Q4 2025 Summary
Published Mar 11, 2025, 8:44 PM UTC- Workday's accelerated growth in AI solutions is driving increased customer adoption and revenue, with over 30% of customer expansions involving one or more AI SKUs, such as Recruiter Agent and Extend Pro, which nearly doubled quarter-over-quarter.
- Strong international performance, particularly in key markets like the UK and Germany, with significant customer wins against competitors, such as Bayer and Henkel selecting Workday's core HCM solution. This indicates success against competitors and potential for continued international growth.
- The expanding partner ecosystem is contributing significantly to growth, with partners sourcing more than 15% of Workday's net new ACV in Q4, up from more than 10% last quarter, showing increased leverage and growth potential through partnerships.
- Continued macroeconomic headwinds in the EMEA region are impacting Workday's international growth. The company acknowledged that EMEA has been more of a "headwind than a tailwind" throughout the year, including in Q4. Despite a strong finish in the UK and Germany, they cautioned that "one quarter of strength is not a trend," indicating ongoing challenges in international markets.
- Currency headwinds due to a strengthening U.S. dollar are putting additional pressure on revenue growth. Workday noted an incremental $20 million foreign exchange headwind impacting their FY '26 subscription revenue outlook since the last quarter, contributing to pressure on their financial performance.
- Workday's growth strategy heavily relies on upselling AI solutions to the existing customer base amid concerns about renewal health. With workforce reductions occurring at customer organizations, there's uncertainty about the renewal base and potential decreases in seat-based revenues. The company's ability to meet growth goals may be challenged if it cannot expand beyond upselling to existing customers.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +15% (from USD 1,922m to USD 2,211m) | Robust demand driven by expanded subscription services and moderate professional services growth. Building on the prior period’s momentum, the increase reflects steady customer adoption and market acceptance of Workday’s cloud solutions. |
Subscription Services | +16% (from USD 1,760m to USD 2,040m) | Growth was fueled by expanding the subscription customer base and upselling to existing clients, enhancing the solid performance witnessed in the previous period. This continued upward trend reinforces a strong recurring revenue model. |
Professional Services | +5.6% (from USD 162m to USD 171m) | A modest increase driven by increased deployment and integration activities builds on the previous period’s base, indicating steadier, albeit slower, growth in non-subscription revenue areas. |
Operating Income | ~–5% (fell from USD 79m to USD 75m) | Despite total revenue increases, operating income declined due to rising operating expenses and cost pressures, compressing margins to about 3.4%; this suggests that higher investments or cost inflation offset top‐line gains compared to the previous period. |
Net Income |
| A dramatic decline that likely reflects the reversal of extraordinary items or one-off gains recorded in the prior period, exposing underlying profitability challenges even as revenues grew. This discrepancy calls for careful review of non-recurring factors affecting net results. |
Operating Cash Flow | +~11.7% (increased from USD 995.64m to USD 1,113m) | Stronger cash collections and improved working capital management contributed to higher operating cash flow, contrasting with the compression of operating income; this improvement indicates robust cash generation despite lower profit margins. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Subscription Revenue (quarterly) | Q1 FY2026 | no prior guidance | $2.05 billion, representing 13% growth (14% normalized) | no prior guidance |
CRPO (12‑month Subscription Revenue Backlog) Growth | Q1 FY2026 | no prior guidance | Expected to increase between 14.5% and 15.5% | no prior guidance |
Professional Services Revenue (quarterly) | Q1 FY2026 | no prior guidance | Approximately $165 million | no prior guidance |
Non‑GAAP Operating Margin (quarterly) | Q1 FY2026 | no prior guidance | Approximately 28% | no prior guidance |
GAAP Operating Margin (quarterly) | Q1 FY2026 | no prior guidance | Approximately 30 percentage points lower than non‑GAAP | no prior guidance |
Subscription Revenue Growth (quarterly) | Q2 FY2026 | no prior guidance | Expected to increase roughly 5.5% sequentially | no prior guidance |
Subscription Revenue (annual) | FY2026 | $8.8 billion, representing 14% growth | $8.8 billion, representing 14% growth | no change |
Professional Services Revenue (annual) | FY2026 | no prior guidance | Approximately $700 million | no prior guidance |
Non‑GAAP Operating Margin (annual) | FY2026 | Approximately 27.5% | Approximately 28% | raised |
GAAP Operating Margin (annual) | FY2026 | no prior guidance | Expected to be approximately 21 percentage points lower than non‑GAAP | no prior guidance |
Non‑GAAP Tax Rate (annual) | FY2026 | no prior guidance | 19% | no prior guidance |
Operating Cash Flow (annual) | FY2026 | no prior guidance | $2.75 billion, including $180 million of cash outflows | no prior guidance |
