S-1 1 d684206ds1.htm FORM S-1 Form S-1
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As filed with the Securities and Exchange Commission on June 30, 2014.

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Yodlee, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   7372   33-0843318
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

3600 Bridge Parkway, Suite 200

Redwood City, California 94065

(650) 980-3600

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Anil Arora, President and Chief Executive Officer

Michael Armsby, Chief Financial Officer

Yodlee, Inc.

3600 Bridge Parkway, Suite 200

Redwood City, California 94065

(650) 980-3600

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Barry E. Taylor, Esq.
Chris F. Fennell, Esq.

Allison B. Spinner, Esq.

Wilson Sonsini Goodrich & Rosati

Professional Corporation

650 Page Mill Road

Palo Alto, CA 94304

(650) 493-9300

 

Chad A. Wiechers, Esq.

Vice President and General Counsel

Yodlee, Inc.

3600 Bridge Parkway, Suite 200

Redwood City, California 94065

(650) 980-3600

 

John L. Savva, Esq.

Sullivan & Cromwell LLP

1870 Embarcadero Road

Palo Alto, CA 94303

(650) 461-5600

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filter   ¨    Accelerated Filter   ¨
Non-accelerated filter   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities to be Registered   Proposed Maximum
Aggregate Offering
Price(1)(2)
  Amount of Registration
Fee

Common Stock, $0.001 par value

  $75,000,000   $9,660

 

 

(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes the aggregate offering price of additional shares that the underwriters have the right to purchase from the Registrant, if any.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject To Completion. Dated June 30, 2014.

            Shares

 

LOGO

Yodlee, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of Yodlee, Inc.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $         and $        . We have applied to list the common stock on The NASDAQ Global Market under the symbol “YDLE”.

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, may elect to comply with certain reduced public company reporting requirements in future reports after the completion of this offering.

 

 

See “Risk Factors” on page 19 to read about factors you should consider before buying shares of the common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $                        $                

Underwriting discounts and commissions(1)

   $         $     

Proceeds, before expenses, to Yodlee

   $         $     

 

(1) See the section titled “Underwriting (Conflict of Interest)” for a description of the compensation payable to the underwriters.

To the extent that the underwriters sell more than             shares of common stock, the underwriters have the option to purchase up to an additional             shares from Yodlee at the initial public offering price less the underwriting discounts and commissions.

 

 

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2014.

 

Goldman, Sachs & Co.   Credit Suisse   BofA Merrill Lynch
  UBS Investment Bank  
  Pacific Crest Securities  

 

 

Prospectus dated                      , 2014


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LOGO

Financial Cloud YODLEE


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LOGO

The Yodlee Financial Cloud powers digital financial solutions for financial institutions and consumer internet companies. Account Data and Transactions Checking, Bills, Loans, Credit Cards, Savings, Investments, Insurance...and more Industry Solutions Retail Banking, Small Business, Wealth Management Product Solutions PFM, Money Movement, Risk Mgmt., APIs, Data, Mobile API Solutions Online Financial Services, E-commerce, Media, Retail Data Analytics Cross-Sell, Upsell, Risk Mgmt., Market Research YODLEE FINANCIAL CLOUD 15 million+ Paid Users* 750+ Organizations Use Yodlee* 12,500+ Data Sources* 62 US Issued Patents* *As of March 31, 2014


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TABLE OF CONTENTS

Prospectus

 

     Page  

Prospectus Summary

     1   

Risk Factors

     19   

Special Note Regarding Forward-Looking Statements

     47   

Industry and Market Data

     48   

Use of Proceeds

     49   

Dividend Policy

     50   

Capitalization

     51   

Dilution

     53   

Selected Consolidated Financial Data

     56   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     58   

Business

     93   

Management

     118   

Executive Compensation

     129   

Certain Relationships and Related Party Transactions

     146   

Principal Stockholders

     149   

Description of Capital Stock

     153   

Shares Eligible for Future Sale

     158   

Material United States Federal Income Tax Consequences to Non-U.S. Holders of our Common Stock

     161   

Underwriting (Conflict of Interest)

     165   

Validity of Common Stock

     171   

Experts

     171   

Where You Can Find More Information

     171   

Index to Consolidated Financial Statements

     F-1   

Through and including,                      2014 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

For investors outside the United States: Neither we nor the underwriters have done anything that would permit our initial public offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.

 

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PROSPECTUS SUMMARY

This summary highlights selected information appearing elsewhere in this prospectus. You should read the following summary together with the more detailed information appearing in this prospectus, including our consolidated financial statements and related notes, and the sections titled “Risk Factors” beginning on page 19 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 58, before deciding whether to purchase shares of our common stock. Unless the context otherwise requires, the terms “Yodlee,” “the company,” “we,” “us” and “our” in this prospectus refer to the consolidated operations of Yodlee, Inc. and its consolidated subsidiary as a whole.

Yodlee, Inc.

Overview

Yodlee is a leading technology and applications platform powering dynamic innovation for digital financial services in the cloud. We refer to our platform as the Yodlee Financial Cloud. Our vision is to empower lives with innovative digital financial services. Our customers include financial institutions, Internet services companies providing innovative financial solutions and third-party developers of financial applications. More than 750 organizations in over 10 countries use the Yodlee platform to power their consumer-facing digital offerings, and we receive subscription fees for 15.7 million of these consumers, whom we refer to as our paid users.

Our financial institution customers encompass many of the leading financial institutions, including 9 of the 15 largest banks in the United States, which hold 85% of the total assets of the top 15 U.S. banks (based on total assets as of September 30, 2013). These institutions subscribe to the Yodlee platform to power offerings that improve consumer satisfaction and enhance engagement, while capturing cross-sell and up-sell opportunities. We estimate that our current network of financial institution customers alone reaches more than 100 million end users, representing a significant opportunity to grow our paid user base within existing customers. Our customers that are Internet services companies have an increasingly large and diverse base of users that also provides additional growth opportunities.

The Yodlee Financial Cloud delivers a wide variety of financial applications, or FinApps, targeted at the retail financial, wealth management, small business, card and other financial solutions sectors. These FinApps help consumers and small businesses simplify and manage their finances, review their financial accounts, track their spending, calculate their net worth, and perform a variety of other activities. Examples of FinApps include our Expense FinApp, which helps consumers track their spending, and a Payroll FinApp from a third party, which helps small businesses process their payroll. Our platform also enables our customers to develop their own applications through our open application programming interfaces, or APIs, that deliver trusted and secure data, money movement solutions, and other feature functionality.

We provide subscription services on a business-to-business-to-consumer, or B2B2C, basis to financial services clients, whereby our customers offer Yodlee-based solutions to their customers, whom we refer to as end users. On a business-to-business, or B2B, basis we deliver the same platform to third-party developers. We are a big data practitioner providing our customers with data analytics and market research services that enhance the value of our solutions and anonymized data derived from a massive and dynamic set of end user-permissioned transaction-level data that we gather and refine. We believe that our brand leadership, innovative technology and intellectual

 

 

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property, large customer base, and unique data gathering and enrichment provide us with competitive advantages that have enabled us to generate strong growth.

Financial institutions today operate in a highly fragmented, complex and regulated environment. At the same time, consumers and small businesses struggle to manage their increasingly complex finances, often across multiple online financial accounts at a variety of financial institutions, each with a different interface and login procedure. In addition, a new wave of Internet services companies is changing the way that consumers and small businesses manage their finances and transact online. As competition in the financial services industry has increased and financial institutions have concentrated resources on the sale of financial products, these institutions are seeking innovative technology solutions to improve their end users’ experience and enhance engagement, while capturing data-driven cross-sell and up-sell opportunities.

The financial services industry is undergoing a technological shift. Outdated enterprise hardware and software is being replaced by cloud-driven solutions that are easier and less expensive to implement, update and manage. Banks continue to spend heavily on IT in order to compete effectively in an increasingly competitive environment. Celent, an international financial research and consulting firm, estimates that in 2013 U.S. and Canadian banks alone spent a total of $11.3 billion on external software, which includes purchasing costs and licensing fees associated with third-party packaged software solutions. In addition, Celent estimates that European banks spent $13.4 billion on external software in 2013, bringing total spend on external software by U.S., Canadian and European banks to $24.7 billion. Celent projects that this combined spending will increase to $29.5 billion in 2015. We believe as financial institutions continue to spend on technology, a growing portion of that spending will shift from outdated internally-developed or custom-built enterprise software to cloud-based solutions. In addition to the large opportunity that we have with traditional financial institutions, we believe that we also have a significant opportunity with Internet services companies providing innovative financial solutions.

We serve two main customer groups, financial institutions, or FI, customers and Internet services companies providing innovative financial solutions, which we refer to as our Yodlee Interactive, or YI, customers. Yodlee provides FI customers with access to FinApps, which can be subscribed to individually or in combinations, that include personal financial management, wealth management, card, payments and small-medium business, or SMB, solutions. We also provide our FI customers with trusted and secure access to our platform via APIs that enable them to receive end user-permissioned data that we aggregate, cleanse, and distribute, as well as our money movement solutions. Our YI customers are Internet services companies and third-party developers, who use our platform to develop new applications and enhance existing solutions. Our YI customers operate in a number of sub-vertical markets, including wealth management, personal financial management, small business accounting, small business lending and authentication. These customers use the Yodlee platform to build solutions that leverage our open APIs and access to a large end user base. In addition to aggregated transaction-level account data, we provide YI customers with secure access to account verification, money movement and risk assessment tools via our APIs. We play a critical role in bringing innovation from Internet services companies to financial institutions through the Yodlee Financial Cloud. For example, our YI customers use our solutions in such diverse applications as providing working capital to small businesses online; personalized financial management, planning and advisory services; ecommerce payment solutions; and online accounting systems for small businesses. We provide access to our solutions across multiple channels, including web, tablet and mobile.

We also offer data analytics and market research services that enhance the value of our solutions to our customers and provide anonymized data derived from a massive and dynamic set of end user-

 

 

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permissioned transaction-level data that we gather and refine. Our platform collects a wide variety of end user data from over 12,500 sources and puts it in a common repository. Beyond collecting the data, our platform performs a data refining process and augments the data with additional information from a variety of other sources. We enrich the data with a proprietary twelve-step process, adding such elements as categorization and merchant identification for bank or credit card account data and investment holding identification for investment account data. With this enhanced data, we enable our customers to offer better applications and more personalized solutions to end users.

Our solutions benefit our customers and their end users in a wide variety of ways. For both our FI and YI customers, providing Yodlee-powered solutions improves their end user satisfaction and retention, accelerates speed to market, creates technology savings and enhances their data analytics and market research capabilities. For our customers’ end users, our solutions provide better access to their financial information and more control over their finances, leading to more informed and personalized decision making. For our customers who are members of the developer community, our solutions provide access to critical data and payments solutions, faster speed to market and enhanced distribution.

We believe a large addressable market and the need for innovative digital financial services give us the opportunity to grow considerably in the near term. Our growth strategy addresses two key drivers of our business: number of paid users and revenue per paid user. As we look to grow the number of paid users on our platform, we intend to focus on increasing penetration within our existing customer base, signing new customers, and expanding internationally. We also intend to drive additional revenue per paid user by introducing new solutions like data analytics and market research services and by pursuing revenue-sharing opportunities from premium FinApps.

In 2013, our revenue increased by 21% to $70.2 million, driven largely by an increase in subscription revenue, which grew 28% from the year ended December 31, 2012, offset by a 1% decrease in professional services and other revenue. During the three months ended March 31, 2014, our revenue increased by 28% to $19.8 million, driven by an increase in subscription revenue, which grew 34% from the three months ended March 31, 2013. A substantial portion of our revenues has been derived from contractually-recurring subscription and support revenues, and our solutions are integrated into our customers’ business processes driving strong customer retention. Our subscription and support revenue net retention rate, which we use as a measure of our ability to retain our customers through renewals of subscription agreements and to expand the number of our paid users, was 115%, 114% and 123% for the years ended December 31, 2011, 2012, and 2013, and 120% and 121% for the three months ended March 31, 2013 and 2014, respectively. We generate revenues primarily from subscription and support fees and professional service fees. Subscription and support revenue has been a growing majority of our revenues and accounted for 81% and 85% of our revenue during the year ended December 31, 2013, and the three months ended March 31, 2014, respectively.

Except in 2010, we have not been profitable on an annual basis since our formation. We experienced a net loss of $2.1 million, $6.5 million and $1.2 million for the years ended December 31, 2011, 2012 and 2013, respectively, and $1.6 million and $0.6 million for the three months ended March 31, 2013 and 2014, respectively. As of March 31, 2014, our accumulated deficit was $350.9 million.

Industry Background

Consumers and Small Businesses are Struggling to Effectively Manage Their Finances

The complex and fragmented nature of the financial industry makes managing finances a stressful and frustrating activity for consumers and small businesses. Maintaining multiple disparate

 

 

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accounts can be complex, frustrating and time consuming as consumers struggle to gain an accurate and holistic view of their personal finances and to manage financial tasks like monitoring cash balances, budgeting and paying bills. Small businesses also struggle with effectively managing basic financial tasks, such as cash flow and expense management, invoicing and payroll. These event-driven processes are fragmented, giving rise to the need for a centralized platform that can consolidate consumers’ and small businesses’ finances and make these necessary everyday tasks seamless, integrated and able to be performed across multiple channels.

Financial Institutions Have Challenges and Opportunities to Engage and Retain Their Customers

As FIs compete for more of their customers’ business, customer experience and satisfaction has become increasingly important. Today, customer satisfaction is driven by the ease and functionality of digital financial services, rather than the branch banking experience. Innovators in financial services have begun to build solutions designed for the digital world that provide a superior customer experience—the use of technology to drive both a highly automated and highly personalized experience—to deepen and strengthen the relationship and engagement with their customers. Enabling deeper and better engagement in financial services demands new technology solutions that offer speed to market, security, efficiency and sophisticated data capabilities.

Emerging Internet-Based Financial Services Companies are Paving the Path of Innovation

While FIs invest heavily in new initiatives to enhance their digital capabilities, a new wave of hundreds of Internet services companies is also changing the way consumers and small businesses execute transactions and manage their finances. Offerings like eWallets, virtual currencies and Amazon Payments, and companies like LifeLock, PayPal and Xero, are driving accelerated new user adoption with a range of solutions across multiple markets geared towards simplifying financial interactions, processes, transactions and management. These entities require scalable and secure technology platforms, data and payment capabilities to continue to accelerate their rate of adoption.

Cloud-Based Platforms are Simplifying Software Delivery

The rise of cloud-based platforms is the result of rapid and significant technological improvements. Because cloud computing enables the delivery of Software-as-a-Service, it is helping to reduce costs, increase speed to market, and enable greater levels of innovation relative to outdated enterprise software. Mission critical applications can now be delivered reliably without the purchase of costly on-premise software or hardware. Cloud-based platforms permit the development of applications without affecting the common capabilities maintained at the platform layer. Therefore, cloud-based platforms can be leveraged by multiple participants in the ecosystem, including customers and third-party developers, to create better solutions. The shared utility of cloud-based platforms permits a deeper level of vertical and functional specialization and creates an environment conducive to rapid and disruptive innovation.

Open Platforms and Application-Level Developer Ecosystems are Driving Innovation Forward

Open platform systems can result in an improved experience for the end user, developer, institutional customer and platform provider alike. Products can come to market faster, with better functionality, and these improved solutions can benefit customers, leading to heightened levels of end user demand. For the institutions utilizing these open platforms, developer community-led innovation helps to keep pace with rapidly evolving consumer expectations.

 

 

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New Technology Platforms are Leveraging Big Data

In the financial services industry, data is highly fragmented and complex and often siloed at not only individual institutions but also within the various business units at a specific institution. We believe there is an opportunity to leverage this data to transform and improve existing processes and procedures around financial management, customer engagement and credit and risk management. As new technologies emerge to organize, process and access this siloed data, new business models that aggregate and syndicate intelligence are turning vast amounts of otherwise unusable information into actionable data used for superior process management and business insight.

Large Addressable Market

In an increasingly mobile and digital world, consumer expectations of financial service providers continue to rise. Consumers are evaluating these providers based in part on the functionality and user experience of their digital services. In this environment, a financial service provider’s ability to create a differentiated user experience for its customers is increasingly important in sustaining a competitive advantage, which requires innovation to help address unsolved consumer problems and an ability to bring these innovations to market quickly. Cloud-based platforms facilitate rapid discovery and implementation of new solutions and enable financial service providers to integrate new solutions more efficiently.

Against this industry backdrop, we believe we have a significant market opportunity. Celent estimates that in 2013 U.S. and Canadian banks alone spent a total of $11.3 billion on external software, which includes purchasing costs and licensing fees associated with third-party packaged software solutions. In addition, Celent estimates that European banks spent $13.4 billion on external software in 2013, bringing the total spend on external software by U.S., Canadian and European banks to $24.7 billion. Celent projects that this combined spending will increase to $29.5 billion in 2015.

We also have a significant market opportunity with our YI customer base. Our Internet services customers such as Kabbage, LearnVest, PayPal and Xero have an increasingly large and diverse number of users and the need for a variety of financial solutions to support their development and delivery of innovative financial services. We believe our services have the potential to address a wide variety of additional financial and data marketing needs of our YI customers.

We believe a portion of our future growth and addressable market will also come from expansion into large and rapidly growing markets, such as cross-selling within financial institutions, data analytics and market research services, and online credit information services.

As we continue to expand our presence in the markets outlined above, the number of potential end users who use our solutions increases dramatically. Our potential end user base includes any consumer of financial services on the Internet—and this end user could be a paid user of Yodlee many times over across multiple customers and products. This multiplier effect greatly increases our addressable end user base.

Our Solution

Yodlee is a leading technology and applications platform powering dynamic innovation for digital financial services in the cloud. We refer to our platform as the Yodlee Financial Cloud. We provide subscription services on a B2B2C basis to financial services clients, whereby our customers offer solutions based on our platform to their end users. On a B2B basis we deliver the same platform to third-party developers. We also provide transaction-level data for data analytics and market research services. We serve two main customer groups or channels, FI and YI customers.

 

 

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Our platform powers hundreds of FinApps created and made available by us, our customers and third-party developers. FinApps can be sold individually or in combinations and include personal financial management, wealth management, card, payments and SMB solutions. Our open APIs enable us, our FI and YI customers and third-party developers to create new FinApps that can be made available across our broad end user base.

We also provide our customers with trusted and secure access to our platform via APIs that enable them to receive end user-permissioned transaction-level data that we aggregate and cleanse. Access to this data enables our customers to create a much more complete view of their end users’ finances, allowing them to make better informed, targeted decisions. We also offer data for data analytics and market research services that enhance the value of our solutions to our customers and provide anonymized data derived from a massive and dynamic set of end user-permissioned transaction-level data that we gather and refine.

In addition to aggregated transaction-level account data, we provide our customers with secure access to account verification, money movement and risk assessment tools via our APIs. By using our account verification solutions, customers can verify an end user’s account information, ownership and balance in real time, reducing risk for our customers when interacting with an end user’s checking account. By using our money movement solutions, end users can debit and credit consumer and small business accounts in real time or in batches, route payments between accounts or to other people and pay bills.

We have developed best-in-class security procedures and technologies that are embedded into our platform and applications and meet industry standards as well as the stringent security requirements of our largest FI customers. Our platform is available across multiple channels, including web, tablet and mobile.

Key Benefits

Our solutions drive tangible results for our customers:

 

    Enabling Innovation—The Yodlee platform enables our FI and YI customers to satisfy their mission-critical need to innovate by providing an open platform for the rapid development and deployment of their own financial applications, as well as direct access to applications developed by Yodlee and by a broad third-party developer community. Our platform provides solutions, including secure access to aggregated financial data, account verification, money movement and risk assessment tools, that form the core technology allowing many of our YI customers to provide innovative financial solutions.

 

    Customer Satisfaction / Retention—By deploying the Yodlee platform, our customers are able to provide features and functionality that significantly increase their end users’ engagement with their personal finances, which increases their satisfaction and reduces churn.

 

    Speed to Market—Our open platform makes it easier for FIs, Internet services companies and third-party developers to create new applications on our platform that can be deployed across our customer base. Our broad network of developers enables solutions to be more rapidly distributed to our customers via our established channels.

 

    Technology Savings—Our solutions often provide our customers with extensive cost savings as compared to outdated internally-developed or custom-built enterprise software solutions, without the need to purchase additional hardware or software. Because the Yodlee platform is cloud-based, updates can be made readily available in a cost-effective manner.

 

 

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    Enhanced Data Analytics and Market Research Capabilities—Our data aggregation platform provides an opportunity for our customers to leverage transaction-level data for data analytics and market research uses. Through the data we make available, our customers can create a much more complete view of their end users’ finances, allowing them to make better informed targeting decisions. In addition, our comprehensive sets of anonymized data enable various market research and trend analyses for multiple use cases.

Our solutions also provide tangible benefits for end users:

 

    Better Access and Functionality—Our solutions enable customers to aggregate information into a single view of multiple accounts across several financial institutions. We provide end users with access to highly engaging personalized financial applications across multiple channels, such as web, mobile and tablet.

 

    More Control—Our solutions provide end users with more control over their finances, by providing access to applications designed to make financial tasks like budgeting, saving for a goal and investing for the future easier.

 

    Informed Personalized Decision Making—Our FinApps ecosystem, built on top of the Yodlee platform, provides end users with relevant content and applications when they need to take action or make decisions.

Our solutions also offer benefits to our customers that are members of the developer community:

 

    Enhanced Distribution—We estimate that our current network of FI customers alone reaches more than 100 million end users. This provides developers with large-scale distribution opportunities for their solutions.

 

    Speed to Market—Access to our unique data platform and our open, secure and trusted APIs enhances speed to market for our developers.

 

    Access to Critical Data and Payments Capabilities—Our solutions provide developers with critical data and payments capabilities which allows them to focus their innovation on their unique offerings.

Competitive Strengths

Since our founding in 1999, we have built a premier and trusted brand in digital financial services. Our competitive strengths include:

Market Leadership with Customers and End Users

We have developed a leading market presence with over 750 organizations, including 9 of the 15 largest banks in the United States, which hold 85% of the total assets of the top 15 U.S. banks (based on total assets as of September 30, 2013). These organizations include some of the largest and best known retail banks, brokerages, insurance companies, wealth management firms, private banking institutions and card companies. Our platform also enables the emergence or functionality of many innovative Internet services companies. We have 15.7 million paid users and estimate that our current network of FI customers alone reaches more than 100 million end users. We have significant opportunity to grow the number of paid users with existing customers, as well as leverage our market leadership with new customers across our platform.

 

 

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Brand Leadership as a Secure and Trusted Partner

Our brand is reinforced by our stable and growing customer base. A large part of the reputation we have established comes from our commitment to scalability, security, privacy and compliance throughout all of our solutions. We have developed robust security procedures and technologies that are embedded into our platform and applications and meet industry standards as well as the stringent security requirements of our largest FI customers.

Unique Big Data Gathering and Enrichment

We are a big data practitioner providing our customers with data analytics and market research services that enhance the value of our solutions and anonymized data derived from a massive and dynamic set of end user-permissioned transaction-level data that we gather and refine. Our platform collects a wide variety of end user-permissioned transaction-level data from over 12,500 sources and puts it in a common repository. Currently, over 75% of this data is collected from structured data feeds that are provided under the terms of our contracts with most of our FI customers. This direct data connectivity to large FIs is a significant competitive advantage for us. Where we do not have direct connections, we capture data using our proprietary information-gathering techniques. Beyond collecting data, our platform performs a data refining process and augments the data with additional information from a variety of other sources. With this enhanced data, we enable our customers to offer better applications and more personalized solutions, which provide end users insights that allow them to take better control of, and better manage, their finances.

Innovative Technology and Intellectual Property

We have a history of innovation leadership. As of March 31, 2014, we had been granted 62 U.S. patents and had 28 U.S. patent applications pending. We also had 7 issued patents and 14 patent applications pending in foreign jurisdictions such as the European Patent Office, Canada, Australia and India.

Flexible, Scalable, Open Platform

Our solutions are built on a scalable open cloud-based technology platform that allows us to address the challenges facing FI and YI customers. Our platform was created to support the existing challenges of our customers and to evolve with them to address their future needs.

Powerful Network Effects

The Yodlee Financial Cloud brings together FIs, Internet services companies, end users and third-party developers by providing a unified, flexible, cloud-based platform that can deliver applications and new solutions at scale with powerful network effects. As our platform usage grows and is exposed to more users and use cases, the system benefits from machine learning algorithms to better normalize, categorize and process high volumes of transaction-level data captured on our platform, allowing our network to become more effective, efficient and valuable to our customers. As more developers build on our platform, the number of solutions we can offer to our FI and YI customers increases, expanding the number of end users on the platform, and further enhancing our network, accelerating the pace of innovation. As our end user community grows, users will be able to leverage our platform by establishing connections to other end users to form financially relevant social groups, contributing further network effects.

 

 

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Growth Strategy

Our growth strategy is currently divided into two primary areas of focus: user growth and revenue per paid user growth. Key elements of our growth strategy include:

User Growth

 

    Expand End User Usage with Existing Customers—Our FI customers encompass many of the leading FIs, including 9 of the 15 largest banks in the United States, which hold 85% of the total assets of the top 15 U.S. banks (based on total assets as of September 30, 2013). We estimate that our current network of FI customers alone reaches more than 100 million end users, representing a significant opportunity to grow our paid user base within existing customers. We believe we can increase penetration among our existing customer base, both by increasing the adoption of our solutions in business units that we currently serve and by expanding into new business units. We intend to grow our business in the retail, financial, wealth management, small business, card and other financial solutions sectors in part by distributing FinApp solutions tailored to the needs of those sectors.

 

    Grow the Number of Customers—We continue to drive efforts to deploy solutions with leading FIs while also driving penetration in smaller FIs through channel partners. We intend to employ a land and expand strategy to target these institutions with simple initial product offerings and continually grow use cases over time. In addition, we believe demand for our YI solutions will continue to grow outside our current areas of focus. Lastly, our emerging data analytics and market research efforts are developing new product and customer base opportunities as we expand.

 

    Increase our Global Market Presence—We intend to deepen our presence in Canada, the United Kingdom, South Africa, India and Australia and to establish a presence in select markets in Latin America, Europe and Asia.

Revenue per Paid User Growth

In addition to generating revenue directly from our platform and FinApps with our FI and YI customers, we also intend to grow our revenue by providing additional data analytics and market research services and are pursuing revenue-sharing opportunities from premium FinApps developed by our developer partners.

 

    Data Analytics and Market Research—We believe there is significant value inherent in our data analytics and market research services which we can realize through several different channels. The transaction-level data we gather can be used by our customers to enhance the efficacy of their marketing strategies, to power FI customer relationship management systems, to develop data products by aggregating anonymized financial transactions for multiple research uses, to improve real-time authentication and risk management and to enhance predictive analysis.

 

    FinApps—We are pursuing opportunities to grow revenue from premium FinApps through revenue sharing with developer partners and our customers.

 

 

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Risks Affecting Us

Our business is subject to numerous risks and uncertainties, includes those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, but are not limited to, the following:

 

    we have a history of losses and we may not maintain profitability in the future;

 

    we derive our revenue from subscriptions to a single software platform;

 

    we derive a significant portion of our revenue from a small number of customers;

 

    we face prolonged sales cycles with some of our prospective customers;

 

    failure of our customers to deploy our solutions in a timely and successful manner could negatively affect us;

 

    our future success depends upon our customers’ active and effective promotion of our solutions;

 

    if our reputation is harmed, our business and operating results could be adversely affected;

 

    a data security breach could harm our business;

 

    privacy concerns could adversely impact us;

 

    our business could be harmed if sources from which we obtain information limit our access;

 

    failure by us or our customers to comply with government regulation could adversely affect us;

 

    if we fail to expand our business within existing customers, our business and revenue growth will suffer;

 

    our revenue growth depends in part on our ability to successfully sell solutions to new customers, including Internet services companies; and

 

    if we fail to derive revenue from data analytics and market research services and premium FinApps, our revenue growth will suffer.

A majority of our directors are affiliated with management or our principal stockholders. In addition, our directors and executive officers and holders of more than five percent of our outstanding shares of common stock (on an as-converted basis) beneficially owned, in the aggregate, approximately 87% of our outstanding capital stock as of March 31, 2014. As a result, acting together, this group has the ability to exercise significant control over most matters requiring our stockholders’ approval, including the election and removal of directors and significant corporate transactions.

Corporate Information

We were incorporated in Delaware in February 1999 under the name Yodlee.com, Inc. and changed our name to Yodlee, Inc. in June 2001. Our principal executive offices are located at 3600 Bridge Parkway, Suite 200, Redwood City, California 94065. The phone number of our principal executive offices is (650) 980-3600, and our main corporate website is www.yodlee.com. The information on, or that can be accessed through, our website is not part of this prospectus.

The names “Yodlee”, “Yodlee Moneycenter”, “Yodlee Personalpay”, “Paytoday”, “Payitall”, “Innovation Applied”, “Finapp” and our logo are our trademarks. This prospectus also contains trademarks and trade names of other businesses that are the property of their respective holders. We have omitted the ® and ™ designations, as applicable, for the trademarks we name in this prospectus.

 

 

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Emerging Growth Company

The Jumpstart Our Business Startups Act, or the JOBS Act, was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly public companies that qualify as “emerging growth companies.” We are an emerging growth company within the meaning of the JOBS Act. As an emerging growth company, we may take advantage of certain exemptions from various public reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, certain requirements related to the disclosure of executive compensation in this prospectus and in our periodic reports and proxy statements, and the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company.

We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have $1.0 billion or more in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or (iv) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. However, we chose to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

For certain risks related to our status as an emerging growth company, see the disclosure elsewhere in this prospectus under “Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—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.”

 

 

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The Offering

 

Common stock offered by us

                Shares

Common stock to be outstanding immediately after this offering

  


             Shares

Option to purchase additional shares of common stock from us

  


             Shares

Use of proceeds

  

We currently intend to use the net proceeds we receive from this offering primarily for general corporate purposes, including working capital, research and development activities, sales and marketing activities, general and administrative matters and capital expenditures, to fund our growth plans, and to pay the entire outstanding balance under our credit facility, although we do not otherwise currently have any specific or preliminary plans with respect to the use of proceeds for such purposes. See “Use of Proceeds.”

 

Reserved Share Program

  

At our request, the underwriters have reserved up to          of the common stock being offered by this prospectus for sale at the initial public offering price to our directors, officers, employees and other individuals associated with us and members of their families. The sales will be made by UBS Financial Services Inc., a selected dealer affiliated with UBS Securities LLC, an underwriter of this offering, through a directed share program. We do not know if these individuals will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares that are available to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of common stock.

Risk Factors

   See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.

