Filing update · Workday (WDAY)

Workday's margins are rising while backlog growth slows and buybacks outrun cash flow

Workday grew fiscal second-quarter 2027 subscription revenue 13.9% and widened its non-GAAP operating margin to 31.1%, but total subscription backlog growth slowed to 8.0% from 17.0% three quarters earlier. It bought back $2.9 billion of stock in six months against about $1.1 billion of free cash flow, and has since borrowed at 5.7% to 6.3%.

Published
October 24, 2026
Data through
July 31, 2026
Latest filing used
October 23, 2026
Key numbers
Subscription revenue, Q2
$2.471B
Up 13.9% year on year [4]
Non-GAAP operating margin
31.1%
From 29.0%, with GAAP at 11.8% [4]
Total backlog growth
8.0%
$27.403 billion [4]
Buybacks, six months
$2.9B
Against $592 million a year earlier [3]
What changed

Workday, the HR and finance software company, is in the middle of a shift: margins are rising quickly, AI products are selling, but the growth in contracted future revenue is slowing and capital returns have become aggressive.

  • Revenue was $2.649 billion, up 12.8%; subscription revenue $2.471 billion, up 13.9% [4].
  • Operating margin was 11.8% on a GAAP basis and 31.1% non-GAAP, up from 10.6% and 29.0% [4].
  • Backlog: 12-month subscription backlog grew 14.2% to $9.034 billion, total backlog 8.0% to $27.403 billion [4].
  • Capital returns: Workday bought back 9.8 million shares for $1.3 billion in the quarter [4] and authorized another $4.0 billion [4].
  • Since then: an agreement to buy C1.ai on October 12 [2] and a multi-tranche bond sale completed October 23 [1].
The trajectory

Revenue growth has held near 13% [4] [6], but backlog growth has fallen steadily, the total far faster than the 12-month part.

Charts: total subscription backlog growth, 12-month backlog growth
Total subscription backlog growth
0%10%20%30%Q3 FY26: 17%17%Q3FY26Q1 FY27: 10.9%Q1FY27Q2 FY27: 8%8%Q2FY27
12-month backlog growth
0%10%20%30%Q3 FY26: 17.6%17.6%Q3FY26Q1 FY27: 15.5%Q1FY27Q2 FY27: 14.2%14.2%Q2FY27

Year-on-year growth in subscription revenue backlog as Workday reported it; Workday's fiscal year ends on January 31. The fourth-quarter fiscal 2026 release is not among the filings used here. Hover over or tab to a column for its value.

The numbers and their sources
Quarter Total backlog growth 12-month backlog growth
Q3 FY26 17.0% [10] 17.6% [10]
Q1 FY27 10.9% [6] 15.5% [6]
Q2 FY27 8.0% [4] 14.2% [4]
Buybacks versus cash flow

In six months Workday returned more than twice the cash it generated.

Chart: Cash generated and returned, first half of fiscal 2027
Cash generated and returned, first half of fiscal 2027
$0M$1B$2B$3BFree cash flow: $1,076M*$1,076M*Free cash flowShare buybacks: $2,907M$2,907MShare buybacks
  • Free cash flow is the sum of the first- and second-quarter figures, $616 million [6] and $460 million [4] (calculated). Buybacks as reported for the six months [3].
Show the numbers
ItemFirst half
Free cash flow$1,076M*
Share buybacks$2,907M
Margins keep rising

Both GAAP and non-GAAP margins improved; the gap between them is mostly share-based compensation.

Chart: Operating margin, second quarter
Operating margin, second quarter
0%10%20%30%40%GAAP: Q2 FY26 10.6%, Q2 FY27 11.8%11.8%GAAPNon-GAAP: Q2 FY26 29%, Q2 FY27 31.1%31.1%Non-GAAP
As Workday reported them [4]. Non-GAAP excludes share-based compensation and other items, as the company defines it.
Show the numbers
ItemQ2 FY26Q2 FY27
GAAP10.6%11.8%
Non-GAAP29%31.1%
Anomalies worth a closer look

Five things in the filings that complicate the margin story.

Anomalies (5)
Two ways to read it

The same filings support two different conclusions. We set out both; this is not a view on whether to buy or sell the stock.

The two readings

The case that Workday is becoming more profitable and AI-led

On this reading a mature subscription business is expanding margins and finding new growth in AI agents.

  1. 01
    Steady double-digit growth
    Subscription revenue grew 13.9% and 12-month backlog 14.2% [4].
  2. 02
    Margins keep expanding
    Non-GAAP operating margin rose to 31.1% from 29.0% [4], and full-year guidance was raised to 31.0% [4] from 30.5% [6].
  3. 03
    AI is showing up in sales
    AI drives more than 25% of new annual contract value, and more than 5,500 customers use at least one of Workday's agents [4].
  4. 04
    A cost reset is done
    The fiscal 2027 restructuring, about 2% of the workforce, was substantially complete in the first quarter [3].
  5. 05
    Buying into identity for AI agents
    The C1.ai acquisition aims to make Workday the identity governance layer for people, money and agents [2].

The case that growth is maturing and capital is being stretched

On this reading slowing bookings, rising debt and heavy buybacks point to a company managing for earnings per share.

  1. 01
    Bookings are slowing
    Total backlog growth fell to 8.0% [4] as sales cycles lengthen [3].
  2. 02
    Cash is being run down
    Buybacks of $2.9 billion in six months [3] cut cash and securities by 37% [3].
  3. 03
    More expensive debt
    New notes carry coupons of 5.700% to 6.300% [1].
  4. 04
    Leadership churn
    In February 2026 co-founder Aneel Bhusri returned as CEO and Carl Eschenbach stepped down [7], alongside a restructuring [5].
  5. 05
    Share-based pay keeps climbing
    Unrecognized compensation cost for unvested stock awards rose to $3.2 billion at July 31 [3] from $2.3 billion at April 30 [5].
Hypotheses: short, medium and long term

Testable statements, each with what would support or contradict it and when the next evidence arrives. Thresholds marked "our marker" are ours, not Workday's.

