Alteryx, Inc.d18rn0p25nwr6d.cloudfront.net/CIK-0001689923/f371c... · Alteryx, Inc. Annual Report...
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-38034 Alteryx, Inc. (Exact name of registrant as specified in its charter) Delaware 90-0673106 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3345 Michelson Drive, Suite 400, Irvine, California 92612 (Address of principal executive offices) (Zip Code) (888) 836-4274 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Class A Common Stock, $0.0001 par value per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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 x Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
Transcript of Alteryx, Inc.d18rn0p25nwr6d.cloudfront.net/CIK-0001689923/f371c... · Alteryx, Inc. Annual Report...
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K (Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934
For the transition period from to Commission file number: 001-38034
Alteryx, Inc.(Exact name of registrant as specified in its charter)
Delaware 90-0673106(State or other jurisdiction of
incorporation or organization)
(I.R.S. EmployerIdentification No.)
3345 Michelson Drive, Suite 400, Irvine, California 92612(Address of principal executive offices) (Zip Code)
(888) 836-4274(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Class A Common Stock, $0.0001 par value per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesxNo☐IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.Yes☐NoxIndicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(or
forsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.YesxNo☐IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyeveryInteractiveDataFilerequiredtobesubmittedpursuanttoRule405ofRegulationS-T(§232.405ofthis
chapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitsuchfiles).YesxNo☐IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K(§229.405ofthischapter)isnotcontainedherein,andwillnotbecontained,tothebestof
theRegistrant’sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.☐Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,asmallerreportingcompany,oremerginggrowthcompany.Seethe
definitionsof“largeacceleratedfiler,”“acceleratedfiler,”“smallerreportingcompany,”and“emerginggrowthcompany”inRule12b-2oftheExchangeAct.
Largeacceleratedfiler x Acceleratedfiler ☐ Non-acceleratedfiler ☐ Smallerreportingcompany ☐ Emerginggrowthcompany ☐
Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.☐
Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).Yes☐Nox
Theaggregatemarketvalueoftheregistrant’svotingandnon-votingcommonequityheldbynon-affiliatesoftheregistrant,asofJune29,2018,thelastbusinessdayoftheregistrant’smostrecentlycompletedsecondfiscalquarter,wasapproximately$1.2billionbasedupontheclosingpricereportedforsuchdateontheNewYorkStockExchange.
Indicatethenumberofsharesoutstandingofeachoftheissuer’sclassesofcommonstock,asofthelatestpracticabledate.AsofFebruary22,2019,therewere38,298,966sharesoftheregistrant’sClassAcommonstockoutstandingand23,485,253sharesoftheregistrant’sClassBcommonstockoutstanding.
DOCUMENTS INCORPORATED BY REFERENCEPortionsoftheregistrant’sdefinitiveproxystatementforits2019AnnualMeetingofStockholders,orProxyStatement,tobefiledwithin120daysaftertheendofthefiscalyearcovered
bythisAnnualReportonForm10-K,areincorporatedbyreferenceinPartsIIandIII.ExceptwithrespecttoinformationspecificallyincorporatedbyreferenceinthisAnnualReport,theProxyStatementshallnotbedeemedtobefiledasparthereof.
