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DATE

Thursday, Aug. 27, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Vice President of Investor Relations - Justin Allen Furby
• CEO - Aneel Bhusri
• President, Product and Technology - Gerrit Kazmaier
• Chief Technology Officer - Gabriel Monroy
• president and chief commercial officer - Robert Enslin
• CFO - Zane C. Rowe

TAKEAWAYS

• Total Revenues -- $2.649 billion, representing 12.8% growth driven by continued momentum across the platform and artificial intelligence adoption.
• Subscription Revenues -- $2.471 billion, an increase of 13.9% reflecting expansion within the existing customer base and a steady contribution from new logos.
• 12-Month Subscription Revenue Backlog -- $9.034 billion, growing 14.2% as organizations modernize core systems to leverage agentic AI capabilities.
• Total Subscription Revenue Backlog -- $27.403 billion, an 8.0% increase impacted by a shift toward customer-based bookings and specific industry mixes in net new business.
• Non-GAAP Operating Margin -- 31.1%, up from 29.0% in the prior year due to revenue outperformance and ongoing cost discipline.
• Non-GAAP Diluted EPS -- $2.75, compared to $2.21 in the year-ago period.
• GAAP Diluted EPS -- $2.57, including a $1.52 per share tax benefit related to an internal intellectual property transfer.
• AI New ACV -- exceeded $100 million, accounting for more than 25% of all new annualized contract value closed during the second quarter.
• AI SKU ARR -- nearly $600 million, representing growth of more than 200% year over year and 20% sequentially.
• Organic Agent Customers -- more than 5,500, up more than 35% from the previous quarter as more clients move from pilots to production.
• Gross Revenue Retention -- 97%, remaining consistent with previous periods.
• Net Expansion Rate -- approximately 60%, contributing the majority of subscription revenue growth from existing customers.
• Free Cash Flow -- $460 million, down from $588 million due to the timing of an additional payroll run in the quarter.
• Q3 Subscription Revenue Guidance -- approximately $2.515 billion, representing expected growth of 12%.
• Full-Year Subscription Revenue Guidance -- $9.94 billion to $9.95 billion, representing 13% growth for fiscal year 2027.
• Full-Year Non-GAAP Operating Margin Guidance -- 31.0%, an increase from previous estimates reflecting anticipated operational efficiencies.
• Full-Year Free Cash Flow Guidance -- $3.18 billion, representing 15% growth.
• FY2028 Preliminary Subscription Revenue Guidance -- approximately 11%, consistent with the expected growth rate for the second half of fiscal year 2027.
• FY2028 Preliminary Operating Margin Guidance -- expansion of at least 2 percentage points, driven by AI-powered internal productivity and expense prioritization.
• Share Repurchases -- $1.3 billion during the quarter, completing a $5 billion repurchase plan six months ahead of target.
• Workday Go Deal Volume -- increased more than fivefold compared to the first quarter, fueled by demand in the medium enterprise segment.
• Sana Monthly Active Users -- grew nearly 190% year over year as customers adopt the AI-native workbench and learning platform.
• Contract Intelligence Agent Usage -- drove nearly 70% year-over-year growth in processed agreements across procurement and legal functions.
• Data Cloud Pro Adoption -- six new deals closed in the quarter for the premium edition ahead of the standard Data Cloud general availability in the third quarter.
• Global Headcount -- 20,900 employees as of the end of the second quarter.

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RISKS

• Rowe stated that total subscription revenue backlog growth of 8.0% was "impacted by a continued mix shift towards customer-based bookings versus net new, and the mix of industries that drove our net new bookings."
• Rowe noted that year-over-year declines in free cash flow were "impacted by the timing of the payroll calendar, which had an additional payroll run in Q2."

SUMMARY

Management reported that artificial intelligence has become a primary driver of new contract value as the company transitions toward an agentic software model. Workday stated that more than half of its customer base has migrated to a new universal service agreement to access these capabilities. The company is introducing a consumption-based credit model to monetize automated workflows and agent-driven actions across its human capital and financial management platforms. Management indicated that this platform shift and internal efficiency initiatives are expected to support continued margin expansion in the upcoming fiscal year.

• Gerrit Kazmaier noted that Sana's conversational interface will become the default home screen for Workday by the Rising conference in Oct. 2026.
• Management reported that 12,000 internal employees built 22,000 custom agents within three weeks of rolling out Sana Enterprise.
• The company reported that developers have built more than 3,000 custom apps and agents since the launch of the developer agent tool in June.
• Adaptive Decision Intelligence entered general availability on July 31, 2026, delivering AI-driven scenario modeling and regression analysis to 170 initial customers.
• Management stated that the company operates as an enterprise context platform, noting that its agents function within established permissions and business processes.
• The recruiting agent automatically scheduled 8 million interviews during the quarter, with 30 million candidates interacting with the talent acquisition agent.
• Bhusri stated that the company's current outlook is based on the shipping of artificial intelligence products and rapid customer adoption rather than general optimism.

INDUSTRY GLOSSARY

• ACV: Annualized Contract Value, representing the annualized value of a customer's contract.
• ARR: Annual Recurring Revenue, a metric for the predictable and recurring revenue components of a subscription business.
• CRPO: Current Remaining Performance Obligations, representing the amount of contracted revenue expected to be recognized over the next 12 months.
• Flex Credits: A consumption-based unit system used to monetize specific AI agent actions and workflows.
• UMSA: Universal Main Service Agreement, the updated contract terms required for customers to access Workday's AI and agentic capabilities.
• Sana Enterprise: An AI-native workbench and learning platform integrated into the Workday ecosystem.
• Data Cloud: A platform service that provides zero-copy access to Workday data for external AI models and analytics systems.
• MCP: Multi-Cloud Platform, the architectural layer that enables AI models to interact with Workday APIs using natural language.

