Workday Reiterates Fiscal 2027 Guidance After Item 2.05 Charges
The company now expects fiscal 2027 third-quarter GAAP operating margin about 20 to 21 percentage points below non-GAAP, with Item 2.05 charges excluded from non-GAAP measures.
Workday, Inc. (WDAY) is reiterating its fiscal 2027 third-quarter and full-year financial guidance issued on its August 27 earnings call, with the exception of GAAP operating margin.
The enterprise AI platform for HR, finance, and IT now expects fiscal 2027 third-quarter GAAP operating margin to be approximately 20 to 21 percentage points lower than its third-quarter non-GAAP operating margin, and fiscal 2027 full-year GAAP operating margin to be approximately 19 percentage points lower than full-year non-GAAP operating margin. The company intends to exclude charges associated with the activities discussed in Item 2.05 from its non-GAAP financial measures.
That update follows a second quarter in which year-over-year growth slowed. Total revenues were $2.649 billion, up 12.8% from the second quarter of fiscal 2026, after 13.5% growth in the fiscal 2027 first quarter. Subscription revenues were $2.471 billion, up 13.9%, after 14.3% growth in the prior quarter.
GAAP operating income was $313 million, or 11.8% of revenues, compared with $248 million, or 10.6% of revenues, a year earlier. Non-GAAP operating income was $824 million, or 31.1% of revenues, compared with $680 million, or 29.0% of revenues, a year earlier.
Diluted net income per share was $2.57, compared with $0.84 a year earlier. The current-quarter figure includes a tax benefit of $1.52 a share related to an intra-entity transfer of certain intellectual property rights as part of an internal legal entity restructuring. Non-GAAP diluted net income per share was $2.75, compared with $2.21 a year earlier.
12-month subscription revenue backlog was $9.034 billion, up 14.2% from the same period last year. Total subscription revenue backlog was $27.403 billion, increasing 8.0% year-over-year.
Operating cash flows were $520 million, compared with $616 million a year earlier. Free cash flows were $460 million, compared with $588 million a year earlier. Workday repurchased approximately 9.8 million shares of Class A common stock for $1.3 billion. Cash, cash equivalents, and marketable securities were $3.403 billion as of July 31, 2026.
Chief executive Aneel Bhusri said AI drove more than 25% of new ACV in the second quarter and that more than 5,500 customers now use at least one of Workday’s organic agents. Chief financial officer Zane Rowe said the results reflect continued momentum across the platform, with AI emerging as a strategic driver of customer expansion.
The company now expects fiscal 2027 subscription revenue of $9.940 billion to $9.950 billion, growth of 13%, and raised fiscal 2027 non-GAAP operating margin guidance to 31.0%. It continues to prioritize investment in its agentic AI roadmap and platform opportunity while driving operational efficiencies as it scales.
The board authorized the open-ended repurchase of up to an additional $4.0 billion of outstanding Class A common stock. Workday welcomed new customers including BWX Technologies, Guess, KPMG, and S-E-B, and expanded relationships with Caterpillar, Delivery Hero, Lithia & Driveway, Merck, and Novartis. It unveiled Developer Agent and Agent Passport, made Workday Learning powered by Sana generally available, introduced Adaptive Decision Intelligence, and made the Financial Audit Agent generally available.
The September 29 update leaves the rest of the August outlook intact while recasting GAAP operating margin around Item 2.05 charges that the company will keep out of non-GAAP results. Non-GAAP operating income of $824 million, or 31.1% of revenues, remains the profitability frame for the quarter just reported, and the raised 31.0% full-year non-GAAP operating margin target remains the profitability frame for the rest of fiscal 2027. Subscription revenue of $2.471 billion and 12-month backlog of $9.034 billion sit alongside the reiterated $9.940 billion to $9.950 billion subscription revenue outlook. The additional $4.0 billion authorization and the $1.3 billion of second-quarter buybacks sit against cash, cash equivalents, and marketable securities of $3.403 billion as of July 31, 2026. The company will exclude the Item 2.05-related charges from non-GAAP measures, leaving the non-GAAP operating margin path unchanged from the August call even as GAAP operating margin is now expected to sit 20 to 21 percentage points below non-GAAP in the third quarter and 19 percentage points below non-GAAP for the full year.