Investment Rating - The report assigns an "Overweight" rating to Workday with a price target of $295.00 for December 2025, revised from a previous target of $310.00 [2][14]. Core Insights - Workday is expected to maintain consistent performance despite macroeconomic uncertainties, with positive trends in customer acquisition and revenue growth [1][12]. - The company has reported a significant increase in its 12-month subscription backlog, which reached $7.63 billion, up 15.6% year-over-year, exceeding consensus expectations [1][12]. - Workday's total revenue for the first quarter was $2.24 billion, reflecting a year-over-year growth of 12.6%, driven by subscription revenue growth of 13.4% [1][12]. - The report highlights the company's strong performance in various sectors, particularly in Technology & Media and Manufacturing, each surpassing $1 billion in annual recurring revenue [1][12]. - Workday's operating margin for the first quarter was reported at 30.2%, which is approximately 2 percentage points above consensus estimates, indicating strong operational efficiency [1][12]. Summary by Sections Financial Performance - The first quarter results showed a 12-month subscription backlog of $7.63 billion, up 15.6% year-over-year, and total revenue of $2.24 billion, up 12.6% year-over-year [1][12]. - Subscription revenue was $2.06 billion, reflecting a 13.4% increase year-over-year, with a notable adjustment for leap-year comparisons showing a 15% increase [1][12]. - The adjusted operating margin for the first quarter was 30.2%, expanding over 400 basis points year-over-year, with GAAP free cash flow of $421 million, representing an 18.8% margin [1][12]. Growth Drivers - Workday is focusing on full-suite offerings, with over 30% of new wins in the first quarter being full-suite contracts, consistent with previous quarters [1][12]. - The company is also seeing momentum in its AI product offerings, with new annual contract value (ACV) from AI products more than doubling year-over-year [12][14]. - The launch of WorkdayGO is aimed at midmarket customers, facilitating quicker implementations and contributing to growth in this segment [12][14]. Guidance and Outlook - For the second quarter, Workday anticipates a 12-month subscription backlog growth of 15.5% year-over-year, which is above consensus expectations [12]. - The company maintains its fiscal year 2026 subscription revenue outlook of approximately $8.8 billion, reflecting a 14% year-over-year growth [12]. - Workday's guidance for the second quarter includes a total revenue growth of 12.2% year-over-year, aligning closely with market expectations [12].

