S-1 1 d793161ds1.htm FORM S-1 FORM S-1
Table of Contents

As filed with the Securities and Exchange Commission on October 6, 2020.

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Mavenir Private Holdings II Ltd.

to be reorganized as described herein to a public limited company named

Mavenir plc

(Exact name of registrant as specified in its charter)

 

 

 

England and Wales   363   Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

1700 International Pkwy, Suite 200

Richardson, Texas 75081

(469) 916-4393

(Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Pardeep Kohli

President and Chief Executive Officer

Mavenir Private Holdings II Ltd.

1700 International Pkwy, Suite 200

Richardson, Texas 75081

(469) 916-4393

(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

Samir A. Gandhi, Esq.

Robert A. Ryan, Esq.

Sidley Austin LLP

787 Seventh Avenue

New York, New York 10019

Telephone: (212) 839-5900

Facsimile: (212) 839-5599

 

Charles Gilbert, Esq.

Executive Vice President, Chief Legal
Officer and Secretary

Mavenir Private Holdings II Ltd.

1700 International Pkwy, Suite 200

Richardson, Texas 75081

Telephone: (469) 916-4393

 

Gregg A. Noel, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

525 University Avenue

Palo Alto, California 94301

Telephone: (650) 470-4500

Facsimile: (650) 470-4570

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, 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.

 

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

If an emerging growth company, indicate by checkmark if the registrant has not elected 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

  Proposed
Maximum
Aggregate
Offering Price(1)(2)
 

Amount of

Registration Fee(2)

Class A ordinary shares, par value $0.001 per share

  $100,000,000   $10,910

 

 

(1)

Includes additional Class A ordinary shares that the underwriters have an option to purchase. See “Underwriting.”

(2)

Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended, based on an estimate of the proposed maximum aggregate offering price.

 

 

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 this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

 

 

 


Table of Contents

EXPLANATORY NOTE

Mavenir Private Holdings II Ltd., the registrant whose name appears on the cover of this registration statement, is a private company incorporated under the laws of England and Wales. Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will form Mavenir plc, a public limited company incorporated under the laws of England and Wales and the issuer of our Class A ordinary shares offered hereby. Upon the closing of this offering, the existing shareholder of Mavenir Private Holdings II Ltd. will exchange its existing equity interests in Mavenir Private Holdings II Ltd. for a number of Class B ordinary shares of Mavenir plc having a value equivalent to the value of those equity interests. This reorganization is referred to throughout the prospectus included in this registration statement as the “Corporate Reorganization.” As a result of the Corporate Reorganization, the existing shareholder of Mavenir Private Holdings II Ltd. will become the initial holder of Class B ordinary shares of Mavenir plc, having the rights related to Class B ordinary shares as set forth in the prospectus included in this registration statement. Except as disclosed in the prospectus included in this registration statement, the consolidated historical financial statements and summary and selected historical consolidated financial data and other historical financial information included in this registration statement are those of Mavenir Private Holdings II Ltd. and its subsidiaries and do not give effect to the Corporate Reorganization. We are only offering the Class A ordinary shares of Mavenir plc through the prospectus included in this registration statement.


Table of Contents

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

 

Subject to Completion, dated                     , 2020

PRELIMINARY PROSPECTUS

Class A Ordinary Shares

 

 

LOGO

Mavenir plc

Class A Ordinary Shares

 

 

This is our initial public offering. We are offering            Class A ordinary shares. No public market currently exists for our Class A ordinary shares.

We intend to list our Class A ordinary shares on the Nasdaq Global Market (the “Nasdaq”) under the symbol “MVNR.”

We anticipate that the initial public offering price will be between $             and             per Class A ordinary share.

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and under applicable Securities and Exchange Commission (“SEC”) rules and have elected to take advantage of certain reduced public company reporting requirements for this prospectus and future filings.

Following the completion of this offering, we will have two classes of authorized ordinary shares. Each of the Class A and Class B ordinary shares have equivalent rights to distributions from the Company. However, the holders of our Class A ordinary shares offered hereby will be entitled to one vote per Class A ordinary share, and the holders of our Class B ordinary shares will be entitled to ten votes per Class B ordinary share. As further described in this prospectus, immediately following this offering an affiliated entity of Siris Capital Group, LLC will hold all of our issued and outstanding Class B ordinary shares and will have the right pursuant to our Articles of Association to convert its Class B ordinary shares into Class A ordinary shares on a one-for-one basis, subject to certain customary adjustments.

After giving effect to this offering, an affiliated entity of Siris Capital Group, LLC will continue to be our controlling shareholder and own approximately            Class B ordinary shares, representing     % of the combined voting power of our outstanding ordinary shares after this offering (approximately     % of the combined voting power of our outstanding ordinary shares if the underwriters exercise in full their option to purchase additional Class A ordinary shares). As a result of this ownership, so long as our controlling shareholder owns a majority of the combined voting power of our outstanding ordinary shares, it will be able to control any action requiring the general approval of our shareholders, including the election and removal of directors, amendments to our Articles of Association and the approval of any merger or sale of all or substantially all of our assets. Accordingly, we will be a “controlled company” within the meaning of the corporate governance rules of the Nasdaq. See “Management—Controlled Company.”

 

 

Investing in our Class A ordinary shares involves a high degree of risk. See “Risk Factors” beginning on page 19 of this prospectus.

 

 

 

     Per Share      Total  

Price to the public

   $                  $              

Underwriting discounts and commissions(1)

   $        $    

Proceeds to us (before expenses)

   $        $    

 

(1)

We have agreed to reimburse the underwriters for certain FINRA-related expenses. See “Underwriting” for a detailed description of the compensation payable to the underwriters.

To the extent that the underwriters sell more than             Class A ordinary shares, the underwriters have the option to purchase up to an additional            Class A ordinary shares from us, as described in “Underwriting.”

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

The underwriters expect to deliver the Class A ordinary shares on or about                    , 2020.

 

 

Book-Running Managers

 

Morgan Stanley    Goldman Sachs & Co. LLC         J.P. Morgan         BofA Securities

 

Barclays   Guggenheim Securities   Macquarie Capital

 

 

Prospectus dated                     , 2020


Table of Contents

LOGO

 


Table of Contents

LOGO

 


Table of Contents

LOGO

 


Table of Contents

LOGO

 


Table of Contents

LOGO

 


Table of Contents

TABLE OF CONTENTS

 

ABOUT THIS PROSPECTUS

     i  

FINANCIAL STATEMENTS AND BASIS OF PRESENTATION

     ii  

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     19  

INDUSTRY AND MARKET DATA

     57  

TRADEMARKS AND TRADE NAMES

     57  

SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES

     57  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     58  

USE OF PROCEEDS

     60  

DIVIDEND POLICY

     61  

CAPITALIZATION

     62  

DILUTION

     63  

CORPORATE REORGANIZATION

     65  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

     66  

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

     68  

BUSINESS

     98  

MANAGEMENT

     118  

EXECUTIVE COMPENSATION

     126  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     136  

PRINCIPAL SHAREHOLDER

     138  

DESCRIPTION OF SHARE CAPITAL

     141  

DESCRIPTION OF CERTAIN INDEBTEDNESS

     168  

SHARES ELIGIBLE FOR FUTURE SALE

     171  

MATERIAL U.K. TAX CONSIDERATIONS FOR U.K. HOLDERS

     173  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS

     175  

UNDERWRITING

     180  

LEGAL MATTERS

     186  

EXPERTS

     186  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     186  

INDEX TO FINANCIAL STATEMENTS

     F-1  

GLOSSARY

     A-1  


Table of Contents

ABOUT THIS PROSPECTUS

As used in this prospectus, unless the context otherwise indicates, any reference to “Mavenir,” “our Company,” “the Company,” “us,” “we” and “our” refers, prior to the Corporate Reorganization (as defined herein), to Mavenir Private Holdings II Ltd., together with its consolidated subsidiaries, and after the Corporate Reorganization, to Mavenir plc, the issuer of the Class A ordinary shares offered hereby, together with its consolidated subsidiaries. We have included a glossary of terms at the end of this prospectus.

You should rely only on the information contained in this prospectus or in any free writing prospectus that we authorize to be delivered to you. Neither we nor any of the underwriters has authorized anyone to provide you with additional or different information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. This prospectus is an offer to sell only the Class A ordinary shares offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. You should assume the information contained in this prospectus and any free writing prospectus we authorize to be delivered to you is accurate only as of their respective dates or the date or dates specified in those documents. Our business, financial condition, results of operations and prospects may have changed since those dates.

For investors outside the United States, neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or the offer and sale of the Class A ordinary shares in any jurisdiction where action for that purpose is required, other than the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the Class A ordinary shares and the distribution of this prospectus outside the United States.

Unless otherwise indicated, all references in this prospectus to the number and percentages of Class A ordinary shares outstanding following the completion of this offering:

 

   

reflects the initial public offering price of $             per Class A ordinary share, which is the midpoint of the estimated price range set forth on the cover of this prospectus;

 

   

assumes no exercise of the underwriters’ option to purchase up to an additional              Class A ordinary shares from us; and

 

   

gives effect to the completion of the Corporate Reorganization described below under “Financial Statements and Basis of Presentation—Predecessor Entity and Corporate Reorganization.”

 

i


Table of Contents

FINANCIAL STATEMENTS AND BASIS OF PRESENTATION

Historical Financial Statements

This prospectus includes Mavenir’s audited consolidated financial statements for the fiscal years ended January 31, 2020 (“fiscal 2019”) and January 31, 2019 (“fiscal 2018”) and the unaudited interim condensed consolidated financial statements for the three months and six months ended July 31, 2020 and 2019. Mavenir’s historical financial information presented in this prospectus has been derived from such financial statements.

Fiscal Period

We operate on a fiscal year ending January 31 of each year.

Our functional currency is the United States dollar (“USD”) and our consolidated financial statements are presented in United States dollars. The functional currency is the currency of the primary economic environment in which an entity’s operations are conducted. We translate the financial statements of certain of our non-U.S. subsidiaries into the functional currency using exchange rates in effect on the balance sheet date for assets and liabilities and average exchange rates for the period for statement of operations accounts, with the difference recognized in accumulated other comprehensive income.

The following exchange rates were used to translate our consolidated financial statements and other financial and operational data shown in constant currency:

 

     January 31,
2020
     January 31,
2019
     July 31,
2020
     July 31,
2019
 

Indian rupees (INR)

   $ 0.013986      $ 0.014075      $ 0.013346      $ 0.014473  

Israeli shekels (NIS)

   $ 0.28998      $ 0.27538      $ 0.29402      $ 0.28417  

British pounds (GBP)

   $ 1.3206      $ 1.3099      $ 1.3087      $ 1.2125  

 

    Average for the Fiscal
Year Ended
    Average for the Three
Months Ended
    Average for the Six
Months Ended
 
    January 31,
2020
    January 31,
2019
    July 31,
2020
    July 31,
2019
    July 31,
2020
    July 31,
2019
 

Indian rupees (INR)

  $ 0.014187     $ 0.014527     $ 0.013246     $ 0.014418     $ 0.013372     $ 0.014343  

Israeli shekels (NIS)

  $ 0.282120     $ 0.276613     $ 0.288230     $ 0.279414     $ 0.285703     $ 0.278061  

British pounds (GBP)

  $ 1.278595     $ 1.327649     $ 1.248744     $ 1.267884     $ 1.253996     $ 1.287143  

Predecessor Entity and Corporate Reorganization

Except as disclosed in this prospectus, the consolidated historical financial statements and summary and selected historical consolidated financial data and other financial information included in this prospectus are those of Mavenir Private Holdings II Ltd., together with its consolidated subsidiaries, and do not give effect to the Corporate Reorganization. Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will form Mavenir plc, a public limited company incorporated under the laws of England and Wales and the issuer of our Class A ordinary shares offered hereby. Upon the closing of this offering, the existing shareholder of Mavenir Private Holdings II Ltd. will exchange its equity interests in Mavenir Private Holdings II Ltd. for a number of Class B ordinary shares of Mavenir plc having a value equivalent to the value of those equity interests. We do not expect the reorganization to have a material effect on our consolidated financial statements, except with respect to share count, earnings per share and other per share metrics. This reorganization is referred to throughout the prospectus as the “Corporate Reorganization.”

 

ii


Table of Contents

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information that you should consider before investing in our Class A ordinary shares. You should read this entire prospectus carefully, including the matters discussed in the sections entitled “Risk Factors” beginning on page 17, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 66, and the consolidated financial statements and notes thereto and other financial information included in this prospectus before making an investment decision. In this prospectus, we make certain forward-looking statements, including expectations relating to our future performance. These expectations reflect our management’s view of our prospects and are subject to the risks described under “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Our expectations of our future performance may change after the date of this prospectus and there is no guarantee that such expectations will prove to be accurate. In this prospectus, unless the context otherwise indicates, any reference to “Mavenir,” “our Company,” “the Company,” “us,” “we” and “our” refers, prior to the Corporate Reorganization discussed herein, to Mavenir Private Holdings II Ltd. and its consolidated subsidiaries, and after the Corporate Reorganization, to Mavenir plc, the issuer of the Class A ordinary shares being offered hereby, together with its consolidated subsidiaries.

Overview

We provide software to drive the digital transformation of mobile networks. Our suite of cloud-native software applications delivers the critical network functionality that allows Wireless Service Providers to meet the needs of their enterprise and consumer customers. These software solutions are deeply embedded in the Wireless Service Provider networks to securely deliver and operate complex, mission-critical mobile services such as voice, messaging, video and connectivity that helps them to unlock new revenue opportunities. We are at the forefront of disruption in the mobile network infrastructure industry enabling networks to become more agile, flexible and scalable while reducing total cost of ownership (“TCO”).

There is a significant increase in demand for digital transformation to reduce cost while delivering additional value to consumers and enable new complex industrial use cases including private networks for enterprises and industries. This follows the trend set by a growing percentage of enterprises that have successfully adopted the cloud for digital transformation, which has led to the genesis of a new breed of enterprise software market leaders. Mavenir’s leadership position with our mobile communications software stack is well placed to capitalize on this digital transformation in the Wireless Service Provider market.

With the advent of 5G, we believe that mobile networks that already support multi-billion mobile subscriptions today need to be efficient and effective enough to address tens of billions of connected devices in the 5G/Internet of Things (“IoT”) era, and the consequent rise in new use cases and applications. In addition, the current global pandemic caused by Covid-19 has increased mobile network traffic and usage of all forms of communication services as more employees are working from home or in remote locations. According to International Data Corporation, with data usage already predicted to grow at high levels, the COVID-19 pandemic merely added fuel to the fire. Many operators reported that they saw double-digit growth in mobile data traffic during the height of the pandemic. 5G is capable of supporting these immense leaps in data traffic. Combine that with the ability to enable near-real-time network responsiveness, the advantages of migrating many uses and functions to a 5G network become readily apparent.



 

1


Table of Contents

Our customer base consists of over 250 Wireless Service Providers, who serve close to 4 billion subscribers across approximately 120 countries. This base includes 17 of the 20 largest Wireless Service Providers, including each of the three largest Wireless Service Providers in the U.S. As of September 30, 2020, 50% of our customers have been customers of Mavenir for 12 or more years.

Our software solutions enable Wireless Service Providers to operate their networks in a more flexible and cost-effective way by leveraging open interfaces and running on commercial off-the-shelf (“COTS”) hardware with a layer that virtualizes hardware resources (referred to as Network Functions Virtualization “NFV”). As part of the digital transformation of these networks, our cloud-native software adopts the web-scale approach to enable network agility and deliver software automation that allows individual services to be independently developed, operated and upgraded with continuous development capabilities without impacting other network functions. This web-scale approach allows highly flexible deployment of our solutions on any cloud—private, public or hybrid clouds. It also eliminates the need for more expensive proprietary configurations or dedicated and proprietary hardware, allowing COTS hardware computing resources to be pooled across various network functions. As a result, our customers can more quickly deploy and scale services in a cost-efficient manner.

Mavenir provides the complete mobile communications software stack that runs on any cloud infrastructure and connects devices and people to the Internet and Apps.

 

LOGO

Mavenir’s web-scale platform is the common base for our suite of software applications. It is a microservices based software platform based on open source components leveraging cloud-native principles. Leveraging Mavenir’s deep experience of developing carrier grade network functions for both virtualized and non-virtualized environments, we have developed additional features on top of the open source components to enable successful digital transformation of a Wireless Service Provider network—this allows us to leverage the power of open architectures while still creating substantial competitive differentiation.



 

2


Table of Contents

The figure below shows our mobile communications software stack, which includes:

 

LOGO

 

   

Software for Mobile Core.    A suite of software applications that enable Wireless Service Providers to deliver and manage mobile network services that a typical mobile subscriber uses every day, such as, voice, video, and rich multimedia messaging, along with Internet connectivity and access to data applications.

 

   

Software for Mobile Access & Edge.     A suite of software applications, such as OpenRAN (“Open Interfaces and Interoperable”) based virtualized Radio Access Network (“vRAN”) that enables ubiquitous wireless connectivity, mobility and edge services and allows all mobile devices (everything from cell phones to connected cars) to connect to a network to access its services. Mavenir has deployed its OpenRAN products with many Tier-1 customers such as Vodafone, Telefonica, Turkcell for 4G and 5G networks and has recently announced an agreement with Dish Network to use OpenRAN technology in their forthcoming 5G network—the first massive scale OpenRAN deployment in the United States. This suite of software applications also includes solutions for edge deployments and private networks.

 

   

Software for Mobile Services.    Software services built on top of the Mobile Core and Access & Edge suite of applications such as Monetization, Artificial Intelligence (“AI”) driven Analytics, Digital Engagement, mobile-native Unified Communications and Collaboration (“UCC”) that unlock new revenue opportunities by providing additional services to consumers and enterprise users and enhance mobile network security performance.

The key benefits of our solutions include:

 

   

Ability to Transform Networks with Software rather than Hardware.     Our cloud-native software solutions enable unprecedented agility and flexibility in mobile network deployment and management. The automation capabilities in our web-scale delivery approach provides Wireless Service Providers with the software tools and capabilities for cost and scale efficiencies.

 

   

Faster Time to Market and Agility with Common End-to-End Platform.    Our web-scale platform that is the common software stack for all Mavenir products allows us to be agile and fast in the delivery of new features or products and the adoption of new technologies.



 

3


Table of Contents
   

Network Interoperability Creating Seamless Path to 5G.    Our solutions are interoperable across network generations, thereby enabling Wireless Service Providers to leverage their existing investments in 3G and 4G networks while offering a seamless, cost-effective path to 5G.

 

   

Increase Revenue Generation.    Our web-scale model accelerates time-to-revenue for services that enhance the subscriber experience and improve customer acquisition and retention initiatives of our customers, using Analytics/AI, Enhanced Security and Digital Enablement capabilities. Our solutions also enable our Wireless Service Provider customers to create new revenue streams from an adjacent market with mobile-native UCC and Private Networks for Enterprises.

 

   

Lower Total Cost of Ownership.    Our open-architecture, web-scale software approach makes high cost legacy infrastructure based on proprietary technologies obsolete. This allows Wireless Service Providers the freedom to build their mobile network infrastructure using COTS hardware, thereby helping them benefit from volume and cost efficiencies. Capital expenditures can be further reduced by pooling computing resources across network functions, in true datacenter fashion. In addition, the flexibility of our solutions reduces operating expenses by allowing Wireless Service Providers to more efficiently deploy, scale and maintain services. In a report by Senza Fili that we sponsored, a deployment of cloud RAN over five years was found to potentially reduce capital expenditures and operating expenses by up to 48%.

Our revenues for fiscal 2019 were $427.4 million, representing growth of 8.7% over fiscal 2018. Revenues from our products increased by 14.9% for fiscal 2019 to $330.9 million from $287.9 million in fiscal 2018. We had net losses of $81.0 million in fiscal 2019 and $97.2 million in fiscal 2018. Our Adjusted EBITDA was $105.1 million and $97.4 million in fiscal 2019 and fiscal 2018, respectively. Adjusted EBITDA is a non-GAAP financial measure and for a discussion of this measure and a reconciliation of GAAP net income (loss) to Adjusted EBITDA, please refer to “—Non-GAAP Financial Measures” included in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus.

 

Industry Background

The mobile network infrastructure industry is undergoing a massive transition to a web-scale model. The previously siloed approaches of the telecom and IT worlds are converging to define the future of network platforms with 5G—driven by increased horizontalization, software centricity, virtualization, automation and cloud. 5G network technology is a significant driver of the growth in the mobile network infrastructure industry. Our Served Addressable Market (“SAM”) in 2020 is estimated to be $4 billion growing to approximately $12 billion in 2024, equating to more than 28% CAGR. We define our SAM as the below:

 

   

The OpenRAN has a market size of approximately $0.2 billion in 2020 and growing to over $3 billion in 2024. OpenRAN is disrupting a large RAN market that is forecasted at $201 billion from 2019 – 2024 according to Dell’Oro.

 

   

The virtualized packet core market is sized at $2.2 billion in 2020 and $4.2 billion in 2024 according to Dell’Oro.

 

   

The virtualized voice market is sized at $0.6 billion in 2020 and $1.5 billion in 2024 according to Dell’Oro.

 

   

The virtualized IMS market, is sized at $1.4 billion in 2020 and $3.0 billion in 2024 according to Dell’Oro.



 

4


Table of Contents

We believe Wireless Service Providers are facing several significant challenges today, including:

 

   

Strains on Existing Network Resources.    Wireless Service Providers are confronted with increasing data and bandwidth demands from their subscribers and new use cases such as IoT. This trend is pressuring Wireless Service Provider margins as they need to continue investing in their networks to optimize scarce spectrum resources to address increasing capacity demands. As a result, cost-efficient deployment and operation of network infrastructure are critical.

 

   

Commoditization of Wireless Service Provider Services.    With the commoditization of consumer voice and messaging services, Wireless Service Providers must differentiate with new, enhanced services to drive revenue growth. Wireless Service Providers need the flexibility to innovate, accelerate time-to-market and quickly scale new services. Also, Wireless Service Providers are turning to the Enterprise market to find new revenue sources, such as with Private Networks.

 

   

Challenges for Deployment of 5G Networks.    We believe that meeting 5G performance requirements with traditional, proprietary hardware-driven mobile network infrastructure is cost-prohibitive. Operators need cloud-native software that runs on any public, private of hybrid cloud platform. Also, a web-scale approach is needed to lower operational cost with continuous development and software automation, as well as provide network agility for new consumption models and deployment flexibility.

With increasing complexity, Wireless Service Providers require higher levels of automation in the deployment and lifecycle management of network platforms. Software driven, cloud-native, virtualized solutions allow for automation technologies and processes to be effectively implemented to simplify deployment, integration, management and upgrades of the network.

Historically, Wireless Service Providers have primarily relied on traditional, proprietary infrastructure from a small number of large mobile network equipment vendors. These vendors are encumbered by a large installed base of proprietary hardware-centric solutions and traditional business models. They continue to offer rigid solutions that result in costly deployments and inefficient uses of network resources. In addition to these large vendors, there are several point-solution providers, but they lack the breadth of product offerings to be able to support a web-scale approach across the network stack for complex and large deployments. We believe that we provide the best of both worlds compared to our competition with our suite of applications that use NFV to run network application software on any hardware using open interfaces and our cloud-native software that use a web-scale approach to operate and automate the digital transformation of Wireless Service Providers.

With NFV, Wireless Service Providers gain the ability to run network application software on any hardware due to the virtual layer that NFV provides between software and hardware. The introduction of NFV has allowed for software-centric players to effectively compete. The gap between the quickly evolving needs of Wireless Service Providers and the offerings from traditional mobile network equipment vendors and point-solution providers has given rise to a fundamental change in the industry landscape. We are well positioned to continue to lead that change.

Our Solutions

Mavenir provides the complete mobile communications software stack that runs on any cloud infrastructure and connects devices and people to the Internet and Apps. Our Software for Mobile Core enable Wireless Service Providers to operate mission-critical mobile network services that a typical



 

5


Table of Contents

mobile subscriber or enterprise user employs every day. We offer Software for Mobile Access & Edge that enables ubiquitous wireless connectivity, mobility and edge services and allow mobile devices and subscribers to connect to a network to access its services. We enhance our suite of applications for Mobile Core and Mobile Access & Edge with our Software for Mobile Services which enables Wireless Service Providers to improve mobile network security and operations, as well as unlock new revenue opportunities.

Software for Mobile Core:    We provide a full suite of software applications that enable Wireless Service Providers to deliver and manage mobile network services to their subscribers:

 

   

Voice & Video:    Solutions including Voice and Video over LTE (“VoLTE/ViLTE”), Voice and Video over Wi-Fi (“VoWiFi/ViWiFi”), Voice and Video over NR (“5G”) and voicemail.

 

   

Multimedia Messaging:    Solutions, including Rich Communication Services (“RCS”), for next-generation messaging and video.

 

   

IMS and Connectivity Control:    Solutions fundamental to all communications services by providing call control for mission-critical services such as voice, video, rich messaging and thereby enabling our Software for Mobile Core and Software for Mobile Services.

 

   

Packet Core:    Solutions that enable the cost-effective transfer of data packets across mobile networks.

Software for Mobile Access & Edge:    We provide a suite of software applications, such as OpenRAN vRAN that enable ubiquitous wireless connectivity, mobility and edge services and allow mobile devices and subscribers to connect to a network to access its services.

 

   

OpenRAN virtualized RAN (“vRAN”):    Solutions that allows mobile subscribers to connect to a network to access services.

 

   

Multi-access Edge Computing (“MEC”):    Solutions that allow for connectivity and data processing to occur at the edge of Wireless Service Provider networks to more closely locate processing tasks to subscribers, thereby reducing latency and cost.

 

   

Private Networks:    A solution that offers a secure wireless network to enterprise customers, built on top of OpenRAN vRAN, MEC and Software for Mobile Core.

Software for Mobile Services.    We provide a broad selection of additional functionality that our customers can purchase in order to further enhance and extend the capabilities of their network. These modules apply to both the Mobile Core and the Mobile Access & Edge portions of the networks. Our current offering of Software for Mobile Services includes Monetization, mobile-native UCC, Digital Engagement, AI-driven Analytics, Multi-Id and Enhanced Security that unlock new revenue opportunities by providing additional services to consumers and enterprise users and enhance mobile network security performance.

 

   

Monetization:    A solution that provides enterprises an omni-channel marketing platform leveraging RCS Business Messaging (“RBM”) or other OTT channels to increase brand awareness and drive customer engagement directly and contextually using templated chatbots and conversational AI throughout an entire customer journey.

 

   

Unified Communications and Collaboration:    A solution that enables businesses to communicate with other businesses and engage customers, using Unified Communications (voice, video, messaging) and Collaboration (meetings, screen-sharing) applications that provide a seamless experience across an integrated desktop environment and a mobile native experience on mobile phones.



 

6


Table of Contents
   

Digital Engagement:    A cloud-native solution providing our customers an omni-channel platform to digitalize the onboarding, engagement and service management experience for our solutions. The Mavenir Digital Engagement solution suite provides open digital architecture-based modular commercialization products with well-defined API driven service interaction.

 

   

Analytics:    Our Analytics solution integrates latest AI and Machine Learning (“ML”) technologies on top of a scalable data collection, visualization and analysis platform to provide new insights to our customer on existing services as well as capability to identify changes in network required for new commercial use cases. The solution provides closed loop automation capability for optimization of the network and services driven by AI. The solution adds a new dimension to our advanced capabilities portfolio by providing data that is valuable in maximizing existing revenue streams and building new services.

 

   

Multi-ID:    A solution that allows users to send and receive voice, video and messages using multiple numbers on one or more devices across a single account.

 

   

Enhanced Security:    A solution that enables operators to understand, monitor, enforce and maintain network security across all solution verticals, based on a network security and fraud management suite that is continuously updated to protect the network in real-time, and with predictive analytics and ML.

Competitive Strengths

We believe that we have several competitive advantages that differentiate us from traditional mobile network equipment and point-solution vendors. Our competitive strengths include:

 

   

Cloud-Native Software and Web-Scale Approach Increasing Flexibility and Lowering TCO.    Our end-to-end, cloud-native software solutions and web-scale approach offer mobile network services to our customers across the network stack in a highly modular manner. This provides the network agility our customers need to quickly and efficiently deploy, operate and scale new services while reducing overall network costs.

 

   

Strong Competitive Position in the NFV Market.    We are competitive in the NFV market and support a large fully virtualized and open network. NFV is a key component of enabling the web-scale model that significantly increases flexibility while reducing TCO. We have a first-mover advantage in providing virtualized end-to-end solutions in this space. In fact, as of October 1, 2020, we hold a 60% global market share of NFV wireless voice and video, 40% global market share of NFV wireless IMS and a 60% global market share in NFV global messaging.

