SECURITIES AND EXCHANGE COMMISSION
_____________________________________________________
_____________________________________________________
(Mark One)
☒ | | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
September 30, 2017or
March 31, 2023Or
☐ | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto Commission file
numbernumber: 001-38034
_____________________________________________________
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | |
| Delaware | | 90-0673106 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
| | |
Delaware17200 Laguna Canyon Road, | Irvine, | 90-0673106California | | 92618 |
(State or other jurisdiction of
incorporation or organization)
| | (I.R.S. Employer
Identification No.)
|
| |
3345 Michelson Drive, Suite 400, Irvine, California | | 92612 |
| (Address of principal executive offices) | | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
| Class A Common Stock, $0.0001 par value per share | | AYX | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
| Large accelerated filer | ☒ | ☐ | | Accelerated filer | | ☐ |
| | | | |
| Non-accelerated filer | ☐ | ☒ (Do not check if a smaller reporting company) | | Smaller reporting company | | ☐ |
| | | | |
| | | | Emerging growth company | | ☒☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
On
November 3, 2017,April 20, 2023, there were
23,921,91762,563,225 shares of the registrant’s Class A common stock outstanding and
35,244,3157,886,450 shares of the registrant’s Class B common stock outstanding.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended
September 30, 2017March 31, 2023
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the federal securities laws. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. In some cases, forward-looking statements can be identified by the use of terminology such as “believe,” “may,” “will,” “intend,” “expect,” “plan,” “anticipate,” “estimate,” “potential,”
“continue,” “would,” “target,” or
“continue,“project,” or other comparable terminology. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about our expectations regarding:
trends
•macroeconomic conditions, including the impacts of rising inflation, interest rates, disruptions in revenue, costaccess to bank deposits or lending commitments due to bank failures, foreign currency exchange rates, and economic uncertainty;
•our workforce reduction plan and related impacts;
•our ability to execute our long-term growth, go-to-market, and product strategies, including with respect to our cloud offerings;
•the capabilities, performance, and benefits associated with using our products and services, including the timing and speed of, revenue, and gross margin;ability to deliver, additional product innovation, including as a result of integrating acquired technology into our existing technology;
•our investments in cloud infrastructure and the cost of third-party data center hosting fees;
•trends in revenue, cost of revenue, and gross margin;
•trends in operating expenses, including research and development expense, sales and marketing expense, and general and administrative expense, and expectations regarding these expenses as a percentage of revenue;
•our ability to attract and retain personnel, particularly with respect to our direct sales force and software engineers;
•our ability to successfully integrate acquired companies, technology, and talent;
•expansion of our international operations and the impact on foreign tax expense;
•maintaining a full valuation allowance for domestic net deferred tax assets;assets to the extent they are not expected to be recoverable;
•the timing and method of settlement of any series of our convertible senior notes;
•the global opportunity for our analytics automation software platform;
•our investments in our marketing efforts and sales organization, including indirect sales channels and headcount, and the impact of any changes to our sales organization on revenue and growth;
•the continued development and success of Alteryx Community, our online user community, distribution channels, and our partner relationships, including the ability of our partners to successfully enable and deliver specialized support to our customers;
•our expectations for Alteryx Designer Cloud, Alteryx Machine Learning, Alteryx Auto Insights, Alteryx Connect, and Alteryx Intelligence Suite and other new products;
•our ability to develop or incorporate a cloud-based business model;
•our ability to manage our product lifecycle, including the discontinuation of any of our products or any acquired technology and the migration of those customers to other products that we offer;
•expansion of and within our customer base;
•competitors and competition in our markets;
•our investments in technology and companies through Alteryx Ventures;
•legal proceedings and the impact of such proceedings;
•cash and cash equivalents and short-term investments and any positive cash flows from operations being sufficient to support our working capital and capital expenditure requirements for at least the next 12 months; and
•other statements regarding our future operations, financial condition, and prospects and business strategies, or operations and talent strategies.
Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including, but not limited to, the factors set forth in this Quarterly Report on Form 10-Q under Part II, Item 1A. Risk Factors. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking statements made in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
All forward-looking statements and reasons why results may differ included in this Quarterly Report on Form 10-Q are made as of the date of the filing of this Quarterly Report on Form 10-Q, and we assume no obligation to update any such forward-looking statements or reasons why actual results may differ. The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Summary Risk Factors
The below summary of risk factors provides an overview of many of the risks we are exposed to in the normal course of our business activities. As a result, the below summary risks do not contain all of the information that may be important to you, and you should read the summary risks together with the more detailed discussion of risks set forth following this section under the heading “Risk Factors,” as well as elsewhere in this Quarterly Report on Form 10-Q.Additional risks, beyond those summarized below or discussed elsewhere in this Quarterly Report on Form 10-Q, may apply to our activities or operations as currently conducted or as we may conduct them in the future or in the markets in which we operate or may in the future operate. Consistent with the foregoing, we are exposed to a variety of risks, including risks associated with the following:
Risks Related to Our Business and Industry
•We have incurred net losses in the past, anticipate continuing to incur significant operating expenses in the future, and may not achieve or sustain profitability.
•Volatile and significantly weakened global economic conditions have in the past and may in the future adversely affect our industry, business, and results of operations.
•If we are unable to develop, release, and gain market acceptance of product and service enhancements and new products and services to respond to rapid technological change in a timely and cost-effective manner, or if we are unable to develop a successful business model to sell those products and services we have acquired or integrate them into our existing products and services, our business, operating results, and financial condition could be adversely affected.
•We derive a large portion of our revenue from our software platform, and our future growth is dependent on its success.
•We have grown rapidly in our recent past and if we are unable to manage our growth effectively, our business, operating results, and financial condition could be adversely affected.
•Acquisitions of, or investments in, other companies, products, or technologies have required, and could continue to require, significant management attention and could disrupt our business, dilute stockholder value, and adversely affect our operating results.
•If we are unable to attract new customers, expand sales to existing customers, both domestically and internationally, or maintain the subscription amount or subscription term of renewing customers, our revenue growth could be slower than we expect or our revenue may decline and our business may be harmed.
•We use channel partners and if we are unable to establish and maintain successful relationships with them, our business, operating results, and financial condition could be adversely affected.
•We face intense and increasing competition, and we may not be able to compete effectively, which could reduce demand for our platform and adversely affect our business, revenue growth, and market share.
•If the market for analytics products and services fails to grow as we expect, or if businesses fail to adopt our platform, our business, operating results, and financial condition could be adversely affected.
•The competitive position of our software platform depends in part on its ability to operate with third-party products and services, and if we are not successful in maintaining and expanding the compatibility of our platform with such third-party products and services, our business, financial position, and operating results could be adversely impacted.
•We depend on technology and data licensed to us by third parties that may be difficult to replace or cause errors or failures that may impair or delay implementation of our products and services or force us to pay higher license fees.
•As we continue to pursue sales to large enterprises, our sales cycle, forecasting processes, and deployment processes may become more unpredictable and require greater time and expense.
•Our long-term success depends, in part, on our ability to expand the licensing of our software platform to customers located outside of the United States and our current, and any further, expansion of our international operations exposes us to risks that could have a material adverse effect on our business, operating results, and financial condition.
•If we fail to develop, maintain, and enhance our brand and reputation cost-effectively, our business and financial condition may be adversely affected.
•Our sales are generally more heavily weighted toward the end of each quarter which could cause our billings and revenue to fall below expected levels.
•Our operating results may fluctuate from quarter to quarter, which makes our future results difficult to predict.
•Over the past several years, we have undergone, and may continue to experience, changes to our senior management team and if we are unable to integrate new members of our senior management team, or if we lose the services of any of our senior management or other key personnel, our business, operating results, and financial condition could be adversely affected.
Risks Related to Information Technology, Intellectual Property, and Data Security and Privacy
•We have experienced, and may in the future experience, security breaches and if unauthorized parties obtain access to our customers’ data, our data, or our platform, networks, or other systems, our platform may be perceived as not being secure, our reputation may be harmed, demand for our platform may be reduced, our operations may be disrupted, we may incur significant legal liabilities, and our business could be materially adversely affected.
•Cybersecurity risks and cyber incidents could result in the compromise of confidential data or critical data systems and give rise to potential harm to customers, remediation and other expenses under consumer protection laws or other laws or common law theories, subject us to litigation and federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to our business and operations.
•Business disruptions or performance problems associated with our technology and infrastructure, including interruptions, delays, or failures in service from our third-party data center hosting facility and other third-party services, could adversely affect our operating results or result in a material weakness in our internal controls.
•Failure to protect our intellectual property could adversely affect our business.
Risks Related to Legal, Regulatory, Accounting, and Tax Matters
•Current and future litigation could have a material adverse impact on our operating results and financial condition.
•We may require additional capital to fund our business and support our growth, and any inability to generate or obtain such capital may adversely affect our operating results and financial condition.
Risks Related to Our Notes
•We have a substantial amount of indebtedness which could adversely affect our financial condition and prevent us from fulfilling our obligations under our Notes,
•We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our Notes, which would materially and adversely affect our financial position and results of operations and our ability to satisfy our obligations under our Notes.
Risks Related to Ownership of Our Class A Common Stock
•The market price of our Class A common stock has been, and will likely continue to be, volatile, and you could lose all or part of the value of your investment.
•The dual class structure of our common stock has the effect of concentrating voting control with holders of our Class B common stock, including our directors, executive officers, and 5% stockholders and their affiliates, which limits or precludes your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited).
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
(unaudited)
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| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Revenue | | $ | 34,155 | | | $ | 22,462 | | | $ | 93,019 | | | $ | 60,828 | |
Cost of revenue | | | 5,425 | | | | 4,062 | | | | 15,545 | | | | 11,727 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 28,730 | | | | 18,400 | | | | 77,474 | | | | 49,101 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development | | | 7,774 | | | | 4,496 | | | | 20,943 | | | | 12,419 | |
Sales and marketing | | | 15,514 | | | | 13,456 | | | | 48,731 | | | | 42,530 | |
General and administrative | | | 8,005 | | | | 4,298 | | | | 24,115 | | | | 11,623 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 31,293 | | | | 22,250 | | | | 93,789 | | | | 66,572 | |
| | | | | | | | | | | | | | | | |
Loss from operations | | | (2,563 | ) | | | (3,850 | ) | | | (16,315 | ) | | | (17,471 | ) |
Other expense, net | | | (711 | ) | | | (284 | ) | | | (277 | ) | | | (562 | ) |
| | | | | | | | | | | | | | | | |
Loss before provision for (benefit of) income taxes | | | (3,274 | ) | | | (4,134 | ) | | | (16,592 | ) | | | (18,033 | ) |
Provisions for (benefit of) income taxes | | | 25 | | | | 58 | | | | (632 | ) | | | 148 | |
| | | | | | | | | | | | | | | | |
Net loss | | $ | (3,299 | ) | | $ | (4,192 | ) | | $ | (15,960 | ) | | $ | (18,181 | ) |
| | | | | | | | | | | | | | | | |
Less: Accretion of Series A redeemable convertible preferred stock | | | — | | | | (1,733 | ) | | | (1,983 | ) | | | (4,466 | ) |
| | | | | | | | | | | | | | | | |
Net loss attributable to common stockholders | | $ | (3,299 | ) | | $ | (5,925 | ) | | $ | (17,943 | ) | | $ | (22,647 | ) |
| | | | | | | | | | | | | | | | |
Net loss per share attributable to common stockholders, basic and diluted | | $ | (0.06 | ) | | $ | (0.18 | ) | | $ | (0.35 | ) | | $ | (0.70 | ) |
| | | | | | | | | | | | | | | | |
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted | | | 58,942 | | | | 32,538 | | | | 50,864 | | | | 32,390 | |
| | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | |
Net unrealized holding gain (loss) on investments, net of tax | | | (15 | ) | | | (9 | ) | | | (101 | ) | | | 75 | |
Foreign currency translation adjustments, net of tax | | | (40 | ) | | | — | | | | (148 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | (55 | ) | | | (9 | ) | | | (249 | ) | | | 75 | |
| | | | | | | | | | | | | | | | |
Total comprehensive loss | | $ | (3,354 | ) | | $ | (4,201 | ) | | $ | (16,209 | ) | | $ | (18,106 | ) |
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| | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| Revenue: | | | | | | | |
| Subscription-based software license | $ | 91,528 | | | $ | 63,089 | | | | | |
| PCS and services | 107,559 | | | 94,852 | | | | | |
| Total revenue | 199,087 | | | 157,941 | | | | | |
| Cost of revenue: | | | | | | | |
| Subscription-based software license | 1,955 | | | 2,102 | | | | | |
| PCS and services | 28,570 | | | 22,139 | | | | | |
| Total cost of revenue | 30,525 | | | 24,241 | | | | | |
| Gross profit | 168,562 | | | 133,700 | | | | | |
| Operating expenses: | | | | | | | |
| Research and development | 58,741 | | | 50,150 | | | | | |
| Sales and marketing | 150,817 | | | 115,610 | | | | | |
| General and administrative | 47,195 | | | 59,440 | | | | | |
| Impairment of long-lived assets | — | | | 8,239 | | | | | |
| Total operating expenses | 256,753 | | | 233,439 | | | | | |
| Loss from operations | (88,191) | | | (99,739) | | | | | |
| Interest expense | (5,229) | | | (2,390) | | | | | |
| Other income (expense), net | 6,960 | | | (1,950) | | | | | |
| | | | | | | |
| Loss before provision for income taxes | (86,460) | | | (104,079) | | | | | |
| Provision for income taxes | 2,575 | | | 1,488 | | | | | |
| Net loss | $ | (89,035) | | | $ | (105,567) | | | | | |
| Net loss per share attributable to common stockholders, basic | $ | (1.27) | | | $ | (1.56) | | | | | |
| Net loss per share attributable to common stockholders, diluted | $ | (1.27) | | | $ | (1.56) | | | | | |
| Weighted-average shares used to compute net loss per share attributable to common stockholders, basic | 69,874 | | | 67,826 | | | | | |
| Weighted-average shares used to compute net loss per share attributable to common stockholders, diluted | 69,874 | | | 67,826 | | | | | |
| Other comprehensive income (loss), net of tax: | | | | | | | |
| Net unrealized holding gain (loss) on investments, net of tax | 1,856 | | | (2,151) | | | | | |
| Foreign currency translation adjustments, net of tax | (3,808) | | | 2,180 | | | | | |
| Other comprehensive income (loss), net of tax | (1,952) | | | 29 | | | | | |
| Total comprehensive loss | $ | (90,987) | | | $ | (105,538) | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements
Condensed Consolidated Balance Sheets
(in thousands, except par value)
(unaudited)
| | | | | | | | |
| | | September 30,
2017 | | | December 31,
2016 | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 95,776 | | | $ | 31,306 | |
Short-term investments | | | 60,812 | | | | 21,394 | |
Accounts receivable, net | | | 30,820 | | | | 35,367 | |
Deferred commissions | | | 6,700 | | | | 7,358 | |
Prepaid expenses and other current assets | | | 6,211 | | | | 5,013 | |
| | | | | | | | |
Total current assets | | | 200,319 | | | | 100,438 | |
Property and equipment, net | | | 6,913 | | | | 6,212 | |
Long-term investments | | | 25,989 | | | | — | |
Goodwill | | | 8,741 | | | | — | |
Intangible assets, net | | | 8,456 | | | | — | |
Other assets | | | 3,928 | | | | 4,765 | |
| | | | | | | | |
Total assets | | $ | 254,346 | | | $ | 111,415 | |
| | | | | | | | |
Liabilities, Redeemable Convertible Preferred Stock, and Stockholders’ Equity (Deficit) | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 4,014 | | | $ | 1,780 | |
Accrued payroll and payroll related liabilities | | | 6,108 | | | | 7,760 | |
Accrued expenses and other current liabilities | | | 8,063 | | | | 4,987 | |
Deferred revenue | | | 78,656 | | | | 71,050 | |
| | | | | | | | |
Total current liabilities | | | 96,841 | | | | 85,577 | |
Deferred revenue | | | 3,522 | | | | 3,084 | |
Other liabilities | | | 2,531 | | | | 1,182 | |
| | | | | | | | |
Total liabilities | | | 102,894 | | | | 89,843 | |
| | | | | | | | |
Commitments and contingencies (Note 8) | | | | | | | | |
Redeemable convertible preferred stock, $0.0001 par value: no shares and 14,899 shares authorized as of September 30, 2017 and December 31, 2016, respectively; no shares and 14,647 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively; aggregate liquidation preference of $0 and $87,448 as of September 30, 2017 and December 31, 2016, respectively | | | — | | | | 99,182 | |
Stockholders’ equity (deficit): | | | | | | | | |
Preferred stock, $0.0001 par value: 10,000 and no shares authorized as of September 30, 2017 and December 31, 2016, respectively; no shares issued and outstanding as of September 30, 2017 and December 31, 2016 | | | — | | | | — | |
Common stock, $0.0001 par value: 1,000,000 and 56,025 shares authorized as of September 30, 2017 and December 31, 2016, respectively; 59,142 and 32,674 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | | | 5 | | | | 3 | |
Additional paid-in capital | | | 253,712 | | | | 8,443 | |
Accumulated deficit | | | (102,007 | ) | | | (86,047 | ) |
Accumulated other comprehensive loss | | | (258 | ) | | | (9 | ) |
| | | | | | | | |
Total stockholders’ equity (deficit) | | | 151,452 | | | | (77,610 | ) |
| | | | | | | | |
Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit) | | $ | 254,346 | | | $ | 111,415 | |
| | | | | | | | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 593,491 | | | $ | 104,751 | |
| Short-term investments | 207,534 | | | 237,040 | |
| Accounts receivable, net | 94,773 | | | 259,590 | |
| Prepaid expenses and other current assets | 159,949 | | | 145,767 | |
| | | |
| Total current assets | 1,055,747 | | | 747,148 | |
| Property and equipment, net | 69,821 | | | 69,157 | |
| Operating lease right-of-use assets | 49,878 | | | 50,997 | |
| Long-term investments | 84,043 | | | 90,184 | |
| Goodwill | 397,825 | | | 398,091 | |
| Intangible assets, net | 57,171 | | | 60,901 | |
| | | |
| Other assets | 134,911 | | | 140,806 | |
| Total assets | $ | 1,849,396 | | | $ | 1,557,284 | |
| Liabilities and Stockholders’ Equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 11,303 | | | $ | 13,883 | |
| Accrued payroll and payroll related liabilities | 57,675 | | | 81,206 | |
| Accrued expenses and other current liabilities | 50,695 | | | 56,592 | |
| Deferred revenue | 212,458 | | | 276,160 | |
| Convertible senior notes, net | 82,679 | | | 84,571 | |
| Total current liabilities | 414,810 | | | 512,412 | |
| Long-term debt, net | 1,234,252 | | | 792,921 | |
| | | |
| Operating lease liabilities | 58,318 | | | 61,265 | |
| Other liabilities | 16,834 | | | 17,030 | |
| | | |
| Total liabilities | 1,724,214 | | | 1,383,628 | |
| Commitments and contingencies (Note 10) | | | |
| Stockholders’ equity: | | | |
| Preferred stock, $0.0001 par value: 10,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; no shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | — | | | — | |
| Common stock, $0.0001 par value: 500,000 Class A shares authorized, 62,541 and 61,616 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively; 500,000 Class B shares authorized, 7,886 and 7,886 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | 8 | | | 7 | |
| Additional paid-in capital | 664,946 | | | 622,434 | |
| Accumulated deficit | (532,194) | | | (443,159) | |
| Accumulated other comprehensive loss | (7,578) | | | (5,626) | |
| Total stockholders’ equity | 125,182 | | | 173,656 | |
| Total liabilities and stockholders’ equity | $ | 1,849,396 | | | $ | 1,557,284 | |
The accompanying notes are an integral part of these condensed consolidated financial statements
Condensed Consolidated Statements of
Redeemable Convertible Preferred Stock and Stockholders’ Equity
(Deficit)
(unaudited)
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| | | | | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | Redeemable Convertible | | | | | | | | | Additional | | | | | | Other | | | | |
| | | Preferred Stock | | | Common Stock | | | Paid-in | | | Accumulated | | | Comprehensive | | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Loss | | | Total | |
Balances at December 31, 2016 | | | 14,647 | | | $ | 99,182 | | | | 32,674 | | | $ | 3 | | | $ | 8,443 | | | $ | (86,047 | ) | | $ | (9 | ) | | $ | (77,610 | ) |
Issuance of common stock, net of issuance costs of $3,344 | | | — | | | | — | | | | 10,350 | | | | 1 | | | | 131,412 | | | | — | | | | — | | | | 131,413 | |
Accretion of Series A redeemable convertible preferred stock issuance costs and redemption feature | | | — | | | | 1,983 | | | | — | | | | — | | | | (1,983 | ) | | | — | | | | — | | | | (1,983 | ) |
Conversion of redeemable convertible preferred stock to common stock | | | (14,647 | ) | | | (101,165 | ) | | | 14,647 | | | | 1 | | | | 101,164 | | | | — | | | | — | | | | 101,165 | |
Equity issued in business combination | | | — | | | | — | | | | 265 | | | | — | | | | 5,285 | | | | | | | | | | | | 5,285 | |
Shares issued pursuant to stock awards | | | — | | | | — | | | | 1,194 | | | | — | | | | 2,562 | | | | — | | | | — | | | | 2,562 | |
Stock-based compensation | | | — | | | | — | | | | — | | | | — | | | | 6,454 | | | | — | | | | — | | | | 6,454 | |
Equity settled contingent consideration | | | — | | | | — | | | | 12 | | | | — | | | | 375 | | | | — | | | | — | | | | 375 | |
Cumulative translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (148 | ) | | | (148 | ) |
Unrealized loss on investments | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (101 | ) | | | (101 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (15,960 | ) | | | — | | | | (15,960 | ) |
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Balances at September 30, 2017 | | | — | | | $ | — | | | | 59,142 | | | $ | 5 | | | $ | 253,712 | | | $ | (102,007 | ) | | $ | (258 | ) | | $ | 151,452 | |
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| | | | | Three Months Ended March 31, 2023 |
| | | | Common Stock | | Additional
Paid-in
Capital | | Accumulated Deficit | | Accumulated
Other
Comprehensive
Loss | | Total |
| | | Shares | | Amount | |
| Balances at December 31, 2022 | | | | | 69,502 | | | $ | 7 | | | $ | 622,434 | | | $ | (443,159) | | | $ | (5,626) | | | $ | 173,656 | |
| Shares issued pursuant to restricted stock unit awards, net of tax withholdings related to vesting of restricted stock units | | | | | 767 | | | — | | | (27,164) | | | — | | | — | | | (27,164) | |
| Exercise of stock options and issuance of shares in connection with employee stock purchase plan | | | | | 159 | | | 1 | | | 8,729 | | | — | | | — | | | 8,730 | |
| Stock-based compensation | | | | | — | | | — | | | 60,950 | | | — | | | — | | | 60,950 | |
| Extinguishment of capped calls | | | | | (10) | | | — | | | — | | | — | | | — | | | — | |
| Conversion of 2023 Notes, net of tax | | | | | 9 | | | — | | | (3) | | | — | | | — | | | (3) | |
| Cumulative translation adjustment | | | | | — | | | — | | | — | | | — | | | (3,808) | | | (3,808) | |
| Unrealized gain on investments, net of tax | | | | | — | | | — | | | — | | | — | | | 1,856 | | | 1,856 | |
| Net loss | | | | | — | | | — | | | — | | | (89,035) | | | — | | | (89,035) | |
| Balances at March 31, 2023 | | | | | 70,427 | | | $ | 8 | | | $ | 664,946 | | | $ | (532,194) | | | $ | (7,578) | | | $ | 125,182 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements
Condensed Consolidated Statements of
Cash FlowsStockholders’ Equity (continued)
(unaudited)
| | | | | | | | |
| | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | |
Cash flows from operating activities: | | | | | | | | |
Net loss | | $ | (15,960 | ) | | $ | (18,181 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | | |
Depreciation and amortization | | | 2,670 | | | | 1,182 | |
Stock-based compensation | | | 6,454 | | | | 2,334 | |
Provision for doubtful accounts and sales reserve, net of recoveries | | | 770 | | | | (36 | ) |
Deferred income taxes | | | (1,138 | ) | | | — | |
Impairment of long-lived assets | | | 1,050 | | | | — | |
Change in fair value of contingent consideration | | | 190 | | | | — | |
Loss on disposal of assets | | | 32 | | | | 56 | |
Changes in operating assets and liabilities, net of effect of business acquisitions: | | | | | | | | |
Accounts receivable | | | 3,892 | | | | (3,342 | ) |
Deferred commissions | | | 827 | | | | 249 | |
Prepaid expenses and other current assets and other assets | | | (2,229 | ) | | | (1,209 | ) |
Accounts payable | | | 1,720 | | | | 2,646 | |
Accrued payroll and payroll related liabilities | | | (1,667 | ) | | | (2,357 | ) |
Accrued expenses and other current liabilities | | | 1,470 | | | | (241 | ) |
Deferred revenue | | | 8,071 | | | | 8,430 | |
Other liabilities | | | 288 | | | | 1,343 | |
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Net cash provided by (used in) operating activities | | | 6,440 | | | | (9,126 | ) |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Purchases of property and equipment | | | (2,303 | ) | | | (3,454 | ) |
Cash paid in business acquisitions, net of cash acquired | | | (9,097 | ) | | | — | |
Purchases of investments | | | (87,551 | ) | | | (5,706 | ) |
Maturities of investments | | | 21,768 | | | | 11,382 | |
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Net cash provided by (used in) investing activities | | | (77,183 | ) | | | 2,222 | |
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Cash flows from financing activities: | | | | | | | | |
Proceeds from initial public offering, net of underwriting commissions and discounts | | | 134,757 | | | | — | |
Payment of initial public offering costs | | | (1,867 | ) | | | (68 | ) |
Payment of Series C convertible preferred stock issuance costs | | | — | | | | (350 | ) |
Repurchase of common stock, net of costs paid | | | — | | | | (256 | ) |
Principal payments on capital lease obligations | | | (247 | ) | | | (165 | ) |
Proceeds from exercise of stock options | | | 2,562 | | | | 270 | |
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Net cash provided by (used in) financing activities | | | 135,205 | | | | (569 | ) |
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Effect of exchange rate changes on cash | | | 8 | | | | — | |
Net increase (decrease) in cash and cash equivalents | | | 64,470 | | | | (7,473 | ) |
Cash and cash equivalents—beginning of period | | | 31,306 | | | | 24,779 | |
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Cash and cash equivalents—end of period | | $ | 95,776 | | | $ | 17,306 | |
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| | | | | Three Months Ended March 31, 2022 |
| | | | Common Stock | | Additional
Paid-in
Capital | | Accumulated Deficit | | Accumulated
Other
Comprehensive Loss | | Total |
| | | Shares | | Amount | |
| Balances at December 31, 2021 | | | | | 67,534 | | | $ | 7 | | | $ | 598,710 | | | $ | (190,429) | | | $ | (5,534) | | | $ | 402,754 | |
| Adoption of ASU 2020-06 | | | | | — | | | — | | | (176,964) | | | 65,769 | | | — | | | (111,195) | |
| Shares issued pursuant to restricted stock unit awards, net of tax withholdings related to vesting of restricted stock units | | | | | 434 | | | — | | | (14,126) | | | — | | | — | | | (14,126) | |
| Exercise of stock options and issuance of shares in connection with employee stock purchase plan | | | | | 160 | | | — | | | 4,741 | | | — | | | — | | | 4,741 | |
| Stock-based compensation | | | | | — | | | — | | | 53,957 | | | — | | | — | | | 53,957 | |
| Cumulative translation adjustment | | | | | — | | | — | | | — | | | — | | | 2,180 | | | 2,180 | |
| Unrealized loss on investments, net of tax | | | | | — | | | — | | | — | | | — | | | (2,151) | | | (2,151) | |
| Net loss | | | | | — | | | — | | | — | | | (105,567) | | | — | | | (105,567) | |
| Balances at March 31, 2022 | | | | | 68,128 | | | $ | 7 | | | $ | 466,318 | | | $ | (230,227) | | | $ | (5,505) | | | $ | 230,593 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements
Condensed Consolidated Statements of Cash Flows
(continued)
(unaudited)
| | | | | | | | |
| | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | |
Supplemental disclosure of noncash investing and financing activities: | | | | | | | | |
Property and equipment recorded in accounts payable | | $ | 26 | | | $ | 108 | |
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Consideration for business acquisition initially included in accrued expenses and other current liabilities and other liabilities | | $ | 1,660 | | | $ | — | |
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Consideration for business acquisition from issuance of common stock | | $ | 5,285 | | | $ | — | |
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Contingent consideration settled through issuance of common stock | | $ | 375 | | | $ | — | |
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Accretion of Series A redeemable convertible preferred stock | | $ | 1,983 | | | $ | 4,466 | |
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Deferred initial public offering costs recorded in accounts payable and accrued expenses | | $ | 529 | | | $ | 329 | |
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Property and equipment funded by capital lease borrowing | | $ | — | | | $ | 987 | |
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Conversion of Series A redeemable convertible preferred stock to common shares | | $ | 101,165 | | | $ | — | |
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| | Three Months Ended March 31, |
| | 2023 | | 2022 |
| Cash flows from operating activities: | | | |
| Net loss | $ | (89,035) | | | $ | (105,567) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
| Depreciation and amortization | 8,975 | | | 7,389 | |
| Non-cash operating lease cost | 3,141 | | | 5,152 | |
| Stock-based compensation | 57,473 | | | 45,162 | |
| Amortization (accretion) of discounts and premiums on investments, net | (941) | | | 477 | |
| Amortization of debt discount and issuance costs | 892 | | | 780 | |
| Deferred income taxes | 1,218 | | | 360 | |
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| Impairment of long-lived assets | — | | | 8,239 | |
| Other non-cash operating activities, net | (2,892) | | | 4,649 | |
| Changes in operating assets and liabilities, net of effect of business acquisitions: | | | |
| Accounts receivable | 166,098 | | | 120,727 | |
| Deferred commissions | 1,014 | | | 1,281 | |
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| Prepaid expenses, other current assets, and other assets | (3,817) | | | (9,516) | |
| Accounts payable | (2,818) | | | 1,854 | |
| Accrued payroll and payroll related liabilities | (22,950) | | | (26,391) | |
| Accrued expenses, other current liabilities, operating lease liabilities, and other liabilities | (13,303) | | | (7,860) | |
| Deferred revenue | (63,099) | | | (37,918) | |
| Net cash provided by operating activities | 39,956 | | | 8,818 | |
| Cash flows from investing activities: | | | |
| Capitalized software development costs | (6,214) | | | (2,672) | |
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| Purchases of property and equipment | (1,136) | | | (6,629) | |
| Cash paid in acquisitions, net of cash acquired | — | | | (389,769) | |
| Purchases of investments | (52,681) | | | (38,106) | |
| Sales and maturities of investments | 84,720 | | | 433,190 | |
| Net cash provided by (used in) investing activities | 24,689 | | | (3,986) | |
| Cash flows from financing activities: | | | |
| Proceeds from issuance of senior notes, net of issuance costs | 441,749 | | | — | |
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| Principal payments on 2023 convertible senior notes | (2,000) | | | — | |
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| Proceeds from exercise of stock options and issuance of shares from employee stock purchase plan | 8,730 | | | 4,741 | |
| Minimum tax withholding paid on behalf of employees for restricted stock units | (27,164) | | | (14,126) | |
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| Net cash provided by (used in) financing activities | 421,315 | | | (9,385) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 399 | | | (684) | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 486,359 | | | (5,237) | |
| Cash, cash equivalents and restricted cash—beginning of period | 109,451 | | | 154,623 | |
| Cash, cash equivalents and restricted cash—end of period | $ | 595,810 | | | $ | 149,386 | |
The accompanying notes are an integral part of these condensed consolidated financial statements
Condensed Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
| | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | 2023 | | 2022 |
| Supplemental disclosure of cash flow information: | | | | |
| Cash paid for interest | | $ | 3,000 | | | $ | 3,000 | |
| Cash paid for income taxes | | $ | 1,003 | | | $ | 1,110 | |
| Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 6,075 | | | $ | 7,027 | |
| Supplemental disclosure of noncash investing and financing activities: | | | | |
| Property and equipment recorded in accounts payable and accrued expenses and other current liabilities | | $ | 876 | | | $ | 6,277 | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | | $ | — | | | $ | 2,727 | |
| Stock-based compensation included in capitalized software development costs | | $ | 1,535 | | | $ | 611 | |
| Commissions paid with Class A common stock | | $ | 2,709 | | | $ | 8,455 | |
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| Debt issuance costs recorded in accrued expenses and other current liabilities | | $ | 1,207 | | | $ | — | |
The accompanying notes are an integral part of these condensed consolidated financial statements
Alteryx, Inc.
Notes to Condensed Consolidated Financial Statements
Alteryx, Inc. and its subsidiaries, or we, our, or us, are
a leading providerheadquartered in Irvine, California. The Alteryx Analytics Automation Platform empowers “analytics for all” by delivering easy, end-to-end automation of
self-servicedata engineering, analytics, reporting, machine learning, and data science processes, enabling enterprises to democratize data analytics
software. Our software platform enablesacross their organizations
to dramatically improve business outcomes and the productivityfor a broad range of
their business analysts. Our subscription-based platform allows organizations to easily prepare, blend, and analyze data from a multitude of sources and more quickly benefit from data-driven decisions. The ease-of-use, speed, and sophistication that our platform provides is enhanced through intuitive and highly repeatable visual workflows. We aim to make our platform as ubiquitoususe cases. Whether working in the
workplace as spreadsheetscloud or on-premise, data workers, regardless of technical acumen, are
today.Initial Public Offeringempowered to be curious and Follow-on Public Offering
In March 2017, we completed an initial public offering, or IPO,solve problems. With the Alteryx Analytics Automation Platform, users can automate the full range of our Class A common stock. In connection with the IPO, we sold 10.4 million shares of Class A common stock, which included the exercise in full of the underwriters’ optionanalytics and data science processes, embed intelligent decision-making and actions, and empower their organization to purchase an additional 1.4 million shares in April 2017, at $14.00 per share for aggregate net proceeds of $131.4 million after underwriting discountsenable top and commissionsbottom-line impact, efficiency gains, and offering expenses. Prior to the closing of the IPO, all shares of common stock then outstanding were reclassified as Class B common stock and all shares of our then outstanding convertible preferred stock held prior to the IPO were converted into Class B common stock. See Note 6 for further discussion of our Class A and Class B common stock.
In September 2017, we completed a follow-on public offering in which a total of 8.0 million shares of our Class A common stock (issued upon automatic conversion of shares of our Class B common stock) were sold by certain selling stockholders at a price of $21.25 per share. We did not receive any proceeds from the sale of shares of our Class A common stock by the selling stockholders and we incurred offering costs of $0.7 million in the three and nine months ended September 30, 2017 in connection with this offering. These costs are included in general and administrative expense in our condensed consolidated statement of operations and comprehensive loss.
As of September 30, 2017, we had 21.1 million and 38.0 million shares of Class A common stock and Class B common stock issued and outstanding, respectively.
rapid upskilling.
Basis of Presentation
Our interim
The accompanying unaudited condensed consolidated financial statements, are presentedwhich include the accounts of Alteryx, Inc. and its subsidiaries, have been prepared in accordanceconformity with accounting standardsprinciples generally accepted in the United States of America, or U.S. GAAP, for interim financial information.periods. Certain information and disclosures normally included in consolidated financial statements presented in accordance with U.S. GAAP have been condensed or omitted. Certain reclassifications have been made to the fiscal year 2022 condensed consolidated financial statements to conform to the fiscal year 2023 presentation. The reclassifications had no impact on comprehensive loss, total assets, total liabilities, or stockholders’ equity. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2016 included in our final prospectus related to our IPO dated March 23, 2017,2022, or the Prospectus,Annual Report, filed with the Securities and Exchange Commission, or SEC, pursuant to Rule 424(b) underon February 10, 2023. All intercompany accounts and transactions have been eliminated in consolidation.
In the
Securities Actopinion of
1933, as amended, ormanagement, the
Securities Act. Theaccompanying unaudited
interim condensed consolidated financial statements
have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and reflect all
adjustments which are, in the opinion of our management, of a normal recurring
natureadjustments that are necessary to state fairly the financial position, results of operations, comprehensive loss, and
necessary for a fair statement of the condensed consolidated financial statements.The operating resultscash flows for the three and nine months ended September 30, 2017interim periods, but are not necessarily indicative of the results expectedof operations to be anticipated for the full fiscal year ending December 31, 2017.
2023.
2. Significant Accounting Policies
There
Other than as described below, there have been no changes to our accounting policies disclosed in our audited consolidated financial statements and the related notes for the year ended December 31,
2016 included in our Prospectus. As a result of business combinations made during the nine months ended September 30, 2017 (see Note 3), we have included our accounting policies relating to business combinations, intangible assets, and goodwill below.Correction of an Error
In the course of preparing our consolidated financial statements as of and for the year ended December 31, 2016, we identified an error related to the improper calculation of royalty expense during the year ended December 31, 2016 associated with licensed third-party syndicated data. We have determined that the error was not material to our interim unaudited consolidated financial statements as of September 30, 2016, and for the three and nine months then ended. The correction of this error resulted in a revision which increased cost of revenue, loss from operations, net loss, and comprehensive loss by $0.3 million and $1.1 million for the three and nine months ended September 30, 2016, respectively, and decreased prepaid expenses and other current assets and total assets, and increased accumulated deficit by $1.1 million as of September 30, 2016.
For the nine months ended September 30, 2016, the revision increased cost of revenue from $10.6 million to $11.7 million, loss from operations from $16.4 million to $17.5 million, loss before provision for income taxes from $16.9 million to $18.0 million, net loss from $17.1 million to $18.2 million, and comprehensive loss from $17.0 million to $18.1 million. Net loss per share attributable to common stockholders, basic and diluted, increased by $0.04 from $0.66 to $0.70 for the nine months ended September 30, 2016.
2022.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and assumptions.
On an ongoing basis, our management evaluates
these estimates and assumptions,
basedincluding those related to determination of standalone selling prices of our products and services, income tax valuations, stock-based compensation, and goodwill and intangible assets valuations and recoverability. We base our estimates on historical data and experience, as well as various other factors that our management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities.
Business Combinations
The results
Recent Accounting Pronouncements
There have been no recent accounting pronouncements, changes in accounting pronouncements, or recently adopted accounting guidance during the three months ended March 31, 2023 that are of businesses acquiredsignificance or potential significance to us.
3. Revenue
Revenue related to our subscription-based software licenses is recognized at a point in
a business combination are included in our condensed consolidated financial statements fromtime when the
date of the acquisition. We allocated the purchase price, including the fair value of any non-cash and contingent consideration,platform is first made available to the
identifiable assets and liabilities of the relevant acquired business at their acquisition date fair values. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.Contingent consideration payable in cashcustomer, or a fixed dollar amount settleable in a variable number of shares is classified as a liability and recorded at fair value, with changes in fair value recorded in general and administrative expenses each period. Transaction costs associated with business combinations are expensed as incurred, and are included in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.
We perform valuations of assets acquired, liabilities assumed, and contingent consideration and allocate the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired, liabilities assumed, and contingent consideration requires us to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, the probability of the achievement of specified milestones, and selection of comparable companies. We engage the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired, liabilities assumed, and contingent consideration in a business combination.
Intangible Assets
Intangible assets consist of acquired developed technology. We determine the appropriate useful life of our intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized over their estimated useful lives of three to seven years, using the straight-line method, which approximates the pattern in which the economic benefits are consumed.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. We test goodwill for impairment in accordance with the provisions of Accounting Standards Codification, or ASC, 350,Intangibles – Goodwill and Other. Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired. Events or changes in circumstances which could trigger an impairment review include a significant adverse change in legal factors or in the business climate, unanticipated competition, loss of key personnel, significant changes in the use of the acquired assets or our strategy, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.
ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform the first of a two-step impairment test.
The first step involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then the carrying amount of the goodwill is compared with its implied fair value. The estimate of implied fair value of goodwill may require valuations of certain internally generated and unrecognized intangible assets. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.
We have one reporting unit and we test for goodwill impairment annually during the fourth quarter of each calendar year.
Variable Interest Entities
In accordance with ASC 810,Consolidation, the applicable accounting guidance for the consolidation of variable interest entities, or VIEs, we analyze our interests to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. VIEs are generally entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions through voting rights and a right to receive the expected residual returns of the entity or an obligation to absorb the expected losses of the entity). If we determine that the entity is a VIE, we then assess if we must consolidate the VIE. We deem ourselves to be the primary beneficiary if we have both (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (ii) an obligation to absorb losses of the entity that could potentially be significant to the VIE, or a right to receive benefits from the entity that could be significant to the VIE.
As of September 30, 2017 and December 31, 2016, we determined that two of our distributors were VIEs under the guidance of ASC 810,Consolidation, due to (i) our participation in the design of the distributor’s legal entity, (ii) our having a variable interest in the distributor, and (iii) our having the right to residual returns. We determined that we were not the primary beneficiary of these VIEs because we did not have (a) the power to direct the activities that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant. Therefore, we did not consolidate any assets or liabilities of these distributors in our consolidated balance sheets or record the results of these distributors in our consolidated statements of operations and comprehensive loss. Transactions with the distributors were accounted for in the same manner as our other distributors and resellers. As of September 30, 2017 and December 31, 2016, we had no exposure to losses from the contractual relationships with these VIEs or commitments to fund these VIEs.
