S-1/A 1 d439361ds1a.htm AMENDMENT 1 TO FORM S-1 Amendment 1 to Form S-1
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As filed with the Securities and Exchange Commission on October 7, 2013

Registration No. 333–191563

 

 

 

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

 

 

Mavenir Systems, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   3576   61-1489105

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

Mavenir Systems, Inc.

1700 International Parkway, Suite 200, Richardson, TX 75081

(469) 916-4393

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

 

 

Pardeep Kohli

President and Chief Executive Officer

Mavenir Systems, Inc.

1700 International Parkway, Suite 200, Richardson, TX 75081

(469) 916-4393

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

 

 

Copies to:

 

Alan Bickerstaff

Ted Gilman

Andrews Kurth LLP

111 Congress, Suite 1700

Austin, TX 78701

(512) 320-9200

 

Sam Garrett

General Counsel and Secretary

Mavenir Systems, Inc.

1700 International Parkway, Suite 200 Richardson, TX 75081

(469) 916-4393

 

Richard D. Truesdell, Jr.

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

(212) 450-4000

 

 

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

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, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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

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

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

 

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

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed

Maximum
Aggregate

Offering Price(1)

 

Amount of

Registration Fee

Common stock, $0.001 par value per share

  $86,250,000   $11,109(2)

 

 

 

(1) Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. Includes the offering price of additional shares that the underwriters have the option to purchase.
(2) Previously paid on October 4, 2013.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant files 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, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and neither we nor the selling stockholders are soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

PROSPECTUS (Subject to completion)

Issued October 7, 2013

                          Shares

 

LOGO

Common Stock

 

 

Mavenir Systems, Inc. is offering              shares of common stock and the selling stockholders are offering              shares. We will not receive any proceeds from the sale of shares by the selling stockholders. This is our initial public offering and no public market currently exists for our shares. We expect that the initial public offering price will be between $         and $         per share.

 

 

We have applied to list our common stock on the New York Stock Exchange under the symbol “MVNR.”

 

 

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 14.

 

 

Price $             Per Share

 

 

 

       Price to
Public
       Underwriting
Discounts and
Commissions
       Proceeds to
Mavenir
       Proceeds to
Selling
Stockholders
 

Per share

       $                        $                          $                          $                  

Total

       $                             $                                 $                               $                       

We have granted the underwriters the right to purchase an additional              shares of common stock.

The Securities and Exchange Commission and state securities commissions have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on                     , 2013.

 

 

 

Morgan Stanley

  BofA Merrill Lynch   Deutsche Bank Securities

Needham & Company

                    , 2013


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Neither we, the selling stockholders nor the underwriters have authorized anyone to provide you with any information other than that contained in this prospectus and any free writing prospectus prepared by us or on our behalf. We, the selling stockholders and the underwriters take no responsibility for, and can provide no assurances as to the reliability of, any information that others may give you. This prospectus may only be used in jurisdictions where it is legal to sell these securities. The information contained in this prospectus is only accurate as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock.

 

 

Dealer Prospectus Delivery Obligation

Through and including                     , 2013 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold share allotments or subscriptions.


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PROSPECTUS SUMMARY

This summary highlights the information contained elsewhere in this prospectus and is a brief overview of the key aspects of the offering. Because this is only a summary, it does not contain all of the information that may be important to you. Before investing in our common stock, you should read this entire prospectus, including the information set forth under the headings “Risk Factors,” Selected Historical Consolidated Financial and Operating Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and our consolidated financial statements and related notes thereto. Some of the statements in this prospectus constitute forward-looking statements. Please read “Special Note Regarding Forward-Looking Statements” for more information. For a description of some key mobile communications industry terms used in this summary and elsewhere in this prospectus, please read “Description of Key Terms Used in Our Industry” elsewhere in this prospectus.

Unless the context otherwise requires, references in this prospectus to “Mavenir Systems,” “Mavenir,” “we,” “our,” “us,” and the “company” refer to Mavenir Systems, Inc. together with its subsidiaries.

MAVENIR SYSTEMS, INC.

Overview

We are a leading provider of software-based telecommunications networking solutions that enable mobile service providers to deliver internet protocol (IP)-based voice, video, rich communications and enhanced messaging services to their subscribers globally. Our solutions deliver Rich Communication Services (RCS), which enable enhanced mobile communications, such as group text messaging, multi-party voice or video calling and live video streaming as well as the exchange of files or images, over existing 2G and 3G networks as well as next generation 4G Long Term Evolution (LTE) networks. Our solutions also deliver voice services over LTE technology and wireless (Wi-Fi) networks, known respectively as Voice over LTE (VoLTE) and Voice over Wi-Fi (VoWi-Fi). We enable mobile service providers to offer services that generate increased revenue and improve subscriber satisfaction and retention, while allowing them to improve time-to-market of new services and reduce network costs. Our mOne® Convergence Platform has enabled leading mobile service providers to introduce the industry’s first live network deployment of VoLTE and the industry’s first live deployment of next-generation RCS 5.

The capabilities of smartphones and tablets have caused consumers to shift their communication preferences from traditional voice service to a combination of voice, video and messaging services, which are offered by rich communication services. Additionally, many consumers are using their mobile devices to browse the internet, run software applications, access cloud-based services and consume, create and share rich multimedia and user-generated content. These trends have placed substantial capacity constraints on the existing networks of mobile service providers. According to the February 2013 Cisco Visual Networking Index report, the average smartphone and tablet generate 50 and 120 times more data traffic, respectively, than the average basic-feature cell phone. As a result, mobile data traffic is projected to continue to increase exponentially, driven by the rapid adoption of smartphones and tablets and the demand for enhanced and high-bandwidth mobile services such as video. In order to alleviate the resulting spectrum and network capacity challenges, mobile service providers are making significant investments to transition their networks to the 4G Long Term Evolution (4G LTE) standard for voice and data transmission over mobile networks, as that standard enables higher data speeds and allows more efficient use of the frequency spectrum. In a September 2013 report, Gartner estimated that worldwide annual spending on 4G LTE mobile infrastructure would grow from $5.9 billion in 2012 to $33.9 billion by 2017, representing a compound annual growth rate (CAGR) of 42%. (Source: Gartner, Forecast: Carrier Network Infrastructure, Worldwide, 2010–2017 3Q13 Update, September 2013.)

 

 

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Because our solutions are interoperable across network generations, we enable mobile service providers to leverage their existing investments in 2G and 3G networks while offering a seamless, cost-effective migration path to 4G LTE networks. We provide our solutions to over 120 mobile networks globally, including three of the top five mobile service providers in the United States and four of the top five pan-European mobile service providers in Western Europe, as measured by number of mobile device connections as of December 2012. Our end customers include AT&T, MetroPCS (now part of T-Mobile), T-Mobile USA, Vodafone, Tele2, Deutsche Telekom AK and Telstra. Our customers include the first mobile service providers to deploy VoLTE and RCS 5 services to their subscribers, which services were deployed utilizing our technology. Our solutions can be deployed on-premise within the mobile service provider’s network or hosted in a mobile cloud environment. Our solutions enable mobile service providers to generate additional revenues by providing their subscribers with rich communications and cloud-based services, including:

 

   

carrier-grade (at least 99.999% reliable), integrated communications services, including voice calling, video calling and messaging;

 

   

a rich communications experience, with integrated one-to-one and group voice chat, video chat, messaging and sharing of content such as videos, images, links or locations;

 

   

a single identity across multiple devices and services, based on a subscriber’s mobile phone number, that allows seamless delivery of mobile services and applications globally;

 

   

interworking with legacy short message service (SMS), which is an older technology used to convey short text messages, multimedia messaging service (MMS), which is an existing technology allowing delivery of images in a relatively low-resolution format, and social networks; and

 

   

cloud-based delivery of next generation mobile communications, including voice, video, enhanced messaging, which includes voice and video mail and interworking with social media platforms, and storage of mobile subscriber content and media.

We commenced operations in 2005 and began product sales in 2007. Our unaudited pro forma 2011 revenue, which assumes a full-year contribution from Airwide Solutions, Inc. (Airwide Solutions), a business we acquired in May 2011, was $66.8 million. For the year ended December 31, 2012, our reported revenue was $73.8 million, compared with $49.5 million and $8.3 million for the years ended December 31, 2011 and 2010, respectively. In addition, our operating loss was $(14.6) million, $(19.2) million and $(10.2) million for the years ended December 31, 2012, 2011 and 2010, respectively. For the six months ended June 30, 2013 and 2012, our reported revenue was $48.2 million and $39.9 million, respectively, and operating loss was $(2.6) million and $(4.5) million, respectively. We are headquartered in Richardson, Texas and had approximately 670 full-time employees worldwide as of June 30, 2013.

Industry Background

The market for mobile communications services is evolving rapidly, characterized by the following trends:

Proliferation of Smartphones and Tablets. Global adoption of smartphones and tablets is in its early stages, and future growth is expected to accelerate as mobile subscribers increasingly rely on these powerful devices. Despite increased usage of smartphones, a June 2013 Ericsson publication estimated that smartphones accounted for only 19% of total global mobile subscriptions, highlighting the potential for growth in smartphone usage.

Increased Use of Mobile Applications, Mobile Media and Cloud-Based Services. Powerful smartphones and tablets are rapidly replacing desktop computers and laptops as the primary computing platform used for browsing the internet, running software applications, accessing cloud-based services, and consuming media content such as streaming video and internet radio. Also, many consumers are increasingly creating, sharing and accessing user-generated content, such as photos and videos, on their mobile devices through online services such as Facebook and YouTube. In addition, cloud-based storage is growing significantly as consumers purchase content from

 

 

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media services, such as Amazon, Apple and Google, and utilize online storage services to access their purchased content from multiple mobile device types. Furthermore, mobile subscribers are increasingly seeking more rich communication services, such as video chat, to enhance the communications experience on their mobile devices. These trends in consumer behavior related to mobile device usage are driving a substantial increase in the amount of mobile data traffic.

Mobile Service Provider Challenges

Proliferation of smartphones and tablets as well as increased use of mobile applications and cloud-based services by subscribers present the following challenges for mobile service providers:

 

   

Strain on Existing Network Resources. Faced with increased subscriber demand for bandwidth-consuming mobile applications and cloud-based services, mobile service providers are facing spectrum and capacity constraints.

 

   

Competition from Over-The-Top / Web Services. Over-The-Top (OTT) applications compete with services that are, or could be, offered by mobile service providers, reducing revenue sources that traditionally have gone to mobile service providers. For example, OTT services such as Skype, Apple Facetime, Facebook Chat and Blackberry Messenger, allow consumers to engage in rich communications experiences in a simple, easy-to-use interface. These OTT services provide free and feature-rich alternatives that compete with traditional voice and SMS services offered by mobile service providers.

 

   

Need to Offer Subscribers Enhanced Services. As mobile voice service access has become commoditized and average voice revenue per subscriber has decreased, mobile service providers are seeking to offer their subscribers new, differentiated services that increase revenue per subscriber, enhance customer satisfaction and reduce subscriber turnover.

 

   

Migration Path to 4G LTE. As mobile service providers migrate to 4G LTE, they will look to minimize capital expenditures and operational costs, while maximizing subscriber usage of their network. Mobile service providers are seeking a common solution platform that can address existing 2G and 3G network requirements without requiring additional investments and that can also be utilized for next-generation 4G LTE network introductions.

Benefits of 4G LTE

The next generation of mobile technology, broadly defined as 4G, includes Long Term Evolution (LTE), Worldwide Interoperability Microwave Access (WiMAX) and Evolved High Speed Packet Access (HSPA+) and can be extended to include Wi-Fi. 4G LTE has been developed to handle mobile data more efficiently and allows for faster, more reliable and more secure mobile service than existing 2G and 3G networks. The faster data transfer capabilities of 4G LTE networks enable mobile subscribers to use a wide variety of bandwidth-intensive software applications and cloud-based services with a rich mobile computing experience. In addition to the benefits for mobile subscribers, 4G LTE technology is inherently more efficient and cost-effective, resulting in a better network infrastructure for mobile service providers.

4G LTE offers the opportunity to fundamentally lower the cost of network operational centers by leveraging technologies widely used in the IT industry, such as Network Functions Virtualization (NFV), which refers to the deployment of telecommunications application software on virtualized hardware platforms often referred to as “private clouds,” and Software-Defined Networking (SDN), which simplifies network administration through the use of software. Both of these technologies drive down network cost and complexity and increase network flexibility and responsiveness.

 

 

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4G LTE is a new architecture that enables mobile service providers to offer a wide range of new services across their networks. Mobile service providers can deliver device independent services over 4G LTE networks and offer a cloud-based subscriber experience that is comparable to communication services providers such as Apple, Google and Skype. Mobile service providers will be able to offer a platform that third-party application developers can leverage to integrate new services through open network standards.

Market Opportunity

The development of 4G LTE is a generational change in technology for the mobile industry, a level of change that occurs approximately every ten years on average. Every generational change spurs a new investment cycle as mobile service providers seek to invest in equipment upgrades to support new standards. In the transition of communication services from 2G and 3G to 4G LTE, a complete change of infrastructure to deliver new services is required. Unlike 3G, migration to the next-generation 4G LTE standard is no longer an option, but rather a time-critical business priority for many mobile service providers.

Many mobile service providers are currently making the needed infrastructure investments to accommodate the growing subscriber demand for next-generation mobile communication services. A September 2013 Gartner report estimated that next-generation 4G LTE mobile infrastructure spending worldwide was $5.9 billion in 2012 and is forecast to reach $33.9 billion by 2017, representing a 42% CAGR. (Source: Gartner, Forecast: Carrier Network Infrastructure, Worldwide, 2010-2017 3Q13 Update, September 2013.) We believe 4G LTE network investments will accelerate as mobile service providers seek to meet growing subscriber demand.

Our Solutions

Our solutions, based on our mOne® Convergence Platform, enable mobile service providers to deliver IP-based voice, video, rich communications and enhanced messaging services over their existing 2G and 3G networks and next-generation 4G LTE networks. IP-based communication services, which involve the transmission of voice and text data using the more efficient internet protocol that underlies the internet, rather than through traditional and less efficient circuit-switched phone networks, are being developed and deployed today. These services are faster, more efficient and demand less spectrum than the circuit-based communication methods employed by existing 2G and 3G networks.

Our solutions are focused on delivering a seamless and intuitive communications experience to mobile subscribers and an integrated, flexible, differentiated platform for mobile service providers. We enable mobile service providers to capitalize on their IP-based network investments by efficiently and cost-effectively offering a broad range of services.

Our mOne® Convergence Platform offers our customers the following key benefits:

Comprehensive, Highly Configurable and Converged Communication Solution. The mOne® Convergence Platform enables mobile service providers to deploy any or all of a wide range of services. Some of these services include:

 

   

carrier-grade, integrated communication services, including voice calling, video calling and messaging;

 

   

a rich communications experience, with integrated one-to-one and group voice chat, video chat, messaging and sharing of content such as videos, images, links or locations;

 

   

a single identity across multiple devices and services, based on a subscriber’s mobile phone number, that allows seamless delivery of mobile services and applications globally; and

 

   

interworking with legacy SMS/MMS and social networks.

 

 

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Cloud-Based Implementation. The design of our software products enables mobile service providers to use private cloud implementations to deliver next generation mobile communications, including voice, video, enhanced messaging and storage of mobile subscriber content and media. These solutions allow our customers to share capacity in a cloud deployment with commercial off-the-shelf servers for all services rather than deploying dedicated, proprietary hardware for each service. The key benefits of utilizing private clouds include more agile use of the network infrastructure, the ability to deploy and prove-in new services rapidly using commercially available off-the-shelf hardware available from major manufacturers, combined with our software, without large up-front infrastructure costs and avoiding the network upgrade costs associated with obsolescence of proprietary hardware. For example, one of the largest pan-European mobile service providers has commercially launched our virtualized Rich Communication Services (RCS) to provide joyn® — an industry initiative that enables one-on-one and group chat services and the enhancement of voice calls through the sharing of multi-media content such as videos, pictures and music — on its own single common hardware platform for nine different national networks across the continent, thereby deploying its own mobile cloud environment. Although we offer to host our solutions in our own cloud-computing center for mobile service providers, we do not currently have any contracts to provide cloud-based hosting services.

Seamless Migration Path to 4G LTE. Our solutions offer mobile service providers a cost-effective migration path to 4G LTE by supporting existing 2G and 3G networks and next-generation 4G LTE networks, eliminating the need to prematurely retire existing investments. Our platform features a comprehensive, standards-based set of interfaces to ensure a seamless integration into existing, multi-vendor infrastructure and can be deployed over a wide range of network types including 2G, 3G, LTE, WiMAX, HSPA+ and Wi-Fi.

Ability to Improve Subscriber Experience and Deliver Revenue-Generating Services. Mobile service provider competition continues to exert downward pressure on the prices and profits associated with traditional voice, SMS and data services. When a mobile service provider offers a rich communications platform with multiple high-value services, its subscribers will be more likely to pay for these services, either by direct subscription or through increased data revenue, and less likely to switch providers.

Scalable Architecture and Carrier-Grade Reliability. Our solutions form a highly scalable carrier-grade platform that provides subscribers with high-quality service, as measured by the breadth of services offered and reliability, or lack of downtime. Our platform is fully compatible with the mobile industry’s standards and interoperability framework, allowing full compatibility across mobile service providers and geographies. Unlike OTT service providers, who cannot control quality or reliability of service because they do not own or control underlying access networks, mobile service providers using our solutions over their networks can deliver high-quality and consistent service to all subscribers.

Open Platform and Social Interworking. Our standards-based open solution architecture and APIs (Application Programming Interfaces) allow mobile service providers to develop or incorporate third-party enhanced application services (social or otherwise), for example, by embedding messaging or voice calling capabilities within consumer applications such as shopping or banking applications. We enable mobile service providers to interconnect various OTT applications and social networking services so that a subscriber can engage in voice, video and rich messaging communications with anyone, anywhere, on any device or in any communications ecosystem. A subscriber can communicate with another subscriber through one central identity based on the subscriber’s mobile phone number, rather than having to worry about what specific application to use to connect with that other subscriber. Mobile service providers can leverage this neutral position and technology to bring more users into their networks.

Our Competitive Strengths

We are a leading provider of software-based telecommunications networking solutions that enable mobile service providers to deliver carrier-grade integrated communications services to their subscribers because we

 

 

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have been first to market with solutions that enable many enhanced subscriber services, we have a broad customer base and we have a history of successfully competing for business with some of the largest solutions providers in the mobile industry. Our competitive strengths include the following:

 

   

First-Mover Advantage. Since our inception, we have developed significant expertise around solving the key challenges that mobile service providers face as they deploy next-generation networks and we have been first to market with solutions that enable many enhanced subscriber services.

 

   

Singular Focus on Next-Generation Communication Solutions. We are focused on developing and selling next-generation IP-based voice, video, rich communications and enhanced messaging services to mobile service providers. Unlike many of our competitors, we are not encumbered by a product portfolio full of legacy solutions and an installed customer base that generates significant revenue and cash flow streams from legacy solutions.

 

   

Modular Platform for Next-Generation Communication Solutions. Our mOne® Convergence Platform is based on a flexible software architecture that enables mobile service providers to provide IP-based voice, video, rich communications and advanced messaging applications to their subscribers. We have worked closely with many of our mobile service provider customers to understand their unique requirements and have developed a platform with the specific product features that are most relevant to help them achieve their strategic priorities. Our modular platform approach allows mobile service providers to selectively deploy the services they want for their subscribers, with the ability to add additional services and scale as needed. We believe that our ability to provide mobile service providers with customized deployment strategies gives us a significant competitive advantage.

