10-Q 1 d137483d10q.htm 10-Q 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 001-34803

 

 

Qlik Technologies Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-1643718

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

150 N. Radnor Chester Road, Suite E220

Radnor, Pennsylvania

  19087
(Address of principal executive offices)   (Zip Code)

(888) 828-9768

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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.

 

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of April 22, 2016, there were 93,964,465 shares of the registrant’s common stock issued and outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION   

Item 1.

  

Financial Statements

  
  

Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015

     1   
  

Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015

     2   
  

Unaudited Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2016 and 2015

     3   
  

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015

     4   
  

Notes to Unaudited Consolidated Financial Statements

     5   

Item 2.

  

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

     16   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     29   

Item 4.

  

Controls and Procedures

     30   
PART II – OTHER INFORMATION   
Item 1.    Legal Proceedings      31   
Item 1A.    Risk Factors      32   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      50   
Item 3.    Defaults Upon Senior Securities      50   
Item 4.    Mine Safety Disclosures      50   
Item 5.    Other Information      50   
Item 6.    Exhibits      51   
SIGNATURES      52   


Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

QLIK TECHNOLOGIES INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

     March 31,
2016
    December 31,
2015
 
     (unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 369,950      $ 320,058   

Accounts receivable, net of allowance for doubtful accounts of $2,003 and $1,494, respectively

     144,628        236,717   

Prepaid expenses and other current assets

     25,592        17,740   
  

 

 

   

 

 

 

Total current assets

     540,170        574,515   

Property and equipment, net

     30,753        31,404   

Intangible assets, net

     13,755        14,316   

Goodwill

     38,310        37,366   

Deferred income taxes

     4,950        5,252   

Deposits and other noncurrent assets

     3,621        3,743   
  

 

 

   

 

 

 

Total assets

   $ 631,559      $ 666,596   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 6,558      $ 6,785   

Deferred revenue

     168,188        172,121   

Accrued payroll and other related costs

     48,774        63,108   

Accrued expenses

     39,606        43,317   
  

 

 

   

 

 

 

Total current liabilities

     263,126        285,331   

Long-term liabilities:

    

Deferred revenue

     8,336        8,290   

Deferred income taxes

     2,048        2,048   

Other long-term liabilities

     7,966        9,132   
  

 

 

   

 

 

 

Total liabilities

     281,476        304,801   

Commitments and contingencies

    

Stockholders’ equity:

    

Preferred stock, $0.0001 par value, 10,000,000 authorized, none issued and outstanding at March 31, 2016 and December 31, 2015

     —          —     

Common stock, $0.0001 par value, 300,000,000 shares authorized; 93,940,007 shares issued and outstanding at March 31, 2016 and 93,165,286 shares issued and outstanding at December 31, 2015

     9        9   

Additional paid-in capital

     436,203        419,262   

Accumulated deficit

     (85,099     (58,085

Accumulated other comprehensive income (loss)

     (1,030     609   
  

 

 

   

 

 

 

Total stockholders’ equity

     350,083        361,795   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 631,559      $ 666,596   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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QLIK TECHNOLOGIES INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 

     Three Months Ended March 31,  
     2016     2015  

Revenue:

    

License revenue

   $ 59,833      $ 54,807   

Maintenance revenue

     63,601        52,670   

Professional services revenue

     14,596        12,787   
  

 

 

   

 

 

 

Total revenue

     138,030        120,264   

Cost of revenue:

    

License revenue

     1,512        1,972   

Maintenance revenue

     3,873        3,258   

Professional services revenue

     17,387        15,911   
  

 

 

   

 

 

 

Total cost of revenue

     22,772        21,141   
  

 

 

   

 

 

 

Gross profit

     115,258        99,123   

Operating expenses:

    

Sales and marketing

     88,528        76,641   

Research and development

     22,210        17,395   

General and administrative

     29,341        29,174   
  

 

 

   

 

 

 

Total operating expenses

     140,079        123,210   
  

 

 

   

 

 

 

Loss from operations

     (24,821     (24,087

Other income, net:

    

Interest income, net

     61        30   

Foreign exchange gain, net

     343        1,395   
  

 

 

   

 

 

 

Total other income, net

     404        1,425   
  

 

 

   

 

 

 

Loss before income taxes

     (24,417     (22,662

Income tax expense

     (2,597     (7,658
  

 

 

   

 

 

 

Net loss

   $ (27,014   $ (30,320
  

 

 

   

 

 

 

Net loss per common share

    

Basic and diluted

   $ (0.29   $ (0.33

Weighted average number of common shares outstanding:

    

Basic and diluted

     93,431,206        90,999,316   

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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QLIK TECHNOLOGIES INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

     Three Months Ended March 31,  
     2016     2015  

Net loss

   $ (27,014   $ (30,320

Foreign currency translation

     (1,639     2,142   
  

 

 

   

 

 

 

Comprehensive loss

   $ (28,653   $ (28,178
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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QLIK TECHNOLOGIES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

     Three Months Ended March 31,  
     2016     2015  

Cash flows from operating activities

    

Net loss

   $ (27,014   $ (30,320

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation and amortization

     4,267        3,359   

Stock-based compensation expense

     10,384        9,397   

Excess tax benefit from stock-based compensation

     (1,806     (6,570

Unrealized foreign currency (gain) loss, net

     (5,446     10,422   

Other non-cash items

     1,305        897   

Changes in assets and liabilities:

    

Accounts receivable

     93,482        50,709   

Prepaid expenses and other assets

     (7,334     (158

Deferred revenue

     (7,011     10,629   

Accrued expenses and other liabilities

     (19,117     (12,348
  

 

 

   

 

 

 

Net cash provided by operating activities

     41,710        36,017   

Cash flows from investing activities

    

Capital expenditures

     (2,279     (2,986
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,279     (2,986

Cash flows from financing activities

    

Proceeds from exercise of common stock options

     4,750        6,843   

Excess tax benefit from stock-based compensation

     1,806        6,570   
  

 

 

   

 

 

 

Net cash provided by financing activities

     6,556        13,413   

Effect of exchange rates on cash and cash equivalents

     3,905        (9,406
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     49,892        37,038   

Cash and cash equivalents, beginning of period

     320,058        244,018   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 369,950      $ 281,056   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid during the period for income taxes

   $ 1,454      $ 1,904   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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QLIK TECHNOLOGIES INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

(1) Description of Business

Qlik Technologies Inc. (“We”, “Qlik” or the “Company”) has pioneered powerful, user-driven business intelligence (“BI”) solutions that enable its customers to make better, faster and more informed business decisions, wherever they are. The Company’s software products help people create and share insights and analysis in groups and across organizations. Business users can explore data, ask and answer their own stream of questions and follow their own path to insight, or collaborate across teams and organizations. Through its wholly owned subsidiaries, the Company sells software solutions that are powered by the Company’s in-memory engine which maintains associations in data and calculates aggregations rapidly as business users interact with the Company’s software. The Company’s software products are designed to give customers significant improvements in usability, flexibility and performance at lower costs compared to traditional BI solutions.

 

(2) Significant Accounting Policies

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K (file number 001-34803), filed with the Securities and Exchange Commission (“SEC”) on February 26, 2016. Since the date of those financial statements, there have been no material changes to the Company’s significant accounting policies.

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated. Prior year amounts have been reclassified where appropriate to conform to the current year classification for comparative purposes.

Interim Financial Statements

These interim consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) on the same basis as the audited consolidated financial statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 26, 2016 and, in the opinion of management, include all adjustments of a normal recurring nature considered necessary to present fairly the Company’s financial position at March 31, 2016, the results of operations and comprehensive loss for the three months ended March 31, 2016 and 2015 and cash flows for the three months ended March 31, 2016 and 2015. The results of operations for the three months ended March 31, 2016 and 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or any other future periods. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted under the SEC’s rules and regulations. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2015. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to the Quarterly Report on Form 10-Q and, therefore, do not include all information and footnotes required by U.S. GAAP for complete financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company evaluates its estimates, including those related to the accounts receivable allowance, useful lives of long-lived assets, the recoverability of goodwill and other intangible assets, assessing fair values of assets and liabilities acquired in and contingent consideration related to business acquisitions, and assumptions used for the purpose of determining stock-based compensation expense and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying value of assets and liabilities as well as reported revenues and expenses during the periods presented.

 

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Foreign Currency Translation

The financial statements of the Company’s foreign operations are measured using the local currency as the functional currency. The local currency assets and liabilities are translated at the rate of exchange to the United States (“U.S.”) dollar on the balance sheet date and the local currency revenues and expenses are translated at average rates of exchange to the U.S. dollar during the reporting periods. Foreign currency transaction gains (losses) have been reflected as a component of other income (expense), net within the Company’s consolidated statements of operations and foreign currency translation gains (losses) have been included as a component of the Company’s consolidated statements of comprehensive income (loss) and accumulated other comprehensive income (loss) within the Company’s consolidated balance sheets.

Business Combinations

The Company recognizes assets acquired, liabilities assumed and any contingent consideration related to business combinations at fair value on the date of acquisition. The purchase price allocation process requires management to make significant estimates and assumptions with respect to the fair value of any intangible assets acquired, deferred revenues assumed, or contingent consideration within the arrangement. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions or estimates. All subsequent changes to a valuation allowance or uncertain tax position related to the acquired company that occur within the measurement period and are based on facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill.

Acquisition-related transaction costs, including legal and accounting fees and other external costs directly related to the acquisition, are recognized separately from the acquisition and expensed as incurred in general and administrative expenses in the consolidated statements of operations.

Revenue Recognition

The Company derives its revenues from three sources: (i) license revenues; (ii) maintenance revenues; and (iii) professional services revenues. The majority of license revenue is from the sale of perpetual licenses to customers or resellers. Maintenance revenue, which generally has a contractual term of 12 months, includes telephone and web-based support and rights to software updates and upgrades on a when-and-if-available basis. Professional services revenue includes training, implementation, consulting and expert services.

For each arrangement, the Company recognizes revenue when (a) persuasive evidence of an arrangement exists, such as a signed contract or purchase order; (b) delivery of the product has occurred and there are no remaining obligations or substantive customer acceptance provisions; (c) the fee is fixed or determinable; and (d) collection of the fee is deemed reasonably assured. Delivery is considered to have occurred upon electronic transfer of the license key that provides immediate availability of the product to the purchaser.

As substantially all of the Company’s software licenses are sold in multiple-element arrangements that include either maintenance or both maintenance and professional services, the Company uses the residual method to determine the amount of license revenue to be recognized. Under the residual method, consideration is allocated to undelivered elements based upon vendor-specific objective evidence (“VSOE”) of the fair value of those elements, with the residual of the arrangement fee allocated to and recognized as license revenue. The Company has established VSOE of the fair value of maintenance through independent maintenance renewals, which demonstrate a consistent relationship of maintenance pricing as a percentage of the contractual license fee, and for new products for which renewals have not yet occurred, the Company has established VSOE of maintenance based on prices established by management with relevant authority. Maintenance revenue is deferred and recognized ratably over the contractual period of the maintenance arrangement, which is generally 12 months. Arrangements that include other professional services are evaluated to determine whether those services are essential to the functionality of other elements of the arrangement. The Company has determined that these services are not considered essential and the amounts allocated to the services are recognized as revenue when the services are performed. The VSOE of the fair value of the Company’s professional services is based on the price for these same services when they are sold separately. Revenue for services that are either sold on a stand-alone basis or included in multiple-element arrangements is recognized as the services are performed.

Certain of the Company’s license arrangements include license remix rights which allow the customer to change or alternate its use of the Company’s products after those products have been delivered to the customer. Under these arrangements, the customer has the right to deploy and use at least one copy of each licensed product, and the cumulative value of all products in use cannot exceed the total license fee. Assuming all other revenue recognition criteria have been met, the Company recognizes revenue under these arrangements upon delivery of the first license key of each product eligible for remix under the arrangement.

For sales made through resellers, the Company recognizes revenue upon the delivery of the license key only if those resellers provide the Company, at the time of placing their order, with the identity of the end-user customer to whom the product has been sold. Resellers do not carry inventory of the Company’s software products and, generally, do not have the right to return the Company’s software products. Sales made through resellers are evidenced by a reseller agreement, together with purchase orders or order confirmations on a transaction-by-transaction basis.

 

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The Company also sells software licenses to original equipment manufacturers (“OEMs”) who integrate the Company’s products for distribution with their applications. The Company does not offer any rights to return products sold to OEM’s. The OEM’s end-user customer is licensed to use the Company’s products solely in conjunction with the OEM’s application. In OEM arrangements, license key delivery is required as the basis for revenue recognition. The Company recognizes revenue under its OEM arrangements when (a) persuasive evidence of an arrangement exists, such as a signed contract or purchase order; (b) delivery of the product has occurred and there are no remaining obligations or substantive customer acceptance provisions; (c) the fee is fixed or determinable; and (d) collection of the fee is deemed reasonably assured.

The Company records taxes collected on revenue-producing activities on a net basis.

Stock-Based Compensation

The Company recognizes the cost of stock-based compensation based on the fair value of those awards at the date of grant and amortizes the cost over the requisite service period. The Company uses the Black-Scholes-Merton (“Black-Scholes”) option pricing model to determine the fair value of common stock option awards and Stock-settled Stock Appreciation Rights (“SSARs”). The fair value of a restricted stock unit is determined by using the closing price of the Company’s common stock on the date of grant. The fair value of Maximum Value Stock-settled Stock Appreciation Rights (“MVSSSARs”) is determined by utilizing a lattice model under the option-pricing method. Stock-based compensation plans, related expenses and assumptions used in the Black-Scholes option-pricing model and the lattice model under the option-pricing method are more fully described in Note 7 to these unaudited consolidated financial statements. Stock-based compensation expense is recorded within cost of revenue, sales and marketing, research and development and general and administrative expenses in the consolidated statements of operations.

The following table sets forth the total stock-based compensation expense included in the unaudited consolidated statements of operations for the three months ended March 31, 2016 and 2015 (in thousands):

 

                                         
     Three Months Ended March 31,  
     2016      2015  

Cost of revenue

   $ 874       $ 1,025   

Sales and marketing

     4,979         4,670   

Research and development

     1,121         956   

General and administrative

     3,410         2,746   
  

 

 

    

 

 

 

Total

   $ 10,384       $ 9,397   
  

 

 

    

 

 

 

Net Loss per Common Share

The following table sets forth the computation of basic and diluted net loss per common share for the three months ended March 31, 2016 and 2015 (in thousands, except share and per share data):

 

                                         
     Three Months Ended March 31,  
     2016      2015  

Basic and diluted net loss per common share calculation:

     

Net loss

   $ (27,014    $ (30,320

Weighted average common shares outstanding:

     

Basic and diluted

     93,431,206         90,999,316   

Net loss per common share:

     

Basic and diluted

   $ (0.29    $ (0.33

 

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Diluted net loss per common share for the three months ended March 31, 2016 and 2015 does not reflect the potential issuance of common shares underlying the following securities as the effect would be anti-dilutive:

 

     Three Months Ended March 31,  
     2016      2015  

Common stock options

     8,991,314         9,408,119   

SSARs

     10,272         24,091   

Restricted stock units

     2,445,437         946,454   

MVSSSARs

     86,271         215,128   
  

 

 

    

 

 

 

Total anti-dilutive securities

     11,533,284         10,593,792   
  

 

 

    

 

 

 

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or consolidated results of operations upon adoption.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP. The guidance was originally effective for annual reporting periods beginning after December 15, 2016, and interim periods therein. In August 2015, the FASB issued Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (ASU 2015-14), which deferred the effective date to annual reporting periods beginning after December 15, 2017. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. ASU 2014-09 can be adopted using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. The Company is currently evaluating the impact of adopting ASU 2014-09 on our consolidated financial statements and have not yet selected a transition method, nor have we determined the effect of the standard on our ongoing financial reporting.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15), to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for the Company beginning in the first quarter of 2016 with early adoption permitted. The Company adopted ASU 2014-15 during the third quarter of 2015, and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16), to simplify the accounting for adjustments made to provisional amounts recognized in a business combination and eliminate the requirement to retrospectively account for those adjustments. ASU 2015-16 is effective for annual reporting periods beginning after December 15, 2015, and interim periods therein, with early adoption permitted for financial statements that have not been issued. The Company adopted ASU 2015-16 during the third quarter of 2015, and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), requiring companies to generally recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods, with earlier adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, and interim periods, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-09 on its consolidated financial statements.

 

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(3) Goodwill and Other Intangible Assets

The Company tests goodwill resulting from acquisitions for impairment annually on October 1, or whenever events or changes in circumstances indicate impairment. There was no impairment in the three months ended March 31, 2016 and 2015. The change in goodwill in the consolidated balance sheet as of March 31, 2016 from December 31, 2015 was due to the effect of foreign currency translation.

The following table provides information regarding the Company’s intangible assets subject to amortization (in thousands):

 

     March 31, 2016      December 31, 2015  
     Gross
Amount
     Accumulated
Amortization
    Net
Amount
     Gross
Amount
     Accumulated
Amortization
    Net
Amount
 

Acquired technology

   $ 18,096       $ (8,459   $ 9,637       $ 17,641       $ (7,523   $ 10,118   

Customer relationships and other identified intangible assets

     5,987         (1,916     4,071         5,799         (1,653     4,146   

Trade names

     399         (352     47         392         (340     52   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 24,482       $ (10,727   $ 13,755       $ 23,832       $ (9,516   $ 14,316   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

The change in intangible assets in the consolidated balance sheet as of March 31, 2016 from December 31, 2015 was due to (i) the amortization of intangible assets of approximately $0.9 million and (ii) the effect of foreign currency translation of approximately $0.3 million. Amortization of intangible assets was approximately $0.9 million for the three months ended March 31, 2016 and 2015. The estimated aggregate amortization expense for each of the succeeding years is as follows: $2.9 million for the remainder of 2016; $3.3 million in 2017; $2.1 million in 2018; $1.5 million in 2019; $1.5 million in 2020; and $2.5 million thereafter. The weighted-average amortization period for all intangible assets is approximately 6.2 years.

 

(4) Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. The Company evaluates the fair value of certain assets and liabilities using the following fair value hierarchy which ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value:

 

    Level 1 – quoted prices in active markets for identical assets and liabilities

 

    Level 2 – inputs other than Level 1 quoted prices that are directly or indirectly observable

 

    Level 3 – unobservable inputs that are not corroborated by market data

The Company is exposed to certain risks related to its ongoing business operations, including the fluctuation of foreign currency exchange rates. The Company uses short-term foreign currency forward contracts as part of its strategy to manage these risks, but does not hold or issue these or any other types of derivative instruments for trading purposes or speculation. The Company uses these short-term foreign currency forward contracts to manage foreign currency exchange rate risks related to certain intercompany borrowings and certain contingent consideration liabilities. The Company executes these instruments with financial institutions that hold an investment grade credit rating. These short-term foreign currency forward contracts do not meet the requirements for hedge accounting and are recorded on the Company’s balance sheet as either an asset or liability measured at their fair value as of the reporting date. The changes in the fair value of derivative instruments, as measured using the three-level hierarchy described above, are recognized in other expense, net, in the Company’s unaudited consolidated statements of operations.

