Workday Reports Strong Q2 2025 Results, Highlights AI Initiatives and Strategic Partnerships

Workday, Inc. (WDAY) Q2 2025 Earnings Call Transcript

Kirk Materne - Evercore Kash Rangan - Goldman Sachs Mark Murphy - JPMorgan Brent Thill - Jefferies Brad Sills - Bank of America Michael Turrin - Wells Fargo Raimo Lenschow - Barclays Karl Keirstead - UBS Alex Zukin - Wolfe Research Derrick Wood - TD Cowen Brad Zelnick - Deutsche Bank Welcome to Workday's Fiscal 2025 Second Quarter 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&A, please limit your questions to one. I will now hand it over to Justin Furby, Vice President of Investor Relations. Justin Furby Thank you, Operator. Welcome to Workday's second quarter fiscal 2025 earnings conference call. On the call we have Carl Eschenbach, our CEO; Zane Rowe, our CFO; Doug Robinson, our Co-President; and David Somers, our Chief Product Officer. 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 in documents we file with the Securities and Exchange Commission, including our fiscal 2024 Annual Report on Form 10-K 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. These 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 this call will be available for the next 90 days on our company website under the Investor Relations link. Additionally, the transcript of this call and our quarterly investor presentation will be posted on our Investor Relations website following this call. Also, the Customers page of our website includes a list of selected customers and is updated monthly. Our third quarter fiscal 2025 quiet period begins on October 15th, 2024. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2024. Thank you, Justin. And thank you all for joining us today. I'm pleased to report that Workday delivered another solid quarter, highlighted by 17% subscription revenue growth, 16% 12-month backlog growth, and 25% non-GAAP operating margin. Though we continued to experience deal scrutiny and moderated headcount growth within our customer base, our win rates remain high and our teams delivered a very solid Q2. I couldn't be prouder of our Workmates and partners for their continued focus on driving customer value and success. Right now, companies are focusing their investments on the areas that will help them increase productivity and improve their operations. Workday gives them the ultimate advantage. We help them manage their two most fundamental elements of their business, their people and their money, all on a unified, AI-powered platform. Workday empowers businesses to increase productivity, deliver incredible employee experience, and drive greater efficiencies across finance. And because all our products are built on the foundation of our platform, our customers can unlock value faster and reduce total cost of ownership. This is evident in the healthy growth we're seeing in full suite wins and in our balance of net-new relationships and customer expansions. It's also contributing to our momentum, which helped us debut on the prestigious Fortune 500 list in Q2. We couldn't be prouder to be amongst the largest, most influential companies in the US, with more than 60% of them being Workday customers. Businesses of all sizes, industries and geographies increasingly turn to Workday as their trusted partner. In Q2, we expanded with J.B. Hunt, Nissan, Target, and Trinity Health, and we formed new relationships with Lam Research, the City of Cleveland, Colorado State University System, and Johns Hopkins, among many others. We strengthened our leadership in the HCM market globally, with key wins including GE Vernova, First Bus, Sunrise Senior Living, along with several notable wins in EMEA and APAC. And our continued investment in Financials is helping us drive momentum across the platform. In Q2, we officially crossed the 2,000 customer milestone in Workday Financial Management. And, Workday was ranked the market share leader for Worldwide SaaS ERP revenue in 2023 by Gartner research. From an industry perspective, we had a banner quarter in our longest-standing vertical, Higher Education. Leading institutions including Florida A&M, the University of Mississippi, and Clemson University all selected Workday's full suite in Q2. Clemson started as a Workday Adaptive Planning customer and added HCM and Financial Management in the quarter. The partnership with Workday represents a significant milestone in their transformation journey to modernize systems and improve experiences for faculty, staff, and students. We once again had strong momentum in Healthcare with full-suite wins at Grady Health System, Reid Health, and Children's National Medical Center. Our success in state and local government continued in Q2 as well, with wins at Delaware County, County of San Joaquin, and Santa Cruz County. I also want to call out the expansion momentum we're seeing with VNDLY and our ability to deliver a complete workforce management solution, spanning salaried employees to hourly, contingent, freelance, and outsourced workers. Cushman & Wakefield, Lowe's, and Ryder Truck all added VNDLY in Q2. Beyond the wins, we celebrate when our customers go live on our platform. AutoNation, Barclays, CDW, Cross Country Mortgage, Forvis Mazars, and Texas Roadhouse all successfully deployed on Workday in Q2. Global growth continues to be a massive opportunity for Workday, and we had a strong performance in APAC and Japan regions in Q2, along with several strategic wins in EMEA. In Australia, Workday was accepted to the government's Digital Transformation Agency Software Marketplace for ERP, opening new opportunities with federal agencies. We also expanded our business with a Ministry in New Zealand and had a full-suite win at Kelsian Group Limited. We're setting a strong foundation for our business in Japan, which performed very well in Q2. We formed new relationships with Terumo Corporation and Shizen Energy and expanded our business with Tokyo Electron. In Europe, we experienced the same deal scrutiny I discussed in Q1, but the team was able to deliver more large deals than last quarter including Emeis, Saint-Gobain, and Groupe Atlantic Synergy. Additionally, our Elevate events across the region in Q2 outperformed our pipeline expectations, and our partner momentum is building in key markets across EMEA. In fact, two of the largest deals we closed in the region were sourced from partners. We innovate to drive customer success and deliver true business value, and that's why customers are coming to Workday for our AI innovation. They want to partner and they're looking to us to lead them into the future. Workday AI is fueled by the quality and quantity of our data set and Workday's understanding of our customers' HR and finance processes. We now have more than 70 million users under contract conducting more than 800 billion transactions on the Workday platform annually. This data and the context behind it gives us the ability to unlock productivity in a way no other company can. In Q2, we announced new AI innovations to help our customers hire the right talent better and faster than ever before. For instance, our new AI capabilities in our HCM product identify emerging skills and simplify job profile management to accelerate skills-based talent strategies. Just one quarter after closing the HiredScore acquisition, we made HiredScore AI for Recruiting and HiredScore AI for Talent Mobility available for purchase under one unified contract. The HiredScore team is off to a great start, and we're continuing to build pipeline across our recruiting customers. And what better validation than this quote from our customer at Southwest Airlines, who called HiredScore a game changer that's setting new standards in talent management. Through the power of our platform, we're enabling AI innovation not only from Workday, but from our customers and partners as well. In Q2, at our annual developer conference, we launched new APIs in our AI Gateway. We also introduced Workday Extend Developer Copilot, leveraging Gen AI to help developers to build custom applications on our platform, faster than ever before. Extend remains one of our fastest growing SKUs. New ACV increased more than 75% in Q2, driven by Extend Pro, which taps into the power of Workday AI. Many of our customers are already realizing incredible value from Workday AI. For example, a HiredScore for Talent Mobility customer saw a 40% increase in internal application rates. For one of our entertainment customers, invoice automation is driving a 70% plus increase in processing capabilities. And for another customer, our Talent Optimization product, which is one of our fastest growing SKUs, helped reduce turnover by 39%. And the list goes on, but we're just scratching the surface. The industry has been focusing on fitting AI into how we work now, not on what work should look like next. We see an opportunity to exponentially increase the value to our customers by reimagining end-to-end HR and Finance processes through the power of AI. At Workday Rising, we will introduce the next generation of AI to illuminate the future of work. For the past 10 years, we've been building towards this vision. And we're excited to showcase Workday innovations that will not only accelerate how work gets done, but ultimately transform how customers run their businesses. We're expecting more than 30,000 virtual and in-person attendees at Rising this year, our biggest event yet. In addition to unveiling our AI vision, we'll also showcase new innovations across our applications, platform, and user experience. I mentioned before that our partner ecosystem is a powerful driver of customer success and it continues to grow in both breadth and depth. In Q2, partner contributions to new ACV more than doubled from last quarter, and partners had another record quarter of pipeline generation. And we're just getting started. In the quarter, we launched Built on Workday to make it easy for our partners to build, distribute and monetize their applications on the Workday Platform. Our longstanding partner Kainos was among the first to lean into this new program, with several more partners already active early adopters. We continue to open the aperture to partners as a driver of both sales and innovation, and in Q2 we announced new partnerships that will help us deliver even greater value. Our partnership with Salesforce is a perfect example. Whether it's accelerating employee onboarding, enabling continuous financial planning, or closing deals faster, our partnership is bringing humans and AI together to drive success for employees and customers. And it's all made possible by bringing together the most important datasets in the enterprise. And today, we are announcing a new Employment Verification Connector for Equifax, making it easier for customers to transmit data for employment verification requests. As you can see, it was a big quarter for our ecosystem and we are looking forward to continuing this momentum in partner-led growth. Before I turn it over to Zane, I'd like to update you on how we're planning for the medium term. We continue to build Workday as a durable business with balanced growth and margin expansion, something I've been saying since I joined the company nearly two years ago. Our key growth areas are already paying off and creating momentum for our future. They amplify our opportunity to bring in new customers, and to expand our footprint with existing customers. Over the past year, we've been able to see how our growth areas are developing, particularly in the current selling environment. And, we've identified opportunities to drive efficiencies across the business. In light of this, we're making some adjustments to our medium-term plans, including a slightly moderated pace of subscription revenue growth balanced with accelerated margin expansion. Our revised medium-term outlook reflects the confidence we have to drive durable, profitable growth at scale. We're focused on continuing to gain share in our core markets of HR and Finance, while delivering strong operating income growth and continuing to innovate for our customers and partners. I couldn't be more excited and energized about the opportunity ahead, and we are thrilled to have you on the ride with us. Thanks, Carl. And thank you to everyone for joining today's call. Our Q2 performance was slightly ahead of our expectations across all key metrics. Subscription revenue in the second quarter was $1.903 billion, up 17%. Professional services revenue was $182 million in the quarter, leading to total revenue in Q2 of $2.085 billion, also growth of 17%. US revenue in Q2 totaled $1.56 billion, up 16%, and international revenue totaled $524 million, growing 18%. 12-month subscription revenue backlog, or cRPO, was $6.80 billion at the end of Q2, representing growth of 16%. The year-over-year growth rate was impacted by the strength in last year's renewal activity, including early renewals. Gross and net revenue retention rates remain strong at over 95%, and over 100%, respectively. Total subscription revenue backlog at the end of the quarter was $21.58 billion, up 21%. Our non-GAAP operating income for the second quarter was $518 million, resulting in a non- GAAP operating margin of 24.9%. Q2 operating cash flow was $571 million, growing 34%, driven by strong collections. We accelerated the pace of our buyback in Q2, repurchasing $309 million of our shares at an average price of $223.10 per share. With our existing $500 million buyback authorization nearing completion, our Board has authorized a new $1 billion share repurchase program. We remain committed to investing in organic growth, pursuing strategic M&A opportunities, and managing dilution while returning excess capital to shareholders via share repurchases. We ended the quarter with $7.4 billion in cash and marketable securities. As of July 31, headcount stood at over 19,900 workmates around the globe Now turning to guidance. As Carl indicated, we continue to see the macro environment consistent with our last quarter, including moderated headcount growth within our customer base - and as we discussed last quarter, we expect these trends to continue. We are reiterating our full-year FY '25 subscription revenue guidance of $7.700 billion to $7.725 billion, growth of approximately 17%. We expect Q3 FY '25 subscription revenue to be $1.955 billion, growth of 16%. We expect FY '25 professional services revenue of approximately $680 million to $690 million, driven by customer demand. For Q3, we expect professional services revenue of $175 million. Turning to backlog. In Q3, we expect cRPO growth also to be impacted by last year's strong early renewal activity. As a reminder, last year the gap between cRPO growth and subscription revenue growth was roughly four percentage points in Q3. As we lap the strong renewal activity from last year, we expect cRPO growth of 14% to 15% for Q3. While the growth rate is impacted by the timing of renewals, the aggregate cRPO level supports our view of subscription revenue growth of approximately 16% for the second half of the year. We continue to balance both targeted investments in key growth areas with increased focus on end-to-end companywide efficiencies and transformation. We now expect FY '25 non-GAAP operating margin of 25.25%. For Q3, we also expect non-GAAP operating margin of 25.25%. GAAP operating margin for the third quarter and full year are expected to be approximately 19 and 20 percentage points lower than the non-GAAP margins, respectively. The FY '25 non-GAAP tax rate remains at 19%. We are increasing our FY '25 operating cash flow expectations to $2.350 billion and we continue to expect capital expenditures of approximately $330 million. Over the past year, we've made good progress across our key growth areas. While a number of these initiatives are still early in their development, they are already supporting growth in FY '25 as well as for future years as they scale across our products and geographies. Our focus areas have been ramping over the past year, providing us better insight into how their growth trajectories augment our core business. As we incorporate this into our planning, along with the current environment, we now expect subscription revenue growth in the mid-teens for both FY '26 and FY '27. We're seeing success across full suite opportunities, the partner ecosystem, and international markets, along with emerging areas like Federal and Built on Workday, which help reinforce our conviction in enduring growth as we strengthen our market leadership in cloud ERP. In addition, we now expect to deliver greater margin expansion than previously planned. Investing to support durable growth remains a core focus, and at the same time, we've made progress driving efficiencies as we continue to scale the business globally. We are relentlessly focused on scaling all of our processes across the company as we review our product and go- to-market initiatives. We are also becoming increasingly more targeted in our growth investments, balancing product development with go-to-market resources. With this, we are driving to enhance ROI across our portfolio, while we continue to execute on opportunities to drive growth in the business. With that context, and assuming M&A levels consistent with recent history, our updated expectations for FY '26 and FY '27 are for annual subscription revenue growth of approximately 15% while expanding non-GAAP operating margin to 30% over the same period. This updated framework also increases our expected FY '27 cash flow. Our focus remains leveraging the power of the platform to deliver durable, long-term top- and bottom-line growth. We look forward to sharing more at our upcoming financial analyst day on September 17. With that, I'll turn it back over to the operator to begin Q&A. [Operator Instructions] Our first question is from Kirk Materne with Evercore. Please proceed with your question. Kirk Materne Hi, yeah, thanks very much and appreciate the early update on the midterm outlook as we look forward to seeing you guys out in Vegas in a few weeks. But, Carl, can you just talk about where you think you can get some additional efficiency at scale while still investing obviously in places like international? I'm sure you'll go through this all at the Analyst Day, but I was just kind of curious where are some places that you guys can continue to get that efficiency because I know you're not going to want to stop investing in some of these green shoots that you're seeing right now. Carl Eschenbach Yeah, thanks, Kirk, for the question. And by the way, thanks for your preview note. I thought it was really well written. As you can see, a lot of things you highlighted in your preview note we actually spoke about in our prepared remarks and part of it is what you just asked. I want to start by just reinforcing our thesis for long-term profitable growth at scale at Workday. We remain very excited about the opportunity we have ahead, and we think we'll continue to take share in our core markets around HR and finance, while at the same time continuing to innovate and drive additional operating efficiencies as we think about the broader market. As far as where we think we can get efficiencies, let me start and remind people by saying over the last 2.5 years we've expanded our operating margin by 500 basis points, and now we're talking about moving it up another 500 basis points over the next few years. So we are finding efficiencies. Some examples of where we're finding efficiencies is in our global workforce strategy, which includes leveraging our current global workforce, as well as some of the new offices we've brought online in the last 6 to 12 months, like India and Costa Rica. We're also being smart and prudent about what we're hiring going forward, and specifically we're focusing on quota-carrying capacity, as well as continuing to invest in software development on our product and technology side of the business. We also are finding operating efficiencies internally across our systems and our technology. We're using AI in our finance organization. We're using AI in our call centers and our support organization. And we're also using AI like copilots in software development to drive efficiencies. And the last thing I'd say, Kirk, to kind of combine your questions here is, number one, some of the investment areas we've leaned into over the last two years are actually starting to drive operating efficiencies at scale for us. For example, we spent a lot of time talking about partners. We've highlighted once again our partners today continue to drive a significant portion of our pipeline and actually were responsible for a 2x growth in new ACV from what they participated or drove in Q1. We're actually starting to see scale now with the big build-out we did in our financial sales force. They're all starting to ramp and we're seeing better productivity going forward. So There are a number of different areas that we're investing in, and it's actually not only helping us maintain this durable growth over the next few years, but it's also giving us operational efficiencies at the same time. Zane Rowe Hey, Kirk, I'll just add, this is Zane. We look at all of these investments with an ROI mentality, and as you've seen over the last number of years where we've outperformed and really leaned in, we've been able to drive bottom line growth and increase our operating margin, even versus our expectations. So you should expect to hear a little more in this area in 3.5 weeks in Vegas, but we're pleased with the progress, have a lot of work to do, and we feel like we're never done on just coming up with more efficiencies across the business. Kirk Materne Great. Thank you very much, guys. I'll turn it to someone else. Our next question is from Kash Rangan with Goldman Sachs. Please proceed with your question. Kash Rangan Hi, thank you very much. Good to see that you guys are taking a more balanced approach to growth and margin. One short-term question, one long-term, if I could. Short-term, the impact of elections and potentially lower rates, how do you see this playing out, Carl? I know that you were not here eight years ago, but Aneel famously warned about volatility in the upcoming Q4 back then and ended up surprising us on the upside as contract activity and renewal activity happened on the upside. So what is your take on the short term? And then one for you Zane, longer term the expansion and margin, how comfortable can we get that it's not coming at the expense of the ability to reinvigorate growth if you do see that opportunity open up if we get a better spending environment? Thank you so much. Carl Eschenbach Yeah. Thanks, Kash. I'll take the first one. Listen, I can't predict the future and the impact of the election one way or the other but what I do know is the current macro environment we're selling into hasn't changed at all from what we saw in Q1. In fact, we think the current environment of IT spending and the environment we're selling into isn't something that's just been here the last couple quarters. We think it's the new norm going forward. We're prepared because we have a great product. We provide a tremendous value proposition to both customers and prospects and regardless of what we're dealing with in the macro or the elections, we're going to continue to grow our business over the short term and long term because of that powerful value proposition we have. Zane Rowe Yeah. And Kash, just to add to your question on longer term, I mean we've done a good job investing and measuring those investments. When it's opportunity for us to increase that investment level depending upon growth or where it comes from, we'll be agile and quick to adjust accordingly. But we feel good that we can grow both the top line and the bottom line in this business and make sure that we're investing sufficiently to continue that growth and innovation across the company. So we feel like we've got a good balance here. Thank you. Our next question is from Mark Murphy with JPMorgan. Please proceed with your question. Mark Murphy Thank you so much. Carl, how would you characterize the cross currents of AI on the software landscape in Workday itself at the moment? The reason I ask is you're sitting on this wealth of data, you have the sole ability to unlock it, you're not overcharging for AI services like others are, and I'm wondering if that is giving you some type of advantage in the actual AI product adoption and usage somehow under the radar. But then on the other side of the ledger, as you do re-tweak the growth and margin, the midterm target, do you sense any customers pausing to digest application purchases broadly just as they're trying to understand the GPU landscape, the AI landscape at the infrastructure layer? Carl Eschenbach Yeah, so I think there was two questions in there Mark, so I'll try to answer both of them. First, I'll talk about our approach to monetization. So first, we've said we're going to take a very measured, multi-pronged approach to how we monetize AI. First and foremost, we're monetizing it to our competitive win rates that are up once again this quarter. Our renewal rates remain very high and our customer satisfaction remains very strong. We are also at the same time not rushing to market and saying to our customers, we're going to have an uplift on our pricing just because we have now have more than 50, for example, AI use cases in the platform. We think they're entitled to that innovation. We will, though, when we see opportunity to do so, Mark, we will bring new SKUs to market where we can help our customers justify spending incremental dollars on AI from Workday. For example, talent optimization. Talent optimization is one of our fastest growing SKUs. Extend and now Extend Pro. Extend Pro is an AI platform that allows people to develop and build new applications on top of us. There's a new AI API gateway associated. We have a copilot to help people develop software faster leveraging the AI API. And we also as you know last quarter talked about HiredScore. HiredScore is something we're very excited about. We're in the very early days of this going into the market, but we're seeing a rapid build of the pipeline as people are trying to reduce their recruiting spend because it's one of the biggest spends they have across their platform today when it comes to recruiting. And now let me address what we're seeing, because we get asked this question all the time, Mark. Are we seeing people spend on AI and not spend, for example, in our case, on Workday? We see just the opposite. What we see and we hear from our customers, our customers believe and new prospect as we engage with them, they are investing in AI when they invest and partner with Workday. The reason for that is because of what you said. I think customers are now recognizing the value of AI in GenAI is only as good as the data you're using to train. And we have one of the most clean, highly curated data sets around HR and finance to drive value for our customers. And we think that's a huge differentiator for us both today and going forward. And we can't wait to share more of the AI innovation with everyone, including the entire world at Rising in September. Thank you. Our next question is from Brent Thill with Jefferies. Please proceed with your question. Brent Thill Thanks. Carl, many have asked your confidence in mid-teens growth. What is giving you that underpinning of that the market's going to be there versus continuing to ratchet that number down, which you've lowered that growth rate a bit? What is still giving you the confidence that that market is still in place? Carl Eschenbach Yeah, thanks, Brent. Well, there's a number of reasons, I think, not just myself, but all of us here at Workday are confident in that 15% growth rate for the foreseeable future and that says we scale beyond $10 billion. Number one, the investments we've made for example in our partner community and the ecosystem are paying off. They're building pipeline. They're innovating on top of the platform. They're co-selling with us. They're reselling with us, and we see them continuing to lean into the Workday opportunity more than we've ever seen in the past. We still believe we have a tremendous opportunity internationally. We've hired some amazing talent across Europe. In the last six months, we've talked about new leadership in APAC and in Japan, and we highlighted some of the success they had here this quarter. And we continue to believe that more than 50% of our addressable market opportunity is outside the US that we can go attack. We also continue to believe in the opportunity around financials. As all of you know, for the last couple years, we've leaned in heavily to the financials opportunity because we still see greater than 75% of workloads on-premises and they're moving to the cloud. It's not if, it's when. And when they move to the cloud, we see competitive win rates on our financials platform and full suite or full platform financial solutions with Workday and HCM continuing to rise. And the last thing that gives us confidence is innovation. We are driving so much innovation on the Workday platform, leveraging AI and GenAI. We also continue to believe that the ecosystem will innovate on top of us, leveraging a powerful platform called Extend. And then finally, M&A. We are, I'd say we're inquisitive. We continue to believe there's assets out there that we can look at to help us continue or maintain our growth, but we're going to be smart and prudent as we think about it. So that's the reason that gives us confidence to be able to drive this profitable growth at scale for the next few years. Thank you. Our next question is from Brad Sills with Bank of America. Please proceed with your question. Brad Sills Wonderful. Thank you so much. I wanted to ask a question, Carl, on some of the comments you made earlier. It sounds like you took a hard look at some of the growth initiatives to determine which ones are going well and which ones perhaps could be sources of upside that are now backing that 15% -- or sorry, the mid-teens rather growth outlook. Just curious for some color if you will on what were some of the puts and takes, what were some of those growth initiatives that you felt more bullish about after having gone through the one-year review process? Which are ones that could perhaps be potential sources of incremental growth in the future? Thank you so much. Carl Eschenbach Yeah, thanks for the question, Brad. We did pause and we looked at all of our growth initiatives. Some of them I just articulated answering the prior question from Brent. And I must admit, as we sat and looked at them and as we see here today, we think the growth initiatives we lean into are the right ones, the opportunity around financials, the international opportunity. We thought very hard about the investment we've made in financials and we think that's the right one. The partner community is clearly paying off. So I don't think at this time when we look at those growth initiatives, we would have pulled back on any of them. We're moderating how we're thinking about it going forward but I think we have the right investments in the growth opportunities and that's what gives us confidence and conviction to go attack this big market opportunity we have globally. So, again, I won't pull back on any under the right