 

   

Interoperability across Network Generations. Seamless and cost-effective migration of subscribers and services from 2G and 3G networks to 4G LTE networks can be achieved by bridging disparate technologies, while preserving existing investments, through intelligent gateways and interworking software. Our industry standards-based products support fully-integrated legacy interfaces that enable mobile service providers to continue to use much of their existing core network infrastructure, which is the centralized network of switches, routers and application services that deliver consumer services and includes elements such as subscriber databases, billing systems and intelligent network systems, without costly upgrades or replacements. Our ability to interoperate across traditional network boundaries mitigates the cost and complexity of deploying 4G LTE networks and accelerates time-to-market.

 

   

Technology Team. We believe our management team and the depth and diversity of our engineering and operations talent provide us with a competitive advantage. The extensive domain expertise of our engineering team is derived from its members’ combined experience in different areas of technology, including voice technology, software development, cellular/mobility applications, internet protocol networking, social networking and communications networks.

Our Strategy

Our goal is to establish our position as the leading global provider of 4G LTE solutions. Key elements of our strategy include:

 

   

Leverage First-Mover Advantage to Increase Sales to Existing Customers and Grow Our Customer Base. We have the advantage of being a first-mover with our innovative solutions that enable operators to efficiently address network challenges. For example, our VoLTE solution allowed a U.S. mobile service provider in August 2012 to become the first in the world to launch a commercial VoLTE service. Additionally, with our mOne® Convergence Platform deployed for VoLTE, the customer was positioned to quickly launch new value-added RCS 5 services over 4G LTE, which it did less than three months later in October 2012, becoming the first mobile service provider in the world to launch

 

 

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RCS 5, which is an advanced set of standards enabling the delivery of mobile communications services such as group text messaging, multi-party voice or video calling and live video sharing as well as the exchanging of files or images. We believe that the experience and detailed technical knowledge that our employees obtained during the course of enabling a mobile service provider to launch these first-to-market services will be directly applicable to expanding existing customer networks, as well as new customer networks, with our next-generation solutions. We intend to further capitalize on our early market success in deploying next-generation 4G LTE solutions and the strong customer relationships we have to supply our existing customers with new product offerings and gain new customers.

 

   

Extend our Technology Advantage Through Continued Innovation. We will utilize the valuable insight into product and performance requirements that we have gained in our early market achievements in the transition from 2G and 3G to 4G LTE to continue to deliver market-leading solutions focused on 4G LTE services, including a full suite of integrated mobile communications that can be deployed through a cloud-based implementation.

 

   

Simplify Mobile Service Providers’ Transition to 4G LTE. Our solutions give mobile service providers the ability to deliver next-generation services over existing networks, which positions them to cost-effectively optimize the useful lives of their existing networks. Mobile service providers can then focus their investments on a seamless, cost-effective path from existing 2G and 3G networks to next-generation 4G LTE networks. We intend to continue delivering solutions that use existing 2G and 3G networks today, and then cost-effectively transition mobile service providers to 4G LTE networks in the future.

 

   

Leverage Virtualization Technology to Enable Cloud Computing and Service Deployment Flexibility. We believe that virtualization technology can be leveraged to build 4G LTE core networks on standard cloud computing platforms, significantly lowering the cost for network infrastructure equipment. As many of the largest mobile service providers pursue strategies to implement their own private cloud infrastructures, we intend to continue pioneering solutions for virtualized cloud-based environments. Virtualization also enables an ideal approach to providing hosted services, which we can deliver for both small and large mobile service providers.

 

   

Selectively Pursue Strategic Acquisitions. We intend to continue to expand our product portfolio through opportunistic business acquisitions and intellectual property transactions. For example, we acquired Airwide Solutions in May 2011 to strengthen our mobile messaging solutions portfolio and expand our global market presence with additional locations in Europe, the Middle East and Africa (EMEA) and the Asia-Pacific region, in addition to significantly expanding our employee and talent base.

 

   

Expand into Adjacent Market Segments. As access networks converge towards all-IP, mobile service providers with solutions across wireless, wireline and enterprise see an opportunity for significant savings by consolidating infrastructure equipment into a single converged 4G LTE network. With our expertise and first-mover advantage in VoLTE and RCS, we intend to provide converged solutions for adjacent market segments such as residential wireline, mobile center office exchange service (centrex) and enterprise.

Risks Affecting Our Business

Our business is subject to a number of risks that you should consider before making a decision to invest in our common stock. These risks are discussed more fully in the “Risk Factors” section of this prospectus. These risks include, but are not limited to, the following:

 

   

we have incurred significant losses in each year since inception, we expect to continue to incur significant product development, sales and marketing, administrative and other expenses, and we cannot assure you that we will become or remain profitable;

 

 

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our future operating results are substantially dependent on the speed of adoption of 4G LTE technology and mobile service providers’ investment in rich communications solutions, and our operating results could be adversely affected if the market for our solutions does not develop as we anticipate;

 

   

a number of our current or potential competitors have longer operating histories, greater brand recognition, larger product and customer bases and significantly greater resources than we do and we may lack sufficient financial or other resources to maintain or improve our competitive position;

 

   

our operating results may fluctuate materially from quarter to quarter due to the long, variable and unpredictable sales and deployment cycles for our products, due to revenue recognition policies or due to other factors that are outside of our control;

 

   

intellectual property infringement claims are common in our industry and third parties, including competitors, could assert infringement claims against us or we may be obligated to indemnify our customers for expenses and liabilities resulting from infringement claims related to our solutions;

 

   

we may be unable to adequately protect our intellectual property rights, which could harm our competitive position; and

 

   

we depend upon a limited number of customers and a limited number of products for a substantial portion of our revenues.

Corporate Information

Our company was originally formed as a Texas limited liability company in April 2005. We converted to a corporation in August 2005, and we changed our jurisdiction of incorporation to Delaware in March 2006. Our principal executive office is located at 1700 International Parkway, Suite 200, Richardson, TX 75081 and our telephone number is (469) 916-4393. Our website address is http://www.mavenir.com. The information contained in or accessible from our website is not incorporated into this prospectus, and you should not consider it part of this prospectus.

The “Mavenir Systems®” name, the “mOne®” name, the “Airwide®” name, the “AirMessenger®” name, the “Mavenir” name, the “mStore” name, the “mCloud” name, “Transforming Mobile Networks” and related images, logos and symbols appearing in this prospectus are our properties, trademarks and service marks. Other marks appearing in this prospectus are the property of their respective owners.

 

 

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SUMMARY OF THE OFFERING

 

Shares of common stock offered by us

             shares.

 

Shares of common stock offered by the selling stockholders

             shares.

 

Shares of our common stock outstanding after this offering

             shares (assuming no exercise of the underwriters’ option to purchase additional shares).

 

Option to purchase additional shares

We have granted the underwriters a 30-day option to purchase up to              additional shares of our common stock.

 

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and estimated offering costs payable by us, will be approximately $         million, assuming an initial public offering price of $         per share (the midpoint of the price range set forth on the cover page of this prospectus), or approximately $         million if the underwriters exercise in full their option to purchase additional shares. We intend to use the net proceeds of this offering for working capital and other general corporate purposes, which may include financing growth (including payment of increased levels of expenditures), developing new products and funding capital expenditures, acquisitions and investments. We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholders. See “Use of Proceeds.”

 

Dividend policy

We do not anticipate paying any cash dividends on our common stock for the foreseeable future. In addition, the terms of our loan and security agreement currently restrict our ability to pay dividends. See “Dividend Policy.”

 

Proposed NYSE ticker symbol

“MVNR”

 

Risk Factors

Investment in our common stock involves substantial risks. You should read this prospectus carefully, including the section entitled “Risk Factors” and the consolidated financial statements and the related notes to those statements included in this prospectus, before investing in our common stock.

The number of shares of common stock outstanding after this offering is based on 124,558,248 shares of our common stock outstanding as of June 30, 2013, which number reflects the conversion of all of our redeemable convertible preferred stock into an aggregate of 115,167,418 shares of common stock. The number of shares of common stock outstanding after this offering excludes the following:

 

   

20,260,292 shares of common stock issuable upon the exercise of options outstanding at June 30, 2013 at a weighted-average exercise price of $0.33 per share;

 

   

6,366,588 shares of common stock issuable upon the conversion and subsequent exercise of warrants to purchase redeemable convertible preferred stock at an exercise price of $0.9542 per share;

 

 

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920,000 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $0.73 per share;

 

   

1,362,858 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $0.001 per share;

 

   

11,723,202 shares of common stock reserved as of June 30, 2013 for future issuance under our 2013 Equity Incentive Plan, as described in the section of this prospectus titled “Executive Compensation — Benefit Plans — 2013 Equity Incentive Plan”; and

 

   

3,375,000 additional shares of common stock reserved for future issuance under our 2013 Employee Stock Purchase Plan, subject to adjustment as described in the section of this prospectus titled “Executive Compensation — Benefit Plans — 2013 Employee Stock Purchase Plan.”

Except as otherwise noted, all information in this prospectus:

 

   

assumes no exercise of the underwriters’ option to purchase additional shares;

 

   

gives effect to the automatic conversion upon the completion of this offering of all of our outstanding shares of redeemable convertible preferred stock, on a one-for-one basis, into an aggregate of 115,167,418 shares of common stock; and

 

   

assumes the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, which will occur immediately prior to the closing of this offering.

 

 

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following tables summarize the consolidated financial and operating data for the periods indicated. The summary consolidated statement of operations data for the years ended December 31, 2010, 2011 and 2012 and the summary consolidated balance sheet data as of December 31, 2011 and 2012 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data for the six months ended June 30, 2012 and 2013 and the summary consolidated balance sheet data as of June 30, 2013 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of December 31, 2010 have been derived from our audited consolidated financial statements, which are not included in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. The summary financial information below should be read in conjunction with the information contained in “Selected Historical Consolidated Financial and Operating Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the consolidated financial statements and notes thereto, and other financial information included elsewhere in this prospectus.

 

     Year Ended December 31,     Six months ended June 30,  
           2010                 2011                 2012                 2012                 2013        
    

(in thousands, except per share amounts)

 
                       (unaudited)  

Consolidated Statement of Operations Data:

          

Total revenue

   $ 8,251      $ 49,504      $ 73,840      $ 39,949      $ 48,190   

Cost of revenue

     5,103        30,784        30,459        15,091        20,241   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     3,148        18,720        43,381        24,858        27,949   

Total operating expenses

     13,324        37,905        57,944        29,401        30,515   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (10,176     (19,185     (14,563     (4,543     (2,566

Net interest expense

     108        61        383        25        1,107   

Foreign exchange loss (gain)

     (21     1,182        (529     871        2,644   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense

     (10,263     (20,428     (14,417     (5,439     (6,317

Income tax expense

     131        1,330        1,152        211        1,618   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (10,394   $ (21,758   $ (15,569   $ (5,650   $ (7,935
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common shareholders (basic and diluted)

   $ (1.35   $ (2.69   $ (1.73   $ (0.65   $ (0.85

Weighted average common shares outstanding (basic and diluted)

     7,726        8,092        9,016        8,752        9,376   

As adjusted net loss per share(1)

   $ (0.11   $ (0.18   $ (0.13   $ (0.05   $ (0.06

As adjusted weighted-average shares outstanding used to compute net loss per share(1)

     91,008        123,259        124,183        123,919        124,543   

Non-GAAP Financial Measure:

          

Adjusted EBITDA(2)

   $ (9,298   $ (14,938   $ (10,224   $ (2,753   $ (472

 

(1) As adjusted amounts give effect to the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into 115,167,418 shares of our common stock immediately prior to the completion of this offering.
(2)

We include adjusted earnings before interest, tax, depreciation and amortization and certain other expenses, or adjusted EBITDA, because it is a measure that our management uses to evaluate our operating results. We calculate adjusted EBITDA as our net loss, adding back net interest expense, income tax expense, depreciation and amortization, stock-based compensation expense and certain acquisition-related expenses. We present adjusted EBITDA as a supplemental performance measure because our management believes

 

 

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  that it facilitates operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures (affecting net interest expense), tax positions (such as the impact on periods of changes in effective tax rates), the depreciation of assets (affecting depreciation expense), the amortization of intangibles (affecting amortization expense), stock-based compensation expenses and certain acquisition-related expenses. Adjusted EBITDA is not a measurement of our financial performance under generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income (loss), operating income (loss) or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operations as a measure of our profitability or liquidity. We understand that although adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, 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:

 

   

adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

   

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

 

   

adjusted EBITDA does not reflect changes in our effective tax rate;

 

   

although depreciation is a non-cash charge, the assets being depreciated will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and

 

   

other companies in our industry may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

The following table reconciles net loss to adjusted EBITDA for the periods presented:

 

     Year Ended December 31,     Six months ended June 30,  
           2010                 2011                 2012                 2012                 2013        
                       (unaudited)  
    

(in thousands)

 

Net loss

   $ (10,394   $ (21,758   $ (15,569   $ (5,650   $ (7,935

Net interest expense

     108        61        383        25        1,107   

Income tax expense

     131        1,330        1,152        211        1,618   

Depreciation and amortization

     807        2,933        4,048        1,685        1,794   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     (9,348     (17,434     (9,986     (3,729     (3,416

Stock-based compensation expense

     71        138        291        105        300   

Foreign exchange loss (gain)

     (21     1,182        (529     871        2,644   

Other acquisition-related expenses including:

          

Acquisition-related restructuring costs

     —          514        —          —          —     

Transaction costs

     —          662        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (9,298   $ (14,938   $ (10,224   $ (2,753   $ (472
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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Consolidated Balance Sheet Data:

 

    As of December 31,     As of
June 30,
          As  Further
Adjusted(2)
    2010     2011     2012     2013     As  Adjusted(1)    
                      (unaudited)
   

(in thousands)

                                   

Cash and cash equivalents

  $ 5,425      $ 19,466      $ 7,402      $ 20,453      $ 20,453     

Working capital

    5,812        15,728        13,228        31,420        31,420     

Total assets

    16,797        60,387        60,481        79,999        79,999     

Long-term debt, net of current portion

    —          —          14,700        38,153        38,153     

Total liabilities

    9,682        34,131        48,718        74,328        74,328     

Total redeemable convertible preferred stock

    64,558        104,558        104,558        104,558        —       

Total shareholders’ equity (deficit)

    (57,443     (78,302     (92,795     (98,887     5,671     

 

(1) The as adjusted column reflects the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into 115,167,418 shares of our common stock immediately prior to the completion of this offering.
(2) The as further adjusted column reflects the conversion described in footnote (1) above, as well as the estimated net proceeds of $         million from our sale of              shares of common stock that we are offering, based upon the initial public offering price of $         per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and estimated offering costs payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price would increase or decrease, as applicable, our cash and cash equivalents, working capital, total assets and total shareholders’ equity by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and assuming no exercise of the underwriters’ option to purchase additional shares, and after deducting the estimated underwriting discounts and estimated offering costs payable by us.

 

 

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RISK FACTORS

Any investment in our common stock involves risk. You should carefully consider the risks and uncertainties described below and all information contained in this prospectus, including our consolidated financial statements and the related notes thereto, before you decide whether to purchase our common stock. If any of the following risks or uncertainties actually occurs, our business, financial condition, results of operations, cash flows and prospects would likely suffer, possibly materially. In addition, the trading price of our common stock could decline due to any of these risks or uncertainties, and you may lose part or all of your investment.

Risks Related to Our Business and Our Industry

We have incurred net losses in the past and may not be able to achieve or sustain profitability in the future.

We have incurred significant losses in each year since inception, including net losses of $(10.4) million, $(21.8) million and $(15.6) million in 2010, 2011 and 2012, respectively, and net losses of $(7.9) million in the six months ended June 30, 2013. As a result of ongoing net losses, we had accumulated deficits of $(95.6) million at December 31, 2012 and $(103.5) million at June 30, 2013. We expect to continue to incur significant product development, sales and marketing, administrative and other expenses. We have only a limited operating history on which you can base your evaluation of our business and our ability to increase our revenue. We commenced operations in 2005 and began product sales in 2007. We will need to generate significant additional revenue to achieve and maintain profitability, and even if we achieve profitability, we cannot be sure that we will remain profitable for any substantial period of time. To the extent we are unable to become or remain profitable, the market price of our common stock will probably decline.

Our future revenue growth is substantially dependent upon the speed of adoption of 4G LTE technology by mobile service providers.

While we derive, and expect to continue to derive, a substantial portion of our revenue from our messaging solutions, we expect our future revenue growth to be driven largely by sales of our internet protocol (IP)-based voice, video, rich communications and enhanced messaging services, which collectively represent our 4G LTE solutions. IP-based communication services and 4G LTE technology represent new, data-packet-based mobile communications technologies, and their deployment is still in its early stages. Our 4G LTE solutions are dependent upon the use of 4G LTE technology because these solutions are high-bandwidth data applications that require the high-bandwidth access networking provided by 4G LTE technology.

Mobile service providers may delay implementation of 4G LTE technology for one or a number of reasons, including that they may not perceive an immediate need for improved quality, they may not know about the potential benefits that 4G LTE technology may provide or their subscribers may not be willing or able to pay for any increased costs that result from the implementation of 4G LTE technology. As a result, if 4G LTE technology is adopted more slowly than we expect, our future revenue growth will be materially and adversely affected.

Our revenue growth will be limited if mobile service providers choose the 4G LTE solutions of our competitors over ours, or if 4G LTE products and solutions do not achieve and sustain high levels of demand and market acceptance.

Our future revenue growth depends on mobile service providers choosing our 4G LTE solutions over those of our competitors. Additionally, the market for 4G LTE products and solutions is relatively new and still evolving, and it is uncertain whether these products and solutions will achieve and sustain high levels of demand and market acceptance. Even if mobile service providers perceive the benefits of 4G LTE products and solutions, they may not select our 4G LTE solutions for implementation and may instead choose our competitors’ solutions or wait for the introduction of other solutions and technologies that might serve as a replacement or substitute for, or represent an improvement over, our 4G LTE solutions, which would significantly and adversely affect our operating results. We began selling our 4G LTE solutions in the fourth quarter of 2007 and have generated $114.2 million of revenue from such solutions through June 30, 2013.

 

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Our future success depends significantly on our ability to sell our solutions to mobile service providers operating wireless networks that serve large numbers of subscribers.

Our future success depends significantly on our ability to sell our solutions to mobile service providers operating wireless networks that serve large numbers of subscribers and transport high volumes of traffic. The mobile communications services industry historically has been concentrated among a relatively small number of providers. For example, as of June 2013, the largest twenty mobile service providers in the world, as measured by number of mobile device connections, accounted for approximately 57% of total mobile device connections globally. Nine of these largest twenty mobile service providers are already our customers. Because the twenty largest mobile service providers continue to constitute a significant portion of the market for mobile communications equipment, our success depends significantly on our ability to sell solutions to them. Additionally, if we fail to expand our customer base to include additional customers that deploy our solutions in large-scale networks serving significant numbers of subscribers, our revenue growth will be limited.

Our future software products and maintenance revenue and our revenue growth depend significantly on the success of our efforts to sell additional solutions and maintenance services to our existing mobile service provider customers.

Our business strategy and our plan to achieve profitability depend significantly on our sales of additional solutions to our existing mobile service provider customers. In addition, our solutions are generally accompanied by right-to-use licenses under which we receive periodic payments based upon the numbers of subscribers to such services from time to time. Therefore, our growth will also depend on our customers’ expanded use of our solutions over greater numbers of subscribers over time. Mobile service providers may choose not to purchase additional solutions from us or may choose not to expand their use of, or not to purchase continued maintenance and support for, our solutions, or might delay additional purchases that we may expect. These events could occur for a number of reasons, including because our mobile service provider customers are not experiencing sufficient subscriber demand for the services that our solutions enable, or because mobile service providers choose solutions other than ours. If we are not successful in selling new and additional solutions to our existing mobile service provider customers or if those customers do not elect to expand their use of our solutions over additional subscribers in their networks, our revenue could grow at a slow rate or decrease and we may not achieve or maintain profitability.

