ITEM 1A. RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties, including those described below, which could adversely
affect our business, results of operations, cash flows, financial conditions, and the trading price of our common stock.
Risks
Related to Our Business
We have a history of losses and we may not achieve or sustain profitability in the future.
We have incurred significant losses in each fiscal year since our incorporation in 2006. We experienced net losses of $35.9 million during 2013
and net losses of $8.3 million for the three months ending March 31, 2014. As of March 31, 2014, we had an accumulated deficit of $121.5 million. The losses and accumulated deficit were due to the substantial investments we made to grow
our business and acquire customers. We anticipate that our cost of revenues and operating expenses will increase in the foreseeable future as we continue to invest to grow our business and acquire customers and develop our platform and new
functionality. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenues sufficiently to offset these higher expenses. Many of our efforts to generate revenues from our business are new
and unproven, and any failure to increase our revenues or generate revenues from new solutions could prevent us from attaining or increasing profitability. Furthermore, to the extent we are successful in increasing our customer base, we could also
incur increased losses because costs associated with entering into customer contracts are generally incurred up front, while customers are billed over the term of the contract generally through our usage-based pricing model. We do not expect to be
profitable in 2014 and we cannot be certain that we will be able to attain profitability on a quarterly or annual basis, or if we do, that we will sustain profitability.
Our limited operating history makes it difficult to evaluate our current business and future prospects.
Although we began our operations in March 2006, we did not begin generating substantial revenues until 2009. Our limited operating history
may make it difficult to evaluate our current business and our future prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly developing and changing industries,
including challenges in forecasting accuracy, determining appropriate investments of our limited resources, market acceptance of our existing and future solutions, competition from established companies with greater financial and technical
resources, acquiring and retaining customers, managing customer deployments and developing new solutions. Our current operations infrastructure may require changes in order for us to achieve profitability and scale our operations efficiently. For
example, we may need to automate portions of our solution to decrease our costs, ensure our marketing infrastructure is designed to drive highly qualified leads cost effectively and implement changes in our sales model to improve the predictability
of our sales and reduce our sales cycle. If we fail to implement these changes on a timely basis or are unable to implement them due to factors beyond our control, our business may suffer. We cannot assure you that we will be successful in
addressing these and other challenges we may face in the future.
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Our usage-based pricing model makes it difficult to evaluate our current business and future prospects.
We have a usage-based pricing model where most of our fees are calculated as a percentage of customers advertising spend
managed on our platform. This pricing model makes it difficult to accurately forecast revenues because our customers advertising spend managed by our platform may vary from month to month based on the variety of industries in which our
advertisers operate, the seasonality of those industries and fluctuations in our customers advertising budgets or other factors. Our contracts with our direct advertiser customers generally contain a minimum monthly fee, which is generally
greater than one-half of our estimated monthly revenues from the customer at the time the contract is signed, and, as a result, the monthly minimum may not be a good indicator of our revenues from that customer. In addition, advertisers that use our
platform through our agency customers typically do not have a minimum monthly spend amount or a minimum term during which they must use our platform and, as a result, the ability to forecast revenues from these advertisers is difficult.
Additionally, if we overestimate usage, we may incur additional expenses in adding infrastructure, without a commensurate increase in revenues, which would harm our gross margins and other operating results.
The market for digital advertising management solutions is relatively new and dependent on growth in various digital advertising channels. If this
market develops more slowly or differently than we expect, our business, growth prospects and financial condition would be adversely affected.
The market for digital advertising management solutions such as ours is relatively new and these solutions may not achieve or sustain high
levels of demand and market acceptance. While search and display advertising has been used successfully for several years, marketing via new digital advertising channels such as mobile and social media is not as well established. The
future growth of our business could be constrained by both the level of acceptance and expansion of emerging digital advertising channels, as well as the continued use and growth of existing channels, such as search and display
advertising. Even if these channels become widely adopted, advertisers and agencies may not make significant investments in solutions such as ours that help them manage their digital advertising spend across publisher platforms and advertising
channels. It is difficult to predict customer adoption rates, customer demand for our platform, the future growth rate and size of the digital advertising management solutions market or the entry of competitive solutions. Any expansion of the
market for digital advertising management solutions depends on a number of factors, including the growth of the digital advertising market, the growth of social and mobile as advertising channels and the cost, performance and perceived value
associated with digital advertising management solutions. If digital advertising management solutions do not achieve widespread adoption, or there is a reduction in demand for digital advertising caused by weakening economic conditions, decreases in
corporate spending or otherwise, it could result in reduced usage, which could decrease revenues or otherwise adversely affect our business.
If we
are unable to maintain our relationships with, and access to, publishers, our business will suffer.
We currently depend on
relationships with various publishers, including Baidu, Bing, Criteo, Facebook, Google, Yandex and Yahoo! Japan. Our subscription services interface with these publishers platforms through application programming interfaces (API), such as the
Google AdWords API or Facebook API. We are subject to the publishers standard API terms and conditions, which govern the use and distribution of data from these publishers platforms. Our business significantly depends on having access to
these APIs, particularly the Google AdWords API, which the substantial majority of our customers use, on commercially reasonable terms and our business would be harmed if any of these publishers discontinue or limit access to their platforms, modify
their terms of use or other policies or place additional restrictions on us as API users, or charge API license fees for API access. Moreover, some of these publishers, such as Google, market competitive solutions for their platforms. Because the
publishers control their APIs, they may develop competitive offerings that are not subject to the limits imposed on us through the API terms and conditions. Currently, restrictions in these API agreements limit our ability to implement certain
functionality, require us to implement functionality in a particular manner or require us to implement certain required minimum functionality, causing us to devote development resources to implement certain functionality that we would not otherwise
include in our subscription services and to incur costs for personnel to provide services to implement functionality that we are prohibited from automating. Publishers update their API terms of use from time to time and new versions of these terms
could impose additional restrictions on us. In addition, publishers continually update their APIs and may update or modify functionality, which requires us to modify our software to accommodate these changes and to devote technical resources and
personnel to these efforts which could otherwise be used to focus on other priorities. Any of these outcomes could cause demand for our products to decrease, our research and development costs to increase, and our results of operations and financial
condition to be harmed.