Alteryx,Inc.AnnualReportonForm10-K
FortheFiscalYearEndedDecember31,2018TABLEOFCONTENTS
Page NumberSpecial Note Regarding Forward-looking Statements
PART IItem1. Business 5Item1A. RiskFactors 14Item1B. UnresolvedStaffComments 44Item2. Properties 44Item3. LegalProceedings 44Item4. MineSafetyDisclosures 44
PART IIItem5. MarketsforRegistrant’sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities 45Item6. SelectedFinancialData 46Item7. Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations 48Item7A. QuantitativeandQualitativeDisclosuresAboutMarketRisk 60Item8. ConsolidatedFinancialStatementsandSupplementaryData 62Item9. ChangesinandDisagreementswithAccountantsonAccountingandFinancialReporting 102Item9A. ControlsandProcedures 102Item9B. OtherInformation 103
PART IIIItem10. Directors,ExecutiveOfficers,andCorporateGovernance 103Item11. ExecutiveCompensation 103Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 103Item13. CertainRelationshipsandRelatedTransactionsandDirectorIndependence 104Item14. PrincipalAccountingFeesandServices 104
PART IVItem15. ExhibitsandFinancialStatementSchedules 105Signatures 108
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
ThisAnnualReportonForm10-K,orAnnualReport,includes“forward-lookingstatements”withinthemeaningofthefederalsecuritieslaws.AllstatementscontainedinthisAnnualReport,otherthanstatementsofhistoricalfact,includingstatementsregardingourfutureresultsofoperationsandfinancialposition,ourbusinessstrategyandplans,andourobjectivesforfutureoperations,areforward-lookingstatements.Insomecases,forward-lookingstatementscanbeidentifiedbytheuseofterminologysuchas“believe,”“may,”“will,”“intend,”“expect,”“plan,”“anticipate,”“estimate,”“potential,”or“continue,”orothercomparableterminology.Forward-lookingstatementscontainedinthisAnnualReportinclude,butarenotlimitedto,statementsaboutourexpectationsregarding:
• trendsinrevenue,costofrevenue,andgrossmargin;• ourinvestmentsincloudinfrastructureandthecostofthird-partydatacenterhostingfees;• trendsinoperatingexpenses,includingresearchanddevelopmentexpense,salesandmarketingexpense,andgeneralandadministrativeexpense,and
expectationsregardingtheseexpensesasapercentageofrevenue;• expansionofourinternationaloperationsandtheimpactonforeigntaxexpense;• maintainingavaluationallowancefordomesticnetdeferredtaxassetstotheextenttheyarenotexpectedtoberecoverable;• thetimingandmethodofsettlementofourconvertibleseniornotes;• theglobalopportunityforourself-servicedataanalyticssolutions;• ourinvestmentsinourmarketingeffortsandsalesorganization,includingindirectsaleschannelsandheadcount,andtheimpactofanychangestoour
salesorganizationonrevenueandgrowth;• thecontinueddevelopmentofAlteryxCommunity,ouronlineusercommunity,distributionchannelsandotherpartnerrelationships;• expansionofandwithinourcustomerbase;• continuedinvestmentsinresearchanddevelopment;• competitorsandcompetitioninourmarkets;• theimpactofforeigncurrencyexchangerates;• legalproceedingsandtheimpactofsuchproceedings;• remediationofamaterialweaknessinourinternalcontrols;• cashandcashequivalentsandshort-terminvestmentsandanypositivecashflowsfromoperationsbeingsufficienttosupportourworkingcapitaland
capitalexpenditurerequirementsforatleastthenext12months;and• otherstatementsregardingourfutureoperations,financialcondition,andprospectsandbusinessstrategies.
Althoughwebelievethattheexpectationsreflectedintheforward-lookingstatementscontainedhereinarereasonable,theseexpectationsoranyoftheforward-lookingstatementscouldprovetobeincorrect,andactualresultscoulddiffermateriallyfromthoseprojectedorassumedintheforward-lookingstatements.Ourfuturefinancialconditionandresultsofoperations,aswellasanyforward-lookingstatements,aresubjecttorisksanduncertainties,including,butnotlimitedto,thefactorssetforthinthisAnnualReportunderPartI,Item1A.RiskFactors.Moreover,weoperateinaverycompetitiveandrapidlychangingenvironment.Newrisksemergefromtimetotime.Itisnotpossibleforustopredictallrisks,norcanweassesstheimpactofallfactorsonourbusinessortheextenttowhichanyfactor,orcombinationoffactors,maycauseactualresultstodiffermateriallyfromthosecontainedinanyforward-lookingstatementswemaymake.Inlightoftheserisks,uncertainties,andassumptions,theforward-lookingstatementsmadeinthisAnnualReportmaynotoccurandactualresultscoulddiffermateriallyandadverselyfromthoseanticipatedorimpliedintheforward-lookingstatements.
Allforward-lookingstatementsandreasonswhyresultsmaydifferincludedinthisAnnualReportaremadeasofthedateofthefilingofthisAnnualReport,andweassumenoobligationtoupdateanysuchforward-lookingstatementsorreasonswhyactualresultsmaydiffer.ThefollowingdiscussionshouldbereadinconjunctionwithourconsolidatedfinancialstatementsandnotestheretoappearinginPartII,Item8ofthisAnnualReport.
PART I
Item 1. Business.