 

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The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by the Company. The following table sets forth the Company’s assets and liabilities that were measured at fair value as of March 31, 2016 and December 31, 2015, by level within the fair value hierarchy (in thousands):

 

     Amounts at      Fair Value Measurement Using  
     Fair Value      Level 1      Level 2      Level 3  

As of March 31, 2016

           

Assets

           

Cash and cash equivalents

   $ 369,950       $ 369,950       $ —         $ —     

Short-term foreign currency forward contracts

   $ 112       $ —         $ 112       $ —     

Liabilities

           

Accrued contingent consideration

   $ 7,604       $ —         $ —         $ 7,604   

As of December 31, 2015

           

Assets

           

Cash and cash equivalents

   $ 320,058       $ 320,058       $ —         $ —     

Short-term foreign currency forward contracts

   $ 101       $ —         $ 101       $ —     

Liabilities

           

Accrued contingent consideration

   $ 7,532       $ —         $ —         $ 7,532   

The fair value of the Company’s foreign currency short-term forward contracts is determined using Level 2 observable market inputs to extrapolate forward points to be added to or subtracted from the closing market spot rate on the reporting date, and then are discounted to present value.

The following table presents the fair values of hedging instruments within in the Company’s consolidated balance sheets as of the noted dates (in thousands):

 

     March 31, 2016      December 31, 2015  
     Assets      Liabilities      Assets      Liabilities  
     (unaudited)                

Short-term foreign currency forward contracts

   $ 112       $ —         $ 101       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 112       $ —         $ 101       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company recognized the following net gain (loss) on short-term foreign currency forward contracts in other income, net within its unaudited consolidated statement of operations as follows (in thousands):

 

     Three Months Ended March 31,  
     2016      2015  

Short-term foreign currency forward contracts

   $ (3,949    $ 9,939   
  

 

 

    

 

 

 

Total

   $ (3,949    $ 9,939   
  

 

 

    

 

 

 

The following table presents a reconciliation of the beginning and ending balances of acquisition-related accrued contingent consideration using significant unobservable inputs (Level 3) for the three months ended March 31, 2016 (in thousands):

 

Accrued contingent consideration as of December 31, 2015

   $ 7,532   

Change in fair value of contingent consideration

     72   
  

 

 

 

Accrued contingent consideration as of March 31, 2016

   $ 7,604   
  

 

 

 

During each of the three months ended March 31, 2016 and 2015, a charge of approximately $0.1 million was recorded related to the changes in fair value of contingent consideration liabilities.

 

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Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets and goodwill. These items are recognized at fair value in the period in which an acquisition is completed, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for intangible assets acquired, were based on Level 3 unobservable inputs. There were no non-recurring fair value adjustments recorded during the three months ended March 31, 2016 and 2015.

 

(5) Income Tax Provision

In accordance with FASB Accounting Standards Codification 740, Income Taxes, each interim period is considered integral to the annual period and the tax provision is measured using an estimated annual effective tax rate. An entity is required to record the income tax provision each quarter based on its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, as adjusted for discrete taxable events that occur during the interim period. If, however, the entity is unable to reliably estimate its annual effective tax rate, then the actual effective tax rate on a year-to-date basis may be the best annual effective tax rate estimate. For the three months ended March 31, 2016 and 2015, the Company determined that it was not able to make reliable estimates of the annual effective tax rate in the U.S., as relatively small changes in its projected income or loss produce a significant variance in its annual effective tax rate in this jurisdiction. Therefore, the Company recorded a tax provision in the U.S., for the three months ended March 31, 2016 and 2015, based on the actual effective tax rate for these periods. The Company will continue to utilize this methodology until reliable estimates of the annual effective tax rate in the U.S. can be made. The effective tax rate for all other jurisdictions for the three months ended March 31, 2016 and 2015 was calculated based on an estimated annual effective tax rate as adjusted for discrete items.

For the three months ended March 31, 2016, the Company recorded income tax expense of approximately $2.6 million, which resulted in an effective tax rate of approximately (10.6%), compared to income tax expense of approximately $7.7 million, or an effective tax rate of approximately (33.8%), for the three months ended March 31, 2015. As of March 31, 2016, a full valuation allowance continues to be recorded against its U.S. and Swedish deferred income tax assets, based on an analysis of positive and negative evidence, including analyzing three-year cumulative pre-tax income or loss as well as other quantitative and qualitative information. The effective tax rates for the three months ended March 31, 2016 and 2015 are primarily driven by foreign tax rate differentials, the effects of permanent differences and the changes in the valuation allowance on deferred income tax assets. The primary differences between the effective tax rates for the three months ended March 31, 2016 and 2015 relate to relative differences in the distribution of income and losses in jurisdictions in which the Company operates, changes in the valuation allowances against deferred income tax assets, the impact of the permanent differences and discrete items.

The Company’s liability for unrecognized tax benefits (including penalties and interest) was approximately $1.5 million as of March 31, 2016 and December 31, 2015. The Company does not expect that the total amount of unrecognized tax benefits will change significantly during the next twelve months. See Note 7, Income Tax Provision, of the Notes to the Consolidated Financial Statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 26, 2016, for more detailed information regarding unrecognized tax benefits.

 

(6) Business and Geographic Segment Information

The Company currently operates in one operating business segment, namely, the development, commercialization and implementation of software products and related services. The Company is managed and operated as one business. A single management team that reports to the chief operating decision maker comprehensively manages the entire business. The Company does not operate any material separate lines of business or separate business entities with respect to its products or product development.

The following geographic data includes revenues generated by subsidiaries located within that geographic region. The Company’s revenues were generated in the following geographic regions for the periods indicated (in thousands):

 

     Three Months Ended March 31,  
     2016      2015  

The Americas

   $ 50,685       $ 42,867   

Europe

     68,372         63,017   

Rest of world

     18,973         14,380   
  

 

 

    

 

 

 

Total

   $ 138,030       $ 120,264   
  

 

 

    

 

 

 

 

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(7) Stock-Based Compensation

The Company’s 2010 Equity Incentive Plan (“2010 Plan”) took effect on July 16, 2010, the effective date of the registration statement for the Company’s initial public offering (“IPO”). The Company initially reserved 3,300,000 shares of its common stock for issuance under the 2010 Plan. The number of shares reserved for issuance under the 2010 Plan will be increased automatically on January 1st of each year by a number equal to the smallest of (i) 3,300,000 shares; (ii) 3.75% of the shares of common stock outstanding at that time; or (iii) a number of shares determined by the Company’s Board of Directors. In February 2016, the Board of Directors approved an increase to the number of shares of common stock available for issuance under the 2010 Plan of 3,300,000 shares effective January 2016. As of March 31, 2016, there were approximately 6.3 million shares of common stock available for issuance under the 2010 Plan.

Common Stock Options and SSARs

The following provides a summary of the common stock option activity for the Company for the three months ended March 31, 2016:

 

     Number of
Shares
     Weighted-
Average
Exercise Price
     Weighted-
Average
Remaining
Contractual
Term (Years)
     Aggregrate
Intrinsic Value (in
thousands)
 

Outstanding as of January 1, 2016

     9,180,188       $ 24.94         7.19      

Granted

     707,867       $ 26.28         

Exercised

     (692,559    $ 6.86         

Forfeited

     (204,182    $ 29.09         
  

 

 

          

Outstanding as of March 31, 2016

     8,991,314       $ 26.34         7.42       $ 37,340   
  

 

 

          

Exercisable at March 31, 2016

     4,817,845       $ 23.64         6.32       $ 27,117   

Vested at March 31, 2016 and expected to vest in future periods

     8,625,562       $ 26.23         7.37       $ 36,332   

The grant date weighted-average fair value for common stock options granted during the three months ended March 31, 2016 and 2015 was $10.82 and $13.21, respectively. Stock-based compensation expense related to common stock options is amortized over the requisite service period.

Proceeds from the exercise of common stock options were approximately $4.8 million and $6.8 million for the three months ended March 31, 2016 and 2015, respectively. The total intrinsic value of common stock options exercised during the three months ended March 31, 2016 and 2015 was approximately $10.9 million and $3.5 million, respectively. As a result of expected full year taxable income in certain tax jurisdictions, the Company recorded an excess tax benefit from stock-based compensation of approximately $1.8 million and $6.6 million for the three months ended March 31, 2016 and 2015, respectively.

 

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The following provides a summary of the SSARs activity for the Company for the three months ended March 31, 2016:

 

     Number of
Shares
     Weighted-
Average
Exercise Price
     Weighted-
Average
Remaining
Contractual
Term (Years)
     Aggregrate
Intrinsic Value (in
thousands)
 

Outstanding as of January 1, 2016

     263,965       $ 28.62         

Granted

     —         $ —           

Exercised

     —         $ —           

Forfeited

     (1,214    $ 27.00         
  

 

 

          

Outstanding as of March 31, 2016

     262,751       $ 28.63         8.12       $ 298   
  

 

 

          

Exercisable at March 31, 2016

     129,883       $ 28.37         8.10       $ 153   

Vested at March 31, 2016 and expected to vest in future periods

     254,198       $ 28.67         8.11       $ 276   

The Company did not grant or settle any SSARs during the three months ended March 31, 2016 and 2015. Stock-based compensation expense related to SSARs is amortized over the requisite service period.

The assumptions used in the Black-Scholes option pricing model are:

 

     Three Months Ended March 31,
     2016   2015

Expected dividend yield

   0.0%   0.0%

Risk-free interest rate

   1.2% - 1.6%   1.5% - 1.7%

Expected volatility

   44.6% - 46.1%   46.6% - 47.1%

Expected life (in years)

   4.94   5.13

The Company uses the Black-Scholes option-pricing model to value common stock option awards and SSARs. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the stock-based compensation awards and stock price volatility. During the first quarter of 2015, the Company began to exclusively utilize its own historical stock price volatility to estimate the expected stock price volatility over the expected term as the Company now believes that it has a sufficient amount of experience as a public company to provide a reasonable basis for the calculation of the expected stock price volatility. For common stock options and SSARs granted prior to the first quarter of 2015, the Company used blended volatility to estimate expected volatility. Blended volatility included a weighting of the Company’s historical volatility from the date of its IPO to the respective grant date and an average of the Company’s peer group historical volatility consistent with the expected term of the common stock options. The Company’s peer group volatility included the historical volatility of certain companies that shared similar characteristics in terms of revenue size and industry. This change in estimate did not have a material impact on the results of operations for the three months ended March 31, 2016 and 2015. The Company uses its own historical activity related to common stock option exercises and post-vesting forfeitures in order to estimate the expected term of its common stock option awards. The risk-free interest rate used to value common stock option awards is based on the U.S. Treasury yield curve with a remaining term equal to the expected term assumed at the grant date. The assumptions used in calculating the fair value of stock-based compensation awards represent management’s best estimate and involve inherent uncertainties and the application of management judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different in the future.

For the three months ended March 31, 2016 and 2015, the Company recorded stock-based compensation expenses of approximately $5.9 million and $6.5 million, respectively, related to common stock option grants and SSARs.

As of March 31, 2016, there was approximately $44.3 million of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested employee and non-employee director common stock options and SSARs. The remaining cost is expected to be recognized over a weighted-average period of approximately 2.7 years.

 

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Restricted Stock Units

The following provides a summary of the restricted stock unit activity for the Company for the three months ended March 31, 2016:

 

     Number of
Shares
Underlying
Outstanding
Restricted
Stock Units
     Weighted-
Average
Grant Date
Fair Value
 

Outstanding as of January 1, 2016

     1,333,182       $ 30.93   

Granted

     1,265,969         25.98   

Vested

     (82,162      26.60   

Forfeited

     (71,552      28.81   
  

 

 

    

Outstanding as of March 31, 2016

     2,445,437       $ 28.57   
  

 

 

    

The Company grants restricted stock unit awards to its employees and non-employee directors under the provisions of the 2010 Plan. The fair value of a restricted stock unit is determined by using the closing price of the Company’s common stock on the date of grant. A restricted stock unit award entitles the holder to receive shares of the Company’s common stock as the award vests, which is generally based on length of service. Stock-based compensation expense related to restricted stock unit awards is amortized over the requisite service period.

The total intrinsic value of restricted stock units vested during the three months ended March 31, 2016 was approximately $2.2 million. The total intrinsic value of restricted stock units outstanding as of March 31, 2016 was approximately $70.7 million.

For the three months ended March 31, 2016 and 2015, the Company recorded stock-based compensation expenses of approximately $4.1 million and $2.3 million, respectively, related to restricted stock unit awards.

As of March 31, 2016, there was approximately $53.3 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted stock units. The remaining cost is expected to be recognized over a weighted-average period of approximately 3.3 years.

MVSSSARs

The following provides a summary of the MVSSSARs activity for the Company for the three months ended March 31, 2016:

 

     Number of
Shares
     Weighted-
Average
Exercise Price
 

Outstanding as of January 1, 2016

     894,829       $ 27.53   

Granted

     —         $ —     

Exercised

     —         $ —     

Forfeited

     (39,547    $ 25.18   
  

 

 

    

Outstanding as of March 31, 2016

     855,282       $ 27.63   
  

 

 

    

 

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The Company grants MVSSSARs to certain employees under the provisions of the 2010 Plan. MVSSSARs contain a predetermined cap on the maximum stock price at which point the instrument must be exercised. At exercise, employees holding MVSSSARs will receive shares of the Company’s common stock with a value equal to the difference between the exercise price and the current market price per share of the Company’s common stock, subject to a predetermined cap. The exercise price of MVSSSARs is determined by using the closing price of the Company’s common stock on the date of grant. Vesting is based on length of service. Stock-based compensation expense related to MVSSSARs is amortized over the requisite service period. The fair value of MVSSSARs is determined by utilizing a lattice model under the option-pricing method. The key inputs to the lattice model are the current price of the Company’s common stock, the fair value of the Company’s common stock at date of grant, the maximum fair value at which the MVSSSARs must be exercised, the vesting period, the contractual term, the volatility, the risk-free interest rate, the employment termination rate and assumptions with respect to early exercise behavior.

The total intrinsic value of MVSSSARs outstanding as of March 31, 2016 was approximately $2.5 million. The total intrinsic value of MVSSSARs exercisable as of March 31, 2016 was approximately $0.7 million.

For the three months ended March 31, 2016 and 2015, the Company recorded stock-based compensation expenses of approximately $0.4 million and $0.6 million, respectively, related to MVSSSARs.

As of March 31, 2016, there was approximately $2.3 million of total unrecognized compensation cost related to unvested MVSSSARs. The remaining cost is expected to be recognized over a weighted-average period of approximately 2.0 years.

For the three months ended March 31, 2016, the Company did not settle any MVSSSARs. For the three months ended March 31, 2015, the Company settled 32,617 MVSSSARs by issuing 8,389 shares of the Company’s common stock. If settlement of all outstanding MVSSSARs had occurred on March 31, 2016 at the predetermined cap on the maximum stock price at which point the instrument must be exercised, the Company would have issued 314,638 shares of the Company’s common stock.

 

(8) Commitments and Contingencies

There have been no material changes to the Company’s commitments and contingencies from the information provided in Note 9, Commitment and Contingencies, of the Notes to the Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data”, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the SEC on February 26, 2016.

 

(9) Subsequent Events

In April 2016, the Company closed on a transaction to acquire all of the outstanding shares of Industrial Codebox Holdings Limited (“Codebox”), a company incorporated in England and Wales that specializes in the development of desktop and web-based applications. The Company purchased Codebox for a total maximum purchase price of approximately $4.0 million. The total maximum purchase price includes approximately $1.2 million of contingent consideration payable upon the achievement of certain integration milestones as set forth in the purchase agreement governing the transaction.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2015 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 26, 2016. This Quarterly Report on Form 10-Q, except for historical financial information contained herein, contains forward-looking statements, including, but not limited to, statements regarding the value and effectiveness of our products, the introduction of product enhancements or additional products and our growth, expansion, fluctuation of currency and market leadership, that involve risks, uncertainties, assumptions and other factors which, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements containing the words, but not limited to, “predicts,” “plan,” “expects,” “focus,” “anticipates,” “believes,” “goal,” “target,” “estimate,” “potential,” “may,” “will,” “might,” “momentum,” “can,” “could,” “design,” “see,” “seek,” “forecast” and similar words. We intend all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in such statements due to various factors, including but not limited to:

 

    risk and uncertainties inherent in our business;

 

    our ability to attract new customers and retain existing customers;

 

    our ability to effectively sell, service and support our products;

 

    our ability to adapt to changing licensing and go to market business models;

 

    our ability to manage our international operations;

 

    our ability to effectively predict the amount and timing of our sales;

 

    our ability to compete effectively;

 

    our ability to develop and introduce new products and add-ons or enhancements to existing products;

 

    our ability to continue to promote and maintain our brand in a cost-effective manner;

 

    our ability to manage growth;

 

    our ability to attract and retain key personnel;

 

    currency fluctuations that affect our revenue and expenses;

 

    fluctuation in our effective income tax rates;

 

    our ability to effectively control or reduce operating expenses;

 

    our ability to successfully integrate acquisitions into our business;

 

    the scope and validity of intellectual property rights applicable to our products;

 

    adverse economic conditions in general and adverse economic conditions specifically affecting the markets in which we operate; and

 

    other risks discussed in the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and elsewhere in this Quarterly Report on Form 10-Q.

Any statements regarding our platform, solutions or products are intended to outline our general product direction and should not be relied on in making a purchase decision, as the development, release and timing of any features or functionality described for our products remains at our sole discretion. Past performance is not necessarily indicative of future results. There can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Therefore, no assurance can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

 

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Introduction

Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided to help provide an understanding of our financial condition and results of operations. This item of our Quarterly Report on Form 10-Q is organized as follows:

 

    Overview including Key Financial Metrics and Trends. This section provides a general description of our business, the key financial metrics that we use in assessing our performance, and anticipated trends that we expect to affect our financial condition and results of operations.

 

    Consolidated Results of Operations. This section provides an analysis of our results of operations for the three months ended March 31, 2016 and 2015.

 

    Foreign Exchange Rates. This section discusses the impact of foreign exchange rate fluctuations for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.

 

    Seasonality. This section discusses the seasonality in the sale of our products and services.

 

    Liquidity and Capital Resources. This section provides an analysis of our cash flows for the three months ended March 31, 2016 and 2015, a discussion of our capital requirements, and the resources available to us to meet those requirements.

