Why did GAAP diluted EPS drop so sharply compared with last year?

The prior-year fourth quarter included a $1.1 billion release of the valuation allowance on U.S. federal and state deferred tax assets, which inflated net income (GAAP diluted EPS of $4.42). In Q4 FY2025, GAAP diluted EPS was $0.35, with results also weighed down by $75 million in restructuring expenses. The comparison is therefore distorted by a one-time tax benefit in the prior year.

How has Workday's profitability changed under the new non-GAAP definitions?

Beginning in fiscal 2025, Workday excludes acquisition-related costs, restructuring costs, and gains or losses on strategic investments from non-GAAP results, and prior periods were recast. Q4 non-GAAP operating margin improved to 26.4% from 24.0%, and full-year non-GAAP margin was 25.9% versus 24.0%. Because the definitions changed, investors should focus on the reconciliations to GAAP figures when comparing across periods.

What does the restructuring plan mean for Workday?

Workday announced a Fiscal 2026 Restructuring Plan intended to prioritize investments and support durable growth. It is expected to reduce the current workforce by about 8% and includes exiting certain owned office space. In Q4 FY2025, the company recorded $65 million in employee transition and related costs under the plan and $10 million in office exit charges under a separate plan. Management expects these actions to help fund investment while improving efficiency.

What is the outlook for fiscal 2026?

Management expects fiscal 2026 subscription revenue of $8.800 billion, representing 14% growth, and a non-GAAP operating margin of approximately 28.0%. For Q1 FY2026 (ending April 30, 2025), guidance is subscription revenue of $2.050 billion (13% growth) and the same 28.0% non-GAAP operating margin. The company has not reconciled the non-GAAP margin guidance to GAAP, citing the unreasonable efforts exception.

How strong is Workday's balance sheet and cash generation?

Workday generated $2.461 billion in operating cash flow and $2.192 billion in free cash flow in FY2025, both up year over year. It ended the year with $8.02 billion in cash, cash equivalents, and marketable securities, against about $2.98 billion in noncurrent debt. Total subscription backlog of $25.06 billion, up 19.7%, provides good visibility into future revenue. Share repurchases of $700 million were also made during the year.

WDAY 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed February 25, 2025. Cited figures are marked; the original filing is the authoritative source.

Workday reported fiscal Q4 2025 (quarter ended January 31, 2025) total revenues of $2.211 billion^a, up 15.0% year over year, with subscription revenues of $2.040 billion, up 15.9%.

GAAP operating income was $75 million^b (3.4% margin) versus $79 million a year earlier, and GAAP diluted EPS fell to $0.35 from $4.42, largely because the prior-year quarter benefited from a $1.1 billion deferred tax valuation allowance release and this quarter absorbed $75 million in restructuring charges. On a non-GAAP basis, operating income rose to $584 million (26.4% margin) from $462 million (24.0%), and non-GAAP diluted EPS was $1.92 versus $1.57. Note that Workday changed its non-GAAP definitions beginning in fiscal 2025 to exclude acquisition-related costs, restructuring, and strategic investment gains/losses, and prior periods were recast.

For the full fiscal year 2025, total revenues reached $8.446 billion^c (up 16.4%) and subscription revenues $7.718 billion (up 16.9%). Total subscription revenue backlog grew 19.7% to $25.06 billion, and 12-month backlog rose 15.2% to $7.63 billion. Operating cash flow was $2.461 billion and free cash flow was $2.192 billion, both up year over year.

Workday repurchased about 2.9 million shares for $700 million^d and ended the year with $8.02 billion in cash, cash equivalents, and marketable securities. GAAP full-year operating income was $415 million (4.9% margin), also affected by $84 million in restructuring expenses. Looking ahead, management guided fiscal 2026 subscription revenue to $8.800 billion (14% growth) and non-GAAP operating margin to approximately 28.0%.

For Q1 fiscal 2026, guidance calls for $2.050 billion in subscription revenue (13% growth) and the same 28.0% non-GAAP operating margin. The company also disclosed a Fiscal 2026 Restructuring Plan, announced in February 2025, expected to reduce the workforce by about 8% and exit certain owned office space, with $65 million of related charges recorded in the quarter. Investors should weigh strong top-line growth and backlog against the restructuring, the GAAP profitability gap, and the reliance on non-GAAP metrics.

02—Key points

Key Highlights

Q4 FY2025 total revenues of $2.211B (+15.0% YoY); subscription revenues of $2.040B (+15.9% YoY)
FY2025 total revenues of $8.446B (+16.4%) and subscription revenues of $7.718B (+16.9%)
Total subscription revenue backlog reached $25.06B (+19.7% YoY); 12-month backlog of $7.63B (+15.2%)
GAAP diluted EPS fell to $0.35 in Q4 from $4.42, reflecting the prior-year $1.1B tax valuation allowance release and $75M in restructuring charges; non-GAAP diluted EPS rose to $1.92 from $1.57
FY2025 free cash flow of $2.192B (vs. $1.917B) on operating cash flow of $2.461B; $700M in share repurchases
FY2026 guidance: subscription revenue of $8.800B (+14%) and non-GAAP operating margin of ~28.0%
Fiscal 2026 Restructuring Plan expected to cut roughly 8% of the workforce and exit certain owned office space

03—Questions

Frequently Asked Questions

Why did GAAP diluted EPS drop so sharply compared with last year?
The prior-year fourth quarter included a $1.1 billion release of the valuation allowance on U.S. federal and state deferred tax assets, which inflated net income (GAAP diluted EPS of $4.42). In Q4 FY2025, GAAP diluted EPS was $0.35, with results also weighed down by $75 million in restructuring expenses. The comparison is therefore distorted by a one-time tax benefit in the prior year.
How has Workday's profitability changed under the new non-GAAP definitions?
Beginning in fiscal 2025, Workday excludes acquisition-related costs, restructuring costs, and gains or losses on strategic investments from non-GAAP results, and prior periods were recast. Q4 non-GAAP operating margin improved to 26.4% from 24.0%, and full-year non-GAAP margin was 25.9% versus 24.0%. Because the definitions changed, investors should focus on the reconciliations to GAAP figures when comparing across periods.
What does the restructuring plan mean for Workday?
Workday announced a Fiscal 2026 Restructuring Plan intended to prioritize investments and support durable growth. It is expected to reduce the current workforce by about 8% and includes exiting certain owned office space. In Q4 FY2025, the company recorded $65 million in employee transition and related costs under the plan and $10 million in office exit charges under a separate plan. Management expects these actions to help fund investment while improving efficiency.
What is the outlook for fiscal 2026?
Management expects fiscal 2026 subscription revenue of $8.800 billion, representing 14% growth, and a non-GAAP operating margin of approximately 28.0%. For Q1 FY2026 (ending April 30, 2025), guidance is subscription revenue of $2.050 billion (13% growth) and the same 28.0% non-GAAP operating margin. The company has not reconciled the non-GAAP margin guidance to GAAP, citing the unreasonable efforts exception.
How strong is Workday's balance sheet and cash generation?
Workday generated $2.461 billion in operating cash flow and $2.192 billion in free cash flow in FY2025, both up year over year. It ended the year with $8.02 billion in cash, cash equivalents, and marketable securities, against about $2.98 billion in noncurrent debt. Total subscription backlog of $25.06 billion, up 19.7%, provides good visibility into future revenue. Share repurchases of $700 million were also made during the year.

04—Continue

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