Yahoo Finance

Carl Eschenbach

Thank you, Justin. Hello to everyone joining us on our call today.
I'm pleased to report that Workday delivered a solid first quarter. We drove 13% subscription revenue growth and a non-GAAP operating margin of 30%. This performance was fueled by strong customer adoption across key verticals, geographies, and customer segments.
We all know the economic environment remains a bit uncertain. But I'm incredibly proud of how our teams are staying focused on our customers' success. And that is driving our results.
Workday’s value proposition remains highly relevant in today’s market. The CEOs I meet have three key priorities: they want to drive efficiencies; they need to be agile in response to market shifts; and they want to unlock growth with innovation.
And from our perspective, they’re turning to Workday for all three.
We help manage and optimize their most critical assets: that is their people and money -- on one platform, with AI at the core. This unified approach reduces total cost of ownership and helps them move faster, with greater precision.
Our customers trust that Workday’s AI is powered by the largest and cleanest finance and HR dataset. Our AI is fueled by more than 70 million users under contract and 1 trillion transactions processed on the platform last year, which gives us a deep understanding of how people work.
This enables us to deliver highly differentiated value to our customers. I’ll speak more about that in a moment.
But, first, let’s turn to our customer highlights for the quarter.
In Q1, we established new HCM relationships with United Airlines, Pilot Travel Centers, and Mutual of Omaha Insurance Company. It was another strong quarter of expansions, with customers such as FedEx, CVS Health, ASDA stores, and Chipotle.
Our investment in Financials continues to pay off, with solid growth in both net new ACV and customers. More than 30% of our net new wins this quarter were, once again, full suite. And in our focus industries of SLED and healthcare, it was more than 50%.
We also had some strategic Financials go-lives this quarter, including BJ’s Restaurants, Essentia Health, and Genesys Cloud Services.
Our AI innovation continues to gain traction. New ACV, across our AI products, more than doubled year over year in Q1. And roughly 25% of our customer expansions in the quarter included one or more of these products, such as Recruiting Agent, Talent Mobility Agent, Evisort, and ExtendPro. Fantastic companies including Visa, LabCorp, and Aon all selected our AI products.
I’m also excited about the momentum we’re building with the office of the CIO. We’re driving increasing demand for ExtendPro, which enables our customers to build AI applications on top of our platform. This continues to be one of our fastest growing products. And it’s amplifying innovation for our customers.
While Workday serves more than 60% of the FORTUNE 500, 75% of our customers have fewer than 3,500 employees. And we see a significant growth opportunity in the emerging and medium enterprise market.
In Q1, we launched WorkdayGO, specifically, for these companies. It gets them up and running on our enterprise-grade platform fast. We’re talking implementations in as little as 30 to 60 days, with pre-configured deployment.
And it's not just the software. They get the full support of our partner ecosystem and a clear, fixed pricing model. It really moved the needle for us in Q1, helping our emerging and medium enterprise teams deliver a strong quarter.
Now, let’s talk about industries. I’m excited to share that we now have five industries exceeding $1 billion in annual recurring revenue.
Manufacturing and Tech and Media -- two industries that had a solid quarter in Q1 -- recently reached this milestone. They join our three other billion-dollar industries: Financial Services, Retail and Hospitality, and Professional and Business Services. Like I’ve mentioned, many times, this shows the strength and diversity of our business.
Our focus on the Federal sector continues to pay off. We are building a foundation for long-term growth in this market. This was clear in the huge success of our third annual Federal Forum.
Attendance was up 65% at this year’s event. And we had some great conversations with senior government leaders about the critical need for transforming the Federal workforce, especially in key areas such as AI, security, and skills.
We’re also very proud of our leadership in higher education. We were just named a leader in the first-ever Gartner® Magic Quadrant™ for Higher Education Student Information Systems Software-as-a-Service.
In Q1, we were thrilled to welcome Centre College, Bow Valley College, and Gannon University as new customers. And we’re seeing great success with Workday Student go-lives, including the University of Arkansas System, which is now fully live at 14 institutions across the entire state.
In an environment where everyone is trying to do more with less, Workday gives our customers the ultimate advantage. AI is built directly into our platform and it’s always on. Greater than 60% of our customers already leveraging Workday Illuminate AI.
