S-1/A 1 d562552ds1a.htm AMENDMENT NO. 1 TO FORM S-1 Amendment No. 1 to Form S-1
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As filed with the Securities and Exchange Commission on March 5, 2014

Registration No. 333-193858

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1 TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

AMBER ROAD, INC.

(Exact name of registrant as specified in its charter)

DELAWARE

  7372   22-2590301

(State or other jurisdiction

of incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

One Meadowlands Plaza

East Rutherford, New Jersey 07073

(201) 935-8588

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

 

James W. Preuninger

Chief Executive Officer

 

John W. Preuninger

President and Chief Operating Officer

 

Amber Road, Inc.

One Meadowlands Plaza

East Rutherford, New Jersey 07073

Telephone: (201) 935-8588

Telecopy: (201) 935-5187

 

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

Copies to:

Victor H. Boyajian, Esq.

Ira L. Kotel, Esq.

Dentons US LLP

1221 Avenue of the Americas

New York, New York 10020-1089

Telephone: (212) 768-6700

Telecopy: (212) 768-6800

 

Kenneth J. Gordon, Esq.

Goodwin Procter LLP

Exchange Place

53 State Street

Boston, Massachusetts 02109

Telephone: (617) 570-1000

Telecopy: (617) 523-1231

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

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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

 

Large accelerated filer

  ¨    Accelerated filer   ¨

Non-accelerated filer

  x    Smaller reporting company   ¨

CALCULATION OF REGISTRATION FEE

 

 

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

Amount of

Registration Fee(3)

Common Stock, $0.001 par value

  7,500,300   $12.50   $93,753,750   $12,076

 

 

(1) Includes additional shares that the underwriters have the option to purchase from the selling stockholders.

 

(2) Estimated solely for the purpose of determining the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933.

 

(3) The Registrant previously paid $9,660 of the registration fee in connection with the initial filing of this registration statement.

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

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED MARCH 5, 2014

PRELIMINARY PROSPECTUS

 

 

 

 

LOGO

6,522,000 Shares

Common Stock

            per share

 

 

We are offering 4,782,870 shares of our common stock and the selling stockholders are offering 1,739,130 shares of our common stock. This is our initial public offering and no public market currently exists for our shares. We have applied to list our shares of common stock on the New York Stock Exchange under the symbol “AMBR.” We anticipate that the initial public offering price will be between $10.50 and $12.50 per share.

We are an “emerging growth company” under applicable federal securities laws, and will be subject to reduced public company reporting requirements.

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 13.

 

 

 

     Per Share      Total  

Public offering price

   $                    $                

Underwriting discount(1)

   $         $     

Proceeds, before expenses, to us

   $         $     

Proceeds, before expenses, to selling stockholders

   $         $     

 

(1) See “Underwriting” beginning on page 123 for additional disclosure regarding underwriting commissions and expenses.

 

 

The underwriters hold an option to purchase up to 978,300 additional shares from the selling stockholders, at the public offering price, less the underwriting discount, for 30 days from the date of this prospectus. We will not receive any of the proceeds from the sale of shares by the selling stockholders. The underwriters expect to deliver the shares of common stock on or about                     , 2014.

 

 

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

 

 

 

Stifel
Pacific Crest Securities
Canaccord Genuity   Needham & Company   Raymond James

The date of this prospectus is

 


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LOGO

Powering Global Trade


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LOGO

In 2013, Amber Road processed over 600 million transactions and supply chain messages on its cloud–based trading network and made over 13 million regulatory updates to its Global Knowledge® repository of trade regulations. SOURCE Amber Road DESTINATION Our GTM solutions automate import and export processes to enable goods to flow across international borders in the most efficient, compliant and profitable way. SOURCING OPTIMIZATION SUPPLIER MANAGEMENT TRANSPORTATION MANAGEMENT EXPORT MANAGEMENT SUPPLY CHAIN VISIBILITY IMPORT MANAGEMENT FREE TRADE AGREEMENTS


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LOGO


Table of Contents

TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     13   

Special Note Regarding Forward-Looking Statements

     31   

Use of Proceeds

     32   

Dividend Policy

     33   

Capitalization

     34   

Dilution

     36   

Selected Consolidated Financial Data

     38   

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

     40   

Business

     63   

Management

     88   

Executive Compensation

     96   

Certain Relationships and Related Party Transactions

     105   

Principal and Selling Stockholders

     108   

Description of Capital Stock

     112   

Shares Eligible for Future Sale

     117   

Material U.S. Federal Income and Estate Tax Consequences to Non-U.S. Holders

     119   

Underwriting

     123   

Legal Matters

     127   

Experts

     127   

Where You Can Find Additional Information

     127   

Index to Consolidated Financial Statements

     F-1   

 

 

Until                     , all dealers that affect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotment or subscriptions.

 

 

You should rely only on information contained in this prospectus. Neither we nor the underwriters have authorized anyone to provide you with information different from that contained in this prospectus. We are not making an offer of these securities in any jurisdiction where the offer is not permitted. The information in this prospectus may only be accurate as of the date on the front of this prospectus regardless of the time of delivery of this prospectus or any sale of our common stock. Our business, prospects, financial condition and results of operations may have changed since that date.

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


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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes thereto and the information set forth under the sections “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case included in this prospectus. Unless the context otherwise requires, we use the terms “Amber Road,” “company,” “we,” “us” and “our” in this prospectus to refer to Amber Road, Inc. and its consolidated subsidiaries as a whole.

Overview

Our mission is to dramatically change the way companies conduct global trade. As a leading provider of cloud-based global trade management (GTM) solutions, we automate import and export processes to enable goods to flow across international borders in the most efficient, compliant and profitable way. Our solution combines enterprise-class software, trade content sourced from government agencies and transportation providers in 125 countries, and a global supply chain network connecting our customers with their trading partners, including suppliers, freight forwarders, customs brokers and transportation carriers. We deliver our GTM solution using a Software-as-a-Service (SaaS) model and leverage a highly flexible technology framework to quickly and efficiently meet our customers’ unique requirements around the world. In 2013, we processed over 600 million transactions and supply chain messages on our network.

Sustained increases in international trade volumes are driving demand for our solution. For example, the U.S. Department of Commerce reported that in 2012, U.S. companies imported approximately $2.3 trillion of goods and exported approximately $1.5 trillion of goods. The Congressional Research Service reports that in 2012, China overtook the United States as the world’s largest trading economy, with the value of Chinese merchandise imports reaching approximately $1.8 trillion and the value of Chinese merchandise exports reaching approximately $2.1 trillion. Many of our multi-national enterprise customers have a presence in China, and to increase our share of this growing market, in September 2013 we acquired EasyCargo, a Chinese SaaS global trade management solution provider focused on companies conducting global trade in China.

In addition to rising global trade volumes, importers and exporters must cope with growing supply chain complexity. A single shipment may involve more than a dozen parties, multiple languages, time zones, currencies, modes of transport and a large number of ever-changing laws and regulations. To address this complexity, many global trade participants require dedicated staff to interpret and comply with intricate, country-specific trade regulations, which are often published on paper in varying formats. For example, there are over 500 free and preferential trade agreements around the globe, each requiring importers to comply with myriad rules before they can take advantage of reduced duty rates to lower their product costs. Further, global trade participants must obey thousands of import and export regulations and screen their shipments against approximately 200 lists containing an aggregate of over 250,000 restricted parties. According to a 2013 SCM World survey that we commissioned, over half of the respondents indicated that complying with global trade regulations was one of their top challenges, yet less than 4% indicated that their import compliance was fully automated. Failure to manage the complexity of global trade results in poor supply chain performance, increased costs, and exposure to fines and penalties. Conversely, companies that excel in global trade management enjoy a distinct financial advantage in the marketplace.

Expanding global trade and mounting supply chain complexity have increased demand for GTM solutions. According to a 2013 ARC Advisory Group report that we commissioned, the addressable global market for GTM solutions for companies that import and export goods was approximately $6.1

 

 

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billion in 2012, with market penetration of 6%. As a market leader, we believe we are poised to capture an increasing percentage of the GTM market by maintaining a state of the art GTM solution and increasing our sales and marketing activities.

We deliver our solution in individual modules or as a suite, depending on our customers’ needs, utilizing a highly flexible technology framework. This cloud-based suite addresses the growing complexity of the global trade landscape by automating GTM functions to minimize import and export costs, optimize transportation, track shipments within a supply chain, and automate compliance with regulations and free trade agreements. Without this delivery in the cloud, it would be difficult to effectively enable collaboration among the large number of trading partners involved in a global supply chain.

Our solution integrates Global Knowledge, a vast library of regulations and other content that we transform into a proprietary knowledgebase that enables our customers to automate GTM functions across 125 countries. Global Knowledge includes import and export regulations, shipping documents, preferential duties and taxes, specifications for free trade agreements, transportation rates, sailing schedules, embargoed country and restricted party lists, and harmonized tariff codes that identify goods based on standardized classifications, all sourced directly from government agencies and transportation carriers. Finally, our GTM solution includes a global supply chain network of connections to our customers’ trading partners, allowing us to deploy our solution efficiently and economically.

Because global trade processes vary across industry verticals and countries, no single software or SaaS solution built with traditional technologies can serve the needs of every participant in a global supply chain. To address these variations, we built our GTM solution using a proprietary technology architecture that we refer to as our Enterprise Technology Framework. Our Enterprise Technology Framework separates customer-specific configurations in each deployment from our core application, permitting our customers to configure our GTM solution without one-off customizations. This in turn permits us to maintain a single version of our software across deployments, facilitating our development cycle and simplifying upgrades for our customers.

Our GTM solution drives value to our customers through faster and more predictable delivery times, less labor, reduced in-transit inventories, and reduced international trading costs such as brokerage fees, logistics fees, transportation costs and customs duties. Our customers have expressed satisfaction with the value they derive from our solution in our annual internal customer satisfaction surveys. In 2013, we sent these surveys to all of our customers and approximately one-third of them responded. For each of our fiscal years ended December 31, 2011, 2012 and 2013, our recurring revenue retention was 102%. We calculate our recurring revenue retention rate by comparing, for a given quarter, subscription revenue for all customers in the corresponding quarter of the prior year to the subscription revenue from those same customers in the given quarter. For the annual rate, we utilize the average of the four quarters for the stated year.

We sell our GTM solution to many of the largest enterprises in the world, including companies such as General Electric, Monsanto, Sherwin Williams, Tyco International, Walmart and Weatherford International. In 2011, 2012 and 2013, our solution served 351, 399 and 463 customers, respectively, representing diversified industry verticals including Chemical/Pharmaceutical, High Technology/Electronics, Industrial/Manufacturing, Logistics, Oil & Gas, and Retail/Apparel. Although our customers are headquartered primarily in the United States and Europe, we have deployed our solution to their users in more than 80 countries. We define customers to include only those customers from whom we generate revenue.

We have achieved consistent revenue growth while expanding our global presence. Our revenue has grown from $37.6 million in 2011, to $43.4 million in 2012 to $52.5 million in 2013. This represents annual growth of 15.4% and 21.0% for our two most recent fiscal years. Revenue increased from $11.3 million for the three months ended December 31, 2012 to $15.6 million for the three months ended

 

 

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December 31, 2013, representing 38.1% annual growth. EasyCargo accounted for approximately 3% of our revenues in the fourth quarter of 2013. We had net losses of $4.6 million, $2.1 million, and $14.4 million for the years ended December 31, 2011, 2012, and 2013, respectively, and net losses of $0.5 million and $0.5 million for the three months ended December 31, 2012 and 2013, respectively.

Our Industry

Most global trade functions historically have been handled manually by outsourced service providers and internal specialists. Early global trade automation software focused narrowly on discrete problems such as restricted party screening and shipment tracking. These software programs were not integrated with each other or existing enterprise software and were weak in functionality. At the same time, demand for global trade automation has increased rapidly over the past 10 years, fueled by a combination of macro and microeconomic trends. We believe these trends will continue to support the rapid increase of global trade and demand for GTM solutions.

According to the SCM World survey, over 75% of respondents agreed that delayed shipments and other customs problems materially impacted customer service, and nearly 90% agreed that unpredictable lead times on international shipments materially impacted customer service. Further, over 50% of the respondents agreed that their inability to take advantage of preferential duty programs or free trade agreements was costing them a material amount today and that these costs were likely to increase going forward.

Our Solution

We deliver a broad GTM solution that encompasses enterprise-class software, trade content, a global supply chain network, and highly flexible technology architecture. By automating more GTM processes, we enable our customers to enjoy significantly lower supply chain costs compared to legacy systems. The critical components of our solution include:

Enterprise-Class Software. Our solution consists of integrated software modules that automate most GTM functions. Customers can subscribe for modules individually or as a suite, depending on their needs. Each module contains a rich, configurable feature set, intuitive user interface, workflow engines to process business rules that permit management by exception, and application programming interfaces to connect each module to other enterprise systems. Our solution is based on our proprietary Enterprise Technology Framework and is engineered to be stable and deliver high performance to automate the world’s largest businesses.

Trade Content. In addition to powerful software, automating global trade to its full potential requires trade content. Trade content is information that we source from government agencies and transportation carriers, which, when used with our software, enables trade automation. Trade content includes harmonized tariff codes, restricted party lists, export regulations, import regulations, shipping documents, preferential duties and taxes, specifications for free trade agreements, transportation rates, and sailing schedules.

Supply Chain Network. To automate global trade, we connect our customers to their extended supply chain partners, including suppliers, freight forwarders, transportation carriers, and customs brokers. Each of these parties requires access to trade content, messages, alerts, and information services at critical points along the supply chain. This coordination enables us to automate more GTM processes than would otherwise be possible.

Flexible Technology. GTM processes vary across industry verticals and countries, and one solution cannot fit every customer and its trading partners. Therefore, we simplify GTM automation by utilizing our Enterprise Technology Framework, a highly flexible technology framework. The most important capability of Enterprise Technology Framework to our customers, and the most difficult technical problem it solves, is permitting our professional services organization to configure our solution during implementation in a manner that separates customer-specific configurations from our core application,

 

 

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allowing our customers to upgrade to new versions of our solution while retaining their configurations and avoiding the need for re-implementation. The power of our Enterprise Technology Framework is in allowing our solution to adapt to large and small businesses in all industry verticals globally. We maintain this flexibility even as we integrate our solution with our customers’ enterprise resource planning systems, and because global trade requirements change frequently, our configuration-without-customization approach permits our solution to adapt to these changes at a low cost.

SaaS Delivery. We are a SaaS company and deliver our solution primarily over the Internet using an on-demand, cloud-based, delivery model. Approximately 91% of our customers have selected this approach as their sole delivery model for our solution. Our customers also have the option to deploy certain solution modules in their own IT environments. Regardless of the delivery model, we sell our solution through subscription agreements that entitle our customers to access our solution and receive support. Because our Global Knowledge trade content is delivered and managed in the same manner regardless of delivery model, and because we configure our solution according to customer needs without modifying our core software, our customers receive the latest trade content and new versions of our solution under both delivery models.

Benefits of Our Solution

We change the way our customers conduct global trade. Many of our customers, including some of the world’s largest enterprises, automated their global trade processes for the first time with our solution. We deliver a broad GTM solution that eliminates manual processes, reduces transportation costs, optimizes logistics, leverages trade agreements, provides shipment tracking, and ensures compliance with import and export regulations. In 2013, we processed over 600 million transactions and supply chain messages on our network.

Process Automation. Our solution eliminates paper in favor of organized electronic data, messages and alerts and replaces tedious manual processes, such as researching trade regulations, classifying goods against harmonized tariff codes, calculating duties and taxes, phoning transport carriers to solicit transportation quotes or shipping schedules, and chasing down shipment status from myriad carrier websites, with an integrated solution suite. By integrating with global trading partners, our GTM solution aims to achieve straight-through-processing, so that goods and their related shipping documents move from source to destination with little or no management intervention.

Cost and Route Optimization. Our trade content includes information relating to preferential duties and taxes, specifications for free trade agreements, transportation rates, and sailing schedules. Our solution combines this information with carrier shipping contracts to enable customers to compare rates, routes and other charges based on constantly changing data in near real-time. With an enhanced view of landed cost, supply chain executives can select and optimize the routes over which goods flow through their global networks to achieve sustainable delivery performance improvements and cost savings. Cost and route optimization enables our customers to achieve performance improvements that include faster delivery times, improved responsiveness to their customers’ needs and cost savings such as reduced transportation costs. Nearly half of the respondents in the SCM World survey indicated that an inability to control global transportation costs was one of their top concerns as a global business.

Supply Chain Visibility. Our supply chain visibility solution connects our customers with their overseas suppliers, logistics providers, brokers and carriers to track and monitor goods in near real time as they move through the global supply chain. Our solution achieves this by tracking in-transit shipments using reference points such as booking number, container number and bill-of-lading number, and alerts customers to issues that affect supply chain performance. Supply chain visibility empowers our customers to manage by exception, allowing them to rely on our solution to monitor the status of goods in transit and to alert them when problems arise. More than half of the respondents in the SCM World survey indicated that a lack of visibility of shipments moving through the global supply chain was one of their top concerns as a global business.

 

 

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Enhanced Compliance. Our solution assists customers in managing significant areas of legal and regulatory compliance for global trade, including line-by-line review of sales orders for licensing requirements, and screening for embargoed countries and restricted parties. The benefits of enhanced compliance include avoiding costly fines and possible criminal liability.

We believe that the cost savings realizable from the foregoing benefits, including reduced landed costs, administrative expenses and avoidance of fines and penalties, can result in significant returns on investment for our customers.

Our Growth Strategy

We intend to expand our role as a provider of a market-leading GTM solution by bringing our existing solution to new customers and new markets, and by expanding our solution to offer the most comprehensive and innovative features in the GTM marketplace. Key elements of our growth strategy include our plans to:

Invest in Sales. As a complement to our investment in infrastructure, in 2012 we began to invest more heavily in our sales force, which has led to an acceleration of our business. We expect to continue to ramp our investment in sales by hiring new sales directors and supporting personnel, particularly for territories outside of the United States, including China. We will focus our expanded sales efforts on acquiring new customers and, to a lesser extent, selling more modules to our existing customers.

Invest in Marketing. In 2012, we also began to invest more heavily in marketing. We plan to continue this expansion by maintaining our marketing focus on lead generation, in particular by running more marketing programs to jump-start new territories. We also expect to devote additional resources to solidifying our brand as a leading GTM solution provider.

Further International Expansion. Currently, we sell our solution predominantly in the United States, regions of Europe and China, where we target our marketing efforts and maintain dedicated inside and outside sales persons. Because our solution has a global appeal, we believe that there are significant opportunities in the rest of the world, particularly in Brazil, Russia and India. Our past efforts have resulted in implementations with multi-national corporations headquartered primarily in the United States and Europe who have users in more than 80 countries, giving us a foothold in many countries where we currently have no sales offices. We intend to invest in new sales and support offices in these regions which will build on our pre-existing user base.

Expand our Solution. We have a history of bringing an innovative solution to market as demonstrated by our robust Global Knowledge library and flexible, proprietary Enterprise Technology Framework. Currently, we have dedicated more than 54% of our employees to solution development, and we will continue to leverage our solution team to expand the depth and breadth of our solution in response to customer requests and the evolving nature of global trade. For example, we may expand our solution to automate working with free trade zones, which are areas where goods may be imported, transformed, and then exported without the need to pay customs duties. We also intend to maintain our market leadership in trade content.

Execute Strategic Acquisitions. Strategic acquisitions represent an opportunity for us to augment our solution capabilities and sales team. The GTM solutions market is fragmented, and we believe some participants may have best-of-breed solutions to specific problems, particularly those created by the unique trading requirements of foreign countries. We may acquire those participants to expand our solution. Further, developing an effective sales force in foreign markets requires a nuanced understanding of local business customs. We may, for example, choose to acquire local GTM software companies in order to obtain sales teams with a track record of success in their markets. We currently have no agreements or understandings to acquire any such companies, however, in September 2013, we acquired EasyCargo, a Chinese SaaS global trade management solution provider focused on trade management in China.

 

 

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Recent Developments

In September 2013, we acquired EasyCargo (Shanghai) Co., Ltd. (EasyCargo), a SaaS company focused on a subset of global trade management called China trade management, or CTM. EasyCargo’s CTM solution automates compliance with Processing Trade, a Chinese regulatory regime that exempts materials and components imported for manufacturing or further processing from import duties ranging from zero to more than 150% and value-added taxes of 17% on most goods in 2012. Because of these savings opportunities for multi-national companies, Processing Trade is a growing strategy that now accounts for more than 30% of all China trade. As of September 1, 2013 EasyCargo employed approximately 40 professionals supporting more than 35 customers, half of which were multi-national companies and half of which were Chinese domestic companies. We believe this acquisition will provide us with the opportunity to increase our business with multi-national enterprise companies that are expanding their manufacturing operations in China, as well as with mid-market Chinese companies.

We acquired EasyCargo for a payment of $2.0 million in cash and 296,547 shares of our common stock. We will make additional payments of up to $2.5 million in cash or shares of our common stock (at our option) by March 15, 2016 if CTM revenues grow at a compound annual rate of more than 40% from 2013 through 2015.

Risks Associated with Our Business and Ownership of Our Stock

Our business is subject to numerous risks which may prevent us from successfully implementing our business strategy. These risks, as well as other risks relating to ownership of our stock, are more fully described under “Risk Factors” beginning on page 13 and include, but are not limited to, the following:

 

    If we are unable to attract new customers or our existing customers do not renew their subscriptions, the growth of our business and cash flows will be adversely affected.

 

    The market for cloud-based GTM solutions is at an early stage of development. If this market does not develop or develops more slowly than we expect, our revenue may decline or fail to grow and we may incur additional operating losses.

 

    The information we source from third parties for inclusion in our Global Knowledge library may not be accurate and complete, our trade experts may make errors in interpreting legal and other requirements when processing this information, and our trade content may not be updated on a timely basis, which can expose our customers to fines and other substantial claims and penalties.

 

    Our sales cycle can be long and unpredictable and requires considerable time and expense, which may cause our operating results to fluctuate.

 

    The complexity of our sales and implementation cycles exposes us to operational risks that we must manage carefully.

 

    We face intense competition, and our failure to compete successfully would make it difficult for us to add and retain customers and would impede the growth of our business.

 

    We may expand by acquiring or investing in other companies, which may divert our management’s attention, result in additional dilution to our stockholders and consume resources that are necessary to sustain our business.

 

    Our success depends in part on our ability to develop and market new and enhanced solution modules, and we may not be able to do so, or do so quickly enough to respond to changes in demand. Even if we anticipate changes in demand, it may be difficult for us to transition existing customers to new versions of our solution.

 

 

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    Our cost structure is relatively fixed in the short term, which makes it difficult to reduce our expenses quickly in response to declines in revenue or revenue growth.

 

    Our solution is complex and customers may experience difficulty in implementing, upgrading or otherwise achieving the benefits attributable to it.

Our Corporate Information

We are a Delaware corporation. Our corporate headquarters are located at One Meadowlands Plaza, East Rutherford, NJ 07073 and our telephone number is (201) 935-8588. We maintain a website at www.amberroad.com. Information contained on or linked to our website is not a part of this prospectus.

Amber Road, the Amber Road logo, Global Knowledge, Enterprise Technology Framework and other trademarks of Amber Road appearing in this prospectus are the property of Amber Road. All other trademarks, service marks and trade names in this prospectus are the property of their respective owners. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this prospectus.

We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a “large accelerated filer”, with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

 

 

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THE OFFERING

 

Common stock offered by us

4,782,870 Shares

 

Common stock offered by selling stockholders

1,739,130 Shares

 

Common stock to be outstanding after this offering

24,894,355 Shares

 

Underwriters’ option

978,300 Shares

 

Use of proceeds

We expect the net proceeds of this offering, after expenses, will be approximately $47.5 million, based on an assumed initial offering price of $11.50 per share, the midpoint of the estimated price range on the cover of this prospectus. We intend to use the net proceeds of the offering for general corporate and working capital purposes and potential acquisitions.

 

  A $1.00 increase (decrease) in the assumed offering price of $11.50 per share would increase (decrease) the net proceeds to us from this offering by $4.4 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

Proposed New York Stock Exchange symbol

AMBR

The number of shares of common stock to be outstanding after the offering is based on 20,111,485 shares outstanding as of February 1, 2014 and includes 13,993,566 shares that we will issue upon conversion to common stock of our outstanding preferred stock as of the time immediately prior to the closing of this offering, 197,914 shares of common stock that are subject to a put right expiring upon completion of this offering prior to September 3, 2014, and includes 914,094 shares that we will issue in satisfaction of accrued but unpaid dividends to our preferred stockholders based upon the assumed offering price of $11.50 per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus.

The number of shares of common stock to be outstanding after the offering excludes:

 

    2,890,363 shares issuable upon exercise of stock options, which have a weighted average exercise price of $3.11 per share;

 

    4,315,033 shares reserved for future issuance under our stock-based compensation plans;

 

    245,946 shares issuable upon exercise of warrants, which have an exercise price of $3.29 per share;

 

    98,633 contingent shares issuable in connection with our acquisition of EasyCargo;

 

    shares issuable in satisfaction of an earnout of up to $2.5 million under our EasyCargo purchase agreement payable in 2016, which is payable at our election in cash or in shares at the then-current fair market value of our common stock; and

 

    978,300 additional shares of common stock that the underwriters have the option to purchase.

Unless otherwise noted, the information in this prospectus reflects and assumes the following:

 

    a 1-for-1.497 reverse stock split effected on March 4, 2014;

 

 

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    the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 13,993,566 shares of common stock as of the time immediately prior to the closing of this offering;

 

    the issuance of 914,094 shares of common stock in satisfaction of $10,512,222 of accrued but unpaid dividends to our preferred stockholders based upon the assumed offering price of $11.50 per share;

 

    the expiration of the put right on our puttable common stock;

 

    the filing of our amended and restated certificate of incorporation in connection with the completion of this offering, which, unless otherwise indicated, we refer to as our certificate of incorporation;

 

    no exercise of outstanding options or warrants; and

 

    no exercise by the underwriters of their option to purchase up to an additional 978,300 shares of common stock in this offering from the selling stockholders.

 

 

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Summary Consolidated Financial Data

The following summary consolidated financial data should be read together with our consolidated financial statements and related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this prospectus. We have derived the following consolidated statements of operations data for the years ended December 31, 2011, 2012 and 2013 and consolidated balance sheet data as of December 31, 2013 from our audited consolidated financial statements contained elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results.

 

    Year Ended December 31,  
    2011     2012     2013  
    (in thousands, except per share
amounts)
 

Consolidated Statements of Operations Data:

     

Revenue

     

Subscription

  $ 28,825      $ 32,400      $ 38,867   

Professional services

    8,747        10,968        13,660   
 

 

 

   

 

 

   

 

 

 

Total revenue

    37,572        43,368        52,527   
 

 

 

   

 

 

   

 

 

 

Cost of revenue

     

Cost of subscription revenue(1)

    10,145        10,732        12,748   

Cost of professional services revenue(1)

    6,969        8,680        9,498   
 

 

 

   

 

 

   

 

 

 

Total cost of revenue

    17,114        19,412        22,246   
 

 

 

   

 

 

   

 

 

 

Gross profit

    20,458        23,956        30,281   
 

 

 

   

 

 

   

 

 

 

Operating expenses

     

Sales and marketing(1)

    11,277        12,807        16,246   

Research and development(1)

    5,946        5,775        7,936   

General and administrative(1)

    6,476        6,275        10,469   

Restricted stock expense

    683        878        9,328   
 

 

 

   

 

 

   

 

 

 

Total operating expenses

    24,382        25,735        43,979   
 

 

 

   

 

 

   

 

 

 

Loss from operations

    (3,924     (1,779     (13,698

Interest and other expense

    (131     (7     (150
 

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (4,055     (1,786     (13,848

Income tax expense

    592        311        550   
 

 

 

   

 

 

   

 

 

 

Net loss

    (4,647     (2,097     (14,398

Preferred stock accretion

    (3,359     (4,036     (4,850

Preferred stock dividends

    (675     (536     —     
 

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (8,681   $ (6,669   $ (19,248
 

 

 

   

 

 

   

 

 

 

Net loss per common share, basic and diluted(2)

  $ (2.41   $ (1.82   $ (5.11
 

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding, basic and diluted(2)

    3,596,911        3,673,181        3,763,562   
 

 

 

   

 

 

   

 

 

 

Pro forma net loss per common share, basic and diluted(2)

      $ (1.01
     

 

 

 

Pro forma weighted-average common shares outstanding, basic and diluted(2)

        19,043,391   
     

 

 

 

Key Metrics and Other Financial Data (unaudited):

     

Recurring revenue retention(3)

    102     102     102

Adjusted EBITDA(4)

  $ (1,231   $ 1,917      $ 1,669   

 

 

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(1) Includes stock-based compensation allocated as follows:

 

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

Cost of subscription revenue

   $ 21       $ 43       $ 80   

Cost of professional services revenue

     0         1         40   

Sales and marketing

     52         46         77   

Research and development

     25         29         63   

General and administrative

     72         100         262   
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 170       $ 219       $ 522   
  

 

 

    

 

 

    

 

 

 

 

(2) See Note 11 of the consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of basic and diluted net loss per share attributable to common stockholders and pro forma basic and diluted net loss per share attributable to common stockholders.
(3) We calculate our recurring revenue retention rate by comparing, for a given quarter, subscription revenue for all customers in the corresponding quarter of the prior year to the subscription revenue from those same customers in the given quarter.
(4) EBITDA consists of net loss plus depreciation and amortization, interest expense (income) and income tax expense. Adjusted EBITDA consists of EBITDA plus our non-cash, stock-based compensation expenses, as well as the change in fair value of our contingent consideration and warrant liabilities. We have included adjusted EBITDA in this prospectus because it assists us in comparing performance on a consistent basis across reporting periods, as it removes from our operating results the impact of our capital structure. We believe adjusted EBITDA is useful to an investor in evaluating our operating performance because it is widely used to measure a company’s operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of performance exclusive of our capital structure and the method by which assets were acquired.

 

    As of December 31, 2013  
    Actual     Pro Forma(1)     Pro Forma as
Adjusted(2)
 
    (in thousands)  

Consolidated Balance Sheet Data:

     

Cash and cash equivalents

  $ 5,148      $ 5,148      $ 52,607   

Working capital, excluding current deferred revenue

    10,276        10,276        57,735   

Total assets

    70,097        70,097        117,556   

Deferred revenue, current and long term

    30,757        30,757        30,757   

Redeemable convertible preferred stock and puttable common stock

    76,921        —          —     

Total stockholders’ (deficit) equity

    (63,281     13,640        61,099   

 

(1) On a pro forma basis, to give effect to (a) the conversion of all of our convertible preferred shares into shares of our common stock, which will occur immediately prior to the closing of this offering, (b) the issuance of 914,094 shares at the assumed offering price of $11.50 per share, which is the midpoint of the estimated offering price range set forth on the cover of the prospectus, in satisfaction of $10,512,222 of accrued but unpaid dividends to our preferred stockholders and (c) the expiration of the put right on our puttable common stock.
(2) On a pro forma as adjusted basis to reflect the pro forma adjustments described above and our receipt of the net proceeds from our sale of 4,782,870 shares of common stock in this offering at the assumed offering price of $11.50 per share, after deducting (i) estimated underwriting discounts and commissions, (ii) estimated offering expenses payable by us.

