyone is taking a byte coded, DC-backed AI start-up and replacing their ERP, whether it's HCM or financials, so they're replacing their GL. I have yet to find one anywhere in the world who's saying that at scale, like it's just not happening. What we have to do is we need to focus deeply focused on driving innovation and leverage that incumbency, that data set, the context, all the things I talked about. If we do that, we're going to be just fine. We're going to wake up years from now at this conference, and we're going to see a plethora of venture-backed companies that dissipate, and you're going to see some of the bigger get bigger, faster, stronger, and I expect us to be one of them.

I expect you to be here in 2030, and I'll be sitting in the audience as a client and watching this unfold. The other thing I want to point out is that I think most people don't -- maybe they do, but you were a venture capitalist. You understand a thing or 2 about disruption and hard startups and how to vet ideas. You looked at probably thousands of business plans. You have an eye for catching the right talent. So if anybody could pick the right tuck-in acquisition that's promising, I would bet that you know how to do that.

I think the team and I, we know how to do that. It's not just me. I have an incredible team that is really good at finding these opportunities. And in the last 1.5 years, we bought now 4 AI companies, some of them really impactful. Most recently, we announced an acquisition of a company called Paradox, which delivers a conversational AI platform, which effectively means mobile for frontline workers and frontline workers work on their mobile phone, right? And we were partnered with Paradox and every one of our customers said, well, why aren't you guys owning this? You guys have the best, if you will, back-office white-collar recruiting platform in the industry through the acquisition of a hired score, go get the front line. And we've done that.

Now we have the best, if you will, AI recruiting platform in the industry from frontline to back office and across every type of worker, whether it's full-time contingent or gig workers. So we're buying those. We're buying Flowise, which is an agent building platform. We bought Evisort, and we bought HiredScore. So we are absolutely inquisitive. We'll continue to be inquisitive. We'll continue to find these AI companies. We'll integrate them and then they get to take advantage of our massive distribution channel to really scale the business. So we're aggressively pursuing.

And you have such great goodwill with your customers. I mean when we go to Rising, it's like -- it's a cultish thing in a good way, which is...

No. I think the numbers, I was -- we had a session yes.

How many people do you have signed up for?

We'll have -- for the opening day, we'll have 25,000 live, something like that right here at the Moscone Center. So once we get through today and a Board meeting tomorrow, we have 3 days to focus on this little user conference we have. And people are rabbit. And I go back and I talk a lot about trust. It's one of the most trustworthy companies I've ever seen and ever been part of. Our customers love us. They trust us. They're looking to lean into us, lean into the platform and consolidate on it. They're not looking for all these point solutions that exist out there today.

On that note, we have -- this has gone so quickly, and I've enjoyed it that I forgot to check in with our clients to see if you have any questions in the minute and 26 seconds that we have. Yes, go ahead.

[indiscernible] start with the open source model because they may be our research labs, integrating them part of Workday, how do you expect to deal with that governance conflict? Or is there a conflict?

Yes. Actually, there is no conflict. And Flowise is the first, if you will, open source company that we've acquired, which is the agent building platform. So we'll keep it going. If you look at how many GitHub stars they have, it's pretty viral out there already, which is what gets us excited. And now we're going to integrate that on top of Workday and Workday Extend for everyone to build their agents on top of us. But we'll keep the open source community live and well, I think about as lead generation for us. And then we're going to make sure we have the security compliance and controls around it because, as you know, we have people's money in their HR data, and it's super important that we stay highly regulated and focused on security, too. So we'll do that with Flowise's, but we are going to keep an open source platform.

Carl, on that note, it's been a couple of decades since we got to know each other. I wish you well in the next decade and beyond. Thank you so much for your support of Goldman Sachs. We really appreciate it. Let's go a round of applause for Carl Eschenbach.

Thank you so much.

Welcome to Workday's Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions]

I will now hand it over to Justin Furby, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Welcome to Workday's Second Quarter Fiscal 2026 Earnings Conference Call. On the call, we have Carl Eschenbach, our CEO; Zane Rowe, our CFO, and Gerrit Kazmaier, our President, Product and Technology. 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 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, a copy of the prepared remarks and our quarterly investor presentation will be posted on our Investor Relations website following this call. Our third quarter fiscal 2026 quiet period begins on October 15, 2025. 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 will hand the call over to Carl.

Thank you, Justin, and thank you all for joining us today. Workday delivered another solid quarter with 14% subscription revenue growth in non-GAAP operating margin of 29%. We built great momentum in Q1, and we kept it going in Q2 with strong customer adoption across key verticals, geographies and segments.

Customer engagement with Workday has never been higher. Our customer experience center in Pleasanton is absolutely buzzing. In fact, I feel like I'm living there lately. To keep up with all the demand, we are opening new CXCs in both New York and London.