Overview
Weareimprovingbusinessthroughdatascienceandanalyticsbyenablinganalyticproducers,regardlessoftechnicalacumen,toquicklyandeasilytransformdataintoactionableinsightsanddeliverimproveddata-drivenbusinessoutcomes.Everyday,ourusersleverageourend-to-endanalyticplatformtoquicklyandeasilydiscover,access,prepare,andanalyzedatafromamultitudeofsources,thendeployandshareanalyticsatscale.Theease-of-use,speed,andsophisticationthatourplatformprovidesisenhancedthroughintuitiveandhighlyrepeatablevisualworkflows.
Leveragingdataforactionableinsightsiscriticaltomodernbusinesssuccess,buthasbecomeincreasinglychallengingasthevolume,velocity,andvarietyofdatacontinuestoexpand.Traditionaldataanalysistoolsandprocessesareslow,complex,difficulttouse,andresource-intensive,oftenrequiringmultiplestepsbydataanalysts,datascientists,informationtechnology,orIT,employees,andotherdataworkerstocompleteeventhemostbasicanalysis.Asaresult,thesetoolsandprocessesareunabletokeeppacewiththerapidanalyticsdemandedbyorganizationstoday.
Ourplatformdemocratizesaccesstodata-driveninsightsbyexpandingthecapabilitiesandanalyticalsophisticationavailabletoalldataproducers,rangingfrombusinessanalyststoexpertprogrammersandtraineddatascientists.Webringthefragmentedanalyticprocessintoonesimpleandunifiedself-serviceexperience,combiningtasksthatwerepreviouslydistributedamongmultipletoolsandparties.Ourplatformallowsasingleusertoeasilydiscover,access,andpreparedatafromamultitudeofsources,performavarietyofanalyses,anddeliveranalyticaloutputtodrivedata-drivendecisionsandimprovebusinessoutcomes.Thisisdonethroughvisualworkflowsandanintuitivedrag-and-dropinterfacethatcaneliminatetheneedtowritecodeandreducetedious,time-consumingtaskstoafewmouse-clicks.Theresultingopportunityissignificant,asourplatformcanenablemillionsofunderserveddataworkerstomoreeffectivelydotheirjobs.
Organizationsofallsizesandacrossawidevarietyofindustriesandgeographieshaveadoptedourplatform.AsofDecember31,2018,wehadapproximately4,700customersinmorethan70countries,includingover500oftheGlobal2,000companies.OurcustomersincludeBarclaysPLC,TheCoca-ColaCompany,DubaiElectricityandWaterAuthority,FordMotorCompany,KaiserFoundationHealthPlan,Inc.,MicrosoftCorporation,Nike,Inc.,SouthwestAirlinesCo.,TableauSoftware,Inc.,andtheUnitedStatesDepartmentofDefense.OurplatformisalsoleveragedbyleadingmanagementconsultingorganizationssuchasAccentureplc,Bain&Company,andBostonConsultingGroup.
Weemploya“landandexpand”businessmodel.Ourgo-to-marketapproachoftenbeginswithafreetrialofAlteryxDesignerandisfollowedbyaninitialpurchaseofourplatformofferings.Asorganizationsrealizethebenefitsderivedfromourplatform,usefrequentlyspreadsacrossdepartments,divisions,andgeographiesthroughword-of-mouth,collaboration,andstandardizationofbusinessprocesses.Overtime,manyofourcustomersfindthattheuseofourplatformismorestrategicandcollaborativeinnatureandourplatformbecomesafundamentalelementoftheiroperationalbusinessprocesses.
Customerslicenseourplatformunderasubscription-basedmodel,andwehaveseenrapidexpansionasadoptionspreadsacrossanenterprisethroughbothanincreaseinthenumberofusersandadditionalusecases.Foreachofthelasttwelvequarters,includingthequarterendedDecember31,2018,ourdollar-basednetexpansionratehasexceeded120%.Seethesectiontitled“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations-KeyBusinessMetrics”foradditionalinformationregardingourdollar-basednetexpansionrateandcustomers.Wehavemadesignificantinvestmentstogrowourbusiness,includinginsalesandmarketing,infrastructure,operations,andheadcount.
