RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described
below, as well as the other information contained or incorporated by reference in this prospectus, including our consolidated financial statements and the related notes and Managements Discussion and Analysis of Financial Condition and
Results of Operations, before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations
and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also
impair our business operations.
Risks Related to Our Business and Industry
We have a limited operating history, which makes it difficult to predict our future operating results.
We were incorporated in 2006 and introduced our first software module shortly thereafter and over time have invested in
building our integrated platform. As a result of our limited operating history, our ability to forecast our future operating results is limited and subject to a number of uncertainties, including our ability to plan for and model future growth. We
have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein. If our assumptions regarding these risks and uncertainties
(which we use to plan our business) are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.
Any success that we may experience in the future will depend, in large part, on our ability to manage the risks
discussed herein and to, among other things:
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retain and expand our customer base on a cost-effective basis;
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successfully compete in our markets;
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continue to add features and functionality to our platform to meet customer demand;
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increase revenues from existing customers as they add users or purchase additional modules;
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continue to invest in research and development;
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scale our internal business operations in an efficient and cost-effective manner;
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scale our global customer success organization to make our customers successful in their spend management deployments;
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help our partners to be successful in deployments of our platform;
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successfully expand our business domestically and internationally;
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successfully protect our intellectual property and defend against intellectual property infringement claims; and
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hire, integrate and retain professional and technical talent.
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If we are unable to attract new customers, the growth of our revenues will be adversely affected.
To increase our revenues, we must add new customers, increase the number of users at existing customers and sell additional modules to current customers. As our industry matures or if competitors introduce lower cost and/or
differentiated products or services that are perceived to compete with ours,
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our ability to sell 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 have an adverse effect on the growth of our revenues.
Because
our platform is sold to large enterprises with complex operating environments, we encounter long and unpredictable sales cycles, which could adversely affect our operating results in a given period.
Our ability to increase revenues and achieve profitability depends, in large part, on widespread acceptance of our
platform by large enterprises. As we target our sales efforts at these customers, we face greater costs, longer sales cycles and less predictability in completing some of our sales. As a result of the variability and length of the sales cycle, we
have only a limited ability to forecast the timing of sales. A delay in or failure to complete sales could harm our business and financial results, and could cause our financial results to vary significantly from period to period. Our sales cycle
varies widely, reflecting differences in potential customers decision-making processes, procurement requirements and budget cycles, and is subject to significant risks over which we have little or no control, including:
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customers budgetary constraints and priorities;
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the timing of customers budget cycles;
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the need by some customers for lengthy evaluations; and
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the length and timing of customers approval processes.
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In the large enterprise market, the customers decision to use our platform may be an enterprise-wide decision; therefore, these types of sales require us to provide greater levels of education regarding the use and benefits of
our platform, which causes us to expend substantial time, effort and money educating them as to the value of our platform. In addition, because we are a relatively new company with a limited operating history, our target customers may prefer to
purchase software that is critical to their business from one of our larger, more established competitors. Our typical sales cycle can range from three to nine months, and we expect that this lengthy sales cycle may continue or increase. Longer
sales cycles could cause our operating and financial results to suffer in a given period.
The markets in which we
participate are intensely competitive, and if we do not compete effectively, our operating results could be adversely affected.
The market for spend management software is highly competitive, with relatively low barriers to entry for some software
or service organizations. Our competitors include Oracle Corporation (Oracle) and SAP AG (SAP), well-established providers of spend management software, that have long-standing relationships with many customers. Some customers may be hesitant to
adopt cloud-based software such as ours and prefer to purchase from legacy software vendors. Oracle and SAP are larger and have greater name recognition, much longer operating histories, larger marketing budgets and significantly greater resources
than we do. These vendors, as well as other competitors, may offer spend management software on a standalone basis at a low price or bundled as part of a larger product sale. In order to take advantage of customer demand for cloud-based software,
legacy vendors are expanding their cloud-based software through acquisitions and organic development. For example, SAP acquired Ariba, Inc. and Concur Technologies, Inc. Legacy vendors may also seek to partner with other leading cloud
providers. We also face competition from custom-built software vendors and from vendors of specific applications, some of which offer cloud-based solutions. We may also face competition from a variety of vendors of cloud-based and on-premise
software products that address only a portion of our platform. In addition, other companies that provide cloud-based software in different target markets may develop software or acquire companies that operate in our target markets, and some
potential customers may elect to develop their own internal software. With the introduction of new technologies and market entrants, we expect this competition to intensify in the future.
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Many of our competitors are able to devote greater resources to the
development, promotion and sale of their products and services. Furthermore, our current or potential competitors may be acquired by third parties with greater available resources and the ability to initiate or withstand substantial price
competition. In addition, many of our competitors have established marketing relationships, access to larger customer bases and major distribution agreements with consultants, system integrators and resellers. Our competitors may also establish
cooperative relationships among themselves or with third parties that may further enhance their product offerings or resources. If our platform does not become more accepted relative to our competitors, or if our competitors are successful in
bringing their products or services to market earlier than ours, or if their products or services are more technologically capable than ours, then our revenues could be adversely affected. In addition, some of our competitors may offer their
products and services at a lower price. If we are unable to achieve our target pricing levels, our operating results will be negatively affected. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses or a
failure to maintain or improve our competitive market position, any of which could adversely affect our business.
Our
business depends substantially on our customers renewing their subscriptions and purchasing additional subscriptions from us. Any decline in our customer renewals would harm our future operating results.
In order for us to maintain or improve our operating results, it is important that our customers renew their
subscriptions when the initial contract term expires and add additional authorized users and additional spend management modules to their subscriptions. Our customers have no obligation to renew their subscriptions, and we cannot assure you that our
customers will renew subscriptions with a similar contract period or with the same or a greater number of authorized users and modules. Some of our customers have elected not to renew their agreements with us, and we may not be able to accurately
predict renewal rates.
Our renewal rates may decline or fluctuate as a result of a number of factors,
including our customers satisfaction with our subscription service, our professional services, our customer support, our prices and contract length, the prices of competing solutions, mergers and acquisitions affecting our customer base, the
effects of global economic conditions or reductions in our customers spending levels. Our future success also depends in part on our ability to add additional authorized users and modules to the subscriptions of our current customers. If our
customers do not renew their subscriptions, renew on less favorable terms or fail to add more authorized users or additional spend management modules, our revenues may decline, and we may not realize improved operating results from our customer
base.
If our security measures are breached or unauthorized access to customer data is otherwise obtained, our
platform may be perceived as not being secure, customers may reduce the use of or stop using our platform and we may incur significant liabilities.
Our platform involves the storage and transmission of our customers sensitive proprietary information, including
their spending and other related data. As a result, unauthorized access or security breaches could result in the loss of information, litigation, indemnity obligations and other liability. While we have security measures in place that are designed
to protect customer information and prevent data loss and other security breaches, if these measures are breached as a result of third-party action, employee error, malfeasance or otherwise, and someone obtains unauthorized access to our
customers data, we could face loss of business, regulatory investigations or orders, our reputation could be severely damaged, we could be required to expend significant capital and other resources to alleviate the problem, as well as incur
significant costs and liabilities, including due to litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, and costs for remediation and other incentives offered to customers or
other business partners in an effort to maintain business relationships after a breach.
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We cannot assure you that any limitations of liability provisions in our
contracts would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security lapse or breach. We also cannot be sure that our existing insurance coverage will
continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims related to a security breach, or that the insurer will not deny coverage as to any future claim. The successful assertion of
one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a
material adverse effect on our business, including our financial condition, operating results, and reputation.
Cyber-attacks and other malicious Internet-based activities continue to increase generally. Because the techniques used
to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In
addition, third parties may attempt to fraudulently induce employees or users to disclose information to gain access to our data or our customers data. While it did not involve any customer data, we have previously suffered the loss of certain
employee information related to an employee error. If any of these events occur, our or our customers information could be accessed or disclosed improperly. Any or all of these issues could negatively affect our ability to attract new
customers, cause existing customers to elect to not renew their subscriptions, result in reputational damage or subject us to third-party lawsuits, regulatory fines or other action or liability, which could adversely affect our operating results.
If we fail to develop widespread brand awareness cost-effectively, our business may suffer.
We believe that developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to
achieving widespread acceptance of our platform and attracting new customers. For example, widespread awareness of our brand is critical to ensuring that we are invited to participate in requests for proposals from prospective customers. Our success
in this area will depend on a wide range of factors, some of which are beyond our control, including the following:
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the efficacy of our marketing efforts;
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our ability to offer high-quality, innovative and error- and bug-free modules;
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our ability to retain existing customers and obtain new customers;
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the ability of our customers to achieve successful results by using our platform;
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the quality and perceived value of our platform;
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our ability to successfully differentiate our offerings from those of our competitors;
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actions of competitors and other third parties;
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our ability to provide customer support and professional services;
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any misuse or perceived misuse of our platform and modules;
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positive or negative publicity;
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interruptions, delays or attacks on our platform or modules; and
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litigation, legislative or regulatory-related developments.
