Q3 2026 Earnings Call Transcript

Welcome to Workday's Third 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 towards the end of the call. During the Q&A, please limit your questions to one. I will now hand it over to Justin Allen Furby, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Welcome to Workday's third 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 the close of the 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 documents we file with the Securities and Exchange Commission, including our fiscal 2025 annual report on Form 10-Ks 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. 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 disclosures 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 the call will be available for the next ninety 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 2026 quiet period begins on January 15, 2026. 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.

Thank you, Justin, and thank you all for joining us today. I'm pleased to report that Workday delivered solid Q3 results, with 15% subscription revenue growth and a 28% non-GAAP operating margin. Our teams executed well, and our value proposition is clearly resonating with organizations around the world. I've been on the road a lot lately, meeting with our customers and prospects, and they're all saying the same thing.

They see the potential of AI, but they're stuck with disconnected systems, bad data, and closed platforms. That's where Workday gives them the ultimate advantage. By unifying HR and finance on one intelligent platform, we deliver business-ready AI that helps organizations adapt quickly, make better decisions, and deliver outcomes that truly matter. Now let's turn to our customer highlights for the quarter.

In Q3, we continued to grow across industries, segments, and geographies. In HCM, we added new customers, including Sunnybrook Health Sciences Center, Fuji Electric, and the Magnum Ice Cream Company. Core financials also performed well, driving strong full suite adoption. In fact, half of all net new global deals in Q3 included both HR and finance, with key wins such as Arden Health, Kelly Services, and Specialized.

We also expanded with customers such as CommonSpirit Health, Levi Strauss, and Novartis, and consistent with recent quarters, our customers' headcount levels continue to grow modestly. And our momentum isn't just from large enterprises. Workday Go is helping us drive strong new customer growth and continued ACV momentum in the medium enterprise. Just last week, we announced a major expansion of Workday Go, including global payroll, an expanded partner network, and a new AI deployment agent that can cut implementation time by up to 25%.

Customers of all sizes and industries tell us that an investment in Workday is an investment in their AI strategy. More than 75% of our core customers are using Workday Illuminate AI, driving well over 1 billion AI actions on the Workday platform this year alone. And adoption keeps growing. More than three-quarters of net new deals and 35% of customer expansions included one or more AI products.

Among the standouts, Eversort delivered another record quarter, and XtendPro grew net new ACV by more than 50% year over year. Altogether, our AI products added more than one and a half points of ARR growth this quarter. That doesn't include Paradox, which we closed in Q3 and is already off to a strong start. And with the rollout of flex credits early next year, we're making it even easier for our customers to adopt our AI and platform innovation.

Our customer footprint spans every major industry. Tech and media and financial services, two of our billion-dollar industries, were standout performers in the quarter. And in Q3, healthcare became our sixth industry to exceed $1 billion in ARR with strategic wins like Arden Health, Ascendiant, and Northeast Georgia Medical Center. One of my favorites this quarter was a major win back at a large US health insurer.

They were a long-time Workday customer that moved to a competitor several years ago and quickly regretted it. Now they're back with Workday and choosing our full suite with a ten-year commitment. Our public sector momentum was also strong in Q3, and despite the weeks-long government shutdown, engagement across federal agencies remained high. The Department of Energy's successful go-live in Q3 is a great example.

They're the first cabinet-level agency to bring their core HR systems into our FedRAMP authorized cloud. We're also nearing completion of the first phase of our work with the DIA. This opens up an important long-term opportunity both with the agency and across the intelligence community and Department of War. In SLED, we welcome new customers including the County Of San Luis Obispo, the city of Concord, and Cleveland State University.

And we expanded with Cornell University, which added both core financials and student. While we had a number of successes across our Fed, SLED, and healthcare teams, we also saw some isolated impacts within institutions that rely heavily on federal grants, primarily in higher ed. However, when they are ready to move forward, our win rates are very strong, and we're excited by the long-term opportunity ahead. Across all of these industries, we're delivering innovation that's changing how work gets done.

And the market is taking notice. Gartner just named Workday a leader in three magic quadrants, including cloud ERP for service-centric enterprises, cloud HCM suite for 1,000-plus employee enterprises, and the first-ever MQ for Cloud ERP Finance, giving us the highest placement for both ability to execute and completeness of vision. If you joined us at Workday Rising, you saw how our organic innovation is only accelerating. We introduced new Illuminate agents that tackle some of the toughest challenges at work, from performance reviews and workforce planning to financial close.

These purpose-built agents are powered by our unmatched HR and financial data and context, which is what makes them highly accurate, actionable, and trusted. And now we have more than 150 customers, including Target, Accenture, and Netflix, using our agent and agent system of record in early access. At the same time, we're opening up our platform so customers and partners can create their own AI-powered apps and agents with Workday build. And with Workday Data Cloud, along with our partners, including Databricks, Salesforce, Snowflake, and now Google Cloud, customers can unlock even more insight and value from their Workday data.

