06:30 AM EDT, 05/24/2024 (MT Newswires) -- Workday (WDAY) shares tanked early Friday as the cloud human resources company lowered its full-year subscription sales outlook amid slowing headcount growth, despite recording better-than-expected fiscal first-quarter results.

Subscription revenue is now set to come in between $7.7 billion and $7.73 billion for fiscal 2025, representing annual gains of about 17%, the company said late Thursday. It previously forecast the metric to be in a range of $7.73 billion to $7.78 billion, or year-over-year growth 17% to 18%. The stock dropped 11% in premarket activity.

"We experienced elevated scrutiny in our sales cycle, particularly in (Europe, the Middle East and Africa)," Chief Financial Officer Zane Rowe said during an earnings call, according to a Capital IQ transcript. "Within our customer base, we continue to see expansion, primarily through product add-ons versus customer headcount growth, which has slowed relative to our expectations."

Adjusted operating margin is pegged at 25% for the ongoing fiscal year, compared with the prior guidance of 24.5%. "We continue to see momentum across our core growth areas and are continuing to invest for future growth while driving increased efficiencies across the company," according to Rowe.

For the three months through April, Workday reported adjusted earnings of $1.74 a share, up from $1.33 the year before, topping the Capital IQ-polled consensus of $1.58. Revenue climbed 18% to $1.99 billion, just ahead of the Street's view for $1.97 billion.

Subscription revenue advanced 19% to $1.82 billion, while professional services inclined to $175 million from $156 million in the 2023 quarter. US revenue totaled $1.49 billion, while international revenue came in at $497 million, Rowe said on the call.

Adjusted operating margin increased to 25.9% from 23.5% on a yearly basis, "driven by moderate revenue outperformance and lower expenses," Rowe told analysts. Total costs and expenses rose to $1.93 billion from $1.7 billion, the company said.

For the current quarter, Workday expects subscription revenue of nearly $1.9 billion, reflecting an annual increase of about 17%. The company also estimates an adjusted operating margin of 24.5% for the period.

"In (the second quarter), as we saw in (the first quarter), we expect (current remaining performance obligation) growth to be below subscription revenue growth, impacted by the cumulative headwind from last year's strong renewal activity," Rowe said on the call. "In Q2, we expect CRPO to increase between 15% and 16%."

Price: 231.60, Change: -29.30, Percent Change: -11.23