 

   

End-to-End Portfolio for Existing and Future Mobile Broadband Technologies.    We provide a full suite of software products covering Wireless Service Providers mobile network needs, including Software for Mobile Core, Software for Mobile Access & Edge and Software for Mobile Services. Our customers benefit from an ability to purchase fully integrated solutions and our expertise across all areas of a Wireless Service Provider’s network operations. This lowers deployment and ongoing operating costs while allowing for better integration with other network infrastructure components and migration across mobile generations (e.g., from 3G to 4G to 5G).

 

   

Depth of Longstanding, Global Customer Relationships and Technical Integration with Networks.    Our installed base is comprised of over 250 Wireless Service Providers, including 17 of the 20 largest Wireless Service Providers across approximately 120 countries and six



 

7


Table of Contents
 

continents, including the “big three” U.S. Wireless Service Providers. We have a proven history of fostering long, deeply embedded relationships with our customers, with more than 50% of our customer base having been customers for 12 or more years. By cultivating these strong working relationships with leading Wireless Service Providers, our solutions are deeply integrated in our customer networks and have become mission-critical components of their long-term network strategy.

 

   

Culture of Innovation.    We pride ourselves on our focus on innovation, with approximately 52% of our personnel working in a research and development capacity and as of September 30, 2020, a portfolio of 579 U.S. and foreign issued patents and 70 pending applications. We have been recognized as innovators in the mobile network industry and have consistently been at the forefront of disrupting existing markets with several “industry first” accomplishments.

Our Growth Strategy

The key elements of our growth strategy are:

 

   

Expand Within Our Existing Customer Base.    We plan to continue pursuing opportunities within our global customer base. As our customers add more subscribers, they expand the capacity they contract from us. In addition, our customers tend to purchase more product offerings from us as they experience the benefits of our cloud-native software solutions and web-scale approach. We believe that as Wireless Service Providers transition to more advanced mobile broadband technologies (e.g., from 3G to 4G and 5G), the demand for our software solutions will grow.

 

   

Capitalize on Market Shifts.    We plan to take advantage of the following market shifts:

 

   

5G Adoption.    With the advent of 5G, we believe that mobile networks that already support multi-billion mobile subscriptions today need to be efficient and effective enough to address tens of billions of connected devices in the 5G/IoT era, and the consequent rise in new use cases and applications. According to EMR, by 2025, 5G will account for an estimated 45 percent of total mobile data, and mobile data traffic is expected to increase 31% CAGR between 2019 to 2025. In addition, the current global pandemic caused by Covid-19 has increased mobile network traffic and usage of all forms of communication services as more employees are working from home or in remote locations. Upcoming rebuilds of, and new investments in, network infrastructure will provide access to a new and growing market in which we are well positioned with our Software for Mobile Core and Software for Mobile Access & Edge product portfolios including Private Networks.

 

   

NFV (including OpenRAN vRAN).    We believe that we have a large opportunity with the expected massive data growth. According to GSMA Intelligence, wireless service providers are expected to invest around $1.1 trillion worldwide between 2020 and 2025 in mobile capex, roughly 80% of which will be in 5G networks. As a result, we expect the industry to continue to transition to our virtualized solutions, including OpenRAN vRAN, which provide Wireless Service Providers a more flexible and cost-efficient alternative to conventional network infrastructure.

 

   

Attract New Customers    Wireless Service Providers are combatting the commoditization of services and addressing exponentially growing data requirements by rapidly virtualizing their networks to increase flexibility and reduce TCO. This shift creates an opportunity for us to continue leveraging our first-mover advantage and expertise in designing web-scale mobile



 

8


Table of Contents
 

networks for our customers. Our differentiated approach helps us attract new customers, all of which we expect will help us attract new customers. Also, our ability to help Wireless Service Providers combat commoditization using our Software for Mobile Services suite to generate new revenue streams is equally attractive to prospective customers.

 

   

Expand our Reach into Targeted Adjacencies by Selling our Software Solutions via New Channels and Consumption Models.    We are planning to scale our go-to-market efforts through additional distribution channels, including system integrators and web-scale internet providers, such as AWS, GCP, Azure, etc. In addition, we are planning to introduce new consumption-based models, such as Software-as-a-Service and Platform-as-a-Service. This allows us to establish recurring revenue streams by leveraging existing solutions with minimal incremental development, while addressing the growing opportunity for Enterprise connectivity and digitalization.

Impact of COVID-19 on our Results of Operation

The COVID-19 pandemic has had, and continues to have, a significant impact on the world economy and the geographies in which we operate and sell our solutions. While the pandemic’s effect on the macroeconomic environment has yet to be fully determined and could continue for months or years, COVID-19 had a minimal net impact on our revenues for the first and second quarters of 2020. The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic; governmental, business, and individuals’ actions in response to the pandemic; and the impact on economic activity including the possibility of recession or financial market instability. These factors may adversely impact consumer, business, and government spending on technology as well as customers’ ability to pay for our products and services on an ongoing basis. This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions, including investments, receivables, and forward-looking guidance.

Some of the effects of the pandemic on our operations have been as follows:

 

   

While we have not to date experienced a significant net impact on revenues or project milestone billings, we are experiencing some delays in product deployments in selected regions due to the need for on-site access and reduced availability of on-site personnel to receive hardware deliveries.

 

   

Our estimates relating to restructuring charges have been delayed due to the inability to sub-lease office space as a result of the pandemic.

 

   

We are also experiencing some increase in the time to close some new agreements as customer personnel are more distributed causing approval processes to be extended.

For a description of the some of the risks of the COVID-19 pandemic that may affect our business, please see “Risk Factors—Risks Relating to Economic Factors and the Global Economy—A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, including the outbreak of the novel strain of coronavirus disease, COVID-19, could adversely affect our business” and “—Natural or man-made disasters and other similar events, including the COVID-19 pandemic, may significantly disrupt our business, and negatively impact our business, financial condition and results of operations” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of COVID-19 on our Results of Operation.”



 

9


Table of Contents

Summary Risks Associated with Our Business

An investment in our Class A ordinary shares involves numerous risks described in “Risk Factors” and elsewhere in this prospectus. You should carefully consider these risks before making a decision to invest in our Class A ordinary shares. Key risks include, but are not limited to, the following:

 

   

our dependence on a limited number of major customers for a substantial portion of our revenue and the loss of, or a significant shortfall in orders from, these key customers could significantly reduce our revenue;

 

   

that we have incurred net losses and may not be able to achieve or sustain profitability;

 

   

that we are party to significant litigation;

 

   

our new product offerings may not be widely adopted by our customers;

 

   

that we face significant competition, including from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our competitive position;

 

   

reduced disclosure requirements related to our status as an emerging growth company;

 

   

our status as a controlled company;

 

   

conflicts of interest between our controlling shareholder and other holders of our Class A ordinary shares; and

 

   

the other factors discussed under “Risk Factors” beginning on page 17.

Our History

One of our subsidiaries, Mavenir Systems, Inc., conducted an initial public offering in 2013 and was separately registered under the Securities and Exchange Act of 1934 (the “Exchange Act”) until the time of its acquisition by Mitel Networks Corporation and integration into Mitel Mobility, Inc. (“Mitel Mobile”) in 2015. Mitel Mobile was subsequently acquired by Xura, Inc. (“Xura”) (now known as Mavenir, Inc.), also a registrant under the Exchange Act at the time, the predecessor to our current business, as part of a series of acquisitions and other strategic transactions in 2016 and 2017. As detailed in “Management” in this prospectus, several of our officers and directors served in prior roles with Mavenir Systems, Inc. and/or one or more of the entities involved in these acquisitions and strategic transactions.

The Sponsor

Siris Capital is a leading private equity firm that invests primarily in technology companies with mission-critical products and services. Siris Capital’s development of proprietary research to identify opportunities and its extensive collaboration with its Executive Partners are integral to its approach. Siris Capital’s Executive Partners are experienced senior operating executives that actively participate in key aspects of the transaction lifecycle to help identify opportunities and drive strategic and operational value. Siris Capital is based in New York and Silicon Valley and has raised nearly $6 billion in cumulative capital commitments.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public



 

10


Table of Contents

companies that are not “emerging growth companies,” including, but not limited to: (1) presenting only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this prospectus; (2) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002; (3) having reduced disclosure obligations regarding executive compensation in our periodic reports and proxy or information statements; being exempt from the requirements to hold a non-binding advisory vote on executive compensation or seek shareholder approval of any golden parachute payments not previously approved; and (4) not being required to adopt certain accounting standards until those standards would otherwise apply to private companies.

Although we are still evaluating our options under the JOBS Act, we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company” and thus the level of information we provide may be different than that of other public companies. If we do take advantage of any of these exemptions, some investors may find our securities less attractive, which could result in a less active trading market for our Class A ordinary shares, and the price of our Class A ordinary shares may be more volatile. As an “emerging growth company” under the JOBS Act, we are permitted to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. However, we are electing not to take advantage of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to not take advantage of the extended transition period for complying with new or revised accounting standards is irrevocable.

We could remain an “emerging growth company” until the earliest to occur of:

 

   

the last day of the year following the fifth anniversary of this offering;

 

   

the last day of the first year in which our annual gross revenues exceed an amount specified by regulation (currently $1.07 billion);

 

   

the day we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ordinary shares held by non-affiliates exceeded $700 million as of the last business day of the second quarter of such year; and

 

   

the date on which we have issued more than $1 billion in non-convertible debt securities during the preceding three-year period.

Our Organizational Structure

Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will form Mavenir plc, a public limited company incorporated under the laws of England and Wales and the issuer of our Class A ordinary shares offered hereby. Upon the closing of this offering, the existing shareholder of Mavenir Private Holdings II Ltd. will exchange its existing equity interests in Mavenir Private Holdings II Ltd. for a number of Class B ordinary shares of Mavenir plc having a value equivalent to the value of those equity interests. We refer to this reorganization throughout this prospectus as the “Corporate Reorganization.” As a result of the Corporate Reorganization, the existing shareholder of Mavenir Private Holdings II Ltd., which is an affiliate of our sponsor, Siris Capital, will become the initial holder of Class B ordinary shares of Mavenir plc having the rights



 

11


Table of Contents

related to Class B ordinary shares as set forth in this prospectus. Except as disclosed in this prospectus, the consolidated historical financial statements and summary and selected historical consolidated financial data and other historical financial information included in this prospectus are those of Mavenir Private Holdings II Ltd. and its subsidiaries and do not give effect to the Corporate Reorganization. We do not expect the Corporate Reorganization to have a material effect on our consolidated financial statements, except with respect to share count, earnings per share and other per share metrics.

The purpose of the Corporate Reorganization is to reorganize our corporate structure so that the top-tier entity in our corporate structure—the entity that is offering Class A ordinary shares in this offering—is a public limited company rather than a private company. For further information regarding the Corporate Reorganization, see “Corporate Reorganization.” References in this prospectus to our capitalization and other matters pertaining to our equity prior to the Corporate Reorganization relate to the capitalization and equity of Mavenir Private Holdings II Ltd., and after the Corporate Reorganization, to the capitalization and equity of Mavenir plc.



 

12


Table of Contents

The following chart summarizes our organizational structure and equity ownership (assuming no exercise of the underwriters’ option to purchase an additional            Class A ordinary shares) following the Corporate Reorganization and the consummation of this offering and the application of the net proceeds therefrom as described under “Use of Proceeds.” This chart is provided for illustrative purposes only and does not show all of our legal entities or all obligations of such entities. See “—The Offering” for more information regarding our Class A ordinary shares offered hereby.

 

LOGO

Corporate Information

Mavenir Private Holdings II Ltd. was incorporated as a private company under the laws of England and Wales on May 3, 2016. Prior to the effectiveness of the registration statement of which



 

13


Table of Contents

this prospectus forms a part, we will form Mavenir plc, a public limited company incorporated under the laws of England and Wales and the issuer of our Class A ordinary shares offered hereby. See “—Corporate Reorganization,” “—Our Organizational Structure” and “Corporate Reorganization,” elsewhere in this prospectus.

Our principal executive offices are located at 1700 International Pkwy, Suite 200, Richardson, Texas 75081, and our telephone number is (469) 916-4393. Our Internet website address is www.mavenir.com, and the information contained on, or accessible from, or hyperlinked to, our website is not part of this prospectus by reference or otherwise.

The Offering

Class A Ordinary Shares Offered By Us

Class A ordinary shares (             Class A ordinary shares if the underwriters exercise in full their option to purchase an additional             Class A ordinary shares from us).

Underwriters’ Option to Purchase Additional Class A Ordinary Shares

We have granted the underwriters a 30-day option to purchase up to            Class A additional ordinary shares at the initial public offering price less the underwriting discount.

Offering Price

$        per share of Class A ordinary shares, which is the mid-point of the estimated price range set forth on the cover page of this prospectus.

Class A Ordinary Shares to be Outstanding After this Offering

Class A ordinary shares (             Class A ordinary shares if the underwriters exercise in full their option to purchase an additional             Class A ordinary shares) or             Class A ordinary shares if each outstanding Class B ordinary share was converted into one Class A ordinary share (as permitted by our Articles of Association).

Class B Ordinary Shares to be Outstanding After this Offering

Class B ordinary shares.

Use of Proceeds

We estimate that the net proceeds to us from this offering will be approximately $            million after deducting the underwriting discounts and commissions and our other estimated offering expenses (assuming an initial public offering price of $            per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus). If the underwriters exercise in full their option to purchase an additional Class A ordinary shares from us, we estimate the net proceeds to us will be approximately $            million.

We intend to use the net proceeds from this offering to repay $                million of certain outstanding indebtedness and for general corporate purposes. For additional information, see “Use of Proceeds.” An amount equal to £12,500 will be used to fund the redemption of a redeemable share in our share capital which will have been subscribed for and held by an affiliate of Siris Capital to provide us with the minimum share capital required by the U.K. Companies Act of 2006.



 

14


Table of Contents

Listing

We intend to list our Class A ordinary shares on the Nasdaq under the symbol “MVNR.”

Voting and Related Rights

Each of the Class A and Class B ordinary shares have equivalent rights to distributions from the Company. However, upon the consummation of this offering, the holders of our Class A ordinary shares will be entitled to one vote per Class A ordinary share, and the holders of our Class B ordinary shares will be entitled to ten votes per Class B ordinary share. Pursuant to our Articles of Association, each holder of our Class B ordinary shares shall have the right to convert its Class B ordinary shares into Class A ordinary shares on a one-for-one basis, subject to certain customary adjustments.

Upon consummation of this offering, our board of directors will consist of 11 directors. Pursuant to the Articles of Association, affiliates of Siris Capital will be entitled upon the consummation of this offering to designate a majority of individuals to be included in the nominees recommended by our board of directors for election so long as affiliates of Siris Capital own a requisite percentage of the combined voting power of our outstanding ordinary shares. Following the consummation of this offering, affiliates of Siris Capital will be entitled to designate individuals for nomination for election to our board of directors as follows:

 

   

so long as affiliates of Siris Capital beneficially own, directly or indirectly, at least 50% of the combined voting power of our outstanding ordinary shares, it will be entitled to designate six directors for nomination;

 

   

so long as affiliates of Siris Capital beneficially own, directly or indirectly, less than 50% but at least 25% of the combined voting power of our outstanding ordinary shares, it will be entitled to designate three directors for nomination;

 

   

so long as affiliates of Siris Capital beneficially own, directly or indirectly, less than 25% but at least 5% of the combined voting power of our outstanding ordinary shares, it will be entitled to designate one director for nomination; and

 

   

in the event affiliates of Siris Capital beneficially own, directly or indirectly, less than 5% of the combined voting power of our outstanding ordinary shares, it will no longer be entitled to designate any directors for nomination.

In addition, under our Articles of Association, affiliates of Siris Capital may designate directors for committees of our board of directors (subject to any applicable Nasdaq independence or other requirements). Affiliates of Siris Capital have the right to remove any designee and the exclusive right to fill any vacancy created by such removal or resignation of the designee, with such replacement to stand for election at the next annual general meeting.

Pursuant to our Articles of Association, neither Siris Capital nor any of its affiliates is required to present corporate opportunities to us.

Holders of our Class A ordinary shares and Class B ordinary shares will vote together as a single class on all matters requiring approval by our ordinary shareholders unless otherwise required by law.

Upon the consummation of this offering, and assuming no exercise of the underwriters’ option to purchase additional Class A ordinary shares, holders of our Class A ordinary shares will hold approximately    % of the combined voting power of our outstanding ordinary shares and holders of our Class B ordinary shares will hold approximately    % of the combined voting power of our outstanding ordinary shares.



 

15


Table of Contents

If the underwriters exercise in full their option to purchase an additional                 Class A ordinary shares, holders of our Class A ordinary shares will hold approximately    % of the combined voting power of our outstanding ordinary shares and holders of our Class B ordinary shares will hold approximately    % of the combined voting power of our outstanding ordinary shares.

For a description of the rights of the holders of our Class A ordinary shares and Class B ordinary shares, see “Description of Share Capital—Class A Ordinary Shares” and “Description of Share Capital—Class B Ordinary Shares.”

Dividend Policy

We currently intend to retain all of our earnings to fund the operation and growth of our business and to repay indebtedness, and therefore, we do not anticipate paying any cash dividends in the foreseeable future. Any determination to declare and pay cash dividends will be at the discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, cash requirements, liquidity, contractual restrictions, general business conditions and such other factors as our board of directors deems relevant. In addition, our existing indebtedness restricts our ability to pay dividends. For additional information, see “Dividend Policy.”

Controlled Company

Following this offering, we will be a “controlled company” within the meaning of the corporate governance rules of the Nasdaq. We intend to rely upon the “controlled company” exception relating to the board of directors and committee independence requirements under the listing rules of the Nasdaq. Pursuant to this exception, we will be exempt from the rules that would otherwise require that our board of directors consist of a majority of independent directors and that our compensation committee and nominating and corporate governance committee be composed entirely of independent directors. See “Management—Controlled Company.”

Ordinary Shares Outstanding

The number of ordinary shares to be outstanding after this offering excludes            ordinary shares that will be available for future issuance under our equity incentive plan, which will become effective immediately prior to this offering.



 

16


Table of Contents

Summary Historical Financial and Operating Data

The following table sets forth Mavenir Private Holdings II Ltd.’s summary historical financial and operating data as of the dates and for the periods indicated. The historical financial and operating data as of January 31, 2020 and 2019 and for each of fiscal 2019 and 2018 have been derived from our predecessor Mavenir Private Holdings II Ltd.’s audited consolidated financial statements included elsewhere in this prospectus. The historical financial and operating data as of July 31, 2020, and for the three months and six months ended July 31, 2020 and 2019 have been derived from our predecessor Mavenir Private Holdings II Ltd.’s unaudited condensed consolidated financial statements included elsewhere in this prospectus. See “Financial Statements and Basis of Presentation” and “Corporate Reorganization.”

The summary historical financial information is not necessarily indicative of the results that may be expected in any future financial reporting period, and our results of operations for any interim financial reporting period are not necessarily indicative of the results to be expected for the full year. The following summary historical financial and operating data should be read in conjunction with “Capitalization,” “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes appearing elsewhere in this prospectus. Except as described below, the following summary does not give effect to the Corporate Reorganization.

 

     Year Ended
January 31,
    Three Months Ended
July 31,
    Six Months Ended
July 31,
 
     2020     2019     2020     2019     2020     2019  
     (in thousands)     (in thousands)
(unaudited)
    (in thousands)
(unaudited)
 

Consolidated Statement of Operations Data:

            

Product revenue

   $ 330,880     $ 287,916     $ 106,990     $ 85,217     $ 188,896     $ 150,799  

Post-contract revenue

     96,564       105,193       22,955       24,339       45,976       49,888  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue(1)

     427,444       393,109       129,945       109,556       234,872       200,687  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of product revenue

     156,095       129,674       47,006       42,223       86,421       76,000  

Cost of post-contract revenue

     29,199       31,920       9,257       7,128       17,820       14,509  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

     185,294       161,594       56,263       49,351       104,241       90,509  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     242,150       231,515       73,682       60,205       130,631       110,178  

Gross profit margin

     57     59     57     55     56     55

Research and development expenses

     89,353       90,681       22,046       21,641       43,319       45,908  

Selling, general and administrative expenses

     154,771       134,017       33,641       34,278       67,807       95,239  

Restructuring expenses and other

     8,557       28,911       2,102       1,037       2,162       5,603  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     437,975       415,203       114,052       106,307       217,529       237,259  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

     (10,531     (22,094     15,893       3,249       17,343       (36,572

Interest (income)

     (388     (205     (380     (53     (907     (189

Interest expense

     52,478       74,216       10,976       13,286       22,619       26,380  

Foreign exchange loss (gain) and other, net

     14,925       598       411       (9,818     (4,523     (8,186
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) before income tax expense

     (77,546     (96,703     4,886       (166     154       (54,577

Income tax (benefit) expense

     3,497       523       2,321       (1,009     5,711       (336
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss)

   $ (81,043   $ (97,226   $ 2,565     $ 843     $ (5,557   $ (54,241
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net profit (loss) per ordinary share(2)

   $ (19,623   $ (24,307   $ 428     $ 211     $ (930   $ (13,560
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of ordinary shares used in computing basic and diluted net loss per ordinary share

     4.13       4.00       6.00       4.00       5.98       4.00  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net profit (loss) per ordinary share (unaudited)(3)

            
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

17


Table of Contents

 

(1)

On February 1, 2018 the Company adopted ASC 606 (“Revenue from contracts with customers”) using the modified retrospective method of adoption with the cumulative impact of $10.8 million recognized in retained earnings (accumulated deficit) as of February 1, 2018.

(2)

Earnings per share is calculated based on Mavenir Private Holdings II Ltd. outstanding shares. See Note 1 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the methods we use to calculate basic and diluted net loss per ordinary share.

(3)

Pro forma net profit (loss) per ordinary share is calculated using the number of ordinary shares outstanding after giving effect to the Corporate Reorganization, assuming an initial public offering price of $        per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus. Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will form Mavenir plc, a public limited company incorporated under the laws of England and Wales and the issuer of our Class A ordinary shares offered hereby. Upon the closing of this offering, the existing shareholder of Mavenir Private Holdings II Ltd. will exchange its equity interests in Mavenir Private Holdings II Ltd. for a number of Class B ordinary shares of Mavenir plc having a value equivalent to the value of those equity interests.



 

18


Table of Contents

RISK FACTORS

Any investment in our Class A ordinary shares involves a high degree of risk. You should carefully consider the risks described below and all of the information contained in this prospectus before deciding whether to invest in our Class A ordinary shares. The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially and adversely affect our business. If any of those risks actually occurs, our business, cash flows, financial condition and results of operations would suffer. Consequently, the trading price of our Class A ordinary shares could decline and you could lose all or a portion of your investment. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See “Special Note Regarding Forward-Looking Statements” in this prospectus.

Risks Related to Our Business and Industry

We depend on a limited number of major customers for a substantial portion of our revenue in any financial reporting period, and the loss of, or a significant shortfall in orders from, these key customers could significantly reduce our revenue.

We derive a large portion of our total revenue in any financial reporting period from a limited number of customers. For example, our largest customer, T-Mobile USA, accounted for 30% and 36% of our revenue for fiscal 2019 and 2018, respectively, and our second largest customer, Rakuten, accounted for 17% of our revenue for fiscal 2019. T-Mobile USA accounted for 40% and 39% of our revenue for the three months ended July 31, 2020 and 2019, respectively, and 36% and 39% of our revenue for the six months ended July 31, 2020 and 2019, respectively. Our top 10 largest customers accounted for 71% and 69% of our revenue in fiscal 2019 and 2018, respectively. Our top 10 largest customers accounted for 75% and 75% of our revenue for the three months ended July 31, 2020 and 2019, respectively. Our top 10 largest customers accounted for 71% and 71% of our revenue for the six months ended July 31, 2020 and 2019, respectively. Typically, we do not have and we do not enter into multi-year purchase contracts or minimum commitments with our customers, nor do we have contractual arrangements to ensure future sales of our solutions to our existing customers, meaning our customers are generally able to terminate on relatively short notice any obligation they have to purchase our solutions.

We entered into a Master Agreement with T-Mobile USA for a 10-year term beginning in 2008. After the expiration of the initial term, the Master Agreement automatically renewed for an additional 10 years. The current term extends through March 23, 2028 and automatically renews for an additional 10-year term unless either party terminates the agreement. T-Mobile USA has the unilateral right to terminate the agreement on 30 days’ written notice.

In April 2020, T-Mobile and Sprint, the third- and fourth-largest US wireless carriers, respectively, completed their merger. We expect that as a result of the merger, we will acquire additional subscribers with T-Mobile’s addition of Sprint, increase the usage of our solutions from the combined company as Sprint’s subscribers are added to T-Mobile’s network and as a result increase our revenue, but there is no certainty that we will be able to acquire such additional subscribers or that the combined company will direct their additional subscribers to us. If we fail to attain the potential benefits of the merger that we expect or increase the usage of our solutions from the combined company, our ability to grow our business as expected may be adversely affected.

Our inability to generate anticipated revenue from our key existing or targeted customers, or a significant shortfall in sales to them, would significantly reduce our revenue and materially adversely

 

19


Table of Contents

affect our business. Our operating results in the foreseeable future will continue to depend on our ability to effect sales to existing major customers. For more information about our existing customer base, please see “Business—Customers.”

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

We have incurred significant losses, including net losses of $81.0 million and $97.2 million for fiscal 2019 and 2018, respectively, and net losses of $5.6 million and $54.2 million for the six months ended July 31, 2020 and 2019, respectively. As a result of ongoing net losses, we had an accumulated deficit of $434.7 million as of July 31, 2020. We expect to continue to invest in our business, including by acquisitions if available, and to incur significant product research and development, sales and marketing, administrative and other expenses. As described in “Business—History,” certain of our predecessors were public companies with established operating histories. Notwithstanding this, our company in its current form has a limited operating history on which you can base your evaluation of our business and our ability to increase our revenue or maintain or improve our financial condition. We will need to generate significant additional revenue to achieve and maintain profitability, and even if we achieve profitability, we cannot be sure that we will remain profitable for any substantial period of time. To the extent we are unable to become or remain profitable, the market price of our Class A ordinary shares may decline.

We are party to significant litigation.

We are currently involved in significant litigation. See “Business-Legal Proceedings.” There is a risk that there will be public announcements of the results of hearings, motions or other interim proceedings or developments occurring in the litigation matters to which we are a party. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our Class A ordinary shares.

Such litigation includes the following matters: One of our subsidiaries, Mavenir, Inc. (formerly known as Xura, Inc.) is an indemnitor to its former parent company with respect to an action in the State of Israel involving claims to recover damages allegedly suffered by former employee stock option holders of such former parent company as a result of trading blackouts imposed in connection with previously-settled allegations regarding the illegal backdating of options. Such subsidiary together with certain of its then directors are also a party to a securities class action complaint alleging breaches of Sections 14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9 claiming that the final proxy statement regarding the acquisition of Mavenir, Inc. contained certain material omissions. Further, in Brazil, we are involved in various litigation matters that relate to tax claims on the transfers of inventory, municipal service taxes on rentals and gross revenues taxes.

Each of these proceedings and litigations remains ongoing, and in each instance we believe we have reserved appropriate amounts in our financial statements for any liabilities that we currently believe we will incur in connection with such matters, though we can make no assurance that those matters or any other litigation matter to which we are a party, either because of an ruling or judgment against us or another adverse development relating to the matter, including increasing our litigation reserves, will not result in a materially adverse impact on our business, financial condition, results of operations or prospects.

We face significant competition, including from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our competitive position.

The competition in the mobile network infrastructure solutions market is significant and we expect it to continue to intensify from established competitors, innovative start-ups and new market entrants.

 

20


Table of Contents

This competition could result in the loss of business, increased pricing pressure, reduced profit margins, increased sales and marketing expenses and our failure to increase, or the loss of, market share, any of which could materially adversely affect our business, results of operations, financial condition, cash flows and prospects.