Capital Expenditures (annual) | FY2026 | no prior guidance | Approximately $250 million, slightly down from FY2025 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Subscription Revenue | Q4 2025 | $2.025B | $2.041B | Beat |
Professional Services Revenue | Q4 2025 | $155M | $171M | Beat |
GAAP Operating Margin | Q4 2025 | ~5% (20 points lower than 25% non-GAAP) | 3.39% (75 ÷ 2,211) | Missed |
Subscription Revenue | FY 2025 | $7.703B | $7.718B (Sum of Q1–Q4) | Beat |
Professional Services Revenue | FY 2025 | $712M | $728M (Sum of Q1–Q4) | Beat |
Operating Cash Flow | FY 2025 | $2.350B | $2.462B (Sum of Q1–Q4) | Beat |
Capital Expenditures | FY 2025 | $300M | $270M (Sum of Q1–Q4) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
AI Product Growth & Innovation | Q1 and Q3 earnings calls emphasized rapidly growing AI SKUs, strong customer demand for products like Talent Optimization, Extend Pro, and new platform innovations such as Illuminate | Q4 showcased robust growth in AI SKUs (e.g., Xtend Pro, Recruiting Agent) and introduced new innovations like Role-Based Agents and a centralized Agent System of Record, with demand intensifying further | Steady acceleration with enhanced innovation and consistently high demand. |
Dependence on Upselling AI Solutions and Renewal Risks | Q1 detailed lower headcount on renewals impacting subscription revenue and discussed AI solutions like Talent Optimization; Q3 noted strong upsell momentum without explicit mention of renewal risks | Q4 explicitly addressed proactive upselling (over 30% of customer expansions involving AI SKUs) and emphasized clear visibility into renewal opportunities to mitigate risks | Increasing focus on leveraging upsell strategies to offset renewal risk, showing improved sentiment in Q4. |
International Market Performance | Q1 highlighted persistent EMEA headwinds with lower international performance, while Q3 stressed significant wins in key markets like the UK and Germany along with transformational projects | Q4 reiterated strong performance in the UK and Germany—record wins with Bayer and Henkel—while also acknowledging ongoing macroeconomic challenges in broader EMEA | Consistent regional disparities: strong results in marquee markets amid ongoing challenges elsewhere. |
Expansion of the Partner Ecosystem | Q1 and Q3 emphasized a growing ecosystem that contributed significant pipeline and ACV, with new reseller and strategic partnerships fueling momentum | Q4 reported record partner contributions (over 15% of new ACV) and highlighted new partner programs and strategic talent integrations to drive further growth | Consistent and expanding influence, with partners playing an increasingly critical role in revenue and pipeline growth. |
Macroeconomic Challenges Impacting Revenue | Q1 discussed headcount slowdown and extended sales cycles impacting renewal dynamics; Q3 noted economic headwinds and FX impacts were present but not severe | Q4 focused on the impact of a strengthening U.S. dollar (a $20 million headwind) and acknowledged persistent EMEA challenges, yet maintained confidence in underlying business strength | Persistent external pressures remain, though the latest period shows a more measured tone and stronger resilience. |
Increased Deal Scrutiny & Elongated Sales Cycles | Q1 provided detailed discussion on prolonged sales cycles and heightened scrutiny for large, multi-buyer transformational projects; Q3 mentioned increased scrutiny in certain global areas | Q4 did not specifically mention deal scrutiny or elongated cycles, suggesting that focus shifted to other priorities in the latest discussion | A diminished emphasis in Q4 indicates possible stabilization or a strategic decision to prioritize other issues. |
Emergence of Strategic Acquisitions | Q1 and Q3 prominently featured the acquisition of HiredScore as a strategic move to enhance pipeline expansion and integrate AI-driven talent solutions into the platform | Q4 did not mention any strategic acquisitions, with the narrative focusing instead on organic AI innovations and upsell strategies | This topic is absent in Q4, possibly indicating integration maturity or deprioritization of fresh acquisitions. |
New Focus on Pricing & Packaging Strategies | Q1 introduced Workday Accelerate as a new pricing and packaging strategy for the medium enterprise segment, aiming to simplify consumption and drive faster service delivery | Q3 and Q4 earnings calls did not mention any focus on pricing and packaging strategies | A topic that emerged in Q1 but did not carry into later periods, suggesting a shift in strategic messaging. |
Reduced Emphasis on Operating Cash Flow and Currency Concerns | Q3 discussed operating cash flow expectations with moderate currency impacts; Q1 did not address these topics in detail | Q4 provided detailed guidance on operating cash flow (with expected increases) and highlighted specific currency headwinds impacting revenue guidance | An increased focus in Q4, reflecting evolving financial priorities and a more granular discussion of cash flow and currency issues. |
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AI Monetization and TAM Expansion
Q: How will you monetize AI agents and expand TAM?
