Full Transcript: Workday Q1 2027 Earnings Call

Workday (NASDAQ:WDAY) released first-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.

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Access the full call at https://events.q4inc.com/attendee/378546408

Summary

Workday reported its best first quarter of new Annual Contract Value (ACV) growth in five years, driven by core business strength and AI traction.

The company emphasized a shift to a 'startup mindset,' focusing on three priorities: delivering AI solutions, growing with customers, and living company values.

Workday launched several new AI-driven solutions, including a travel agent and an ITSM platform, and saw significant growth in Agentic AI products, with new ACV from these products growing over 200% year-over-year.

Subscription revenue increased by 14% to $2.354 billion, with professional services revenue at $188 million, contributing to a total revenue of $2.542 billion, up 13%.

Workday's AI strategy is yielding results, with over 4,000 customers using at least one organically developed AI agent, and a significant portion of new ACV coming from AI solutions.

Management expressed confidence in Workday's ability to lead in the AI space, with streamlined operations and strategic investments aimed at long-term growth.

The company maintained its FY27 subscription revenue guidance of $9.925 billion to $9.950 billion, and raised its FY27 non-GAAP operating margin guidance to 30.5%.

Full Transcript

OPERATOR

Ladies and gentlemen, welcome to Workday's first quarter fiscal year 2027 earnings call. at this time, all participants are in a listen only mode. We will conduct a question and answer session towards the end of the call during Q&A. Please limit your questions to one. I will now hand it over to Justin Furby, Vice President of Investor Relations. Please go ahead.

Justin Furby (Vice President of Investor Relations)

Thank you operator welcome to Workday's first quarter fiscal 2027 earnings conference call. On the call we have Anil Bhusri, our CEO Garrett Katzmeyer,, our President, Product and Technology, Rob Enslin, our President and Chief Commercial Officer and Zane Roe, 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 10K 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 Anil.

Anil Bhusri

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 throughout 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 startup. One of them even called it the 'reinvention' of Workday. Indeed, their reaction to our vision and execution around AI told me that we were 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 Annual Contract Value (ACV) growth in 5 years, anchored by the strength of our core business and the traction we're seeing with AI following slower Annual Contract Value (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 Annual Contract Value (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 three 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. Coming back, I was very focused on returning Workday to a startup 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 startup in the world and said it was the startup mindset he brought back. Fewer layers, faster decisions, the best ideas, winning more ownership. We were trying to emulate that startup playbook, as the great philosopher Yogi Berra once said. And apropos that, we were in New York City this week. It's like déjà vu all over again. And so we're going back to our founding principles. I've said before, Chapter four is a re founding moment for Workday. With AI, we are essentially a startup again. We're a startup 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 three. 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 your 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 Hellmark, the founder of sana, who we named our Chief AI Officer just today. That's by design. These leaders know the startup 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 startup. Instead, they were looking to us first for AI solutions for the HR and finance worlds 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 day. The SANA platform is also the foundation for everything we're building in AI going forward. Joe 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 proved that. They also buy the agents we're building organically. Agents that Only Workday can build and Garrett will share more on that momentum in a moment. 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, Garrett 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 garage 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.

Garrett Katzmeyer (President, Product and Technology)

Garrett over to you. Awesome. Thanks, Anil, 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. 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 agentech, 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 with contract intelligence. That is up 53% from last quarter. Now that is the world model of work at work. And while we are 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 Early Access (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 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 cost. And in our next wave of AI driven projects we are aiming to get debt reduction up to 50%. And here is why this is so important. This reduction in time and in costs 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 Renewable Energy and Mohegan Sun, they are using Deployment Agent across their workday systems to instantly resolve issues and answer questions to 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 Magentiq AI products it grew more than 200% year over year and we are also approaching US$500 million in ARR from our Gentec 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 two new Agentix solutions from Workday that proved this out. Ghana 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 off boarding access changes and everyday IT requests. Many service requests start with employee lifecycle 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. Xtend 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 three 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 Work Workday 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 their 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 adopt AI the way that best explanation their business. So stay tuned for our upcoming developer conference DEFCON 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.

Rob Enslin (President and Chief Commercial Officer)

Thank you Garrett and hello everyone. We're proud that more than 11,500 customers around the world trust Workday with the most important parts of their business from payroll to closing the books. And as Anil 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 continued 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, Sumerce Group, Artland Dental, and ACHM Hotels by Marriott 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 a quarter 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 instant. They process over 2 million transactions a month and in Q1 they used our deployment agent to cut support tickets and uncover configuration insights that 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 with 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 AgentIQ innovations and acquired agents onto the model throughout the year, this will become a more meaningful part of how we grow. We also continue 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 five 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 UK 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 Insperi's HR Scale 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.