Our success depends in large part on mobile service providers’ continued deployment of, and investment in, modern telephony equipment and rich communications solutions.

A significant portion of our product and solution suite is dedicated to enabling mobile service providers to deliver voice and multimedia services over newer and faster IP-based broadband networks. As a result, our success depends significantly on these mobile service providers’ continued deployment of, and investment in, their IP-based networks. Mobile service providers’ deployment of IP-based networks and their migration of communications services from existing circuit-based 2G and 3G networks to IP-based networks is still in its early stages. These mobile service providers’ continued deployment of, and investment in, IP-based networks and rich communications solutions depends on a number of factors outside of our control. These factors include capital constraints, the presence of available capacity on legacy networks, perceived subscriber demand for rich communications solutions, competitive conditions within the telecommunications industry and regulatory issues. If mobile service providers do not continue deploying and investing in their IP-based networks, for these or other reasons, our operating results will be materially and adversely affected.

Most of our competitors have longer operating histories, greater brand recognition, larger product and customer bases and significantly greater resources (financial, technical, sales, marketing and other) than we do, and we may lack sufficient financial or other resources to maintain or improve our competitive position.

Our principal competitors include major network infrastructure providers such as Alcatel-Lucent, Ericsson, Huawei, Nokia Siemens Networks, Samsung Electronics and ZTE Corporation as well as specialty solutions

 

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providers such as Acision, Acme Packet (recently acquired by Oracle), Broadsoft, Comverse, Metaswitch and Sonus Networks. Our brand is not currently as well-known as those of our larger and more established competitors. In addition, many of our competitors have significantly broader product bases and intellectual property portfolios, as well as significantly greater financial, technical, sales, marketing and other resources than we do. They therefore may be better positioned to acquire and offer complementary solutions and technologies. As a result, potential customers may prefer to purchase products or solutions from their existing suppliers or one of our larger competitors. In addition, larger competitors may have more flexibility to agree to financial terms that we are unable to agree to by virtue of our more limited financial resources. We expect increased competition from other established and emerging companies if our market continues to develop and expand. As we enter new markets, we expect to face competition from incumbent and new market participants.

In addition, some of our competitors have made acquisitions or entered into partnerships or other strategic relationships with one another to offer a more comprehensive solution than they had offered individually. This consolidation may continue as companies attempt to strengthen or maintain their market positions in an evolving industry and as companies enter into partnerships or are acquired. The competitors resulting from these possible consolidations may develop more compelling product or solution offerings and be able to offer greater pricing flexibility, making it more difficult for us to compete effectively, including on the basis of price, sales and marketing programs, technology, support capacity or product functionality. Industry consolidation may adversely impact perceptions of the viability of smaller and even medium-sized technology companies and, consequently, willingness of mobile service providers to purchase from such companies. These pricing pressures and competition from more comprehensive solutions could impair our ability to sell our solutions, which could negatively affect our revenues and results of operations.

We depend on a limited number of mobile service provider customers for a substantial portion of our revenue in any fiscal period, and the loss of, or a significant shortfall in orders from, key customers could significantly reduce our revenue.

We derive a substantial portion of our total revenue in any fiscal period from a limited number of mobile service provider customers as a result of the relatively concentrated nature of our target market and the relatively early stage of our development. During any given fiscal period, a small number of customers may account for a significant percentage of our revenue. For example, two of our end customers (T-Mobile USA and MetroPCS, now part of T-Mobile) together accounted for approximately 97% of our total revenue in 2010, three of our end customers (T-Mobile USA, AT&T and Vodafone) together accounted for approximately 49% of our total revenue in 2011, four of our end customers (AT&T, MetroPCS, now part of T-Mobile, T-Mobile USA and Vodafone) together accounted for approximately 55% of our total revenue in 2012 and four of our end customers (T-Mobile USA, Vodafone, AT&T, and Deutsche Telekom) together accounted for approximately 62% of our total revenue for the six months ended June 30, 2013. Generally, we do not have and we do not enter into multi-year purchase contracts with our customers, nor do we have contractual arrangements to ensure future sales of our solutions to our existing customers. Our inability to generate anticipated revenue from our key existing or targeted customers, or a significant shortfall in sales to them, would significantly reduce our revenue and adversely affect our business. Our operating results in the foreseeable future will continue to depend on our ability to effect sales to existing and other large mobile service provider customers. For more information about our existing customer base, please see “Our Business — Customers.”

Our large mobile service provider customers have substantial negotiating leverage, which may require that we agree to terms and conditions that could result in increased cost of sales, decreased revenues or delayed recognition of revenues and could adversely affect our operating results.

Many of our customers are large mobile service providers that have substantial purchasing power and leverage in negotiating contractual arrangements with us, including pricing terms. These large mobile service provider customers may require us to develop additional features and impose penalties related to performance issues, such as delivery, outages and response time. As we seek to sell more solutions to large mobile service providers, we may be required to agree to additional performance-based terms and conditions, which may affect the timing of revenue recognition and may adversely affect our operating results.

 

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We rely significantly on channel partners to sell our solutions in domestic and international markets, and if we are unable to maintain successful relationships with them, our business, operating results, liquidity and financial condition could be harmed.

We sell our solutions to mobile service providers both directly and, particularly in international markets, indirectly through channel partners such as telecommunications equipment vendors, value-added resellers and other resellers. We believe that establishing and maintaining successful relationships with these channel partners contributes, and will continue to contribute, to our success, but there can be no guarantee that any such relationships will continue. For example, our contract with Cisco Systems, currently our most significant channel partner in terms of revenue, may be terminated by Cisco with advance notice prior to the end of each automatically renewable one-year term, and we cannot be certain that Cisco will choose not to terminate this contract. Notwithstanding any such decision by Cisco, under our contract with Cisco we would have continuing fulfillment, maintenance and support obligations with respect to any ongoing end-user projects, and we must offer maintenance and support services to Cisco for all of our products already deployed by Cisco at the time of expiration or termination for at least five years from the last commercial sale of our products by Cisco prior to such expiration or termination. For more information about our contract with Cisco Systems, please see “Certain Relationships and Related Person Transactions — Reseller OEM Agreement with Cisco Systems” elsewhere in this prospectus.

Recruiting and retaining qualified channel partners and training them in our technology and solutions offerings require significant time and resources. To develop and expand our channels, we must continue to scale and improve our processes and procedures that support our channels, including investment in systems and training.

In addition, existing and future channel partners will only partner with us if we are able to provide them with competitive solutions on terms that are acceptable to them. If we fail to maintain the quality of our solutions or to update and enhance them, existing and future channel partners may elect to partner with one or more of our competitors. If we are unable to reach agreements that are beneficial to both parties, then our channel partner relationships will not succeed.

The reduction in or loss of sales by these channel partners could materially reduce our revenue, either temporarily or permanently. For example, our reseller agreement with Cisco Systems, our most significant sales channel by revenue, accounted for approximately 70%, 47% and 35% of our total revenue for the years ended December 31, 2010, 2011 and 2012, respectively, and 37% of our revenue for the six months ended June 30, 2013. We cannot assure you that our channel partners will continue to cooperate with us when our reseller agreements expire or are up for renewal. If we fail to maintain successful relationships with our channel partners, fail to develop new relationships with other channel partners in new markets, fail to manage, train or incentivize existing channel partners effectively, fail to provide channel partners with competitive solutions on terms acceptable to them, or if these partners are not successful in their sales efforts, our revenue may decrease and our operating results could suffer.

Our channel partners may offer their customers the products of several different companies, including those of our competitors. Our channel partners generally do not have an exclusive relationship with us; thus, we cannot be certain that they will prioritize or provide adequate resources for selling our solutions. Divergence in strategy or contract defaults by any of these channel partners may harm our ability to develop, market, sell or support our solutions. Furthermore, some of our competitors may have stronger relationships with our channel partners than we do, and we have limited control, if any, as to whether those partners resell our solutions, rather than our competitors’ products or solutions, or whether they devote resources to market and support our products or solutions rather than those of our competitors. Our failure to establish and maintain successful relationships with channel partners could materially and adversely affect our business, operating results, liquidity and financial condition.

The long and variable sales and deployment cycles for our solutions may cause our operating results to vary materially from quarter to quarter, which may negatively affect our operating results, and potentially our stock price, for any given quarter.

Our solutions have lengthy sales cycles, which typically extend from six to eighteen months. A mobile service provider’s decision to purchase our solutions often involves a significant commitment of its resources

 

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after an evaluation, qualification and competitive bid process with an unpredictable length. The length of our sales cycles also varies depending on the type of mobile service provider to which we are selling, the solution being sold and the type of network in which our product will be utilized. We may incur substantial sales, marketing and technical expenses and expend significant management effort during this time, regardless of whether we make a sale.

Even after making the decision to purchase our products, our mobile service provider customers may deploy our products slowly. Timing of deployment can vary widely among mobile service providers. The length of a mobile service provider’s deployment period may directly affect the timing of any subsequent purchase of additional solutions by that mobile service provider. In addition, in some situations we recognize revenue only upon the final acceptance of our solution by a customer, so the timing of purchase and deployment by our customers can significantly affect our operating results for a fiscal period.

As a result of the lengthy and uncertain sales and deployment cycles for our solutions, it is difficult for us to predict the quarter in which our mobile service provider customers may purchase additional solutions or features from us or in which we may recognize revenues. Therefore, our operating results may vary significantly from quarter to quarter, which may negatively affect our operating results, and potentially our stock price, for any given quarter.

As a further result of these lengthy sales cycles, we may accept terms or conditions that negatively affect pricing or payment in order to consummate a sale. Doing so can negatively affect our gross margin and results of operations. Alternatively, if mobile service providers ultimately insist upon terms and conditions that we deem too onerous or not to be commercially prudent, we may decline, and thus incur substantial expenses and devote time and resources to potential relationships that never result in completed sales or revenue. If this were to happen often, it would have a material adverse impact on our results of operations.

Our quarterly revenue and operating results are unpredictable and may fluctuate significantly from quarter to quarter due to factors outside our control, which could adversely affect our business, consolidated financial statements and the trading price of our common stock.

Our revenues and operating results may vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control and any of which may cause our stock price to fluctuate. Generally, purchases by mobile service providers of telecommunications solutions from software-based network solutions providers have been unpredictable and clustered, rather than steady, as the various mobile service providers build out their networks according to their own timing, resources and surrounding circumstances. The primary factors that may affect our revenues and operating results include, but are not limited to, the following:

 

   

fluctuations in demand for our 4G LTE solutions, our messaging solutions or our services, and the timing and size of customer orders;

 

   

length and variability of the sales cycle for our solutions;

 

   

competitive conditions in our markets, including the effects of new entrants, consolidation, technological innovation and substantial price discounting;

 

   

new solution announcements, introductions and enhancements by us or our competitors, which could result in deferrals of customer orders;

 

   

market acceptance of new solutions and solution enhancements that we offer and our services;

 

   

the mix of solution configurations sold;

 

   

the quality and degree of execution of our business strategy and operating plan, and the effectiveness of our sales and marketing programs;

 

   

our ability to develop, introduce, ship and successfully deliver new solutions and solution enhancements that meet customer requirements in a timely manner;

 

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our ability to provide customer support solutions in a timely manner;

 

   

our ability to meet mobile service providers’ solution installation and acceptance deadlines;

 

   

our ability to attain and maintain production volumes and quality levels for our solutions;

 

   

cancellation or deferral of existing customer orders or the renegotiation of existing contractual commitments;

 

   

changes in our pricing policies, the pricing policies of our competitors and the prices of the components of our solutions;

 

   

timing of revenue recognition and the application of complex revenue recognition accounting rules to our customer arrangements, including rules requiring that we estimate percentage of completion of a contract, the amount of time required to complete a contract and whether or not we expect to incur a loss on a contract;

 

   

consolidation within the telecommunications industry, including acquisitions of or by our mobile service provider customers;

 

   

general economic conditions in our markets, both domestic and international, as well as the level and pace of discretionary IT spending by businesses and of service choices by individual consumers;

 

   

fluctuations in foreign exchange rates;

 

   

variability and unpredictability in the rate of growth in the markets in which we compete;

 

   

costs related to acquisitions; and

 

   

corporate restructurings.

As with other software-based network solutions providers, we typically recognize a portion of our revenue in a given quarter from sales booked and shipped in the last weeks of that quarter. As a result, delays in customer orders may result in delays in shipments and recognition of revenue beyond the end of a given quarter. Additionally, as discussed elsewhere in this section, it can be difficult for us to predict the timing of receipt of major customer orders, and we are unable to control timing decisions made by our customers. As a result, our quarterly operating results are difficult to predict even in the near term and a delay in an anticipated sale past the end of a particular quarter may negatively impact our results of operations for that quarter, or in some cases, that year. Therefore, we believe that quarter-to-quarter comparisons of our operating results are a poor indication of our future performance. If our revenue or operating results fall below the expectations of investors or securities analysts or below any guidance we may provide to the market, the price of our common stock could decline substantially. Such a stock price decline could also occur when we have met our publicly stated revenue or operating results guidance.

A significant portion of our operating expenses is fixed in the short term. If revenues for a particular quarter are below expectations, we would likely be unable to reduce costs and expenses proportionally for that quarter. Any such revenue shortfall would, therefore, have a significant effect on our operating results for that quarter.

Consolidation in the communications industry can reduce the number of mobile service provider customers and adversely affect our business.

Historically, the communications industry has experienced, and it may continue to experience, consolidation and an increased formation of alliances among mobile service providers and between mobile service providers and other entities. For instance, in May 2013, two mobile service provider customers that have been significant customers of ours at certain times in the past, MetroPCS and T-Mobile USA, completed a merger transaction. MetroPCS and T-Mobile USA collectively accounted for approximately 24% of our revenue for the year ended December 31, 2012. As a result of the merger of T-Mobile USA and MetroPCS, or should one of our other significant mobile service provider customers consolidate or enter into an alliance with another customer, it is

 

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possible that the combined entity could reduce capital expenditures on technology that requires our solutions. It is also possible that such combined entity could decide to either use a different supplier or to renegotiate its supply and service arrangements with us. These consolidations or alliances may cause us to lose customers or require us to reduce prices as a result of enhanced customer leverage, which could have a material adverse effect on our business. We may not be able to offset the effects of any price reductions. We may not be able to expand our customer base to make up any revenue declines if we lose customers or business.

The quality of our support and services offerings is important to our mobile service provider customers, and if we fail to offer high quality support and services, mobile service providers may not buy our solutions and our revenue may decline.

Once our solutions are deployed within our mobile service provider customers’ networks, the customers generally depend on our support organization to resolve issues relating to those solutions. A high level of support is critical for the successful marketing and sale of our solutions. If we are unable to provide the necessary level of support and service to our customers, we could experience:

 

   

a loss of customers and market share;

 

   

a failure to attract new customers, including in new geographic regions;

 

   

increased service, support and warranty costs and a diversion of development resources; and

 

   

network performance penalties, including liquidated damages for periods of time that our customers’ networks are inoperable.

Any of the above results would likely have a material adverse impact on our business, revenue, results of operations, financial condition, liquidity and reputation.

Our business is dependent on our ability to maintain and scale our resources, and any significant disruption in our service and support could damage our reputation, result in a potential loss of customers and adversely affect our financial results.

Our reputation and ability to attract, retain and serve our mobile service provider customers is dependent upon the reliable performance of our service and support and our underlying technical infrastructure. Our systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be harmful to our business. If our services and/or support are unavailable when our customers attempt to access them, mobile service providers may not continue to purchase our services and support or our solutions as often in the future, or at all. In addition, customers of ours may seek a refund for solutions purchased under warranty.

As our customer base continues to grow, we will need an increasing amount of technical infrastructure, including human resources, to continue to satisfy the needs of our mobile service provider customers. It is possible that we may fail to effectively scale and grow our technical infrastructure to accommodate these increased demands. In addition, our business is subject to interruptions, delays or failures resulting from earthquakes, other natural disasters, terrorism or other catastrophic events.

We might require additional capital to support business growth, and this capital might not be available on terms favorable to us or at all.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new solutions or enhance our existing solutions and platform, upgrade our operating infrastructure and 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

 

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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, including shares of common stock sold in this offering. Any debt financing obtained by us in the future would likely be senior to our common stock, would likely cause us to incur interest expenses and could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may increase our expenses, make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may also be required to secure any such debt obligations with some or all of our assets. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. It is also possible that we may allocate significant amounts of capital toward solutions or technologies for which market demand is lower than anticipated and, as a result, abandon such efforts. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, or if we expend capital on projects that are not successful, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, or we may be required to reduce the scale of our operations. Any of these negative developments could have a material adverse effect on our business, operating results, liquidity, financial condition and common stock price.

If we lose members of our senior management or development team or are unable to recruit and retain key employees on a cost-effective basis, we may not be able to successfully grow our business.

Our success is substantially dependent upon the performance of our senior management and other key technical and development personnel. The loss of the services of one or more of these members of our team may significantly delay or prevent our development of successful solutions and the achievement of our business objectives. Our future success will also depend on our ability to attract, retain and motivate skilled personnel in the United States and internationally. Experienced management and technical, sales, marketing and support personnel in the telecom industry are in high demand, and competition for their talents is intense. We may not be successful in attracting and retaining such personnel on a timely basis, on competitive terms, or at all. The loss of, or the inability to recruit and retain, such employees could have a material adverse effect on our business.

We have experienced rapid growth in recent periods. If we fail to manage our growth effectively and develop and implement appropriate control systems, our business and financial performance may suffer.

We have substantially expanded our overall business, number of customers, headcount and operations in recent periods. We increased our number of full-time equivalent employees from approximately 150 as of January 1, 2010 to approximately 670 as of June 30, 2013. In particular, many members of our senior management and technical teams joined us recently. During this same period, we made investments in our information systems and significantly expanded our operations outside the United States through our acquisition of Airwide Solutions in May 2011. Our expansion has placed, and our expected future growth will continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. Our business model reflects our operation with limited infrastructure, support and administrative headcount, so risks related to managing our growth are particularly salient and we may not have sufficient internal resources to adapt or respond to unexpected challenges. Although we have put certain policies and procedures in place, certain of these policies have recently been adopted or recently changed and we have limited staff responsible for their implementation and enforcement. If we are unable to manage our growth successfully, or if our control systems do not operate effectively, our ability to provide high quality solutions and services could be harmed, which would damage our reputation and brand, and our business and operating results would suffer.

Prolonged negative economic conditions in domestic and global markets may adversely affect us, our suppliers, counterparties and consumers, which could harm our financial position.

As has been widely reported, global credit and financial markets have been experiencing extreme disruptions over the past several years, including severely diminished liquidity and availability of credit, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. Credit and financial markets and confidence in economic conditions might deteriorate further.

 

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Our general business strategy may be adversely affected by the recent economic downturn, the volatile business environment and continued unpredictable and unstable market conditions. In addition, there is a risk that one or more of our current mobile service providers, suppliers or other partners may not continue to operate, which could directly affect our ability to attain our operating goals on schedule and on budget. Any lender that is obligated to provide funding to us under any now existing or future credit agreement may not be able to provide funding in a timely manner, or at all, when we require it. The cost of, or lack of, available credit or equity financing could impact our ability to develop sufficient liquidity to maintain or grow our company, which in turn may adversely affect our business, results of operations, liquidity or financial condition. We also manage cash and cash equivalents and short-term investments through various institutions. There may be a risk of loss on investments based on the volatility of the underlying instruments that will prevent us from recovering the full principal of our investments. These negative changes in domestic and global economic conditions or additional disruptions of either or both of the financial and credit markets may also affect third-party payors and may have a material adverse effect on our stock price, business, results of operations, liquidity and financial condition.

