Key Highlights

● Total revenues were $2.649 billion, up 12.8%, with subscription revenues up 13.9%.

● AI accounted for more than 25% of new annual contract value.

● Non-GAAP operating margin was 31.1%, compared with 29.0% a year earlier.

● Workday repurchased about 9.8 million Class A shares for $1.3 billion in the quarter.

Workday (NASDAQ:WDAY) is positioning artificial intelligence agents as a growth driver for its human resources and finance software, and its fiscal 2027 second-quarter results, announced on August 27, 2026, give the first quantified evidence. Management said AI accounted for more than 25% of new annual contract value, while subscription revenue grew 13.9%. The picture is steady growth with improving profitability rather than acceleration.

The company also described new partnerships with Amazon Web Services and an expanded relationship with Google Cloud, intended to bring its agents and data into those ecosystems. It said the number of customers using at least one of its own agents rose more than 35% from the previous quarter.

Business and sector

Workday, Inc. sells cloud applications for human resources, finance and, increasingly, information technology management, and describes itself as an enterprise AI platform. It says more than 11,500 organizations use its products, including more than 65% of the Fortune 500. Revenue is mostly subscription-based, so reported backlog offers a view of contracted future revenue. The sector is shifting as software suppliers add agents that carry out tasks, which creates opportunity but also competitive pressure from rival vendors and from customers building their own tools.

The reported results

For the quarter ended July 31, 2026, total revenues were $2.649 billion, up 12.8% from a year earlier, and subscription revenues were $2.471 billion, up 13.9%. Operating income was $313 million, or 11.8% of revenues, against $248 million, or 10.6%, a year earlier. Non-GAAP operating income was $824 million, a margin of 31.1%, compared with 29.0% in the prior-year quarter.

Diluted earnings per share were $2.57 against $0.84, but the company noted that the current figure includes a tax benefit of $1.52 per share from an intra-entity transfer of intellectual property rights during an internal restructuring. Non-GAAP diluted earnings per share were $2.75, against $2.21. Excluding that benefit, the GAAP per-share figure would have been roughly $1.05, by simple subtraction.

Cash, backlog and capital returns

The twelve-month subscription revenue backlog was $9.034 billion, up 14.2%, while total subscription revenue backlog was $27.403 billion, up 8.0%. Operating cash flow was $520 million, down from $616 million, and free cash flow was $460 million, against $588 million. Workday repurchased about 9.8 million Class A shares for $1.3 billion in the quarter and held $3.403 billion of cash, cash equivalents and marketable securities at the period end. The board also authorized an additional open-ended repurchase of up to $4.0 billion.

Outlook and risks

Management guided to third-quarter subscription revenue of $2.515 billion, growth of 12%, with a non-GAAP operating margin of 30.0%. For the full year to January 31, 2027 it expects subscription revenue of $9.940 billion to $9.950 billion, growth of 13%, and a non-GAAP operating margin of 31.0%.

The company's own cautionary statement lists risks including security breaches. Other uncertainties follow from the figures: the lower free cash flow, the slower growth of total backlog compared with the twelve-month measure, and the still unquantified future cost of continuing to invest in an agentic AI roadmap.

AI Bookings and Cash Generation Under Review

Workday's fiscal second quarter combined 12.8% revenue growth to $2.649 billion with a non-GAAP operating margin of 31.1%, while AI accounted for more than 25% of new annual contract value. The twelve-month subscription revenue backlog reached $9.034 billion, up 14.2%, but free cash flow fell to $460 million from $588 million after the company repurchased about 9.8 million Class A shares for $1.3 billion.

The third-quarter report, covering the period ending October 31, 2026, will show whether AI-related bookings continue to account for a rising share of new business and whether the stated 12% subscription growth is met. Further disclosure on adoption of Workday's agents, which more than 5,500 customers now use, and on cash generation after the sizeable buyback, will help assess how durable the current balance of growth, margin and capital return is.