Workday's Q3 2026 Earnings Call: Contradictions Emerge in AI Adoption, Revenue Growth, and WorkdayGO Strategy

Date of Call: November 25, 2025

Financials Results

• Revenue: Total revenue $2.432B, up 13% YOY; Subscription revenue $2.244B, up 15% YOY; Professional services $188M
• Operating Margin: Non-GAAP operating margin 28.5% (Q3); non-GAAP operating income $692M

Guidance:

• Q4 subscription revenue expected $2.355B, up 15% YOY.
• FY'26 subscription revenue expected $8.828B, up 14% YOY.
• Q4 professional services $168M; FY'26 professional services $715M.
• Q4 non‑GAAP operating margin at least 28.5%; FY'26 non‑GAAP operating margin approx. 29%; FY'26 non‑GAAP tax rate 19%.
• cRPO to increase 15%–16% in Q4 (includes ~0.25 pts from Sana; >1 pt tenant impact); Q1 FY'27 subscription growth ~14% YoY, flat sequential.
• FY'26 operating cash flow $2.90B; CapEx ~$200M; free cash flow $2.70B (up 23%); planned repurchases ~$3.6B through FY'27 (totaling $5B).

Business Commentary:

• Strong Subscription Revenue Growth:
• Workday delivered 15% subscription revenue growth in Q3, reflecting a significant increase in customer demand and adoption of its AI solutions.

• The growth was driven by a high demand for Workday Illuminate AI, with more than 1 billion AI actions executed on the platform this year.

• Expansion in Key Industries and Markets:

• Workday's Healthcare industry surpassed $1 billion in ARR, becoming the sixth industry to achieve this milestone.
• The expansion was supported by strategic wins in the healthcare sector, including a major win at a large U.S. health insurer.

• AI Product Integration:
• Workday's AI products contributed more than 1.5 points to ARR growth in Q3, with specific products like Evisort and Extend Pro showing significant growth.

• The integration and adoption of AI products are enhancing Workday's value proposition and driving customer demand for its solutions.

• International Market Performance:

• International revenue showed a 13% increase, driven by strong performance in EMEA, APAC, and Japan.
• Localization and partner network expansion supported growth in these regions, with continued demand for Workday's platform across global markets.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted "solid Q3 results, with 15% subscription revenue growth and 28.5% non‑GAAP operating margin," strong cash flow (Q3 operating cash flow $588M, +45%), and reiterated confidence in FY'27 growth (~13%) while accelerating buybacks and AI investments.

Q&A:

• Question from Mark Murphy (JPMorgan Chase & Co): Are you seeing the novelty of third‑party AI startups wear off and an accelerated adoption of Workday Extend as customers prioritize security, data quality and integration?
  Response: Customers prefer trusted platforms with clean data and security; Workday's unified data, compliance and platform position it to win as point‑solution novelty fades.

• Question from S. Kirk Materne (Evercore ISI): If customers cut headcount, what mechanisms let you keep growing ACV (cross‑sell, upsell, discounts phasing out, true‑ups)?
  Response: Growth is driven more by revenue‑per‑seat and cross‑sell of many new solutions (Evisort, HiredScore, Sana, Paradox); contract true‑ups and minimums provide downside protection and net customer headcount is still up YoY.

• Question from Keith Weiss (Morgan Stanley): Can you quantify early AI uplift (how much uplift on typical deals, penetration of AI products, runway to scale)?
  Response: AI already adds ~1.5 points of ARR growth; ~75% of new deals include AI, 35% of expansions include AI; example: HiredScore sells at roughly 2.5x uplift to recruiting spend.

• Question from Michael Turrin (Wells Fargo): Early customer feedback on Paradox and Sana from Rising and implications for product/model; and any trade‑offs between growth and margin?
  Response: Paradox and Sana saw strong early demand and quick sell‑through; Sana will expand Learning and UX; company will continue AI investments while maintaining the existing financial framework and margin targets.

• Question from Brent Thill (Jefferies): Is Paradox intended to be platform‑agnostic and sell into non‑Workday ERP bases?
  Response: Yes — Paradox is both an attach product and a standalone land product that can be sold into non‑Workday customers, expanding go‑to‑market reach.

• Question from Brent Thill (Jefferies) — follow up: Anything to note on cRPO guidance or modeling?
  Response: cRPO remains solid and clean; Paradox contributed over 1 point and Sana a small amount; management feels confident in cRPO and subscription coverage heading into Q4.

• Question from Karl Keirstead (UBS): Can you normalize Q4 cRPO by removing one‑time items (tenants, Paradox, Sana), and how confident are you on DIA go‑live timing and contribution?
  Response: Sana and Paradox each contribute roughly 1.5 points to Q4 subscription revenue growth in aggregate; company is highly confident DIA go‑live will deliver ~ $15M in Q4 and is already discussing expansion.

• Question from Bradley Sills (BofA Securities): Is this year primarily building AI/agents foundation with material upside in FY'28 or should we expect most impact in FY'27?
  Response: Workday is building an enterprise AI fabric (Sana, Paradox, Pipedream) that will be a multi‑year growth vector; investments lay foundation now with expected compounding impact over time.

• Question from Brad Zelnick (Deutsche Bank): For Workday GO and down‑market customers, do you need different AI products compared with large enterprises?
  Response: Workday GO will deliver full agent capability plus tailored AI models (deployment agent, payroll AI, simplified config) to slash deployment complexity and make AI accessible to mid‑market customers.

