Core Insights - Workday (NASDAQ: WDAY) stock is experiencing a decline in pre-market trading following the release of its 2Q26 report, which, while strong overall, provided guidance that met expectations but did not exceed them [1] Financial Performance - The company reported earnings per share (EPS) of $2.21, surpassing the consensus estimate of $2.11 [1]

Core Insights - Workday reported a 13% year-over-year revenue growth for Q2 of fiscal year 2026, reaching $2.35 billion, slightly above analyst expectations of $2.34 billion [1] - The company's net profit increased by over 72% year-over-year to $228 million, with adjusted earnings per share of $2.21, surpassing the analyst forecast of $2.11 [1] - Subscription revenue grew by 14% year-over-year to $2.17 billion, aligning with analyst expectations [1] - Workday raised its fiscal year subscription revenue guidance from $8.8 billion to just below $8.82 billion [1]

Company Participants - The earnings call features key executives including Carl M. Eschenbach (CEO & Director), Gerrit Kazmaier (President of Product & Technology), Justin Allen Furby (Vice President of Investor Relations), and Zane C. Rowe (Chief Financial Officer) [1] Conference Call Overview - The call is part of Workday's Second Quarter Fiscal Year 2026 Earnings Conference, indicating a focus on financial performance and strategic direction [2][3] - The call is being webcasted live, allowing for broader access to stakeholders and investors [3] Forward-Looking Statements - The company emphasizes that some statements made during the call, particularly regarding guidance, are forward-looking and based on current information, which may be subject to risks and uncertainties [4]

Core Insights - Workday reported $2.35 billion in revenue for the quarter ended July 2025, marking a year-over-year increase of 12.6% and exceeding the Zacks Consensus Estimate by 0.35% [1] - The earnings per share (EPS) for the same period was $2.21, up from $1.75 a year ago, representing a surprise of 5.74% over the consensus estimate of $2.09 [1] Financial Performance Metrics - Subscription revenue backlog stood at $25.37 billion, below the average estimate of $26.48 billion [4] - Subscription services revenue was reported at $2.17 billion, slightly above the average estimate of $2.16 billion, reflecting a year-over-year increase of 14% [4] - Professional services revenue was $179 million, slightly below the average estimate of $180.17 million, indicating a year-over-year decline of 1.7% [4] Stock Performance - Workday's shares have returned -5.6% over the past month, contrasting with the Zacks S&P 500 composite's increase of 1.7% [3] - The stock currently holds a Zacks Rank 4 (Sell), suggesting potential underperformance relative to the broader market in the near term [3]

Core Insights - Workday reported quarterly earnings of $2.21 per share, exceeding the Zacks Consensus Estimate of $2.09 per share, and up from $1.75 per share a year ago, representing an earnings surprise of +5.74% [1] - The company achieved revenues of $2.35 billion for the quarter ended July 2025, surpassing the Zacks Consensus Estimate by 0.35% and increasing from $2.09 billion year-over-year [2] - Workday has consistently surpassed consensus EPS and revenue estimates over the last four quarters [2] Earnings Outlook - The sustainability of Workday's stock price movement will depend on management's commentary during the earnings call and future earnings expectations [3][4] - The current consensus EPS estimate for the upcoming quarter is $2.11 on revenues of $2.42 billion, and for the current fiscal year, it is $8.70 on revenues of $9.5 billion [7] Industry Context - The Internet - Software industry, to which Workday belongs, is currently ranked in the top 30% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Workday's performance [5] Stock Performance - Workday shares have underperformed the market, losing about 11.8% since the beginning of the year, while the S&P 500 has gained 8.7% [3] - The estimate revisions trend for Workday was unfavorable prior to the earnings release, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6]

Company Performance - Workday reported a revenue increase of 13% year-over-year for the fiscal second quarter, totaling $2.35 billion, surpassing the expected $2.34 billion [1][5] - Net income rose to $228 million, or 84 cents per share, compared to $132 million, or 49 cents per share, in the same quarter last year [1] Future Guidance - For the current quarter, Workday anticipates $2.24 billion in subscription revenue and $180 million in professional services, leading to a total revenue forecast of $2.42 billion, aligning with analyst expectations [2] - The company projects an adjusted operating margin of 28.0%, slightly below the consensus of 28.1% [2] Full Year Outlook - Workday expects $8.82 billion in subscription revenue and $700 million in professional services revenue for the full year, totaling $9.52 billion, which is in line with the LSEG consensus of $9.51 billion [3] Challenges and Acquisitions - The segment serving state and local governments faced challenges, attributed to uncertainties regarding funding [3][4] - Workday announced the acquisition of Paradox, a company specializing in conversational AI for recruiting, although the terms were not disclosed [4] Market Performance - As of the latest market close, Workday shares have declined approximately 12% year-to-date, contrasting with a 9% increase in the Nasdaq [5]