investments. They've already started to pay dividends throughout last year and this year, and we think we'll be able to lean into them even more as we go forward. One of the things that's really important as we think about driving operating margin expansion by doing so and becoming more efficient, it allows us to continue to invest back in the business across both technology, go to market and potential acquisitions. It all comes together to this durable growth that we're mapping out over the next few years. Zane Rowe Hey, Brad, I would just add, Carl talked about the M&A component, we remain curious in the market, but over the last year you haven't seen significant M&A on our side driving any incremental growth either as you contemplate the updated outlook. So, that's a component of it as well. Thank you. Our next question is from Michael Turrin with Wells Fargo. Please proceed with your question. Michael Turrin Hey, great. Thanks very much. Appreciate you taking the question. I was hoping to go back to what drove the change in tone towards more margin here. I think it's what investors have been hoping for, but maybe you could speak to the thought process there and confidence you have in managing the trade-offs and giving a bit more margin here but making sure you're still well positioned for any rebound? Thanks. Carl Eschenbach I think there's a couple things. The current environment that we're selling into, we actually think that's the normal IT spend environment that we will be seeing going forward. It's not something every quarter we're going to say how does it compare to last quarter, how does it compare one quarter to next year-over-year. We think this is now a normalized and the new norm of IT spend. That on the back of some of the growth initiatives that we just talked about, we think this is what gives us conviction and confidence in this 15% growth profile going forward. We also think by driving more operating margin, it gives us more OpEx dollars to invest in these key growth initiatives as well. So, we take a look at the market, we take a look at the opportunity, we take a look at how we're driving the business, our growth initiatives, and all of this came together for us to think about, you know what, we can drive really durable growth over a long period of time, and we can do it profitably while all investing in the business. Zane Rowe Yeah, I would just add, we've come to a better understanding as far as each of these areas of growth, what they cost, how we think about those returns over a multiyear period. Carl mentioned some that require some upfront cost, but we're able to actually ramp a number of those initial investments over this multi-year period. And then there's just increased focus and discipline around spend across the company. We recognize we need to focus on efficiencies, systems, people, and process. And we're heavily involved in looking at all of those as we scale the business. So we're excited about the future. We believe we can truly invest and innovate and yet still drive margin improvement. And you've seen us do it over the last number of years. So we just want to continue that momentum. Thank you. Our next question is from Raimo Lenschow with Barclays. Please proceed with your question. Raimo Lenschow Hey, perfect. Thank you for the long-term outlook from me as well. Carl, if you think about the growth in the market, and I get it that you kind of, what we see now is what we have in there. If you compare the current times and what you were assuming in your planning assumption to what we've seen in the past in terms of spending behaviors and take bubbles away, is this kind of what you think is kind of also long-term something that will continue like this, or is this like for the foreseeable future, let's kind of work with the planning assumptions that there could be a better market at some point in the future? We don't know when, but at some point. Just trying to understand, like, has the market changed towards kind of a different growth trajectory or is it just like what we see in the economy at the moment? Carl Eschenbach Yeah. As I said earlier, we think the current environment is the new norm, and that's what we're basing our medium-term outlook on. That being said, things could change in one direction or the other. We could get tailwinds, and we could get employment and headcount growth. We've taken a moderate approach when we look at headcount. We think people who are doing large transformations of their HR in their finance systems today at times they pause and they think about it and they sweat their existing asset a bit longer. And when they do so, by the way, those opportunities don't leave our pipeline at all. And in fact, a lot of times the customer chooses Workday and they just push it out a quarter or two. Things like that could re-accelerate. So we think it is the new norm. Do we think things can change in the future? They potentially can and if so when we get more tailwind, we'll update our model as we think about the next few years. But right now, we do think the current environment is consistent in what we'll see going forward. Raimo Lenschow Perfect. And then a question for Zane. If you think about, like, Workday historically has been probably over-indexing on R&D and probably under-indexing a little bit of sales and marketing. As we think about the efficiencies going forward, et cetera, how do you think about that mix between those two major drivers? Thank you. Zane Rowe Sure. Yeah, broadly I'd say it is a mix and there's always opportunity. We've looked at both innovation, R&D spend and how AI can actually help those efforts and we've got a terrific team, we're doing a lot of innovating, a lot of building out the product and a lot of growing. So I would say, look, it's balanced across all areas. Even on the G&A side, we all believe we can continue to not only innovate, but be more efficient and really think about as we grow around the globe, how we balance that growth with a workforce that's better represented around the globe as well. So I'd say generally speaking, opportunities on both sides, but we're leveraging those investments we're making. We're also excited about our roadmaps and all the investments that we're making for the future as well. Thank you. Our next question is from Karl Keirstead with UBS. Please proceed with your question. Karl Keirstead So you set your midterm free cash flow margin target at 25%, which was pretty well right on top of your non-GAAP operating margin target. So given that you're raising the latter by 500 bps to 30%, I can imagine some people on the call will just raise the free cash flow margin up to 35 to keep that relationship solid. I don't know whether you want to comment on that or maybe punt to the Investor Day, but just on this call, is there any reason why that correlation between those two metrics might be different than what you were thinking a year ago? Thank you. Zane Rowe Sure, Karl. Yeah, broadly speaking, I would say yes, but I don't want to give you all the answers because I'd still want to see you at Investor Day in 3.5 weeks. I mean, I would point out that we're still ramping in a number of industries where the payments don't necessarily correlate with the revenue. These are industries like edu and other industries like federal where we've seen good growth there. We're also a taxpayer in the US now. So stay tuned for what we'll disclose in 3.5 weeks. I don't want to get ahead of myself, at least some material for then. Thank you. Our next question is from Alex Zukin with Wolfe Research. Please proceed with your question. Alex, is your line on mute? Guys, thanks for taking the question. I guess maybe for me, talk a little bit about the vertical, what you're seeing from a pipeline perspective. Should we expect kind of the same vertical strength that we saw in the first half to drive the booking strength in the second half? And then on the midterm targets, particularly on margins, should we expect that to be linear? Should we expect that to be more back-end loaded? And M&A, in the context, it sounds like there's no change to the kind of M&A strategy that you guys have conducted. I just want to be sure that's what you're implying in the term target setting? Carl Eschenbach Zane, why don't you start take the last question and I'll jump in. Zane Rowe Sure. As we think about that growth I'd say evenly balanced. Some of the what I mentioned, Karl will give you a little bit more detail on that in 3.5 weeks. But generally speaking, evenly balanced, maybe a little more skewed towards FY '27, but we've got a number of initiatives and obviously we're pleased to see the growth that we've seen even this year. So more to come on that front. I'll hand it over to Carl. Carl Eschenbach Yeah, and on the industry verticals we highlighted some in the script, but I'd ask Doug to give a little bit more color on what we're seeing there. Doug Robinson Yeah, hi Alex, Doug here. My ears perked up when you asked about pipeline. So yeah, pipeline growth in the industry, as you know us to be strong in is where we're seeing continued strength. So that includes healthcare, of course, but also higher education. And we think both healthcare and higher education are multi-year opportunities for Workday for full suite. In addition to that, state and local and increasingly the federal business. And hope to share more good news around the Fed business in the second half of the year with you as it progresses. Alex Zukin Perfect. And then maybe just if I sneak one more in. If I think about the construction of the growth curve over the next couple of years, when we think about your success going down market, versus some of the trends we're seeing in large enterprise, what percentage of -- how do we think about that balance? We used to ask that question about financials versus HCM. But if we actually recast it more to the lower end of the market versus the higher end of the market? How would you characterize it? Carl Eschenbach Yeah. So let me answer that question. As you know, we've had historically had a lot of success in large enterprise and in industries and verticals like Doug just mentioned, and we've been pushing down into what we call the medium enterprise or the emerging enterprise quite aggressively. One of the reasons we're doing that is because we're having a lot of success selling full suite or full platform deals, which is a combination of both financials as well as HCM. And we continue to see that as an area of strength for us going forward. We've modified our pricing and our packaging for those markets. We've also now have new delivery capabilities to accelerate deployment. So customers get better and faster value from the medium enterprise market. And our partners are also leaning in and helping us drive faster adoption in that market as well. So the media enterprise, both here in the US, we've taken the playbook from the US. We're pushing it globally. It's in the UK, and it's spreading throughout Europe, and we'll be doing the same in APAC. So it's an area of strength. It's an area of opportunity and it's something we'll continue to lean into on the go-to-market side as well as the product side as we think about pricing and packaging. We will now be taking two more questions. Our next question is from Derrick Wood with TD Cowen. Please proceed with your question. Derrick Wood Thanks. I guess for Zane, I know you called out pockets of slower headcount growth during renewals in Q1. So I'd be curious, a, are you seeing this broaden out to more verticals aside from the ones you called out last quarter in tech and retail. And b, are you able to quantify what the degree of change is? Like, what was the average headcount growth historically? And what do you think in the new normal is? And did you adjust for these assumptions in your new medium-term growth outlook? Zane Rowe Hi, Derrick, yeah, this is Zane. If we look quarter-to-quarter, our assumptions have been very similar to what they were in the first quarter that we extrapolated for the year. We've seen consistency there. We made the adjustment for the year. If you recall, last time, I think I mentioned it was approximately $17 million over the extent of the year. So, no significant change there, if anything, on a quarter-to-quarter level, we believe the baseline has been about the same. So it's been consistent. We consider it the new norm. It's contemplated in both our FY '25 guide as well as our midterm guide. It's not a significant impact on revenue or bookings as we think about it today. Thank you. Our last question is from Brad Zelnick with Deutsche Bank. Please proceed with your questions. Brad Zelnick Great, thanks so much. My question is for Carl or perhaps Doug. Curious if there are specific areas within FINS that you're particularly excited about because we still keep hearing great things about accounting center, not just in financial services but across verticals and even down market. But what would you call out as particularly exciting that can compel customers to adopt and maybe even drive upside ahead. Yeah, I'll go first. Hi, Brad, nice to hear from you. You hit the first one, I'd hit, which is accounting center. And increasingly, as we've dedicated teams to vertical organizations and vertical selling by industry, each of them with solution consulting have come up with really interesting and innovative use cases for accounting center across industry. So while the original thesis of accounting center go back 5 years or so, 5 plus years, was for FSI and to support that vertical, it now is selling across industry, as you point out. The second one I'd point out is student, and so student changes the game in higher ed and can drive sort of not just full suite opportunities, but pull through that, what you would consider operational ERP in that particular industry. So as I answered the earlier question around industries where we see strong pipeline growth, and I mentioned a multiyear opportunity for both health care and higher education. Those are two that get me excited. Carl Eschenbach Another one, Doug, might be workforce planning. We think there's a tight correlation between our HCM platform and financials and workforce planning is something we continue to see momentum, which is an adaptive product that we got a few years ago. Brad Zelnick Awesome. Very helpful color. Keep up the good work. Thanks, guys. Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll now turn the call over to Mr. Eschenbach for closing comments. Carl Eschenbach Thank you, operator, and thank you again to everyone on the call today. Before we go, I'd like to give a special thanks to our workmates, customers and partners around the world who continue to fuel Workday's growth and success. We're heading into the second half of our fiscal year with strong customer momentum and exciting innovation on our road map, and we clearly have a strategy to support our durable growth at scale. Workday's value proposition, I believe, and all of my workmates believe, has never been stronger. Organizations of all sizes, geographies and industries are turning to us to manage their most precious and most important assets, that's their people and their money, and it's all on an AI-powered platform. And with the new innovations we're launching at Rising, we've never been better positioned to lead them into the future. I look forward to seeing you at Rising and Financial Analyst Day in a couple of weeks. Operator, we can now close the call, and thank you again for everyone attending. This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.

Workday (WDAY) Q2 2025 Earnings Call Transcript | The Motley Fool

Welcome to Workday's fiscal 2025 second quarter earnings call. [Operator instructions] I will now hand it over to Justin Furby, vice president of investor relations. Justin Furby -- Vice President, Investor Relations Thank you, operator. Welcome to Workday's second quarter fiscal 2025 earnings conference call. On the call, we have: Carl Eschenbach, our CEO; Zane Rowe, our CFO; Doug Robinson, our co-president; and David Somers, our chief product officer. 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 2024 annual report on Form 10-K, 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. These 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 this call will be available for the next 90 days on our company website under the investor relations link. Additionally, the transcript of this call and our quarterly investor presentation will be posted on our investor relations website following this call. Also, the customers page of our website includes a list of selected customers and is updated monthly. Our third quarter fiscal 2025 quiet period begins on October 15th, 2024. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2024. Thank you, Justin, and thank you all for joining us today. I'm pleased to report that Workday delivered another solid quarter, highlighted by 17% subscription revenue growth, 16% 12-month backlog growth and 25% non-GAAP operating margin. Though we continue to experience deal scrutiny and moderated headcount growth within our customer base, our win rates remain high and our teams delivered a very solid Q2. I couldn't be prouder of our workmates and our partners for their continued focus on driving customer value and success. Right now, companies are focusing their investments on the areas that will help them increase productivity and improve their operations. Workday gives them the ultimate advantage. We help them manage their two most fundamental elements of their business, their people and their money, all on a unified AI-powered platform. Workday empowers businesses to increase productivity, deliver incredible employee experience and drive greater efficiencies across finance. And because all our products are built on the foundation of our platform, our customers can unlock value faster and reduce total cost of ownership. This is evident in the healthy growth we're seeing in full suite wins and in our balance of net new relationships and customer expansions. It's also contributing to our momentum, which helped us debut in the prestigious Fortune 500 list in Q2. We couldn't be prouder to be among the largest, most influential companies in the U.S. with more than 60% of them being Workday customers. Businesses of all sizes, industries and geographies increasingly turn to Workday as their trusted partner. In Q2, we expanded with J.B. Hunt, Nissan, Target and Trinity Health. And we formed new relationships with Lam Research, the City of Cleveland, Colorado State University System and Johns Hopkins, among many others. We strengthened our leadership in the HCM market globally with key wins including GE Vernova, First Bus, Sunrise Senior Living, along with several notable wins in EMEA and APAC. And our continued investment in financials is helping us drive momentum across the platform. In Q2, we officially crossed the 2,000-customer milestone in Workday Financial Management. And Workday was ranked the market share leader for worldwide SaaS ERP revenue in 2023 by Gartner research. From an industry perspective, we had a banner quarter in our longest-standing vertical, higher education. Leading institutions, including Florida A&M, the University of Mississippi and Clemson University, all selected Workday's full suite in Q2. Clemson started as a Workday Adaptive Planning customer and added HCM and Financial Management in the quarter. The partnership with Workday represents a significant milestone in their transformation journey to modernize systems and improve experiences for faculty, staff and students. We, once again, had strong momentum in healthcare with full suite wins at Grady Health System, Reid Health and Children's National Medical Center. Our success in state and local government continued in Q2 as well with wins at Delaware County, County of San Joaquin and Santa Cruz County. I also want to call out the expansion momentum we're seeing with VNDLY and our ability to deliver a complete workforce management solution, spanning salaried employees to hourly, contingent, freelance and outsourced workers. Cushman & Wakefield, Lowe's and Ryder truck all added VNDLY in Q2. Beyond the wins, we celebrate when our customers go live on our platform. AutoNation, Barclays, CDW, CrossCountry Mortgage, Forvis Mazars, and Texas Roadhouse all successfully deployed on Workday in Q2. Global growth continues to be a massive opportunity for Workday, and we had a strong performance in APAC and Japan regions in Q2, along with several strategic wins in EMEA. In Australia, Workday was accepted to the government's digital transformation agency software marketplace for ERP, opening new opportunities with federal agencies. We also expanded our business with a ministry in New Zealand and had a full suite win at Kelsian Group Limited. We're setting a strong foundation for our business in Japan, which performed very well in Q2. We formed new relationships with Terumo Corporation and Shizen Energy and expanded our business with Tokyo Electron. In Europe, we experienced the same deal scrutiny I discussed in Q1, but the team was able to deliver more large deals in last quarter, including emeis, Saint-Gobain and GROUPE ATLANTIC SYNERGY. Additionally, our Elevate events across the region in Q2 outperformed our pipeline expectations, and our partner momentum is building in key markets across EMEA. In fact, two of the largest deals we closed in the region were sourced from partners. We innovate to drive customer success and deliver true business value, and that's why customers are coming to Workday for our AI innovation. They want to partner, and they're looking to us to lead them into the future. Workday AI is fueled by the quality and quantity of our data set and Workday's understanding of our customers' HR and finance processes. We now have more than 70 million users under contract, conducting more than 800 billion transactions on the Workday platform annually. This data and the context behind it gives us the ability to unlock productivity in a way no other company can. In Q2, we announced new AI innovations to help our customers hire the right talent better and faster than ever before. For instance, our new AI capabilities in our HCM product identify emerging skills and simplify job profile management to accelerate skills-based talent strategies. Just one quarter after closing the HiredScore acquisition, we made HiredScore AI for Recruiting and HiredScore AI for Talent Mobility available for purchase under one unified contract. The HiredScore team is off to a great start, and we're continuing to build pipeline across our recruiting customers. And what better validation than this quote from our customer as Southwest Airlines who called HiredScore a game changer that's setting new standards in talent management. Through the power of our platform, we're enabling AI innovation not only from Workday but from our customers and partners as well. In Q2, at our annual developer conference, we launched new APIs in our AI Gateway. We also introduced Workday Extend Developer Copilot, leveraging gen AI to help developers to build custom applications on our platform faster than ever before. Extend remains one of our fastest-growing SKUs. New ACV increased more than 75% in Q2, driven by Extend Pro, which taps into the power of Workday AI. Many of our customers are already realizing incredible value from Workday AI. For example, a HiredScore for Talent Mobility customer saw a 40% increase in internal application rates. For one of our entertainment customers, invoice automation is driving 70%-plus increase in processing capabilities. And for another customer, our talent optimization product, which is one of our fastest-growing SKUs, helped reduce turnover by 39%. And the list goes on, but we're just scratching the surface. The industry has been focusing on fitting AI into how we work now, not on what work should look like next. We see an opportunity to exponentially increase the value to our customers by reimagining end-to-end HR and finance processes through the power of AI. At Workday Rising, we will introduce the next generation of AI to illuminate the future of work. For the past 10 years, we've been building toward this vision, and we're excited to showcase Workday innovations that will not only accelerate how work gets done but ultimately transform how customers run their businesses. We're expecting more than 30,000 virtual and in-person attendees at Rising this year, our biggest event yet. In addition to unveiling our AI vision, we'll also showcase new innovations across our applications, platform and user experience. I mentioned before that our partner ecosystem is a powerful driver of customer success, and it continues to grow in both breadth and depth. In Q2, partner contributions to new ACV more than doubled from last quarter, and partners had another record quarter of pipeline generation, and we're just getting started. In the quarter, we launched Built on Workday to make it easy for our partners to build, distribute and monetize their applications on the Workday platform. Our long-standing partner, Kainos, was among the first to lean into this new program with several more partners already active early adopters. We continue to open the aperture to our partners as a driver of both sales and innovation. And in Q2, we announced new partnerships that will help us deliver even greater value. Our partnership with Salesforce is a perfect example, whether it's accelerating employee onboarding, enabling continuous financial planning or closing deals faster, our partnership is bringing humans and AI together to drive success for employees and customers. And it's all made possible by bringing together the most important data sets in the enterprise. And today, we are announcing a new Employment Verification Connector for Equifax, making it easier for customers to transmit data for employment verification requests. As you can see, it was a big quarter for our ecosystem, and we are looking forward to continuing this momentum in partner-led growth. Before I turn it over to Zane, I would like to update you on how we're planning for the medium term. We continue to build Workday as a durable business with balanced growth and margin expansion, something I've been saying since I joined the company nearly two years ago. Our key growth areas are already paying off and creating momentum for our future. They amplify our opportunity to bring in new customers and to expand our footprint with existing customers. Over the past year, we've been able to see how our growth areas are developing, particularly in the current selling environment. And we've identified opportunities to drive efficiencies across the business. In light of this, we're making some adjustments to our medium-term plans, including a slightly moderated pace of subscription revenue growth balanced with accelerated margin expansion. Our revised medium-term outlook reflects the confidence we have to drive durable, profitable growth at scale. We're focused on continuing to gain share in our core markets of HR and finance while delivering strong operating income growth and continuing to innovate for our customers and partners. I couldn't be more excited and energized about the opportunity ahead, and we are thrilled to have you on the ride with us. With that, I'll turn it over to Zane. Zane Rowe -- Chief Financial Officer Thanks, Carl, and thank you to everyone for joining today's call. Our Q2 performance was slightly ahead of our expectations across all key metrics. Subscription revenue in the second quarter was $1.903 billion, up 17%. Professional services revenue was $182 million in the quarter, leading to total revenue in Q2 of $2.085 billion, also a growth of 17%. U.S. revenue in Q2 totaled $1.56 billion, up 16%. And international revenue totaled $524 million, growing 18%. 