Workday reports 14% subscription revenue growth, raises FY26 guidance to $8.815 billion amid strong AI adoption and expanding customer base.

OPERATOR - (00:01:20)

Welcome to Workday second quarter fiscal year 2026 earnings call at this time, all participants are in a listen only mode. We will conduct a question and answer session toward the end of the call during the Q and 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 - (00:01:42)

Thank you Operator welcome to Workday second quarter fiscal 2026 earnings conference call. On the call we have Carl Eschenbach, our CEO, Zane Rowe, our CFO and Garrett Katzmeyer, 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 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 Generally Accepted Accounting Principles (GAAP) financial measures which we believe are useful as supplemental measures of Workday's performance. These non Generally Accepted Accounting Principles (GAAP) measures should be considered in addition to and not as a substitute for or in isolation from Generally Accepted Accounting Principles (GAAP) results. You can find additional disclosures regarding these non Generally Accepted Accounting Principles (GAAP) measures, including reconciliations with comparable Generally Accepted Accounting Principles (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.

Carl Eschenbach - Chief Executive Officer - (00:03:56)

Thank you Justin and thank you all for joining us today. Workday delivered another solid quarter with 14% subscription revenue growth and 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 Customer Experience Centers (CXCs) in both new York and London. Customers are choosing Workday because we help them unlock value today and we prepare them for whatever's 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 helps 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 a trillion transactions processed 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 and is what drove our customer momentum in Q2. Now let's talk about our customer highlights. In Q2 we formed new HCM relationships with Carrepour, Memorial Health, Smurf at Westrock and Banamex. We also had impressive expansions with Sanofi, Blue Origin and Google. We are proud to serve more than 65% of the Fortune 500, but what's even more exciting is to see the traction we're seeing in the emerging and medium enterprise driven by the launch of Workday go in Q1. Our focus on financials 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 like sled and healthcare Red Coats, Michaels and US Physical Therapy were just a few of our full suite wins in the quarter. Beyond the wins, we also celebrate Go Lives Salesforce, a longtime 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 Eversource 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 with an expansion at Nationwide Insurance which added core financials and wins with guaranteed rate Handels, Bakken 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, the School of Medicine and a network of community hospitals throughout Virginia. We also continue to expand our work with the US 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 US 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 leaning 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 roadmap 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 costs, 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 and allow us to deliver even greater value to our customers. And today I'm thrilled to share the exciting news that we've 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 and natural language conversations, making it easier for people to find work and for companies to fill critical roles, especially in frontline industries like retail, healthcare, 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. We're 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 XtendPro 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 Xtend 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 with Live on Workday Marketplace, which has doubled since the start of FY26. 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 Agent Partner Network and the AI Agent 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 record turnout and 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 Flowwise, a leading low code platform for building powerful agents. Flowise 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 Bayless, 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 innovations to our customers for the second quarter in a row, more than 20% of our net new 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 and announced a few quarters ago. Workday Wellness continues to gain momentum with Benefast, 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 it's 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, 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 in Loomis 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 years are really starting to pay off with continued momentum and expansions including Tokyo Electronic in Ostimo 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 achieve 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 16th 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.

Zane Rowe - Chief Financial Officer - (00:18:44)

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 turn 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%. Professional services revenue was $179 million resulting in total revenue of 2.348 billion growth of 13%. US revenue in Q2 totaled $1.76 billion up 13%. International revenue totaled $584 million up 11%. This includes a three 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 and 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 a 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 headcount 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, we're increasing our FY26 subscription revenue guidance to $8.815 billion growth of 14%. We expect Q3 FY26 subscription revenue to be approximately $2.235 billion. Also 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 FY26 professional services revenue of approximately $700 million. For Q3, we expect professional services revenue of $180 million. We're increasing our FY26 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 FY26 non GAAP operating margins, respectively. The FY26 non GAAP tax rate is expected to be 19%. We're increasing our FY26 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 FY26 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 16th 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 and A.

OPERATOR - (00:23:55)

Thanks Zane. We will now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the Star keys. I'll now turn it back over to Carl for some brief comments before opening up for Q and A.

