What changed in this filing

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Item 1A. Risk Factors

2023-11-28 compared with 2023-08-24 · 48 added, 42 removed, 652 unchanged (12% of the section changed)

43 unchanged sentences

These problems may be caused by a variety of factors, including infrastructure and software or code changes, vendor issues, software and system defects, human error, viruses, worms, security attacks (internal and external), fraud, spikes in customer usage, and denial of service issues.

For example, in November 2023, we discovered that an issue in our product affecting certain customers resulted in document notifications being sent to unintended recipients within the same organization.

We took prompt action to stop the unintended notifications from continuing to be generated and are notifying impacted customers.

In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time.

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Our customer agreements typically provide for monthly service level commitments.

If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our applications as a result of the foregoing or otherwise, we may be contractually obligated to issue service credits or refunds to customers for prepaid and unused subscription services, our customers may make warranty or other claims against us, or we could face contract terminations, which would adversely affect our attrition rates.

If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our applications as a result of the foregoing or otherwise, we may be contractually obligated to issue service credits or refunds to customers, our customers may make warranty or other claims against us, we may choose to offer incentives to address customer satisfaction issues, or we could face contract terminations, which would adversely affect our attrition rates.

Any extended service outages could result in customer losses and adversely affect our reputation, business, and operating results.

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We host our applications and serve our customers and users from data centers operated by third parties located in the United States, Canada, and Europe.

While we control and have access to our servers and all of the components of our network that are located in these data centers, we do not control certain aspects of these facilities, including their operation and security.

The owners of these data center facilities have limited or no obligation to renew their agreements with us on commercially reasonable terms, or at all.

If we are unable to renew these agreements on commercially reasonable terms, or if any of these data center operators are acquired, cease to do business, or stop providing contracted services, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and experience possible service interruptions in connection with doing so.

In addition, we rely upon third-party hosted infrastructure partners globally, including AWS, Google LLC, and Microsoft Corporation, to serve customers and operate certain aspects of our services.

Any disruption of or interference at our hosted infrastructure partners would impact our operations and our business could be adversely impacted.

For example, in July 2022, we experienced a disruption at certain of our hosted data centers in two of our U.S.

locations due to high temperatures and power outages that resulted in a brief temporary outage of our services for a subset of our customers.

These facilities may also be subject to capacity constraints, financial difficulties, break-ins, sabotage, intentional acts of vandalism and similar misconduct, natural catastrophic events, as well as local administrative actions, changes to legal or permitting requirements, and litigation to stop, limit or delay operation.

Additionally, if these data center operators or hosted infrastructure partners are unable to keep up with our needs for capacity, this could have an adverse effect on our business.

We also rely upon third-party hosted infrastructure partners globally, including AWS, Google LLC, and Microsoft Corporation, to serve customers and operate certain aspects of our services.

While we control our applications and data, we do not control the facilities, operations, and the physical security of these locations.

Disruption of or interference at our data centers or hosted infrastructure partners has and could in the future impact our operations and our business could be adversely impacted.

For example, we have experienced disruptions at certain of our data centers in the U.S.

due to high temperatures and power outages that resulted in a brief temporary outage of our services for a subset of our customers.

Our data center and hosted infrastructure partner facilities may also be subject to capacity constraints, financial difficulties, break-ins, sabotage, intentional acts of vandalism and similar misconduct, natural catastrophic events, as well as local administrative actions, changes to legal or permitting requirements, and litigation to stop, limit or delay operation.

If these data center operators or hosted infrastructure partners that we rely on are unable to keep up with our needs for capacity or do not continue to provide commercially reasonable terms, this could have an adverse effect on our business.

Any changes in third-party service levels at these data centers or at our hosted infrastructure partners, or any errors, defects, disruptions, or other performance problems with our applications or the infrastructure on which they run, including those related to cybersecurity threats or attacks, could adversely affect our reputation and may damage our customers’ or other users’ stored files or result in lengthy interruptions in our services.

Interruptions in our services might adversely affect our reputation and operating results, cause us to issue refunds or service credits to customers for prepaid and unused subscription services, subject us to potential liabilities, result in contract terminations, or adversely affect our renewal rates.

Interruptions in our services might adversely affect our reputation and operating results, cause us to issue refunds or service credits to customers, subject us to potential liabilities, result in contract terminations, or adversely affect our renewal rates.

The extent to which the continuing global economic and geopolitical volatility, the impact of inflation on our costs and on customer spending, and measures taken in response to such events will continue to impact our business, financial condition, and operating results will depend on future developments, which are highly uncertain and difficult to predict.

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We expect there will be additional changes from time to time in our executive management team and to other key employee roles resulting from organizational changes or the hiring or departure of executives or other employees.

