Workday, Inc. (WDAY) FY2026 10-K and Q2 FY2027 10-Q Summary

Business

From the fiscal 2026 Annual Report on Form 10-K (accession 0001327811-26-000014), with segment and geographic detail from the fiscal 2027 second-quarter Form 10-Q (accession 0001327811-26-000044).

Workday sells cloud-based enterprise software, with AI built into it, that large and mid-sized organizations use to run human resources and finance: human capital management (HCM), financial management, spend management and planning. It has more than 11,500 customer organizations, including more than 65% of the Fortune 500, with more than 75 million users under contract. Nearly all of its revenue is recurring. Subscription fees were about 92% of fiscal 2026 revenue and the rest came from professional services (deployment, optimization and training). Subscription contracts typically run three years or longer, are generally noncancelable, and are usually invoiced annually in advance. Revenue is recognized over the contract term. Subscription revenue depends mainly on the number of customers, the number of workers at each customer, which applications each customer buys, and price. Workday reports a single operating segment. U.S. customers generated $1,967 million of the $2,649 million in second-quarter fiscal 2027 revenue, and no other single country contributed more than 10%.

The product suite runs on one platform:

• HCM and talent: the core HR system plus AI-driven recruiting tools (HiredScore AI for Recruiting, the Candidate Experience Agent and the Paradox Conversational Applicant Tracking System).
• Financial Management: payables and receivables, consolidation, financial close, and controls and audit for the office of the CFO, including AI agents built for specific accounting and procurement tasks.
• Spend Management: sourcing, supplier and contract management, indirect spend and expense management.
• Planning: finance, workforce, sales and operational planning and scenario modelling.
• Industry and segment offerings: versions for sectors such as healthcare (supply chain and inventory), higher education (student lifecycle) and, launched in fiscal 2026, Workday Government for the U.S. government. Workday GO is a packaged HCM and finance product priced for medium-sized organizations.
• Platform and AI: Workday Sana, introduced in fiscal 2026, is an AI front end for enterprise knowledge, agents and automation. Workday Extend lets customers build custom applications. Workday Build, a developer platform announced in fiscal 2026 that includes the Flowise Agent Builder, is expected to reach early-adopter customers in fiscal 2027. The Workday Data Cloud, which gives zero-copy, two-way access between Workday HCM and finance data and outside analytics platforms, is expected to become available later in fiscal 2027.

How it sells. Workday sells through a direct field sales force organized by geography, industry and customer size, with separate teams for winning new customers and for expanding existing ones. It also sells through referral, co-selling and reseller partners and through Workday Marketplace. Partners do most deployment work. In fiscal 2026 Workday introduced Flex Credits, a subscription-based pricing model for certain AI and platform capabilities. Its strategic relationships include AWS and Google Cloud (infrastructure), ADP, Remote Technology and Strada (payroll), and Microsoft, whose agents customers will be able to register in the Workday Agent System of Record. Signings cluster heavily in the fourth fiscal quarter, which also generates a growing share of each year's invoices.

Acquisitions. Workday buys AI capabilities to add to its own development. In fiscal 2026 it acquired four companies:

• Flowise: a low-code platform for building AI agents.
• Paradox: conversational AI for job candidates, acquired in September 2025 for purchase consideration of $1.1 billion.
• Sana Labs: enterprise knowledge and learning tools, acquired in November 2025 for $1.1 billion.
• Pipedream: an integration platform for AI agents.

The 10-K gives purchase prices for Paradox and Sana; it records its other two fiscal 2026 acquisitions without naming them, at $111 million (December 2025) and $6 million (August 2025). Workday Ventures invests in early-stage enterprise software companies.

Competition. Oracle and SAP are Workday's primary competitors. It also competes with vendors such as Anaplan, ADP, Coupa, Dayforce, Microsoft, NetSuite, ServiceNow and UKG, with regional and single-application specialists, and increasingly with general-purpose AI tools.

People and control. At January 31, 2026, Workday employed more than 21,000 people in 36 countries, about 58% of them in the U.S. Headquarters is an owned campus of about 1.0 million square feet in Pleasanton, California. The company has two share classes: Class B shares carry 10 votes each and Class A shares carry one. Co-founders David Duffield and Aneel Bhusri hold most of the Class B stock and together control a substantial majority of the vote. The dual-class structure ends on October 17, 2032, or earlier on specified triggers. Bhusri, previously Executive Chair, became CEO on February 6, 2026, succeeding Carl Eschenbach, and he remains Chair.