Customers are choosing Workday because we help them unlock value today, and we prepare them for whatever is next. Whether that's navigating AI transformation, streamlining operations, or creating more meaningful work for their people. That's where the Workday platform gives them the ultimate advantage. We help manage and optimize their most critical assets, their people and their money, on one platform with AI at the core. This unified approach reduces total cost of ownership and help them move faster with greater precision.

And our AI value proposition is highly relevant in today's market. Workday Illuminate is fueled by the largest and cleanest finance and HR data set with more than 75 million users under contract and 1 trillion transactions process last year alone Workday has a deep understanding of how people work and how to make work better. This ability to deliver real differentiated value is what drove our customer momentum in Q2.

Now let's talk about our customer high. In Q2, we formed new HCM relation Carrefour, Memorial Health, Smurfit-Westrock, and Banamex. We also had a specific expansions with Sanofi, Blue Origin and Google. Are proud to serve more than 65% of Fortune 500. So what's even more exciting is to see the traction we're seeing in the emerging and medium enterprise, driven by the launch of WorkdayGO in Q1.

Our focus on financial continues to fuel demand for our full suite. This quarter, roughly 30% of our net new deals were full suite with that number rising to 50% or more in industries like SLED and Healthcare. Red coats, Michels, and U.S. physical therapy were just a few of our full suite wins in the quarter. Beyond the wins, we also celebrate go-lives Salesforce, a long-time HCM customer went live on Workday Financial Management and Accounting Center in the quarter. They're all in on Workday. By unifying their HR and financial data on our platform, they're getting entirely new insights about their business to support their innovation and growth. We also had full suite go-lives with Advocate Health, Honor Health and University of Melbourne.

I mentioned earlier in the call that AI is front and center in nearly every customer conversation. More than 30% of our customer base deals and more than 75% of our net new deals included one or more of our AI products such as talent optimization recruiting agent, talent mobility agent, contract intelligence agent powered by Evisort and Extend Pro and net new ACV from our AI products once again more than doubled year-over-year. We had fantastic AI wins at Trinity Health, Chipotle and Cox Health, just to name a few.

Now let's talk about industries. Financial Services had a standout quarter an expansion at Nationwide Insurance, which added core financials and wins with Guaranteed Rate, Handelsbakken and Miller Insurance Services.

In SLED, we had our first state go-live on financial management in Q2 with the State of Rhode Island. And we had a huge competitive win at the University of Virginia and UVA Health, an academic health system that includes a medical center, a school of medicine and a network of community hospitals throughout Virginia. We also continue to expand our work with the U.S. federal government, where our engagement across the Department of Defense, the intelligence community and civilian agencies has never been stronger.

In Q2, we launched Workday Government, a wholly owned subsidiary dedicated to serving the unique needs of the U.S. government. With this sector facing a once-in-a-generation opportunity to modernize its aging infrastructure our value proposition has never been more relevant. By combining our proven platform, AI leadership and deep commitment to public service, we're poised to deliver real impact for millions of government workers while also unlocking meaningful long-term growth for Workday. And with the government leading heavily into AI, we see tremendous opportunity ahead for many years to come.

And finally, as we shared last quarter, our tech and media industry crossed $1 billion in ARR, and that team followed it up with another strong quarter here in Q2.

Turning to innovation. Our road map is focused on delivering purpose-built AI solutions for HR and finance that drives tangible business value and real ROI, and more than 70% of our core customers are now leveraging Workday Illuminate. In May, we announced new agents that leverage our unmatched data set to help customers amplify talent reduce cost, accelerate decision-making and mitigate risk. And at Workday Rising in a few weeks, we will unveil exciting AI and platform innovations, partnerships and new ways to make it easier for customers to access and get value from our AI solutions.

While we continue to invest heavily in organic innovation, we're also making strategic acquisitions, we're focused on finding purpose-built solutions and exceptional teams that complement our strategy, strengthen our leadership and allow us to deliver even greater value to our customers. And today, I'm thrilled to share the exciting news that we have signed a definitive agreement to acquire Paradox, a breakthrough Canada experience agent that uses conversational AI to completely reimagine the job application experience.

Paradox turns long complex hiring processes into fast natural language conversations, making it easier for people to find work and for companies to fill critical roles, especially in frontline industries like retail, health care, hospitality, transportation and manufacturing. With Workday Recruiting, hired score and now paradox, we will be able to deliver an incredibly powerful AI-powered talent acquisition suite, helping customers find, hire and onboard every type of worker for every type of work. Now let's turn to our platform.

Will continuing to evolve Workday as not only the best application for people and money, but the best platform as well. and you can see that strategy play out in the incredible growth of Workday Extend. In Q2, new ACV from Extend Pro more than doubled year-over-year. driven by demand to build custom applications and experiences on top of Workday. Developers are embracing Workday's tools, including Extend and our AI APIs to expand the Workday footprint in new industries, markets and territories. In fact, we now have more than 100 marketplace apps live on Workday Marketplace, which has doubled since the start of FY '26.

