Workday(WDAY) - 2026 Q1 - Quarterly Report

Revenue Performance - Total revenues for the three months ended April 30, 2025, were $2.24 billion, a 13$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$1.82 billion in the prior year [133]. - The total subscription revenue backlog as of April 30, 2025, was $24.62 billion, up 19$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$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$64 million or 3.2% in the prior year [152]. - Non-GAAP operating income increased to $677 million, or 30.2$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$1.93 billion in the prior year, including $166 million in restructuring expenses [138]. - Costs of subscription services increased by 21$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$212 million for the three months ended April 30, 2025, an increase of $11 million or 6$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].