Zane Roe (Chief Financial Officer)

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, US revenue in Q1 totaled $1.89 billion, up 13% and international revenue totaled $649 million, up 16%. Twelve 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 30th. 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 agentix 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 FY27 subscription revenue outlook of $9.925 billion to $9.950 billion growth of 12 to 13%. We expect Q2 FY27 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 Anil mentioned, we are streamlining how we operate the business and are focused on investing in areas with the highest returns. We're increasing our FY27 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 FY27 GAAP operating margin to be approximately 18 to 19 points lower. The FY27 non-GAAP tax rate is expected to be 19%. We are maintaining our FY27 operating cash flow outlook of $3.45 billion and we continue to expect FY27 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 qa.

OPERATOR

Thank you and we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press Star One a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to one question. Again, it is Star One to join the queue. And our first question comes from the line of Keith Weiss with Morgan Stanley. Your line is open.

Keith Weiss (Equity Analyst)

Excellent. Thank you guys for taking the question. And congratulations on a really nice start to the fiscal year. A lot of really bullish signals that we're getting on sort of that AI adoption. I want to ask a broader question and maybe, Anil, ask you to kind of do my job for me because I'm, 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 is the, the additional functionality that Workday can be selling these organizations, which kind of drives growth, that there's a new competitive dynamic there and they need 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 co-generation tools, there's a change, a significant change in sort of the Total Cost of Ownership (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 Total Cost of Ownership (TCO) versus building it yourself using these Agentic co generation tools?

Anil Bhusri

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 whatever you choose to do next. Thank you. So I guess I'd answer it in three prongs and I'd hand it over to Garrett. When I look at the world of Agentic and 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 a 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 three 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 Xtend 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. Not in the world of HR and finance. And so I don't know if you want to add anything, Garrett, but I think it's, I think I feel pretty well covered, Keith, in having a solution for whatever customers would like to do.

Garrett Katzmeyer (President, Product and Technology)

And I think Anil has said it well, first of all, we embrace the ecosystem of builders. Actually, you know, we provide APIs as part of the workday platform so customers can continue to build their own solutions and partner 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 three ingredients as only workday has. One is the world model of work, our compounding data set, which lets you actually contextualize AI systems. Secondly, what Anil 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. So we feel really strong about both our platform and openness and the differentiation of our first party agents.

Keith Weiss (Equity Analyst)

Outstanding. That's helpful guys and Neil and team, it's really been a privilege covering workday over these past two decades and seeing what you guys have built here. So thank you very much. Thank you, Keith. We appreciate it.

OPERATOR

And our next question comes from the line of Gabriela Borges with Goldman Sachs. Your line is open. Hi, good afternoon. Thank you. 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 sauna 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 getting the value out of the agent and how do you work with the customer to solve them? Thank you.

Garrett Katzmeyer (President, Product and Technology)

Yeah, I'll put it to Garrett and to Rob. I think there's a piece for both of them in that. Yeah. First of all, you know what we see, 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 chains from higher to tired 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 Proof of Concept (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 recruiting, 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. 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're pointing to, the true change is changing in the business processes and 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're really engaging on the business process transformation itself and guide our customers through it. Rob?

Rob Enslin (President and Chief Commercial Officer)

Yeah, I would just add, Gabriella, that we've had, I don't know, maybe 100 customer touch points between Anil, myself and Garrett in the last three 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 sellers. But 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? And as Garrett 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. 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 year.

Gabriela Borges (Equity Analyst)

Thank you so much. I appreciate the detail. And our next question comes from the line of Michael Turin with Wells Fargo Securities. Your line is open.

OPERATOR

Hey, great. Thanks very much. Appreciate you taking the question. And Neil, maybe you could speak to just the early progress. I know last quarter was commentary just around reprioritizing growth this quarter. You mentioned best new ACV1Q in five years. So maybe just speak to the progress and what you're seeing within Flex credit or agentic usage or some of the efforts there. And then Zane, maybe it's just to complement how you're able to expand margin while still prioritizing growth at the moment. Thank you.

Anil Bhusri

So I guess I'd say a lot of the right work was already being done when I came back. Garrett 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 Deployment agent and Deployment agent, sorry, Self Service agent and Deployment Agent. The acquired agents continue to be strong. And as we roll out more of those agents, you know, 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 you know 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, Garrett.

Garrett Katzmeyer (President, Product and Technology)

I think you said it well. And like Anil has described, what we have changed at workday and have laser focused 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.

Zane Roe (Chief Financial Officer)

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. But the same being said as Anil 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 itself,. So within Garrett's team and R and 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 basis points over the course of the year and 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.

Anil Bhusri

Yeah, 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 three months ago. Thanks, Mike.

OPERATOR

And our next question comes from the line of John Defucci with Guggenheim Securities. Your line is open.

John Defucci (Equity Analyst)

Thanks. Thanks for taking my question. Anil and team did 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 and what is a technology paradigm shift? This all sounds good. Workday has a leadership position, and Anil, 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 Garrett and maybe Anil, if you want to join in too. Garrett, 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?