To accelerate that innovation, we launched enhancements to Workday Developer CoPilot in Q2. This makes it even easier for developers to integrate AI capabilities into their apps and agents. We also launched our AI aging partner network and the AI aging gateway, making it simple for partners to connect their agents to the Workday agent system of record. We're thrilled to have AWS Google Cloud, PwC and Green among the first to sign on. We rolled out these innovations at DevCon, our annual developer conference. The excitement was incredible we saw a record turnout in our developer community has now doubled in size year-over-year.

And we're not stopping there. You may have seen that we also recently acquired Flowise a leading low-code platform for building powerful agents. Boise will turbocharge our customers' ability to create and deploy new AI agents at scale. It is built on an open-source foundation and is already processing millions of chats and workflows. It's earned more than 42,000 GitHub stars and is gaining strong adoption across industries.

And not only does Workday continue to invest in promising innovation, we also attract the best people in the industry. [ Peter Balis ], our new Chief Technology Officer, is now on board and already driving our AI and platform agenda. And we didn't stop there as we brought in several new technical leaders across our platform emerging and medium enterprise and security teams in Q2 as well.

Partners are critical to our success, extending the power of our platform, fueling our pipeline and delivering new innovation to our customers. For the second quarter in a row, more than 20% of our net ACV signed in the quarter was sourced from partners. Strategic partnerships are helping us generate new revenue streams and enhance employee services. In the quarter, we expanded our partnership with DailyPay, giving employees easier access to earned wages before payday.

Another great example is our employment verification Connector for Equifax announced a few quarters ago. Workday Wellness continues to gain momentum, with [ Ben Pass ], Chime and New York Life joining in the financial benefits category and [ Voya ] joining in the health benefits category. In its first year, customer response has been incredible and has already been recognized as one of the top HR products of the year by HR Executive and HR Tech.

Similar to the partner ecosystem, our international business remains a major growth opportunity for Workday, and we delivered a solid Q2 across regions, notably EMEA and Germany and UKI were standouts in the region with wins and expansions at Haven Leisure Johnson Carmichael, Scotland and DQS Holdings to name a few.

In APAC, we had great wins with Qantas and Lumas Imaging. We also signed our first deal in Vietnam with Masan Group, a top conglomerate spanning retail, banking and infrastructure. And our investments in Japan over the last couple of years are really starting to pay off with continued momentum and expansions, including Tokyo Electron and Astemo in the quarter.

As we continue to expand our global footprint, India is a key part of our strategy. In Q2, we hired Sunil Jose as President of India, announced we will begin offering services to a local data center, and we're growing our team and our partner ecosystem in this critical market.

We're heading into the second half of the year with incredible momentum, driven by our AI innovation, our unified platform, our ecosystem and, of course, our workmates. We continue to be a magnet for exceptional talent, attracting world-class leaders to Workday across all functions. We're building for the long term while executing in the near term, and I couldn't be more excited about what's ahead.

When we put AI to work for people, not in place of them, we unlock potential we've only begun to imagine. That's the future we're creating with our customers, and I can't wait for you to see what we achieved together. I'm deeply grateful to our global workmates, our customers and our partners for making Q2 such a solid quarter. And I look forward to seeing many of you at Workday Rising in our Financial Analyst Day on September 16. We where we'll share more about how we're shaping an AI-powered human-centric and future-ready Workday.

With that, I'll turn it over to Zane.

Thanks, Carl, and thank you to everyone for joining today's call. Our Q2 results were supported by ongoing momentum across several of our growth areas, as companies around the globe turned to Workday to manage and empower their most mission-critical assets.

Turning to results. Subscription revenue in the second quarter was $2.169 billion, up 14% and Professional services revenue was $179 million, resulting in total revenue of $2.348 billion, growth of 13%. U.S. revenue in Q2 totaled $1.76 billion, up 13%. International revenue totaled $584 million, up 11%. This includes a 3-point impact year-over-year from an increased mix of international partner deployments.

12-month subscription revenue backlog or CRPO, was $7.91 billion at the end of Q2, increasing 16.4%. The result was driven by elevated volume of renewal activity, including higher-than-expected early renewals, along with continued momentum in new ACV and strong partner growth. Approximately 1 point of CRPO growth came from tenants in line with our expectations. We anticipate this impact on growth will be just over 1 point for the remainder of the year. Total subscription revenue backlog at the end of the quarter was $25.37 billion, up 18%, and gross revenue retention rates remained healthy at 97%.

Non-GAAP operating income for the second quarter was $680 million, representing a non-GAAP operating margin of 29%. We continue to execute on delivering margin expansion while growing our top line.

