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Workday, Inc. (WDAY)·Q2 2026 Earnings Summary

Executive Summary

  • Q2 FY2026 delivered solid topline and profitability: total revenue $2.348B (+12.6% YoY), subscription revenue $2.169B (+14.0% YoY), non-GAAP operating margin 29.0%, and non-GAAP EPS $2.21; GAAP EPS was $0.84 .
  • Results modestly beat S&P Global consensus: revenue $2.348B vs $2.341B estimate (+$6M), non-GAAP EPS $2.21 vs $2.12 estimate (+$0.09); beats follow prior two quarters of beats on both revenue and EPS (see tables) [Values retrieved from S&P Global]*.
  • Guidance raised: FY2026 subscription revenue to $8.815B (from $8.800B) and FY2026 non-GAAP operating margin to ~29% (from 28.5%); Q3 subscription revenue guided to $2.235B and non-GAAP margin to 28% .
  • Key catalysts: AI product adoption (70%+ of core customers leveraging Illuminate; 75%+ of net new deals include AI), strong partner ecosystem (DailyPay on on-demand pay), and strategic M&A (definitive agreement to acquire Paradox; recent Flowise acquisition) .

What Went Well and What Went Wrong

What Went Well

  • AI product momentum: more than 70% of core customers using Illuminate; ~30% of base expansions include AI SKUs; >75% of net new deals include AI solutions; net new ACV from AI more than doubled YoY .
  • Strong commercial traction and marquee wins/go-lives: UVA net new across HCM/Financials/Student; Nationwide upsell/cross-sell in Financials; Salesforce went live on Workday Financial Management and Accounting Center .
  • International and ecosystem strength: UK and Germany standout; Japan momentum; first deal in Vietnam; partner-sourced >20% of net new ACV; DailyPay named strategic on-demand pay partner .

Quote: “Customers are choosing Workday because we help them unlock value today and prepare for what’s next…with AI at the core.” — CEO Carl Eschenbach .

What Went Wrong

  • SLED headwinds: state and local seeing funding uncertainty; Higher ed under pressure with funding pullbacks, though UVA was a significant competitive win .
  • GAAP margins remain meaningfully below non-GAAP: company reiterated GAAP operating margin expected to be ~17–21 points lower than non-GAAP for Q3 and full-year FY2026 .
  • Ongoing restructuring costs from FY2026 plan (workforce reduction ~7.5%, office exits) continued to weigh on GAAP results YTD .

Financial Results

MetricQ4 2025Q1 2026Q2 2026
Total Revenues ($USD Millions)$2,211 $2,240 $2,348
Subscription Revenues ($USD Millions)$2,040 $2,059 $2,169
Professional Services Revenues ($USD Millions)$171 $181 $179
GAAP Operating Income ($USD Millions)$75 $39 $248
GAAP Operating Margin (%)3.4% 1.8% 10.6%
Non-GAAP Operating Income ($USD Millions)$584 $677 $680
Non-GAAP Operating Margin (%)26.4% 30.2% 29.0%
GAAP Diluted EPS ($)$0.35 $0.25 $0.84
Non-GAAP Diluted EPS ($)$1.92 $2.23 $2.21
Operating Cash Flow ($USD Millions)$1,113 $457 $616
Free Cash Flow ($USD Millions)$1,026 $421 $588
12-Mo Sub Rev Backlog (CRPO) ($USD Billions)$7.63 $7.63 $7.91
Total Sub Rev Backlog ($USD Billions)$25.06 $24.62 $25.37

Q2 Geography and Mix (Q2 FY2026):

  • U.S. Revenue: $1.760B (+13% YoY) .
  • International Revenue: $584M (+11% YoY; with ~3-point impact YoY from increased mix of international partner deployments) .

Subscription vs Services Mix (Q2 FY2026):

  • Subscription Revenues: $2.169B .
  • Professional Services Revenues: $179M .

KPIs (Q2 FY2026):

  • Gross revenue retention ~97% .
  • Share repurchases: ~1.2M shares for $299M; remaining authorization ~$1.2B .
  • Cash, cash equivalents & marketable securities: $8.19B .
  • Headcount: ~19,500 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Subscription Revenue ($USD Billions)FY2026$8.800 $8.815 Raised
Non-GAAP Operating Margin (%)FY202628.5% 29.0% Raised
Subscription Revenue ($USD Billions)Q3 FY2026n/a$2.235 New
Non-GAAP Operating Margin (%)Q3 FY2026n/a28.0% New
CRPO Growth (%)Q3 FY2026n/a15–16% New
Professional Services Revenue ($USD Millions)FY2026~$700 ~$700 Maintained
Professional Services Revenue ($USD Millions)Q3 FY2026n/a~$180 New
Operating Cash Flow ($USD Billions)FY2026n/a$2.85 Raised
Capital Expenditures ($USD Millions)FY2026n/a~$200 New
Free Cash Flow ($USD Billions)FY2026n/a$2.65 (+21% YoY) New
GAAP vs Non-GAAP Op Margin (pts)Q3/FY2026n/aGAAP ~17–21 pts lower Clarified

