S-1 1 d80876ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on January 8, 2021.

Registration No. 333-                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ON24, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   7372   94-3292599
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

50 Beale Street, 8th Floor

San Francisco, CA 94105

(415) 369-8000

(Address, including zip code, and telephone number, including

area code, of Registrant’s principal executive offices)

 

 

Sharat Sharan

Chief Executive Officer

ON24, Inc.

50 Beale Street, 8th Floor

San Francisco, CA 94105

(415) 369-8000

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

 

 

 

Copies to:
Peter Astiz
Andrew Ledbetter
Patrick J. O’Malley
DLA Piper LLP (US)
2000 University Avenue
East Palo Alto, CA 94303-2214
(650) 833-2000
 

John L. Savva

Sullivan & Cromwell LLP

1870 Embarcadero Road

Palo Alto, CA 94303

(650) 461-5600

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after this registration statement becomes effective.

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

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

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

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

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

 

CALCULATION OF REGISTRATION FEE

 

 

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

Common Stock, par value $0.0001 per share

  $100,000,000   $10,910

 

 

(1)

Includes offering price of any additional 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(o) under the Securities Act of 1933, as amended.

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

 

 

 


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

 

Subject to Completion, Dated January 8, 2021.

Shares

LOGO

ON24, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of ON24, Inc. All of the shares of common stock are being sold by us.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $                 and $                . We intend to apply to list our common stock on the New York Stock Exchange under the symbol “ONTF”.

We are an “emerging growth company” as defined under the federal securities laws, and as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings.

See “Risk Factors” beginning on page 14 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  

Initial public offering price

   $                    $                

Underwriting discount(1)

   $                    $                

Proceeds, before expenses, to ON24, Inc.

   $                    $                

 

(1)

See the section titled “Underwriting (Conflicts of Interest)” for additional information regarding compensation payable to the underwriters.

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

 

 

The underwriters expect to deliver the shares against payment in New York, New York on                 , 2021.

 

Goldman Sachs & Co. LLC   J.P. Morgan Securities LLC   KeyBanc Capital Markets

 

 

Prospectus dated                , 2021.


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LOGO

THE DIGITAL EXPERIENCE PLATFORM EXPERIENCES PERSONALIZATION ENGAGEMENT DATA CONVERTING CUSTOMER ENGAGEMENT INTO REVENUE


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LOGO

ON24 DATA ADVANTAGE ON24 INTELLIGENCE TURNS CUSTOMER ENGAGEMENT INTO ACTIONABLE INSIGHTS intelligence Framework Buying Signals Prospect Analytics Experience Analytics Content Analytics Benchmark Analytics ON24 Prospect Analytics NAME Paula Price INDUSTRY Financial Services COMPANY Metropolis ROLE VP, Network Security


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LOGO

ON24 DIGITAL EXPERIENCE PLATFORM ON24 Virtual Environment ON24 Target Engagement & Prospect Analytics ON24 AI Driven Personalization Engine MAP, CRM, BI Rest API Library ON24 Engagement Hub CN24 Elite live personalized first-person data & analytics ecosystem of third-party integrations always-on


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LOGO

AI-DRIVEN SYSTEM OF ENGAGEMENT ON24 FIRST-PERSON DATA FUELS ONGOING ENGAGEMENT, PERSONALIZATION AND CONVERSION ACROSS THE BUYING JOURNEY EXPERIENCES ENGAGEMENT DATA PAULAPRICE PERSONALIZATION


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LOGO

ON24 EXPERIENCES ON24 ELITE Live, interactive webinar experience that engages prospective customers in real-time and can also be made available in an on-demand format. ON24 TARGET Personalized and curated, rich multimedia content experience that engages specific segments of prospective customers to drive a desired action. ON24 ENGAGEMENT HUB Always-on, rich multimedia content experience that prospective customers can engage in anytime, anywhere. ON24 VIRTUAL ENVIRONMENT Live, large-scale virtual event experience that engages prospective customers in real-time and can also be made available in an on-demand format.


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LOGO

We had a net loss of $7.2 million for the quarter ended March 31, 2019, $3.6 million for the quarter ended June 30, 2019, $3.3 million for the quarter ended September 30, 2019, $3.5 million for the quarter ended December 31, 2019 and $2.1 million for the quarter ended March 31, 2020, and we had net income of $6.7 million for the quarter ended June 30, 2020 and $6.6 million for the quarter ended September 30, 2020.

 

1.

Represents annualized revenue calculated based on the quarter ended September 30, 2020.

2.

Represents the increase in total digital experience platform revenue (which excludes revenue from our Legacy offering).

3.

Represents our dollar based net retention rate, or NRR, as of September 30, 2020.

4.

Represents cash flow from operations for the period of January 1, 2020 through September 30, 2020.

5.

Represents our estimate of our total addressable market worldwide as of June 30, 2020.

6.

Annualized based on the period of January 1, 2020 through September 30, 2020.

 

ON24 BUSINESS HIGHLIGHTS $170M 100%+ 140%+1,900+ $42B 200K+ 2.5B 98% 70% $138.9 35% $114.2 25% $85.9 $76.9 $63.6 $67.2 $70.0 1. Represents annualized revenue calculated based on the quarter ended September 30, 2020. 2. Represents the increase in total digital experience platform revenue (which excludes revenue from our Legacy offering). 3. Represents our dollar based net retention rate, or NRR, as of September 30, 2020. 4. Represents cash flow from operations for the period of January 1, 2020 through September 30, 2020. 5. Represents our estimate of our total addressable market worldwide as of June 30, 2020. 6. Annualized based on the period of January 1, 2020 through September 30, 2020. We had a net loss of $7.2 million for the quarter ended March 31, 2019, $3.6 million for the quarter ended June 30, 2019, $3.3 million for the quarter ended September 30, 2019, $3.5 million for the quarter ended December 31, 2019 and $2.1 million for the quarter ended March 31, 2020, and we had net income of $6.7 million for the quarter ended June 30, 2020 and $6.6 million for the quarter ended September 30, 2020.


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1  

Risk Factors

     14  

Special Note Regarding Forward-Looking Statements

     48  

Market, Industry and Other Data

     50  

Use of Proceeds

     51  

Dividend Policy

     52  

Capitalization

     53  

Dilution

     55  

Selected Consolidated Financial and Other Data

     58  

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

     61  

Business

     94  

Management

     115  

Executive Compensation

     122  

Certain Relationships and Related Party Transactions

     134  

Principal Stockholders

     137  

Description of Capital Stock

     139  

Shares Eligible for Future Sale

     146  

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

     150  

Underwriting (Conflicts of Interest)

     155  

Validity of Common Stock

     162  

Experts

     162  

Where You Can Find Additional Information

     162  

Index to Consolidated Financial Statements

     F-1  

 

 

You should rely only on the information contained in this prospectus and any free writing prospectus that we may provide to you in connection with this offering. We have not, and the underwriters have not, authorized anyone to provide you with different information or to make any other representations, and we and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information others may give you. We are offering to sell, and seeking offers to buy, shares of our common stock only under circumstances and in jurisdictions where it is lawful to do so. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date. Our business, financial condition, results of operations and prospects may have changed since that date.

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

 

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PROSPECTUS SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, 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 the related notes included elsewhere in this prospectus before making an investment decision. Unless the context otherwise requires, the terms “ON24,” “we,” “us” and “our” refer to ON24, Inc. together with its consolidated subsidiaries.

Our Mission

Our mission is to transform the way businesses drive revenue and customer engagement through data-rich digital experiences.

Overview

We provide a leading, cloud-based digital experience platform that enables businesses to convert customer engagement into revenue through interactive webinar experiences, virtual event experiences and multimedia content experiences. Our platform’s portfolio of interactive, personalized and content-rich digital experience products creates and captures actionable, real-time data at scale from millions of professionals every month to provide businesses with buying signals and behavioral insights to efficiently convert prospects into customers.

Similar to what has taken place in the business-to-consumer, or B2C, market, our digital experience platform empowers business-to-business, or B2B, companies with insights to better personalize their engagement. Large social media platforms have been successful at leveraging experiences and insights of consumers on their platforms to enable B2C companies to effectively understand their potential consumers. While these have been effective in the B2C market, B2B companies often lack deep insights about prospective customers to effectively understand and engage them.

Businesses today primarily use automated solutions, such as digital advertising and email, for marketing. While these automated solutions reach large numbers of prospective customers, they have generally failed to deepen customer engagement because they were designed with the simple purpose of pushing marketing messages in one direction – from the business to the prospective customer. As a result, marketing at scale has become synonymous with spam, which we define as any unsolicited or automated marketing emails, advertisements, phone calls or text messages, and is often ignored by prospective customers and can even undermine the customer relationship. At the same time, prospective customers prefer to do their own research by accessing digital marketing resources before consulting with a salesperson to make a purchasing decision.

For businesses to succeed, we believe their sales and marketing strategies must evolve from the era of automation to the era of engagement. We are strategically positioned to help businesses and their sales and marketing organizations make this transition. Our platform provides an innovative way both to scale digital marketing and deepen prospective customer engagement. We believe our opportunity to help businesses convert digital engagement into revenue will continue to grow as industries modernize their sales and marketing processes, which has been accelerated by the COVID-19 pandemic.

Through our leading digital experience platform, we powered more than 159,000 interactive, live digital experiences from January 1, 2020 through September 30, 2020, engaging an average of



 

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4 million prospective customers and business professionals monthly between January 1, 2020 and September 30, 2020, an increase of 174% year-over-year. Our platform facilitated a monthly average of 12 million prospective customer interactions in the same time period, representing an annual run rate of 2.45 billion engagement minutes for an increase of 167% year-over-year. As our customers create more ON24 content-rich experiences, they gather more data directly from prospective customers, which we refer to as first-person data, to help them create a multiplier effect that strengthens their ability to convert prospective customers and generate revenue.

As of September 30, 2020, we had over 1,900 customers in more than 40 countries, including three of the five largest global technology companies, four of the five largest U.S. banks, three of the five largest global healthcare companies and three of the five largest global industrial and manufacturing companies, in each case measured by 2019 revenue. No single customer contributed more than 5% of our total revenue for the year ended December 31, 2019 or for the nine months ended September 30, 2020. We have a highly engaged and loyal customer base that has allowed us to grow our revenue with them over time and achieve a dollar-based net retention rate, or NRR, of 147% as of September 30, 2020. Our NRR was 107% and 108% as of December 31, 2018 and December 31, 2019, respectively.

Our revenue was $82.6 million and $89.1 million for 2018 and 2019, respectively, and $65.2 million and $103.7 million for the nine months ended September 30, 2019 and 2020, respectively. We had a net loss of $17.6 million and $17.5 million for 2018 and 2019, respectively. For the nine months ended September 30, 2019 and 2020, we had a net loss of $14.1 million and net income of $11.2 million, respectively. Net cash used in operating activities was $8.6 million and $11.4 million for 2018 and 2019, respectively. Net cash used in operating activities was $7.1 million for the nine months ended September 30, 2019 and net cash provided by operating activities was $26.8 million for the nine months ended September 30, 2020.

Industry Trends

B2B sales and marketing has shifted away from traditional approaches, such as “cold-calling,” “snail mail,” industry networking events and in-office visits, to more scalable, digital-based approaches. According to Gartner, by 2025, 80% of B2B sales interactions between suppliers and buyers are expected to occur in digital channels. As they transition to digital-based approaches, businesses are struggling to achieve deep levels of personalized engagement and interactivity. The imperative to optimize digital sales and marketing investments to drive revenue conversion has become more important as businesses accelerate digital transformation initiatives in response to the COVID-19 pandemic. The following key trends are impacting sales and marketing strategies today:

 

   

Personalized and interactive digital customer engagement at scale is the new imperative.

 

   

Democratization of content has led prospective customers to self-educate.

 

   

Traditional automated marketing approaches are increasingly ineffective.

 

   

Data privacy requirements are constraining automated digital marketing.

The new norms of digital transformation and targeting self-educating prospective customers have accelerated the need for cloud platforms that deliver personalized and interactive customer engagement at scale to drive revenue.



 

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Limitations of Traditional Approaches to Customer Engagement at Scale

Businesses have struggled to adapt their marketing strategies for the era of digital engagement where interactions with prospective customers happen online. Traditional marketing tactics and general-purpose communication platforms:

 

   

Are not built to create content-rich, interactive experiences for prospective customers;

 

   

Offer limited opportunity for engagement, resulting in less prospective customer data;

 

   

Do not provide effective insights to convert prospects into customers; and

 

   

Fail to utilize behavioral insights to dynamically personalize content.

In addition, in-person events, such as business conferences, are resource intensive and exist in a discrete moment in time, limiting return on investment.

Our Platform and Key Differentiators

Our leading, cloud-based digital experience platform enables businesses to convert customer engagement into revenue through interactive webinar experiences, virtual event experiences and multimedia content experiences that are backed by analytics and an ecosystem of third-party integrations. We believe the key differentiators of our platform are:

 

   

Designed to drive interactive customer experiences. Our platform was built to power a new kind of customer engagement – highly interactive, real-time digital experiences that can scale engagement from hundreds to thousands of prospective customers simultaneously, aligning with how prospective business customers are seeking to self-educate.

 

   

Interactive customer engagement creates highly valuable customer insight data. Creating and measuring customer engagement and interaction is at the center of our platform. Through our products, our customers can create interactive experiences which can be used to gather rich, real-time insights on their prospective customers.

 

   

Prospective customer insights drive more efficient conversion of pipeline to revenue. The customer engagement and interaction data gathered through our platform enables businesses to derive deep insights about prospective customer behavior. These insights can drive a higher-quality pipeline and ultimately better revenue conversion for our customers. Through our ecosystem of integrations with third-party marketing automation, customer relationship management, or CRM, and business intelligence, or BI, platforms, our customers can leverage insights derived through our platform to more intelligently engage with prospective customers in real-time. Customers that represent over 60% of our annual recurring revenue, or ARR, as of September 30, 2020 have integrated our platform with a third-party application.

 

   

Flywheel effect drives continuous optimization. The more of our content-rich experiences that our customers create for their prospective customers to engage with, the more first-person data that our customers are able to collect in return. By leveraging artificial intelligence and machine learning, or AI/ML, our platform enables businesses to use this data to derive highly relevant and deep insights that fuel more personalization in future content experiences, strengthening the engagement they create and further enhancing the quality of the interaction data and insights derived through our platform.

 

   

Experiences that can be repurposed and continuously drive engagement to maximize return on investment. Our customers are able to continuously drive results because ON24 digital experiences remain interactive and can continue to engage their prospective customers well after the initial live event ends. This allows our customers to repurpose and reuse digital experiences many times over with no incremental cost.



 

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Our Competitive Strengths

We believe that our competitive strengths include:

 

   

Category defining platform for customer engagement at scale. We created one of the first cloud platforms for businesses to deliver interactive, data driven webinar experiences, virtual event experiences and multimedia content experiences.

 

   

Cloud-based system of engagement. We deliver several key marketing capabilities in a single cloud-based platform. With ON24, businesses can create digital experiences, deploy them at scale, collect numerous data points on their prospective customers, and leverage this data to further personalize subsequent experiences. As a result, businesses no longer need to rely on a combination of standalone products.

 

   

Broad, rich dataset and AI/ML capabilities power valuable insights. Our platform enables highly interactive experiences, giving our customers access to behavioral data that signals buying intent. By leveraging our AI/ML capabilities, our customers can derive valuable and actionable insights in order to optimize their sales and marketing strategies.

 

   

Enterprise grade, highly scalable cloud platform. Our cloud-based platform has been developed to enable enterprise-grade scalability. This includes options and features to enable our customers to make privacy and compliance choices that align to their needs as well as integrations with a broad ecosystem of third-party applications.

 

   

Growing base of customers across verticals. We have grown our customer base from approximately 760 customers as of December 31, 2015 to over 1,900 customers as of September 30, 2020, including three of the five largest global technology companies, four of the five largest U.S. banks, three of the five largest global healthcare companies and three of the five largest global industrial manufacturing companies, in each case measured by 2019 revenue.

 

   

Superior, dedicated customer service. Our solutions are designed to be easy to use, featuring drag-and-drop and other similar tools simplifying implementation by our customers, supported by 24/7 technical, chat and webinar experience emergency support.

Our Market Opportunity

Businesses continue to invest significantly in various digital marketing strategies and technologies, which account for almost 80% of marketing budgets according to a Gartner survey. Further, according to that same survey, Chief Marketing Officers, or CMOs, are expected to allocate approximately 26% of their total budget to marketing technologies, and 68% of CMOs expect their investments in marketing technology to increase going forward. According to Grand View Research, the global digital marketing software industry is expected to reach approximately $152 billion in 2027. We estimate that the current total addressable market, or TAM, for our solutions is approximately $42 billion worldwide annually. For more information regarding how we calculate our TAM, see “Business—Our Market Opportunity.”

Our Growth Strategy

We intend to drive the growth of our business and the adoption of our solutions by executing the following strategies:

 

   

Drive new customer acquisition;

 

   

Expand within existing customers;

 

   

Continue to sell complementary products and develop new solutions for specific use cases;



 

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Expand into new regions; and

 

   

Identify and pursue inorganic growth opportunities.

Risk Factors

Investing in our common stock involves risks, which are discussed more fully under “Risk Factors.” You should carefully consider all the information in this prospectus, including under “Risk Factors,” before making an investment decision. These risks include, but are not limited to, risks relating to:

 

   

Our ability to sustain our recent revenue growth rate in the future, attract new customers and expand sales to existing customers;

 

   

Fluctuation in our performance, our history of net losses and expected increases in our expenses;

 

   

Competition and technological development in our markets and any decline in demand for our solutions or generally in our markets;

 

   

Our ability to expand our sales and marketing capabilities and otherwise manage our growth;

 

   

The impact of the COVID-19 pandemic;

 

   

Disruptions, interruptions, outages or other issues with our technology or our use of third-party services, data connectors and data centers;

 

   

Any cybersecurity-related attack, significant data breach or disruption of the information technology systems or networks on which we rely;

 

   

Our sales cycle, our international expansion and our timing of revenue recognition from our sales;

 

   

Interoperability with other devices, systems and applications;

 

   

Compliance with data privacy, import and export controls, customs, sanctions and other laws and regulations;

 

   

Intellectual property matters, including any infringements of third-party intellectual property rights by us or infringement of our intellectual property rights by third parties; and

 

   

The market for, trading price of and other matters associated with our common stock.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of relief from certain reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

Reduced obligations with respect to financial data, including presenting only two years of audited financial statements and only two years of selected financial data;

 

   

An exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

 

   

Reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements, and registration statements; and

 

   

Exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements.



 

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In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We intend to avail ourselves of this exemption from new or revised accounting standards, and accordingly, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or that have opted out of using such extended transition period, which may make comparison of our financial statements with those of other public companies more difficult. We may take advantage of these reporting exemptions until we no longer qualify as an emerging growth company or, with respect to adoption of certain new or revised accounting standards, until we irrevocably elect to opt out of using the extended transition period.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the closing of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; and (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these reduced reporting burdens.

Corporate Information

ON24, Inc. was incorporated as a Delaware corporation on January 8, 1998 under the name “NewsDirect, Inc.” Our principal executive offices are located at 50 Beale Street, 8th Floor, San Francisco, California 94105, and our telephone number is (415) 369-8000. Our website address is www.on24.com. Information contained on, or that can be accessed through, our website is not part of and is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.

We own various U.S. federal trademarks and unregistered trademarks, including our company name, logo and solution names and other trade or service marks. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the symbols ® and , but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.



 

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The Offering

 

Common stock offered

                   shares

Common stock outstanding after this offering

                   shares

Option to purchase additional shares of common stock offered in this offering

  

 

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

Use of proceeds

   We estimate that the net proceeds to us from the sale of shares of our common stock in this offering will be approximately $                 million (or approximately $                 million if the underwriters’ option to purchase additional shares is exercised in full) based upon the assumed initial public offering price of $                 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.
   The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and thereby enable access to the public equity markets for us and our stockholders. We intend to use the net proceeds to us from this offering to repay outstanding indebtedness and for working capital and other general corporate purposes. See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.

Conflicts of interest

   An affiliate of Goldman Sachs & Co. LLC, an underwriter of this offering, beneficially owns all outstanding shares of our Class B and Class B-1 preferred stock as of September 30, 2020, which will automatically convert into shares of common stock representing approximately 14.5% of our common stock immediately prior to the closing of this offering. As a result, Goldman Sachs & Co. LLC is deemed to have a “conflict of interest” within the meaning of the Financial Industry Regulatory Authority, or FINRA, Rule 5121. Accordingly, this offering is being made in compliance with the applicable provisions of FINRA Rule 5121. FINRA Rule 5121 prohibits Goldman Sachs & Co. LLC from making sales to discretionary accounts without the prior written


 

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   approval of the account holder and requires that a “qualified independent underwriter,” as defined in FINRA Rule 5121, participate in the preparation of the registration statement of which this prospectus forms a part and exercise its usual standards of due diligence with respect thereto. KeyBanc Capital Markets Inc. is acting as the “qualified independent underwriter” for this offering. See the section titled “Underwriting (Conflicts of Interest).”

Proposed New York Stock Exchange, or NYSE, trading symbol

   “ONTF”

Risk factors

   You should read the section entitled “Risk Factors” and the other information included elsewhere in this prospectus for a discussion of some of the risks and uncertainties you should carefully consider before deciding to invest in our common stock.

The total number of shares of our common stock that will be outstanding after this offering includes 10,742,141 shares of common stock and 27,227,466 shares of preferred stock (which will convert into shares of our common stock on a one-for-one basis) outstanding as of September 30, 2020 and excludes:

 

   

9,571,814 shares of common stock issuable upon the exercise of stock options outstanding as of September 30, 2020, having a weighted average exercise price of $2.52 per share;

 

   

                shares of common stock reserved for future issuance under our 2021 Equity Incentive Plan, or the 2021 Plan (which number includes                shares remaining available for issuance under our 2014 Stock Option Plan, or the 2014 Plan, which will become available for issuance under the 2021 Plan upon its effectiveness); and

 

   

                shares of common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, or the ESPP, which will become effective in connection with this offering.

Our 2021 Plan and ESPP provide for annual automatic increases in the number of shares reserved thereunder. See the section titled “Executive Compensation—Equity Incentive Plans” for additional information.

Unless otherwise indicated, this prospectus assumes or gives effect to the following:

 

   

the filing and effectiveness of our amended and restated certificate of incorporation to be effective immediately prior to the closing of this offering, or our Certificate of Incorporation, and the adoption of our amended and restated bylaws to be effective immediately prior to the closing of this offering, or our Bylaws;

 

   

the automatic conversion of all outstanding shares of our convertible preferred stock into 27,227,466 shares of our common stock immediately prior to the closing of this offering;

 

   

the issuance of 187,500 shares of our common stock upon settlement of a restricted stock unit that vests in connection with this offering;

 



 

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no exercise of the outstanding options described above; and

 

   

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



 

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Summary Consolidated Financial and Other Data

The following tables present our summary consolidated financial and other data as of and for the periods indicated. We have derived the summary consolidated statements of operations data for the years ended December 31, 2018 and 2019 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the summary consolidated statements of operations data for the nine months ended September 30, 2019 and 2020 and the summary consolidated balance sheet data as of September 30, 2020 from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position as of September 30, 2020 and results of operations for the nine months ended September 30, 2019 and 2020. Our historical results are not necessarily indicative of the results that should be expected in any future period, and results for any interim period are not necessarily indicative of results for the full year or any other period.

