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    WDAY
    Earnings call· Jan 2025(Q4 FY25)

    Workday, Inc. WDAY

    Feb 25, 2025 Source

    Executive summary

    Workday Q4 FY25 — Strong Subscription Revenue Growth and AI Monetization

    Workday concluded FY25 with solid Q4 results, driven by strong subscription revenue growth and expanding non-GAAP operating margins. The company is successfully monetizing its AI offerings and leveraging its partner ecosystem, contributing to durable growth. Strategic investments in AI and international markets are balanced with efficiency initiatives to achieve future margin targets.

    Highlights

    5

    • Subscription revenue grew 16% in Q4 FY25 to $2.04 billion, and 17% for the full year FY25 to $7.718 billion.

    • Non-GAAP operating margin expanded to 26.4% in Q4 FY25 and 25.9% for the full year FY25.

    • AI SKUs, including Extend Pro and Recruiting Agent, saw significant uptake, with new ACV for Extend Pro more than doubling QoQ and Recruiting Agent nearly doubling QoQ.

    • Gross revenue retention rates remained strong at 98%.

    • Partners contributed over 15% of net new ACV in Q4, up from over 10% in Q3.

    Concerns

    3

    • FY26 subscription revenue guidance of $8.8 billion (14% growth) incorporates an incremental $20 million headwind from U.S. dollar strengthening.

    • GAAP operating income in Q4 was impacted by a $75 million charge primarily related to restructuring.

    • An additional restructuring expense of approximately $180 million is expected in Q1 FY26, impacting GAAP operating margin by 30 percentage points.

    Guidance & targets

    18
    CategoryTargetConfidence
    Subscription revenue
    $8.8 billion
    high materiality
    High
    Subscription revenue growth
    14%
    high materiality
    High
    Subscription revenue
    approximately $2.05 billion
    medium materiality
    High
    Subscription revenue growth
    13% or 14% (normalized)
    medium materiality
    High
    12-month subscription revenue backlog (cRPO) growth
    between 14.5% and 15.5%
    high materiality
    High
    Subscription revenue sequential increase
    roughly 5.5%
    medium materiality
    High
    Subscription revenue growth
    slightly faster pace of year-over-year growth relative to the first half
    medium materiality
    High
    Professional services revenue
    approximately $700 million
    low materiality
    High
    Professional services revenue
    $165 million
    low materiality
    High
    Non-GAAP operating margin
    approximately 28%
    high materiality
    High
    Non-GAAP operating margin
    28%
    medium materiality
    High
    GAAP operating margin impact from restructuring
    approximately 30 percentage points lower than non-GAAP
    medium materiality
    High
    GAAP operating margin impact from restructuring
    approximately 21 percentage points lower than non-GAAP
    medium materiality
    High
    Non-GAAP tax rate
    19%
    low materiality
    High
    Operating cash flow
    $2.75 billion
    high materiality
    High
    Capital expenditures
    approximately $250 million
    medium materiality
    High
    Subscription revenue growth
    mid-teens
    high materiality
    High
    Non-GAAP operating margin
    30%
    high materiality
    High

    Operational metrics

    32
    Subscription revenue
    $2.04 billionup 16%
    Q4 FY25

    Benefiting from favorable linearity of new ACV bookings within the quarter.

    Subscription revenue
    $7.718 billiongrowth of 17%
    FY25
    Professional services revenue
    $171 million
    Q4 FY25
    Professional services revenue
    $728 million
    FY25
    Total revenue
    $2.21 billiongrowth of 15%
    Q4 FY25
    Total revenue
    $8.45 billionup 16%
    FY25
    US revenue
    $1.66 billionup 15%
    Q4 FY25
    International revenue
    $556 milliongrowing 16%
    Q4 FY25
    US revenue
    $6.33 billionup 16%
    FY25
    International revenue
    $2.11 billionup 17%
    FY25
    Non-GAAP operating income
    $584 million
    Q4 FY25

    Representing a non-GAAP operating margin of 26.4%. Benefited from revenue outperformance, ongoing cost discipline and improved efficiencies.