 

    Critical Accounting Policies and Estimates. This section discusses accounting policies that are considered important to our financial condition and results of operations. These accounting policies require significant judgment or require estimates on our part in applying them. Our significant accounting policies, including those considered to be critical accounting policies, are summarized in Note 2 to the unaudited consolidated financial statements.

 

    Contractual Obligations and Commitments. This section discusses contractual obligations and commitments expected to have an effect on our liquidity and cash flow in future periods.

 

    Off-Balance Sheet Arrangements. This section discusses off-balance sheet arrangements expected to have an effect on our liquidity and cash flow in future periods.

 

    Inflation. This section discusses how inflation could impact our financial condition and results of operations.

 

    Recent Accounting Pronouncements. This section provides for recent accounting pronouncements that could impact our financial condition and results of operations.

Overview

We have pioneered powerful, user-driven Business Intelligence (“BI”) solutions that enable our customers to make better, faster and more informed business decisions, wherever they are. Our software products help people create and share insights and analysis in groups and across organizations. Business users can explore data, ask and answer their own stream of questions and follow their own path to insight, or collaborate across teams and organizations.

Our software products are powered by our in-memory engine which maintains associations in data and calculates aggregations rapidly, as business users interact with our software. Our visual analytics solutions are designed to give our customers significant improvements in usability, flexibility and performance at lower costs compared to traditional BI solutions.

We currently operate in one business segment, namely, the development, commercialization and implementation of software products and related services. See Note 7, Business and Geographic Segment Information, of the Notes to the Consolidated Financial Statements for the year ended December 31, 2015 included in our Annual Report on Form 10-K, filed with the SEC on February 26, 2016, for information regarding our business and the geographies in which we operate. We have a diversified distribution model that consists of a direct sales force, a partner network of solution providers (or resellers), original equipment manufacturer (“OEM”) relationships and system integrators.

We have grown our customer base to approximately 39,000 active customers as of March 31, 2016 and increased our revenue at approximately a 14% compound annual growth rate from January 1, 2012 through March 31, 2016. Our software products are licensed by customers in various industries such as aerospace, automotive, banking, construction, consumer products, education, engineering, government, healthcare, industrial, insurance, manufacturing, media and entertainment, natural resources, pharmaceuticals and biotech, retail, real estate, technology, securities and investments, telecommunications, transportation and utilities. We have customers in over 100 countries and approximately 70% and 72% of our revenue for the three months ended March 31, 2016 and 2015, respectively, was derived internationally.

 

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We have a differentiated business model designed to accelerate the adoption of our product to reduce the time and cost to purchase and implement our software products. Our low risk approach to product sales provides a needed alternative to costly, all-or-nothing traditional BI models. We initially focus on specific business users or departments within a prospective customer’s organization and seek to solve a targeted business need. After demonstrating our product’s benefits to initial adopters within an organization, we work to expand sales of our product to other business units, geographies and use cases with the long-term goal of broad organizational deployment.

We generally license our software products under perpetual licenses which typically include one year of maintenance as part of the initial purchase price of the product. Our customers can renew, and generally have renewed, their maintenance agreements on an annual basis for a fee that is based upon a percentage of the initial license fee paid. For the three months ended March 31, 2016, our total revenue was comprised of approximately 43% license revenue, 46% maintenance revenue and 11% professional services revenue. For the three months ended March 31, 2015, our total revenue was comprised of approximately 45% license revenue, 44% maintenance revenue and 11% professional services revenue. Total billings from our OEM relationships accounted for approximately 6% and 5% of our total billings during the three months ended March 31, 2016 and 2015, respectively. Additionally, our online Qlik Community provides us with a loyal and growing network of users who promote our software, provide support for other users and contribute valuable insights and feedback for our product development efforts.

To complement our software products, we have developed a differentiated business model that has the following attributes:

 

    Broad User Focus – marketing and selling our software products directly to the business user by providing easy-to-use solutions that can be used with minimal training.

 

    Low Risk Rapid Product Adoption – providing a low risk alternative to costly, all-or-nothing, enterprise-wide deployment requirements.

 

    “Land and Expand” Customer Approach – initially targeting specific business users or departments in an organization to create a loyal user base that promotes broad adoption of our software products across an organization.

 

    Globally Diversified Distribution Model – employing a multi-pronged international sales approach that leverages a direct sales force and partner network.

 

    Community-Based Marketing and Support – augmenting our development, marketing and support efforts through our online Qlik Community.

In evaluating our operating results, we focus on the productivity of our sales force, the effectiveness of our channel partners, the effectiveness of our local and corporate level marketing, our ability to close opportunities generated by our marketing leads and the competitiveness of our technology. In each of these areas, we have taken steps designed to improve our operating results, including undertaking additional sales training for our sales representatives, hiring more experienced regional sales management, making additional investments in marketing activities, developing a partner enablement program to focus on the results of our sales partners around the world and expanding our research and development staff with a focus on product enhancement, testing and quality assurance.

From a risk perspective, we have had to address the impact of the recessionary global environment during the past several years, and the unsettled global economic environment could affect our operating results in future periods. Approximately 70% of our revenue during the three months ended March 31, 2016 was derived internationally, of which approximately 50% was derived in Europe. Approximately 72% of our revenue during the three months ended March 31, 2015 was derived internationally, of which approximately 52% was derived in Europe. We have faced pricing pressure from some of our competitors and we seek to minimize the impact by demonstrating the value delivered by our visual analytics solutions in comparison to these other BI products. Also, the growth in our business has required the continued hiring of experienced staff across all of our geographic territories. To aid this effort we have focused on improving our local recruiting initiatives, as well as on developing further internal training programs to prepare employees for greater responsibilities.

We believe global economic conditions remain unstable and have contributed to an increase in the average length of time in our sales cycles. In addition, these conditions may result in an increase in the average length of time it takes to collect outstanding accounts receivable.

 

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Key Financial Metrics and Trends

Revenue

Our revenue is comprised of license, maintenance and professional services. We generally license our software under perpetual licenses which typically include one year of maintenance as part of the initial purchase price of the products. License revenue reflects the revenue recognized from sales of licenses to new customers and additional licenses to existing customers. Approximately 74% of total license and first year maintenance billings were generated from existing customers for the three months ended March 31, 2016 and approximately 66% of total license and first year maintenance billings were generated from existing customers for the three months ended March 31, 2015. Based upon our land and expand sales strategy, we expect that on an annual basis the contribution of license and first year maintenance from existing customers will continue to exceed the contribution of license and first year maintenance from new customers. Customers can renew, and generally have renewed, their maintenance agreements for a fee that is based upon a percentage of the initial license fee paid. Customers with current maintenance agreements are entitled to receive unspecified upgrades and enhancements when and if they become available. We have experienced growth in maintenance revenue primarily due to increased license sales and growth in our customer base and strong renewal rates. In each of the three months ended March 31, 2016 and 2015, our annual maintenance renewal rates were greater than 90%. Professional services revenue is comprised of training, installation and other consulting revenues, and represented approximately 11% of total revenues for the three months ended March 31, 2016 and 2015. We do not expect the percentage contribution to change significantly during the near term. The contribution from our partner network has grown over time and we anticipate that revenues from partners will continue to be more than 50% of total revenue. Given the size of the U.S. market and our current penetration there, we expect that the U.S. will represent our largest growth opportunity in terms of absolute U.S. dollars during the near term and will likely be an important contributor to future revenue growth. Due to the global diversity of our customer base, our results are impacted by movements in the currencies of the major territories in which we operate. The primary foreign currencies generally impacting our results are the Swedish kronor, the euro and the British pound. Inflation and changing prices had no material effect on our revenue or loss from operations during the three months ended March 31, 2016 and 2015.

Cost of Revenue

Cost of revenue primarily consists of personnel costs, fees paid to subcontractors providing technical support services, referral fees paid to third parties in connection with software license sales, amortization of technology related intangible assets acquired and other discrete professional services. Personnel costs include salaries, employee benefit and social costs, bonuses and stock-based compensation. We expect that our cost of revenue will continue to increase in absolute dollars, but decline as a percentage of revenue over time as we expect to derive greater efficiencies from the investments made in our professional services organization.

Operating Expenses

We classify our operating expenses into three categories: sales and marketing, research and development, and general and administrative. Our operating expenses primarily consist of personnel costs, sales commissions, travel and entertainment costs, marketing program costs, facilities, legal, accounting, outside contractors and consultants, the cost of our annual employee summit each year prior to 2016, other professional services costs and depreciation and amortization. Personnel costs include salaries, employee benefit and social costs, bonuses and stock-based compensation. Historically, we have focused on the continued growth of our license revenues, and as a result, sales and marketing has represented the largest amount of total expenses both in absolute dollar terms and as a percentage of total revenue.

Sales and Marketing. Sales and marketing expenses primarily consist of personnel costs for our sales, marketing and business development employees and executives, commissions earned by our sales related personnel, travel and entertainment costs, facilities costs attributable to our sales and marketing personnel, the cost of marketing programs and events, the cost of employee training programs and the cost of business development programs. We expect to continue to make incremental investments in sales and marketing during 2016, including the hiring of additional sales personnel in both the U.S. and our international locations as well as incremental investments in our marketing programs. We expect that our sales and marketing expenses will continue to increase in absolute dollars, but decline as a percentage of revenue over time as we expect to derive greater efficiencies from the investments made in our sales and marketing organization.

Research and Development. Research and development expenses primarily consist of personnel and facility costs for our research and development and product management employees along with the amortization of research and development related intangible assets acquired. Our research and development organization is principally located in Lund, Sweden; Boston, Massachusetts; Ottawa, Canada; Reykjavik, Iceland; Vicenza, Italy and London, United Kingdom with the vast majority of our research and development organization located in Lund, Sweden. We have devoted our development efforts primarily to enhancing the functionality and expanding the capabilities of our software products. We expect that our research and development expenses will continue to increase in absolute dollars and remain constant or increase as a percentage of revenue in the near term as we increase our research and development and product management headcount to further strengthen and enhance our software products.

 

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General and Administrative. General and administrative expenses primarily consist of personnel costs for our executive, finance, legal, human resources, information systems and administrative personnel, as well as the cost of facilities attributable to general and administrative operations, the cost of employee training programs, depreciation and amortization, legal, accounting, other professional services fees and other corporate expenses. We also expect that general and administrative expenses will continue to increase in absolute dollars because of our efforts to expand our global operations, but we believe general and administrative costs will decline as a percentage of revenue over time as we expect to derive greater efficiencies from the investments made in our corporate infrastructure.

Stock-Based Compensation. Stock-based compensation expense is based on the fair value of those awards at the date of grant. We use the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to determine the fair value of common stock option awards and Stock-settled Stock Appreciation Rights (“SSARs”). The fair value of a restricted stock unit is determined by using the closing price of our common stock on the date of grant. The estimated fair value of Maximum Value Stock-settled Stock Appreciation Rights (“MVSSSARs”) is determined by utilizing a lattice model under the option-pricing method. The estimated fair value of stock-based compensation awards on the date of grant is amortized over the requisite service period. Stock-based compensation expense is recorded within cost of revenue, sales and marketing, research and development and general and administrative expenses.

Other Income (Expense), net

Other income (expense), net primarily consists of net interest and foreign exchange gains or losses. Net interest generally represents interest income received on our cash and cash equivalents. Foreign exchange gains or losses relate to our business activities in foreign countries and the re-measurement of intercompany transactions between subsidiaries with different functional reporting currencies, as well as the impact of our short-term foreign currency forward contracts related to certain intercompany borrowings and certain contingent consideration liabilities. As a result of our business activities in foreign countries, we expect that foreign exchange gains or losses will continue to occur due to fluctuations in exchange rates in the countries where we do business.

Income Tax Provision

Our income tax provision primarily consists of corporate income taxes related to income at our U.S. and international subsidiaries. The income tax provision includes amounts for U.S. federal, state and foreign income taxes.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is more-likely-than-not that such assets will not be realized in the near term. The factors used to assess the likelihood of realization are the forecast of future taxable income, the remaining time period to utilize any tax operating losses and tax credits and available tax planning strategies that could be implemented to realize deferred tax assets.

In evaluating our ability to realize deferred tax assets, we consider all available positive and negative evidence. Our negative evidence includes historical operating losses generated by certain subsidiaries. Our positive evidence includes historical operating income at certain subsidiaries as well as projected future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business

Impact of Foreign Currency Translation

For the three months ended March 31, 2016 and 2015, approximately 68% and 69%, respectively, of our revenues were earned in foreign denominated currencies, including the euro, the British pound and the Swedish kronor. We continue to monitor our foreign exchange risk in part through operational means, including monitoring the proportion of same-currency revenues in relation to same-currency costs and the proportion of same-currency assets in relation to same-currency liabilities. As we operate in multiple foreign currencies, changes in those currencies relative to the U.S. dollar will impact our revenues and expenses. If the U.S. dollar weakens against a specific foreign currency, our revenues will increase having a positive impact on net income, and our overall expenses will increase, having a negative impact on net income. Likewise, if the U.S. dollar strengthens against a specific foreign currency, our revenues will decrease having a negative impact on net income, and our overall expenses will decrease, having a positive impact on net income. Therefore, significant shifts in foreign currencies can impact our short-term results, as well as our long-term forecasts and targets.

Foreign currency exchange rate fluctuations negatively impacted total revenue for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 by approximately $3.6 million, principally driven by the overall strengthening of the U.S. dollar relative to the foreign currencies in which we operate. Total cost of revenue and operating expenses for the three months ended March 31, 2016

 

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compared to the three months ended March 31, 2015 were positively impacted as a result of foreign exchange rate fluctuations by approximately $3.4 million, principally driven by the overall strengthening of the U.S. dollar relative to the foreign currencies in which we operate.

Consolidated Results of Operations

Comparison of the Three Months Ended March 31, 2016 and 2015

Revenue

The following table sets forth revenue by source:

 

     Three Months Ended March 31,               
     2016     2015               
     Amount      Percentage of
Revenue
    Amount      Percentage of
Revenue
    Period-to-Period Change  
     (unaudited)               
     (dollars in thousands)               

Revenue:

               

License revenue

   $ 59,833         43.3   $ 54,807         45.6   $ 5,026         9.2

Maintenance revenue

     63,601         46.1     52,670         43.8     10,931         20.8

Professional services revenue

     14,596         10.6     12,787         10.6     1,809         14.1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total revenue

   $ 138,030         100.0   $ 120,264         100.0   $ 17,766         14.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Revenue was approximately $138.0 million for the three months ended March 31, 2016 compared to approximately $120.3 million for the three months ended March 31, 2015, an increase of approximately 15%. Total revenue for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015 was negatively impacted by approximately $3.6 million, or approximately 3%, as a result of the strengthening of the U.S. dollar relative to the foreign currencies in which we operate. The increase in revenue from the prior year period was primarily driven by revenue growth in the Americas (includes North America and South America), Rest of World (includes Asia-Pacific, Middle East and Africa), the German region (includes Germany, Austria and Switzerland), France and Benelux (includes Belgium, the Netherlands, Luxembourg and Eastern Europe), which grew approximately 18%, 32%, 33% 28% and 21%, respectively, and contributed approximately $19.4 million in incremental total revenue. License revenue grew approximately $5.0 million, or approximately 9%, during the three months ended March 31, 2016 compared to the three months ended March 31, 2015. License revenue for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015 was negatively impacted by approximately $1.6 million, or approximately 3%, as a result of the strengthening of the U.S. dollar relative to the foreign currencies in which we operate. There was no material change in the pricing for our products during the period. The increase in revenue during the three months ended March 31, 2016 was achieved primarily by the continued growth of Qlik Sense. During the three months ended March 31, 2016, we closed 98 contracts that had total license and first year’s maintenance exceeding $100,000, compared to 88 contracts for the same period last year. Included in the deals exceeding $100,000, we closed 30 contracts that had total license and first year’s maintenance exceeding $250,000 during the three months ended March 31, 2016, compared to 17 contracts for the same period last year. Included in the deals exceeding $250,000, we closed five contracts that had total license and first year’s maintenance exceeding $1.0 million during the three months ended March 31, 2016, compared to three contracts for the same period last year. Amounts invoiced to existing customers represented approximately 82% of total billings during the three months ended March 31, 2016, resulting from our “land and expand” sales strategy, compared to approximately 80% during the three months ended March 31, 2015. Billings from our indirect partner channel for license and first year maintenance were approximately 63% of total license and first year maintenance billings for the three months ended March 31, 2016 compared to approximately 65% for the three months ended March 31, 2015. Maintenance revenue grew approximately 21% during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 driven by annual maintenance renewal rates of greater than 90% and an increase in our customer base. Maintenance revenue for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015 was negatively impacted by approximately $1.7 million, or approximately 3%, as a result of the strengthening of the U.S. dollar relative to the foreign currencies in which we operate. Professional services revenue grew approximately 14% during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 due to an increase in our customer base. Professional services revenue for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015 was negatively impacted by approximately $0.3 million, or approximately 2%, as a result of the strengthening of the U.S. dollar relative to the foreign currencies in which we operate. The overall revenue growth during the three months ended March 31, 2016 as compared to the three months ended March 31, 2015 may not be indicative of our future revenue growth, if any.

 

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Cost of Revenue and Gross Profit

The following table sets forth cost of revenue and gross profit for each revenue source:

 

     Three Months Ended March 31,              
     2016     2015              
     Amount     Percentage of
Related
Revenue
    Amount     Percentage of
Related
Revenue
    Period-to-Period Change  
     (unaudited)              
     (dollars in thousands)              

Cost of Revenue:

            

Cost of license revenue

   $ 1,512        2.5   $ 1,972        3.6   $ (460     -23.3

Cost of maintenance revenue

     3,873        6.1     3,258        6.2     615        18.9

Cost of professional services revenue

     17,387        119.1     15,911        124.4     1,476        9.3
  

 

 

     

 

 

     

 

 

   

Total cost of revenue

   $ 22,772        16.5   $ 21,141        17.6   $ 1,631        7.7
  

 

 

     

 

 

     

 

 

   

Gross Profit:

            

License revenue

   $ 58,321        97.5   $ 52,835        96.4   $ 5,486        10.4

Maintenance revenue

     59,728        93.9     49,412        93.8     10,316        20.9

Professional services revenue

     (2,791     -19.1     (3,124     -24.4     333        -10.7
  

 

 

     

 

 

     

 

 

   

Total gross profit

   $ 115,258        83.5   $ 99,123        82.4   $ 16,135        16.3
  

 

 

     

 

 

     

 

 

   

Cost of revenue was approximately $22.8 million for the three months ended March 31, 2016 compared to approximately $21.1 million for the three months ended March 31, 2015, an increase of approximately 8%. Total cost of revenue for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 was positively impacted as a result of foreign currency exchange rate fluctuations by approximately $0.4 million. Cost of license revenue largely consists of referral fees paid to third parties in connection with software license sales and the amortization of technology related intangible assets acquired. Cost of maintenance revenue increased approximately $0.6 million for the three months ended March 31, 2016 as compared to the same period in 2015 largely due to an increase in personnel costs of approximately $0.8 million and other maintenance costs of $0.1 million offset by a decrease in travel and entertainment costs of approximately $0.3 million largely due to a reduction in event costs as we transitioned to a virtual annual employee summit. Cost of professional services revenue increased approximately $1.5 million for the three months ended March 31, 2016 as compared to the same period in 2015 largely due to increased personnel costs of approximately $1.5 million as we continue to invest in the global expansion of our services organization. In addition, for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015, we had an increase in outside contractor costs and other cost of professional services revenue of approximately $0.7 million. These increases were offset by a decrease in travel and entertainment costs of approximately $0.7 million largely due to a reduction in event costs as we transitioned to a virtual annual employee summit.