Revenue Performance - Total revenues for the three months ended April 30, 2025, were $2.24 billion, a 13% increase from $1.99 billion in the prior year period [120]. - Subscription services revenues were $2.06 billion for the three months ended April 30, 2025, representing a 13% increase from $1.82 billion in the prior year [133]. - The total subscription revenue backlog as of April 30, 2025, was $24.62 billion, up 19% from $20.68 billion a year earlier [136]. Customer Retention and Satisfaction - The gross revenue retention rate was approximately 98% as of April 30, 2025, indicating strong customer satisfaction and retention [134]. Operating Performance - Operating cash flows for the three months ended April 30, 2025, were $457 million, a 23% increase from $372 million in the prior year [120]. - Non-GAAP operating income increased by 32% to $677 million for the three months ended April 30, 2025, compared to $515 million in the prior year [120]. - GAAP operating income decreased to $39 million, or 1.8% of revenues, for the three months ended April 30, 2025, down from $64 million or 3.2% in the prior year [152]. - Non-GAAP operating income increased to $677 million, or 30.2% of revenues, for the three months ended April 30, 2025, compared to $515 million or 25.9% in the previous year [153]. Costs and Expenses - Total costs and expenses for the three months ended April 30, 2025, were $2.20 billion, a 14% increase from $1.93 billion in the prior year, including $166 million in restructuring expenses [138]. - Costs of subscription services increased by 21% to $350 million for the three months ended April 30, 2025, compared to $290 million in the prior year [139]. - Sales and marketing expenses increased to $623 million for the three months ended April 30, 2025, up $50 million or 9% from the prior year [145]. - General and administrative expenses rose to $212 million for the three months ended April 30, 2025, an increase of $11 million or 6% compared to the previous year [147]. - Restructuring expenses amounted to $166 million for the three months ended April 30, 2025, primarily related to employee transition and severance payments [149]. - Share-based compensation expense increased by $74 million to $459 million for the three months ended April 30, 2025, representing 20.5% of total revenues [150]. Cash Flow and Liquidity - Cash provided by operating activities was $457 million for the three months ended April 30, 2025, an increase from $372 million in the prior year [165]. - Free cash flows improved to $421 million for the three months ended April 30, 2025, compared to $291 million for the same period in 2024 [172]. - As of April 30, 2025, the company had cash, cash equivalents, and marketable securities totaling $8.0 billion [161]. - The company expects capital expenditures to be approximately $250 million in fiscal 2026, primarily for office facilities [168]. Market and Investment Risks - A hypothetical increase or decrease of 100 basis points in interest rates would have resulted in an approximately $111 million market value reduction or increase in the investment portfolio as of April 30, 2025 [194]. - The company has significant foreign currency exchange risk, with major exposures to the euro, British pound, Canadian dollar, and Australian dollar as of April 30, 2025 [190]. - The company’s investment portfolio is subject to market risk due to changes in interest rates, which may affect future investment income [193]. - The company does not enter into investments for trading or speculative purposes, focusing instead on preserving capital and meeting liquidity needs [192]. - The Senior Notes have fixed annual interest rates, thus the company does not have economic interest rate exposure on these debt obligations [195]. - The company’s borrowings under the 2022 Credit Agreement are exposed to market risk from changes in underlying index rates, affecting borrowing costs [196]. Strategic Initiatives - The company announced a restructuring plan in February 2025, resulting in a reduction of approximately 7.5% of its workforce [117]. - The company expects to continue investing in strategic growth areas, including innovative AI solutions and international expansion, to drive long-term subscription revenue growth [115]. Accounting Policies - There were no significant changes to the company's critical accounting policies and estimates during the three months ended April 30, 2025 [187]. - The company excludes share-based compensation expenses from non-GAAP financial measures, which are influenced by stock price and other factors beyond its control [182]. - Acquisition-related costs, including direct transaction costs and integration-related expenses, are excluded from non-GAAP financial measures due to their inconsistent nature [182].

Core Viewpoint - Workday Inc experienced a significant decline in stock price following the release of its fiscal first-quarter results, which highlighted mixed performance against market expectations [1]. Financial Performance - Workday reported subscription revenue of $2.059 billion, with a year-on-year growth of 13.4%, surpassing Piper Sandler's estimate of 13.0% [3][5]. - The company achieved an operating margin of 30%, an increase from 26% in the previous quarter, attributed to moderated headcount growth [4]. - Non-GAAP earnings per share were reported at $2.23, exceeding the consensus estimate of $2.01 [8][13]. Subscription Backlog and Guidance - The 12-month subscription backlog (cRPO) grew by 15.6%, above the Street's expectation of 15.1%, although this included contributions from short-term tenant contracts [2]. - Management's guidance for cRPO growth in the fiscal second quarter is set at 15%-16%, which includes the aforementioned contributions [2]. - Analysts noted that the guidance for subscription revenue growth in the second quarter is 13.5%, slightly below the consensus of 13.7% [5][15]. Analyst Ratings and Price Targets - KeyBanc Capital Markets maintained an Overweight rating but reduced the price target from $335 to $325 [2]. - Piper Sandler raised its price target from $230 to $255 while maintaining a Neutral rating [3]. - Goldman Sachs reaffirmed a Buy rating and increased the price target from $275 to $300 [5]. - RBC Capital Markets maintained an Outperform rating with a price target of $340 [12]. - Needham and Citizens also maintained Buy ratings with price targets of $300 and $315, respectively [17][15]. Market Reaction - The market reaction to Workday's results was described as "overblown," with analysts suggesting that revenue growth is back-weighted and driven by already signed deals [6]. - Workday's stock fell by 12.04% to $239.32 following the earnings announcement [19].