These changes have the potential to disrupt our business, impact our ability to preserve our culture, negatively affect our ability to attract and retain personnel, or otherwise have a serious adverse effect on our business and operating results.

To execute our growth plan, we must attract, train, and retain highly qualified personnel.

Our ability to compete and succeed in a highly competitive environment is directly correlated to our ability to recruit and retain highly skilled employees, especially in the areas of product development, cybersecurity, senior sales executives, and engineers with significant experience in designing and developing software and internet-related services, including in the areas of artificial intelligence (“AI”) and machine learning (“ML”).

These changes have the potential to disrupt our business, impact our ability to preserve our culture, negatively affect our ability to attract and retain talent, or otherwise have a serious adverse effect on our business and operating results.

To execute our growth plan, we must attract, enable, and retain highly qualified talent.

The market for skilled personnel in the software industry is very competitive, and as we are headquartered in the San Francisco Bay Area, we face intense competition among large and small organizations in the Silicon Valley market.

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In addition, the expansion of our sales infrastructure, both domestically and internationally, is necessary to grow our customer base and business.

Identifying and recruiting qualified personnel and training them in our sales methodology, our sales systems, and the use of our software requires significant time, expense, and attention.

Our business may be adversely affected if our efforts to attract and train new members of our direct sales force do not generate a corresponding increase in revenues.

We have experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications, and we may not be able to fill positions in desired geographic areas or at all.

Many of the companies with which we compete for experienced personnel have greater resources than we have and may offer more lucrative compensation packages than we offer.

Recruiting qualified talent and developing them on our sales methodology, our sales systems, and the use of our software requires significant time, expense, and attention.

Our business may be adversely affected if our efforts to attract and enable new members of our direct sales force do not generate a corresponding increase in revenues.

We have experienced, and we expect to continue to experience, significant competition in hiring and retaining employees with appropriate qualifications.

Many of the companies with which we compete for experienced talent have greater resources than we have and may offer more lucrative compensation packages than we offer.

Our business may be adversely affected if we are unable to retain our highly skilled employees, especially our senior sales executives.

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Additional factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed below:

• our ability to attract new customers, customer renewal rates, the financial condition and creditworthiness of our customers, and the timing and rate at which we sign agreements with customers;

• our ability to attract new customers, the financial condition and creditworthiness of our customers, and the timing and rate at which we sign agreements with new and existing customers;

• the addition or loss of large customers, including through acquisitions or consolidations;

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If we are unable to provide new features, enhancements to user experience, and modifications in a timely and cost-effective manner that achieve market acceptance, align with customer expectations, and that keep pace with rapid technological developments and changing regulatory landscapes, our business and operating results could be adversely affected.

For example, AI and ML are propelling advancements in technology, but if they are not widely adopted and accepted or fail to operate as expected, our business and reputation may be harmed.

For example, AI is propelling advancements in technology, but if we fail to innovate and keep up with advancements in AI technology or if Workday AI solutions fail to operate as expected, our business and reputation may be harmed.

Some of our larger customers may also require features and functions unique to their business processes that we do not currently offer.

In order to help ensure we meet these requirements, we may devote a significant amount of technology support and professional service resources to such customers.

The success of enhancements, new features, and applications depends on several factors, including their timely completion, introduction, and market acceptance as well as access to development resources and the technologies required to build and improve our applications, such as the datasets required to train our ML models.

If we are not successful in developing these new features, enhancements, modifications, and applications, and bringing them to market timely, it may negatively impact our customer renewal rates, limit the market for our solutions, or impair our ability to attract new customers.

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If we fail to generate adequate revenues from these new markets and lines of business, or if we fail to do so within the envisioned timeframe, it could have an adverse effect on our business, financial condition, and operating results.

The use of new and evolving technologies, such as AI and ML, in our offerings may result in reputational harm and liability.

We are increasingly building AI and ML into many of our offerings.

As with many cutting-edge innovations, these technologies present new risks and challenges, and existing laws and regulations may apply to us in new ways, the nature and extent of which are difficult to predict.

The risks and challenges presented by these technologies could undermine public confidence in AI and ML, which could slow its adoption and affect our business.

Many of our products are powered by AI and ML, some of which include the use of large language models and generative AI, for use cases that could potentially impact human, civil, privacy, or employment rights and dignities.

Our failure to adequately address ethical and social issues that may arise with such technologies and use cases, failure by others in our industry, or actions taken by our customers, employees, or other end users (including misuse of these technologies), could negatively affect the adoption of our solutions and subject us to reputational harm, regulatory action, or legal liability, which may harm our financial condition and operating results.