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2017-04,Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value
exceeds its fair value, not to exceed the carrying amount of goodwill. Further, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. This guidance is effective for annual or any interim goodwill impairment test in annual reporting periods beginning after December 15, 2021. Early adoption is permitted. While we continue to assess the potential impact of the adoption of this guidance, we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01,Clarifying the Definition of a Business, which narrows the application of when an integrated set of assets and activities is considered a business and provides a framework to assist entities in evaluating whether both an input and a substantive process are present to be considered a business. It is expected that the new guidance will reduce the number of transactions that would need to be further evaluated and accounted for as a business. This guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. We are evaluating the potential impact of adopting this guidance on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18,Restricted Cash, which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning and ending total amounts shown on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, and should be applied using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal yearsubscription term, if later. Revenue related to post-contract support, or PCS, subscription-based professional services, cloud-based offerings, and subscriptions to third-party syndicated data is recognized ratably over the subscription term, with the exception of professional services related to training and enablement services. Revenue related to professional services that includesare training and enablement services is recognized at a point in time as the services are performed. For the periods presented, revenue from professional services was not material.
Disaggregation of Revenue
The disaggregation of revenue by region was as follows (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| Revenue by region: | | | | | | | |
| United States | $ | 143,665 | | | $ | 110,033 | | | | | |
| International | 55,422 | | | 47,908 | | | | | |
| Total | $ | 199,087 | | | $ | 157,941 | | | | | |
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No country outside the United States comprised more than 10% of revenue for any of the periods presented. Our operations outside the United States include sales offices in Australia, France, Germany, Japan, Singapore, United Arab Emirates, and the United Kingdom, and research and development centers in Australia, the Czech Republic, India, and Ukraine. Revenue by location is determined by the billing address of the customer.
Contract Assets and Contract Liabilities
Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to our contracts with customers. Contract assets primarily relate to unbilled amounts for contracts with customers for which the amount of revenue recognized exceeds the amount billed to the customer. Contract assets are transferred to accounts receivable when the right to invoice becomes unconditional. Contract liabilities, or deferred revenue, are recorded for amounts that interim period. We have not yet determinedare collected in advance of the timingsatisfaction of adoption. We currently present changesperformance obligations.
As of March 31, 2023 and December 31, 2022, we had deferred revenue of $212.5 million and $276.2 million, respectively, included in
restricted cash within investing activitiescurrent deferred revenue and
so the adoption of this guidance will result$6.2 million and $4.0 million, respectively, included in
changes in net cash flows from investing activities and to certain beginning and ending cash and cash equivalent totals shownother liabilities on our
condensed consolidated
statementbalance sheet. During the three months ended March 31, 2023 and 2022, we recognized $127.0 million and $83.2 million, respectively, of
cash flows.In October 2016,revenue related to amounts that were included in deferred revenue as of December 31, 2022 and 2021, respectively.
Assets Recognized from the FASB issued ASU 2016-16,Intra-Entity TransfersCosts to Obtain our Contracts with Customers
We recognize an asset for the incremental costs of Assets Other Than Inventory.obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. This guidance removes the prohibition in ASC 740,Income Taxes, against the immediate recognitionprimarily consists of sales commissions and partner referral fees that are earned upon execution of the related contracts. We amortize these deferred commissions, which include partner referral fees, proportionate with related revenues over the benefit period.
A summary of the activity impacting our deferred commissions during the three months ended March 31, 2023 and 2022 is presented below (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Beginning balance(1) | $ | 96,239 | | | $ | 69,817 | | | | | |
| Additional deferred commissions | 17,065 | | | 10,968 | | | | | |
| Amortization of deferred commissions | (17,965) | | | (13,028) | | | | | |
| Effects of foreign currency translation | 278 | | | (286) | | | | | |
| Ending balance | $ | 95,617 | | | $ | 67,471 | | | | | |
(1) Of the total amount of commissions deferred as of January 1, 2023 and January 1, 2022, $1.6 million and $6.3 million were paid in shares of our Class A common stock in the three months ended March 31, 2023 and March 31, 2022, respectively.
As of March 31, 2023 and 2022, $42.2 million and $30.8 million, respectively, of our deferred commissions were expected to be amortized within the next 12 months and therefore were included in prepaid expenses and other current andassets. The remaining amount of our deferred income tax effects of intra-entity transferscommissions is included in other assets. There were no impairments of assets other than inventory. This guidance is intendedrelated to reducedeferred commissions during each of the complexity of U.S. GAAPthree months ended March 31, 2023 and diversity in practice2022. There were no assets recognized related to the tax consequencescosts to fulfill contracts during each of certain types of intra-entity asset transfers, particularly those involving intellectual property. This guidance is effective for annual reporting periods beginning after December 15, 2018,the three months ended March 31, 2023 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating2022 as these costs were not material.
Remaining Performance Obligations
Transaction price allocated to the
potential impact of this guidanceremaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue on our
condensed consolidated
financial statements.In August 2016,balance sheets and unbilled amounts that will be recognized as revenue in future periods. As of March 31, 2023, we had an aggregate transaction price of $508.8 million allocated to unsatisfied performance obligations related primarily to PCS, cloud-based offerings, and subscriptions to third-party syndicated data. We expect to recognize $474.2 million as revenue over the FASB issued ASU 2016-15,Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issuesnext 24 months, with the objective of reducing the existing diversity in practice, including presentation of cash flows relating to contingent consideration payments, proceeds from the settlement of insurance claims, and debt prepayment or debt extinguishment costs, among other matters. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. Adoption of this guidance is requiredremaining amount expected to be applied using a retrospective transition method to each period presented, unless impracticable to do so. We are currently evaluating the potential impact of this guidance on our consolidated statement of cash flows.
In March 2016, the FASB issued ASU 2016-09,Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions and related tax impacts, the classification of excess tax benefits on the statement of cash flows, statutory tax withholding requirements, and other stock-based compensation classification matters. This guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 31, 2018. Early adoption is permitted in any interim or annual period. All the amendments in the new guidance must be adopted in the same period. We are evaluating the potential impact of this guidance on our consolidated financial statements.
Inrecognized thereafter.
4. Business Combinations
Trifacta Inc.
On February 2016, the FASB issued ASU 2016-02,Leases, creating Topic 842, which requires lessees to record the assets and liabilities arising from all leases in the statement of financial position. Under ASU 2016-02, lessees will recognize a liability for lease payments and a right-of-use asset. When measuring assets and liabilities, a lessee should include amounts related to option terms, such as the option of extending or terminating the lease or purchasing the underlying asset, that are reasonably certain to be exercised. For leases with a term of 12 months or less, lessees are permitted to make an accounting policy election to not recognize lease assets and liabilities. This guidance retains the distinction between financeleases and operating leases and the classification criteria remains similar. For financing leases, a lessee will recognize the interest on a lease liability separate from amortization of the right-of-use asset. In addition, repayments of principal will be presented within financing activities, and interest payments will be presented within operating activities in the statement of cash flows. For operating leases, a lessee will recognize a single lease cost on a straight-line basis and classify all cash payments within operating activities in the statement of cash flows. This guidance will be effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, and is required to be applied using a modified retrospective approach. Early adoption is permitted. We are evaluating the potential impact of this guidance on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers. This guidance replaces most existing revenue recognition guidance. It provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 by one year. During 2016, the FASB continued to issue additional amendments to this new revenue guidance. This new revenue guidance will be effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual periods beginning after December 15, 2016. We are evaluating the potential impact of this guidance on our consolidated financial statements.
3. Business Combinations
In January 2017,7, 2022, we acquired 100% of the outstanding equity of Semanta, s.r.o.Trifacta Inc., or Semanta, a software development firm basedTrifacta, pursuant to an Agreement and Plan of Merger, dated January 6, 2022, or the Trifacta Merger Agreement. The acquisition was made to augment our product and go-to-market teams and acquire developed technology to advance our cloud-based functionalities. The aggregate consideration payable in Prague, Czech Republic that delivers a cloud-based data governance and metadata management platform. In May 2017, we acquired 100%exchange for all of the outstanding equity interests in Trifacta, inclusive of Yhat, Inc., or Yhat, a data science software company basedcustomary adjustments set forth in Brooklyn, New York that provides data scientists and analyststhe Trifacta Merger Agreement, was $398.4 million.
The transaction costs associated with self-service data science tools for developing, managing, and deploying analytical models. These acquisitions were made to enhance our platform with additional data governance capabilities and the ability to deploy and manage advanced analytic models.The following table presents details of the purchase consideration related to each acquisition.
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Company Acquired | | Month
Acquired | | | Cash
Consideration
Paid | | | Equity
Consideration
Paid | | | Cash Holdback | | | Contingent
Consideration
Maximum | | | Contingent
Consideration
Fair Value | |
Semanta | | | January 2017 | | | $ | 3,944 | | | $ | — | | | $ | 500 | | | $ | 2,300 | | | $ | 1,160 | |
Yhat | | | May 2017 | | | | 5,535 | | | | 5,285 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | 9,479 | | | $ | 5,285 | | | $ | 500 | | | $ | 2,300 | | | $ | 1,160 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The acquisition of Semanta included cash consideration held back for customary indemnification matters for a period of 24-months following the acquisition date. A portionwere approximately $11.3 million, of which $7.8 million was incurred during the cash consideration in the Yhat acquisition is currently held in escrow pursuant to the terms of the acquisition agreement and is reflected in goodwill.
The condensed consolidated financial statements include the results of operations of the acquired companies commencing as of their respective acquisition dates. Revenue and operating results of the acquired companies for the ninethree months ended September 30, 2017 were not material to the condensed consolidated financial statements. During the nine months ended September 30, 2017, we recognized $0.9 million of acquisition related costsMarch 31, 2022 and was recorded in general and administrative expense in the condensed consolidated statement of operations and comprehensive loss.
expense.
The
following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the dates of each acquisition (in thousands): | | | | |
Assets acquired and liabilities assumed: | | | | |
Cash and cash equivalents | | $ | 382 | |
Accounts receivable | | | 247 | |
Prepaid expenses and other assets | | | 68 | |
Property and equipment | | | 54 | |
Intangible assets | | | 9,220 | |
Goodwill | | | 8,724 | |
Accounts payable | | | (479 | ) |
Accrued expenses, deferred revenue and other current liabilities | | | (205 | ) |
Deferred tax liability, included in other liabilities | | | (1,587 | ) |
| | | | |
Total purchase consideration | | $ | 16,424 | |
| | | | |
Goodwill represents the excess of the purchase consideration overfor the fair valueacquisition primarily consisted of the underlying intangible assets and net liabilities assumed. We believe the amount$341.4 million of goodwill resulting from the acquisitions is primarily attributable to expected synergies from an assembled workforce, increased development capabilities, increased offerings to customers, and enhanced opportunities for growth and innovation. The goodwill resulting from the acquisitions is not tax deductible.
$48.5 million in completed technology.
We determined the fair value of the completeddeveloped technology acquired in the acquisitions using the multiple periodmulti-period excess earnings andmodel, which is a variation of the replacement cost models. These models utilizeincome approach that estimates the value of the assets based on the present value of the incremental after-tax cash flow attributable only to the intangible assets. This model utilizes certain unobservable inputs classified as Level 3 measurements as defined by ASC 820,Fair Value Measurements and Disclosures., or ASC 820. Key inputs utilized in the models include discount rates ranging from 35% to 45%, a market participant taxdiscount rate of 40%, an estimated level of future cash flows based on current product and market data,16.5% and estimated costs to recreaterevenue and expense forecasts.
The operations of Trifacta are included in our operating results from the
technology. Based on the valuation models, we determined the fair valuedate of
the completed technology to be $9.2 million with a weighted-average amortization period of 5.7 years.A portion of the consideration for the Semanta acquisition is subject to earn-out provisions. Additional contingent earn-out consideration of up to $2.3 million in shares of our Class A common stock may be paid out to the former shareholders of Semanta over two years upon the achievement of specified milestones. The number of shares that will be issued will be determined based on the total dollar value of consideration earned upon the achievement of a particular milestone divided by an average trading value of our Class A common stock calculated at the time of the issuance. We utilized a probability weighted scenario based model to determine the fair value of the contingent consideration. Based on this valuation model we determined the fair value of the contingent consideration to be $1.2 million as of the acquisition date.
Pro forma information as if the acquisitions occurred on January 1, 2016 has not been presented as the pro forma impact is not material to our condensed consolidated financial statements.
4. Fair Value Measurements
We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We determine fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
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Level 1 | | Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. |
| |
Level 2 | | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active near the measurement date; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
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Level 3 | | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The fair value of our money market funds was determined based on “Level 1” inputs.
The fair value of certificates of deposit, U.S. Treasury and agency bonds, and corporate bonds were determined based on “Level 2” inputs. The valuation techniques used to measure the fair value of certificates of deposit included observable market-based inputs for similar assets, which primarily include yield curves and time-to-maturity factors. The valuation techniques used to measure the fair value of U.S. Treasury and agency bonds and corporate bonds included standard observable inputs, including reported trades, quoted market prices, matrix pricing, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets or benchmark securities and data provided by third parties as many of the bonds are not actively traded.
There were no marketable securities measured on a recurring basis in the “Level 3” category.
acquisition. We have not electedseparately disclosed the fair value optionamount of revenue or earnings related to the Trifacta acquisition as prescribed by ASC 825,Thethe operations of Trifacta were integrated into the operations of our company from the date of acquisition, and thus it would be immaterial and impractical to do so. In addition, the unaudited pro forma results of operations assuming the Trifacta acquisition had taken place at the beginning of each period are not provided as the historical operating results of Trifacta were not material.
5. Fair Value
Option for Financial Assets and Financial Liabilities, for our financial assets and liabilities that are not otherwise required to be carried at fair value. Under ASC 820, material financial assets and liabilities not carried at fair value, such as our accounts receivable and payables, are reported at their carrying values.Measurements
Instruments Measured at Fair Value on a Recurring Basis. The following tables present our cash and cash equivalentsequivalents’ and investments’ costs, grossnet unrealized gains (losses), and fair value by major security type recorded as cash and cash equivalents or short-term or long-term investments as of September 30, 2017March 31, 2023 and December 31, 20162022 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of September 30, 2017 | |
| | | | | | Gross | | | | | | Cash and | | | | | | | |
| | | | | | Unrealized | | | | | | Cash | | | Short-term | | | Long-term | |
| | | Cost | | | Gains (Losses) | | | Fair Value | | | Equivalents | | | Investments | | | Investments | |
Cash | | $ | 89,377 | | | $ | — | | | $ | 89,377 | | | $ | 89,377 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Level 1: | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds | | | 6,399 | | | | — | | | | 6,399 | | | | 6,399 | | | | — | | | | — | |
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Subtotal | | | 6,399 | | | | — | | | | 6,399 | | | | 6,399 | | | | — | | | | — | |
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Level 2: | | | | | | | | | | | | | | | | | | | | | | | | |
Certificates of deposit | | | 2,584 | | | | — | | | | 2,584 | | | | — | | | | 2,584 | | | | — | |
U.S. Treasury and agency bonds | | | 52,537 | | | | (78 | ) | | | 52,459 | | | | — | | | | 27,569 | | | | 24,890 | |
Corporate bonds | | | 31,790 | | | | (32 | ) | | | 31,758 | | | | — | | | | 30,659 | | | | 1,099 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 86,911 | | | | (110 | ) | | | 86,801 | | | | — | | | | 60,812 | | | | 25,989 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Level 3 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 182,687 | | | $ | (110 | ) | | $ | 182,577 | | | $ | 95,776 | | | $ | 60,812 | | | $ | 25,989 | |
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| |
| | | As of December 31, 2016 | |
| | | | | | Gross | | | | | | Cash and | | | | | | | |
| | | | | | Unrealized | | | | | | Cash | | | Short-term | | | Long-term | |
| | | Cost | | | Gains (Losses) | | | Fair Value | | | Equivalents | | | Investments | | | Investments | |
Cash | | $ | 10,499 | | | $ | — | | | $ | 10,499 | | | $ | 10,499 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Level 1: | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds | | | 20,807 | | | | — | | | | 20,807 | | | | 20,807 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 20,807 | | | | — | | | | 20,807 | | | | 20,807 | | | | — | | | | — | |
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Level 2: | | | | | | | | | | | — | | | | | | | | | | | | | |
Certificates of deposit | | | 10,552 | | | | — | | | | 10,552 | | | | — | | | | 10,552 | | | | — | |
Corporate bonds | | | 10,770 | | | | 72 | | | | 10,842 | | | | — | | | | 10,842 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 21,322 | | | | 72 | | | | 21,394 | | | | — | | | | 21,394 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Level 3 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 52,628 | | | $ | 72 | | | $ | 52,700 | | | $ | 31,306 | | | $ | 21,394 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | �� | | | | | |
There were no transfers between Level 1, Level 2, or Level 3 securities during the nine months ended September 30, 2017. As of September 30, 2017, there were 28 securities with a fair value of $77.9 million in an unrealized loss position for less than 12 months. The gross unrealized losses of $0.1 million as of September 30, 2017 were due to changes in market rates, and we have determined the losses are temporary in nature.
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| | As of March 31, 2023 |
| | Cost | | Net
Unrealized
Gains (Losses) | | Fair Value | | Cash and
Cash
Equivalents | | Short-term
Investments | | Long-term
Investments |
| Cash | $ | 72,343 | | | $ | — | | | $ | 72,343 | | | $ | 72,343 | | | $ | — | | | $ | — | |
| Level 1: | | | | | | | | | | | |
| Money market funds | 488,317 | | | — | | | 488,317 | | | 488,317 | | | — | | | — | |
| Subtotal | 488,317 | | | — | | | 488,317 | | | 488,317 | | | — | | | — | |
| Level 2: | | | | | | | | | | | |
| Commercial paper | 76,489 | | | (36) | | | 76,453 | | | 29,843 | | | 46,610 | | | — | |
| Certificates of deposit | 5,016 | | | — | | | 5,016 | | | — | | | 5,016 | | | — | |
| U.S. Treasury and agency bonds | 205,558 | | | (1,566) | | | 203,992 | | | 2,988 | | | 121,718 | | | 79,286 | |
| Corporate bonds | 39,281 | | | (334) | | | 38,947 | | | — | | | 34,190 | | | 4,757 | |
| Subtotal | 326,344 | | | (1,936) | | | 324,408 | | | 32,831 | | | 207,534 | | | 84,043 | |
| Level 3: | — | | | — | | | — | | | — | | | — | | | — | |
| Total | $ | 887,004 | | | $ | (1,936) | | | $ | 885,068 | | | $ | 593,491 | | | $ | 207,534 | | | $ | 84,043 | |
| | | | | | | | | | | |
| | As of December 31, 2022 |
| | Cost | | Net
Unrealized
Gains (Losses) | | Fair Value | | Cash and
Cash
Equivalents | | Short-term
Investments | | Long-term
Investments |
| Cash | $ | 62,880 | | | $ | — | | | $ | 62,880 | | | $ | 62,880 | | | $ | — | | | $ | — | |
| Level 1: | | | | | | | | | | | |
| Money market funds | 20,210 | | | — | | | 20,210 | | | 20,210 | | | — | | | — | |
| Subtotal | 20,210 | | | — | | | 20,210 | | | 20,210 | | | — | | | — | |
| Level 2: | | | | | | | | | | | |
| Commercial paper | 60,197 | | | (115) | | | 60,082 | | | 21,064 | | | 39,018 | | | — | |
| Certificates of deposit | 6,000 | | | (3) | | | 5,997 | | | — | | | 5,997 | | | — | |
| U.S. Treasury and agency bonds | 236,559 | | | (3,065) | | | 233,494 | | | 597 | | | 156,090 | | | 76,807 | |
| Corporate bonds | 46,171 | | | (609) | | | 45,562 | | | — | | | 35,935 | | | 9,627 | |
| Subtotal | 348,927 | | | (3,792) | | | 345,135 | | | 21,661 | | | 237,040 | | | 86,434 | |
| Level 3: | — | | | — | | | — | | | — | | | — | | | — | |
| Total | $ | 432,017 | | | $ | (3,792) | | | $ | 428,225 | | | $ | 104,751 | | | $ | 237,040 | | | $ | 86,434 | |
All the long-term investments had maturities of between one and two years in duration as of September 30, 2017. Cash and cash equivalents, restricted cash, and investments asMarch 31, 2023.
As of
September 30, 2017 and DecemberMarch 31,
2016 held domestically were approximately $166.92023, we had gross unrealized losses of $2.1 million
and $52.9with respect to $238.4 million
respectively.Contingent Consideration.Contingent consideration in connection with acquisitions is measured ataggregate fair value each reporting period based on significant unobservable inputs,of our available-for-sale securities, and we do not intend to sell, nor is it more likely than not that we will be required to sell, these investments before recovery of their amortized cost basis. These gross unrealized losses were classified as Level 3 measurement. See Note 3 for additional information on the valuation of the contingent consideration as of the acquisition date. The contingent earn-out consideration has been recorded in accumulated other liabilities in our accompanying condensed consolidated balance sheet with any changes in fair value each reporting period recorded in general and administrative expensescomprehensive loss in our condensed consolidated statements of operations and comprehensive loss. Changes in fair value depend on several factors including estimates of the timing and ability to achieve the milestones.
The following table presents a reconciliation of the beginning and ending balances of acquisition-related accrued contingent consideration using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2017 (in thousands):
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Beginning balance | | $ | 1,318 | | | $ | — | | | $ | — | | | $ | — | |
Obligations assumed | | | — | | | | — | | | | 1,160 | | | | — | |
Change in fair value | | | 32 | | | | — | | | | 190 | | | | — | |
Settlement | | | (375 | ) | | | — | | | | (375 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Ending balance | | $ | 975 | | | $ | — | | | $ | 975 | | | $ | — | |
| | | | | | | | | | | | | | | | |
Upon the achievement of certain milestones in connection with our acquisition of Semanta, we released 12,492 shares of Class A common stock to the former shareholders of Semanta in the nine months ended September 30, 2017. In addition, 4,824 shares were earned, but held back for customary indemnification matters in accordance with the acquisition agreement, and the value of the shares is presented within additional paid-in capital in the condensed consolidated balance sheetsheets as of September 30, 2017. Subject to any indemnification claims that may arise during the indemnification period, these shares will be issued to the former shareholders upon the completion of the indemnification period.
March 31, 2023.
Instruments Not Recorded at Fair Value on a Recurring Basis. We estimate the fair value of our Notes, as defined in Note 8. Debt, carried at face value, less unamortized discount and issuance costs, quarterly for disclosure purposes. The estimated fair value of our Notes is determined by Level 2 inputs and is based on observable market data including prices for similar instruments. As of March 31, 2023 and December 31, 2022, the fair value of our Notes was $1,281.3 million and $805.8 million, respectively. The carrying amounts of our financial instruments, including cash, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued liabilities approximate their current fair value because of their nature and relatively short maturity dates or durations.
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis. The fair value of our cost method investment is measured when it is deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in a business acquisition, and goodwill and other long lived assets when they are held for sale or determined to be impaired. See Note 34, Business Combinations, and Note 57, Goodwill and Intangible Assets, of these notes to our condensed consolidated financial statements for fair value measurements of certain assets and liabilities recorded at fair value on a non-recurring basis.5. Cost Method Investment
In November 2014, we entered into These include the fair value of assets acquired and liabilities assumed in a definitive agreement with a privatelybusiness acquisition, and goodwill and other long-lived assets when they are held company,for sale or determin
ed to be impaired. Other Investments. The table above does not include our debt and equity investments in which we agreed to invest approximately $1.1do not have a controlling interest or significant influence. As of March 31, 2023, the balance of our investments was $6.4 million, in exchange for shares of convertible preferred stock equal to approximately 15% ownership of the privately held company. We account for our investment in this company using the cost method of accounting and the investment balancewhich is included in other non-current assets, compared to $3.8 million as of December 31, 2022, which is included in long-term investments. Since our condensed consolidated balance sheets. We evaluateinitial investments, there have been no impairments or adjustments to the investment at each reporting date to determine if any indicatorscarrying amounts of other-than-temporary impairment exist. If such indicators are identified, we will estimate the fair valueour equity or debt investments.
6. Balance Sheet Components
Prepaid expenses and other current assets consisted of the investment and determine if any decline in the fair valuefollowing (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Contract asset | $ | 68,518 | | | $ | 59,669 | |
| Deferred commissions | 42,240 | | | 41,139 | |
| Prepaid expenses | 36,520 | | | 37,783 | |
| Other | 12,671 | | | 7,176 | |
| | | |
| Total | $ | 159,949 | | | $ | 145,767 | |
Other assets consisted of the investment below itsfollowing (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Contract asset | $ | 63,931 | | | $ | 71,448 | |
| Deferred commissions | 53,378 | | | 55,100 | |
| Other | 17,602 | | | 14,258 | |
| | | |
| | | |
| Total | $ | 134,911 | | | $ | 140,806 | |
7. Goodwill and Intangible Assets
The change in carrying value is other-than-temporary. The estimated fair value is determined using unobservable inputs including forecasted cash flow information from the investee’s management. These inputs are classified as Level 3. Duringamount of goodwill for the three months ended September 30, 2017, we determined that indicators of other-than-temporary impairment existed. Based on our evaluation, we estimated the fair valueMarch 31, 2023 was as follows (in thousands):
| | | | | |
| Goodwill as of December 31, 2022 | $ | 398,091 | |
| |
| Effects of foreign currency translation | (266) | |
| Goodwill as of March 31, 2023 | $ | 397,825 | |
Intangible assets consisted of the investment and recorded an impairmentfollowing (in thousands, except years):
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2023 |
| | Remaining Weighted-Average Useful Life in Years | | Gross Carrying
Value | | Accumulated
Amortization | | Net Carrying
Value |
| Customer relationships | 1.9 | | $ | 2,436 | | | $ | (1,431) | | | $ | 1,005 | |
| Completed technology | 5.5 | | 82,023 | | | (26,785) | | | 55,238 | |
| Trade names | 1.9 | | 1,500 | | | (572) | | | 928 | |
| | | $ | 85,959 | | | $ | (28,788) | | | $ | 57,171 | |
| | | | | | | |
| | As of December 31, 2022 |
| | Remaining Weighted-Average Useful Life in Years | | Gross Carrying
Value | | Accumulated
Amortization | | Net Carrying
Value |
| Customer relationships | 2.1 | | $ | 2,466 | | | $ | (1,320) | | | $ | 1,146 | |
| Completed technology | 5.6 | | 82,209 | | | (23,506) | | | 58,703 | |
| Trade names | 2.1 | | 1,500 | | | (448) | | | 1,052 | |
| | | $ | 86,175 | | | $ | (25,274) | | | $ | 60,901 | |
The following table presents our estimates of remaining amortization expense for the full valuefinite-lived intangible assets at March 31, 2023 (in thousands):
| | | | | |
| |
| Remainder of 2023 | $ | 8,872 | |
| 2024 | 11,779 | |
| 2025 | 10,181 | |
| 2026 | 9,298 | |
| 2027 | 8,311 | |
| Thereafter | 8,730 | |
| Total amortization expense | $ | 57,171 | |
8. Debt
Our debt consisted of the
investmentfollowing, which comprises the current portion of
$1.1 million. The impairment is included in other expenses incertain convertible notes, our
condensed consolidated statements of operations for the threelong-term convertible notes, and
nine months ended September 30, 2017.6. Stockholders’ Equity
Reverse Stock Split
our long-term senior unsecured notes, each as further described below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2023 | | As of December 31, 2022 |
| 2023 Notes | | 2024 Notes | | 2026 Notes | | 2028 Notes | | 2023 Notes | | 2024 Notes | | 2026 Notes |
| Liability: | | | | | | | | | | | | | |
| Principal | $ | 82,748 | | | $ | 400,000 | | | $ | 400,000 | | | $ | 450,000 | | | $ | 84,748 | | | $ | 400,000 | | | $ | 400,000 | |
| Less: debt discount and issuance costs, net of amortization | (69) | | | (2,292) | | | (4,102) | | | (9,354) | | | (177) | | | (2,700) | | | (4,379) | |
| Net carrying amount | $ | 82,679 | | | $ | 397,708 | | | $ | 395,898 | | | $ | 440,646 | | | $ | 84,571 | | | $ | 397,300 | | | $ | 395,621 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Senior Unsecured Notes
In February 2017,March 2023, we effected a 2-to-1 reverse stock splitsold $450.0 million aggregate principal amount of our outstanding common8.75% senior notes due 2028, or the 2028 Notes, in a private offering to qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended, or the Securities Act, and preferred stockoutside the United States pursuant to Regulation S under the Securities Act. The 2028 Notes have not been registered, and we do not intend to register the 2028 Notes, under the Securities Act or the securities laws of any other jurisdiction. The 2028 Notes are fully and unconditionally guaranteed on a corresponding reductionsenior unsecured basis by certain of our subsidiaries. Interest on the 2028 Notes is payable semi-annually in arrears on March 15 and September 15 of each year, beginning September 15, 2023. Unless earlier redeemed or repurchased, the 2028 Notes will mature on March 15, 2028. The effective interest rate of the 2028 Notes is 9.27%.
The Indenture governing the 2028 Notes gives us the option to redeem some or all of the 2028 Notes at the redemption prices set forth in the numberIndenture, together with accrued and unpaid interest, if any, to, but excluding, the date of authorizedredemption. We may make optional redemptions at prices equal to 100% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus applicable “make-whole” premiums. In addition, we may redeem up to 40% of the original aggregate principal amount of the 2028 Notes using the net cash proceeds of certain equity offerings completed on or before March 15, 2025 at a redemption price of 108.75%.
The 2028 Notes rank equal in right of payment to all of our and the guarantors’ existing and future senior indebtedness, including our 2023 Notes, 2024 Notes, and 2026 Notes, each as defined below, and do not contain financial covenants but include covenants that, among other things, limit our ability to grant liens on certain assets to secure debt, grant a subsidiary guarantee of certain debt without also providing a guarantee of the 2028 Notes, and consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of our assets to, another person.
Convertible Senior Notes
The following table presents details of our convertible senior notes, which are further discussed below (original principal in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Month Issued | | Maturity Date | | Original Principal (including over-allotment) | | Coupon Interest Rate | | Effective Interest Rate | | Conversion Rate | | Initial Conversion Price |
| 2023 Notes | May and June 2018 | | June 1, 2023 | | $ | 230,000 | | | 0.5 | % | | 1.00 | % | | $ | 22.5572 | | | $ | 44.33 | |
| 2024 Notes | August 2019 | | August 1, 2024 | | $ | 400,000 | | | 0.5 | % | | 0.93 | % | | $ | 5.2809 | | | $ | 189.36 | |
| 2026 Notes | August 2019 | | August 1, 2026 | | $ | 400,000 | | | 1.0 | % | | 1.32 | % | | $ | 5.2809 | | | $ | 189.36 | |
As further defined and described below, the 2024 Notes and the 2026 Notes are together referred to as the 2024 & 2026 Notes, the 2023 Notes and the 2024 & 2026 Notes are collectively referred to as the Convertible Notes, and the 2023 Notes, 2024 & 2026 Notes, and 2028 Notes are collectively referred to as the Notes.
The 2023 Notes are our senior, unsecured obligations and interest is payable semi-annually in arrears on June 1 and December 1 of each year beginning December 1, 2018.
The 2024 & 2026 Notes are our senior, unsecured obligations and interest is payable semi-annually in arrears on February 1 and August 1 of each year beginning February 1, 2020.
Prior to the close of business on the business day immediately preceding March 1, 2023, or the 2023 Conversion Date, in the case of the 2023 Notes, or May 1, 2024, or the 2024 Conversion Date, in the case of the 2024 Notes, or May 1, 2026, or the 2026 Conversion Date, in the case of the 2026 Notes, the respective Convertible Notes are convertible at the option of holders only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the relevant maturity date. The applicable conversion rate is subject to customary adjustments for certain events as described in the applicable indenture between us and U.S. Bank National Association, as trustee, or, collectively, the Indentures. Upon conversion, the Convertible Notes may be settled in shares of
preferred stock. All share and per share amounts for all periods presented in these condensed consolidated financial statements and notes, have been adjusted retrospectively to reflect this reverse stock split.Dual Class Common Stock Structure
In February 2017, we implemented a dual class common stock structure in which each then existing share of common stock converted into a share of Class B common stock and we also authorized a new class of common stock, the Class A common stock. Theour Class A common stock, is entitled to one vote per sharecash, or a combination of cash and theshares of our Class BA common stock, at our election.
Prior to the close of business on the business day immediately preceding the applicable Conversion Date, the applicable series of Convertible Notes is entitledconvertible at the option of the holders under the following circumstances:
•during any calendar quarter commencing after the calendar quarter subsequent to ten votesthe calendar quarter in which the applicable series of Convertible Notes was issued (and only during such calendar quarter), if the last reported sale price of our Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price of the applicable series of Convertible Notes on each applicable trading day;
•during the five-business day period after any five consecutive trading day period in which the trading price per share. The$1,000 principal amount of the applicable series of Convertible Notes for each day of that five day consecutive trading day period was less than 98% of the product of the last reported sale price of our Class A common stock and Class B common stock have the same dividend and liquidation rights, andapplicable conversion rate of the Class B common stock converts to Class A common stockapplicable series of Convertible Notes on such applicable trading day; or
•upon the occurrence of specified corporate events described in the applicable Indenture.
Beginning on the 2023 Conversion Date, holders may convert all or any portion of their 2023 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date. As the 2023 Notes mature on June 1, 2023 and are convertible at the holder’s option until the maturity date, they were classified as current liabilities on the condensed consolidated balance sheet as of March 31, 2023. We will utilize a combination settlement method and settle the remaining principal amount of the holder,2023 Notes with cash and conversion premium in shares. As of March 31, 2023, the aggregate if-converted value of the 2023 Notes exceeded their aggregate principal amount by $27.1 million. As of March 31, 2023, the 2024 & 2026 Notes were not convertible.
We may not redeem any series of Convertible Notes prior to the relevant maturity date. Holders of any series of Convertible Notes have the right to require us to repurchase for cash all or automaticallya portion of their applicable series of Convertible Notes, at 100% of its respective principal amount, plus any accrued and unpaid interest, upon the dateoccurrence of a fundamental change as defined in the applicable Indenture for such series of Convertible Notes. We are also required to increase the conversion rate for holders who convert their Convertible Notes in connection with certain corporate events occurring prior to the relevant maturity date.
The Convertible Notes are our senior unsecured obligations and rank (i) senior in right of payment to any of our indebtedness and other liabilities that isare expressly subordinated in right of payment to the earliestConvertible Notes, (ii) equal in right of (i)payment among all series of Convertible Notes, to the date specified by a vote2028 Notes, and to any other existing and future indebtedness and other liabilities that are not subordinated, (iii) effectively junior in right of payment to any of our secured indebtedness and other liabilities to the extent of the value of the assets securing such indebtedness and other liabilities, and (iv) structurally subordinated to all existing and future indebtedness (including the guarantees of the 2028 Notes by certain of our subsidiaries) and other liabilities (including trade payables) of our current or future subsidiaries.
Capped Call Transactions
In connection with the pricing of the 2023 Notes, we entered into privately negotiated capped call transactions with an affiliate of one of the initial purchasers of the 2023 Notes and other financial institutions. In connection with the pricing of the 2024 & 2026 Notes, we entered into privately negotiated capped call transactions with other financial institutions. The capped call transactions are expected generally to reduce or offset potential dilution to holders of at least 66 2/3%our common stock and/or offset the potential cash payments that we could be required to make in excess of the outstanding sharesprincipal amount upon any conversion of Class B common stock, (ii) March 29, 2027, and (iii) the dateapplicable series of Convertible Notes under certain circumstances, with such reduction and/or offset subject to a cap based on the cap price. Under the capped call transactions, we purchased capped call options that in the aggregate relate to the total number of shares of our Class BA common stock outstanding cease to represent at least 10%underlying the applicable series of Convertible Notes, with an initial strike price of approximately $44.33 per share in the case of the aggregate number2023 Notes, which corresponds to the initial conversion price of the 2023 Notes, and approximately $189.36 per share in the case of the 2024 & 2026 Notes, which corresponds to the initial conversion price of each of the 2024 & 2026 Notes. Further, the capped call options are subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the applicable series of Convertible Notes, and have a cap price of $62.22 per share in the case of the 2023 Notes, and $315.60 per share in the case of the 2024 & 2026 Notes.
In connection with the conversion of a portion of the 2023 Notes discussed below, we terminated a corresponding portion of the existing capped call transactions that we entered into in connection with the issuance of the 2023 Notes, which resulted in the net share settlement and our receipt and retirement of 9,394 shares of Class A common stock and Class B common stock then outstanding. In addition, each sharestock.
Conversion of Class B common stock will2023 Notes
During the three months ended March 31, 2023, we settled a request to convert
automatically into one share of Class A common stock upon any transfer, except for certain permitted transfers described in our restated certificate of incorporation, or the Restated Certificate. Upon the creation$2.0 million aggregate principal amount of the
dual class common stock structure all outstanding options to purchase common stock became options to purchase an equivalent number of shares of Class B common stock,2023 Notes for $2.0 million in cash and
all restricted stock units, or RSUs, became RSUs for an equivalent number of shares of Class B common stock.Upon the effectiveness of the Restated Certificate in March 2017, the number of shares of capital stock that is authorized to be issued consisted of 500,000,0008,598 shares of Class A common stock, $0.0001 par value per share, 500,000,000 shares of Class B common stock, $0.0001 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.0001 par value per share.
7. Equity Awards
Amended and Restated 2013 Stock Plan
We granted options and RSUs under our Amended and Restated 2013 Stock Plan, or 2013 Plan, until March 22, 2017, when the plan was terminated in connection with our IPO. Accordingly, no shares are available for future issuance under the 2013 Planstock.
The following
the IPO. The 2013 Plan continues to govern outstanding equity awards granted thereunder.2017 Equity Incentive Plan
In February 2017, our board of directors adopted and our stockholders approved the 2017 Equity Incentive Plan, or 2017 Plan. The 2017 Plan became effective on March 22, 2017 and is the successor plantable sets forth interest expense recognized related to the 2013 Plan. Under the 2017 Plan, we initially reserved (i) 5.1 million sharesNotes (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| Contractual interest expense | $ | 4,337 | | | $ | 1,606 | | | | | |
| Amortization of debt issuance costs and discount | 892 | | | 780 | | | | | |
| Total | $ | 5,229 | | | $ | 2,386 | | | | | |
| | | | | | | |
Contractual Obligations of Class A common stock forNotes
The following table sets forth future
issuancecontractual obligations of contractual interest and
(ii) 0.8 million shares of Class A common stock equalprincipal related to the
number of Class B shares reserved but not issued under the 2013 Plan as of the effective date of the 2017 Plan. The number of shares of Class A common stock reserved for issuance under our 2017 Plan will increase automatically on the first day of January of each of 2018 through 2027 by the lesser of (a) 5% of the total outstanding shares of our Class A and Class B common stock as of the immediately preceding December 31 and (b) the number of shares determined by our board of directors. The share reserve may also increase to the extent that outstanding awards under our 2013 Plan expire or terminate. As of September 30, 2017, an aggregate of 5.4 million shares of Class A common stock were reserved for issuance under the 2017 Plan.2017 Employee Stock Purchase Plan
In February 2017, our board of directors adopted and our stockholders approved the 2017 Employee Stock Purchase Plan, or 2017 ESPP. The 2017 ESPP became effective on March 23, 2017. Under the 2017 ESPP, we reserved 1.1 million shares of Class A common stock for future issuance. The number of shares of Class A common stock reserved for issuance under our 2017 ESPP will increase automatically on the first day of January of each of 2018 through 2027 by the lesser of (a) 1% of the total outstanding shares of our Class A and Class B common stock as of the immediately preceding December 31 and (b) the number of shares determined by our board of directors. The aggregate number of shares issued over the term of the 2017 ESPP may not exceed 11,000,000 shares of Class A common stock.
Notes (in thousands):
| | | | | |
| Payments Due by Period |
| Remainder of 2023 | $ | 106,627 | |
| 2024 | 445,375 | |
| 2025 | 43,375 | |
| 2026 | 443,375 | |
| 2027 | 39,375 | |
| 2028 | 469,688 | |
| Total principal and related contractual interest | $ | 1,547,815 | |
9. Equity Awards
Stock option activity,
excluding activity related to the employee stock purchase plan, during the
ninethree months ended
September 30, 2017March 31, 2023 consisted of the following (in thousands, except weighted-average information):
| | | | | | | | |
| | | Options
Outstanding | | | Weighted-
Average
Exercise
Price | |
Options outstanding at December 31, 2016 | | | 6,318 | | | $ | 5.65 | |
Granted | | | 938 | | | | 16.72 | |
Exercised | | | (1,099 | ) | | | 1.36 | |
Cancelled/forfeited | | | (538 | ) | | | 8.30 | |
| | | | | | | | |
Options outstanding at September 30, 2017 | | | 5,619 | | | $ | 8.08 | |
| | | | | | | | |
| | | | | | | | | | | |
| Options
Outstanding | | Weighted-
Average
Exercise
Price |
| Options outstanding at December 31, 2022 | 1,106 | | | $ | 41.43 | |
| Granted | — | | | — | |
| Exercised | (11) | | | 13.07 | |
| Canceled/forfeited | — | | | — | |
| Options outstanding at March 31, 2023 | 1,095 | | | $ | 41.71 | |
There were no options granted during the three months ended March 31, 2023. As of
September 30, 2017,March 31, 2023, there was
$11.9$2.4 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of
2.91.1 years.