You should read this data together with our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus, as well as the information under the captions “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 

     Year Ended
December 31,
    Nine Months Ended
September 30,
 
     2018     2019     2019     2020  
                 (unaudited)  
     (in thousands, except share and per share data)  

Consolidated Statements of Operations Data:

        

Revenue:

        

Subscription and other platform

   $ 66,079     $ 72,589     $ 53,368     $ 81,379  

Professional services

     16,529       16,544       11,825       22,276  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     82,608       89,133       65,193       103,655  

Cost of revenue:

        

Subscription and other platform(1)

     14,232       16,730       12,571       14,405  

Professional services(1)

     10,689       10,411       7,666       8,883  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     24,921       27,141       20,237       23,288  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     57,687       61,992       44,956       80,367  

Operating expenses:

        

Sales and marketing(1)

     46,980       47,773       35,460       40,495  

Research and development(1)

     14,343       15,730       11,660       13,272  

General and administrative(1)

     13,299       14,590       10,928       14,370  

Other gains from operations

     (850     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     73,772       78,093       58,048       68,137  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (16,085     (16,101     (13,092     12,230  

Interest expense, net

     1,052       1,029       799       633  

Other expense, net

     256       42       134       226  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income taxes

     (17,393     (17,172     (14,025     11,371  

Provision for income taxes

     198       355       44       123  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (17,591   $ (17,527   $ (14,069   $ 11,248  


 

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     Year Ended December 31,     Nine Months Ended
September 30,
 
     2018     2019     2019     2020  
                 (unaudited)  
     (in thousands, except share and per share data)  

Change in Class B-1 preferred stock redemption value

     —         (10,047     (7,547     —    

Cumulative preferred dividends allocated to preferred stockholders

     (3,025     (4,774     (3,328     (4,219
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders, basic and diluted

   $ (20,616   $ (32,348   $ (24,944   $ 7,029  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share attributable to common stockholders:

        

Basic(2)

   $ (2.50   $ (3.68   $ (2.85   $ 0.19  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted(2)

   $ (2.50   $ (3.68   $ (2.85   $ 0.17  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:

        

Basic(2)

     8,241,522       8,788,628       8,753,855       9,755,373  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted(2)

     8,241,522       8,788,628       8,753,855       13,417,405  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income (loss) attributable to common stockholders, basic and diluted(2)

     $         $    
    

 

 

     

 

 

 

Pro forma net income (loss) per share attributable to common stockholders:

        

Basic(2)

     $         $    
    

 

 

     

 

 

 

Diluted(2)

     $         $    
    

 

 

     

 

 

 

Pro forma weighted-average shares used in computing net income (loss) per share attributable to common stockholders:

        

Basic(2)

        
    

 

 

     

 

 

 

Diluted(2)

        
    

 

 

     

 

 

 

 

(1)

Includes stock-based compensation expense as follows:

 

     Year Ended December 31,      Nine Months Ended
September 30,
 
     2018      2019      2019      2020  
                   (unaudited)  
     (in thousands)  

Cost of revenue:

           

Subscription and other platform

   $ 80      $ 97      $ 73      $ 78  

Professional services

     13        50        46        16  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cost of revenue

     93        147        119        94  
  

 

 

    

 

 

    

 

 

    

 

 

 

Sales and marketing

     633        915        454        450  

Research and development

     218        197        155        189  

General and administrative

     516        739        586        720  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $       1,460      $       1,998      $       1,314      $       1,453  
  

 

 

    

 

 

    

 

 

    

 

 

 


 

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(2)

Please refer to Note 9 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our net income (loss) per share attributable to common stockholders, basic and diluted, and pro forma net income (loss) per share attributable to common stockholders, basic and diluted.

 

     As of September 30, 2020  
     Actual     Pro Forma(1)     Pro Forma
As Adjusted(2)
 
     (in thousands)  

Consolidated Balance Sheet Data:

      

Cash, cash equivalents and short-term investments

   $ 52,739     $ 52,739     $                    

Working capital

     1,753       1,753    

Total assets

     134,210       134,210    

Deferred revenue

     87,195       87,195    

Long-term debt

     24,635       24,635    

Convertible Class A-1 and Class A-2 preferred stock

     83,857       —      

Redeemable convertible Class B and Class B-1 preferred stock

     70,000       —      

Total stockholders’ deficit

     (154,982     (1,125  

 

(1)

The pro forma column reflects the automatic conversion of all outstanding shares of our convertible preferred stock as of September 30, 2020 into 27,227,466 shares of our common stock immediately prior to the closing of this offering, the issuance of 187,500 shares of our common stock upon settlement of a restricted stock unit that vests in connection with this offering and approximately $0.5 million in additional stock-based compensation expense in connection with the settlement of such restricted stock unit.

 

(2)

The pro forma as adjusted column gives effect to (a) the pro forma adjustments set forth above; (b) the sale and issuance of                 shares of our common stock offered by us in this offering, based upon an assumed initial public offering price of $                 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us; and (c) the repayment of our outstanding $22.4 million of indebtedness under our revolving credit facility. Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, working capital, total assets and total stockholders’ (deficit) equity by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price per share would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, working capital, total assets and total stockholders’ (deficit) equity by approximately $                 million, assuming that the assumed initial public offering price remains the same and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

Key Business Metrics

We review a number of operating and financial metrics, including our number of customers, our ARR, our NRR and our number of customers contributing at least $100,000 in ARR, or $100k



 

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Customers, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.

 

     December 31,     September 30,  
     2018     2019     2019     2020  
     (dollars in thousands)  

Key Business Metrics:(1)

        

Customers

     1,241       1,401       1,342       1,918  

ARR

   $ 61,249     $ 76,852     $ 69,997     $ 138,872  

NRR

     107     108     106     147

$100k Customers

     116       144       129       271  

 

(1)

We define a customer as a unique organization, including its subsidiaries and affiliates, that has entered into an agreement for paid access to our platform. We calculate ARR as the sum of the annualized value of our subscription contracts as of the measurement date, including existing customers with expired contracts that we expect to be renewed. We calculate NRR as of a specified period end by dividing current period ARR by prior period ARR, where prior period ARR is the ARR for all engagement platform customers as of twelve months prior to such period end, and current period ARR is the ARR for the same customers as of the specified period end. For additional information about our key business metrics, please see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics.”



 

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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 the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making a decision to invest in our common stock. Our business, results of operations, financial condition and prospects could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of the risks actually occur, our business, platform, reputation, brand, results of operations, financial condition and prospects could be materially and adversely affected. In such event, the market price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Business and Our Industry

We may not be able to sustain our recent revenue growth rate in the future.

For the year ended December 31, 2019, our revenue increased by 8% as compared to the year ended December 31, 2018. We have experienced significant revenue growth during 2020, with our revenue increasing by 59% for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. Our recent revenue growth has been significantly impacted by an increasing demand for our platform and products following the onset of the COVID-19 pandemic and resulting precautionary measures. As the impact of COVID-19 lessens, there may be reduced demand for our platform, and our revenue growth rate may decline. If these new customers elect not to continue their subscription as the impact of COVID-19 lessens, our business, financial condition and results of operations would be harmed.

As a result of our limited operating history at our current scale, our ability to forecast our future results of operations is limited and subject to a number of uncertainties. You should not rely on our recent revenue growth rate or the revenue growth rate of any prior quarterly or annual period as an indication of our future performance. Further, in future periods, our revenue growth rate could slow, or our revenue could decline for a number of reasons, including any reduction in demand for our platform, increased competition, higher market penetration, a contraction of our overall market, our inability to accurately forecast demand for our platform and plan for capacity constraints or our failure, for any reason, to capitalize on growth opportunities. If our revenue growth rate declines, investors’ perceptions of our business and the trading price of our common stock could be adversely affected.

Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.

Our quarterly results of operations and financial condition may vary significantly in the future, and period-to-period comparisons may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly results of operations and financial condition may fluctuate as a result of a variety of factors, many of which are outside of our control and may not fully reflect the underlying performance of our business. For example, our revenue and revenue growth rate may decline in future periods compared to 2020 as the impact of COVID-19 lessens. Further, because we generally invoice our customers at the beginning of the contractual terms of their subscriptions to our solutions, our financial condition reflects deferred revenue that we recognize ratably as revenue over the contractual term. If fewer new enrollments or renewals occur as the impact of COVID-19 lessens, our cash and deferred revenue as of future dates may decrease. Fluctuation in quarterly results may negatively impact the value of our securities. Factors that may cause fluctuations in our quarterly results of operations include:

 

   

our ability to retain and expand customer usage;

 

   

our ability to attract new customers;

 

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our ability to hire and retain employees, in particular those responsible for the selling or marketing of our platform and provide sales leadership in areas in which we are expanding our sales and marketing efforts;

 

   

changes in the way we organize and compensate our sales teams;

 

   

the timing of expenses and recognition of revenue;

 

   

the length of sales cycles;

 

   

the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure, as well as international expansion and entry into operating leases;

 

   

timing and effectiveness of new sales and marketing initiatives;

 

   

changes in our pricing policies or those of our competitors;

 

   

the timing and success of new products, features and functionality by us or our competitors;

 

   

interruptions or delays in our service, network outages, or actual or perceived privacy or security breaches;

 

   

changes in the competitive dynamics of our industry, including consolidation among competitors;

 

   

changes in laws and regulations that impact our business;

 

   

one or more large indemnification payments to our customers or other third parties;

 

   

the timing of expenses related to any future acquisitions; and

 

   

general economic and market conditions.

Failure to attract new customers or retain, expand the usage of, and upsell our products to existing customers would harm our business and growth prospects.

We derive, and expect to continue to derive, a significant portion of our revenue and cash flows from sales of subscriptions to our products. As such, our business depends upon our ability to attract new customers and to maintain and expand our relationships with our existing customers, including by expanding their usage and upselling additional solutions. Our business is largely subscription-based, and customers are not obligated to and may not renew their subscriptions after their existing subscriptions expire. As a result, customers may not renew their subscriptions at the same rate, increase their usage of our solutions or purchase subscriptions for additional solutions, if they renew at all. Renewals of subscriptions may decline or fluctuate because of several factors, such as dissatisfaction with our solutions or support, a customer no longer having a need for our solutions or the perception that competitive products provide better or less expensive options. In order to grow our business, we must continually add new customers and replace customers who choose not to continue to use our platform. Any decrease in user satisfaction with our solutions or support may result in negative online customer reviews and decreased word-of-mouth referrals, which would harm our brand and our ability to grow.

In addition to striving to attract new customers to our platform, we seek to expand the usage of our solutions by our existing customers by increasing the number of departments, divisions and teams that use our solutions within each of our customers. If we fail to expand the usage of our solutions by existing customers or if customers fail to purchase other solutions from us, our business, financial condition and results of operations would be harmed.

 

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Competition in our markets is intense, and if we do not compete effectively, our operating results could be harmed.

We compete for customers with a number of different types of companies that offer a variety of products and services, including meeting tools, webinar software, virtual event software, video portal software, content management software, physical events, physical event software, marketing automation software, and digital marketing tools. Our competitors vary in size and in the breadth and scope of the products and services they offer. Many of our current and potential competitors have larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we have. Our solutions face competition from a number of web-based meeting, webinar, physical event and marketing software products offered by companies such as Zoom, LogMeIn, Intrado, Microsoft, Cisco, Google, Cvent and Amazon. Many of these products have significantly lower prices. Although most of these companies do not currently offer products with real-time engagement features that gather the types and extent of actionable data that we gather, many of these companies have significantly greater resources and may be able to introduce similar products in the future. Additionally, we operate in a market characterized by an increasing number of new and competitive entrants. Furthermore, this market has seen rapid expansion as a result of the COVID-19 pandemic, and this market expansion may attract additional entrants. As we introduce new solutions and services, and with the introduction of new technologies and market entrants, we expect competition to intensify in the future.

Many factors, including our pricing and marketing strategies, customer acquisition, and technology costs, as well as the pricing and marketing strategies of our competitors, can significantly affect our pricing strategies. Certain competitors offer, or may in the future offer, lower-priced or free products or services that compete with our entire platform or certain aspects of our platform, and they may offer a broader range of products and services than we do. Even if such competing products do not include all of the features and functionality that our solutions provide, we could face pricing pressure to the extent that customers find such alternative products to be sufficient to meet their needs. Similarly, certain competitors or potential competitors may use marketing strategies that enable them to acquire customers at a lower cost than we can. Moreover, larger organizations, which are a primary focus of our direct sales efforts, may demand substantial price concessions. As a result, we may be required to provide larger organizations with pricing below our targets in the future. As a result, we could lose market share to our competitors or be forced to engage in price-cutting initiatives or other discounts to attract and retain customers, each of which could harm our business, results of operations and financial condition.

A decline in demand for our solutions or for live engagement technologies in general could harm our business.

We derive, and expect to continue to derive, a significant portion of our revenue and cash flows from sales of subscriptions to our solutions. As a result, widespread adoption and use of live engagement technologies, webinars and event software in general, and our platform in particular, are critical to our future growth and success. If this market fails to grow or grows more slowly than we currently anticipate, demand for our platform could be negatively affected. Demand for our platform is affected by a number of factors, many of which are beyond our control. Some of these potential factors include:

 

   

availability of products and services that compete, directly or indirectly, with ours;

 

   

introduction of free or “do-it-yourself” products;

 

   

awareness and adoption of the live engagement technologies category generally as a substitute for in-person events;

 

   

ease of adoption and use;

 

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features and platform experience;

 

   

reliability of our platform, including frequency of outages;

 

   

performance and user support;

 

   

our brand and reputation;

 

   

security and privacy;

 

   

our pricing and our competitors’ pricing; and

 

   

new modes of live engagement that may be developed in the future.

If we fail to successfully predict and address these factors, meet customer demands or achieve more widespread market adoption of our platform, our business would be harmed.

We have a history of net losses, and we expect to increase our expenses in the future, which could prevent us from achieving or maintaining profitability.

We incurred a net loss of $17.6 million in 2018, $17.5 million in 2019 and $14.1 million in the nine months ended September 30, 2019, and net income of $11.2 million in the nine months ended September 30, 2020, and we may incur net losses in the future. We intend to continue to expend significant funds to expand our direct sales force and marketing efforts to attract new customers and increase usage of our platform and products by our existing customers, to develop and enhance our platform and for general corporate purposes. To the extent we are successful in increasing our customer base, we may also incur increased losses because most of the costs associated with acquiring customers (other than sales commissions) are incurred up front, while the related subscription revenue is generally recognized ratably over the applicable subscription term. In addition, we may incur increased losses because most of the costs associated with acquiring customers, including sales commissions, require us to make cash outlays at the time we acquire a customer, and, similarly, the timing of our recognition of subscription revenue and sales commissions may not correspond with our cash position. Our subscriptions typically have terms of one year that automatically renew for successive one-year terms unless terminated. Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our revenue enough to offset our higher operating expenses and any increase in our cost of sales, including as a result of a shift to a hybrid cloud. If we are unable to achieve and sustain profitability, the value of our business and common stock may significantly decrease. Furthermore, it is difficult to predict the size and growth rate of our market, customer demand for our platform, user adoption and renewal of subscriptions to our platform, and the entry or the success of competitive products and services. As a result, we may not achieve or maintain profitability in future periods.

The 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 platform.

Our ability to increase our customer base, expand the usage of our existing customers and achieve broader market acceptance of our solutions will depend to a significant extent on our ability to effectively expand and manage our sales and marketing operations and activities. We are substantially dependent on our direct sales force and on our marketing efforts in order to obtain new customers. We have recently expanded and are continuing to expand our direct sales force both domestically and internationally. We believe that there is significant competition for experienced sales professionals with the sales skills and technical knowledge that we currently require or may require in the future. Our ability to achieve revenue growth will depend, in part, on our success in recruiting, training and retaining a sufficient number of qualified and experienced sales professionals. New hires require significant training and time before they achieve full productivity, particularly in new industries or geographies. Circumstances relating to the COVID-19 pandemic have altered the way we recruit,

 

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onboard, train and integrate our employees, and these processes may not be successful in expanding our sales and marketing capabilities. New hires may not become as productive as quickly as we expect, or at all, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future in the markets and segments where we do business. Our business will be harmed if our sales expansion efforts do not generate a significant increase in revenue.

Our results of operations may be adversely impacted by the COVID-19 pandemic.

The global spread of the COVID-19 pandemic and related containment efforts have materially affected how we and our customers operate our respective businesses. Although in some ways the pandemic may have accelerated our growth, the longer-term effects on our business and the overall economy remain highly uncertain. For example, substantially all of our personnel are working from home. We have not conducted business in this manner previously, we do not know how long we may need to continue in this manner, and we may experience difficulty attracting and retaining personnel, reduced productivity of our employees, greater exposure to cybersecurity threats or other operational risks. Similarly, many of our customers, vendors and other third parties with which we conduct business are also working from home, working at reduced staffing levels and dealing with other challenges, such as supply chain disruptions and revised budgets, that are forcing them to conduct business in different ways. The extent to which these parties suffer inefficiencies or other risks from these different arrangements, and the extent to which these risks may impact us, is impossible to predict. In addition, as long as the pandemic continues, our employees may be exposed to health risks. Our efforts to re-open our offices safely may expose our employees, customers and other third parties to health risks and us to associated liability, and they will involve additional financial burdens. The COVID-19 pandemic may have long-term effects on the nature of the office environment and remote working. This may present operational and workplace culture challenges that may adversely affect our business.

The duration of the pandemic, whether it may recur, and its other long-term economic impacts are highly uncertain. These uncertainties make it challenging to manage our growth, maintain business relationships, price our subscription and otherwise operate and plan for our business. For example, with a broad section of the population working from home and educational institutions teaching remotely, increased demand for internet access could cause general access issues, affect our and our customers’ business interactions or cause issues with access to data centers. Moreover, the economic impacts of COVID-19 have affected and may continue to affect customer and prospective customer spending on technology such as ours, particularly for businesses involving in-person interactions, such as hospitality, manufacturing and professional services businesses. These customers may experience reduced revenue and revised budgets, which may adversely affect our customers’ ability or willingness to purchase subscriptions to our platform, the timing of subscriptions, customer retention, and the value or duration of subscriptions, all of which could adversely affect our operating results. It is also possible that, if the effects of the COVID-19 pandemic subside, our customers and their users will resume in-person marketing activities in a way that decreases usage of our platform. The extent of the impact of COVID-19 on our business and financial performance may be influenced by a number of factors, many of which we cannot control, including the duration and spread of the pandemic, future spikes of COVID-19 infections resulting in additional preventative measures, the severity of the economic decline attributable to the pandemic, the timing and nature of a potential economic recovery, the impact on our customers and our sales cycles, and our ability to generate new business leads.

Due to our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods. In addition, uncertainty regarding the impact of COVID-19 on our future operating results and financial condition may result in our taking cost-cutting measures, reducing the level of our capital investments and delaying or canceling the implementation of strategic initiatives, any of which may negatively impact our business and reputation. The global macroeconomic effects of the COVID-19 pandemic and related impacts on our customers’ business operations and their demand for our solutions may persist for an indefinite period, even after

 

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the COVID-19 pandemic has subsided. In addition, the effects of the COVID-19 pandemic may heighten many of the other risks we face, including those described in this prospectus.

We rely heavily on third parties for parts of our computing, storage, processing, application integration and similar services. Any disruption of or interference with our use of these third-party services could have an adverse effect on our business, financial condition, and operating results.

We have outsourced aspects of our infrastructure to third-party providers, and we currently use these providers to host and stream content and support our platform. For example, our content delivery networks and some of our integration services are provided by third parties, and we plan to continue our transition to a hybrid public/private cloud infrastructure in the future. Accordingly, we are vulnerable to service interruptions experienced by these providers, and we expect to experience interruptions, delays, or outages in service availability in the future due to a variety of factors, including infrastructure changes, human, hardware or software errors, hosting disruptions, and capacity constraints. We expect that transitioning to a more hybrid cloud infrastructure will require significant investment and have a continuing effect on our cost of revenue and may not be effective in improving our capacity or redundancy. Outages and capacity constraints could also arise from a number of causes such as technical failures, natural disasters, fraud, or security attacks. The level of service provided by these providers, or regular or prolonged interruptions in that service, could also affect the use of, and our customers’ satisfaction with, our solutions and could harm our business and reputation. In addition, third-party costs will increase as subscriptions and customer use of our platform grows, which could harm our business if we are unable to grow our revenue faster than the cost of using these services or the services of similar providers.

Furthermore, our providers may change the terms of service and policies pursuant to which they provide services to us, and those actions may be unfavorable to our business operations. Our providers may also take actions beyond our control that could seriously harm our business, including discontinuing or limiting our access to one or more services, increasing pricing terms, terminating or seeking to terminate our contractual relationship altogether, or altering how we are able to process data in a way that is unfavorable or costly to us. For example, some businesses providing data connectors to our products may fail to properly integrate with our platform and third-party sales and marketing systems, stop servicing the data connectors or cease development and support, any of which may limit functionality of our products. In addition, some businesses that provide cloud services and data connectors are or may become our competitors and may take one or more of the foregoing actions in an effort to compete with our platform. Although we expect that we could obtain similar services from other third parties, if our arrangements with our current providers were terminated, we could experience interruptions on our platform and in our ability to make our content available to customers, as well as delays and additional expenses in arranging for alternative cloud infrastructure services.

Any of these factors could cause network disruptions, or even network failure, reduce our revenue, subject us to liability, and cause our customers to decline to renew their subscriptions, any of which could harm our business.

Interruptions, delays or outages in service from the data centers we use for our technology or infrastructure could impair the delivery and the functionality of our solutions, which may harm our business.

Our growth, brand, reputation and ability to attract and retain customers depend in part on the ability of our customers to access our platform at any time and within an acceptable amount of time. We currently use data centers in Colorado and California. To facilitate additional growth in Europe, we plan to use a data center in the European Union, or the EU, but we do not expect it to be available until

 

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at least mid-2021, if ever. Our efforts to diversify our data centers, including internationally, may not be successful. While each of our two data centers provide fully redundant processing, we estimate that failover may require as much as 90 minutes to complete, during which time our platform may not be fully available to our customers in the event of catastrophic failure at one of our data centers. We do not control the operation of the data centers we use, and they are vulnerable to damage or interruption from human error, intentional bad acts, natural disasters, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events, any of which could disrupt our service. In the event of significant physical damage to one of these data centers, it may take a significant period of time to achieve full resumption of our platform, and our disaster recovery planning may not account for all eventualities.

In addition, our platform is proprietary, and we depend on the expertise and efforts of members of our operations and software development teams for its continued performance. Our ability to retain, attract, hire and train staff in these groups may prove to be a challenge for a variety of factors and could have an adverse impact on the platform. We have experienced, and may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due to an overwhelming number of users accessing our platform concurrently and denial-of-service attacks by malicious actors. In some instances, we may not be able to rectify these performance issues within an acceptable period of time.

Our ability to attract and retain customers depends on our ability to provide our customers and their users with a highly reliable platform. If our platform is unavailable or if our customers and their users are unable to access our platform within a reasonable amount of time, or at all, our business, results of operations and financial condition would be adversely affected. Additionally, if the data centers we use are unable to keep up with our increasing need for capacity, our customers may experience delays as we seek to obtain additional capacity, which could harm our business.

Any cybersecurity-related attack, significant data breach or disruption of the information technology systems or networks on which we rely could negatively affect our business.

Our operations rely on information technology systems for the use, storage and transmission of sensitive and confidential information with respect to our customers, our customers’ users, third-party technology platforms and our employees. In addition, our solutions gather more information from our customers and their users than many competing products, which may make us an attractive target for a malicious cybersecurity-related attack, intrusion or disruption, or other breach of our systems. Any such event could lead to unauthorized access to, use of, disclosure of or the loss of sensitive and confidential information, disruption of our platform, and resulting regulatory enforcement actions, litigation, indemnity obligations and other possible liabilities, as well as negative publicity, any of which could damage our reputation, impair sales and harm our business. Cyberattacks and other malicious internet-based activity continue to increase, and cloud-based providers of products and services have been and are expected to continue to be targeted. In addition to traditional computer “hackers,” malicious code (such as viruses and worms), phishing, employee theft or misuse and denial-of-service attacks, sophisticated nation-state and nation-state supported actors now engage in attacks (including advanced persistent threat intrusions). As we grow, we may face increased risk of any such attacks. Despite efforts to create security barriers to such threats, it is not feasible, as a practical matter, for us to entirely mitigate these risks. If our security measures are compromised as a result of third-party action, employee, customer, or user error, malfeasance, stolen or fraudulently obtained log-in credentials or otherwise, our reputation would be damaged, our data, information or intellectual property, or those of our customers, may be destroyed, stolen or otherwise compromised, our business may be harmed and we could incur significant liability. We may be unable in the future to anticipate or prevent techniques used to obtain unauthorized access to or compromise of our systems because they change frequently and are generally not detected until after an incident has occurred. We may not be

 

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able to prevent vulnerabilities in our software or address vulnerabilities that we may become aware of in the future. Further, as we rely on third-party cloud infrastructure, we depend in part on third-party security measures to protect against unauthorized access, cyberattacks and the mishandling of data and information.

Any cybersecurity event, including any vulnerability in our software, cyberattack, intrusion or disruption, could result in significant increases in costs, including costs for remediating the effects of such an event, lost revenue due to network downtime, a decrease in customer and user trust, increases in insurance premiums due to cybersecurity incidents, increased costs to address cybersecurity issues and attempts to prevent future incidents, and harm to our business and our reputation because of any such incident. In addition, such incidents and data breaches can give rise to penalties and fines under data protection and cybersecurity laws, rules and regulations, enforcement actions, contractual damages, class actions, customer audits and other liability.

Many jurisdictions have enacted laws requiring companies to provide notice of data security incidents involving certain types of personal data. Under some of these laws, such as the EU General Data Protection Regulation, or GDPR, data breach is defined very broadly to include any accidental or unlawful destruction, loss, alteration, unauthorized disclosure of, or access to any personal data, regardless of the sensitivity of such data. In addition, certain platform information may be made available via unique links to publicly accessible webpages, which could be accessed by unauthorized individuals. While the information accessible via these pages is limited, it is possible that a regulator, customer or third party could view this negatively, in particular in light of the broad definition of personal data and data breach under certain laws. In addition, we have contractual obligations to notify our customers of any data breaches involving their personal data processed by us.

Any limitation of liability provisions in our subscription agreements may not be enforceable or adequate or may not otherwise protect us from any such liabilities or damages with respect to any claim related to a cybersecurity incident. Our existing general liability insurance coverage and coverage for errors or omissions may not continue to be available on acceptable terms or may not be available in sufficient amounts to cover one or more large claims. The insurer may 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, would harm our business.

Further, security compromises experienced by our competitors, by our customers or by us may lead to widespread negative publicity. Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode confidence in the effectiveness of our security measures, negatively affect our ability to attract new customers, encourage consumers to restrict the sharing of their personal data with our customers or social media networks, cause existing customers to elect not to renew their subscriptions or subject us to lawsuits, regulatory fines or other action or liability, which could harm our business.

We may not be able to respond to rapid technological changes, extend our platform or develop new features.

The markets in which we compete are characterized by rapid technological change and frequent new product and service introductions. Our ability to attract new customers and retain and expand the usage of existing customers depends on our ability to continue to enhance and improve our platform, to introduce new features and solutions and to interoperate across an increasing range of devices, operating systems and third-party applications. Our customers may require features and capabilities that our current platform does not have. We invest significantly in research and development, focusing on improving the quality and range of our product offerings. Our enhancements to our platform and our new product experiences, features or capabilities may not be compelling to our existing or potential customers and may not gain market acceptance. If our research and development investments do not

 

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accurately anticipate customer demand, or if we fail to develop our platform in a manner that satisfies customer preferences in a timely and cost-effective manner, we may fail to retain our existing customers or increase demand for our platform.

The introduction of competing products and services or the development of entirely new technologies to replace existing offerings could make our platform obsolete or adversely affect our business, results of operations and financial condition. We may experience difficulties with software development, design or marketing that could delay or prevent our development, introduction, or implementation of new product experiences, features, or capabilities. New product experiences, features or capabilities may not be released according to schedule. Any delays could result in adverse publicity, loss of revenue or market acceptance, or claims by customers brought against us, all of which could harm our business. If customers do not widely adopt our new product experiences, features and capabilities, we may not be able to realize a return on our investment. If we are unable to develop, license or acquire new features and capabilities to our platform on a timely and cost-effective basis, or if such enhancements do not achieve market acceptance, our business would be harmed.

Our sales cycle with enterprise customers can be long and unpredictable.

A substantial portion of our business is with large enterprise customers. As of September 30, 2020, we had 271 $100k Customers, which are generally large organizations, representing 66% of our ARR. The timing of our sales with our enterprise customers and related revenue recognition is difficult to predict because of the length and uncertainty of the sales cycle for these customers. We are often required to spend significant time and resources to educate and familiarize these potential customers with the value proposition of paying for our platform. The length of our sales cycle for these customers, from initial evaluation to payment for our platform, is often around three to six months or more and can vary substantially from customer to customer. As a result, it is difficult to predict whether and when a sale will be completed. An inability to increase our enterprise customer base could harm our business.

We are continuing to expand our operations outside the United States, where we may be subject to increased business and economic risks that could harm our business.

In the year ended December 31, 2019, we generated revenue from customers in more than 40 countries, with 21% of our revenue generated from customers outside of the United States. For the nine months ended September 30, 2020, we generated revenue from customers in more than 40 countries, with 23% of our revenue generated from customers outside of the United States. We expect to continue to expand our international operations. For example, we recently established a subsidiary in Japan to support our operations in the Asia-Pacific region. Our efforts to expand our current international operations, including entering new markets or countries, may not be effective. For example, we may not be able to expand further in some markets if we are not able to satisfy certain government- and industry-specific requirements. In addition, our ability to manage our business and conduct our operations internationally in the future may require considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal and regulatory systems and commercial markets. Future international expansion will require investment of significant funds and other resources. Operating internationally subjects us to special risks, including risks associated with:

 

   

recruiting and retaining talented and capable employees outside the United States and maintaining our company culture across all of our offices;

 

   

providing our platform and operating our business across a significant distance, in different languages and among different cultures, including the potential need to modify our platform and features to ensure that they are culturally appropriate and relevant in different countries;

 

   

determining the appropriate pricing strategy to enable us to compete effectively internationally, which may be different than the pricing strategies that have worked for us in the United States;

 

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compliance with applicable international laws and regulations, including laws and regulations with respect to privacy, data protection and marketing, and the risk of penalties to us and individual members of management or employees if our practices are deemed to be out of compliance;

 

   

management of an employee base in jurisdictions that may not give us the same employment and retention flexibility as does the United States;

 

   

difficulties in managing and staffing international operations including the proper classification of independent contractors and other contingent workers, differing employer/employee relationships, and local employment laws;

 

   

operating in jurisdictions that do not protect intellectual property rights to the same extent as does the United States and the practical enforcement of such intellectual property rights outside of the United States;

 

   

foreign government interference with our intellectual property that is developed outside of the United States, such as the risk that changes in foreign laws could restrict our ability to use our intellectual property outside of the jurisdiction in which we developed it;

 

   

integration with partners outside of the United States;

 

   

compliance by us and our business partners with anti-corruption laws, import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory limitations on our ability to provide our platform in certain international markets;

 

   

foreign business restrictions, foreign exchange controls and similar laws that might require significant lead time in setting up operations in certain geographic territories and might prevent us from repatriating cash earned outside the United States;

 

   

political and economic instability;

 

   

changes in diplomatic and trade relationships, including the imposition of new trade restrictions, trade protection measures, import or export requirements, trade embargoes and other trade barriers;

 

   

generally longer payment cycles and greater difficulty in collecting accounts receivable;

 

   

double taxation of our international earnings and potentially adverse tax consequences due to changes in the income and other tax laws of the United States or the international jurisdictions in which we operate; and

 

   

higher costs of doing business internationally, including increased accounting, travel, infrastructure and legal compliance costs.

Compliance with laws and regulations applicable to our global operations substantially increases our cost of doing business in international jurisdictions. We may be unable to keep current with changes in laws and regulations in each jurisdiction as they occur. Our policies and procedures designed to support compliance with these laws and regulations may not always result in our compliance or that of our employees, contractors, partners and agents. Any violations could result in enforcement actions, fines, civil and criminal penalties, damages, injunctions or reputational harm. If we are unable to comply with these laws and regulations or manage the complexity of our global operations successfully, we may need to relocate or cease operations in certain foreign jurisdictions.

We recognize revenue from subscriptions to our platform over the terms of the subscriptions. Consequently, increases or decreases in new sales are generally not immediately reflected in our results of operations and may be difficult to discern.

We recognize revenue from subscriptions to our platform over the terms of the subscriptions. As a result, a substantial portion of the revenue we report in each quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any single quarter may have a small impact on the revenue

 

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that we recognize for that quarter. However, such a decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and potential changes in our pricing policies or rate of customer expansion or retention may not be fully reflected in our results of operations until future periods. In addition, a significant portion of our costs are recognized as they are incurred, while revenue is recognized over the term of the subscription. As a result, growth in the number of new customers could continue to result in our recognition of higher costs and lower revenue in the earlier periods of such growth. Finally, our subscription-based revenue model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers or from existing customers that increase their usage of our product offerings must be recognized over the applicable subscription term.

Our ability to sell subscriptions to our products could be harmed by real or perceived material defects or errors in our platform or by other matters that may interrupt the availability of our platform or cause performance issues.

The software underlying our platform is inherently complex and may contain material defects or errors, particularly when we first introduce new solutions or when we release new features or capabilities. We have from time to time found defects or errors in our platform, and we or our users may detect new defects or errors in our existing or future platform or solutions. Any real or perceived errors, failures, vulnerabilities, or bugs in our platform could result in negative publicity or lead to data security, access, retention or other performance issues, all of which could harm our business. We may incur substantial costs in correcting such defects or errors and such costs could harm our business. Moreover, the harm to our reputation and potential legal liability related to such defects or errors may be substantial and could harm our business.

Our platform also utilizes hardware that we purchase or lease and software and services that we procure from third parties. In some cases, this includes software we license from international companies that may in the future become subject to legal or regulatory limitations on their ability to provide software outside of their jurisdiction. Any defects in, or unavailability of, our third-party hardware, software or services that cause interruptions to the availability of our platform, loss of data or performance issues could, among other things:

 

   

cause a reduction in our revenue or a delay in market acceptance of our platform;

 

   

require us to issue refunds to our customers or expose us to claims for damages;

 

   

cause us to lose existing customers and make it more difficult to attract new customers;

 

   

divert our development resources or require us to make extensive changes to our platform, which would increase our expenses;

 

   

increase our technical support costs; and

 

   

harm our reputation and brand.

The contractual protections, such as warranty disclaimers and limitation of liability provisions, in our customer agreements may not fully or effectively protect us from claims by customers or other third parties. Any insurance coverage we may have may not adequately cover all claims asserted against us or may only cover a portion of such claims. A successful product liability, warranty, or other similar claim against us could have an adverse effect on our business, operating results, and financial condition. In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation and divert management’s time and other resources.

 

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The experience of our customers and their users depends upon the interoperability of our platform across devices, operating systems and third-party applications that we do not control, and if we are not able to maintain and expand our relationships with third parties in order to integrate our platform with their products, our business may be harmed.

Our products have broad interoperability with a range of diverse devices, operating systems and third-party applications. Our platform is accessible from the web and from devices running Windows, Mac OS, iOS and Android. We depend on the accessibility of our platform across these and other third-party operating systems and applications that we do not control. For example, given the broad adoption of Salesforce’s products, it is important that we are able to integrate with its software. Several potential competitors have inherent advantages by being able to develop products and services internally that more tightly integrate with their own software platforms or those of their business partners.

We may not be able to modify our platform or products to maintain their continued compatibility with that of third parties’ products and services that are constantly evolving. In addition, some of our competitors may be able to disrupt the ability of our platform and products to operate with their products or services, or they could exert strong business influence on our ability to, and the terms on which we, operate and provide access to our platform and products. Should any of these third parties modify their products or services in a manner that degrades the functionality of our platform or products, or that gives preferential treatment to their own or competitive products or services, whether to enhance their competitive position or for any other reason, the interoperability of our platform and products with these third-party products and services could decrease and our business could be harmed.

Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our ability to expand our base of users will be impaired and our business will be harmed.

We believe that our brand identity and awareness have contributed to our success. We believe that the importance of our brand and market awareness of the benefits of our platform and products will increase as competition in our market further intensifies. Successful promotion of our brand will depend on a number of factors, including the effectiveness of our marketing efforts, thought leadership, our ability to provide a high-quality, reliable and cost-effective platform, the perceived value of our platform and products and our ability to provide quality customer success and support experience. Brand promotion activities require us to make substantial investments. The promotion of our brand, however, may not generate customer awareness or increase revenue, and any increase in revenue may not offset the expenses we incur in building and maintaining our brand.

The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at a similar rate, if at all.

Market opportunity estimates and growth forecasts included in this prospectus, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Not every organization covered by our market opportunity estimates will necessarily purchase subscriptions for our solutions or similar products or services at all, and some or many of those organizations may choose to continue using products or services offered by our competitors. It is impossible to build every product feature that every customer wants, and our competitors may develop and offer features that our platform does not provide. The variables used in the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of the organizations covered by our market opportunity estimates will generate any particular level of revenue for us, if any. Even if the market in which we compete meets the size estimates and growth forecasts in this prospectus, our business could fail to grow for a variety of reasons outside of our control, including competition in our industry, customer

 

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preferences or the other risks set forth in this prospectus. If any of these risks materialize, it could harm our business and prospects.

Our business may be significantly impacted by a change in the economy, including any resulting effect on business spending.

Our business may be affected by changes in the economy generally, including any resulting effect on spending by our customers. While some of our customers may consider our platform to be a cost-saving purchase by, among other things, decreasing the need for large, in-person events, others may view a subscription to our platform as a discretionary purchase, and such customers may reduce their discretionary spending on our platform during an economic downturn. Particularly in light of COVID-19, some of our customers may experience reduced revenue and revised budgets, which may adversely affect our customers’ ability or willingness to purchase subscriptions to our platform, the timing of subscriptions, and the value or duration of subscriptions, all of which could adversely affect our operating results. If an economic downturn were to occur, we may experience such a reduction in demand and loss of customers, especially in the event of a prolonged recessionary period.

If we were to lose the services of our Chief Executive Officer or other members of our senior management team, we may not be able to execute our business strategy.

Our success depends in a large part upon the continued service of key members of our senior management team. In particular, our co-founder, President and Chief Executive Officer, Sharat Sharan, is critical to our overall management, as well as the continued development of our solutions, our culture, our strategic direction, our engineering and our operations. All of our executive officers are at-will employees, and we do not maintain any key person life insurance policies. The loss of any member of our senior management team could harm our business.

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

To execute our business strategy, we must attract and retain highly qualified personnel. Competition for executives, software developers, sales personnel and other key employees in our industry is intense. In particular, we compete with many other companies for software developers with high levels of experience in designing, developing and managing software for live engagement technologies, as well as for skilled sales and operations professionals. At times, we have experienced, and we may continue to experience, difficulty in hiring and retaining employees with appropriate qualifications, and we may not be able to fill positions. Circumstances relating to COVID-19 may create increased demand for personnel with experience in live engagement technology, which may make it more difficult for us to attract and retain qualified personnel. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business could be harmed.

Many of the companies with which we compete for experienced personnel have greater resources than we have, and some of these companies may offer greater compensation packages. Particularly, in the San Francisco Bay Area, job candidates and existing employees carefully consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, or if the mix of equity and cash compensation that we offer is unattractive, it may adversely affect our ability to recruit and retain highly skilled employees. Job candidates may also be threatened with legal action under agreements with their existing employers if we attempt to hire them, which could impact hiring and result in a diversion of our time and resources. Additionally, laws and regulations, such as restrictive immigration laws, may limit our ability to recruit internationally. We must also continue to retain and motivate existing employees through our compensation practices, company culture and career development opportunities. If we fail to attract new personnel or to retain our current personnel, our business would be harmed.

 

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In addition, many of our employees may be able to receive significant proceeds from sales of our equity in the public markets after our initial public offering, which may reduce their motivation to continue to work for us. Moreover, this offering could create disparities in wealth among our employees, which may harm our culture and relations among employees and our business.

We may not successfully manage our growth or plan for future growth.

We have experienced rapid growth in 2020. The growth and expansion of our business places a continuous, significant strain on our management, operational and financial resources. Our information technology systems and our internal controls and procedures may not adequately keep pace with our growth. In addition, as we continue to grow, we face challenges of integrating, developing and motivating a rapidly growing employee base in various countries around the world. Certain members of our management do not have experience managing a public company, which may affect how they manage our growth. Managing our growth will also require significant expenditures and allocation of valuable management resources.

In addition, our rapid growth in 2020 may make it difficult to evaluate our future prospects. Our ability to forecast our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth. We have encountered in the past, and may encounter in the future, risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If we fail to achieve the necessary level of efficiency in our organization as it grows, or if we are not able to accurately forecast future growth, our business would be harmed.

We have identified a material weakness in our internal control over financial reporting, and, if our remediation of this material weakness is not effective, or if we fail to maintain effective internal control over financial reporting in the future, our ability to produce accurate and timely consolidated financial statements could be impaired, which could adversely affect investor confidence in our company and, as a result, the value of our common stock.

In connection with the audit of our consolidated financial statements included elsewhere in this prospectus, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. The material weakness related to a lack of resources necessary to operate controls in a timely manner and with sufficient precision, primarily relating to recording revenue, which require greater automation and changes to design so that controls operate with satisfactory precision.

The material weakness resulted in errors in our 2018 and 2019 consolidated financial statements related primarily to revenue recorded in connection with our previous revenue model. Prior to our current cloud-based subscription model, we generated revenue from our Webcast Center offering, or our Legacy offering, which mainly consisted of fully managed events and associated services for which we recognize revenue at a point in time as events occur. We concluded that the errors relating to revenue recorded in 2018 and 2019 were immaterial individually and in the aggregate. In connection with shifting to our current data-driven, cloud-based subscription model, we stopped selling our Legacy offering to new customers in 2018 and to all customers in 2020, and we expect substantially all Legacy revenue to cease after December 2020. We believe that this transition will substantially limit the potential for the recurrence of the errors impacting revenue that resulted from the material weakness. The material weakness also resulted in errors in accounting for the classification of our convertible Class A-1 and Class A-2 preferred stock on our consolidated balance sheet, which have since been corrected. In addition, we made certain corrections in recording professional services revenue, which

 

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were reflected in our financial statements as of and for the nine months ended September 30, 2020 prior to those financial statements being issued.

We are taking several steps designed to address the underlying cause of the material weakness, including adding additional resources to enhance our internal controls over financial reporting, implementing enhanced processes and review controls for the manual processes involved in our revenue recognition, and transitioning to new and more automated processes for capturing and recording revenue transactions. We cannot be certain that the measures we are taking will remediate the material weakness we have identified. We also cannot be certain that we have identified all existing material weaknesses or that we will not in the future have additional material weaknesses.

Our current efforts to maintain an effective control environment may not be sufficient to prevent future material weaknesses or significant deficiencies from occurring or to promptly remediate any such future material weaknesses or significant deficiencies. If the material weakness we have identified is not remediated, or if we have or in the future identify additional material weaknesses, we may be unable to accurately or timely report our financial results, which may result in litigation or regulatory action, a loss of investor confidence, restricted access to the capital markets and declines in the price of our common stock.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of the applicable listing standards of the NYSE. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and place significant strain on our personnel, systems and resources.

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 to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the Securities and Exchange Commission, or the SEC, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. In addition, changes in accounting principles or interpretations could also challenge our internal controls and require that we establish new business processes, systems and controls to accommodate such changes. We have limited experience with implementing the systems and controls that will be necessary to operate as a public company, as well as adopting changes in accounting principles or interpretations mandated by the relevant regulatory bodies. Additionally, if these new systems, controls or standards and the associated process changes do not give rise to the benefits that we expect or do not operate as intended, it could adversely affect our financial reporting systems and processes, our ability to produce timely and accurate financial reports or the effectiveness of internal control over financial reporting. Moreover, our business may be harmed if we experience problems with any new systems and controls that result in delays in their implementation or increased costs to correct any post-implementation issues that may arise.

 

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Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our business or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and 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. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE. We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K.

Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until our first annual report filed with the SEC where we are an accelerated filer or a large accelerated filer, which will not occur until at least our second annual report on Form 10-K. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could harm our business and could cause a decline in the trading price of our common stock.

Any failure to offer high-quality support may harm our relationships with our customers and, consequently, our business.

We have designed our platform to be easy to adopt and use with minimal support. However, if we experience increased demand for support, we may face increased support costs. In addition, as we continue to grow our operations and support our global customer base, we must continue to provide efficient support that meets our customers’ needs, including by integrating with or building solutions that allow streamlined support workflows, or by hiring additional support personnel if necessary. Our ability to acquire new customers significantly depends on our business reputation and on positive recommendations from our existing customers. Any failure to maintain, or a market perception that we do not maintain, high-quality support could harm our business.

Our business could be disrupted by catastrophic events.

Occurrence of any catastrophic event, including pandemics and a worsening of the COVID-19 pandemic, earthquake, fire, flood, tsunami or other weather event, power loss, telecommunications failure, software or hardware malfunctions, cyberattacks, war or terrorist attacks, could result in lengthy interruptions in our service. In particular, our U.S. headquarters and one of the data centers we utilize are located in the San Francisco Bay Area, a region known for seismic activity, and our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster. In addition, acts of terrorism could cause disruptions to the internet, the electric grid or the economy as a whole. Even with our disaster recovery arrangements, our service could be interrupted. If our systems were to fail or be negatively impacted as a result of a natural disaster or other catastrophic event, our ability to deliver our solutions to our customers would be impaired or we could lose critical data. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster and to execute successfully on those plans in the event of a disaster or emergency, our business could be harmed.

 

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Our actual or perceived failure to comply with privacy laws could harm our business.

Businesses use our platform to facilitate better engagement with their customers and prospects, derive insights about content and usage, and provide more meaningful and targeted experiences and content. These capabilities rely on collection and processing of personal information through our platform. As a result, compliance with laws and regulations regarding data privacy, cybersecurity, data protection, data breaches, and the collection, processing, storage, transfer and use of personal data, which we collectively refer to as privacy laws, are critical to our business. While we strive to comply with applicable privacy laws and legal obligations, the impact, requirements and enforcement risks associated with privacy laws vary, and in some cases may even conflict, across jurisdictions.