Total gross profit increased approximately $16.1 million, or approximately 16%, for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 largely due to an increase in total revenue of approximately $17.7 million. The increase in our total gross profit during the three months ended March 31, 2016 as compared to the three months ended March 31, 2015 may not be indicative of our future gross profit. For the three months ended March 31, 2016, total gross margin increased to approximately 83.5% from 82.4% for the three months ended March 31, 2015. The increase in our total gross margin during the three months ended March 31, 2016 as compared to the same period in 2015 was primarily due to an increase in total revenue of approximately $17.7 million and a decrease in travel and entertainment costs largely due to a reduction in event costs as we transitioned to a virtual annual employee summit. The total gross margin during the three months ended March 31, 2016 as compared to the three months ended March 31, 2015 may not be indicative of our future gross margin.

 

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Operating Expenses

The following table sets forth operating expenses as a percentage of revenue:

 

     Three Months Ended March 31,               
     2016     2015               
     Amount      Percentage of
Revenue
    Amount      Percentage of
Revenue
    Period-to-Period Change  
     (unaudited)               
     (dollars in thousands)               

Operating expenses:

               

Sales and marketing

   $ 88,528         64.1   $ 76,641         63.7   $ 11,887         15.5

Research and development

     22,210         16.1     17,395         14.5     4,815         27.7

General and administrative

     29,341         21.3     29,174         24.3     167         0.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total operating expenses

   $ 140,079         101.5   $ 123,210         102.4   $ 16,869         13.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Sales and Marketing. Sales and marketing expenses increased approximately $11.9 million, or approximately 16%, for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015. Sales and marketing expenses for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 were positively impacted as a result of foreign currency exchange rate fluctuations by approximately $2.2 million. The period-over-period increase in sales and marketing expenses was primarily attributable to an increase in personnel and commission costs of approximately $8.8 million (including a $0.3 million increase in stock-based compensation), reflecting higher employee headcount and higher variable compensation resulting from increased license revenue. In addition, we had an increase in marketing, advertising and public relations costs of approximately $2.4 million, an increase in other consulting and sales and marketing costs of approximately $1.3 million and an increase in facility and infrastructure costs of approximately $0.5 million. These increases were offset by a decrease in travel and entertainment costs of approximately $1.1 million largely due to a reduction in event costs as we transitioned to a virtual annual employee summit.

Research and Development. Research and development expenses increased approximately $4.8 million, or approximately 28%, for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015. Research and development expenses for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 were positively impacted by foreign currency exchange rate fluctuations by approximately $0.4 million. The period-over-period increase in research and development expenses included an increase in personnel costs of approximately $4.7 million, an increase in other research and development costs, including outside professional fees, of approximately $1.0 million and an increase in facility and infrastructure costs of approximately $0.3 million. These increases were offset by a decrease in travel and entertainment costs of approximately $1.2 million largely due to a reduction in event costs as we transitioned to a virtual annual employee summit.

General and Administrative. General and administrative expenses increased approximately $0.2 million, or approximately 1%, for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015. General and administrative expenses for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 were positively impacted as a result of foreign currency exchange rate fluctuations by approximately $0.4 million. The period-over-period increase in general and administrative expenses for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 was largely due to an increase of approximately $2.5 million in personnel costs (including a $0.7 million increase in stock-based compensation). This increase was offset by a decrease in travel and entertainment costs of approximately $1.3 million largely due to a reduction in event costs as we transitioned to a virtual annual employee summit, a decrease in consulting costs largely related to information systems consulting of approximately $0.7 million and a decrease in facility and infrastructure costs of approximately $0.3 million.

Other Income, net.

During the three months ended March 31, 2016, other income, net was approximately $0.4 million and primarily consisted of net foreign exchange gains of approximately $0.3 million principally driven by the overall weakening of the U.S. dollar relative to the foreign currencies in which we operate and interest income, net of approximately $0.1 million. During the three months ended March 31, 2015, other income, net was approximately $1.4 million and primarily consisted of net foreign exchange gains.

 

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Income Tax Expense.

For the three months ended March 31, 2016 and 2015, we determined that we were not able to make reliable estimates of the annual effective tax rate in the U.S., as relatively small changes in our projected income or loss produce significant variance in our annual effective tax rate in this jurisdiction. Therefore, we recorded the tax provision in the U.S., for the three months ended March 31, 2016 and 2015, based on the actual effective tax rate for these periods. We will continue to utilize this methodology until reliable estimates of the annual effective tax rate in the U.S. can be made. The effective tax rate for all other jurisdictions for the three months ended March 31, 2016 and 2015 was calculated based on an estimated annual effective tax rate as adjusted for discrete items.

For the three months ended March 31, 2016, we recorded income tax expense of approximately $2.6 million, which resulted in an effective tax rate of approximately (10.6%), compared to income tax expense of approximately $7.7 million, or an effective tax rate of approximately (33.8%), for the three months ended March 31, 2015. As of March 31, 2016, a full valuation allowance continues to be recorded against our U.S. and Swedish deferred income tax assets, based on an analysis of positive and negative evidence, including analyzing three-year cumulative pre-tax income or loss as well as other quantitative and qualitative information. The effective tax rates for the three months ended March 31, 2016 and 2015 are primarily driven by foreign tax rate differentials, the effects of permanent differences and the changes in the valuation allowance on deferred income tax assets. The primary differences between the effective tax rates for the three months ended March 31, 2016 and 2015 relate to relative differences in the distribution of income and losses in jurisdictions in which we operate, changes in the valuation allowances against deferred income tax assets, the impact of the permanent differences and discrete items.

Due to the relative difference in the projected annual distribution of income and losses where we operate compared to our actual results for the three months ended March 31, 2016, including the recognition of certain discrete items in the period and due to losses incurred in jurisdictions for which a tax benefit cannot be recognized, the year-to-date effective tax rate may differ significantly from our full year effective tax rate. Our effective tax rate is also impacted significantly by non-deductible stock-based compensation incurred in various jurisdictions. As the projection and distribution of income changes throughout 2016, the year-to-date effective tax rate will change from quarter to quarter.

Our liability for unrecognized tax benefits (including penalties and interest) was approximately $1.5 million as of March 31, 2016 and December 31, 2015. We do not expect that the total amount of unrecognized tax benefits will change significantly during the next twelve months. See Note 7, Income Tax Provision, of the Notes to the Consolidated Financial Statements for the year ended December 31, 2015 included in our Annual Report on Form 10-K, filed with the SEC on February 26, 2016, for more detailed information regarding unrecognized tax benefits.

Foreign Exchange Rates

We conduct business in our foreign operations in local currencies. Accordingly, our revenue and operating expense results presented above are affected by changes in foreign exchange rates. Income and expense accounts are translated at the average monthly exchange rates during the period.

Foreign currency exchange rate fluctuations negatively impacted total revenue for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 by approximately $3.6 million, principally driven by the overall strengthening of the U.S. dollar relative to the foreign currencies in which we operate. Total cost of revenue and operating expenses for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 were positively impacted as a result of foreign exchange rate fluctuations by approximately $3.4 million, principally driven by the overall strengthening of the U.S. dollar relative to the foreign currencies in which we operate.

Seasonality

Our quarterly results reflect seasonality in the sale of our products and services. Historically, we have experienced a pattern of increased license sales in the fourth quarter which can make it difficult to achieve sequential revenue growth in the first quarter. In addition, our European operations generally provide lower revenues in the summer months because of the generally reduced level of economic activity in Europe during those months. Similarly, our gross margins and results of operations have been affected by these historical trends because the majority of our expenses are relatively fixed in the near-term. The timing of revenues in relation to our expenses, much of which does not vary directly with revenue, has an impact on the cost of revenue, sales and marketing expense, research and development expense and general and administrative expense as a percentage of revenue in each calendar quarter during the year. The majority of our expenses is personnel-related and includes salaries, stock-based compensation, benefits and incentive-based compensation plan expenses. As a result, we have not experienced significant seasonal fluctuations in the timing of expenses from period to period, other than an increase in total operating expenses during the first quarter of each year prior to 2016 as a result of our annual employee summit and an increase in sales and marketing expenses in the second quarter of each year due to our annual event for customers, partners and investors. On a quarterly basis, we have usually generated the majority of our revenues in the final month of each quarter and a significant amount in the last two weeks of a quarter. We believe this is due to customer buying patterns typical in this industry. Although these seasonal factors are common in the technology sector, historical patterns should not be considered a reliable indicator of our future sales activity or performance.

Liquidity and Capital Resources

Our principal sources of liquidity are cash and cash equivalents and the on-going collection of our accounts receivable. As of March 31, 2016, we had cash and cash equivalents totaling approximately $370.0 million, net accounts receivable of approximately $144.6 million and working capital of approximately $277.0 million. Our cash and cash equivalents held domestically were approximately $221.7 million as of March 31, 2016. We believe that our cash and cash equivalents balances in the U.S. are currently sufficient to fund our U.S. operations. As of March 31, 2016, cash and cash equivalents held by foreign subsidiaries were approximately $148.3 million, which include undistributed earnings of foreign subsidiaries indefinitely invested outside of the U.S. of approximately $26.5 million. Except as required under U.S. tax law,

 

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we do not accrue for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since we intend to continue to invest such undistributed earnings outside of the U.S. If these funds are needed for our operations in the U.S., we would be required to accrue and, subsequent to the full utilization of our existing net operating loss carryforwards, pay U.S. taxes to repatriate these funds.

Our capital expenditures for the three months ended March 31, 2016 were approximately $2.3 million, comprised primarily of additional leasehold improvements, furniture and fixtures and computer equipment.

We believe that our existing cash and cash equivalents and our cash flow from operations will be sufficient to fund our operations and our capital expenditures for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing and extent of spending to support product development efforts and expansion into new territories, the timing of introductions of new software products and enhancements to existing software products and the continuing market acceptance of our software offerings. We may from time to time enter into agreements, arrangements or letters of intent regarding potential investments in, or acquisitions of, complementary businesses, applications or technologies. If we enter into these types of arrangements, it could require us to seek additional equity or debt financing sooner or in greater amounts than anticipated. Additional funds may not be available on terms favorable to us or at all.

The following table shows selected balance sheet data as well as our cash flows from operating activities, investing activities, and financing activities for the stated periods (in thousands):

 

     March 31,      December 31,  
     2016      2015  
     (unaudited)         
     (in thousands)  

Cash and cash equivalents

   $ 369,950       $ 320,058   

Accounts receivable, net

     144,628         236,717   

Deferred revenue

     176,524         180,411   

Working capital

     277,044         289,184   
     Three Months Ended March 31,  
     2016      2015  
     (unaudited)  
     (in thousands)  

Cash flow activities

     

Net cash provided by operating activities

   $ 41,710       $ 36,017   

Net cash used in investing activities

     (2,279      (2,986

Net cash provided by financing activities

     6,556         13,413   

Cash and Cash Equivalents

Our cash and cash equivalents at March 31, 2016 were held for working capital purposes and were invested primarily in bank deposits and money market accounts having less than 90 day maturities. We do not enter into investments for trading or speculative purposes. These balances could be impacted if the underlying depository institutions or the guarantors fail or could be subject to adverse conditions in the financial markets. We can provide no assurances that access to our funds will not be impacted by adverse conditions in the financial markets.

Cash Flows

Operating Activities

Net cash provided by operating activities was approximately $41.7 million for the three months ended March 31, 2016. We incurred non-cash expenses totaling approximately $10.5 million for the three months ended March 31, 2016. Non-cash expenses primarily consisted of stock-based compensation expense, provisions for bad debt, foreign currency gains and losses, and depreciation and amortization expense. In addition, we incurred an excess tax benefit from stock-based compensation of approximately $1.8 million for the three months ended March 31, 2016.

The change in certain assets and liabilities resulted in a net source of cash of approximately $60.0 million for the three months ended March 31, 2016. Net cash provided by operating activities is driven by sales of our products. Collection of accounts receivable from the sale of our products is a significant component of our cash flows from operating activities, as is the change in deferred revenue related to these sales. In addition, net cash provided by operating activities for the three months ended March 31, 2016 reflects income tax payments made of approximately $1.5 million.

 

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Net cash provided by operating activities was approximately $36.0 million for the three months ended March 31, 2015. We incurred non-cash expenses totaling approximately $24.1 million for the three months ended March 31, 2015. Non-cash expenses primarily consisted of stock-based compensation expense, provisions for bad debt, foreign currency gains and losses and depreciation and amortization expense. In addition, we incurred an excess tax benefit from stock-based compensation of approximately $6.6 million for the three months ended March 31, 2015.

The change in certain assets and liabilities resulted in a net source of cash of approximately $48.8 million for the three months ended March 31, 2015. Net cash provided by operating activities is driven by sales of our products. Collection of accounts receivable from the sale of our products is a significant component of our cash flows from operating activities, as is the change in deferred revenue related to these sales. In addition, net cash provided by operating activities for the three months ended March 31, 2015 reflects income tax payments made of approximately $1.9 million.

Investing Activities

Net cash used in investing activities was approximately $2.3 million for the three months ended March 31, 2016. Cash used in investing activities for the three months ended March 31, 2016 was primarily used for capital expenditures related to leasehold improvements, furniture and fixtures and computer equipment.

Net cash used in investing activities was approximately $3.0 million for the three months ended March 31, 2015. Cash used in investing activities for the three months ended March 31, 2015 was primarily used for capital expenditures related to leasehold improvements, furniture and fixtures and computer equipment.

Financing Activities

Net cash provided by financing activities was approximately $6.6 million for the three months ended March 31, 2016. Net cash provided by financing activities included proceeds from the exercise of common stock options of approximately $4.8 million and an excess tax benefit from stock-based compensation of approximately $1.8 million.

Net cash provided by financing activities was approximately $13.4 million for the three months ended March 31, 2015. Net cash provided by financing activities included proceeds from the exercise of common stock options of approximately $6.8 million and an excess tax benefit from stock-based compensation of approximately $6.6 million.

Non-GAAP Financial Measures

In order to supplement our unaudited consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), we use measures of non-generally accepted accounting principles (“Non-GAAP”) income (loss) from operations, Non-GAAP net income (loss), Non-GAAP net income (loss) per basic and diluted common share and constant currency. We believe that the Non-GAAP financial information provided can assist investors in understanding and assessing our on-going core operations and prospects for the future and provide an additional tool for investors to use in comparing our financial results with other companies in our industry, many of which present similar Non-GAAP financial measures to investors. In addition, we believe that these Non-GAAP financial measures are useful to investors because they allow for greater transparency into the indicators used as a basis for our internal budgeting and operational decision making.

For the three months ended March 31, 2016 and 2015, Non-GAAP loss from operations is determined by taking U.S. GAAP loss from operations and adding back stock-based compensation expense, employer payroll taxes on stock transactions, the amortization of intangible assets, non-routine corporate governance and shareholder matters and contingent consideration adjustments. Non-GAAP net loss is determined by taking U.S. GAAP loss before income taxes and adding back stock-based compensation expense, employer payroll taxes on stock transactions, the amortization of intangible assets, non-routine corporate governance and shareholder matters, contingent consideration adjustments and the result is tax affected at an estimated long-term effective tax rate of 30%. We believe that the effective tax rate used in the Non-GAAP net loss and related per diluted common share calculations are reasonable estimates of the long-term normalized effective tax rate under our global structure. We believe these adjustments provide useful information to both management and investors due to the following factors:

 

    Stock-based compensation. Although stock-based compensation is an important aspect of the compensation of our employees and executives, determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the future exercise or termination of the related stock-based awards. Furthermore, unlike cash compensation, the value of stock-based compensation is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. We believe it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies.

 

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    Employer payroll taxes on stock transactions. The amount of employer payroll taxes on stock transactions is dependent on our stock price and other factors that are beyond our control and which we believe do not correlate to the operation of our business.

 

    Amortization of intangible assets. A portion of the purchase price of our acquisitions is generally allocated to intangible assets, such as intellectual property, and is subject to amortization. However, we do not acquire businesses on a predictable cycle. Additionally, the amount of an acquisition’s purchase price allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition. Therefore, we believe that the presentation of Non-GAAP financial measures that adjust for the amortization of intangible assets provides investors and others with a consistent basis for comparison across accounting periods.

 

    Non-routine corporate governance and shareholder matters. Beginning in the first quarter of 2016, we began incurring professional services fees related to non-routine corporate governance and shareholder matters. We believe these fees are not representative of our on-going operating costs.

 

    Contingent consideration adjustment. We periodically enter into business combinations which may contain contingent consideration arrangements. At each reporting date, we measure these contingent consideration liabilities at fair value until the contingencies are resolved. We believe that these costs are generally non-recurring and do not correlate to the ongoing operation of our business.

 

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The following is a reconciliation of Non-GAAP loss from operations, Non-GAAP net loss and Non-GAAP net loss per common share to the most comparable U.S. GAAP measure for the periods indicated:

 

    Three Months Ended March 31,  
    2016     2015  
    (unaudited)  
    (in thousands, except share and per share data)  

Reconciliation of Non-GAAP loss from operations:

   

GAAP loss from operations

  $ (24,821   $ (24,087

Stock-based compensation expense

    10,384        9,397   

Employer payroll taxes on stock transactions

    756        142   

Amortization of intangible assets

    936        905   

Non-routine corporate governance and shareholder matters

    382        —     

Contingent consideration adjustment

    70        106   
 

 

 

   

 

 

 

Non-GAAP loss from operations

  $ (12,293   $ (13,537
 

 

 

   

 

 

 

Reconciliation of Non-GAAP net loss:

   

GAAP net loss

  $ (27,014   $ (30,320

Stock-based compensation expense

    10,384        9,397   

Employer payroll taxes on stock transactions

    756        142   

Amortization of intangible assets

    936        905   

Non-routine corporate governance and shareholder matters

    382        —     

Contingent consideration adjustment

    70        106   

Income tax adjustment (1)

    6,164        11,292   
 

 

 

   

 

 

 

Non-GAAP net loss

  $ (8,322   $ (8,478
 

 

 

   

 

 

 

Reconciliation of Non-GAAP loss per share:

   

Non-GAAP net loss per common share - basic and diluted

  $ (0.09   $ (0.09
 

 

 

   

 

 

 

GAAP net loss per common share - basic and diluted

  $ (0.29   $ (0.33
 

 

 

   

 

 

 

Weighted average number of common shares outstanding - basic and diluted

    93,431,206        90,999,316   
 

 

 

   

 

 

 

 

(1) Income tax adjustment is used to adjust the U.S. GAAP income tax expense to a Non-GAAP income tax benefit by taking U.S. GAAP loss before income taxes and adding back stock-based compensation expense, employer payroll taxes on stock transactions, the amortization of intangible assets, non-routine corporate governance and shareholder matters and contingent consideration adjustments and applying an estimated long-term effective tax rate of 30%.