Restricted stock unit, or RSU,
and performance-based RSU, or PRSU, activity during the
ninethree months ended
September 30, 2017March 31, 2023 consisted of the following (in thousands, except weighted-average information):
| | | | | | | | |
| | | Awards
Outstanding | | | Weighted-
Average
Grant Date
Fair Value | |
RSUs outstanding at December 31, 2016 | | | 373 | | | $ | 12.30 | |
Granted | | | 178 | | | | 18.10 | |
Cancelled/forfeited | | | (96 | ) | | | 12.67 | |
| | | | | | | | |
RSUs outstanding at September 30, 2017 | | | 455 | | | $ | 14.50 | |
| | | | | | | | |
RSUs outstanding as
| | | | | | | | | | | |
| Awards Outstanding (1) | | Weighted- Average Grant Date Fair Value (1) |
| RSUs outstanding at December 31, 2022 | 9,928 | | | $ | 55.70 | |
| Granted | 2,710 | | | 64.60 | |
| Vested | (1,186) | | | 68.03 | |
| Canceled/forfeited | (419) | | | 64.09 | |
| RSUs outstanding at March 31, 2023 | 11,033 | | | $ | 56.24 | |
(1) Includes restricted stock units with market, performance, and/or service conditions.
During the three months ended March 31, 2023, we granted PRSUs to certain executives with a grant date fair value of $13.9 million. These PRSUs are subject to vesting based on performance and service conditions and, assuming such conditions are met, will vest quarterly beginning in 2024 based upon the percentage achievement of certain annualized recurring revenue and operating margin metrics or will otherwise be forfeited on December 31, 2016, or pre-2017 RSUs, vest upon2023 if the satisfactiontargets are not met.
As of
both a service condition and a liquidity condition. The service condition for these awards will be satisfied over four years. The liquidity condition was satisfied on September 25, 2017, which was 180 days following the closing of the IPO. Beginning on the closing of the IPO in March
2017, we recognized a cumulative stock-based compensation expense for the portion of the pre-2017 RSUs that had met the service condition. In the nine months ended September 30, 2017, stock-based31, 2023, total unrecognized compensation expense related to
our pre-2017 RSUs was $1.4 million.As of September 30, 2017, total unrecognized compensation expense, adjusted for estimated forfeitures, related to unvested RSUs and PRSUs was approximately $3.7$518.8 million, which is expected to be recognized over a weighted-average period of 2.02.2 years.
We classified stock-based compensation expense in the accompanying condensed consolidated statements of operations and comprehensive loss as follows (in thousands): | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Cost of revenue | | $ | 123 | | | $ | 24 | | | $ | 368 | | | $ | 72 | |
Research and development | | | 458 | | | | 99 | | | | 1,157 | | | | 243 | |
Sales and marketing | | | 459 | | | | 308 | | | | 1,642 | | | | 942 | |
General and administrative | | | 1,239 | | | | 475 | | | | 3,342 | | | | 1,077 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 2,279 | | | $ | 906 | | | $ | 6,509 | | | $ | 2,334 | |
| | | | | | | | | | | | | | | | |
8. Commitments and
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| Cost of revenue | $ | 3,315 | | | $ | 3,404 | | | | | |
| Research and development | 14,056 | | | 11,174 | | | | | |
| Sales and marketing | 22,623 | | | 15,220 | | | | | |
| General and administrative | 17,479 | | | 15,364 | | | | | |
| Total | $ | 57,473 | | | $ | 45,162 | | | | | |
10. Contingencies
Leases
We have various non-cancelable operating leases for our offices. These leases expire at various times through 2024. Certain lease agreements contain renewal options, rent abatement, and escalation clauses.
In the ordinary course of business, we enter into agreements in which we may agree to indemnify other parties with respect to certain matters, including losses resulting from claims of intellectual property infringement, damages to property or persons, business losses, or other liabilities. In addition, we have entered into indemnification agreements with our directors, executive officers, and certain other employees that will require us to indemnify them against liabilities that may arise by reason of their status or service as directors, officers, or employees. The termterms of these indemnification agreements with our directors, executive officers, and other employees are generally perpetual after execution of the agreement. The maximum potential amount of future payments we could be required to make under certain of these indemnification provisions is unlimited; however, we maintain insurance that reduces our exposure and enables us to recover a portion of any future amounts paid.
As of
September 30, 2017March 31, 2023 and December 31,
2016,2022, we have not accrued a liability for
these indemnification provisions
we agree to in the ordinary course of business or with our directors, executive officers, and certain other employees pursuant to indemnification agreements because the likelihood of incurring a payment obligation, if any, in connection with these arrangements is not probable or reasonably estimable.
From time to time, we may be involved in lawsuits, claims, investigations, and proceedings, consisting of intellectual property, commercial, employment, and other matters, which arise in the ordinary course of business.
We are not currently a party to any material legal proceedings or claims, nor are we aware of any pending or threatened litigationlegal proceedings or claims that could have a material adverse effect on our business, operating results, cash flows, or financial condition should such litigationlegal proceedings or claimclaims be resolved unfavorably.
9.
The following table presents details of the provision for (benefit of) income taxes and our effective tax rates (in thousands, except percentages): | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Provision for (benefit of) income taxes | | $ | 25 | | | $ | 58 | | | $ | (632 | ) | | $ | 148 | |
Effective tax rate | | | 0.8 | % | | | 1.4 | % | | | (3.8 | %) | | | 0.8 | % |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| Provision for income taxes | $ | 2,575 | | | $ | 1,488 | | | | | |
| Effective tax rate | (3.0) | % | | (1.4) | % | | | | |
We account for income taxes according to ASC 740, Income Taxes, which, among other things, requires that we estimate our annual effective income tax rate for the full year and apply it to pre-tax income (loss) tofor each interim period, taking into account year-to-date amounts and projected results for the full year. We periodically evaluate whether we will recover a portion or all of our deferred tax assets. We record a valuation allowance against our deferred tax assets if and to the extent it is more likely than not that we will not recover our deferred tax assets. In evaluating the need for a valuation allowance, we weight all relevant positive and negative evidence, including among other factors, historical financial performance, forecasts of income over the applicable carryforward periods, and our market environment, with each piece weighted based on its reliability. As of March 31, 2023, we had insufficient objective positive evidence that we will generate sufficient future pre-tax income to overcome the negative evidence of cumulative losses. Accordingly, we continue to record a full valuation allowance against our net U.S. and U.K. deferred tax assets as of March 31, 2023.
We account for the tax effects of discrete events in the interim period they occur. The provision for
(benefit of) income taxes consists of federal, foreign, state, and local income taxes. Our effective tax rate differs from the statutory U.S. income tax rate due to the effect of state and local income taxes,
generally lowerdiffering tax rates
imposed on income earned in foreign jurisdictions
compared toand in the United States,
losses in foreign jurisdictions, certain nondeductible expenses,
excess tax deductions, and the changes in valuation allowances against our deferred tax assets. Our effective tax rate could change significantly from quarter to quarter because of recurring and nonrecurring factors.
The provision for income taxes for each of the three months ended March 31, 2022 and 2023 was primarily attributable to increased foreign withholding tax and state minimum tax in the related jurisdictions. In addition, there was an increase in foreign income taxes due to profitability in certain foreign subsidiaries. We evaluate whether to recorddid not recognize benefits from excess tax deductions from exercised stock options and settled RSUs or net operating losses for either the three months ended March 31, 2022 or 2023 as a valuation allowance against our deferred tax assets by considering all available positive and negative evidence, using a “more likely than not” realization standard, including our cumulative losses, andresult of the amount and timing of future taxable income. Based on our review, we will continue to maintain a full valuation allowance against our U.S. and U.K. net deferred tax assets.
The income tax benefit of $0.6 million for the nine months ended September 30, 2017 primarily relates to a discrete tax benefit of $1.0 million related to a decrease in our valuation allowance against our deferred tax assets related to the Yhat acquisition, offset in part by U.S. and Czech tax expense from the sale of the intellectual property related to our products from the U.S. parent company to wholly owned subsidiaries outside the United States and from the Czech subsidiary to the U.S. parent company and other wholly owned subsidiaries outside the United States.
Neither we nor any of our subsidiaries are currently under examination from tax authorities in the jurisdictions in which we do business.
10.
12. Basic and Diluted Net Loss Per Share
In periods in which we have net income, we apply
The following table presents the
two-class method for calculating net loss per share. Under the two-class method, net income is attributed to common stockholders and participating securities based on their participation rights. Participating securities include convertible preferred stock. In periods in which we have net losses after accretioncomputation of
convertible preferred stock, we do not attribute losses to participating securities as they are not contractually obligated to share our losses.Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the(in thousands, except per share amounts):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| Numerator: | | | | | | | |
| Net loss attributable to common stockholders | $ | (89,035) | | | $ | (105,567) | | | | | |
| Denominator: | | | | | | | |
| Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted | 69,874 | | | 67,826 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net loss per share attributable to common stockholders, basic and diluted | $ | (1.27) | | | $ | (1.56) | | | | | |
| | | | | | | |
Since we were in a loss position for all periods presented, basic net loss
attributable to common stockholders byis the
weighted-average numbersame as diluted net loss per share for all periods as the inclusion of
all potential shares of common stock outstanding
during the period. Net loss attributable to common stockholders is calculated as net loss including current period convertible preferred stock accretion.Diluted net loss per share attributable to common stockholders adjusts basic net loss per share for the potentially dilutive impact of stock options and convertible preferred stock. As wewould have reported losses attributable to common stockholders for all periods presented, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share. Basic and diluted net loss per share attributable to common stockholders for Class A and Class B common stock were the same because they were entitled to the same liquidation and dividend rights.
been anti-dilutive. The following weighted-average equivalent shares of common stock were excluded from the diluted net loss per share calculation because their inclusion would have been anti-dilutive (in thousands):
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Options to purchase common stock | | | 5,890 | | | | 5,590 | | | | 6,029 | | | | 5,363 | |
Unvested restricted stock units | | | 418 | | | | — | | | | 411 | | | | — | |
Conversion of convertible preferred stock | | | — | | | | 14,647 | | | | 4,399 | | | | 14,647 | |
Contingently issuable shares | | | 12 | | | | — | | | | 4 | | | | — | |
| | | | | | | | | | | | | | | | |
Total shares excluded from net loss per share | | | 6,320 | | | | 20,237 | | | | 10,843 | | | | 20,010 | |
| | | | | | | | | | | | | | | | |
11. Segment
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| Stock awards | 8,284 | | | 7,018 | | | | | |
| | | | | | | |
| Convertible senior notes | 5,618 | | | 6,136 | | | | | |
| Total shares excluded from net loss per share | 13,902 | | | 13,154 | | | | | |
13. Subsequent Events
On April 27, 2023, we announced a workforce reduction plan, or the Workforce Reduction Plan, intended to reduce operating costs, improve operating margins, and
Geographic InformationOperating segments are defined as componentscontinue advancing our ongoing commitment to profitable growth. The Workforce Reduction Plan is expected to impact primarily employees in our sales and marketing and general and administrative organizations. We currently estimate that we will incur charges of an enterpriseapproximately $11.0 million to $13.0 million in connection with the Workforce Reduction Plan, consisting of cash expenditures for which separate financial information is evaluated regularlythe notice period and severance payments, employee benefits, and job placement services. We expect that the majority of the charges will be incurred in the second quarter of 2023 and that the execution of the Workforce Reduction Plan will be substantially complete by the chief operating decision maker, or CODM, who is our chief executive officer, in deciding how to allocate resources and assess our financial and operational performance. Our CODM evaluates our financial information and resources and assesses the performance of these resources on a consolidated and aggregated basis. As a result, we have determined that our business operates in a single operating segment.
Our operations outside the United States include sales offices in Canada, Czech Republic, Germany, Singapore, and the United Kingdom, and a research and development center in Ukraine. Revenue by location is determined by the billing addressend of the customer. The following sets forth our revenue by geographic region (in thousands):
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
United States | | $ | 26,290 | | | $ | 18,158 | | | $ | 72,582 | | | $ | 49,632 | |
International | | | 7,865 | | | | 4,304 | | | | 20,437 | | | | 11,196 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 34,155 | | | $ | 22,462 | | | $ | 93,019 | | | $ | 60,828 | |
| | | | | | | | | | | | | | | | |
No countries outside the United States comprised more than 10%third quarter of revenue for any of the periods presented.
2023.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and our
final prospectus related to the Company’s initial public offering, or IPO, dated March 23, 2017, or the Prospectus,Annual Report, filed with the
Securities and Exchange Commission, or the SEC
pursuant to Rule 424(b) under the Securities Act of 1933, as amended, or the Securities Act.on February 10, 2023. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. See “Special Note Regarding Forward-Looking Statements” above.
We are a
leading providerleader in analytics automation. The Alteryx Analytics Automation Platform empowers “analytics for all” by delivering easy, end-to-end automation of
self-servicedata engineering, analytics, reporting, machine learning, and data science processes, enabling enterprises to democratize data analytics
software. Our software platform enablesacross their organizations
to dramatically improve business outcomes and the productivityfor a broad range of
their business analysts. Our subscription-based platform allows organizations to easily prepare, blend, and analyze data from a multitude of sources and more quickly benefit from data-driven decisions. The ease-of-use, speed, and sophistication that our platform provides is enhanced through intuitive and highly repeatable visual workflows. We aim to make our platform as ubiquitoususe cases. Whether working in the
workplace as spreadsheetscloud or on-premise, data workers, regardless of technical acumen, are
today.empowered to be curious and solve problems. With the Alteryx Analytics Automation Platform, users can automate the full range of analytics and data science processes, embed intelligent decision-making and actions, and empower their organization to enable top and bottom-line impact, efficiency gains, and rapid upskilling.
Our analytics platform includescomprises Alteryx Designer, our data profiling, preparation, blending, and analytics product deployable in the cloud and on premise, andused to create visual workflows or analytic processes through an intuitive drag-and-drop interface; Alteryx Server, our secure and scalable server-based product for scheduling, sharing, and running analytic processes and applications in a web-based environment.environment; Alteryx Connect, our collaborative data exploration platform for discovering information assets and sharing recommendations across the enterprise; and Alteryx Intelligence Suite, our solution for artificial intelligence that provides automated modeling, optical character recognition, and natural language processing to gain insights and produce production models. Our Alteryx Analytics Cloud platform also offers cloud-native products, including Alteryx Designer Cloud, our cloud-native data profiling, preparation, and data pipelining product used to create visual workflows or analytic processes through our drag-and-drop interface; Alteryx Machine Learning, our cloud-based solution for automated machine learning, or AutoML, where business analysts can quickly build, validate, iterate, and explore machine learning models with a fully guided user experience; and Alteryx Auto Insights, our cloud-native analytics solution built for enterprises that utilizes artificial intelligence-driven data discovery to perform root cause analysis of business trends to automate insights for business users. In addition, Alteryx Analytics Gallery, our cloud-based collaboration offering, is a key feature of our platform allowingCommunity allows users to gain valuable insights from one another, collaborate and share their experiences and ideas, and innovate around our platform. The Alteryx Community also provides a channel for users to share tools and workflows in a centralized repository.
Our platform has been adopted by organizations across a wide variety of industries and sizes. As of
September 30, 2017,March 31, 2023, we had
3,054over 8,300 customers in more than
6090 countries, including over
400930 of the Global 2000 companies.
We derive substantially alla large portion of our revenue from subscriptions for use of our platform. Our software can be licensed for use on a desktop or server, or it can be delivered through a hosted model.deployed in the cloud. Subscription periods for our platform generally range from one to three years and the subscription fees are typically billed annually in advance. We recognize revenue from subscription fees ratably over the term of the contract. Revenue from subscriptions represented over 95% of revenue for each of the three and nine months ended September 30, 2017 and 2016. We also generate revenue from professional services, including training and consulting services.
Revenue from subscriptions, including related PCS, represented over 95% of revenue for each of the three months ended March 31, 2023 and 2022.
We
employ a “landbelieve analytics automation is an area in which companies are continuing to invest and
expand” business model. Our go-to-market approach often beginswe are seeing continued success in the analytics automation market with
a free trial and is followed by an initial purchase of our
platform. As organizations realize the benefits derived from our platform, use frequently spreads across departments, divisions, and geographies through word-of-mouth, collaboration, and standardization of business processes. Over time,enterprise-focused sales motion. For many of our customers,
find thatanalytics has become a priority at the
useexecutive level and we have experienced success in identifying and involving executive sponsors to champion analytics democratization initiatives within their organizations. This has led to an increase in the adoption of enterprise license agreements, which provides our customers additional flexibility and encourages exploration of new cases with new users throughout their organizations. Our focus on selling to the enterprise has enabled us to lead with the sale of our platform
is more strategic in nature and our platform becomes a fundamental elementrather than the sale of
their regular analytical processes.individual products.
We sell our platform primarily through direct
and indirect sales and marketing
channels utilizing a wide range of online and offline sales and marketing activities. In addition, wechannels. We have cultivated strong relationships with channel partners to help us extend the reach of our sales and marketing efforts
especially internationally. Our channel partners include technology alliances,
systemsolution providers, global strategic integrators,
management consulting firms,value-added resellers, or VARs, and
value-added resellers.cloud service providers. These
channel partners also provide solution-based selling, services, and training internationally.
We review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions:
Annualized Recurring Revenue. We derive a large portion of our revenue from subscriptions for use of our software platform. Subscription periods for our platform generally range from one to three years and subscription fees are typically billed annually in advance. A portion of revenue from our subscriptions is recognized at the point in time when the platform is first made available to the customer, or the beginning of the subscription term, if later. The remaining portion is recognized ratably over the life of the contract. This revenue recognition creates variability in the revenue we recognize from period to period based on the timing of subscription start dates and the subscription term.
In order to measure the underlying performance of our subscription-based contracts, we calculate annualized recurring revenue, or ARR, which represents the annualized recurring value of all active subscription contracts at the end of a reporting period and excludes the value of non-recurring revenue streams that are recognized at a point in time, such as certain professional services. ARR is a performance metric and should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items. Both multi-year contracts and contracts with terms less than one year are annualized by dividing the total committed contract value by the number of months in the subscription term and then multiplying by twelve. Annualizing contracts with terms less than one year results in amounts being included in our ARR calculation that are in excess of the total contract value for those contracts at the end of the reporting period.
The following table summarizes our annualized recurring revenue (in millions) for each quarter end for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | As of |
| | | | | | | | | | Mar. 31, | | Jun. 30, | | Sep. 30, | | Dec. 31, | | Mar. 31, | | | | |
| | | | | | | | | | 2022 | | 2022 | | 2022 | | 2022 | | 2023 | | | | |
| Annualized recurring revenue | | | | | | | | | | $ | 684 | | | $ | 727 | | | $ | 758 | | | $ | 834 | | | $ | 857 | | | | | |
Dollar-Based Net Expansion Rate. Our dollar-based net expansion rate is a trailing four-quarter average of the ARR from a cohort of customers in a quarter as compared to the same quarter in the prior year. A dollar-based net expansion rate equal to 100% would generally imply that we received the same amount of ARR from our cohort of customers in the current quarter as we did in the same quarter of the prior year. A dollar-based net expansion rate less than 100% would generally imply that we received less ARR from our cohort of customers in the current quarter than we did in the same quarter of the prior year. A dollar-based net expansion rate greater than 100% would generally imply that we received more ARR from our cohort of customers in the current quarter than we did in the same quarter of the prior year.
To calculate our dollar-based net expansion rate, we first identify a cohort of customers, or the Base Customers, in a particular quarter, or the Base Quarter. A customer will not be considered a Base Customer unless such customer has an active subscription on the last day of the Base Quarter. We then divide the ARR in the same quarter of the subsequent year attributable to the Base Customers, or the Comparison Quarter, including Base Customers from which we no longer derive ARR in the Comparison Quarter, by the ARR attributable to those Base Customers in the Base Quarter. Our dollar-based net expansion rate in a particular quarter is then obtained by averaging the result from that particular quarter with the corresponding result from each of the prior three quarters.
To better align our reported business metrics, beginning in the first quarter of 2023, we revised our dollar-based net expansion calculation to utilize ARR instead of annual contract value, which, if applied to prior periods presented, would have had no more than a 1% impact on any such prior period. As a result, we have not recast prior period dollar-based net expansion rates to conform to the current definition because the impact is immaterial.
The following table summarizes our dollar-based net expansion rate at the end of each quarter for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Three Months Ended |
| | | | | | | | | | Mar. 31, | | Jun. 30, | | Sep. 30, | | Dec. 31, | | Mar. 31, | | | | |
| | | | | | | | | | 2022 | | 2022 | | 2022 | | 2022 | | 2023 | | | | |
| Dollar-based net expansion rate | | | | | | | | | | 119 | % | | 120 | % | | 121 | % | | 121 | % | | 121 | % | | | | |
Number of Customers. We believe that our ability to expand our customer base is a key indicator of our market penetration, the growth of our business, and our future potential business opportunities. We define a customer at the end of any particular period as an entity with a subscription agreement that runs through the current or future period as of the measurement date. Organizations with free trials have not entered into a subscription agreement and are not considered customers. A single organization with separate subsidiaries, segments, or divisions that use our platform may represent multiple customers, as we treat each entity that is invoiced separately as a single customer. In cases where customers subscribe to our platform through our channel partners, each end customer is counted separately. The following table summarizes the number of our customers at each quarter end for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of | |
| | | Mar. 31,
2016 | | | Jun. 30,
2016 | | | Sep. 30,
2016 | | | Dec. 31,
2016 | | | Mar. 31,
2017 | | | Jun. 30,
2017 | | | Sep. 30,
2017 | |
Customers | | | 1,578 | | | | 1,834 | | | | 2,047 | | | | 2,328 | | | | 2,565 | | | | 2,823 | | | | 3,054 | |
Dollar-Based Net Revenue Retention Rate. We believe that our dollar-based net revenue retention rate is a key measure to provide insight into the long-term value of our customers and our ability to retain and expand revenue from our customer base over time. Our dollar-based net revenue retention rate is a trailing four-quarter average of the subscription revenue from a cohort of customers in a quarter as compared to the same quarter in the prior year. Dollar-based net revenue retention rate equal to 100% would indicate that we received the same amount of revenue from our cohort of customers in the current quarter as we did in the same quarter of the prior year. Dollar-based net revenue retention rate less than 100% would indicate that we received less revenue from our cohort of customers in the current quarter than we did in the same quarter of the prior year.
To calculate our dollar-based net revenue retention rate, we first identify a cohort of customers, or the Base Customers, in a particular quarter, or the Base Quarter. A customer will not be considered a Base Customer unless such customer has an active subscription for the entirety of the Base Quarter. We then divide the revenue in the same quarter of the subsequent year attributable to the Base Customers, or the Comparison Quarter, including Base Customers from which we no longer derive revenue in the Comparison Quarter, by the revenue attributable to those Base Customers in the Base Quarter. Our dollar-based net revenue retention rate in a particular quarter is then obtained by averaging the result from that particular quarter by the corresponding result from each of the prior three quarters. The dollar-based net revenue retention rate excludes revenue from professional services from that cohort.
The following table summarizes our dollar-based net revenue retention rate for each quarter for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
| | | Mar. 31,
2016 | | | Jun. 30,
2016 | | | Sep. 30,
2016 | | | Dec. 31,
2016 | | | Mar. 31,
2017 | | | Jun. 30,
2017 | | | Sep. 30,
2017 | |
Dollar-based net revenue retention rate | | | 126 | % | | | 127 | % | | | 129 | % | | | 135 | % | | | 133 | % | | | 134 | % | | | 133 | % |
Components of Our
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | As of |
| | | | | | | | | | Mar. 31, | | Jun. 30, | | Sep. 30, | | Dec. 31, | | Mar. 31, | | | | |
| | | | | | | | | | 2022 | | 2022 | | 2022 | | 2022 | | 2023 | | | | |
| Customers | | | | | | | | | | 8,195 | | | 8,296 | | | 8,340 | | | 8,358 | | | 8,338 | | | | | |
Results of Operations
Revenue
We derive our revenue primarily from the sale of software subscriptions. Revenue from subscriptions reflects the revenue recognized from sales of licenses to our platform to new customers and additional licenses to existing customers. Subscription fees are based primarily on the number of users of our platform. We recognize subscription revenue ratably over the term of the contract, commencing with the date on which the platform is first made available to the customer, and when all other revenue recognition criteria are met. Our subscription agreements generally have terms ranging from one to three years and are billed annually in advance. Subscriptions are generally non-cancelable during the subscription term and subscription fees are non-refundable. Our subscription agreements provide for unspecified future updates, upgrades, and enhancements, and technical product support. We also generate revenue from licensing third-party syndicated data packaged with subscriptions, which we recognize ratably over the subscription period. We also derive revenue from professional services fees earned for consulting engagements related to training customers and channel partners, and consulting services. Revenue from professional services relating to training results from contracts to provide educational services to customers and channel partners regarding the use of our technologies and is recognized as the services are provided. Consulting revenue is recognized on a time and materials basis as services are provided. Revenue from professional services represented less than 5% of revenue for each of the three and nine months ended September 30, 2017 and 2016. Over the long term, we expect our revenue from professional services to decrease as a percentage of our revenue. In addition, due to our “land and expand” business model, a substantial majority of our revenue in any given period is attributable to our existing customers compared to new customers.
Cost of Revenue
Cost of revenue consists primarily of employee-related costs, including salaries and bonuses, stock-based compensation expense, and employee benefit costs associated with our customer support and professional services organizations. It also includes expenses related to hosting and operating our cloud infrastructure in a third-party data center, licenses of third-party syndicated data, amortization of intangible assets, and related overhead expenses. The majority of our cost of revenue does not fluctuate directly with increases in revenue.
We allocate shared overhead costs such as information technology infrastructure, rent, and occupancy charges in each expense category based on headcount in that category. As such, general overhead expenses are reflected in cost of revenue.
We intend to continue to invest additional resources in our cloud infrastructure. We expect that the cost of third-party data center hosting fees will increase over time as we continue to expand our cloud-based offering.
Gross Profit and Gross Margin
Gross profit is revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin has fluctuated and may fluctuate from period to period based on a number of factors, including the mix of products and services we sell, the channel through which we sell our products and services, and, to a lesser degree, the utilization of customer support and professional services resources, as well as third-party hosting and syndicated data fees in any given period. We expect our gross margin to increase modestly over the long term, although our gross margin may fluctuate from period to period depending on the interplay of the factors discussed above.
Operating Expenses
Our operating expenses are classified as research and development, sales and marketing, and general and administrative. For each of these categories, the largest component is employee-related costs, which include salaries and bonuses, stock-based compensation expense, and employee benefit costs. We allocate shared overhead costs such as information technology infrastructure, rent, and occupancy charges in each expense category based on headcount in that category.
Research and development. Research and development expense consists primarily of employee-related costs, including salaries and bonuses, stock-based compensation expense, and employee benefit costs, for our research and development employees, depreciation of equipment used in research and development, third-party contractors, and related allocated overhead costs. We expect research and development expenses to continue to increase in absolute dollars for the
foreseeable future as we continue to increase the functionality and otherwise enhance our platform and develop new products and services. However, we expect research and development expense to decrease as a percentage of revenue over the long term, although research and development expense may fluctuate as a percentage of revenue from period to period due to the seasonality of revenue and the timing and extent of these expenses.
Sales and marketing. Sales and marketing expense consists primarily of employee-related costs, including salaries and bonuses, sales commissions, stock-based compensation expense, and employee benefit costs, for our sales and marketing employees, marketing programs, and related allocated overhead costs. Our sales and marketing employees include quota-carrying headcount, sales operations, and administration, marketing, and management. Marketing programs consist of advertising, promotional events such as our U.S. and European Inspire user conferences, corporate communications, brand building, and product marketing activities such as online lead generation.
We plan to continue to invest in sales and marketing by expanding our global promotional activities, building brand awareness, attracting new customers, and sponsoring additional marketing events. The timing of these events, such as our annual sales kickoff in the first quarter and our annual U.S. and European Inspire user conferences in the second and third quarters, respectively, will affect our sales and marketing expense in a particular quarter. We expect sales and marketing expense to continue to increase in absolute dollars for the foreseeable future as we continue to expand our sales force both in the United States and internationally, and to continue to be our largest operating expense category. However, we expect sales and marketing expense to decrease as a percentage of revenue over the long term, although sales and marketing expense may fluctuate as a percentage of revenue from period to period due to the seasonality of revenue and the timing and extent of these expenses.
General and administrative. General and administrative expense consists primarily of employee-related costs, including salaries and bonuses, stock-based compensation expense, and employee benefit costs, for our executive officers and finance, legal, human resources, and administrative personnel, professional fees for external legal, accounting, and other consulting services, including those incurred in connection with our business combinations and follow-on public offering, changes in the fair value of contingent consideration, and related allocated overhead costs. We expect general and administrative expense to continue to increase in absolute dollars for the foreseeable future as we continue to grow and incur the costs associated with being a publicly traded company, including increased legal, audit, and consulting fees. However, we expect general and administrative expense to decrease as a percentage of revenue over the long term as we improve our processes, systems, and controls to enable our internal support functions to scale with the growth of our business, although general and administrative expense may fluctuate as a percentage of revenue from period to period due to the seasonality of revenue and the timing and extent of these expenses.
Other Expense, Net
Other expense, net, consists primarily of foreign exchange gains and losses from foreign currency transactions denominated in currency other than the functional currency, interest income from our available-for-sale investments, and impairment of a cost method investment.
Provision for (Benefit of) Income Taxes
Provision for (benefit of) income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business, and discrete tax benefits related to our business acquisitions. As we have expanded our international operations, we have incurred increased foreign tax expense, and we expect this trend to continue. We have a full valuation allowance for domestic net deferred tax assets, including net operating loss carryforwards, and tax credits related primarily to research and development. Due to our history of domestic losses, we expect to maintain this full valuation allowance for the foreseeable future.
Results of Operations
The following table sets forth our results of operations for the periods indicated. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | | (in thousands) | |
Revenue | | $ | 34,155 | | | $ | 22,462 | | | $ | 93,019 | | | $ | 60,828 | |
Cost of revenue(1) | | | 5,425 | | | | 4,062 | | | | 15,545 | | | | 11,727 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 28,730 | | | | 18,400 | | | | 77,474 | | | | 49,101 | |
| | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development(1) | | | 7,774 | | | | 4,496 | | | | 20,943 | | | | 12,419 | |
Sales and marketing(1) | | | 15,514 | | | | 13,456 | | | | 48,731 | | | | 42,530 | |
General and administrative(1) | | | 8,005 | | | | 4,298 | | | | 24,115 | | | | 11,623 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 31,293 | | | | 22,250 | | | | 93,789 | | | | 66,572 | |
| | | | | | | | | | | | | | | | |
Loss from operations | | | (2,563 | ) | | | (3,850 | ) | | | (16,315 | ) | | | (17,471 | ) |
Other expense, net | | | (711 | ) | | | (284 | ) | | | (277 | ) | | | (562 | ) |
| | | | | | | | | | | | | | | | |
Loss before provision for (benefit of) income taxes | | | (3,274 | ) | | | (4,134 | ) | | | (16,592 | ) | | | (18,033 | ) |
Provision for (benefit of) income taxes | | | 25 | | | | 58 | | | | (632 | ) | | | 148 | |
| | | | | | | | | | | | | | | | |
Net loss | | $ | (3,299 | ) | | $ | (4,192 | ) | | $ | (15,960 | ) | | $ | (18,181 | ) |
| | | | | | | | | | | | | | | | |
(1) | Amounts include stock-based compensation expense as follows: |
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | | (in thousands) | |
Cost of revenue | | $ | 123 | | | $ | 24 | | | $ | 368 | | | $ | 72 | |
Research and development | | | 458 | | | | 99 | | | | 1,157 | | | | 243 | |
Sales and marketing | | | 459 | | | | 308 | | | | 1,642 | | | | 942 | |
General and administrative | | | 1,239 | | | | 475 | | | | 3,342 | | | | 1,077 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 2,279 | | | $ | 906 | | | $ | 6,509 | | | $ | 2,334 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| | (in thousands) |
| Revenue: | | | | | | | | |
| Subscription-based software license | | $ | 91,528 | | | $ | 63,089 | | | | | |
| PCS and services | | 107,559 | | | 94,852 | | | | | |
| Total revenue | | 199,087 | | | 157,941 | | | | | |
| Cost of revenue: | | | | | | | | |
| Subscription-based software license | | 1,955 | | | 2,102 | | | | | |
| PCS and services | | 28,570 | | | 22,139 | | | | | |
Total cost of revenue(1) | | 30,525 | | | 24,241 | | | | | |
| Gross profit | | 168,562 | | | 133,700 | | | | | |
| Operating expenses: | | | | | | | | |
Research and development(1) | | 58,741 | | | 50,150 | | | | | |
Sales and marketing(1) | | 150,817 | | | 115,610 | | | | | |
General and administrative(1) | | 47,195 | | | 59,440 | | | | | |
| Impairment of long-lived assets | | — | | | 8,239 | | | | | |
| Total operating expenses | | 256,753 | | | 233,439 | | | | | |
| Loss from operations | | (88,191) | | | (99,739) | | | | | |
| Interest expense | | (5,229) | | | (2,390) | | | | | |
| Other income (expense), net | | 6,960 | | | (1,950) | | | | | |
| | | | | | | | |
| Loss before provision for income taxes | | (86,460) | | | (104,079) | | | | | |
| Provision for income taxes | | 2,575 | | | 1,488 | | | | | |
| Net loss | | $ | (89,035) | | | $ | (105,567) | | | | | |
(1) Amounts include stock-based compensation expense as follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| | (in thousands) |
| Cost of revenue | | $ | 3,315 | | | $ | 3,404 | | | | | |
| Research and development | | 14,056 | | | 11,174 | | | | | |
| Sales and marketing | | 22,623 | | | 15,220 | | | | | |
| General and administrative | | 17,479 | | | 15,364 | | | | | |
| Total | | $ | 57,473 | | | $ | 45,162 | | | | | |
The following table sets forth selected historical financial data for the periods indicated, expressed as a percentage of revenue:
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Revenue | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
Cost of revenue | | | 15.9 | | | | 18.1 | | | | 16.7 | | | | 19.3 | |
Gross profit | | | 84.1 | | | | 81.9 | | | | 83.3 | | | | 80.7 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development | | | 22.8 | | | | 20.0 | | | | 22.5 | | | | 20.4 | |
Sales and marketing | | | 45.4 | | | | 59.9 | | | | 52.4 | | | | 69.9 | |
General and administrative | | | 23.4 | | | | 19.1 | | | | 25.9 | | | | 19.1 | |
Total operating expenses | | | 91.6 | | | | 99.1 | | | | 100.8 | | | | 109.4 | |
Loss from operations | | | (7.5 | ) | | | (17.1 | ) | | | (17.5 | ) | | | (28.7 | ) |
Other expense, net | | | (2.1 | ) | | | (1.3 | ) | | | (0.3 | ) | | | (0.9 | ) |
Loss before provision for (benefit of) income taxes | | | (9.6 | ) | | | (18.4 | ) | | | (17.8 | ) | | | (29.6 | ) |
Provision for (benefit of) income taxes | | | 0.1 | | | | 0.3 | | | | (0.7 | ) | | | 0.2 | |
Net loss | | | (9.7 | ) | | | (18.7 | ) | | | (17.2 | ) | | | (29.9 | ) |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| Revenue: | | | | | | | | |
| Subscription-based software license | | 46.0 | % | | 39.9 | % | | | | |
| PCS and services | | 54.0 | | | 60.1 | | | | | |
| Total revenue | | 100.0 | | | 100.0 | | | | | |
| Cost of revenue: | | | | | | | | |
| Subscription-based software license | | 1.0 | | | 1.3 | | | | | |
| PCS and services | | 14.3 | | | 14.0 | | | | | |
| Total cost of revenue | | 15.3 | | | 15.3 | | | | | |
| Gross profit | | 84.7 | | | 84.7 | | | | | |
| Operating expenses: | | | | | | | | |
| Research and development | | 29.5 | | | 31.8 | | | | | |
| Sales and marketing | | 75.8 | | | 73.2 | | | | | |
| General and administrative | | 23.7 | | | 37.6 | | | | | |
| Impairment of long-lived assets | | — | | | 5.2 | | | | | |
| Total operating expenses | | 129.0 | | | 147.8 | | | | | |
| Loss from operations | | (44.3) | | | (63.1) | | | | | |
| Interest expense | | (2.6) | | | (1.5) | | | | | |
| Other income (expense), net | | 3.5 | | | (1.3) | | | | | |
| | | | | | | | |
| Loss before provision for income taxes | | (43.4) | | | (65.9) | | | | | |
| Provision for income taxes | | 1.3 | | | 0.9 | | | | | |
| Net loss | | (44.7) | % | | (66.8) | % | | | | |
| | | | | | | | |
Comparison of the Three
and Nine Months Ended
September 30, 2017March 31, 2023 and
20162022
Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Change | | | Nine Months Ended
September 30, | | | Change | |
| | | 2017 | | | 2016 | | | Amount | | | % | | | 2017 | | | 2016 | | | Amount | | | % | |
| | | (in thousands, except percentages) | |
Revenue | | $ | 34,155 | | | $ | 22,462 | | | $ | 11,693 | | | | 52.1 | % | | $ | 93,019 | | | $ | 60,828 | | | $ | 32,191 | | | | 52.9 | % |
The increase in our
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change | | | | |
| 2023 | | 2022 | | Amount | | % | | | | | | | | |
| (in thousands, except percentages) |
| Subscription-based software license | $ | 91,528 | | | $ | 63,089 | | | $ | 28,439 | | | 45.1 | % | | | | | | | | |
| PCS and services | 107,559 | | | 94,852 | | | 12,707 | | | 13.4 | | | | | | | | | |
| Total revenue | $ | 199,087 | | | $ | 157,941 | | | $ | 41,146 | | | 26.1 | % | | | | | | | | |
Subscription-based software license revenue
was primarily from additional sales to existing customers and, to a lesser extent, the increase in our total number of customers. For each of the three and nine months ended September 30, 2017 and 2016, revenue attributed to existing customers was greater than 90% of our revenue.Cost of Revenue and Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Change | | | Nine Months Ended
September 30, | | | Change | |
| | | 2017 | | | 2016 | | | Amount | | | % | | | 2017 | | | 2016 | | | Amount | | | % | |
| | | (in thousands, except percentages) | |
Cost of revenue | | $ | 5,425 | | | $ | 4,062 | | | $ | 1,363 | | | | 33.6 | % | | $ | 15,545 | | | $ | 11,727 | | | $ | 3,818 | | | | 32.6 | % |
% of revenue | | | 15.9 | % | | | 18.1 | % | | | | | | | | | | | 16.7 | % | | | 19.3 | % | | | | | | | | |
Gross margin | | | 84.1 | % | | | 81.9 | % | | | | | | | | | | | 83.3 | % | | | 80.7 | % | | | | | | | | |
The increase in cost of revenue was primarily due to royalties associated with third-party syndicated data costs.
The increase in gross margin was the result of an increase in the proportion of revenue from subscriptions relative to revenue from professional services, as well as an increase in the use of our community site for self-service support, which relies on engagement with other end-users and our partners, resulting in lower support costs as a percentage of revenue.
Research and Development
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Change | | | Nine Months Ended
September 30, | | | Change | |
| | | 2017 | | | 2016 | | | Amount | | | % | | | 2017 | | | 2016 | | | Amount | | | % | |
| | | (in thousands, except percentages) | |
Research and development | | $ | 7,774 | | | $ | 4,496 | | | $ | 3,278 | | | | 72.9 | % | | $ | 20,943 | | | $ | 12,419 | | | $ | 8,524 | | | | 68.6 | % |
% of revenue | | | 22.8 | % | | | 20.0 | % | | | | | | | | | | | 22.5 | % | | | 20.4 | % | | | | | | | | |
The increase in research and development expenseincreased for the three months ended September 30, 2017March 31, 2023 as compared to the three months ended September March 31, 2022 primarily due to an increase in sales to new and existing customers during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.
PCS and services revenue is primarily recognized ratably over the subscription term. Due to the ratable recognition, the increases in PCS and services revenue are primarily attributed to sales to customers in prior periods and growth in our customer base between March 31, 2022 and March 31, 2023. Our product pricing and changes in product mix were not significant drivers of the change in subscription-based software license or PCS and services revenue for the periods presented. Sales of our cloud-based product offerings did not represent a material amount of revenue for each of the three months ended March 31, 2023 and 2022.