If we undertake business combinations and acquisitions, they may be difficult to close or integrate, or they could disrupt our business, dilute stockholder value or divert management’s attention.

We have completed one business acquisition to date, when we acquired Airwide Solutions in May 2011 for a purchase price of $16.9 million. The primary purpose of the acquisition was to gain access to Airwide Solutions’s international customer base and infrastructure. In the future, we may continue to support our growth through acquisitions of businesses, services or technologies that we perceive to be complementary or otherwise beneficial to us. Future acquisitions involve risks, such as:

 

   

misjudgment with respect to the value, return on investment or strategic fit of any acquired operations or assets;

 

   

challenges associated with integrating acquired technologies, operations, financial reporting systems and cultures of acquired companies;

 

   

exposure to unforeseen liabilities;

 

   

diversion of management and other resources from day-to-day operations;

 

   

possible loss of key employees, clients, suppliers and partners;

 

   

higher than expected transaction costs;

 

   

potential loss of commercial relationships and customers based on their concerns regarding the acquired business or technologies; and

 

   

additional dilution to our existing stockholders if we use our common stock as consideration for such acquisitions.

As a result of these risks, we may not be able to achieve the expected benefits of any acquisition. If we are unsuccessful in completing or integrating acquisitions, we may be required to reevaluate our growth strategy and we may incur substantial expenses and devote significant management time and resources in seeking to complete and integrate the acquisitions.

Future business combinations could involve the acquisition of significant intangible assets. We may need to record write-downs from future impairments of identified intangible assets and goodwill. These accounting charges would reduce any future reported earnings or increase a reported loss. In addition, we could use substantial portions of our available cash, including some or substantially all of the proceeds of this offering, to acquire companies or assets. Subject to the provisions of our existing indebtedness, it is possible that we could incur additional debt or issue additional equity securities as consideration for these acquisitions, which could cause our stockholders to suffer significant dilution.

 

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During the audit of our consolidated financial statements for the year ended December 31, 2012 and the preparation of our financial statements for the six months ended June 30, 2013, we determined we have material weaknesses and significant deficiencies in our internal controls over financial reporting, and we may experience additional material weaknesses or significant deficiencies in the future or otherwise fail to maintain an effective system of internal controls in the future, and may not be able to accurately report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

As a result of becoming a public company, we will be required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal controls over financial reporting beginning with our Annual Report on Form 10-K for the year ended December 31, 2014. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal controls over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis.

Prior to the completion of this offering, we have been a private entity with limited accounting personnel and other supervisory resources to execute accounting processes and address internal controls over financial reporting. In particular, in connection with the audit of our consolidated financial statements for the year ended December 31, 2012, our management and its independent registered public auditors identified a material weakness relating to the failure to record certain entries and adjustments during the year-end closing process. The material weakness resulted in several audit adjustments to our consolidated financial statements for the year ended December 31, 2012. Additionally, during the preparation of our financial statements for the six months ended June 30, 2013, management, along with our independent registered public accounting firm, identified a material weakness in our processes and procedures over system implementations. Specifically, our implementation of a revenue application during the first half of 2013 was not properly documented or tested, resulting in numerous adjustments to our financial statements for the six months ended June 30, 2013, but not to prior periods, and additional time needed to close.

Any material weakness, including those described above, could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our annual or interim combined financial statements that would not be prevented or detected on a timely basis. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weaknesses described above or avoid potential future material weaknesses.

We are further enhancing the computer systems processes and related documentation necessary to perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal controls over financial reporting, we will be unable to assert that our internal controls over financial reporting are effective. If we are unable to conclude that our internal controls over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would likely cause the price of our common stock to decline.

After we cease to be an emerging growth company under the federal securities laws, our independent registered auditors will be required to express an opinion on the effectiveness of our internal controls over financial reporting. Until that time, it is possible that a material weakness in internal controls over financial reporting could remain undetected as a result of our exemption from these auditor attestation requirements under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. See “Risks Related to Our Common Stock and this Offering — We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors” elsewhere in this section. If we are unable to confirm that our internal controls over financial reporting are effective, or if our independent registered auditors are unable to express an opinion on the effectiveness of our

 

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internal controls over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.

We expect to incur significant additional costs as a result of being a public company, which may adversely affect our operating results and financial condition.

We expect to incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC and the national stock exchanges. These rules and regulations are expected to increase our accounting, legal and financial compliance costs and make some activities more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements and we expect those costs to increase in the future. For example, we will be required to devote significant resources to complete the assessment and documentation of our internal control system and financial process under Section 404 of the Sarbanes-Oxley Act, including an assessment of the design, implementation and operating effectiveness of our information systems associated with our internal controls over financial reporting. We will incur significant costs to remediate any material weaknesses we identify through these efforts. We also expect these rules and regulations to make it more expensive for us to maintain directors’ and officers’ liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as executive officers. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

New laws and regulations, as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and rules adopted by the SEC and the national stock exchanges, would likely result in increased costs to us as we respond to their requirements, which may adversely affect our operating results and financial condition.

Changes in effective income tax rates or adverse outcomes resulting from examinations of our tax returns could adversely affect our operating results and financial condition.

Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 

   

any earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated in countries where we have higher statutory tax rates;

 

   

changes in the valuation of our deferred tax assets and liabilities;

 

   

expiration of, or lapses in, the research and development tax credit laws;

 

   

expiration or non-utilization of net operating losses;

 

   

foreign withholding taxes for which no benefit is realizable;

 

   

tax effects of stock-based compensation;

 

   

costs related to intercompany restructurings;

 

   

changes in transfer pricing studies; or

 

   

changes in tax laws, regulations, accounting principles or interpretations thereof.

In addition, in the ordinary course of business we are subject to routine examinations of our income tax returns by federal, state and non-U.S. tax authorities regarding the amount of taxes due. An unfavorable outcome from one of these examinations may result in additional tax liabilities or other adjustments to our historical results.

 

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Furthermore, we may determine that it is advisable from time to time to repatriate earnings from non-U.S. subsidiaries under circumstances that could give rise to the imposition of potentially significant withholding taxes by the jurisdictions in which such amounts were earned and substantial tax liabilities in the United States. In addition, we may not receive the benefit of any offsetting tax credits, which also could adversely impact our effective tax rate. As of June 30, 2013, we held $2.5 million of our $20.5 million of cash and cash equivalents in accounts of our subsidiaries outside of the United States and we may incur significant tax liabilities if we repatriate those amounts.

Although we believe our tax estimates are reasonable, our ultimate tax liabilities may materially differ from the tax amounts recorded in our consolidated financial statements and may materially affect our income tax provision, net income or cash flows in the period or periods for which such determination is made.

We may be unable to utilize our net operating loss and/or our research tax credit carryforwards, which could adversely affect our operating results.

As of June 30, 2013, we had total net operating loss carryforwards of approximately $82.5 million, $73.0 million and $9.5 million on a global, U.S. and non-U.S. basis, respectively, after consideration of limitations of approximately $53.5 million, $12.5 million and $41.0 million on a global, U.S. and non-U.S. basis, respectively, placed on losses of the Airwide group of companies acquired by us during 2011. The tax effect of these remaining net operating loss carryforwards is approximately $27.8 million, $25.6 million and $2.2 million on a global, U.S. and non-U.S. basis, respectively. The U.S. net operating loss carryforwards will expire beginning in 2024. Of the tax-affected foreign net operating loss carryforwards, $1.2 million are carried forward indefinitely and the remainder begin to expire in 2013. As of June 30, 2013, we also had research and development tax credit carryforwards of approximately $0.8 million that will begin to expire in 2016. Due to our history of operating losses, we have established full valuation allowances against all of our deferred tax assets which include the tax effect of our net operating loss carryforwards and research and development tax credits.

Realization of these net operating loss and research tax credit carryforwards depends on many factors, including our future income. There is a risk that, due to regulatory changes or unforeseen reasons, our existing carryforwards could expire or otherwise be unavailable to offset future income tax liabilities, which would adversely affect our operating results. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards or other pre-change tax attributes to offset United States federal and state taxable income may be subject to limitations.

Public scrutiny of data privacy issues, worldwide or in particular countries or markets, may result in increased regulation and different industry standards, which could require us to incur significant expenses in order to comply or support compliance with such regulations or deter or prevent us from providing our solutions or services to our mobile service provider customers, thereby harming our business.

As part of our business, we supply and support telecommunications equipment as part of mobile service provider networks that collect and store personal information. We expect that collection and storage of personal information to increase, primarily in connection with increased use of mobile data access. The regulatory framework for privacy issues worldwide is currently uncertain and is likely to remain so for the foreseeable future. We or our mobile service provider customers may also face additional privacy issues as we or they expand in international markets, as many nations have privacy protections more stringent than those in the United States. For example, the European Union is in the process of proposing reforms to its existing data protection legal framework, which may result in a greater compliance burden for mobile service providers with subscribers in Europe. Various government and consumer agencies have also called for new regulation and changes in industry practices.

 

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We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. Increased domestic or international regulation of data utilization and distribution practices, including self-regulation, could require us to modify our operations and incur significant expense, which could have an adverse effect on our business, financial condition and results of operations. Our business, including our ability to operate and expand internationally, could be adversely affected if legislation or regulations are adopted, interpreted or implemented in a manner that is inconsistent with our current or planned business practices and that require changes to these practices, the design of our solutions or our customers’ or our privacy policies.

Compliance with worker health and safety laws and environmental laws could be costly, and noncompliance with these laws could cause us to be subject to material fines and result in substantial additional expenses.

Our hardware suppliers manufacture the standard servers and other hardware necessary to operate our solutions using substances regulated under various federal, state, local and international laws and regulations governing worker health and safety and the environment. If we and our contract manufacturers do not comply with these laws and regulations, we may suffer a loss of revenues, be unable to sell our solutions in certain markets and/or countries, be subject to penalties and enforced fees and/or suffer a competitive disadvantage. Costs to comply with current laws and regulations and/or similar future laws and regulations, if applicable, could include costs associated with modifying our solutions, recycling and other waste processing costs, legal and regulatory costs and insurance costs. We have recorded and may also be required to record additional expenses for costs associated with compliance with these regulations. We cannot assure you that the costs to comply with these new laws, or with current and future worker health and safety laws and environmental laws will not have a material adverse effect on our business, operating results and financial condition.

Risks Related to Our Intellectual Property and Our Technology

Infringement claims are common in our industry and third parties, including competitors, have and could in the future assert infringement claims against us or our customers that we are obligated to indemnify.

The communications industry is highly competitive and its technologies are complex. Companies file patent applications and obtain patents covering these technologies frequently and maintain programs to protect their intellectual property portfolios. In addition, patent holding companies regularly bring claims against communications companies. These patent holding companies and some communications companies actively search for, and routinely bring claims against, alleged infringers. For example, we were previously a defendant, along with a number of other communications companies, in a suit brought by a non-operating patent holding company alleging that each of the defendants had infringed upon one of its patents, which suit has been settled with respect to Mavenir.

Our solutions are technically complex and compete with the products and solutions of significantly larger companies. The likelihood of our being subject to infringement claims may increase as a result of our real or perceived success in selling solutions to mobile service providers, as the number of competitors in our industry grows and as we add functionality to our solutions. We may in the future receive communications from third parties alleging that we may be infringing their intellectual property rights. The visibility we receive from being a public company may result in a greater number of such allegations.

We have also agreed, and expect to continue to agree, to indemnify our customers for certain expenses or liabilities resulting from claimed infringement of intellectual property rights of third parties with respect to our solutions and software. As a result, in the case of infringement claims against these customers, we could be required to indemnify them for losses resulting from such claims or to refund license fees they have paid to us. If a customer asserts a claim for indemnification against us, we could incur significant costs and reputational harm disputing it. If we do not succeed in disputing it, we could face substantial liability.

 

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Regardless of the merit of third-party claims that we or our customers infringe their rights, these claims could:

 

   

be time-consuming and costly to defend;

 

   

divert our management’s attention and resources;

 

   

cause shipment and installation delays;

 

   

require us to redesign our solutions, which may not be feasible or cost-effective;

 

   

cause us to cease producing, licensing or using software or solutions that incorporate challenged intellectual property;

 

   

damage our reputation and cause customer reluctance to license our solutions; or

 

   

require us to pay amounts for past infringement, potentially including treble damages, or enter into royalty or licensing agreements to obtain the right to use a necessary product or component, which may not be available on terms acceptable to us, or at all.

It is possible that other companies hold patents covering technologies similar to one or more of the technologies that we incorporate into our solutions. In addition, new patents may be issued covering these technologies. Unless and until the U.S. Patent and Trademark Office issues a patent to an applicant, there is no reliable way to assess the scope of the potential patent. We may face claims of infringement from both holders of issued patents and, depending upon the timing, scope and content of patents that have not yet been issued, patents issued in the future. The application of patent law to the software technologies in the communications industry is particularly uncertain because the time that it takes for a software-related patent to issue is lengthy, which increases the likelihood of pending patent applications claiming inventions that may pre-date development of our own proprietary software. This uncertainty, coupled with litigation or the potential threat of litigation related to our intellectual property, could adversely affect our business, revenue, results of operations, financial condition and reputation.

If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur significant expenses to enforce our rights.

Our success depends to a significant degree upon the protection of our software and other proprietary technology rights, particularly our 4G LTE solutions. In addition to patents, we rely on trade secret, copyright and trademark laws and confidentiality agreements with employees and third parties, all of which offer only limited protection. Our confidentiality agreements may not effectively prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure. Others may independently discover our trade secrets and proprietary information, in which case we could not assert any trade secret rights against such parties. Furthermore, the steps we have taken to protect our intellectual property may not prevent misappropriation of our proprietary rights, the reverse engineering of our solutions or other circumvention, invalidation or challenge of our intellectual property.

Additionally, patent and other intellectual property protection outside the United States is generally not as comprehensive as in the United States and may not protect our intellectual property in some countries where our solutions are sold or may be sold in the future. Even if patents are granted outside the United States, effective enforcement in those countries may not be available. Many companies have encountered substantial intellectual property infringement in countries where we sell, or intend to sell, our solutions. Consequently, we may be unable to prevent our proprietary technology from being exploited abroad.

Policing the unauthorized use of our solutions, trademarks and other proprietary rights is expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of

 

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others. Such litigation could result in substantial costs and diversion of management resources, either of which could harm our business. Moreover, such litigation could provoke our opponents to assert counterclaims that we infringe their own intellectual property. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.

Our patent applications may not result in issued patents, which may allow competitors to more easily exploit technology similar to ours.

Our business depends in part on our ability to maintain adequate protection of our intellectual property for our technologies and solutions and potential solutions in the United States and other countries. We have adopted a strategy of seeking patent protection in the United States and in other countries with respect to certain of the technologies used in or relating to our solutions and processes. As of June 30, 2013, we had a total of ten patent applications pending in the United States, and 19 pending non-U.S. patent applications, many of which are counterparts to our U.S. patents or patent applications. These patent applications are directed to aspects of our technology and/or to our methods and solutions that support our business. However, the issuance and enforcement of patents involve complex legal and factual questions. Accordingly, we cannot be certain that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us will cover our technology or the methods or products that support our business, or afford protection against competitors with similar technology. Moreover, the issuance of a patent is not conclusive as to its validity, scope or enforceability, and competitors or other third parties might successfully challenge the validity, scope or enforceability of any issued patents should we try to enforce them. In addition, patent applications filed in other countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that non-U.S. patent applications will be granted even if corresponding U.S. patents are issued.

If new industry standards emerge or if we are unable to respond to rapid technological advances in a timely manner, mobile service providers may not buy our solutions and our revenue may decline.

The market for telecommunications products and solutions is characterized by rapid technological advances, frequent introductions of new products, evolving industry standards and recurring or unanticipated changes in customer requirements. To succeed, we must effectively anticipate, and adapt in a timely manner to, customer requirements and continue to develop or acquire new solutions and features that meet market demands, technology and architectural trends and new industry standards. This requires us to identify and gain access to or develop new technologies. The introduction of new or enhanced solutions also requires that we carefully manage the transition from older products to minimize disruption in customer ordering practices and ensure that new solutions can be timely delivered to meet demand.

Developing our solutions is expensive, complex and involves uncertainties and requires significant research and development expenditures. We may not have sufficient resources to successfully manage lengthy development cycles. In 2010, 2011, 2012 and the six months ended June 30, 2013, our research and development expenses were $6.5 million, or 79% of our total revenue, $15.0 million, or 30% of our total revenue, $23.3 million, or 32% of our total revenue, and $11.5 million, or 24% of our total revenue, respectively. We believe we must continue to dedicate a significant amount of resources to our research and development efforts to remain competitive. These investments may take several years to generate positive returns or they may never do so. In addition, we may experience design, manufacturing, marketing and other difficulties that could delay or prevent the development, introduction or marketing of new solutions and enhancements. If we fail to meet our development targets, demand for our solutions will decline. Even if we introduce new solutions and enhancements, we may experience a decline in demand for, or revenue from, our existing solutions that is not fully matched by the revenue from new solutions. For example, customers may delay making purchases of a new solution to make a more thorough evaluation of such solution, or until industry reviews become widely available. In addition, we may lose existing customers who choose a competitor’s solution rather than migrate to our new solution. This could result in a temporary or permanent revenue shortfall and harm our business.

 

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Furthermore, because our solutions are based on complex technology, we can experience unanticipated delays in developing, improving or deploying them. Each phase in the development of our solutions presents serious risks of failure, rework or delay, any one of which could impact the timing and cost effective development of such solution and could jeopardize customer acceptance of the solution. Intensive software testing and validation are critical to the timely introduction of enhancements to several of our solutions and schedule delays sometimes occur in the final validation phase. Unexpected intellectual property disputes, failure of critical design elements and a variety of other execution risks may also delay or even prevent the introduction of these solutions. In addition, the introduction of new solutions by competitors, the emergence of new industry standards or the development of entirely new technologies to replace existing product offerings could render our existing or future solutions obsolete. If our solutions become technologically obsolete, mobile service providers may purchase solutions from our competitors and we may be unable to sell our solutions in the marketplace and generate revenue, which would have a material adverse effect on our financial condition, results of operations or cash flows.

We may not be able to detect errors or defects in our solutions until after full deployment and product liability claims by customers could result in substantial costs.

Our solutions are sophisticated and are designed to be deployed in large and complex telecommunications networks that require a very high degree of reliability. Because of the nature of our solutions, they can only be fully tested when substantially deployed in very large networks with high volumes of telecommunications traffic. Some of our mobile service provider customers have only recently begun to commercially deploy our solutions and they may discover errors or defects in the software, or the solutions may not operate as expected. Because we may not be able to detect these problems until full deployment, any errors or defects in our solutions could affect the functionality of the networks in which they are deployed, given the use of our solutions in business-critical applications. As a result, the time it may take us to rectify errors can be critical to our mobile service provider customers. Because of the complexity of our solutions, it may take a material amount of time and resources for us to resolve errors or defects, if we can resolve them at all. The likelihood of such errors or defects is heightened as we acquire new products and solutions from third parties, whether as a result of acquisitions or otherwise.

Because our mobile service provider customers’ telecommunications networks into which they deploy our solutions require a very high degree of reliability, the consequences of an adverse effect on their networks, including any type of communications outage, can be very significant and costly. If any network problems were caused, or perceived to be caused, by errors or defects in our solutions, our reputation and the reputation of our solutions could be significantly damaged with respect to that customer and other customers. Such problems could lead to a loss of that customer or other customers.

