Workday Q2 2026 Earnings Call Transcript

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Provided by Quartr
August 21, 2025

Key Takeaways

  • Positive Sentiment: Workday delivered 14% subscription revenue growth to $2.169 billion in Q2 with a 29% non-GAAP operating margin and raised full-year subscription revenue guidance by $700 million to $8.815 billion.
  • Positive Sentiment: Customer engagement and AI adoption surged: over 75 million users are under contract, more than 30% of Q2 deals included an AI product, and net new ACV from AI offerings more than doubled year-over-year.
  • Positive Sentiment: Workday signed a definitive agreement to acquire Paradox, a conversational AI candidate experience agent, enhancing its recruiting suite and strengthening AI-driven talent acquisition.
  • Positive Sentiment: The company launched Workday Government as a dedicated U.S. federal subsidiary with enhanced security provisions and reported strong expansions in EMEA, APAC, and an entry into the India market.
  • Positive Sentiment: Platform and ecosystem momentum continued as ACV from Workday Extend Pro more than doubled year-over-year, the Marketplace app count exceeded 100, and over 20% of net new ACV was sourced from partners.
AI Generated. May Contain Errors.
Earnings Conference Call
Workday Q2 2026
00:00 / 00:00

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Operator

Welcome to Workday's Second Quarter Fiscal Year twenty twenty six Earnings Call. At this time, all participants are in a listen only mode. We will conduct a question and answer session toward the end of the call. During the Q and A, please limit your questions to one. I will now hand it over to Justin Furby, Vice President of Investor Relations. Please go ahead.

Justin Furby
Justin Furby
Vice President, Investor Relations at Workday

Thank you, operator. Welcome to Workday's second quarter fiscal twenty twenty six earnings conference call. On the call, we have Karl Eschenbach, our CEO Zane Rowe, our CFO and Garrett Katzmeier, our President, Product and Technology. Following prepared remarks, we will take questions. Our press release was issued after close of market and is posted on our website where this call is being simultaneously webcast.

Justin Furby
Justin Furby
Vice President, Investor Relations at Workday

Before we get started, we want to emphasize that some of our statements on this call, particularly our guidance, are based on the information we have as of today and include forward looking statements regarding our financial results, applications, customer demand, operations, and other matters. These statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our fiscal twenty twenty five annual report on Form 10 ks, for additional information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call, we will discuss non GAAP financial measures, which we believe are useful as supplemental measures of Workday's performance. These non GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.

Justin Furby
Justin Furby
Vice President, Investor Relations at Workday

You can find additional disclosures regarding these non GAAP measures, including reconciliations with comparable GAAP results, in our earnings press release, in our investor presentation and on the Investor Relations page of our website. The webcast replay of this call will be available for the next ninety days on our company website under the Investor Relations link. Additionally, a copy of the prepared remarks and our quarterly investor presentation will be posted on our Investor Relations website following this call. Our third quarter fiscal twenty twenty six quiet period begins on 10/15/2025. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal twenty twenty five.

Justin Furby
Justin Furby
Vice President, Investor Relations at Workday

With that, I will hand the call over to Carl.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Thank you, Justin, and thank you all for joining us today. Workday delivered another solid quarter with 14% subscription revenue growth and non GAAP operating margin of 29%. We built great momentum in Q1, and we kept it going in Q2 with strong customer adoption across key verticals, geographies and segments. Customer engagement with Workday has never been higher. Our Customer Experience Center in Pleasanton is absolutely buzzing.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

In fact, I feel like I'm living there lately. To keep up with all the demand, we are opening new CXCs in both New York and London. Customers are choosing Workday because we help them unlock value today and we prepare them for whatever's next, whether that's navigating AI transformation, streamlining operations, or creating more meaningful work for their people. That's where the Workday platform gives them the ultimate advantage. We help manage and optimize their most critical assets, their people and their money, on one platform with AI at the core.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

This unified approach reduces total cost of ownership and helps them move faster with greater precision. And our AI value proposition is highly relevant in today's market. Workday Illuminate is fueled by the largest and cleanest finance and HR dataset. With more than 75,000,000 users under contract and a trillion transactions processed last year alone, Workday has a deep understanding of how people work and how to make work better. This ability to deliver real differentiated value is what drove our customer momentum in Q2.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Now let's talk about our customer highlights. In Q2, we formed new HCM relationships with Carrefour, Memorial Health, Smurfit WestRock and Bannamex. We also had impressive expansions with Sanofi, Blue Origin, and Google. We are proud to serve more than 65% of the Fortune 500, but what's even more exciting is to see the traction we're seeing in the emerging and medium enterprise, driven by the launch of Workday Go in Q1. Our focus on financials continues to fuel demand for our full suite.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

This quarter, roughly 30% of our net new deals were full suite, with that number rising to 50% or more in industries like SLED and healthcare. Redcoats, Michaels and U. S. Physical Therapy were just a few of our full suite wins in the quarter. Beyond the wins, we also celebrate go lives.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Salesforce, a longtime HCM customer, went live on Workday Financial Management and Accounting Center in the quarter. They're all in on Workday. By unifying their HR and financial data on our platform, they're getting entirely new insights about their business to support their innovation and growth. We also add full suite go lives with Advocate Health, HonorHealth, and University of Melbourne. I mentioned earlier in the call that AI is front and center in nearly every customer conversation.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