The disaggregation of revenue by region was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change | | | | |
| | 2023 | | 2022 | | Amount | | % | | | | | | | | |
| (in thousands, except percentages) |
| United States | $ | 143,665 | | | $ | 110,033 | | | $ | 33,632 | | | 30.6 | % | | | | | | | | |
| International | 55,422 | | | 47,908 | | | 7,514 | | | 15.7 | | | | | | | | | |
| Total revenue | $ | 199,087 | | | $ | 157,941 | | | $ | 41,146 | | | 26.1 | % | | | | | | | | |
| | | | | | | | | | | | | | | |
Cost of Revenue and Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change | | | | |
| 2023 | | 2022 | | Amount | | % | | | | | | | | |
| (in thousands, except percentages) |
| Subscription-based software license | $ | 1,955 | | | $ | 2,102 | | | $ | (147) | | | (7.0) | % | | | | | | | | |
| PCS and services | 28,570 | | | 22,139 | | | 6,431 | | | 29.0 | | | | | | | | | |
| Total cost of revenue | $ | 30,525 | | | $ | 24,241 | | | $ | 6,284 | | | 25.9 | % | | | | | | | | |
| % of revenue | 15.3 | % | | 15.3 | % | | | | | | | | | | | | |
| Gross margin | 84.7 | % | | 84.7 | % | | | | | | | | | | | | |
Cost of revenue increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to $4.7 million in increased employee-related costs driven by incremental headcount and annual merit increases for eligible employees. Additionally, there was an increase of $1.0 million in amortization of intangibles associated with our recent acquisitions.
As of March 31, 2023, we had 302 cost of revenue personnel as compared to 262 as of March 31, 2022.
Research and Development
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change | | | | |
| 2023 | | 2022 | | Amount | | % | | | | | | | | |
| (in thousands, except percentages) |
| Research and development | $ | 58,741 | | | $ | 50,150 | | | $ | 8,591 | | | 17.1 | % | | | | | | | | |
| % of revenue | 29.5 | % | | 31.8 | % | | | | | | | | | | | | |
Research and development expense increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to $7.2 million in increased employee-related costs, including stock-based compensation, driven by incremental headcount and additional stock awards granted to new hires and as part of our equity refresh programs. In addition, there was an increase in information technology and overhead costs of $1.6 million due to the procurement of additional software licenses to support the increased headcount and cloud infrastructure.
As of March 31, 2023, we had 711 research and development personnel as compared to 609 as of March 31, 2022.
Sales and Marketing
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change | | | | |
| 2023 | | 2022 | | Amount | | % | | | | | | | | |
| (in thousands, except percentages) |
| Sales and marketing | $ | 150,817 | | | $ | 115,610 | | | $ | 35,207 | | | 30.5 | % | | | | | | | | |
| % of revenue | 75.8 | % | | 73.2 | % | | | | | | | | | | | | |
Sales and marketing expense increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to an increase in employee-related costs, excludingincluding stock-based compensation, of $2.3$27.8 million. The overall increase in employee-related costs was a result of increased headcount and additional stock awards granted to new hires and as part of our equity refresh programs. There was an additional increase related to the effect of higher travel and entertainment expenses of $5.0 million, primarily due to higher headcount, an increase in stock-based compensation of $0.4 million due to higher headcountour annual sales kickoff conference and stock awards issued in connection with the acquisition of Yhat, Inc., or Yhat, and an increase of $0.4 million in allocated overhead expenses. increased international travel.
As of
September 30, 2017,March 31, 2023, we had
157 research1,464 sales and
developmentmarketing personnel as compared to
981,126 as of
September 30, 2016.The increase in researchMarch 31, 2022.
General and developmentAdministrative
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change | | | | |
| 2023 | | 2022 | | Amount | | % | | | | | | | | |
| (in thousands, except percentages) |
| General and administrative | $ | 47,195 | | | $ | 59,440 | | | $ | (12,245) | | | (20.6) | % | | | | | | | | |
| % of revenue | 23.7 | % | | 37.6 | % | | | | | | | | | | | | |
General and administrative expense
for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily due to an increase in employee-related costs excluding stock-based compensation of $6.1 million due to higher headcount, an increase in stock-based compensation of $0.9 million due to higher headcount and stock awards issued in connection with the Yhat acquisition and an increase of $1.0 million in allocated overhead expenses.Sales and Marketing
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Change | | | Nine Months Ended
September 30, | | | Change | |
| | | 2017 | | | 2016 | | | Amount | | | % | | | 2017 | | | 2016 | | | Amount | | | % | |
| | | (in thousands, except percentages) | |
Sales and marketing | | $ | 15,514 | | | $ | 13,456 | | | $ | 2,058 | | | | 15.3 | % | | $ | 48,731 | | | $ | 42,530 | | | $ | 6,201 | | | | 14.6 | % |
% of revenue | | | 45.4 | % | | | 59.9 | % | | | | | | | | | | | 52.4 | % | | | 69.9 | % | | | | | | | | |
The increase in sales and marketing expensedecreased for the three months ended September 30, 2017March 31, 2023 as compared to the three months ended September 30, 2016 wasMarch 31, 2022 primarily due to an increasea decrease in consulting and outsourced labor costs of $11.2 million, which were higher in the prior period as a result of legal and accounting professional services fees related to our acquisition of Trifacta, a decrease in overhead costs of $1.5 million resulting primarily from our prior year office rationalization, and a $1.1 million decrease in employee-related costs, of $2.2 millionprimarily due to higher headcount and an increase of $0.1 million in allocated overhead expenses, offset in part by a decrease in headcount and an optimizationorganization realignment. These decreases were offset by a $2.1 million increase in stock-based compensation, driven by a full period of marketing program related expensesrecognition of $0.4 million. the prior year market-based awards to certain executives.
As of
September 30, 2017,March 31, 2023, we had
224 sales373 general and
marketingadministrative personnel as compared to
191387 as of
September 30, 2016.March 31, 2022.
Impairment of Long-Lived Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change | | | | |
| 2023 | | 2022 | | Amount | | % | | | | | | | | |
| (in thousands, except percentages) |
| Impairment of long-lived assets | $ | — | | | $ | 8,239 | | | $ | (8,239) | | | * | | | | | | | | |
The
increase in sales and marketing expense for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily due to an increase in employee-related costs of $5.2 million due to higher headcount and an increase of $1.1 million in allocated overhead expenses.General and Administrative
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Change | | | Nine Months Ended
September 30, | | | Change | |
| | | 2017 | | | 2016 | | | Amount | | | % | | | 2017 | | | 2016 | | | Amount | | | % | |
| | | (in thousands, except percentages) | |
General and administrative | | $ | 8,005 | | | $ | 4,298 | | | $ | 3,707 | | | | 86.2 | % | | $ | 24,115 | | | $ | 11,623 | | | $ | 12,492 | | | | 107.5 | % |
% of revenue | | | 23.4 | % | | | 19.1 | % | | | | | | | | | | | 25.9 | % | | | 19.1 | % | | | | | | | | |
The increase in general and administrative expense forlong-lived asset impairment during the three months ended March 31, 2022 was attributable to the ceased use and sublease of our previous corporate headquarters. We recorded impairments on the right-of-use asset and related fixed asset of $6.1 million and $2.1 million, respectively, as the carrying values exceeded the future discounted cash flows.
Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change | | | | |
| 2023 | | 2022 | | Amount | | % | | | | | | | | |
| (in thousands, except percentages) |
| Interest expense | $ | (5,229) | | | $ | (2,390) | | | $ | (2,839) | | | 118.8 | % | | | | | | | | |
Interest expense is primarily attributable to our 2023 Notes, 2024 & 2026 Notes, and 2028 Notes issued during the three months ended June 30, 2018, September 30,
20172019, and March 31, 2023, respectively. Interest expense increased in the three months ended March 31, 2023 as compared to the three months ended
September 30, 2016 was primarilyMarch 31, 2022 due to
an increaseour issuance of the 8.75% senior notes due 2028 in
employee-related costs excluding stock-based compensation of $0.8 million due to higher headcount as we continued to expand our infrastructure to support our growth, an increase in stock-based compensation of $0.8 million due to higher headcount and the recognition of expenses related to restricted stock units triggered by our IPO, an increase of $1.1 million in consulting, accounting, legal and professional fees related to becoming a public company and costs related to our follow-on public offering, and an increase of $0.7 million of allocated overhead expenses. As of September 30, 2017, we had 76 general and administrative personnel as compared to 63 as of September 30, 2016.The increase in general and administrative expense for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily due to an increase in employee-related costs excluding stock-based compensation of $3.5 million due to higher headcount as we continued to expand our infrastructure to support our growth, an increase in stock-based compensation of $2.3 million due to higher headcount and the recognition of expenses related to restricted stock units triggered by our IPO, an increase of $3.2 million in consulting, accounting, legal and professional fees related to becoming a public company, our recent acquisitions and our follow-on public offering, and an increase of $2.6 million of allocated overhead expenses.
March 2023.
Other
Expense,Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Change | | | Nine Months Ended
September 30, | | | Change | |
| | | 2017 | | | 2016 | | | Amount | | | % | | | 2017 | | | 2016 | | | Amount | | | % | |
| | | (in thousands, except percentages) | |
Other expense, net | | $ | (711 | ) | | $ | (284 | ) | | $ | (427 | ) | | | 150.4 | % | | $ | (277 | ) | | $ | (562 | ) | | $ | 285 | | | | (50.7 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change | | | | |
| 2023 | | 2022 | | Amount | | % | | | | | | | | |
| (in thousands, except percentages) |
| Other income (expense), net | $ | 6,960 | | | $ | (1,950) | | | $ | 8,910 | | | (456.9) | % | | | | | | | | |
Other
expense,income (expense), net consists primarily of gains and losses on foreign currency
remeasurement and transactions
and interest income from our available-for-sale
investments, and impairment of a cost method investment.securities. The
fluctuationincrease in other
expenseincome (expense), net for the three
and nine months ended
September 30, 2017March 31, 2023 as compared to the three
and nine months ended
September 30, 2016March 31, 2022 was
primarilyrelated to gains in foreign currency remeasurement of $4.3 million due to
a $1.1 million impairment of a cost method investmentfluctuations in the
three months ended September 30, 2017, increasesUnited States dollar as compared to other major currencies in
interest income due towhich we transact and an increase in
balancesinvestment income of
available for sale securities, and fluctuations in foreign currency against the U.S. Dollar.$3.7 million due to higher interest rates.
Provision for (Benefit of) Income Taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Change | | | Nine Months Ended
September 30, | | | Change | |
| | | 2017 | | | 2016 | | | Amount | | | % | | | 2017 | | | 2016 | | | Amount | | | % | |
| | | (in thousands, except percentages) | |
Provision for (benefit of) income taxes | | $ | 25 | | | $ | 58 | | | $ | (33 | ) | | | * | | | $ | (632 | ) | | $ | 148 | | | $ | (780 | ) | | | * | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Change | | | | |
| 2023 | | 2022 | | Amount | | % | | | | | | | | |
| (in thousands, except percentages) |
| Provision for income taxes | $ | 2,575 | | | $ | 1,488 | | | $ | 1,087 | | | 73.1 | % | | | | | | | | |
The change in the provision for income taxes for the ninethree months ended September 30, 2017March 31, 2023 as compared to the ninethree months ended September 30, 2016March 31, 2022 was primarily due to increased foreign withholding tax as a discrete tax benefitresult of $1.0 millionan increase in revenue in the related jurisdictions and state minimum taxes. In addition, there was an increase in foreign income taxes due to a decreaseprofitability in our valuation allowance against our deferred tax assets related to the Yhat acquisition.certain foreign subsidiaries.
Liquidity and Capital Resources
As
We had $885.1 million and $432.0 million of
September 30, 2017, we had $182.6cash, cash equivalents, and investments in marketable securities with $851.6 million
and $397.8 million held domestically, as of
March 31, 2023 and December 31, 2022, respectively. The increase in cash and cash equivalents and
short-terminvestments is primarily associated with the offering and
long-term investmentssale of $450.0 million in
marketable securities. Inaggregate principal amount of the 2028 Notes during the three months ended March
2017, we completed our IPO, resulting in net31, 2023. Net proceeds
of $131.4 million, which included $17.6 millionreceived from the
exercise in fulloffering were $441.7 million, net of
the underwriters’ option to purchase additional shares in April 2017, after underwriting discounts and commissions and offering expenses.debt issuance costs paid as of three months ended March 31, 2023.
Our principal uses of cash are funding our operations and other working capital requirements.
We
In the short term, we believe that our existing cash and cash equivalents,
marketable securities, and
short-term and long-term investments and any positive cash
flowsflow from operations
(in periods in which we generate cash flow from operations) will be sufficient
to support our working capital and capital expenditure requirements for at least the next 12
months.months to meet our requirements and plans for cash, including meeting our working capital, capital expenditure, and financing requirements. In the long term, our ability to support our requirements and plans for cash, including meeting our working capital, capital expenditure, and financing requirements, will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from customers, expansion of sales and marketing activities, the timing and extent of spending to support research and development efforts, the cost to develop and support our product and service offerings, the introduction of new products and services, the continuing adoption of our products by customers, any acquisitions or investments that we make in complementary businesses, products, and technologies, and our ability to obtain equity or debt financing. To the extent existing cash and cash equivalents,
and short-term investments, and cash from operations are not sufficient to fund future activities, we may need to raise additional funds. We may seek to raise additional funds through equity, equity-linked, or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness may have rights that are senior to holders of our equity
and other debt securities and could contain covenants that restrict operations. Any additional equity or convertible debt financing may be dilutive to stockholders. If we are unable to raise additional capital
or refinance our existing indebtedness when desired, our business, operating results, and financial condition could be adversely affected.
Cash Flows
Additionally, as market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by tender offer, by exchange transaction, or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity, and other factors and may be commenced or suspended at any time. In addition, we may redeem the 2028 Notes in accordance with the terms of the applicable Indenture. The following table sets forth cash flows foramounts involved and total consideration paid may be material.
Other than the periods indicated: | | | | | | | | |
| | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | |
| | | (in thousands) | |
Net cash provided by (used in) operating activities | | $ | 6,440 | | | $ | (9,126 | ) |
Net cash provided by (used in) investing activities | | | (77,183 | ) | | | 2,222 | |
Net cash provided by (used in) financing activities | | | 135,205 | | | | (569 | ) |
Operating Activities
For the nine months ended September 30, 2017, net cash provided by operating activities was $6.4 million. Net cash provided by operating activities primarily reflected a change in operating assets and liabilities of $12.4 million and net non-cash activity of $10.0 million, offset in part by a net loss of $16.0 million. The changes in operating assets and liabilities primarily related to a decrease in accounts receivable of $3.9 million from collections of annual billings invoiced during the three months ended December 31, 2016, and an increase in deferred revenue of $8.1 million due to increased billings. Net non-cash activity primarily consisted of stock-based compensation of $6.5 million and depreciation and amortization of $2.7 million.
For the nine months ended September 30, 2016, net cash used by operating activities was $9.1 million. Net cash used by operating activities primarily reflected a net loss of $18.2 million. The net loss was offset in part by a change in operating assets and liabilities of $5.5 million and net non-cash operating activities of $3.5 million. The change in operating assets and liabilities primarily related to an increase in billings during the three months ended September 30, 2016 resulting in an increase in deferred revenue of $8.4 million offset in part by an increase in accounts receivable of $3.3 million. Net non-cash activities primarily consisted of stock-based compensation of $2.3 million and depreciation and amortization of $1.2 million.
Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2017 was $77.2 million, consisting primarily of $65.8 million of net purchases of investments, $9.1 million of net cash paid in connection with our business acquisitions, and $2.3 million of purchases of property and equipment.
Net cash provided by investing activities for the nine months ended September 30, 2016 was $2.2 million, consisting primarily of $5.7 million of net maturities of investments, offset in part by $3.5 million of purchases of property and equipment associated with additional headcount and office locations.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2017 was $135.2 million, consisting primarily of proceeds from our IPO of $134.8 million and $2.6 million of proceeds from stock option exercises and purchases under our employee stock purchase plan, partially offset by $1.9 million in payments of IPO costs and $0.2 million of principal payments on our capital lease.
Net cash used in financing activities for the nine months ended September 30, 2016 was $0.6 million, consisting primarily of payment of issuance costs related to our Series C convertible preferred stock issuance of $0.4 million and $0.3 million of repurchases of common stock.
Contractual Obligations and Commitments
Therethe 2028 Notes as described elsewhere in this Quarterly Report on Form 10-Q, there were no material changes in our contractual obligations and commitments during the ninethree months ended September 30, 2017March 31, 2023 from the indebtedness or contractual obligations and commitments disclosed in the Prospectus, except for the contingent consideration acquired as part of our business combinations as discussed inAnnual Report. See Note 38,
Debt, and Note 10, Contingencies, of the notes to our condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q. See Note 8 of the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding contractual obligations and commitments.Off-Balance Sheet Arrangements
As of September 30, 2017, we did
We do not have any relationships with unconsolidated entities or financial
partnerships,relationships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
Cash Flows
The following table sets forth cash flows for the periods indicated:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2023 | | 2022 |
| | (in thousands) |
| Net cash provided by operating activities | | $ | 39,956 | | | $ | 8,818 | |
| Net cash provided by (used in) investing activities | | 24,689 | | | (3,986) | |
| Net cash provided by (used in) financing activities | | 421,315 | | | (9,385) | |
Operating Activities
Net cash provided by operating activities was $40.0 million for the three months ended March 31, 2023. Net cash provided by operating activities primarily reflected a net loss of $89.0 million, offset by a change in operating assets and liabilities of $61.1 million and net non-cash activity of $67.9 million.
Net cash provided by operating activities was $8.8 million for the three months ended March 31, 2022. Net cash provided by operating activities primarily reflected net non-cash activity of $72.2 million and a change in operating assets and liabilities of $42.2 million, offset in part by a net loss of $105.6 million.
Changes in operating assets and liabilities are primarily driven by the seasonality of our sales cycle. The fourth quarter of each fiscal year has historically been our strongest quarter for new business and renewals and, correspondingly, the first quarter of the subsequent fiscal year has historically been the strongest for cash collections on accounts receivable and highest for payments of sales commissions. As a result of this seasonality, our accounts receivable decreased during each of the three months ended March 31, 2022 and 2023 compared to the year ended December 31, 2021 and 2022, respectively. These decreases were offset in part by a decrease to accrued payroll and payroll-related liabilities and a net decrease in deferred revenue balances during each respective period. In addition to the sales cycle, our cash flow from operations is also impacted by the payment of our annual cash incentive bonuses to our non-commissioned employees in the first quarter of the fiscal year and the timing of obligations on accounts payable. During the three months ended March 31, 2023, eligible non-commissioned employees were paid the remaining 50% of their annual cash incentive bonuses, which followed the payment of the initial 50% of their annual cash incentive bonuses through a mid-year bonus payout during the three months ended September 30, 2022. During the three months ended March 31, 2022, the entirety of the annual cash incentive bonus achieved was paid to eligible non-commissioned employees.
Investing Activities
Net cash provided by investing activities for the three months ended March 31, 2023 was $24.7 million, consisting of $32.0 million of sales and maturities of investments, net of purchases, offset in part by $6.2 million of capitalized software development costs and $1.1 million of purchases of property and equipment.
Net cash used in investing activities for the three months ended March 31, 2022 was $4.0 million, consisting of $389.8 million of cash paid in connection with our acquisition of Trifacta, $6.6 million of purchases of property and equipment, and $2.7 million of capitalized software development costs, offset in part by $395.1 million of sales and maturities of investments, net of purchases.
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2023 was $421.3 million, consisting primarily of net proceeds from our issuance of the 2028 Notes of $441.7 million, net of debt issuance costs paid as of the three months ended March 31, 2023 and proceeds from stock option exercises and our employee stock purchase plan of $8.7 million, offset in part by the minimum tax withholding paid on behalf of employees for RSU settlements of $27.2 million, and cash payments on the 2023 Notes of $2.0 million.
Net cash used in financing activities for the three months ended March 31, 2022 was $9.4 million, consisting primarily of the minimum tax withholding paid on behalf of employees for RSU settlements of $14.1 million, offset in part by proceeds from stock option exercises and our employee stock purchase plan of $4.7 million.
The timing and number of stock option exercises and employee stock purchases and the amount of proceeds we receive from these equity awards is not within our control. As it is now our general practice to issue principally RSUs to our employees, cash paid on behalf of employees for minimum statutory withholding taxes on RSU settlements will likely increase.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes have been prepared in accordance with U.S. GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and operating expenses, provision for income taxes, and related disclosures. Generally, we base our estimates on historical experience and on various other assumptions in accordance with U.S. GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.
There have been no changes to our critical accounting policies disclosed in our
Prospectus related to our IPO dated March 23, 2017 filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as amended.Annual Report.
Recent Accounting Pronouncements
See Note 2,Significant Accounting Policies, of the notes to our condensed consolidated financial statements included elsewhere in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Foreign Currency Exchange Risk
Due to our international operations, we have foreign currency risks related to revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the British
Poundpound and
Euro.euro. Our sales contracts are primarily denominated in the local currency of the customer making the purchase. In addition, a portion of our operating expenses
areis incurred outside the United States and
areis denominated in foreign currencies where our operations are located.
DecreasesWe are also exposed to certain foreign exchange rate risks related to our foreign subsidiaries, including as a result of intercompany loans denominated in non-functional currencies. Increases in the relative value of the U.S. dollar to other currencies may negatively affect revenue and other operating results as expressed in U.S. dollars. We do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar to other currencies would have a material effect on our operating results.
We have experienced and will continue to experience fluctuations in net
lossincome (loss) as a result of transaction gains or losses related to remeasuring certain
current asset and
current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded.
These exposures may change over time as business practices evolve and economic conditions change. To date, we have not entered into derivatives or hedging transactions, as our exposure to foreign currency exchange rates has historically been partially hedged
asby our U.S. dollar denominated inflows
have coveredcovering our U.S. dollar denominated expenses and our foreign currency denominated inflows
have coveredcovering our foreign currency denominated expenses. However, we may enter into derivative or hedging transactions in the future if our exposure to foreign currency should become more significant.
Interest Rate
and Market Risk
We had cash and cash equivalents and short-term and long-term investments of
$182.6$885.1 million as of
September 30, 2017.March 31, 2023. The primary objective of our investment activities is the preservation of capital, and we do not enter into investments for trading or speculative purposes. A hypothetical 10% increase in interest rates during the
ninethree months ended
September 30, 2017March 31, 2023 would not have had a material impact on our condensed consolidated financial statements. We do not have material exposure to market risk with respect to short-term and long-term investments, as any investments we enter into are primarily highly liquid investments.
Each series of our Notes bears a fixed interest rate, and therefore, is not subject to interest rate risk. We have not utilized derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions, or transactions in any material fashion, except for the privately negotiated capped call transactions entered into in May and June 2018 related to the issuance of our 2023 Notes and August 2019 related to the issuance of our 2024 & 2026 Notes.
We do not believe that inflation has had a material effect on our business, financial condition, or operating results.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of
September 30, 2017.March 31, 2023. Our disclosure controls and procedures are designed to
ensureprovide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Because of the material weakness in our internal control over financial reporting previously disclosed in our Prospectus, Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2017,March 31, 2023 that our disclosure controls and procedures were not effective. In light of this fact, our management, including our Chief Executive Officer and Chief Financial Officer, has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstandingeffective at the material weakness in our internal control over financial reporting, the condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Previously Reported Material Weakness
As disclosed in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, we previously identified a material weakness in our internal control over financial reporting related to the evaluation of the accounting impact of certain contractual terms in certain arrangements with licensed data providers, which resulted in the misstatement in the recording of prepaid and other assets and royalty costs that were recorded in cost of revenue in the first three fiscal quarters of 2016. This material weakness resulted in an immaterial revision of those quarterly balance sheet and results of operations data.
We commenced measures to remediate the identified material weakness. Those remediation measures are ongoing and include the implementation of additional control activities related to the identification and evaluation of the terms of royalty contracts that require consideration when assessing the accounting for the arrangement.
While we believe that these efforts will improve our internal control over financial reporting, the implementation of our remediation is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.
We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weakness in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting, which may necessitate additional implementation and evaluation time. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weakness expeditiously.
reasonable assurance level.
Changes in Internal Control over Financial Reporting
We are taking actions to remediate the material weakness relating to our internal control over financial reporting, as described above. Except as otherwise described herein, there
There was no change in our internal control over financial reporting that occurred during the
period covered by this Quarterly Report on Form 10-Qquarter ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. The inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are involved in
For a description of our legal proceedings, arising in the ordinary course of our business. We are not a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows. Regardlesssee Note 10, Contingencies, of the outcome, litigation can have an adverse impactnotes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on us because of defense and settlement costs, diversion of management resources, and other factors.Form 10-Q, which is incorporated by reference in response to this item.
An investment in our Class A common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this Quarterly Report on Form 10-Q and in our other public filings before making an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. If any of such risks and uncertainties actually occurs, our business, prospects, financial condition,
cash flows, or operating results could differ materially from the plans, projections, and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this
reportQuarterly Report on Form 10-Q and in our other public filings. The trading price of our Class A common stock could decline due to any of these
or other risks, and, as a result, you may lose all or part of your investment.
For more information, see the section titled “Special Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q.
Risks Related to Our Business and Industry
We have
a limited operating history under our current business model, which makes it difficult to evaluate our business and prospects and increases the risks associated with your investment.Although we have been operating our business since 1997, we changed our business model significantly and first launched our software platform in 2010. Further, since 2013, we have licensed our platform to customers under a subscription-based model. As a result, our business model has not been fully proven, and we have only a limited operating history with our new business model to evaluate our business and future prospects, which subjects us to a number of uncertainties, including our ability to plan for and model future growth. Our historical revenue growth should not be considered indicative of our future performance. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including achieving market acceptance of our platform, attracting and retaining customers, growing partnerships and distribution of our platform, increasing competition, and increasing expenses as we continue to grow our business. We cannot assure you that we will be successful in addressing these and other challenges we may faceincurred net losses in the future and if we do not manage these risks successfully, our business may be adversely affected. In addition, we may not achieve sufficient revenuepast, anticipate continuing to achieve or maintain positive cash flow from operations or profitability in any given period.
We have a history of losses, anticipate increasing ourincur significant operating expenses in the future, and may not achieve or sustain profitability.
We
Although we have generated net income in prior periods, we incurred a net loss in the three months ended March 31, 2023, have incurred net losses in each fiscal year since our inception, includingthe past, and may continue to incur net losses of $20.3 million, $21.5 million, and $24.3 million in the years ended December 31, 2014, 2015, and 2016, respectively. We also incurred a net loss of $3.3 million and $16.0 million in the three and nine months ended September 30, 2017, respectively. As of September 30, 2017, we had an accumulated deficit of $102.0 million.future. We expect ourto continue to incur significant operating expenses to increase substantially in the foreseeable future as we implementleverage the investments made to our organization in prior years and continue implementing initiatives designed to grow our business in a disciplined manner, including increasing our overall customer base and expanding sales within our current customer base, continuing to penetrate international markets, investing in research and development to improve the capabilities of our platform, investing in acquisitions of businesses, technology, and talent and related integration efforts, growing our distribution channels and channel partner ecosystem, deepening our user community, hiring additional and investing in our employees, expanding our operations and infrastructure, both domestically and internationally, and in connection with legal, accounting, and other administrative expenses related to operating as a public company. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently, or at all, to offset these higher expenses and to achieve andor, once achieved, sustain profitability. GrowthWe may delay or re-evaluate these efforts due to any anticipated or actual adverse impact to our business as a result of, among other things, global economic uncertainty, rising levels of inflation, interest rates, the COVID-19 pandemic, or other similar events or circumstances. In addition, growth of our revenue may slow or revenue may decline for a number of possible reasons, including a decrease in our ability to attract and retain customers, a failure to increase our number of channel partners, increasingan increase in competition, decreasinga decrease in growth of our overall market, anda decrease in term length in our contracts with customers, an inability to timely and cost-effectively introduce new products and services that are favorably received by customers and partners.partners, and as a result of global economic conditions, such as rising inflation and interest rates, that could cause our customers to reduce their spending levels with us. A shortfall in revenue could lead to operating results being below expectations because we may not be able to quickly reduce our fixed operating expenses in response to short-term business changes. If we are unable to meet these risks and challenges as we encounter them, our business and operating results may be adversely affected,affected.
Volatile and
even if we are able to achieve profitability, we may not be able to sustain or increase such profitability.Our operating results may fluctuate from quarter to quarter, which makes our future results difficult to predict.
Our quarterly operating resultssignificantly weakened global economic conditions have fluctuated in the past and may fluctuate in the future. Additionally,future adversely affect our industry, business, and results of operations.
Our overall performance depends in part on worldwide economic and geopolitical conditions. The United States and other key international economies are experiencing and may in the future experience significant economic and market downturns in which economic activity is impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity, and foreign exchange markets, inflation, bankruptcies, and overall uncertainty with respect to the economy. These economic conditions can arise suddenly and the full impact of such conditions can be difficult to predict. In addition, geopolitical and domestic political developments, such as existing and potential trade wars and other events beyond our control, such as Russia's invasion of Ukraine, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets. Moreover, there has been recent turmoil in the global banking system. For example, in March 2023, Silicon Valley Bank, or SVB, was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. First-Citizens Bank & Trust Company then assumed all of SVB’s customer deposits and certain other liabilities and acquired substantially all of SVB’s loans and certain other assets from the FDIC. While we did not hold a material amount of cash at SVB and, as a result, the closure of SVB did not have a limited operating history with the current scale ofmaterial direct impact on our business, continued instability in the global banking system may result in additional bank failures, as well as volatility of global financial markets, either of which makes it difficultmay adversely impact our business and financial condition. Further, these conditions have affected and may continue to forecastaffect the rate of IT spending, could adversely affect our customers' ability or willingness to attend our events or to purchase our products and services, have delayed and may delay customer purchasing decisions, have reduced and may reduce the value and duration of customer subscription contracts, and may adversely affect our customer attrition rates. All of these risks and conditions could materially adversely affect our future results. As a result, you should not rely upon our past quarterlysales and operating results as indicatorsresults.
If we are unable to develop, release, and gain market acceptance of
future performance. You should take into account the risksproduct and
uncertainties frequently encountered by companies in rapidly evolving markets. Our operating results in any given quarter can be influenced by numerous factors, many of which are unpredictable or are outside of our control, including:our ability to generate significant revenue fromservice enhancements and new products and services;
services to respond to rapid technological change in a timely and cost-effective manner, or if we are unable to develop a successful business model to sell those products and services we have acquired or integrate them into our abilityexisting products and services, our business, operating results, and financial condition could be adversely affected.
The market for our platform is characterized by rapid technological change, frequent new product and service introductions and enhancements, changing customer demands, and evolving industry standards. The introduction of products and services embodying new technologies can quickly make existing products and services obsolete and unmarketable. Analytics products and services are inherently complex, and it can take a long time and require significant research and development expenditures to maintaindevelop and grow our customer base;
our ability to expand our number of partnerstest new or enhanced products and distribution of our platform;
services. We invest heavily in the development and enhancement of new and existing products and services. The success of any enhancements or improvements to our platform or any new products and services depends on several factors, including timely completion, competitive pricing, adequate quality testing, integration with existing technologies and our platform, and overall market acceptance. Additionally, our products and services are expected to meet and keep pace with evolving security standards and requirements of our industry and customers, including those of the federal government. We cannot be sure that we will succeed in developing, marketing, and delivering on a timely and cost-effective basis enhancements or improvements to our platform or any new products and services that respond to technological change, evolving industry standards, or new customer requirements, nor can we be sure that any enhancements or improvements to our platform or any new products and services will achieve market acceptance.
Any new products that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, or may not achieve the broad market acceptance necessary to generate sufficient revenue. The introduction or addition of new products and enhancements, including the introductions of Alteryx Designer Cloud and Alteryx Machine Learning, our first cloud-based products, and the addition of Alteryx Auto Insights, has increased and could continue to increase costs associated with customer support and customer success as demand for these services increases, which could negatively impact our margins. Moreover, even if we introduce new products and services, we may experience a decline in revenue of our existing products and services that is not offset by revenue from the new products or services. For example, customers may delay making purchases of new products and services by usto permit them to make a more thorough evaluation of these products and services, until industry and marketplace reviews become widely available, or due to concerns regarding migration complexity and product or service infancy issues. In addition, we may lose existing customers who choose a competitor’s products and services rather than migrate to our competitors;
increasesnew products and services. This could result in a loss of revenue and timingadversely affect our business. Further, we may make changes to our platform and product strategy that customers do not find useful and we may also discontinue certain features or increase the price or price structure for our platform. As part of our product lifecycle, we have, and may in the future, discontinue products and inform customers that these products will no longer be supported or receive updates. For example, in January 2023, we discontinued the sale of Alteryx Promote. To the extent that discontinued products remain subject to a current subscription contract with the customer, we may offer to transition the customer to alternative products at no cost or significantly reduced cost for the remainder of the subscription contract. Failure to effectively manage our product lifecycles and any related transitions could lead to customer dissatisfaction and contractual liabilities, which could adversely affect our business and operating results.
Further, the emergence of new industry standards related to analytics products and services may adversely affect the demand for our platform. This could happen if new internet standards and technologies or new standards in the field of operating expensessystem support emerge that are incompatible with customer deployments of our platform. For example, if we are unable to adapt our platform on a timely basis to new database standards, the ability of our platform to access customer databases and to analyze data within such databases could be impaired. In addition, because we have begun to offer cloud-based products, including Alteryx Auto Insights, Alteryx Machine Learning, and Alteryx Designer Cloud, we need to continually enhance and improve our platform to keep pace with changes in internet-related hardware, software, communications, and database technologies and standards. Any failure of our platform to operate effectively with future infrastructure platforms and technologies could reduce the demand for our platform. If we are unable to respond to these changes in a timely and cost-effective manner, our platform may become less marketable, less competitive, or obsolete, and our operating results may be adversely affected.
Moreover, cloud-based business models have become increasingly demanded by customers and adopted by other software providers, including our competitors. While most of our customers currently deploy our on-premise platform, we have recently released cloud-based products, including Alteryx Designer Cloud, Alteryx Machine Learning, and Alteryx Auto Insights. The incorporation of a cloud-based business model into our operations has required and will continue to require us to make additional investments to our infrastructure, including expanding our data centers, servers, and networks, increasing our use of hosting services, and increasing our technical operations and engineering teams, any of which may negatively impact our operating results and gross margins. Further, if we are unsuccessful in making cloud-based products generally available that meet the needs and expectations of our customers, we may incurbe unable to grow and expandrealize the benefits of our investments, or the resources we have committed, toward incorporating a cloud-based business model into our operations, which could materially harm our business, operating results, and to remain competitive;gross margins.
seasonal purchasing patterns of our customers;
the timing of our Inspire customer conferences;
costs related to the acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs and possible write-downs;
failures or breaches of security or privacy, and the costs associated with remediating any such failures or breaches;
adverse litigation, judgments, settlements, or other litigation-related costs;
changes in the legislative or regulatory environment, such as with respect to privacy;
fluctuations in currency exchange rates and changes in the proportionWe derive a large portion of our revenue from our software platform, and expenses denominated in foreign currencies;our future growth is dependent on its success.
Nearly all of our revenue has come from sales of our subscription-based software platform and
general economic conditions in either domestic or international markets.
We have been growing rapidly and because we expect these sales to continue to invest inaccount for a large portion of our growthrevenue for the foreseeable future, the continued growth in market demand for our platform is critical to our continued success. Since 2017, we have expanded the capabilities offered by our software platform through new product offerings, such as Alteryx Connect, Alteryx Intelligence Suite, or AIS, Alteryx Auto Insights, Alteryx Machine Learning, and Alteryx Designer Cloud. Alteryx Designer remains our principal product and our other products have achieved varying degrees of success. We cannot be certain that any of these products or any additional products that we introduce will generate significant revenue in the future. IfAccordingly, our business and financial results will likely continue to be substantially dependent on our single software platform.
We have grown rapidly in our recent past and if we are unable to manage our growth effectively, our
revenuebusiness, operating results, and
profitsfinancial condition could be adversely affected.
We have experienced rapid growth in
a relatively short period of time. Our revenue grew from $38.0 millionheadcount and operations in our recent past and expect to continue to grow in the
year ended Decemberfuture. For example, as of March 31,
2014 to $53.8 million in the year ended December 31, 2015 to $85.8 million in the year ended December 31, 2016 and from $60.8 million in the nine months ended September 30, 2016 to $93.0 million in the nine months ended September 30, 2017. Our number of2023, we had 2,850 full-time employees,
has increased significantly over the last few years, from 413 employeescompared with 2,384 as of
September 30, 2016 to 515 employees as of September 30, 2017. During this period, weMarch 31, 2022. We have also established
and expanded our operations in a number of countries outside the United
States.We plan to continue to expand our operationsStates in the last several years and headcount significantly,have employees in the United States, Australia, Canada, Czech Republic, France, Germany, India, Japan, the Netherlands, Singapore, Spain, Sweden, Ukraine, the United Arab Emirates, and we anticipate that further significant expansion will be required.the United Kingdom. In addition, we selllicense our platform to customers in more than 60 countries90 countries. This growth has placed, and have employees in the United States, Canada, the Czech Republic, Germany, Singapore, and the United Kingdom. We plan tomay continue to expand our operations into other countries in the future, which will place additional demands on our resources and operations. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Sustaining our growth will place, significant demands on our management as well as on our administrative, operational, and financial resources. To manage our growth, we must continue to improve our operational, financial, and management information systems and expand, motivate, and manage our workforce. Further, we believe that our corporate culture has been vital to our success, including in attracting, developing, and retaining personnel and customers, and maintaining our culture has become more challenging as we have grown our employee base over the last several years, including through the acquisition of other companies. If we are unable to manage our growth successfully, including as a result of our inability to maintain our corporate culture, without compromising our quality of service or our profit margins, or if new systems that we implement to assist in managing our growth do not produce the expected benefits, our revenue and profits could be harmed. Risks that we face in undertaking future expansion include:
effectively recruiting, integrating, training, and motivating a large number of new employees, including our direct sales force, while retaining existing employees, maintaining the beneficial aspects of our corporate culture, and effectively executing our business plan;
satisfying existing customers and attracting new customers;
successfully improving and expanding the capabilities of our platform and introducing new products and services;
expanding our channel partner ecosystem;
controlling expenses and investments in anticipation of expanded operations;
implementing and enhancing our administrative, operational, and financial infrastructure, systems, and processes;
addressing new markets; and
expanding operations in the United States and international regions.
A failure to manage our growth effectively could harm our business, operating results, financial condition, and ability to market and sell our platform.
platform could be harmed.
Further, due to our
recent rapid growth
in recent years, we have limited experience operating at our current scale and potentially at a larger scale
in the future, and, as a result, it may be difficult for us to fully evaluate future prospects and risks. Our recent and historical growth should not be considered indicative of our future performance. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies in rapidly changing
industries.industries, which may include risks related to satisfying existing customers and attracting new customers; effectively managing expenses and investments; expanding operations in the United States and internationally; geopolitical and macroeconomic conditions; innovating our offerings; effectively recruiting, integrating, training, and motivating a large number of new employees; and other risks. If our assumptions regarding these
and other risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address
these risks successfully, our financial condition and operating results could differ materially from our expectations, our growth rates may slow, and our business would
bybe adversely impacted.
Our continued revenue growth has been dependent on our being able to expand and retain our skilled talent base and increase their productivity, particularly with respect to our direct sales force, software engineers, and other highly skilled personnel. There has been substantial and continuous competition for engineers with high levels of experience in designing, developing, and managing software, as well as competition for experienced sales personnel. We saw this demand for talent increase among our peers and competitors in the recent past due to, among other things, the significant growth the technology sector experienced. Due to the current period of economic uncertainty, we have slowed our hiring and eliminated positions where deemed necessary or appropriate. When the macroeconomic climate stabilizes, we may resume expansion of our talent. However, the demand for talent may increase and heightened competition for engineers, experienced sales personnel, and other highly skilled personnel may continue. We may not be successful, and from time to time have experienced difficulty, recruiting, training, and retaining qualified personnel, including engineers and sales personnel. It may also be more challenging to entice qualified personnel to leave their current positions to join us or to retain qualified personnel during periods of heightened
uncertainty and as other challenging market conditions related to macroeconomic and other factors continue. Due to our accelerated hiring in prior years, we have incurred and anticipate that we will continue to incur significant costs to attract, hire, and retain highly skilled personnel. In response to increased competition, rising inflation, labor shortages, or volatility or lack of performance in our stock price, we may need to provide higher levels of compensation, including equity compensation, or benefits to attract new personnel and retain existing personnel, which would further increase our costs. We may also lose new employees to our competitors or other technology companies before we realize the benefit of our investment in recruiting and training them.
New hires require significant training, and sales personnel typically take four to six months or more to sufficiently understand our business and products and achieve target productivity levels. In addition, our adoption of work-from-home policies that offer our employees flexibility to work remotely may further impact and lengthen the time period for our personnel to achieve full productivity. Our recent and future hires may not become productive as quickly as we expect and if our employees do not become productive on the timelines that we projected or at all, our revenue will not increase at anticipated levels and our ability to achieve long term projections may be negatively impacted. In addition, if our work-from-home policies or office environments do not meet the needs and expectations of our workforce, our ability to attract and retain our employees could be negatively impacted. As we continue to enter new geographies, we will need to attract, hire, and retain skilled personnel in those areas, which may involve adopting new working methodologies and require set up and upfront costs that we may not recover.
