Workday, Inc. Q1 FY2026 earnings

Workday posted a familiar split in the fiscal 2026 first quarter ended April 30, 2025: steady demand on top, GAAP profitability dented by a restructuring charge below. Total revenue rose 12.6% to $2.240 billion from $1.990 billion in the prior year quarter. Subscription services made up approximately 92% of that total, and subscription services also represented 96% of total unearned revenue. The customer base still numbers more than 11,000 organizations.

Profitability went the other way. GAAP operating income fell 39.1% to $39 million from $64 million, and GAAP operating margin slipped to 1.7% from 3.2%. Net income declined 36.4% to $68 million from $107 million, while diluted earnings per share fell 37.5% to $0.25 from $0.40. The cause is not demand. Workday recorded $166 million of restructuring expense in the quarter tied to the Fiscal 2026 Restructuring Plan announced in February 2025, which cut roughly 7.5% of the workforce. That charge included $132 million for employee transition, severance payments, employee benefits and share-based compensation, plus $34 million for an impairment of office space the company exited.

Strip those items out and the picture inverts. Non-GAAP operating income rose to $677 million, or 30.2% of revenue, from $515 million, or 25.9%, in the prior year quarter. Non-GAAP diluted net income per share came to $2.23 versus $1.74. Cash generation held up as well. Operating cash flow for the quarter rose 22.8% to $457 million from $372 million, helped by higher cash collections. Capital expenditures fell 55.6% to $36 million from $81 million. Free cash flow, a separate measure that subtracts capital spending from operating cash flow, was $421 million compared with $291 million.

Backlog and deferred revenue point to a business that is still compounding. Deferred revenue of $3.88 billion was up 7.3% from $3.61 billion a year earlier. Total subscription revenue backlog reached $24.62 billion, up 19.1%, and the 12-month portion was $7.63 billion, up 15.6%. Gross revenue retention held at approximately 98% as of April 30, 2025. Guidance leans on subscription revenue and margin rather than the restructuring line. For the second quarter ending July 31, 2025, Workday guides to subscription revenue of $2.160 billion, growth of 13.5%, and a non-GAAP operating margin of 28.0%. For the full fiscal year ending January 31, 2026, it reiterates subscription revenue of $8.800 billion, growth of 14.0%, and raises its non-GAAP operating margin target to approximately 28.5%.

The risks are the usual mix for enterprise software plus a few company-specific ones. The 10-Q cites tariffs, elevated inflation, fluctuating interest rates and foreign currency moves, and geopolitical instability as sources of uncertainty. It also flags deal scrutiny and lengthening sales cycles, particularly on net new opportunities, and reduced growth in headcount level commitments when existing customers renew. Workday has offered certain customers more flexible payment terms, which the filing notes could weigh on collections. Security breaches, service outages, competition, reliance on partners, and AI-related regulatory risk round out the list.

Capital returns and cost discipline complete the quarter. Workday repurchased roughly 1.3 million Class A shares for $293 million and, in May 2025, authorized up to an additional $1.0 billion of buybacks. Cash, cash equivalents and marketable securities totaled $7.97 billion as of April 30, 2025. Headcount stood at 20,515, up 6% year over year, a figure that excludes the restructuring reductions. Capital expenditures are expected to be approximately $250 million for fiscal 2026, mostly for office facilities. Two verticals, technology media and manufacturing, each crossed $1 billion in annual recurring revenue, giving management a concrete story as it argues the platform can expand well beyond core human capital management.