Our roles and obligations under privacy laws, and consequently our potential liability, may vary. In some cases, our customers may pass through privacy law compliance obligations and requirements to us contractually. We have customers in numerous jurisdictions worldwide, and our customers may try to impose broad obligations on us pursuant to all privacy laws applicable to them and may decide not to do business with us if we will not agree to their privacy terms. Certain significant privacy laws (such as the GDPR) impose obligations directly on many of our customers, as “data controllers,” as well as on us both as a “data processor” for personal data processed on behalf of our customers pursuant to our platform, which we refer to as the platform personal data, and as a “controller” for the personal data we collect related to employees and personnel, our B2B relationships, and our marketing, sales and other activities, which we refer to as the ON24 business data. Under these privacy laws, we typically have fewer direct obligations as a “data processor” or “service provider” than our customers do, with respect to platform personal data. However, we can still be subject to significant liability for noncompliance with such laws, including, for example, under the GDPR, which provides for penalties of up to the greater of 20 million or four percent of worldwide annual revenue. Certain other privacy laws do not clearly distinguish between “controller” and “processor” or similar roles. Where such privacy laws apply, we could be subject to increased risks if our customers fail to comply with notice, consent and other requirements under applicable privacy laws in their use of our platform. While we generally require and rely on our customers to ensure that their use of our platform and associated personal information processing complies with applicable privacy laws, our customers could fail to comply with these requirements, which could expose us to risks under certain privacy laws.

Further, even similar privacy laws may be subject to evolving or differing interpretations and enforcement risks. For example, across the EU, supervisory authorities of EU member states may issue data protection guidance and opinions regarding the GDPR that may vary. Also, under the current ePrivacy Directive and associated EU member state legislation, the rules governing marketing, “cookies” and online advertising vary among EU member states. In addition, across jurisdictions, privacy laws may include varied and inconsistent requirements. As a result, certain features of our platform and products could pose risks or need to be modified for certain jurisdictions, but not for others. Such requirements could reduce demand for our products, require us to take on more onerous obligations in our contracts, restrict our ability to collect, store, transfer and process data or, in some cases, impact our customers’ use of our platform.

Furthermore, general customer and buyer trust as to the responsible use of data may cause business buyers to resist providing the data necessary to allow our customers to use our platform effectively. Even the perception that the privacy and security of personal information are not satisfactorily protected or do not meet regulatory requirements could inhibit sales of our products or services and limit adoption of our products.

Evolving privacy laws may impact use and adoption of our platform and adversely affect our business.

Laws and regulations related to privacy, personal data and the provision of services over the Internet are evolving in the United States and globally, with the adoption of new and amended privacy

 

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laws. The impact, requirements and enforcement risks associated with these privacy laws vary, and in some cases may even conflict, across jurisdictions.

In addition, new U.S. and international privacy laws may impose new obligations on us and many of our customers. Both in the United States and globally, numerous jurisdictions have passed or are actively considering new or amended privacy laws. For example, the California Consumer Privacy Act, or CCPA, which took effect in January 2020, applies to us and to many our customers. Under the CCPA, we are both a “business,” as to the ON24 business data, and a “service provider,” as to the platform personal data. The CCPA introduced sweeping definitions and broad individual rights, and imposes substantial requirements and restrictions on the collection, use and disclosure of personal information. The CCPA also introduced a private right of action for certain data breaches, which gives rise to increased class action risk. Notably, since the CCPA was signed into law, it has been amended multiple times, has been subject to further implementing regulations, and may face further amendment, refinement or replacement.

As the CCPA continues to evolve, various U.S. states are also actively introducing and considering so-called “omnibus” privacy legislation. Similarly, numerous foreign jurisdictions are actively considering legislation introducing new or amended laws and regulations addressing data privacy, cybersecurity, marketing, data protection, data localization and personal data. Further, privacy laws such as the EU’s proposed e-Privacy Regulation are increasingly aimed at the use of personal information for marketing purposes and the tracking of individuals’ online activities, which could expose us to additional regulatory burdens, limit our marketing, advertising, business development and sales efforts, and impact features made available to our customers through our platform. In addition, Brexit has also created additional uncertainty with regard to UK privacy laws, as well as the treatment of data transfers to and from the United Kingdom, where we have operations and customers. The ongoing development of privacy laws gives rise to uncertainty regarding the impact of privacy laws on us and our customers, and we and our customers could be exposed to additional burdens.

In addition, decisions by courts and regulatory bodies relating to privacy laws can also have a significant impact on us and other businesses that operate across international jurisdictions. For example, in 2020 both the EU-U.S. and Swiss-EU privacy shield frameworks were invalidated. We and many other companies relied on these privacy shield frameworks as an “adequacy” mechanism for the transfer of personal data from the European Economic Area, or the EEA-Switzerland, to the United States in compliance with the GDPR and Swiss data protection laws, respectively. While we have taken measures to implement alternative adequacy mechanisms, such as the EU standard contractual clauses for transfers of personal data for processors established in third countries, further steps may be necessary. Under the decision invalidating the EU-U.S. privacy shield framework, or Schrems II, additional safeguards may be needed. Our customers may request that we agree to additional safeguards, such as additional security controls and contractual measures, which must be assessed on a case-by-case basis. However, what additional safeguards will be considered adequate remains unclear. We expect continued guidance from applicable authorities, as well as updates to the EU standard contractual clauses.

Other jurisdictions have also instituted specific requirements and restrictions on the cross-border transfer of personal data, and certain countries have passed or are considering passing data localization laws and regulations, which in some cases would require personal data be maintained in the originating jurisdiction and in other cases may prohibit such personal data from being transferred outside of the originating jurisdiction. While our solutions allow customers to receive and store local copies of platform data on their or other third-party servers, we do not maintain local servers to enable customers to maintain personal data only on servers in the originating jurisdiction. As with most cloud-based solutions, restrictions on the transfer of platform data outside of the originating jurisdiction could pose particular challenges and result in additional costs or otherwise impact platform use.

 

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New and proposed marketing, advertising and other privacy laws and guidelines have recently been enacted or proposed that could impose more restrictions and give individuals more rights regarding marketing, targeting, and analytics or “profiling” activities. Some of these regulations seek, among other things, to give consumers greater control over how their personal information is processed for these purposes, or impose prior, affirmative consent obligations on companies related to these activities. For example, in the EU, cookies and similar technologies used for personalization, advertising, and analytics may not be used without affirmative consent and the proposed ePrivacy Regulation may further restrict these activities and technologies and increase restrictions. These could require us to change one or more aspects of the way we operate our business, limit our marketing, advertising, business development and sales efforts, impact certain features made available to customers through our platform or require us to introduce changes to our platform or solutions.

Although we monitor the regulatory environment and have invested in addressing these developments, including the GDPR, the EU ePrivacy Directive and the CCPA, the ongoing development of privacy laws means that we cannot predict with certainty the impact of these developments. These evolving privacy laws may require us to make additional changes to our practices and services to enable us or our customers to meet the new legal requirements, and may also increase our potential liability exposure through new or higher potential penalties for non-compliance, including as a result of data breaches. In addition, 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. These laws or other privacy law developments 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. As a result of these privacy law developments, certain features of our platform and products could pose risks or need to be modified for certain jurisdictions, but not for others. They also could cause the demand for and sales of our platform to decrease and adversely impact our financial results.

The costs of compliance with, and other burdens imposed by, privacy laws may limit the use and adoption of our platform, reduce overall demand for our platform, make it more difficult to meet expectations from or commitments to our customers and their users, require us to implement additional features or offer additional contractual terms to satisfy customer and regulatory requirements, lead to significant fines, penalties or liabilities for noncompliance, impact our reputation, or slow the pace at which we close sales transactions, any of which could harm our business. In addition, these laws raise additional enforcement and liability risks and penalties. For example, statutory damages available through a private right of action for certain data breaches under CCPA, and potentially other U.S. and international laws, may increase our and our customers’ potential liability. In some cases, violations of privacy laws can lead to government enforcement or private litigation and could subject us 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 harm our reputation and our business.

We are subject to export and import controls, customs, sanctions, embargo, and anti-boycott laws and regulations that could seriously impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws and regulations.

Our platform and products are subject to various restrictions under U.S. export control and sanctions laws and regulations, including the U.S. Department of Commerce’s Export Administration Regulations, or EAR, and various economic and trade sanctions regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, as well as other U.S. government agencies. U.S. export control and economic sanctions laws include trade, commerce, and investment restrictions or prohibitions, including those on the sale, supply, import, or export of certain

 

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products and services to or from U.S. embargoed or sanctioned countries, governments, persons and entities, and also require authorization for the export of certain encryption and other items. Parties that facilitate transactions that violate or otherwise seek to evade export controls or sanctions can face liability. Also, in certain circumstances, sanctions require U.S. persons to block or freeze the property of sanctioned persons.

U.S. export controls and sanctions are complex and vary according to specific programs administered by relevant government agencies. Each program can be tied to a specific country or policy initiative. In certain cases, parties can request the U.S. government to issue a license to allow certain transactions. However, the scope and substance of those licenses can be fact specific and limited in scope.

The United States currently imposes comprehensive sanctions on Cuba, Iran, North Korea, Syria, and the Crimea Region of Ukraine. In addition, numerous other countries throughout the world are subject to partial or limited sanctions and restrictions imposed by the U.S. government. Sanctions also apply to persons that appear on, or are majority owned by a person that appears on, OFAC’s List of Specially Designated Nationals and Blocked Persons, or the SDN List. The Department of Commerce and the Department of State also maintain their own sanctions and export control lists. The above list of countries that are the subject of U.S. sanctions and export controls can change at any time. In addition, the SDN List as well as other sanctions lists contain thousands of names and are updated on a regular basis. All of those changes can impact our business. The U.S. government generally applies a strict liability standard when it comes to compliance with sanctions, embargoes, and export controls. This means that we can face liability even if we did not intentionally violate those rules.

We are also subject to U.S. restrictions under the EAR and the Internal Revenue Code that prevent us from participating in boycotts imposed by other countries if those boycotts are not approved by the United States. Companies and individuals that violate these anti-boycott restrictions may face criminal consequences. In addition, companies that are asked to comply with such boycotts are obligated to report those requests to the U.S. government, even if they do not agree to abide by such boycotts.

In addition, various countries regulate the import of certain encryption and other technology, including through import permitting and licensing requirements and have enacted or could enact laws that could limit our ability to provide access to our platform. We maintain internal controls and procedures to facilitate compliance with applicable export control requirements, but our company is rapidly growing, has detected past filing issues, and in the future may face material noncompliance that we fail to detect. If any precautions we take fail to prevent our platform and products from being accessed or used in violation of such laws, we may face fines and penalties, reputational harm, loss of access to certain markets, or other harm to our business.

Changes in our platform or changes in export, sanctions and import laws may delay the introduction and sale of subscriptions to our platform in international markets, prevent our customers with international operations from using our platform or, in some cases, prevent the access or use of our platform to and from certain countries, governments, persons or entities altogether. Further, any change in export or import regulations, economic sanctions or related laws, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations could result in decreased use of our platform or in our decreased ability to export or sell our platform to existing or potential customers with international operations. Any decreased use of our platform or limitation on our ability to export or sell our platform would likely harm our business.

 

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We are subject to a variety of U.S. and non-U.S. laws and regulations, compliance with which could impair our ability to compete in domestic and international markets and non-compliance with which may result in claims, fines, penalties, and other consequences, all of which could adversely impact our operations, business, or performance.

As a service provider, we do not regularly monitor our platform to evaluate the legality of content shared on it by our customers. While to date we have not been subject to legal or administrative actions as a result of this content, the laws in this area are evolving and vary widely between jurisdictions. Accordingly, it may be possible that in the future we and our business partners may be subject to legal actions involving our customers’ content or use of our platform.

Our platform depends on the ability of our customers and their users to access the internet. If we fail to anticipate developments in the law, or we fail for any reason to comply with relevant law, our platform could be blocked or restricted, and we could be exposed to significant liability that could harm our business.

From time to time, we may be involved in disputes or regulatory inquiries that arise in the ordinary course of business involving labor and employment, wage and hour, commercial, securities or investment, intellectual property, data breach and other matters. We expect that the number and significance of these potential disputes may increase as our business expands and our company grows larger. Contractual provisions and insurance coverage may not cover potential claims and may not be adequate to indemnify us for all liabilities we may face. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, and result in the diversion of significant operational resources. Litigation is inherently unpredictable, and the results of any claims may have a material adverse effect on our business, financial condition, results of operations, and prospects.

We are an international company and may engage in business in jurisdictions that present material legal compliance risk. We are subject to various U.S. and non-U.S. laws and regulations prohibiting corruption, bribery, kickbacks, money laundering, terrorist financing, fraud and similar matters, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the Uniting and Strengthening America by Providing Appropriate Tools to Restrict, Intercept, and Obstruct Terrorism Act of 2001, the UK Bribery Act 2010, and the UK Proceeds of Crime Act 2002. These laws and regulations are actively enforced and generally prohibit companies and their agents, employees, representatives, business partners, and intermediaries from authorizing, promising, offering, providing, soliciting, or accepting, directly or indirectly, improper payments or benefits to or from government officials and other persons in the public or private sector for improper purposes.

We may engage resellers and other third parties from time to time to sell subscriptions to our solutions, obtain necessary permits, licenses, patent registrations, and other regulatory approvals, or otherwise support our business or operations. Oftentimes, improper payments by these types of third parties can raise anti-corruption and other legal compliance risk for companies in our position. We also have direct and indirect interactions with officials and employees of U.S. and non-U.S. government agencies or government-affiliated organizations. These factors raise our legal risk exposure. There can be cases where enforcement authorities seek to hold us liable for the corrupt or other illegal activities of our employees, agents, contractors, vendors, and other business partners, even if we do not explicitly authorize or have actual knowledge of such activities.

In addition to prohibiting bribery, the FCPA and other laws require us to maintain accurate and complete books and records and a system of internal controls. Enforcement agencies interpret these requirements very broadly and violations can occur if companies or their representatives knowingly or unknowingly conceal bribes or other fraudulent or illegal payments in their records or execute transactions or access company assets without management’s general or specific authorization. These

 

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requirements are so broad that in certain cases enforcement agencies may claim that violations are possible even if there is no evidence of bribery or corruption.

Our exposure for violating these laws increases as we continue to expand our domestic and international presence. If we fail to comply with those legal standards, we may face substantial civil and criminal fines, penalties, profit disgorgement, reputational harm, loss of access to certain markets, disbarment from government business, the loss of export privileges, tax reassessments, breach of contract, fraud and other litigation, reputational harm, and other collateral consequences that could harm our business.

We use open source software in our platform, which may subject us to litigation or other actions that could harm our business.

We use open source software in our platform, and we may use more open source software in the future. In the past, companies that have incorporated open source software into their products have faced claims challenging the ownership of open source software or compliance with open source license terms. Accordingly, we could be subject to suits by parties claiming ownership of what we believe to be open source software or claiming noncompliance with open source licensing terms. Some open source software licenses require users who use, distribute or make available across a network software or services that include open source software to publicly disclose all or part of the source code to such software or make available any derivative works of the open source code on terms unfavorable to the developer or at no cost. Additionally, if a third-party software provider has incorporated open source software into software that we license from such provider, we could be required to disclose any of our source code that incorporates or is a modification of our licensed software. If we were to use open source software subject to such licenses, we could be required to release our proprietary source code, pay damages, re-engineer our platform or solutions, discontinue sales, or take other remedial action, any of which could harm our business. In addition, if the license terms for updated or enhanced versions of the open source software we utilize change, we may be forced to expend substantial time and resources to re-engineer our components of our platform.

In addition, the use of third-party open source software typically exposes us to greater risks than the use of third-party commercial software because open source licensors generally do not provide warranties or controls on the functionality or origin of the software. Use of open source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to determine how to compromise our platform. Any of the foregoing could harm our business and could help our competitors develop products and services that are similar to or better than ours.

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 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 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. We may from time to time in the future become a party to litigation and disputes related to our intellectual property and our platform. The costs of supporting litigation and dispute resolution proceedings are considerable, and a favorable outcome may not be obtained. We may need to settle litigation and disputes on terms that are unfavorable to us, or we may be subject to an unfavorable judgment that may not be reversible upon appeal. The terms of any settlement or judgment may

 

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require us to cease some or all of our operations or pay substantial amounts to the other party. Even if we were to prevail in such a litigation or dispute, it could be costly and time consuming and divert the attention of our management and key personnel from our business operations. 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 platform, 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 platform. 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 subscriptions to our platform 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 customer agreements, we agree to defend and hold our customers harmless against claims, demands, suits, or proceedings made or brought against them by a third party alleging that their use of our platform infringes the intellectual property rights of a third party. Any existing limitations of liability provisions in our contracts may not be enforceable or adequate, and they may not 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. If we are required to defend our customers against, or hold them harmless from, infringement or other claims, our business may be disrupted, our management’s attention may be diverted, and our operating results and financial condition may suffer.

Our failure to protect our intellectual property rights and proprietary information could diminish our brand and other intangible assets.

We primarily rely and expect to continue to rely on a combination of patents, trade secrets, domain name protections, trademarks and copyrights, as well as confidentiality, license and subscription agreements with our employees, consultants and third parties, to protect our intellectual property and proprietary rights. In the United States and abroad, as of December 31, 2021, we had 14 issued patents and 25 pending patent applications. We make business decisions about when to seek patent protection for a particular technology and when to rely upon copyright or trade secret protection, and the approach we select may ultimately prove to be inadequate. Even in cases where we seek patent protection, the resulting patents may not effectively protect every significant feature of our solutions. In addition, we believe that the protection of our trademark rights is an important factor in product recognition, protecting our brand and maintaining goodwill. If we do not adequately protect our rights in our trademarks from infringement and unauthorized use, any goodwill that we have developed in those trademarks could be lost or impaired, which could harm our brand and our business. Third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge our proprietary rights, pending and future patent, trademark and copyright applications may not be approved, and we may not be able to prevent infringement without incurring substantial expense. We have also devoted substantial resources to the development of our proprietary technologies and related processes. In order to protect our proprietary technologies and processes, we rely in part on trade secret laws and confidentiality and invention assignment agreements with our employees, consultants and third parties. These agreements may not effectively protect our proprietary rights. In addition, others may independently discover our trade secrets, in which case we would not be able to assert trade secret rights, or may develop similar technologies and processes. Further, laws in certain jurisdictions may afford little or no trade secret protection, and any changes in, or unexpected interpretations of, the intellectual property laws in any countries in which we operate may compromise our ability to enforce our intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. If the protection of our proprietary rights is inadequate to prevent use or appropriation by third parties, the value of our

 

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platform, brand and other intangible assets may be diminished, and competitors may be able to more effectively replicate our platform and its features. Any of these events would harm our business.

Our reported results of operations may be adversely affected by changes in accounting principles generally accepted in the United States.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, or the FASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported results of operations and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. For example, we recently adopted Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, or Topic 606, utilizing the full retrospective method of adoption and ASC Topic 340, Other Assets and Deferred Costs, or Topic 340. The adoption of Topic 606 and Topic 340 changed the timing and manner in which we report our revenue and expenses, especially with respect to our sales commissions. See Note 1 to our consolidated financial statements included elsewhere in this prospectus for more information. It is also difficult to predict the impact of future changes to accounting principles or our accounting policies, any of which could harm our business.

We may acquire other companies, products and technologies, which could require significant management attention, disrupt our business or dilute stockholder value.

We may in the future make acquisitions of other companies, products and technologies. We have limited experience in acquisitions. We may not be able to find suitable acquisition candidates and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by our customers, users or investors. In addition, we may not be able to integrate acquired businesses successfully or effectively manage the combined company following an acquisition. If we fail to successfully integrate our acquisitions, or the people or technologies associated with those acquisitions, into our company, the results of operations of the combined company could be adversely affected. Any integration process will require significant time and resources, require significant attention from management and disrupt the ordinary functioning of our business, and we may not be able to manage the process successfully, which could harm our business. In addition, we may not successfully evaluate or utilize the acquired technology and accurately forecast the financial impact of an acquisition transaction, including accounting charges.

We may have to pay cash, incur debt or issue equity securities to pay for any such acquisition, each of which could affect our financial condition or the value of our capital stock. The sale of equity to finance any such acquisitions could result in dilution to our stockholders. If we incur more debt, it would result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to flexibly operate our business.

We may need additional capital, which may not be available on favorable terms, or at all.

Historically, we have funded our operations and capital expenditures primarily through equity issuances and cash generated from our operations. Although we currently anticipate that our existing cash and cash equivalents, net proceeds from this offering and cash flow from operations will be sufficient to meet our cash needs for the foreseeable future, we may require additional financing. We evaluate financing opportunities from time to time, and our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating performance, levels of indebtedness and condition of the capital markets at the time we seek financing. Additional financing may not be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, including with respect to dividends and other distributions, and our stockholders may experience dilution.

 

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Covenants in our loan agreement governing our revolving line of credit may restrict our operations, and our failure to comply with these covenants may adversely affect our business, results of operations and financial condition.

We are party to a Loan and Security Agreement with Comerica Bank, or the Revolving Credit Facility, which is secured by a security interest on substantially all of our assets and contains various restrictive covenants, including restrictions on our ability to dispose of our assets, merge with or acquire other entities, incur other indebtedness, make investments and engage in transactions with our affiliates. Our Revolving Credit Facility also contains certain financial covenants. Our ability to meet these restrictive and financial covenants can be affected by events beyond our control. Our Revolving Credit Facility provides that our breach or failure to satisfy certain covenants constitutes an event of default thereunder. Upon the occurrence of an event of default, the lender under our Revolving Credit Facility could elect to declare any future amounts outstanding under our Revolving Credit Facility to be immediately due and payable, exercise the remedies of a secured party in respect of the secured interest on substantially all of our assets and terminate all commitments to extend further credit under that facility. If we are unable to repay those amounts, our financial condition could be adversely affected.

We may incur substantially more indebtedness, which could adversely affect our business and limit our ability to expand our business or respond to changes, and we may be unable to generate sufficient cash flow to satisfy our debt service obligations.

As of December 31, 2019 and September 30, 2020, we had $22.4 million and $22.4 million, respectively, of outstanding indebtedness under our Revolving Credit Facility, and we may incur indebtedness in the future, including any additional borrowings available under our Revolving Credit Facility. Any substantial indebtedness, and the fact that a substantial portion of our cash flow from operating activities could be needed to make payments on this indebtedness, could have adverse consequences, including the following:

 

   

reducing the availability of our cash flow for our operations, capital expenditures, future business opportunities and other purposes;

 

   

limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, which could place us at a disadvantage compared to our competitors that may have less debt;

 

   

limiting our ability to borrow additional funds; and

 

   

increasing our vulnerability to general adverse economic and industry conditions.

Our ability to borrow any funds needed to operate and expand our business will depend in part on our ability to generate cash. If our business does not generate sufficient cash flow from operating activities or if future borrowings, under our Revolving Credit Facility or otherwise, are not available to us in amounts sufficient to enable us to fund our liquidity needs, our operating results, financial condition and ability to expand our business may be adversely affected.

Our results of operations, which are reported in U.S. dollars, could be adversely affected if currency exchange rates fluctuate substantially in the future.