Conflict of Interest

   Merrill Lynch, Pierce, Fenner & Smith Incorporated, an underwriter of this offering, is a wholly-owned subsidiary of Bank of America Corporation, or BAC, which beneficially owned in the aggregate 12.7% of our outstanding common stock as of March 31, 2014. Since BAC

 

 

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   beneficially owns more than 10% of our outstanding common stock, a “conflict of interest” is deemed to exist under Rule 5121(f)(5)(B) of the Conduct Rules of the Financial Industry Regulatory Authority. Accordingly, this offering will be made in compliance with the requirements of Rule 5121, which requires that no sale be made to discretionary accounts by underwriters having a conflict of interest without the prior written approval of the account holder, and that a qualified independent underwriter participate in the preparation of the registration statement and prospectus and perform the usual standards of due diligence with respect thereto. In accordance with this rule, Goldman, Sachs & Co. has assumed the responsibilities of acting as a qualified independent underwriter. In its role as qualified independent underwriter, Goldman, Sachs & Co. has participated in due diligence and the preparation of this prospectus and the registration statement of which this prospectus is a part. Goldman, Sachs & Co. will receive a fee of $5,000 for serving as a qualified independent underwriter in connection with this offering. We have agreed to indemnify Goldman, Sachs & Co. against certain liabilities incurred in connection with it acting as qualified independent underwriter in this offering, including liabilities under the Securities Act. In accordance with Rule 5121, Merrill Lynch, Pierce, Fenner & Smith Incorporated (and its affiliates) will not sell our common stock to a discretionary account without receiving prior written approval from the account holder. See “Underwriting (Conflict of Interest)—Conflict of Interest.”

Proposed symbol

   “YDLE”

The number of shares of our common stock that will be outstanding after this offering is based on 219,465,114 shares of our common stock outstanding as of March 31, 2014, and excludes:

 

    45,477,429 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of March 31, 2014, with a weighted-average exercise price of $0.56 per share;

 

    8,430,139 shares of our common stock issuable upon the exercise of options granted after March 31, 2014, with a weighted average exercise price of $1.20 per share;

 

    6,187,468 shares of our common stock subject to restricted stock units, or RSUs, 2,245,000 shares of which were outstanding as of March 31, 2014, and 3,942,468 shares of which were granted after March 31, 2014;

 

 

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    1,134,614 shares of our common stock, on an as-converted basis, issuable upon the exercise of warrants to purchase shares of our convertible preferred stock outstanding as of March 31, 2014, with an exercise price of $0.65 per share; and

 

                 shares of our common stock reserved for future issuance under our stock-based compensation plans, consisting of (i) 28,801,312 shares of common stock reserved for future awards under the 2009 Equity Incentive Plan, or our 2009 Plan (which includes 27,000,000 shares reserved for issuance in April 2014), as of March 31, 2014, (ii)              shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan, or our 2014 Plan, which will become effective on the date of this prospectus, and (iii)              shares of common stock reserved for issuance under our 2014 Employee Stock Purchase Plan, or our 2014 ESPP, which will become effective on the date of this prospectus. Upon completion of this offering, any remaining shares available for future awards under our 2009 Plan will be added to the shares reserved under our 2014 Plan, and we will cease granting awards under our 2009 Plan. Our 2014 Plan and our 2014 ESPP also provide for automatic annual increases in the number of shares reserved under the plans, as more fully described in “Executive Compensation—Employee Benefit and Stock Plans.”

Except as otherwise indicated, all information in this prospectus assumes:

 

    the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 144,452,172 shares of our common stock, which conversion will occur immediately prior to the completion of this offering;

 

    the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering;

 

    no exercise of outstanding options or vesting of RSUs subsequent to March 31, 2014; and

 

    no exercise by the underwriters of their option to purchase up to an additional              shares of our common stock from us.

 

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables summarize our consolidated financial data. You should read this summary consolidated financial data together with the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

The consolidated statements of operations data for the years ended December 31, 2011, 2012 and 2013 and the consolidated balance sheet data as of December 31, 2013 are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The consolidated statements of operations data for the years ended December 31, 2009 and 2010 are derived from our audited consolidated financial statements not included in this prospectus. We have derived the consolidated statements of operations data for the three months ended March 31, 2013 and 2014 and the consolidated balance sheet data as of March 31, 2014 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which consist only of normal recurring adjustments, necessary for the fair statement of those unaudited consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future.

 

    Year Ended December 31,     Three Months Ended
March 31,
 
    2009     2010     2011     2012     2013     2013     2014  
    (in thousands, except per share data)  

Consolidated Statements of Operations Data:

             

Revenue:

             

Subscription and support

  $ 24,340      $ 30,746      $ 37,029      $ 44,336      $ 56,838      $ 12,451      $ 16,731   

Professional services and other

    8,534        15,593        17,400         13,458        13,322        3,019        3,032   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    32,874        46,339        54,429        57,794        70,160        15,470        19,763   

Cost of revenue:

             

Subscription and support(1)

    13,220        16,022        17,325        17,177        19,139        4,665        5,655   

Professional services and other(1)

    5,581        8,006        9,537        7,594        7,693        1,952        2,186   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    18,801        24,028        26,862        24,771        26,832        6,617        7,841   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    14,073        22,311        27,567        33,023        43,328        8,853        11,922   

Operating expenses:

             

Research and development(1)

    10,810        14,742        16,768        16,193        17,948        4,769        4,909   

Sales and marketing(1)

    8,096        9,885        12,911        13,638        15,418        3,606        4,541   

General and administrative(1)

    5,446        8,382        9,793        8,852        9,386        1,976        2,702   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    24,352        33,009        39,472        38,683        42,752        10,351        12,152   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) from continuing operations

    (10,279     (10,698     (11,905     (5,660     576        (1,498     (230

Other income (expense), net

    (403     (342     (917     230        (318     81        19   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before provision for (benefit from) income taxes

    (10,682     (11,040     (12,822     (5,430     258        (1,417     (211

Provision for (benefit from) income taxes

    (170     (4,848     (3,736     1,091        1,439        177        377   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from continuing operations

    (10,512     (6,192     (9,086     (6,521     (1,181     (1,594     (588

Income from discontinued operations

    896        8,260        6,999                               
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (9,616   $ 2,068      $ (2,087   $ (6,521   $ (1,181   $ (1,594   $ (588
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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    Year Ended December 31,     Three Months Ended
March 31,
 
    2009     2010     2011     2012     2013     2013     2014  
    (in thousands, except per share data)  

Basic and diluted net income (loss) per share attributable to common stockholders(2):

             

Net loss from continuing operations

  $ (0.19   $ (0.11   $ (0.15   $ (0.10   $ (0.02   $ (0.02   $ (0.01

Income from discontinued operations

    0.02        0.15        0.11                               
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (0.17   $ 0.04      $ (0.04   $ (0.10   $ (0.02   $ (0.02   $ (0.01
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute net income (loss) per share attributable to common stockholders—basic and diluted(2)

    54,866        56,571        58,876        66,489        72,631        71,989        74,895   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted(2)

          $          $     
         

 

 

     

 

 

 

Weighted average shares used to compute pro forma net loss per share attributable to common stockholders—basic and diluted(2)

             
         

 

 

     

 

 

 

 

(1) Costs and expenses include stock-based compensation expense as follows:

 

    Year Ended December 31,     Three Months Ended
March 31,
 
    2009     2010     2011     2012     2013     2013     2014  
    (in thousands)  

Cost of revenue—subscription and support

  $ 144      $ 194      $ 163      $ 170      $ 201      $ 56      $ 42   

Cost of revenue—professional services and other

    87        146        112        119        107        31        22   

Research and development

    239        290        266        236        243        65        48   

Sales and marketing

    212        263        302        242        302        75        63   

General and administrative

    443        443        524        588        658        111        176   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stock-based compensation

  $ 1,125      $ 1,336      $ 1,367      $ 1,355      $ 1,511      $ 338      $ 351   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(2) See Note 9 to our audited consolidated financial statements appearing elsewhere in this prospectus for an explanation of the calculations of our net loss per share attributable to common stockholders for the years ended December 31, 2011, 2012 and 2013, and the three months ended March 31, 2013 and 2014. Pro forma basic and diluted net loss per share were computed to give effect to the automatic conversion of convertible preferred stock using the if converted method and the reclassification of preferred stock warrant liabilities to additional paid in capital as though the conversion had occurred as of the beginning of the period or the original date of issuance, if later. The pro forma share amounts give effect to the Company’s RSUs that have satisfied the service condition as of December 31, 2013 and March 31, 2014. Stock-based compensation expense associated with the RSUs is excluded from this pro forma calculation. In addition, the pro forma calculation assumes the sale by us of                      shares of our common stock in this offering, at the assumed initial public offering price of $                     per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, the proceeds from which will be used to repay the outstanding balance of $8.0 million, as of March 31, 2014, under our credit facility. Interest expense associated with the credit facility of $0.5 million and $0.1 million during the year ended December 31, 2013 and the three months ended March 31, 2014, respectively, is excluded from this pro forma calculation.

 

     As of March 31, 2014
         Actual         Pro
    Forma(1)    
    Pro Forma As
    Adjusted(2)    
     (in thousands)

Consolidated Balance Sheet Data:

      

Cash and cash equivalents

   $ 7,176      $ 7,176     

Working capital (deficit)

     (1,925     (1,037  

Property and equipment, net

     6,843        6,843     

Total assets

     35,746        35,746     

Deferred revenue

     7,981        7,981     

Total bank borrowings and capital lease obligations

     9,333        9,333     

Convertible preferred stock warrant liabilities

     888            

Convertible preferred stock

     102,224            

Total stockholders’ equity (deficit)

     (97,558     5,554     

 

 

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(1) The pro forma column reflects the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 144,452,172 shares of our common stock, which conversion will occur immediately prior to the completion of this offering, and the reclassification of preferred stock warrant liabilities to additional paid-in capital effective upon the closing of this offering.
(2) The pro forma as adjusted column gives effect to the pro forma adjustments set forth in footnote 1 above and the sale by us of              shares of our common stock in this offering, based upon the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and the repayment of the outstanding balance of $8.0 million under our credit facility upon receipt of proceeds from this offering as described in “Use of Proceeds.”

The pro forma as adjusted information presented in the consolidated balance sheet data is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, each of cash and cash equivalents, working capital, total assets and total stockholders’ equity on a pro forma as adjusted basis by approximately $            , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. An increase or decrease of              shares in the number of shares offered by us would increase or decrease, as applicable, the amount of our pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $            , assuming that the initial public offering price of $             per share, which is the midpoint of the estimated offering price range, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us.

Key Metrics

In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe the following non-GAAP and other operational measures are useful in evaluating our operating performance. We regularly review the key metrics set forth below as we evaluate our business.

 

     Year Ended December 31,     Three Months Ended
March 31,
 
          2011               2012               2013          2013     2014  
     (in thousands, except percentages and per user data)  

Other Financial Data:

          

Adjusted EBITDA(1)

   $ (8,003   $ (1,915   $ 4,772      $ (520   $ 885   

Paid users (as of period end)(2)

     8,835        10,671        14,295        12,271        15,724   

Average revenue per paid user(3)

   $ 5.64      $ 4.38      $ 4.52      $ 4.32      $ 4.50   

Subscription and support revenue net retention rate(4)

     115     114     123     120     121

 

(1) We define adjusted EBITDA as net loss before income from discontinued operations; provision for (benefit from) income taxes; other (income) expense, net; depreciation and amortization and stock-based compensation expense.
(2) We define a paid user as a user of an application or a service provided by our customer using the Yodlee platform, whose status corresponds to a billable activity under the associated customer contract.
(3) We define average revenue per paid user as of any point in time as the trailing twelve-month subscription and support revenue divided by the average number of paid users over the same time period.

 

 

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(4) We calculate our annual subscription and support revenue net retention rate for a particular year by dividing current year subscription revenue by the prior year subscription revenue for those customers for which subscription revenue was recognized in the prior year. This calculation includes the impact on our revenue from customer non-renewals and attrition, deployments of additional services or discontinued use of services by our customers, price changes for our services and increases or decreases in the number of paid users.

Non-GAAP Financial Measures

We believe adjusted EBITDA, a non-GAAP financial measure, provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. We believe adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance. We use adjusted EBITDA in conjunction with traditional GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance.

Adjusted EBITDA should not be considered as a substitute for other measures of financial performance reported in accordance with GAAP. We understand that, although adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, adjusted EBITDA has limitations as an analytical tool, including: depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future; adjusted EBITDA does not reflect any cash requirements for these replacements; adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs or contractual commitments; adjusted EBITDA does not reflect cash requirements for income taxes and the cash impact of other income or expense; and other companies may calculate adjusted EBITDA differently than we do. We compensate for the inherent limitations associated with using adjusted EBITDA through disclosure of these limitations, presentation of our financial statements in accordance with GAAP and reconciliation of adjusted EBITDA to the most directly comparable GAAP measure, net loss.

The following table provides a reconciliation of net loss to adjusted EBITDA:

 

     Year Ended December 31,     Three Months Ended
March 31,
 
     2011     2012     2013     2013     2014  
     (in thousands)  

Net loss

   $ (2,087   $ (6,521   $ (1,181   $ (1,594   $ (588

Income from discontinued operations

     (6,999                            

Provision for (benefit from) income taxes

     (3,736     1,091        1,439        177        377   

Other expense (income), net

     917        (230     318        (81     (19

Depreciation and amortization

     2,535        2,390        2,685        640        764   

Stock-based compensation

     1,367        1,355        1,511        338        351   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (8,003   $ (1,915   $ 4,772      $ (520   $ 885   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making a decision to invest in our common stock. If any of the risks actually occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to our Business and Industry

We have a history of losses and we may not maintain profitability in the future.

Except in 2010, we have not been profitable on an annual basis since our formation. We experienced a net loss of $2.1 million, $6.5 million and $1.2 million for the years ended December 31, 2011, 2012 and 2013, respectively, and $1.6 million and $0.6 million for the three months ended March 31, 2013 and 2014, respectively. As of March 31, 2014, our accumulated deficit was $350.9 million. While our revenue has grown in recent periods and we were profitable on a quarterly basis in the quarters ended September 30, 2013 and December 31, 2013, we were not profitable in the quarter ended March 31, 2014. Our revenue growth may not be sustainable and we may not achieve sufficient revenue to achieve and maintain profitability. We expect to make significant future expenditures related to the development and expansion of our business. In addition, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. As a result of these expenditures, we will have to generate and sustain increased revenue to achieve and maintain future profitability. We may incur significant losses in the future for a number of reasons, including due to the other risks described in this prospectus, and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown factors. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries. If we do not address these risks successfully or if our assumptions regarding these risks and difficulties are incorrect or change in reaction to changes in the market, our business could be harmed. Accordingly, we may not be able to maintain profitability and we may incur significant losses for the foreseeable future.

We derive our revenue from subscriptions to a single software platform, and any factor adversely affecting the Yodlee platform would harm our business and operating results.

We derive our revenue from subscriptions to a single software platform, and related support and professional services. As such, any factor adversely affecting subscriptions to the Yodlee platform, including those described elsewhere under “Risk Factors” or in other portions of this prospectus, would harm our business and operating results. In addition, while we intend to pursue new business initiatives, such as data analytics and market research services and revenue-sharing arrangements with third-party developers of FinApps, we cannot be sure that we will recognize significant revenue from those sources. The viability of these business opportunities depends on the continued success of the Yodlee platform, and our strategy to derive revenue from those activities would suffer if subscriptions to the Yodlee platform were adversely affected.

Revenue derived from sales to Bank of America, N.A., individually, and from Bank of America, N.A. and our two other largest customers, as a group, represented approximately 14.9% and 32.2%, respectively, of our total revenue during the year ended December 31, 2013, and approximately 13.3% and 24.7%, respectively, of our total revenue during the three months

 

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ended March 31, 2014, and we expect to continue to derive a significant portion of our revenue from a small number of customers.

The financial services industry in the United States is highly concentrated, with a small number of large financial institutions holding a majority of total assets held by all U.S. financial institutions. Because a portion of our business is targeted at this industry and our largest customers include 9 of the 15 largest banks in the United States (based on total assets as of September 30, 2013), a significant portion of our revenue is concentrated among a small number of these large financial institution customers. As a percentage of total revenue, revenue derived from Bank of America, N.A., a wholly-owned subsidiary of Bank of America Corporation, which beneficially owned in the aggregate 12.7% of our outstanding common stock as of March 31, 2014, individually, and from Bank of America, N.A., and our two other largest customers, as a group, was approximately 14.9% and 32.2%, respectively, in the year ended December 31, 2013 and 13.3% and 24.7%, respectively, during the three months ended March 31, 2014. We anticipate that revenue from a small group of customers will continue to account for a significant portion of our revenue in future periods. It would be difficult to replace any of our largest customers or the revenue derived from such customers. In addition, any publicity associated with the loss of any of our largest customers could harm our reputation, making it more difficult to attract and retain other large customers, and could weaken our negotiating position with respect to our remaining and prospective customers.

There can be no assurance that we will be able to continue our relationships with any of our largest customers on the same or more favorable terms in future periods or that our relationships will continue beyond the terms of our existing contracts with them. Our revenue and operating results could suffer if, among other things, any of our largest customers were to renegotiate, terminate, renew on less favorable terms or fail to renew their agreement with us.

Because some of our sales efforts are targeted at large financial institutions and large Internet services companies, we face prolonged sales cycles, substantial upfront sales costs and less predictability in completing some of our sales. If our sales cycle lengthens, or if our upfront sales investments do not result in sufficient revenue, our operating results may be harmed.

We target a portion of our sales efforts at large financial institutions and large Internet services companies, which presents challenges that are different from those we encounter with smaller customers. Because our large customers are often making an enterprise-wide decision to deploy our solutions, we face longer sales cycles, complex customer requirements, substantial upfront sales costs, significant contract negotiations and less predictability in completing sales with these customers. Our sales cycle can often last one year or more with our largest customers, who often undertake an extended evaluation process, but is variable and difficult to predict and can be longer or shorter. If we continue to expand globally, we anticipate that we may experience even longer sales cycles, more complex customer needs, higher upfront sales costs and less predictability in completing sales with our larger customers and customers located outside of the United States. If our sales cycle lengthens or our upfront sales investments do not generate sufficient revenue to justify our investments in our sales efforts, our operating results may be harmed.

Failure of our customers to deploy our solutions in a timely and successful manner could negatively affect our revenue and operating results.

The timing of revenue from our customers depends on a number of factors outside of our control and may vary from period to period. Our customers may request customization of our solutions for their systems or engage in a prolonged, internal decision making process regarding the deployment of our solutions. Among our larger customers, deployment of our solutions can be a complex and prolonged process and requires integration into the existing platform on our customers’ systems. Any delay during

 

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the deployment process related to technical difficulties experienced by our customers or us in integrating our solutions into our customers’ systems could further lengthen the deployment period and create additional costs or customer dissatisfaction. During the deployment period, we expend substantial time, effort, and financial resources in an effort to assist our customers with the deployment. Some of our customers may ultimately decide that it is not in the best interest of their business to deploy our solutions at all. We generally are not able to recognize the full potential value of our customer contracts until our customers actually deploy our solutions, though our contracts typically provide that minimum payments are due beginning on a specified date whether or not deployments are completed by that date. Cancellation of any deployment after it has begun could result in lost time, effort, and expenses invested in the cancelled deployment process, and would adversely affect our ability to recognize revenue that we anticipated at the time of the execution of the related customer contract. If our customers do not timely and successfully deploy our solutions, our future revenue and operating results could be negatively impacted.

Our future success depends upon our customers’ active and effective promotion of our solutions.

Our success depends on our customers, their willingness to effectively promote our solutions to their end users, and their end users’ adoption and use of our solutions. In general, our contracts with our customers allow them to exercise significant discretion over the promotion of our solutions, and they could give higher priority to other products or services they offer. Accordingly, losing the support of our customers would likely limit or reduce the use of our solutions and the related revenue. Our revenue may also be negatively affected by our customers’ operational decisions. For example, if a customer implements changes in its systems that disrupt the integration between its systems and ours, we could experience a decline in the use of our solutions. Even if our customers actively and effectively promote our solutions, there can be no assurance that their efforts will result in increased usage of our solutions by their end users or the growth of our revenue. Failure of our customers to effectively promote our solutions, and of their end users to increasingly adopt and use our solutions, could have a material adverse effect upon our future revenue and operating results.

Our reputation is critical to our business, and if our reputation is harmed our business and operating results could be adversely affected.

Our reputation, which depends on earning and maintaining the trust and confidence of our current and potential customers and end users, is critical to our business. Our reputation is vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or investigations, data security breaches, lawsuits, employee misconduct, perceptions of conflicts of interest and rumors, among other developments, could substantially damage our reputation, even if they are baseless or satisfactorily addressed. In addition, any perception that the quality of our solutions may not be the same or better than that of other providers could also damage our reputation. Any damage to our reputation could harm our ability to attract and retain customers and key personnel and adversely affect our operating results. Attempts to repair our reputation, if damaged, may be costly and time consuming, and such efforts may not ultimately be successful.

Our hosting, collection, use and storage of customer information and data require the implementation of effective security controls, and a data security breach could disrupt our business, result in the disclosure of confidential information, expose us to liability and protracted and costly litigation, adversely affect our reputation and revenue and cause losses.

We and our customers through which our solutions are made available to end users, collect, use, transmit and store confidential end user-permissioned financial information such as bank account numbers, portfolio holdings, credit card data and outstanding debts and bills. The measures we take to

 

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provide security for collection, use, storage, processing and transmission of confidential end user information may not be effective to protect against data security breaches by third parties. We use commercially available security technologies, including hardware and software data encryption techniques and multi-layer network security measures, to protect transactions and information. Although we encrypt data fields that typically include sensitive, confidential information, other unencrypted data fields may include similar information that could be accessible in the event of a security breach. We use security and business controls to limit access and use of confidential end user information. However, a portion of the security protection begins with our customers because they are the initial point of user authentication of hosted solutions. Although we require our Internet services customers and third-party suppliers to implement controls similar to ours, the technologies and practices of our customers and third-party suppliers may not meet all of the requirements we include in our contracts and we may not have the ability to effectively monitor the implementation of security measures of our customers and third-party suppliers. In many cases, our customers build and host their own web applications and access our solutions through our APIs. In these cases, additional risks reside in the customer’s system with respect to security and preventive controls. As a result, inadequacies of our customers’ and third-party suppliers’ security technologies and practices may only be detected after a security breach has occurred. Errors in the collection, use, storage or transmission of confidential end user information may result in a breach of privacy or theft of assets.

The risk of unauthorized circumvention of our security measures has been heightened by advances in computer capabilities and the increasing sophistication of hackers. Criminals are using increasingly sophisticated techniques to engage in illegal activities involving solutions such as ours or end user information, such as counterfeiting, fraudulent payment and identity theft. Because the techniques used by hackers change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. In addition to hackers, it is possible that a customer could gain unauthorized access to our database through the use of our solutions. Improper access to our systems or databases by hackers or customers intending to commit criminal activities could result in the theft, publication, deletion or modification of confidential end user information. An actual or perceived breach of our security may require notification under applicable data privacy regulations.

A data security breach of the systems on which sensitive user data and account information are stored could lead to claims or regulatory actions against us. If we are sued in connection with any data security breach, we could be involved in protracted and costly litigation. If unsuccessful in defending that litigation, we might be forced to pay damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on our revenue and profitability. Our customer contracts typically include security standards that must be complied with by us and our customers. If a data security breach occurs and we have not been in compliance with the security standards included in our applicable contracts, we could be liable for breach of contract claims brought by our customers. We could also be required to indemnify our customers for third-party claims, fines, penalties and/or other assessments imposed on our customers as a result of any data security breach and our liability could exceed our insurance coverage or ability to pay.

Our security procedures and technologies are regularly audited by independent security auditors engaged by us, and many of our prospective and current customers conduct their own audits or review the results of such independent security audits as part of their evaluation of our solutions. We are also periodically audited by regulatory agencies to whom our operations or our customers are subject, including The Office of the Comptroller of the Currency, or the OCC, which is the Agency in Charge of multi-agency supervisory examinations of our operations. Adverse findings in these audits or examinations, even if not accompanied by any data security breach, could adversely affect our ability to maintain our existing customer relationships and establish new customer relationships.

 

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Data security breaches, acts of fraud involving our solutions, or adverse findings in security audits or examinations, could result in reputational damage to us, which could reduce the use and acceptance of our solutions, cause our customers to cease doing business with us and have a significant adverse impact on our revenue and future growth prospects. Further, any of these events could lead to additional regulation and oversight by federal and state agencies, which could impose new and costly compliance obligations and may lead to the loss of our ability to make our solutions available.

Privacy concerns could have an adverse impact on our revenue and harm our reputation and may require us to modify our operations.

As part of our business, we use, transmit and store confidential end user-permissioned data. We are subject to laws, rules and regulations relating to the collection, use, and security of end user data. For privacy or security reasons, privacy groups, governmental agencies and individuals may seek to restrict or prevent our use of this data. New laws in this area have been passed by several jurisdictions, and other jurisdictions are considering imposing additional restrictions. These new laws may be interpreted and applied inconsistently from jurisdiction to jurisdiction and our current data protection policies and practices may not be consistent with those interpretations and applications. In addition, the ability to execute transactions and the possession and use of personal information and data in conducting our business subjects us to legislative and regulatory burdens that may require notification to customers or employees of a security breach, restrict our use of personal information, hinder our ability to acquire new customers or market to existing customers, require us to modify our operations and have an adverse effect on our business, financial condition and operating results. We have incurred, and will continue to incur, significant expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. As our business continues to expand to new industry segments that may be more highly regulated for privacy and data security, and to countries outside the United States that have more strict data protection laws, our compliance requirements and costs may increase.

If sources from which we obtain information limit our access to such information or charge us fees for accessing such information, our business could be materially and adversely harmed.

Our solutions require certain data that we obtain from thousands of sources, including banks, other financial institutions, retail businesses and other organizations, some of which are not our current customers. We receive over 75% of this data through structured data feeds that are provided under the terms of our contracts with most of our financial institution, or FI, customers. Although all of the information we currently gather is end user-permissioned data and, currently, we generally have free, unrestricted access to, or ability to use, such information, one or more of our current customers could decide to limit or block our access to the data feeds we currently have in place with these customers due to factors outside of our control such as more burdensome regulation of our or our customers’ industry, increased compliance requirements or changes in business strategy. If the sources from which we obtain information that is important to our solutions limit or restrict our ability to access or use such information, we may be required to attempt to obtain the information, if at all, through end user-permissioned data scraping or other means that could be more costly and time-consuming, and less effective or efficient. In the past, a limited number of third parties, primarily airline and international sites, have either blocked our access to their websites or requested that we cease employing data scraping of their websites to gather information, and we could receive similar, additional requests in the future. Any such limitation or restriction may also preclude us from providing our solutions on a timely basis, if at all. In addition, if in the future one or more third parties challenge our right to access information from these sources, we may be required to negotiate with these sources for access to their information or to discontinue certain services currently provided by our solutions. The legal environment surrounding data scraping and similar means of obtaining access to information on third-

 

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party websites is not completely clear and is evolving, and one or more third parties could assert claims against us seeking damages or to prevent us from accessing information in that manner. In the event sources from which we obtain this information begin to charge us fees for accessing such information, we may be forced to increase the fees that we charge our customers, which could make our solutions less attractive, or our gross margins and other financial results could suffer.

Failure by our customers to obtain proper permissions and waivers might result in claims against us or may limit or prevent our use of data, which could harm our business.

We require our customers to provide necessary notices and to obtain necessary permissions and waivers for use and disclosure of information through our solutions. Our contracts with our customers include assurances from them that they have done so and will do so, but we do not audit our customers to ensure that they have acted, and continue to act, consistent with such assurances. If, despite these requirements and contractual obligations, our customers do not obtain necessary permissions and waivers, then our use and disclosure of information that we receive from them or on their behalf might be limited or prohibited by federal, state or foreign privacy laws or other laws. Such a failure to obtain proper permissions and waivers could impair our functions, processes and databases that reflect, contain, or are based upon such data and might prevent use of such data. In addition, such a failure could interfere with, or prevent creation or use of, rules, analyses, or other data-driven activities that benefit us and our business. Moreover, we might be subject to claims or liability for use or disclosure of information by reason of lack of valid notices, agreements, permissions or waivers. These claims or liabilities could subject us to unexpected costs and adversely affect our operating results.

We operate in a highly regulated environment, and failure by us or financial institutions and other customers through which our solutions are made available to comply with applicable laws and regulations could have an adverse effect on our business, financial position and operating results.

We operate in a highly regulated environment at the federal, state and international levels, and failure by us or FIs and other customers through which our solutions are made available to comply with the laws and regulations to which we and they are subject could negatively impact our business. In particular, our solutions are subject to a strict set of legal and regulatory requirements intended to protect consumers and to help detect and prevent money laundering, terrorist financing and other illicit activities. Although we have internal controls in place to comply with applicable regulations, we cannot guarantee that our internal controls will always be effective in ensuring such compliance. Our FI customers and prospective customers are highly regulated and may be required to comply with stringent regulations in connection with subscribing to and implementing our solutions.

We are examined on a periodic basis by various regulatory agencies. For example, we are a supervised third-party technology service provider subject to multi-agency supervisory examinations in a wide variety of areas based on published guidance by the Federal Financial Institutions Examination Council. These examinations include examinations of our management, acquisition and development activities, support and delivery, IT, and disaster preparedness and business recovery planning. The OCC is the Agency in Charge of these examinations. If deficiencies are identified, customers may choose to terminate or reduce their relationships with us. As a result of obligations under our customer agreements, we are required to comply with certain provisions of the Gramm-Leach-Bliley Act, or GLBA, related to the privacy of consumer information and may be subject to other privacy and data security laws because of the solutions we provide. In addition, numerous regulations have been proposed and are still being written to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, for enhanced due diligence of the internal systems and processes of companies like ours by their FI customers. If we are required to make changes to our

 

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internal processes and solutions as result of this heightened scrutiny, we could be required to invest substantial additional time and funds and divert time and resources from other corporate purposes to remedy any identified deficiency.

Money movement services are potentially subject to regulation under a variety of federal and state laws, including state statutes regulating “money transmitters” and federal laws, such as the Bank Secrecy Act and the regulations thereunder, which regulate “money transmitting businesses” and “money services businesses.” Many of these statutes are broadly worded and have not been subject to published judicial or administrative interpretation. While we believe that our money movement solutions comply with, or are exempt from, all applicable laws, as we conduct these services on behalf of regulated financial institutions, it is possible that one or more regulatory agencies could take the position that we are not in compliance or that we are required to register as a money transmitter in order to provide our money movement solutions. In addition, new laws or regulations, or interpretations of existing laws or regulations, could subject us to additional regulatory requirements. If we were prevented from operating our money movement solutions in one or more states, our ability to provide our money movement solutions would suffer as our customers generally require that our money movement solutions handle payments in all states. Moreover, if we were required to be licensed in one or more states, the licensing process could be time-consuming and expensive.