From time to time, we realign our resources and talent to implement stage-appropriate business strategies, including through reductions in force. These realignment activities have resulted in, and any additional furlough, layoff, or other reduction in force in the future may result in, the loss of long-term employees, voluntary departures of other employees, the loss of institutional knowledge and expertise, the reallocation and combination of certain roles and responsibilities across the organization, and an increased risk of related litigation and claims. Any of the foregoing could adversely affect our operations. In addition, we may not be able to effectively realize all of the cost savings or other benefits anticipated by such actions and may incur unanticipated charges or liabilities as a result of such actions that were not previously contemplated, which could result in additional adverse effects on our business or operating results.
To date, the majority of our revenue has been attributable to the efforts of our direct sales force in the United States. In order to increase our revenue from new and existing customers and sustain profitability, we must, and we intend to, increase the size of our direct sales force, both in the United States and internationally. We periodically change and make adjustments to our sales organization in response to market opportunities, competitive threats, management changes, product introductions or enhancements, acquisitions, sales performance, increases in sales headcount, cost levels and other internal and external considerations. Any future sales organization or sales strategy changes may result in reduced productivity, which could negatively affect our rate of growth. In addition, any significant change to the way we structure the compensation of our sales organization may be disruptive and may affect our revenue growth.
If we are unable to hire and train sufficient numbers of effective sales personnel, if we are unable to identify and recruit sufficient numbers of software engineers with the skills and technical knowledge that we require, if our sales personnel are not successful in obtaining new customers or renewing or increasing sales to our existing customer base, or if our software engineers are unable to timely contribute to the development of our products and services, our rate of growth and business will be adversely affected. More generally, if we do not continue to grow at the same pace that we have experienced in the last few years, if there is a significant adverse change in our business or operations, or if our stock price declines significantly, our employees may not find employment with us as attractive or may find opportunities with our competitors or other technology companies more attractive.
Acquisitions of, or investments in, other companies, products, or technologies have required, and could continue to require, significant management attention and could disrupt our business, dilute stockholder value, and adversely affect our operating results.
Our business strategy has included, and may in the future include, acquiring other complementary products, technologies, or businesses and, through Alteryx Ventures, investing in innovative companies and those that build complementary solutions to our platform. For example, we acquired Trifacta in February 2022 to accelerate the development of an integrated end-to-end, low code/no code analytics automation platform in the cloud. We also may enter into relationships with other businesses in order to expand our platform, which could involve preferred or exclusive licenses, collaborations, joint ventures, additional channels of distribution, discount pricing, or investments in other companies or products. Negotiating these transactions can be time-consuming, difficult, and expensive, and our ability to close these transactions may be subject to third-party approvals, such as government regulatory approvals, which are beyond our control. Consequently, we can make no assurance that these transactions, once undertaken and announced, will close.
These kinds of acquisitions or investments may result in unforeseen operating difficulties and expenditures. If we acquire businesses or technologies, we may not be able to integrate the acquired personnel, operations, and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:
•inability to integrate or benefit from acquired technologies or services in a profitable manner and the potential for customer non-acceptance of multiple platforms on a temporary or permanent basis;
•unanticipated costs or liabilities associated with the acquisition, including potential liabilities due to litigation and potential identified or unknown security vulnerabilities in acquired technologies that expose us to additional security risks or delay our ability to integrate the product into our offerings or recognize the benefits of our investment;
•differences between our values and those of an acquired company, as well as potential disruptions to our workplace culture;
•incurrence of acquisition-related costs, including costs related to integration activities;
•difficulty integrating the accounting and information systems, operations, and personnel of the acquired business;
•augmenting the acquired technologies and platforms to the levels that are consistent with our brand and reputation;
•difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;
•challenges converting the acquired company’s revenue recognition policies and forecasting the related revenues, including subscription-based revenues and software license revenues;
•potential write-offs of acquired assets or investments, and potential financial and credit risks associated with acquired customers;
•difficulty converting the customers of the acquired business onto our platform and contract terms;
•diversion of management’s attention from other business concerns;
•the potential entry into new markets in which we have little or no experience or where competitors may have stronger market positions;
•adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;
•the potential loss of key employees;
•use of resources that are needed in other parts of our business; and
•use of substantial portions of our available cash to consummate the acquisition.
Moreover, we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we would not be exposed to unknown liabilities or risks. For example, we anticipate that there are significant benefits from our acquisition of Trifacta, including the acceleration of our development of an integrated end-to-end, low code/no code analytics automation platform in the cloud and resulting growth opportunities. However, to realize these benefits, we have invested, and need to continue to invest, significant time, attention, and resources toward integration and product development efforts. These efforts can be challenging, complex and costly and we cannot assure you that we will be successful or that the anticipated benefits of the acquisitions that we complete will be realized or outweigh their costs. If our integration and development efforts are not successful and the anticipated benefits of the acquisitions that we complete are not achieved, our business, operating results, financial condition, and prospects could be adversely affected.
In connection with these types of transactions, we may issue additional equity securities that would dilute our stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to repay, incur large charges or substantial liabilities, encounter difficulties integrating diverse business cultures and values, and become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges. These challenges could adversely affect our business, operating results, financial condition, and prospects.
If we are unable to attract new customers, expand sales to existing customers, both domestically and internationally, or maintain the subscription amount or subscription term of renewing customers, our revenue growth could be slower than we expect or our revenue may decline and our business may be harmed.
Our future revenue growth depends in part upon increasing our customer base. Our ability to achieve significant growth in revenue in the future will depend, in large part, upon the effectiveness of our marketing efforts, both domestically and internationally, and our ability to attract new customers. In particular, we are dependent upon lead generation strategies to drive our sales and revenue. If these marketing strategies fail to continue to generate sufficient sales opportunities necessary to increase our revenue and to the extent that we are unable to successfully attract and expand our customer base, we may not realize the intended benefits of these marketing strategies and our ability to grow our revenue may be adversely affected.
Demand for our platform by new customers may also be affected by a number of factors, many of which are beyond our control, such as continued market acceptance of our platform for existing and new use cases, the timing of development and new releases of our software, technological change, growth or contraction in our addressable market, accessibility across operating systems, and macroeconomic conditions. Further, if competitors introduce lower cost or differentiated products or services that are perceived to compete with our products and services, our ability to sell our products and services based on factors such as pricing, technology, and functionality could be impaired. As a result, we may be unable to attract new customers at rates or on terms that would be favorable or comparable to prior periods, which could negatively affect the growth of our revenue. Attracting new customers may also be particularly challenging where an organization has already invested substantial personnel and financial resources to integrate traditional data analytics tools into its business, as such organization may be reluctant or unwilling to invest in new products and services, including during a period of economic uncertainty or downturn. If we fail to attract new customers and maintain and expand those customer relationships, our revenue will grow more slowly than expected and our business will be harmed.
Even if we continue to attract new customers, the cost of new customer acquisition may prove so high as to prevent us from sustaining profitability. Our future revenue growth also depends upon expanding sales and renewals of subscriptions to our platform with existing customers. If our customers do not purchase additional licenses or capabilities, our revenue may grow more slowly than expected, may not grow at all, or may decline. Additionally, increasing incremental sales to our customer base requires increasingly sophisticated and costly sales efforts that are targeted at senior management. We plan to continue expanding our sales efforts, both domestically and internationally, but we may be unable to hire qualified sales personnel, may be unable to successfully train those sales personnel that we are able to hire, and sales personnel may not become fully productive on the timelines that we have projected or at all. Additionally, although we dedicate significant resources to sales and marketing programs, including sponsorship opportunities and online advertising, these sales and marketing programs may not have the desired effect and may not expand sales. We have also increased, and will continue to increase, our customer enablement and upskilling efforts to promote and expand the adoption and use of our platform, including by bundling enablement and support services with certain sales of our products. Such efforts have required, and may continue to require, additional costs and resources. We cannot assure you that our efforts would result in increased sales to existing customers and additional revenue. If our efforts to expand sales to our customers are not successful, our business and operating results would be adversely affected.
Our customers generally enter into license agreements with one to three year subscription terms and generally have no obligation or contractual right to renew their subscriptions after the expiration of their initial subscription period. New customers may enter into license agreements for lower subscription amounts or for shorter subscription terms than we anticipate, which reduces our ability to forecast revenue growth accurately. Moreover, our customers may not renew their subscriptions and those customers that do renew their subscriptions may renew for lower subscription amounts or for shorter subscription terms. Customer renewal rates may decline or fluctuate as a result of a number of factors, including the breadth of deployment of our platform, reductions in our customers’ spending levels, changes in customer department size and composition, our pricing or pricing structure, the pricing or capabilities of products or services offered by our competitors, our customers’ satisfaction or dissatisfaction with our platform, or the effects of economic conditions. If our customers do not renew their agreements with us, or renew on terms less favorable to us, our revenue may decline or otherwise fail to grow as projected.
We use channel partners and if we are unable to establish and maintain successful relationships with them, our business, operating results, and financial condition could be adversely affected.
In addition to our direct sales force, we partner with technology alliances, solutions providers, global strategic integrators, and value-added resellers, or VARs, to sell and support our platform. Channel partners are becoming an increasingly important aspect of our business, particularly with regard to enterprise, governmental, and international sales. For example, we have established strategic alliances with global system integrators to target these and other specific market segments and technology alliances to integrate our products with the complementary products of our partners, and we intend to continue pursuing additional strategic and technology alliance relationships in the future. Our future growth in revenue and ability to sustain profitability depends in part on our continuing ability to identify, establish, and retain successful channel partner relationships in the United States and internationally, which will take significant time and resources and involve significant risk. We intend to continue making significant investments to grow our indirect sales channel. If we are unable to maintain our relationships with these channel partners, or otherwise develop and expand our indirect distribution channel, our business, operating results, financial condition, or cash flows could be adversely affected. Our business, operating results, financial condition, or cash flows could also be adversely affected if the anticipated benefits and value of our strategic alliance partnerships are not realized or are not realized in the timeframes anticipated.
We cannot be certain that we will be able to identify and maintain relationships with suitable indirect sales channel partners. To the extent we do identify such partners, we will need to negotiate the terms of a commercial agreement with them under which the partner would distribute our platform. We cannot be certain that we will be able to negotiate commercially-attractive terms with any such channel partner. Because our channel partners generally do not have an exclusive relationship with us, they may offer customers the products and services of several different companies, including products and services that compete with our platform, and we cannot be certain that they will prioritize or provide adequate resources to selling our platform. In addition, all channel partners must be trained to distribute our platform. In order to develop and expand our distribution channel, we must continue developing and improving our processes for channel partner introduction and training. The training provided to our channel partners must also be ongoing, as we continue to add new products and functionality to our portfolio. If we do not succeed in identifying or training suitable indirect sales channel partners, or if our channel partners are unsuccessful in selling our platform, our ability to sell, and our channel partners’ willingness to sell, our platform and our business, operating results, and financial condition may be adversely affected.
Further, we rely on our channel partners to cooperate with us and operate in accordance with the terms of their contractual agreements with us and any actions taken or omitted to be taken by such parties may adversely affect us. For example, our agreements with our channel partners limit the terms and conditions pursuant to which they are authorized to resell or distribute our platform and offer technical support and related services. We also typically require our channel partners to represent to us the dates and details of licenses sold through to our customers. If our channel partners do not comply with their contractual obligations to us, provide inaccurate information to us regarding their sales to customers, or otherwise do not cooperate with us, our business, operating results, and financial condition may be adversely affected.
In addition, sales to federal government entities have generally been made indirectly through our channel partners. Government entities may have statutory, contractual, or other legal rights to terminate contracts with our channel partners for convenience or due to a default, and, in the future, if the portion of government contracts that are subject to renegotiation or termination at the election of the government entity are material, any such termination or renegotiation may adversely impact our future operating results. In the event of such a termination, it may be difficult for us to arrange for another channel partner to sell our platform to these government entities in a timely manner, and we could lose revenue and sales opportunities during the transition. Government entities routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government entity refusing to purchase through us or a particular channel partner or renew its subscription to our platform, a reduction of revenue, or fines or civil or criminal liability if the audit uncovers noncompliant, improper, or illegal activities.
We face intense and increasing competition, and we may not be able to compete effectively, which could reduce demand for our platform and adversely affect our business, revenue growth, and market share.
The market for self-service data analytics software is new and rapidly evolving. In many cases, our primary competitors are manual, spreadsheet-driven processes and custom-built approaches in which potential customers have made significant investments. In addition, we compete with large software companies, including providers of traditional business intelligence tools that offer one or more capabilities that are competitive with our platform. These capabilities include data preparation and/or advanced analytic processing and modeling tools from Microsoft Corporation, Oracle Corporation, and SAS Institute Inc. Additionally, data visualization companies that already offer products and services in adjacent markets have introduced products and services that are increasingly competitive with our offerings. We could also face competition from new market entrants, some of whom might be our current technology partners, such as Databricks, Inc., DataRobot, Inc., Sisense Inc., and Snowflake Inc. In addition, some business analytics software companies offer data preparation and/or advanced analytic processing and modeling tools that are competitive with some of the features within our platform, such as Dataiku Ltd., salesforce.com, inc., and TIBCO Software Inc.
Many of our current and potential competitors, particularly the large software companies named above, have longer operating histories, significantly greater financial, technical, marketing, distribution, professional services, or other resources, greater experience with cloud business models, and greater name recognition than we do. Competition in the self-service data analytics software market has increased and we expect competition to become more intense as other established and emerging companies enter the self-service data analytics software market, as our competitors complete strategic acquisitions or form cooperative relationships, as customer requirements evolve, and as new products and services and technologies are introduced. In addition, many of our current and potential competitors have strong relationships with current and potential customers and extensive knowledge of the business analytics industry. As a result, our current and potential competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements or devote greater resources than we can to the development, promotion, and sale of their products and services. Moreover, many of these companies are bundling their analytics products and services into larger deals or subscription renewals, often at significant discounts as part of a larger sale. In addition, some current and potential competitors may offer products or services that address one or a number of functions at lower prices or at no cost, or with greater depth than our platform. Further, our current and potential competitors may develop and market new technologies with comparable functionality to our platform. As a result of the foregoing or other developments, we may experience fewer customer orders, reduced gross margins, longer sales cycles, and loss of market share. This could lead us to decrease prices, implement alternative pricing structures, or introduce products and services available for free or a nominal price in order to remain competitive. We may not be able to compete successfully against current and future competitors, and our business, operating results, and financial condition will be harmed if we fail to meet these competitive pressures.
Our ability to compete successfully in our market depends on a number of factors, both within and outside of our control. We believe the principal competitive factors in our market include: ease of use; platform features, quality, functionality, reliability, performance, and effectiveness; ability to automate analytical tasks or processes; ability to integrate with other technology infrastructures; vision for the market and product innovation; software analytics expertise; total cost of ownership; adherence to industry standards and certifications; strength of sales and marketing efforts; brand awareness and reputation; and customer experience, including support. Any failure by us to compete successfully in any one of these or other areas may reduce the demand for our platform, as well as adversely affect our business, operating results, and financial condition. Further, while we have started to release cloud-based products, most of our customers currently use our on-premise platform. The incorporation of a cloud-based business model into our operations has required and will continue to require us to make additional investments to our infrastructure, including expanding our data centers, servers, and networks, increasing our use of hosting services, and increasing our technical operations and engineering teams. If we are unable to make cloud-based products generally available as quickly as may be demanded by the market and which meet the needs and expectations of our customers, we may not be able to compete successfully against our competitors that have or may develop such products, and our business, operating results, and financial condition may be harmed.
If the market for analytics products and services fails to grow as we expect, or if businesses fail to adopt our platform, our business, operating results, and financial condition could be adversely affected.
Since 2013, nearly
Nearly all our revenue has come from
saleslicenses of our subscription-based software
platform. Weplatform, including bundled maintenance and support, or PCS, included with the subscription, and we expect these sales
to continue to account for a large portion of our revenue for the foreseeable future. Although demand for analytics products and services has grown in recent years, the market for analytics products and services continues to evolve and the secular shift towards self-service analytics may not be as significant as we expect. We cannot be sure that this market will continue to grow or, even if it does grow, that businesses will adopt our platform. Our future success will depend in large part on our ability to further penetrate the existing market for business analytics software, as well as the continued growth and expansion of what we believe to be an emerging market for analytics products and services that are faster, easier to adopt, easier to use, and more focused on self-service capabilities. Our ability to further penetrate the business analytics market depends on a number of factors, including the cost, performance, and perceived value associated with our platform, as well as customers’ willingness to adopt a different approach to data analysis. We have spent, and intend to keep spending, considerable resources to educate potential customers about analytics products and services in general and our platform in particular. However, we cannot be sure that these expenditures will help our platform achieve any additional market acceptance.
Furthermore, potential customers may have made significant investments in legacy analytics software systems and may be unwilling to invest in new products and services. In addition, resistance from consumer and privacy groups to increased commercial collection and use of data on spending patterns and other personal behavior and governmental restrictions on the collection and use of personal data may impair the further growth of this market by reducing the value of data to
organizations, as may other developments.organizations. If the market fails to grow or grows more slowly than we currently expect or businesses fail to adopt our platform, our business, operating results, and financial condition could be adversely affected.
We derive substantially all of our revenue from our software platform, and our future growth is dependent on its success.
Since 2013, nearly all of our revenue has come from sales of our subscription-based software platform. We expect these sales to account for substantially all of our revenue for the foreseeable future. As such, the continued growth in market demand for our platform is critical to our continued success. We recently announced two new products for our software platform, Alteryx Connect and Alteryx Promote, but cannot be certain that either product will generate significant revenue, if any. In addition, these products are designed to be used with our Alteryx Server product and will not be sold independently. Accordingly, our business and financial results will continue to be substantially dependent on our single software platform.
If we are unable to attract new customers and expand sales to existing customers, both domestically and internationally, our revenue growth could be slower than we expect and our business may be harmed.
Our future revenue growth depends in part upon increasing our customer base. Our ability to achieve significant growth in revenue in the future will depend, in large part, upon the effectiveness of our marketing efforts, both domestically and internationally, and our ability to attract new customers. This may be particularly challenging where an organization has already invested substantial personnel and financial resources to integrate traditional data analytics tools into its business, as such organization may be reluctant or unwilling to invest in new products and services. If we fail to attract new customers and maintain and expand those customer relationships, our revenue will grow more slowly than expected and our business will be harmed.
Our future revenue growth also depends upon expanding sales and renewals of subscriptions to our platform with existing customers. If our customers do not purchase additional licenses or capabilities, our revenue may grow more slowly than expected, may not grow at all or may decline. Additionally, increasing incremental sales to our current customer base requires increasingly sophisticated and costly sales efforts that are targeted at senior management. For example, during the
years ended December 31, 2015 and 2016, sales and marketing expenses represented 80% and 67% of our revenue, respectively. We plan to continue expanding our sales efforts, both domestically and internationally, but we may be unable to hire qualified sales personnel, may be unable to successfully train those sales personnel that we are able to hire, and sales personnel may not become fully productive on the timelines that we have projected or at all. Additionally, although we dedicate significant resources to sales and marketing programs, including Internet and other online advertising, these sales and marketing programs may not have the desired effect and may not expand sales. We cannot assure you that our efforts would result in increased sales to existing customers, and additional revenue. If our efforts to upsell to our customers are not successful, our business and operating results would be adversely affected.
Our customers generally enter into license agreements with one to three year subscription terms and have no obligation or contractual right to renew their subscriptions after the expiration of their initial subscription period. Moreover, our customers that do renew their subscriptions may renew for lower subscription amounts or for shorter subscription periods. Customer renewal rates may decline or fluctuate as a result of a number of factors, including the breadth of early deployment, reductions in our customers’ spending levels, our pricing or pricing structure, the pricing or capabilities of products or services offered by our competitors, our customers’ satisfaction or dissatisfaction with our platform, or the effects of economic conditions. If our customers do not renew their agreements with us, or renew on terms less favorable to us, our revenue may decline.
If we are unable to develop and release product and service enhancements and new products and services to respond to rapid technological change in a timely and cost-effective manner, our business, operating results, and financial condition could be adversely affected.
The market for our platform is characterized by rapid technological change, frequent new product and service introductions and enhancements, changing customer demands, and evolving industry standards. The introduction of products and services embodying new technologies can quickly make existing products and services obsolete and unmarketable. Analytics products and services are inherently complex, and it can take a long time and require significant research and development expenditures to develop and test new or enhanced products and services. The success of any enhancements or improvements to our platform or any new products and services depends on several factors, including timely completion, competitive pricing, adequate quality testing, integration with existing technologies and our platform, and overall market acceptance. We cannot be sure that we will succeed in developing, marketing, and delivering on a timely and cost-effective basis enhancements or improvements to our platform or any new products and services that respond to technological change or new customer requirements, nor can we be sure that any enhancements or improvements to our platform or any new products and services will achieve market acceptance. Any new products that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, or may not achieve the broad market acceptance necessary to generate sufficient revenue. Moreover, even if we introduce new products and services, we may experience a decline in revenue of our existing products and services that is not offset by revenue from the new products or services. For example, customers may delay making purchases of new products and services to permit them to make a more thorough evaluation of these products and services or until industry and marketplace reviews become widely available. Some customers may hesitate migrating to a new product or service due to concerns regarding the complexity of migration and product or service infancy issues on performance. In addition, we may lose existing customers who choose a competitor’s products and services rather than migrate to our new products and services. This could result in a temporary or permanent revenue shortfall and adversely affect our business.
Further, the emergence of new industry standards related to analytics products and services may adversely affect the demand for our platform. This could happen if new Internet standards and technologies or new standards in the field of operating system support emerged that were incompatible with customer deployments of our platform. For example, if we are unable to adapt our platform on a timely basis to new database standards, the ability of our platform to access customer databases and to analyze data within such databases could be impaired. In addition, because part of our platform is cloud-based, we need to continually enhance and improve our platform to keep pace with changes in Internet-related hardware, software, communications, and database technologies and standards.
Any failure of our platform to operate effectively with future infrastructure platforms and technologies could reduce the demand for our platform. If we are unable to respond to these changes in a timely and cost-effective manner, our platform may become less marketable, less competitive, or obsolete, and our operating results may be adversely affected.
Moreover, software-as-a-service, or SaaS, business models have become increasingly demanded by customers and adopted by other software providers, including our competitors. While part of our platform is cloud-based, most of our platform is currently deployed on premise and therefore, if customers demand that our platform be provided through a SaaS
business model, we would be required to make additional investments to our infrastructure in order to be able to more fully provide our platform through a SaaS model so that our platform remains competitive. Such investments may involve expanding our data centers, servers, and networks and increasing our technical operations and engineering teams.
The competitive position of our software platform depends in part on its ability to operate with third-party products and services, and if we are not successful in maintaining and expanding the compatibility of our platform with such third-party products and services, our business, financial position, and operating results could be adversely impacted.
The competitive position of our software platform depends in part on its ability to operate with products and services of third parties, software services, and infrastructure.
As such, weWe must continuously modify and enhance our platform to adapt to changes in hardware, software, networking, browser,
hosting, and database technologies. In the future, one or more technology companies may choose not to support the operation of their hardware, software, or infrastructure, or our platform may not support the capabilities needed to operate with such hardware, software, or infrastructure. In addition, to the extent
that a third party were to develop software or services that compete with ours, that provider may choose not to support our platform. We intend to facilitate the compatibility of our software platform with various third-party hardware, software, and infrastructure by maintaining and expanding our business and technical relationships. If we are not successful in achieving this goal, our business, financial condition, and operating results could be adversely impacted.
We face intense and increasing competition, and we may not be able to compete effectively, which could reduce demand for our platform and adversely affect our business, revenue growth, and market share.
The market for self-service data analytics solutions is new and rapidly evolving. In many cases, our primary competition is manual, spreadsheet driven processes or more traditional custom built approaches in which potential customers have made significant investments. In addition, we compete with large software companies, including providers of traditional business intelligence tools that offer one or more capabilities that are competitive with our platform, such as International Business Machines Corporation, Microsoft Corporation, Oracle Corporation, SAP SE, and SAS Institute Inc. Moreover, business analytics software companies offer capabilities that are competitive with a subset of the solutions we provide, such as MicroStrategy Incorporated and TIBCO Software Inc.
In addition, other large software companies, such as salesforce.com, inc. and Amazon.com, Inc., and data visualization companies, such as Tableau Software, Inc and Qlik Technology, Inc, already provide products and services in adjacent markets and may decide to enter into our market. We also compete with open source initiatives and custom development efforts. We could also face competition from new market entrants, some of whom might be current technology partners of ours. We expect competition to increase as other established and emerging companies enter the business analytics software market, as customer requirements evolve and as new products and services and technologies are introduced.
Many of our current and potential competitors, particularly the large software companies named above, have longer operating histories, significantly greater financial, technical, marketing, distribution, professional services, or other resources and greater name recognition than we do. In addition, many of our current and potential competitors have strong relationships with current and potential customers and extensive knowledge of the business analytics industry. As a result, our current and potential competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements or devote greater resources than we can to the development, promotion, and sale of their products and services. Moreover, many of these companies are bundling their analytics products and services into larger deals or subscription renewals, often at significant discounts as part of a larger sale. In addition, some current and potential competitors may offer products or services that address one or a limited number of functions at lower prices or with greater depth than our platform. Our current and potential competitors may develop and market new technologies with comparable functionality to our platform. We may experience fewer customer orders, reduced gross margins, longer sales cycles, and loss of market share. This could lead us to decrease prices, implement alternative pricing structures, or introduce products and services available for free or a nominal price in order to remain competitive. We may not be able to compete successfully against current and future competitors, and our business, operating results, and financial condition will be harmed if we fail to meet these competitive pressures.
Our ability to compete successfully in our market depends on a number of factors, both within and outside of our control. Some of these factors include: ease of use; platform features, quality, functionality, reliability, performance, and effectiveness; ability to automate analytical tasks or processes; ability to integrate with other technology infrastructures; vision for the market and product innovation; software analytics expertise; total cost of ownership; adherence to industry standards and certifications; strength of sales and marketing efforts; brand awareness and reputation; and customer experience, including support. Any failure by us to compete successfully in any one of these or other areas may reduce the demand for our platform, as well as adversely affect our business, operating results, and financial condition.
Moreover, current and future competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with others, including our current or future technology partners. By doing so, these competitors may increase their ability to meet the needs of our customers or potential customers. In addition, our current or prospective indirect sales channel partners may establish cooperative relationships with our current or future competitors. These relationships may limit our ability to sell or certify our platform through specific distributors, technology providers, database companies, and distribution channels and allow our competitors to rapidly gain significant market share. These developments could limit our ability to obtain revenue from existing and new customers. If we are unable to compete successfully against current and future competitors, our business, operating results, and financial condition would be harmed.
If we fail to develop, maintain, and enhance our brand and reputation cost-effectively, our business and financial condition may be adversely affected.
We believe that developing, maintaining, and enhancing awareness and integrity of our brand and reputation in a cost-effective manner are important to achieving widespread acceptance of our platform and are important elements in attracting new customers and maintaining existing customers. We believe that the importance of our brand and reputation will increase as competition in our market further intensifies. Successful promotion of our brand will depend on the effectiveness of our marketing efforts, our ability to provide a reliable and useful platform at competitive prices, the perceived value of our platform, and our ability to provide quality customer support. Brand promotion activities may not yield increased revenue, and even if they do, the increased revenue may not offset the expenses we incur in building and maintaining our brand and reputation. We also rely on our customer base and community of end-users in a variety of ways, including to give us feedback on our platform and to provide user-based support to our other customers. If we fail to promote and maintain our brand successfully or to maintain loyalty among our customers, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract new customers and partners or retain our existing customers and partners and our business and financial condition may be adversely affected. Any negative publicity relating to our employees, partners, or others associated with these parties, may also tarnish our own reputation simply by association and may reduce the value of our brand. Damage to our brand and reputation may result in reduced demand for our platform and increased risk of losing market share to our competitors. Any efforts to restore the value of our brand and rebuild our reputation may be costly and may not be successful.
Our revenue growth and ability to achieve and sustain profitability depends on being able to expand our direct sales force and increase the productivity of our sales force successfully.
To date, most of our revenue has been attributable to the efforts of our direct sales force in the United States. In order to increase our revenue and achieve and sustain profitability, we must increase the size of our direct sales force, both in the United States and internationally, to generate additional revenue from new and existing customers. We intend to substantially further increase our number of direct sales professionals.
We believe that there is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, and retaining sufficient numbers of direct sales personnel to support our growth. New hires require significant training and typically take six months or more to achieve full productivity. Our recent hires and planned hires may not become productive as quickly as we expect and if our new sales employees do not become fully productive on the timelines that we have projected or at all, our revenue will not increase at anticipated levels and our ability to achieve long term projections may be negatively impacted. We may also be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. Furthermore, hiring sales personnel in new countries requires additional set up and upfront costs that we may not recover if the sales personnel fail to achieve full productivity. In addition, as we continue to grow rapidly, a large percentage of our sales force will be new to our company and our platform, which may adversely affect our sales if we cannot train our sales force quickly or effectively. Attrition rates may increase, and we may face integration challenges as we continue to seek to aggressively expand our sales force. If we are unable to hire and train sufficient numbers of effective sales personnel, or the sales personnel are not successful in obtaining new customers or increasing sales to our existing customer base, our business will be adversely affected.
We periodically change and make adjustments to our sales organization in response to market opportunities, competitive threats, management changes, product introductions or enhancements, acquisitions, sales performance, increases in sales headcount, cost levels and other internal and external considerations. Any future sales organization changes may result in a temporary reduction of productivity, which could negatively affect our rate of growth. In addition, any significant change to the way we structure our compensation of our sales organization may be disruptive and may affect our revenue growth.
We use channel partners and if we are unable to establish and maintain successful relationships with them, our business, operating results, and financial condition could be adversely affected.
In addition to our direct sales force, we use channel partners such as technology alliances, system integrators, management consulting firms, and value-added resellers to sell and support our platform. Channel partners are becoming an increasingly important aspect of our business, particularly with regard to enterprise, governmental, and international sales. Our future growth in revenue and ability to achieve and sustain profitability depends in part on our ability to identify, establish, and retain successful channel partner relationships in the United States and internationally, which will take significant time and resources and involve significant risk. If we are unable to maintain our relationships with these channel partners, or otherwise develop and expand our indirect distribution channel, our business, operating results, financial condition, or cash flows could be adversely affected.
We cannot be certain that we will be able to identify suitable indirect sales channel partners. To the extent we do identify such partners, we will need to negotiate the terms of a commercial agreement with them under which the partner would distribute our platform. We cannot be certain that we will be able to negotiate commercially-attractive terms with any channel partner, if at all. In addition, all channel partners must be trained to distribute our platform. In order to develop and expand our distribution channel, we must develop and improve our processes for channel partner introduction and training. If we do not succeed in identifying suitable indirect sales channel partners, our business, operating results, and financial condition may be adversely affected.
We also cannot be certain that we will be able to maintain successful relationships with any channel partners and, to the extent that our channel partners are unsuccessful in selling our platform, our ability to sell our platform and our business, operating results, and financial condition could be adversely affected. Our channel partners may offer customers the products and services of several different companies, including products and services that compete with our platform. Because our channel partners generally do not have an exclusive relationship with us, we cannot be certain that they will prioritize or provide adequate resources to selling our platform. Moreover, divergence in strategy by any of these channel partners may materially adversely affect our ability to develop, market, sell, or support our platform. We cannot assure you that our channel partners will continue to cooperate with us. In addition, actions taken or omitted to be taken by such parties may adversely affect us. In addition, we rely on our channel partners to operate in accordance with the terms of their contractual agreements with us. For example, our agreements with our channel partners limit the terms and conditions pursuant to which they are authorized to resell or distribute our platform and offer technical support and related services. We also typically require our channel partners to represent to us the dates and details of licenses sold through to our customers. If our channel partners do not comply with their contractual obligations to us, our business, operating results, and financial condition may be adversely affected.
In addition, all our sales to government entities have been made indirectly through our channel partners. Government entities may have statutory, contractual, or other legal rights to terminate contracts with our channel partners for convenience or due to a default, and, in the future, if the portion of government contracts that are subject to renegotiation or termination at the election of the government entity are material, any such termination or renegotiation may adversely impact our future operating results. In the event of such termination, it may be difficult for us to arrange for another channel partner to sell our platform to these government entities in a timely manner, and we could lose sales opportunities during the transition. Government entities routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government entity refusing to renew its subscription to our platform, a reduction of revenue, or fines or civil or criminal liability if the audit uncovers improper or illegal activities.
We depend on technology and data licensed to us by third parties that may be difficult to replace or cause errors or failures that may impair or delay implementation of our products and services or force us to pay higher license fees.
We license third-party technologies and data that we incorporate into, use to operate,
andor provide
to be used with our platform. We cannot
assure youensure that the licenses for such third-party technologies or data will not be terminated or that we will be able to license third-party software or data for future products and services.
Third parties may terminate their licenses with us for a variety of reasons, including actual or perceived failures or breaches of security or privacy. In addition, we may be unable to renegotiate acceptable third-party replacement license terms in the event of termination, or we may be subject to infringement liability if third-party software or data that we license is found to infringe intellectual property or privacy rights of others.
In addition,Further, the data that we license from third parties for potential use in our platform may contain errors or defects, which could negatively impact the analytics that our customers perform on or with such data. This may have a negative impact on how our platform is perceived by our current and potential customers and could materially damage our reputation and brand.
Changes in or the loss of third-party licenses could lead to our platform becoming inoperable or the performance of our platform being materially reduced,
resulting in our potentially needingwhich may require us to incur additional research and development costs to ensure continued performance of our platform or
cause a material increase in the costs of licensing, and we may experience decreased demand for our platform.
As we continue to pursue sales to large enterprises, our sales cycle, forecasting processes, and deployment processes may become more unpredictable and require greater time and expense.
Sales to large enterprises involve risks that may differ in kind or scale when compared to sales to smaller organizations and, accordingly, our sales cycle may lengthen as we continue to pursue sales to large enterprises. In addition, as a result of global economic uncertainty and rising inflation and interest rates, many large enterprises have reduced or delayed, or may consider reducing or delaying, technology or other discretionary spending. If such reductions or delays continue, our operating results, financial condition, and prospects may be materially and negatively impacted. As we seek to increase our sales to large enterprise customers, we also face more complex customer requirements, substantial upfront sales costs, and less predictability in completing some of our sales than we do with smaller customers. With larger organizations, the decision to subscribe to our platform frequently requires the approvals of multiple management personnel and more technical personnel than would be typical of a smaller organization and, accordingly, sales to larger organizations may require us to invest more time educating these potential customers. In addition, large enterprises often require extensive configuration, integration services, and pricing and contractual negotiations, which increase our upfront investment in the sales effort with no guarantee that these customers will deploy our platform widely enough across their organization to justify our substantial investment. Further, as we seek to increase sales and adoption of our newer, cloud-based products, the challenges we face selling new products may be further exacerbated with large enterprise customers. Purchases by large enterprises are also frequently subject to budget constraints and unplanned administrative, processing, and other delays, which means we may not be able to come to agreement on the terms of the sale to large enterprises on a timely basis or at all. In addition, our ability to successfully sell our platform to large enterprises is dependent on us attracting and retaining sales personnel with experience in selling to large organizations. If we are unable to increase sales of our platform to large enterprise customers while mitigating the risks associated with serving such customers, our business, financial position, and operating results may be adversely impacted. Furthermore, if we fail to realize an expected sale from a large customer in a particular quarter or at all, our business, operating results, and financial condition could be adversely affected for a particular period or in future periods.
Our long-term success depends, in part, on our ability to expand the
saleslicensing of our software platform to customers located outside of the United States and our current, and any further, expansion of our international operations exposes us to risks that could have a material adverse effect on our business, operating results, and financial condition.
We are generating a growing portion of our revenue from international
sales,licenses, and conduct our business activities in various foreign countries, including some emerging markets where we have limited experience, where the challenges of conducting our business can be significantly different from those we have faced in more developed markets and where business practices may create internal control risks.
For example, we recently acquired Semanta, which has operations in the Czech Republic and Ukraine. There are certain risks inherent in conducting international business, including:
•fluctuations in foreign currency exchange rates;rates and level of interest rates and inflation, which could add volatility to our operating results;
•new, or changes in, regulatory requirements;
•continued uncertainty regarding regulation, currency, tax, and operations resulting from the United Kingdom’s exit from the European Union;
•tariffs, export and import restrictions, restrictions on foreign investments, sanctions, and other trade barriers or protection measures;
•costs of localizing products and services;
•lack of acceptance of localized products and services;
•the need to make significant investments in people, solutions, and infrastructure, typically well in advance of revenue generation;
•challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs;
•difficulties in maintaining our company culture with a dispersed and costsdistant workforce;
•treatment of staffing, managing,revenue from international sources, evolving domestic and operating our international operations;
tax environments, and other potential tax issues, including restrictions on repatriating earnings and with respect to our corporate operating structure and intercompany arrangements;
•different or weaker protection of our intellectual property, protection;including increased risk of theft of our proprietary technology and other intellectual property;
•economic weakness, inflationary pressure, or currency relatedcurrency-related crises;
•compliance with a wide variety ofmultiple, conflicting, ambiguous or evolving governmental laws and regulations, including those relatingemployment, tax, privacy, anti-corruption, import/export, antitrust, data transfer, storage and protection, health and safety, and industry-specific laws and regulations, including regulations applicable to labor matters, consumerus and our third-party data protection, privacy, network security, encryption,providers from whom we purchase and taxes;resell syndicated data;
•our ability to identify and respond timely to compliance issues when they occur;
•vetting and monitoring our third-party resellers in new and evolving markets to confirm they maintain standards consistent with our brand and reputation;
•generally longer payment cycles and greater difficulty in collecting accounts receivable;
•our ability to adapt to sales practices and customer requirements in different cultures;
•the lack of reference customers and other marketing assets in regional markets that are new or developing for us, as well as other adaptations in our market generation efforts that we may be slow to identify and implement;
•dependence on certain third parties, including resellers with whom we do not have extensive experience;
•natural disasters, acts of war, terrorism, or pandemics;
•corporate espionage; and
•political or economic instability and security risks, including as a result of or related to the geopolitical conflict stemming from Russia's invasion of Ukraine, in the countries where we are doing business.
For example, in June 2016, the United Kingdom held a referendumbusiness and voted in favor of leaving the European Union and in March 2017 the United Kingdom provided notification of its intent to leave the European Union. This has created political and economic uncertainty, particularlychanges in the United Kingdom and the European Union, and could cause disruptions to, and create uncertainty surrounding, our businesspublic perception of governments in the United Kingdom and European Union, including affecting our relationships with our existing and prospective customers, partners, and employees, and could have a material impact on the regulatory regime applicablecountries where we operate or plan to our operations in the United Kingdom.
operate.
We have undertaken, and might undertake additional, corporate operating restructurings that involve our group of foreign country subsidiaries through which we do business abroad. We consider various factors in evaluating these restructurings, including the alignment of our corporate legal entity structure with our organizational structure and its objectives, the operational and tax efficiency of our group structure, and the long-term cash flows and cash needs of our business.
IfSuch restructurings increase our operating costs, and if ineffectual,
such restructurings could increase our income tax liabilities and
in turn, increase our global effective tax rate.
Various tax reform bills
Tax laws are dynamic and
other proposalssubject to change as new laws are
currently under consideration in the United Statespassed and
abroad.The U.S. proposals include, among other items, changing the U.S. corporate income tax rate, reducing or eliminating certain corporate tax incentives, and changing the existing regime for taxing overseas earnings (including the introduction of a minimum tax on adjusted, unrepatriated foreign earnings).
The Organization for Economic Co-operation and Development, or OECD, issued final action items or proposals related to its initiative to combat base erosion and profit shifting, or BEPS. The OECD urged its members to adopt some or allnew interpretations of the proposals to counteractlaw are issued or applied. For example, on August 16, 2022, the effects of the use of tax havens and preferential tax regimes globally. One BEPS proposal redefines a “permanent establishment,” and changes how profits would be attributed to the permanent establishment. Another proposal calls for insuring transfer pricing outcomes are commensurate with value creation, adopting the view the current rules facilitate the transfer of risks, capital, and income away from countries where economic activity takes place. We expect many countries to incorporate the BEPS proposals into their laws. Several countries have changedInflation Reduction Act, or proposed changes that incorporate some or all of the proposals.