We're focused on making targeted and impactful investments to support long-term growth, such as expanding our AI talent, both organically and inorganically, entering new markets such as India, and investing in certain industries, including our federal business. At the same time, we are driving efficiencies across people, processes and systems, all accelerated by AI.

Q2 operating cash flow was $616 million, growth of 8%. We repurchased $299 million of our shares during the quarter and had $1.2 billion in remaining authorization as of July 31. We ended the quarter with $8.2 billion in cash and marketable securities. Our head count as of July 31 stood at approximately 19,500 workmates around the globe.

Now turning to guidance. Following our first half momentum and incorporating the acquisition of Paradox, which we expect to close later in Q3 and we're increasing our FY '26 subscription revenue guidance to $8.815 billion, growth of 14%. We expect Q3 FY '26 subscription revenue to be approximately $2.235 billion, also a growth of 14%. We expect CRPO to increase between 15% and 16% in Q3. This does not include the impact of the Paradox acquisition. We continue to expect FY '26 professional services revenue of approximately $700 million. For Q3, we expect professional services revenue of $180 million.

We're increasing our FY '26 non-GAAP operating margin to approximately 29%, reflecting ongoing efficiencies we are driving across the business. For Q3, we expect non-GAAP operating margin of 28%. We expect GAAP operating margins to be approximately 17 and 21 points lower than our Q3 and full year FY '26 non-GAAP operating margins, respectively. The FY '26 non-GAAP tax rate is expected to be 19%.

We're increasing our FY '26 operating cash flow outlook to $2.85 billion, driven by the timing of cash tax payments as well as our operating performance for the year. We now expect FY '26 capital expenditures of approximately $200 million, reflecting free cash flow of $2.65 billion, growth of 21%.

We look forward to hosting many of you at our upcoming Financial Analyst Day on September 16, where we will share our framework for future growth and margin expansion. We are well positioned to capture our growing TAM and the emerging AI opportunity, and we're excited about the growth and value we expect to drive for our customers, partners and shareholders.

With that, I'll turn it back over to the operator to begin Q&A.

[Operator Instructions] I'll now turn it back over to Carl for some brief comments before opening up for Q&A.

Thank you for joining the call today. Before I jump in, I want to again thank our workmates customers and partners for helping us deliver a solid quarter in first half of FY '26. The momentum is real. It's powered by the strength of our platform, industry-leading HCM and financials, a growing ecosystem and AI that's built in, not bolted on. Customers are choosing Workday to simplify, consolidate and scale. As I've always said, our business is durable, it's diverse and it's building momentum as we head into the second half of the year.

With that, let's jump into live Q&A, and I'll turn it back over to the operator.

Our first question is from Kash Rangan with Goldman Sachs.

Good to hear the energy in your voice, card and congrats on the results and the outlook. If you look at Yes, awesome. If you look at what's going on in the market, at least this per site costs that a script investors that somehow SaaS is going to die and maybe SaaS is already dead. But I wanted to get your perspective, since Workday is a very special company. It was one of the early pioneers in the SaaS wave. You put the incumbents back then on the defense of [ Aneel ] and the rest of the team did, and you've scaled it.

Now the tables appear to be turning the other way and there is the notion that AI start-ups are going to be able to at the flick of a view of risk to create software magically, HCM software create HCM software boom, it creates that, boom, you've got a product overnight. It's this thing called vibecoding apparently. And I wonder if your experience in the industry, now that you're the incumbent SaaS player, you've also been a venture capitalist before. Maybe you know a thing or 2 about judging these start-ups and of course, Sam Altman at OpenAI already treated that they're getting into fast fashion SaaS. I don't know what that means. But these are all the things that are afflicting the market for software stocks and investor psyche. I'm curious if you have a take on all of this as it pertains to the Workday business?

Thank you, Kash, for that question. And as you could imagine, it is a narrative that we're hearing out there in the market. And let me give you my perspective. I think this whole concern around AI disruption and the potential negative impact on seat-based models are completely overblown. In fact, for Workday, we're going to leverage our entrenched position in the market. and our strong customer base, and we're going to be one of the go-to providers for AI solutions in the enterprise.

In fact, for quite some time, even going back to early last year, we have talked about our head count right? And our customer base has moderated, and we've seen that. But on a net basis, cash again this quarter, our head count growth in our customer base was up year-over-year. And when we talk and when I talk to my peers out there and other executives in the market, who have either slowed their head count hiring or they've actually done a restructuring. If you dive into what drove that. Most of the time, it isn't just because AI and the disruption of AI, it's because they've overhired going all the way back to the COVID days, Kash, cash where we've hired a lot of employees, and we haven't got the economies of scale and efficiencies that we wanted. Now AI will help us get that.