If one of our solutions fails, we could also experience:

 

   

payment of liquidated damages for performance failures;

 

   

loss of, or delay in, revenue recognition;

 

   

increased service, support, warranty, product replacement and product liability insurance costs, as well as a diversion of development resources; and

 

   

costly and time-consuming legal actions by our customers, which could result in significant damages awards against us.

Any of the above events would likely have a material adverse impact on our business, revenue, results of operations, financial condition and reputation.

 

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We currently use a limited number of standard hardware suppliers, and in the event any such supplier ceases to supply us timely, qualifying a replacement hardware supplier could require thirty to sixty days, during which time there could be some delay in our scheduled delivery to one or more of our mobile service provider customers, potentially damaging that customer relationship.

We currently use a limited number of suppliers for the standard servers and other standard hardware necessary to operate our solutions and to fulfill our customers’ orders on a timely basis. Although we have not experienced any significant supplier delay in the past, purchasing from third-party hardware suppliers exposes us to a limited risk of short-term unavailability of adequate supply because we do not have hardware manufacturing capabilities. In the event any such supplier ceases to supply us timely, qualifying a replacement hardware supplier could require thirty to sixty days, during which time there could be some delay in our scheduled delivery to one or more of our customers, potentially damaging that customer relationship.

Man-made problems such as computer viruses or terrorism may disrupt our operations and could adversely affect our operating results and financial condition.

Despite our implementation of network security measures, our servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems. Any such event could have a material adverse effect on our business, operating results and financial condition. Efforts to limit the ability of third parties to disrupt the operations of the Internet or undermine our own security efforts may be ineffective. In addition, the continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to the economies of the United States and other countries and create further uncertainties or otherwise materially harm our business, operating results, and financial condition. Likewise, events such as widespread electrical blackouts could have similar negative impacts. To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders or the development or shipment of our solutions, our business, operating results, financial condition and reputation could be materially and adversely affected.

We may not be able to obtain necessary licenses of third-party technology on acceptable terms, or at all, which could delay sales and development and adversely impact the quality of our solutions.

We have incorporated third-party licensed technology into our current solutions. We anticipate that we are also likely to need to license additional technology from third parties to develop new solutions or enhancements in the future. Third-party licenses may not be available or continue to be available to us on commercially reasonable terms or at all. The inability to retain any third-party licenses required in our current solutions or to obtain any new third-party licenses to develop new solutions and enhancements could require us to obtain substitute technology of lower quality or performance standards or at greater cost, and delay or prevent us from making these solutions or enhancements, any of which could seriously harm the competitive position of our solutions.

We use some open source software in developing our solutions, which could in certain circumstances subject us to claims or judgments that some of our proprietary code is subject to general release or could require us to re-engineer our solutions and the firmware contained therein, which could materially harm our business and operating results.

We use open source software in developing our solutions, including in connection with our proprietary software, and we may use more open source software in the future. From time to time, there have been claims against companies that use open source software in their products challenging the ownership of such open source software or the terms and conditions upon which those companies make such products available to end users. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software or claiming that we have failed to comply with applicable licensing terms. Some open source licenses contain requirements that the licensee make available source code for modifications or derivative works created

 

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based upon the open source software and that the licensee license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. If we combine our proprietary firmware or other software with open source software in a certain manner, we could, under certain of the open source licenses, be required to release our proprietary source code publicly or license such source code on unfavorable terms or at no cost. Although we take steps to protect against our using any open source software that may subject our firmware to general release or require us to re-engineer our solutions and the firmware contained therein, we cannot guarantee that they will be effective, nor that we will not be subject to claims asserting or judgments holding that some of our proprietary source code is subject to general release or that we are required to re-engineer our solutions and firmware. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software. Open source license terms relating to the disclosure of source code in modifications or derivative works to the open source software are often ambiguous, and few if any courts in jurisdictions applicable to us have interpreted such terms. As a result, many of the risks associated with usage of open source software cannot be eliminated, and could, if not properly addressed, negatively affect our business.

Risks Related to Our International Operations

We are exposed to risks related to our international operations and failure to manage these risks may adversely affect our operating results and financial condition.

We market, license and service our solutions globally and have a number of offices around the world. During the years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2013, 1%, 49%, 54% and 59% of our revenue, respectively, was attributable to our customers outside of the United States. As of June 30, 2013, approximately 82% of our employees were located outside of the United States. We expect that our international activities will be dynamic over the foreseeable future as we continue to pursue opportunities in international markets. Therefore, we are subject to risks associated with having worldwide operations. These international operations will require significant management attention and financial resources.

International operations are subject to inherent risks and our future results could be adversely affected by a number of factors, including:

 

   

requirements or preferences for domestic products or solutions, which could reduce demand for our solutions;

 

   

differing technical standards, existing or future regulatory and certification requirements and required features and functionality;

 

   

management communication and integration problems related to entering new markets with different languages, cultures and political systems;

 

   

greater difficulty in collecting accounts receivable and longer collection periods;

 

   

difficulties in enforcing contracts;

 

   

difficulties and costs of staffing and managing operations outside of the United States;

 

   

the uncertainty of protection for intellectual property rights in some countries;

 

   

potentially adverse tax consequences, including regulatory requirements regarding our ability to repatriate profits to the United States;

 

   

tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell our solutions in certain non-U.S. markets; and

 

   

political and economic instability and terrorism.

 

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Additionally, our international operations expose us to risks of fluctuations in foreign currency exchange rates. In certain circumstances and depending on the currencies in which certain sales are denominated and the countries in which we are profitable or not profitable, a significant decrease or increase in the value of the U.S. dollar relative to the value of other local currencies could have a material adverse effect on the gross margins and profitability of our international operations. To date, we have not used risk management techniques to hedge the risks associated with these fluctuations. Even if we were to implement hedging strategies, not every exposure can be hedged and, where hedges are put in place based on expected foreign currency exchange exposure, they are based on forecasts that may vary or that may later prove to have been inaccurate. As a result, fluctuations in foreign currency exchange rates or our failure to successfully hedge against these fluctuations could have a material adverse effect on our operating results and financial condition.

Failure to comply with the United States Foreign Corrupt Practices Act, or FCPA, and similar laws associated with our activities outside the United States could subject us to penalties and other adverse consequences.

As a substantial portion of our revenues is, and we expect will continue to be, from jurisdictions outside of the United States, we face significant risks if we fail to comply with the FCPA and other laws that prohibit improper payments or offers of payment to governments and their officials and political parties by us and other business entities for the purpose of obtaining or retaining business. In many countries, particularly in countries with developing economies, some of which represent significant markets for us, it may be a local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA or other laws and regulations. Although we have implemented a company policy requiring our employees and consultants to comply with the FCPA and similar laws, such policy may not be effective at preventing all potential FCPA or other violations. We also cannot guarantee the compliance by our channel partners, resellers, suppliers and agents with applicable U.S. laws, including the FCPA, or applicable non-U.S. laws. Therefore there can be no assurance that none of our employees and agents, or those companies to which we outsource certain of our business operations, will take actions in violation of our policies or of applicable laws, for which we may be ultimately held responsible. As a result of our focus on managing our growth, our development of infrastructure designed to identify FCPA matters and monitor compliance is at an early stage. Any violation of the FCPA and related policies could result in severe criminal or civil sanctions, which could have a material and adverse effect on our reputation, business, operating results and financial condition.

We may become subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.

Our solutions may become subject to United States export controls under which they would be permitted to be exported outside the United States only with the required level of export license, through an available export license exception or if designated EAR 99 (no license required), if certain of our solutions in the future contain certain levels of encryption technology. In addition, various countries regulate the import of certain encryption technology and have enacted laws that could limit our ability to distribute certain of our solutions or could limit our mobile service provider customers’ ability to implement these solutions in those countries. Changes in our solutions or changes in export and import regulations may create delays in the introduction of our solutions in non-U.S. markets, prevent our customers with international operations from deploying our solutions throughout their networks or, in some cases, prevent the export or import of our solutions to certain countries altogether. Any change in export or import laws and regulations, shifts in approach to the enforcement or scope of existing laws and regulations, or change in the countries, persons or technologies targeted by such regulations, could result in decreased use of our solutions by, or in our decreased ability to export or sell our solutions to, existing or potential customers with international operations. Any decreased use of our solutions or limitation on our ability to export or sell our solutions would likely adversely affect our business, operating results and financial condition.

 

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Risks Related to Our Common Stock and this Offering

No public market for our common stock currently exists and an active trading market may not develop or be sustained following this offering.

Prior to this initial public offering, there has been no public market for our common stock. An active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value or the trading price of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

Our stock price may be volatile, and you may not be able to resell shares of our common stock at or above the price you paid.

The initial public offering price for our common stock has been determined through our negotiations with the underwriters and may not be representative of the price that will prevail in the open market following the offering. Our stock price after the completion of this offering may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed in this “Risk Factors” section of this prospectus and others such as:

 

   

a slowdown in the telecommunications industry or the general economy;

 

   

actual or anticipated quarterly or annual variations in our results of operations or those of our competitors;

 

   

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

 

   

changes in earnings estimates or recommendations by securities analysts;

 

   

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

 

   

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

 

   

competition from existing technologies and products or new technologies and products that may emerge;

 

   

the entry into, modification or termination of customer contracts;

 

   

developments with respect to intellectual property rights;

 

   

sales, or the anticipation of sales, of our common stock by us, our insiders or our other stockholders, including upon the expiration of contractual lock-up agreements;

 

   

our ability to develop and market new and enhanced solutions on a timely basis;

 

   

our commencement of, or involvement in, litigation;

 

   

additions or departures of key management or technical personnel; and

 

   

changes in governmental regulations applicable to our solutions.

In addition, in recent years, the stock markets generally, and the market for technology stocks in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may significantly affect the market price of our common stock, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our common stock shortly following this offering. If the market price of

 

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shares of our common stock after this offering does not ever exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.

In addition, in the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in our stock price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert management’s attention and resources from our business.

Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.

The trading market for our common stock will be influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a newly public company, we may be slow to attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with our company, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports covering us, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

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

We anticipate that our executive officers, directors, current five percent or greater stockholders and affiliated entities will together beneficially own approximately     % of our common stock outstanding after this offering, or     % if the underwriters exercise in full their option to purchase additional shares. These stockholders may in some instances exercise their influence in ways that you do not believe are in your best interests as a stockholder. In particular, these stockholders, acting together, may be able to control our management and affairs and matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing a change of control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if such a change of control would benefit our other stockholders. This significant concentration of share ownership may adversely affect the trading price for our common stock because some investors perceive disadvantages in owning stock in companies with concentrated equity ownership.

We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not emerging growth companies. In particular, while we are an emerging growth company (i) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (ii) we will be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements, (iii) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and (iv) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved. We may remain an emerging growth company until as late as December 31, 2018 (the fiscal year-end following the fifth anniversary

 

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of the completion of this initial public offering), though we may cease to be an emerging growth company earlier under certain circumstances, including (i) if the market value of our common stock that is held by nonaffiliates exceeds $700 million as of any June 30, in which case we would cease to be an emerging growth company as of the following December 31 or (ii) if our gross revenues exceed $1 billion in any fiscal year.

The exact implications of the JOBS Act are still subject to interpretation and guidance by the SEC and other regulatory agencies, and we cannot assure you that we will be able to take advantage of all of the benefits of the JOBS Act. In addition, investors may find our common stock less attractive if we rely on the exemptions and relief granted by the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, our stock price may decline and/or become more volatile and we may face difficulties raising capital from the public equity markets in the future.

Our management might apply the proceeds of this offering in ways that do not increase the value of your investment.

Our management will have broad discretion as to the use of the net proceeds of this offering and you will be relying on the judgment of our management regarding the application of these proceeds. We might apply the net proceeds of this offering in ways with which you do not agree, or in ways that do not yield a favorable return. If our management applies these proceeds in a manner that does not yield a significant return, if any, on our investment of these net proceeds, it would adversely affect the market price of our common stock. For more information on our management’s planned use of proceeds, please read “Use of Proceeds” elsewhere in this prospectus.

Because our initial public offering price is substantially higher than the pro forma net tangible book value per share of our outstanding common stock, new investors will incur immediate and substantial dilution.

The initial public offering price is substantially higher than the pro forma net tangible book value per share of common stock based on our total tangible assets, which consist of our total assets, reduced by the amount of our total liabilities, goodwill and intangible assets immediately following this offering. Therefore, if you purchase common stock in this offering, you will experience immediate and substantial dilution of approximately $         per share in pro forma as adjusted net tangible book value (based upon an offering price of $        , the midpoint of the price range on the cover of this prospectus), the difference between the price you pay for our common stock and its pro forma as adjusted net tangible book value per share after completion of this offering. Please read “Dilution” for more information on this calculation. Furthermore, any issuance of shares in connection with acquisitions by us, the exercise of stock options or warrants or otherwise would dilute the percentage ownership held by the investors who purchase our shares in this offering.

A significant portion of our total outstanding shares of common stock is restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is operating successfully.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. As of June 30, 2013, entities affiliated with North Bridge Venture Partners, entities affiliated with Austin Ventures, entities affiliated with Alloy Ventures, entities affiliated with August Capital and Cisco Systems, Inc. beneficially owned, collectively, approximately 92% of our outstanding common stock. If one or more of them were to sell a substantial portion of the shares they hold, it could cause our stock price to decline. Based on shares outstanding as of June 30, 2013, upon completion of this offering, we will have approximately              million outstanding shares of common stock, assuming no exercise of the underwriters’ option to purchase additional shares. As of the date of this prospectus, approximately              million shares of common stock will be subject to a 180-day contractual lock-up with the underwriters. The underwriters may, in their sole discretion and without notice, release all or any portion of the

 

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shares from these lock-up arrangements, and the lock-up agreements are subject to certain exceptions. See “Underwriters” for more information. Of the shares subject to a contractual lock-up with the underwriters, approximately              million shares of common stock also will be subject to a 180-day contractual lock-up with us.

After this offering, holders of an aggregate of approximately 115 million shares of our common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.

In addition, as of June 30, 2013, there were 20,260,292 shares subject to outstanding options granted under the Mavenir Systems, Inc. 2005 Stock Plan and our 2013 Equity Incentive Plan that will become eligible for sale in the public market to the extent permitted by any applicable vesting requirements, the lock-up agreements described above and Rules 144 and 701 under the Securities Act of 1933. We intend to register the shares of common stock issuable upon exercise of these options. We also intend to register all 11,723,202 shares of common stock that, as of June 30, 2013, we may issue under the Mavenir Systems, Inc. 2013 Equity Incentive Plan and all 3,375,000 additional shares of common stock that, as of June 30, 2013, we may issue under our 2013 Employee Stock Purchase Plan. Once we register these shares, they can be freely sold in the public market upon issuance and once vested, subject to the 180-day lock-up periods under the lock-up agreements described above and in the “Underwriters” section of this prospectus.

We do not anticipate paying any cash dividends in the foreseeable future, and accordingly, stockholders must rely on stock appreciation for any return on their investment.

After the completion of this offering, we do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. In addition, the terms of our loan and security agreement with Silicon Valley Bank currently restrict our ability to pay dividends. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not invest in our common stock.

Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Our amended and restated certificate of incorporation and our amended and restated bylaws to be effective upon the completion of this offering will contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include:

 

   

providing for a classified Board of Directors with staggered, three-year terms;

 

   

prohibiting cumulative voting in the election of directors;

 

   

providing that our directors may be removed only for cause;

 

   

authorizing the Board of Directors to issue, without stockholder approval, preferred stock with rights senior to those of our common stock;

 

   

authorizing the Board of Directors to change the authorized number of directors and to fill board vacancies until the next annual meeting of the stockholders;

 

   

requiring the approval of our Board of Directors or the holders of a supermajority of our outstanding shares of capital stock to amend our bylaws and certain provisions of our amended and restated certificate of incorporation;

 

   

requiring stockholders that seek to present proposals before, or to nominate candidates for election of directors at, a meeting of stockholders to provide advance written notice of such proposals or nominations;

 

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prohibiting stockholder action by written consent;

 

   

limiting the liability of, and providing indemnification to, our directors and officers;

 

   

prohibiting our stockholders from calling a special stockholder meeting;

 

   

requiring an advance notification procedure for stockholder nominations and proposals; and

 

   

providing that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action, actions asserting a breach of fiduciary duty and certain other actions against us or any directors or executive officers.

As a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits “business combinations” between a Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock, for a three-year period following the date that the stockholder became an interested stockholder.

These and other provisions in our amended and restated certificate of incorporation and our amended and restated bylaws to be effective upon the completion of this offering and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay in the future for shares of our common stock and result in the market price of our common stock being lower than it would be without these provisions. For more information, please read “Description of Capital Stock — Anti-Takeover Effects of Delaware Law and Certain Provisions of our Certificate of Incorporation Amended and Restated Bylaws” and “Description of Capital Stock — Choice of Forum.”

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Our Business.” All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

Forward-looking statements include, but are not limited to, statements about:

 

   

our expectations regarding our revenue, expenses, sales, operations and profitability;

 

   

commercial acceptance of 4G LTE technology;

 

   

the development of markets for our products and solutions;

 

   

our ability to attract and retain customers;

 

   

future purchases of our solutions and support and maintenance services by existing customers;

 

   

the potential loss of or reductions in orders from our significant customers;

 

   

our ability to compete in our industry and innovation by our competitors;

 

   

our ability to anticipate market needs or develop new or enhanced solutions to meet those needs;

 

   

our ability to successfully identify, manage and integrate any potential acquisitions;

 

   

our ability to establish and maintain intellectual property protection for our solutions;

 

   

our ability to hire and retain key personnel;

 

   

our expectations regarding the use of proceeds from this offering; and

 

   

our anticipated cash needs and our estimates regarding our capital requirements.

These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results of operation, financial condition, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements contained in this prospectus are reasonable, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which projections we cannot be certain. Moreover, we operate in a competitive and rapidly-changing industry in which new risks may emerge from time to time, and it is not possible for management to predict all risks.

You should refer to the section of this prospectus entitled “Risk Factors” for a discussion of important risks that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors and new risks that may emerge in the future, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake to update any of the forward-looking statements after the date of this prospectus, except to the extent required by law.

 

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INDUSTRY AND MARKET DATA

This prospectus contains estimates, information and data concerning the telecommunications industry — including estimates and forecasts of market share, size and growth rates — that are based on industry publications and reports, including those generated by the Cisco Visual Networking Index, Ericsson, Gartner, IDC, Informa Telecoms and Media, Infonetics and Ovum. Although we have not independently verified the data contained in these industry publications and reports, we believe based on our industry experience that these publications are reliable and that the conclusions they contain are reasonable. However, you should not give undue weight to the information contained in these reports because such information involves a number of assumptions and limitations and if any of these assumptions turn out to be incorrect, actual results may differ from the projections based on these assumptions. The markets described in these reports may not grow at the rates projected or at all, which could have a material adverse effect on our business and on the market price of our common stock.

The Gartner report described herein, Forecast: Carrier Network Infrastructure, Worldwide, 2010–2017 3Q13 Update,” September 2013, represents data, research opinion or viewpoints published as part of a syndicated subscription service by Gartner, Inc., and are not representations of fact. The Gartner report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner report are subject to change without notice.

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 of this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the publishers of these industry publications and reports and by us.

DESCRIPTION OF KEY TERMS USED IN OUR INDUSTRY

In this prospectus, we discuss a number of terms specific to the mobile communications industry.

 

   

IP-based communication refers to the transmission of voice and text data utilizing the more efficient packet-based internet protocol that underlies the internet, rather than through traditional and less efficient circuit-switched phone networks.

 

   

Voice-Over-LTE, or VoLTE, refers to the ability to deliver voice services over next-generation Long Term Evolution (LTE) networks by treating voice as data.