In the mobile network infrastructure solutions market, we compete with much larger and diversified companies. Many of our existing and potential competitors enjoy substantial competitive advantages, such as:

 

   

greater name recognition and longer operating histories;

 

   

larger sales and marketing budgets and resources;

 

   

broader geographic/global distribution and established relationships with customers;

 

   

greater access to larger customer bases;

 

   

greater customer support resources;

 

   

the ability to leverage their sales efforts across a broader portfolio of products;

 

   

the ability to leverage purchasing power with vendor subcomponents;

 

   

the ability to bundle offerings with other products and services that we may not offer;

 

   

the ability to set more aggressive pricing policies;

 

   

the ability to offer more favorable financing or payment terms than us;

 

   

the reluctance of Wireless Service Providers to replace, and the difficulty of replacing, their existing traditional solution providers;

 

   

lower labor and development costs;

 

   

greater resources to fund research and development or otherwise acquire new product offerings, business and companies; and

 

   

more expansive intellectual property portfolios.

Our ability to compete will depend upon our ability to provide better solutions than our competitors at prices that offer superior value to our customers. Our current or potential competitors might take advantage of the greater resources of the larger organization, which may allow them to compete more vigorously or broadly with us. Further, we may be required to make substantial additional investments in research, development, sales and marketing in order to respond to competition.

Conversely, smaller companies may be able to develop technologies more quickly and resolve issues more nimbly than we can, putting us at a competitive disadvantage to them in those respects.

The mobile network industry in which we operate continues to undergo significant changes as a result of deregulation and privatization worldwide, reduced restrictions on competition in the industry and rapid and evolving technologies (including deployment of 5G and vRAN-related technologies). As our industry evolves, we are also likely to encounter new competitors. Moreover, we face indirect competition from changing and evolving technology, and challenges from certain large customers seeking to develop infrastructure solutions internally or consolidating or entering into alliances with another customer or vendor which provides alternatives to our products and services. For example, the introduction of open access to web-based applications from wireless devices allows end users to utilize web-based services provided by FaceTime, Google, WhatsApp, Snapchat, Viber, Line or Skype, to access Internet Protocol (“IP”) network communications free of charge rather than use similar services provided by Wireless Service Providers. This may reduce demand and the price of our products and services.

 

21


Table of Contents

We may face challenges based on the concentration of our customers and the number of subscribers they service.

The mobile communications services industry historically has been concentrated among a relatively small number of providers. For example, as of July 31, 2020, the 20 largest Wireless Service Providers, as measured by number of subscriber identity modules, accounted for approximately 55% of total mobile device connections globally. Because the 20 largest Wireless Service Providers, of which 17 are currently our customers, continue to constitute a significant portion of the market for mobile communications equipment, our success depends significantly on this concentrated market. Moreover, certain of our customers, because of their size, have substantial negotiating leverage in contractual arrangements and commercial terms, including pricing terms. Finally, because of the concentration in the market and the size of the Wireless Service Provider customers, any consolidation may have a disproportionate effect, and a consolidation that results in the loss of one of our existing Wireless Service Provider customers could have a material adverse impact on our business, financial condition, results of operations and prospects.

Our success depends significantly on our ability to sell our solutions to Wireless Service Providers operating wireless networks that serve large numbers of subscribers, expanded use of our solutions over greater numbers of their subscribers over time and to new customers, and the ability to obtain contracts for large capacity deployment of software.

Our success depends significantly on our ability to sell our solutions to Wireless Service Providers operating wireless networks that serve large numbers of subscribers and transport high volumes of traffic and on expanded use of our solutions over greater numbers of their subscribers over time. Wireless Service Providers may choose not to purchase additional solutions from us or may choose not to expand their use of, or not to purchase continued maintenance and support for, our solutions, or might delay additional purchases that we may expect. These events could occur for a number of reasons, including because our customers are not experiencing sufficient subscriber demand and acceptance for the services that our solutions enable, or because our customers choose solutions other than ours. If we are not successful in selling new and additional solutions to our existing customers or if those customers do not elect to expand their use of our solutions over additional subscribers in their networks, our revenue could grow at a slow rate or decrease and we may not achieve or maintain profitability. Additionally, if we fail to expand our customer base to include additional customers that deploy our solutions in large-scale networks serving significant numbers of subscribers, our revenue growth will be limited.

Contracts for large capacity deployments of software typically involve a lengthy, complex and highly competitive bidding and selection process, and our ability to obtain particular contracts is inherently difficult to predict. The timing and scope of these opportunities and the pricing and margins associated with any eventual contract award are difficult to forecast, and may vary substantially from transaction to transaction. As a result, our future operating results and performance may exhibit a high degree of volatility and may vary significantly from period to period. The degree of our dependence on Wireless Service Providers, and the investment required to enable us to deploy our own solutions effectively, without the assurance of long-term contracts, increases the risk associated with our business. Furthermore, if our professional services employees do not provide deployments services efficiently, we could experience project cost overruns or our customers may not use our deployments services or may stop using our software. This could materially and adversely impact our revenue and harm our reputation.

 

22


Table of Contents

The long and variable sales and deployment cycles for our solutions may cause our operating results to vary materially from fiscal quarter to fiscal quarter.

Our solutions have lengthy sales cycles, which typically extend from six to eighteen months. The length of these sales cycles and the size of the ultimate sale can be further impacted by the following factors: amount and availability of required customer resources; availability of funds for capital expenditures; changes in budgets and purchasing priorities; reduced need to upgrade existing software; deferrals in anticipation of enhancements or new products; introduction of products by competitors; and lower prices offered by competitors.

Once an order is received, the deployment cycle is also lengthy and our costs to deploy our solutions can be significant. Slower deployments may delay recognition of our revenues due to delays in milestone achievements and increased costs due to the inability to redeploy personnel to newer deployments for other customers. Slower deployments may also delay the purchase of additional solutions.

The spread of the pandemic caused by COVID-19 has in some cases resulted in delays in product deployments due to restrictions in on-site access and reduced ability of customers to receive deliveries of hardware and has extended our deployment cycle. It is uncertain how long the pandemic will last and whether an increased effect on our deployment cycles could materially affect our results.

As a result, it is difficult for us to predict the fiscal quarter in which our customers may purchase additional solutions or features from us or in which we may recognize revenues. Therefore, our operating results may vary significantly from fiscal quarter to fiscal quarter, which may negatively affect our operating results, and potentially our share price, for any given fiscal quarter.

Our success depends on our ability to continue to develop new products, to anticipate customer demand for new products and solutions and to generate revenue from new products and solutions. Our new product offerings may not be widely adopted by our existing and potential customers.

Our market is characterized by fast technological shifts and increasingly complex customer requirements to achieve scalable networks that accommodate rapidly-increasing consumer demand. To compete effectively, we must continue to develop new products and solutions that address emerging technological trends and dynamic customer needs. The process of developing new technologies is complex and uncertain, and the development of new products requires significant initial investment that may not result in material improvements to existing products or result in marketable new products or costs savings or revenue for an extended period of time, if at all. Over time, we expect revenue from existing products to decrease and revenue attributable to our new product offerings to increase, but we can make no assurance that this will be the case.

Our future revenue growth may be impacted by delays in the speed of adoption of 5G technology by Wireless Service Providers.

5G technology represents new technology, and its deployment is still in its early stages, and may be affected by a number of factors, including government delays, market forces and operational limitations (including site access, permits and availability of installation crews). Wireless Service Providers have delayed implementation of 5G technology, in part due to the costs associated with transitioning. As a result, if implementation of 5G technology continues at a slower pace than we expect, our future revenue growth will be materially and adversely affected.

 

23


Table of Contents

We must often establish and demonstrate the benefits of new and innovative offerings to customers, which may take time and significant efforts that may not ultimately prove successful.

Many of our new and innovative products are complex and are focused on creating new revenue streams and/or new ways to create cost efficiencies. In many cases, it is necessary for us to educate existing and potential customers about the benefits and value of such new and innovative products, with no assurance that the customer will ultimately purchase them. The need to educate our customers increases the difficulty and time necessary to complete transactions, makes it more difficult to efficiently deploy limited resources, and creates risk that we will have invested in an opportunity that ultimately does not result in a sale. If we are unable to establish and demonstrate to customers the benefits and value of our new and innovative products and convert these efforts into sales, our business, results of operations, financial condition, cash flows and prospects will be adversely affected.

Our ability to sell our products is highly dependent on the quality of our support organization, and our inability to maintain and scale our resources and failure to offer high-quality post-contract support could have a material adverse effect on our business, financial condition, results of operations and prospects.

Once our products are deployed within our customers’ networks, our customers depend on our post-contract support organization to resolve any issues relating to our products. If we do not assist our customers in deploying our products effectively, do not succeed in helping our customers resolve post-deployment issues quickly or do not provide adequate ongoing support, it could adversely affect our ability to sell our products to existing customers and could harm our reputation with potential customers. In addition, our standard sales contracts require us to provide minimum service levels to our customers on an ongoing basis after deployment and our failure to satisfy these requirements could expose us to claims under these contracts. Our failure to maintain high-quality support post-contract, including compliance with our contractual minimum service level obligations, could have a material adverse effect on our reputation and our business, results of operations, financial condition, cash flows and prospects.

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

Certain contractual obligations could expose us to uncapped or other significant liabilities.

Certain contract provisions, principally confidentiality and indemnification obligations in certain of our customer agreements, could expose us to risks of significant loss that, in some cases, are not limited by contract to a specified maximum amount. Even where we are able to negotiate limitation of liability provisions, these provisions may not always be enforced depending on the jurisdiction or the facts and circumstances of the case at hand. If we or our products fail to perform to the standards required by our contracts, we could be subject to uncapped or other significant liability for which we may or may not have adequate insurance and our business, results of operations, financial condition, cash flows and prospects could be materially adversely affected.

If we lose members of our senior management or other key employees, or are unable to attract or retain employees, we may not be able to successfully grow our business.

Our success is substantially dependent upon the retention of our senior management and other key technical and development personnel. The loss of the services of one or more of these members

 

24


Table of Contents

of our team may significantly delay or prevent our development of successful solutions and the achievement of our business objectives.

We believe that our culture of innovation, with approximately 52% of our personnel involved in research and development, is a significant factor in our ability to develop new products. If we are not able to attract and retain employees that are able to contribute to our culture of innovation, our ability to develop new products to address emerging technological trends and changing customers could be adversely impacted.

If we fail to manage our growth effectively and develop and implement appropriate control systems, our business and financial performance may suffer.

Our continued growth has placed, and will continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We may not have sufficient internal resources to adapt or respond to unexpected challenges. We also continue to improve and expand our policies and implement procedures but we have limited staff responsible for their implementation, training and enforcement. If we are unable to manage our growth successfully, or if our control systems do not operate effectively, our ability to provide high quality solutions and services could be harmed, which would damage our reputation and brand, and our business and operating results would suffer.

In the past, we have undertaken certain business combinations and acquisitions. If we continue to do so in the future, they may be difficult to close or integrate, or they could disrupt our business, dilute shareholder value or divert management’s attention.

As described in “Business—History,” our company is the result of several prior business acquisitions and other strategic transactions. In the future, we may continue to support our growth through acquisitions of businesses, services or technologies that we perceive to be complementary or otherwise beneficial to us. Future acquisitions involve risks, such as:

 

   

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

 

   

challenges and higher-than-expected costs associated with integrating acquired technologies, operations, financial reporting systems and cultures of acquired companies;

 

   

exposure to unforeseen liabilities;

 

   

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

 

   

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

 

   

higher than expected transaction costs;

 

   

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

 

   

additional dilution to our existing shareholders if we use our ordinary shares as consideration for such acquisitions.

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

 

25


Table of Contents

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

Our strategy is subject to various risks and uncertainties and we may be unable to successfully implement our strategic plans, sustain or improve our operational and financial performance, correctly identify or successfully pursue business opportunities or otherwise grow our business.

We operate in rapidly changing and innovative industries and the opportunities we pursue may require significant investments in innovation in order to generate growth, profitability or other benefits across our business. Our strategy, which includes investments in our business and pursuing new business opportunities based on identified trends and opportunities, may not yield a return on our investment as planned or at all. Our ability to achieve strategic goals and targets is subject to a number of uncertainties and contingencies, certain of which are beyond our control, and there can be no assurance that we will correctly identify trends or opportunities to pursue or be able to achieve the goals or targets we have set. We continuously invest in research and development, technologies and recruit expert employees. There can be no assurance, however, that these efforts will generate the expected results or improvements in our operations or that we will achieve our intended targets or financial objectives related to such efforts. Any failure to achieve our strategy may materially and adversely affect our business, financial condition, results of operations and prospects. Furthermore, there can be no assurance that our investments will result in products or solutions that achieve or retain broad or timely market acceptance, that answer to the expanding needs or preferences of our customers or consumers or that we could otherwise utilize for value creation.

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

We conduct business globally and file income and other tax returns in multiple jurisdictions. Our consolidated effective tax rate could be materially adversely affected by several factors, including: changing tax laws, regulations and treaties, or the interpretation thereof; tax policy initiatives and reforms under consideration; the practices of tax authorities in jurisdictions in which we operate; the resolution of issues arising from tax audits or examinations and any related interest or penalties. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid.

In particular, there have been significant changes to the taxation systems in Central European countries in recent years as the authorities have gradually replaced or introduced new legislation regulating the application of major taxes such as corporate income tax, VAT, corporate property tax, personal income taxes and payroll taxes. The U.S. government has also enacted comprehensive tax legislation that includes significant changes to the taxation of business entities. These changes include, among others, a permanent reduction to the corporate income tax rate, limiting interest deductions, placing limits on the utilization of net operating losses and making substantial modifications to the international tax rules. Notwithstanding the reduction in the corporate income tax rate, the longer-term impact of this tax reform is uncertain, and our business and financial condition could be adversely affected. This prospectus does not discuss any such tax legislation or the manner in which it might affect purchasers of our ordinary shares.

 

26


Table of Contents

We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect our financial position and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our shareholders, and increase the complexity, burden and cost of tax compliance.

In addition, although we believe our tax estimates are reasonable, our ultimate tax liabilities may materially differ from the tax amounts recorded in our consolidated financial statements and may materially affect our income tax provision, net income or cash flows in the period or periods for which such determination is made. A tax authority may disagree with tax positions that we have taken, which could result in increased tax liabilities or reduced carryforward operating losses. For example, Her Majesty’s Revenue & Customs ( “HMRC”), the U.S. Internal Revenue Service (the “IRS”) or another tax authority could challenge our allocation of income by tax jurisdiction and the amounts paid between our affiliated companies pursuant to our intercompany arrangements and transfer pricing policies, including amounts paid with respect to our intellectual property development. Similarly, a tax authority could assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable connection, often referred to as a “permanent establishment” under international tax treaties, and such an assertion, if successful, could increase our expected tax liability in one or more jurisdictions. A tax authority may take the position that material income tax liabilities, interest and penalties are payable by us, in which case, we expect that we might contest such assessment. Contesting such an assessment may be lengthy and costly and if we were unsuccessful in disputing the assessment, the implications could increase our anticipated effective tax rate, where applicable.

We may be unable to utilize our net operating loss carryforwards, which could adversely affect our operating results.

As of January 31, 2020, we had U.S. federal net operating loss carryforwards of approximately $616.6 million. Prior to recent U.S. tax reform, net operating loss carryforwards generated at the U.S. federal level were available to offset taxable income for 20 years before they expired. Pursuant to legislation enacted under recent U.S. tax reform, net operating loss carryforwards generated in tax years ending on or prior to December 31, 2018, will continue to expire in various years between 2020 and 2038 while net operating loss carryforwards generated for tax years beginning on or after January 1, 2018, will not expire and may be carried forward indefinitely. However, recent changes in U.S. tax law impose certain limitations with respect to tax years beginning on or after on the deduction of net operating loss carryforwards generated in tax years that began after January 1, 2018. It is uncertain if and to what extent various states will conform to such limitations. As of January 31, 2020, we had U.S. state net operating loss carryforwards of approximately $353.6 million. These losses expire in various years between 2020 and 2040, and are subject to limitations on their utilization to the extent of future taxable income. As of January 31, 2020 we had total non-US net operating loss carryforwards of approximately $817.6 million. Of these non-US net operating losses, all but $41.9 million are not currently subject to expiration dates.

Realization of these net operating loss carryforwards depends on many factors, including our future income. There is a risk that, due to regulatory changes or unforeseen reasons, our existing carryforwards could expire or otherwise be unavailable to offset future income tax liabilities, which would adversely affect our operating results. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. The applicable rules generally operate by focusing on changes in ownership among shareholders considered by the rules as owning, directly or indirectly, 5% or more of the stock of a company, as well as changes in

 

27


Table of Contents

ownership arising from new issuances of stock by the company. We may have experienced ownership changes in the past and may experience ownership changes in the future as a result of this offering or subsequent shifts in our stock ownership. Non-US net operating loss carryforwards may be subject to equivalent foreign rules which could limit our ability to use such losses in certain circumstances (including for U.K. tax purposes in connection with a change in company ownership, pursuant to Part 14 of Corporation Tax Act 2010). As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards or other pre-change tax attributes to offset United States federal and state taxable income may be subject to limitations.

The elimination of LIBOR could adversely affect our business, financial condition, results of operations and prospects.

As of July 31, 2020, we have $537.6 million of indebtedness that is indexed to LIBOR, and our RCF Loans and 2018 Term Loans are indexed to LIBOR. In July 2017, the head of the United Kingdom Financial Conduct Authority announced plans to phase out the use of LIBOR by the end of 2021. We may incur significant expenses to amend our LIBOR-indexed borrowings and other applicable financial or contractual obligations, including our credit facilities, to a new reference rate, which may differ significantly from LIBOR. Accordingly, the use of an alternative rate could result in increased costs, including increased interest expense on our credit facilities, and increased borrowing and hedging costs in the future. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and we are unable to predict the effect of any such alternatives on our business, results of operations, financial condition, cash flows and prospects.

We may be adversely affected by the credit and payment terms of our customers.

Wireless Service Providers in certain markets may require their suppliers, including us, to arrange, facilitate or provide financing in order to obtain sales or business. Similarly, operators may require extended payment terms. In certain cases, the amounts and duration of these financings and trade credits, and the associated impact on our working capital, may be significant. Requests for extended payment terms are not uncommon for our industry.

Certain of our competitors may be able to offer more favorable credit or extended payment terms, which could adversely affect our ability to compete successfully for business opportunities in the markets in which we operate. Our ability to manage our total customer financing and trade credit exposure depends on a number of factors, including market conditions affecting our customers and the levels and terms of credit available to our customers. Certain of our customers may pose credit risks or encounter difficulties in paying us amounts owed, and we may be unsuccessful in managing the challenges associated with the customer and trade credit exposure that we may face from time to time. While defaults under financing and trade credits to our customers resulting in impairment charges and credit losses have not been significant for us in the past, these may increase in the future.

We have sold certain receivables to banks or other financial institutions to improve our liquidity, and any significant change in our ability to continue this practice could impair our capability to manage our liquidity.

We may not be able to collect outstanding guarantees and bonds that could limit our possibilities to issue new guarantees and/or bonds, which are required in customer agreements or practices. We also face risks that such commercial guarantees and bonds may be unfairly called.

Impairment of goodwill or other intangible assets may negatively impact our financial condition and results of operations.

An impairment of goodwill or other intangible assets could adversely affect our financial condition or results of operations. We have a significant amount of goodwill and other intangible assets, such as

 

28


Table of Contents

customer relations, backlog, trade name and acquired developed technology. We assess the carrying amount of goodwill annually for impairment in the fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We have not recorded any impairment of goodwill for any of the financial reporting periods presented in this prospectus. However, if we do not generate revenues from our businesses as anticipated, our businesses may not generate sufficient positive operating cash flows. This, or other factors, may lead to a decrease in the value of our assets, including intangible assets and goodwill, resulting in impairment charges that may adversely affect our net profit for the reporting period.

Goodwill is the only intangible asset the company has recognized to have indefinite useful life. Other intangible assets are mainly amortized on a straight-line basis over their estimated useful lives, and goodwill and other intangible assets are reviewed for impairment whenever events such as product discontinuances, product dispositions or other changes in circumstances indicate that the carrying amount may not be fully recoverable.

We face certain risks associated with potential labor disruptions.

Our employees in Israel are represented by a representative organization (referred to as the union). We conduct discussions with the unions on various matters. However, if future negotiations of collective bargaining agreements or other discussions with the union are not successful or become unproductive, the union could take actions such as strikes, work slowdowns or work stoppages. Strikes, work slowdowns or work stoppages or the possibility of such actions could have an adverse effect on our business. We could also incur higher costs from such actions, new collective bargaining agreements or the renewal of collective bargaining agreements on less favorable terms.

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

In the future we may need to raise substantial additional capital based on a variety of factors in order to fund our operations or acquire companies or technology. Our future funding requirements will depend on many factors, including the following: market acceptance of our products and services; the cost of our research and development activities; the cost and timing of establishing additional sales, marketing and distribution capabilities and/or support capabilities; the effect of competing technological and market developments; and the cost of defending claims against us.

If we raise additional funds through further issuances of securities after our initial public offering, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A ordinary shares. Any debt financing obtained by us in the future would be senior to our Class A ordinary shares, would cause us to incur interest expenses and could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may increase our expenses, make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, or if we expend capital on projects that are not successful, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, or we may be required to reduce the scale of our operations. Any of these negative developments could have a material adverse effect on our business, financial condition, results of operations and prospects and Class A ordinary shares price.

 

29


Table of Contents

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

Our solutions are sophisticated and are designed to be deployed in large and complex mobile networks that require a very high degree of reliability. Because of the nature of our solutions, they can only be fully tested when substantially deployed in very large networks with high volumes of subscriber traffic. Some of our customers have only recently begun to commercially deploy our solutions and they may discover errors or defects in the software, or the solutions may not operate as expected. Because we may not be able to detect these problems until full deployment, any errors or defects in our solutions could affect the functionality of the networks in which they are deployed, given the use of our solutions in business-critical applications. As a result, the time it may take us to rectify errors can be critical to our customers.

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

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

 

   

payment of liquidated damages for performance failures;

 

   

loss of, or delay in, revenue recognition;

 

   

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

 

   

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

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

Real or perceived errors, failures or bugs in the sophisticated software that we produce, or procure from third parties, could adversely affect our business, results of operations, financial condition, cash flows and prospects.

The software that we produce, or procure for utilization from third parties, is sophisticated and complex. Undetected failures, errors, or bugs may occur. There could be defects in the design of this software that could interfere with the operation or performance of our products. Despite testing by us, errors, failures or bugs may not be found in software until it is released to our customers or until it interferes with their operational systems or networks. Any of these real or perceived errors, compatibility issues, failures or bugs in our software could result in reputational harm, negative publicity, loss or delay in market acceptance of our products and services, loss of competitive position or claims by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to outlay additional resources in order to help correct the problem. Alleviating any problems caused by software failure could require significant expenditures of our capital and other resources and could cause interruptions, delays, or cessation of our licensing, which could cause us to lose existing or potential customers and could adversely affect our business, results of operations, financial condition, cash flows and prospects.

 

30


Table of Contents

Risks Related to Our Intellectual Property and Our Technology

We use some open source software in developing our solutions, which could in certain circumstances subject us to claims or judgments or could require us to re-engineer our solutions and the firmware contained therein, which could materially harm our business, results of operations, financial condition, cash flows and prospects.

We use open source software in developing our solutions. From time to time, there have been claims against companies that use open source software in their products challenging the ownership of such open source software or the terms and conditions upon which those companies make such products available to end users. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software or claiming that we have failed to comply with applicable licensing terms. Some open source licenses contain requirements that the licensee make available source code for modifications or derivative works created based upon the open source software and that the licensee license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. If we combine our developed firmware or other software with open source software in a certain manner, we could, under certain of the open source licenses, be required to release our source code publicly or license such source code on unfavorable terms or at no cost. Although we take steps to protect against our using any open source software that may subject our firmware to general release or require us to re-engineer our solutions and the firmware contained therein, we cannot guarantee that they will be effective, or that we will not be subject to claims asserting or judgments holding that some of our proprietary source code is subject to general release or that we are required to re-engineer our solutions and firmware. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software. Open source license terms relating to the disclosure of source code in modifications or derivative works to the open source software are often ambiguous, and few courts, if any, in jurisdictions applicable to us have interpreted such terms. As a result, many of the risks associated with usage of open source software cannot be eliminated, and could adversely affect our business, results of operations, financial condition, cash flows and prospects.

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

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

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

The mobile network industry is highly competitive and its technologies are complex. Companies file patent applications and obtain patents covering these technologies frequently and maintain

 

31


Table of Contents

programs to protect their intellectual property portfolios. In addition, patent holding companies (including “non-practicing entities”) regularly bring claims against telecommunications companies, often attempting to extract royalty, licensing or other settlements. These patent holding companies and some communications companies actively search for, and routinely bring claims against, alleged infringers.

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

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

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

 

   

be time-consuming and costly to defend;

 

   

divert our management’s attention and resources;

 

   

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

 

   

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

 

   

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

 

   

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

As of September 30, 2020, we held 579 patents. It is possible that other companies hold patents covering technologies similar to one or more of the technologies that we incorporate into our solutions. In addition, new patents may be issued covering these technologies. Unless and until the U.S. Patent and Trademark Office issues a patent to an applicant, there is no reliable way to assess the scope of the potential patent. We may face claims of infringement from both holders of issued patents and, depending upon the timing, scope and content of patents that have not yet been issued, patents issued in the future. The application of patent law to the software technologies in the mobile network industry is particularly uncertain because the time that it takes for a software-related patent to issue is lengthy, which increases the likelihood of pending patent applications claiming inventions that may pre-date development of our own proprietary software. This uncertainty, coupled with litigation or the potential threat of litigation related to our intellectual property, could adversely affect our business, results of operations, financial condition, cash flows and prospects.

 

32


Table of Contents

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

Our business depends in part on our ability to maintain adequate protection of our intellectual property for our technologies and solutions and potential solutions in the United States and other countries. We have adopted a strategy of seeking patent protection in the United States and in other countries with respect to certain of the technologies used in or relating to our solutions and processes. As of September 30, 2020, we had a total of 180 patents granted and 23 patent applications pending in the United States, and 399 patents granted and 47 pending non-U.S. patent applications, many of which are counterparts to our U.S. patents or patent applications. These patent applications are directed to aspects of our technology and/or to our methods and solutions that support our business. However, the issuance and enforcement of patents involve complex legal and factual questions. Accordingly, we cannot be certain that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us will cover our technology or the methods or products that support our business, or afford protection against competitors with similar technology. Moreover, the issuance of a patent is not conclusive as to its validity, scope or enforceability, and competitors or other third parties might successfully challenge the validity, scope or enforceability of any issued patents should we try to enforce them. In addition, patent applications filed in other countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that non-U.S. patent applications will be granted even if corresponding U.S. patents are issued.

If our trademarks and trade names are not adequately protected, then we may not be able to build brand recognition and our business may be adversely affected.

We have not applied for trademark registration for our name and logo in all geographic markets. In those markets where we have applied for trademark registration, failure to secure those registrations could adversely affect our ability to enforce and defend our trademark rights. Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared unenforceable or determined to be infringing on other marks. Any claim of infringement by a third party, even those claims without merit, could cause us to incur substantial costs and spend significant time defending against such claim, divert management attention and resources from our business, require us to pay amounts for past infringement, damage our reputation and/or require us to cease use of such trademarks or trade names in certain geographic markets. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then our business may be adversely affected.

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

Our success depends to a significant degree upon the protection of our software and other proprietary technology rights, particularly our cloud-native software and 5G solutions. In addition to patents, we rely on trade secret, copyright and trademark laws and confidentiality, invention assignment and license agreements with employees and third parties, all of which offer only limited protection. Our confidentiality agreements may not effectively prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure. Others may independently discover our trade secrets and proprietary information, in which case we could not assert any trade secret rights against such parties. Furthermore, the steps we have taken to protect our intellectual property may not prevent misappropriation of our proprietary rights, the reverse engineering of our solutions or other circumvention, invalidation or challenge of our intellectual property.

 

33


Table of Contents

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

Policing the unauthorized use of our solutions, trademarks and other proprietary rights is expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management attention and resources, either of which could harm our business. Moreover, such litigation could provoke our opponents to assert counterclaims that we infringe their intellectual property. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.

We may be subject to damages resulting from claims that our employees or contractors have wrongfully used or disclosed alleged trade secrets of their former employees or other parties.

We could be subject to claims that employees or contractors, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of our competitors or other parties. Litigation may be necessary to defend against these claims. If we fail in defending against such claims, a court could order us to pay substantial damages and prohibit us from using technologies or features that are important to our products, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of these parties. In addition, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to develop, market and support potential products or enhancements, which could materially and adversely affect our business. Even if we are successful in defending against these claims, such litigation could result in substantial costs and be a distraction to management.