12-month subscription revenue backlog, or CRPO, was $6.8 billion at the end of Q2, representing growth of 16%. The year-over-year growth rate was impacted by the strength in last year's renewal activity, including early renewals. Gross and net revenue retention rates remained strong at over 95% and over 100%, respectively. Total subscription revenue backlog at the end of the quarter was $21.58 billion, up 21%. Our non-GAAP operating income for the second quarter was $518 million, resulting in a non-GAAP operating margin of 24.9%. Q2 operating cash flow was $571 million, growing 34% driven by strong collections. We accelerated the pace of our buyback in Q2, repurchasing $309 million of our shares at an average price of $223.10 per share. With our existing $500 million buyback authorization nearing completion, our board has authorized a new $1 billion share repurchase program. We remain committed to investing in organic growth, pursuing strategic M&A opportunities and managing dilution while returning excess capital to shareholders via share repurchases. We ended the quarter with $7.4 billion in cash and marketable securities. As of July 31th, headcount stood at over 19,900 workmates around the globe. Now turning to guidance. As Carl indicated, we continue to see the macro environment consistent with our last quarter, including moderated headcount growth within our customer base. And as we discussed last quarter, we expect these trends to continue. We are reiterating our full year FY '25 subscription revenue guidance of $7.7 billion to $7.725 billion, growth of approximately 17%. We expect Q3 FY '25 subscription revenue to be $1.955 billion, growth of 16%. We expect FY '25 professional services revenue of approximately $680 million to $690 million, driven by customer demand. For Q3, we expect professional services revenue of $175 million. Turning to backlog. In Q3, we expect CRPO growth also to be impacted by last year's strong early renewal activity. As a reminder, last year, the gap between CRPO growth and subscription revenue growth was roughly 4 percentage points in Q3. As we lap the strong renewal activity from last year, we expect CRPO growth of 14% to 15% for Q3. While the growth rate is impacted by the timing of renewals, the aggregate CRPO level supports our view of subscription revenue growth of approximately 16% for the second half of the year. We continue to balance both targeted investments in key growth areas with increased focus on end-to-end companywide efficiencies and transformation. We now expect FY '25 non-GAAP operating margin of 25.25%. For Q3, we also expect non-GAAP operating margin of 25.25%. GAAP operating margin for the third quarter and full year are expected to be approximately 19 and 20 percentage points lower than the non-GAAP margins, respectively. The FY '25 non-GAAP tax rate remains at 19%. We're increasing our FY '25 operating cash flow expectations to $2.350 billion, and we continue to expect capital expenditures of approximately $330 million. Over the past year, we've made good progress across our key growth areas. While a number of these initiatives are still in their early development, they are already supporting growth in FY '25, as well as for future years as they scale across our products and geographies. Our focus areas have been ramping over the past year, providing us better insight into how their growth trajectories augment our core business. As we incorporate this into our planning, along with the current environment, we now expect subscription revenue growth in the mid-teens for both FY '26 and FY '27. We're seeing success across full suite opportunities, the partner ecosystem and international markets, along with emerging areas like federal and Built on Workday, which helped reinforce our conviction in enduring growth as we strengthen our market leadership in cloud ERP. In addition, we now expect to deliver greater margin expansion than previously planned. Investing to support durable growth remains a core focus, and at the same time, we've made progress driving efficiencies as we continue to scale the business globally. We are relentlessly focused on scaling all of our processes across the company as we review our product and go-to-market initiatives. We're also becoming increasingly more targeted in our growth investments, balancing product developments with go-to-market resources. With this, we are driving to enhance ROI across our portfolio, while we continue to execute on opportunities to drive growth in the business. With that context and assuming M&A levels consistent with recent history, our updated expectations for FY '26 and FY '27 offer annual subscription revenue growth of approximately 15% while expanding non-GAAP operating margin to 30% over the same period. This updated framework also increases our expected FY '27 cash flow. Our focus remains leveraging the power of the platform to deliver durable, long-term top and bottom line growth. We look forward to sharing more at our upcoming financial analyst day on September 17th. With that, I'll turn it back over to the operator to begin Q&A. Operator [Operator instructions] Our first question is from Kirk Materne with Evercore. Please proceed with your question. Kirk Materne -- Analyst Hi. Yes, thanks very much, and I appreciate the early update on the midterm outlook as we look forward to seeing you guys out in Vegas in a few weeks. But Carl, can you just talk about where you think you can get some additional efficiency at scale while still investing, obviously, in places like international. I'm sure you'll go through this a little bit at the analyst day. But I was just kind of curious. Where are some places that you guys can continue to get that efficiency because I know you're not going to want to stop investing in some of these green shoots that you're seeing right now? Carl Eschenbach -- Chief Executive Officer Yeah, thanks, Kirk, for the question. And by the way, thanks for your preview note. I thought it was really well written. And as you can see, a lot of the things you highlighted in your preview note, we actually spoke about in our prepared remarks. And part of it is what you just asked. I want to start by just reinforcing our thesis for long-term profitable growth at scale at Workday. We remain very excited about the opportunity we have ahead, and we think we'll continue to take share in our core markets around HR and finance while at the same time continuing to innovate and drive additional operating efficiencies as we think about the broader market. As far as where we think we can get efficiencies, let me start and remind people by saying, over the last two and a half years, we've expanded our operating margin by 500 basis points and now we're talking about moving it up another 500 basis points over the next few years, so we are finding efficiencies. Some examples of where we'll find efficiencies is in our global workforce strategy, which includes leveraging our current global workforce, as well as some of the new offices we brought online in the last six to 12 months like India and Costa Rica. We are also being smart and prudent about what we're hiring going forward. And specifically, we're focusing on quota-carrying capacity, as well as continuing to invest in software development on our product and technology side of the business. We also are finding operating efficiencies internally across our systems and our technology. We are using AI in our finance organization. We are using AI in our call centers and our support organization. And we're also using AI like Copilot and software development to drive efficiencies. And the last thing I'd say, Kirk, to kind of combine your questions here is, number one, some of the investment areas we've leaned into over the last two years are actually starting to drive operating efficiencies and scale for us. For example, we spent a lot of time talking about partners. We've highlighted once again our partners today continue to drive a significant portion of our pipeline. And actually, we're responsible for a two times growth in new ACV from what they participated or drove in Q1. We are actually starting to see scale now with the big build-out we did in our financial sales force. They're all starting to ramp, and we're seeing better productivity going forward. So there are a number of different areas that we're investing in, and it's actually not only helping us maintain this durable growth over the next two years, but it's also giving us operational efficiencies at the same time. Zane Rowe -- Chief Financial Officer Kirk, I'll just add. This is Zane. We look at all of these investments with an ROI mentality, and as you've seen over the last number of years where we've outperformed and really leaned in, we've been able to drive bottom-line growth and increase our operating margin even versus our expectation. So should expect to hear a little more in this area in three and a half weeks in Vegas, but we're pleased with the progress, have a lot of work to do. We feel like we're never done on just coming up with more efficiencies across the business. Operator Our next question is from Kash Rangan with Goldman Sachs. Please proceed with your question. Kash Rangan -- Analyst Hi. Thank you very much. Good to see that you guys have taken a more balanced approach to growth and margin. One short-term question, one long term, if I could. Short term, the impact of elections and potentially lower rates, how do you see this playing out, Carl? I know that you were not here eight years ago, but Aneel famously warned about volatility in the upcoming Q4 back then and ended up surprising us on the upside as contract activity and renewal activity happened on the upside. So what is your take on the short term? And then, one for you, Zane. Longer term, the expansion in margin, how comfortable can we get that it's not coming at the expense of the ability to reinvigorate growth if you do see that opportunity open up if we get a better spending environment? Carl Eschenbach -- Chief Executive Officer Yeah. Thanks, Kash. I'll take the first one. Listen, I can't predict the future and the impact of the election one way or the other. But what I do know is the current macro environment we're selling into hasn't changed at all from what we saw in Q1. In fact, we think the current environment of IT spending and the environment we're selling into isn't something that's just been here the last couple of quarters. We think it's the new norm going forward. We are prepared because we have a great product. We provide a tremendous value proposition to both customers and prospects. And regardless of what we're dealing with in the macro or the elections, we're going to continue to grow our business over the short term and long term because of that powerful value proposition we have. Zane Rowe -- Chief Financial Officer Yeah. And Kash, just to add to your question on longer term, I mean, we've done a good job investing and measuring those investments. When it's opportunity for us to increase that investment level depending upon growth or where it comes from, we'll be agile and quick to adjust accordingly. But we feel good that we can grow both the top line and the bottom line in this business and make sure that we're investing sufficiently to continue that growth and innovation across the company, so we feel like we've got a good balance here. Operator Our next question is from Mark Murphy with J.P. Morgan. Please proceed with your question. Mark Murphy -- Analyst Well, thank you so much. Carl, how would you characterize the cross-currency of AI on the software landscape in Workday itself at the moment? The reason I ask is you're sitting on this wealth of data. You have the sole ability to unlock it. You're not overcharging for AI services like others are. And I'm wondering if that is giving you some type of advantage in the actual AI product adoption and usage somehow under the radar. But then, on the other side of the ledger, as you do retweak the growth in margin, the midterm target, do you sense any customers pausing to digest application purchases broadly just as they're trying to understand the GPU landscape, the AI landscape at the infrastructure layer? Carl Eschenbach -- Chief Executive Officer Yeah, so I think there was two questions in there, Mark, so I'll try to answer both of them. First, I'll talk about our approach to monetization. So first, we've said we're going to take a very measured multipronged approach to how we monetize AI. First and foremost, we're monetizing it to our competitive win rates that are up once again this quarter. Our renewal rates remain very high and our customer satisfaction remains very strong. We are also, at the same time, not rushing to market and saying to our customers, we're going to have an uplift on our pricing just because we have now had more than 50, for example, AI use cases in the platform. We think they're entitled to that innovation. We will, though, when we see opportunity to do so, Mark. We will bring new SKUs to market where we can help our customers justify spending incremental dollars on AI from Workday. For example, Talent Optimization, Talent Optimization is one of our fastest-growing SKUs, Extend and now Extend Pro. Extend Pro is an AI platform that allows people to develop and build new applications on top of us. There's a new AI API Gateway associated. We have a Copilot to help people develop software faster, leveraging the AI API. And we also, as you know, last quarter talked about HiredScore. HiredScore is something we're very excited about. We are in the very early days of this going into the market, but we're seeing a rapid build of the pipeline as people are trying to reduce their recruiting spend because it's one of the biggest spends they have across their platform today when it comes to recruiting. And now, let me address what we're seeing because we get asked this question all the time, Mark. Are we seeing people spend on AI and not spend, for example, in our case, on Workday? We see just the opposite. What we see and we hear from our customers, our customers believe, and new prospects as we engage with them, they are investing in AI when they invest and partner with Workday. The reason for that is because of what you said. I think, customers are now recognizing the value of AI and gen AI is only as good as the data you're using to train. And we have one of the most clean, highly curated data sets around HR and finance to drive value for our customers, and we think that's a huge differentiator for us both today and going forward. And we can't wait to share more of the AI innovation with everyone, including the entire world, at Rising in September. Operator Our next question is from Brent Thill with Jefferies. Please proceed with your question. Brent Thill -- Analyst Thanks, Carl. Many have asked your confidence in mid-teens growth. What is giving you that underpinning of that the market is going to be there versus continuing to ratchet that number down, which you have lowered that growth rate a bit? What is still giving you the confidence that that market is still in place? Carl Eschenbach -- Chief Executive Officer Thanks, Brent. Well, there's a number of reasons. I think, not just myself but all of us here at Workday are confident in that 15% growth rate for the foreseeable future. And that's as we scale beyond $10 billion. Number one, the investments we've made, for example, in our partner community and the ecosystem are paying off. They're building pipeline. They're innovating on top of the platform. They're co-selling with us. They're reselling with us. And we see them continuing to lean into the Workday opportunity more than we've ever seen in the past. We still believe we have a tremendous opportunity internationally. We've hired some amazing talent across Europe. In the last six months, we talked about new leadership in APAC and in Japan, and we highlighted some of the success they had here this quarter. And we continue to believe that more than 50% of our addressable market opportunity is outside the U.S. that we can go attack. We also continue to believe in the opportunity around financials. As all of you know, for the last couple of years, we've leaned in heavily to the financials opportunity because we still see greater than 75% of workloads on premises, and they're moving to the cloud. It's not if. It's when. And when they move to the cloud, we see competitive run rates on our financial platform and full suite or full platform financial solutions with Workday and HCM continuing to rise. And the last thing that gives us confidence is innovation. We are driving so much innovation on the Workday platform, leveraging AI and gen AI. We also continue to believe that the ecosystem will innovate on top of us leveraging a powerful platform called Extend. And then, finally, M&A, we are -- I'd say, we're inquisitive. We continue to believe there's assets out there that we can look at to help us continue or maintain our growth, but we're going to be smart and prudent as we think about it. So that's the reason that gives us confidence to be able to drive this profitable growth at scale for the next few years. Operator Our next question is from Brad Sills with Bank of America. Please proceed with your question. Brad Sills -- Analyst Wonderful. Thank you so much. I wanted to ask a question, Carl, on some of the comments you made earlier. It sounds like you took a hard look at some of the growth initiatives to determine which ones are going well and which ones perhaps could be sources of upside that they're now backing that 15% -- or sorry, the mid-teens rather growth outlook. Just curious for some color, if you will, on what were some of the puts and takes. What were some of those growth initiatives that you felt more bullish about after having gone through the one-year review process? Which are ones that could perhaps be potential sources of incremental growth in the future? Carl Eschenbach -- Chief Executive Officer Yeah, thanks for the question, Brad. We did pause and we looked at all of our growth initiatives. Some of them I just articulated answering the prior question from Brent. And I must admit, as we sat and looked at them and as we sit here today, we think the growth initiatives we lean into are the right ones, the opportunity around financials, the international opportunity. We thought very hard about the investment we've made in financials, and we think that's the right one. The partner community is clearly paying off. So I don't think at this time when we look at those growth initiatives we would have pulled back on any of them. We are moderating how we're thinking about it going forward. But I think we have the right investments in the growth opportunities, and that's what gives us confidence and conviction to go attack this big market opportunity we have globally, so again, I wouldn't pull back on any of them. They're the right investments. They've already started to pay dividends throughout last year and this year, and we think we'll be able to lean into them even more as we go forward. One of the things that's really important as we think about driving operating margin expansion, by doing so and becoming more efficient, it allows us to continue to invest back in the business across both technology, go-to-market and potential acquisitions. It all comes together through this durable growth that we're mapping out over the next few years. Zane Rowe -- Chief Financial Officer Brad, I would just add. Carl talked about the M&A component. We remain curious in the market. But for the last year, you haven't seen significant M&A on our side driving any incremental growth either as you contemplate the updated outlook, so that's a component of it as well. Operator Our next question is from Michael Turrin with Wells Fargo. Please proceed with your question. Michael Turrin -- Wells Fargo Securities -- Analyst Hey. Great. Thanks very much. Appreciate you taking the question. I was hoping to go back to what drove the change in tone toward more margin here. I think, it's what investors have been hoping for, but maybe you could speak to the thought process there and confidence you have in managing the trade-offs and giving a bit more margin here but making sure you're still well-positioned for any rebound. Carl Eschenbach -- Chief Executive Officer I think there's a couple of things. The current environment that we're selling into, we actually think that's the normal IT spend environment that we'll be seeing going forward. It's not something every quarter we're going to say, how does it compare to last quarter? How does it compare one quarter to next year or year over year? We think this is now a normalized and the new norm of IT spend. That on the back of some of the growth initiatives that we just talked about, we think this is what gives us conviction and confidence in this 15% growth profile going forward. We also think by driving more operating margin, it gives us more opex dollars to invest in these key growth initiatives as well, so we take a look at the market. We take a look at the opportunity. We take a look at how we're driving the business, our growth initiatives. And all of this came together for us to think about, you know what, we can drive really durable growth over a long period of time, and we can do it profitably while all investing in the business. Zane Rowe -- Chief Financial Officer Yeah. I would just add, we've come to a better understanding as far as each of these areas of growth, what they cost, how we think about those returns over a multiyear period. Carl mentioned some that require some upfront cost, but we're able to actually ramp a number of those initial investments over this multiyear period. And then, there's just increased focus and discipline around spend across the company. We recognize we need to focus on efficiencies, systems, people and process, and we're heavily involved in looking at all of those as we scale the business, so we're excited about the future. We believe we can truly invest and innovate and yet still drive margin improvement, and you've seen us do it over the last number of years, so we just want to continue that momentum. Operator Our next question is from Raimo Lenschow with Barclays. Raimo Lenschow -- Analyst Perfect. Thank you for the long-term outlook from me as well. Carl, if you think about the growth in the market, and I get it that you kind of -- what we see now is what we have in there. If you compare the current times and what you're assuming your planning assumption to, what we've seen in the past in terms of spending behaviors and to take bubbles away, is this kind of what you think is kind of also long term something that will continue like this? Or is this like for the foreseeable future, let's kind of work with the planning assumptions that there could be a better market at some point in the future? We don't know when but at some point. Just trying to understand, like has the market changed toward kind of a different growth trajectory? Or is it just like what we see in the economy at the moment? Carl Eschenbach -- Chief Executive Officer Yeah. As I said earlier, we think the current environment is the new norm, and that's what we're basing our medium-term outlook on. That being said, things could change in one direction or the other. We could get tailwinds and we could get employment and headcount growth. We've taken a moderated approach when we look at headcount. We think people who are doing large transformations of their HR and their finance systems today, at times, they pause and they think about it and they sweat their existing asset a bit longer. And when they do so, oh, by the way, those opportunities don't leave our pipeline at all. And in fact, a lot of times the customer chooses Workday and they just push it out a quarter or two. Things like that could reaccelerate, so we think it is a new norm. Do we think things can change in the future? They potentially can. And if so, and we get more tailwind, we'll update our model as we think about the next few years. But right now, we do think the current environment is consistent in what we'll see going forward. Raimo Lenschow -- Analyst Perfect. And then, a question for Zane. If you think about like Workday historically has been probably over-indexing on R&D and probably under-indexing a little bit on sales and marketing, as we think about the efficiencies going forward, etc., how do you think about that mix between those two major drivers? Zane Rowe -- Chief Financial Officer Sure. Yeah. Broadly, I would say, it is a mix, and there's always opportunity. We've looked at both innovation, R&D spend and how AI can actually help those efforts. And we've got a terrific team. We are doing a lot of innovating, a lot of building out the product and a lot of growing, so I would say, look, it's balanced across all areas. Even on the G&A side, we all believe we can continue to not only innovate but be more efficient and really think about as we grow around the globe, how we balance that growth with a workforce that's better represented around the globe as well. So I'd say, generally speaking, opportunities on both sides, but we're leveraging those investments we are making. We are also excited about road maps and all the investments that we're making for the future as well. Operator Our next question is from Karl Keirstead with UBS. Please proceed with your question. Karl Keirstead -- Analyst So you set your midterm free cash flow margin target at 25%, which was pretty well right on top of your non-GAAP operating margin target. So given that you're raising the latter by 500 bps to 30%, I can imagine some people on the call will just raise the free cash flow margin up to 35% to keep that relationship solid. I don't know whether you want to comment on that or maybe punt to the investor day. But just on this call, is there any reason why that correlation between those two metrics might be different than what you were thinking a year ago? Zane Rowe -- Chief Financial Officer Sure, Karl. Yeah, broadly speaking, I would say, yes, but I don't want to give you all the answers because I'd still want to see you at investor day in three and a half weeks. I mean, I would point out that we're still ramping a number of industries where the payments don't necessarily correlate with the revenue. These are industries like edu and other industries like federal, where we've seen good growth there. We are also a taxpayer in the U.S. now, so stay tuned for what we'll disclose in three and a half weeks. I don't want to get ahead of myself. I'll leave some material for then. Operator Our next question is from Alex Zukin with Wolfe Research. Please proceed with your question. Alex, is your line on mute? Guys, thanks for taking the question. I guess, maybe for me, you talked about -- a little bit about the vertical, what you're seeing from a pipeline perspective. Should we expect kind of the same vertical strength that we saw in the first half to drive the bookings strength in the second half? And then, on the midterm targets, particularly on margins, should we expect that to be linear? Should we expect that to be more back-end loaded? And M&A in the context, it sounds like there's no change to the kind of M&A strategy that you guys have conducted. I just want to be sure that's what you're implying in the midterm target setting. Carl Eschenbach -- Chief Executive Officer Zane, why don't you start to take the last question and I'll jump in. Zane Rowe -- Chief Financial Officer Sure. Yeah. As we think about that growth, I'd say, evenly balanced. Similar to what I mentioned to Carl, we'll give you a little bit more detail on that in three and a half weeks. But generally speaking, evenly balanced, maybe a little more skewed toward FY '27. But we've got a number of initiatives, and obviously, we're pleased to see the growth that we've seen even this year. So more to come on that front. I'll hand it over to Carl for -- Carl Eschenbach -- Chief Executive Officer Yeah. And on the industry verticals, we highlighted some in the script, but I'd ask Doug to give a little bit more color on what we're seeing there. Doug Robinson -- Co-President Yeah, hi, Alex, Doug here. My ears perked up when you asked about pipeline. So yes, pipeline growth in the industry, you know us to be strong, and it's where we're seeing continued strength. So that includes healthcare, of course, but also higher education. And we think both healthcare and higher education are multiyear opportunities for Workday for full suite. In addition to that, state and local, and increasingly, the federal business. And hope to share more good news around the fed business in the second half of the year with you as it progresses. Alex Zukin -- Analyst Perfect. And then, maybe just if I sneak one more in. If I think about the construction of the growth curve over the next couple of years, when we think about your success going down market versus some of the trends we're seeing in large enterprise, what percentage of -- how do we think about that balance? We used to ask that question about financials versus HCM. But if we actually recast it more to the lower end of the market versus the higher end of the market? How would you characterize it? Carl Eschenbach -- Chief Executive Officer Yeah. So let me answer that question. As you know, we've had historically had a lot of success in large enterprise and in industries and verticals like Doug just mentioned, and we've been pushing down into what we call the medium enterprise or the emerging enterprise quite aggressively. One of the reasons we're doing that is because we're having a lot of success selling full suite or full platform deals, which is a combination of both financials, as well as HCM. And we continue to see that as an area of strength for us going forward. We've modified our pricing and our packaging for those markets. We also now have new delivery capabilities to accelerate deployment. So customers get better and faster value from the medium enterprise market. And our partners are also leaning in and helping us drive faster adoption in that market as well. So the media enterprise, both here in the U.S. We've taken the playbook from the U.S. We are pushing it globally. It's in the U.K., and it's spreading throughout Europe, and we'll be doing the same in APAC. So it's an area of strength. It's an area of opportunity, and it's something we'll continue to lean into on the go-to-market side, as well as the product side as we think about pricing and packaging. Operator We will now be taking two more questions. Our next question is from Derrick Wood with TD Cowen. Please proceed with your question. Derrick Wood -- Analyst Thanks. I guess, for Zane, I know you called out pockets of slower headcount growth during renewals in Q1. So I'd be curious. A, are you seeing this broaden out to more verticals aside from the ones you called out last quarter in tech and retail? And b, are you able to quantify what the degree of change is? Like what was the average headcount growth historically? And what are you thinking the new normal is? And did you adjust for these assumptions in your new medium-term growth outlook? Zane Rowe -- Chief Financial Officer Derrick, yeah, this is Zane. If we look quarter to quarter, our assumptions have been very similar to what they were in the first quarter that we extrapolated for the year. We've seen consistency there. We made the adjustment for the year. If you recall, last time, I think I mentioned it was approximately $17 million over the extent of the year. So no significant change there. If anything, on a quarter-to-quarter level, we believe the baseline has been about the same. So it's been consistent. We consider it the new norm. It's contemplated in both our FY '25 guide, as well as our midterm guide. It's not a significant impact on revenue or bookings as we think about it today. Operator Our last question is from Brad Zelnick with Deutsche Bank. Please proceed with your question. Brad Zelnick -- Analyst Great, thanks so much. My question is for Carl or perhaps Doug. Curious if there are specific areas within fins that you're particularly excited about because we still keep hearing great things about accounting center not just in financial services but across verticals and even down market. But what would you call out as particularly exciting that can compel customers to adopt and maybe even drive upside ahead? Yeah, I'll go first. Brad, nice to hear from you. You hit the first one I'd hit, which is accounting center. And increasingly, as we've dedicated teams to vertical organizations and vertical selling by industry, each of them with solution consulting have come up with really interesting and innovative use cases for accounting center across industry. So while the original thesis of accounting center go back five years or so, five-plus years, was for FSI and to support that vertical, it now is selling across industry, as you point out. The second one I'd point out is student. And so, student changes the game in higher ed and can drive sort of not just full suite opportunities but pull through that what you would consider operational ERP in that particular industry. So as I answered the earlier question around industries where we see strong pipeline growth, and I mentioned a multiyear opportunity for both healthcare and higher education, those are two that get me excited. Carl Eschenbach -- Chief Executive Officer Another one, Doug, might be Workforce Planning. We think there's a tight correlation between our HCM platform and financials, and Workforce Planning is something we continue to see momentum, which is an adaptive product that we got a few years ago. Operator Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll now turn the call over to Mr. Eschenbach for closing comments. Carl Eschenbach -- Chief Executive Officer Thank you, operator, and thank you again to everyone on the call today. Before we go, I'd like to give a special thanks to our workmates, customers and partners around the world who continue to fuel Workday's growth and success. We are heading into the second half of our fiscal year with strong customer momentum and exciting innovation on our road map, and we clearly have a strategy to support our durable growth at scale. Workday's value proposition, I believe and all of my workmates believe, has never been stronger. Organizations of all sizes, geographies and industries are turning to us to manage their most precious and most important assets. That's their people and their money, and it's all on an AI-powered platform. And with the new innovations we're launching at Rising, we've never been better-positioned to lead them into the future. I look forward to seeing you at rising and financial analyst day in a couple of weeks. Operator, we can now close the call, and thank you again for everyone attending.