Our Solution
Ouranalyticsplatformenablesorganizationstodramaticallyimprovebusinessoutcomesandtheproductivityoftheirbusinessanalysts,datascientistsandcitizendatascientists.Oursubscription-basedplatformallowsorganizationstoeasilydiscover,access,prepare,andanalyzedatafromamultitudeofsourcesandbenefitfromdata-drivendecisions.Ourplatformis:
• Efficient. Weofferaself-serviceplatformthatallowsbusinessanalyststoperformanalysisontheirownthattraditionallyrequiredmultiplepartiesandworkstreamstocomplete.Ourin-memorysoftwareengineisdesignedtoingestandprocesslargevolumesofdatarapidlyandenableresponsiveandagileanalysis,deliveringdramatically“fastertimetoinsights.”Onceaworkflowhasbeenassembled,theanalysiscanberepeatedinminutesandshared
withotherswhocaneasilyreplicatetheanalysis.Withourplatform,dataanalysisisautomated,repeatable,andshareable.• Independent. Weenablebusinessanalyststorapidlyanswerchallengingbusinessquestionsontheirown,withouttheneedforsupportfromexpert
programmers,traineddatascientists,orothermembersoftheITdepartment.Ourplatformoffersanalyticswitheasilyunderstandabledrag-and-droptoolsthathaveeasy-to-configureparametersthatdonotrequirecoding.Withourplatform,businessanalystscanmanageallstepsinananalyticprocesswithouttheassistanceoftheirITdepartments.
• Flexible. Ourplatformdoesnotrequireapre-packaged,staticdatasetandinsteadallowstheusertocreateavisualworkflowtosecurelyinteractwiththeunderlyingsourcedata.Workflowscanbeeasilychangedandreconfiguredtoiterateananalysisandaddanewdatasourceorlogic.Theyalsocanbeeasilyadaptedtoconformwithchangesintheunderlyingdatatorepeattheanalysis.Thisflexibilityallowsworkflowstobeconfiguredtoaddressawiderangeofusecases.Businessanalystscanbuildappsthatletothersinteractwiththeworkflowthroughasimpleinterfaceavailableonthepublicorprivatecloudortheycanconfigureaworkflowtooutputresultsdirectlytoadatabaseorsystemofrecord.OurplatformalsooutputstomostvisualformatssuchasthoseofferedbyMicrosoft,QlikTechnologies,Inc.,andTableau.
• Sophisticated. Ourplatformprovidesbusinessanalystsanextensivesetofanalyticalcapabilities.Ourdrag-and-dropvisualworkflowenvironmentincludescapabilitiesthatallowusersto:accessdatafromavarietyoflocationssuchasalocaldesktop,arelationaldatabase,orthecloud;preparedataforanalysis;blendmultipledatasourcesregardlessofthedatastructureorformat,includingbigdatatechnologies;gainaccesstoover50pre-packagedtoolsthatenablethemostwidelyusedproceduresforpredictiveanalytics,grouping,andforecasting;andtakeadvantageofgeospatialdatatodriveunderstandingoftopicssuchastradeareasanddrive-timeanalysis.
• Scalable. Ourplatformoffersasecurecollaborationenvironmentforeventhelargestorganizations.Businessanalystscancreate,publish,andshareanalyticapplicationsacrosstheorganization,embedanalyticprocessesintootherinternalapplications,andsaveandaccessworkflowswithinacentralizedrepositorywithversioncontrolwhenworkingacrossmultipleteams.Theabilitytodeployourplatformon-premiseorinthecloudalsoprovidesadditionalflexibilitytoscaleaseachcustomer’sbusinessneedsgrow.Bypushinganalyticalworkloadstoareliableserverarchitecture,customerscanrunsophisticatedcompute-intensiveprocessesmoreefficientlythanlocalmachinesallow,whileautomatingandschedulingtheseworkflowstogivebusinessanalystsstrongercontroloftheiranalyticlandscape.
Growth Strategy
Ourfocusonempoweringbusinessanalystsandtheorganizationstheyservetoquicklyandeasilyaccessdata-driveninsightspresentsasignificantopportunity.Keyelementsofourstrategyforgrowthinclude:
• Increase our overall customer base. Weareacceleratingthesecularshifttowardsself-serviceanalytics.Asaresult,wehavetheopportunitytosubstantiallyincreaseourcurrentcustomerbaseofapproximately4,700customersthroughanactive“landandexpand”strategy.Weplantoexpandouronlineandofflinemarketingeffortstoincreasedemandforourplatformandawarenessofourbrand.Wealsoplantomakesignificantinvestmentsingrowingbothourdirectsalesteamsandindirectsaleschannels.
• Expand within our current customer base. Weplanonexpandingexistingcustomers’useofourplatformbyidentifyingadditionalusecases,departments,anddivisionsforourplatformandincreasingthenumberofuserswithinourexistingcustomers’organizations.Overtime,manyofourcustomersfindthattheuseofourplatformismorestrategicandcollaborativeinnatureandourplatformbecomesafundamentalelementoftheiroperationalbusinessprocesses.