And let me just tell you, Kash, why I think we're uniquely positioned. Just think about our market position. right? We have over 11,000 customers today, a strong installed base that includes 65% of the Fortune 500. Look at our gross retention rate it's high 90s where a platform company cash and platforms are sticky. And in that customer base, more than 70% of our customers have already adopted an AI solution called Workday Illuminate. And as I mentioned on the call today, 30% of our sales back into our customer base included in AI SKU and now 70-plus percent of net new customers who buy Workday are also buying an AI SKU this in aggregate is what drove 100% year-over-year growth in net new AI SKUs this quarter.

So when we talk to customers and they say they're looking for AI solutions, they're leaning into their trusted partners and specifically partners that are platform providers, and that is Workday. And this isn't something we're saying, this is what our customers are saying. They tell us investing in Workday is absolutely viewed as an investment in their AI strategy. And this is why we, and in this case, I personally believe this whole AI disruption to seat-based models is a bit overblown at this point.

And Carl, that's useful. And Sam Altman post saying that they were getting into SaaS, what do you make of that? What SaaS it is, we don't know, but I wonder if you had a viewpoint.

Yes. I don't have a few point because I don't know what they're talking about when they're getting into SaaS. The interesting thing you hear out there, Kash, is we hear that AI is eating the software world. And unless something's changed from yesterday, I think AI is software, and we're leaning heavily into it.

Our next question is from Kirk Materne with Evercore ISI.

Congrats on a solid quarter. I guess, Carl, for you, there's a lot of things going positively right now with Extend, with some of the partners contributing. I was just kind of wondering, are there any cross currents out there that are sort of that relative to what you would have thought maybe at the beginning of the year, obviously, tariffs with Europe. Just anything you could give us some context on because it seems like you have some really nice momentum in some of your early-stage offerings, but I was just kind of curious, are there any things that are sort of making the macro perhaps a little bit more difficult as well?

Yes, Kirk, thanks for recognizing the delivery of a really solid quarter and first half of the year, and we do have momentum as we go into the second half of the year. If you recall, in Q1, we said there was 2 areas that we're keeping our eye on. One was the international markets for the reason -- some of the reasons you described as whether it's terrace, it's geopolitical situation or even the wars that continue outside the U.S. So we were keeping our eye on it. And then we said we'd also keep our eye on our SLED business, which is state, local and education business.

If we break those 2 areas down, we look at our international business, as I said in my script, we were really pleased with another strong quarter in Europe, and specifically in the 2 largest markets there, that being the U.K. and Germany. So we're really happy with their performance, and we haven't necessarily seen any blowback or headwinds due to some of the macro things we're all facing around the world. As it relates to SLED, as you know, there's 2 parts of that business. There's a state and local business in higher ed. On state and local, we did see a little bit of headwind in that market. And I think we'll continue to see that as people are trying to figure out what the funding slowdown is going to look like all the way to the state level.

On the higher ed side, it's really interesting because higher ed is clearly under pressure. They've lost some of their federal funding and if it's a higher ed university that includes a health care system, they too are getting a little pullback in funding. So it's something we're keeping our eye on. But if you look at things like University of Virginia, we closed a massive competitive deal in Q2, right, for the University of Virginia and their health care system. And it was very competitive. It's one, for example, it's been in our pipeline for a couple of quarters. It wasn't if they were going to do it. It was when they were going to do it.

And that's an example where our value proposition was so strong. They decided to move forward. So those are the areas we're keeping our Ion out there in the market. As far as everything else, I think it was this quarter last year, I described the market as -- it's the new norm. And I think the selling environment has been pretty consistent for the last year.

Kirk, this is Zane. I would just add, obviously, we're pleased with the quarter coming in ahead of even our expectations. As you look for the year, we moved up the guide for the year, both on the top line and of course, with operating margin accounting for Paradox with the increase. But absent that, we were very comfortable holding to the 88% with the existing business. So again, as Carl mentioned, the macro hasn't changed, but we feel like we've been executing well against that.

And Zane, if I could just ask a quick follow-up on a guide for 4Q. Obviously, there's a little bit of a ramp from 3Q to 4Q. Can you just remind us kind of what's embedded in that? I know you had some ramp deals that are probably coming back in this year. What should we think about, I assume Paradox plays into that? Just any sort of additional color you can have on just the sequential ramp from 3Q to 4Q would be helpful.

Yes, of course. Yes, as you highlight, Paradox does play into it to some extent. And then we've talked all year long about the deliverables tied to the DIA contract. We're tracking really nicely against those, and I'd say no big changes from what we called out actually early in the year. The team is doing a great job on those, and we've got good momentum heading into the fourth quarter. So we feel good about the second half.

Yes, Kirk, I'd say the year is playing out exactly as we expected. We knew we'd have a slower growth profile in Q1 and Q2. We build momentum going into the second half, and then we had some second half tailwinds that Zane just articulated. And it's playing out exactly like we anticipated, and we feel really good about the second half and where we're standing today.

