Financial Outlook and Restructuring Details

the restructuring, while incurring short-term costs, is projected to bolster workday’s long-term financial health. The company expects the $180 million restructuring expense to be excluded from its non-GAAP results.GAAP operating margins are anticipated to be approximately 30 and 21 percentage points lower than the Q1 and full-year FY ’26 non-GAAP operating margins, respectively. Workday forecasts its FY ’26 non-GAAP tax rate to be 19%.

Workday anticipates FY ’26 operating cash flow of $2.75 billion, which includes roughly $180 million of cash outflows related to the restructuring, expected to be incurred in the first half of FY ’26.Capital expenditures for FY ’26 are projected to be approximately $250 million,slightly down from FY ’25. The company aims for mid-teens subscription revenue growth and a 30% non-GAAP operating margin in the medium term, while building the foundation to support enduring growth and margin expansion.

Strategic Focus on AI and the Agent System of Record

A central component of Workday’s strategic shift is the growth and expansion of its Agent System of Record. CEO Carl Eschenbach emphasized the necessity of the restructuring to facilitate reinvestment in product and technology, particularly around the Agent System of Record, which was announced two weeks prior to the proclamation. The Agent System of Record is designed to manage both Workday and third-party agents within enterprise systems.

Eschenbach noted the significant interest in the Agent System of Record from both customers and partners, stating, “We have seen, since that proclamation, an amazing uptake in interest both from customers and from our partner community who want to build agents and understand there is a risk of them entering the enterprise in an uncontrolled way.” He emphasized that this investment is driven by the demand and the need to take the Agent System of Record and role-based agents deeper into the enterprise.

David Somers, Chief Product Officer, echoed this sentiment, highlighting the interest in managing both Workday agents and third-party agents within the Agent System of record. Somers stated, “And yes, there — I think there’s — one of the specific questions you asked was interested in not only managing Workday agents within that product but also third-party agents.” He added, “And we see a lot of interest in both of those areas, whether that’s customer-built agents or even third-party partner-built agents being managed within the Agent System of Record.So, once again, a significant opportunity we see to deliver value to our customers there.”

Renewal Opportunities and Customer Engagement

Workday is also focused on maximizing opportunities within its existing customer base. While the company has good visibility on renewal opportunities, it is proactively engaging with customers to offer new products and services, particularly in the area of AI. This proactive approach aims to drive additional revenue and strengthen customer relationships.

Eschenbach highlighted the success of this strategy, noting that Workday was able to sell an AI SKU back into its customer base in more than 30% of transactions for the second consecutive quarter. He specifically mentioned the Recruiter Agent and Extend Pro as examples of AI offerings that have seen significant uptake, with both almost doubling quarter over quarter. “So, we have great visibility in our existing customer base, the renewals,” Eschenbach said, “But more importantly, Kash, as we’ve been doing in the last couple of years, we’re not waiting for renewal to sell back into the customer base the products and SKUs we have today.”

CFO Zane Rowe added that the growth in the upcoming year for renewal opportunities is expected to be similar to the prior year, contributing to the strong cRPO (current remaining performance obligation). he emphasized that the company’s go-to-market motion and ability to sell back into the base are key drivers of growth.

Strategic focus on International Markets

Workday recognizes the significant potential in international markets, particularly in EMEA (Europe, Middle East, and Africa). While EMEA has been more of a headwind than a tailwind in recent periods, the company saw strong results in the U.K.and Germany in Q4. This positive momentum underscores the opportunity for further expansion in these regions.

eschenbach emphasized the long-term opportunity, stating, “75% of our revenue comes from the U.S. and only 25% outside of the U.S. Yet more than 50% of our addressable market is outside of the U.S., and that hasn’t changed.” He highlighted recent wins in Germany with Henkel and Bayer, demonstrating Workday’s ability to compete and win against major competitors in their home markets.

Rowe noted that the company is not anticipating any significant changes in the macro surroundings in Europe and remains pleased with the product, team, and deliverables in the region. Workday plans to continue investing in its international business to capitalize on the substantial market opportunity.

Federal Government Expansion

Workday is aggressively pursuing opportunities within the federal government, recognizing the potential for modernizing outdated systems. Carl Eschenbach highlighted the inefficiencies of the current on-premise ERP, HCM, and financial systems used by many federal agencies.

“If you look at the federal government,while they spend a tremendous amount of money on technology,the systems they have,specifically ERP,HCM,or financial systems,are very antiquated,” Eschenbach explained. “In fact, the majority of them are still on-premise, which means they’re inefficient.”

Recent wins at the Department of Energy and the DIA have provided a springboard for further expansion in the federal market.Despite potential uncertainties, Workday sees a significant opportunity in helping government agencies transition to cloud-based solutions, driving efficiency and improving service delivery.

“If you want to drive efficiencies across the government, there is a starting point called on-premises solution, getting them to the cloud,” Eschenbach noted. “And as we speak to the customers, all of them are looking to leverage Workday and what we have in our best-of-breed platform and applications to better service them more efficiently.”

Global Growth and Partner Ecosystem

Workday is also focused on expanding its global footprint and strengthening its partner ecosystem. The company plans to invest in international markets, not only in go-to-market strategies but also in product development and building capacity in locations like India and Costa Rica.

“We continue to invest internationally,” Eschenbach stated.“And when I say invest internationally, it’s not just in go-to-market, but it’s on the product side. and it’s also to build out more capacities in locations like India and Costa Rica as we look to service a more global footprint of customers.”

