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As filed with the Securities and Exchange Commission on October 10, 2018

Registration No. 333-227355

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

Form S-1

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

 

 

ANAPLAN, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   7372   27-0897861
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

 

 

Anaplan, Inc.

50 Hawthorne Street

San Francisco, CA 94105

(415) 742-8199

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

area code, of registrant’s principal executive offices)

 

 

Frank Calderoni

Chief Executive Officer

Anaplan, Inc.

50 Hawthorne Street

San Francisco, CA 94105

(415) 742-8199

(Name, address, including zip code, and telephone number, including

area code, of agent for service)

 

 

Copies to:

 

Brooks Stough, Esq.
Richard C. Blake, Esq.
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
550 Allerton Street

Redwood City, CA 94063
(650) 321-2400

  Gary Spiegel, Esq.
Vice President, Legal
Anaplan, Inc.
50 Hawthorne Street
San Francisco, CA 94105
(415) 742-8199
  John L. Savva, Esq.
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 the effective date of this Registration Statement.

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 7(a)(2)(B) of the Securities Act.  

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities

to be Registered

  Amount to be
Registered(1)
 

Proposed Maximum
Offering Price

Per Share

  Proposed Maximum
Aggregate Offering
Price(1)(2)
 

Amount of
Registration

Fee(2)(3)

Common Stock, $0.0001 par value per share

  17,825,000   $17.00   $303,025,000   $37,057

 

 

(1)

Includes 2,325,000 shares that the underwriters have the option to purchase.

(2)

Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(3)

The Registrant previously paid $32,736 of this amount in connection with the prior filings of this Registration Statement.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such 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 October 10, 2018.

15,500,000 Shares

 

LOGO

Anaplan, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of Anaplan, Inc. All of the 15,500,000 shares of common stock are being sold by the company.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $15.00 and $17.00. Our common stock has been approved for listing on the New York Stock Exchange under the symbol “PLAN.”

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

Affiliates of Premji Invest, all of which are affiliates of certain of our existing stockholders and a member of our board of directors, have agreed to purchase up to $20 million of shares of our common stock in a private placement at a price per share equal to the initial public offering price. The shares purchased in the private placement will be subject to a lock-up agreement with the underwriters for a period of up to 180 days after the date of this prospectus. This transaction is contingent upon, and is scheduled to close concurrently with, the closing of this offering.

 

 

See “Risk Factors” beginning on page 17 to read about factors you should consider before buying shares of the 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 Anaplan

   $        $    

 

(1)

See “Underwriting” for a description of the compensation payable to the underwriters.

To the extent that the underwriters sell more than 15,500,000 shares of common stock, the underwriters have the option to purchase up to an additional 2,325,000 shares 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                     , 2018.

 

Goldman Sachs & Co. LLC   Morgan Stanley

Barclays

 

KeyBanc Capital Markets       Canaccord Genuity           Evercore ISI
JMP Securities   Needham & Company               Piper Jaffray       SunTrust Robinson Humphrey

 

 

Prospectus dated                     , 2018.

 


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LOGO

Anaplan connects all the people, plans and data needed to accelerate business value. Coca-Cola With Anaplan, after implementing the platform in less than 12 weeks in 2017, Coca-Cola North America successfully executed to launch 70+ new products to market, all within the first quarter of 2018. The Anaplan platform connects Coca-Cola’s supply chain forecasting across 67 independent bottlers in the United States. VMware With Anaplan, VMware reduced its three-month long sales territory planning process to a single day. The Anaplan platform drives sales territory planning efficiency, and provides users across the sales department with a single view of the data, so that both sales reps and managers have visibility into their accounts on the first day of each planning cycle. RSA Group With Anaplan, RSA has been able to reduce its complex planning process from five months to two months, and workforce planning has experienced a 50 percent improvement in productivity within 12 months. RSA has expanded its use of the Anaplan platform over the past four years to encompass expense planning, workforce planning in contact centers, and Group wide FP&A consolidation for monthly reporting. HP Inc. With Anaplan, HP Inc. has created a single global quota process and workflow while generating significant savings. The Anaplan platform improves its sales quota readiness cycle and territory management for 30,000 salespeople. HP Inc. is expanding their use of the Anaplan platform to support their channel quota deployment process end-to-end, including more than 200,000 partners globally.


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1  

Risk Factors

     17  

Information Regarding Forward-Looking Statements

     50  

Market, Industry, and Other Data

     52  

Use of Proceeds

     54  

Dividend Policy

     55  

Capitalization

     56  

Dilution

     58  

Selected Consolidated Financial and Other Data

     61  

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

     63  

Business

     95  

Management

     111  

Executive Compensation

     119  

Certain Relationships and Related Party Transactions

     134  

Principal Stockholders

     139  

Description of Capital Stock

     142  

Shares Eligible for Future Sale

     148  

Material U.S. Federal Income Tax Considerations For Non-U.S. Holders of Common Stock

     151  

Underwriting

     154  

Validity of Common Stock

     160  

Experts

     160  

Where You Can Find Additional Information

     160  

Index to Consolidated Financial Statements

     F-1  

 

 

Through and including                     , 2018 (25 days after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Neither we nor any of the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition, results of operations, and prospects may have changed since that date.

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


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PROSPECTUS SUMMARY

This summary highlights certain information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider in making your investment decision. You should read the entire prospectus carefully before making an investment in our common stock. You should carefully consider, among other things, our consolidated financial statements and the related notes and the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

Overview

Anaplan is pioneering the category of Connected Planning, which allows organizations to transform their businesses by making better and faster decisions.

We believe Connected Planning is the next essential cloud category. It fundamentally transforms planning by connecting all of the people, data, and plans needed to accelerate business value and enable real-time planning and decision-making in rapidly changing business environments. Connected Planning accelerates business value by transforming the way organizations make decisions and placing the power of planning in the hands of every individual at every level within and between organizations.

Connected Planning represents a fundamental shift from the legacy approach to planning, which is typically confined to the finance department and uses a patchwork of outdated and disconnected tools and manual processes that are often overly complex, slow, inefficient, and static. Connected Planning enables dynamic, collaborative, and intelligent planning across all areas of an organization, including finance, sales, and supply chain, and other corporate functions such as marketing, human resources, and operations.

Our cloud platform is a complete end-to-end solution that addresses the Connected Planning needs of all organizations with a focus on the largest global enterprises. We define large global enterprises as companies included in the Forbes Global 2000, or the Global 2000, an annual ranking of the largest public companies in the world by Forbes magazine. We empower customers to quickly and easily build models to address their most complex business challenges. Our powerful modeling engine, which is based on our proprietary Hyperblock™ technology, enables thousands of concurrent users to access a centralized single source of information for planning, ensuring the consistency, quality, and integrity of the data. Our innovative in-memory architecture allows customers to rapidly run alternative scenarios to understand the impact of changes in business assumptions. This functionality allows users to view and assess the impact of assumptions on plans and key performance indicators in real time. Our platform also leverages predictive analytics to produce actionable intelligence that gives our customers a competitive advantage. We are investing in artificial intelligence, including machine learning, to further enhance the predictive capabilities of our platform.

Our proprietary Hyperblock technology is at the core of our platform and was purpose-built for Connected Planning. This powerful in-memory modeling engine leverages 64-bit multi-core parallel processors to deliver calculations on a massive amount of data at very high speed in real time. Our platform unites traditionally distinct or disconnected database structures, including relational, columnar, and online analytical processing, or OLAP, with in-memory data storage and calculation. Our flexible data structure enables users to easily build and modify complex multi-dimensional models in a single modeling environment, scaling to thousands of concurrent users. Together, these technologies enable flexible modeling, widespread collaboration, and rapid calculation and iteration. As a result, our platform provides insights that were previously unavailable.



 

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We put the success of our customers at the center of our culture, strategy, and investments. As thought leaders in Connected Planning, we have developed deep domain expertise and best practices that are crucial in addressing our customers’ planning challenges. By aligning our thought leadership, worldwide development and delivery capabilities, and local sales and service resources, our Customer First strategy drives exceptional value throughout our customers’ Connected Planning journeys. We view our Customer First strategy as core to capturing our Connected Planning vision and driving continued expansion in the use of our platform.

We focus our selling efforts on executives of large enterprises, who are often making a strategic purchase of our platform with the potential for broad use throughout their organizations. We use a “land and expand” sales strategy to capitalize on this potential. Our platform is often initially adopted within a specific line of business, including in finance, sales, and supply chain, and other corporate functions such as marketing, human resources, and operations, for one or more planning use cases. Once customers see the benefits of our platform for their initial use cases, they often increase the number of users, add new use cases, and expand to additional lines of business, divisions, and geographies. This expansion often generates a natural network effect in which the value of our platform increases as more use cases are adopted, more users are connected, and greater amounts of data are incorporated in our platform. We have been recognized for our single, enterprise-wide Connected Planning platform by Gartner in the July 2018 Magic Quadrant for Cloud Financial Planning and Analysis Solutions, the January 2018 Magic Quadrant for Sales Performance Management, the August 2018 Hype Cycle for Human Capital Management Technology, 2018, and included in the May 2018 The Gartner CRM Vendor Guide, 2018.

As of July 31, 2018, 979 customers were using our platform. Of these, 220, including 23 of our top 25 customers, were members of the Global 2000, which we believe presents our greatest growth opportunity. We had 101, 148, and 196 customers that were members of the Global 2000 as of the end of fiscal 2016, 2017, and 2018, respectively. The revenue generated from our Global 2000 customers represented 56%, 54%, 55%, and 56% of our total revenue in fiscal 2016, 2017, and 2018, and the six months ended July 31, 2018, respectively. The success of our “land and expand” strategy is validated by the expansion we have experienced in the use of our platform by our largest customers and by our dollar-based net expansion rates. Our top 25 customers by average annual recurring revenue as of July 31, 2018, 23 of which are large enterprise customers included in the Global 2000, had average annual recurring revenue of approximately $2.3 million, compared to the average annual recurring revenue represented by their initial purchase of approximately $360,000. The revenue from these 25 customers made up 29% of our total revenue in fiscal 2018 and 26% of our total revenue in the six months ended July 31, 2018. In addition, our annual dollar-based net expansion rate for Anaplan as a whole was approximately 135%, 123%, 122%, and 123% as of the end of fiscal 2016, 2017, and 2018, and July 31, 2018, respectively. See “Market, Industry, and Other Data” for a description of how we calculate our dollar-based net expansion rate. The number of customers with greater than $250,000 of annual recurring revenue was 59, 113, 181, and 213 as of the end of fiscal 2016, 2017, and 2018, and July 31, 2018, respectively. While achieving and maintaining incremental sales to existing customers requires increasingly sophisticated and costly sales efforts, the introduction of new features and functionality to our platform, and customers realizing benefits through their initial adoption of our platform, we believe we have significant opportunities to further expand the use of our platform by our existing customers as well as to attract additional large customers.

We sell our cloud platform primarily through our direct sales team. We also have a broad network of consulting and implementation partners to extend our customer reach and help accelerate the sale and delivery of our platform as a supplement to our direct sales force. Our global partners, including global strategic consulting firms and global systems integrators, often promote our platform as their clients examine how to plan more effectively to achieve organizational transformation or improve business



 

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processes. We also partner with leading regional consulting firms and implementation partners. These highly skilled regional partners not only provide subject-matter expertise in the implementation of specific use cases, but they also act as an extension of our direct sales force by identifying and referring opportunities to us. We and our partners create pre-packaged applications that are available on our App Hub marketplace to further accelerate the adoption and expansion of our platform. In the trailing twelve months ended July 31, 2018, 41% of our total revenue was generated through leads originated from our partners, and as of July 31, 2018, we had 285 applications on App Hub.

We also offer professional services, including consulting, implementation, and training, but are increasingly leveraging our partners to provide these services. This evolving model of service delivery has enabled us to reduce our services revenue from $29.1 million to $24.8 million in fiscal 2017 and 2018, respectively, while increasing subscription revenue from $91.4 million to $143.5 million during the same periods. As a result of this strategy, our subscription revenue as a percentage of total revenue increased from 76% in fiscal 2017 to 85% in fiscal 2018. Our services revenue increased from $14.0 million to $14.8 million in the six months ended July 31, 2017 and 2018, respectively, while subscription revenue increased from $63.8 million to $94.5 million during the same periods, representing a period-over-period subscription revenue growth rate of 48%. As a result of this strategy, our subscription revenue as a percentage of total revenue increased from 82% in the six months ended July 31, 2017 to 86% in the six months ended July 31, 2018.

We have grown rapidly in recent periods. For fiscal 2016, 2017, and 2018, and the six months ended July 31, 2017 and 2018, our revenue was $71.5 million, $120.5 million, $168.3 million, $77.8 million, and $109.4 million, respectively, and our subscription revenue for fiscal 2016, 2017, and 2018 was $50.8 million, $91.4 million, and $143.5 million, representing a year-over-year subscription revenue growth rate of 80% and 57%, respectively. We have a strong and growing international presence with approximately 41% and 43% of our revenue generated from outside of the United States in fiscal 2018 and the six months ended July 31, 2018, respectively. No individual customer represented more than 5% of our revenue in fiscal 2018 or the six months ended July 31, 2018. For fiscal 2016, 2017, and 2018, and the six months ended July 31, 2017 and 2018, our net loss was $54.2 million, $40.2 million, $47.6 million, $16.0 million, and $47.2 million, respectively.

Industry Background

Existing planning processes are broken in a number of fundamental ways:

 

   

Planning Has Been Centralized.    Traditionally, planning has been confined to dedicated planners within the finance department. Organizations are now decentralizing decision-making by empowering departmental leaders, regional heads, and individual employees to make decisions based on the corporate strategy and business realities they observe. It has become critically important to have visibility and collaboration across the whole organization to facilitate quicker, more informed, and more effective decision-making.

 

   

Planning Has Been Backward-Looking.    One of the major limitations of effective planning has been its focus on the past rather than the future. Organizations have often attempted to plan and iterate future scenarios but have been constrained by their inability to incorporate current, consistent, and accurate data in a timely manner.

 

   

Planning Processes Have Been Manual and Slow, Relying on Stale and Inaccurate Information.    Many organizations are still using a patchwork of outdated tools, including decentralized manual processes managed through spreadsheets and other point products. These processes often rely on contradictory and stale data and cannot deliver real-time insights across organizations.



 

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Modern Technology Has Not Been Leveraged in the Planning Process.    Cloud architecture brings a vast number of improvements over legacy on-premises software. Mobile devices and ubiquitous internet connectivity are enabling people to work wherever, whenever, and however they want. Integration technologies enable users to connect different types of data and applications rapidly and reliably without requiring long and expensive systems integration projects.

 

   

Planning Processes Were Not Designed to Take Advantage of the Large Amount of Data Available Today.    Big data and cloud computing have led to an explosion in available data, providing access to more real-time information than ever before. Organizations today realize the need to take advantage of available data, in all its complexity, volume, and variety.

 

   

Planning Solutions Have Been Dependent on IT Departments.    Today, organizations want a planning platform that enables every user, without the assistance of IT personnel, to rapidly build models, easily interact with and gain insights from their data, and holistically collaborate with peers across the organization.

Existing Solutions Do Not Meet the Needs of Organizations or Employees

 

   

Legacy Planning Products.    Legacy planning products are typically siloed, on-premises solutions, or cloud-enabled adaptations of on-premises solutions, designed to address the limited scope of historical planning approaches and have the following limitations:

 

   

Not Dynamic. Tend to be static, and do not allow for rapid iteration of scenarios.

 

   

Not Collaborative. Typically are siloed by department and reside only in the hands of specialists, limiting visibility and collaboration across the entire organization.

 

   

Not Intelligent. Often do not provide the comprehensive set of advanced predictive analytics and optimization tools necessary to enable actionable insights or informed decision-making.

 

   

Emerging Point Products.    Emerging point products are typically designed to address a narrow set of pre-defined use cases such as sales performance management, financial planning, or forecasting. The limitations of these products include:

 

   

Siloed Analyses. Designed to address a narrow set of uses cases and often can only provide answers to specific, standard questions using a confined data set.

 

   

Cannot Effectively Model. Often unable to quickly run and re-run alternative planning scenarios requiring a large amount of data from across the organization.

 

   

Lack of Platform Capabilities. Typically not built as platforms and therefore do not enable users to build an expanding number of models to address use cases across the organization.

 

   

Difficulty Scaling. Often not built to handle the demands of large global enterprises and cannot scale efficiently and effectively.

 

   

Manual Processes.    In many organizations, data is primarily gathered, maintained and updated using individual, static, and manual productivity tools and processes. These processes are most often managed through spreadsheets. The limitations of these processes include:

 

   

Error Prone. Can frequently result in individual cell-level errors that are difficult to identify and correct.

 

   

Limited Scalability. Cannot effectively manage enterprise-sized data stores or execute calculations at scale.

 

   

Not Collaborative. Typically require users to attach their documents to emails, then manually relink cells and sheets, a process which is cumbersome, slow, and error prone.



 

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Lack of Relevant Information. Often lack the breadth of information required to make informed decisions, or access only stale, incomplete, or incorrect data.

 

   

Lack of Data Governance and Security. Lack of a central data hub often results in data being lost or compromised.

Our Market Opportunity

We address a very large existing market of legacy and emerging business software categories, which are tracked in market research studies. According to International Data Corporation, or IDC, the worldwide performance management and analytic applications software market is forecasted to be approximately $17 billion in 2018 and to grow to $21 billion by 2021. This market includes applications for customer relationship management, workforce management, supply chain management, production planning, services operations, and enterprise performance management.

Based on our experience with customers, however, we believe we address a greater opportunity not yet quantified by current market research studies because we are also disrupting numerous manual processes and tools traditionally used in enterprise planning. According to a 2018 study that we commissioned from Nucleus Research, Inc., a market research services firm, there are approximately 72 million workers worldwide who are potential users of our platform.

Our Platform

Our cloud platform is designed to address the end-to-end Connected Planning needs of all organizations. Our platform has the power and functionality to address the most complex planning challenges of the largest global enterprises. It combines the:

 

   

multi-dimensionality of an OLAP tool;

 

   

querying power of a database;

 

   

ease of use of spreadsheets; and

 

   

raw analytical power of a calculation engine.

While the use cases for our platform are unbounded, our customers typically use our platform for:

 

   

Sales.    Managing sales performance, including incentive compensation, territory and quota planning, sales forecasting, account segmentation and scoring, and sales capacity planning.

 

   

Finance.    Managing financial and overall enterprise performance, including financial budgeting, planning, and forecasting.

 

   

Supply Chain.    Managing supply chain performance, including demand planning, supply planning, sales and operations planning, inventory, and merchandise optimization.

 

   

HR.    Managing workforce plans and performance, including workforce and headcount planning, workforce optimization planning, succession planning, and global compensation.

 

   

Marketing.    Managing marketing performance, including trade promotion planning, pricing optimization, and marketing performance management.

 

   

Operations.    Managing performance for many additional operational areas including IT project budgeting and performance analysis, retail merchandise planning, call center planning, and resource capacity planning for professional services.



 

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Benefits to Our Customers

Our customers use our platform to transform their businesses by making better and faster decisions. Our platform allows our customers to rapidly achieve productivity gains and cost savings, which can result in high returns on investment.

Our customers achieve these benefits as a result of the following key attributes of our platform:

 

   

Intelligent.    Customers can gain actionable intelligence by accessing data from both within and outside of the organization, integrating hundreds of applications and documents, and using advanced predictive analytics.

 

   

Collaborative.    Customers can connect people, data, and plans to collaborate across the organization in real time without transferring data between point products and spreadsheets.

 

   

Dynamic.    Customers can rapidly run alternative scenarios to understand the impact of changes in model assumptions.

 

   

Accurate.    Customers can create a centralized single source of information for planning data, thus ensuring the consistency, quality, and integrity of the data utilized.

 

   

Scalable.    Customers can build models at massive scale that are deployed horizontally and vertically throughout organizations and allow thousands of concurrent users to access consistent data without sacrificing performance.

 

   

Easy to Implement and Use.    Customers can rapidly build and easily modify and manage sophisticated models to address their specific needs without coding or relying on their IT departments.

 

   

Comprehensive.    Customers can benefit from a comprehensive platform designed to be deployed horizontally and vertically throughout their organizations.

Our Technology

Our platform is built on a multi-tenant, cloud-native architecture, with our proprietary Hyperblock technology at its core. Key technology components of our platform include:

 

   

Purpose-Built with Hyperblock for Connected Planning.    Our proprietary technology combines a flexible data structure with in-memory storage and calculation, allowing users to make decisions in near-real time. The platform is deployed in a multi-tenant cloud environment to enable scale without degradation of quality across numerous users.

 

   

Flexible Data Structure.    Hyperblock merges traditionally distinct or disconnected database structures, including relational, columnar, and OLAP, with in-memory data storage and calculation into a unified architecture.

 

   

In-Memory Data Engine.    Hyperblock’s in-memory storage allows every cell to know its relationship to the rest of the data and automatically updates for any changes in that data set.

 

   

Cloud-Native, Multi-Tenant Architecture.    We built our platform with a multi-tenant cloud architecture to allow planning in a scalable, versatile, and real-time manner.

 

   

Features and Capabilities Designed for Usability, Intelligence and Security.    Our platform enables our customers to model and optimize a vast array of processes within their organizations.



 

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Natural Language Modeling.    This technology gives business users powerful control over models by allowing them to create and modify models with clicks, not code.

 

   

Intelligence through Predictive Algorithms.    Our platform generates actionable intelligence and insights, which helps an organization make better decisions. Our platform contains an advanced math engine that leverages predictive algorithms and optimization tools that solve both linear and mixed-integer programming problems, and we are investing significant research and development resources to strengthen our platform’s predictive capabilities.

 

   

Robust Security.    We built robust security into our platform. Data at rest is stored in a proprietary, non-readable binary format and subject to full-disk AES-256 encryption; backups also use AES-256 encryption. A bring your own key, or BYOK, option enables our customers to own and manage their own encryption keys if required for compliance needs.

 

   

Governance and Administration.    We offer enterprise-grade governance tools, including the first Application Lifecycle Management, or ALM, capability in the Connected Planning category. Our ALM capability enables customers to effectively manage the development, testing, deployment, and ongoing maintenance of models without disrupting the production environment.

 

   

Data Management.    Our platform’s features enable users to create a data hub to greatly accelerate the realization of Connected Planning by providing a single, accurate, and consistent data repository for users across an organization.

 

   

Interoperability and Extensibility.    Our platform enables our customers to model and optimize a vast array of processes within their organizations utilizing data from many sources. Our platform also integrates with the products of leading technology partners and it supports open API standards-based data sharing.

Our Growth Strategy

Key elements of our growth strategy include:

 

   

Drive New Customer Acquisition.    While we have enjoyed rapid customer growth, we believe we are still in the very early stages of penetrating our addressable market. We strive to make our platform the preferred planning foundation for large enterprises, which we believe have the largest communities of potential users and face the most complex planning challenges.

 

   

Expand within Existing Customers.    We aim to drive Connected Planning across the entire organization to help our customers benefit from the full value of our platform. Once customers see the benefits of our platform for their initial use cases, they often increase the number of users, add new use cases, and expand to additional lines of business, divisions, and geographies.

 

   

Continue to Expand Internationally.    We have a significant opportunity to further expand and we intend to continue to invest in the use of our platform outside of the United States.

 

   

Broaden and Deepen our Partner Ecosystem.    Our partner ecosystem extends our geographic coverage, accelerates the usage and adoption of our platform, promotes thought leadership, and enables a more efficient delivery of service solutions. We intend to augment and deepen our relationships with global and regional partners.



 

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Continue to Innovate and Extend our Technology Platform Leadership.    We plan to continue extending the functionality and breadth of our platform to broaden its appeal to potential new customers and increase opportunities for its expanded use by existing customers.

Concurrent Private Placement

Affiliates of Premji Invest, all of which are affiliates of certain of our existing stockholders and a member of our board of directors, have agreed to purchase up to $20 million of shares of our common stock in a private placement at a price per share equal to the initial public offering price. The shares purchased in the private placement will be subject to a lock-up agreement with the underwriters for a period of up to 180 days after the date of this prospectus. This transaction is contingent upon, and is scheduled to close concurrently with, the closing of this offering.