Some of these proposals, if enactedIRA, was signed into law in the United States, which, among other things, imposes a 15% minimum corporate alternative tax on companies that have or have had annual financial statement income greater than $1 billion, levies an excise tax of 1% on net stock repurchases by publicly traded companies, and provides tax incentives to promote clean energy. While we have historically not repurchased shares of our common stock and are averaging less than $1 billion in adjusted net book income over a three-year period, we are continuing to evaluate the foreignimpact of the IRA on our business. Similarly, many international jurisdictions have recently proposed or recommended changes to existing tax laws or have enacted new laws that could impact our tax obligations in countries where we do business or cause us to change the way we operate our business. For example, on October 8, 2021, the Organization for Economic Co-Operation and Development, or OECD, announced that 136 countries and jurisdictions (out of the 140 members of the OECD/G20 Inclusive Framework on base erosion and profit shifting) agreed on a solution to address the tax challenges arising from the digitalization of the economy. The solution imposes additional reporting obligations and taxation on corporations that exceed certain profitability and turnover thresholds. We are continuing to evaluate the impact of these tax developments as new guidance and regulations are published. Some of these or other new rules could result in double taxation of our international earnings. Changes in tax laws could materially impact our financial condition, results of operations, and cash flows. Given these developments, tax authorities in the U.S. and other jurisdictions are likely to increase the burdentheir audit efforts and costsmight challenge some of our tax compliance. Moreover, such changespositions, which could increase the amount of taxes we incur in those jurisdictions, and in turn, increase our global effective tax rate. It is unclear whether,
International political and
economic uncertainty could cause disruptions to,
what extent,and create uncertainty surrounding, our business internationally, including affecting our relationships with our existing and prospective customers, partners, and employees, and could have a material impact on our operations. For example, Russia’s invasion of Ukraine has negatively affected our employees and operations in the
United Statesregion, given our research and
other countries will enact into lawdevelopment center in Ukraine, and could negatively affect our business and our relationships with existing and prospective customers, partners, and employees, particularly those in Europe, given the
above or similar proposals.global political and economic uncertainty resulting from the conflict.
In addition, compliance with foreign and U.S. laws and regulations that are applicable to our international operations is complex and may increase our cost of doing business in international jurisdictions, and our international operations could expose us to fines and penalties if we fail to comply with these regulations. These laws and regulations include import and export requirements and anti-bribery laws, such as the United States Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the United Kingdom Bribery Act 2010, or the Bribery Act, and local laws prohibiting corrupt payments to governmental
officials.officials as well as commercial bribery. Although we have implemented policies and procedures designed to help ensure compliance with these laws, we cannot assure you that our employees, partners, and other persons with whom we do business will not take actions in violation of our policies or these laws. Any violations of these laws could subject us to civil or criminal penalties, including substantial fines or prohibitions on our ability to offer our platform in one or more countries, and could also materially damage our reputation and our brand. These factors may have an adverse effect on our future sales and, consequently, on our business, operating results, and financial condition.
Because
If we recognize revenue fromfail to develop, maintain, and enhance our subscriptions over the subscription term, downturns or upturns in new salesbrand and renewals may not be immediately reflected inreputation cost-effectively, our operating resultsbusiness and financial condition may be difficultadversely affected.
We believe that developing, maintaining, and enhancing awareness and integrity of our brand and reputation in a cost-effective manner is important to
discern.We generally recognize revenue from customers ratably over the terms of their subscriptions. A significant portion of the revenue we report in each quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any single quarter may have a small impact on our revenue for that quarter. However, such a decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and marketachieving widespread acceptance of our platform and potential changesis an important element in attracting and maintaining customers. We believe that the importance of our brand and reputation will increase as competition in our ratemarket further intensifies. Successful promotion of renewals,our brand will depend on the effectiveness of our marketing efforts, our ability to provide a reliable and useful platform at competitive prices, the perceived value of our platform, and our ability to provide quality customer support. Brand promotion activities may not yield increased revenue, and even if they do, the increased revenue may not offset the expenses we incur in building and maintaining our brand and reputation. We also rely on our customer base and community of end-users to give us feedback on our platform and to provide user-based support to our other customers. If we fail to promote and maintain our brand successfully or to maintain loyalty among our customers, or if we incur substantial expenses in an attempt to promote and maintain our brand, we may fail to attract new or retain existing customers and partners, may not realize the benefits that we expect to receive from such relationships, and our business and financial condition may be adversely affected. Any negative publicity relating to our employees or partners, or others associated with these parties, or as a result of our sponsorships or other marketing activities, may also tarnish our own reputation simply by association and may reduce the value of our brand. Damage to our brand and reputation may result in reduced demand for our platform and increased risk of losing market share to our competitors. Any efforts to restore the value of our brand and rebuild our reputation may be costly and may not be fully reflectedsuccessful.
We have limited experience with respect to determining the optimal prices and pricing structures for our products and services.
We have changed, and may in the future continue to change, our pricing model from time to time, including as a result of, among other things, competition, global economic conditions, reductions in our
operating results until future periods. Wecustomers’ spending levels generally, changes in product mix, integration of acquired technology, pricing studies, or changes in how information technology infrastructure is broadly consumed. Similarly, as we introduce new products and services, or as our existing products and services evolve, we may
alsohave difficulty determining the appropriate price structure for our products and services. In addition, as new and existing competitors introduce new products or services that compete with ours, or revise their pricing structures, we may be unable to
reduce our operating expenses in the event of a significant deterioration in sales. In addition, a significant majority of our costs are expensed as incurred, while a significant portion of our revenue is recognized over the life of the agreement with our customer. As a result, increased growth in the number of our customers could continue to result in our recognition of more costs than revenue in the earlier periods of the terms of our agreements. Our revenue from subscriptions also makes it more difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from certainattract new customers
is recognized overat the
applicable term.Assame price or based on the same pricing model as we continue to pursue sales to large enterprises, our sales cycle, forecasting processes, and deployment processes may become more unpredictable and require greater time and expense.
Sales to large enterprises involve risks that may not be present or that are present to a lesser extent with sales to smaller organizations and accordingly, our sales cycle may lengthenhave used historically. Moreover, as we continue to pursue sales to large enterprises. As we seek to increasetarget selling our sales to large enterprise customers, we face longer sales cycles, more complex customer requirements, substantial upfront sales costs,products and less predictability in completing some of our sales than we do with smaller customers. With larger organizations, the decision to subscribe to our platform frequently requires the approvals of multiple management personnel and more technical personnel than would be typical of a smaller organization and, accordingly, salesservices to larger organizations, these larger organizations may require usdemand substantial price concessions or different product bundling that may result in significant changes to invest more time educating these potential customers. In addition, large enterprises often require extensive configuration, integration services, and pricing negotiations, which increase our upfront investment in
the sales effort with no guarantee that these customers will deploy our platform widely enough across their organization to justify our substantial upfront investment. Purchases by large enterprises are also frequently subject to budget constraints and unplanned administrative, processing, and other delays, which meansproduct pricing. As a result, we may not be ablerequired from time to cometime to agreement on the terms of the sale to large enterprises. In addition,revise our ability to successfully sellpricing structure or reduce our platform to large enterprises is dependent on us attracting and retaining sales personnel with experience in selling to large organizations. If we are unable to increase sales of our platform to large enterprise customers while mitigating the risks associated with serving such customers, our business, financial position, and operating results may beprices, which could adversely impacted. Furthermore, if we fail to realize an expected sale from a large customer in a particular quarter or at all,affect our business, operating results, and financial conditioncondition.
Our sales are generally more heavily weighted toward the end of each quarter which could cause our billings and revenue to fall below expected levels.
As a result of customer purchasing patterns, our quarterly sales cycles are generally more heavily weighted toward the end of each quarter with an increased volume of sales in the last few weeks and days of the quarter. This impacts the timing of recognized revenue and billings, cash collections, and delivery of professional services. Furthermore, the concentration of contract negotiations in the last few weeks and days of the quarter could require us to expend more in the form of compensation for additional sales, legal, and finance employees and contractors. Compression of sales activity to the end of the quarter also greatly increases the likelihood that sales cycles will extend beyond the quarter in which they are forecasted to close for some sizable transactions, which may harm forecasting accuracy, adversely impact new customer acquisition metrics for the quarter in which they are forecasted to close, and result in a revenue shortfall that could adversely affect our business.
Our operating results may fluctuate from quarter to quarter, which makes our future results difficult to predict.
Our quarterly operating results have fluctuated in the past and may fluctuate in the future. Additionally, we have a limited operating history with the current scale of our business, which makes it difficult to forecast our future results. As a result, you should not rely upon our past operating results as indicators of future performance. You should take into account the risks and uncertainties frequently encountered by companies in rapidly evolving markets. Our operating results in any given quarter can be adversely affected forinfluenced by numerous factors, many of which are unpredictable or are outside of our control, including:
•our ability to generate significant revenue from new products and services;
•our ability to maintain and grow our customer base;
•our ability to expand our number of partners and distribution of our platform;
•the development and introduction of new products and services by us or our competitors;
•increases in and timing of operating expenses that we may incur to grow and expand our operations and to remain competitive;
•the timing of significant new purchases or renewals by our customers;
•contract term length and other purchasing patterns or selections of our customers, including as a particular periodresult of seasonality or changes in product mix;
•the timing of our annual user conferences;
•costs related to the acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs and possible write-downs;
•actual or perceived failures or breaches of security or privacy, and the costs associated with remediating any actual failures or breaches;
•adverse litigation, judgments, settlements, or other litigation-related costs;
•changes in the legislative or regulatory environment, such as with respect to privacy, and the imposition of any new or expanded export-related sanctions;
•the application of new or changing financial accounting standards or practices;
•level of interest rates and inflation;
•fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies; and
•general economic conditions in either domestic or international markets, as well as economic conditions specifically affecting industries in which our customers operate, including as a result of or in future periods.connection with the global economic impact related to the geopolitical conflict stemming from Russia’s invasion of Ukraine.
Our business is affected by seasonality.
Our business is affected by seasonality. Due to the budgeting cycles of our current and potential customers, historically, we enter into more agreements with new customers and more renewed agreements with existing customers in the fourth quarter of each calendar year than in any other quarter. Accordingly, our cash flow from operations has historically beenThe impact of seasonality is heightened on multi-year subscriptions where more revenue is recognized at a point in time when the platform is first made available to the customers, or the beginning of the subscription term, if later, and the remaining portion is recognized ratably over the life of the contract. Additionally, seasonal patterns may be affected by the timing of particularly large transactions. For example, we may achieve higher revenue growth in the first fiscal quarter of each calendar year than in other quarters. This seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent, in our revenue results,the second fiscal quarter due to the facteffect of one or more large contracts that are entered into in accordance with U.S. GAAP, we recognize revenue from the sale of our platform over the term of the customer agreement. first fiscal quarter.
In addition, we generally have experienced increased sales and marketing expenses associated with our annual sales kickoff in the first quarter and each of our annual U.S. and European Inspire user conferences in the secondperiod in which each occurs. We also generally see increased sales activity following our user conferences as a result of increased customer engagement during and third quarters, respectively.after the events. Our rapid growth in recent years may obscure the extent to which seasonality trends have affected our business and may continue to affect our business. Accordingly,Seasonality in our business can also be impacted by introductions of new or enhanced products and services, including the costs associated with such introductions. Moreover, seasonal and other variations related to our revenue recognition or otherwise may cause significant fluctuations in our operating results and cash flows, may make it challenging for an investor to predict our performance on a quarterly or annual basis, and may prevent us from achieving our quarterly or annual forecasts or meeting or exceeding the expectations of research analysts or investors, which in turn may cause our stock price to decline. Additionally, yearly or quarterly comparisons of our operating results may not be useful and our operating results in any particular period will not necessarily be indicative of the results to be expected for any future period. Seasonality
Over the past several years, we have undergone, and may continue to experience, changes to our senior management team and if we are unable to integrate new members of our senior management team, or if we lose the services of any of our senior management or other key personnel, our business, operating results, and financial condition could be adversely affected.
From time to time, there may be changes in our management team as a result of the hiring, departure or realignment of our senior management and other key personnel, and such changes may impact our business. For example, since 2021, we have added several new senior management employees, including a new Chief Revenue Officer, Chief Product Officer, Chief Marketing Officer, Chief Information Security Officer, Chief People Officer, and Chief Transformation Officer. Any significant leadership change or senior management transition involves inherent risk and any failure to ensure the timely and suitable replacement and a smooth transition could hinder our strategic planning, business can alsoexecution and future performance. In particular, these or any future leadership transitions may result in a loss of personnel with deep institutional or technical knowledge and changes in business strategy or objectives and have the potential to disrupt our operations and relationships with employees and customers due to added costs, operational inefficiencies, changes in strategy, decreased employee morale and productivity, and increased turnover. We must successfully integrate our new leadership team members within our organization to achieve our operating objectives.
Our future success depends in large part on the continued service of senior management and other key personnel. In particular, we are highly dependent on the services of our senior management team, many of whom are critical to the development of our technology, platform, future vision, and strategic direction. We rely on our leadership team in the areas of operations, security, marketing, sales, support, and general and administrative functions, and on our leadership and individual contributors on our research and development team. Our senior management and other key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason, and without notice. From time to time, there may be
impacted by introductionschanges in our senior management team resulting from the hiring or departure of
newexecutives. If we lose the services of senior management or
enhanced productsother key personnel, or if our senior management team cannot work together effectively, our business, operating results, and
services, including the costs associated with such introductions.financial condition could be adversely affected.
Any failure to offer high-quality technical support may harm our relationships with our customers and have a negative impact on our business and financial condition.
Once our platform is deployed, our customers depend on our customer support team to resolve technical and operational issues relating to our platform. Our ability to provide effective customer support is largely dependent on our ability to attract, train, and retain qualified personnel with experience in supporting customers on platforms such as ours. TheOur ability to accurately design and meet service level agreements, or SLAs, for any cloud-based product that we offer is dependent on our qualified product and customer support personnel accurately assessing the capabilities of those products and our users’ experience of those products. Also, as we integrate new technology from acquisitions into our existing products and services or continue to license it on a standalone basis, we may experience challenges in accurately assessing the capabilities of and providing technical support for those integrated or standalone products. Any failure to meet our customer’s expectations and our contractual requirements could negatively affect our operating results and negatively impact our customers’ experience.
Our customer support team provides technical support services to our customers and, as a result of our expanding customer base and certain of our commercial offerings including technical support services, the number of
our customers
for which we have committed to provide support has grown significantly
and that has and will put additional pressure on our customer support team.over time. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for technical
support. We also may be unablesupport or to modify the
future, scope and delivery of our technical support to compete with changes in the technical support provided by our competitors. Increased customer demand for
or commitments to provide support, without corresponding
increases in revenue, could increase costs and negatively affect our operating results. In addition, as we continue to grow our operations and expand internationally, we need to be able to provide efficient customer support that meets our customers’ needs globally at scale and our customer support team will face additional challenges, including those associated with delivering support, training, and documentation in languages other than English. If we are unable to provide efficient customer support globally at scale, our ability to grow our operations may be harmed and we may need to hire additional support personnel, which could negatively impact our operating results. In addition, we
have recently begun, and intend to continue, to provide self-service support resources to our customers. Some of these resources, such as
our community page,Alteryx Community, rely on engagement and collaboration by and with other customers. If we are unable to
continue to develop self-service support resources
that are easy to use and that our customers utilize to resolve their technical issues, or if our customers choose not to collaborate or engage with other customers on technical support issues, customers may continue to direct support requests to our customer support team instead of relying on our self-service support resources and our customers’ experience with our platform may be negatively impacted. Any failure to maintain high-quality support, or a market perception that we do not maintain high-quality support, could harm our reputation, our ability to sell our platform to existing and prospective customers, and our business, operating results, and financial condition.
Failure
Environmental, social, and governance, or ESG, issues may result in reputational harm and liability.
Positions we may take (or choose not to protecttake) on ESG issues may be unpopular with some of our intellectual propertycurrent or potential employees, partners, or customers, which may in the future impact our ability to attract or retain employees, partners, or customers. Further, actions taken by our customers or partners, including through the use or misuse of our products, may result in reputational harm or possible liability to us.
Our disclosures on ESG matters, and any standards we may set for ourselves or a failure to meet these standards, may influence our reputation and the value of our brand. For example, we have elected to share publicly certain information about our ESG initiatives and information, and our commitment to the recruitment, engagement and retention of a diverse board and workforce. In addition, the SEC has also proposed additional disclosure requirements regarding, among other ESG topics, the impact our business has on the environment. Our business may face increased scrutiny related to these activities and our related disclosures, including from the investment community, and our failure to achieve progress in these areas on a timely basis, or at all, could adversely affect our
business.reputation, business, and financial performance.
We currently rely onare exposed to collection and credit risks, which could impact our operating results.
Our accounts receivable and contract assets are subject to collection and credit risks, which could impact our operating results. These assets may include upfront purchase commitments for multiple years of subscription-based software licenses, which may be invoiced over multiple reporting periods, increasing these risks. In addition, some of our customers may seek bankruptcy protection or other similar relief and fail to pay amounts due to us, pay those amounts more slowly, or seek to recover amounts already paid, any of which could adversely affect our operating results, financial position, and cash flow. For example, as a
combinationresult of
copyrights, trademarks, trade secrets, confidentiality procedures, contractual commitments,the impacts of the COVID-19 pandemic, we received requests from time to time from existing customers attempting to renegotiate contracts and
obtain concessions, including, among other
legal rights to protect our intellectual property.things, longer payment terms or modified subscription dates. We also have
four pending patent applications inincreased exposure to credit risk due to our use of channel partners, who are drivers of revenue through the
United States. Despitedistribution and re-sale of our
efforts,products and services. Even though the
steps we take to protectchannel partner is considered our
intellectual propertycustomer for these purposes, a channel partner may be
inadequate. Unauthorized third parties may tryunable or unwilling to
copy or reverse engineer portionspay amounts due to us if a customer fails to pay the channel partner, a risk that is increased if the purchase commitment is for multiple years of subscription-based software licenses. Although we have processes in place that are designed to monitor and mitigate the foregoing risks, we cannot guarantee these processes will be effective and any actions undertaken by us to enforce the terms of our
platform or otherwise obtain and use our intellectual property. In addition, we may notcontracts could be
able to obtain sufficient intellectual property protection for important features of our platform, in which case our competitors may discover ways to provide similar features without infringing or misappropriating our intellectual property rights.Any patents that we may own and rely on in the future may be challenged or circumvented by others or invalidated through administrative process or litigation. Our current and future patent applications may not be issued with the scope of the claims we seek, if at all. In addition, any patents issued in the future may not provide us with competitive advantages, may not be enforceable in actions against alleged infringers or may be successfully challenged by third parties.
Moreover, recent amendments to U.S. patent law, developing jurisprudence regarding U.S. patent law, and possible future changes to U.S. or foreign patent laws and regulations may affect our ability to protect our intellectual property and defend against claims of patent infringement. In addition, the laws of some countries do not provide the same level of protection of our intellectual property as do the laws of the United States. As we expand our international activities, our exposure to unauthorized copying and use of our platform and proprietary information will likely increase. Despite our precautions, it may be possible for unauthorized third parties to infringe upon or misappropriate our intellectual property, to copy our platform, and use information that we regard as proprietary to create products and services that compete with ours. Effective intellectual property protection may not be available to us in every country in which our platform is available. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against certain third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. We may need to expend additional resources to defend our intellectual property rights domestically or internationally, which could impair our business or adversely affect our domestic or international expansion.costly. If we cannot protect our intellectual property against unauthorized copying or use, we may not remain competitive andare unable to adequately control these risks, our business, operating results, and financial condition could be harmed. Further, our ability to collect from our customers and channel partners may depend in part on macroeconomic conditions, which due to, among other things, stock market volatility and rising interest and inflation rates, have become uncertain. These and other challenging conditions may negatively impact our customers and partners and their ability to pay for the products and services they have purchased, which may result in an increase to our allowance for doubtful accounts and write-offs of accounts receivable.
Risks Related to Information Technology, Intellectual Property, and Data Security and Privacy
The nature of our platform makes it particularly vulnerable to errors or bugs, which could cause problems with how our platform performs and which could, in turn, reduce demand for our platform, reduce our revenue, and lead to product liability claims against us.
Because our platform is complex, it may contain errors or defects, especially when new updates or enhancements are released or acquired or new third-party technologies are integrated into our platform. Our software is often installed and used in large-scale computing environments with different operating systems, system management software, and equipment and networking configurations, which may cause errors or failures of our software or other aspects of the computing environment into which it is deployed. In addition, deployment of our software into these computing environments may expose errors, compatibility issues, failures, or bugs in our software. From time to time we have identified, and in the future we may identify, other vulnerabilities in our platform, which we may not be able to timely address and remediate. These vulnerabilities could cause our platform to crash or allow an attacker to access our or our users’ confidential or personal information or take control of the affected system, which could result in liability or reputational harm to us or limit our ability to conduct our business and deliver our platform to customers. We devote significant resources to address security vulnerabilities through engineering a more secure platform, extensively testing our platform, enhancing security and reliability features in our products and systems, and deploying updates to address security vulnerabilities, but security vulnerabilities cannot be eliminated. The cost of these and other steps could reduce our operating margins and we may be
unable to implement these measures quickly enough to prevent cyber-attackers from gaining unauthorized access into our systems and products. Despite testing by us and by our current and potential customers, errors may be found in new updates or enhancements after deployment by our customers. Real or perceived errors, failures, vulnerabilities, or bugs in our platform could also result in negative publicity, loss of customer data, loss of or delay in market acceptance of our platform, loss of competitive position, or claims by customers for losses sustained by them, all of which could negatively impact our business and operating results and materially damage our reputation and brand. Alleviating any of these problems could divert management attention, require significant expenditures of our capital and other resources and could cause interruptions, delays, or cessation in the sale of our platform, which could cause us to lose existing or potential customers and could adversely
affected.We enter into confidentialityaffect our operating results and invention assignmentgrowth prospects.
Our agreements with customers typically contain provisions designed to limit our employeesexposure to product liability, warranty, and consultantsother claims. However, these provisions do not eliminate our exposure to these claims. In addition, it is possible that these provisions may not be effective under the laws of certain domestic or international jurisdictions and enter into confidentiality agreements withwe may be exposed to product liability, warranty, and other parties. claims. A successful product liability, warranty, or other similar claim against us could have an adverse effect on our business, operating results, and financial condition.
We have experienced, and may in the future experience, security breaches and if unauthorized parties obtain access to our customers’ data, our data, or our platform, networks, or other systems, our platform may be perceived as not being secure, our reputation may be harmed, demand for our platform may be reduced, our operations may be disrupted, we may incur significant legal liabilities, and our business could be materially adversely affected.
As part of our business, we process, store, and transmit certain registration and usage data of our customers as well as our own confidential and/or proprietary business information and trade secrets, including in our platform, networks, and other systems, and we rely on third parties that are not directly under our control to do so as well. As we grow our cloud-based software business, we and our third-party partners will process, store, and transmit greater amounts of customer data and information. We, and our third-party partners, have security measures and disaster response plans in place to help protect our customers’ data, our own data and information, and our platform, networks, and other systems against unauthorized access or inadvertent exposure. However, we cannot assure you that these agreementssecurity measures and disaster response plans will be effective against all security threats and natural disasters. System failures or outages, including any potential disruptions due to significantly increased global demand on certain cloud-based systems while workforces have transitioned to part-time or full-time work from home arrangements, could compromise our ability to perform our day-to-day operations in controllinga timely manner, which could negatively impact our business or delay our financial reporting. Such failures could also materially adversely affect our operating results and financial condition. Our and our third-party partners’ security measures have in the past been, and may in the future be, breached as a result of third-party action, including intentional misconduct by computer hackers, fraudulent inducement of employees, partners, or customers to disclose sensitive information such as usernames or passwords, intentional or unintentional user conduct, and the errors or malfeasance of our or our third-party partners’ personnel. In addition, as many of our employees continue to work remotely part-time or full-time, we may face additional data security risks. A breach could result in someone obtaining unauthorized access to useour customers’ data, our own data, confidential and/or proprietary business information, trade secrets, personal data, or our platform, networks, or other systems. Although we have incurred significant costs and expect to incur additional significant costs to prevent such unauthorized access, because there are many different security threats and the security threat landscape continues to evolve, we and our third-party partners may be unable to anticipate attempted security breaches and implement adequate preventative measures. Third parties may also conduct attacks designed to temporarily deny customers access to our services. In addition, the risk of security attacks related to political and distributioneconomic conditions, war, and terrorism may increase, including from retaliatory security attacks as a result of the geopolitical conflict stemming from Russia’s invasion of Ukraine and related political or economic responses and counter-responses.
Any actual or perceived security breach or compromise or failure of our proprietaryor our third-party partners’ systems, networks, data, or confidential information could result in actual or alleged breaches of applicable laws or our contractual obligations, regulatory investigations and orders, litigation, indemnity obligations, damages, penalties, fines, costs, and other liabilities. Any such incident could also materially damage our reputation and harm our business, operating results, and financial condition, including reducing our revenue, resulting in effectively securing exclusive ownershipour customers or third-party partners terminating their relationships with us, subjecting us to costly notification and remediation requirements, or harming our brand.
Cybersecurity risks and cyber incidents could result in the compromise of confidential data or critical data systems and give rise to potential harm to customers, remediation and other expenses under consumer protection laws or other laws or common law theories, subject us to litigation and federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to our business and operations.
We collect and store sensitive information, including intellectual property,
developed byproprietary business information, and personal data of individuals, such as our
customers, current and former employees, and
consultants. Further, these agreements may not preventemployee candidates. As we grow our
competitors from independently developing technologies that are substantially equivalent or superiorcloud-based software business, we and our third-party partners will process, store, and transmit greater amounts of customer data and information. We, and our third-party partners, have security measures and disaster response plans in place to
our platform.In order tohelp protect our intellectual property rights,customers' data, our own data and information, and our platform, networks, and other systems against unauthorized access or inadvertent exposure. However, there can be no assurance that we will not be subject to cybersecurity incidents that bypass our security measures, impact the integrity, availability, or privacy of data that may be subject to privacy laws or disrupt our information systems, devices, or business. As cyber threats continue to evolve, we may be required to spendexpend significant additional resources to acquire, maintain, monitor,continue to modify or enhance our protective measures or to investigate and remediate any cybersecurity vulnerabilities.
The secure maintenance of the information we collect and store and related technology is critical to our business operations. We have implemented multiple layers of security measures designed to protect the confidentiality, integrity, availability, and privacy of this data and the systems and devices that store and transmit such data. We utilize current security technologies, and our intellectual property rights. We cannot assure you thatdefenses are monitored and routinely tested internally and by external parties. Despite these efforts, threats from malicious persons and groups, and evolving vulnerabilities and advanced new attacks against information systems, create risk of cybersecurity incidents. These incidents can include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption, including by introducing malware or ransomware into an organization's environment. Threat actors will continue to try to obtain unauthorized access to our monitoring efforts will detect every infringementcustomers' data, our own data, confidential and/or proprietary business information, trade secrets, personal data, or our platform, networks, or other systems. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may not immediately produce signs of intrusion, we may be unable to anticipate these incidents or techniques, timely discover them, or implement adequate preventative measures.
Any actual or perceived security breach or compromise or failure of our intellectual property rights by aor our third party. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management, andparties' systems, networks, data, or confidential information could result in actual or alleged breaches of applicable laws or our contractual obligations, regulatory investigations and orders, litigation, indemnity obligations, damages, penalties, fines, costs, and other liabilities. Any such incident could also materially damage our reputation and harm our business, operating results, and financial condition, including reducing our revenue, resulting in our customers or third-party partners terminating their relationships with us, subjecting us to costly notification and remediation requirements, or harming our brand. These incidents can include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption, including by introducing malware or ransomware into an organization's environment. For example, in December 2021, the impairmentApache Software Foundation, or lossApache, publicly disclosed a remote code execution, or RCE, vulnerability in its Log4j 2 product, or Log4j, an open-source component widely used in Java-based software applications to log and track error messages. In subsequent weeks, Apache disclosed several additional RCE vulnerabilities, expanding the opportunities for bad actors and attackers to remotely access a target using Log4j and potentially steal data, install malware, or take control of portionsthe target's system. Certain applications in our product suite and infrastructure did utilize the affected versions of Log4j. In March 2022, Spring Core publicly disclosed an RCE vulnerability that also impacted certain applications in our intellectual property. Further,product suite and infrastructure. Although we believe we identified and remediated the last known Log4j and Spring Core vulnerabilities, the risk of additional vulnerabilities and potential attacks remains.
We maintain cyber liability insurance policies covering certain security and privacy damages. However, we cannot be certain that our
effortscoverage will be adequate for liabilities actually incurred or that insurance will continue to
enforce our intellectual property rights may be
met with defenses, counterclaims,available to us on economically reasonable terms, or at all. Risks related to cybersecurity will increase as we continue to grow the scale and
countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our platform, impair the functionality of our platform
delay introductionsand process, store, and transmit increasingly large amounts of
new productsour customers’ information and
services, result in our substituting inferiordata, which may include proprietary or
more costly technologies into our platform,confidential data or
damage our brand and reputation.Additionally, the United States Patent and Trademark Office and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process and to maintain issued patents. There are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If this occurs, it could have a material adverse effect on our business operations and financial condition.
personal data.
Our platform may infringe the intellectual property rights of third parties,
and this maywhich could create liability for us or otherwise harm our business.
Third parties may claim that our current or future products and services infringe their intellectual property rights, and such claims may result in legal claims against our customers and
us. These claimsus that may damage our brand and reputation, harm our customer relationships, and create
financial and legal liability for us. We expect the number of such claims will increase as the number of products and services and the level of competition in our market grows, the functionality of our platform overlaps with that of other products and services, and the volume of issued software patents and patent applications continues to increase. We generally agree in our customer contracts to indemnify customers for expenses or liabilities they incur as a result of,
third partyamong other types of claims, third-party intellectual property infringement claims associated with our platform. To the extent that any claim arises as a result of third-party technology we have licensed for use in our platform, we may be unable to recover from the appropriate third party any expenses or other liabilities that we incur.
Further, any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer or other existing or potential customers.
Companies in the software and technology industries, including some of our current and potential competitors, own large numbers of patents, copyrights, trademarks, and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. In addition, many of these companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. Furthermore, patent holding companies, non-practicing entities, and other adverse patent owners
that are not deterred by our existing intellectual property protectionshave in the past contacted, and may
seek to assert patent claims against us. From time to time, third parties, including certain of these leading companies, have contactedin the future contact, us inviting us to license their patents, and may
in the future, assert patent, copyright, trademark, or other intellectual property rights against us, our channel partners, our technology partners, or our
customers.customers in the future. We have received, and may in the future receive, notices that claim we have misappropriated, misused, or infringed other parties’ intellectual property rights, and, to the extent we gain greater market visibility, we face a higher risk of being the subject of intellectual property infringement claims, which is not uncommon with respect to the enterprise software market.
There
Third parties may be third-partyown intellectual property rights, including issued or pending patents, that cover significant aspects of our technologies or business methods. In addition, if we acquire or license technologies from third parties, we may be exposed to increased risk of being the subject of intellectual property infringement due to, among other things, our lower level of visibility into the development process with respect to such technology and the care taken to safeguard against infringement risks. Any intellectual property claims, with or without merit, could be very time-consuming, could be expensive to settle or litigate, and could divert our management’s attention and other resources. These claims could also subject us to significant liability for damages, potentially including treble damages if we are found to have willfully infringed patents or copyrights and may require us to indemnify our customers for liabilities they incur as a result of such claims. These claims could also result in our having to stop using technology found to be in violation of a third party’s rights. We might be requiredrights or to otherwise seek a license for the intellectual property, which may not be available on commercially reasonable terms or at all. Even if a license were available, we could be required to pay significant royalties, which would increase our operating expenses. Alternatively, we could be required to develop alternative non-infringing technology, which could require significant time, effort, and expense, and may affect the performance or features of our platform. If we cannot license or develop alternative non-infringing substitutes for any infringing technology used in any aspect of our business, we wouldmay be forced to limit or stop sales of our platform and may be unable to compete effectively. Any of these results would adversely affect our business, reputation, operating results, and financial condition.
Business disruptions or performance problems associated with our technology and infrastructure, including interruptions, delays, or failures in service from our third-party data center hosting facility and other third-party services, could adversely affect our operating results or result in a material weakness in our internal controls.
Continued adoption of our platform depends in part on the ability of our existing and potential customers to access our platform within a reasonable amount of time. We have experienced, and may in the future experience, disruptions, data loss, outages, and other performance problems with our infrastructure and website due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints, denial of service attacks, or other security-related incidents. If our platform is unavailable or if our users and customers are unable to access our platform within a
reasonable amount of time, or at all, we may experience a decline in renewals, damage to our brand, or other harm to our business. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, operating results, and financial condition could be adversely affected.As we continue to develop and scale cloud-based offerings, the foregoing will become more likely and the results of any disruptions and performance problems could more significantly and negatively impact us and our customers who have subscribed to our cloud-based offerings.
A significant portion of our critical business operations are concentrated in the United States. For instance, we serve our customers and manage certain critical internal processes using a third-party data center hosting facility located in Colorado and other third-party services, including cloud services. We are a highly automated business, and a disruption or failure of our systems, or the third-party hosting facility or other third-party services that we use, could cause delays in completing sales and providing services. For example, from time to time, our data center hosting facility in Colorado has experienced outages. Such disruptions or failures could also result from a major earthquake, blizzard, hurricane, extreme temperatures, fire, cyber-attack, act of terrorism, or other catastrophic event, or a decision by one of our third-party service providers to close facilities that we use without adequate notice or other unanticipated problems with the third-party services that we use, including a failure to meet service standards.
Interruptions or performance problems with either our technology and infrastructure, our data center hosting facility, or our third-party service providers could, among other things:
•result in the destruction or disruption of any of our or our customers’ critical business operations, controls, or procedures or information technology systems;
•severely affect our ability to conduct normal business operations;
•result in a material weakness in our internal control over financial reporting;
•cause us to be in breach of our contractual obligations and result in our customers terminating their subscriptions or seeking service credits for uptime violations under applicable SLAs;
•result in our issuing credits or paying penalties or fines;
•harm our brand and reputation;
•adversely affect our renewal rates or our ability to attract new customers; or
•otherwise negatively impact the performance or security of our platform and cause our platform to be perceived as unreliable or unsecure.
Any of the above could adversely affect our business operations and financial condition.
Further, because nearly all of our employees were working remotely full-time as a result of the COVID-19 pandemic, and many continue to work remotely, we increased infrastructure capacity in those areas where we anticipated increased demand. Any technology supply chain disruptions could also delay our infrastructure expansion, including office expansion and employee onboarding, due to a lack of available components or products, which could adversely affect our business operations, rate of growth, and financial condition.
Failure to protect our intellectual property could adversely affect our business.
We currently rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality procedures, contractual commitments with employees, consultants, and other parties, and other legal rights to establish and protect our intellectual property. We currently have “Alteryx” and variants and other marks registered as trademarks or pending registrations in the U.S. and certain foreign countries. We also rely on copyright laws to protect computer programs related to our platform and our proprietary technologies, although to date we have not registered for statutory copyright protection. We have registered numerous internet domain names in the U.S. and certain foreign countries related to our business. Despite our efforts, the steps we take to protect our intellectual property may be inadequate and we will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Unauthorized third parties may try to copy or reverse engineer portions of our platform or otherwise obtain and use our intellectual property. In addition, we may not be able to obtain sufficient intellectual property protection for important features of our platform, in which case our competitors may discover ways to provide similar features without infringing or misappropriating our intellectual property rights.
We generally cannot rely on patent enforcement rights to protect a significant portion of our proprietary technology. Historically, we have prioritized keeping our technology architecture, trade secrets, and engineering roadmap confidential, and as a general matter, have not extensively patented our proprietary technology. As a result, our patent strategy is still in its early stages and any patents that we may own and rely on may be challenged or circumvented by others or invalidated through administrative process or litigation. Our current and future patent applications may not be issued with the scope of the claims we seek, if at all, and if issued, such patents may not provide us with competitive advantages, may not be enforceable in actions against alleged infringers, or may be successfully challenged by third parties. Further, the process of obtaining and maintaining patent protection is expensive and time-consuming and we may not be able to prosecute and maintain all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may also inadvertently abandon or allow a patent or patent application to lapse, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If this occurs, it could have a material adverse effect on our business operations and financial condition.
Moreover, U.S. patent law, developing jurisprudence regarding U.S. patent law, and possible future changes to U.S. or foreign patent laws and regulations may affect our ability to protect our intellectual property and defend against claims of patent infringement. In addition, the laws of some countries do not provide the same level of protection of our intellectual property as do the laws of the United States. As we expand our international activities, our exposure to unauthorized copying and use of our platform and proprietary information will likely increase, effective intellectual property protection may not be available to us in every country in which our platform is available, and mechanisms for enforcement of intellectual property rights in those countries may be inadequate. We may need to expend additional resources to defend our intellectual property rights domestically or internationally, which could impair our business or adversely affect our domestic or international expansion. If we cannot protect our intellectual property against unauthorized copying or use, we may not remain competitive and our business, operating results, and financial condition may be adversely affected.
We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other parties. We cannot assure you that these agreements will be effective in controlling access to, use of, and distribution of our proprietary information or in effectively securing exclusive ownership of intellectual property developed by our employees and consultants. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our platform.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and enforce our intellectual property rights. We cannot assure you that our monitoring efforts will detect every infringement of our intellectual property rights by a third party. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets, which could be costly, time-consuming, and distracting to management, could result in the impairment or loss of portions of our intellectual property, and may ultimately be unsuccessful. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our platform, impair the functionality of our platform, delay introductions of new products and services, result in our substituting inferior or more costly technologies into our platform, or damage our brand and reputation.
In addition, we contribute software source code under open source licenses. As a result of our open source contributions, we may disclose code and/or innovations that turn out to be material to our business and may also be exposed to increased litigation risk. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our products, services, and methods of operations. Any of these events could have an adverse effect on our business and financial results.
Our software contains third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could restrict our ability to sell our
platform.software.
Our
platformsoftware incorporates open source software code. An open source license allows the use, modification, and distribution of software in source code form. Certain kinds of open source licenses further require that any person who creates a product or service that contains, links to, or is derived from software that was subject to an open source license must also make their own product or service subject to the same open source license. Using software that is subject to this kind of open source license can lead to a requirement that our
platformsoftware be provided free of charge or be made available or distributed in source code form. Although we do not believe our
platformsoftware includes any open source software in a manner that would result in the imposition of any such requirement, the interpretation of open source licenses is legally complex and, despite our efforts, it is possible that our
platformsoftware could be found to contain this type of open source software.
Moreover, we cannot assure you that our processes for controlling our use of open source software in our
platformsoftware will be effective. If we have not complied with the terms of an applicable open source software license, we could be required to seek licenses from third parties to continue offering our
platformsoftware on terms that are not economically feasible, to re-engineer our
platformsoftware to remove or replace the open source software, to discontinue the sale of our
platformsoftware if re-engineering could not be accomplished on a timely basis, to pay monetary damages, or to make generally available the source code for our proprietary technology, any of which could adversely affect our business, operating results, and financial condition.
In addition to risks related to license requirements, use of open source software can involve greater risks than those associated with use of third-party commercial software, as open source licensors generally do not provide warranties or assurance of title, performance, non-infringement, or controls on origin of the software. There is typically no support available for open source software, and we cannot assure you that the authors of such open source software will not abandon further development and maintenance. Many of the risks associated with the use of open source software, such as the lack of
warranties or assurances of title or performance, cannot be eliminated, and could, if not properly addressed, negatively affect our business. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source software, but we cannot be sure that all open source software is identified or submitted for approval prior to use in our platform.
software. Responding to any infringement claim, regardless of its validity, or discovering the use of certain types of open source software code in our platformsoftware could harm our business, operating results, and financial condition,condition.
Risks Related to Legal, Regulatory, Accounting, and Tax Matters
The nature of our business requires the application of complex revenue recognition rules and changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations, and affect our reported operating results.
U.S. generally accepted accounting principles, or U.S. GAAP, is subject to interpretation by
among other things:the Financial Accounting Standards Board, or FASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. For example, SEC proposals on climate-related disclosures may require us to update our accounting or operational policies, processes, or systems to reflect new or amended financial reporting standards. Such changes may adversely affect our business, financial position and operating results, or our revenue and operating profit targets.
Accounting for revenue from sales of subscriptions to software is particularly complex, is often the subject of intense scrutiny by the SEC and will evolve as FASB continues to consider applicable accounting standards in this area. ASU, 2014-09, Revenue from Contracts with Customers (Topic 606), or ASC 606, which governs our revenue recognition, is principles-based and interpretation of those principles may vary from company to company based on their unique circumstances. It is possible that interpretation, industry practice, and guidance may evolve. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in time-consuminga decline in our stock price. We have also incurred increased costs and costly litigation;
diverting management’s timeexpenses in assessing the application of ASC 606 to acquired businesses both in periods prior and attention from developingsubsequent to the closing of the acquisitions as we integrate such businesses into our business;own financial reporting.
requiringThe adoption of new accounting standards may also require us to pay monetary damagesimplement changes to our accounting processes, internal controls, and disclosures. For example, the timing by which we recognize revenue from each of our products differs as a result of ASC 606. Our contracts with customers often include multiple performance obligations and we allocate the transaction price to the various performance obligations based on standalone selling price. Revenue is recognized when we satisfy each performance obligation, which can occur throughout the contract period. If we determine to add or enter into royalty and licensing agreements that we would not normally find acceptable;
causing delaysremove any performance obligations from our products in the deploymentfuture, the timing and pattern of revenue recognition for our platform;
requiring uscontracts with customers could materially change, resulting in either a larger or smaller portion of the total transaction price being recognized at the point in time when the platform is first made available to stop selling some aspectsthe customer, or the beginning of our platform;
requiring usthe subscription term, if later. For example, beginning January 1, 2022, as a result of a determination to redesigncease the inclusion of a certain components ofperformance obligation previously included in subscriptions to our platform, using alternative non-infringinga larger portion of the total transaction price is now recognized at the point in time when the platform is first made available to the customer, or non-open source technology or practices, which could require significant effort and expense;
requiring us to disclose our software source code, the detailed program commandsbeginning of the subscription term, if later, than had previously been recognized for our software; and
requiring us to satisfy indemnification obligationsplatform. As we introduce cloud-based offerings, the pattern of revenue recognition could differ from the pattern of revenue recognition related to our customers.