Our growth depends in part on the success of our relationships with advertising agencies.
Our future growth will depend, in part, on our ability to enter into successful relationships with advertising agencies. Identifying agencies
and negotiating and documenting relationships with them requires significant time and resources. These relationships may not result in additional customers or enable us to generate significant revenues. Our contracts for these relationships are
typically non-exclusive and do not prohibit the agency from working with our competitors or from offering competing services. We generally bill agencies for their customers use of our platform, but the agencys customer has no direct
contractual commitment to make payment
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to us. Furthermore, some of these agency contracts include provisions whereby the agency is not liable for making payment to us for our subscription services if the agency does not receive a
corresponding payment from its client on whose behalf the subscription services were rendered. These provisions may result in longer collections periods or our inability to collect payment for some of our subscription services. If we are
unsuccessful in establishing or maintaining our relationships with these agencies on commercially reasonable terms, or if these relationships are not profitable for us, our ability to compete in the marketplace or to grow our revenues could be
impaired and our operating results would suffer.
We may not be able to compete successfully against current and future competitors.
The overall market for digital advertising management solutions is rapidly evolving, highly competitive, complex, fragmented, and subject to
changing technology and shifting customer needs. We face significant competition in this market and we expect competition to intensify in the future. We currently compete with large, well-established companies, such as Adobe Systems Incorporated and
Google Inc. (through its wholly-owned subsidiary DoubleClick), and privately-held companies, such as Acquisio Inc., which focuses solely on agencies, and Kenshoo Ltd. We also compete with in-house proprietary tools and custom solutions, including
spreadsheets. Increased competition may result in reduced pricing for our solutions, longer sales cycles or a decrease of our market share, any of which could negatively affect our revenues and future operating results and our ability to grow our
business.
A number of competitive factors could cause us to lose potential sales or to sell our solutions at lower prices or at reduced
margins, including, among others:
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potential customers may choose to develop or continue to use internal solutions rather than paying for our solutions or may choose to use a competitors solution that has different or additional technical
capabilities;
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companies may enter our market by expanding their platforms or acquiring a competitor;
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some of our competitors, such as Adobe and Google, have greater financial, marketing and technical resources than we do, allowing them to leverage a larger installed customer base, adopt more aggressive pricing
policies, and devote greater resources to the development, promotion and sale of their products and services than we can; and
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companies marketing search, social, display, mobile or web analytics services could bundle digital advertising management solutions or offer such products at a lower price as part of a larger product sale.
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We cannot assure you that we will be able to compete successfully against current and future competitors. If we cannot
compete successfully, our business, results of operations and financial condition could be negatively impacted.
Our business depends on our
customers continued willingness to manage advertising spend on our platform.
In order for us to improve our operating
results, it is important that our customers continue to manage their advertising spend on our platform, increase their usage and also purchase additional solutions from us. In the case of our direct advertiser customers, we offer our solutions
primarily through subscription contracts and generally bill customers over the related subscription period, which is generally one year or longer. During the term of their contracts, our direct advertiser customers generally have no obligation to
maintain or increase their advertising spend on our platform beyond a specified minimum monthly fee, which is typically set at the time the contract is signed and is generally greater than half of the monthly amount we anticipate the customer will
spend. Our direct advertiser customers have no renewal obligation after the initial or then-current renewal subscription period expires, and even if customers renew contracts, they may decrease the level of their digital advertising spend managed
through our platform, resulting in lower revenues from that customer. Advertisers that we serve through our arrangements with our advertising agencies generally do not have any contractual commitment to use our platform. Our customers usage
may decline or fluctuate as a result of a number of factors, including, but not limited to, their satisfaction with our platform and our customer support, the frequency and severity of outages, the pricing of our, or competing, solutions, the
effects of global economic conditions and reductions in spending levels or changes in our customers strategies regarding digital advertising. Due to our limited historical experience, we may not be able to accurately predict future usage
trends. If our customers renew on less favorable terms or reduce their advertising spend on our platform, our revenues may grow more slowly than expected or decline.
We incur upfront costs associated with onboarding advertisers to our platform and may not recoup our investment if we do not maintain the advertiser
relationship over time.
Our operating results may be negatively affected if we are unable to recoup our upfront costs for
onboarding new advertisers to our platform. Upfront costs when adding new advertisers generally include sales commissions for our sales force, expenses associated with entering customer data into our platform and other implementation-related costs.
Because our customers, including direct advertisers and agencies, are billed over the term of the contract, if new customers sign contracts with short initial subscription periods and do not renew their subscriptions, or otherwise do not continue to
use our platform to a level that generates revenues in excess of our upfront expenses, our operating results could be negatively impacted. In cases in which the implementation process is particularly complex, the revenues resulting from the customer
under our contract may not cover the upfront investment, so if a significant number of these customers do not renew their contracts, it could negatively affect our operating results.
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Because we generally bill our customers over the term of the contract, near term decline in new or renewed
subscriptions may not be reflected immediately in our operating results.
Most of our revenues in each quarter are derived from
contracts entered into with our customers during previous quarters. Consequently, a decline in new or renewed subscriptions in any one quarter may not be fully reflected in our revenues for that quarter. Such declines, however, would negatively
affect our revenues in future periods and the effect of significant downturns in sales and market acceptance of our solutions, and potential changes in our rate of renewals or renewal terms, may not be fully reflected in our results of operations
until future periods. In addition, we may be unable to adjust our cost structure rapidly, or at all, to take account of reduced revenues. Our subscription model also makes it difficult for us to rapidly increase our total revenues through additional
sales in any period, as revenues from new customers must be earned over the applicable subscription term based on the value of their monthly advertising spend.