The following table reflects the impact of changes in foreign currency exchange rates from the prior year periods on the reported amounts of total revenue for the three months ended March 31, 2016. To determine the revenue growth rates on a constant currency basis for the three and nine months ended September 30, 2015, revenue from entities reporting in foreign currencies was translated into U.S. dollars using the comparable prior year period’s monthly average foreign currency exchange rates.

 

     Three months ended March 31,         
     2016      2015      % change  
     (unaudited)         
     (in thousands)         

Constant currency reconciliation:

        

Total revenue, as reported

   $ 138,030       $ 120,264         15

Estimated impact of foreign currency fluctuations

           3
        

 

 

 

Total revenue constant currency growth rate

           18
        

 

 

 

 

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Critical Accounting Policies and Estimates

We prepare our unaudited consolidated financial statements in accordance with U.S. GAAP. The preparation of unaudited consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. We believe that these accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Our significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2015 included in our Annual Report on Form 10-K, filed with the SEC on February 26, 2016. Since the date of those financial statements, there have been no material changes to our critical accounting policies and use of estimates.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements, as defined in Item 303(a)(4) of the Securities and Exchange Commission’s Regulation S-K, as of March 31, 2016 and December 31, 2015.

Inflation

Normally, inflation does not have a significant impact on our operations as our products are not generally sold on long-term contracts. Consequently, we can adjust our selling prices, to the extent permitted by competition, to reflect cost increases caused by inflation.

Recent Accounting Pronouncements

See Note 2 to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates. We do not hold financial instruments for trading purposes.

Market Risk

We are exposed to certain financial risks, including fluctuations in foreign currency exchange rates and interest rates. We manage our exposure to these market risks through internally established policies and procedures. Our policies do not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading purposes and we are not a party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and, when appropriate, may use hedging strategies to mitigate these risks.

Interest Rate Sensitivity

We had cash and cash equivalents of approximately $370.0 million at March 31, 2016 and approximately $320.1 million at December 31, 2015. We held these amounts in cash or money market funds.

We hold cash and cash equivalents for working capital purposes. We do not have material exposure to market risk with respect to investments, as our investments consist primarily of highly liquid investments purchased with original maturities of three months or less. We do not use derivative financial instruments for speculative or trading purposes; however, we may adopt specific hedging strategies in the future. Any declines in interest rates, however, will reduce future interest income.

 

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Foreign Exchange Risk

We market our products in the Americas, Europe, the Asia-Pacific Regions, the Middle East and Africa and largely develop our products in Europe and the U.S. As a result of our business activities in foreign countries, our financial results could be affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets, and there is no assurance that foreign currency exchange rate fluctuations will not harm our business in the future. We sell our products in certain countries in the local currency of the respective country. There is a risk that we will have to adjust local currency product pricing due to the competitive pressure when there has been significant volatility in foreign exchange rates. In addition, a vast majority of our product development activities are principally based at our facility in Lund, Sweden. This provides some natural hedging because most of our subsidiaries’ operating expenses are denominated in their local currencies. Regardless of this natural hedging, our results of operations may be adversely impacted by the foreign exchange rate fluctuation. We will continue to monitor our exposure to foreign currency fluctuations and, when appropriate, we may use financial hedging techniques to minimize the effect of these fluctuations. We may choose not to continue to hedge certain foreign exchange exposure for a variety of reasons, including accounting considerations and the prohibitive economic cost of hedging particular exposure.

We use derivative instruments, specifically, short-term foreign currency forward contracts to hedge certain exposures to fluctuations in foreign currency exchange rates. We use these short-term foreign currency forward contracts to manage foreign currency exchange rate risks related to certain intercompany borrowings and certain contingent consideration liabilities that are utilized to fund operations. We execute these short-term foreign currency forward contracts with financial institutions that hold an investment grade credit rating. These short-term foreign currency forward contracts do not meet the requirements for hedge accounting, and are recorded on our consolidated balance sheet as either an asset or liability measured at fair value at the balance sheet date.

As of March 31, 2016, we had two short-term foreign currency forward contracts outstanding. As of March 31, 2016, the unrealized gain on our short-term foreign currency forward contracts was approximately $0.1 million and is recorded within other current assets on the consolidated balance sheet. As of December 31, 2015, we had two short-term foreign currency forward contracts outstanding. As of December 31, 2015, the net unrealized gain on our short-term foreign currency forward contract was approximately $0.1 million and was recorded within other current assets on the consolidated balance sheet.

For the three months ended March 31, 2016, the unaudited consolidated statement of operations reflects a net loss of approximately $3.9 million, within foreign exchange gain, net, related to short-term foreign currency forward contracts. For the three months ended March 31, 2015, the unaudited consolidated statement of operations reflects a net gain of approximately $9.9 million, within foreign exchange gain, net, related to short-term foreign currency forward contracts. Cash flows received or paid in connection with the settlement of short-term foreign currency forward contracts are included in cash flows from operating activities in the period in which the short-term foreign currency forward contracts are settled.

Foreign exchange risk exposures arise from transactions denominated in a currency other than our functional currency and from foreign denominated revenue and profit translated into U.S. dollars. Approximately 68% and 69% of our revenues for the three months ended March 31, 2016 and 2015, respectively, were earned in foreign denominated currencies other than the U.S. dollar. The principal foreign currencies in which we conduct business are the euro, the Swedish kronor and the British pound. The translation of currencies in which we operate into the U.S. dollar may affect consolidated revenues and gross profit margins as expressed in U.S. dollars. We seek to manage our foreign exchange risk in part through operational means, including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. As we operate in multiple foreign currencies, changes in those currencies relative to the U.S. dollar will impact our revenues and expenses. If the U.S. dollar weakens against a specific foreign currency, our revenues will increase having a positive impact on net income, and our overall expenses will increase, having a negative impact on net income. Likewise, if the U.S. dollar strengthens against a specific foreign currency, our revenues will decrease having a negative impact on net income, and our overall expenses will decrease, having a positive impact on net income. Therefore, significant shifts in foreign currencies can impact our short-term results, as well as our long-term forecasts and targets.

Our actual future gains and losses may differ materially due to the inherent limitations with the timing and amount of changes in foreign currency exchange rates and our actual exposure and positions.

 

Item 4. Controls and Procedures

Evaluation of Disclosure and Control Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2016. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is

 

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recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2016, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the first quarter of 2016, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

Cadian Capital Section 16(b) Matter Seeking Disgorgement Short-swing Profits on Behalf of Qlik.

In October 2015, a purported stockholder filed a complaint pursuant to Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) in the U.S. District Court for the Southern District of New York against Cadian Capital Management, LP and certain persons and entities allegedly affiliated with it (collectively, the “Cadian Defendants”) in an action captioned Klein v. Cadian Capital Mgmt., LP et al., Case No. 15-CV-08140. We are named as a nominal defendant. The plaintiff alleges that the Cadian Defendants engaged in transactions in our securities that resulted in “short-swing” profits within the scope of Section 16, and seeks disgorgement from the Cadian Defendants of those alleged “short-swing” profits on our behalf. Due to the alleged failure by the Cadian Defendants to comply with its reporting obligations under the Exchange Act, the complaint does not specify the precise amount of alleged trades subject to disgorgement, other than estimating that the amount of profits subject to disgorgement is “believed to be in excess of $10 million.” The complaint seeks disgorgement of any and all short-swing profits on behalf of us, plus attorneys’ fees and expenses. The complaint does not seek damages of any kind from us. The parties have agreed to stay this case pending resolution of a motion in another case brought against the same Cadian Defendants alleging that the Cadian Defendants engaged in short-swing trading of another issuer.

We are party to routine litigation incidental to the ordinary course of our business and we may from time to time become subject to additional proceedings or additional claims or remedies sought in current proceedings. These actions typically seek, among other things, breach of contract or employment-related damages, intellectual property claims for damages, punitive damages, civil penalties or other losses or declaratory relief. Although there can be no assurance as to the outcome of any such proceedings, we do not believe any of the proceedings currently pending, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, operating results or financial condition. See risks discussed in the section titled “Risk Factors” for more information.

Our intellectual property is an essential element of our business. We own trademarks for the “Qlik®,” “QlikTech®,” “Qlik Sense®,” “QlikView®,” “Qlik® Cloud,” “Qlik® DataMarket,” “Qlik® Analytics Platform” and our logos. We rely on a combination of copyright, patent, trademark, trade dress and trade secrecy laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights both domestically and abroad. These laws, procedures and restrictions provide only limited protection. As of March 31, 2016, we had eight issued U.S. patents and had ten pending applications for U.S. patents. In addition, as of March 31, 2016, we had seven issued and 21 pending applications for foreign patents. Any future patents issued to us may be challenged, invalidated or circumvented. Any patents that might be issued in the future, with respect to pending or future patent applications, may not provide sufficiently broad protection or may not prove to be enforceable in actions against alleged infringers. We endeavor to enter into agreements with our employees and contractors and with parties with whom we do business in order to limit access to and disclosure of our proprietary information.

 

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ITEM 1A. RISK FACTORS

The following description of risk factors include any material changes to, and supersedes the description of, risk factors associated with our business previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 26, 2016, under the heading “Risk Factors.” Our business, financial condition and operating results can be affected by a number of factors, whether current known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual operating results and financial condition to vary materially from past, or anticipated future, operating results and financial condition. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and the price of our common stock.

The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding any statement in this Quarterly Report on Form 10-Q or elsewhere. The following information should be read in conjunction with the consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s, Discussion and Analysis of Financial Condition and Results of Operations.”

Because of the following factors, as well as other factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

We target a global marketplace and compete in a rapidly evolving and highly competitive industry which makes our future operating results difficult to predict. If we are unable to enhance products or acquire new products that respond to rapidly changing customer requirements, technological developments or evolving industry standards, our long-term revenue growth will be harmed.

We target the global business intelligence, or BI, marketplace, which is an industry characterized by rapid technological innovation, changing customer needs, substantial competition, evolving industry standards and frequent introductions of new products, enhancements and services. Any of these factors can render our existing software products and services obsolete or unmarketable. We believe that our future success will depend in large part on our ability to successfully:

 

    support current and future releases of popular hardware, operating systems, computer programming languages, databases and software applications

 

    develop new products and product enhancements that achieve market acceptance in a timely manner

 

    maintain technological competiveness and meet an expanding range of customer requirements.

As we encounter increasing competitive pressures, we will likely be required to modify, enhance, reposition or introduce new products and service offerings. We may not be successful in doing so in a timely, cost-effective and appropriately responsive manner, or at all, which may have an adverse effect on our business, quarterly operating results and financial condition. All of these factors make it difficult to predict our future operating results which may impair our ability to manage our business.

We may experience quarterly fluctuations in our operating results due to a number of factors which make our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.

Our operating results may fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Our past results should not be relied on as an indication of our future performance. If our revenue or operating results fall below the expectations of investors or securities analysts or below any guidance we may provide to the market, the price of our common stock could decline substantially.

Our operating results have varied in the past and are expected to continue to do so in the future. In addition to other risk factors listed in this “Risk Factors” section, factors that may affect our quarterly operating results, business and financial condition include the following:

 

    demand for our software products and services and the size and timing of orders

 

    market acceptance of our current products, such as QlikView® and Qlik Sense®, and future products

 

    a slowdown in spending on information technology, or IT, and software by our current and/or prospective customers

 

    sales cycles and performance of our indirect channel partners and original equipment manufacturers (known as OEMs)

 

    budgeting cycles of our current or potential customers

 

    foreign currency exchange rate fluctuations

 

    the management, performance and expansion of our domestic and international operations

 

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    the rate of renewals of our maintenance agreements

 

    changes in the competitive dynamics of our markets

 

    our ability to control and predict costs, including our operating expenses

 

    customers delaying purchasing decisions in anticipation of new products or product enhancements by us or our competitors

 

    the timing of recognizing revenue in any given quarter as a result of revenue recognition rules

 

    the timing and amount of our tax benefits or tax expenses as a result of, among other things, complex tax laws and any changes to such tax laws in the jurisdictions in which we operate

 

    the seasonality of our business

 

    failure to successfully manage or integrate any acquisitions

 

    an increase in the rate of product returns

 

    the outcome or publicity surrounding any pending or threatened lawsuits

 

    general economic and political conditions in our domestic and international markets.

In addition, we may in the future experience fluctuations in our gross and operating margins due to changes in the mix of our direct and indirect sales, domestic and international revenues and expenses, and license, maintenance and professional services revenues.

We have introduced a new licensing model with Qlik Sense through the use of tokens and may implement future changes to our license pricing and licensing model structure for any or all of our products, including increased prices, changes to the types and terms of our licensing structure and maintenance parameters. If these changes are not accepted by our current or future customers, our business, operating results and financial condition could be harmed.

Based upon the factors described above and those described elsewhere in this section entitled “Risk Factors”, we have a limited ability to forecast the amount and mix of future revenues and expenses, which may cause our operating results to fall below our estimates or the expectations of public market analysts and investors.

Product enhancement and new product introductions involve inherent risks.

We compete in a market characterized by rapid technological advances in software development, evolving standards in software technology and frequent new product introductions and enhancements. To succeed, we must continually expand and refresh our product offerings to include newer features or products, such as the launch of Qlik Sense in 2014, and enter into agreements allowing integration of third-party technology into our products. The introduction of new products or updated versions of continuing products has inherent risks, including, but not limited to:

 

    product quality, including the possibility of software defects

 

    delays in releasing new products

 

    customers delaying purchase decisions in anticipation of new products to be released

 

    customer confusion and extended evaluation and negotiation time

 

    the fit of the new products and features with the customer’s needs

 

    the successful adaptation of third-party technology into our products

 

    educating our sales, marketing and consulting personnel to work with new products and features

 

    competition from earlier and more established entrants

 

    market acceptance of initial product releases

 

    marketing effectiveness, including challenges in distribution

 

    higher than expected research and development costs

 

    the accuracy of assumptions about the nature of customer demand.

 

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If we are unable to successfully introduce, market, and sell new products and technologies, enhance and improve existing products in accordance with our stated release cadence in a timely and cost-effective manner, and properly position and/or price our products, our business, results of operations, or financial position could be materially impacted.

If new industry standards emerge or if we are unable to respond to rapid technological changes, demand for our software products may be adversely affected.

We believe that our future success is dependent in large part on our ability:

 

    to support current and future industry standards, including databases and operating systems

 

    to maintain technological competiveness

 

    meet an expanding range of customer requirements, including cloud-based programming or software-as-a-service licensing structures

 

    to introduce new products and features for our customers.

The emergence of new industry standards in related fields may adversely affect the demand for our existing software products. Our business and results of operations may be adversely affected if new technologies emerged that were incompatible with customer deployments of our software products. We currently support Open Database Connectivity, or ODBC, and Object Linking and Embedding Database, or OLEDB, standards in database access technology. If we are unable to adapt our software products on a timely basis to new standards in database access technology, the ability of our software products to access customer databases could be impaired. In addition, the emergence of new server operating systems standards could adversely affect the demand for our existing software products. Our software products currently require the Windows Server operating system when deployed on a server, as used in most multi-user deployments. If customers are unwilling to use a Windows Server, we may not be able to achieve compatibility on a timely basis or without substantial research and development and support expense. We currently support all generally available client operating systems that run industry standard web browsers, but we cannot provide assurance that we will be able to support future client operating systems and web browsers in a timely and cost-effective manner, if at all.

The markets for our software products and services are also characterized by rapid technological and customer requirement changes. In particular, our technology is optimized for servers utilizing the x86 and x64 families of microprocessors. If the speed and performance of these microprocessor families do not continue to increase at the rates we anticipate, our software may not attain the performance speed and capabilities that we expect. Also, if different microprocessor architecture were to gain widespread acceptance in server applications, we may not be able to achieve compatibility on a timely basis or without substantial research and development and support expense. Our delay or inability to achieve compatibility with different microprocessor architecture or other technological change or in satisfying changing customer requirements could render our existing and future products obsolete and unmarketable. As a result, we may not be able to accurately predict the lifecycle of our software products and services, and they may become obsolete before we receive the amount of revenues that we anticipate from them.

Our long-term growth depends on our ability to enhance and improve our existing products and to introduce or acquire new products that respond to these demands. The creation of BI software is inherently complex. The development and testing of new products and product enhancements can require significant research and development expenditures. As a result, substantial delays in the general availability of such new releases or significant problems in the installation or implementation of such new releases could harm our business, operating results and financial condition. We may not successfully develop and market product enhancements or new products that respond to technological change or new customer requirements. Even if we introduce a new product, we may experience a decline in revenues of our existing products that is not fully matched by the new product’s revenue. For example, customers may delay making purchases of a new product to make a more thorough evaluation of the product, or until industry and marketplace reviews become widely available. In addition, we may lose existing customers who choose a competitor’s product rather than to migrate to our new product. This could result in a temporary or permanent revenue shortfall and harm our business, operating results and financial condition. If we are unable to develop or acquire enhancements to, and new features for, our existing products or acceptable new products that keep pace with rapid technological developments and customer requirements, our products may become obsolete, less marketable and less competitive, and our business, operating results and financial condition will be harmed.

We depend on revenue from a single software product.

Despite our release of Qlik Sense in September 2014, and the incremental revenue derived from Qlik Sense during the three months ended March 31, 2016, the year ended December 31, 2015 and the expected revenue to be derived in the future, we have and continue to be heavily dependent on our QlikView product. Our business would be harmed by a decline in demand for, or in the price of, our software products as a result of, among other factors:

 

    any change in our pricing model

 

    any change in our licensing model

 

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    any change in our go to market model

 

    increased competition

 

    support, research and development or other expenditures undertaken in attempts, whether or not successful, to develop new products

 

    maturation in the markets for our products.