More than 30% of our customer based deals and more than 75% of our net new deals included one or more of our AI products, such as Talent Optimization, Recruiting Agent, Talent Mobility Agent, Contract Intelligence Agent powered by Eversource and XtendPro, And net new ACV from our AI products once again more than doubled year over year. We had fantastic AI wins at Trinity Health, Chipotle, and Cox Health, just to name a few. Now let's talk about industries. Financial services had a standout quarter with an expansion at Nationwide Insurance, which added Core Financials and wins with Guaranteed Rate, Handelsbachen and Miller Insurance Services. In SLED, we had our first state go live on financial management in Q2 with the state of Rhode Island.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And we had a huge competitive win at the University of Virginia and UVA Health, an academic health system that includes a medical center, the School of Medicine, and a network of community hospitals throughout Virginia. We also continue to expand our work with the U. S. Federal Government, where our engagement across the Department of Defense, the intelligence community, and civilian agencies has never been stronger. In Q2, we launched Workday Government, a wholly owned subsidiary dedicated to serving the unique needs of the U.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

S. Government. With this sector facing a once in a generation opportunity to modernize its aging infrastructure, our value proposition has never been more relevant. By combining our proven platform, AI leadership, and deep commitment to public service, we're poised to deliver real impact for millions of government workers while also unlocking meaningful long term growth for Workday. And with the government leaning heavily into AI, we see tremendous opportunity ahead for many years to come.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And finally, as we shared last quarter, our Tech and Media industry crossed $1,000,000,000 in ARR and that team followed it up with another strong quarter here in Q2. Turning to innovation, our roadmap is focused on delivering purpose built AI solutions for HR and finance that drives tangible business value and real ROI. And more than 70% of our core customers are now leveraging Workday Illuminate. In May, we announced new agents that leverage our unmatched dataset to help customers amplify talent, reduce cost, accelerate decision making, and mitigate risk. And at Workday Rising in a few weeks, we will unveil exciting AI and platform innovations, partnerships, and new ways to make it easier for customers to access and get value from our AI solutions.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

While we continue to invest heavily in organic innovation, we're also making strategic acquisitions. We're focused on finding purpose built solutions and exceptional teams that complement our strategy, strengthen our leadership and allow us to deliver even greater value to our customers. And today, I'm thrilled to share the exciting news that we've signed a definitive agreement to acquire Paradox, a breakthrough candidate experience agent that uses conversational AI to completely reimagine the job application experience. Paradox turns long, complex hiring processes into fast, natural language conversations, making it easier for people to find work and for companies to fill critical roles, especially in frontline industries like retail, healthcare, hospitality, transportation, and manufacturing. With Workday recruiting, HiredScore, and now Paradox, we will be able to deliver an incredibly powerful AI powered talent acquisition suite, helping customers find, hire, and onboard every type of worker for every type of work.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Now let's turn to our platform. We're continuing to evolve Workday as not only the best application for people and money, but the best platform as well. And you can see that strategy play out in the incredible growth of Workday Extend. In Q2, new ACV from Extend Pro more than doubled year over year, driven by demand to build custom applications and experiences on top of Workday. Developers are embracing Workday's tools, including Extend and our AI APIs to expand the Workday footprint in new industries, markets, and territories.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

In fact, we now have more than 100 Marketplace apps live on Workday Marketplace, which has doubled since the start of FY twenty six. To accelerate that innovation, we launched enhancements to Workday Developer Co Pilot in Q2. This makes it even easier for developers to integrate AI capabilities into their apps and agents. We also launched our AI agent partner network and the AI agent gateway, making it simple for partners to connect their agents to the Workday agent system of record. We're thrilled to have AWS, Google Cloud, PwC, and Green among the first to sign on.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

We rolled out these innovations at DevCon, our annual developer conference. The excitement was incredible. We saw record turnout, and our developer community has now doubled in size year over year. And we're not stopping there. You may have seen that we also recently acquired Flowwise, a leading low code platform for building powerful agents.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Flowwise will turbocharge our customers' ability to create and deploy new AI agents at scale. It is built on an open source foundation and is already processing millions of chats and workflows. It's earned more than 42,000 GitHub stars and is gaining strong adoption across industries. And not only does Workday continue to invest in promising innovation, we also attract the best people in the industry. Peter Baylis, our new Chief Technology Officer, is now on board and already driving our AI and platform agenda.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And we didn't stop there, as we brought in several new technical leaders across our platform, emerging and medium enterprise, and security teams in Q2 as well. Partners are critical to our success, extending the power of our platform, fueling our pipeline and delivering new innovations to our customers. For the second quarter in a row, more than 20% of our net new ACV signed in the quarter was sourced from partners. Strategic partnerships are helping us generate new revenue streams and enhance employee services. In the quarter, we expanded our partnership with DailyPay, giving employees easier access to earned wages before payday.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Another great example is our Employment Verification Connector for Equifax announced a few quarters ago. Workday wellness continues to gain momentum, with Benepass, Chime, and New York Life joining in the financial benefits category and Voya joining in the health benefits category. In its first year, customer response has been incredible and has already been recognized as one of the top HR products of the year by HR executive and HR tech. Similar to the partner ecosystem, our international business remains a major growth opportunity for Workday. And we delivered a solid Q2 across regions, notably EMEA.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Germany and UKI were standouts in the region, with wins and expansions at Haven Leisure, Johnston Carmichael Scotland, and DQS Holdings to name a few. In APAC, we had great wins with Qantas and Lumis Imaging. We also signed our first deal in Vietnam with Ma San Group, a top conglomerate spanning retail, banking and infrastructure. And our investments in Japan over the last couple of years are really starting to pay off with continued momentum and expansions including Tokyo Electron and ASTIMO in the quarter. As we continue to expand our global footprint, India is a key part of our strategy.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