Risks Associated With Our Business

Our business is subject to numerous risks and uncertainties including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, among others, the following:

 

   

We have a limited history of operating at our current scale and under our current strategy, which makes it difficult to predict our future operating results, and we may not achieve our expected operating results in the future.

 

   

We have a history of net losses, we anticipate increasing our operating expenses in the future, and we do not expect to be profitable for the foreseeable future.

 

   

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

 

   

Because we derive substantially all of our revenue from a single software platform, failure of Connected Planning solutions in general and our platform in particular to satisfy customer demands or to achieve increased market acceptance would adversely affect our business, results of operations, financial condition, and growth prospects.

 

   

If we are unable to attract new customers, both domestically and internationally, the growth of our revenue will be adversely affected and our business may be harmed.

 

   

Our business depends substantially on our customers renewing their subscriptions and expanding their use of our platform. Any decline in our customer renewals, renewals at a lower fee level, or failure by our customers to expand their use of our platform would harm our future operating results.

 

   

The markets in which we participate are intensely competitive, and if we do not compete effectively, our business and operating results could be adversely affected.

 

   

If we experience a security incident, our platform may be perceived as not being secure, our reputation may be harmed, customers may reduce the use of or stop using our platform, we may incur significant liabilities, and our business could be materially adversely affected.

 

   

Real or perceived errors, failures, bugs, service outages, or disruptions in our platform could adversely affect our reputation and harm our business.

 

   

We have experienced rapid growth in recent periods and expect to continue to invest in our growth for the foreseeable future. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service, or adequately address competitive challenges.



 

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We could incur substantial costs in protecting or defending our intellectual property rights, and any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.

 

   

Our global operations and sales to customers outside the United States or with international operations subject us to risks inherent in international operations that can harm our business, results of operations, and financial condition.

If we are unable to adequately address these and other risks we face, our business, financial condition, operating results, and prospects may be adversely affected.

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 exception 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.

We may take advantage of these provisions for up to five years or such earlier time that we no longer qualify as an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenues, have more than $700 million in market value of our capital stock held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced reporting burdens.

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 have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards. Accordingly, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Corporate Information

We were formed in 2008 as Anaplan, LLC, a Delaware limited liability company. In July 2009, Anaplan, LLC converted into Anaplan, Inc., a Delaware corporation. Our principal executive offices are located at 50 Hawthorne Street, San Francisco, CA 94105, and our telephone number is (415) 742-8199. Our website address is www.anaplan.com. The information on, or that can be accessed through, our website is not part of this prospectus. We have included our website address as an inactive textual reference only. Except as otherwise indicated herein or as the context otherwise



 

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requires, references in this prospectus to “Anaplan,” “the company,” “we,” “us,” and “our” refer to Anaplan, Inc., a Delaware corporation, and its subsidiaries taken as a whole. Our fiscal year end is January 31, and our fiscal quarters end on April 30, July 31, October 31, and January 31. Our fiscal years ended January 31, 2016, 2017, and 2018 are referred to herein as fiscal 2016, fiscal 2017, and fiscal 2018. The Anaplan logo, “Anaplan,” “Hyperblock,” and our other registered and common law trade names, trademarks, and service marks are the property of Anaplan, Inc. or our subsidiaries. This prospectus contains additional trade names, trademarks, and service marks of other companies that are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.



 

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THE OFFERING

 

Common stock offered by us

15,500,000 shares

 

Common stock to be sold by us in the concurrent private placement

Concurrently with the closing of this offering, affiliates of Premji Invest will purchase from us in a private placement up to $20 million of shares of our common stock at a price per share equal to the initial public offering price. Based on an assumed initial public offering price of $16.00 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, this would be equal to 1,249,999 shares. We will receive the full proceeds and will not pay any underwriting discounts or commissions with respect to the shares that are sold in the private placement. The sale of these shares to affiliates of Premji Invest will not be registered in this offering and will be subject to a lock-up for 180 days after the date of this prospectus. We refer to the private placement of these shares of common stock as “the concurrent private placement”.

 

Option to purchase additional shares from us

We have granted the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to 2,325,000 additional shares from us.

 

Common stock to be outstanding immediately after this offering and the concurrent private placement


121,717,079 shares (124,042,079 shares if the underwriters exercise their option to purchase additional shares in full)

 

Use of proceeds

We estimate that the net proceeds from this offering and the concurrent private placement will be approximately $245.8 million, or $280.4 million if the underwriters exercise their option to purchase additional shares in full, based upon an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

The principal purposes of this offering are to increase our financial flexibility, increase our



 

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visibility in the marketplace and create a public market for our common stock. We expect to use the net proceeds from this offering and the concurrent private placement for working capital and other general corporate purposes, including funding our operating needs. However, we do not currently have specific planned uses for the proceeds. We may also use a portion of our net proceeds to acquire or invest in complementary products, technologies, or businesses. However, we currently have no agreements or commitments to complete any such transactions. See “Use of Proceeds” on page 54.

 

Directed share program

At our request, the underwriters have reserved up to 775,000 shares of common stock, or 5% of the shares offered by this prospectus, for sale through a directed share program at the initial public offering price to individuals, including certain of our senior management and employees, as well as friends and family members of our executive officers, founders and certain members of senior management, and persons with whom we have a business relationship, including certain customers and partners. If purchased by persons who are not existing equityholders and are not employees, the shares will not be subject to a 180-day lock-up restriction. If purchased by any employee or existing equityholder, the shares will be subject to a 180-day lock-up restriction. The number of shares of common stock available for sale to the general public will be reduced by the number of reserved shares sold to these individuals. Any reserved shares of our common stock that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of our common stock offered by this prospectus. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with sales of the reserved shares.

 

Risk factors

See “Risk Factors” beginning on page 17 and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our common stock.

 

Proposed NYSE trading symbol

“PLAN ”


 

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The number of shares of common stock to be outstanding after this offering and the concurrent private placement is based on 104,967,080 shares of common stock outstanding as of July 31, 2018 (which number (i) includes the conversion into shares of our common stock of 73,605,861 shares of our preferred stock immediately prior to completion of this offering, but (ii) excludes the issuance of shares of our common stock upon the closing of the concurrent private placement), and excludes the following:

 

   

14,876,016 shares of common stock issuable upon the exercise of options outstanding as of July 31, 2018, with a weighted-average exercise price of $4.995 per share;

 

   

1,780,383 shares of common stock issuable upon the exercise of options granted after July 31, 2018, with a weighted-average exercise price of $11.86 per share;

 

   

7,624,169 shares of common stock issuable upon the vesting and settlement of restricted stock units outstanding as of July 31, 2018, of which 1,871,675 shares of common stock subject to these restricted stock units are issuable upon the earlier of April 15, 2019 or 185 days after the completion of this offering, as the time-based vesting requirement of these restricted stock units was satisfied as of July 31, 2018 and we expect the liquidity-event vesting requirement to be satisfied upon completion of this offering;

 

   

4,538,435 shares of common stock issuable upon the vesting and settlement of restricted stock units awarded after July 31, 2018;

 

   

13,901 shares of common stock issued upon the exercise of a warrant outstanding as of July 31, 2018 with an exercise price of $0.88 per share;

 

   

10,454 shares of common stock issuable upon the exercise of a warrant outstanding as of July 31, 2018 with an exercise price of $2.3913 per share; and

 

   

15,743,887 shares of common stock reserved for future issuance under our equity compensation plans, consisting of 13,043,887 shares of common stock that were reserved for issuance under our 2012 Stock Plan as of October 9, 2018 that will become available for issuance under our 2018 Equity Incentive Plan, which will become effective in connection with the completion of this offering and 2,700,000 shares of common stock reserved for issuance under our 2018 Employee Stock Purchase Plan, which will become effective in connection with the completion of this offering. Our 2018 Equity Incentive Plan and 2018 Employee Stock Purchase Plan also provide for automatic annual increases in the number of shares reserved under these plans, as more fully described in “Executive Compensation—Equity Plans.” On the date immediately prior to the date of this prospectus, any remaining shares available for issuance under our 2012 Stock Plan will be added to the shares reserved under the 2018 Equity Incentive Plan in effect following the completion of this offering and we will cease granting awards under the 2012 Stock Plan.

Unless otherwise indicated, all information in this prospectus assumes:

 

   

the issuance of 1,249,999 shares of our common stock to affiliates of Premji Invest, affiliates of certain existing stockholders and a member of our board of directors, upon the closing of the concurrent private placement, based on the assumed initial public offering price of $16.00, which is the midpoint of the price range set forth on the cover page of this prospectus;

 

   

the automatic conversion of 73,605,861 shares of our preferred stock outstanding as of July 31, 2018, into an aggregate of 73,605,861 shares of our common stock immediately prior to the completion of this offering;

 

   

the automatic conversion of an outstanding warrant to purchase 10,454 shares of our preferred stock into a warrant to purchase 10,454 shares of our common stock, which will occur by the



 

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terms of the warrant and without any action on the part of the holder of such warrant immediately prior to the completion of this offering;

 

   

the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws immediately prior to the completion of this offering;

 

   

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

 

   

no exercise or cancellation of outstanding options or warrants, no settlement of outstanding restricted stock units and no acceleration of vesting of any restricted stock subsequent to July 31, 2018; however, shares of common stock reserved for future issuance in respect of any such awards issued under our 2012 Stock Plan that expire, terminate, or are forfeited will become available under our 2018 Equity Incentive Plan.



 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables set forth a summary of our historical consolidated financial data. The consolidated statements of operations data for fiscal 2016, 2017, and 2018 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the six months ended July 31, 2017 and 2018 and the consolidated balance sheet data as of July 31, 2018 are derived from our unaudited interim consolidated financial statements that are included elsewhere in this prospectus. The unaudited consolidated financial statements were prepared on a basis consistent with our audited financial statements and include, in the opinion of management, all adjustments necessary to state fairly the financial information set forth in those statements. You should read this data together with our audited consolidated financial statements and related notes appearing elsewhere in this prospectus and the information in “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of our future results and our results for the six months ended July 31, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year or any other period.

 

    Year Ended January 31,     Six Months
Ended July 31,
 
    2016     2017     2018     2017     2018  
    (in thousands, except per share data)  

Consolidated Statements of Operations Data:

         

Revenue:

         

Subscription revenue

  $ 50,772     $ 91,416     $ 143,542     $ 63,804     $ 94,539  

Professional services revenue

    20,753       29,083       24,805       14,015       14,839  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    71,525       120,499       168,347       77,819       109,378  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue:

         

Cost of subscription revenue(1)

    7,655       9,072       19,927       6,782       16,574  

Cost of professional services revenue(1)

    22,849       30,335       32,058       17,403       13,417  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    30,504       39,407       51,985       24,185       29,991  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    41,021       81,092       116,362       53,634       79,387  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

         

Research and development(1)

    19,288       23,868       30,908       15,209       23,849  

Sales and marketing(1)

    55,279       73,656       100,654       42,314       77,922  

General and administrative(1)

    19,313       22,503       30,719       12,017       22,870  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    93,880       120,027       162,281       69,540       124,641  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (52,859     (38,935     (45,919     (15,906     (45,254

Interest income, net

    55       88       108       45       125  

Other income (expense), net

    (1,343     (835     (482     291       (640
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (54,147     (39,682     (46,293     (15,570     (45,769

Provision for income taxes

    (80     (512     (1,261     (409     (1,460
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (54,227   $ (40,194   $ (47,554   $ (15,979   $ (47,229
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ (4.62   $ (2.92   $ (2.51   $ (0.89   $ (2.10
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted(2)

    11,741       13,774       18,956       17,934       22,453  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2)

      $ (0.54     $ (0.48
     

 

 

     

 

 

 

Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2)

        88,212         97,571  
     

 

 

     

 

 

 


 

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(1)

Includes stock-based compensation expense as follows:

 

     Year Ended January 31,      Six Months
Ended July 31,
 
     2016      2017      2018      2017      2018  
     (in thousands)  

Cost of subscription revenue

   $ 305      $ 49      $ 148      $ 32      $ 138  

Cost of professional services revenue

     122        336        507        282        118  

Research and development

     452        634        742        342        536  

Sales and marketing

     1,363        2,555        3,496        1,695        2,036  

General and administrative

     1,266        2,529        3,746        1,076        2,072  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 3,508      $ 6,103      $ 8,639      $ 3,427      $ 4,900  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

See Notes 1 and 10 of the notes to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net loss per share and pro forma net loss per share attributable to common stockholders and the weighted-average number of shares used in the computation of the per share amounts.

 

     July 31, 2018  
     Actual      Pro Forma(1)      Pro Forma
as Adjusted(2)(3)
 
     (in thousands)  

Consolidated Balance Sheet Data:

        

Cash and cash equivalents

   $ 86,958      $ 86,958      $ 332,798  

Working capital

     10,988        10,988        256,828  

Total assets

     234,160        234,160        480,000  

Deferred revenue, current and non-current

     108,772        108,772        108,772  

Convertible preferred stock

     7                

Total stockholders’ equity

     72,276        72,276        318,116  

 

(1)

The pro forma consolidated balance sheet data reflects (i) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 73,605,861 shares of common stock; and (ii) the filing and effectiveness of our amended and restated certificate of incorporation, each of which will occur immediately prior to the completion of this offering.

(2)

The pro forma as adjusted consolidated balance sheet data reflects (i) the pro forma adjustments described in footnote (1) above; (ii) the sale by us of 15,500,000 shares of common stock in this offering at the assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us; and (iii) the sale of 1,249,999 shares of our common stock to be purchased from us by affiliates of Premji Invest, affiliates of certain of our existing stockholders and a member of our board of directors, at an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

(3)

Each $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of pro forma as adjusted cash and cash equivalents, working capital, total assets, and total stockholders’ equity by approximately $14.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting assumed underwriting discounts and commissions. We may also increase (decrease) the number of shares we are offering. An increase (decrease) of 1.0 million in the number of shares we are offering would increase (decrease) each of pro forma as adjusted cash and cash equivalents, working capital, total assets, and total stockholders’ equity by approximately $14.9 million, assuming the assumed initial public offering price per share remains the same, after deducting assumed underwriting discounts and commissions. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price, number of shares offered, and other terms of this offering determined at pricing.

Key Metrics

We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.

 

     January 31,
2016
    January 31,
2017
    January 31,
2018
    July 31,
2018
 

Customers

     434       662       864       979  

Dollar-based net expansion rate

     135     123     122     123

For a discussion of our key metrics, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics.”



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations, and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below. See “Information Regarding Forward-Looking Statements.”

We have a limited history of operating at our current scale and under our current strategy, which makes it difficult to predict our future operating results, and we may not achieve our expected operating results in the future.

While we were originally formed as Anaplan, LLC in 2008 and first introduced our business planning platform in 2011, much of our growth has occurred over the last two years. Over the last two years we have hired new senior management, substantially increased our sales and customer success headcount, shifted our sales strategy to increase our focus on large global enterprises, which we define as companies that are members of the Forbes Global 2000, or Global 2000, and increased our reliance on partners to accelerate our sales process and provide implementation services. We have also substantially increased our engineering headcount and increased the frequency of our product enhancements and releases. As we have a limited history of operations at our current scale and under our current strategy, our ability to forecast our future operating results and plan for and model future growth is limited and subject to a number of uncertainties. In addition, we have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing markets. If the assumptions regarding these risks and uncertainties are incorrect or change, or if we do not execute on our strategy and manage these risks and uncertainties successfully, our operating results could differ materially from our expectations and those of securities analysts and investors, and our business could suffer and the trading price of our common stock could decline.

We have a history of net losses, we anticipate increasing our operating expenses in the future, and we do not expect to be profitable for the foreseeable future.

We have incurred significant losses in each period since our inception, including net losses of $54.2 million, $40.2 million, $47.6 million, and $47.2 million, respectively, in fiscal 2016, 2017, and 2018, and for the six months ended July 31, 2018. We had an accumulated deficit of $259.4 million at July 31, 2018. Our losses and accumulated deficit reflect the substantial investments we have made to acquire new customers and develop our platform. We expect our operating expenses to increase substantially in the foreseeable future as we make investments and implement initiatives designed to grow our business, including:

 

   

expanding our sales and marketing organization to increase our overall customer base and expand sales within our current customer base;

 

   

expanding our offices and headcount internationally as we seek to continue to penetrate international markets;

 

   

investing in research and development to improve the capabilities of our platform;

 

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growing our partner ecosystem;

 

   

making additional investments to broaden and deepen our user community;

 

   

expanding our infrastructure, both domestically and internationally, to support future growth; and

 

   

investing in legal, accounting, and other administrative functions necessary to support our operating as a public company.

These initiatives may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue, if at all, in an amount sufficient to offset these higher expenses and to achieve and sustain profitability. Growth of our revenue may slow or revenue may decline for a number of possible reasons, including a decrease in our ability to attract and retain customers, a failure to successfully implement our “land and expand” strategy, a failure to increase our number of partners, increasing competition, decreasing growth of our overall market, or an inability to timely and cost-effectively introduce new products and services that are favorably received by customers and partners. Furthermore, to the extent we are successful in increasing our customer base, we will also initially incur increased losses because costs associated with acquiring customers are generally incurred up front. In contrast, subscription revenue is generally recognized ratably over the terms of the agreements that last typically two to three years, although some customers commit for shorter periods. You should not consider our recent growth in revenue as indicative of our future performance. Accordingly, we cannot assure you that we will achieve or maintain profitability in the future.

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

Our quarterly results of operations, as well as our key metrics discussed elsewhere in this prospectus, including the levels of our revenue, gross margin, cash flow, and deferred revenue, have fluctuated in the past and may vary significantly in the future, and quarter-to-quarter comparisons of our operating results and key metrics may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results and metrics 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. These fluctuations could result in our failure to meet our expectations or those of securities analysts or investors. If we fail to meet these expectations for any particular period, the trading price of our common stock could decline significantly. Factors that may cause these quarterly fluctuations include, without limitation, those listed below:

 

   

our ability to maintain our existing customer base and attract new customers;

 

   

our ability to expand use of our platform by existing customers;

 

   

our ability to release platform updates and enhancements on a timely basis;

 

   

the addition or loss of large customers, including through acquisitions or consolidations;

 

   

our ability to successfully compete in our markets;

 

   

the timing of recognition of revenue;

 

   

the amount and timing of operating expenses;

 

   

the amount and timing of completion of professional services engagements;

 

   

changes in our pricing policies or those of our competitors;

 

   

fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies;

 

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seasonal variations in sales of our software subscriptions, which have historically been highest in the fourth quarter of a calendar year but may vary in future quarters;

 

   

the timing and success of new product feature introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers, or strategic partners;

 

   

the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies;

 

   

network outages or security breaches;

 

   

adverse litigation, judgments, settlements, or other litigation-related costs;

 

   

changes in the legislative or regulatory environment, such as with respect to privacy; and

 

   

general economic, industry, and market conditions, both domestically and internationally.

Because we derive substantially all of our revenue from a single software platform, failure of Connected Planning solutions in general and our platform in particular to satisfy customer demands or to achieve increased market acceptance would adversely affect our business, results of operations, financial condition, and growth prospects.

We derive and expect to continue to derive substantially all of our revenue from our cloud-based enterprise planning and performance management software platform. As such, the market acceptance of Connected Planning solutions in general and our platform in particular are critical to our continued success. Market acceptance of a cloud-based Connected Planning solution depends in part on market awareness of the benefits that Connected Planning can provide over legacy planning products, emerging point products and manual processes and organizations more broadly deploying planning solutions to their employees and across functional lines of business. In addition, in order for cloud-based Connected Planning solutions to be widely accepted, organizations must overcome any concerns with placing sensitive information on a cloud-based platform. The market for cloud-based Connected Planning solutions is at an early stage of development, and we cannot be sure that this market will expand in a manner that will support the growth of our business. In addition, demand for our platform in particular is affected by a number of other factors, some of which are beyond our control. These factors include continued market acceptance of our platform, the pace at which existing customers realize benefits from the use of our platform and decide to expand deployment of our platform across their business, the extent to which our customers involve a wider group of employees in planning, the timing of development and release of new products by our competitors, technological change, the perception of ease of use, reliability and security, the pace at which enterprises transform their business planning and performance management capabilities, and developments in data privacy regulations. In addition, we expect that the planning and performance management and integration needs of our large and midsize enterprise customers will continue to rapidly change and increase in complexity. We will need to improve the functionality, ease of use, and performance of our platform continually to meet those rapidly changing, complex demands. If we are unable to continue to meet customer demands or to achieve more widespread market acceptance of Connected Planning solutions in general or our platform in particular, our business operations, financial results, and growth prospects will be materially and adversely affected.

If we are unable to attract new customers, both domestically and internationally, the growth of our revenue will be adversely affected and our business may be harmed.

Our ability to achieve significant growth in revenue in the future will depend, in large part, upon the effectiveness of our marketing efforts, both domestically and internationally, and our ability to attract new customers. This may be particularly challenging where an organization has already

 

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invested substantial personnel and financial resources to integrate traditional strategic planning and management solutions into its business, as such organization may be reluctant or unwilling to invest in new products and services. Furthermore, as our industry matures or if competitors introduce lower cost and/or differentiated products or services that are perceived to compete with ours, our ability to sell to new customers based on factors such as pricing, technology, and functionality could be impaired. As a result, we may be unable to attract new customers at rates or on terms that would be favorable or comparable to prior periods, and our business, revenue, operating results, and financial condition could be adversely affected.

Our business depends substantially on our customers renewing their subscriptions and expanding their use of our platform. If our customers do not renew their subscriptions, if they renew on less favorable terms, or if they fail to add more users in more functional areas or upgrade to a higher level of functionality on our platform, our business and operating results will be adversely affected.

In order for us to maintain or improve our operating results, it is important that our customers renew their subscriptions when the initial contract term expires, add additional authorized users to their subscriptions, and upgrade to a higher level of functionality on the platform. Our customers generally enter into agreements with two- to three- year subscription terms and have no obligation to renew their subscriptions after the expiration of their initial subscription period. Our customers may decide not to renew their subscriptions with a similar contract period, at the same prices or terms or with the same or a greater number of authorized users or level of functionality. Some of our customers have elected not to renew their agreements with us, and we may not be able to accurately predict renewal rates.

In addition, our growth strategy is a land-and-expand strategy that depends in substantial part on our customers expanding the use of our platform in their organizations through use by additional users, use across more functional areas of their organization, including finance, sales, supply chain, marketing, human resources, and operations, and the purchase of subscriptions providing additional features and functionality. To increase the opportunities for further expanding the use of our platform by existing customers, we will need to introduce new features and functionality to our platform to more comprehensively address the needs of customers deploying our platform to address a wider variety of use cases. If our customers do not realize benefits through their initial adoption of our platform, or if they do not believe that they will realize additional benefits through broader deployment of our platform in other functional areas of their organizations, or in other uses cases, our ability to increase our revenue will suffer. Achieving incremental sales to our current customer base requires increasingly sophisticated and costly sales efforts that are targeted at senior management. If we are not able to attract the attention of senior management, our sales efforts may not be effective and our ability to increase our revenue will suffer.

If our customers do not renew their subscriptions, if they renew on less favorable terms, or if they fail to add more users in more functional areas or upgrade to a higher level of functionality on our platform, our business and operating results will be adversely affected.

The markets in which we participate are intensely competitive, and if we do not compete effectively, our business and operating results could be adversely affected.

The market for business planning software is highly competitive, with relatively low barriers to entry for some software or services. Our ability to compete successfully in our market depends on a number of factors, both within and outside of our control, including those factors set forth in “Business—Competition.” Any failure by us to compete successfully in any one of these or other areas may reduce the demand for our platform, as well as adversely affect our business, operating results, and financial condition.