Group 1 - Workday, Inc. (NASDAQ: WDAY) reported a strong first quarter for fiscal 2026, with revenue, margins, and guidance meeting or exceeding expectations [1] - Following the earnings report, Workday's stock initially gained 1.3% but then experienced a surprising drop [1] Group 2 - The company is focused on operational performance, indicating a solid start to the fiscal year [1] - Analysts noted that the results checked nearly every operational box, suggesting a robust business model [1]

Market Overview - Market indexes showed resilience against high bond yields, with the 30-year bond yield at +5.05%, the highest in 18 years, but moderated from previous spikes [1] - Major indexes finished flat, with the Dow, S&P 500, and Russell 2000 remaining unchanged, while the Nasdaq closed up +53 points (+0.28%) [2] - Despite being in the red over the past five trading days, the indexes have seen double-digit gains over the past month [2] Quarterly Earnings Summary - **Workday (WDAY)**: Reported Q1 earnings of $2.23 per share on $2.4 billion in sales, beating previous figures of $1.99 per share and $2.22 billion. However, shares fell -5% due to steady guidance and reduced capex spending [3] - **Deckers Outdoor (DECK)**: Earnings of $1.00 per share exceeded the Zacks consensus of 57 cents, with revenues of $1.02 billion surpassing expectations of $988.6 million. Shares dropped -11% due to lower-than-expected guidance for the current quarter and full-year guidance held back due to tariff issues [3] - **Intuit (INTU)**: Surpassed earnings expectations with $11.65 per share against a consensus of $10.89, and revenues of $7.75 billion exceeding the $7.54 billion forecast. Shares rose +5% following a significant increase in next-quarter guidance driven by Credit Karma growth [4] - **Ross Stores (ROST)**: Beat earnings estimates by 4 cents with $1.47 per share on $4.98 billion in revenues, slightly above consensus. Same-store sales were flat but improved from a projected decline. Shares fell -9% due to lower next-quarter earnings guidance attributed to tariff pressures [5] - **AutoDesk (ADSK)**: Reported Q1 earnings of $2.29 per share, beating the anticipated $2.14, with revenues of $1.63 billion slightly above the forecast of $1.61 billion. Shares gained +5% due to positive next-quarter guidance [6]

Core Insights - Workday reported revenue of $2.24 billion for the quarter ended April 2025, reflecting a year-over-year increase of 12.6% and a surprise of +1.10% over the Zacks Consensus Estimate of $2.22 billion [1] - Earnings per share (EPS) for the quarter was $2.23, compared to $1.74 in the same quarter last year, resulting in an EPS surprise of +12.06% against the consensus estimate of $1.99 [1] Financial Performance Metrics - Subscription revenue backlog stood at $24.62 billion, slightly below the estimated $25.32 billion by analysts [4] - Subscription services revenue reached $2.06 billion, exceeding the average estimate of $2.05 billion, marking a year-over-year increase of +13.4% [4] - Professional services revenue was reported at $181 million, surpassing the average estimate of $165.09 million, with a year-over-year change of +3.4% [4] Stock Performance - Workday's shares have returned +19.4% over the past month, outperforming the Zacks S&P 500 composite's +13.4% change [3] - The stock currently holds a Zacks Rank 5 (Strong Sell), indicating potential underperformance relative to the broader market in the near term [3]

Core Viewpoint - Workday reported quarterly earnings of $2.23 per share, exceeding the Zacks Consensus Estimate of $1.99 per share, and showing an increase from $1.74 per share a year ago, representing an earnings surprise of 12.06% [1][2] Financial Performance - Workday's revenues for the quarter ended April 2025 were $2.24 billion, surpassing the Zacks Consensus Estimate by 1.10%, and up from $1.99 billion year-over-year [2] - The company has consistently surpassed consensus EPS estimates over the last four quarters [2] Stock Performance - Workday shares have increased approximately 4.1% since the beginning of the year, while the S&P 500 has declined by 0.6% [3] Future Outlook - The company's earnings outlook is crucial for assessing future stock performance, with current consensus EPS estimates at $2.02 for the coming quarter and $8.40 for the current fiscal year [7] - The estimate revisions trend for Workday is currently unfavorable, resulting in a Zacks Rank 5 (Strong Sell), indicating expected underperformance in the near future [6] Industry Context - The Internet - Software industry, to which Workday belongs, is currently ranked in the top 26% of over 250 Zacks industries, suggesting a favorable environment for stocks in this sector [8] - Guidewire Software, another company in the same industry, is expected to report quarterly earnings of $0.46 per share, reflecting a year-over-year increase of 76.9% [9]

Investor Presentation Workday assumes no obligation for, and does not intend to update, any forward-looking statements, except as required by law. Any unreleased services, features, functionality or enhancements referenced in any Workday document, roadmap, blog, our website, press release or public statement that are not currently available are subject to change at Workday's discretion and may not be delivered as planned or at all. Customers who purchase Workday services should make their purchase decisions ...