 

 

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ADJUSTED EBITDA

To provide investors with additional information regarding our financial results, we have provided within this prospectus adjusted EBITDA, a financial measure that is not calculated in accordance with generally accepted accounting principles, or GAAP. We have provided below a reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure. EBITDA consists of net loss plus depreciation and amortization, interest expense (income) and income tax expense. Adjusted EBITDA consists of EBITDA plus our non-cash, stock-based compensation expenses, as well as the change in fair value of our contingent consideration and warrant liabilities.

We have included adjusted EBITDA in this prospectus because it assists us in comparing our performance on a consistent basis across reporting periods, as it removes from our operating results the impact of our capital structure. We believe adjusted EBITDA is useful to an investor in evaluating our operating performance because it is often used by the financial community to measure a company’s operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of performance exclusive of our capital structure and the method by which assets were acquired.

Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

    adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

    adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation;

 

    adjusted EBITDA does not reflect interest or tax payments that may represent a reduction in cash available to us; and

 

    other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these and other limitations, you should consider adjusted EBITDA together with other GAAP-based financial performance measures, including various cash flow metrics, net loss and our other GAAP results. The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated:

 

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

Net loss

   $ (4,647   $ (2,097   $ (14,398

Depreciation and amortization

     1,843        2,567        3,792   

Interest expense

     159        37        169   

Interest income

     (29     (31     (18

Income tax expense

     592        311        550   
  

 

 

   

 

 

   

 

 

 

EBITDA

     (2,082     787        (9,905

Stock-based compensation

     170        219        522   

Restricted stock expense

     683        878        9,328   

Puttable stock compensation

     —          —          18   

Increase in fair value of contingent consideration liability

     —          —          106   

Warrant expense

     (2     33        1,600   
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (1,231   $ 1,917      $ 1,669   
  

 

 

   

 

 

   

 

 

 

 

 

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RISK FACTORS

Risks Related to Our Business and Solution

If we are unable to attract new customers or our existing customers do not renew their subscriptions, the growth of our business and cash flows will be adversely affected.

To increase our revenue and cash flows, we must regularly add new customers. If we are unable to hire or retain effective sales personnel, generate sufficient sales leads through our marketing programs, or if our existing or new customers do not perceive our solution to be of sufficiently high value and quality, we may not be able to increase sales and our operating results would be adversely affected. In addition, our existing customers have no obligation to renew their subscriptions, and renewal rates may decline or fluctuate due to a number of factors, including customers’ satisfaction with our solution, our professional services, our customer support, our prices and the prices of competing solutions, as well as mergers and acquisitions affecting our customer base, global economic conditions and customers’ spending budgets. The average term of our current customers’ initial agreement with us is approximately 4.0 and 3.5 years for our enterprise and mid-market customers, respectively, and the average remaining contract term for our enterprise and mid-market customers is approximately 2.1 and 1.9 years, respectively. If we fail to sell our solution and services to new customers or if our existing customers do not renew their subscriptions, our operating results will suffer, and our revenue growth, cash flows and profitability may be materially and adversely affected.

The market for cloud-based GTM solutions is at an early stage of development. If this market does not develop or develops more slowly than we expect, our revenue may decline or fail to grow and we may incur additional operating losses.

We derive, and expect to continue to derive, substantially all of our revenue from providing a cloud-based GTM solution and related services. The market for cloud-based GTM solutions is in an early stage of development, and it is uncertain whether these solutions will achieve and sustain high levels of demand and market acceptance. Our success will depend on the willingness of companies to accept our cloud-based GTM solution as an alternative to manual processes, traditional enterprise resource planning software and internally-developed GTM solutions. Some customers may be reluctant or unwilling to use our cloud-based GTM solution for a number of reasons, including existing investments in GTM technology.

Traditional approaches to GTM automation have required, among other things, purchasing hardware and licensing software. Because these traditional approaches often require significant initial investments to purchase the necessary technology and to establish systems that comply with customers’ unique requirements, companies may be unwilling to abandon their current solutions for our cloud-based GTM solution. Other factors that may limit market acceptance of our solution include:

 

    our ability to maintain high levels of customer satisfaction;

 

    our ability to maintain continuity of service for all users of our solution;

 

    the price, performance and availability of competing solutions; and

 

    our ability to address companies’ confidentiality concerns about information stored outside of their premises.

If companies do not perceive the benefits of our cloud-based GTM solution, or if companies are unwilling to accept our solution as an alternative to traditional approaches, the market for our solution might not continue to develop or might develop more slowly than we expect, either of which would significantly adversely affect our revenues and growth prospects.

The information we source from third parties for inclusion in our Global Knowledge library may not be accurate and complete, our trade experts may make errors in interpreting legal and other requirements when processing this information, and our trade content may not be updated on a timely basis, which can expose our customers to fines and other substantial claims and penalties.

Our customers often use our solution as a system of record and many of our customers are subject to regulation of their products, services and activities. Our Global Knowledge library includes trade content

 

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sourced from government agencies and transportation carriers in numerous countries. It is often sourced from text documents and includes import and export regulations, shipping documents, preferential duties and taxes, specifications for free trade agreements, transportation rates, sailing schedules, embargoed country and restricted party lists, and harmonized tariff codes. The information in these text documents may not be accurate and complete. Our team of trade experts transforms these documents into a normalized and propriety knowledgebase, interpretable by software, and in so doing has to interpret the legal and other requirements contained in the source documents. We can provide no assurances that our trade experts do not make errors in the interpretation of these requirements. Furthermore, rules and regulations and other trade content used in our solution change constantly, and we must continuously update our Global Knowledge library. Maintaining a complete and accurate library is time-consuming and costly and we can provide no assurances that our specialists will always make appropriate updates to the library on a timely basis. Errors or defects in updating the trade content we provide to our customers and any defects or errors in, or failure of, our software, hardware, or systems, can result in an inability to process transactions or lead to violations that could expose our customers to fines and other substantial claims and penalties and involve criminal activity. In addition, these errors and delays may damage our reputation with both existing and new customers and result in lost customers and decreased revenue, which could materially and adversely affect our business, revenue and results of operations.

Any of these problems may enable our customers to terminate our agreements or we may be required to issue credits or refunds, and may be subject to product liability, breach of warranty or other contractual claims. We also may be required to indemnify our customers or third parties as a result of any of these problems. Any provisions in our customer agreements intended to limit liability may not be sufficient to protect us against any such claims. Insurance may not be available on acceptable terms, or at all. In addition, any insurance we do have may not cover claims related to specific defects, errors, failures or delays, may not cover indirect or consequential damages, and otherwise may be inadequate, and defending a suit, regardless of its merit, could be costly and divert management’s attention. In general, losses from customers terminating their agreements with us and our cost of defending claims resulting from defects, errors, failures or delays might be substantial, and could have a material adverse effect on our business, financial position, results of operations and cash flows.

Our sales cycle can be long and unpredictable and requires considerable time and expense, which may cause our operating results to fluctuate.

The sales cycle for our solution, from initial contact with a potential lead to contract execution and implementation, varies widely by customer, and can be lengthy. Some of our customers undertake a significant evaluation process that frequently involves not only our solution, but also solutions of our competitors, which may result in extended sales cycles. Our sales efforts involve educating our customers about the use, technical capabilities and benefits of our solution. We have no assurance that the substantial time and money spent on our sales efforts will produce any sales. Furthermore, our sales and marketing efforts in a given period may only result in sales in subsequent periods, or not at all. If we do not realize sales from a customer in the time period expected or at all, our business, operating results and financial condition could be adversely affected.

The complexity of our sales and implementation cycles exposes us to operational risks that we must manage carefully.

The complexity of our sales and implementation cycles makes predicting the time to close a sale and implement our solution difficult, thereby exposing us to operational risks. The length of these cycles depends on our customers’ motivation and the resources they devote to the process. If our sales or implementation cycles are longer than we anticipate, we may face staffing shortages or cost overruns.

If our customers are not satisfied with our solution implementation, we could incur additional costs to address these issues, reducing our professional services revenue and the opportunity to sell additional solution modules to these customers. In addition, any negative publicity related to our customer relationships, regardless of its accuracy, may damage our business by affecting our ability to compete for new business with current and prospective customers.

 

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We face intense competition, and our failure to compete successfully would make it difficult for us to add and retain customers and would impede the growth of our business.

The GTM solutions market is fragmented, competitive and rapidly evolving. We compete with GTM vendors, traditional enterprise resource planning vendors such SAP and Oracle, and other service providers, as well as with solutions developed internally by enterprises seeking to manage their global trade. Some of our actual and potential competitors may enjoy competitive advantages over us, such as greater name recognition, more varied offerings and larger marketing budgets, as well as greater financial, technical and other resources. Furthermore, some competitors may have best-of-breed solutions to problems created by the unique trading requirements of particular countries. As a result, our competitors may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or customer requirements or devote greater resources to the promotion and sale of their products and services than we can.

The intensity of competition in the GTM market has resulted in pricing pressure as the market has developed and our competitors very frequently offer substantial price discounts for their products. We expect the intensity of competition to increase in the future as existing competitors develop their capabilities and as new companies, which could include one or more large software or trade content providers, enter our market. Increased competition could result in additional pricing pressure, reduced sales, shorter term lengths for customer contracts, lower margins or the failure of our solution to achieve or maintain broad market acceptance. If we are unable to compete effectively, it will be difficult for us to maintain our pricing rates and add and retain customers, and our business, financial condition and results of operations will be harmed.

We may expand by acquiring or investing in other companies, which may divert our management’s attention, result in additional dilution to our stockholders and consume resources that are necessary to sustain our business.

Although we have no current agreements or commitments for any acquisitions, our business strategy includes acquiring complementary services, technologies or businesses to augment our solution capabilities and sales platform, particularly in foreign markets. We also may enter into relationships with, or invest in, other businesses to expand our service offerings or our ability to provide service in foreign jurisdictions. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to close these transactions may often be subject to approvals that are beyond our control. Consequently, these transactions, even if undertaken and announced, may not close.

An acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, solutions, personnel or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to work for us, the company’s technology is not easily adapted to work with ours or we have difficulty retaining the customers of any acquired business due to changes in management or otherwise. Acquisitions may also disrupt our business, divert our resources and require significant management attention that would otherwise be available for development of our business. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown liabilities. Our acquisitions may not be successfully integrated or any such acquisitions may not otherwise be successful. If our acquisitions are unsuccessful for any reason, our business may be harmed and the value of your investment may decline.

Our success depends in part on our ability to develop and market new and enhanced solution modules, and we may not be able to do so, or do so quickly enough to respond to changes in demand. Even if we anticipate changes in demand, it may be difficult for us to transition existing customers to new versions of our solution.

Our success depends in part on our ability to develop and market new and enhanced solution modules, and to do so on a timely basis. Successful module development and marketing depends on numerous factors, including anticipating customer requirements, changes in technology requirements, our ability to differentiate our solution from those of our competitors, and market acceptance of our solutions. Enterprises are requiring their software application vendors to provide ever increasing levels of functionality and broader offerings. Moreover, our

 

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industry is characterized by rapid evolution, and shifts in technology and customer needs. We may not be able to develop and market new or enhanced modules in a timely or cost-effective manner or at all. Our solution also may not achieve market acceptance or correctly anticipate technological changes or the changing needs of our customers or potential customers.

In addition, even if we correctly anticipate changes in technology or demand, it might be difficult for us to transition existing customers to new versions of our solution. Such transitions or upgrades may require considerable professional services effort and expense and customers may choose to discontinue using our solution rather than proceed with a lengthy and expensive upgrade. If customers fail to accept new versions of our solution, if our newest solution contains errors, or if we expend too many resources supporting multiple versions of our solution, we may suffer a material adverse effect on our business, financial position, results of operations and cash flows.

Our cost structure is relatively fixed in the short term, which makes it difficult to reduce our expenses quickly in response to declines in revenue or revenue growth.

Most of our expenses, such as those associated with headcount and facilities, as well as those involved with maintaining our extensive Global Knowledge database, are relatively fixed and can be difficult to reduce in the short term. Our expense levels are based in part on our expectations regarding future revenue levels. As a result, if revenue for a particular quarter is below our expectations, our expenses for that quarter may constitute a larger percentage of our operating budget than we planned, causing a disproportionately negative effect on our expected results of operations and profitability for that quarter.

Our solution is complex and customers may experience difficulty in implementing, upgrading or otherwise achieving the benefits attributable to it.

Due to the scope and complexity of the solution that we provide, our implementation cycle can be lengthy and unpredictable. Our solution requires configuration and must integrate with many existing computer systems and applications of our customers and their trading partners. This can be time-consuming and expensive for our customers and can result in delays in the implementation of our solution. As a result, some customers have had, and may in the future have, difficulty implementing our solution successfully or otherwise achieving the expected benefits of our solution. Delayed or ineffective implementation or upgrades of our solution may limit our future sales opportunities, negatively affect revenue, result in customer dissatisfaction and harm our reputation.

We have different revenue recognition policies for professional services depending on our solution deployment model, and, as a result, our revenue, gross profit and operating results may fluctuate substantially from quarter to quarter and be adversely affected depending on the model our customers choose.

We generally employ two different deployment models for our solution and our revenue and operating results may fluctuate substantially from quarter to quarter depending on the model that our customers choose. Customers access our solution using either our cloud-based infrastructure or by deploying our solution on their own premises. Regardless of the delivery model, we sell our solution through subscription agreements that entitle our customers to access our solution and receive support, and we generally charge for professional services to implement the solution on a time and materials basis.

For customers who select our cloud-based solution deployment model, we recognize all revenue for our related professional services as we perform them. For customers who deploy our solution on their own premises, we recognize professional services revenue ratably over the remaining term of the subscription period. However, we recognize the costs of providing professional services as we incur them under either deployment model, and as a result, in any given period where we deliver professional services to on-premises customers, our revenue, gross profit and operating results may fluctuate substantially and will be adversely affected by this different revenue recognition treatment, especially in comparison to professional services delivered to our cloud-based customers.

 

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If unauthorized persons breach our security measures, or those of third parties that provide infrastructure for, or components of, our GTM solution, they could access client data, leading clients to curtail or stop their use of our solution, which could harm our business, financial condition and results of operations.

Our GTM solution involves the storage and transmission of confidential information of customers, including certain financial data. We may also in the course of our service engagements have access to confidential customer information. If unauthorized persons breach our security measures, or those of third parties that provide infrastructure for, or components of, our solution as a result of employee error, malfeasance or otherwise, and, as a result, an unauthorized party obtains access to this confidential data, our reputation and business would suffer, and we could incur significant liability. Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not discovered until launched against a target. As a result, we and our third-party providers may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our solutions occurs, the market perception of our solution could be harmed and we could lose sales and customers.

Selling our solution and services internationally subjects us to various risks.

Expanding our GTM software solution internationally is important to our growth and profitability. In the fiscal year ended December 31, 2013, 11.0% of our revenue was attributable to sales in international markets, primarily Europe. We intend to expand our sales efforts to other continents, which will require financial resources and management attention and may subject us to new or increased levels of risk. We cannot be assured that we will be successful in creating new international demand for our solution and services.

By doing business in international markets, we are exposed to risks separate and distinct from those we face in our domestic operations, and if we are unable to manage these risks effectively, it may harm the growth and profitability of our business.

Engaging in international business inherently involves a number of other difficulties and risks, including:

 

    changes in foreign currency exchange rates;

 

    changes in a specific country’s or region’s political or economic conditions, particularly in emerging markets;

 

    burdens of complying with a wide variety of foreign customs, laws and regulations, and with U.S. laws such as the Foreign Corrupt Practices Act;

 

    increased financial accounting and reporting burdens and complexities;

 

    changes in diplomatic and trade relationships;

 

    international terrorism and anti-American sentiment;

 

    possible future limitations on the ownership of foreign businesses;

 

    difficulties in enforcing agreements and collecting receivables through certain foreign legal systems or difficulty collecting international accounts receivable or longer accounts receivable payment cycles; and

 

    less effective protection of intellectual property.

Our exposure to each of these risks may increase our costs, impair our ability to market and sell our solution and services, and require significant management attention. Our business, financial position, results of operations and cash flows may be materially adversely affected by the realization of any of these risks.

Our software is complex and may contain material undetected errors, which could enable or otherwise cause our customers to terminate or not renew their subscriptions, damage our reputation and adversely affect our business, revenue and results of operations.

Our software is inherently complex and, despite extensive testing and quality control, may contain material undetected errors or failures especially when first introduced or as new versions are released. Failures or errors

 

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in our software could result in data loss or corruption. We may not find errors in new or enhanced solution modules before we release them and such errors may not be discovered by us or our customers until after we have implemented these modules. These errors in our modules could enable or otherwise cause our customers to terminate or not renew their subscriptions. In addition, they may damage our reputation with both existing and new customers and result in lost customers and decreased revenue, which could materially and adversely affect our business, revenue and results of operations.

Industry consolidation may result in increased competition.

The GTM market is highly fragmented, and we believe that it is likely that some of our existing competitors will consolidate or will be acquired. Some of our competitors have made or may make acquisitions or may enter into partnerships or other strategic relationships to offer a more comprehensive solution than they individually had offered. We expect consolidation in the industry as companies attempt to strengthen or maintain their market positions. This could result in competitors with greater financial, technical, sales, marketing, service and other resources than us. The companies resulting from such combinations may eliminate gaps in their solutions, including a lack of integrated or comprehensive trade content, and these combinations may create more intense competition. Any such consolidation, acquisition, alliance or cooperative relationship could lead to pricing pressure, erosion of our margins, and loss of market share, all of which could have a material adverse effect on our business, results of operations and financial condition.

We have a history of losses and we may not achieve or sustain profitability in the future.

We have incurred significant losses since our formation, including net losses of $4.6 million in 2011, $2.1 million in 2012, and $14.4 million in 2013. As of December 31, 2013, we had an accumulated deficit of $78.0 million. As part of our strategy to develop and expand our business, we expect to significantly increase sales and marketing expenses to attract additional customers, as well as research and development expenses to further develop our solution and services. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. Any failure to increase our revenue or generate revenue from developing new modules and expanding our services could prevent us from attaining or increasing profitability. In addition, as a public company, we will incur significant accounting, legal and other expenses that we did not incur as a private company. Furthermore, we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may result in continuing or greater losses in future periods. You should not consider our historical revenue growth rates to be indicative of our future performance. We do not expect to be profitable in the foreseeable future and we cannot be certain that we will be able to attain profitability on a quarterly or annual basis, or if we do, that we will sustain profitability.

Uncertainty in global economic conditions may adversely affect our business, operating results or financial condition.

Our operations and performance depend on global economic conditions. Challenging or uncertain economic conditions make it difficult for our customers and potential customers to accurately forecast and plan future business activities, and may cause our customers and potential customers to slow, reduce or fail to commence spending on our solution. Furthermore, during challenging or uncertain economic times, our customers may face difficulties gaining timely access to sufficient credit and experience decreasing cash flow, which could affect their willingness to make purchases and their ability to make timely payments to us. Global economic conditions have in the past, and could continue to, have an adverse effect on demand for our solution, on our ability to predict future operating results and on our financial condition and operating results. If global economic conditions remain uncertain or deteriorate, it may materially affect our business, operating results and financial condition.

 

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Our quarterly results of operations may fluctuate in the future, which could result in volatility in our stock price.

Our quarterly revenue and results of operations have varied in the past and may fluctuate as a result of a variety of factors. If our quarterly revenue or results of operations fluctuate, the price of our common stock could decline substantially. Fluctuations in our results of operations may be due to a number of factors, including, but not limited to:

 

    the volume and mix of solution modules sold, which can be influenced by enterprise customer demand for more professional services than our mid-market customers;

 

    our ability to retain and increase sales to existing customers and attract new customers, particularly as we obtain more revenue from new customers than old customers who add modules to their subscriptions;

 

    the timing and success of introductions of new modules or upgrades by us or our competitors;

 

    the strength of the global economy;

 

    competition, including entry into the industry by new competitors and new offerings by existing competitors;

 

    the amount and timing of expenditures related to expanding our operations, research and development, or introducing new modules, including challenges related to expanding our significant research and development presence in Bangalore, India given the competitive market for labor in that region; and

 

    changes in the payment terms for our solution or changes in our revenue recognition policies.

Due to the foregoing factors, and the other risks discussed in this prospectus, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance.

Declines in new subscriptions or in the rate of renewal of our subscriptions may not be fully reflected in our current period operating results and could lead to future revenue shortfalls that could affect our results of operations.

In 2013, we derived 74% of our total revenue from subscription agreements. We recognize revenue from these subscriptions over the term of the agreement, and accordingly downturns or upturns in new or renewal subscriptions may not be fully reflected in our current period operating results. If our new and renewal subscriptions in any period decline or fail to grow at a rate consistent with our historical trends, our revenue in future periods could fall short of analysts’ expectations which, in turn, could adversely affect the price of our common stock.

We rely entirely on our own employees to sell and implement our solution and may be at a disadvantage compared to competitors that utilize external channels.

Many enterprise software companies, including some of our competitors, utilize partner networks to sell and deploy their solutions. These partners can include consulting companies of national reputation who may have established relationships with our potential customers. The dedication of a national consulting company to a particular GTM offering enhances the reputation of that offering in the marketplace. To date, we have relied entirely on our own sales and professional services employees to sell and implement our solution, which may put us at a competitive disadvantage. To increase our revenue and cash flows, we must regularly add new customers and maintain the ability to provide them with timely professional services. If we are unable to do so on our own, the market perception of our solution could be harmed and we could suffer a material adverse effect on our business, results of operations and financial condition.

If we lose the services of our Chief Executive Officer or President and Chief Operating Officer, or other members of our senior management team, it could impair our ability to execute our business strategy and our sales and profitability could suffer.

Our success and future growth depend on the skills, working relationships and continued services of our senior management team and in particular, our Chief Executive Officer, James W. Preuninger, and our President and Chief Operating Officer, John W. Preuninger. In the event that we are unable to retain the

 

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services of any of these key contributors, we may be unable to execute our business strategy in a timely manner, if at all, which would adversely affect our business, operating results and financial condition.

Our business could be adversely affected if we are unable to attract, integrate and retain key personnel.

Our success in the highly competitive GTM solutions market depends largely on our ability to attract, integrate and retain highly skilled managerial, solution, engineering, trade content and sales and marketing personnel. Competition for these personnel in our industry is intense. We may not be able to attract and retain the appropriately qualified, highly skilled employees necessary for the development of our solution and services and the growth of our business, or to replace personnel who leave our employ in the future. The loss of services of any of our key personnel, the inability to retain and attract qualified personnel in the future, or delays in hiring required personnel, particularly global trade subject matter experts, information technology professionals and project managers, could make it difficult to meet key objectives, such as timely and effective upgrades and introductions, penetration and expansion into existing accounts and growth in the GTM solutions market.

Our growth is dependent upon the continued development and retention of our direct sales force and any failure to hire and/or retain these personnel may impede our growth.

We have recently begun investing extensively in our direct sales force. We believe that our future growth will depend on the continued development of this sales force and their ability to obtain new customers, particularly enterprise customers, and to manage our existing customer base. Our ability to achieve significant growth in revenue in the future will depend, in large part, on our success in recruiting, training and retaining a sufficient number of direct sales personnel. New sales personnel require significant training and may, in some cases, take more than a year before becoming productive, if at all. If we are unable to hire and develop sufficient numbers of productive direct sales personnel, sales of our GTM solution and related services will suffer and our growth will be impeded.

We are exposed to exchange rate risks on foreign currencies that may adversely affect our business and results of operations.

Because most of our international sales are denominated in the currency of the country where the purchaser is located, as we continue to expand our direct sales presence in international regions, the portion of our accounts receivable and payment obligations denominated in foreign currencies continues to increase. In addition, we incur significant costs related to our operations in India in Rupees, and we also incur costs related to our operations in China in Renminbi which will increase in 2014. As a result, increases or decreases in the value of the U.S. dollar relative to foreign currencies may affect our financial position, results of operations and cash flow. Our largest exposures to foreign exchange rates exist with respect to the Euro, the Rupee and Renminbi, which together represented approximately 9% of revenue and approximately 7% of our cost of revenue in 2013. We do not currently hedge our exposure to fluctuations in foreign exchange rates. Any hedging policies we may implement in the future may not be successful, and the cost of those hedging techniques may have a significant negative effect on our operating results.

Interruptions or delays in the delivery of our GTM solution could impair the availability or use of our solution, resulting in customer dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenue.

We host our GTM software solution from co-location facilities located in Jacksonville, Florida and Carlstadt, New Jersey. We host our CTM solution from a single co-location facility located in Shanghai, China.

Design or mechanical errors, power losses, spikes in usage volume, hardware failures, systems failures, communications failures, failure to follow system protocols and procedures, intentional bad acts, natural disasters, war, terrorist attacks or security breaches, including cyber attacks, could cause our systems to fail, resulting in interruptions in our service.

Other interruptions or delays in delivering our GTM and CTM solutions can result from changes to or termination of our arrangements with the owners of the facilities. The owners of our facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to

 

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renew these agreements on commercially reasonable terms, we may be required to transfer to one or more new data center facilities, and we may incur significant costs and possible service interruption in doing so.

In addition, our Jacksonville data center’s location may make it relatively susceptible to tropical storms and hurricanes, which, depending on severity, could also cause interruptions or delays in the delivery of our solution. All of our GTM solutions are hosted primarily from our Jacksonville facility, and our Carlstadt facility acts as a disaster recovery site that can host our solution following a catastrophic event at our Jacksonville co-location facility. For customers who do not have real time replication of their data to our Carlstadt facility, it can take us a substantial amount of time to migrate them to Carlstadt and restore functionality for them.

Many of our customers may consider our GTM solution to be “mission critical,” and any delay in restoring our solution may be unacceptable to customers. Any equipment failures and delays in restoring our solution could enable or otherwise cause our customers to terminate or not renew their subscriptions. In addition, they may damage our reputation with both existing and new customers and result in lost customers and decreased revenue, which could materially and adversely affect our business, revenue and results of operations.

If we fail to manage our international operations effectively, our business, financial condition and results of operations could be adversely affected.

We have offices in the United States, Germany, India and China, and plan to continue our international expansion. Managing a geographically dispersed workforce in multiple time zones in compliance with diverse local laws and customs is challenging. If we fail to manage our international workforce effectively, our business, financial condition and results of operations could be adversely affected.

Political, economic, social and other factors in India and China may adversely affect our operations and our ability to achieve our business objectives.

We have offices in Bangalore, India, in which the majority of our engineers are situated. Since the early 1990s, the Indian government has been implementing an economic structural reform program with the objective of liberalizing India’s exchange and trade policies, reducing the fiscal deficit, controlling inflation, promoting a sound monetary policy, reforming the financial sector, and placing greater reliance on market mechanisms to direct economic activity. While economic liberalization efforts in India continue, there can be no assurance that these economic reforms will persist, and that any newly elected government will continue the program of economic liberalization of previous governments. In addition, despite the economic reforms, India continues to have relatively poor business conditions.

India has also experienced terrorist attacks in the past decade. Religious and border disputes persist and remain pressing problems. Military hostilities and civil unrest in Afghanistan, Iraq and other Asian countries persist. These events could adversely influence the Indian economy and, as a result, materially and adversely affect our operations and our ability to achieve our business objectives.

We conduct our business in China through our EasyCargo Chinese subsidiary. The results of operations and future prospects of our Chinese subsidiary are subject to evolving economic, political and social developments in China. In particular, these results may be adversely affected by changes in China’s political, economic and social conditions, changes in policies of the Chinese government, changes in laws and regulations or in the interpretation of existing laws and regulations, changes in foreign exchange regulations, measures that may be introduced to control inflation, and changes in the rates or methods of taxation. Also, Chinese commercial laws, regulations and interpretations applicable to non-Chinese owned market participants such as us are continually changing. These laws, regulations and interpretations could impose restrictions on our ownership or operations of our interests in China and could have a material adverse effect on our business.

Uncertainties with respect to the Chinese legal system may adversely affect the operations of our Chinese subsidiary.

Our Chinese subsidiary is subject to laws and regulations applicable to foreign investment in China. There are uncertainties regarding the interpretation and enforcement of laws, rules and policies in China. The Chinese legal system is based on written statutes, and prior court decisions have limited precedential value. Because many laws and regulations are relatively new and the Chinese legal system is still evolving, the interpretations of many laws,

 

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regulations and rules are not always uniform. Moreover, the relative inexperience of China’s judiciary in many cases creates additional uncertainty as to the outcome of any litigation, and the interpretation of statutes and regulations may be subject to government policies reflecting domestic political agendas. Finally, enforcement of existing laws or contracts based on existing law may be uncertain and sporadic. As a result of the forgoing, it may be difficult for us to obtain swift or equitable enforcement of laws ostensibly designed to protect companies like ours, which could have a material adverse effect on our business and results of operations.

We may be exposed to liabilities under the FCPA and anti-corruption laws, including those under Chinese law, and any determination that we violated these laws could have a material adverse effect on our business.

We are subject to the U.S. Foreign Corrupt Practice Act of 1977, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. Through our EasyCargo Chinese subsidiary, we have agreements with more than 35 customers that are subject to Chinese law. China also strictly prohibits bribery of government officials. Our activities in China create the risk of unauthorized payments or offers of payments by our employees, consultants or sales agents, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be ineffective, and our employees, consultants or sales agents may engage in conduct for which we might be held responsible. Violations of the FCPA or anti-corruption laws, including such anti-corruption laws in China, may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold us liable for successor liability FCPA violations committed by EasyCargo or any other company in which we invest or that we acquire.

We may need substantial additional funding and we may be unable to raise capital when needed, which could force us to delay, reduce or eliminate our solution development programs.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to enhance existing and develop new modules, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when required, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired. In that case, we may not be able to, among other things, develop or enhance our solution, continue to expand our sales and marketing, acquire complementary technologies, solutions or businesses, expand operations in the United States or internationally, hire, train and retain employees, or respond to competitive pressures or unanticipated working capital requirements. Our failure to do any of these things could have a material adverse effect on our business, financial condition, and operating results.

Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of amounts that have been accrued.

We are subject to income taxes in both the United States and various foreign jurisdictions, and we may take certain income tax positions on our tax returns with which tax authorities may disagree. When necessary, we provide reserves for potential payments of tax to various tax authorities related to uncertain tax positions. However, the calculation of our tax liabilities involves the application of complex tax regulations to our global operations in many jurisdictions. Therefore, any dispute with any tax authority may result in a payment that is materially different from our current estimate of the tax liabilities associated with our returns.

 

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Changes in tax laws or tax rulings could materially affect our effective tax rate. There are several proposals to reform United States tax rules being considered by law makers, including proposals that may reduce or eliminate the deferral of United States income tax on our unrepatriated earnings, potentially requiring those earnings to be taxed at the U.S. federal income tax rate, reduce or eliminate our ability to claim foreign tax credits, and eliminate various tax deductions until foreign earnings are repatriated to the United States. At December 31, 2013, we had net operating loss carryforwards for federal income tax purposes of approximately $55.0 million. Our future reported financial results may be adversely affected by tax rule changes which restrict or eliminate our ability to utilize net operating loss carry-forwards, claim foreign tax credits or deduct expenses attributable to foreign earnings, or otherwise affect the treatment of our unrepatriated earnings.

Our ability to use our net operating loss carryforwards may be subject to limitation.

Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership may limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset our taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of our company of more than 50% within a three-year period. Any such annual limitation may significantly reduce the utilization of our net operating loss carryforwards before they expire. Our prior business acquisitions, and closing of this offering, alone or together with transactions that may occur in the future, could limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset our taxable income, if any. Any such limitation, whether as the result of our prior business acquisitions, of this offering, sales of common stock by our existing stockholders or additional sales of common stock by us after this offering, could have a material adverse effect on our results of operations in future years. We have not completed a study to assess whether an ownership change will occur as a result of this offering, or whether there have been one or more ownership changes since our inception, due to the costs and complexities associated with such study. Accordingly, our ability to use our net operating loss carryforwards to reduce future tax payments may be currently limited or may be limited as a result of this offering or any future issuance of shares of our stock.

If we are unable to manage our expected growth, our performance may suffer.

Our business has grown rapidly, and if we are successful in executing our business strategy, this growth will continue as we leverage our existing customer relationships, expand internationally, increase our solution offerings and execute strategic acquisitions. We will need to continue to expand our managerial, operational, financial and other systems and resources to manage our operations, continue our research and development activities, increase our sales force and expand our professional services team. It is possible that our management, finance, development personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively manage our operations and growth requires that we continue to develop more robust business processes and improve our systems and procedures in each of these areas and attract and retain sufficient numbers of talented employees. We may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our research, development and growth goals.

Our loan and security agreement with our lender contains operating and financial covenants that may restrict our business and financing activities.

We are party to a loan and security agreement in connection with our revolving line of credit. As of December 31, 2013, the outstanding balance under this line of credit was $7.0 million. Borrowings under the loan and security agreement are secured by substantially all of our assets, excluding intellectual property. Our loan and security agreement contains customary restrictions and requires us to maintain a minimum cash balance in an account we maintain with our lender and availability on the line of credit, as well as minimum EBITDA.

The operating and financial restrictions and covenants in the loan and security agreement, as well as any future financing agreements that we may enter into, restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, and we may not be able to meet those covenants. From time to time we may be required to seek waivers, a forbearance or an amendment to the loan and security agreement in order to maintain compliance with these covenants, and there can be no certainty that any such waiver,

 

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amendment or forbearance will be available, or what the cost of such waiver, amendment or forbearance, if obtained, would be. A breach of any of these covenants could result in a default under the loan and security agreement, which could cause all of the outstanding indebtedness under our line of credit to become immediately due and payable, terminate all commitments to extend further credit and permit our lender to take possession of and sell our assets pledged as collateral.

If we are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either when they mature or in the event of a default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively affect our ability to continue as a going concern.

Risks Related to Our Intellectual Property

We may not be able to adequately protect our intellectual property rights in internally developed software and other materials and efforts to protect them may be costly.

Our ability to compete effectively depends in part upon our ability to protect our intellectual property rights in our software and other materials that we have developed internally. We hold no issued or pending patents and have relied largely on copyright, trade secret and, to a lesser extent, trademark laws, as well as confidentiality procedures and agreements with our employees, consultants, customers and vendors, to control access to, and distribution of technology, software, documentation and other confidential information. Despite these precautions, it may be possible for a third party to copy, reverse engineer or otherwise obtain, use or distribute our technology, software and/or documentation without authorization. If this were to occur, we could lose revenue as a result of competition from products infringing or misappropriating our technology and intellectual property and we may be required to initiate litigation to protect our proprietary rights and market position.

United States copyright and trade secret laws offer us only limited protection and the laws of some foreign countries protect proprietary rights to an even lesser extent. Accordingly, defense of our proprietary technology may become an increasingly important issue as we continue to expand our operations and technology development into countries that provide a lower level of intellectual property protection than the United States. Policing unauthorized use of our technology is difficult and the steps we take may not prevent misappropriation of the technology we rely on. If competitors are able to use our technology without recourse, our ability to compete would be harmed and our business would be materially and adversely affected.

We may elect to initiate litigation in the future to enforce or protect our proprietary rights or to determine the validity and scope of our rights or the rights of others. That litigation may not be ultimately successful and could result in substantial costs to us, the reduction or loss in intellectual property protection for our technology, the diversion of our management attention and harm to our reputation, any of which could materially and adversely affect our business and results of operations.

Assertions by any other third party that we infringe its intellectual property, whether successful or not, could subject us to costly and time-consuming litigation and expensive licenses.

The software and technology industries are characterized by frequent litigation based on allegations of infringement or other violations of patents, copyrights, trademarks, trade secrets or other intellectual property rights. For example, in 2011 a non-practicing entity claimed that our solution infringed one of its patents. Although we successfully defended this claim, we cannot be certain that our solution and services do not infringe the intellectual property rights of other third parties. Additionally, because our software is integrated with our customers’ business processes and other software applications, third parties may bring claims of infringement or misappropriation against us, as well as our customers and other software suppliers. Claims of alleged infringement of intellectual property rights of third parties could be asserted against us in the future. We cannot be sure that we would prevail against any such asserted claim. In addition to possible claims with respect to our proprietary information, some of our solution modules contain technology developed by and licensed from third parties and we may likewise be susceptible to infringement or misappropriation claims with respect to these third party technologies.

Claims of alleged infringement of third party intellectual property rights may have a material adverse effect on our business. Any intellectual property rights claim made against us or our customers, with or without merit,

 

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could be time-consuming, expensive to litigate or settle, and could divert management attention and financial resources. An adverse determination could prevent us from offering our modules or services to our customers and may require that we procure or develop substitute modules or services that do not infringe. Claims of intellectual property infringement also might require us to enter into costly royalty or license agreements. We may be unable to obtain royalty or license agreements on terms acceptable to us or at all. Furthermore, many of our license agreements require us to indemnify and defend our customers for certain third-party intellectual property infringement claims, which could increase our costs as a result of defending such claims and may require that we pay damages if there were an adverse ruling related to any such claims. Even if we are not a party to any litigation between a customer and a third party, an adverse outcome in any such litigation could make it more difficult for us to defend our services and solution in any subsequent litigation in which we are a named party. Moreover, such infringement claims may harm our relationships with our existing customers and may deter future customers from purchasing our solution on acceptable terms, if at all.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of employees’ former employers.

We could in the future be subject to claims that we or our employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of our employees’ former employers. Litigation may be necessary to defend against these claims. If we fail in defending against such claims, a court could order us to pay substantial damages and prohibit us from using technologies or features that are essential to our solution if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. In addition, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to develop, market and support new solution modules or enhancements to existing modules, which could severely harm our business. Even if we are successful in defending against these claims, such litigation could result in substantial costs and distract management.

Evolving regulation of the Internet may increase our expenditures related to compliance efforts, which may adversely affect our financial condition.

As Internet commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely. We are particularly sensitive to these risks because the Internet and cloud computing are critical components of our business model. For example, we believe that increased regulation is likely in the area of data privacy on the Internet, 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 solutions accessed via the Internet and restricting our ability to store, process and share certain data with our clients via the Internet. In addition, taxation of services provided over the Internet or other charges imposed by government agencies or by private organizations for accessing the Internet may be imposed. Any regulation imposing greater fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of Internet-based services, which could have a material adverse effect on our business.

Risks Related to this Offering and Ownership of Our Common Stock

The concentration of our capital stock ownership with insiders upon the completion of this offering will limit your ability to influence corporate matters.

We anticipate that our executive officers, employees, directors, current 5% or greater stockholders, and their respective affiliates will together beneficially own or control, in aggregate, approximately 77.6% of the shares of our common stock outstanding, after giving effect to the conversion of all outstanding preferred stock, the issuance of 914,094 shares at the assumed offering price (which is the midpoint of the estimated offering price range on the cover of this prospectus) in satisfaction of $10,512,222 of accrued but unpaid dividends to our preferred stockholders, and assuming no exercise of outstanding options or warrants following the closing of this offering. As a result, these executive officers, directors and principal stockholders, were they to act together, would be able to significantly influence most matters that require approval by our stockholders, including the election of directors, any merger, consolidation or sale of all or substantially all or of our assets or

 

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any other significant corporate transaction. Corporate action might be taken even if other stockholders, including those who purchase shares in this offering, oppose such action. Those stockholders may delay or prevent a change of control or otherwise discourage a potential acquirer from attempting to obtain control of our company, even if such change of control would benefit our other stockholders. This concentration of stock ownership may adversely affect investors’ perception of our corporate governance or delay, prevent or cause a change in control of our company, any of which could have material adverse effect on the market price of our common stock.

There has been no public market for our common stock prior to this offering, and you may not be able to resell our shares at or above the price you paid, or at all.

Prior to this offering, there has been no public market for our common stock. We expect to apply to list our common stock on the New York Stock Exchange. However, we can give no assurances that the New York Stock Exchange will grant our application for listing. If an active trading market for our common stock does not develop after this offering, the market price and liquidity of our common stock will be materially and adversely affected. The offering price for our common stock was determined by negotiations between us and the underwriters and may bear no relationship to the market price for our common stock after this offering. The market price of our common stock may decline below the offering price.

The market price for our common stock may be volatile, which could contribute to the loss of your investment.

Fluctuations in the price of our common stock could contribute to the loss of all or part of your investment. Prior to this offering, there has not been a public market for our common stock. Accordingly, the initial public offering price for the shares of our common stock may not be indicative of the price that will prevail in the trading market, if any, that develops following this offering. If an active market for our common stock develops and continues, the trading price of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our common stock and our common stock may trade at prices significantly below the initial public offering price. In such circumstances, the trading price of our common stock may not recover and may experience a further decline.

Factors affecting the trading price of our common stock may include:

 

    actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

 

    changes in the market’s expectations about our operating results;

 

    the effects of seasonality on our business cycle;

 

    success of competitive solutions and services;

 

    our operating results failing to meet the expectation of securities analysts or investors in a particular period or failure of securities analysts to publish reports about us or our business;

 

    changes in financial estimates and recommendations by securities analysts concerning our company, the GTM market, or the software industry in general;

 

    operating and stock price performance of other companies that investors deem comparable to us;

 

    news reports relating to trends in global trade, including changes in estimates of the future size and growth rate of our markets;

 

    announcements by us or our competitors of acquisitions, new offerings or improvements, significant contracts, commercial relationships or capital commitments;

 

    our ability to market new and enhanced solution modules on a timely basis;

 

    changes in laws and regulations affecting our business;

 

    commencement of, or involvement in, litigation involving our company, our general industry, or both;

 

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    changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

 

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

 

    any major change in our board or management;

 

    sales of substantial amounts of common stock by our directors, executive officers or principal stockholders or the perception that such sales could occur; and

 

    general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.

Broad market and industry factors may materially harm the market price of our common stock irrespective of our operating performance. The stock market in general and the market for technology companies and software 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. The trading prices and valuations of these stocks, and of ours, may not be predictable. A loss of investor confidence in the market for technology or software stocks or the stocks of other companies which investors perceive to be similar to us, the opportunities in the GTM market or the stock market in general, could depress our stock price regardless of our business, prospects, financial conditions or results of operations.

In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against the affected company. This type of litigation, even if unsuccessful, could be costly to defend and distract our management.

The recently enacted JOBS Act allows us to postpone the date by which we must comply with certain laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in our company and adversely affect the market price of our common stock.

The recently enacted JOBS Act is intended to reduce the regulatory burden on “emerging growth companies.” As defined in the JOBS Act, a public company whose initial public offering of common equity securities occurred after December 8, 2011 and whose annual gross revenues are less than $1.0 billion will, in general, qualify as an emerging growth company until the earliest of:

 

    the last day of its fiscal year following the fifth anniversary of the date of its initial public offering of common equity securities;

 

    the last day of its fiscal year in which it has annual gross revenue of $1.0 billion or more;

 

    the date on which it has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; and

 

    the date on which it is deemed to be a “large accelerated filer,” which will occur at such time as we (a) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of its most recently completed second fiscal quarter, (b) have been required to file annual and quarterly reports under the Securities Exchange Act of 1934 for a period of at least 12 months, and (c) have filed at least one annual report pursuant to the Securities Act of 1934.

Under this definition, we will be an emerging growth company upon completion of this offering and could remain an emerging growth company until as late as December 31, 2019.

The JOBS Act provides that, so long as we qualify as an emerging growth company, we will, among other things:

 

    be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;

 

   

be exempt from the “say on pay” provisions (requiring a non-binding stockholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding stockholder vote to approve golden parachute arrangements for certain executive officers in

 

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connection with mergers and certain other business combinations) of the Dodd-Frank Act and certain disclosure requirements of the Dodd-Frank Act relating to compensation of our chief executive officer;

 

    be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Securities Exchange Act of 1934 and instead provide a reduced level of disclosure concerning executive compensation; and

 

    be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements.

Although we are still evaluating the JOBS Act, we currently intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company,” except that we have irrevocably elected not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act. Among other things, this means that our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an emerging growth company, we may elect not to provide you with certain information, including certain financial information and certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. As a result, investor confidence in our company and the market price of our common stock may be materially and adversely affected.

We will become subject to additional financial and other reporting and corporate governance requirements that may be difficult for us to satisfy. Evolving regulation of corporate governance and public disclosure may result in additional expenses and continuing uncertainty.

We have historically operated our business as a private company. In connection with this offering, we will become obligated to file with the Securities and Exchange Commission annual and quarterly information and other reports that are specified in Sections 13 and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and we will also become subject to other new financial and other reporting and corporate governance requirements, including the requirements of the New York Stock Exchange and certain provisions of the Sarbanes-Oxley Act of 2002 and the regulations promulgated thereunder, which will impose significant compliance obligations upon us, particularly after we are no longer an emerging growth company. These obligations will require a commitment of additional resources and divert our senior management’s time and attention from our day-to-day operations. In particular, we may be required to:

 

    create or expand the roles and duties of our board of directors, our board committees and management;

 

    institute a more comprehensive financial reporting and disclosure compliance function;

 

    hire additional financial and accounting personnel and other experienced accounting and finance staff with the expertise to address the complex accounting matters applicable to public companies;

 

    establish an internal audit function;

 

    prepare and distribute periodic public reports in compliance with our obligations under the federal securities laws;

 

    establish an investor relations function; and

 

    establish new internal policies, such as those relating to disclosure controls and procedures and insider trading.

We may not be successful in complying with these obligations, and compliance with these obligations will be time-consuming and expensive.

 

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If we are unable to achieve and maintain effective internal control over financial reporting, investors could lose confidence in our financial statements and our company, which could have an adverse effect on our business and stock price.

In order to provide reliable financial reports, mitigate the risk of fraud and operate successfully as a publicly traded company, we must maintain effective control over our financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002.

Commencing with our fiscal year ended December 31, 2015, we will be required to assess the effectiveness of our internal control over financial reporting as of the end of that fiscal year. This assessment must include disclosure of any material weakness in our internal control over financial reporting that is identified by management. Once we are no longer an emerging growth company, our independent registered public accounting firm will also be required to consider our internal controls over financial reporting and express an opinion as to their effectiveness. If our management or our independent registered public accounting firm identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to conclude that such internal control is effective. We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. If we are unable to conclude that our internal control over financial reporting is effective, or, when we are no longer an emerging growth company, if our independent registered public accounting firm is unable to express an opinion that our internal control over financial reporting is effective, investors could lose confidence in the accuracy and completeness of our financial reports, which could have a materially adverse effect on our stock price.

If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our common stock could decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us, our business, our markets and our competitors. We do not control these analysts. If securities analysts do not cover our common stock after the closing of this offering, the lack of research coverage may adversely affect the market price of our common stock. Furthermore, if one or more of the analysts who do cover us downgrade our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in the market and interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline.

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

We have never declared or paid any cash dividends on our common stock and covenants in our loan and security agreement also prevent us from paying cash dividends. We currently intend to retain any future earnings to fund our future growth and do not expect to declare or pay any dividend on shares of our common stock in the foreseeable future. As a result, you may only realize a gain on your investment in our common stock if the market price of our common stock appreciates and you sell your shares at a price above your cost after accounting for any taxes. The price of our common stock may not appreciate in value or ever exceed the price that you paid for shares of our common stock in this offering.

Our board of directors and management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

Our board of directors and management will have broad discretion to use the net proceeds from this offering, and you will be relying on the judgment of our board of directors and management regarding the application of these proceeds. You will not have the opportunity to influence our decisions on how to use the proceeds, and we may not apply the net proceeds of this offering in ways that increase the value of your investment. We have not allocated the estimated net proceeds for any specific purpose, and we expect to use the net proceeds from this offering for general corporate and working capital purposes, which may include hiring additional personnel, investing in sales and marketing, research and development and infrastructure. We may also use a portion of the

 

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proceeds to acquire businesses, products and technologies that are complementary to our business. Although we have from time to time evaluated possible acquisitions, we currently have no commitments or agreements to make any material acquisition, and we may not make any acquisitions in the future. We may not be able to achieve a significant return, if any, on any investment of the net proceeds of this offering.

You will experience immediate and substantial dilution in the net tangible book value of the shares you purchase in this offering.

If you purchase shares of our common stock in this offering, you will experience immediate and substantial dilution, as the initial public offering price of our common stock will be substantially greater than the net tangible book value per share of our common stock. Based on the assumed offering price of $11.50 per share, if you purchase our common stock in this offering, you will suffer immediate and substantial dilution of approximately $10.08 per share. For a further description of the dilution that you will experience immediately after this offering, see the section entitled “Dilution.”

Anti-takeover provisions in our certificate of incorporation and bylaws, as well as provisions in Delaware law, might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Our certificate of incorporation, bylaws and Delaware law contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions: (i) dividing our board of directors into three classes with staggered three-year terms; (ii) denying cumulative voting rights to stockholders; (iii) specifying that directors may be removed by our stockholders only for cause upon the vote of two thirds or more of our outstanding common stock; (iv) specifying that the authorized number of directors may be changed only by resolution of the board of directors; (v) eliminating the right of stockholders to act by written consent without a meeting; (vi) specifying that only our chairman of the board, Chief Executive Officer or the board of directors may call a special meeting of stockholders; (vii) limiting stockholder proposals to nominate director candidates to those for which timely advance notice was provided; and (viii) limiting stockholder amendments of the foregoing provisions to a vote of at least two thirds of our outstanding common stock. These provisions, alone or together, could delay hostile takeovers and changes in control or changes in our management.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.

Future sales, or the availability for sale, of our common stock may cause our stock price to decline.

Sales of our common stock in the public market after this offering, or the perception that these sales may occur, could cause the market price of our common stock to decline. Assuming the sale of 4,782,870 shares by us in this offering, upon completion of this offering, we will have 24,894,355 shares of common stock outstanding. All shares of our common stock sold in this offering will be freely transferable without restriction or additional registration under the Securities Act of 1933. The remaining shares outstanding after this offering will be available for sale, upon the expiration of the 180-day lock-up period beginning from the date of this prospectus, if applicable, subject to volume and other restrictions as applicable under Rule 144 under the Securities Act of 1933. Any or all of these shares may be released prior to expiration of the lock-up period at the discretion of the lead underwriter for this offering. To the extent these shares are sold into the market, the market price of our common stock could decline. See “Shares Eligible for Future Sale” for a more detailed description of the restrictions applicable to the sale of shares of our common stock after this offering.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements identify substantial risks and uncertainties and relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” and similar expressions, whether in the negative or affirmative. These statements are only predictions and may be inaccurate. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined under “Risk Factors” and in other parts of this prospectus. These factors may cause our actual results to differ materially from any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our future results, levels of activity, performance or achievements may differ from our expectations. Other than as required by law, we do not undertake to update any of the forward-looking statements after the date of this prospectus, even though our situation may change in the future.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of our common stock in this offering will be approximately $47.5 million, based upon the assumed offering price of $11.50 per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholders including 978,300 additional shares that the underwriters have the option to purchase.

The principal purposes of this offering are to obtain additional working capital, to create a public market for our common stock and to facilitate our future access to the public equity markets. We anticipate using the net proceeds to us from this offering for general corporate and working capital purposes, which may include hiring additional personnel, investing in sales and marketing, research and development and infrastructure, although we have not currently determined with certainty any specific allocation of our proceeds with respect to these items. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products, services, technologies or other assets. We have not entered into any agreements or commitments with respect to any investments or acquisitions at this time, however, in September 2013, we acquired EasyCargo, a Chinese SaaS global trade management solution provider focused on trade management in China.

We currently have no specific plans for the use of the net proceeds to us from this offering. Accordingly, our management will have broad discretion in the application of the net proceeds of this offering to us, and investors will be relying on the judgment of our management regarding the application of these proceeds.

Pending their use, we plan to invest the net proceeds to us from this offering in a variety of capital preservation investments, including short-term, investment-grade and interest-bearing instruments. We cannot predict whether the invested proceeds will yield a favorable return.

 

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DIVIDEND POLICY

We have never paid or declared any cash dividends on our common stock and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. Covenants in the agreements governing our line of credit also prevent us from paying cash dividends as described under the subsections “Liquidity and Capital Resources—Line of Credit” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business. Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, outstanding indebtedness and plans for expansion and restrictions imposed by lenders, if any.

 

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CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2013:

 

    on an actual basis;

 

    on a pro forma basis, to give effect to (a) the conversion of all of our convertible preferred shares into shares of our common stock, which will occur immediately prior to the closing of this offering, (b) the issuance of 914,094 shares at the assumed offering price in satisfaction of $10,512,222 of accrued but unpaid dividends to our preferred stockholders and (c) the expiration of the put rights on our puttable common stock; and

 

    on a pro forma as adjusted basis to reflect the pro forma adjustments described above and our receipt of the net proceeds from our sale of 4,782,870 shares of common stock in this offering at an assumed offering price of $11.50 per share, after deducting (i) estimated underwriting discounts and commissions, and (ii) estimated offering expenses payable by us.

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

 

     As of December 31, 2013  
     Actual     Pro forma     Pro forma as
adjusted
 
     (in thousands)  

Cash and cash equivalents

   $ 5,148      $ 5,148      $ 52,607   
  

 

 

   

 

 

   

 

 

 

Short-term debt, including current portion of capital lease obligations

     1,022        1,022        1,022   

Long-term debt and capital lease obligations, net of current portion

     2,068        2,068        2,068   

Revolving credit facility

     6,979        6,979        6,979   

Redeemable Convertible Preferred Stock and Puttable Common Stock

      

Series A Redeemable Convertible Preferred Stock, no par value: authorized, issued, and outstanding 6,725,000 shares actual; none pro forma or pro forma as adjusted

     8,901        —          —     

Series B Redeemable Convertible Preferred Stock, no par value: authorized, issued, and outstanding 1,853,568 shares actual; none pro forma or pro forma as adjusted

     6,618        —          —     

Series C Redeemable Convertible Preferred Stock, no par value: authorized, issued, and outstanding 5,227,761 shares actual; none pro forma or pro forma as adjusted

     20,188        —          —     

Series D Redeemable Convertible Preferred Stock, no par value: authorized, issued, and outstanding 2,669,384 shares actual; none pro forma or pro forma as adjusted

     10,818        —          —     

Series E Redeemable Convertible Preferred Stock, no par value: authorized 6,709,007 shares; issued and outstanding 4,472,671 shares actual; none pro forma or pro forma as adjusted

     28,249        —          —     

Puttable common stock, no par value (actual), $0.001 par value (pro forma), issued and outstanding 197,914 shares actual; none pro forma or pro forma as adjusted

     2,148        —          —     
  

 

 

   

 

 

   

 

 

 

Stockholders’ (Deficit) Equity

      

Common stock, no par value (actual and pro forma) $0.001 par value (pro forma as adjusted): 38,100,100 shares authorized, 5,005,911 shares issued and outstanding, actual; 20,111,485 shares issued and outstanding, pro forma; 24,894,355 shares issued and outstanding, pro forma as
adjusted

     15,221        92,143        25   

Accumulated other comprehensive loss

     (486     (486     (486

Accumulated deficit

     (78,017     (78,017     (78,017

Additional paid-in capital

     —          —          139,577   
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (63,282     13,640        61,099   
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 23,709      $ 23,709      $ 71,168   
  

 

 

   

 

 

   

 

 

 

 

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The number of shares of our common stock outstanding after the completion of this offering is based on 20,111,485 shares outstanding as of December 31, 2013, and excludes:

 

    2,890,363 shares issuable upon exercise of stock options, which have a weighted average exercise price of $3.11 per share;

 

    4,315,033 shares reserved for future issuance under our stock-based compensation plans;

 

    245,946 shares issuable upon exercise of warrants, which have an exercise price of $3.29 per share;

 

    98,633 contingent shares issuable in connection with our acquisition of EasyCargo;

 

    shares issuable in satisfaction of an earnout of up to $2.5 million under our EasyCargo purchase agreement payable in 2016, which is payable at our election in cash or in shares at the then-current fair market value of our common stock; and

 

    978,300 additional shares of common stock that the underwriters have the option to purchase from the selling stockholders.

 

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DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering, which we refer to as net tangible book value dilution per share.

Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding. Our pro forma net tangible book value as of December 31, 2013 was $(12.0) million, or $(0.60) per share, based on the total number of shares of our common stock outstanding as of December 31, 2013, after giving effect to the conversion of all outstanding shares of our convertible preferred stock into shares of common stock, which will occur immediately prior to the closing of this offering and the issuance of 914,094 shares at the offering price in satisfaction of $10,512,222 of accrued but unpaid dividends to our preferred stockholders.

After giving effect to the sale by us of 4,782,870 shares of our common stock in this offering at the assumed offering price of $11.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of December 31, 2013 would have been approximately $35.4 million, or $1.42 per share. This represents an immediate increase in pro forma net tangible book value of $2.02 per share to our existing stockholders and an immediate dilution of $10.08 per share to investors purchasing shares of common stock in this offering at the assumed offering price. The following table illustrates this dilution:

 

Assumed public offering price per share of common stock

     $ 11.50   
    

 

 

 

Pro forma net tangible book value per share as of December 31, 2013

   $ (0.60  

Increase in net tangible book value per share attributable to this offering

   $ 2.02     

Pro forma as adjusted net tangible book value per share after giving effect to this offering

     $ 1.42  
    

 

 

 

Net tangible book value dilution per share to investors in this offering

     $ 10.08   
    

 

 

 

Each $1.00 increase or decrease in the assumed offering price of $11.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $0.18, and would increase or decrease, as applicable, dilution per share to new investors in this offering by $0.82, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions. In addition, to the extent any outstanding options to purchase common stock are exercised, new investors will experience further dilution.

 

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The following table summarizes, on a pro forma as adjusted basis as of December 31, 2013, assuming the conversion of all outstanding shares of our convertible preferred stock into common stock and the issuance of 914,094 shares at the assumed offering price in satisfaction of $10,512,222 of accrued but unpaid dividends to our preferred stockholders, the total number of shares of common stock purchased from us, the total consideration paid to us, and the average price per share paid to us by existing stockholders, and by new investors purchasing shares in this offering at the assumed offering price of $11.50 per share, which is the midpoint of the estimated offering price range set forth on the front cover of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses:

 

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

Existing Stockholders(1)

     19,197,391         77.1   $ 53,112,132         44.8   $ 2.77   

Shares issued upon payment of accrued dividends in common stock

     914,094         3.7        10,512,222         8.8        11.50   

New Investors

     4,782,870         19.2        55,003,005         46.4        11.50   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     24,894,355         100   $ 118,627,359         100   $ 4.77   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) In 2004, the holders of our Series A preferred stock converted an accumulated dividend in the amount of $1,296,581 into 866,119 shares of our common stock. We have excluded the accumulated dividend amount of $1,296,581 from total consideration.

Each $1.00 increase or decrease in the assumed offering price of $11.50 per share would increase or decrease the total consideration paid by new investors and total consideration paid by all stockholders by approximately $4.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions.

The number of shares of our common stock outstanding after the completion of this offering is based on 20,111,485 shares outstanding as of February 1, 2014, and excludes:

 

    2,890,363 shares issuable upon exercise of stock options, which have a weighted average exercise price of $3.11 per share;

 

    4,315,033 shares reserved for future issuance under our stock-based compensation plans;

 

    245,946 shares issuable upon exercise of warrants, which have an exercise price of $3.29 per share;

 

    98,633 contingent shares of common stock issuable in connection with our acquisition of EasyCargo;

 

    shares issuable in satisfaction of an earnout of up to $2.5 million under our EasyCargo purchase agreement payable in 2016, which is payable at our election in cash or in shares at the then-current fair market value of our common stock; and

 

    978,300 additional shares of common stock that the underwriters have the option to purchase from the selling stockholders.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read together with our consolidated financial statements and related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this prospectus. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes. Our historical results are not necessarily indicative of our future results.

The selected consolidated statements of operations data for the years ended December 31, 2011, 2012 and 2013 and the consolidated balance sheet data as of December 31, 2011, 2012 and 2013 are derived from our audited consolidated financial statements contained elsewhere in this prospectus.

 

     Year Ended December 31,  
     2011     2012     2013  
     (in thousands, except per share
amounts)
 

Consolidated Statements of Operations Data:

      

Revenue

      

Subscription

   $ 28,825      $ 32,400      $ 38,867   

Professional services

     8,747        10,968        13,660   
  

 

 

   

 

 

   

 

 

 

Total revenue

     37,572        43,368        52,527   
  

 

 

   

 

 

   

 

 

 

Cost of revenue

      

Cost of subscription revenue(1)

     10,145        10,732        12,748   

Cost of professional services revenue(1)

     6,969        8,680        9,498   
  

 

 

   

 

 

   

 

 

 

Total cost of revenue

     17,114        19,412        22,246   
  

 

 

   

 

 

   

 

 

 

Gross profit

     20,458        23,956        30,281   
  

 

 

   

 

 

   

 

 

 

Operating expenses

      

Sales and marketing(1)

     11,277        12,807        16,246   

Research and development(1)

     5,946        5,775        7,936   

General and administrative(1)

     6,476        6,275        10,469   

Restricted stock expense

     683        878        9,328   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     24,382        25,735        43,979   
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (3,924     (1,779     (13,698

Interest and other income (expense)

     (131     (7     (150
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (4,055     (1,786     (13,848

Income tax expense

     592        311        550   
  

 

 

   

 

 

   

 

 

 

Net loss

     (4,647     (2,097     (14,398

Preferred stock accretion

     (3,359     (4,036     (4,850

Preferred stock dividends

     (675     (536     —     
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (8,681   $ (6,669   $ (19,248
  

 

 

   

 

 

   

 

 

 

Net loss per common share, basic and diluted(2)

   $ (2.41   $ (1.82   $ (5.11
  

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding, basic and diluted(2)

     3,596,911        3,673,181       
3,763,562
  
  

 

 

   

 

 

   

 

 

 

Pro forma net loss per common share, basic and diluted(2)

       $ (1.01
      

 

 

 

Pro forma weighted-average common shares outstanding, basic and diluted(2)

         19,043,391   
      

 

 

 

Key Metrics (unaudited):

      

Recurring revenue retention(3)

     102     102     102

Adjusted EBITDA(4)

   $ (1,231   $ 1,917      $ 1,669   

 

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(1) Includes stock-based compensation allocated as follows:

 

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

Cost of subscription revenue

   $ 21       $ 43       $ 80   

Cost of professional services revenue

     0         1         40   

Sales and marketing

     52         46         77   

Research and development

     25         29         63   

General and administrative

     72         100         262   
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 170       $ 219       $ 522   
  

 

 

    

 

 

    

 

 

 

 

(2) See Note 11 of the consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of basic and diluted net loss per share attributable to common stockholders and pro forma basic and diluted net loss per share attributable to common stockholders.
(3) We calculate our recurring revenue retention rate by comparing, for a given quarter, subscription revenue for all customers in the corresponding quarter of the prior year to the subscription revenue from those same customers in the given quarter.
(4) EBITDA consists of net loss plus depreciation and amortization, interest expense (income) and income tax expense. Adjusted EBITDA consists of EBITDA plus our non-cash, stock-based compensation expenses, as well as the change in fair value of our contingent consideration and warrant liabilities. The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated:

 

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

Net loss

   $ (4,647    $ (2,097    $ (14,398

Depreciation and amortization

     1,843         2,567         3,792   

Interest expense

     159         37         169   

Interest income

     (29      (31      (18

Income tax expense

     592         311         550   
  

 

 

    

 

 

    

 

 

 

EBITDA

     (2,082      787         (9,905

Stock-based compensation

     170         219         522   

Restricted stock

     683         878         9,328   

Puttable stock compensation

     —           —           18   

Increase in fair value of contingent consideration liability

     —           —           106   

Warrant expense

     (2      33         1,600   
  

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ (1,231    $ 1,917       $ 1,669   
  

 

 

    

 

 

    

 

 

 

The following table sets forth our consolidated balance sheet data as of the dates presented:

 

    As of December 31,     2013
Pro Forma(1)
    2013
Pro Forma as
Adjusted(2)
 
    2011     2012     2013      
    (in thousands)  

Consolidated Balance Sheet Data:

         

Cash and cash equivalents

  $ 5,290      $ 4,280      $ 5,148      $ 5,148      $ 52,607   

Working capital, excluding current deferred revenue

    15,458        11,658        10,276        10,276        57,735   

Total assets

    54,086        54,756        70,097        70,097        117,556   

Deferred revenue, current and long term

    30,191        30,251        30,757        30,757        30,757   

Redeemable convertible preferred stock and puttable common stock

    65,352        69,924        76,921        —          —     

Total stockholders’ (deficit) equity

    (47,747     (53,572     (63,281     13,640        61,099   

 

(1) On a pro forma basis, to give effect to (a) the conversion of all of our convertible preferred shares into shares of our common stock, which will occur immediately prior to the closing of this offering, (b) the issuance of 914,094 shares at the offering price in satisfaction of $10,512,222 of accrued but unpaid dividends to our preferred stockholders based upon the assumed offering price and (c) the expiration of the put right on our puttable common stock.
(2) On a pro forma as adjusted basis to reflect the pro forma adjustments described above and our receipt of the net proceeds from our sale of 4,782,870 shares of common stock in this offering at an initial public offering price of $11.50 per share, after deducting (i) estimated underwriting discounts and commissions, and (ii) estimated offering expenses payable by us.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this prospectus. This discussion contains information with respect to our plans and strategy as well as forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this prospectus.

