WDAY · Research
Workday's 12-Month Backlog Grows 14% While $2.92B of Buybacks Absorb Stock Pay
Workday holds $27.40B of subscription backlog and grew its 12-month backlog 14%. GAAP operating margin rose to 11.82% in Q2, net income was lifted by a $305M tax benefit, and stock pay takes 53.42% of operating cash.
| Scorecard | Read |
|---|---|
| Thesis | Workday's HR and finance record keeps renewing at scale, so the 12-month backlog growing 14% sustains revenue growth in the low teens |
| What proves it wrong | 12-month backlog growth falls below 10%, or seat counts at large customers decline as agents take on HR and finance work |
| Next catalyst | Q3 fiscal 2027 results for the quarter ended Oct 31, 2026, with subscription backlog and the remaining buyback authorization |
| Key multiple | 35.75x EV / GAAP EBITDA of $1.45B |
| Debt | $2.99B of senior notes: $1.0B at 3.5% due 2027 (current), $750M at 3.7% due 2029 and $1.25B at 3.8% due 2032 |
| Stock pay | $1.65B from the cash flow line, 16.21% of revenue |
What Workday sells
Workday sells cloud software for human resources and finance. Large employers use it as the system of record for employees, pay, benefits, hiring, the general ledger and planning [1].
Q2 fiscal 2027 revenue, the quarter to Jul 31, 2026, was $2,649M, up 12.82% from $2,348M [1]. Twelve-month revenue was $10.15B [1].
Subscription revenue was $2,471M, up 14%. Professional services was $178M against $179M [1].
Backlog is the visibility
Total subscription backlog was $27,403M, up 8%. The 12-month backlog was $9,034M, up 14% [1].
The 12-month figure grew faster than total backlog. Customers are renewing, but some contracts are shorter, so the long tail grows more slowly.
About $27.4B of revenue is expected from remaining performance obligations for subscription contracts [1]. That is about 2.7 years of current revenue.
Margins are rising
Q2 GAAP operating income was $313M, up 26% from $248M. GAAP operating margin was 11.82% against 10.56% [1].
Product development was $747M in the quarter, 28.20% of revenue. Sales and marketing was $706M [1].
Headcount was 20,896.
Twelve-month GAAP EBITDA is $1.45B. D&A of $365.00M is taken from the cash flow statement line: $347M for fiscal 2026 plus $183M for the first half of fiscal 2027, less $165M for the first half of fiscal 2026 [1].
How good is the revenue
Subscription gross margin was 82.36% in Q2 against 82.94% a year earlier [1]. Costs of subscription services rose 17.84%, faster than subscription revenue.
Professional services ran at a loss: $178M of revenue against $216M of cost [1]. Deployment work is priced to win and keep subscription customers, not to earn a margin.
Six-month operating income was $651M against $287M a year earlier, when restructuring cost $167M [1]. Part of the margin gain is the absence of that charge.
Twelve-month operating cash flow was $3.08B, 30.34% of revenue [1]. Capex was only $237.00M.
A tax benefit lifted net income
Q2 net income was $632M, against $228M a year earlier [1]. A tax benefit of $305M did most of the work.
That tax benefit is not part of operating income or EBITDA. It is flagged here so that the net income number is not read as recurring profit.
The toll-gate test
A toll gate owns the record, owns the connection, prices on outcomes and spends R&D on the gate. Workday owns the employee and finance record, the most durable kind of record in enterprise software.
Pricing is the weak test. Workday charges mostly per employee.
If customers shrink headcount because agents do work, Workday's fees shrink with them.
The record test is strong. Moving an HR and payroll system is a multi-year project, and few large employers do it.
The owner-cash staircase
Start with GAAP EBITDA of $1.45B: operating income of $1.08B plus D&A of $365.00M over the twelve months [1]. Each step down the staircase removes one thing an owner cannot spend.
Step one is operating cash flow of $3.08B, above EBITDA by $1.63B. Operating cash ran far above EBITDA because stock pay is non-cash and customers pay annual subscriptions in advance [1].
Step two subtracts stock pay of $1.65B, taken from the cash flow line. That leaves $1.44B.