Full Conference Call Transcript

Operator: Ladies and gentlemen, welcome to Workday's Second Quarter Fiscal Year 27 Earnings Call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the call. During the Q&A session, please limit your questions to 1. I will now hand it over to Justin Allen Furby, Vice President of Investor Relations. Please go ahead.

Justin Allen Furby: Thank you, operator. Welcome to Workday's second quarter fiscal 27 earnings conference call. On the call, we have Aneel Bhusri, our CEO Gerrit Kazmaier, our President, Product and Technology Gabriel Monroy, our Chief Technology Officer Robert Enslin, our president and chief commercial officer and Zane C. Rowe, our CFO. Following prepared remarks, we will take questions. Our press release was issued after close of market and is posted on our website where this call is being simultaneously webcast.

Before we get started, we want to emphasize that some of our statements on this call particularly our guidance, are based on the information we have as of today include forward looking statements regarding our financial results, applications and solutions, customer demand, operations, and other matters. These statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission including our fiscal 26 annual report on Form 10-K, additional information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements.

In addition, during today's call, we will discuss non GAAP financial measures, which we believe are useful as supplemental measures of Workday's performance. These non GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non GAAP measures including reconciliations with comparable GAAP results, in our earnings press release our investor presentation and on the Investor Relations page of our website. The webcast replay of this call will be available for 90 days on our company website under the Investor Relations link. Additionally, the prepared remarks of this call and our quarterly investor presentation will be posted on our Investor Relations.

Our third quarter fiscal 27 quiet period begins on 10/15/2026. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 26. With that, I will pass the call to Aneel.

Aneel Bhusri: Thanks, Justin, and thanks everyone for joining us today. it is hard to believe I have been back in the CEO seat for 6 months. Time flies when we are having fun. And I am having a lot of fun. This is a fun time to be back in the tech industry. Q2 was another strong quarter in AI played an increasingly bigger role. AI products alone drove more than 100 million of new ACV, which accounted for more than 25% of all new ACV closed in the quarter. it is starting to lift our core business too, including our win rates. We had commercial success with AI in the quarter, including strong early returns with flex credits.

And we expect this to accelerate going forward. What I am watching more closely is adoption. Today, more than 5.5 thousand customers are using 1 or more of our organic agents. that is up more than 35% from last quarter. As we continue to build organic agents on Workday, we are also deeply integrating acquired agents like those from Paradox, HiredScore, and Eversort into our platform. And we have signed some of the world's largest brands for our Lighthouse program, which gives strategic customers Sana Enterprise free for a year. We have rolled it out to our own workmates last month, and they are hooked. I expect these customers will be too.

We know that if we deliver the value, monetization will follow. After 2 strong back-to-back quarters, I really like the momentum we have going into the second half of the year. Garrett and our product and technology teams have our innovation engine humming again. While Rob and his team have done a phenomenal job building pipeline that will drive more new business. They will cover the numbers shortly, including the impact of AI adoption on our Outlook, for the second half and fiscal year 2028. I spent much of the past 6 months with customers.

Last quarter, I told you I had not met a single customer who is looking to replace Workday with something they are building internally or buying from a start up. A quarter later, that has not changed. The reason is the deterministic rails I have talked about before. Our agents are lawful. They work inside the permissions, policies, and business process a company already runs on. that is why our customers can trust them with the work that matters. it is why we are seeing our organic agents really take off this year. 1 of those customers is BMO, a top 10 bank in North America.

They piloted self-service agent with 500 employees in May, and successfully rolled it out to all 55 thousand employees in June. SSA gives BMO employees and managers a personal intuitive way to get HR questions answered and work done faster and easier. And because it is native to Workday, the agent understands employee permissions and which HR policies apply to them. That built in context is exactly what makes this a responsible and scalable AI deployment for BMO. BMO is 1 of many. More customers are moving from pilots to production with our agents. But we know that no 1 company will build every agent. The future will be open, and CIOs need a trusted platform to connect it all.

We are building for that world with data cloud and developer agent. Data Cloud lets customers use their Workday data alongside the other systems they run on, without copying or moving it. Customers see the value and demand is building. Developer agent, which we announced at DevCon in June, makes it dramatically faster and easier for developers to build on work day using natural language. it is 1 of the innovations I am most excited about. I will add just 1 thing. Because I do not think it is fully understood. Workday is not just an enterprise apps company. We are an enterprise context platform we were built that way from the start. Agency contacts to do anything useful.

Who reports to whom, what the policies are, how money moves, So whether a customer runs our agents or bills their own on top of Workday, we win either way. Gabe will go deeper on this shortly. Finally, Rising is coming to Las Vegas, October 12-15. I have to tell you, Garrett and his team have walked me through our Rising announcements. I was blown away by how much innovation we have to show. Not slides. Live demos and customers talking about the work our agents are already doing inside their businesses. that is the proof I care about most. We will also be hosting our financial analyst day at Rising, and I hope to see you all there.

To close, as many of you know, I am an unabashed optimist. But I am not leaning on optimism here. We are shipping AI products. Our customers are adopting them rapidly. it is happening across the board from the agents we built ourselves to the ones we have acquired. This is Workday's moment, I have never felt better about where we are headed. With that, I will hand it to my Vulcan mind-melded friend, Gerrit.

Gerrit Kazmaier: Thanks, Aneel, and hello, everyone. In Q2, once again, we have accelerated our road map and added new AI capabilities across our platform. All of it builds on our unique role model of work and we keep moving more agents into production at scale. So let me put this into numbers for you. Nearly $600 million in ARR from our AI SKUs and that is up more than 200% year-over-year and up over 20% from last quarter. Here is what this looks like in practice. In recruiting, more than 30 million candidates interacted with our talent acquisition agent and AI automatically scheduled more than 8 million interviews last quarter alone.