We sell to customers globally and have international operations primarily in the United Kingdom, Australia, Singapore and Japan. As we continue to expand our international operations, we will become more exposed to the effects of fluctuations in currency exchange rates. Although the majority of our cash generated from revenue is denominated in U.S. dollars, a small amount is denominated in foreign currencies, and our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations. For the year ended December 31, 2019, 9% of our revenue and 14% of our expenses were denominated in currencies other than U.S. dollars. For the nine months ended September 30, 2019 and 2020, 9% and 11% of our revenue, respectively, and 14% and 19% of our

 

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expenses, respectively, were denominated in currencies other than U.S. dollars. Because we conduct business in currencies other than U.S. dollars but report our results of operations in U.S. dollars, we also face remeasurement exposure to fluctuations in currency exchange rates, which could hinder our ability to predict our future results and earnings and could materially impact our results of operations. We do not currently maintain a program to hedge exposures to non-U.S. dollar currencies.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2019, we had $104.1 million of U.S. federal and $49.1 million of state net operating loss carryforwards available to reduce future taxable income, which will begin to expire in 2020 for federal and 2023 for state tax purposes. It is possible that we will not generate taxable income in time to use these net operating loss carryforwards before their expiration or at all. Under legislative changes made in December 2017, U.S. federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such net operating losses is limited. States may or may not adopt similar changes. In addition, the federal and state net operating loss carryforwards and certain tax credits may be subject to significant limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, or the Code, respectively, and similar provisions of state law. Under those sections of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset its post-change income or tax may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We have not completed a Section 382 assessment because we have not had an ownership change. However, we may experience ownership changes as a result of this offering or in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our net operating loss carryforwards and tax credits is materially limited, it would harm our business by effectively increasing our future tax obligations.

We may be subject to liabilities on past sales for taxes, surcharges and fees.

We currently collect and remit applicable sales tax in jurisdictions where we have determined, based on applicable laws and regulations, that sales of our platform are classified as taxable. We do not currently collect and remit other state and local excise, utility user and ad valorem taxes, fees or surcharges that may apply to our customers. We believe that we are not otherwise subject to, or required to collect, any additional taxes, fees or surcharges imposed by state and local jurisdictions because we do not have a sufficient physical presence or “nexus” in the relevant taxing jurisdiction or such taxes, fees, or surcharges do not apply to sales of our platform in the relevant taxing jurisdiction. However, there is uncertainty as to what constitutes sufficient physical presence or nexus for a state or local jurisdiction to levy taxes, fees and surcharges for sales made over the internet, and there is also uncertainty as to whether our characterization of our platform as not taxable in certain jurisdictions will be accepted by state and local taxing authorities. Additionally, we have not historically collected value-added tax, or VAT, or goods and services tax, or GST, on sales of our platform because we make all of our sales through our office in the United States, and we believe, based on information provided to us by our customers, that most of our sales are made to business customers.

Taxing authorities may challenge our position that we do not have sufficient nexus in a taxing jurisdiction or that our platform is not taxable in the jurisdiction and may decide to audit our business and operations with respect to sales, use, telecommunications, VAT, GST and other taxes, which could result in increased tax liabilities for us or our customers, which could harm our business.

The application of indirect taxes (such as sales and use tax, VAT, GST, business tax and gross receipt tax) to businesses that transact online, such as ours, is a complex and evolving area. Following

 

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the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., states are now free to levy taxes on sales of goods and services based on an “economic nexus,” regardless of whether the seller has a physical presence in the state. As a result, it may be necessary to reevaluate whether our activities give rise to sales, use and other indirect taxes as a result of any nexus in those states in which we are not currently registered to collect and remit taxes. Additionally, we may need to assess our potential tax collection and remittance liabilities based on existing economic nexus laws’ dollar and transaction thresholds. The application of existing, new, or future laws, whether in the U.S. or internationally, could harm our business. There have been, and will continue to be, substantial ongoing costs associated with complying with the various indirect tax requirements in the numerous markets in which we conduct or will conduct business.

We may have exposure to greater than anticipated tax liabilities, which could harm our business.

While to date we have not incurred significant income taxes in operating our business, we are subject to income taxes in the United States and various jurisdictions outside of the United States. Our effective tax rate could fluctuate due to changes in the proportion of our earnings and losses in countries with differing statutory tax rates. Some jurisdictions may seek to impose incremental or new sales, use or other tax collection obligations on us. Our tax expense could also be impacted by changes in non-deductible expenses, changes in excess tax benefits of stock-based compensation, changes in the valuation of, or our ability to use, deferred tax assets and liabilities, the applicability of withholding taxes and effects from acquisitions.

The provision for taxes on our financial statements could also be impacted by changes in accounting principles, changes in U.S. federal, state or international tax laws applicable to corporate multinationals such as the recent legislation enacted in Australia, the United Kingdom and the United States, other fundamental changes in law currently being considered by many countries and changes in taxing jurisdictions’ administrative interpretations, decisions, policies and positions.

We are subject to review and audit by U.S. federal, state, local and foreign tax authorities. Such tax authorities may disagree with tax positions we take, and if any such tax authority were to successfully challenge any such position, our business could be harmed. We may also be subject to additional tax liabilities due to changes in non-income based taxes resulting from changes in federal, state or international tax laws, changes in taxing jurisdictions’ administrative interpretations, decisions, policies and positions, results of tax examinations, settlements or judicial decisions, changes in accounting principles, changes to our business operations, including acquisitions, as well as the evaluation of new information that results in a change to a tax position taken in a prior period.

Risks Related to Ownership of Our Common Stock

An active trading market for our common stock may never develop or be sustained.

We intend to apply to list our common stock on the NYSE under the symbol “ONTF”. However, an active trading market for our common stock may not develop on that exchange or elsewhere. Even if an active market is developed, it may not be sustained. Accordingly, you may not be able to sell your shares of our common stock at a time or a price you consider desirable. Further, we may not continue to satisfy the continued listing standards of the NYSE. If we fail to satisfy the continued listing standards, we could be de-listed, which would have a material adverse effect on the liquidity and price of our common stock.

The trading price of our common stock may be volatile or may decline steeply and suddenly regardless of our operating performance, and you could lose all or part of your investment.

Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price of our common stock was determined through negotiation between us and the underwriters. This price does not necessarily reflect the price at which investors in the market will be

 

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willing to buy and sell shares of our common stock following this offering. In addition, the trading price of our common stock following this offering is likely to be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your investment in our common stock as you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the trading price of our common stock include the following:

 

   

the COVID-19 pandemic;

 

   

price and volume fluctuations in the overall stock market from time to time;

 

   

volatility in the trading prices and trading volumes of technology stocks;

 

   

changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

 

   

sales of shares of our common stock by us or our stockholders into the public markets, or anticipation of such sales, including if existing stockholders sell shares into the market when applicable “lock-up” periods end;

 

   

failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

 

   

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

 

   

announcements by us or our competitors of new products, features, or services;

 

   

the public’s reaction to our press releases, other public announcements and filings with the SEC;

 

   

rumors and market speculation involving us or other companies in our industry;

 

   

actual or anticipated changes in our results of operations or fluctuations in our results of operations, including as a result of reduced demand for our solutions;

 

   

actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;

 

   

litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors;

 

   

developments or disputes concerning our intellectual property or other proprietary rights;

 

   

announced or completed acquisitions of businesses, products, services or technologies by us or our competitors;

 

   

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

 

   

changes in accounting standards, policies, guidelines, interpretations or principles;

 

   

any significant change in our management; and

 

   

general economic conditions and slow or negative growth of our markets.

In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect the stock prices of many companies. Often, their stock prices have fluctuated in ways unrelated or disproportionate to their operating performance. In the past, stockholders have filed securities class action litigation against companies following periods of market volatility. Such securities litigation, if instituted against us, could subject us to substantial costs, divert resources and the attention of management from our business and seriously harm our business.

 

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If you purchase our common stock in this offering, you will incur immediate and substantial dilution in net tangible book value per share.

The initial public offering price of our common stock is substantially higher than the pro forma net tangible book value per share of our common stock outstanding immediately following the closing of this offering. Therefore, if you purchase shares of our common stock in this offering at the initial public offering price of $                per share, the midpoint of the price range set forth on the cover of this prospectus, you will experience immediate dilution of $                per share, the difference between the price per share you pay for our common stock and its pro forma net tangible book value per share as of September 30, 2020, after giving effect to the issuance of shares of our common stock in this offering and the repayment of our outstanding $22.4 million of indebtedness under our Revolving Credit Facility. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of common stock. In addition, we have issued options to acquire our common stock at prices significantly below the initial public offering price. To the extent outstanding options are ultimately exercised, there will be further dilution to investors purchasing our common stock in this offering. In addition, if the underwriters exercise their option to purchase additional shares or if we issue additional equity securities, you will experience additional dilution. See “Dilution.”

We will have broad discretion in the use of net proceeds from this offering and may invest or spend the proceeds in ways with which you do not agree and in ways that may not yield a return.

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from this offering. Our management will have broad discretion over the use of net proceeds from this offering, including for any of the purposes described in “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Investors may not agree with our decisions, and our use of the proceeds may not yield any return on your investment. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our failure to apply the net proceeds of this offering effectively could impair our ability to pursue our growth strategy or could require us to raise additional capital. Pending their use, we intend to invest the net proceeds from the offering in investment-grade, interest-bearing instruments, such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government. These investments may not yield a favorable return to our stockholders.

Substantial future sales of shares of our common stock by existing stockholders, or the perception that those sales may occur, could cause the market price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market following the closing of this offering, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our common stock.

Based on shares outstanding as of September 30, 2020, upon the closing of this offering, we will have outstanding a total of                shares of common stock, assuming no exercise of the underwriters’ option to purchase additional shares and no exercise of outstanding options, after giving effect to the conversion of all outstanding shares of our preferred stock into shares of common stock immediately upon the closing of this offering. Of these shares, only the shares of common stock sold in this offering will be freely tradable, without restriction or further registration, in the public market immediately after the offering, as well as any shares held by persons who are not our “affiliates” as defined in Rule 144 of the Securities Act of 1933, as amended, or the Securities Act, and who have complied with the

 

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holding period requirements of Rule 144. All of our executive officers and directors and the holders of substantially all the shares of our capital stock and securities convertible into or exchangeable for our capital stock have entered into market standoff agreements with us or have entered or will enter into lock-up agreements with the underwriters that restrict their ability to transfer shares of our capital stock, options or warrants to purchase shares of our capital stock or any securities convertible into or exchangeable for or that represent the right to receive shares of our capital stock during the period ending on, and including, the 180th day after the date of this prospectus, or the lock-up period, subject to specified exceptions; provided, that such lock-up period will end with respect to 20% of the shares subject to each lock-up agreement if at any time beginning 90 days after the date of this prospectus (1) we have filed at least one quarterly report on Form 10-Q or annual report on Form 10-K and (2) the last reported closing price of our common stock is at least 33% greater than the initial public offering price of our common stock for 10 out of any 15 consecutive trading days, including the last day, ending on or after the 90th day after the date of this prospectus; and provided further that, if such early release date occurs within a trading black-out period under our insider trading policy, (i) the above referenced early release will be delayed until immediately prior to the opening of trading on the second trading day following the date on which we next publicly announce operating results for the previous fiscal quarter and (ii) no early release will occur unless the last reported closing price of our common stock is at least 33% greater than the initial public offering price of our common stock on the first trading day following that public announcement. In addition, we may elect that no early release will occur, and we will publicly announce such decision at least two trading days prior to the scheduled early release date by press release or on a Form 8-K filed with the SEC. We and the underwriters may permit certain stockholders who are subject to these market standoff agreements or lock-up agreements to sell shares prior to the expiration of the lock-up period. See “Shares Eligible for Future Sale.” After the end of the lock-up period, all 38,311,103 shares of common stock outstanding as of December 31, 2020 will become eligible for sale, of which 16,556,039 shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144.

In addition, as of September 30, 2020, there were 9,571,814 shares of common stock subject to outstanding options. We intend to register all of the shares of common stock issuable upon exercise of outstanding options and upon exercise or settlement of any options or other equity incentives we may grant in the future for public resale under the Securities Act. Accordingly, these shares will become eligible for sale in the public market to the extent such options are exercised, subject to the market standoff and lock-up agreements described above and compliance with applicable securities laws.

Holders of 31,748,142 shares of our outstanding common stock as of September 30, 2020, including shares issuable upon the conversion of outstanding shares of preferred stock and settlement of an outstanding RSU, have rights, subject to some conditions, to require us to file registration statements for the public resale of the common stock issuable upon conversion of such shares or to include such shares in registration statements that we may file on our behalf or for other stockholders. See “Certain Relationships and Related Party Transactions.”

Our management and principal stockholders own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

As of December 31, 2020, our executive officers, directors and five percent or greater stockholders and their respective affiliates beneficially own, in the aggregate, approximately 74.6% of our outstanding common stock on an as converted basis and, upon the closing of this offering, that same group will beneficially own, in the aggregate, approximately                % of our outstanding common stock. As a result, after this offering, these stockholders, if they act together, will be able to control the management and affairs of our company and most matters requiring stockholder approval, including the election of directors, amendments of our organizational documents and approval of any merger, sale of substantially all our assets or other significant corporate transactions. This

 

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concentration of ownership may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you or other stockholders may feel are in your or their best interest as one of our stockholders.

Provisions in our organizational documents and certain rules imposed by regulatory authorities may delay or prevent our acquisition by a third party.

Our Certificate of Incorporation and Bylaws, each as will be in effect upon the closing of this offering, will contain several provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our board of directors. These provisions, which may delay, prevent or deter a merger, acquisition, tender offer, proxy contest, or other transaction that stockholders may consider favorable, include the following:

 

   

the division of our board of directors into three classes and the election of each class for three-year terms;

 

   

advance notice requirements for stockholder proposals and director nominations;

 

   

provisions limiting our stockholders’ ability to call special meetings of stockholders and to take action by written consent;

 

   

restrictions on business combinations with interested stockholders;

 

   

in certain cases, the approval of holders representing at least 66.7% of the total voting power of the shares entitled to vote generally in the election of directors will be required for stockholders to adopt, amend or repeal our Bylaws, or amend or repeal certain provisions of our Certificate of Incorporation, including those relating to who may call special meetings of our stockholders, our stockholders’ ability to act by written consent, our board of directors (including the removal of one or more directors), indemnification of our directors and officers and exculpation of our directors, supermajority voting, amendments to our Bylaws and the exclusive forum for litigating specified matters;

 

   

no cumulative voting;

 

   

the required approval of holders representing at least 66.7% of the total voting power of the shares entitled to vote at an election of the directors to remove directors; and

 

   

the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could be used, among other things, to institute a rights plan that would have the effect of significantly diluting the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our governing body.

Moreover, because we are incorporated in Delaware and our Certificate of Incorporation will not contain a provision opting out Section 203 of the Delaware General Corporation Law, or Section 203, we are governed by the provisions of Section 203, which prohibit a person, individually or as a group, who owns, or owned in the preceding three years, 15% or more of our outstanding voting stock from merging or combining with us, unless the merger or combination is approved in a prescribed manner.

The terms of our authorized preferred stock selected by our Board at any point could decrease the amount of earnings and assets available for distribution to holders of our common stock or adversely affect the rights and powers, including voting rights, of holders of our common stock without any further vote or action by the stockholders. As a result, the rights of holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued by us in the future, which could have the effect of decreasing the market price of our common stock.

 

 

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Any provision of our Certificate of Incorporation or Bylaws or Delaware corporate law that has the effect of delaying or deterring a change in control could limit opportunities for our stockholders to receive a premium for their shares of common stock, and could also reduce the price that investors are willing to pay for our common stock.

The provision of our Certificate of Incorporation designating the Court of Chancery in the State of Delaware and the federal district courts of the United States as the exclusive forums for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.

Our Certificate of Incorporation, as will be in effect upon the closing of this offering, will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware be the sole and exclusive forum for: (1) any derivative action or proceeding brought on behalf of our company, (2) any action asserting a claim of breach of fiduciary duty owed by any director, officer, agent or other employee or stockholder of our company to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or the DGCL, our Certificate of Incorporation or our Bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (4) any action asserting a claim governed by the internal affairs doctrine, in each case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. It will further provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolutions of any complaint asserting a cause of action arising under the Securities Act. The exclusive forum clauses described above shall not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the exclusive forum provisions in our Certificate of Incorporation.

Although we believe these provisions benefit us by providing increased consistency in the application of applicable law in the types of lawsuits to which they apply, the provisions may have the effect of discouraging lawsuits against our directors and officers and may limit a stockholder’s ability to bring a claim in a judicial forum it finds favorable for disputes with us or our directors, officers or employees. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings and there is uncertainty as to whether a court would enforce such provisions, in particular with respect to causes of action arising under the Securities Act. In addition, investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. It is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our Certificate of Incorporation to be inapplicable or unenforceable in such action. If so, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

Our common stock market price and trading volume could decline if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business or our market, if they adversely change their recommendations regarding our common stock or if our operating results do not meet their expectations or any financial guidance we may provide.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us, our business, our competitors and our market. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If one or more of the analysts who cover us downgrade our common stock or publish

 

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inaccurate or unfavorable research about our business, the price of our securities would likely decline. If few securities analysts commence coverage of us, or if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our securities could decrease, which might cause the price and trading volume of our common stock to decline. In addition, if we do not meet any financial guidance that we may provide to the public or if we do not meet expectations of securities analysts or investors, the trading price of our common stock could decline significantly.

We will incur increased costs and impose additional demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, which may harm our business, results of operations and financial condition.

As a public company listed in the United States, we will incur significant additional legal, accounting and other expenses. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and the NYSE, may increase legal and financial compliance costs and make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. 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. We will also need to continue developing our investor relations function. If, notwithstanding our efforts, we fail to comply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

Failure to comply with these rules might also make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events would also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.

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

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not “emerging growth companies,” including not being required to comply with the independent auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, being required to provide fewer years of audited financial statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of these provisions until we are no longer an “emerging growth company.” We will cease to be an “emerging growth company” upon the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; (iii) the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of this offering. We may choose to take advantage of some but not all of these reduced reporting burdens. We have taken advantage of certain reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

 

 

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In addition, the JOBS Act also provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected to take advantage of such extended transition period, and, as a result, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or that have opted out of using such extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with new or revised accounting pronouncements as of the effective dates applicable to public companies.

Investors may find our common stock less attractive because we intend to rely on these exemptions, which may result in a less active trading market, increased volatility, or lower market prices for our common stock.

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings for use in the operation and expansion of our business, and we do not plan to declare or pay cash dividends in the foreseeable future. In addition, our ability to pay dividends is currently restricted by the terms of our Revolving Credit Facility. As a result, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements, which involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “would,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These forward-looking statements include, among others, statements relating to our future financial performance, our business prospects and strategy, our market opportunity and the potential growth of that market, our anticipated financial position, our liquidity and capital needs and other similar matters. These forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.

Our actual results may differ materially from those expressed in, or implied by, the forward-looking statements included in this prospectus as a result of various factors, including, among others:

 

   

our ability to sustain our recent revenue growth rate in the future, attract new customers and expand sales to existing customers;

 

   

fluctuation in our performance, our history of net losses and expected increases in our expenses;

 

   

competition and technological development in our markets and any decline in demand for our solutions or generally in our markets;

 

   

our ability to expand our sales and marketing capabilities and otherwise manage our growth;

 

   

the impact of the COVID-19 pandemic;

 

   

disruptions, interruptions, outages or other issues with our technology or our use of third-party services, data connectors and data centers;

 

   

any cybersecurity-related attack, significant data breach or disruption of the information technology systems or networks on which we rely;

 

   

our sales cycle, our international expansion and our timing of revenue recognition from our sales;

 

   

interoperability with other devices, systems and applications;

 

   

compliance with data privacy, import and export controls, customs, sanctions and other laws and regulations;

 

   

intellectual property matters, including any infringements of third-party intellectual property rights by us or infringement of our intellectual property rights by third parties; and

 

   

the market for, trading price of and other matters associated with our common stock.

We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions and other factors described in the section captioned “Risk Factors” and elsewhere in this prospectus. These risks are not exhaustive. Other sections of this prospectus include additional factors that could adversely impact our business and financial performance. Furthermore,

 

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new risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus forms a part with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

The forward-looking statements made in this prospectus relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this prospectus or to conform such statements to actual results or revised expectations, except as required by law.

 

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MARKET, INDUSTRY AND OTHER DATA

We use market and industry data, forecasts and projections throughout this prospectus. We have obtained certain market and industry data from publicly available industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed. The forecasts and projections are based on historical market data, and there is no assurance that any of the forecasts or projected amounts will be achieved. The market and industry data used in this prospectus involve risks and uncertainties that are subject to change based on various factors, including the COVID-19 pandemic and those discussed in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in, or implied by, the estimates made by independent parties and by us. Furthermore, we cannot assure you that a third party using different methods to assemble, analyze or compute industry and market data would obtain the same results.

The source of certain statistical data, estimates and forecasts contained in this prospectus are the following independent industry publications or reports:

Bloomberg, Equity Screen by 2019 Revenue, October 2020 (used by us to determine the five largest U.S. banks by 2019 revenue).

Fortune, 2020 Global 500, August 2020 (used by us to determine the five largest global technology, healthcare and industrial companies by 2019 revenue).

McKinsey & Company, How B2B Sales Have Changed During COVID-19, July 2020.

Forrester, Welcome to the B2B Marketing Renaissance, January 2019.

Epsilon, New Epsilon Research Indicates 80% of Consumers are More Likely to Make a Purchase when Brands Offer Personalized Experiences, January 2018.

Trustwave, 2020 Trustwave Global Security Report, April 2020.

Gartner, The Annual CMO Spend Survey Research, June 2020 (used in reference to estimates of certain marketing budget metrics and expectations within our markets).

Gartner, Future of Sales 2025: Why B2B Sales Needs a Digital-First Approach, September 2020 (used in reference to estimates of the percentage of B2B sales interactions expected to occur using digital channels by 2025).

Grand View Research, Digital Marketing Software Market Size Worth $151.8 Billion by 2027, April 2020.

 

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USE OF PROCEEDS

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

A $1.00 increase (decrease) in the assumed initial public offering price of $                per share would increase (decrease) the net proceeds that we receive from this offering 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 the estimated underwriting discount and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million in the number of shares offered by us would increase (decrease) the net proceeds that we receive from this offering by approximately $                million, assuming that the assumed initial public offering price remains the same and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and thereby enable access to the public equity markets for us and our stockholders. We expect to use approximately $22.4 million of the net proceeds to repay outstanding indebtedness under our Revolving Credit Facility and for working capital and other general corporate purposes. The terms of our Revolving Credit Facility, including the interest rate and maturity thereof, are described in detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Debt Obligations—Revolving Credit Facility.” We may also use a portion of the net proceeds for acquisitions of, or strategic investments in, complementary businesses, products, services, or technologies. However, we do not have any agreements or commitments to enter into any material acquisitions or investments at this time. Pending the use of the proceeds from this offering as described above, we intend to invest the net proceeds from the offering that are not used as described above in investment-grade, interest-bearing instruments such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.

This expected use of net proceeds from this offering represents our intentions based on our current plans and business conditions, which could change in the future as our plans and business conditions evolve. As a result, our management will have broad discretion over the uses of the net proceeds from this offering and investors will be relying on the judgement of our management regarding the application of the net proceeds from this offering.

 

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DIVIDEND POLICY

We currently intend to retain any future earnings for use in the operation and expansion of our business, and we do not plan to declare or pay cash dividends in the foreseeable future. Any further determination to pay dividends on our capital stock will be at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions, and other factors that our board of directors considers relevant. In addition, our ability to pay dividends is currently restricted by the terms of our Revolving Credit Facility.

