Workday grew subscription revenue 13.9% to $2.47B in the quarter to July 31, 2026 (Q2 fiscal 2027) and lifted margin guidance, but a one-time $374M tax gain inflates EPS and total backlog growth slowed to 8%.
Revenue
$2.6B
+12.8% YoY
Net income
$632M
+177.2% YoY
Diluted EPS
$2.57
+206.0% YoY
Operating margin
11.8%
How WDAY compares with Information Technology peers
Figure
WDAY
Peer median
Rank
Revenue growth (YoY)
+12.8%
+22.1%
41st of 63
Operating margin
11.8%
21.9%
50th of 63
EPS growth (YoY)
+206.0%
+35.5%
11th of 56
Rank 1 = fastest revenue growth, highest operating margin, fastest EPS growth. Peers are the other Information Technology companies with a 2026 report on this site, each at its latest period we've analyzed; fiscal calendars differ, so periods are not always the same months.
Workday's quarter ended July 31, 2026 (which Workday calls the second quarter of fiscal 2027; its fiscal year runs February to January) brought 12.8% revenue growth to $2.649 billion, with subscription revenue up 13.9% to $2.471 billion. Reported net income nearly tripled to $632 million, but that jump is mostly a one-time tax accounting gain, not a better business. The more telling figure is the order book: total contracted-but-not-yet-recognized subscription revenue grew only 8.0%, down from 10.9% growth a quarter earlier.
At a glance
$2.471 billion subscription revenue, +13.9%. This is about 93% of Workday's sales and it beat the company's own $2.455 billion (13%) target from May. About 60% of the added revenue came from existing customers buying more, 40% from customers added in the past year.
$2.57 diluted EPS, but $1.52 of it is a tax gain. A $374 million deferred tax benefit from moving intellectual property between Workday entities turned a normal tax bill into a $305 million tax benefit. Without it, EPS would be about $1.05, up roughly 25%.
Total subscription backlog $27.4 billion, +8.0%. Growth in the multi-year order book slowed from 10.9% in the prior quarter, while the portion due in the next 12 months still grew 14.2%.
The numbers
Metric
Q2 FY2027 (3 months to Jul 31, 2026)
Q2 FY2026 (to Jul 31, 2025)
YoY Change
Total revenue
$2,649M
$2,348M
+12.8%
Subscription revenue
$2,471M
$2,169M
+13.9%
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Subscription backlog is what Workday calls its remaining performance obligations on subscription contracts: revenue customers have already signed up for (billed or not) but that Workday hasn't yet earned by delivering the service. Because Workday's contracts usually run three years or more, backlog is the best public signal of what revenue will look like a year or two out.
Where growth came from, and where it is slowing
Subscription revenue rose $302 million year over year. The 10-Q attributes about 60% of that to expansion at customers Workday already had a year ago and 40% to newer customers. Gross revenue retention (how much of last year's recurring revenue the same customers still pay, ignoring upsells) was about 97%, so almost no one is leaving.
Professional services (implementation, training) was flat at $178 million, and it costs Workday more to deliver than it earns ($216 million of cost against $178 million of revenue). That is deliberate: the filing says Workday expects partner firms "to increasingly contract directly" with customers for this work, so a shrinking share of services revenue is expected, not a warning sign.
The slowdown shows up in the forward indicators:
Growth rate
Q1 FY2027 (Apr 2026)
Q2 FY2027 (Jul 2026)
Subscription revenue
+14.3%
+13.9%
12-month backlog
+15.5%
+14.2%
Total backlog
+10.9%
+8.0%
Total backlog grew only $109 million from the end of April ($27.294 billion) to the end of July ($27.403 billion). The 10-Q says backlog moves with "timing of renewals", so one quarter can swing, but the MD&A is also direct about the environment: Workday has "experienced, and may continue to experience, a moderation of revenue growth rates due to deal scrutiny and the lengthening of certain sales cycles," along with "reduced growth in headcount-level commitments upon renewals" (customers renewing for fewer employees than before), with longer sales cycles "particularly evident in the government, higher education, and healthcare industries which are tied to federal funding." Management's own Q3 target of 12% subscription growth confirms the gradual deceleration.
On AI, the earnings release says AI accounted for more than 25% of new annual contract value (ACV, the yearly value of newly signed contracts) in the quarter, and that more than 5,500 customers now use at least one of Workday's own AI agents, up from over 4,000 cited in May. These are company-stated adoption figures; the 10-Q doesn't break out AI revenue, and the MD&A notes Workday is responding to "shifts in customer buying behavior" with "new pricing models."
Margins: better, with one cost line to watch
GAAP operating margin (the share of revenue left after all operating costs, before interest and tax) rose to 11.8% from 10.6%. The 10-Q credits "revenue growth outpacing headcount growth and moderation of operating expenses": headcount grew 7% to 20,896 while revenue grew 13%. Sales and marketing rose 10% and G&A 7%, both slower than revenue.