In functions like procurement and legal, Workday contract intelligence agent drove nearly 70% year-over-year growth in agreements processed. And in HR case resolution, more than 100 customers moved Sana self-service agent into product last month. Since February, have nearly doubled AI tools and skills in the agent that run in production. So now let's talk about 3 key innovation highlights from last quarter. Sana, adaptive decision intelligence, and our deployment and adoption agents. Let's talk about Sana Enterprise first. Sana Enterprise is our AI workbench for HR, finance, and IT to build, orchestrate, and run AI across the entire enterprise. In Q2, we have shipped 23 new capabilities in Sana that open up what customers can do with it.

For example, our brand new sauna agent builder lets any user create an agent in natural language. And then run it on a schedule or trigger it on a business event. Every 1 of those agent runs in a secure sandbox. We now have 1 shared agent task inbox in Sana. Where work is managed in 1 place, human or AI. And we have added custom MCP connectors so Sana can connect to any third party application out there. This innovation it is already changing AI adoption inside and outside of Workday. Here is what we have done. We rolled out Sana Enterprise internally on August 4. And already have 12 thousand active users on it.

These workmates have built 22 thousand custom agents in 3 weeks alone. Now this is what AI looks like when it is embedded into real work. We have also brought Workday Learning and Sana Learn together into 1 product. It is in GA now with a learning admin agent, AI based course generation, and AI tutor for self paced learning, and MCP support as part of our open platform. And the results are clear. In Sana, monthly active users grew almost 190% year-over-year, and 78% of all published courses were created with AI. And we are taking the next major step of Sana for Workday.

As we have shared in the past, Sana is our vision for an AI driven work experience across Workday and beyond. With our unique meta driven platform, we can now unlock all Workday processes for generative UI in Sana. So by Workday Rising in October, Sana's conversational AI experience will be the default home screen for Workday. The second big AI innovation is decision intelligence. As you know, frontier models are good at analyzing data. But they sit on the sidelines of the operational system. They are detached from business semantics. They are working off downloaded spreadsheets. And they are unable to close the loop back to work actually happens. Adaptive decision intelligence is different.

It is our AI agents for analytics and planning that runs analysis, generates plans, and takes government action directly in inside Workday. All based under our security model, audit trails, and governance rules. On July 31, adaptive decision intelligence entered into GA. And this was 1 of the fastest products we have ever delivered. From concept to general availability in 4 months. it is built organically within Workday. Here is what we have shipped all AI agent based. Live analysis of plan data, scenario modeling, sensitivity analysis, regression models, version comparison, and AI recommendations that you can submit as governed plan up updates with approval audit trails, and staleness detection. And as of today, 170 customers have already purchased it.

And 1 EA customer told us it gives finance teams answers they can actually defend. And we are not stopping here. We just kicked off the early adopter program connecting adaptive decision intelligence directly into Workday finance. To give it access to journal lines, plan data, and to our accounting center. Our customers can now tie AI to financial out outcomes with transaction level evidence. And next, we are going to move this to workforce analytics. Connecting live people data with financial decisions in 1 AI agent experience. And our third AI highlight for this quarter is deployment and adoption agent. Deployment agent momentum has been dynamite.

As of today, we have more than 4.6 thousand customers almost 24 thousand users And query volume surging nearly 500% in Q2. Mohegan Gaming is now live. And Mohegan says the downstream impact is priceless. Deployment agent deploys updates so rapidly that employees remain focused on their core business. And our long term target is to reduce deployment task time with this agent by 80% to 90%. And once customers are live, Adoption Agent helps keep them ahead of what is new. It surfaces the releases that matter and recommends the next step for their environment. Adoption agent entered 200 customers signed on in the first 3 days alone.

With 20 thousand release notes evaluated and achieved a 94% customer satisfaction rate. 1 customer, Solution Health, used adoption agent on their latest release. They ran it across every functional area, and they have cut that release time down by 70%. And here is why this matters so much. Faster deployments, faster adoption, and a lower cost to serve are fueling Workday Go's momentum in the medium enterprise. Workday goes win rates and deal volume are both increasing in Q2. Here is 1 more note for you. Travel Agent and Sana for ITSM have both moved into early adopter with the first customers already onboarded.

And the bottom line of this is this, The broad model of work is not a thesis. Is in production. It is compounding. And you can see it in the numbers. A key part of this equation is our open platform strategy, unlocking the power of Workday for our customers and for the entire ecosystem around us. I am going to pass it to our very own Gabriel Monroy, Workday's CTO and the leader of our technology platform to share our progress here. Gabe? Take it away.

Gabriel Monroy: Thanks, Garrett. it is good to be here. Building on what Anil said, it is almost as though Workday was built for AI 20 years ago. Having 1 data model, 1 security model, 1 version for every customer from the start is an incredible advantage. it is a big reason why I came to Workday. Over the last several years, we modernized that foundation to handle the complexity of running AI at scale. We built tools that can query work that using industry standard analytics solutions and MCP layer so AI models can talk to our APIs in natural language. But access is only half of it.

The stakes are different in the world of people and money. that is why we have updated our security model and built the agent system of record. So our agents act with the same permissions, rules, and controls our customers already trust. An agent is not just a model. it is identity, permissions, guardrails, logs, and governance all working together. that is what separates a lawless agent from a lawful 1. Lawless agent will attempt to take action on its own. A lawful agent takes action because the system allows it. Inside Workday's deterministic rails, every step is checked against the security model. The business process framework. And the compliance logic before it runs.

Now in Q2, we advanced our platform strategy in 3 ways. Making it more open, extensible, and lawful. Starting with being open. CIOs are not going to settle for a single rigid AI stack. So we built Workday with 3 paths in. Developers building custom agents on their own AI stacks need safe, governed access to Workday. Both for querying data and for taking action. Data cloud gives external agents and partners like Snowflake, AWS, and Google zero copy access to HR and finance. Data. In Q2, we closed 6 deals with all customers choosing our premium Data Cloud Pro edition. Data Cloud remains on track for GA in Q3. And at DevCon, we launched agent ready tools over MCP.