Risk factors

From the fiscal 2026 Form 10-K (accession 0001327811-26-000014), as updated in the fiscal 2027 second-quarter Form 10-Q (accession 0001327811-26-000044).

Workday's most important risks come from the shift to AI. It affects how Workday competes, how it prices its products and the legal exposure of its products. The remaining risks concern security, the economy and the company's capital structure.

• AI-driven competition. Beyond Oracle and SAP, Workday now cites competition from "non-specialist" tools built on generic large language models, general-purpose agents and software produced from natural-language prompts ("vibe coding"). To win business it must show that its products beat these alternatives. Competitors can also undercut it on price, payment terms or financing.
• Monetizing AI. Agentic AI products and Workday Data Cloud are new markets with uncertain monetization. Workday says it has limited experience pricing Flex Credits contracts, and customers may resist the pricing model or adopt the AI products more slowly than expected. The 10-Q adds the risk that AI products give inaccurate, incomplete or misleading outputs that customers then rely on.
• AI litigation and regulation. Workday is defending a lawsuit alleging that some of its AI-related products enable discrimination. The company says the claims lack merit and that most have been dismissed, but the plaintiff may also pursue certain Workday customers. Separately, the EU AI Act and new U.S. state rules on automated decision-making in employment add compliance cost and uncertainty for HR software.
• Security incidents. Workday holds sensitive payroll, health, financial and personal data. In August 2025 it was targeted in a social-engineering campaign against many large organizations, and attackers gained access to some internal systems, including business contact information held in a third-party customer relationship management platform. Workday says its logging has not always been sufficient to fully investigate the scope of an incident, and that attackers are using AI to make their methods more automated and targeted.
• Service reliability and reliance on third parties. Customers depend on Workday for payroll, financial close and reporting. In July 2025 Workday found and fixed a reporting issue that may have returned incomplete query results from high-volume data sources without showing an error. Heat and power outages at U.S. co-location data centers have caused brief outages for some customers. The company also relies on AWS and Google Cloud.
• Longer sales cycles and the seat-based model. New-customer sales cycles typically run 6 to 12 months and can exceed 18. Deal scrutiny has lengthened them, particularly in government, higher education and healthcare, where budgets depend on federal funding. Pricing is largely based on customer headcount, so layoffs or insolvencies at customers reduce subscription revenue. Renewals have also brought slower growth in headcount-level commitments, and some customers have received more flexible payment terms. Because revenue is recognized over multi-year terms, a downturn in new sales shows up in reported revenue only with a delay.
• Renewals. Customers have no obligation to renew, and acquisitions of customers have led to cancellations.
• People and leadership. The February 2026 CEO change and repeated workforce restructurings could disrupt the business and hurt retention. Equity awards lose effectiveness when the share price lags, and the 10-Q notes that Workday made additional equity grants to its most critical employees in its May 2026 annual grant cycle.
• Government business. Workday is investing heavily in the U.S. federal market. Its federal sales depend on keeping FedRAMP authorization, and government contracts can be terminated for convenience or for lack of appropriations.
• Privacy and data transfer. The EU-U.S. Data Privacy Framework faces legal challenges, GDPR fines can reach 4% of worldwide revenue, and a U.S. Department of Justice rule effective April 8, 2025 restricts bulk transfers of sensitive data involving countries of concern. These rules raise compliance costs and can slow sales.
• Acquisitions and investments. Goodwill from acquired companies is tested for impairment. Integrating acquired companies has brought in security risks, and open-source AI components carry licensing, data-provenance and "data poisoning" risks. Gains and losses on strategic equity investments make reported earnings more volatile.
• Debt and capital structure. Workday has $3.0 billion of senior notes outstanding and a revolving credit facility whose financial covenant caps leverage. Under the dual-class structure, ordinary shareholders have limited influence over corporate decisions.

Management's discussion: fiscal 2026 (year ended January 31, 2026)

From the fiscal 2026 Form 10-K (accession 0001327811-26-000014).

Growth held at 13% while margins widened. Total revenue rose 13% to $9,552 million. Subscription revenue rose 14% to $8,833 million: about 60% of the increase came from customers that already existed at the start of the comparison period and 40% from customers added since. Professional services revenue fell 1% to $719 million as more deployment work moved to partners. The gross revenue retention rate was about 97%. Subscription revenue backlog (remaining performance obligations) reached $28.1 billion, up 12%, of which $8.8 billion is expected to be recognized within 12 months, up 16%. Management said deal scrutiny and longer sales cycles, particularly for net-new deals, had slowed revenue growth.