We’re excited by the adoption we’re seeing. But we’re even more excited about the strong ROI our customers are getting from our AI solutions.
Look at Western Union, a long-time Evisort customer: using Evisort’s AI-powered contract management solution, which was made available through Workday in Q1, they were able to process contracts 65% faster, while reducing associated outside legal spend by almost 70%. Just incredible results.
The Evisort team had a fantastic Q1. And they’re just getting started.
Customers are clearly willing to pay for these types of results, which opens up significant new AI monetization opportunities to help fuel our long-term growth and set us apart from the competition.
When we look at our roadmap, our focus is on delivering innovations that drive meaningful ROI for our customers. In fact, our Agents must meet specific TCO, or Total Cost of Ownership, requirements with our early adopter customers, before we even bring them to market.
Just this week, we announced a wave of new AI Agents that harness the power of our unmatched dataset to help amplify talent potential, reduce costs, accelerate decision-making, and mitigate risk.
And to keep us at the forefront of AI innovation, we're really excited to welcome Peter Bailis as our new Chief Technology Officer. Peter will lead our AI and ML initiatives, driving our vision forward. With his background at Stanford and Google Cloud, he has a proven track record of AI innovation at scale. And I couldn’t be more excited he chose Workday.
Partners continue to be a critical driver of our success -- extending the power of our platform, fueling pipeline growth, and bringing new innovations to our customers.
In Q1, we, once again, saw great contributions from our partner, with more than 20% of our net new ACV in the quarter coming from partner-sourced pipeline.
Partners are also critical in helping us expand into new markets and meet the diverse needs of our global customers. In Q1, we signed our first volume Managed Service Provider partnership with The Mutual Group (TMG) to serve the mutual insurance industry.
Additionally, our Global Payroll Connect program now supports payroll delivery in 187 countries and territories, thanks to 29 partners building integrations. And, through our partnership with Strada, our customers can manage up to 60 global payrolls, all under a single Workday contract.
On the innovation front, we’re seeing strong momentum in our Built on Workday program. In Q1, alone, we added 25 new partner apps to the Workday Marketplace. Our community of customer and partner developers has nearly doubled over the past year: a testament to the power of building on the Workday platform.
And, in just two weeks, we'll host thousands of them at our developer conference, Devcon, in Las Vegas.
Our investments in our global strategy are helping us better serve our existing customers, attract new ones, and make our operations even more efficient. In Q1, we saw solid growth across EMEA, Asia Pacific, and Japan.
In EMEA, we had notable net new wins with Opella Healthcare and global manufacturer, Georg Fischer. And we expanded with semiconductor equipment manufacturer, ASML; and insurance provider, Aviva. We also had a major Financials expansion with Decathlon, as this relationship continues to grow.
As part of our ongoing investment in the UK, we went live on the AWS UK public cloud, making it possible for customers to access Workday solutions, locally.
We also announced a new location for our EMEA headquarters in Dublin, which will bring our local workforce of more than 2,000 employees together.
APAC had a strong start too, with wins at Swinburne University of Technology, the University of Melbourne in Australia, Collins Foods, and PPL Pharma.
And, finally, Japan kicked off the year with new wins at Mitsubishi Motors, TEPCO, and Rigaku.
In Q1, we saw the diversity and durability of our business, firsthand; with multiple levers driving long-term growth.
Looking ahead, we’re staying close to our customers, as they navigate the macro environment. No company is immune to these challenges. And we’re watching it across particular markets such as SLED and our international business.
That said, we’ve got a compelling value proposition and our teams are focused on controlling what we can: that is to deliver innovation and strong ROI for our customers.
The future of work has evolved. During the pandemic, it was about where people worked and how they collaborated. Today, it’s about how humans and AI agents work together -- and how companies manage the human and digital workforce as one.
I believe no company is better positioned than Workday to lead this shift. With our expertise, our unparalleled data, and a platform built with AI at its core, we’re ready to shape the future of work.
I want to give a heartfelt thank you to our customers for their continued trust in Workday, to our incredible partners; and, especially, to our Workmates around the world. Your hard work and commitment gave us such a solid start to the year. And I couldn’t be more grateful.
With that, I’ll turn it over to Zane

