Workday, Inc. (NASDAQ: WDAY) Q2 2026 Earnings Call | 08/22/2025

Workday, Inc. reported strong Q2 FY26 results, achieving 14% subscription revenue growth and a non-GAAP operating margin of 29%. The company highlighted robust customer adoption, significant AI-driven innovation, and strategic expansions in key markets, positioning Workday as a leader in AI-powered HR and financial management solutions.

Key Highlights:

1. Financial Performance:
   • Q2 Results: Subscription revenue reached $2.169 billion, up 14%, with total revenue at $2.348 billion, up 13%. Professional services revenue was $179 million. Non-GAAP operating income was $680 million (29% margin). Operating cash flow grew 8% to $616 million. The company repurchased $299 million in shares, with $1.2 billion remaining in authorization. Cash and marketable securities stood at $8.2 billion.
   • Backlog Metrics: 12-month subscription revenue backlog (CRPO) grew 16.4% to $7.91 billion, driven by strong renewals, early renewals, and partner growth. Total subscription backlog rose 18% to $25.37 billion, with a 97% gross revenue retention rate.
   • FY26 Guidance Update: Subscription revenue guidance increased to $8.815 billion (14% growth), incorporating the Paradox acquisition. Q3 subscription revenue is expected at $2.235 billion (14% growth), with CRPO growth of 15-16%. Professional services revenue is projected at $700 million for FY26 and $180 million for Q3. Non-GAAP operating margin is raised to 29% for FY26 (28% for Q3). Operating cash flow guidance increased to $2.85 billion, with free cash flow of $2.65 billion (21% growth). Capital expenditures are expected at $200 million.
2. Customer and Market Momentum:
   • Customer Wins and Expansions: New HCM relationships included Carrefour, Memorial Health, Smurfit Westrock, and Banamex, with expansions at Sanofi, Blue Origin, and Google. Full-suite deals accounted for ~30% of net new deals, rising to 50%+ in SLED and healthcare. Notable full-suite wins included Red Coats, Michaels, and U.S. Physical Therapy. Go-lives included Salesforce (Financial Management), Advocate Health, Honor Health, and University of Melbourne.
   • Industry Highlights:
     • Financial Services: Strong performance with expansions at Nationwide Insurance and wins at Guaranteed Rate, Handelsbanken, and Miller Insurance Services.
     • SLED: First state financial management go-live with Rhode Island and a competitive win at University of Virginia/UVA Health. Workday launched Workday Government, a subsidiary focused on U.S. government needs, capitalizing on modernization opportunities.
     • Tech and Media: Surpassed $1 billion in ARR, with continued strength in Q2.
     • International: Solid growth in EMEA (UK and Germany) and APAC, with wins at Haven Leisure, Qantas, and Masan Group (Vietnam). Japan showed momentum with expansions at Tokyo Electron and Astimo. Workday is expanding in India with a new data center and leadership under Sunil Jose.
3. AI and Innovation:
   • AI Adoption: Over 70% of core customers use Workday Illuminate, with >30% of customer-base deals and >75% of net new deals including AI products (e.g., Talent Optimization, Recruiting Agent). Net new ACV from AI products doubled year-over-year, with wins at Trinity Health, Chipotle, and Cox Health.
   • Paradox Acquisition: Workday announced a definitive agreement to acquire Paradox, a conversational AI platform for talent acquisition, enhancing Workday’s recruiting suite (with Hired Score). Paradox reduces hiring time by 75% and targets frontline industries like retail and healthcare, offering both integrated and standalone solutions.
   • Platform Growth: Workday Xtend saw new ACV double year-over-year, driven by demand for custom applications. The Workday Marketplace doubled to over 100 apps since FY26 began. New tools like Workday Developer Co-Pilot and the AI Agent Partner Network (with AWS, Google Cloud, PwC, and Green) enhance developer and partner integration. The acquisition of FlowWise, a low-code AI platform, further accelerates agent deployment.
4. Partner Ecosystem and Strategic Initiatives:
   • Partners contributed >20% of net new ACV, with strategic partnerships like DailyPay (earned wage access) and Equifax (employment verification) driving growth. Workday Wellness gained traction, recognized as a top HR product.
   • The developer community doubled year-over-year, with record turnout at DevCon.
   • Workday hired key leaders, including Peter Baylis (CTO) and executives for medium enterprise and security teams.
5. Macro and Market Insights:
   • The macro environment remains consistent with last year, with no significant headwinds in international markets (e.g., Europe). SLED faces funding challenges, but Workday’s value proposition drives wins like UVA. The medium enterprise segment is a growth driver, supported by Workday Go.

Q&A Highlights:

• AI Disruption Concerns: Carl Eschenbach dismissed fears of AI disrupting SaaS models, emphasizing Workday’s strong position with 11,000 customers, 65% of the Fortune 500, and high retention rates. AI adoption (70% of customers using Illuminate) and platform stickiness position Workday as a trusted AI partner.
• Macro Environment: International markets (UK, Germany) performed strongly, while SLED faces funding pressures. The selling environment is stable, with Workday executing well against expectations.
• Paradox Acquisition: Strategically enhances Workday’s recruiting suite, targeting all labor types with a mobile, AI-first approach. It offers significant ROI (75% reduction in hiring time) and expands Workday’s reach into competitors’ markets.
• Partner Leverage: The partner ecosystem drives >20% of new ACV, fueling innovation and revenue. Strategic partnerships like DailyPay and Workday Wellness enhance customer value.
• CRPO Growth: Early renewals, driven by customer demand for AI solutions, contributed to strong CRPO growth (16.4%). Paradox adds ~$15 million to FY26 revenue guidance, with no synergies assumed yet.

Outlook: Workday is poised for sustained growth, leveraging its AI leadership, unified platform, and expanding ecosystem. The company is focused on long-term innovation while delivering near-term results, with significant opportunities in AI, government, and international markets. Further details will be shared at Workday Rising and Financial Analyst Day on September 16, 2025.