We have been subject to a lawsuit alleging that our products and services enable discrimination, and although we believe that such claims lack merit, legal proceedings can be lengthy, expensive and disruptive to our operations and the outcome of any claims or litigation, regardless of the merits, is inherently uncertain.

The use of new and evolving technologies at Workday, such as AI, in our offerings may result in reputational harm and liability.

We are increasingly building AI into Workday's core and many of our specific offerings.

As with many cutting-edge innovations, these technologies present new risks and challenges.

A quickly evolving legal and regulatory environment may cause us to incur increased research and development costs, or divert resources from other development efforts, to address social, ethical, and other issues related to AI.

Furthermore, existing laws and regulations may apply to us in new ways, the nature and extent of which are difficult to predict.

The risks and challenges presented by these technologies could undermine public confidence in AI, which could slow its adoption and affect our business.

Many of our products are powered by AI, some of which include the use of large language models and generative AI, for use cases that could potentially impact human, civil, privacy, or employment rights and dignities.

Our developers are also experimenting with the use of third-party provided large language models for domain specific use cases, and at this stage the line between developers and deployers of these technologies, and their respective responsibilities and liabilities, are unclear.

Our failure to accurately identify and address our responsibilities and liabilities in this uncertain environment, and adequately address relevant ethical and social issues that may arise with such technologies and use cases, as well as failure by others in our industry, or actions taken by our customers, employees, or end users (including misuse of these technologies), could negatively affect the adoption of our solutions and subject us to reputational harm, regulatory action, or legal liability, which may harm our financial condition and operating results.

The outcome of any claims or litigation, regardless of the merits, is inherently uncertain.

We may be subject to other litigation and regulatory actions that may cause financial, competitive, and developmental impacts.

Regardless of outcome, these types of claims could cause reputational harm to our brand or result in liability.

Additionally, a quickly evolving legal and regulatory environment may cause us to incur increased research and development costs, or divert resources from other development efforts, to address social, ethical, and other issues related to AI and ML.

For example, to demonstrate compliance with the New York City Automated Employment Decision Tools law, which took effect July 5, 2023, customers may publicly disclose information about their use of our AI and ML products, including the results of certain sensitive employment-discrimination analyses, potentially subjecting us to reputational or business harm or legal liability.

Our employees, customers, or customers’ employees who are dissatisfied with our public statements, policies, practices, or solutions related to the development and use of AI and ML may express opinions that could introduce reputational or business harm, or legal liability or cease their relationship with us.

Our employees, customers, or customers’ employees who are dissatisfied with our public statements, policies, practices, or solutions related to the development and use of AI may express opinions that could introduce reputational or business harm, or legal liability or cease their relationship with us.

Our aspirations and disclosures related to environmental, social, and governance (“ESG”) matters expose us to risks that could adversely affect our reputation and performance.

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Further, we may rely on data and calculations provided by third parties to measure and report our ESG metrics and if the data input or calculations are incorrect or incomplete, our brand, reputation, and financial performance may be adversely affected.

If our ESG practices do not meet evolving investor or other stakeholder expectations and standards, then our reputation, our ability to attract or retain employees, and our attractiveness as an investment, business partner, acquirer, or service provider could be negatively impacted.

If our ESG practices do not align with or meet evolving investor or other stakeholder expectations and standards, then our reputation, our ability to attract or retain employees, and our attractiveness as an investment, business partner, acquirer, or service provider could be negatively impacted.

Further, our failure or perceived failure to pursue or fulfill our goals and objectives or to satisfy various reporting standards on a timely basis, or at all, could have similar negative impacts or expose us to government enforcement actions and private litigation.

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The security measures we have in place may not be sufficient to protect against security risks, preserve our operations and services and the integrity of customer and personal information, and prevent data loss, misappropriation, and other security breaches.

Our logging may also not be sufficient to fully investigate the scope of an incident.

Our information systems may be compromised by computer hackers, employees, contractors, or vendors, as well as software bugs, human error, technical malfunctions, or other malfeasance.

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Failure to comply with the GDPR data processing requirements by either ourselves or our subcontractors could lead to regulatory enforcement actions, which can result in monetary penalties of up to 4% of worldwide revenue, private lawsuits, reputational damage, and loss of customers.

Other countries such as Russia, China, and India have also passed or are considering passing laws imposing varying degrees of restrictive data residency requirements.

Other countries such as Russia, China, and India have also passed laws imposing varying degrees of restrictive data residency requirements.

Regulatory developments in the United States present additional risks.

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Unfavorable laws, regulations, interpretive positions or standards governing new and evolving technologies that we incorporate into our products and services could result in significant cost and compliance challenges and adversely affect our business and operating results.