We have been dependent on our customers use of search advertising. Any decrease in the use of search advertising or our inability to further
penetrate mobile, social and display advertising channels would harm our business, growth prospects, operating results and financial condition.
Historically, our customers have primarily used our solutions for managing their search advertising, including mobile search advertising, and
the substantial majority of our revenues are derived from advertisers that use our platform to manage their search advertising. We expect that search advertising will continue to be the primary channel used by our customers for the foreseeable
future. Should our customers lose confidence in the value or effectiveness of search advertising, the demand for our solutions may decline. In addition, our failure to achieve market acceptance of our solution for the management of mobile, social
and display advertising spend would harm our growth prospects, operating results and financial condition.
Our sales cycle can be long and
unpredictable and require considerable time and expense, which may cause our operating results to fluctuate.
The sales cycle for
our solutions, from initial contact with a potential lead to contract execution and implementation, varies widely by customer, but is typically one to nine months. Some of our customers undertake a significant evaluation process that frequently
involves not only our solutions but also those of our competitors, which has in the past resulted in extended sales cycles. Our sales efforts involve educating our customers about the use, technical capabilities and benefits of our platform. In
addition, under certain circumstances, we sometimes offer an initial term, typically of a few months in duration, to new customers who may terminate their subscription at any time during this initial period before the fixed term contract commences.
We have no assurance that the substantial time and money spent on our sales efforts will produce any sales. If our sales efforts result in a new customer subscription, the customer may terminate its subscription during the initial period, after we
have incurred the expenses associated with entering the customers data in our platform and related training and support. If sales expected from a customer are not realized in the time period expected or not realized at all, or if a customer
terminates during the initial period, our business, operating results and financial condition could be adversely affected.
Material defects or
errors in our software platform could harm our reputation, result in significant costs to us and impair our ability to sell our subscription services.
The software applications underlying our subscription services are inherently complex and may contain material defects or errors, which may
cause disruptions in availability, misallocation of advertising spend or other performance problems. Any such errors, defects, disruptions in service or other performance problems with our software platform could negatively impact our
customers businesses or the success of their advertising campaigns and cause harm to our reputation. If we have any errors, defects, disruptions in service or other performance problems with our software platform, customers could elect not to
renew or reduce their usage or delay or withhold payment to us, which could result in an increase in our provision for doubtful accounts or an increase in the length of collection cycles for accounts receivable. Errors, defects, disruptions in
service or other performance problems could also result in customers making warranty or other claims against us, our giving credits to our customers toward future advertising spend or costly litigation. As a result, material defects or errors in our
platform could have a material adverse impact on our business and financial performance.
The costs incurred in correcting any material
defects or errors in our software platform may be substantial and could adversely affect our operating results. After the release of new versions of our software, defects or errors may be identified from time to time by our internal team and by our
customers. We implement bug fixes and upgrades as part of our regularly scheduled system maintenance. If we do not complete this maintenance according to schedule or if customers are otherwise dissatisfied with the frequency and/or duration of our
maintenance services, customers could elect not to renew, or delay or withhold payment to us, or cause us to issue credits, make refunds or pay penalties.
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We derive our revenues from a single software platform and any factor adversely affecting subscriptions to
our platform could harm our business and operating results.
We derive our revenues from sales of a single software platform. As
such, any factor adversely affecting subscriptions to our platform, including product release cycles, market acceptance, product competition, performance and reliability, reputation, price competition, and economic and market conditions, could harm
our business and operating results.
We primarily use a single third-party data center to deliver our services. Any disruption of service at this
facility could harm our business.
We manage a significant portion of our services and serve substantially all of our customers
from a single third-party data center facility. While we control the actual computer, network and storage systems upon which our platform runs, and deploy them to the data center facility, we do not control the operation of the facility. The owner
of the facility has no obligation to renew the agreement with us on commercially reasonable terms, or at all. If we are unable to renew the agreement on commercially reasonable terms, we may be required to transfer to a new facility or facilities,
and we may incur significant costs and possible service interruption in connection with doing so.
The facility is vulnerable to damage or
service interruption resulting from human error, intentional bad acts, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events. Moreover, while
we have a disaster recovery plan in place, we do not maintain a hot failover instance of our software platform permitting us to immediately switch over in the event of damage or service interruption at our data center. The occurrence of
a natural disaster or an act of terrorism, any outages or vandalism or other misconduct, or a decision to close the facility without adequate notice or other unanticipated problems could result in lengthy interruptions in our services.
Any changes in service levels at the facility or any errors, defects, disruptions or other performance problems at or related to the facility
that affect our services could harm our reputation and may damage our customers businesses. Interruptions in our services might reduce our revenues, subject us to potential liability, or result in reduced usage of our platform. In addition,
some of our customer contracts require us to issue credits for downtime in excess of certain levels and in some instances give our customers the ability to terminate their subscriptions.
We also depend on third-party Internet-hosting providers and continuous and uninterrupted access to the Internet through third-party bandwidth
providers to operate our business. If we lose the services of one or more of our Internet-hosting or bandwidth providers for any reason or if their services are disrupted, for example due to viruses or denial-of-service or other attacks
on their systems, or due to human error, intentional bad acts, power loss, hardware failures, telecommunications failures, fires, wars, terrorist attacks, floods, earthquakes, hurricanes, tornadoes or similar events, we could experience disruption
in our ability to offer our solutions or we could be required to retain the services of replacement providers, which could increase our operating costs and harm our business and reputation.
If we cannot efficiently implement our solutions for customers, we may lose customers.