Hypotheses (3)
  1. Short termH1
    Next quarter: Q3 FY27 results

    Subscription revenue meets the 12% guide and backlog growth stabilises

    Workday guides third-quarter subscription revenue to $2.515 billion, up 12% [4].
    What would support it
    Subscription revenue at or above $2.515 billion [4] with total backlog growth at or above 8.0%.
    What would contradict it
    Backlog growth slipping below 8% again, or 12-month backlog growth below 13% (our marker).
    Next check: Q3 FY27 results, likely late November 2026 (last year's came on November 25 [10]).
  2. Medium termH2
    Fiscal 2027 and into 2028

    Workday funds buybacks from cash flow, not the balance sheet

    First-half buybacks were about 2.7 times free cash flow (calculated from [3], [6] and [4]).
    What would support it
    Second-half buybacks close to free cash flow, with net debt stable after the 2027 notes are retired.
    What would contradict it
    Buybacks again well above free cash flow, or further debt issuance to fund them.
    Next check: The fiscal 2027 annual report (about March 2027).
  3. Long termH3
    Three years and more

    AI agents reaccelerate growth rather than cannibalising seats

    AI is already more than 25% of new annual contract value [4].
    What would support it
    Total backlog growth back above 10% (our marker) as agent revenue scales.
    What would contradict it
    Backlog growth staying in single digits while margins rise, the profile of a maturing business.
    Next check: Each annual report.
Risks and contrary evidence
  • Sales cycles. Deal scrutiny and longer sales cycles are moderating growth, especially in net new business [3].
  • Acquisition risk. The C1.ai deal may not close or deliver the expected benefits, and could bring unanticipated expenses [2].
  • Leverage. The credit facility covenant caps leverage at 3.50 times, with a step-up to 4.50 times available [5].
  • New markets. Growth depends partly on targeted investments in medium-sized companies and the U.S. federal market [7].
What would change the view
  • Total backlog growth stabilising at or above 8% for two quarters.
  • Buybacks scaled back to roughly match free cash flow.
  • Free cash flow growing again alongside operating income.
Next check

Third-quarter fiscal 2027 results. Last year's came on November 25, 2025 [10], so expect the next update in late November 2026.

How this report was made

Every figure comes from Workday's own SEC filings, listed below; no market prices or third-party data were used. Statements were extracted from the filings with the help of an AI model, each quoted passage was matched against the filing text, and this report was written by Claude (Anthropic) from that evidence. Every figure was checked against the quoted filing text before publication. Figures marked "calculated" are simple arithmetic on reported numbers.

AI-Inflect screen

The deterministic screen's current reading for this company, market data through October 23, 2026. It is separate from the filing analysis above and can change daily; it is not a view on the stock. Open in AI-Inflect

Stage and setup
Stage
Developing Inflection
Fundamentals
Improving
Inflection type
Profitability inflection
Technical setup
Breakout attempt
Sector
Software tech
Condition matrix · 6 true, 11 false, 0 unknown
  • Revenue growth positiveTrue
  • Revenue growth improvingFalse
  • Revenue growth acceleratingFalse
  • Revenue zero-crossing (loss→growth)False
  • Revenue improved 2 straight qtrsFalse
  • Revenue improved 3 straight qtrsFalse
  • Revenue improved 4 straight qtrsFalse
  • EPS improvingTrue
  • EPS loss→profit crossingFalse
  • Earnings acceleratingTrue
  • Gross margin expandingFalse
  • Operating margin expandingTrue
  • Operating leverageTrue
  • FCF improvingTrue
  • FCF negative→positive crossingFalse
  • FCF margin expandingFalse
  • Cash conversion improvingFalse
Sources

Company filings with the U.S. Securities and Exchange Commission (SEC).

  1. [1]Current report: senior notes offering, October 2026 · Form 8-K, filed October 23, 2026 · accession 0001104659-26-118496
  2. [2]Current report: agreement to acquire C1.ai · Form 8-K, filed October 13, 2026 · accession 0001327811-26-000051
  3. [3]Quarterly report, quarter ended July 31, 2026 (Q2 fiscal 2027) · Form 10-Q, filed August 27, 2026 · accession 0001327811-26-000044
  4. [4]Second-quarter fiscal 2027 earnings release · Form 8-K, filed August 27, 2026 · accession 0001327811-26-000042
  5. [5]Quarterly report, quarter ended April 30, 2026 (Q1 fiscal 2027) · Form 10-Q, filed May 22, 2026 · accession 0001327811-26-000026
  6. [6]First-quarter fiscal 2027 earnings release · Form 8-K, filed May 21, 2026 · accession 0001327811-26-000024
  7. [7]Annual report for fiscal 2026 · Form 10-K, filed March 6, 2026 · accession 0001327811-26-000014
  8. [8]Current report: reorganization, February 2026 · Form 8-K, filed February 4, 2026 · accession 0001327811-26-000004
  9. [9]Quarterly report, quarter ended October 31, 2025 · Form 10-Q, filed November 26, 2025 · accession 0001327811-25-000198
  10. [10]Third-quarter fiscal 2026 earnings release · Form 8-K, filed November 25, 2025 · accession 0001327811-25-000196

This report is general information and education, not a recommendation to buy or sell any security and not personalised financial advice. It follows our editorial principles: every figure traces to the sources above, and figures we calculated are marked as such.

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