Some of our products and services, such as Workday’s People Experience and Talent Optimization product suites, currently utilize or will utilize new and evolving technologies such as AI and ML and blockchain, including a variety of ML use cases that touch our finance and spend management product suites, among others.

While existing laws and regulations may apply to these types of technologies, the overall regulatory environment governing these types of technologies is still currently undeveloped and likely to evolve as government interest in these technologies increases.

Some of our products and services, such as Workday’s People Experience, Talent Optimization, and Financial product suites, currently utilize or will utilize new and evolving technologies such as AI.

While existing laws and regulations may apply to these types of technologies, the overall regulatory environment governing these types of technologies is likely to evolve as government interest in these technologies increases.

Regulation of these technologies, as well as other technologies that we utilize in our products and services, also varies greatly among international, federal, state, and local jurisdictions and is subject to significant uncertainty.

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We may not be able to utilize a portion of our net operating loss or research tax credit carryforwards, which could adversely affect our profitability.

As of July 31, 2023, we had federal and state net operating loss carryforwards due to prior period losses.

As of October 31, 2023, we had federal and state net operating loss carryforwards due to prior period losses.

If not utilized, the pre-fiscal 2018 federal and the state net operating loss carryforwards expire in varying amounts between fiscal 2024 and fiscal 2044.

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It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our profitability.

Unanticipated tax laws or any change in the application of existing tax laws to us or our customers, especially those limiting our ability to utilize our net operating loss and research tax credit carryforwards, may increase the costs of our services and adversely impact our profitability and business.

Unanticipated tax laws or any change in the application of existing tax laws to us or our customers and unanticipated changes in our effective tax rate may adversely impact our profitability and financial results.

We operate and are subject to taxes in the United States and numerous other jurisdictions throughout the world.

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If our customers must pay additional fines or penalties, it could adversely affect demand for our services.

Significant judgment is often required in the determination of our worldwide provision for income taxes.

Our effective tax rate could be impacted by changes in the valuation of deferred tax assets and liabilities and our ability to utilize them.

We are also subject to tax examinations and while we regularly evaluate new information that may change our judgment resulting in recognition, derecognition or changes in measurement of a tax position taken, there can be no assurance that the final determination of any examinations will not have an adverse effect on our operating results or financial position.

Risks Related to Financial Matters

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Additionally, in April 2022, we entered into the 2022 Credit Agreement which provides for a revolving credit facility in an aggregate principal amount of $1.0 billion.

As of July 31, 2023, we had no outstanding revolving loans under the 2022 Credit Agreement.

As of October 31, 2023, we had no outstanding revolving loans under the 2022 Credit Agreement.

We may incur substantial additional debt in the future, some of which may be secured debt.

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Our Co-Founders have control over key decision making as a result of their control of a majority of our voting stock.

As of July 31, 2023, our Co-Founder and CEO Emeritus David Duffield, together with his affiliates, held voting rights with respect to approximately 45 million shares of Class B common stock and 0.3 million shares of Class A common stock.

As of July 31, 2023, our Co-Founder, Co-CEO, and Chairperson Aneel Bhusri, together with his affiliates, held voting rights with respect to approximately 8 million shares of Class B common stock and 0.3 million shares of Class A common stock.

As of October 31, 2023, our Co-Founder and CEO Emeritus David Duffield, together with his affiliates, held voting rights with respect to approximately 45 million shares of Class B common stock and 0.8 million shares of Class A common stock.

As of October 31, 2023, our Co-Founder, Co-CEO, and Chairperson Aneel Bhusri, together with his affiliates, held voting rights with respect to approximately 8 million shares of Class B common stock and 0.3 million shares of Class A common stock.

In addition, Mr.

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Bhusri has the ability to control the management and affairs of our company as a result of his position as a member of our Board of Directors and an officer of Workday.

Bhusri, in his capacity as a board member and officer, owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders.

Bhusri, in his capacity as a board member and officer, however, owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders.

The dual class structure of our common stock has the effect of concentrating voting control with our Co-Founders, as well as with other executive officers, directors, and affiliates, which limits or precludes the ability of non-affiliates to influence corporate matters.

Our Class B common stock has 10 votes per share and our Class A common stock, which is the stock that is publicly traded, has one vote per share.

Stockholders who hold shares of Class B common stock, including our executive officers, directors, and other affiliates, together hold a substantial majority of the voting power of our outstanding capital stock as of July 31, 2023.

Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval until the conversion of all shares of all Class A and Class B shares to a single class of common stock on the date that is the first to occur of (i) October 17, 2032, (ii) such time as the shares of Class B common stock represent less than 9% of the outstanding Class A and Class B common stock, (iii) nine months following the death of both Mr.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors