Workday (WDAY) Q2 2025 Earnings Call Highlights: Focus on AI Innovation and Sustained Growth

Workday delivered solid financial results for Q2 2025, with a 17% growth in subscription revenue and a 25% non-GAAP operating margin. Despite ongoing scrutiny in deal cycles and slower headcount growth across customers, Workday's strong win rates and customer momentum demonstrate its resilience and value in a challenging market. CEO Carl Eschenbach emphasized the company’s continued focus on driving value through AI-powered HR and financial management solutions.

Key Growth Areas

Expansion Across Industries

Workday continues to gain traction across diverse industries, with new customer relationships and expanded partnerships in sectors such as healthcare, higher education, and government. Notable wins in Q2 include Lam Research, Trinity Health, Clemson University, and Johns Hopkins. Workday’s global expansion remains strong, with significant growth in regions like EMEA, Japan, and Australia. Key wins include the Ministry of New Zealand and Kelsian Group Limited in Australia.

Financial Management Momentum

A major milestone for Workday was surpassing 2,000 customers for its Workday Financial Management product. Workday was also ranked the market share leader for worldwide SaaS ERP revenue in 2023 by Gartner. This is a testament to Workday’s increasing influence in cloud ERP, with companies moving away from legacy systems and toward cloud-based financial solutions.

AI and Innovation: Transforming HR and Finance

Workday's AI-driven solutions are proving to be a significant differentiator. With over 70 million users on its platform and 800 billion transactions processed annually, Workday has access to one of the largest, cleanest data sets in HR and finance, which allows its AI models to deliver unparalleled productivity and efficiency improvements.

AI-Powered Product Innovations

In Q2, Workday introduced new AI capabilities in its HCM platform, particularly for skills-based talent management. Acquisitions like HiredScore have been integrated into Workday's offerings, helping companies optimize recruitment processes and internal talent mobility. For example, Southwest Airlines hailed HiredScore as a "game changer" in talent management.

Additionally, the introduction of Workday Extend Developer Copilot, which leverages generative AI to accelerate application development, has significantly enhanced the capabilities of Workday Extend, one of its fastest-growing SKUs.

Financial Highlights

• Revenue Growth: Workday reported $1.903 billion in subscription revenue (up 17%) and $2.085 billion in total revenue (also up 17%). International revenue saw an 18% growth, underscoring Workday's strong global presence.
• Strong Backlog: The 12-month subscription backlog (CRPO) reached $6.8 billion, representing a 16% growth, while the total backlog hit $21.58 billion, up 21% from the prior year.
• Operating Margin: Workday achieved a non-GAAP operating margin of 24.9%, with a continued focus on improving margin efficiency through targeted investments and AI-driven operational enhancements.
• Cash Flow: Workday generated $571 million in operating cash flow, a 34% increase, enabling the company to execute share buybacks totaling $309 million.

Outlook for Fiscal Year 2025 and Beyond

Workday maintained its full-year fiscal 2025 subscription revenue guidance of $7.7 billion to $7.725 billion, representing approximately 17% growth. The company expects Q3 subscription revenue to be $1.955 billion, reflecting 16% growth.

Looking ahead, Workday revised its medium-term outlook, projecting subscription revenue growth of 15% for fiscal 2026 and 2027, balanced with a commitment to accelerate margin expansion. Workday plans to increase its non-GAAP operating margin to 30% by fiscal 2027, highlighting its ability to grow profitably at scale.

Strategic Focus on Long-Term Growth

Workday remains focused on key growth drivers:

• Partner Ecosystem: Workday’s partner ecosystem has shown exceptional growth, contributing significantly to pipeline generation and new ACV growth.
• International Expansion: With a strong presence in global markets, Workday continues to tap into opportunities outside the U.S., particularly in EMEA, APAC, and Japan.
• Financial Management and AI: Workday’s investments in financial management and AI innovation are key growth areas, with significant opportunities as businesses migrate to cloud-based systems and look for AI-driven solutions to optimize HR and finance operations.

Conclusion: A Bright Future with AI-Powered Innovation

Workday's Q2 2025 earnings call demonstrated the company’s strength in navigating a challenging economic environment while continuing to grow and innovate. With a strong product portfolio, an expanding global presence, and a relentless focus on AI-driven innovation, Workday is well-positioned to maintain its leadership in HR and financial management solutions. Looking ahead, Workday remains committed to delivering durable, profitable growth, supported by a solid partner ecosystem and a broad market opportunity in cloud ERP.