See you at Rising.

See you there.

Our next question is from Mark Murphy with JPMorgan.

Nice to see the backlog growth is actually accelerating and the net new piece looking very solid. It's very differentiated. Carl, you mentioned the launch of Workday government. I think you said as a wholly owned subsidiary and you have this strong momentum developing with the big agencies. I'm just curious if they requested the formation of the subsidiary structure to be extra secure? Or is that going to let them go bigger with your AI products and just anything else you're doing architecturally that is differentiating Workday and driving those expansions with the DoD and the intelligence of the other agencies?

Yes. No, thanks for the question, Mark. Listen, we launched Workday Government in the quarter because we wanted to set up a separate subsidiary as part of Workday to show the government how focused we are on their sector and our opportunity. And I will tell you in spending quite a bit of time in D.C. over the last few months has been very well received. At the same time, to answer your question, we are building a very specific cloud environment for them with higher levels of security that they are seeking from us, and we're working closely with them.

One of the examples is what Zane talked about earlier with the DIA. So we're really excited about what we're seeing in the federal government. I said it's not just across one group in the federal government across the Department of Defense, the intelligence agencies and civilian agencies, the level and breadth of conversations we're having only accelerates and the fact that the government is leading deep into AI. They're looking to us to help them make this transition.

Our next question is from Brad Zelnick with Deutsche Bank.

Great. And congrats on a really strong Q2. And congrats on announcing Paradox, which many are less familiar with, but I know they have a great reputation and some seem to suggest it's a pretty substantial business that's growing nicely. Carl, can you talk about what led up to the deal strategically, what the vision is? And maybe for Zane, anything that you can share more about the financial profile because I think it may -- if I'm not mistaken, be a little bit larger than the recent M&A that you've done?

Yes. Maybe I'll start, and then I'm actually going to turn it over to Gerrit to talk specifically about Paradox. As you know, Gerrit is our new President of Product and Technology. And this week, he actually just celebrated his 5-month anniversary here, and he's doing an amazing job. But thanks for recognizing Paradox. We're extremely excited about Paradox because I think it really rounds out what we would call an industry-leading recruiting suite or platform.

And if you add this to what we've done with Hired Score, if you add this, what we're doing with our own recruiting agent called Hired Score, and then you add this to our recruiting platform as a whole. No 1 has a more robust AI suite to attract, to recruit and retain talent. And I'll let Gerrit speak more specifically about how this is going to fit into our overall recruiting suite and platform.

Thank you, Carl. Brad, so we look at Paradox from 3 strategic angles and why we think it's an incredible fit for our company and truly going to change the gaming recruiting. First and foremost, it's really important for us to expand Workday recruiting into all types of labor, be it in the frontline beacon and back office. It's really important that we support our customers in high-volume hiring and support all of their types of workforce. Paradox if their mobile and e-led approach is truly the premier solution in that space. And I think we can expect incredible acceleration in that segment with that.

Secondly, it's not only AI first, it's conversation and mobile first, which means that it's truly attractive for all kinds of company we're attracting people through a candidate first experience. And I think it's very important for us to emphasize that point, as we are building that future, as Carl has said, that we are also leading the shift in recruiting from system first back in the old days over to Recruiter first, which is the current market at to candidate experience first.

And then lastly, it's an incredible AI innovation. It delivers real ROI. As you've seen in the chip hotel statement about a 75% reduction in time to hire and fully delivering business ROI by freeing up recruiters from manual work in interviewing and scheduling and spending time with candidates. So we put a human back in human resources, if you will, food a power of AI.

Yes. One last thing I just want to add is this is a company that we have very closely partnered with in the past, and we have significant overlapping customers who use them and they're already integrated into our platform. At the same time, we now also have a really great land product. So even if a customer doesn't have Workday on the HCM side, we're going to be able to sell now the industry-leading recruiting platform from frontline workers into our competitors' installed base. We're really excited about that.

Brad. And I would just add, based on your question regarding the size, obviously, it's larger than what you've seen with us in most recent history, but we're very excited about the top line growth, the synergies that we'll capture over the medium term. So we're, as you can tell, excited about the opportunity here.

Our next question is from Brent Thill with Jefferies.

Carl, you mentioned AI doubled but when you think about just a specific number, is there more color you can add around that? And maybe just give us a sense of how this is influencing our win rates in these deals that you're seeing going forward?

Yes, sure. So first off, I'll highlight -- we'll give you more information and more detail on the number itself at [ FAD ] at Rising in a few weeks. But the color we're trying to give you is how quickly our technology in AI specifically is being adopted by our customers. First of all, 70% of our customers today already use Workday Illuminate and one of the future functions or SKUs that's part of that suite. The second thing that's super relevant, and we've been calling this out time and time again, at 30% of our sales back to our customer base includes an AI SKU.