Many of these laws and regulations are evolving, unclear and inconsistent across various jurisdictions, and ensuring compliance with them is difficult and costly. Changes in laws and regulations or interpretations of existing laws and regulations may occur that could increase our compliance and other costs of doing business, require significant systems redevelopment, substantially change the way that banks and other FIs are regulated and able to offer their products to consumers, or render our solutions less profitable or obsolete, any of which could have an adverse effect on our operating results. Currently, the Consumer Financial Protection Bureau, or CFPB, has exclusive rulemaking authority under the GLBA, and many of our customers are subject to regulatory enforcement by the CFPB and/or the Federal Trade Commission, or FTC. It is difficult to predict future regulatory requirements that may be enacted by the CFPB, the manner in which such regulatory requirements will be enforced by the CFPB or the FTC, and the impact such requirements or enforcement actions may have on our or our customers’ business. Compliance with any new regulatory requirements may divert internal resources and be expensive and time-consuming. In order to comply with new regulations, we may be required to increase investment in compliance functions or new technologies. Failure to comply with the laws and regulations to which we are subject could result in fines, penalties or limitations on our ability to conduct our business, or federal or state actions, any of which could significantly harm our reputation with consumers, banks and regulators, and could materially and adversely affect our business, operating results and financial condition. See “Business—Government Regulation” for additional information regarding the regulations that impact our business.

If we are unable to expand our business with our existing customers, our business and ability to increase our revenue may suffer.

Our ability to increase our revenue depends in part on increasing revenue from our existing customers. We intend to seek to increase penetration among our existing customer base, both by increasing usage of product offerings in business units we currently serve and by expanding into new business units. However, the adoption of our solutions by specific business units of our existing customers does not necessarily indicate that we will be successful in expanding usage into other business units, which may have different needs, priorities and budgetary and other constraints. In addition, while we intend to introduce features and applications that will make our solutions increasingly attractive to end users, we cannot be certain that we will be successful in increasing usage of our solutions with existing customers. If we are unable to expand our business as we anticipate, our revenue could decrease and our business could be harmed.

 

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If we do not successfully market and sell our solutions to new customers, including Internet services companies, our revenue growth will be harmed.

Our ability to increase our revenue depends in part on our ability to attract new customers, including additional FI customers and new Internet services companies providing innovative financial solutions, or YI customers. While we believe that there are significant opportunities for sales to additional FIs, both in the United States and in international markets, we cannot be sure that we will be successful in achieving broader adoption of our solutions by FIs. Our future revenue growth is also dependent upon the continued purchase of our solutions by YI customers. Adoption and purchase of our solutions by these companies is still relatively new, and it is unclear if our solutions will be broadly adopted and purchased by these companies or the speed of any such adoption and purchases.

Increased revenue from YI customers may expose us to additional risks.

Our revenue from YI customers has increased in recent periods, and we expect that such customers will be increasingly important to our business in future periods. Some of these customers are smaller and may not be as financially stable as our FI customers and may not have the experience and resources relating to data security and operations that our FI customers generally have. Accordingly, although our contracts with these customers require them to, among other things, adhere to standards for data security and obtain necessary consents and waivers from end users to use their financial and other information, as we increase our business with YI customers we may be subject to an increased risk that one or more of such customers may fail to comply with these obligations and that such customers may not have the financial resources to satisfy any resulting indemnity obligations to us. If our YI customers experience financial difficulties, are limited by a lack of internal resources or otherwise fail to comply with their contractual obligations relating to data security, our revenue generated from these customers may suffer, our reputation could be harmed and we could be exposed to third-party claims.

We cannot be certain that we will be successful in increasing our revenue by introducing new revenue streams.

Important factors to our future growth include continued development and marketing of financial applications to make the Yodlee platform increasingly attractive to existing customers with the need for applications or combinations of applications tailored to their specific needs. In addition, we intend to seek to derive additional revenue by providing data analytics and market research services and are pursuing revenue-sharing opportunities with third-party developers of FinApps on the Yodlee platform. Each of these initiatives has individual challenges and risks. To market and sell data analytics and market research services successfully, we must continue to enhance our capabilities relating to the enrichment of massive data sets in order to provide tailored data services that appeal to the markets that we target, as well as develop additional capabilities in data analytics. We have only recently begun to derive revenue from the sale of data analytics and market research solutions, and in order to increase sales we will need to expand our sales and marketing capabilities. In addition, for FinApps to appeal to existing customers, or new customers, these applications must offer the functionality and user experience that is responsive to their needs and valued by end users. Moreover, we have not derived significant revenue to date from revenue-sharing arrangements with third-party developers of FinApps on the Yodlee platform, and we cannot be sure that we will enter into a substantial number of these arrangements or that any such arrangements will be successful. We cannot be certain that any of the activities described above will contribute to substantial additional revenue from the Yodlee platform or introduce substantial new revenue streams.

 

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If our operations are interrupted as a result of service downtime or interruptions, our business and reputation could suffer.

The success of our business depends upon our ability to obtain and deliver time-sensitive, up-to-date data and information. Our operations and those of third parties on whom we rely for information and transaction processing services are vulnerable to interruption by technical breakdowns, computer hardware and software malfunctions, software viruses, infrastructure failures, fire, earthquake, power loss, telecommunications failure, terrorist attacks, wars, Internet failures and other events beyond our control. Any disruption in our solutions or operations, or those of third parties on whom we rely, could affect the ability of our solutions to perform effectively which in turn could result in a reduction in revenue. In addition, our contracts with our customers often include stringent requirements for us to maintain certain levels of performance and service availability. Failure by us to meet these contractual requirements could result in a claim for substantial damages against us, regardless of whether we are responsible for that failure. Our customers may also delay or withhold payment to us, elect to terminate or not to renew their contracts with us, or refuse to integrate our solutions into their online offerings, or we could lose future sales to new customers as a result of damage to our reputation due to such service downtime or interruptions. If we suffer a significant database or network facility outage, our business could experience disruption until we fully implement our back-up systems. The occurrence of any such disruptions in our solutions could materially and adversely affect our business.

If customers are unwilling to use our cloud-based solutions, our customer base may not grow or may decrease and our business could be harmed.

The cloud computing market is not as mature as the market for enterprise software, and it is uncertain whether cloud computing will achieve and sustain high levels of customer demand and market acceptance. Many enterprises have invested substantial personnel and financial resources to integrate legacy enterprise software into their businesses and are more familiar and comfortable with this type of infrastructure. Because our solutions involve the aggregation, storage and use of confidential information and related data, some customers, in particular customers located outside of the United States, may be reluctant or unwilling to migrate to our cloud-based solutions due to a lack of perceived cost and performance benefits associated with cloud-based solutions, and concerns regarding the ability of cloud computing companies to adequately address security and privacy concerns. If other cloud-based solutions experience security incidents, loss of customer data, disruptions in delivery or other problems, these concerns and perceptions regarding the market for cloud computing as a whole may be further negatively affected. If customers are unwilling to accept our cloud-based solutions as a result of these perceptions and concerns, we may be required to develop other alternative solutions for these customers, which would be time-consuming and costly and could negatively affect our gross margins. In addition, negative perceptions and concerns regarding cloud computing could cause the growth of our customer base to slow, which could result in decreased revenue and harm to our business.

Our revenue and operating results can fluctuate from period to period, which could cause our share price to fluctuate.

Our revenue and operating results have fluctuated in the past and may fluctuate from period to period in the future due to a variety of factors, many of which are beyond our control. If our operating results fall below the expectations of investors or any securities analysts who follow our common stock, the trading price of our common stock could decline substantially. Factors relating to our business that may contribute to these fluctuations include the following, as well as other factors described elsewhere in this prospectus:

 

    the timing and extent of our customers’ deployment and promotion of our solutions;

 

    the timing of our customers’ renewals or any terminations of their contracts with us;

 

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    rate of expansion or contraction of our customer base;

 

    changes in laws or regulatory policies that could impact our ability to offer our solutions to FIs or other customers;

 

    the timing and success of the introduction of new solutions by us or competitors;

 

    unanticipated delays of rollouts of our solutions;

 

    downward pressure on fees we charge for our solutions;

 

    our ability to control costs, including third-party service provider costs and sales and marketing expenses in an increasingly competitive market;

 

    the amount and timing of operating costs related to the maintenance and expansion of our business, operations and infrastructure, including globally;

 

    changes in customers’ budgets;

 

    changes to economic terms in contracts with customers, including renegotiations or unanticipated changes to the relationship;

 

    fluctuations in currency exchange rates and in our effective tax rate; and

 

    general economic and political conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers operate.

In addition, our revenue has usually been the strongest during the last two quarters of the year due to the terms of existing customer contracts with certain of our largest customers and associated revenue recognition, and timing of our customers’ deployment of our solutions and associated professional services revenue. Although we expect this trend to continue in the future, historical patterns should not be considered indicative of our future results.

As a result of these and other factors, we believe that quarter-to-quarter comparisons of our revenue and operating results may not be meaningful and should not be relied upon as indications of our future revenue or operating performance.

We rely significantly on revenue from subscriptions, which may decline or may fluctuate based on the timing of renewals, and, because we recognize revenue from subscriptions over the term of the relevant subscription period, downturns or upturns in sales are not immediately reflected in full in our operating results.

Our subscription and support revenue accounted for approximately 81% and 85% of our total revenue for the year ended December 31, 2013 and the three months ended March 31, 2014, respectively. Customers that purchase our subscriptions have no contractual obligation to renew their contracts after the initial contract period, which are typically three years, and we may not maintain our historical subscription renewal rates. Although customer contracts are generally non-cancellable during a specified period of time, customers typically have the right to terminate their contracts for a fee before the expiration of the entire initial contract period. New or renewal subscriptions may decline or fluctuate as a result of a number of factors, including our customers’ and end users’ level of satisfaction with our solutions and our customer support; the frequency and severity of subscription outages; the functionality and performance of our solutions; the timeliness and success of product enhancements and introductions by us and those of our competitors; the prices of our solutions; the prices of solutions offered by our competitors or reductions in our customers’ spending levels. If new or renewal subscriptions decline, our revenue or revenue growth may decline, and our business may suffer.

In addition, we recognize subscription revenue over the term of the relevant subscription period based on the terms of the applicable customer contract. As a result, most of the revenue we report

 

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each quarter is the recognition of billings from subscriptions entered into during previous quarters. Consequently, a decline in new or renewal subscriptions in any one quarter will not be fully reflected in revenue in that quarter, but will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in new or renewed sales of our solutions would not be reflected in full in our results of operations until future periods.

Because a portion of our revenue depends on the usage of our platform by end users, it may be difficult to evaluate our future prospects.

Our subscription and support contracts with our customers generally contain a minimum subscription fee, and usage-based fees which depend on the extent their customers or end users use our platform. This usage-based aspect to our pricing model makes it difficult to accurately forecast revenue because end users’ activities on our platform may vary from period to period based on a variety of factors, including personal financial circumstances, privacy and security concerns regarding online solutions such as ours, seasonality or other factors. As a result, historical revenue from a customer may not be a good indicator of our future revenue from that customer and changes in end user activity may limit our ability to forecast revenue.

Material defects or errors in the software we use to deliver our solutions or in the information we gather and disclose could harm our reputation, result in significant costs to us and impair our ability to sell our solutions.

The software applications underlying our solutions are inherently complex and may contain material defects or errors, particularly when first introduced or when new versions or enhancements are released. From time to time, we provide incremental releases of software updates and functional enhancements. Such new versions frequently contain undetected errors when first introduced or released. We have from time to time found defects in our solutions, and new errors in our existing solutions may be detected in the future. In addition, errors may result from the interface of our solutions with legacy systems and data, which we did not develop and the function of which is outside of our control.

Defects or errors in the information we gather from third parties or in storing end users’ data, in processing payment transactions, or that cause interruptions to the availability of our solutions could result in a reduction in sales or delay in market acceptance of our solutions, sales credits or refunds to our customers, loss of existing customers and difficulty in attracting new customers, diversion of development resources, harm to our reputation, and increased service and maintenance costs, and expose us to potential liability to our customers. We may not be able to identify or resolve these defects or errors in a timely manner. Correction of defects or errors could prove to be impossible or impracticable. The costs incurred in correcting any material defects or errors in our solutions or the information we provide, or in responding to resulting claims or liability, may be substantial. Resolving a defect or error and implementing remedial measures would likely divert the attention and resources of our management and key technical personnel from other business concerns, and could be extremely difficult if the underlying defect or error is located in a third party’s system or database.

Although we attempt to limit our contractual liability for consequential damages in delivering our solutions, these limitations on liability may be unenforceable in some cases, or may be insufficient to protect us from liability for damages. We maintain general liability insurance coverage, including coverage for errors or omissions; however, this coverage may not continue to be available on reasonable terms or may be insufficient to cover one or more large claims. An insurer might disclaim coverage as to any future claim. A successful assertion of one or more large claims against us that exceeds our available insurance coverage or changes in our insurance policies, including premium increases or the imposition of a large deductible or co-insurance requirement, could harm our operating results and financial condition.

 

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If we fail to process transactions effectively or fail to adequately protect against disputed or potential fraudulent activities, our revenue and earnings may be harmed.

We process a significant volume and dollar value of transactions on a daily basis using our money movement solutions. Effective processing systems and controls are essential to ensure that transactions are handled appropriately. Despite our efforts, it is possible that we may make errors or that funds may be misappropriated due to fraud. If we are unable to effectively manage our systems and processes we may be unable to process money movement transactions in an accurate, reliable and timely manner, which may harm our business. In addition, if we do not detect suspected fraudulent or non-sufficient fund transactions within agreed-upon timelines, we may be required to reimburse our customers for the transactions and such reimbursements may exceed the amount of the reserves we have established to make such payments.

The online payments industry has been experiencing an increasing amount of fraudulent activities by third parties. Although we do not believe that any of this activity is uniquely targeted at our business, this type of fraudulent activity may adversely impact us. In addition to any direct damages and potential fines that may result from such fraud, which may be substantial, a loss of confidence in our controls may seriously harm our business and damage our reputation. We may implement risk control mechanisms that could make it more difficult for legitimate end users to use our solutions, which could result in lost revenue and negatively impact our operating results.

If we are unable to maintain our payment network with third-party service providers, or if our disbursement partners encounter business difficulties, our business could be harmed.

Our payment network consists of a single Originating Deposit Financial Institution, or ODFI, and a small number of bill payment processors. Our ODFI clears and processes the funds from the customer. In the instance of funds transfers, the ODFI also processes funds to the end user’s destination institution. For bill payment, funds are sent to the bill pay processors for disbursement to biller sites.

While we have entered into an agreement with our ODFI and each of our bill payment processors, these partners could choose to terminate or not renew their agreements with us. If we are unable to maintain our agreements with our current partners, or our current partners are unable to handle increased transaction volumes, our ability to disburse transactions and our revenue and business may be harmed. If we are unable to sign new payment processors and/or ODFIs under terms consistent with, or better than, those currently in place, our revenue and business may be harmed.

Payment processors and ODFI partners also engage in a variety of activities in addition to providing our services and may encounter business difficulties unrelated to our services. Such activities or difficulties could cause the affected partner to reduce the services provided, cease to do business with us, or cease doing business altogether. This could lead to our inability to move funds on a timely basis as required to settle transactions. In addition, because we offer next day automated clearing house transactions in certain cases, if a disbursement partner experiences insufficient liquidity or ceases to do business, we may not be able to recover funds that are held with that disbursement partner which could harm our financial condition and operating results.

We may also be forced to cease doing business with payment processors and/or ODFIs if rules governing electronic funds transfers change or are reinterpreted to make it difficult or impossible for us to operate our money movement solutions.

 

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If we are unable to effectively compete, our business and operating results could be harmed.

While we do not believe any single company in the financial services space offers a comprehensive platform with diverse features such as ours, the following companies offer individual solutions that compete with one or more of our solutions:

 

    for data aggregation: Intuit, Inc. and Fiserv, Inc. (CashEdge);

 

    for personal financial management: Intuit (direct to consumer service) and internal IT departments of FIs, as well as early-stage companies;

 

    for online bill pay: Fiserv and FIS Global Corporation;

 

    for data products and services: global payment networks, credit bureaus and other institutions that have access to large pools of data; and

 

    for account verification: MicroBilt Corporation and Early Warning Systems, LLC.

Many of the companies that compete with one or more of our applications have greater name recognition, substantially greater financial, technical, marketing and other resources, the ability to devote greater resources to the promotion, sale and support of their solutions, more extensive customer bases and broader customer relationships, longer operating histories, and greater name recognition than we have.

We expect competition to increase as other companies continue to evolve their offerings and as new companies enter our market. New companies entering our market may choose to offer internally-developed solutions at little or no additional cost to their end users by bundling them with their existing applications and solutions. Increased competition is likely to result in pricing pressures, which could negatively impact our gross margins. If we are unable to effectively compete, our revenue could decline and our business, operating results and financial condition could be adversely affected.

Our business could be harmed if we do not keep up with rapid technological change, evolving industry standards or changing expectations and requirements of our customers.

We expect technological developments to continue at a rapid pace in our industry. Our success will depend, in part, on our ability to:

 

    continue to develop our technology expertise;

 

    recruit and retain skilled technology professionals;

 

    effectively manage the technology associated with our business;

 

    enhance our current solutions;

 

    develop new solutions that meet our customers’ needs; and

 

    influence and respond to emerging industry standards and other technological changes.

In addition, we must continue to meet changing expectations and requirements of our customers. We must accomplish all of these tasks in a timely and cost-effective manner, and our failure to do so could harm our business, including materially reducing our revenue and operating results.

As a result of our customers’ increased usage of our platform, we will need to continually improve our hosting infrastructure to meet our customers’ needs and avoid service interruptions or slower system performance.

We have experienced significant growth in the number of transactions and data that our hosting infrastructure supports. We seek to maintain sufficient excess capacity in our infrastructure to meet the

 

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needs of all of our existing and new customers. A component of our growth strategy involves the establishment of additional data centers in new locations. If our business continues to grow, we may also need to increase bandwidth, storage or other elements of our infrastructure.

The amount of infrastructure needed to support our customers is based on our estimates of anticipated usage. If we do not accurately predict our infrastructure capacity requirements, our customers could experience service outages or slower system performance that may subject us to financial penalties and result in customer losses, which could harm our reputation and adversely affect our revenue growth. In addition, increasing our infrastructure as a result of experiencing unforeseen increases in usage or in anticipation of increased usage from new or existing customers would cause us to have increased cost of revenue, which could adversely affect our gross margins until we sufficiently increase revenue to offset the increased costs.

We rely on relationships with third-party service providers to conduct our business, and our operating results and financial position could be materially and adversely affected if we fail to maintain these relationships or we maintain them under new terms that are less favorable to us.

We rely on data center and other service providers in order to deliver our solutions and operate our business. We also rely on software licenses from third parties and support from third parties for the operation of our business by maintaining our physical facilities, equipment, power systems and infrastructure. The failure of these third parties to provide acceptable and high quality services and technologies or to update their services and technologies may result in a disruption to our business operations and our customers, which may reduce our revenue, cause us to lose customers and damage our reputation. If we lose the services of one or more of our third-party service 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, wars, terrorist attacks, earthquakes, or similar catastrophic events, we could experience a disruption in our ability to offer our solutions and adverse perception of our solutions’ reliability, or we could be required to retain the services of replacement third-party service providers. Alternative arrangements and services may not be available to us on commercially reasonable terms, if at all, or we may experience business interruptions upon a transition to an alternative partner, either of which could increase our operating costs and harm our business.

If we are unable to effectively manage certain risks and challenges related to our India operations, our business could be harmed.

Our India operations are a key factor to our success. We believe that our significant presence in India provides certain important advantages for our business, such as direct access to a large pool of skilled professionals and assistance in growing our business internationally. However, it also creates certain risks that we must effectively manage. As of March 31, 2014, approximately 80% of our total employees were based in India. Wage costs in India for skilled professionals are currently lower than in the United States for comparably skilled professionals. However, wages in India are increasing at a faster rate than in the United States, which could result in us incurring increased costs for technical professionals and reduced margins. There is intense competition in India for skilled technical professionals, and we expect such competition to increase. As a result, we may be unable to cost-effectively retain our current employee base in India or hire additional new talent. In addition, India has experienced significant inflation, low growth in gross domestic product and shortages of foreign exchange. India also has experienced civil unrest and terrorism and, in the past, has been involved in conflicts with neighboring countries. The occurrence of any of these circumstances could result in disruptions to our India operations, which, if continued for an extended period of time, could have a material adverse effect on our business. If we are unable to effectively manage any of the foregoing risks related to our India operations, our development efforts could be impaired, our growth could be slowed, and our operating results could be negatively impacted.

 

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As a global organization, our business is susceptible to risks associated with our international operations and sales.

We currently maintain international operations in India, the United Kingdom and Canada, lease space in other jurisdictions outside of the United States for the purpose of gathering data, and have customers located around the globe. Managing a global organization and conducting sales outside of the United States is difficult and time-consuming and introduces risks that we may not face with our operations and sales in the United States. These risks include:

 

    the burdens of complying with a wide variety of foreign regulations, laws and legal standards, including privacy, data security, tax and employment, some of which may be more stringent than those of the United States;

 

    regional data privacy laws that apply to the transmission of data across international borders;

 

    lack of familiarity with, and unexpected changes in, foreign regulatory requirements;

 

    customers’ unfamiliarity with and concerns regarding laws and regulations of the United States that may impact our business operations in their jurisdictions;

 

    negative, local perception of industries and customers that we may pursue;

 

    laws and business practices favoring local competitors;

 

    localization of our solutions, including translation into foreign languages and adaptation for local practices and regulatory requirements;

 

    different pricing environments and longer sales cycles;

 

    longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

 

    difficulties in managing and staffing international operations;

 

    reduced or varied protection for intellectual property rights in some countries;

 

    compliance with laws and regulations for foreign operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory or contractual limitations on our ability to sell our solutions in certain foreign markets, and the risks and costs of compliance;

 

    fluctuations in currency exchange rates;

 

    potentially adverse tax consequences, including the complexities of foreign value added tax systems, difficulty in interpreting international tax laws and restrictions on the repatriation of earnings;

 

    increased financial accounting and reporting burdens and complexities; and

 

    political, social and economic instability abroad, terrorist attacks and security concerns in general.

Operating in international markets also requires significant management attention and financial resources. A component of our growth strategy involves the further expansion of our operations and the development of new customer relationships internationally. As we seek to expand internationally, we will need to develop relationships with additional partners and add internal capabilities to effectively manage the operational, financial, legal and regulatory requirements and risks associated with our international operations. The investment we make and additional resources we use to expand our operations, target new international customers, expand our presence globally within our existing customers and manage operational and sales growth in other countries may not produce desired levels of revenue or profitability, which could adversely affect our business and operating results.

 

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Our future success depends on the continued services of our management team and our ability to recruit, train and retain qualified and skilled employees, including research and development, sales, marketing and support personnel.

Our ability to effectively develop and provide our solutions and maintain and develop relationships with current and potential customers depends largely on the continued services of our management team and our ability to attract, train, motivate and retain highly skilled professionals, particularly professionals with backgrounds in sales, marketing, technology, customer support and financial management services. We believe that success in our business will continue to be based upon the strength of our intellectual capital. For example, due to the complexity of our solutions and the intellectual capital invested in our technology, the loss of personnel that are integral to the development of our solutions and engineering efforts would harm our ability to maintain and grow our business. In addition, our customers depend on our professional services team to assist them with the deployment of our solutions within their infrastructure and, after deployment, to help resolve any issues relating to our solutions that may arise. A high level of support is an important factor in contract renewals and cross-selling of our platform. Consequently, we must hire and retain employees with the technical expertise, skill set and industry knowledge necessary to continue to develop our solutions and effectively manage our growing sales, support and marketing organizations to ensure the growth of our business and the satisfaction of our customers.

We plan to continue to expand our engineering team, our direct sales force and marketing teams, and our customer support teams both domestically and internationally. We believe there is significant competition for professionals in these areas with the skills and technical knowledge necessary to develop the solutions and perform the services we offer. Competition for these employees is particularly intense in the software and technology industries, including in India where a significant portion of our employee headcount is located, and we may not be able to retain our existing employees or be able to recruit and retain other highly qualified personnel in the future. In addition, new hires require significant training and, in most cases, take significant time before they achieve full productivity. Our recent hires and planned hires may not become as productive as we expect or may take longer to become productive than we anticipate. If we cannot hire, train and retain qualified personnel, our ability to continue to conduct our business could be impaired and our revenue could decline.

If our intellectual property and technology are not adequately protected to prevent use or appropriation by our competitors, our business and competitive position would suffer.

We rely on a combination of patent, copyright, service mark, trademark and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. As of March 31, 2014, we had 62 issued U.S. patents, 28 pending U.S. patent applications, 7 issued patents in foreign jurisdictions and 14 pending patent applications in foreign jurisdictions. Some of these patents relate to technology that is included in our data aggregation platform and expire beginning in 2018. Any owned patents or patents that may issue in the future from pending or future patent applications may not provide sufficiently broad protection, may be invalidated or circumscribed or may not prove to be enforceable in actions against alleged infringers. In addition, recent changes to the patent laws in the United States may bring into question the validity of certain categories of software patents. As a result, we may not be able to obtain adequate patent protection for our software or effectively enforce any patents that issue in the future that cover our software. Also, we cannot assure you that any future service mark or trademark registrations will be issued for pending or future applications or that any registered service marks or trademarks will be enforceable or provide adequate protection of our proprietary rights. Furthermore, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are available. Unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for doing so, which could harm our business.

 

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We endeavor to enter into agreements with our employees and contractors and agreements with parties with whom we do business to limit access to and disclosure of our proprietary information. The steps we have taken may be inadequate to prevent the misappropriation of our proprietary technology. There can be no assurance that others will not develop or patent similar or superior technologies, products or services.

Policing the unauthorized use of proprietary technology is difficult and expensive and our monitoring and policing activities may not be sufficient to identify any misappropriation and protect our proprietary technology. In addition, third parties may knowingly or unknowingly infringe our patents, trademarks and other intellectual property rights, and litigation may be necessary to protect and enforce our intellectual property rights. If litigation is necessary to protect and enforce our intellectual property rights, any such litigation could be very costly, could divert management attention and resources and may not be successful, even when our rights have been infringed.

We also expect that the more successful we are, the more likely it becomes that competitors will try to develop products that are similar to ours, which may infringe on our proprietary rights. If we are unable to protect our proprietary rights or if third parties independently develop or gain access to our or similar technologies, our business, revenue, reputation and competitive position could be harmed.

Assertions by a third party that we infringe its intellectual property, whether successful or not, could subject us to costly and time-consuming litigation, expensive licenses or substantial indemnity obligations and may prevent us from selling our products and services.

The software and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Although we have not suffered a material loss from third-party claims to date, from time to time, we face allegations that we or our customers have infringed, misappropriated or violated intellectual property rights. Litigation may be necessary to determine the validity and scope of third-party intellectual property rights. Some of the claims may involve patent holding companies or non-practicing entities who have no relevant product revenue of their own, and against whom our own patents may provide little or no deterrence. Our technologies may not be able to withstand third-party claims or rights against their use. Additionally, although we have licensed from other parties proprietary technology covered by patents, we cannot be certain that any such patents will not be challenged, invalidated or circumvented.

Furthermore, many of our agreements require us to indemnify our customers for certain third-party intellectual property infringement claims, which could increase our costs as a result of defending such claims and may require that we pay damages if there were an adverse ruling related to any such claims. Such indemnity claims are often difficult to assess, particularly at an early stage and without significant further investigation, as the third-party intellectual property claims at issue often relate to features or functions offered by our customers that include a combination of our customers’ solutions and those of third parties, as well as those provided by our platform; we may not have complete information regarding the infringement claims being asserted by the third party; and there may exist substantial questions relating to the validity of the third-party intellectual property alleged to be infringed. In addition, even if third-party infringement claims are successful, we may have defenses that limit or eliminate our indemnification obligations. Although we have not been obligated to pay material amounts pursuant to such indemnification claims in the past, we could be obligated to do so in the future, and any such indemnity obligations could significantly exceed the revenues that we have derived under the related customer contract. These types of claims could harm our relationships with our customers, may deter future customers from subscribing to our services and could expose us to litigation for these claims. Even if we are not a party to any litigation between a customer and a third party, an adverse outcome in any such litigation could make it more difficult for us to defend our intellectual property in any subsequent litigation in which we are a named party.

 

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Any intellectual property rights claim against us or our customers, with or without merit, could be time-consuming and expensive to litigate or settle, and could divert management attention and financial resources. An adverse determination also could cause us to have to pay damages, modify our solutions or the Yodlee platform, stop using technology found to be in violation of a third party’s rights or prevent us from offering our solutions to our customers. In addition, we may have to seek a license for the technology, which may not be available on reasonable terms, if at all, or procure or develop substitute solutions that do not infringe.

Our use of “open source” software could negatively affect our ability to sell our solutions and subject us to possible litigation.

Portions of the Yodlee platform and our solutions incorporate so-called “open source” software, and we may incorporate additional open source software in the future. Open source software is generally licensed by its authors or other third parties under open source licenses. If we fail to comply with these licenses, we may be subject to specified conditions, including requirements that we offer our solutions that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of the particular open source license. If an author or other third party that distributes open source software that we use were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, including being enjoined from the sale of our solutions that contained the open source software and could be required to comply with the foregoing conditions, which could disrupt the sale of the affected solution. In addition, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition and require us to devote additional research and development resources to change our solutions.

Litigation or investigations could result in significant settlements, fines or penalties.

We have been the subject of general litigation in the past, and could be the subject of litigation, including class actions, and regulatory or judicial proceedings or investigations in the future. The outcome of litigation and regulatory or judicial proceedings or investigations is difficult to predict. Plaintiffs or regulatory agencies in these matters may seek recovery of very large or indeterminate amounts or seek to have aspects of our business suspended or modified. The monetary and other impact of these actions may remain unknown for substantial periods of time. The cost to defend, settle or otherwise resolve these matters may be significant.

If regulatory or judicial proceedings or investigations were to be initiated against us by private or governmental entities, our business, operating results and financial condition could be adversely affected. Adverse publicity that may be associated with regulatory or judicial proceedings or investigations could negatively impact our relationships with our customers and decrease acceptance and use of our solutions.

We have experienced rapid growth in recent periods. If we fail to manage our growth effectively, we may be unable to execute our business plan or maintain high levels of service and our financial results could be negatively impacted.

We have increased our number of full-time employees from 645 at December 31, 2011 to 776 at March 31, 2014 and have increased our annual revenue from $54.4 million in the year ended

 

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December 31, 2011 to $70.2 million in the year ended December 31, 2013. Our recent growth and expansion has placed, and our anticipated growth may continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We intend to continue to expand our overall business, customer base, headcount and operations as we prepare to be a public company. Expansion creates new and increased management and training responsibilities for our employees. In addition, continued growth increases the challenges involved in:

 

    recruiting, training and retaining sufficient skilled technical, marketing, sales and management personnel, in particular in our India location;

 

    preserving our culture, values and entrepreneurial environment;

 

    successfully expanding the range of solutions offered to our customers;

 

    developing and improving our internal administrative infrastructure, particularly our financial, operational, compliance, recordkeeping, communications and other internal systems;

 

    managing our international operations and the risks associated therewith;

 

    supporting a potentially broad pool of third-party developers who may use our open platform;

 

    maintaining high levels of satisfaction with our solutions among our customers; and

 

    effectively managing expenses related to any future growth.