These agent APIs allow third party agents on any stack to safely get work done inside Workday. like updating an employee record or approving an invoice without breaking corporate rules. Brent ready tools are now available to early adopters through Workday Extend Pro, With GA in Q3. Today, more than 1.6 thousand customers use Workday across third party services like Teams and Slack, As well as Copilot and Gemini, which we added in Q1. Over 100 of those customers are already leveraging self-service agent directly in the tools they use every day. Whether a manager approves spend or logs an expense right in chat, the underlying policy checks and compliance, stay securely anchored inside Workday.

And some work simply outgrows a chat bubble. Travel and IT service management, which Garrett mentioned earlier, those need a Canvas. That work lands in Asana. Where we own both the reasoning engine and the experience. Whether a customer uses their own agent uses our agents with their own front door, or Sana, we meet them wherever they work. And because all of it runs through flex credits, we monetize every action happening on our rails regardless of the path. In Q2, custom apps built on Workday Extend grew over 90% year-over-year, even when building required specialized engineers. Our new developer agent removes that bottleneck.

Now builders can generate policy compliant workflows using plain language directly inside tools like cursor, codex, and cloud code. This takes development time from weeks to minutes and opens up the platform to all builders. Customer uptake was instant, Developers have built more than 3 thousand custom apps and agents since DevCon. As we expand these plain language tools across our user base, we fundamentally shift our business model. You do not have to be an engineer to build on Workday. Finally, none of this matters if the transactions are not lawful. In Q2, we launched Brent Passport.

It gives security teams a verified, auditable record that an agent was tested against critical risks before it is deployed and is monitored after. Cisco joined as a launch partner, bringing Cisco AI Defense to test agents against leading standards and protect them in production. We will add more security partners and attestation stamps in coming months, giving CSOs the confidence required to route higher value work through Workday. In short, our customers can work where they want, build in plain language, and trust every execution. With that, I will hand it to Robert.

Robert Enslin: Thanks, Gabe, and hello, everyone. Our customers trust Workday with the most important parts of their business. And we see it in the field every day. Companies on legacy HCM and ERP systems are realizing they cannot get value from AI without modernizing their core. They want 1 platform they can trust with security and reliability. Which is a big driver behind the demand for Sana Enterprise AI is amplifying the value of the software stack. customers already trust. You can see those tailwinds in our Q2 results. With more than 65% of the Fortune 500 running on Workday, we continue to bring on some of the world's leading brands.

In Q2, we formed new relationships with companies such as KPMG US, Danske Bank, BWX Technologies, and Guidehouse. Medium enterprise, as you heard from Garrett, Workday Go is taking off. Customer volume increased more than 5x Over Q1. Across large and medium enterprises, AI is a key reason companies are modernizing their core on Workday. In fact, over half of our net new wins in Q2 signed up for 1 or more AI solutions. And we are seeing even faster AI adoption across our base. As customers leverage our unmatched HR and finance context to truly unlock the value of AI in the enterprise.

Genesys, using our new financial audit agent, the chief accounting officer described it as the first step toward the dream of getting a touchless audit. Seminole Hard Rock Services is using payroll agent to automate complex tax and compliance calculations for 28 thousand employees. In Calpine Investment, 1 of our first 20 customers back in 2007, added Sana Enterprise to power an AI layer over the employee experience. This pulls on the other AI agents they recently added, including recruiting, contract intelligence, and planning. Sana Enterprise had an exceptional launch in Q2. New customers included AstraZeneca, Novartis, Caterpillar, and Delivery Hero Group.

Since we combined Sana Learn with our core learning management system, we have seen a sizable jump in our overall learning business, which more than tripled quarter over quarter. Adaptive decision intelligence, helped drive strong performance across the entire planning business. And our ecosystem is moving fast with it. Partners have helped build more than 100 industry specific use cases in a little over a month. In late May, we made sign up for Workday and sign a self-service available to all our customers on our AI terms of service. That drove a surge in the number of customers that have signed a universal main service agreement which gives them access to our agents and our AI capabilities.

That strategy clearly worked. More than half of our customer base has already migrated to the UMSA and that momentum is accelerating. Our focus now shifts to driving adoption through flex credits. We have already signed 200 customers this quarter, and we expect to significantly grow that number in the second half as we add more GA agents and expands our platform and data cloud capabilities. We continue to see strong execution across the globe. North America, our largest market, had an exceptional quarter. Anchored by US large enterprise, and another strong quarter in Canada. EMEA drove solid growth, with strong performance in France, Germany, and The Nordics. AI now accounts for nearly 1/3 of new ACV in EMEA.

Japan also had a standout quarter. Further proof that our continued investment there is paying off. I am proud of the results our teams delivered across the business in Q2. Let me close where I started with trust. For more than 20 years, organizations have trusted Workday with their most critical work and now with their AI. that is a durable advantage. And it sets us up for an even stronger second half. Now over to Zane.

Zane C. Rowe: Thanks, Robert. Good afternoon, everyone, and thank you for joining us. Building on Robert's remarks, our second quarter results reflect the continued strength of our platform as organizations rely on Workday to power their most critical HR and finance operations. Subscription revenue in Q2 was $2.407 billion, up 14%. Professional services revenue was a $178 million, resulting in total revenue of $2.649 billion, growth of 13%. Looking at our results by geography, US revenue totaled $1.97 billion an increase of 12% while international revenue was $682 million, up 17%, benefiting from stronger performance over the last few quarters. Turning to backlog, 12 month subscription revenue backlog, or CRPO, ended the quarter at $9.03 billion an increase of 14.2%.

Growth was again fueled by expansion within our existing customer base. With AI increasingly a driver alongside a steady contribution from new logos. Total subscription revenue backlog was $27.4 billion in Q2 at $27.4 billion up 8% from a year ago. The year over year growth rate was impacted by a continued mix shift towards customer-based bookings versus net new, and the mix of industries that drove our net new bookings. Gross revenue retention remained strong at 97% for the quarter, and net expansion from existing customers once again led to about 60% of our subscription revenue growth. Non GAAP operating income was $824 million for the quarter.