A: Carl explained they are excited about bringing role-based agents into the enterprise, using the same framework as onboarding human workers. They plan to monetize both their own agents and third-party agents through their agent system of record, capturing revenue even if there's a shift from human to digital workers. They have multiple ways to monetize AI—including platform features, role-based agents, and consumption models—offering significant monetization opportunities. -
Reinvestment of Headcount Savings
Q: How are you reinvesting savings from headcount cuts?
A: Carl expects to have more headcount next year than before the restructuring. They are investing in AI within product and technology to expand their agent system of record, investing internationally in both product and go-to-market, building capacities in India and Costa Rica, expanding sales capacity, and continuing to invest in their partner ecosystem. -
Margin Potential and AI Investments
Q: How does AI investment affect margin potential?
A: Zane stated they have a midterm plan to reach 30%+ operating margins by FY'27, incrementally moving to 28% this year. They see tremendous opportunity in AI and are balancing investments with margin appreciation by scaling the business and focusing on efficiencies across the organization. -
Renewal Base Health and AI Upsell
Q: How healthy are renewals and AI upsell opportunities?
A: Carl said they have good visibility on renewals for the next several years. They are proactively selling back into their customer base, with over 30% of AI SKU transactions coming from existing customers for the second consecutive quarter. New AI agents rolling out over the next 6–12 months provide additional upsell opportunities. -
International Growth, Especially Europe
Q: Where are you seeing strength in Europe?
A: Carl noted that despite EMEA being a headwind throughout the year, they had a strong finish in Q4, particularly in the U.K. and Germany. In Germany, they closed large HCM deals with Henkel and Bayer. They will continue investing internationally due to the significant market opportunity. -
Federal Market Opportunities
Q: How do you see federal momentum amid uncertainties?
A: Carl said they've been leaning into federal opportunities more aggressively over the last 18 months, as many government systems are outdated and on-premises. Despite uncertainties, there's tremendous opportunity to drive efficiencies by upgrading to cloud solutions. They highlighted wins at the Department of Energy and the DIA as a foundation for future momentum. -
Go-to-Market Changes with New Leadership
Q: Any go-to-market changes with new leadership?
A: Carl mentioned that with Rob on board for three months, the transition has been smooth. Rob brings significant international experience and is focusing on markets like Europe and Japan. No major changes are planned; rather, Rob will make refinements to improve their already strong go-to-market engine under Chief Revenue Officer Patrick. -
Contribution from AI Agents and Visibility
Q: Will AI agents contribute meaningfully this year?
A: Zane said they haven't built in a meaningful amount of revenue from agents for FY'26, as they expect to roll them out during the year. Carl added that while existing AI products like Recruiter Agent and Extend Pro are contributing, new agents announced recently will become available in the second half and are not expected to significantly impact current guidance. -
Salesforce Partnership Progress
Q: How is the Salesforce agent partnership progressing?
A: David explained they continue to work with Salesforce, and early efforts have been instrumental in their recent agent system of record innovations. They are addressing issues like interoperability between Salesforce and Workday agents. The partnership is going well but remains in early stages. -
Emerging Stronger Post-COVID
Q: Are you stronger now and are numbers achievable?
A: Carl believes that the investments they've made are paying off. Initiatives like driving AI solutions back into the customer base, selling full-suite solutions (over 30% of new business), and momentum in key industries and the partner ecosystem are working. He is optimistic about their position moving into FY'26.