Workday: AI ARR Nears $600 Million as Executives Preview Cautious FY28 Growth Target and Dodge Private Equity Buyout Question
Second quarter fiscal 2027 earnings call, held August 27, 2026
Workday's fiscal second-quarter results confirmed that artificial intelligence has moved from talking point to real, if still nascent, revenue driver, even as management tempered enthusiasm with a preliminary fiscal 2028 growth target that landed roughly in line with expectations rather than signaling a step-change. The bigger story for investors may be what the company would not discuss: CEO Aneel Bhusri declined to address recent private equity buyout speculation when asked directly by Wells Fargo's Michael Turrin, saying only, "I obviously can't comment on the latter."
AI Revenue Is Real, But Monetization Lags Adoption
Workday now has nearly $600 million in annualized recurring revenue tied to its AI SKUs, up more than 200% year-over-year and up over 20% sequentially, according to President of Product and Technology Gerrit Kazmaier. AI products drove more than $100 million of new annual contract value in the quarter, representing over 25% of total new ACV booked. More than 5,500 customers are now using at least one organic Workday agent, up 35% from the prior quarter.
But management was candid that usage is running well ahead of billing. CFO Zane Rowe and Bhusri both flagged that the shift toward Flex Credits, a consumption-based pricing model, creates a lag between adoption and recognized revenue. Only around 200 customers have signed up for Flex Credits so far, versus the 5,500 using agents organically. "We're seeing great early signs, but I think that's one of the reasons for cautious optimism going into next year, because we are aggressively moving towards a hybrid model between subscription and this consumption model," Bhusri said. Evercore ISI's Kirk Materne pressed on whether AI enthusiasm was cannibalizing focus on core bookings given that cRPO growth of 14.2% looked largely in line with prior expectations; Rob Enslin, President and Chief Commercial Officer, pushed back, arguing the current phase is deliberately adoption-first, with monetization to follow as agents "harden" through broader usage.
Preliminary FY28 Guide: Steady, Not Spectacular, With Margin Upside
Ahead of its Financial Analyst Day on October 13 in Las Vegas, Workday gave an early look at fiscal 2028, targeting subscription revenue growth of approximately 11%, consistent with the expected second-half fiscal 2027 pace. Non-GAAP operating margin is expected to expand by at least 2 percentage points next year, building on the 31% margin guide now in place for fiscal 2027, itself an increase from prior guidance. Justin Furby, VP of Investor Relations, was explicit that upside from Sana Enterprise, Workday Extend, Data Cloud, and the broader AI agent portfolio is not yet baked into that outlook, framing the FY28 number as a conservative baseline rather than a ceiling.
Fiscal second-quarter subscription revenue came in at $2.471 billion, up 14%, with total revenue of $2.649 billion, up 13%. Full-year fiscal 2027 subscription revenue guidance now sits at $9.94 billion to $9.95 billion, implying 13% growth. Gross revenue retention held at 97%, and net expansion from existing customers continued to drive roughly 60% of subscription revenue growth. Total subscription backlog grew a slower 8% year-over-year, a deceleration Rowe attributed to mix shift toward customer-base bookings over new logos.
Sana Enterprise Becomes the New Front Door to Workday
The most concrete product news was the plan to make Sana's conversational interface the default home screen for all of Workday by the company's Rising conference in October. Sana Enterprise, described by Bhusri as an "AI workbench" spanning HR, finance, and IT, shipped 23 new capabilities in the quarter, including a Sana Agent Builder that lets any user create an agent using natural language. Internally, Workday rolled out Sana Enterprise to its own employees on August 4 and had 12,000 active users build 22,000 custom agents within three weeks. New external logos in the quarter included AstraZeneca, Novartis, Caterpillar, and Delivery Hero Group, and the combined Workday Learning and Sana Learn product saw monthly active users grow almost 190% year-over-year, with 78% of published courses now AI-generated.
Decision Intelligence Ships Fast, Gains Early Traction in Finance
Adaptive Decision Intelligence, an agentic analytics and planning tool, reached general availability on July 31 after just four months of development, which Kazmaier called one of the fastest concept-to-GA timelines in company history. It already has 170 paying customers. Kazmaier explained the differentiation from generic large language model tools bluntly: "Frontier models are good at analyzing data, but they sit on the sidelines of the operational system. They are detached from business semantics, they are working off downloaded spreadsheets, and they are unable to close the loop back to where actually happens." One customer told Workday the product "gives finance teams answers they can actually defend." The next phase connects the tool directly into journal lines, plan data, and Accounting Center, with workforce analytics integration planned next.
Deployment and Adoption Agents Show Early Operating Leverage
Deployment Agent now has more than 4,600 customers and nearly 24,000 users, with query volume up almost 500% in the quarter; management's long-term target is an 80% to 90% reduction in deployment task time. Adoption Agent, which reached general availability just a week before the call, signed over 200 customers in its first three days, evaluated 20,000 release notes, and posted a 94% customer satisfaction rate. SolutionHealth reportedly cut release time by 70% using the tool. These efficiency gains are feeding into Workday Go, the company's medium-enterprise offering, where customer volume increased more than fivefold versus the first quarter.
Open Platform Strategy and the Competitive Moat Argument
Chief Technology Officer Gabe Monroy laid out the architectural case for why Workday believes it can win regardless of which AI stack customers choose, pointing to a new Data Cloud offering giving zero-copy data access to partners including Snowflake, AWS, and Google, and new Agent APIs delivered over MCP protocol. Six Data Cloud deals closed in the quarter, all on the premium Pro Edition, with general availability still on track for the third quarter. Monroy drew a sharper distinction between "lawful" and "lawless" agents, arguing that Workday's advantage lies in agents operating strictly within existing permission and policy frameworks: "A lawless agent will attempt to take action on its own. A lawful agent takes action because the system allows it." Bhusri reinforced the competitive argument against legacy ERP and HCM vendors, noting that rivals typically run six or seven different product versions, which he says makes it structurally difficult for them to aggregate a unified data model to power AI.
Capital Return and Guidance Details
Workday completed its $5 billion share repurchase program six months ahead of schedule, buying back $1.3 billion in the quarter, and its board approved a new $4 billion open-ended buyback authorization. The company ended the quarter with $3.4 billion in cash and marketable securities and 20,896 employees. For the third quarter, Workday guided to subscription revenue of approximately $2.515 billion, growth of 12%, and cRPO growth of 11% to 12%, a deceleration partly explained by the lapping of the Paradox acquisition, which added more than a point to last year's comparison. Full-year operating cash flow guidance remains at $3.45 billion, with free cash flow guidance of $3.18 billion, up 15%.