Workday (WDAY) Financials

Workday’s latest results show continued top-line growth and improving operating profitability. In Q2 fiscal 2027, revenue increased to $2.65 billion from $2.35 billion in the comparable quarter, a gain of approximately 13%. Gross profit rose 13% to $2.00 billion, while the gross margin remained broadly stable at approximately 75.4%. Operating income increased to $313 million from $248 million, lifting the operating margin to approximately 11.8% from 10.6%.

Growth has also remained consistent across the reported periods. Revenue increased from $1.33 billion in Q3 fiscal 2023 to $2.65 billion in Q2 fiscal 2027. Workday moved from operating losses in several earlier periods to sustained operating profits, although operating income declined sequentially from $338 million in Q1 fiscal 2027 to $313 million in Q2.

Net income was $632 million, or $2.57 per diluted share, compared with $228 million, or $0.84 per diluted share, in the comparable quarter. However, the latest quarter included a $305 million income-tax benefit, so the sharp increase in reported earnings does not fully reflect underlying operating performance. Excluding that benefit, pretax income was $327 million, making operating income and cash flow more useful measures of the quarter’s performance.

Cash generation remains a key strength, but quarterly results were uneven. Operating cash flow was $519 million in Q2 fiscal 2027, down from $616 million in the prior-year quarter and $696 million in Q1. The decline was primarily associated with an $828 million use of operating working capital. For the first half of fiscal 2027, operating cash flow totaled approximately $1.22 billion, up from roughly $1.07 billion in the comparable prior-year period.

Workday continued returning capital to shareholders. It repurchased $1.34 billion of common stock in Q2 and $1.59 billion in Q1, compared with $299 million and $290 million, respectively, in the comparable prior-year periods. These buybacks contributed to the decline in weighted-average diluted shares from 270.2 million in Q2 fiscal 2026 to 246.3 million in Q2 fiscal 2027, supporting per-share earnings growth.

• Revenue growth remains healthy: Q2 fiscal 2027 revenue rose approximately 13% year over year, and first-half revenue increased approximately 13%.
• Operating leverage is improving: Operating income increased 26% year over year in Q2, while the operating margin expanded to approximately 11.8%.
• Gross margins remain resilient: The gross margin held near 75%, suggesting that revenue growth has not required materially higher delivery costs.
• Cash generation is substantial: Workday produced $519 million of operating cash flow in Q2 and approximately $1.22 billion during the first half of fiscal 2027.
• Share repurchases are reducing dilution: Large buybacks helped lower diluted weighted-average shares by approximately 9% year over year, strengthening the effect of earnings growth on EPS.
• Debt is relatively stable: Total reported debt was approximately $3.0 billion, broadly similar to the comparable balance, while total shareholders’ equity remained positive at $6.46 billion.
• Investment balances remain significant: Workday held $2.74 billion of short-term investments and $661 million of cash at the end of Q2. The company also generated $1.03 billion from investment maturities and sales during the quarter, indicating active management of its investment portfolio.
• Deferred revenue provides a large funding source: Current deferred revenue increased to $4.39 billion. This supports future revenue recognition and liquidity, although it represents an obligation to deliver services rather than unrestricted cash.
• Working-capital usage weakened quarterly cash flow: Changes in operating assets and liabilities consumed $828 million in Q2, compared with a $208 million use in the prior-year quarter. Accounts receivable also increased to $1.90 billion from $1.58 billion in Q1.
• Liquidity has tightened after buybacks: Cash and short-term investments fell to approximately $3.40 billion from $4.35 billion in Q1 fiscal 2027 and from more than $8 billion in the supplied fiscal 2025 comparable balances. Total current liabilities of $6.57 billion exceeded current assets of $5.97 billion, although deferred revenue is a major component of those liabilities.

Overall, the statements point to a stronger operating business, supported by double-digit revenue growth, expanding operating profitability and consistent positive operating cash flow. Investors should nevertheless distinguish the improvement in core operations from the unusually large tax benefit in Q2 and monitor whether working-capital pressure continues. The aggressive pace of share repurchases is supporting EPS, but it is also reducing cash and short-term investments on the balance sheet.