• Question from Aleksandr Zukin (Wolfe Research): Any change in confidence on budgets/demand for next year and how much inorganic contribution / pace of M&A should we expect?
  Response: Management remains confident in FY'27 ~13% subscription growth; acquisitions contribute roughly ~1 point to next year; M&A approach remains disciplined with a high bar and no change in strategy.

• Question from Raimo Lenschow (Barclays): International growth looked comparable to U.S.; what drove international performance this quarter?
  Response: Broad‑based strength across EMEA, APAC and Japan driven by product localization, partner network expansion and local talent, producing solid regional results.

• Question from Kasthuri Rangan (Goldman Sachs): If you rebuilt an AI‑native HCM stack today, what capabilities would it have and how does Workday compare?
  Response: An AI‑native stack needs unified domain data, clear semantics and process activation; Workday already embodies these (consolidated data model, business process archetypes, usage data), making it the enterprise AI stack of record.

Contradiction Point 1

AI Adoption and Challenges

It highlights differing perspectives on the operationalization challenges of AI-based solutions and their impact on Workday's adoption, which affects market confidence and strategic planning.

Are you seeing signs that operationalization challenges in AI-based solutions could lead to increased adoption of Workday? - Mark Murphy (JPMorgan Chase & Co, Research Division)

2026Q3: We do see that challenges with data quality, data integrity, and security are slowing down AI adoption in enterprises. These are areas where Workday excels due to our large, clean dataset and security protocols. Customers are returning to trusted platforms like Workday for business outcomes. The narrative of AI disrupting mature SaaS companies is changing, and Workday is benefiting from this. - Carl Eschenbach(CEO & Director)

How healthy is the renewal base, particularly regarding AI upsell opportunities? Are you leveraging AI to drive growth on renewals? - Kash Rangan (Goldman Sachs)

2025Q4: AI is at the forefront of customer conversations, and we're leveraging AI upsell opportunities on renewals and with new AI agents being launched. - Carl Eschenbach(CEO)

Contradiction Point 2

AI Contribution to Revenue Growth

It reveals differing views on the impact of AI solutions on Workday's revenue growth, which is crucial for investor expectations and strategic planning.

Are there any rules of thumb for estimating the impact of AI on ARR growth? - Keith Weiss (Morgan Stanley, Research Division)

2026Q3: AI solutions contribute 1.5 points of ARR growth. 75% of new sales include AI, and 35% of customer expansions include AI. Evisort and Extend Pro are strong, and new AI solutions like HiredScore offer significant uplifts in deals. - Carl Eschenbach(CEO & Director)

How will AI agents contribute to second-half revenue, and how confident are you in the visibility for the second half? - Kirk Materne (Evercore ISI Institutional Equities, Research Division)

2025Q4: We don't expect a significant contribution from agents in the current guidance. Contributions are more likely in the second half of the year with new agents like Evisort and Talent Optimization. - Zane Rowe(CFO)

Contradiction Point 3

AI Disruption and Workday's Positioning

It raises concerns about the company's stance on AI disrupting the software world and its positioning as a trusted partner for AI solutions, which could impact investor confidence in Workday's strategic direction and resilience in the face of AI-driven competition.

Are there signs that AI solutions face operationalization challenges leading to Workday's increased adoption? - Mark Murphy (JPMorgan Chase & Co, Research Division)

2026Q3: The narrative of AI disrupting mature SaaS companies is changing, and Workday is benefiting from this. - Carl Eschenbach(CEO & Director)

How do you view AI's potential impact on the software industry, particularly on seat-based pricing models, given Workday's SaaS leadership? - Kasthuri Gopalan Rangan (Goldman Sachs)

2025Q2: The concerns about AI disrupting seat-based models are overblown. Workday is uniquely positioned with a strong customer base and entrenched market position. - Carl M. Eschenbach(CEO & Director)

Contradiction Point 4

AI Adoption and Impact on Revenue Growth

It involves differing perspectives on the immediate impact and growth expectations of AI solutions on revenue, which is crucial for investors and stakeholders to assess the company's potential growth trajectory.

Are there any guidelines for modeling AI's impact on ARR growth? - Keith Weiss (Morgan Stanley, Research Division)

2026Q3: AI solutions contribute 1.5 points of ARR growth. 75% of new sales include AI, and 35% of customer expansions include AI. - Carl Eschenbach(CEO & Director)

Which areas will AI adoption significantly accelerate growth, and will it focus on high-end or low-end markets? - Alex Zukin (Wolfe Research, LLC)

2026Q1: We are seeing our AI adoption be broad across all industries, across all markets, across all segments. And we're seeing that adoption accelerating. - Gerrit Kazmaier(President of Product & Technology)

Contradiction Point 5

WorkdayGO and Medium Enterprise Growth Strategy

It highlights discrepancies in the strategic focus and expected impact of WorkdayGO on medium enterprise growth, which affects the company's growth strategy and market penetration.

What role will AI play in growth in fiscal 2028? - Brad Sills (BofA Securities, Research Division)

2026Q3: We're seeing very strong momentum around our WorkdayGO initiative. - Gerrit Kazmaier(President of Product & Technology)

Can WorkdayGO drive growth in medium-sized enterprises, and which specific segments are you targeting? - Brent Thill (Jefferies LLC, Research Division)

2026Q1: WorkdayGO is a strategic initiative focusing on medium and emerging enterprises. - Carl Eschenbach(CEO)