Our customers have a variety of different data formats, enterprise applications and infrastructure and our platform must support our
customers data formats and integrate with complex enterprise applications and infrastructures. If our platform does not currently support a customers required data format or appropriately integrate with a customers applications and
infrastructure, then we may choose to configure our platform to do so, which would increase our expenses. Additionally, we do not control our customers implementation schedules. As a result, as we have experienced in the past, if our customers
do not allocate internal resources necessary to meet their implementation responsibilities or if we face unanticipated implementation difficulties, the implementation may be delayed. Further, in the past, our implementation capacity has at times
constrained our ability to successfully implement our solutions for our customers in a timely manner, particularly during periods of high demand. If the customer implementation process is not executed successfully or if execution is delayed, we
could incur significant costs, customers could become dissatisfied and decide not to increase usage of our platform, not to use our platform beyond an initial period prior to their term commitment and revenue recognition could be delayed. In
addition, competitors with more efficient operating models with lower implementation costs could penetrate our customer relationships.
Additionally, large customers may request or require specific features or functions unique to their particular business processes, which
increase our upfront investment in sales and deployment efforts and the revenues resulting from the customers under our typical contract length may not cover the upfront investments. If prospective large customers require specific features or
functions that we do not offer, then the market for our solution will be more limited and our business could suffer. In addition, supporting large customers could require us to devote significant development services and support personnel and strain
our personnel resources and infrastructure. If we are unable to address the needs of these customers in a timely fashion or further develop and enhance our solution, these customers may not renew their subscriptions, seek to terminate their
relationship with us, renew on less favorable terms, or reduce their advertising spend on our platform. If any of these were to occur, our revenues may decline and our operating results could be adversely affected.
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If we are unable to maintain or expand our sales and marketing capabilities, we may not be able to generate
anticipated revenues.
Increasing our customer base and achieving broader market acceptance of our software platform will depend to
a significant extent on our ability to expand our sales and marketing operations and activities. We expect to be substantially dependent on our sales force to obtain new customers. We currently plan to expand our sales team in order to increase
revenues from new and existing customers and to further penetrate our existing markets and expand into new markets. Our solutions require a sophisticated sales force with specific sales skills and technical knowledge. Competition for qualified sales
personnel is intense, and we may not be able to retain our existing sales personnel or attract, integrate or retain sufficient highly qualified sales personnel.
Our ability to achieve revenue growth in the future will depend, in large part, on our success in recruiting, training and retaining
sufficient numbers of sales personnel. These new employees require significant training and experience before they achieve full productivity. For internal planning purposes, we assume that it will take approximately three months before a newly hired
sales representative is fully trained and productive in selling our solutions. This amount of time may be longer for sales personnel focused on new geographies or specific market segments. As a result, the cost of hiring and carrying new
representatives cannot be offset by the revenues they produce for a significant period of time. Our recent hires and planned hires may not become productive as quickly as we would like, and we may not be able to hire or retain sufficient numbers of
qualified individuals in the markets where we do business. Our business will be seriously harmed if these expansion efforts do not work as planned or generate a corresponding significant increase in revenues.
Any failure to offer high-quality technical support services may adversely affect our relationships with our customers and harm our financial results.
Our customers depend on our support organization to resolve any technical issues relating to our solutions. In addition, our sales
process is highly dependent on the quality of our solutions, our business reputation and on strong 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 harm our reputation, adversely affect our ability to sell our solutions to existing and prospective customers, and harm our business, operating results and financial condition.
We offer technical support services with our solutions and 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 competitors. It is difficult to predict customer demand for technical support services
and if customer demand increases significantly, we may be unable to provide satisfactory support services to our customers. Additionally, increased customer demand for these services, without corresponding revenues, could increase costs and
adversely affect our operating results.
If our security measures are breached or unauthorized access to customer data or our data is otherwise
obtained, our solutions may be perceived as not being secure, customers may reduce the use of or stop using our solutions and we may incur significant liabilities.
Security breaches could result in the loss of information, litigation, indemnity obligations and other liability. While we have security
measures in place, our systems and networks are subject to ongoing threats and therefore these security measures may be breached as a result of third-party action, including cyber-attacks or other intentional misconduct by computer hackers, employee
error, malfeasance or otherwise. This could result in one or more third parties obtaining unauthorized access to our customers data or our data, including intellectual property and other confidential business information. Because techniques
used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Third
parties may also attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers data or our data, including intellectual
property and other confidential business information. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed, we could lose potential sales and existing customers
or we could incur other liabilities, which could adversely affect our business.
We must develop and introduce enhancements and new features that
achieve market acceptance or that keep pace with technological developments to remain competitive in our evolving industry.
We
operate in a dynamic market characterized by rapidly changing technologies and industry and legal standards. The introduction of new Revenue Acquisition Management solutions by our competitors, the market acceptance of solutions based on new or
alternative technologies, or the emergence of new industry standards could render our platform obsolete. Our ability to compete
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successfully, attract new customers and increase revenues from existing customers depends in large part on our ability to enhance and improve our existing Revenue Acquisition Management platform
and to continually introduce or acquire new features that are in demand by the market we serve. We also must update our software to reflect changes in publishers APIs and terms of use. The success of any enhancement or new solution depends on
several factors, including timely completion, adequate quality testing, appropriate introduction and market acceptance. Any new platform or feature that we develop or acquire may not be introduced in a timely or cost-effective manner, may contain
defects or may not achieve the broad market acceptance necessary to generate significant revenues. If we are unable to anticipate or timely and successfully develop or acquire new offerings or features or enhance our existing platform to meet
customer requirements, our business and operating results will be adversely affected.
Our growth depends in part on the success of our strategic
relationships with third parties.
Our future growth will depend on our ability to enter into successful strategic relationships
with third parties. For example, we are seeking to establish relationships with third parties to develop integrations with complementary technology and content. These relationships may not result in additional customers or enable us to generate
significant revenues. Identifying partners and negotiating and documenting relationships with them require significant time and resources. Our contracts for these relationships are typically non-exclusive and do not prohibit the other party from
working with our competitors or from offering competing services. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to compete in the marketplace or to grow our revenues could be impaired
and our operating results would suffer.
As a result of our customers increased usage of our software platform, we will need to continually
improve our hosting infrastructure to avoid service interruptions or slower system performance.
