Workday (WDAY) — FY25 results and the single most important development#
Workday reported FY25 revenue of $8.42 billion, a +16.94% year‑over‑year increase, and management tied a meaningful portion of the FY26 guidance upgrade to accelerating AI monetization — specifically that net new ACV from AI products more than doubled in the last quarter and that AI is included in over 75% of net new deals. That combination of clear, quantifiable revenue acceleration and an explicit link between AI adoption and near‑term guidance is the defining development for [WDAY] going into fiscal 2026. The figures come from company-prepared remarks and the FY25 financials released with the quarter, which also included an upward revision to FY26 subscription revenue and a non‑GAAP margin target near 29% (non‑GAAP operating margin) tied to partner-led delivery and AI-driven attach rates Workday: Fiscal 2026 Q2 Prepared Remarks.
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Revenue acceleration, AI attach and the mechanics behind the upgrade#
Workday’s FY25 results show both durable SaaS economics and a revenue inflection that management attributes to AI product attach and cross-sell. The company reported revenue of $8.42B in FY25 versus $7.20B in FY24, a calculated YoY increase of +16.94%, which matches the company’s reported revenue growth figure Workday: Fiscal 2026 Q2 Prepared Remarks. Management highlighted two operational levers: rising attach rates for AI SKUs in expansions and new deals, and incremental net new ACV attributable to AI bundles for hiring, workforce automation and analytics. Those levers are measurable in the quarter: Workday said net new AI ACV more than doubled year‑over‑year and that over 75% of net new deals included at least one AI solution Workday: Fiscal 2026 Q2 Prepared Remarks.
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The commercial effect is visible in subscription guidance: the company raised FY26 subscription revenue to $8.815 billion (management commentary and slides), a step-up that management attributes materially to AI attach and partner-driven distribution Investing.com: Workday Q2 FY26 Slides. Put simply, AI is moving from marketing narrative to quantifiable revenue contribution — a meaningful milestone for an enterprise software incumbent where attach/expansion economics drive both near-term growth and longer-term margin expansion.
Decomposing profitability: margin expansion and cash generation#
Fiscal 2025 shows sequential margin improvement across operating and free cash flow metrics. Operating income rose to $490 million, producing an operating margin of 5.82% on FY25 revenue, versus 1.68% in FY24 — a calculated improvement of +4.14 percentage points. EBITDA was $1.08 billion, implying an EBITDA margin of roughly +12.82% on FY25 revenue, consistent with the company’s historical EBITDA trajectory Workday FY25 financials.
Cash flow is the other side of the quality story. Workday generated $2.46 billion of net cash from operating activities and $2.19 billion of free cash flow in FY25. That free cash flow represents +25.99% of FY25 revenue (2.19 / 8.42 = 0.2599), and it is roughly 4.16x reported net income (2.19 / 0.526 = 4.16x), indicating robust cash conversion versus GAAP earnings. The pattern — high free cash flow relative to reported net income — supports the view that the company’s reported profit improvement is backed by genuine cash generation, not solely accounting gains Workday FY25 cash flow statement.
Tables: historical income statement and balance-sheet / cash-flow snapshot#
| Fiscal Year | Revenue (USD) | Gross Profit (USD) | Operating Income (USD) | Operating Margin | Net Income (USD) | Net Margin |
|---|---|---|---|---|---|---|
| 2025 | 8,420,000,000 | 6,350,000,000 | 490,000,000 | +5.82% | 526,000,000 | +6.25% |
| 2024 | 7,200,000,000 | 5,430,000,000 | 121,000,000 | +1.68% | 1,380,000,000 | +19.19% |
| 2023 | 6,200,000,000 | 4,480,000,000 | -239,580,000 | -3.87% | -366,750,000 | -5.92% |
| 2022 | 5,150,000,000 | 3,720,000,000 | -107,690,000 | -2.09% | 29,000,000 | +0.56% |
(Sources: Workday FY22–FY25 income statements) Workday: Fiscal 2026 Q2 Prepared Remarks.
| Metric | FY25 (USD) | FY24 (USD) | Calculated Notes |
|---|---|---|---|
| Cash & Cash Equivalents | 1,540,000,000 | 2,010,000,000 | per balance sheet Workday FY25 balance sheet |
| Cash & Short-Term Investments | 8,020,000,000 | 7,810,000,000 | includes short-term investments |
| Total Debt | 3,360,000,000 | 3,300,000,000 | total debt on balance sheet |
| Net Debt (cash only) | 1,820,000,000 | 1,280,000,000 | total debt - cash & cash equivalents |
| Net Cash Position (incl. ST investments) | -4,660,000,000 | -4,510,000,000 | total debt - cash & short-term investments (negative indicates net cash) |
| Free Cash Flow | 2,190,000,000 | 1,910,000,000 | FY cash flow statement |
| Common Stock Repurchased | 700,000,000 | 423,000,000 | FY repurchase activity |
(Sources: Workday FY25 balance sheet and cash flow statement) Workday: Fiscal 2026 Q2 Prepared Remarks.