    Non-GAAP operating income
    $2.19 billion
    FY25

    Reflecting a non-GAAP operating margin of 25.9%.

    GAAP operating income impact
    $75 million
    Q4 FY25
    Shares repurchased
    $99 million
    Q4 FY25

    Timing and amount impacted by trading constraints.

    Shares repurchased
    $700 million
    FY25

    Helping drive annual dilution below 1% for the year.

    Remaining share repurchase authorization
    $802 million
    year-end FY25
    Cash and marketable securities balance
    $8 billion
    year-end FY25
    Headcount
    20,400
    January 31

    Not reflecting the restructuring that took place in early February, which is expected to reduce workforce by approximately 8%.

    Workforce reduction
    approximately 8%
    early February

    Expected reduction from restructuring.

    Customer expansions with AI SKUs
    30%second consecutive quarter
    Q4 FY25

    Involved one or more AI SKUs, including Extend Pro, Recruiting Agent, Evisort, and Talent Mobility Agent.

    Extend Pro new ACV growth
    more than doubledover Q3
    Q4 FY25
    Recruiting Agent new ACV growth
    nearly doubledfrom Q3
    Q4 FY25
    Recruiting Agent average selling price uplift
    higher than 1.5xhigher than Q3
    Q4 FY25

    Boosts the average selling price of core recruiting solution.

    Transactions processed on platform
    more than 1 trillion
    FY25

    Leveraged by AI for the world's largest and cleanest HR and financial dataset.

    Net new ACV sourced through partners
    more than 15%up from more than 10% last quarter
    Q4 FY25
    Built on Workday partners
    72
    since end of June

    Building and selling applications on the Workday platform.

    Full suite net new wins
    more than 30%
    Q4 FY25

    Climbs to 50% across focused industries (SLED, healthcare).

    Core HCM and financials customers
    over 6,100
    Q4 FY25

    More than 2,000 leveraging full suite.

    Workday Student customers
    more than 135
    Q4 FY25

    Approximately half expected to be live by spring.

    Global Payroll Connect deals
    150
    since October
    Global Payroll Connect partners
    over 22
    Q4 FY25

    Leveraging and building on top of GPC.

    Restructuring expense
    $180 million
    Q1 FY26

    Expected additional expense, excluded from non-GAAP results.

    Industry KPIs

    8
    MetricValueDetails
    Capacity CAPEX$250 millionUSD
    Revenue growth$2.04 billionUSD
    Rpo current rpo$7.63 billionUSD
    Customer account count11,000customers
    Gross retention renewal rate98%%
    Multi product platform attach30%%
    Operating FCF margin rule of 4026.4%%
    Ai product adoption monetization30%%

    Orderbook & backlog

    2
    12-month subscription revenue backlog (cRPO)$7.63 billionend of Q4 FY25

    growing 15%

    Early renewal activity in the quarter was slightly higher than expected and contributed to the outperformance.

    Total subscription revenue backlog$25.06 billionend of Q4 FY25

    up 20%

    Product announcements

    2
    ProductTypeDetails
    Workday Agent System of Recordlaunch
    Policy Agent, Contract Agent, Financial Auditing Agent, Payroll Agentlaunch

    Deals & partnerships

    2
    RandstadStrategic talent partnership

    Brings together Workday Recruiting Agent with Randstad's global candidate data pool to increase hiring efficiencies and drive better talent outcomes for customers.

    5 strategic partnersPartner program for benefits providers

    Signed 5 strategic partners in Q4 for the Workday Wellness program, where benefits providers can build into the platform.

    Risks & headwinds

    3
    Continued macro headwinds in EMEAQ4 FY25 (and ongoing)

    EMEA was a headwind for the full year FY25

    Mitigation: Workday continues to invest in the business internationally and wins large transformation projects when customers are ready to spend, as seen with Bayer and Henkel.

    Strengthening U.S. dollarFY26

    $20 million incremental headwind

    Mitigation: Impact incorporated into FY26 subscription revenue guidance.

    Fragmented operations, increased security risks, and difficulty measuring true value from AI agent sprawlOngoing

    Risk of sprawl as hundreds/thousands of agents are introduced into the market

    Mitigation: Workday Agent System of Record aims to solve this by managing all AI agents (Workday, customer-built, partner-built) on a trusted platform.