We have experienced continued
growth in the number of advertisers, transactions and data that our hosting infrastructure supports. We seek to maintain sufficient excess capacity in our infrastructure to meet the needs of all of our customers. We also seek to maintain excess
capacity to facilitate the rapid provision of new customer deployments and the expansion of existing customer deployments. For example, if we secure a large customer or a group of customers that require significant amounts of bandwidth or storage,
we may need to increase bandwidth, storage, power or other elements of our application architecture and our infrastructure, and our existing systems may not be able to scale in a manner satisfactory to our existing or prospective customers.
The amount of infrastructure needed to support our customers is based on our estimates of anticipated usage. If we were to experience
unforeseen increases in usage, we could be required to increase our infrastructure investments resulting in increased costs or reduced gross margins, and if we do not accurately predict our infrastructure capacity requirements, our customers could
experience service outages that may subject us to financial penalties and liabilities and result in customer losses. If our hosting infrastructure capacity fails to keep pace with increased sales, customers may experience service interruptions or
slower system performance as we seek to obtain additional capacity, which could harm our reputation and adversely affect our revenue growth. As use of our software platform grows and as customers use it for more complicated tasks, we will need to
devote additional resources to improving our application architecture and our infrastructure in order to maintain the performance of our software platform. We may need to incur additional costs to upgrade or expand our computer systems and
architecture in order to accommodate increased demand if our systems cannot handle current or higher volumes of usage. In addition, increasing our systems and infrastructure in advance of new customers would cause us to have increased cost of
revenues, which can adversely affect our gross margins until we increase revenues that are spread over the increased costs.
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 a combination of copyright, trade secret and trademark laws, as well as confidentiality procedures and contractual restrictions with our employees, customers,
partners and others to establish and protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate or we may be unable to secure intellectual property protection for all of our
solutions. In particular, we have two issued U.S. patents.
If we are unable to protect our intellectual property, our competitors could
use our intellectual property to market products and services similar to ours and our ability to compete effectively would be impaired. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual
property. The enforcement of our intellectual property rights depends on our legal actions against these infringers being successful, but we cannot be sure these actions will be successful, even when our rights have been infringed. In addition,
defending our intellectual property rights might entail significant expense and diversion of management resources. Any of our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation. Any
patents issued in the future may not provide us with competitive advantages or may be successfully challenged by third parties.
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Furthermore, legal standards relating to the validity, enforceability and scope of protection of
intellectual property rights are uncertain. Effective protection of our intellectual property may not be available to us in every country in which our solutions are available. The laws of some foreign countries may not be as protective of
intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or
misappropriating our intellectual property.
We might be required to spend significant resources to monitor and protect our intellectual
property rights, and 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. Litigation to protect and enforce
our intellectual property rights could be costly, time-consuming and distracting to management, whether or not it is resolved in our favor, and could ultimately result in the impairment or loss of portions of our intellectual property.
We could incur substantial costs as a result of any claim of infringement of another partys intellectual property rights.
In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. Companies
in the Internet and technology industries are increasingly bringing and becoming subject to suits alleging infringement of proprietary rights, particularly patent rights, and our competitors may hold patents or have pending patent applications,
which could be related to our business. These risks have been amplified by the increase in third parties, which we refer to as non-practicing entities, whose sole primary business is to assert such claims. We have received in the past, and expect to
receive in the future, notices that claim we or our customers using our solutions have misappropriated or misused other parties intellectual property rights. If we are sued by a third party that claims that our technology infringes its rights,
the litigation could be expensive and could divert our management resources. We do not currently have an extensive patent portfolio of our own, which may limit the defenses available to us in any such litigation.
In addition, in most instances, we have agreed to indemnify our customers against certain claims that our subscription services infringe the
intellectual property rights of third parties. Our business could be adversely affected by any significant disputes between us and our customers as to the applicability or scope of our indemnification obligations to them. The results of any
intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following:
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cease offering or using technologies that incorporate the challenged intellectual property;
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make substantial payments for legal fees, settlement payments or other costs or damages;
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obtain a license, which may not be available on reasonable terms, to sell or use the relevant technology; or
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redesign technology to avoid infringement.
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If we are required to make substantial payments or
undertake any of the other actions noted above as a result of any intellectual property infringement claims against us or any obligation to indemnify our customers for such claims, such payments or costs could have a material adverse effect upon our
business and financial results.
Our use of open source technology could impose limitations on our ability to commercialize our software platform.
We use open source software in our platform. Some open source software licenses require users who distribute open source software
as part of their software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code on unfavorable terms or at no cost. The terms of various open source licenses have not
been interpreted by the U.S. 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 software platform. While we monitor our use of open source
software and try to ensure that none is used in a manner that would require us to disclose our source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur and we may be required to release our
proprietary source code, pay damages for breach of contract, re-engineer our applications, discontinue sales in the event re-engineering cannot be accomplished on a timely basis or take other remedial action that may divert resources away from our
development efforts, any of which could cause us to breach customer contracts, harm our reputation, result in customer losses or claims, increase our costs or otherwise adversely affect our business and operating results.
If the market for cloud-based software develops more slowly than we expect or declines, our business could be harmed.
The cloud computing market is not as mature as the market for on-premise software, and it is uncertain whether cloud computing will achieve and
sustain high levels of customer demand and market acceptance. If other cloud computing providers experience security incidents, loss of customer data, disruptions in delivery or other problems, the market for cloud computing as a
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whole, including our solution, may be negatively affected. If cloud computing does not achieve widespread adoption, or there is a reduction in demand for cloud computing caused by a lack of
customer acceptance, technological challenges, weakening economic conditions, security or privacy concerns, competing technologies and products, decreases in corporate spending or otherwise, it could result in decreased revenues or increased
expenses from development of alternative on-premise solutions and our business could be adversely affected.
Because our long-term success depends,
in part, on our ability to expand our sales to customers outside the United States, our business will be susceptible to risks associated with international operations.
