Workday, Inc. (WDAY) Earnings & Analysis

Latest quarter

Workday reported Q2 FY2027 revenue of $2.6 billion, up 12.8% from $2.3 billion a year earlier. The company’s revenue exceeded the consensus by 0.57%, although both reported revenue and the consensus are shown as $2.6 billion. Workday reported adjusted EPS of $2.75 against a consensus of $2.62, exceeding the consensus by 4.96%; GAAP diluted EPS was $2.57, compared with $0.84 a year earlier.

The filing shows subscription-services revenue rose to $2.5 billion from $2.2 billion, with approximately 60% of the increase attributed to expansion among existing customers and the remainder to customers added after the prior-year period began. Professional-services revenue was $178 million, compared with $179 million a year earlier. Gross margin was 75.4%, versus 75.2%, and operating margin was 11.8%, versus 10.6%. Workday reported free cash flow of $460.0 million, down from $588.0 million; Zane C. Rowe said the decline reflected the timing of a payroll calendar with an additional payroll run in Q2.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

Aneel Bhusri said AI products generated more than $100 million of new ACV in Q2, representing more than 25% of all new ACV closed during the quarter. He said more than 5.5 thousand customers were using one or more of Workday’s organic agents, an increase of more than 35% from the prior quarter. Zane C. Rowe said existing-customer expansion produced about 60% of subscription-revenue growth, while AI became an additional driver alongside new-customer bookings.

On demand, Robert Enslin said customers were making five- and seven-year platform decisions and that AI was part of those decisions. In response to questions about whether AI was reducing demand for the core business, Bhusri said he did not see compression on the core and described AI as broadening customer conversations. He said Workday’s agents operate within customers’ existing permissions, policies and business processes.

Analysts also asked about monetization and the FY2028 outlook. Bhusri said Workday was moving toward a hybrid subscription and consumption model, but revenue from consumption-based AI products may not be recognized for months or a year after adoption. Rowe said more than 5.5 thousand customers used organic agents, while just over 200 had signed up for flex credits, and said this timing had been incorporated into the company’s remaining FY2027 revenue and CRPO guidance. Gerrit Kazmaier said the company’s immediate focus was adoption and described free first-year access in the Sana Lighthouse program and promotional access for the self-service agent.

Rowe said Workday had invested in AI talent and was prioritizing expenses while using scale and internal AI efforts to support its margin plans. He said the company increased its FY2027 non-GAAP operating-margin guidance to 31% and viewed the two-percentage-point FY2028 expansion target as a starting point. Rowe also said AI-product early indicators had not all been incorporated into the FY2028 outlook.

Guidance

Workday raised its FY2027 subscription-revenue outlook from $9.925 billion to $9.95 billion to $9.94 billion to $9.95 billion. Zane C. Rowe also raised FY2027 non-GAAP operating-margin guidance from 30.5% to 31.0%.