In Q2, we hired Sunil Jose as President of India, announced we will begin offering services to a local data center, and we're growing our team and our partner ecosystem in this critical market. We're heading into the second half of the year with incredible momentum, driven by our AI innovation, our unified platform, our ecosystem, and of course, our workmates. We continue to be a magnet for exceptional talent, attracting world class leaders to Workday across all functions. We're building for the long term while executing in the near term, and I couldn't be more excited about what's ahead. When we put AI to work for people, not in place of them, we unlock potential we've only begun to imagine. That's the future we're creating with our customers, and I can't wait for you to see what we achieve together. I'm deeply grateful to our global workmates, our customers, and our partners for making Q2 such a solid quarter. And I look forward to seeing many of you at Workday Rising in our Financial Analyst Day on September 16, where we'll share more about how we're shaping an AI powered, human centric, and future ready Workday. With that, I'll turn it over to Zane.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

Thanks, Carl, and thank you to everyone for joining today's call. Our Q2 results were supported by ongoing momentum across several of our growth areas as companies around the globe turn to Workday to manage and empower their most mission critical assets. Turning to results, subscription revenue in the second quarter was $2,169,000,000 up 14%. Professional services revenue was $179,000,000 resulting in total revenue of $2,348,000,000 growth of 13%. U.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

S. Revenue in Q2 totaled 1,760,000,000.00 up 13%. International revenue totaled $584,000,000 up 11%. This includes a three point impact year over year from an increased mix of international partner deployments. Twelve month subscription revenue backlog, or CRPO, was $7,910,000,000 at the end of Q2, increasing 16.4%.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

The result was driven by elevated volume of renewal activity, including higher than expected early renewals along with continued momentum in new ACV and strong partner growth. Approximately one point of CRPO growth came from tenants in line with our expectations. We anticipate this impact on growth will be just over a point for the remainder of the year. Total subscription revenue backlog at the end of the quarter was $25,370,000,000 up 18%, and gross revenue retention rates remained healthy at 97%. Non GAAP operating income for the second quarter was $680,000,000 representing a non GAAP operating margin of 29%.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

We continue to execute on delivering margin expansion while growing our top line. We're focused on making targeted and impactful investments to support long term growth, such as expanding our AI talent, both organically and inorganically, entering new markets such as India, and investing in certain industries, including our federal business. At the same time, we are driving efficiencies across people, processes, and systems, all accelerated by AI. Q two operating cash flow was $616,000,000, growth of 8%. We repurchased $299,000,000 of our shares during the quarter and had $1,200,000,000 in remaining authorization as of July 31.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

We ended the quarter with $8,200,000,000 in cash and marketable securities. Our headcount as of July 31 stood at approximately 19,500 workmates around the globe. Now turning to guidance. Following our first half momentum and incorporating the acquisition of Paradox, which we expect to close later in Q3, we're increasing our FY twenty twenty six subscription revenue guidance to 8,815,000,000 growth of 14%. We expect Q3 FY twenty six subscription revenue to be approximately $2,235,000,000 also growth of 14%.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

We expect CRPO to increase between 1516% in Q3. This does not include the impact of the Paradox acquisition. We continue to expect FY twenty twenty six professional services revenue of approximately $700,000,000 For Q3, we expect professional services revenue of $180,000,000 We're increasing our FY '26 non GAAP operating margin to approximately 29, reflecting ongoing efficiencies we're driving across the business. For Q3, we expect non GAAP operating margin of 28%. We expect GAAP operating margins to be approximately seventeen twenty one points lower than our Q3 and full year FY 2026 non GAAP operating margins respectively.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

The FY twenty six non GAAP tax rate is expected to be 19%. We're increasing our FY twenty six operating cash flow outlook to $2,850,000,000 driven by the timing of cash tax payments as well as our operating performance for the year. We now expect FY twenty six capital expenditures of approximately $200,000,000 reflecting free cash flow of $2,650,000,000 growth of 21%. We look forward to hosting many of you at our upcoming Financial Analyst Day on September 16, where we will share our framework for future growth and margin expansion. We are well positioned to capture our growing TAM and the emerging AI opportunity, and we're excited about the growth and value we expect to drive for our customers, partners, and shareholders.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

With that, I'll turn it back over to the operator to begin Q and A.

Operator

Thanks, Zane. We will now be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

Operator

I'll now turn it back over to Carl for some brief comments before opening up for Q and A.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Thank you for joining the call today. Before I jump in, I want to again thank our workmates, customers and partners for helping us deliver a solid quarter in '26. The momentum is real. It's powered by the strength of our platform, industry leading HCM and financials, a growing ecosystem, and AI that's built in, not bolted on. Customers are choosing Workday to simplify, consolidate, and scale.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

As I've always said, our business is durable, it's diverse, and it's building momentum as we head into the second half of the year. With that, let's jump into live Q and A, and I'll turn it back over to the operator.

