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TABLE OF CONTENTS
Index to Consolidated Financial Statements

Table of Contents

As filed with the Securities and Exchange Commission on August 29, 2013

Registration No. 333-         

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933



MARKETO, INC.
(Exact name of registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  7372
(Primary Standard Industrial
Classification Code Number)
  56-2558241
(I.R.S. Employer
Identification Number)

901 Mariners Island Blvd., Suite 200
San Mateo, California 94404
(650) 376-2300

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



Phillip M. Fernandez
President & Chief Executive Officer
Marketo, Inc.
901 Mariners Island Blvd., Suite 200
San Mateo, California 94404
(650) 376-2300

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

Copies to:



Aaron J. Alter
Tony Jeffries
Michael E. Coke
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300
  Anthony J. McCusker
Richard A. Kline
Goodwin Procter LLP
135 Commonwealth Drive
Menlo Park, California 94025
(650) 752-3100

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:    o

            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.    o

            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.    o

            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.    o

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

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



CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class of Securities
to be Registered

  Amount to be
Registered(1)

  Proposed Maximum
Offering Price
per Share(2)

  Proposed Maximum
Aggregate Offering
Price(2)

  Amount of
Registration Fee

 

Common Stock, par value $0.0001 per share

  6,900,000   $36.02   $248,538,000   $33,900.59

 

(1)
Includes 900,000 shares that the underwriters have the option to purchase.

(2)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended based on the average of the high and low sales prices of the Registrant's Common Stock as reported by The NASDAQ Global Select Market on August 23, 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 shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


Table of Contents

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

Subject to Completion. Dated August 29, 2013.

6,000,000 Shares

LOGO

Common Stock

          Marketo, Inc. is offering 662,498 of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional 5,337,502 shares. Marketo will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

          The public offering price per share is $             . Our common stock is listed on The NASDAQ Global Select Market under the symbol "MKTO". On August 28, 2013, the last reported sale price of our common stock on The NASDAQ Global Select Market was $36.90 per share.

          We are an "emerging growth company" as defined under the federal securities laws and are therefore subject to reduced public company reporting requirements.

          Investing in our common stock involves risks. See "Risk Factors" on page 10 to read about factors you should consider before buying shares of our common stock.



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



 
 
Per Share
 
Total
 

Public offering price

  $     $    

Underwriting discount(1)

  $     $    

Proceeds, before expenses, to Marketo

  $     $    

Proceeds, before expenses, to the selling stockholders

  $     $    

(1)
See "Underwriting" for a description of the compensation payable to the underwriters.



          To the extent that the underwriters sell more than 6,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 900,000 shares from Marketo at the public offering price less the underwriting discount.



          The underwriters expect to deliver the shares against payment in New York, New York on                  , 2013.

Goldman, Sachs & Co.   Credit Suisse

Wells Fargo Securities

 

Canaccord Genuity

 

Raymond James

 

JMP Securities



   

Prospectus dated                  , 2013


GRAPHIC


Table of Contents


TABLE OF CONTENTS

Prospectus Summary

  1

Summary Consolidated Financial Data

  7

Risk Factors

  10

Special Note Regarding Forward-Looking Statements

  37

Industry and Market Data

  39

Use of Proceeds

  40

Market Price of Common Stock

  40

Dividend Policy

  40

Dilution

  41

Capitalization

  43

Selected Consolidated Financial Data

  45

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

  48

Business

  83

Management

  105

Executive Compensation

  114

Certain Relationships, Related Party and Other Transactions

  130

Principal and Selling Stockholders

  134

Description of Capital Stock

  137

Shares Eligible For Future Sale

  143

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

  146

Underwriting

  150

Legal Matters

  155

Experts

  155

Where You Can Find More Information

  155

Index to Consolidated Financial Statements

  F-1



          Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

          For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.

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PROSPECTUS SUMMARY

          This summary highlights selected information appearing elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. This summary may not contain all the information you should consider before investing in our common stock. You should carefully read this prospectus in its entirety before investing in our common stock, including the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus. Unless the context otherwise requires, we use the terms "Marketo", the "Company", "we", "us" and "our" in this prospectus to refer to Marketo, Inc. and, where appropriate, our consolidated subsidiaries.


Business Overview

          We are the provider of a leading cloud-based marketing software platform that enables organizations to engage in modern relationship marketing. Large-scale trends, such as increasingly self-directed consumers and broad and instant availability of information online, are changing the role and responsibilities of the marketing department in most organizations around the world. In today's data-centric, multi-channel business environment, marketing professionals are being pushed to fundamentally change how they engage and interact with prospects and customers. Our software platform is designed to enable the effective execution, management and analytical measurement of relationship marketing activities, helping organizations to acquire new customers more efficiently, build stronger relationships with existing customers, improve sales effectiveness and drive faster revenue growth.

          On our platform, we deliver an easy-to-use, integrated suite of advanced applications, which today include Marketing Automation, Social Marketing, Sales Insight, Revenue Analytics and Marketing Management. To enable our customers to obtain maximum value from our platform, we have created an ecosystem of third-party applications, as well as a network of resources to foster marketing thought leadership, sharing and collaboration among our users. Furthermore, we provide our customers with expert professional services, delivered by marketers, for marketers, to enable rapid time to value through effective implementation and use of our solutions.

          We designed our platform to be valuable across large enterprises and small and medium-sized businesses (SMBs) that sell to both businesses and consumers in virtually any industry. Our client base is diverse, with over 2,500 customers across a wide range of industries including business services, consumer, financial services, healthcare, manufacturing, media, technology and telecommunications. We market and sell our products directly and through a growing network of distribution partners. Representative customers include one or more divisions of the following companies: Capgemini, CenturyLink, Citrix, Gannett, General Electric, Medtronic, Moody's, Panasonic, Symantec and Universal Music Group. Except for a single customer in 2011 who was slightly over 1%, no single customer represented more than 1% of subscription and support revenue in 2010, 2011, 2012 or the six months ended June 30, 2012 or 2013.

          We provide our solutions on a subscription basis and generated revenue of $14.0 million, $32.4 million and $58.4 million in 2010, 2011 and 2012, respectively, representing year-over-year increases of 131% and 80%, respectively. During the six months ended June 30, 2012 and 2013, we generated revenue of $26.1 million and $42.2 million, respectively, representing an increase of 62% during the first six months of 2013 as compared to the first six months of 2012. We had net losses of $11.8 million, $22.6 million, $34.4 million, $16.6 million and $21.9 million in 2010, 2011, 2012 and for the six months ended June 30, 2012 and 2013, respectively, due to increased investments in our growth. As of June 30, 2013, we had an accumulated deficit of $104.1 million.

 

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Our Industry

          Buyers of consumer and business goods and services are increasingly becoming self directed in their purchase decision making. With a wide range of information available across multiple online, social and offline channels and with an increased ability to opt out of unwanted communications, the manner in which buyers obtain information and make decisions about purchases is undergoing a dramatic transformation. Buyers are spending more time gathering information from search engines, company websites, blogs, online product reviews and social networks. As a result, brand perceptions are formed and significant purchasing decisions are often made prior to or without any direct contact with a salesperson or seeing a product in a retail setting.

          At the same time, there is a growing range of digital information about prospects and customers that can be captured by marketers, including unstructured and diverse behavioral data such as purchase history, website visits, webinar attendance, video consumption, document downloads, telephonic and email inquiries and social network activity. This presents an opportunity for marketers to capture, analyze and leverage this information to deliver timely and relevant messages to their targeted audiences and to enable their salespeople to focus on their most promising opportunities. This, in turn, allows companies to allocate their marketing investments more effectively.

          These trends have led to the emergence of a modern approach to relationship marketing, requiring marketers to fundamentally change how they engage with prospects and customers. Marketers now must engage with each customer in an individual and personalized dialog over time, facilitating the customer's self-directed research and decision-making, and stimulating buying. Used effectively, this approach enables modern marketers to significantly and measurably enhance an organization's ability to grow revenue, maximize return on investments in marketing and increase customer lifetime value.

          The result is that marketing professionals now seek a new generation of software solutions that effectively leverage behavioral data and automation techniques to enable them to build and maintain personalized customer relationships at scale, and hence to become central catalysts for revenue growth in their companies. Marketers already invest significant funds in pursuit of revenue. According to the CMO Council's report, The 2011 State of Marketing, global marketing and communications spending exceeds $1.5 trillion annually. Companies of all sizes are spending greater portions of their marketing budgets on technology to achieve higher productivity and better business results. For instance, according to research firm IDC's 2012 CMO Tech Marketing Barometer Study, technology CMOs estimate that 8.7% of their total marketing program budget will be spent on marketing IT. We believe that our platform addresses several established segments of marketing-related software that in aggregate have been estimated by Gartner to be approximately $32 billion in 2013. These segments include customer relationship management, business intelligence, and web conferencing, teaming platforms and social software suites. Gartner expects the aggregate of these segments to grow to nearly $41 billion by 2016.


Our Solution

          We are the provider of a leading cloud-based marketing software platform that is purpose-built to enable organizations ranging from SMBs to the world's largest enterprises to engage in modern relationship marketing. Our platform enables the effective execution, management and analytical measurement of online, social and offline marketing activities and customer interactions. Our software solution is complemented by resources, tools and expertise designed to help our customers collaborate, learn and get better results faster.

 

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          The key benefits of our solution include:

    Drives faster revenue growth.  Our solution enables organizations to more effectively and efficiently acquire new customers, improve sales effectiveness and generate faster revenue growth.

    Enables organizations to better build and retain long-term customer relationships.  Our solution enables organizations to engage in personalized and interactive multi-channel dialogs with their prospects and customers, resulting in deep, long-lasting relationships that increase customer lifetime value.

    Streamlines the marketer's world.  Our solution enables organizations to manage entire multi-channel marketing campaigns and related customer interactions from a single platform. This combines and advances the capabilities of a broad array of discrete point products in the market today, reducing complexity and costs.

    Increases efficiency and speed of marketing execution.  Our solution is designed to be intuitive and easy to use so that marketers can efficiently use its many features without requiring extensive training or specialized technical skills. The elements of our solution work together to simplify and automate repetitive tasks, so organizations can rapidly turn new marketing ideas into revenue opportunities.

    Provides deep analytical insight.  Our solution serves as the system of record for data across marketing campaigns and channels and connects to other complementary enterprise data sources. Our analytics capabilities help our customers measure the effectiveness and the revenue generation impact of their marketing activities.


Our Competitive Strengths

          Our key competitive strengths include:

    Ease of use.  Our solution is designed to enable users to rapidly adopt and use our platform to manage their marketing activities, from the simple to the most sophisticated tasks, and to do so with little or no need for technical skills or IT support.

    Powerful capabilities.  Our solution is designed to give users progressive access to increasingly powerful features when they need them, and offers significant headroom in the richness of the campaigns they can create as well as the analytic questions they can answer.

    Complete platform.  We offer a suite of applications that are tightly integrated and deliver a broad range of capabilities that would otherwise require the purchase and use of multiple disparate point solutions such as email marketing tools, social campaign products and business intelligence software.

    Enterprise integration.  Our platform offers extensible integration with a range of enterprise-wide processes and systems, including customer relationship management (CRM) systems, e-commerce platforms, in-house databases and custom applications. In addition, we have developed specialized integrations with industry-leading CRM solutions including salesforce.com and Microsoft Dynamics CRM to allow marketing, sales and service professionals to work collaboratively.

    Thought leadership.  We strive to be a thought leader in our industry, identifying and interpreting emerging trends in relationship marketing, shaping and guiding industry dialog, and creating and sharing the best marketing practices.

 

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    Network effects.  The extended Marketo community includes over 2,500 customers, 39,000 online community members and over 150 partners who share their experiences, best practices and ready-to-use marketing campaign templates with other Marketo users. We call this the Marketing Nation. The growth of this community creates a network effect as the expanded access to expertise and information benefits all participants and becomes increasingly valuable to our current and prospective customers.

    Independence.  We are an independent marketing software company exclusively focused on providing innovative marketing technologies, solutions and content for the modern marketing professional. Our independence enables us to continue to innovate and deliver advanced, differentiated marketing solutions, and to work with a broader set of partners, providing us a competitive advantage in the industry.


Our Growth Strategy

          Key elements of our growth strategy are to:

    Acquire new customers.  We plan to acquire an increasing number of customers through the expansion of our direct sales teams. We also intend to expand our indirect sales teams to pursue additional channel, agency and OEM distribution partnerships, and to selectively enter new geographic markets.

    Expand within our existing customer base.  We intend to increase revenue from existing customers, many of whom initially purchase a component of our solution for a subset of users, and subsequently expand the use of our solutions.

    Further penetrate additional markets and verticals.  Although to date a majority of our customers and revenue has been derived from the business-to-business (B2B) market, we have had initial success in selling into the business-to-consumer (B2C) market and intend to continue to target a range of B2C industries. In addition, we intend to expand our vertical marketing efforts in order to increase the depth of our market penetration in certain industries.

    Continue to innovate and extend our marketing thought leadership.  We plan to continually develop new applications that enhance the functionality of our solution and address the latest opportunities and challenges for marketers, which we will sell to both existing and new customers. We also intend to leverage our competitive strength in marketing thought leadership to advance our solutions and to deliver rich content and robust services that provide differentiated value to our customers.

    Pursue selective strategic acquisitions.  We intend to selectively acquire businesses and technologies as we did with the acquisition of Crowd Factory in April 2012. We plan to evaluate opportunities that will strengthen and expand the functionality of our platform and provide access to new customers or markets.


Risks Affecting Us

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

    We have a history of losses and may not achieve consistent profitability in the future.

    If we are unable to attract new customers or sell additional services and functionality to our existing customers, our revenue growth will be adversely affected.

 

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    If subscription renewal rates decrease, or we do not accurately predict subscription renewal rates, our future revenue and operating results may be harmed.

    If we are unable to maintain a good relationship with salesforce.com and develop and grow our relationships with other platform providers, our business will suffer.

    We face significant competition from both established and new companies offering marketing software and other related applications, as well as internally developed software, which may harm our ability to add new customers, retain existing customers and grow our business.

    Our recent rapid growth may not be indicative of our future growth and, if we continue to grow rapidly, we may not be able to manage our growth effectively.

    If our or our customers' security measures are compromised or unauthorized access to customer data is otherwise obtained, our marketing software may be perceived as not being secure, customers may curtail or cease their use of our solutions, our reputation may be harmed and we may incur significant liabilities.

    Interruptions to or degraded performance of our service could result in customer dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenue.

    If we are unable to further penetrate the B2C market and additional vertical industries, our revenue may not grow and our operating results may be harmed.

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


Corporate Information

          Our principal executive offices are located at 901 Mariners Island Blvd, Suite 200, San Mateo, California 94404, and our telephone number is (650) 376-2300. Our website is www.marketo.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus. We were incorporated in California in January 2006 and reincorporated in Delaware in January 2010.

          Marketo, the Marketo logo, Marketing Nation, LaunchPoint and other trademarks or service marks of Marketo appearing in this prospectus are the property of Marketo. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this prospectus.

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

 

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The Offering

Common stock offered by us

  662,498 shares

Common stock offered by the selling stockholders

 

5,337,502 shares

Total common stock offered

 

6,000,000 shares

Common stock to be outstanding after this offering

 

37,665,375 shares

Option to purchase additional shares

 

We have granted the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to an additional 900,000 shares from us.

Use of proceeds

 

We intend to use the net proceeds from this offering for working capital and other general corporate purposes. We also may use a portion of the net proceeds to acquire or invest in complementary businesses, products, services, technologies or other assets. However, we do not have agreements or commitments for any specific acquisitions or investments at this time. See "Use of Proceeds".

Concentration of ownership

 

Upon completion of this offering, the executive officers, directors and 5% stockholders of our company and their affiliates will beneficially own, in the aggregate, approximately       % of our outstanding capital stock.

NASDAQ trading symbol

 

"MKTO"

          The number of shares of our common stock to be outstanding after this offering is based on 37,002,877 shares of our common stock outstanding as of June 30, 2013 and                  shares to be sold in this offering by certain selling stockholders upon the exercise of options, and excludes:

    7,891,581 shares of common stock issuable upon the exercise of options outstanding as of June 30, 2013 (other than                   shares to be sold in this offering by certain selling stockholders upon the exercise of options), with a weighted average exercise price of $4.62 per share;

    256,635 shares of common stock issuable upon vesting of restricted stock units outstanding as of June 30, 2013; and

    4,157,607 shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of 3,419,575 shares of common stock reserved for future issuance under our 2013 Equity Incentive Plan, 738,032 shares of common stock reserved for future issuance under our 2013 Employee Stock Purchase Plan, and shares that become available under our 2013 Equity Incentive Plan and 2013 Employee Stock Purchase Plan, pursuant to provisions thereof that automatically increase the share reserves under the plans each year, as more fully described in "Executive Compensation — Employee Benefit and Stock Plans".

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

    no exercise of outstanding options or settlement of outstanding RSUs; and

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

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

          The following tables summarize our consolidated financial data. You should read the summary consolidated financial data set forth below in conjunction with our consolidated financial statements, the notes to our consolidated financial statements and the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this prospectus.

          We derived the summary consolidated statements of operations data for the years ended December 31, 2010, 2011 and 2012 and the consolidated balance sheet data as of December 31, 2012 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary consolidated statements of operations data for the six months ended June 30, 2012 and 2013 and the consolidated balance sheet data as of June 30, 2013 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. The unaudited interim consolidated financial statements were prepared on a basis consistent with our audited financial statements and include, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected in any future period, and our interim results are not necessarily indicative of the results to be expected for the full year or any other period.

