WDAY 10-Q filed 2026-08-27 | Key takeaways
WDAY filed its 10-Q; the most relevant disclosure change is added Income taxes — intra-entity intellectual property transfer: The company recognized an income tax benefit of $305 million for Q2 and $172 million for the six months ended July 31, 2026 (vs. a $76M provision in Q2 2025 and $111M provision for 6M 2025), primarily attributable to an intra-entity transfer of certain intelle.
Key takeaways
Q2 total revenue grew 13% YoY to $2,649 million, with subscription services revenue up 14% to $2,471 million; six-month totals were $5,191 million and $4,826 million respectively, both up 13-14% YoY.
Q2 net income of $632 million (diluted EPS $2.57) was up 177% YoY but materially enhanced by a $305 million income tax benefit from an intra-entity IP transfer that recognized $374 million of deferred tax assets; treat Q2 GAAP earnings as a one-time tax-aided result.
Operating margin expanded: GAAP +124 bps to 11.8% and non-GAAP +212 bps to 31.1% in Q2; six-month diluted EPS was $3.41 versus $1.09 prior year.
Capital return accelerated: $1,307 million repurchased in Q2 ($2,907 million for the six months), completing the prior $4.0 billion September 2025 authorization; the Board authorized a new $4.0 billion repurchase program in August 2026.
Subscription backlog growth remained healthy: total subscription revenue backlog $27.4 billion (+8% YoY) and 12-month backlog $9.0 billion (+14% YoY); remaining performance obligations of $27.4 billion expected to be recognized ($9.0 billion within 12 months, $16.0 billion within 24 months).
Six-month operating cash flow was $1,215 million (+13% YoY) and free cash flow was $1,076 million (+7% YoY); cash and marketable securities fell to $3.4 billion (down 37% from $5.4 billion at January 31, 2026), reflecting $2.9 billion of share repurchases and $139 million of capex.
Debt: $999 million carrying amount of 2027 Senior Notes was reclassified from noncurrent to current debt as the notes mature April 1, 2027; company remained in compliance with all Senior Notes and 2022 Credit Agreement covenants.
Key metrics
Disclosure changes
- Income taxes — intra-entity intellectual property transfer
The company recognized an income tax benefit of $305 million for Q2 and $172 million for the six months ended July 31, 2026 (vs. a $76M provision in Q2 2025 and $111M provision for 6M 2025), primarily attributable to an intra-entity transfer of certain intellectual property rights as part of an internal legal entity restructuring that recognized $374 million of deferred tax assets related to deductible temporary differences associated with certain tax attributes transferred at carryover basis.
The IP restructuring drove net income up 177% YoY in Q2 and 189% YoY for the six months; valuation allowance disclosure notes a reasonable possibility of a significant release in a certain foreign jurisdiction. - Share repurchase programs
The September 2025 $4.0B authorization was fully completed during Q2 FY2027 with no authorization remaining as of July 31, 2026; the August 2026 Board authorization for an additional $4.0B is disclosed as a subsequent event in Note 20.
Workday repurchased $1.3B of stock during Q2 at an average price of $133.59/share, completing prior authorizations and resetting repurchase capacity with a fresh $4.0B program. - Equity incentive and ESPP plans — amendments
In June 2026, stockholders approved the A&R 2022 Equity Incentive Plan (20M-share reserve increase, 21M shares available for future grants as of July 31, 2026) and the A&R 2012 ESPP (7M-share reserve increase, 8M shares available).
Refreshed equity reserves support ongoing employee compensation programs; share availability increased for both RSU/PSU grants and employee stock purchases. - Restructuring — completion of Fiscal 2027 plan
The Fiscal 2027 Restructuring Plan activities were substantially completed in Q1 FY2027; no material remaining liability as of July 31, 2026 (vs. $5M as of April 30, 2026). No restructuring charges were recorded during the three or six months ended July 31, 2026.
Restructuring plan wind-down removes a prior-period drag on operating margin comparisons; total plan charges of $135M remain unchanged from FY2026. - Debt — reclassification of 2027 Senior Notes to current
$999M carrying amount of the 2027 Senior Notes (3.500%, due April 1, 2027) was reclassified from noncurrent to current debt as of July 31, 2026; total Senior Notes principal of $3.0B remains unchanged with effective interest rates of 3.67%, 3.82%, and 3.90% on the 2027, 2029, and 2032 Notes.
The 2027 Notes mature within 12 months of the balance sheet date; company remained in compliance with all Senior Notes and 2022 Credit Agreement covenants, with $1.0B undrawn under the 2022 Credit Agreement. - Investments — marketable securities composition shift
Debt securities decreased to $2,742M as of July 31, 2026, from $3,942M at January 31, 2026, with U.S. treasury securities declining from $1,831M to $756M and commercial paper holdings eliminated; corporate bonds fell from $1,896M to $1,688M with unrealized losses of $8M.
Liquidity deployment funded share repurchases and acquisition activities; the company is shifting away from shorter-duration treasuries into money market funds ($382M) and remaining corporate bonds.
Primary source
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