 

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CAPITALIZATION

The following table sets forth our cash, cash equivalents and short-term investments and our capitalization as of September 30, 2020:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect (1) the automatic conversion of all outstanding shares of our convertible preferred stock as of September 30, 2020 into 27,227,466 shares of common stock immediately prior to the closing of this offering, (2) the issuance of 187,500 shares of our common stock upon settlement of a restricted stock unit that vests in connection with this offering and approximately $0.5 million in additional stock-based compensation expense in connection with the settlement of such restricted stock unit, and (3) the filing of our Certificate of Incorporation immediately prior to the closing of this offering; and

 

   

on a pro forma as adjusted basis to give effect to (1) the pro forma items described immediately above, (2) our issuance and sale of                shares of common stock in this offering at an assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discount and estimated offering expenses payable by us, and (3) the repayment of our outstanding $22.4 million of indebtedness under our Revolving Credit Facility.

The pro forma and pro forma as adjusted information below is illustrative only, and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus, the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information contained in this prospectus.

 

     As of September 30, 2020  
     Actual      Pro Forma      Pro Forma
as Adjusted(1)
 
     (unaudited)  
     (in thousands, except share and per share data)  

Cash, cash equivalents and short-term investments

   $ 52,739      $ 52,739      $                
  

 

 

    

 

 

    

 

 

 

Long-term debt

   $ 24,635      $ 24,635      $ 2,285  

Convertible Class A-1 and Class A-2 preferred stock, $0.0001 par value per share. 21,699,945 shares authorized, 21,683,548 shares issued and outstanding, actual; no shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted

     83,857                

Redeemable convertible Class B and Class B-1 preferred stock, $0.0001 par value per share. 5,543,918 shares authorized, issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

     70,000                

Stockholders’ (deficit) equity:

        

Preferred stock, par value $0.0001 per share. No shares authorized, issued and outstanding, actual; shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted

                    

 

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     As of September 30, 2020  
     Actual     Pro Forma     Pro Forma
as Adjusted(1)
 
     (unaudited)  
     (in thousands, except share and per share data)  

Common stock, $0.0001 par value per share. 50,000,000 shares authorized and 10,742,141 shares issued and outstanding, actual;                 shares authorized,                 shares issued and outstanding, pro forma;                 shares authorized,                 shares issued and outstanding, pro forma as adjusted

     1       4    

Additional paid-in capital

     25,599       179,926    

Accumulated deficit

     (180,768     (181,241  

Accumulated other comprehensive income (loss)

     186       186    
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (154,982     (1,125  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 23,510     $ 23,510     $                        
  

 

 

   

 

 

   

 

 

 

 

(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $                per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization 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 the estimated underwriting discount and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price per share would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by approximately $                million, assuming that the assumed initial public offering price remains the same and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

If the underwriters’ option to purchase additional shares is exercised in full, pro forma as adjusted cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization and shares of common stock outstanding would be $    million, $    million, $    million, $    million and                shares, respectively.

The outstanding share information in the table above is based on 10,742,141 shares of our common stock and 27,227,466 shares of preferred stock (which will convert into shares of our common stock on a one-for-one basis) outstanding as of September 30, 2020, and excludes:

 

   

9,571,814 shares of common stock issuable upon the exercise of stock options outstanding as of September 30, 2020, having a weighted average exercise price of $2.52 per share;

 

   

                shares of common stock that will become available for issuance under the 2021 Plan (which number includes                 shares remaining available for issuance under the 2014 Plan, which will become available for issuance under the 2021 Plan upon its effectiveness); and

 

   

                shares of common stock that will become available for issuance under the ESPP, which will become effective in connection with this offering.

Our 2021 Plan and ESPP provide for annual automatic increases in the number of shares reserved thereunder. See the section titled “Executive Compensation—Equity Incentive Plans” for additional information.

 

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DILUTION

If you invest in our common stock in this offering, your interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the pro forma as adjusted net tangible book value (deficit) per share of our common stock after this offering. As of September 30, 2020, we had a pro forma net tangible book value (deficit) of $(1.1) million, or $(0.03) per share. Pro forma net tangible book value (deficit) per share represents the amount of our tangible assets less total liabilities, all divided by the number of shares of our common stock outstanding as of September 30, 2020, after giving effect to (1) the automatic conversion of all outstanding shares of our convertible preferred stock as of September 30, 2020 into 27,227,466 shares of common stock immediately prior to the closing of this offering, (2) the issuance of 187,500 shares of our common stock upon settlement of a restricted stock unit that vests in connection with this offering, and (3) the filing of our Certificate of Incorporation immediately prior to the closing of this offering.

After giving further effect to the sale of                shares of common stock in this offering at an assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus and after deducting the estimated underwriting discount and estimated offering expenses payable by us, and the repayment of our outstanding $22.4 million of indebtedness under our Revolving Credit Facility, our pro forma as adjusted net tangible book value (deficit) as of September 30, 2020 would have been approximately $                million, or approximately $                per share. This represents an immediate increase in pro forma net tangible book value of $                per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $                per share to new investors purchasing shares of common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this per share dilution:

 

Assumed initial public offering price per share

      $                

Pro forma net tangible book value (deficit) per share as of September 30, 2020

   $ (0.03   

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

     
  

 

 

    

Pro forma as adjusted net tangible book value (deficit) per share after this offering

     
     

 

 

 

Dilution per share to new investors in this offering

      $    
     

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease), our pro forma as adjusted net tangible book value per share after this offering by $                , and would increase (decrease) dilution per share to new investors in this offering by $                , in each case 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 the estimated underwriting discount and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by approximately $                per share and decrease (increase) the dilution to new investors by approximately $                per share, in each case assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

 

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Except as otherwise indicated, the above discussion and table assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters’ option to purchase additional shares is exercised in full, pro forma as adjusted net tangible book value after this offering would be approximately $                per share, the increase in pro forma net tangible book value per share to existing stockholders would be $                 per share and the dilution per share to new investors would be $                 per share, in each case assuming an initial public offering price of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

The following table summarizes, on a pro forma as adjusted basis as of September 30, 2020, the differences between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and to be paid by the new investors purchasing shares of common stock in this offering at an assumed initial public offering price of common stock of $                per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discount and estimated offering expenses payable by us.

 

     Shares purchased     Total consideration     Average
price per share
 
     Number      Percent     Amount      Percent  
                  (in thousands)               

Existing investors

     38,157,107                         $                                       $                        

New investors in this offering

            
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100   $          100                   
  

 

 

    

 

 

   

 

 

    

 

 

   

The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters’ option to purchase additional shares is exercised in full, the number of shares of our common stock held by existing stockholders would be reduced to                % of the total number of shares of our common stock outstanding after this offering, and the number of shares of common stock held by new investors purchasing common stock in this offering would be increased to                % of the total number of shares of our common stock outstanding after this offering.

The number of shares of our common stock that will be outstanding after this offering is based on 10,742,141 shares of our common stock and 27,227,466 shares of preferred stock (which will convert into shares of our common stock on a one-for-one basis) outstanding as of September 30, 2020, and excludes:

 

   

9,571,814 shares of common stock issuable upon the exercise of stock options outstanding as of September 30, 2020, having a weighted average exercise price of $2.52 per share;

 

   

                shares of common stock reserved for future issuance under the 2021 Plan (which number includes                shares remaining available for issuance under the 2014 Plan, which will become available for issuance under the 2021 Plan upon its effectiveness); and

 

   

                shares of common stock reserved for future issuance under the ESPP, which will become effective in connection with this offering.

Our 2021 Plan and ESPP provide for annual automatic increases in the number of shares reserved thereunder. See the section titled “Executive Compensation—Equity Incentive Plans” for additional information.

To the extent any of the outstanding options are exercised or new options or other securities are issued under our equity incentive plans, you will experience further dilution as a new investor in this offering. In addition, we may choose to raise additional capital due to market conditions or strategic

 

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considerations even if we believe we have sufficient funds for our current or future operating plans. Furthermore, we may choose to issue common stock as part or all of the consideration in acquisitions as part of our planned growth strategy. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present our selected consolidated financial and other data as of and for the periods indicated. The selected consolidated statements of operations data for the fiscal years ended December 31, 2018 and 2019, and the selected consolidated balance sheet data as of December 31, 2018 and 2019, are derived from our annual consolidated financial statements. We have derived the selected consolidated statements of operations data for the nine months ended September 30, 2019 and 2020, and the selected consolidated balance sheet data as of September 30, 2020, from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position as of September 30, 2020, and results of operations for the nine months ended September 30, 2019 and 2020. Our historical results are not necessarily indicative of the results that should be expected in any future period, and results for any interim period are not necessarily indicative of results for the full year or any other period.

You should read this data together with our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus, as well as the information under the captions “Summary Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this prospectus.

 

     Year Ended December 31,     Nine Months Ended September 30,  
             2018                     2019                     2019                     2020          
                 (unaudited)  
     (in thousands, except share and per share data)  

Consolidated Statements of Operations Data:

        

Revenue:

        

Subscription and other platform

   $      66,079     $      72,589     $      53,368     $      81,379  

Professional services

     16,529       16,544       11,825       22,276  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     82,608       89,133       65,193       103,655  

Cost of revenue:

        

Subscription and other platform(1)

     14,232       16,730       12,571       14,405  

Professional services(1)

     10,689       10,411       7,666       8,883  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     24,921       27,141       20,237       23,288  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     57,687       61,992       44,956       80,367  

Operating expenses:

        

Sales and marketing(1)

     46,980       47,773       35,460       40,495  

Research and development(1)

     14,343       15,730       11,660       13,272  

General and administrative(1)

     13,299       14,590       10,928       14,370  

Other gains from operations

     (850                  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     73,772       78,093       58,048       68,137  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (16,085     (16,101     (13,092     12,230  

Interest expense, net

     1,052       1,029       799       633  

Other expense, net

     256       42       134       226  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income taxes

     (17,393     (17,172     (14,025     11,371  

Provision for income taxes

     198       355       44       123  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (17,591   $ (17,527   $ (14,069   $ 11,248  

Change in Class B-1 preferred stock redemption value

           (10,047     (7,547      

 

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     Year Ended December 31,     Nine Months Ended September 30,  
             2018                     2019                     2019                     2020          
                 (unaudited)  
     (in thousands, except share and per share data)  

Cumulative preferred dividends allocated to preferred stockholders

     (3,025     (4,774     (3,328     (4,219
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders, basic and diluted

   $ (20,616   $ (32,348   $ (24,944   $ 7,029  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share attributable to common stockholders:

        

Basic(2)

   $ (2.50   $ (3.68   $ (2.85   $ 0.19  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted(2)

   $ (2.50   $ (3.68   $ (2.85   $ 0.17  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:

        

Basic(2)

     8,241,522       8,788,628       8,753,855       9,755,373  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted(2)

     8,241,522       8,788,628       8,753,855       13,417,405  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income (loss) attributable to common stockholders, basic and diluted(2)

     $         $    
    

 

 

     

 

 

 

Pro forma net income (loss) per share attributable to common stockholders:

        

Basic(2)

     $         $    
    

 

 

     

 

 

 

Diluted(2)

     $         $    
    

 

 

     

 

 

 

Pro forma weighted-average shares used in computing net income (loss) per share attributable to common stockholders:

        

Basic(2)

        
    

 

 

     

 

 

 

Diluted(2)

        
    

 

 

     

 

 

 

 

(1)

Includes stock-based compensation expense as follows:

 

     Year Ended December 31,      Nine Months Ended September 30,  
             2018                      2019                      2019                      2020          
                   (unaudited)  
     (in thousands)  

Cost of revenue:

           

Subscription and other platform

   $ 80      $ 97      $ 73      $ 78  

Professional services

     13        50        46        16  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cost of revenue

     93        147        119        94  
  

 

 

    

 

 

    

 

 

    

 

 

 

Sales and marketing

     633        915        454        450  

Research and development

     218        197        155        189  

General and administrative

     516        739        586        720  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $         1,460      $         1,998      $         1,314      $         1,453  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

Please refer to Note 9 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our net income (loss) per share attributable to

 

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  common stockholders, basic and diluted, and pro forma net income (loss) per share attributable to common stockholders, basic and diluted.

 

     As of December 31,     As of September 30,  
             2018                     2019                     2020          
                 (unaudited)  

Consolidated Balance Sheet Data:

   (in thousands)  

Cash, cash equivalents and short-term investments

   $ 8,945     $ 23,844     $ 52,739  

Working capital

     (20,645     (4,692     1,753  

Total assets

     34,706       68,536       134,210  

Deferred revenue

     35,050       44,441       87,195  

Long-term debt

     19,958       23,058       24,635  

Convertible Class A-1 and Class A-2 preferred stock

     83,845       83,857       83,857  

Redeemable convertible Class B and Class B-1 preferred stock

     35,000       70,000       70,000  

Total stockholders’ deficit

     (157,960     (171,208     (154,982

Key Business Metrics

We review a number of operating and financial metrics, including our number of customers, ARR, NRR, and $100k Customers, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.

 

     December 31,     September 30,  
             2018                     2019                     2019                     2020          
Key Business Metrics:(1)    (dollars in thousands)  

Customers

     1,241       1,401       1,342       1,918  

ARR

   $ 61,249     $ 76,852     $ 69,997     $ 138,872  

NRR

     107     108     106     147

$100k Customers

     116       144       129       271  

 

(1)

We define a customer as a unique organization, including its subsidiaries and affiliates, that has entered into an agreement for paid access to our platform. We calculate ARR as the sum of the annualized value of our subscription contracts as of the measurement date, including existing customers with expired contracts that we expect to be renewed. We calculate NRR as of a specified period end by dividing current period ARR by prior period ARR, where prior period ARR is the ARR for all engagement platform customers as of twelve months prior to such period end, and current period ARR is the ARR for the same customers as of the specified period end. For additional information about our key business metrics, please see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics.”

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with our consolidated financial statements and accompanying notes and other financial information included elsewhere within this prospectus. This discussion includes both historical information and forward-looking information that involves risk, uncertainties and assumptions. Our actual results may differ materially from management’s expectations as a result of various factors, including, but not limited to, those discussed in the section titled “Risk Factors.”

Overview

We provide a leading, cloud-based digital experience platform that enables businesses to convert customer engagement into revenue through interactive webinar experiences, virtual event experiences and multimedia content experiences. Our platform’s portfolio of interactive, personalized and content-rich digital experience products creates and captures actionable, real-time data at scale from millions of professionals every month to provide businesses with buying signals and behavioral insights to efficiently convert prospects into customers.

Similar to what has taken place in the B2C market, our digital experience platform empowers B2B companies with insights to better personalize their engagement. Large social media platforms have been successful at leveraging experiences and insights of consumers on their platforms to enable B2C companies to effectively understand their potential consumers. While these have been effective in the B2C market, B2B companies often lack deep insights about prospective customers to effectively understand and engage them.

Businesses today primarily use automated solutions, such as digital advertising and email, for marketing. While these automated solutions reach large numbers of prospective customers, they have generally failed to deepen customer engagement because they were designed with the simple purpose of pushing marketing messages in one direction—from the business to the prospective customer. For businesses to succeed, we believe their sales and marketing strategies must evolve from the era of automation to the era of engagement. Our platform provides an innovative way both to scale digital marketing and deepen prospective customer engagement. We believe our opportunity to help businesses convert digital engagement into revenue will continue to grow as industries modernize their sales and marketing processes, which has been accelerated by the COVID-19 pandemic.

We sell subscriptions to our platform’s experience products that are backed by analytics and our ecosystem of third-party integrations. Before 2013, we offered services and licensed software for managing webinars and virtual events primarily on a per event basis. In 2013, we transitioned to be a software-as-a-service company with the release of ON24 Elite and ON24 Virtual Environment as cloud-based subscription products. Substantially all of our customers subscribe to ON24 Elite, which enables customers to seamlessly broadcast video-based content and drive real-time interactivity in a single immersive experience. Our customers can host multiple tracks of their webinar experiences as a large-scale virtual event experience using ON24 Virtual Environment.

In 2018, we launched two complementary experience products, ON24 Engagement Hub and ON24 Target, to provide our customers with a system for digital engagement, offering customers the ability to curate and disseminate rich, multimedia content experiences. In addition to our product, we also provide professional services such as experience management, monitoring and premium support services, which provide the opportunity for recurring revenue, as well as implementation and other services.

 

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We deliver our platform products as cloud-based subscriptions that are easy to use and purpose-built for sales and marketing professionals. As of September 30, 2020, we had over 1,900 customers in more than 40 countries, including three of the five largest global technology companies, four of the five largest U.S. banks, three of the five largest global healthcare companies and three of the five largest global industrial manufacturing companies, in each case measured by 2019 revenue. We have a highly engaged and loyal customer base leading to a successful land and expand strategy. As of December 31, 2018 and 2019, and September 30, 2020, the number of customers with subscriptions to two or more of our experience products increased from 15% to 17% and to 29%, respectively.

Prior to developing our current cloud-based subscription model, we generated revenue from our Legacy offering, which primarily consisted of fully managed events and associated services. In connection with shifting to our current data-driven, cloud-based subscription model, we stopped selling our Legacy offering to new customers in 2018 and stopped selling it to all customers in 2020. As a result, we expect substantially all Legacy revenue to cease after December 2020.

Our revenue was $82.6 million and $89.1 million for the years ended December 31, 2018 and 2019, respectively, representing annual revenue growth of 8% in 2019. Our revenue was $65.2 million and $103.7 million for the nine months ended September 30, 2019 and 2020, respectively, representing year-over-year revenue growth of 59%. Of this total revenue, revenue from our digital experience platform was $68.8 million and $80.7 million for the years ended December 31, 2018 and 2019, respectively, representing annual revenue growth of 17% in 2019. For the nine months ended September 30, 2019 and 2020, revenue from our digital experience platform was $58.3 million and $101.7 million, respectively, representing year-over-year revenue growth of 74%. We had a net loss of $17.6 million and $17.5 million for the years ended December 31, 2018 and 2019, respectively, which included stock-based compensation expense of $1.5 million and $2.0 million, respectively. For the nine months ended September 30, 2019 and 2020, we had a net loss of $14.1 million and net income of $11.2 million, respectively, which included stock-based compensation expense of $1.3 million and $1.5 million, respectively. Net cash used in operating activities was $8.6 million and $11.4 million for the years ended December 31, 2018 and 2019, respectively. Net cash used in operating activities was $7.1 million for the nine months ended September 30, 2019 and net cash provided by operating activities was $26.8 million for the nine months ended September 30, 2020.

Our Business Model

We generate revenue from the sale of subscriptions to our digital experience platform. Subscription revenue is driven primarily by the number of paid subscriptions to ON24 Elite, ON24 Virtual Environment, ON24 Engagement Hub, and ON24 Target. Subscriptions are priced based on the number of workspaces, logins, modules, licenses and other platform capacity factors. In addition to subscription services, we generate revenue from the sale of professional consulting services to manage, monitor and produce experiences run by our customers, implement our platform and to provide premium support services.

The terms of our subscription agreements are primarily annual and, to a lesser extent, multi-year. We bill for the full term in advance or on an annual or monthly basis, depending on the terms of the agreement. We recognize subscription revenue ratably over the term of the subscription period beginning with the date customers are granted access to our platform. Our contracts typically require payments in annual installments. We have seen an increase in the proportion of multi-year subscriptions as the number of larger customers has increased. Customers with multi-year subscription agreements accounted for 21% and 27% of ARR as of December 31, 2018 and September 30, 2020, respectively. See “—Key Business Metrics—Annual Recurring Revenue” for further information regarding how we calculate ARR.

 

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Our Go-to-Market Model

We have built an efficient go-to-market engine by using our ON24 platform as the foundation for our sales and marketing strategy. We utilize our platform to generate and cultivate ongoing customer demand for our solutions, acquire new customers and engage with our existing customers. We offer subscriptions to our platform to a broad range of customers, from small businesses to organizations with hundreds of thousands of employees. Our customer base is diverse and spans various industries and countries. Our ten largest customers by 2018 and 2019 revenue accounted for 22%, in the aggregate, of our revenue for each of the years ended December 31, 2018 and 2019. Our ten largest customers by revenue for the nine months ended September 30, 2019 and 2020 accounted for 22% and 19%, respectively, in the aggregate, of our revenue for the nine months ended September 30, 2019 and 2020. We utilize a direct sales organization to acquire new customers and increase adoption of our platform by current customers. As of December 31, 2019, we had 1,401 customers of which 144 were $100k Customers, and as of September 30, 2020 we had 1,918 customers of which 271 were $100k Customers.

Our go-to-market strategy consists of four key components:

 

   

Enterprise Land and Expand

We intend to continue to focus on the acquisition of new customers with 2,000 or more employees, or Enterprise customers, and to expand the usage of our platform within these larger accounts. We follow a named account coverage approach with aligned account teams, including sales, account management and customer success. After establishing a customer relationship with a business unit of an Enterprise, we seek to expand to new business units, divisions, departments and geographic regions, as well as increase subscriptions to additional products, which we refer to as “attachments,” and expand product use cases.

 

   

Commercial Scale and Velocity

Our Commercial market strategy is to grow through acquisition of new customers with less than 2,000 employees, or Commercial customers. We pursue this strategy by focusing on increasing the capacity of our sales representatives, building a robust pipeline of prospective customers by leveraging sales and marketing development representatives and building a team dedicated to customer renewals and new product attachments.

 

   

New Product Attachments

We intend to increase our new product attachments through dedicated sales resources and the identification of new or specialized use cases for our platform. We have seen significant growth and adoption of new products. As of December 31, 2018 and 2019, and September 30, 2020, the number of customers with subscriptions to two or more of our experience products increased from 15% to 17% and to 29%, respectively.

 

   

New Market Expansion

Our strategy to expand into new geographies is to identify the addressable market, develop a localization plan and invest in a core team for each market to drive continued international growth. The typical regional core team consists of a senior sales director, sales executive, sales development representative, marketing personnel and customer success.

Key Factors Affecting Our Performance

Acquiring New Customers

We are focused on continuing to grow the number of customers that use our platform. We define a customer as a unique organization, including its subsidiaries and affiliates, that has entered into an

 

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agreement for paid access to our platform. A single customer may have multiple agreements with us for separate divisions, subsidiaries or affiliates. Our operating results and growth prospects will depend in part on our ability to attract new customers. While we believe we have a significant market opportunity that our platform addresses, it is difficult to predict customer adoption rates or the future growth rate and size of the market for our platform. We will need to continue to invest in our sales and marketing functions in order to address this opportunity by hiring, developing and retaining talented sales personnel who are able to achieve desired productivity levels in a reasonable period of time.

Despite our strong growth to date, we believe our market is still relatively underpenetrated and, as a result, we see significant opportunity to market our solutions globally. We estimate that our customer base of over 1,900 customers as of September 30, 2020 represents less than 1% of the number of companies that our solutions can address. We intend to aggressively pursue new customers through specialized and aligned sales teams focused on Enterprise and Commercial customers.

Retention and Expansion of ON24 Across Existing Customers

We believe we can achieve significant growth by retaining and further penetrating our existing customer base with the addition of new users and new products, and through upsell and cross sell. Our multi-dimensional land and expand model drives onboarding and allows us to acquire customers via free trials, live demos and continuous engagement with an efficient sales and marketing investment. As we continue to drive more actionable revenue generating marketing insights, we believe that we have a significant opportunity to further increase sales among existing customers across different functional and geographic departments within each respective organization. Our ability to pursue this opportunity will require us to scale our sales and marketing organization and otherwise increase our operating expenses, and we may not be successful on the timetable we anticipate, or at all, for any number of reasons, which may cause our results to vary from period to period.

