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Workday, Inc. (WDAY)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 FY2025 delivered solid topline and margin performance: total revenue $2.211B (+15.0% y/y), subscription revenue $2.040B (+15.9% y/y), and non-GAAP operating margin 26.4% as AI SKUs and full-suite wins drove momentum .
  • GAAP EPS fell to $0.35, impacted by $75M restructuring charges and lack of prior-year tax valuation allowance release; non-GAAP EPS rose to $1.92, reflecting underlying operating leverage .
  • FY2026 guidance reiterated subscription revenue ~$8.800B (+14%) and raised non-GAAP operating margin to ~28%; Q1 FY2026 subscription revenue ~$2.050B (+13%) and non-GAAP margin ~28% .
  • Backlog and retention underpinned visibility: 12-month subscription backlog (CRPO) $7.63B (+15%), total subscription backlog $25.06B (+19.7%), and gross revenue retention ~98%—a supportive setup for estimate revisions and narrative catalysts around AI monetization and margin trajectory .

What Went Well and What Went Wrong

What Went Well

  • Broad-based execution: continued momentum in full-suite and financials, AI SKU demand (Recruiting Agent and Xtend Pro), and strong industry execution; management highlighted improved efficiencies supporting 26.4% non-GAAP margin in Q4 .
  • AI strategy advancing: launch of the Workday Agent System of Record; role-based agents for Payroll, Contracts, Financial Auditing, and Policy; >30% of customer expansions involved one or more AI SKUs, with Xtend Pro ACV more than doubling q/q and Recruiting Agent ACV nearly doubling q/q .
  • Backlog strength and renewals: CRPO reached $7.63B with early renewal activity slightly above plan; gross revenue retention ~98% supports durable growth and future revenue conversion .

What Went Wrong

  • GAAP metrics impacted by restructuring: Q4 GAAP operating income fell to $75M (3.4% margin) due to $75M restructuring expense; GAAP EPS dropped to $0.35 vs. $4.42 prior year (benefited then by a $1.1B valuation allowance release) .
  • FX headwinds: FY2026 subscription revenue outlook embeds ~$20M incremental FX headwind versus last quarter, tempering growth optics despite underlying strength .
  • EMEA macro still a headwind: despite a strong finish in the U.K. and Germany, management cautioned no material change expected in the European environment—execution improving, but macro remains mixed .

Financial Results

Summary vs Prior Quarters

MetricQ2 FY2025Q3 FY2025Q4 FY2025
Total Revenue ($USD Billions)$2.085 $2.160 $2.211
Subscription Revenue ($USD Billions)$1.903 $1.959 $2.040
Professional Services Revenue ($USD Millions)$182 $201 $171
GAAP Operating Income ($USD Millions)$111 $165 $75
GAAP Operating Margin (%)5.3% 7.6% 3.4%
Non-GAAP Operating Income ($USD Millions)$518 $569 $584
Non-GAAP Operating Margin (%)24.9% 26.3% 26.4%
GAAP Diluted EPS ($USD)$0.49 $0.72 $0.35
Non-GAAP Diluted EPS ($USD)$1.75 $1.89 $1.92
Operating Cash Flow ($USD Millions)$571 $406 $1,113
Free Cash Flow ($USD Millions)$516 $359 $1,026
12-Mo Subscription Backlog (CRPO, $USD Billions)$6.80 $6.98 $7.63
Total Subscription Backlog ($USD Billions)$21.58 $22.19 $25.06

YoY Highlights (as disclosed)

MetricQ2 FY2025 YoYQ3 FY2025 YoYQ4 FY2025 YoY
Total Revenue YoY Growth (%)16.7% 15.8% 15.0%
Subscription Revenue YoY Growth (%)17.2% 15.8% 15.9%

Segment Breakdown

SegmentQ2 FY2025Q3 FY2025Q4 FY2025
Subscription Services ($USD Billions)$1.903 $1.959 $2.040
Professional Services ($USD Millions)$182 $201 $171