Zane Rowe

Thanks, Carl. Thank you to everyone for joining today’s call.
Our solid Q1 results highlight the ongoing progress across our strategic growth areas and the continued efficiencies we are driving throughout the business.
Turning to results:
Subscription revenue in the first quarter was $2.059 billion, up 13%; or 15%, when adjusting for the leap year compare. Professional Services revenue was $181 million, resulting in total revenue of $2.240 billion, growth of 13%.
From a geographic perspective, US revenue, in Q1, totaled $1.68 billion, up 13%; and international revenue totaled $559 million, also up 13%.
12-month subscription revenue backlog, or cRPO, was $7.63 billion at the end of Q1, increasing 15.6%. This includes approximately 0.5 point of growth from subscription contracts related to implementation and testing environments, which we refer to as tenants.
While these short-term contracts have and continue to be part of our subscription revenue, we are now including them in cRPO, as they have grown with the business.
Total subscription revenue backlog, at the end of the quarter, was $24.62 billion, up 19%. And gross revenue retention rates remained a strong 98%.
Non-GAAP operating income, for the quarter, was $677 million, representing a non-GAAP operating margin of 30.2%. The outperformance versus guidance was the result of moderated headcount growth, along with revenue outperformance.
GAAP operating income, in the quarter, of $39 million was impacted by a $166 million charge related to the restructuring, which occurred earlier in the year.
Q1 operating cash flow was $457 million, growth of 23%. We repurchased $293 million dollars of our shares during the quarter and had $509 million in remaining authorization, as of April 30.
In addition, our Board has approved a new $1 billion open-ended buyback authorization.
We ended the quarter with $8 billion in cash and marketable securities.
Our current headcount, which incorporates the previously announced restructuring, stands at approximately 19,300.
Now, turning to guidance.
Our Q1 subscription revenue performance and progress across the key initiatives Carl highlighted earlier positions us well for the year. And we are reiterating our subscription revenue guidance of $8.8 billion.
Our outlook benefits from our diverse set of opportunities and the important role that our platform plays across our customer base and partner ecosystem.
While there is heightened macro uncertainty -- particularly across certain markets and verticals -- we haven't seen this meaningfully impact our business and our growth prospects. Though it’s early in the year and the environment remains fluid, we remain focused on execution and our strategic initiatives.
We anticipate Q2 FY26 subscription revenue to be approximately $2.160 billion, growth of 13%. We continue to expect a slightly faster pace of subscription revenue growth in the second half of the year - particularly in Q4 - driven, in part, by revenue from product deliverables associated with previously closed deals.
We expect cRPO to increase between 15% and 16% in Q2. This includes approximately 1 point of growth from the previously discussed tenant contracts. We expect a similar quarterly impact of approximately 1 percentage point to cRPO growth for the remainder of the year.
We continue to expect FY26 Professional Services revenue of approximately $700 million. For Q2, we expect Professional Services revenue of $180 million.
We expect FY26 non-GAAP operating margin of approximately 28.5%. This outlook accounts for the Q1 outperformance, along with continued investments across key growth areas including AI, our partner ecosystem, and targeted international markets. In addition, it includes our ongoing efforts on growing efficiently.
We continue to position the business to drive long-term growth and margin expansion.
For Q2, we expect a non-GAAP operating margin of 28%. We expect GAAP operating margins to be approximately 20 points and 21 points lower than our Q2 and full-year FY26 non-GAAP operating margins, respectively.
The FY26 non-GAAP tax rate is expected to be 19%. We are maintaining our FY26 operating cash flow outlook of $2.75 billion. And we continue to expect FY26 capital expenditures of approximately $250 million.
Entering Q2, our teams remain dedicated to delivering value to our customers, driving innovation, and strategically investing in our key growth areas to deliver on our medium- and long-term objectives.
With that, I'll turn it back over to the operator to begin Q&A.

Question and Answer Session

Operator

Thank you. We will now conduct a question-and-answer session.
(Operator Instructions)
Kirk Materne, Evercore ISI.

Kirk Materne

Congrats on the solid start to the year, guys.
Carl, can you just talk a little bit about the environment out there? Obviously, you, guys, are keeping your guidance. You mentioned you're keeping an eye on EMEA and the SLED markets. International was up, in line with the US this quarter.
I think people are going to have a question of -- I realized there's some mechanical reasons why revenue accelerates in the back half of the year. But why do you, guys -- what are you seeing in either your pipeline or your backlog that gives you the confidence to reiterate the full-year guide, given what seems to be a more choppy macro versus three months ago?

Carl Eschenbach

Thanks for the question. Before I dive in and answer that, I just want to take a quick minute to thank all my workmates, our partners, and customers for a really solid start to FY26.
As you can see by our results, we're really seeing the value of the Workday platform come to light. In our new wins and expansions, we continue to accelerate AI innovation and adoption with our customers. And the growth of our partner ecosystem was, once again, quite strong.
Specific to your question: let's just talk about the macro, to start.
We have continuously said that the Workday value proposition resonates, whether we're in times of a headwind or a tailwind, because of the strong ROI, in TCO, we bring our customers.
Our customers are looking to continuously consolidate on top of the Workday platform. And, at the same time, as we go through this AI revolution, they're investing in us because they know a path to leveraging AI is through the Workday platform.
We did say there's a couple of industries we're keeping our eye on, specifically SLED; as well as we're keeping our eye on the international business.
Let me talk about SLED first. As you know, higher ed is always one of our strong industry verticals. And, once again, that was the case in Q1. At the same time, we also know there is some headwind in that industry, based on some of the grants and some of the funding they get from the Federal government.
So it's just something we're keeping our eye on. It didn't necessarily have an impact on us in Q1.And there could be some adjacent impact, also, on healthcare if the healthcare system is part of a bigger university.
On international: as I indicated in my prepared remarks, we had a really solid quarter, once again, internationally. We saw solid results out of EMEA. And we saw solid results out of APAC. But it's something we know that could get impacted, depending on what's going on in the macro environment.
So that's why we just want to give some color as to how we're thinking about the rest of the year.
What gives us conviction? It's more of the same, if you will, Kirk.
We continue to see progress across many of our key initiatives and investment areas.
Whether it's AI, where we talk about 100% growth year-over-year growth. In AI, 25% of our sales back to our customer base, including an AI solution.
Or whether it's how we're pushing financials deeper into the market. That includes full suite lands, which, once again, represented more than 30% of our new wins for full suite. And in our really key industries, we're seeing more than 50% full suite lands like healthcare and higher education.
We continue to get benefit from our partners. This quarter, our partners grew their impact on our business by more than 20%. So think about that. Two years ago, if we said that comment, it would be 0%.
We continue to focus on our international operation because of the big opportunity there. And, also, we're really excited about the early momentum, since we've doubled down our efforts around the US Federal government.
All of that comes together to help us feel confident to reiterate the guide of 8.8% for the rest of the year.