Operator

Thank you. Our first question is from Kash Rangan with Goldman Sachs.

Kash Rangan
Kash Rangan
Managing Director at Goldman Sachs

Hi. Thank you very much. Good to hear the energy in your voice, Karl, and congrats on the results and the outlook.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Thank you, Pat.

Kash Rangan
Kash Rangan
Managing Director at Goldman Sachs

If you look at yep. Awesome. If you if you look at what's going on in the market, at least, there's this pure psychosis that has cripped investors that somehow SaaS is gonna die, and maybe SaaS is already dead. But I wanted to get your perspective since, you know, Workday is a very special company. It was one of the early pioneers in the SaaS wave.

Kash Rangan
Kash Rangan
Managing Director at Goldman Sachs

You put the incumbents back then on the defensive Neil and and the rest of the team did, and you you've scaled it. Now the tables appear to be turning the other way, and there is the the the the notion that AI startups are going to be able to, at the flick of a few of risks, create software magically. HCM software. Create HCM software. Boom.

Kash Rangan
Kash Rangan
Managing Director at Goldman Sachs

It creates it. Boom. You got a product overnight. It's this thing called vibe coding apparently. And I wonder, given your experience in the industry, now that you're the incumbent SaaS player, you've also been a venture capitalist before.

Kash Rangan
Kash Rangan
Managing Director at Goldman Sachs

Maybe you know a thing or two about judging these startups. And, of course, Sam Altman at OpenAI already tweeted that they're getting into fast fashion SaaS. I don't know what that means, but these are all the things that are afflicting the market for software stocks and investor psyche. I'm curious if you have a take on all of this as it pertains to the Workday business. Thank you so much.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Thank you, Kash, for that question. And as you could imagine, it is a narrative that we're hearing out there in the market. And let me give you my perspective. I think this whole concern around AI disruption and the potential negative impact on seat based models are completely overblown. In fact, for Workday, we're going to leverage our entrenched position in the market and our strong customer base.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And we're going to be one of the go to providers for AI solutions in the enterprise. In fact, for quite some time, even going back to early last year, we have talked about our headcount in our customer base has moderated. And we've seen that. But on a net basis, Kash, again this quarter, our headcount growth in our customer base was up year over year. And when we talk and when I talk to my peers out there and other executives in the market who have either slowed their headcount hiring or they've actually done a restructuring, if you dive into what's drove that, most of the time it isn't just because AI and the disruption of AI, it's because they've over hired going all the way back to the COVID days, Kash, where we've hired a lot of employees and we haven't got the economies of scale and efficiencies that we wanted.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Now AI will help us get that. And let me just tell you, Kash, why I think we're uniquely positioned. Just think about our market position. Right? We have over 11,000 customers today, a strong installed base that includes 65% of the Fortune 500.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Look at our gross retention rate. It's high 90s. We're a platform company cash and platforms are sticky. And in that customer base, more than 70% of our customers have already adopted an AI solution called Workday Illuminate. And as I mentioned on the call today, 30% of our sales back into our customer base included in AI SKU, and now 70 plus percent of net new customers who buy Workday are also buying an AI SKU.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

This, in aggregate, is what drove 100% year over year growth in net new AI SKUs this quarter. So when we talk to customers and they say they're looking for AI solutions, they're leaning into their trusted partners, and specifically partners that are platform providers, and that is Workday. And this isn't something we're saying. This is what our customers are saying. They tell us investing in Workday is absolutely viewed as an investment in their AI strategy.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And this is why we, and in this case, I personally believe this whole AI disruption to seat based models is a bit overblown at this point.

Kash Rangan
Kash Rangan
Managing Director at Goldman Sachs

And Carl, that's useful. And Sam Altman's post saying that they were getting into SaaS. What do you make of that? What SaaS it is, we don't know. But I wonder if you had a viewpoint.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Yeah. I I don't have a viewpoint because I don't know what they're talking about when they're getting into SaaS. You know, the interesting thing you hear out there, Kash, is we hear that AI is eating the software world. And unless something's changed from yesterday, I think AI is And and we're we're leaning leaning heavily heavily into into it. It.

Kash Rangan
Kash Rangan
Managing Director at Goldman Sachs

Awesome. Thank you so much.

Operator

Thank you. Our next question is from Kirk Materne with Evercore ISI.

Kirk Materne
Senior Managing Director - Equity Research at Evercore ISI

Yeah. Hi, guys. Thanks for taking the question, and congrats on a solid quarter. I guess, Karl, for you, there's a lot of things going positively right now with XTEND, with some of the partners contributing. I was just kind of wondering, are there any crosscurrents out there that are sort of offsetting that relative to what you would have thought maybe at the beginning of the year, obviously tariffs with Europe.

Kirk Materne
Senior Managing Director - Equity Research at Evercore ISI

Just anything you could give us some context on because it seems like you have some really nice momentum, some of your early stage offerings, but I was just kind of curious, are there any things that are sort of making the macro perhaps a little bit more difficult as well?