Risks Relating to Economic Factors and the Global Economy

The mobile network industry investment levels fluctuate and are affected by many factors, including the economic environment and decisions made by Wireless Service Providers and other customers regarding deployment of technology and their timing of purchases, and a downturn in investment levels could have a material adverse effect on our business, financial condition, results of operations and prospects.

The mobile network industry has experienced downturns in which Wireless Service Providers and other customers substantially reduced their capital spending on new equipment. While we expect this market to grow in the coming years, the uncertainty surrounding global economic growth and the geopolitical situation may materially harm actual market conditions. Moreover, market conditions are subject to substantial fluctuation and could vary geographically and across technologies. Even if global conditions improve, conditions in the specific industry segments in which we participate may be weaker than in other segments. In that case, our revenue and operating results may be adversely affected.

If capital expenditures by Wireless Service Providers and other customers are weaker than we anticipate, our revenues, operating results and profitability may be adversely affected. The level of demand from operators and other customers who buy our products and services can vary over short periods of time, including from month to month. Due to this uncertainty, accurately forecasting revenues, results, and cash flow remains difficult.

 

34


Table of Contents

A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, including the outbreak of the novel strain of coronavirus disease, COVID-19, could adversely affect our business.

If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States or worldwide, our business may be adversely affected. COVID-19 has spread to most countries and throughout the United States. Numerous state and local jurisdictions have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. In March 2020, governmental authorities in the locations where we and our clients operate issued “stay at home” orders limiting non-essential activities, travel and business operations. Such orders or restrictions have resulted in reduced operations at our headquarters, work stoppages, slowdowns and delays, travel restrictions and cancellation of events. Other disruptions or potential disruptions include the inability of our customers to receive hardware components and parts critical to the deployment of our solutions and to receive the delivery of such hardware on a timely basis, or at all; disruptions in our deployment schedules, diversion of or limitations on employee resources that would otherwise be focused on the operations of our business; delays in our ability to make sales or find new customers, business adjustments or disruptions of certain third parties with whom we conduct business may have a material and adverse effect on our business.

The extent to which the COVID-19 pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity and spread of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. While the potential economic impact brought by, and the duration of, any pandemic, epidemic or outbreak of an infectious disease, including COVID-19, may be difficult to assess or predict, the widespread COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets and a reduction in our ability to access capital, which could adversely affect our liquidity. In addition, a recession or market correction resulting from the spread of an infectious disease, including COVID-19, could materially affect our business. Such economic recession could have a material adverse effect on our long-term business. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

Natural or man-made disasters and other similar events, including the COVID-19 pandemic, may significantly disrupt our business, and negatively impact our business, financial condition and results of operations.

Any of our facilities may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, wildfires, floods, nuclear disasters, riots, acts of terrorism or other criminal activities, infectious disease outbreaks or pandemic events, including the COVID-19 pandemic, power outages and other infrastructure failures, which may render it difficult or impossible for us to operate our business for some period of time. Our facilities would likely be costly to repair or replace, and any such efforts would likely require substantial time. Any disruptions in our operations could adversely affect our business, financial condition and results of operations and harm our reputation. Moreover, although we have disaster recovery plans, they may prove inadequate. We may not carry sufficient business insurance to compensate for losses that may occur. Any such losses or damages could have a material adverse effect on our business, financial condition and results of operations. In addition, the facilities of our customers where we deploy our solutions and third-party vendors that we rely on may be harmed or rendered inoperable by such natural or man-made disasters, which may cause disruptions, difficulties or otherwise materially and adversely affect our business.

 

35


Table of Contents

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

Global credit and financial markets have experienced extreme disruptions from time to time, including severely diminished liquidity and availability of credit, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. Credit and financial markets and confidence in economic conditions might deteriorate further. Our general business strategy may be adversely affected by future economic downturns, volatile business environments and potential unpredictable and unstable market conditions. In addition, there is a risk that one or more of our current customers may not continue to operate, which could directly affect our business, financial condition, results of operations and prospects. Any lender that is obligated to provide funding to us under any now existing or future credit agreement may not be able to provide funding in a timely manner, or at all, when we require it. The cost of, or lack of, available credit or equity financing could impact our ability to develop sufficient liquidity to maintain or grow our company, which in turn may adversely affect our business, financial condition, results of operations and prospects. We also manage cash and cash equivalents and short-term investments through various institutions. There may be a risk of loss on investments based on the volatility of the underlying instruments that will prevent us from recovering the full principal of our investments. Any negative changes in domestic and global economic conditions or additional disruptions of either or both of the financial and credit markets may also affect third-party payers and may have a material adverse effect on our business, results of operations, financial condition, cash flows and prospects.

Any disruption in the credit markets could impact our ability to manage normal commercial relationships with our customers, suppliers and creditors. If the current economic situation deteriorates significantly in the countries in which we operate, our business could be negatively impacted due to consumer preferences, supplier or customer disruptions resulting from tighter credit markets or other economic factors.

The United Kingdom’s exit from the European Union (“E.U.”) could have an adverse effect on our business, financial condition, results of operations and prospects.

On June 23, 2016, the United Kingdom (“U.K.”) held a referendum regarding the U.K.’s continued membership of the E.U., the outcome of which was a decision for the U.K. to leave the E.U. The exit from the E.U. is commonly referred to as “Brexit.” Following Royal Asset of the European Union (Withdrawal Agreement) Act in the U.K. on January 23, 2020, and the ratification of the Withdrawal Agreement by the European Parliament, the U.K. left the E.U. on January 31, 2020, with a transition period running to December 31, 2020.

While the Withdrawal Agreement has been ratified by both the U.K. and the E.U., the future relationship that will apply at the end of the transition period provided for by that agreement (December 31, 2020) is still being negotiated between the U.K. government and the European Commission, after which it will need to be ratified by both the U.K. and E.U. parliaments. In the absence of such an agreement, it is unclear what trading relationships the U.K. will have with the E.U. and other significant trading partners after December 31, 2020, given the range of political and legal options currently available, including, for example, no deal on the future relationship at the end of the transition period (December 31, 2020), extension of the transition period, or some form of free trade agreement.

It is still too early to judge the full impact of Brexit. Brexit and the implementation of the resulting changes could materially and adversely affect the tax, tax treaty, currency, operational, legal and regulatory regimes as well as the macro-economic environment in which we operate. Since the 2016 referendum, global markets and foreign exchange rates have experienced increased volatility, including a decline in the value of the pound sterling as compared with the euro and US dollar. At the

 

36


Table of Contents

end of the transition period provided for in the Withdrawal Agreement (December 31, 2020), among other things, the U.K. could lose access to the E.U. single market, travel between the U.K. and E.U. countries could be restricted and border checks or other regulatory constraints may impede the free movement of goods. Our workforce, and in turn its ability to recruit and retain talent, could be impacted by any restrictions on the movement of persons. This may lead to changes in the way that personal data is handled in the U.K. and how transfers of personal data to the U.K. are dealt with in the absence of an adequacy decision from the European Commission. We could face new and greater costs and challenges if U.K. regulations and policies that govern its business diverge from those of the E.U., or if there is any other new or increased friction in the our trading environment. In addition, the U.K. vote to leave the E.U. may result in similar referendums or votes in other E.U. countries in which we do business.

The longer-term effects of Brexit are difficult to predict but could include further financial instability and slower economic growth or economic downturn in the U.K. in particular, but also in Europe and the global economy. Any restrictions on the movement of persons, deterioration in market access or trading terms, delay or restrictions to the movement of goods or increased cost and burdens in the form of new or diverging rules and regulations may have a significant adverse impact on our operations, profitability and business model. Further, uncertainty around the form and timing of any post-withdrawal trading arrangements (whether with the E.U. or third parties) could increase volatility and lead to adverse effects on the economy of the U.K., other parts of Europe and the rest of the world, which in turn could have an adverse economic impact on our operations.

Until the negotiation process for the future relationship between the U.K. and the E.U. is completed, and any associated agreement or agreements have been ratified in both the U.K. and E.U., it is difficult for us to anticipate the potential impact on our market share, sales, profitability and results of operations. While we have implemented plans to ensure continuity of service in Europe and continue to have entities and offices in place in many of the major European markets, these and other risks and uncertainties could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Related to Our International Operations

Failure to comply with the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act 2010 (“Bribery Act”) and similar laws associated with our activities outside the United States could subject us to penalties and other adverse consequences.

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

 

37


Table of Contents

policies could result in severe criminal or civil sanctions, which could have a material and adverse effect on our reputation, business, operating results and financial condition.

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

We market and service our solutions globally to customers in approximately 120 countries around the world. During fiscal 2019 and 2018, 52% and 38% of our revenue, respectively, were attributable to our customers outside of the United States. During the three months ended July 31, 2020 and 2019, 47% and 47% of our revenue, respectively, and during the six months ended July 31, 2020 and 2019, 50% and 48% of our revenue, respectively, were attributable to our customers outside of the United States. As of September 30, 2020, 86% of our employees were located outside of the United States. Therefore, we are subject to risks associated with having worldwide operations. These international operations will require significant management attention and financial resources.

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

 

   

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

 

   

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

 

   

greater difficulty in collecting accounts receivable and longer collection periods;

 

   

difficulties in enforcing contracts;

 

   

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

 

   

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

 

   

the uncertainty and costs of compliance with differing foreign laws and regulations;

 

   

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

 

   

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

 

   

fluctuations in currency values; and

 

   

political and economic instability and terrorism.

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

Our products may be subject to various export controls and because we incorporate encryption technology into certain of our products, certain of our products may be exported from various countries only with the required export license or through an export license exception. Furthermore, certain export control and economic sanctions laws prohibit the shipment of certain products, technology, software and services to embargoed countries and sanctioned governments, entities, and persons. If we fail to comply with the applicable export control laws, customs regulations, economic sanctions or other applicable laws, we could be subject to monetary damages or the imposition of restrictions which could materially adversely affect our business, financial condition, results of operations and prospects and could also harm our reputation. Further, there could be criminal penalties for knowing or willful violations, including incarceration for culpable employees and managers. Obtaining the necessary export license or other authorization for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities.

 

38


Table of Contents

In addition, various countries regulate the import of certain encryption technology and products, including through import permit and license requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations or change in the countries, governments, persons or technologies targeted by such regulations could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations or create delays in the introduction of our products into international markets. Any decreased use of our products or limitation on our ability to export or sell our products could materially adversely affect our business, financial condition, results of operations and prospects.

Changes in U.S. trade policies could disrupt global supply, manufacturing and customer relationships, which may make our products more expensive or unavailable in foreign markets.

The current U.S. Administration has made significant changes to U.S. trade policy, including new or increased tariffs on a broad range of goods imported into the United States, particularly from China, with additional tariffs and other actions still under consideration. These changes in U.S. trade policy have triggered retaliatory protectionist actions by affected countries, the continuation or expansion of which could restrict our ability to do business in or with affected countries or could prohibit, reduce or discourage purchases of our products by foreign customers and result in higher prices and reduced demand for our products in foreign markets. For example, there are risks that the Chinese government may, among other things, impose additional or increased tariffs on imports of U.S. goods, require Chinese companies to use more local suppliers, compel companies that do business in China to partner with local companies and provide incentives to government-backed local customers to buy from local suppliers rather than companies like ours. In addition, foreign governments may pursue internal programs and policies to develop domestic technologies that reduce foreign customers’ demand for our products. For example, China’s Made in China 2025 program aims to build industries in numerous technological sectors, including 5G mobile communications, among others. As a result, risk of doing business in China is likely to increase, if it has not already, including the risk of theft of intellectual property and data and potentially different treatment of foreign owned intellectual property rights and data than that owned or developed in China. Changes in, and responses to, U.S. trade policy could reduce the competitiveness of our products through increased costs and cause our sales and revenues to drop, which could materially and adversely impact our business and results of operations. Moreover, escalating and retaliatory tariffs or other protectionist measures among the U.S. and other countries may depress the overall economic condition of countries in which our customers are located, such as China, which could harm our business.

Currency exchange rates, fluctuations of currency exchange rates and limitations imposed by certain countries on the outflow of their currencies could have a material adverse effect on our results of operations.

We are impacted by currency exchange rates and fluctuations thereof in a number of ways, including the fact that:

 

   

A significant portion of our expenses, principally salaries and related personnel expenses, are incurred in non-U.S. dollar currencies, including Indian rupees (“INR”), Israeli shekels (“NIS”) and British Pounds (“GBP”), whereas the currency we use to report our financial results is the U.S. dollar and most of our revenue is generated in U.S. dollars. A significant strengthening of the NIS against the U.S. dollar can considerably increase the U.S. dollar value of our expenses in Israel. Should the NIS strengthen in comparison to the U.S. dollar our results of operations will be adversely affected;

 

   

A portion of our international sales is denominated in currencies other than U.S. dollars, such as the euro, thereby exposing us to gains and losses on non-U.S. currency transactions;

 

39


Table of Contents
   

A substantial portion of our international sales is denominated in U.S. dollars. Accordingly, devaluation in the local currencies of our customers relative to the U.S. dollar may impair the purchasing power of our customers and could cause customers to decrease or cancel orders or default on payment, which could harm our results of operations; and

 

   

We translate sales and other results denominated in foreign currency into U.S. dollars for our financial statements. During periods of a strengthening U.S. dollar, our reported international sales and earnings could be reduced because foreign currencies may translate into fewer U.S. dollars.

From time to time, we may enter into hedging transactions to attempt to limit the impact of foreign currency fluctuations. However, such hedging transactions may not prevent all exchange rate-related losses and risks. To the extent that these exposures are not fully hedged or the hedges are ineffective, our results or equity may be reduced by fluctuations in foreign currency exchange rates that could materially adversely affect our business, results of operations, financial condition, cash flows and prospects. Therefore, our business and profitability may be harmed by such exchange rate fluctuations. In certain circumstances and depending on the currencies in which certain sales are denominated and the countries in which we are profitable or not profitable, a significant decrease or increase in the value of the U.S. dollar relative to the value of other local currencies could have a material adverse effect on the gross margins and profitability of our international operations. In addition, certain countries in which we operate, or in which we may operate, limit the outflow of their currencies to purchase products from foreign companies thus limiting the ability of existing or potential customers to purchase our products. As a result, these practices may have a material adverse effect on our business, results of operations, financial condition, cash flows and prospects.

Rules of the Authority for Technological Innovation (formerly known as the Office of the Chief Scientist) may limit our ability to transfer technology outside of Israel or engage in strategic transactions or require us to pay redemption fees in the event we engage in such transactions.

Historically, a portion of the research and development operations of our Israeli subsidiary benefited from financial incentives provided by government agencies to promote research and development activities performed in Israel. Our research and development activities included projects submitted for partial funding under a program administered by the Authority for Technological Innovation of the Israeli Ministry of the Economy, formerly known as the Office of the Chief Scientist (the “ATI”), under which reimbursement of a portion of our research and development expenditures was made subject to final approval of project budgets. Although the Government of Israel does not own proprietary rights in the ATI-funded Products and there is no specific restriction by the ATI with regard to the export of the ATI-funded Products, under certain circumstances, there may be limitations on our ability to transfer technology, know-how and manufacturing of ATI-funded Products outside of Israel. Such limitations could result in the requirement to pay increased royalties or a redemption fee calculated according to the applicable regulations. During the year ended January 31, 2013, we discontinued the practice of seeking funding from the ATI, and have not submitted any new applications for funding. In addition, we do not plan to submit any new applications for funding. However, the limitations on the transfer of technology, know-how and manufacturing of ATI-funded Products outside of Israel continue to apply. The difficulties in obtaining the approval of the ATI for the transfer of technology, know-how, manufacturing activities and/or manufacturing rights out of Israel could impair the ability of some of our subsidiaries to outsource manufacturing, enter into strategic alliances or engage in similar arrangements for those technologies, know-how or products or, if approved may require us to pay significant redemption fees. If we are restricted from engaging in such transactions or may be required to pay redemption fees, our business, results of operations, financial condition, cash flows and prospects could be materially adversely affected.

 

40


Table of Contents

Risks Relating to Laws and Regulation

Breaches of our cybersecurity systems and measures could degrade our ability to conduct our business operations, process certain information and data, deliver products and services to our customers, delay our ability to recognize revenue, compromise the integrity of our products, result in significant data losses and the theft of our intellectual property, damage our reputation, expose us to liability to third parties, expose us to regulatory investigation, action and penalties and require us to incur significant additional costs to maintain the security of our networks and data.

We depend upon our information technology (“IT”) systems to conduct virtually all of our business operations, ranging from our internal operations and product development activities to our marketing and sales efforts and communications with our customers and business partners, including the storage of proprietary, confidential and commercially sensitive information and information relating to identified or identifiable natural persons. We leverage our internal IT systems, and those of our service providers, to enable, sustain, and support our business interests. We are not aware of any material breach of our cybersecurity systems, network or data; however, certain persons and entities may attempt to penetrate our network, the systems hosting our website or our other networks and systems, and may otherwise seek to misappropriate our proprietary or confidential information or cause interruptions of our service. Because the techniques used by such persons and entities to access or sabotage networks and systems change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques. Back-up and redundant systems may be insufficient or may fail and result in a disruption of availability of our products or services to our customers or the integrity or availability of our customers’ information or that of their subscribers. In addition, sophisticated operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of our networks, system, or products or our processing of personal information or other data. Additionally, we depend upon our employees to appropriately handle confidential data and deploy our IT resources in a safe and secure fashion that does not expose our network systems to security breaches and the loss of data. Accordingly, if any of our cybersecurity systems, processes or policies, or those of any of our manufacturers, logistics providers, other service providers customers or independent contractors fail to protect against and/or remediate unauthorized access, sophisticated hacking or terrorism and the mishandling, misuse or misappropriation of data by employees, contractors or other persons or entities, software errors, failures or crashes, interruptions in power supply, virus proliferation or malware, communications failures, acts or war or sabotage, or denial-of-service attacks, or other cybersecurity breaches or incidents, our ability to conduct our business effectively could be damaged in a number of ways, including:

 

   

sensitive data regarding our business, including intellectual property, personal information and other confidential and proprietary data, could be stolen;

 

   

our electronic communications systems, including email and other methods, could be disrupted, and our ability to conduct our business operations could be seriously damaged until such systems can be restored;

 

   

our ability to process customer orders and electronically deliver products and services could be degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition, damage to our relationships with customers and prospective customers and damage to our reputation;

 

   

defects and security vulnerabilities could be introduced into our software, products, network and systems, thereby damaging our reputation and perceived reliability and security of our products and potentially making the systems of our customers vulnerable to data loss and cyber incidents;

 

41


Table of Contents
   

accidental release or loss of access to information maintained in our information systems and networks, including personal information of our employees and our customers may occur; and

 

   

personally identifiable data relating to various parties, including end users, employees and business partners could be compromised.

Furthermore, outside parties may attempt to fraudulently induce our employees or employees of our vendors to disclose sensitive information in order to gain access to our system and processes. The number and complexity of these threats continue to increase over time. Although we develop, maintain and regularly monitor systems and controls designed to prevent these events from occurring, and we have a process to identify and mitigate threats, the development, and maintenance of these systems, controls, and processes require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Despite our efforts, the possibility of these events occurring cannot be eliminated entirely.

A number of the states, counties and cities in which we maintain facilities have issued “shelter in place” and similar orders in response to the recent global outbreak of COVID-19. As a result, substantially all of our employees are currently working remotely and we may need to devote additional resources to enhance the security of our IT systems, which may not successfully prevent against all risks to our resources. This transition to a remote work environment may exacerbate certain risks to our business, including increasing the stress on, and our vulnerability to disruptions of, our technology infrastructure and computer systems, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of personal or confidential information. Additionally, our third party vendors are experiencing similar challenges as they provide services to us.

Should any of the above events occur, we could be subject to significant claims for liability from our customers, employees or others and legal or regulatory investigations or actions from governmental agencies or competent courts. In addition, our ability to protect our intellectual property rights could be compromised and our reputation and competitive position could be significantly harmed. Any regulatory, contractual or other actions, litigations, investigations, fines, penalties and liabilities relating to any actual or alleged misuse or misappropriation of personal data or other confidential or proprietary information could be significant in terms of monetary exposure and reputational impact and necessitate changes to our business operations that may be disruptive to us. Additionally, we could incur significant costs in order to upgrade our cybersecurity systems, processes, policies and procedures and remediate damages. Consequently, our financial performance and results of operations could be materially adversely affected.

Some jurisdictions have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data, as set out under the General Data Protection Regulation (2016/679) (“GDPR”) and national laws supplementing the GDPR across the European Economic Area, that are likely to result in a high risk to the rights and freedoms of these individuals, and in some cases our agreements with certain customers may require us to notify them in the event of a security incident. Such mandatory disclosures could lead to negative publicity and may cause our current and prospective customers to lose confidence in the effectiveness of our data security measures. Moreover, if a high profile security breach occurs with respect to another similar provider, customers may lose trust in the security of the business model and underlying technology generally, which could adversely impact our ability to retain existing customers or attract new ones.

Any actual or perceived threat of disruption to our services or any compromise of personal data, including customer information, or any actual or perceived violations of cybersecurity regulations, could impair our reputation and cause us to lose customers or revenue, or face litigation or administrative proceedings, necessitate customer service or repair work that would involve substantial costs and

 

42


Table of Contents

divert our management’s attention and resources. Despite the implementation of advanced threat protection, information and network security measures and business continuity and disaster recovery plans, our systems and those of third parties on which we rely may be vulnerable.

Our business is subject to complex and evolving foreign laws and regulations in the U.S. and internationally. These laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations or declines in the growth of our business, or otherwise harm our business.

We are subject to a variety of laws and regulations in the U.S. and abroad that involve matters central to our business, including privacy, rights of publicity, data protection, content regulation, intellectual property, competition and taxation. Many of these laws and regulations are still evolving and being tested in courts and could be interpreted or applied in ways that could harm our business, particularly in the new and rapidly evolving industry in which we operate. In addition, foreign data protection, privacy, consumer protection and other laws and regulations are often more restrictive than those in the United States. In particular, the E.U. and its member states traditionally have taken broader views as to types of data that are subject to privacy and data protection, which extend to the European Economic Area (comprised of the E.U. member states and Iceland, Liechtenstein and Norway). The European Economic Area have imposed greater legal and regulatory obligations on companies in this regard. Further, it is difficult to predict how existing laws and regulations will be applied to our business and the new laws and regulations to which we may become subject, and it is possible that they may be interpreted and applied in a manner that is inconsistent with our current operating practices. These existing and proposed laws and regulations can be costly to comply with and can delay or impede the development of new products and services, significantly increase our operating costs, require significant time and attention of management and technical personnel and subject us to inquiries or investigations, claims or other remedies, including fines or demands that we modify or cease existing business practices. For example, administrative fines of up to the greater of 20 million and 4% of our global turnover can be imposed for breaches of the GDPR; we may also be liable should any individual who has suffered financial or non-financial damage arising out from our infringement of the GDPR exercise their right to receive compensation against us. Furthermore, adverse publicity could cause our users to lose trust in us and a loss of goodwill, which could have an adverse effect on our reputation, brand, business and financial condition.

In addition to government regulatory activity, privacy advocacy groups and the technology industry and other industries may consider various new, additional or different self-regulatory standards that may place additional burdens directly on our customers, and on us. We expect there will continue to be new laws, regulations and standards concerning privacy or data protection on the federal, state, and foreign levels in the U.S., the European Economic Area and other jurisdictions, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. For example, the California Consumer Privacy Act of 2018 (the “CCPA”) became effective on January 1, 2020, with the California Attorney General permitted to bring enforcement actions (which may include the imposing of monetary penalties) beginning July 1, 2020, and new CCPA regulations promulgated by the California Attorney General were approved on August 14, 2020, effective immediately. The CCPA gives residents of California many statutory rights similar to those granted to consumers under the GDPR. Also, a new proposed California privacy law, the California Privacy Rights Act (the “CPRA”) was recently certified by the California Secretary of State to appear on the state ballot in the November 3, 2020 election. If approved, the CPRA may create additional compliance obligations and expenses for us. In July 2020, the Court of Justice of the E.U. in its Schrems II ruling invalidated the E.U.—U.S. Privacy Shield Framework, a self-certification mechanism that facilitated the lawful transfer of personal data from the European Economic Area to the U.S. On July 24, 2020, the European Data Protection Board confirmed that there was no grace period within which organizations would have time to transition to an alternative and valid data transfer mechanism. Mavenir is certified to the Privacy

 

43


Table of Contents

Shield, but primarily relies on standard contract clauses and intercompany arrangements, versus Privacy Shield, for data transfers from the European Union to the United States. Mavenir continues to evaluate the impact of the Schrems II decision and is considering whether any additional steps need to be taken to continue to comply with applicable regulations in light of Schrems II. The E.U. has also proposed the ePrivacy Regulation, which will replace both the ePrivacy Directive and all the national laws implementing this directive. The ePrivacy Regulation, as proposed, would impose strict opt-in marketing rules, change rules about cookies, web beacons and related technologies and significantly increase penalties for violations. It would also retain the additional consent conditions under the GDPR. Such regulations may have a negative effect on businesses, including ours, that collect, process and use personal data, including online usage information for consumer acquisition and marketing and may increase the potential civil liability and cost of operating a business that collects, processes or uses such information and undertakes online marketing.

Regulations affecting broadband infrastructure could damage demand for our products.

Laws and regulations governing the Internet are emerging but remain largely unsettled, even in the areas where there has been some legislative action. Regulations may focus on, among other things, assessing access or settlement charges, or imposing tariffs or regulations based on the characteristics and quality of products, either of which could restrict our business or increase our cost of doing business. Government regulatory policies are likely to continue to have a major impact on the pricing of existing and new network services and, therefore, are expected to affect demand for those services and the communications products, including our products, supporting those services. There will likely be future government regulatory policies relating to migration to the cloud as these technologies become more prevalent in the U.S. and globally.

Any changes to existing laws or the adoption of new regulations by federal or state regulatory authorities or any legal challenges to existing laws or regulations affecting IP networks could materially adversely affect the market for our products. Moreover, customers may require us, or we may otherwise deem it necessary or advisable, to alter our products to address actual or anticipated changes in the regulatory environment. Our inability to alter our products or address any regulatory changes could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may fail to comply with our corporate governance standards, which could negatively affect our business, results of operations, financial condition, cash flows and prospects.

We may be subject to corporate governance laws and regulations. In some of the countries where we operate, corruption risks are high and compliance failure could have a material impact on our business, financial condition and brand, and there is a high focus on anti-corruption. To ensure that our operations are conducted in accordance with applicable laws and requirements, our management system will include a code of conduct and other policies and directives to govern our processes and operations. Once we become a public company, there may also be an increased demand from external stakeholders, including non-governmental organizations and investors on transparency in compliance. While we will attempt to monitor and audit internally and externally our compliance with relevant policies and directives, we cannot provide any assurances that violations will not occur which could have material adverse effects on our business, results of operations, financial condition, cash flows and prospects.

 

44


Table of Contents

Risk Related to Indebtedness

We have outstanding debt that could limit our ability to make expenditures and investments in the conduct of our business and adversely impact our ability to obtain future financing.

We have outstanding debt. Our indebtedness increases the possibility that we may be unable to generate cash sufficient to pay when due the principal of, interest on or other amounts due in respect of our indebtedness. We may be required to dedicate significant cash flows from operations to make such payments, which could limit our ability to make other expenditures and investments in the conduct of our business. Our indebtedness may also reduce our flexibility in planning for or reacting to changes in our business and market conditions. Our indebtedness also exposes us to interest rate risk, since our debt obligations generally bear interest at variable rates. In addition, we may incur additional indebtedness to meet future financing needs. If we add new debt, the risks described above could increase.

Our 2018 Credit Agreement contains restrictive and financial covenants that may limit our operating flexibility.

Our 2018 Credit Agreement contains certain restrictive covenants, that, to the extent that certain amounts are outstanding thereunder, limit our ability to (1) incur additional indebtedness and liens, (2) merge with other companies or consummate certain changes of control, (3) dispose of our property, (4) make or pay certain restricted payments, (5) make certain investments, (6) pay, prepay, redeem, purchase, defease or otherwise satisfy for value prior to the scheduled maturity thereof any amount owing with respect to certain restricted debt, (7) enter into certain transactions involving payment to our affiliates, (8) changes in line of business, and (9) enter into various specified transactions, in each case, subject to certain customary exceptions. We, therefore, may not be able to engage in any of the foregoing transactions to the extent prohibited by the 2018 Credit Agreement unless we obtain the consent of our lenders or prepay the outstanding amount under the 2018 Credit Agreement. The 2018 Credit Agreement also contains a certain financial covenant which, to the extent applicable, limits the amount of secured first lien indebtedness that we may incur and also contains certain financial reporting requirements. We have pledged substantially all of our, and certain of our U.S subsidiaries’, assets under our obligations under the 2018 Credit Agreement. We may not be able to generate or sustain sufficient cash flow or sales to meet the financial covenant or pay the principal and interest under the 2018 Credit Agreement. Furthermore, our future working capital, borrowings or equity financing could be unavailable to repay or refinance the amounts outstanding under the 2018 Credit Agreement. In the event of a liquidation, our lender would be repaid all outstanding principal and interest prior to distribution of assets to unsecured creditors, and the holders of our ordinary shares would receive a portion of any liquidation proceeds only if all of our creditors, including our lender, were first repaid in full.