Zane Rowe

Kirk, this is Zane. I'll just add.
Obviously, we came in ahead of our guide in Q1. So we feel really good about the starting point here, for the year.
I'll point out: we will benefit from some FX tailwind. If you recall, last quarter, we talked about $20 million of headwind. We now got about $10 million of tailwind, as we look out for the remainder of the year.
And, again, as you pointed out: tied to product deliverables. And the teams are doing a great job in those areas. Whether it's wellness or our DIA contract, we expect to see increased year-over-year subscription revenue growth improvements by the quarter, heading into the fourth quarter.
So we feel good about the setup here, for the year. Notwithstanding the fact: obviously, it is an uncertain macro.

Carl Eschenbach

Okay. Thanks, guys. I appreciate the answer.

Zane Rowe

Thanks, Kirk.

Operator

Brad Sills, Bank of America.

Brad Sills

I wanted to ask a question on WorkdayGO. It sounds like an exciting opportunity here.
What could this do to unlock the medium enterprise, given the shorter implementation cycles? And is there a certain segment that you're targeting WorkdayGO, more specifically, within medium enterprise, that we should think about?

Carl Eschenbach

Thanks for the question.
As you know, we've continuously talked about the importance of the medium enterprise or what we also described as the emerging enterprise. Last quarter, we have doubled down our efforts. And we've now launched our WorkdayGO as our campaign to focus on these new markets and emerging markets for us.
It brings together better pricing and packaging. It brings together more services, both by us and our partners, allowing us to deploy faster. And it also brings to market all of the enterprise strength we have, right, with the Workday platform but taking it down market into this very big opportunity.
It's something we've been investing in for quite some time, both on the go-to-market side, as we carved out a salesforce to focus on it. And we're doing the same as we focus on how to make the product much more deliverable for that market segment, both from pricing packaging and the acceleration of deployment.
Deployments now, between us and our partners, can be done as little as 60 days, which is a significant change from what we've seen in the past. This is all being encompassed under the WorkdayGO initiative that we launched last quarter.

Brad Sills

Wonderful. Thanks, Carl.
And one more, if I may, please: just on the macro. Is there any difference in tone or outlook with the office of CFO versus HR. Are you seeing any differences there, with regard to your comments on the macro?

Carl Eschenbach

No. I don't think so, Brad. I wouldn't delineate between the two.
I think this is an environment we've been dealing with. Last year, I think I called it: this is the new norm. I think that played out exactly the same in Q1, as it has in the past.
There's no doubt: every now and again, we have to double-click on things for our customers, as they navigate the choppiness in the market. But I don't think there's any difference between the buying centers we're selling into.

Brad Sills

Wonderful. Thank you, Carl.

Operator

Mark Murphy, J.P. Morgan.

Mark Murphy

First off: Carl, wondering if you can comment on the adoption of Extend and ExtendPro. Are you seeing signs of customers building deeper customizations there? Or are you seeing any ecosystem revenue turning on from ISVs and partners or the ability to go after adjacencies, without having to do that direct product investment?
I just would love to hear about how you're feeling about that Extend opportunity.

Carl Eschenbach

Yeah. Thanks for the question, Mark.
We are absolutely really excited about what's happening around Extend and ExtendPro. For the last couple of years, we've been talking about opening up the aperture of the Workday platform to allow our customers and partners to innovate on top of our platform. And that is paying off.
Last quarter, our ExtendPro skew more than doubled year over year. And we're seeing more and more, both customers and partners, leverage that to drive innovation and drive AI applications on the Workday platform.
Where that shows up is it shows up in our Workday marketplace, where we had a nice extension of our partners bringing more and more applications into it to sell back to our customers. So we are absolutely excited about the platform approach that we have here at Workday. We think it's very significant.
And if you think about it, it's not just Extend and ExtendPro, it's a Workday wellness platform where we can now partner closer with our benefits partners.
Or it's things like our Global Payroll Connect. We're now through a number of different partners we can integrate into the Workday platform -- a global payroll platform -- that can serve us up to 180 countries around the world.
So there's many ways we're thinking about how we can leverage the platform and how we can extend innovation both to our customers and partners. And, at the same time, we're actually monetizing it, too.

