Thank you. And we will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you are called upon to ask your question and are listening via speaker phone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to 1 Again, it is star 1 to join the queue. And our first question comes from the line of Gabriela Borges with Goldman Sachs. Line is open.

Hey. Good afternoon. Thanks so much for taking the question. Zane, I really appreciate the early look into growth rates exiting 2H 2027 and then the longer term upside potential The question I want to ask about this is twofold. 1 is tell us a little bit about how you are thinking about monetization for headless. The second is how do you, as an executive team, think about the risks that some of the upside opportunities end up coming as a trade off between some of the core. What I mean by that is do customers end up essentially negotiating harder on the core products or exerting pricing pressure on the core products such that you end up at a similar place even when adding new functionality. So maybe just those pieces together would appreciate your thought. Thank you.

Yeah. So I will take the first part. On the headless transactions, we are pretty much indifferent whether you know, somebody uses, from a from a profitability perspective, I think it will show in a revenue perspective whether a company buys our agent uses our APIs, which we get to monetize or goes to data cloud, we get to monetize. So or the, you know, the other option is to build their own agents using Workday, ExtendAI. So we feel like we are pretty covered in all ways that AI gets used, and it does not take away any opportunities. If anything, it grows our market opportunity than where it has been before.

Second part, I will probably ask Robert to weigh in. I what I actually see, Gabriel, is that customers are making 5-year, 7-year decisions on new platforms, and AI is a huge decision point for them. And if anything, it is impacting our win rates on the platform because we are viewed as the much stronger player in terms of an AI vision and AI agent than our than our legacy competitors are that we all know so well. Yeah. And, Gabriel, from my side, I do not see compression on the core. What I see is customers starting with the AI and wanting us to be the AI platform for Gen AI on HCM and on finance. I think that is driving a broader conversation. And a much broader conversation to the value we offer. You can see it actually in the amount of uptake on the agents that we started to announce and bring to the fore. Where customers. This is where they actually want to see where is going and where finance is going in the future. Yeah.

And just to add to what Robert said. You know, our competitors do not have 1 data model across their multiple versions of their applications. You know, these legacy companies might have 6 or 7 different versions. And as a result, they cannot aggregate the data model to drive the AI models. And so we are just way ahead of where they can be not just where they are now, but where they can ever be, from that AI perspective in terms of driving outcomes using AI.

Hey, Gabriel. I will just add, you know, the early look into FY 2028 is just to give you a target and how we are thinking about it. As you can tell, we have a number of initiatives in place, and we are very enthused by what we are seeing as early indicators in our AI products. Not all of that has been factored into our FY 2028 outlook. So we are, as you can tell, very enthused on the upside there, but I just wanted to, ahead of financial analyst day, give you at least a baseline to see how to let you see how we are thinking about it.

And our next question comes from the line of Michael Turrin with Wells Fargo Securities. Your line is open.

Hey, great. Thanks. Appreciate you taking the question. A lot's changed over software over the past couple of months. We have seen the topic shift to the rise of open source, open weight models, some signs of cooperation between the Frontier Labs and existing vendors. Aneel, I am curious where Workday fits within those discussions, if any of that if any of those shifts your view on where to focus and wanna also give you a chance to respond to just some of the recent headlines around private equity interest given we have all been fielding a number of questions there as well. Much appreciated. Thank you.

I obviously cannot comment on the on the latter. On the former, we are gonna do what is in the best interest of our customers. And so I will I am going to ask Gerrit to talk about how we think about the different models. And, you know, we work with all of them but we are trying to do what is best for our customers both from a performance, but also from a cost perspective.