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Brand promotion activities may not generate customer awareness or increase revenues, and, even if they do, any increase in revenues may not offset the expenses we incur in building our brand. If we fail to successfully promote and
maintain our brand, or incur substantial expenses, we may fail to attract or retain customers necessary to realize a sufficient return on our brand-building efforts or to achieve the widespread brand awareness that is critical for broad customer
adoption of our platform.
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Furthermore, negative publicity (whether or not justified) relating to
events or activities attributed to us, our employees, our partners or others associated with any of these parties, may tarnish our reputation and reduce the value of our brand. Damage to our reputation and loss of brand equity could reduce demand
for our platform and have an adverse effect on our business, operating results and financial condition. Moreover, any attempts to rebuild our reputation and restore the value of our brands may be costly and time consuming, and such efforts may not
ultimately be successful.
We have experienced rapid growth and expect our growth to continue and if we fail to manage
our growth effectively, we may be unable to execute our business plan, maintain high levels of service or adequately address competitive challenges.
We have experienced a rapid growth in our business, headcount and operations since inception. We have also significantly
increased the size of our customer base. We anticipate that we will continue to expand our operations and headcount, including internationally. This growth has placed, and future growth will place, a significant strain on our management,
administrative, operational and financial infrastructure. Our success will depend in part on our ability to manage this growth effectively. To manage the expected growth of our operations and personnel, we will need to continue to improve our
operational, financial and management controls and our reporting systems and procedures. Failure to effectively manage growth could result in difficulty or delays in deploying customers, declines in quality or customer satisfaction, increases in
costs, difficulties in introducing new features and/or other operational difficulties, any of which could adversely affect our business performance and results of operations.
We have a history of cumulative losses, and we do not expect to be profitable for the foreseeable future.
We have incurred significant losses in each period since our inception in 2006. We incurred net losses of $37.6 million,
$46.2 million and $27.3 million in the fiscal years ended January 31, 2017, 2016 and 2015, respectively. We had an accumulated deficit of $160.5 million and $122.9 million at January 31, 2017 and 2016, respectively. Our losses and
accumulated deficit reflect the substantial investments we made to acquire new customers and develop our platform. We expect our operating expenses to increase in the future due to anticipated increases in sales and marketing expenses, research and
development expenses, operations costs and general and administrative costs, and, therefore, we expect our losses to continue for the foreseeable future. Furthermore, to the extent we are successful in increasing our customer base, we will also
incur increased losses because costs associated with acquiring customers are generally incurred up front, while subscription revenues are generally recognized ratably over the terms of the agreements (typically three years, although some customers
commit for shorter periods). You should not consider our recent growth in revenues as indicative of our future performance. Accordingly, we cannot assure you that we will achieve profitability in the future, or that, if we do become profitable, we
will sustain profitability.
We do not have a long history with our subscription or pricing models and changes could
adversely affect our operating results.
We have limited experience with respect to determining the
optimal prices and contract length for our platform. As the markets for our software subscriptions grow, as new competitors introduce new products or services that compete with ours or as we enter into new international markets, we may be unable to
attract new customers at the same price or based on the same pricing model as we have used historically. For example, customers may demand pricing models that include price adjustments that are correlated to the savings they realize using our
products and services. While this is not and has not been our pricing model, we have discussed it with some customers in the past and may choose to implement it in the future. Moreover, regardless of pricing model used, large customers, which are
the focus of our sales efforts, may demand higher price discounts than in the past. As a result, in the future we may be required to reduce our prices, offer shorter contract durations or offer alternative pricing models, which could adversely
affect our revenues, gross margin, profitability, financial position and cash flow.
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Because we recognize subscription revenues over the term of the contract,
fluctuations in new sales will not be immediately reflected in our operating results and may be difficult to discern.
We generally recognize subscription revenues from customers ratably over the terms of their contracts, which are typically three years, although some customers commit for shorter periods. As a result, most of the subscription
revenues we report on each quarter are 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 would likely have
only a small impact on our revenues for that quarter. However, such a decline would negatively affect our revenues in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our platform, and potential
changes in our pricing policies or rate of renewals, may not be fully apparent from our reported results of operations until future periods.
We may be unable to adjust our cost structure to reflect the changes in revenues. In addition, a significant majority of
our costs are expensed as incurred, while subscription revenues are recognized over the life of the customer agreement. As a result, increased growth in the number of our customers could result in our recognition of more costs than revenues in the
earlier periods of the terms of our agreements. Our subscription model also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as revenues from new customers must be recognized over the applicable
subscription term.
Professional services revenues are recognized as the services are performed or upon the
completion of the project, depending on the type of professional services arrangement involved. Professional services engagements typically span from a few weeks to several months, which makes it somewhat difficult to predict the timing of revenue
recognition for such services and the corresponding effects on our results of operations. Professional services revenues have and may continue to fluctuate significantly from period to period. In addition, because professional services expenses are
recognized as the services are performed or upon completion of the project, professional services and total margins can significantly fluctuate from period to period.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly results of operations, as well as our key metrics discussed elsewhere in this
prospectus, including the levels of our revenues, gross margin, cash flow and deferred revenue, may vary significantly in the future and period-to-period comparisons of our operating results and key metrics may not be meaningful. Accordingly, the
results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results and metrics may fluctuate as a result of a variety of factors, many of which are outside of our control, as a result they
may not fully reflect the underlying performance of our business. These quarterly fluctuations may negatively affect the value of our common stock. Factors that may cause these fluctuations include, without limitation:
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our ability to attract new customers;
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the addition or loss of large customers, including through acquisitions or consolidations;
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the timing of recognition of revenues;
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the amount and timing of operating expenses;
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general economic, industry and market conditions, both domestically and internationally;
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customer renewal rates;
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significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our products on our platform;
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the amount and timing of completion of professional services engagements;
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increases or decreases in the number of users for our platform or pricing changes upon any renewals of customer agreements;
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changes in our pricing policies or those of our competitors;
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seasonal variations in sales of our software subscriptions, which has historically been highest in the fourth quarter of a calendar year but may vary in future quarters;
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the timing and success of new module introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or
strategic partners;
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changes in foreign currency exchange rates;
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extraordinary expenses such as litigation or other dispute-related settlement payments;
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sales tax and other tax determinations by authorities in the jurisdiction in which we conduct business;
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the impact of new accounting pronouncements;
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fluctuations in stock-based compensation expense;
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expenses in connection with mergers, acquisitions or other strategic transactions; and
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the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill or intangibles from acquired companies.
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The profitability of our customer relationships may fluctuate.
Our business model focuses on maximizing the lifetime value of our customer relationships and we need to make significant
investments in order to add new customers to grow our customer base. The profitability of a customer relationship in any particular period depends in part on how long the customer has been a subscriber on our platform. In general, the upfront costs
associated with new customers are higher in the first year than the aggregate revenues we recognize from those new customers in the first year.
We review the lifetime value and associated acquisition costs of our customers, as discussed further in
Managements Discussion and Analysis of Financial Condition and Results of Operations incorporated by reference in this prospectus. The lifetime value of our customers and customer acquisition costs has and will continue to
fluctuate from one period to another depending upon the amount of our net new subscription revenues (which depends on the number of new customers in a period, upsells of additional modules to existing customers and changes in subscription fees
charged to existing customers), gross margins (which depends on investments in and other changes to our cost of customer support and allocated overhead), sales and marketing expenses and renewal rates (which depend on our ability to maintain or grow
subscription fees from customers). These amounts have fluctuated from quarter to quarter and will continue to fluctuate in the future. We may not experience lifetime value to customer acquisition cost ratios in future years or periods similar to
those we have achieved to date. Other companies may calculate lifetime value and customer acquisition costs differently than our chosen method and, therefore, may not be directly comparable.
We depend on our senior management team and the loss of our chief executive officer or one or more key employees or an inability
to attract and retain highly skilled employees could adversely affect our business.
Our success
depends largely upon the continued services of our key executive officers. In particular, our chief executive officer, Robert Bernshteyn, is critical to our vision, strategic direction, culture and
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overall business success. We also rely on our leadership team in the areas of research and development, marketing, sales, services and general and administrative functions, and on
mission-critical individual contributors in research and development. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. We do not maintain
key-man insurance for Mr. Bernshteyn or any other member of our senior management team. We do not have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified
period and, therefore, they could terminate their employment with us at any time. The loss of one or more of our executive officers or key employees could have a serious adverse effect on our business.
To execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel is
intense, especially for engineers with high levels of experience in designing and developing software for Internet-related services. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining
employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to
assert that these employees or our company have breached their legal obligations, resulting in a diversion of our time and resources. In addition, job candidates and existing employees in the San Francisco Bay Area often consider the value of the
stock awards they receive in connection with their employment. If the perceived value of our stock declines, it may adversely affect our ability to recruit and retain highly skilled employees. If we fail to attract new personnel or fail to retain
and motivate our current personnel, our business and future growth prospects could be adversely affected.
