Why is the FY27 guidance conservative, given AI progress? Does it reflect slow agentic adoption or Q4 execution issues, and is this a 'reset the bar' moment?

Aneel stated he hopes to significantly surpass the guide, noting agentic opportunities are more second-half based and the Flex Credits consumption model has a revenue delay. Zane clarified that the guidance hasn't changed materially from 90 days ago, business is similar, and the Q4 DIA contract impact and deal elongation were factors. He emphasized no shift in guidance philosophy, but acknowledged Aneel's desire to beat the guide. “I do try to be conservative on the guide and then beat it.”

Does the focus on organic innovation mean M&A will take a backseat? What is the inorganic contribution to the FY27 subscription revenue guidance?

Aneel confirmed that the primary focus is on organic development of agents, but they will remain opportunistic for exciting companies. Zane stated that no material inorganic component is expected in the FY27 guidance, similar to how past guidance has been framed. “Our focus really right now is on the organic development of agents.”

Can you explain the $25 million sequential decline in Q1 subscription revenue, given the $15 million non-recurring revenue in Q4 and the subscription model?

Zane explained that the sequential decline is primarily due to the DIA contract, which benefited Q4 but is not included in the Q1 forecast, along with fewer days in Q1 (seasonal component) and deals that pushed from Q4, some of which closed in Q1 and others later in FY27. He reiterated that gross retention remains strong at 97%. “nothing material beyond what I called out with the DIA contract that clearly had a benefit in Q4 and is not expected to continue in Q1.”

WDAY

Workday (WDAY) Q4 FY26 earnings call: guidance and Q&A

Earnings call· Jan 2026 (Q4 FY26)· Information Technology· Feb 24, 2026

Source: earnings call transcript

Executive summary

Workday Q4 FY26 — AI-driven Innovation and Strong Customer Expansion

Workday is entering "Chapter 4," a renewed focus on AI-driven innovation to reaccelerate growth by marrying deterministic enterprise applications with probabilistic AI. While near-term growth and margin expansion are impacted by strategic investments in AI and some deal elongation, the company is optimistic about the long-term potential of its organic and acquired agentic solutions, particularly as the Flex Credits consumption model gains traction in the second half of FY27 and beyond.

Highlights

Q4 subscription revenue was $2.360 billion, up 16% year-over-year.
Full year FY26 subscription revenue reached $8.833 billion, growing 14% year-over-year.
New ACV from emerging AI products exceeded $100 million in Q4, growing over 100% year-over-year, with overall AI ARR now over $400 million.
Non-GAAP operating margin for Q4 was 30.6%, and 29.6% for the full year FY26.
Full year FY26 free cash flow grew 27% to $2.78 billion, with Q4 free cash flow at $1.22 billion.

Concerns

Some net new large enterprise deals took longer to close in Q4, particularly in Fed, SLED, and healthcare.
FY27 subscription revenue guidance of 12% to 13% growth implies a slower pace than previous targets, impacted by increased AI investments.
Q1 FY27 subscription revenue is expected to decline sequentially due to the non-recurrence of the DIA contract and deal elongation.
FY27 non-GAAP operating margin guidance of 30% reflects a slower pace of expansion than previously communicated due to accelerated AI investments.

Guidance & targets

Category	Target	Timeline	Confidence
FY27 Subscription Revenue	$9.925 billion to $9.950 billion high materiality	FY27	High
Q1 FY27 Subscription Revenue	approximately $2.335 billion medium materiality	Q1 · FY27	High
Q1 FY27 cRPO Growth	between 14.5% and 15.5% medium materiality	Q1 · FY27	High
Q2 FY27 Subscription Revenue Sequential Growth	roughly 5% sequentially medium materiality	Q2 · FY27	High
FY27 Professional Services Revenue	approximately $710 million low materiality	FY27	High
Q1 FY27 Professional Services Revenue	$180 million low materiality	Q1 · FY27	High
FY27 Non-GAAP Operating Margin	approximately 30% high materiality	FY27	High
Q1 FY27 Non-GAAP Operating Margin	30.5% medium materiality	Q1 · FY27	High
FY27 GAAP Operating Margin	approximately 18 to 19 points lower than our non-GAAP operating margin low materiality	FY27	High
Q1 FY27 GAAP Operating Margin	approximately 19 points lower than our non-GAAP operating margin low materiality	Q1 · FY27	High
FY27 Non-GAAP Tax Rate	19% low materiality	FY27	High
FY27 Operating Cash Flow	$3.450 billion medium materiality	FY27	High
FY27 Capital Expenditures	approximately $270 million low materiality	FY27	High
FY27 Free Cash Flow	$3.180 billion medium materiality	FY27	High
Medium-term Subscription Revenue Growth Targets	12% to 15% high materiality	Medium-term	Medium
Medium-term Operating Margin Target (FY28)	update later on in the year high materiality	FY28	Low