Important data-definition discrepancies and why they matter#
A recurring theme in the data is definitional sensitivity around cash and debt metrics. Using cash & cash equivalents yields a net debt figure of +$1.82 billion (total debt 3.36B minus cash 1.54B). Using cash + short-term investments instead produces an entirely different picture: net cash of -$4.66 billion (total debt 3.36B minus cash & short-term investments 8.02B). The divergence stems from whether short-term investments are treated as immediately available liquidity in net-debt calculations; both conventions appear in reporting and third‑party metrics. For enterprise-value multiples, the company’s published EV/EBITDA (TTM) of 57.2x aligns with the cash‑only convention (market cap + total debt - cash & cash equivalents), while an EV using cash + short‑term investments would lower EV/EBITDA to roughly 51.2x on our calculation (market cap + total debt - cash + short investments) using the public market capitalization (~$59.90B) and FY25 EBITDA of $1.08B [market data, company filings]. This definitional choice materially affects leverage and valuation comparisons with peers and should be explicitly reconciled when benchmarking Investing.com: Workday Q2 FY26 Slides.
Strategic transformation: AI, Agent System of Record and partner-led scale#
Workday’s strategic story in FY25 centers on converting AI capabilities into recurring ACV and shifting implementation economics through partner enablement. The company launched an Agent System of Record (ASOR) and an Agent Gateway to manage, audit and monetize AI agents — a governance-first approach intended to address enterprise buyers’ concerns about compliance and auditability ERP Today; Enterprise Times. Management’s argument is that large HR and finance buyers value centralized controls as much as model performance; Workday’s pitch is integration plus governance, not only capabilities.
On the go‑to‑market side, Workday is scaling WorkdayGO, a partner-first deployment model intended to compress time-to-value (management cited deployments “as short as roughly 60 days”), reduce internal services intensity, and broaden addressable market penetration into the mid‑market. The net economic bet is that partner-led delivery will lower cost-to-serve, preserve gross and operating margin expansion as seat growth scales, and accelerate ARR/ACV generation without a commensurate increase in internal services headcount Workday prepared remarks.
Acquisitions such as Paradox (conversational hiring assistants) and Flowise (developer tools for AI integration) are tactical moves to close capability gaps, shorten customer time-to-value, and accelerate attach. Management presents these deals as revenue-accretive through higher ACV per customer and improved win rates in talent acquisition and analytics deals [ERP Today; CloudWars].
Competitive dynamics: where Workday sits vs SAP, Oracle and ServiceNow#
Workday’s competitive differentiation is integrated product depth in HCM + finance and a governance-first AI layer. Against SAP and Oracle, Workday argues that its seat-based licensing and embedded AI reduce billing fragmentation and increase stickiness for HR and finance record systems. Versus ServiceNow, Workday leans on domain depth in HR and finance where workflow automation touches core systems of record. Those claims are supported by management-cited competitive wins in the quarter (e.g., Trinity Health, Chipotle, Cox Health, Nationwide Insurance), where AI capability and integration reportedly influenced procurement outcomes Workday prepared remarks; earnings call transcript.
However, the moat is not unassailable. Hyperscalers and large enterprise software vendors are investing heavily in integrated AI governance and workflow capabilities. The key risk is feature convergence: if rivals offer comparable governance and tighter hyperscaler economics, Workday’s premium for integrated AI could compress. The company’s defense is partner ecosystem scale and domain-specific agent controls, but execution — particularly scaling partner delivery without eroding customer success — will determine whether that defense is durable.
Capital allocation: buybacks, acquisitions and balance‑sheet posture#
Workday repurchased $700 million of common stock in FY25 and $423 million in FY24, indicating active share-repurchase activity as part of capital allocation. At the same time, the company completed acquisitions with cash outflows (acquisitions net -$825 million in FY25). These moves show a dual focus: return capital to shareholders while selectively building capabilities via M&A. Free cash flow of $2.19 billion supports both activities and still leaves balance-sheet optionality, particularly if short‑term investments are counted as liquid.
From a leverage standpoint, total debt stands at $3.36 billion against shareholders’ equity of $9.03 billion (FY25), which implies a total-debt-to-equity ratio of +37.20% (0.37x). If the company’s net-debt figure is calculated using only cash & cash equivalents the reported net debt is $1.82 billion, but if cash + short-term investments are used, Workday is comfortably net cash. That flexibility matters for future M&A or buybacks Workday FY25 balance sheet.