Yeah. As Aneel has said, right, we are really focused on driving the right ROI and economics for our customers. So as of today already, we deploy a large set of models for multiple vendors. We have small models open weight models, and large frontier models, all in this set of models that we use to build our AI systems and agents with. And quite frankly speaking, we are pretty excited about open weight models. So, you know, they open up new opportunities for us for, you know, having own reinforcement learning, building on adapters over them, they give us a much stronger optionality when you think about international and sovereignty So it is a core tenant, you know, for us, as Aneel has said, to be model agnostic. And because of the different characteristic already, we get great benefit from them. And now as the benchmarks are getting closer, we have signed the open rates initiative as well as other companies. We truly see, you know, a real big upside, you know, for us and our customers to drive better ROI out of our AI investment. And last comment, we also started our own research foundation inside of Workday, so we have an own research lab, which specifically actually focuses on getting high accuracy HR and finance AI systems in place. And 1 of the things that this team is doing right now is actively actually exploring opportunities for us to not only use open weight models, but truly to specialize them to our purposes and see what lift we get out of that.

And our next question comes from the line of Kirk Materne with Evercore ISI. Your line is open.

Yeah. Thanks very much for taking the question. I think this is probably for Aneel or Robert. Obviously, we can hear the enthusiasm around the early progress on AI. Kind of curious if you can give us an idea. Is AI crowding out some of your other products at this point in time? Meaning, when you go in and talk to a customer, obviously want to talk about AI. You obviously wanna get AI into their hands. Does that mean sometimes your salespeople have to put something they might have been thinking about a year ago on the shelf for now? And the reason I ask that is because your tone and your enthusiasm is obviously very apparent. But, you know, when I look at CRPO just for a proxy, yeah, that is more or less in line. And, you know, and Zane gave a guide for early guide nonetheless for next year that seems, you know, more or less in line with where people were kind of forecasting. So it seems more substitutive than incremental. So I was just wondering if there is something from just a go to market perspective where, you know, there is a purposeful push with AI, whereas we are not gonna try to load everything into every customer right now. Let's get them successful with AI. Even though that might mean you were not seeing as much incremental benefit. I hope that makes sense.

Yeah. I will I will start. Thank you for the question, Kirk. So first of all, you are right in that it is early days. The difference on these agents versus traditional applications they iterate and become better so much faster. So I am very optimistic that we are going to see you know, ramping up usage of these agents faster than we ever saw of our apps. And we are also new to the flex credit consumption model. And, you know, that is a delayed gratitude, delayed gratification model that is frankly, newer to Workday, Again, very optimistic. We are seeing great early signs, but I but I think that is 1 of the reasons for cautious optimism going into next year because we are aggressively moving towards a hybrid model between subscription and this consumption model. I do not actually see it as crowding out. I actually see it as you know, customers new customers choosing Workday because of our agentic strategy, existing customers they have an AI budget, and now we have products that actually fit in that AI budget which is a big win for us. But, again, a lot of these new AI products are consumption based, so we will not see the impact from the revenue until, you know, months or a year down the road. So Rob, what do you want to add to that?

Yeah. I would add there is a lot of excitement around AI, but our focus has really been about getting adoption. You look at bringing an agent, you gotta harden them, so you gotta get them adopted. The more customers that go through early access, the more customers that are adopting these products just get better. Really fast. And so that is how that is how our merger has been around, do we get adoption for us? The more customers we have access to our agents, the more they are using those agents, and that is how we are measuring them and moving the company in that direction. And I think you can actually see it in the amount of UMSAs we have signed. Like, our UMSAs have really started to take off. Customers really want that. They need to have the UMSA to actually get into the AI world. And then you link that to the data play and the and the Extend Pro and what you are doing with the developer agent. As Anil says, this is a lag in it. But our conversations are really good. And it is in almost every conversation irrespective of the level of customer I am speaking to, whether it is a c level executive, or the HCM team or the finance team, people really start to understand that Workday is really entered the agentic world in a big way.

Hey, Kirk. And just to add to that, you know, as we mentioned, we have got 5.5 thousand customers using our organic agents. And, you know, just over 200, I think, that have actually signed up, you know, for flex credits. So that is the delay that Aneel's alluding to, and that is been factored into our CRPO guide as well as our revenue guide for the remainder of this year. Also our cautious optimism heading into FY 2028 and beyond.

And our next question comes from the line of John DiFucci with Guggenheim Securities. Your line is open.