We're also accelerating our innovation through strategic acquisition. We just closed our acquisition of Sana, an AI-native platform with an incredible team. They're going to help us completely reimagine our user experience for the age of AI. Our vision is very simple and straightforward.

Make Workday the new front door to work by bringing together enterprise knowledge, AI agents, and all the HR and finance processes our customers run every day. This will make it easier than ever to find the answers, take action, and learn right in Workday. Customer feedback on this vision has been absolutely incredible. And Sana Learn brings hyper-personalized skill development and AI-generated content creation to Workday Learning.

I can't wait for our customers to get their hands on it. We're not stopping there. Last week, we announced the intent to acquire Pipedream, a low-code integration platform for AI agents with more than 3,000 prebuilt connectors to the world's most widely used business applications like Asana, Jira, and Slack. When you combine that reach with Workday's trusted data, deep business context, and the capabilities from Sana and Flowise, our agents move from surfacing insights to truly getting work done.

So, hopefully, you're seeing a theme here. While other vendors confuse the market with thousands of overlapping, general-purpose agents, we're focused on what we do best. And that is building powerful agents for HR and finance that deliver real ROI and measurable business value. Turning to international, we delivered solid performance across EMEA, APAC, and Japan in Q3. We just wrapped up our largest EMEA rising yet.

There, we announced the new Workday EU sovereign cloud, which will let customers run our AI-powered HR and finance solutions entirely within the EU, keeping their data local, secure, and fully controlled. Also in Q3, we established a new AI center of excellence in Dublin, which is one of our major R&D hubs, and we announced a new office in Dubai. A few of the great wins we had across EMEA in Q3 included Bayer, ING Bank, and Tandem Bank. APAC also had a strong quarter with wins at Genesis Energy, DBS Bank, and MGM Grand Paradise.

And we continued to build on our success in Japan with new and expanded relationships with Pioneer Corporation, Hoshino Resorts, and iSci. Our partners continue to play a critical role in our success. Once again in Q3, more than 20% of our net new ACV was sourced from partners, a testament to the strength of our ecosystem. In Q3, we brought on new Workday wellness partners, including Chime, Spring Health, and Strata, to expand the value we deliver to our joint customers.

We also expanded our partnership with Microsoft to help joint customers securely manage their people and agents across both of our platforms. We're living in a new era of work, powered by AI and built on trust. And Workday is made for this moment. The momentum in our business and the energy I'm seeing across our customer community gives me a ton of confidence in what's ahead.

A huge thank you to our global workmates, our customers, and our partners for helping us deliver another solid quarter. As we head into Q4, we're focused on finishing strong and setting ourselves up for an even more impactful FY '27. With that, I'll turn it over to Zane.

Thanks, Carl. And thank you to everyone for joining today's call. Our Q3 results were driven by continued progress across several key growth initiatives as we accelerate innovation throughout the platform and bring exciting AI solutions to market. Turning to results.

Subscription revenue in the third quarter was $2.244 billion, up 15%. Professional services revenue was $188 million, resulting in total revenue of $2.432 billion, growth of 13%. US revenue in Q3 totaled $1.825 billion, up 12%. International revenue totaled $607 million, up 13%.

Twelve-month subscription revenue backlog, or CRPO, was $8.21 billion at the end of Q3, increasing 17.6%. We closed the Paradox acquisition in the quarter, which added over a point of CRPO growth and was not included in our backlog guidance. Excluding Paradox, CRPO came in slightly above the high end of our outlook. Total subscription revenue backlog at the end of the quarter was $25.96 billion, up 17%, and gross revenue retention rates remained healthy at 97%.

Non-GAAP operating income for the third quarter was $692 million, representing a non-GAAP operating margin of 28.5%. We remain focused on making targeted investments to support long-term growth. This includes increasing our AI talent, organically and inorganically, entering new markets such as The Middle East and India, and investing in the medium enterprise. While we make these investments, we're also continuing to drive efficiencies as we scale the business globally.

Q3 operating cash flow was $588 million, growth of 45%. In line with our expectations. As we discussed at our recent financial analyst day, we intend to accelerate the pace of our buyback. We made good progress in Q3, repurchasing $803 million of our shares during the quarter and $1.4 billion year to date.

We plan to repurchase an additional $3.6 billion through the end of FY 2027, leading to $5 billion in total repurchases. As of October 31, we had $4.4 billion remaining under our current authorization. We ended the quarter with $6.8 billion in cash and marketable securities. Our headcount as of October 31 stood at 20,588 workmates around the globe, including roughly 600 workmates from the Paradox acquisition.