If we are
not able to provide successful and timely enhancements, new features and modifications for our platform and modules, we may lose existing customers or fail to attract new customers and our revenues and financial performance may suffer.
If we are unable to provide enhancements and new features for our existing modules or new modules
that achieve market acceptance or to integrate technology, products and services that we acquire into our platform, our business could be adversely affected. The success of enhancements, new features and modules depends on several factors, including
the timely completion, introduction and market acceptance of the enhancements or new features or modules. Failure in this regard may significantly impair the growth of our revenues. We have experienced, and may in the future experience, delays in
the planned release dates of enhancements to our platform, and we have discovered, and may in the future discover, errors in new releases after their introduction. Either situation could result in adverse publicity, loss of sales, delay in market
acceptance of our platform or customer claims, including, among other things, warranty claims against us, any of which could cause us to lose existing customers or affect our ability to attract new customers.
We rely heavily on Amazon Web Services to deliver our platform and modules to our customers, and any disruption in service from
Amazon Web Services or material change to our arrangement with Amazon Web Services could adversely affect our business.
We rely heavily upon Amazon Web Services (AWS) to operate certain aspects of our platform and any disruption of or interference with our use of AWS could impair our ability to deliver our platform and modules to our customers,
resulting in customer dissatisfaction, damage to our reputation, loss of customers and harm to our business. We have architected our software and computer systems to use data processing, storage capabilities and other services provided by AWS.
Currently, our cloud service infrastructure is run on AWS. Given this, we cannot easily switch our AWS operations to another cloud provider, so any disruption of or interference with our use of AWS would adversely affect our operations and
potentially our business.
AWS provides us with computing and storage capacity pursuant to an agreement that
continues until terminated by either party. AWS may terminate the agreement without cause by providing 30 days prior
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written notice and may terminate the agreement for cause with 30 days prior written notice, including any material default or breach of the agreement by us that we do not cure within
the 30 day period. Additionally, AWS has the right to terminate the agreement immediately with notice to us in certain scenarios such as if AWS believes providing the services could create a substantial economic or technical burden or material
security risk for AWS, or in order to comply with the law or requests of governmental entities. The agreement requires AWS to provide us their standard computing and storage capacity and related support in exchange for timely payment by us. If any
of our arrangements with AWS were terminated, we could experience interruptions in our software as well as delays and additional expenses in arranging new facilities and services.
We utilize third-party data center hosting facilities operated by AWS, located in various facilities around the world.
Our operations depend, in part, on AWSs abilities to protect these facilities against damage or interruption due to a variety of factors, including infrastructure changes, human or software errors, natural disasters, power or
telecommunications failures, criminal acts, capacity constraints and similar events. For instance, in February 2017, AWS suffered a significant outage in the United States that had a widespread impact on the ability of certain of our customers to
fully use our modules for a small period of time. Despite precautions taken at these data centers, the occurrence of spikes in usage volume, a natural disaster, an act of terrorism, vandalism or sabotage, a decision to close a facility without
adequate notice or other unanticipated problems at a facility could result in lengthy interruptions in the availability of our platform. Even with current and planned disaster recovery arrangements, our business could be harmed. Also, in the event
of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenues, subject us to liability and cause us to issue credits or cause customers to
fail to renew their subscriptions, any of which could harm our business.
Failure to adequately expand our direct sales
force will impede our growth.
We will need to continue to expand and optimize our sales
infrastructure in order to grow our customer base and our business. We plan to continue to expand our direct sales force, both domestically and internationally. Identifying and recruiting qualified personnel and training them in the use of our
software requires significant time, expense and attention. It often takes six months or longer before our sales representatives are fully-trained and productive. Our business may be adversely affected if our efforts to expand and train our direct
sales force do not generate a corresponding increase in revenues. In particular, if we are unable to hire, develop and retain talented sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable
period of time, we may not be able to realize the expected benefits of this investment or increase our revenues.
Acquisitions could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our
business, dilute stockholder value, and adversely affect our operating results and financial condition.
We have in the past acquired and may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our platform, enhance our technical capabilities or otherwise offer
growth opportunities. For example, in December 2016, we acquired substantially all of the assets of Spend360 International Limited (Spend360), a data analytics solution company, and on April 7, 2017, we announced that we had entered into
a Share Purchase Agreement pursuant to which we agreed to purchase substantially all of the issued and outstanding capital stock held by shareholders of Trade Extensions TradeExt AB, a Swedish corporation that specializes in strategic sourcing.
There is a risk that this transaction will not close, that closing will be delayed or that the companies respective businesses will suffer due to uncertainty related to the transaction. Acquisitions may also disrupt our business, divert our
resources and require significant management attention that would otherwise be available for development of our existing business.
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In addition, we have limited experience in acquiring other businesses and
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:
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inability to integrate or benefit from acquired technologies or services in a profitable manner;
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unanticipated costs, accounting charges or other liabilities associated with the acquisition;
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incurrence of acquisition-related costs;
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difficulty integrating the accounting systems, operations and personnel of the acquired business, including due to language, geographical or cultural differences;
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difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;
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difficulty converting the customers of the acquired business onto our platform and contract terms, including disparities in the revenues, licensing, support or professional services model of the
acquired company;
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adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;
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the potential loss of key employees;
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use of resources that are needed in other parts of our business; and
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use of substantial portions of our available cash to consummate the acquisition.
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In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill
and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment
process, which could adversely affect our results of operations.
Acquisitions could also result in dilutive
issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial position may suffer.
Privacy concerns and laws or other domestic or foreign regulations may reduce the effectiveness of our platform and
adversely affect our business.
Our customers can use our platform to collect, use and store certain
types of personal or identifying information regarding their employees and suppliers. Federal, state and foreign government bodies and agencies have adopted, are considering adopting or may adopt laws and regulations regarding the collection, use,
storage and disclosure of personal information obtained from consumers and individuals, such as compliance with the Health Insurance Portability and Accountability Act, or HIPAA, and the recently created EU-U.S. Privacy Shield. The costs of
compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our customers may limit the use and adoption of our platform and reduce overall demand or lead to significant fines, penalties or
liabilities for any noncompliance with such privacy laws. Furthermore, privacy concerns may cause our customers employees to resist providing the personal data necessary to allow our customers to use our platform effectively. Even the
perception of privacy concerns, whether or not valid, may inhibit market adoption of our platform in certain industries.
All of these domestic and international legislative and regulatory initiatives may adversely affect our customers ability to process, handle, store, use and transmit demographic and personal information from
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their employees, customers and suppliers, which could reduce demand for our platform. The European Union, or EU, and many countries in Europe have stringent privacy laws and regulations, which
may affect our ability to operate cost effectively in certain European countries. In particular, the EU has adopted the General Data Protection Regulation, or GDPR, which is scheduled to go into effect in early 2018 and contains numerous
requirements and changes, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies. Complying with the GDPR may cause us to incur substantial operational costs
or require us to change our business practices. Despite our efforts to bring practices into compliance before the effective date of the GDPR, we may not be successful either due to internal or external factors such as resource allocation limitations
or a lack of vendor cooperation. Non-compliance could result in proceedings against us by governmental entities or others. We may also experience difficulty retaining or obtaining new European or multi-national customers due to the compliance cost,
potential risk exposure, and uncertainty for these entities. We may find it necessary to establish systems to maintain personal data originating from the EU in the European Economic Area, which may involve substantial expense and distraction from
other aspects of our business. In the meantime, there could be uncertainty as to how to comply with EU privacy law.
The loss of one or more of our key customers could negatively affect our ability to market our platform.
We rely on our reputation and recommendations from key customers in order to promote subscriptions to our platform. The
loss of any of our key customers could have a significant impact on our revenues, reputation and our ability to obtain new customers. In addition, acquisitions of our customers could lead to cancellation of our contracts with those customers or by
the acquiring companies, thereby reducing the number of our existing and potential customers.
Our business could be
adversely affected if our customers are not satisfied with the implementation services provided by us or our partners.
Our business depends on our ability to satisfy our customers, both with respect to our platform and modules and the professional services that are performed to help our customers use features and functions that address their
business needs. Professional services may be performed by our own staff, by a third-party partner or by a combination of the two. Our strategy is to work with partners to increase the breadth of capability and depth of capacity for delivery of these
services to our customers, and we expect the number of our partner-led implementations to continue to increase over time. If a customer is not satisfied with the quality of work performed by us or a partner or with the type of professional services
or modules delivered, we may incur additional costs to in addressing the situation, the profitability of that work might be impaired and the customers dissatisfaction with our services could damage our ability to expand the number of modules
subscribed to by that customer. In addition, negative publicity related to our customer relationships, regardless of its accuracy, may further damage our business by affecting our ability to compete for new business with current and prospective
customers.
We typically provide service level commitments under our customer contracts. If we fail to meet these
contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face contract terminations, which could adversely affect our revenues.
Our customer agreements typically provide service level commitments on a monthly basis. If we are unable to meet the
stated service level commitments or suffer extended periods of unavailability for our platform, we may be contractually obligated to provide these customers with service credits, typically 10% of the customers subscription fees for the month
in which the service level was not met, and we could face contract terminations, in which case we would be subject to refunds for prepaid amounts related to unused subscription services. Our revenues could be significantly affected if we suffer
unexcused downtime under our agreements with our customers. Any extended service outages could adversely affect our reputation, revenues and operating results.
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If we fail to integrate our platform with a variety of third-party technologies, our
platform may become less marketable and less competitive or obsolete and our operating results may be harmed.
Our platform must integrate with a variety of third-party technologies, and we need to continuously modify and enhance our platform to adapt to changes in cloud-enabled hardware, software, networking, browser and database
technologies. Any failure of our platform to operate effectively with future technologies could reduce the demand for our platform, resulting in customer dissatisfaction and harm to our business. If we are unable to respond to these changes in a
cost-effective manner, our platform may become less marketable and less competitive or obsolete and our operating results may be negatively affected. In addition, an increasing number of individuals within the enterprise are utilizing mobile devices
to access the Internet and corporate resources and to conduct business. If we cannot continue to effectively make our platform available on these mobile devices and offer the information, services and functionality required by enterprises that
widely use mobile devices, we may experience difficulty attracting and retaining customers.
Any failure to offer
high-quality technical support services may adversely affect our relationships with our customers and our financial results.
Once our modules are implemented, our customers depend on our support organization to resolve technical issues relating
to our modules. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services
provided by our competitors. Increased customer demand for these services, without corresponding revenues, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on our platform and
business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, our
ability to sell subscriptions to our modules to existing and prospective customers and our business, operating results and financial position.
Sales to customers outside the United States or with international operations expose us to risks inherent in international sales.
A key element of our growth strategy is to expand our international operations and develop a worldwide customer base. The
combined revenues from non-U.S. regions, as determined based on the billing address of our customers, constituted 32%, 28% and 25% of our total revenues for the fiscal years ended January 31, 2017, 2016 and 2015, respectively. Operating in
international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks that are different from those in the United States. Because of our limited experience with international
operations, our international expansion efforts may not be successful in creating additional demand for our platform outside of the United States or in effectively selling subscriptions to our platform in all of the international markets we enter.
In addition, we will face risks in doing business internationally that could adversely affect our business, including:
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the need to localize and adapt our platform for specific countries, including translation into foreign languages and associated expenses;
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data privacy laws that require customer data to be stored and processed in a designated territory;
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difficulties in staffing and managing foreign operations and working with foreign partners;
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different pricing environments, longer sales cycles and longer accounts receivable payment cycles and collections issues;
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new and different sources of competition;
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weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights outside of the United
States;
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laws and business practices favoring local competitors;
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compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, privacy and data protection laws and regulations;
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increased financial accounting and reporting burdens and complexities;
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restrictions on the transfer of funds;
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fluctuations in currency exchange rates, which could increase the price of our products outside of the United States, increase the expenses of our international operations and expose us to foreign
currency exchange rate risk;
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adverse tax consequences; and
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unstable regional and economic political conditions.
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As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international sales and operations. Our failure to
manage any of these risks successfully, or to comply with these laws and regulations, could harm our operations, reduce our sales and harm our business, operating results and financial condition. For example, in certain foreign countries,
particularly those with developing economies, certain business practices that are prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act, may be more commonplace. Although we have policies and procedures
designed to ensure compliance with these laws and regulations, our employees, contractors and agents, as well as channel partners involved in our international sales, may take actions in violation of our policies. Any such violation could have an
adverse effect on our business and reputation.
Some of our business partners also have international
operations and are subject to the risks described above. Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if our business partners are not able to successfully manage these
risks.
If we are unable to implement and maintain effective internal controls over financial reporting in the future,
investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.
As a public company, we are required to maintain internal controls over financial reporting and to report any material
weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and, beginning with our
second annual report, provide a management report on the internal controls over financial reporting, which must be attested to by our independent registered public accounting firm to the extent we are no longer an emerging growth
company, as defined by The Jumpstart Our Businesses Act of 2012 (the JOBS Act). If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be
materially misstated. We are in the process of designing and implementing the internal controls over financial reporting required to comply with this obligation, which process will be time consuming, costly and complicated. We may not be able to
complete our evaluation, testing, and any required remediation in a timely fashion.
If we identify material
weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective or if
our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting,
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investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to
investigations by the SEC, stock exchange or other regulatory authorities, which could require additional financial and management resources to address.
We may face exposure to foreign currency exchange rate fluctuations, which could adversely affect our business, results of
operations and financial condition.
As our international operations expand, our exposure to the
effects of fluctuations in currency exchange rates grows because our international contracts are sometimes denominated in local currencies, in particular with respect to the Euro, British Pound Sterling and Australian Dollar. Over time, an
increasing portion of our international contracts may be denominated in local currencies. Therefore, as exchange rates vary, revenue, cost of revenue, operating expenses and other operating results, when re-measured, may differ materially from
expectations. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge
certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited
time the hedges are in place. Additionally, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments. Moreover, we anticipate growing our business further outside of the
United States, and the effects of movements in currency exchange rates will increase as our transaction volume outside of the United States increases.
If we cannot continue to expand the use of our platform beyond our initial focus on our procurement and invoicing modules, our
ability to grow our business may be harmed and the growth rate of our revenues may decline.
To date,
most of our sales have involved our procurement and invoicing modules, which are the most mature modules on our platform. Any factor adversely affecting sales of these modules, including software release cycles, market acceptance, product
competition, performance and reliability, reputation, price competition and economic and market conditions, could adversely affect our business and operating results. Furthermore, our ability to grow our business depends in part on our ability to
compete in the market for the other modules on our platform, including expense reporting, sourcing, inventory, contracts, analytics, supplier management and storefront. Our efforts to market these other modules is relatively new, and it is uncertain
whether these other modules will ever result in significant revenues for us. While we have recently acquired or agreed to acquire businesses related to certain of these modules, there can be no assurance that these acquisitions will facilitate our
efforts to market and sell these other modules. Further, the introduction of new modules beyond these markets may not be successful.
Large customers often demand more configuration and integration services, or customized features and functions that we do not offer, which could adversely affect our business and operating results.
Large customers may demand more configuration and integration services, which increase our upfront investment in sales
and deployment efforts, with no guarantee that these customers will increase the scope of their subscription. As a result of these factors, we must devote a significant amount of sales support and professional services resources to individual
customers, increasing the cost and time required to complete sales. Additionally, our platform does not currently permit customers to modify our code. If prospective customers require customized features or functions that we do not offer and that
would be difficult for them to deploy themselves, then the market for our platform will be more limited and our business could suffer.
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If our platform fails to perform properly, our reputation could be adversely
affected, our market share could decline and we could be subject to liability claims.
Our platform is
inherently complex and may contain material defects or errors. Any defects in functionality or that cause interruptions in the availability of our platform could result in:
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loss or delayed market acceptance and sales;
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breach of warranty claims;
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sales credits or refunds for prepaid amounts related to unused subscription services;
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diversion of development and customer service resources; and
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injury to our reputation.
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The costs
incurred in correcting any material defects or errors might be substantial and could adversely affect our operating results.
Because of the large amount of data that we collect and manage, it is possible that hardware failures or errors in our systems could result in data loss or corruption or cause the information that we collect to be incomplete or
contain inaccuracies that our customers regard as significant. Furthermore, the availability or performance of our platform could be adversely affected by a number of factors, including customers inability to access the Internet, failure of
our network or software systems, security breaches or variability in user traffic for our platform. We may be required to issue credits or refunds for prepaid amounts related to unused services or otherwise be liable to our customers for damages
they incur resulting from certain of these events. For example, our customers access our modules through their Internet service providers. If a service provider fails to provide sufficient capacity to support our modules or otherwise experiences
service outages, such failure could interrupt our customers access to our modules and adversely affect their perception of our modules reliability. In addition to potential liability, if we experience interruptions in the availability of
our platform, our reputation could be adversely affected and we could lose customers.
Our errors and
omissions insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our policy may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert
managements attention.
If we fail to manage our technical operations infrastructure, our existing customers may
experience service outages and our new customers may experience delays in the implementation of our platform.
We have experienced significant growth in the number of users, transactions and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of
all of our customers, as well as to facilitate the rapid provision of new customer implementations and the expansion of existing customer implementations. In addition, we need to properly manage our technological operations infrastructure in order
to support version control, changes in hardware and software parameters and the evolution of our platform. However, the provision of new hosting infrastructure requires significant lead time. We have experienced, and may in the future experience,
website disruptions, outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in customer usage and denial of
service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If we do not accurately predict our infrastructure requirements, our customers may experience
service outages that may subject us to financial penalties, financial liabilities and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional
capacity, which could adversely affect our revenue as well as our reputation.
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We have incurred and will continue to incur significantly increased costs and devote
substantial management time as a result of operating as a public company.
As a public company, we
have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and
are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and the Nasdaq Global Select
Market, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Compliance with these requirements has increased our legal and financial compliance costs and made some
activities more time consuming and costly. In addition, our management and other personnel need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we are
incurring significant expenses and devoting substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company, as
defined by the JOBS Act. We have hired and may need to continue to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and maintain an internal audit function. We cannot
predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.
Our growth depends in part on the success of our strategic relationships with third parties.
We have established strategic relationships with a number of other companies. In order to grow our business, we anticipate that we will continue to establish and maintain relationships with third parties, such as implementation
partners, system integrator partners and technology providers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be effective in providing incentives to third
parties to favor their products or services or to prevent or reduce subscriptions to our services. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of our current and potential customers, as our
partners may no longer facilitate the adoption of our platform by potential customers.
If we are unsuccessful
in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our operating results could suffer. Even if we are successful in our strategic
relationships, we cannot assure you that these relationships will result in increased customer usage of our platform or increased revenues.
Weakened global economic conditions may harm our industry, business and results of operations.
Our overall performance depends in part on worldwide economic conditions. Global financial developments and downturns seemingly unrelated to us or the enterprise software industry may harm us. The United States and other key
international economies have been affected 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, bankruptcies, and
overall uncertainty with respect to the economy. In particular, the economies of countries in Europe have been experiencing weakness associated with high sovereign debt levels, weakness in the banking sector and uncertainty over the future of the
Euro zone, including instability surrounding Brexit, the United Kingdoms decision to exit the European Union. We have operations, as well as current and potential new customers, throughout most of Europe. If economic conditions in
Europe and other key markets for our platform continue to remain uncertain or deteriorate further, many customers may delay or reduce their information technology spending.
The growth of our revenues and potential profitability of our business depends on demand for platform and modules
generally, and spend management specifically. In addition, our revenues are dependent on the number of users of our modules. Historically, during economic downturns there have
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been reductions in spending on enterprise software as well as pressure for extended billing terms or pricing discounts, which would limit our ability to grow our business and negatively affect
our operating results. These conditions affect the rate of enterprise software spending and could adversely affect our customers ability or willingness to subscribe to our platform, delay prospective customers purchasing decisions,
reduce the value or duration of their subscriptions or affect renewal rates, all of which could harm our operating results.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our
brand.
Our success and ability to compete depend in part upon our intellectual property. We primarily
rely on copyright, patent, trade secret and trademark laws, trade secret protection and confidentiality or contractual agreements with our employees, customers, partners and others to protect our intellectual property rights. However, the steps we
take to protect our intellectual property rights may be inadequate.
In order to protect our intellectual
property rights, we may be required to expend significant resources to monitor and protect such rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and
could result in the impairment or loss of portions of our intellectual property. Furthermore, 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 failure to secure, protect and enforce our intellectual property rights could seriously adversely affect our brand and our business.
We may be sued by third parties for alleged infringement of their proprietary rights.
There has been considerable activity in our industry to develop and enforce intellectual property rights. Our success
depends upon our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry. In the past third
parties have claimed and in the future third parties may claim that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. For example, between March 2012 and August 2014 and between May
2014 and September 2015, we and Ariba, Inc. were involved in patent and trade secret litigation cases, each of which eventually resulted in a settlement agreement that requires us to maintain certain ongoing compliance measures that if
challenged, could be costly, time-consuming and divert the attention of our management and key personnel from our business operations.
In the future, others may claim that our platform and underlying technology infringe or violate their intellectual
property rights, and we may be found to be infringing upon such rights. We may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Any claims or litigation could cause us to incur
significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services or require that we comply with other unfavorable terms. We may also be
obligated to indemnify our customers and business partners or to pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify our platform or refund fees, which could be
costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.
Our platform utilizes open source software, and any failure to comply with the terms of one or more of these open source licenses
could negatively affect our business.
Our platform utilizes software governed by open source
licenses, including for example the MIT License and the Apache License. The terms of various open source licenses have not been interpreted by
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United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our platform. By the
terms of certain open source licenses, if we combine our proprietary software with open source software in a certain manner, we could be required to release the source code of our proprietary software and make it available under open source
licenses. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, or to re-engineer all or a portion of our
technologies or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and services. In addition to risks related to license requirements, the use of open source software can
lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with the use of open source software cannot be
eliminated and could negatively affect our business.
We employ third-party licensed software for use in or with our
platform, and the inability to maintain these licenses or errors in the software we license could result in increased costs, or reduced service levels, which could adversely affect our business.
Our platform incorporates certain third-party software obtained under licenses from other companies. We anticipate that
we will continue to rely on such third-party software and development tools from third parties in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not
always be the case, or it may be difficult or costly to replace. In addition, integration of the software used in our platform with new third-party software may require significant work and require substantial investment of our time and resources.
Also, to the extent that our platform depends upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the
functionality of our platform, delay new module introductions, result in a failure of our modules and injure our reputation. Our use of additional or alternative third-party software would require us to enter into license agreements with third
parties.
If we cannot maintain our company 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 a critical component of our success has been our company culture, which is based on our core values of ensuring customer success, focusing on results and striving for excellence. We have invested substantial time and resources in
building our team within this company culture. As we grow and develop the infrastructure of a public company, we may find it difficult to maintain these important aspects of our company culture. If we fail to preserve our culture, our ability to
retain and recruit personnel and to effectively focus on and pursue our corporate objectives could be compromised, potentially harming our business.
We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.
We have funded our operations since inception primarily through equity financings and prepayments by
customers. We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. In the future, we may require additional capital to respond to business opportunities, challenges, acquisitions, a decline in the level
of customer prepayments or unforeseen circumstances and may determine to engage in equity or debt financings or enter into credit facilities for other reasons, and we may not be able to timely secure additional debt or equity financing on favorable
terms, or at all. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain
additional capital and to pursue business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity, convertible debt securities or other securities
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convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights,
preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to grow or support our business and to
respond to business challenges could be significantly limited.
Our customers may fail to pay us in accordance with the
terms of their agreements, necessitating action by us to compel payment.
We typically enter into
multiple year, non-cancelable arrangements with our customers. If customers fail to pay us under the terms of our agreements, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the terms of our
contracts, including litigation. The risk of such negative effects increases with the term length of our customer arrangements. Furthermore, some of our customers may seek bankruptcy protection or other similar relief and fail to pay amounts due to
us, or pay those amounts more slowly, either of which could adversely affect our operating results, financial position and cash flow.
Contractual disputes with our customers could be costly, time-consuming and harm our reputation.
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 service levels, security obligations, indemnification 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 a contract breach or
otherwise dispute our contract, the resolution of such disputes in a manner adverse to our interests could negatively affect our operating results.
Pursuant to agreements with certain of our customers, we have placed, and in the future may be required to place in
escrow the source code of some of our modules. Under these escrow arrangements, the source code pertaining to the modules may, in specified circumstances, be made available to our customers. This factor may increase the likelihood of
misappropriation or other misuse of our modules.
Our business is subject to the risks of earthquakes, fire, floods and
other natural catastrophic events, and to interruption by man-made problems such as power disruptions, computer viruses, data security breaches or terrorism.
Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. A significant
natural disaster, such as an earthquake, fire or flood, occurring at our headquarters, at one of our other facilities or where a business partner is located could adversely affect our business, results of operations and financial condition. Further,
if a natural disaster or man-made problem were to affect Internet service providers, this could adversely affect the ability of our customers to use our products and platform. Although we maintain incident management and disaster response plans, in
the event of a major disruption caused by a natural disaster or man-made problem, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our development activities, lengthy interruptions in
service, breaches of data security and loss of critical data, any of which could adversely affect our business, results of operations and financial condition.
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth
companies will make our common stock less attractive to investors.
We are an emerging growth company.
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or
revised accounting standards and therefore we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
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For as long as we continue to be an emerging growth company, we will
continue take advantage, or intend to take advantage of, certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, 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. We
cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and
our stock price may be more volatile.
We will remain an emerging growth company until the earliest of
(i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of July 31, (ii) the end of the fiscal year in which we have total annual gross revenues of $1 billion
or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) the end of the fiscal year that is five years from the date of our final prospectus filed with
the SEC on October 5, 2016.
We may not be able to utilize a significant portion of our net operating loss or
research tax credit carryforwards, which could adversely affect our potential profitability.
We have
federal and state net operating loss carryforwards due to prior period losses, which if not utilized will begin to expire in 2026 and 2029 for federal and state purposes, respectively. These net operating loss carryforwards could expire unused and
be unavailable to offset future income tax liabilities, which could adversely affect our potential profitability.
In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), our ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in
any taxable year may be limited if we experience an ownership change. Such an 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. Similar rules may apply under state tax laws. As of our initial public offering we have not had an ownership change that has triggered
any material limitation on the use of our tax attributes for purposes of Section 382 of the Code. Future changes in our stock ownership, however, could cause an ownership change. It is possible that an ownership change, or any future
ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our potential profitability.
Changes in laws and regulations related to the Internet could increase the costs of our services and adversely affect our
business.