Earnings call: Workday sees steady growth and new partnerships in Q2 By Investing.com

Workday Inc . (NASDAQ:WDAY), a leading provider of enterprise cloud applications for finance and human resources, reported a solid performance in its second quarter fiscal 2025 earnings call. The company announced a 17% increase in subscription revenue, a 16% growth in the 12-month backlog, and a 25% non-GAAP operating margin. Workday also highlighted significant customer acquisitions and strategic partnerships with Salesforce (NYSE:CRM) and Equifax (NYSE:EFX), alongside showcasing its AI innovations within its Human Capital Management (HCM) product. Workday's continued investment in technology and go-to-market strategies, along with its focus on potential acquisitions, position the company for sustained growth. With strengths in healthcare, higher education, state and local government, and federal business verticals, Workday is also making strides in the medium enterprise market both domestically and internationally. The company's upcoming event in Las Vegas is anticipated to provide further insights into its progress and innovations, including those in Workday Financials, which are driving growth across industries. With a consistent baseline for revenue and bookings, Workday remains a formidable player in the enterprise cloud applications space, backed by a robust strategy and a clear vision for the future. Workday Inc. (WDAY) continues to make headlines with its robust financial performance and strategic initiatives. In light of this, let's delve into some key metrics and insights from InvestingPro that can help investors understand the company's current market position. InvestingPro Data shows Workday's market capitalization stands at a sturdy $61.3 billion, reflecting the company's significant presence in the enterprise software market. A notable P/E ratio of 40.99 indicates investor confidence in Workday's future earnings potential, although it suggests a premium valuation. The company's revenue growth remains impressive, with a 17.07% increase over the last twelve months as of Q1 2023, showcasing its ability to scale effectively. Two InvestingPro Tips that stand out for Workday are its substantial cash reserves compared to debt and its position as a prominent player in the Software industry. Holding more cash than debt provides Workday with financial flexibility and resilience, a reassuring sign for investors. Moreover, being a leading player in its sector, Workday's market share and influence likely contribute to its stable performance, even amid economic uncertainties. For those looking to dive deeper into Workday's financial health and market potential, InvestingPro offers a wealth of additional tips -- 11 more to be exact -- available at https://www.investing.com/pro/WDAY. These insights cover various aspects, from valuation multiples to profitability predictions, offering a comprehensive view of the company's investment profile. Investors and analysts alike can leverage these data points and tips to make informed decisions about Workday's stock, aligning their strategies with the company's growth trajectory and market dynamics. Operator: Welcome to Workday's Fiscal 2025 Second Quarter 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&A, please limit your questions to one. I will now hand it over to Justin Furby, Vice President of Investor Relations. Justin Furby: Thank you, Operator. Welcome to Workday's second quarter fiscal 2025 earnings conference call. On the call we have Carl Eschenbach, our CEO; Zane Rowe, our CFO; Doug Robinson, our Co-President; and David Somers, our Chief Product Officer. 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 in documents we file with the Securities and Exchange Commission, including our fiscal 2024 Annual Report on Form 10-K 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. These 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 this call will be available for the next 90 days on our company website under the Investor Relations link. Additionally, the transcript of this call and our quarterly investor presentation will be posted on our Investor Relations website following this call. Also, the Customers page of our website includes a list of selected customers and is updated monthly. Our third quarter fiscal 2025 quiet period begins on October 15th, 2024. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2024. With that, I will hand the call over to Carl. Carl Eschenbach: Thank you, Justin. And thank you all for joining us today. I'm pleased to report that Workday delivered another solid quarter, highlighted by 17% subscription revenue growth, 16% 12-month backlog growth, and 25% non-GAAP operating margin. Though we continued to experience deal scrutiny and moderated headcount growth within our customer base, our win rates remain high and our teams delivered a very solid Q2. I couldn't be prouder of our Workmates and partners for their continued focus on driving customer value and success. Right now, companies are focusing their investments on the areas that will help them increase productivity and improve their operations. Workday gives them the ultimate advantage. We help them manage their two most fundamental elements of their business, their people and their money, all on a unified, AI-powered platform. Workday empowers businesses to increase productivity, deliver incredible employee experience, and drive greater efficiencies across finance. And because all our products are built on the foundation of our platform, our customers can unlock value faster and reduce total cost of ownership. This is evident in the healthy growth we're seeing in full suite wins and in our balance of net-new relationships and customer expansions. It's also contributing to our momentum, which helped us debut on the prestigious Fortune 500 list in Q2. We couldn't be prouder to be amongst the largest, most influential companies in the US, with more than 60% of them being Workday customers. Businesses of all sizes, industries and geographies increasingly turn to Workday as their trusted partner. In Q2, we expanded with J.B. Hunt, Nissan, Target, and Trinity Health, and we formed new relationships with Lam Research (NASDAQ:LRCX), the City of Cleveland, Colorado State University System, and Johns Hopkins, among many others. We strengthened our leadership in the HCM market globally, with key wins including GE Vernova, First Bus, Sunrise Senior Living, along with several notable wins in EMEA and APAC. And our continued investment in Financials is helping us drive momentum across the platform. In Q2, we officially crossed the 2,000 customer milestone in Workday Financial Management. And, Workday was ranked the market share leader for Worldwide SaaS ERP revenue in 2023 by Gartner research. From an industry perspective, we had a banner quarter in our longest-standing vertical, Higher Education. Leading institutions including Florida A&M, the University of Mississippi, and Clemson University all selected Workday's full suite in Q2. Clemson started as a Workday Adaptive Planning customer and added HCM and Financial Management in the quarter. The partnership with Workday represents a significant milestone in their transformation journey to modernize systems and improve experiences for faculty, staff, and students. We once again had strong momentum in Healthcare with full-suite wins at Grady Health System, Reid Health, and Children's National Medical Center. Our success in state and local government continued in Q2 as well, with wins at Delaware County, County of San Joaquin, and Santa Cruz County. I also want to call out the expansion momentum we're seeing with VNDLY and our ability to deliver a complete workforce management solution, spanning salaried employees to hourly, contingent, freelance, and outsourced workers. Cushman & Wakefield, Lowe's, and Ryder Truck all added VNDLY in Q2. Beyond the wins, we celebrate when our customers go live on our platform. AutoNation (NYSE:AN), Barclays (LON:BARC), CDW (NASDAQ:CDW), Cross Country Mortgage, Forvis Mazars, and Texas Roadhouse (NASDAQ:TXRH) all successfully deployed on Workday in Q2. Global growth continues to be a massive opportunity for Workday, and we had a strong performance in APAC and Japan regions in Q2, along with several strategic wins in EMEA. In Australia, Workday was accepted to the government's Digital Transformation Agency Software Marketplace for ERP, opening new opportunities with federal agencies. We also expanded our business with a Ministry in New Zealand and had a full-suite win at Kelsian Group Limited. We're setting a strong foundation for our business in Japan, which performed very well in Q2. We formed new relationships with Terumo Corporation and Shizen Energy and expanded our business with Tokyo Electron. In Europe, we experienced the same deal scrutiny I discussed in Q1, but the team was able to deliver more large deals than last quarter including Emeis, Saint-Gobain, and Groupe Atlantic Synergy. Additionally, our Elevate events across the region in Q2 outperformed our pipeline expectations, and our partner momentum is building in key markets across EMEA. In fact, two of the largest deals we closed in the region were sourced from partners. We innovate to drive customer success and deliver true business value, and that's why customers are coming to Workday for our AI innovation. They want to partner and they're looking to us to lead them into the future. Workday AI is fueled by the quality and quantity of our data set and Workday's understanding of our customers' HR and finance processes. We now have more than 70 million users under contract conducting more than 800 billion transactions on the Workday platform annually. This data and the context behind it gives us the ability to unlock productivity in a way no other company can. In Q2, we announced new AI innovations to help our customers hire the right talent better and faster than ever before. For instance, our new AI capabilities in our HCM product identify emerging skills and simplify job profile management to accelerate skills-based talent strategies. Just one quarter after closing the HiredScore acquisition, we made HiredScore AI for Recruiting and HiredScore AI for Talent Mobility available for purchase under one unified contract. The HiredScore team is off to a great start, and we're continuing to build pipeline across our recruiting customers. And what better validation than this quote from our customer at Southwest Airlines (NYSE:LUV), who called HiredScore a game changer that's setting new standards in talent management. Through the power of our platform, we're enabling AI innovation not only from Workday, but from our customers and partners as well. In Q2, at our annual developer conference, we launched new APIs in our AI Gateway. We also introduced Workday Extend Developer Copilot, leveraging Gen AI to help developers to build custom applications on our platform, faster than ever before. Extend remains one of our fastest growing SKUs. New ACV increased more than 75% in Q2, driven by Extend Pro, which taps into the power of Workday AI. Many of our customers are already realizing incredible value from Workday AI. For example, a HiredScore for Talent Mobility customer saw a 40% increase in internal application rates. For one of our entertainment customers, invoice automation is driving a 70% plus increase in processing capabilities. And for another customer, our Talent Optimization product, which is one of our fastest growing SKUs, helped reduce turnover by 39%. And the list goes on, but we're just scratching the surface. The industry has been focusing on fitting AI into how we work now, not on what work should look like next. We see an opportunity to exponentially increase the value to our customers by reimagining end-to-end HR and Finance processes through the power of AI. At Workday Rising, we will introduce the next generation of AI to illuminate the future of work. For the past 10 years, we've been building towards this vision. And we're excited to showcase Workday innovations that will not only accelerate how work gets done, but ultimately transform how customers run their businesses. We're expecting more than 30,000 virtual and in-person attendees at Rising this year, our biggest event yet. In addition to unveiling our AI vision, we'll also showcase new innovations across our applications, platform, and user experience. I mentioned before that our partner ecosystem is a powerful driver of customer success and it continues to grow in both breadth and depth. In Q2, partner contributions to new ACV more than doubled from last quarter, and partners had another record quarter of pipeline generation. And we're just getting started. In the quarter, we launched Built on Workday to make it easy for our partners to build, distribute and monetize their applications on the Workday Platform. Our longstanding partner Kainos (LON:KNOS) was among the first to lean into this new program, with several more partners already active early adopters. We continue to open the aperture to partners as a driver of both sales and innovation, and in Q2 we announced new partnerships that will help us deliver even greater value. Our partnership with Salesforce is a perfect example. Whether it's accelerating employee onboarding, enabling continuous financial planning, or closing deals faster, our partnership is bringing humans and AI together to drive success for employees and customers. And it's all made possible by bringing together the most important datasets in the enterprise. And today, we are announcing a new Employment Verification Connector for Equifax, making it easier for customers to transmit data for employment verification requests. As you can see, it was a big quarter for our ecosystem and we are looking forward to continuing this momentum in partner-led growth. Before I turn it over to Zane, I'd like to update you on how we're planning for the medium term. We continue to build Workday as a durable business with balanced growth and margin expansion, something I've been saying since I joined the company nearly two years ago. Our key growth areas are already paying off and creating momentum for our future. They amplify our opportunity to bring in new customers, and to expand our footprint with existing customers. Over the past year, we've been able to see how our growth areas are developing, particularly in the current selling environment. And, we've identified opportunities to drive efficiencies across the business. In light of this, we're making some adjustments to our medium-term plans, including a slightly moderated pace of subscription revenue growth balanced with accelerated margin expansion. Our revised medium-term outlook reflects the confidence we have to drive durable, profitable growth at scale. We're focused on continuing to gain share in our core markets of HR and Finance, while delivering strong operating income growth and continuing to innovate for our customers and partners. I couldn't be more excited and energized about the opportunity ahead, and we are thrilled to have you on the ride with us. With that, I'll turn it over to Zane. Zane Rowe: Thanks, Carl. And thank you to everyone for joining today's call. Our Q2 performance was slightly ahead of our expectations across all key metrics. Subscription revenue in the second quarter was $1.903 billion, up 17%. Professional services revenue was $182 million in the quarter, leading to total revenue in Q2 of $2.085 billion, also growth of 17%. US revenue in Q2 totaled $1.56 billion, up 16%, and international revenue totaled $524 million, growing 18%. 12-month subscription revenue backlog, or cRPO, was $6.80 billion at the end of Q2, representing growth of 16%. The year-over-year growth rate was impacted by the strength in last year's renewal activity, including early renewals. Gross and net revenue retention rates remain strong at over 95%, and over 100%, respectively. Total subscription revenue backlog at the end of the quarter was $21.58 billion, up 21%. Our non-GAAP operating income for the second quarter was $518 million, resulting in a non- GAAP operating margin of 24.9%. Q2 operating cash flow was $571 million, growing 34%, driven by strong collections. We accelerated the pace of our buyback in Q2, repurchasing $309 million of our shares at an average price of $223.10 per share. With our existing $500 million buyback authorization nearing completion, our Board has authorized a new $1 billion share repurchase program. We remain committed to investing in organic growth, pursuing strategic M&A opportunities, and managing dilution while returning excess capital to shareholders via share repurchases. We ended the quarter with $7.4 billion in cash and marketable securities. As of July 31, headcount stood at over 19,900 workmates around the globe Now turning to guidance. As Carl indicated, we continue to see the macro environment consistent with our last quarter, including moderated headcount growth within our customer base - and as we discussed last quarter, we expect these trends to continue. We are reiterating our full-year FY '25 subscription revenue guidance of $7.700 billion to $7.725 billion, growth of approximately 17%. We expect Q3 FY '25 subscription revenue to be $1.955 billion, growth of 16%. We expect FY '25 professional services revenue of approximately $680 million to $690 million, driven by customer demand. For Q3, we expect professional services revenue of $175 million. Turning to backlog. In Q3, we expect cRPO growth also to be impacted by last year's strong early renewal activity. As a reminder, last year the gap between cRPO growth and subscription revenue growth was roughly four percentage points in Q3. As we lap the strong renewal activity from last year, we expect cRPO growth of 14% to 15% for Q3. While the growth rate is impacted by the timing of renewals, the aggregate cRPO level supports our view of subscription revenue growth of approximately 16% for the second half of the year. We continue to balance both targeted investments in key growth areas with increased focus on end-to-end companywide efficiencies and transformation. We now expect FY '25 non-GAAP operating margin of 25.25%. For Q3, we also expect non-GAAP operating margin of 25.25%. GAAP operating margin for the third quarter and full year are expected to be approximately 19 and 20 percentage points lower than the non-GAAP margins, respectively. The FY '25 non-GAAP tax rate remains at 19%. We are increasing our FY '25 operating cash flow expectations to $2.350 billion and we continue to expect capital expenditures of approximately $330 million. Over the past year, we've made good progress across our key growth areas. While a number of these initiatives are still early in their development, they are already supporting growth in FY '25 as well as for future years as they scale across our products and geographies. Our focus areas have been ramping over the past year, providing us better insight into how their growth trajectories augment our core business. As we incorporate this into our planning, along with the current environment, we now expect subscription revenue growth in the mid-teens for both FY '26 and FY '27. We're seeing success across full suite opportunities, the partner ecosystem, and international markets, along with emerging areas like Federal and Built on Workday, which help reinforce our conviction in enduring growth as we strengthen our market leadership in cloud ERP. In addition, we now expect to deliver greater margin expansion than previously planned. Investing to support durable growth remains a core focus, and at the same time, we've made progress driving efficiencies as we continue to scale the business globally. We are relentlessly focused on scaling all of our processes across the company as we review our product and go- to-market initiatives. We are also becoming increasingly more targeted in our growth investments, balancing product development with go-to-market resources. With this, we are driving to enhance ROI across our portfolio, while we continue to execute on opportunities to drive growth in the business. With that context, and assuming M&A levels consistent with recent history, our updated expectations for FY '26 and FY '27 are for annual subscription revenue growth of approximately 15% while expanding non-GAAP operating margin to 30% over the same period. This updated framework also increases our expected FY '27 cash flow. Our focus remains leveraging the power of the platform to deliver durable, long-term top- and bottom-line growth. We look forward to sharing more at our upcoming financial analyst day on September 17. With that, I'll turn it back over to the operator to begin Q&A. Operator: [Operator Instructions] Our first question is from Kirk Materne with Evercore. Please proceed with your question. Kirk Materne: Hi, yeah, thanks very much and appreciate the early update on the midterm outlook as we look forward to seeing you guys out in Vegas in a few weeks. But, Carl, can you just talk about where you think you can get some additional efficiency at scale while still investing obviously in places like international? I'm sure you'll go through this all at the Analyst Day, but I was just kind of curious where are some places that you guys can continue to get that efficiency because I know you're not going to want to stop investing in some of these green shoots that you're seeing right now. Carl Eschenbach: Yeah, thanks, Kirk, for the question. And by the way, thanks for your preview note. I thought it was really well written. As you can see, a lot of things you highlighted in your preview note we actually spoke about in our prepared remarks and part of it is what you just asked. I want to start by just reinforcing our thesis for long-term profitable growth at scale at Workday. We remain very excited about the opportunity we have ahead, and we think we'll continue to take share in our core markets around HR and finance, while at the same time continuing to innovate and drive additional operating efficiencies as we think about the broader market. As far as where we think we can get efficiencies, let me start and remind people by saying over the last 2.5 years we've expanded our operating margin by 500 basis points, and now we're talking about moving it up another 500 basis points over the next few years. So we are finding efficiencies. Some examples of where we're finding efficiencies is in our global workforce strategy, which includes leveraging our current global workforce, as well as some of the new offices we've brought online in the last 6 to 12 months, like India and Costa Rica. We're also being smart and prudent about what we're hiring going forward, and specifically we're focusing on quota-carrying capacity, as well as continuing to invest in software development on our product and technology side of the business. We also are finding operating efficiencies internally across our systems and our technology. We're using AI in our finance organization. We're using AI in our call centers and our support organization. And we're also using AI like copilots in software development to drive efficiencies. And the last thing I'd say, Kirk, to kind of combine your questions here is, number one, some of the investment areas we've leaned into over the last two years are actually starting to drive operating efficiencies at scale for us. For example, we spent a lot of time talking about partners. We've highlighted once again our partners today continue to drive a significant portion of our pipeline and actually were responsible for a 2x growth in new ACV from what they participated or drove in Q1. We're actually starting to see scale now with the big build-out we did in our financial sales force. They're all starting to ramp and we're seeing better productivity going forward. So There are a number of different areas that we're investing in, and it's actually not only helping us maintain this durable growth over the next few years, but it's also giving us operational efficiencies at the same time. Zane Rowe: Hey, Kirk, I'll just add, this is Zane. We look at all of these investments with an ROI mentality, and as you've seen over the last number of years where we've outperformed and really leaned in, we've been able to drive bottom line growth and increase our operating margin, even versus our expectations. So you should expect to hear a little more in this area in 3.5 weeks in Vegas, but we're pleased with the progress, have a lot of work to do, and we feel like we're never done on just coming up with more efficiencies across the business. Kash Rangan: Hi, thank you very much. Good to see that you guys are taking a more balanced approach to growth and margin. One short-term question, one long-term, if I could. Short-term, the impact of elections and potentially lower rates, how do you see this playing out, Carl? I know that you were not here eight years ago, but Aneel famously warned about volatility in the upcoming Q4 back then and ended up surprising us on the upside as contract activity and renewal activity happened on the upside. So what is your take on the short term? And then one for you Zane, longer term the expansion and margin, how comfortable can we get that it's not coming at the expense of the ability to reinvigorate growth if you do see that opportunity open up if we get a better spending environment? Thank you so much. Carl Eschenbach: Yeah. Thanks, Kash. I'll take the first one. Listen, I can't predict the future and the impact of the election one way or the other but what I do know is the current macro environment we're selling into hasn't changed at all from what we saw in Q1. In fact, we think the current environment of IT spending and the environment we're selling into isn't something that's just been here the last couple quarters. We think it's the new norm going forward. We're prepared because we have a great product. We provide a tremendous value proposition to both customers and prospects and regardless of what we're dealing with in the macro or the elections, we're going to continue to grow our business over the short term and long term because of that powerful value proposition we have. Zane Rowe: Yeah. And Kash, just to add to your question on longer term, I mean we've done a good job investing and measuring those investments. When it's opportunity for us to increase that investment level depending upon growth or where it comes from, we'll be agile and quick to adjust accordingly. But we feel good that we can grow both the top line and the bottom line in this business and make sure that we're investing sufficiently to continue that growth and innovation across the company. So we feel like we've got a good balance here. Kash Rangan: Wonderful, thank you so much. Well done. Operator: Thank you. Our next question is from Mark Murphy with JPMorgan (NYSE:JPM). Please proceed with your question. Mark Murphy: Thank you so much. Carl, how would you characterize the cross currents of AI on the software landscape in Workday itself at the moment? The reason I ask is you're sitting on this wealth of data, you have the sole ability to unlock it, you're not overcharging for AI services like others are, and I'm wondering if that is giving you some type of advantage in the actual AI product adoption and usage somehow under the radar. But then on the other side of the ledger, as you do re-tweak the growth and margin, the midterm target, do you sense any customers pausing to digest application purchases broadly just as they're trying to understand the GPU landscape, the AI landscape at the infrastructure layer? Carl Eschenbach: Yeah, so I think there was two questions in there Mark, so I'll try to answer both of them. First, I'll talk about our approach to monetization. So first, we've said we're going to take a very measured, multi-pronged approach to how we monetize AI. First and foremost, we're monetizing it to our competitive win rates that are up once again this quarter. Our renewal rates remain very high and our customer satisfaction remains very strong. We are also at the same time not rushing to market and saying to our customers, we're going to have an uplift on our pricing just because we have now have more than 50, for example, AI use cases in the platform. We think they're entitled to that innovation. We will, though, when we see opportunity to do so, Mark, we will bring new SKUs to market where we can help our customers justify spending incremental dollars on AI from Workday. For example, talent optimization. Talent optimization is one of our fastest growing SKUs. Extend and now Extend Pro. Extend Pro is an AI platform that allows people to develop and build new applications on top of us. There's a new AI API gateway associated. We have a copilot to help people develop software faster leveraging the AI API. And we also as you know last quarter talked about HiredScore. HiredScore is something we're very excited about. We're in the very early days of this going into the market, but we're seeing a rapid build of the pipeline as people are trying to reduce their recruiting spend because it's one of the biggest spends they have across their platform today when it comes to recruiting. And now let me address what we're seeing, because we get asked this question all the time, Mark. Are we seeing people spend on AI and not spend, for example, in our case, on Workday? We see just the opposite. What we see and we hear from our customers, our customers believe and new prospect as we engage with them, they are investing in AI when they invest and partner with Workday. The reason for that is because of what you said. I think customers are now recognizing the value of AI in GenAI is only as good as the data you're using to train. And we have one of the most clean, highly curated data sets around HR and finance to drive value for our customers. And we think that's a huge differentiator for us both today and going forward. And we can't wait to share more of the AI innovation with everyone, including the entire world at Rising in September. Brent Thill: Thanks. Carl, many have asked your confidence in mid-teens growth. What is giving you that underpinning of that the market's going to be there versus continuing to ratchet that number down, which you've lowered that growth rate a bit? What is still giving you the confidence that that market is still in place? Carl Eschenbach: Yeah, thanks, Brent. Well, there's a number of reasons, I think, not just myself, but all of us here at Workday are confident in that 15% growth rate for the foreseeable future and that says we scale beyond $10 billion. Number one, the investments we've made for example in our partner community and the ecosystem are paying off. They're building pipeline. They're innovating on top of the platform. They're co-selling with us. They're reselling with us, and we see them continuing to lean into the Workday opportunity more than we've ever seen in the past. We still believe we have a tremendous opportunity internationally. We've hired some amazing talent across Europe. In the last six months, we've talked about new leadership in APAC and in Japan, and we highlighted some of the success they had here this quarter. And we continue to believe that more than 50% of our addressable market opportunity is outside the US that we can go attack. We also continue to believe in the opportunity around financials. As all of you know, for the last couple years, we've leaned in heavily to the financials opportunity because we still see greater than 75% of workloads on-premises and they're moving to the cloud. It's not if, it's when. And when they move to the cloud, we see competitive win rates on our financials platform and full suite or full platform financial solutions with Workday and HCM continuing to rise. And the last thing that gives us confidence is innovation. We are driving so much innovation on the Workday platform, leveraging AI and GenAI. We also continue to believe that the ecosystem will innovate on top of us, leveraging a powerful platform called Extend. And then finally, M&A. We are, I'd say we're inquisitive. We continue to believe there's assets out there that we can look at to help us continue or maintain our growth, but we're going to be smart and prudent as we think about it. So that's the reason that gives us confidence to be able to drive this profitable growth at scale for the next few years. Brent Thill: Thanks, Carl. Operator: Thank you. Our next question is from Brad Sills with Bank of America (NYSE:BAC). Please proceed with your question. Brad Sills: Wonderful. Thank you so much. I wanted to ask a question, Carl, on some of the comments you made earlier. It sounds like you took a hard look at some of the growth initiatives to determine which ones are going well and which ones perhaps could be sources of upside that are now backing that 15% -- or sorry, the mid-teens rather growth outlook. Just curious for some color if you will on what were some of the puts and takes, what were some of those growth initiatives that you felt more bullish about after having gone through the one-year review process? Which are ones that could perhaps be potential sources of incremental growth in the future? Thank you so much. Carl Eschenbach: Yeah, thanks for the question, Brad. We did pause and we looked at all of our growth initiatives. Some of them I just articulated answering the prior question from Brent. And I must admit, as we sat and looked at them and as we see here today, we think the growth initiatives we lean into are the right ones, the opportunity around financials, the international opportunity. We thought very hard about the investment we've made in financials and we think that's the right one. The partner community is clearly paying off. So I don't think at this time when we look at those growth initiatives, we would have pulled back on any of them. We're moderating how we're thinking about it going forward but I think we have the right investments in the growth opportunities and that's what gives us confidence and conviction to go attack this big market opportunity we have globally. So, again, I won't pull back on any under the right investments. They've already started to pay dividends throughout last year and this year, and we think we'll be able to lean into them even more as we go forward. One of the things that's really important as we think about driving operating margin expansion by doing so and becoming more efficient, it allows us to continue to invest back in the business across both technology, go to market and potential acquisitions. It all comes together to this durable growth that we're mapping out over the next few years. Zane Rowe: Hey, Brad, I would just add, Carl talked about the M&A component, we remain curious in the market, but over the last year you haven't seen significant M&A on our side driving any incremental growth either as you contemplate the updated outlook. So, that's a component of it as well. Michael Turrin: Hey, great. Thanks very much. Appreciate you taking the question. I was hoping to go back to what drove the change in tone towards more margin here. I think it's what investors have been hoping for, but maybe you could speak to the thought process there and confidence you have in managing the trade-offs and giving a bit more margin here but making sure you're still well positioned for any rebound? Thanks. Carl Eschenbach: I think there's a couple things. The current environment that we're selling into, we actually think that's the normal IT spend environment that we will be seeing going forward. It's not something every quarter we're going to say how does it compare to last quarter, how does it compare one quarter to next year-over-year. We think this is now a normalized and the new norm of IT spend. That on the back of some of the growth initiatives that we just talked about, we think this is what gives us conviction and confidence in this 15% growth profile going forward. We also think by driving more operating margin, it gives us more OpEx dollars to invest in these key growth initiatives as well. So, we take a look at the market, we take a look at the opportunity, we take a look at how we're driving the business, our growth initiatives, and all of this came together for us to think about, you know what, we can drive really durable growth over a long period of time, and we can do it profitably while all investing in the business. Zane Rowe: Yeah, I would just add, we've come to a better understanding as far as each of these areas of growth, what they cost, how we think about those returns over a multiyear period. Carl mentioned some that require some upfront cost, but we're able to actually ramp a number of those initial investments over this multi-year period. And then there's just increased focus and discipline around spend across the company. We recognize we need to focus on efficiencies, systems, people, and