Risks Related to Being a Public Company

We will incur increased costs as a result of operating as a public company and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, we will incur significant legal, accounting, administrative and other costs and expenses that we have not previously incurred or have experience with as a private company. We will be subject to the reporting requirements of the Exchange Act which will require, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and rules subsequently implemented by the SEC and the Nasdaq impose numerous requirements on public

 

45


Table of Contents

companies, including establishment and maintenance of effective disclosure controls and procedures and internal control over financial reporting and corporate governance practices. Further, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has adopted additional rules and regulations in these areas, such as mandatory “say on pay” voting requirements that will apply to us when we cease to be an emerging growth company. Shareholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and may impact the manner in which we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to compliance with these laws and regulations. These requirements have increased and will continue to increase our legal, accounting and financial compliance costs and have made and will continue to make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers.

The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements and appropriately training our employees and management. However, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to such companies could make our Class A ordinary shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act enacted in April 2012, and may remain an “emerging growth company” until the last day of the year following the fifth anniversary of the completion of this offering. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues equals or exceeds an amount specified by regulation (currently $1.07 billion) or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. For as long as we remain an “emerging growth company,” we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not “emerging growth companies.” These exemptions include:

 

   

being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

   

not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

 

   

reduced disclosure obligations regarding executive compensation; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all

 

46


Table of Contents

of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our Class A ordinary shares less attractive if we rely on these exemptions. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected not to avail ourselves of this exception and therefore will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We cannot predict if investors will find our Class A ordinary shares less attractive because we may rely on these exemptions. If some investors find our Class A ordinary shares less attractive as a result, there may be a less active trading market for our Class A ordinary shares and our share price may be more volatile.

Risks Related to this Offering and Ownership of Our Class A Ordinary Shares

The dual class structure of our ordinary shares has the effect of concentrating voting control with affiliates of Siris Capital, including control over decisions that require approval of shareholders; this will limit or preclude your ability to influence corporate matters submitted to shareholders for a vote.

Each of the Class A and Class B ordinary shares have equivalent rights to distributions from the company. However, the holders of our Class A ordinary shares offered hereby will be entitled to one vote per Class A ordinary share, and the holders of our Class B ordinary shares will be entitled to ten votes per share. After giving effect to the sale of the Class A ordinary shares offered hereby, shareholders who beneficially own Class B ordinary shares will represent    % of the combined voting power of our outstanding ordinary shares after this offering (approximately    % of the combined voting power of our outstanding ordinary shares if the underwriters exercise in full their option to purchase an additional             Class A ordinary shares).

Pursuant to our Articles of Association, each holder of our Class B ordinary shares will have the right to convert its Class B Ordinary Shares for our Class A ordinary shares, at any time, upon notice to us, on a one-for-one basis, subject to customary adjustments.

Because of the ten-to-one voting ratio between our Class B ordinary shares and Class A ordinary shares, affiliates of Siris Capital (which holds all of our outstanding Class B ordinary shares) will collectively control a majority of the combined voting power of our ordinary shares and therefore be able to control all matters submitted to our shareholders so long as affiliates of Siris Capital own a requisite percentage of our total outstanding ordinary shares. Pursuant to the Articles of Association, affiliates of Siris Capital will be entitled upon the consummation of this offering to designate a majority of individuals to be included in the nominees recommended by our board of directors for election so long as affiliates of Siris Capital own a requisite percentage of the combined voting power of our outstanding ordinary shares. Following the consummation of this offering, affiliates of Siris Capital will be entitled to designate individuals for nomination for election to our board of directors as follows:

 

   

so long as affiliates of Siris Capital beneficially own, directly or indirectly, at least 50% of the combined voting power of our outstanding ordinary shares, it will be entitled to designate six directors for nomination;

 

   

so long as affiliates of Siris Capital beneficially own, directly or indirectly, less than 50% but at least 25% of the combined voting power of our outstanding ordinary shares, it will be entitled to designate three directors for nomination;

 

   

so long as affiliates of Siris Capital beneficially own, directly or indirectly, less than 25% but at least 5% of the combined voting power of our outstanding ordinary shares, it will be entitled to designate one director for nomination; and

 

47


Table of Contents
   

in the event affiliates of Siris Capital beneficially own, directly or indirectly, less than 5% of the combined voting power of our outstanding ordinary shares, it will no longer be entitled to designate any directors for nomination.

Until such time as affiliates of Siris Capital are no longer entitled to designate individuals to be included in the nominees recommended by our Board for election to our Board, affiliates of Siris Capital will have the ability to elect all of the members it nominates to our Board, and thereby, will exert a significant amount of control over our management and affairs. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future. The difference in voting rights could also adversely affect the value of our Class A ordinary shares by, for example, delaying or deferring a change of control or if investors view, or any potential future purchaser of our company views, the superior voting rights of the Class B ordinary shares to have value.

In addition, authorities which will have been granted to the Board will enable the issuance of additional Class B ordinary shares to affiliates of Siris Capital after the completion of this offering. If any such additional Class B ordinary shares were to be issued to affiliates of Siris Capital, because of the ten-to-one voting ratio between our Class B ordinary shares and Class A ordinary shares, holders of Class A ordinary shares would experience a further and potentially significant lessening of their voting power and ability to influence matters submitted to our shareholders and potentially a resulting decline in the value of our Class A ordinary shares.

Additionally, affiliates of Siris Capital’s interests may not align with the interests of our other shareholders. Affiliates of Siris Capital are in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us and shall have no obligation to present any such opportunities to us. Affiliates of Siris Capital may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

Our dual class structure may depress the trading price of our Class A ordinary shares.

We cannot predict whether our dual class structure will result in a lower or more volatile market price of our Class A ordinary shares or in negative publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indexes. S&P, Dow Jones and FTSE Russell have each announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500. These changes exclude companies with multiple classes of shares of common stock or ordinary shares from being added to these indices. In addition, several stockholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our ordinary shares may prevent the inclusion of our Class A ordinary shares in these indices and may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for your Class A ordinary shares. Any actions or publications by stockholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of your Class A ordinary shares.

We will be a controlled company within the meaning of the Nasdaq rules and, as a result, will qualify for and will rely on exemptions from certain corporate governance requirements.

After the completion of this offering, our controlling shareholder will continue to control a majority of the voting power of our outstanding shares. As a result, we will be a controlled company within the meaning of the corporate governance standards of the Nasdaq. Under the Nasdaq rules, a controlled

 

48


Table of Contents

company may elect not to comply with certain corporate governance requirements of the Nasdaq, including the requirements that:

 

   

a majority of the board of directors consist of independent directors;

 

   

the nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

   

the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

there be an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following this offering, we intend to utilize these exemptions, including the exemption for a board of directors composed of a majority of independent directors. In addition, although we have adopted charters for our compensation committee and nominating and corporate governance committee and intend to conduct annual performance evaluations for these committees, neither of these committees will be composed entirely of independent directors immediately following the completion of this offering. The phase-in rules of the SEC and the Nasdaq with respect to the audit committee permit us to have an audit committee that has a majority of members that are independent within 90 days thereafter and all members that are independent within one year thereafter. Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the Nasdaq.

Our directors may have conflicts of interest because of their ownership of equity interests of, and their employment with, Siris Capital and our affiliates.

Certain of our directors hold ownership interests in affiliates of Siris Capital and/or ownership in and employment positions with its affiliates. Such interests in affiliates of Siris Capital by our directors could create, or appear to create, potential conflicts of interest when our directors are faced with decisions that could have different implications for us and for Siris Capital or its affiliates. We cannot assure you that any conflicts of interest will be resolved in our favor. For a further description of our relationship with affiliates of Siris Capital, see “Certain Relationships and Related Party Transactions.”

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

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

The initial public offering price for our shares will be determined through our negotiations with the underwriters, and may not bear any relationship to the market price at which our shares will trade after this offering or to any other established criteria of the value of our business. The price of our shares that will prevail in the market after this offering may be higher or lower than the price you pay, depending on many factors, many of which are beyond our control and may not be related to our operating performance.

 

49


Table of Contents

We may invest or spend the proceeds of this offering in ways with which you may not agree or which may not yield a return.

Our management will have broad discretion to use the net proceeds we receive from this offering, and you will be relying on its judgment regarding the application of these proceeds. We expect to use the net proceeds from this offering as described under the heading “Use of Proceeds.” We may also use a portion of the net proceeds to acquire or invest in complementary businesses, technologies or other assets. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds to us from this offering may be invested with a view towards long-term benefits for our shareholders, and this may not increase our operating results or the market value of our shares. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

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 of the Nasdaq. We expect that the requirements of these rules and regulations will 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 over financial reporting. We are continuing to develop and refine our disclosure controls, internal control over financial reporting 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.

Our current controls and any new controls we develop may become inadequate because of growth in our business. Further, weaknesses in our internal controls 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 financial reporting periods. Any failure to implement and maintain effective internal controls 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 be required to include in our periodic reports we will file with the SEC under Section 404 of the Sarbanes-Oxley Act once we cease to be an emerging growth company. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our shares.

We have expended and anticipate we will continue to expend significant resources, and we expect to provide significant management oversight, to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting. Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business and negatively impact our share price. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the Nasdaq.

 

50


Table of Contents

We are not currently required to comply with the SEC rules that implement Sections 302 and 404 of the Sarbanes-Oxley Act, and we are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with certain of these rules, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. To comply with the requirements of being a public company, we will need to undertake various actions, such as implementing new internal controls and procedures. 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. 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 controls are documented, designed or operating.

If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in the market price of our stock.

The preparation of our financial statements in conformity with GAAP, requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as described in “Management’s Discussion and Analysis of Financial Condition—Critical Accounting Policies and Significant Judgments and Estimates,” the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to realization of deferred tax assets, identification and measurement of uncertain tax positions, estimates to complete on percentage-of-completion projects and determination of stand-alone selling price for multiple element arrangements, goodwill impairment valuation, capitalized software development costs, accounting for long-term incentive plan and contingencies and litigation. If our assumptions change or if actual circumstances differ from those in our assumptions, our results of operations may be adversely affected and may fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our stock.

Although we do not expect to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our 2020 taxable year or in the foreseeable future, investors in our Class A ordinary shares may be subject to significant adverse U.S. federal income tax consequences if we are or become a PFIC.

Under the Code, we will be classified as a passive foreign investment company (PFIC) for U.S. federal income tax purposes for any taxable year if either (i) 75% or more of our gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of our assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income. Based on our current operations, business plan, income, assets and certain estimates and projections, including as to the relative values of our assets, we do not presently expect to be a PFIC for our 2020 taxable year or the foreseeable future. However, because PFIC status is determined on an annual basis, and therefore our PFIC status for our 2020 taxable year and any future taxable year will depend upon the future composition of our income and assets, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year.

If we are a PFIC in any taxable year, a U.S. Holder (as defined in “Material U.S. Federal Income Tax Consequences to U.S. Holders”) may be subject to significant adverse U.S. federal income tax

 

51


Table of Contents

consequences, including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) the application of a deferred interest charge on such gain and the receipt of certain dividends and (iii) compliance with certain burdensome reporting requirements. We do not intend to provide the information that would enable investors to take a qualified electing fund election that could mitigate the adverse U.S. federal income tax consequences should we be classified as a PFIC. Further, if we are a PFIC for any year during which a U.S. Holder holds our Class A ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ordinary shares, even if we cease to meet the threshold requirements for PFIC status. For more information see “Material U.S. Federal Income Tax Consequences to U.S. Holders.”

If a U.S. Holder is treated as owning at least 10% of our common shares, such holder may be subject to adverse U.S. federal income tax consequences.

We may be classified as a controlled foreign corporation (“CFC”) for the current taxable year and may be classified as a CFC in future taxable years. If we are classified as a CFC for a taxable year and a U.S. Holder is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our common shares, such U.S. Holder may be treated as a “United States shareholder” with respect to us and each CFC in our group (if any). A United States shareholder of a CFC may be required to annually report and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” or GILTI, and investments in U.S. property by CFCs, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject such shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist investors in determining whether we or any of our non-U.S. subsidiaries are treated as a CFC or whether such investor is treated as a United States shareholder with respect to any of such CFCs. Further, we cannot provide any assurances that we will furnish to any United States shareholders information that may be necessary to comply with the reporting and tax paying obligations discussed above. U.S. Holders should consult their tax advisors regarding the potential application of these rules to any investment in our common shares.

Transfers of our shares outside DTC may be subject to stamp duty or stamp duty reserve tax in the U.K., which would increase the cost of dealing in our shares.

On completion of this offering, as noted below, it is anticipated that the new Class A ordinary shares will be issued to a nominee for The Depository Trust Company (“DTC”) and corresponding book-entry interests credited in the facilities of DTC. On the basis of current case law and HMRC practice, no charges to U.K. stamp duty or stamp duty reserve tax (“SDRT”) are expected to arise on the issue of the Class A ordinary shares into DTC’s facilities or on transfers of book-entry interests in Class A ordinary shares within DTC’s facilities and you are strongly encouraged to hold your Class A ordinary shares in book-entry form through the facilities of DTC.

A transfer of title in the Class A ordinary shares from within the DTC system to a purchaser out of DTC and any subsequent transfers that occur entirely outside the DTC system, will attract a charge to stamp duty (or SDRT to the extent there is no relevant transfer document or the stamp duty charge is not paid within prescribed time periods) at a rate of 0.5% of any consideration, which is payable by the transferee of the Class A ordinary shares. Any such stamp duty must be paid (and the relevant transfer document stamped by HMRC) before the transfer can be registered in our company books. However, if those Class A ordinary shares are redeposited into DTC, the redeposit will attract stamp duty or SDRT at the rate of 1.5% to be paid by the transferor.

 

52


Table of Contents

In connection with the completion of this offering, we expect to put in place arrangements to require that our Class A ordinary shares held in certificated form cannot be transferred into the DTC system until the transferor of the Class A ordinary shares has first delivered the Class A ordinary shares to a depositary specified by us so that stamp duty (and/or SDRT) may be collected in connection with the initial delivery to the depositary. Any such Class A ordinary shares will be evidenced by a receipt issued by the depositary. Before the transfer can be registered in our books, the transferor will also be required to put funds in the depositary to settle the resultant liability to stamp duty (and/or SDRT), which will be charged at a rate of 1.5% of the value of the shares.

For further information about the U.K. stamp duty and SDRT implications of holding Class A ordinary shares, please see the section entitled “Material U.K. Tax Considerations—Stamp Duty and Stamp Duty Reserve Tax” of this prospectus.

Our share price may be volatile, and you may not be able to resell our Class A ordinary shares at or above the price you paid.

Our share price may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including:

 

   

a slowdown in the mobile network industry or the general economy;

 

   

United States and international regulatory, political and economic factors unrelated to our performance;

 

   

market conditions in the broader stock market;

 

   

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

 

   

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

 

   

changes in earnings estimates or recommendations by securities analysts;

 

   

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

 

   

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

 

   

the entry into, modification or termination of customer contracts;

 

   

developments with respect to intellectual property rights;

 

   

sales, or the anticipation of sales, of our Class A ordinary shares by us, our insiders or our other shareholders, including upon the expiration of contractual lock-up agreements;

 

   

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

 

   

our commencement of, or involvement in, litigation or governmental investigations;

 

   

additions or departures of key management or technical personnel;

 

   

changes in governmental regulations applicable to the market we serve;

 

   

guidance, if any, that we may provide to the public, any changes in this guidance or our failure to meet this guidance;

 

   

tax developments;

 

   

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

 

53


Table of Contents
   

public response to press releases or other public announcements by us or third parties, including our filings with the SEC;

 

   

default under agreements governing our indebtedness;

 

   

exchange rate fluctuations; and

 

   

other events or factors, including those from natural disasters, war, actors of terrorism or responses to these events.

These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our shares to fluctuate substantially. While we believe that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results may negatively affect the market price and liquidity of our shares. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

In addition, the stock markets, and the market for growth stocks in particular, have from time to time experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may significantly affect the market price of our Class A ordinary shares, regardless of our actual operating performance. You may not realize any return on your investment in us and may lose some or all of your investment.

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

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

Because our initial public offering price is substantially higher than the as adjusted net tangible book value per share of our outstanding Class A ordinary shares, new investors will incur immediate and substantial dilution.

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

 

54


Table of Contents

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

We do not currently anticipate declaring any cash dividends to holders of our Class A ordinary shares in the foreseeable future. Consequently, investors must rely on sales of their Class A ordinary shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not invest in our Class A ordinary shares.

Anti-takeover provisions contained in our Articles of Association, as well as provisions of English law, could impair a takeover attempt.

Certain provisions in our Articles of Association are intended to have the effect of delaying or preventing a change in control or changes in our management. For example, our Articles of Association include provisions that establish an advance notice procedure for shareholder resolutions to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors. U.K. law also prohibits the passing of written shareholder resolutions by public companies. These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management, even if these events would be beneficial for our shareholders. For further information regarding the anti-takeover provisions, please see the section entitled “Description of Share Capital.”

We are subject to new U.S. foreign investment regulations which may impose additional burdens on or may limit certain investors’ ability to purchase our Class A ordinary shares, potentially making our Class A ordinary shares less attractive to investors.

In October 2018 the U.S. Department of Treasury announced a pilot program to implement part of the Foreign Investment Risk Review Modernization Act (“FIRRMA”), effective November 10, 2018. The pilot program expands the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”), to include certain direct or indirect foreign investments in a defined category of U.S. companies, including certain companies in the telecommunications and mobile network industries. Among other things, FIRRMA empowers CFIUS to require certain foreign investors to make mandatory filings and permits CFIUS to charge filing fees related to such filings. Such filings are subject to review by CFIUS. Any such restrictions on the ability to purchase our Class A ordinary shares that have the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares of our Class A ordinary shares and could also affect the price that some investors are willing to pay for our Class A ordinary shares.

Future sales, or the perception of future sales, of our Class A ordinary shares may depress the price of our Class A ordinary shares. In addition, a significant portion of our Class A ordinary shares is restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our Class A ordinary shares to drop significantly, even if our business is doing well.

If we sell, or any of our shareholders sells, a large number of our Class A ordinary shares, or if we issue a large number of shares in connection with future acquisitions, financings or other circumstances, the market price of our Class A ordinary shares could decline significantly. Moreover, the perception in the public market that we or our shareholders might sell our Class A ordinary shares could depress the market price of those shares.

We cannot predict the size of future issuances of our ordinary shares or the effect, if any, that future issuances or sales of our shares will have on the market price of such shares. Sales of substantial amounts of our Class A ordinary shares, including sales by significant shareholders, and

 

55


Table of Contents

shares issued in connection with any additional acquisition, may adversely affect prevailing market prices for our Class A ordinary shares. Possible sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem necessary or appropriate. See “Shares Eligible for Future Sale.”

After this offering, we will have                shares of Class A ordinary shares outstanding. We, all of our directors and executive officers and certain of our shareholders have agreed to a 180-day lock-up period (subject to certain exceptions) provided under agreements executed in connection with this offering. In addition, Morgan Stanley & Co. LLC may, in its sole discretion, release all or some portion of the Class A ordinary shares subject to lock-up agreements at any time and for any reason. We also intend to file a Form S-8 under the Securities Act of 1933, as amended (the “Securities Act”), to register all Class A ordinary shares that we may issue under our equity compensation plans. Moreover, certain shareholders have certain demand registration rights that could require us to file registration statements in connection with sales of our Class A ordinary shares by such shareholder. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.” Such sales by such shareholder could be significant. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the “Underwriting” section of this prospectus. As restrictions on resale end, the market price of our Class A ordinary shares could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them or are released from the restrictions of the lock-up agreements prior to their expiration, which may make it more difficult for you to sell your Class A ordinary shares at a time and price that you deem appropriate.

 

56


Table of Contents

INDUSTRY AND MARKET DATA

The data included in this prospectus regarding the markets and industry in which we operate, including the size of certain markets and our position and the position of our competitors within these markets, are based on reports of government agencies, published industry sources and estimates based on our management’s knowledge and experience in the markets in which we operate. Data regarding the industries in which we compete and our market position and market share within these industries are inherently imprecise and are subject to significant business, economic and competitive uncertainties beyond our control, but we believe that they generally indicate size, position and market share within these industries. Our own estimates have been based on information obtained from our trade and business organizations and other contacts in the markets in which we operate. We believe these estimates to be accurate as of the date of this prospectus. However, this information may prove to be inaccurate because of the method by which we obtained some of the data for the estimates or because this information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. Third-party industry and general publications, research, surveys and studies generally state that the information contained therein has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified any of the data from third-party sources. Similarly, other research reports sponsored by us, while believed by us to be reliable, have not been independently verified by us. As a result, you should be aware that market, ranking and other similar industry data included in this prospectus, and estimates and beliefs based on that data, may not be reliable and are subject to change based on various factors, including those discussed under “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Certain statistical information in this prospectus is based on the research report “How much can operators save with a Cloud RAN?” by Monica Paolini of Senza Fili, 2017, which was sponsored by us.

TRADEMARKS AND TRADE NAMES

We own or have rights to trademarks or trade names that we use in conjunction with the operation of our business. Our name, logo and registered domain names are our proprietary service marks or trademarks. Each trademark, trade name or service mark by any other company appearing in this prospectus belongs to its holder. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this prospectus are listed without the ©, ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights to these trademarks, service marks, trade names and copyrights.

SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES

We are incorporated under the laws of England and Wales. Certain of the officers named herein reside outside the United States and a significant portion of the assets of the Company and all or a significant portion of the assets of such officers are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or to enforce against them judgments obtained in United States courts predicated upon the civil liability provisions of the federal securities laws of the United States.

 

57


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains certain “forward-looking statements,” as that term is defined in the U.S. federal securities laws. These forward-looking statements include, but are not limited to, statements other than statements of historical facts contained in this prospectus, including among others, statements relating to our future financial performance, our business prospects and strategy, anticipated financial position, liquidity and capital needs, the industry in which we operate and other similar matters. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “should” and the negative of these terms or other comparable terminology often identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, including the risks discussed in this prospectus. Factors, risks, and uncertainties that could cause actual outcomes and results to be materially different from those contemplated include, among others:

 

   

our dependence on a limited number of major customers for a substantial portion of our revenue;

 

   

that we have incurred net losses and may not be able to achieve or sustain profitability;

 

   

that we are subject to significant litigation;

 

   

significant competition, including from larger, well-established companies;

 

   

the concentration of our customers and the number of subscribers they service;

 

   

fluctuations in our quarterly results of operations;

 

   

the adoption by our customers of our new product offerings;

 

   

delays in the speed of adoption of 5G technology by Wireless Service Providers;

 

   

that we must often establish and demonstrate the benefits of new and innovative offerings to customers;

 

   

that contractual obligations could expose us to uncapped or other significant liabilities;

 

   

the loss of members of our senior management team or other key employees, and our ability to attract or retain employees;

 

   

our ability to successfully undertake business combinations and acquisitions and/or integrate such acquisitions into our existing framework;

 

   

changes in effective tax rates or outcomes resulting from examinations of our tax returns;

 

   

our ability to utilize our net operating loss carryforwards;

 

   

the impact of a pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, including the COVID-19 pandemic on our business;

 

   

natural or man-made disasters and other similar events, including the COVID-19 pandemic, negatively impacting our business, financial condition and results of operations;

 

   

the elimination of LIBOR;

 

   

impairment of goodwill or other intangible assets;

 

   

potential labor disruptions;

 

   

our potential need for additional capital to support business growth and the potential unavailability of such capital on favorable terms to us or at all;

 

58


Table of Contents
   

that infringement claims are common in our industry and we may be obligated to indemnify such claims;

 

   

our ability to protect our intellectual property rights;

 

   

currency fluctuation risks;

 

   

complex and evolving foreign laws and regulations governing our business;

 

   

reduced disclosure requirements related to our status as an emerging growth company;

 

   

our status as a controlled company;

 

   

conflicts of interest between our controlling shareholder and other holders of our Class A ordinary shares;

 

   

that transfers of our shares outside of DTC may be subject to stamp duty or stamp duty reserve tax in the U.K.;

 

   

unfavorable research or analyst reports concerning our business;

 

   

our present intention to retain all available funds and future earnings without paying dividends; and

 

   

future sales, or the perception of future sales, of our Class A ordinary shares may dilute the value or depress the price of our Class A ordinary shares.

Many of the important factors that will determine these results are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statements, which speak only as of the date of this prospectus. Except as otherwise required by law, we do not assume any obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events. You should refer to the “Risk Factors” section of this prospectus for a discussion of other important factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements.

 

59


Table of Contents

USE OF PROCEEDS

We estimate that the net proceeds to us from this offering will be approximately $         million after deducting the underwriting discounts and commissions and our other estimated offering expenses (assuming an initial public offering price of $         per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus). If the underwriters exercise in full their option to purchase an additional                  Class A ordinary shares from us, we estimate the net proceeds to us will be approximately $         million.

We estimate that the offering expenses (other than the underwriting discount) will be approximately $         million.

We intend to use the net proceeds from this offering to repay certain outstanding indebtedness under our 2018 Term Loans and for general corporate purposes. The $         million of indebtedness related to the 2018 Term Loans to be repaid with the proceeds of this offering matures on May 8, 2023, and as of October                , 2020, bears interest at the rate of    %. Affiliates of certain of the underwriters are lenders under the 2018 Term Loans and accordingly will receive a portion of the proceeds from this offering. An amount equal to £12,500 will be used to fund the redemption of a redeemable share in our share capital which will have been subscribed for and held by an affiliate of Siris Capital to provide us with the minimum share capital required by the U.K. Companies Act of 2006.

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

 

60


Table of Contents

DIVIDEND POLICY

We have never declared or paid cash dividends. We currently intend to retain any future earnings and do not anticipate paying any cash dividends on our Class A ordinary shares in the foreseeable future following the consummation of this offering. Any determination to declare dividends will be made at the discretion of our board of directors and will depend on, among other factors, our financial condition, operating results, liquidity, capital requirements, general business conditions and other factors that our board of directors may deem relevant. Our ability to pay dividends on our Class A ordinary shares is limited by the terms of our existing indebtedness and may be restricted by the terms of any future credit agreement or any future debt or preferred securities of ours or of our subsidiaries. See “Description of Certain Indebtedness” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Furthermore, we are a holding company and has no direct operations. All of our business operations are conducted through our subsidiaries. Any dividends we pay will depend upon our funds legally available for distribution, including dividends from our subsidiaries. See “Description of Share Capital—Differences in Corporate Law—Distribution and Dividends.”

 

61


Table of Contents

CAPITALIZATION

The following table sets forth our cash and capitalization as of July 31, 2020 (i) on an actual basis, derived from our historical consolidated balance sheet as of July 31, 2020, included elsewhere in the prospectus, (ii) on an as adjusted basis, to give effect to (a) the Corporate Reorganization (but prior to giving effect to this offering), assuming an initial public offering price of $         per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus and (b) the $20 million loan raise under the 2020 Incremental Term Loan as further described in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Liquidity and Capital Resources” and (iii) on an as further adjusted basis, assuming an initial public offering price of $        per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses and giving effect to the repayment of certain outstanding indebtedness under our 2018 Term Loans, as described under “Use of Proceeds,” as if the consummation of this offering had occurred on July 31, 2020.

You should read this table in conjunction with “Use of Proceeds,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and accompanying notes thereto included elsewhere in this prospectus.

