Workday reported a strong first quarter as the company leveraged AI within its platform and continued to become more efficient.
The company reported first quarter net income of 40 cents a share, non-GAAP earnings of $1.74 a share and revenue of $1.99 billion, up 18.1% from a year ago. Wall Street was expecting Workday to report earnings of $1.58 a share on revenue of $1.97 billion.
Workday said its 12-month subscription revenue backlog was $6.6 billion, up 17.9% from a year ago. Total subscription revenue backlog was $20.68 billion, up 24.2% from a year ago.
Carl Eschenbach, Workday's CEO, said customers are looking to manage through the "shifting talent landscape, and pressure to realize operational efficiencies."
According to Workday, the company has more than 50 AI use cases in production and 25 generative AI use cases on the roadmap. Workday also expanded a partnership with AWS and formed a partnership with Google Cloud.
Workday CFO Zane Rowe said the "we were pleased with our progress across key growth initiatives in Q1, which help build a foundation for long-term growth." He added: "Our updated subscription revenue guidance reflects the elevated sales scrutiny and lower customer headcount growth we experienced during the quarter."
As for the outlook, Workday projected fiscal 2025 subscription revenue of $7.7 billion to $7.725 billion, up 17%, with non-GAAP operating margins of 25%. For the second quarter, Workday projected subscription revenue of $1.895 billion, up 17%, with non-GAAP operating margins of 24.5%.
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On a conference call with analysts, Eschenbach said the first quarter is typically Workday's slowest. He said Workday outperformed in healthcare, public sector and financials.
"When purchase decisions are being made, our win rates remain strong but within the quarter, we experience increased deal scrutiny as compared to prior quarters. And we are seeing customers committing to lower headcount levels on renewals compared to what we had expected," he said. "We expect these dynamics to persist in the near term, which is reflected in our revised FY 25 subscription revenue guidance. While we can't control the macro, we are focusing on what's in our control. And that is innovation, scaling our go to market engine and partner ecosystem and delivering customer value."
Workday executives also said they are often selling full platform plays and that sales cycle is longer.
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Eschenbach said more than 90% of the company's nearly 2,000 financial customers also have HCM.
On AI, Eschenbach said:
"We've built AI into the core of our platform, which means AI features and functionality are embedded natively in all of our applications. And with more than 65 million users generating more than 800 billion transactions per year on our platform, the volume of clean, trusted data that workday and our ecosystem can leverage for AI is truly unmatched. We continue to make significant investments to further enhance our leadership in this area in deliver trusted and responsible AI innovations that drive meaningful business results. We now have more than 50 ai use cases live in production in 25 generative AI use cases on our roadmap."
These use cases are primarily content generation, job descriptions and knowledge base articles as well as insights for things like payroll and talent optimization.
Eschenbach said Workday is building out its partner ecosystem and go-to-market efforts. Workday is also building out its ecosystem via Extend, a marketplace for Workday platform applications. Workday's AI marketplace will go live next month with AI tools from the company and third parties.
Constellation Research's take
Constellation Research analyst Holger Mueller said:
"Workday had a good first quarter, just missing the $2 billion overall revenue milestone by $10 million. And with that it grew itself back to a profit compared to last year's quarter. But margins are tight, with net income of just over $100 million. The good news is that Workday keeps innovating, with generative AI use cases coming soon, as well as the addition of Australia with native payroll. Now all eyes are on Q2. Can Workday keep growing, break the $2B in revenue and control costs?"
