Q1 2025 Summary
Published Mar 11, 2025, 7:15 PM UTC- Workday's AI-related products are experiencing rapid growth, with AI SKUs like Talent Optimization and Extend Pro growing quickly, making them some of the company's fastest-growing products ever. Additionally, the acquisition of HiredScore is building a strong pipeline, indicating potential for significant future revenue growth.
- Investments in the partner ecosystem are yielding significant results, with Workday building more pipeline in Q1 than all of last year and closing more business through partners than all of last year. This momentum suggests that partner-driven growth could accelerate in the coming years.
- Strong performance in the medium enterprise market, particularly in the U.S., driven by effective pricing and packaging strategies like Workday Accelerate, and rapid delivery capabilities are allowing Workday to address new markets, including the emerging enterprise segment.
- Increased deal scrutiny and elongated sales cycles, particularly for large transformational projects with new customers, leading to cautiousness and delays in deal closures. Carl Eschenbach noted that they experienced more cautiousness, more round trips, and more approvals in two transformational large projects where customers did not currently do business with Workday.
- Lower performance in international markets, specifically in EMEA, with reduced bookings and lower-than-expected results. Workday had lower performance internationally, particularly in EMEA, which impacted their guidance for the full year.
- Customers are committing to lower headcount levels on renewals than expected, due to macroeconomic factors and layoffs in certain industries (e.g., high-tech), resulting in reduced revenue growth. Carl Eschenbach mentioned that they had to reset their forecast for the full year on headcount growth, which came in under what they had forecasted, affecting their revenue guidance.
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Lower Guidance and Headcount Trends
Q: How have headcount trends impacted guidance?
A: We observed a slowdown in net headcount growth below our expectations in Q1, affecting renewals and annual true-ups globally. This trend is expected to persist, so we've adjusted our full-year guidance accordingly, reducing the midpoint by $35 million. -
Deal Scrutiny and Sales Cycle Elongation
Q: Are extended sales cycles affecting deal closures?
A: Yes, increased scrutiny on large net new deals globally, especially full platform deals involving both HCM and Financials, has lengthened sales cycles. However, our win rates remain strong, and the deals remain in our pipeline. -
Margin Outlook and Investment Strategy
Q: How are you balancing margins with growth?
A: Despite lowering revenue guidance, we're increasing our margin outlook by focusing on operational efficiencies while continuing to invest in key growth areas like AI, Financials, and international expansion. We're committed to durable long-term growth and expanding operating margins simultaneously. -
Strength in Medium Enterprise Market
Q: How is the medium enterprise segment performing?
A: Our medium enterprise business in the U.S. is strong, driven by full platform sales and initiatives like Workday Accelerate. Adjusted pricing, packaging, and rapid deployment are enabling quicker value for customers, and partner contributions are significant. -
EMEA Performance
Q: Is EMEA softness due to internal issues?
A: No, the softness in EMEA is not due to internal execution. We've made positive changes in leadership and strategy. The lower performance is due to increased deal scrutiny and tougher year-over-year comparisons, not execution issues. -
AI and Product Innovation
Q: How are AI initiatives contributing to growth?
A: We're seeing rapid growth in AI-driven products like Talent Optimization and Extend Pro with AI Gateway. Our acquisition of HiredScore is building a strong pipeline. We're launching an AI Marketplace to monetize partner contributions, positioning us well for future opportunities. -
Sector Performance Variability
Q: Which sectors are strong or weak?
A: Healthcare and public sector are strong, with healthcare ACV growth up 50% in the quarter. Media and technology sectors are seeing slower headcount growth than anticipated. -
Competitive Landscape
Q: Are competitors affecting sales cycles?
A: No, our competitive win rates remain stable. Competitors pushing customers to migrate off legacy platforms actually create more opportunities for us. Sales cycle elongation is due to deal scrutiny, not competition. -
Persistent Headwinds from Lower Headcount
Q: Will lower headcounts continue impacting results?
A: Yes, we expect the headcount-related headwinds to persist throughout the year and have reflected this in our subscription revenue forecast. About half of the guidance change is due to this dynamic. -
Vendor Consolidation Trends
Q: Is vendor consolidation affecting large deals?
A: We're still seeing vendor rationalization and standardization on our platform in our customer base. Large net new transformational deals are experiencing more scrutiny and approvals, but optimization efforts continue.