Additional KPIs

KPIQ2 FY2025Q3 FY2025Q4 FY2025
U.S. Revenue ($USD Billions)N/AN/A$1.66
International Revenue ($USD Billions)N/AN/A$0.556
Gross Revenue Retention (%)N/AN/A~98%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Subscription Revenue ($)Q1 FY2026N/A~$2.050B (+13% y/y) Initiated
Non-GAAP Operating Margin (%)Q1 FY2026N/A~28% Initiated
CRPO Growth (%)Q1 FY2026N/A~14.5%–15.5% Initiated
Subscription Revenue ($)FY2026~$8.800B (prior) ~$8.800B (+14%) Maintained
Non-GAAP Operating Margin (%)FY2026N/A~28% Raised (per “moving it up incrementally”)
Non-GAAP Tax Rate (%)FY202619% 19% Maintained
Operating Cash Flow ($)FY2026N/A~$2.75B incl. ~$180M restructuring cash outflows H1 Initiated
Capital Expenditures ($)FY2026N/A~$250M (down slightly vs FY2025) Initiated
Professional Services Revenue ($)FY2026N/A~$700M Initiated
Professional Services Revenue ($)Q1 FY2026N/A~$165M Initiated
GAAP vs Non-GAAP Margin Delta (pp)Q1 FY2026N/AGAAP ~30 pp lower than non-GAAP Initiated
GAAP vs Non-GAAP Margin Delta (pp)FY2026N/AGAAP ~21 pp lower than non-GAAP Initiated
Subscription Revenue Sequential Growth (%)Q2 FY2026N/A~+5.5% seq. Initiated

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 FY2025)Trend
AI/Technology InitiativesQ2: AI services for Extend, AI Marketplace; partnerships incl. Salesforce; Global Payroll Connect . Q3: Workday Illuminate, new agents, Workday Assistant; Evisort acquisition .Agent System of Record launched; role-based agents; 30% of expansions include AI SKUs; Xtend Pro and Recruiting Agent ACV doubled q/q; 4 new agents slated H2 .Accelerating monetization and platform build.
Product Performance (Financials & Suite)Q2: >2,000 Financial Management customers; full-suite wins . Q3: solid progress across financial solutions .Record core financials wins in Q4 and FY25; strong growth in planning, accounting center, procurement .Strengthening.
Partner EcosystemQ2: Built on Workday program; AI Marketplace; Equifax/Salesforce partnerships . Q3: 12 Industry Accelerators; Wellness; Compa .>15% net new ACV sourced via partners; 72 partners building on Workday; strategic partnership with Randstad (Recruiting Agent + talent network) .Expanding; greater ACV contribution.
Regional TrendsQ3: UK Dept. for Science, Innovation & Tech win .EMEA macro headwind persists; strong quarter in UK & Germany; DOC wins (Bayer, Henkel); APAC wins; Japan Osaka office .Mixed macro; improving execution.
Federal/Gov’tQ3: Public sector momentum (UK) .DOE and DIA wins; large opportunity as government modernizes ERP/HCM .Building foundation.
Restructuring/Cost DisciplineQ2: Realignment costs noted; no major restructuring . Q3: Realignment costs in non-GAAP .FY2026 restructuring plan to reduce workforce ~8%; $75M Q4 expense; $180M Q1 FY2026, GAAP margins lower vs non-GAAP .One-time costs; margin reset higher.
Backlog & RenewalsQ2: CRPO $6.80B; total backlog $21.58B . Q3: CRPO $6.98B; total backlog $22.19B .CRPO $7.63B; total backlog $25.06B; early renewals slightly higher than expected; GRR ~98% .Strengthening visibility.
Go-to-Market OrganizationQ3: Rob Enslin appointed President/CCO .Seamless transition; international focus; tweaks but no major changes .Stable with refinements.