Federal, state or foreign government bodies or agencies have in the past adopted, and may
in the future adopt, laws or regulations affecting the use of the Internet as a commercial medium. Changes in these laws or regulations could require changes in our business in order to comply with these changes. In particular, the application of
federal, state, local and international tax laws to services provided electronically is evolving. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time (possibly with retroactive effect)
and could be applied solely or disproportionately to services provided over the Internet. These enactments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and ultimately result in a negative
impact on our operating results and cash flows.
In addition, existing tax laws, statutes, rules, regulations
or ordinances could be interpreted, changed, modified or applied adversely to us (possibly with retroactive effect), which could require us or our
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customers to pay additional tax amounts, as well as fines or penalties and interest for past amounts. If we are unsuccessful in collecting such taxes from our customers, we could be held liable
for such costs, thereby adversely affecting our operating results and cash flows.
Our reported financial results may
be adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting
Standards Board (FASB), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results
for periods prior and subsequent to such change. For example, recent new standards issued by the FASB that could materially impact our financial statements include revenue from contracts with customers, certain improvements to employee share-based
payment accounting and accounting for leases. We may adopt one or more of these standards retrospectively to prior periods and the adoption may result in an adverse change to previously reported results. Additionally, the adoption of these standards
may potentially require enhancements or changes in our systems and will require significant time and cost on behalf of our financial management. The prescribed periods of adoption of these standards and other pending changes in accounting principles
generally accepted in the United States, are further discussed in Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Accounting Pronouncements incorporated by reference in this
prospectus.
Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if
the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates.
Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Our estimates and forecasts relating to the size and expected
growth of our market may prove to be inaccurate. Even if the market in which we compete meets our size estimates and forecasted growth, our business could fail to grow at similar rates.
Risks Related to Ownership of Our Common Stock
Our stock price has been subject to fluctuations, and will likely continue to be subject to fluctuations and decline, due to
factors beyond our control and you may lose all or part of your investment.
The market price of our
common stock is subject to wide fluctuations in response to various factors, some of which are beyond our control. Since shares of our common stock were sold in our initial public offering in October 2016 at a price of $18.00 per share, the reported
high and low sales prices of our common stock has ranged from $22.50 to $41.61 through April 11, 2017. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control,
including:
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the overall performance of the equity markets;
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our operating performance and the performance of other similar companies;
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changes in our projected operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common
stock;
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announcements of technological innovations, new software or enhancements to services, acquisitions, strategic alliances or significant agreements by us or by our competitors;
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disruptions in our services due to computer hardware, software or network problems;
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announcements of customer additions and customer cancellations or delays in customer purchases;
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recruitment or departure of key personnel;
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the economy as a whole, market conditions in our industry and the industries of our customers;
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trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock;
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the expiration of market standoff or contractual lock-up agreements;
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the size of our market float; and
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any other factors discussed in this prospectus.
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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 technology companies. Stock prices of many technology
companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become
involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.
Sales of a substantial number of shares of our common stock in the public market, or the perception that they might occur, could
cause the price of our common stock to decline.
The price of our common stock could decline if there
are substantial sales of our common stock, particularly sales by our directors, executive officers, and significant stockholders. We had a total of 50,251,541 shares of our common stock outstanding as of January 31, 2017. All of the shares of
common stock sold in our initial public offering and in this offering are freely tradeable in the United States, except for any shares purchased by our affiliates as defined in Rule 144 under the Securities Act of 1933. Upon the
expiration of the underwriters lock-up agreements from our initial public offering, which occurred on April 4, 2017, approximately 41.6 million shares became eligible for sale, subject in some cases to volume and other restrictions
of Rule 144 under the Securities Act of 1933, as amended, and subject to reduction upon the completion of this offering. Our executive officers, directors, substantially all of the selling stockholders who participate in this offering and certain
other holders of our common stock will be subject to a lock-up agreement for an additional 90 days, with respect to 75% of their shares, and 60 days, with respect to 25% of their shares, from the date of the final prospectus for this offering. These
agreements contain several exemptions from the lock-up restrictions. For example, some of our executive officers have entered into Rule 10b5-1 trading plans under which they have contracted with a broker to sell shares of our common stock on a
periodic basis. These plans provide for sales to occur from time to time, and sales under such plans that were entered into prior to execution of a lock-up agreement in connection with this offering by our executive officers will not be subject to
the additional lock-up period related to this offering.
Sales of a substantial number of shares of our common
stock in the public market, or the perception that these sales might occur, whether due to the expiration or release of lock-up restrictions or otherwise, could cause the market price of our common stock to decline or make it more difficult for you
to sell your common stock at a time and price that you deem appropriate and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales, or the perception that our shares
may be available for sale, will have on the prevailing market price of our common stock.
Certain of our
stockholders have rights, subject to some conditions, to require us to file registration statements covering their shares to include their shares in registration statements that we may file for ourselves or our stockholders, subject to market
standoff and lockup agreements. The market price of the
31
shares of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market or the perception in the market that the holders of a
large number of shares intend to sell their shares.
In addition, we have filed registration statements to
register shares reserved for future issuance under our equity compensation plans. Subject to the satisfaction of applicable exercise periods and expiration of the lock-up agreements referred to above, the shares issued upon exercise of outstanding
stock options or settlement of outstanding restricted stock units will be available for immediate resale in the United States in the open market.
If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts
publish about us or our business. If industry analysts cease coverage of us, the trading price for our common stock will be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or
unfavorable research about our business, our common stock price will likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our
common stock price and trading volume to decline.
In addition, independent industry analysts, such as Gartner
and Forrester, often provide reviews of our products and platform capabilities, as well as those of our competitors, and perception of our offerings in the marketplace may be significantly influenced by these reviews. We have no control over what
these industry analysts report, and because industry analysts may influence current and potential customers, our brand could be harmed if they do not provide a positive review of our products and platform capabilities or view us as a market leader.
We do not intend to pay dividends for the foreseeable future.
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to
finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders 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 investment.
The concentration of our stock ownership will likely
limit your ability to influence corporate matters, including the ability to influence the outcome of director elections and other matters requiring stockholder approval.
Based upon shares outstanding as of January 31, 2017, our executive officers, directors and the holders of more than
5% of our outstanding common stock, in the aggregate, own approximately 60% of our common stock, assuming no exercise of outstanding options. As a result, these stockholders, acting together, will have significant influence over all matters that
require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders oppose them. This concentration of ownership might also have
the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.
Delaware law and provisions in our amended and restated certificate of incorporation (Restated Certificate) and
amended and restated bylaws (Bylaws) could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.
Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may
discourage, delay or prevent a change in control by prohibiting us from engaging in
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a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our
existing stockholders. In addition, our Restated Certificate and Restated Bylaws contain provisions that may make the acquisition of our company more difficult, including the following:
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the requirement of a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;
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the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder
approval, which could be used to significantly dilute the ownership of a hostile acquiror;
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the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which
prevents stockholders from being able to fill vacancies on our board of directors;
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a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
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the requirement that a special meeting of stockholders be called only by a majority vote of our entire board of directors, the chairman of our board of directors or our chief executive officer,
which could delay the ability of our stockholders to force consideration of a proposal or to take action, including to remove directors;
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the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, to amend
the provisions of our Restated Certificate relating to the management of our business or our Restated Bylaws, which may inhibit the ability of an acquiror to effect such amendments to facilitate an unsolicited takeover attempt; and
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advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders meeting, which may
discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquirors own slate of directors or otherwise attempting to obtain control of us.
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In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law.
These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time.
A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation
or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.
These and other provisions in our Restated Certificate, Restated Bylaws and in Delaware law could make it more difficult
for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including to delay or impede a merger, tender offer, or proxy contest involving our
company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.
Our Restated Certificate provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all
disputes between us and our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our Restated Certificate provides that the Court of Chancery of the State of Delaware is the exclusive forum for any
derivative action or proceeding brought on our behalf, any action asserting a breach of
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fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our Restated Certificate or our Restated Bylaws or any action asserting a claim
against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other
employees and may discourage these types of lawsuits. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we might
incur additional costs associated with resolving such action in other jurisdictions.
We have broad discretion in the
use of the net proceeds to us from this offering and may not use them effectively.
We cannot specify
with any certainty the particular uses of the net proceeds that we will receive from this offering, but we currently expect such uses will include continued investment in developing technology to support our growth, increased investment in our sales
team and marketing activities, as well as overall growth in our international operations. We will have broad discretion in the application of the net proceeds to us, including working capital, possible acquisitions and other general corporate
purposes, and we may spend or invest these proceeds in a way with which our stockholders disagree. The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending their use, we may
invest the net proceeds from our public offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.
If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution.
If you purchase shares of our common stock in this offering, you will experience substantial and
immediate dilution at the public offering price of $25.25 per share because the price that you pay will be substantially greater than the net tangible book value per share of the common stock that you acquire. You will experience additional
dilution upon exercise of options to purchase common stock under our equity incentive plans, upon vesting of options to purchase common stock under our equity incentive plans, if we issue restricted stock to our employees under our equity incentive
plans or if we otherwise issue additional shares of our common stock.