Now turning to guidance. For Q4, we expect subscription revenue of $2.355 billion, growth of 15%, which includes revenue from the Sana acquisition and the expected delivery on the first phase of the DIA contract. We expect FY '26 subscription revenue of $8.828 billion, growth of 14%. Our Q4 subscription revenue guidance is consistent with our view from last quarter, excluding the expected contribution from Sana.

While we did see some impact in Fed and SLED tied to fiscal funding, this was offset by strong execution across the portfolio, including the Paradox acquisition. We expect CRPO to increase between 15-16% in Q4. This includes approximately 0.25 of expected growth from the Sana acquisition, or about $20 million. And over a point of impact from tenants, which we begin to lap in Q1. For Q4, we expect professional services revenue of $168 million and for the full year, we expect it to be $715 million. We are executing well against our efficiency goals and expect a non-GAAP operating margin of at least 28.5% for Q4 and approximately 29% for the full year.

We're optimistic about the AI-driven growth investments we are making and have ample capacity to continue to invest while we drive further efficiencies consistent with the framework from our Financial Analyst Day. We expect GAAP operating margins to be approximately nineteen and twenty-one points lower than our Q4 and full-year FY 2026 non-GAAP operating margins, respectively. The FY 2026 non-GAAP tax rate is expected to be 19%. We are increasing our FY 2026 operating cash flow outlook to $2.9 billion and we continue to expect capital expenditures of approximately $200 million, resulting in free cash flow of $2.7 billion, growth of 23%.

Looking beyond this year, as we shared at our recent financial analyst day, we are targeting a subscription revenue CAGR of 12% to 15% through FY '28, along with continued margin expansion on both a GAAP and non-GAAP basis. For FY 2027 specifically, we continue to expect subscription revenue growth of approximately 13%, also consistent with the view we shared in September at our Analyst Day. We are confident in this growth rate based on the momentum we see across the business as reflected in our Q3 performance as well as our Q4 CRPO guidance. We are optimistic about our growth initiatives and our recent acquisitions and look forward to updating you with formal guidance for FY 2027 next quarter.

We currently expect our Q1 FY 2027 subscription revenue growth to be approximately 14% year over year and flat sequentially, reflecting typical seasonality from Q4 as well as the expected revenue from DIA in Q4, which doesn't extend into Q1. We believe that the completion of this first phase sets us up for a larger opportunity with the DIA and the broader defense and intelligence communities. We remain on track and confident in our ability to achieve the financial framework we laid out at our Analyst Day back in September, including subscription revenue growth, non-GAAP margins, and stock-based compensation.

In closing, I'd like to thank our workmates, customers, and partners around the globe that helped deliver this quarter's results. We enter Q4 well-positioned to close the year with strength and remain focused on our long-term opportunity of driving durable growth while expanding operating margins. With that, I'll turn it back over to the operator to begin Q&A.

Thank you. We'll now begin conducting our question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

You may press 2 to remove your question from the queue. Participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. First question is from Mark Murphy with JPMorgan.

Thank you very much. And I'll add my congrats on a very nice performance. Carl, we're hearing some feedback that the venture-backed vibe creating startups have started seeing a slowdown or at least that some of them have or elevated churn. And it's happening because companies are finding it's pretty difficult to operationalize them and put them into production.

I'm wondering if you're seeing any signs of some of that novelty wearing off for those third-party, vibe coating products. And if so, do you see any accelerated adoption of Workday Extend where you know, presumably, they'd have all the security and all the other infrastructure is already in place.

Yeah. Hi, Mark. Thanks for the question. And before I answer, I just wanted to say the following.

Q3, Mark, was another solid quarter for Workday, reflecting in the strength. And as I always like to say, the diversity and durability of our business. Our customers are seeing clear ROI from Workday. And they're engaging more than ever.

And we had more than 1 billion AI actions year to date, and it's only growing faster and faster. We feel really good the momentum of the business as we head into Q4 and into FY 2027. And I'm truly grateful for all the work both our partners and our workmates have done to get us to this point in the year. It's been a really good year for us so far. And Mark, really appreciate your question.

It's similar to what Kash asked last quarter. When he talked about all of this potential disruption coming from these AI startups to more mature and larger SaaS companies like Workday. And at the time, I said I thought it was a completely overblown narrative. And I thought it was flat out wrong.

And quite frankly, fast forwarding ninety days, think that's playing out exactly like, we thought it would. When I spend time with CXOs around the world that both customers and prospects they talk about three things that's hindering or slowing down enterprise adoption of AI. It is data quality, it's data integrity, and it's security. And by the way, none of these are an issue for Workday.