Management Commentary

  • “Workday delivered another solid quarter in Q4, with 16% subscription revenue growth and 26% non-GAAP operating margin… our unified platform… helps customers unlock value faster, reduce total cost of ownership, and harness the power of AI” .
  • “We just launched the agent system of record… manage all of an organization’s AI agents… customers will be able to manage their entire workforce, humans and digital, on our trusted platform” .
  • “More than 30% of our customer expansions involve one or more AI SKUs… Xtend Pro… fastest-growing… new ACV more than doubled over Q3… Recruiting Agent… new ACV in Q4 nearly doubled from Q3” .
  • “Non-GAAP operating income for the fourth quarter was $584 million… 26.4%… benefited from revenue outperformance, ongoing cost discipline and improved efficiencies” .
  • “We continue to expect FY ’26 subscription revenue of approximately $8.8 billion… and we now expect FY ’26 non-GAAP operating margins of approximately 28%” .

Q&A Highlights

  • Agent System of Record investment: management will reinvest restructuring savings into product/technology to build agent system of record; strong customer and partner interest, including managing third-party agents .
  • Renewals and AI upsell: visibility on renewals remains strong; >30% of expansions included AI SKUs for the second quarter in a row; aggressive sell-into-base ahead of renewals .
  • H2 FY2026 acceleration and AI contribution: FY2026 outlook assumes faster y/y subscription growth in H2; limited dollars tied to new agents are built into the guide; incremental ~$20M FX headwind added vs prior guide .
  • Europe: macro unchanged; execution improving with strongest quarter of the year in UK and Germany; continued investment internationally .
  • Margin framework: FY2026 non-GAAP margin raised to ~28% as part of path to 30%+ by FY2027; balancing accelerated AI investments with scaling efficiencies across the business .
  • Federal opportunity: DOE and DIA wins position Workday well as government modernizes from on-prem ERP/HCM to cloud for efficiency gains .
  • Spending mix post-RIF: investment focus in AI, international (product and delivery), GTM capacity, and partner ecosystem; expect headcount to grow y/y despite restructuring .
  • Salesforce agent partnership: progressing; early work informed agent system of record innovation and cross-agent communication .

Estimates Context

  • S&P Global consensus EPS and revenue estimates for Q4 FY2025 were unavailable due to data access limits at this time; therefore, we cannot quantify beats/misses versus Wall Street consensus. Values retrieved from S&P Global were unavailable.

Key Takeaways for Investors

  • Durable demand plus backlog: CRPO $7.63B and total backlog $25.06B with ~98% gross revenue retention indicate strong revenue conversion and support for FY2026 guide .
  • AI monetization is a rising narrative: agent system of record and role-based agents, alongside Xtend Pro and Recruiting Agent, are catalyzing higher ASPs and incremental SKUs; near-term guide conservatively assumes limited contribution from new agents, setting up potential upside if adoption accelerates .
  • Margin trajectory reset higher: non-GAAP margin lifted to ~28% for FY2026 despite increased AI investments; medium-term path to 30%+ by FY2027 remains intact, a valuation-supportive theme .
  • Restructuring optics vs fundamentals: one-time charges depress GAAP metrics near-term (Q4 and Q1), but underlying non-GAAP profitability and cash generation (Q4 OCF $1.113B; FCF $1.026B) remain strong—watch for normalization post-H1 FY2026 .
  • FX and EMEA macro are watch items: FY2026 guide includes ~$20M incremental FX headwind and no assumed macro improvement in Europe; execution has improved (UK/Germany), but macro remains mixed .
  • Partner ecosystem leverage: >15% of net new ACV sourced via partners; 72 partners building on Workday; Randstad partnership enhances Recruiting Agent value—pipeline and ACV contribution likely to expand .
  • Trading setup: Catalysts include AI agent early-access at Rising later this year, backlog-driven visibility, potential H2 acceleration, and continued margin expansion; risks include FX pressure, EMEA macro, and timing of agent revenue ramp .