 

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

Consolidated Statements of Operations Data:

                               

Revenue:

                               

Subscription and support

  $ 13,473   $ 29,823   $ 52,756   $ 23,400   $ 37,438  

Professional services and other

    559     2,569     5,657     2,739     4,802  
                       

Total revenue

    14,032     32,392     58,413     26,139     42,240  
                       

Cost of revenue(1):

                               

Subscription and support

    4,612     9,386     16,216     6,742     12,141  

Professional services and other

    2,534     5,550     8,442     3,906     5,739  
                       

Total cost of revenue           

    7,146     14,936     24,658     10,648     17,880  
                       

Gross profit:

                               

Subscription and support

    8,861     20,437     36,540     16,658     25,297  

Professional services and other

    (1,975 )   (2,981 )   (2,785 )   (1,167 )   (937 )
                       

Total gross profit

    6,886     17,456     33,755     15,491     24,360  
                       

Operating expenses(1):

                               

Research and development

    5,498     10,677     18,799     9,174     10,981  

Sales and marketing

    11,019     23,088     37,776     17,607     27,806  

General and administrative

    2,135     6,154     11,388     5,275     7,303  
                       

Total operating expenses

    18,652     39,919     67,963     32,056     46,090  
                       

Loss from operations

    (11,766 )   (22,463 )   (34,208 )   (16,565 )   (21,730 )

Other income (expense), net

    (50 )   (137 )   (158 )   (15 )   (147 )
                       

Loss before provision for income taxes

    (11,816 )   (22,600 )   (34,366 )   (16,580 )   (21,877 )

Provision for income taxes

    1     6     19     3     37  
                       

Net loss

  $ (11,817 ) $ (22,606 ) $ (34,385 ) $ (16,583 ) $ (21,914 )
                       

Net loss attributable to common stockholders:

                               

Basic and diluted

  $ (11,817 ) $ (22,606 ) $ (34,385 ) $ (16,583 ) $ (21,914 )
                       

Net loss per share attributable to common stockholders:

                               

Basic and diluted

  $ (5.99 ) $ (9.94 ) $ (12.26 ) $ (6.25 ) $ (1.91 )
                       

Weighted average shares used in computing net loss per share attributable to common stockholders:

                               

Basic and diluted

    1,972     2,274     2,806     2,655     11,472  
                       

 

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(1)
Amounts include stock-based compensation expense as follows:

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

Cost of subscription and support revenue

  $ 50   $ 108   $ 216   $ 68   $ 177  

Cost of professional services and other revenue

    8     49     169     91     247  

Research and development

    73     294     575     281     1,147  

Sales and marketing

    57     509     966     423     1,093  

General and administrative

    131     349     1,046     371     953  
                       

Total stock-based compensation expense

  $ 319   $ 1,309   $ 2,972   $ 1,234   $ 3,617  
                       


 
  June 30, 2013  
 
 
Actual
 
As Adjusted(1)
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

             

Cash and cash equivalents

  $ 121,882   $                  

Working capital

    92,921        

Total assets

    166,180        

Total indebtedness

    6,613        

Deferred revenue

    30,566        

Total liabilities

    56,203        

Total stockholders' equity

    109,977        

(1)
The as adjusted column gives effect to (i) the sale by us of                          shares of our common stock offered by this prospectus at an assumed public offering price of $             per share, which was the last sale price of our common stock as reported by The NASDAQ Global Select Market on                          , 2013, and after deducting underwriting discounts and commissions and estimated offering expenses and (ii) the issuance of                  shares of common stock to be acquired by certain selling stockholders upon the exercise of options in order to sell those shares in the offering. The as adjusted information presented in the consolidated balance sheet data is illustrative only and will change based on the actual public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed public offering price of $             per share would increase or decrease, as applicable, each of cash and cash equivalents, working capital, total assets and total stockholders' equity on an adjusted basis 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 after deducting estimated underwriting discounts and commissions and estimated offering expenses.

 

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RISK FACTORS

          Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes, before deciding whether to purchase shares of our common stock. If any of the following risks is realized, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the price of our common stock could decline and you could lose part or all of your investment.


Risks Related to Our Business and Industry

We have a history of losses and may not achieve consistent profitability in the future.

          We generated net losses of $11.8 million, $22.6 million and $34.4 million in 2010, 2011 and 2012, and $21.9 million for the six months ended June 30, 2013. As of June 30, 2013, we had an accumulated deficit of $104.1 million. We will need to generate and sustain increased revenue levels in future periods in order to become consistently profitable, and, even if we do, we may not be able to maintain or increase our level of profitability. We intend to continue to expend significant funds to expand our marketing and sales operations, develop and enhance our marketing software, meet the increased compliance requirements associated with our transition to and operation as a public company, upgrade our data center infrastructure and services capabilities and expand into new markets. Historically, we also have experienced negative gross margins on our professional services, which are expected to continue to be negative. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenue enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this prospectus, and unforeseen expenses, difficulties, complications and delays and other unknown events. If we are unable to achieve and sustain profitability, the market price of our common stock may significantly decrease.

If we are unable to attract new customers or sell additional services and functionality to our existing customers, our revenue growth will be adversely affected.

          To increase our revenue, we must add new customers, encourage existing customers to renew their subscriptions on terms favorable to us, increase their usage of our solutions, and sell additional functionality to existing customers. As our industry matures, as interactive channels develop further, or as competitors introduce lower cost and/or differentiated products or services that are perceived to compete with ours, our ability to sell and renew based on pricing, technology and functionality could be impaired. As a result, we may be unable to renew our agreements with existing customers or attract new customers or new business from existing customers on terms that would be favorable or comparable to prior periods, which could have an adverse effect on our revenue and growth.

If subscription renewal rates decrease, or we do not accurately predict subscription renewal rates, our future revenue and operating results may be harmed.

          Our customers have no obligation to renew their subscriptions for our software after the expiration of their subscription period, which is typically one year, but ranges from one quarter to three years. In addition, our customers may renew for lower subscription amounts or for shorter contract lengths. We may not accurately predict renewal rates for our customers. Our renewal rates may decline or fluctuate as a result of a number of factors, including customer usage, pricing changes, number of applications used by our customers, customer satisfaction with our service, the acquisition of our customers by other companies and deteriorating general economic conditions. If

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our customers do not renew their subscriptions for our service or decrease the amount they spend with us, our revenue will decline and our business will suffer.

If we are unable to maintain a good relationship with salesforce.com and develop and grow our relationships with other platform providers, our business will suffer.

          As of June 30, 2013, approximately 74% of our customers integrated our solution with certain capabilities of salesforce.com using publicly available application programming interfaces (APIs). In general, we rely on the fact that salesforce.com continues to allow us access to its APIs to enable these customer integrations. To date, we have not relied on a long-term written contract to govern our relationship with salesforce.com. Instead, we are subject to the standard terms and conditions for application developers of salesforce.com, which govern the distribution, operation and fees of applications on the salesforce.com platform, and which are subject to change by salesforce.com from time to time. While we expect to continue to generate the majority of our revenue from our customers using the salesforce.com platform in the near term, we also integrate our solutions with other platform providers, including Microsoft, NetSuite, Oracle, SAP and SugarCRM. Any deterioration in our relationship with any platform provider would harm our business and adversely affect our operating results.

          Our business may be harmed if any platform provider:

    discontinues or limits access to its APIs by us;

    terminates or does not allow us to renew or replace our contractual relationship;

    modifies its terms of service or other policies, including fees charged to, or other restrictions on, us, other application developers, or changes how customer information is accessed by us or our customers;

    establishes more favorable relationships with one or more of our competitors, or acquires one or more of our competitors and offers competing services to us, such as may be the case with the acquisition of ExactTarget by salesforce.com in July 2013 or of Eloqua by Oracle in late 2012; or

    otherwise develops its own competitive offerings.

          In addition, we have benefited from these platform providers' brand recognition, reputations and customer bases. Any losses or shifts in the market position of these platform providers in general, in relation to one another or to new competitors or new technologies could lead to losses in our relationships or customers, or our need to identify or transition to alternative channels for marketing our solutions. Any such requirements for changes or shifts on us could consume substantial resources and may not be effective. Any such changes in the future could negatively impact our ability to reach our prospective customers, which would harm our business.

We face significant competition from both established and new companies offering marketing software and other related applications, as well as internally developed software, which may harm our ability to add new customers, retain existing customers and grow our business.

          The marketing software market is evolving, highly competitive and significantly fragmented. We expect competition to continue to increase in the future. With the introduction of new technologies and the potential entry of new competitors into the market, we expect competition to persist and intensify in the future, which could harm our ability to increase sales, maintain or increase renewals and maintain our prices.

          We face intense competition from other software companies that develop marketing software and from marketing services companies that provide interactive marketing services. Competition

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could significantly impede our ability to sell our marketing software on terms favorable to us. Our current and potential competitors may develop and market new technologies that render our existing or future products less competitive, unmarketable or obsolete. In addition, if these competitors develop products with similar or superior functionality to our solutions, we may need to decrease the prices for our solutions in order to remain competitive. If we are unable to maintain our current pricing due to competitive pressures, our margins will be reduced and our operating results will be negatively affected.

          Our competitors offer various solutions that compete with us. Some of these competitors include:

    cloud-based marketing automation providers such as Act-On, Eloqua (a division of Oracle), ExactTarget (acquired by salesforce.com in July 2013) and HubSpot;

    traditional database marketing software vendors such as Aprimo (a division of Teradata), SAS Institute and Unica (a division of IBM);

    email marketing software vendors, such as Responsys and Silverpop; and

    large-scale enterprise suites such as Oracle and SAP.

          We also expect that new competitors, such as enterprise software vendors that have traditionally focused on enterprise resource planning or back office applications, will continue to enter the marketing software market with competing products, which could have an adverse effect on our business, operating results and financial condition. For example, due to the growing awareness of the importance of technology solutions to modern relationship marketing, we expect to face additional competition from new entrants to our markets. In addition to salesforce.com's acquisition of ExactTarget, other sales force automation and CRM system vendors, such as Microsoft and NetSuite could acquire or develop solutions that compete with our offerings. Some of these companies have acquired social media marketing and other marketing software providers to integrate with their broader offerings.

          Our current and potential competitors may have significantly more financial, technical, marketing and other resources than we have, are able to devote greater resources to the development, promotion, sale and support of their products and services, have more extensive customer bases and broader customer relationships than we have, and may have longer operating histories and greater name recognition than we have. As a result, these competitors may be better able to respond quickly to new technologies and to undertake more extensive marketing campaigns. In a few cases, these vendors may also be able to offer marketing software at little or no additional cost by bundling them with their existing suite of solutions. To the extent any of our competitors have existing relationships with potential customers for either marketing software or other solutions, those customers may be unwilling to purchase our solutions because of those existing relationships with that competitor. If we are unable to compete with such companies, the demand for our marketing software could substantially decline.

          In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. For example, Oracle acquired our competitor Eloqua in late 2012, ExactTarget acquired our competitor Pardot in 2012, and salesforce.com subsequently acquired ExactTarget in July 2013. Other companies such as Adobe and IBM have also recently acquired companies in the marketing automation and/or social marketing and related spaces. These acquisitions have resulted in fewer but larger companies with whom we compete for customers. Our competitors may also establish or strengthen cooperative relationships with our current or future strategic distribution and technology partners or other parties with whom we have relationships, thereby limiting our ability to promote and implement our solutions. We may not be able to compete successfully against current or future

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competitors, and competitive pressures may harm our business, operating results and financial condition.

Our recent rapid growth may not be indicative of our future growth and, if we continue to grow rapidly, we may not be able to manage our growth effectively.

          From 2010 to 2012, our revenue grew from $14.0 million to $58.4 million, and grew to $42.2 million for the six months ended June 30, 2013. We expect that, in the future, as our revenue increases to higher levels, our revenue growth rate will decline. We believe growth of our revenue depends on a number of factors, including our ability to:

    price our marketing software effectively so that we are able to attract and retain customers without compromising our profitability;

    attract new customers, increase our existing customers' use of our services and provide our customers with excellent customer support;

    introduce our marketing software to new markets outside of the United States; and

    increase awareness of our brand on a global basis.

          We may not successfully accomplish any of these objectives. We plan to continue our investment in future growth. We expect to continue to expend substantial financial and other resources on:

    sales and marketing, including a significant expansion of our sales organization;

    our technology infrastructure, including systems architecture, management tools, scalability, availability, performance and security, as well as disaster recovery measures;

    product development, including investments in our product development team and the development of new products and new features for existing products;

    international expansion; and

    general administration, including legal and accounting expenses related to being a public company.

          In addition, our historical rapid growth has placed and may continue to place significant demands on our management and our operational and financial resources. We have also experienced significant growth in database size, the number of users and transactions and the amount of data that our hosting infrastructure supports. As we continue to grow, we may need to open new offices in the United States and internationally, and hire additional personnel for those offices. Finally, our organizational structure is becoming more complex as we add additional staff, and we will need to improve our operational, financial and management controls as well as our reporting systems and procedures. We will require significant capital expenditures and the allocation of valuable management resources to grow and change in these areas without undermining our corporate culture of rapid innovation, teamwork and attention to customer success that has been central to our growth so far.

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If our or our customers' security measures are compromised or unauthorized access to customer data is otherwise obtained, our marketing software may be perceived as not being secure, customers may curtail or cease their use of our solutions, our reputation may be harmed and we may incur significant liabilities.

          Our operations involve the storage and transmission of customer data, including personally identifiable information, and security incidents could result in unauthorized access to, loss of or unauthorized disclosure of this information, litigation, indemnity obligations and other possible liabilities, as well as negative publicity, which could damage our reputation, impair our sales and harm our business. Cyber attacks and other malicious Internet-based activity continue to increase generally, and cloud-based platform providers of marketing services have been targeted. If our security measures are compromised as a result of third-party action, employee or customer error, malfeasance, stolen or fraudulently obtained log-in credentials or otherwise, our reputation could be damaged, our business may be harmed and we could incur significant liability. In addition, if the security measures of our customers are compromised, even without any actual compromise of our own systems, we may face negative publicity or reputational harm if our customers or anyone else incorrectly attributes the blame for such security breaches on us or our systems. We may be unable to anticipate or prevent techniques used to obtain unauthorized access or to sabotage systems because they change frequently and generally are not detected until after an incident has occurred. As we increase our customer base and our brand becomes more widely known and recognized when we are a public company, we may become more of a target for third parties seeking to compromise our security systems or gain unauthorized access to our customers' data.

          Many governments have enacted laws requiring companies to notify individuals of data security incidents involving certain types of personal data. In addition, some of our customers contractually require notification of any data security compromise. Security compromises experienced by our competitors, by our customers or by us may lead to public disclosures, which may lead to widespread negative publicity. Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, cause existing customers to elect not to renew their subscriptions or subject us to third-party lawsuits, regulatory fines or other action or liability, which could materially and adversely affect our business and operating results.

          There can be no assurance that any limitations of liability provisions in our contracts for a security breach would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. We also cannot be sure that our existing general liability insurance coverage and coverage for errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition and operating results.

Interruptions to or degraded performance of our service could result in customer dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenue.

          We currently serve our customers from third-party data center hosting facilities located in California, Texas, Virginia and the United Kingdom. The continuous availability of our service depends on the operations of those facilities, on a variety of network service providers, on third-party vendors and on our own data center operations staff. In addition, we depend on our third-

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party facility providers' ability to protect these facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. In 2012, we began an effort to transition from a managed hosting service provider to co-location data center facilities for which we are purchasing and managing our own computer equipment and systems. This transition requires that we complete customer migrations without material interruption, which increases the risk of possible adverse business impact of any interruption or failure in the delivery of our service that could result from the transition. If there are any lapses of service or damage to a facility, we could experience lengthy interruptions in our service as well as delays and additional expenses in arranging new facilities and services. Even with current and planned disaster recovery arrangements, which, to date, have not been tested in an actual crisis, our business could be harmed.

          We designed our system infrastructure and procure and own or lease the computer hardware used for our services. Design and mechanical errors, spikes in usage volume and failure to follow operations protocols and procedures could cause our systems to fail, resulting in interruptions in our solution. Any interruptions or delays in our service, whether as a result of third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with customers and cause our revenue to decrease and/or our expenses to increase. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue, subject us to liability and cause us to issue credits or cause customers not to renew their subscriptions, any of which could materially adversely affect our business.

If we are unable to further penetrate the B2C market and additional vertical industries, our revenue may not grow and our operating results may be harmed.

          Currently, a significant majority of our revenue is derived from companies in the B2B market and a significant portion are derived from customers in the technology industry. An important part of our strategy, however, is to further penetrate the B2C market and vertical industries outside of technology. We have less experience in this market and these industries, and expanding into them may require us to develop additional features for our products, expand our expertise in certain areas, and add sales and support personnel possessing familiarity with this market and the relevant vertical industries. In addition, B2C customers may have greater usage requirements during their peak selling seasons which could put pressure on our systems and infrastructure and require us to expand these systems and infrastructure to meet increased demand. As a result of these and other factors, our efforts to expand further into the B2C market and further into additional vertical industries may be expensive, may not succeed and may harm our revenue growth and operating results.

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

          Our quarterly operating results have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance, and comparing our operating results on a period-to-period basis may not be meaningful. In addition to the other risks described in this prospectus, factors that may affect our quarterly operating results include the following:

    changes in spending on marketing software by our current or prospective customers;

    pricing of our marketing software so that we are able to attract and retain customers;

    acquisition of new customers and increases of our existing customers' use of our services;

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    customer renewal rates and the amounts for which agreements are renewed;

    customer delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors;

    budgeting cycles of our customers;

    changes in the competitive dynamics of our market, including consolidation among competitors or customers;

    the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses (including marketing events and commissions and bonuses associated with performance), and employee benefit expenses;

    the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments and other non-cash charges;

    the amount and timing of costs associated with recruiting, training and integrating new employees;

    the amount and timing of cash collections from our customers and the mix of quarterly and annual billings;

    introduction and adoption of our marketing software in markets outside of the United States;

    unforeseen costs and expenses related to the expansion of our business, operations and infrastructure;

    costs and timing of costs associated with the transition of our data center facilities;

    awareness of our thought leadership and brand on a global basis;

    changes in the levels of our capital expenditures;

    foreign currency exchange rate fluctuations; and

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

          We may not be able to accurately forecast the amount and mix of future subscriptions, revenue and expenses and, as a result, our operating results may fall below our estimates or the expectations of public market analysts and investors. If our revenue or operating results fall below the expectations of investors or securities analysts, or below any guidance we may provide, the price of our common stock could decline.