Garrett Katzmeyer (President, Product and Technology)

Yeah, you know, thank you for that question and thank you for attending Sauna AI Summit today here in New York. Truly a landmark moment, I think, for us and for. For the industry. And what you have heard today. You know, I just want to break it down very clearly so, you know, we all understand what we say. You know, we are not playing it safe and driving deep AI innovation. You know, for AI, it's all about understanding what the key value levers are. And as you 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 have 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 lifecycle. 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 Management (ITSM) suddenly feels supernatural,. Basically. AI makes us boundary less or limitless, right in the opportunities that we can pursue. Manchul, you know, spoke today at the San AI Summit is that we think of ourselves as an AI challenger, not as a defendant. And we are putting intentional investments into areas that we know we have all of the benefits of already at workplace today to go out and disrupt places.

Anil Bhusri

And I would just add to what Garrett 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 three or four bets and two of them work, that's a huge success. And I think that what you're going to see is us, 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, that's one of the reasons why we have that flexibility. Thank you very much. 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.

OPERATOR

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

Brad Zelnick (Equity Analyst)

Excellent. Thank you so much for taking the question. Gentlemen. I wanted to ask about Deployment Agent. You know, reducing the cost in 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.

Rob Enslin (President and Chief Commercial Officer)

I think it's Rob and Garrett. Yeah, let me go first. So I mean for deployment agent with new implementations and work they go, we're seeing what are the numbers?

Garrett Katzmeyer (President, Product and Technology)

We're seeing 30% in current projects and 50% reduction in the projects that we are just starting now.

Rob Enslin (President and Chief Commercial Officer)

Yeah. And so that. And that will continue to improve and change the whole dynamics around implementation and speed to implementation. So 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 benefit. 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 broad impact with it as well.

Garrett Katzmeyer (President, Product and Technology)

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, the mission statement itself is the zero dollar 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 where the whole consideration in the mid market, for instance if you move to workbe or not because time of migration, cost of migration is our consideration. Our ambition is to make this a completely non issue and with that unlock our customers work day at scale. Thank you very much, really appreciate it.

OPERATOR

And our next question comes from the line of Alex Zukin with Wolf Research. Your line is Open.

Alex Zukin (Equity Analyst)

Hey guys, thanks for taking the question. Maybe just a quick two parter Anil for you. You know, it's rare when you know 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's, what do you think is different from a workday perspective that drove that incrementally better execution?

Zane Roe (Chief Financial Officer)

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.

Anil Bhusri

So I 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 deal 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.

Zane Roe (Chief Financial Officer)

Yeah, Alex, and as you touched on, we were pleased to see DIA come into the first quarter. As Anil 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, you know, as Anil mentioned with a lot of the flex credit sales and the momentum we have in, 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'd expect because of the recognition of revenue to see that impact FY28 to a greater degree.

Alex Zukin (Equity Analyst)

Perfect. Thank you guys and congrats on a great summit. Thanks Alex.

OPERATOR

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

Brent Thill (Equity Analyst)

Thanks. And Neil, 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 second follow up with Rob and Zane just on the quarter, just to follow on Alex's point. Were there any, were there less changes to the sales for the market this Q1 than you've had maybe in past Q1s and I know you mentioned there's some slipped 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

Anil Bhusri

on the first one. It's available today, it's fully integrated. We need to move more customers onto our equivalent of the innovation services agreement. But the uptake has been super rapid. On the SANAA 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 Garrett 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.

Garrett Katzmeyer (President, Product and Technology)

Yeah. The only piece to add is that at the end of May we gonna 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 third unlocking it. So it's going to be a huge surge for us again.

Rob Enslin (President and Chief Commercial Officer)

Yeah. And on the field and you know, was it 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. Fed 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. Thank you.

OPERATOR

And we will now take two more questions. Our next question comes from the line of Carl Kiersted with ubs. Your line is open.

Carl Kiersted (Equity Analyst)

Okay, great. Thank you. Maybe Rob, just sticking with you just as investors and I watch the number of RIFs 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. Thank you.

Rob Enslin (President and Chief Commercial Officer)

Yes, I would say we see a long Runway with the value sales on the agents and what we're doing with Flex credits, the launch of SANA into the market in 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 FEC 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.

Zane Roe (Chief Financial Officer)

Carl, I'll just add we've commented over the last number of quarters as it relates to FTEs 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 diverse customer base and 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 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. Yeah.

Anil Bhusri

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 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..

Carl Kiersted (Equity Analyst)

Very helpful, thank you.

OPERATOR

And Our final question comes from the line of Raimo Lencio with Barclays. Your line is open.

Raimo Lencio (Equity Analyst)

Hey, thanks for squeezing me in. And congrats from me as well. Just a quick one for rpo. Like crpo, like, as we expected, RPO with slightly lower growth. Can you talk a little bit about is that kind of customers signing shorter contracts? So there's a duration effect. Can you just talk to the puts and takes there? Thank you.

Zane Roe (Chief Financial Officer)

Yeah, happy to. You know, 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 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.. Okay, perfect. Thank you, Berkshire.

OPERATOR

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

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