If we fail to manage our growth effectively, we may be unable to execute our business plan or maintain high levels of service for our customers. In addition, if we are unable to manage our expenses related to growth effectively in the future, our gross margins or operating expenses may be negatively impacted in any particular quarter.

Acquisition activity involving our customers could adversely affect our business.

Acquisitions or similar transactions involving our customers, including financial institutions, could negatively affect our business in a number of ways. After such a transaction, the acquiror might terminate, not renew or seek to renegotiate the economic terms of its contract with us. Companies involved in these transactions may experience integration difficulties that could increase the risk of providing us inaccurate or untimely data or delay deployment of our solutions. Any of our existing customers may be acquired by an organization with no relationship with us, effectively terminating our relationship, or be acquired by an organization that already has online personal financial management and payment solutions integrated into its systems, or that offers competing services to ours, which might cause us to lose business and harm our revenue, operating results or financial condition.

Future acquisitions or investments could disrupt our business and harm our financial condition.

As part of our business strategy, we may pursue acquisitions or investments that we believe will help us to achieve our strategic objectives. The process of integrating an acquired business, product or technology can create unforeseen operating difficulties, expenditures and other challenges such as:

 

    increased regulatory and compliance requirements;

 

    implementation or remediation of controls, procedures and policies at the acquired company;

 

    diversion of management time and focus from operation of our then-existing business to acquisition integration challenges;

 

    coordination of product, sales, marketing and program and systems management functions;

 

    transition of the acquired company’s customers onto our systems;

 

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    retention of employees from the acquired company;

 

    integrating employees from the acquired company into our organization;

 

    integration of the acquired company’s accounting, information management, human resource and other administrative systems and operations generally with ours;

 

    liability for activities of the acquired company prior to the acquisition, including violations of law, commercial disputes, and tax and other known and unknown liabilities; and

 

    litigation or other claims in connection with the acquired company, including claims brought by terminated employees, customers, former stockholders or other third parties.

If we are unable to address these difficulties and challenges or other problems encountered in connection with any future acquisition or investment, we might not realize the anticipated benefits of that acquisition or investment, we might incur unanticipated liabilities or we might otherwise suffer harm to our business generally.

To the extent we pay the consideration for any future acquisitions or investments in cash, the payment would reduce the amount of cash available to us for other purposes. Future acquisitions or investments could also result in dilutive issuances of our equity securities or the incurrence of debt, contingent liabilities, amortization expenses, or impairment charges against goodwill on our balance sheet, any of which could harm our financial condition and negatively impact our stockholders.

We are a multinational organization faced with increasingly complex tax issues in several jurisdictions, and we could be obligated to pay additional taxes in various jurisdictions.

As a multinational organization, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have a material adverse effect on our liquidity and operating results. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could have a material impact on us and the results of our operations. For example, the taxing authorities of India and other jurisdictions in which we operate may challenge our methodologies for allocating income and expense under our intercompany arrangements, including our transfer pricing, or determine that the manner in which we operate our business is not consistent with the manner in which we report our income to the jurisdictions. If such a disagreement were to occur, and our positions were not sustained, we could be required to pay additional taxes, interest and penalties, resulting in higher effective tax rates, reduced cash flows and higher expenses.

We may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability for past sales, which could adversely harm our business.

State, local and foreign jurisdictions have differing rules and regulations governing sales, use, value added and other taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of such taxes to our subscription cloud-based software platform in various jurisdictions is unclear. Further, these jurisdictions’ rules regarding tax nexus are complex and vary significantly. As a result, we could face the possibility of tax assessments and audits, and our liability for these taxes and associated penalties could exceed our original estimates. A successful assertion that we should be collecting additional sales, use, value added or other taxes in those jurisdictions where we have not historically done so and do not accrue for such

 

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taxes could result in substantial tax liabilities and related penalties for past sales, discourage customers from purchasing our services or otherwise harm our business and operating results.

We face exposure to foreign currency exchange rate fluctuations.

We have costs denominated in foreign currencies, primarily the Indian Rupee, and our revenue is primarily denominated in the U.S. dollar. This exposes us to the risk of fluctuations in foreign currency exchange rates. Accordingly, changes in exchange rates, and in particular a weakening of the U.S. dollar, would negatively affect our expenses and other operating results as expressed in U.S. dollars. We manage our exposure to fluctuations in the Indian Rupee by entering into forward contracts to cover a portion of our projected expenditures paid in the Indian Rupee. These contracts generally have a term of less than 12 months. The use of such forward contracts, or other hedging activities in which we may engage in the future, 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.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, or GAAP. If we are unable to maintain adequate internal controls over financial reporting, we might be unable to report our financial information on a timely basis and might suffer adverse regulatory consequences or violate stock market listing standards. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. We have in the past and may in the future discover areas of our internal financial and accounting controls and procedures that need improvement. Our internal controls over financial reporting will not prevent or detect all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company will be detected. If we are unable to maintain proper and effective internal controls, we may not be able to produce accurate financial statements on a timely basis, which could adversely affect our ability to operate our business and could result in regulatory action, and could require us to restate, our financial statements. Any such restatement could result in a loss of public confidence in the reliability of our financial statements and sanctions imposed on us by the Securities and Exchange Commission, or the SEC.

Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and harm our operating results.

GAAP is subject to interpretation by the Financial Accounting Standards Board, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in accounting standards or practices could harm our operating results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may harm our operating results or the way we conduct our business.

 

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

As of December 31, 2013, we had federal and state net operating loss carryforwards of approximately $134 million and $101 million, respectively. If not utilized, these federal and state net operating loss carryforwards will begin to expire in 2022 and 2014, respectively.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, our ability to utilize net operating loss carryforwards or other tax attributes 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 might apply under state tax laws. Future issuances or trading 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.

Natural disasters and other events beyond our control could harm our business.

Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our solutions to our customers, and could decrease demand for our solutions. The majority of our research and development activities, corporate headquarters, information technology systems, and other critical business operations are located in California and India, both of which areas have experienced major earthquakes in the past. Significant recovery time could be required to resume operations and our financial condition and operating results could be harmed in the event of a major earthquake or catastrophic event.

Adverse global economic conditions could harm our business and financial condition.

The onset or continuation of adverse macroeconomic developments could negatively affect our business and financial condition. Adverse global economic events have caused, and could, in the future, cause disruptions and volatility in global financial markets and increased rates of default and bankruptcy, and could impact consumer and small business spending. Challenging economic times could cause potential new customers not to purchase or to delay purchasing our solutions, and could cause our existing customers to discontinue purchasing or delay upgrades of our existing solutions, thereby negatively impacting our revenue and future financial results. In addition, a downturn in the banking and finance sector may disproportionately affect us because a significant portion of our customers operate in that sector. We cannot predict the timing, strength or duration of any economic slowdown or recovery, whether global, regional or within specific markets. If the conditions of the general economy or markets in which we operate worsen, our business and our future operating results could be harmed.

Risks Related to this Offering and Ownership of Our Common Stock

One of the underwriters in this offering is a wholly-owned subsidiary of one of our shareholders that beneficially owns more than 10% of our outstanding common stock and has an interest in this offering beyond customary underwriting discounts and commissions.

Merrill Lynch, Pierce, Fenner & Smith Incorporated, an underwriter of this offering, is a wholly- owned subsidiary of Bank of America Corporation, or BAC, which beneficially owned in the aggregate

 

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12.7% of our outstanding common stock as of March 31, 2014. Since BAC beneficially owns more than 10% of our outstanding common stock, a “conflict of interest” is deemed to exist under Rule 5121(f)(5)(B) of the Conduct Rules of the Financial Industry Regulatory Authority. Accordingly, this offering will be made in compliance with the requirements of Rule 5121, which requires that no sale be made to discretionary accounts by underwriters having a conflict of interest without the prior written approval of the account holder and that a qualified independent underwriter participate in the preparation of the registration statement and prospectus and perform the usual standards of due diligence with respect thereto. In accordance with this rule, Goldman, Sachs & Co. has assumed the responsibilities of acting as a qualified independent underwriter. In its role as qualified independent underwriter, Goldman, Sachs & Co. has participated in due diligence and the preparation of this prospectus and the registration statement of which this prospectus is a part. Although Goldman, Sachs & Co. has, in its capacity as qualified independent underwriter, participated in due diligence and the preparation of this prospectus and the registration statement of which this prospectus is a part, we cannot assure you that this will adequately address any potential conflicts of interest. We have agreed to indemnify Goldman, Sachs & Co. against certain liabilities incurred in connection with it acting as qualified independent underwriter in this offering, including liabilities under the Securities Act. In accordance with Rule 5121, Merrill Lynch, Pierce, Fenner & Smith Incorporated (and its affiliates) will not sell our common stock to a discretionary account without receiving prior written approval from the account holder. See “Underwriting (Conflict of Interest)—Conflict of Interest.”

We will be subject to additional regulatory compliance requirements as a result of becoming a public company, and our management has limited experience managing a public company.

We have never operated as a public company and will incur significant legal, accounting and other expenses that we did not incur as a private company. The individuals who constitute our management team have limited experience managing a publicly-traded company, and limited experience complying with the increasingly complex and changing laws pertaining to public companies. Our management team and other personnel will need to devote a substantial amount of time to new compliance initiatives, and we may not successfully or efficiently manage our transition into a public company. We expect rules and regulations such as the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Act, and the rules and regulations of our stock exchange to increase our legal and finance compliance costs and to make some activities more time-consuming and costly.

The Securities Exchange Act of 1934, as amended, requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing the costly process of implementing and testing our systems to report our results as a public company, to continue to manage our growth and to implement internal controls. We will be required to implement and maintain various other control and business systems related to our equity, finance, treasury, information technology, other recordkeeping systems and other operations. As a result of this implementation and maintenance, management’s attention may be diverted from other business concerns, which could adversely affect our business. Furthermore, we rely on third-party software and system providers for ensuring our reporting obligations and effective internal controls, and to the extent these third parties fail to provide adequate service including as a result of any inability to scale to handle our growth and the imposition of these increased reporting and internal controls and procedures, we could incur material costs for upgrading or switching systems and our business could be materially affected.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their

 

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application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

We expect these laws, rules and regulations to also make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain appropriate levels of coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the time and resources of our management and adversely affect our business and operating results.

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, as defined in the JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial disclosure obligations, 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 any golden parachute payments not previously approved. For as long as we continue to be an emerging growth company, we intend to take advantage of certain of these exemptions. 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.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. However, we chose to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates that adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

We will remain an emerging growth company until the earliest of (i) the date on which we qualify as a “large accelerated filer” with at least $700 million of our equity securities held by non-affiliates as of June 30 of that fiscal year, (ii) the end of the fiscal year in which we have total annual gross revenue of $1 billion or more during such fiscal year, (iii) the date on which we have issued more than $1 billion in non-convertible debt in a three-year period, or (iv) the last day of the fiscal year following the fifth anniversary of the date of this prospectus.

 

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Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from executing our growth strategy.

In the absence of this offering, we believe that our existing cash and cash equivalents will be sufficient to fund our planned capital expenditures and other anticipated cash needs for at least the next 12 months. If our capital resources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain debt financing. We have not made arrangements to obtain additional financing and there is no assurance that financing, if required, will be available in amounts or on terms acceptable to us, if at all.

Our share price may be volatile and you may be unable to sell your shares at or above the offering price.

Prior to this offering, there has not been a public market for our common stock. An active trading market for our common stock might never develop or be sustained, which could depress the market price of our common stock and affect your ability to sell our shares. The initial public offering price for our shares was determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, many of which are beyond our control, including:

 

    actual or anticipated fluctuations in our financial condition and operating results;

 

    changes in the economic performance or market valuations of other companies engaged in providing portfolio management services, investment advice and retirement help;

 

    loss of a significant amount of existing business;

 

    actual or anticipated changes in our growth rate relative to our competitors;

 

    actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rates;

 

    issuance of new or updated research or reports by securities analysts;

 

    our announcement of actual results for a fiscal period that are higher or lower than projected results or our announcement of revenue or earnings guidance that is higher or lower than expected;

 

    regulatory developments in our target markets affecting us, our customers or our competitors;

 

    fluctuations in the valuation of companies perceived by investors to be comparable to us;

 

    share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

    sales or expected sales of additional common stock;

 

    terrorist attacks or natural disasters or other such events impacting countries where we or our customers have operations; and

 

    general economic and market conditions.

Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may cause the market price of shares of our common stock to decline. If the market price of shares of our

 

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common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Our insiders who are significant stockholders may control the election of our board and may have interests that conflict with those of other stockholders.

A majority of our directors are affiliated with management or our principal stockholders. In addition, our directors and executive officers, together with members of their immediate families, and holders of more than five percent of our outstanding shares of common stock (on an as-converted basis) beneficially owned, in the aggregate, approximately 87% of our outstanding capital stock as of March 31, 2014. As a result, acting together, this group has the ability to exercise significant control over most matters requiring our stockholders’ approval, including the election and removal of directors and significant corporate transactions. The interests of this group may differ from those of other stockholders and they may vote their shares in a way that is contrary to the way other stockholders vote their shares.

Substantial future sales of our common stock in the public market could cause our stock price to fall.

Additional sales of our common stock in the public market after this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. Upon completion of this offering, we will have             shares of common stock outstanding. All shares sold in this offering will be freely tradeable immediately after this offering (except for shares purchased by affiliates) and the remaining 219,465,114 shares of common stock outstanding immediately after this offering may be sold after expiration of lock-up agreements 180 days after the date of this offering (subject in some cases to volume limitations). In addition, as of April 1, 2014, there were outstanding options, RSUs and warrants to purchase 56,443,650 shares of our common stock that, if exercised, will result in these additional shares becoming available for sale upon expiration of the lock-up agreements. A large portion of these shares and options are held by a small number of persons and investment funds. Sales by these stockholders or option holders of a substantial number of shares after this offering could significantly reduce the market price of our common stock. Moreover, after this offering, some holders of shares of common stock will have rights, subject to some conditions, to require us to file registration statements covering the shares they currently hold, or to include these shares in registration statements that we might file for ourselves or other stockholders.

We intend to file a registration statement under the Securities Act of 1933, as amended, covering             shares of common stock reserved for issuance under our stock plans. This registration statement is expected to be filed soon after the date of this prospectus and will automatically become effective upon filing. Accordingly, shares registered under this registration statement will be available

 

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for sale in the open market, subject to vesting restrictions with us that may apply to certain shares or the lock-up agreements referred to above. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our common stock. See “Shares Eligible for Future Sale” for a more detailed description of sales that may occur in the future.

As a new investor, you will experience immediate and substantial dilution.

Purchasers in this offering will immediately experience substantial dilution in net tangible book value. Because our common stock has been sold in the past at prices substantially lower than the initial public offering price that you will pay, you will suffer immediate dilution of $         per share in net tangible book value, based on the initial offering price of $         per share of common stock. The exercise of outstanding options may result in further dilution. See “Dilution” for a more detailed description of the dilution that will be caused by this offering.

In addition, we may raise additional capital through public or private equity or debt offerings, subject to market conditions. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance could result in further dilution to our stockholders.

Management may apply our net proceeds from this offering to uses that do not increase our market value or improve our operating results.

We intend to use our net proceeds from this offering for general corporate purposes, including as yet undetermined amounts related to working capital and capital expenditures. Our management will have considerable discretion in applying our net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether we are using our net proceeds appropriately. Until the net proceeds we receive are used, they may be placed in investments that do not produce income or that lose value. We may use our net proceeds for purposes that do not result in any increase in our operating results, which could cause the price of our common stock to decline.

We do not currently intend to pay dividends on our common stock, and consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have never declared or paid any cash dividends on our common stock and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. In addition, the provisions of our credit facility prohibit us from paying cash dividends. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future, and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

Delaware law and our corporate charter and bylaws will contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Provisions in our certificate of incorporation and bylaws that we intend to adopt before the completion of this offering may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

 

    the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;

 

    the classification of our board of directors so that only a portion of our directors are elected each year, with each director serving a three-year term;

 

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    the requirement for advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;

 

    the ability of the board of directors to alter our bylaws without obtaining stockholder approval;

 

    the ability of the board of directors to issue, without stockholder approval, up to             shares of preferred stock with rights set by the board of directors, which rights could be senior to those of common stock;

 

    the required approval of holders of at least two-thirds of the outstanding shares of common stock to amend specified provisions of our bylaws and certificate of incorporation; and

 

    the elimination of the right of stockholders to call a special meeting of stockholders and to take action by written consent.

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit or restrict large stockholders, in particular, those owning 15% or more of our outstanding voting stock, from merging or combining with us. These provisions in our certificate of incorporation and bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in our market price being lower than it would without these provisions.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

    our ability to expand our relationships with existing customers, grow the number of customers and derive revenue from new offerings such as our data analytics and market research services and premium FinApps;

 

    our financial performance;

 

    the advantages of our solutions as compared to those of others;

 

    our ability to establish and maintain intellectual property rights; and

 

    our ability to retain and hire necessary employees and appropriately staff our operations, in particular our India operations.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

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INDUSTRY AND MARKET DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, market opportunity and market size, is based on information from various sources, including reports and data from Bankscope by Bureau van Dijk, The Boston Consulting Group, CEB TowerGroup, Celent, Gartner, Inc. and International Data Corporation, on assumptions we have made based on such data and other similar sources and on our knowledge of the markets for our solutions. While we are not aware of any misstatements regarding any third-party information presented in this prospectus, estimates of third parties, particularly as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those described in the section titled “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the third parties and by us.

Certain information in the text of the prospectus is contained in independent industry publications. The source of, and selected additional information contained in, these independent industry publications are provided below:

 

  (1) The Boston Consulting Group, BCG, Distribution 2020, The Next Big Journey for Retail Banks, March 2013, by Andy Maguire, Jean-Werner de T’Serclaes, Stefano Bison and Nicole Monter.

 

  (2) IDC Digital Universe Study, sponsored by EMC, December 2012.

 

  (3) IDC iView, Extracting Value from Chaos, June 2011, by John Gantz and David Reinsel (IDC 1142).

 

  (4) IDC iView, The Digital Universe in 2020: Big Data, Bigger Digital Shadows, and Biggest Growth in the Far East, December 2012, by John Gantz and David Reinsel (IDC 1414 v_3).

 

  (5) Gartner, Forecast: Enterprise IT Spending by Vertical Industry Market, Worldwide, 2011-2017, 4Q13 Update, January 30, 2014, by Vittorio D’Orazio et al.

The Gartner Report described herein (the “Gartner Report”) represents data, research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”), and are not representations of fact. The Gartner Report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Report are subject to change without notice.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of shares of our common stock in this offering will be approximately $        , based upon the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares of our common stock from us is exercised in full, we estimate that the net proceeds to us would be approximately $        , after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the net proceeds to us from the sale of shares of our common stock in this offering by $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of             shares in the number of shares offered by us would increase or decrease, as applicable, the net proceeds to us from the sale of shares of our common stock in this offering by approximately $         per share, assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions payable by us.

The principal purposes of this offering are to obtain additional capital and increase our capitalization and financial flexibility, create a public market for our stock, and increase our visibility in our marketplace. We currently intend to use the net proceeds we receive from this offering primarily for general corporate purposes, including working capital, research and development activities, sales and marketing activities, general and administrative matters and capital expenditures, to fund our growth plans, and to pay the entire outstanding balance under our credit facility, although we do not otherwise currently have any specific or preliminary plans with respect to the use of proceeds for such purposes. As of March 31, 2014, $8.0 million was outstanding under our credit facility with a weighted average interest rate of 4.86% per annum. For an additional discussion of our credit facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Bank Borrowings.” With respect to capital expenditures, we expect to continue to make investments in our data center and other infrastructure. We may also, in our discretion, use a portion of the net proceeds for the acquisition of, or investment in, businesses, products, services, or technologies that complement our business, although we have no current commitments or agreements to enter into any acquisitions or investments.

We will have broad discretion over the uses of the net proceeds of this offering. Pending the use of proceeds from this offering as described above, we plan to invest the net proceeds that we receive in this offering in short-term and long-term interest-bearing obligations, including government and investment-grade debt securities and money market funds.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to fund business development and growth, and we do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant. Currently, the provisions of our credit facility prohibit us from paying dividends.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents, as well as our capitalization, as of March 31, 2014:

 

    on an actual basis;

 

    on a pro forma basis, giving effect to (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 144,452,172 shares of our common stock, which conversion will occur immediately prior to the completion of this offering, as if such conversion had occurred on March 31, 2014; (ii) the filing and effectiveness of our amended and restated certificate of incorporation upon completion of this offering, that, among other things, will increase our authorized number of shares of common stock and will authorize a new class of preferred stock; (iii) the reclassification of preferred stock warrant liabilities to additional paid-in capital effective upon the closing of this offering; and (iv) the recording of $1.5 million of stock-based compensation expense as an increase in both additional paid-in capital and accumulated deficit associated with restricted stock units, which we expect to record upon the closing of this offering; and

 

    on a pro forma as adjusted basis, giving effect to the pro forma adjustments set forth above and the sale by us of             shares of our common stock in this offering, based upon the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and the repayment of the outstanding balance of $8.0 million as of March 31, 2014 under our credit facility upon receipt of proceeds from this offering as described in “Use of Proceeds”.

You should read this table together with our consolidated financial statements and related notes, and the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.

 

     As of March 31, 2014  
         Actual             Pro Forma         Pro Forma
    As Adjusted(1)    
 
     (in thousands, except share and per share data)  

Cash and cash equivalents

   $ 7,176      $ 7,176      $                
  

 

 

   

 

 

   

 

 

 

Total bank borrowings and capital lease obligations

   $ 9,333      $ 9,333      $     

Convertible preferred stock warrant liabilities

     888            

Convertible preferred stock, par value $0.001 per share: 146,657,824 shares authorized, 144,452,172 issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

     102,224            

Stockholders’ equity (deficit):

      

Preferred stock, par value $0.001 per share: no shares authorized, issued and outstanding, actual;             shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

                

Common stock, par value $0.001 per share: 278,000,000 shares authorized, 75,012,942 shares issued and outstanding, actual;             shares authorized, 219,465,114 shares issued and outstanding, pro forma; and             shares authorized,             shares issued and outstanding, pro forma as adjusted

     75        219     

Additional paid-in capital

     254,379        358,896     

Accumulated other comprehensive loss

     (1,151     (1,151  

Accumulated deficit

     (350,861     (352,410  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (97,558     5,554     
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 14,887      $ 14,887      $     
  

 

 

   

 

 

   

 

 

 

 

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(1) Each $1.00 increase or decrease in the assumed initial public offering price of our common stock of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the amount of our pro forma as adjusted cash and cash equivalents, additional paid-in capital and total stockholders’ equity by approximately $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. An increase or decrease of              shares in the number of shares offered by us would increase or decrease, as applicable, the amount of our pro forma as adjusted cash and cash equivalents, additional paid-in capital and total stockholders’ equity by approximately $        , assuming that the initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us.

If the underwriters’ option to purchase additional shares of our common stock from us were exercised in full, pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and shares outstanding as of March 31, 2014 would be $        , $        , $         and          shares, respectively.

The pro forma and pro forma as adjusted columns in the table above are based on 219,465,114 shares of our common stock (including convertible preferred stock on an as-converted basis) outstanding as of March 31, 2014, and exclude the following:

 

    45,477,429 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of March 31, 2014, with a weighted-average exercise price of $0.56 per share;

 

    8,430,139 shares of our common stock issuable upon the exercise of options granted after March 31, 2014, with a weighted average exercise price of $1.20 per share;

 

    6,187,468 shares of our common stock subject to RSUs, 2,245,000 shares of which were outstanding as of March 31, 2014, and 3,942,468 shares of which were granted after March 31, 2014;

 

    1,134,614 shares of our common stock, on an as-converted basis, issuable upon the exercise of warrants to purchase shares of our convertible preferred stock outstanding as of March 31, 2014, with an exercise price of $0.65 per share; and

 

                 shares of our common stock reserved for future issuance under our stock-based compensation plans, consisting of (i) 28,801,312 shares of common stock reserved for future awards under the 2009 Plan (which includes 27,000,000 shares reserved for issuance in April 2014), as of March 31, 2014, (ii)              shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan, or our 2014 Plan, which will become effective on the date of this prospectus, and (iii)              shares of common stock reserved for issuance under our 2014 Employee Stock Purchase Plan, or our 2014 ESPP, which will become effective on the date of this prospectus. Upon completion of this offering, any remaining shares available for future awards under our 2009 Plan will be added to the shares reserved under our 2014 Plan, and we will cease granting awards under our 2009 Plan. Our 2014 Plan and our 2014 ESPP also provide for automatic annual increases in the number of shares reserved under the plans, as more fully described in “Executive Compensation—Employee Benefit and Stock Plans.”

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock immediately after completion of this offering.

Pro forma net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of our common stock outstanding. Our pro forma net tangible book value as of March 31, 2014 was $2,486,000, or $0.01 per share, based on the total number of shares of our common stock outstanding as of March 31, 2014, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock as of March 31, 2014 into an aggregate of 144,452,172 shares of our common stock, which conversion will occur immediately prior to the completion of this offering, and assuming the reclassification of preferred stock warrant liabilities to additional paid-in capital effective upon the closing of this offering.

After giving effect to the sale by us of              shares of our common stock in this offering at the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2014 would have been $             million, or $         per share. This represents an immediate increase in pro forma net tangible book value of $         per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $         per share to investors purchasing shares of our common stock in this offering at the assumed initial public offering price. The following table illustrates this dilution:

 

Assumed initial public offering price per share

      $                

Pro forma net tangible book value per share as of March 31, 2014

   $ 0.01      

Increase in pro forma net tangible book value per share attributable to new investors in this offering

     
  

 

 

    

Pro forma as adjusted net tangible book value per share immediately after this offering

     
     

 

 

 

Dilution in pro forma net tangible book value per share to new investors in this offering

      $     
     

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share immediately after this offering by $        , and would increase or decrease, as applicable, dilution per share to new investors in this offering by $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of              shares in the number of shares offered by us would increase or decrease, as applicable, our pro forma as adjusted net tangible book value by approximately $         per share and increase or decrease, as applicable, the dilution to new investors by $         per share, assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions payable by us.

 

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If the underwriters’ option to purchase additional shares of our common stock from us is exercised in full, the pro forma as adjusted net tangible book value per share of our common stock, as adjusted to give effect to this offering, would be $         per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $         per share.

The following table presents, as of March 31, 2014, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our common stock immediately prior to the completion of this offering, the differences between the existing stockholders and the new investors purchasing shares of our common stock in this offering with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of shares of our common stock and convertible preferred stock, cash received from the exercise of stock options and the average price per share paid or to be paid to us at the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

     219,465,114                $                             $                

New investors

            
  

 

 

    

 

 

   

 

 

    

 

 

   

Totals

        100   $           100  
  

 

 

    

 

 

   

 

 

    

 

 

   

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid by new investors and total consideration paid by all stockholders by approximately $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares of our common stock from us. If the underwriters’ option to purchase additional shares of our common stock were exercised in full, our existing stockholders would own     % and our new investors would own     % of the total number of shares of our common stock outstanding upon the completion of this offering.

The number of shares of our common stock that will be outstanding after this offering is based on shares of our common stock (including preferred stock on an as-converted basis) outstanding as of March 31, 2014, and excludes:

 

    45,477,429 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of March 31, 2014, with a weighted-average exercise price of $0.56 per share;

 

    8,430,139 shares of our common stock issuable upon the exercise of options granted after March 31, 2014, at a weighted average exercise price of $1.20 per share;

 

    6,187,468 shares of our common stock subject to RSUs, 2,245,000 shares of which were outstanding as of March 31, 2014, and 3,942,468 shares of which were granted after March 31, 2014;

 

    1,134,614 shares of our common stock, on an as-converted basis, issuable upon the exercise of warrants to purchase shares of our convertible preferred stock outstanding as of March 31, 2014, with an exercise price of $0.65 per share; and

 

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                 shares of our common stock reserved for future issuance under our stock-based compensation plans, consisting of (i) 28,801,312 shares of common stock reserved for future awards under our 2009 Plan (which includes 27,000,000 shares reserved for issuance in April 2014) as of March 31, 2014, (ii)             shares of common stock reserved for future issuance under our 2014 Plan, which will become effective on the date of this prospectus, and (iii)             shares of common stock reserved for issuance under our 2014 ESPP, which will become effective on the date of this prospectus. Upon completion of this offering, any remaining shares available for future awards under our 2009 Plan will be added to the shares reserved under our 2014 Plan, and we will cease granting awards under our 2009 Plan. Our 2014 Plan and our 2014 ESPP also provide for automatic annual increases in the number of shares reserved under the plans, as more fully described in “Executive Compensation—Employee Benefit and Stock Plans.”

To the extent that any outstanding options to purchase our common stock or the warrant to purchase convertible preferred stock are exercised, RSUs are settled or new awards are granted under our equity compensation plans, there will be further dilution to investors participating in this offering.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this prospectus.

Our consolidated statements of operations data for the years ended December 31, 2011, 2012, and 2013 and our consolidated balance sheet data as of December 31, 2012 and 2013 are derived from our audited consolidated financial statements included elsewhere in this prospectus. Our consolidated statements of operations data for the years ended December 31, 2009 and 2010, and our consolidated balance sheet data as of December 31, 2009, 2010 and 2011 are derived from our audited consolidated financial statements not included in this prospectus. We have derived the consolidated statements of operations data for the three months ended March 31, 2013 and 2014 and the consolidated balance sheet data as of March 31, 2014 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which consist only of normal recurring adjustments, necessary for the fair statement of those unaudited consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future.