Our financial results would suffer if the market for BI software does not continue to grow or if we are unable to further penetrate this market.

Nearly all of our revenues to date have come from sales of BI software and related maintenance and professional services. We expect these sales to account for substantially all of our revenues for the foreseeable future. Although demand for BI software has grown in recent years, the market for BI software applications is still evolving. Resistance from consumer and privacy groups to increased commercial collection and use of data on spending patterns and other personal behavior and governmental restrictions on the collection and use of personal data may impair the further growth of this market, as may other developments. We cannot be sure that this market will continue to grow or, even if it does grow, that customers will purchase our software products or services. We have spent, and intend to keep spending, considerable resources to educate potential customers about BI software in general and our software products and services in particular. However, we cannot be sure that these expenditures will help our software products achieve any additional market acceptance or enable us to attract new customers or new users at existing customers. A reduction in the demand for our software products and services could be caused by, among other things, lack of customer acceptance, weakening economic conditions, competing technologies and services or decreases in software spending. If the market and our market share fail to grow or grow more slowly than we currently expect, our business, operating results and financial condition would be harmed.

Our operating income (loss) could fluctuate as we make further expenditures to expand our operations in order to support additional growth in our business.

We have continued to make significant investments in our operations to support additional growth, such as hiring substantial numbers of new personnel, investing in research and development, investing in new facilities, acquiring other companies or their assets and establishing and broadening our international operations in order to expand our business. We intend to make additional investments in research and development, systems, infrastructure, marketing and sales personnel and to continue to expand our operations to support anticipated future growth in our business. As a result of these investments, our operating income (loss) could fluctuate.

We rely on third-party channel partners to sell a substantial portion of our products, and if these channel partners fail to perform, our ability to sell and distribute our products and services will be limited, and our operating results and financial condition will be harmed.

In addition to our direct sales force, we use indirect channel partners, such as distribution partners, value-added resellers, system integrators and OEMs to license and support our software products. For the three months ended March 31, 2016 and 2015, transactions by indirect channel partners accounted for more than 50% of our total product licenses and first year maintenance billings. We expect to continue to rely substantially on our channel partners in the future.

Our channel partners may offer customers the products of several different companies, including products that compete with ours. Our channel partners may be unsuccessful in marketing, selling and supporting our products and services. If we are unable to develop and maintain effective sales incentive programs for our channel partners, we may not be able to incentivize these partners to sell our products to end-customers and, in particular, to large enterprises. These partners may also market, sell and support products and services that are competitive with ours and may devote more resources to the marketing, sales, and support of such competitive products. In order to develop and expand our distribution channel, we must continue to scale and improve our processes and procedures that support our channel partners, including investment in systems and training. These processes and procedures may become increasingly complex and difficult to manage as we grow our organization.

Our ability to achieve revenue growth and operating profit in the future will depend in part on our success in maintaining successful relationships with our current and future channel partners and their ability to license and support our software products. There can be no assurance that our channel partners will continue to cooperate with us when our distribution agreements expire, change or are up for renewal. If we are unable to maintain our relationships with these channel partners, our business, operating results and financial condition could be harmed. Also, in a number of regions we rely on a limited number of resellers, and our business may be harmed if any of these resellers were to fail to effectively sell our software in their specified geographic territories.

In addition, we rely on our channel partners to operate in accordance with the terms of their contractual agreements with us which we may change from time to time. For example, our agreements with our channel partners limit the terms and conditions pursuant to which they are authorized to resell or distribute our software products and offer technical support and related services. We also typically require our channel partners to provide us with the dates and details of product license transactions sold to end user customers. If our channel partners do not comply with their contractual obligations to us or if our channel partners do not agree with changes we may make to our contractual agreements, our business, results of operations and financial condition may be harmed.

 

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Our channel partner sales structure could subject us to lawsuits, potential liability, and reputational harm if, for example, any of our channel partners misrepresent the functionality of our products or services to end-customers or violate laws or our corporate policies

If we are unable to expand our direct sales capabilities and increase sales productivity, we may not be able to generate increased revenues.

We may be required to expand our direct sales force in order to generate increased revenue from new and existing customers. We have and intend to continue to increase our number of direct sales professionals. New hires require training and take time to achieve full productivity. We cannot be certain that recent and future new hires will become as productive as necessary or that we will be able to hire enough qualified individuals in the future. Failure to hire qualified direct sales personnel and increase sales productivity will preclude us from expanding our business and growing our revenue, which may harm our business, operating results and financial condition.

As we continue to pursue new enterprise customers, additional OEM opportunities or more complicated deployments, our sales cycle, forecasting processes and deployment processes may become more unpredictable and require greater time and expense.

Our sales cycle may lengthen as we continue to pursue new enterprise customers. Enterprise customers may undertake a significant evaluation process in regard to enterprise software which can last from several months to a year or longer. If our sales cycle were to lengthen in this manner, events may occur during this period that affect the size or timing of a purchase or even cause cancellations, and this may lead to more unpredictability in our business and operating results. Additionally, sales cycles for sales of our software products tend to be longer, ranging from three to 12 months or more which may make forecasting more complex and uncertain. We may spend substantial time, effort and money on our sales efforts without any assurance that our efforts will produce any sales. In addition, product purchases by large enterprises are frequently subject to budget constraints, multiple approvals, and unplanned administrative, processing, and other delays. Finally, large enterprises typically have longer implementation cycles, require greater product functionality and scalability and a broader range of services, demand that vendors take on a larger share of risks, sometimes require acceptance provisions that can lead to a delay in revenue recognition, and expect greater payment flexibility from vendors. All of these factors can add further risk to business conducted with these end-customers. If we fail to realize an expected sale from a large end-customer in a particular quarter or at all, our business, operating results, and financial condition could be materially and adversely affected.

In addition, we may face unexpected deployment challenges with enterprise customers or more complicated installations of our software products. It may be difficult to deploy our software products if the customer has unexpected database, hardware or software technology issues. Additional deployment complexities may occur if a customer hires a third party to deploy our software products or if one of our indirect channel partners leads the implementation of our solution. Any difficulties or delays in the initial implementation could cause customers to reject our software or lead to the delay or non-receipt of future orders, in which case our business, operating results and financial condition would be harmed.

Fluctuations in foreign currency exchange rates may adversely affect our financial results.

We have operations in many areas of the world and are exposed to foreign currency exchange rate fluctuations that could harm our business, operating results and financial condition. A significant portion of our revenues, expenses, assets and liabilities are, and are expected to continue to be, denominated in foreign currencies, which exposes us to adverse changes in foreign currency exchange rates. To the extent such denomination in foreign currencies does occur, transactional gains and losses, as well as translational gains and losses, have and may continue to contribute to fluctuations in our results of operations and adjustments to our financial guidance. For example, the strengthening of the U.S. dollar relative to other currencies in which we operate negatively impacted our reported total revenue and loss from operations during the three months ended March 31, 2016 and 2015. These exposures may change over time as our business and business practices evolve, and they could harm our financial results and cash flows.

Although we continue to utilize short-term foreign currency forward contracts to cover a portion of our foreign currency transaction exposure related to certain intercompany borrowings, our policies do not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading purposes and we are not a party to any leveraged derivatives. We monitor underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as needed. Our decisions and hedging strategy with respect to currency risks may not be successful, which could harm our operating results. In addition, if we do not successfully manage our hedging program in accordance with accounting guidelines, we may be subject to adverse accounting treatment, which could harm our operating results. There can be no assurance that this hedging program will be economically beneficial to us for numerous reasons; for example, hedging may reduce volatility, but prevent us from benefiting from a favorable rate change. If we are not effective in any future foreign exchange hedging transactions in which we engage, our business, operating results and financial condition could be harmed.

For additional information on our foreign currency exchange rate risk, refer to “- Foreign Exchange Risk” in Item 7A - Quantitative and Qualitative Disclosures About Market Risk, which is included in this Quarterly Report on Form 10-Q.

Managing our international operations is complex and our failure to do so successfully could harm our business, operating results and financial condition.

We receive a significant portion of our total revenue from international sales from foreign direct and indirect operations. International revenues accounted for approximately 70% of our total revenue for the three months ended March 31, 2016 and approximately 68% of our total

 

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revenue for the year ended December 31, 2015. We have facilities located in Australia, Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Hong Kong, Iceland, India, Italy, Japan, the Netherlands, Norway, Poland, Portugal, Russia, Singapore, Spain, Sweden, Switzerland, the United Arab Emirates and the United Kingdom. We expect to continue to add personnel in these and additional countries. Our international operations require significant management attention and financial resources.

There are certain risks inherent in our international business activities including, but not limited to:

 

    managing and staffing international offices and the increased costs associated with multiple international locations

 

    maintaining relationships with indirect channel partners outside the U.S., whose sales and lead generation activities are very important to our international operations

 

    foreign currency exchange rate fluctuations

 

    multiple legal systems and unexpected changes in legal requirements

 

    the burden of complying with a wide variety of laws, including those relating to labor matters, consumer and data protection, privacy, network security, and encryption

 

    tariffs, export restrictions, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets

 

    trade laws and business practices favoring local competition

 

    costs of localizing products and potential lack of acceptance of localized versions

 

    potential tax issues, including restrictions on repatriating earnings or the adoption of a minimum tax on adjusted unrepatriated foreign earnings and multiple, conflicting, changing and complex tax laws and regulations

 

    employer payroll tax withholdings with respect to exercises by employees or vesting of our equity awards

 

    weaker intellectual property protection in some countries

 

    difficulties in enforcing contracts and collecting accounts receivable, longer sales cycles and longer payment cycles, especially in emerging markets

 

    the significant presence of some of our competitors in certain international markets

 

    our ability to adapt to sales practices and customer requirements in different cultures

 

    political instability, including war and terrorism or the threat of war and terrorism

 

    adverse economic conditions, including the stability and solvency of business financial markets, financial institutions and sovereign nations.

In addition, compliance with foreign and U.S. laws and regulations that are applicable to our international operations is complex and may increase our cost of doing business in international jurisdictions, and our international operations could expose us to fines and penalties if we fail to comply with these regulations. These laws and regulations include import and export requirements, U.S. laws such as the Foreign Corrupt Practices Act and anti-money laundering regulations, and local laws prohibiting corrupt payments. Although we have implemented policies and procedures designed to help ensure compliance with these laws, there can be no assurance that our employees, partners and other persons with whom we do business will not take actions in violation of our policies or these laws. Any violations of these laws could subject us to civil or criminal penalties, including substantial fines or prohibitions on our ability to offer our products and services in one or more countries, and could also materially damage our reputation, our brand and our international business.

Our failure to manage any of these risks successfully could harm our international operations, business operating results and financial condition and reduce our international sales.

We are required to comply with U.S. export control laws and regulations. Noncompliance with those laws and regulations could materially harm our business.

Our solutions are subject to U.S. and European Union export controls. U.S. export control laws and economic sanctions prohibit the shipment of certain solutions and services to U.S. embargoed or sanctioned countries, governments and persons and complying with export control and sanctions regulations for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. Penalties for violations of the U.S. export control laws include substantial fines and the possible loss of export or import privileges and criminal action for knowing or willful violations.

 

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Further, if our operating partners fail to obtain appropriate import, export or re-export licenses or permits, we may also be harmed, become the subject of government investigations or penalties, and incur reputational harm. Changes in our solutions or changes in export and import regulations may create delays in the introduction of our solutions in international markets, prevent our customers with international operations from deploying our solutions globally or, in some cases, prevent the export or import of our solutions to certain countries, governments or persons altogether. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our solutions by, or in our decreased ability to export or sell our solutions to, existing or potential customers with international operations. Any decreased use of our solutions or limitation on our ability to export or sell our solutions would likely harm our business, financial condition and results of operations.

Government regulation of the Internet and e-commerce and of the international exchange of certain technologies is subject to possible unfavorable changes, and our failure to comply with applicable regulations could harm our business and operating results.

As Internet commerce continues to evolve, increasing regulation by federal, state or foreign governments becomes more likely. For example, we believe increased regulation is likely in the area of data privacy, and laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information could affect our customers’ ability to use and share data, potentially reducing demand for our products and services. In addition, taxation of products and services provided over the Internet or other charges imposed by government agencies or by private organizations for accessing the Internet may also be imposed. Any regulation imposing greater fees for Internet use or restricting the exchange of information over the Internet could result in reduced growth or a decline in the use of the Internet and could diminish the viability of our Internet-based services, which could harm our business and operating results.

Our business depends on customers renewing their annual maintenance contracts and our ability to collect renewal fees.

Any decline in maintenance renewals could harm our future operating results. The majority of our software licenses are sold pursuant to a perpetual license with a fixed upfront fee which ordinarily includes one year of maintenance as part of the initial price. Our customers have no obligation to renew their maintenance agreements after the expiration of this initial period, and they may not renew these agreements. We may be unable to predict future customer renewal rates accurately. Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our software products, the prices of our software products, the prices of products and services offered by our competitors, reductions in our customers’ spending levels or general, industry-specific or local economic conditions. If our customers do not renew their maintenance arrangements or if they renew them on less favorable terms, our revenues may decline, our operating and financial condition will be harmed and our business will suffer. A substantial portion of our quarterly maintenance revenue is attributable to maintenance agreements entered into during previous quarters. As a result, if there is a decline in renewed maintenance agreements in any one quarter, only a small portion of the decline will be reflected in our maintenance revenue recognized in that quarter and the rest will be reflected in our maintenance revenue recognized in the following four quarters or more. In addition, we may have difficulties collecting renewal fees from our customers, especially in regards to customers located in emerging international markets or markets experiencing slowed growth, recessions or other adverse economic conditions. If we are unable to collect renewal fees from customers, our business, results of operations and financial condition will be harmed.

Our software products could contain undetected errors, or bugs, which could cause problems with product performance and which could in turn reduce demand for our software products, reduce our revenue and lead to product liability claims against us.

Software products like ours, which consist of hundreds of thousands of lines of code and incorporate licensed software from third parties, may contain errors and/or defects. Although we test our software, we have in the past discovered software errors in our products after their introduction. Despite testing by us and by our current and potential customers, errors may be found in new products or releases after deployment begins. This could result in lost revenue, damage to our reputation or delays in market acceptance which could harm our business, operating results and financial condition. We may also have to expend resources to correct these defects and the resulting effects of these defects.

Our license agreements with customers typically contain provisions designed to limit our exposure to product liability, warranty and other claims. It is possible, however, that these provisions may not be effective as a result of existing or future laws of certain domestic or international jurisdictions or unfavorable judicial decisions in such jurisdictions, and we may be exposed to product liability, warranty and other claims. If these claims are made, our potential exposure may be substantial given the use of our products in business-critical applications. A successful product liability claim against us could harm our business, operating results and financial condition.

We face intense competition which may lead to reduced revenue and loss of market share.

The markets for BI software, analytical applications and information management are highly competitive and subject to rapidly changing technology and evolving standards. In addition, many companies in these markets are offering, or may soon offer, products and services that may compete with our software products.

We face competitors in several broad categories, including BI software, analytical processes, query, search and reporting tools. We compete with large technology corporations that provide one or more capabilities that are competitive with our software products, such as Amazon, IBM, Microsoft, Oracle and SAP AG, and with open source BI vendors, including Pentaho and JasperSoft. Open source software is software that is made widely available by its authors and is licensed “as is” for a nominal fee or, in some cases, at no charge. As the use of open

 

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source software becomes more widespread, certain open source technology could become competitive with our proprietary technology, which could cause sales of our products to decline or force us to reduce the fees we charge for our products. We also compete, or may increasingly in the future compete, with various independent competitors that are primarily focused on BI products, such as Birst, MicroStrategy, the SAS Institute, Tableau and TIBCO. We expect additional competition as other established and emerging companies or open source vendors enter the BI software market and new products and technologies are introduced. We expect this to be particularly true with respect to our cloud-based initiatives as we and our competitors seek to provide business analytics products based on a software-as-a-service, or SaaS, platform. This is an evolving area of business analytics solutions, and we anticipate competition to increase based on customer demand for these types of products.

Many of our competitors have longer operating histories, significantly greater financial, technical, marketing or other resources and greater name recognition than we do. In addition, many of our competitors have strong relationships with current and potential customers and extensive knowledge of the BI industry. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products than us. Increased competition may lead to price cuts, fewer customer orders, reduced gross margins, longer sales cycles and loss of market share. We may not be able to compete successfully against current and future competitors, and our business, operating results and financial condition will be harmed if we fail to meet these competitive pressures.

Current and future competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with others. By doing so, these competitors may increase their ability to meet the needs of our current or potential customers. Our current or prospective indirect channel partners may establish cooperative relationships with our current or future competitors. These relationships may limit our ability to sell our software products through specific distribution channels. Accordingly, new competitors or alliances among current and future competitors may emerge and rapidly gain significant market share. These developments could limit our ability to obtain revenues from new customers and to sustain maintenance revenues from our installed customer base. If we are unable to compete successfully against current and future competitors, our business, operating results and financial condition would be harmed.

The forecasts of market growth we have publicly provided may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure our business will grow at similar rates, if at all.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate, including fluctuations in foreign currency exchange rates. The forecasts we have publicly provided relating to the expected growth in the BI marketplace, cloud computing markets and technology market may prove to be inaccurate. Even if these markets experience the forecasted growth we have publicly provided, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth we have publicly provided should not be taken as indicative of our future growth.

Our estimate of the market size for our solutions we have publicly provided may prove to be inaccurate, and even if the market size is accurate, we cannot assure our business will serve a significant portion of the market.

Our estimate of the market size for our solutions we have publicly provided is subject to significant uncertainty and is based on assumptions and estimates, including our internal analysis and industry experience, which may not prove to be accurate. Our ability to serve a significant portion of this estimated market is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, even if our estimate of the market size is accurate, we cannot assure you that our business will serve a significant portion of this estimated market for our solutions.

A substantial customer shift from the deployment of our software products based on a perpetual software license to our cloud services offerings could affect the timing of revenue recognition and materially adversely affect our operating results.

SaaS is a model of software deployment where a software provider typically licenses an application to customers for use as a service on demand through web browser technologies. We believe that companies have begun to expect that key software be provided through a SaaS model. We offer our software products in the form of a perpetual software license and a SaaS subscription. Expanding our SaaS business model will require us to undertake additional substantial capital investments and related sales and support resources and personnel. If more customers were to shift to a SaaS deployment or if customers demand a SaaS-based BI software platform sooner than we currently anticipate, we would need to undertake significant investments in order to further implement this alternative business model. If the prevalence of cloud-based data increases, current and prospective customers may increasingly demand SaaS-based BI software platforms. Even if we undertook these investments, we may be unsuccessful in implementing a SaaS business model. Moreover, sales of a potential future SaaS offering by our competitors could adversely affect sales of all of our existing products. In addition, increasing sales of our SaaS offering could cannibalize license sales of our on-premise desktop and server products to our existing and prospective customers, which could negatively impact our overall sales growth. These factors could harm our business, operating results and financial condition.