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Yes, Kirk, thanks for recognizing the delivery of a really solid quarter and first half to the year. And we do have momentum as we go into the second half of the year. If you recall in Q1, we said there was two areas that we were keeping our eye on. One was the international markets for the reasons some of the reasons you described as whether it's tariffs, it's geopolitical situation or even the wars that continue outside The US. So we were keeping our eye on it.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And then we said we'd also keep our eye on our SLED business, which is state and local and education business. If we break those two areas down, we look at our international business. As I said in my script, we were really pleased with another strong quarter in Europe. And specifically in the two largest markets there, that being The UK and Germany. So we're really happy with their performance.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And we haven't necessarily seen any blowback or headwinds due to some of the macro things we're all facing around the world. As it relates to SLED, as you know, there's two parts of that business. There's a state and local business and higher ed. On state and local, we did see a little bit of headwind in that market. And I think we'll continue to see that as people are trying to figure out what the funding flow down is going to look like all the way to the state level.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

On the higher ed side, it's really interesting because higher ed is clearly under pressure. They've lost some of their federal funding. And if it's a higher ed university that includes a health care system, they too are getting a little pullback in funding. So it's something we're keeping our eye on. But if you look at things like University of Virginia, we closed a massive competitive deal in Q2 for the University of Virginia and their health care system.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And it was very competitive. It's one, for example, it's been in our pipeline for a couple of quarters. It wasn't if they were going to do it, it was when they were going to do it. And that's an example where our value proposition was so strong, they decided to move forward. So those are the areas we're keeping our eye on out there in the market.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

As far as everything else, I think it was this quarter last year, I described the market as it's the new norm. And I think the selling environment has been pretty consistent for the last year.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

Hey, Kurt, this is Zane.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

I would just add, obviously, we're pleased with the quarter coming in ahead of even our expectations. As you look for the year, we moved up the guide for the year both on the top line and of course with operating margin accounting for paradox with the increase. But absent that, we were very comfortable holding to the 8.8 with the existing business. So again, as Karl mentioned, the macro hasn't changed, but we feel like we've been executing well against that.

Kirk Materne
Senior Managing Director - Equity Research at Evercore ISI

And Zane, if I could just ask a quick follow-up on the guide for 4Q. Obviously, there's a little bit of a ramp from 3Q to 4Q. Can you just remind us kind of what's embedded in that? I know you had some ramp deals that are probably coming back in this year. What should we think about?

Kirk Materne
Senior Managing Director - Equity Research at Evercore ISI

I assume Paradox plays into that. Just any sort of additional color you can have on just the sequential ramp from 3Q to 4Q would be Thanks.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

Yeah, of course. Yeah, as you highlight, Paradox does play into it to some extent. And then we've talked all year long about the deliverables tied to the DIA contract. We're tracking really nicely against those. And I'd say no big changes from what we called out actually early in the year.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

The team's doing a great job on those and we've got good momentum heading into the fourth quarter. So, we feel good about the second half.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Yeah, Kirk, I'd say the year is playing out exactly as we expected. We knew we'd have a slower growth profile in Q1 and Q2. We'd build momentum going into the second half. And then we had those second half tailwinds, as Zane just articulated. And it's playing out exactly like we anticipated.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And we feel really good about the second half and where we're standing today.

Kirk Materne
Senior Managing Director - Equity Research at Evercore ISI

Great. Thanks, guys. See you at Horizon. Appreciate it.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

See you there.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Thanks, Kirk.

Operator

Our next question is from Mark Murphy with JPMorgan.

Mark Murphy
Mark Murphy
MD - Software Research at JP Morgan

Thank you so much. Nice to see the backlog growth actually accelerating and the net new piece looking very solid. It's very differentiated. Carl, you mentioned the launch of Workday Government, I think you said as a wholly owned subsidiary, and have this strong momentum developing with the big agencies. I'm just curious if they requested the formation of the subsidiary structure to be extra secure, or is that going to let them go bigger with your AI products?

Mark Murphy
Mark Murphy
MD - Software Research at JP Morgan

And just anything else you're doing architecturally that is differentiating Workday and driving those expansions with the DoD and the intelligence of the other agencies?

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Yeah. No, thanks for the question, Mark. Listen, we launched Workday Government in the quarter because we wanted to set up a separate subsidiary as part of Workday to show the government how focused we are on their sector and our opportunity. And I will tell you, in spending quite a bit of time in DC over the last few months, it has been very well received. At the same time, to answer your question, we are building a very specific cloud environment for them with higher levels of security that they are seeking from us.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And we're working closely with them. One of the examples is what Zane talked about earlier with the DIA. So we're really excited about what we're seeing in the federal government. I said it's not just across one group in the federal government, it's across the Department of Defense, the intelligence agencies, and civilian agencies. The level and breadth of conversations we're having only accelerates in the fact that the government's leading deep into AI.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

They're looking to us to help them make this transition.

Mark Murphy
Mark Murphy
MD - Software Research at JP Morgan

Thank you very much.

Operator

Our next question is from Brad Zelnick with Deutsche Bank.