Mark Murphy

That's great to hear. And then, Zane, just as a quick follow-up: you mentioned some pretty impressive new logos in in HCM and I think elsewhere. Is there any approximation for the growth rates in HCM versus FINS or the spread between the 2?
Or any -- I'm just wondering if you see the FINS-dedicated sales specialists may be ramping the bookings in a way, structurally, where you think the FINS would be outgrowing HCM in the next couple of years or not?

Zane Rowe

Yeah. I would just say, look, we're focused, candidly, on full suite as a great sales motion and one of our many strengths.
Both FINS and HCM have both performed really well. In particular, this quarter, we had, as you pointed out, a number of FINS and FINS+ opportunities -- just a great sales motion there.

Carl Eschenbach

Yeah. Mark, I'll double click on the FINS.
As you know, we built out a sales force, over the last couple of years, to focus on selling FINS. And we saw, this quarter, really good success in our FINS sales motion, both the number of new units, both in new ACV growth year-over-year.
And, most importantly, to Zane's point, what we're seeing is that pull-through in full suite wins, which was 30% of our new wins; and in our bigger markets, greater than 50% in new sales were full suite, which include both HCM and Financials.
So we're definitely seeing it pay off.

Mark Murphy

Congrats on that and, also, the amazing margin performance.

Carl Eschenbach

Thanks, Mark.

Operator

Brent Thill, Jefferies.

Brent Thill

Zane, when you went through the reduction in force, I think you indicated that you hope to hire all those employees back.
One of the questions we're getting is: given the environment we're in and some of the uncertainty, is that still the plan?
You had really good margin upside. How do you think about cost control in this environment?

Zane Rowe

Sure, Brent. As always, we believe we can continue to scale the business. And we're consistently looking for efficiencies in the business.
All that being said -- as Carl mentioned on the last call, I believe -- our intention is to grow back. We're very thoughtful in those hires.
And Carl mentioned a couple of that key hires that we've made over the last number of weeks and continue to focus on: key growth areas in the business; in particular, in AI and within our P&T organization.
We continue to focus on organic growth and continue to build out the workforce. So we feel good about that.
All that being said, we're very prudent about where we're hiring, how we're hiring, and in the areas we're growing.

Carl Eschenbach

Yeah. I'd just add, Brent: the one thing we are doing is we continue to invest in the business.
We see a tremendous opportunity around AI. We're investing, heavily, in our product and technology organization. And we also continue to invest, heavily, on the go-to-market side. So we get better quota-carrying capacity coverage around the world.
Our investments aren't slowing down, at all.

Brent Thill

Okay. Just a quick follow-up, Carl. Last quarter, you mentioned a number of really impressive wins in Europe. And I know that's been an area that you're really focused on improving your efficiency.
Can you give us an update on what you saw in Europe; what the pipeline looks like; and how you're thinking about that?

Carl Eschenbach

Yeah. Sure, Brent.
If you recall, last quarter, we talked about having a really solid growth quarter in Europe. After, to be honest, most of last year -- having a tougher year, internationally -- we saw a nice rebound. And we came right back at the beginning of this year with a solid quarter in Q1 here.
And that was both in EMEA, as well as in APAC. And we expect that to continue throughout the year.
At the same time, I did call out: it's one of the areas we're going to keep a close eye on because we do understand there could be more of a macro headwind in those markets should things change materially, as people start to think about whether they're going to invest in US-centric or US-headquartered technology companies.
But, right now, we're really pleased with the performance. I will tell you our competitive win rates are very strong.
I always say: when customers finally decide to move forward with a big project around either HR or Finance or a full platform, the win rates we have are incredibly strong.
So we're really pleased with what's going on. And we're going to keep forging ahead because of the incredible opportunity we see both in EMEA and APAC and also, I should say, Japan, as well.

Brent Thill

Great. Thanks.

Operator

Michael Turrin, Wells Fargo.

Michael Turrin

I realize there's more focus on the CRPO metric. And results there came in fairly strong for the quarter and for the Q2 guide. But the billings growth we're looking at looks, maybe, a touch lighter, in terms of Q1.
I realize it tends to step down, seasonally. But were there any impacts from some of the different deal types you mentioned we should be mindful of?
And, maybe, just walk us through the delta we're seeing between backlog and billings and how that could progress throughout the rest of the year?

Zane Rowe

Yeah. Michael, the key there is, first off, it was in line with our expectation. And, as you pointed out, we actually feel very good about CRPO and CRPO growth.
As you also mentioned, billings itself, does, vary on a quarter-to-quarter basis. And those growth rates will vary based on things like payment terms and invoices and things like that.
If you look over the last number of quarters, many of the industries that we've been growing into are those where they either have longer deployment times; or, otherwise, we'll allow more flexible payments like education and a lot of the growth areas that we've seen in the business.
So for that reason, you tend to see a little bit of a drag, as it relates to the growth in billings or unearned revenue.
We feel good about it. It's in line with what our expectations were. It's in line with our OCF guide for the full year. So we're very comfortable with the growth that we're seeing in those industries and in those businesses.