 

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Our competitors include Oracle Corporation, or Oracle, SAP AG, or SAP, and International Business Machines Corporation, or IBM, which are well-established providers of business planning and analytics software with long-standing relationships with many customers. Some customers may be hesitant to adopt cloud-based software such as ours or to purchase cloud-based software from us and may prefer to purchase from such legacy software vendors. Oracle, SAP, and IBM are larger than we are and have greater name recognition, longer operating histories, larger marketing budgets, and significantly greater resources than we do. These vendors, as well as other competitors, may offer business planning software on a standalone basis at a low price or bundled as part of a larger product sale. Our competitors may also seek to partner with other leading cloud providers.

We also face competition from custom-built software vendors and from vendors of specific applications, some of which offer cloud-based solutions, including Callidus Software Inc., a subsidiary of SAP, in sales performance management and Adaptive Insights Inc. in mid-market finance applications. We may also face competition from a variety of vendors of cloud-based and on-premises software products that address only a portion of the use cases addressed by our platform, including spreadsheets, which are used by virtually every business to some degree for business planning. Some of these applications may have greater functionality than our platform for the specific use cases for which they were designed, even if they lack the breadth of planning capabilities provided by our platform. In addition, other companies that provide cloud-based software in different target markets may develop software or acquire companies that operate in our target markets, and some potential customers may elect to develop their own internal software or simply use the manual processes that they have traditionally used. With the introduction of new technologies and market entrants, we expect competition to intensify in the future.

Many of our competitors have longer operating histories and greater name recognition than we do, and are able to devote greater resources to the development, promotion, and sale of their products and services than we can. Furthermore, our current or potential competitors may be acquired by third parties with greater available resources and the ability to initiate or withstand substantial price competition. In addition, many of our competitors have established marketing relationships, access to larger customer bases, and major distribution agreements with consultants, systems integrators, and resellers. Our competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their product offerings or resources. If our competitors are successful in bringing their products or services to market earlier than ours or if their products or services are more technologically capable than ours, then our revenue could be adversely affected. In addition, some of our competitors may offer their products and services at a lower price. If we are unable to achieve our target pricing levels, our operating results would be negatively affected. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses or a failure to maintain or improve our competitive market position, any of which could adversely affect our business.

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

Our ability to increase our customer base, achieve broader market acceptance of our platform, grow our revenue, and achieve and sustain profitability will depend, to a significant extent, on our ability to effectively expand our sales and marketing operations and activities. Our sales and marketing expenses represent a significant percentage of our revenue, and our operating results will suffer if our sales and marketing expenditures do not contribute to increasing revenue as we anticipate. For example, during fiscal 2018 and the six months ended July 31, 2018, sales and marketing expenses represented 60% and 71% of our revenue, respectively. We are substantially dependent on our direct sales force to obtain new customers. Over the last two years we have substantially increased the size of our direct sales force, and accordingly many of the new members of our sales force have not yet become fully productive. We plan to continue to expand our direct sales force both domestically and

 

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internationally. New hires require significant training and time before they achieve full productivity, particularly in new sales territories. Our recent hires and planned hires may not become as productive as quickly as we would like, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future in the markets where we do business. Furthermore, hiring sales personnel in new countries can be costly, complex, and time-consuming, and requires additional set up and upfront costs that may be disproportionate to the initial revenue that we expect to receive from those countries. We believe that there is significant competition for direct sales personnel with the sales skills and technical knowledge that we require. Our ability to achieve significant revenue growth in the future will depend, in large part, on our success in recruiting, training, and retaining a sufficient number of direct sales personnel. Attrition rates may increase, and we may face integration challenges as we continue to seek to aggressively expand our sales force. Moreover, we do not have significant experience as an organization developing and implementing overseas marketing campaigns, and such campaigns may be expensive and difficult to implement. Our business will be harmed if our continuing investment in increasing our sales and marketing capabilities do not generate a significant increase in revenue.

Our growth depends in part on the success of our strategic relationships with third parties and their continued performance.

We have established strategic relationships with global strategic consulting firms, global systems integrators, regional consulting firms, implementation partners, and technology partners. In order to grow our business, we anticipate that we will need to broaden and deepen our partner ecosystem by continuing to establish and maintain relationships with such third parties. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be effective in providing incentives to third parties to favor their products or services or to prevent or reduce subscriptions to our services. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of our current and potential customers, as our partners may no longer facilitate the adoption of our platform by potential customers.

If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenue could be impaired, we could incur increased operating expenses and our operating results may suffer. Even if we are successful, we cannot assure you that these relationships will result in increased customer adoption or usage of our platform or increased revenue.

If we experience a security incident, our platform may be perceived as not being secure, our reputation may be harmed, customers may reduce the use of or stop using our platform, we may incur significant liabilities, and our business could be materially adversely affected.

Security incidents have become more prevalent across industries and may occur on our systems. These security incidents may be caused by or result in, but are not limited to, security breaches, computer malware or malicious software, computer hacking, denial of service attacks, security system control failures in our own systems or from vendors we use, email phishing, software vulnerabilities, social engineering, sabotage, and unintentional downloads of malware. Such security incidents, whether intentional or otherwise, may result from actions of hackers, criminals, nation states, vendors, employees, customers, or others. The techniques used to effect unauthorized penetration of computer systems are constantly evolving and have been increasing in sophistication. While we have security measures in place that are designed to protect customer information and prevent data loss and other security breaches, these measures could be breached as a result of third-party action, employee error, malfeasance, or otherwise. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement sufficient control measures to defend against these

 

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techniques. Our users may also disclose or lose control of their passwords, or use the same of similar passwords on third parties’ systems, which could lead to unauthorized access to their accounts on our platform.

We may also experience disruptions, outages, and other performance problems on our systems due to service attacks, unauthorized access, or other security-related incidents. For example, third parties may conduct attacks designed to temporarily deny customers access to our services. Any successful denial of service attack could result in a loss of customer confidence in the security of our platform and damage to our brand.

Our platform involves the storage and transmission of our customers’ sensitive proprietary information, including their business and financial data. As a result, unauthorized access to customer data or security breaches could result in the loss, or unauthorized dissemination, of such data, which could seriously harm our or our customers’ businesses and reputations. Any of these security incidents could negatively affect our ability to attract new customers, cause existing customers to elect to not renew their subscriptions, result in reputational damage or subject us to third-party lawsuits, regulatory fines, or other action or liability, which could adversely affect our operating results. Any insurance coverage we may have related to security and privacy damages may not be adequate for liabilities actually incurred and we cannot be certain that insurance will continue to be available to us on economically reasonable terms, or at all. These risks are likely to increase as we continue to grow the scale and functionality of our platform and process, store, and transmit increasingly large amounts of our customers’ information and data, which may include proprietary or confidential data or personal or identifying information.

Real or perceived errors, failures, bugs, service outages, or disruptions in our platform could adversely affect our reputation and harm our business.

Our platform is complex, has contained defects and errors and may continue to contain undetected defects or errors. We are continuing to evolve the features and functionality of our platform through updates and enhancements, and as we do so, we may introduce additional defects or errors that may not be detected until after deployment by our customers. In addition, if our platform is not implemented or used correctly or as intended, inadequate performance and disruptions in service may result. Moreover, if we acquire companies or integrate into our platform technologies developed by third parties, we may encounter difficulty in incorporating the newly-obtained technologies into our platform and maintaining the quality standards that are consistent with our reputation. In addition, while we seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers, we have experienced, and may in the future experience, disruptions, outages, and other performance problems.

Since our customers use our platform for important aspects of their business, any actual or perceived errors, defects, disruptions in service, outages, or other performance problems could damage our customers’ businesses. Any defects or errors in our platform and solutions, or the perception of such defects or errors, or other performance problems could result in any of the following, each of which could adversely affect our business and results of operations:

 

   

expenditure of significant financial and product development resources in efforts to analyze, correct, eliminate or work around errors or defects;

 

   

loss of existing or potential customers or partners;

 

   

interruptions or delays in sales of our platform;

 

   

delayed or lost revenue;

 

   

delay or failure to attain market acceptance;

 

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delay in the development or release of new functionality or improvements to our platform;

 

   

negative publicity, which could harm our reputation;

 

   

sales credits or refunds for prepaid amounts related to unused subscription services;

 

   

diversion of development and customer service resources;

 

   

breach of warranty claims against us, which could result in an increase in our provision for doubtful accounts; and

 

   

an increase in collection cycles for accounts receivable or the expense and risk of litigation.

Although we have contractual protections, such as warranty disclaimers and limitation of liability provisions, in our standard terms and conditions of sale, they may not fully or effectively protect us from claims by customers, partners or other third parties. Any insurance coverage we may have may not adequately cover all claims asserted against us, or cover only 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.

Interruptions, delays in service or inability to increase capacity, including internationally, at our third-party data center facilities could impair the use or functionality of our platform, harm our business, and subject us to liability.

We currently serve our customers from third-party data center facilities operated by Equinix, Inc. located in California and Virginia in the United States, Amsterdam in the Netherlands, and Frankfurt in Germany. Any damage to, or failure of, our systems generally could interrupt service or impair the use or functionality of our platform. In addition, as we continue to increase the number of customers and users on our platform, we will need to increase the capacity of our data center infrastructure, including internationally. If we do not increase our capacity in a timely manner, customers could experience interruptions or delays in access to our platform, and we may not be able to attract potential customers in specific regions of the world unless we open data centers in those regions. As we continue to add data centers and capacity in our existing data centers, we may move or transfer our data and our customers’ data. Despite precautions taken during this process, any unsuccessful data transfers may impair the use or functionality of our platform. Any damage to, or failure of, our systems, or those of our third-party data centers, could result in impairment of or interruptions in service. Impairment of or interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, subject us to claims and litigation, cause our customers to terminate their subscriptions, and adversely affect our renewal rates and our ability to attract new customers. Our business will also be harmed if our customers and potential customers believe our platform is unreliable.

Because our platform is sold to large and midsize enterprises with complex operating environments, we encounter long and unpredictable sales cycles, which could adversely affect our operating results in a given period.

Our ability to increase revenue and achieve profitability depends, in large part, on widespread acceptance of our platform by large and midsize enterprises. As we target our sales efforts at these customers, we face greater costs, longer sales cycles and less predictability in completing some of our sales. As a result of the variability and length of the sales cycle, we have only a limited ability to forecast the timing of sales. A delay in or failure to complete sales could harm our business and financial results, and could cause our financial results to vary significantly from period to period. Our sales cycle varies widely, reflecting differences in potential customers’ decision-making processes,

 

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procurement requirements, and budget cycles, and is subject to significant risks over which we have little or no control, including:

 

   

customers’ budgetary constraints and priorities;

 

   

the timing of customers’ budget cycles;

 

   

the need by some customers for lengthy evaluations;

 

   

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

 

   

the length and timing of customers’ approval processes.

In the enterprise market, a customer’s decision to use our platform may be an enterprise-wide decision, requiring us to expend substantial time, effort, and money educating enterprise customers as to the use and value of our platform. In addition, our ability to successfully sell our platform to large and midsize enterprises is dependent on us attracting and retaining sales personnel with experience in selling to larger organizations. Moreover, our target customers may prefer to purchase software that is critical to their business from one of our larger, more established competitors. Our typical sales cycles can range from three to nine months, and we expect that this lengthy sales cycle may continue or lengthen further. Longer sales cycles could cause our operating and financial results to suffer in a given period.

Because we recognize subscription revenue over the subscription term, downturns or upturns in new sales and renewals will not be immediately reflected in our operating results and may be difficult to discern.

We generally recognize subscription revenue from customers ratably over the terms of their contracts, which are typically two to three years, although some customers commit for shorter periods. As a result, most of the subscription revenue we report in each quarter are 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 will likely have only a small impact on our revenue for that quarter. However, such a decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our platform, and potential changes in our pricing policies or rate of renewals, may not be fully apparent from our reported results of operations until future periods.

In addition, a significant majority of our costs are expensed as incurred, while subscription revenue is recognized over the life of the customer agreement. As a result, increased growth in the number of our customers could continue to result in our recognition of more costs than revenue in the earlier periods of the terms of our agreements with them. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.

In addition, professional services revenue is recognized as the services are performed or upon the completion of the project, depending on the type of professional services arrangement involved. Professional services engagements typically span from a few weeks to several months, which can make it difficult to predict the timing of revenue recognition for such services and the corresponding effects on our results of operations. Professional services revenue has fluctuated and may continue to fluctuate significantly from period to period. In addition, because professional services expenses are recognized as the services are performed, professional services, and total margins can significantly fluctuate from period to period.

 

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The sum of our revenue and changes in deferred revenue may not be an accurate indicator of business activity within a period.

Investors or analysts sometimes look to the sum of revenue and changes in deferred revenue, sometimes referred to as “estimated billings,” as an indicator of business activity in a period for businesses such as ours. However, these measures may significantly differ from underlying business activity for a number of reasons including:

 

   

a relatively large number of transactions occur at the end of the quarter. Invoicing of those transactions may or may not occur before the end of the quarter based on a number of factors including receipt of information from the customer, volume of transactions, and holidays. A shift of a few days has little economic impact on our business, but will shift deferred revenue from one period into the next;

 

   

multi-year upfront billings may distort trends;

 

   

subscriptions that have deferred start dates; and

 

   

services that are invoiced upon delivery.

Accordingly, we do not believe that estimated billings is an accurate indicator of future revenue for any given period of time. However, many companies that provide subscriptions report changes in estimated billings as a key operating or financial metric, and it is possible that analysts or investors may view this metric as important. Thus, any changes in our estimated billings could adversely affect the market price of our common stock.

Changes in our subscription or pricing models could adversely affect our operating results.

As the markets for our software subscriptions grow, as new competitors introduce new products or services that compete with ours or as we enter into new international markets, we may be unable to attract new customers at the same price or based on the same pricing model as we have historically used. Regardless of pricing model used, large customers may demand higher price discounts than in the past. As a result, we may be required to reduce our prices, offer shorter contract durations or offer alternative pricing models, which could adversely affect our revenue, gross margin, profitability, financial position, and cash flow.

We have experienced rapid growth in recent periods and expect to continue to invest in our growth for the foreseeable future. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service, or adequately address competitive challenges.

We have recently experienced a period of rapid growth in our headcount and operations. Our revenue grew from $71.5 million in fiscal 2016 to $168.3 million in fiscal 2018 and from $77.8 million in the six months ended July 31, 2017 to $109.4 million in the six months ended July 31, 2018. Our number of full-time employees has increased significantly over the last few years, from 558 employees as of January 31, 2016 to 1,102 employees as of July 31, 2018. During this period, we also established operations in a number of countries outside the United States. We have also significantly increased the size of our customer base.

We anticipate that we will continue to significantly expand our operations and headcount in the near term, including internationally. We sell our platform to customers in 46 countries and have employees in North America, Europe and Asia. We plan to continue to expand our operations into other countries in the future. This growth has placed, and future growth will place, a significant strain on our management, administrative, operational, and financial infrastructure. Our success will depend in part on our ability to manage this growth effectively and execute our business plan. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational,

 

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financial, and management controls and our reporting systems and procedures, and we will need to ensure that we maintain high levels of customer support. Failure to effectively manage growth and execute our business plan could result in difficulty or delays in increasing the size of our customer base, declines in quality of customer support or customer satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties, and any of these difficulties could adversely affect our business performance and results of operations.

We invest significantly in research and development, and to the extent our research and development investments are not directed efficiently or do not result in material enhancements to our platform, our business and results of operations would be harmed.

A key element of our strategy is to invest significantly in our research and development efforts to enhance the features, functionality, performance, and ease of use of our platform to address additional applications and use cases that will broaden the appeal of our platform and facilitate the broad use of our platform across the largest enterprise customers. If we do not spend our research and development budget efficiently or effectively on compelling innovation and technologies, our business may be harmed and we may not realize the expected benefits of our strategy. Moreover, research and development projects can be technically challenging and expensive. As a result of the nature of research and development cycles, there will be delays between the time we incur expenses associated with research and development activities and the time we are able to offer compelling enhancements to our platform and generate revenue, if any, from those activities. Additionally, anticipated customer demand for a platform enhancement we are developing could decrease after the development cycle has commenced. If we expend a significant amount of resources on research and development efforts that do not lead to the successful introduction of functionality or platform improvements that are competitive in our current or future markets our business and results of operations will suffer.

If we fail to continue to enhance our platform and adapt to rapid technological change, our ability to remain competitive could be impaired.

The industry in which we compete is characterized by rapid technological change, frequent introductions of new products, and evolving industry standards. Our ability to attract new customers and increase revenue from existing customers will depend in significant part on our ability to anticipate industry standards and trends and continue to enhance our platform, introduce new functionality, update our infrastructure on a timely basis to broaden the appeal of our platform to potential new customers, provide an intuitive and user-friendly interface, increase the opportunities for further expanding the use of our platform by existing customers, and keep pace with technological developments. The success of any enhancement, new functionality, or infrastructure development depends on several factors, including timely completion and market acceptance. Any new enhancement, functionality, or infrastructure development might not be introduced in a timely or cost-effective manner and might not achieve the broad market acceptance necessary to generate significant revenue. If any of our competitors implements new technologies before we are able to implement them, those competitors may be able to provide more effective products than ours at lower prices.

We have experienced, and may in the future experience, delays in the planned release dates of enhancements to our platform. Delays could result in adverse publicity, loss of sales, delay in market acceptance of our platform, any of which could cause us to lose existing customers or impair our ability to attract new customers. In addition, the introduction of new products and services by competitors or the development of entirely new technologies to replace existing offerings could make our platform obsolete or adversely affect our ability to compete. Any delay or failure in the introduction of enhancements, functionality, or infrastructure developments could harm our business, results of operations, and financial condition.

 

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Our platform must also integrate with a variety of third-party technologies, and we need to continuously modify and enhance our platform to adapt to changes in cloud-enabled hardware, software, networking, browser, and database technologies. Any failure of our platform to operate effectively with existing or future technologies could reduce the demand for our platform, resulting in customer dissatisfaction and harm to our business. Further, the emergence of new industry standards related to strategic planning and operational execution products and services may adversely affect the demand for our platform. In addition, because our platform is cloud-based, we need to continually enhance and improve our platform to keep pace with changes in Internet-related hardware, software, communications, and database technologies and standards. Any failure of our platform to operate effectively with future hardware or software technologies, or to comply with new industry standards, could reduce the demand for our platform and harm our business, results of operations, and financial condition.

Our business could be adversely affected if our customers are not satisfied with the implementation services provided by us or our partners.

Our business depends on the professional services that are performed to help our customers use our platform. Professional services may be performed by our own staff, by a third-party partner or by a combination of the two. Our strategy is to work with partners to increase the breadth of capability and depth of capacity for delivery of these services to our customers, and we expect the number of our partner-led implementations to continue to increase over time. If a customer is not satisfied with the quality of work performed by us or a partner or with the type of professional services or functionality delivered, even if we are not contractually responsible for the partner services, then we could incur additional costs to address the situation, the profitability of that work might be impaired and the customer’s dissatisfaction with our or our partner’s services could damage our ability to expand the scope of functionality subscribed to by that customer. In addition, negative publicity related to our customer relationships, regardless of its accuracy, may further damage our business by affecting our ability to compete for new business with current and prospective customers.

We typically provide service level commitments under our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face contract terminations, which could adversely affect our revenue.

Our customer agreements typically provide service level commitments on a monthly basis. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our platform, we may be contractually obligated to provide these customers with service credits, or we could face contract terminations, in which case we would be subject to refunds for prepaid amounts related to unused subscription services. Our revenue could be significantly affected if we suffer unexcused downtime under our agreements with our customers. Any extended service outages could adversely affect our reputation, ability to attract new customers and retain existing customers, revenue, and operating results.

Any failure to offer high-quality technical support services may adversely affect our relationships with our customers and our financial results.

Once our platform is implemented, our customers depend on our support organization to resolve technical issues or perceived technical issues relating to the platform. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by our competitors. Increased customer demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results. In addition,

 

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our sales process is highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, our ability to sell subscriptions to our platform to existing and prospective customers and our business, operating results, and financial position.

If we fail to develop, maintain, and enhance widespread brand awareness cost-effectively, our business may suffer.

We believe that developing, maintaining, and enhancing widespread awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our platform, attracting new customers, and maintaining existing customers. For example, widespread awareness of our brand is critical to ensuring that we are invited to participate in requests for proposals from prospective customers. We have made, and will continue to make, significant investments to promote our brand. However, brand promotion activities may not generate customer awareness or increase revenue, and, even if they do, any increase in revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses, we may fail to attract or retain customers necessary to realize a sufficient return on our brand-building efforts or to achieve the widespread brand awareness that is critical for broad customer adoption of our platform. We believe that the importance of our brand and reputation will increase as competition in our market further intensifies.

In addition, independent industry analysts often provide reviews of our platform, as well as the products and services of our competitors, and perception of our platform in the marketplace may be significantly influenced by these reviews. If these reviews are negative, or less positive as compared to those of our competitors’ products and services, our brand may be adversely affected. Additionally, the performance of our partners may affect our brand and reputation if customers do not have a positive experience with our partners’ services. Negative publicity, whether or not justified, relating to events or activities attributed to us, our employees, our partners or others associated with any of these parties, may tarnish our reputation and reduce the value of our brand. Damage to our reputation and loss of brand equity may reduce demand for our platform and have an adverse effect on our business, operating results, and financial condition. Moreover, any attempts to rebuild our reputation and restore the value of our brands may be costly and time consuming, and such efforts may not ultimately be successful.

We depend on the experience and expertise of our senior management team and certain key employees, and the loss of any executive officer or key employee, or the inability to identify and recruit executive officers and key employees in a timely manner, could harm our business, operating results, and financial condition.

Our success depends largely upon the continued services of our key executive officers and certain key employees. We rely on our executive officers and key employees in the areas of business strategy, research and development, marketing, sales, services, and general and administrative functions. From time to time, there may be changes in our executive management team or key employees resulting from the hiring or departure of executives or key employees, which could disrupt our business. We do not maintain key-man insurance for any member of our senior management team or any other employee. We do not have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The loss of one or more of our executive officers or key employees could have a serious adverse effect on our business.

To execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for engineers with high levels of experience in designing and

 

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developing software for Internet-related services, and for direct sales personnel. In particular, competition is intense for experienced software and cloud infrastructure engineers in San Francisco in the United States and London and York in the U.K., our primary development locations. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or our company have breached their legal obligations, resulting in a diversion of our time and resources and potentially in litigation. In addition, job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment. If the perceived value of our stock awards declines, it may adversely affect our ability to recruit and retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected.

Our senior management team, including members of our financial and accounting staff, has worked at the company for a limited time.

Our Chief Executive Officer, Frank Calderoni, joined us in January 2017, our Chief Revenue Officer, Steven Birdsall, joined us in February 2018, and our Chief Financial Officer, David H. Morton, Jr., joined us in September 2018. Our Chief People Officer, Chief Marketing Officer, and Chief Accounting Officer joined us in October 2017, December 2017, and February 2018, respectively. These members of management are critical to our vision, strategic direction, culture, and overall business success. Because of these recent changes, our senior management team, including members of our financial and accounting staff, has not worked at the company for an extended period of time and may not be able to work together effectively to execute our business objectives.

Because our platform could be used to collect and store personal information, domestic and international privacy concerns could result in additional costs and liabilities to us or inhibit sales of our platform.

We may collect, process, and store personal information for our customers and similar data about our employees and services providers. Additionally, our customers can use our platform to collect, process, and store certain types of personal or identifying information regarding their employees and customers. In most cases we contractually prohibit our customers from using our platform to collect, process, or store sensitive information (such as personal health information or credit card information); however, our customers may breach such use prohibitions without our knowledge. Such a breach could result in our violation of the laws, rules, or regulations governing the collection, use, and protection of personal information, which could adversely impact our business, financial condition, and operating results.

Personal privacy has become a significant issue in the United States and in many other countries where our platform is available. The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Many federal, state, and foreign government bodies and agencies have adopted or are considering adopting laws, rules, and regulations regarding the collection, use, storage, security, and disclosure of personal information and breach notification procedures. Laws, rules, and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, and security of various types of data, including data that identifies or may be used to identify an individual, such as names, email addresses, and in some jurisdictions, Internet Protocol, or IP, addresses. Interpretation of these laws, rules, and regulations and their application to our platform and services in the United States and foreign jurisdictions is ongoing and cannot be fully determined at this time.