 

    Year Ended December 31,     Three Months
Ended March 31,
 
    2009     2010     2011     2012     2013     2013     2014  
    (in thousands, except per share data)  

Consolidated Statements of Operations Data:

             

Revenue:

             

Subscription and support

  $ 24,340      $ 30,746      $ 37,029      $ 44,336      $ 56,838      $ 12,451      $ 16,731   

Professional services and other

    8,534        15,593        17,400         13,458        13,322        3,019        3,032   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    32,874        46,339        54,429        57,794        70,160        15,470        19,763   

Cost of revenue:

             

Subscription and support(1)

    13,220        16,022        17,325        17,177        19,139        4,665        5,655   

Professional services and other(1)

    5,581        8,006        9,537        7,594        7,693        1,952        2,186   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    18,801        24,028        26,862        24,771        26,832        6,617        7,841   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    14,073        22,311        27,567        33,023        43,328        8,853        11,922   

Operating expenses:

             

Research and development(1)

    10,810        14,742        16,768        16,193        17,948        4,769        4,909   

Sales and marketing(1)

    8,096        9,885        12,911        13,638        15,418        3,606        4,541   

General and administrative(1)

    5,446        8,382        9,793        8,852        9,386        1,976        2,702   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    24,352        33,009        39,472        38,683        42,752        10,351        12,152   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) from continuing operations

    (10,279     (10,698     (11,905     (5,660     576        (1,498     (230

Other income (expense), net

    (403     (342     (917     230        (318     81        19   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before provision for (benefit from) income taxes

    (10,682     (11,040     (12,822     (5,430     258        (1,417     (211

Provision for (benefit from) income taxes

    (170     (4,848     (3,736     1,091        1,439        177        377   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from continuing operations

    (10,512     (6,192     (9,086     (6,521     (1,181     (1,594     (588

Income from discontinued operations

    896        8,260        6,999                               
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (9,616   $ 2,068      $ (2,087   $ (6,521   $ (1,181   $ (1,594   $ (588
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Year Ended December 31,     Three Months
Ended March 31,
 
    2009     2010     2011     2012     2013     2013     2014  
    (in thousands, except per share data)  

Basic and diluted net income (loss) per share attributable to common stockholders(2):

             

Net loss from continuing operations

  $ (0.19   $ (0.11   $ (0.15   $ (0.10   $ (0.02   $ (0.02   $ (0.01

Income from discontinued operations

    0.02        0.15        0.11                               
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (0.17   $ 0.04      $ (0.04   $ (0.10   $ (0.02   $ (0.02   $ (0.01
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute net loss per share attributable to common stockholders—basic and diluted(2)

    54,866        56,571        58,876        66,489        72,631        71,989        74,895   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted(2)

          $          $     
         

 

 

     

 

 

 

Weighted average shares used to compute pro forma net income (loss) per share attributable to common stockholders—basic and diluted(2)

             
         

 

 

     

 

 

 

 

(1) Costs and expenses include stock-based compensation expense as follows:

 

     Year Ended December 31,      Three Months
Ended
March 31,
 
     2009      2010      2011      2012      2013      2013      2014  
     (in thousands)  

Cost of revenue—subscription and support

   $ 144       $ 194       $ 163       $ 170       $ 201       $ 56       $ 42   

Cost of revenue—professional services and other

     87         146         112         119         107         31         22   

Research and development

     239         290         266         236         243         65         48   

Sales and marketing

     212         263         302         242         302         75         63   

General and administrative

     443         443         524         588         658         111         176   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 1,125       $ 1,336       $ 1,367       $ 1,355       $ 1,511       $ 338       $ 351   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(2) See Note 9 to our audited consolidated financial statements appearing elsewhere in this prospectus for an explanation of the calculations of our net loss per share attributable to common stockholders for the years ended December 31, 2011, 2012 and 2013, and the three months ended March 31, 2013 and 2014. Pro forma basic and diluted net loss per share were computed to give effect to the automatic conversion of convertible preferred stock using the if converted method and the reclassification of preferred stock warrant liabilities to additional paid in capital as though the conversion had occurred as of the beginning of the period or the original date of issuance, if later. The pro forma share amounts give effect to the Company’s RSUs that have satisfied the service condition as of December 31, 2013 and March 31, 2014. Stock-based compensation expense associated with the RSUs is excluded from this pro forma calculation. In addition, the pro forma calculation assumes the sale by us of                  shares of our common stock in this offering, at the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, the proceeds from which will be used to repay the outstanding balance of $8.0 million, as of March 31, 2014, under our credit facility. Interest expense associated with the credit facility of $0.5 million and $0.1 million during the year ended December 31, 2013 and the three months ended March 31, 2014, respectively, is excluded from this pro forma calculation.

 

     As of December 31,     As of
March 31,
 
     2009     2010     2011     2012     2013     2014  
     (in thousands)  

Consolidated Balance Sheet Data:

            

Cash and cash equivalents

   $ 9,545      $ 10,885      $ 8,763      $ 7,963      $ 8,134      $ 7,176   

Working capital (deficit)

     (14,372     (11,789     (7,939     (1,710     213        (1,925

Property and equipment, net

     4,149        3,753        3,580        4,335        6,297        6,843   

Total assets

     32,888        43,978        28,840        30,399        34,460        35,746   

Deferred revenue

     33,016        28,419        11,503        7,464        7,984        7,981   

Total bank borrowings and capital lease obligations

     8,308        5,303        9,195        7,955        7,763        9,333   

Convertible preferred stock warrant liabilities

     611        608        554        505        760        888   

Convertible preferred stock

     82,270        92,207        92,268        102,211        102,224        102,224   

Total stockholders’ deficit

     (101,506     (96,884     (97,878     (99,074     (98,079     (97,558

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this prospectus beginning on page 19 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Yodlee is a leading technology and applications platform powering dynamic innovation for digital financial services in the cloud. We refer to our platform as the Yodlee Financial Cloud. Our customers include financial institutions, Internet service companies providing innovative financial solutions and third-party developers of financial applications. More than 750 organizations in over 10 countries use the Yodlee platform to power their consumer-facing digital offerings, and we receive subscription fees for 15.7 million of these consumers, whom we refer to as our paid users. Our paid users increased from 8.8 million as of December 31, 2011, to 10.7 million as of December 31, 2012, to 14.3 million as of December 31, 2013 and to 15.7 million as of March 31, 2014.

Our financial institution customers subscribe to the Yodlee platform to power offerings that improve consumer satisfaction and enhance engagement, while capturing cross-sell and up-sell opportunities. We estimate that our current network of financial institution customers alone reaches more than 100 million end users, representing a significant opportunity to grow our paid user base within existing customers. Our customers that are Internet service companies have an increasingly large and diverse base of users that also provides additional growth opportunities.

The Yodlee Financial Cloud delivers a wide variety of financial applications, or FinApps, targeted at the retail financial, wealth management, small business, card and other financial solutions sectors. These FinApps help consumers and small businesses simplify and manage their finances, review their financial accounts, track their spending, calculate their net worth, and perform a variety of other activities. Our platform also enables our customers to develop their own applications through our open application programming interfaces, or APIs, that deliver trusted and secure data, money movement solutions, and other feature functionality.

Our technology infrastructure is designed to provide a highly available and secure multi-tenant cloud-based platform across hundreds of customers and millions of end users. Our solutions use a single code base for all customers and are globally accessible across multiple digital channels. Our multi-tenancy model uses a common data model for all customers but isolates data with logical controls and separate encryption keys for each customer. Our architecture utilizes state-of-the-art technologies to achieve enhanced availability, scalability and security.

We provide subscription services on a business-to-business-to-consumer, or B2B2C, basis to financial services clients, whereby our customers offer Yodlee-based solutions to their customers, whom we refer to as end users. On a business-to-business, or B2B, basis we deliver the same platform to third-party developers.

 

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We introduced our financial account aggregation product to the digital financial services industry in 1999. In 2006, we introduced online personal financial management tools. With the introduction of our open platform for digital financial services in 2010, we created an ecosystem that enables us, our customers and third-party developers to create new financial applications which can be made available across a broad base of end users. In 2013, we expanded our platform to offer these financial applications, to our customers, individually or in combinations. In addition, in 2012, we began to broadly market and sell end user-permissioned anonymized data analytics and market research services.

We derive revenue primarily from subscription and support fees and professional service fees. We sell subscriptions to the Yodlee platform to financial institutions, or FI, customers, and to Internet services companies providing innovative financial solutions, which we refer to as our Yodlee Interactive, or YI, customers. Subscription and support revenue includes both contractual minimum payments and usage-based fees and is driven primarily by the number of customers, including new customers as well as customers who renew their existing subscription and support contracts, and the number of paid users. Subscription and support revenue accounted for approximately 81% and 85% of our revenue during the year ended December 31, 2013, and the three months ended March 31, 2014, respectively. We also derive revenue from professional services primarily relating to the implementation and configuration of our solutions for our customers. Professional services and other revenue accounted for approximately 19% and 15% of our revenue during the year ended December 31, 2013, and the three months ended March 31, 2014, respectively. As more of our revenue is derived from our YI customers, we anticipate that professional services and other revenue will continue to decline over time as a percentage of our total revenue. For each of the years ended December 31, 2011, 2012 and 2013, and the three months ended March 31, 2014, the substantial majority of our subscription and support revenue was derived from subscriptions that provide for an initial three-year term, and a majority of subscription and support revenue was derived from committed minimums. As usage increases and customers are required to pay additional usage fees calculated on a per-paid-user basis, we expect that a more significant portion of our revenue over time may be derived from usage by paid users as compared to revenue derived from contractual minimum payments.

A substantial proportion of our revenue has been derived from a limited number of large FI customers. For example, revenue from our three largest customers for each of the years ended December 31, 2011, 2012 and 2013, and the three months ended March 31, 2014, aggregated approximately 35%, 31%, 32%, and 25% of total revenue, respectively, during those periods. Eight of our ten largest customers for the year ended December 31, 2013 have been our customers for more than six years. We anticipate that revenue from a small group of customers will continue to account for a significant proportion of our revenue in the near term. The continued growth of our business partially depends on our ability to maintain our customer relationships, renew subscriptions from our current customers and generate additional paid users and sources of revenue from existing customers. As we seek to engage additional FI and YI customers, we expect that our revenue will diversify over time. The continued growth of our business partially depends on our ability to secure new subscriptions and deployments of the Yodlee platform by new customers.

Sales to large organizations have typically been characterized by longer sales cycles, significant contract negotiations and less predictability in completing sales. Our revenue has usually been the strongest during the last two quarters of the calendar year due to the terms of existing customer contracts with certain of our largest customers and associated revenue recognition, and timing of our customers’ deployment of our solutions and associated professional services revenue.

The substantial majority of our revenue is derived from our customers in the United States. We believe the markets outside of the United States offer an opportunity for growth, and we intend to

 

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continue to pursue expansion in international markets. Revenues outside of the United States represented approximately 11%, 14%, 14%, and 11% of total revenues in the years ended December 31, 2011, 2012 and 2013, and the three months ended March 31, 2014, respectively.

Factors Affecting our Future Performance

We believe that our future success will be dependent on many factors, including our ability to expand our relationships with existing customers, grow the number of customers and derive revenue from new offerings such as our data analytics and market research services and premium FinApps. While these areas present significant opportunity, they also present risks that we must manage to ensure successful results. See “Risk Factors.”

Growth in Number of Customers Deploying the Yodlee Platform

The continued growth of our business partially depends on our ability to secure new subscriptions and deployments of the Yodlee platform by new customers. We continue to target additional major FIs domestically and internationally to increase the number of paid users and our subscription and support revenue. We also intend to drive growth with Internet services companies by participating in additional vertical markets and expanding the breadth of applications and solutions running on the Yodlee platform. Revenue from these types of companies has accounted for a growing proportion of our total revenue in recent periods and we believe there is a significant opportunity to increase revenue from these companies in the future.

Renewals and Additional Revenue from Current Customers

The continued growth of our business partially depends on our ability to maintain our customer relationships, renew subscriptions from our current customers and generate additional paid users and sources of revenue from existing customers. Our ability to increase adoption among existing customers is particularly important in light of our land and expand business model, pursuant to which we target customers with initial product offerings and expand the use cases and relationship over time. For example, an FI customer may initially subscribe to Yodlee data aggregation and later expand its relationship with us by licensing additional product offerings and FinApps. As our existing customers increase their adoption and promotion of the functionality of our solutions and deploy FinApps and additional value-added offerings to their end users, we anticipate that our number of paid users will increase.

Mix and Timing of Subscriptions and Deployments

Sales to large organizations have typically been characterized by longer sales cycles, significant contract negotiations and less predictability in completing sales. For example, our sales cycle can generally last one year or more with our largest FI customers, but is variable and difficult to predict and can be much longer or shorter. Many of our YI customers have shorter sales cycles of one to three months. In addition, FI customers and some large YI customers deploy our solutions in six to nine months. In contrast, many other YI customers can implement our applications and solutions in approximately three months. All of these factors impact the timing of revenue recognition and have resulted in fluctuations in our subscription and support revenue and overall operating results.

Growth of Data Analytics and Market Research Services and Development and Deployment of FinApps

We have commenced deriving revenue by providing data analytics and market research services. We believe there are significant opportunities to increase our revenue and average revenue per paid

 

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user by providing these services to our existing customers and to new customers for such uses as market analytics, credit and risk analytics and other use cases. Our future growth and profitability will also be affected by our ability to generate higher average revenue per paid user through revenue-sharing arrangements with partners who develop premium FinApps.

Operating Efficiencies and Investment

The cloud-based nature of the Yodlee platform provides us with economies of scale and operating leverage as the number of deployments and paid users grows. In addition, historically, we have enjoyed increasing operating efficiencies by leveraging our significant presence in India, which provides us with direct access to a large pool of talented engineers for research and development, customer support and operations. Our gross margins have expanded in recent periods and will continue to expand over the long term to the extent we are able to realize operating efficiencies.

To support our growth, we have made and expect to continue to make investments in our data center and other infrastructure in connection with enhancing and expanding our operations both domestically and internationally. For example, we expect to continue to invest in additional data center resources to keep pace with our growth. We believe that our investment in infrastructure will contribute to improvements in our operating results in the long-term; however, this investment will require capital expenditures and may impact our profitability in the near-term. In addition, we have continued to invest in research and development to continually improve and enhance the Yodlee platform and the breadth of applications and services running on the platform to meet our customers’ and potential customers’ needs and to develop new offerings to more effectively realize the value of the transaction-level data that we gather and refine. We also expect to continue to expand our sales and marketing efforts domestically and increase awareness of our solutions on a global basis and grow our international operations. We also expect to incur additional general and administrative expenses as a result of both our growth and the infrastructure required to be a public company. Investment in these areas will cause our operating expenses to continue to increase in absolute dollars in future periods.

Key Metrics

In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe the following non-GAAP and other operational measures are useful in evaluating our operating performance. We regularly review the key metrics set forth below as we evaluate our business.

 

     Year Ended December 31,     Three Months
Ended March 31,
 
     2011     2012     2013     2013     2014  
     (in thousands, except
percentages and per user data)
 

Adjusted EBITDA

   $ (8,003   $ (1,915   $ 4,772      $ (520   $ 885   

Paid users (as of period end)

     8,835        10,671        14,295        12,271        15,724   

Average revenue per paid user

   $ 5.64      $ 4.38      $ 4.52      $ 4.32      $ 4.50   

Subscription and support revenue net retention rate

     115     114     123     120     121

Adjusted EBITDA

We define adjusted EBITDA as net loss before income from discontinued operations; provision for (benefit from) income taxes; other (income) expense, net; depreciation and amortization; and stock-based compensation expense. We believe adjusted EBITDA provides investors and other users of our

 

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financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. We believe adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance. We use adjusted EBITDA in conjunction with traditional GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance.

Adjusted EBITDA increased from $(8.0) million in the year ended December 31, 2011 to $(1.9) million in the year ended December 31, 2012 and to $4.8 million in the year December 31, 2013. Adjusted EBITDA increased from $(0.5) million in the three months ended March 31, 2013 to $0.9 million in the three months ended March 31, 2014. Adjusted EBITDA for the year ended December 31, 2011 was impacted significantly by income from discontinued operations. The increase in adjusted EBITDA from 2012 to 2013 and from the three months ended March 31, 2013 to the three months ended March 31, 2014, was primarily due to the decrease in our net losses in the periods.

Adjusted EBITDA should not be considered as a substitute for other measures of financial performance reported in accordance with GAAP. We understand that, although adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, adjusted EBITDA has limitations as an analytical tool, including: depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future; adjusted EBITDA does not reflect any cash requirements for these replacements; adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs or contractual commitments; adjusted EBITDA does not reflect cash requirements for income taxes and the cash impact of other income or expense; and other companies may calculate adjusted EBITDA differently than we do. We compensate for the inherent limitations associated with using adjusted EBITDA through disclosure of these limitations, presentation of our financial statements in accordance with GAAP and reconciliation of adjusted EBITDA to the most directly comparable GAAP measure, net loss. For a table reconciling net loss to adjusted EBITDA see “Prospectus Summary—Summary Consolidated Financial Data.”

Paid Users

A paid user is defined as a user of an application or service provided to our customer using the Yodlee platform whose status corresponds to a billable activity under the associated customer contract. We believe that our ability to increase the number of paid users is an indicator of our market penetration, the growth of our business, and our potential future business opportunities.

Paid users increased from 8.8 million as of December 31, 2011 to 10.7 million as of December 31, 2012, 14.3 million as of December 31, 2013 and to 15.7 million as of March 31, 2014, as a result of increases in our number of customers and penetration within certain customers.

Average Revenue Per Paid User

Average revenue per paid user is defined as of any point in time as the trailing twelve-month subscription and support revenue divided by the average number of paid users over the same time period. For a given contract, as the number of paid users increases, our usage fee per paid user generally decreases due to volume-tiered pricing. However, at the same time, our cost of subscription and support revenue has declined more rapidly on a per user basis, which has contributed to increases in our gross margins. Our ability to maintain average revenue per paid user during the last year is an indicator of our success in developing and monetizing expanding use cases for the Yodlee platform,

 

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including data analytics and market research services. In order to support average revenue per paid user, we intend to continue to develop additional applications and services, including data services and premium FinApps.

Average revenue per paid user decreased from $5.64 for the year ended December 31, 2011 to $4.38 for the year ended December 31, 2012, as the increase in the number of paid users resulted in a decrease in the usage fee per paid user under our customer contracts due to volume-tiered pricing, while our subscription and support gross margin increased by 8 percentage points from 53% to 61% as our cost of subscription and support revenue declined more rapidly on a per user basis due to economies of scale. Average revenue per paid user increased to $4.52 for the year ended December 31, 2013 due to revenue derived from minimums under new contracts and data analytics and market research services, which more than offset the effect of volume-tiered pricing, and our subscription and support gross margin further increased by an additional 5 percentage points to 66% for the year ended December 31, 2013 primarily due to additional economies of scale realized on higher revenue and higher average revenue per paid user.

Average revenue per paid user increased from $4.32 for the three months ended March 31, 2013 to $4.50 for the three months ended March 31, 2014 due to revenue derived from new contracts and data analytics and market research services, which more than offset the effect of volume-tiered pricing. Our subscription and support gross margin further increased by an additional 3 percentage points to 66% for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 primarily due to additional economies of scale realized on higher revenue and higher average revenue per paid user.

Subscription and Support Revenue Net Retention Rate

We believe that our ability to retain our customers through renewals of subscription agreements and expand the number of paid users of our applications and services is an indicator of the stability of our recurring revenue base and the long-term value of our customer relationships. We calculate our subscription and support revenue net retention rate for a particular period by dividing subscription revenue for the four most recent quarters by the subscription revenue for the corresponding quarters in the preceding year for those customers for which subscription revenue was recognized in the corresponding quarters of the preceding year. This calculation includes the impact on our revenue from customer non-renewals and attrition, deployments of additional services or discontinued use of services by our customers, price changes for our services and increases or decreases in the number of paid users.

Our subscription and support revenue net retention rate increased from 115% for the year ended December 31, 2011 to 114% for the year ended December 31, 2012 and 123% for the year ended December 31, 2013, primarily as a result of increased revenues from our existing customer base and, in particular, the increased maturity of our YI customer base. Our subscription and support revenue net retention rate increased from 120% for the three months ended March 31, 2013 to 121% for the three months ended March 31, 2014. We expect our subscription and support revenue net retention rate to fluctuate from period to period based on renewals by, and the extent of additional deployments within, our existing customers.

Components of Results of Operations

Revenue

We derive our revenue primarily from subscription and support fees and professional services fees. We sell subscriptions to the Yodlee platform to our FI and YI customers who make our solutions available to their end users. Professional services include implementation services, upgrade services,

 

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development of interfaces requested by customers, assistance with integration of our services with the customers’ other applications, dedicated support, and advisory services to customers who choose to develop their own interfaces and applications.

Subscription and support revenue accounted for approximately 81% and 85% of our revenue during the year ended December 31, 2013 and the three months ended March 31, 2014, respectively. Subscription and support revenue is driven primarily by the number of customers, the number of paid users and the renewal of existing subscription and support contracts. Subscription and support revenue is recognized ratably over the contracted term of each respective subscription agreement, commencing on the date the service is provisioned to the customer, provided all applicable revenue recognition criteria have been satisfied. As part of the subscription and support contracts, our customers generally commit to a minimum level of paid users from which a minimum level of non-refundable subscription and support revenue is derived. As paid users in excess of the guaranteed minimum level access the Yodlee platform, the customer is then required to pay additional usage fees calculated based upon a contracted per-paid-user fee. No refunds or credits are given if fewer paid users access the Yodlee platform than the contracted minimum level. Usage-based revenue is recognized as earned, provided all applicable revenue recognition criteria have been satisfied. For subscription and support agreements, we typically invoice our customers in monthly or annual fixed installments. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period. Because the invoicing terms of our customer agreements vary, the annualized value of the orders we enter into with our customers will not be completely reflected in deferred revenue at any single point in time. Accordingly, we do not believe that change in deferred revenue is an accurate indicator of future revenues for a given period of time. Customer contracts are generally non-cancellable for some specified period and, to the extent such contracts are cancelable before expiration of the term, they generally provide for payment of certain penalties and/or minimums. We expect our subscription and support revenue to increase as we add new customers, expand our paid user base and renew existing subscription and support contracts.

The proportion of our revenue derived from customer minimum paid user commitments, together with favorable subscription and support revenue net retention rates, have historically assisted us in predicting our near-term revenues. As usage increases and customers are required to pay additional usage fees calculated on a per-paid-user basis, a more significant proportion of our revenue over time may be derived from usage by paid users. This usage-based aspect of our subscription and support contracts adds some volatility to our revenue because end users’ activities may vary from period to period based on a variety of factors outside of our control, including personal financial and other circumstances affecting end user activity, seasonality and decisions by our customers that affect the extent to which they promote our solutions. Our experience with customers’ growth and our awareness of deployment and promotional plans helps us forecast these usage-based revenues.

Professional services and other revenue accounted for approximately 19% and 15% of our revenue during the year ended December 31, 2013 and the three months ended March 31, 2014, respectively. Professional services are sold either on a fixed-fee or on a time-and-materials basis. Revenue for time-and-material arrangements is recognized as the services are performed. During the years ended December 31, 2011 and 2012, revenue for fixed-fee arrangements was recognized under the completed performance method of accounting. During the year ended December 31, 2013, and the three months ended March 31, 2013 and 2014, revenue for fixed-fee arrangements was recognized under the proportional performance method of accounting as we have developed a history of accurately estimating activity. Historically, professional services and other revenue has included software license revenue that was derived from infrequent perpetual software license arrangements. We expect our professional services and other revenue to fluctuate based on the number of new customers added and version upgrade work performed in any given period, and the presence of other companies who are able to implement our services for customers.

 

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Cost of Revenue

Our total cost of revenue consists of cost of subscription and support revenue and cost of professional services and other revenue, both of which consist primarily of personnel-related costs for the operations team or professional services team, respectively, including salaries, benefits and stock-based compensation.

Cost of revenue–subscription and support also includes data center costs to host the Yodlee platform and related support and maintenance costs; depreciation of servers and networking equipment; security operations; payment processing cost; and allocated facilities and other supporting overhead costs. We expect our cost of subscription and support revenue to increase in absolute dollars, although it may fluctuate as a percentage of subscription and support revenue from period to period, as our subscription and support revenue increases.

Cost of revenue–professional services and other also includes cost of consultants engaged in providing professional services to our customers; and allocated facilities and other supporting overhead costs. When we defer professional services revenue, we defer the related direct labor costs that we consider recoverable and recognize them in cost of revenue in the same periods as the related professional service revenue is recognized. We expect our cost of professional services and other revenue to fluctuate in absolute dollars as our professional services and other revenue fluctuates.

Gross Profit

Gross profit is total revenue less total cost of revenue. Gross margin, or gross profit expressed as a percentage of total revenue, has been and will continue to be affected by a variety of factors, including the sales price of our product offerings, costs to deliver our platform, our ability to leverage our existing infrastructure as we continue to grow and the mix of revenue between subscription and support and professional services and other. Our subscription and support services generally have a higher gross margin than our professional services and other revenue. Gross margin for professional services and other is impacted by the size of customer deployments, with smaller projects typically having lower gross margins. We expect our gross margins to fluctuate over time depending on these and other factors.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expense. Personnel costs are the most significant component of operating expenses and consist primarily of salaries, benefits, employee bonuses, stock-based compensation, and with regard to sales and marketing expense, sales commissions.

Research and Development.    Research and development expense consists primarily of personnel costs for employees on our engineering and technical teams who are responsible for increasing the functionality and enhancing the ease of use of the Yodlee platform and the development of new products and services. Research and development expense also includes the cost of third-party service providers and allocated facilities and other supporting overhead costs. We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services, although our research and development expense may fluctuate as a percentage of total revenue.

Sales and Marketing.    Sales and marketing expense consists primarily of sales commissions and other personnel costs for employees engaged in sales, sales support, business development and marketing functions. In addition, sales and marketing expense also includes travel-related expenses,

 

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marketing and public relations costs, and allocated facilities and other supporting overhead costs. We expect sales and marketing expense to increase in absolute dollars as we continue to hire additional personnel and invest in sales initiatives and marketing programs, although our sales and marketing expense may fluctuate as a percentage of total revenue.

General and Administrative.    General and administrative expense consists primarily of personnel costs, professional services and allocated facilities and other supporting overhead costs. General and administrative personnel include our chief executive officer, finance and legal organizations. Professional services consist primarily of legal, auditing, accounting and other consulting costs. We expect general and administrative expense to increase in absolute dollars as we incur additional legal, accounting, investor relations, and other costs associated with being a public company, although our general and administrative expense may fluctuate as a percentage of total revenue.

Other Income (Expense), Net

Other income (expense), net consists primarily of the interest expense associated with our bank borrowings, foreign exchange gains or loss, gain or loss on foreign currency forward contracts, revaluation impact of convertible preferred stock warrant liabilities and other non-operating income or expense.

Provision for (Benefit From) Income Taxes

Provision for (benefit from) income taxes consists primarily of income taxes in our wholly-owned subsidiary in India and other foreign operations. The provision for (benefit from) income taxes related to our foreign operations is impacted by items such as increases and decreases in uncertain tax positions in our foreign locations, as well as foreign withholding taxes. These items, and their impact to our effective tax rate, may fluctuate from year to year. Valuation allowances are provided when necessary to reduce deferred tax assets to amount expected to be realized. Due to uncertainty as to the realization of benefits from our U.S. federal and state deferred tax assets, including net operating loss carry forwards, research and development and other tax credits, we have a full valuation allowance against such assets. We expect to maintain this full valuation allowance in the near term.

Income from Discontinued Operations, Net of Taxes

We launched software customization and managed services in 2006. As part of these services, which had separate operations and cash flows, we sold heavily customized enterprise software solutions as well as fully outsourced software management services. During the year ended December 31, 2011, we decided to discontinue our software customization and managed services.

As the software customization and managed services were abandoned and not sold or transferred to another entity, we ceased to have any continued involvement in this component. In addition, we were not required nor did we plan to provide any continuing support as it relates to the software customization and managed services component subsequent to 2011. No cash outflows or inflows occurred in 2012 or 2013, or in the three months ended March 31, 2013 and 2014, and none are expected in the future relating to this component.

 

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Consolidated Results of Operations

The following table summarizes our consolidated results of operations for the years ended December 31, 2011, 2012 and 2013, and the three months ended March 31, 2013 and 2014. Our historical results are not necessarily indicative of the results that may be expected in the future.

 

     Year Ended December 31,     Three Months Ended
March 31,
 
     2011     2012     2013     2013     2014  
     (in thousands)  

Consolidated Statements of Operations Data:

          

Revenue:

          

Subscription and support

     $37,029        $44,336        $56,838        $12,451        $16,731   

Professional services and other

     17,400        13,458        13,322        3,019        3,032   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     54,429        57,794        70,160        15,470        19,763   

Cost of revenue:

          

Subscription and support

     17,325        17,177        19,139        4,665        5,655   

Professional services and other

     9,537        7,594        7,693        1,952        2,186   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     26,862        24,771        26,832        6,617        7,841   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     27,567        33,023        43,328        8,853        11,922   

Operating expenses:

          

Research and development

     16,768        16,193        17,948        4,769        4,909   

Sales and marketing

     12,911        13,638        15,418        3,606        4,541   

General and administrative

     9,793        8,852        9,386        1,976        2,702   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     39,472        38,683        42,752        10,351        12,152   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) from continuing operations

     (11,905     (5,660     576        (1,498     (230

Other income (expense), net

     (917     230        (318     81        19   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before provision for (benefit from) income taxes

     (12,822     (5,430     258        (1,417     (211

Provision for (benefit from) income taxes

     (3,736     1,091        1,439        177        377   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from continuing operations

     (9,086     (6,521     (1,181     (1,594     (588

Income from discontinued operations, net of provision for income taxes

     6,999                               
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     $(2,087     $(6,521     $(1,181     $(1,594     $(588
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following tables summarize our consolidated results of operations as a percentage of total revenue for the years ended December 31, 2011, 2012 and 2013, and the three months ended March 31, 2013 and 2014:

 

     Year Ended December 31,     Three Months Ended
March 31,
 
     2011     2012     2013     2013     2014  
     (as a percentage of total revenue)  

Revenue:

          

Subscription and support

     68     77     81     80     85

Professional services and other

     32        23        19        20        15   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     100        100        100        100        100   

Cost of revenue:

          

Subscription and support

     32        30        27        30        29   

Professional services and other

     17        13        11        13        11   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     49        43        38        43        40   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     51        57        62        57        60   

Operating expenses:

          

Research and development

     31        28        26        31        25   

Sales and marketing

     24        24        22        23        23   

General and administrative

     18        15        13        13        13   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     73        67        61        67        61   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) from continuing operations

     (22     (10     1        (10     (1

Other income (expense), net

     (2                   1          
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before provision for (benefit from) income taxes

     (24     (9            (9     (1

Provision for (benefit from) income taxes

     (7     2        2        1        2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from continuing operations

     (17     (11     (2     (10     (3

Income from discontinued operations, net of provision for income taxes

     13                               
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (4 %)      (11 %)      (2 %)      (10 %)      (3 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of the Three Months Ended March 31, 2013 and 2014

Revenue

 

     Three Months Ended
March 31,
        
     2013      2014      %
Change
 
     (in thousands)         

Revenue:

        

Subscription and support

   $ 12,451       $ 16,731         34

Professional services and other

     3,019         3,032         0
  

 

 

    

 

 

    

Total revenue

   $ 15,470       $ 19,763         28
  

 

 

    

 

 

    

Total revenue increased $4.3 million, or 28%, from the three months ended March 31, 2013 to the three months ended March 31, 2014.

 

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The increase in subscription and support revenue of $4.3 million, or 34%, was due primarily to an increase in our paid users to 15.7 million as of March 31, 2014 from 12.3 million as of March 31, 2013 while average revenue per paid user remained relatively consistent. Subscription and support revenue for the four quarters ended March 31, 2014, increased 21% due to increased revenue from existing customers as calculated for purposes of the subscription and support revenue net retention rate.