We may not be able to scale our business quickly enough to meet our customers' growing needs and if we are not able to grow efficiently, our operating results could be harmed.

          As usage of our marketing software grows and as customers use our solutions for more advanced relationship marketing programs, we will need to devote additional resources to improving our application architecture, integrating with third-party systems, and maintaining infrastructure performance. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support and professional services, to serve our growing customer base, particularly as our customer demographics expand over time. Any failure of or delay in these efforts could cause impaired system performance and reduced customer satisfaction. These issues could reduce the attractiveness of our marketing software to customers, resulting in decreased sales to new customers, lower renewal rates by existing customers, the issuance of service credits, or requested refunds, which could hurt our revenue growth and our reputation. Even if we are able to upgrade our systems and expand our staff, any such expansion will be expensive and complex, requiring management time and attention. We

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could also face inefficiencies or operational failures as a result of our efforts to scale our infrastructure. Moreover, there are inherent risks associated with upgrading, improving and expanding our information technology systems. We cannot be sure that the expansion and improvements to our infrastructure and systems will be fully or effectively implemented on a timely basis, if at all. These efforts may reduce revenue and our margins and adversely impact our financial results.

If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs or requirements, our marketing software may become less competitive.

          Our future success will depend on our ability to adapt and innovate our marketing software. To attract new customers and increase revenue from existing customers, we continually will need to enhance and improve our offerings to meet customer needs at prices that our customers are willing to pay. Such efforts will require adding new functionality and responding to technological advancements, which will increase our research and development costs. If we are unable to develop new solutions that address our customers' needs, or to enhance and improve our solutions in a timely manner, we may not be able to achieve or maintain adequate market acceptance of our solutions. Our ability to grow is also subject to the risk of future disruptive technologies. Access and use of our marketing software is provided via the cloud, which, itself, was disruptive to the previous enterprise software model. If new technologies emerge that are able to deliver marketing software and related applications at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely impact our ability to compete.

Because we recognize revenue from subscriptions over the term of the relevant contract, downturns or upturns in sales are not immediately reflected in full in our operating results.

          As a subscription-based business, we recognize revenue over the term of each of our contracts, which is typically one year, but range from one quarter to three years. As a result, much of the revenue we report each quarter results from contracts entered into during previous quarters. Consequently, a shortfall in demand for our solutions and professional services or a decline in new or renewed contracts in any one quarter may not significantly reduce our revenue for that quarter but could negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in new sales or renewals of our marketing software will not be reflected in full in our operating results until future periods. Our revenue recognition model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable term of the contracts.

Because our long-term growth strategy involves further expansion of our sales to customers outside the United States, our business will be susceptible to risks associated with international operations.

          A component of our growth strategy involves the further expansion of our operations and customer base internationally. In 2010, 2011 and 2012, and the six months ended June 30, 2013, revenue generated outside of the United States was 10.6%, 10.7%, 12.8% and 14.1%, respectively, of our total revenue. We currently have international offices outside of North America in Europe and Australia, which focus primarily on selling and implementing our solutions in those regions. In the future, we may expand to other international locations. Our current international operations and future initiatives will involve a variety of risks, including:

    changes in a specific country's or region's political or economic conditions;

    unexpected changes in regulatory requirements, taxes or trade laws;

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    more stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal information, particularly in the European Union;

    differing labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;

    challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs;

    difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems;

    increased travel, real estate, infrastructure and legal compliance costs associated with international operations;

    currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future;

    limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;

    laws and business practices favoring local competitors or general preferences for local vendors;

    limited or insufficient intellectual property protection;

    political instability or terrorist activities;

    exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act and similar laws and regulations in other jurisdictions; and

    adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.

          We opened our first international office two years ago, and our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not be successful. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and operating results will suffer.

Failure to effectively develop and expand our marketing and sales capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our solutions.

          Our ability to increase our customer base and achieve broader market acceptance of our marketing software will depend to a significant extent on our ability to expand our marketing and sales operations. We plan to continue expanding our sales force and third-party channel partners, both domestically and internationally. We also plan to dedicate significant resources to sales and marketing programs, including Internet and other online advertising. The effectiveness of our online advertising has varied over time and may vary in the future due to competition for key search terms, changes in search engine use and changes in the search algorithms used by major search engines. All of these efforts will require us to invest significant financial and other resources. In addition, the cost to acquire customers is high due to these marketing and sales efforts. Our

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business will be seriously harmed if our efforts do not generate a correspondingly significant increase in revenue. We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop and retain talented sales personnel, if our new sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if our sales and marketing programs are not effective.

If we fail to maintain our thought leadership position in modern relationship marketing, our business may suffer.

          We believe that maintaining our thought leadership position in modern relationship marketing is an important element in attracting new customers. We devote significant resources to develop and maintain our thought leadership position, with a focus on identifying and interpreting emerging trends in relationship marketing, shaping and guiding industry dialog, and creating and sharing the best marketing practices. Our activities related to developing and maintaining our thought leadership may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in such effort. We rely upon the continued services of our management and employees with domain expertise in modern relationship marketing, and the loss of any key management or employees in this area could harm our competitive position and reputation. If we fail to successfully grow and maintain our thought leadership position, or incur substantial expenses in our attempts to do so, we may not attract enough new customers or retain our existing customers, and our business could suffer.

Our quarterly results reflect seasonality in the sale of our marketing software, which can make it difficult to achieve sequential revenue growth or could result in sequential revenue declines.

          We have historically experienced seasonal variations in our signing of customer contracts and renewals. We sign a significantly higher percentage of agreements with new customers as well as renewal agreements with existing customers in the fourth quarter of each year as compared to any of the prior quarters. The first quarter is typically the slowest in this regard. We expect this seasonality to continue in the future, which may cause fluctuations in certain of our operating results and financial metrics, and thus limit our ability to predict future results. This seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent, in our revenue, because we recognize subscription revenue over the term of the license agreement, which is typically one year, but ranges from one quarter to three years. As a result, a slowdown in our ability to enter into customer agreements may not be apparent in our revenue for the quarter, as the revenue recognized in any quarter is primarily from customer agreements entered into in prior quarters. Historical patterns should not be considered indicative of our future sales activity or performance.

If we fail to forecast our revenue accurately, or if we fail to match our expenditures with corresponding revenue, our operating results could be adversely affected.

          Because our recent growth has resulted in the rapid expansion of our business, we do not have a long history upon which to base forecasts of future operating revenue. In addition, for our enterprise customers, the lengthy sales cycle for the evaluation and implementation of our solutions, which typically extends for several months, may also cause us to experience a delay between increasing operating expenses for such sales efforts, and, upon successful sales, the generation of corresponding revenue. Accordingly, we may be unable to prepare accurate internal financial forecasts or replace anticipated revenue that we do not receive as a result of delays arising from these factors. As a result, our operating results in future reporting periods may be significantly below the expectations of the public market, equity research analysts or investors, which could harm the price of our common stock.

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The standards and practices that private entities use to regulate the use of email have in the past interfered with, and may in the future interfere with, the effectiveness of our software and our ability to conduct business.

          Our customers rely in part on email to communicate with their existing or prospective customers. Various private entities, such as commercial email, antivirus and network security providers, attempt to regulate the use of email for commercial solicitation. These entities often advocate standards of conduct or practice that significantly exceed current legal requirements and classify certain email solicitations that comply with current legal requirements as spam. Some of these entities maintain "blacklists" of companies and individuals, and the websites, Internet service providers and Internet protocol addresses associated with those entities or individuals that do not adhere to those standards of conduct or practices for commercial email solicitations that the blacklisting entity believes are appropriate. If a company's Internet protocol addresses are listed by a blacklisting entity, emails sent from those addresses may be blocked if they are sent to any Internet domain or Internet address that subscribes to the blacklisting entity's service or purchases its blacklist. Any of the foregoing restrictions or limitation on emails or internet addresses impacting our customers could lead to diminishing effectiveness of our marketing software solutions, and, in turn, result in service problems and ultimately a reduction in renewals or loss of customers for us.

We rely on our management team and other key employees, and the loss of one or more key employees could harm our business.

          Our success and future growth depend upon the continued services of our management team, including Phillip M. Fernandez, our President and Chief Executive Officer, and other key employees in the areas of research and development, marketing, sales, services and general and administrative functions. From time to time, there may be changes in our management team resulting from the hiring or departure of executives, which could disrupt our business. We also are dependent on the continued service of our existing software engineers because of the complexity of our solutions. We may terminate any employee's employment at any time, with or without cause, and any employee may resign at any time, with or without cause. In addition, our executive officers and certain other management-level employees benefit from management retention agreements and/or a change in control acceleration policy in which an involuntary termination by us without cause or a voluntary termination by the employee for good reason, as such terms are defined in the agreements and policy, in connection with or one year after a change of control transaction, will result in either severance pay or acceleration of equity vesting for the individual, which would increase the cost to us of any such departure. We do not maintain key man life insurance on any of our employees. The loss of one or more of our key employees could harm our business.

The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy.

          To execute our business strategy, we must attract and retain highly qualified personnel. In particular, we compete with many other companies for software developers with high levels of experience in designing, developing and managing cloud-based software, as well as for skilled sales and operations professionals, and we may not be successful in attracting and retaining the professionals we need. Also, marketing domain experts and enterprise sales professionals are very important to our success and are difficult to replace. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and difficulty in retaining highly skilled employees with appropriate qualifications. In particular, we have experienced a more competitive hiring environment in the San Francisco Bay Area, where we are headquartered. Many of the companies with which we compete for experienced personnel have greater resources than we do. In addition, in making employment decisions, particularly in the

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software industry, job candidates often consider the value of the stock options or other equity incentives they are to receive in connection with their employment. If the price of our stock declines, or experiences significant volatility, our ability to attract or retain key employees will be adversely affected. If we fail to attract new personnel or fail to retain and motivate our current personnel, our growth prospects could be severely harmed.

If our marketing software fails due to defects or similar problems, and if we fail to correct any defect or other software problems, we could lose customers, become subject to service performance or warranty claims or incur significant costs.

          Our solutions and the systems infrastructure underlying our marketing software platform are inherently complex and may contain material defects or errors. We have from time to time found defects in our solutions and may discover additional defects in the future. We may not be able to detect and correct defects or errors before customers begin to use our solutions. Consequently, we or our customers may discover defects or errors after our solutions have been implemented. These defects or errors could also cause inaccuracies in the data we collect and process for our customers, or even the loss, damage or inadvertent release of such confidential data. We implement bug fixes and upgrades as part of our regularly scheduled system maintenance, which may lead to system downtime. Even if we are able to implement the bug fixes and upgrades in a timely manner, any history of defects or inaccuracies in the data we collect for our customers, or the loss, damage or inadvertent release of such confidential data could cause our reputation to be harmed, and customers may elect not to purchase or renew their agreements with us and subject us to service performance credits, warranty claims or increased insurance costs. The costs associated with any material defects or errors in our software or other performance problems may be substantial and could materially adversely affect our operating results.

If we do not or cannot maintain the compatibility of our marketing software with third-party applications that our customers use in their businesses, our revenue will decline.

          The functionality and popularity of our marketing software depends, in part, on our ability to integrate our solutions with third-party applications and platforms, including CRM, event management, e-commerce, call center, and social media sites that our customers use and from which they obtain data. Third-party providers of applications and APIs may change the features of their applications and platforms, restrict our access to their applications and platforms or alter the terms governing use of their applications and APIs and access to those applications and platforms in an adverse manner. Such changes could functionally limit or terminate our ability to use these third-party applications and platforms in conjunction with our solution, which could negatively impact our offerings and harm our business. If we fail to integrate our software with new third-party applications and platforms that our customers use for marketing purposes, we may not be able to offer the functionality that our customers need, which would negatively impact our ability to generate revenue and adversely impact our business.

If we fail to offer high-quality education and customer support, our business and reputation would suffer.

          High-quality education and customer support is important for the successful marketing and sale of our solution and for the renewal of existing customers. Providing this education and support requires that our customer support personnel have specific marketing domain knowledge and expertise, making it more difficult for us to hire qualified personnel and to scale up our support operations due to the extensive training required. The importance of high-quality customer support will increase as we expand our business and pursue new customers. If we do not help our customers quickly resolve post-deployment issues and provide effective ongoing support, our ability

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to sell additional functionality and services to existing customers would suffer and our reputation with existing or potential customers would be harmed.

Future acquisitions, strategic investments, partnerships or alliances could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value and adversely affect our operating results and financial condition.

          We may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our solutions, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not the acquisition purchases are completed. In addition, we have limited experience in acquiring other businesses, having acquired only one company since our inception. If we acquire additional businesses, we may not be able to integrate successfully the acquired personnel, operations and technologies, or effectively manage the combined business following the acquisition. We may not be able to find and identify desirable acquisition targets or be successful in entering into an agreement with any particular target. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer.

Future product development is dependent on adequate research and development resources. If we do not adequately fund our research and development efforts, we may not be able to compete effectively and our business and operating results may be harmed.

          In order to remain competitive, we must continue to develop new product offerings, applications and enhancements to our existing cloud-based marketing software. Maintaining adequate research and development personnel and resources to meet the demands of the market is essential. If we are unable to develop solutions internally due to certain constraints, such as high employee turnover, lack of management ability or a lack of other research and development resources, we may miss market opportunities. Further, many of our competitors expend a considerably greater amount of funds on their research and development programs, and those that do not may be acquired by larger companies that would allocate greater resources to our competitors' research and development programs. Our failure to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors could materially adversely affect our business.

Shifts over time in the mix of sizes or types of organizations that purchase our solutions or changes in the components of our solutions purchased by our customers could negatively affect our operating results.

          Our strategy is to sell our marketing software to organizations of broadly different sizes, from SMBs to large enterprises. Our gross margins can vary depending on numerous factors related to the implementation and use of our marketing software, including the sophistication and intensity of our customers' use of our solutions and the level of professional services and support required by a customer. For example, our enterprise customers typically require more professional services and because our professional services offerings typically have a higher cost of revenue than subscriptions to our solutions, any increase in sales of professional services would have an adverse effect on our overall gross margin and operating results. Providing professional services to enterprises allows us to utilize our staff more efficiently than is the case in providing professional services to other customers or in other contexts; consequently, while an increase in providing professional services to enterprises typically hurts our overall gross margin, it may improve our

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professional services and other gross margin. Sales to enterprise customers may also entail longer sales cycles and more significant selling efforts. Selling to SMB customers may involve smaller contract size, higher relative selling costs and greater credit risk and uncertainty. If the mix of organizations that purchase our solutions changes, or the mix of solution components purchased by our customers changes, our gross margins could decrease and our operating results could be adversely affected.

Economic uncertainties or downturns in the general economy or the industries in which our customers operate could disproportionately affect the demand for our marketing software and negatively impact our operating results.

          General worldwide economic conditions have experienced a significant downturn and fluctuations in recent years, and market volatility and uncertainty remain widespread. As a result, we and our customers find it extremely difficult to accurately forecast and plan future business activities. In addition, these conditions could cause our customers or prospective customers to reduce their marketing and sales budgets, which could decrease corporate spending on our marketing software, resulting in delayed and lengthened sales cycles, a decrease in new customer acquisition and/or loss of customers. Furthermore, during challenging economic times, our customers may face issues with their cash flows and in gaining timely access to sufficient credit or obtaining credit on reasonable terms, which could impair their ability to make timely payments to us, impact customer renewal rates and adversely affect our revenue. If such conditions occur, we may be required to increase our reserves, allowances for doubtful accounts and write-offs of accounts receivable, and our operating results would be harmed. In addition, a downturn in the technology sector may disproportionately affect us because a significant portion of our customers are technology companies. We cannot predict the timing, strength or duration of any economic slowdown or recovery, whether global, regional or within specific markets. If the conditions of the general economy or markets in which we operate worsen, our business could be harmed. In addition, even if the overall economy improves, the market for marketing software may not experience growth or we may not experience growth.

If we fail to enhance our brand, our ability to expand our customer base will be impaired and our financial condition may suffer.

          We believe that our development of the Marketo brand is critical to achieving widespread awareness of our existing and future marketing software solutions, and, as a result, is important to attracting new customers and maintaining existing customers. We also believe that the importance of brand recognition will increase as competition in our market increases. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful marketing software at competitive prices. In the past, our efforts to build our brand have involved significant expenses. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brand. In addition, to sell to and service our customers we utilize a combination of internal personnel and third-party service providers, as well as indirect sales partners that pursue additional channel, agency and OEM distribution partnerships. These third-party service providers and indirect sales partners, who are not in our control, may harm our reputation and damage our brand perception in the marketplace. If we fail to successfully promote and maintain our brand, our business could suffer.

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We are dependent on the continued participation and level of service of our third-party professional service providers and our indirect sales partners.

          We rely on third-party service providers to provide certain services to us and/or our customers, as well as indirect sales partners to pursue additional channel, agency and OEM distribution partnerships. If any of these third-party service providers stop supporting our solution or if our network of providers does not expand, we will likely have to expand our internal team to meet the needs of our customers, which could increase our operating costs and result in lower gross margins. To the extent that we are unable to recruit alternative partners, or to expand our internal team, our revenue and operating results would be harmed.

If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, experience reduced revenue and incur costly litigation to protect our rights.

          Our success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws and contractual restrictions to establish and protect our proprietary rights in our products and services. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Any of our patents, trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. While we have some U.S. patent applications pending, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, any patents issued in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our products may be unenforceable under the laws of certain jurisdictions and foreign countries. In addition, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying and use of our products and proprietary information may increase.

