Workday, Inc. Q2 FY2026 earnings call

Carl mentioned Workday delivered a solid quarter with 14% subscription revenue growth and 29% non-GAAP operating margin. Customer highlights included new HCM relationships with Carrefour, Memorial Health, etc., and expansions with Sanofi, Blue Origin. AI was prominent, with over 30% of customer base deals and over 75% of net new deals including AI products, and net new ACV from AI products more than doubling year-over-year. The company acquired Paradox, a breakthrough candidate experience agent. On the platform, Workday Extend saw new ACV growth, and the developer ecosystem expanded. Industries had strong performance, such as Financial Services with expansions at Nationwide Insurance, SLED with first state go-live on financial management, and government business with the launch of Workday Government. International business showed solid growth across regions, with EMEA, APAC, and India experiencing growth.

Subscription revenue in the second quarter was $2.169 billion, up 14%. Professional services revenue was $179 million, resulting in total revenue of $2.348 billion, growth of 13%. U.S. revenue totaled $1.76 billion, up 13%, while international revenue totaled $584 million, up 11%. 12-month subscription revenue backlog (cRPO) was $7.91 billion at the end of Q2, increasing 16.4%. Total subscription revenue backlog at the end of the quarter was $25.37 billion, up 18%, and gross revenue retention rates were 97%. Non-GAAP operating income for the second quarter was $680 million, representing a non-GAAP operating margin of 29%. Q2 operating cash flow was $616 million, growth of 8%. Headcount as of July 31 stood at approximately 19,500.

Workday is increasing FY '26 subscription revenue guidance to $8.815 billion, a growth of 14%. Q3 subscription revenue is expected to be approximately $2.235 billion, also growing 14%. cRPO is expected to increase between 15% and 16% in Q3. FY '26 professional services revenue is expected to be approximately $700 million. Q3 professional services revenue is expected to be $180 million. The non-GAAP operating margin for FY '26 is increased to approximately 29%, and for Q3, it is expected to be 28%. FY '26 operating cash flow outlook is increased to $2.85 billion. FY '26 capital expenditures are expected to be approximately $200 million, resulting in a free cash flow of $2.65 billion, a growth of 21%.

There are concerns about SaaS disruption. International markets face macro factors like tariffs and geopolitics. In the SLED business, there are headwinds such as state and local government funding slowdown and higher ed funding pressure.

Q: Kash Rangan asked about SaaS fears and Workday's position.

A: Carl said concerns about AI disrupting seat-based models are overblown. Workday has a strong customer base, a high gross retention rate, and over 70% of customers use Workday Illuminate.

Q: Kirk Materne asked about cross currents.

A: Carl mentioned keeping an eye on international markets and SLED business. International business had strong performance in Europe, while SLED had headwinds.

Q: Mark Murphy asked about Workday Government.

A: Carl said Workday Government was launched to show focus on the government sector and they are building a specific cloud environment with higher security.

Q: Brad Zelnick asked about Paradox acquisition.

A: Carl and Gerrit talked about Paradox complementing the recruiting suite and leveraging AI for candidate experience.

Q: Brent Thill asked about AI growth and big deals.

A: Carl talked about AI adoption statistics and big wins like UVA.

Q: Brad Sills asked about Illuminate engagement.

A: Carl said engagement is strong, for example, Evisort growing over 100% quarter-over-quarter.

Q: Karl Keirstead asked about early renewals and Paradox.

A: Zane and Carl said early renewals contributed to cRPO upside and Paradox adds to revenue growth.

Q: Raimo Lenschow asked about Paradox and international.

A: Gerrit and Carl talked about Paradox's impact on guidance and international market strength.

Q: Derrick Wood asked about partner leverage.

A: Carl said the partner ecosystem is growing, driving innovation and new revenue streams.