Workday, Inc. Class A Common Stock 2027 Q2 Earnings Call

Please go ahead. Thank you, operator.

Welcome to Workday's second quarter fiscal 2027 earnings conference call. On the call, we have Aneel Bhusri, our CEO, Gerrit Kazmaier, our President, Product and Technology, Gabe Monroy, our Chief Technology Officer, Rob Enslin, our President and Chief Commercial Officer, and Zane Rowe, our CFO. Following prepared remarks, we will take questions. Our press release was issued after close of market and is posted on our website, where this call is being simultaneously webcast. Before we get started, we want to emphasize that some of our statements on this call, particularly our guidance, are based on the information we have as of today and include forward-looking statements regarding our financial results, applications and solutions, customer demand, operations, and other matters. These statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially.

Please refer to the press release and the risk factors in documents we file with the Securities and Exchange Commission, including our fiscal 2026 annual report on Form 10-K, for additional information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Workday's performance. These non-GAAP measures should be considered in addition to, and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, in our earnings press release, in our investor presentation, and on the investor relations page of our website.

The webcast replay of this call will be available for the next 90 days on our company website under the investor relations link. Additionally, the prepared remarks of this call and our quarterly investor presentation will be posted on our investor relations website following this call. Our third quarter fiscal 2027 quiet period begins on October 15, 2026. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal 2026. With that, I'll pass the call to Aneel.

Thanks, Justin. Thanks, everyone, for joining us today. It is hard to believe I have been back in the CEO seat for six months. Time flies when you are having fun, and I am having a lot of fun. This is a fun time to be back in the tech industry. Q2 was another strong quarter, and AI played an increasingly bigger role. AI products alone drove more than $100 million of new ACV, which accounted for more than 25% of all new ACV closed in the quarter. It is starting to lift our core business too, including our win rates. We had commercial success with AI in the quarter, including strong early returns with Flex Credits, and we expect this to accelerate going forward. What I am watching more closely is adoption. Today, more than 5,500 customers are using one or more of our organic agents.

That is up more than 35% from last quarter. As we continue to build organic agents on Workday, we are also deeply integrating acquired agents like those from Paradox, HiredScore, and Evisort into our platform. We have signed some of the world's largest brands to our Lighthouse program, which gives strategic customers Sana Enterprise free for a year. We rolled it out to our own workmates last month, and they are hooked. I expect these customers will be too, and we know that if we deliver the value, monetization will follow. After two strong back-to-back quarters, I really like the momentum we have going into the second half of the year. Gerrit and our product and technology teams have our innovation engine humming again, while Rob and his team have done a phenomenal job building pipeline that will drive more new business.

They will cover the numbers shortly, including the impact of AI adoption on our outlook for the second half and fiscal year 2028. I spent much of the past six months with customers. Last quarter, I told you I had not met a single customer who is looking to replace Workday with something they are building internally or buying from a startup. A quarter later, that has not changed. The reason is the deterministic rails I have talked about before. Our agents are lawful. They work inside the permissions, policies, and business processes a company already runs on. That is why our customers can trust them with the work that matters, and it is why we are seeing our organic agents really take off this year. One of those customers is BMO, a top 10 bank in North America.

They piloted Self-Service Agent with 500 employees in May and successfully rolled it out to all 55,000 employees in June. SSA gives BMO employees and managers a personal, intuitive way to get HR questions answered and work done faster and easier. Because it is native to Workday, the agent understands employee permissions and which HR policies apply to them. That built-in context is exactly what makes this a responsible and scalable AI deployment for BMO. BMO is one of many. More customers are moving from pilots to production with our agents. We know that no one company will build every agent. The future will be open, and CIOs need a trusted platform to connect it all. We are 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, makes it dramatically faster and easier for developers to build on Workday using natural language. It is one of the innovations I am most excited about. I will add just one thing because I do not think it is fully understood. Workday is not just an enterprise apps company. We are an enterprise context platform, and we were built that way from the start. Agents need context to do anything useful. Who reports to whom, what the policies are, how money moves. So whether a customer runs our agents or builds their own on top of Workday, we win either way. Gabe will go deeper on this shortly. Finally, Rising is coming to Las Vegas, October 12th through the 15th.

I have to tell you, Gerrit and his team have walked me through our Rising announcements, and I was blown away by how much innovation we have to show. Not slides, live demos and customers talking about the work our agents are already doing inside their businesses. That is the proof I care about most. We will also be hosting our Financial Analyst Day at Rising, and I hope to see you all there. To close, as many of you know, I am an unabashed optimist, but I am not leaning on optimism here. We are shipping AI products. Our customers are adopting them rapidly, and it is happening across the board, from the agents we built ourselves to the ones we have acquired. This is Workday's moment, and I have never felt better about where we are headed. With that, I will hand it to my Vulcan mind-meld friend, Gerrit.

Thanks, Aneel, and hello, everyone. in Q2, once again, we have accelerated our roadmap and added new AI capabilities across our platform. All of it builds on our unique world model of work, and we keep moving more agents into production at scale. So let me put this into numbers for you. Nearly $600 million in ARR from our AI SKUs, and that is up more than 200% year-over-year and up over 20% from last quarter. Here is what this looks like in practice. In recruiting, more than 30 million candidates interacted with our talent acquisition agent, and the AI automatically scheduled more than 8 million interviews last quarter alone. In functions like procurement and legal, Workday Contract Intelligence Agent drove nearly 70% year-over-year growth in agreements processed. And in HR case resolution, more than 100 customers moved Sana Self-Service Agent into production last month.

Since February, we have nearly doubled AI tools and skills in the agent that run in production. So now let us talk about three key innovation highlights from last quarter: Sana, Adaptive Decision Intelligence, and our deployment and adoption agents. Let us talk about Sana Enterprise first. Sana Enterprise is our AI workbench for HR, finance, and IT to build, orchestrate, and run AI across the entire enterprise. In Q2, we have shipped 23 new capabilities in Sana that open up what customers can do with it. For example, our brand new Sana Agent Builder lets any user create an agent in natural language and then run it on a schedule or trigger it on a business event. Every one of those agent runs in a secure sandbox. We now have one shared agent task inbox in Sana, where work is managed in one place, human or AI.

We have added custom MCP connectors, so Sana can connect to any third-party application out there. This innovation, it is already changing AI adoption inside and outside of Workday. Here is what we have done. We rolled out Sana Enterprise internally on August 4 and already have 12,000 active users on it. These workmates have built 22,000 custom agents in three weeks alone. This is what AI looks like when it is embedded into real work. We have also brought Workday Learning and Sana Learn together into one product. It is in GA now with a learning admin agent, AI-based course generation, an AI tutor for self-paced learning, and MCP support as part of our open platform. The results are clear. In Sana, monthly active users grew almost 190% year-over-year, and 78% of all published courses were created with AI.