          We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to and distribution of our products and proprietary information. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our solutions.

          In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management's attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our solutions, delay

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introductions of new solutions, result in our substituting inferior or more costly technologies into our solutions, or injure our reputation.

Our business may suffer if it is alleged or determined that our technology infringes the intellectual property rights of others.

          The software industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets and other intellectual and proprietary rights. Companies in the software industry, including in marketing software, are often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Many of our competitors and other industry participants have been issued patents and/or have filed patent applications and may assert patent or other intellectual property rights within the industry. Moreover, in recent years, individuals and groups that are non-practicing entities, commonly referred to as "patent trolls", have purchased patents and other intellectual property assets for the purpose of making claims of infringement in order to extract settlements. From time to time, we may receive threatening letters or notices or may be the subject of claims that our solutions and underlying technology infringe or violate the intellectual property rights of others. For example, as described further under "Business — Legal Proceedings", on May 17, 2013, iHance, Inc. filed a complaint against us alleging that a salesperson email tracking feature in our Marketo Sales Insight application infringed upon certain of iHance's patents. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management's attention and resources, damage our reputation and brand, and cause us to incur significant expenses. Our technologies may not be able to withstand any third-party claims or rights against their use. Claims of intellectual property infringement might require us to redesign our application, delay releases, enter into costly settlement or license agreements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling our solutions. If we cannot or do not license the infringed technology on reasonable terms or at all, or substitute similar technology from another source, our revenue and operating results could be adversely impacted. Additionally, our customers may not purchase our marketing software if they are concerned that they may infringe third-party intellectual property rights. The occurrence of any of these events may have a material adverse effect on our business.

          In our subscription agreements with our customers, we agree to indemnify our customers against any losses or costs incurred in connection with claims by a third party alleging that a customer's use of our services infringes the intellectual property rights of the third party. There can be no assurance that any existing limitations of liability provisions in our contracts would be enforceable or adequate, or would otherwise protect us from any such liabilities or damages with respect to any particular claim. Our customers who are accused of intellectual property infringement may in the future seek indemnification from us under the terms of our contracts. If such claims are successful, or if we are required to indemnify or defend our customers from these or other claims, these matters could be disruptive to our business and management and have a material adverse effect on our business, operating results and financial condition.

We use open source software in our products, which could subject us to litigation or other actions.

          We use open source software in our marketing software and may use more open source software in the future. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development

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resources to change our products. In addition, if we were to combine our proprietary software products with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software products. If we inappropriately use open source software, we may be required to re-engineer our products, discontinue the sale of our products or take other remedial actions.

Existing federal, state and foreign laws regulate Internet tracking software, the senders of commercial emails and text messages, website owners and other activities, and could impact the use of our marketing solution and potentially subject us to regulatory enforcement or private litigation.

          Certain aspects of how our customers utilize our solution are subject to regulations in the United States, European Union and elsewhere. New and expanding "Do Not Track" regulations have recently been enacted or proposed that protect users' right to choose whether or not to be tracked online. These regulations seek, among other things, to allow consumers to have greater control over the use of private information collected online, to forbid the collection or use of online information, to demand a business to comply with their choice to opt out of such collection or use, and to place limits upon the disclosure of information to third party websites. These policies could have a significant impact on the operation of our marketing software and could impair our attractiveness to customers, which would harm our business.

          Many of our customers and potential customers in the healthcare, financial services and other industries are subject to substantial regulation regarding their collection, use and protection of data and may be the subject of further regulation in the future. Accordingly, these laws or significant new laws or regulations or changes in, or repeals of, existing laws, regulations or governmental policy may change the way these customers do business and may require us to implement additional features or offer additional contractual terms to satisfy customer and regulatory requirements, or could cause the demand for and sales of our marketing software to decrease and adversely impact our financial results.

          In addition, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) establishes certain requirements for commercial email messages and specifies penalties for the transmission of commercial email messages that are intended to deceive the recipient as to source or content. The CAN-SPAM Act, among other things, obligates the sender of commercial emails to provide recipients with the ability to opt out of receiving future commercial emails from the sender. In addition, the CAN-SPAM Act, regulations issued pursuant to the CAN-SPAM Act, and the Telephone Consumer Protection Act allow companies to send some types of commercial text messages only when the recipient has opted in to the receipt of such text messages. The ability of our customers' message recipients to opt out of receiving commercial emails may minimize the effectiveness of the email components of our marketing software offerings. In addition, certain states and foreign jurisdictions, such as Australia, Canada and the European Union, have enacted laws that regulate sending email, and some of these laws are more restrictive than U.S. laws. For example, some foreign laws prohibit sending unsolicited email unless the recipient has provided the sender advance consent to receipt of such email, or in other words has "opted-in" to receiving it. A requirement that recipients opt into, or the ability of recipients to opt out of, receiving commercial emails may minimize the effectiveness of our software.

          Our solutions include features that enable our customers to run sweepstakes, contests and similar events that are subject to regulation by various jurisdictions. To the extent that these regulations and the enforcement of these regulations dissuade our customers from conducting these types of events, they could impact customer demand for these features and ultimately customer demand for our solutions.

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          In addition, U.S., state and foreign jurisdictions are considering and may in the future enact legislation or laws restricting the ability to conduct marketing activities in mobile, social and web channels. Any of the foregoing existing or future restrictions could require us to change one or more aspects of the way we operate our business, which could impair our ability to attract and retain customers, or increase our operating costs or otherwise harm our business. We may be unable to pass along those costs to our clients in the form of increased subscription fees.

          While these laws and regulations generally govern our customers' use of our solution, we may be subject to certain laws as a data processor on behalf of, or as a business associate of, our customers. For example, these laws and regulations governing the collection, use and disclosure of personal information include, in the United States, rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Gramm-Leach-Bliley Act of 1999 and state breach notification laws, and internationally, the Data Protection Directive in the European Union and the Federal Data Protection Act in Germany. If we were found to be in violation of any of these laws or regulations as a result of government enforcement or private litigation, we could be subjected to civil and criminal sanctions, including both monetary fines and injunctive action that could force us to change our business practices, all of which could adversely affect our financial performance and significantly harm our reputation and our business.

Privacy concerns and consumers' acceptance of Internet behavior tracking may limit the applicability, use and adoption of our marketing software.

          Privacy concerns may cause consumers to resist providing the personal data necessary to allow our customers to use our service effectively. We have implemented various features intended to enable our customers to better protect consumer privacy, but these measures may not alleviate all potential privacy concerns and threats. Even the perception of privacy concerns, whether or not valid, may inhibit market adoption of our service in certain industries. In addition to government activity, privacy advocacy groups and the technology and other industries are considering various new, additional or different self-regulatory standards that may place additional burdens on us. There are numerous lawsuits in process against various technology companies that collect and use personal information. If those lawsuits are successful, it could impact the way we conduct our business and adversely affect our financial results. The costs of compliance with, and other burdens imposed by, the foregoing laws, regulations, policies and actions may limit the use and adoption of our cloud-based marketing software and reduce overall demand for it, or lead to significant fines, penalties or liabilities for any noncompliance or loss of any such action.

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

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

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Changes in tax laws or regulations that are applied adversely to us or our customers could increase the costs of our cloud-based marketing software and adversely impact our business.

          New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time. Any new taxes could adversely affect our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. These events could require us or our customers to pay additional tax amounts on a prospective or retroactive basis, as well as require us or our customers to pay fines and/or penalties and interest for past amounts deemed to be due. If we raise our prices to offset the costs of these changes, existing and potential future customers may elect not to continue or purchase our marketing software in the future. Additionally, new, changed, modified or newly interpreted or applied tax laws could increase our customers' and our compliance, operating and other costs, as well as the costs of our software. Any or all of these events could adversely impact our business and financial performance.

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

          As a multinational organization, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have a material adverse effect on our liquidity and operating results. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could have a material impact on us and the results of our operations.

Failure to comply with laws and regulations could harm our business.

          Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results and financial condition could be harmed. In addition, responding to any action will likely result in a significant diversion of management's attention and resources and an increase in professional fees. Enforcement actions and sanctions could further harm our business, operating results and financial condition.

Catastrophic events may disrupt our business.

          We rely heavily on our data centers, network infrastructure and information technology systems for our business operations. A disruption or failure of these systems in the event of online attack, earthquake, fire, terrorist attack, power loss, telecommunications failure or other similar catastrophic event could cause system interruptions, delays in accessing our service, reputational harm and loss of critical data or could prevent us from providing our solutions to our customers. Our service is delivered from data centers operated by third parties in California, Texas, Virginia and

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the United Kingdom. In addition, we are headquartered and most of our employees reside in the San Francisco Bay Area, an area particularly susceptible to earthquakes, and a major earthquake or other catastrophic event could affect our employees, who may not be able to access our systems or otherwise continue to provide our solutions to our customers. A catastrophic event that results in the destruction or disruption of our data centers, or our network infrastructure or information technology systems, or access to our systems, could affect our ability to conduct normal business operations and adversely affect our operating results.

The requirements of being a public company may strain our systems and resources, divert management's attention and be costly.

          As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934 (Exchange Act) the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), and the rules and regulations of The NASDAQ Stock Market. The requirements of these rules and regulations increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and may also place undue strain on our personnel, systems and resources.

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

          In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

          In addition, we expect these laws, rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain appropriate levels of coverage. These factors could also make it more

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difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.

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

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

          Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. Accounting for revenue from sales of subscriptions to software is particularly complex, is often the subject of intense scrutiny by the SEC, and will evolve as FASB continues to consider applicable accounting standards in this area.

          For example, we recognize subscription revenue in accordance with Accounting Standards Update 2009-13, Revenue Recognition (Topic 605) — Multiple-Deliverable Revenue Arrangements — a Consensus of the Emerging Issues Task Force (ASU 2009-13) (formerly known as EITF 08-01). The FASB and the SEC continue to issue interpretations and guidance for applying the relevant accounting standards to a wide range of sales contract terms and business arrangements that are prevalent in software licensing and subscription arrangements. As a result of future interpretations or applications of existing accounting standards, including ASU 2009-13, we could be required to delay revenue recognition into future periods, which would adversely affect our operating results.

          In addition, certain factors have in the past and may in the future cause us to defer recognition for subscription fees. For example, the inclusion in our customer contracts of material non-standard terms, such as acceptance criteria, could require the deferral of subscription revenue. To the extent that such contracts become more prevalent in the future our revenue may be adversely affected.

          Because of these factors and other specific requirements under accounting principles generally accepted in the United States for revenue recognition, we must have very precise terms in our arrangements in order to recognize revenue when we initially deliver our hosting services or perform our professional services. Negotiation of mutually acceptable terms and conditions can extend our sales cycle, and we may accept terms and conditions that do not permit revenue recognition at the time of delivery.

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Risks Related to this Offering and Our Common Stock

Our stock price may be volatile and may decline regardless of our operating performance resulting in substantial losses for investors purchasing shares in this offering.

          The trading prices of the securities of technology companies, including providers of software via the cloud-based model, have been highly volatile. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

    actual or anticipated fluctuations in our revenue and other operating results, including as a result of the addition or loss of any number of customers;

    announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;

    the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

    failure of securities analysts to initiate or maintain coverage of us, changes in ratings and financial estimates and the publication of other news by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

    changes in operating performance and stock market valuations of cloud-based software or other technology companies, or those in our industry in particular;

    price and volume fluctuations in the trading of our common stock and in the overall stock market, including as a result of trends in the economy as a whole;

    announcements by us with regard to the effectiveness of our internal controls and our ability to accurately report financial results;

    new laws or regulations or new interpretations of existing laws or regulations applicable to our business our industry;

    lawsuits threatened or filed against us;

    changes in key personnel; and

    other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

          In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies.

          In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.

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

          The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. If no or few securities or industry analysts cover our company, the trading price for our stock would be negatively impacted. If one or more of the analysts who covers us downgrades our stock or

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publishes incorrect or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price or trading volume to decline.

The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters including the ability to influence the outcome of director elections and other matters requiring stockholder approval.

          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. As a result, these stockholders, acting together, have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders, including those who purchase shares in this offering, oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

As a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

          We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting commencing with our annual report covering the year ending December 31, 2014. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We may experience difficulty in meeting these reporting requirements in a timely manner, particularly if material weaknesses or significant deficiencies persist. In the past certain significant deficiencies have been identified in our internal financial and accounting controls and procedures. In addition, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). If we are unable to comply with the requirements of Section 404 in a timely manner, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities, which would require additional financial and management resources.

          Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations. Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting. Ineffective disclosure controls and procedures or internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock.

          Implementing any appropriate changes to our internal controls may require specific compliance training of our directors, officers and employees, entail substantial costs in order to modify our existing accounting systems, and take a significant period of time to complete. Such

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changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. In the event that we are not able to demonstrate compliance with Section 404 of the Sarbanes-Oxley Act in a timely manner, that our internal controls are perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and our stock price could decline.

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

          Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds to invest in future growth opportunities. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could seriously harm our business and operating results. If we incur debt, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. As a result, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.

Substantial future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.

          The market price for our common stock could decline as a result of the sale of substantial amounts of our common stock, particularly sales by our directors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale or the perception in the market that holders of a large number of shares intend to sell their shares. Based on shares outstanding as of June 30, 2013, upon completion of this offering, we will have outstanding approximately               million shares of common stock, approximately              million of which are subject to lock-up agreements entered into in connection with our initial public offering (IPO), restricting their sale during the period ending November 13, 2013. In addition, stockholders selling shares in this offering have agreed to extend the sale restrictions for an additional period ending 90 days after the date of this prospectus as more fully described in "Underwriting". Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC may permit our officers, directors, employees and current stockholders to sell shares prior to the expiration of the lock-up agreements.

          After this offering, holders of an aggregate of                  shares of our common stock as of June 30, 2013, 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 our stockholders.

          In addition, the shares of common stock subject to outstanding options under our equity incentive plans and the shares reserved for future issuance under our equity incentive plans will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. See "Shares Eligible for Future Sale" for a more detailed description of sales that may occur in the future.

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          If a substantial number of shares are sold, or if it is perceived that they will be sold, in the public market, before or after the expiration of the contractual lock-up period, the trading price of our common stock could decline substantially.

Anti-takeover provisions in our charter documents and Delaware law may delay or prevent an acquisition of our company.

          Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may have the effect of delaying or preventing a change in control of us or changes in our management. Our amended and restated certificate of incorporation and bylaws include provisions that:

    authorize "blank check" preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;

    provide for a classified board of directors whose members serve staggered three-year terms;

    specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of the board, the chief executive officer or the president;

    prohibit stockholder action by written consent;

    establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;

    provide that our directors may be removed only for cause;

    provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

    specify that no stockholder is permitted to cumulate votes at any election of directors;

    authorize our board of directors to modify, alter or repeal our amended and restated bylaws; and

    require supermajority votes of the holders of our common stock to amend specified provisions of our charter documents.

          These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

          In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us in certain circumstances.

          Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

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If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution.

          If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution in the pro forma net tangible book value per share after giving effect to this offering of $             per share as of June 30, 2013, based on an assumed public offering price of $             per share, which is the last reported sales price of our common stock on The NASDAQ Global Select Market on                          , 2013, because the price that you pay will be substantially greater than the pro forma net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the public offering price when they purchased their shares of our capital stock. You will experience additional dilution upon exercise of any warrant, upon exercise of options to purchase common stock under our equity incentive plans, if we issue restricted stock to our employees under our equity incentive plans or if we otherwise issue additional shares of our common stock. For a further description of the dilution that you will experience immediately after this offering, see "Dilution".

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

          Our management will have broad discretion to use the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply the net proceeds in ways that increase the value of your investment. We intend to use the net proceeds for working capital and other general corporate purposes. We may use a portion of the net proceeds to us to expand our current business through acquisitions of other businesses, products and technologies. Until we use the net proceeds from this offering, we plan to invest them, and these investments may not yield a favorable rate of return. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

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

          We have never declared or paid any cash dividends on our common stock and do not currently intend to do so for the foreseeable future. In addition, any future financing or credit agreements may prohibit us from paying any type of dividends. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their holdings of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares. Investors seeking cash dividends should not purchase our common stock.

We are an "emerging growth company" and the reduced disclosure requirements applicable to emerging growth companies may 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 from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not

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being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial disclosure obligations, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. We may take advantage of these provisions for up to five years or such earlier time that we are no longer an "emerging growth company". We would cease to be an "emerging growth company" upon the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a "large accelerated filer", with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the last day of the fiscal year ending after the fifth anniversary of our initial public offering. We may choose to take advantage of some but not all of these reduced reporting burdens. If we take advantage of any of these reduced reporting burdens in future filings, the information that we provide our security holders may be different than you might get from other public companies in which you hold equity interests. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

          In addition, Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus contains forward-looking statements that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases you can identify forward-looking statements because they contain words such as "anticipates", "believes", "could", "estimates", "expects", "intends", "may", "might", "likely", "plans", "potential", "predicts, "projects", "seeks", "should", "target", "will", "would" or similar expressions and the negatives of those terms. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

    our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses, ability to generate cash flow, and ability to achieve, and maintain, future profitability;

    anticipated trends, growth rates and challenges in our business and in the markets in which we operate;

    our ability to anticipate market needs and develop new and enhanced products and services to meet those needs, and our ability to successfully monetize them;

    maintaining and expanding our customer base and our relationships with other companies;

    the impact of competition in our industry and innovation by our competitors;

    our anticipated growth and growth strategies and our ability to effectively manage that growth and effect these strategies;

    our ability to sell our products and expand internationally;

    our failure to anticipate and adapt to future changes in our industry;

    the impact of seasonality on our business;

    our ability to hire and retain necessary qualified employees to expand our operations;

    the impact of any failure of our solutions or solution innovations;

    our reliance on our third-party service providers;

    the evolution of technology affecting our products, services and markets;

    our ability to adequately protect our intellectual property;

    the anticipated effect on our business of litigation to which we are or may become a party;

    our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally;

    the increased expenses and administrative workload associated with being a public company;

    failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud;

    our liquidity and working capital requirements;

    our spending of the net proceeds from this offering;

    the estimates and estimate methodologies used in preparing our consolidated financial statements and determining option exercise prices; and

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    the future trading prices of our common stock and the impact of securities analysts' reports on these prices.