As you know, we have one of the largest and cleanest and most highly curated datasets for HR and finance in the No questions asked. And we have the security compliance and controls in place because today, we onboard a large portion of the world's work and we can apply those same process and procedures to your workforce of the future, both human and digital. And when we spend time with our customers, while maybe they're enamored with these point solutions, they're ultimately coming back to the vendors they trust, who have been in their infrastructure for a long time, has that data set, and drives real business outcomes.

The narrative we've been hearing the last couple of quarters is changing, and it's coming back to those who are highly penetrated in the enterprise already providing value, and are deeply trusted by our customers. So I agree with what you're seeing. Seeing it. We're hearing it, and it's reflected in customers continuing to bet on Workday for their future.

Thank you so much.

Our next question is from Kirk Materne with Evercore ISI.

Yes. Thanks very much and congrats on the solid quarter. Carl, the other narrative that often comes up these days is clients see, you know, a big customer laying off people. And and I know you guys commented that your customers are are growing, you know, headcount slowly right now.

You know, what are the mechanisms that you guys have of a customer? Were to have to lay out people to be able to keep growing ACV with them? Obviously, cross sell, upsell, are there discounts that go away? I just can you explain that a little bit?

Because I think people believe there's sort of linear relationship between a number of on a per seat basis and I realized it's probably a little bit more complicated that especially at the high end of your business.

Thanks, Kirk. I appreciate the question. And, yeah, in my prepared remarks, I once again want to articulate and share that on a net basis, the headcount of our customer base is up year over year. So while there are some layoffs out there, we're still growing headcount across our customer base.

And what we're doing, you said it, we are selling back into our base. And we're focused not on just seats, but actually revenue per seat. And what we have now more than ever is we have a whole bunch of new solutions both organically innovative solutions and solutions that we got through acquisition that we're selling back into our customer base, whether it's Eversort, whether it's HiredScore, now it's Sana, now it's Paradox, now it's Flowwise, We have so much more to sell back into our customer base and that drives strength for us and offsets any potential impact we might see from headcount reductions in our customers.

Also, our customers do do true ups with us both annually on their headcount. And we do have floors and minimums that the customer can bring their headcount down. And that gives us some protection. But overall, we're still seeing growth in headcount year over year.

And we're selling just a lot more back into our customer base because they're betting on our platform. And they're using us as a consolidation platform across all of their point solution to drive a better total cost of ownership.

Hey, Kirk. I just add, if you if you look at the aggregate, it is a net positive, but it's not a significant amount of our growth. So there are lots of elements, as Karl alluded to. That go into that growth number, and this is just one of them.

Great. Thanks. Thanks, guys.

Our next question is from Keith Weiss with Morgan Stanley.

Excellent. Thank you guys for taking the question and congratulations on the solid quarter. I wanted to ask about some of the early success you guys are seeing with your AI solutions. Karl, I think on the call, said a point and a half of growth.

In ARR already coming, from those AI solutions. Can you give us any rules of thumb that you're starting to see that could help us maybe model this out a little bit in terms of what type of uplift do you see on a typical deal or for a typical customer when they're buying the AI solutions or how broad is this? Like, what percentage of your customer base has already bought into the solutions, and how far do we have to go? Just something to help us extrapolate that early success into what this might look like in a year from now or two years from now.

Yeah. Thanks for the question, Keith. And we gave some of these statistics at FAD just ninety days ago. That's why we called out again this quarter.

Our AI solutions are adding a point and a half of growth to our ARR. And we're also trying to give you some color specifically on the strength of our AI solution. So for example, 5% of our new sales included in AI solution. 35% of our sales back to our customer base includes AI. We're seeing really good traction, and we're seeing really good early indications of demand from some of our acquired companies like Sana and Paradox.

So overall, our AI momentum is as strong, if not stronger than ever, and it's being reflected in how our customers are buying our product. Both at time of new sales as well as our ability to sell back into our customer base. So I couldn't be more excited about where we're at Things like Eversort are had a record quarter We're seeing an acceleration in growth in Eversort. In XtendPro, we call that out, it once again grew 50% year over year.

And then when we sell back into our customers, for example, when we sell something like a hired score recruiting agent, it's a significant uptick over what we would sell our standard recruiting, SKU for.

Got it. Any any sense on how much of an uplift it is versus the standard?

Yeah. On on for example, on hired score, for every dollar of recruiting we sell, we sell about $2.50 of hired score on top of it.

Okay. That's super helpful. Thank you, guys.

Our next question is from Michael Turrin with Wells Fargo.

Hey, great. Thanks. I appreciate you asking the or appreciate you taking the question. And my congrats on the results as well.

I guess just a a two parter for me. I I guess first, just I wanted to zoom in on some of the early feedback around Paradox and Asana, just what you're hearing from customers coming out of Rising and and if that can help the Workday business model continue to evolve towards just some of the questions around AI and Adjenta capabilities. That you're offering alongside the the Flex Credit program. And then Zane, maybe just coming out of Rising, an update on how you're thinking about the trade offs between growth and margin given some of the recent additions in the product portfolio and some of that feedback there as well?