Michael Turrin

And just as a follow-up, if I may: Zane, you mentioned there's a new buyback for an additional $1 billion. Can you just walk through how you're thinking about capital allocation in a more fluid backdrop.?
It sounds to us like you're seeing good success with the higher score recruiting agent capabilities -- so just how you're thinking about use of capital in the current environment.

Zane Rowe

Sure. First and foremost is organic growth and the investments that Carl and I have been talking about for a number of years, now, into the business. So, first and foremost, we're focused on that. We remain very inquisitive and I think have been quite successful in a number of the strategic inorganic growth opportunities that we've had.
All that being said, we keep a high bar to that. We consider that part of our broader strategy but something that we're obviously closely following and keep an eye on.
And then, in addition to that, we're always looking at dilution and returning capital to shareholders through buybacks. So that's how we think about it, in that order.
Pleased to obviously have the opportunity to add to the buyback amount. As you know, we've got just over $500 million left in the prior buyback. And we thought the timing was good to add to that this quarter.

Operator

Brad Zelnick, Deutsche Bank.

Brad Zelnick

Great. Thank you so much for taking the question.
With 25% of customer expansions involving AI and with more products coming down the pipe, what level can that number maybe get to?
What are you hearing from customers about their agentic AI plans and how Workday fits into that?

Carl Eschenbach

Yeah. Sure, Brad.
We're pleased with our ability to sell the existing AI solutions back into our customer base. The last three quarters: it's varied from 25% to 30% of our sales back-to-base included an AI SKU. So our customers clearly are seeing the value that we're bringing them.
And then, as you stated, just this week, we announced seven new agents that we'll be bringing to market over the next three to six months, as well.
And what we're hearing from customers is, hey, we see Workday as an incredible platform that has a clean set of data, the context behind the data. And we also are in the middle of the workflow of everything they do in Workday. So they're saying to us, we see that value; we know we're going to bet on Workday as an investment in the future of our AI strategy.
We're pretty excited about the future of AI, both in our agent strategy, as well as our agent system of record, to deliver AI to our customers. They're betting on us with their wallets, as you can see by our growth: on a year-over-year basis, it was up 100%. And we continue to have the opportunity to sell back into our customer base.

Brad Zelnick

That's very helpful. Just a quick point of clarification, Zane, if I may, because I've gotten this question from a couple of folks. The 0.5 point of contribution to CRPO from services and implementation that you mentioned: people are asking if that was already contemplated in the guide that you had given us and if that was in Q4.
Any further clarification, I think, would be helpful.

Zane Rowe

Sure. It's a good call out. Again, these are the tenants. So they have not been included and weren't included in the forecast. And they'll be included, prospectively, through the course of FY26.
As I mentioned, it was about 0.5 point in the first quarter and about 1 point for the second quarter. We'd expect it to continue on at that run rate beyond the second quarter for the remainder of the year.
These are short duration contract. We're actually including it, in part, because it's going to become part of the sales motion. We believe that it can grow with the business. And we also would expect that duration to increase, as the sales teams have opportunity to focus on it, as well.

Brad Zelnick

Makes perfect sense. Thanks, again.

Zane Rowe

Thank you.

Operator

Karl Keirstead, UBS.

Karl Keirstead

Okay. Great.
I'll take it back to AI. Carl, I'm saying congrats on the ACV performance around AI products. I just wanted to ask how your advising investors to think about the timeframe when you'll see real monetization of these AI products; when it can be needle moving? Is it later this year? Are you pointing people to next year?
Some thoughts there would be helpful.

Carl Eschenbach

Thanks for the question, Karl.
Listen: I think we're already seeing strong adoption of our AI solutions by our customers. The growth is up 100% year over year. Our customers and our ability to sell back into our customer base is largely driven by AI because they see the value of the agents we have out there today; whether it's a recruiting agent, whether it's talent optimization, whether it's leveraging ExtendPro for them to build AI solutions, on top of the Workday platform.
And, just last quarter, for the first time, we fully integrated Evisort into Workday. And we saw significant growth in that platform last quarter, more than 100% year over year.
So we think it's already moving the needle for us. And we're really pleased with the traction we have and the value our customers are seeing from our AI solutions.
It's only going to get stronger, as we bring to life our agent system of record; and the additional seven agents that we announced earlier this week -- become readily available in the second half of the year.