The partner ecosystem is playing an increasingly critically important role in Workday’s growth strategy. In the recent quarter,partners contributed over 15% to new ACV,demonstrating the effectiveness of this approach. The Global Payroll connect program,launched in October,has already seen significant traction,with over 150 deals and 22 partners leveraging the platform.

Financial performance and projections

Workday’s financial strategy involves a balanced approach to growth and profitability. The company’s recent performance and future projections reflect this commitment.

Strong Q4 2025 Results

Workday reported a robust Q4 2025, demonstrating a 16% increase in subscription revenue ($2.04 billion) and a 26% non-GAAP operating margin. Total revenue reached $2.21 billion, showcasing the company’s strong market position.

FY26 Guidance

Looking ahead, Workday projects FY26 subscription revenue of approximately $8.8 billion, representing a 14% growth rate. The company anticipates Q1 subscription revenue to be $2.05 billion, a 13-14% increase. Workday also expects a non-GAAP operating margin of approximately 28% for FY26, reflecting its focus on efficient operations.

Professional Services Revenue

workday projects approximately $700 million in professional services revenue for FY26, leveraging its extensive partner network. For Q1, professional services revenue is expected to be $165 million, indicating a steady demand for Workday’s implementation and consulting services.

Restructuring and Reinvestment

To further enhance its strategic focus, Workday is undertaking a restructuring initiative. this restructuring will impact GAAP operating margins,with an additional $180 million expense in Q1 FY26. However, this move is intended to allow reinvestment in the Agent system of Record, a critical component of Workday’s AI strategy.

Operating Cash Flow and Capital Expenditures

Workday projects FY26 operating cash flow to be $2.75 billion, which includes $180 million in restructuring cash outflows. Capital expenditures are estimated at approximately $250 million, slightly down from FY25, indicating efficient capital management.

Mid-Term Objectives

Workday has set ambitious mid-term objectives, aiming for mid-teens subscription revenue growth and a 30% non-GAAP operating margin. These targets reflect the company’s confidence in its growth strategy and operational efficiency.

We’ve obviously laid out a midterm plan to get to 30% plus through FY ’27.

Zane Rowe, CFO, Workday

And what we’ve put out this year, moving it up incrementally to 28% allows us to get there.

Zane Rowe, CFO, Workday

AI and Agent System of Record

A cornerstone of Workday’s future growth strategy is its investment in AI, particularly the Agent System of Record. this system is designed to manage all AI agents, both Workday’s and third-party, providing a unified platform for AI management.

Agent System of Record: A Key Focus

The Agent System of Record is a key focus for Workday, designed to manage all AI agents, both Workday and third-party. Both customers and partners are showing significant interest in this system. The restructuring initiative is directly linked to increased investment in this area, highlighting its strategic importance.

AI Integration and Monetization

Workday is actively integrating generative AI features into its core offerings and exploring new monetization opportunities related to AI. The company is seeing significant uptake of AI SKUs, with some offerings doubling quarter-over-quarter. Notably, over 30% of transactions in the last two quarters included an AI SKU, demonstrating the growing demand for Workday’s AI-powered solutions.

Data Leverage

Workday processes over 1 trillion transactions annually, leveraging a vast HR and financial dataset to enhance its AI capabilities. This extensive data provides a significant competitive advantage,enabling Workday to develop more accurate and effective AI models.

Strategic Partnerships and Global Payroll connect

Workday’s strategic partnerships are contributing significantly to new business, with over 15% of net new ACV sourced through partners in Q4 2025. These partnerships extend Workday’s reach and enhance its service offerings.

Global Payroll Connect Success

David Somers, Chief Product Officer, highlighted the success of Global Payroll Connect, stating, Global payroll Connect has been in 150 deals since we launched back in October. We now have well over 22 partners now leveraging and building on top of GPC already as well.

Eschenbach added, we have more than 150 partners now part of Global Partner Connect already today.

Other Key Factors

Beyond AI and partnerships, several other factors are contributing to Workday’s positive outlook.

Customer Wins

Workday secured significant new clients across various sectors, including healthcare, financial services, and government. The company also expanded relationships with existing clients, demonstrating its ability to retain and grow its customer base.

International Expansion

Workday continues to grow internationally,with strong performance in the UK and Germany,and expansion into new markets like Japan. This global expansion diversifies Workday’s revenue streams and reduces its reliance on any single market.

Leadership Changes

Workday recently announced a key leadership change, with Sayan chakraborty retiring after 10 years. He was succeeded by Gerrit Kazmaier as President of Product and Technology. Kazmaier’s expertise in AI is seen as crucial for Workday’s future, further emphasizing the company’s commitment to AI innovation.

Conclusion

Workday’s future outlook is optimistic, fueled by its strong financial performance, strategic investment in AI, robust partnerships, and unwavering focus on customer success.The Agent System of Record is a significant driver of their growth strategy. While a restructuring will impact GAAP margins in the short term, the long-term goal is enduring growth and margin expansion. The company’s leadership expresses confidence in its ability to continue innovating and expanding its market presence, delivering long-term value to customers and shareholders.

We’re literally looking at every part of the organization on how we scale, how we think of efficiencies, and at the same time, how we continue to invest both organically and inorganically.

Zane Rowe, CFO, Workday