We currently maintain offices and/or have sales personnel in Australia, Canada, China, England, France, Germany, Ireland, Japan and Singapore,
as well as the United States. As we continue to expand our customer base outside the United States, our business will be increasingly susceptible to risks associated with international operations. However, we have a limited operating history outside
the United States, and our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to particular challenges of supporting a rapidly growing business in an
environment of diverse cultures, languages, customs, tax laws, legal systems, alternate dispute systems and regulatory systems. The risks and challenges associated with international expansion include:
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the need to support and integrate with local publishers and partners;
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continued localization of our platform, including translation into foreign languages and associated expenses;
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competition with companies that have greater experience in the local markets than we do or who have pre-existing relationships with potential customers in those markets;
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compliance with multiple, potentially conflicting and changing governmental laws and regulations, including employment, tax, privacy and data protection laws and regulations;
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compliance with anti-bribery laws, including compliance with the Foreign Corrupt Practices Act;
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difficulties in invoicing and collecting in foreign currencies and associated foreign currency exposure;
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difficulties in staffing and managing foreign operations and the increased travel, infrastructure and legal compliance costs associated with international operations;
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different or lesser protection of our intellectual property rights;
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difficulties in enforcing contracts and collecting accounts receivable, longer payment cycles and other collection difficulties;
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restrictions on repatriation of earnings; and
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regional economic and political conditions.
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We have limited experience marketing, selling and
supporting our subscription services internationally, which increases the risk that any potential future expansion efforts that we may undertake will not be successful.
Fluctuations in the exchange rate of foreign currencies could result in currency transactions losses.
We currently have foreign sales denominated in Australian Dollars, British Pound Sterling, Canadian Dollars, Chinese Yuan, Euros, Japanese
Yen and Singapore Dollars. In addition, we incur a portion of our operating expenses in the currencies of the countries where we have offices. We face exposure to adverse movements in currency exchange rates, which may cause our revenues and
operating results to differ materially from expectations. A decline in the U.S. dollar relative to foreign currencies would increase our non-U.S. revenues when translated into U.S. dollars. Conversely, if the U.S. dollar strengthens relative to
foreign currencies, our non-U.S. revenues would be adversely affected. Our operating results could be negatively impacted depending on the amount of expense denominated in foreign currencies. As exchange rates vary, revenues, cost of revenues,
operating expenses and other operating results, when translated, may differ materially from expectations. In addition, our revenues and operating results are subject to fluctuation if our mix of U.S. and foreign currency denominated transactions or
expenses changes in the future because we do not currently hedge our foreign currency exposure. Even if we were to implement hedging strategies to mitigate foreign currency risk, these strategies might not eliminate our exposure to foreign exchange
rate fluctuations and would involve costs and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential accounting implications.
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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 solution and attracting new customers. We expect sales and marketing expenses to increase as a result of our marketing and brand promotion activities. We may not generate customer awareness or increase revenues enough to offset the
increased expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial marketing and sales expenses, which are not offset by increased revenues, 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 essential for broad customer adoption of our solution.
Unfavorable conditions in the market for digital advertising or the global economy or reductions in digital advertising spend could limit our ability to
grow our business and negatively affect our operating results.
Revenue growth and potential profitability of our business depends
on digital advertising spend by advertisers in the markets we serve. Our operating results may vary based on changes in the market for digital advertising or the global economy. To the extent that weak economic conditions cause our customers and
potential customers to freeze or reduce their advertising budgets, particularly digital advertising, demand for our solution may be negatively affected.
Historically, economic downturns have resulted in overall reductions in advertising spend. If economic conditions deteriorate, including as
the result of concerns over future U.S. budgetary negotiations, our customers and potential customers may elect to decrease their advertising budgets or defer or reconsider software and service purchases, which would limit our ability to grow our
business and negatively affect our operating results.
Our business and operations have experienced rapid growth in recent periods, which has
placed, and may continue to place, significant demands on our management and infrastructure. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive
challenges adequately.
We increased our number of full-time employees from 285 as of December 31, 2011 to 500 as of
December 31, 2013. Our growth has placed, and may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We intend to further expand our overall headcount and operations both
domestically and internationally, with no assurance that our business or revenues will continue to grow. Creating a global organization and managing a geographically dispersed workforce will require substantial management effort, the allocation of
valuable management resources and significant additional investment in our infrastructure. We will be required to continue to improve our operational, financial and management controls and our reporting procedures and we may not be able to do so
effectively. Further, to accommodate our expected growth we must continually improve and maintain our technology, systems and network infrastructure. As such, we may be unable to manage our expenses effectively in the future, which may negatively
impact our gross margins or operating expenses in any particular quarter. If we fail to manage our anticipated growth or change in a manner that does not preserve the key aspects of our corporate culture, the quality of our solutions may suffer,
which could negatively affect our brand and reputation and harm our ability to retain and attract customers.
Our business depends on retaining and
attracting qualified management and technical personnel.
Our success depends upon the continued service of our founders and senior
management team and key technical employees, as well as our ability to continue to attract and retain additional highly qualified management and operating personnel. We do not maintain key person life insurance policies on any of our employees. Each
of our founders, executive officers, key technical personnel and other employees could terminate his or her relationship with us at any time. Our business also requires skilled technical and sales personnel, who are in high demand and are often
subject to competing offers. As we expand into additional geographic markets, we will require personnel with expertise in these new areas. Competition for qualified employees is intense in our industry and particularly in San Francisco, California,
where most of our technical employees are based. The loss of our founders or any other member of our senior management team or, even a few qualified employees, or an inability to retain, attract, relocate and motivate additional highly skilled
employees required for the planned expansion of our business, could delay or prevent the achievement of our business objectives and could materially harm our business and our customer relationships.
