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Workday, Inc. (WDAY)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 delivered solid top-line and margin expansion: total revenue $2.160B (+15.8% YoY), subscription revenue $1.959B (+15.8% YoY), GAAP diluted EPS $0.72 and non-GAAP diluted EPS $1.89; non-GAAP operating margin 26.3% .
  • Backlog and retention remain strong: 12-month subscription backlog (CRPO) $6.98B (+15%), total subscription backlog $22.19B (+20%); gross revenue retention 98% (call) .
  • Guidance update: Q4 subscription revenue $2.025B (+15%), FY2025 subscription revenue $7.703B (+17%) and non-GAAP operating margin 25.5% (raised from 25.25%) .
  • Near-term headwind: strategic deal deliverables shift revenue recognition by ~$8–$10M in Q4; FY2026 early view ~$8.8B subscription revenue (~14% growth) with leap year creating ~1 point headwind in Q1 and 2H acceleration from AI/deliverables .
  • Strategic catalysts: accelerating AI monetization (Recruiter Agent ACV >4x QoQ, >30% of customer expansions included AI SKUs), federal wins (Defense Intelligence Agency), and partner ecosystem scaling; senior go-to-market leadership strengthened with Rob Enslin appointed President & CCO .

What Went Well and What Went Wrong

What Went Well

  • AI commercialization momentum: “more than 30% of our customer expansions involved one or more AI solutions… Recruiter Agent… closed more new logos in Q3 than in its 12-year history, and our new ACV more than quadrupled compared to Q2” .
  • Margin expansion and efficiency: non-GAAP operating margin reached 26.3% in Q3; FY2025 non-GAAP margin raised to 25.5% and FY2026 targeted at ~27.5% as SBC trends lower as % of revenue .
  • Public sector and healthcare strength; full suite traction: “government and higher education were two of the standouts… roughly 90% of the wins… full suite,” and “CommonSpirit Health” win; professional & business services exceeded $1B ARR .

What Went Wrong

  • Timing-related revenue recognition: strategic deals with product deliverables delay recognition, impacting Q4 by ~$8–$10M and contributing ~0.5 point to 2H FY2026 growth vs YoY; CRPO growth guided 13.5–14.5% in Q4 .
  • Continued deal scrutiny and moderated customer headcount growth persist across regions (EMEA highlighted previously), limiting near-term expansion versus prior expectations .
  • Operating cash flow down YoY in Q3 ($406M vs $451M) due to prior-quarter strong collections, although FY OCF guide maintained ($2.350B); extra pay period impacts Q4 cash flows .

Financial Results

MetricQ1 FY2025Q2 FY2025Q3 FY2025
Total Revenue ($B)$1.990 $2.085 $2.160
Subscription Revenue ($B)$1.815 $1.903 $1.959
Professional Services Revenue ($B)$0.175 $0.182 $0.201
GAAP Diluted EPS ($)$0.40 $0.49 $0.72
Non-GAAP Diluted EPS ($)$1.74 $1.75 $1.89
GAAP Operating Margin (%)3.2% 5.3% 7.6%
Non-GAAP Operating Margin (%)25.9% 24.9% 26.3%
YoY Total Revenue Growth (%)18.1% 16.7% 15.8%

Segment breakdown:

SegmentQ1 FY2025Q2 FY2025Q3 FY2025
Subscription Revenue ($B)$1.815 $1.903 $1.959
Professional Services ($B)$0.175 $0.182 $0.201

Key KPIs:

KPIQ1 FY2025Q2 FY2025Q3 FY2025
12-mo Subscr. Backlog (CRPO) ($B)$6.60 $6.80 $6.98
Total Subscr. Backlog ($B)$20.68 $21.58 $22.19
Gross Revenue Retention (%)——98%
Operating Cash Flow ($M)$372 $571 $406
Free Cash Flow ($M)$291 $516 $359
Share Repurchase ($M)$134 $309 $157
Cash & Marketable Securities ($B)$7.18 $7.37 $7.16