Financial Data and Key Metrics Changes - Workday reported a 14% growth in subscription revenue, totaling $2,169 million for Q2 [28] - Total revenue for Q2 reached $2,348 million, reflecting a 13% increase [28] - Non-GAAP operating margin was 29%, with non-GAAP operating income of $680 million [30] - Cash flow from operations for Q2 was $616 million, an 8% growth [31] - The twelve-month subscription revenue backlog (CRPO) increased by 16.4% to $7,910 million [29] Business Line Data and Key Metrics Changes - Approximately 30% of net new deals were full suite offerings, with this number rising to over 50% in sectors like SLED and healthcare [11] - More than 70% of new customers purchased an AI SKU, contributing to over 100% year-over-year growth in net new AI SKUs [50][92] - Professional services revenue was $179 million, contributing to the overall revenue growth [28] Market Data and Key Metrics Changes - U.S. revenue for Q2 totaled $1,760 million, up 13%, while international revenue reached $584 million, an 11% increase [29] - The company saw strong performance in Europe, particularly in the UK and Germany, with no significant headwinds from macroeconomic factors [59] - The government sector is experiencing a significant opportunity for modernization, with Workday launching a dedicated subsidiary, Workday Government [15][16] Company Strategy and Development Direction - Workday is focusing on AI-driven solutions, with a roadmap aimed at delivering purpose-built AI solutions for HR and finance [17] - The company is making strategic acquisitions, including the recent agreement to acquire Paradox, enhancing its recruiting capabilities [19][80] - Workday is expanding its global footprint, particularly in India, and is investing in new markets and industries [26][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to leverage its market position and strong customer base to capitalize on AI opportunities [46][50] - The company anticipates continued growth in subscription revenue, increasing its FY 2026 guidance to $8,815 million, reflecting a 14% growth [32] - Management acknowledged potential challenges in the SLED market but remains optimistic about overall performance and momentum heading into the second half of the year [60][68] Other Important Information - Workday's gross revenue retention rate remained healthy at 97% [30] - The company ended the quarter with $8,200 million in cash and marketable securities [31] - Workday's headcount stood at approximately 19,500 as of July 31 [32] Q&A Session Summary Question: Market concerns regarding SaaS and AI disruption - Management believes concerns about AI disruption to SaaS models are overblown, emphasizing Workday's strong customer base and AI adoption [46][50] Question: Crosscurrents affecting growth - Management noted that while there are macroeconomic factors to monitor, the international business performed well, particularly in Europe [58][60] Question: Workday Government subsidiary - The subsidiary was launched to demonstrate commitment to the government sector and to provide a secure cloud environment tailored to their needs [74][75] Question: Acquisition of Paradox - The acquisition is seen as a strategic move to enhance Workday's recruiting platform, with expected synergies and growth opportunities [80][87] Question: AI product influence on win rates - AI solutions are significantly influencing sales, with over 70% of new sales including AI products, contributing to strong growth [92][93] Question: Notable wins in Q2 - Significant wins included the University of Virginia and Nationwide Insurance, showcasing strong performance across various sectors [94][95]