Thank you.

Yeah. So maybe I'll start, then I'll kick it over to both Garrett and Zane specifically to follow-up on the questions. So first, as you know, we've closed the Paradox acquisition in October. And within two weeks, we were already off and selling it, and it had a small in the quarter, a few million dollars over a two week period.

Just by our sales force going out and selling that into the market. I will tell you coming out of rising EMEA, the demand and excitement for Paradox in being a Workday product and selling on our paper was very, very strong. On 4,000 customers that have worked day learning today. And then, obviously, we're gonna refresh our UI UX leveraging the Sana platform going forward.

So the early indications specifically on these two recent acquired companies is as strong as anything we seen when we acquire a company. And maybe, Gary, you can talk specifically about Sana because that one is off the charts, right now from a demand and from an excitement from our customers.

Yeah. And as Carlos said, we are seeing tremendous interest around the three main of SANNA. One, as Carlos said, it's the leading AI learning platform So very natural for us to bring this to our customers. Of which we have a very scaled base of Workday learning customers, which are using Sana and are excited about Sana as a learning AI experience platform on top of that.

Very natural, very immediate interest. And secondly, what Carlos mentioned, Sana is also now being developed into the leading UI experience for Workday. So you can think about a complete conversational experience around the Workday platform Workday being the innovation leader and our customers are tremendously excited about the massive simplification that brings to them. And if you imagine every employee having access to HR, and finance AI at scale, what that means in cost production, On the other side, you can see what drives that interest.

And thirdly, you know, Sana goes much more beyond that, and I would recommend you look at the big picture with also PipeDream adding 3,000 connectors to the Sana platform. Which now allows our customers to take SANA knowledge management, actions in Workday, and the actions that Pipedream adds to really drive enterprise wide AI transformation with that model. And we see very strong customer interest across all of those three vectors.

Hey, Michael. This is Zane. I'll just add, as you can hear between Carl and Garrett, we're thrilled with the early success that we're seeing from both Paradox and Sana. So as it relates to our financial framework, I'd say no change at all.

We continue to invest in AI. Both organically and inorganically and are pleased with the investments we're making there. And at the same time recognizing the efficiencies and scale that we're driving across the business. So we're still driving that within the framework and very pleased with the progress we're making there.

Thanks very much.

Our next question is from Brent Thill with Jefferies.

Thanks. Just with with Paradox, I I know that SAP and other ERP installed bases are using that. Is your vision that you can sell this anywhere that you're gonna be agnostic to whatever platform is running in the back? How are you thinking about that from a go to market perspective?

Yes. Thanks, Brett. Are super excited about the go to market capabilities we have around Paradox. Number one, we can sell it back into our customers right, as a an attachment to our already strong recruiting platform, including something like HiredScore.

Now we have Paradox. So we have the industry leading AI recruiting platform out there today. At the same time, this is now a new product that is a land only product for our Salesforce who can now go and sell Paradox not only on top of Workday or back into our installed base, but also into our competitors' environment. In fact, a a significant portion of their existing customers aren't Workday today.

And we're gonna continue to leverage that go to market model so it gives us another land product without someone having to decide completely on Workday, HR, or finance. They can go just with Paradox. And I've seen that come up multiple times just in the first sixty days of us having this great asset.

Okay. Zane, real quick. Just on CRPO, is there anything to consider in the guide, that you're maybe highlighting as a headwind, tailwind, any change to how you're thinking about that in terms of how we should we should think about modeling it?

No. I mean, I think it's it's fairly clean, Brent. I mean, obviously, we feel good about what we saw in the third quarter. I mentioned that Paradox was over a point of that.

We feel very confident. I mean, as always, CRPO the number of factors, both the net new business as well as renewal activity and just the volume that you get in any particular quarter. So we think we've got great strength heading into the fourth quarter. We've got terrific coverage on our expected subscription growth heading into next year, which I alluded to, as you think about even between the fourth quarter and the first quarter.

So no, we feel good about the CRPO growth as well as the coverage. So net net, we feel good even on the sequential basis. I did call out how much of that was sawn as well. Which is a very small impact on revenue for the fourth quarter.

Great. Thanks. Our next question is from Karl Keirstead with UBS.

Thank you, Haysayne. Maybe we can just continue that conversation. If if we try to take your 4q CRPO 15 to 16 and normalize it by deducting maybe maybe some of the the onetime stuff. So just just so I've got the thinking right.

Maybe a point year over year from the tenant contracts maybe a point year over year from Paradox and a quarter from Sana. So maybe 2.25 points, from, more unusual stuff to to back out to get to more normalized. Is that roughly the right math?