Overview

Our mission is to dramatically change the way companies conduct global trade. As a leading provider of cloud-based global trade management (GTM) solutions, we automate import and export processes to enable goods to flow across international borders in the most efficient, compliant and profitable way. Our solution combines enterprise-class software, trade content sourced from government agencies and transportation providers in 125 countries, and a global supply chain network connecting our customers with their trading partners, including suppliers, freight forwarders, customs brokers and transportation carriers. As a result, our solution reduces transportation costs, optimizes logistics, leverages trade agreements, provides shipment tracking, and ensures compliance with import and export regulations. By automating more GTM processes, we enable our customers to enjoy significantly lower supply chain costs compared to legacy systems.

We deliver our GTM solution using a Software-as-a-Service (SaaS) model and leverage a highly flexible technology framework to quickly and efficiently meet our customers’ unique requirements around the world. In 2013, we processed over 600 million transactions and supply chain messages on our network. We generate revenue from annual subscription fees for our solution and by providing related professional services. Selling to new customers has driven our growth to date, and we believe that the GTM automation market is greatly under-penetrated and remains a significant growth opportunity for us. To achieve this growth, we will continue to invest in our sales and marketing efforts worldwide. During 2013, revenue from international customers accounted for 11% of total revenue. This percentage has increased consistently by a small amount year over year since 2010, however, we categorize customers as domestic or international based on the location of their headquarters, and our solution is often implemented across multi-national enterprises. Accordingly, revenue from international customers may not correspond to the extent to which we have deployed our solution internationally. In 2013, one customer accounted for 11.5% of our total revenue and no other customer accounted for more than 10%. We sell our solution primarily through a direct sales force, both domestically and internationally, including via our recently acquired Chinese subsidiary EasyCargo.

We intend to expand our role as a provider of a market-leading GTM solution by bringing our existing solution to new customers and new markets, and by expanding our solution to offer the most comprehensive and innovative features in the GTM marketplace. Key elements of our growth strategy include our plans to:

 

    ramp our investment in sales by hiring new sales directors and supporting personnel, particularly for territories outside of the United States;

 

    ramp our investment in marketing with a focus on lead generation, in particular by running more marketing programs to jump-start new territories, and to a lesser extent, devoting additional resources to solidifying our brand as a leading GTM solution provider;

 

    invest in new sales and support offices in regions where we have a foothold resulting from our prior implementations;

 

    continue to leverage our solution team to expand the depth and breadth of our solution in response to customer requests and the evolving nature of global trade; and

 

    execute strategic acquisitions, including to acquire best-of-breed solutions to specific problems or gain a sales team with a track record of success in a foreign market.

 

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We face a variety of challenges and risks, which we will need to address and manage as we pursue our growth strategy. In particular, we will need to continue to innovate in the face of a rapidly changing technology landscape if we are to remain competitive, and we will need to effectively manage our growth, especially related to our international expansion. Our senior management continuously focuses on these and other challenges, and we believe that our culture of innovation and our history of growth and expansion will contribute to the success of our business. We cannot, however, assure you that we will be successful in addressing and managing the many challenges and risks that we face.

We have achieved significant growth since inception and plan to continue to invest in growth. From 2011 to 2013, our subscription revenue grew from $28.8 million to $38.9 million, representing a 16.2% compound annual growth rate (CAGR). From 2011 to 2013, our total revenue grew from $37.6 million to $52.5 million, representing a 18.2% CAGR. We expect our cost of revenue and operating expenses to continue to increase in absolute dollars in future periods. We expect marketing and sales expenses to increase as we continue to expand our sales teams, increase our marketing activities and grow our international operations. We also expect research and development expenses to increase in absolute dollars as we enhance our existing solution modules and develop new ones. We also plan to invest in maintaining a high quality of professional services and customer support, and plan to continue investing in our data center infrastructure in order to support continued customer growth. As a result of both our growth and the infrastructure required to be a public company, we expect to incur additional general and administrative expenses. Considering all of these plans for investment, we cannot assure you that we will be profitable in the near term.

Our customers pay us an annual subscription fee typically at the start of each contract year. The subscription fee is fixed for the term of the agreement, and typically is based on expected transaction volumes, such as the number of annual shipments or import entries. To the extent that a customer exceeds contracted maximum transaction volumes, they incur per-transaction fees. This pricing structure allows us to sell more affordable, entry-level configurations to customers with fewer needs, as well as sophisticated configurations to enterprise customers with greater needs. The subscription fees typically begin the first month following contract execution, whether or not we have completed the solution’s implementation, and our subscription agreements typically may only be terminated for cause. In addition, we charge for professional services to implement our solution, typically on a time and materials basis.

Our operating results in a given quarter can fluctuate based on the mix of subscription and professional services revenue. In 2013, subscription accounted for 74% of total revenue. Our subscription agreements typically have an initial term of three to five years, with an average initial term of approximately 4.0 and 3.5 years for enterprise and mid-market customers, respectively. In 2011, 2012 and 2013, our solution served 351, 399 and 463 customers, respectively. Our customers are headquartered primarily in the United States and Europe, with users in more than 80 countries, conducting trade across 125 countries. Of our 463 customers in 2013 customers, 172 were multi-national enterprise customers with annual revenues of more than $1 billion, and 291 were mid-market customers, with annual revenues that we believe are less than $1 billion. In each of 2012 and 2013, our average revenue from enterprise customers was approximately $265,000 and our average revenue from mid-market customers was approximately $25,000.

Key Metrics

We regularly review the following key metrics to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.

Recurring Revenue Retention. We believe our recurring revenue retention rate is an important metric to measure the long-term value of customer agreements with regard to revenue and billings visibility. We calculate our recurring revenue retention rate by comparing, for a given quarter, subscription revenue for all customers in the corresponding quarter of the prior year to the subscription revenue from those same customers in the given quarter. For the annual rate, we utilize the average of the four quarters for the stated year. For each of 2011, 2012, 2013, the recurring revenue retention rate was 102%.

Adjusted EBITDA. EBITDA consists of net income (loss) plus depreciation and amortization, interest expense (income) and income tax expense (benefit). Adjusted EBITDA consists of EBITDA plus our non-cash, stock-

 

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based compensation expense, as well as the change in fair value of our contingent consideration and warrant liabilities. We use adjusted EBITDA as a measure of operating performance because it assists us in comparing performance on a consistent basis across reporting periods, as it removes from our operating results the impact of our capital structure. We believe adjusted EBITDA is useful to an investor in evaluating our operating performance because it is widely used to measure a company’s operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of performance exclusive of our capital structure and the method by which assets were acquired.

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

 

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

Net loss

   $ (4,647   $ (2,097   $ (14,398

Depreciation and amortization

     1,843        2,567        3,792   

Interest expense

     159        37        169   

Interest income

     (29     (31     (18

Income tax expense

     592        311        550   
  

 

 

   

 

 

   

 

 

 

EBITDA

     (2,082     787        (9,905

Stock based compensation

     170        219        522   

Restricted stock expense

     683        878        9,328   

Puttable stock compensation

     —          —          18   

Increase in fair value of contingent consideration liability

     —          —          106   

Warrant expense

     (2     33        1,600   
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (1,231   $ 1,917      $ 1,669   
  

 

 

   

 

 

   

 

 

 

Components of Operating Results

Revenue

Revenue. We primarily generate revenue from the sale of subscriptions and subscription-related professional services. Our subscriptions are multi-year arrangements for software and content, and in certain instances include a transactional component. We derive professional services revenue from implementation, integration and other elements associated with solution and content subscriptions.

We typically invoice subscription customers in advance on an annual basis, with payment due upon receipt of the invoice. We reflect invoiced amounts on our balance sheet as accounts receivable or as cash when collected, and as deferred revenue until earned and recognized as revenue ratably over the performance period. Accordingly, deferred revenue represents the amount billed to customers that has not yet been earned or recognized as revenue, pursuant to agreements executed during current and prior periods, and does not reflect that portion of a contract to be invoiced to customers on a periodic basis for which payment is not yet due.

Subscription Revenue. We derive our subscription revenue from fees paid to us by our customers for access to our solution. We recognize the revenue associated with subscription agreements ratably on a straight-line basis over the term of the agreement, provided all criteria required for revenue recognition have been met.

Professional Services Revenue. Professional services revenue consists primarily of fees charged for implementation, integration, training and other services associated with the subscription agreements entered into with our customers. Generally, we charge for professional services to implement our solution on a time and materials basis.

Cost of Revenue

Cost of Subscription Revenue. Cost of subscription revenue consists primarily of personnel and related costs of our hosting, support, and content teams, including salaries, benefits, bonuses, payroll taxes, stock-based compensation and allocated overhead, software license fees, hosting costs, Internet connectivity, depreciation expenses directly related to delivering our solution, as well as amortization of capitalized software development

 

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costs. As we continue to add data center capacity and personnel, as well as develop our trade content in advance of anticipated growth, our cost of subscription revenue may increase. We generally expense our cost of subscription revenue as we incur the costs.

Cost of Professional Services Revenue. Cost of professional services revenue consists primarily of personnel and related costs of our professional services team, including salaries, benefits, bonuses, payroll taxes, stock-based compensation, the costs of contracted third-party vendors, reimbursable expenses and depreciation, amortization and other allocated costs. As our personnel are employed on a full-time basis, our cost of professional services is largely fixed in the short-term, while our professional services revenue may fluctuate, leading to fluctuations in professional services gross profit. We expense our cost of professional services revenue as we incur the costs.

Operating Expenses

Our operating expenses are classified into three categories: sales and marketing, research and development, and general and administrative.

Sales and Marketing. Sales and marketing expenses primarily consist of personnel and related costs for our sales and marketing staff, including salaries, benefits, commissions, bonuses, payroll taxes, stock-based compensation and costs of promotional events, corporate communications, online marketing, solution marketing and other brand-building activities, in addition to depreciation, amortization and other allocated costs. We capitalize and amortize commission costs as an expense ratably over the term of the related customer contract in proportion to the recognition of the subscription revenue. If a subscription agreement is terminated, we recognize the unamortized portion of any deferred commission cost as an expense immediately upon such termination, when the initial customer contract is signed and upon any renewal as our obligation to pay a sales commission arises at these times. We expect that sales and marketing expenses will continue to increase in absolute dollars as we continue to expand our business.

Research and Development. Research and development expenses primarily consist of personnel and related costs of our research and development staff, including salaries, benefits, bonuses, payroll taxes, stock-based compensation and costs of certain third-party contractors, as well as depreciation, amortization and other allocated costs. We capitalize research and development costs related to the development of our solution modules and amortize them over their useful life. We have devoted our solution modules development efforts primarily to enhancing the functionality and expanding the capabilities of our solution. We expect that our research and development expenses will continue to increase in absolute dollars as we increase our research and development headcount to further strengthen and enhance our solution.

General and Administrative. General and administrative expenses primarily consist of personnel and related costs for our executive, administrative, finance, information technology, legal, accounting and human resource staffs, including salaries, benefits, bonuses, payroll taxes and stock-based compensation, professional fees, other corporate expenses and depreciation, amortization and other allocated costs. In addition, general and administrative expenses include our expenses related to certain outstanding warrants that have liability accounting and, as such, any changes in fair value of the warrants is recorded in general and administrative expenses. We have recently incurred, and expect to continue to incur additional expenses as we grow our operations and operate as a public company, including higher legal, corporate insurance, accounting and auditing expenses, and the additional costs of enhancing and maintaining our internal control environment through the adoption of new corporate policies. We also expect that general and administrative expenses will continue to increase in absolute dollars as we expand our operations, including internationally.

Restricted Stock. Restricted stock expense includes an intrinsic value charge in each financial reporting period related to vested restricted shares purchased by certain members of our management. In connection with the purchase of these shares, we loaned, on a nonrecourse basis, certain amounts to the purchasers of these shares to cover related tax liabilities incurred by them. Accordingly, we are accounting for these shares as stock options. All of the restricted stock expense relates to our general and administrative functions. We may repurchase these shares under certain conditions, including upon termination of employment or in the event of certain corporate transactions. These repurchase rights have lapsed with respect to 50% of the shares purchased.

 

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The repurchase rights for the remaining shares will lapse and these remaining shares will become fully vested upon the earlier of the closing of certain corporate transactions or this offering. Accordingly, we expect to record restricted stock expense of $15.0 million upon the closing of this offering based on the assumed offering price.

Interest and Other Income (Expense)

Interest and other income (expense) consists primarily of interest income on our cash balances, and interest expense on outstanding debt and capital lease obligations.

Income Tax Expense

Because we have generated net losses in all periods to date and recorded a full valuation allowance against our deferred tax assets, we have historically not recorded a provision for federal or state income taxes. The tax provision for 2013 is primarily related to foreign income taxes and is a result of the cost-plus transfer pricing agreements we have in place with our foreign subsidiaries. Realization of any of our deferred tax assets depends upon future earnings, the timing and amount of which are uncertain. Utilization of our net operating losses may be subject to annual limitations due to the ownership change rules under the Internal Revenue Code of 1986, as amended, and similar state provisions. We have not yet made a determination regarding the potential impact of these limitations. Moreover, in the event we have future changes in ownership, including as a result of this offering, the availability of net operating losses could be further limited.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States. The preparation of 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 the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

The following critical accounting policies reflect significant judgments and estimates used in the preparation of our consolidated financial statements:

 

    revenue recognition;

 

    deferred revenue;

 

    stock-based compensation;

 

    goodwill;

 

    capitalized software costs; and

 

    income taxes.

Revenue Recognition

We primarily generate revenue from the sale of subscriptions and subscription-related services. In instances involving subscriptions, we generate subscription revenue under customer contracts with multiple elements, which are comprised of (1) subscription fees that provide the customers with access to our on-demand solution and trade content, unspecified solution and content upgrades, and customer support, (2) professional services associated with implementing our solution (primarily implementation services), and (3) transaction-related fees (including publishing services). Our initial customer contracts have contract terms typically ranging from three to five years and our renewal contracts range from one to five years in length. Typically, the customer does not take or have the right to take possession of the software supporting our on demand solution. However, in certain

 

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instances, we have customers that take possession of the software whereby it is installed on the customer’s premises. Our subscription service arrangements typically may only be terminated for cause and do not contain refund provisions.

We provide our software as a service and follow the provisions of ASC Topic 605, Revenue Recognition (ASC 605) and ASC Topic 985, Software (ASC 985). We commence revenue recognition when all of the following conditions are met:

 

    There is persuasive evidence of an arrangement;

 

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

 

    The collection of the fees is probable; and

 

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

Subscription Revenue. We recognize subscription revenue ratably over the contract terms beginning on the commencement date of each contract, which is the date the service is made available to customers. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. We recognize transaction-related revenue as the transactions occur.

Professional Services Revenue. The majority of our professional services agreements are on a time and material basis. When these services are not combined with subscription revenue as a single unit of accounting, as discussed below, we recognize this revenue as we render the services for time and material agreements, and when the customer accepts the milestones that we achieve for fixed price agreements.

Multiple-Deliverable Arrangements. We enter into arrangements with multiple deliverables that generally include subscription, professional services (primarily implementation) as well as transaction-related fees.

Prior to January 1, 2010, we accounted for deliverables in multiple-deliverable arrangements separately if the delivered items had standalone value and there was objective and reliable evidence of fair value for the undelivered items. If the deliverables in a multiple-deliverable arrangement could not be accounted for separately, the total arrangement fee was recognized ratably as a single unit of accounting over the contracted term of the subscription agreement. We accounted for a significant portion of our multiple-deliverable arrangements as a single unit of accounting because we did not have objective and reliable evidence of fair value for certain of the deliverables. Additionally, in these situations, we expensed the direct costs of the professional services arrangement as incurred whereas the revenue from the services was recognized over the contracted terms of the subscription.

In October 2009, the FASB issued Accounting Standards Update No. 2009-13, “Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements-a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”) which amended the previous multiple-deliverable arrangements accounting guidance. Pursuant to the updated guidance, objective and reliable evidence of fair value of the deliverables to be delivered was no longer required in order to account for deliverables in a multiple-deliverable arrangement separately. Instead, arrangement consideration is allocated to deliverables based on their relative selling price.

We adopted this accounting guidance on January 1, 2010, for applicable arrangements entered into or materially modified after January 1, 2010 (the beginning of our fiscal year). Under the updated accounting guidance, in order to treat deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, we account for each deliverable separately. Subscription services have standalone value as such services are often sold separately. In determining whether professional services have standalone value, we consider the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract was signed in comparison to the subscription service start date, and the contractual dependence of the subscription service on the customer’s satisfaction with the professional services work. To date, we have concluded that all of the professional services included in multiple-deliverable arrangements executed have standalone value.

 

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As a result of adopting ASU 2009-13, we allocate revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence (VSOE), if available, third party evidence (TPE), if VSOE is not available, or estimated selling prices (ESP), if neither VSOE nor TPE is available. As we have been unable to establish VSOE or TPE for the elements of its arrangements, we establish the ESP for each element primarily by considering the weighted average of actual sales prices of professional services sold on a standalone basis and subscription including various add-on modules if and when sold together without professional services, and other factors such as gross margin objectives, pricing practice and growth strategy. We have established processes to determine ESP and allocate revenue in multiple arrangements using ESP.

For those contracts in which our customer accesses our software via our on-demand, cloud based solution, we account for such transactions in accordance with the ASC 605-25, Multiple-Element Arrangements. The majority of these contracts represent multiple-element arrangements, and we evaluate each element to determine whether it represents a separate unit of accounting. We recognize the consideration allocated to the subscription as revenue ratably over the contract period. The consideration allocated to professional services is recognized as the services are performed, which is typically over the first three to six months of an arrangement.

For those contracts in which the customer takes possession of the software, we account for such transactions in accordance with ASC 985, Software. We account for these agreements as subscriptions and recognize the entire arrangement fee (subscription and professional services) ratably over the term of the agreement. In addition, we do not have VSOE for any add-on professional services, and accordingly, we recognize revenue related to such add-on professional services over the remaining term of the contract.

We account for sales tax collected from customers and remitted to governmental authorities on a net basis and, therefore, we do not include them in revenue and cost of revenue in our consolidated statement of operations.

We classify customer reimbursements received for direct costs paid to third parties and related expenses as revenue, in accordance with ASC 605. The amounts included in professional services revenue and cost of professional services revenue for the years ended December 31, 2011, 2012 and 2013 were $364,305, $432,702 and $496,474, respectively.

Deferred Revenue

Deferred revenue represents amounts collected from (or invoiced to) customers in advance of revenue earned. Deferred revenue to be recognized in the succeeding 12 month period is included in current deferred revenue with the remaining amounts included in noncurrent deferred revenue.

Deferred revenue at December 31, 2012 and 2013 included approximately $9.5 million and $6.7 million related to an arrangement with one customer in which we were recognizing revenue equal only to the extent of costs incurred. We started to recognize this deferred revenue ratably beginning in May 2012.

Stock-Based Compensation

We recognize stock-based compensation as an expense in the consolidated financial statements and measure that cost based on the estimated fair value of the award.

For awards granted after January 1, 2006, we recognized compensation expense based on the estimated grant date fair value using the Black Scholes option pricing model.

Determining the fair value of stock-based awards at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other complex and subjective variables. These variables include the fair value of our common stock, the expected term of the options, our expected stock price volatility, risk-free interest rates, and expected dividends, which are estimated as follows:

 

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

 

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    Expected term. The expected term represents the period that our stock-based awards are expected to be outstanding. As we do not have sufficient historical experience for determining the expected term of the stock option awards granted, we have based our expected term on the simplified method, which represents the average period from vesting to the expiration of the award.

 

    Expected volatility. As we do not have a trading history for our common stock, the expected stock price volatility for our common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. We did not rely on implied volatilities of traded options in our industry peers’ common stock because the volume of activity was relatively low. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available.

 

    Risk-free rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.

 

    Dividend yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.

Total stock-based compensation expense related to employee options included in the consolidated statement of operations for the years ended December 31, 2011, 2012, and 2013 is as follows:

 

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

Cost of subscription revenue

   $ 21       $ 43       $ 80   

Cost of professional services revenue

     0         1         40   

Sales and marketing

     52         46         77   

Research and development

     25         29         63   

General and administrative

     72         100         262   
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 170       $ 219       $ 522   
  

 

 

    

 

 

    

 

 

 

Common Stock Valuations. The fair value of the common stock underlying our stock options was determined by our board of directors, which intended that all options granted have an exercise price that is not less than the estimated fair value of a share of our common stock underlying those options on the date of grant. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The assumptions we used in the valuation model were based on future expectations combined with management judgment. In the absence of a public trading market, our board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant, including the following factors:

 

    contemporaneous third-party valuations performed at periodic intervals by a valuation firm;

 

    the prices, rights, preferences and privileges of our preferred stock relative to the common stock;

 

    the purchases of shares of preferred stock by unaffiliated venture capital firms;

 

    our operating and financial performance and forecast;

 

    current business conditions;

 

    significant new customer wins;

 

    the hiring of key personnel;

 

    our stage of development;

 

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    the likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, such as an initial public offering or sale of our company, given prevailing market conditions;

 

    any adjustment necessary to recognize a lack of marketability for our common stock;

 

    the market performance of comparable publicly-traded technology companies; and

 

    the U.S. and global capital market conditions.

We have granted stock options with the following exercise prices since September 1, 2011:

 

Grant Date

   Number of
Options
Granted
     Exercise
Price per
Share
     Option
Fair Value
per
Share at

Grant Date
     Common
Stock Value
per Share at
Grant Date
     Aggregate
Fair Value of
Options
Granted
 

September 2011

     400,800       $ 2.31       $ 0.73       $ 1.53         294,000   

September 2011

     173,680       $ 2.31       $ 0.72       $ 1.53         124,800   

October 2011

     33,400       $ 2.31       $ 0.72       $ 1.53         24,000   

February 2012

     8,350       $ 2.31       $ 0.72       $ 1.96         6,000   

April 2012

     99,720       $ 2.31       $ 0.96       $ 2.10         95,540   

July 2012

     80,160       $ 2.31       $ 1.11       $ 2.10         88,800   

February 2013

     200,400       $ 2.68       $ 1.51       $ 2.68         303,000   

June 2013

     267,200       $ 6.14       $ 2.40       $ 5.57         640,000   

June 2013

     297,260       $ 5.57       $ 3.19       $ 5.57         947,850   

September 2013

     66,800       $ 8.07       $ 4.61       $ 8.07         308,000   

In order to determine the fair value of our common stock underlying option grants, we considered, among other things, contemporaneous valuations of our stock from an independent valuation firm that provided us with their estimation of our enterprise value and the allocation of that value to each element of our capital structure (preferred stock, common stock, warrants and options). For stock options granted in or prior to June 2011, we determined our enterprise value using the market based approach and, within the market based approach, the comparable company method and the recent transaction method. We selected the companies used for comparison based on a number of factors, including but not limited to, the similarity of their industry, business model, and financial risk profile to those of ours. We used the same set of comparable companies for all relevant valuation estimates. The market-based approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of technology companies. We then apply these multiples to our financial metrics to derive a range of indicated values. We also considered appropriate adjustments to recognize a lack of marketability.

Significant factors considered by our board of directors in determining the fair value of our common stock at the grant dates include:

September 2011. The United States economy and the financial markets continued to recover from the global financial crisis that began in 2008. Total revenue increased from $8.2 million for the three months ended March 31, 2011 to $9.4 million for the three months ended June 30, 2011. We performed a valuation of our common stock as of June 30, 2011, utilizing the option pricing method and determined the fair value to be $1.53 per share. The valuation utilized the following inputs: (i) time to expiration of 2.0 years; (ii) risk-free interest rate of 0.45%; (iii) volatility of 60%; and (iv) a discount for lack of marketability of 30%. For the valuation as of June 30, 2011, we determined our enterprise value of $95.3 million using the income and market approaches with a 100% weighting assigned to the income approach and 0% assigned to the market approach. The income approach was weighted at 100% based on an assessment of our current stage of development and the growth implied by our financial projections. We determined that this approach would provide a more appropriate value for us than approaches which did not consider our projected growth rate. Under the income approach, we used a multiple of 2.2x to last 12-month revenue. Under the guideline public company market approach, we used a multiple of 2.6x to last 12-month revenue. The guideline public companies market approach was weighted at 0.0% based on our assessment of the group of comparable public companies and an analysis of our financial projections. As this approach does not explicitly consider our projected growth, we

 

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determined that this approach would not provide an appropriate value for us. Although we did not directly utilize this method in the conclusion of our enterprise value, we used a market multiple derived from this approach within the income approach. For the discounted cash flow analysis, we used a discount rate to our projected cash flows of 25.8%. Based on this valuation and other factors described herein, our board of directors granted options to purchase 574,480 shares of common stock with an exercise price of $2.31 per share.

October 2011. The United States economy continued to stabilize through the fourth calendar quarter of 2011. Although the broader financial markets continued to experience volatility and were negatively impacted by the European sovereign debt concerns, select technology companies were able to complete IPOs during this period. Total revenue increased from $9.4 million for the three months ended September 30, 2011 to $10.6 million for the three months ended December 31, 2011. We performed a valuation of our common stock as of June 30, 2011, utilizing the option pricing method and determined the fair value to be $1.53 per share. The valuation utilized the following inputs: (i) time to expiration of 2.0 years; (ii) risk-free interest rate of 0.45%; (iii) volatility of 60%; and (iv) a discount for lack of marketability of 30%. For the valuation as of June 30, 2011, we determined our enterprise value of $95.3 million using the income and market approaches with a 100% weighting assigned to the income approach and 0% assigned to the market approach. The income approach was weighted at 100% based on an assessment of our current stage of development and the growth implied by our financial projections. We determined that this approach would provide a more appropriate value for us than approaches which did not consider our projected growth rate. Under the income approach, we used a multiple of 2.2x to last 12-month revenue. Under the guideline public company market approach, we used a multiple of 2.6x to last 12-month revenue. The guideline public companies market approach was weighted at 0.0% based on our assessment of the group of comparable public companies and an analysis of our financial projections. As this approach does not explicitly consider our projected growth, we determined that this approach would not provide an appropriate value for us. Although we did not directly utilize this method in the conclusion of our enterprise value, we used a market multiple derived from this approach within the income approach. For the discounted cash flow analysis, we used a discount rate to our projected cash flows of 25.8%. Based on this valuation and other factors described herein, our board of directors granted options to purchase 33,400 shares of common stock with an exercise price of $2.31 per share.

February 2012. The United States economy and financial markets continued to strengthen during the first calendar quarter of 2012. We also continued to see strength in all facets of our business during this period with the exception of transaction fees. Total revenue decreased from $10.6 million for the three months ended December 31, 2011 to $10.0 million for the three months ended March 31, 2012. We performed a valuation of our common stock as of December 31, 2011, utilizing the option pricing method and determined the fair value to be $1.96 per share. The valuation utilized the following inputs: (i) time to expiration of 1.5 years; (ii) risk-free interest rate of 0.12%; (iii) volatility of 60%; and (iv) a discount for lack of marketability of 29%. For the valuation as of December 31, 2011, we determined our enterprise value of $111.1 using the income and market approaches with a 100% weighting assigned to the income approach and 0% assigned to the market approach. The income approach was weighted at 100% based on an assessment of our current stage of development and the growth implied by our financial projections. We determined that this approach would provide a more appropriate value for us than approaches which did not consider our projected growth rate. Under the income approach, we used a multiple of 2.4x to last 12-month revenue. Under the guideline public company market approach, we used a multiple of 2.9x to last 12-month revenue. The guideline public companies market approach was weighted at 0.0% based on our assessment of the group of comparable public companies and an analysis of our financial projections. As this approach does not explicitly consider our projected growth, we determined that this approach would not provide an appropriate value for us. Although we did not directly utilize this method in the conclusion of our enterprise value, we used a market multiple derived from this approach within the income approach. For the discounted cash flow analysis, we used a discount rate to our projected cash flows of 24.7%. Based on this valuation and other factors described herein, our board of

 

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directors granted options to purchase 8,350 shares of common stock with an exercise price of $2.31 per share. The increase in estimated fair value of our common stock from June 30, 2011 to December 31, 2011 was due to:

 

    a higher projected revenue forecast, contributing to approximately 34% of the increase;

 

    the application of a higher revenue multiple based on the then current market conditions for our guideline companies to our higher projected revenue forecast, contributing to approximately 59% of the increase; and

 

    a slightly lower discount for lack of marketability as a result of a reduction in the time to liquidity from 2 years to 1.5 years, contributing to approximately 7% of the increase.