process. And we're heavily involved in looking at all of those as we scale the business. So we're excited about the future. We believe we can truly invest and innovate and yet still drive margin improvement. And you've seen us do it over the last number of years. So we just want to continue that momentum. Operator: Thank you. Our next question is from Raimo Lenschow with Barclays. Please proceed with your question. Raimo Lenschow: Hey, perfect. Thank you for the long-term outlook from me as well. Carl, if you think about the growth in the market, and I get it that you kind of, what we see now is what we have in there. If you compare the current times and what you were assuming in your planning assumption to what we've seen in the past in terms of spending behaviors and take bubbles away, is this kind of what you think is kind of also long-term something that will continue like this, or is this like for the foreseeable future, let's kind of work with the planning assumptions that there could be a better market at some point in the future? We don't know when, but at some point. Just trying to understand, like, has the market changed towards kind of a different growth trajectory or is it just like what we see in the economy at the moment? Carl Eschenbach: Yeah. As I said earlier, we think the current environment is the new norm, and that's what we're basing our medium-term outlook on. That being said, things could change in one direction or the other. We could get tailwinds, and we could get employment and headcount growth. We've taken a moderate approach when we look at headcount. We think people who are doing large transformations of their HR in their finance systems today at times they pause and they think about it and they sweat their existing asset a bit longer. And when they do so, by the way, those opportunities don't leave our pipeline at all. And in fact, a lot of times the customer chooses Workday and they just push it out a quarter or two. Things like that could re-accelerate. So we think it is the new norm. Do we think things can change in the future? They potentially can and if so when we get more tailwind, we'll update our model as we think about the next few years. But right now, we do think the current environment is consistent in what we'll see going forward. Raimo Lenschow: Perfect. And then a question for Zane. If you think about, like, Workday historically has been probably over-indexing on R&D and probably under-indexing a little bit of sales and marketing. As we think about the efficiencies going forward, et cetera, how do you think about that mix between those two major drivers? Thank you. Zane Rowe: Sure. Yeah, broadly I'd say it is a mix and there's always opportunity. We've looked at both innovation, R&D spend and how AI can actually help those efforts and we've got a terrific team, we're doing a lot of innovating, a lot of building out the product and a lot of growing. So I would say, look, it's balanced across all areas. Even on the G&A side, we all believe we can continue to not only innovate, but be more efficient and really think about as we grow around the globe, how we balance that growth with a workforce that's better represented around the globe as well. So I'd say generally speaking, opportunities on both sides, but we're leveraging those investments we're making. We're also excited about our roadmaps and all the investments that we're making for the future as well. Raimo Lenschow: Thank you. Operator: Thank you. Our next question is from Karl Keirstead with UBS. Please proceed with your question. Karl Keirstead: So you set your midterm free cash flow margin target at 25%, which was pretty well right on top of your non-GAAP operating margin target. So given that you're raising the latter by 500 bps to 30%, I can imagine some people on the call will just raise the free cash flow margin up to 35 to keep that relationship solid. I don't know whether you want to comment on that or maybe punt to the Investor Day, but just on this call, is there any reason why that correlation between those two metrics might be different than what you were thinking a year ago? Thank you. Zane Rowe: Sure, Karl. Yeah, broadly speaking, I would say yes, but I don't want to give you all the answers because I'd still want to see you at Investor Day in 3.5 weeks. I mean, I would point out that we're still ramping in a number of industries where the payments don't necessarily correlate with the revenue. These are industries like edu and other industries like federal where we've seen good growth there. We're also a taxpayer in the US now. So stay tuned for what we'll disclose in 3.5 weeks. I don't want to get ahead of myself, at least some material for then. Karl Keirstead: Got it. See you then. Thank you. Operator: Thank you. Our next question is from Alex Zukin with Wolfe Research. Please proceed with your question. Alex, is your line on mute? Alex Zukin: Guys, thanks for taking the question. I guess maybe for me, talk a little bit about the vertical, what you're seeing from a pipeline perspective. Should we expect kind of the same vertical strength that we saw in the first half to drive the booking strength in the second half? And then on the midterm targets, particularly on margins, should we expect that to be linear? Should we expect that to be more back-end loaded? And M&A, in the context, it sounds like there's no change to the kind of M&A strategy that you guys have conducted. I just want to be sure that's what you're implying in the term target setting? Carl Eschenbach: Zane, why don't you start take the last question and I'll jump in. Zane Rowe: Sure. As we think about that growth I'd say evenly balanced. Some of the what I mentioned, Karl will give you a little bit more detail on that in 3.5 weeks. But generally speaking, evenly balanced, maybe a little more skewed towards FY '27, but we've got a number of initiatives and obviously we're pleased to see the growth that we've seen even this year. So more to come on that front. I'll hand it over to Carl. Carl Eschenbach: Yeah, and on the industry verticals we highlighted some in the script, but I'd ask Doug to give a little bit more color on what we're seeing there. Doug Robinson: Yeah, hi Alex, Doug here. My ears perked up when you asked about pipeline. So yeah, pipeline growth in the industry, as you know us to be strong in is where we're seeing continued strength. So that includes healthcare, of course, but also higher education. And we think both healthcare and higher education are multi-year opportunities for Workday for full suite. In addition to that, state and local and increasingly the federal business. And hope to share more good news around the Fed business in the second half of the year with you as it progresses. Alex Zukin: Perfect. And then maybe just if I sneak one more in. If I think about the construction of the growth curve over the next couple of years, when we think about your success going down market, versus some of the trends we're seeing in large enterprise, what percentage of -- how do we think about that balance? We used to ask that question about financials versus HCM. But if we actually recast it more to the lower end of the market versus the higher end of the market? How would you characterize it? Carl Eschenbach: Yeah. So let me answer that question. As you know, we've had historically had a lot of success in large enterprise and in industries and verticals like Doug just mentioned, and we've been pushing down into what we call the medium enterprise or the emerging enterprise quite aggressively. One of the reasons we're doing that is because we're having a lot of success selling full suite or full platform deals, which is a combination of both financials as well as HCM. And we continue to see that as an area of strength for us going forward. We've modified our pricing and our packaging for those markets. We've also now have new delivery capabilities to accelerate deployment. So customers get better and faster value from the medium enterprise market. And our partners are also leaning in and helping us drive faster adoption in that market as well. So the media enterprise, both here in the US, we've taken the playbook from the US. We're pushing it globally. It's in the UK, and it's spreading throughout Europe, and we'll be doing the same in APAC. So it's an area of strength. It's an area of opportunity and it's something we'll continue to lean into on the go-to-market side as well as the product side as we think about pricing and packaging. Operator: We will now be taking two more questions. Our next question is from Derrick Wood with TD Cowen. Please proceed with your question. Derrick Wood: Thanks. I guess for Zane, I know you called out pockets of slower headcount growth during renewals in Q1. So I'd be curious, a, are you seeing this broaden out to more verticals aside from the ones you called out last quarter in tech and retail. And b, are you able to quantify what the degree of change is? Like, what was the average headcount growth historically? And what do you think in the new normal is? And did you adjust for these assumptions in your new medium-term growth outlook? Zane Rowe: Hi, Derrick, yeah, this is Zane. If we look quarter-to-quarter, our assumptions have been very similar to what they were in the first quarter that we extrapolated for the year. We've seen consistency there. We made the adjustment for the year. If you recall, last time, I think I mentioned it was approximately $17 million over the extent of the year. So, no significant change there, if anything, on a quarter-to-quarter level, we believe the baseline has been about the same. So it's been consistent. We consider it the new norm. It's contemplated in both our FY '25 guide as well as our midterm guide. It's not a significant impact on revenue or bookings as we think about it today. Brad Zelnick: Great, thanks so much. My question is for Carl or perhaps Doug. Curious if there are specific areas within FINS that you're particularly excited about because we still keep hearing great things about accounting center, not just in financial services but across verticals and even down market. But what would you call out as particularly exciting that can compel customers to adopt and maybe even drive upside ahead. Carl Eschenbach: Yeah, Doug, do you want to take that. Doug Robinson: Yeah, I'll go first. Hi, Brad, nice to hear from you. You hit the first one, I'd hit, which is accounting center. And increasingly, as we've dedicated teams to vertical organizations and vertical selling by industry, each of them with solution consulting have come up with really interesting and innovative use cases for accounting center across industry. So while the original thesis of accounting center go back 5 years or so, 5 plus years, was for FSI and to support that vertical, it now is selling across industry, as you point out. The second one I'd point out is student, and so student changes the game in higher ed and can drive sort of not just full suite opportunities, but pull through that, what you would consider operational ERP in that particular industry. So as I answered the earlier question around industries where we see strong pipeline growth, and I mentioned a multiyear opportunity for both health care and higher education. Those are two that get me excited. Carl Eschenbach: Another one, Doug, might be workforce planning. We think there's a tight correlation between our HCM platform and financials and workforce planning is something we continue to see momentum, which is an adaptive product that we got a few years ago. Brad Zelnick: Awesome. Very helpful color. Keep up the good work. Thanks, guys. Doug Robinson: Thank you. Operator: Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll now turn the call over to Mr. Eschenbach for closing comments. Carl Eschenbach: Thank you, operator, and thank you again to everyone on the call today. Before we go, I'd like to give a special thanks to our workmates, customers and partners around the world who continue to fuel Workday's growth and success. We're heading into the second half of our fiscal year with strong customer momentum and exciting innovation on our road map, and we clearly have a strategy to support our durable growth at scale. Workday's value proposition, I believe, and all of my workmates believe, has never been stronger. Organizations of all sizes, geographies and industries are turning to us to manage their most precious and most important assets, that's their people and their money, and it's all on an AI-powered platform. And with the new innovations we're launching at Rising, we've never been better positioned to lead them into the future. I look forward to seeing you at Rising and Financial Analyst Day in a couple of weeks. Operator, we can now close the call, and thank you again for everyone attending. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.

Earnings call: BILL reports robust growth and strategic investments for FY2024 By Investing.com

BILL has reported a significant increase in revenue and profitability in the fourth quarter of fiscal year 2024, with a 22% increase in total revenue reaching $1.3 billion and a 68% year-over-year growth in non-GAAP operating income, which nearly hit $200 million. The company, which serves nearly half a million businesses, processed $300 billion in payment volume and facilitated over $100 million in payment transactions. Looking forward, BILL plans to continue enhancing its platform and diversifying its ecosystem, with a focus on virtual card, international payments, and working capital solutions. They have also announced a new $300 million share repurchase program, signaling confidence in their future growth trajectory. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A highlights BILL remains optimistic about its future growth, underpinned by strategic investments and a commitment to innovation and customer needs. The company's leadership expressed excitement for the potential of their offerings and the value they aim to create for customers, accounting firms, and financial institutions. With a clear focus on expanding its ecosystem and a comprehensive go-to-market strategy, BILL is poised to capitalize on market opportunities and drive long-term growth and leadership. InvestingPro Insights BILL's recent financial performance indicates a company on the rise, with significant revenue growth and an ambitious outlook for the future. The introduction of a $300 million share repurchase program is a strong signal of management's confidence in the company's value, aligning with one of the InvestingPro Tips that management has been aggressively buying back shares. This strategy often reflects a belief from leadership that the stock is undervalued and that the buyback will benefit shareholders. The company's financial health is further underscored by its robust gross profit margin, which stood at an impressive 85.76% for the last twelve months as of Q3 2024. This level of profitability is quite remarkable and is a testament to the company's efficient operations and strong pricing power. It's important to note that BILL holds more cash than debt on its balance sheet, which provides the company with financial flexibility to pursue growth opportunities or weather economic downturns. InvestingPro Data provides additional context to these insights, revealing that BILL's market capitalization is currently $5.33 billion, and despite not being profitable over the last twelve months, analysts predict the company will turn a profit this year. This optimistic forecast is likely factored into the company's stock price, which has experienced significant volatility; the price has fallen by over 50% over the past year, yet it has seen a recent uptick with a 3.3% return in the last week. For readers interested in deeper analysis, InvestingPro offers additional tips on BILL's stock, providing valuable information that could influence investment decisions. There are a total of 9 InvestingPro Tips available, which can be accessed for a more comprehensive understanding of the company's financial position and market performance. InvestingPro's fair value estimate for BILL stands at $65.86, which suggests that the stock may have potential upside from its previous close of $50.74. This fair value estimate, coupled with the analyst target of $69, could indicate that BILL's current market price does not fully reflect its intrinsic value, offering an opportunity for investors. For those looking to expand their investment research on BILL, InvestingPro provides a wealth of additional tips and metrics that can be found at https://www.investing.com/pro/BILL. Full transcript - Bill Com Holdings Inc (BILL) Q4 2024: Operator: Good afternoon, and welcome to BILL's Fourth Quarter Fiscal 2024 Earnings Conference Call. Joining us for today's call are BILL's CEO, Rene Lacerte; President and CFO, John Rettig, and VP of Investor Relations, Karen Sansot. With that, I would like to turn the call over to Karen Sansot for introductory remarks. Karen? Karen Sansot: Thank you, operator. Welcome to BILL's Fiscal fourth quarter and full fiscal year 2024 earnings conference call. We issued our earnings press release a short time ago and furnished the related Form 8-K to the SEC. The press release can be found on the Investor Relations section of our website at investor.bill.com. With me on the call today are Rene Lacerte, Chairman, CEO and Founder of BILL, and John Rettig, President and CFO. Before we begin, please remember that during the course of this call, we may make forward-looking statements about the future operations, targets and results of BILL that involve many assumptions, risks and uncertainties. If any of these risks or uncertainties develop or if any of the assumptions prove incorrect, actual results could differ materially from those expressed or implied by our forward-looking statements. For additional discussion, please refer to the text in the company's press release issued today and to our periodic reports filed with the SEC, including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We disclaim any obligation to update any forward-looking statements. On today's call, we will refer to both GAAP and non-GAAP financial measures. Please refer to today's press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures. Note that at times during this call, we will discuss BILL's standalone results, which exclude our BILL's Spend and Expense management, which was formerly called Divvy, Invoice2go accounts receivable and Finmark Financial Planning Solutions. Note that we will be revising our key metrics presentation beginning in the first quarter of fiscal 2025 to reflect our evolving product solution set. This new presentation will provide investors with an enhanced view of our integrated platform, which includes BILL AP, AR and Spend and Expense, excluding the financial institution channel. It will also provide an enhanced view of our embedded and other solutions, which includes the financial institution channel, Invoice2go and other solutions. The appendix of our fiscal Q4 2024 investor deck previews this presentation and provides a nine-quarter look-back for reference. Now I'll turn the call over to Rene. Rene Lacerte: Thank you, Karen. Good afternoon, everyone. Fiscal 2024 was an important year for BILL. We delivered more innovations to SMBs. We launched our integrated platform, made capital more accessible and empowered small and mid-sized businesses with insights and control with their cash flow. In addition, we built tight organizational alignment, laying the foundation for future growth. These and future innovations are especially valuable for SMBs as they face an uncertain economic environment. In a world of change, BILL is the constant that they can rely on. The steadfast commitment to raising the bar to serve SMBs led to strong financial results. During the year, we delivered strong growth and enhanced profitability as we executed on our objective to be the essential financial operations platform for SMBs. Total revenue for fiscal 2024 was $1.3 billion, up 22% year-over-year and core revenue exceeded $1 billion for the first time. Importantly, we delivered substantial profitability expansion as non-GAAP operating income totaled nearly $200 million, growing 68% year-over-year, and we were profitable excluding the benefit of float revenue. We achieved these results despite economic headwinds and shifting SMB behaviors we experienced during the year. When challenges arose, we demonstrated our ability to adapt quickly and we exited the year with a much stronger foundation to scale for the future. In fiscal 2024, we served nearly half a million businesses, moved and safeguarded nearly $300 billion in payment volume and facilitated more than $100 million payment transactions. Many industry-leading partners, including more than 8,000 accounting firms and top financial institutions used BILL as an essential part of the tech stack they provide their clients. Our network members increased to 7.1 million, up 21% year-over-year as we further built platform capabilities for our suppliers. This scale is a direct reflection of the incredible value delivered to SMBs through our products and services. We turn the financial back office complexity that drains SMBs of time and money into simple automated tools that provide visibility and control. We empower SMBs to run better businesses. In fiscal 2024, we launched our integrated platform, incorporating the combined strength of our category defining BILL AP and Spend and Expense solutions. We then added a data and analytics layer to our platform providing businesses a comprehensive view of their cash flow. We continue to simplify and personalize user experiences by leveraging AI throughout the platform. In addition, we redesigned our mobile app from the ground up to leverage our evolving platform making sure our customers can increasingly operate their business whether in the office or on the go. The value of our integrated platform resonates with SMBs. At the end of fiscal 2024, approximately 11,500 businesses used both our AP and Spend and Expense Solutions, up from 7,200 a year ago. We provide SMBs with fast and secure payment experiences and access to capital. In the past year, we enhanced our foundational infrastructure and unlocked new payment capabilities to drive faster payment speed and more choice. Since fiscal 2018, our platform has processed more than $1 trillion of total payment volume, making us one of the largest providers of fast, affordable B2B payments. Scale is a powerful advantage we have that enables us to innovate faster and better. For example, in fiscal 2024, we launched our new payment engine, leveraging our experience and data for moving more than $1 trillion across hundreds of millions of transactions. This allows us to drive faster payment speed and better manage risk across a multitude of payment offerings, which is critical as we extend our platform. We also started activating supplier engagement by establishing direct relationships with suppliers and enhancing their user experiences. For example, we streamlined the onboarding experience for suppliers who accept international payments and made it easier for them to claim the local currency they want through end-product experiences. From day one, we have made breadth of payment choices a key component of our platform. Behind each new choice, there is an innovative offering, rigorous compliance and extensive risk management. This year, we enabled local transfer for international payments and FedNow support for instant transfer. In addition, we executed a controlled launch of invoice financing, which is one of our first working capital solutions and the product exhibited both strong early adoption and repeat usage. We reach SMBs through our direct channel and our partner ecosystem. Our constant focus and innovation enables all types of partners to provide value and achieve tangible results. Accountants have been a core focus area since the inception of BILL. Our innovation has been a critical driver of the rapidly expanding client advisory service practice areas. We partner with accountants to build solutions tailored to their business and today, they represent our largest customer acquisition channel. Our accountant relationships are very sticky and have a very high retention rate. The result is that more than half of our customers are from the accounting channel. A great example of how our platform empowers accounting firms to provide differentiated value is Aprio, a premier national business advisory and accounting services firm founded in 1952. Ambra Wellbeloved, partner of Managed Services Operations, shared and I quote. At Aprio, we cultivate a growth mindset at every level of the firm. We adopted BILL in 2010 and have grown together over the past 14 years. Today, we have over 25 national locations. BILL is a trusted financial operations leader for over 500 clients and the technology backbone for our client advisory practices, which is the fastest growing part of our business. Using BILL's accounts payable and spend and expense solutions allows us to expand and provide more value for our clients and having BILL as a recommended part of our client's tech stack allows us to stay ahead of the game for our clients. Just like we empower Aprio, we enable thousands of accounting firms to provide strategic and differentiated value to their clients. We recently held our 6th annual Build Account and Partner Council meeting, bringing together industry leaders from some of the most innovative and influential accounting firms from across the country to discuss the state of the profession and financial automation. These accounting firms were excited by the progress we made in fiscal '24 and are energized for the opportunity to expand their business, leveraging BILL's growing capabilities. Together, we are developing joint roadmaps to better serve SMBs and we are investing behind these opportunities. Some areas of investment for accountants in fiscal '25 include additional multi-entity functionality to help them scale growth providing more tools for cash flow budgeting, forecasting and insights, and increasing our sales and support efforts to partner even more deeply with them. Our commitment to SMBs means that we work hard to serve them wherever they are using our robust ecosystem. In addition to accountants, we work closely with financial institutions and software companies by enabling them with embedded solutions for their customers. The core of our ecosystem strategy is about expanding our reach and serving SMBs where they want to do business, laying the foundation to serve customers across different channels over the long-term. We've been creating value for years with scalable embedded solutions for financial institutions. Recently, one of our large bank partners easily migrated thousands of customers they acquired through an acquisition onto our white label build pay platform. This bank is also offering our expense management solution to their commercial customers to help them streamline expenses, automate reporting and provide more real-time visibility and controls. Regional banks are also looking to provide more value to their customers. One of the largest regional banks recently began to offer our white label platform and our large suite of payment offerings to do more for their clients. This bank leverages our advanced workflows and our many payment offerings, including pay by card, virtual card and international payments. As we have shared with you, we have been working with one of our top three U.S. bank partners to modify our partnership to fit their evolving needs better. We recently extended our agreement with the bank for an additional three years for them to use our current offering. Consistent with our embedded strategy, we also made our APIs available as part of this contract amendment. Our experience and expertise in serving banks over the last decade plus has informed our overall embed strategy, opened up more avenues to amplify the power of our platform, and translated into fast time to market with our new software partner, Xero. Earlier this year, we announced a strategic partnership with Xero to embed our onboarding and bill payment capabilities in its software. I'm excited that the solution will soon be available in beta to Xero's U.S. customers, which demonstrates our ability to rapidly launch solutions for our partners. More and more, we are seeing strong interest in the market for embedded finance offerings, and our investments and learnings make us well positioned to support this demand. In summary, we built a growing billion dollar business and we're just scratching the surface of the market potential. There are 6 million SMBs in the U.S. with employees and they contribute trillions of dollars of GDP annually. The opportunity we are pursuing is immense and we are confident in our ability to capture it. We are focused on growing into a multi-billion dollar, highly profitable business. In fiscal 2025, we intend to capitalize on the momentum we created in fiscal 2024 and widen our leadership position in the market. Our top priorities are to continue to simplify and enhance our platform experience to enrich existing payment offerings and deliver new payment options, and to diversify and deepen our ecosystem. In addition to our ongoing platform in ecosystem investments, we are making a number of target investments in fiscal 2025 to support these priorities, including enhancing and expanding existing solutions that increase the value proposition for virtual card, international payments and working capital, augmenting the experience in go-to-market capabilities for suppliers, delivering new capabilities and deepening relationships with accounting firms and driving expansion and adoption of our embedded solutions. We have a strong and unique business model that generates multiple revenue streams and a track record of driving balanced growth and profitability. We increased our non-GAAP operating margin every year since our IPO while driving significant growth. With our proven strong cash generation and balance sheet, we are well capitalized to strategically put resources behind these top priorities that we believe solidify and extend our leadership. We believe our category leadership and scale are critical for the long-term growth and profitability of BILL. We are playing offense strategically with our strong balance sheet to prioritize the long term potential of our business. As we do this, we are keenly focused on capital allocation and balancing investments in the business with return of capital to shareholders. Today, we announced that the board authorized a new $300 million share repurchase program. This reflects the confidence that the board, management team and I have in our strategy and in BILL as an investment opportunity with significant upside. We are deeply committed to our success and committed to taking actions that deliver value. We are all in for SMBs and we are all in to win the market that we created. I'd like to thank our customers and partners for the continued trust they place in us and I also want to thank our employees for their constant dedication to serving SMBs and each other. Now, I'll turn the call over to John. John Rettig: Thanks, Rene. During fiscal 2024, we acted decisively when cyclical headwinds caused moderated B2B spend and a shift in payment method preferences. We responded quickly by adapting our go-to-market initiatives, improving product experiences and working diligently with partners. We focused our resources and execution on our most important priorities and proactively adjusted operating expenses to improve profitability. These actions enabled us to improve customer acquisition and stabilize payment monetization, enhance profitability and position BILL for continued market leadership. In fiscal 2024, we delivered 22% revenue growth, $196 million in non-GAAP operating income for a non-GAAP operating margin of 15% and $258 million in free cash flow. In addition, we delivered $31 million in non-GAAP operating income, excluding float revenue compared to $4 million a year ago. During fiscal '24, we repurchased 212 million in common stock and retired 983 million in aggregate principal amount of our 2025 convertible notes. These actions contributed to our full-year fiscal 2024 weighted-average diluted share count declining by 2% year-over-year. In addition, and most importantly, in fiscal '24, we strengthened our foundation for the future. We have a clear vision and strategy centered around the needs of SMBs and we are executing to capture the large market opportunity ahead of us. We are laser-focused on driving long-term shareholder value through strong profit and free cash flow generation while optimizing our capital structure. Now on to a few highlights of our fiscal Q4 results. We delivered against our goal of profitable growth. In Q4, total revenue was $344 million, up 16% year-over-year. Core revenue, which includes subscription and transaction fees was $301 million, also up 16% year-over-year. Float revenue was $42 million. Non-GAAP operating income was $60 million and grew 42% year-over-year, reflecting a 17% margin. Non-GAAP operating income, excluding float revenue was $19 million and increased more than 200% year-over-year. Turning to updates on our key solutions. BILL standalone revenue was $161 million in Q4, up 8% year-over-year. Our enhanced go-to-market initiatives drove higher customer acquisition. We added 4,600 net new customers in our direct and accounting channels. In our financial institution or FI channel, we added 6,700 net new customers. The annual customer retention rate of BILL standalone customers, which excludes FIs was a healthy 83%. Excluding the impact of the sunset of Intuit (NASDAQ:INTU) simple bill pay earlier in the year, customer retention was 86%, consistent with levels over the past several years. BILL standalone subscription revenue, excluding FI Partners, increased 7% year-over-year in Q4. Overall, BILL's standalone subscription revenue declined 1% from last year, which reflects changes in our FI channel. BILL standalone transaction revenue grew 14% year-over-year. TPV in Q4 was up 9% over a year ago, in line with recent quarters. Monetization or take rate exceeded our expectations that we set in Q1, as we scaled newer payment offerings and enhanced existing products. Vendor cost sensitivity on some of our higher monetization products persisted, which impacted TPV penetration rates. In Q4, instant transfer is 1% of BILL standalone TPV, while virtual cards were 2.9% and cross-border payments were 4.5%. Foreign currency payments represented 34% of total cross-border payment volume in the quarter. These penetration rates were slightly lower compared to a year ago as our overall suite of payment offerings expanded and vendors optimized their cost of acceptance. As of June 30, 2024, our dollar-based net revenue retention rate for BILL standalone was 92%. As expected, this was impacted by the lower spend environment, which impacted payment volume, payment choice and subscription fees during the year. Excluding the impact of a large FI partner contract amendment, our dollar-based net revenue retention rate was 96%. We expect this to be above 100% as we continue to roll out new offerings and the economy returns to growth mode for SMBs. As a reminder, our dollar-based net revenue retention rate excludes the impact of our Spend and Expense offering. Moving on to BILL Spend and Expense, formerly known as Divvy. Spend and Expense revenue totaled $126 million in Q4, up 26% year-over-year, driven by 28% card payment volume growth. Interchange fees were 261 basis points. We added 1,300 net-new spending businesses, which was in line with our expectations, as we are focusing on businesses with a higher propensity to spend. Rewards were 48% of Spend and Expense revenue. The customer value proposition of leveraging an expanded suite of platform capabilities is resonating with SMBs. The number of joint customers who used both BILL AP and Spend and Expense in Q4 increased to 11,500 at the end of fiscal 2024, reflecting an increase of nearly 60% compared to a year ago. Joint customers are stickier and show strong engagement as reflected in low attrition rates and strong net dollar-based revenue retention compared to other customers. Our portfolio of payment offerings creates multiple avenues to drive ad valorem payment adoption and penetration. On a company level, our ad valorem penetration, excluding FI payment volume was 14% in Q4, up from 13% a year ago. As our integrated solutions converge, we will provide a consolidated ad valorem payment rate as opposed to individual solution rates on an annual basis. We believe that over the long term, our portfolio of ad valorem products can be above 20% of our ex-FI TPV. Moving