The payment streams and revenue recognition timing for our perpetual software licenses are different from those for our subscription services. For perpetual software licenses, customers typically pay us a lump sum soon after entering into a software license agreement and revenue is typically recognized upon delivery of the software to the customer. For subscription services, customers typically make periodic payments over the subscription period and revenue is typically recognized ratably over the subscription period. As a result, if a substantial number of current or new customers shift to subscribing to our cloud services offerings instead of purchasing perpetual software licenses for our software products, the resulting change in payment terms and revenue recognition may materially adversely affect our operating results and cash flows for the reporting periods during which such a shift occurs.

 

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If we fail to develop and maintain our brand cost-effectively, our business may be harmed.

We believe that developing and maintaining awareness and integrity of our brand in a cost-effective manner are important to achieving widespread acceptance of our software products and our existing and future products and are important elements in attracting new customers and maintaining existing customers. We believe that the importance of brand recognition will increase as competition in our market further intensifies. In 2014, we rebranded our company under the name “Qlik.” Successful promotion of our brand will depend on the effectiveness of our marketing efforts and on our ability to provide reliable and useful products and services at competitive prices. Brand promotion activities may not yield increased revenue, and even if they do, the increased revenue may not offset the expenses we incur in building and maintaining our brand. We also rely on our customer base and community of end-users in a variety of ways, including to give us feedback on our products and to provide user-based support to our other customers. If we fail to promote and maintain our brand successfully or to maintain loyalty among our customers and Qlik Community, our user community, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract new customers or retain our existing customers and our business may be harmed.

If we are unable to manage our growth effectively, our revenues and profits could be adversely affected.

We plan to continue to expand our operations and employee headcount significantly, and we anticipate that further significant expansion will be required. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Sustaining our growth will place significant demands on our management as well as on our administrative, operational and financial resources. To manage our growth, we must continue to improve our operational, financial and management information systems and expand, motivate and manage our workforce. If we are unable to manage our growth successfully without compromising our quality of service or our profit margins, or if new systems that we implement to assist in managing our growth do not produce the expected benefits, our revenues and profits could be harmed. Risks that we face in undertaking future expansion include:

 

    training new personnel to become productive and generate revenue

 

    enabling partners to sell our software products

 

    controlling expenses and investments in anticipation of expanded operations

 

    implementing and enhancing our administrative, operational and financial infrastructure, systems and processes

 

    addressing new markets

 

    expanding operations in the U.S. and international regions.

A failure to manage our growth effectively could harm our business, operating results, financial condition and ability to market and sell our software products and services.

If we are unable to recruit or retain skilled personnel, or if we lose the services of any of our key personnel, our business, operating results and financial condition could be harmed.

Our future success depends on our continuing ability to attract, train and retain highly skilled personnel, and we face intense competition for these employees. We may not be able to retain our current key employees or attract, train or retain other highly skilled personnel in the future. If we lose the services of one or all of our key employees, or if we are unable to attract, train and retain the highly skilled personnel we need, our business, operating results and financial condition could be harmed.

In addition, we must successfully integrate new employees into our operations and generate sufficient revenues to justify the costs associated with these employees. If we fail to successfully integrate employees or to generate the revenue necessary to offset employee-related expenses, our business and financial results could be adversely affected.

The success of our business is heavily dependent on the leadership of key management personnel, including Lars Björk, Chief Executive Officer, and other members of our senior management team. The loss of one or more key management personnel could adversely affect our continued operations.

Our future success depends in a large part upon the continued service of key members of our senior management team. In particular, Lars Björk, our Chief Executive Officer, is critical to the overall management of our organization, as well as the development of our brand, our technology, our culture and our strategic direction.

We have experienced significant changes, and may experience additional changes in the future, to our senior management team. For us to compete successfully and grow, we must retain, recruit and develop key personnel who can provide the needed expertise for our industry and products. However, the market for qualified personnel is competitive and we may not succeed in recruiting additional senior management personnel or may fail to replace current senior management personnel effectively who depart without qualified or effective successors. Any successors that we hire from outside of our company would likely be unfamiliar with our business model and industry and may therefore

 

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require significant time to understand and appreciate the important aspects of our business or fail to do so altogether. For instance, in September 2015, Mark Thurmond joined us as our Executive Vice President, Worldwide Sales and Services and we believe our future performance will depend significantly on our ability to successfully integrate him and other recently and subsequently hired executive officers into our management team and on those officers’ ability to develop and maintain an effective working relationship. Our failure to integrate recently and subsequently hired executive officers, including Mr. Thurmond, with other members of management and key employees could result in inefficiencies or disruptions in our sales and marketing, which would harm the sales of our products and our results of operations. Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability. The loss of any of our management or key personnel could seriously harm our business.

Future product development is dependent on adequate research and development resources.

In order to remain competitive, we must continue to develop new products, applications and enhancements to our existing software products. This is particularly true as we strive to further expand our software products and product capabilities. Maintaining adequate research and development resources, such as the appropriate personnel, talent and development technology, to meet the demands of the market is essential. Our research and development organization are principally located in Lund, Sweden, Boston, Massachusetts, Ottawa, Canada, Reykjavik, Iceland, Vicenza, Italy and London, United Kingdom with the vast majority of our research and development organization located in Lund, Sweden. We may have difficulty hiring suitably skilled personnel in these regions or expanding our research and development organization to facilities located in other geographic locations. In addition, many of our competitors expend a considerably greater amount of resources on their respective research and development programs. Our failure to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors would present an advantage to such competitors.

If we fail to offer high quality customer support, our business would suffer.

Once our software products are deployed to our customers, our customers rely on our support services to resolve any related issues. High quality customer support is important for the successful marketing and sale of our software products and services and for the renewal of existing customers. The importance of high quality customer support will increase as we expand our business and pursue new enterprise customers. If we do not help our customers quickly resolve post-deployment issues and provide effective ongoing support, our ability to sell our software products and professional services to existing customers would suffer and our reputation with existing or potential customers would be harmed.

We currently utilize a combination of internal support personnel and third party support organizations, and we cannot provide assurance that actions taken or not taken by our third party support organization will not harm our reputation or business. As we expand our sales infrastructure, we will be required to engage and train additional support personnel and resources. Further, our support organization will face additional challenges as we enter new international markets, including challenges associated with delivering support, training and documentation in languages required by new customers. If we fail to maintain high quality customer support or to grow our internal and external support organization to match any future sales growth, our business will suffer.

If we do not meet our revenue forecasts, we may be unable to reduce our expenses to avoid or minimize harm to our results of operations.

Our revenues are difficult to forecast and are likely to fluctuate significantly from period to period. We base our operating expense budgets on expected revenue trends and our strategic objectives, and many of our expenses, such as office and equipment leases and personnel costs, will be relatively fixed in the short term and will increase as we continue to make investments in our business and hire additional personnel. In the event we alter our licensing model, our ability to forecast revenue and expenses may be further hampered. Our estimates of sales trends may not correlate with actual revenues in a particular quarter or over a longer period of time. Variations in the rate and timing of conversion of our sales prospects into actual licensing revenues could cause us to plan or budget inaccurately and those variations could adversely affect our financial results. In particular, delays or reductions in amount or cancellation of customers’ purchases of our software products would adversely affect the overall level and timing of our revenues, and our business, results of operations and financial condition could be harmed. Due to the relatively fixed nature of many of our expenses, we may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall.

In the course of our sales to customers, we may encounter difficulty collecting accounts receivable and could be exposed to risks associated with uncollectible accounts receivable. In the event we are unable to collect on our accounts receivable, it could negatively affect our cash flows, operating results and business.

Our methodologies and software products may infringe the intellectual property rights of third parties or be found to contain unexpected open source software, and this may create liability for us or otherwise harm our business.

Third parties may claim that our current or future products infringe their intellectual property rights, and such claims may result in legal claims against our customers and us. These claims may damage our reputation, harm our customer relationships and create liability for us. We expect the number of such claims will increase as the number of products and the level of competition in our industry segments grow, the functionality of products overlap and the volume of issued software patents and patent applications continues to increase. We generally agree in our customer contracts to indemnify customers for expenses or liabilities they incur as a result of third party intellectual property infringement claims associated with our products or services. To the extent that any claim arises as a result of third party technology we have licensed for use in our product, we may be unable to recover from the appropriate third party any expenses or other liabilities that we incur.

 

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In addition, software products like ours that contain hundreds of thousands of lines of software code at times incorporate open source software code. The use of open source software code is typically subject to varying forms of software licenses, called copyleft or open source licenses. These types of licenses may require that any person who creates a software product that redistributes or modifies open source software that was subject to an open source license must also make their own software product subject to the same open source license. This can lead to a requirement that the newly created software product be provided free of charge or be made available or distributed in source code form. Although we do not believe our software includes any open source software that would result in the imposition of any such requirement on portions of our software products, our software could be found to contain this type of open source software.

Moreover, we cannot assure you that our processes for controlling our use of open source software in our products will be effective. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third parties to continue offering our products on terms that are not economically feasible, to re-engineer our products, to discontinue the sale of our products if re-engineering could not be accomplished on a timely basis, or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, operating results, and financial condition.

In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or assurance of title, non-infringement or controls on origin of the software. In addition, many of the risks associated with usage of open source software, such as the lack of warranties or assurances of title, cannot be eliminated, and could, if not properly addressed, negatively affect our business. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source software, but we cannot be sure that all open source software is submitted for approval prior to use in our products.

Responding to any infringement claim, regardless of its validity, or discovering open source software code in our products could harm our business, operating results and financial condition, by, among other things:

 

    resulting in time-consuming and costly litigation

 

    diverting management’s time and attention from developing our business

 

    requiring us to pay monetary damages or enter into royalty and licensing agreements that we would not normally find acceptable

 

    causing product shipment or deployment delays

 

    requiring us to stop selling certain of our products

 

    requiring us to redesign certain of our products using alternative non-infringing or non-open source technology or practices, which could require significant effort and expense

 

    requiring us to disclose our software source code, the detailed program commands for our software

 

    requiring us to satisfy indemnification obligations to our customers.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our software products, services and brand.

As of March 31, 2016, we had eight issued U.S. patents and ten pending applications for U.S. patents expiring at various times ranging from 2017 through 2032 and seven issued and 21 pending applications for foreign patents expiring at various times ranging from 2017 through 2036. In September 2015, our early patent, Method And Device For Extracting Information From A Database, which was filed in September 1995 in the U.S. and multiple European territories, expired. We do not expect the expiration of these patents to materially affect our business, operations or products. We rely on a combination of copyright, trademark, patent, trade secrets, confidentiality procedures and contractual commitments to protect our proprietary information. For example, we license our software products pursuant to click-wrap or signed license agreements that impose certain restrictions on a licensee’s ability to utilize the software. We also seek to avoid disclosure of our intellectual property, including by requiring those persons with access to our proprietary information to execute confidentiality agreements with us and by restricting access to our source code.

Despite our efforts, these measures can only provide limited protection. Unauthorized third parties may try to copy or reverse engineer portions of our software products or may otherwise obtain and use our intellectual property. Any patents owned by us may be invalidated, circumvented or challenged. Any of our pending or future patent applications, whether or not being currently challenged, may not be issued with the scope of the claims we seek, if at all. Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in other countries are uncertain and may afford little or no effective protection for our services, software, methodology and other proprietary rights. Consequently, we may be unable to prevent our intellectual property rights from being exploited abroad, which could require costly efforts to protect them. Policing the unauthorized use of our proprietary rights is expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management resources, either of which could harm our business. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. If we cannot protect our proprietary technology against unauthorized copying or use, we may not remain competitive.

 

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Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to developing and protecting their technology or intellectual property rights than we do. In addition, our attempts to protect our proprietary technology and intellectual property rights may be further limited as our employees may be recruited by our current or future competitors and may take with them significant knowledge of our proprietary information. Consequently, others may develop services and methodologies that are similar or superior to our services and methodologies or may design around our intellectual property.

Changes in laws or regulations relating to privacy or the protection or transfer of personal data, or any actual or perceived failure by us or our third-party service providers to comply with such laws and regulations or applicable privacy policies, could materially adversely affect our business.

Aspects of our business, including our current or future cloud services offerings, involve processing, storing, and transmitting personal data, which is subject to certain privacy policies, and certain federal, state, and foreign laws and regulations relating to privacy and data protection. The amount of customer and employee data that we store through our cloud services offerings, networks, and other systems, including personal data, is increasing. In recent years, the collection and use of personal data by companies have come under increased regulatory and public scrutiny. For example, in the United States, protected health information is subject to the Health Insurance Portability and Accountability Act (“HIPAA”). HIPAA has been supplemented by the Health Information Technology for Economic and Clinical Health Act with the result of increased civil and criminal penalties for noncompliance. Under HIPAA, entities performing certain functions and creating, receiving, maintaining, or transmitting protected health information provided by covered entities and other business associates are directly subject to HIPAA. Our access to protected health information through our cloud services offerings triggers obligations to comply with certain privacy rules and data security requirements under HIPAA. Any systems failure or security breach that results in the release of, or unauthorized access to, personal data, or any failure or perceived failure by us or our third-party service providers to comply with applicable privacy policies or any applicable laws or regulations relating to privacy or data protection, could result in proceedings against us by governmental entities or others. Such proceedings could result in the imposition of sanctions, fines, penalties, liabilities, and/or governmental orders requiring that we change our data practices, any of which could have a material adverse effect on our business, operating results, and financial condition.

Various federal, state, and foreign legislative, regulatory, or other governmental bodies may enact new or additional laws or regulations, or issue rulings that invalidate prior laws or regulations (such as the recent ruling by the European Court of Justice invalidating the U.S.-EU Safe Harbor Framework), concerning privacy and data protection that could materially adversely impact our business. Complying with these varying and changing requirements could cause us to incur substantial costs, require us to change our business practices, or limit our ability to provide certain products in certain jurisdictions, any of which could materially adversely affect our business and operating results. Additionally, the legislation and regulation regarding mobile data collection continue to evolve and if laws or regulations restricting or limiting the collection or use of mobile data are enacted, they may reduce demand for certain of our services or require changes to our business practices, which could materially adversely affect our business and operating results.

If we or our third-party service providers experience a security breach and unauthorized parties obtain access to our customers’ data, our data, or our cloud services offerings, networks, or other systems, our offerings may be perceived as not being secure, our reputation may be harmed, demand for our offerings may be reduced, our operations may be disrupted, we may incur significant legal liabilities, and our business could be materially adversely affected.

As part of our business, we process, store, and transmit our customers’ information and data as well as our own, including in our cloud services offerings, networks, and other systems. There can be no assurance that any security measures that have been implemented will be effective against all security threats. For example, security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, fraudulent inducement of employees or customers to disclose sensitive information such as user names or passwords, and employee error or malfeasance. Such breach could result in someone obtaining unauthorized access to our customers’ data, our data (including our proprietary information or trade secrets), or our cloud services offerings, networks, or other systems. Because there are many different security breach techniques and such techniques continue to evolve, we may be unable to anticipate attempted security breaches and implement adequate preventative measures. Third parties may also conduct attacks designed to temporarily deny customers access to our services. Any security breach or successful denial of service attack could result in a loss of customer confidence in the security of our offerings and damage to our brand, reducing the demand for our offerings and our revenue, disrupt our normal business operations, require us to spend material resources to correct the breach, expose us to legal liabilities including litigation and indemnity obligations, and materially adversely affect our operating results. These risks will increase as we continue to grow the number and scale of our cloud-based offerings and process, store, and transmit increasingly large amounts of our customers’ information and data, which may include proprietary or confidential data or personal or identifying information.

Our failure to adequately protect personal information could have a material adverse effect on our business.

A wide variety of local, state, national, and international laws, directives and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data. These data protection and privacy-related laws and regulations continue to evolve and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions and increased costs of compliance. Our failure to comply with applicable laws and regulations, or to protect such data, could result in enforcement action

 

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against us, including fines, imprisonment of company officials and public censure, claims for damages by end-customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing end-customers and prospective end-customers), any of which could have a material adverse effect on our operations, financial performance, and business. Changing definitions of personal data and personal information, within the European Union, the United States, and elsewhere, especially relating to classification of IP addresses, machine identification, location data, and other information, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data.

Economic uncertainties or downturns could materially harm our business.

We are subject to risks arising from changes and uncertainty in domestic and global economies. Our operations and performance depend significantly on worldwide economic conditions. Current or future economic downturns could harm our business and results of operations. Negative conditions in the general economies of the countries in which we do business, such as actual or threatened military action, terrorist attacks, financial credit market fluctuations and changes in tax laws, could cause a decrease in corporate spending on BI software in general and negatively affect the rate of growth of our business and our results of operations.

The macroeconomic condition of some countries in which we operate has been hindered by unemployment, budget deficits, high public debt, the risk of defaults on sovereign debt and potential or actual private bank failures. In recent years, policies undertaken by certain central banks, such as the U.S. Federal Reserve, the European Central Bank and the Bank of England, have involved quantitative easing and the impact of these policies on macroeconomic trends and our customers is difficult to predict. These conditions make it extremely difficult for our customers and us to accurately forecast and plan future business activities, and they could cause our customers to slow spending on our products and services which would delay and lengthen sales cycles. Furthermore, during challenging economic times our customers may face issues in gaining timely access to sufficient credit which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may be required to increase our allowance for doubtful accounts and our operating results would be harmed.

We maintain operating or other bank accounts at financial institutions in the U.S., Sweden and other regions. In particular, a significant amount of our cash balances in the U.S. and Sweden are in excess of the insurance limits of the U.S. government’s Federal Deposit Insurance Corporation, or FDIC, and Swedish government’s Swedish Deposit Insurance Scheme, or Insättningsgarantin. The FDIC insures deposits in most banks and savings associations located in the U.S. and protects depositors against the loss of their deposits if an FDIC-insured bank or savings association fails, subject to specified monetary ceilings. Similarly, the Swedish Deposit Insurance Scheme is a state-provided guarantee of deposits in accounts at Swedish banks, subject to specified monetary ceilings. We could incur substantial losses if the underlying financial institutions in these or other regions fail or are otherwise unable to return our deposits.

We have a significant number of customers in the consumer products and services, healthcare, retail, manufacturing and financial services industries. A substantial downturn in these industries may cause organizations to react to worsening conditions by reducing their capital expenditures in general or by specifically reducing their spending on IT. Customers in these industries may delay or cancel IT projects or seek to lower their costs by renegotiating vendor contracts. Also, customers with excess IT resources may choose to develop in-house software solutions rather than obtain those solutions from us. Moreover, competitors may respond to market conditions by lowering prices and attempting to lure away our customers. In addition, the increased pace of consolidation in certain industries may result in reduced overall spending on our products.

