$WDAY earnings report

This filing is a fiscal 2027 guidance update rather than an earnings-results release. Workday reiterated the fiscal 2027 third-quarter and full-year financial guidance it had provided on August 27, 2026, except for GAAP operating margin. The filing does not provide the underlying revenue, margin, earnings, cash flow, or other numerical guidance targets from that prior outlook.

The change follows reorganizations within certain functions and select leased office space reductions. The actions include a reduction of approximately 2.5% of Workday’s current workforce, primarily in Product and Technology, while the company plans to continue hiring in key strategic areas and locations throughout fiscal 2027. The stated purpose is to better align team structures with Workday’s strategic growth priorities.

Workday estimates approximately $65 million to $80 million of charges. Approximately $55 million to $70 million is expected in the third quarter of fiscal 2027, with $10 million expected in the fourth quarter. The estimate includes approximately $40 million to $55 million of future cash expenditures for severance payments, employee benefits, and related costs, approximately $10 million of non-cash stock-based compensation charges, and approximately $15 million of non-cash charges related to impairment of certain leased office space.

Workday now expects fiscal 2027 third-quarter GAAP operating margin to be approximately 20 to 21 percentage points lower than third-quarter non-GAAP operating margin. For the fiscal year, GAAP operating margin is expected to be approximately 19 percentage points lower than full-year non-GAAP operating margin. Workday intends to exclude these charges from non-GAAP financial measures, making the GAAP-to-non-GAAP margin difference the central financial effect disclosed in this filing.

Employee-related actions are expected to be substantially completed by the first quarter of fiscal 2028, subject to local law and consultation requirements, while leased-office-space actions are expected to be substantially completed by the fourth quarter of fiscal 2027. The company states that charge amounts and timing are subject to assumptions and that actual amounts may differ materially from estimates. No period operating results, segment data, cash flow, balance-sheet figures, or capital-return information were reported.

Workday reported fiscal 2027 second-quarter total revenues of $2.649 billion, up 12.8% year-over-year, led by subscription services revenues of $2.471 billion, up 13.9%. Professional services revenues were $178 million, compared with $179 million in the same period last year. The subscription mix and the reported $9.034 billion of 12-month subscription revenue backlog, up 14.2%, point to continued recurring-revenue momentum. Total subscription revenue backlog was $27.403 billion, increasing 8.0% year-over-year.

Profitability improved on both reported bases. GAAP operating income was $313 million, or 11.8% of revenues, compared with $248 million, or 10.6% of revenues. Non-GAAP operating income was $824 million, or 31.1% of revenues, compared with $680 million, or 29.0% of revenues. Share-based compensation expense was $462 million, compared with $391 million, and remains the largest reconciling item between GAAP and non-GAAP operating income.

GAAP net income was $632 million and diluted net income per share was $2.57, compared with $228 million and $0.84. The release states that current-quarter GAAP diluted net income per share included a tax benefit of $1.52 per share from an intra-entity transfer of certain intellectual property rights as part of an internal legal entity restructuring. Non-GAAP net income was $677 million, while non-GAAP diluted net income per share was $2.75, compared with $598 million and $2.21, respectively.

Cash generation was lower year-over-year. Net cash provided by operating activities was $520 million compared with $616 million, and free cash flows were $460 million compared with $588 million. Workday repurchased approximately 9.8 million Class A shares for $1.3 billion and received authorization for an additional $4.0 billion open-ended repurchase program. Cash, cash equivalents, and marketable securities were $3.403 billion as of July 31, 2026.

The outlook calls for fiscal 2027 third-quarter subscription revenues of $2.515 billion, representing growth of 12%, and a non-GAAP operating margin of 30.0%. For fiscal 2027, Workday updated guidance to subscription revenues of $9.940 billion to $9.950 billion, representing growth of 13%, and a non-GAAP operating margin of 31.0%. Management described AI as a strategic driver of customer expansion, with more than 5,500 customers using at least one organic agent and AI driving more than 25% of new ACV.