April 2012. The United States financial markets began to show some weakness in the second calendar quarter of 2012 as concerns regarding global financial uncertainties grew; however, we continued to see strength in our business. Total revenue increased from $10.0 million for the three months ended March 31, 2012 to $11.0 million for the three months ended June 30, 2012. We performed a valuation of our common stock as of March 31, 2012, utilizing the option pricing method and determined the fair value to be $2.10 per share. The valuation utilized the following inputs: (i) time to expiration of 1.5 years; (ii) risk-free interest rate of 0.26%; (iii) volatility of 60%; and (iv) a discount for lack of marketability of 28%. For the valuation as of March 31, 2012, we determined our enterprise value of $111.8 million using the income and market approaches with a 100% weighting assigned to the income approach and 0% assigned to the market approach. The income approach was weighted at 100% based on an assessment of our current stage of development and the growth implied by our financial projections. We determined that this approach would provide a more appropriate value for us than approaches which did not consider our projected growth rate. Under the income approach, we used a multiple of 2.3x to last 12-month revenue. Under the guideline public company market approach, we used a multiple of 2.5x to last 12-month revenue. The guideline public companies market approach was weighted at 0.0% based on our assessment of the group of comparable public companies and an analysis of our financial projections. As this approach does not explicitly consider our projected growth, we determined that this approach would not provide an appropriate value for us. Although we did not directly utilize this method in the conclusion of our enterprise value, we used a market multiple derived from this approach within the income approach. For the discounted cash flow analysis, we used a discount rate to our projected cash flows of 24.3%. Based on this valuation and other factors described herein, our board of directors granted options to purchase 99,720 shares of common stock with an exercise price of $2.31 per share. The increase in the estimated fair value of our common stock from December 31, 2011 to March 31, 2012 was due to:

 

    a positive change in our cash position resulting in approximately 78% of the increase; and

 

    a slightly lower discount for lack of marketability as a result of the change in the risk free rate, contributing to approximately 22% of the increase.

July 2012. The United States financial markets continued to show weakness during the second calendar quarter of 2012 as concerns regarding global financial uncertainties grew; however, we continued to see strength in our business. Total revenue increased from $11.0 million for the three months ended June 30, 2012 to $11.1 million for the three months ended September 30, 2012. We performed a valuation of our common stock as of March 31, 2012, utilizing the option pricing method and determined the fair value to be $2.10 per share. The valuation utilized the following inputs: (i) time to expiration of 1.5 years; (ii) risk-free interest rate of 0.26%; (iii) volatility of 60%; and (iv) a discount for lack of marketability of 28%. For the valuation as of March 31, 2012, we determined our enterprise value of $111.8 million using the income and market approaches with a 100% weighting assigned to the income approach and 0% assigned to the market approach. The income approach was weighted at 100% based on an assessment of our current stage of development and the growth implied by our financial projections. We determined that this approach would provide a more appropriate value for us than approaches which did not consider our projected growth rate. Under the income approach, we used a multiple of 2.3x to last 12-month revenue. Under the guideline public company market approach, we used a multiple of 2.5x to last 12-month revenue. The guideline public companies market approach was weighted at 0.0% based on our assessment of the group of comparable public companies and an analysis of our financial

 

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projections. As this approach does not explicitly consider our projected growth, we determined that this approach would not provide an appropriate value for us. Although we did not directly utilize this method in the conclusion of our enterprise value, we used a market multiple derived from this approach within the income approach. For the discounted cash flow analysis, we used a discount rate to our projected cash flows of 24.3%. Based on this valuation and other factors described herein, our board of directors granted options to purchase 80,160 shares of common stock with an exercise price of $2.31 per share.

February 2013. In the fourth calendar quarter of 2012, the United States economy continued to show weakness, and the financial markets continued to exhibit volatility over concerns regarding the decline in government spending and exports as well as shrinking business inventories; however, we continued to see strength in our business. Total revenue increased from $11.1 million for the three months ended September 30, 2012 to $11.3 million for the three months ended December 31, 2012. We performed a valuation of our common stock as of December 31, 2012, utilizing the option pricing method and determined the fair value to be $2.68 per share. The valuation utilized the following inputs: (i) time to expiration of 1.5 years; (ii) risk-free interest rate of 0.16%; (iii) volatility of 60%; and (iv) a discount for lack of marketability of 25%. For the valuation as of December 31, 2012, we determined our enterprise value of $130.3 million using the income and market approaches with a 100% weighting assigned to the income approach and 0% assigned to the market approach. The income approach was weighted at 100% based on an assessment of our current stage of development and the growth implied by our financial projections. We determined that this approach would provide a more appropriate value for us than approaches which did not consider our projected growth rate. Under the income approach, we used a multiple of 2.5x to last 12-month revenue. Under the guideline public company market approach, we used a multiple of 2.4x to last 12-month revenue. The guideline public companies market approach was weighted at 0.0% based on our assessment of the group of comparable public companies and an analysis of our financial projections. As this approach does not explicitly consider our projected growth, we determined that this approach would not provide an appropriate value for us. Although we did not directly utilize this method in the conclusion of our enterprise value, we used a market multiple derived from this approach within the income approach. For the discounted cash flow analysis, we used a discount rate to our projected cash flows of 23.4%. Based on this valuation and other factors described herein, our board of directors granted options to purchase 200,400 shares of common stock with an exercise price of $2.68 per share. The increase in the estimated fair value of our common stock from March 31, 2012 to December 31, 2012 was due to:

 

    a higher projected revenue forecast, contributing to approximately 38% of the increase;

 

    the application of a higher revenue multiple based on the then current market conditions for our guideline companies to our higher projected revenue forecast, contributing to approximately 59% of the increase; and

 

    a slightly lower discount for lack of marketability as a result of the change in the risk free rate, contributing to approximately 3% of the increase.

June 2013. In the first calendar quarter of 2013, the United States economy continued to show some weakness and the financial markets continued to exhibit volatility over concerns regarding the decline in government spending and concerns about the future of the Federal Reserve Bank’s quantitative easing program; however, we continued to see strength in our business. Total revenue increased from $11.3 million for the three months ended December 31, 2012 to $11.6 million for the three months ended March 31, 2013. We performed a valuation of our common stock as of March 31, 2013 utilizing the option pricing method and determined the fair value to be $5.57 per share. The valuation utilized the following inputs: (i) time to expiration of 1.0 years; (ii) risk-free interest rate of 0.14%; (iii) volatility of 60%; and (iv) a discount for lack of marketability of 15%. For the valuation as of March 31, 2013, we determined our enterprise value of $195.4 million using the income and market approaches with a 100% weighting assigned to the income approach and 0% assigned to the market approach. The income approach was weighted at 100% based on an assessment of our current stage of development and the growth implied by our financial projections. We determined that this approach would provide a more appropriate value for us than approaches which did not consider our projected growth rate. Under the income approach, we used a multiple of 3.3x to last 12-month revenue. Under the guideline public company market approach, we used a multiple of 3.3x to last 12-month revenue. The guideline public

 

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companies market approach was weighted at 0.0% based on our assessment of the group of comparable public companies and an analysis of our financial projections. As this approach does not explicitly consider our projected growth, we determined that this approach would not provide an appropriate value for us. Although we did not directly utilize this method in the conclusion of our enterprise value, we used a market multiple derived from this approach within the income approach. For the discounted cash flow analysis, we used a discount rate to our projected cash flows of 24.5%. Based on this valuation and other factors described herein, our board of directors granted options to purchase 267,200 shares of common stock with an exercise price of $6.14 per share and 297,260 shares of common stock with an exercise price of $5.57. The increase in the estimated fair value of our common stock from December 31, 2012 to March 31, 2013 was due to:

 

    a higher projected revenue forecast, contributing to approximately 15% of the increase;

 

    the application of a higher revenue multiple based on the then current market conditions for our guideline companies to our higher projected revenue, contributing to approximately 66% of the increase; and

 

    a slightly lower discount for lack of marketability as a result of a reduction in the time to liquidity from 1.5 years to 1 year, contributing to approximately 19% of the increase.

September 2013. In the second calendar quarter of 2013, the United States economy grew at its fastest rate in three quarters. We also continued to see strength in our business in the second quarter of 2013. Total revenue increased from $11.6 million for the three months ended March 31, 2013 to $11.9 million for the three months ended June 30, 2013. We performed a valuation of our common stock as of June 30, 2013 utilizing the probability weighted expected return model, or PWERM, allocation methodology and determined the fair value to be $8.07 per share. The present values calculated for our common stock under the possible outcomes were weighted based on management’s estimates of the probability of each outcome occurring. Management’s estimates of probability were 10% for continuing as a private company (Scenario 1) with a discount for lack of marketability of 25%, 80% for an initial public offering occurring prior to December 2013 (Scenario 2) with a discount for lack of marketability of 5%, and 10% for an initial public offering occurring prior to April 2014 (Scenario 3) with a discount for lack of marketability of 10%. Our enterprise value under Scenario 1 was $194.8 million using the income and market approaches with a 50% weighting assigned to the income approach and 50% assigned to the market approach. Our enterprise value under Scenario 2 was $210.4 million and was $227.3 million under Scenario 3 using the income approach. We used discounted cash flows for both of these scenarios with a revenue multiple of 3.3x and a present value factor of 19.4%. Based on this valuation and other factors described herein, our board of directors granted options to purchase 66,800 shares of common stock with an exercise price of $8.07 per share. The increase in the estimated fair value of our common stock from $5.57 per share as of March 31, 2013 to $8.07 per share as of June 30, 2013 was primarily due to the following:

 

    a switch from utilizing the option pricing method to the PWERM model to determine the fair value of our common stock; and

 

    our increase in revenue from March 31, 2013 to June 30, 2013, primarily attributable to an increase in the number of customers using our solution.

Goodwill

Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At December 31, 2013, we had $24.5 million of goodwill recorded on our Consolidated Balance Sheet. For the purposes of impairment testing, we have determined that we have one reporting unit. A two-step impairment test of goodwill is required pursuant to ASC 350-20-35. In the first step, the fair value of the reporting unit is compared to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and further testing is not required. If the carrying value exceeds the fair value, then the second step of the impairment test is required to determine the implied fair value of the reporting unit’s goodwill. The implied fair value of goodwill is calculated by deducting the fair value of all tangible and intangible net assets of the reporting unit, excluding goodwill, from the fair value of the reporting unit as determined in the first step. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then an impairment loss must be recorded that is equal to the difference. The identification and measurement of

 

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goodwill impairment involves the estimation of the fair value of the company. The estimate of our fair value, based on the best information available as of the date of the assessment, is subjective and requires judgment, including management assumptions about expected future revenue forecasts and discount rates.

Capitalized Software Costs

Certain development costs related to our software products are capitalized in accordance with ASC Topic 350-40, Internal-Use Software. ASC 350-40 contains the following provisions: (1) preliminary project costs are expensed as incurred; (2) all costs associated with the development of the application are to be capitalized; and (3) all costs associated with the post-implementation operation of the software shall be expensed as incurred. In addition, the costs for all upgrades and enhancements to the originally developed software may be capitalized if additional functionality is added. Accordingly, we capitalize certain software development costs, including the costs to develop solution modules or significant enhancements to existing modules, which are developed or obtained for internal use. We capitalize software development costs when application development begins, it is probable that the project will be completed, and the software will be used as intended. Such capitalized costs are amortized on a straight-line basis over the estimated useful life of the related asset, which is generally three years. Costs associated with preliminary project stage activities, training, maintenance and all post-implementation stage activities are expensed as incurred. It is difficult to predict the amount of Internal-Use Software that will be capitalized in the future as it is project-specific and as such each project will be reviewed on a case-by-case basis.

Income Taxes

We account for income taxes under the asset and liability method in accordance with authoritative guidance for income taxes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying accounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. We measure deferred tax assets and liabilities 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. We recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that includes the enactment date.

We adopted the provisions of ASC 740-10, Accounting for Uncertainty in Income Tax, on February 1, 2009. There was no impact upon adoption of ASC 740-10 as we have not identified any uncertain tax positions. We have adopted the accounting policy that interest and penalties relating to income taxes are classified within income tax expense.

 

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Results of Operations

The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of revenue. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.

 

    Year Ended December 31,  
    2011     2012     2013  

Revenue

     

Subscription

  $ 28,825      $ 32,400      $ 38,867   

Professional services

    8,747        10,968        13,660   
 

 

 

   

 

 

   

 

 

 

Total revenue

    37,572        43,368        52,527   
 

 

 

   

 

 

   

 

 

 

Cost of revenue

     

Cost of subscription revenue

    10,145        10,732        12,748   

Cost of professional services revenue

    6,969        8,680        9,498   
 

 

 

   

 

 

   

 

 

 

Total cost of revenue

    17,114        19,412        22,246   
 

 

 

   

 

 

   

 

 

 

Gross profit

    20,458        23,956        30,281   
 

 

 

   

 

 

   

 

 

 

Operating expenses

     

Sales and marketing

    11,277        12,807        16,246   

Research and development

    5,946        5,775        7,936   

General and administrative

    6,476        6,275        10,469   

Restricted stock expense

    683        878        9,328   
 

 

 

   

 

 

   

 

 

 

Total operating expenses

    24,382        25,735        43,979   
 

 

 

   

 

 

   

 

 

 

Loss from operations

    (3,924     (1,779     (13,698

Interest and other income (expense)

    (131     (7     (150
 

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (4,055     (1,786     (13,848

Provision for income taxes

    592        311        550   
 

 

 

   

 

 

   

 

 

 

Net loss

  $ (4,647   $ (2,097   $ (14,398
 

 

 

   

 

 

   

 

 

 

 

     Year Ended December 31,  
     2011     2012     2013  

Revenue

      

Subscription

     77     75     74

Professional services

     23        25        26   
  

 

 

   

 

 

   

 

 

 

Total revenue

     100        100        100   
  

 

 

   

 

 

   

 

 

 

Cost of revenue

      

Cost of subscription revenue (1)

     35        33        33   

Cost of professional services revenue (1)

     80        79        70   
  

 

 

   

 

 

   

 

 

 

Total cost of revenue

     46        45        42   
  

 

 

   

 

 

   

 

 

 

Gross profit

     54        55        58   
  

 

 

   

 

 

   

 

 

 

Operating expenses

      

Sales and marketing

     30        30        31   

Research and development

     16        13        15   

General and administrative

     17        14        20   

Restricted stock expense

     2        2        18   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     65        59        84   
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (11     (4     (26

Interest and other income (expense)

     (0     (0     (0
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (11     (4     (26

Provision for income taxes expense

     2        1        1   
  

 

 

   

 

 

   

 

 

 

Net loss

     (13 )%      (5 )%      (27 )% 
  

 

 

   

 

 

   

 

 

 

 

(1) The table shows cost of revenue as a percentage of each component of revenue.

 

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Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Revenue. Revenue for 2013 was $52.5 million, an increase of $9.1 million, or 21.0%, over revenue of $43.4 million for 2012.

Subscription Revenue. Subscription revenue for 2013 was $38.9 million, an increase of $6.5 million, or 20.1%, over subscription revenue of $32.4 million for 2012. The increase in subscription revenue resulted from an increase in the number of large subscriptions from customers, as well as recognition of revenue for a full year for the new customers added in 2012. We have increased our customer count through our sales and marketing efforts.

Professional Services Revenue. Professional services revenue for 2013 was $13.7 million, an increase of $2.7 million, or 24.5%, over professional services revenue of $11.0 million for 2012. The increase is attributable to an increase in demand for professional services from our expanding customer base.

Cost of Subscription Revenue. Cost of subscription revenue for 2013 was $12.7 million, an increase of $2.0 million, or 18.7%, over cost of subscription revenue of $10.7 million for 2012. As a percentage of subscription revenue, cost of subscription revenue was 32.6% for 2013 and 33.0% for 2012. The increase in dollar amount resulted from a $1.0 million increase in depreciation, amortization and other allocated costs, an increase of $0.8 million resulting from salary increases for existing employees and the cost of new employees hired during the period and an increase of $0.2 million in software maintenance costs.

Cost of Professional Services Revenue. Cost of professional services revenue for 2013 was $9.5 million, an increase of $0.8 million, or 9.2%, over cost of professional services revenue of $8.7 million for 2012. As a percentage of professional services revenue, cost of professional services revenue was 69.3% for 2013 and 79.1% for 2012. The increase in dollar amount resulted from an increase of $1.6 million resulting from salary increases for existing professional services employees and the cost of new professional services employees hired during the period. Also, there was an increase of $0.2 million in recruiting costs, $0.1 million in travel costs and $0.3 million in other costs. These costs were offset by a $0.3 million decrease in outside services and a decrease of $1.1 million in employee-related costs transferred from research and development in 2012 as our engineering team temporarily assisted our professional services organization to address a particular customer implementation.

Sales and Marketing Expenses. Sales and marketing expenses for 2013 were $16.2 million, an increase of $3.4 million, or 26.6%, over sales and marketing expenses of $12.8 million for 2012. As a percentage of revenue, sales and marketing expenses increased to 30.9% for 2013 from 29.5% for 2012. The increase in dollar amount is due to an increase of $1.3 million resulting from salary increases for existing employees and the cost of new employees hired during the period, an increase of $0.1 million in recruiting costs and an increase of $0.5 million in commission expense. We also had a $0.9 million increase in marketing event costs, a $0.3 million increase in travel costs, a $0.2 million increase in allocated general and administrative costs, and an increase of $0.1 million in other marketing related costs.

Research and Development Expenses. Research and development expenses for 2013 were $7.9 million, an increase of $2.1 million, or 36.2%, from research and development expenses of $5.8 million for 2012. As a percentage of revenue, research and development expenses increased to 15.0% for 2013 from 13.4% for 2012. The increase in dollar amount was due to $2.1 million of costs allocated to cost of professional services in 2012 as our engineering team temporarily assisted our professional services organization to address a particular customer implementation while no costs were allocated to cost of professional services revenue in 2013. There also was a $0.1 increase in other costs that were offset by a $0.1 million decrease in travel and related costs.

General and Administrative Expenses. General and administrative expenses for 2013 were $10.5 million, an increase of $4.2 million, or 66.7%, over general and administrative expenses of $6.3 million for 2012. As a percentage of revenue, general and administrative expenses increased to 20.0% for 2013 from 14.5% for 2012. The increase in dollar amount is due to an increase of $1.6 million related to changes in the fair value of warrants issued, and an increase of $0.8 million resulting from salary increases for existing employees and for additional general and administrative employees hired during the period. There also was an increase of $1.0 million in professional fees, a $0.2 million increase in travel costs, a $0.2 million increase in software maintenance costs, a $0.2 million increase in the costs for recruiting and outside services and an increase of $0.2 million in allocated general and administrative costs.

 

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Income Tax Expense. Income tax expense for 2013 was $0.5 million compared to $0.3 million for 2012. Income tax expense is primarily related to foreign operations.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Revenue. Revenue for 2012 was $43.4 million, an increase of $5.8 million, or 15.4%, over revenue of $37.6 million for 2011.

Subscription Revenue. Subscription revenue for 2012 were $32.4 million, an increase of $3.6 million, or 12.5%, over subscription revenue of $28.8 million for 2011. The increase in subscription revenue resulted from an increase in the number of subscriptions from enterprise customers, which numbered 140 in 2012 compared to 137 in 2011, as well as recognition of revenue for a full year for the new customers added in 2011. We have increased our customer count through our sales and marketing efforts. Our subscription revenue growth rate decelerated from 2011 due to an unusual delay in the subscription start date for one large customer.

Professional Services Revenue. Professional services revenue in 2012 was $11.0 million, an increase of $2.3 million, or 26.4%, over professional services revenue of $8.7 million in 2011. The increase resulted from an increase in demand for services to our expanding subscription customer base.

Cost of Subscription Revenue. Cost of subscription revenue in 2012 was $10.7 million, an increase of $0.6 million, or 5.9%, over cost of subscription revenue of $10.1 million in 2011. As a percentage of subscription revenue, cost of subscription revenue was 33.0% for 2012 and 35.1% for 2011. The increase in dollar amount resulted from a $0.3 million increase in software maintenance costs, an increase of $0.4 million for depreciation, amortization and other allocated costs and an increase of $0.2 million resulting from new employees hired during the period partially offset by a decrease of $0.3 million for server costs.

Cost of Professional Services Revenue. Cost of professional services revenue in 2012 was $8.7 million, an increase of $1.7 million, or 24.3%, over cost of professional services revenue of $7.0 million in 2011. As a percentage of professional services revenue, cost of professional services revenue was 79.1% for 2012 and 80.5% for 2011. The increase in dollar amount resulted from a $1.5 million increase resulting from salary increases for existing professional services employees and the cost of new professional services employees hired during the period, an increase in consulting costs of $0.3 million, as well as an increase of $0.2 million for travel costs. These increases were offset by a decrease of $0.4 million in employee-related costs transferred from research and development in the prior period as our engineering team temporarily assisted our professional services organization to address a particular customer implementation.

Sales and Marketing Expenses. Sales and marketing expenses for 2012 were $12.8 million, an increase of $1.5 million, or 13.3%, over sales and marketing expenses of $11.3 million for 2011. As a percentage of revenue, sales and marketing expenses were 29.5% in 2012 and 30.1% in 2011. The increase in dollar amount is due to an increase of $0.7 million resulting from salary increases for existing employees and the cost of new employees hired during the period, an increase of $0.6 million in commission expense and a $0.1 million increase in marketing program costs.

Research and Development Expenses. Research and development expenses for 2012 were $5.8 million, a decrease of $0.1 million, or 1.7%, from research and development expenses of $5.9 million for 2011. As a percentage of revenue, research and development expenses decreased to 13.4% in 2012 from 15.7% in 2011. The decrease in dollar amount was due to an increase in capitalization of research and development costs of $1.3 million in 2012 offset by an increase of $0.4 million resulting from salary increases for existing employees and an increase in software maintenance costs of $0.1 million. These increases were offset by a decrease of $0.4 million in employee-related costs transferred to professional services in the prior period as our engineering team temporarily assisted our professional services organization to address a particular customer implementation.

General and Administrative Expenses. General and administrative expenses for 2012 were $6.3 million, a decrease of $0.2 million, or 3.1%, from general and administrative expenses of $6.5 million for 2011. As a percentage of revenue, general and administrative expenses decreased to 14.5% in 2012 from 17.3% in 2011. The decrease in dollar amount is due to a reduction of $0.2 million in professional services and a reduction of $0.3 million in currency exchange fluctuations in our foreign operations, offset by an increase of $0.2 million resulting from salary increases for existing general and administrative personnel.

 

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Income Tax Expense. Income tax expense for the year ended December 31, 2012 was $0.3 million compared to $0.6 million for the year ended December 31, 2011. Income tax expense is primarily related to foreign operations.

 

Quarterly Results of Operations

The following table sets forth our unaudited operating results for each of the eight quarters preceding and including the period ended December 31, 2013 and the percentages of revenue for each line item shown. The information is derived from our unaudited financial statements. In the opinion of management, our unaudited financial statements include all adjustments, consisting only of normal recurring items, except as noted in the notes to the financial statements, necessary for a fair statement of interim periods. The financial information presented for the interim periods has been prepared in a manner consistent with our accounting policies described elsewhere in this prospectus and should be read in conjunction therewith. These quarterly results are not necessarily indicative of the results that may be expected for any future period. Due to rounding, quarterly amounts may not agree to annual amounts.

 

    Quarter Ended  
    March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
 
    (in thousands)  

Revenues

               

Subscription

  $ 7,634      $ 7,793      $ 7,943      $ 9,030      $ 8,747      $ 8,668      $ 9,827      $ 11,625   

Professional services

    2,384        3,167        3,151        2,266        2,846        3,273        3,559        3,982   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    10,018        10,960        11,094        11,296        11,593        11,941        13,386        15,607   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

               

Cost of subscription revenues

    2,592        2,660        2,668        2,812        3,005        3,185        3,315        3,244   

Cost of professional services

    2,161        2,403        2,324        1,793        2,017        2,339        2,392        2,749   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    4,753        5,063        4,992        4,605        5,022        5,524        5,707        5,993   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    5,265        5,897        6,102        6,691        6,571        6,417        7,679        9,614   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

               

Sales and marketing

    3,260        3,112        3,007        3,430        3,673        4,092        4,103        4,378   

Research and Development

    1,438        1,223        1,328        1,787        1,941        1,833        2,051        2,110   

General and administrative

    1,609        1,564        1,474        1,628        2,258        2,625        2,802        2,784   

Restricted stock expense

    219        219        219        219        3,530        3,182        1,994        622   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    6,526        6,118        6,028        7,064        11,402        11,732        10,950        9,894   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (1,261     (221     74        (373     (4,831     (5,315     (3,271     (280

Interest and other income (expense)

    0        (5     (2     (0     (5     (1     (51     (93
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (1,261     (226     72        (373     (4,836     (5,316     (3,322     (373

Provision for income taxes

    (152     72        270        119        201        42        170        138   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (1,109   $ (298   $ (198   $ (492   $ (5,037   $ (5,358   $ (3,492   $ (511
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Quarter Ended  
    March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
    March 31,
2013
    June 30,
2013
    September 30,
2013
    December 31,
2013
 
    (in thousands)  

Revenues

               

Subscription

    76     71     72     80     75     73     73     74

Professional Services

    24     29     28     20     25     27     27     26
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    100     100     100     100     100     100     100     100
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

               

Cost of subscription

    34     34     34     31     34     37     34     28

Cost of professional services

    91     76     74     79     71     71     67     69
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    47     46     45     41     43     46     43     38
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    53     54     55     59     57     54     57     62
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

               

Sales and marketing

    33     28     27     30     32     34     31     28

Research and Development

    14     11     12     16     17     15     15     14

General and administrative

    16     14     13     14     19     22     21     18

Restricted stock expense

    2     2     2     2     30     27     15     4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    65     55     54     62     98     98     82     64
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (12 )%      (1 )%      1     (3 )%      (41 )%      (44 )%      (25 )%      (2 )% 

Interest and other income (expense)

    (0 )%      (0 )%      (0 )%      0     (0 )%      (0 )%      (0 )%      (1 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (12 )%      (1 )%      1     (3 )%      (41 )%      (44 )%      (25 )%      (3 )% 

Provision for income taxes

    (2 )%      1     2     1     2     0     1     1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (10 )%      (2 )%      (1 )%      (4 )%      (43 )%      (44 )%      (26 )%      (4 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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We have experienced certain quarterly trends in our subscription and professional services revenues. In particular, our subscription revenue in the first quarter of certain years has been lower than the sequential fourth quarter of the prior year due to the transactional volumes associated with retail cycles. Additionally, our professional services revenue has traditionally been lower in each fourth quarter as compared to the third quarter due to the impact of the holiday season, including fewer business days and lower customer resource levels.

Liquidity and Capital Resources

 

     Year Ended December 31,  
     2011     2012         2013      
     in thousands  

Net cash provided by operating activities

   $ 983      $ 3,922      $ 989   

Net cash used in investing activities

     (5,365     (4,772     (5,186

Net cash provided by (used in) financing activities

     (3,088     (121     5,455   

 

     As of December 31,  
     2011      2012          2013      
     in thousands  

Cash and cash equivalents

   $ 5,290       $ 4,280       $ 5,148   

Historically, we have financed our operations primarily through the sale of preferred stock and borrowings under credit facilities. At December 31, 2013, our principal sources of liquidity were cash and cash equivalents totaling $5.1 million and accounts receivable, net of allowance for doubtful accounts of $11.0 million, compared to cash and cash equivalents of $4.3 million and accounts receivable, net of allowance for doubtful accounts of $9.8 million, at December 31, 2012. We bill our customers in advance for annual subscriptions, while professional services are typically billed on a monthly basis as services are performed. As a result, the amount of our accounts receivable at the end of a period is driven significantly by our annual subscription and professional services billings for the last month of the period, and our cash flows from operations are affected by our collection of amounts due from customers for subscription and professional services billings that resulted in the recognition of revenue in a prior period.

Net Cash Flows from Operating Activities

Net cash provided by operating activities was $1.0 million during 2013, compared to $3.9 million during 2012 and $1.0 million during 2011. The amount of our net cash provided by operating activities is primarily a result of the timing of cash payments from our customers, offset by the timing of our primary cash expenditures, which are employee salaries.

For 2013, net cash provided by operating activities was $1.0 million, which reflects our net loss of $14.4 million, adjusted for non-cash charges of $15.5 million consisting primarily of $9.3 million for restricted stock compensation, $1.6 million for the change in the valuation of warrants and $3.8 million for depreciation and amortization. Additionally, we had a net decrease in our working capital accounts consisting of $3.2 million in prepaid and other assets and $1.0 million in accounts receivable offset by an increase of $3.7 million in accounts payable and accrued expenses and an increase of $0.5 million in deferred revenue. In 2013, prepaid expenses and other assets decreased principally as a result of a $3.3 million increase in deferred commissions.

For 2012, net cash provided by operating activities of $3.9 million was primarily the result of $2.1 million of net loss, offset by non-cash depreciation and amortization expense of $2.6 million, a less than $0.1 million increase in deferred revenue, a $1.6 million decrease in accounts receivable and a $1.1 million increase in accrued liabilities, offset by an increase in prepaid expenses of $1.2 million. Increases in deferred revenue are due to continued growth in new business, offset by the subscription revenue recognized ratably over time. Increases in accounts receivable are primarily due to growth in the number of customer subscription agreements.

For 2011, net cash provided by operating activities of $1.0 million was primarily a result of $4.6 million of net loss, offset by non-cash depreciation and amortization expense of $1.8 million and a $5.9 million increase in deferred revenue due to growth in new business.

 

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Our deferred revenue was $30.8 million at December 31, 2013, $30.3 million at December 31, 2012 and $30.2 million at December 31, 2011. The increases and decreases in deferred revenue at the end of each of these fiscal periods reflects the timing of invoicing to new and existing customers offset by amortization of previously billed subscription agreements. Customers are invoiced annually in advance for their annual subscription fee and the invoices are recorded in accounts receivable and deferred revenue, which deferred revenue is then recognized ratably over the term of the subscription agreement. With respect to professional services fees, customers are invoiced as the services are performed, and the invoices are recorded in accounts receivable. Where appropriate based on revenue recognition criteria, professional services invoices are initially recorded in deferred revenue, which are then recognized ratably over the remaining term of the subscription agreement.

Net Cash Flows from Investing Activities

For 2013, net cash used in investing activities was $5.2 million, consisting of various capital expenditures of $0.3 million and capitalization of $2.4 million of software development costs. In general, our capital expenditures are for our network infrastructure to support our increasing customer base and growth in new business and for internal use, such as equipment for our increasing employee headcount.

For 2012, net cash used in investing activities was $4.8 million, consisting of various capital expenditures of $1.5 million and capitalization of $3.3 million of software development costs.

Net cash used in investing activities for 2011 was $5.4 million, consisting of capital expenditures of $3.1 million, capitalization of software development costs of $2.0 million and a decrease in restricted cash of $0.3 million.

Net Cash Flows from Financing Activities

For 2013, net cash provided by financing activities was $5.5 million as we borrowed $7.0 million on our revolving line of credit.

For 2012, net cash used in financing activities was $0.1 million and was primarily for the repayment of capital lease obligations.

For 2011, net cash used in financing activities was $3.1 million and was primarily for the repayments on our note payable for $3.0 million and $0.2 for repayments on capital lease obligations.