Karl Keirstead

Okay. And then, maybe, for Zane. If you don't mind, I can go back to the margins.
Obviously, 30%, pretty outstanding. You're already at the fiscal '27 target. So, at first blush, it's easy to conclude that, maybe, your target has an upward bias.
But, maybe, you could talk through how you and Carl are thinking about that growth margin trade-off in the next two years and your desire to let more of that revenue upside flow to the bottom line?

Zane Rowe

Yeah. Sure, Karl.
I'd say, first off, it wasn't just a 1 point isolated point out there. But I appreciate the call-out on Q1.
We continue to do a number of things to drive efficiencies in the business. All that being said, as we've highlighted earlier, part of the first-quarter success was around those investments that we're making in the business.
And we've outlined the guide for 28.5%. So we have, obviously, thought about what that looks like through the course of the year, as we continue to invest.
We're well on track and on our way to the 30% that we called out our upcoming fiscal year. I don't want to get ahead of ourselves, as far as our ability to achieve that, because we see tremendous returns on investment in the business and are obviously working with an uncertain macro.
All that being said, we remain focused on growth and margin expansion and expect to grow that beyond the 30% in future fiscal years, as well.

Operator

Okay. Thank you.

Zane Rowe

Thank you, Karl.

Operator

Rishi Jaluria, RBC.

Rishi Jaluria

Nice to see continued resilience in the business.
I like to keep sticking to the macro. But it's obviously an important inbound that we keep getting. So, maybe, two macro-focused questions.
Number 1, just to be clear, if we think about trends you saw within the quarter, would you characterize anything different you saw in the month of April, especially because that was post Liberation Day and the institution of tariffs? Just anything to call out there and, maybe, what you've seen, so far, this month.
And then, just another quick follow-up on the macro.

Carl Eschenbach

Thanks for the question, Rishi.
I tried to capture all of this in my opening comments and then, the earlier question: it didn't have any material impact on the quarter. As you can see, we had really solid results and a great start to the year. And I don't think much changed as we exited the quarter or here early in this quarter.
But, as I said, we are keeping an eye on certain industries where we do have a large footprint and we have a lot of momentum. That's around state, local government; in higher ed, as well; and we're keeping an eye on the international markets to see if there's any blowback from some of the things we're doing at the macro level here in the US.
But I wouldn't say any big change, at this time. But, as we always say, no one is immune to the potential headwinds that we're facing. We're keeping our eye on them.
But let's go back to the value proposition we have. It's extremely strong. People see the ROI in Workday.
They see us as a consolidation platform. And they see us as a safe bet for their AI strategy, going forward.

Rishi Jaluria

Okay. That's really helpful.
And, maybe, just to continue on that line of thinking: as an uncertain macro means customers are going to be a little bit more uncertain, you do have a pretty distinct and clear ROI story that you can tell; and, especially now, leveraging a lot of the agentic AI that you're building in -- there's an opportunity to drive real cost savings and efficiency gains. Maybe, how should we be thinking about your ability? Or how you are thinking about adapting the go-to-market, adapting your messaging around those value propositions; and, maybe, leaning into that more, just given what we're seeing out there?

Carl Eschenbach

Yeah. Rishi, I'd say we continue to drive a strong narrative and a strong value proposition into our customers, both existing and net new, around an ROI and a total cost of ownership business benefit in the Workday platform.
When you do have more headwinds, more people want to consolidate on a platform in a platform they trust. They do it with Workday. They also want to make sure that they're betting on the future of AI. And they're betting on that future with Workday.
So everywhere we look, in every conversation with our customers, the ROI and total cost of ownership narrative comes up. We have one of the strongest in the industry. And I think that shows through in our results here in Q1 and shows the start to the year; I think that narrative will play out the rest of the year, as well.

Rishi Jaluria

Very helpful. Thank you.

Operator

Alex Zukin, Wolfe Research.

Alex Zukin

Maybe, just with respect to some of the AI and agentic launches: Carl, you talked about already seeing some tailwinds, in terms of adoption of your customer base. Maybe, where are you, guys, most enthusiastic on that front? Where do you expect that to start to drive, maybe -- not obviously the next two quarters -- over the next 12 months? Like, where do you, maybe, see the potential for materiality for growth acceleration?
And do you think that it will be more adopted, maybe, down market or upmarket, in terms of your customer base?

Carl Eschenbach

Yeah, thanks for the question, Alex.
I'm actually going to bring Gerrit, our new President of Product and Technology into the mix here and have him talk about the excitement he has around our AI strategy. And then, I'll talk about the growth factors.

Gerrit Kazmaier

Yeah. Sounds great.
I'm really excited. We are really excited because we are approaching AI in a unique way. We are not just driving automation of existing APIs but really going to the core of the business process and innovating it at the core.
We talked about how we're doing this in the recruiting space, which applies to small and large customers with our recruiting agent. Customers get a net 54% increase in recruiter capacity out of that, no matter the business size.
We talked about our contract intelligence agent, which basically speeds up the work of any legal or document-driven accounting work. We have customers like NetApp -- analyzed more than 90,000 contracts this way and solved thousands of hours and outside legal spend.
We honestly don't see any letter applicability price, broadly. And we introduced, now, with our 12 agents, every key leverage point in the business process from hire to retire; as well as in procure-to-pay and order to cash.
So we're intentionally covering the full value life cycle and bring it broadly to market.