Segment performance

Segment	Revenue	YoY	QoQ	Margin
U.S. Revenue Q4 FY26 revenue for the U.S. market.	$1.91 billion	15%	—	—
U.S. Revenue Full year FY26 revenue for the U.S. market.	$7.18 billion	13%	—	—
International Revenue Q4 FY26 revenue for international markets.	$626 million	13%	—	—
International Revenue Full year FY26 revenue for international markets.	$2.38 billion	12%	—	—

WDAY operating KPIs by quarter

WDAY operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Jan 2025 Q4 FY25	Jul 2025 Q2 FY26	Oct 2025 Q3 FY26	This call Jan 2026 Q4 FY26	Apr 2026 Q1 FY27	Jul 2026 Q2 FY27	Change vs prior quarter
Customers	11K+ Workday now serves more than 11,000 customers across industries and geographies, including more than 60% of the Fortune 500 and 30% of the Global 2000. Source: earnings call transcript	11K+ We have over 11,000 customers today, a strong installed base that includes 65% of the Fortune 500. Source: earnings call transcript	—	11.5K+ With over 11,500 global customers, expansions remain our largest growth engine. Source: earnings call transcript	11.5K+ We're start-up sitting on one of the most important enterprise platforms ever built and the trust of more than 11,500 customers. Source: earnings call transcript	—	—
Remaining performance obligation (RPO) 12-month subscription revenue backlog	$7.63B 12-month subscription revenue backlog, or cRPO, was $7.63 billion at the end of Q4, growing 15%. Source: earnings call transcript	$7.91B 12-month subscription revenue backlog, or cRPO, was $7.91 billion at the end of Q2, increasing 16.4%. Source: earnings call transcript	$8.21B 12-month subscription revenue backlog or cRPO, was $8.21 billion at the end of Q3, increasing 17.6%. Source: earnings call transcript	$8.83B 12-month subscription revenue backlog or cRPO was $8.83 billion at the end of Q4, growing 15.8%. Source: earnings call transcript	$8.81B 12-month subscription revenue backlog or cRPO, was $8.81 billion at the end of Q1, growing 15.5%. Source: earnings call transcript	$9.03B 12-month subscription revenue backlog or CRPO, ended the quarter at $9.03 billion, an increase of 14.2%. Source: earnings call transcript	+2.5%
Remaining performance obligation (RPO) Subscription revenue backlog	$25.06B Total subscription revenue backlog at the end of Q4 was $25.06 billion, up 20%, and gross revenue retention rates remained strong at 98%. Source: earnings call transcript	$25.37B Total subscription revenue backlog at the end of the quarter was $25.37 billion, up 18%, and gross revenue retention rates remained healthy at 97%. Source: earnings call transcript	$25.96B Total subscription revenue backlog at the end of the quarter was $25.96 billion, up 17%, and gross revenue retention rates remained healthy at 97%. Source: earnings call transcript	$28.1B Total subscription revenue backlog at the end of Q4 was $28.1 billion, up 12%. Source: earnings call transcript	$27.29B Total subscription revenue backlog at the end of Q1 was $27.29 billion, up 11%. Source: earnings call transcript	$27.4B Total subscription revenue backlog ended Q2 at $27.4 billion, up 8% from a year ago. Source: earnings call transcript	+0.4%
Employees	~20.4K Our head count as of January 31 was approximately 20,400 Workmates, not reflecting the restructuring that took place in early February, which we expect will reduce our workforce by approximately 8%. Source: earnings call transcript	~19.5K Our headcount as of July 31 stood at approximately 19,500 Workmates around the globe. Source: earnings call transcript	20.588K Our head count as of October 31, stood at 20,588 workmates around the globe, including roughly 600 workmates from the Paradox acquisition. Source: earnings call transcript	21.07K Our head count as of January 31 was 21,070 workmates around the globe. Source: earnings call transcript	20.834K Our headcount as of quarter end stood at 20,834 workmates around the globe. Source: earnings call transcript	20.896K Our headcount as of quarter end stood at 20,896 workmates around the globe. Source: earnings call transcript	+0.3%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

12-month subscription revenue backlog (cRPO) $8.83 billion Q4 FY26

up 15.8%

Total subscription revenue backlog $28.1 billion Q4 FY26

up 12%

Product announcements

Product	Type	Timeline
Sana Core and Sana Enterprise	launch	February 15
12 New Organically Developed Role-Based Agents	milestone	starting to move into general availability
Self-Service Agent, Planning Agent, Deployment Agent, Payroll Agent, Business Process Optimize Agent	launch	March (with R1 release)

Deals & partnerships

Anthropic customer contract

Workday expanded its relationship with Anthropic in Q4.

Ally Financial customer contract

Workday expanded its relationship with Ally Financial in Q4.

Otis Elevator customer contract

Workday expanded its relationship with Otis Elevator in Q4.

Accenture partnership

Accenture is a key design partner for Workday's Agent System of Record and is among the first customers to sign on to use the new Flex Credits pricing model.

Nike customer contract

Nike is among the first of nearly 50 customers signing on to use Workday's new Flex Credits pricing model.

Merck customer contract

Merck is among the first of nearly 50 customers signing on to use Workday's new Flex Credits pricing model.

Boston Children's Hospital customer contract

Workday formed a new strategic relationship with Boston Children's Hospital in Q4.