Representing a non GAAP operating margin of 31.1% driven by a combination of revenue outperformance, and ongoing cost discipline. Our GAAP results in the quarter included a $374 million nonrecurring tax benefit related to an internal IP transfer. Operating cash flow totaled $520 million in the quarter, and free cash flow was $460 million. The year over year decline was impacted by the timing of the payroll calendar, which had an additional payroll run in Q2. We repurchased $1.3 billion of shares during the quarter. Completing the $5 billion repurchase plan that we discussed at our Financial Analyst Day last September, 6 months ahead of our target.

Buybacks will continue to be an important part of our capital allocation philosophy, and our board has recently approved a $4 billion open ended share repurchase program. We ended the quarter with cash and marketable securities of $3.4 billion. Our headcount as of quarter end stood at 20.9 thousand workmates around the globe. Turning to our outlook. We are pleased with our first half results, and we now expect FY 2027 subscription revenue of $9.94 billion to $9.95 billion, growth of 13%. For the third quarter, we expect subscription revenue of approximately $2.515 billion, growth of 12%. We expect Q3 CRPO growth of 11% to 12%.

We lapped the Paradox acquisition in the third quarter which added over a point to last year's Q3 CRPO growth. For Q3, we expect professional services revenue of $175 million, And for the full year, we expect $710 million. We continue to prioritize investment in AI, along strategic investments in the core, while driving efficiencies across the business. With that, we are increasing our FY 2027 non GAAP operating margin guidance to 31%. For the third quarter, we expect a non GAAP operating margin of approximately 30%. We expect to continue expanding margins while positioning ourselves for future growth.

We expect Q3 GAAP operating margin to be approximately 18 percentage points lower than our non GAAP operating margin, and the full year FY 2027 GAAP operating margin to be approximately 18 to 19 points lower. Our FY 2027 non GAAP tax rate estimate remains 19%. We are maintaining our FY 2027 operating cash flow outlook of $3.45 billion and we continue to expect FY 2027 capital expenditures of approximately $270 million, resulting in free cash flow of $3.18 billion, growth of 15%. As our Q2 progress demonstrates, embedding AI across Workday's platform provides a significant opportunity to drive customer value. While we are still in the early innings, demand for our agentic portfolio is building.

We are focused on driving discovery and adoption through initiatives like our lighthouse program, which we believe will benefit subscription revenue growth over time. And we continue to execute against a framework that delivers both top line growth and margin expansion. With that in mind and ahead of our upcoming financial analyst day, I would like to provide some early context for how we are thinking about next year. Our current target for FY 2028 subscription revenue growth is consistent with our expected second half FY 2027 growth rate of approximately 11%. We also see potential upside across new products, including Sana Enterprise, Workday Extend with Data Cloud, and our AI agents. All of which are seeing great early demand.

In addition, we expect our non GAAP operating margin to expand by at least 2 percentage points next year. We are encouraged by the significant opportunity ahead to continue to deliver long term earnings and free cash flow growth. We look forward to diving deeper into our platform innovation at our Financial Analyst Day on October 13 in Las Vegas. And we hope to see many of you there. With that, I will turn it back over to the operator to begin Q&A.

Operator: Thank you. And we will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you are called upon to ask your question and are listening via speaker phone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to 1 Again, it is star 1 to join the queue. And our first question comes from the line of Gabriela Borges with Goldman Sachs. Line is open.

Gabriela Borges: Hey. Good afternoon. Thanks so much for taking the question. Zane, I really appreciate the early look into growth rates exiting 2H 2027 and then the longer term upside potential The question I want to ask about this is twofold. 1 is tell us a little bit about how you are thinking about monetization for headless. The second is how do you, as an executive team, think about the risks that some of the upside opportunities end up coming as a trade off between some of the core.

What I mean by that is do customers end up essentially negotiating harder on the core products or exerting pricing pressure on the core products such that you end up at a similar place even when adding new functionality. So maybe just those pieces together would appreciate your thought. Thank you.

Aneel Bhusri: Yeah. So I will take the first part. On the headless transactions, we are pretty much indifferent whether you know, somebody uses, from a from a profitability perspective, I think it will show in a revenue perspective whether a company buys our agent uses our APIs, which we get to monetize or goes to data cloud, we get to monetize. So or the, you know, the other option is to build their own agents using Workday, ExtendAI. So we feel like we are pretty covered in all ways that AI gets used, and it does not take away any opportunities. If anything, it grows our market opportunity than where it has been before.

Robert Enslin: Second part, I will probably ask Robert to weigh in. I what I actually see, Gabriel, is that customers are making 5-year, 7-year decisions on new platforms, and AI is a huge decision point for them. And if anything, it is impacting our win rates on the platform because we are viewed as the much stronger player in terms of an AI vision and AI agent than our than our legacy competitors are that we all know so well. Yeah. And, Gabriel, from my side, I do not see compression on the core. What I see is customers starting with the AI and wanting us to be the AI platform for Gen AI on HCM and on finance.

I think that is driving a broader conversation. And a much broader conversation to the value we offer. You can see it actually in the amount of uptake on the agents that we started to announce and bring to the fore. Where customers. This is where they actually want to see where is going and where finance is going in the future. Yeah.

Aneel Bhusri: And just to add to what Robert said. You know, our competitors do not have 1 data model across their multiple versions of their applications. You know, these legacy companies might have 6 or 7 different versions. And as a result, they cannot aggregate the data model to drive the AI models. And so we are just way ahead of where they can be not just where they are now, but where they can ever be, from that AI perspective in terms of driving outcomes using AI.

Zane C. Rowe: Hey, Gabriel. I will just add, you know, the early look into FY 2028 is just to give you a target and how we are thinking about it. As you can tell, we have a number of initiatives in place, and we are very enthused by what we are seeing as early indicators in our AI products. Not all of that has been factored into our FY 2028 outlook. So we are, as you can tell, very enthused on the upside there, but I just wanted to, ahead of financial analyst day, give you at least a baseline to see how to let you see how we are thinking about it.