Future litigation couldlegacy on-premise products, which may impact our ability to accurately forecast our financial performance. If a shift in our product mix favors the sale of one or more product(s) over our other product offerings, our revenue may be affected and may grow more slowly or inconsistently than it has in the past, or decline, and our operating results may be adversely impacted. In addition, industry and financial analysts may have difficulty understanding any shifts in our product mix, resulting in changes in financial estimates or failure to meet investor expectations. Furthermore, if we are unsuccessful in adapting our business to the requirements of any new accounting standard, or if changes to our go-to-market strategy create new risks, then we may experience greater volatility in our quarterly and annual operating results, which may have a material adverse impact on our operating results and financial condition.
From time to time, we have been subject to litigation. The outcome of any litigation, regardless of its merits, is inherently uncertain. Regardless of the merits of any claims that may be brought against us, pending or future litigation could result in a diversion of management’s attention and resources and we may be required to incur significant expenses defending against these claims. If we are unable to prevail in litigation, we could incur substantial liabilities. Where we can make a reasonable estimate of the liability relating to pending litigation and determine that it is probable, we record a related liability. As additional information becomes available, we assess the potential liability and revise estimates as appropriate. However, because of uncertainties relating to litigation, the amount of our estimates could be wrong. Any adverse determination related to litigation could require us to change our technology or our business practices, pay monetary damages, or enter into royalty or licensing arrangements, which could adversely affect our operating results and cash flows, harm our reputation, or otherwise negatively impact our business.
The nature of our platform makes it particularly vulnerable to undetected errors or bugs, which could cause problems with how our platform performs and which could, in turn, reduce demand for our platform, reduce our revenue, and lead to product liability claims against us.
Because our platform is complex, it may contain errors or defects, especially when new updates or enhancements are released. Our software is often installed and used in large-scale computing environments with different operating systems, system management software, and equipment and networking configurations, which may cause errors or failures of our software or other aspects of the computing environment into which it is deployed. In addition, deployment of our software into these computing environments may expose previously undetected errors, compatibility issues, failures, or bugs in our software. Although we test our platform extensively, we have in the past discovered software errors in our platform after introducing new updates or enhancements. Despite testing by us and by our current and potential customers, errors may be found in new updates or enhancements after deployment by our customers. Real or perceived errors, failures, vulnerabilities, or bugs in our platform could result in negative publicity, loss of customer data, loss of or delay in market acceptance of our platform, loss of competitive position, or claims by customers for losses sustained by them, all of which could negatively impact our business and operating results and materially damage our reputation and brand. We may also have to expend resources and capital to correct these defects. Alleviating any of these problems could require significant expenditures of our capital and other resources and could cause interruptions, delays, or cessation in the sale of our platform, which could cause us to lose existing or potential customers and could adversely affect our operating results and growth prospects.
Our agreements with customers typically contain provisions designed to limit our exposure to product liability, warranty, and other claims. However, these provisions do not eliminate our exposure to these claims. In addition, it is possible that these provisions may not be effective under the laws of certain domestic or international jurisdictions and we may be exposed to product liability warranty, and other claims. A successful product liability, warranty, or other similar claim against us could have an adverse effect on our business, operating results, and financial condition.
Business disruptions or performance problems associated with our technology and infrastructure, including interruptions, delays, or failures in service from our third-party data center hosting facility and other third-party services, could adversely affect our operating results or result in a material weakness in our internal controls that could adversely affect the markettrading price of our Class A common stock.
Continued adoption of our platform depends
Changes in
part on the ability of our existing and potential customerslaws, regulations, or guidance issued by supervisory authorities relating to
access our platform within a reasonable amount of time. We have experienced, and may in the future experience, disruptions, data loss, outages, and other performance problems with our infrastructure and website due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints, denial of service attacks, or other security-related incidents. If our platform is unavailable or if our users and customers are unable to access our platform within a reasonable amount of time, or at all, we may experience a decline in renewals, damage to our brand, or other harm to our business. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, operating results, and financial condition could be adversely affected.A significant portion of our critical business operations are concentrated in the United States. In addition, we serve our customers and manage certain critical internal processes using a third-party data center hosting facility located in Colorado and other third-party services, including cloud services. We are a highly automated business, and a disruption or failure of our systems,privacy or the third-party hosting facilityprotection or other third-party services that we use, could cause delays in completing sales and providing services. For example, from timetransfer of personal data, or any actual or perceived failure by us to time, our data center hosting facility has experienced outages. Such disruptionscomply with such laws, regulations, or failures could also include a major earthquake, blizzard, fire, cyber-attack, act of terrorism, or other catastrophic event, or a decision by one of our third-party service providers to close facilities that we use without adequate notice or other unanticipated problems with the third-party services that we use, including a failure to meet service standards.
Interruptions or performance problems with either our technology and infrastructureguidance or our data center hosting facility could, among other things:
result in the destruction or disruption of any of our critical business operations, controls, or procedures or information technology systems;
severely affect our ability to conduct normal business operations;
result in a material weakness in our internal control over financial reporting;
cause our customers to terminate their subscriptions;
result in our issuing credits or paying penalties or fines;
harm our brand and reputation;
adversely affect our renewal rates or our ability to attract new customers; or
cause our platform to be perceived as not being secure.
Any of the aboveprivacy policies, could adversely affect our business operations and financial condition.
We have experienced, and may in the future experience, security breaches and if unauthorized parties obtain access to our customers’ data, our data, or our platform, networks, or other systems, our platform may be perceived as not being secure, our reputation may be harmed, demand for our platform may be reduced, our operations may be disrupted, we may incur significant legal liabilities, and our business could be materially adversely affected.
As partbusiness.
Certain of our business
we process, store,operations, including the delivery of our platform, involve the processing, storing, and
transmittransmitting of personal data that is subject to our
customers’ informationprivacy policies and certain federal, state, and foreign laws and regulations relating to privacy and data
as well as our own, including in our platform, networks,protection. In recent years, the collection and use of personal data by companies have come under increased regulatory and public scrutiny. Evolving definitions of personal data within the European Union, the United States, and globally, especially relating to the treatment of internet protocol addresses, machine or device identifiers, location data, and other
systems,potentially identifying information as personal data, may limit or restrict our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of such user data. Some jurisdictions further require that certain types of data be retained on servers located within the jurisdiction, which could increase our compliance costs and
we rely on third parties that are not directly under our controlslow expansion to
do so as well. We,new regions. Any actual or perceived loss, improper retention or misuse of information, or alleged violations of laws and
our third-party partners, haveregulations relating to privacy, data protection, and data security,
measures and
disaster response plans in place to help protect our customers’ data, our data, and our platform, networks, and other systems against unauthorized access. However, we cannot assure you that these security measures and disaster response plans will be effective against all security threats and natural disasters. Our or our third-party partners’ security measures have in the past been, and may in the future be, breached as a result of third-party action, including intentional misconduct by computer hackers, fraudulent inducement of employees or customers to disclosesensitive information such as user names or passwords, and employee error or malfeasance. Such a breachany related claims, could result in someone obtaining unauthorized access to our customers’ data, our data,an enforcement action against us, including fines, imprisonment of company officials, public censure (with or our platform, networks, orwithout a consent decree finding by supervisory authorities), claims for damages by customers and other systems. Because there are many different security breach techniques and such techniques continue to evolve, we and our third-party partners may be unable to anticipate attempted security breaches and implement adequate preventative measures. Third parties may also conduct attacks designed to temporarily deny customers access to our services. Any security breach or successful denial of service attack could result in a loss of customer confidence in the security of our platformaffected individuals, and damage to our brand, reducing the demand for our platform and our revenue, disrupt our normal business operations, require us to spend material resources to correct the breach, expose us to legal liabilities including litigation and indemnity obligations, and materially adversely affect our operating results. These risks will increase as we continue to grow the scale and functionality of our platform and process, store, and transmit increasingly large amounts of our customers’ information and data, which may include proprietary or confidential data or personal or identifying information.
We may be adversely affected by natural disasters and other catastrophic events, and by man-made problems such as terrorism, that could disrupt our business operations and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Natural disasters or other catastrophic events may also cause damage or disruption to our operations, international commerce, and the global economy, and could have an adverse effect on our business, operating results, and financial condition. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics, and other events beyond our control. In addition, acts of terrorism and other geo-political unrest could cause disruptions in our business or the businesses of our partners or the economy as a whole. In the event of a natural disaster, including a major earthquake, blizzard, or hurricane, or a catastrophic event such as a fire, power loss, or telecommunications failure, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in development of our platform, lengthy interruptions in service, breaches of data security,reputation and loss of critical data, allgoodwill (both in relation to existing customers and prospective customers), any of which could have an adverse effect on our operations, financial performance, and business.
Data protection and privacy laws are becoming more rigorous, with regulators applying more scrutiny resulting in inconsistent and conflicting interpretations or supplemental regulations that may result in our not being in technical compliance from one jurisdiction to another. Despite our efforts to comply with these varying requirements, a regulator or supervisory authority may determine that we have not done so and subject us to fines, potentially costly remediation requirements, and public censure, which could harm our business. For example, the European Union and United Kingdom General Data Protection Regulation, or the GDPR, which applies extraterritorially and imposes strict requirements for controllers and processors of personal information, including higher standards for obtaining consent from individuals to process their personal information, increased requirements pertaining to the processing of special categories of information (such as health information), and pseudonymized (i.e., key-coded) data, and transfer of personal information from the European Economic Area, the United Kingdom, or Switzerland to countries not deemed to have adequate data protection laws, which includes the United States. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4 percent of the annual global revenues of the noncompliant company, whichever is greater.
In the United States, we may be subject to both federal and state laws. For example, in the event our platform or other products process protected health information uploaded by our customers, we may be obligated to comply with certain additional privacy, data security, and contractual requirements to ensure compliance with the Health Insurance Portability and Accountability Act. Certain U.S. state laws may be more stringent, broader in scope, or offer greater individual rights with respect to personal information than federal, international, or other state laws. For example, California continues to be a critical state with respect to evolving consumer privacy laws after enacting the California Consumer Privacy Act, or the CCPA, later amended by ballot measure through the California Privacy Rights Act, or the CPRA. The CPRA took effect in January 2023 and enforcement will begin on July 1, 2023, subject to regulations promulgated through the California Privacy Protection Agency, or CPPA, a newly created enforcement agency. Failure to comply with the CCPA and the CPRA may result in significant civil penalties, injunctive relief, or statutory or actual damages as determined by the CPPA and the California Attorney General through its investigative authority. Compliance with new privacy legislation enacted in various U.S. states may result in additional costs and expense of resources to maintain compliance.
We depend on third parties in relation to the operation of our business, a number of which process personal data on our behalf. With each such provider we generally attempt to mitigate the associated risks of using third parties by, among other things, performing security assessments, entering into contractual arrangements to ensure that providers only process personal data according to our instructions, and that they have sufficient technical and organizational security measures in place. There is no assurance that these contractual measures and our own privacy and security-related safeguards will protect us from the risks associated with the third-party processing, storage, and transmission of such information. Any violation of data or security laws by our third-party processors could have a material adverse effect on our business and result in the fines and penalties outlined above.
In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards. These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards. These evolving compliance and operational requirements may impose significant costs, such as costs related to organizational changes, implementing additional protection technologies, training employees, and engaging consultants, which are likely to increase over time, or even require us to modify our data processing practices and policies, distract management, or divert resources from other initiatives or projects.
Any failure or perceived failure by us (or the third parties with whom we have contracted to process such information) to comply with applicable privacy and security laws, policies or related contractual obligations, or any compromise of security that results in unauthorized access, use, or transmission of, personal user information, could result in a variety of claims against us, including governmental enforcement actions and investigations, class action privacy litigation in certain jurisdictions, and proceedings by data protection authorities. As a result of these events, our reputation may be harmed, we may lose current and potential users, and the competitive position of our brand might be diminished, any of which could materially adversely affect our business, operating results, and financial condition. Furthermore, enforcement actions and investigations by regulatory authorities (such as the Federal Trade Commission or the states’ attorneys general) related to data security incidents, alleged
unfair or deceptive acts concerning privacy practices, and other privacy violations continue to increase. If our practices are not consistent or viewed as not consistent with legal and regulatory requirements, including changes in laws, regulations, and standards or new interpretations or applications of existing laws, regulations, and standards, we may become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, loss of export privileges, or severe criminal or civil sanctions, any of which may have a material adverse effect on our business, operating results, reputation, and financial condition.
Contractual disputes with our customers could be costly, time-consuming, and harm our reputation and indemnity provisions in various agreements may expose us to significant liability.
Our business is contract intensive and we are party to contracts with our customers all over the world. Our contracts can contain a variety of terms, including security obligations, indemnification obligations, and regulatory requirements. Contract terms may not always be standardized across our customers and can be subject to differing interpretations, which could result in disputes with our customers from time to time. If our customers notify us of an alleged contract breach or otherwise dispute any provision under our contracts, the resolution of such disputes in a manner adverse to our interests could negatively affect our operating results. For example,
Our agreements with customers and other third parties may also include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of third-party claims of intellectual property infringement or other violations of intellectual property rights, damages caused by us to property or persons, or other liabilities relating to or arising from our
corporate offices are located in California,software, services, or other contractual obligations. Large indemnity payments could harm our business, reputation, operating results, and financial condition. Any dispute with a
statecustomer with respect to such obligations could have adverse effects on our relationship with that
frequently experiences earthquakes. Additionally, all the aforementioned risks may be further increased if we do not implement a disaster recovery plancustomer and other existing or
potential customers and harm our
partners’ disaster recovery plans prove to be inadequate.business, reputation, and operating results.
Failure to comply with governmental laws and regulations could harm our business.
Our business is subject to regulation by various federal, state, local, and foreign governments. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions, or other collateral consequences. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business,
reputation, operating results, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, reputation, operating results, and financial condition.
Changes in laws or regulations relating to privacy or the protection or transfer of personal data, or any actual or perceived failure by us to comply with such laws
Current and
regulations or our privacy policies, could adversely affect our business.Components of our business, including our platform, involve processing, storing, and transmitting confidential data, which is subject to our privacy policies and certain federal, state, and foreign laws and regulations relating to privacy and data protection. The amount of customer and employee data that we store through our platform, networks, and other systems, including personal data, is increasing. In recent years, the collection and use of personal data by companies have come under increased regulatory and public scrutiny.
For example, in the United States, protected health information is subject to the Health Insurance Portability and Accountability Act, or HIPAA. HIPAA has been supplemented by the Health Information Technology for Economic and Clinical Health Act with the result of increased civil and criminal penalties for noncompliance. Under HIPAA, entities performing certain functions and creating, receiving, maintaining, or transmitting protected health information provided by covered entities and other business associates are directly subject to HIPAA. If we have access to protected health information through our platform, we may be obligated to comply with certain privacy rules and data security requirements under HIPAA. Any systems failure or security breach that results in the release of, or unauthorized access to, personal data, or any failure or perceived failure by us to comply with our privacy policies or any applicable laws or regulations relating to privacy or data protection, could result in proceedings against us by governmental entities or others. Such proceedings could result in the imposition of sanctions, fines, penalties, liabilities, or governmental orders requiring that we change our data practices, any of whichfuture litigation could have a material adverse effectimpact on our business, operating results and financial condition.
Various local, state, federal,
From time to time, we have been subject to litigation, including class action litigation. The outcome of any litigation, regardless of its merits, is inherently uncertain. Regardless of the merits of any claims that may be brought against us, pending or future litigation could result in a diversion of management’s attention and
international laws, directives,resources and
regulations apply to the collection, use, retention, protection, disclosure, transfer, and processing of personal data. These data protection and privacy laws and regulations continue to evolve. Various federal, state, and foreign legislative or regulatory bodieswe may
enact new or additional laws or regulations concerning privacy and data protection that could adversely impact our business. Complying with these varying requirements could cause usbe required to incur
significant expenses defending against these claims. If we are unable to prevail in litigation, we could incur payments of substantial
costsmonetary damages or
fines, or undesirable changes to our products or business practices, and accordingly our business, financial condition, or operating results could be materially and adversely affected. Where we can make a reasonable estimate of the liability relating to pending litigation and determine that it is probable, we record a related liability. As additional information becomes available, we assess the potential liability and revise estimates as appropriate. However, because of uncertainties relating to litigation, the amount of our estimates could change. Any adverse determination related to litigation could require us to change our
technology or our business practices,
either ofpay monetary damages or fines, or enter into royalty or licensing arrangements, which could adversely affect our
businessoperating results and
operating results. For example, in October 2015, the European Court of Justice issued a ruling invalidating the U.S.-EU Safe Harbor Framework, which facilitated personal data transfers to the United States in compliance with applicable E.U. data protection laws. In July 2016, the European Union and the United States political authorities adopted the EU-U.S. Privacy Shield, or Privacy Shield, which may provide a new mechanism for companies to transfer E.U. personal data to the United States. We will need to assess the specific requirements of the Privacy Shield to determine whether we can comply with the new framework. If we are unable to comply with the Privacy Shield we will need to implement alternative solutions to ensure that data transfers from the European Union to the United States provide adequate protections to comply with the E.U. Data Protection Directive. In any event, there remains significant regulatory uncertainty surrounding the future of data transfers from the European Union to the United States, and changing laws, directives, and regulations may have an adverse effect upon the conduct of our business. Additionally, the European Commission adopted a general data protection regulation, to become effective in May 2018, that will supersede current E.U. data protection legislation, impose more stringent E.U. data protection requirements, and provide for greater penalties for noncompliance. Changing definitions of personal data and information may also limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data. Also, some jurisdictions require that certain types of data be retained on servers within these jurisdictions. Our failure to comply with applicable laws, directives, and regulations may result in enforcement action against us, including fines and imprisonment, and damage tocash flows, harm our reputation,
any of which may have an adverse effect onor otherwise negatively impact our
business and operating results.business.
Failure to comply with anti-corruption and anti-money laundering laws, including the FCPA and similar laws associated with our activities outside of the United States, could subject us to penalties and other adverse consequences.
We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the Bribery Act, and possibly other anti-bribery and anti-money laundering laws in countries in which we conduct activities. We face significant risks if we fail to comply with the FCPA and other anti-corruption laws that prohibit companies and their employees and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties, and private-sector recipients for the purpose of obtaining or retaining business, directing business to any person, or securing any advantage. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. In addition, we use various third parties to sell our platform and conduct our business abroad. We or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. We have implemented an anti-corruption compliance program but cannot assure you that all our employees and agents, as well as those companies to which we outsource certain of our business operations, will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.
Any violation of the FCPA, other applicable anti-corruption laws,
andor anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, which could have an adverse effect on our reputation, business, operating results, and prospects. In addition, responding to any enforcement action may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees.
We are required to comply with
governmental export control laws and regulations. Our failure to comply with these laws and regulations could have an adverse effect on our business and operating results.
Our platform is subject to
governmental,export control laws and regulations, including
in the United States and European
Union, export control laws and regulations.Union. U.S. export control laws and regulations and economic sanctions prohibit the shipment of certain products and services to U.S. embargoed or sanctioned countries, governments, and persons, and complying with export control and sanctions regulations for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities.
For example, in 2022, the U.S. and other countries levied additional sanctions against Russian and Belarusian entities and individuals in response to Russia’s military action in Ukraine. As a result, we terminated access to our software to, and ceased pursuing active deals with, various sanctioned entities and individuals. While our commercial presence in Russia was not material, there may be other, similar events in the future where increased sanction activity results in a material adverse effect on our operating results and financial condition. Further, while we take precautions to prevent our platform from being exported in violation of these laws, if we were to fail to comply with U.S. export laws, U.S. Customs regulations and import regulations, U.S. economic sanctions, and other countries’applicable jurisdictions’ import and export laws, we could be subject to substantial civil and criminal penalties, including fines for the company and incarceration for responsible employees and managers, and the possible loss of export or import privileges.
We incorporate encryption technology into certain of our products. Encryption products may be exported outside of the United States only with the required export
authorizationauthorizations including by license, a license exception, or other appropriate government authorization. In addition, various countries regulate the import of certain encryption technology, including import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries. Although we take precautions to prevent our products from being provided in violation of such laws, we cannot assure you that inadvertent violations of such laws have not occurred or will not occur in connection with the distribution of our products despite the precautions we take. Governmental regulation of encryption technology and regulation of imports or exports, or our failure to obtain required import or export approval for our products, could harm our international sales and adversely affect our operating results.
Further, if our channel or other partners fail to obtain appropriate import, export, or re-export licenses or permits, we may also be harmed, become the subject of government investigations or penalties, and incur reputational harm. Changes in our
platform or changes in export and import regulations may create delays in the introduction of our platform in international markets, prevent our customers with international operations from deploying our platform globally or, in some cases, prevent the export or import of our platform to certain countries, governments, or persons altogether. Any change in export or import laws or regulations, economic sanctions, or related legislation, shift in the enforcement or scope of existing laws and regulations, or change in the countries, governments, persons, or technologies targeted by such laws and regulations,
including as a result of economic sanctions and other geopolitical developments following Russia’s invasion of Ukraine, could result in decreased use of our platform by, or in our decreased ability to export or sell our platform to, existing or potential customers with international operations. Any decreased use of our platform or limitation on our ability to export or sell our platform would likely harm our business, financial condition, and operating results.
If we
Our financial statements are
unablesubject to
recruitchange and if our estimates or
retain skilled personnel, or if we lose the services of any ofjudgments relating to our
senior management or other key personnel,critical and significant accounting policies prove to be incorrect, our
business, operating results
and financial condition could be adversely affected.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and related notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Critical and significant accounting policies and estimates used in preparing our condensed consolidated financial statements include those related to revenue recognition, convertible senior notes, and accounting for income taxes. Our future success depends onoperating results may be adversely affected if our continuing abilityassumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to attract, train, assimilate,fall below the expectations of securities analysts and retain highly skilled personnel. investors, resulting in a decline in the price of our Class A common stock.
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
We
face intense competitionreview our goodwill and intangible assets for
qualified individuals from numerous software and other technology companies. Weimpairment when events or changes in circumstances indicate the carrying value may not be
able to retain our current key employees or attract, train, assimilate, or retain other highly skilled personnel in the future. We may incur significant costs to attract and retain highly skilled personnel, and we may lose new employees to our competitors or other technology companies before we realize the benefit of our investment in recruiting and training them. As we move into new geographies, we will need to attract and recruit skilled personnel in those areas. If we are unable to attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational, and managerial requirements, on a timely basis or at all, our business may be adversely affected. Volatility or lack of performancerecoverable, such as declines in our stock price,
may alsomarket capitalization, or cash flows and slower growth rates in our industry. Goodwill is required to be tested for impairment at least annually. If we are required to record a significant charge in our financial statements during the period in which any impairment of our goodwill or intangible assets is determined, that would negatively affect our
ability to attract and retain our key employees.Further, several members of our management team have only been with our company for a short period of time. Four of our six executive officers joined our company after April 2016, and our management team has limited experience working together. If our management team cannot work together effectively or any member of our management team leaves our company, our business, operating results, and financial condition could be adversely affected.
Our future success also depends in large part on the continued service of senior management and other key personnel. In particular, we are highly dependent on the services of Dean A. Stoecker, the Chairman of our board of directors, Chief Executive Officer and a co-founder, and Edward P. Harding Jr., our Chief Technology Officer and a co-founder, both of whom are critical to the development of our technology, platform, future vision, and strategic direction. We rely on our leadership team in the areas of operations, security, marketing, sales, support, and general and administrative functions, and on individual contributors on our research and development team. Our senior management and other key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason and without notice. If we lose the services of senior management or other key personnel, or if we are unable to attract, train, assimilate, and retain the highly skilled personnel we need, our business, operating results, and financial condition could be adversely affected.
If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.
As we continue to expand our international operations, we become more exposed to the effects of fluctuations in currency exchange rates. Although we expect an increasing number of sales contracts to be denominated in currencies other than the U.S. dollar in the future, the majority of our sales contracts have historically been denominated in U.S. dollars, and therefore, most of our revenue has not been subject to foreign currency risk. However, a strengthening of the U.S. dollar could increase the real cost of our platform to our customers outside of the United States, which could adversely affect our business, operating results, financial condition, and cash flows. In addition, we incur expenses for employee compensation and other operating expenses at our non-U.S. locations in the local currency. Fluctuations in the exchange rates between the U.S. dollar and other currencies could result in the dollar equivalent of such expenses being higher. This could have a negative impact on our operating results. Although we may in the future decide to undertake foreign exchange hedging transactions to cover a portion of our foreign currency exchange exposure, we currently do not hedge our exposure to foreign currency exchange risks.
We may have exposure to additional tax liabilities.
We are subject to complex tax laws and regulations in the United States and a variety of foreign jurisdictions. All of these jurisdictions have in the past and may in the future make changes to their corporate income tax rates and other income tax laws which could increase our future income tax provision.
Our future income tax obligations could be affected by earnings that are lower than anticipated in jurisdictions where we have lower statutory rates and by earnings that are higher than anticipated in jurisdictions where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, changes in the amount of unrecognized tax benefits, or by changes in tax laws, regulations, accounting principles, or interpretations thereof.
Our determination of our tax liability is subject to review by applicable U.S. and foreign tax authorities. Any adverse outcome of such a review could harm our operating results and financial condition.
TheAs a multinational business, the determination of our worldwide provision for income taxes and other tax liabilities
is often complex, requires significant judgment, and
in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination
is complex andmay be uncertain.
Moreover, as a multinational business,While we
have subsidiariesbelieve that
engage in many intercompany transactions in a variety of tax jurisdictions where the ultimate tax determination is complex and uncertain. Ourour existing corporate structure and intercompany arrangements have been implemented in
a manner we believe is in compliance with current prevailing tax
laws. However,laws, the taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, which could impact our worldwide effective tax rate and harm our financial position and operating results.
We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property, and goods and services taxes in the United States and various foreign jurisdictions. We are periodically reviewed and audited by tax authorities with respect to income and non-income taxes. Tax authorities may disagree with certain positions we have taken and we may have exposure to additional income and non-income tax liabilities, which could have an adverse effect on our operating results and financial condition. In addition, our future effective tax rates could be favorably or unfavorably affected by changes in tax rates, changes in the valuation of our deferred tax assets or liabilities, the effectiveness of our tax planning strategies, or changes in tax laws or their interpretation. Such changes could have an adverse impact on our financial condition.
As a result of these and other factors, the ultimate amount of tax obligations owed may differ from the amounts recorded in our financial statements and any such difference may harm our operating results in future periods in which we change our estimates of our tax obligations or in which the ultimate tax outcome is determined.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations which could subject our business to higher tax liability.
Our ability to use our net operating losses, or NOLs, to offset future taxable income may be subject to certain limitations which could subject our business to higher tax liability. We may be limited in the portion of
net operating loss, or NOL carryforwards that we can use in the future to offset taxable income for U.S. federal and state income tax
purposes. As of September 30, 2017, we had U.S.purposes, and federal
NOL carryforwards of $55.0 million, which if not utilized will begintax credits to
expire in 2035,offset federal tax liabilities. Sections 382 and
state NOLs of $34.4 million, which if not utilized will begin to expire in 2024.In addition, under Section 382383 of the Internal Revenue Code of 1986, as amended, orlimit the Code,use of NOLs and tax credits after a cumulative change in corporate ownership of more than 50% occurs within a three-year period. The statutes place a formula limit on how much NOLs and tax credits a corporation can use in a tax year after a change in ownership. Avoiding an ownership change is generally beyond our control. Although the ownership changes we experienced in the past have not prevented us from using all NOLs and tax credits accumulated before such ownership changes, we could experience another ownership change that undergoes an “ownership change”might limit our use of NOLs and tax credits in the future. There is subjectalso a risk that due to limitationsregulatory changes, such as suspensions on its ability to utilize itsthe use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. Under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, NOLs arising in taxable income. Future changesyears beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five taxable years preceding the tax year of such loss, but NOLs arising in our stock ownership, includingtaxable years beginning after December 31, 2020 may not be carried back. Further, NOLs from tax years that began after December 31, 2017 may offset no more than 80% of current taxable income annually for taxable years beginning after December 31, 2020. Accordingly, if we generate NOLs after the tax year ended December 31, 2017, we might have to pay more federal income taxes in a subsequent year as a result of future offerings of our capital stock, as well as other changes that may be outside of our control, could resultthe 80% taxable income limitation than we would have had to pay under the law in additional ownership changes under Section 382 ofeffect before the Code. A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Our NOLs may also be impaired under similar provisions of state law. We previously experienced an ownership change that resulted in limitations of the annual utilization of our NOL carryforwards, but did not result in permanent disallowance of any of our NOL carryforwards. It is possible that any future ownership change could have a material effect on the use of our NOLs or other tax attributes. We have recorded a full valuation allowance related to our NOLs and other net deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets. Our NOLs may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.
Economic uncertainty or downturns, particularly as it impacts particular industries, could adversely affect our business and operating results.
In recent years, the United States and other significant markets have experienced cyclical downturns and worldwide economic conditions remain uncertain. Economic uncertainty and associated macroeconomic conditions make it extremely difficult for our customers and us to accurately forecast and plan future business activities, and could cause our customers to slow spending on our platform, which could delay and lengthen sales cycles. Furthermore, during uncertain economic times our customers may face issues gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may be required to increase our allowance for doubtful accounts and our results would be negatively impacted.
Furthermore, we have customers in a variety of different industries. A significant downturn in the economic activity attributable to any particular industry, including, but not limited to, the retail and financial industries, may cause organizations to react by reducing their capital and operating expenditures in general or by specifically reducing their spending on information technology. In addition, our customers may delay or cancel information technology projects or seek to lower their costs by renegotiating vendor contracts. To the extent purchases of our platform are perceived by customers and potential customers to be discretionary, our revenue may be disproportionately affected by delays or reductions in general information technology spending. Also, customers may choose to develop in-house software as an alternative to using our platform. Moreover, competitors may respond to challenging market conditions by lowering prices and attempting to lure away our customers.
We cannot predict the timing, strength, or duration of any economic slowdown or any subsequent recovery generally, or any industry in particular. If the conditions in the general economy and the markets in which we operate worsen from present levels, our business, financial condition, and operating results could be materially adversely affected.
CARES Act.
We may require additional capital to fund our business and support our growth, and any inability to generate or obtain such capital may adversely affect our operating results and financial condition.
In order to support our growth and respond to business challenges, such as developing new features or enhancements to our platform to stay competitive, acquiring new technologies, and improving our infrastructure, we have made significant financial investments in our business and we intend to continue to make such investments. As a result, we may need to engage in
additional equity or debt financings to provide the funds required for these investments and other business endeavors. If we raise additional funds through equity or convertible debt issuances, our existing stockholders may suffer significant dilution and these securities could have rights, preferences, and privileges that are superior to that of holders of our common stock. If we obtain additional funds through debt financing, we may not be able to obtain such financing on terms favorable to us. Such terms may involve restrictive covenants making it difficult to engage in capital raising activities and pursue business opportunities, including potential acquisitions.
The trading prices for our and other technology companies’ common stock have been highly volatile in recent years, including during the COVID-19 pandemic and as a result of macroeconomic uncertainty, rising inflation and interest rates, disruptions in access to bank deposits or lending commitments due to bank failures, and other circumstances often unrelated to the operating performance of companies, which may reduce our ability to access capital on favorable terms or at all. If we are unable to obtain adequate financing or financing
on terms satisfactory to us when we require it, or if we are unable to refinance our existing debt on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired and our business may be adversely affected, requiring us to delay, reduce, or eliminate some or all of our operations.
The requirements
Risks Related to Our Notes
We have a substantial amount of
being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain additional executive management and qualified board members.We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of the New York Stock Exchange, and other applicable securities rules and regulations. Compliance with these rules and regulations have increased our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly and increase demand on our systems and resources, particularly after we are no longer an emerging growth company. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns,indebtedness which could adversely affect our financial condition and prevent us from fulfilling our obligations under our Notes.
The holders of the Notes (as defined in Note 8, Debt, of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q) may be negatively affected by our levels of indebtedness. As of March 31, 2023, we had approximately $1.3 billion of indebtedness for borrowed money. Our indebtedness could have important consequences, including:
•limiting our ability to obtain additional financing to fund working capital, capital expenditures, acquisitions, or other general corporate requirements;
•requiring a portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions, and other general corporate purposes;
•increasing our vulnerability to adverse changes in general economic, industry, and competitive conditions; and
•increasing our cost of borrowing.
As a result, our business operations and financial condition may suffer, and we may have difficulty making required payments on our Notes or refinancing our Notes when they become due.
The Indenture governing the 2028 Notes contains restrictive covenants that may limit our ability to engage in activities that may be in our long-term best interest.
The Indenture governing the 2028 Notes contains restrictive covenants that may limit our ability to, among other things:
•create liens on certain assets to secure debt;
•grant a subsidiary guarantee of certain debt without also providing a guarantee of the 2028 Notes; and
•consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of our assets to, another person.
As a result of these restrictions, we will be limited as to how we conduct our business, and operating results. Although we have already hiredmay be unable to raise additional employeesdebt or equity financing to compete effectively or to take advantage of new business opportunities. Our failure to comply with these requirements,covenants could result in an event of default which, if not cured or waived, could result in the acceleration or cross-acceleration of our Notes. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.
Our failure to comply with the restrictive covenants described above and/or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due dates. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.
Although our Notes are referred to as senior notes, they are effectively subordinated to any of our secured debt and any liabilities of our subsidiaries.
The Notes are not secured by any of our assets. As a result, the Notes and the guarantees with respect to the 2028 Notes. will be effectively subordinated to our future secured indebtedness (including any indebtedness under any future secured credit facility) with respect to the assets that secure that indebtedness. In the event of our bankruptcy, liquidation, reorganization, or other winding up, our assets that secure debt ranking senior or equal in right of payment to the Notes will be available to pay obligations on the Notes only after the secured debt has been repaid in full from these assets, and the assets of our subsidiaries will be available to pay obligations on the Notes only after all claims senior to the Notes have been repaid in full. There may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding.
In addition, only certain of our existing and future subsidiaries will guarantee the 2028 Notes. Our subsidiaries that do not guarantee the 2028 Notes will have no obligation, contingent or otherwise, to pay amounts due under the 2028 Notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan, or other payment. The 2028 Notes will be structurally subordinated to all indebtedness and other obligations of any non-guarantor subsidiary such that in the event of insolvency, liquidation, reorganization, dissolution, or other winding up of any subsidiary that is not a guarantor, all of that subsidiary’s creditors (including trade creditors and preferred stockholders, if any) would be entitled to payment in full out of that subsidiary’s assets before we would be entitled to any payment.
Further, our subsidiaries that provide, or will provide, guarantees of the 2028 Notes will be automatically released from those guarantees upon the occurrence of certain events, including the following:
•the release or discharge of any guarantee or indebtedness that resulted in the creation of the guarantee of the 2028 Notes by such subsidiary guarantor;
•the sale or other disposition, including the sale of substantially all the assets, of that subsidiary guarantor; or
•upon the achievement of investment grade status by the 2028 Notes from any two of Fitch Ratings, Inc., or Fitch, Moody’s Investors Service, Inc,, or Moody’s, and Standard & Poors Ratings Services, or S&P, provided that such guarantees shall be reinstated if the 2028 Notes at any time cease to have investment grade status.
If any subsidiary guarantee is released, no holder of the 2028 Notes will have a claim as a creditor against that subsidiary, and the indebtedness and other liabilities (including trade payables and preferred stock, if any), whether secured or unsecured, of that subsidiary will be effectively senior to the claim of any holder of the 2028 Notes.
The Indentures governing our Notes allow, and any future debt instruments of ours and/or our subsidiaries may allow, us and/or our subsidiaries to incur significantly more debt, which could exacerbate the risks described in this Quarterly Report on Form 10-Q.
The terms of Indentures governing the Notes permit us and our subsidiaries to incur additional indebtedness. Additional debt may be necessary for a variety of reasons, including, among other reasons, to adequately respond to competition, to finance acquisitions of complementary businesses, or for financial reasons alone. Borrowings (including under a future credit facility) on terms that impose additional financial risks to our various efforts to improve our operating results and financial condition could exacerbate the other risks described in this Quarterly Report on Form 10-Q.
The Indentures governing our Notes contain cross-acceleration provisions, and any future indebtedness may contain cross-acceleration or cross-default provisions, that could result in the acceleration of all of our indebtedness.
A breach of the covenants under the Indentures governing the Notes or any future debt instruments could result in an event of default under the applicable Indenture. Such a default may allow the creditors to accelerate the related indebtedness and may result in the acceleration of any other indebtedness to which a cross-acceleration or cross-default provision applies. In addition, an event of default under any future secured indebtedness may permit those lenders to proceed against the collateral granted to them to secure that indebtedness if we are unable to repay such indebtedness upon acceleration. In the event our lenders or noteholders accelerate the repayment of our borrowings, we and any guarantors may not have sufficient assets to repay that indebtedness. Additionally, we may neednot be able to hire more employeesborrow money from other lenders to enable us to refinance our indebtedness.
Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of the Convertible Notes.
We expect that many investors in, and potential purchasers of, the Convertible Notes have employed or will employ, or seek to employ, a convertible arbitrage strategy with respect to the Convertible Notes, which may involve investors selling short and/or entering into swaps on the Class A common stock underlying such Convertible Notes and dynamically adjusting their short position while continuing to hold such Convertible Notes.
The SEC and other regulatory and self-regulatory authorities have implemented various rules and taken certain actions, and may in the future adopt additional rules and take other actions, that may impact those engaging in short selling activity involving equity securities (including our Class A common stock). Such rules and actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial Industry Regulatory Authority, Inc. and the national securities exchanges of a “Limit Up-Limit Down” program, the imposition of market-wide circuit breakers that halt trading of securities for certain periods following specific market declines, and the implementation of certain regulatory reforms required by the Dodd-Frank Act. Any governmental or engage outside consultants, whichregulatory action that restricts the ability of investors in, or potential purchasers of, the Convertible Notes to effect short sales of our Class A common stock, borrow our Class A common stock, or enter into swaps on our Class A common stock could adversely affect the trading price and the liquidity of the Convertible Notes.
Volatility in the market price and trading volume of our Class A common stock could adversely impact the trading price of the Convertible Notes.
We expect that the trading price of the Convertible Notes will
increasebe significantly affected by the market price of our
costs and expenses.In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time consuming. These laws, regulations, and standards are subject to varying interpretations,Class A common stock. The stock market in many cases due to their lack of specificity,recent years, including during the COVID-19 pandemic and as a result of macroeconomic uncertainty, rising inflation and interest rates, and disruptions in access to bank deposits or lending commitments due to bank failures, has experienced significant price and volume fluctuations that have often been unrelated to the operating performance of companies. The market price of our Class A common stock has fluctuated, and could continue to fluctuate, significantly for many reasons, including in response to the other risks described in this Quarterly Report on Form 10-Q or for reasons unrelated to our operations, many of which are beyond our control, such as rising inflation and interest rates, the global economic impact as a result of the geopolitical conflict stemming from Russia’s invasion of Ukraine, disruptions in access to bank deposits or lending commitments due to bank failures, reports by industry analysts, investor perceptions, or negative announcements by our customers or competitors regarding their applicationown performance, as well as industry conditions and general financial, economic, and political instability. A decrease in practice may evolve over timethe market price of our Class A common stock would likely adversely impact the trading price of the Convertible Notes. The market price of our Class A common stock could also be affected by possible sales of our Class A common stock by investors who view the Convertible Notes as new guidance is provideda more attractive means of equity participation in us and by regulatory and governing bodies.hedging or arbitrage trading activity that we expect to develop involving our Class A common stock. This trading activity could, in turn, affect the trading price of the Convertible Notes.
An increase in market interest rates could result in continuing uncertainty regarding compliance mattersa decrease in the value of the Notes.
In general, as market interest rates rise, notes bearing interest at a fixed rate generally decline in value because the premium, if any, over market interest rates will decline. Consequently, if market interest rates increase, the market value of the Notes may decline. We cannot predict the future level of market interest rates.
We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our Notes, which would materially and adversely affect our financial position and results of operations and our ability to satisfy our obligations under our Notes.
Our ability to make scheduled payments on or to refinance our debt obligations, including our Notes, depends on our financial condition and results of operations, which in turn are subject to prevailing economic and competitive conditions and to certain financial, business, and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our Notes when required.