Line of Credit

In April 2013, we entered into a loan and security agreement with a financial institution that provides a line of credit for up to the lesser of $10 million or 80% of eligible accounts, as defined in the loan and security agreement. Borrowings under this line of credit bore interest each month at an interest rate equal to the Prime Rate, as defined in the loan and security agreement, plus 1.5%. Borrowings under the line of credit are subject to certain reporting and financial covenants, and are secured by substantially all of our assets, excluding intellectual property. Our loan and security agreement contains customary restrictions and requires us to maintain a minimum cash balance in an account we maintain with our lender and availability on the line of credit, as well as minimum EBITDA. On December 30, 2013, we amended the loan and security agreement. Under the amended terms, borrowings bear interest at an interest rate equal to the Prime Rate, as defined, plus 1.5% or 2.5% depending on our cash balance and the availability of the line of credit. The interest rate at December 31, 2013 was the Prime Rate plus 1.5%. The line expires on April 10, 2015. Pursuant to the loan and security agreement, we may not pay cash dividends to our stockholders. As of December 31, 2013, the outstanding balance under this line of credit was $7.0 million and we have used all of the borrowings under this line of credit for working capital purposes. As of December 31, 2013, we were in compliance with all reporting and financial covenants in the loan and security agreement.

Previously, in 2006, we entered into a line of credit with a financial institution in an amount up to the lesser of $4,000,000 or 80% of our eligible accounts, as defined in the applicable credit agreement. Borrowings under this facility bore interest each month at an interest rate equal to the highest of (i) the prime rate, or (ii) LIBOR plus 3.00% per annum, provided that the interest rate in effect on each day shall not have been less than 8.50% per annum. Borrowings were secured by substantially all of our assets and were subject to certain reporting and financial covenants. This line of credit expired on September 16, 2011.

 

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Off-Balance Sheet Arrangements

As of December 31, 2012 and 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Other than our operating leases for office space, we do not engage in off-balance sheet financing arrangements. Cash payments under our operating lease commitments are reflected in “—Contractual and Commercial Commitment Summary” below. Our operating lease arrangements do not and are not reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital resources and capital expenditures. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Capital Resources

Our future capital requirements may vary materially from those now planned and will depend on many factors, including the costs to develop and implement new solution modules and services, the sales and marketing resources needed to further penetrate our targeted vertical markets and gain acceptance of new modules we develop, the expansion of our operations in the United States and internationally and the response of competitors to our solution and services. Historically, we have experienced increases in our expenditures consistent with the growth in our operations and personnel, and we anticipate that our expenditures will continue to increase as we grow our business. In the future, we may also acquire complementary businesses, solutions or technologies. We have no agreements or commitments with respect to any acquisitions at this time.

We believe our existing cash and cash equivalents, together with the available borrowing capacity under our line of credit and cash flows from our operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

During the last three years, inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

Contractual and Commercial Commitment Summary

The following table summarizes our contractual obligations as of December 31, 2013. These contractual obligations require us to make future cash payments.

 

     Payments Due by Period  
     Total      Less Than
1 Year
     1 - 3
Years
     3 - 5
Years
     More Than
5 Years
 
     (in thousands)  

Contractual Obligations

              

Operating lease commitments

   $ 15,328       $ 2,584       $ 4,539       $ 3,562       $ 4,643   

Capital lease obligations

     3,321         1,142         1,800         379         —     

Other*

     2,500         —           2,500         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 21,149       $ 3,726       $ 8,839       $ 3,941       $ 4,643   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* Represents the maximum earnout payment relating to our acquisition of EasyCargo. By March 15, 2016, we are obligated to pay additional consideration if, during the three-year period ending December 31, 2015, aggregate CTM revenue exceeds $7.7 million. The additional consideration will be equal to 50% of CTM revenue in excess of $7.7 million for that period, up to a maximum of $2.5 million, and we may pay the additional consideration at our option in cash or common stock.

Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk. We bill our customers predominately in U.S. dollars and receive payment predominately in U.S. dollars. However, because most of our international sales are denominated in the currency of the country where the purchaser is located, as we continue to expand our direct sales presence in international regions, the portion of our accounts receivable denominated in foreign currencies may continue to

 

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increase. Historically, our greatest accounts receivable foreign currency exposure has been related to revenue denominated in Euros. In addition, we incur significant costs related to our operations in India in Rupees and we also incur costs related to our operations in China in Renminbi. As a result of these factors, our results of operations and cash flows are and will increasingly be subject to fluctuations due to changes in foreign currency exchange rates.

Interest Rate Sensitivity. Interest income and expense are sensitive to changes in the general level of U.S. interest rates. However, based on the nature and current level of our investments, which are primarily cash and cash equivalents, and our debt obligations, we believe there is no material risk of exposure.

Recent Accounting Pronouncements

JOBS Act

For so long as we remain an “emerging growth company” under the recently enacted JOBS Act, we will, among other things:

 

    be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;

 

    be exempt from the “say on pay” provisions (requiring a non-binding stockholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding stockholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Act and certain disclosure requirements of the Dodd-Frank Act relating to compensation of our chief executive officer;

 

    be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Securities Exchange Act of 1934 and instead provide a reduced level of disclosure concerning executive compensation; and

 

    be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements.

Although we are still evaluating the JOBS Act, we currently intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company,” except that we have irrevocably elected not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act. Among other things, this means that our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an emerging growth company, we may elect not to provide you with certain information, including certain financial information and certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. As a result, investor confidence in our company and the market price of our common stock may be materially and adversely affected.

Other

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update, Testing Goodwill for Impairment (the revised standard). The revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. The revised standard was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted provided that the entity has not yet performed its 2012 annual impairment test or issued its financial statements. An entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment,

 

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that it is more-likely than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The adoption of this standard did not have an impact on our consolidated results of operations and financial condition.

Effective January 1, 2012, we adopted FASB authoritative guidance that amends previous guidance for the presentation of comprehensive income. The new standard eliminated the option to present other comprehensive income in the statement of stockholders’ equity. Under the revised guidance, an entity has the option to present the components of net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive financial statements. We are providing two separate but consecutive financial statements. The new standard was required to be applied retrospectively. Other than the change in presentation, the adoption of the new standard did not have an impact on our consolidated financial statements.

Effective January 1, 2012, we adopted FASB authoritative guidance that amends previous guidance for fair value measurement and disclosure requirements. The revised guidance changes certain fair value measurement principles, clarifies the application of existing fair value measurements and expands the disclosure requirements, particularly for Level 3 fair value measurements. Adoption of the amendments did not have a material impact on our consolidated financial statements.

 

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BUSINESS

Company Overview

Our mission is to dramatically change the way companies conduct global trade. As a leading provider of cloud-based global trade management (GTM) solutions, we automate import and export processes to enable goods to flow across international borders in the most efficient, compliant and profitable way. Our solution combines enterprise-class software, trade content sourced from government agencies and transportation providers in 125 countries, and a global supply chain network connecting our customers with their trading partners, including suppliers, freight forwarders, customs brokers and transportation carriers. We deliver our GTM solution using a Software-as-a-Service (SaaS) model and leverage a highly flexible technology framework to quickly and efficiently meet our customers’ unique requirements around the world. In 2013, we processed over 600 million transactions and supply chain messages on our network.

Sustained increases in international trade volumes are driving demand for our solution. For example, the U.S. Department of Commerce reported that, in 2012, U.S. companies imported approximately $2.3 trillion of goods and exported approximately $1.5 trillion of goods. The Congressional Research Service reports that in 2012, China overtook the United States as the world’s largest trading economy, with the value of Chinese merchandise imports reaching approximately $1.8 trillion and the value of Chinese merchandise exports reaching approximately $2.1 trillion. Many of our multi-national enterprise customers have a presence in China, and to increase our share of this growing market, in September 2013 we acquired EasyCargo, a Chinese SaaS global trade management solution provider focused on companies conducting global trade in China.

In addition to rising global trade volumes, importers and exporters must cope with growing supply chain complexity. A single shipment may involve more than a dozen parties, multiple languages, time zones, currencies, modes of transport and a large number of ever-changing laws and regulations. To address this complexity, many global trade participants require dedicated staff to interpret and comply with intricate, country-specific trade regulations, which are often published on paper in varying formats. For example, there are over 500 free and preferential trade agreements around the globe, each requiring importers to comply with myriad rules before they can take advantage of reduced duty rates to lower their product costs. Further, global trade participants must obey thousands of import and export regulations and screen their shipments against approximately 200 lists containing an aggregate of over 250,000 restricted parties. According to a 2013 SCM World survey that we commissioned, over half of the respondents indicated that complying with global trade regulations was one of their top challenges, yet less than 4% indicated that their import compliance was fully automated. Failure to manage the complexity of global trade results in poor supply chain performance, increased costs, and exposure to fines and penalties. Conversely, companies that excel in global trade management enjoy a distinct financial advantage in the marketplace.

Expanding global trade and mounting supply chain complexity have increased demand for GTM solutions. According to a 2013 ARC Advisory Group report that we commissioned, the addressable global market for GTM solutions for companies that import and export goods was approximately $6.1 billion in 2012, with current market penetration of 6%. As a market leader, we believe we are poised to capture an increasing percentage of the GTM market by maintaining a state of the art GTM solution and increasing our sales and marketing activities.

We deliver our solution in individual modules or as a suite, depending on our customers’ needs, utilizing a highly flexible technology framework. This cloud-based suite addresses the growing complexity of the global trade landscape by automating GTM functions to minimize import and export costs, optimize transportation, track shipments within a supply chain, and automate compliance with regulations and free trade agreements. Without this delivery in the cloud, it would be difficult to effectively enable collaboration among the large number of trading partners involved in a global supply chain.

Our solution integrates Global Knowledge, a vast library of regulations and other content that we transform into a proprietary knowledgebase that enables our customers to automate GTM functions across 125 countries. Global Knowledge includes import and export regulations, shipping documents, preferential duties and taxes, specifications for free trade agreements, transportation rates, sailing schedules, embargoed country and

 

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restricted party lists, and harmonized tariff codes that identify goods based on standardized classifications, all sourced directly from government agencies and transportation carriers. Finally, our GTM solution includes a global supply chain network of pre-built connections to our customers’ trading partners, allowing us to deploy our solution efficiently and economically.

Because global trade processes vary across industry verticals and countries, no single software or SaaS solution built with traditional technologies can serve the needs of every participant in a global supply chain. To address these variations, we built our GTM solution using a proprietary technology architecture that we refer to as our Enterprise Technology Framework. Our Enterprise Technology Framework separates customer-specific configurations in each deployment from our core application, permitting our customers to configure our GTM solution without one-off customizations. This in turn permits us to maintain a single version of our software across deployments, facilitating our development cycle and simplifying upgrades for our customers.

Our GTM solution drives value to our customers through faster and more predictable delivery times, less labor, reduced in-transit inventories, and reduced international trading costs such as brokerage fees, logistics fees, transportation costs and customs duties. Our customers have expressed satisfaction with the value they derive from our solution in our annual internal customer satisfaction surveys. In 2013, we sent these surveys to all of our customers and approximately one-third of them responded. For each of our fiscal years ended December 31, 2011, 2012 and 2013, our recurring revenue retention was 102%.

We sell our GTM solution to many of the largest enterprises in the world, including companies such as General Electric, Monsanto, Sherwin Williams, Tyco International, Walmart and Weatherford International. In 2011, 2012 and 2013, our solution served 351, 399 and 463 customers, respectively, representing diversified industry verticals including Chemical/Pharmaceutical, High Technology/Electronics, Industrial/Manufacturing, Logistics, Oil & Gas, and Retail/Apparel. Although our customers are headquartered primarily in the United States and Europe, we have deployed our solution to their users in more than 80 countries. We define customers to include only those customers from whom we generate revenue.

We have achieved consistent revenue growth while expanding our global presence. Our revenue has grown from $37.6 million in 2011, to $43.4 million in 2012 to $52.5 million in 2013. This represents annual growth of 15.4% and 21.0% for our two most recent fiscal years. Revenue increased from $11.3 million for the three months ended December 31, 2012 to $15.6 million for the three months ended December 31, 2013, representing 38.1% annual growth. EasyCargo accounted for approximately 3% of our revenues in the fourth quarter of 2013. We had net losses of $4.6 million, $2.1 million, and $14.4 million for the years ended December 31, 2011, 2012, and 2013, respectively, and net losses of $0.5 million and $0.5 million for the three months ended December 31, 2012 and 2013, respectively.

Recent Developments

In September 2013, we acquired EasyCargo (Shanghai) Co., Ltd. (EasyCargo), a SaaS company focused on a subset of global trade management called China trade management, or CTM. EasyCargo’s CTM solution automates compliance with Processing Trade, a Chinese regulatory regime that exempts materials and components imported for manufacturing or further processing from import duties ranging from zero to more than 150% and value-added taxes of 17% on most goods in 2012. Because of these savings opportunities for multi-national companies, Processing Trade is a growing strategy that now accounts for more than 30% of all China trade. As of September 1, 2013 EasyCargo employed over 40 professionals supporting more than 35 customers, half of which were multi-national companies and half of which were Chinese domestic companies.

EasyCargo’s CTM solution will augment the existing features of our GTM solution and will allow our customers to automate Chinese import and export processes to all of the countries we serve. We are not aware of any competitor who offers the same depth of GTM and CTM features together, and we believe this acquisition will provide us with the opportunity to increase our business with multi-national enterprise companies that are expanding their manufacturing operations in China, as well as with mid-market Chinese companies.

We acquired EasyCargo for a payment of $2.0 million in cash and 296,547 shares of our common stock, of which 197,914 were issued at the closing on September 3, 2013, and the remainder will be issued upon request of the shareholders of EasyCargo’s parent. This excludes 99,218 shares which also would have been issuable if we had received required documentation by December 31, 2013. These remaining 98,633 shares, once issued,

 

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are collectively subject to repurchase tied to the continued employment of EasyCargo’s founder and to the achievement of certain CTM revenue targets through 2015. For accounting purposes these shares are deemed to be contingently issuable. We will make additional payments of up to $2.5 million in cash or shares of our common stock (at our option) by March 15, 2016 if CTM revenues grow at a compound annual rate of more than 40% from 2013 through 2015.

Industry Overview

The Origin and Rapid Growth of Global Trade Automation

Most global trade functions historically have been handled manually by outsourced service providers and internal specialists. Early global trade automation software focused narrowly on discrete problems such as restricted party screening and shipment tracking. These software programs were not integrated with each other or existing enterprise software and were weak in functionality. At the same time, demand for global trade automation has increased rapidly over the past 10 years, fueled by a combination of macro and microeconomic trends. We believe these trends will continue to support the rapid increase of global trade and demand for GTM solutions.

According to the SCM World survey, over 75% of respondents agreed that delayed shipments and other customs problems materially impacted customer service, and nearly 90% agreed that unpredictable lead times on international shipments materially impacted customer service. Further, over 50% of the respondents agreed that their inability to take advantage of preferential duty programs or free trade agreements was costing them a material amount today and that these costs were likely to increase going forward.

Macroeconomic Drivers of Growth. We believe five macroeconomic trends are expanding the GTM automation marketplace:

 

    Growth in Imports from Low Cost Country Sourcing—Companies of all sizes and nearly every industry are pursuing low cost country sourcing strategies with suppliers in locations such as China, India and Southeast Asia. Over 40% of respondents to the SCM World survey import more than half of their products from international suppliers. According to the U.S. Department of Commerce, from 2003 through 2012, the value of all goods and services imported into the United States from China increased at a compounded growth rate of 10.8%, reaching more than $400 billion annually. More generally, in 2012, U.S. companies imported nearly $2.3 trillion worth of goods from more than 200 countries. The U.S. Census Bureau identified more than 300,000 exporters and 180,000 importers in the United States in 2011.

 

    Rising Demand in Global and Emerging Markets—Global trade volumes are being driven by higher exports as producers seek new markets to accelerate their growth. As the wealth of emerging market nations continues to rise, these countries have become significant sales opportunities for U.S. and European companies. For example, according to the U.S. Department of Commerce, U.S.-based companies increased their exports from 2003 through 2012 to China, Brazil and Hong Kong at a compounded annual growth rate of 14.6%, 14.6% and 10.7%, respectively, and China is now the third largest export market for the United States. According to the European Union’s Eurostat system, international trade by its 27 member states nearly doubled from 2003 to 2012. We expect these trends to continue as rising wages expand the middle class and increase consumer demand in foreign nations at the same time that U.S. and European producers hone their export strategies for capturing opportunities in these emerging markets.

 

    Increasing Border Security and Surveillance—Since 9/11, governments have imposed additional border security regulations that affect global trade. For example, the U.S. Customs and Border Protection’s “10+2” program requires importers to provide 10 data points about international sea cargo destined for the United States two days before the applicable cargo vessel departs the foreign port. Further, many government programs, including “10+2”, require companies to share information with them directly via an electronic process. These additional security and automation requirements are driving additional demand for GTM automation.

 

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    Increasing Government Regulation—Government regulatory agencies have also promulgated additional regulations aimed at protecting consumers, spurring local economic growth, and boosting revenues from duties and taxes. Customs agencies around the world supervise cross-border trade by enforcing these regulations. For example, in the United States, there are more than 30 government agencies that regulate cross-border trade, including the U.S. Food and Drug Administration, the U.S. Environmental Protection Agency, and the U.S. Department of Transportation. Countries may each have thousands of regulations affecting trade that companies engaged in global trade must understand and abide by. In many cases, companies must apply for licenses and hold records for filing with or inspection by government agencies. All of these requirements increase the need for GTM automation and more than 57% of respondents in the SCM survey indicated that complying with global trade regulations was one of their top challenges as a global business.

 

    Proliferating Free Trade Agreements—Governments are entering into multilateral free trade agreements to promote trade. For example, under the North American Free Trade Agreement (NAFTA) among the United States, Mexico and Canada, companies are able to import goods from partner countries with dramatically lower import duties. In some cases, NAFTA reduces duty rates from as much as 60% of product value to zero. To achieve these savings, companies must demonstrate that their products meet extensive requirements called the Rules of Origin. Complying with these requirements without automation can be difficult and expensive, and the challenge is not limited to NAFTA. There are more than 500 free and preferential trade agreements around the globe, each presenting myriad rules that governments modify continuously. Another recent and significant free trade agreement is the United States—Korea free trade agreement which will eliminate tariffs on over 95% of consumer and industrial goods. The U.S. International Trade Commission estimates that the South Korean tariff reduction on U.S. goods will add $10–$12 billion to the U.S. gross domestic product and around $10 billion in annual merchandise exports to South Korea. Over 50% of respondents in the SCM survey indicated that their inability to take advantage of free and preferential trade agreements is costing them a material amount today, and, unless corrected, these costs will increase in the future.

Microeconomic Drivers of Growth. To compete effectively, organizations must increase inventory turns, reduce cash-to-cash cycles, improve customer service, and reduce product cost after accounting for expenses such as transportation, brokerage fees, logistics fees, and customs duties, which we refer to as landed cost. According to the 2013 SCM World survey, more than 97% of respondents indicated that product cost savings were either “important” or “very important” business drivers of international sourcing. Many firms that attempt to exploit low cost country sourcing fail to capture any benefits from their efforts. We believe this is due in part to a lack of automation and skilled GTM practitioners. Due to long delivery times associated with shifting supply bases overseas, importers experience ballooning inventory levels, leading to higher costs. These problems increase the urgency of making low cost country sourcing work through GTM automation.

We believe that the influence of these micro and macroeconomic trends is apparent in the results of the SCM World survey, in which over 35% of respondents indicated that they currently realize more than one-half of their sales from customers located in foreign markets. More significantly, 67% of respondents expected that over the next five years their total share of international sales will grow annually by more than 10%, and more than 25% of respondents expected foreign sales to grow annually by more than 25%.

The Complexity of Global Trade Automation

As compared to domestic distribution management, global trade management introduces the complexities of multiple languages, time zones, currencies, and modes of transport. Further, there can be more than a dozen parties involved in a single international shipment. According to the SCM World Survey, over 75% of respondents conducted trade across more than 10 countries, and nearly half of respondents conducted trade across more than 50 countries. The laws governing global trade are numerous, highly complex and ever-changing. Organizations must review and act on a heavy volume of regulatory information, which is often published on paper in varying formats. These challenges are difficult to master without a solution that integrates up-to-date regulatory content with rules-based transactional software connected to each supply chain party.

 

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A lack of coordination among these parties or gaps in knowledge about applicable regulations subjects organizations to:

 

    poor supply chain performance;

 

    limited international markets access;

 

    increased costs; and

 

    exposure to fines and penalties.

The complexity of global trade is compounded by each global trade participant’s unique position in the field. No two participants have identical needs, and automating global trade requires managing numerous combinations of functional requirements across a trading partner network, with each partner potentially using varied enterprise software. Successful GTM solutions must be flexible and adapt to changing regulations and business requirements without an ongoing need for significant professional services. Most GTM vendors to date have not developed solutions with this needed flexibility. Instead, they offer inflexible legacy products that require customers to maintain complex information platforms and to interpret and constantly update potentially thousands of business rules. This time-consuming process is error prone, expensive and fails to scale across more than a few countries.

Shortcomings of Traditional Approaches to GTM

Even in some of the world’s largest organizations, traditional manual approaches to global trade predominate. Legacy approaches often use a combination of paper, facsimile and telephone based processes, spreadsheets, and other ineffective home-grown solutions that often create silos of unmanageable data. Where better automation exists, it is often based on applications developed using a legacy software architecture that is difficult to maintain and upgrade, and that delivers poor performance limited by a one-size-fits-all design. These applications may provide only basic transactional functionality while lacking the ability to perform deep trend analyses that provide important business insights and help management drive operational improvements.

Many legacy applications were deployed gradually, sourced from a variety of vendors in response to separately identified operating inefficiencies and rolled out as annual budget cycles permitted. They require significant ongoing professional services to maintain, and the difficulty of upgrading and maintaining them leads to an inherent lack of reliability in the face of constantly changing government regulations and input formats from supply chain partners. This software may also keep end users and support staff beholden to a patchwork of supporting legacy software that exists as part of an ecosystem that further frustrates modernization.

The SaaS Approach to GTM

Capturing the full value of information—and attaining the network effects possible in our global economy—requires modern software that can exchange information with varied systems in a flexible manner while presenting timely and actionable information to end users. A SaaS model allows organizations to replace patchworks of legacy products and/or manual processes with a comprehensive solution suite that automates trade from the time a purchase order is placed with an overseas supplier to the time a shipment is delivered. The SaaS alternative permits customers to outsource their GTM automation needs.

Our Solution

We change the way our customers conduct global trade. Many of our customers, including some of the world’s largest enterprises, automated their global trade processes for the first time with our solution. We deliver a broad GTM solution that eliminates manual processes, reduces transportation costs, optimizes logistics, leverages trade agreements, provides shipment tracking, and ensures compliance with import and export regulations. In 2013, we processed over 600 million transactions and supply chain messages on our network.

Benefits of Our Solution

Process Automation. Our solution eliminates paper in favor of organized electronic data, messages and alerts and replaces tedious manual processes, such as researching trade regulations, classifying goods against

 

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harmonized tariff codes, calculating duties and taxes, phoning transport carriers to solicit transportation quotes or shipping schedules, and chasing down shipment status from myriad carrier websites with an integrated solution suite. By integrating with global trading partners, our GTM solution aims to achieve straight-through-processing, so that goods and their related shipping documents move from source to destination with little or no management intervention.

Cost and Route Optimization. Our trade content includes information relating to preferential duties and taxes, specifications for free trade agreements, transportation rates, and sailing schedules. Our solution combines this information with carrier shipping contracts to enable customers to compare rates, routes and other charges based on constantly changing data in near real-time. With an enhanced view of landed cost, supply chain executives can select and optimize the routes over which goods flow through their global networks to achieve sustainable delivery performance improvements and cost savings. Cost and route optimization enables our customers to achieve performance improvements that include faster delivery times, improved responsiveness to their customers’ needs and cost savings such as reduced transportation costs. Nearly half of the respondents in the SCM World survey indicated that an inability to control global transportation costs was one of their top concerns as a global business.

Supply Chain Visibility. Our supply chain visibility solution connects our customers with their overseas suppliers, logistics providers, brokers and carriers to track and monitor goods in near real time as they move through the global supply chain. Our solution achieves this by tracking in-transit shipments using reference points such as booking number, container number and bill-of-lading number, and alerts customers to issues that affect supply chain performance. Supply chain visibility empowers our customers to manage by exception, allowing them to rely on our solution to monitor the status of goods in transit and to alert them when problems arise. More than half of the respondents in the SCM World survey indicated that a lack of visibility of shipments moving through the global supply chain was one of their top concerns as a global business.

Enhanced Compliance. Our solution assists customers in managing significant areas of legal and regulatory compliance for global trade, including line-by-line review of sales orders for licensing requirements, and screening for embargoed countries and restricted parties. The benefits of enhanced compliance include avoiding costly fines and possible criminal liability.

We believe that the cost savings realizable from the foregoing benefits, including reduced landed costs, administrative expenses and avoidance of fines and penalties, can result in significant returns on investment for our customers.

 

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Components of Our Solution

We deliver a broad GTM solution that encompasses enterprise-class software, trade content, a global supply chain network, and highly flexible technology architecture to automate import and export processes to enable goods to flow across 125 international borders in the most efficient, compliant and profitable way. By automating more GTM processes, we enable our customers to enjoy significantly lower supply chain costs compared to legacy systems. The critical components of our solution include:

Enterprise-Class Software. Our solution consists of integrated software modules that automate most GTM functions. Customers can subscribe for modules individually or as a suite, depending on their needs. Each module contains a rich, configurable feature set, intuitive user interface, trade content in an actionable format, workflow engines to process business rules that permit management by exception, and application programming interfaces to connect each module to other enterprise systems. Our solution is based on our proprietary Enterprise Technology Framework and is engineered to be stable and deliver high performance to automate the world’s largest businesses.

 

LOGO

 

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Trade Content. In addition to powerful software, automating global trade to its full potential requires trade content. Trade content is information that we source from government agencies and transportation carriers, which, when used with our software, enables trade automation. Trade content includes harmonized tariff codes, restricted party lists, export regulations, import regulations, shipping documents, preferential duties and taxes, specifications for free trade agreements, transportation rates, and sailing schedules.

 

LOGO

We call our trade content Global Knowledge because it is more than data. Much of the information we source is published in text documents describing legal requirements that govern trade. We transform these documents into a normalized and proprietary knowledgebase interpretable by software. We employ more than 100 trade experts, many of whom hold post-graduate degrees, and who have an average of more than 10 years of professional experience. Of these trade experts, approximately 80 are full time employees and the remainder are contract employees who dedicate substantial time to us and who have agreed not to work for other trade content providers. They translate trade content into English from more than 20 languages. We develop and maintain Global Knowledge according to an ISO 9001:2008 certified process that is audited annually by a third party.

Trade content changes constantly. Our trade experts work in three shifts around the clock as necessary to bring our customers the most current information from government agencies and transportation carriers in 125 countries. Global Knowledge was updated with more than 13 million records in 2013 and we believe it is the industry’s most comprehensive database of trade content based on number of countries covered and total number of records. As of December 31, 2013, Global Knowledge included more than:

 

    1.9 million tariff records

 

    1.1 million dutiable records

 

    23,000 import controls

 

    17,000 export controls

 

    13,000 tariff rule changes

 

    3,500 trade documents

 

    500 preferential programs

 

    200 restricted party lists containing 250,000 entities

 

    15 free trade agreement rules of origin

 

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Refined over 10 years, Global Knowledge represents a significant investment in people, process and technology, and we believe it provides us with a competitive advantage. In addition to powering our enterprise and mid-market solution, Global Knowledge powers our small business decision support tool called Trade Wizards. Trade Wizards is a web-based tool available free of charge on a trial basis to assist small businesses with trade research and analysis of trade options.

Supply Chain Network. To automate global trade, we connect our customers to their extended supply chain partners, including suppliers, freight forwarders, transportation carriers, and customs brokers. Each of these parties requires access to trade content, messages, alerts, and information services at critical points along the supply chain. This coordination enables us to automate more GTM processes than would otherwise be possible.

 

LOGO

According to the SCM World survey, only 12% of respondents indicated that their collaborative execution with extended global trading partners was fully automated. We are able to connect our customers to diverse supply chain partners without extended implementation efforts because our established global supply chain network features pre-built connections to more than 500 trading partners. We continuously monitor our network using proprietary algorithms and rules to ensure data quality and consistency for all parties, resulting in a value added integration between our GTM solution, our network, and each supply chain partner’s technologies.

 

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Flexible Technology. GTM processes vary across industry verticals and countries, and one solution cannot fit every customer and its trading partners. However, we simplify GTM automation by utilizing our Enterprise Technology Framework, a highly flexible technology framework. The most important capability of our Enterprise Technology Framework to our customers, and the most difficult technical problem that it solves, is permitting our professional services organization to configure our solution during implementation in a manner that separates customer-specific configurations from our core application, allowing our customers to upgrade to new versions of our solution while retaining their configurations and avoiding the need for re-implementation. The power of our Enterprise Technology Framework allows our solution to adapt to large and small businesses in all industry verticals globally. We maintain this flexibility even as we integrate our solution with our customers’ enterprise resource planning systems, and because global trade requirements change frequently, our configuration-without-customization approach permits our solution to adapt to these changes at a low cost.

 

LOGO

SaaS Delivery. We are a SaaS company and deliver our solution primarily over the Internet using an on-demand, cloud-based, delivery model. Approximately 91% of our customers have selected this approach as their sole delivery model for our solution. Our customers also have the option to deploy certain solution modules in their own IT environments. Regardless of the delivery model, we sell our solution through subscription agreements that entitle our customers to access our solution and receive support. Because our Global Knowledge trade content is delivered and managed in the same manner regardless of delivery model, and because we configure our solution according to customer needs without modifying our core software, our customers receive the latest trade content and new versions of our solution under both delivery models.

 

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Regardless of delivery model, we generate revenue from annual subscription fees for our solution and the related provision of professional services.

Our Growth Strategy

We intend to expand our role as a provider of a market-leading GTM solution by bringing our existing solution to new customers and new markets, and by expanding our solution to offer the most comprehensive and innovative features in the GTM marketplace. Key elements of our growth strategy include our plans to:

Invest in Sales. As a complement to our investment in infrastructure, in 2012 we began to invest more heavily in our sales force, which has led to an acceleration of our business. We expect to continue to ramp our investment in sales by hiring new sales directors and supporting personnel, particularly for territories outside of the United States, including China. We will focus our expanded sales efforts on acquiring new customers and, to a lesser extent, selling more modules to our existing customers.

Invest in Marketing. In 2012, we also began to invest more heavily in marketing. We plan to continue this expansion by maintaining our marketing focus on lead generation, in particular by running more marketing programs to jump-start new territories. We also expect to devote additional resources to solidifying our brand as a leading GTM solution provider.

Further International Expansion. Currently, we sell our solution predominantly in the United States, regions of Europe and China, where we target our marketing efforts and maintain dedicated inside and outside sales persons. Because our solution has a global appeal, we believe that there are significant opportunities in the rest of the world, particularly in Brazil, Russia and India. Although our customers are headquartered primarily in the United States and Europe, we have deployed our solution to their users in more than 80 countries, giving us a foothold in many countries where we currently have no sales offices. We intend to invest in new sales and support offices in these regions which will build on our pre-existing user base.

Expand Our Solution. We have a history of bringing an innovative solution to market as demonstrated by our robust Global Knowledge library and flexible, proprietary Enterprise Technology Framework. Currently, we have dedicated more than 54% of our employees to solution development, and we will continue to leverage our solution team to expand the depth and breadth of our solution in response to customer requests and the evolving nature of global trade. For example, we may expand our solution to automate working with free trade zones, which are areas where goods may be imported, transformed, and then exported without the need to pay customs duties. We also intend to maintain our market leadership in trade content.