Operator: And our next question comes from the line of Michael Turrin with Wells Fargo Securities. Your line is open.

Michael Turrin: Hey, great. Thanks. Appreciate you taking the question. A lot's changed over software over the past couple of months. We have seen the topic shift to the rise of open source, open weight models, some signs of cooperation between the Frontier Labs and existing vendors. Aneel, I am curious where Workday fits within those discussions, if any of that if any of those shifts your view on where to focus and wanna also give you a chance to respond to just some of the recent headlines around private equity interest given we have all been fielding a number of questions there as well. Much appreciated. Thank you.

Aneel Bhusri: I obviously cannot comment on the on the latter. On the former, we are gonna do what is in the best interest of our customers. And so I will I am going to ask Gerrit to talk about how we think about the different models. And, you know, we work with all of them but we are trying to do what is best for our customers both from a performance, but also from a cost perspective.

Gerrit Kazmaier: Yeah. As Aneel has said, right, we are really focused on driving the right ROI and economics for our customers. So as of today already, we deploy a large set of models for multiple vendors. We have small models open weight models, and large frontier models, all in this set of models that we use to build our AI systems and agents with. And quite frankly speaking, we are pretty excited about open weight models.

So, you know, they open up new opportunities for us for, you know, having own reinforcement learning, building on adapters over them, they give us a much stronger optionality when you think about international and sovereignty So it is a core tenant, you know, for us, as Aneel has said, to be model agnostic. And because of the different characteristic already, we get great benefit from them. And now as the benchmarks are getting closer, we have signed the open rates initiative as well as other companies. We truly see, you know, a real big upside, you know, for us and our customers to drive better ROI out of our AI investment.

And last comment, we also started our own research foundation inside of Workday, so we have an own research lab, which specifically actually focuses on getting high accuracy HR and finance AI systems in place. And 1 of the things that this team is doing right now is actively actually exploring opportunities for us to not only use open weight models, but truly to specialize them to our purposes and see what lift we get out of that.

Operator: And our next question comes from the line of Kirk Materne with Evercore ISI. Your line is open.

Kirk Materne: Yeah. Thanks very much for taking the question. I think this is probably for Aneel or Robert. Obviously, we can hear the enthusiasm around the early progress on AI. Kind of curious if you can give us an idea. Is AI crowding out some of your other products at this point in time? Meaning, when you go in and talk to a customer, obviously want to talk about AI. You obviously wanna get AI into their hands. Does that mean sometimes your salespeople have to put something they might have been thinking about a year ago on the shelf for now? And the reason I ask that is because your tone and your enthusiasm is obviously very apparent.

But, you know, when I look at CRPO just for a proxy, yeah, that is more or less in line. And, you know, and Zane gave a guide for early guide nonetheless for next year that seems, you know, more or less in line with where people were kind of forecasting. So it seems more substitutive than incremental. So I was just wondering if there is something from just a go to market perspective where, you know, there is a purposeful push with AI, whereas we are not gonna try to load everything into every customer right now. Let's get them successful with AI. Even though that might mean you were not seeing as much incremental benefit.

I hope that makes sense.

Aneel Bhusri: Yeah. I will I will start. Thank you for the question, Kirk. So first of all, you are right in that it is early days. The difference on these agents versus traditional applications they iterate and become better so much faster. So I am very optimistic that we are going to see you know, ramping up usage of these agents faster than we ever saw of our apps. And we are also new to the flex credit consumption model. And, you know, that is a delayed gratitude, delayed gratification model that is frankly, newer to Workday, Again, very optimistic.

We are seeing great early signs, but I but I think that is 1 of the reasons for cautious optimism going into next year because we are aggressively moving towards a hybrid model between subscription and this consumption model. I do not actually see it as crowding out. I actually see it as you know, customers new customers choosing Workday because of our agentic strategy, existing customers they have an AI budget, and now we have products that actually fit in that AI budget which is a big win for us.

But, again, a lot of these new AI products are consumption based, so we will not see the impact from the revenue until, you know, months or a year down the road. So Rob, what do you want to add to that?

Robert Enslin: Yeah. I would add there is a lot of excitement around AI, but our focus has really been about getting adoption. You look at bringing an agent, you gotta harden them, so you gotta get them adopted. The more customers that go through early access, the more customers that are adopting these products just get better. Really fast. And so that is how that is how our merger has been around, do we get adoption for us? The more customers we have access to our agents, the more they are using those agents, and that is how we are measuring them and moving the company in that direction.

And I think you can actually see it in the amount of UMSAs we have signed. Like, our UMSAs have really started to take off. Customers really want that. They need to have the UMSA to actually get into the AI world. And then you link that to the data play and the and the Extend Pro and what you are doing with the developer agent. As Anil says, this is a lag in it. But our conversations are really good.

And it is in almost every conversation irrespective of the level of customer I am speaking to, whether it is a c level executive, or the HCM team or the finance team, people really start to understand that Workday is really entered the agentic world in a big way.

Zane C. Rowe: Hey, Kirk. And just to add to that, you know, as we mentioned, we have got 5.5 thousand customers using our organic agents. And, you know, just over 200, I think, that have actually signed up, you know, for flex credits. So that is the delay that Aneel's alluding to, and that is been factored into our CRPO guide as well as our revenue guide for the remainder of this year. Also our cautious optimism heading into FY 2028 and beyond.

Operator: And our next question comes from the line of John DiFucci with Guggenheim Securities. Your line is open.

John DiFucci: Thank you. Thanks for taking my question. My question, I think, is for Aneel, Gerrit, and maybe Gabe. Listen. Workday's approach to AI seems, at least to me, seems sincere and frankly more thoughtful than some of your peers. But it is also more pragmatic. In other words, it makes sense. In my understanding, it is simply so is AI is going to be part of everything you do. Which, again, sounds simple, but also an immense task and, frankly, the right move. It sounds like you are certainly on the way from your prepared remarks. But how much effort do you think it will take to accomplish that? And, of course, it is a continuous effort.