Cost of Revenue, Gross Profit and Gross Margin

 

     Three Months Ended March 31,        
     2013     2014        
     Amount      Gross
Margin
    Amount      Gross
Margin
    %
Change
 
     (dollars in thousands)  

Cost of revenue:

            

Subscription and support

   $ 4,665         $ 5,655           21

Professional services and other

     1,952           2,186           12
  

 

 

      

 

 

      

Total cost of revenue

   $ 6,617         $ 7,841           18
  

 

 

      

 

 

      

Gross profit:

            

Subscription and support

   $ 7,786         63   $ 11,076         66     3

Professional services and other

     1,067         35     846         28     (7 %) 
  

 

 

      

 

 

      

Total gross profit

   $ 8,853         57   $ 11,922         60     3
  

 

 

      

 

 

      

Total cost of revenue increased $1.2 million, or 18%, gross profit increased $3.1 million, and gross margin increased by 3 percentage points, from the three months ended March 31, 2013 to the three months ended March 31, 2014.

Cost of revenue from subscription and support increased $1.0 million, or 21%, from the three months ended March 31, 2013 to the three months ended March 31, 2014. This increase was primarily due to $0.4 million increase in personnel costs related to increased headcount to support the business growth, $0.2 million increase in depreciation expense related to additional servers and equipment, and $0.2 million increase in data center and other hosting related costs to support the increase in subscription and support revenue. Gross profit from subscription and support increased $3.3 million, and gross margin increased by 3 percentage points primarily due to economies of scale achieved as a result of higher sales during the quarter.

Cost of revenue from professional services and other increased slightly by $0.2 million, or 12%, from the three months ended March 31, 2013 to the three months ended March 31, 2014. Gross profit from professional services and other decreased $0.2 million and gross margin decreased by 7 percentage points.

Operating Expenses

Research and development

 

       Three Months Ended
March 31,
       
       2013     2014     %
Change
 
       (dollars in thousands)        

Research and development

     $ 4,769      $ 4,909        3

Percentage of net revenue

       31     25  

 

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Research and development expenses increased marginally by $0.1 million, or 3%.

Sales and marketing

 

       Three Months Ended
March 31,
       
       2013     2014     %
Change
 
       (dollars in thousands)        

Sales and marketing

     $ 3,606      $ 4,541        26

Percentage of net revenue

       23     23  

Sales and marketing expense increased $0.9 million, or 26%, from the three months ended March 31, 2013 to the three months ended March 31, 2014. The increase is primarily attributable to an increase of $0.7 million in employee-related expense, due primarily to increased headcount needed to drive our overall revenue growth and a $0.1 million increase in expense related to trade shows and conventions.

General and Administrative

 

       Three Months Ended
March 31,
       
       2013     2014     %
Change
 
       (dollars in thousands)        

General and administrative

     $ 1,976      $ 2,702        37

Percentage of net revenue

       13     14  

General and administrative expenses increased $0.7 million, or 37%, from the three months ended March 31, 2013 to the three months ended March 31, 2014. This was primarily due to an increase of $0.3 million in employee-related expenses due primarily to increased headcount, and an increase of $0.3 million in accounting and legal expenses.

Other Income (Expense), Net

 

     Three Months Ended March 31,  
     2013      2014  
     (in thousands)  

Other income (expense), net

   $ 81       $ 19   

Other income (expense), net, decreased marginally by $62,000, from the three months ended March 31, 2013 to the three months ended March 31, 2014.

Provision for (Benefit from) Income Taxes

Provision for income taxes primarily consists of income taxes in our wholly-owned subsidiary in India and other foreign operations.

 

     Three Months Ended March 31,  
     2013     2014  
     (dollars in thousands)  

Provision for income taxes

   $ 177      $ 377   

Effective tax rate

     (12.5 %)      (178.7 %) 

 

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The provision for income taxes increased by $0.2 million. The increase in the provision from the three months ended March 31, 2013 to the three months ended March 31, 2014 was primarily due to increased profits in our India subsidiary, foreign withholding taxes, and a tax benefit in the three months ended March 2013, which was associated with the release of an uncertain tax position, but which was not a component of the provision for income taxes for the three months ended March 31, 2014.

Comparison of the Years Ended December 31, 2011, 2012, and 2013

Revenue

 

     Year Ended December 31,      2011 to 2012
% Change
    2012 to 2013
% Change
 
     2011      2012      2013       
     (in thousands)               

Revenue:

             

Subscription and support

   $ 37,029       $ 44,336       $ 56,838         20     28

Professional services and other

     17,400         13,458         13,322         (23 %)      (1 %) 
  

 

 

    

 

 

    

 

 

      

Total revenue

   $ 54,429       $ 57,794       $ 70,160         6     21
  

 

 

    

 

 

    

 

 

      

2013 compared to 2012.    Total revenue increased $12.4 million, or 21%, from 2012 to 2013.

The increase in subscription and support revenue of $12.5 million, or 28%, was due primarily to an increase in our paid users to 14.3 million as of December 31, 2013 from 10.7 million as of December 31, 2012 while average revenue per paid user remained relatively consistent. Of the 28% increase in subscription and support revenue, 23 percentage points resulted from increased revenue from existing customers as calculated for purposes of the subscription and support revenue net retention rate. Professional services and other revenue decreased by $0.1 million, or 1%, as implementation efficiencies resulted in a decrease of professional services and other revenue despite an increase in new customers.

2012 compared to 2011.    Total revenue increased $3.4 million, or 6%, from 2011 to 2012.

The increase in subscription and support revenue of $7.3 million, or 20%, was due primarily to an increase in our paid users to 10.7 million as of December 31, 2012 from 8.8 million as of December 31, 2011. Of the 20% increase in subscription and support revenue, 14 percentage points resulted from increased revenue from existing customers as calculated for purposes of the subscription and support revenue net retention rate. The decrease in professional services and other revenue of $3.9 million, or 23%, was due primarily to the recognition of perpetual software license revenue in 2011 while no corresponding license revenue was recognized in 2012. In addition, implementation efficiencies resulted in a decrease of professional services and other revenue despite an increase in new customers, as we migrated our business focus to a Software-as-a-Service-based, or SaaS-based, model.

 

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Cost of Revenue, Gross Profit and Gross Margin

 

    Year Ended December 31,              
    2011     2012     2013     2011 to
2012 %
Change
    2012 to
2013 %
Change
 
    Amount     Gross
Margin
    Amount     Gross
Margin
    Amount     Gross
Margin
     
    (dollars in thousands)        

Cost of revenue:

               

Subscription and support

  $ 17,325        $ 17,177        $ 19,139          (1 %)      11

Professional services and other

    9,537          7,594          7,693          (20 %)      1
 

 

 

     

 

 

     

 

 

       

Total cost of revenue

  $ 26,862        $ 24,771        $ 26,832          (8 %)      8
 

 

 

     

 

 

     

 

 

       

Gross profit:

               

Subscription and support

  $ 19,704        53   $ 27,159        61   $ 37,699        66     8     5

Professional services and other

    7,863        45     5,864        44     5,629        42     (1 %)      (2 %) 
 

 

 

     

 

 

     

 

 

       

Total gross profit

  $ 27,567        51   $ 33,023        57   $ 43,328        62     6     5
 

 

 

     

 

 

     

 

 

       

2013 compared to 2012.    Total cost of revenue increased $2.1 million, or 8%, and gross profit increased $10.3 million, and gross margin increased by 5 percentage points, from 2012 to 2013.

Cost of revenue from subscription and support increased $2.0 million, or 11%, from 2012 to 2013. The increase was primarily due to an increase of $1.3 million in personnel costs related to increased headcount to support the business growth, an increase of $0.3 million in depreciation expense related to additional servers and equipment and $0.4 million increase in data center and other hosting related costs to support the increase in subscription and support revenue. Gross profit from subscription and support increased $10.5 million, and gross margin increased by 5 percentage points primarily due to economies of scale achieved as a result of higher sales during the year.

Cost of revenue from professional services and other increased slightly by $0.1 million, or 1%, from 2012 to 2013. Gross profit from professional services and other decreased $0.2 million and gross margin decreased by 2 percentage points.

2012 compared to 2011.    Total cost of revenue decreased $2.1 million, or 8%, gross profit increased $5.5 million and gross margin increased by 6 percentage points from 2011 to 2012.

Cost of revenue from subscription and support decreased marginally by $0.1 million, or 1%. Gross profit from subscription and support increased by $7.5 million and gross margin increased by 8 percentage points, primarily due to benefits from economies of scale as we improved the utilization of our existing infrastructure.

Cost of revenue from professional services and other decreased $1.9 million, or 20%, from 2011 to 2012. The decrease was primarily due to a decrease of $1.6 million in outside services, including contractors and consultants, as a result of reduced level of professional services rendered, a net decrease of $1.7 million in personnel costs related to a decreased headcount and allocated facilities costs, offset by an increase of $1.4 million in costs associated with previously deferred professional services costs given recognition of associated professional services revenue. Gross profit from professional services and other decreased $2.0 million, and gross margin decreased by 1 percentage point, as we migrated our business focus to a SaaS-based model.

 

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Operating Expenses

Research and development

 

     Year Ended December 31,     2011 to 2012
% Change
    2012 to 2013
% Change
 
     2011     2012     2013      
     (dollars in thousands)              

Research and development

   $ 16,768      $ 16,193      $ 17,948        (3 %)      11

Percentage of net revenue

     31     28     26    

2013 compared to 2012.    Research and development expenses increased $1.8 million, or 11%. The increase was primarily due to a $0.8 million increase in personnel related expenses including salaries, benefits and employee bonuses, due primarily to increased head count, and an increase of $0.8 million in outside services for consultants and contractors used in the research and development department. This investment supported our efforts to build our future product offerings.

2012 compared to 2011.    Research and development expenses marginally decreased by $0.6 million, or 3%.

Sales and marketing

 

     Year Ended December 31,     2011 to 2012
% Change
    2012 to 2013
% Change
 
     2011     2012     2013      
     (dollars in thousands)              

Sales and marketing

   $ 12,911      $ 13,638      $ 15,418        6     13

Percentage of net revenue

     24     24     22    

2013 compared to 2012.    Sales and marketing expenses increased $1.8 million, or 13%, from 2012 to 2013. The increase was primarily attributable to an increase of $1.2 million in employee-related expense, due primarily to increased head count needed to drive our overall revenue growth, a $0.4 million increase in expenses related to trade shows and conventions, and a $0.2 million increase in travel-related expense as we continue to expand our customer base and presence internationally.

2012 compared to 2011.    Sales and marketing expenses increased $0.7 million, or 6%, from 2011 to 2012. The increase was primarily attributable to an increase of $0.6 million in employee-related expense, due primarily to increased head count needed to drive our overall revenue growth and a $0.1 million increase in travel-related expenses.

General and Administrative

 

     Year Ended December 31,     2011 to 2012
% Change
    2012 to 2013
% Change
 
     2011     2012     2013      
     (dollars in thousands)              

General and administrative

   $ 9,793      $ 8,852      $ 9,386        (10 %)      6

Percentage of net revenue

     18     15     13    

2013 compared to 2012.    General and administrative expenses increased marginally, $0.5 million, or 6%, from 2012 to 2013. This was primarily due to an increase of $0.4 million in employee-related expenses, including salaries and bonus, due primarily to increased head count.

2012 compared to 2011.    General and administrative expenses decreased $0.9 million, or 10%, from 2011 to 2012. This was primarily due to the cost of $1.3 million incurred in 2011 in one-time projects for accounting and audit services partially offset by an increase of $0.5 million in employee-related expenses as a result of increased headcount.

 

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Other Income (Expense), Net

 

     Year Ended December 31,  
     2011     2012      2013  
     (in thousands)  

Other income (expense), net

   $ (917   $ 230       $ (318

2013 compared to 2012.    Other income (expense), net, decreased $0.5 million, from 2012 to 2013. The decrease was primarily due to the receipt of proceeds from an insurance settlement in 2012 and the re-measurement of our convertible preferred stock warrants.

2012 compared to 2011.    Other income (expense), net, increased $1.1 million, from 2011 to 2012. The increase was primarily due to a net increase of $0.6 million due to the strengthening of the U.S. dollar against the Indian Rupee and the proceeds from an insurance settlement of $0.5 million.

Provision for (Benefit from) Income Taxes

Provision for income taxes primarily consists of income taxes in our wholly-owned subsidiary in India and other foreign operations.

 

     Year Ended December 31,  
     2011     2012     2013  
     (dollars in thousands)  

Provision for (benefit from) income taxes

   $ (3,736   $ 1,091      $ 1,439   

Effective tax rate

     29     20     558

2013 compared to 2012.    Provision for (benefit from) income taxes increased $0.3 million. The increase in the provision for 2013 compared to 2012 was primarily due to the inclusion of $0.2 million tax expense related to an uncertain tax position for permanent establishment in a foreign jurisdiction, changes in uncertain tax positions in our foreign and domestic operations, as well as foreign withholding taxes.

2012 compared to 2011.    Provision for (benefit from) income taxes increased $4.8 million from 2011 to 2012. The increase to a tax provision in 2012 from a tax benefit in 2011 was primarily due to an allocation of $4.8 million tax expense for our discontinued operations in 2011 which did not recur in 2012, as well as changes in our uncertain tax positions.

 

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Quarterly Results of Operations Data

The following table sets forth our unaudited quarterly consolidated statements of operations data for each of the nine quarters ended March 31, 2014. We have prepared the quarterly data on a consistent basis with our audited consolidated financial statements included elsewhere in this prospectus. In the opinion of management, this financial information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. This information should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period.

 

    For The Three Months Ended  
    Mar. 31,
2012
    Jun. 30,
2012
    Sep. 30,
2012
    Dec. 31,
2012
    Mar. 31,
2013
    Jun. 30,
2013
    Sep. 30,
2013
    Dec. 31,
2013
    Mar. 31,
2014
 
    (dollars in thousands)  

Consolidated Statements of Operations:

                 

Revenue:

                 

Subscription and support

  $ 10,069      $ 10,700      $ 11,235      $ 12,332      $ 12,451      $ 13,669      $ 14,298      $ 16,420      $ 16,731   

Professional services and other

    2,248        2,500        3,303        5,407        3,019        2,717        3,968        3,618        3,032   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    12,317        13,200        14,538        17,739        15,470        16,386        18,266        20,038        19,763   

Cost of revenue:

                 

Subscription and support

    4,094        3,989        4,405        4,689        4,665        4,541        4,867        5,066        5,655   

Professional services and other

    1,962        1,793        1,679        2,160        1,952        1,892        1,839        2,010        2,186   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    6,056        5,782        6,084        6,849        6,617        6,433        6,706        7,076        7,841   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    6,261        7,418        8,454        10,890        8,853        9,953        11,560        12,962        11,922   

Gross margin

    51%        56%        58%        61%        57%        61%        63%        65%        60%   

Operating expenses:

                 

Research and development

    4,080        3,701        3,889        4,523        4,769        4,640        4,096        4,443        4,909   

Sales and marketing

    3,568        3,649        3,367        3,054        3,606        3,795        3,946        4,071        4,541   

General and administrative

    2,292        2,349        2,221        1,990        1,976        2,207        2,795        2,408        2,702   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    9,940        9,699        9,477        9,567        10,351        10,642        10,837        10,922        12,152   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (3,679     (2,281     (1,023     1,323        (1,498     (689     723        2,040        (230

Other income (expense), net

    (87     (101     6        412        81        (41     (258     (100     19   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income taxes

    (3,766     (2,382     (1,017     1,735        (1,417     (730     465        1,940        (211

Provision for income taxes

    135        458        201        297        177        308        261        693        377   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (3,901   $ (2,840   $ (1,218   $ 1,438      $ (1,594   $ (1,038   $ 204      $ 1,247      $ (588
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Quarterly Revenue Trends

Our quarterly subscription and support revenue has increased sequentially over the past nine quarters. The increases resulted primarily from growth in subscription and support revenue from new customers, upgrades and additional subscriptions from existing customers, and an increase in the number of paid users due to the launch and expansion of customers’ applications. Our quarterly professional services and other revenue has fluctuated from quarter to quarter depending on the nature and extent of customer deployments. In addition, our revenue has usually been the strongest during the last two quarters of the year due to the terms of existing customer contracts with certain of our largest customers and associated revenue recognition, and timing of our customers’ deployment of our solutions and associated professional services revenue.

Quarterly Cost and Expense Trends

Cost of revenue in absolute dollars varied from quarter-to-quarter in the quarters presented. However, cost of revenue generally increased over the periods presented primarily due to overall

 

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business growth and implementation and service related costs that we incur and recognize in the same periods as the related revenue.

Our operating expenses have increased in absolute dollars as we have continued to hire additional employees, introduce new marketing programs to increase brand awareness and incur additional costs in preparation of becoming a public company. Our research and development expenses for the quarters ended December 31, 2012, March 31, 2013 and June 30, 2013 were impacted by increased costs as we developed additional functionality for our FinApps.

Our quarterly results of operations may fluctuate significantly due to a variety of factors, many of which are outside of our control, making our results of operations variable and difficult to predict. As such, we believe sequential quarterly comparisons of our results of operations may not be meaningful and should not be relied upon as an indication of future performance.

Liquidity and Capital Resources

As of March 31, 2014, we had cash and cash equivalents of $7.2 million, all of which was held in the United States. We anticipate that the amount of our cash and cash equivalents held in India may increase in the future as funds are remitted to our Indian subsidiary for services performed under our intercompany agreements. Our cash and cash equivalents are comprised primarily of deposits with commercial banks in checking, interest-bearing and money market accounts. To date, we have satisfied our capital and liquidity needs through cash collections from our customers, private placements of convertible preferred stock and bank borrowings. We have incurred significant losses in the past as we continued to expand our business. Our cash flow from operating activities will continue to be affected principally by the extent to which our revenue exceeds or does not exceed any increase in spending on personnel to support the growth of our business. Our largest source of operating cash flow is cash collections from our customers.

We believe that our existing cash and cash equivalents, cash flow from operations and availability under our line of credit will be sufficient to meet our working capital needs and planned capital expenditures for at least the next 12 months. From time to time, we may explore additional financing sources which could include equity, equity-linked and debt financing arrangements. We cannot assure you that any additional financing will be available to us on acceptable terms or at all.

Bank Borrowings

In 2005, we entered into a loan and security agreement, as amended, with Silicon Valley Bank. The agreement, as amended, provides for borrowings up to $15.0 million in revolving loans as of March 31, 2014, subject to a borrowing base of trailing three months subscription and support revenue. As of March 31, 2014, $3.6 million was outstanding on the revolving loans and up to $11.4 million was available for drawdown, subject to the borrowing base limitation.

The agreement also provided an equipment financing facility for the purchase of equipment through March 31, 2011, with a repayment period of 36 months from the date of each advance. The equipment financing facility is non-revolving, and repaid equipment advances may not be re-borrowed. As of March 31, 2014, no amount was outstanding under the facility, and no amount remains available to be borrowed.

In July 2012, we entered into an amendment to our credit facility with the same lender to borrow $3.0 million in term loans with a repayment period of 36 months, including principal and interest. This loan bears interest at a fixed rate of 5.5% per annum. In August 2013, we entered into another amendment to our credit facility with the same lender to borrow an additional $3.0 million in term loans with a repayment period of 42 months including interest-only payments for the first six months and

 

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equal monthly payments, including principal and interest, for the next 36 months. This loan bears interest at a fixed rate of 5.0% per annum. As of March 31, 2014, $4.4 million was outstanding on the term loans.

As of March 31, 2014, $8.0 million was outstanding under the credit facility.

These borrowings are secured by all of our assets, other than our intellectual property, and we are required to comply with certain financial and reporting covenants, including maintaining (i) adjusted EBITDA, on a trailing six-month basis and (ii) subscription and support revenue, on a trailing three- month basis, of a certain amount as mutually agreed upon by the lender and us. As of March 31, 2014, we were in compliance with our financial and reporting covenants.

Cash Flows

The following table summarizes our cash flows for the periods presented:

 

     Year Ended December 31,     Three Months Ended
March 31,
 
     2011     2012     2013     2013     2014  
     (in thousands)  

Consolidated Statements of Cash Flows:

          

Net cash (used in) provided by operating activities

   $ (4,019   $ (10,777   $ 3,509      $ (3,197   $ (1,164

Net cash used in investing activities

     (2,431     (2,578     (2,884     (973     (1,123

Net cash (used in) provided by financing activities

     4,328        12,555        (454     2,664        1,329   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

   $ (2,122   $ (800   $ 171      $ (1,506   $ (958
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Activities

Our primary source of cash from operating activities has been from cash collections from our customers. We expect cash inflows from operating activities to be affected by the level of sales and timing of collections. Our primary uses of cash from operating activities have been for personnel costs. Our cash flow from operations will continue to be affected principally by the extent to which we grow our revenue and increase our headcount in order to grow our business.

Cash used in operating activities in the three months ended March 31, 2014 of $1.2 million was driven by a net loss of $0.6 million as adjusted for the exclusion of non-cash expenses of $1.2 million and changes in our working capital of $1.8 million. Non-cash charges consist primarily of depreciation and amortization of our property and equipment and stock-based compensation for stock options. The changes in our working capital were due primarily to a decrease in accrued compensation due to 2013 bonus payouts in the three months ended March 31, 2014.

Cash used in operating activities in the three months ended March 31, 2013 of $3.2 million was driven by a net loss of $1.6 million as adjusted for the exclusion of non-cash expenses of $1.0 million and changes in our working capital of $2.6 million. Non-cash charges consist primarily of depreciation and amortization of our property and equipment and stock-based compensation for stock options. The changes in our working capital were due primarily to a decrease in deferred revenue of $1.4 million and a decrease in accrued liabilities and other long-term liabilities of $1.2 million.

Cash provided by operating activities in 2013 of $3.5 million was driven by a net loss of $1.2 million as adjusted for the exclusion of non-cash expenses of $4.3 million and changes in our

 

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working capital of $0.4 million. Non-cash charges consist primarily of depreciation and amortization of our property and equipment and stock-based compensation for stock options. The changes in our working capital were due primarily to an increase in accrued compensation of $2.9 million and an increase in deferred revenue of $0.5 million, partially offset by an increase in accounts receivable of $2.2 million and a decrease in accrued liabilities and other long term liabilities of $0.6 million. The increase in accrued compensation was due to the partial-payment of 2012 bonuses within the year ended December 31, 2012, whereas no such partial-payment of bonuses was made in the year ended December 31, 2013 for 2013 bonuses. The increase in accounts receivable resulted from the growth in our business.

Cash used in operating activities in 2012 of $10.8 million was driven by a net loss of $6.5 million as adjusted for the exclusion of non-cash expenses of $3.3 million and changes in our working capital of $7.6 million. Non-cash charges consist primarily of depreciation and amortization and stock-based compensation. The changes in our working capital were due primarily to a decrease in our deferred revenue of $4.0 million, a decrease in accrued compensation of $1.1 million, a decrease in accrued liabilities of $0.9 million and an increase in accounts receivable of $1.8 million. The decrease in deferred revenue was due to the recognition in 2012 of deferred professional services revenue upon completion of professional services engagements. The decrease in accrued compensation was due to the timing of bonus payments. The increase in accounts receivable resulted from the growth in our business.

Cash used in operating activities in 2011 of $4.0 million was driven by a net loss of $2.1 million as adjusted for the exclusion of non-cash expenses of $4.0 million and changes in our working capital of $5.9 million. Non-cash charges consist primarily of depreciation and amortization of our property and equipment and stock-based compensation for stock options. The changes in our working capital were primarily due to a decrease in deferred revenue of $16.9 million and a decrease in accounts payable of $1.1 million partially offset by a decrease in prepaid assets of $6.6 million and a decrease in accounts receivable of $5.9 million. The decrease in deferred revenue was due to the recognition in 2011 of deferred professional services revenue upon completion of a significant professional services engagement. As a result of the completion of this engagement, we recognized deferred costs and commissions relating to the engagement and received payments relating to the engagement that reduced accounts receivable. The decrease in accounts payable was due to the timing of vendor payments.

Investing Activities

Our investing activities consist primarily of capital expenditures to purchase property and equipment, particularly purchases of servers, networking equipment and software licenses. We expect to continue investing in capital expenditures to support continued growth of our business.

We used $2.4 million, $3.0 million, $3.0 million, $1.0 million and $1.1 million for purchases of property and equipment in 2011, 2012 and 2013, and the three months ended March 31, 2013 and 2014, respectively. In 2013, $1.7 million of additional purchases were financed through capital leases. In addition, we received proceeds of $0.5 million in 2012 from an insurance settlement.

Financing Activities

Our financing activities have consisted primarily of bank borrowings, net proceeds from the issuance of our convertible preferred stock and net proceeds from the issuance of shares of our common stock upon the exercise of stock options.

In the three months ended March 31, 2014, cash provided by financing activities was $1.3 million, which consisted primarily of $1.6 million of net bank borrowings, and $0.3 million of net proceeds from

 

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the issuance of shares of our common stock upon exercise of stock options offset by $0.2 million of capital lease payments and $0.2 million of deferred offering costs.

In the three months ended March 31, 2013, cash provided by financing activities was $2.7 million, which consisted of $2.5 million of net bank borrowings and $0.2 million of net proceeds from the issuance of shares of our common stock upon the exercise of stock options offset by $0.1 million of capital lease payments.

In 2013, cash used in financing activities was $0.5 million, which consisted of $1.5 million of net repayments on our bank borrowings and $0.4 million of capital lease payments offset by $1.4 million of proceeds from the issuance of shares of our common stock upon the exercise of stock options.

In 2012, cash provided by financing activities was $12.6 million, which consisted primarily of $9.4 million of net proceeds from the issuance of shares of our convertible preferred stock, and $3.9 million of proceeds from the issuance of shares of our common stock upon the exercise of stock options, offset by $0.4 million of net repayments on our bank borrowings.

In 2011, cash provided by financing activities was $4.3 million, which consisted of $4.3 million of net bank borrowings, and $0.5 million of net proceeds from the issuance of shares of our common stock upon exercise of stock options offset by $0.5 million of capital lease payments.

Backlog

We sell subscriptions to our solutions through contracts that are generally one to three years in length, although terms can extend to as long as five years. Our subscription agreements with our customers generally contain scheduled minimum subscription fees, and usage-based fees which depend on the extent their customers or end users use our platform. We consider the unpaid contractual minimum payments under our subscription agreements to be our backlog. Due to the inherent volatility of backlog measured using contractual minimums, and the fact that contractual minimums are becoming increasingly less important to our business, we do not utilize backlog as a key management metric internally and we do not believe that it is a meaningful measurement of our future revenues. As of December 31, 2012 and 2013, the amount of our subscription agreement backlog was approximately $89.9 million and $78.9 million, respectively.

We expect that the amount of backlog relative to the total value of our subscription agreements will change from year to year for several reasons, including the timing of contract renewals, the proportion of total subscription and support revenue represented by contractual minimum payments and the average non-cancellable terms of our subscription agreements. The change in backlog that results from these events may not be an indicator of the likelihood of renewal or expected future revenues.

We also expect that as our customer base continues to mature and customer deployments scale usage, renewals over time will increasingly have fewer contractual minimum fees because such fees are intended to decrease the timing risk associated with initial deployment commitments.

In addition, because revenue for any period is a function of revenue recognized from deferred revenue under contracts in existence at the beginning of the period, as well as contracts that are renewed and new customer contracts that are entered into during the period, backlog at the beginning of any period is not necessarily indicative of future performance.

Off-Balance Sheet Arrangements

During the years ended December 31, 2011, 2012 and 2013, and the three months ended March 31, 2013 and 2014, we did not have any relationships with unconsolidated organizations or

 

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financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements.

Contractual Obligations

A summary of our contractual commitments and obligations as of December 31, 2013 is as follows:

 

     Payments Due by Period  
     Total      Less than
1 year
     1-3 years      3-5 years      More than
5 years
 
     (in thousands)  

Financing Arrangements(1)

   $ 6,385       $ 3,471       $ 2,646       $ 268       $   

Contractual commitments(2)

     3,070         1,858         1,212                   

Operating leases(3)

     3,905         1,909         1,767         229           

Capital leases(4)

     1,378         574         804                   

Interest(5)

     550         349         199         2             —   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 15,288       $ 8,161       $ 6,628       $ 499       $   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Obligations under financing arrangements relate to a revolving line of credit, equipment financing facility and term loans.
(2) The contractual commitments are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. The contractual commitments relate primarily to third-party facilities that house our data centers.
(3) The operating leases consist of contractual obligations from our office spaces under non-cancelable operating leases.
(4) The capital lease obligations relate to the purchases of servers, networking equipment and software licenses.
(5) Interest relates to our bank borrowings and capital lease obligations. Interest on our revolving line of credit is estimated based on the outstanding balance and interest rate as of December 31, 2013.

The contractual obligations table above excludes tax liabilities of $2.5 million related to uncertain tax positions, as of December 31, 2013, because we are unable to make a reasonably reliable estimate of the timing of settlement, if any, of these future payments.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Changes in these estimates and assumptions or conditions could significantly affect our financial condition and results of operations.

We believe that of our significant accounting policies, which are described in Note 2 to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

 

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Revenue Recognition

We primarily derive our revenue from subscription and support fees and professional services fees. We sell subscriptions to the Yodlee platform through contracts that are generally between one to three years in length, although terms can extend to as long as five years. Our arrangements do not contain general rights of return. Our subscription contracts do not provide customers with the right to take possession of the Yodlee platform and, as a result, are accounted for as service contracts. We record revenue net of any sales or excise taxes.

We commence revenue recognition for the Yodlee platform and professional services when all of the following criteria are met:

 

    there is persuasive evidence of an arrangement;

 

    the service has been or is being provided to the customer;

 

    collection of the fees is reasonably assured; and

 

    the amount of fees to be paid by the customer is fixed or determinable.

Subscription and Support Revenue

Subscription and support revenue are primarily derived from customers accessing the Yodlee platform and include subscription, support, and usage-based fees. Subscription and support revenue are recognized ratably over the contracted term of each respective subscription agreement, commencing on the date the service is provisioned to the customer, provided the four revenue recognition criteria have been satisfied. Usage-based revenue are recognized as earned, provided the four revenue recognition criteria have been satisfied.

Professional Services and Other Revenue

Professional services include implementation services, development of interfaces requested by customers, assistance with integration of our solutions with the customers’ applications, dedicated support, and advisory services to customers who choose to develop their own interfaces and applications. Professional services are typically performed within three to nine months of entering into an arrangement with the customer. Professional services are sold either on a fixed-fee or on a time-and-materials basis. Revenue for time-and-material arrangements is recognized as the services are performed. During the years ended December 31, 2011 and 2012, revenue for fixed-fee arrangements was recognized under the completed performance method of accounting. During the year ended December 31, 2013, and the three months ended March 31, 2013 and 2014, revenue for fixed-fee arrangements was recognized under the proportional performance method of accounting as we have developed a history of accurately estimating activity. The change from completed performance method of accounting to the proportional performance method of accounting was due to a change in underlying facts and circumstances, primarily due to increased management oversight and knowledge of plan project hours. Professional services are not considered essential to the functionality of the Yodlee platform.