Execute Strategic Acquisitions. Strategic acquisitions represent an opportunity for us to augment our solution capabilities and sales team. The GTM solutions market is fragmented, and we believe some participants may have best-of-breed solutions to specific problems, particularly those created by the unique trading requirements of foreign countries. We may acquire those participants to expand our solution. Further, developing an effective sales force in foreign markets requires a nuanced understanding of local business customs. We may, for example, choose to acquire local GTM software companies in order to obtain sales teams with a track record of success in their markets. We currently have no agreements or understandings to acquire any such companies, however, in September 2013, we acquired EasyCargo, a Chinese SaaS global trade management solution provider focused on trade management in China.

Our Solution Modules and Services

We implement our solution as modules, selling them individually or as a suite, depending on our customers’ needs. All of our modules rely on our trade content, and our professional services team configures them to address the following mission-critical GTM business challenges:

 

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Import Management. Our import management module assists customers with landed cost calculations to determine the lowest-cost country from which to source goods, and streamlines legal compliance, reporting of product classifications, admissibility review, customs entry management and security filings.

 

Key Import Management Capabilities

 

•     Global Master Record Modeling—Store master global trade attributes related to trading partners, multi-sourcing supplier options and products, including multi-variant attributes such as style, color and size.

 

•     Country Sourcing—Analyze sourcing and supplier options by comparing total landed costs and trade restrictions in a side-by-side format.

 

•     Admissibility—Automatically detect government import requirements using Global Knowledge trade content, apply business rules and alert users regarding admissibility.

 

•     Restricted Party Screening—Screen trading partners, including suppliers, against global blacklists of companies and people with whom it is illegal to do business.

 

•     Valuation—Model the correct import value of goods.

 

•     Cost Calculation—Calculate the complete import costs or total landed cost by taking into consideration all charges as well as duties, taxes and other fees.

 

•     Transaction Management—Automatically propagate partner and product global trade master attributes into import transactions to create electronic customs entry transactions.

 

•     Post Entry Transaction Management—Manage and process corrections to customs entries after submission to customs authorities.

 

•     Document Management—Create, generate, and distribute government documents required to import goods.

 

•     Reporting—Create, generate, and distribute reports and analyses.

 

Benefits

   

•     Reduced brokerage fees

 

•     Reduced import delays

 

•     Improved import cycle times

 

•     Improved classification efficiency

 

•     Improved entry processing via automated communication with customs brokers

 

•     Reduced or eliminated post entry reviews

 

•     Improved import audit

 

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Export Management. Our export management module allows exporters to adopt best practices on a global level, gain a centralized view of export compliance and automate key export processes.

 

Key Export Management Capabilities

 

•     Partner & Product Modeling—Store master global trade attributes related to trading partners and products, including multi-variant attributes such as style, color and size.

 

•     Product Classification—Correctly classify products to apply taxes, tariffs and fees, as well as determine import/export controls and license requirements.

 

•     Restricted Party Screening—Screen trading partners, including customers, against global blacklists of companies and people with whom it is illegal to do business.

 

•     Export Compliance—Validate export transactions from order to shipment and delivery against applicable country regulations.

 

•     License Tracking—Model the export license and automatically detect and decrement the license as appropriate.

 

•     Import Compliance—Identify country of destination import requirements at the time of export to ensure customers meet entry requirements.

 

•     Transaction Management—Automatically propagate partner and product global trade master attributes to the export transaction to create electronic export transactions.

 

•     Document Management—Determine which documents to provide to freight forwarders, customers and government authorities, and then generate and transmit them to the appropriate parties.

 

•     Reporting—Create, generate, and distribute reports.

Benefits

   

•     Reduced freight forwarder fees

 

•     Improved classification efficiency

 

•     Improved restricted party screening efficiency

 

•     Improved licensing efficiency

 

•     Improved shipment processing (documents, filing, etc.)

 

•     Improved export audit processes

 

•     Avoid fines and penalties, including loss of export privileges

 

•     Avoid reputational injury

 

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China Trade Management. Our CTM module automates the Processing Trade regime in China, whereby companies import components and materials into China for manufacturing and then export finished goods, without paying import duties and value-added taxes.

 

Key China Trade Management Capabilities

 

•     Processing Trade—Automate the Processing Trade regime with both China import processes, tracking components and materials through a manufacturing process tied to a bill-of-materials, and China export processes, providing tools to report trade to Chinese customs authorities.

 

•     General Trade—Automate the general trade regime in China including import and export processing, license management, document management, calculation of duties and taxes, and reporting.

 

•     Free Trade Zone—Automate Chinese free trade zones and other customs warehousing regimes, including inventory management and China customs reporting.

Benefits

   

•     Eliminate the manual effort to manage China workbooks and customs reporting

 

•     Eliminate payment of import duties and value-added taxes under Processing Trade regime

  

•     Implement better reporting with Chinese customs authorities

 

•     Respond quickly to Chinese regulatory changes

 

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Global Logistics Management. Our global logistics management module enhances both global trade management and supply chain visibility. Global trade management solutions optimize the movement of goods by helping to manage transportation contracts, evaluate alternative routes, select carriers and oversee logistics operations. Supply chain visibility solutions connect importers and exporters with their overseas suppliers, logistics providers, brokers and carriers to enable them to track and monitor goods in near real time as they move through the global supply chain.

 

Key Global Logistics Management Capabilities

   

•     Contract and Rate Management—Analyze exporters’ shipping contracts and provide business rules for calculating rates, including rates for ancillary services provided by ocean, air, truck and rail carriers.

 

•     Carrier Selection & Booking—Provide customers with a simplified view of rates, routes, schedules and accessorial charges in a side-by-side format.

 

•     Freight Audit—Compare bills-of-lading received from carriers with expected charges to identify billing errors and submit them to carriers for resolution.

 

•     Purchase Order Management—Extend purchasing and compliance processes to trading partners with a sophisticated supplier portal applet.

 

•     Alerts and Notifications—Track inbound and outbound shipments by booking number, container number and bill-of-lading number, and receive alerts regarding supply chain performance.

 

•     Trading Partner Network—Connect to a global trading network to integrate internal systems with an extended supply chain of suppliers, freight forwarders, carriers, customs brokers, and third-party sales channels.

 

•     Data Quality Management—Utilize data quality management to normalize inconsistent message formats, terminology and codes across multiple trading partners and permit them to exchange accurate messages.

 

•     Reporting—Create, generate, and distribute reports and analyses to help optimize supply chain networks and develop carriers score cards.

Benefits

   

•     Improved transportation procurement

 

•     Improved carrier selection

 

•     Improved booking efficiency

 

•     Reduced transportation cost by automating freight audits

 

•     Use approved carriers at latest contracted rates

 

•     Reduced in-transit inventory

 

•     Reduced on-hand inventory

 

•     Improved consolidation/mode shift

 

•     Reduced detention and demurrage fees

 

•     Reduced expedited shipments

 

•     Reduced order cycle times

 

•     Improved procurement/negotiations

 

•     Improved customer service

 

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Trade Agreement Management. Our trade agreement management module automates free trade agreement administration.

 

Key Trade Agreement Management Capabilities

•     Rules of Origin Management—Intuitively manage complex rules of origin for global free trade agreements in a consistent manner.

 

•     Trade Agreement Content Packs—Update and add new free trade agreement rules of origin without new software though Global Knowledge content plug-ins.

 

•     Bills of Material Modeling—Store master global trade attributes for bills-of-materials, including the structural hierarchical of a manufactured part with infinite sub-assemblies.

 

•     Bills of Material Qualification—Perform in depth processing of all potential rules of origin and instantly determine if manufactured parts qualify under free trade agreements.

 

•     Ad-hoc Qualification—Quickly construct a qualification transaction and run one-off rules of origin calculations for “what if” analyses.

 

•     Supplier Solicitation Campaigns—Determine if goods are eligible for a given free trade agreement based on their Harmonized Schedule (HS) classification and source country, and solicit suppliers for product information and certificates of origin.

 

•     Certificate Management—Issue and manage trade agreement claims as open contracts over time and amend them with an audit trail.

 

•     Certificate Requests—Quickly and easily respond to free trade agreement certificate requests from customers.

 

•     Reporting—Create, generate, and distribute reports.

 

Benefits

   

•     Improved supplier solicitation efficiency

 

•     Improved qualification efficiency

 

•     Improved processing efficiency

 

•     Improved customer service and price management for exports

 

•     Reduced customs duties

Professional Services. Our global professional services team encompasses subject matter experts, information technology professionals and project managers who implement our solution. These consultants have years of experience implementing enterprise solutions, and expertise with a wide range of customers, industries and industry-standard applications and integration technologies. Our professional services cover four areas:

 

    Assessment—We review customers’ business processes on a project and an ongoing basis to discover opportunities for automation.

 

    Implementation—We deploy our solution with a proven methodology focused on best practices and create thorough documentation to facilitate training, support and upgrades.

 

    Education and Training—We train users to ensure proper compliance and efficiency, including sessions for end users, solution administrators and technical operators.

 

    Maintenance and Support—We provide production support 24 hours per day, 365 days per year for any critical issues, and regular solution upgrades.

We provide our professional services pursuant to a professional service agreement and a related statement of work. In most cases, we bill professional services on a time and expense basis. The length of time and cost to implement our GTM solution depends on many factors, including the number of modules being implemented, the scope of the deployment, the complexity of our customer’s environment and the availability of customer

 

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resources. We can implement entry level configurations for basic GTM modules in several weeks, whereas large scale, enterprise deployments of the GTM suite typically require several months or longer.

For the years ended December 31, 2011, 2012 and 2013, revenue from professional services accounted for 23%, 25% and 26%, respectively, of our total revenue, with the remainder representing subscription revenue.

Our Customers

In 2011, 2012 and 2013, our solution served 351, 399 and 463 customers, respectively. Our customers are headquartered primarily in the United States and Europe, with users in more than 80 countries, conducting trade across 125 countries. Of our 463 customers in 2013, 172 were multi-national enterprise customers with annual revenues of more than $1 billion, and 291 were mid-market customers, with annual revenues that we believe are less than $1 billion. In each of 2012 and 2013, our average revenue from enterprise customers was approximately $265,000 and our average revenue from mid-market customers was approximately $25,000.

We charge our customers an annual subscription fee for our solution regardless of delivery model. Subscription fees include support and access to all new versions of our solution.

The average term of our current customers’ initial agreement with us is approximately 4.0 and 3.5 years for our enterprise and mid-market customers, respectively, excluding our EasyCargo customers. Our customers typically pay us an annual subscription fee at the start of each contract year. The subscription fee is fixed for the term of the agreement, and typically is based on expected transaction volumes, such as the number of annual shipments or import entries. To the extent that a customer exceeds contracted maximum transaction volumes, they incur per transaction fees. This pricing structure allows us to sell more affordable, entry-level configurations to customers with fewer needs, as well as sophisticated configurations to enterprise customers with greater needs. The subscription fees typically begin the first month following contract execution, whether or not we have completed the solution’s implementation, and our subscription agreements may typically only be terminated for cause. Generally, we charge for professional services to implement our solution on a time and materials basis.

In 2013, one customer accounted for 11.6% of our total revenue and no other customer accounted for more than 10% individually. We believe we have no revenue concentration in any industry vertical. In the years ended December 31 2011, 2012 and 2013, our percentage of revenue generated from customers headquartered outside of the United States was 8.9%, 8.9% and 11%, respectively. For each of our fiscal years ended December 31, 2011, 2012 and 2013, our recurring revenue retention was 102%.

 

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The following table contains a list of current customers that we believe to be representative of our customer base at large because it includes both enterprise and mid-market customers. The contribution to our revenue in 2013 of these enterprise customers was generally more than $100,000, and the contribution to revenue in 2013 of these mid-market customers was more than $100,000 at the high end of the mid-market customer range.

 

     

Adisseo Life Science

(Shanghai) Co., Ltd.

 

Agilent Technologies, Inc.

 

Allied Electronics, Inc.

     
America Fujikura Ltd.  

Archer Management (US) LLC

 

Ascend Performance Materials LLC

     
Astronics Corporation  

Bunzl Distribution USA Inc.

 

Envirofit International

     
F5 Networks, Inc.  

Flame Enterprises, Inc.

 

Flextronics International, Ltd.

     

Garmin International, Inc.

 

GE Healthcare

 

Infineon Technologies AG

     
iRobot Corp.   Kamex Ltd.   Leggett & Platt Inc.
     
Monsanto Company  

New York University

 

OSRAM GmbH

     

Pacer International

Logistics

 

Segway Inc.

 

The Sherwin-Williams Company

     

Tyco International Management

Company

 

University of Miami

  Varian Medical Systems (China) Co., Ltd.
     
Wal-Mart Stores, Inc.  

Weatherford International, Inc.

 

Wesco Aircraft Hardware Corp.

Customer Case Studies

The following are examples of how some of our customers have benefited from deployments of our solution.

GE Healthcare

GE Healthcare is a multi-billion dollar corporation, and a part of the General Electric portfolio that provides transformational medical technologies and services to improve patient care. The company specializes in medical imaging, medical diagnostics, clinical systems, patient monitoring systems and biopharmaceutical manufacturing technologies. GE Healthcare operates in every region around the globe and has tens of thousands of employees serving the industry in more than 100 countries. GE Healthcare has been a customer since 2004.

GE Healthcare has a complex supply chain with products shipping around the globe, crossing multiple international borders and subject to the national and regional regulatory requirements. GE Healthcare sought a unified solution to automate the end-to-end import and export processes and centralize compliance across its global supply chain. Through the utilization of our Global Trade Management software solutions, GE Healthcare has integrated a common and unified global trade compliance process across its business units.

Challenges

 

    Complex global supply chain spanning multiple international borders, time zones and regulatory environments.

 

    Global trade management operations were fragmented and difficult to manage.

 

    Sought a unified solution to automate the end-to-end process and centralize import and export operational compliance.

 

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Our Solution

 

    Global Trade Management: Product Classification, Restricted Party Screening, Order to Shipment Export and Import Compliance Screening, Export Document Generation with multi-language support.

Results

 

    Automated centralized & unified solution for global trade management.

 

    Integrated with 5 enterprise resource planning systems, across 53 countries spanning 346 shipping organizations.

 

    Improved order workflow visibility.

 

    Reduction of risks through increased accuracy of product classification and documentation in the fulfillment of international orders.

Infineon Technologies AG

Infineon Technologies AG, Neubiberg, Germany, offers semiconductor and system solutions addressing three central challenges to modern society: energy efficiency, mobility, and security. In the 2012 fiscal year (ending September 30), the company reported sales of €3.9 billion with close to 26,700 employees worldwide. With a global presence, Infineon operates through its subsidiaries in the United States, Singapore, and Japan.

Infineon has deployed our Global Trade Export Management module globally and has been a customer since 2009. As a manufacturer of sophisticated semiconductors and system solutions, Infineon must adhere to export control laws and regulations including sanction programs of the European Community, Germany, Malaysia, Singapore, the United States and each country in its global operations. Prior to implementing our Trade Export module, Infineon was utilizing an in house solution to manage and assure compliance. With the implementation of our solution, Infineon was able to seamlessly replace the former solution for its global shipments.

Challenges

 

    Manufacturer of highly controlled products with complex national, regional and international controls.

 

    Multiple systems and processes spanning global operations with main regional headquarters in Germany, the United States, Singapore and Tokyo.

Our Solution

 

    Trade Export: Export Compliance, Product Classification, License Determination, License Tracking, Restricted Party Screening, Integration in Order Processing System.

 

    Trade Wizards: Classification, regulation reference, landed cost for new and emerging markets.

 

    End-Use-Manager: Collection of End-Use information for Sales Order and other processes.

Results

 

    Improved efficiencies with automated global control system for international trade regulations.

 

    Enhanced and faster research for multi-national trade regulations.

 

    Streamlined work-flows for exception handling and resolution.

Leggett & Platt Inc.

Leggett & Platt is a diversified S&P 500 manufacturer that conceives, designs and produces a broad variety of engineered components and products for customers worldwide. Its products can be found in virtually every home, office, retail store, and automobile. The 130-year-old firm is composed of 20 business units and 18,000 employee-partners, and operates more than 130 facilities located in 18 countries. Leggett & Platt has been a customer since 2004.

Leggett & Platt first deployed our global trade management solutions almost a decade ago with the goal of improving supplier collaboration, reducing procurement cycle times and reducing compliance risk. The

 

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company now enjoys rich and timely collaboration with over 250 global suppliers via our cloud-based supplier portal. It has also centralized and streamlined its global trade compliance processes. Our solution has enabled Leggett & Platt to estimate more timely and accurate landed costs, better allocate working capital, decrease its import entry and storage costs and establish and monitor supplier key performance indicators.

Challenges

 

    Previously suppliers were not evaluated nor chosen in a centralized, standard manner.

 

    Trade compliance practices were decentralized.

 

    Access to real time production milestones was minimal.

 

    Supplier level delivery and quality management was not consistent.

Our Solution

 

    Trade Import: Import Compliance, Document Generation, Landed Cost Calculation, Restricted Party Screening.

 

    Supplier Management: Foreign supplier collaboration and performance monitoring.

Results

 

    Realized considerable product cost savings on import process.

 

    Helped integrate over 100 facilities into one unified international purchasing system.

 

    Improved shipment visibility.

 

    Reduced broker errors significantly.

Monsanto Company

Monsanto is a leading global provider of agricultural products for farmers. The company’s seeds, biotechnology trait products, herbicides and Ag Productivity products provide farmers with solutions that improve productivity, reduce the costs of farming, and produce better foods for consumers and better feed for animals. The company has 21,000 employees, 404 facilities and does business in over 66 countries. Monsanto has been a customer since 2011.

Faced with growing demand for its products around the world, atop the ever changing mix of government regulations, Monsanto wanted to streamline its global trade operations. By deploying our suite of global trade management modules, the company is now able to manage its shipments across numerous strategic checkpoints along the global supply chain. The result is improved shipment visibility and control, which ultimately provides better customer service. Monsanto has standardized and is optimizing its trade processes, resulting in enhanced process management and throughput.

Challenges

 

    Rising global demand for products.

 

    Regional, compartmentalized government agencies without formal, real-time and consistent sources of import / export trade data.

 

    Need for time-critical shipments to sustain global operations and customer demand.

 

    Globally applicable, single IT standard for trade.

 

    Trading partner optimization and system to system connectivity.

Our Solution

 

    Supply Chain Visibility: Shipment Tracking, Alerts, Partner Collaboration.

 

    Trade Export: Export Compliance, Document Generation, Electronic Filing, License Determination, Restricted Party Screening.

 

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    Trade Import: Import Compliance, Document Generation, Landed Cost Calculation, Restricted Party Screening.

 

    Transportation Management: Rate Search, Carrier Booking, Contract Management, Freight Audit.

Intended Results

 

    Enhanced speed by mitigating cycle time waste.

 

    Supply chain partner performance analytics.

 

    Process standardization and simplification.

 

    Removing non-value added supply chain complexity.

The Sherwin-Williams Company

The Sherwin-Williams Company is engaged in the development, manufacturing, distribution and sale of paint, coatings and related products to professional, industrial, commercial and retail customers around the world. The Sherwin-Williams Company has been a customer since 2011.

Sherwin-Williams’ export business is a significant part of its sales and marketing strategy. Our Trade Export module enables Sherwin Williams to significantly improve export order processing cycle times and increase efficiencies. Our automated solution also enables Sherwin Williams to validate and screen each product, partner, order, and shipment according to the application of export regulations to its international business.

Challenges

 

    Growing international business and complexity of export compliance required many manual checks and steps in order processing and product controls.

 

    International order processing complexity of document creation and trade export validation identified as key area for process improvement.

Our Solution

 

    Trade Export: License Determination, Product Validation, Document Generation and Distribution, Automated Export System Filing, Shipment Consolidation, Denied Party Screening.

 

    Using our solution since March 2012.

Results

 

    Significantly streamlined international order processing.

 

    Automated documentation, screening and export controls.

 

    Greatly enhanced internal reporting, controls, and business processes.

Sales and Marketing

Our marketing team consisted of 14 professionals as of December 31, 2013. The team primarily focuses on lead generation for our sales force, and also dedicates an increasing amount of time to branding. Our marketing activities consist of email campaigns, search engine optimization and marketing, webinars, seminars and sponsored campaigns with trade journals. We focus heavily on marketing analytics enabled by automated tools that allow us to track prospects and funnel them from initial contact to qualified lead and finally to our sales force.

We sell our solution through a direct sales force. We have outside sales teams comprised of sales directors and technical specialists across the United States and Europe who sell to enterprise customers. These teams consisted of 28 professionals as of December 31, 2013. We also employ inside sales persons and technical specialists who target mid-market companies in the United States. This team consisted of 14 professionals as of December 31, 2013. While traditionally we sold our solution through contact with mid-level executives focused on compliance or the supply chain, the rising importance of global trade and GTM automation has enabled us to sell our solution increasingly to senior executives.

 

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Competition

The market for GTM automation solutions is competitive, rapidly evolving, and subject to shifts in technology and customer needs. While we do not believe that any specific competitor offers the breadth of capabilities that we do, we compete with three types of organizations:

Enterprise Resource Planning Vendors. We compete with the large, enterprise resource planning software companies such as Oracle Corporation and SAP AG. These companies are extremely well financed, have prominent brands, and have extensive coverage of the enterprise software market across business functions. In many cases, they have entrenched relationships with the IT departments of our current and prospective customers. We compete with these organizations by:

 

    providing greater subject matter expertise throughout the sales cycle;

 

    demonstrating our superior solution capabilities and breadth;

 

    providing a lower total cost of ownership by delivering a complete solution, including trade content and a global trading partner network, as compared to acquiring these capabilities from separate vendors;

 

    aligning our interests with those of our customers by charging them a recurring subscription fee for recurring value, rather than a large, up-front licensing fee; and

 

    providing quick time to value by deploying under a SaaS model.

GTM Vendors. We also compete with focused GTM vendors. These vendors provide one or more functions including import management, export management, trade content, supply chain visibility, or free trade agreement management. They generally do not have the solution breadth that we provide, but may have superior capabilities in the functions they provide and they may have lower pricing than we do. We compete with these organizations by:

 

    demonstrating our superior solution breadth and selling our GTM suite; and

 

    delivering a complete offering, that provides a lower total cost of ownership than acquiring all needed capabilities from separate vendors.

Service Providers. To a much lesser extent, we compete with service firms including large freight forwarders. This occurs when companies outsource a particular GTM function such as license management or classification to service firms who generally perform these functions manually. In many cases, we work with these service providers rather than competing with them. For example, they may provide their services by working with our GTM solution on behalf of mutual customers. We compete with these organizations by demonstrating the superior return on investment attainable through higher levels of automation compared to the service providers’ more manual approach.

Research and Development

Our success to date, and our growth strategy for the future, rely on advancing the state of the art of GTM automation. Presently, more than 60% of our worldwide employees are dedicated to the development and maintenance of our GTM solution. Accordingly, we will continue to devote substantial resources to the following functions to help us to remain a leader in global trade management:

Solution Management. As of December 31, 2013, we had 16 full time employees in our solution management group responsible for assessing the state of the GTM market through industry research and discussions with current and prospective customers in order to develop our strategy and roadmap for our GTM solution.

Engineering. As of December 31, 2013, we had 170 full time software engineers dedicated to maintaining and building the next generation of our solution. The majority of our engineers reside in Bangalore, India and many of them have domain expertise in the GTM field.

Trade Content Development. As of December 31, 2013, we had 85 trade specialists responsible for updating our trade content on a daily basis according to an ISO 9001:2008 certified process. Our trade specialists, many

 

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of whom hold advanced degrees, work with trade content in more than 20 languages. In addition, we use in-country agents to source content in foreign countries and interface with government officials, as required. In 2012, our trade specialists updated more than 13 million records with regulatory changes. The expense of maintaining our trade content is included in our cost of revenue.

In the years ended December 31, 2011, 2012 and 2013, our total expenses on research and development were $5.9 million, $5.8 million and $7.9 million, respectively.

Technology

Enterprise Technology Framework

Our solution is based on our Enterprise Technology Framework, a proprietary technology developed by our employees. Our Enterprise Technology Framework includes application programming interfaces, web-based development tools, run-time engines that execute meta-data components, and a comprehensive set of administrative features that combine to provide a unified technology architecture and user experience.

Our Enterprise Technology Framework is capable of delivering our solution over the Internet using a SaaS model, and can be configured as a multi-tenant environment that permits different customers to share a common operating environment while protecting them from unauthorized access to each other’s applications and data. For customers who require physical segregation of their applications and data from those of other customers, our Enterprise Technology Framework is also capable of delivering our solution in a separate-instance configuration through dedicated servers in our data center or on the customer’s premises.

Regardless of the deployment method, our customers retain the ability to uniquely configure our solution and determine how data is shared or segregated among their operating groups, with the potential to provide each operating group a customized view of our solution optimized for the business processes they execute.

The most important capability of our Enterprise Technology Framework to our customers, and the most difficult technical problem that it solves, is permitting our professional services organization to configure our solution during implementation in a manner that separates customer-specific configurations from our core application, allowing our customers to upgrade to new versions of our solution while retaining their configurations and avoiding the need for re-implementation.

Data Center Operations

We host our GTM solution for our cloud delivery model customers in highly secure co-location facilities located in Jacksonville, Florida and Carlstadt, New Jersey. These facilities are protected by state-of-the art physical security features, heating and cooling systems, and redundant, uninterruptible power systems that can provide power for 20 to 30 days without refueling. They are staffed and designed to be operational 24 hours per day, 365 days per year. Our equipment is located in a portion of the data centers that is dedicated to our use and securely separated from other tenants of the data centers. Our lease with the Jacksonville data center expires on October 31, 2014, and our lease with the Carlstadt data center expires on July 2014, subject to automatic renewal for additional one year terms.

We own or lease all of the equipment that provides our solution, and our employees manage all of the hardware, software, databases, data backup, security and local network hardware necessary to provide our solution. Our network infrastructure features redundant load balanced Internet connections provided by diverse internet service providers. We perform data backups in accordance with industry custom, including real time database backups. Our Carlstadt facility serves as a backup co-location facility to provide continuity of services in case of a catastrophe affecting our Jacksonville co-location facility. We conduct disaster recovery tests annually and are capable of bringing our solution online following any catastrophe.

Multiple layers of security protect our solution from malicious external activity (cyber attacks). We monitor the integrity and availability of our solution in real time and hire third party consultants to audit the security of our information technology systems quarterly, and conduct application and network vulnerability testing annually. We utilize licensed and certified third parties to review our operating controls and information systems. We maintain certifications through independent audit reviews for SSAE 16, SOC 1 Type II, and SOC 2 for the “Security” and “Confidentiality” principles and receive attestations of compliance with these standards.

 

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We host our CTM solution for customers of our EasyCargo subsidiary at a highly secure co-location facility in Shanghai, China. It is designed for high availability and continuity of service in the case of a catastrophe.

Intellectual Property

We rely upon a combination of trade secrets, copyright and trademark law, as well as contractual restrictions such as confidentiality agreements, to establish and protect our proprietary rights. We have a number of registered and unregistered trademarks and no pending patent applications or issued patents. We maintain a policy requiring our employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements before developing or accessing our software, documentation and other proprietary information, as applicable. We believe that our experience in the market, our significant research and development investments, and our flexible Enterprise Technology Framework will help us to maintain our leadership position in GTM automation.

Despite our efforts to protect our proprietary rights, unauthorized parties may misappropriate our technology to develop a competing solution. Policing unauthorized use of our technology is difficult and the laws of other countries in which sell our solution may offer little or no effective protection for our technology. Our competitors could also independently develop technologies equivalent to ours, and without patent protection for our intellectual property, we would not be able to restrict them from selling their solution. Despite the potential competition for GTM technology, our Global Knowledge trade content library represents a significant barrier to any competitor seeking to offer a comprehensive GTM solution.

Employees

As of December 31, 2013, we employed 505 people, including 186 dedicated to building and testing our solution, 100 in Global Knowledge and hosting, 97 in professional services, 33 in customer support, 56 in sales and marketing and 33 in general, administrative and IT capacities. As of such date, we had 204 employees in the United States and 301 employees in international locations. We also utilize a number of contract employees. In September 2013, we added approximately 40 professionals through our acquisition of EasyCargo. None of our employees are represented by a labor union with respect to his or her employment with us, we have not experienced any work stoppages, and we consider our relations with our employees to be good.

Facilities

Our corporate headquarters is located in East Rutherford, New Jersey and consists of approximately 11,000 square feet of office space under a lease that expires in January 2017. Our headquarters accommodates our principal administrative activities. Our European headquarters are in Munich, Germany and consist of approximately 1,800 square feet. We also occupy space in McLean, Virginia, consisting of approximately 26,000 square feet under a lease that expires in August 2022 and space in Cary, North Carolina, consisting of approximately 10,000 square feet under a lease that expires in October 2015. In addition, we occupy space in Bangalore, India consisting of approximately 22,000 square feet under a lease that expires in October 2015. We are terminating this lease effective April 2014 in order to occupy a new space consisting of approximately 30,000 square feet under a lease expiring January 2020. In connection with our recent acquisition of EasyCargo, we acquired access to space in Shanghai, China consisting of approximately 7,000 square feet pursuant to a lease expiring in August, 2015. We use all of these facilities primarily for sales, professional services, customer support and software engineering. We do not own any real property. We believe that our current facilities are suitable and adequate to meet our current needs. We intend to add new facilities or expand existing facilities as we add employees, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.

Corporate Information

We are a Delaware corporation originally incorporated in 1984. Our original business involved activities unrelated to GTM and we have conducted our GTM automation business since 2002. Our corporate headquarters are located at One Meadowlands Plaza, East Rutherford, NJ 07073 and our telephone number is (201) 935-8588. We maintain a website at www.amberroad.com. Information contained on or linked to our website is not a part of this prospectus. Upon completion of the offering, we will be required to file annual,

 

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quarterly and current reports, proxy statements and other information with the SEC. Upon completion of this offering, you may access these materials free of charge on our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.

Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the normal course of our business. We are not presently involved in any litigation the outcome of which, we believe, if determined adversely to us, would have a material adverse effect on our business, operating results, cash flows or financial condition. Defending such proceedings would be costly and can impose a significant burden on management and employees, and there can be no assurances that we will obtain favorable outcomes in them.

Industry and Market Data

Unless otherwise indicated, information in this prospectus about our industry and the market in which we operate, including our general expectations and market position, market opportunity and market size is based on information from various sources, including independent industry publications by the U.S. Department of Commerce and the European Union’s Eurostat, and a survey and a study that we commissioned from SCM World and ARC Advisory Group, Inc., respectively. We have also made assumptions and estimates based on such data and other similar sources, as well as on our knowledge of our industry and the markets for our applications. We caution you not to give undue weight to such information. Although neither we nor the underwriters have independently verified the accuracy or completeness of any third-party information, we believe the market position, market opportunity and market size information included in this prospectus is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the “Risk Factors” section. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

Certain information in this prospectus is contained in the following industry publications:

 

  1. In July 2012, the European Union’s Eurostat system published a report discussing the development of international trade in the region. The report includes the European Union’s share of world imports and exports, its main trading partners and its most widely traded product categories.

 

  2. In April 2013, the U.S. Census Bureau, Department of Commerce released a report titled “A Profile of Importing and Exporting Companies 2010–2011.” The report analyzes the volume of import and export transactions conducted by U.S. companies and the value of those transactions from 2010 to 2011. The report provides further analysis based on a variety of factors including industry, market size and number of countries involved.