 

     As of July 31, 2020  
     Actual     As
Adjusted
     As Further
Adjusted
 
     (Unaudited)  
     (dollars in thousands,
except share and per
share data)
 

Cash and cash equivalents

   $ 47,045     $                  $              
  

 

 

   

 

 

    

 

 

 

Debt:

       

2018 Credit Agreement (net of issuance costs)

   $ 522,610     $        $  
  

 

 

   

 

 

    

 

 

 

Shareholder’s equity

       

Class A ordinary shares, $0.001 par value; no shares authorized, issued and outstanding, actual;             shares authorized and             shares issued and outstanding, as adjusted;             shares authorized and             shares issued and outstanding, as further adjusted

       

Class B ordinary shares; $0.001 par value; no shares authorized, issued and outstanding, actual;             shares authorized and             shares issued and outstanding, as adjusted

       

Additional paid-in capital

     892,826       

Accumulated deficit

     (434,675     

Accumulated other comprehensive income

     11,599       
  

 

 

   

 

 

    

 

 

 

Total shareholder’s equity

     469,750       
  

 

 

   

 

 

    

 

 

 

Total capitalization

   $ 992,360     $        $  
  

 

 

   

 

 

    

 

 

 

 

62


Table of Contents

DILUTION

Our net tangible book value as of July 31, 2020 was $         million, or $         per Class A ordinary share after giving effect to the conversion of all Class B ordinary shares into Class A ordinary shares. Net tangible book value per Class A ordinary share before this offering has been determined by dividing net tangible book value (total book value of tangible assets less total liabilities) by the number of Class A ordinary shares outstanding as of July 31, 2020 after giving effect to the conversion of all Class B ordinary shares into Class A ordinary shares.

After giving effect to (i) the sale of                 Class A ordinary shares sold by us in this offering at an assumed initial public offering price of $         per Class A ordinary share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, (ii) the Corporate Reorganization, and (iii) the conversion of all Class B ordinary shares into Class A ordinary shares, and after deducting the underwriting discounts and commissions in connection with this offering and estimated offering expenses payable by us and the application of the net proceeds therefrom and giving effect to the repayment of certain outstanding indebtedness under our 2018 Term Loans as described in “Use of Proceeds,” our as adjusted net tangible book value as of July 31, 2020 would have been $        , or $         per Class A ordinary share. This represents an immediate increase in as adjusted net tangible book value of $         per Class A ordinary share and an immediate dilution in as adjusted net tangible book value $         per Class A ordinary share to new investors who purchase Class A ordinary shares in this offering. The following table illustrates this dilution to new investors on a per share basis:

 

Assumed initial public offering price per Class A ordinary share

   $              

Net tangible book value per share as of July 31, 2020

   $    

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

   $    

As adjusted net tangible book value per share after this offering

   $    

Dilution of net tangible book value per share to new investors

   $    

Dilution has been determined by subtracting as adjusted net tangible book value per Class A ordinary share after this offering from the assumed initial public offering price per Class A ordinary share.

A $1.00 increase or decrease in the assumed initial public offering price of $         per Class A ordinary share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase or decrease total net tangible book value per share after this offering by $         per Class A ordinary share and dilution to new investors by $         per Class A ordinary share, assuming that the number of Class A ordinary shares offered by us set forth on the front cover of this prospectus remains the same, and after deducting the underwriting discounts and commissions in connection with this offering and estimated offering expenses payable by us.

 

63


Table of Contents

The following table summarizes, as of July 31, 2020, on the as adjusted basis described above, the total number of Class A ordinary shares purchased from us, the total consideration paid to us and the average price paid per share by the existing shareholders and by new investors purchasing shares from us in this offering, based on an assumed initial public offering price of $         per Class A ordinary share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, before deducting the underwriting discounts and commissions in connection with this offering and estimated offering expenses payable by us (amounts in thousands, except percentages and per share data):

 

     Class A Ordinary shares
Purchased
    Total
Consideration
    Average
Price Per
Share
 
     Number      Percent     Amount      Percent  

Existing shareholders

                                                             $              

New investors

            
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

                           $    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $         per Class A ordinary share, the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase or decrease total consideration paid by new investors in Class A ordinary shares and total consideration paid by all holders of Class A ordinary shares by $         million, assuming that the number of Class A ordinary shares offered by us set forth on the front cover of this prospectus remains the same, and after deducting the underwriting discounts and commissions in connection with this offering and estimated offering expenses payable by us. An increase or decrease of 1,000,000 shares in the number of Class A ordinary shares offered by us would increase or decrease the total consideration paid to us by new investors in Class A ordinary shares and total consideration paid to us by all holders of Class A ordinary shares by $         million, based on an assumed initial public offering price of $         per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions in connection with this offering and estimated offering expenses payable by us.

If the underwriters exercise in full their option to purchase additional Class A ordinary shares, the number of Class A ordinary shares held by existing shareholders after the completion of this offering will be                    , or    % of the total Class A ordinary shares outstanding after this offering, and the number of Class A ordinary shares held by new investors will be                    , or    % of the total Class A ordinary shares outstanding after this offering.

 

64


Table of Contents

CORPORATE REORGANIZATION

Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will form Mavenir plc, a public limited company incorporated under the laws of England and Wales and the issuer of our Class A ordinary shares offered hereby. Upon the closing of this offering, the existing shareholder of Mavenir Private Holdings II Ltd. will exchange its existing equity interests in Mavenir Private Holdings II Ltd. for a number of Class B ordinary shares of Mavenir plc having a value equivalent to the value of those equity interests. We refer to this reorganization throughout this prospectus as the “Corporate Reorganization.” As a result of the Corporate Reorganization, the existing shareholder of Mavenir Private Holdings II Ltd. will become the initial holder of Class B ordinary shares of Mavenir plc having the rights related to Class B ordinary shares as set forth in this prospectus. Except as disclosed in this prospectus, the consolidated historical financial statements and summary and selected historical consolidated financial data and other financial information included in this prospectus are those of Mavenir Private Holdings II Ltd. and its subsidiaries and do not give effect to the Corporate Reorganization. We do not expect the Corporate Reorganization to have a material effect on our consolidated financial statements, except with respect to share count, earnings per share and other per share metrics.

The purpose of the Corporate Reorganization is to reorganize our corporate structure so that the top-tier entity in our corporate structure—the entity that is offering Class A ordinary shares in this offering—is a public limited company under the laws of England and Wales instead of a private company incorporated under the laws of England and Wales.

 

65


Table of Contents

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following tables sets forth Mavenir Private Holdings II Ltd.’s selected historical financial and operating data as of the dates and for the financial reporting periods indicated. The financial and operating data as of January 31, 2020 and 2019 and for each of fiscal 2019 and 2018 have been derived from our predecessor Mavenir Private Holdings II Ltd.’s audited consolidated financial statements included elsewhere in this prospectus. The historical financial and operating data as of July 31, 2020, and for the three months and six months ended July 31, 2020 and 2019 have been derived from our predecessor Mavenir Private Holdings II Ltd.’s unaudited condensed consolidated financial statements included elsewhere in this prospectus. See “Financial Statements and Basis of Presentation” and “Corporate Reorganization.”

The selected historical consolidated financial information is not necessarily indicative of the results that may be expected in any future financial reporting period, and our results of operations for any interim financial reporting period are not necessarily indicative of the results to be expected for the full year. The following selected historical financial and operating data should be read in conjunction with “Capitalization,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes appearing elsewhere in this prospectus. Except as described below, the following summary does not give effect to the Corporate Reorganization.

 

    Year Ended
January 31,
    Three Months Ended
July 31,
    Six Months Ended
July 31,
 
    2020     2019     2020     2019     2020     2019  
    (in thousands)     (in thousands)     (in thousands)  
          (unaudited)     (unaudited)  

Consolidated Statement of Operations Data:

           

Product revenue

  $ 330,880     $ 287,916     $ 106,990     $ 85,217     $ 188,896     $ 150,799  

Post-contract revenue

    96,564       105,193       22,955       24,339       45,976       49,888  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue(1)

    427,444       393,109       129,945       109,556       234,872       200,687  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of product revenue

    156,095       129,674       47,006       42,223       86,421       76,000  

Cost of post-contract revenue

    29,199       31,920       9,257       7,128       17,820       14,509  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

    185,294       161,594       56,263       49,351       104,241       90,509  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    242,150       231,515       73,682       60,205       130,631       110,178  

Gross profit margin

    57     59     57     55     56     55

Research and development expenses

    89,353       90,681       22,046       21,641       43,319       45,908  

Selling, general and administrative expenses

    154,771       134,017       33,641       34,278       67,807       95,239  

Restructuring expenses and other

    8,557       28,911       2,102       1,037       2,162       5,603  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    437,975       415,203       114,052       106,307       217,529       237,259  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

    (10,531     (22,094     15,893       3,249       17,343       (36,572

Interest (income)

    (388     (205     (380     (53     (907     (189

Interest expense

    52,478       74,216       10,976       13,286       22,619       26,380  

Foreign exchange loss (gain) and other, net

    14,925       598       411       (9,818     (4,523     (8,186
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) before income tax expense

    (77,546     (96,703     4,886       (166     154       (54,577

Income tax (benefit) expense

    3,497       523       2,321       (1,009     5,711       (336
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss)

  $ (81,043   $ (97,226   $ 2,565     $ 843     $ (5,557   $ (54,241
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net profit (loss) per ordinary share(2)

  $ (19,623   $ (24,307   $ 428     $ 211     $ (930   $ (13,560
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of ordinary shares used in computing basic and diluted net loss per ordinary share

    4.13       4.00       6.00       4.00       5.98       4.00  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net profit (loss) per ordinary share (unaudited)(3)

           
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

66


Table of Contents

 

(1)

On February 1, 2018 the Company adopted ASC 606 (“Revenue from contracts with customers”) using the modified retrospective method of adoption with the cumulative impact of $10.8 million recognized in retained earnings (accumulated deficit) as of February 1, 2018.

(2)

Earnings per share is calculated based on Mavenir Private Holdings II Ltd. outstanding shares. See Note 1 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the methods we use to calculate basic and diluted net loss per ordinary share.

(3)

Pro forma net profit (loss) per ordinary share is calculated using the number of ordinary shares outstanding after giving effect to the Corporate Reorganization, assuming an initial public offering price of $                per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus. Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will form Mavenir plc, a public limited company incorporated under the laws of England and Wales and the issuer of our Class A ordinary shares offered hereby. Upon the closing of this offering, the existing shareholder of Mavenir Private Holdings II Ltd. will exchange its equity interests in Mavenir Private Holdings II Ltd. for a number of Class B ordinary shares of Mavenir plc having a value equivalent to the value of those equity interests.

 

     As of January 31,      As of July 31,  
     2020      2019      2020  
     (in thousands)     

(in thousands)

(unaudited)

 

Consolidated Balance Sheet Data:

        

Cash and cash equivalents

   $ 78,044      $ 46,362      $ 47,045  

Total assets

     1,427,594        1,363,220        1,412,315  

Long term obligations

     523,786        526,138        522,610  

Total shareholder’s equity

     451,343        402,254        469,750  

Non-GAAP Financial Information (Unaudited):

 

     Year Ended
January 31,
    Three Months Ended
July 31,
    Six Months Ended
July 31,
 
     2020     2019     2020     2019     2020     2019  
     (In thousands)     (in thousands)     (in thousands)  
           (unaudited)     (unaudited)  

Net income (loss)—GAAP

   $ (81,043   $ (97,226   $ 2,565     $ 843     $ (5,557   $ (54,241

Foreign currency (gain) / loss

     14,925       598       411       (9,818     (4,523     (8,186

Restructuring and other

     8,557       28,911       2,102       1,037       2,162       5,603  

Acquisition and integration costs

           13,748                          

Siris Capital sponsor expenses

     2,168       2,597       279       177       571       474  

Interest (income)

     (388     (205     (380     (53     (907     (189

Interest expense

     52,478       74,216       10,976       13,286       22,619       26,380  

Legal contingencies and settlements

     31,919             1,165       2,426       1,516       32,287  

Offering costs

                 2,697       443       2,697       443  

Income tax (benefit) expense

     3,497       523       2,321       (1,009     5,711       (336

Depreciation and amortization

     73,012       74,205       18,015       18,744       35,641       37,305  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(1)

   $ 105,125     $ 97,367     $ 40,151     $ 26,076     $ 59,930     $ 39,540  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

   $ 427,444     $ 393,109     $ 129,945     $ 109,558     $ 234,872     $ 200,687  

Adjusted EBITDA margin(1)

     25     25     31     24     26     20

 

(1)

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and for a discussion of these measures, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Net Income” and “—Non-GAAP Financial Measures” in this prospectus.

 

67


Table of Contents

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

OPERATIONS

Management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with the sections “Prospectus Summary—Summary Historical Financial and Operating Data,” “Selected Historical Consolidated Financial Data,” and our consolidated financial statements and notes thereto included elsewhere in this prospectus. The following discussion includes forward-looking statements that reflect our plans, estimates and assumptions and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this prospectus. See “Special Note Regarding Forward-Looking Statements.” Future results could differ significantly from the historical results presented in this section.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), is provided to supplement the consolidated financial statements and the related notes included elsewhere in this prospectus. We intend for this discussion to provide you with information that will assist you in understanding our financial statements, the changes in key items in those financial statements from year to year, and the primary factors that accounted for those changes. The MD&A is organized as follows:

 

   

Overview.    This section provides a general description of our business as well as trends and other factors affecting our business that we believe are necessary to understand our financial condition and results of operations.

 

   

Results of Operations.    This section provides a discussion of the results of operations on a historical basis for the fiscal years ended January 31, 2020 and 2019 and the three months and six months ended July 31, 2020 and 2019.

 

   

Liquidity and Capital Resources.    This section provides an analysis of our ability to generate cash and to meet existing known or reasonably likely future cash requirements.

 

   

Critical Accounting Policies and Significant Judgments Estimates.    This section discusses the accounting policies and estimates that we consider important to our financial condition and results of operations and that require significant judgment and estimates on the part of management in their application.

Data for the fiscal years ended January 31, 2020 and 2019 has been derived from our audited consolidated financial statements. Data for the three months and six months ended July 31, 2020 and 2019 has been derived from our unaudited interim condensed consolidated financial statements.

Overview

We provide software to drive the digital transformation of mobile networks. Our suite of cloud-native software applications delivers the critical network functionality that allows Wireless Service Providers to meet the needs of their enterprise and consumer customers. These software solutions are deeply embedded in the Wireless Service Provider networks to securely deliver and operate complex, mission-critical mobile services such as voice, messaging, video and connectivity that helps them to unlock new revenue opportunities. We are at the forefront of disruption in the mobile network infrastructure industry enabling networks to become more agile, flexible and scalable while reducing total cost of ownership (“TCO”).

There is a significant increase in demand for digital transformation to reduce cost while delivering additional value to consumers and enable new complex industrial use cases including private networks for enterprises and industries. This follows the trend set by a growing percentage of enterprises that

 

68


Table of Contents

have successfully adopted the cloud for digital transformation, which has led to the genesis of a new breed of enterprise software market leaders. Mavenir’s leadership position with our mobile communications software stack is well placed to capitalize on this digital transformation in the Wireless Service Provider market.

With the advent of 5G, we believe that mobile networks that already support multi-billion mobile subscriptions today need to be efficient and effective enough to address tens of billions of connected devices in the 5G/Internet of Things (“IoT”) era, and the consequent rise in new use cases and applications. In addition, the current global pandemic caused by Covid-19 has increased mobile network traffic and usage of all forms of communication services as more employees are working from home or in remote locations. According to International Data Group, with data usage already predicted to grow at high levels, the COVID-19 pandemic merely added fuel to the fire. Many operators reported that they saw double-digit growth in mobile data traffic during the height of the pandemic. 5G is capable of supporting these immense leaps in data traffic. Combine that with the ability to enable near-real-time network responsiveness, the advantages of migrating many uses and functions to a 5G network become readily apparent.

Our customer base consists of over 250 Wireless Service Providers, who serve close to 4 billion subscribers across approximately 120 countries. This base includes 17 of the 20 largest Wireless Service Providers, including each of the three largest Wireless Service Providers in the U.S. As of September 30, 2020, 50% of our customers have been customers of Mavenir for 12 or more years.

Trends and Factors Affecting our Financial Condition

We generate revenues from product revenue and post-contract support. Our products primarily consist of software solutions that run on COTS hardware. We also generate post-contract revenues from customer support and software maintenance agreements.

We plan to grow our business by: continuing to pursue opportunities within our global customer base; capitalizing on market shifts, including 5G adoption and transitions to virtualized solutions such as vRAN; attracting new customers with our solutions; and scaling our sales efforts through new distribution channels. Wireless Service Providers are adjusting to exponentially growing data requirements by rapidly virtualizing their networks to reduce TCO. Adapting to this shift creates an opportunity for us to continue leveraging our first-mover advantage and expertise in designing web-scale mobile networks for our customers. Our approach allows our customers to quickly and efficiently deploy and scale new services while reducing overall network costs, all of which we believe will continue to grow revenue by increasing the solutions existing customers will purchase from us and helping us attract new customers.

The market for mobile network infrastructure products and solutions is highly competitive and rapidly evolving to include new competitors. The market is subject to changing technology trends and shifting subscriber needs and expectations that compel our customers to introduce new services frequently to generate revenue and enhance subscriber loyalty. With the growth of 4G LTE technology and rollout of 5G services, we expect competition to continue for all of our solutions and in all of our markets.

We believe there are a number of important factors to compete effectively in our market, including: market recognition, the ability to provide a comprehensive set of solutions, competitive pricing and flexibility to offer customized solutions and implementation approaches. We also believe the ability to provide the effectiveness of a web-scale approach is very important given the need for Wireless Service Providers to transfer their networks to add flexibility and reduce TCO. We believe that

 

69


Table of Contents

the flexibility and reduction in TCO that our web-scale approach provides will allow us to differentiate ourselves. We believe that we compete effectively against large-scale traditional vendors because of our cloud-native open interface for NFV, the features we offer within our solutions, our flexibility in delivering well-optimized solutions with specific feature set required for each Wireless Service Provider’s unique network requirements, the timeliness of delivering solutions, and competitive pricing. We believe that the large infrastructure vendors generally face structural challenges to both support their traditional hardware-centric businesses and deliver the innovative next-generation solutions. We also believe that we compete well against smaller point-service providers that have the ability to deliver one or more network functions, but lack the ability to deliver end-to-end solutions across the entire network stack.

Our lengthy sales cycle typically extends from three to eighteen months and can affect recognition of our revenues. The decision by a Wireless Service Provider to purchase our solutions often involves a long evaluation, qualification and competitive bid process. During the evaluation period, a customer may stop, defer or scale down proposed orders of solutions for various reasons, including a reduction in availability of capital expenditures funds and budgets, reduced need to upgrade their systems and deferrals in anticipation of new products. Once an order is received, the deployment cycle is also lengthy and our costs to deploy our solutions can be significant. Slower deployments may delay recognition of our revenues due to delays in milestone achievements and increased costs due to the inability to redeploy personnel to newer deployments for other customers. Slower deployments may also delay the purchase of additional solutions. Generally, we are able to “upsell” additional solutions in order to enhance a Wireless Service Provider’s product offering to its users.

Financial Highlights

Years ended January 31, 2020 and 2019

GAAP financial highlights include:

 

   

For fiscal 2019, we generated revenues of $427.4 million, representing growth of 8.7% over fiscal 2018, which was $393.1 million.

 

   

Revenues from our products increased by 14.9% for fiscal 2019 to $330.9 million from $287.9 million in fiscal 2018.

 

   

We experienced revenue decrease of 13.4% in the Americas region, decrease of 6.3% in the Europe, Middle East and Africa region (“EMEA”), and an increase of 179.8% in the Asia-Pacific region (“APAC”), for fiscal 2019 compared to fiscal 2018.

 

   

Gross profit in fiscal 2019 increased to $242.2 million, or 56.7% of revenue, compared to $231.5 million, or 58.9% of revenue, in fiscal 2018.

 

   

Net losses in fiscal 2019 decreased by 16.7% to $81.0 million from $97.2 million in fiscal 2018.

Non-GAAP financial highlights include:

 

   

Adjusted EBITDA improved to $105.1 million in fiscal 2019 from $97.4 million in fiscal 2018. The $7.7 million improvement is mainly due to revenue growth.

 

   

Adjusted EBITDA Margin slightly decreased to 24.6% in fiscal 2019, compared to 24.8% in fiscal 2018.

 

70


Table of Contents

Six months ended July 31, 2020 and 2019

GAAP financial highlights include:

 

   

For the six months ended July 31, 2020, we generated revenues of $234.9 million, representing growth of 17% over the six months ended July 31, 2019, which was $200.7 million.

 

   

Revenues from our products increased by 25% for the six months ended July 31, 2020 to $188.9 million from $150.8 million in for the six months ended July 31, 2019.

 

   

We experienced a revenue increase of 8% in the Americas region reflecting growth in RCS & Voice , an increase of 42% in the EMEA region associated with the completion of a number of IMS projects, and an increase of 19% in the APAC region by growth in cloud and messaging software, for the six months ended July 31, 2020 compared to the six months ended July 31, 2019.

 

   

Gross profit for the six months ended July 31, 2020 increased to $130.6 million, or 56% of revenue, compared to $110.1 million, or 55% of revenue, for the six months ended July 31, 2019.

 

   

Net losses for the six months ended July 31, 2020 decreased by 90% to $5.5 million from $54.2 million for the six months ended July 31, 2019.

Non-GAAP financial highlights include:

 

   

Adjusted EBITDA improved to $59.9 million for the six months ended July 31, 2020 from $39.5 million for the six months ended July 31, 2019. The $20.4 million improvement is mainly due to increase in gross profit.

 

   

Adjusted EBITDA Margin increased to 26% for the six months ended July 31, 2020, compared to 20% for the six months ended July 31, 2019.

Three months ended July 31, 2020 and 2019

GAAP financial highlights include:

 

   

For the three months ended July 31, 2020, we generated revenues of $129.9 million, representing growth of 19% over the three months ended July 31, 2019, which was $109.6 million.

 

   

Revenues from our products increased by 26% for the three months ended July 31, 2020 to $106.9 million from $85.2 million for the three months ended July 31, 2019.

 

   

We experienced a revenue increase of 12% in the Americas region from RCS and voice, an increase of 66% in the EMEA region due to completion of IMS deployments, and an increase of 2% in the APAC region driven by growth in cloud and messaging software, for the three months ended July 31, 2020 compared to the three months ended July 31, 2019.

 

   

Gross profit for the three months ended July 31, 2020 increased to $73.6 million, or 57% of revenue, compared to $60.2 million, or 55% of revenue, for the three months ended July 31, 2019.

 

   

Net profit for the three months ended July 31, 2020 increased by 204% to $2.6 million from $0.84 million for the three months ended July 31, 2019.

Non-GAAP financial highlights include:

 

   

Adjusted EBITDA improved to $40.2 million for the three months ended July 31, 2020 from $26.1 million for the three months ended July 31, 2019. The $14.1 million improvement is mainly due to increase in gross margin.

 

71


Table of Contents
   

Adjusted EBITDA Margin increased to 31% for the three months ended July 31, 2020, compared to 24% for the three months ended July 31, 2019.

For a discussion of these non-GAAP financial measures and a reconciliation of GAAP and non-GAAP financial results, please refer to “Non-GAAP Financial Measures” included elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Impact of COVID-19 on our Results of Operations

The COVID-19 pandemic has had, and continues to have, a significant impact on the world economy and the geographies in which we operate and sell our solutions. While the pandemic’s effect on the macroeconomic environment has yet to be fully determined and could continue for months or years, COVID-19 had a minimal net impact on our revenues for the first and second quarters of 2020. The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic; governmental, business, and individuals’ actions in response to the pandemic; and the impact on economic activity including the possibility of recession or financial market instability. These factors may adversely impact consumer, business, and government spending on technology as well as customers’ ability to pay for our products and services on an ongoing basis. This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions, including investments, receivables, and forward-looking guidance.

Some of the effects of the pandemic on our operations have been as follows:

 

   

While we have not to date experienced a significant net impact on revenues or project milestone billings, we are experiencing some delays in product deployments in selected regions due to the need for on-site access and reduced availability of on-site personnel to receive hardware deliveries. To date these impacts have been mitigated in a short time. If such delays were to continue or were to occur on a significant/material deployment the timing of revenue recognition and related milestone payments could be impacted.

 

   

Our 2018-2019 restructuring plan included estimated costs for the reduction of office space in Israel. However due to the pandemic’s impact on the commercial real estate market in Israel, we adjusted our estimates related to the remaining space that has yet to be sub-leased. The effect of this change resulted in a charge to restructuring costs of $1.8 million in the second quarter of 2020.

 

   

We are also experiencing some increase in the time to close some new agreements as customer personnel are more distributed causing approval processes to be extended. If this were to continue, our revenue streams may be negatively affected.

For a description of the some of the risks of the COVID-19 pandemic that may affect our business, please see “Risk Factors—Risks Relating to Economic Factors and the Global Economy—A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, including the outbreak of the novel strain of coronavirus disease, COVID-19, could adversely affect our business” and “—Natural or man-made disasters and other similar events, including the COVID-19 pandemic, may significantly disrupt our business, and negatively impact our business, financial condition and results of operations.”

 

72


Table of Contents

Key Operating and Financial Performance Metrics

We monitor and evaluate the key operating and financial performance metrics noted below to help us establish our budgets, measure our business operating performance, assess trends and evaluate our performance as compared to that of our competitors. We discuss revenue, gross profit margin, Adjusted EBITDA, Adjusted EBITDA Margin and operating results below under “Components of Net Income.” We discuss cash and cash equivalents and cash flows used in operations below under “Liquidity and Capital Resources.”

 

     Year Ended January 31,  
             2020                     2019          
     (dollars in thousands)  

Revenues

   $ 427,444     $ 393,109  

Gross profit margin

     56.7     58.9

Loss from operations

   $ (10,531   $ (22,094

Adjusted EBITDA(1)

   $ 105,125     $ 97,367  

Adjusted EBITDA margin(1)

     24.6     24.8

Cash and cash equivalents

   $ 78,044     $ 46,362  

Cash flows used in operations

   $ (23,754   $ (29,130

 

     Six months ended July 31,  
             2020                     2019          
     (dollars in thousands)  

Revenues

   $ 234,872     $ 200,687  

Gross profit margin

     55.6     54.9

Profit (Loss) from operations

   $ 17,343     $ (36,572

Adjusted EBITDA(1)

   $ 59,930     $ 39,540  

Adjusted EBITDA margin(1)

     26     20

Cash and cash equivalents

   $ 47,045     $ 21,542  

Cash flows used in operations

   $ (8,995   $ (8,550

 

     Three months ended July 31,  
             2020                     2019          
     (dollars in thousands)  

Revenues

   $ 129,945     $ 109,556  

Gross profit margin

     57     55

Profit from operations

   $ 15,893     $ 3,249  

Adjusted EBITDA(1)

   $ 40,151     $ 26,076  

Adjusted EBITDA margin(1)

     31     24

Cash and cash equivalents

   $ 47,045     $ 21,542  

 

(1)

Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures and for a discussion of these measures please refer to ”—Components of Net Income” and “—Non-GAAP Financial Measures”.

Components of Net Income

Revenue

Revenue from our solutions is generated from product revenue and post-contract support. Product revenue primarily includes licensing of software products, installation services and customizations. Post-contract support revenue is derived primarily from providing technical software support services, unspecified software updates and upgrades to customers on a when and if available

 

73


Table of Contents

basis. Post-contract support revenues are lower during software warranty periods (typically one to three years) and increase after the expiration of such warranty periods. Please refer to Note 1 “Business, Organization and Summary of Significant Accounting Policies” and Note 3 “Revenues” to our consolidated financial statements included elsewhere in this prospectus, for a detailed description of our revenue recognition.

Cost of Revenue

The Company’s cost of revenue primarily consists of compensation and related overhead expenses for personnel involved in the customization of its products, customer delivery and maintenance and professional services, material costs, contractor costs, third-party royalties and software license fees, depreciation of equipment used in operations, and amortization of certain purchased intangible assets.

Gross Profit and Gross Profit Margin

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

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures of our performance. Adjusted EBITDA is defined as net income (loss) before depreciation and amortization, net interest expense, income tax expense (benefit), restructuring expenses, sponsor expenses, offering costs, non-recurring legal contingencies and settlements and foreign exchange (gain) loss. Adjusted EBITDA margin is Adjusted EBITDA expressed as a percentage of our revenues. We believe that Adjusted EBITDA and Adjusted EBITDA margin are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate to our ongoing business performance. Please refer to “—Non-GAAP Financial Measures”.

Operating Expenses

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

Research and Development Expenses.    Research and development expenses primarily consist of salaries and personnel costs for research and development employees. Additional expenses include costs related to development, consulting, travel and other related overhead such as facility costs. Additionally, on a very limited basis, we supplement our own research and development resources with third-party international and domestic subcontractors for software development. We believe continuing to invest in research and development efforts is essential to maintaining our competitive position. We expect research and development expenses to increase in the foreseeable future as we continue to broaden our product portfolio.