If our cash flows and capital resources are insufficient to fund our payments on our Notes, we could face substantial liquidity problems and may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital, or restructure or refinance our Notes. Any refinancing could be at higher costs necessitated by ongoing revisions to disclosureinterest rates and governance practices. We intend to invest resourcesmay require us to comply with evolving laws, regulations,more onerous covenants, which could further restrict our business operations. Any failure to make payments of interest and standards, and this investment mayprincipal on our outstanding indebtedness on a timely basis would likely result in increased generala reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such cash flows and administrative expensesresources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our obligations.
If we cannot make scheduled payments on our Notes, we will be in default under the Indentures governing the Notes and the holders of our Notes could declare all outstanding principal and interest to be due and payable, and we could be forced into bankruptcy or liquidation. These events could further result in holders of our Notes losing their entire investment in the Notes.
Redemption may adversely affect return on the 2028 Notes.
At any time prior to March 15, 2025, we may redeem the 2028 Notes in whole or in part, at our option, at a diversionredemption price equal to 100% of management’s timethe principal amount of such 2028 Notes plus a “make whole” premium, plus accrued and attention from revenue-generating activitiesunpaid interest, if any, to, compliance activities. If our effortsbut excluding, the date of redemption. In addition, we may redeem up to comply40% of the original aggregate principal amount of the 2028 Notes using the net cash proceeds of certain equity offerings completed on or before March 15,
2025 at the redemption price set forth in the Indenture governing the 2028 Notes, together with new laws, regulations,accrued and standards differunpaid interest, if any. We may choose to redeem the 2028 Notes at times when prevailing interest rates are relatively low. As a result, holders of the 2028 Notes may not be able to reinvest the proceeds they receive from the redemption in a comparable security at an effective interest rate as high as the interest rate on the 2028 Notes being redeemed.
We may not have the ability to raise the funds necessary to settle conversions of our Notes in cash or to repurchase the Notes upon a fundamental change or change of control, and any future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Notes.
Holders of certain of our Notes have the right to require us to repurchase all or a portion of such Notes upon the occurrence of a fundamental change or change of control before the relevant maturity date at a repurchase price as set forth in the applicable Indenture, if any. In addition, upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our Class A common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share) as may be permitted under the Indentures governing our Convertible Notes, we are required to make cash payments in respect of the Convertible Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered therefor or pay cash with respect to Notes being converted.
In addition, our ability to repurchase Notes or to pay cash upon conversions of Convertible Notes may be limited by law, regulatory authority, or any agreements governing our future indebtedness. Our failure to repurchase Notes at a time when the repurchase is required by the applicable Indenture or to pay any cash upon conversions of Notes as required by the applicable Indenture would constitute a default under such Indenture. A default under an Indenture or a fundamental change of control triggering event itself could also lead to a default under agreements governing any future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or to pay cash upon conversions of the Notes.
The conditional conversion feature of the Convertible Notes may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of the relevant series of Convertible Notes is triggered in future quarters, holders of such Convertible Notes will be entitled to convert such Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation in cash, which could adversely affect our liquidity. In addition, even if holders of such Convertible Notes do not elect to convert such Convertible Notes, we could in the future be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the relevant series of Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital. Accordingly, as a result of the upcoming maturity date of the 2023 Notes, we have classified the 2023 Notes as current liabilities on the condensed consolidated balance sheet as of March 31, 2023.
Certain of the covenants in the Indenture governing the 2028 Notes will not apply to us during any period in which the 2028 Notes are rated investment grade by two of Fitch, Moody’s, and S&P.
Many of the covenants in the Indenture governing the 2028 Notes will cease to apply to the 2028 Notes during any period in which the 2028 Notes are rated investment grade by two of Fitch, Moody’s, and S&P, provided that at such time no default or event of default has occurred and is continuing. Although there can be no assurance that the 2028 Notes will ever be rated investment grade, or that they will maintain such rating if they are rated investment grade, any suspension of the covenants under the Indenture governing the 2028 Notes would allow us to engage in certain transactions that would not be permitted while these covenants were in effect. To the extent any suspended covenants are subsequently reinstated, any actions taken by us while the covenants were suspended would not result in an event of default under the Indenture governing the 2028 Notes.
Holders of the Notes will not be entitled to registration rights, we do not currently intend to register the Notes under applicable U.S. securities laws, and there are restrictions on noteholders’ ability to transfer or resell the Notes.
The Notes were offered and sold pursuant to an exemption from registration under the Securities Act and applicable state securities laws, and we do not currently intend to register the Notes in the United States. Noteholders will not be entitled to require us to register the Notes in the United States for resale or otherwise. Therefore, holders may transfer or resell the Notes in the United States only in a transaction registered under or exempt from the registration requirements of the Securities Act and applicable state securities laws, as applicable, and noteholders may be required to bear the risk of their investment for an indefinite period of time.
Noteholders’ ability to transfer the Notes may be limited by the absence of an active trading market, and there is no assurance that any active trading market will develop for the Notes.
The Notes have no trading history or established trading market. We will not apply to have the Notes listed on any exchange or automated dealer quotation system and we cannot assure that a trading market for the Notes will ever develop or, if a trading market develops, that it will be maintained or provide adequate liquidity, that holders will be able to sell any of the Notes at a particular time (if at all), or that the prices holders receive if or when they sell the Notes will be above their initial offering price. The initial purchasers of the Notes have advised us that they intend to make a market in the Notes, as permitted by applicable laws and regulations. However, the initial purchasers are not obligated to make a market in the Notes and, if commenced, they may discontinue their market-making activities intended by regulatoryat any time without notice.
Therefore, an active market for the Notes may not develop or governing bodies duebe maintained, which would adversely affect the market price and liquidity of the Notes. In such case, the holders of the Notes may not be able to ambiguities relatedsell their notes at a particular time or at a favorable price. If a trading market were to develop, future trading prices of the Notes may be volatile and will depend on many factors, including:
•the number of holders of Notes;
•prevailing interest rates;
•our operating performance and financial condition;
•the interest of securities dealers in making a market for the Notes; and
•the market for similar securities.
Even if an active trading market for the Notes does develop, there is no guarantee that it will continue. Historically, the market for non-investment grade debt has been subject to severe disruptions that have caused substantial volatility in the prices of securities similar to the Notes. The market, if any, for the Notes may experience similar disruptions and any such disruptions may adversely affect the liquidity in that market or the prices at which a holder sells such holder’s notes. In addition, subsequent to their applicationinitial issuance, the Notes may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar securities, our performance, and practice, regulatory authoritiesother factors.
A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may initiate legal proceedings against usincrease our future borrowing costs and reduce our businessaccess to capital.
Our debt currently has a non-investment grade rating, and any rating assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Consequently, actual or anticipated changes in our credit ratings will generally affect the market value of our Notes. Credit ratings are not recommendations to purchase, hold, or sell the Notes, and may be
adversely affected.The new rules and regulations applicablerevised or withdrawn at any time. Additionally, credit ratings may not reflect the potential effect of risks relating to public companiesthe structure or marketing of our Notes.
Any future lowering of our ratings likely would make it
more difficult or more expensive for us to obtain
and maintain director and officer liability insurance, and we may be requiredadditional debt financing. If any credit rating assigned to
accept reduced coveragethe Notes is subsequently lowered or
incur substantially higher costs to obtain coverage. These factors could also make it more difficultwithdrawn for
us to attract and retain qualified membersany reason, holders of
our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.As a result of disclosure of information in filings required of a public company, our business and financial condition has become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.
We are obligated to develop and maintain proper and effective internal control over financial reporting. We have identified a material weakness in our internal control over financial reporting and if our remediation of this material weakness is not effective, or if we fail to maintain an effective system of internal control over financial reporting in the future, weNotes may not be able to accuratelyresell their Notes at a favorable price or timely reportat all.
The guarantees on the 2028 Notes may be challenged as fraudulent conveyances.
Federal, state, and foreign bankruptcy, fraudulent conveyance, fraudulent transfer, or similar laws could limit the enforceability of a guarantee. For example, creditors of a subsidiary guarantor could claim that, since the guarantees on the 2028 Notes were incurred for the benefit of Alteryx, Inc. (and only indirectly for the benefit of a subsidiary guarantor), the obligation of a subsidiary guarantor was incurred for less than reasonably equivalent value or fair consideration. If any of our subsidiary guarantors is deemed to have received less than reasonably equivalent fair value or fair consideration for its guarantee and, at the time it gave the guarantee, that subsidiary guarantor:
•was insolvent or rendered insolvent by giving its guarantee;
•was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or
•intended to incur debts beyond its ability to pay such debts as they mature;
then the obligations of such subsidiary guarantor under its guarantee could be voided. If a court voided a guarantee as a result of a fraudulent transfer or conveyance, then the holders of the 2028 Notes would cease to have a claim against the subsidiary guarantor. In this regard, in an attempt to limit the applicability of fraudulent transfer or conveyance laws, the Indenture governing the 2028 Notes limits the amount of each guarantee to the amount that will result in it not constituting a fraudulent transfer or conveyance. However, we cannot assure you as to what standard a court would apply in making a determination regarding whether reasonably equivalent value or fair consideration was received or as to what would be the maximum liability of each guarantor or whether this limitation would be effective in protecting a guarantee from being voided under fraudulent transfer or conveyance laws.
Our stockholders may experience dilution upon the conversion of the Convertible Notes if we elect to satisfy our conversion obligation by delivering shares of our Class A common stock.
Upon conversion by the holders of the relevant series of Convertible Notes, we may elect to satisfy our conversion obligation by delivering shares of our Class A common stock. The 2023 Notes have an initial conversion rate of 22.5572 shares of our Class A common stock per $1,000 principal amount of 2023 Notes, which is equivalent to an initial conversion price of approximately $44.33 per share of Class A common stock. The 2024 Notes and 2026 Notes each have an initial conversion rate of 5.2809 shares of our Class A common stock per $1,000 principal amount of 2024 Notes or 2026 Notes, as applicable, which is equivalent to an initial conversion price of approximately $189.36 per share of Class A common stock. If we elect to deliver shares of our Class A common stock upon a conversion, our stockholders will incur dilution.
Changes in the accounting treatment for convertible debt securities that may be settled in cash, such as the Convertible Notes, could have a material effect on our reported financial conditionresults.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, or operating results,ASU 2020-06, which simplifies the diluted earnings per share calculation in certain areas. Specifically, ASU 2020-06 eliminates requirements to separately account for liability and equity components of such convertible debt instruments and eliminates the ability to use the treasury stock method for calculating diluted earnings per share for convertible instruments whose principal amount may be settled using shares. Instead, ASU 2020-06 requires (i) the entire amount of the security to be presented as a liability on the balance sheet and (ii) application of the “if-converted” method for calculating diluted earnings per share. Under the “if-converted” method, diluted earnings per share will generally be calculated assuming that all the notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive, which could adversely affect investor confidenceour diluted earnings per share. However, if the principal amount of the convertible debt security being converted is required to be paid in our companycash and only the excess is permitted to be settled in shares, the if-converted method will produce a similar result as the “treasury stock” method prior to the adoption of ASU 2020-06 for such convertible debt security.
We adopted this standard effective as of January 1, 2022 using the modified retrospective method and as such we no longer bifurcate the liability and equity components of the Convertible Notes on our balance sheet. We are not required to settle the principal amount of the Convertible Notes in cash and, following the adoption of the new standard, we have utilized the if-converted method as described above, which could adversely affect our diluted earnings per share calculation when not antidilutive.
The capped call transactions may affect the value of the Convertible Notes and our Class A common stock.
In connection with the pricing of the Convertible Notes, we entered into capped call transactions relating to such Convertible Notes with the option counterparties. The capped call transactions relating to each series of Convertible Notes cover, subject to customary adjustments, the number of shares of our Class A common stock that initially underlie such series of Notes. The capped call transactions are expected generally to reduce the potential dilution upon any conversion of the relevant series of Convertible Notes, as applicable, and/or offset any cash payments we are required to make in excess of the principal amount upon any conversion of such Convertible Notes, with such reduction and/or offset subject to a result,cap.
The option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our Class A common stock and/or purchasing or selling our Class A common stock in secondary market transactions following the pricing of each series of Convertible Notes, as applicable, and prior to the maturity of each series of Convertible Notes (and are likely to do so during any observation period related to a conversion of such Notes or following any repurchase of such notes by us on any fundamental change repurchase date or otherwise). This activity could also cause or avoid an increase or a decrease in the market price of our Class A common stock or the Convertible Notes, which could affect a holder’s ability to convert their Convertible Notes and, to the extent the activity occurs during any observation period related to a conversion of a relevant series of Convertible Notes, it could affect the amount and value of the consideration that a holder will receive upon conversion of such Convertible Notes.
The potential effect, if any, of these transactions and activities on the market price of our Class A common stock or the Convertible Notes will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our Class A common
stock.As a public company, we are required, pursuant to Section 404stock and the value of the Sarbanes-Oxley Act,Convertible Notes (and as a result, the amount and value of the consideration that a holder would receive upon the conversion of any Convertible Notes) and, under certain circumstances, a holder’s ability to furnish a report by management on, among other things,convert their notes.
We do not make any representation or prediction as to the
effectivenessdirection or magnitude of
our internal control over financial reporting commencing with our second annual report on Form 10-K. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which couldany potential effect that the transactions described above may have
a negative effect on the
trading price of
the Convertible Notes or our Class A common stock.
This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting, provided that our independent registered public accounting
firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Exchange Act, or the date we are no longer an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We could be an emerging growth company for up to five years. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. We are required to disclose changes made in our internal controls and procedures on a quarterly basis. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.
In the course of preparing our financial statements as of and for the year ended December 31, 2016, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weakness identified related to the evaluation of the accounting impact of certain contractual terms related to our arrangements with licensed data providers, which resulted in the misstatement in the recording of prepaid and other assets and royalty costs that are recorded in cost of revenue in the first three fiscal quarters of 2016. This material weakness resulted in an immaterial revision of those quarterly results of operations data. This material weakness could result in additional misstatements to the accounts and disclosures that would result in a material misstatement of our consolidated financial statements that would not be prevented or detected. Because of this material weakness in our internal control over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2017, our disclosure controls and procedures were not effective.
In response to this material weakness, we have begun taking actions to remediate our material weakness by enhancing our existing control activities related to the review of royalty contracts, including the implementation of additional control activities related to the identification and evaluation of the terms of royalty contracts that require consideration in assessing the accounting for the arrangement. These remediation measures are ongoing. While we believe that these efforts will improve our internal control over financial reporting, the implementation of our remediation is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. Furthermore, while we believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls, we cannot assure you that these measures will significantly improve or remediate the material weakness described. We also cannot assure you that we have identified all our existing material weaknesses, or that we will not in the future have additional material weaknesses.
We are in the early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing, and any required remediation in a timely fashion. During the evaluation and testing process, if we identify additional material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.
If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control, including as a result of the material weakness described above, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Class A common stock to decline, and we may be subject to investigation or sanctions by the SEC. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange.
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results.
If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute to our success, and our business may be harmed.
We believe that our corporate culture has been vital to our success, including in attracting, developing, and retaining personnel, as well as our customers. As we continue to grow and face industry challenges, it may become more challenging to maintain that culture. In addition, we plan to expand our international operations into other countriesdo not make any representation that the option counterparties or their respective affiliates will engage in the future, which may impact our culture as we seek to find, hire, and integrate additional employees while maintaining our corporate culture. If we are unable to maintain our corporate culture, we could lose the innovation, passion, and dedication of our team and as a result, our business and ability to focus on our corporate objectives may be harmed.
Future acquisitions of, or investments in, other companies, products, or technologies could require significant management attention, disrupt our business, dilute stockholder value, and adversely affect our operating results.
Our business strategy has included, and may in the future include, acquiring other complementary products, technologies, or businesses. For example, we recently acquired Semanta to enhance our data governance capabilities and Yhat to enhance our capabilities for managing and deploying advanced analytic models. We also may enter into relationships with other businesses in order to expand our platform, which could involve preferred or exclusive licenses, additional channels of distribution, or discount pricing or investments in other companies. Negotiating these transactions can be time-consuming, difficult, and expensive, and our ability to close these transactions may be subject to third-party approvals, such as government regulatory approvals, which are beyond our control. Consequently, we can make no assuranceor that these transactions, once undertaken and announced,commenced, will close.
These kinds of acquisitions or investments may result in unforeseen operating difficulties and expenditures. If we acquire businesses or technologies, we may not be able to integrate the acquired personnel, operations, and technologies successfully, or effectively manage the combined business following the acquisition. discontinued without notice.
We
also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:inability to integrate or benefit from acquired technologies or services in a profitable manner;
unanticipated costs or liabilities associated with the acquisition;
incurrence of acquisition-related costs;
difficulty integrating the accounting systems, operations, and personnel of the acquired business;
difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;
difficulty converting the customers of the acquired business onto our platform and contract terms;
diversion of management’s attention from other business concerns;
adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;
the potential loss of key employees;
use of resources that are needed in other parts of our business; and
use of substantial portions of our available cash to consummate the acquisition.
Moreover, we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we would not be exposed to unknown liabilities.
In connection with these types of transactions, we may issue additional equity securities that would dilute our stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to repay, incur large charges or substantial liabilities, encounter difficulties integrating diverse business cultures, and become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges. These challenges related to acquisitions or investments could adversely affect our business, operating results, financial condition, and prospects.
Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported operating results.
U.S. GAAP is subject to interpretation by the FASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. Accounting for revenue from sales of subscriptions to software is particularly complex, is often the subject of intense scrutiny by the SEC, and will evolve as FASB continues to consider applicable accounting standards in this area.
For example, the FASB and the International Accounting Standards Board are working to converge certain accounting principles and facilitate more comparable financial reporting between companies that are required to follow U.S. GAAP and those that are required to follow International Financial Reporting Standards, or IFRS. In connection with these initiatives, the FASB issued new accounting standards for revenue recognition that replace most existing revenue recognition guidance. Although we are currently in the process of evaluating the impact of these new standards on our consolidated financial statements, it could change the way we account for certain of our sales transactions, or the costs to obtain or fulfill a contract with a customer. Adoption of the standard could have a significant impact on our financial statements and may retroactively affect the accounting treatment of transactions completed before adoption depending on the method of adoption we select. The impact of the convergence of U.S. GAAP and IFRS, if any, on our financial statements is uncertain and may not be known until additional rules are proposed and adopted, which may or may not occur.
Our financial statements are subject to changecounterparty risk with respect to the capped call transactions.
The option counterparties to the capped call transactions are financial institutions, and
if our estimateswe will be subject to the risk that one or
judgments relatingmore of the option counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate their obligations, under the capped call transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If an option counterparty to one or more capped call transactions becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our
critical accounting policies prove to be incorrect,exposure at that time under such transaction. Our exposure will depend on many factors but, generally, our
operating results could be adversely affected.The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and related notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Critical accounting policies and estimates used in preparing our consolidated financial statements include those related to revenue recognition, deferred commissions, accounting for income taxes, stock-based compensation expense, and valuation of our common stock. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the price of our Class A common stock.
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
We review our goodwill and intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable, such as declines in stock price, market capitalization, or cash flows and slower growth rates in our industry. Goodwill is required to be tested for impairment at least annually. If we are required to record a significant charge in our financial statements during the period in which any impairment of our goodwill or intangible assets is determined, that would negatively affect our operating results.
We are an emerging growth company and we cannot be certainexposure will increase if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.
We are an emerging growth company, as defined inmarket price or the JOBS Act, and, for so long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our consolidated financial statements may not be comparable to the financial
statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our Class A common stock less attractive to investors. In addition, if we cease to be an emerging growth company, we will no longer be able to use the extended transition period for complying with new or revised accounting standards.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the effectiveness of the IPO, (ii) the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1.0 billion in non-convertible debt securities, or (iv) the last day of the fiscal year in which the market valuevolatility of our common stock that is heldincreases. In addition, upon a default or other failure to perform, or a termination of obligations, by non-affiliates exceeds $700.0 millionan option counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as of June 30.
We cannot predict if investors will find our Class A common stock less attractive or our company less comparable to certain other public companies because we will rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our future operating results may not be as comparable to the operating resultsfinancial stability or viability of certain other companies in our industry that adopted such standards. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.
We are exposed to fluctuations in the market values of our investments.
Credit ratings and pricing of our investments can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk, changes in interest rates, or other factors. As a result, the value and liquidity of our cash and cash equivalents and investments may fluctuate substantially. Therefore, although we have not realized any significant losses on our cash and cash equivalents and investments, future fluctuations in their value could result in a significant realized loss, which could materially adversely affect our financial condition and operating results.
option counterparties.
Risks Related to Ownership of Our Class A Common Stock
The market price of our Class A common stock has been, and will likely continue to be, volatile, and you could lose all or part of
the value of your investment.
The market price of our Class A common stock has been, and will likely continue to be, volatile. Since shares of our Class A common stock were sold in our
initial public offering, or IPO, in March 2017 at a price of $14.00 per share, our closing stock price has ranged from $14.80 to
$23.59,$181.98 through
September 30, 2017.March 31, 2023. In addition to
the factors discussed in this Quarterly Report on Form 10-Q, the market price of our Class A common stock may continue to fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
•overall performance of the equity markets;
•actual or anticipated fluctuations in our revenue and other operating results;
•changes in the financial projections we may provide to the public or our failure to meet these projections;
•failure of securities analysts to initiate or maintain coverage of us, inaccurate or unfavorable research published by securities analysts, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
•recruitment or departure of key personnel;
•the economy as a whole and market conditions in our industry;
•negative publicity involving or related to our company, including with respect to the real or perceived quality of our platform, as well as the failure to timely launch new products and services that gain market acceptance;
•rumors and market speculation involving us or other companies in our industry;
•announcements by us or our competitors of significant technical innovations,innovations;
•acquisitions, strategic partnerships, joint ventures, or capital commitments;
•new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
•lawsuits threatened or filed against us;
•developments or disputes concerning our intellectual property or our platform, or third-party proprietary rights;
•the inclusion of our Class A common stock on stock market indexes, including the impact of new rules adopted by certain index providers, such as S&P Dow Jones Indices and FTSE Russell, that limit or preclude inclusion of companies with multi-class capital structures;
•changes in accounting standards, policies, guidelines, interpretations, or principles;
•rising inflation, rising interest rates, and our ability to control costs, including our operating expenses;
•disruptions in access to bank deposits or lending commitments due to bank failures;
•natural disasters, acts of war, such as Russia’s invasion of Ukraine, terrorism, or pandemics;
•other events or factors including those resulting from war, incidents of terrorism, or responses to these events;events or factors; and
the expiration of contractual lock-up agreements; and
•sales of shares of our Class A common stock by us or our stockholders.stockholders, including sales and purchases of any Class A common stock issued upon conversion of any series of our Notes.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies, and technology companies in particular, have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility.
If we were to become involvedIn addition, activist campaigns that contest or conflict with our strategic direction or seek changes in
securitiesthe composition of our board of directors could have an adverse effect on our operating results and financial condition. Securities litigation
it couldmay subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.
Sales of substantial amounts of our Class A common stock in the public markets, or the perception that they might occur,
including when the lock-up periods end, could cause the market price of our Class A common stock to decline.
Sales of a substantial number of shares of our Class A common stock into the public market, particularly sales by our directors, executive officers, and principal stockholders, or the perception that these sales might occur, could cause the market price of our Class A common stock to decline. We had a total of 59,142,14370.4 million shares of our Class A and Class B common stock outstanding as of September 30, 2017. Of these shares, 1,350,000 shares of Class A common stock and 34,268,288 shares of Class B common stock are subject to the lock-up restrictions that were entered into in connection with our follow-on public offering, of which 1,350,000 shares of Class A common stock and 16,298,855 shares of Class B common stock will become available for sale on November 14, 2017 and 17,969,433 shares of Class B common stock will become available for sale on December 6, 2017. The remainingMarch 31, 2023. All shares of our common stock are freely tradable, without restrictions or further
registration under the Securities Act, except that any shares held by our “affiliates” as defined in Rule 144 under the Securities Act would only be able to be sold in compliance with Rule
144 and any applicable lock-up agreements described below.When the applicable lock-up periods described above expire, we and our securityholders subject to a lock-up agreement will be able to sell our shares in the public market. In addition, the underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements prior to the expiration of the lock-up period.
In addition, certain holders of our common stock are, subject to certain conditions, entitled, under contracts providing for registration rights, to require us to file registration statements for the public resale of the Class A common stock issuable upon conversion of such holders’ shares of Class B common stock or to include such shares in registration statements that we may file for us or other stockholders.
Sales of our shares as restrictions end or pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the trading price of our Class A common stock to fall and make it more difficult for you to sell shares of our Class A common stock.
144.
In addition, we have filed a registration statement to register shares reserved for future issuance under our equity compensation plans. Subject to the satisfaction of
applicable exercise periods and expiration of the market standoff agreements and lock-up agreements referred to above,vesting conditions, the shares issued upon exercise of outstanding stock options or settlement of outstanding
restricted stock unitsRSUs will be available for immediate resale in the United States in the open market.
We
have issued and may
alsoin the future issue our shares of common stock or securities convertible into shares of our common stock from time to time in connection with a financing, acquisition, investment, or otherwise.
For example, we agreed to issue shares of our Class A common stock with an aggregate value of up to $2.3 million upon the achievement of certain milestones in connection with our acquisition of Semanta, of which 12,492 shares of Class A common stock were issued in August 2017 upon partial satisfaction of certain milestones. Any
further such issuance could result in substantial dilution to our existing stockholders and cause the market price of our Class A common stock to decline.
The dual class structure of our common stock has the effect of concentrating voting control with holders of our Class B common stock, including our directors, executive officers, and 5% stockholders and their affiliates, which limits or precludes your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.
Our Class B common stock has ten votes per share and our Class A common stock has one vote per share. As of
September 30, 2017,March 31, 2023, our directors, executive officers, and holders of more than 5% of our common stock, and their respective affiliates, held a substantial majority of the voting power of our capital stock. Because of the ten-to-one voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock collectively control a majority of the combined voting power of our common stock and therefore are able to control all matters submitted to our stockholders for approval until the earliest of (i) the date specified by a vote of the holders of at least 66 2/3% of the outstanding shares of Class B common stock, (ii) March 29, 2027, or (iii) the date the shares of Class B common stock cease to represent at least 10% of the aggregate number of shares of Class A common stock and Class B common stock then outstanding.
Specifically, as of March 31, 2023, Dean A. Stoecker, our co-founder, Executive Chairman, and former Chief Executive Officer directly or indirectly controlled a majority of the combined voting power of our common stock. This concentrated control limits or precludes your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain permitted transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common stock and trading volume could decline.
The trading market for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our business.
If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, the price of our Class A common stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that for the foreseeable future we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Provisions in our charter documents,
and under Delaware law,
and in each series of our Notes could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management, limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees, and limit the market price of our Class A common stock.
Provisions in our restated certificate of incorporation
and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our restated certificate of incorporation and
amended and restated bylaws include provisions that:
•provide that our board of directors will be classified into three classes of directors with staggered three-year terms;
•permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships;
•require super-majority voting to amend some provisions in our restated certificate of incorporation and amended and restated bylaws;
•authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
•provide that only the chairman of our board of directors, our chief executive officer, president, lead independent director, or a majority of our board of directors will be authorized to call a special meeting of stockholders;
•provide for a dual class common stock structure in which holders of our Class B common stock have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets;
•prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
•provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; and
•establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
In addition, our restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, or DGCL, our restated certificate of incorporation, or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Our amended and restated bylaws also provide that the federal district courts of the United States will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or a Federal Forum Provision. The application of the Federal Forum Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court. Neither the exclusive forum provision nor the Federal Forum Provision applies to suits brought to enforce any duty or liability created by the Exchange Act. Section 27 of the Exchange Act, however, creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court.
Notwithstanding the foregoing, our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.
Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. The exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or
any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum
provisionprovisions contained in our restated certificate of incorporation
or amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results, and financial condition.
Moreover, Section 203 of the DGCL may discourage, delay, or prevent a change of control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.
Further, the fundamental change provisions of each series of our Notes that are set forth in the applicable Indenture may make a change in control of our company more difficult because those provisions allow note holders to require us to repurchase such series of Notes upon the occurrence of a fundamental change.
General Risks
Economic uncertainty or downturns, particularly as it impacts particular industries, could adversely affect our business and operating results.
Over the last decade, including during the COVID-19 pandemic and as a result of rising inflation and interest rates and disruptions in access to bank deposits or lending commitments due to bank failures, the United States and other significant markets have experienced both acute and cyclical downturns and worldwide economic conditions remain uncertain. In addition, global financial and political developments seemingly unrelated to us or the software industry may harm us, including rising inflation and interest rates, disruptions in access to bank deposits or lending commitments due to bank failures, supply chain disruptions, and the global response to Russia’s invasion of Ukraine. For example, in an effort to combat rising inflation, throughout 2022 and into 2023, the U.S. Federal Reserve incrementally raised its federal funds benchmark rate, resulting in significant increases in market interest rates. The U.S. Federal Reserve may continue to raise its federal funds benchmark rate and implement fiscal policy interventions, any of which in turn may cause market interest rates to increase, reduce economic growth rates, create a recession, or cause other similar effects even if they are successful in lowering inflation. The United States and other significant markets have been affected from time to time by falling demand for a variety of goods and services, reduced corporate profitability, volatility in equity and foreign exchange markets and overall uncertainty with respect to the economy, including with respect to tariff and trade issues. Economic uncertainty and associated macroeconomic conditions make it extremely difficult for our customers and us to accurately forecast and plan future business activities. Such conditions have affected and may continue to affect the rate of IT spending, could adversely affect our customers’ ability or willingness to attend our events or to purchase our products and services, have delayed and may delay customer purchasing decisions, have reduced and may reduce the value and duration of customer subscription contracts, and may adversely affect our customer attrition rates. Furthermore, during uncertain economic times our customers may face issues gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may be required to increase our allowance for doubtful accounts and our results would be negatively impacted.
Furthermore, we have customers in a variety of different industries. A significant downturn in the economic activity attributable to any particular industry, including, but not limited to, the retail and financial industries, may cause organizations to react by reducing their capital and operating expenditures in general or by specifically reducing their spending on information technology. In addition, our customers may delay or cancel information technology projects or seek to lower their costs by renegotiating vendor contracts. To the extent purchases of our platform are perceived by customers and potential customers to be discretionary, our revenue may be disproportionately affected by delays or reductions in general information technology spending. Also, customers may choose to develop in-house software as an alternative to using our platform. Moreover, competitors may respond to challenging market conditions by lowering prices and attempting to lure away our customers.
We cannot predict the timing, strength, or duration of any economic slowdown or any subsequent recovery generally, or any industry in particular. If the conditions in the general economy and the markets in which we operate worsen from present levels, our business, financial condition, and operating results could be materially adversely affected.
We may be adversely affected by natural disasters, pandemics, including any significant resurgence of the COVID-19 pandemic, and other catastrophic events, and by man-made problems such as terrorism, that could disrupt our business operations, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Natural disasters or other catastrophic events, including those resulting from the effects of climate change, may cause damage or disruption to our operations, international commerce, and the global economy, and could have an adverse effect on our business, operating results, and financial condition. Our business operations are also subject to interruption by fire, power shortages, and other events beyond our control. In addition, our global operations expose us to risks associated with public health crises, such as pandemics and epidemics, which could harm our business and cause our operating results to suffer. For example, the COVID-19 pandemic and/or the precautionary measures that we, our customers, and governmental authorities adopted resulted in operational challenges, including, among others, adapting to new work-from-home arrangements, customers not purchasing or renewing our products or services, significant delays or lengthening of our sales cycles, and reductions in average transaction sizes. More generally, a catastrophic event could adversely affect economies and financial markets globally and lead to an economic downturn, which could decrease technology spending and adversely affect demand for our products and services. Any prolonged economic downturn or a recession could materially harm our business and operating results and those of our customers, could result in business closures, layoffs, or furloughs of, or reductions in the number of hours worked by, our and our customer's employees, and a significant increase in unemployment in the United States and elsewhere. Such events may also lead to a reduction in the capital and operating budgets that we or our customers have available, which could harm our business, financial condition, and operating results. As we experienced during the COVID-19 pandemic, the trading prices for our and other technology companies’ common stock may be highly volatile as a result of a catastrophic event, which may reduce our ability to access capital on favorable terms or at all. Further, acts of terrorism and other geopolitical unrest could cause disruptions in our business or the businesses of our partners or the economy as a whole. For example, given our investment in a research and development center in Ukraine, Russia’s invasion of Ukraine has negatively affected our employees and operations in the region and could negatively affect our business and result in delays in development of our platform. In addition, the effects of climate change are rapidly evolving and have resulted, and may continue to result, in an increase in the frequency and magnitude of natural disasters. In the event of a natural disaster, including a major earthquake, blizzard, or hurricane, or a catastrophic event such as a fire, power loss, or telecommunications failure, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in development of our platform, lengthy interruptions in service, breaches of data security, and loss of critical data, all of which could have an adverse effect on our future operating results. For example, our corporate offices are located in California, a state that frequently experiences earthquakes and wildfires, and we have a regional office in New York that has experienced intensified hurricane activity and other extreme weather events. All the aforementioned risks may be further increased if we do not implement an effective disaster recovery plan or our partners’ disaster recovery plans prove to be inadequate.
We are obligated to develop and maintain proper and effective internal control over financial reporting. If we identify material weaknesses in the future, or otherwise fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately or timely report our financial condition or operating results, which may adversely affect investor confidence in our company and, as a result, the value of our Class A common stock.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting, which has required, and will continue to require, increased costs, expenses, and management resources. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our Class A common stock. This report by management will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not, and any material weaknesses identified in our internal controls could lead to financial statement restatements and require us to incur remediation expenses. We are required to disclose changes made in our internal controls and procedures on a quarterly basis. To comply with the requirements of being a public company, we have undertaken, and may need to further undertake in the future, various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff.
We previously identified a material weakness in our internal control over financial reporting. Although we believe the material weakness has since been remediated, we cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to identify or prevent future material weaknesses. If other material weaknesses or other deficiencies occur, our ability to accurately and timely report our financial position could be impaired, which could result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis.
If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control, including as a result of any identified material weakness, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Class A common stock to decline, and we may be subject to investigation or sanctions by the SEC. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange, or NYSE.
If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.
As we continue to expand our international operations, we become more exposed to the effects of fluctuations in currency exchange rates. While the majority of our sales contracts are denominated in U.S. dollars, we expect an increasing number of our sales contracts to be denominated in other currencies. Changes in the value of foreign currencies relative to the U.S. dollar could affect our revenue and operating results due to transactional and translational remeasurement that is reflected in our earnings. In addition, we incur expenses for employee compensation and other operating expenses at our non-U.S. locations in the local currency. Fluctuations in the exchange rates between the U.S. dollar and other currencies could result in the dollar equivalent of such expenses being higher. These exposures may change over time as business practices evolve and economic conditions change, including market impacts associated with the geopolitical conflict stemming from Russia’s invasion of Ukraine, and could have a negative impact on our operating results, revenue, and net income (loss) as expressed in U.S. dollars. Although we may in the future decide to undertake foreign exchange hedging transactions to cover a portion of our foreign currency exchange exposure, we currently do not hedge our exposure to foreign currency exchange risks.
We are exposed to fluctuations in the market values of our investments.
Credit ratings and pricing of our investments can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk, changes in interest rates, or other factors. As a result, the value and liquidity of our cash and cash equivalents and investments may fluctuate substantially. Therefore, although we have not realized any significant losses on our cash and cash equivalents and investments, future fluctuations in their value could result in a significant realized loss, which could materially adversely affect our financial condition and operating results.
The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain executive management and qualified board members.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the listing requirements of the NYSE, and other applicable securities rules and regulations.
The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight have been, and may in the future be, required. Our failure to meet our reporting obligations as a result of any changes to our disclosure controls and procedures and internal control over financial reporting could have a material adverse effect on our business and on the trading price of our Class A common stock. Our failure to maintain an effective internal control environment may, among other things, result in material misstatements in our financial statements and failure to meet our reporting obligations. Compliance with these rules and regulations have increased our legal and financial compliance costs, made some activities more difficult, time-consuming, or costly, and increased demand on our systems and resources.
In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure, including those related to executive compensation, human capital, climate change, and other ESG-focused disclosures, are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to continue to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities.
The rules and regulations applicable to public companies make it more expensive for us to obtain and maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
As a result of disclosure of information in filings required of a public company, our business and financial condition is visible, which has and we believe may continue to result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Unregistered Sales of Equity Securities
On August 21, 2017,
During the three months ended March 31, 2023, we issued 12,4928,598 shares of our unregistered Class A common stock to holders of our 2023 Notes upon settlement of conversion of an aggregate principal amount of $2.0 million of such 2023 Notes. This share amount represents the conversion value of the 2023 Notes in excess of the principal amount converted. These shares of our Class A common stock to five individuals upon partial satisfaction of a contingent consideration earn-out provision entered into as part ofwere issued in reliance on the Semanta acquisition in January 2017.The sales of the above securities were deemed to be exemptexemption from registration under the Securities Act in reliance uponprovided by Section 4(a)(2)3(a)(9) of the Securities Act (or Regulation D or Regulation S promulgated thereunder) as transactions by an issuer not involving any public offering. The recipients Act. For further information, see Note 8,
Debt, of the securitiesnotes to our condensed consolidated financial statements included in eachPart 1, Item 1 of these transactions represented their intentions to acquire the securitiesthis Quarterly Report on Form 10-Q for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.additional information.
(b) Use of Proceeds
On March 23, 2017, the SEC declared our registration statement on Form S-1 (File No. 333-216237) for our IPO effective, and the offering commenced the following day. The offering did not terminate before all of the securities registered in the registration statement were sold. Goldman, Sachs & Co. and J.P. Morgan Securities LLC acted as joint book-running managers for the offering. Pacific Crest Securities, a division of KeyBanc Capital Markets Inc., William Blair & Company, L.L.C., JMP Securities LLC, Raymond James & Associates, Inc., and Cowen and Company, LLC acted as co-managers.
We registered an aggregate of 10,350,000 shares of our Class A common stock, including 1,350,000 shares pursuant to the underwriters’ option to purchase additional shares. On March 29, 2017, we closed our IPO, in which we sold 9,000,000 shares of our Class A common stock. On April 18, 2017, we closed the sale of the additional 1,350,000 shares of our Class A common stock. The shares were sold at a public offering price of $14.00 per share for an aggregate gross offering price of approximately $144.9 million. We received net proceeds of $134.8 million after deducting underwriting discounts and commissions of $10.1 million but before deducting offering costs. We incurred offering expenses of approximately $3.4 million, of which $1.0 million were paid in the year ended December 31, 2016, $1.9 million were paid in the nine months ended September 30, 2017, and the remaining $0.5 million will be paid after September 30, 2017. Thus, the net offering proceeds, after deducting underwriting discounts and offering expenses, were approximately $131.4 million. No payments were made to our directors or officers or their associates, holders of 10% or more of any class of our equity securities, or to our affiliates in connection with the issuance and sale of the securities registered.
There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on March 24, 2017 pursuant to Rule 424(b)(4).
None.
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
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Exhibit
Number | | Exhibit Description | | Form | | File
No. | | Exhibit | | Filing
Date | | Filed
Herewith |
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| 4.1 | | | | 8-K | | 001-38034 | | 4.1 | | March 6, 2023 | | |
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| 31.1 | | | | | | | | | | | | X |
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| 31.2 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 32.1# | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| 32.2# | | | | | | | | | | | | X |
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| 101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | | | X |
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| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | | | | | | | | | X |
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| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | | | | | X |
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| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | | | | | X |
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| 101.LAB | | Inline XBRL Taxonomy Extension Labels Linkbase Document. | | | | | | | | | | X |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | | | | | | X |
| 104 | | Cover Page Interactive Data File - the cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 is formatted in Inline XBRL.
| | | | | | | | | | X |
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Exhibit
Number
| | | | Incorporated by Reference | | Filed
Herewith | |
| Exhibit Description
| | Form | | File
No. | | Exhibit | | Filing
Date | |
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31.1# | | Certification of Dean A. Stoecker, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | X | |
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31.2 | | Certification of Kevin Rubin, Chief Financial Officer, pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | X | |
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32.1# | | Certification of Dean A. Stoecker, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | X | |
| | | | | | |
32.2# | | Certification of Kevin Rubin, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | X | |
| | | | | | |
101.INS | | XBRL Instance Document. | | | | | | | | | | | X | |
| | | | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document. | | | | | | | | | | | X | |
| | | | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | | | | | | X | |
| | | | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | | | | | | X | |
| | | | | | |
101.LAB | | XBRL Taxonomy Extension Labels Linkbase Document. | | | | | | | | | | | X | |
| | | | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | | | | | | | X | |
# | This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
| |
| |
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| Alteryx, Inc. |
| (Registrant) |
| | |
Alteryx, Inc.Date: April 27, 2023 |
(Registrant)By: | | /s/ Mark Anderson |
| |
By: | | /s/ Dean A. Stoecker
|
| | Dean A. Stoecker
Chairman of the Board of Directors and
Mark Anderson
Chief Executive Officer
(Principal Executive Officer)
|
| | |
By:Date: April 27, 2023 | By: |
| /s/ Kevin Rubin |
| |
| Kevin Rubin
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
Date: November 9, 2017
64