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01/10 16:15
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A reveal strong financial performance, strategic acquisitions, and growing AI solutions. The company increased its FY '26 subscription revenue and operating margin guidance, indicating confidence in future growth. Acquisitions like Paradox and Sana are positively impacting growth, and AI solutions are contributing significantly to ARR. Despite some lack of specific guidance, overall sentiment is positive, with strong international growth and a robust M&A strategy. The positive outlook on subscription revenue and AI growth suggests a likely stock price increase in the short term.
Subscription Revenue $2.244 billion, up 15% year-over-year. Growth attributed to strong execution across the portfolio and acquisitions like Paradox.
Professional Services Revenue $188 million, resulting in total revenue of $2.432 billion, growth of 13% year-over-year. Growth driven by continued progress in key growth initiatives.
U.S. Revenue $1.825 billion, up 12% year-over-year. Growth attributed to strong domestic performance.
International Revenue $607 million, up 13% year-over-year. Growth driven by solid performance across EMEA, APAC, and Japan.
12-month Subscription Revenue Backlog (cRPO) $8.21 billion, increasing 17.6% year-over-year. Growth includes over a point from the Paradox acquisition.
Total Subscription Revenue Backlog $25.96 billion, up 17% year-over-year. Gross revenue retention rates remained healthy at 97%.
Non-GAAP Operating Income $692 million, representing a non-GAAP operating margin of 28.5%. Growth driven by targeted investments and operational efficiencies.
Operating Cash Flow $588 million, growth of 45% year-over-year. Growth attributed to strong execution and operational efficiencies.
Headcount 20,588 workmates globally, including roughly 600 from the Paradox acquisition.
Workday GO Expansion: Major expansion of Workday GO, including Global Payroll, an expanded partner network, and a new AI-powered deployment agent that can cut implementation time by up to 25%.
AI Product Adoption: More than 75% of core customers are using Workday Illuminate AI, driving over 1 billion AI actions this year. AI products added more than 1.5 points of ARR growth in Q3.
Acquisitions: Acquired Sana, an AI-native platform, to enhance user experience and skill development. Announced intent to acquire Pipedream, a low-code integration platform for AI agents.
Industry Growth: Healthcare became the sixth industry to exceed $1 billion in ARR. Tech, media, and financial services also performed strongly.
International Expansion: Solid performance across EMEA, APAC, and Japan. Announced Workday EU Sovereign Cloud and established an AI Center of Excellence in Dublin. Opened a new office in Dubai.
Revenue Growth: Subscription revenue grew 15% to $2.244 billion. Total revenue grew 13% to $2.432 billion.
Operating Margin: Non-GAAP operating margin reached 28.5% in Q3.
Cash Flow: Operating cash flow grew 45% to $588 million in Q3.
AI Strategy: Focused on building AI-powered agents for HR and finance to deliver measurable business value. Expanded partnerships with Microsoft and others to enhance AI capabilities.
Defense and Public Sector: Successful go-live with the Department of Energy and nearing completion of the first phase with the DIA, opening long-term opportunities in defense and intelligence sectors.
Federal and SLED Funding Impacts: Some institutions relying heavily on federal grants, particularly in higher education, experienced delays or impacts due to fiscal funding issues. This could affect future engagements and revenue from these sectors.
Government Shutdown: The weeks-long government shutdown caused disruptions, though engagement across federal agencies remained high. This presents a risk to consistent operations and revenue from public sector clients.
Economic Sensitivity in Higher Education: Institutions in higher education that depend on federal grants showed isolated impacts, indicating potential vulnerabilities in this sector.
Integration and Execution Risks: The company is making significant investments in AI talent, acquisitions, and new markets. These initiatives carry risks related to integration, execution, and achieving expected returns.
Geopolitical and Data Sovereignty Challenges: The launch of the Workday EU Sovereign Cloud to address data localization and security needs in the EU highlights potential challenges in meeting regulatory and geopolitical requirements.
Customer Retention and Competition: While customer retention rates are high, competitive pressures are evident, as seen in the example of a customer returning to Workday after switching to a competitor and regretting the decision.
Q4 FY 2026 Subscription Revenue: Expected to be $2.355 billion, reflecting 15% growth. This includes revenue from the Sana acquisition and the expected delivery on the first phase of the DIA contract.
FY 2026 Subscription Revenue: Projected to reach $8.828 billion, representing 14% growth. This guidance is consistent with prior views, excluding the contribution from the Sana acquisition.
Q4 FY 2026 cRPO Growth: Anticipated to increase between 15% and 16%, including approximately 0.25 point of expected growth from the Sana acquisition and over 1 point of impact from tenants.
FY 2026 Professional Services Revenue: Expected to be $715 million.
FY 2026 Non-GAAP Operating Margin: Projected to be approximately 29% for the full year.
FY 2026 Operating Cash Flow: Increased outlook to $2.90 billion, with capital expenditures expected to be approximately $200 million, resulting in free cash flow of $2.70 billion, a growth of 23%.
FY 2027 Subscription Revenue Growth: Expected to grow approximately 13%, consistent with the view shared in September at the Analyst Day.
Q1 FY 2027 Subscription Revenue Growth: Projected to grow approximately 14% year-over-year and remain flat sequentially, reflecting typical seasonality from Q4 and the expected revenue from DIA in Q4, which does not extend into Q1.
FY 2028 Subscription Revenue CAGR: Targeting a compound annual growth rate of 12% to 15% through FY 2028, along with continued margin expansion on both a GAAP and non-GAAP basis.
Share Buyback Program: We made good progress in Q3, repurchasing $803 million of our shares during the quarter and $1.4 billion year-to-date. We plan to repurchase an additional $3.6 billion through the end of FY '27, leading to $5 billion in total repurchases. As of October 31, we had $4.4 billion remaining under our current authorization.
The earnings call summary and Q&A reveal strong financial performance, strategic acquisitions, and growing AI solutions. The company increased its FY '26 subscription revenue and operating margin guidance, indicating confidence in future growth. Acquisitions like Paradox and Sana are positively impacting growth, and AI solutions are contributing significantly to ARR. Despite some lack of specific guidance, overall sentiment is positive, with strong international growth and a robust M&A strategy. The positive outlook on subscription revenue and AI growth suggests a likely stock price increase in the short term.
Workday's earnings call reflects positive sentiment with strong subscription revenue growth, AI product expansion, and strategic acquisitions like Paradox. Despite concerns about AI disruption, Workday's robust customer base and high retention rates mitigate these fears. The Q&A highlights positive AI adoption, strong international performance, and strategic government sector focus. While some financial details were vague, the overall tone and strategic initiatives suggest a positive market reaction, likely resulting in a 2% to 8% stock price increase.
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