Selling, General and Administrative.    Selling, general and administrative expenses primarily consist of salary and personnel costs for administration, finance and accounting, legal, information systems and human resources employees. Additional expenses include consulting and professional fees, settlement of legal claims, travel, insurance, other corporate expenses and expenses related to our acquisitions, including the amortization of intangible assets.

 

74


Table of Contents

Restructuring and Other Expenses.    The Company has developed and implemented restructuring initiatives, primarily in connection with its acquisitions, to improve efficiencies across the organization, reduce operating expenses, and better align its resources to market conditions. As a result of these plans, the Company has recorded restructuring expenses comprised principally of employee severance and associated termination costs related to the reduction of its workforce and office closures.

Operating Results

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

Net Interest Expense

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

Income Taxes

Income taxes are provided using the asset and liability method, such that income taxes (i.e., deferred tax assets, deferred tax liabilities, taxes currently payable/refunds receivable and tax expense/benefit) are recorded based on amounts refundable or payable in the current year and include the results of any difference between U.S. GAAP and tax reporting. Deferred income taxes reflect the tax effect of net operating losses, capital losses and general business credit carryforwards and the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. Valuation allowances are established when management determines that it is more-likely-than-not that some portion or the entire deferred tax asset will not be realized. The financial effect of changes in tax laws or rates is accounted for in the period of enactment. The subsequent realization of net operating loss and general business credit carryforwards acquired in acquisitions accounted for using the acquisition method of accounting is recognized in the consolidated statement of operations.

From time to time, the Company has business transactions in which the tax consequences are uncertain. Significant judgment is required in assessing and estimating the tax consequences of these transactions. The Company prepares and files tax returns based on its interpretation of tax laws. In the normal course of business, the Company’s tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax, interest and penalty assessments.

The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit. If it is not, the second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate resolution. There is considerable judgment involved in determining whether positions taken on the tax return are more-likely-than-not of being sustained and determining the likelihood of various potential settlement outcomes.

The Company adjusts its estimated liability for uncertain tax positions periodically because of new information discovered as a function of ongoing examinations by, and settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations. The combined tax provision of any given year includes adjustments to prior year income tax accruals that are considered appropriate as well as any related estimated interest. The Company’s policy is to recognize, when applicable, interest and penalties on uncertain tax positions as part of income tax (benefit) expense.

 

75


Table of Contents

As part of the Company’s accounting for business combinations, some of the purchase price is allocated to goodwill and intangible assets. Impairment expenses associated with goodwill are generally not tax deductible and will result in an increased effective income tax rate in the fiscal period any impairment is recorded. Amortization expenses associated with acquired intangible assets are generally not tax deductible pursuant to the Company’s existing tax structure; however, deferred taxes have been recorded for non-deductible amortization expenses as a part of the purchase price allocation process. The Company has taken into account the allocation of these identified intangibles among different taxing jurisdictions, including those with nominal or zero percent tax rates, in establishing the related deferred tax liabilities. Under the FASB’s guidance, the income tax benefit from future releases of the acquisition date valuation allowances or income tax contingencies, if any, are reflected in the income tax provision in the consolidated statements of operations, rather than as an adjustment to the purchase price allocation. All deferred tax liabilities and assets in the consolidated balance sheets are classified as non-current.

Stock-Based Compensation

In 2017, the Company adopted the 2017 Long Term Incentive Plan (the “LTIP”) pursuant to which certain employees were offered a right to participate in the equity value creation of the Company in the form of awards of Incentive Rights (“IRs”). Seventy percent of the IRs are subject to time-based graded vesting of a period of three years, subject to the participant’s continued employment through each vesting date, and can only become payable, to the extent vested, upon a Liquidity Event, provided, that any unvested IRs will become fully vested upon a Sale Event if the participant remains employed through the Sale Event. Thirty percent of the IRs vest on the first anniversary of a Sale Event, subject to the participant’s continued employment through such date. A Liquidity Event (as defined in the LTIP) refers to a distribution (other than a tax distribution) to the parent members, including a Sale Event. A Sale Event (as defined in the LTIP) generally includes a change in control event as well as the sale of substantially all of the Company’s assets. If a Sale Event has not occurred prior to the seventh anniversary of the effective date, then the IRs will terminate without the payment of any consideration to the participants. Vested IRs are entitled to participate in a portion of the net cash proceeds received by the holders in excess of the aggregate strike price of such units, initially set as the amount of invested capital by Parent Members and any subsequent increase in the fair value of the Company and its subsidiaries. The IRs can be settled in shares of Company stock, cash or a combination thereof. For additional information regarding the LTIP, please see the section below entitled “Executive Compensation—Compensation of Named Executive Officers—2017 Long Term Incentive Plan.”

The unrecognized compensation cost is approximately $8,706 as of July 31, 2020. Since a Liquidity Event has not occurred as of July 31, 2020, there are no vested IRs that are payable. Further, as of July 31, 2020 a Liquidity Event is not probable and as such no compensation has been recorded since adoption of the LTIP. The consummation of this offering does not constitute a Liquidity Event.

 

76


Table of Contents

Results of Operations

Comparison for fiscal 2019 and 2018

Summary

 

     Year Ended January 31,  
     2020     2019  
     (dollars in thousands)  

Consolidated Statement of Operations Data:

    

Product revenue

   $ 330,880     $ 287,916  

Post-contract revenue

     96,564       105,193  
  

 

 

   

 

 

 

Total revenue

     427,444       393,109  
  

 

 

   

 

 

 

Cost of product revenue

     156,095       129,674  

Cost of post-contract revenue

     29,199       31,920  
  

 

 

   

 

 

 

Cost of revenue

     185,294       161,594  
  

 

 

   

 

 

 

Gross profit

     242,150       231,515  

Gross profit margin

     56.7     58.9

Research and development expenses

     89,353       90,681  

Selling, general and administrative expenses

     154,771       134,017  

Restructuring expenses and other

     8,557       28,911  
  

 

 

   

 

 

 

Total operating expenses

     437,975       415,203  
  

 

 

   

 

 

 

Operating loss

     (10,531     (22,094

Interest (income)

     (388     (205

Interest expense

     52,478       74,216  

Foreign exchange loss and other, net

     14,925       598  
  

 

 

   

 

 

 

Loss before income tax expense

     (77,546     (96,703

Income tax (benefit) expense

     3,497       523  
  

 

 

   

 

 

 

Net loss

   $ (81,043   $ (97,226

Revenue

 

     Year Ended January 31,     Change  
     2020      % of
Total
Revenue
    2019      % of
Total
Revenue
    Amount     %  
     (dollars in thousands)              

Revenue by type:

              

Products

   $ 330,880        77   $ 287,916        73   $ 42,964       15

Post-contract support

     96,564        23     105,193        27     (8,629     -8
  

 

 

      

 

 

      

 

 

   

Total revenue

     427,444        100   $ 393,109        100   $ 34,335       9
  

 

 

      

 

 

      

 

 

   

Revenue by geographic area:

              

Americas

   $ 230,188        54   $ 265,955        68   $ (35,767     -14

Europe, Middle East and Africa

     79,834        19     85,190        21     (5,356     -6

Asia-Pacific

     117,422        27     41,964        11     75,458       180
  

 

 

      

 

 

      

 

 

   

Total revenue

   $ 427,444        100   $ 393,109        100   $ 34,335       9
  

 

 

      

 

 

      

 

 

   

Revenue increased $34.3 million, or 8.7%, to $427.4 million for fiscal 2019 from $393.1 million for fiscal 2018. Product revenue grew $43.0 million, or 14.9%, to $330.9 million in fiscal 2019 from

 

77


Table of Contents

$287.9 million in fiscal 2018, primarily as a result of growth of our core solutions. Our product revenue growth was primarily the result of a significant new customer relationship. Post-contract support revenue decreased $8.6 million, or 8.2%, to $96.6 million in fiscal 2019 from $105.2 million in fiscal 2018. This is mainly from a reduction in legacy messaging deployments that were taken out of service.

Total revenue from the Americas region decreased by $35.8 million, or 13.5%, to $230.2 million for fiscal 2019 from $266.0 million for fiscal 2018. The decrease is mainly from delays in purchase from one of our largest customer. Revenues in the EMEA region decreased $5.4 million, or 6.3%, to $79.8 million in fiscal 2019 from $85.2 million in fiscal 2018. The decrease is mainly due to lower post contract support revenue related to legacy messaging deployments that were taken out of service. Revenues in the APAC region increased $75.5 million, or 179.8%, to $117.4 million in fiscal 2019 from $42.0 million in fiscal 2018. The increase is mainly due to a significant new customer relationship obtained during the period.

Cost of Revenue and Gross Profit

 

     Year Ended January 31,     Change  
     2020      % of
Related
Revenue
    2019      % of
Related
Revenue
    Amount     %  
     (dollars in thousands)              

Cost of revenue

              

Products

   $ 156,095        47.2   $ 129,674        45.0   $ 26,421       20.4

Post-contract support

     29,199        30.2     31,920        30.3     (2,721     -8.5
  

 

 

      

 

 

      

 

 

   

Total

     185,294        43.3   $ 161,594        41.1   $ 23,700       14.7
  

 

 

      

 

 

      

 

 

   

Gross profit

              

Products

   $ 174,785        52.8   $ 158,242        55.0   $ 16,543       10.5

Post-contract support

     67,365        69.8     73,273        69.7     (5,908     -8.1
  

 

 

      

 

 

      

 

 

   

Total

   $ 242,150        56.7   $ 231,515        58.9   $ 10,635       4.6
  

 

 

      

 

 

      

 

 

   

Our cost of revenue increased $23.7 million, or 14.7%, to $185.3 million for fiscal 2019 from $161.6 million in fiscal 2018. Cost of revenue increased mostly due to increase in revenue in fiscal year 2019 and the impact of product mix.

Total gross profit increased $10.6 million, or 4.6%, to $242.2 million for fiscal 2019, from $231.5 million for fiscal 2018. Gross profit margin slightly decreased to 56.7% for fiscal 2019 from 58.9% in fiscal 2018. The increase in gross profit was primarily due to increase in revenue in fiscal year 2019.

Operating Expenses

 

     Year Ended January 31,     Change  
     2020      % of
Revenue
    2019      % of
Revenue
    Amount     %  
     (dollars in thousands)              

Research and development

   $ 89,353        20.9   $ 90,681        23.1   $ (1,328     -1.5

Selling, general and administrative

     154,771        36.2     134,017        34.1     20,754       15.5

Restructuring and other

     8,557        2.0     28,911        7.4     (20,354     -70.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 252,681        59.1     $ 253,609        64.5   $ (4,928     -1.9

 

78


Table of Contents

Research and Development

Research and development expenses decreased slightly by $1.3 million, or 1.5%, for fiscal 2019, compared to the prior fiscal year. The decrease is due to the increase in certain employees being used for 5G projects that we are capitalizing until the projects are generally available for release to our customers.

Selling, General and Administrative

Selling, general and administrative expenses increased by $20.8 million, or 15.5%, for fiscal 2019, compared to the prior fiscal year. The increase was primarily attributable to the settlement of a number of legal proceedings during fiscal 2019 partially offset by a decrease in current costs.

Restructuring expenses and other

Restructuring expenses decreased by $20.4 million, or 70.4%, for fiscal 2019, compared to the prior fiscal year primarily as a result of completion of synergy and integration during fiscal 2019.

Net Interest Expense

 

     Year Ended January 31,     Change  
     2020     % of
Revenue
    2019     % of
Revenue
    Amount     %  
     (dollars in thousands)              

Interest income

   $ (388     -0.1   $ (205     -0.1   $ (183     89.3

Interest expense

     52,478       12.3     74,216       18.9     (21,738     -29.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net interest expense

   $ 52,090       12.2   $ 74,011       18.8   $ (21,921     -29.6

Interest expense decreased to $52.5 million or 29.3%, in fiscal 2019 from $74.2 million in fiscal 2018 primarily due to the refinancing of debt that occurred in May 2018 for which a full year of the impact occurred in fiscal 2019.

Foreign Exchange and other

Foreign exchange loss increased by $14.3 million, to $14.9 million for fiscal 2019 from a loss of $0.6 million for fiscal 2018. This is due to currency fluctuations during the respective periods, primarily from the BRL, EUR and ILS currencies and an increase of $3.6 million in factoring expenses in fiscal 2019.

Income Taxes

Income tax expense was $3.5 million for fiscal year ended January 31, 2020 compared to income tax expenses of $0.5 million for January 31, 2019. The $3.0 million difference in tax provision for fiscal 2019 versus fiscal 2018 is primarily due to difference in the loss before tax multiplied by the U.K. statutory tax rate $3.6 million, disallowed interest and foreign exchange on intercompany loans $1.4 million, net tax losses not benefitted $(9.0) million, differences between the U.K. statutory tax rate and non-U.K. jurisdictions $1.8 million, withholding taxes $1.0 million, transaction costs $1.3 million and other permanent items and tax adjustments $2.7 million.

For the fiscal year ended January 31, 2020 and 2019, the tax provisions computed at the U.K. statutory tax rate were different than the tax provisions recorded primarily due to increases in valuation allowances, differences between the U.K. statutory rate and the rates in non-U.K. jurisdictions, the impact of non-deductible expenses, increases in unrecognized tax benefits and other permanent items and tax adjustments.

 

79


Table of Contents

Comparison for six months ended July 31, 2020 and 2019

Summary

 

     Six months ended July 31,  
             2020                     2019          
     (dollars in thousands)  

Consolidated Statement of Operations Data:

    

Product revenue

   $ 188,896     $ 150,799  

Post-contract revenue

     45,976       49,888  
  

 

 

   

 

 

 

Total revenue

     234,872       200,687  
  

 

 

   

 

 

 

Cost of product revenue

     86,421       76,000  

Cost of post-contract revenue

     17,820       14,509  
  

 

 

   

 

 

 

Cost of revenue

     104,241       90,509  
  

 

 

   

 

 

 

Gross profit

     130,631       110,178  

Gross profit margin

     56     55

Research and development expenses

     43,319       45,908  

Selling, general and administrative expenses

     67,807       95,239  

Restructuring expenses and other

     2,162       5,603  
  

 

 

   

 

 

 

Total operating expenses

     217,529       237,259  
  

 

 

   

 

 

 

Operating Profit (loss)

     17,343       (36,572

Interest (income)

     (907     (189

Interest expense

     22,619       26,380  

Foreign exchange loss (gain) and other, net

     (4,523     (8,186
  

 

 

   

 

 

 

Profit (loss) before income taxes

     154       (54,577

Income tax (benefit) expense

     5,711       (336
  

 

 

   

 

 

 

Net profit (loss)

   $ (5,557   $ (54,241
  

 

 

   

 

 

 

Revenue

 

     Six months ended July 31,     Change  
     2020      % of
Total
Revenue
    2019      % of
Total
Revenue
    Amount     %  
     (dollars in thousands)              

Revenue by type:

              

Products

   $ 188,896        80   $ 150,799        75   $ 38,097       25

Post-contract support

     45,976        20     49,888        25     (3,912     -8
  

 

 

      

 

 

      

 

 

   

Total revenue

     234,872        100   $ 200,687        100   $ 34,185       17
  

 

 

      

 

 

      

 

 

   

Revenue by geographic area:

              

Americas

   $ 127,778        54   $ 118,394        59   $ 9,384       8

Europe, Middle East and Africa

     55,742        24     39,225        20     16,517       42

Asia-Pacific

     51,352        22     43,068        21     8,284       19
  

 

 

      

 

 

      

 

 

   

Total revenue

   $ 234,872        100   $ 200,687        100   $ 34,185       17
  

 

 

      

 

 

      

 

 

   

Revenue increased by $34.1 million, or 17%, to $234.8 million for the six months ended July 31, 2020 from $200.7 million for the six months ended July 31, 2019. Product revenue grew by $38.0 million, or 25%, to $188.8 million for the six months ended July 31, 2020 from $150.8 million for the six months ended July 31, 2019, primarily as a result of growth of our core solutions. Our product

 

80


Table of Contents

revenue growth was the result of an increase in bookings period over period. Post-contract support revenue decreased $3.9 million, or -8%, to $45.9 million for the six months ended July 31, 2020 from $49.8 million for the six months ended July 31, 2019. This is mainly from a reduction in legacy messaging deployments that were taken out of service.

Total revenue from the Americas region increased by $9.3 million, or 8%, to $127.7 million for the six months ended July 31, 2020 from $118.4 million for the six months ended July 31, 2019. Revenues in the EMEA region increased $16.5 million, or 42%, to $55.7 million for the six months ended July 31, 2020 from $39.2 million for the six months ended July 31, 2019. Revenues in the APAC region increased $8.2 million, or 19%, to $51.3 million for the six months ended July 31, 2020 from $43.0 million for the six months ended July 31, 2019. The increase in revenue for all regions was mainly a result of an increase in bookings period over period.

Cost of Revenue and Gross Profit

 

     Six months ended July 31,     Change  
     2020      % of
Related
Revenue
    2019      % of
Related
Revenue
    Amount     %  
     (dollars in thousands)              

Cost of revenue

              

Products

   $ 86,421        46   $ 76,000        50   $ 10,421       14

Post-contract support

     17,820        39     14,509        29     3,311       23
  

 

 

      

 

 

      

 

 

   

Total

     104,241        44   $ 90,509        45   $ 13,732       15
  

 

 

      

 

 

      

 

 

   

Gross profit

              

Products

   $ 102,475        54   $ 74,799        50   $ 27,676       37

Post-contract support

     28,156        61     35,379        71     (7,223     -20
  

 

 

      

 

 

      

 

 

   

Total

   $ 130,631        56   $ 110,178        55   $ 20,453       19
  

 

 

      

 

 

      

 

 

   

Our cost of revenue increased by $13.7 million, or 15.2%, to $104.2 million for the six months ended July 31, 2020 from $90.5 million for the six months ended July 31, 2019. Cost of revenue increased in accordance with increase in revenue.

Total gross profit increased $20.4 million, or 18.6%, to $130.6 million for the six months ended July 31, 2020, from $110.1 million for the six months ended July 31, 2019. Gross profit margin slightly increased to 55.6% for the six months ended July 31, 2020 from 54.9% for the six months ended July 31, 2019. The increase in gross profit was primarily due to the increase in revenue.

Operating Expenses

 

     Six months ended July 31,     Change  
     2020      % of
Revenue
    2019      % of
Revenue
    Amount     %  
     (dollars in thousands)              

Research and development

   $ 43,319        18   $ 45,908        23   $ (2,589     -6

Selling, general and administrative

     67,807        29     95,239        47     (27,432     -29

Restructuring and other

     2,162        1     5,603        3     (3,441     -61
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 113,288        48   $ 146,750        73   $ (33,462     -23

Research and Development

Research and development expenses decreased slightly by $2.6 million, or 6%, for the six months ended July 31, 2020, compared to the six months ended July 31, 2019. This is due to the

 

81


Table of Contents

increase in certain employees being used for 5G projects that we are capitalizing until the projects are generally available for release to our customers.

Selling, General and Administrative

Selling, general and administrative expenses decreased by $27.4 million, or 29%, for the six months ended July 31, 2020, compared to the six months ended July 31, 2019. The decrease was primarily attributable to the settlement of number of legal proceedings during 2019.

Restructuring expenses and other

Restructuring expenses decreased by $3.4 million, or 61%, for the six months ended July 31, 2020, compared to the six months ended July 31, 2019. The decrease results from restructuring plans nearing completion; leased facilities being the exception.

Net Interest Expense

 

     Six months ended July 31,     Change  
     2020     % of
Revenue
    2019     % of
Revenue
    Amount     %  
     (dollars in thousands)              

Interest income

   $ (907     0   $ (189     0   $ (718     380

Interest expense

     22,619       10     26,380       13     (3,761     -14
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net interest expense

   $ 21,712       9   $ 26,191       13   $ (4,479     -17

Interest expense decreased by $3.7 million or 14%, for the six months ended July 31, 2020 from $26.4 million for the six months ended July 31, 2019 primarily due to decrease in the credit agreement interest rate following the reduction of the LIBOR rates during the six months ended July 31, 2020.

Foreign Exchange and other

Foreign exchange gain decreased by $3.6 million, to $4.5 million for the six months ended July 31, 2020 from a gain of $8.1 million for the six months ended July 31, 2019. This is due to currency fluctuations during the respective periods, primarily from the GBP, EUR and BRL currencies, slightly offset by a decrease of $0.8 million in factoring expenses.

Income Taxes

The Company recorded an income tax expense of $5.7 million for the six months ended July 31, 2020, compared with an income tax benefit of $0.3 million for the six months ended January 31, 2019. The $6.0 million difference in tax provision for the six month period ended July 31, 2020 versus the same period in the prior year is primarily due to difference in the loss before tax multiplied by the U.K. statutory tax rate $10.4 million, disallowed interest and foreign exchange on intercompany loans $(2.0) million, tax losses not benefitted $(7.3) million, impact of unrecognized tax benefits $1.3 million, differences between the U.K. statutory tax rate and non-U.K. jurisdictions $1.5 million, withholding taxes $0.5 million, other permanent items and tax adjustments $(0.5) million and U.K cancellation of the 2% statutory tax rate reduction $2.3 million.

For the six months ended July 31, 2020 and 2019, the tax provisions computed at the U.K. statutory tax rate were different than the tax provisions recorded primarily attributable to increases in valuation allowances against increases in deferred tax assets in jurisdictions with historical losses, statutory tax rate differences between the U.K. and non-U.K. jurisdictions, the impact of non-deductible expenses, withholding taxes and certain tax contingencies. During the six months ended July 31, 2020, the Company also recognized the impact of the cancelled 2% U.K. statutory tax rate reduction enacted July, 2020. A $2.3 million charge was recorded during the period to account for this change.

 

82


Table of Contents

Comparison for three months ended July 31, 2020 and 2019

Summary

 

     Three months ended July 31,  
             2020                     2019          
     (dollars in thousands)  

Consolidated Statement of Operations Data:

    

Product revenue

   $ 106,990     $ 85,217  

Post-contract revenue

     22,955       24,339  
  

 

 

   

 

 

 

Total revenue

     129,945       109,556  
  

 

 

   

 

 

 

Cost of product revenue

     47,006       42,223  

Cost of post-contract revenue

     9,257       7,128  
  

 

 

   

 

 

 

Cost of revenue

     56,263       49,351  
  

 

 

   

 

 

 

Gross profit

     73,682       60,205  

Gross profit margin

     57     55

Research and development expenses

     22,046       21,641  

Selling, general and administrative expenses

     33,641       34,278  

Restructuring expenses and other

     2,102       1,037  
  

 

 

   

 

 

 

Total operating expenses

     114,052       106,307  
  

 

 

   

 

 

 

Operating Profit

     15,893       3,249  

Interest (income)

     (380     (53

Interest expense

     10,976       13,286  

Foreign exchange loss (gain) and other, net

     411       (9,818
  

 

 

   

 

 

 

Profit (loss) before income taxes

     4,886       (166

Income tax (benefit) expense

     2,321       (1,009
  

 

 

   

 

 

 

Net profit (loss)

   $ 2,565     $ 843  
  

 

 

   

 

 

 

Revenue

 

     Three months ended July 31,     Change  
     2020      % of
Total
Revenue
    2019      % of
Total
Revenue
    Amount     %  
     (dollars in thousands)              

Revenue by type:

              

Products

   $ 106,990        82   $ 85,217        78   $ 21,773       26

Post-contract support

     22,955        18     24,339        22     (1,384     -6
  

 

 

      

 

 

      

 

 

   

Total revenue

     129,945        100   $ 109,556        100   $ 20,389       19
  

 

 

      

 

 

      

 

 

   

Revenue by geographic area:

              

Americas

   $ 73,892        57   $ 66,191        60   $ 7,701       12

Europe, Middle East and Africa

     30,626        23     18,399        17     12,227       66

Asia-Pacific

     25,427        20     24,966        23     461       2
  

 

 

      

 

 

      

 

 

   

Total revenue

   $ 129,945        100   $ 109,556        100   $ 20,389       19
  

 

 

      

 

 

      

 

 

   

Revenue increased by $20.3 million, or 19%, to $129.9 million for the three months ended July 31, 2020 from $109.5 million for the three months ended July 31, 2019, primarily as a result of growth of our core solutions. Product revenue grew by $21.7 million, or 26%, to $106.9 million for the

 

83


Table of Contents

three months ended July 31, 2020 from $85.2 million for the three months ended July 31, 2019. Our product revenue growth was the result of an increase in bookings. Post-contract support revenue decreased $1.3 million, or 6%, to $22.9 million for the three months ended July 31, 2020 from $24.3 million for the three months ended July 31, 2019. This is mainly from a reduction in legacy messaging deployments that were taken out of service.

Total revenue from the Americas region increased by $7.7 million, or 12%, to $73.8 million for the three months ended July 31, 2020 from $66.1 million for the three months ended July 31, 2019. Revenues in the EMEA region increased $12.2 million, or 66%, to $30.6 million for the three months ended July 31, 2020 from $18.4 million for the three months ended July 31, 2019. Revenues in the APAC region increased $0.5 million, or 2%, to $25.4 million for the three months ended July 31, 2020 from $24.9 million for the three months ended July 31, 2019. The increases in revenue across all regions is mainly a result of increase in bookings period over period.

Cost of Revenue and Gross Profit

 

     Three months ended July 31,     Change  
     2020      % of
Related
Revenue
    2019      % of
Related
Revenue
    Amount     %  
     (dollars in thousands)              

Cost of revenue

              

Products

   $ 47,006        44   $ 42,223        50   $ 4,783       11

Post-contract support

     9,257        40     7,128        29     2,129       30
  

 

 

      

 

 

      

 

 

   

Total

     56,263        43   $ 49,351        45   $ 6,912       14
  

 

 

      

 

 

      

 

 

   

Gross profit

              

Products

   $ 59,984        56   $ 42,994        50   $ 16,990       40

Post-contract support

     13,698        60     17,211        71     (3,513     -20
  

 

 

      

 

 

      

 

 

   

Total

   $ 73,682        57   $ 60,205        55   $ 13,477       22
  

 

 

      

 

 

      

 

 

   

Our cost of revenue increased by $6.9 million, or 14.0%, to $56.2 million for the three months ended July 31, 2020 from $49.3 million for the three months ended July 31, 2019. Cost of revenue increased mainly due to the increase in revenue for the three months ended July 31, 2020.

Total gross profit increased $13.4 million, or 22%, to $73.6 million for the three months ended July 31, 2020, from $60.2 million for the three months ended July 31, 2019. Gross profit margin slightly increased to 57% for the three months ended July 31, 2020 from 55% for the three months ended July 31, 2019. The increase in gross profit was primarily due to increase in revenue for the three months ended July 31, 2020.

Operating Expenses

 

     Three months ended July 31,     Change  
     2020      % of
Revenue
    2019      % of
Revenue
    Amount      %  
     (dollars in thousands)               

Research and development

   $ 22,046        17   $ 21,641        20   $ 405        2

Selling, general and administrative

     33,641        26     34,278        31     -637        -2

Restructuring and other

     2,102        2     1,037        1     1,065        103
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 57,789        44   $ 56,956        52   $ 833        1

 

84


Table of Contents

Research and Development

Research and development expenses increased slightly by $0.4 million, or 2%, for the three months ended July 31, 2020, compared to the three months ended July 31, 2019. The increase was primarily attributable to an increase in headcount and subcontractors partially offset by the increase in certain employees being used for 5G projects that we are capitalizing until the projects are generally available for release to our customers.

Selling, General and Administrative

Selling, general and administrative expenses decreased by $0.6 million, or 2%, for the three months ended July 31, 2020, compared to the three months ended July 31, 2019. The decrease is mainly due to cost savings partially offset by the write-off of deferred offering costs.

Restructuring expenses and other

Restructuring expenses increased by $1 million, or 103%, for the three months ended July 31, 2020, compared to the three months ended July 31, 2019 primarily as a result of the change in estimate in the amount of sublease income to be received as a result of decreased market rates in the commercial real estate market.

Net Interest Expense

 

     Three months ended July 31,     Change  
     2020     % of
Revenue
    2019     % of
Revenue
    Amount     %  
     (dollars in thousands)              

Interest income

   $ (380     0   $ (53     0   $ (327     617

Interest expense

     10,976       8     13,286       12     (2,310     -17
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net interest expense

   $ 10,596       8   $ 13,233       12   $ (2,637     -20

Interest expense decreased by $2.3 million or 17%, for the three months ended July 31, 2020 from $13.2 million for the three months ended July 31, 2019 primarily due to the decrease in the credit agreement interest rate following the reduction of the LIBOR rates during the three months ended July 31, 2020.