Carl Eschenbach - Chief Executive Officer - (00:24:25)

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 and first half of FY26. 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 and A and I'll turn it back over to the operator.

OPERATOR - (00:25:11)

Thank you. Our first question is from Cash Rangan with Goldman Sachs.

Cash Rangan - Equity Analyst - (00:25:18)

Hi. Thank you very much. Good to hear the energy in your voice, Carl, and congratulations on the results and the outlook.

Carl Eschenbach - Chief Executive Officer - (00:25:24)

Thank you.

Cash Rangan - Equity Analyst - (00:25:26)

Yeah, awesome. If you look at what's going on in the market, at least there's this pure psychosis that has gripped 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 Anil 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 startups are going to be able to, at the flick of a wrist, create software magically. HCM software, create HCM software. Boom, it creates it, boom. You got a product overnight. It's this thing called vibe coding, apparently. And I wonder, given 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 two about judging these startups. And of course Sam Altman at OpenAI already tweeted 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 so much.

Carl Eschenbach - Chief Executive Officer - (00:26:43)

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 headcount right in our customer base has moderated and we've seen that, but on a net basis, cash again this quarter, our headcount 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 headcount, you know, hiring or they've actually done a restructuring. If you dive into what's drove that, most of the time it isn't just because AI and the disruption of AI, it's because they've overhiered, going all the way back to the COVID days Cash, where we've hired a lot of employees and we haven't got the economies to scale and efficiencies that we wanted to. Now AI will help us get that. And let me just tell you Cash why I think we're uniquely positioned. Just think about our market position, right? We have over 11,000 customers today, a strong install 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 see based models is a bit overblown at this point.

Cash Rangan - Equity Analyst - (00:29:25)

And Carl, that's useful. And Sam Altman's post saying that they're getting into sas. What do you make of that? What SAS it is? We don't know. But I wonder if you had a viewpoint.

Carl Eschenbach - Chief Executive Officer - (00:29:36)

Yeah, I don't have a viewpoint because I don't know what they're talking about when they're getting into SaaS. You know the interesting thing you hear out there, Cash, 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.

Cash Rangan - Equity Analyst - (00:29:54)

Awesome. Thank you so much.

OPERATOR - (00:30:01)

Thank you. Our next question is from Kirk Matern with Evercore isi.

Kirk Matern - Equity Analyst - (00:30:09)

Yeah, hi guys, thanks for the, thanks for taking the question and Congratulations 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 offsetting 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, some of your early stage offerings. But I was just kind of curious, are there any things that are making the macro perhaps a little bit more difficult as well?

Carl Eschenbach - Chief Executive Officer - (00:30:45)

Yeah. Kirk, thanks for recognizing the delivery of a really solid quarter and first half to 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 two areas that we were keeping our eye on. One was the international markets for the reason, some of the reasons you described as, you know, whether it's tariffs, its 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 and local and education business. If we break those two 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 two largest markets there, that being the UK 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 two parts of that business. There's a state and local business and higher ed on state and local. We did see, you know, 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 flow down 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 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 they're the areas we're keeping our eye on 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. Hey, Kirk, this is day. And 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.

Kirk Matern - Equity Analyst - (00:33:26)

And Zane, if I could just ask. A quick follow up on the. On the 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. You know, what should we think about? I assume Paradox plays into that. Just any. Any sort of additional color you can have on. Just the sequential ramp from 3Q to 4Q would be helpful, thanks.

Zane Rowe - Chief Financial Officer - (00:33:47)

Yeah, of course. Yeah. 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's 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. Yeah, Kirk, I'd say the year's playing out exactly as we expected. We knew we'd have a slower growth profile in Q1 and Q2. We'd build momentum going into the second half and then we had 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. Great.

Kirk Matern - Equity Analyst - (00:34:34)

Thanks, guys. See you rising. Appreciate it.

Carl Eschenbach - Chief Executive Officer - (00:34:37)

See you there. Thanks, Kirk.

OPERATOR - (00:34:40)

Our next question is from Mark Murphy with JP Morgan.

