Workday Q2 Earnings Call Highlights

Key Points

• Workday reported solid fiscal Q2 growth: Revenue rose 13% year over year to $2.649 billion, while subscription revenue increased 14% to $2.471 billion. Current remaining performance obligations grew 14.2% to $9.03 billion, and the company achieved a 31.1% non-GAAP operating margin.
• AI adoption accelerated: AI products generated more than $100 million in new annual contract value and represented over 25% of new ACV. More than 5,500 customers were using Workday’s AI agents, while AI-related annual recurring revenue reached nearly $600 million.
• Workday raised its outlook and expanded shareholder returns: Fiscal 2027 subscription revenue guidance increased to $9.94 billion–$9.95 billion, with full-year non-GAAP operating margin guidance raised to 31%. After repurchasing $1.3 billion in shares, the company authorized a new open-ended $4 billion buyback program.

Workday NASDAQ: WDAY reported second-quarter fiscal 2027 revenue growth of 13%, as the enterprise software company said artificial intelligence products accounted for more than $100 million in new annual contract value, or ACV, during the quarter.

Chief Executive Officer Aneel Bhusri said AI products represented more than 25% of all new ACV closed in the period and were beginning to support the company’s core business, including win rates. More than 5,500 customers were using at least one of Workday’s internally developed AI agents, up more than 35% from the prior quarter, he said.

“More customers are moving from pilots to production with our agents,” Bhusri said, citing BMO’s rollout of Workday’s Self-Service Agent to its 55,000 employees after a pilot involving 500 workers.

Revenue, backlog and profitability

Subscription revenue rose 14% to $2.471 billion in the second quarter, while professional services revenue totaled $178 million. Total revenue was $2.649 billion, up 13% year over year, according to Chief Financial Officer Zane Rowe.

• U.S. revenue increased 12% to $1.97 billion.
• International revenue rose 17% to $682 million.
• Current remaining performance obligations, or cRPO, increased 14.2% to $9.03 billion.
• Total subscription revenue backlog grew 8% to $27.4 billion.
• Gross revenue retention was 97%.
• Existing-customer expansion contributed about 60% of subscription revenue growth.

Workday posted non-GAAP operating income of $824 million, equal to a 31.1% non-GAAP operating margin. The company recorded a $374 million non-recurring GAAP tax benefit tied to an internal intellectual-property transfer.

Operating cash flow was $520 million and free cash flow was $460 million. Rowe said the year-over-year decline reflected payroll-calendar timing, including an additional payroll run during the quarter.

The company repurchased $1.3 billion of shares, completing its prior $5 billion repurchase authorization six months ahead of its target. Workday’s board approved a new open-ended $4 billion share repurchase program. The company ended the quarter with $3.4 billion in cash and marketable securities.

AI products and platform expansion

President of Product and Technology Gerrit Kazmaier said Workday’s AI stock-keeping units generated nearly $600 million in annual recurring revenue, up more than 200% from a year earlier and more than 20% sequentially.

In recruiting, more than 30 million candidates interacted with Workday’s Talent Acquisition Agent during the quarter, while the AI scheduled more than 8 million interviews. Workday’s Contract Intelligence Agent drove nearly 70% year-over-year growth in agreements processed, Kazmaier said.

Workday also highlighted progress for Sana Enterprise, its AI workbench for HR, finance and IT. The company introduced 23 new Sana capabilities during the quarter, including an Agent Builder that allows users to create agents in natural language. Workday deployed Sana Enterprise internally on Aug. 4 and said 12,000 employees became active users, building 22,000 custom agents in three weeks.

Kazmaier said Sana’s conversational AI experience is expected to become Workday’s default home screen by the company’s Rising conference in October.

Adaptive Decision Intelligence, Workday’s AI product for analytics and planning, entered general availability on July 31. The offering had been purchased by 170 customers as of the call. Workday also said its Deployment Agent had reached more than 4,600 customers and nearly 24,000 users, with query volume rising nearly 500% in the second quarter.

Chief Technology Officer Gabe Monroy said Workday was expanding its open-platform approach through Data Cloud, agent-ready tools and Workday Extend. Data Cloud provides zero-copy access to HR and finance data for external agents and partners including Snowflake, AWS and Google. Workday closed six Data Cloud deals in the quarter, all for the premium Data Cloud Pro edition, and expects general availability in the third quarter.

Monroy added that developers had built more than 3,000 custom applications and agents since Workday’s June DevCon event using the company’s Developer Agent tools.

Commercial momentum and outlook

President and Chief Commercial Officer Rob Enslin said more than half of Workday’s net new wins in the second quarter included one or more AI solutions. New customer relationships included KPMG LLP, Danske Bank, BWX Technologies and Guidehouse.

Enslin said Sana Enterprise added customers including AstraZeneca, Novartis, Caterpillar and Delivery Hero Group. More than half of Workday’s customer base has migrated to its Universal Main Subscription Agreement, which provides access to the company’s agents and AI capabilities. Workday had signed 200 customers for Flex Credits during the quarter, he said.

For fiscal 2027, Workday raised its subscription revenue outlook to a range of $9.94 billion to $9.95 billion, representing 13% growth. It expects third-quarter subscription revenue of approximately $2.515 billion, or 12% growth, and third-quarter cRPO growth of 11% to 12%.

The company increased its full-year non-GAAP operating margin outlook to 31% and maintained its operating cash flow forecast of $3.45 billion. It expects fiscal-year free cash flow of $3.18 billion, up 15%.

Looking ahead, Rowe said Workday’s current target for fiscal 2028 subscription revenue growth is consistent with its expected second-half fiscal 2027 growth rate of approximately 11%. He also said the company expects non-GAAP operating margin to expand by at least two percentage points next year, while noting potential upside from newer offerings including Sana Enterprise, Data Cloud and AI agents.

About Workday (NASDAQ:WDAY)

Workday, Inc NASDAQ: WDAY is a provider of cloud-based enterprise applications focused on human capital management (HCM) and financial management. Founded in 2005 by Dave Duffield and Aneel Bhusri following their tenure at PeopleSoft, the company develops software-as-a-service solutions that help organizations manage workforce and financial processes in a unified, cloud-native environment. Workday's platform emphasizes continuous updates, data security, and a configurable architecture aimed at large and mid-sized enterprises.

The company's product portfolio centers on Workday Human Capital Management and Workday Financial Management, with additional offerings for payroll, talent management, workforce planning and analytics.

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