Foreign Exchange and other

Foreign exchange gain decreased by $10.2 million, to ($0.4) million for the three months ended July 31, 2020 from a gain of $9.8 million for the three months ended July 31, 2019. The decrease was primarily as a result of currency fluctuations during the respective periods, primarily from the GBP, EUR currencies as well as an increase of $0.5 million in factoring expenses.

Income Taxes

The Company recorded an income tax expense of $2.3 million for the three months ended July 31, 2020 compared with an income tax benefit of $1.0 million for the three months ended July 31, 2019. The $3.3 million difference in tax provision for the 3 month period ended July 31, 2020 versus the same period in the prior year is primarily due to difference in the loss before tax multiplied by the U.K. statutory tax rate $1.0 million, disallowed interest and foreign exchange on intercompany loans $(1.7) million, tax losses not benefitted-$(0.5) million, impact of unrecognized tax benefits $1.1 million, differences between the U.K. statutory tax rate and tax in foreign jurisdictions $0.7 million, U.K cancellation of the 2% statutory tax rate reduction $2.3 million and withholding taxes $0.4 million.

 

85


Table of Contents

For the three months ended July 31, 2020 and 2019, the tax provisions computed at the statutory tax rate were different than the tax provisions recorded primarily attributable to increases in valuation allowances against increases in deferred tax assets in jurisdictions with historical losses, statutory tax rate differences between the U.K. and non-U.K. jurisdictions, the impact of non-deductible expenses, withholding taxes and certain tax contingencies. During the three months ended July 31, 2020, the Company also recognized the impact of the cancelled 2% U.K. statutory tax rate reduction effective July 2020. A $2.3 million charge was recorded during the period to account for this change.

Liquidity and Capital Resources

Liquidity

Our primary sources of liquidity are available cash and cash equivalents, cash flows from operations, incurrence of additional indebtedness under our 2018 Credit Agreement or proceeds from the issuance of equity or debt securities. We believe our available cash and cash equivalents will be sufficient to meet our short-term liquidity needs for at least the next twelve months. Our ability to make scheduled payments of principal, pay interest on, or refinance our indebtedness, pay dividends or fund planned capital expenditures will depend on our ability to generate cash in the future. This ability is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

In December 2019, Silver Rock Financial LP invested $125 million into the Company. After January 31, 2020, Silver Rock and other investors invested an additional $25 million into the Company.

As of January 31, 2020, our available liquidity totaled $138.0 million which was comprised of undrawn amounts on our Revolving Credit Facility of $60.0 million and available cash as of January 31, 2020 represented by our total cash and cash equivalents of $78.0 million. As of July 31, 2020, our available liquidity totaled $107.0 million which was comprised of undrawn amounts on our Revolving Credit Facility of $60.0 million and available cash as of July 31, 2020 represented by our total cash and cash equivalents of $47.0 million.

In August 2020, Mavenir Systems Inc., the Company’s wholly-owned U.S. subsidiary, entered into an Incremental Facility Agreement, resulting in a $20 million loan raise (“2020 Incremental Term Loan”) under the 2018 Credit Facilities. The 2020 Incremental Term Loan is an add-on to 2018 Term Loans, and is treated as one tranche. The effective interest rate, maturity and other terms and conditions of the 2018 Term Loans also apply to the 2020 Incremental Term Loan. The purpose of the loan raise was to accelerate the Company’s product development, which may include possible acquisitions.

Concentration of Credit Risk

Financial instruments, which potentially expose the Company to credit risk, consist primarily of accounts receivable. The Company believes that the financial institutions that hold its cash and liquid investments are financially sound and accordingly minimal credit risk exists with respect to these balances.

A significant portion of accounts receivable are with Wireless Service Providers. The Company manages credit risk on trade accounts receivable by performing ongoing credit evaluations of its customers’ financial condition and limiting the extension of credit when deemed necessary.

In fiscal 2019 and 2018, our largest customer accounted for 30% and 36% of our revenue, respectively. Our top 10 largest customers accounted for 71% and 69% of our revenue in fiscal 2019 and 2018, respectively.

 

86


Table of Contents

In the three months ended July 31, 2020 and 2019, our largest customer accounted for 40% and 39% of our revenue. Our top 10 largest customers accounted for 75% and 75% of our revenue during the three months ended July 31, 2020 and 2019, respectively.

In the six months ended July 31, 2020 and 2019, our largest customer accounted for 36% and 39% of our revenue. Our top 10 largest customers accounted for 71% and 71% of our revenue during the six months ended July 31, 2020 and 2019, respectively.

From time to time, the Company sells some of its accounts receivable to third parties at a discount in return for cash. The factoring is executed on a non-recourse basis. The sale of accounts receivable was recorded by the Company as a sale transaction. During fiscal 2019 and 2018, the Company sold face amounts of $221.7 million and $148.0 million, respectively, of these receivables. During the three months ended July 31, 2020 and 2019, the Company sold face amounts of $63.3 million and $25.4 million of these receivables. During the six months ended July 31, 2020 and 2019, the Company sold face amounts of $63.3 million and $105.6 million of these receivables.

Cash Flows for Fiscal 2019 and Fiscal 2018

The following table summarizes certain elements of the statements of cash flows for fiscal 2019 and 2018. The following table summarizes our cash flows:

 

     Years Ended
January 31,
 
     2020     2019  
     (in thousands)  

Cash flows from operating activities

   $ (23,754   $ (29,130

Cash flows from investing activities

     (61,827     (28,220

Cash flows from financing activities

     115,858       50,998  

Operating Activities

Cash flows used in operating activities for fiscal 2019 totaled $23.7 million compared to $29.1 million for the prior year. The change was primarily due to the overall reduction in net loss from the year from $97.2 million for fiscal 2018 to $81.0 million for fiscal 2019 as detailed in the results of operations. In addition, there was a change in accounts payable and accrued expenses of $33.7 million resulting from the settlement of a number of legal proceedings, partially offset by an overall change of $16.3 million in accounts receivable and deferred revenue compared to prior year due to timing, factoring of receivables, and improved collection of receivables.

Investing Activities

Cash flows used in investing activities for fiscal 2019 totaled $61.8 million compared to $28.2 million for the prior fiscal year. The change was primarily due to higher capitalization of software development costs in fiscal 2019 and a $15.0 million loan to our parent company.

Financing Activities

Cash flows provided by financing activities for fiscal 2019 totaled $115.9 million compared to $51.0 million for the prior year end. The $64.9 million increase in cash flows in fiscal 2019 was primarily due to the $125 million investment by Silver Rock Financial LP.

 

87


Table of Contents

Cash Flows for the Six Months Ended July 31, 2020 and 2019

The following table summarizes certain elements of the statements of cash flows for the six months ended July 31, 2020 and 2019. The following table summarizes our cash flows:

 

     Six months ended
July 31,
 
     2020     2019  
     (in thousands)  

Cash flows from operating activities

   $ (8,995   $ (8,550

Cash flows from investing activities

     (39,406     (19,017

Cash flows from financing activities

     22,250       2,250  

Operating Activities

Cash flows used in operating activities for the six months ended July 31, 2020 totaled $9.0 million compared to $8.5 million for the six months ended July 31, 2019. The small decrease is a result of legal settlement payments, offset by increased profitability period over period.

Investing Activities

Cash flows used in investing activities for the six months ended July 31, 2020 totaled to $39.4 million compared to $19.0 million for the six months ended July 31, 2019. The change was primarily due higher capitalization of software development costs for the six months ended July 31, 2020 compared to the six months ended July 31, 2019.

Financing Activities

Cash flows provided by financing activities for the six months ended July 31, 2020 totaled $22.3 million compared to $2.3 million for the six months ended July 31, 2019. The $20 million increase in cash flows for the six months ended July 31, 2020 was primarily due to the $25 million of capital contribution from Silver Rock Financial LP, partially offset by $5 million Revolving credit facility borrowings during the six months ended July 31, 2019.

Capital Expenditures

We make significant, targeted investments to add new technologies and maintain and modernize our facilities. Capital expenditures for property and equipment were $13.4 million and $15.7 million for fiscal 2019 and 2018, respectively. Capital expenditures for property and equipment were $10.5 million and $7.8 million for the six months ended July 31, 2020 and 2019, respectively.

Capitalized software development costs were $33.5 million and $11.2 million for the fiscal 2019 and 2018, respectively. Capitalized software development costs were $28.9 million and $11.2 million for the six months ended July 31, 2020 and 2019, respectively.

Capital Resources

As of January 31, 2020, we had the following debt arrangements:

 

   

$60.0 million Revolving Credit Facility

 

   

$540.4 million 2018 Term Loans

As of July 31, 2020, we had the following debt arrangements:

 

   

$60.0 million Revolving Credit Facility

 

   

$537.6 million 2018 Term Loans

 

88


Table of Contents

As of July 31, 2020 and January 31, 2020, amounts outstanding under our 2018 Credit Agreement consisted of $537.6 million and $540.4 million under the 2018 Term Loans and no amounts from our Revolving Credit Facility were outstanding. For additional information regarding our 2018 Credit Agreement, see “Description of Certain Indebtedness” and Note 10 “Debt” to our consolidated financial statements included elsewhere in this prospectus.

Contractual Obligations and Contingencies

The following table provides a summary of our commitments and contractual obligations for debt principal payments and gross lease payment obligations under non-cancelable leases as of January 31, 2020:

 

     Payments Due by Period  
     Total      Less than
1 Year
     2-3
Years
     4-5
Years
     After
5 Years
 
     (in thousands)  

Long-term debt obligations

   $ 540,375      $ 5,500      $ 11,000      $ 11,000      $ 512,875  

Operating leases

     56,092        11,870        19,520        16,959        7,743  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 596,467      $ 17,370      $ 30,520      $ 27,959      $ 520,618  

The following table provides a summary of our commitments and contractual obligations for debt and gross lease payment obligations under non-cancelable leases as of July 31, 2020:

 

     Payments Due by Period  
     Total      Less than
1 Year
     2-3
Years
     4-5
Years
     After
5 Years
 
     (in thousands)  

Long-term debt obligations

   $ 522,610      $ 2,750      $ 11,000      $ 11,000      $ 497,860  

Operating leases

     50,734        5,905        20,342        16,956        7,531  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 573,344      $ 8,655      $ 31,342      $ 27,956      $ 505,391  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Seasonality

Sales in our products business are affected by seasonality in the spending cycles of Wireless Service Providers with generally higher sales in the fourth quarter, followed by generally lower sales in the first quarter. In additional to normal industry seasonality, there are normal peaks and troughs in the deployment of large contracts.

Off-Balance Sheet Arrangements

As of July 31, 2020 and January 31, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Non-GAAP Financial Measures

In addition to our GAAP operating results, we use certain non-GAAP financial measures when planning, monitoring, and evaluating our performance. We consider these non-GAAP financial measures to be useful metrics for management and investors to facilitate operating performance comparisons from period to period by excluding differences caused by depreciation and amortization, net interest expense, income tax expense (benefit), restructuring expenses, acquisition and integration

 

89


Table of Contents

costs, sponsor expenses, offering costs, non-recurring legal contingencies and settlements and foreign exchange (gain) loss. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for net income recognized in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate such measures differently, which reduces its usefulness as a comparative measure. We believe that these non-GAAP measures reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business.

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures and, while useful in evaluating our performance, are not meant as a substitute for net income (loss) or other measures of profitability, in each case as recognized in accordance with GAAP, but rather should be evaluated in conjunction with such data. Other companies may calculate these measures differently, which reduces the usefulness of any such measure as a comparative measure.

In reporting non-GAAP measures in the future, we may make other adjustments for expenses and gains we do not consider reflective of core operating performance in a particular period. After this offering, we may disclose other non-GAAP operating measures if we believe that such a presentation would be more helpful for investors to evaluate our operating condition by excluding additional information. For example, for the three months ended July 31, 2020 and 2019, we recorded no expense for stock-based compensation as these expenses would not be recorded until a Sale Event or a Liquidity Event is considered probable. In the future, we expect to record such stock-based compensation as an expense and to include the amount of such expenses as an item to add back into net income (loss) when determining Adjusted EBITDA as adjusted by such amounts.

Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measure (unaudited)

 

     Year Ended January 31,  
     2020     2019  
     (In thousands)  

Net income (loss)—GAAP

   $ (81,043   $ (97,226
  

 

 

   

 

 

 

Interest (income)

     (388     (205

Interest expense

     52,478       74,216  

Income tax (benefit) expense

     3,497       523  

Depreciation and amortization

     73,012       74,205  

Foreign currency (gain) / loss

     14,925       598  

Restructuring and other

     8,557       28,911  

Acquisition and integration costs

           13,748  

Legal Contingencies and settlements

     31,919        

Siris Capital sponsor expenses

     2,168       2,597  
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 105,125     $ 97,367  
  

 

 

   

 

 

 

Revenues

   $ 427,444     $ 393,109  

Adjusted EBITDA Margin

     25     25

 

90


Table of Contents
     Six months ended July 31,  
             2020                     2019          
     (In thousands)  

Net income (loss)—GAAP

   $ (5,557   $ (54,241
  

 

 

   

 

 

 

Interest (income)

     (907     (189

Interest expense

     22,619       26,380  

Income tax (benefit) expense

     5,711       (336

Depreciation and amortization

     35,641       37,305  

Foreign currency (gain) / loss

     (4,523     (8,186

Restructuring and other

     2,162       5,603  

Offering costs

     2,697       443  

Legal contingencies and settlements

     1,516       32,287  

Siris Capital sponsor expenses

     571       474  
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 59,930     $ 39,540  
  

 

 

   

 

 

 

Revenues

   $ 234,872     $ 200,687  

Adjusted EBITDA Margin

     26     20

 

     Three months ended July 31,  
             2020                     2019          
     (In thousands)  

Net income (loss)—GAAP

   $ 2,565     $ 843  
  

 

 

   

 

 

 

Interest (income)

     (380     (53

Interest expense

     10,976       13,286  

Income tax (benefit) expense

     2,321       (1,009

Depreciation and amortization

     18,015       18,744  

Foreign currency (gain) / loss

     411       (9,818

Restructuring and other

     2,102       1,037  

Offering costs

     2,697       443  

Legal contingencies and settlements

     1,165       2,426  

Siris Capital sponsor expenses

     279       177  
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 40,151     $ 26,076  
  

 

 

   

 

 

 

Revenues

   $ 129,945     $ 109,558  

Adjusted EBITDA Margin

     31     24

Implications of Being an Emerging Growth Company

While we are an emerging growth company, as defined under the JOBS Act, we are subject to certain reduced public company reporting requirements. For example, until we are no longer an emerging growth company, we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and we will be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the independent registered public accounting firm’s report on financial statements. We could remain an emerging growth company until as late as January 31, 2025 (the year ended January 31, following the fifth anniversary of our initial public offering).

 

91


Table of Contents

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk related to inflation, changes in interest rates and foreign currency exchange rates. We do not use derivative financial instruments for speculative, hedging or trading purposes, although in the future we may enter into interest rate or exchange rate hedging arrangements to manage the risks described below.

Inflation Risk

We may be exposed to inflation risk in that some of our international operations, particularly in developing countries, may be subject to increased costs as a result of higher inflation. Because we compete with other solutions providers on a global basis, our customers would not expect, and may not be willing, to pay for any cost increases from inflation. Therefore, our future margins could be impacted. Where competitively possible we attempt to offset some of this risk with contracted price adjustments.

Interest Rate Risk

Cash held in our operating business units is generally available for local operations. Most of our cash is retained by our U.S. business. The majority of these funds are in low to zero interest bearing bank accounts. Our borrowings under our Credit Agreement are at variable rates based on the U.S. London Inter-Bank Offered Rate (LIBOR) and Prime Rate and, as a result, increases in interest rates would generally result in increased interest expense on outstanding borrowings.

In July 2017, the Financial Conduct Authority announced its intention to phase out LIBOR by the end of 2021. It is not possible to predict the effect of any changes in the methods by which LIBOR is determined or regulatory activity related to LIBOR’s phaseout. If a published U.S. LIBOR is unavailable, the interest rates on our borrowings indexed to LIBOR will be determined using various alternative methods set forth in our Credit Agreement. Any of these proposals or consequences could have a material adverse effect on our interest expenses. For further information on the risks associated with the elimination of LIBOR, please see “Risk Factors—The elimination of LIBOR could adversely affect our business, financial condition, results of operations and prospects.”

Foreign Currency Exchange Risk

We have significant international operations with subsidiaries and operations in numerous jurisdictions and as such we face exposure to adverse movements in foreign currency exchange rates. While these exposures may change over time as business practices evolve, adverse movements in foreign currency exchange rates may have a material adverse impact on our financial results. Our primary exposures have been related to non-U.S. dollar-denominated net operating income or net operating losses. As a consequence, our results of operations would generally be adversely affected by an increase in the value of the U.S. dollar relative to the currencies of the countries in which we are profitable and a decrease in the value of the U.S. dollar relative to the currencies of the countries in which we are not profitable. However, based on the locations of our international operations and the amount of our operating results denominated in foreign currencies, we would not expect a 10% change in the value of the U.S. dollar from rates as of July 31, 2020 and January 31, 2020, to have a material effect on our financial position or results of operations. If and when our international business grows substantially, relative to our U.S. business, the net exposure is likely to increase as will the impact of foreign exchange rate movements.

Foreign currency transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Intercompany foreign currency transactions that are not of a long-term investment nature affect functional currency cash flows and are accounted for as currency transaction

 

92


Table of Contents

gains and losses and included in determining net income (loss). Intercompany transactions are considered to be of a long-term investment nature if settlement is not planned or anticipated in the foreseeable future.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 “Recent Accounting Pronouncements” to our consolidated annual financial statements included elsewhere in this prospectus, we believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our consolidated financial statements.

Revenue Recognition

We derive and report our revenue in two categories: (a) product revenue, including licensing of software products, installation services and customizations, and COTS hardware (which includes software that works together with the hardware to deliver the software’s essential functionality), and (b) Post-contract support. We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We generate all our revenue from contracts with customers.

Effective February 1, 2018, we elected to early adopt Accounting Standards Codification 606, Revenue from Contracts with Customers, or ASC 606, on a modified retrospective basis. Our revenue recognition policies require us to make significant judgments and estimates.

Our contracts with customers often include promises to transfer multiple performance obligations. In these contracts, we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined.

We allocate the transaction price to each distinct performance obligation based on the stand-alone selling price for each performance obligation. Judgment is required to determine the stand-alone selling price for each distinct performance obligation. We estimate the stand-alone selling price of the customized software solution based on a cost-plus-margin approach and for the post-contract support on an actual renewal rate basis.

We then look to how control transfers to the customer in order to determine the timing of revenue recognition. In applying our revenue recognition policy, we must determine which portions of our revenue are recognized at a point in time and which portions must be deferred and recognized over time. We recognize revenue from post-contract support performance obligations, which represents a stand ready obligation to provide service to a customer, ratably over the contractual term, which is usually one year.

 

93


Table of Contents

Some of our customer contracts, which require significant customization of the software solution to meet the requirements specified by that customer result in the transfer of control of the applicable performance obligation over time. Such contract pricing is stated as a fixed amount and generally results in the transfer of control of the applicable performance obligation over time. We recognize revenue based on the proportion of labor efforts expended to the total efforts expected to complete the performance obligation. Due to the nature of the work performed in these arrangements, the estimation is complex, subject to many variables and requires significant judgment. Contracts that do not provide significant services of integration and customization are recognized at a point in time, upon acceptance.

We have a standard quarterly process in which management reviews the progress and performance of our significant contracts. As part of this process, management reviews include, but are not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities, and the related changes in estimates of revenues and costs. These risks and opportunities include management’s judgment about the ability and costs to achieve the schedule requirements, technical requirements (for example, a newly-developed product versus a mature product) and other specific contract requirements. Management must make assumptions regarding labor productivity and availability, the complexity of the work to be performed, the length of time to complete the contract (to estimate increases in wages and prices for materials and related support cost allocations), performance by our subcontractors, and the availability and timing of funding from our customer, among other variables. Based on this analysis, any of these adjustments are recorded in the period they become known on a cumulative catch-up basis. These adjustments may result in an increase in operating profit during the performance of a contract to the extent we determine we will be successful in mitigating risks for schedule and technical requirements in addition to other specific contract risks or we will realize related opportunities. Likewise, these adjustments may decrease operating profit if we determine we will not be successful in mitigating these risks or we will not realize related opportunities.

Prior to the adoption of ASC 606, the Company was required to establish VSOE for some of its software arrangements in order to recognize revenue for the delivered elements. If the Company was unable to establish VSOE of fair value for the undelivered elements of the software arrangement, revenue recognition was deferred for the entire arrangement until all elements of the arrangement were delivered. However, if the only undelivered element was post-contract support, the Company recognized the arrangement fee ratably over the post-contract support period.

Capitalized Software Development Costs

The Company builds software solutions that enable critical functionality for Wireless Service Providers. The Company continues to expand and deepen its product set to cover more of the Wireless Service Providers needs. These incremental products currently cover the 5G core, radio, and cloud platform portions of the Wireless Service Providers networks.

Research and development costs incurred in the process of software development before establishment of technological feasibility are charged to expenses as incurred. Costs incurred subsequent to the establishment of technological feasibility are capitalized according to the principles set forth in ASC 985-20, “Costs of Software to be Sold, Leased or Marketed.” We establish technological feasibility upon completion of a detailed program design or working model.

ASC 985-20-35 requires that a product be amortized when the product is available for general release to customers. We consider a product to be available for general release to customers when we complete the internal validation of the product that is necessary to establish that the product meets its design specifications including functions, features, and technical performance requirements Once a

 

94


Table of Contents

product is considered available for general release to customers, the capitalization of costs ceases and amortization of such costs to “cost of sales” begins.

Capitalized software costs are amortized on a product by product basis by the straight-line method over the estimated useful life of the software product.

We assess the recoverability of these intangible assets on a regular basis by assessing the net realizable value of these intangible assets based on the estimated future gross revenues from each product reduced by the estimated future costs of completing and disposing of it, including the estimated costs of performing maintenance and customer support over its remaining economical useful life using internally generated projections of future revenues generated by the products, cost of completion of products and cost of delivery to customers over its remaining economical useful life. During the six months ended July 31, 2020 and during the fiscal years ended January 31, 2020 and 2019, no such unrecoverable amounts were identified.

Income Taxes

Income taxes are provided using the asset and liability method, such that income taxes (i.e., deferred tax assets, deferred tax liabilities, taxes currently payable/refunds receivable and tax expense/benefit) are recorded based on amounts refundable or payable in the current year and include the results of any difference between U.S. GAAP and tax reporting. Deferred income taxes reflect the tax effect of net operating losses, capital losses and general business credit carryforwards and the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. Valuation allowances are established when management determines that it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized. The financial effect of changes in tax laws or rates is accounted for in the period of enactment. The subsequent realization of net operating loss and general business credit carryforwards acquired in acquisitions accounted for using the acquisition method of accounting is recognized in the consolidated statement of operations.

From time to time, we have business transactions in which the tax consequences are uncertain. Significant judgment is required in assessing and estimating the tax consequences of these transactions. We prepare and file tax returns based on our interpretation of tax laws. In the normal course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax, interest and penalty assessments. The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate resolution. There is considerable judgment involved in determining whether positions taken on the tax return are more-likely-than-not of being sustained and determining the likelihood of various potential settlement outcomes.

We adjust our estimated liability for uncertain tax positions periodically because of new information discovered as a function of ongoing examinations by, and settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations. The combined tax provision of any given year includes adjustments to prior year income tax accruals that are considered appropriate as well as any related estimated interest. Our policy is to recognize all appropriately accrued interest and penalties on uncertain tax positions as part of income tax benefit (expense).

Long-Term Incentive Plan

In 2017, the Company adopted the LTIP pursuant to which certain employees were offered a right to participate in the equity value creation of the Company in the form of awards of IRs. Seventy percent

 

95


Table of Contents

of the IRs are Time-Based IRs that are subject to time-based graded vesting of a period of three years, subject to the participant’s continued employment through each vesting date and can only become payable, to the extent vested, upon a Liquidity Event, provided, that any unvested Time-Based IRs will become fully vested upon a Sale Event if the participant remains employed through the Sale Event. The remaining thirty percent of the IRs vest on the first anniversary of a Sale Event, subject to the participant’s continued employment through such date, provided that certain IRs become fully vested upon a termination of the participant’s employment by the Company without cause (as defined in the LTIP) at any time during the one-year period following a Sale Event. A Liquidity Event refers to a distribution (other than a tax distribution) to the Parent Members, including a Sale Event. A Sale Event generally includes a change in control of the Company as well as the sale of substantially all of the Company’s assets. If a Sale Event has not occurred prior to the seventh anniversary of the effective date, then the IRs will terminate without the payment of any consideration to the participants. Vested IRs are entitled to participate in a portion of the net cash proceeds received by the holders of units in excess of the aggregate strike price of such units, initially set as the amount of invested capital by Parent Members and any subsequent increase in the fair value of the Company and its subsidiaries. The IRs can be settled in shares of Company stock, cash or a combination thereof. For additional information regarding the LTIP, please see the section below entitled “Executive Compensation—Compensation of Named Executive Officers—2017 Long-Term Incentive Plan.”

Compensation expense, related to the periods for which the requisite service has already been rendered and the applicable performance-based criteria has been achieved, will be recognized in the period in which it becomes probable the performance criteria will be achieved. The cost is calculated based on an option pricing model taking into account a number of assumptions that are subjective including the fair value of the Company and the net return on investment of affiliates of Siris Capital.

Business Combinations

The Company allocates the fair value of consideration transferred in a business combination to the estimated fair value at the acquisition date of the tangible and intangible assets acquired and liabilities assumed. Acquisition costs are expensed as incurred. Any residual consideration is recorded as goodwill. The fair value of consideration includes cash, equity securities and debt, other assets and contingent consideration, if any. The Company’s determination of the fair values of assets acquired and liabilities assumed requires the Company to make significant estimates, primarily with respect to intangible assets. These estimates can include, but are not limited to, cash flow projections for the acquired business, and the appropriate weighted-average cost of capital. The results of operations of the acquired business are included in the Company’s consolidated results of operations from the date of the acquisition.

Goodwill

Goodwill represents the excess of the fair value of consideration transferred in a business combination over the fair value of tangible and intangible assets acquired net of the fair value of liabilities assumed. The Company has no indefinite-lived intangible assets other than goodwill. The carrying amount of goodwill is reviewed annually for impairment in the fourth quarter, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

The Company applies the FASB’s guidance when testing goodwill for impairment for the periods presented, which permits the Company to make a qualitative assessment of whether goodwill is impaired, or opt to bypass the qualitative assessment, and proceed directly to performing an impairment test. If the Company performs a qualitative assessment and concludes it is more-likely-than-not that the fair value of a reporting unit exceeds its carrying value, goodwill is not considered impaired and the impairment test is unnecessary. However, if the Company concludes otherwise, it is

 

96


Table of Contents

then required to perform an impairment test. Beginning February 1, 2020, the Company performs its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and then recognizing an impairment charge, as necessary, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

The Company did not record any impairment of goodwill for any of the periods presented. The Company’s forecasts and estimates are based on assumptions that are consistent with the plans and estimates used to manage the business. Changes in these estimates could change the conclusion regarding an impairment of goodwill.

Impairment of Long-Lived and Intangible Assets

The Company periodically evaluates its long-lived assets for potential impairment. In accordance with the relevant accounting guidance, the Company reviews the carrying value of its long-lived assets or asset group that is held and used for impairment whenever circumstances occur that indicate that those carrying values are not recoverable. Under the held and used approach, assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The identification of asset groups involves judgment, assumptions, and estimates.

The Company makes judgments about the recoverability of long-lived assets, including fixed assets, right of use assets and purchased finite-lived intangible assets whenever events or changes in circumstances indicate that impairment may exist. Each period the Company evaluates the estimated remaining useful lives of long- lived assets and whether events or changes in circumstances warrant a revision to the remaining periods of depreciation or amortization. If circumstances arise that indicate impairment may exist, the Company uses an estimate of the undiscounted value of expected future operating cash flows over the primary asset’s remaining useful life and salvage value to determine whether the long-lived assets are impaired. If the aggregate undiscounted cash flows and salvage values are less than the carrying amount of the assets, the resulting impairment charge to be recorded is calculated based on the excess of the