Workday(WDAY -0.07%) reported its fiscal Q2 2026 results (period ended July 31, 2025) on Aug. 21, 2025, delivering 14% year-over-year subscription revenue growth to $2.17 billion with a non-GAAP operating margin of 29% and raised full-year fiscal 2026 guidance across key metrics. The quarter featured strong AI product adoption, accelerated international momentum, and two strategic acquisitions aimed at broadening the platform’s AI and developer capabilities.
The following analysis distills Workday’s progress on artificial intelligence, public sector expansion, and partner ecosystem impact, drawing out the long-term investment implications.
AI adoption propels Workday subscription growth
Net new annual contract value (ACV) from AI products more than doubled year over year, and over 75% of net new deals included at least one AI solution, led by Workday Illuminate and expanding agent-based offerings. With more than 75 million users under contract, Workday’s AI attach rate among both new and existing customers demonstrates strong adoption of its AI solutions, and it processed a trillion transactions last year.
"More than 30% of our customer-based deals and more than 75% of our net new deals included one or more of our AI products, such as talent optimization, recruiting agent, talent mobility agent, contract intelligence agent powered by Eversource, and ExtendPro. And net new ACV from our AI products once again more than doubled year over year."
-- Carl Eschenbach, CEO
Workday’s seat-based and platform business models are underscored as defensible against potential disruption from standalone generative AI startups.
Workday launches government subsidiary and targets public sector AI modernization
With the debut of Workday Government, the company created a wholly owned U.S. subsidiary and began building dedicated cloud infrastructure with higher security standards, directly responding to federal customer requirements. Workday saw the first state-level go-live on Workday financial management (Rhode Island), as well as a competitive win encompassing the University of Virginia’s health system, signaling success both in agency penetration and cross-vertical state/higher education reach.
"We launched Workday Government in the quarter because we wanted to set up a separate subsidiary as part of Workday to show the government how focused we are on their sector in our opportunity. And I will tell you in spending quite a bit of time in DC over the last few months, it has been very well received. At the same time, to answer your question, we are building a very specific cloud environment for them with higher levels of security. That they are seeking from us, and we're working closely with them."
-- Carl Eschenbach, CEO
This dedicated government entity positions Workday to pursue opportunities in the federal and state governments’ multi-year digital modernization and AI adoption cycle.
Partner ecosystem and developer platform fuel incremental ACV growth
Workday’s channel partners contributed over 20% of net new ACV for the second consecutive quarter, coinciding with a doubling of live apps on Workday Marketplace since the start of the fiscal year and a year-over-year doubling of developer community size. New partnerships, including AWS, Google Cloud, and PwC, were signed into the AI agent partner network. Enhancements to Extend and the acquisition of Flowwise, a low-code agent builder, reflect expansion into open-source and customizable AI workflows.
"For the second quarter in a row, more than 20% of our net new ACV signed in the quarter was sourced from partners. Strategic partnerships are helping us generate new revenue streams and enhance employee services. In the quarter, we expanded our partnership with DailyPay, giving employees easier access to earned wages before payday. "
-- Carl Eschenbach, CEO
Growing partner and developer ecosystem contributions diversify Workday’s growth vectors beyond core HCM and financial applications and accelerate time-to-value for customers.
Looking Ahead
Management increased full-year fiscal 2026 subscription revenue guidance to $8.815 billion (up 14% year over year) and raised the non-GAAP operating margin outlook to 29%, with free cash flow now projected at $2.65 billion. Fiscal Q3 2026 subscription revenue is guided to $2.235 billion (up 14% year over year), current remaining performance obligations (CRPO) are expected to rise 15%-16% in fiscal Q3 2026, and the Paradox acquisition is anticipated to close in fiscal Q3 2026, but is not included in CRPO guidance. Detailed AI product metrics, as well as medium-term financial targets, will be provided at Workday's Financial Analyst Day on Sept. 16, 2025.