In the United States, these include laws, rules, and regulations promulgated under the authority of the Federal Trade Commission, the Electronic Communications Privacy Act, Computer Fraud and

 

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Abuse Act, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Gramm Leach Bliley Act, and state laws relating to privacy and data security. Internationally, virtually every jurisdiction in which we operate has established its own data security and privacy legal framework with which we, or our customers, must comply. There may be substantial amounts of personally identifiable information or other sensitive information processed and stored on our platform.

In December 2015, European Union, or EU, institutions reached agreement on a draft regulation that was formally adopted in April 2016, referred to as the General Data Protection Regulation, or GDPR. The GDPR, which became effective May 25, 2018, includes more stringent operational requirements for processors and controllers of personal data, and it replaces both the 1995 EU Data Protection Directive and supersedes applicable EU member state legislation.

The GDPR significantly increases the level of sanctions for non-compliance from those in existing EU data protection law. EU data protection authorities will have the power to impose administrative fines for violations of the GDPR of up to a maximum of 20 million or 4% of the data controller’s or data processor’s total worldwide global turnover for the preceding financial year, whichever is higher, and actual or alleged violations of the GDPR may also lead to damages claims by data controllers and data subjects. We have taken and will continue to take steps to cause our processes to be compliant with applicable portions of the GDPR, but the rules and regulations under the GDPR may not be fully articulated and we cannot assure you that our steps will be compliant. Our efforts to comply with the GDPR or other new data protection laws and regulations may cause us to incur substantial operational costs, require us to modify our data handling practices), and may otherwise adversely impact our business, financial condition and operating results.

Further, following a referendum in June 2016 in which voters in the United Kingdom approved an exit from the EU, the United Kingdom government has initiated a process to leave the EU known as “Brexit”. This has created uncertainty with regard to the future regulation of data protection in the United Kingdom. We may experience reluctance or refusal by current or prospective customers in Europe, including the United Kingdom, to use our products, and we may find it necessary or desirable to make further changes to our handling of personal data of European residents. The regulatory environment applicable to the handling of European residents’ personal data, and our actions taken in response, may cause us to assume additional liabilities or incur additional costs, and could result in our business, operating results, and financial condition being harmed.

We have been certified under the EU-U.S. Privacy Shield with respect to our transfer of certain personal data from the European Union to the United States. The Privacy Shield program is subject to annual review and may be challenged, suspended, or invalidated. At present, the EU-U.S. Privacy Shield framework and the use of EU Standard Contractual Clauses, or the Model Clauses, to protect data exports between the European Union and the U.S. are both subject to ongoing legal challenges. The EU-US Privacy Shield is subject to two challenges before the courts of the European Union that are expected to be heard in the near future, one by an Irish privacy group and another by a French privacy group. The Model Clauses are also the subject of court proceedings between the Irish Data Protection Commissioner and a private individual, and this case has been referred to the Court of Justice of the European Union. Any or all of these court proceedings may result in a ruling that the industry-standard measures we, and other companies, have taken are no longer sufficient. It is also possible that the Privacy Shield program may need to be updated by the European Commission and Department of Commerce to take into account the GDPR. Moreover, we may be unsuccessful in maintaining legitimate means for our transfer and receipt of personal data from the European Union to the United States and may be at risk of experiencing reluctance or refusal of European or multi-national customers to use our solutions and incurring regulatory penalties, which may have an adverse effect on our business. In addition to government regulation, privacy advocates, and industry groups may propose new and different self-regulatory standards that may apply to us. Because the

 

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interpretation and application of privacy and data protection laws, regulations, rules, and other standards are still uncertain, it is possible that these laws, rules, regulations, and other standards’ actual or alleged legal obligations, such as contractual or self-regulatory obligations, may be interpreted and applied in a manner that is inconsistent with our data management practices or the features of our platform. If so, in addition to the possibility of fines, lawsuits, and other claims, we could be required to fundamentally change our business activities and practices or modify our platform, which we may be unable to do in a commercially reasonable manner or at all, and which could have an adverse effect on our business.

If we were to fail to comply with applicable privacy or data protection laws and regulations, or to protect our customers’ data, or were perceived to have failed to comply with these obligations, we could be subject to enforcement action against us, including fines, claims for damages by customers and other affected individuals, damage to our reputation, and loss of goodwill (both in relation to existing customers and prospective customers), any of which could harm our business, results of operations, and financial condition.

Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our platform. Privacy concerns, whether valid or not valid, may inhibit market adoption of our software particularly in certain industries and foreign countries.

Our global operations and sales to customers outside the United States or with international operations subject us to risks inherent in international operations that can harm our business, results of operations, and financial condition.

A key element of our strategy is to operate globally and sell our products to customers across the world. In fiscal 2017 and 2018 and in the six months ended July 31, 2018, we derived approximately 38%, 41%, and 43% of our revenue from customers located outside the United States, respectively. Operating globally requires significant resources and management attention and subject us to regulatory, economic, geographic, and political risks, including:

 

   

increased management, travel, infrastructure and legal compliance costs associated with having operations in many countries;

 

   

increased financial accounting and reporting burdens and complexities;

 

   

variations in adoption and acceptance of cloud computing in different countries, requirements or preferences for domestic products, and difficulties in replacing products offered by more established or known regional competitors;

 

   

new and different sources of competition;

 

   

laws and business practices favoring local competitors;

 

   

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

 

   

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

 

   

compliance with foreign privacy and security laws and regulations, including data privacy laws that require customer data to be stored and processed in a designated territory, and the risks and costs of non-compliance;

 

   

compliance with laws and regulations for foreign operations, including anti-bribery laws (such as the U.S. Foreign Corrupt Practices Act, the U.S. Travel Act, and the U.K. Bribery Act),

 

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import and export control laws, tariffs, trade barriers, economic sanctions, and other regulatory or contractual limitations on our ability to sell our products in certain foreign markets, and the risks and costs of non-compliance;

 

   

heightened risks of unfair or corrupt business practices in certain geographies that may impact our financial results and result in restatements of our consolidated financial statements;

 

   

fluctuations in currency exchange rates and related effects on our results of operations;

 

   

difficulties in repatriating or transferring funds from or converting currencies in certain countries;

 

   

different pricing environments, longer sales cycles, and longer accounts receivable payment cycles and collections issues;

 

   

weak economic conditions in certain countries or regions and general economic uncertainty around the world;

 

   

differing labor standards, including restrictions related to, and the increased cost of, terminating employees in some countries;

 

   

difficulties in recruiting and hiring employees in certain countries;

 

   

the preference for localized software and licensing programs;

 

   

the preference for localized language support;

 

   

unstable regional and economic political conditions;

 

   

weaker protection in some jurisdictions for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights outside of the United States;

 

   

compliance with the laws of numerous foreign taxing jurisdictions, including withholding obligations, and overlapping of different tax regimes;

 

   

compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, privacy, and data protection laws and regulations; and

 

   

the fragmentation of longstanding regulatory frameworks caused by Brexit.

Any of the above risks could adversely affect our international operations, reduce our revenue from customers outside of the United States or increase our operating costs, each of which could adversely affect our business, results of operations, financial condition, and growth prospects.

Some of our business partners also have international operations and are subject to the risks described above. Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if our business partners are not able to successfully manage these risks.

We are subject to anti-corruption, anti-bribery, and similar laws, and failure to comply with these laws could subject us to criminal penalties or significant fines and harm our business and reputation.

We are subject to anti-corruption and anti-bribery and similar laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the U.K. Bribery Act 2010, and other anti-corruption, anti-bribery, and anti-money laundering laws in countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and

 

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are interpreted broadly and prohibit companies and their employees and agents from promising, authorizing, making or offering improper payments, or other benefits to government officials and others in the private sector. As we increase our international sales and business, our risks under these laws may increase. Noncompliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, adverse media coverage, and other consequences. Any investigations, actions, or sanctions could harm our business, operating results, and financial condition.

We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate the controls.

We are subject to certain U.S. export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. Exports of our platform must be made in compliance with these laws and regulations. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including: the possible loss of export or import privileges; fines, which may be imposed on us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers. Obtaining the necessary authorizations, including any required license, for a particular sale may be time-consuming, is not guaranteed, and may result in the delay or loss of sales opportunities.

We incorporate encryption technology into our platform. These encryption products and the underlying technology may be exported outside of the United States only with the required export authorizations, including by license, a license exception or other appropriate government authorizations. In addition, various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our platform or could limit our customers’ ability to implement our platform in those countries. Governmental regulation of encryption technology and regulation of imports or exports of encryption products, or our failure to obtain required import or export approval for our platform, when applicable, could harm our international sales and adversely affect our revenue. Furthermore, U.S. export control laws and economic sanctions programs prohibit the shipment of certain products and services to countries, governments, and persons targeted by U.S. sanctions. Any violations of such economic embargoes and trade sanction regulations could have negative consequences, including government investigations, penalties, and reputational harm.

Changes in our platform or future changes in export and import regulations may create delays in the introduction and sale of our platform in international markets, prevent our customers with international operations from deploying our platform globally or, in some cases, prevent the export or import of our platform to certain countries, governments, or persons altogether. Any change in export or import regulations, economic sanctions or related legislation, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our platform by, 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 adversely affect our business, financial condition, and results of operations.

We may face exposure to foreign currency exchange rate fluctuations.

While our international contracts are sometimes denominated in US dollars, for the six months ended July 31, 2018, approximately 33% of our revenue was in foreign currencies and the majority of

 

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our international costs were denominated in local currencies. Over time, an increasing portion of our international contracts may be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our operating results when translated into U.S. dollars. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.

We could incur substantial costs in protecting or defending our intellectual property rights, and any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.

Our success and ability to compete depend in part upon our intellectual property. We primarily rely on copyright, patent, trade secret and trademark laws, trade secret protection, and confidentiality or contractual agreements with our employees, customers, partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate.

Some or all of our issued patents may be invalidated or otherwise limited, allowing our competitors to develop competitive offerings. In addition, issuance of a patent does not guarantee that we have a right to practice the patented invention or that we can effectively use that patent to limit the ability of other companies to develop competitive products. We cannot be certain that we are the first to use the inventions claimed in our issued patents or pending patent applications or otherwise used in our platform, that we are the first to file for protection in our patent applications, or that third parties do not have blocking patents that could be used to prevent us from marketing or practicing our patented technology. While we have patents and patent applications pending, we may be unable to obtain patent protection for the technology covered in our patent applications or the patent protection may not be obtained quickly enough to meet our business needs. In addition, our existing patents and any patents issued in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. Effective patent, trademark, copyright, and trade secret protection may not be available to us in every country in which our platform is available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States (in particular, some foreign jurisdictions do not permit patent protection for software), and mechanisms for enforcement of intellectual property rights may be inadequate. Additional uncertainty may result from changes to intellectual property legislation enacted in the United States, including the America Invents Act, and by other national governments and from interpretations of the intellectual property laws of the United States and other countries by applicable courts and agencies. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

Although we generally enter into confidentiality and invention assignment agreements with our employees and consultants that have access to material confidential information and enter into confidentiality agreements with our customers and the parties with whom we have strategic relationships and business alliances, these agreements may not be effective in controlling access to and distribution of our platform and propriety information or preventing reverse engineering. Further, these agreements may not prevent competitors from independently developing technologies that are substantially similar or superior to our platform.

Unauthorized use of our intellectual property may have already occurred or may occur in the future. In order to protect our intellectual property rights, we may be required to spend significant

 

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resources to monitor and protect these rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights and could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Our failure to secure, protect, and enforce our intellectual property rights could seriously adversely affect our brand and adversely affect our business.

We may be sued by third parties for alleged infringement of their proprietary rights, which may be costly to defend, could require us to pay significant damages and could limit our ability to use certain technologies.

There has been considerable activity in our industry to develop intellectual property and enforce intellectual property rights. Our success depends upon our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our platform and underlying technology, and we may be unaware of the intellectual property rights that others may claim cover aspects of our platform or the underlying technology. In the future, others may claim that our platform and underlying technology infringe or violate their intellectual property rights.

Claims of intellectual property rights infringement or other violations of intellectual property rights might require us to stop using technology found to violate a third party’s rights, redesign our platform, which could require significant effort and expense and cause delays of 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. With respect to such technology for which intellectual property rights are claimed to be infringed or otherwise violated by our technology or the conduct of our business, if we cannot or do not license any infringed or otherwise violated technology on commercially reasonable terms or at all, or substitute similar non-infringing technology from another source, we could be forced to limit or stop selling our platform, we may not be able to meet our obligations to customers under our customer contracts, we may be unable to compete effectively, and our revenue and operating results could be adversely impacted. We may also be obligated to indemnify our customers and business partners or to pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify our platform, or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding intellectual property could be costly and time-consuming, damage our reputation and brand, and divert the attention of our management and key personnel from our business operations.

Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses.

Our agreements with customers and other third parties generally include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, or other liabilities relating to or arising from our software, services or other contractual obligations. Large indemnity payments could harm our business, results of operations, and financial condition. Although we normally contractually limit our liability with respect to such indemnity obligations, those limitations may not be fully enforceable in all situations, and we may still incur substantial liability under those agreements. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing customers and new customers and harm our business and results of operations.

 

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We employ third-party licensed software for use in or with our platform, and the inability to maintain these licenses or errors in the software we license could result in increased costs, or reduced service levels, which could adversely affect our business.

Our platform incorporates certain third-party software obtained under licenses from other companies, and we use third-party software development tools as we continue to develop and enhance our platform. We anticipate that we will continue to rely on such third-party software in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace such software. In addition, integration of the software used in our platform with new third-party software may require significant work and require substantial investment of our time and resources. Also, to the extent that our platform depends upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our platform, delay new feature introductions, result in a failure of our functionality, and injure our reputation. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties. In the event that we are not able to maintain our licenses to third-party software, or cannot obtain licenses to new software as needed, or in the event third-party software used in conjunction with our platform contains errors or defects, our business, operating results, and financial condition may be adversely affected.

Our platform utilizes open source software, which could negatively affect our ability to offer our products and subject us to litigation or other adverse consequences.

Our platform utilizes software governed by open source licenses, which may include, by way of example, the MIT License and the Apache License. The use of open source software involves a number of risks, many of which cannot be eliminated and could negatively affect our business. For example, the terms of various open source licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our platform. By the terms of certain open source licenses, if we combine our proprietary software with open source software in a certain manner, we could be required to release the source code of our proprietary software and to make our proprietary software available under open source licenses. We may face claims alleging noncompliance with open source license terms or misappropriation or other violation of open source technology. These claims could result in litigation, damage our reputation in the open-source community, or require us to purchase a costly license, devote additional research or development resources to re-engineer our products or services, discontinue the sale of our products if re-engineering could not be accomplished on a timely or cost-effective basis, require us to make the source code of our proprietary code generally available, or result in us being enjoined from the offering of components of our platform that contained the open source software, any of which would have a negative effect on our business and operating results. We also could be subject to lawsuits from other parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results or financial condition, and could require us to devote additional research and development resources to re-engineer our platform. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software.

If the market for enterprise cloud software develops more slowly than we expect or declines our business could be adversely affected.

Since our inception, nearly all of our revenue has come from sales of our subscription-based cloud software platform. We expect these sales to account for the substantial majority of our revenue

 

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for the foreseeable future. Our success will depend to a substantial extent on the widespread adoption of cloud computing in general and of cloud-based business planning solutions in particular. The enterprise cloud software market is not as mature as the market for on-premises enterprise software, and it is uncertain whether enterprise cloud software will achieve and sustain high levels of customer demand and market acceptance. Many enterprises have invested substantial personnel and financial resources to integrate traditional enterprise software into their businesses and, therefore, may be reluctant or unwilling to migrate to enterprise cloud software. It is difficult to predict customer adoption rates and demand for our platform, the future growth rate and size of the enterprise cloud software market, or the entry of competitive solutions. The expansion of the enterprise cloud software market depends on a number of factors, including the cost, performance, and perceived value associated with enterprise cloud software, as well as the ability of enterprise cloud software companies to address security and privacy concerns. If other enterprise cloud software providers experience security incidents, loss of customer data, disruptions in delivery or other problems, the market for enterprise cloud software as a whole, including our platform, may be negatively affected. If enterprise cloud software does not achieve widespread adoption, or if there is a reduction in demand for enterprise cloud software caused by a lack of customer acceptance, technological challenges, weakening economic conditions, security or privacy concerns, competing technologies and products, decreases in corporate spending, or otherwise, our business could be adversely affected. Even if the enterprise cloud software market achieves widespread adoption in certain geographies, our business may be adversely affected if it does not achieve widespread adoption in other geographies.

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

Estimates of market opportunity and forecasts of market growth are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The estimates in this prospectus of the size of the markets that we may be able to address and the forecasts in this prospectus relating to the expected growth in the performance management and analytic applications software market are subject to many assumptions and may prove to be inaccurate. We may not be able to address fully the markets that we believe our platform may address, and these markets may not grow at the rates that we forecast. Even if our platform is able to address the markets that we believe represent our market opportunity and even if these markets experience the forecasted growth described in this prospectus, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the estimates of market opportunity and forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.

We have in the past acquired and may in the future seek to acquire or invest in businesses, products, or technologies that we believe could complement or expand our platform, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.

In addition, we have limited experience in acquiring other businesses. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations, and technologies

 

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successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:

 

   

inability to integrate or benefit from acquired technologies or services in a profitable manner;

 

   

unanticipated costs or liabilities associated with the acquisition;

 

   

incurrence of acquisition-related costs;

 

   

difficulty integrating the accounting systems, operations, and personnel of the acquired business;

 

   

difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;

 

   

difficulty converting the customers of the acquired business onto our platform and contract terms, including disparities in the revenue, licensing, support, or professional services model of the acquired company;

 

   

diversion of management’s attention from other business concerns;

 

   

adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;

 

   

the potential loss of key employees;

 

   

use of resources that are needed in other parts of our business; and

 

   

use of substantial portions of our available cash to consummate the acquisition.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.

Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results, increase our financial risk, and cause the market price of our common stock to decline. In addition, if an acquired business fails to meet our expectations, our operating results, business, and financial position may suffer.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.

We have funded our operations since inception primarily through equity financings and payments by customers. We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. In the future, we may require additional capital to respond to business opportunities, challenges, acquisitions, a decline in the level of customer prepayments or unforeseen circumstances. We may determine to engage in equity or debt financings or enter into credit facilities for these or other reasons, and we may not be able to timely secure additional debt or equity financing on favorable terms, or at all. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences, and privileges senior to those of holders of our common

 

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stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

If we default on our credit obligations, our operations may be interrupted and our business could be seriously harmed.

We have a credit facility that we may draw on to finance our operations, acquisitions, and other corporate purposes. Our obligations pursuant to this credit facility are secured by a first priority lien on our assets for the benefit of the lenders. Our credit facility contains financial and operating covenants, including maintenance of specified financial ratios, customary limitations on the incurrence of certain indebtedness and liens, restrictions on certain intercompany transactions, and limitations on the amount of dividends and stock repurchases. Our ability to comply with these covenants may be affected by events beyond our control, and breaches of these covenants or other obligations in the credit facility, or the occurrence of certain events specified in the credit facility, could result in a default under the credit facility and any future financial agreements into which we may enter. If we default on the obligations under our credit facility, our lenders may pursue various remedial actions against us, including:

 

   

requiring repayment of any outstanding amounts drawn on our credit facility;

 

   

terminating our credit facility;

 

   

disposing of our assets subject to the lien; and

 

   

requiring us to pay significant damages.

If any of these events occur, our operations may be interrupted and our ability to fund our operations or obligations, as well as our business, could be seriously harmed. For more information on our credit facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Adverse economic conditions may negatively impact our business.

Our business depends on the overall demand for information technology and on the economic health of our current and prospective customers in the United States and abroad. Any significant weakening of the economy in the United States or in regions globally like Europe and Asia, more limited availability of credit, a reduction in business confidence and activity, decreased government spending, economic uncertainty, or other difficulties may affect one or more of the sectors or countries in which we sell our platform. Global economic and political uncertainty, including the uncertainty surrounding Brexit, may cause some of our customers or potential customers to curtail spending, result in new regulatory and cost challenges to our international operations and cause customers to delay or reduce their technology spending. In addition, a strong dollar could reduce demand for our products in countries with relatively weaker currencies. These adverse conditions could result in reductions in the rate of enterprise software spending generally, sales of our platform, longer sales cycles, slower adoption of new technologies, lower renewal rates, and increased price competition. Any of these events could have an adverse effect on our business, operating results, and financial position.

Catastrophic events and other events beyond our control may disrupt our business and adversely affect our operating results.

Our corporate headquarters are located in San Francisco, California, and our data centers are located in Santa Clara, California, Ashburn, Virginia, Frankfurt, Germany, and Amsterdam, The Netherlands. The west coast of the United States contains active earthquake zones. Additionally, we

 

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rely on our network and third-party infrastructure and enterprise applications, internal technology systems, and our website for our development, marketing, operational support, hosted services, and sales activities. In the event of a major earthquake, hurricane, or catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war, or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our product development, lengthy interruptions in our services, breaches of data security, and loss of critical data, all of which could have an adverse effect on our business, operating results, and financial condition.

We will incur increased costs and devote substantial management time as a result of operating as a public company.

As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. For example, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the Securities and Exchange Commission, or the SEC, and the New York Stock Exchange, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company, as defined by the JOBS Act. We will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and maintain an internal audit function. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

Public company reporting and disclosure obligations may cause our business and financial condition to become more visible. We believe that this increased visibility may result in threatened or actual litigation from time to time. If such claims are successful, our business, and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them and the diversion of management resources, could adversely affect our business and operating results.

If we fail to maintain an effective system of internal controls, 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 Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations and the listing standards of the New York Stock Exchange. 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. In fiscal 2015, we identified a material weakness in our internal controls over financial reporting arising from a lack of sufficient resources with an appropriate level of accounting and financial reporting expertise to enable effective management review of technical accounting matters and oversight over the financial statement close process. A material weakness is a deficiency or combination of deficiencies in internal control over

 

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financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. We remediated this material weakness in fiscal 2016 by hiring additional accounting and financial reporting personnel and implementing additional controls. 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 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. 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 operating results 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 could 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 applicable stock exchange. 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 after we are no longer an “emerging growth company” as defined in the JOBS Act. 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 have a material adverse effect on our business and operating results and could cause a decline in the price of our common stock.

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. 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 have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”

 

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For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of July 31, (ii) the end of the fiscal year in which we have total annual gross revenues of $1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period, or (iv) the end of the fiscal year that is five years from the date of this prospectus.

We may not be able to utilize a significant portion of our net operating loss or research tax credit carryforwards, which could adversely affect our potential profitability.

As of July 31, 2018, we have federal and state net operating loss carryforwards due to prior period losses, which if not utilized will begin to expire in fiscal 2029 and 2025 for federal and state purposes, respectively. These net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our potential profitability.

Furthermore, under the Tax Cuts and Jobs Act of 2017, or Tax Reform Act, although the treatment of tax losses generated in taxable years ending before December 31, 2017, has generally not changed, tax losses generated in taxable years beginning after December 31, 2017 may be utilized to offset no more than 80% of taxable income annually. The reduced availability of net operating losses in future taxable years could adversely affect our potential profitability.

In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, our ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if we experience an “ownership change.” Such an “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. While this offering and the concurrent private placement may result in an ownership change, we do not believe it will trigger any material limitation on the use of our tax attributes for purposes of Section 382 of the Code. However, future issuances of our stock could cause an “ownership change.” It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our potential profitability.

Comprehensive tax reform legislation could adversely affect our business and financial condition.

The recently enacted Tax Reform Act includes significant changes in the taxation of business entities. These changes include, among others, a permanent reduction to the corporate income tax rate, limiting interest deductions, adopting elements of a territorial tax system, assessing a repatriation tax or “toll-charge” on undistributed earnings and profits of U.S.-owned foreign corporations, and introducing certain anti-base erosion provisions. The primary impact of the new legislation on our provision for income taxes will be a reduction of the future tax benefits of existing temporary

 

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differences, which are primarily comprised of net operating loss carryforwards. These net operating loss carryforwards may also be impacted by the one-time deemed income inclusion of deferred foreign income from our non-U.S. subsidiaries. This amount is not expected to be material. Since we have recorded a full valuation allowance against our deferred tax assets, we do not anticipate that these changes will have a material impact on our operating results, but we continue to examine the impact that this tax reform legislation may have on our business. The overall impact of this tax reform is uncertain, and our business and financial condition, including with respect to our non-U.S. operations, could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the Tax Reform Act and what effect that legal challenges will have on the Tax Reform Act.

Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our customers, which could increase the costs of our services and adversely affect our business.

The application of federal, state, local, and international tax laws to services provided electronically is evolving. New income, sales, use, or other tax laws, statutes, rules, regulations, or ordinances could be enacted at any time (possibly with retroactive effect) and could be applied solely or disproportionately to services provided over the Internet. These enactments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and ultimately result in a negative impact on our operating results and cash flows.

In addition, existing tax laws, statutes, rules, regulations, or ordinances could be interpreted, changed, modified, or applied adversely to us (possibly with retroactive effect), which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties and interest for past amounts. If we are unsuccessful in collecting such taxes from our customers, we could be held liable for such costs, thereby adversely affecting our operating results and cash flows.

Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added, or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.

We do not collect sales and use, value added, and similar taxes in all jurisdictions in which we have sales, based on our belief that such taxes are not applicable or that we are not required to collect such taxes with respect to the jurisdiction. Sales and use, value added, and similar tax laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties, and interest, and we may be required to collect such taxes in the future. The U.S. Supreme Court’s recent decision in South Dakota v. Wayfair, Inc. increasing states’ ability to assert taxing jurisdiction on out-of-state retailers could result in certain additional jurisdictions asserting that sales and use and other taxes are applicable, which could result in tax assessments, penalties, and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties, and interest or future requirements may adversely affect our results of operations.

Unanticipated changes in our effective tax rate could harm our future results.

We are subject to income taxes in the United States and foreign jurisdictions, and our domestic and international tax liabilities are subject to the allocation of expenses in differing jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses as a result of acquisitions, the valuation of deferred tax assets and liabilities, and changes in federal, state, or international tax laws and accounting principles. In addition, we may be subject to income tax audits by many tax jurisdictions throughout the world, many of which have not established clear guidance on the tax

 

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treatment of SaaS-based companies. Any tax assessments, penalties, and interest, or future requirements may adversely affect our results of operations. Moreover, imposition of such taxes on us going forward will effectively increase the cost of our products to our customers and might adversely affect our ability to retain existing customers or to gain new customers in the areas in which such taxes are imposed.

Our reported financial results 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 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 financial results for periods prior and subsequent to such change. For example, recent new standards issued by the FASB that could materially impact our financial statements include certain changes to employee share-based payment accounting and accounting for leases. We may adopt one or more of these standards retrospectively to prior periods, and the adoption may result in an adverse change to previously reported results. Additionally, the adoption of these standards may potentially require enhancements or changes in our systems and could require our financial management to devote significant time and resources to implementing those changes.

Risks Related to Our Initial Public Offering and Ownership of Our Common Stock

There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to our initial public offering. The initial public offering price for our common stock was determined through negotiations between the underwriters and us and may vary from the market price of our common stock following our initial public offering. If you purchase shares of our common stock in our initial public offering, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock may not develop upon closing of our initial public offering or, if it does develop, it may not be sustained. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

   

overall performance of the equity markets;

 

   

our operating performance, including key metrics, and the performance of other similar companies;

 

   

changes in our projected operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock;

 

   

announcements of technological innovations, new software or enhancements to services, acquisitions, strategic alliances, or significant agreements by us or by our competitors;

 

   

disruptions in our services due to computer hardware, software, or network problems;

 

   

announcements of customer additions and customer cancellations or delays in customer purchases;

 

   

recruitment or departure of key personnel;

 

   

the economy as a whole, market conditions in our industry and the industries of our customers;

 

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trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock;

 

   

the expiration of market standoff or contractual lock-up agreements;

 

   

the size of our market float; and

 

   

any other factors discussed in this prospectus.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources, and the attention of management from our business and adversely affect our business.

Substantial blocks of our total outstanding shares may be sold into the market when “lock-up” or “market standoff” periods end. Substantial sales of shares of our common stock, or the perception that such sales could occur, could cause the price of our common stock to decline.

The market price of the shares of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market, particularly by our directors, executive officers, or significant shareholders, or the perception in the market that the holders of a large number of shares intend to sell their shares. After this offering and the concurrent private placement, we will have outstanding 121,717,079 shares of our common stock, based on the number of shares outstanding as of July 31, 2018. All of the shares of common stock sold in this offering will be available for sale in the public market. The shares sold to affiliates of Premji Invest in the concurrent private placement will be subject to a lock-up for 180 days after the date of this prospectus. Substantially all of our outstanding shares of common stock are currently restricted from resale as a result of market standoff and “lock-up” agreements, as more fully described in “Shares Eligible for Future Sale.” These shares will become available to be sold 181 days after the date of this prospectus. Shares held by directors, executive officers, and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and various vesting agreements.

After our initial public offering, certain of our stockholders will have rights, subject to some conditions, to require us to file registration statements covering their shares to include their shares in registration statements that we may file for ourselves or our stockholders, subject to market standoff and lockup agreements. We also intend to register shares of common stock that we have issued and may issue under our employee equity incentive plans. Once we register these shares, they will be able to be sold freely in the public market upon issuance, subject to existing market standoff or lock-up agreements.

Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC, on behalf of the underwriters, may, in their discretion, permit our stockholders to sell shares prior to the expiration of the restrictive provisions contained in those lock-up agreements.

We have broad discretion in the use of the net proceeds from this offering and the concurrent private placement and may not use them effectively.

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from this offering and the concurrent private placement, but we currently expect to use the net proceeds from this offering and the concurrent private placement for working capital and general

 

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corporate purposes, including funding our growth strategies. We may also use a portion of the net proceeds to acquire or invest in complementary products, technologies, or businesses, although we currently have no agreements or commitments to complete any such transactions. We will have broad discretion in the application of the net proceeds, and we may spend or invest these proceeds in a way with which our stockholders disagree. The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending their use, we may invest the net proceeds in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

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

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts commence coverage of us, or if one or more analysts cease or reduce coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline.

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

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution in the pro forma net tangible book value per share after giving effect to this offering and the concurrent private placement of $13.39 per share as of July 31, 2018, based on an assumed initial public offering price of our common stock of $16.00 per share, the midpoint of the price range on the cover page of this prospectus, because the price that you pay will be substantially greater than the pro forma net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution upon exercise of options to purchase common stock or the settlement of restricted stock units under our equity incentive plans, upon vesting of options to purchase common stock under our equity incentive plans, if we issue restricted stock to our employees under our equity incentive plans or if we otherwise issue additional shares of our common stock.

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

We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

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

Based upon shares outstanding as of July 31, 2018, prior to this offering, our executive officers, directors, and the holders of more than 5% of our outstanding common stock, in the aggregate, beneficially owned approximately 50.0% of our common stock, and upon the closing of this offering and the concurrent private placement, that same group, in the aggregate, will beneficially own approximately 44.2% of our common stock, based on the same assumptions set forth in “Principal Stockholders.” As a result, these stockholders, acting together, will have significant influence over all

 

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

Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect at the closing of this offering could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our common stock.

Following the closing of this offering, our amended and restated certificate of incorporation and amended and restated bylaws that will then be in effect will contain provisions that may make the acquisition of our company more difficult, including the following:

 

   

a classified board of directors so that not all members of our board of directors are elected at one time, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

 

   

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;

 

   

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

   

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

   

the requirement that a special meeting of stockholders may be called only by a majority vote of our entire board of directors, the chairman of our board of directors or our chief executive officer, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and

 

   

advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. This provision may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from engaging in a business combination with us even if the business combination would be beneficial to our existing stockholders. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.

These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws, and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delay or impede a merger, tender offer, or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.

For information regarding these and other provisions, see “Description of Capital Stock.”

 

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Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for many types of disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees and may discourage these types of lawsuits. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

 

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. All statements other than statements of historical facts contained in this prospectus are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would,” or the negative version of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. The forward-looking statements are contained principally in “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Result of Operations,” and “Business.” Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

our future performance, including our revenue, costs of revenue, gross profit or gross margin, and operating expenses;

 

   

the sufficiency of our cash and cash equivalents to meet our projected operating requirements;

 

   

our ability to maintain the security of our platform;

 

   

our ability to sell our platform to new customers;

 

   

our ability to retain, and expand use of our platform by, our existing customers;

 

   

our ability to successfully expand in our existing markets and into new markets;

 

   

our ability to effectively manage our growth and future expenses;

 

   

our ability to expand our network of partners;

 

   

our estimated total addressable market;

 

   

our ability to maintain, protect, and enhance our intellectual property;

 

   

our ability to comply with modified or new laws and regulations applying to our business;

 

   

the attraction and retention of qualified employees and key personnel;

 

   

our anticipated investments in sales and marketing and research and development;

 

   

our ability to successfully defend litigation brought against us;

 

   

the increased expenses associated with being a public company; and

 

   

our use of the net proceeds from this offering and the concurrent private placement.

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

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

 

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You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

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 with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

 

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MARKET, INDUSTRY, AND OTHER DATA

Market and Industry Data

We obtained the industry, market and competitive position data used throughout this prospectus from our own internal estimates and research, as well as from industry and general publications, in addition to research, surveys, and studies conducted by third parties, including from a 2018 study we commissioned from Nucleus Research, Inc., a market research services firm. Internal estimates are derived from publicly-available information released by industry analysts and third-party sources, our internal research, and our industry experience, and are based on assumptions made by us based on such data and our knowledge of our industry and market, which we believe to be reasonable. In addition, while we believe the industry, market, and competitive position data included in this prospectus is reliable and is based on reasonable assumptions, such data involves risks and uncertainties and are subject to change based on various factors, including those discussed in “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

Information based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. In some cases, we do not expressly refer to the sources from which data is derived.

Certain information in this prospectus is contained in independent industry publications. The source of these independent industry publications is provided below:

 

  1)

Gartner, Inc., Magic Quadrant for Sales Performance Management, January 2018.

 

  2)

Gartner, Inc., The Gartner CRM Vendor Guide, 2018, May 2018.

 

  3)

Gartner, Inc., Magic Quadrant for Cloud Financial Planning and Analysis Solutions, July 2018.

 

  4)

Gartner, Inc., Hype Cycle for Human Capital Management Technology, 2018, August 2018.

The Gartner reports described herein, or the Gartner Reports, represent research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc., or Gartner, and are not representations of fact. Each of the Gartner Reports speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Reports are subject to change without notice.

Gartner does not endorse any vendor, product, or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

Dollar-Based Net Expansion Rate

We have provided an analysis of our dollar-based net expansion rate for Anaplan as a whole. Our dollar-based net expansion rate equals:

 

   

the annual recurring revenue at the end of a period for a base set of customers from which we generated annual recurring revenue in the year prior to the date of calculation,

 

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divided by

 

   

the annual recurring revenue one year prior to the date of the calculation for that same set of customers.

Annual recurring revenue is calculated as subscription revenue already booked and in backlog that will be recorded over the next 12 months, assuming any contract expiring in those 12 months is renewed and continues on its existing terms and at its prevailing rate of utilization.

 

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USE OF PROCEEDS

We estimate that the net proceeds from this offering and the concurrent private placement will be approximately $245.8 million, or $280.4 million if the underwriters exercise their option to purchase additional shares in full, based upon an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) net proceeds to us by $14.4 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 assumed underwriting discounts and commissions. Each 1.0 million increase (decrease) in the number of shares of common stock offered by us would increase (decrease) net proceeds to us by approximately $14.9 million, assuming an initial public offering price of $16.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting assumed underwriting discounts and commissions.

The principal purposes of this offering and the concurrent private placement are to increase our financial flexibility, increase our visibility in the marketplace, and create a public market for our common stock. We expect to use the net proceeds from this offering and the concurrent private placement for working capital and other general corporate purposes, including funding our operating needs. However, we do not currently have specific planned uses for the proceeds.

We may also use a portion of our net proceeds to acquire or invest in complementary products, technologies, or businesses. However, we currently have no agreements or commitments to complete any such transactions.

Since we expect to use the net proceeds from this offering and the concurrent private placement for working capital and other general corporate purposes, our management will have broad discretion over the use of the net proceeds from this offering and the concurrent private placement. As of the date of this prospectus, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities, certificates of deposit, or government securities.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. Our credit agreement with Wells Fargo Bank, National Association, restricts our ability to pay dividends on our common stock, and we may also enter into credit agreements or other borrowing arrangements in the future that further restrict our ability to declare or pay dividends on our common stock. Any future determination to pay dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions, and capital requirements.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of July 31, 2018:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect: (i) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 73,605,861 shares of common stock, and (ii) the filing and effectiveness of our amended and restated certificate of incorporation, each of which will occur immediately prior to the completion of this offering; and

 

   

on a pro forma as adjusted basis to give effect to (i) the pro forma adjustments described above; (ii) the sale by us of 15,500,000 shares of common stock in this offering, based upon the receipt by us of the estimated net proceeds from this offering at an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us; and (iii) the sale of 1,249,999 shares of our common stock to be purchased from us by affiliates of Premji Invest, affiliates of certain of our existing stockholders and a member of our board of directors, at an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

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

 

     As of July 31, 2018  
     Actual     Pro Forma     Pro Forma
as
Adjusted(1)
 
    

(in thousands, except for share and

per share amounts)

 

Cash and cash equivalents

   $ 86,958     $ 86,958     $ 332,798  
  

 

 

   

 

 

   

 

 

 

Stockholders’ equity:

      

Convertible preferred stock, $0.0001 par value, 73,620,364 shares authorized, 73,605,861 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     7              

Preferred stock, $0.0001 par value, no shares authorized, issued or outstanding, actual; 25,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

                  

Common stock, $0.0001 par value, 140,000,000 shares authorized, 31,361,219 shares issued and outstanding, actual; 1,750,000,000 shares authorized, 104,967,080 shares issued and outstanding, pro forma; 1,750,000,000 shares authorized, 121,717,079 shares issued and outstanding, pro forma as adjusted

     3       10       12  

Accumulated other comprehensive loss

     (2,180     (2,180     (2,180

Additional paid-in capital

     333,895       333,895       579,733  

Accumulated deficit

     (259,449     (259,449     (259,449
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     72,276       72,276       318,116  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 72,276     $ 72,276     $ 318,116  
  

 

 

   

 

 

   

 

 

 

 

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(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $14.4 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 assumed underwriting discounts and commissions. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $14.9 million, assuming that the assumed initial public offering price to the public remains the same, and after deducting assumed underwriting discounts and commissions. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.

The number of shares of common stock to be outstanding after this offering and the concurrent private placement is based on 104,967,080 shares of common stock outstanding as of July 31, 2018 (which number (i) includes the conversion into shares of our common stock of 73,605,861 shares of our preferred stock immediately prior to completion of this offering, but (ii) excludes the issuance of shares of our common stock upon the closing of the concurrent private placement), and excludes the following:

 

   

14,876,016 shares of common stock issuable upon the exercise of options outstanding as of July 31, 2018, with a weighted-average exercise price of $4.995 per share;

 

   

1,780,383 shares of common stock issuable upon the exercise of options granted after July 31, 2018, with a weighted-average exercise price of $11.86 per share;

 

   

7,624,169 shares of common stock issuable upon the vesting and settlement of restricted stock units outstanding as of July 31, 2018, of which 1,871,675 shares of common stock subject to these restricted stock units are issuable upon at the earlier of April 15, 2019 or 185 days after the completion of this offering, as the time-based vesting requirement of these restricted stock units was satisfied as of July 31, 2018 and we expect the liquidity-event vesting requirement to be satisfied upon completion of this offering;

 

   

4,538,435 shares of common stock issuable upon the vesting and settlement of restricted stock units awarded after July 31, 2018;

 

   

13,901 shares of common stock issued upon the exercise of a warrant outstanding as of July 31, 2018 with an exercise price of $0.88 per share;

 

   

10,454 shares of common stock issuable upon the exercise of a warrant outstanding as of July 31, 2018 with an exercise price of $2.3913 per share; and

 

   

15,743,887 shares of common stock reserved for future issuance under our equity compensation plans, consisting of 13,043,887 shares of common stock that were reserved for issuance under our 2012 Stock Plan as of October 9, 2018 that will become available for issuance under our 2018 Equity Incentive Plan, which will become effective in connection with the completion of this offering and 2,700,000 shares of common stock reserved for issuance under our 2018 Employee Stock Purchase Plan, which will become effective in connection with the completion of this offering. Our 2018 Equity Incentive Plan and 2018 Employee Stock Purchase Plan also provide for automatic annual increases in the number of shares reserved under these plans, as more fully described in “Executive Compensation—Equity Plans.” On the date immediately prior to the date of this prospectus, any remaining shares available for issuance under our 2012 Stock Plan will be added to the shares reserved under the 2018 Equity Incentive Plan in effect following the completion of this offering and we will cease granting awards under the 2012 Stock Plan.

 

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DILUTION

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

Historical net tangible book value (deficit) per share represents our total tangible assets less our total liabilities divided by the total number of shares of common stock outstanding. As of July 31, 2018, our historical net tangible book value (deficit) was approximately $72.3 million, or $2.30 per share. Our pro forma net tangible book value as of July 31, 2018, was approximately $72.3 million, or $0.69 per share, after giving effect to (i) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 73,605,861 shares of common stock; and (ii) the filing and effectiveness of our amended and restated certificate of incorporation, each of which will occur immediately prior to the completion of this offering.

After giving further effect to receipt of the net proceeds of our sale of 15,500,000 shares of common stock at an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus and after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us, and the sale of 1,249,999 shares of our common stock to be purchased from us by affiliates of Premji Invest, affiliates of certain of our existing stockholders and a member of our board of directors, at an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, our pro forma as adjusted net tangible book value as of July 31, 2018, would have been approximately $318.1 million, or $2.61 per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $1.92 per share to our existing stockholders and an immediate dilution of $13.39 per share to investors purchasing shares of common stock in this offering and the concurrent private placement.

The following table illustrates this dilution to new investors on a per share basis:

 

Assumed initial public offering price per share

      $ 16.00  

Pro forma net tangible book value (deficit) per share as of July 31, 2018

   $ 0.69     

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

     1.92     
  

 

 

    

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

        2.61  
     

 

 

 

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

      $ 13.39  
     

 

 

 

If the underwriters’ option to purchase additional shares in this offering is exercised in full, the pro forma as adjusted net tangible book value would be $2.84 per share, the increase in the pro forma net tangible book value per share for existing stockholders would be $2.15 per share and the dilution to new investors purchasing shares of common stock in this offering would be $13.16 per share.

Each $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase

 

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(decrease) the pro forma as adjusted net tangible book value, by $0.12 per share and the dilution per share to new investors by $0.88 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting assumed underwriting discounts and commissions.

We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1.0 million shares in the number of shares we are offering would increase (decrease) our pro forma as adjusted net tangible book value by approximately $14.9 million, or $0.10 per share, and decrease (increase) the pro forma dilution per share to investors in this offering by $0.10 per share, assuming that the assumed initial public offering price remains the same, and after deducting assumed underwriting discounts and commissions. The pro forma information discussed above is illustrative only and will change based on the actual initial public offering price, number of shares and other terms of this offering determined at pricing.

The table below summarizes, as of July 31, 2018, on the pro forma basis described above, the number of shares of our common stock, the total consideration, and the average price per share (i) paid to us by our existing stockholders; (ii) to be paid by new investors participating in this offering at an assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us; and (iii) to be paid by affiliates of Premji Invest, affiliates of certain of our existing stockholders and a member of our board of directors, at an assumed offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

 

Series

   Shares Purchased     Total Consideration     Average Price
Per Share
 
   Number      Percent     Amount      Percent  
     (in thousands, except shares, per share amounts and percentages)  

Existing stockholders

     104,967,080        86.3   $ 333,905        55.5   $ 3.18  

New investors

     15,500,000        12.7       248,000        41.2       16.00  

Private placement investors

     1,249,999        1.0       20,000        3.3       16.00  
     

 

 

   

 

 

    

 

 

   

Total

     121,717,079        100   $ 601,905        100  
     

 

 

   

 

 

    

 

 

   

In addition, if the underwriters’ option to purchase additional shares is exercised in full, the number of shares held by existing stockholders will be reduced to 84.6% of the total number of shares of common stock to be outstanding upon completion of this offering, and the number of shares of common stock held by new investors participating in this offering will be further increased to 14.4% of the total number of shares of common stock to be outstanding upon completion of the offering.

Each $1.00 increase (decrease) in the assumed initial public offering price of $16.00 per share would increase (decrease) total consideration paid by new investors by $15.5 million and increase (decrease) the percent of total consideration paid by new investors by 1.5%, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1.0 million in the number of shares offered by us would increase (decrease) total consideration paid by new investors by $16.0 million, assuming that the assumed initial public offering price remains the same.

To the extent that any outstanding options or warrants are exercised or any outstanding restricted stock units are settled, or we issue other securities or convertible debt in the future, new investors will experience further dilution.

The number of shares of common stock to be outstanding after this offering and the concurrent private placement is based on 104,967,080 shares of common stock outstanding as of July 31, 2018

 

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(which number (i) includes the conversion into shares of our common stock of 73,605,861 shares of our preferred stock immediately prior to completion of this offering, but (ii) excludes the issuance of shares of our common stock upon the closing of the concurrent private placement), and excludes the following:

 

   

14,876,016 shares of common stock issuable upon the exercise of options outstanding as of July 31, 2018, with a weighted-average exercise price of $4.995 per share;

 

   

1,780,383 shares of common stock issuable upon the exercise of options granted after July 31, 2018, with a weighted-average exercise price of $11.86 per share;

 

   

7,624,169 shares of common stock issuable upon the vesting and settlement of restricted stock units outstanding as of July 31, 2018, of which 1,871,675 shares of common stock subject to these restricted stock units are issuable upon at the earlier of April 15, 2019 or 185 days after the completion of this offering, as the time-based vesting requirement of these restricted stock units was satisfied as of July 31, 2018 and we expect the liquidity-event vesting requirement to be satisfied upon completion of this offering;

 

   

4,538,435 shares of common stock issuable upon the vesting and settlement of restricted stock units awarded after July 31, 2018;

 

   

13,901 shares of common stock issued upon the exercise of a warrant outstanding as of July 31, 2018 with an exercise price of $0.88 per share;

 

   

10,454 shares of common stock issuable upon the exercise of a warrant outstanding as of July 31, 2018 with an exercise price of $2.3913 per share; and

 

   

15,743,887 shares of common stock reserved for future issuance under our equity compensation plans, consisting of 13,043,887 shares of common stock that were reserved for issuance under our 2012 Stock Plan as of October 9, 2018 that will become available for issuance under our 2018 Equity Incentive Plan, which will become effective in connection with the completion of this offering and 2,700,000 shares of common stock reserved for issuance under our 2018 Employee Stock Purchase Plan, which will become effective in connection with the completion of this offering. Our 2018 Equity Incentive Plan and 2018 Employee Stock Purchase Plan also provide for automatic annual increases in the number of shares reserved under these plans, as more fully described in “Executive Compensation—Equity Plans.” On the date immediately prior to the date of this prospectus, any remaining shares available for issuance under our 2012 Stock Plan will be added to the shares reserved under the 2018 Equity Incentive Plan in effect following the completion of this offering and we will cease granting awards under the 2012 Stock Plan.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The consolidated statements of operations data for fiscal 2016, 2017, and 2018, and the consolidated balance sheets data as of January 31, 2017 and 2018, are derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The consolidated statements of operations data for the six months ended July 31, 2017 and 2018 and the consolidated balance sheet data as of July 31, 2018 are derived from our unaudited interim consolidated financial statements that are included elsewhere in this prospectus. The unaudited consolidated financial statements were prepared on a basis consistent with our audited financial statements and include, in the opinion of management, all adjustments necessary to state fairly the financial information set forth in those statements. Our historical results are not necessarily indicative of our future results and our results for the six months ended July 31, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year or any other period. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes, and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus. The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included within this prospectus.