Mark Murphy - Equity Analyst - (00:34:46)

Thank you so much. Nice to see the backlog growth 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.

Carl Eschenbach - Chief Executive Officer - (00:35:29)

Yeah, 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, it 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 grouping. 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 in the fact that the government's leading deep into AI. They're looking to us to help them make this transition.

Mark Murphy - Equity Analyst - (00:36:35)

Thank you very much.

OPERATOR - (00:36:40)

Our next question is from Brad Zelnick with Deutsche Bank.

Brad Zelnick - Equity Analyst - (00:36:45)

Great, thank you so much. And congrats on a really strong Q2. And congrats on announcing Paradox, which, you know, 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, you know, 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 MA that you've done. Thank you. Yeah, maybe I'll start then. I'm actually going to turn it over to Garrett to talk specifically about Paradox. As you know, Garrett's our new president in product and technology and this week he actually just celebrated his five 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's, 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. There's no one that has a more robust AI suite to attract, to recruit and retain talent. And I'll let Garrett speak more specifically about how this is going to fit into our overall recruiting suite and platform.

Carl Eschenbach - Chief Executive Officer - (00:38:14)

Thank you, Carl. Hey Brad. So we look at Paradox, you know, from three strategic angles and why we think it's an incredible fit for our company and truly going to change the game in recruiting first and foremost. You know, it's really important for us to expand workday recruiting into all types of labor, be it in the front line, be it in 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 they are mobile and AI 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 conversational mobile first, which means that it's truly attractive for all kinds of company who are 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 a Chipotle statement, about a 75% reduction in time to hire. And truly delivering business ROI by freeing up recruiters from manual work and interviewing and scheduling and spending time with candidates. So we put a human back in human resources, if you will, through the power of AI.

Garrett Katzmeyer - President, Product and Technology - (00:39:45)

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 and 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. Hey 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. Awesome. Thank you guys.

OPERATOR - (00:40:41)

Our next question is from Brent Thill with Jefferies.

Brent Thill - Equity Analyst - (00:40:47)

Thanks, 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 your win rates in these deals that you're seeing going forward.

Carl Eschenbach - Chief Executive Officer - (00:41:04)

Yeah, sure. So first I'll highlight, we'll give you more information in more detail on the number itself at thad at rising in a few weeks. But the color we're trying to give you is how quickly our technology and AI specifically is being adopted by our customers. First of all, 70% of our customers today already use workday illuminae in one of the feature 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 that 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 you know, 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.

Brent Thill - Equity Analyst - (00:42:08)

Quick for Zane, I think last quarter you called out United Airlines as a big deal. I don't know if there were any, you know, larger outsized elephant transactions that you saw this quarter. Maybe Eva and the healthcare side is there, was there any other ones that caught your eye or that were notable?

Carl Eschenbach - Chief Executive Officer - (00:42:27)

I'll take it. Yeah. I mean UVA was absolutely a significant win for us as you could imagine at 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 you know, 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, you know, big wins within the quarter that were my prepared remarks as well that included, you know, key expansions at the likes of Sanofi and Google. We had good full suite wins at Michaels Corporation Redcoat. 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. Is UVA was a workday student customer before. Correct. So they were an existing student related customer. So this is an expansion in the healthcare segment of that business. No, this is a net new win across everything. It includes hcm, includes financials and it includes student and it covers both the higher ed portion of the university as well as the healthcare system.

Brent Thill - Equity Analyst - (00:43:50)

Okay, thanks for clarifying.

Zane Rowe - Chief Financial Officer - (00:43:53)

Hey Brent, I would just add, you know, obviously we're pleased with what we're doing on the strategic partner front as well. And you know we highlighted DailyPay if you missed it earlier, which is an exciting customer and partner of ours as well.

Brent Thill - Equity Analyst - (00:44:07)

Great, thanks Zane.

OPERATOR - (00:44:10)

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

Brad Sills - (00:44:15)

Oh great. Thank you so much. I wanted to ask, I know it's early with Elluminate, but what are you seeing with regards to levels of engagement or you know, any types of interactions, you know, with the AgentIQ platform? Are there any trends or themes coming in here where might have surprised you to the upside? Just general commentary would be helpful, I think on just the level of engagement there.