Yes, Carl. I mean, there are lots of things you can sort of move around within that c o p o growth. I mean, I think you've got it sort of generally in line. But again, there are other variables within the timing on renewal activity and things like that.

One other call out I'll make if you're trying to understand sort of those components between the organic and the inorganic component in the fourth quarter, is, let's say, that both Sona and Paradox contribute roughly one point points to our Q4 subscription revenue growth. So just to help you contextualize that, I mean, I mentioned, my prepared remarks, absent Sana, we believe our Q4 was consistent with our view just a quarter ago. So we feel great about the activity there. But that helps you understand sort of the components of Q4 and the CRP CRC CRP growth.

Okay. Thanks. And maybe just in the spirit of a follow-up on 4Q, this time on the sub revs. It sounds like it's embedding a view of reaching those DIA go live milestones.

I'm assuming that given that there's just two months left in the fiscal year, you Carl are feeling pretty good about that. Obviously, the shutdown, I suspect, didn't help. But can you just maybe express confidence level in hitting those DIA go lives? Thanks.

Yes, it's a great call out. We're highly confident. Just give you a sense of size on that one, it's roughly $15 million in the fourth quarter. We feel great about the progress we've been making all year We're tracking it very closely, and it's embedded in our forecast in for fourth for the fourth quarter.

Got Yes, Carl, we're tracking really well towards the contract requirements that give us that $15 million in Q4, and we're already talking talking to them about an expansion of taking that platform to the next level, which opens up a whole bunch of different opportunities across a broader Department of Defense or Department of War We're really excited about the momentum we're seeing with the federal government in this DIA project or the first favor phase of it is really opening us up to a great opportunity going forward. And as I said, we're already negotiating a follow on to take that platform to the next level.

With further security requirements they're asking us for.

That's great news. Thank you both. Thanks, Carl.

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

Great. Thank you so much. It's clear from all the announcements and what we saw out of conference, was, you know, that you're you're you're really going for with AI, that Sana acquisition, you know, Paradox, you know, more recently PipeDream, that partnership with Microsoft Microsoft. I mean, how how should we read that?

Should we think of this as kind a year where you're building the foundation for AI and agents and that 1.5%, you know, points of growth, coming from AI, you know, goes materially higher perhaps in fiscal twenty eight, or is this more of a '27 event just given where you are with all the great innovation that you're kinda bringing together and and the time it might take for that to kind of sink into the sales cycle and pipelines? Thank you.

Yeah. So, I think, first of all, Fastus is a continuation. As Carlos said, we have 1,400,000,000 AI already in production in the Workday platform today. So we have been doing this at Workday extremely successfully, and now we are just taking the next steps in leading AI technology to help our customers, you know, become truly AI driven enterprises.

And specifically, the vectors of our innovation is myth paradox and in a bigger picture frontline fully bringing AI automation to the entire hiring journey, you put that together with our recruiting agent, Paradox as a candidate engagement agent in connection with each other. It basically builds the AI driven talent suite they're doing with Sana is we're acquiring leading knowledge management in a leading agent orchestrator to be the AI experience layer across Workday. So very important when we think about AI adoption that our conviction is AI is gonna be the new UI. And that all of the legacy vendors who are not having leading experiences are gonna get relegated through that.

And thirdly, what you mentioned about Pipedream. Right? Our ambition and our cut customers' requirements are actually taking us much broader than Workday is in finance and HR, and really looking for enterprise wide orchestration. We think about it as an an enterprise AI fabric.

That we are creating through Pipedream with Sana as the experience layer on top built on top of Workday's business process platform.

Yeah. Brad, the only color I'd add there is clearly we're going all in on AI, and it's for the following reason. We're uniquely positioned versus everyone else out there today. We have the data, Right?

We have the context of the data, and we're built in the business workflow. And our customers are saying time and time again, they no longer want to even evaluate point AI solutions. They wanna do it on the back of a trusted platform. Therefore, we go and we get something like Paradox.

We get PipeDream. We get Sana. Last year, Eversort. Before that, we get HiredScore.

And it's not just our customers who are saying they believe in our platform. It's partners To your point, we're partnering with Microsoft. So as they start to build agents, they see the most secure, reliable, and trusted way to onboard their agents is through Workday in our agent system of record because no one has more experience in onboarding employees than Workday. And now we're taking to the digital worker as well.

Great to hear. Thank you so much. Bye.

Our next question is from Brad Zelnick with Deutsche Bank.

Great. Thank you so much, Brad. Following Brad, Congrats guys on a good quarter, and thanks for taking the question. My question is about Workday Go, where we continue to hear really good things.

Particularly in ME and emerging enterprise. It was interesting to see it soon to be more broadly available. Perhaps looking at AI from a different angle, is there anything different Workday needs to deliver from an AI product perspective for the down market customer versus large enterprise? Thanks.