Innovation and Expansion of Our Platform

We plan to continually develop new products that enhance the functionality of our platform, improve our user experiences and drive customer engagement in order to further capitalize on new opportunities. We intend to sell these new solutions to both existing and new customers, to drive an increase in revenue as the breadth and depth of our solutions and use cases expands. We also intend to continue investing in our platform and related infrastructure to improve capacity, security and scalability. These development efforts will require significant investments, some of which may be episodic or otherwise cause our expenses to vary from period to period.

International Expansion

We believe the expansion of real-time, revenue-generating marketing intelligence in international markets is a significant opportunity. For the year ended December 31, 2019 and the nine months ended September 30, 2020, approximately 21% and 23% of our revenue, respectively, came from outside the United States. We believe there is a compelling opportunity to expand our solutions internationally, both in countries where we currently operate and countries where we do not yet sell subscriptions to our solutions. Continuing to expand our international operations will require considerable management attention and other resources and may present challenges associated with complying with local expectations, customs, laws and regulations, which may impact our ability to sell subscriptions to our solutions and otherwise cause our results to vary from period to period.

Key Business Metrics

We review the following key business metrics to measure our performance, identify trends, formulate financial projections and make strategic decisions. Our methods for calculating these metrics

 

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may differ from similarly titled metrics at other companies, which may hinder comparability with other companies. The following table sets forth as of the dates indicated our number of customers, our ARR, our NRR, and our $100k Customers:

 

     December 31,     September 30,  
     2018     2019     2019     2020  
     (dollars in thousands)  

Customers

     1,241       1,401       1,342       1,918  

ARR

   $ 61,249     $ 76,852     $ 69,997     $ 138,872  

NRR

     107     108     106     147

$100k Customers

     116       144       129       271  

Number of Customers

Increasing awareness of our platform and its broad range of capabilities has enabled us to substantially expand our customer base. We serve customers of all sizes, ranging from small businesses to global Fortune 100 organizations across a diverse set of industries, including technology, financial services, healthcare, industrial and manufacturing, professional services and B2B information services companies. Our diverse customer base has grown from 760 customers as of December 31, 2015 to over 1,900 customers as of September 30, 2020. Our platform is designed with a long-term view toward our customer relationships and to grow with customers as their needs expand.

LOGO

Annual Recurring Revenue

We believe that ARR is a key metric to measure our business because it is driven by our ability to acquire new subscription customers and to maintain and expand our relationship with existing subscription customers. ARR is calculated as the sum of the annualized value of our subscription contracts as of the measurement date, including existing customers with expired contracts that we expect to be renewed. Our ARR amounts exclude professional services, overages from subscription customers and Legacy revenue. Our ARR was $61.2 million as of December 31, 2018, $63.6 million as of March 31, 2019, $67.2 million as of June 30, 2019, $70.0 million as of September 30, 2019, $76.9 million as of December 31, 2019, $85.9 million as of March 31, 2020, $114.2 million as of June 30, 2020, and $138.9 million as of September 30, 2020. Our consistent ARR growth each quarter reflects our success in acquiring new customers and expanding subscriptions with existing customers, which was occurring prior to the COVID-19 pandemic and has accelerated in 2020 partly in response to the COVID-19 pandemic.

 

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Dollar-Based Net Retention Rate

We believe NRR is an important metric that provides insight into the long-term value of our subscription agreements and our ability to retain and organically grow revenue from our customers. Our NRR as of a specified period end is calculated by dividing current period ARR by prior period ARR. Prior period ARR is the ARR for all engagement platform customers as of twelve months prior to such period end. Current period ARR is the ARR for the same customers as of the specified period end. Our NRR includes the effect of any customer renewals, expansion, contraction and churn but excludes ARR from customers that were acquired in the twelve months prior to the specified period end. Our NRR is subject to adjustment for mergers, acquisitions, dispositions and similar transactions involving our customers. Our NRR was 107% as of December 31, 2018, 108% as of December 31, 2019, 106% as of September 30, 2019 and 147% as of September 30, 2020. We believe our strong NRR reflects our success in retaining customers and expanding their subscriptions as customers realize the increasing importance of digital transformation, which has accelerated in 2020 partly in response to the COVID-19 pandemic.

Customers Contributing More Than $100,000 to ARR

We believe that our ability to increase our $100k Customers is a key indicator for important components of the growth of our business, including our success in expanding the use of our platform within large organizations. As of December 31, 2018 and 2019, we had 116 and 144 $100k Customers, respectively, and as of September 30, 2019 and 2020 we had 129 and 271 $100k Customers, respectively. We believe our growth in $100k Customers demonstrates our rapid penetration of larger organizations.

COVID-19 Update

In December 2019, an outbreak of COVID-19 emerged, and, by March 2020, the World Health Organization declared COVID-19 a global pandemic. Governments across the United States and around the world have instituted measures in an effort to slow infection rates, including orders to shelter-in-place, travel restrictions and mandated business closure. The global economic impacts of COVID-19 are significant and continue to evolve, as exhibited by, among other things, a rise in unemployment, changes in consumer behavior and market volatility.

The imperative to optimize digital sales and marketing investments to drive revenue conversion has become more important as businesses accelerate digital transformation initiatives in response to the COVID-19 pandemic, resulting in increased usage of our subscription and other platforms. For the nine months ended September 30, 2020, our revenue increased by 59% as compared to the nine months ended September 30, 2019, in part due to the impact of COVID-19.

There is no assurance that we will continue to experience such accelerated growth. If the effects of the COVID-19 pandemic subside, our customers and their users may resume in-person marketing activities in a way that decreases usage of our platform. The extent of the impact of COVID-19 on our business and financial performance may be influenced by a number of factors, many of which we cannot control, including the duration and spread of the pandemic, future spikes of COVID-19 infections resulting in additional preventative and mitigative measures, the severity of the economic decline attributable to or influenced by the pandemic, the timing and nature of a potential economic recovery, the impact on our customers and our sales cycles, and our ability to generate new business leads. For additional details, see the section titled “Risk Factors.”

 

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Components of Results of Operations

Revenue

Subscription and Other Platform Revenue

Subscription and other platform revenue primarily consists of subscription fees from customer agreements to access our digital experience platform. Our customers do not have the ability to take possession of our software. We recognize subscription revenue on a straight-line basis over the term of the contract beginning on the date access to our platform is granted. Subscription and other platform revenue also includes usage fees from customers who acquire incremental capacity during their contract term. We recognize usage fees on a straight-line basis over the remaining term of the subscription contract, beginning when usage occurs. We expect our subscription revenue to increase over the long-term, depending on our ability to attract new customers and expand usage with current customers, which fluctuate from period to period.

Subscription and other platform revenue also contains revenue from our Legacy offering, which consists of contracts with customers for which we grant customers access to our platform only for the duration of specific contracted events. Our Legacy revenue is primarily recognized at a point in time as events occur. We stopped selling our Legacy offering to new customers in 2018, and we expect substantially all Legacy revenue to cease after December 2020.

Professional Services Revenue

Professional services revenue primarily consists of fees from customer agreements to provide consulting services, including experience management, monitoring and production services, implementation services and premium support services. The majority of our professional services consists of experience management and monitoring services, which are prepaid rights to a defined number of managed and monitored experiences. Professional services are generally considered distinct from the access provided to our platform. Professional services are available through hourly rate and fixed fee contracts, as well as one-time and ongoing engagements. We recognize revenue from experience management, monitoring and production services in the period the experience occurs and the services are delivered or, if they are not used by the customer, at the end of the subscription term. We recognize revenue from implementation services upon completion of the services. We recognize revenue from premium support offerings on a ratable basis over the subscription term. We expect our professional services revenue to increase as our customer base and use of our platform by existing customers increases, which may fluctuate from period to period.

Professional services revenue also contains revenue from our Legacy offering, which consists of event-related services, and is recognized when the event occurs. We stopped selling our Legacy offering to new customers in 2018 and we expect substantially all professional services revenue associated with our Legacy offering to cease after December 2020.

Cost of Revenue

Subscription and Other Platform Cost of Revenue

Subscription and other platform cost of revenue primarily consists of costs related to hosting our platform and providing operating support services to our customers. These costs are related to our co-located data centers, personnel-related costs such as salaries, bonuses, stock-based compensation expense, benefits costs associated with our operations and support personnel, software license fees and allocated overhead. We expect our subscription and other platform cost of revenue to increase in the near term in absolute dollars and as a percentage of revenue as we continue to move to a hybrid cloud and otherwise expand our infrastructure and, over the long term, to increase in absolute dollars as our subscription revenue increases.

 

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Subscription and other platform cost of revenue also includes Legacy cost of revenue. We stopped selling our Legacy offering to new customers in 2018 and we expect the Legacy component of subscription and other platform cost of revenue to cease after December 2020 consistent with related revenue.

Professional Services Cost of Revenue

Professional services cost of revenue consists primarily of personnel-related costs, including salaries and bonuses, stock-based compensation, third-party consulting services and allocated overhead. We expect our professional services cost of revenue to increase in absolute dollars as our professional services revenue increases.

Professional services cost of revenue also includes Legacy cost of revenue. We stopped selling our Legacy offering to new customers in 2018 and we expect the Legacy component of professional services cost of revenue to cease after December 2020 consistent with related revenue.

Operating Expenses

Sales and Marketing

Sales and marketing expenses primarily consist of personnel-related expenses, including stock-based compensation directly associated with our sales and marketing organization. Other sales and marketing expenses include promotional events to promote our brand, such as awareness programs, digital programs, tradeshows and our annual user conference, software license expenses and allocated overhead. Sales commissions that are directly related to acquiring customer contracts, as well as associated payroll taxes, are deferred upon execution of a contract with a customer, and subsequently amortized to sales and marketing expense. Sales commissions paid upon the initial acquisition of a customer contract are amortized over an estimated period of benefit of five years, as we specifically anticipate renewals of customer contracts and commissions paid on renewal contracts are not commensurate with commissions paid on new customer contracts. Sales commissions paid upon renewal of customer contracts are amortized over the contractual renewal term. Amortization is recognized on a straight-line basis commensurate with the pattern of revenue recognition. Sales commissions paid related to professional services are amortized over the expected service period. We plan to increase our investment in sales and marketing over the foreseeable future, primarily through increased headcount in our sales and marketing functions and investment in brand- and product-marketing efforts. As a result, we expect that our sales and marketing expenses will increase in the near term. However, we expect such expenses will decrease as a percentage of our revenue as our revenue grows over time, although the percentage may fluctuate from period to period depending on fluctuations in the timing and extent of our sales and marketing expenses.

Research and Development

Research and development expenses primarily consist of personnel-related expenses, including stock-based compensation directly associated with our research and development employees, contractor costs related to third-party development and allocated overhead. Research and development costs are expensed as incurred. We plan to increase the dollar amount of our investment in research and development for the foreseeable future as we focus on further developing our platform and infrastructure. As a result, we expect that our research and development expenses will increase as a percentage of revenue in the near term.

General and Administrative

General and administrative expenses primarily consist of personnel-related expenses, including stock-based compensation directly associated with our finance, legal and human resources

 

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organizations, professional fees for external legal, accounting and other consulting services, bad debt expense and allocated overhead. We expect to increase the size of our general and administrative function to support the growth of our business. Following the closing of this offering, we expect to incur additional expenses as a result of operating as a public company. In addition, as a public company, we expect to incur increased expenses in the areas of insurance, investor relations and professional services. As a result, we expect the dollar amount of our general and administrative expenses to increase for the foreseeable future. We expect, however, that our general and administrative expenses will decrease as a percentage of our revenue over time, although the percentage may fluctuate from period to period.

Other Gains from Operations

Other gains from operations consists of a one-time gain from a legal settlement.

Interest Expense, Net

Interest expense, net consists primarily of interest expense incurred on our Revolving Credit Facility, and income earned on cash equivalents and short-term investments.

Other Expense, Net

Other expense, net consists primarily of currency transaction gains or losses and miscellaneous non-operational income and expense.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business.

 

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Results of Operations

The following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenue for each of the periods indicated:

 

     Year Ended December 31,     Nine Months Ended
September 30,
 
             2018                     2019                     2019                     2020          
           (unaudited)  
    

(in thousands)

 

Revenue:

        

Subscription and other platform

   $      66,079     $      72,589     $      53,368     $      81,379  

Professional services

     16,529       16,544       11,825       22,276  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     82,608       89,133       65,193       103,655  

Cost of revenue:

        

Subscription and other platform(1)

     14,232       16,730       12,571       14,405  

Professional services(1)

     10,689       10,411       7,666       8,883  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     24,921       27,141       20,237       23,288  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     57,687       61,992       44,956       80,367  

Operating expenses:

        

Sales and marketing(1)

     46,980       47,773       35,460       40,495  

Research and development(1)

     14,343       15,730       11,660       13,272  

General and administrative(1)

     13,299       14,590       10,928       14,370  

Other gains from operations

     (850                  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     73,772       78,093       58,048       68,137  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (16,085     (16,101     (13,092     12,230  

Interest expense, net

     1,052       1,029       799       633  

Other expense, net

     256       42       134       226  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income taxes

     (17,393     (17,172     (14,025     11,371  

Provision for income taxes

     198       355       44       123  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (17,591   $ (17,527   $ (14,069)     $ 11,248  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes stock-based compensation expense as follows:

 

     Year Ended December 31,      Nine Months Ended
September 30,
 
             2018                      2019                      2019                      2020          
            (unaudited)  
    

(in thousands)

 

Cost of revenue:

           

Subscription and other platform

   $ 80      $ 97      $ 73      $ 78  

Professional services

     13        50        46        16  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cost of revenue

     93        147        119        94  
  

 

 

    

 

 

    

 

 

    

 

 

 

Sales and marketing

     633        915        454        450  

Research and development

     218        197        155        189  

General and administrative

     516        739        586        720  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $       1,460      $       1,998      $ 1,314      $ 1,453  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     Year Ended December 31,     Nine Months Ended September 30,  
     2018     2019     2019     2020  
           (unaudited)  
    

(as a percentage of revenue)

 

Revenue:

                                                                                                                            

Subscription and other platform

     80     81     82     79

Professional services

     20       19       18       21  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     100       100       100       100  

Cost of revenue:

        

Subscription and other platform

     17       19       19       14  

Professional services

     13       11       12       8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     30       30       31       22  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     70       70       69       78  

Operating expenses:

        

Sales and marketing

     57       54       54       39  

Research and development

     17       18       18       13  

General and administrative

     16       16       17       14  

Other gains from operations

     (1                  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     89       88       89       66  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (19     (18     (20     12  

Interest expense, net

     1       1       1       1  

Other expense, net

     1             1        
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income taxes

     (21     (19     (22     11  

Provision for income taxes

           1              
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (loss)

     (21 )%      (20 )%      (22 )%      11
  

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of the Nine Months Ended September 30, 2019 and 2020

Revenue

 

     Nine Months Ended September 30,  
     2019      2020      $ Change      % Change  
     (in thousands, except percentages)  

Subscription and other platform

   $ 53,368      $ 81,379      $ 28,011        52

Professional services

               11,825                  22,276                  10,451                         88  
  

 

 

    

 

 

    

 

 

    

Total revenue

   $ 65,193      $ 103,655      $ 38,462        59  
  

 

 

    

 

 

    

 

 

    

Total revenue for the nine months ended September 30, 2020 increased by $38.5 million, or 59%, as compared to the nine months ended September 30, 2019, primarily driven by an increase in digital experience platform revenue and partially offset by a decrease in Legacy revenue. Subscription and other platform revenue for the nine months ended September 30, 2020 increased by $28.0 million, or 52%, as compared to the nine months ended September 30, 2019. Professional services revenue for the nine months ended September 30, 2020 increased by $10.5 million, or 88%, as compared to the nine months ended September 30, 2019.

 

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Digital Experience Platform

 

     Nine Months Ended September 30,  
     2019      2020      $ Change      % Change  
     (in thousands, except percentages)  

Subscription and other platform

   $ 48,258      $ 80,010      $ 31,752        66

Professional services

       10,078        21,705          11,627               115  
  

 

 

    

 

 

    

 

 

    

Total digital experience platform revenue

   $ 58,336      $ 101,715      $ 43,379        74  
  

 

 

    

 

 

    

 

 

    

Our digital experience platform revenue represents revenue from our current subscription offerings. Total digital experience platform revenue for the nine months ended September 30, 2020 increased by $43.4 million, or 74%, as compared to the nine months ended September 30, 2019. The increase was primarily attributable to an increase in subscription and other platform revenue of $31.8 million and an increase in professional services revenue of $11.6 million due to increases in our customer base and the use of our platform by existing customers, which reflects an increase in demand for our experience management and monitoring services. Existing customers accounted for approximately 63 percentage points of the increase and new customers accounted for approximately 11 percentage points of the increase. The increase attributable to existing customers reflects both that such customers contributed to our revenue for the full nine months ended September 30, 2020 and that they expanded their usage of our platform during that period. Our NRR was 147% as of September 30, 2020, an increase of 41 percentage points as compared to September 30, 2019.

Legacy

 

     Nine Months Ended September 30,  
     2019      2020      $ Change     % Change  
     (in thousands, except percentages)  

Subscription and other platform

   $ 5,110      $ 1,369      $ (3,741     (73 )% 

Professional services

         1,747             571           (1,176     (67
  

 

 

    

 

 

    

 

 

   

Total Legacy revenue

   $ 6,857      $ 1,940      $ (4,917             (72
  

 

 

    

 

 

    

 

 

   

Total Legacy revenue for the nine months ended September 30, 2020 decreased by $4.9 million, or 72%, as compared to the nine months ended September 30, 2019. The decrease was primarily attributable to a decrease in subscription and other platform revenue of $3.7 million and a decrease in professional services revenue of $1.2 million as we stopped selling our Legacy offering to new customers in 2018. We expect substantially all Legacy revenue to cease after December 2020.

Cost of Revenue

 

     Nine Months Ended September 30,  
     2019     2020     $ Change      % Change  
     (in thousands, except percentages)  

Subscription and other platform

   $   12,571     $   14,405     $     1,834                 15

Professional services

     7,666       8,883       1,217        16  
  

 

 

   

 

 

   

 

 

    

Total cost of revenue

   $ 20,237     $ 23,288     $ 3,051        15  
  

 

 

   

 

 

   

 

 

    

Gross profit

   $ 44,956     $ 80,367     $ 35,411        79  

Gross margin

     69     78     

Cost of revenue for the nine months ended September 30, 2020 increased by $3.1 million, or 15%, as compared to the nine months ended September 30, 2019, primarily driven by an increase in

 

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digital experience platform cost of revenue and partially offset by a decrease in Legacy cost of revenue. Subscription and other platform cost of revenue for the nine months ended September 30, 2020 increased by $1.8 million, or 15%, as compared to the year ended September 30, 2019. Professional services cost of revenue for the nine months ended September 30, 2020 increased by $1.2 million, or 16%, as compared to the nine months ended September 30, 2019.

Digital Experience Platform

 

     Nine Months Ended September 30,  
     2019      2020      $ Change      % Change  
     (in thousands, except percentages)  

Subscription and other platform

   $ 10,979      $ 13,825      $ 2,846        26

Professional services

     6,084        8,328        2,244        37  
  

 

 

    

 

 

    

 

 

    

Total digital experience platform cost of revenue

   $ 17,063      $ 22,153      $ 5,090                  30  
  

 

 

    

 

 

    

 

 

    

Total digital experience platform cost of revenue for the nine months ended September 30, 2020 increased by $5.1 million, or 30%, as compared to the nine months ended September 30, 2019, primarily due to an increase in subscription and other platform cost of revenue of $2.8 million and an increase in professional services cost of revenue of $2.2 million. The increase in total digital experience platform cost of revenue was driven by an increase in personnel-related expenses of $3.1 million due to increased headcount to support our platform and deliver services, a $0.8 million increase software and related maintenance fees due to the expansion of infrastructure and data centers, a $0.5 million increase in contractor costs, an increase of $0.3 million related to bandwidth costs, a $0.2 million increase in transmission costs and a $0.2 million increase in field production costs. These increased costs disproportionately affected our subscription and other platform cost of revenue. However, digital experience platform gross margin increased from 77.2% for the nine months ended September 30, 2019 to 82.7% for the nine months ended September 30, 2020, due to the rapid revenue growth during this period.

Legacy

 

     Nine Months Ended September 30,  
     2019      2020      $ Change     % Change  
     (in thousands, except percentages)  

Subscription and other platform

   $ 1,592      $ 580      $ (1,012     (64 )% 

Professional services

     1,582        555        (1,027     (65
  

 

 

    

 

 

    

 

 

   

Total Legacy cost of revenue

   $ 3,174      $ 1,135      $ (2,039              (64
  

 

 

    

 

 

    

 

 

   

Total Legacy cost of revenue for the nine months ended September 30, 2020 decreased by $2.0 million, or 64%, as compared to the nine months ended September 30, 2019, primarily attributable to a decrease in subscription and other platform cost of revenue of $1.0 million and a decrease in professional services cost of revenue of $1.0 million. The decrease in total Legacy cost of revenue was driven by a reduction in headcount and facilities allocation costs as we stopped selling our Legacy offering to new customers in 2018 and expect substantially all Legacy revenue to cease after December 2020.

Gross margin increased from 69% to 78% in the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. The increase in gross margin is primarily attributable to the significant increase in total digital experience platform revenue, which increased by 74%, compared to our total digital experience platform cost of revenue, which increased by 30%.

 

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Operating Expenses

Sales and Marketing

 

     Nine Months Ended September 30,  
     2019      2020      $ Change      % Change  
     (in thousands, except percentages)  

Sales and marketing

   $ 35,460      $ 40,495      $   5,035                  14

Sales and marketing expense for the nine months ended September 30, 2020 increased by $5.0 million, or 14%, as compared to the nine months ended September 30, 2019. The increase in sales and marketing expense was primarily attributable to an increase in personnel-related expenses of $5.2 million due to increased headcount to support the growth in our sales force, a $1.8 million increase in demand generation activity, a $0.3 million increase in recruiting costs, a $0.3 million increase in software license expenses and a $0.2 million increase in market research. The increase was partially offset by a $1.3 million reduction in expenses associated with travel and entertainment, a decrease of $1.0 million in conferences and events, a $0.2 million decrease in creative and design expenses and a decrease of $0.2 million in internal company programs. Sales and marketing expenses as a percentage of revenue decreased from 54% for the nine months ended September 30, 2019 to 39% for the nine months ended September 30, 2020.

Research and Development

 

     Nine Months Ended September 30,  
     2019      2020      $ Change      % Change  
     (in thousands, except percentages)  

Research and development

   $ 11,660      $ 13,272      $   1,612                  14

Research and development expense for the nine months ended September 30, 2020 increased by $1.6 million, or 14%, as compared to the nine months ended September 30, 2019. The increase in expenses was primarily attributable to an increase of $1.3 million in personnel-related expenses due to increased headcount for the development of our solutions and an increase of $0.5 million in contractor costs for development activities, partially offset by a $0.2 million decrease in facilities allocation costs. Research and development expenses as a percentage of revenue decreased from 18% for the nine months ended September 30, 2019 to 13% for the nine months ended September 30, 2020.