 

   

Voice-Over-Wi-Fi, or VoWi-Fi, refers to the ability to deliver voice services over wireless internet (Wi-Fi) networks by treating voice as data.

 

   

Enhanced messaging includes, in addition to the communication methods offered by rich communication services, voice and video mail and interworking with social media platforms.

 

   

Rich Communication Services, or RCS, refers to a set of standards set forth by the GSM Association (GSMA), a worldwide association of mobile service providers, that define an integrated set of mobile communication methods that includes instant messaging, voice or video calling, multimedia file transfer and live video streaming from one user to another over mobile networks.

 

   

Cloud-based refers to the delivery of communication services from a single, consolidated services network to a single subscriber identity shared across multiple devices reachable across different access networks, all of which share common stored data and synchronized services.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering of              shares of our common stock, after deducting underwriting discounts and estimated offering costs payable by us, will be approximately $         million, assuming an initial public offering price of $         per share (the midpoint of the price range set forth on the cover page of this prospectus), or approximately $         million if the underwriters exercise in full their option to purchase additional shares. Each $1.00 increase or decrease in the assumed initial public offering price would increase or decrease, as applicable, our cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and assuming no exercise of the underwriters’ option to purchase additional shares, and after deducting the estimated underwriting discounts and estimated offering costs payable by us. We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholders.

The principal purposes of this offering are to obtain additional capital, create a public market for our common stock, facilitate future access to public equity markets, increase awareness of our company among potential customers and improve our competitive position.

We intend to use the net proceeds of this offering for working capital and other general corporate purposes, which may include financing growth (including payment of increased levels of expenditures), developing new products and funding capital expenditures, acquisitions and investments. We have not yet determined the manner in which we will allocate the net proceeds, and management will retain broad discretion in the allocation and use of the net proceeds, including the possibility of restructuring or repaying debt. The amount and timing of these expenditures will vary depending on a number of factors, including the amount of any cash generated by our operations, competitive and technological developments and the rate of growth, if any, of our business. Until we use the net proceeds of this offering, we intend to invest the net proceeds in short-term and immediate-term interest-bearing obligations, investment-grade securities, certificates of deposit or guaranteed obligations of the U.S. government.

DIVIDEND POLICY

We have not declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to fund the development and expansion of our business, and therefore we do not anticipate paying cash dividends on our common stock in the foreseeable future. In addition, the terms of our loan and security agreement with Silicon Valley Bank currently restrict our ability to pay dividends.

Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our results of operations, financial condition, capital requirements and other factors deemed relevant by our Board of Directors.

 

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CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2013:

 

   

on an actual basis;

 

   

on an as adjusted basis to reflect the automatic conversion of all outstanding shares of redeemable convertible preferred stock into an aggregate of 115,167,418 shares of common stock upon the consummation of this offering; and

 

   

on an as further adjusted basis to reflect (1) the automatic conversion of all outstanding shares of redeemable convertible preferred stock into an aggregate of 115,167,418 shares of common stock upon the consummation of this offering, (2) the effectiveness of our amended and restated certificate of incorporation upon the consummation of this offering, (3) the issuance by us of shares of our common stock in this offering at an assumed initial public offering price of $         per share (the midpoint of the range set forth on the cover page of this prospectus) and (4) the application of our estimated net proceeds from this offering as set forth under “Use of Proceeds,” after deducting the estimated underwriting discounts and estimated offering costs payable by us, as if this offering had occurred on June 30, 2013.

 

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You should read the information below in conjunction with the consolidated financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 

     As of June 30, 2013  
     Actual     As Adjusted     As Further
Adjusted(1)
 
    

(in thousands)

 

Cash and cash equivalents

   $ 20,453      $ 20,453      $     
  

 

 

   

 

 

   

 

 

 

Long-term debt, net of debt discount of $1,847

   $ 38,153      $ 38,153      $     

Series A redeemable convertible preferred stock, $0.001 par value; 26,137,758 shares authorized, issued and outstanding, actual; 26,137,758 shares authorized and no shares issued and outstanding, as adjusted; no shares authorized, issued or outstanding, as further adjusted

     13,005        —          —     

Series B redeemable convertible preferred stock, $0.001 par value; 26,727,505 shares authorized, issued and outstanding, actual; 26,727,505 shares authorized and no shares issued and outstanding, as adjusted; no shares authorized, issued or outstanding, as further adjusted

     20,500        —          —     

Series C redeemable convertible preferred stock, $0.001 par value; 24,683,530 shares authorized and 18,316,941 shares issued and outstanding, actual; 24,683,530 shares authorized and no shares issued and outstanding, as adjusted; no shares authorized, issued or outstanding, as further adjusted

     17,478        —          —     

Series D redeemable convertible preferred stock, $0.001 par value; 12,100,007 shares authorized, issued and outstanding, actual; 12,100,007 shares authorized and no shares issued and outstanding, as adjusted; no shares authorized, issued or outstanding, pro forma as further adjusted

     13,575        —          —     

Series E redeemable convertible preferred stock, $0.001 par value; 32,135,213 shares authorized, 31,885,207 shares issued and outstanding, actual; 32,135,213 shares authorized and no shares issued and outstanding, as adjusted; no shares authorized, issued or outstanding, as further adjusted

     40,000        —          —     
  

 

 

   

 

 

   

 

 

 

Total redeemable convertible preferred stock

   $ 104,558      $ —        $         —     
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity (deficit):

      

Common stock, $0.001 par value; 155,203,902 shares authorized, 14,636,455 shares issued and 9,390,830 shares outstanding, actual; 155,203,902 shares authorized, 124,558,248 shares issued and outstanding, as adjusted; 300,000,000 shares authorized,             shares issued and outstanding, as further adjusted

     10        125     

Preferred stock, $0.001 par value; no shares authorized, issued and outstanding, actual; 20,000,000 shares authorized and no shares issued and outstanding, as adjusted

     —          —          —     

Additional paid-in capital

     3,151        107,594     

Accumulated (deficit)

    
(103,512

    (103,512  

Accumulated other comprehensive income

     1,464        1,464     
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity (deficit)

     (98,887     5,671     
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 5,671      $ 5,671      $     
  

 

 

   

 

 

   

 

 

 

 

(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, the midpoint of the price range reflected on the cover page of this prospectus, would increase (decrease) our cash and

 

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  cash equivalents, working capital, total assets, and total shareholders’ equity (deficit) by approximately $        million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and assuming no exercise of the underwriters’ option to purchase additional shares, and after deducting the estimated underwriting discounts and estimated offering costs payable by us.

The table above excludes the following:

 

   

20,260,292 shares of common stock issuable upon the exercise of options outstanding at June 30, 2013 at a weighted-average exercise price of $0.33 per share;

 

   

6,366,588 shares of common stock issuable upon the conversion and subsequent exercise of warrants to purchase redeemable convertible preferred stock at an exercise price of $0.9542 per share;

 

   

920,000 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $0.73 per share;

 

   

1,362,858 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $0.001 per share;

 

   

11,723,202 shares of common stock reserved for future issuance under our 2013 Equity Incentive Plan, as described in the section of this prospectus titled “Executive Compensation — Benefit Plans — 2013 Equity Incentive Plan”; and

 

   

3,375,000 additional shares of common stock reserved for future issuance under our 2013 Employee Stock Purchase Plan, subject to adjustment as described in the section of this prospectus titled “Executive Compensation — Benefit Plans — 2013 Employee Stock Purchase Plan.”

 

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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 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 after this offering.

Our net tangible book value, which we have defined as our total tangible assets less total liabilities, as of June 30, 2013 was $(0.6) million, or $(0.07) per share of common stock. Our pro forma net tangible book value per share, as of June 30, 2013, was $(0.00). Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities and divided by the total number of shares of common stock outstanding, including shares of common stock issuable upon the conversion of all outstanding shares of our redeemable convertible preferred stock upon the completion of this offering as if that conversion had occurred on June 30, 2013. Dilution in pro forma net tangible book value per share to new investors in this offering represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after the completion of this offering. After giving effect to the sale of              shares of common stock offered in this offering at an assumed initial public offering price of $        per share, the midpoint of the range set forth in the cover page of this prospectus, and after deducting underwriting discounts and estimated offering costs payable by us, our pro forma as adjusted net tangible book value as of June 30, 2013 would have been $        million, or $        per share of common stock. This represents an immediate increase in pro forma net tangible book value of $        per share to existing stockholders and an immediate dilution of $         per share to new investors, or approximately     % of the assumed initial public offering price of $        per share. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

  

Pro forma net tangible book value per share as of June 30, 2013, before giving effect to this offering

   $ —     

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

  

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

  
  

 

 

 

Immediate dilution in net tangible book value per share to new investors in this offering

   $               
  

 

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $        per share (the midpoint of the price range set forth on the cover of this prospectus) would increase or decrease, respectively, our pro forma as adjusted net tangible book value per share after this offering by $        per share and the dilution in pro forma as adjusted net tangible book value to new investors by $        per share, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and assuming no exercise of the underwriters’ option to purchase additional shares, and after deducting underwriting discounts and estimated offering costs payable by us.

The following table summarizes, on a pro forma as adjusted basis as of June 30, 2013 and after giving effect to the offering, based on an assumed initial public offering price of $        per share (the midpoint of the price range set forth on the cover of this prospectus), the differences between existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us, and the average price per share paid.

 

    Shares Purchased     Total Consideration     Average  Price
Per Share
 
    

Number

   Percent     Amount      Percent    

Existing stockholders

              $                             $                

New investors

           
 

 

  

 

 

   

 

 

    

 

 

   

Total

       100.0   $           100.0  
 

 

  

 

 

   

 

 

    

 

 

   

 

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A $1.00 increase or decrease in the assumed initial public offering price of $         per share (the midpoint of the price range set forth on the cover of this prospectus) would increase or decrease, respectively, total consideration paid by new investors and total consideration paid by all stockholders by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

Sales of shares of common stock by the selling stockholders in this offering will reduce the number of shares of common stock held by existing stockholders to                 , or approximately     % of the total shares of common stock outstanding after this offering, and will increase the number of shares held by new investors to                 , or approximately     % of the total shares of common stock outstanding after this offering.

The discussion and tables above assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters exercise their option to purchase additional shares of our common stock in full, our existing stockholders would own     % and our new investors would own     % of the total number of shares of our common stock outstanding after this offering.

The discussion and tables in this section are based on 124,558,248 shares of our common stock outstanding as of June 30, 2013, which number reflects the conversion of all of our redeemable convertible preferred stock into an aggregate of 115,167,418 shares of common stock. The number of shares of common stock outstanding after this offering excludes the following:

 

   

20,260,292 shares of common stock issuable upon the exercise of options outstanding at June 30, 2013 at a weighted-average exercise price of $0.33 per share;

 

   

6,366,588 shares of common stock issuable upon the conversion and subsequent exercise of warrants to purchase redeemable convertible preferred stock at an exercise price of $0.9542 per share;

 

   

920,000 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $0.73 per share;

 

   

1,362,858 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $0.001 per share;

 

   

11,723,202 shares of common stock reserved for future issuance under our 2013 Equity Incentive Plan, as described in the section of this prospectus titled “Executive Compensation — Benefit Plans — 2013 Equity Incentive Plan”; and

 

   

3,375,000 additional shares of common stock reserved for future issuance under our 2013 Employee Stock Purchase Plan, subject to adjustment as described in the section of this prospectus titled “Executive Compensation — Benefit Plans — 2013 Employee Stock Purchase Plan.”

To the extent any of these options or warrants are exercised, there will be further dilution to investors.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING INFORMATION

The following tables present our selected consolidated financial and operating data for the periods indicated. The summary consolidated statement of operations data for the years ended December 31, 2010, 2011 and 2012 and the summary consolidated balance sheet data as of December 31, 2011 and 2012 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data for the six months ended June 30, 2012 and 2013 and the summary consolidated balance sheet data as of June 30, 2013 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of December 31, 2010 have been derived from our audited consolidated financial statements, which are not included in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. The summary financial information below should be read in conjunction with the information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the consolidated financial statements and notes thereto, and other financial information included elsewhere in this prospectus.

 

     Year Ended December 31,     Six months ended June 30,  
           2010                 2011                 2012                 2012                 2013        
     (in thousands, except per share amounts)   
           (unaudited)   

Consolidated Statement of Operations Data:

          

Software product revenue

   $ 7,009      $ 38,264      $ 52,409      $ 29,333      $ 37,264   

Maintenance revenue

     1,242        11,240        21,431        10,616        10,926   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     8,251        49,504        73,840        39,949        48,190   

Cost of software product revenue

     4,537        26,200        23,891        11,247        17,414   

Cost of maintenance revenue

     566        4,584        6,568        3,844        2,827   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

     5,103        30,784        30,459        15,091        20,241   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     3,148        18,720        43,381        24,858        27,949   

Research and development expenses

     6,487        14,970        23,312        12,848        11,498   

Sales and marketing expenses

     3,813        12,332        20,580        8,607        9,656   

General and administrative expenses

     3,024        10,603        14,052        7,946        9,361   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,324        37,905        57,944        29,401        30,515   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (10,176     (19,185     (14,563     (4,543     (2,566

Net interest expense

     108        61        383        25        1,107   

Foreign exchange loss (gain)

     (21     1,182        (529     871        2,644   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense

     (10,263     (20,428     (14,417     (5,439     (6,317

Income tax expense

     131        1,330        1,152        211        1,618   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (10,394   $ (21,758   $ (15,569   $ (5,650   $ (7,935
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common shareholders (basic and diluted)

   $ (1.35   $ (2.69   $ (1.73   $ (0.65   $ (0.85

Weighted average common shares outstanding (basic and diluted)

     7,726        8,092        9,016        8,752        9,376   

As adjusted net loss per share(1)

   $ (0.11   $ (0.18   $ (0.13   $ (0.05   $ (0.06

As adjusted weighted-average shares outstanding used to compute net loss per share(1)

     91,008        123,259        124,183        123,919        124,543   

Non-GAAP Financial Measure:

          

Adjusted EBITDA(2)

   $ (9,298   $ (14,938   $ (10,224   $ (2,753   $ (472

 

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(1) As adjusted amounts give effect to the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into 115,167,418 shares of our common stock immediately prior to the completion of this offering.
(2) We include adjusted earnings before interest, tax, depreciation and amortization and certain other expenses, or adjusted EBITDA, because it is a measure that our management uses to evaluate our operating results. We calculate adjusted EBITDA as our net loss, adding back net interest expense, income tax expense, depreciation and amortization, stock-based compensation expense and certain acquisition-related expenses. We present adjusted EBITDA as a supplemental performance measure because our management believes that it facilitates operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures (affecting net interest expense), the amortization of intangibles (affecting amortization expense), tax positions (such as the impact on periods of changes in effective tax rates), the depreciation of assets (affecting depreciation expense), stock-based compensation expenses and acquisition-related expenses. Adjusted EBITDA is not a measurement of our financial performance under generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income (loss), operating income (loss) or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operations as a measure of our profitability or liquidity. We understand that although adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, 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:

 

   

adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

   

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

 

   

adjusted EBITDA does not reflect changes in our effective tax rates;

 

   

although depreciation is a non-cash charge, the assets being depreciated will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and

 

   

other companies in our industry may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

The following table reconciles net loss to adjusted EBITDA for the periods presented:

 

     Year Ended December 31,     Six months ended June 30,  
     2010     2011     2012         2012             2013      
                       (unaudited)  
     (in thousands)  
                          

Net loss

   $ (10,394   $ (21,758   $ (15,569   $ (5,650   $ (7,935

Net interest expense

     108        61        383        25        1,107   

Income tax expense

     131        1,330        1,152        211        1,600   

Depreciation and amortization

     807        2,933        4,048        1,685        1,794   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     (9,348     (17,434     (9,986     (3,729     (3,416

Stock-based compensation expense

     71        138        291        105        300   

Foreign exchange loss (gain)

     (21     1,182        (529     871        2,644   

Other acquisition-related expenses including:

          

Acquisition-related restructuring costs

     —          514        —          —          —     

Transaction costs

     —          662        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (9,298   $ (14,938   $ (10,224   $ (2,753   $ (472
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Consolidated Balance Sheet Data:

 

    As of December 31,     As of
June 30,
          As Further
Adjusted
    2010     2011     2012     2013     As Adjusted    
                (in thousands)     (unaudited)

Cash and cash equivalents

  $ 5,425      $ 19,466      $ 7,402      $ 20,453      $ 20,453     

Working capital

    5,812        15,728        13,228        31,420        31,420     

Total assets

    16,797        60,387        60,481        79,999        79,999     

Long-term debt, net of current portion

    —          —          14,700        38,153        38,153     

Total liabilities

    9,682        34,131        48,718        74,328        74,328     

Total redeemable convertible preferred stock

    64,558        104,558        104,558        104,558        —       

Total shareholders’ equity (deficit)

    (57,443     (78,302     (92,795     (98,887     5,671     

 

(1) The as adjusted column reflects the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into 115,167,418 shares of our common stock immediately prior to the completion of this offering.
(2) The as further adjusted column reflects the conversion described in footnote (1) above, as well as the estimated net proceeds of $        million from our sale of              shares of common stock that we are offering, based upon the initial public offering price of $        per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and estimated offering costs payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price would increase or decrease, as applicable, our cash and cash equivalents, working capital, total assets and total shareholders’ equity by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and assuming no exercise of the underwriters’ option to purchase additional shares, and after deducting the estimated underwriting discounts and estimated offering costs payable by us.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

Overview

We are a leading provider of software-based telecommunications networking solutions that enable mobile service providers to deliver internet protocol (IP)-based voice, video, rich communications and enhanced messaging services to their subscribers globally. Our solutions deliver Rich Communication Services (RCS), which enable enhanced mobile communications, such as group text messaging, multi-party voice or video calling and live video streaming as well as the exchange of files or images, over existing 2G and 3G networks and next generation 4G Long Term Evolution (LTE) networks. Our solutions also deliver voice services over LTE technology and wireless (Wi-Fi) networks, known respectively as Voice over LTE (VoLTE) and Voice over Wi-Fi (VoWi-Fi). We enable mobile service providers to offer services that generate increased revenue and improve subscriber satisfaction and retention, while allowing them to improve time-to-market of new services and reduce network costs. Our mOne® Convergence Platform has enabled leading mobile service providers to introduce the industry’s first live network deployment of VoLTE and the industry’s first live deployment of next-generation RCS 5.

We sell our solutions principally to wireless mobile service providers globally through our direct sales force or strategic third-party reseller partners. In 2012 and 2011, approximately 54% and 49%, respectively, of our revenue came from outside of the United States, whereas only 1% of revenue in 2010 came from outside of the United States. For the six months ended June 30, 2013, 59% of our revenue came from outside of the United States.

Revenue from our solutions is generated from the sale of software products and maintenance and support. Software products revenues consist of software licenses, hardware and professional services fees from software customizations, feature development and training for customers. Maintenance revenue includes support, annual software maintenance agreements and extended hardware warranty arrangements.

We were founded in 2005 and began generating revenue in 2007. Since inception, we have raised approximately $105 million in proceeds through the issuance of preferred stock. With the funds raised from these offerings and other loan arrangements, we have invested significantly in product and market development activities. Partially as a result of these ongoing investments, our operating income, net income and cash flows have been negative to date.

In our competitive industry, it is critical that we provide high-quality solutions at pricing levels that are attractive to our customers. This is especially true for new customers, given that we are less well-established than some of our larger competitors. When we acquire a new customer, we generally initiate our relationship with the customer by providing our solutions on off-the-shelf, industry-standard third-party hardware. The hardware we sell initially serves as a high-capacity platform to enable highly scalable implementation of additional Mavenir solutions.