Multiple Element Arrangements

We enter into multiple element arrangements in which a customer may purchase a subscription and professional services. For arrangements with multiple deliverables, we evaluate whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, we account

 

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for each deliverable separately and revenue is recognized for the respective deliverables as they are delivered. If one or more of the deliverables does not have standalone value upon delivery, the deliverables that do not have standalone value are combined with the final deliverable within the arrangement and treated as a single unit of accounting.

Subscription and support contracts have standalone value as we sell the subscriptions and support separately. In determining whether professional services can be accounted for separately from subscription and support services, we consider the availability of the professional services from other vendors, the nature of our professional services and whether we sell our applications to new customers without professional services. Based on these considerations we assessed that our professional services have standalone value.

We determine the selling price for each element based on the selling price hierarchy of: (i) vendor-specific objective evidence, or VSOE, of fair value, (ii) third-party evidence, or TPE, and (iii) estimated selling price or, ESP. We are unable to establish VSOE for any of our services, as we have not historically priced our services with sufficient consistency. We are also unable to establish TPE, as we do not have sufficient information regarding pricing of third-party subscription and professional services similar to our offerings. As a result, we have developed estimates of selling prices based on margins our senior management has established as the targets in the selling and pricing strategies after considering the nature of the services, the economic and competitive environment, and the nature and magnitude of the costs incurred. The amount of arrangement fee allocated is limited by contingent revenue, if any.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination. Goodwill is presumed to have an indefinite life and is not subject to amortization. We test goodwill for impairment at the company level, which is the sole reporting unit, on at least an annual basis and at any interim date whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

When assessing goodwill for impairment, we have the option to first perform a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors such as macroeconomic conditions, industry and market conditions, overall financial performance and any other company developments, that the fair value of the reporting unit more likely than not is less than the carrying amount, or if significant changes to macroeconomic factors have occurred that could materially impact fair value, a quantitative goodwill impairment test would be required. Additionally, there is an option to bypass the qualitative assessment and directly perform the quantitative test. The quantitative test for goodwill impairment is a two-step process. The first step is a comparison of the fair value of the reporting unit with its carrying amount, including goodwill. If this step indicates impairment, then the second step is performed to measure the loss as the excess of recorded goodwill over its implied fair value. Implied fair value is the excess of the fair value of the reporting unit over the fair value of all identified assets and liabilities.

We examined goodwill for impairment in the fourth quarter of each fiscal year ended December 31, 2011, 2012, and 2013. When assessing goodwill for impairment, we chose to bypass the qualitative assessment and directly perform the quantitative assessment. Because our stock is not publicly-traded, we estimated the fair value of our common stock, as discussed in “—Common Stock Valuations” below to derive the fair value of our reporting unit. We compared the fair value of our reporting unit with its carrying amount including goodwill. The first step of the quantitative assessment indicated that the fair value of our reporting unit was significantly higher than the carrying amount including goodwill, and hence we were not required to perform the second step. Based on our quantitative assessment, we concluded that goodwill was not impaired during the years ended December 31, 2011, 2012 and 2013.

 

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Stock-Based Compensation

Compensation expense related to stock-based transactions is measured and recognized in the financial statements based on the fair value of the awards granted. We have granted (i) employee and non-employee director stock options and (ii) restricted stock units, or RSUs.

Stock Options

The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model. Stock-based compensation expense is recognized, net of forfeitures, on a straight-line basis over the requisite service periods of the awards, which is generally four years. Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected term of the option, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock. The assumptions used in our option-pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If different assumptions or estimates were used, our stock-based compensation expense could be materially different in the future.

These assumptions and estimates are as follows:

Fair value of our common stock.    Because our stock is not publicly-traded, we must estimate the fair value of our common stock, as discussed in “—Common Stock Valuations” below.

Expected Term.    The expected term represents the period that our stock-based awards are expected to be outstanding before exercise or cancellation. Through March 31, 2014, our historical share option exercise experience did not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data points, and we estimated the expected term using the simplified method determined as the average between the vesting date and the contractual term of the stock options.

Volatility.    As we do not have a trading history for our common stock, the expected stock price volatility for our common stock was estimated by taking the average of the historical volatilities of a group of publicly-listed peer companies in our industry based on daily price observations over a period approximately equal to the expected term. When making the selections of the comparable publicly-traded peers to be used in the volatility calculation, we considered the size, operational and economic similarities to our principal business operations.

Risk-Free Interest Rate.    We base the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with a remaining time to maturity equivalent to that of the expected term of the options.

Dividend Yield.    The expected dividend assumption is based on our current expectations about our anticipated dividend policy. Consequently, we used an expected dividend yield of zero.

The following table summarizes the assumptions used in the Black-Scholes option-pricing model to determine the fair value of our stock options as follows:

 

       Year Ended December 31,    
     2011     2012     2013  

Dividend rate

                     

Risk-free interest rate

     2.2     1.0     1.0

Contractual term (in years)

     6.1        6.0        6.1   

Expected volatility

     45     50     49

 

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There were no options granted during the three months ended March 31, 2013 and 2014.

In addition to the assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the stock-based compensation expense for our awards. Our forfeiture rate is based on an analysis of our actual forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors. Quarterly changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed.

We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.

RSUs

Our stock-based compensation expense for RSUs is estimated at the grant or modification date based on the fair value of our common stock. During 2013, we granted 2.2 million RSUs which vest upon the satisfaction of both a performance condition and a service condition. The performance condition includes, among other alternatives, an initial public offering, or IPO, no later than September 30, 2014. The service condition for the awards is satisfied if the RSU holder continues to be a service provider six months after an IPO, and the awards vest quarterly over 2 12 years from that date. RSUs for which the service condition or performance condition has not been satisfied are forfeited. As of March 31, 2014, we had not recognized any stock-based compensation expense for the RSUs, because the completion of our IPO had not occurred and was not probable of occurrence. Although the performance condition for the RSUs will be satisfied on a date subsequent to the IPO, because the satisfaction of the performance condition becomes probable upon the completion of our IPO, provided the services have been performed as of such date, we will record a significant cumulative stock-based compensation expense for these RSUs in the quarter in which the IPO occurs, using the accelerated attribution method, net of estimated forfeitures. The remaining unrecognized stock-based compensation expense related to the RSUs will be recorded over the remaining requisite service period using the accelerated attribution method, net of estimated forfeitures. If the qualifying liquidity event had occurred as of the beginning of the year ended December 31, 2013, we would have recorded $1.8 million of stock-based compensation expense related to these RSUs, net of estimated forfeitures, in that year.

If the qualifying liquidity event had occurred as of the beginning of the three months ended March 31, 2014, we would have recorded $1.5 million of stock-based compensation expense related to these RSUs, net of estimated forfeitures, in that quarter, and total unrecognized compensation expense, net of forfeitures, would be $1.1 million that would be recognized over a weighted-average period of approximately 0.8 years.

Common Stock Valuations

We are required to estimate the fair value of the common stock underlying our share-based awards and do so by performing the fair value calculations with the Black-Scholes option-pricing model. The fair values of the common stock underlying our share-based awards were determined by our board of directors, with input from management and contemporaneous third-party valuations. We believe that our board of directors has the relevant experience and expertise to determine the fair value of our common stock.

 

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Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock including:

 

    contemporaneous valuations performed by independent third-party specialists;

 

    the market performance of publicly traded companies that we believe to be comparable;

 

    recent issuances of our convertible preferred stock as well as the prices, rights, preferences and privileges of our convertible preferred stock relative to those of our common stock;

 

    recent private stock sale transactions;

 

    the lack of marketability of our common stock;

 

    hiring of key personnel and the experience of our management;

 

    the history of the company and the introduction of new services;

 

    our stage of development;

 

    the likelihood of achieving a liquidity event, such as an initial public offering or a sale of our company given prevailing market conditions;

 

    actual operating and financial performance;

 

    the present value of future cash flows;

 

    the U.S. and global capital market conditions; and

 

    illiquidity as a private company.

In valuing our common stock through July 2013, our board of directors determined the equity value of our business using the income and market approaches to valuation. Specifically, the guideline public company method was considered under the market approach. When applicable, third-party stock transactions were also considered.

The income approach estimates the fair value of a company based on the present value of the company’s future estimated cash flows and the residual value of the company beyond the forecast period. These future values are discounted to their present values to reflect the risks inherent in the Company achieving these estimated cash flows. Significant inputs of the income approach (in addition to our estimated future cash flows themselves) include the long-term growth rate assumed in the residual value, discount rate and normalized long-term operating margin.

The market comparable approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business. From the comparable companies, a representative market value of invested capital multiple is determined which is applied to the subject company’s operating results to estimate the value of the subject company. In our valuations, the multiple of the comparable companies was determined using a ratio of the market value of invested capital less cash to historical or projected revenue and was applied to our corresponding metric to estimate the market value of invested capital under this approach.

The prior sales of company stock method estimates the value by considering any prior arm’s length sales of our equity. When considering prior sales of our equity, the valuation considers the size of the equity sale, the relationship of the parties involved in the transaction, the timing of the equity sale, and our financial condition at the time of the sale. That such sales provide value indications of varying reliability was considered in context in order to establish the relative weight assigned to the indication as compared to the other indications noted above. The fair value guidance provided by

 

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Accounting Standards Codification Topic 820 Fair Value Measurements and Disclosures discusses three levels of inputs on the definition of fair value and defined levels of value, each of which was considered when assessing the reliance on a sale of common stock.

For the April 2013 grant, a 25.0% weighting was assigned to the secondary market transaction that occurred on March 15, 2013, given that the investors were known to us and were provided financial information. While the investors appeared to have been knowledgeable investors, we took into account that pricing was based on a transaction that initially closed in July 2012. Given the passage of time and our progression over this timeframe, a 25.0% weighting was considered reasonable for this transaction. Although continued reliance was placed on this secondary market transaction through July 2013, a reduced weighting of 20.0% was used in July 2013 due to the passage of time relative to the initial transaction date. The November 2013 grant did not rely on any secondary market transactions as the transaction that occurred in March 2013 was considered outdated and no more recent secondary market transactions had taken place.

Once an equity value was determined, we utilized the option pricing method, or OPM, to allocate the equity value to each of our classes of preferred and common stock. The option method relies on financial option theory to allocate value among different classes of equity based upon a future option “claim” on value. Under the option allocation methodology, the fair value of the common stock is estimated as the net value of a series of call options, representing the present value of the expected future returns to the common shareholders. Essentially, the equity claims of the common shareholders are equivalent to a call option on the common stock’s participation in the value of the company above the respective preferred shareholders’ liquidation preferences. Thus, the common stock can be valued by estimating the value of its share in each of these call option rights.

For the valuations through July 2013, we used the OPM due primarily to our early stage of development, lack of availability and reliability of estimates regarding the nature and timing horizons for exit outcomes, number and materiality of assumptions required, and availability of information. As we obtained a greater degree of information regarding possible exit events, including various IPO and potential strategic sales scenarios, we transitioned the methodology to the Probability Weighted Expected Return Method, or PWERM, which was utilized in the October 2013 valuation.

In October 2013, since the board of directors believed that the discrete future outcomes could be predicted at a high confidence level with a probability distribution, the PWERM was utilized to determine the enterprise value of our business using various exit scenarios and values. The PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise. This method is particularly useful when discrete future outcomes can be predicted with greater confidence level with a corresponding probability assessment. Discrete future outcomes considered under the PWERM included non-initial public offering market based outcomes as well as initial public offering scenarios. In the non-initial public offering scenarios, a large portion of the equity value is allocated to the preferred stock to reflect the preferred stock liquidation preferences. In the initial public offering scenarios, the equity value is allocated pro rata among the shares of common stock and each series of preferred stock, which causes the common stock to have a higher relative value per share than under the non-initial public offering scenario. The fair value of the enterprise determined using the initial public offering and non-initial public offering scenarios was weighted according to the board of directors’ estimate of the probability of each scenario. Future amounts were discounted to present value at a risk adjusted rate.

 

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We granted stock options and RSUs since January 1, 2013 as follows:

 

Grant Dates

   Shares
Underlying
RSUs
     Shares
Underlying
Options
     Exercise
Price
Per Share
(options)
     Common
Stock Fair
Value Per
Share at
Grant Date
 

April 2013(1)(2)

     2,150,000         9,945,500       $ 0.85       $ 0.85   

July 2013(1)(2)

     95,000               $       $ 0.85   

November 2013

             644,750       $ 1.00       $ 1.00   

April 2014(3)

     1,581,468         6,005,139       $ 1.20       $ 1.20   

May 2014(4)

     2,361,000         2,425,000       $ 1.21       $ 1.21   

 

(1) The RSUs vest upon the satisfaction of both a performance condition and a service condition. The performance condition includes, among other alternatives, an IPO no later than September 30, 2014. The service condition for the awards is satisfied if the RSU holder continues to be a service provider six months after an IPO, and the awards vest quarterly over 2 12 years from that date. RSUs for which the service condition or performance condition has not been satisfied are forfeited.
(2) The performance condition was modified in March 2014. There was no modification of the service condition. We considered the fair value of our common stock as of the March 2014 modification date $1.20 to determine the fair value of the RSUs as of March 31, 2014 which is used in calculating stock based compensation expense related to RSUs.
(3) For awards granted to officers and employees, 25% of the underlying shares of such RSUs vest on May 15 of each of 2015, 2016, 2017 and 2018. For awards granted to non-employee directors (with the exception of Mr. Felt), 100% of the underlying shares of such RSUs vest on the earlier of May 15, 2015 or the date of our next annual stockholder meeting. For awards granted to Mr. Felt, 33 1/3 of the underlying shares of such RSUs vest on May 15 of each of 2015, 2016 and 2017. However, in each case if such vesting date is earlier than the first to occur of either a change in control, as defined under our 2009 Equity Incentive Plan, or the date that is six months and one day following the completion of our initial public offering (the “Post IPO Date”), then the related vesting shall occur on either the change in control or the Post IPO Date, as applicable, and further provided that in all cases vesting shall be subject to continued service through the applicable vesting date. Notwithstanding the foregoing vesting schedule, in the event that neither a change in control nor an initial public offering occurs on or prior to May 15, 2017, the RSUs and service provider’s right to acquire any shares thereunder will terminate automatically upon such date. We considered the fair value of our common stock of $1.20 as of April 1, 2014 to determine the fair value of the RSUs which is used in calculating stock based compensation expense related to the RSUs.
(4) 25% of the underlying shares of such RSUs vest on May 15 of each of 2015, 2016, 2017 and 2018. However, in each case if such vesting date is earlier than the first to occur of either a change in control, as defined under our 2009 Equity Incentive Plan, or the Post IPO Date, then the related vesting shall occur on either the change in control or the Post IPO Date, as applicable, and further provided that in all cases vesting shall be subject to continued service through the applicable vesting date. Notwithstanding the foregoing vesting schedule, in the event that neither a change in control nor an initial public offering occurs on or prior to May 15, 2017, the RSUs and service provider’s right to acquire any shares thereunder will terminate automatically upon such date. We considered the fair value of our common stock of $1.21 as of May 8, 2014 to determine the fair value of the RSUs which is used in calculating stock-based compensation expense related to the RSUs.

No single event caused the valuation of our common stock to increase or decrease from January 2013 through May 2014. Instead, a combination of the factors described below in each period led to the changes in the fair value of the underlying common stock.

 

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Significant factors considered by our board of directors at these grant dates, in determining the fair value of our common stock and exercise price used to calculate the related stock based compensation expense, include:

April 2013

We granted options to purchase 9,945,500 shares of common stock during April 2013 with an exercise price of $0.85. The exercise price and fair value of the underlying common stock used to calculate the related stock-based compensation was determined by our board of directors with assistance from management and was consistent with a draft preliminary contemporaneous independent third-party valuation report available in April and subsequently finalized and issued without change on May 1, 2013.

The May 1, 2013 valuation was prepared on a minority, non-marketable interest basis and the enterprise value was determined using an income approach and market approach. We determined that we had equal confidence in both approaches and, therefore, weighted them equally to determine our enterprise value, before allocating to the preferred and common stock and applying any lack of marketability discounts. Under the income approach, a discount rate of 19% was determined to be reasonable and appropriate given our stage of development and inherent risks. An exit revenue multiple of 3.0x was selected to estimate the terminal value. Under the market approach, revenue market multiples for the two sets of guideline companies were applied to the Company’s fiscal year end 2013 and 2014 metrics and adjusted for cash and debt to estimate the value under the market approach.

We then allocated our enterprise value to the common stock utilizing two types of OPM models with the following assumptions: a time to a liquidity event of 1.0 year, a risk-free rate of 0.1% and a historical equity volatility of 50% based on the time to a liquidity event. The first OPM model considered the rights and preferences of the common and preferred classes, whereas the second OPM model considered a fully diluted capital structure, which represents an IPO exit.

Subsequent to the allocation to the preferred and common equity classes, an 18% marketability discount was applied to the resulting common stock value from the two OPM models. To estimate the fair value of our common stock, we applied a 75% weighting of the OPM results and a 25% weighting of the recent secondary common stock transaction that occurred on March 15, 2013. This resulted in the fair value of our common stock to be in the range of $0.73 - $0.79 per share. On March 15, 2013, an outside investor purchased certain shares of common stock from existing employees at $0.85 per share. There had been no other secondary transaction between July 2012 and March 2013. Based on this valuation and the price indication from the secondary transaction of $0.85 per share, our board of directors determined that the price from the secondary transaction of $0.85 per share was more appropriate to use as exercise price for the options granted in April 2013, which was deemed to be the fair value of our common stock on the grant date.

November 2013

We granted options to purchase 644,750 shares of common stock in November 2013 with an exercise price of $1.00. The performance condition of the outstanding 2.2 million RSUs originally issued in April 2013 was also modified in November 2013. The exercise price and fair value of the underlying common stock used to calculate the related stock-based compensation was determined by our board of directors with assistance from management and was consistent with contemporaneous third-party valuation report dated October 29, 2013, which determined the fair value of our common stock to be $1.00 per share.

The October 29, 2013 valuation was prepared on a minority, non-marketable interest basis. This valuation was based on the PWERM instead of an OPM as previously applied given that exit scenarios

 

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and values were available. At the time of this valuation, the range of discrete events, specifically IPO and non-IPO scenarios, were fairly well established; therefore, PWERM was utilized to estimate the fair value of our common stock during this period. The equity values for each of these scenarios were developed by management and our board of directors by considering their best estimate for values under each scenario.

Under the initial public offering scenario, the future equity value of the company was developed by management by considering recent IPO pricing data in our industry. We selected implied revenue to enterprise value multiples for 2014 and 2015. After estimating the enterprise value, we adjusted for estimated cash and debt to arrive at an equity value on a marketable, minority interest basis.

Under the strategic and private equity sale scenarios, the future values of the company under these scenarios was developed by management based on its assessment of the potential value that might be realized in such transactions. We then assigned probabilities to an IPO, a strategic sale or a private equity sale based on management’s assessment of the relative likelihood of those scenarios.

The weighted average and probability affected enterprise value was then allocated to our convertible preferred stock and common stock under the PWERM, after applying a discount rate of 20% to the future values noted above. Subsequent to the allocation to the preferred and common equity classes, a 16% marketability discount was applied to the resulting common stock value. Based on this valuation and other factors, as described above, our board of directors used $1.00 per share as the exercise price for the options granted on November 14, 2013, which was deemed to be the fair value of our common stock on the grant date. The fair value of our common stock of $1.00 was also used to calculate the fair value of the RSUs modified in November 2013 and related stock based compensation. The change in the fair value was due to a reduction in time to a liquidity event.

April 2014

We granted options to purchase 6,005,139 shares of common stock in April 2014 with an exercise price of $1.20 and 1,581,468 RSUs. The exercise price and fair value of the underlying common stock used to calculate the related stock-based compensation was determined by our board of directors with assistance from management and was consistent with contemporaneous third-party valuation report dated April 1, 2014, which determined the fair value of our common stock to be $1.20 per share.

The April 1, 2014 valuation was prepared on a minority, non-marketable interest basis. This valuation was based on the PWERM, consistent with the November 2013 valuation. The equity values for the range of discrete events, specifically IPO and non-IPO scenarios, were developed by management and our board of directors by considering their best estimate for values under each scenario.

Under the initial public offering scenario, the future equity value of the company was developed by management by considering recent IPO pricing data in our industry. We selected implied revenue to enterprise value multiples for 2014 and 2015. After estimating the enterprise value, we adjusted for estimated cash and debt to arrive at an equity value on a marketable, minority interest basis. Under the strategic and private equity sale scenarios, the future values of the company under these scenarios was developed by management based on its assessment of the potential value that might be realized in such transactions. We then assigned probabilities to an IPO, a strategic sale or a private equity sale based on management’s assessment of the relative likelihood of those scenarios.

The weighted average and probability affected enterprise value was then allocated to our convertible preferred stock and common stock under the PWERM, after applying a discount rate of 20% to the future values noted above. Subsequent to the allocation to the preferred and common equity classes, a 12% marketability discount was applied to the resulting common stock value. Based

 

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on this valuation and other factors, as described above, our board of directors used $1.20 per share as the exercise price for the options granted on April 1, 2014, which was deemed to be the fair value of our common stock on the grant date. The fair value of our common stock of $1.20 was also used to calculate the fair value of the RSUs granted in April 2014 and RSUs originally granted in April 2013 and modified in April 2014, along with the related stock based compensation.

May 2014

We granted options to purchase 2,425,000 shares of common stock in May 2014 with an exercise price of $1.21 and 2,361,000 RSUs. The exercise price and fair value of the underlying common stock used to calculate the related stock-based compensation was determined by our board of directors with assistance from management and was consistent with contemporaneous third-party valuation report dated May 9, 2014, which determined the fair value of our common stock as of May 8, 2014 to be $1.21 per share.

The May 8, 2014 valuation was prepared on a minority, non-marketable interest basis. This valuation was based on the PWERM, consistent with the November 2013 and April 2014 valuations. The equity values for the range of discrete events, specifically IPO and non-IPO scenarios, were developed by management and our board of directors by considering their best estimate for values under each scenario.

Under the initial public offering scenario, the future equity value of the company was developed by management by considering recent IPO pricing data in our industry. We selected implied revenue to enterprise value multiples for 2014 and 2015. After estimating the enterprise value, we adjusted for estimated cash and debt to arrive at an equity value on a marketable, minority interest basis. Under the strategic and private equity sale scenarios, the future values of the company under these scenarios was developed by management based on its assessment of the potential value that might be realized in such transactions. We then assigned probabilities to an IPO, a strategic sale or a private equity sale based on management’s assessment of the relative likelihood of those scenarios.

The weighted average and probability affected enterprise value was then allocated to our convertible preferred stock and common stock under the PWERM, after applying a discount rate of 20% to the future values noted above. Subsequent to the allocation to the preferred and common equity classes, a 12% marketability discount was applied to the resulting common stock value. Based on this valuation and other factors, as described above, our board of directors used $1.21 per share as the exercise price for the options granted on May 8, 2014, which was deemed to be the fair value of our common stock on the grant date. The fair value of our common stock of $1.21 was also used to calculate the fair value of the RSUs granted in May 2014.

Income Taxes

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. Estimates of future taxable income

 

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are based on assumptions that are consistent with our plans. Assumptions represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Should actual amounts differ from our estimates, the amount of our tax expense and liabilities could be materially impacted.

We apply the authoritative accounting guidance prescribing a threshold and measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax liability as the largest amount that is more likely than not to be realized upon ultimate settlement.

Significant judgment is also required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our liabilities for uncertain tax positions are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these liabilities in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may impact the provision for income taxes in the period in which such determination is made.

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss to future earnings, values or future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument might change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. We do not use derivative financial instruments for speculative, hedging or trading purposes, other than as described below. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates as described below.

Interest Rate Risk

We are exposed to market risk related to changes in interest rates. Borrowings under the revolving line of credit with Silicon Valley Bank, bear interest at rates that are variable. Increases in the Prime Rate would increase the amount of interest payable under this line of credit. Borrowings outstanding under our previous credit arrangements were not subject to interest rate risk because they bore interest at fixed rates. We do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition, or results of operations. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and results of operations.

Foreign Currency Exchange Risk

We have costs denominated in foreign currencies, primarily the Indian Rupee. This exposes us to the risk of fluctuations in foreign currency exchange rates. Accordingly, changes in exchange rates,

 

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and in particular a weakening of the U.S. dollar, would negatively affect our expenses and other operating results as expressed in U.S. dollars. We manage our exposure to fluctuations in the Indian Rupee by entering into forward contracts to cover a portion of our projected expenditures paid in local currency. These contracts generally have a term of less than 12 months.

The notional amount of our forward contracts was $8.7 million, $9.3 million and $11.1 million at December 31, 2012 and 2013 and March 31, 2014, respectively. A sensitivity analysis performed on our hedging portfolio as of March 31, 2014 indicated that a hypothetical 10% appreciation of the U.S. dollar from its value at December 31, 2012 and 2013 and March 31, 2014 would decrease the fair value of our foreign currency contracts by $0.8 million, $0.9 million and $1.0 million, respectively. A hypothetical 10% depreciation of the U.S. dollar from its value at December 31, 2012 and 2013 and March 31, 2014 would increase the fair value of our foreign currency contracts by $1.0 million, $1.0 million and $1.2 million, respectively.

Recently Issued Accounting Pronouncements

In March 2013, the Financial Accounting Standards Board, or FASB, issued an accounting standard update requiring an entity to release into net income the entire amount of a cumulative translation adjustment related to its investment in a foreign entity when as a parent it either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. This accounting standard update will be effective prospectively for us beginning in the fiscal year 2015. We do not expect the adoption of this accounting standard update will have a material impact on the consolidated financial statements.

In July 2013, the FASB issued a new accounting standard update on the financial statement presentation of unrecognized tax benefits. The new guidance provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carry forward, a similar tax loss or a tax credit carry forward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new guidance becomes effective for us on January 1, 2014 and it should be applied prospectively to unrecognized tax benefits that exist at the effective date with retrospective application permitted. The Company adopted the guidance in the three months ended March 31, 2014, and there was no material impact of this new guidance on the consolidated financial statements.

Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. However, we chose to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

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BUSINESS

Overview

Yodlee is a leading technology and applications platform powering dynamic innovation for digital financial services in the cloud. We refer to our platform as the Yodlee Financial Cloud. Our vision is to empower lives with innovative digital financial services. Our customers include financial institutions, Internet service companies providing innovative financial solutions and third-party developers of financial applications. More than 750 organizations in over 10 countries use the Yodlee platform to power their consumer-facing digital offerings, and we receive subscription fees for 15.7 million of these consumers, whom we refer to as our paid users.

Our financial institution customers encompass many of the leading financial institutions, including 9 of the 15 largest banks in the United States, which hold 85% of the total assets of the top 15 U.S. banks (based on total assets as of September 30, 2013). These institutions subscribe to the Yodlee platform to power offerings that improve consumer satisfaction and enhance engagement, while capturing cross-sell and up-sell opportunities. We estimate that our current network of financial institution customers alone reaches more than 100 million end users, representing a significant opportunity to grow our paid user base within existing customers. Our customers that are Internet service companies have an increasingly large and diverse base of users that also provides additional growth opportunities.

The Yodlee Financial Cloud delivers a wide variety of financial applications, or FinApps, targeted at the retail financial, wealth management, small business, card and other financial solutions sectors. These FinApps help consumers and small businesses simplify and manage their finances, review their financial accounts, track their spending, calculate their net worth, and perform a variety of other activities. Examples of FinApps include our Expense FinApp, which helps consumers track their spending, and a Payroll FinApp from a third party, which helps small businesses process their payroll. Our platform also enables our customers to develop their own applications through our open application programming interfaces, or APIs, that deliver trusted and secure data, money movement solutions, and other feature functionality.

Our technology infrastructure is designed to provide a highly available and secure multi-tenant cloud-based platform across hundreds of customers and millions of end users. Our solutions use a single code base for all customers and are globally accessible across multiple digital channels. Our multi-tenancy model uses a common data model for all customers but isolates data with logical controls and separate encryption keys for each customer. Our architecture utilizes state-of-the-art technologies to achieve enhanced availability, scalability and security.

We provide subscription services on a business-to-business-to-consumer, or B2B2C, basis to financial services clients, whereby our customers offer Yodlee-based solutions to their customers, whom we refer to as end users. On a business-to-business, or B2B, basis we deliver the same platform to third-party developers. We are a big data practitioner providing our customers with data analytics and market research services that enhance the value of our solutions and anonymized data derived from a massive and dynamic set of end user-permissioned transaction-level data that we gather and refine. We believe that our brand leadership, innovative technology and intellectual property, large customer base, and unique data gathering and enrichment provide us with competitive advantages that have enabled us to generate strong growth.

Financial institutions today operate in a highly fragmented, complex and regulated environment. At the same time, consumers and small businesses struggle to manage their increasingly complex finances, often across multiple online financial accounts at a variety of financial institutions, each with a different interface and login procedure. In addition, a new wave of Internet services companies are

 

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changing the way that consumers and small businesses manage their finances and transact online. As competition in the financial services industry has increased and financial institutions have concentrated resources on the sale of financial products, these institutions are seeking innovative technology solutions to improve their end users’ experience and enhance engagement, while capturing data-driven cross-sell and up-sell opportunities.

The financial services industry is undergoing a technological shift. Outdated enterprise hardware and software is being replaced by cloud-driven solutions that are easier and less expensive to implement, update and manage. Banks continue to spend heavily on IT in order to compete effectively in an increasingly competitive environment. Celent, an international financial research and consulting firm, estimates that in 2013 U.S. and Canadian banks alone spent a total of $11.3 billion on external software, which includes purchasing costs and licensing fees associated with third-party packaged software solutions. In addition, Celent estimates that European banks spent $13.4 billion on external software in 2013, bringing total spend on external software by U.S., Canadian and European banks to $24.7 billion. Celent projects that this combined spending will increase to $29.5 billion in 2015. We believe as financial institutions continue to spend on technology, a growing proportion of that spending will shift from outdated internally-developed or custom-built enterprise software to cloud-based solutions. In addition to the large opportunity that we have with traditional financial institutions, we believe that we also have a significant opportunity with Internet services companies providing innovative financial solutions.

We serve two main customer groups, financial institutions, or FI, customers and Internet services companies providing innovative financial solutions, which we refer to as our Yodlee Interactive, or YI, customers. Yodlee provides FI customers with access to FinApps, which can be subscribed to individually or in combinations, that include personal financial management, wealth management, card, payments and small-medium business, or SMB, solutions. We also provide our FI customers with trusted and secure access to our platform via APIs that enable them to receive end user-permissioned data that we aggregate, cleanse, and distribute, as well as our money movement solutions. Our YI customers are Internet services companies and third-party developers, who use our platform to develop new applications and enhance existing solutions. Our YI customers operate in a number of sub-vertical markets, including wealth management, personal financial management, small business accounting, small business lending and authentication. These customers use the Yodlee platform to build solutions that leverage our open APIs and access to a large end user base. In addition to aggregated transaction-level account data, we provide YI customers with secure access to account verification, money movement and risk assessment tools via our APIs. We play a critical role in bringing innovation from Internet services companies to financial institutions through the Yodlee Financial Cloud. For example, our YI customers use our solutions in such diverse applications as providing working capital to small businesses online; personalized financial management, planning and advisory services; ecommerce payment solutions; and online accounting systems for small businesses. We provide access to our solutions across multiple channels, including web, tablet and mobile.