Brad Zelnick
Brad Zelnick
Managing Director at Deutsche Bank

Great, thank you so much and congrats on really strong Q2. And congrats on announcing Paradox, which many are less familiar with, but I know they have a great reputation, and some seem to suggest it's a pretty substantial business that's growing nicely. Carl, can you talk about what led up to the deal, strategically what the vision is? And maybe for Zane, anything that you can share more about the financial profile? Because I think it may, if I'm not mistaken, be a little bit larger than the recent M and A that you've done. Thank you.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Yeah, maybe I'll start. Then I'm actually going to turn it over to Garrett to talk specifically about Paradox. As you know, Garrett's our new President in Product and Technology. And this week, he actually just celebrated his five month anniversary here, and he's doing an amazing job. But thanks for recognizing Paradox.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

We're extremely excited about Paradox because I think it really rounds out what we would call an industry leading recruiting suite or platform. And if you add this to what we've done with HiredScore, if you add this what we're doing with our own recruiting agent called HiredScore, and then you add this to our recruiting platform as a whole, there's no one that has a more robust AI suite to attract, to recruit, and retain talent. And I'll let Garrett speak more specifically about how this is going to fit into our overall recruiting suite and platform.

Gerrit Kazmaier
Gerrit Kazmaier
President - Product & Technology at Workday

Thank you, Carl. Hey, Brad. So we look at Paradox from three strategic angles, and why we think it's an incredible fit for our company and truly gonna change the game in recruiting. First and foremost, it's really important for us to expand Workday recruiting into all types of labor, be it in the front line, be it in the back office. It's really important that we support our customers in high volume hiring, and support all of their types of workforce.

Gerrit Kazmaier
Gerrit Kazmaier
President - Product & Technology at Workday

Paradox with their mobile and AI led approach is truly the premier solution in that space, and I think we can expect incredible acceleration in that segment with that. Secondly, it's not only AI first, it's conversational mobile first, which means that it's truly attractive for all kinds of company who are attracting people through a candidate first experience. And I think it's very important for us to emphasize that point as we are building that future, as Karl has said, that we're also leading the shift in recruiting from system first back in the old days, over to recruiter first, which is the current market at, to candidate experience first. And then lastly, it's an incredible AI innovation. It delivers real ROI, as you've seen in the Chipotto statement, about a 75% reduction in time to hire, and truly delivering business ROI by freeing up recruiters from manual work and interviewing and scheduling, and spending time with candidates.

Gerrit Kazmaier
Gerrit Kazmaier
President - Product & Technology at Workday

So we put a human back in human resources, if you will, through the power of AI.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

One last thing I just want to add is, this is a company that we have very closely partnered with in the past. And we have significant overlapping customers who use them, and they're already integrated into our platform. At the same time, we now also have a really great land product. So even if a customer doesn't have Workday on the HCM side, we're going to be able to sell now the industry leading recruiting platform from frontline workers into our competitors installed base. We're really excited about that.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

Hey, Brad. And I'll just add, based on your question regarding the size, obviously it's larger than what you've seen with us in most recent history, but we're very excited about the top line growth, the synergies that we'll capture over the medium term. So, we're as you can tell excited about the opportunity here.

Brad Zelnick
Brad Zelnick
Managing Director at Deutsche Bank

Awesome. Thank you, guys.

Operator

Our next question is from Brent Thill with Jefferies.

Brent Thill
Brent Thill
MD & Tech Sector Leader - Software & Internet Research at Jefferies

Thanks, Carl. You mentioned AI doubled.

Brent Thill
Brent Thill
MD & Tech Sector Leader - Software & Internet Research at Jefferies

But when you think about just a specific number, is there more color you can add around that? And maybe just give us a sense of how this is influencing your win rates in these deals that you're seeing going forward.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Yeah, sure. So first, I'll highlight we'll give you more information and more detail on the number itself at THAAD at rising in a few weeks. But the color we're trying to give you is how quickly our technology in AI specifically is being adopted by our customers. First of all, 70% of our customers today already use Workday Illuminate in one of the feature functions or SKUs that's part of that suite. The second thing that's super relevant and we've been calling this out time and time again that 30% of our sales back to our customer base includes an AI SKU.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And then the last piece that we shared with you this quarter that we haven't shared in the past is that greater than 70% of our net new sales include our AI solutions. And we're really pleased with the growth year over year of more than 100%. And we'll give you more color on what that actually means. But I can tell you, it's a nice growth to the business. And it's meaningful in our overall performance.

Brent Thill
Brent Thill
MD & Tech Sector Leader - Software & Internet Research at Jefferies

Great. Quick for Zane. I think last quarter you called out United Airlines is a big deal. I don't know if there were any larger outsized elephant transactions that you saw this quarter, maybe EVA and the healthcare side. Is there was there any other ones that caught your eye or that were notable?

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

I'll take it. Yeah, I mean, UVA absolutely a significant win for us, as you could imagine. It's a big university, but not only a university, it's a health care system as well. The other one we called out is a large financials upsellcross sell that we were super excited about as well at Nationwide. That's another big win for us.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And then we talked about an exciting go live with financials at Salesforce. And then we called out a whole number of other big wins within the quarter that were in my prepared remarks as well. That included key expansions at the likes of Sanofi and Google. We had good full suite wins at Michaels Corporation, Redcoat. And then like I said, we had a number of big key Fins wins this quarter as well as go lives.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

It was a strong quarter all the way around. Corland, the only thing I'd add to that is PA

Brent Thill
Brent Thill
MD & Tech Sector Leader - Software & Internet Research at Jefferies

was a working student customer before, correct? So they were an existing student related customer. So this is an expansion in the health care segment of that business.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

No, this is a net new win across everything. It includes HCM, it includes financials, and it includes student. And it covers both the higher ed portion of the university as well as the health care system.