Yeah, let me have Garrett take that and then I'll talk more about work day go and the big announcement we had at Rising EMEA last week.

Yeah. And specifically, the AI side, and, Brett, you know, that two things to consider. Right? One is that also, medium sized companies wanna benefit from the best AI.

So, course, you know, they're gonna get the full power of Workday's AI agents. Also, they delivered in Workday Go. That's the first part. Very important.

And secondly, we are specifically innovating around Workday Go with specific AR models. Think about the whole configuration, administration, management of the setup complexity, we are working and announced a new deployment agent, which already is slashed deployment time and complexity down by a significant degree. It's a key investment theme for us. And, you know, just connecting it back to the broader partner network, you know, specifically before they go to new managed services like payroll, We are working on payroll AI, that is securely being connected into our ASR with our partners that are providing these services to also drive, you know, payroll automation, payroll simplification, benefits across the Workday Go global partner network.

And that's specifically being created all from that angle to make the mid market customer run at the scale of Workday, but with unmatched simplicity.

Yeah. And, Brad, you know, we announced, you know, Workday Go as I call it, 2.o last week at EMEA Rising. And I will tell you to Garrett's point, the feedback was unbelievable with three key components to it. We now offer global payroll if a customer wants it.

By the way, if they don't wanna use a managed global payroll service from Workday, they can bring their own payroll. We have a partner network that's gonna help us take, you know, Workday Go, to the market around the world and resell it on our behalf. And then we have that AI deployment agent Also included in Workday Go is a payroll agent. To help people simplify how they're managing their payroll activity across the enterprise.

Work they go, I will tell you, is on fire. People are excited about it, and people are leaning into Workday down market as we aggressively go attack that market. Segment around the world.

No, we really hear it's working well. Thank you so much for taking the question.

Thank you, Brad. Our next question is from Alex Zukin with Wolfe Research.

Hey, guys. Thanks for taking the question. Maybe just a quick two parter, Karl. First for you, when you think about, the commentary for next year, it's great to hear about the kind of reiterating the confidence and the growth rate of 13%.

But since Analyst Day, is there anything that maybe you've seen that gives you even more confidence when you're talking with customers around things like budgets or their demand environments as we head 2026 or propensity to maybe allocate more from the AI budget specifically to Workday? That you could kinda comment on that gives you that confidence?

Yeah. Thanks, Alex, for the question. As Zane said in his prepared remarks, you know, we feel really good about our midterm guide that we laid out for next year. And we think the approximate 13% guide on subscription revenue next year is solid.

That being said, we feel really good about all the acquired companies and the momentum we're seeing early on with them as well as the organic innovation that we have coming out of our super strong product and technology organization. We haven't even talked about it, but we're also entering new markets like we've done the last couple of years in the federal market here in The US. We're taking that to the public sector around the world. We announced entrance into The Middle East And next week, we have a strong team led by Rob, our president of customer operations going and launching our efforts in India.

So we're really excited about all the growth vectors that we have going into next year as well as all the momentum we have around our AI solutions, both organic solutions and these inorganic solutions that we're getting through M and A.

Perfect. And then maybe just, Zane, as a follow-up, if if we think about next year's guide, that 13 and the acquisitions that you've made over the last couple of months, a, kind of how much do we think kind of comes from from inorganic, there? And then the pace of M and A are we kind of through like should we think about this pace continuing at at kinda current course and speed of these exciting technology tuck ins? Is or or have know, do you need to digest the ones that you've made here over the course of the next few week months?

Quarters?

Sure. Yeah. Look, I'll start with, you know, as we think about the acquired revenue, I mean, off, as you know and as you can see here, when we acquire companies, they quickly become part of the broader portfolio. If you look at the acquired revenue, I'd say it probably contributes approximately a point into next year.

But as you can there's a lot more that we're doing around it and the whole portfolio benefits. So it's more there's significant synergy if you want to think about it more broadly. But on the acquired revenue, I'd call it sort of roughly a point heading into next year. And then we have a high bar on M and A.

And as we've talked about, all along, I mean, we've kept consistent in thinking about the technology, the culture, the people and how they integrate either whether it's through adjacencies or tuck ins or for different reasons. So I'd say no change in how we think about that, and no change in in how incorporate that inorganic growth.

Perfect. Thank you, guys.

You. Our next question is from Raimo Lenschow with Barclays.

Perfect. Thanks for squeezing me in. International is a big kind of driver for you. And you mentioned a little bit of that. But, like, if I look at the growth rates, this month, much difference between U. S. And international. Can you talk a little bit of what you saw in the quarter? And maybe there was more on the the pipeline build, etcetera? Thank you.