Quality of earnings: cash conversion and one-offs#
The quality-of-earnings signal is favorable. Operating cash flow of $2.46 billion and free cash flow of $2.19 billion materially exceed net income of $526 million, reflecting strong non-cash and working-capital dynamics as well as the fact that subscription models often produce backloaded cash. The company’s 12‑month subscription backlog (cRPO) grew +16.4%, providing revenue visibility that supports the quality narrative Workday Q2 prepared remarks. There are no material one-off accounting items in the FY25 filings that would suggest earnings were engineered; rather, the combination of higher ACV, improved attach rates and disciplined buybacks/acquisitions appears to be driving the improved metrics.
Risks that would pause or reverse the thesis#
Three principal risks emerge from the data. First, macro-driven elongation of large-enterprise deal cycles could slow multi-year transformational deals and reduce expansion ACV. Workday acknowledged moderated headcount growth among customers and longer procurement timelines in its prepared remarks. Second, attach-rate targets for AI (management is targeting in excess of 30% attach on customer-based deals while reporting over 75% inclusion in net new deals) are ambitious and depend on sustained operationalization of AI in complex HR/finance processes; failure to convert trials and pilots into recurring ACV would blunt the revenue thesis. Third, competitive convergence — either from ERP incumbents or hyperscalers bundling generative capabilities — could compress pricing power and slow win rates. All three risks are real and measurable in future metric releases (ACV composition, renewal rates, cRPO trajectory) and should be monitored quarter-to-quarter Workday prepared remarks; industry press coverage.
What This Means For Investors#
Workday’s FY25 results and FY26 guidance update mean investors should reframe the company as an enterprise SaaS vendor that is actively monetizing AI through attach and productization rather than as a firm still in R&D heavy mode. The metrics to watch going forward are net new AI ACV growth rate, AI SKU attach rate to renewals and expansions, cRPO renewal cadence, and partner-delivered implementation volumes under WorkdayGO. If the company sustains >30% attach on customer-based deals and converts AI inclusion in net new deals into recurring ACV at scale, the revenue and margin thesis becomes self-reinforcing. Conversely, if attach rates plateau or large-deal cycles meaningfully lengthen, revenue catch-up could stall and margin expansion would rely more heavily on non-recurring efficiencies.
Key Takeaways#
Workday posted FY25 revenue $8.42B (+16.94%), free cash flow $2.19B (+25.99% of revenue) and operating income $490M (operating margin +5.82%) while management tied the FY26 subscription upgrade and margin targets to tangible AI adoption metrics — doubled net new AI ACV and AI present in over 75% of net new deals. The company shows strong cash generation and active capital allocation (repurchases and targeted M&A) but investors must resolve definitional discrepancies in net‑debt and EV calculations: using cash & equivalents implies net debt +$1.82B, while including short‑term investments converts the balance sheet into net cash -$4.66B. That definitional choice materially affects leverage and EV multiples and should be reconciled when benchmarking Workday FY25 filings.
Historical context and management execution track record#
Workday’s three-year revenue CAGR and multi-year push into platform capabilities position it differently than its early years when the firm invested heavily in product and scale. The company has moved from uneven operating margins in 2022–2023 to consistent operating leverage in 2024–2025, driven by scale and an intentional shift to partner-led implementations. Management’s track record of translating product investments into ACV has accelerated in the most recent quarter, but the proof point will be sustained quarterly ACV trends and renewal behavior across larger enterprise accounts.
Conclusion — measured implications and what to monitor next#
Workday’s FY25 results mark a tactical inflection: AI is no longer purely aspirational but a measurable driver of new ACV and of the company’s FY26 revenue and margin assumptions. The combination of doubled net new AI ACV, AI present in the majority of net new deals, improved operating margins, and strong free cash flow creates a coherent narrative linking product strategy to financial outcomes. However, the economics are sensitive to definitional choices around liquidity, to the sustainability of AI attach rates outside early adopters, and to macro-induced deal-cycle shifts.
Near-term monitoring should focus on quarter-to-quarter trends in net new AI ACV growth, AI SKU attach rates on expansions and renewals, cRPO renewal cadence, and the pace at which partners absorb implementation work without degrading retention. These metrics will determine whether the FY26 guidance upgrade and the targeted ~29% non‑GAAP operating margin are durable outcomes of structural change or contingent on a limited commercial runway. For now, the data indicate a credible and measurable AI-led acceleration in Workday’s subscription economics — a strategic transformation that is, importantly, already visible in the company’s cash flows and backlog metrics Workday prepared remarks; earnings materials.
(Sources: Workday fiscal disclosures and prepared remarks, Q2 FY26 slides and earnings call transcript; industry press on ASOR and acquisitions) Workday: Fiscal 2026 Q2 Prepared Remarks Investing.com: Workday Q2 FY26 Slides ERP Today: Workday Launches Agent System of Record Enterprise Times: Workday Unveils AI Agent System of Record Investing.com: Earnings Call Transcript Workday Q2 2025.