on to financial highlights. Non-GAAP gross profit in Q4 was $292 million, up 14% year-over-year and non-GAAP gross margin was 85%. Our strong business model enables us to consistently deliver a gross margin that is among the best-in-class for software and fintech companies. We continue to demonstrate our ability to drive leverage in our business. Non-GAAP operating income for Q4 was $60 million, up 42% year-over-year, representing a 17% non-GAAP operating margin and an expansion of 3 points year-over-year. Non-GAAP net income was $64 million, reflecting a 19% margin. Stock-based compensation in Q4 was 17% of total revenue, down from 20% a year ago. Weighted-average diluted shares declined by 5.6 million or 5% year-over-year, primarily due to our initiatives to repurchase shares and convertible notes during the year. Turning to remaining performance obligations or RPO. As Rene discussed, we amended our existing agreement with a top three bank in the US by extending it for an additional three years. The RPO associated with this partner remained consistent but is now spread out over approximately four years, causing a shift in timing to fulfill the RPO. We also expanded the product set available under this agreement to include our newest APIs, consistent with our embedded strategy. Moving on to capital allocation. We continue to optimize our capital structure. In Q4, we repurchased $234 million in aggregate principal amount of our 2025 convertible notes, resulting in cash usage of $222 million and a reduction in non-GAAP diluted share count of 0.4 million weighted shares. The repurchase of these notes resulted in an $11 million net benefit to other income and expenses, which is reflected in our GAAP results, but excluded from our non-GAAP results. We are well-capitalized with $1.6 billion in cash, cash equivalents and short-term investments. Shifting to our outlook, as we enter fiscal 2025, we've never been better positioned to capitalize on the opportunity to further penetrate the market and help SMB succeed. Our solutions are a critical part of their daily operations and give them the industry's best tools to better run and grow their business. We are confident that the strong and growing customer value proposition of our platform and ecosystem positions BILL for continued long-term growth and leadership, which will in turn deliver value to our shareholders. We believe maintaining a dynamic balance between growth and profitability is essential for long-term business success. With our strong execution capabilities and the market opportunity ahead of us, we are strategically investing for growth acceleration and extension of our category leadership, while delivering attractive margins across our business lines. We generate significant free cash flow and have a strong balance sheet, which enables us to invest, which we do with purpose and discipline. We have a unique business model that includes float revenue, which we view as a key competitive advantage from which we generate significant free cash flow. These factors enable us to accelerate our pace of investments opportunistically as well as fund longer-term opportunities. We view our board-authorized share repurchase program, where we will be deploying $300 million to buy BILL shares in the open market as both a great investment opportunity as well as an indication of our optimism for the future. As Rene discussed, in fiscal 2025, we will be making a number of targeted investments that accelerate our strategic priorities and our ability to capture the large greenfield market opportunity that we are pursuing. We believe these investments position us to deliver significant sustainable revenue growth and margin expansion over many years, but will moderate our profitability growth in the near term. We operate our business with the objective to be ex-float profitable on a non-GAAP basis and to generate significant free cash flow. We intend to scale both over time on the road to becoming GAAP profitable. For fiscal 2025, we will be making incremental investments in our most important initiatives of approximately $45 million throughout the year. We believe now is the right time to invest as we have seen signs of stabilization in the macro-environment and continued strong business momentum from the actions we took last year. After holding headcount flat for the last three quarters, we are now hiring additional talent in our R&D and go-to-market teams. We expect our initiatives and investments today will position BILL to deliver core revenue growth of 20% or greater in fiscal 2026. The midpoint of our full-year guidance reflects a slight increase in non-GAAP operating income on an ex-float basis despite additional planned investments and increased rewards expenses as our Spend and Expense solution scales. We are prudently managing our expenses while investing for growth. As we accelerate revenue growth, we will also be continuing to create operating leverage. At the time of our IPO, we discussed that our non-GAAP operating income margin could be 20% or more over the long term. Since then, we have quickly expanded our scale and demonstrated our ability to drive leverage in our business. And we see no obstacles to prevent us from achieving significantly higher margins over the long term. Now moving on to guidance. Our guidance assumes the macro and B2B spend environment remain consistent with recent quarters and that ad valorem payment adoption and monetization rates increased modestly in the latter part of the fiscal year. For fiscal Q1, we expect total revenue to be in the range of $346 million to $351 million, which reflects 13% to 15% year-over-year growth. We expect core revenue to be in the range of $305 million to $310 million in Q1, which reflects 15% to 17% year-over-year growth. Float revenue is expected to be $41 million in Q1, which assumes our yield on FBO funds will be approximately 470 basis points. On the bottom line, for Q1, we expect to report non-GAAP operating income in the range of $52 million to $57 million and non-GAAP net income in the range of $53 million to $57 million. We expect non-GAAP net income per diluted share in the range of $0.48 to $0.51 in Q1, based on a share count of 111 million diluted weighted-average shares outstanding. As a reminder, our guidance for non-GAAP net income includes a non-GAAP provision for income taxes of 20%. Shifting to full year guidance. For fiscal 2025, we expect total revenue to be in the range of $1.415 billion to $1.450 billion, which reflects 10% to 12% year-over-year growth. We expect core revenue to be in the range of $1.270 billion to $1.305 billion, which reflects 13% to 16% year-over-year growth. We expect float revenue to be approximately $145 million in fiscal 2025, which assumes a yield on FBO funds of approximately 400 basis points for the year and an exit Fed funds rate of 350 basis points as of June 2025. On the bottom line, for fiscal 2025, we expect to report non-GAAP operating income in the range of $160 million to $195 million and non-GAAP net income in the range of $154 million to $182 million. We expect non-GAAP net income per diluted share to be $1.36 to $1.61 based on a share count of 113 million diluted weighted-average shares outstanding. Note that our Q1 and full-year guidance for share count and non-GAAP net income per share do not reflect the impact of our share repurchase program. For fiscal 2025, we expect stock-based compensation expenses to be approximately 20% of total revenue. In closing, we are pursuing a large market opportunity to automate financial operations for SMBs and BILL is perfectly positioned to capture this opportunity with our platform, large and expanding ecosystem and strong dedicated team. We've built a dynamic business with powerful levers to drive growth and we are investing now to optimize our results for the long-term, which we believe will extend our lead and accelerate the pace of capturing the market opportunity and creating value for shareholders. And now, we'll open up the call for Q&A. Operator: [Operator Instructions] Our first question today comes from William Nance with Goldman Sachs (NYSE:GS). Your line is now open. William Nance: Hey, guys. I appreciate you taking the question here. Maybe I'll start on the FI channel renewal that you mentioned. John, I think you called out that the RPO may remain similar, but spread over additional years. Could you just maybe unpack what that means in terms of just the quarterly subscription revenue from the embedded solutions part of the business and just how you're thinking about that? I know that it's taken a step down when you'd initially contemplated changes. So how will that flow through the numbers over the coming year? John Rettig: Yeah. Thanks for the question, Will. We -- our RPO as of the end of the year is about $87 million. And there's a meaningful percentage of that by the large FI partner that we've talked about throughout the year where we have finalized the contract amendment. And the RPO is consistent for that particular customer as where we had ended the year. And instead of one year left on the contract, we've extended it for three years. So we'll be recognizing that revenue over four years. And in addition to that, we're obviously marrying our embedded strategy with our financial institution partners as well, and making available our newest APIs to support the bank in their new program and working with them in any way we can to help drive success there. So that's the kind of the extent of the moving parts on the numbers. There's really not much change from the ending RPO. William Nance: Got it. I appreciate that. That is helpful. And just maybe a broader question. You mentioned the 20% kind of long term goal of ad valorem payments revenue. I hear the commentary on. That's how you'll be kind of communicating advances in monetization going forward. Just help us think about how we should think about the monetization of those volumes and just sort of how the mix of payment methods may impact the ultimate take rate that you get on that 20% of volumes. Thanks. John Rettig: Yeah. Sure. It's a good question. I'd say there's a number of investments that we're making near term to improve existing product experiences, drive payment speed, improve reconciliation, and those things which I think will help expand volumes and monetization associated with products that we are already offering customers and suppliers, and those are relatively short term initiatives. In addition to that, we see card payments generally being a larger part of the payment mix in the bill portfolio of payment products. So beyond what we do with Spend and Expense and things like that, and so across -- across all of our payment products, as we see that mix evolving, we sort of view that 20% as more of a floor to where we're going to be able to take monetization longer term. And we feel really good about the levers that we have and frankly, the value proposition that we're offering for both buyers and suppliers with this mix of payment products. Operator: Our next question comes from Tien-Tsin Huang with JP Morgan. Your line is now open. Tien-Tsin Huang: Hey, great. Thanks so much. Just thinking about these investments here, how quickly do you expect to spend the $45 million? What kind of return or payback do you expect? I heard the 20% core growth in '26 but just curious, what else we can build off of that? And then just to also clarify, are these new investments driven by new opportunities, or is it driven by competitive changes? Or is this just a catch-up in spending from a period of pause given the macro uncertainty in last two, three quarters. Thanks. Rene Lacerte: Thanks, Tien-Tsin. Great question. Let me just give some background first. I mean, we made -- we saw a shift in kind of what was happening in the market. We adapted quickly, very agile, and the team delivered exceptional results throughout the rest of the year. So that would have been obviously end of last calendar year, and we had great results through the fiscal year and seeing the efficiency that we were able to drive. And if you just think about the high level, our operating income less float grew 750% over $31 million or so from last year increase. And so just giving you, in my perspective, seeing the strength that we were able to drive and then seeing the innovation opportunities again just more context like we've defined this category and that BILL, we're all a bunch of leaders, and leaders don't wait. We're not going to be a market taker. We're going to be a market maker. And when we see and interact with our customers, whether they're direct customers, accountant customers, or ecosystem partners or suppliers in our network or large -- larger suppliers, we hear and understand there's opportunities to expand the value that we're providing them. And so that's the reason to invest because we feel really good about what the team's executing on. And the ability for us to deploy capital to drive growth really is, I think, how I would define everything that we've done is we've been defining this category from day one and we're going to continue to do that. And how we're doing that is we have kind of four specific areas that we're investing in. The first one I would say is that we are enhancing and expanding the value proposition for our existing solutions. So if you think about international payments, we started some local transfer capabilities. We're going to roll that out. John already referenced that. We're going to expand card uses across the platform. We're going to give folks more opportunities to leverage the card. And then the next thing, the second thing I would say is that we're going to augment the experience and go to market for suppliers. What we started doing again halfway through the year was having dedicated teams that talk to suppliers that have significant volume on the platform. We've learned a ton. There's a lot of opportunity for us to create more value for them, better reconciliation, more automation, even leveraging AI across the experience that they have. And that's what we're hearing and that's what we're developing and that's where we want to invest. And then on the third thing that we're going to invest in, it's going to be deepening our accounting relationships. We have defined an entirely new line of business for accountants. We've worked with CPA.com and AICPA to create client advisory services, cast practices, and you heard a quote from Aprio and Ambra. They're talking about how they started 14 years ago with no customers on the BILL platform and now have over 500. But when you have 500 customers, how you manage and support those customers becomes a lot more challenging. And so we have an opportunity to actually provide cash flow insights and strategic advisory services through the platform we have. We have an opportunity to create efficiency for the accounts and how they manage their clients. And we have an opportunity to create better customer experiences around multi-entities since many of their clients have that. And so we're investing behind that. And the fourth and final area of investment is driving expansion of our ecosystem. And this is what we've done from the very beginning. We really believe that the ecosystem is a critical part of our platform and our strategy and what we're going to be doing is investing in go-to-market resources, we're going to be investing in advancing our APIs. And I think when you see what we were able to do with Xero, roughly six months from when we announced, we were able to go to beta, that's something that we're super proud of. And we know there's an opportunity in the market for us to do more. So I'll let John maybe answer the rest of your question there and go from there. John Rettig: Sure. Just adding to the part of your question about pacing. We're expecting it to be spread throughout the year a little bit more front-loaded than not. And as we look at the impact of these investments, plus the ongoing improvements we're making to our platform efficiency, we're driving with go to market and things of that nature, we expect to be able to increase our revenue growth rate in '26, as I mentioned earlier and that's really the beginning phase of growth expansion. It's not the end goal that we have. It's not just '26. It's multi-year, multi-year improvements in our growth rate. As evidenced by some of our investments, as Rene mentioned, particularly on the embed platform, both the technology and our go-to-market capabilities there, that's a multi-year time horizon that we view as driving growth. And at the same time, we do expect, beginning in FY '26 and beyond to be expanding profitability more so than we've seen in FY '25 as we're pulling forward some of those investment dollars. Rene Lacerte: And just one more thing I would add is the conviction that both John and I have is so strong that when the market opens up, we're going to be buying shares as well as the company is doing. Tien-Tsin Huang: I think you both answered it really well. Just really quickly to clarify, Rene, it sounds like, I think you mentioned these are offensive, not defensive investments. Just wanted to clarify that. Rene Lacerte: Absolutely. We're all about offense. We have defined the category. We see other people following us and them playing catch up, and we're going to keep widening the gap that we have because that's the advantage that customers need. Customers need innovation. SMBs are innovating every day in each of their businesses, and they need to count on somebody to innovate, and that's what they do with us. So I think it's super important and we're going to continue to do that when we see opportunities. Operator: Our next question comes from Andrew Schmidt with Citigroup. Your line is now open. Andrew Schmidt: Hey, Rene. Hey, John. Thanks for taking my questions. So I wanted to drill down just on the environment for supplier acceptance. Maybe. I know, John, you have some comments, but maybe you could put a finer point on what you saw in the fiscal fourth quarter and into FY '25. And then maybe just to tab onto that, I know you put some supplier enablement teams in place to better -- have better manage the supplier relationships. Maybe the early reads on that and what you're seeing in terms of the acceptance when you have kind of pushed a little bit deeper on those relationships, anything on those two fronts would be helpful. Thanks so much. Rene Lacerte: Well, yeah, thank you, Andrew. The first thing I would say is, as we talk to suppliers, it's not going to be a surprise, but they don't want checks. They really don't want checks. We have a tremendous amount of volume that we drive through our platform. They like getting electronic payments, but they need more help in reconciliation, and they need more help in automating all the things that are coming from BILL. And so as we talk with suppliers, we're hearing that loud and clear. And we're putting R&D dollars as well as go-to-market dollars around creating services for them so that they actually have a different experience, just not at the receiving end. They're engaging with us. I think one of the examples that we think about is we have a tremendous amount of volume that goes through on ACH, but there's very poor reconciliation on ACH transactions. And the ability for suppliers to kind of take those transactions and have an experience where they can obviously understand what the payments are attributed to potentially collaborating with their customers, which would be our customers, all these things are something they want and we see an opportunity to drive value there, and that's not a product we have in market today. But I'm just giving you an example of the learning that we have that's going on right now that gives us the confidence that there's an opportunity to create more value for suppliers, to keep them really doing their business job better and to keep us serving our customers better. Andrew Schmidt: Got it. Thank you so much for that, Rene. And John, I think you had some comments on stabilization. Maybe you can talk about just more broadly your thoughts on the macro environment heading into FY '25 and how that might translate into things like TPV per customer. Thank you very much. John Rettig: Yeah. Thanks, Andrew. We've seen pretty consistent behaviors on the part of small businesses over the last few quarters. You've seen that play out in our TPV per customer numbers being pretty consistent, maybe down 1%, up 1%, but in that same range. Obviously, our overall TPV growth for the last couple of quarters has been a little bit ahead of our expectations, and we're expecting a similar environment throughout FY '25. I think there -- this stability is showing up in engagement where you have very healthy transactions per customer. Saw a slight uptick in that in the fourth quarter, but still slightly lower dollars per transaction for small businesses was reflective of the environment that everyone's operating in. So we feel good about the stability and we're not embedded in our assumptions for expectations in FY '25, assuming any rapid rebound in B2B spending or the flip side, any deterioration in the current level of activity. Operator: Our next question comes from Scott Berg with Needham and Company. Your line is now open. Scott Berg: Hi, Rene and John, nice quarter here. I guess couple of questions. I think it was in Rene's pre-scripted remarks about the supplier financing. I guess, can you help maybe quantify kind of what you're seeing there early on and I know, you just recently kind of released the product and that seems to be a part of your reacceleration story into fiscal '26. I guess, how do we may be set expectations around the impact on the business? Rene Lacerte: Thank you, Scott for the question. I think invoice financing is just another example of innovation that we're bringing to the market. We have a unique set of data and scale. When you think about what we have with scale, it just makes us a learning machine. We have so much data across the platform, so many opportunities for us to leverage that for our customers. And what we're seeing in invoice financing is its early days and there's lots of -- lots of work for us to do around kind of the modeling and risk profiles and stuff like that. But what we're seeing is customers want it and they use it again and again. And so what we will continue to do is to refine kind of the experience they have to refine the back end system so that we can roll this out more broadly. And I think it's going to be one of the important drivers of our expansion of ad valorem revenue as we go forward into '26 and beyond. Scott Berg: Got it. Helpful. And then you both made the comment on the number of customers using both AP and the Spend and Expense solutions. It's up roughly 60% year over year. Is now that the -- over the last year the products have been properly integrated and combined. Is -- I guess, is there anything that you can take away from those customers outside of better retention rates? Is there any examples where one plus one equals more than two? Or is this simply just a one plus one equals better retention rates over time? Rene Lacerte: It's definitely one plus one is more than two. I mean, we're getting, obviously, the retention makes that true, but I think we're also getting more usage across the platform. There's more opportunities. We've talked about the opportunity across our platform to continue to extend the proliferation if you will of card payments. That comes from all the capabilities we have with the platform that was formerly known as Divvy, that is now our Spend and Expense platform. So that's an area. And I think maybe a high-level area to think about that we see is that the proliferation of all these different software and fintech solutions is actually driving in the market a need for more consolidation and unification of platforms. And so when you think about what we are able to provide customers today from financial operations perspective, we give them the best world-class AP solution, we give them the best world-class SME solution, we're giving them the best cash flow insights and forecasting capabilities. These are things that we add into the platform that continue to create more value for the customer experience across their portfolio usage of ours, and it's something that we're excited about. So I think that the main thing is we do think one and one is going to be far greater than two. Operator: Our next question comes from Samad Samana with Jefferies. Your line is now open. Samad Samana: Great. Good evening. Thanks for taking my questions. First, maybe the 20% growth comment for 2020 or fiscal '26 is really encouraging and especially as you think about the stabilization that you've highlighted so far. This side for you, you Rene or John, but as you guys think about the building blocks to that 20%, how much of that is reaccelerating existing pieces of the business and getting new customer acquisition to fire again and getting more adoption of ad valorem versus new revenue streams that you're anticipating that the investments you called out are going to drive? Can you just maybe help us understand how much you already have line of sight to versus what has to -- it has to be kind of blocked and tackled over the next year? Rene Lacerte: That's a great question, Samad. And one of the things I've learned over the last three decades running businesses is that you've got to kind of have a balancing act between obviously what you've got and what you want. And so what we're doing is actually a balancing act. There is definitely more clarity across the business as we've consolidated the organizations and have the teams really aligned about what drives results on the existing business. But we also have that same clarity being driven around the innovation teams across the company. And so I think it's a reasonably good balance between the two. And we're going to always invest, obviously serve customers with what we have, but we're also going to invest to innovate. And so we're balancing that. Maybe one other area of investment that I didn't call out earlier that I think is important for folks to know is that we talked about this, we're highly committed to being highly profitable. And part of the investment is we have a lot of internal tools. This is a big company now. It's $1 trillion in money movement over the last five years to over $300 billion a year. We've got teams in multiple countries that support customers. They need tools and capabilities to continue to drive efficiency and scale, and we're going to invest behind that because that's the right thing to do for the long term growth of the business. Samad Samana: Yeah. Great. And then John, maybe just to follow up on the NRR, I appreciate the disclosure on what it would have been ex the top three banks. So I was just wondering if you can maybe help us understand from it going where it was last year to this year, I think 111 to 96, how much of that was due to TPV contraction in the installed base versus down selection of payment type. Just trying to understand the mechanics of maybe what drove the contraction portion of it and how we should think about the shape of that going forward. John Rettig: Yeah. Thanks for the question, Samad. Most of the change on a year-to-year basis is really driven by the lower TPV from the spend environment that our SMB customers are operating in, which obviously translates into lower transaction revenue growth, which is a significant contributor to that retention dynamic. The second thing is probably the revenue associated with a large FI partner that we've talked about, maybe to a lesser extent than TPV. Those two things combined though are the vast majority of the change on a year-to-year basis. It's things like number of users per customer and variables like that are very small in the grand scheme of that retention number. Samad Samana: Great. Thanks for the clarity. I appreciate you taking my questions. John Rettig: Thank you. Operator: Our next question comes from Darrin Peller with Wolfe Research. Your line is now open. Darrin Peller: Hey, guys. Thanks. First question is just around go to market. I mean, I saw you jumped like you said from it was 7,000 or so up to over 11,000 cross sold customers by the end of last year, this fiscal year. And so that's obviously showing good progress. Just maybe touch on the go to market of really the cross-sell between Divvy and the BILL solutions and now the one more unified offering. And really what's -- if anything has changed, look, kind of what's the approach now and can you even accelerate that? You've really still have a long runway when you look at the base and size of your customers versus what you've accomplished so far. And I guess just to add on to that, the strategy on go to market on the financial side, now the financial institutions, has that changed at all versus we've seen a lot of focus on the accounting channel be very successful. Just curious where the focus is on the financial institution side too guys. Thank you. Rene Lacerte: Cool. Good question, Darrin. I would say on the go-to-market approach, when it comes to cross-selling, I'm going to use a framing that I've always had in driving business success. It's kind of a wash, rinse, repeat. Like you innovate, then you adapt and you learn, and then you innovate again. And so when we pull together the platforms, we have the organizations lined up, the go to market is going to be, obviously, it's going to be iterative. And what we're learning from customers as we have more and more customers using the joint solutions enables us to drive that future state that you're talking about, which is far more adoption of customers using both of the core platforms that we have. And so we see continued learning and alignment within the organizations to kind of listen to customers and drive that success across the customer base. And I think we're going to continue to drive that. And I'll let John add anything to that if he wants, and I'll come back and answer the ecosystem question. John Rettig: Yeah. I would just add that the progress we've made so far on this cross-sell effort has predominantly come from customers who we've acquired through our direct marketing efforts. To a much smaller degree, have we seen cross-sell activity within our accounting channel? So when we talk about doubling down on accountants, it's not just extending our lead and establishing new relationships, it's also starting to activate this cross-sell motion, working very closely with accounting firms and their clients to provide new solutions in this regard. So it's a twofold. There's lots of opportunity left, and one of the biggest spaces for growth is an area we do really well, which is in the account channel. Rene Lacerte: Yeah. And just on the ecosystem, just to give you some framing, our long term strategy around the ecosystem has always been that we need to surround the market with distribution channels and be at the center of each. And what you see with BILL is obviously we are at the center when it comes to direct. We're leading there. We're at the center when it comes to accountants. Over 8,000 firms growing 14% year over year, over half the business and then in the longer term play here is going to be with our financial institution partners and obviously our new accounting partnership with Xero and others to come. And so the opportunity for us is to make sure that we're in a position to win. And that's part of the strategy along -- all along is just that we're always going to place ourselves in a position to win with our partners and with the ecosystem more broadly. And so I would not say it's a shift, I would say it's an expansion, because there's now more opportunity in the market from small business aggregators outside of financial institutions. And we're starting to engage with those like you saw with Xero. Darrin Peller: Very helpful. John, can I just quickly squeeze in one follow-up is just what's assumed in your guide for take rate or maybe if you can give us any direction on that, and then maybe BofA also the RPOs. Is there an assumption on dollars we can think about that may have been included this year wasn't last? Any framing on those would be great. Thanks again, guys. John Rettig: Sure, Darrin. On the take rate, we're assuming essentially flattish with an uptick in the second half of the year. We've made a lot of progress in obviously bringing stability to take rate. And we think these first couple of quarters will be the point at which we frankly trough, for lack of a better term and start to expand in the second half of the year. And we would expect to be above at the end of '25 where we are at the end of '24. In terms of the RPO and dynamics with the one particular partner, there's not a lot of detail we can give there other than as of the end of the year, I think it's approximately 40% of our RPO balance is subject to this amended contract that we referred to with a large FI partner, and that'll be spread over four years. Bryan Keane: Hi, guys. Thanks for taking the question. I guess, John, just to follow up on that. Why would or why are you confident that the second half of the year will see a little bit higher penetration and payment modalities? And do you think VC and cross-border will bounce back and be up this year in particular? John Rettig: Yeah. Thanks for the question, Bryan. I think to the second part of your question, yes, we do have confidence in additional volumes on those products. I'd say there's other, as Rene and I think perhaps I mentioned earlier as well, there's other product improvements that we're making and we're filling a couple of, I'd say, interesting holes in the product portfolio which will drive additional ad valorem adoption. And it's these dynamics that when we look at the volume and expectations around very short term penetration rates and adoption from suppliers and customers that give us confidence that we'll start to back on the road of expanding take rate as we get further into FY '25. Bryan Keane: Got it. That's helpful. And then the follow-up to that is just in that 20% core revenue growth for fiscal year '26. Does that assume getting back to more normal and maybe you can help us what is normal kind of sequential organic take rate expansion? John Rettig: I'd say that first of all getting to the 20% growth that we talked about, that's obviously going to be a progression, right. We're going to make progress in the second half of '25 and we'll continue that through FY '26. We are assuming better expansion of monetization in '26 than in '25. But that's not the sole driver of our belief that 20% is in range for '26. We obviously have much higher both volume and revenue growth on our Spend and Expense product. We talked about the proliferation of card payments starting to happen within the BILL ecosystem that will provide incremental growth as well. So it's all of the above frankly that that gives us confidence there. As far as the sequential quarterly upticks, we don't think of it as that in those terms as much as we do on an annual basis, we would expect to start to get back to higher levels of expansion. Karen Sansot: Yeah. And thank you, operator. We're, yeah, we have time for one more question. Operator: Of course, our final question comes from Ken Wong with Oppenheimer. Your line is now open. Ken Wong: Okay. Fantastic. Most of mine have been asked, but I guess the one final clarification just on that RPO side, did that dollar amount increase with the renewal or was it a static final year number that's now spread over four years or was there an uptick in that number that's now spread over four years? Just wanted to make sure we understood the mechanics of kind of how -- what's playing out there. John Rettig: Yeah. The RPO associated with the large FI partner remain roughly the same. So no significant expansion or contraction as we exited FY '24. And the term on that amended contract is now four years. Ken Wong: Got it. So there was a sort of pre-existing balance and as you guys renegotiated, that remained roughly the same, it's just across multiple years instead of a single year. So it'd be like, hypothetically, a ten divided by four, not some number bigger than ten divided by four. Rene Lacerte: Okay. Thank you, everybody. Thank you, everybody. I just wanted to say, I appreciate you joining today. We finished fiscal 2024 with great momentum and a really strong foundation to drive growth in FY '25 and beyond. We look forward to extending our leadership position, and I'm exceptionally proud of the team's agility and adaptability they've shown in the last six months of the year and all of us are very energized about our future. So thank you for joining us and have a great evening. Operator: That will conclude today's conference call. Thank you all for your participation. You may now disconnect your line.