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

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

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

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INDUSTRY AND MARKET DATA

          This prospectus contains estimates and other statistical data, including those relating to our industry and the market in which we operate, that we have obtained or derived from industry publications and reports, including reports from CMO Council, Gartner, Inc. and International Data Corporation (IDC). These industry publications and reports generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates, as there is no assurance that any of them will be reached. Based on our industry experience, we believe that the publications and reports are reliable and that the conclusions contained in the publications and reports are reasonable. 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 section titled "Risk Factors". These and other factors could cause our actual results to differ materially from those expressed in the industry publications and reports.

          The Gartner Reports described herein represent data, research opinion or viewpoints published as part of a syndicated subscription service, by Gartner, and are not representations of fact. Each 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 Reports are subject to change without notice.

          The sources of industry and market data contained in this prospectus are listed below:

    (1)
    CMO Council's The 2011 State of Marketing;

    (2)
    Gartner's Forecast: Enterprise Software Markets, Worldwide, 2009-2016, 4Q12 Update; and

    (3)
    IDC's 2012 CMO Tech Marketing Barometer Study: Trends, Forecast, and Essential Guidance for Tech Marketing Executives.

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USE OF PROCEEDS

          We estimate that the net proceeds to us from the sale of shares of our common stock in this offering will be $              million, based on the public offering price of $             per share, after deducting underwriting discounts and commissions and estimated offering expenses. If the underwriters' option to purchase additional shares from us is exercised in full, we estimate that our net proceeds would be $              million, after deducting underwriting discounts and commissions and estimated offering expenses.

          The principal purposes of this offering are to increase our financial flexibility, improve brand awareness, create a public market for our common stock and facilitate our future access to the public capital markets. As of the date of this prospectus, we have no specific plans for the use of the net proceeds we receive from this offering. However, we currently intend to use the net proceeds that we will receive for working capital and other general corporate purposes, including the expansion of our sales organization, international expansion, and further development and expansion of our solutions. We may also use a portion of the net proceeds that we receive to acquire or invest in complementary businesses, products, services, technologies or other assets. We have not entered into any agreements or commitments with respect to any potential acquisitions or investments at this time.

          We cannot specify with certainty all of the particular uses of the net proceeds that we will receive from this offering. Accordingly, we will have broad discretion in using these proceeds. Furthermore, the amount and timing of our actual expenditures will depend on numerous factors, including the cash used in or generated by our operations, the status of our development, the level of our sales and marketing activities, the pace of our international expansion plans, and our investments and acquisitions. Pending the use of proceeds as described above, we plan to invest the net proceeds that we receive in short-term and intermediate-term interest-bearing obligations, investment-grade investments, certificates of deposit or direct or guaranteed obligations of the U.S. government. We cannot predict whether the invested proceeds will yield a favorable return.


MARKET PRICE OF COMMON STOCK

          Our common stock has been listed on The NASDAQ Global Select Market under the symbol "MKTO" since May 17, 2013. Prior to that date, there was no public trading market for our common stock. The following table sets forth for the periods indicated the high and low sales prices per share of our common stock as reported on The NASDAQ Global Select Market:

Fiscal 2013:
 
High
 
Low
 

Second Quarter (from May 17, 2013)

  $ 26.77   $ 17.20  

Third Quarter (through August 28, 2013)

  $ 39.80   $ 21.15  

          On August 28, 2013, the last reported sale price of our common stock on The NASDAQ Global Select Market was $36.90 per share. As of June 30, 2013, we had 256 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.


DIVIDEND POLICY

          We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

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DILUTION

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

          Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding. Our net tangible book value as of June 30, 2013 was $97.8 million, or $2.64 per share, based on the total number of shares of our common stock outstanding as of June 30, 2013.

          After giving effect to the sale of                  shares of common stock by us at the public offering price of $             per share, which is the last reported sales price of our common stock on The NASDAQ Global Select Market on                          , 2013, after deducting underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of June 30, 2013 would have been approximately $              million, or $             per share. This represents an immediate increase in pro forma net tangible book value of $             per share to our existing stockholders and an immediate dilution of $             per share to investors purchasing shares of common stock in this offering. The following table illustrates this dilution:

Assumed public offering price per share

        $    

Net tangible book value per share as of June 30, 2013

  $ 2.64        

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

                     
             

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

                     
             

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

        $    
             

          Each $1.00 increase or decrease in the assumed public offering price of $             per share, which is the last reported sale price of our common stock on The NASDAQ Global Select Market on                          , 2013, would increase or decrease, as applicable, our pro forma net tangible book value per share to new investors by $             , and would increase or decrease, as applicable, dilution per share to new investors in this offering by $             , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. If the underwriters exercise their option to purchase additional shares from us in full, the pro forma net tangible book value per share of our common stock immediately after this offering would be $             per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $             per share.

          The number of shares of our common stock set forth in the table above excludes:

    7,891,581 shares of common stock issuable upon the exercise of options outstanding as of June 30, 2013, (other than              shares to be sold in this offering by certain selling stockholders upon the exercise of options), with a weighted average exercise price of $4.62 per share;

    256,635 shares of common stock issuable upon vesting of restricted stock units outstanding as of June 30, 2013; and

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    4,157,607 shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of 3,419,575 shares of common stock reserved for future issuance under our 2013 Equity Incentive Plan, 738,032 shares of common stock reserved for future issuance under our 2013 Employee Stock Purchase Plan, and shares that become available under our 2013 Equity Incentive Plan and 2013 Employee Stock Purchase Plan, pursuant to provisions thereof that automatically increase the share reserves under the plans each year, as more fully described in the section titled "Executive Compensation — Employee Benefit and Stock Plans".

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CAPITALIZATION

          The following table sets forth our consolidated cash and cash equivalents and capitalization as of June 30, 2013 on:

    an actual basis; and

    on an as adjusted basis to reflect our receipt of the net proceeds from (i) our sale of                  shares of common stock in this offering at an assumed public offering price of $             per share, which was the last sale price of our common stock as reported by The NASDAQ Global Select Market on                           , 2013, and after deducting underwriting discounts and commissions and estimated offering expenses, and (ii) the issuance of shares of common stock to be acquired by certain selling stockholders upon the exercise of options in order to sell those shares in this offering.

          The information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual offering price and other terms of this offering to be determined at pricing. You should read this table together with the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes appearing elsewhere in this prospectus.

 
  June 30, 2013  
 
 
Actual
 
As Adjusted(1)
 

Cash and cash equivalents

  $ 121,882   $    
           

Total indebtedness

  $ 6,613   $    

Stockholders' equity:

             

Preferred stock, $0.0001 par value; 20,000,000 shares authorized, no shares issued or outstanding, actual and as adjusted

  $   $  

Common stock, $0.0001 par value; 1,000,000,000 shares authorized, 37,002,877 shares issued and outstanding, actual and                      shares issued and outstanding, as adjusted

    4        

Additional paid-in capital

    213,931        

Accumulated other comprehensive income

    157        

Accumulated deficit

    (104,115 )      
             

Total stockholders' equity

    109,977        
             

Total capitalization

  $ 116,590        
             

(1)
Each $1.00 increase or decrease in the assumed public offering price of $             per share, which was the last sale price of our common stock as reported by The NASDAQ Global Select Market on                          , 2013, would increase or decrease each of cash and cash equivalents, additional paid-in capital, total stockholders' equity and total capitalization by approximately $              million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions. Similarly, each increase or decrease of one million shares in the number of shares offered by us in this offering would increase or decrease, as applicable, cash and cash equivalents, additional paid-in capital, total stockholders' equity and total capitalization by approximately $              million, assuming an offering price of $             per share, which was the last sale price of our common stock as reported by The NASDAQ Global Select Market on                          , 2013, and after deducting estimated underwriting discounts and commissions.

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          The number of shares of our common stock set forth in the table above excludes:

    7,891,581 shares of common stock issuable upon the exercise of options outstanding as of June 30, 2013 (other than              shares to be sold in this offering by certain selling stockholders upon the exercise of options), with a weighted average exercise price of $4.62 per share;

    256,635 shares of common stock issuable upon vesting of restricted stock units outstanding as of June 30, 2013; and

    4,157,607 shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of 3,419,575 shares of common stock reserved for future issuance under our 2013 Equity Incentive Plan, 738,032 shares of common stock reserved for future issuance under our 2013 Employee Stock Purchase Plan, and shares that become available under our 2013 Equity Incentive Plan and 2013 Employee Stock Purchase Plan, pursuant to provisions thereof that automatically increase the share reserves under the plans each year, as more fully described in the section titled "Executive Compensation — Employee Benefit and Stock Plans".

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SELECTED CONSOLIDATED FINANCIAL DATA

          You should read the following selected consolidated financial data below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.

          The consolidated statements of operations data for the years ended December 31, 2010, 2011 and 2012 and the consolidated balance sheet data as of December 31, 2011 and 2012 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the year ended December 31, 2009 and the consolidated balance sheet data as of December 31, 2009 and 2010 are derived from our audited consolidated financial statements not included in this prospectus. The consolidated statements of operations data for the six months ended June 30, 2012 and 2013 and the consolidated balance sheet data as of June 30, 2013 are derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our unaudited interim consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and include, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in any future period, and our interim results are not necessarily indicative of the results that may be expected for the full year or any other period.

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  Year Ended December 31,   Six Months Ended
June 30,
 
 
 
2009
 
2010
 
2011
 
2012
 
2012
 
2013
 
 
  (in thousands, except per share data)
 
 
   
   
   
   
  (unaudited)
 

Consolidated Statement of Operations Data:

                                     

Revenue:

                                     

Subscription and support

  $ 4,478   $ 13,473   $ 29,823   $ 52,756   $ 23,400   $ 37,438  

Professional services and other

        559     2,569     5,657     2,739     4,802  
                           

Total revenue

    4,478     14,032     32,392     58,413     26,139     42,240  
                           

Cost of revenue(1):

                                     

Subscription and support

    2,128     4,612     9,386     16,216     6,742     12,141  

Professional services and other

        2,534     5,550     8,442     3,906     5,739  
                           

Total cost of revenue

    2,128     7,146     14,936     24,658     10,648     17,880  
                           

Gross profit:

                                     

Subscription and support

    2,350     8,861     20,437     36,540     16,658     25,297  

Professional services and other

        (1,975 )   (2,981 )   (2,785 )   (1,167 )   (937 )
                           

Total gross profit

    2,350     6,886     17,456     33,755     15,491     24,360  
                           

Operating expenses(1):

                                     

Research and development

    2,573     5,498     10,677     18,799     9,174     10,981  

Sales and marketing

    4,921     11,019     23,088     37,776     17,607     27,806  

General and administrative

    1,206     2,135     6,154     11,388     5,275     7,303  
                           

Total operating expenses

    8,700     18,652     39,919     67,963     32,056     46,090  
                           

Loss from operations

    (6,350 )   (11,766 )   (22,463 )   (34,208 )   (16,565 )   (21,730 )

Other income (expense), net

    8     (50 )   (137 )   (158 )   (15 )   (147 )
                           

Loss before provision for income taxes

    (6,342 )   (11,816 )   (22,600 )   (34,366 )   (16,580 )   (21,877 )

Provision for income taxes

    1     1     6     19     3     37  
                           

Net loss

  $ (6,343 ) $ (11,817 ) $ (22,606 ) $ (34,385 ) $ (16,583 ) $ (21,914 )
                           

Net loss attributable to common stockholders:

                                     

Basic and diluted

  $ (6,343 ) $ (11,817 ) $ (22,606 ) $ (34,385 ) $ (16,583 ) $ (21,914 )
                           

Net loss per share attributable to common stockholders:

                                     

Basic and diluted

  $ (4.43 ) $ (5.99 ) $ (9.94 ) $ (12.26 ) $ (6.25 ) $ (1.91 )
                           

Weighted average shares used in computing net loss per share attributable to common stockholders:

                                     

Basic and diluted

    1,432     1,972     2,274     2,806     2,655     11,472  
                           

(1)
Amounts include stock-based compensation expense as follows:

 
  Year Ended December 31,   Six Months
Ended
June 30,
 
 
 
2009
 
2010
 
2011
 
2012
 
2012
 
2013
 
 
  (in thousands)
 
 
   
   
   
   
  (unaudited)
 

Cost of subscription and support revenue

  $ 5   $ 50   $ 108   $ 216   $ 68   $ 177  

Cost of professional services and other revenue

        8     49     169     91     247  

Research and development

    25     73     294     575     281     1,147  

Sales and marketing

    14     57     509     966     423     1,093  

General and administrative

    14     131     349     1,046     371     953  
                           

Total stock-based compensation expense

  $ 58   $ 319   $ 1,309   $ 2,972   $ 1,234   $ 3,617  
                           

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  December 31,   June 30,
2013
 
 
 
2009
 
2010
 
2011
 
2012
 
 
  (in thousands)
 
 
   
   
   
   
  (unaudited)
 

Consolidated Balance Sheet Data:

                               

Cash and cash equivalents

  $ 8,906   $ 34,457   $ 67,400   $ 44,247   $ 121,882  

Working capital

    8,289     31,579     59,651     28,346     92,921  

Total assets

    11,601     39,551     79,738     79,156     166,180  

Total indebtedness

                3,640     6,613  

Deferred revenue

    1,671     4,552     10,968     20,642     30,566  

Total liabilities

    2,862     7,335     18,430     35,592     56,203  

Convertible preferred stock

    21,976     56,887     106,821     119,121      

Total stockholders' equity

    8,739     32,216     61,308     43,564     109,977  

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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 the related notes to those statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the section titled "Risk Factors" and elsewhere in this prospectus.


Overview

          We are the provider of a leading cloud-based marketing software platform that enables organizations to engage in modern relationship marketing. Our software platform is designed to enable the effective execution, management and analytical measurement of marketing activities, helping organizations to acquire new customers more efficiently, build stronger relationships with existing customers, improve sales effectiveness and drive faster revenue growth. On our platform, we deliver an easy-to-use, integrated suite of advanced applications, which today include Marketing Automation, Social Marketing, Sales Insight, Revenue Analytics and Marketing Management. To enable our customers to obtain maximum value from our platform, we have created an ecosystem of third-party applications, as well as a network of resources to foster marketing thought leadership, sharing and collaboration among our users. Furthermore, we provide our customers with expert professional services, delivered by marketers, for marketers, to enable rapid time to value through effective implementation and usage of our solutions.

          We designed our platform to be valuable across large enterprises and SMBs that sell to both businesses and consumers in virtually any industry. We market and sell our products directly and through a growing network of distribution partners. Our client base is diverse, with over 2,500 customers across a wide range of industries including business services, consumer, financial services, healthcare, manufacturing, media, technology and telecommunications. Representative customers include one or more divisions of the following companies: Capgemini, CenturyLink, Citrix, Gannett, General Electric, Medtronic, Moody's, Panasonic, Symantec and Universal Music Group. Except for a single customer in 2011 who was slightly over 1%, no single customer represented more than 1% of subscription and support revenue in 2010, 2011, 2012 and during the six months ended June 30, 2012 and 2013. For each of 2011 and 2012 and the six months ended June 30, 2012 and 2013, our 20 largest customers accounted for less than 10% of our total revenue. Our subscription dollar retention rate was approximately 100% for each of 2011 and 2012.

          We provide our solutions on a subscription basis and generated revenue of $14.0 million, $32.4 million and $58.4 million in 2010, 2011 and 2012, respectively, representing year-over-year increases of 131% and 80%, respectively. During the six months ended June 30, 2012 and 2013, we generated revenue of $26.1 million and $42.2 million, respectively, representing an increase of 62% during the first six months of 2013 as compared to the first six months of 2012. We had net losses of $11.8 million, $22.6 million, $34.4 million, $16.6 million and $21.9 million in 2010, 2011, 2012 and for the six months ended June 30, 2012 and 2013, respectively, due to increased investments in our growth.

          Since our founding in 2006, we have achieved the following significant milestones:

    In 2008, we launched our first product to address marketing automation and lead management, which we called Marketing Lead Management.

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    In 2009, we released Marketo Sales Insight to enable sales professionals to easily prioritize their best opportunities and understand the actions and behaviors of their prospects and customers.

    By the end of 2009, we had over 200 customers.

    In 2010, we introduced Revenue Cycle Analytics, designed to provide marketers with a comprehensive analytics solution to capture, analyze and better understand every stage of the revenue process, from lead generation to new business to customer lifetime value.

    In 2011, as part of our commitment to expand sales in Europe, the Middle East and Africa (EMEA), we opened our first international office in Dublin, Ireland.

    By the end of 2011, we had over 1,000 customers.

    In April 2012, we completed our first acquisition by acquiring Crowd Factory, which enabled us to integrate a rich set of social media marketing capabilities into our application suite.

    In the third quarter of 2012, we opened our Sydney, Australia office, to address increasing customer demand for our solution in the Asia Pacific region.

    By the end of 2012, we had over 2,000 customers.

    At the end of June 30, 2013, we had over 2,500 customers.

          We deliver our solutions entirely through a multi-tenant cloud-based, or Software as a Service (SaaS), architecture which customers can configure to their specific needs. We initially focused our selling efforts on the SMB market, but beginning in late 2010, to address growing enterprise demand, we began to invest in an enterprise sales organization. We define the SMB market as companies with fewer than 1,500 employees and the enterprise market as companies with 1,500 or more employees. The percentage of our subscription and support revenue from enterprise customers was 25% during the six months ended June 30, 2013.