But when do you think you will get to the point where you can say, we have arrived as an AI platform? Is that going to take years? Or I am just curious. What you think about that.

Aneel Bhusri: I will I will start, then I think I think both Gerrit and Gabe should weigh in. We are trying to be very thoughtful in the way that we are building our agentic solutions. They are they are not meant to solve simple problems. Anybody can solve the simple problems. When I look at what we are doing with the self-service agent is really hard What we are doing with the financial audit agent is really hard. But by building these agents and coming out the other end, they add tremendous value to our to our customers.

And frankly, from a competitive perspective, they are really, really hard for anybody to compete with because they are they are so deeply embedded in the bowels of Workday. I do not know when we arrive. I think we are arriving now, and I it just gets better over the next couple years. But it is all about adoption and customer success. We have to have agents that have real ROI that is been the lens we have been looking at it since I came back. We had a lot more agents when I came back. We killed a lot or we rolled them into rolled them into bigger agents.

And the ones that we have right now, I am very optimistic. They are all very meaningful to our customers. But let's have Gerrit and Gabe add to that.

Gerrit Kazmaier: Yeah. I had a couple of points on, you know, the top of stack, if you will, and then Gabe on the platform side. But, you know, to give you a few concrete points on what are the key milestones that we are looking at that we truly believe are landmark moments for Workday as well as for the industry of moving into the AI era and enterprise SaaS. 1 of the biggest 1 for us is how work is gonna change in the work experience with Sana. You heard in the prepared remarks that Sana is going to be the default home for Workday coming rising this year.

Robert spoke about the Lighthouse program at Sana Enterprise, and I have shared, you know, how this changed the world, you know, of work inside Workday already. We have 24 thousand agents being billed in just 3 weeks. You know, we really see this, you know, coming this rising as a key moment because the phase of SaaS and how work happens is going to fundamentally change. And, frankly, we believe it is a stark difference to what that work experience is than what you get from generic Jet Copilots because they are deeply tethered into the system of action and the system of work. Secondly, you heard, you know, that our agents are making a lot of progress.

And when we say agents, we really mean AI systems. That automate large parts of the value chains in HR and finance. We just put decision intelligence into GA, which is truly a reimagination of how you collaborate with AI on enterprise data. We are about, you know, to bring new functionality to recruiting agent. You referred earlier how much momentum that has already. We are making great progress in 1 of the areas that Aneel is most excited on, financial audit and financial compliance agents. All of these agents are coming out, you know, either they are out already or coming out at rising at the end of the year.

And I think when we come together in the next, you know, callbacks, and you look at the agent momentum you have built until then, I think there will be no question mark anymore about Workday being an AI company or not because the world of SaaS will have changed. Gabe, over to you for platform.

Gabriel Monroy: Yeah. And, you know, thanks for that, and thanks for the question. Question. In terms of just the timeline view on this on the platform side, it is pretty obvious that the AI technology evolution has been at a frantic pace. Right? We are seeing rapid and continuous evolution, and I do not really see an end to that. it is going to be continuous. Constant evolution. And so the way we are looking at this is these new integration patterns change, as protocols change, as identity approaches change, we are on a process of taking the new capabilities, pulling them into the platform, driving adoption, as Robert was mentioning, and then delivering outcomes and ROIs.

And the key is going to be doing that continuously in a loop. That is the art of building AI systems. And that is gonna be a long journey. that is just not something that is going to end anytime soon.

Operator: And our next question comes from the line of Alex Zukin with Wolfe Research. Your line is open.

Alex Zukin: Yeah. Hey, guys. Thanks for taking the question. Probably another AI question here. But just it is great to hear about the agents and the data cloud opportunities that you are getting of customers, but maybe just help crystallize for us how you are monetizing and maybe any specifics around, like, how many flex credits does an onboarding or procurement agent actually go through? And what that could mean in terms of a net expansion, in terms of spend, at a customer that is deploying them.

Or like a Salesforce yesterday talked about how in order for customers to unlock AI functionality, they had to upgrade to a premium version. that is, you know, 60% to 80% more in some cases. How do you see that? With some of the MSA agreements you were talking about, Robert? And when should we think about that as a tailwind to numbers? Is that a is that a 2020, fiscal 27 dynamics or the following year?

Gerrit Kazmaier: You know, you said it is a question about AI, but you are hitting all of the cards here, you know, from sales to finance to core technology. So maybe let me start, and then I will hand it over to Robert and probably Zane on the outlook question. Know, what we are seeing is that, you know, the workload that these agents are driving quite substantial. When you heard about earlier the numbers our volumes, we are driving recruiting already. And the key of the ambient agents the agents that are running in the background, you know, we see a substantial opportunity. But we are not comparing it to software spend.

Actually, you know, what we are modeling it against is the labor spend that companies have in those given roles already and think about what is the share of the agent that actually will get you know, basically transferred from a labor spend into an AI agent spend for that specific task group. You know, right now, though, and Robert has said it, so I wanna repeat that. Our focus is really on adoption, adoption, adoption. Right? This is the way, you know, how you actually build great AI systems. So what we are doing right now, and Robert spoke about it. Right?

We are incentivizing this with programs like the Sana Lighthouse program, we basically allow customers to use it for free in the first year. Self-service agent, 1 of the most consequential agents we do we put out a promotion that we are not, you know, putting on a flex for it either. Until the end of August or September. So, you know, the question that you are asking, you know, how does this translate now sales and dollars right now is difficult to answer because this has not been our focus point. But then you ask me for the, you know, potential that we have because on how much workload that actually processes. It is incredibly substantial.

And this is why Zane has said, right, we are so bullish as this being an upside because we can see on the 1 side, the usage increasing, and then we see it on the inside that this represents a significant monetization opportunity for us.

