Workday delivers strong Q2 as co-CEO Aneel Bhusri teases AI innovation looming

A cracking set of Q2 numbers for Workday - revenue of $1.79 billion, up 16.3% year-over-year, while a year ago’s operating loss of $31.4 million was flipped to an operating profit of $36.3 million. Other stats of note :

• Subscription revenue in Q2 was $1.62 billion, up 19% year-over-year. 
• Professional services revenue was $163 million, leading to total revenue of $1.79 billion growth of 16%.
• From a geographic perspective, total revenue outside the US was $442 million, representing 25% of total revenue and 15% growth in Q2.

Commenting on the numbers, co-CEO Carl Eschenbach said:

We haven't seen any pullback due to any macro-headwinds in any of the things we're selling into the market. If anything, I think our value proposition is only resonating more as people look to consolidate multiple products, which are sometimes called best-of-breed, onto best-of-suite platforms. They're consolidating on top of Workday for both their financials and their HCM and then wrapping our Adaptive Planning product around both. So we continue to see strong momentum across the board.

He added:

Nothing has changed over the last few quarters. And because of that, we continue to perform quite well because I think our sales force is very skilled at navigating the extra scrutiny they're going to get. As well as that, they’re doing really well at understanding the sales process and they’re closing deals and they're getting them across the finish line.

That's both a tribute to our sales force globally, but I also think it comes back to the strong value proposition we're providing customers as we continue to be the platform they're choosing to support both their people and their finances, their two most precious assets. So it's a combination of good execution, understanding the sales cycle and us continuing to have a strong value proposition for our customers and prospects.

As for international, EMEA was picked out for particular praise with Eschenbach stating that “we couldn’t be more pleased with what’s happening in EMEA”:

Our European team continues to do quite well. We've talked about it the last couple of quarters and our focus on international, and they continue to deliver for us. They're much more predictable and they're driving strong pipeline in EMEA…We've really built out their leadership team there, and they're actually bringing in more and more talent underneath them, and it is starting to clearly pay dividends. We are seeing early signs of solid pipeline build that's much more predictable than we've seen in the past. We see more predictability in the business, because they have their arms around it. And they are selling both HCM and FINS successfully.

The other thing we're seeing, which is a little bit of replication from what we're seeing here in the US, [is] as you know, the EMEA market as a whole is very much a medium enterprise business. They're doing really well at selling full platforms into the EMEA market where customers see the true value of combining both HCM and financials and again, wrapping Planning around it for that full platform sale.

Asia-Pacific/Japan had a more muted review:


We had an okay quarter. We still have some work to do there. We think there's tremendous upside in the APJ market, and we will continue to add resources both on the go-to-market and continue to internationalize and localize our products so we can have a better fit in some of the emerging markets we're going after in APJ.

AI rising

It was left to co-CEO Aneel Bhusri to deliver the by now compulsory generative AI element of every enterprise tech earnings call.

Looking ahead, generative AI will continue to be a major focus for us. Despite the recent hype cycle, Workday has been using Large Language Models for years, and we're continuing to invest in a big way. What helps further set Workday apart is our unrivaled data set quality, which is fueled by our more than 65 million users under contract and $600 billion annual transactions to create data models that provide accurate, meaningful and most importantly, trustworthy results.

Bhusri said Workday is currently building product capabilities that leverage generative AI for a variety of tests, citing examples that include natural language generation, content search, content summarization, content augmentation and document understanding, as well as exploring how to leverage co-pilots, agents and conversational UI. (More to come on all of that during next month’s Workday Rising conference.) He went on:

All told, our differentiated approach is working as we are seeing continued momentum across the board with our over 3,000 customers having opted into sharing their data with our ML [Machine Learning] models. And we know they are realizing value once they have opted in as we are processing more than 50 million ML inferences per day, an increase of more than 60% year-over-year.

Furthermore, we believe that the enhanced value that AI and generative AI provide to our customers will also create economic benefits to Workday by positively influencing competitive win rates, renewal rates and our already industry-leading customer satisfaction. We plan to offer most AI capabilities to our customers who opt in as part of their current product subscription with generous based usage entitlements. We also expect AI to open up new market opportunities with direct monetization that are wholly based on AI technologies, similar to our talent optimization solution that leverages Skills Cloud, one of our fastest-growing SKUs.

Bhusri also reiterated a point he’s made many times before, about the need for AI to be leveraged in an ethical and trustworthy manner, flagging up the work done by the European Union [EU] with its AI Act, which Workday expects will shape global regulation around the technology:

We've worked closely with policymakers in Europe over the last two years, and we're pleased to see many of our suggestions accepted in the Parliaments version that was recently approved. In the US, under the leadership of Sayan Chakraborty, our co-President, we played a leading role in helping develop the AI framework for the National Institute of Standards and Technology, or NIST, which is a how to guide for organizations to develop and use trustworthy AI.

We are leading by example by implementing the NIST AI framework, and we're working with Congress to encourage adoption of it throughout the federal government. We are also helping to drive the conversation with lawmakers at the state level, including California as they look to find a path forward for new AI regulations. We're helping them develop legislative frameworks that build trust and AI tools while driving innovation across the enterprise.

My take

Nothing much to complain about here. A confident position from which to begin the ramp up to Workday Rising at the end of next month.