          Our direct sales force has separate sales teams for the enterprise market and for the SMB market. Within our direct sales force, we also have a team that is responsible for selling to existing customers, who may renew their subscriptions, increase their usage of our platform and applications, acquire additional applications from our product family, or broaden the deployment of our solutions across their organizations. In addition, we have indirect sales teams that sell to distributors, agencies, resellers and OEMs, who in turn resell or use our platform to provide managed marketing services to their end customers. To date, substantially all of our revenue has been derived from direct sales, but we intend to invest in our indirect sales teams to increase indirect revenue as a percentage of our total revenue over time.

          We derive most of our revenue from subscriptions to our cloud-based software and related customer support services. Subscription and support revenue accounted for 96.0%, 92.1%, 90.3%, 89.5% and 88.6% of our total revenue during 2010, 2011, 2012 and for the six months ended June 30, 2012 and 2013, respectively. We price our products based on customer usage measures, which can include the number of leads in each customer's database and the number of user seats authorized to access our service. Our subscription contracts range in length from one quarter to three years, and the weighted average length of the subscription contacts we entered into in 2012, weighted based on contracted revenue, was approximately 13 months.

          Professional services revenue accounted for 4.0%, 7.9%, 9.7%, 10.5% and 11.4% of our total revenue during 2010, 2011, 2012 and for the six months ended June 30, 2012 and 2013, respectively. Our software is designed to be ready to use immediately upon provisioning of a new customer subscription. However, we believe that our customers' success is enhanced by the effective use of modern relationship marketing strategies performed with our software, which we

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foster primarily through the sale and delivery of expert services that educate our customers on the best use of our solutions as well as assist in the implementation of our solution. In addition, some of our customers require services to support integrating their existing systems with our solution. Enterprise customers exhibit a higher demand for all of these services. Over the near term, due to market demand for expertise in modern relationship marketing, we expect our professional services revenue to grow faster than our subscription and support revenue, and therefore, to increase as a percentage of our total revenue. In addition, we also partner with third party consulting organizations that provide similar services to our customers in connection with their use of our platform.

          Our customer base has grown from over 200 at the end of 2009 to over 2,500 at June 30, 2013, which has resulted in rapid revenue growth. We generate the majority of our revenue in the United States; however, we are focused on growing our international business. Revenue generated from our international customers was 10.6%, 10.7%, 12.8%, 11.9% and 14.1% of our total revenue in 2010, 2011, 2012 and for the six months ended June 30, 2012 and 2013, respectively.

          We have focused on rapidly growing our business and plan to continue to invest in growth. We expect our cost of revenue and operating expenses to continue to increase in absolute dollars in future periods. Marketing and sales expenses are expected to increase as we continue to expand our sales teams, increase our marketing activities and grow our international operations. Research and development expenses are expected to increase in absolute dollars to support the enhancement of our existing products and the development of new products. We also intend to invest in maintaining a high level of customer service and support which we consider critical for our continued success. We plan to continue investing in our data center infrastructure and services capabilities in order to support continued future customer growth. We also expect to incur additional general and administrative expenses as a result of both our growth and the infrastructure required to be a public company. Considering our plans for investment, we do not expect to be profitable in the near term and, in order to achieve profitability, we will need to grow revenue at a rate faster than our investments in cost of revenue and operating expenses.

          Since our inception, we have financed our operations through cash collected from customers as well as preferred equity financings and our initial public offering (IPO) and concurrent private placement completed in May 2013. We also maintain an equipment financing facility. As of June 30, 2013, we had outstanding borrowings of $6.6 million under this facility.


Key Business Metrics

          We use the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.

    Number of Customers.  Since we launched our first product we have made the expansion of our customer base a priority. We believe that our ability to expand our customer base is an indicator of our market penetration, the growth of our business and our potential future business opportunities. We define the number of customers at the end of any particular period as the number of customers with paid subscriptions to our software platform at the end of the period. Multiple companies or divisions within a single consolidated enterprise that each have a separate paid subscription to our platform are each treated as a separate customer. In cases where our customers have subscriptions to our platform obtained through resellers or other distributors, each end customer is counted separately. As of June 30, 2013, we had over 2,500 customers.

    Subscription Dollar Retention Rate.  We believe that our subscription dollar retention rate provides insight into our ability to retain and grow revenue from our customers, as well as their potential long-term value to us. Accordingly, we compare the aggregate monthly

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      subscription revenue of our customer base in the last month of the prior year fiscal quarter, which we refer to as Retention Base Revenue, to aggregate monthly subscription revenue generated from the same group in the last month of the current quarter, which we refer to as Retained Subscription Revenue. Our Subscription Dollar Retention Rate is calculated on an annual basis by first dividing Retained Subscription Revenue by Retention Base Revenue, and then using the weighted average Subscription Dollar Retention Rate of the four fiscal quarters within the year. Our Subscription Dollar Retention Rate was approximately 100% for each of 2011 and 2012.


Key Components of Consolidated Statements of Operations

Revenue

          We generate revenue principally from fixed commitment subscription contracts under which we provide customers with various services, principally access to our cloud-based software platform as well as related customer support. We sell these services under contractual agreements that are typically one year in length, but which range from one quarter to three years based upon demands of the individual customer. We believe this flexibility in contract duration is important to meet the needs of customers of differing sizes and circumstances. A customer typically commits to fixed fees for the service term, which may be adjusted upward based on expanded usage volumes. Revenue from these agreements is recognized ratably over the period of service and any revenue that does not meet recognition criteria is recorded as deferred revenue on our balance sheet.

          We invoice customers on varying billing cycles, primarily quarterly and annually; therefore, our deferred revenue balance represents the billed portion of our customer contracts. The number of customers that are billed quarterly or annually fluctuates from quarter to quarter based on deal mix and so is not fully predictable. Consequently, changes in deferred revenue may not be indicative of revenue growth in any given future period. Fees payable under our subscription contracts are generally due in full and non-refundable regardless of the actual use of the service.

          Professional services revenue consists of fees associated with providing expert services that educate and assist our customers on the best use of our solutions as well as assist in the implementation of our solution. Historically, our professional and enablement services for our SMB customers were bundled as part of our subscription services at no additional fee to our customers. However, in November 2011, we began to charge a separate fixed fee for implementation and initial education for users of a new subscription. Most of our professional services contracts for our SMB customers are recognized over three to six months. Professional services for our enterprise customers are typically priced on a time-and-materials basis. We recognize revenue for these contracts as the work is performed, and the customer is billed. Our time-and-materials professional services are generally billed monthly in arrears based on actual hours of work delivered and expenses incurred.

Cost of Revenue

          Cost of subscription revenue primarily consists of expenses related to hosting our service and providing support to our customers. These expenses are comprised of data center operations costs and personnel and related costs directly associated with our cloud infrastructure, customer support and customer success organizations, including salaries, benefits, bonuses and stock-based compensation, as well as allocated overhead. Overhead associated with facilities, IT and depreciation, excluding depreciation related to our data center infrastructure, is allocated to our cost of revenue and operating expenses based on headcount. In 2012, to improve the responsiveness and long-term cost efficiency of our data center operations, we began an effort to transition from a managed hosting service provider to co-location data center facilities for which we are purchasing

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and managing our own computer equipment and systems. This effort increased our costs in 2012 and has resulted in increased cost of revenue during the six months ended June 30, 2013 when compared to the same period of 2012 due to expenses associated with the project. We expect it will result in continued increased costs through the remainder of 2013. However, this effort is designed to result in improved long-term cost efficiencies over the longer term as our business scales, resulting in improved gross margins.

          Cost of professional services and other revenue consists primarily of personnel and related costs directly associated with our professional services and education organizations, including salaries, benefits, bonuses and stock-based compensation, the costs of sub-contracted third-party vendors, as well as allocated overhead.

          We expect that cost of revenue may increase in the future depending on the growth rate of new customer acquisition. We also expect that cost of revenues as a percentage of total revenues could fluctuate from period to period depending on the growth of our professional services business and any associated costs relating to the delivery of professional services, the timing of sales of products that have royalties associated with them and the timing of significant expenditures.

Research and Development Expenses

          Research and development expenses consist primarily of personnel costs for our product development employees and executives. Also included are non-personnel costs such as professional fees payable to third-party development services, license and subscription fees for software development tools, and an allocation of our general overhead expenses. A substantial portion of our research and development efforts are focused on enhancing our software architecture and adding new features and functionality to our platform and we anticipate continuing to invest in innovation and technology development. We believe that continued investment in our technology is important for our future growth, and, as a result, we expect research and development expenses to increase in absolute dollars although they may fluctuate as a percentage of total revenue.

Sales and Marketing Expenses

          Sales and marketing expenses consist primarily of personnel costs for our sales, marketing and business development employees and executives, including commissions earned by our sales and marketing personnel, which are expensed when a customer contract is executed. Also included are the costs of our lead generation marketing and brand awareness programs. Our marketing programs include a broad mix of paid marketing activities, such as digital content marketing, search engine marketing and social media marketing campaigns, including the use of our own marketing applications, as well as traditional offline advertising, direct mail and public relations. We also incur other non-personnel costs such as professional fees and an allocation of our general overhead expenses. In addition, we invest in several key industry events offered by our partners, as well as our own annual user conference.

          We plan to continue investing in sales and marketing globally by increasing the number of direct and indirect sales personnel, expanding our domestic and international marketing activities, building brand awareness and sponsoring additional marketing events in an effort to add new customers and increase revenue from our existing customer base. We expect sales and marketing expenses to increase in absolute dollars and remain our largest expense in absolute dollars and as a percentage of total revenues, although they may fluctuate as a percentage of total revenue.

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General and Administrative Expenses

          General and administrative expenses consist primarily of personnel costs for our administrative, legal, human resources, finance and accounting employees and executives. Also included are non-personnel costs, such as travel-related expenses, legal and other professional fees and other corporate expenses, along with an allocation of our general overhead expenses. We expect to incur incremental costs associated with supporting the growth of our business, both in terms of size and geographical diversity, and to meet the increased compliance requirements associated with our transition to and operation as a public company. Those costs include increases in our accounting, human resources, IT and legal personnel, additional consulting, legal and audit fees, insurance costs, board of directors' compensation and the costs of achieving and maintaining compliance with Section 404 of the Sarbanes-Oxley Act. We expect that our general and administrative expenses will increase in absolute dollars as we continue to expand our business and infrastructure to support being a public company although they may fluctuate as a percentage of total revenue.

Other Income (Expense), Net

          Other income (expense), net consists primarily of interest expense, interest income and foreign exchange gains and losses. Interest expense represents interest paid on debt from our equipment financing facility. Interest income represents interest received on our cash and investments.

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Results of Operations

          The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.

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

Revenue:

                               

Subscription and support

  $ 13,473   $ 29,823   $ 52,756   $ 23,400   $ 37,438  

Professional services and other

    559     2,569     5,657     2,739     4,802  
                       

Total revenue

    14,032     32,392     58,413     26,139     42,240  
                       

Cost of revenue(1):

                               

Subscription and support

    4,612     9,386     16,216     6,742     12,141  

Professional services and other

    2,534     5,550     8,442     3,906     5,739  
                       

Total cost of revenue

    7,146     14,936     24,658     10,648     17,880  
                       

Gross profit

    6,886     17,456     33,755     15,491     24,360  
                       

Operating expenses(1):

                               

Research and development

    5,498     10,677     18,799     9,174     10,981  

Sales and marketing

    11,019     23,088     37,776     17,607     27,806  

General and administrative

    2,135     6,154     11,388     5,275     7,303  
                       

Total operating expenses

    18,652     39,919     67,963     32,056     46,090  
                       

Loss from operations

    (11,766 )   (22,463 )   (34,208 )   (16,565 )   (21,730 )

Other income (expense), net

    (50 )   (137 )   (158 )   (15 )   (147 )
                       

Loss before provision for income taxes

    (11,816 )   (22,600 )   (34,366 )   (16,580 )   (21,877 )

Provision for income taxes

    1     6     19     3     37  
                       

Net loss

  $ (11,817 ) $ (22,606 ) $ (34,385 ) $ (16,583 ) $ (21,914 )
                       

(1)
Amounts include stock-based compensation expense as follows:


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

Cost of subscription and support revenue

  $ 50   $ 108   $ 216   $ 68   $ 177  
 

Cost of professional services and other revenue

    8     49     169     91     247  
 

Research and development

    73     294     575     281     1,147  
 

Sales and marketing

    57     509     966     423     1,093  
 

General and administrative

    131     349     1,046     371     953  
                         
 

Total stock-based compensation expense

  $ 319   $ 1,309   $ 2,972   $ 1,234   $ 3,617  
                         

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Year Ended December 31,
  Six Months
Ended June 30,
 
 
 
2010
 
2011
 
2012
 
2012
 
2013
 
 
  (percent of total revenue)*
 
 
   
   
   
  (unaudited)
 

Revenue:

                               

Subscription and support

    96.0 %   92.1 %   90.3 %   89.5 %   88.6 %

Professional services and other

    4.0     7.9     9.7     10.5     11.4  
                       

Total revenue

    100.0     100.0     100.0     100.0     100.0  
                       

Cost of revenue:

                               

Subscription and support

    32.9     29.0     27.8     25.8     28.7  

Professional services and other

    18.0     17.1     14.4     14.9     13.6  
                       

Total cost of revenue

    50.9     46.1     42.2     40.7     42.3  
                       

Gross margin

    49.1     53.9     57.8     59.3     57.7  
                       

Operating expenses:

                               

Research and development

    39.2     33.0     32.2     35.1     26.0  

Sales and marketing

    78.5     71.3     64.7     67.4     65.8  

General and administrative

    15.2     19.0     19.5     20.2     17.3  
                       

Total operating expenses

    132.9     123.3     116.4     122.6     109.1  
                       

Loss from operations

    (83.8 )   (69.4 )   (58.6 )   (63.4 )   (51.4 )

Other income (expense), net

    (0.4 )   (0.4 )   (0.3 )   (0.1 )   (0.3 )
                       

Loss before provision for income taxes

    (84.2 )   (69.8 )   (58.9 )   (63.4 )   (51.8 )

Provision for income taxes

                    0.1  
                       

Net loss

    (84.2 )%   (69.8 )%   (58.9 )%   (63.4 )%   (51.9 )%
                       

*
Percentages are based on actual values. Totals may not sum due to rounding.


Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

Revenue

 
  Six Months
Ended
June 30,
   
   
 
 
 
2012
 
2013
 
$ Change
 
% Change
 
 
  (unaudited)
   
   
 
 
  (in thousands)
   
 

Subscription and support

  $ 23,400   $ 37,438   $ 14,038     60.0 %

Professional services and other

    2,739     4,802     2,063     75.3  
                     

Total revenue

  $ 26,139   $ 42,240   $ 16,101     61.6  
                     

          Revenue increased $16.1 million, or 62%, during the first six months of 2013 compared to the comparable period in 2012, due to the increase in subscription and support revenue of $14.0 million and an increase in professional services revenue of $2.1 million. Of the total increase in subscription and support revenue, for each of the three months ended March 31, 2013 and June 30, 2013, 82% was attributable to revenue from new customers and 18% was attributable to revenue from existing customers. New customers are defined as those acquired from April 1, 2012

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through March 31, 2013 for the three months ended March 31, 2013 and those acquired from July 1, 2012 through June 30, 2013 for the three months ended June 30, 2013, respectively. Existing customers are defined as those existing on or before March 31, 2012 for the three months ended March 31, 2013 and on or before June 30, 2012 for the three months ended June 30, 2013.

          The increase in subscription revenue from new customers was primarily attributable to the growth in our total customer count primarily driven in the SMB market and to a lesser extent from our enterprise customers, whose contracts have a higher average dollar per customer. The customers we added in the first half of 2013 generally had larger lead databases, on average, managed by our solution than the customers that we added in the first half of 2012 due to our increased penetration into the enterprise market. Volume increases and price increases resulting from the lapsing of introductory discounts on subscriptions also contributed to an increase in revenue, but to a much lesser extent. The increase in subscription revenue from existing customers was mostly attributable to customers increasing the size of the lead databases, on average, at annual renewal, as well as the upsell of additional products either during the term of their subscription or at the point of renewal of their subscription.

          The increase in professional services revenue resulted from increased delivery of services across our customer base. A majority of the increase was attributable to increased delivery of professional services to enterprise customers, and the balance of the increase was attributable to our SMB customers. During the latter half of 2012 and the first half of 2013, we added a high proportion of enterprise customers for whom we delivered services during the first half of 2013. Our enterprise customers typically exhibit a higher demand for professional services than our SMB customers.

Cost of Revenue and Gross Margin

 
  Six Months
Ended June 30,
   
   
 
 
 
2012
 
2013
 
$ Change
 
% Change
 
 
  (unaudited)
   
   
 
 
  (in thousands)
   
 

Cost of revenue:

                         

Subscription and support

  $ 6,742   $ 12,141   $ 5,399     80.1 %

Professional services and other

    3,906     5,739     1,833     46.9  
                     

Total cost of revenue

  $ 10,648   $ 17,880   $ 7,232     67.9  
                     

Gross margin:

                         

Subscription and support

    71.2 %   67.6 %            

Professional services and other

    (42.6 )   (19.5 )            

Total gross margin

    59.3     57.7              

          Cost of subscription and support revenue increased $5.4 million, or 80%, during the first six months of 2013 compared to the comparable period in 2012. The increase in cost of subscription and support was mostly due to increases in personnel-related costs of $1.8 million and hosting costs of $1.8 million as a result of our increase in computing and network capacity to support our customer growth. During 2012, to improve the responsiveness and long-term cost efficiency of our data center operations, we began an effort to transition from our managed hosting service provider to co-location data center facilities for which we are purchasing and managing our own computer equipment and systems. As a result, we hired additional personnel associated with the project, resulting in increased personnel costs and increased depreciation expense of $0.8 million related to

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expenses associated with this project. In addition, we incurred an increase of $0.4 million of other expenses such as allocated facility and IT cost in order to support our growth.