Carl Eschenbach

Thanks, Gerrit. And, as far as growth, we see it across all of our market segments and industries. I don't think it's highly differentiated in one versus the other.
We're seeing new adoption across all of the segments of our AI solutions. And we expect that to continue, as we bring more and more agents in our agent system of record to life, over the next 6 to 12 months.

Alex Zukin

Excellent. And, maybe, just as a follow-up, Zane: from a capital allocation perspective, how are you looking or thinking about tuck-ins or strategic opportunities in the context of accelerating any of these AI or agentic solutions, as they come up, increasingly?

Zane Rowe

Yeah. Alex, we remain highly inquisitive. Gerrit and team are always looking at opportunities to accelerate the technology to bring in additional talent.
And, of course, I'm always looking for more returns. So I think it complements well.
We remain very active in complementing the terrific team we have here at Workday, with tuck-ins and other potential acquisitions.
So nothing changed on the philosophy there. I think we've got a good track record. And we'll continue to keep a high bar but look for some great opportunities.

Operator

(Operator Instructions)
Derrick Wood, TD Cowen.

Derrick Wood

Great. Thanks.
Carl, I know the US Federal business is still small. But you have been making bigger investments into this vertical over the last year.
In light of those, can you just give us a sense of how the opportunities are shaping up? And is this something that may take a little longer to get off the ground? Or are there perhaps some new transformation opportunities opening up.
Just curious how you see the US Fed opportunity trending, both near and longer term?

Carl Eschenbach

Yeah. Thanks, Derrick.
You're right. Over the last couple of years, we have leaned much more aggressively into the Federal market. We hired a new leader last year. And I think [Lynn] is having a tremendous impact on our go-to-market initiatives and driving our product and technology teams to deliver a highly-secured platform for the federal government.
I will tell you: we're very pleased with the level of conversations we're having and the depth of conversations we're having across all civilian agencies, DoD, in the intelligence community. They absolutely see the value of Workday to help them modernize antiquated infrastructure that sits on-premises, today. And we think that represents a really huge opportunity for us, going forward.
We should remember: [GE] does not mean government elimination, it means government efficiencies. And in our conversations with them, they're saying they're willing to invest to drive efficiencies in the Federal business and create a new employee experience for our US Federal employees.

Derrick Wood

Great. Real quick for Zane. Is the restructuring complete? And are there any other meaningful charges to be expected beyond Q1?

Zane Rowe

Yes and no. So primarily complete. No additional charges beyond Q1.

Derrick Wood

All Right. Thank you.

Operator

Scott Berg, Needham & Company.

Scott Berg

Hi, everyone. Thanks for taking my questions. Just one for me.
With the release of agents and more agents on the platform, are these technologies today -- how are these technologies impacting your sales cycles?
One hand, you can see them selling sales cycles down (inaudible) because it's something new to evaluate, trying to understand how it fits into a customer's business process. But on the other hand, it could speed up the sales process with the company's ability to get to the final efficiency output more quickly.
But how are you seeing these impact those sales cycles today?

Carl Eschenbach

Yeah. Let's start with selling back to our customer base. We actually see it accelerating our sales cycle.
We, now, have the ability -- we've talked, in the past, about creating and closing opportunities within the same quarter or within a 90-day window. We're seeing that happen, in large part, because of the agents we have available and the value our customers see in them.
So it actually accelerates ability to sell back into our customer base.
On net new opportunities: I don't think it's elongating, at all, our sales cycles. Again, I just want to reiterate: our customers tell us they're betting on their AI strategy with Workday because they understand the value of our data, the context of the data, and the fact that the workflow is built directly into the Workday platform.
AI is built in. It's not bolted on Workday. And they're all leaning into us for the future of their AI strategy.

Operator

Thank you. We have reached the end of the question-and-answer session.
Therefore, thank you for your participation.
I'll now turn it over to Mr. Eschenbach for final comments.

Carl Eschenbach

Thank you, operator.
Again, thank you all for joining the call today. I'm pleased with our start to FY26, as we delivered another solid quarter.
The diversity of our business continues to be a powerful asset, driving balanced performance across new and existing customers, industries, and geographies.
And our Illuminate strategy is strongly resonating, as more customers recognize that investing in the Workday platform is a strategic investment in their AI future, built on one of the largest and cleanest HR and financial data sets in our industry.
With that, I'll turn the call back over to the operator to close out.

Operator

Thank you. Ladies and gentlemen, this does conclude today's conference.
You may disconnect your lines, at this time.
We thank you for your participation.
Have a great day.