Stock pay is 53.42% of operating cash flow and 16.21% of revenue. It is the largest gap between adjusted and GAAP results [1].
Step three subtracts all capex of $237.00M, including capitalized software. Owner cash is $1.20B, or 11.80% of revenue and 82.62% of EBITDA.
Capex covers data centers and capitalized software. It is small relative to operating cash [1].
| Step | Twelve months | What the gap is |
|---|---|---|
| GAAP EBITDA | $1.45B | Operating income plus D&A |
| Operating cash flow | $3.08B | Working capital, cash taxes, interest and non-cash items |
| After stock pay | $1.44B | Stock pay treated as a real cost |
| After all capex | $1.20B | What an owner could take out |
Balance sheet and debt
Workday has three senior notes: $1.0B at 3.5% due 2027, now current; $750M at 3.7% due 2029; and $1.25B at 3.8% due 2032 [1]. Carrying value is $2,989M.
Cash was $661M, and cash plus marketable securities was $3,403M [1]. The EV uses cash and equivalents only, so it is conservative.
In the first six months of fiscal 2027 Workday spent $2,924M on buybacks. In August 2026 the board authorized another $4.0B [1].
The cover states there were approximately 196 million Class A and 45 million Class B shares as of Aug 25, 2026 [1]. Workday files no exact count, so the rounded figures are the filed figures.
The total of 241 million is used for EV and is flagged as rounded.
What the multiple measures
EV is $51.84B: equity value at the Oct 27, 2026 close on 241.00M cover-page shares, plus debt of $2.99B at carrying value, less cash and equivalents of $661.00M.
On GAAP EBITDA of $1.45B that is 35.75x. On operating cash flow of $3.08B it is 16.83x.
Owner cash of $1.20B is 2.31% of EV.
Net debt is $2.33B, or 1.61x GAAP EBITDA. Marketable securities of $2.74B are not counted in cash for EV.
What gets overlooked
Buybacks of $2,924M in six months are more than twice the twelve-month owner cash. Workday is drawing down its marketable securities to shrink the share count.
The 2027 notes of $1.0B come due within a year. Workday can repay them from cash and securities.
Net income of $632M in Q2 was more than twice operating income of $313M because of the tax benefit [1]. Earnings per share for the quarter overstate the run rate, and the twelve-month figure carries the same distortion.
Unearned revenue is mostly subscription prepayments: subscription services are 97% of total unearned revenue [1]. That is cash already collected for service still owed.
Product development at 28.20% of revenue is high for a company of this size. It is the cost of keeping the platform current.
Peers
The peer set is ADP, Paychex and Autodesk: payroll and HR providers plus a large subscription software company.
Peer figures come from each company's latest periodic filing [2][3][4]. Figures are derived from filed statements, and nothing here is a price view.
Workday has the highest stock pay share of revenue in the group. ADP and Paychex pay little in stock.
Bull, base and bear
| Case | What happens | What the filings would show |
|---|---|---|
| Bull | 12-month backlog keeps growing 14% and margins expand | Revenue growth near 13% and GAAP margin above 15% |
| Base | Backlog growth eases to 10% to 12% | Revenue growth near 11% |
| Bear | Agents cut customer headcount and seat counts fall | 12-month backlog growth below 8% |
The base case keeps Workday growing near the 12-month backlog rate with gradual margin gains.
The bear case is headcount. Per-employee pricing makes Workday a direct casualty of smaller workforces.
The bull case needs new products, including finance and agents, to add revenue per customer faster than headcount falls.
What to watch
Watch 12-month backlog growth in Q3. It is the best forward measure [1].
Watch stock pay against revenue. A decline below 15% would show the margin gains are reaching owners.
Watch the pace of buybacks against the new $4.0B authorization.
Watch subscription gross margin. Hosting costs grew faster than subscription revenue in Q2, and a continued squeeze would offset operating leverage elsewhere.
Watch professional services losses. They widen when Workday lands large new customers, so a bigger loss can be a sign of healthy demand.
Watch the 2027 notes. Repayment from cash would cut debt by a third and lower interest costs, and a refinancing would show where Workday can borrow.
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