    What to watch in Q1 FY26

    5

    AI Agent System of Record adoption

    next quarter
    CurrentStrong interest from customers and partners
    TargetInitial customer deployments and partner integrations

    Why it matters

    Verifies the market's acceptance and initial traction of Workday's new AI management platform, crucial for future monetization.

    We have seen, since that announcement, an incredible uptake in interest both from customers and from our partner community who want to build agents and understand there is a risk of them entering the enterprise in an uncontrolled way.

    Q&A highlights

    6

    Inquired about the vision, scale of investment for Agent System of Record, if restructuring savings are redirected, and if there are lighthouse customers for third-party agent management.

    Carl Eschenbach confirmed restructuring savings are being reinvested into product and technology, specifically for the Agent System of Record, due to incredible customer and partner interest. David Somers added that there's strong interest in managing both Workday and third-party agents.

    “we thought it was absolutely necessary for us to be able to reinvest back in, specifically into the product and technology organization around our Agent System of Record that we announced 2 weeks ago.”

    asked by Mark Murphy · answered by Carl Eschenbach

    2 min read5 chapters

    Detailed Narrative

    01

    AI Strategy and Agent System of Record

    Workday launched the Agent System of Record, a centralized system to manage all AI agents (Workday, customer-built, and partner-built) alongside the human workforce on its trusted platform. This innovation addresses the risk of fragmented operations, increased security concerns, and difficulty measuring AI ROI from agent sprawl. Leveraging over 1 trillion transactions processed in FY25, Workday's AI benefits from the world's largest and cleanest HR and financial dataset, providing unique contextual understanding. The company sees significant monetization opportunities through both seat-based and consumption-based models for its role-based agents.

    02

    Customer Momentum and Industry Focus

    Workday continues to expand its customer base, now serving over 11,000 customers, including more than 60% of the Fortune 500 and 30% of the Global 2000. Q4 saw significant new customer wins and expansions across key industries such as SLED (State and Local Government, Education), Financial Services, and Healthcare. Over 30% of net new wins were full suite solutions, climbing to 50% in focused industries like SLED and healthcare. Workday Student is gaining traction with over 135 customers, including its largest deal ever with Minnesota State Colleges and Universities, and is expanding into Canada and ANZ markets.

    03

    Financials Growth and AI SKU Adoption

    Investments in financials innovation and go-to-market strategies are yielding strong results, with a record number of core FINS wins in Q4 and FY25. Demand for AI solutions is high, with 30% of customer expansions involving one or more AI SKUs for the second consecutive quarter. Extend Pro, which enables customers to build AI applications on the platform, saw its new ACV more than double quarter-over-quarter. Recruiting Agent's new ACV nearly doubled from Q3, boosting the average selling price of the core recruiting solution by more than 1.5x, demonstrating customers' willingness to pay for high ROI solutions.

    04

    Partner Ecosystem Expansion

    Partners are increasingly contributing to Workday's growth, sourcing over 15% of net new ACV in Q4, an increase from over 10% in the prior quarter. The company is actively collaborating with partners to create new lines of business, such as Workday Wellness, which signed 5 strategic partners in Q4. The 'Built on Workday' program continues to gain traction, with 72 partners now building and selling applications on the Workday platform. Additionally, a strategic talent partnership was signed with Randstad to combine Workday Recruiting Agent with Randstad's global candidate data pool, aiming to increase hiring efficiencies.

    05

    International Performance and Leadership Changes

    Despite continued macro headwinds🌐 in EMEA, Workday delivered solid international performance in Q4, particularly in the UK and Germany, which had their strongest quarter of the year. The company is building its foundation in Japan with a new Osaka office. Leadership updates include the retirement of Sayan Chakraborty, a key driver of innovation, and the appointment of Gerrit Kazmaier as the new President of Product and Technology. Kazmaier, formerly of Google and SAP, brings extensive expertise in AI, data, ERP, and enterprise business processes to lead Workday's product and technology strategy.

    AI-generated summary of the company’s earnings call. Not investment advice.