Carl Eschenbach - Chief Executive Officer - (00:44:44)

Yeah, I think it's actually quite strong which is why we're trying to give you a lot of color on our AI solutions in 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, eversourt, 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 Xtend Pro, XtendPro really leverages our platform and allows people to bring AI solutions into the platform, both applications and build net 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. You know 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 that drive real business outcomes.

Brad Sills - (00:46:24)

Great to hear, Carl, thanks so much. 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. 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.

Carl Eschenbach - Chief Executive Officer - (00:46:39)

Yeah, sure. We had a really good quarter in what we describe as the medium enterprise or the emerging enterprise, especially when we look at 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 Workday Go, 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 medium 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 years. And I expect this to be a strong source of growth going forward.

Brad Sills - (00:47:36)

Thanks so much, Carl.

OPERATOR - (00:47:42)

Our next question is from Karl Kiersted with ubs.

Karl Kiersted - Equity Analyst - (00:47:46)

Thank you, 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 BIPS upside might have been? And then just to be clear around. Layering in paradox, are you able to maybe just to bracket what the revenue contribution that's dropping into Sub Rev's growth is in the fourth quarter from that deal? Thank you so much.

Zane Rowe - Chief Financial Officer - (00:48:17)

Sure. Of course, yeah. 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, you know, probably above the range I'd say was, you know, early renewals was a big contributor to that. And then, you know, as we called out, you know, in the, in our Prepared remarks. We've. We've increased our guide by 15. You know, for Paradox, I'd say we're not. We're not necessarily breaking down the size of that business specifically, but that's a good rough proxy for what we're assuming, you know, particularly in the fourth quarter, and excited about what that business will do for us going forward beyond just the short term.

Carl Eschenbach - Chief Executive Officer - (00:49:11)

Okay. And. Hey, Carl. This is Carl. How are you? 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 complete 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.

Karl Kiersted - Equity Analyst - (00:49:46)

Okay, great. Thank you both. See you in San Francisco.

OPERATOR - (00:49:49)

Sounds great. Thanks, Carl.

Raymond Lenshaw - Equity Analyst - (00:49:54)

Thank you. We have time for two more questions. Our next question is from Raymond Lenshaw with Barclays. Hey, thanks for squeezing me in. Actually, can I stay on that card question, Zane? So if paradox is. If 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? You know, because in theory, you kind of overachieved by nine. So nine plus 15 from paradox would actually be a higher number. Can you just clarify that one more time?

Zane Rowe - Chief Financial Officer - (00:50:30)

Yes, Raimo. I mean, as I mentioned, look, there's a lot that goes into our forecast. We feel great about the year. Absent Paradox, we'd be holding to the 8. 8. And obviously we've been executing well, as Carl's 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.

Raymond Lenshaw - Equity Analyst - (00:50:58)

Okay, perfect. Okay, thank you. And then on the, on the international. Thank you. And on the international side, you talked about the, you know, the good momentum in the uk, Germany. It's still kind of nice emerge. They're 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. Single deals? They're really nice, but like it's not kind of quite mass market yet. Thank you.

Carl Eschenbach - Chief Executive Officer - (00:51:31)

Yeah, 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 two biggest markets in Europe, both the UK 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 in 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. So I'm really pleased. And as far as logos, listen, they're as strong in Europe as they are here in the U.S. yeah, okay, perfect. Thank you.

OPERATOR - (00:53:01)

Thank you. Our final question is from Derek Wood with TD Cowan.

Derek Wood - Equity Analyst - (00:53:07)

Great, thanks. 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. Yeah, 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 it's 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 and 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. Great.

Carl Eschenbach - Chief Executive Officer - (00:54:56)

Thank you.

OPERATOR - (00:55:01)

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.

Carl Eschenbach - Chief Executive Officer - (00:55:10)

Yeah, 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 16th. With that, I'll turn it over to the operator to close the call. And again, thanks to everyone for joining.

OPERATOR - (00:56:01)

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