 

    Year Ended January 31,     Six Months Ended July 31,  
    2016     2017     2018             2017                     2018          
    (in thousands, except per share data)  

Consolidated Statements of Operations Data:

         

Revenue:

         

Subscription revenue

  $ 50,772     $ 91,416     $ 143,542     $ 63,804     $ 94,539  

Professional services revenue

    20,753       29,083       24,805       14,015       14,839  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    71,525       120,499       168,347       77,819       109,378  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue:

         

Cost of subscription revenue(1)

    7,655       9,072       19,927       6,782       16,574  

Cost of professional services revenue(1)

    22,849       30,335       32,058       17,403       13,417  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    30,504       39,407       51,985       24,185       29,991  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    41,021       81,092       116,362       53,634       79,387  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

         

Research and development(1)

    19,288       23,868       30,908       15,209       23,849  

Sales and marketing(1)

    55,279       73,656       100,654       42,314       77,922  

General and administrative(1)

    19,313       22,503       30,719       12,017       22,870  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    93,880       120,027       162,281       69,540       124,641  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (52,859     (38,935     (45,919     (15,906     (45,254

Interest income, net

    55       88       108       45       125  

Other income (expense), net

    (1,343     (835     (482     291       (640
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (54,147     (39,682     (46,293     (15,570     (45,769

Provision for income taxes

    (80     (512     (1,261     (409     (1,460
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (54,227   $ (40,194   $ (47,554   $ (15,979   $ (47,229
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ (4.62   $ (2.92   $ (2.51   $ (0.89   $ (2.10
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted(2)

    11,741       13,774       18,956       17,934       22,453  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2)

      $ (0.54     $ (0.48
     

 

 

     

 

 

 

Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2)

        88,212         97,571  
     

 

 

     

 

 

 

 

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(1)

Includes stock-based compensation expense as follows:

 

    Year Ended January 31,     Six Months
Ended July 31,
 
        2016             2017             2018             2017             2018      
    (in thousands)  

Cost of subscription revenue

  $ 305     $ 49     $ 148     $ 32     $ 138  

Cost of professional services revenue

    122       336       507       282       118  

Research and development

    452       634       742       342       536  

Sales and marketing

    1,363       2,555       3,496       1,695       2,036  

General and administrative

    1,266       2,529       3,746       1,076       2,072  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stock-based compensation expense

  $ 3,508     $ 6,103     $ 8,639     $ 3,427     $ 4,900  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(2)

See Notes 1 and 10 of the notes to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net loss per share and pro forma net loss per share attributable to common stockholders and the weighted-average number of shares used in the computation of the per share amounts.

 

     January 31,      July 31,  
     2017      2018      2018  
     (in thousands)  

Consolidated Balance Sheet Data:

        

Cash and cash equivalents

   $ 80,155      $ 110,898      $ 86,958  

Working capital

     55,830        63,925        10,988  

Total assets

     174,941        246,747        234,160  

Deferred revenue, current and non-current

     65,897        101,286        108,772  

Convertible preferred stock

     7        7        7  

Total stockholders’ equity

     84,744        111,639        72,276  

Key Metrics

We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.

 

     January 31,
2016
    January 31,
2017
    January 31,
2018
    July 31,
2018
 

Customers

     434       662       864       979  

Dollar-based net expansion rate

     135     123     122     123

For a discussion of our key metrics, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics.”

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Selected Consolidated Financial and Other Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Risk Factors” and “Information Regarding Forward-Looking Statements” included elsewhere in this prospectus. Our fiscal year end is January 31, and our fiscal quarters end on April 30, July 31, October 31, and January 31. Our fiscal years ended January 31, 2016, 2017, and 2018 are referred to herein as fiscal 2016, fiscal 2017, and fiscal 2018.

Overview

Anaplan is pioneering the category of Connected Planning, which allows organizations to transform their businesses by making better and faster decisions.

We believe Connected Planning is the next essential cloud category. It fundamentally transforms planning by connecting all of the people, data, and plans needed to accelerate business value and enable real-time planning and decision-making in rapidly changing business environments. Connected Planning accelerates business value by transforming the way organizations make decisions and placing the power of planning in the hands of every individual at every level within and between organizations.

Connected Planning represents a fundamental shift from the legacy approach to planning, which is typically confined to the finance department and uses a patchwork of outdated and disconnected tools and manual processes that are often overly complex, slow, inefficient, and static. Connected Planning enables dynamic, collaborative, and intelligent planning across all areas of an organization, including finance, sales, and supply chain, and other corporate functions such as marketing, human resources, and operations.

We were formed in 2008 and filed applications for two patents on certain key aspects of our proprietary Hyperblock™ technology in the same year. We launched our platform and started generating revenue in 2011. As of July 31, 2018, 979 customers were using our platform, over double the 434 customers as of January 31, 2016. Of these 979 customers, 220, including 23 of our top 25 customers by average annual recurring revenue, were members of the Forbes Global 2000, or the Global 2000, which we believe presents our greatest growth opportunity. We had 101, 148, and 196 customers that were members of the Global 2000 as of the end of fiscal 2016, 2017, and 2018, respectively. The revenue generated from our Global 2000 customers represented 56%, 54%, 55%, and 56% of our total revenue in fiscal 2016, 2017, and 2018, and the six months ended July 31, 2018, respectively. We define a customer as a separate legal entity with an individual subscription agreement. We have also expanded internationally with customers in 45 countries outside of the United States as of July 31, 2018.

We sell subscriptions to our cloud-based planning platform primarily through our direct sales team. We also have strategic partnerships that provide us with a significant source of lead generation and implementation leverage. Our global partners, including global strategic consulting firms and global systems integrators, often promote our platform as part of the large-scale transformation projects they drive by identifying opportunities in which our platform can help companies maximize the effectiveness of their business processes. We also partner with leading regional consulting firms and implementation partners. These highly skilled regional partners not only provide subject-matter expertise in the

 

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implementation of specific use cases, but they also act as an extension of our direct sales force by identifying and referring opportunities to us. We and our partners create pre-packaged applications that are available on our App Hub marketplace to further accelerate the adoption and expansion of our platform. In the trailing twelve months ended July 31, 2018, 41% of our total revenue was generated through leads originated from our partners, and as of July 31, 2018, we had 285 applications on App Hub.

We focus our selling efforts on executives of large enterprises, who are often making a strategic purchase of our platform with the potential for broad use throughout their organizations. We use a “land and expand” sales strategy to capitalize on this potential. Our platform is often initially adopted within a specific line of business, including in finance, sales, and supply chain, and other corporate functions such as marketing, human resources, and operations, for one or more planning use cases. Once customers see the benefits of our platform for their initial use cases, they often increase the number of users, add new use cases, and expand to additional lines of business, divisions, and geographies. This expansion often generates a natural network effect in which the value of our platform increases as more use cases are adopted, more users are connected, and greater amounts of data are brought into our platform. We have been recognized for our single, enterprise-wide Connected Planning platform by Gartner in the July 2018 Magic Quadrant for Cloud Financial Planning and Analysis Solutions, the January 2018 Magic Quadrant for Sales Performance Management, the August 2018 Hype Cycle for Human Capital Management Technology, 2018, and included in the May 2018 The Gartner CRM Vendor Guide, 2018.

The success of our “land and expand” strategy is validated by the expansion we have experienced in the use of our platform by our largest customers and by our dollar-based net expansion rates. Our top 25 customers by average annual recurring revenue as of July 31, 2018, had average annual recurring revenue of $2.3 million, compared to the average annual recurring revenue represented by their initial purchase of approximately $360,000. The revenue from these 25 customers made up 29% of our total revenue in fiscal 2018 and 26% of our total revenue in the six months ended July 31, 2018. In addition, our annual dollar-based net expansion rate for Anaplan as a whole was approximately 135%, 123%, 122%, and 123% as of the end of fiscal 2016, 2017, and 2018, and July 31, 2018, respectively. See “Market, Industry, and Other Data” for a description of how we calculate our dollar-based net expansion rate. The number of customers with greater than $250,000 of annual recurring revenue was 59, 113, 181, and 213 as of the end of fiscal 2016, 2017, and 2018, and July 31, 2018, respectively. While achieving and maintaining incremental sales to existing customers requires increasingly sophisticated and costly sales efforts, the introduction of new features and functionality to our platform, and customers realizing benefits through their initial adoption of our platform, we believe we have significant opportunities to further expand the use of our platform by our existing customers as well as to attract additional large customers.

We designed our pricing to foster adoption across and throughout organizations. We offer tiered pricing of our platform based on the type of user, enabling modelers, users, and read-only participants to be part of the planning process. We sell a single platform with three different levels of functionality depending on the features and capacity required. We also sell add-on features such as bring your own key, or BYOK, functionality and Hypercare service.

We derive the substantial majority of our revenue from subscriptions for users on our platform. Our initial subscription term is typically two to three years, although some customers commit for shorter periods. We generally bill our customers annually in advance. We also offer professional services, including consulting, implementation, and training, but are increasingly leveraging our partners to provide these services, resulting in lower services revenue year over year. This evolving model of service delivery enabled us to reduce our services revenue from $29.1 million to $24.8 million in fiscal 2017 and 2018, respectively, while increasing subscription revenue from $91.4 million to $143.5 million during the same periods, representing a year-over-year subscription revenue growth rate of 80% and 57%, respectively. As a result of this strategy, our subscription revenue as a percentage of total

 

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revenue increased from 76% in fiscal 2017 to 85% in fiscal 2018. Our services revenue increased from $14.0 million to $14.8 million in the six months ended July 31, 2017 and 2018, respectively, while subscription revenue increased from $63.8 million to $94.5 million during the same periods, representing a period-over-period subscription revenue growth rate of 48%. As a result of this strategy, our subscription revenue as a percentage of total revenue increased from 82% in the six months ended July 31, 2017 to 86% in the six months ended July 31, 2018.

We have grown rapidly in recent periods. For fiscal 2016, 2017, and 2018, and the six months ended July 31, 2017 and 2018, our revenue was $71.5 million, $120.5 million, $168.3 million, $77.8 million, and $109.4 million, respectively, and our subscription revenue for fiscal 2016, 2017, and 2018 was $50.8 million, $91.4 million, and $143.5 million, representing a year-over-year subscription revenue growth rate of 80% and 57%, respectively. We have a strong and growing international presence with approximately 41% and 43% of our revenue generated from outside of the United States in fiscal 2018 and the six months ended July 31, 2018, respectively. No individual customer represented more than 5% of our revenue in fiscal 2018 or the six months ended July 31, 2018. For fiscal 2016, 2017, and 2018, and the six months ended July 31, 2017 and 2018, our net loss was $54.2 million, $40.2 million, $47.6 million, $16.0 million, and $47.2 million, respectively.

Contribution Margin

To illustrate the economics of our customer relationships, we are providing a contribution margin analysis of the customers we acquired during fiscal 2016, which we refer to as the 2016 Cohort. We selected the 2016 Cohort to illustrate the potential long-term value of our customer base and believe the 2016 Cohort is a fair representation of our overall customer base. The 2016 Cohort consists of over 180 customers that represent various industries and geographies and includes customers who have expanded their subscriptions as well as those that have reduced or not renewed their subscriptions.

We define contribution margin as the total amount of annual recurring revenue from the customer cohort at the end of a period, or ARR, less the estimated associated cost of subscription revenue and estimated associated sales and marketing expenses, or associated costs. We define contribution margin percentage for a cohort in a period as contribution margin divided by the ARR associated with such cohort in a given period.

The estimated associated cost of subscription revenue consists primarily of costs related to hosting our service, including data center capacity costs, amortization of internal-use software, and equipment depreciation, as well as personnel-related costs directly associated with our cloud infrastructure and providing technical phone support to our customers (including salaries, benefits, and bonuses). For each year, we estimated the 2016 Cohort cost of subscription revenue by multiplying the subscription gross margin for all customers in that year by the ARR for the 2016 Cohort and subtracting that amount from ARR for the 2016 Cohort for that year.

Estimated associated sales and marketing expenses include personnel-related costs (including salaries, benefits, bonuses, and commissions, but excluding stock-based compensation, which is a non-cash charge), as well as costs for promotional events to promote our brand, advertising, and allocated overhead associated with acquiring a given cohort of customers. A significant majority of our sales and marketing expenses are dedicated to acquiring new customers, and, accordingly, these costs are mainly associated with the newest cohort of customers in a given fiscal year.

We allocate our sales and marketing costs to a cohort in two steps. First, we assign each of commission sales costs, non-commission sales costs and marketing costs separately to “land,” “expand,” or “renew” activity. We allocate commission sales costs based on annual contract value. Commission sales costs reflect the effect of capitalizing and amortizing commission costs. We allocate

 

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non-commission sales costs based on the estimated proportion of time, based on internal data, that our sales team spends landing customers versus expanding or renewing customers. We allocate marketing expense based on an estimated proportion of marketing expenses we spend to land, expand, or renew customers. In the second step, once we have costs associated with land, expand, and renewal activity, we allocate the costs to the cohort based on the cohort’s respective share of annual contract value in each category.

We exclude all research and development and general and administrative expenses from this analysis because these expenses support the growth of our business generally.

For fiscal 2016, the 2016 Cohort represented $20.6 million in ARR and $35.3 million in estimated cost of revenue and related sales and marketing costs to acquire these customers, representing a computed contribution margin of (72%). In fiscal 2017 and 2018, the 2016 Cohort represented $29.0 million and $40.0 million, respectively, in ARR and $12.9 million and $15.4 million, respectively, in estimated cost of revenue and related costs to retain and expand these customers, representing a computed contribution margin of 55% and 61%, respectively.

FY16 Customer Cohort Contribution Margin

(in millions, except percentage data)

 

LOGO

The 2016 Cohort may not be representative of any other group of customers or periods. We expect that the contribution margin and contribution margin percentage of our customer cohorts will fluctuate from one period to another depending upon the number of customers remaining in each cohort, our ability to increase their ARR, other changes in their subscriptions, as well as changes in our associated costs. We may not experience similar financial outcomes from future customers. The ARR, associated costs, contribution margins, and contribution margin percentages for such cohorts could differ from those for the 2016 Cohort. Contribution margin is not a measure that our management uses to manage or evaluate our business nor is it a predictor of past or future financial performance. Unlike

 

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our financial statements, contribution margin is not prepared in accordance with GAAP and may not be comparable to other companies that prepare a similar analysis. We use ARR instead of GAAP revenue and estimated associated costs instead of GAAP costs and expenses. Contribution margin is an operational measure; it is not a financial measure of profitability and is not intended to be used as a proxy for the profitability of our business. We are not profitable, and even if our ARR exceeds our associated costs over time, we may continue to incur net losses.

Key Metrics

We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. We believe the following metrics are useful in evaluating our business.

Customers.    We believe that our ability to increase the number of customers on our platform is an indicator of our market penetration, the growth of our business, and our potential future business opportunities. We have successfully demonstrated a history of growing both our customer base and spend per customer through increased use of our platform. We define the number of customers at the end of any particular period as the number of separate legal entities that have entered into an individual subscription contract with us for which the term has not ended, or with which we are negotiating a renewal contract.

The following table sets forth the number of customers as of the dates shown:

 

     January 31,
2016
     January 31,
2017
     January 31,
2018
     July 31,
2018
 

Customers

     434        662        864        979  

Dollar-Based Net Expansion Rate.    We believe that our ability to retain and expand the subscription revenue generated from our existing customers is an indicator of the long-term value of our customer relationships for Anaplan as a whole. We track our performance in this area by measuring our dollar-based net expansion rate, which compares our annual recurring revenue from the same set of customers across comparable periods.

Our dollar-based net expansion rate equals:

 

   

the annual recurring revenue at the end of a period for a base set of customers from which we generated annual recurring revenue in the year prior to the date of calculation,

divided by

 

   

the annual recurring revenue one year prior to the date of the calculation for that same set of customers.

Annual recurring revenue is calculated as subscription revenue already booked and in backlog that will be recorded over the next 12 months, assuming any contract expiring in those 12 months is renewed and continues on its existing terms and at its prevailing rate of utilization.

The following table sets forth the dollar-based net expansion rates as of the dates shown:

 

     January 31,
2016
    January 31,
2017
    January 31,
2018
    July 31,
2018
 

Dollar-based net expansion rate

     135     123     122     123

 

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Factors Affecting Our Performance

We believe that our future performance will depend on many factors, including those described below. While these areas present significant opportunity, they also present risks that we must manage to achieve successful results. See the section titled “Risk Factors”. If we are unable to address these challenges, our business and operating results could be adversely affected.

Market adoption of our platform.    Even though we believe Connected Planning is a strategic imperative for enterprises in today’s rapidly changing business environment, it is at an early stage of adoption. Our long-term success will depend on widespread adoption of Connected Planning by enterprises for numerous planning applications with broad use of those applications within their organizations. While we believe that we are still in the early stages of penetrating our addressable market, we have benefited from rapid customer growth. For example, we have grown the number of customers using our platform from 434 as of January 31, 2016, to 864 customers as of January 31, 2018 and to 979 customers as of July 31, 2018. We intend to continue to invest to expand our customer base and further penetrate our addressable market.

Expansion of existing customers.    We employ a “land and expand” approach, with many of our customers initially deploying our product for a specific use case and group of users, and, once they realize the benefits and wide applicability of our platform, subsequently renewing subscriptions and expanding the number of users or use cases within and across lines of business and geographies. As a result, we are able to generate a significant increase in revenue from renewals and the expanded use of our platform across the enterprise. Going forward we are focused on our large customers where the opportunity for expansion and need for our planning solutions are greatest. Our future revenue growth and our ability to achieve and maintain profitability is dependent upon our ability to maintain existing customer relationships and to continue to expand our customers’ use of our platform.

Scaling our sales team.    Our ability to achieve significant growth in revenue in the future will depend, in large part, upon the effectiveness of our sales efforts, both domestically and internationally. We have invested and intend to continue to invest aggressively in expanding our direct sales force, particularly in attracting and retaining sales personnel with experience selling to larger enterprises. A substantial portion of our sales force joined us over the last 12 months, and our ability to increase our revenue will depend on the new members of our sales force becoming fully productive. In the enterprise market, a customer’s decision to use our platform may be an enterprise-wide decision. These types of sales require us to provide greater levels of education regarding the use and benefits of our platform, which involves substantial time, effort, and costs. We anticipate that our headcount will continue to increase as a result of these investments.

International sales.    Our revenue generated outside of the United States during fiscal 2017 and fiscal 2018, and the six months ended July 31, 2018, was approximately 38%, 41%, and 43%, respectively, of our total revenue. We believe global demand for our platform will continue to increase as organizations experience the benefits that our platform can provide to international enterprises with complex planning needs spanning multiple geographies. Accordingly, we believe there is significant opportunity to grow our international business. We have invested, and plan to continue to invest, ahead of this potential demand in personnel, marketing, and access to data center capacity to support our international growth.

Product velocity.    We have invested and intend to continue to invest significantly in research and development in an effort to enhance and expand the functionality of our platform, to attract and retain development personnel, and to protect our market-leading technology advantage. We have a well-defined technology roadmap to introduce new features and functionality to our platform that we believe will enhance our ability to generate revenue by broadening the appeal of our platform to

 

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potential new customers as well as increasing the opportunities for further expanding the use of our platform by existing customers. We are also investing to further enhance the user interface, functionality, and usability of our platform, including in machine learning and other artificial intelligence technologies, to further enhance the predictive capabilities of our platform. We will need to continue to focus on bringing cutting-edge technology to market in order to remain competitive.

Partner ecosystem.    Our partner ecosystem extends our geographic coverage, accelerates the usage and adoption of our platform, and enables more efficient delivery of service solutions. We intend to augment and deepen our partnerships with global and regional partners, which include consulting firms, systems integrators, and implementation partners. We believe our partners’ scale and route to market can significantly contribute to our ability to penetrate our addressable market, extend our geographic coverage, and extend usage and adoption of our platform.

Customer First strategy.    We put the success of our customers at the center of our culture, strategy, and investments. We view our Customer First strategy as core to capturing our Connected Planning vision and driving the continued adoption and expansion in the use of our platform. By aligning our thought leadership, worldwide development and delivery capabilities, and local sales and service resources, our Customer First strategy drives exceptional value throughout our customers’ Connected Planning journeys. Our continued success depends in part on our ability to continue to put customers at the center of our strategy.

Components of Results of Operations

Revenue

We offer subscriptions to our cloud-based planning platform. We derive our revenue primarily from subscription fees and, to a lesser degree, from professional services fees. Subscription revenue consists primarily of fees to provide our customers access to our cloud-based platform. Professional services revenue includes fees from assisting customers in implementing and optimizing the use of our cloud-based platform. These services include implementation, consulting, and training.

Subscription Revenue

Subscription revenue accounted for 71%, 76%, 85%, and 86% of our revenue for fiscal 2016, 2017, and 2018, and the six months ended July 31, 2018, respectively. Subscription revenue is driven primarily by the number of customers, the number of users at each customer, the price of user subscriptions, and renewal rates.

Subscription fees are recognized ratably as revenue over the contract term beginning on the date the platform is made available to the customer. Our new business subscriptions typically have a term of two to three years. We generally invoice our customers in annual installments at the beginning of each year within the subscription period. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period.

Most of our contracts are non-cancellable over the contract term. We had a remaining performance obligation, or backlog, in the amount of $304.6 million and $331.0 million as of January 31, 2018, and July 31, 2018, respectively, consisting of both billed and unbilled consideration. We expect to recognize 53% and 30%, respectively, of this amount as subscription revenue in fiscal 2019.

Because we recognize revenue from subscription fees ratably over the term of the contract, changes in our contracting activity in the near term may not impact changes to our reported revenue until future periods.

 

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Professional Services Revenue

Professional services revenue is generally recognized as the services are rendered for time and material contracts, or on a proportional performance basis for fixed price contracts. The substantial majority of our professional service contracts are on a time and materials basis. Implementations generally take one to six months to complete depending upon the scope of engagement with the customer. Our professional services revenue fluctuates from quarter to quarter as a result of the achievement of payment milestones in our professional services arrangements, and the requirements, complexity, and timing of our customers’ implementation projects.

Cost of Revenue

Cost of Subscription Revenue

Cost of subscription revenue primarily consists of costs related to hosting our service. Significant expenses include data center capacity costs, personnel-related costs directly associated with our cloud infrastructure, including total compensation, customer support, equipment depreciation, and amortization of internal-use software.

Cost of Professional Services Revenue

Cost of professional services revenue primarily consists of costs related to providing implementation and configuration services, optimization services and training services, personnel-related costs directly associated with our professional services and training departments, including salaries, benefits, bonuses, and stock-based compensation, the costs of contracted third-party vendors, and travel.

Professional services associated with the implementation and configuration of our subscription platform are performed directly by our services team, as well as by contracted third-party vendors. When third-party vendors invoice us for services performed for our customers, those fees are recognized as expense over the requisite service period.

Operating Expenses

Research and Development

Research and development expenses consist primarily of personnel-related costs for our development team, including salaries, benefits, bonuses, stock-based compensation expense, and allocated overhead costs. We have invested, and intend to continue to invest, in developing technology to support our growth. We capitalize certain software development costs that are attributable to developing new features and adding incremental functionality to our platform, and amortize such costs as costs of subscription revenue over the estimated life of the new incremental functionality, which is two years. We plan to increase our investment in research and development for the foreseeable future as we focus on further developing our platform and enhancing its use cases. However, we expect our research and development expenses to decrease as a percentage of our total revenue over time, although they may fluctuate as a percentage of our total revenue from period to period.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related costs directly associated with our sales and marketing staff, including salaries, benefits, bonuses, commissions, and stock-based compensation. Other sales and marketing costs include promotional events to promote our brand, including our Anaplan Connected Planning Xperience (CPX) user conference, previously known as our Hub conferences, advertising, and allocated overhead. We plan to increase our investment in sales and marketing over the foreseeable future, primarily stemming from increased headcount in

 

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sales and marketing, and investment in brand- and product-marketing efforts. However, we expect our sales and marketing expenses to decrease as a percentage of our total revenue over time, although they may fluctuate as a percentage of our total revenue from period to period.