Note: Comparison vs estimates is not included; S&P Global consensus was unavailable due to API limit during retrieval.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Subscription Revenue ($B)Q4 FY2025N/A$2.025 (15% YoY) New
Non-GAAP Operating Margin (%)Q4 FY2025~25.25% ~25.0% Lowered
Subscription Revenue ($B)FY2025$7.700–$7.725 $7.703 (17% YoY) Maintained midpoint; refined
Non-GAAP Operating Margin (%)FY202525.25% 25.5% Raised
Professional Services Revenue ($M)Q4 FY2025N/A~$155 New
Professional Services Revenue ($M)FY2025~$650–$660 → ~$680–$690 ~$712 Raised
CRPO Growth (%)Q4 FY2025N/A13.5–14.5 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1–Q2 FY2025)Current Period (Q3 FY2025)Trend
AI initiatives/monetization>50 AI use cases live; Talent Optimization fast-growing; HiredScore attach and pipeline building >30% expansions included AI SKUs; Recruiter Agent ACV >4x QoQ; Illuminate announced with AI agents; Copilot updates; Evisort acquisition Accelerating commercialization and SKU attach
Partner ecosystemBuild on Workday; partner-sourced pipeline and ACV ramp; Salesforce/Equifax partnerships Partner ecosystem 5x growth in 18 months; >10% net new ACV sourced; 40+ “Build on Workday” partners Scaling breadth and revenue contribution
Public sector/federalDIA selection; Federal Forum momentum Strategic federal wins (DIA); secure platform deliverables timing; expected tailwind Strengthening; timing affects revenue recognition
International/EMEAQ1: EMEA air pocket; deal scrutiny; still strong win rates Continued scrutiny; notable wins in UK public sector, France (Decathlon), Germany (Goldbeck) Mixed; selective strength amid scrutiny
Headcount moderationSlower customer headcount growth; renewal impact Moderation persists; leap year Q1 FY2026 ~1 point headwind Ongoing headwind
Margin disciplineRaised FY2025 margin to ~25% (Q1); efficiency focus; mid-term plan to 30% by FY2027 FY2025 margin raised to 25.5%; FY2026 ~27.5% Upward trajectory
Medium enterprise/full suiteME solid; pricing/packaging (Accelerate) and rapid delivery; full platform strength >35% new core customers full suite; industry breadth Broadening adoption

Management Commentary

  • “More and more organizations are consolidating on the Workday platform… to unlock the power of our best-in-class AI solutions” – CEO Carl Eschenbach .
  • “In Q3 alone, more than 30% of our customer expansions involved one or more AI solutions… Recruiter Agent… ACV more than quadrupled compared to Q2” – CEO .
  • “We expect fiscal 2025 subscription revenue of $7.703 billion… and fiscal 2025 non-GAAP operating margin of 25.5%” – CFO Zane Rowe .
  • Mid-term: “drive mid-teen subscription revenue growth, while expanding non-GAAP operating margins to 30% [by FY ’27]” – CEO .
  • “Q3 operating cash flow was $406 million… impacted by the stronger-than-expected collections activity we called out in Q2” – CFO .

Q&A Highlights

  • Deliverables timing: Strategic Q3 deals have product deliverables delaying revenue recognition; ~$8–$10M Q4 impact; ~0.5 point contribution to 2H FY2026 growth; CRPO capture limited in some cases .
  • FY2026 cadence: ~$8.8B subscription revenue (~14% growth); Q1 slightly lower due to leap year (~1 point headwind), 2H acceleration from AI and deliverables .
  • Federal demand: On-premise systems drive consolidation tailwinds; secure platform build for government agencies supports broader federal pipeline .
  • EMEA environment: Mixed partner feedback; scrutiny persists, but win rates strong on transformational decisions; large public sector UK win .
  • Cash flow: FY OCF guide maintained; variability due to prior-quarter collections and extra pay period in Q4 .

Estimates Context

  • Wall Street consensus estimates from S&P Global were unavailable during retrieval due to API limit; as a result, actuals are presented without estimate comparisons this quarter. Values from S&P Global could not be retrieved at this time.

Key Takeaways for Investors

  • AI monetization is becoming a meaningful attach driver; Q3 showed >30% AI SKU inclusion in expansions and recruiter agent ACV step-up, supporting 2H FY2026 acceleration as deliverables go live .
  • Margin story strengthening: FY2025 non-GAAP margin raised to 25.5%; FY2026 ~27.5% target with SBC trending lower as % of revenue; multi-year path to 30% by FY2027 .
  • Near-term revenue cadence may be choppy due to deliverables timing (~$8–$10M Q4 impact), but backlog remains robust (CRPO $6.98B; total backlog $22.19B) .
  • Public sector and healthcare continue to anchor large-suite wins; federal market entry (DIA, secure cloud) is a multi-year growth vector, though initial delivery requirements can defer revenue recognition .
  • Partner ecosystem maturation (5x growth, >10% net new ACV sourced) expands routes-to-market and innovation (Build on Workday), supporting durable mid-teens growth outlook .
  • Watch Q4 execution: seasonally strongest quarter with raised FY margin and refined FY revenue guide; CRPO growth guide (13.5–14.5%) provides visibility; OCF guide maintained despite Q3 variability .
  • Leadership adds (Rob Enslin as President & CCO) bring deep global GTM experience across SAP/Google/UiPath, likely improving partner leverage and international scaling .

Appendix: Non-GAAP Adjustments and Changes

  • Non-GAAP operating results exclude SBC, employer payroll taxes on stock transactions, amortization of acquisition-related intangibles, acquisition-related costs, realignment costs; non-GAAP EPS also excludes gains/losses on strategic investments and income tax effects .
  • Change in non-GAAP measures: beginning FY2025, Workday excludes certain acquisition-related costs, realignment costs, and gains/losses on strategic investments; prior periods recast for strategic investments .