Q2 2027 Workday Inc Earnings Call Transcript
Key Points
- AI products drove over $100 million in new ACV, accounting for more than 25% of all new ACV closed in Q2, and AI ARR reached nearly $600 million, up over 200% year-over-year.
- Adoption of organic agents is accelerating, with more than 5,500 customers using one or more agents, up over 35% from last quarter, and over 100 customers moved Sana self-service agent into production in the last month.
- Strong financial performance with subscription revenue up 14% to $2.471 billion, total revenue up 13% to $2.649 billion, and non-GAAP operating margin expanding to 31.1%.
- New product launches are gaining traction, including Adaptive Decision Intelligence (170 customers purchased since GA), Adoption Agent (200+ customers in first three days), and Sana Enterprise (12,000 internal users building 22,000 custom agents in three weeks).
- The company is seeing strong demand across geographies and segments, with medium enterprise customer volume increasing more than 5 times over Q1, and AI accounting for nearly 1/3 of new ACV in EMEA.
- Workday's open platform strategy is paying off, with custom apps built on Workday spending growing over 90% year-over-year and developers building more than 3,000 custom apps and agents since DevCon.
- FY27 subscription revenue growth guidance was maintained at 13%, and Q3 CRPO growth is expected to be 11% to 12%, indicating a slowdown from the 14.2% growth seen in Q2.
- The company provided an early FY28 subscription revenue growth target of approximately 11%, which is lower than current growth rates and suggests a potential deceleration.
- Monetization of AI products is still in early innings, with only 200 customers signed up for Flex credits, and the company acknowledges that revenue impact from consumption-based models will be delayed.
- Operating cash flow declined year-over-year in Q2 due to timing of payroll calendar, and free cash flow was impacted as a result.
- The company is facing a mix shift towards customer-based bookings versus net new, which impacted total subscription revenue backlog growth (up only 8% year-over-year).
- Despite strong AI momentum, the company is not seeing immediate incremental revenue benefits, as AI adoption is currently more substitutive than incremental, with CRPO guidance remaining in line with expectations.
Ladies and gentlemen, welcome to Workday's second quarter fiscal year 2027 earnings call. (Operator Instructions). I will now hand it over to Justin Furby, Vice President of Investor Relations. Please go ahead.
Thank you, operator. Welcome to Workday's second quarter fiscal 2027 earnings conference call. On the call, we have Aneel Bhusri, our CEO; Garrit Kazmaier, our President, Product and Technology; Gabe Monroy, our Chief Technology Officer; Rob Enslin, our President and Chief Commercial Officer; and Zane 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 and include forward-looking statements regarding our financial results, applications and solutions, customer demand,
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