Costs. Total costs and expenses rose 10% to $8.8 billion, so they grew more slowly than revenue. The largest increases were:

• restructuring expenses, up $219 million;
• employee-related costs, up $212 million net of restructuring savings;
• third-party hosting, up $159 million.

Cost of subscription services rose 21% to $1.5 billion, driven by hosting ($139 million of the increase) and enhanced customer support. Product development rose only 2% to $2.7 billion, sales and marketing rose 8% to $2.6 billion, and general and administrative expense rose 11% to $912 million. Restructuring charges totalled $303 million, made up of $186 million for workforce reductions and $117 million for impairments of office space and other long-lived assets. They came from two plans:

• Fiscal 2026 Restructuring Plan (February 2025): cut about 7.5% of the workforce and exited some owned office space. Total charges were $233 million, spread across fiscal 2025 and 2026.
• Fiscal 2027 Restructuring Plan (February 2026): about 2% of the workforce. Charges of $135 million were taken in fiscal 2026.

Profitability. GAAP operating income rose to $721 million, a 7.5% margin, from $415 million (4.9%). Non-GAAP operating income was $2,824 million, a 29.6% margin, up from $2,186 million (25.9%). Management credited revenue growing faster than headcount, slower growth in operating expenses (including share-based compensation) and savings from restructuring. Other income rose by $65 million, mainly because of $77 million more in gains on equity investments and $26 million more in realized gains on debt securities sold to fund acquisitions and buybacks. Lower investment balances and lower rates cut interest income by $32 million. The 2025 U.S. tax law did not materially change the effective tax rate but reduced domestic cash taxes.

Cash and capital allocation. Operating cash flow rose 19% to $2,939 million and free cash flow rose 27% to $2,777 million. Higher cash collections ($1.2 billion more) were partly offset by higher payments to suppliers and employees, the latter including restructuring payments. Workday sold marketable securities to fund $2.1 billion of acquisitions and $2.9 billion of share repurchases (about 12.8 million shares). As a result, cash, cash equivalents and marketable securities fell to $5.4 billion from $8.0 billion. Taxes paid on net share settlement of employee equity awards took another $616 million. At year-end, $2.9 billion of repurchase authorization remained. Capital expenditure was $162 million, and management guided to about $270 million for fiscal 2027, mainly for office facilities. Headcount ended the year at 21,070, up 3%.

Current quarter: second quarter of fiscal 2027 (three months ended July 31, 2026)

From the fiscal 2027 second-quarter Form 10-Q (accession 0001327811-26-000044). Second-quarter cash flows, non-GAAP earnings per share, management commentary and guidance are from the earnings release furnished on Form 8-K (accession 0001327811-26-000042).

Revenue and backlog. Total revenue rose 13% to $2,649 million and subscription revenue rose 14% to $2,471 million. As in fiscal 2026, about 60% of the subscription increase came from existing customers and 40% from new ones. Professional services revenue was flat at $178 million. Subscription revenue expected within 12 months reached $9,034 million, up 14% year on year, and total subscription backlog was $27,403 million, up 8% (it was $28.1 billion at January 31, 2026). Gross revenue retention stayed at about 97%. Management said AI accounted for more than 25% of new annual contract value in the quarter and that more than 5,500 customers now use at least one of Workday's own AI agents, up more than 35% from the prior quarter.

Margins. GAAP operating income was $313 million, an 11.8% margin, up from $248 million (10.6%). Non-GAAP operating income was $824 million, a 31.1% margin, up from $680 million (29.0%). Management again credited revenue growing faster than headcount and slower expense growth. Total costs rose 11% to $2.3 billion; employee-related costs accounted for $126 million of the increase. Cost of subscription services rose 18% to $436 million; third-party hosting accounted for $33 million of the increase. Product development rose 13% to $747 million, sales and marketing 10% to $706 million, and general and administrative 7% to $231 million. Share-based compensation rose $71 million because of additional grants: Workday granted 14.8 million restricted stock units in the first half at a weighted-average fair value of $131.85, against 22.3 million units outstanding at July 31, 2026. The quarter had no material restructuring charges.

A one-time tax gain lifted earnings. Net income was $632 million, or $2.57 per diluted share, compared with $228 million, or $0.84, a year earlier. The current quarter includes an income tax benefit of $1.52 per share. Workday transferred certain intellectual-property rights between its own entities as part of an internal legal-entity restructuring and recognized $374 million of deferred tax assets as a result. Excluding items, non-GAAP diluted EPS was $2.75, up from $2.21. Other income fell by $42 million to $14 million because interest income dropped to $40 million from $88 million after Workday sold marketable securities to pay for acquisitions and buybacks.