General and Administrative

General and administrative expenses consist of personnel-related costs associated with our executive, finance, legal, and human resources personnel, including salaries, benefits, bonuses, and stock-based compensation expense, professional fees for external legal, accounting and other consulting services, and allocated overhead costs. We expect to increase the size of our general and administrative function to support the growth of our business. Following the completion of this offering, we expect to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a U.S. securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC. In addition, as a public company, we expect to incur increased expenses such as 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. However, we expect our general and administrative expenses to decrease as a percentage of our total revenue over time, although they may fluctuate from as a percentage of our total revenue from period to period.

Interest Income, Net

Interest income, net consists primarily of interest income earned on our cash and cash equivalents.

Other Expense, Net

Other expense, net consists primarily of the effect of exchange rates on our foreign currency-denominated asset and liability balances.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred assets will be utilized.

 

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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 January 31,     Six Months Ended
July 31,
 
     2016     2017     2018     2017     2018  
     (in thousands)  

Revenue:

          

Subscription revenue

   $ 50,772     $ 91,416     $ 143,542     $ 63,804     $ 94,539  

Professional services revenue

     20,753       29,083       24,805       14,015       14,839  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     71,525       120,499       168,347       77,819       109,378  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue:

          

Cost of subscription revenue(1)

     7,655       9,072       19,927       6,782       16,574  

Cost of professional services revenue(1)

     22,849       30,335       32,058       17,403       13,417  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     30,504       39,407       51,985       24,185       29,991  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     41,021       81,092       116,362       53,634       79,387  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Research and development(1)

     19,288       23,868       30,908       15,209       23,849  

Sales and marketing(1)

     55,279       73,656       100,654       42,314       77,922  

General and administrative(1)

     19,313       22,503       30,719       12,017       22,870  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     93,880       120,027       162,281       69,540       124,641  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (52,859     (38,935     (45,919     (15,906     (45,254

Interest income, net

     55       88       108       45       125  

Other (expense) income, net

     (1,343     (835     (482     291       (640
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (54,147     (39,682     (46,293     (15,570     (45,769

Provision for income taxes

     (80     (512     (1,261     (409     (1,460
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (54,227   $ (40,194   $ (47,554   $ (15,979   $ (47,229
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes stock-based compensation expense as follows:

 

     Year Ended January 31,      Six Months Ended July 31,  
     2016      2017      2018          2017              2018      
     (in thousands)  

Cost of subscription revenue

   $ 305      $ 49      $ 148      $ 32      $ 138  

Cost of professional services revenue

     122        336        507        282        118  

Research and development

     452        634        742        342        536  

Sales and marketing

     1,363        2,555        3,496        1,695        2,036  

General and administrative

     1,266        2,529        3,746        1,076        2,072  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 3,508      $ 6,103      $ 8,639      $ 3,427      $ 4,900  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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     Year Ended January 31,     Six Months
Ended

July 31,
 
     2016     2017     2018     2017     2018  

Revenue:

          

Subscription revenue

     71     76     85     82     86

Professional services revenue

     29       24       15       18       14  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     100       100       100       100       100  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue:

          

Cost of subscription revenue

     11       8       12       9       15  

Cost of professional services revenue

     32       25       19       22       12  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     43       33       31       31       27  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     57       67       69       69       73  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Research and development

     27       20       18       20       22  

Sales and marketing

     77       61       60       54       71  

General and administrative

     27       19       18       15       21  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     131       100       96       89       114  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (74     (33     (27     (20     (41

Interest income, net

                              

Other (expense) income, net

     (2                       (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (76     (33     (27     (20     (42

Provision for income taxes

                 (1     (1     (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (76 )%      (33 )%      (28 )%      (21 )%      (43 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Six Months Ended July 31, 2017 and 2018

Revenue

 

     Six Months Ended
July 31,
     %
Change
 
     2017      2018  
     (in thousands)         

Subscription revenue

   $ 63,804      $ 94,539        48

Professional services revenue

     14,015        14,839        6  
  

 

 

    

 

 

    

Total revenue

   $ 77,819      $ 109,378        41  
  

 

 

    

 

 

    

Total revenue was $109.4 million for the six months ended July 31, 2018 compared to $77.8 million for the six months ended July 31, 2017, an increase of $31.6 million, or 41%.

Subscription revenue was $94.5 million, or 86% of total revenue, for the six months ended July 31, 2018, compared to $63.8 million, or 82% of total revenue, for the six months ended July 31, 2017. The increase of $30.7 million, or 48%, in subscription revenue was due to additional sales to existing customers, which accounted for approximately 60% of the increase, and a significant increase in sales to new customers, which accounted for approximately 40% of the increase.

Professional services revenue was $14.8 million for the six months ended July 31, 2018 compared to $14.0 million for the six months ended July 31, 2017. The increase of $0.8 million, or 6%, in professional services revenue was primarily due to the higher utilization of our professional services

 

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employees in the six months ended July 31, 2018. This also represents a continued decline in professional services revenue as a percentage of total revenue from 18% to 14% due to a growing partner network and our strategy of shifting professional services revenue to our partners.

Cost of Revenue

 

     Six Months Ended
July 31,
     %
Change
 
     2017      2018  
     (in thousands)         

Cost of subscription revenue

   $ 6,782      $ 16,574        144

Cost of professional services revenue

     17,403        13,417        (23
  

 

 

    

 

 

    

Total cost of revenue

   $ 24,185      $ 29,991        24  
  

 

 

    

 

 

    

Total cost of revenue was $30.0 million for the six months ended July 31, 2018 compared to $24.2 million for the six months ended July 31, 2017, an increase of $5.8 million, or 24%.

Cost of subscription revenue was $16.6 million for the six months ended July 31, 2018 compared to $6.8 million for the six months ended July 31, 2017, an increase of $9.8 million, or 144%. The increase in cost of subscription revenue was primarily due to an increase in salary and benefits costs related to an increase in headcount of $4.2 million, including stock-based compensation, an increase in amortization of capitalized software development costs and intangible assets of $0.9 million, depreciation of our servers placed in service in the six months ended July 31, 2018 of $0.8 million, an increase in software licenses to produce additional functionality of our platform of $0.8 million, an increase in allocated facilities of $0.7 million due to additional leases signed in the six months ended July 31, 2018, and an increase in hosting fees of $0.7 million due primarily to the additional servers.

Cost of professional services revenue was $13.4 million for the six months ended July 31, 2018 compared to $17.4 million for the six months ended July 31, 2017, a decrease of $4.0 million, or 23%. The decrease in cost of professional services revenue was primarily due to our strategy of shifting professional services to our partners.

Gross Profit and Gross Margin

 

     Six Months Ended
July 31,
    %
Change
 
     2017     2018  
     (in thousands)        

Subscription gross profit

   $ 57,022     $ 77,965       37

Professional services gross profit

     (3,388     1,422       (142
  

 

 

   

 

 

   

 

 

 

Total gross profit

   $ 53,634     $ 79,387       48  
  

 

 

   

 

 

   

 

 

 

Subscription gross margin

     89     82  

Professional services gross margin

     (24     10    

Total gross margin

     69       73    

Gross profit was $79.4 million for the six months ended July 31, 2018 compared to $53.6 million for the six months ended July 31, 2017, an increase of $25.8 million, or 48%. The increase in gross profit was the result of the increases in our subscription revenue due primarily to additional sales to existing customers and the addition of new customers in the six months ended July 31, 2018.

Gross margin was 73% for the six months ended July 31, 2018 compared to 69% for the six months ended July 31, 2017. The increase was due primarily to the increase in subscription revenue,

 

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which generates a significantly higher gross margin than our professional services revenue. Our gross margins can fluctuate from quarter to quarter as a result of the achievement of payment milestones in our professional services arrangements, and the requirements, complexity, and timing of our customers’ implementation projects.

Operating Expenses

Research and Development

 

     Six Months Ended
July 31,
     %
Change
 
     2017      2018  
     (in thousands)         

Research and development

   $ 15,209      $ 23,849        57

Research and development expenses were $23.8 million for the six months ended July 31, 2018 compared to $15.2 million for the six months ended July 31, 2017, an increase of $8.6 million, or 57%. The increase was primarily due to an increase in salary and benefits costs related to an increase in headcount of $4.3 million, including stock-based compensation, and an increase in consulting and contractor spend of $2.4 million to support our anticipated growth.

Sales and Marketing

 

     Six Months Ended
July 31,
     %
Change
 
     2017      2018  
     (in thousands)         

Sales and marketing

   $ 42,314      $ 77,922        84

Sales and marketing expenses were $77.9 million for the six months ended July 31, 2018 compared to $42.3 million for the six months ended July 31, 2017, an increase of $35.6 million, or 84%. The increase was primarily due to an increase in salary and benefits costs related to an increase in headcount of $22.3 million, including stock-based compensation, an increase in allocated facilities of $2.6 million due primarily to new facility leases in the six months ended July 31, 2018, an increase in travel related expenses of $1.7 million, a $2.0 million increase in commission expenses recognized in the six months ended July 31, 2018, a $1.6 million increase in IT allocations due to our growth, and a $1.4 million increase in spending for conferences and events in the six months ended July 31, 2018.

General and Administrative

 

     Six Months Ended
July 31,
     %
Change
 
     2017      2018  
     (in thousands)         

General and administrative

   $ 12,017      $ 22,870        90

General and administrative expenses were $22.9 million for the six months ended July 31, 2018 compared to $12.0 million for the six months ended July 31, 2017, an increase of $10.9 million, or 90%. The increase was primarily due to an increase in salary and benefits costs related to an increase in headcount of $7.5 million, including stock-based compensation of $0.9 million recognized as a result of accelerated vesting for shares related to modifications of certain option awards during the six months ended July 31, 2018, a $1.3 million loss on a sublease, and an increase in consulting and contractor spend of $1.2 million.

 

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Other Income and Expenses

Interest Income, net

 

     Six Months Ended
July 31,
     %
Change
 
     2017      2018  
     (in thousands)         

Interest income, net

   $ 45      $ 125        178

Interest income, net increased by $80,000, or 178%, in the six months ended July 31, 2018 as there were no significant changes to income interest or expense activities during the respective periods.

Other Income (Expense), net

 

     Six Months Ended
July 31,
   

 

%
Change

 
         2017              2018      
     (in thousands)        

Other income (expense), net

   $ 291      $ (640     (320 )% 

Other income (expense), net was a loss of $0.6 million in the six months ended July 31, 2018 compared to a gain of $0.3 million in the six months ended July 31, 2017, a decrease of $0.9 million, or 320%. The change was primarily due to currency fluctuations and the related remeasurements during the periods, primarily related to our U.K. operations.

Provision for Income Taxes

 

     Six Months Ended
July 31,
    %
Change
 
     2017     2018  
     (in thousands)        

Provision for income taxes

   $ (409   $ (1,460     257

The provision for income taxes was $1.5 million in the six months ended July 31, 2018 compared to $0.4 million in the six months ended July 31, 2017, an increase of $1.1 million, or 257%, primarily related to income generated from statutory intercompany cost share arrangements in certain European and Asian countries.

Fiscal 2017 and 2018

Revenue

 

     Year Ended January 31,      % Change  
     2017      2018  
     (in thousands)         

Subscription revenue

   $ 91,416      $ 143,542        57

Professional services revenue

     29,083        24,805        (15
  

 

 

    

 

 

    

Total revenue

   $ 120,499      $ 168,347        40  
  

 

 

    

 

 

    

Total revenue was $168.3 million for fiscal 2018 compared to $120.5 million for fiscal 2017, an increase of $47.8 million, or 40%.

 

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Subscription revenue was $143.5 million, or 85% of total revenue, for fiscal 2018, compared to $91.4 million, or 76% of total revenue, for fiscal 2017. The increase of $52.1 million, or 57%, in subscription revenue was due to additional sales to existing customers, which accounted for approximately 61% of the increase, and a significant increase in sales to new customers, which accounted for approximately 39% of the increase.

Professional services revenue was $24.8 million for fiscal 2018 compared to $29.1 million for fiscal 2017. The decrease of $4.3 million, or 15%, in professional services revenue was primarily due to the lower utilization of our professional services employees in fiscal 2018. This also represents a decline in professional services revenue as a percentage of total revenue from 24% to 15% due to a growing partner network and our strategy of shifting professional services revenue to our partners.

Cost of Revenue

 

     Year Ended January 31,      % Change  
         2017                2018        
     (in thousands)         

Cost of subscription revenue

   $ 9,072      $ 19,927        120

Cost of professional services revenue

     30,335        32,058        6  
  

 

 

    

 

 

    

Total cost of revenue

   $ 39,407      $ 51,985        32  
  

 

 

    

 

 

    

Total cost of revenue was $52.0 million for fiscal 2018 compared to $39.4 million for fiscal 2017, an increase of $12.6 million, or 32%.

Cost of subscription revenue was $19.9 million for fiscal 2018 compared to $9.1 million for fiscal 2017, an increase of $10.9 million, or 120%. The increase in cost of subscription revenue was primarily due to an increase in salary and benefits costs related to an increase in headcount of $4.4 million, including stock-based compensation, an increase in consulting and contractor spend of $1.2 million to support our anticipated growth, an increase in amortization of capitalized software development costs and intangible assets of $1.1 million and an increase in software licenses to produce additional functionality of our platform of $0.5 million, depreciation of our servers placed in service in fiscal 2018 of $0.7 million, and an increase in allocated facilities of $0.5 million due to additional leases signed in fiscal 2018.

Cost of professional services revenue was $32.1 million for fiscal 2018 compared to $30.3 million for fiscal 2017, an increase of $1.7 million, or 6%. The relatively small increase in cost of professional services revenue was primarily due to an increase in partner implementation costs due to a growing partner network and the initial implementation of our strategy of shifting professional services to our partners.

Gross Profit and Gross Margin

 

     Year Ended January 31,     % Change  
           2017                 2018        
     (in thousands)        

Subscription gross profit

   $ 82,344     $ 123,615       50

Professional services gross profit

     (1,252     (7,253     479  
  

 

 

   

 

 

   

Total gross profit

   $ 81,092     $ 116,362       43  
  

 

 

   

 

 

   

Subscription gross margin

     90     86  

Professional services gross margin

     (4     (29  

Total gross margin

     67       69    

 

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Gross profit was $116.4 million for fiscal 2018 compared to $81.1 million for fiscal 2017, an increase of $35.3 million, or 43%. The increase in gross profit is the result of the increases in our subscription revenue due primarily to additional sales to existing customers and the addition of new customers in fiscal 2018.

Gross margin was 69% for fiscal 2018 compared to 67% for fiscal 2017. The increase was due primarily to the increase in subscription revenue which generates a significantly higher gross margin than our professional services revenue. The effect on gross margin of the increase in subscription revenue was partially offset by an increase in the professional services gross loss and the negative gross margin related to the increase in cost of professional services revenue in fiscal 2018 and by a decrease in subscription gross margin. Our gross margins can fluctuate from quarter to quarter as a result of the achievement of payment milestones in our professional services arrangements, and the requirements, complexity, and timing of our customers’ implementation projects.

Operating Expenses

Research and Development

 

     Year Ended January 31,      % Change  
           2017                  2018        
     (in thousands)         

Research and development

   $ 23,868      $ 30,908        29

Research and development expenses were $30.9 million for fiscal 2018 compared to $23.9 million for fiscal 2017, an increase of $7.0 million, or 29%. The increase was primarily due to an increase in salary and benefits costs related to an increase in headcount of $4.4 million, including stock-based compensation, an increase in consulting and contractor spend of $3.0 million to support our anticipated growth, an increase in allocated facilities of $1.4 million due primarily to new facility leases entered into in fiscal 2018, an increase in hosting fees of $1.1 million for increased cloud services, and an increase of $0.6 million in recruiting costs. The increase in research and development costs was partially offset by an increase in capitalized software development costs of $3.5 million due to a significant increase in development of our core software and a one-time research and development credit related to our U.K. subsidiary in the amount of $1.4 million.

Sales and Marketing

 

     Year Ended January 31,      % Change  
           2017                  2018        
     (in thousands)         

Sales and marketing

   $ 73,656      $ 100,654        37

Sales and marketing expenses were $100.7 million for fiscal 2018 compared to $73.7 million for fiscal 2017, an increase of $27.0 million, or 37%. The increase was primarily due to an increase in salary and benefits costs related to an increase in headcount of $14.9 million, including stock-based compensation, a $2.7 million increase in commission expenses recognized in fiscal 2018, an increase in travel related expenses of $2.2 million, and an increase in allocated facilities of $1.0 million due primarily to a new facility lease entered into in fiscal 2018.

 

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General and Administrative

 

     Year Ended January 31,      % Change  
           2017                  2018        
     (in thousands)         

General and administrative

   $ 22,503      $ 30,719        37

General and administrative expenses were $30.7 million for fiscal 2018 compared to $22.5 million for fiscal 2017, an increase of $8.2 million, or 37%. The increase was primarily due to an increase in salary and benefits costs related to an increase in headcount of $6.5 million, including stock-based compensation, an increase in consulting and contractor spend of $1.9 million, an increase in software licenses of $0.7 million, and an increase in recruiting costs of $0.7 million to support our anticipated growth. The increase was partially offset by restructuring charges of $3.3 million in fiscal 2017 related to severance and other related costs for employees terminated during that period.

Other Income and Expenses

Interest Income, net

 

     Year Ended January 31,      % Change  
           2017                  2018        
     (in thousands)         

Interest income, net

   $ 88      $ 108        23

Interest income, net increased by $20,000, or 23%, in fiscal 2018 as there were no significant changes to income interest or expense activities during the respective periods.

Other Expense, net

 

     Year Ended January 31,     % Change  
           2017                 2018        
     (in thousands)        

Other expense, net

   $ (835   $ (482     42

Other expense, net was a loss of $0.5 million in fiscal 2018 compared to a loss of $0.8 million in fiscal 2017, a change of $0.4 million, or 42%. The change was primarily due to currency fluctuations and the related remeasurements during the periods, primarily related to our U.K. operations.

Provision for Income Taxes

 

     Year Ended January 31,     % Change  
           2017                 2018        
     (in thousands)        

Provision for income taxes

   $ (512   $ (1,261     146

The provision for income taxes was $1.3 million in fiscal 2018 compared to $0.5 million in fiscal 2017, an increase of $0.7 million, or 146%, primarily related to income generated from statutory intercompany cost share arrangements in certain European and Asian countries.

 

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Fiscal 2016 and 2017

Revenue

 

     Year Ended January 31,      % Change  
           2016                  2017        
     (in thousands)         

Subscription revenue

   $ 50,772      $ 91,416        80

Professional services revenue

     20,753        29,083        40  
  

 

 

    

 

 

    

Total revenue

   $ 71,525      $ 120,499        68  
  

 

 

    

 

 

    

Total revenue was $120.5 million for fiscal 2017 compared to $71.5 million for fiscal 2016, an increase of $49.0 million, or 68%.

Subscription revenue was $91.4 million, or 76% of total revenue, for fiscal 2017 compared to $50.8 million, or 71% of total revenue, for fiscal 2016. The increase of $40.6 million, or 80%, in subscription revenue was due to additional sales to existing customers, which accounted for approximately 62% of the increase, and a significant increase in sales to new customers, which accounted for approximately 38% of the increase.

Professional services revenue was $29.1 million for fiscal 2017 compared to $20.8 million for fiscal 2016. The increase of $8.3 million, or 40%, was primarily due to the increased number of implementation and training projects during fiscal 2017 compared to fiscal 2016. The decrease in professional services revenue as a percentage of total revenue from 29% to 24% was due to a greater increase in subscription revenue, which increased 80% compared to the 40% increase in professional services revenue.

Cost of Revenue

 

     Year Ended January 31,      % Change  
           2016                  2017        
     (in thousands)         

Cost of subscription revenue

   $ 7,655      $ 9,072        19

Cost of professional services revenue

     22,849        30,335        33  
  

 

 

    

 

 

    

Total cost of revenue

   $ 30,504      $ 39,407        29  
  

 

 

    

 

 

    

Total cost of revenue was $39.4 million for fiscal 2017 compared to $30.5 million for fiscal 2016, an increase of $8.9 million, or 29%.

Cost of subscription revenue was $9.1 million for fiscal 2017 compared to $7.7 million for fiscal 2016, an increase of $1.4 million, or 19%. The increase in cost of subscription revenue was primarily due to an increase in salary and benefits costs related to an increase in headcount, including stock-based compensation, an increase in equipment costs and hosting fees to accommodate customer growth, and an increase in amortization of capitalized software development costs and intangible assets.

Cost of professional services revenue was $30.3 million for fiscal 2017 compared to $22.8 million for fiscal 2016, an increase of $7.5 million, or 33%. The increase in cost of professional services revenue was primarily due to an increase in the number of projects consistent with the increase in professional services revenue and the increase in salary and benefits costs related to an increase in headcount, including stock-based compensation, driven by our overall growth.

 

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Gross Profit and Gross Margin

 

     Year Ended January 31,     % Change  
           2016                 2017        
     (in thousands)        

Subscription gross profit

   $ 43,117     $ 82,344       91

Professional services gross profit

     (2,096     (1,252     (40
  

 

 

   

 

 

   

Total gross profit

   $ 41,021     $ 81,092       98  
  

 

 

   

 

 

   

Subscription gross margin

     85     90  

Professional services gross margin

     (10     (4  

Total gross margin

     57       67    

Gross profit was $81.1 million for fiscal 2017 compared to $41.0 million for fiscal 2016, an increase of $40.1 million, or 98%. The increase in gross profit was the result of the increases in our subscription revenue due primarily to additional sales to existing customers and the addition of new customers in the fiscal 2017.

Gross margin was 67% for fiscal 2017 compared to 57% for fiscal 2016. The increase was due primarily to the increase in subscription revenue, which generates a significantly higher gross margin than our professional services revenue.

Operating Expenses

Research and Development

 

     Year Ended January 31,      % Change  
           2016                  2017        
     (in thousands)         

Research and development

   $ 19,288      $ 23,868        24

Research and development expenses were $23.9 million for fiscal 2017 compared to $19.3 million for fiscal 2016, an increase of $4.6 million, or 24%. The increase was primarily due to an increase in salary and benefits costs related to an increase in headcount of $4.6 million, including stock-based compensation.

Sales and Marketing

 

     Year Ended January 31,      % Change  
           2016                  2017        
     (in thousands)         

Sales and marketing

   $ 55,279      $ 73,656        33

Sales and marketing expenses were $73.7 million for fiscal 2017 compared to $55.3 million for fiscal 2016, an increase of $18.4 million, or 33%. The increase was primarily due to an increase in salary and benefits costs related to an increase in headcount of $13.7 million, including stock-based compensation, and a $1.8 million increase in commission expenses due to increased bookings in fiscal 2017.

General and Administrative

 

     Year Ended January 31,      % Change  
           2016                  2017        
     (in thousands)         

General and administrative

   $ 19,313      $ 22,503        17

 

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General and administrative expenses were $22.5 million for fiscal 2017 compared to $19.3 million for fiscal 2016, an increase of $3.2 million, or 17%. The increase was primarily due to restructuring charges of $3.3 million in fiscal 2017 related to severance and other related costs for terminated employees during the year. We also recognized additional costs related to an increase in salary and benefits costs related to an increase in headcount of $2.2 million, including stock-based compensation, but these increases were mostly offset by a decrease in consulting fees of $0.9 million and recruiting costs of $0.9 million related to our hiring of additional resources.

Other Income and Expenses

Interest Income, net

 

     Year Ended January 31,      % Change  
           2016                  2017        
     (in thousands)         

Interest income, net

   $ 55      $ 88        60

Interest income, net increased by $33,000, or 60%, in fiscal 2017 as there were no significant changes to income interest or expense activities during the respective periods.

Other Expense, net

 

     Year Ended January 31,     % Change  
           2016                 2017        
     (in thousands)        

Other expense, net

   $ (1,343   $ (835     38

Other expense, net was a loss of $0.8 million in fiscal 2017 compared to a loss of $1.3 million in fiscal 2016, a change of $0.5 million, or 38%. The change was primarily due to currency fluctuations and the related remeasurements during the periods, primarily related to our U.K. operations.