          Our subscription and support gross margin decreased to 68% for the first six months of 2013 from 71% for the first six months of 2012. This decrease in subscription and support gross margin was primarily a result of increased personnel-related costs from increases in headcount and additional expenses incurred associated with the migration of our data centers from our managed hosting service provider to new co-location facilities.

          Cost of professional services and other revenue increased $1.8 million, or 47%, during the first six months of 2013 compared to the comparable period in 2012. The increase in cost of professional services and other was primarily due to an increase in personnel-related costs of $1.2 million, as we continue to grow our headcount in our professional services organization to support demand for expert services. Additionally, consulting costs increased by $0.2 million as a result of increased usage of outside contractors to supplement our existing staff.

          Our professional services and other gross margin improved from (43)% for the first six months of 2012 to (20)% for the first six months of 2013. The improvement in gross margin was primarily due to improved staff utilization resulting primarily from higher demand for professional services from our customers.

Research and Development

 
  Six Months
Ended June 30,
   
   
 
 
 
2012
 
2013
 
$ Change
 
% Change
 
 
  (unaudited)
   
   
 
 
  (in thousands)
   
 

Research and development

  $ 9,174   $ 10,981   $ 1,807     19.7 %

Percentage of total revenue

    35.1 %   26.0 %            

          Research and development expenses increased $1.8 million, or 20%, in the first six months of 2013 compared to the comparable period of 2012. The increase in research and development expenses was primarily due to an increase in personnel-related costs of $1.3 million as a result of the increase in headcount to help continue the enhancement of our existing product suite and to a lesser extent, an increase in stock-based compensation expense. In addition, consulting fees, mostly related to sub-contracted development, increased by $0.6 million as the result of the use of more outside contractors. These increases were partially offset by an increase in capitalized software development costs of $0.2 million, which consists primarily of personnel-related expenses.

Sales and Marketing

 
  Six Months
Ended June 30,
   
   
 
 
 
2012
 
2013
 
$ Change
 
% Change
 
 
  (unaudited)
   
   
 
 
  (in thousands)
   
 

Sales and marketing

  $ 17,607   $ 27,806   $ 10,199     57.9 %

Percentage of total revenue

    67.4 %   65.8 %            

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          Sales and marketing expenses increased $10.2 million, or 58%, in the first six months of 2013 compared to the comparable period of 2012. The increase in sales and marketing expenses was primarily due to personnel-related costs of $4.0 million, consisting of an increase in salary and benefits costs resulting from an increase in headcount and to a lesser extent, an increase in stock-based compensation expense. In addition, we experienced an increase in sales commission expense of $3.8 million as a result of an increase in new customer acquisitions. We also experienced an increase in travel costs of $0.6 million which reflects the expansion of our enterprise sales efforts and our sales and marketing efforts internationally, and an increase in consulting fees of $0.5 million as a result of an increase in the use of outside consultants to support growth in our business. Other expenses, such as allocated facility and IT expenses increased by $0.8 million due to headcount growth in the sales and marketing department and higher IT and facilities expenses.

General and Administrative

 
  Six Months
Ended June 30,
   
   
 
 
 
2012
 
2013
 
$ Change
 
% Change
 
 
  (unaudited)
   
   
 
 
  (in thousands)
   
 

General and administrative

  $ 5,275   $ 7,303   $ 2,028     38.4 %

Percentage of total revenue

    20.2 %   17.3 %            

          General and administrative expenses increased $2.0 million, or 38%, in the first six months of 2013 compared to the comparable period of 2012. The increase in general and administrative expenses was primarily due to increased personnel-related costs of $1.3 million as a result of an increase in headcount. In addition, consulting fees increased by $0.7 million as we increased our use of external consultants to assist with preparatory work associated with our IPO and with implementing new systems to support our growth.


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

Revenue

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

Subscription and support

  $ 29,823   $ 52,756   $ 22,933     76.9 %

Professional services and other

    2,569     5,657     3,088     120.2  
                     

Total revenue

  $ 32,392   $ 58,413   $ 26,021     80.3  
                     

          Revenue increased $26.0 million, or 80%, in 2012 compared to 2011, due to the increase in subscription and support revenue of $22.9 million and an increase in professional services revenue of $3.1 million. Of the total increase in subscription and support revenue, 45% was attributable to revenue from new customers acquired after December 31, 2011, and 55% was attributable to revenue from customers existing at December 31, 2011. The increase in revenue from existing customers was almost entirely attributable to their having been customers for a full year in 2012. As we generate subscription fees only during the duration of a customer's subscription to our solution, when a customer is a subscriber to the solution for a full year we generate more revenues from them during such year than we do when they are a subscriber for merely a portion of the year, which typically occurs in the first calendar year of their subscription. To a much lesser extent, the

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increase was due approximately equally to price increases resulting from the lapsing of introductory discounts on these subscriptions and to volume increases resulting from these customers increasing the size of the lead database managed by our solution.

          The pricing of our solutions, including the extent of any introductory discounts, remained substantially the same between 2011 and 2012. The customers we added in 2012, however, generally had larger lead databases on average than the customers we added in 2011 due to our increased penetration into the enterprise market.

          The increase in professional services revenue resulted from the introduction of new service offerings during the period as well as an increased focus on selling those services.

Cost of Revenue and Gross Margin

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

Cost of revenue:

                         

Subscription and support

  $ 9,386   $ 16,216   $ 6,830     72.8 %

Professional services and other

    5,550     8,442     2,892     52.1  
                     

Total cost of revenue

  $ 14,936   $ 24,658   $ 9,722     65.1  
                     

Gross margin:

                         

Subscription and support

    68.5 %   69.3 %            

Professional services and other

    (116.0 )   (49.2 )            

Total gross margin

    53.9     57.8              

          Cost of subscription and support revenue increased $6.8 million, or 73%, in 2012 compared to 2011. The increase in cost of subscription and support revenue was primarily a result of increased data center hosting costs of $2.7 million paid to our managed hosting service provider as we increased computing and network capacity to support our customer growth, and to increased personnel-related costs of $2.4 million necessary to support our growth. In addition, we incurred an increase of $1.3 million of other expenses such as rent, IT costs, depreciation and amortization in order to support our growth in 2012. Also, during 2012, to improve the responsiveness and cost efficiency of our data center operations, we began an effort to transition from our managed hosting service provider to co-location data center facilities for which we are purchasing and managing our own computer equipment and systems. During 2012, this resulted in both increased personnel costs and depreciation expense related to expenses associated with the project. We expect the cost of subscription and support revenue to continue to increase as we continue to hire employees and purchase capital equipment for our co-location facilities and to hire employees for support organizations to meet our growing customer demands.

          Our subscription and support gross margin increased to 69.3% in 2012 from 68.5% in 2011. This increase was driven by economies of scale resulting from our ability to hold hiring growth below revenue growth, offset by expenses associated with the migration of our data centers from our managed hosting service provider to new co-location facilities.

          Cost of professional services and other revenue increased $2.9 million, or 52%, in 2012 compared to 2011. Increases were primarily due to an increase in personnel costs of $2.4 million, consisting primarily of increased employee compensation and benefits costs of $2.2 million as we grew our headcount to support demand for expert services. Outside services costs decreased by $0.5 million as we hired employees to perform functions previously outsourced. We also incurred

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an increase of $0.6 million of allocated expenses such as rent, IT costs, depreciation and amortization in order to support our growth.

          Our professional services and other gross margin improved from (116)% in 2011 to (49)% in 2012. The improvement in gross margin was due in part to improved staff utilization resulting primarily from higher demand for professional services from our enterprise customers as well as to the introduction of enhanced fee-based enablement services for our SMB customers. Prior to 2012, our professional and enablement services for our SMB customers were bundled as part of subscription services at no additional fee to the customer.

Research and Development

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

Research and development

  $ 10,677   $ 18,799   $ 8,122     76.1 %

Percentage of total revenue

    33.0 %   32.2 %            

          Research and development expenses increased $8.1 million, or 76%, in 2012 compared to 2011. The increase in research and development expenses was primarily due to an increase in salary and benefits costs of $5.6 million, consisting of increased employee compensation and benefits costs due to an increase in headcount during the period in part due to the acquisition of Crowd Factory. In addition, outside services expenses mostly related to sub-contracted development increased by $1.1 million. We also incurred an increase of $1.2 million of other expenses such as rent, IT costs, depreciation and amortization in order to support growth.

Sales and Marketing

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

Sales and marketing

  $ 23,088   $ 37,776   $ 14,688     63.6 %

Percentage of total revenue

    71.3 %   64.7 %            

          Sales and marketing expenses increased $14.7 million, or 64%, in 2012 compared to 2011. The increase in sales and marketing expenses was due primarily to an increase in personnel-related costs of $8.9 million, consisting primarily of increased employee compensation and benefits costs of $6.3 million, commissions of $2.1 million and additional stock-based compensation of $0.5 million driven by an increase in headcount during the period. In addition, marketing program costs increased by $2.9 million to support growth in our business, and travel increased by $0.6 million related to expansion of our enterprise sales efforts as well as our international expansion. We also incurred an increase of $2.0 million of other expenses such as rent, IT costs, depreciation and amortization in order to support growth.

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General and Administrative

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

General and administrative

  $ 6,154   $ 11,388   $ 5,234     85.1 %

Percentage of total revenue

    19.0 %   19.5 %            

          General and administrative expenses increased $5.2 million, or 85%, in 2012 compared to 2011. The increase in general and administrative expenses was primarily due to increases in personnel-related expenses of $3.2 million, consisting of increased employee compensation and benefits costs of $2.5 million and additional stock-based compensation of $0.7 million, as we increased headcount during the period. In addition, professional and outside service costs increased $2.0 million, due primarily to fees related to our external audit, tax, and legal advisory services as well as costs associated with our international expansion. These increases were offset by a decrease of $0.4 million in outside IT consulting services incurred in the prior year related to the implementation of financial reporting systems and related data conversion activities.


Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Revenue

 
  Year Ended
December 31,
   
   
 
 
 
2010
 
2011
 
$ Change
 
% Change
 
 
  (in thousands)
   
 

Subscription and support

  $ 13,473   $ 29,823   $ 16,350     121.4 %

Professional services and other

    559     2,569     2,010     359.6  
                     

Total revenue

  $ 14,032   $ 32,392   $ 18,360     130.8  
                     

          Revenue increased $18.4 million, or 131%, in 2011 compared to 2010, primarily due to the increase in subscription and support revenue of $16.4 million. Of the total increase in subscription and support revenue, 50% was attributable to revenue from new customers acquired after December 31, 2010, and 50% was attributable to revenue from customers existing at December 31, 2010. The increase in revenue from existing customers was almost entirely attributable to their having been customers for a full year in 2011. As we generate subscription fees only during the duration of a customer's subscription to our solution, when a customer is a subscriber to the solution for a full year we generate more revenues from them during such year than we do when they are a subscriber for merely a portion of the year, which typically occurs in the first calendar year of their subscription. To a much lesser extent, the increase was due approximately equally to price increases resulting from the lapsing of introductory discounts on these subscriptions and to volume increases resulting from these customers increasing the size of the lead database managed by our solution.

          The pricing of our solutions, including the extent of any introductory discounts, remained substantially the same between 2010 and 2011. The customers we added in 2011, however, generally had larger lead databases on average than the customers we added in 2010 due to our increased penetration into the enterprise market.

          Professional services revenue increased $2.0 million in 2011 compared to 2010, reflecting increased demand resulting from the increase in subscription sales to enterprise customers.

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Cost of Revenue and Gross Margin

 
  Year Ended
December 31,
   
   
 
 
 
2010
 
2011
 
$ Change
 
% Change
 
 
  (in thousands)
   
 

Cost of revenue:

                         

Subscription and support

  $ 4,612   $ 9,386   $ 4,774     103.5 %

Professional services and other

    2,534     5,550     3,016     119.0  
                     

Total cost of revenue

  $ 7,146   $ 14,936   $ 7,790     109.0  
                     

Gross margin:

                         

Subscription and support

    65.8 %   68.5 %            

Professional services and other

    (353.3 )   (116.0 )            

Total gross margin

    49.1     53.9              

          Cost of subscription and support revenue increased $4.8 million, or 104%, in 2011 compared to 2010. The overall increase in cost of subscription and support revenue was primarily attributable to hosting costs of $2.7 million for our data centers as we increased our managed data center capacity to support our customer growth. In addition, personnel-related costs increased by $1.8 million driven by increases in headcount during the period to support our growth. Our subscription and support gross margin increased from 66% in 2010 to 69% in 2011. This improvement was driven by economies of scale in our operations during the period reflected by our ability to keep expense growth below revenue growth.

          Cost of professional services and other revenue increased 3.0 million, or 119% in 2011 compared to 2010. The year-over-year increase was primarily attributable to increased personnel-related costs of $2.3 million driven by increases in headcount during the period. In addition, outside services costs increased $0.4 million primarily due to sub-contracted consulting services. Our professional services and other gross margin improved from (353)% in 2010 to (116)% in 2011. The improved gross margin was due to improved utilization resulting from increased demand for expert services driven by increases in our customer base.

Research and Development

 
  Year Ended
December 31,
   
   
 
 
 
2010
 
2011
 
$ Change
 
% Change
 
 
  (in thousands)
   
 

Research and development

  $ 5,498   $ 10,677   $ 5,179     94.2 %

Percentage of total revenue

    39.2 %   33.0 %            

          Research and development expenses increased $5.2 million, or 94%, in 2011 compared to 2010 primarily due to an increase in personnel-related costs of $4.4 million driven by increases in headcount during the period. In addition, our technology costs increased $0.5 million primarily related to the cost of third party quality assurance and development resources. Total headcount in research and development increased in 2011 compared to 2010 as we added employees to improve and extend our offerings and develop new technologies.

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Sales and Marketing

 
  Year Ended
December 31,
   
   
 
 
 
2010
 
2011
 
$ Change
 
% Change
 
 
  (in thousands)
   
 

Sales and marketing

  $ 11,019   $ 23,088   $ 12,069     109.5 %

Percentage of total revenue

    78.5 %   71.3 %            

          Sales and marketing expenses increased $12.1 million, or 110%, in 2011 compared to 2010. The year over year increase was primarily attributable to a $7.5 million increase in personnel-related costs primarily due to the expansion of our sales force. In addition, the cost of marketing programs increased by $2.7 million and the cost of travel by $0.6 million as a result of increased enterprise sales. Other expenses, including consulting and recruiting costs and facilities allocations, increased by $1.3 million.

General and Administrative

 
  Year Ended
December 31,
   
   
 
 
 
2010
 
2011
 
$ Change
 
% Change
 
 
  (in thousands)
   
 

General and administrative

  $ 2,135   $ 6,154   $ 4,019     188.2 %

Percentage of total revenue

    15.2 %   19.0 %            

          General and administrative expenses increased $4.0 million, or 188%, in 2011 compared to 2010 primarily due to professional and outside service costs of $1.4 million, comprised primarily of fees related to our external audit, tax, and legal advisory services, recruiting fees as well as costs associated with our international expansion. Personnel-related expenses increased $1.4 million, as we added employees to support the growth of our business. We also incurred approximately $0.4 million related to outside IT consulting services incurred in connection with the implementation of financial reporting systems and related data conversion activities.

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Quarterly Results of Operations

          The following table sets forth our unaudited quarterly consolidated statements of operations data for each of the nine quarters ended June 30, 2013. In management's opinion, the data below have been prepared on the same basis as the audited consolidated financial statements included elsewhere in this prospectus, and reflect all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of this data. The results of historical periods are not necessarily indicative of the results to be expected for a full year or any future period. The following quarterly financial data should be read in conjunction with our audited financial statements and related notes included elsewhere in this prospectus.