State of New York Unified Court System customer contract

Workday formed a new strategic relationship with the State of New York Unified Court System in Q4.

Sargent & Lundi customer contract

Workday formed a new strategic relationship with Sargent & Lundi in Q4.

Lyra Health partnership

Lyra Health was welcomed to the Workday Wellness program in Q4, expanding employee services.

Empathy partnership

Empathy was welcomed to the Workday Wellness program in Q4, expanding employee services.

Airvet partnership

Airvet was welcomed to the Workday Wellness program in Q4, expanding employee services.

Risks & headwinds

Elongation of large enterprise deals Q4 FY26, extending into FY27

Impacted the volume of net new deals that closed in Q4, particularly in Fed, SLED, healthcare, and parts of the commercial market.

Mitigation:Most opportunities remain active in the pipeline, and some have already closed in Q1 FY27. Workday is focused on accelerating time to value and broader adoption of its platform.

Slower pace of non-GAAP operating margin expansion FY27

FY27 non-GAAP operating margin expected to be approximately 30%, a slower pace than previously communicated.

Mitigation:This is a strategic decision to prioritize accelerated AI investment across both product and go-to-market, aiming for a more durable growth profile and long-term operating profit and free cash flow optimization.

Sequential decline in Q1 FY27 subscription revenue Q1 FY27

Q1 FY27 subscription revenue anticipated to be approximately $2.335 billion, a sequential decline from Q4 FY26's $2.360 billion.

Mitigation:The decline is primarily due to the DIA contract, which added nearly 1 point to Q4 subscription revenue growth and is not expected to continue in Q1, combined with fewer days in Q1 and deals that pushed from Q4.

Q&A highlights

How is Aneel shaping Workday's AI strategy, differentiating it, and pushing for a more aggressive organic AI product roadmap, potentially achieving 'zero-day close' or 'agentic consolidation'?

Aneel expressed optimism about agentic solutions, highlighting the rapid growth of acquired solutions and the potential of deeply embedded organic solutions. Gerrit elaborated on the 'lights out finance' vision, which involves continuous AI for finance processes like compliance autopilot and real-time bookings, all integrated through the Sana AI user experience for both back-end automation and front-end innovation.

“It's like peanut butter and jelly, they just go together.”

asked by Mark Murphy · answered by Aneel Bhusri

2 min read 6 chapters

Detailed narrative

Workday's Chapter 4: Return to Innovation with AI

Aneel Bhusri's return to the CEO role marks "Chapter 4" for Workday, signaling a renewed focus on innovation, particularly with AI. He emphasizes that AI will transform HR and finance by marrying deterministic enterprise applications with probabilistic AI, leading to redefined user experiences, improved business process automation, and deeper AI-generated insights.

This hybrid approach is crucial for systems of record that require 100% accuracy, unlike purely probabilistic AI outcomes.

AI Strategy & Agentic Solutions Momentum

Workday is building a "context and tools engine for AI" leveraging its deep HR and finance data, business process framework, and robust security model. The company delivered 1.7 billion AI actions across its platform in FY26. Commercially, new ACV from emerging AI products exceeded $100 million in Q4, growing over 100% year-over-year, with the overall ARR from these solutions now surpassing $400 million, demonstrating significant early traction.

Organic vs. Acquired AI Growth & Product Rollouts

While acquired solutions like HiredScore, Evisort, Paradox, and Sana have shown rapid growth, Workday's primary focus for FY27 and beyond is on organically built agents. Twelve new role-based agents are moving into general availability, with over 400 customers already using them.

Key agents like Self-Service Agent, Planning Agent, Deployment Agent, Payroll Agent, and Business Process Optimize Agent are entering general availability with the R1 release in March.

Sana Integration and Internal AI Acceleration

Sana Core and Sana Enterprise achieved general availability on February 15, just three months post-acquisition, showcasing rapid integration. Sana brings conversational AI directly into Workday and extends to other enterprise tools, creating new engagement methods for 75 million users. Internally, Workday uses AI to dramatically accelerate product innovation, with over 75% of software engineers using AI coding assistance and more than 50% of committed code being AI-generated, resulting in a 22% growth in engineering output over the last six months.

Customer Trust, Expansion, and Market Dynamics

Workday continues to benefit from high customer trust, evidenced by a 97% gross revenue retention rate. Expansions remain the largest growth engine, with AI-inclusive deals being nearly 50% larger on average in Q4. The new Flex Credits pricing model, designed to align spend with value, is gaining traction with nearly 50 customers.

While net new medium enterprise deals are strong, some large enterprise deals are experiencing longer sales cycles, particularly in government and healthcare sectors.

Monetization of AI and Ecosystem Strategy

Workday plans to monetize programmatic access to its platform, including third-party agents, through a tiered pricing structure based on Flex Credits and API calls. This strategy ensures Workday captures value from its underlying intelligence layer, metadata, security model, and business process framework, regardless of whether applications are built by Workday or third parties.

This approach positions Workday as a foundational layer for the AI ecosystem, similar to hyperscalers.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.