Workday (W7D) Q2 2027 Earnings Report

The call highlighted strong AI-driven adoption, rapid ARR growth from AI SKUs, sizable engagement metrics (recruiting interactions, deployment/adoption momentum), healthy subscription revenue growth (+14% YoY) and expanding non-GAAP margins. Management emphasized active customer adoption initiatives (Sana Lighthouse, UMSA migration), platform openness, and continued investment in AI while completing buybacks and raising margin guidance. Primary risks are timing and monetization of consumption-based AI (flex credits), a mix shift affecting backlog growth rates, a GAAP/non-GAAP margin gap, and the early-stage nature of much of the AI revenue — all of which may delay near-term revenue realization. Overall, the positives around product momentum, customer traction, and margin discipline outweigh the execution and timing challenges.

Workday delivered detailed FY‑2027 guidance: subscription revenue of $9.94–9.95B (≈13% growth), Q3 subscription revenue ≈$2.515B (≈12% growth) with Q3 CRPO growth of 11–12%; Q3 professional services $175M and FY professional services $710M. They raised FY‑2027 non‑GAAP operating margin to 31% (Q3 ≈30%), expect GAAP margins ~18–19 points below non‑GAAP (Q3 ≈18 points lower) and a FY non‑GAAP tax rate of ~19%. Cash‑flow and capital guidance: operating cash flow ~$3.45B, capex ≈$270M, and free cash flow ≈$3.18B (≈15% growth). As context, Q2 results included subscription revenue $2.407B (+14%), total revenue $2.649B (+13%), non‑GAAP operating income $824M (31.1% margin), 12‑month subscription backlog (CRPO) $9.03B (+14.2%), total subscription backlog $27.4B (+8%), gross revenue retention 97%, net expansion ~60% of subscription revenue growth, Q2 operating cash flow $520M and free cash flow $460M; the company repurchased $1.3B this quarter (completing a $5B plan), now has a $4B open‑ended repurchase program, $3.4B in cash/marketable securities, and 20.9k employees. Looking ahead, they see FY‑2028 subscription growth roughly consistent with an ≈11% second‑half FY‑27 exit rate and at least a 2‑ppt expansion in non‑GAAP operating margin.