Earnings call: Intuit Forecasts Continued Double-Digit Growth By Investing.com

Intuit Inc. (NASDAQ:INTU), a leading provider of financial management solutions, has reported robust financial results for the fourth quarter and the full fiscal year 2024, with a confident outlook for sustained revenue growth and margin expansion in fiscal year 2025. The company's strategic focus on its AI-driven expert platform and the pursuit of five Big Bets, including the expansion into the mid-market segment, is expected to drive future growth. Intuit also announced a dividend increase and provided guidance for the upcoming fiscal year, projecting total revenue growth of 12% to 13%. Intuit's solid performance and strategic initiatives point to a company well-positioned for continued growth. The focus on AI-driven services, expansion into new market segments, and leveraging of extensive customer data are expected to be key drivers of Intuit's success in the coming fiscal year. With a confident outlook and a clear strategy, Intuit remains focused on delivering value to customers and shareholders alike. Intuit Inc. (INTU) not only delivered impressive results for the fiscal year 2024 but also exhibits several strengths that could further bolster investor confidence. InvestingPro data underscores Intuit's robust financial health and growth potential, which align with the company's optimistic guidance for fiscal year 2025. InvestingPro offers additional tips and insights for Intuit Inc., providing a comprehensive analysis for investors. As of now, there are 16 more InvestingPro Tips available for Intuit, which can be explored for a deeper understanding of the company's investment potential. These insights can be accessed by visiting: https://www.investing.com/pro/INTU Operator: Good afternoon, ladies and gentlemen. My name is Bo and I will be your conference operator. At this time, I would like to welcome everyone to Intuit's Fourth Quarter and Fiscal Year 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. [Operator Instructions] With that, I will now turn the call over to Ms. Kim Watkins, Intuit's Vice President of Investor Relations. Please go ahead, Ms. Watkins. Kim Watkins: Thanks, Bo. Good afternoon and welcome to Intuit's fourth quarter fiscal 2024 conference call. I'm here with Intuit's CEO, Sasan Goodarzi, and our CFO, Sandeep Aujla. Before we start, I'd like to remind everyone that our remarks will include forward-looking statements. There are a number of factors that could cause Intuit's results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our Form 10-K for fiscal 2023 and our other SEC filings. All of those documents are available on the Investor Relations page of Intuit's website at intuit.com. We assume no obligation to update any forward-looking statement. Some of the numbers in these remarks are presented on a non-GAAP basis. We've reconciled the comparable GAAP and non-GAAP numbers in today's press release. Unless otherwise noted, all growth rates refer to the current period versus the comparable prior-year period, and the business metrics and associated growth rates refer to worldwide business metrics. A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends. With that, I'll turn the call over to Sasan. Sasan Goodarzi: Thanks Kim, and thanks to all of you for joining us today. We delivered very strong results for the fourth quarter and full-year, and made meaningful progress with our AI-driven expert platform strategy and Big Bets that position the company for durable growth in the future. Our full-year revenue grew 13% and we delivered strong operating margin expansion demonstrating the strength and momentum of our investments and innovation. As we exit the year, we are confident in delivering another year of double-digit revenue growth and margin expansion in fiscal year 2025. Intuit is the global AI-driven expert platform that is powering prosperity for consumers, small and mid-market businesses. Our strategy and five Big Bets position Intuit as a mission critical platform that delivers end-to-end solutions, driving sustained growth. We made an early bet on AI. We have a significant advantage with the scale of our data, investments in AI capabilities such as knowledge engineering, machine learning, and GenAI, and our large network of AI-powered virtual experts. This is enabling us to disrupt the categories in which we operate. We are transforming how we serve our customers by delivering done-for-you experiences, where we do the hard work for them, connecting them with AI-powered human expertise to fuel their success. With the introduction of GenAI, we are now delivering reimagined customer experiences and bolstering businesses' growth potential, while driving efficiencies in how work gets done within Intuit. This has enabled us to build our large AI-driven expert platform to fuel the success of consumers, small and mid-market businesses. The progress we've made has bolstered our confidence, leading us to accelerate investments in five key areas within our Big Bets to deliver greater impact in the future. I'll spend a moment unpacking the progress we've made and our investment plans for the future: First, within Big Bet 1, we are delivering done-for-you experiences with Intuit Assist. In fiscal year 2024, we made strong progress making Intuit Assist, our GenAI-powered financial assistant, available to millions of consumers and approximately 1 million small and mid-market businesses. We are accelerating our investments to rollout Intuit Assist at scale in the coming year. Second, within Big Bet 2, we are accelerating platform and go-to-market investments for TurboTax Live and QuickBooks Live, embedding AI-powered experts across our business offerings. In fiscal year 2024, TurboTax Live revenue grew 17%, and full-service customers doubled while those new to TurboTax tripled. QuickBooks Live customers more than tripled. We expect our accelerated investment in these areas to deepen our penetration in very manual, high-priced, and dis-aggregated assisted categories. By digitizing how services are delivered, an integral part of our done-for-you platform experiences, we will become the AI-powered financial assistant for consumers, small and mid-market businesses. Next, within Big Bet 4, our money solutions, we are making additional investments to accelerate digitizing the experience end-to-end for consumers, small and mid-market businesses, from estimate, to invoicing, to getting paid and paying bills. In fiscal year 2024, the total online payment volume we facilitated on our platform grew 20%. We also helped small businesses access $2.4 billion in financing through QuickBooks Capital, up 28%, and we made significant progress digitizing B2B payments with our bill pay offering, for which monthly payment volume processed quadrupled over the last six months. In fiscal year 2025, we expect these accelerated investments to deliver best-in-class, seamless payments, capital, banking, bill pay, and invoicing solutions. Next, within Big Bet 5, we are doubling down on mid-market with additional investments in the platform and go-to-market motions. In fiscal year 2024, QBO Advanced customers grew 28%. In fiscal year 2025, we are accelerating investments to better serve customers who have more complex needs, such as more sophisticated accounting and reporting requirements, business intelligence, money solutions, human capital management, professional services, and customer acquisition solutions with Mailchimp, all assisted by AI-powered human experts. And finally, accelerating international growth with Mailchimp and QuickBooks. We've translated the Mailchimp offering into five different languages for markets where we see a large TAM. Looking ahead, we are bringing QuickBooks and Mailchimp together to create a single growth platform, differentiated in the markets where we have product market fit, including in Canada, U.K., and Australia. In other geographies, we are leading with Mailchimp's strong international footprint to help small businesses get customers as we continue to localize the offering. Wrapping up, with the progress and momentum we are delivering, and the accelerated investment areas I've shared, we are in a great position to win as an end-to-end platform with experiences that fuel the success of customers. Intuit is the AI-driven expert platform that is powering prosperity for consumers, small and mid-market businesses. With that -- now let me hand it over to Sandeep. Sandeep Aujla: Thanks, Sasan. We delivered very strong results in fiscal 2024 across the company, including total revenue growth of 13%, GAAP and non-GAAP operating margin expansion of 40 and 100 basis points, respectively, and GAAP and non-GAAP EPS growth of 24% and 18%, respectively. Our fourth quarter results include: Revenue of $3.2 billion, up 17%. GAAP operating loss of $151 million, versus GAAP operating income of $17 million last year, reflecting a restructuring charge of $223 million recognized in the quarter related to the organizational changes we announced in July. Non-GAAP operating income of $730 million, versus $627 million last year, up 16%. GAAP diluted loss per share of $0.07, versus diluted earnings per share of $0.32 a year ago, also reflecting the restructuring charge. And non-GAAP diluted earnings per share of $1.99, versus $1.65 last year, up 21%. Turning to the business segments: In the Small Business and Self-Employed Group, the revenue grew 20% during the quarter, and 19% for the full-year. This momentum demonstrates the power of our small and mid-market business platform and the mission-critical nature of our offerings as customers look to grow their business and improve cash flow in any economic environment. Online ecosystem revenue grew 18% during the quarter and 20% for the full-year, driven by our progress serving customers with more complex needs and adoption of our ecosystem of services. As a result, online ecosystem ARPC grew 11% in fiscal 2024. With the goal of being the source of truth for small businesses, our strategic focus within the Small Business and Self-Employed Group is three-fold: grow the core, connect the ecosystem, and expand globally. First, we continue to focus on growing the core. QuickBooks Online accounting revenue grew 17% in Q4 and 19% in fiscal 2024. Growth for the quarter and year was driven by customer growth, higher effective prices, and mix-shift. We delivered growth in our declared strategic areas this year, with our emphasis on serving customers with more complex needs. This focus drove U.S. QBO customers excluding self-employed up 11%, QBO Advanced customers up 28%, while QBO self-employed customers declined 14%, resulting in total online paying customers up 6%. Second, we continue to focus on connecting the ecosystem. Online services revenue grew 19% in Q4, driven by payments, payroll, capital, and Mailchimp. For the full fiscal year 2024, Online services revenue grew 21%, driven by payroll, payments, Mailchimp and capital. Within payments, revenue growth in the quarter reflects higher effective prices, ongoing customer growth as more customers adopt our payments offerings to manage their cash flow, and an increase in total payment volume per customer. Total online payment volume growth in Q4 was 19%, relatively consistent with the range we've seen over the last several quarters. Within payroll, revenue growth in the quarter reflects an increase in customers adopting our payroll solutions, higher effective prices, and a mix-shift towards higher end offerings. Mailchimp revenue growth was driven by higher effective prices and paid customer growth. Revenue growth continues to be impacted by the lapping of a larger benefit from price and line-up changes that we made last year in Q2 and Q3. Third, we continue to make progress expanding globally, by executing our refreshed international strategy, which includes leading with both QuickBooks Online and Mailchimp in our established markets and leading with Mailchimp in all other markets as we continue to execute on localized product and line-up. On a constant currency basis, total international online ecosystem revenue grew 11% in Q4 and 13% in fiscal 2024. Turning to desktop. We successfully concluded the three-year transition to a subscription model, which contributed to 25% desktop ecosystem revenue growth in Q4 and 16% revenue growth in fiscal 2024. QuickBooks Desktop Enterprise revenue grew in the low-30s in Q4, and in the high-teens for fiscal year 2024. Our Q4 desktop ecosystem revenue growth also reflects the offering changes we made in early fiscal 2024 to complete the transition to a recurring subscription model. These changes resulted in approximately $60 million of desktop revenue recognized in Q4 and approximately $50 million recognized in the first three quarters of fiscal 2024, all of which would have otherwise been recognized in Q1 of fiscal 2025. We also expect approximately $50 million of desktop revenue that would have otherwise been recognized in Q1 fiscal 2025 to shift to later quarters in fiscal 2025. In total, these changes lower Q1 fiscal 2025 revenue by approximately $160 million and are largely related to more frequent product updates, beginning in Q4 of fiscal 2024, to align the customer delivery experience to our subscription model. Accordingly, we expect Q1 desktop ecosystem revenue to decline approximately 20% for Q1, but for desktop ecosystem revenue to return to growth in Q2. Overall, we expect desktop ecosystem revenue to grow in the low-single-digits in fiscal 2025. Turning to Credit Karme. Credit Karma revenue growth improved each quarter during fiscal 2024, from a 5%, decline in Q1 to 14% growth in Q4. On a product basis in Q4, auto insurance accounted for 6 points of growth, personal loans accounted for 5 points, credit cards accounted for 2 points, and Credit Karma Money accounted for 1 point. Full-year revenue was $1.7 billion, up 5%. We are pleased with the momentum driven by our relentless focus on what matters most to our members and partners. We made strong progress this year redesigning the Credit Karma app to enable members to see much more of their financial life and find the products right for them. We also introduced Intuit Assist to deliver personalized financial insights using data and AI, increased monetization in the underpenetrated Prime segment, and made it easier than ever for consumers to benefit from the Credit Karma and TurboTax product integration. I'm proud of the progress the team made innovating on behalf of our members and partners. Consumer and ProTax Groups. Consumer Group revenue of $4.4 billion grew 7% in fiscal 2024 as we continue to revolutionize how taxes get done for consumers and small businesses. TurboTax Live revenue grew 17%, and customers grew 11%. Full-service customers doubled, while those new to TurboTax tripled. We are pleased with the momentum we saw with TurboTax Live again this season. Turning to the ProTax Group, revenue was $599 million in fiscal 2024, up 7%. In summary, I'm pleased with our continued momentum this fiscal year and our opportunities ahead. Shifting to our balance sheet and capital allocation. Our financial principles guide our decisions, they remain our long-term commitment, and are unchanged. We finished the quarter with approximately $4.1 billion in cash and investments and $6 billion in debt on our balance sheet. We repurchased $255 million of stock during the fourth quarter and $2.0 billion during fiscal 2024. Depending on market conditions and other factors, our aim is to be in the market each quarter. The Board approved a quarterly dividend of $1.04 per share, payable on October 18, 2024. This represents a 16% increase versus last year. Moving on to guidance, our fiscal 2025 guidance includes: Total company revenue of $18.16 billion to $18.347 billion, growth of 12% to 13%. Our guidance includes revenue growth of 16% to 17% for the Small Business and Self-Employed Group, including online ecosystem revenue growth of approximately 20% and desktop ecosystem revenue growth in the low-single-digits. Our guidance also includes revenue growth of 7% to 8% for the Consumer Group, and 5% to 8% for Credit Karma. GAAP diluted earnings per share of $12.34 to $12.54, growth of 18% to 20%; and non-GAAP diluted earnings per share of $19.16 to $19.36, growth of 13% to 14%. We expect a GAAP tax rate of approximately 23% in fiscal 2025. GAAP guidance reflects an expected $24 million restructuring charge related to the reorganization we announced in July. Our guidance for the first quarter of fiscal 2025 includes: Total company revenue growth of 5% to 6%, including: Small Business and Self-Employed group revenue growth of 6% to 7%, reflecting the revenue shift in Q1 resulting from the desktop offering changes that I noted earlier. We expect desktop ecosystem revenue to decline approximately 20% in Q1, and the online ecosystem, which is our growth catalyst, to accelerate to approximately 19% growth in Q1. For Credit Karma, we expect revenue to grow in Q1. And for Consumer Group and ProTax revenue to decline in Q1, as we are lapping the period a year ago that included the extended California tax filing deadline. GAAP earnings per share of $0.61 to $0.66, and non-GAAP earnings per share of $2.33 to $2.38. GAAP guidance reflects an expected $19 million restructuring charge that we expect to incur in Q1 related to the reorganization we announced in July. You can find our full fiscal 2025 and Q1 guidance details in our press release and on our fact sheet. I will now shift to our long-term growth expectations for each of our business segments. First, small business. With the momentum we see in online ecosystem growth, we are reiterating our long-term revenue growth expectations for the Small Business and Self-Employed Group of 15% to 20%. As part of this, we continue to expect online paying ARPC growth of 10% to 20%, and we now expect online paying customer growth of 5% to 10%. This reflects our shift in emphasis towards ARPC as we scale mid-market, drive growth in services, and reshape how we go-to-market as one business platform to significantly increase adoption of all our offerings. While there are relatively fewer mid-market customers, the ARPC of mid-market QuickBooks Online customers is nearly 3 times higher than other QuickBooks Online customers. Turning to Credit Karma, we are excited about the opportunity ahead as we execute our strategy to more deeply penetrate our core verticals, scale in growth verticals and execute our consumer ecosystem strategy. With the learnings from operating in the current business cycle, we are updating our long-term revenue growth expectations to 10% to 15%, reflecting the current size and scale of the business, and as we focus on creating seamless, end-to-end experiences with TurboTax that benefit consumers from year-round. Finally, the Consumer Group. Based on the momentum we saw this season, and the significant runway we have ahead to penetrate our TAM, we expect assisted penetration to be the key driver of future growth. TurboTax Live revenue accounted for approximately 30% of Consumer Group revenue in fiscal 2024, and we expect it to become the majority of Consumer Group revenue in the coming years. With that context, while we are scaling assisted, we are adjusting the Consumer Group long-term revenue growth rate to 6% to 10% in this interim period, with TurboTax Live revenue expected to grow 15% to 20%. One final note before I wrap up. Starting in Q1, we will be changing the name of our Small Business and Self-Employed Group to Global Business Solutions Group. This new name better aligns with the global reach of the Mailchimp and QuickBooks platform, and our focus on serving both small and mid-market businesses, and our vision to become the end-to-end platform that customers use to grow and run their business. With that, I'll turn it back over to Sasan. Sasan Goodarzi: Thanks Sandeep. We are confident in our long term growth strategy, including double-digit revenue growth and operating income growing faster than revenue. We have the strategy to win given the green shoots we're observing, and with less than 5% penetration of our $300 billion in TAM, with a massive runway ahead. We look forward to seeing all of you at our Investor Day next month, where we'll unpack all of this and more. Let's now open it up to your questions. Operator: Thank you, Mr. Goodarzi. [Operator Instructions] We'll go first this afternoon to Siti Panigrahi at Mizuho. Siti Panigrahi: Great. Thank you. If one question, then Sasan, I will focus on small business segment, 19% growth is pretty good in this environment, where we are hearing about SMB weakness. But I want to focus on your growth in '25 -- fiscal '25 and beyond. Now it looks like your focus is now driving growth through targeting mid-market. You talked about that and renamed that. So help us understand how big is that opportunity to expand into mid-market? And why is this the right time for Intuit to increase focus on mid-market? And is it mostly targeting this, your QuickBooks customer base? Or are you planning to gain share from other vendors? Sasan Goodarzi: Yes, Siti, thank you for your question. First of all, I want to start with our focus will continue to be Small Businesses that are formed and because we want to fundamentally continue to grow with them. With that as context, we've just simply doubled down on our focus on mid-market. And as you know, it's not new. This has been five years in the making. It's one of the five Bets that we declared more than five years ago. But I would just say, five years later, Siti, we are just building an incredible amount of momentum. With that as context, let me just now answer your question. One, the way to think about it is we now have a business suite. And our business suite provides all the capabilities to -- for our business to be able to grow their customers, manage their customers, be able to manage their cash flow, get their accounting done, all in 1 place. And with our really AI-powered innovation and AI-powered experts, we really have tilted the professional grade help and services to all of our businesses. And we are now at a place where we are really accelerating on two fronts. One, we are going to go to market as one platform versus pieces and parts to really accelerate services penetration because of the one thing we continue to hear from businesses is that they want to do everything in one place and now we have the business suite for them to do everything in one place. Secondarily is our acceleration in mid-market. We're actually excited to announce at Investor Day a platform that will take us even further up market, and that really positions us to not only grow with our customers but to really acquire new customers. I would just remind us that the majority of mid-market customers are nonconsumption. And they pay a lot of money to use multiple different apps, discrete apps that don't talk to each other. Excel spreadsheets, Google (NASDAQ:GOOGL) Sheets, shoe boxes, and paying for multiple different bookkeepers, marketing agents and ultimately, accountants. And now we have packaged all of that as one enterprise suite to be able to pursue and accelerate pursuing mid-market customers. And our ultimate goal is to go far beyond 10 to 100 employees. And so I think this is five years in the making. And to round out the answer to your question, this is both focusing on the smaller customers, but we're really doubling down on the larger customers and really being able to penetrate services. And that's really what gives us confidence in the 20% online ecosystem revenue growth at a far bigger scale that you heard from Sandeep, along with our acceleration in Q1. Siti Panigrahi: Thank you. I look forward to hearing more at the investors' day. Alex Zukin: Hey, guys. Thanks for taking the question. I wanted to ask about Consumer, the guide for the coming year, the updated mid-term guide. If you can just walk through a little bit of the puts and takes where -- why was that the right place to start the annual guide, what could drive upside surprise as the tax season progresses? And maybe, Sasan, just your view on kind of the macroeconomic backdrop that, that Consumer guide is set against? Sasan Goodarzi: Yes, absolutely, Alex. Thank you for your question. Let me start with the last part of your question, which is around the macro environment. We have not assumed anything other than the current environment. We're not assuming any tailwinds coming from the macro environment. So that's really been one of the elements that's informed our guidance. It's really about our current trends that we're seeing our current momentum that we're seeing and really all focused on our own execution. So that's really the first part of your question. I would say the second part is just as a refresher, the total tax market is about $35 billion in TAM, $5 billion of that is do-it-yourself and about $30 billion is both -- is all assisted, but consumer and on the business side. We've got great momentum. As you know, TurboTax Live grew 17% this past year, but the number of full-service customers that we got double, new to the franchise tripled. And so we have a lot of momentum as we look ahead, and that's why we have a lot of confidence in really providing an expectation that we expect TurboTax Live to grow between 15% to 20%. And that really leads to -- we wanted to just adjust our long-term expectations to be really prudent because until TurboTax Live, which today is 30% of our franchise, growing high-double-digits, until that becomes a larger part of our franchise, we wanted to be prudent with our long-term expectation. I will just end with saying that DIY is actually very important, and I would parse it into two. One, we're actually growing quite rapidly, and I would say, high-single-digits with complex customers with higher income, and we're actually accelerating taking share. And based on our learnings this year and based on our trade-offs that we made this year and our focus this year, we're going to be quite assertive in continuing to pursue lower income customers this year because we have a lot of green shoots from this past year with our experiments of how to deliver benefits and monetize beyond tax with our Credit Karma platform. And so we're going to be leaning into that. And I'll just end with the final aspect of the question that you asked, really are upside to our guide, which is, I think, a question you asked around TurboTax comes from really two dimensions. One, accelerating in assisted tax beyond the 15% to 20%; and two, actually accelerating where we've seen a lot of green shoots, which is the more complex, higher income customers that are DIY. We have positioned ourselves for the innovation and the lineup that's required to win on both fronts in the coming years. So that's where our confidence comes from. Brad Zelnick: Great. Thanks so much for taking the question. Sasan, I wanted to ask about the restructuring, which I know you take very seriously. We appreciate it wasn't motivated by cost savings, but rather to better position the company ahead. How are you thinking about reinvesting any savings as it takes time to staff back up to prior levels? Are there specific initiatives that dollars get allocated to? Any additional color would be great. Thanks. Sasan Goodarzi: Yes, sure, Brad. First of all, I just want to start with acknowledging we are a culture about talent and people and compassion and care. And this is a very, very tough decision. And we took great care of our teams internally, both those that are staying and getting them excited about why we're doing this and what's in the future and they remain extremely energized. But secondarily, taking great care of those that were impacted. And I just wanted to start there because these things are hard for us. We take it very seriously. We also believe that it's critically important to position the company for the future. And as we communicated, which is really the plan that we're executing against and a lot of what my upfront comments were, we are really taking all of the dollars and reinvesting it in five areas, which I articulated earlier in my prepared remarks. And really, our intent is to put all of those dollars back in the five areas that we've seen a lot of green shoots in this past several years. They accelerated towards really the latter part of last fiscal year, which is hence the decision