Provision for Income Taxes

 

     Year Ended January 31,     % Change  
           2016                 2017        
     (in thousands)        

Provision for income taxes

   $ (80   $ (512     540

The provision for income taxes was $0.5 million in fiscal 2017 compared to $0.1 million in fiscal 2016, an increase of $0.4 million, or 540% due primarily to income generated from statutory intercompany cost share arrangements in certain European and Asian countries.

Quarterly Results of Operations

The following tables set forth selected unaudited quarterly consolidated statements of operations data for each of the six quarters in the period ended July 31, 2018, as well as the percentage of revenue that each line item represents for each quarter. The information for each of these six quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods in accordance with generally accepted accounting principles, or GAAP.

 

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This data should be read in conjunction with our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of our operating results for a full year or any future period. Our fiscal year end is January 31, and our fiscal quarters end on April 30, July 31, October 31, and January 31.

 

    Three Months Ended  
    April 30,
2017
    July 31,
2017
    October 31,
2017
    January 31,
2018
    April 30,
2018
    July 31,
2018
 
    (in thousands)  

Revenue:

           

Subscription revenue

  $ 29,526     $ 34,278     $ 38,214     $ 41,524     $ 44,921     $ 49,618  

Professional services revenue

    7,219       6,796       5,975       4,815       6,629       8,210  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    36,745       41,074       44,189       46,339       51,550       57,828  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue:

           

Cost of subscription revenue(1)

    2,836       3,946       5,654       7,491       7,786       8,788  

Cost of professional services revenue(1)

    7,900       9,503       9,590       5,065       6,246       7,171  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    10,736       13,449       15,244       12,556       14,032       15,959  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    26,009       27,625       28,945       33,783       37,518       41,869  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

           

Research and development(1)

    6,427       8,782       7,596       8,103       11,691       12,158  

Sales and marketing(1)

    21,551       20,763       24,167       34,173       39,305       38,617  

General and administrative(1)

    5,573       6,444       7,419       11,283       11,828       11,042  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    33,551       35,989       39,182       53,559       62,824       61,817  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (7,542     (8,364     (10,237     (19,776     (25,306     (19,948

Interest income, net

    20       25       30       33       89       36  

Other (expense) income, net

    (433     724       (1,048     275       (411     (229
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (7,955     (7,615     (11,255     (19,468     (25,628     (20,141

Provision for income taxes

    (277     (132     (515     (337     (553     (907
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (8,232   $ (7,747   $ (11,770   $ (19,805   $ (26,181   $ (21,048
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes stock-based compensation expense as follows:

 

     Three Months Ended  
     April 30,
2017
     July 31,
2017
     October 31,
2017
     January 31,
2018
     April 30,
2018
     July 31,
2018
 
     (in thousands)  

Cost of subscription revenue

   $ 13      $ 19      $ 38      $ 78      $ 63      $ 75  

Cost of professional services revenue

     113        169        161        64        39        79  

Research and development

     172        170        179        221        259        277  

Sales and marketing

     835        860        863        938        885        1,151  

General and administrative

     582        494        667        2,003        714        1,358  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 1,715      $ 1,712      $ 1,908      $ 3,304      $ 1,960      $ 2,940  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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    Three Months Ended  
    April 30,
2017
    July 31,
2017
    October 31,
2017
    January 31,
2018
    April 30,
2018
    July 31,
2018
 

Revenue:

           

Subscription revenue

    80     83     86     90     87     86

Professional services revenue

    20       17       14       10       13       14  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    100       100       100       100       100       100  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue:

           

Cost of subscription revenue

    8       10       13       16       15       15  

Cost of professional services revenue

    21       23       22       11       12       12  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    29       33       35       27       27       27  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    71       67       65       73       73       73  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

           

Research and development

    17       21       17       17       23       21  

Sales and marketing

    59       51       55       74       76       67  

General and administrative

    15       16       17       24       23       19  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    91       88       89       116       122       107  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (20     (21     (24     (43     (49     (34

Interest income, net

                                   

Other (expense) income, net

    (1     2       (2     1       (1      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (21     (19     (26     (42     (50     (34

Provision for income taxes

    (1           (1     (1     (1     (2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (22 )%      (19 )%      (27 )%      (43 )%      (51 )%      (36 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Quarterly Revenue Trends

Our total quarterly revenue increased sequentially for all periods presented due primarily to increases in sales to existing customers and a significant increase in sales to new customers in fiscal 2018 and 2019. The increase in total revenue was due to increases in subscription revenue which also increased sequentially for all periods presented. Revenue from professional services decreased sequentially during fiscal 2018 due to a growing partner network and our strategy of shifting professional services revenue to our partners. Revenue from professional services increased sequentially in the two three-month periods ended April 30, 2018 and July 31, 2018 but decreased as a percentage of revenue when compared to the same periods in 2017.

Quarterly Costs of Revenue Trends

Our total quarterly costs of revenue increased sequentially until the quarter ended January 31, 2018 when we experienced a decrease of 18%, and then increased again sequentially in the two quarters ended April 30, 2018 and July 31, 2018. The decrease in the quarter ended January 31, 2018 was primarily driven by a significant decrease in cost of professional services revenue due to a growing partner network and our strategy of shifting professional services revenue to our partners as well as the timing of when certain projects closed. Cost of subscription revenue increased sequentially across the quarters presented due primarily to the continued expansion of our technical infrastructure and increased employee headcount. Most of our costs are recorded as period costs, and thus the costs may be reflected in our financial results sooner than the associated revenue.

 

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Quarterly Gross Profit and Margin Trends

Our total quarterly gross profit and our subscription gross profit increased sequentially for all periods presented due primarily to increases in sales of our subscription services, while the related gross margins varied due primarily to the timing of when the related costs were recognized. The gross profit and gross margin for professional services varied due to a growing partner network and our strategy of shifting professional services revenue to our partners as well as the timing of when certain projects closed.

Our quarterly operating results may fluctuate due to various factors affecting our performance. In addition, we recognize revenue from subscription fees ratably over the term of the contract. Therefore, changes in our contracting activity in the near term may not impact changes to our reported revenue until future periods.

Quarterly Operating Expenses Trends

Our operating expenses generally increased across the quarters presented, primarily due to increases in headcount and facilities to support our expanding operations. For the three months ended July 31, 2017 and July 31, 2018, however, sales and marketing costs decreased compared to the preceding three-month period, as the preceding three-month period included the CPX user conferences as well as an annual sales kickoff event. Also, for the three months ended October 31, 2017, research and development costs decreased compared to the preceding three-month period due to the shut down one of our overseas research and development offices. For the three months ended July 31, 2018, general and administrative costs decreased compared to the preceding three-month period due to a loss on a sublease taken in the preceding period.

Liquidity and Capital Resources

As of July 31, 2018, our principal sources of liquidity were cash and cash equivalents totaling $87.0 million, which were held for working capital purposes. Our cash equivalents are comprised primarily of bank deposits and money market funds.

Since our inception, we have financed our operations primarily through private sales of equity securities. We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our pace of growth, subscription renewal activity, the timing and extent of spend to support research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced platform offerings, and the continuing market acceptance of the platform. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, and intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition would be adversely affected.

All of our restricted stock units, or RSUs, vest upon the satisfaction of a service-based vesting condition. The first vesting event for our RSUs will occur no later than April 15, 2019, by which time approximately 2.8 million shares underlying RSUs held by our officers and employees will have vested and settled into shares of our common stock. We currently expect that the average withholding tax rate for such individuals will be approximately 50%. We have not determined whether our policy will be to require individuals to sell shares, or sell to cover, or for us to withhold a portion of the vested shares, or withhold to cover, to satisfy our tax withholding obligations for such individuals due at settlement. If we

 

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were to require individuals to sell to cover, approximately 50%, or approximately 1.4 million, of the vested shares would need to be sold on the settlement date with the actual percentage dependent upon the price of our common stock received at settlement. If we were to require individuals to withhold to cover, approximately 50% of the vested shares would be withheld on the settlement date, with the equivalent value being paid by us from our working capital. If the price of our common stock at the time of settlement were equal to the assumed initial public offering price of $16.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, we estimate that this tax withholding obligation would be approximately $22.4 million in the aggregate.

Loan and Credit Facility Agreements

In June 2015, we entered into a loan and security agreement with Comerica that allowed us to borrow up to $20.0 million through June 2019. In conjunction with entering into the loan agreement with Wells Fargo discussed below, the Comerica agreement was terminated. We did not draw down any amounts under this agreement and were in compliance with the financial covenants contained in the agreement throughout its existence.

In April 2018, we entered into a syndicated loan agreement with Wells Fargo to provide a secured revolving credit facility that allows us to borrow up to $40.0 million, subject to an accounts receivable borrowing base, for general corporate purposes through April 2020. Any advances drawn on the credit facility will incur interest at a rate equal to (i) the highest of (A) the prime rate, (B) the federal funds rate plus 0.5% and (C) one-month LIBOR plus 1% less (ii) 0.5%. Interest is payable monthly in arrears with the principal and any accrued and unpaid interest due on April 30, 2020. There was a $6.0 million reduction of the available credit facility in April 2018 related to letters of credit for certain of our facility leases, which resulted in the simultaneous release of $6.0 million in restricted cash.

We granted Wells Fargo a first priority lien in our accounts receivable, all of the issued shares of capital stock and equity interests of our subsidiaries, and other corporate assets and agreed not to pledge our intellectual property to other parties. The loan agreement includes affirmative and negative covenants, including financial covenants requiring: (i) maintenance at all times of minimum tangible net worth, defined as assets, excluding intangible assets, less liabilities of not less than $1; and (ii) maintenance at all times of a ratio of (A) the aggregate of our cash, cash equivalents and net accounts receivable to (B) total current liabilities less current deferred revenue plus revolving credit loans drawn under the loan agreement of not less than 1.50 to 1.00. As of July 31, 2018, we were in compliance with all covenants associated with the credit facility.

Cash Flows

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

 

     Year Ended January 31,     Six Months Ended July 31,  
     2016     2017     2018             2017                     2018          
     (in thousands)  

Net cash used in operating activities

   $ (52,804   $ (26,161   $ (14,501   $ (6,367   $ (15,695

Net cash used in investing activities

     (7,991     (2,371     (15,366     (9,087     (15,798

Net cash provided by financing activities

     87,121       2,239       64,724       2,334       2,966  

Operating Activities

Net cash used in operating activities of $15.7 million for the six months ended July 31, 2018 was primarily due to a net loss of $47.2 million, partially offset by non-cash charges for depreciation and

 

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amortization of $5.4 million, amortization of deferred commissions of $5.2 million, and stock-based compensation of $4.9 million. Changes in working capital were favorable to cash flows from operations by $15.6 million primarily due to a decrease in accounts receivable, net of $10.5 million due to increased customer collections, an increase in the deferred revenue balance of $9.4 million due to increases in sales, and an increase in accounts payable and accrued expenses of $8.4 million due to our growth, partially offset by an increase in deferred commissions of $12.6 million and increases in other current assets of $2.8 million also related to increases in our sales.

Net cash used in operating activities of $6.4 million for the six months ended July 31, 2017 was primarily due to a net loss of $16.0 million, partially offset by non-cash charges for stock-based compensation of $3.4 million, depreciation and amortization of $3.2 million, and amortization of deferred commissions of $3.3 million. Changes in working capital were unfavorable to cash flows from operations by $0.3 million primarily due to increases in our accounts receivable, net of $2.8 million and deferred commissions of $6.3 million due to increases in sales, partially offset by increases in deferred revenue of $9.1 million also due to increases in sales.

Net cash used in operating activities of $14.5 million for fiscal 2018 was primarily due to a net loss of $47.6 million, partially offset by non-cash charges for stock-based compensation of $8.6 million, depreciation and amortization of $7.4 million, and amortization of deferred commissions of $7.4 million. Changes in working capital were favorable to cash flows from operations by $9.5 million primarily due to a change in the deferred revenue balance of $32.4 million from our increases in sales and increases in accounts payable and accrued expenses of $8.9 million due to our growth, partially offset by an increase in deferred commissions of $14.8 million and increases in accounts receivable, net of $10.0 million and in prepaid expenses and other current assets of $5.9 million also related to increases in our sales.

Net cash used in operating activities of $26.2 million for fiscal 2017 was primarily due to a net loss of $40.2 million, partially offset by non-cash charges for stock-based compensation of $6.1 million, depreciation and amortization of $4.3 million, and amortization of deferred commissions of $4.8 million. Changes in working capital were unfavorable to cash flows from operations by $1.3 million primarily due to increases in our accounts receivable, net of $16.3 million and deferred commissions of $12.2 million due to increases in sales, partially offset by increases in deferred revenue of $24.2 million also due to increases in sales and an increase in accounts payable and accrued expenses of $5.4 million related to our growth.

Net cash used in operating activities of $52.8 million for fiscal 2016 was primarily due to a net loss of $54.2 million, partially offset by non-cash charges for stock-based compensation of $3.5 million, depreciation and amortization of $2.6 million, and amortization of deferred commissions of $3.2 million. Changes in working capital were unfavorable to cash flows from operations by $8.0 million primarily due to increases in our accounts receivable, net of $17.2 million, prepaid expenses and other current assets of $3.4 million, and deferred commissions of $11.4 million generally due to increases in sales, partially offset by increases deferred revenue of $16.6 million also due to increases in sales and an increase in accounts payable and accrued expenses of $6.4 million related to our growth.

Investing Activities

Net cash used in investing activities for the six months ended July 31, 2018 of $15.8 million was related to purchases of property and equipment of $12.4 million related to our growth and the capitalization of internal use software of $3.4 million as we expanded the platform and increased our development efforts.

 

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Net cash used in investing activities for the six months ended July 31, 2017 of $9.1 million was related to purchases of property and equipment of $6.4 million and the capitalization of internal use software of $2.7 million.

Net cash used in investing activities for fiscal 2018 of $15.4 million was related to purchases of property and equipment of $9.6 million related to our growth and the capitalization of internal use software of $5.8 million as we expanded the platform and increased our development efforts.

Net cash used in investing activities for fiscal 2017 of $2.4 million was related to purchases of property and equipment of $2.8 million and the capitalization of internal use software of $2.2 million, partially offset by maturities in marketable securities of $3.0 million.

Net cash used in investing activities for fiscal 2016 of $8.0 million was related to purchases of property and equipment of $5.5 million, purchases of marketable securities of $3.0 million, and capitalization of internal use software of $1.5 million, partially offset by maturities of marketable securities of $2.0 million.

Financing Activities

Net cash provided by financing activities for the six months ended July 31, 2018 of $3.0 million consisted primarily of $2.9 million in proceeds from the exercise of stock options.

Net cash provided by financing activities for the six months ended July 31, 2017 of $2.3 million consisted of $1.2 million in proceeds from the exercise of stock options, and $1.1 million from the repayment of promissory notes.

Net cash provided by financing activities for fiscal 2018 of $64.7 million consisted of net proceeds of $59.9 million from the issuance of Series F convertible preferred stock, $3.3 million in proceeds from the exercise of stock options, and $1.5 million from the repayment of promissory notes.

Net cash provided by financing activities for fiscal 2017 of $2.2 million consisted primarily of $1.9 million in proceeds from the exercise of stock options.

Net cash provided by financing activities for fiscal 2016 of $87.1 million consisted primarily of net proceeds of $86.5 million from the issuance of Series E convertible preferred stock.

Commitments and Contractual Obligations

The following table summarizes our non-cancelable contractual obligations as of January 31, 2018:

 

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

Operating lease obligations

   $ 57,302      $ 10,183      $ 16,650      $ 11,865      $ 18,604  

Non-cancellable purchase obligations

     8,918        4,996        3,922                
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 66,220      $ 15,179      $ 20,572      $ 11,865      $ 18,604  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. Purchase orders issued in the ordinary course of business are not included in the table above, as these purchase orders represent authorizations to purchase rather than binding agreements and are generally fulfilled within short time periods.

 

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We entered into a capital lease in the six months ended July 31, 2018 which will require future minimum payments in the amount of $10.1 million through 2023. As of July 31, 2018, $3.3 million of the minimum payments will be due within one year, $6.3 million will be due within one to three years and $0.5 million will be due within three to five years. Otherwise, there were no material changes outside of the ordinary course of business in our contractual obligations from those as of January 31, 2018.

Off-Balance Sheet Arrangements

Through July 31, 2018, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British Pound Sterling, Euro, and Singapore Dollar. Impacts to our operations from changes in foreign currency have been fairly limited to date and thus we have not instituted a hedging program. We expect our international operations to continue to grow in the near term and we will monitor our foreign currency exposure to determine when we should begin a hedging program. A majority of our agreements have been and we expect will continue to be denominated in U.S. dollars. A hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have had a material effect on operating results for fiscal 2017 and 2018 and the six months ended July 31, 2018.

Interest Rate Sensitivity

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. As of July 31, 2018, we had cash and cash equivalents of $87.0 million, which consisted primarily of bank deposits and money market funds. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations of interest income have not been significant. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. A hypothetical 10% change in interest rates would not have had a material impact on our operating results for fiscal 2017 and 2018 and the six months ended July 31, 2018.

Critical Accounting Polices and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

 

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Revenue Recognition

We recognize revenue from contracts with customers using the five-step method described in Note 1 of the notes to our consolidated financial statements included elsewhere in this prospectus. At contract inception we evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation. We combine contracts entered into at or near the same time with the same customer if we determine that the contracts are negotiated as a package with a single commercial objective; the amount of consideration to be paid in one contract depends on the price or performance of the other contract; or the services promised in the contracts are a single performance obligation.

Our performance obligations consist of (i) subscription and support services and (ii) professional and other services. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on their relative standalone selling price. We determine standalone selling price, or SSP, for all our performance obligations using observable inputs, such as standalone sales and historical contract pricing. SSP is consistent with our overall pricing objectives, taking into consideration the type of subscription services and professional and other services. SSP also reflects the amount we would charge for that performance obligation if it were sold separately in a standalone sale, and the price we would sell to similar customers in similar circumstances.

In general, we satisfy the majority of our performance obligations over time as we transfer the promised services to our customers. We review the contract terms and conditions to evaluate the timing and amount of revenue recognition; the related contract balances; and our remaining performance obligations. We also estimate the number of hours expected to be incurred based on an expected hours approach that considers historical hours incurred for similar projects based on the types and sizes of customers. These evaluations require significant judgment that could affect the timing and amount of revenue recognized.

Deferred Commissions

We capitalize sales commissions that are considered to be incremental to the acquisition of customer contracts, which are then amortized over an estimated period of benefit. To determine the period of benefit of our deferred commissions, we evaluate the type of costs incurred, the nature of the related benefit, and the specific facts and circumstances of our arrangements. We determine the period of benefit for commissions paid for the acquisition of the initial subscription contract by taking into consideration our initial estimated customer life and the technological life of the platform and related significant features. We determine the period of benefit for commissions on renewal subscription contracts by considering the average contractual term for renewal contracts. We evaluate these assumptions on a quarterly basis and periodically review whether events or changes in circumstances have occurred that could impact the period of benefit.

Stock-Based Compensation

Stock-based compensation expense is measured and recognized in the consolidated financial statements based on the fair value of the awards granted.

Stock Options

The fair value of a stock option is estimated on the grant date using the Black-Scholes option-pricing model. Stock-based compensation expense is recognized, net of forfeitures, over the requisite service periods of the awards, which is generally four years.

Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions, including the fair value of our underlying common stock, expected term of the option,

 

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expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock. The assumptions used in our option-pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

These assumptions and estimates are as follows:

 

   

Fair Value of Common Stock.    As our stock is not publicly traded, and is rarely traded privately, we estimate the fair value of common stock as discussed in “—Common Stock Valuations” below.

 

   

Risk-Free Interest Rate.    We base the risk-free interest rate for the expected term of the options on the U.S. Treasury yield curve in effect at the time of the grant.

 

   

Expected Term.    We determine the expected term using the simplified approach, in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award, as we do not have sufficient historical data relating to stock-option exercises.

 

   

Expected Volatility.    As we do not have a trading history for our common stock, the expected volatility for our common stock was estimated by taking the average historic price volatility for industry peers, consisting of several public companies in our industry which are either similar in size, stage of life cycle or financial leverage, over a period equivalent to the expected term of the awards.

 

   

Expected Dividend Yield.    We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. As a result, we use an expected dividend yield of zero.

The Black-Scholes assumptions used in evaluating our awards are as follows:

 

     Year Ended January 31,     Six Months Ended July 31,  
     2016     2017     2018     2017     2018  

Risk-free interest rate

     1.49% – 1.89     1.28% – 2.18     1.88% – 2.54     1.88% – 2.14     2.68% – 2.82

Expected term (years)

     6.08 – 6.58       5.25 – 6.08       6.08       6.08       6.08  

Expected volatility

     42.7% – 47.9     41.7% – 44.2     38.0% – 41.6     40.0% – 41.6     37.2% – 37.8

Dividend yield

                              

We must also estimate a forfeiture rate to calculate the stock-based compensation expense for our awards. Our forfeiture rate is based on an analysis of our actual forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and other factors.

We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.

As of January 31, 2018 and July 31, 2018, we had approximately $18.4 million and $20.7 million in future stock-based compensation related to unvested stock options which is expected to be recognized over a weighted-average period of approximately 3.17 years and 2.97 years, respectively.

During the six months ended July 31, 2018, we recognized a charge in the amount of $0.9 million as a result of accelerated vesting for shares related to modifications of certain option awards.

 

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Restricted Stock Units

Substantially all of the RSUs that we have issued to date vest upon the satisfaction of both service-based and performance-based vesting conditions. The service-based condition is typically over a four-year service period. The performance-based requirement is satisfied on the earlier of: (i) a change in control or (ii) the effective date of the registration statement for our initial public offering. The RSUs vest on the first date upon which both the service-based and liquidity event requirements are satisfied.

Stock-based compensation expense is recognized only for those RSUs that are expected to meet the service-based and performance conditions. As of July 31, 2018, achievement of the performance condition was not probable. A change in control event and effective registration statement are not deemed probable until those events occur. If our IPO had occurred on July 31, 2018, we would have recognized $11.1 million, of stock-based compensation expense for all RSUs that had fully satisfied the service-based vesting condition on that date, and would have had approximately $31.9 million of unrecognized compensation cost that represents the grants that have not met the service condition as of July 31, 2018, which is expected to be recognized over a weighted-average period of approximately 3.24 years.

In addition, for the period from July 31, 2018 through September 28, 2018, we granted 4,538,435 RSUs and options to purchase 1,780,383 shares with a weighted-average exercise price of $11.86 per share. These grants resulted in unrecognized stock-based compensation of $48.5 million, net of estimated forfeitures, which is expected to be recognized over an estimated weighted average amortization period of 3.90 years from the grant date.

Stock Purchase Rights

Stock purchase rights have been issued in exchange for recourse promissory notes that have been deemed to be non-substantive in nature. The rights are accounted for as option awards with the related stock-based compensation recognized over the vesting period of the awards.

The related stock-based compensation is based on the fair value of the awards determined using the Black-Scholes option-pricing model and the assumptions are determined similarly to those noted in the option discussion above for each of the fair value of our underlying common stock, expected term of the option, expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock.

We have not granted any stock purchase rights since fiscal 2017 and the related unrecognized stock-based compensation for outstanding unvested stock purchase rights as of January 31, 2018 and July 31, 2018, was $1.3 million and $0.8 million, respectively, which is expected to be recognized over a weighted-average period of approximately 2.04 years and 1.56 years, respectively.

Common Stock Valuations

The fair value of the common stock underlying our stock options was determined by our board of directors. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. In the absence of a public trading market, our board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant, including the following factors:

 

   

contemporaneous valuations performed by third-party valuation firms;

 

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

 

   

the prices of convertible preferred stock sold by us to third-party investors in arms-length transactions;

 

   

the lack of marketability of our common stock;

 

   

our actual operating and financial performance;

 

   

current business conditions and projections;

 

   

our history and the timing of the introduction of new products and services;