Workday Q2 strong, says AI attracting more wallet share

Workday reported better-than-expected second quarter results and said AI is driving more than a quarter of its new annual contract value. The company added that it has more than 5,500 customers now using at least one of its organic AI agents.

The company reported second quarter net income of $632 million, or $2.57 a share, on revenue of $2.649 billion, up nearly 13% from a year ago. The net income figure includes a tax benefit of $1.52 a share. Non-GAAP earnings were $2.75 a share.

Wall Street was expecting Workday to report earnings $2.61 a share on revenue $2.64 billion.

CEO Aneel Bhusri said Workday's "deterministic rails" are giving its AI agents more trust with enterprises.

And CFO Zane Rowe added that AI is "emerging as a strategic driver of customer expansion" and prioritizing "investment in our agentic AI roadmap and platform opportunity."

Workday projected fiscal 2027 subscription revenue of $9.94 billion to $9.95 billion, up 13% from a year ago. the company is projecting non-GAAP operating margins of 31% for the fiscal year.

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For the third quarter, Workday is projecting subscription revenue growth of 12% and non-GAAP operating margins of 30%.

Key figures for the second quarter include:

• Workday's 12-month subscription revenue backlog was $9.034 billion, up 14.2% from a year ago.
• Total subscription backlog was $27.4 billion, up 8% from a year ago.
• Workday's free cash flow was $460 million, down from $588 million a year ago.
• The company ended the quarter with cash and cash equivalents of $3.4 billion.

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Bhusri made the case that Workday is a context platform and a key accelerator for agentic AI. He said:

• "We know that no one company will build every agent. The future will be open, and CIOs need a trusted platform to connect at all. We're 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."
• "We're an enterprise context platform, and we were built that way from the start."
• "We're shipping AI products; our customers are adopting them rapidly, and it's happening across the board, from the agents we built ourselves to the ones we've acquired."

Gerrit Kazmaier, President, Product and Technology at Workday, said the company is accelerating its roadmap and adding new AI tools. The company's Sana unit will be the new AI across the platform. "We rolled out Sana Enterprise internally on August 4th, and already has 12,000 active users on it. These workmates have built 22,000 custom agents in three weeks alone," said Kazmaier.

"By Workday Rising in October, Sana's conversational AI experience will be the default home screen for Workday," added Kazmaier, who also touted AI innovations in decision intelligence, deployment and planning.

He also noted that Workday's deployment agent adoption has been strong with 4,600 customers using it. Deployment agent became generally available last week.

"Frontier models are good at analyzing data, but they sit on the sidelines of the operational system. They are detached from business semantics," said Kazmaier.

CTO Gabe Monroy also talked about Workday's transformation and echoed comments about creating "lawful" AI agents. Monroy said developers can move faster on Workday with trust due to its single data model.