to really double down in those five areas. So our intent is to allocate all of those dollars to those five areas. And of course, it's spread across marketing, customer success and additional headcount, engineering headcount in the areas that I mentioned. And we expect -- by the way, there's no expectation of any of these paying off in the coming year. None of our guidance that we provided resides on the added headcount back in. This is really positioning us for the next two, three years plus. That's an important note for all of you know because there's really no risk to our execution plan as we think about the coming year, but really this is about positioning us in the future. I'll just end with the following: we have a lot of confidence with the margin expansion that Sandeep articulated, and not only from the platform leverage that we're getting, but from all of our AI investments internally to drive a lot of efficiency and productivity. Sandeep Aujla: Brad, the only thing I would add is we didn't have a standing start as we made that announcement. We were already contemplating as you probably saw from our open job listings, those had increased over the last quarter. We started building out our mid-market go-to-market function as well as scaling our marketing activities, particularly as we go after the assisted tax category, which has a different marketing timing than the DIY category. Brad Zelnick: Thanks, Sandeep. Look forward to seeing you guys at Investor Day. Brent Thill: Thanks. Sasan, when you think about the Mailchimp reacceleration, what do you need to put in place to enable that to get to the level you'd like to see? Sasan Goodarzi: Yes. There are really three areas that we've been executing that are worth calling out that we're excited about. One is the integration with the QuickBooks platform. As I mentioned earlier, one of the biggest areas why we're able to accelerate our customer growth with U.S. QBO, customer growth of 11%, the QBO advanced to 28% is really creating a suite where our platform is all in one place. So that's one area that we are aggressively focused on data and tech integration. And of course, workflow integration, and we're making great progress on that front. That's number one. Number two is mid-market. That is an area where it was critical when we declared the acquisition of Mailchimp, we're building momentum. Both, by the way, what we're doing to integrate the offering, but also our go-to-market capabilities. As we announced, I think, last quarter, Greg Johnson is now back with Intuit. He runs all of our go-to-market for all of small business, and we've brought together our sales and marketing and customer success across Mailchimp and QuickBooks to be able to be better positioned for mid-market. And then last is international. Those are the three areas that we're very focused on. And when we look at our KPIs, we're making solid progress against those three areas, and that's one of the reasons why it leaves us excited about the coming year and the future. Operator: Thank you. We go next now to Keith Weiss at Morgan Stanley (NYSE:MS). Keith Weiss: Excellent. Thank you guys for taking the questions and congratulations on a really solid quarter. I wanted to ask about the acceleration in QBO into Q1. We've seen two quarters of deceleration in both QuickBooks online subscriptions and the online services. The confidence in the acceleration, is that based upon like price increases? Or is there something you're seeing in units or other parts of the business that are giving you guys confidence in guiding towards an acceleration for Q1? And then as a follow-up, talked a lot about where the reinvestment of the dollars or the heads from the headcount reduction came from. Can you give us a little bit of visibility of where those heads came out of? Like what are the parts of the business that you guys are paring back investment in? Sasan Goodarzi: Yes. Great. Thank you for your question, Keith. I'll start with your first question. Really, our acceleration comes from three areas. One, acceleration in services. And this is services across payments, across payroll, across our live platform and what we expect in Mailchimp. So that's one key area. The second key area is mid-market, where as we shared earlier, we've seen very good traction with QBO events, and we really continue to build out our go-to-market efforts on our platform capabilities. And that's informing by the way, what we're seeing in Q1, but also the fact that we shared earlier that we expect our online ecosystem revenue to be 20%, which is what it was this past year. And the third is price. Those three have played a big role in our acceleration. And the thing I would just call out on price, everything that we really learn and hear from our customers is because we have a business suite in one place, they're actually saving time they need less labor. They're able to drive customer growth based on our capabilities and better manage their cash flow because we're digitizing their cash flow. And that plays a very big role in terms of just the pricing power that we have, especially in our higher-end SKUs. But those are the three things that give us confidence into Q1 and beyond. And as you know, the majority of this business is subscription-based. So it's very predictable. In terms of the -- your second question around, well, where did the heads coming from in terms of the restructuring, there was really several key areas. I would say the largest area as we looked across the company and we looked at talent that we felt there was an opportunity for better performance. This was about 8% of our talent. These are, by the way, very talented folks that will lend great opportunities elsewhere. But it was across the company. It was not from any particular area, which, by the way, why there's really no execution risk from the actions that we took because this wasn't from one area. This was from across the company and talent that was we believe we have an opportunity to upgrade talent. So that was really one area. The second is, we really consolidated some of our technology talent across multiple sites, closing down Boise and Edmonton and consolidating technology talent in our key areas, Tel Aviv, Bangalore, Atlanta and Toronto. But those, I would say, were the main drivers of where the restructuring came from. And then, of course, we're allocating all of it to the 5 areas that I mentioned earlier. Sandeep Aujla: The only thing I would add, Keith, to Sasan's first part of that question. If you recall in my prepared remarks, I talked about QBO U.S. growing 11%, advance growing 28%. These larger customers tend to adopt and use services at a higher rate than the self-employed that decline, so that's an important attribute to keep in mind. And secondly, on pricing, we look at pricing very carefully, our price volume mix and well over half of our growth comes from volume and mix. And at the company level, the contributions for price are relatively consistent year-over-year while they are slightly higher in the Small Business group. So that's the second component to keep into mind as we look at the trajectory heading into Q1. Kash Rangan: Thank you very much, team here. A nice finish to the fiscal year and quite positive on the guidance too. One, I couldn't help but notice that your Small Business, the Self-Employed Group is now running at the rate of $10 billion, I think, as of this most recent quarter, 10-ish. Very few companies in software -- in the enterprise software market hit the $10 billion. And congrats, you are there, you've done it with finance accounting for the most part you got payments and payroll. So this puts you on track with ServiceNow (NYSE:NOW), I believe also tendering at a run rate business growing a little bit faster and you're moving upmarket, your SKU mix is decidedly more advanced and less so of lower-value units. So this has been, at least from my perspective, more successful, your tendering dollars and revenue, one of the largest enterprise software companies in the world. So haven't come this far, where else could you go with this business? And I'm glad I'm not asking your tax question. Thank you so much Sasan Goodarzi: Thank you for the question, Kash. And also, by the way, the setup, as you saw in our guide we're guiding our Global Business Solutions Group to be north of $11 billion, growing 16% to 17% in the coming year, and particularly with online growing at 20%. And I would just tell you all of that has been done without really much, I would say, massive contribution from mid-market. So the best is yet to come because we are going to continue and if you look at where we are today versus three years ago, we truly have a business suite where we have all of the key capabilities for a business to be able to grow and run their business. And we've been investing in the last five years to be positioned to go after mid-market. And our ultimate goal is to have all of the big brand names, be on our mid-market platform, and we will announce something I think you'll find exciting at our Investor Day that really positions us to be able to serve these larger customers. And that's really when you look at the future -- when we look at the future, where we get really excited is that we're actually at where we are with an incredible franchise without really having a significant contribution from mid-market. And that's what excites us about the future because we want to continue to serve smaller businesses, but we now have a real opportunity to win in mid-market. And I would remind us of the following. It's probably the most important point that I'll make. Mid-market, when it comes to financial management platforms is actually not a crowded space. And so we have an incredible right to win. And this is really precisely what we hear from accountants and from mid-market businesses. We're really excited about the next chapter of taking our business group from we're $10 billion today to much larger as we look into the next three to five years. Kirk Materne: Yes, thanks. I'll echo my congrats on the quarter and upbeat guidance in the next year. I guess, Sasan, my question comes around sort of the Global Business Solutions Group. How are you thinking about Intuit Assist impact on that in the coming year. Where is that sort of in the integration process? I'd just be curious about how you see that empowering your customers, maybe growing, helping in areas like mid-market or attach rates on some of your other products in that area. So why don't you just answer that, discuss Intuit Assist on the small business side. Sasan Goodarzi: Yes, Kirk, thank you for the question. First of all, let me just start with we haven't accounted for or assumed anything in our guidance or around Intuit Assist for the coming year. So I just wanted to start there. Now let me get to your question. We actually have an incredible amount of momentum with Intuit Assist, you're going to see it at Investor Day. But let me start with the foundation of what I shared in the prepared remarks, which was we have about 1 million businesses that are engaging with Intuit Assist. And it is going to play a significant role in the future because that is actually the foundation of what we bet the company on six years ago, which was really around data and AI. But really the bet was about delivering experiences where we do the work for our customers. And so a number of areas that our customers are using today as part of the million that I mentioned is along the lines of marketing campaigns with proposed revenue that our customers could garner that we could then execute on the behalf of our customers. Things like taking, by the way, pictures of an estimate that you may have written on the go then you can take a picture of them, we will create a digitized estimate, invoice your payment schedule that you want, all within the platform. Send it to your customer, remind you in the business feed of, in essence, invoices that are overdue, capital that we can give you access to. And that's what I just mentioned are elements of what some of our customers are using today. And so we're really right now focused on sort of money in, money out because those are the most critical areas for our customers. And if I just take a step forward, ultimately, our entire goal because of our advantage, which is data and AI. Our goal is that we do all of the work for our customers. These examples I just illustrated is all on that path. Now what it means for us as a company beyond the -- of course, the benefit of helping drive revenue growth and profitability growth for businesses. What it means for us is, we believe it will have an impact in a couple of areas. One, new customer growth; particularly the smaller customers; but then two, adoption of our services because the examples I just mentioned, take a picture of a scribble note, upload a PDF file will create estimates invoicing progress payments that all turns into revenue for us. And that, by the way, doesn't even touch on the fact that embedded in our platform going forward is going to be AI-powered live expertise, which is a monetizable event ultimately with the goal of we do everything for you and with you. And so it will be an enormous sort of part of our experience and growth in the future. And we're making really good progress. All of which, by the way, will also show all of you at Investor Day. And I'll end with where I started. None of this is contemplated in our guidance, but it's a big part of our future, and we're excited about it. Operator: Thank you. We'll go next now to Kartik Mehta at Northcoast Research. Kartik Mehta: Good evening, Sansa and Sandeep. Just a question on tax. Sasan, it seems as though you're executing on the live products, you're starting to execute on the full service. I'm just wondering what was the thought of maybe lowering guidance now, considering the momentum you're building in the business? Sasan Goodarzi: Yes. Thank you for the question. First of all, I would start with -- it's actually one platform, and that's the power of our scale. Customers, ultimately, can do it themselves, they can do it with assistance or we'll do it for customers. And it's all on TurboTax platform and our experts, our virtual experts all sit on the same platform, except they're on the other side of the platform, which is leveraging the customers' data and AI capabilities to do their taxes for them or with them. So I just wanted to start with that foundational point that it's not a lot of different products. It's actually one platform, which is what gives us the scale that we're looking for. When we make decisions around long-term expectations, we don't make them lightly. In fact, I think it was 5.5 years ago, right when I became CEO, we had updated the long-term expectations of tax. And so we take these decisions very seriously. And really what -- and so it's something we've been thinking about for some time. And really, it comes down to a very a simple math equation. When you look at the TAM, which is $35 billion, $5 billion do it yourself and $30 billion assisted both consumer and business, that's where the largest growth opportunity is. That's where we're really growing high-double-digits, 17% with customers growing 11%. And it's 30% of the franchise today, and we are also being very aggressive with DIY, both complex higher-income customers. But based on some green shoots that we saw this year, we're also going to be very assertive with lower income folks that are in the do-it-yourself category. And in that context, we just felt like the time was right to not only guide prudently for the coming year. But also adjust the long-term expectations. And I want to reiterate what you heard from Sandeep it's an interim adjust. And once we get to sustained, growth double-digit, we'll then rethink the long-term guidance. But until then, that's what informed the decision that we made. Kartik Mehta: And just one follow-up, Sasan, as you look at the health of the Small Business, any change as you look throughout the quarter? Any changes that may be give you concern or hope what's happening to your customers? Sasan Goodarzi: The headline I would give you, Kartik, is stable. Across our small businesses, we generally, differs by the way, by sector, by state, by country. But at an Uber (NYSE:UBER) level, we see revenue and profitability up in this fiscal year for businesses that we serve. We see cash reserves still down 6% to 7% compared to last year, but it's way up compared to pre-pandemic levels. We also see hours worked higher. So headline is stable. And by the way, we see the same thing on the consumer side, which is stable. Daniel Jester: Great. Thanks for taking my question. It was great to hear about QBO Live, the number of clients more than tripling. Can you maybe spend a moment talking about what's resonating there? And as you sort of move more into the middle market, what's the opportunity for QBO Live to accelerate that more upmarket push? Sasan Goodarzi: Yes. Thank you for the question. Let me start with your question of what's resonated with the smaller businesses. For us, we've actually had product market fit, meaning that our experts on our platform can really help our businesses with bookkeeping, accounting, providing advice. Really, the biggest challenge that we've been working through in the last year is how to think about the benefit? How to think about the offering? How do we actually go to market because the great news is every business at some point in their life throughout a year, they're engaging a bookkeeper and an accountant. So we're not trying to create opportunity. The opportunity is there. It's just it's manual, it's disaggregated. It's high price. And so really, the biggest thing has been our focus on how do you really help the customer understand that this is now a part of our platform and that we can help them with all the key problems that they have. And I would say that, that's an area where we really uncovered how to do that, and we're accelerating. And I don't want to make you feel like we've reached the destination. I think we still have a lot of work to do in this area. But we've really, I would say, cracked a nut that we're excited about, particularly around our decision to embed AI-powered experts into our offering as we look ahead. And lastly, this is a far bigger opportunity with larger customers because they expected. They expect a CFO for a hire and HR for hire. They expect an assistant to be able to help them with their books, with their accounting, with their employee inventory decisions. And so part of what you'll hear us talk about at Investor Day is as we're accelerating our focus with mid-market, with a business suite that has all the key capabilities that a business needs a big element of it is the expertise that it comes with. I think the differentiator for us is these are AI-powered experts that sit on the platform, can really provide a range of services for customers. But we believe it's a bigger opportunity as we move upmarket. And last thing, by the way, I'll end with, these are small sample sizes still. But the -- those that have live experts, the attach and use of services like payments and payroll actually higher, which really is a great benefit for customers and for us. Arvind Ramnani: Hi, this is Arvind. Thanks for taking the questions. Just a couple of questions. In some of the prior calls, you have provided some additional color on some of the kind of benefits you're seeing with AI. And given [Technical Difficulty] Sasan Goodarzi: In and out. We can now, please go ahead and continue. Arvind Ramnani: Yes. I'm just trying to get some color on your -- some of the impact of AI that you've seen both from a revenue add but also from a cost perspective across your business, is there any additional information you're able to kind of provide in terms of quantification of those benefits you're starting to see? Sasan Goodarzi: Yes. Thank you for your question. I think a couple of things I would say. First of all, we're seeing the impact of our usage and innovation across all of our platforms. Across Credit Karma, it's really driving a lot of the automation and do it for our customers within TurboTax, even with TurboTax full service, we're doing a lot of the work for experts so that they can serve more customers and, of course, across our business platform that I articulated the examples earlier. So I want to first be clear, this is broad-based across our entire platform. And we are really focused on how AI reimagines our internal work within Intuit as well. I would say the -- really, the revenue is immaterial this year, and we didn't account for anything in the coming year, but we believe it will be a large driver of growth in the future years. And the growth will be really usage of services, better conversion, better retention, and these are the green shoots that we're seeing with, for instance, our million businesses that are using it today. And in terms of our cost structure, remember, data and AI have been core to our investment thesis and our Bets over the last five, six years. And what we do is not capital intensive. At the same time, we're very intentional about the investments that we've had to make and any investments we need to make to win in this world of AI has been contemplated in the guidance that you heard from Sandeep. I don't know, Sandeep, if you add anything? Sandeep Aujla: No, I think that covers. 1 thing to keep in mind as we compare us to possibly other companies in your portfolio, one point, AI sort of really been in our run rate. So I wouldn't expect any meaningful change in our cost structure. Secondly, we use AWS for a lot of the processing. So it's not like we're building up our own data centers. So that's also very asset light for us. And the other factor, as Sasan alluded to, we are quite frankly also seeing improvements in our own productivity. We are seeing improvements in our developer productivity. We're seeing improvements in our overall G&A productivity. So just factors to keep in mind that AI should not be not getting in the way of our commitment to continue to find operating leverage and continue to scale our margin over time. Arvind Ramnani: Perfect. And just one quick follow-up. Just on TurboTax Live, as you're thinking of kind of directing questions or your customers to having kind of AI sort of answer it versus QuickBooks Live or sort of the kind of accountant or CPA. Obviously, the AI is going to be like a lower ARPU versus like directing someone who is basically like more like service-oriented. How do you balance that? Because does come at like a higher ARPU, but lower margin. And of course, AI is lower revenue, lower ARPU but higher margins. How do you balance it out? Sasan Goodarzi: Yes. I think the premise of what you're articulating is not what we're seeing. We actually believe that based on all of our investments with data and AI, it's actually higher ARPU because it drives better attach of our services. It actually drives more attach of our human-powered expertise. And by the way, when our human-powered experts or AI-powered human experts get involved, they're actually quite effective and productive because they're sitting on our data and AI platform. So we're actually seeing two things. One, higher ARPU over time because of what I articulated, but also more effective and efficiency on our platform because we are as aggressive as we are in applying AI externally we are as aggressive internally based on what you just heard Sandeep talk about. So it's actually the reverse of the premise that you talked about in terms of what we see. I don't know, Sandeep, if you would add anything. Sandeep Aujla: Yes. The thing to keep in mind is AI is -- the name of the game is confidence and eliminating fear, uncertainty and doubt. And by using AI, by using our AI powered experts, we're actually doing that at scale. And the important thing to keep in mind is it actually helping us open up the aperture of the customers we can serve and really go after penetrating a TAM. That's driving a lot of the success that you've seen in the assisted category. Some of those are fully outsourced to us, some of those that do it with me. So just something to keep in mind as you look at the strategic opportunities that this opens up for us as well. Operator: Thank you. We go next now to Brad Sills with Bank of America (NYSE:BAC). Brad Sills: Okay, wonderful. I wanted to ask a question around the platform for AI, the GenOS and the studio that you've outlined in the past, I know it's a little further out to start thinking about separate SKUs, and it sounds like this is more of a conversion and a retention play in the near term. But what were some of the learnings that you had over the course of the year in building out that platform for AI, harnessing the data and some of the platform components that you've outlined at the Analyst Day last year that are underpinning that. Sasan Goodarzi: Sure. First of all, let me start with your question around the SKUs. This is a progression, and this is a really important element to call out. What you heard us talk about is that we believe, and we're seeing this in our proof points. And the green shoots that we're seeing is that, one, this will drive new customer growth because we will just make it far easier and simpler for a new customer to use our digital platform that comes with AI-powered experts. Two, we believe that it's an opportunity for the adoption of our services, which also includes Live. Services like payments, payroll, Mailchimp and our live platform, which is our AI-powered human experts. And those are significant customer and growth drivers for us. The progression is as we are focused on the innovation that we articulated earlier, things such as literally a customer being able to take a picture of a scribble note, upload a PDF document for us to be able to put together an estimate all the way to getting them paid following up with their customers, putting marketing campaigns together for them. The progression is we'll get to a place where we'll actually test stand-alone SKUs where the AI agent is doing everything for the customer. And that could be a stand-alone SKU that we could test sometime in the future, but you have to progress your way to that. And that's really what the element of progression talks to. The last thing, which I think was the other element of your question, what we're doing is really hard, which we love because it's hard to replicate. And what's hard about it is, first, you have to have the data. And we have a lot of data. It's our customers' data. But when you look at for every business, we have 500,000 data points. That means we are uniquely positioned to be able to help them with managing their cash flow because it's about their cash flow. It's not about something generic because we see all of their money coming in, money going out, the creditworthiness of their vendors, the employees that they have. And so the investments that we've made in the data has been more than ever crucial because then it allows us to leverage our GenOS platform, which is our GenAI capabilities and train the Intuit LLM on the customer's data to be able to then deliver the experiences that I was just articulating and our LLMS have agency and authority to be able to use other LLMs that could enhance the experience. So the biggest thing that we've learned to sort of punchline answer your question is the combination of the data investments, the investments we've made in knowledge engineering, machine learning and our LLM that really delivers accuracy performance cost effectively is extremely hard to copy because we live in a world of financial management, and that's really our biggest advantage going forward and really our biggest growth opportunity as we look ahead. Operator: Thank you. And ladies and gentlemen, that is all the time we have for questions this afternoon. At this time, Mr. Goodarzi, I'd like to turn things back to you for any closing comments, sir. Sasan Goodarzi: Well, listen, everybody, thank you for your time. Thank you for all of your questions, and we hope to see all of you at Investor Day. Be safe. We'll see you soon. Bye-bye. Operator: Thank you. Ladies and gentlemen, that does conclude Intuit's Fourth quarter and fiscal year 2024 conference call. Again, thanks so much for joining us, everyone. We wish you all a great evening. Good-bye.