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

 

Revenue:

                                                       

Subscription and support

  $ 6,851   $ 8,016   $ 9,291   $ 11,021   $ 12,379   $ 14,064   $ 15,292   $ 17,555   $ 19,883  

Professional services and other

    582     698     855     1,190     1,549     1,363     1,555     2,181     2,621  
                                       

Total revenue

    7,433     8,714     10,146     12,211     13,928     15,427     16,847     19,736     22,504  
                                       

Cost of revenue(1):

                                                       

Subscription and support

    2,232     2,432     2,714     3,135     3,607     4,402     5,072     5,820     6,321  

Professional services and other

    1,322     1,455     1,579     1,805     2,101     2,162     2,374     2,618     3,121  
                                       

Total cost of revenue

    3,554     3,887     4,293     4,940     5,708     6,564     7,446     8,438     9,442  
                                       

Gross profit:

                                                       

Subscription and support

    4,619     5,584     6,577     7,886     8,772     9,662     10,220     11,735     13,562  

Professional services and other

    (740 )   (757 )   (724 )   (615 )   (552 )   (799 )   (819 )   (437 )   (500 )
                                       

Total gross profit

    3,879     4,827     5,853     7,271     8,220     8,863     9,401     11,298     13,062  
                                       

Operating expenses(1):

                                                       

Research and development

    2,532     2,771     2,984     3,835     5,339     4,661     4,964     4,996     5,985  

Sales and marketing

    5,325     6,311     7,482     7,819     9,788     10,844     9,325     12,318     15,488  

General and administrative

    978     1,503     2,953     2,255     3,020     3,086     3,027     3,427     3,876  
                                       

Total operating expenses

    8,835     10,585     13,419     13,909     18,147     18,591     17,316     20,741     25,349  
                                       

Loss from operations

    (4,956 )   (5,758 )   (7,566 )   (6,638 )   (9,927 )   (9,728 )   (7,915 )   (9,443 )   (12,287 )

Other income (expense), net

    (6 )   (42 )   (79 )   (15 )       (36 )   (107 )   (61 )   (86 )
                                       

Loss before provision for income taxes

    (4,962 )   (5,800 )   (7,645 )   (6,653 )   (9,927 )   (9,764 )   (8,022 )   (9,504 )   (12,373 )

Provision for income taxes

    3         1     3         2     14     20     17  
                                       

Net loss

  $ (4,965 ) $ (5,800 ) $ (7,646 ) $ (6,656 ) $ (9,927 ) $ (9,766 ) $ (8,036 ) $ (9,524 ) $ (12,390 )
                                       

(1)
Amounts include stock-based compensation expense as follows:

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

 

Cost of subscription and support revenue

  $ 30   $ 27   $ 28   $ 30   $ 38   $ 75   $ 73   $ 63   $ 114  

Cost of professional services and other revenue

    8     14     19     31     60     30     48     93     154  

Research and development

    68     72     102     111     170     110     184     210     937  

Sales and marketing

    151     143     159     206     217     377     166     230     863  

General and administrative

    78     107     110     135     236     334     341     405     548  
                                       

Total stock-based compensation expense

  $ 335   $ 363   $ 418   $ 513   $ 721   $ 926   $ 812   $ 1,001   $ 2,616  
                                       

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  Three Months Ended  
 
 
Jun 30,
2011
 
Sep 30,
2011
 
Dec 31,
2011
 
Mar 31,
2012
 
Jun 30,
2012
 
Sep 30,
2012
 
Dec 31,
2012
 
Mar 31,
2013
 
Jun 30,
2013
 
 
  (unaudited)
(percent of total revenue)*

 

Revenue:

                                                       

Subscription and support

    92.2 %   92.0 %   91.6 %   90.2 %   88.9 %   91.2 %   90.8 %   88.9 %   88.4 %

Professional services and other

    7.8     8.0     8.4     9.8     11.1     8.8     9.2     11.1     11.6  
                                       

Total revenue

    100.0     100.0     100.0     100.0     100.0     100.0     100.0     100.0     100.0  
                                       

Cost of revenue:

                                                       

Subscription and support

    30.0     27.9     26.7     25.7     25.9     28.6     30.1     29.5     28.1  

Professional services and other

    17.8     16.7     15.6     14.8     15.1     14.0     14.1     13.3     13.9  
                                       

Total cost of revenue

    47.8     44.6     42.3     40.5     41.0     42.6     44.2     42.8     42.0  
                                       

Gross margin:

                                                       

Subscription and support

    62.1     64.1     64.8     64.6     63.0     62.6     60.7     59.5     60.3  

Professional services and other

    (10.0 )   (8.7 )   (7.1 )   (5.0 )   (4.0 )   (5.2 )   (4.9 )   (2.2 )   (2.2 )
                                       

Total gross margin

    52.1     55.4     57.7     59.6     59.0     57.4     55.8     57.2     58.0  
                                       

Operating expenses:

                                                       

Research and development

    34.1     31.8     29.4     31.4     38.3     30.2     29.5     25.3     26.6  

Sales and marketing

    71.6     72.4     73.8     64.0     70.3     70.3     55.3     62.4     68.8  

General and administrative

    13.2     17.3     29.1     18.5     21.7     20.0     18.0     17.4     17.2  
                                       

Total operating expenses

    118.9     121.5     132.3     113.9     130.3     120.5     102.8     105.1     112.6  
                                       

Loss from operations

    (66.7 )   (66.1 )   (74.6 )   (54.4 )   (71.3 )   (63.1 )   (47.0 )   (47.8 )   (54.6 )

Other income (expense), net

    (0.1 )   (0.5 )   (0.8 )   (0.1 )       (0.2 )   (0.6 )   (0.3 )   (0.4 )
                                       

Loss before provision for income taxes

    (66.8 )   (66.6 )   (75.4 )   (54.5 )   (71.3 )   (63.3 )   (47.6 )   (48.2 )   (55.0 )

Provision for income taxes

                            0.1     0.1     0.1  
                                       

Net Loss

    (66.8 )%   (66.6 )%   (75.4 )%   (54.5 )%   (71.3 )%   (63.3 )%   (47.7 )%   (48.3 )%   (55.1 )%
                                       

*
Percentages are based on actual values. Totals may not sum due to rounding.


Seasonality, Cyclicality and Quarterly Trends

          We have historically experienced seasonality in terms of when we enter into new customer agreements for our service. We sign a significantly higher percentage of agreements with new customers as well as renewal agreements with existing customers in the fourth quarter of each year as compared to any of the prior quarters. The first quarter and third quarter are typically the slowest in this regard. Furthermore, we usually sign a significant portion of these agreements during the last month, and often the last two weeks, of each quarter. This seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent, in our revenue, because we recognize subscription revenue over the term of the license agreement, which is typically one year, but ranges from one quarter to three years. As a result, a slowdown in our ability to enter into customer agreements may not be apparent in our revenue for the quarter, as the revenue recognized in any quarter is primarily from customer agreements entered into in prior quarters. Historical patterns should not be considered a reliable indicator of our future sales activity or performance.

          Our revenue has increased over the periods presented due to increased sales to new customers, as well as increased usage of existing and new products by existing customers. Our operating expenses generally have increased sequentially in every quarter primarily due to increases in headcount and other related expenses to support our growth. However, in the quarter ended June 30, 2012, operating expenses grew due to compensation costs of $0.9 million in connection with the acquisition of Crowd Factory, which affected research and development and marketing and sales expenses, and outside expenses including legal and accounting services, which impacted general and administrative expenses. Additionally, during the quarter ended December 31, 2011 we incurred consulting and related outside services costs of $0.4 million associated with the implementation of our financial reporting systems and related data migration

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efforts. We anticipate our operating expenses will continue to increase in absolute dollars in future periods as we invest in the long-term growth of our business.

          In addition, we may experience variances in the number of our customers over a particular quarter for a variety of business reasons, and the extent to which we gain or lose customers over a particular quarter will not necessarily correlate to the changes in revenue in that quarter or in future periods. As a result of the foregoing factors, a slowdown in our ability to enter into customer agreements or to renew customer agreements may not be apparent in our revenue for the quarter, as the revenue recognized in any quarter is primarily from customer agreements entered into in prior quarters. In addition, each year we typically participate in several key industry trade shows, as well as host our own annual user conference. The timing of these events can vary from year to year, and the costs associated with these events typically have a significant effect on our sales and marketing expenses for the applicable quarter and cause our quarterly results to fluctuate. For example, our user summit was held in the second quarter of 2012 and 2013 and we participated in a large trade show in the third quarter of 2012 increasing costs during those quarters.


Liquidity and Capital Resources

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

Net cash used in operating activities

  $ (8,948 ) $ (15,985 ) $ (23,848 ) $ (11,599 ) $ (5,071 )

Net cash used in investing activities

    (531 )   (1,675 )   (3,656 )   (1,684 )   (6,084 )

Net cash provided by financing activities

    35,030     50,396     4,386     1,463     88,842  

Net increase (decrease) in cash and cash equivalents, net of impact of foreign exchange rates on cash

    25,551     32,943     (23,153 )   (11,737 )   77,635  

          To date, we have financed our operations primarily through cash received from customers for use of our service, private placements of preferred stock and our initial public offering and concurrent private placement completed in May 2013, as well as proceeds from equipment financings. As of December 31, 2012 and June 30, 2013, we had $44.2 million and $121.9 million, respectively, of cash and cash equivalents, most of which was held in money market accounts.

          In May 2012, we entered into a loan and security agreement with a bank, and subsequently amended this loan and security agreement in June 2013. As of June 30, 2013, we had outstanding borrowings of $6.6 million under this facility. The interest rate associated with this equipment facility is the greater of 4% or 0.75 of a percentage point above the bank's prime rate, as determined on the applicable funding date. For each equipment loan advance, we pay interest only for approximately nine months. Subsequently, we make thirty-six equal monthly payments of principal and interest. The loan and security agreement contains customary affirmative and negative covenants, including, among other things, maintaining certain business performance levels and limitations on disposal of assets, certain fundamental business changes, incurrences of debt, incurrences of liens, payments of dividends, repurchases of stock and engaging in affiliate transactions, in each case subject to certain exceptions. As of December 31, 2012 and June 30, 2013, we were in compliance with all of the covenants contained in the loan and security agreement.

          A substantial source of our cash provided by operating activities is our deferred revenue, which is included on our consolidated balance sheet as a liability. Deferred revenue consists of the

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unearned portion of billed fees for our software subscriptions and professional services, which is amortized into revenue in accordance with our revenue recognition policy. As of December 31, 2012 and June 30, 2013, we had working capital of $28.3 million and $92.9 million, respectively, which included $20.6 million and $30.6 million of deferred revenue recorded as a current liability, respectively. The increase in our working capital at June 30, 2013 is primarily due to proceeds we received from our IPO of $80.5 million and from proceeds received on the completion of our private placement offering of $6.5 million.

          We assess our liquidity primarily through our cash on hand as well as the projected timing of billings under contract with our customers and related collection cycles. We believe our current cash and cash equivalents, cash to be received from existing and new customers and net proceeds of this offering will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

          Our future capital requirements will depend on many factors, including equipment required in connection with the transition from our managed hosting service provider to co-location data center facilities, revenue growth and costs incurred to support customer growth, international expansion, research and development and increased general and administrative expenses to support the anticipated growth in our operations. Our capital expenditures in future periods are expected to grow in line with our business. To the extent that existing cash and cash from operations are not sufficient to fund our future operations, we may need to raise additional funds through public or private equity or additional debt financing. Although we currently are not a party to any agreement and do not have any understanding with any third parties with respect to potential investments in, or acquisitions of, businesses or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all.

          Net cash used in operating activities.    Cash used in operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business, the increase in the number of customers using our cloud-based software and services, and the amount and timing of customer payments. Cash used in operating activities has historically come from a net loss driven by sales of subscriptions to our software services and adjusted for non-cash expenses items, such as depreciation and amortization of property and equipment, stock-based compensation, and intangible assets acquired in connection with the acquisition of Crowd Factory. The percentage of customers that pay quarterly rather than annually changes every quarter. The percentage of customers who pay us quarterly has a material impact on our net cash used in operating activities.

          Our cash used in operating activities during the six months ended June 30, 2013 primarily reflected our net loss of $21.9 million, offset by non-cash expenses that included $1.8 million of depreciation and amortization and $3.6 million in stock-based compensation. Working capital sources of cash included a $9.9 million increase in deferred revenue resulting primarily from the addition of new customers and the customer mix of more annual versus quarterly billing invoiced during the period and a $3.0 million increase accrued expenses and other current liabilities primarily resulting from an increase in accrued commissions costs. These sources of cash were partially offset by a $2.9 million increase in accounts receivable. While our Days Sales Outstanding (DSO) improved from 81 days during the second quarter of 2012 to 69 days during the second quarter of 2013, our accounts receivable balance experienced an overall increase as a result of higher customer billings related to the increase in the number of customers during the period and an increase in annual billings.

          Our cash used in operating activities during 2012 primarily reflected our net loss of $34.4 million, offset by non-cash expenses that included $1.7 million of depreciation and

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amortization, including $0.4 million of amortization of intangible assets related to the acquisition of Crowd Factory, and $3.0 million in stock-based compensation. Working capital sources of cash included a $9.5 million increase in deferred revenue resulting primarily from the addition of new customers invoiced during the period, and a $2.0 million net increase in accounts payable and accrued expenses and other current liabilities primarily related to commissions, bonuses and accrued vacation payable after the end of the year, as well as increases in accruals for services, including marketing programs, resulting from our growth during 2012. These sources of cash were offset by a $5.0 million increase in accounts receivable due to higher customer billings related to the increase in the number of customers during the period, which was partially offset by a decrease in days sales outstanding from 97 days at December 31, 2011 to 88 days at December 31, 2012.

          Our cash used in operating activities during 2011 primarily reflected our net loss of $22.6 million, offset by $2.0 million in non-cash expenses that included $1.3 million in stock-based compensation and $0.6 million of depreciation and amortization. Working capital sources of cash included a $6.4 million increase in deferred revenue resulting primarily from the growth in the number of customers invoiced during the period and a $4.5 million increase in accounts payable and accrued expenses and other current liabilities due to a higher level of expenses consistent with the overall growth of the business which are payable after the end of the year. These sources of cash were partially offset by a $1.2 million increase in prepaid expenses and other current assets related in part to amounts paid for subscription software services which are amortized over the contracted service period and a $5.0 million increase in accounts receivable due to higher customer billings related to the increase in the number of customers during the period, and to a lesser extent, an increase in days outstanding from 92 days at December 31, 2010 to 97 days at December 31, 2011.

          Our cash used in operating activities during 2010 primarily reflected our net loss of $11.8 million, offset by $0.6 million in non-cash expenses comprised of $0.3 million of depreciation and amortization and $0.3 million in stock-based compensation. Working capital sources of cash included a $2.9 million increase in deferred revenue due to an increase in customers invoiced during the period and a $1.5 million increase in accounts payable and accrued expenses and other current liabilities due to a higher level of expenses consistent with the overall growth of our business. These sources of cash were offset in part by a $1.7 million increase in accounts receivable due to higher customer billing volume compared to the prior year resulting from increases in the number of customers.

          Net cash used in investing activities.    Our primary investing activities have consisted of capital expenditures to purchase equipment required in connection with the transition from our managed hosting provider to co-location data center facilities for which we are purchasing and managing our own computer equipment and systems. As our business grows, we expect our capital expenditures and our activity to continue to increase.

          For the six months ended June 30, 2013, cash used in investing activities consisted of $5.9 million for the purchases of property and equipment, primarily associated with our transition from a managed hosting service provider to co-location data center facilities for which we are purchasing and managing our own computer equipment and system and to a lesser extent, an increase in computer equipment, furniture and fixtures and leasehold improvements associated with supporting our increasing employee headcount and capitalized software development costs of $0.2 million.

          For the years ended December 31, 2010, 2011 and 2012, cash used in investing activities consisted of $0.2 million, $1.7 million and $4.4 million, respectively, for purchases of property and equipment. In 2012, our purchases of computer and network equipment were primarily for building out our co-location facilities to support our customer base, as well as equipment and furniture and

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fixtures for supporting our increasing employee headcount. In 2012, we also acquired $0.7 million in cash in connection with the acquisition of Crowd Factory. In 2010 and 2011, we purchased computer equipment and furniture and fixtures for supporting our increasing headcount.

          Net cash provided by financing activities.    Our primary financing activities have consisted of equity issuances raised to fund our operations as well as proceeds from and payments on equipment debt obligations entered into to finance our property and equipment, primarily equipment used in our data centers.

          For the six months ended June 30, 2013, cash provided by financing activities of $88.8 million consisted of IPO proceeds of $80.5 million, net of paid underwriter discounts, proceeds of $6.5 million from the completion of our private placement offering, $3.1 million in proceeds from borrowings under the credit facility and $1.4 million from proceeds received from the issuance of common stock upon the exercise of stock options, partially offset by $2.5 million in cash payments related to costs associated with our IPO and $0.1 million related to the repayment of our credit facility.

          For the year ended December 31, 2012, cash provided by financing activities consisted primarily of $3.6 million in proceeds from borrowings under the credit line and $0.9 million in proceeds from the issuance of common stock upon the exercise of stock options.

          For the year ended December 31, 2011, cash provided by financing activities consisted primarily of $49.9 million in net proceeds from issuing Series F convertible preferred stock.

          For the year ended December 31, 2010, cash provided by financing activities consisted primarily of $34.9 million in net proceeds from issuing Series D and E convertible preferred stock.


Contractual Obligations and Commitments

          Our principal commitments consist of obligations under our outstanding term loan, operating leases for our office space, and contractual commitments for hosting and other support services. The following table summarizes our credit facility, including interest, operating lease obligations and contractual commitments at December 31, 2012:

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

Credit facility, including interest

  $ 3,941   $ 719   $ 2,581   $ 641   $  

Operating lease obligations

    10,218     2,367     5,779     2,072      

Contractual commitments

    3,431     2,702     729          
                       

Total

  $ 17,590   $ 5,788   $ 9,089   $ 2,713   $  
                       


Off-Balance Sheet Arrangements

          During 2010, 2011, 2012 and the six months ended June 30, 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.

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Qualitative and Quantitative Disclosures About Market Risk

Foreign Currency Exchange Risk

          We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the Euro, British Pound Sterling, and Australian dollar. Revenue outside of the United States as a percentage of revenue was 10.6%, 10.7%, 12.8%, 11.9% and 14.1% in 2010, 2011 2012 and for the six months ended June 30, 2012 and 2013, respectively. Decreases in the relative value of the U.S. dollar to other currencies may negatively affect our revenue and other operating results as expressed in U.S. dollars.

          We have experienced and will continue to experience fluctuations in our net income (loss) as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. We recognized foreign currency losses of $0.1 million, $0.1 million, $10,000 and $0.1 million in 2011, 2012 and for the six months ended June 30, 2012 and 2013, respectively. While we have not engaged in the hedging of our foreign currency transactions to date, we are evaluating the costs and benefits of initiating such a program and may in the future hedge selected significant transactions denominated in currencies other than the U.S. dollar.

Interest Rate Sensitivity

          We hold cash and cash equivalents for working capital purposes. We do not have material exposure to market risk with respect to investments, as any investments we enter into are primarily highly liquid investments.

          We have a credit facility with equipment advances of approximately $3.6 million and $6.6 million as of December 31, 2012 and June 30, 2013, respectively. The interest rate associated with this facility is the greater of 4% or three quarters of a percentage point above the prime rate. A one percent increase in the prime rate would not have an impact on our operating results as the greater of the two rates is 4%, and we would still pay interest of 4%. A 10% increase or decrease in interest rates would not result in a material change in either our obligations under this facility or in the returns on our cash and cash equivalents.

Inflation Risk

          We do not believe that inflation has had a material effect on our business. However, if our costs, in particular personnel, sales and marketing and cloud-based infrastructure costs, were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, operating results and financial condition.


Critical Accounting Policies and Significant Judgments and Estimates

          Our management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the

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