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2025, Q1 FY2026)Current Period (Q2 FY2026)Trend
AI/Technology InitiativesAnnounced Agent System of Record; new role-based Illuminate agents . Launched new Illuminate Agents; Evisort CLM via Workday; tech/media and manufacturing crossed $1B ARR .70%+ core customers on Illuminate; 30% base expansions with AI SKUs; >75% net new include AI; net new AI ACV >2x YoY; Extend Pro ACV >2x YoY; Developer community doubled YoY; Agent Partner Network launched .Accelerating adoption and ecosystem build-out.
Macro/Tariffs/Supply ChainMacro consistent commentary; investing for long-term while driving efficiencies .International strong in UK/Germany; Japan momentum; some SLED headwinds; macro “consistent” vs last year .Stable macro; selective public sector caution.
Product PerformanceFull suite and Financials momentum .Salesforce go-live on Financials; Nationwide upsell; UVA comprehensive win across HCM/Financials/Student .Strength in core Financials and full suite.
Regional TrendsAWS U.K. go-live; new EMEA HQ in Dublin .EMEA (UK/Germany) standouts; APAC wins (Qantas); first Vietnam deal; India entry with local DC and leadership .Expanding footprint and local investments.
Regulatory/Legal/Public Sectorn/a.Launch of Workday Government subsidiary; DIA deliverables tracking; higher security cloud for federal .Growing U.S. federal opportunity.
R&D/Platform/Developer EcosystemContinued innovation; ethics recognition .Extend Pro ACV >2x YoY; AI APIs; Agent Gateway; Flowise acquisition to accelerate agent build; DevCon turnout record .Platform leverage, developer-led expansion.
Wellness/BenefitsWellness partners added (MetLife) .DailyPay named strategic partner for on-demand pay .Expanding benefits ecosystem.

Management Commentary

  • “Workday delivered another solid quarter, driven by our AI and platform innovation, international momentum, and an ecosystem that continues to grow alongside us.” — CEO Carl Eschenbach .
  • “Following our first half momentum — and also incorporating the acquisition of Paradox — we are increasing our fiscal 2026 subscription revenue guidance to $8.815 billion… and increasing our fiscal 2026 non-GAAP operating margin guidance to approximately 29%.” — CFO Zane Rowe .
  • On AI narrative: “This whole concern around AI disruption and the potential negative impact on seat-based models are completely overblown… investing in Workday is absolutely viewed as an investment in their AI strategy.” — CEO Carl Eschenbach .
  • On federal: “We launched Workday Government… building a very specific cloud environment for them with higher levels of security… momentum developing with big agencies.” — CEO Carl Eschenbach .
  • On 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.” — CEO Carl Eschenbach .

Q&A Highlights

  • AI disruption concerns: Management sees AI as tailwind; strong installed base and platform stickiness, with AI SKUs embedded in most net new deals .
  • Guidance framework: FY2026 subscription revenue guide raised to $8.815B; Q3 guided to $2.235B subscription revenue and 28% non-GAAP margin; CRPO expected +15–16% in Q3 .
  • Paradox acquisition: Strategic fit to expand high-volume, conversational mobile-first recruiting; expect top-line synergies; rough proxy ~$15M added to FY guide (no detailed breakout) .
  • Renewals/CRPO: Elevated early renewals contributed to CRPO upside; customer-driven to add new AI solutions to contracts (“create and close” momentum) .
  • Regional/SLED: UK/Germany strength; Japan momentum; SLED caution due to funding, with higher ed pressure, though UVA a significant comprehensive win .

Estimates Context

MetricQ4 2025 EstimateQ4 2025 ActualQ1 2026 EstimateQ1 2026 ActualQ2 2026 EstimateQ2 2026 Actual
Revenue ($USD Millions)2,182.3*2,211 2,216.8*2,240 2,341.5*2,348
Non-GAAP EPS ($)1.7769*1.92 2.0091*2.23 2.1161*2.21
# of Estimates (Rev)33*—33*—32*—
# of Estimates (EPS)35*—36*—35*—
  • Q2 FY2026: modest beats on both revenue (+$6M) and non-GAAP EPS (+$0.09); prior two quarters also beat revenue and EPS [Values retrieved from S&P Global]*.
  • Guidance raise implies potential upward revisions to FY2026 subscription revenue and margin frameworks; increased FY OCF/FCF outlook could support estimate adjustments on cash metrics .

Key Takeaways for Investors

  • AI is an accelerant to demand and competitive positioning: high adoption across installed base and net new, with ecosystem and developer traction reinforcing platform moat .
  • The raise to FY2026 subscription revenue ($8.815B) and non-GAAP margin (~29%) and Q3 guide set a constructive near-term setup; watch CRPO growth in Q3 (15–16%) for pipeline validation .
  • Public sector and international expansion (Workday Government, UK/Germany strength, Japan/India investments) broaden growth vectors beyond core commercial .
  • SLED funding remains a watch item; however, competitive wins like UVA, and Financials go-lives (Salesforce) signal durable value proposition across verticals .
  • Cash generation remains robust: Q2 OCF $616M, FCF $588M; FY OCF raised to $2.85B and FCF to $2.65B (+21% YoY), supporting buybacks and strategic M&A .
  • Near-term trading: the combination of estimate beats, guidance raises, and AI narrative should bias sentiment constructive; monitor execution on DIA deliverables and close of Paradox for incremental catalysts .
  • Medium-term thesis: platform-led AI across HR/Finance with expanding ecosystem and developer momentum, plus international/public sector build-out, underpins multi-year growth and margin expansion potential .

Notes:

  • Values retrieved from S&P Global.