We also offer data analytics and market research services that enhance the value of our solutions to our customers and provide anonymized data derived from a massive and dynamic set of end user-permissioned transaction-level data that we gather and refine. Our platform collects a wide variety of end user data from over 12,500 sources and puts it in a common repository. Beyond collecting the data, our platform performs a data refining process and augments the data with additional information from a variety of other sources. We enrich the data with a proprietary twelve-step process, adding such elements as categorization and merchant identification for bank or credit card account data and investment holding identification for investment account data. With this enhanced data, we enable our customers to offer better applications and more personalized solutions to end users.

 

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Our solutions benefit our customers and their end users in a wide variety of ways. For both our FI and YI customers, providing Yodlee-powered solutions improves their end user satisfaction and retention, accelerates speed to market, creates technology savings and enhances their data analytics and market research capabilities. For our customers’ end users, our solutions provide better access to their financial information and more control over their finances, leading to more informed and personalized decision making. For our customers who are members of the developer community, our solutions provide access to critical data and payments solutions, faster speed to market and enhanced distribution.

We believe a large addressable market and the need for innovative digital financial services give us the opportunity to grow considerably in the near term. Our growth strategy addresses two key drivers of our business: number of paid users and revenue per paid user. As we look to grow the number of paid users on our platform, we intend to focus on increasing penetration within our existing customer base, signing new customers and expanding internationally. We also intend to drive additional revenue per paid user by introducing new solutions like data analytics and market research services and by pursuing revenue-sharing opportunities from premium FinApps.

In 2013, our revenue increased by 21% to $70.2 million, driven largely by an increase in subscription revenue, which grew 28% from the year ended December 31, 2012, offset by a 1% decrease in professional services and other revenue. During the three months ended March 31, 2014, our revenue increased by 28% to $19.8 million, driven by an increase in subscription revenue, which grew 34% from the three months ended March 31, 2013. A substantial proportion of our revenues has been derived from contractually-recurring subscription and support revenues, and our solutions are integrated into our customers’ business processes driving strong customer retention. Our subscription and support revenue net retention rate, which we use as a measure of our ability to retain our customers through renewals of subscription agreements and to expand the number of our paid users, was 115%, 114% and 123% for the years ended December 31, 2011, 2012, and 2013, respectively, and 120% and 121% for the three months ended March 31, 2013 and 2014, respectively. See “—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics.” We generate revenues primarily from subscription and support fees and professional service fees. Subscription and support revenue has been a growing majority of our revenues and accounted for 81% and 85% of our revenue during the year ended December 31, 2013 and the three months ended March 31, 2014, respectively.

Our customer agreements typically provide for an initial three-year term, and many have a majority of subscription and support revenue derived from committed minimum fees pursuant to which our customers generally commit to a minimum level of paid users. As paid users grow across our platform in excess of the guaranteed minimum level, customers are required to pay additional usage fees. As usage increases and customers are required to pay additional usage fees, over time a more significant proportion of our revenue may be derived from usage by paid users. We also generate revenue from professional services, primarily relating to the implementation and configuration of our solutions for our customers. The contractual nature of a significant proportion of our revenue, together with favorable revenue retention rates, have historically assisted us in predicting our near-term revenues and reduced the variability of our projected revenue and cash flows.

Industry Background

Consumers and Small Businesses are Struggling to Effectively Manage Their Finances

The complex and fragmented nature of the financial industry makes managing finances a stressful and frustrating activity for consumers and small businesses. According to The Boston Consulting Group, in 2012 a majority of customer contacts with banks took place through online or mobile channels, and in 2020 roughly two-thirds of service and transaction activities are expected to be

 

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handled through those channels. According to a 2013 survey conducted by CEB TowerGroup, the average consumer over the age of 30 holds more than 12 distinct financial accounts and products across several institutions and CEB TowerGroup estimates that the average U.S. consumer has more than 8 billing relationships. Having multiple accounts requires the navigation of a variety of user interfaces and management of multiple sets of logins. Maintaining this number of disparate accounts can be complex, frustrating and time consuming as consumers struggle to gain an accurate and holistic view of their personal finances and to manage financial tasks like monitoring cash balances, budgeting and paying bills. Small businesses also struggle with effectively managing basic financial tasks, such as cash flow and expense management, invoicing and payroll. These event-driven processes are fragmented, giving rise to the need for a centralized platform that can consolidate consumers’ and small businesses’ finances and make these necessary everyday tasks seamless, integrated and able to be performed across multiple channels.

Widespread improvements in consumer-facing technologies in other sectors, such as media (Apple in music, Netflix/Hulu/Vudu in video), employee benefits (Benefitfocus), local service access (OpenTable, Yelp, Uber, Angie’s List), and navigation (Google, Inrix, NavTeq), are driving user expectations for simpler and easier experiences in managing their finances. A similar opportunity to innovate exists within the digital financial services industry, enabling consumers and small businesses to simplify and more easily manage their finances.

Financial Institutions Have Challenges and Opportunities to Engage and Retain Their Customers

Historically, the banker-customer relationship was rooted in human interaction and underpinned by the importance of customer satisfaction. As competition in the industry increased, FIs began to concentrate more resources on the sale of financial products. Customers have become more likely to fulfill their financial needs with multiple FIs, shopping around for the best mortgage deal, lowest credit card interest rate, or highest savings account rate. FIs are increasingly challenged in retaining their role as a trusted advisor. As a result, FIs are seeking innovative technology solutions to enhance customer engagement while capturing cross-sell and up-sell opportunities.

As FIs compete for more of their customers’ business, customer experience and satisfaction has become increasingly important. Today, customer satisfaction is driven by the ease and functionality of digital financial services, rather than the branch banking experience. Innovators in financial services have begun to build solutions designed for the digital world that provide a superior customer experience—the use of technology to drive both a highly automated and highly personalized experience—to deepen and strengthen the relationship and engagement with their customers. Enabling deeper and better engagement in financial services demands new technology solutions that offer speed to market, security, efficiency and sophisticated data capabilities.

Emerging Internet-Based Financial Services Companies are Paving the Path of Innovation

While FIs invest heavily in new initiatives to enhance their digital capabilities, a new wave of hundreds of Internet services companies is also changing the way consumers and small businesses execute transactions and manage their finances. Offerings like eWallets, virtual currencies and Amazon Payments, and companies like LifeLock, PayPal and Xero, are driving accelerated new user adoption with a range of solutions across multiple markets geared towards simplifying financial interactions, processes, transactions and management. These entities require scalable and secure technology platforms, data and payment capabilities to continue to accelerate their rate of adoption.

 

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Cloud-Based Platforms are Simplifying Software Delivery

According to Gartner, Inc., in 2013, the banking industry was the highest in enterprise IT spending by vertical industry market, worldwide. Celent estimates that IT spending by banks in the United States and Canada will increase to $59.5 billion in 2014. Outdated enterprise software systems are expensive and time-consuming to deploy and to update, and traditionally have had high levels of maintenance. According to Celent, approximately three-quarters of the IT budget at U.S. and Canadian banks, or $43.7 billion in 2014, will be dedicated to maintaining legacy systems and operations. Furthermore, outdated enterprise software deployment makes new solutions difficult to implement, dampening the pace of innovation.

The rise of cloud-based platforms is the result of rapid and significant technological improvements. Because cloud computing enables the delivery of Software-as-a-Service, or SaaS, it is helping to reduce costs, increase speed to market, and enable greater levels of innovation relative to outdated enterprise software. Mission-critical applications can now be delivered reliably without the purchase of costly on-premise software or hardware. Cloud-based platforms permit the development of applications without affecting the common capabilities maintained at the platform layer. Therefore, cloud-based platforms can be leveraged by multiple participants in the ecosystem, including customers and third-party developers, to create better solutions. The shared utility of cloud-based platforms permits a deeper level of vertical and functional specialization and creates an environment that is conducive to rapid and disruptive innovation.

Open Platforms and Application-Level Developer Ecosystems are Driving Innovation Forward

Open platform companies are changing the way innovation occurs across the economy. Enterprise cloud vendors such as salesforce.com, ServiceNow, and Concur, and companies like Amazon.com and Google provide open platforms with highly configurable application layers that are easily extendable into new application functionality by the vendors themselves, their enterprise customers, and third-party developers. Developers use these platforms as a base for rapid and more efficient delivery of innovative digital solutions and services.

As exemplified in other industries, this open platform system can result in an improved experience for the end user, developer, institutional customer and platform provider alike. Products can come to market faster, with better functionality, and these improved solutions can benefit customers, leading to heightened levels of end user demand. For the institutions utilizing these open platforms, developer community-led innovation helps to keep pace with rapidly evolving consumer expectations.

New Technology Platforms are Leveraging Big Data

According to IDC, the volume of digital information created and replicated worldwide will grow approximately 41% annually from 1.8 trillion gigabytes in 2011 to 40 trillion gigabytes in 2020. Given the exponential growth in data, many organizations have not yet developed the infrastructure to leverage these strategic assets.

In the financial services industry, data is highly fragmented and complex and often siloed at not only individual institutions but also within the various business units at a specific institution. We believe there is an opportunity to leverage this data to transform and improve existing processes and procedures around financial management, customer engagement and credit and risk management. As new technologies emerge to organize, process and access this siloed data, new business models that aggregate and syndicate intelligence are turning vast amounts of otherwise unusable information into actionable data used for superior process management and business insight.

 

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Large Addressable Market

In an increasingly mobile and digital world, consumer expectations of financial service providers continue to rise. Consumers are evaluating these providers based in part on the functionality and user experience of their digital services. In this environment, a financial service provider’s ability to create a differentiated user experience for its customers is increasingly important in sustaining a competitive advantage, which requires innovation to help address unsolved consumer problems and an ability to bring these innovations to market quickly. Cloud-based platforms facilitate rapid discovery and implementation of new solutions and enable financial service providers to integrate new solutions more efficiently.

Against this industry backdrop, we believe we have a significant market opportunity. Celent estimates that in 2013 U.S. and Canadian banks alone spent a total of $11.3 billion on external software, which includes purchasing costs and licensing fees associated with third-party packaged software solutions. In addition, Celent estimates that European banks spent $13.4 billion on external software in 2013, bringing total spend on external software by U.S., Canadian and European banks to $24.7 billion. Celent projects that this combined spending will increase to $29.5 billion in 2015.

We also have a significant market opportunity with our YI customer base. Our Internet services customers such as Kabbage, LearnVest, PayPal and Xero have an increasingly large and diverse number of users and the need for a variety of financial solutions to support their development and delivery of innovative financial services. We believe our solutions have the potential to address a wide variety of additional financial and data marketing needs of our YI customers.

We believe a portion of our future growth and addressable market will also come from expansion into large and rapidly growing markets, such as cross-selling within FIs, data analytics and market research services, and online credit information services.

As we continue to expand our presence in the markets outlined above, the number of potential end users who use our solutions increases dramatically. Our potential end user base includes any consumer of financial services on the Internet—and this end user could be a paid user of Yodlee many times over across multiple customers and products. This multiplier effect greatly increases our addressable end user base.

Our Solution

Yodlee is a leading technology and applications platform powering dynamic innovation for digital financial services in the cloud. We refer to our platform as the Yodlee Financial Cloud. We provide subscription services on a B2B2C basis to financial services clients, whereby our customers offer solutions based on our platform to their end users. On a B2B basis we deliver the same platform to third-party developers. We also provide transaction-level data for data analytics and market research services. We serve two main customer groups or channels, FI and YI customers.

Our FI customers encompass many of the leading FIs, including 9 of the 15 largest banks in the United States, which hold 85% of the total assets of the top 15 U.S. banks (based on total assets as of September 30, 2013). We estimate that our current network of FI customers alone reaches more than 100 million end users, representing a significant opportunity to grow our paid user base within existing customers.

 

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Our YI customers are Internet services companies providing innovative financial solutions, with an increasingly large and diverse base of users, and third-party developers. Third-party developers benefit from access to critical data and payments capabilities, our faster speed to market and enhanced distribution.

 

LOGO

Our platform powers hundreds of FinApps created and made available by us, our customers and third-party developers. FinApps can be sold individually or in combinations and include personal financial management, wealth management, card, payments and SMB solutions. Examples of FinApps are an Expense FinApp that helps a consumer track their spending, or a Payroll FinApp from a third party that can help a small business with processing its payroll. Our open APIs enable us, our FI and YI customers and third-party developers to create new FinApps that can be made available across our broad end user base.

 

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We also provide our customers with trusted and secure access to our platform via APIs that enable them to receive end user-permissioned transaction-level data that we aggregate and cleanse. Access to this data enables our customers to create a much more complete view of their end users’ finances, allowing them to make better informed, targeted decisions. We also offer data for data analytics and market research services that enhance the value of our solutions to our customers and provide anonymized data derived from a massive and dynamic set of end user-permissioned transaction-level data that we gather and refine. We collect this data from over 12,500 sources and receive over 75% of it through structured data feeds that are provided under the terms of our contracts with most of our FI customers. These structured feeds, which consist of either batch files pushed to us or real-time access, provide this critical data efficiently and at scale. Where we do not have a data feed in place, we are able to gather consumer data leveraging our proprietary information-gathering techniques.

In addition to aggregated transaction-level account data, we provide our customers with secure access to account verification, money movement and risk assessment tools via our APIs. By using our account verification solutions, customers can verify an end user’s account information, ownership and balance in real time, reducing risk for our customers when interacting with an end user’s checking account. By using our money movement solutions, end users can debit and credit consumer and small business accounts in real time or in batches, route payments between accounts or to other people and pay bills.

We have developed best-in-class security procedures and technologies that are embedded into our platform and applications and meet industry standards as well as the stringent security requirements of our largest FI customers. Our security procedures and technologies are regularly audited by independent security auditors engaged by us, and many of our prospective and current customers conduct their own audits or review the results of such independent security audits as part of their evaluation of our solutions. We are also periodically audited by regulatory agencies to whom our operations or our customers are subject. Our platform is available across multiple channels, including web, tablet and mobile.

Key Benefits

Our solutions drive tangible results for our customers:

 

    Enabling Innovation—The Yodlee platform enables our FI and YI customers to satisfy their mission-critical need to innovate by providing an open platform for the rapid development and deployment of their own financial applications, as well as direct access to applications developed by us and by a broad third-party developer community. Our platform provides solutions, including secure access to aggregated financial data, account verification, money movement and risk assessment tools, that form the core technology allowing many of our YI customers to provide innovative financial solutions.

 

    Customer Satisfaction / Retention—By deploying the Yodlee platform, our customers are able to provide features and functionality that significantly increase their end users’ engagement with their personal finances, which increases their satisfaction and reduces churn.

 

    Speed to Market—Our open platform makes it easier for FIs, Internet services companies and third-party developers to create new applications on our platform that can be deployed across our customer base. Our broad network of developers enables solutions to be more rapidly distributed to our customers via our established channels. Our cloud-based platform can make new solutions easier and faster to deploy than outdated enterprise software solutions. When a customer decides to use, or add functionality from, the Yodlee platform, time to deployment can be less than three months. Implementation of internally-developed or custom-built outdated enterprise software solutions can often take multiple years.

 

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    Technology Savings—Our solutions often provide our customers with extensive cost savings as compared to outdated internally-developed or custom-built enterprise software solutions, without the need to purchase additional hardware or software. In addition, these solutions can be inefficient to maintain and update. Because the Yodlee platform is cloud-based, updates can be made readily available in a cost-effective manner. For our YI customers, our solutions provide a capital-efficient means of developing their service offerings and reaching end users.

 

    Enhanced Data Analytics and Market Research Capabilities—Our data aggregation platform provides an opportunity for our customers to leverage transaction-level data for data analytics and market research uses. Through the data we make available, our customers can create a much more complete view of their end users’ finances, allowing them to make better informed targeting decisions. For example, our customers may be able to engage with their end users on new investment and credit solutions. These targeting decisions create cross-sell and up-sell opportunities. In addition, our comprehensive sets of anonymized data enable various market research and trend analyses for multiple use cases.

Our solutions also provide tangible benefits for end users:

 

    Better Access and Functionality—Our solutions enable customers to aggregate information into a single view of multiple accounts across several financial institutions. We provide end users with access to highly engaging personalized financial applications across multiple channels, such as web, mobile and tablet.

 

    More Control—Our solutions provide end users with more control over their finances, by providing access to applications designed to make financial tasks like budgeting, saving for a goal and investing for the future easier. These applications are designed to intelligently present financial information in a way that gives end users more control in a seamless, integrated and accessible fashion.

 

    Informed Personalized Decision Making—Our FinApps ecosystem built on top of the Yodlee platform provides end users with relevant content and applications when they need to take action or make decisions.

Our solutions also offer benefits to our customers that are members of the developer community:

 

    Enhanced Distribution—We estimate that our current network of FI customers alone reaches more than 100 million end users. This provides developers with large-scale distribution opportunities for their solutions.

 

    Speed to Market—Access to our unique data platform and our open, secure and trusted APIs enhances speed to market for our developers.

 

    Access to Critical Data and Payments Capabilities—Our solutions provide developers with critical data and payments capabilities, which allows them to focus their innovation on their unique offerings.

Competitive Strengths

Since our founding in 1999, we have built a premier and trusted brand in digital financial services. Our competitive strengths include:

Market Leadership with Customers and End Users

We have developed a leading market presence with more than 750 organizations, including 9 of the 15 largest banks in the United States, which hold 85% of the total assets of the top 15 U.S. banks (based on total assets as of September 30, 2013). These organizations include some of the largest and best known retail banks, brokerages, insurance companies, wealth management firms, private

 

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banking institutions and card companies. Our platform also enables the emergence or functionality of many innovative Internet services companies. These customer relationships and deployments have taken many years to accomplish, with complex sales cycles and integration efforts. We have 15.7 million paid users and estimate that our current network of FI customers alone reaches more than 100 million end users. We have significant opportunity to grow the number of paid users with existing customers, as well as leverage our market leadership with new customers across our platform. We believe that our ability to retain our customers through renewals of subscription agreements and expand the number of paid users of our applications and services is an indicator of the long-term value of our customer relationships.

Brand Leadership as a Secure and Trusted Partner

Over our 14-year history, we have developed and maintained a commitment to excellence in our product offerings and client engagements. Our brand is reinforced by our stable and growing customer base. A large part of the reputation we have established comes from our commitment to scalability, security, privacy and compliance throughout all of our solutions. We have developed robust security procedures and technologies that are embedded into our platform and applications and meet industry standards as well as the stringent security requirements of our largest FI customers. We employ a comprehensive program of risk-driven policies and procedures that are frequently audited by independent security auditors engaged by us to maximize effectiveness of our information security program.

Unique Big Data Gathering and Enrichment

We are a big data practitioner providing our customers with data analytics and market research services that enhance the value of our solutions and anonymized data derived from a massive and dynamic set of end user-permissioned transaction-level data that we gather and refine. Our big data activities include two key processes:

 

    Data Gathering—Our platform collects a wide variety of end user-permissioned transaction-level data from over 12,500 sources and puts it into a common repository. Currently, over 75% of this data is collected through structured feeds from our FI customers and other FIs. These structured feeds, which consist of either batch files pushed to us or real-time access, provide this critical data efficiently and at scale. This direct data connectivity to large FIs is a significant competitive advantage for us. Where we do not have direct connections, we capture data using our proprietary information-gathering techniques. Our flexible data model allows new and incremental data sources and data elements to be added quickly and efficiently.

 

    Data Enrichment—Beyond collecting data, our platform performs a data refining process and augments the data with additional information from a variety of other sources. With this enhanced data, we enable our customers to offer better applications and more personalized solutions to their end users which provide end users insights that allow them to take better control of, and better manage, their finances.

Innovative Technology and Intellectual Property

We have a history of innovation leadership. In 1999, we introduced the first financial account aggregation product to the digital financial services industry. We were the first platform to go to market with online personal financial management tools in 2006 and first to introduce an open platform for digital financial services in 2010. Recently, our innovation was recognized by the Best of Show award for our new collaborative finance mobile product, Tandem, won at the Finovate Conference in September 2013 and at the Finovate Asia Conference in November 2013. Additionally, as of March 31,

 

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2014, we had been granted 62 U.S. patents and had 28 U.S. patent applications pending. We also had 7 issued patents and 14 patent applications pending in foreign jurisdictions such as the European Patent Office, Canada, Australia and India. We believe our innovation leadership is a core strength that positions us for future growth.

Flexible, Scalable, Open Platform

Our solutions are built on a scalable open cloud-based technology platform that allows us to address the challenges facing FI and YI customers. Our platform was created to support the existing challenges of our customers and to evolve with them to address their future needs. We have a highly configurable platform that enables our customers to create differentiated solutions. We have open and secure APIs that leverage our data aggregation and money movement capabilities. As our business continues to grow, we expect our open APIs to continue to attract an active community of third-party developers, whose innovations will further extend our existing set of products and applications. With these tools delivered through our highly efficient Software-as-a-Service-based, or SaaS-based, model, we are able to provide our customers with valuable data and innovative services quickly and efficiently.

Access to our platform and data is predominantly through our hosted web pages and applications, and client-created applications utilizing our APIs and FinApps. This variety of access methods and usage has contributed to an increase in user logins on the Yodlee platform to over 5 million per day. We process over 27 million API calls per day, while maintaining an average API response time under 500 milliseconds.

Powerful Network Effects

The Yodlee Financial Cloud brings together FIs, Internet services companies, end users and third-party developers by providing a unified, flexible, platform that can deliver applications and new solutions at scale with powerful network effects:

 

    We estimate that our current network of FI customers alone reaches more than 100 million end users. As our platform usage grows and is exposed to more users and use cases, the system benefits from machine learning algorithms to better normalize, categorize and process high volumes of transaction-level data captured on our platform, allowing our network to become more effective, efficient and valuable to our customers.

 

    As our platform has become more effective and efficient, we have attracted a broad network of third-party developers. As more developers build on our platform, the number of solutions we can offer to our FI and YI customers increases, expanding the number of end users on the platform, and further enhancing our network, accelerating the pace of innovation.

 

    As our end user community grows, users are able to leverage our platform by establishing connections to other end users to form financially relevant social groups, contributing further network effects.

Growth Strategy

Our growth strategy is currently divided into two primary areas of focus: user growth and revenue per paid user growth. Key elements of our growth strategy include:

User Growth

 

   

Expand End User Usage with Existing Customers—We believe there are significant opportunities for growth within our existing customer base. As of March 31, 2014, our customer base has grown to more than 750 organizations using the Yodlee platform and we receive

 

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subscription fees for 15.7 million paid users. Our FI customers encompass many of the leading FIs, including 9 of the 15 largest banks in the United States, which hold 85% of the total assets of the top 15 U.S. banks (based on total assets as of September 30, 2013). We estimate that our current network of FI customers alone reaches more than 100 million end users, representing a significant opportunity to grow our paid user base within existing customers. We believe we can increase penetration among our existing customer base, both by increasing the adoption of our solutions in business units that we currently serve and by expanding into new business units. We intend to grow our business in the retail, financial, wealth management, small business, card and other financial solutions sectors in part by distributing FinApp solutions tailored to the needs of those sectors. We also believe distributing FinApp solutions tailored to specific sectors will enable FIs to deepen engagement across their user base and will contribute to growth.

 

    Grow the Number of Customers—While our platform was used by more than 450 FIs, including many of the top FIs, and 300 Internet services companies globally as of March 31, 2014, many opportunities exist for us to target new customers. According to Bankscope by Bureau van Dijk, as of March 14, 2014, there were approximately 9,941 active banks in the U.S. and 22,409 globally. We continue to drive efforts to deploy solutions with leading global FIs while also driving penetration in smaller FIs through channel partners. We intend to employ a land and expand strategy to target these institutions with simple initial product offerings and continually grow use cases over time. In addition, we believe demand for our YI solutions will continue to grow outside our current areas of focus. Our product capabilities across our YI customers currently cover over 30 sub-verticals and these capabilities will continue to increase as our platform usage grows and is exposed to more use cases. In many of these use cases, there is considerable room for expansion of our offerings. Lastly, our emerging data analytics and market research efforts are developing new product and customer base opportunities as we expand.

 

    Increase our Global Market Presence—We intend to deepen our presence in Canada, the United Kingdom, South Africa, India and Australia, and to establish a presence in select markets in Latin America, Europe and Asia. We will continue to focus on selling to the largest banking organizations and YI customers in each region using a scalable approach to enter new markets in a cost-effective manner.

Revenue per Paid User Growth

In addition to generating revenue directly from our platform and FinApps with our FI and YI customers, we also intend to grow our revenue by providing additional data analytics and market research services and are pursuing revenue-sharing opportunities from premium FinApps developed by our developer partners.

 

    Data Analytics and Market Research—We believe there is significant value inherent in our data analytics and market research services which we can realize through several different channels:

 

    Data-driven cross-sell and digital marketing opportunities—The scale and breadth of our platform allow us to gather transaction-level data from user accounts in outside institutions that provides a more holistic understanding of our customers’ end users than our customers are able to compile themselves. Our data analytics and market research services can be used by our customers to enhance the efficacy of their marketing strategies, enabling them to capture cross-sell and up-sell opportunities. There is also significant value in integrating our data services into FI customer relationship management systems.

 

    Market research—We have developed data products by aggregating anonymized financial transactions that occur on our platform, which will then power research and reporting products for multiple research use cases.

 

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    Credit and risk analytics—The end user-permissioned transaction-level data can also be used to improve real-time authentication and risk management and to enhance predictive analysis.

 

    FinApps—We are pursuing opportunities to grow revenue from premium FinApps through revenue sharing with developer partners and our customers. We are engaging with a number of partners on our platform and are focusing our efforts on connecting these partners with our customers for distribution to their end users.

Customers

As of March 31, 2014, more than 750 organizations in over 10 countries leveraged our cloud platform via secure APIs, services and/or solutions. As of March 31, 2014, our platform was in operation by more than 450 FIs, including 9 of the 15 largest U.S. banks, which hold 85% of the total assets of the top 15 U.S. banks (based on total assets as of September 30, 2013). Our platform was also used by approximately 300 Internet services companies. See Note 18 to the Consolidated Financial Statements for a summary of revenue by geographic area.

Customer Case Studies

The following case studies illustrate how customers in both our FI and YI channels have used our cloud-based platform via secure APIs, products and/or solutions to meet their business objectives.

FI Case Studies

Bank of America

In 2001, Bank of America, N.A., or Bank of America, selected Yodlee to provide Personal Financial Management services within Bank of America’s online experience and deployed the Yodlee Platform as “My Portfolio.”

Consumers were provided:

 

    A view of a customer’s full financial picture.

 

    Financial data collection through consolidated and extensive history of transactions.

Bank of America gained insight into its customers’ complete financial situation.

YI Case Studies

PayPal

Situation:    PayPal is the leading ecommerce service that enables users to pay, send money, and accept payments without revealing personal financial details.

Solution and Benefits:    In 2004, PayPal deployed Yodlee’s Instant Account Verification service which allowed customers to setup PayPal accounts instantaneously and helped solve problems associated with traditional challenge deposit verification. Using the Yodlee Instant Account Verification product, PayPal realized the benefit of reduced risk and fraud, and reduced abandonment that typically follows a challenge deposit. PayPal continues to rely on Yodlee’s Instant Account Verification service and is also using Yodlee’s Personal Finance APIs to build out point solutions for consumers to solve specific money management problems.

Benefits realized are:

 

    Facilitating identity verification for consumers wanting to shop via a PayPal experience.

 

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    Improving the consumer experience for opening new PayPal accounts on line.

 

    Improving the consumer new PayPal account enrollment experience by allowing consumers to verify their financial accounts more conveniently.

Kabbage

Situation:    Kabbage, Inc. provides working capital to small businesses online. As part of its lending and loan management process, Kabbage is required to authenticate and evaluate small businesses, their owners and relevant associated financial accounts in order to determine if they pose an acceptable lending risk. Because the Kabbage business is highly virtual, it requires automated and continuous access to the financial and associated data necessary to make small business lending and loan management decisions.

Solution and Benefits:    Kabbage subscribes to the Yodlee Account Verification API. The Account Verification API enables Kabbage customers to quickly and easily link relevant financial accounts with Kabbage verification and analytics systems, so that loan candidates can be verified, evaluated and underwritten in a highly virtual environment, in real or near real time. The Account Verification API further enables Kabbage to automate and streamline loan origination processes, and the associated data available through the API helps inform Kabbage fraud and risk analytics, so that it can make better and more profitable lending decisions. Kabbage initially deployed Yodlee’s solutions in 2011.

LearnVest

Situation:    LearnVest, Inc. provides financial management, planning and advisory services personalized to its customers’ specific financial goals and needs. LearnVest requires automated, continuous access to customers’ personal financial account data in order to provide them with LearnVest’s financial planning tools and timely advice and action plans, both directly and through LearnVest distribution partners.

Solution and Benefits:    LearnVest subscribes to the Yodlee Interactive Data Aggregation API. The Data Aggregation API enables LearnVest customers to quickly and easily connect their bank, retirement and other important financial accounts into LearnVest’s systems, automating delivery of the financial and other data required to power LearnVest’s financial management, planning and advisory services and solutions. LearnVest initially deployed Yodlee’s API in 2011 to enable financial management solutions and then expanded its use of Yodlee to power advisory services in 2013. Continuous access to financial account data is necessary to enable a highly virtual, real-time financial planning and advisory business like LearnVest.

Personal Capital

Situation:    Personal Capital Corporation provides financial management, planning and advisory services and solutions predicated on technology and objective financial advice. Personal Capital requires automated, continuous access to customers’ personal financial account data in order to provide them with Personal Capital’s winning tablet and mobile financial management applications, and to support Personal Capital’s network of professional financial advisors and the associated technology platforms they leverage to advise customers.

Solution and Benefits:    Personal Capital subscribes to the Yodlee Interactive Data Aggregation API. The Data Aggregation API enables Personal Capital customers to quickly and easily connect their bank, retirement and other important financial accounts into Personal Capital customer and advisor- facing systems, automating delivery of the financial and other data required to power Personal Capital’s financial management, planning and advisory services and solutions. Continuous access to

 

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financial account data is critical to enable a highly virtual, mobile, real-time financial planning and advisory business like Personal Capital. In 2011, Personal Capital began to use Yodlee’s API to power its online and tablet-based applications and in 2012 expanded its use to offer IOS- and Android-based applications.

Xero

Situation:    Xero is an online accounting system designed specifically for small businesses. The most consistently in demand platform feature among Xero’s small business, accountant and bookkeeper customers has been the automated delivery of bank and financial account information into the Xero solutions. In the midst of a