Brent Thill
Brent Thill
MD & Tech Sector Leader - Software & Internet Research at Jefferies

Okay, thanks for clarifying.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

Hey, Brent, I would just add, obviously we're pleased with what we're doing on the strategic partner front as well. We highlighted DailyPay, if you missed it earlier, which is an exciting customer and partner of ours as well.

Brent Thill
Brent Thill
MD & Tech Sector Leader - Software & Internet Research at Jefferies

Great. Thanks, Zane.

Operator

Our next question is from Brad Sills with Bank of America.

Bradley Sills
Bradley Sills
Managing Director at Bank of America Merrill Lynch

Oh, great. Thank you so much. I wanted to ask, I know it's early with Illuminate, but what are you seeing with regards to levels of engagement or any types of interactions with the AgenTic platform? Are there any trends or themes coming in here where you might have surprised you to the upside? Just general commentary would be helpful, I think, on just the level of engagement there.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Yeah, I think it's actually quite strong, which is why we're trying to give you a lot of color on our AI solutions and the growth rate we're seeing. We didn't call it out specifically. But if I break it down and look at some of the products, Eversort, which is a company we acquired last year, is growing more than 100% quarter over quarter. Not year over year, quarter over quarter. So people are very interested in our contract intelligent platform.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

If you think about Xtend Pro, Xtend Pro really leverages our platform and allows people to bring AI solutions into the platform, both applications and build net new applications. So that's growing 100% year over year. And then I talked about all the statistics about us selling back into our customer base or our net new customers. Our engagement has never been higher. I actually tried to call it out, Brad, in my prepared remarks about how busy our customer experience center is.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

It is as busy as it's ever been to the point where we had to open up new briefing centers in New York and in London, because people are coming to us wanting to know how Workday can help them navigate this AI transition, because we're a trusted partner. They've trusted us for a long time. And they know that we have something no one else has. We have the data. We have the context of the data.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And we are in the workflow of their business. No one else has that, which allows us to bring real value to our customers with domain specific agents that drive real business outcomes.

Bradley Sills
Bradley Sills
Managing Director at Bank of America Merrill Lynch

Great to hear, Karl. Thanks so much. One more, if I may, please. Just on the commercial business, I know it's been such a key source of growth for you. Would love to get some commentary from you on how that business is trending and any kind of observations on the macro in that segment in particular, please.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Yeah, sure. We had a really good quarter in what we describe as the medium enterprise or the emerging enterprise, especially when we look at it in the context of full suite. As you know, they buy not just a single solution, they buy a full suite. And we had really good momentum in the quarter. In Q1, we launched Workday Go, which is our branding of our medium enterprise business.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And I will tell you, it's been well received in the market. We're looking at how we deploy the products faster, leveraging our partners, making it simpler for people to realize time to value. And just recently, we brought in a very seasoned executive to actually run our medium enterprise segment around the world. And he's building out a team so that we can go attack this market even more aggressively than we've been doing over the last couple of years. And I expect this to be a strong source of growth going forward.

Bradley Sills
Bradley Sills
Managing Director at Bank of America Merrill Lynch

Thanks so much, Karl.

Operator

Our next question is from Karl Keirstead with UBS.

Karl Keirstead
Karl Keirstead
Managing Director - Software Equity Research at UBS Group

Thank you. Zane, maybe a couple of smallish ones for you. You mentioned that the July had a boost from elevated early renewals. Was that beyond what you were anticipating? And are you able to roughly maybe size what the bps upside might have been?

Karl Keirstead
Karl Keirstead
Managing Director - Software Equity Research at UBS Group

And then just to be clear around layering in Paradox, are you able maybe just to bracket what the revenue contribution that's dropping into sub revs growth is in the fourth quarter from that deal? Thank you so much.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

Sure, of course. Yeah, the early renewal portion, I'd say contributed to the upside on CRPO. Look, mean, we had a strong quarter as Karl alluded to. So we felt good about bookings across the business. As you know, there are seasonal dynamics tied to renewals and renewal activity. It happened to be a strong renewal quarter in aggregate and early renewals contributed to that. So, probably above the range I'd say was early renewals was a big contributor to that. And then, as we called out in our prepared remarks, we've increased our guide by 15 for Paradox. I'd say we're not necessarily breaking down the size of that business specifically, but that's a good rough proxy for what we're assuming, particular in the fourth quarter and excited about what that business will do for us going forward beyond just the short term.

Karl Keirstead
Karl Keirstead
Managing Director - Software Equity Research at UBS Group

Okay.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And hey, Karl, this is Carl. How are you? Thanks for the question. I just want to reiterate, on early renewals, this is completely driven by customer demand. Customers are coming to us and saying, you guys continue to bring great solutions and products to market, specifically around AI.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And they want to add them to their contracts today, which drives early renewals. We don't incent our teams to go out and do early renewals. It's completely customer driven and customer motivated, which is really exciting. We call this create and close in the same quarter. And that continues to pick up momentum and steam for us as well.