Since the solutions we sell represent innovative technology, in some cases the first of its kind installed in the marketplace, it is also important that we provide considerable on-site support to the initial deployments of our solutions by our mobile service provider customers as they test, trial and implement our solutions. As a result, we have incurred, and expect to continue to incur over the near-term, significant costs to provide support for our initial solution deployments.

 

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As our existing mobile service provider customers experience that our products reliably deliver the solutions purchased, we expect those customers to deploy our solutions across broader portions of their subscriber bases. We also anticipate that mobile service provider customers who purchase certain solutions of ours will purchase additional solutions from us for deployment in their networks. As our customers’ networks mature, we also expect that they will purchase ongoing support and maintenance services from us. We expect that our cost to provide these incremental expansions will be lower than the cost of our initial deployments to these customers. Additionally, as our customer relationships deepen, we expect that our customer base will become more heavily-weighted toward existing customers as compared to new customers. We believe that a combination of these factors will improve our profitability.

As our sales grow, it will be critical that we attract highly-qualified employees and successfully develop and streamline business processes in order to support our global customer base and grow profitably. It will also be critical that we accurately foresee the direction of mobile technology deployments and develop solutions that address the demands of mobile service providers. In addition, in order to be successful we will have to compete effectively for customers with incumbent providers of core network solutions. Many of these incumbents have greater financial, technical, marketing and other resources than we do and also have, in many cases, pre-existing relationships with our customers and potential customers.

We have included the results of operations of Airwide Solutions from the date of acquisition, May 27, 2011. Our revenue increased 500% from $8.3 million in 2010 to $49.5 million in 2011. The increase was driven primarily by the addition of revenues from Airwide Solutions in 2011 that were not present in 2010 before the acquisition. Excluding revenue attributable to Airwide Solutions, our revenue increased 227% from $8.3 million in 2010 to $27.1 million in 2011. Our revenue increased 49% from $49.5 million in 2011 to $73.8 million in 2012. Part of this increase is attributable to the fact that we owned Airwide Solutions for seven months in 2011 compared to owning Airwide Solutions for all of 2012. By the end of 2011, we had fully integrated the Airwide Solutions business and as such, the financial results for 2012 include, and do not present separately, the full impact of the Airwide Solutions business. Our revenues increased 21% from $39.9 million for the six months ended June 30, 2012 to $48.2 million for the six months ended June 30, 2013.

We had net losses of $(10.4) million, $(21.8) million, $(15.6) million, $(5.7) million and $(7.9) million in 2010, 2011, 2012, and for the six months ended June 30, 2012 and 2013, respectively. The results of operations below describe the impact of our acquisition of Airwide Solutions on revenue, cost of revenue and gross profit.

Key Operating and Financial Performance Metrics

As part of the management of the company, we monitor and evaluate the key operating and financial performance metrics noted below to help us establish our budgets, measure our business operating performance, assess trends and evaluate our performance as compared to that of our competitors. We discuss revenue, gross profit margin and operating results below under “— Components of Operating Results.” We discuss cash and cash equivalents and cash flows from operations below under “— Liquidity and Capital Resources.”

 

     Year Ended December 31,     Six Months Ended
June 30,
 
         2010             2011             2012             2012             2013      
                       (unaudited)  
     (in thousands)  

Revenues

   $ 8,251      $ 49,504      $ 73,840      $ 39,949      $ 48,190   

Gross Profit Margin

     38.2     37.8     58.8     62.2     58.0

Operating Loss

     (10,176     (19,185     (14,563     (4,543     (2,566

Cash and Cash Equivalents

     5,425        19,466        7,402        12,182        20,453   

Cash used in Operations

     (5,322     (8,097     (22,387     (8,268     (10,175

 

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Components of Operating Results

Revenue

Revenue from our solutions is generated from the sale of software products and maintenance and support. Software products revenues consist of software licenses, hardware and professional services fees from software customizations, feature development and training for customers. Maintenance revenue includes support, annual software maintenance agreements and extended hardware warranty arrangements.

We report two classifications of revenue:

 

   

Software products revenue includes revenue arrangements that consist of tangible products with essential software elements, perpetual right-to-use (RTU) software licenses and sales of industry standard hardware. Software products revenue is supported by customer contracts that generally outline terms and conditions, including those that relate to acceptance of the product. Software products revenue also includes software customizations and feature development for individual customers and training of customers.

 

   

Maintenance revenue includes support, annual software maintenance agreements and extended hardware warranty arrangements. Revenue from these services is recognized ratably over the service delivery period.

Revenue is recognized as outlined in “Critical Accounting Policies — Revenue Recognition” elsewhere in this section.

Cost of Revenue

Our cost of software products revenue consists of payroll-related costs of service personnel, third-party hardware and third-party software licenses and the shipping and installation costs to any of our customers. The costs associated with our RTU software licenses are expensed as incurred in operating costs under research and development.

Our cost of maintenance revenue includes salaries, employee benefits, stock-based compensation and other related expenses. Additionally, hardware and third-party software licenses and services are included. Amortization of certain intangible assets related to the Airwide Solutions acquisition is also included.

Gross Profit and Gross Profit Margin

Gross profit is the calculation of total revenue minus total cost of revenue. Our gross profit margin is our gross profit expressed as a percentage of revenue. Our gross profit margin has been and will continue to be affected by a variety of factors, including the mix of customers and types of revenue, cost fluctuations and reduction activities, including technological changes. Additionally, changes in foreign exchange rates may impact gross profit and gross profit margin.

Operating Expenses

Operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Salaries and personnel costs are the most significant component of each of these expense categories.

Research and Development Expenses. Research and development expenses primarily consist of salaries and personnel costs for research and development employees, including stock-based compensation and bonuses. Additional expenses include costs related to development, quality assurance and testing of new software and enhancement of existing software, consulting, travel and other related overhead such as facility costs.

Additionally, we supplement our own research and development resources with third-party international and domestic subcontractors for software development, documentation, quality assurance and software support. We

 

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believe continuing to invest in research and development efforts is essential to maintaining our competitive position. We expect research and development expenses to increase in the foreseeable future as we continue to broaden our product portfolio.

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of salaries and personnel costs for our sales and marketing employees, including stock-based compensation, commissions and bonuses. Additional expenses include attendance at trade shows, marketing programs, consulting, travel and other related overhead. We expect our sales and marketing expenses to increase in the foreseeable future as we further increase the number of our sales and marketing professionals as we continue our geographic expansion and continue to grow our business.

General and Administrative Expenses. General and administrative expenses primarily consist of salary and personnel costs for administration, finance and accounting, legal, information systems and human resources employees, including stock-based compensation and bonuses. Additional expenses include consulting and professional fees, travel, insurance and other corporate expenses and gain or loss on disposal of assets. Expenses related to the acquisition of Airwide Solutions, including the amortization of intangible assets relating to customer relationships and technology, are included.

Operating Results

Operating results are the result of subtracting our total operating expenses from our gross profits. We use operating results to analyze the profitability of our operations without the effects of non-operating income and expenses.

Stock-Based Compensation

We include stock-based compensation as part of cost of revenue and operating expenses in connection with the grant or modification of stock options and other equity awards to our independent directors, employees and consultants. We apply the fair value method in accordance with authoritative guidance for determining the cost of stock-based compensation. The total cost of the grant or modification is measured based on the estimated fair value of the award at the date of grant. The fair value is then recognized as stock-based compensation expense over the vesting period of the award. We recorded stock-based compensation expense of $0.1 million, $0.1 million and $0.3 million for the years ended December 31, 2010, 2011 and 2012, respectively. For the six months ended June 30, 2012 and 2013, we recorded $0.1 million and $0.3 million of stock-based compensation expense.

At June 30, 2013, there was $1.2 million of total unrecognized cost related to stock options granted under our amended and restated 2013 Stock Plan, which cost is expected to be recognized over a weighted average period of 1.7 years.

Net Interest Expense

Net interest expense consists of the difference between interest income and interest expense. Interest income represents interest received on our cash and cash equivalents. Interest expense is due to commercial loans. See “Liquidity and Capital Resources” elsewhere in this section.

Income Tax Expense

Income tax expense consists of U.S. federal, state and non-U.S. income taxes. As of June 30, 2013, we had U.S. net operating loss carryforwards of $73.0 million ($25.6 million tax-affected), which are scheduled to begin expiring in 2024. We acquired approximately $0.8 million (tax-affected and after consideration of limitations under relevant U.S. tax rules) of these net operating loss carryforwards in 2011 as a result of the acquisition of

 

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Airwide Solution’s U.S. operations. Our net deferred tax asset is offset by a valuation allowance since such amounts are not considered realizable on a more-likely-than-not basis. We have not accrued a provision for income taxes on undistributed earnings of approximately $10.3 million of certain non-U.S. subsidiaries, as of June 30, 2013 since such earnings are likely to be reinvested indefinitely. If the earnings were distributed, we would be subject to U.S. federal income and foreign withholding taxes. Determination of an unrecognized deferred income tax liability with respect to such earnings is not practicable.

Results of Operations — Summary

 

     Year Ended December 31,     Six Months Ended
June 30,
 
     2010     2011     2012     2012     2013  
                       (unaudited)  
     (in thousands)  

Revenues

          

Software products

   $ 7,009      $ 38,264      $ 52,409      $ 29,333      $ 37,264   

Maintenance

     1,242        11,240        21,431        10,616        10,926   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenue

     8,251        49,504        73,840        39,949        48,190   

Gross profit

     3,148        18,720        43,381        24,858        27,949   

Gross Profit Margin

     38.2     37.8     58.8     62.2     58.0

Operating expenses:

          

Research and development

     6,487        14,970        23,312        12,848        11,498   

Sales and marketing

     3,813        12,332        20,580        8,607        9,656   

General and administrative

     3,024        10,603        14,052        7,946        9,361   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,324        37,905        57,944        29,401        30,515   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (10,176     (19,185     (14,563     (4,543     (2,566

Other expense (income):

          

Net Interest Expense

     108        61        383        25        1,107   

Foreign exchange loss (gain)

     (21     1,182        (529     871        2,644   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense (income), net

     87        1,243        (146     896        3,751   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax

     (10,263     (20,428     (14,417     (5,439     (6,317

Income tax expense

     131        1,330        1,152        211        1,618   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (10,394   $ (21,758   $ (15,569   $ (5,650   $ (7,935
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Comparison For the Six Months Ended June 30, 2012 and 2013

Revenue

 

     Six Months Ended June 30,     Change  
     2012      % of
Revenue
    2013      % of
Revenue
    Amount      %  
     (in thousands)  
     (unaudited)  

Revenue by type:

               

Software products

   $ 29,333         73.4   $ 37,264         77.3   $ 7,931         27.0

Maintenance

     10,616         26.6     10,926         22.7     310         2.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total revenues

   $ 39,949         100.0   $ 48,190         100.0   $ 8,241         20.6

Revenue by Geographic Area:

               

Americas

   $ 20,284         50.8   $ 21,363         44.3   $ 1,079         5.3

Europe, Middle East and Africa

     12,485         31.2     17,669         36.7     5,184         41.5

Asia-Pacific

     7,180         18.0     9,158         19.0     1,978         27.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total revenues

   $ 39,949         100.0   $ 48,190         100.0   $ 8,241         20.6

Revenue by Product Group:

               

Enhanced Messaging

   $ 28,265         70.8   $ 32,847         68.2   $ 4,582         16.2

Voice & Video

     11,684         29.2     15,343         31.8     3,659         31.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total revenues

   $ 39,949         100.0   $ 48,190         100.0   $ 8,241         20.6

Revenue increased $8.2 million, or 20.6%, from $39.9 million for the six months ended June 30, 2012 to $48.2 million for the same period in 2013. Our revenue growth was driven primarily by our expansion of existing customer relationships, in particular additional sales opportunities for our solutions generated by successful product launches. Most of this growth consisted of growth in software products revenue, which grew $7.9 million, or 27.0%, from $29.3 million in the six months ended June 30, 2012 to $37.3 million for the same period in 2013. The increased revenues did not reflect any increases in the pricing of our solutions. Maintenance revenues remained consistent from period to period, as growth in this revenue type lags behind the increase in software revenues.

Total revenue from the Americas region grew by $1.1 million, or 5.3%, from $20.3 million for the six months ended June 30, 2012 to $21.4 million for same period in 2013. Revenues in the EMEA region increased $5.2 million, or 41.5%, from $12.5 million for the six months ended June 30, 2012 to $17.7 million for same period in 2013. Revenues in the Asia-Pacific region increased $2.0 million, or 27.5%, from $7.2 million for the six months ended June 30, 2012 to $9.2 million for same period in 2013. Revenues in EMEA and APAC increased at a greater percentage than the Americas due to increased overall acceptance of our products, resulting in additional sales in these areas.

Revenues from Enhanced Messaging products increased by $4.6 million, or 16.2%, from $28.3 million for the six months ended June 30, 2012 to $32.8 million for same period in 2013. Revenue from the Voice and Video product group grew by $3.7 million, or 31.3%, from $11.7 million for the six months ended June 30, 2012 to $15.3 million for same period in 2013. Revenues in both product groups increased, as we generated additional sales opportunities for our next-generation solutions through successful product launches with existing customers and our existing customers rolled out our solutions to larger numbers of subscribers.

 

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Cost of Revenue and Gross Profit

 

     Six Months Ended June 30,     Change  
     2012      % of
Related
Revenue
    2013      % of
Related
Revenue
    Amount     %  
     (in thousands)  
     (unaudited)  

Cost of Revenue

              

Software products

   $ 11,247         38.3   $ 17,414         46.7   $ 6,167        54.8

Maintenance

     3,844         36.2     2,827         25.9     (1,017     (26.5 )% 
  

 

 

      

 

 

      

 

 

   

Total

   $ 15,091         37.8   $ 20,241         42.0   $ 5,150        34.1

Gross Profit

              

Software products

   $ 18,086         61.7   $ 19,850         53.3   $ 1,764        9.8

Maintenance

     6,772         63.8     8,099         74.1     1,327        19.6
  

 

 

      

 

 

      

 

 

   

Total

   $ 24,858         62.2   $ 27,949         58.0   $ 3,091        12.4

Our cost of revenue increased $5.2 million, or 34.1%, from $15.1 million for the six months ended June 30, 2012 to $20.2 million for the same period in 2013. Cost of revenue increased due to an increase in our sales volumes, offset by a decrease in costs primarily due to our strategic move to relocate certain functions to lower-cost regions.

Total gross profit increased $3.1 million, or 12.4%, from $24.9 million for the six months ended June 30, 2012 to $27.9 million for same period in 2013. Gross profit margin decreased from 62.2% for the six months ended June 30, 2012 to 58.0% for same period in 2013. The decrease was primarily due to the mix of revenue projects recognized in the six months ended June 30, 2013 versus the same period in 2012.

Operating Expenses

 

     Six Months Ended June 30,     Change  
     2012      % of
Revenue
    2013      % of
Revenue
    Amount     %  
     (in thousands)  
     (unaudited)  

Research and Development

   $ 12,848         32.2   $ 11,498         23.9   $ (1,350     (10.5 )% 

Sales and Marketing

     8,607         21.5     9,656         20.0     1,049        12.2

General and Administrative

     7,946         19.9     9,361         19.4     1,415        17.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Total

   $ 29,401         73.6   $ 30,515         63.3   $ 1,114        3.7

Operating expenses increased by $1.1 million, or 3.7%, from $29.4 million for the six months ended June 30, 2012 to $30.5 million for the same period in 2013 as sales growth drove direct and operational expenses higher. Research and development expenses decreased by $1.4 million, or 10.5%, from $12.9 million for the six months ended June 30, 2012 to $11.5 million for the same period in 2013 as we shifted this function to lower-cost regions. Sales and marketing expenses increased by $1.0 million, or 12.2%, from $8.6 million for the six months ended June 30, 2012 to $9.6 million for the same period in 2013, as we hired additional sales executives to further enhance direct selling opportunities and to support sales growth into additional geographic areas. General and administrative expenses increased by $1.4 million, or 17.8%, from $7.9 million for the six months ended June 30, 2012 to $9.3 million for same period in 2013 as we expanded headcount to support current and future sales growth and implement increased controls.

 

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Operating Loss

Our operating loss decreased by $2.0 million for the six months ended June 30, 2013 compared to the same period in 2012, which was primarily the result of a increased gross profit, offset by an increase in operating expenses.

Net Interest Expense

 

     Six Months Ended June 30,     Change  
     2012     % of
Revenue
    2013     % of
Revenue
    Amount     %  
     (in thousands)  
     (unaudited)  

Interest Income

   $ (4     0.0   $ (8     0.0   $ (4     100.0

Interest Expense

     29        0.1     1,115        2.3     1,086        3,744.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total

   $ 25        0.1   $ 1,107        2.3   $ 1,082        4,328.0

Net interest expense increased by $1.1 million, from $0.03 million for the six months ended June 30, 2012 to $1.1 million for the same period in 2013. The change was primarily attributable to an increase in interest expense due to an increase in our outstanding debt in the second half of 2012 and during 2013.

Foreign exchange

Foreign exchange loss increased by $1.8 million, or 203.6%, from $0.9 million for the six months ended June 30, 2012 to $2.6 million for the same period in 2013. This is due to changes in transactional currencies compared to the functional currencies during the respective periods.

Income Tax Expense

Income tax expense was $0.2 million and $1.6 million for the six months ended June 30, 2012 and 2013, respectively. The income tax expense is comprised of approximately $0.7 million of taxes related to non-US income producing entities and approximately $0.9 million of non-U.S. withholding taxes.

Net Loss

The net loss of $(5.7) million for six months ended June 30, 2012 increased by $2.3 million, or 40.4%, to a $(7.9) million net loss in the same period in 2013. This was primarily due to higher interest expense and foreign exchange loss.

 

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Comparison For the Years Ended December 31, 2011 and 2012

Revenue

 

     Year Ended December 31,     Change Between
Years  Ended
December 31, 2011
and 2012
 
     2011     2012         Amount              %      
     Amount      %  of
Total

Revenue
    Amount      %  of
Total

Revenue
      
     (in thousands)  

Revenue by type:

               

Software Products

   $ 38,264         77.3   $ 52,409         71.0   $ 14,145         37.0

Maintenance

     11,240         23.7     21,431         29.0     10,191         90.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total Revenue

   $ 49,504         100.0   $ 73,840         100.0   $ 24,336         49.2

Revenue by Geographic Area:

               

Americas

   $ 26,820         54.2   $ 37,314         50.5   $ 10,494         39.1

Europe, Middle East and Africa

     13,665         27.6     20,547         27.8     6,882         50.4

Asia-Pacific

     9,019         18.2     15,979         21.7     6,960         77.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total Revenue

   $ 49,504         100.0   $ 73,840         100.0   $ 24,336         49.2

Revenue by Product Group

               

Enhanced Messaging

   $ 32,674         66.0   $ 50,834         68.8   $ 18,160         55.6

Voice & Video

     16,830         34.0     23,006         31.2     6,176         36.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total Revenue

   $ 49,504         100.0   $ 73,840         100.0   $ 24,336         49.2

We completed the acquisition of Airwide Solutions on May 27, 2011. The impact of the acquisition is not included in the financial results before that date.

Revenue increased $24.3 million, or 49.2%, from $49.5 million for the year ended December 31, 2011 to $73.8 million for the year ended December 31, 2012. Our revenue growth in 2012 over 2011 resulted from our expansion of existing customer relationships, in particular additional sales opportunities for our solutions generated by successful product launches, which represented $14.4 million, or 59%, of our revenue increase in 2012, as well as our ownership of Airwide Solutions for the full year of 2012 as compared to approximately seven months of the year for 2011, which represented $9.9 million, or 41%, of our revenue increase in 2012. Software products revenue grew $14.1 million, or 37.0%, from $38.3 million in 2011 to $52.4 million in 2012. The increased revenues did not reflect any increases in the pricing of our solutions. Maintenance revenue grew $10.2 million, or 90.7%, from $11.2 million in 2011 to $21.4 million in 2012, reflecting the first full year of our ownership of Airwide Solutions and access to its customer base.