Thank you. Thanks for taking my question. My question, I think, is for Aneel, Gerrit, and maybe Gabe. Listen. Workday's approach to AI seems, at least to me, seems sincere and frankly more thoughtful than some of your peers. But it is also more pragmatic. In other words, it makes sense. In my understanding, it is simply so is AI is going to be part of everything you do. Which, again, sounds simple, but also an immense task and, frankly, the right move. It sounds like you are certainly on the way from your prepared remarks. But how much effort do you think it will take to accomplish that? And, of course, it is a continuous effort. But when do you think you will get to the point where you can say, we have arrived as an AI platform? Is that going to take years? Or I am just curious. What you think about that.

I will I will start, then I think I think both Gerrit and Gabe should weigh in. We are trying to be very thoughtful in the way that we are building our agentic solutions. They are they are not meant to solve simple problems. Anybody can solve the simple problems. When I look at what we are doing with the self-service agent is really hard What we are doing with the financial audit agent is really hard. But by building these agents and coming out the other end, they add tremendous value to our to our customers. And frankly, from a competitive perspective, they are really, really hard for anybody to compete with because they are they are so deeply embedded in the bowels of Workday. I do not know when we arrive. I think we are arriving now, and I it just gets better over the next couple years. But it is all about adoption and customer success. We have to have agents that have real ROI that is been the lens we have been looking at it since I came back. We had a lot more agents when I came back. We killed a lot or we rolled them into rolled them into bigger agents. And the ones that we have right now, I am very optimistic. They are all very meaningful to our customers. But let's have Gerrit and Gabe add to that.

Yeah. I had a couple of points on, you know, the top of stack, if you will, and then Gabe on the platform side. But, you know, to give you a few concrete points on what are the key milestones that we are looking at that we truly believe are landmark moments for Workday as well as for the industry of moving into the AI era and enterprise SaaS. 1 of the biggest 1 for us is how work is gonna change in the work experience with Sana. You heard in the prepared remarks that Sana is going to be the default home for Workday coming rising this year. Robert spoke about the Lighthouse program at Sana Enterprise, and I have shared, you know, how this changed the world, you know, of work inside Workday already. We have 24 thousand agents being billed in just 3 weeks. You know, we really see this, you know, coming this rising as a key moment because the phase of SaaS and how work happens is going to fundamentally change. And, frankly, we believe it is a stark difference to what that work experience is than what you get from generic Jet Copilots because they are deeply tethered into the system of action and the system of work. Secondly, you heard, you know, that our agents are making a lot of progress. And when we say agents, we really mean AI systems. That automate large parts of the value chains in HR and finance. We just put decision intelligence into GA, which is truly a reimagination of how you collaborate with AI on enterprise data. We are about, you know, to bring new functionality to recruiting agent. You referred earlier how much momentum that has already. We are making great progress in 1 of the areas that Aneel is most excited on, financial audit and financial compliance agents. All of these agents are coming out, you know, either they are out already or coming out at rising at the end of the year. And I think when we come together in the next, you know, callbacks, and you look at the agent momentum you have built until then, I think there will be no question mark anymore about Workday being an AI company or not because the world of SaaS will have changed. Gabe, over to you for platform.

Yeah. And, you know, thanks for that, and thanks for the question. Question. In terms of just the timeline view on this on the platform side, it is pretty obvious that the AI technology evolution has been at a frantic pace. Right? We are seeing rapid and continuous evolution, and I do not really see an end to that. it is going to be continuous. Constant evolution. And so the way we are looking at this is these new integration patterns change, as protocols change, as identity approaches change, we are on a process of taking the new capabilities, pulling them into the platform, driving adoption, as Robert was mentioning, and then delivering outcomes and ROIs. And the key is going to be doing that continuously in a loop. That is the art of building AI systems. And that is gonna be a long journey. that is just not something that is going to end anytime soon.

And our next question comes from the line of Alex Zukin with Wolfe Research. Your line is open.

