Workday's Impressive 18% Growth in Q4 2024 Subscription Revenue
2024-02-28
Workday, a prominent provider of enterprise cloud applications for finance and human resources, recently hosted its Q4 2024 earnings call, where key executives, including Carl Eschenbach (CEO), Aneel Bhusri (Executive Chair), Zane Rowe (CFO), and Doug Robinson (Co-President), discussed the company's performance and future strategies.
During the call, it was disclosed that Workday achieved an impressive 18% growth in subscription revenue in Q4 of fiscal 2024, alongside attaining a non-GAAP operating margin of 24% in the same quarter. Carl Eschenbach underscored the pivotal investments made across the leadership team, go-to-market strategies, partner ecosystem, and platform as instrumental factors contributing to the company's performance in fiscal 2024.
Workday's platform is designed to manage crucial assets such as people and finances, aiding customers in navigating transitions from the cloud to AI and fostering trust through responsible development and deployment of AI technologies. The company leverages AI capabilities to gain insights into an organization's current skills and identify future skill requirements through Workday Skills Cloud. Additionally, Workday is actively enhancing its leadership in AI, with forthcoming releases showcasing generative AI use cases and the recent acquisition of HiredScore for AI-powered talent orchestration solutions.
The acquisition of HiredScore equips Workday with AI-powered talent orchestration solutions that offer data-driven insights to enhance recruiting and internal mobility processes, thereby bolstering the company's AI capabilities and commitment to responsible AI development.
Workday's business performance reflects a balanced blend of new customer acquisitions and expansions within its existing customer base. The company welcomed new clients from diverse industries in the last quarter, including the Australian Stock Exchange, Boyd Gaming Corporation, HHS, and Randstad, demonstrating the significant growth opportunities ahead.
In line with its expansion strategy, Workday is investing in international markets, particularly in EMEA and the Asia-Pacific region, with a focus on sectors such as financials, healthcare, education, and government. The company has made notable progress in key markets like the UK, Spain, France, and Japan, where they experienced strong new ACV growth in Q4. Chikara Furuichi, a seasoned leader in SaaS, security, and cloud services, has been appointed to lead the Japanese market at Workday.
Workday's strategic investments in its go-to-market approach and platform are yielding positive results, with robust growth in core financials customers and new ACV. The company achieved a record number of new full-platform wins in both Q4 and FY '24 and was recognized as a Leader in the 2023 Gartner Magic Quadrant for Financial Planning Software for the second consecutive year.
Moreover, Workday has collaborated with over 200 partners to generate new sales leads and engage in co-selling activities. The pilot program initiated last May has gained momentum throughout the year, with a notable increase in partner-driven pipeline generation in Q4. Aneel Bhusri has transitioned into the role of Executive Chair from his previous position as CEO of Workday.
Looking ahead to FY '25, Workday's strategy for sustainable growth entails supporting durability while enhancing operational efficiencies across the business. The company's innovation roadmap for the next 12 to 18 months includes advancing financial management and HCM applications, strengthening AI capabilities, and focusing on industry-specific solutions to empower the offices of finance and HR.
Workday's product portfolio has evolved significantly, transitioning from offering a few products in 2007 to providing a comprehensive platform that aids customers in transforming their people and financial management processes. In Q4, subscription revenue reached $1.76 billion, marking an 18% increase, while full-year FY '24 subscription revenue stood at $6.6 billion, reflecting a growth of 19%. Total revenue for Q4 was $1.92 billion, and for the full year, it amounted to $8.2 billion.
The company reported impressive gross revenue retention rates exceeding 95% and net revenue retention rates surpassing 100%. The total subscription revenue backlog at the end of the quarter reached $20.92 billion, indicating a 27% increase. The non-GAAP operating income for Q4 was $461 million, resulting in a non-GAAP operating margin of 23.9%. Notably, the Q4 GAAP net income benefited from a one-time $1.1 billion valuation allowance release related to US deferred tax assets. Operating cash flow in Q4 amounted to $996 million, with approximately $100 million attributed to strong end-quarter collections and earlier-than-expected payments. Workday also repurchased $136 million of its shares during Q4 at an average price of $253.85 per share.
The earnings call drew participation from analysts representing firms such as Goldman Sachs, JPMorgan Chase and Company, Morgan Stanley, and others. The call, which lasted for 90 minutes, concluded with the Operator extending well wishes for a great evening to all participants.
In summary, Workday's Q4 2024 earnings call encompassed discussions on the company's financial performance, investments in AI and international expansion, strategic growth initiatives, partnerships, product evolution, and future prospects. The call underscored Workday's robust performance, commitment to innovation, and dedication to delivering value to customers across various industries.