Yeah. Thanks, Raimo. I hope you're well. So, yeah, we were really pleased with our international performance.

And when I say international performance, it's across the three major, you know, regions that we describe as international. Europe, APAC, and Japan. All three of those markets had a really good quarter for us. We've historically been talking about our performance in Europe when we talked about our international results But this quarter, we're talking about it in the context of Europe.

APAC and Japan because all three delivered solid results in the quarter. I think that's driven by two things. Number one, on the product side, we continue to internationalize and localize our product to serve all of these markets. Number two, we're leveraging a strong network of partners out there around the world to enter these markets.

And the third is we continue to great talent to lead our Workday efforts around the world. The international market had great results. And we expect that momentum to continue as we see customers more and more lean into Workday for their platform of choice across HR and finance.

Yep. Perfect. Thank you.

Thank you. Our last question is from Kash Rangan with Goldman Sachs.

Last question and it's my last birthday earnings call as well. So fitting. So congrats on the Q3 results, Carl and Zane. I want it's clear that you guys have seen a bit of quite a bit of AI momentum.

And I agree with you that AI disruption risk seems to be a little overstated. But I think we can look at the numbers and say that AI, there's some tangible content your backlog, twelve month twelve month backlog growth rate. Although it did include some acquisitions, it did do a little better. Right?

These acquisitions too. The anniversary of they are growing very nicely. That should lead to an actual acceleration of the organic growth here as well. But that effect conceptually we put your thinking hand off thinking hat on.

Sorry. That was the flu. A little too discombinative. If you were to rebuild a company on an AI native stack, an HCM company, AI native stack today, what would that functionality be able to do?

That is what would that thing exactly able to do that could be disruptive that you can do as a Workday customer with the tools that Workday is providing, be it organically or through these accounts. Combinations of acquisition. Thank you so much.

Hi, Kash. Thanks for the question. And let me say thank you. Going all the way back to our founders, David and Neil, and all of our workmates over the last, you know, twenty years, we want to thank you for your continued coverage of Workday.

I know this is your last call with us, and I just wanted to say thank you. And Neil said hello. And he also wanted to send his regards as well as do I and everyone else. You been a great analyst for us, and we really appreciate your support over the years.

We all hope you enjoy your next phase of life, which you're telling us is retirement. I hope that's the case and you really do go out and spend some quality time with your amazing wife and family. With that, I'll hand it over to my friend Garrett to talk about how he would build a new HCM or finance around AI going forward.

Yeah. Hey, Kash. Thank you for ending on such a beautiful question. So, let's start in a look at the core principles of building AI systems at scale.

Right? And that's just look at what it really is. The first thing that you need is a vast set of data basically describes the domain. The domain of finance, the domain of HR, and you need a vast set of data that basically codifies how the data is being used.

Right? That is ingredient number one. You know, if you look at AI at scale, it's about learning and using patterns. So you need to have that global database Secondly, data represents.

So you need to have you need to have strong semantics and clarity about what both a data model that defines what data element represents what entity in the business, What do they relate on? And what are the rules for these business entities? Because data is not created equal Right? They have integrity.

They have meaning. They have purpose. And you need to have a business process system, which now basically tells you how to activate this data in a way so it can drive towards a business outcome. Even more so, you need to have clarity on what that business outcome is.

Those are, you know, the basics of building a successful AI solution. Now take a look at Workday. We are the only scale SaaS vendor born in the cloud with a consolidated dataset. Our 50 to 75,000,000 users that we have contribute to a uniform data model, which is completely clean.

We have all of the process data in a formal business process description codifying 70,000 core business process pes, which are instantiated across all of our customers and thousands of variations. We have ample data of, you know, usage and how these processes are being used in the business. And most importantly, the domain knowledge to specify what are the target outcomes to drive. So if you were to build a system, that is built for enterprise AI at scale, it would look like Workday.

And what we are doing right now specifically is that we are opening up our core and basically integrate reasoning models and AI systems to automate these processes We lay Osana on top to lead the experience AI innovation on top of that. If you look at all of that in aggregate, you know, it truly is the AI stack for the enterprise of the future.

Amazing. I wish you well in achieving all these and dreams in the future. Thank you so much. Till then. Bye now.

Thank you. This concludes our question and answer session. Ladies and gentlemen, thank you for your participation on today's conference. I'll now turn it over to Mr. Eschenbach for final comments.

Thank you, operator, and thank you again for all of you who joined us today. Thank you for those who will continue to look into Workday and watch our results and provide guidance and input everyone out there in the market. For those celebrating, I wanna wish all of you a happy Thanksgiving. I'll close by once again my deep appreciation to all of our workmates, our customers, and partners for their continued commitment to Workday.

We'll see you all next quarter. If not before. And, again, for those celebrating, happy Thanksgiving.

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