Revenues in each of our geographic areas increased in 2012 from 2011 due to our ownership of Airwide Solutions for the full year of 2012 as well as customer expansion projects. Total revenue from the Americas region grew by $10.5 million, or 39.1%, from $26.8 million for the year ended December 31, 2011 to $37.3 million for the year ended December 31, 2012. Revenues in the EMEA region increased $6.8 million, or 50.4%, from $13.7 million in 2011 to $20.5 million in 2012. Revenues in the Asia-Pacific region increased $7.0 million, or 77.2%, from $9.0 million in 2011 to $16.0 million in 2012.

Revenues from Enhanced Messaging products grew by $18.1 million, or 55.6%, from $32.7 million in 2011 to $50.8 million in 2012, as we generated additional sales opportunities for our next-generation solutions through successful product launches with existing customers and our existing customers rolled out our solutions to larger numbers of subscribers. Revenue from the Voice and Video product group grew by $6.2 million, or 36.7%, from $16.8 million in 2011 to $23.0 million in 2012.

 

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Cost of Revenue and Gross Profit

 

     Year Ended December 31,     Change Between
Years Ended
December 31, 2011
and 2012
 
     2011     2012       Amount         %    
     Amount      %  of
Related
Revenue
    Amount      %  of
Related
Revenue
     
     (in thousands)  

Cost of Revenue

              

Software Products

   $ 26,200         68.5   $ 23,891         45.6   $ (2,309     (8.8 )% 

Maintenance

     4,584         40.8     6,568         30.6     1,984        43.3
  

 

 

      

 

 

      

 

 

   

Total

   $ 30,784         62.2   $ 30,459         41.4   $ (325     (1.1 )% 

Gross Profit

              

Software Products

   $ 12,064         31.5   $ 28,518         54.4   $ 16,454        136.4

Maintenance

     6,656         59.2     14,863         69.4     8,207        123.3
  

 

 

      

 

 

      

 

 

   

Total

   $ 18,720         37.8   $ 43,381         58.8   $ 24,661        131.7

Our cost of revenue remained essentially unchanged from the year ended December 31, 2011 to the year ended December 31, 2012. Cost of revenue increased due to an increase in our sales volumes, offset by a decrease in costs primarily due to our strategic move to relocate certain functions to lower cost regions.

Total gross profit increased $24.7 million, or 131.7%, from $18.7 million for the year ended December 31, 2011 to $43.4 million for the year ended December 31, 2012. Gross profit margin increased from 37.8% for the year ended December 31, 2011 to 58.8% for the year ended December 31, 2012. Gross profit margin improved by 21 percentage points for the year ended December 31, 2012 compared to the year ended December 31, 2011 primarily due to operational efficiencies and lower costs from vendors.

Operating Expenses

 

     Year Ended December 31,     Change Between
Years Ended
December 31, 2011
and 2012
 
     2011     2012     Amount      %  
     Amount      % of
Revenue
    Amount      % of
Revenue
      
     (in thousands)  

Research and Development

   $ 14,970         30.2   $ 23,312         31.6   $ 8,342         55.7

Sales and Marketing

     12,332         24.9     20,580         27.9     8,248         66.9

General and Administrative

     10,603         21.4     14,052         19.0     3,449         32.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total

   $ 37,905         76.5   $ 57,944         78.5   $ 20,039         52.9

Operating expenses increased by $20.0 million, or 52.9%, from $37.9 million for the year ended December 31, 2011 to $57.9 million for the year ended December 31, 2012 as sales growth drove direct and operational expenses higher, as well as increased expenses from our first full year of ownership of Airwide Solutions. Research and development expenses increased by $8.3 million, or 55.7%, from $14.9 million for the year ended December 31, 2011 to $23.3 million for the year ended December 31, 2012 as we increased research and development headcount to enhance existing products and develop future product capability and new customer solutions. Sales and marketing expenses increased by $8.2 million, or 66.9%, from $12.3 million for the year ended December 31, 2011 to $20.6 million for the year ended December 31, 2012, as we hired additional sales executives to further enhance direct selling opportunities and to support sales growth into additional geographic areas. General and administrative expenses increased by $3.4 million, or 32.5%, from $10.6 million

 

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for the year ended December 31, 2011 to $14.1 million for the year ended December 31, 2012 as we expanded headcount to support current and future sales growth and implement increased controls.

Operating Loss

We incurred operating losses of $(19.2) million and $(14.6) million for the years ended December 31, 2011 and 2012, respectively. Our operating loss decreased by $4.6 million for the year ended December 31, 2012, which was primarily the result of a $24.7 million increase in gross profit partially offset by the $20.0 million increase in total operating expenses described above.

Net Interest Expense

 

     Year Ended December 31,     Change Between
Year Ended
December 31, 2011
and 2012
 
     2011     2012     Amount      %  
     Amount     % of
Revenue
    Amount     % of
Revenue
      
     (in thousands)  

Interest Income

   $ (246     (0.5 )%    $ (10     —     $ 236         (95.9 )% 

Interest Expense

     307        0.6     393        0.5     86         28.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

Total Net Interest Expense

   $ 61        0.1   $ 383        0.5   $ 322         527.9

Net interest expense increased by $0.3 million, or 527.9%, from $0.1 million for the year ended December 31, 2011 to $0.4 million for the year ended December 31, 2012. The change was primarily attributable to lower cash balances generating lower interest income and an increase in interest expense. Interest expense increased due to an increase in our average outstanding debt in 2012.

Foreign exchange

Foreign exchange (gain) loss decreased by $1.7 million, or 144.8%, from $1.2 million for the year ended December 31, 2011 to $(0.5) million for the year ended December 31, 2012. The change was attributable to foreign currency exchange movements.

Income Tax Expense

Income tax expense was $1.3 million and $1.2 million for the years ended December 31, 2011 and 2012, respectively. The income tax expense relates primarily to non-U.S. taxes.

Net Loss

The net loss of $(21.8) million for the year ended December 31, 2011 improved by $6.2 million, or 28.4%, to a $(15.6) million net loss in the corresponding period in 2012. This was primarily due to expanding gross margins from higher software expansions that generated stronger gross profits, partially offset by an increase in operating expenses.

 

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Comparison For the Years Ended December 31, 2010 and 2011

Revenue

 

     Year Ended December 31,     Change  Between
Years Ended
December 31, 2010
and 2011
 
     2010     2011    
     Amount      % of
Total
Revenue
    Amount      % of
Total
Revenue
      Amount          %    
     (in thousands)  

Revenue by Type:

               

Software Products

   $ 7,009         84.9   $ 38,264         77.3   $ 31,255         445.9

Maintenance

     1,242         15.1     11,240         22.7     9,998         805.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total Revenue

   $ 8,251         100.0   $ 49,504         100.0   $ 41,253         500.0

Revenue by Geographic Area:

               

Americas

   $ 8,142         98.7   $ 26,820         54.2   $ 18,678         229.4

Europe, Middle East and Africa

                    13,665         27.6     13,665         N/A   

Asia-Pacific

     109         1.3     9,019         18.2     8,910         8,174.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total Revenue

   $ 8,251         100.0   $ 49,504         100.0   $ 41,253         500.0

Revenue by Product Groups:

               

Enhanced Messaging

   $ 4,652         56.4   $ 32,674         66.0   $ 28,022         602.4

Voice & Video

     3,599         43.6     16,830         34.0     13,231         367.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total Revenue

   $ 8,251         100.0   $ 49,504         100.0   $ 41,253         500.0

We completed the acquisition of Airwide Solutions on May 27, 2011. The impact of the acquisition is not included in the financial results before that date.

Our revenue increased $41.2 million, or 500.0%, from $8.3 million in 2010 to $49.5 million in 2011. Excluding revenue attributable to Airwide Solutions, revenue increased $18.8 million, or 227%, from $8.3 million in 2010 to $27.1 million in 2011, of which $11.2 million resulted from our expansion of existing customer relationships and $7.6 million reflected revenue from new customers. Customers that we obtained through our acquisition of Airwide Solutions accounted for $22.4 million of our growth in revenue. Software products revenue increased $31.3 million, or 445.9%. The increased revenues did not reflect any increases in pricing of our solutions. Excluding revenue attributable to Airwide Solutions, software products revenue increased $18.7 million, or 267%, from $7.0 million in 2010 to $25.7 million in 2011. Customers that we obtained through our acquisition of Airwide Solutions accounted for $13.0 million of our growth in software products revenue. Maintenance revenue increased $10.0 million, or 805.0%, primarily due to a larger installed base of customer deployments supported in the acquired Airwide Solutions business, compared to the relatively smaller installed base of customer deployments of the mOne® Convergence Platform. Excluding revenue attributable to Airwide Solutions, maintenance revenue increased $0.2 million, or 17%, from $1.2 million in 2010 to $1.4 million in 2011. Customers that we obtained through our acquisition of Airwide Solutions accounted for $9.4 million of our growth in maintenance revenue.

Our acquisition of Airwide Solutions in 2011 added approximately 110 customers worldwide to our base of customers, which had previously numbered less than ten customers. Management anticipates that future period deployments of new and existing Enhanced Messaging and Voice and Video products to this larger existing customer base will become a significant contributor to revenue growth.

Revenues in each geographic area also increased in 2011 from 2010 as our customer base grew. Revenues increased significantly across all geographic areas as we won new business from Voice and Video as well as Enhanced Messaging products. Total revenue from the Americas region grew by $18.7 million, or 229.4%, from $8.1 million in 2010 to $26.8 million in 2011. Excluding those sales attributable to the Airwide Solutions business, sales in the Americas region grew by $14.9 million, or 184%, from $8.1 million in 2010 to $23.0 million in 2011. Customers that we obtained through our acquisition of Airwide Solutions accounted for $3.8 million of our growth in sales in the Americas region. We expanded operations into the Europe, Middle East and Africa (EMEA) region, with revenues in

 

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that region growing from zero in 2010 to $13.7 million in 2011. Excluding revenues from the Airwide Solutions business, revenues in the EMEA region grew from zero in 2010 to $2.4 million in 2011. Customers that we obtained through our acquisition of Airwide Solutions accounted for $11.3 million of our growth in sales in the EMEA region. Revenues in the Asia-Pacific region increased by $8.9 million, or 8,174.3%, from $0.1 million in 2010 to $9.0 million in 2011. Excluding sales from the Airwide Solutions business, sales in the Asia-Pacific region grew 1,700%, from $0.1 million in 2010 to $1.8 million in 2011. Customers that we obtained through our acquisition of Airwide Solutions accounted for $7.3 million of our growth in sales in the Asia-Pacific region.

Revenues from sales of Enhanced Messaging products grew by $28.0 million, or 602.4%, as the existing customer base increased subscriber levels and we obtained new customers as well. Excluding the impact from the acquired Airwide Solutions business, Enhanced Messaging revenues increased by 183% from $4.7 million in 2010 to $13.3 million in 2011. Customers that we obtained through our acquisition of Airwide Solutions accounted for $19.4 million of our growth in Enhanced Messaging revenues. Revenue from the Voice and Video product group grew by $13.2 million, or 367.6%, from $3.6 million in 2010 to $16.8 million in 2011. Excluding revenues attributable to the acquired Airwide Solutions business, Voice and Video revenues increased by $10.2 million, or 283%, growing from $3.6 million in 2010 to $13.8 million in 2011. Customers that we obtained through our acquisition of Airwide Solutions accounted for $3.0 million of our growth in Voice and Video revenues.

Revenues from sales of Enhanced Messaging products grew by 602.4% in 2011 compared to 2010, or almost twice as fast as revenues from sales of Voice and Video products, which grew 367.6% in 2011 compared to 2010. This difference is mainly a result of the Airwide Solutions acquisition. The Airwide Solutions acquisition contributed more revenue from sales of Enhanced Messaging products than revenue from sales of Voice and Video products, and this resulted in more rapid growth in 2011 in revenues from sales of Enhanced Messaging products compared to revenues from sales of Voice and Video products.

Cost of Revenue and Gross Profit

 

     Year Ended December 31,     Change Between
Years Ended
December 31, 2010
and  2011
 
     2010     2011    
     Amount      %  of
Related

Revenue
    Amount      %  of
Related

Revenue
      Amount          %    
     (in thousands)  

Cost of Revenue

               

Software Products

   $ 4,537         64.7   $ 26,200         68.5   $ 21,663         477.5

Maintenance

     566         45.6     4,584         40.8     4,018         709.9
  

 

 

      

 

 

      

 

 

    

Total

   $ 5,103         61.8   $ 30,784         62.2   $ 25,681         503.3

Gross Profit

               

Software Products

   $ 2,472         35.3   $ 12,064         31.5   $ 9,592         388.0

Maintenance

     676         54.4     6,656         59.2     5,980         884.6
  

 

 

      

 

 

      

 

 

    

Total

   $ 3,148         38.2   $ 18,720         37.8   $ 15,572         494.7

Cost of revenue increased 503.3% from $5.1 million in 2010 to $30.8 million in 2011, which was primarily attributable to growth in revenue and additional costs incurred as a result of the acquisition of Airwide Solutions. Excluding costs of revenue attributable to the acquisition of Airwide Solutions, cost of revenue increased 256% from $5.1 million in 2010 to $18.4 million in 2011, driven primarily by increased success in sales during that period.

Total gross profit increased $15.6 million, or 494.7%, from $3.1 million in 2010 to $18.7 million in 2011. As a result of total gross profit increases and actions taken to improve gross margins, gross profit margin was unchanged at 38% in 2010 and 2011.

 

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Operating Expenses

 

     Year Ended December 31,     Change Between
Years Ended
December 31, 2010
and  2011
 
     2010     2011    
     Amount      % of
Revenue
    Amount      % of
Revenue
    Amount       %  
     (in thousands)  

Research and Development

   $ 6,487         78.6   $ 14,970         30.2   $ 8,483         130.8

Sales and Marketing

     3,813         46.2     12,332         24.9     8,519         223.4

General and Administrative

     3,024         36.7     10,603         21.4     7,579         250.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total

   $ 13,324         161.5   $ 37,905         76.5   $ 24,581         184.5

Operating expenses increased 184.5% from $13.3 million in 2010 to $37.9 million in 2011, in line with expectations and in order to support rising revenue growth. Research and development expenses increased by $8.5 million, or 130.8%, from $6.5 million in 2010 to $15.0 million in 2011 as we increased research and development headcount to enhance existing products and develop future product capability and new customer solutions. Sales and marketing expenses increased by $8.5 million, or 223.4%, from $3.8 million in 2010 to $12.3 million in 2011, as we hired additional sales executives to further enhance direct selling opportunities and to increase regional resources to more effectively engage customers and prospective customers outside of the Americas region. General and administrative expenses increased by $7.6 million, or 250.6%, from $3.0 million in 2010 to $10.6 million in 2011 as we expanded headcount to support current and future sales growth and implement increased controls.

Operating Loss

Our operating loss increased by $9.0 million, or 88.5%, from $(10.2) million in 2010 to $(19.2) million in 2011, which was primarily the result of the $15.6 million increase in gross profit being more than offset by the $24.6 million increase in total operating expenses described above.

Net Interest Expense

 

     Year Ended December 31,     Change Between
Years Ended
December 31, 2010
and  2011
 
     2010     2011    
     Amount     % of
Revenue
    Amount     % of
Revenue
      Amount         %    
     (in thousands)  

Interest Income

   $ (4     —        $ (246     (0.5 )%    $ (242     6,050.0

Interest Expense

     112        1.4     307        0.6     195        174.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total Net Interest Expense

   $ 108        1.4   $ 61        0.1      $ (47     (43.5 )% 

Net interest expense improved by 43.5% from $0.1 million in 2010 to $0.06 million in 2011, primarily due to higher interest income as a result of higher cash balances, partially offset by higher interest expense associated with a higher average balance outstanding on bank lines in 2011 compared to 2010.

Foreign exchange

Foreign exchange (gain) loss increased by $1.2 million, or 5,728.6%, from a $(0.02) million gain for the year ended December 31, 2010 to $1.2 million loss for the year ended December 31, 2011. The change was attributable to the increased exposure to foreign currency exchange movements with the Airwide Solutions acquisition.

 

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Table of Contents

Income Tax Expense

Income tax expense increased from $0.1 million in 2010 to $1.3 million in 2011. The increase in income tax expense relates primarily to our non-U.S. subsidiaries that were acquired on May 27, 2011 as part of the Airwide Solutions acquisition that had net taxable income in seven jurisdictions.

Net Loss

Our net loss in 2010 was $(10.4) million as compared to $(21.8) million in 2011, a difference of 109.3%. The change was primarily due to higher operating expenses in 2011, which outpaced gross profit expansion.

Quarterly Results of Operations

The tables below show our unaudited consolidated quarterly results of operations for each of our eight most recently completed quarters, as well as the percentage of total revenue (or, for cost of revenue line items only, the percentage of the related revenue type) for each line item shown. This information has been derived from our unaudited condensed consolidated financial statements, which, in the opinion of management, have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation of the financial information for the quarters presented. This information should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus.

 

    Three Months Ended,  
    Sep. 30,
2011
    Dec. 31,
2011
    Mar. 31,
2012
    June 30,
2012
    Sep. 30,
2012
    Dec. 31,
2012
    Mar. 31,
2013
    June 30,
2013
 
    (unaudited)  
    (in thousands)  

Statements of Operations Data:

               

Revenues

               

Software products

  $ 7,145      $ 19,396      $ 15,601      $ 13,732      $ 11,848      $ 11,228      $ 17,727      $ 19,537   

Maintenance

    4,727        4,741        5,321        5,295        5,260        5,555        4,711        6,215   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

    11,872        24,137        20,922        19,027        17,108        16,783        22,438        25,752   

Cost of revenues

               

Software products

    5,039        13,956        6,118        5,129        6,068        6,576        6,651        10,763   

Maintenance

    1,998        1,130        1,722        2,122        1,900        824        1,330        1,497   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Cost of Revenues

    7,037        15,086        7,840        7,251        7,968        7,400        7,981        12,260   

Gross profit

    4,835        9,051        13,082        11,776        9,140        9,383        14,457        13,492   

Operating expenses:

               

Research and development

    5,408        4,213        6,987        5,861        5,552        4,912        6,122        5,376   

Sales and marketing

    3,445        5,508        4,326        4,281        4,025        7,948        5,041        4,615   

General and administrative

    3,279        3,856        4,182        3,764        3,995        2,111        4,991        4,370   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    12,132        13,577        15,495        13,906        13,572        14,971        16,154        14,361   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

    (7,297     (4,526     (2,413     (2,130     (4,432     (5,588     (1,697     (869

 

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Table of Contents
    Three Months Ended,  
    Sep. 30,
2011
    Dec. 31,
2011
    Mar. 31,
2012
    June 30,
2012
    Sep. 30,
2012
    Dec. 31,
2012
    Mar. 31,
2013
    June 30,
2013
 
    (unaudited)  
    (in thousands)  

Other expense (income):

               

Interest income

    (104     (96     (2     (2     (6     —          (5     (3

Interest expense

    119        125        10        19        44        320        450        665   

Foreign exchange loss (gain)

    703        1,091        (366     1,237        (1,095     (305     1,732        912   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense (income), net

    718        1,120        (358     1,254        (1,057     15        2,177        1,574   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax

    (8,015     (5,646     (2,055     (3,384     (3,375