Robert Enslin: I mean, you kind of said it that look. I am super excited. You know, we focus on the adoption side of things. Now we are starting to focus really on the consumption side things. So as we move into this, the sales motion changes. And what you see with you know, broad adoption of Sana self-service agent, it is gonna rise all the other agents as well because it gives it a completely different look and feel on how you utilize Workday in the future and what kind of users can work with Workday pretty much anyone.

I watched the CFO and the COO look at the you know, decision intelligence agent, and I was just, you know, they were completely blown away. So I think the opportunity for us is really good. The back half of the year looks really positive for us. And I cannot see that changing. And we are in lockstep in making certain that these agents as you adopt them and consume them, the quality of the agent continues to improve. All the time. And I think that is what Gabe meant by it is a circle, it is a loop. And I think we have got a really good process on how to define that loop.

So the field is excited by it. Every single 1 of my customer conversations is really, really interesting. And even customers that I have known for years that are not really in HR, IT, or finance space really wanna understand what we are doing. 1 will take the lead in the space of HCM finance. And then lastly, I would just say, you know, do not forget about we have also got agents like talent acquisition agent and a document where we actually measure by different statistics. And, you know, if I look at Talent Acquisition agent, we had more than 30 million candidate interviews in Q2 with 8 million interviews scheduled. So numbers are starting to show up.

It will continue to improve over the next months and quarters.

Zane C. Rowe: Yeah. Alex, I would just add, you know, this quarter, we talked about, you know, roughly $600 million in AI ARR which is up from around just over 150 just a year ago. So we expect that trend to continue. As Aneel mentioned earlier on the call, this is all about customer success and customer value, and that is gonna be the ultimate driver of our revenue. So, you know, we have got some of that built into the back half of the year as you would expect, but really growing from FY 2028 and beyond where the AI component becomes a significant part of our incremental ARR. So we are excited about the future as you can tell.

Operator: We just want to be thoughtful as we as we monetize it. Our next question comes from the line of Karl Keirstead with UBS. Your line is open.

Karl Keirstead: Okay, great. Thanks. Maybe I will direct this 1 to Zane. Zane, you gave us a preliminary look at 200 bps of margin expansion next year, a little bit more than I was modeling. And, actually, a greater pace of expansion than you are guiding to this year. I am assuming there is no big change in the prioritization on investing. So perhaps, you will probably address this at the Investor Day, but a couple of things that might be driving that. Thanks so much.

Zane C. Rowe: Yeah. Karl, thanks for the question. You know, as Anil mentioned earlier this year, this was the year where we intentionally invested heavily in AI and brought on some great talent and feel like we are doing a lot in that area. I think we have done a credible job prioritizing and then leveraging size and scale and really being thoughtful, on how we drive, you know, just thoughtful expenses in the future. So it is a continuation of that. Doing, I think, a pretty good job utilizing AI ourselves. Internally and expect that trend to continue.

So it is really been about the team focusing on what matters and rethinking what we are doing and, as importantly, what we are not doing. And where we are not going to be spending money in the future. And it is that kind of focus that I think is also driving the increase. And we believe that you know, the 2 points for next year is a good starting point. As you know, we have increased to 31% this year, and we believe we can continue, to see that improvement as well as leaning in as much as we have in investments in critical areas around AI and our platform.

Aneel Bhusri: Yeah. I would just add we are leveraging AI internally. And we are doing more with, you know, flat head count. that is that is the goal, and I think that is a really important direction for us to head.

Operator: And our final question comes from the line of Samik Chatterjee with JPMorgan. Your line is open.

Analyst: Hi. Thanks for taking my question. You talked a lot today about the organic agents and the adoption curve you see there. Maybe if you can sort of dive into the acquired AI acquisitions that you have done and particularly the acquired agents and you think about the road map there in terms of integration, finally, sort of making it to a product and then the monetization on that front, and particularly how should we think of that to impact your fiscal 28 sort of financial outlook as well? Any thoughts on that front would be helpful. Thank you.

Aneel Bhusri: Well, I will I will just say that they are all doing well, but most importantly, they are all deeply integrated already. We do not we do not ever buy technology and just leave it on the outside. We deeply integrate it right away so we can deliver that unified experience Maybe, Gerrit, you wanna talk about where the products are headed.

Gerrit Kazmaier: Yeah. Awesome. So it is a great question because, actually, you know, we kind of you know, spoke about it earlier. You know, the big, you know, products that you can think of is HiredScore on the recruiting side in Paradox. They are both are part of our talent acquisition agent now. So they are basically agentic skills as we evolve our AI systems. And both of them have tremendous momentum. I am gonna hand it over to Robert in a second to talk about that. But we are not really thinking about this as hey. This is separate from the core.

As Aneel has said, you know, we have a really good m and a regime that we look for strong technical fit. So as we move forward with Workday recruiting, HiredScore and Paradox, they are an integral part of that, and they are all coming together under the role based agent for talent acquisition. Again, right, this whole idea, this is in the embodiment of an actual recruiter with all of these skills. And on the Sana side, which had an absolutely blowout quarter as well, gangbuster growth, we put it into GA in a combined product.

So, Workday Learning and Sana learning is actually 1 product now. it is in GA already. it is driving substantial growth for our customers. But as we take it to them, we do not portray this as Workday and others. You know, this is the learning agent from Workday. This is the agent from Workday. And those acquisition, they are just widening the breadth of skills these agents have. Robert?

Robert Enslin: Yeah. I would simply say, I mean, we grow we drove more than 100 million of new ACV with our AI products, which is 25% of all new ACV. So if you just look at those numbers, And then we our AI ARR numbers are up at close to $600 million now. More than half of the new wins in Q2 signed up for AI solutions. Our solution AI solutions are really paying off. And as Gerrit said, I think it is really important to point out, they are integrated into the Workday Foundation. it is 1 call. it is 1 view for our customers. That allows us to deliver the agents even on top of that.

Operator: And ladies and gentlemen, thank you for your participation on today's conference. You may now disconnect.