 

  3. In June 2013, we commissioned Rapture World Limited, the owner of SCM World and a recognized provider of supply chain related business information, to conduct a survey of over 100 supply chain and operations leaders whose businesses were engaged in global trade. The demographics of the companies surveyed were representative of our target markets and the objectives of the survey were to (a) quantify the significance of global trade with company strategy, (b) understand the specific challenges facing companies engaged in global trade, and (c) assess the abilities of the companies to respond to these challenges. SCM World expects to publish a whitepaper containing the survey statistics that we have referred to in this prospectus in 2013.

 

  4. In June 2013, we commissioned ARC Advisory Group, Inc. (“ARC”), a recognized technology research and advisory firm for industry and infrastructure, to determine the market size and current penetration level of the shipping sector of the GTM market. The ARC study estimated that the size of the worldwide market for GTM solutions is more than $6 billion on an annually recurring basis.

 

  5. In July 2013, the Congressional Research Service published a report titled “China’s Economic Rise: History, Trends, Challenges, and Implications for the United States.” The report evaluates the status of the Chinese economy from the time prior to the introduction of economic reforms in 1979 through 2012 and notes that China is currently the second-largest economy after the United States, and could become the largest economy in the world within the next five years.

 

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MANAGEMENT

Executive Officers and Directors

The following table sets forth information, as of February 1, 2014, with respect to those individuals who currently serve, and are expected to continue to serve, as our executive officers and members of our board of directors.

 

Name

  Age     

Position

     Executive Officers

James W. Preuninger

    54       Chief Executive Officer and Director

John W. Preuninger

    54       President, Chief Operating Officer and Director

Ty Y. Bordner

    49       Vice President, Solutions Consulting

Elliot Brecher

    48       General Counsel and Secretary

M. Scott Byrnes

    45       Vice President, Marketing

Kae-por F. Chang

    53       Managing Director, China

Thomas E. Conway

    46       Chief Financial Officer

Albert C. Cooke III

    53       Vice President, Global Sales

Glenn T. Gorman

    53       Chief Information Officer

J. Anthony Hardenburgh

    43       Vice President, Global Trade Content

William R. Jackowski

    47       Vice President, Professional Services

Stephanie J. Miles

    45       Senior Vice President, Commercial Services

Amish Sheth

    43       Vice President, Engineering
     Non-employee Directors

Donald R. Caldwell

    67       Director

Pamela F. Craven

    60       Director Designee*

Kenneth M. Harvey

    53       Director

Rudy C. Howard

    56       Director

John Malone

    52       Director Designee*

Barry M. V. Williams

    67       Director

 

* Expected to assume office as an independent director upon the completion of this offering.

Executive Officers

Each executive officer serves at the discretion of the board of directors and holds office until his or her successor is elected and qualified or until his or her earlier resignation or removal. The following are biographies of our executive officers:

James W. Preuninger. Mr. Preuninger is a co-founder of our company and has served as Chief Executive Officer and a member of our board of directors since 2002. As Chief Executive Officer, Mr. Preuninger oversees sales and marketing, finance, data center operations, general and administrative staff, corporate development and is responsible for opening new markets and expanding our portfolio of solutions through strategic partnerships and acquisitions. Mr. Preuninger began his career at IBM Corporation, where he held several positions in sales and marketing. We believe Mr. Preuninger’s background as a co-founder of our company and long service as our Chief Executive Officer provides the board with invaluable insight into the inner workings of our company, enhances the efficiency of the board’s oversight function and qualifies him to serve on our board of directors. Mr. Preuninger is the brother of John W. Preuninger, our President, Chief Operating Officer and director.

John W. Preuninger. Mr. Preuninger is a co-founder of our company and has served as our President, Chief Operating Officer and a member of our board of directors since 2002. As President and Chief Operating Officer, he oversees internal processes for us including research and development, professional services, and customer support. Prior to joining us, Mr. Preuninger was a strategy consultant at Monitor Company, where he advised large, multi-national corporations on business strategy and execution. We believe Mr. Preuninger’s background as a co-founder of our company and long service as our President and Chief Operating Officer provides the board

 

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with invaluable insight into the inner workings of our company, enhances the efficiency of the board’s oversight function and qualifies him to serve on our board of directors. Mr. Preuninger is the brother of James W. Preuninger, our Chief Executive Officer and director.

Ty Y. Bordner. Mr. Bordner is our Vice President, Solutions Consulting, and has served in that position since 2006. He is responsible for both product strategy and direction, as well as customer and prospect-focused solutions. Prior to joining us in 2006, Mr. Bordner spent 10 years with JPMorgan Chase Vastera, a global trade management software and managed services provider, in various leadership roles, including oversight for Engineering, Solutions Consulting and Product Management. During his tenure he helped manage the company through multiple growth stages from startup, through initial public offering, to achieving annual revenues in excess of $80 million. Prior to joining JP Morgan Chase Vastera, Mr. Bordner worked for GXS (formerly GE Information Services).

Elliot Brecher. Mr. Brecher has served as our General Counsel and Secretary since 2013. He was previously Senior Vice President and General Counsel of Insight Communications Company, Inc., a mid-west based cable operator, from 2000 until its sale to Time Warner Cable, Inc. in 2012. From 1994 until joining Insight, he was associated with the law firm Cooperman Levitt Winikoff Lester & Newman, P.C., where Mr. Brecher became a partner in 1996. This firm became part of Sonnenschein Nath & Rosenthal, LLP by merger in 2000. Prior to that, he was associated with the law firm Rosenman & Colin LLP.

M. Scott Byrnes. Mr. Byrnes has served as our Vice President, Marketing since 2010. From 2008 until 2010, Mr. Byrnes held the position of Executive Vice President at The Walker Group, a strategic marketing consultancy based in Washington, DC. Prior to that, Mr. Byrnes was Vice President of Marketing for HandySoft, a provider of BPM software. Mr. Byrnes also spent four years at JPMorgan Chase Vastera and approximately five years at Manugistics, where he held a variety of leadership positions in both services and sales. He began his career with Andersen Consulting, now Accenture.

Kae-por Chang. Mr. Chang has served as the Managing Director, China, of EasyCargo since 2013. From 2007 until September 2013, Mr. Chang was the founder and CEO of EasyCargo, which we acquired in 2013. Mr. Chang has over 20 years of senior management experience in global supply chain management, logistics, distribution, IT, and regulatory compliance, as an executive of both public and private companies. He was also an Ernst & Young LLP consultant prior to founding EasyCargo.

Thomas E. Conway. Mr. Conway is our Chief Financial Officer, a position he has held since 2007. He previously served as Assistant Corporate Controller and Director of North American Accounting Operations at Cognizant Technology Solutions, an information technology company. Prior to joining Cognizant, Mr. Conway worked for seven years at JDS Uniphase, a fiber optic component and systems provider, where he served as Controller and Director of Finance, and nine years at KPMG LLP, where he was Senior Manager in the Communication and Entertainment audit and consulting practice. Mr. Conway is a certified public accountant and a member of the American Institute of Certified Public Accountants and the New Jersey Society of Certified Public Accountants.

Albert C. Cooke III. Mr. Cooke is our Vice President, Global Sales, a position he has held since 2005. He is responsible for the global sales of our solutions to importers, exporters and logistics service providers. Prior to joining us, Mr. Cooke was vice president of products and solutions for Industri-Matematik International Corp. (IMI), a leading provider of order management software. Prior to working at IMI, Mr. Cooke held senior sales and operational roles at Adexa, Optum, and Russ Berrie & Company.

Glenn T. Gorman. Mr. Gorman serves as our Chief Information Officer, a position he has held since 2002. Mr. Gorman is responsible for setting our technology policy and managing the hosting operations, information technology and quality assurance departments. Prior to joining us, Mr. Gorman held various positions including that of Systems Engineer and Operational Specialist for IBM Corporation from 1984 until 1986, where he served as a liaison between field support and IBM’s development laboratories.

J. Anthony Hardenburgh. Mr. Hardenburgh has been our Vice President, Global Trade Content since 2007. He manages a global team of international trade professionals who monitor and maintain our trade content. Prior to joining us, Mr. Hardenburgh served as Vice President of Global Trade Content for JPMorgan Chase

 

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Vastera, where he managed a global team of trade professionals responsible for supporting both its software and managed services operations. Mr. Hardenburgh also served as a director for From2, a company engaged in global trade management software, and as an International Trade Specialist for the U.S. Department of Commerce, where he was responsible for counseling small- and medium-sized exporters.

William R. Jackowski. Mr. Jackowski is our Vice President, Professional Services, a position he has held since 2006. In this position, Mr. Jackowski manages a team of experienced consultants specializing in the implementation of our solutions. Prior to joining us, Mr. Jackowski served as Vice President of Global Professional Services for JPMorgan Chase Vastera, where he oversaw strategic software accounts and helped grow that company’s professional services organization across North America, Europe and South America. Previously, Mr. Jackowski held several management and consulting positions with large consulting organizations such as American Management Systems (AMS) and PeopleSoft.

Stephanie J. Miles. Ms. Miles is our Senior Vice President, Commercial Services, a position she has held since 2005, Ms. Miles leads our support team for the delivery, implementation and ongoing support services relating to our GTM solutions. Until February 2013, her position also encompassed leadership of our professional services team. Prior to joining us, Ms. Miles held various leadership positions with the supply chain visibility company BridgePoint, a subsidiary of CSX Corporation, for seven years. While at BridgePoint, she held the positions of Senior Vice President and General Manager, and also served as a board member.

Amish Sheth. Mr. Sheth has been our Vice President, Engineering since 2008, a position in which he is responsible for building and delivering our suite of enterprise software solutions. Before assuming his current role, Mr. Sheth served as Chief Software Architect and Managing Director of our Indian operations since 2007. Prior to joining us, Mr. Sheth served in various roles at JPMorgan Chase Vastera, in which he managed the development and delivery of various GTM solutions and was instrumental in defining the architectural platform that allowed JPMorgan Chase Vastera to build, support and customize its product development and managed services solutions on a single platform.

Board of Directors

Our board of directors currently consists of eight members: John W. Preuninger, James W. Preuninger, Donald R. Caldwell, Bernard M. Goldsmith, Kenneth M. Harvey, Rudy C. Howard, Antoine Munfa and Barry M.V. Williams. Pursuant to our certificate of incorporation as currently in effect, holders of a majority of the outstanding shares of each of our Series A, B and E Preferred Stock are entitled to elect one director to our board of directors, for as long as at least 10% of that series of preferred stock remains issued and outstanding. Currently, Messrs. Caldwell, Goldsmith and Munfa serve as the directors elected by the holders of our Series A, B and E preferred stock, respectively. In addition, holders of a majority of our common stock are currently entitled to elect two directors to our board of directors. Under our 2010 shareholder agreement, Messrs. James and John Preuninger hold such right. The remaining three directors are elected by holders of a majority of the outstanding shares of our preferred stock and holders of a majority of the outstanding shares of our common stock, each voting as a separate class.

All currently outstanding shares of convertible preferred stock will be converted automatically into common stock immediately prior to the closing of this offering, and we will adopt an amended and restated certificate of incorporation, which we refer to as our certificate of incorporation in this prospectus.

Of our currently serving directors, Messrs. James and John Preuninger, Caldwell, Harvey, Howard and Williams are currently expected to continue to serve as directors upon completion of this offering. In addition, we currently expect that Ms. Pamela F. Craven and Mr. John Malone will be appointed to our board to replace Messrs. Goldsmith and Munfa effective upon closing of this offering.

 

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In accordance with our certificate of incorporation that will be effective upon closing of this offering, our board of directors will be divided into three classes with staggered three year terms, effective upon closing of this offering. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. Upon completion of this offering, our then-serving directors will be divided among the three classes as follows:

 

    Messrs. Preuninger, Preuninger and Harvey will be the Class I directors whose terms end in 2015, and will stand for election at the 2015 annual meeting for three-year terms ending in 2018;

 

    Messrs. Caldwell and Malone will be the Class II directors whose terms end in 2016, and will stand for election at the 2016 annual meeting for three-year terms ending in 2019; and

 

    Ms. Craven and Messrs. Howard and Williams will be the Class III directors whose terms end in 2017, and will stand for election at the 2017 annual meeting for three-year terms ending in 2020.

Pursuant to our certificate of incorporation, only our board of directors will be able to fill vacancies on our board of directors until the next succeeding annual meeting of stockholders. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.

There are no family relationships among any of our directors and executive officers, except that John W. Preuninger is the brother of James W. Preuninger.

Following are the biographies of our directors and director designees, with the exception of Messrs. James and John Preuninger, whose biographies appear above, and Messrs. Goldsmith and Munfa, who are not expected to continue to serve as directors after completion of this offering:

Donald R. Caldwell. Mr. Caldwell has served as our director since 2005. Since 1999, Mr. Caldwell has been chairman and chief executive officer of Cross Atlantic Capital Partners, Inc., a venture capital firm. Cross Atlantic Capital Partners, Inc. serves as investment manager for three affiliated funds beneficially owning an aggregate of approximately 35.2% of our outstanding capital stock prior to the offering. Mr. Caldwell currently serves on the boards of director of four public companies: InsPro Technologies Corporation since 2008, where he is serving as chairman of the board, chairman of the audit committee and member of the compensation committee, Lightning Gaming, Inc. since 2006, where he has served as chairman of the audit committee and member of the compensation committee, Quaker Chemical Corporation since 1997, where he has served as chairman of the executive committee and member of the compensation/management development and audit committees, and Rubicon Technology, Inc. since 2001, where he has served as chairman of the compensation committee and member of the nominating and governance committees. Mr. Caldwell was previously a member of the board of directors of Diamond Cluster International, Inc. (1994–2010) and has served as a director for several private companies and non-profit organizations, including software and money management firms as well as the Pennsylvania Academy of the Fine Arts and the Committee for Economic Development. Mr. Caldwell was previously a certified public accountant in the State of New York. We believe Mr. Caldwell’s extensive experience as a director of public companies and as long-time chairman and chief executive officer of Cross Atlantic Capital Partners, Inc. qualifies him to serve on our board of directors.

Pamela F. Craven. Ms. Craven is anticipated to assume service as a director upon the completion of this offering. Since 2000, Ms. Craven has served as General Counsel of Avaya Inc., a global organization develops, manufactures, sells and services communications products and software for enterprises. Since 2007, she has also served as Chief Administrative Officer of the organization, responsible for over 300 employees across functions including Internal Audit, Enterprise Risk Management, Security & Business Continuity, Board Governance and Administration, Human Resources, Real Estate, Compliance, Global Trade, Government Affairs and Law & Contracting. She also serves as member of the Avaya Executive Committee and Chief Compliance Officer. From 1995 to 1999 Ms. Craven served as Vice President, Law of Lucent Technologies Inc. and from 1999 until 2000 she also served as Secretary of Lucent. Ms. Craven previously served on the boards of directors of Avaya Inc. Global Connect, Ltd. (2009–2010), a publicly traded Indian company, and Avaya-

 

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Tenovis GmbH (2004–2006). She is currently active on the Penn Law Board of Overseers of the University of Pennsylvania Law School. We believe Ms. Craven’s background as an executive in the fields of law and business administration qualifies her to serve on our board of directors.

Kenneth M. Harvey. Mr. Harvey has served as our director since 2008. From 1989 until 2011, Mr. Harvey was employed by HSBC—Global Bank, serving as chief information officer/chief operating officer from 2008 to 2011 and as group general manager and chief information officer from 2004 to 2007. He was president of HSBC Technology and Services, a wholly-owned subsidiary of HSBC, from 2003 to 2004. Beginning in 2011, Mr. Harvey has been self-employed as a consultant. Since 2012, Mr. Harvey has also served as director of CLS Group Holdings AG, where he is a member of the chairman’s committee, which covers compensation and compliance issues, and chairman of the technology and operations committee. Mr. Harvey also served as director of CLS Bank International since 2011, and served as a director of Kanbay, Inc. from 2004 until 2007 and Vertical Networks, Inc. from 2002 until 2004. We believe Mr. Harvey’s background as an executive in the information technology field qualifies him to serve on our board of directors.

Rudy C. Howard. Mr. Howard has served as our director since 2012. Since 2010, Mr. Howard has served as chief financial officer of SciQuest, Inc. (NASDAQ: SQI), a company providing a leading on-demand strategic procurement and supplier enablement solution that integrates customers with their suppliers. From 2008 through 2009, Mr. Howard served as chief financial officer of MDS Pharma Services, a contract research organization providing drug discovery and development solutions for the pharmaceutical and biotechnology industries. From 2003 until joining MDS Pharma Services, Mr. Howard operated his own financial consulting company, Rudy C. Howard, CPA Consulting, in Wilmington, North Carolina, where his services included advising on merger and acquisition transactions, equity and debt issuances and other general management matters. In addition, since 2012, Mr. Howard has served as a director and member of the audit committee of Metabalon, Inc., a privately-held diagnostics and services company. We believe Mr. Howard’s extensive experience with financial and accounting matters and his background as an executive officer at several public companies qualifies him to serve on our board of directors.

John Malone. Mr. Malone is anticipated to assume service as a director upon the completion of this offering. From 2008 until its sale in 2013 to Haystax Technology, Inc., Mr. Malone served as the Executive Chairman of Digital Sandbox, Inc., an organization that provides threat and risk analysis and monitoring software in the national and homeland security arenas. From 2009 until its successful sale in 2012 to Acronis International GmbH, Mr. Malone served as Executive Chairman of Group Logic, Inc., an organization that provides digital content collaboration solutions in the enterprise and in the cloud. From 2003 to 2007, Mr. Malone served as Senior Vice President of Sales and Business Development for Neustar, Inc., a provider of real-time information and analytics for the Internet, telecommunications, entertainment, and marketing industries. During his tenure at Neustar, which included the company’s transition from a private enterprise to a New York Stock Exchange listed company, the company’s revenue grew from $80 million to more than $420 million. We believe Mr. Malone’s general executive experience, including his experience with strategic acquisitions, qualifies him to serve on our board of directors.

Barry M. V. Williams. Mr. Williams has served as our chairman since 2004. Previously, Mr. Williams held numerous executive-level positions at P&O Nedlloyd, the second largest ocean carrier in the world prior to its acquisition by A.P. Moller Maersk. Mr. Williams’ career at P&O Nedlloyd spanned over 35 years culminating in his service as chief executive officer and as a member of the executive committee. Mr. Williams is best known for his ability to improve carrier operations by applying information technology and to realize results through change management programs. As the leader of P&O Nedlloyd, he successfully consolidated its back office operations in China and India, diversified into freight forwarding and supply chain management services, and implemented the company’s strategic e-commerce systems. From 2007 through 2011, and again from 2013 until current, Mr. Williams served as chairman of ESS-Databridge Exchange Limited, a provider of electronic shipping and trade documentation and data solutions. We believe Mr. Williams management experience in the shipping and supply chain management industries and his experience with strategic growth companies in the GTM industry qualifies him to serve on our board of directors.

 

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Director Independence

We intend to apply to list our common stock on the New York Stock Exchange. Prior to the completion of this offering, our board of directors is expected to undertake a review of the independence of the directors and consider whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. Our board of directors is expected to determine that the directors expected to serve on our board after the completion of this offering, other than Messrs. James and John Preuninger, qualify as independent directors within the meaning of the rules of the New York Stock Exchange.

Committees of the Board of Directors

Our board of directors currently has an audit committee and a compensation committee. Prior to completion of this offering, our board of directors will establish a nominating and corporate governance committee. Upon the closing of this offering, each committee will operate under a separate charter adopted by our board of directors, and will have the composition and responsibilities described below. Members serve on these committees until their resignations or until otherwise determined by our board of directors.

Audit Committee. Our audit committee will be comprised of Rudy Howard (Chairman), Pamela Craven and John Malone, each of whom will be an independent director and satisfy the additional independence requirements for members of the audit committee imposed by New York Stock Exchange rules and Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Each of the members of our audit committee meets the requirements for financial literacy under applicable rules and regulations of the Securities and Exchange Commission, or SEC, and the New York Stock Exchange. Our board of directors has determined that Mr. Howard qualifies as an “audit committee financial expert,” as defined by applicable rules of the SEC. The audit committee will assist our board of directors in its oversight of:

 

    the audit and integrity of our financial statements;

 

    our compliance with applicable law, risk assessment and risk management;

 

    the qualification and independence of our independent registered public accounting firm;

 

    the establishment and performance of our internal audit function and independent registered public accounting firm; and

 

    the annual audit committee report.

Under our audit committee charter, the audit committee will:

 

    have direct responsibility for the appointment, compensation, retention, termination and oversight of the work of our independent registered public accounting firm;

 

    oversee the independence of our independent registered public accounting firm;

 

    establish and implement policies and procedures for the pre-approval of all audit services and all permissible non-audit services provided by our independent registered public accounting firm;

 

    review and discuss with management and our independent registered public accounting firm our internal control over financial reporting, the internal audit function, and changes in accounting and financial reporting principles;

 

    review and discuss with management and our independent registered public accounting firm the overall adequacy and effectiveness of our code of business conduct and ethics and compliance with applicable laws, regulations and internal compliance programs; and

 

    review with management and our independent registered public accounting firm any correspondence with regulators or governmental agencies and any employee complaints or published reports, which raise material issues regarding our financial statements or accounting policies.

 

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Compensation Committee. Upon completion of our offering, our compensation committee will be comprised of Pamela Craven (Chairwoman), Donald Caldwell and John Malone, each of whom will be an independent director and satisfy the additional independence requirements of the SEC and the New York Stock Exchange that will begin to apply to members of the compensation committee beginning in 2014. Each member will also be an “outside director” as defined under Section 162(m) under the Internal Revenue Code, as amended, or the Internal Revenue Code. We expect our compensation committee to oversee our overall compensation program. Our compensation committee charter will provide that the compensation committee shall:

 

    review, evaluate and approve executive officer compensation and performance on an annual basis;

 

    approve equity grants to executive officers, or, if the committee deems appropriate, recommend them to the full board for approval;

 

    review and approve any consulting arrangements, employment contracts or severance agreements with any executive officer;

 

    assess whether the compensation structure encourages undue risk-taking;

 

    adopt or modify any incentive compensation plan, or, if this action would require stockholder approval, recommend it to the full board for approval and proposal to the stockholders;

 

    review and recommend to our board of directors any director compensation programs for our independent directors only; and

 

    have power to engage compensation consultants, advisors or legal counsel.

Nominating and Corporate Governance Committee. Our nominating and corporate governance committee will be comprised of Kenneth Harvey (Chairman), Donald Caldwell and Barry Williams, each of whom will be an independent director and an “outside director” as defined under Section 162(m) under the Internal Revenue Code. Our nominating and corporate governance committee charter will provide that the nominating and corporate governance committee shall:

 

    search for, identify and evaluate individuals qualified to become board members and recommend individuals to be nominated for election to our board of directors;

 

    advise our board of directors regarding appropriate corporate governance policies and assist our board of directors in achieving them;

 

    have sole discretion to retain a search firm for the purpose of identifying director candidates;

 

    review the performance of each director who is standing for re-election, and the independence of each director;

 

    have responsibility for succession planning for executive officers; review and recommend to our board of directors any changes in our corporate governance structure; and

 

    and review and consider actual and potential conflicts of interests of management and directors.

Compensation Committee Interlocks and Insider Participation

For the year ended 2013, the members of our current compensation committee were Donald Caldwell, Antoine Munfa, Bernard Goldsmith, James W. Preuninger and John W. Preuninger. James W. Preuninger is our Chief Executive Officer, while John W. Preuninger is our President and Chief Operating Officer. Messrs. Caldwell, Munfa and Goldsmith have never been officers or employees of ours or any of our subsidiaries. In 2005, we issued loans to James W. Preuninger and John W. Preuninger to permit them to satisfy tax liabilities in connection with their purchase of restricted common stock from us. All such loans were forgiven in January 2014. Please also see “Certain Relationships and Related Party Transactions.” Upon completion of this offering, our compensation committee will be comprised of Donald Caldwell, Pamela Craven and John Malone.

 

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None of the current members of our compensation committee serves or has at any time served, and none of the members of our compensation committee upon completion of this offering will have served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Code of Ethics

In connection with our initial public offering, our board of directors is expected to adopt a code of business conduct and ethics that will apply to all of our employees, officers and directors. The full text of our code of business conduct and ethics will be posted on the investor relations section of our website prior to the completion of this offering. The reference to our website address in this prospectus does not include or incorporate by reference the information on our website into this prospectus. We intend to disclose future amendments to certain provisions of our code of business conduct and ethics, or waivers of these provisions with respect to our Chief Executive Officer, Chief Financial Officer, controller or persons performing similar functions, on our website or in our public filings with the SEC.

Director Compensation

Messrs. James and John Preuninger, who are employed by us as our Chief Executive Officer and our President and Chief Operating Officer, respectively, receive no separate compensation for their services as directors, and are not expected to receive such separate compensation after completion of this offering. Our non-employee directors have in the past received the following director compensation: Messrs. Harvey, Howard and Williams received $5,000 per month for service on the board of directors and the remaining directors did not receive any compensation for service on the board.

Following the completion of this offering, we intend to adopt a policy for compensating our non-employee directors with a combination of cash and equity.

The following table provides information concerning the compensation earned by or paid in cash to each person, other than Messrs. James and John Preuninger, who each served as a member of our board of directors during the year ended December 31, 2013. See “Executive Compensation” for a discussion of the compensation received by Messrs. James and John Preuninger.

 

     Fees earned or
paid in cash ($)(1)
     Option Awards
($)(2)
     Total
($)
 

Donald R. Caldwell

     —           —           —     

Bernard M. Goldsmith(3)

     —           —           —     

Kenneth M. Harvey

     60,000         —           60,000   

Rudy C. Howard

     60,000         —           60,000   

Antoine Munfa(3)

     —           —           —     

Barry M. V. Williams

     60,000         —           60,000   

 

(1) Represents amount earned or paid during fiscal year 2013.
(2) These amounts represent the aggregate grant date fair value of stock option awards made during fiscal year 2013 calculated in accordance with ASC Topic 718, Compensation—Stock Compensation, or ASC 718, excluding estimated forfeitures. See Note 9 to our consolidated financial statements for a discussion of the assumptions used in calculating these amounts. As of March 1, 2014, the non-employee members of our board of directors held options to purchase the following number of shares of our common stock: Mr. Harvey—80,160, Mr. Howard—80,160 and Mr. Williams—94,181. Messrs. Caldwell, Goldsmith and Munfa did not hold any options to purchase shares of our common stock.
(3) We do not expect Messrs. Goldsmith and Munfa to continue to serve as directors upon completion of this offering.

 

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table and footnotes set forth information, for the fiscal years ended December 31, 2013 and 2012, concerning the compensation awarded to, earned by or paid to: (i) each person who served as our principal executive officer during the fiscal year ended December 31, 2013, (ii) the two most highly compensated executive officers, other than the principal executive officer, who received compensation in excess of $100,000 during the fiscal year ended December 31, 2013 and were serving as executive officers on December 31, 2013 (collectively with the principal executive officers referred to as the “named executive officers” in this prospectus), and (iii) our Chief Financial Officer. Under the SEC’s rules for preparation of the following tables, non-equity awards are reported in the performance year in which they are earned, while equity-based awards are reported in the year in which they are granted.

 

Name and Principal Position

   Fiscal
Year
     Salary
($)
     Bonus
($)(1)
     Option
Awards
($)(2)
     Non-Equity
Incentive

Plan
Compensation
($)(1)
     All Other
Compensation
($)(3)
     Total
($)
 

James W. Preuninger

     2013         350,000         —           320,000         225,000         4,700         899,700   

Chief Executive Officer

     2012         350,000         —           —           225,000         2,615         577,615   

John W. Preuninger

     2013         350,000         —           320,000         225,000         4,700         899,700   

President and Chief Operating Officer

     2012         350,000         —           —           225,000         2,615         577,615   

Thomas E. Conway

     2013         251,250         —           117,150         159,946         3,593         531,939   

Chief Financial Officer

     2012         240,000         38,967         —           52,033         2,062         333,062   

Albert C. Cooke III

     2013         225,000         —           74,550         301,577         10,548         611,675   

Vice President, Global Sales

     2012         225,000         —           —           240,037         8,539         473,576   

 

(1) The amounts appearing in the Non-Equity Incentive Plan Compensation column represents non-discretionary bonus payments relating to the stated fiscal year. These amounts were earned based on the recipient’s formulaic performance against specified criteria. For James W. Preuninger and John W. Preuninger, the criteria included new contract value sold, billings, and EBITDA. For Mr. Conway, the 2013 criteria included new contract value sold, billings, EBITDA and revenue growth, and the 2012 criteria included new contract value sold, billings, free cash flow and EBITDA. Mr. Cooke receives incentive compensation based on specified effective commission rates for items such as new contract value sold, professional services rendered, and subscription agreement renewals. The amounts appearing in the Bonus column represent additional, discretionary payments that we made without regard to performance criteria established for non-equity incentive plan compensation.
(2) These amounts represent the aggregate grant date fair value of stock option awards made during the fiscal year, calculated in accordance with ASC 718, excluding estimated forfeitures. See Note 9 to our consolidated financial statements included elsewhere in this prospectus for a discussion of the assumptions used in calculating these amounts. The vesting terms for the listed options are as follows: 25% at the first year anniversary of the grant date and 6.25% at the end of each quarter thereafter. In addition, in the event the grantee is terminated by us without cause or by the grantee for good reason within one year following a “change of control,” 100% of the remaining unvested option shares become vested and exercisable in accordance with the terms of the plan. Our compensation committee determines whether to grant option awards and in what quantity to grant them. The committee considers a variety of factors in making this determination, including an executive officer’s recent and legacy contribution to our growth, future corporate goals and average compensation levels of officers of similar rank at peer firms. Each year for the last three years our compensation committee has engaged the services of an independent, nationally recognized compensation consultant. The number of option awards granted by the compensation committee during that time was never greater than the number recommend by the consultant and in all cases our compensation committee and board determined the fair market value as of the date of grant.
(3) All Other Compensation includes premiums we paid for life insurance, long term disability and accidental death and dismemberment insurance on these individuals. In addition, Mr. Cooke receives a car allowance.

 

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Outstanding Equity Awards at Fiscal Year-End

The following table provides information regarding outstanding equity awards held by each of our named executive officers and our Chief Financial Officer as of December 31, 2013:

 

     Option Awards  

Name and Principal Position

   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable(1)
     Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(1)
     Option
Exercise
Price($)
     Option
Expiration
Date
 

James W. Preuninger

     112,725         87,675         2.31         9/30/2016   

Chief Executive Officer

     —           133,600         6.14         6/25/2018   

John W. Preuninger

     112,725         87,675         2.31         9/30/2016   

President and Chief Operating Officer

     —           133,600         6.14         6/25/2018   

Thomas E. Conway

     73,480         —           3.29         2/19/2017   

Chief Financial Officer

    

 

 

 

50,100

31,312

15,030

—  

  

  

  

  

    

 

 

 

—  

2,088

11,690

36,740

  

  

  

  

    

 

 

 

2.31

2.31

2.31

5.57

  

  

  

  

    
 
 

 

1/31/2018
2/11/2020
9/30/2021

6/25/2023

  
  
  

  

Albert C. Cooke III

     30,808         —           0.84         1/26/2015   

Vice President Global Sales

    

 

 

 

40,080

31,312

15,030

—  

  

  

  

  

    

 

 

 

—  

2,088

11,690

23,380

  

  

  

  

    

 

 

 

3.29

2.31

2.31

5.57