Yeah. Hey, guys. Thanks for taking the question. Probably another AI question here. But just it is great to hear about the agents and the data cloud opportunities that you are getting of customers, but maybe just help crystallize for us how you are monetizing and maybe any specifics around, like, how many flex credits does an onboarding or procurement agent actually go through? And what that could mean in terms of a net expansion, in terms of spend, at a customer that is deploying them. Or like a Salesforce yesterday talked about how in order for customers to unlock AI functionality, they had to upgrade to a premium version. that is, you know, 60% to 80% more in some cases. How do you see that? With some of the MSA agreements you were talking about, Robert? And when should we think about that as a tailwind to numbers? Is that a is that a 2020, fiscal 27 dynamics or the following year?

You know, you said it is a question about AI, but you are hitting all of the cards here, you know, from sales to finance to core technology. So maybe let me start, and then I will hand it over to Robert and probably Zane on the outlook question. Know, what we are seeing is that, you know, the workload that these agents are driving quite substantial. When you heard about earlier the numbers our volumes, we are driving recruiting already. And the key of the ambient agents the agents that are running in the background, you know, we see a substantial opportunity. But we are not comparing it to software spend. Actually, you know, what we are modeling it against is the labor spend that companies have in those given roles already and think about what is the share of the agent that actually will get you know, basically transferred from a labor spend into an AI agent spend for that specific task group. You know, right now, though, and Robert has said it, so I wanna repeat that. Our focus is really on adoption, adoption, adoption. Right? This is the way, you know, how you actually build great AI systems. So what we are doing right now, and Robert spoke about it. Right? We are incentivizing this with programs like the Sana Lighthouse program, we basically allow customers to use it for free in the first year. Self-service agent, 1 of the most consequential agents we do we put out a promotion that we are not, you know, putting on a flex for it either. Until the end of August or September. So, you know, the question that you are asking, you know, how does this translate now sales and dollars right now is difficult to answer because this has not been our focus point. But then you ask me for the, you know, potential that we have because on how much workload that actually processes. It is incredibly substantial. And this is why Zane has said, right, we are so bullish as this being an upside because we can see on the 1 side, the usage increasing, and then we see it on the inside that this represents a significant monetization opportunity for us.

I mean, you kind of said it that look. I am super excited. You know, we focus on the adoption side of things. Now we are starting to focus really on the consumption side things. So as we move into this, the sales motion changes. And what you see with you know, broad adoption of Sana self-service agent, it is gonna rise all the other agents as well because it gives it a completely different look and feel on how you utilize Workday in the future and what kind of users can work with Workday pretty much anyone. I watched the CFO and the COO look at the you know, decision intelligence agent, and I was just, you know, they were completely blown away. So I think the opportunity for us is really good. The back half of the year looks really positive for us. And I cannot see that changing. And we are in lockstep in making certain that these agents as you adopt them and consume them, the quality of the agent continues to improve. All the time. And I think that is what Gabe meant by it is a circle, it is a loop. And I think we have got a really good process on how to define that loop. So the field is excited by it. Every single 1 of my customer conversations is really, really interesting. And even customers that I have known for years that are not really in HR, IT, or finance space really wanna understand what we are doing. 1 will take the lead in the space of HCM finance. And then lastly, I would just say, you know, do not forget about we have also got agents like talent acquisition agent and a document where we actually measure by different statistics. And, you know, if I look at Talent Acquisition agent, we had more than 30 million candidate interviews in Q2 with 8 million interviews scheduled. So numbers are starting to show up. It will continue to improve over the next months and quarters.

Yeah. Alex, I would just add, you know, this quarter, we talked about, you know, roughly $600 million in AI ARR which is up from around just over 150 just a year ago. So we expect that trend to continue. As Aneel mentioned earlier on the call, this is all about customer success and customer value, and that is gonna be the ultimate driver of our revenue. So, you know, we have got some of that built into the back half of the year as you would expect, but really growing from FY 2028 and beyond where the AI component becomes a significant part of our incremental ARR. So we are excited about the future as you can tell.