We cannot predict the timing, strength or duration of any economic slowdown or recovery, generally or in the consumer products and services, manufacturing and financial services industries. During challenging and uncertain economic times and in tight credit markets, many customers delay or reduce technology purchases. Contract negotiations may become more protracted or difficult if customers institute additional internal approvals for technology purchases or require more negotiation of contract terms and conditions. These economic conditions, and uncertainty as to the general direction of the macroeconomic environment, are beyond our control and could result in reductions in sales of our products, longer sales cycles, difficulties in collection of accounts receivable or delayed payments, slower adoption of new technologies, increased price competition and reductions in the rate at which our customers renew their maintenance agreements and procure consulting services.

Our business could be harmed as a result of the risks associated with our acquisitions.

As part of our business strategy, we may from time to time seek to acquire businesses or assets that provide us with additional intellectual property, customer relationships and geographic coverage. We can provide no assurances that we will be able to find and identify desirable acquisition targets or that we will be successful in entering into a definitive agreement with any one target. In addition, even if we reach a definitive agreement with a target, there is no assurance that we will complete any future acquisition.

Any acquisitions we undertake or have recently completed will likely be accompanied by business risks which may include, among other things:

 

    the effect of the acquisition on our financial and strategic position and reputation

 

    the failure of an acquisition to result in expected benefits, which may include benefits relating to enhanced revenues, technology, human resources, costs savings, operating efficiencies, goodwill and other synergies

 

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    the difficulty, cost and management effort required to integrate the acquired businesses, including costs and delays in implementing common systems and procedures and costs and delays caused by communication difficulties

 

    the assumption of certain known or unknown liabilities of the acquired business, including litigation-related liabilities

 

    the reduction of our cash available for operations and other uses, the increase in amortization expense related to identifiable assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt

 

    a lack of experience in new markets, new business culture, products or technologies or an initial dependence on unfamiliar distribution partners

 

    the possibility that we will pay more than the value we derive from the acquisition

 

    the impairment of relationships with our customers, partners or suppliers or those of the acquired business

 

    the potential loss of key employees of the acquired business.

These factors could harm our business, results of operations or financial condition.

In addition to the risks commonly encountered in the acquisition of a business or assets as described above, we may also experience risks relating to the challenges and costs of closing a transaction. The risks described above may be exacerbated as a result of managing multiple acquisitions at once.

Business disruptions, including interruptions, delays, or failures in service from our third-party data center hosting facilities and other third-party services, could materially adversely affect our operating results or result in a material weakness in our internal controls that could adversely affect the market price of our stock.

A significant portion of our research and development activities or certain other critical business operations are concentrated at a single facility in Sweden and a significant amount of our management operations are concentrated in a single facility in Radnor, Pennsylvania. In addition, we serve our customers, and manage certain critical internal processes, using third-party data center hosting facilities located in the U.S. and Sweden and other third-party services, including Amazon Web Services and other cloud services. We are also a highly automated business and a disruption or failure of our systems, or the third-party hosting facilities or other services that we use, could cause delays in completing sales and providing services. Such disruptions or failures could include a major earthquake, fire, cyber-attack, act of terrorism or other catastrophic event or a decision by one of our third-party service providers to close facilities that we use without adequate notice or other unanticipated problems with the third-party services that we use, including a failure to meet service standards. Any such disruptions or failures could (i) result that results in the destruction or disruption of any of our critical business operations, controls, or procedures or IT systems, (ii) severely affect our ability to conduct normal business operations, (iii) result in a material weakness in our internal control over financial reporting, (iv) cause our customers to terminate their subscriptions, (v) result in our issuing credits or paying penalties or fines, (vi) harm our reputation, (vii) adversely affect our attrition rates or our ability to attract new customers, or (viii) cause our offerings to be perceived as not being secure, any of which could materially adversely affect our future operating results.

Future litigation could harm our results of operation and financial condition.

In addition to intellectual property litigation, from time to time, we may be subject to other litigation. We record a related liability when we can make a reasonable estimate of the liability relating to pending litigation and determine that it is probable. As additional information becomes available, we assess the potential liability and revise estimates as appropriate. However, because of uncertainties relating to litigation, the amount of our estimates could be wrong. In addition to the related cost and use of cash, pending or future litigation could cause the diversion of management’s attention and resources.

We are incurring significant costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our operating results.

As a public company, we are incurring significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, the Financial Industry Regulatory Authority, Inc. (“FINRA”) and The NASDAQ Stock Exchange Global Select Market (“NASDAQ”) imposes various requirements on public companies, including requirements with respect to corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have substantially increased our legal and financial compliance costs and made some activities more time-consuming and costly. We also expect these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

 

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If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage and grow our business may be harmed. A failure or disruption in these services would materially and adversely affect our ability to manage our business effectively.

We have experienced rapid growth over the last several years. We rely heavily on information technology systems to help manage critical functions, such as order processing, sales forecasts and employee data. Our ability to successfully implement our business plan and comply with regulations, including the Sarbanes-Oxley Act, requires an effective planning and management process. We expect that we will need to continue to improve existing, and implement new, operational and financial systems, procedures and controls to manage our business effectively in the future. In 2014, we implemented a new ERP system. If we experience a breakdown in our procedures or controls, our ability to record and report financial and management information on a timely and accurate basis could be impaired. In addition, if one or more of our technology-related hardware or software providers suffer an interruption in their business, or experience delays, disruptions or quality control problems in their operations, or we have to change or add additional systems and services, our ability to manage our business would suffer.

Many of our key financial systems used for internal purposes are cloud based solutions provided by third parties

Our ERP system along with certain other internal financial systems are cloud based solutions provided by third parties. The use of cloud based systems provided by third parties exposes us to certain risks of those third parties. If a disruption of services by third party cloud financial system providers were to occur, it could have a material adverse effect on our ability to record and report financial and management information on a timely and accurate basis.

If we fail to maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.

The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal control over financial reporting and disclosure controls and procedures. Under the SEC’s current rules, we are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our independent registered public accounting firm is also required to report on our internal control over financial reporting. Our testing and our independent registered public accounting firm’s testing may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses and render our internal control over financial reporting ineffective. Due to the extent of our international operations, our financial reporting requires substantial international activities, resources and reporting consolidation. We are also subject to complex tax laws, regulations, accounting principles and interpretations thereof. We have and expect to continue to incur substantial accounting and auditing expense and to expend significant management time in complying with the requirements of Section 404. If we are not able to maintain compliance with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to investigations or sanctions by the SEC, FINRA, NASDAQ or other regulatory authorities. In addition, we could be required to expend significant management time and financial resources to correct any material weaknesses that may be identified or to respond to any regulatory investigations or proceedings.

Our results of operations may be adversely affected by changes in or interpretations of accounting standards.

We prepare our unaudited consolidated financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting standards. It is possible that future requirements, including the recently released new guidance related to revenue recognition (ASU 2014-09, Revenue from Contracts with Customers: Topic 606), could change our current application of U.S. GAAP, resulting in a material adverse impact on our financial position or results of operations. Our accounting policies that recently have been or may be affected by changes in the accounting rules are as follows:

 

    software revenue recognition

 

    accounting for income taxes

 

    accounting for leases

 

    accounting for business combinations and related goodwill

 

    accounting for stock-based awards issued to employees

 

    assessing fair value of financial and non-financial assets

 

    application, if any of IFRS.

We continuously review our compliance with all applicable new and existing revenue recognition accounting pronouncements. In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. We are currently evaluating the impact of adopting ASU 2014-09 on our consolidated financial statements and have not yet selected a transition method, nor have we determined the effect of the standard on

 

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our ongoing financial reporting. Depending upon the outcome of these ongoing reviews and the potential issuance of further accounting pronouncements, implementation guidelines and interpretations, we may be required to modify our reported results, revenue recognition policies or business practices which could harm our results of operations.

We may have exposure to greater than anticipated tax liabilities.

We are subject to complex taxes in the U.S. and a variety of foreign jurisdictions. All of these jurisdictions have in the past and may in the future make changes to their corporate income tax rates and other income tax laws which could increase our future income tax provision.

Our future income tax obligations could be adversely affected by earnings that are lower than anticipated in jurisdictions where we have lower statutory rates and by earnings that are higher than anticipated in jurisdictions where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, changes in the amount of unrecognized tax benefits or by changes in tax laws (such as the Base Erosion Profit Shifting (“BEPS”) project initiated by the Organization for Economic Co-operation and Development (“OECD”)), regulations, accounting principles or interpretations thereof.

Further changes in the tax laws of foreign jurisdictions could arise, whether as a result of BEPS or otherwise. The OECD, which represents a coalition of member countries, has issued recommendations that, in some cases, would make substantial changes to numerous long-standing tax positions and principles. These contemplated changes, to the extent adopted by OECD members and/or other countries, could increase tax uncertainty and may adversely affect our provision for income taxes. In addition, in the United States, various proposals for broad reform of the existing U.S. corporate tax system are under evaluation by various legislative and administrative bodies, but it is not possible to accurately determine the overall impact of such proposals on our effective tax rate at this time.

Our determination of our tax liability is subject to review by applicable U.S. and foreign tax authorities. Any adverse outcome of such a review could have an adverse effect on our operating results and financial condition. The determination of our worldwide income tax provision and other tax liabilities requires significant judgment and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is complex and uncertain. Moreover, as a multinational business, we have subsidiaries that engage in many intercompany transactions in a variety of tax jurisdictions where the ultimate tax determination is complex and uncertain.

We also have contingent tax liabilities that, in management’s judgment, are not probable of assertion. If such unasserted contingent liabilities were to be asserted, or become probable of assertion, we may be required to record significant expenses and liabilities in the period in which these liabilities are asserted or become probable of assertion.

We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes in the U.S. and various foreign jurisdictions. We are regularly audited by tax authorities with respect to these non-income taxes and may have exposure to additional non-income tax liabilities which could have an adverse effect on our results of operations and financial condition. In addition, our future effective tax rates could be favorably or unfavorably affected by changes in tax rates, changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws or their interpretation. Such changes could have an adverse impact on our financial results.

As a result of these and other factors, the ultimate amount of tax obligations owed may differ from the amounts recorded in our financial statements and any such difference may harm our financial results in future periods in which we change our estimates of our tax obligations or in which the ultimate tax outcome is determined.

We may be subject to increased income taxes, and other restrictions and limitations, if we were to decide to repatriate any of our foreign cash balances to the U.S.

As of March 31, 2016, we held approximately $148.3 million, or approximately 40%, of our cash and cash equivalents outside of the U.S. We use our foreign held cash by reinvesting it in our foreign operations. Our current intention is to continue to reinvest our foreign earnings in our foreign operations. Our current plans do not anticipate a need to repatriate cash to fund our domestic operations. In the event cash from foreign operations is needed to fund operations in the U.S. or our foreign cash balance continues to grow such that we are unable to reinvest such cash outside of the U.S., it may become increasingly likely that we would repatriate some of our foreign cash balances to the U.S. In such event, we would be subject to additional income taxes in the U.S.

Additionally, if we were to repatriate foreign held cash to the U.S., we would use a portion of our domestic net operating loss carryforward which could result in us being subject to cash income taxes on the earnings of our domestic business sooner than would otherwise have been the case.

Various corporate tax reform bills and other proposals at various times are under consideration by Congress. It is not clear whether, or to what extent, these proposals may be enacted. Although the overall impact that any proposals may have on our future effective tax rate is unclear at this time, significant changes to the U.S. taxation of our international income could have a material adverse effect on our results of operations.

 

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Our business could be negatively affected as a result of activist stockholders.

We could be negatively affected as a result of stockholder activism, which could cause us to incur significant expense, hinder execution of our business strategy and impact the trading value of our securities. Stockholder activism, which could take many forms or arise in a variety of situations, has been increasing in publicly traded companies in recent years. For example, a stockholder, Elliott Associates, L.P. and affiliates, filed a Schedule 13D in March 2016 stating they own approximately 10% of our common stock and expressing an intent to engage in substantive discussions with our management, our Board of Directors and others relating to strategic and operational opportunities for us that such activist stockholder believes would meaningfully increase value to stockholders. Responding to actions by an activist stockholder can be costly and time-consuming, disrupt our operations and divert the attention of management and our employees. Additionally, perceived uncertainties as to our future direction as a result of stockholder activism or changes to the composition of our board of directors may lead to the perception of a change in the direction of our business or other instability, which may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel. If customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us because of any such issues, then our business, operating results, and financial condition would be adversely affected. Also, we may be required to incur significant legal fees and other expenses related to activist stockholder matters. Any of these impacts could materially and adversely affect our operating results or result in changes in our management team or our Board of Directors. In addition, our stock price may experience periods of increased volatility as a result of stockholder activism.

If securities or industry analysts do not publish research or reports or publish unfavorable research or reports about our business, our stock price and trading volume could decline.

The trading market for our common stock may be influenced by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us adversely change their recommendation regarding our stock or products, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline.

The price of our common stock may be volatile and fluctuate substantially.

The market price of our common stock could be highly volatile and may fluctuate substantially due to the following factors (in addition to the other risk factors described in this section):

 

    quarterly variations in our results of operations or those of our competitors

 

    announcements by us or our competitors of acquisitions, new products, significant contracts or commercial relationships

 

    our ability to respond to changing industry standards, technological developments or customer requirements on a timely basis

 

    commencement of, or our involvement in, litigation

 

    any major change in our board of directors or management

 

    financial guidance or business updates we may provide

 

    foreign currency exchange rate fluctuations

 

    recommendations by securities analysts or changes in earnings estimates

 

    announcements about our earnings that are not in line with analyst expectations or guidance we may provide

 

    changes in our licensing or go to business models

 

    announcements by our competitors of their earnings that are not in line with analyst expectations

 

    the volume of shares of our common stock available for public sale

 

    sales of stock by us or by our stockholders

 

    short sales, hedging and other derivative transactions involving shares of our common stock

 

    adoption of new accounting standards or tax laws or regulations

 

    general economic conditions in the U.S. and abroad and slow or negative growth of related markets

 

    general political conditions in the U.S. and abroad including terrorist attacks, war or threat of terrorist attacks or war.

In addition, the stock market in general, NASDAQ and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. These broad market and industry factors may materially harm the market price irrespective of our operating performance. As a result of these factors, an investor might be unable to resell their shares at or above the price paid. In addition, in the past, following periods of

 

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volatility in the overall market or the market price of a company’s securities, securities class action litigation has often been instituted against the affected company. This type of litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

Future sales of our common stock in the public market, including sales by our stockholders with significant holdings, may depress our stock price.

The market price of our common stock could drop due to sales of a large number of shares or the perception that such sales could occur, including sales or perceived sales by our directors, officers or large stockholders. These sales could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate to raise funds through future offerings of equity securities.

Our management has broad discretion over the use of our cash reserves, if any, and might not apply this cash in ways that increase the value of an investment.

Our management has broad discretion to use our cash reserves, if any, and you will be relying on the judgment of our management regarding the application of this cash. They might not apply our cash in ways that increase the value of an investment. We expect to use our cash reserves for general corporate purposes, including working capital, capital expenditures, acquisitions and further development of our products, services and solutions. We have not allocated this cash for any specific purposes. Our management might not be able to yield any return on the investment and use of this cash.

We currently do not intend to pay dividends on our common stock, and consequently, your only opportunity to achieve a return on investment is if the price of our common stock appreciates and you sell your shares at a price above your cost.

We currently do not intend to declare or pay dividends on shares of our common stock in the foreseeable future. Consequently, your only opportunity to achieve a return on your investment in our company will be if the market price of our common stock appreciates and you sell your shares at a price above your cost. There is no guarantee that the price of our common stock will ever exceed the price that you pay. Investors seeking cash dividends should not purchase our common stock.

Anti-takeover provisions in our certificate of incorporation and bylaws and in Delaware law could prevent or delay a change in control of our company.

We are a Delaware corporation, and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder even if a change of control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our restated certificate of incorporation and amended and restated bylaws:

 

    authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt

 

    do not provide for cumulative voting in the election of directors which would allow holders of less than a majority of the stock to elect some directors

 

    establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election

 

    require that directors only be removed from office for cause

 

    provide that vacancies on the board of directors, including newly-created directorships, may be filled only by a majority vote of directors then in office

 

    limit who may call special meetings of stockholders

 

    prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders

 

    establish advance notice requirements for nominating candidates for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

ITEM 5. OTHER INFORMATION

Not applicable.

 

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ITEM 6. EXHIBITS

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:

 

Exhibit
Number

 

Description of Document

    3.2 (1)   Restated Certification of Incorporation of Registrant
    3.4 (2)   Amended and Restated Bylaws of the Registrant
  10.61† (3)   Amended and Restated Executive Severance Plan
  31.1   Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31.2   Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1*   Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101   Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended March 31, 2016).

 

(1) Incorporated by reference to the same numbered exhibit to the registrant’s Amendment No. 4 to Registration Statement on Form S-1 (SEC File No. 333-165844) filed on June 28, 2010.
(2) Incorporated by reference to the same numbered exhibit to the registrant’s Current Report on Form 8-K (SEC File No. 001-34803) filed on December 22, 2015.
(3) Incorporated by reference to the same numbered exhibit to the registrant’s Current Report on Form 8-K (SEC File No. 001-34803) filed on April 1, 2016.
Compensation arrangement
* The certification attached as Exhibit 32.1 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on April 29, 2016.

 

QLIK TECHNOLOGIES INC.
By:  

/s/ LARS BJÖRK

 

Lars Björk

President, Chief Executive Officer and Director

(Principal Executive Officer)

 

/s/ TIMOTHY MACCARRICK

 

Timothy MacCarrick

Chief Financial Officer and Treasurer

(Principal Financial Officer)

 

/s/ DENNIS JOHNSON

 

Dennis Johnson

Chief Accounting Officer

(Principal Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit
Number

 

Description of Document

    3.2 (1)   Restated Certification of Incorporation of Registrant
    3.4 (2)   Amended and Restated Bylaws of the Registrant
  10.61† (3)   Amended and Restated Executive Severance Plan
  31.1   Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31.2   Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1*   Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101   Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended March 31, 2016).

 

(1) Incorporated by reference to the same numbered exhibit to the registrant’s Amendment No. 4 to Registration Statement on Form S-1 (SEC File No. 333-165844) filed on June 28, 2010.
(2) Incorporated by reference to the same numbered exhibit to the registrant’s Current Report on Form 8-K (SEC File No. 001-34803) filed on December 22, 2015.
(3) Incorporated by reference to the same numbered exhibit to the registrant’s Current Report on Form 8-K (SEC File No. 001-34803) filed on April 1, 2016.
Compensation arrangement
* The certification attached as Exhibit 32.1 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

 

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