Domestic and foreign government regulation and enforcement of data practices and data tracking technologies is expansive, not clearly defined and
rapidly evolving. Such regulation could directly restrict portions of our business or indirectly affect our business by constraining our customers use of our platform or limiting the growth of our markets.
Federal, state, municipal and/or foreign governments and agencies have adopted and could in the future adopt, modify, apply or enforce laws,
policies, and regulations covering user privacy, data security, technologies such as cookies that are used to collect, store and/or process data, the taxation of products and services, unfair and deceptive practices, and/or the collection, use,
processing, transfer, storage and/or disclosure of data associated with a unique individual. The categories of data regulated under these laws vary widely and are often ill-defined and subject to new applications or interpretation by regulators. Our
subscription services enable our customers to collect, manage and store data regarding the measurement and valuation of their digital advertising and marketing
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campaigns, which may include data that is directly or indirectly obtained or derived through the activities of online or mobile visitors. The uncertainty and inconsistency among these laws,
coupled with a lack of guidance as to how these laws will be applied to current and emerging Internet and mobile analytics technologies, creates a risk that regulators, lawmakers or other third parties, such as potential plaintiffs, may assert
claims, pursue investigations or audits, or engage in civil or criminal enforcement. These actions could limit the market for our subscription services or impose burdensome requirements on our services and/or customers use of our services,
thereby rendering our business unprofitable.
Some features of our subscription services use cookies, which trigger the data protection
requirements of certain foreign jurisdictions, such as the EU Cookie Directive. In addition, although our subscription services do not involve the collection or use of personally identifiable information from visitors, our services collect anonymous
data about visitors interactions with our advertiser clients that may be subject to regulation under current or future laws or regulations. If our privacy or data security measures fail to comply with these current or future laws and
regulations in any of the jurisdictions in which we collect information, we may be subject to litigation, regulatory investigations, civil or criminal enforcement, audits or other liabilities in such jurisdictions, or our advertisers may terminate
their relationships with us.
This area of the law is currently under intense government scrutiny and many governments, including the U.S.
government, are considering a variety of proposed regulations that would restrict or impact the conditions under which data obtained from or through the activities of visitors could be collected, processed or stored. In addition, regulators such as
the Federal Trade Commission and the California Attorney General are continually proposing new regulations and interpreting and applying existing regulations in new ways. Changes to existing laws or new laws regulating the solicitation, collection
or processing of personal and consumer information, truth-in-advertising and consumer protection could affect our customers utilization of digital advertising and marketing, potentially reducing demand for our subscription services, or impose
restrictions that make it more difficult or expensive for us to provide our services.
If legislation dampens the growth in web and mobile usage or
access to the Internet, our results of operations could be harmed.
Legislation enacted in the future could dampen the growth in
web and mobile usage and decrease its acceptance as a medium of communications and commerce or result in increased adoption of new modes of communication and commerce that may not be serviced by our products. In addition, government agencies or
private organizations may begin to impose taxes, fees or other charges for accessing the Internet, which could result in slower growth or a decrease in ecommerce, use of social media and/or use of mobile devices. Any of these outcomes could cause
demand for our platform to decrease, our costs to increase, and our results of operations and financial condition to be harmed.
If our customers
fail to abide by applicable privacy laws or to provide adequate notice and/or obtain consent from online or mobile visitors, we could be subject to litigation or enforcement action or reduced demand for our services. Industry self-regulatory
standards or technologies may be implemented in the future that could affect demand for our platform and our ability to access data we use to provide our platform.
Our customers utilize our services to support and measure their direct interactions with visitors and we must rely on our customers to
implement and administer any notice or choice mechanisms required under applicable laws. If customers fail to abide by these laws, it could result in litigation or regulatory or enforcement action against our customers or against us directly.
In addition, self-regulatory organizations (such as the Network Advertising Initiative) to which our customers may belong may impose opt-in or
opt-out requirements on our customers, which may in the future require our customers to provide various mechanisms for users to opt-in or opt-out of the collection of any data, including anonymous data, with respect to such users web or mobile
activities. The online and/or mobile industries may adopt technical or industry standards, or federal, state, local or foreign laws may be enacted that allow users to opt-in or opt-out of data that is necessary to our business. In particular, over
the past three years, some government regulators and privacy advocates have suggested creating a Do Not Track standard that would allow users to express a preference, independent of cookie settings in their browser, not to have website
browsing recorded. All the major internet browsers have implemented some version of a Do Not Track setting and the Do-Not-Track Online Act of 2013 was introduced in the U.S. Senate in February 2013. Furthermore, publishers
may implement alternative tracking technologies that make it more difficult to access the data necessary to our business or make it more difficult for us to compete with the publishers own advertising management solutions. If any of these
events were to occur in the future, it could have a material effect on our ability to provide services and for our customers to collect the data that is necessary to use our services.
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Our revenues may be adversely affected if we are required to charge sales taxes in additional jurisdictions
or other taxes for our solutions.
We collect or have imposed upon us sales or other taxes related to the solutions we sell in
certain states and other jurisdictions. Additional states, countries or other jurisdictions may seek to impose sales or other tax collection obligations on us in the future, or states or jurisdictions in which we already pay tax may increase the
amount of taxes we are required to pay. A successful assertion by any state, country or other jurisdiction in which we do business that we should be collecting sales or other taxes on the sale of our products and services could, among other things,
create significant administrative burdens for us, result in substantial tax liabilities for past sales, discourage clients from purchasing solutions from us or otherwise substantially harm our business and results of operations.
We may experience quarterly fluctuations in our operating results due to a number of factors which make our future results difficult to predict and
could cause our operating results to fall below expectations or our guidance.
Our quarterly operating results may fluctuate due to
a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as indicative of our future performance. If our
revenues or operating results fall below the expectations of investors or securities analysts, or below any guidance we may provide to the market, the price of our common stock could decline substantially.