The exception is the cost of running the service. Costs of subscription services rose 18% to $436 million, faster than subscription revenue, driven by a $33 million rise in third-party hosted infrastructure (cloud computing bills) and $9 million more amortization of acquired intangibles. Subscription gross margin slipped to about 82.4% from 82.9%. Workday says it expects these costs to keep rising as it expands infrastructure, which matters if AI features lean more heavily on rented computing power.
What the headline numbers hide
The tax gain inflates net income. The $632 million net income includes a $374 million deferred tax asset recognized after an intra-entity transfer of intellectual property rights in an internal legal-entity restructuring. It is non-cash and non-recurring. Strip it out and net income is about $258 million (+13%) and EPS about $1.05 (+25%), in line with operations rather than a tripling.
The GAAP vs non-GAAP gap is mostly stock pay. Non-GAAP operating income was $824 million (31.1% margin) versus $313 million GAAP (11.8%). Of the $511 million difference, $462 million is share-based compensation (17.4% of revenue), plus $34 million of acquired-intangible amortization, $13 million of payroll taxes on stock awards and $2 million of acquisition costs. Stock pay rose 18% year over year, faster than revenue, which the 10-Q attributes to "additional grants to new and existing employees", the opposite of Workday's stated long-run aim for it to fall as a share of revenue.
Buybacks did a lot of the EPS work. Workday spent $1.337 billion repurchasing about 9.8 million shares in the quarter and $2.9 billion in the first half. Diluted share count fell 8.8% to 246.3 million. Non-GAAP net income rose 13.2%, while non-GAAP EPS rose 24.4%, so roughly 10 points of that EPS growth came from the smaller share count rather than from the business. Part of the stock pay is simply being bought back: $462 million of stock compensation in the quarter against $1.3 billion of repurchases.
Buybacks are also eating into interest income. Other income fell $42 million year over year to $14 million, which the 10-Q attributes to "lower interest income resulting from the liquidation of marketable debt securities to fund acquisition activities and share repurchases." Cash and marketable securities dropped to $3.403 billion from $5.443 billion in January, against $2.99 billion of debt, $999 million of which (3.5% notes) matures April 1, 2027. The prior repurchase authorization is used up; the board added a new $4.0 billion in August.
Cash conversion was weaker this quarter. Operating cash flow fell to $520 million from $616 million, and free cash flow (operating cash flow minus capital spending) fell 21.8% to $460 million as capex roughly doubled to $60 million. Over the first half the picture is better: operating cash flow of $1.215 billion (+13%) and free cash flow of $1.076 billion (+7%). Q2 is seasonally small for Workday because it invoices most customers annually and much of that billing happens around fiscal year-end in January.
Guidance moved up modestly. Q2 subscription revenue of $2.471 billion beat the May target of $2.455 billion, and the 31.1% non-GAAP margin beat the 30.0% target. Full-year subscription guidance was narrowed to $9.940-$9.950 billion (13%) from $9.925-$9.950 billion (12%-13%), which raises only the bottom of the range. The full-year non-GAAP margin target went to 31.0% from 30.5%.
Takeaway: Strip out the one-time $374 million tax gain and roughly 10 points of buyback help, and Workday grew profits about 13% on 14% subscription growth. That is steady, but total backlog growth fell to 8.0% from 10.9% in one quarter and the next-quarter target is 12%. For a company that earns revenue over three-plus-year contracts, the order book matters more to the next two years than this quarter's EPS.
Outlook
Management's guidance for the quarter ending October 31, 2026 (Q3 fiscal 2027) is subscription revenue of $2.515 billion (+12%) at a 30.0% non-GAAP operating margin. For the full fiscal year ending January 31, 2027, it expects subscription revenue of $9.940-$9.950 billion (+13%) and a 31.0% non-GAAP operating margin. First-half subscription revenue was $4.826 billion, so the range implies about $2.60-$2.61 billion in the January quarter.
Our read: profitability is improving on schedule, driven by slower hiring. Revenue growth is gradually slowing, and whether it holds near 12% depends on the backlog. The 12-month backlog, still growing 14%, supports the next few quarters. The slowdown in total backlog points to softer multi-year renewals and new deals, especially in federally funded sectors. Watch three things in the October quarter: whether total backlog growth stabilises or falls below 8%; whether subscription costs keep outgrowing subscription revenue as AI usage rises; and how fast buybacks under the new $4.0 billion authorization run down cash, with $1 billion of notes due in April 2027.
Figures are from Workday's Form 10-Q for the quarter ended July 31, 2026 (filed August 27, 2026) and the accompanying earnings release (Form 8-K Exhibit 99.1). Prior guidance is from the fiscal 2027 first-quarter earnings release dated May 21, 2026.