Financial Data and Key Metrics Changes - Workday reported a 14% growth in subscription revenue, totaling $2,169 million for Q2 2026, with total revenue reaching $2,348 million, reflecting a 13% increase [28][29] - Non-GAAP operating margin stood at 29%, with non-GAAP operating income of $680 million [30][33] - Cash and marketable securities at the end of the quarter were $8,200 million, with operating cash flow of $616 million, an 8% growth [31][32] Business Line Data and Key Metrics Changes - Approximately 30% of net new deals were full suite offerings, with this number rising to over 50% in sectors like SLED and healthcare [10][12] - More than 70% of core customers are utilizing Workday Illuminate, with over 30% of customer-based deals including AI products [12][15] - The financial services sector saw significant expansions, including new relationships with Nationwide Insurance and others [12][13] Market Data and Key Metrics Changes - U.S. revenue increased by 13% to $1,760 million, while international revenue grew by 11% to $584 million [29] - The twelve-month subscription revenue backlog (CRPO) reached $7,910 million, up 16.4% year-over-year [29][30] - Strong performance was noted in EMEA, particularly in Germany and the UK, with notable wins in APAC, including a deal in Vietnam [24][122] Company Strategy and Development Direction - Workday is focusing on AI-driven solutions and expanding its platform capabilities, including the acquisition of Paradox to enhance its recruiting suite [16][78] - The company is investing in organic innovation and strategic acquisitions to strengthen its market position and deliver greater value to customers [16][21] - Workday Government was launched to cater specifically to the needs of the U.S. government, emphasizing a commitment to modernization and AI integration [14][70] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's momentum, driven by AI innovation and a unified platform, while acknowledging macroeconomic challenges in certain sectors [25][56] - The company anticipates continued growth in subscription revenue, increasing its FY 2026 guidance to $8,815 million, reflecting a 14% growth [32][34] - Management highlighted the importance of customer trust in navigating AI transitions, positioning Workday as a key partner in this area [100][49] Other Important Information - Workday's headcount as of July 31 was approximately 19,500, with ongoing efforts to attract top talent [31][21] - The company is expanding its partner ecosystem, with over 20% of net new ACV sourced from partners in the last quarter [22] - Workday is actively pursuing growth opportunities in India, with plans to establish a local data center and expand its team [24][122] Q&A Session Summary Question: Market concerns regarding SaaS and AI startups - Management believes concerns about AI disruption to SaaS models are overblown, emphasizing Workday's strong market position and customer base [45][49] Question: Crosscurrents affecting growth - Management noted strong performance in Europe despite macroeconomic challenges, while observing some headwinds in the SLED market [56][58] Question: Workday Government subsidiary - The subsidiary was established to demonstrate commitment to the government sector and to provide a secure cloud environment [70][71] Question: Acquisition of Paradox - The acquisition is seen as a strategic move to enhance Workday's recruiting capabilities, with expected synergies and growth opportunities [78][84] Question: AI product engagement and win rates - Engagement with AI products is strong, with significant growth in adoption rates among customers [88][90] Question: International market performance - Management expressed satisfaction with growth in international markets, particularly in Europe and Japan, and highlighted plans for expansion in India [122][121]

Core Insights - Workday, Inc. reported adjusted earnings of $2.21 per share, exceeding the Street estimate of $2.12 [1] - Quarterly revenue reached $2.34 billion, matching analyst expectations [1] - The company announced the acquisition of Paradox, with financial terms undisclosed [2] Financial Performance - The 12-month subscription revenue backlog was $7.91 billion, reflecting a 16.4% increase year-over-year [6] - Total subscription revenue backlog increased to $25.37 billion, up 17.6% from the previous year [6] - Operating cash flows were reported at $616 million, compared to $571 million in the same period last year [6] - Free cash flows increased to $588 million from $516 million year-over-year [6] - Non-GAAP operating income for the second quarter was $680 million, representing 29% of revenues, compared to $518 million or 24.9% of revenues in the same period last year [6] Strategic Commentary - The CEO of Workday highlighted the company's solid quarter driven by AI and platform innovation, as well as international momentum [4] - Workday's value proposition includes helping customers navigate AI transformation and streamline operations [4] Stock Performance - Workday's stock price decreased by 6.35% to $213.13 in extended trading following the earnings report [5]

Financial Performance - Trailing twelve month subscription revenues reached $8.227 billion, demonstrating a year-over-year growth of 14.7%[9] - Trailing twelve month non-GAAP operating income was $2.511 billion, resulting in a 28.0% margin[9] - Trailing twelve month operating cash flow amounted to $2.591 billion, achieving a 28.9% margin[9] - Q2 FY26 total revenues were $2.348 billion, a 12.6% increase year-over-year[22] - Q2 FY26 subscription revenues reached $2.169 billion, reflecting a 14.0% increase year-over-year[22] - The company anticipates full year FY26 subscription revenues of $8.815 billion, representing a 14% increase year-over-year[13, 29] Customer Base and Market Position - The company serves 65%+ of the Fortune 500, including 70%+ of the top 50 Fortune 500 companies[9] - The customer community represents more than 75 million users under contract[10, 27] - The estimated total addressable market (TAM) is $160 billion[9] Strategic Initiatives - The company entered into an agreement to acquire Paradox for approximately $1 billion in cash and acquired Flowise[27] - The company launched Workday Government, a new subsidiary dedicated to serving the U.S Government[27]