We just want to be thoughtful as we as we monetize it. Our next question comes from the line of Karl Keirstead with UBS. Your line is open.

Okay, great. Thanks. Maybe I will direct this 1 to Zane. Zane, you gave us a preliminary look at 200 bps of margin expansion next year, a little bit more than I was modeling. And, actually, a greater pace of expansion than you are guiding to this year. I am assuming there is no big change in the prioritization on investing. So perhaps, you will probably address this at the Investor Day, but a couple of things that might be driving that. Thanks so much.

Yeah. Karl, thanks for the question. You know, as Anil mentioned earlier this year, this was the year where we intentionally invested heavily in AI and brought on some great talent and feel like we are doing a lot in that area. I think we have done a credible job prioritizing and then leveraging size and scale and really being thoughtful, on how we drive, you know, just thoughtful expenses in the future. So it is a continuation of that. Doing, I think, a pretty good job utilizing AI ourselves. Internally and expect that trend to continue. So it is really been about the team focusing on what matters and rethinking what we are doing and, as importantly, what we are not doing. And where we are not going to be spending money in the future. And it is that kind of focus that I think is also driving the increase. And we believe that you know, the 2 points for next year is a good starting point. As you know, we have increased to 31% this year, and we believe we can continue, to see that improvement as well as leaning in as much as we have in investments in critical areas around AI and our platform.

Yeah. I would just add we are leveraging AI internally. And we are doing more with, you know, flat head count. that is that is the goal, and I think that is a really important direction for us to head.

And our final question comes from the line of Samik Chatterjee with JPMorgan. Your line is open.

Hi. Thanks for taking my question. You talked a lot today about the organic agents and the adoption curve you see there. Maybe if you can sort of dive into the acquired AI acquisitions that you have done and particularly the acquired agents and you think about the road map there in terms of integration, finally, sort of making it to a product and then the monetization on that front, and particularly how should we think of that to impact your fiscal 28 sort of financial outlook as well? Any thoughts on that front would be helpful. Thank you.

Well, I will I will just say that they are all doing well, but most importantly, they are all deeply integrated already. We do not we do not ever buy technology and just leave it on the outside. We deeply integrate it right away so we can deliver that unified experience Maybe, Gerrit, you wanna talk about where the products are headed.

Yeah. Awesome. So it is a great question because, actually, you know, we kind of you know, spoke about it earlier. You know, the big, you know, products that you can think of is HiredScore on the recruiting side in Paradox. They are both are part of our talent acquisition agent now. So they are basically agentic skills as we evolve our AI systems. And both of them have tremendous momentum. I am gonna hand it over to Robert in a second to talk about that. But we are not really thinking about this as hey. This is separate from the core. As Aneel has said, you know, we have a really good m and a regime that we look for strong technical fit. So as we move forward with Workday recruiting, HiredScore and Paradox, they are an integral part of that, and they are all coming together under the role based agent for talent acquisition. Again, right, this whole idea, this is in the embodiment of an actual recruiter with all of these skills. And on the Sana side, which had an absolutely blowout quarter as well, gangbuster growth, we put it into GA in a combined product. So, Workday Learning and Sana learning is actually 1 product now. it is in GA already. it is driving substantial growth for our customers. But as we take it to them, we do not portray this as Workday and others. You know, this is the learning agent from Workday. This is the agent from Workday. And those acquisition, they are just widening the breadth of skills these agents have. Robert?

Yeah. I would simply say, I mean, we grow we drove more than 100 million of new ACV with our AI products, which is 25% of all new ACV. So if you just look at those numbers, And then we our AI ARR numbers are up at close to $600 million now. More than half of the new wins in Q2 signed up for AI solutions. Our solution AI solutions are really paying off. And as Gerrit said, I think it is really important to point out, they are integrated into the Workday Foundation. it is 1 call. it is 1 view for our customers. That allows us to deliver the agents even on top of that.

And ladies and gentlemen, thank you for your participation on today's conference. You may now disconnect.