And then the last piece that we shared with you this quarter that we haven't shared in the past is that greater than 70% of our net new sales include our AI solutions. And we're really pleased with the growth year-over-year of more than 100%, and we'll give you more color on what that actually means. But I can tell you, it's a nice growth to the business. and it's meaningful in our overall performance.

Great. And quick for Zane. I think last quarter, you called out United Airlines and the big deal. I don't know if there were any larger outsized elephant transactions that you saw this quarter, maybe UVA and the health care side. Is there -- was there any other ones that caught your eye or that were notable?

I'll take it. Yes. I mean UVA was absolutely a significant win for us. As you could imagine, it's a big university, but not only university, it's a health care system as well. The other one we called out is a large financials upsell cross-sell that we were super excited about as well at Nationwide. That's another big win for us. And then we talked about an exciting go live with financials at Salesforce.

And then we called out a whole number of other big wins within the quarter that were in my prepared remarks as well. That included key expansions at the likes of Sanofi and Google. We had good full suite wins at Michaels Corporation, Red Coats. And then like I said, we had a number of big key FINS wins this quarter as well as go lives. It was a strong quarter all the way around.

The only thing I'd add to that was...

UVA was working with student customers before, correct? So they were an existing student-related customers. So this is an expansion in the health care segment of that business?

No. This is a net new win across everything. It includes HCM. It includes financials and it includes student, and it covers both the higher ed portion of the university as well as the health care system.

Brent, I would just add, obviously, we're pleased with what we're doing on the strategic partner front as well, and we highlighted DailyPay, if you missed it earlier, which is an exciting customer and partner of ours as well.

Our next question is from Brad Sills with Bank of America.

I wanted to ask, I know it's early with Illuminate, but what are you seeing with regards to levels of engagement or any types of interactions with the Agentic platform? Are there any trends or themes coming in here where you might have surprised you to the upside? Just general commentary would be helpful, I think, on just the level of engagement there.

Yes. I think it's actually quite strong, which is why we're trying to give you a lot of color on our AI solutions and the growth rate we're seeing. We didn't call it out specifically. But if I break it down and look at some of the products; Evisort, which is a company we acquired last year, is growing more than 100% quarter-over-quarter, not year-over-year, quarter-over-quarter. So people are very interested in our contract intelligence platform. If you think about Extend Pro, Extend Pro really leverages our platform and allows people to bring AI solutions into the platform, both applications and build that new applications. So that's growing 100% year-over-year.

And then I talked about all the statistics about us selling back into our customer base or our net new customers. Our engagement has never been higher. I actually tried to call it out Brad, in my prepared remarks about how busy our customer experience center is, it is as busy as it's ever been to the point where we had to open up new briefing centers in New York and in London because people are coming to us, wanting to know how Workday can help them navigate this AI transition because we're a trusted partner. They've trusted us for a long time and they know that we have something no one else has. We have the data, we have the context of the data, and we are in the workflow of their business. No one else has that, which allows us to bring real value to our customers with domain-specific agents to drive real business outcomes.

Great to hear, Carl. And one more, if I may, please, just on the commercial business. I know it's been such a key source of growth for you. I would love to get some commentary from you on how that business is trending and any kind of observations on the macro in that segment in particular, please?

Yes, sure. We had a really good quarter in what we described as the medium enterprise or the emerging enterprise, especially when we look at it in the context of full suite as you know, right, they buy not just a single solution. They buy a full suite, and we had really good momentum in the quarter. In Q1, we launched WorkdayGO, which is our branding of our medium enterprise business, and I will tell you, it's been well received in the market. We're looking at how we deploy the products faster, leveraging our partners, making it simpler for people to realize time to value.

And just recently, we brought in a very seasoned executive to actually run our Media Enterprise segment around the world, and he's building out a team so that we can go attack this market even more aggressively than we've been doing over the last couple of years, and I expect this to be a strong source of growth going forward.

Our next question is from Karl Kierstead with UBS.

Zane, maybe a couple of smallish ones for you. You mentioned that the July quarter had a boost from elevated early renewals, was that beyond what you were anticipating? And are you able to roughly maybe size what the bps upside might have been? And then just to be clear around layering in Paradox, are you able -- maybe just to bracket what the revenue contribution that's dropping in the sub-rev growth is in the fourth quarter from that deal?

Sure, of course. Yes, the early renewal portion I'd say, contributed to the upside on CRPO, Look, I mean we had a strong quarter, as Carl alluded to. So we felt good about bookings across the business. As you know, there are seasonal dynamics tied to renewals and renewal activity. It happened to be a strong renewal quarter in aggregate and early renewals contributed to that. So probably above the range, I'd say was early renewals was a big contributor to that.