Financial Data and Key Metrics Changes - Workday reported a 13% growth in subscription revenue, totaling $2,059 million for Q1 FY 2026, with total revenue reaching $2,240 million, also up 13% [28][30] - Non-GAAP operating margin for the quarter was 30.2%, while GAAP operating income was impacted by a $166 million restructuring charge, resulting in a GAAP operating income of $39 million [30][31] - The twelve-month subscription revenue backlog (CRPO) increased by 15.6% to $7,630 million, and total subscription revenue backlog rose by 19% to $24,620 million [29][30] Business Line Data and Key Metrics Changes - More than 30% of net new wins in Q1 were full suite, with over 50% in focused industries like healthcare and SLED [11][43] - New ACV from AI products more than doubled year-over-year, with approximately 25% of customer expansions including AI solutions [12][88] - Professional services revenue was $181 million, contributing to the overall revenue growth [28] Market Data and Key Metrics Changes - U.S. revenue in Q1 totaled $1,680 million, up 13%, while international revenue also grew by 13% to $559 million [28][29] - The company saw notable wins in EMEA and APAC, with significant expansions in various sectors including healthcare and manufacturing [24][25] Company Strategy and Development Direction - Workday is focusing on AI integration and innovation, with a strong emphasis on delivering ROI for customers [20][26] - The launch of Workday Go aims to accelerate deployment for medium enterprises, allowing implementations in as little as 30 to 60 days [14][51] - The company is investing heavily in AI and expanding its partner ecosystem to drive growth and innovation [21][72] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining guidance despite macroeconomic uncertainties, citing strong customer demand and the value proposition of the Workday platform [40][42] - The company is closely monitoring specific markets like SLED and international business for potential impacts from the macro environment [25][108] - Management highlighted the importance of AI in driving customer engagement and future growth, with expectations for continued strong adoption [88][98] Other Important Information - Workday ended the quarter with $8 billion in cash and marketable securities and announced a new $1 billion open-ended buyback authorization [31] - The company is maintaining its FY 2026 operating cash flow outlook of $2,750 million and capital expenditures of approximately $250 million [35] Q&A Session Summary Question: Can you discuss the current macro environment and how it affects guidance? - Management noted that the Workday value proposition remains strong, with customers consolidating on the platform for better ROI and TCO, despite some headwinds in specific industries [40][41] Question: What is the potential impact of Workday Go on medium enterprises? - Workday Go is designed to accelerate deployment and improve pricing and packaging for medium enterprises, allowing for faster implementations [51][52] Question: How is the adoption of Xtend and XtendPro progressing? - Adoption of Xtend and XtendPro is increasing, with significant growth in partner applications and customer customizations [58][60] Question: What are the growth rates for HCM versus Financials? - Both HCM and Financials are performing well, with a strong sales motion for full suite offerings contributing to overall growth [62][64] Question: How is the company approaching capital allocation in the current environment? - The focus remains on organic growth and strategic investments, with a commitment to returning capital to shareholders through buybacks [84][85] Question: What is the outlook for AI product monetization? - Strong adoption of AI solutions is already being seen, with expectations for continued growth and monetization opportunities in the near future [98][99]

Workday (WDAY) Q1 2026 Earnings Call May 22, 2025 04:30 PM ET Speaker0 Welcome to Workday's first quarter full year twenty twenty six earnings call. At this time, all participants are in a listen only mode. We will conduct a question and answer session towards the end of the call. During the Q and A, please limit your questions to one. I will now hand it over to Justin Furby, Vice President of Investor Relations. Speaker1 Thank you, operator. Welcome to Workday's first quarter fiscal twenty twenty six earni ...