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UNDERWRITERS
Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the
underwriters named below, for whom Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Barclays Capital Inc. are acting as representatives, have severally agreed to purchase, and we and the selling stockholders have agreed to
sell to them, severally, the number of shares indicated below:
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Name
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Number of
Shares
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Morgan Stanley & Co. LLC
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1,718,741
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J.P. Morgan Securities LLC
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1,189,898
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Barclays Capital Inc.
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484,773
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RBC Capital Markets, LLC
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396,633
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Cantor Fitzgerald & Co.
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176,281
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JMP Securities LLC
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176,281
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Raymond James & Associates, Inc.
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176,281
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BTIG, LLC
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88,141
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Total
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4,407,029
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The underwriters and the representatives are collectively referred to as the
underwriters and the representatives, respectively. The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The
underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters
option to purchase additional shares described below.
The underwriters initially propose to offer part of the
shares of common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $0.72 a share under the public offering price.
After the offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives. Sales of common stock made outside of the United States may be made by affiliates of the
underwriters.
We have granted to the underwriters an option, exercisable for 30 days from the date of
this prospectus, to purchase up to 661,054 additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. To the extent the option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriters name in the preceding table bears to the total
number of shares of common stock listed next to the names of all underwriters in the preceding table.
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The following table shows the per share and total public offering price,
underwriting discounts and commissions, and proceeds before expenses to us and the selling stockholders. These amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase up to an additional 661,054
shares of common stock, and exclude the proceeds we received from the selling stockholders due to the exercise of 244,387 options in connection with this offering at an average per share exercise price of $3.93.
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Total
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Per Share
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No Exercise
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Full Exercise
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Public offering price
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$
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25.25
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$
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111,277,482.25
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$
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127,969,095.75
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Underwriting discounts and commissions to be paid by:
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Us
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1.20
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358,276.80
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1,151,541.60
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The selling stockholders
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1.20
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4,930,158.00
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4,930,158.00
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Proceeds, before expenses, to us
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24.05
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7,180,464.20
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23,078,812.90
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Proceeds, before expenses, to the selling stockholders
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24.05
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98,808,583.25
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98,808,583.25
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The estimated offering expenses payable by us, exclusive of the underwriting discounts
and commissions, are approximately $800,000. We have agreed to reimburse the underwriters for their expenses, up to $50,000, relating to clearance of this offering with the Financial Industry Regulatory Authority.
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total
number of shares of common stock offered by them.
Our common stock is listed on the Nasdaq Global Select
Market under the symbol COUP.
In connection with this offering, we, all directors and executive
officers, the selling stockholders (other than a former employee) and certain other holders of our common stock, including Battery Ventures VIII, L.P., which beneficially owns 6,869,220 shares of our common stock, entities affiliated with ICONIQ
Strategic Partners II, L.P., which beneficially owns 2,092,899 shares of our common stock, and Meritech Capital Partners IV L.P., which beneficially owns 1,854,140 shares of our common stock, agreed that, without the prior written consent
of Morgan Stanley & Co. LLC, on behalf of the underwriters, we and they will not, during the period ending 90 days after the date of this offering (the restricted period):
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offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer
or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock;
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file any registration statement with the Securities and Exchange Commission relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable
for common stock; or
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enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock
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whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise.
In addition, we and each such person agrees that, without the prior written consent of Morgan Stanley & Co. LLC, on behalf of the underwriters, we or such other person will not, during the restricted period, make any demand for,
or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock.
The restrictions in the immediately preceding paragraph do not apply in certain circumstances, including:
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i.
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the sale of shares to the underwriters;
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ii.
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the sale of shares by any of our directors and executive officers, the selling stockholders or certain other holders of our stock that (A) takes place after the period ending 60 days after the date
of this offering and (B) is of an amount equal to or less than 25% of such holders aggregate holdings of our common stock;
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iii.
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the issuance by the Company of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the
underwriters have been advised in writing;
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iv.
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the issuance by the Company of any Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock pursuant to any incentive plan or stock ownership plan in effect
on the date of this prospectus and described herein;
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v.
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the filing by the Company of a registration statement with the Commission on Form S-8 in respect of any common stock or any securities convertible into or exercisable or exchangeable for common
stock issued under or the grant of any award pursuant to an employee benefit plan in effect on the date of this prospectus and described herein;
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vi.
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transactions by a selling stockholder or certain other holders of our stock relating to shares of common stock or other securities acquired in open market transactions after the completion of the
offering of the shares,
provided
that no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made in connection with subsequent sales of common stock or other securities acquired in such open market
transactions;
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vii.
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transfers by a selling stockholder of shares of common stock or any security convertible into common stock as a bona fide gift;
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viii.
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distributions by a selling stockholder or certain other holders of our stock of shares of common stock or any security convertible into common stock to limited partners or stockholders of the
selling stockholder;
provided
that in the case of any transfer or distribution pursuant to clause (vii) or (viii), (A) each donee or distributee shall enter into a written agreement accepting the restrictions set forth in the
preceding paragraph and this paragraph as if it were a selling stockholder and (B) no filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of common stock, shall be required or shall be
voluntarily made in respect of the transfer or distribution during the restricted period;
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ix.
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transfers by certain of our stockholders of shares of common stock or any security convertible into or exercisable or exchangeable for common stock (A) as a bona fide gift or charitable
contribution, (B) to an immediate family member or a trust for the direct or indirect benefit of the undersigned or such immediate family member of the undersigned, (C) to any corporation, partnership, limited liability company, investment
fund or other entity controlled or managed, or under common control or management by the undersigned or the immediate family of the undersigned, (D) by will, other testamentary document or intestate succession to the legal representative, heir,
beneficiary or a member of the immediate family of the undersigned, or (E) transfers or distributions of shares of common stock or any security convertible into or exercisable or exchangeable for common stock by a stockholder that is a trust to
a trustor or beneficiary of the trust or to the estate of a beneficiary of such trust;
provided
that in the case of any transfer or distribution pursuant to this clause (ix), (1) each distributee or transferee shall sign and deliver
a
lock-up
letter substantially in the form satisfactory to the representatives and (2) no filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of
common stock, shall be required or shall be voluntarily made during the restricted period;
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x.
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the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the
transfer of shares of common stock,
provided
that (A) such plan does not provide for the transfer
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of common stock during the restricted period and (B) to the extent a public announcement or filing under the Exchange Act, if any, is required or voluntarily made by or on behalf of the
selling stockholder or the Company regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of common stock may be made under such plan during the restricted period; and the sale
of shares of common stock pursuant to a 10b5-1 trading plan,
provided
that such plan was established prior to the execution of the lock-up agreement by the stockholder and that any filing under Section 16(a) of the Exchange Act that is
made in connection with any such sales during the restricted period shall state that such sales have been executed under a 10b5-1 trading plan and shall also state the date such plan was adopted;
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xi.
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(A) the receipt by the certain of our stockholders from the Company of shares of common stock upon (1) the exercise or settlement of options or restricted stock units granted under a stock
incentive plan or other equity award plan, which plan is described herein or (2) the exercise of warrants outstanding and which are described herein or (B) the transfer of shares of common stock or any securities convertible into common
stock to the Company upon a vesting or settlement event of the Companys securities or upon the exercise of options or warrants to purchase the Companys securities on a cashless or net exercise basis to the extent
permitted by the instruments representing such options or warrants (and any transfer to the Company necessary to generate such amount of cash needed for the payment of taxes, including estimated taxes, due as a result of such vesting or exercise
whether by means of a net settlement or otherwise) so long as such cashless exercise or net exercise is effected solely by the surrender of outstanding options or warrants (or the common stock issuable upon the
exercise thereof) to the Company and the Companys cancellation of all or a portion thereof to pay the exercise price and/or withholding tax and remittance obligations,
provided
that in the case of (A) the shares received upon
exercise or settlement of the option, restricted stock unit, or warrant are subject to the terms of this letter, and
provided further
that in the case of (A) or (B), no filing under Section 16(a) of the Exchange Act, or any other
public filing or disclosure of such receipt or transfer, shall be required or shall be voluntarily made by or on behalf of the undersigned;
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xii.
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the transfer by certain of our stockholders of shares of common stock or any security convertible into or exercisable or exchangeable for common stock to the Company pursuant to agreements under
which the Company has the option to repurchase such shares or a right of first refusal with respect to transfers of such shares;
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xiii.
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the transfer by certain of our stockholders of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock that occurs pursuant to a qualified domestic
order, in connection with a divorce settlement,
provided
that each transferee shall sign and deliver a lock-up letter substantially in a form satisfactory to the representatives and no filing under Section 16(a) of the Exchange Act shall
be required or shall be voluntarily made by or on behalf of the undersigned during the restricted period, unless such filing clearly indicates in the footnotes thereto that such transfer occurred by operation of law, pursuant to a qualified domestic
order or in connection with a divorce settlement;
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xiv.