General and Administrative

 

     Nine Months Ended September 30,  
     2019      2020      $ Change      % Change  
     (in thousands, except percentages)  

General and administrative

   $ 10,928      $ 14,370      $   3,442                  31

General and administrative expense for the nine months ended September 30, 2020 increased by $3.4 million, or 31%, as compared to the nine months ended September 30, 2019. The increase in general and administrative expense was primarily attributable to an increase of $1.7 million in professional, legal and accounting related expenses, an increase of $1.2 million in personnel-related expenses due to an overall increase in headcount, a $0.5 million increase in facilities allocation costs and an increase of $0.4 million in bad debt expense. The increase was partially offset by a $0.2 million decrease in airfare, meals and travel and a $0.2 million decrease in rent expense. General and administrative expenses as a percentage of revenue decreased from 17% for the nine months ended September 30, 2019 to 14% for the nine months ended September 30, 2020.

 

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Interest Expense, Net

 

     Nine Months Ended September 30,  
     2019      2020      $ Change     % Change  
     (in thousands, except percentages)  

Interest expense, net

   $       799      $       633      $      (166            (21 )% 

Interest expense, net for the nine months ended September 30, 2020 decreased by $0.2 million, or 21%, as compared to the nine months ended September 30, 2019. The decrease was primarily attributable to a $0.3 million reduction in interest expenses primarily relating to our Revolving Credit Facility, partially offset by a $0.1 million decrease in interest income earned from our short-term investments.

Other Expense, Net

 

     Nine Months Ended September 30,  
     2019      2020      $ Change      % Change  
     (in thousands, except percentages)  

Other expense, net

   $       134      $       226      $         92                69

Other expense, net for the nine months ended September 30, 2020 increased by $0.1 million, or 69%, compared to the nine months ended September 30, 2019. The increase was primarily due to a $0.1 million reduction in foreign exchange transaction gains.

Provision for Income Taxes

 

     Nine Months Ended September 30,  
     2019      2020      $ Change      % Change  
     (in thousands, except percentages)  

Provision for income taxes

   $         44      $       123      $         79              180

Provision for income taxes for the nine months ended September 30, 2020 increased by $0.1 million, or 180%, as compared to the nine months ended September 30, 2019. The change in provision for income taxes was primarily due to international operations.

Comparison of the Years Ended December 31, 2018 and 2019

Revenue

 

     Year Ended December 31,  
     2018      2019      $ Change      % Change  
     (in thousands, except percentages)  

Subscription and other platform

   $ 66,079      $ 72,589      $ 6,510        10

Professional services

     16,529        16,544        15         
  

 

 

    

 

 

    

 

 

    

Total revenue

   $  82,608      $  89,133      $    6,525                  8  
  

 

 

    

 

 

    

 

 

    

Total revenue for the year ended December 31, 2019 increased by $6.5 million, or 8%, as compared to the year ended December 31, 2018, primarily driven by an increase in digital experience platform revenue and partially offset by a decrease in Legacy revenue. Subscription and other platform revenue for the year ended December 31, 2019 increased by $6.5 million, or 10%, as compared to the year ended December 31, 2018. Professional services revenue for the year ended December 31, 2019 remained flat compared to the year ended December 31, 2018.

 

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Digital Experience Platform

 

     Year Ended December 31,  
     2018      2019      $ Change      % Change  
     (in thousands, except percentages)  

Subscription and other platform

   $  57,763      $  66,286      $    8,523       
        15

Professional services

     11,082        14,413        3,331        30  
  

 

 

    

 

 

    

 

 

    

Total digital experience platform revenue

   $ 68,845      $ 80,699      $ 11,854        17  
  

 

 

    

 

 

    

 

 

    

Total digital experience platform revenue for the year ended December 31, 2019 increased by $11.9 million, or 17%, as compared to the year ended December 31, 2018. The increase was primarily attributable to an increase in subscription and other platform revenue of $8.5 million and an increase in professional services revenue of $3.3 million due to increases in our customer base and the use of our platform by existing customers, which reflects an increase in demand for our experience management and monitoring services. Existing customers accounted for approximately 11 percentage points of the increase and new customers accounted for approximately 6 percentage points of the increase. The increase attributable to existing customers reflects both that such customers contributed to our revenue for the full year and that they expanded their usage of our platform during that period. Our NRR was 108% as of December 31, 2019, an increase of 1 percentage point compared to December 31, 2018.

Legacy

 

     Year Ended December 31,  
     2018      2019      $ Change     % Change  
     (in thousands, except percentages)  

Subscription and other platform

   $    8,316      $    6,303      $   (2,013           (24 )% 

Professional services

     5,447        2,131        (3,316     (61
  

 

 

    

 

 

    

 

 

   

Total Legacy revenue

   $ 13,763      $ 8,434      $ (5,329     (39
  

 

 

    

 

 

    

 

 

   

Total Legacy revenue for the year ended December 31, 2019 decreased by $5.3 million, or 39%, as compared to the year ended December 31, 2018. The decrease was primarily attributable to a decrease in subscription and other platform revenue of $2.0 million and a decrease in professional services revenue of $3.3 million as we stopped selling our Legacy offering to new customers in 2018. We expect substantially all Legacy revenue to cease after December 2020.

Cost of Revenue

 

     Year Ended December 31,  
     2018     2019     $ Change     % Change  
     (in thousands, except percentages)  

Subscription and other platform

       14,232     $  16,730     $    2,498               18

Professional services

     10,689       10,411       (278     (3
  

 

 

   

 

 

   

 

 

   

Total cost of revenue

   $ 24,921     $ 27,141     $ 2,220       9  
  

 

 

   

 

 

   

 

 

   

Gross profit

   $ 57,687     $ 61,992     $ 4,305       7  

Gross margin

     70     70    

Cost of revenue for the year ended December 31, 2019 increased by $2.2 million, or 9%, as compared to the year ended December 31, 2018, primarily driven by an increase in digital experience platform cost of revenue and partially offset by a decrease in Legacy cost of revenue. Subscription and other platform cost of revenue for the year ended December 31, 2019 increased by $2.5 million, or

 

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18%, as compared to the year ended December 31, 2018. Professional services cost of revenue for the year ended December 31, 2019 decreased by $0.3 million, or 3%, as compared to the year ended December 31, 2018.

Digital Experience Platform

 

     Year Ended December 31,  
     2018      2019      $ Change      % Change  
     (in thousands, except percentages)  

Subscription and other platform

   $  11,735      $  14,772      $    3,037                26

Professional services

     6,426        8,577        2,151        33  
  

 

 

    

 

 

    

 

 

    

Total digital experience platform cost of revenue

   $ 18,161      $ 23,349      $ 5,188        29  
  

 

 

    

 

 

    

 

 

    

Total digital experience platform cost of revenue for the year ended December 31, 2019 increased by $5.2 million, or 29%, as compared to the year ended December 31, 2018, primarily due to an increase in subscription and other platform cost of revenue of $3.0 million and an increase in professional services cost of revenue of $2.2 million. The increase in total digital experience platform cost of revenue was driven by an increase in personnel-related expenses of $2.6 million due to increased headcount to support our platform and deliver services, a $0.9 million increase software and related maintenance fees due to the expansion of infrastructure and data centers, a $1.1 million increase in contractor costs and consulting service fees and a $0.5 million increase in facilities allocation costs due to an increase in headcount. These increased costs disproportionately affected our subscription and other platform gross margin, which decreased from 79.7% in 2018 to 77.7% in 2019.

Legacy

 

     Year Ended December 31,  
     2018      2019      $ Change     % Change  
     (in thousands, except percentages)  

Subscription and other platform

   $    2,497      $    1,958      $      (539            (22 )% 

Professional services

     4,263        1,834        (2,429     (57
  

 

 

    

 

 

    

 

 

   

Total Legacy cost of revenue

   $ 6,760      $ 3,792      $ (2,968     (44
  

 

 

    

 

 

    

 

 

   

Total Legacy cost of revenue for the year ended December 31, 2019 decreased by $3.0 million, or 44%, as compared to the year ended December 31, 2018, primarily attributable to a decrease in subscription and other platform cost of revenue of $0.5 million and a decrease in professional services cost of revenue of $2.4 million. The decrease in total Legacy cost of revenue was driven by a reduction in headcount and facilities allocation costs as we stopped selling our Legacy offering to new customers in 2018 and expect substantially all Legacy revenue to cease after December 2020.

Gross margin in the year ended December 31, 2019 remained flat compared to the year ended December 31, 2018.

Operating Expenses

Sales and Marketing

 

     Year Ended December 31,  
     2018      2019      $ Change      % Change  
     (in thousands, except percentages)  

Sales and marketing

   $  46,980      $  47,773      $       793                  2

 

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Sales and marketing expense for the year ended December 31, 2019 increased by $0.8 million, or 2%, as compared to the year ended December 31, 2018. The increase in sales and marketing expense was primarily attributable to an increase in personnel-related expenses of $1.3 million due to increased headcount to support the growth in our sales force, a $0.7 million increase in demand generation activity and a $0.3 million increase in software license expenses. The increase was partially offset by a $0.6 million reduction in expenses associated with the capitalization of incremental costs of obtaining customer contracts, net of amortization, upon the adoption of Topic 340, a decrease of $0.5 million in content marketing, a decrease of $0.2 million in internal company programs and a decrease of $0.2 million in facilities allocation costs. Refer to Note 1 to our consolidated financial statements included elsewhere in this prospectus for additional information regarding the adoption of Topic 340. Sales and marketing expenses as a percentage of revenue decreased from 57% for the year ended December 31, 2018 to 54% for the year ended December 31, 2019.

Research and Development

 

     Year Ended December 31,  
     2018      2019      $ Change      % Change  
     (in thousands, except percentages)  

Research and development

   $  14,343      $  15,730      $  1,387                10

Research and development expense for the year ended December 31, 2019 increased by $1.4 million, or 10%, as compared to the year ended December 31, 2018. The increase in expenses was primarily attributable to an increase of $1.0 million in personnel-related expenses due to increased headcount for the development of our solutions and an increase of $0.5 million in contractor costs for development activities, partially offset by a $0.1 million decrease in facilities allocation costs. Research and development expenses as a percentage of revenue increased from 17% for the year ended December 31, 2018 to 18% for the year ended December 31, 2019.

General and Administrative

 

     Year Ended December 31,  
     2018      2019      $ Change      % Change  
     (in thousands, except percentages)  

General and administrative

   $  13,299      $  14,590      $    1,291                10

General and administrative expense for the year ended December 31, 2019 increased by $1.3 million, or 10%, as compared to the year ended December 31, 2018. The increase in general and administrative expense was primarily attributable to an increase of $1.0 million in personnel-related expenses due to increased headcount, an increase of $0.3 million in professional, legal and accounting related expenses and an increase of $0.1 million in contractor costs, partially offset by a reduction of $0.1 million in software license expenses. General and administrative expenses as a percentage of revenue remained flat at 16% for both the years ended December 31, 2018 and 2019.

Other Gains from Operations

 

     Year Ended December 31,  
     2018     2019      $ Change      % Change  
     (in thousands, except percentages)  

Other gains from operations

   $      (850   $         —      $       850             (100 )% 

Other gains from operations in the year ended December 31, 2019 decreased by $0.9 million, or 100%, compared to the year ended December 31, 2018. The decrease in other gains from operations was due to a one-time gain from legal settlement due to a customer’s breach of contract in 2018.

 

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Interest Expense, Net

 

     Year Ended December 31,  
     2018      2019      $ Change     % Change  
     (in thousands, except percentages)  

Interest expense, net

   $    1,052      $    1,029        $       (23              (2 )% 

Interest expense, net for the year ended December 31, 2019 remained largely flat compared to the year ended December 31, 2018. The small decrease was primarily due to a $0.2 million reduction in interest income earned from our short-term investments, partially offset by a $0.2 million increase in interest expenses primarily relating to our Revolving Credit Facility.

Other Expense, Net

 

     Year Ended December 31,  
     2018      2019      $ Change     % Change  
     (in thousands, except percentages)  

Other expense, net

   $       256      $         42        $     (214            (84 )% 

Other expense, net for the year ended December 31, 2019 decreased by $0.2 million, or 84%, compared to the year ended December 31, 2018. The decrease was primarily due to a $0.2 million increase in foreign exchange transaction gains.

Provision for Income Taxes

 

     Year Ended December 31,  
     2018      2019      $ Change      % Change  
     (in thousands, except percentages)  

Provision for income taxes

   $       198      $       355      $       157                79

Provision for income taxes for the year ended December 31, 2019 increased by $0.2 million, or 79%, as compared to the year ended December 31, 2018. The change in provision for income taxes was primarily due to international operations.

 

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Quarterly Results of Operations

The following tables set forth our unaudited quarterly statements of operations data for each of the seven quarters ended September 30, 2020, as well as the percentage of revenue that each line item represents for each quarter. The information for each of these quarters has been prepared on the same basis as the audited annual financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which includes only normal recurring adjustments, necessary for the fair statement of the results of operations for these periods. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly results of operations are not necessarily indicative of our future results of operations that may be expected for the remainder of fiscal year 2020 or for any future period.

 

    Three Months Ended  
    March 31,
2019
    June 30,
2019
    September 30,
2019
    December 31,
2019
    March 31,
2020
    June 30,
2020
    September 30,
2020
 
    (in thousands)  

Revenue:(1)

             

Subscription and other platform

  $ 16,863     $ 17,747     $ 18,758     $ 19,221     $ 19,927     $ 27,096     $ 34,356  

Professional services

    3,768       4,648       3,409       4,719       4,819       9,224       8,233  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    20,631       22,395       22,167       23,940       24,746       36,320       42,589  

Cost of revenue:

             

Subscription and other platform(2)

    4,236       4,121       4,214       4,159       4,156       4,824       5,425  

Professional services(2)

    2,645       2,655       2,366       2,745       2,550       3,138       3,195  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    6,881       6,776       6,580       6,904       6,706       7,962       8,620  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    13,750       15,619       15,587       17,036       18,040       28,358       33,969  

Operating expenses:

             

Sales and marketing(2)

    12,938       11,543       10,979       12,313       12,010       12,729       15,756  

Research and development(2)

    3,887       3,709       4,064       4,070       4,099       4,513       4,660  

General and administrative(2)

    3,813       3,622       3,493       3,662       3,452       4,206       6,712  

Other gains from operations

                                         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    20,638       18,874       18,536       20,045       19,561       21,448       27,128  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    (6,888     (3,255     (2,949     (3,009     (1,521     6,910       6,841  

Interest expense, net

    326       247       226       230       212       193       228  

Other expense, net

    7       33       94       (92     271       (22     (23
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    (7,221     (3,535     (3,269     (3,147     (2,004     6,739       6,636  

Provision for (benefit from) income taxes

    (10     27       27       311       55       37       31  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (7,211   $ (3,562   $ (3,296   $ (3,458   $ (2,059   $ 6,702     $ 6,605  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1)

Consists of digital experience platform revenue and Legacy revenue as follows:

 

    Three Months Ended  
    March 31,
2019
    June 30,
2019
    September 30,
2019
    December 31,
2019
    March 31,
2020
    June 30,
2020
    September 30,
2020
 
    (in thousands)  

Total digital experience platform revenue

  $   18,088     $   19,997     $   20,251     $   22,363     $   23,718     $   35,517     $   42,480  

Legacy revenue

    2,543       2,398       1,916       1,577       1,028       803       109  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

  $ 20,631     $ 22,395     $ 22,167     $ 23,940     $ 24,746     $ 36,320     $ 42,589  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(2)

Includes stock-based compensation expense as follows:

 

    Three Months Ended  
    March 31,
2019
    June 30,
2019
    September 30,
2019
    December 31,
2019
    March 31,
2020
    June 30,
2020
    September 30,
2020
 
    (in thousands)  

Cost of revenue:

             

Subscription and other platform

  $ 24     $ 24     $ 25     $ 24     $ 23     $ 24     $ 31  

Professional services

    3       3       40       4       4       5       7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    27       27       65       28       27       29       38  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sales and marketing

    159       150       145       461       141       147       162  

Research and development

    54       52       49       42       57       62       70  

General and administrative

    197       190       199       153       178       192       350  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stock-based compensation expense

  $ 437     $ 419     $ 458     $ 684     $ 403     $ 430     $ 620  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    Three Months Ended  
    March 31,
2019
    June 30,
2019
    September 30,
2019
    December 31,
2019
    March 31,
2020
    June 30,
2020
    September 30,
2020
 
    (as a percentage of revenue)  

Revenue:

             

Subscription and other platform

    82     79     85     80     81     75     81

Professional services

    18       21       15       20       19       25       19  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    100       100       100       100       100       100       100  

Cost of revenue:

             

Subscription and other platform

    20       18       19       17       17       13       13  

Professional services

    13       12       11       12       10       9       7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    33       30       30       29       27       22       20  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    67       70       70       71       73       78       80  

Operating expenses:

             

Sales and marketing

    63       52       49       51       49       35       37  

Research and development

    19       16       18       17       16       12       11  

General and administrative

    18       16       16       15       14       12       16  

Other gains from operations

                                         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    100       84       83       83       79       59       64  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    (33     (14     (13     (12     (6     19       16  

Interest expense, net

    2       1       1       1       1       1       1  

Other expense, net

          1       1             1              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    (35     (16     (15     (13     (8     18       15  

Provision for (benefit from) income taxes

                      1                    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (35 )%      (16 )%      (15 )%      (14 )%      (8 )%      18     15
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Quarterly Trends

Revenue and Cost of Revenue

Our subscription and other platform revenue increased for all periods presented due to higher sales of subscriptions to both our existing and new customers. Our professional services revenue generally increased for the periods presented with minor decreases in certain periods, as the timing of recognition of professional services is at the discretion of our customers.

Total cost of revenue remained relatively flat for each of the three month ended periods presented in 2019 and increased sequentially for each of the three month ended periods presented in 2020, in order to support rapid growth in subscription and other platform revenue. Gross margin increased over the quarters presented primarily due to economies of scale and efficiencies achieved as a result.

Operating Expenses

Total operating expenses generally increased for the periods presented primarily due to increases in headcount and other personnel-related costs to support our growth. We plan to continue to invest in sales and marketing for the foreseeable future to drive revenue growth. We also intend to

 

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continue investing in research and development efforts for the foreseeable future, as we focus on developing new features and enhancements to our product offerings. General and administrative expenses also include increased costs in recent fiscal quarters due to preparing to be a public company, a trend that we expect to continue for the foreseeable future.

Non-GAAP Financial Measure

In addition to our results determined in accordance with generally accepted accounting principles in the United States, or GAAP, we consider our non-GAAP operating margin in evaluating our operating performance. We define non-GAAP operating margin as net (loss) income excluding other (income) expense, income tax, other gains from operations and stock-based compensation, all divided by revenue. We use this non-GAAP financial measure to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe this non-GAAP financial measure may be helpful to investors because it provides consistency and comparability with past financial performance. However, this non-GAAP financial measure is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Non-GAAP financial measures have no standardized meanings prescribed by GAAP and are not prepared under an comprehensive set of accounting rules or principles. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measure as a tools for comparison.

Some of the limitations of non-GAAP operating margin as an analytical tool are the following:

 

   

it excludes expense associated with our equity compensation plans, although equity compensation has been, and will continue to be, an important part of our compensation strategy;

 

   

it excludes other (income) expense and other gains from operations, even though we may have such (income) expense and gains from time to time in the future;

 

   

it excludes interest expense, although we have incurred interest expense on debt financing and expect to do so in the future;

 

   

it excludes the effect of income taxes; and

 

   

the expenses and gains that we exclude may differ from those excluded by other companies for this measure or similarly titled measures.

A reconciliation of non-GAAP operating (loss) profit to net (loss) profit, which we regard as the most directly comparable GAAP financial measure, and of the calculation of non-GAAP operating margin , is set forth below. Investors are encouraged to review this reconciliation, and our financial statements prepared in accordance with GAAP and not to rely on any single financial measure to evaluate our business.

 

     Year Ended
December 31,
    Three Months Ended  
     2018     2019     March 31,
2020
    June 30,
2020
    September 30,
2020
 

Non-GAAP operating margin

              (19 )%               (16 )%               (5 )%             20            18

 

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The following table reconciles non-GAAP operating (loss) profit and non-GAAP operating margin, for each of the periods presented:

 

     Year Ended
December 31,
    Three Months Ended  
     2018     2019     March 31,
2020
    June 30,
2020
    September 30,
2020
 
     (in thousands, except percentages)  

Net income (loss)

   $ (17,591   $ (17,527   $ (2,059   $ 6,702     $ 6,605  

Interest expense, net

     (1,052     (1,029     (212     (193     (228

Other expense, net

     (256     (42     (271     22       23  

Provision for income taxes

     (198     (355     (55     (37     (31

Other gains from operations

     850                          

Stock-based compensation

     (1,460     (1,998     (403     (430     (620
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP operating profit (loss)

   $ (15,475   $ (14,103   $ (1,118   $ 7,340     $ 7,461  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP operating margin

     (19 )%      (16 )%      (5 )%      20     18

Liquidity and Capital Resources

As of December 31, 2019 and September 30, 2020, our principal sources of liquidity were cash, cash equivalents and short-term investments of $23.8 million and $52.7 million, respectively, which were held for working capital purposes. Our short-term investments generally consist of money market funds and certificates of deposit.

Since our inception, we have financed our operations primarily through sales of convertible preferred stock and payments from our customers. During the year ended December 31, 2019, we issued 2,310,067 shares of Class B-1 redeemable convertible preferred stock for an aggregate amount of $25.0 million. We also have a Revolving Credit Facility to obtain up to $30.0 million in debt financing. As of December 31, 2019 and September 30, 2020, we had $22.4 million and $22.4 million, respectively, in aggregate principal amount of debt outstanding under the Revolving Credit Facility. Our principal uses of cash in recent periods have been to fund our operations, invest in research and development and to purchase investments.

We believe our existing cash, cash equivalents and short-term investments will be sufficient to meet our needs for at least the next 12 months. Our future capital requirements will depend on many factors including our revenue growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support further sales and marketing and research and development efforts, as well as expenses associated with our international expansion, including the timing and extent of additional capital expenditures to invest in existing and new office spaces. We may in the future enter into arrangements to acquire or invest in complementary businesses, products, services and technologies, and we may need to seek additional equity or debt financing. In the event that additional financing is needed from outside sources, we may not be able to raise the necessary capital or raise the capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition could be materially and adversely affected.

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

 

     Year Ended December 31,     Nine Months
Ended September 30,
 
     2018     2019     2019     2020  

Net cash provided by (used in) operating activities

   $ (8,639   $ (11,350   $ (7,094   $  26,839  

Net cash provided by (used in) investing activities

        3,948       (4,162     (11,031     (674

Net cash provided by financing activities

     3,496       27,580       27,622       2,547  

 

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Operating Activities

Net cash provided by operating activities of $26.8 million for the nine months ended September 30, 2020 was primarily due to net income of $11.2 million, noncash charges for amortization of deferred contract acquisition costs of $7.5 million, depreciation and amortization of $1.9 million, stock-based compensation of $1.5 million and provision for accounts receivable allowance of $1.4 million, partially offset by noncash interest and dividends received of $0.1 million. Changes in operating assets and liabilities increased cash flows from operations by $3.4 million primarily due to an increase in deferred revenue of $42.8 million from increases in subscriptions, an increase in accrued liabilities of $2.7 million and an increase in accounts payable of $1.1 milli