First half and cash flow. Six-month revenue was $5,191 million, up 13%. GAAP operating income more than doubled to $651 million (12.5% margin) from $287 million (6.3%), helped by $167 million less restructuring expense. Six-month operating cash flow was $1,215 million, against $1,073 million a year earlier, and free cash flow was $1,076 million, against $1,009 million. In the second quarter alone, operating cash flow was $520 million (down from $616 million) and free cash flow was $460 million (down from $588 million). For the first half, higher collections were partly offset by higher supplier, employee and income-tax payments and by lower interest income.

Buybacks and balance sheet. Workday repurchased 9.8 million shares for $1,307 million in the quarter at an average of $133.59. In the first half it repurchased 21.8 million shares for $2,907 million at an average of $133.29, completing the $4.0 billion authorization from September 2025. Cash, cash equivalents and marketable securities fell to $3,403 million from $5,443 million at January 31, 2026. Debt remains the $3.0 billion of senior notes. The $1.0 billion of 3.500% notes due April 1, 2027 are now classified as current, and the 3.700% notes due 2029 ($750 million) and 3.800% notes due 2032 ($1.25 billion) remain outstanding. At July 31, 2026 there were 196 million Class A and 45 million Class B shares outstanding. Headcount was 20,896, up 7% from a year earlier.

Market conditions. Management said that, in response to the fast-changing AI market, it is adjusting pricing models and its sales and marketing approach. It also said that tariffs, inflation, energy prices and geopolitical conflict continue to lengthen sales cycles and reduce headcount commitments at renewal.

Guidance (August 27, 2026).

• Third quarter of fiscal 2027: subscription revenue of $2.515 billion (12% growth) and a non-GAAP operating margin of 30.0%.
• Full year fiscal 2027 (updated): subscription revenue of $9.940 billion to $9.950 billion (13% growth) and a non-GAAP operating margin of 31.0%, raised from the previous guidance.
• Capital expenditure: about $270 million for the year.

On September 29, 2026 Workday reiterated this guidance with one exception, GAAP operating margin, which it reduced to reflect the reorganization described below (Form 8-K, accession 0001327811-26-000048).

Subsequent events

Events after July 31, 2026, from the 10-Q's subsequent-event note (accession 0001327811-26-000044) and later Form 8-K filings as cited.

• New $4.0 billion buyback (August 2026). The Board authorized repurchases of up to $4.0 billion of Class A stock under a new program with no expiration date, announced August 27, 2026. Source: 10-Q Note 20; Form 8-K accession 0001327811-26-000042.
• Reorganization of about 2.5% of the workforce (September 29, 2026). The cuts fall mainly in the Product and Technology organization and include some leased-office reductions. Workday estimates total charges of $65 million to $80 million:
  • By quarter: $55 million to $70 million in the third quarter of fiscal 2027 and about $10 million in the fourth quarter.
  • By type: $40 million to $55 million of cash severance and benefits, about $10 million of stock-based compensation and about $15 million of lease impairment.

Because of these charges, Workday now expects GAAP operating margin to be 20 to 21 percentage points below non-GAAP operating margin in the third quarter and about 19 points below for the full year. The employee actions should be substantially complete by the first quarter of fiscal 2028. Source: Form 8-K accession 0001327811-26-000048.

• New $1.5 billion revolving credit facility (October 1, 2026). It replaces the $1.0 billion facility signed in April 2022 and matures on October 1, 2031. Workday may ask lenders for up to two one-year extensions. Wells Fargo is administrative agent. Nothing was drawn at signing. Pricing is SOFR plus 0.875% to 1.500% based on leverage, or SOFR plus 0.750% to 1.250% based on credit ratings. Leverage is capped at 3.50 times, and Workday can raise the cap to 4.50 times for a period after a qualifying acquisition. Up to $525 million can be borrowed in euros, sterling, Canadian dollars or other approved currencies. Source: Form 8-K accession 0001104659-26-112898.
• Agreement to acquire C1.ai (October 12, 2026). Workday agreed to buy all outstanding stock of ConductorOne, Inc. ("C1.ai"), which makes identity-governance software that controls what employees and AI agents can access across enterprise systems. Workday plans to use it to make its platform the identity-governance layer for people, money and agents, building on its Agent System of Record. Neither the Form 8-K nor the press release discloses a purchase price. The deal is expected to close in the fourth quarter of fiscal 2027 (ending January 31, 2027), subject to customary conditions. BofA Securities is Workday's financial advisor. Source: Form 8-K accession 0001327811-26-000051.