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the transfer of certain of our stockholders Common Stock pursuant to a bona fide
third party tender offer, merger, consolidation or other similar transaction made to all holders of common stock involving a change of control (as defined below) of the Company occurring after the consummation of the Public Offering,
that has been approved by the board of directors of the Company;
provided
that in the event that the tender offer, merger, consolidation or other such transaction is not completed, the undersigneds common stock shall remain subject to
these restrictions. For purposes of this clause (xiv), change of control means the consummation of any bona fide third party tender offer, merger, consolidation or other similar transaction the result of which is that any
person (as defined in Section 13(d)(3) of the Exchange Act), or
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54
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group of persons, other than the Company, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of 50% of total voting power of the voting stock of the Company;
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xv.
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the sale of shares of common stock underlying restricted stock units held by the stockholder that are vested and settled to satisfy income tax withholding and remittance obligations in connection
with the vesting of such restricted stock units that are outstanding as of the date of this prospectus and described herein;
provided
that any filing under Section 16(a) of the Exchange Act required in connection therewith indicates that
such transfer is to satisfy income tax withholding and remittance obligations in connection with the vesting of restricted stock units; and
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xvi.
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the sale or issuance of or entry into an agreement to sell or issue common stock or any securities convertible into or exercisable or exchangeable for common stock in connection with one or more
acquisitions of businesses, products or technologies, joint ventures, commercial relationships or other strategic corporate transactions;
provided
that the aggregate amounts of common stock or any securities convertible into or exercisable or
exchangeable for common stock (on an
as-converted,
as-exercised or as-exchanged basis) that the Company may sell or issue or agree to sell or issue pursuant to this paragraph shall not exceed 5% of the total
number of shares of common stock of the Company issued and outstanding immediately following the completion of the transactions contemplated by the underwriting agreement determined on a fully-diluted basis, and provided further that each recipient
of common stock or any securities convertible into or exercisable or exchangeable for common stock pursuant to this clause (xv) shall execute a lock-up agreement substantially in a form satisfactory to the representatives with respect to the
remaining portion of the restricted period.
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Morgan Stanley & Co. LLC, in its
sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time.
In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize,
maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short
position is no greater than the number of shares available for purchase by the underwriters under the option to purchase additional shares described above. The underwriters can close out a covered short sale by exercising such option or purchasing
shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under such option. The underwriters
may also sell shares in excess of such option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters
are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase shares of common stock in this offering. As an additional means of facilitating
this offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market
levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.
We, the selling stockholders and the underwriters have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or the Securities Act.
A prospectus in
electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of common stock to
underwriters for sale to their online brokerage
55
account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.
Other Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities,
which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their
respective affiliates may in the future perform various financial advisory and investment banking services for us, for which they will receive customary fees and expenses. In particular, all of the underwriters in this offering were underwriters in
our initial public offering except Cantor Fitzgerald & Co. and BTIG, LLC.
In addition, in the ordinary
course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments
(including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and
instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients
that they acquire, long or short positions in such securities and instruments.
Selling Restrictions
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a
Relevant Member State), an offer to the public of any shares of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any shares of our common stock may be
made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
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(i)
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to any legal entity which is a qualified investor as defined in the Prospectus Directive;
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(ii)
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to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined
in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives for any such offer; or
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(iii)
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in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares of our common stock shall result in a requirement for the publication
by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.
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For the purposes of this provision, the expression an offer to the public in relation to any shares of our
common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares of our common stock to be offered so as to enable an investor to decide to purchase any
shares of our common stock. As the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto,
including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive
2010/73/EU.
56
United Kingdom
Each underwriter has represented and agreed that:
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(a)
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it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the Financial Services and Markets Act 2000, or FSMA) received by it in connection with the issue or sale of the shares of our common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and
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(b)
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it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the
United Kingdom.
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Switzerland
The shares of common stock may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange,
or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations
or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing
material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland. Neither this document nor any other offering or marketing material relating to the offering, us, or the shares have been
or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, or FINMA, and the
offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend
to acquirers of shares.
Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial
Services Authority, or DFSA. This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility
for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this
prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should
consult an authorized financial advisor.
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the
Australian Securities and Investments Commission, or ASIC, in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations
Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons, or the Exempt Investors, who are sophisticated
investors (within the meaning of section 708(8) of the Corporations Act), professional
57
investors (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that
it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors
under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of
the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This
prospectus contains general information only and does not take into account the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice.
Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate for their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
New Zealand
The shares of common stock offered hereby have not been offered or sold, and will not be offered or sold, directly or
indirectly in New Zealand and no offering materials or advertisements have been or will be distributed in relation to any offer of shares in New Zealand, in each case other than:
(a) to persons whose principal business is the investment of money or who, in the course of and for the
purposes of their business, habitually invest money; or
(b) to persons who in all the
circumstances can properly be regarded as having been selected otherwise than as members of the public; or
(c) to persons who are each required to pay a minimum subscription price of at least NZ$500,000 for the shares before the allotment of those shares (disregarding any amounts payable, or paid, out of money lent by the issuer or any
associated person of the issuer); or
(d) in other circumstances where there is no
contravention of the Securities Act 1978 of New Zealand (or any statutory modification or re-enactment of, or statutory substitution for, the Securities Act 1978 of New Zealand).
Canada
The shares of common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are
accredited investors, as defined in National Instrument 45-106
Prospectus Exemptions
or subsection 73.3(1) of the
Securities Act
(Ontario), and are permitted clients, as defined in National Instrument 31-103
Registration Requirements, Exemptions and Ongoing Registrant Obligations
. Any resale of the shares of common stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of
applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide
a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit
prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these
rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued
or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105
Underwriting Conflicts
(
NI 33-105
),
58
the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Hong Kong
The shares of common stock have not been offered or sold and will not be offered or sold in Hong Kong, by means of
any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the
document being a prospectus as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No
advertisement, invitation or document relating to the shares of common stock has been or may be issued or has been or may be in the possession of any person for the purposes of issuance, whether in Hong Kong or elsewhere, which is directed at, or
the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares of common stock which are or are intended to be disposed of
only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Japan
No registration pursuant to Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law
No. 25 of 1948, as amended), or the FIEL, has been made or will be made with respect to the solicitation of the application for the acquisition of the shares of common stock.
Accordingly, the shares of common stock have not been, directly or indirectly, offered or sold and will not be, directly
or indirectly, offered or sold in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan) or to others for
re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements, and otherwise in compliance with, the FIEL and the other applicable laws
and regulations of Japan.
For Qualified Institutional Investors, or QII
Please note that the solicitation for newly-issued or secondary securities (each as described in Paragraph 2,
Article 4 of the FIEL) in relation to the shares of common stock constitutes either a QII only private placement or a QII only secondary distribution (each as described in Paragraph 1, Article 23-13 of the
FIEL). Disclosure regarding any such solicitation, as is otherwise prescribed in Paragraph 1, Article 4 of the FIEL, has not been made in relation to the shares of common stock. The shares of common stock may only be transferred to QIIs.
For Non-QII Investors
Please note that the solicitation for newly-issued or secondary securities (each as described in Paragraph 2,
Article 4 of the FIEL) in relation to the shares of common stock constitutes either a small number private placement or a small number private secondary distribution (each as is described in Paragraph 4,
Article 23-13 of the FIEL). Disclosure regarding any such solicitation, as is otherwise prescribed in Paragraph 1, Article 4 of the FIEL, has not been made in relation to the shares of common stock. The shares of common stock may only
be transferred en bloc without subdivision to a single investor.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this
prospectus and any other document or material in connection with the offer or sale, or
59
invitation for subscription or purchase, of the shares of common stock may not be circulated or distributed, nor may the shares of common stock be offered or sold, or be made the subject of an
invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA,
(ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance
with the conditions of, any other applicable provision of the SFA.
Where the shares of common stock are
subscribed or purchased under Section 275 of the SFA by a relevant person which is:
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(a)
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a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by
one or more individuals, each of whom is an accredited investor; or
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(b)
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a trust (where the trustee is not an accredited investor) the sole purpose of which is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,
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securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights
and interest (howsoever described) in that trust shall not be transferred within nine months after that corporation or that trust has acquired the shares of common stock pursuant to an offer made under Section 275 of the SFA except:
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(a)
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to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or
Section 276(4)(i)(B) of the SFA;
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(b)
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where no consideration is or will be given for the transfer;
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(c)
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where the transfer is by operation of law;
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(d)
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as specified in Section 276(7) of the SFA; or
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(e)
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as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.
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Chile
The shares of common stock are not registered in the Securities Registry (Registro de Valores) or subject to the control
of the Chilean Securities and Exchange Commission (Superintendencia de Valores y Seguros de Chile). This prospectus supplement and other offering materials relating to the offer of the shares do not constitute a public offer of, or an invitation to
subscribe for or purchase, the shares in the Republic of Chile, other than to individually identified purchasers pursuant to a private offering within the meaning of Article 4 of the Chilean Securities Market Act (Ley de Mercado de Valores) (an
offer that is not addressed to the public at large or to a certain sector or specific group of the public).
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