Karl Keirstead
Karl Keirstead
Managing Director - Software Equity Research at UBS Group

Okay, great. Thank you both. See you in San Francisco.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

Sounds great. Thanks, Carl.

Operator

Thank you. We have time for two more questions. Our next question is from Raymond Lanshaw with Barclays.

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Hey, thanks for squeezing me in. Actually, I stay on that card question, Zane? So if Paradox is $15,000,000 is a kind of good proxy, then kind of underlying you're actually guiding down because you beat in Q2. Is that kind of the message you want to give us that because in theory you kind of overachieved by nine, So, nine plus 15 from Paradox would actually be a higher number. Can you just clarify that one more time?

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

Yeah, Raimo, mean, as I mentioned, look, there's a lot that goes into our forecast. We feel great about the year. Absent Paradox, we'd be holding to the 8.8. And obviously we've been executing well. As Carl's mentioned, the environment hasn't changed and we still feel good about the outlook.

Zane Rowe
Zane Rowe
Chief Financial Officer at Workday

We've increased by $15,000,000 including Paradox. We haven't taken synergies into account with that business. So we feel good about the guide and the underlying guide behind that too.

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Okay, perfect. Okay, thank you. Then on the international side, you talked about the good momentum in The UK, Germany. It's still kind of nice emerge they're kind of still emerging markets in a way for you in terms of that you can do better there. Where do you see the reference customer base here in terms of being able to be that kind of big vendor?

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Is it still single deals that are really nice, but like it's not kind of quite mass market yet? Thank you.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Yes, thanks for the question. Listen, we're quite pleased with the performance of our international team. I called out specifically this quarter Europe and the two biggest markets in Europe, both The UK as well as Germany. And if you look at our customer base, we have some of the largest customers in Europe on Workday. And we can give you that.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

We don't have a problem with customer reference or large customers in Europe in that market, not at all, including a lot of them in Germany, in the backyard of some of our bigger competitors. When we get engaged, we win. We have a great solution and it's absolutely materializing in our bookings growth in the international markets. We also talked about continued strength in Japan. We brought a new leader in to lead Japan about eighteen months ago.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

He's built a new team, and we continue to see really nice growth out of that market as well. So the last thing I'd say we announced this quarter was our entry into the India market, where we brought in a very senior leader that I mentioned in my prepared remarks. We're building out a data center to service that market. And you're going to see us continue to push directly into the India market over the coming quarters. So I'm really pleased.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And as far as logos, listen, they're as strong in Europe as they are here in The US.

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Yeah, okay, perfect. Thank you.

Operator

Thank you. Our final question is from Derrick Wood with TD Cowen.

Derrick Wood
Managing Director at TD Cowen

Great. Thanks. I don't know. Karl or Zane, I wanted to ask about the partner side of things. You guys have made really impressive progress on partner leverage, but it did for the first time kind of sit steady at 20% quarter on quarter.

Derrick Wood
Managing Director at TD Cowen

So is this kind of the right level of mix to expect from here? And is there a tipping point to think about in terms of getting to a certain kind of deal velocity from the channel that can really start to move the needle more on total revenue growth?

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Yeah, thanks for the question. And thanks for recognizing the effort we put around building ecosystem, or as we like to describe it here internally, the Workday economy. And you can see the impact it's having.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And we said greater than 20% growth coming from our channel when it relates to new ACV in the quarter. So it continues to grow nicely. But it's not just bringing us new opportunities. It's also about them driving innovation and building new solutions on top of Workday, adding more and more applications to our marketplace. We are truly a platform company, and our partner ecosystem is recognizing that and building on top of us.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

We talked about Workday Wellness. It continues to grow. We announced a very strategic and important partnership this quarter with DailyPay, the leader in earned wage access this quarter. And we're going to go and bring all these new services and these new capabilities to our customers. So I couldn't be more excited about what's going on with our channel and our partners.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

We are truly building a world class ecosystem that will drive a massive economy around our platform.

Derrick Wood
Managing Director at TD Cowen

Great, thank you.

Operator

Ladies and gentlemen, thank you for your participation on today's conference. I'll now turn it back over to Mr. Eschenbach for any closing comments.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

Yeah, thank you, operator. And thanks again for everyone who joined us today. To close, we're heading into the second half of the year with incredible momentum. Our team, our AI innovation, and our expanding ecosystem are all fueling our success. We continue to deliver in the near term while we are focused on the long term as well.

Carl Eschenbach
Carl Eschenbach
CEO & Director at Workday

And we're creating a future where AI and humans work together to unlock new potential. I look forward to seeing many of you at Workday Rising. And again, as a friendly reminder, our Financial Analyst Day, which will host at Rising on September 16. With that, I'll turn it over to the operator to close the call. And again, thanks to everyone for joining.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Executives
    • Justin Furby
      Justin Furby
      Vice President, Investor Relations
    • Carl Eschenbach
      Carl Eschenbach
      CEO & Director
    • Zane Rowe
      Zane Rowe
      Chief Financial Officer
    • Gerrit Kazmaier
      Gerrit Kazmaier
      President - Product & Technology
Analysts
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