And then as we called out in the -- in our prepared remarks, we've increased our guide by 15 for Paradox. I'd say we're not necessarily breaking down the size of that business specifically, but that's a good rough proxy for what we're assuming particularly in the fourth quarter and excited about what that business will do for us going forward beyond just the short term.

Karl, this is Carl. Thanks for the question. I just want to reiterate, on early renewals this is completely driven by customer demand. Customers are coming to us and saying, you guys continue to bring great solutions and products to market, specifically around AI and they want to add them to their contracts today, which drives early renewals. We don't incent our teams to go out and do early renewals. It's completely customer driven and customer motivated, which is really exciting. We call this create and close in the same quarter, and that continues to pick up momentum and steam for us as well.

Okay. Great. See you in San Francisco.

Sounds great.

We have time for 2 more questions. Our next question is from Raimo Lenschow with Barclays.

Actually, can I stay on that car question in. So if Paradox is $15 million is a kind of good proxy then kind of underlying, you're actually guiding down because you beat in Q2. Is that kind of the message you want to give us that -- because in theory, you kind of overachieved by 9. So 9 plus 15 from Paradox will actually be a higher number. Can you just clarify that one more time?

Yes, Raimo, I mean as I mentioned, look, there's a lot that goes into our forecast. We will create about the year. absent paradox, we'd be holding to the 8.8, and obviously, we've been executing well. As Carl mentioned, the environment hasn't changed, and we still feel good about the outlook. We've increased by $15 million, including Paradox. We haven't taken synergies into account with that business. So we feel good about the guide and the underlying guide behind that, too.

Okay. Perfect. Okay. And then on the international on the international side, you talked about the good momentum in the U.K., Germany, it's still kind of a nice emerge. They are kind of still emerging markets in a way for you in terms of that you can do better there. Where do you see the reference customer base there in terms of being able to be that kind of big vendor? Or is it still single deals, they're really nice, but like it's not kind of quite mass market yet?

Yes. Thanks for the question. Listen, we're quite pleased with the performance of our international team. I called out specifically this quarter, Europe and the 2 biggest markets in Europe, both the U.K. as well as Germany. And if you look at our customer base, we have some of the largest customers in Europe on Workday. And we can give you that. We don't have a problem with customer reference or large customers in Europe in that market, not at all, including a lot of them in Germany, right in the backyard of some of our bigger competitors.

When we get engaged, we win. We have a great solution, and it's absolutely materializing in our bookings growth in the international markets. We also talked about continued strength in Japan. We brought a new leader to lead Japan about 18 months ago. He's built a new team, and we continue to see really nice growth out of that market as well.

So the last thing I'd say, we announced this quarter was our entry into the India market, where we brought in a very senior leader that I mentioned in my prepared remarks, we're building out a data center to service that market, and you're going to see us continue to push directly into the India market over the coming quarters. So I'm really pleased. And as far as logos, listen, they're strong in Europe as they are here in the U.S.

Our final question is from Derrick Wood with TD Cowen.

Great. I don't know, Carl or Zane, I wanted to ask about the partner side of things. You guys have made really impressive progress on partner leverage. But it did for the first time kind of sit steady at 20% quarter-on-quarter. So is this kind of the right level of mix to expect from here? And is there a tipping point to think about in terms of getting to a certain kind of deal velocity from the channel that can really start to move the needle more on total revenue growth?

Yes. Thanks for the question, and thanks for recognizing the effort we put around building out the Workday ecosystem or as we like to describe it here internally, the Workday economy, and you can see the impact is having and we said greater than 20% growth coming from our channel when it relates to new ACV in the quarter. So it continues to grow nicely. But it's not just bringing us new opportunities. It's also about them driving innovation and building new solutions on top of Workday, adding more and more applications to our marketplace, we are truly a platform company and our partner ecosystem is recognizing that and building on top of us.

We talked about Workday Wellness. It continues to grow. We announced a very strategic and important partnership this quarter with DailyPay. The leader in earned wage access this quarter, and we're going to go and bring all these new services in these new capabilities to our customers. So I couldn't be more excited about what's going on with our channel and our partners. We are truly building a world-class ecosystem that will drive a massive economy around our platform.

Ladies and gentlemen, thank you for your participation on today's conference. I'll now turn it back over to Mr. Eschenbach for any closing comments.

Yes. Thank you, operator. And thanks again for everyone who joined us today. To close, we're heading into the second half of the year with incredible momentum. Our team our AI innovation and our expanding ecosystem are all fueling our success. We continue to deliver in the near term, while we are focused on the long-term as well, and we're creating a future where AI and humans work together to unlock new potential.

I look forward to seeing many of you at Workday Rising. And again, as a friendly reminder, our Financial Analyst Day, which will host that Rising on September 16. With that, I'll turn it over to the operator to close the call. And again, thanks, everyone, for joining.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.