In addition to other risk factors listed in this section, factors that may affect our quarterly operating results include the following:
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the level of advertising spend managed through our platform for a particular quarter;
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customer renewal rates, and the pricing and usage of our platform in any renewal term;
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demand for our platform and the size and timing of our sales;
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customers delaying purchasing decisions in anticipation of new releases by us or of new products by our competitors;
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network outages or security breaches and any associated expenses;
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changes in the competitive dynamics of our industry, including consolidation among competitors or customers;
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market acceptance of our current and future solutions;
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changes in spending on digital advertising or information technology and software by our current and/or prospective customers;
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budgeting cycles of our customers;
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our potentially lengthy sales cycle;
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our ability to control costs, including our operating expenses;
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the amount and timing of infrastructure costs and operating expenses related to the maintenance and expansion of our business, operations and infrastructure;
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foreign currency exchange rate fluctuations; and
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general economic and political conditions in our domestic and international markets.
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Based
upon all of the factors described above, we have a limited ability to forecast our future revenues, costs and expenses, and as a result, our operating results may from time to time fall below our estimates or the expectations of public market
analysts and investors.
We might require additional capital to support business growth, and this capital might not be available on acceptable
terms, if at all.
We intend to continue to make investments to support our business growth and may require additional funds to
respond to business challenges, including the need to develop new features or enhance our existing platform, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or
debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could
have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured 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. In addition, we may not be able to obtain additional financing on terms favorable to
us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired.
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We will selectively pursue acquisitions of complementary businesses and technologies, which could divert
our managements attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.
We will selectively pursue acquisitions of complementary businesses and technologies that we believe could complement or expand our
applications, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing
suitable acquisitions, whether or not they are consummated.
In addition, we have never acquired another business. If we acquire
businesses or technologies, we may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits
from the acquired business due to a number of factors, including:
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inability to integrate or benefit from acquired technologies or services in a profitable manner;
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unanticipated costs or 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;
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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 applications and contract terms, including disparities in the revenues, licensing, support or professional services model of the acquired company;
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diversion of managements attention from other business concerns;
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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.
If we are unable to implement and maintain effective internal control 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 control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) requires that we
evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our Annual Report on Form 10-K for the fiscal year ending December 31, 2014, provide a management report on the internal control over
financial reporting, and a report by our independent registered public accounting firm to the extent we decide not to avail ourselves of the exemption provided to 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 control 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 control over financial reporting required to comply with this obligation, which process will be time consuming, costly, and complicated. If we identify material weaknesses in our internal control 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 control 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 control over financial reporting, 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 stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.
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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.
For as long as we continue to be
an emerging growth company, we 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 June 30, (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) March 21, 2018.
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 profitability.
As of December 31, 2013, we had federal and state net operating loss carryforwards due to prior period losses, which if not utilized will
begin to expire in 2026 and 2016 for federal and state purposes, respectively. We also have federal research tax credit carryforwards, which if not utilized will begin to expire in 2026. These net operating loss and research tax credit carryforwards
could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our profitability.
In
addition, under Section 382 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. A Section 382 ownership change generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage
points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws.
Future
issuances of our stock could cause an ownership change. It is possible that any future ownership change could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect
our profitability.
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,
and could affect the reporting of transactions completed before the announcement of a change.
Risks Related to the Ownership of Our
Common Stock
The trading prices of the securities of technology companies have been highly volatile. Accordingly, the market price of our
common stock has been, and is likely to continue to be, subject to wide fluctuations and could subject us to litigation.
Factors
affecting the market price of our common stock include:
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variations in our revenue, billings, gross margin, operating results, free cash flow, loss per share and how these results compare to analyst expectations;
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forward looking guidance on billings, revenue, gross margin, operating results, free cash flow, and loss per share;
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announcements of technological innovations, new products or services, strategic alliances, acquisitions or significant agreements by us or by our competitors;
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disruptions in our cloud-based operations or services or disruptions of other prominent cloud-based operations or services;
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the economy as a whole, market conditions in our industry, and the industries of our customers; and
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any other factors discussed herein.
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In addition, the stock market in general has experienced substantial price and volume volatility
that is often seemingly unrelated to the operating results of any particular companies. Moreover, if the market for technology stocks, especially digital advertising management and cloud computing-related stocks, or the stock market in general
experiences uneven investor confidence, the market price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The market price for our stock might also decline in reaction to events that
affect other companies within, or outside, our industry, even if these events do not directly affect us. Some companies that have experienced volatility in the trading price of their stock have been subject of securities litigation. If we are the
subject of such litigation, it could result in substantial costs and a diversion of managements attention and resources.
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.
Our directors, officers and their respective
affiliates own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
As of March 31, 2014, our directors, officers and their respective affiliates, beneficially owned approximately 23.6% of our outstanding
voting stock. Therefore, these stockholders will continue to have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders
could be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers
for our common stock that you may feel are in your best interest as one of our stockholders.
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If there are substantial sales of shares of our common stock, the price of our common stock could decline.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur
could depress the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. We are unable to predict the effect that sales may have on the prevailing market price
of our common stock. In addition, as of March 31, 2014, the holders of an aggregate of 18.8 million shares of our common stock have rights, subject to some conditions, to require us to file registration statements covering their shares or
to include their shares in registration statements that we may file for ourselves or our stockholders. Any sales of securities by existing stockholders could adversely affect the trading price of our common stock.
Delaware law and provisions in our restated certificate of incorporation and restated 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 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 of incorporation and restated bylaws contain provisions that may make the acquisition of our Company more
difficult, including the following:
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our board of directors are classified into three classes of directors with staggered three-year terms and directors can only be removed from office for cause;
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only our board of directors has the right 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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only our chairman of the board, our lead independent director, our chief executive officer, our president, or a majority of our board of directors is authorized to call a special meeting of stockholders;
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certain litigation against us can only be brought in Delaware;
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our restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established, and shares of which may be issued, without the approval of the holders of common stock; and
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advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
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If securities or industry analysts do not 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 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 would likely decline. If one or more
of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.
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