• Continue to penetrate international markets. Wehavecontinuedtoincreaseourfocusoninternationalmarkets.Webelievethattheglobalopportunityforself-servicedataanalyticssolutionsissignificantandshouldcontinuetoexpandasorganizationsoutsidetheUnitedStatesseektoadoptself-serviceplatformsaswehaveexperiencedwithourexistingcustomers.
• Extend our value proposition. Weintendtocontinuetorapidlyimprovethecapabilitiesofourplatformandinvestininnovationandourcategoryleadership.Forexample,inJanuary2017,weacquiredSemantas.r.o.,orSemanta,toenhanceourdatagovernancecapabilities,inMay2017,weacquiredYhat,Inc.,orYhat,toenhanceourcapabilitiesformanaginganddeployingadvancedanalyticmodels,and,inFebruary2018,weacquiredAlteryxANZPtyLimitedtofurtherexpandourglobalreach.Weplantocontinuetoinvestinresearchanddevelopment,includinghiringtoptechnicaltalentandmaintaininganagileorganizationthatfocusesoncoretechnologyinnovation.Inparticular,weintendtofocusonfurtherdevelopingourcloudcapabilities,improvingthegovernancecapabilitiesofAlteryxServer,andupdatingourin-memoryengine.
• Grow our distribution channels and channel partner ecosystem. Weplantocontinueinvestingindistributionchannelsandourrelationshipswithtechnologyalliances,systemintegrators,managementconsultingfirms,andvalue-added-resellers,orVARs,tohelpusenterandgrowinnewmarketswhilecomplementingourdirectsalesefforts.Wealsoplantocontinuetocollaboratewithmanagementconsultingfirmstodriveadditionalbusinessactivity.
• Deepen our user community. Webenefitfromavibrantandengagedusercommunityandcontinuetopromoteinitiativesintendedtofurtherexpandandenergizeourcommunity.AlteryxCommunityandourliveevents,suchasourannualInspireuserconferences,whichhavegrownfromover270attendeesin2012toover4,000attendeesin2018,helpusbroadenandstrengthenourcommunity.Additionally,universitycoursesandanalyticclubshelpevangelizethebenefitsofourplatformandintroduceitscapabilitiestobusinessanalystsjuststartingtheircareers.Weintendtoexpandourcommunitydevelopmenteffortsandseektocontinueenrichingthelivesofbusinessanalystseverywhere.
Our Platform
Oursubscription-basedsoftwareanalyticsplatformallowsorganizationstoeasilydiscover,access,prepare,andanalyzedatafromamultitudeofsourcesandbenefitfrombetterdata-drivendecisions,includingthroughconsumptionofresultsandinsightsdiscoveredandthroughreal-timemodeldeployment.Theease-of-use,speed,andsophisticationoftheanalysisthatourplatformenablesareenhancedthroughhighlyrepeatablevisualworkflows.Ourplatform’sintuitiveuserinterfaceincludesover200drag-and-droptoolsthatcanbeusedtocreateandsharetheseanalytics.Thesetoolsallowbusinessanalyststoassembleworkflowsthatrepresenttheirmodelsvisually,makingthemeasilycomprehensibleandhighlyrepeatable.Ouruserinterfaceallowsbusinessanalyststoseamlesslyviewtheunderlyingdata,metadata,andappliedanalyticsatanystageduringtheprocess.
Ourplatformisdesignedtointeractwithalmostanydatasource.NativeconnectorsexistforawidevarietyofsourcesrangingfromtraditionaldatabasesincludingIBM,Microsoft,Oracle,andSAP,toanarrayofemergingdataplatformsincludingAmazonWebServices,Cloudera,Databricks,MicrosoftAzure,andMongoDB.Additionally,ourplatformiscapableofprocessingdatafromcloudapplications,suchasGoogleAnalytics,Marketo,NetSuite,salesforce.com,andWorkday,aswellassocialmediaplatforms,suchasFacebookandTwitter.
Poweredbyourproprietaryin-memoryengine,ouranalyticsplatformcomprises:
• Alteryx Designer. Ourdataprofiling,preparation,blending,andanalyticsproductusedtocreatevisualworkflowsoranalyticprocesses,throughanintuitivedrag-and-dropinterface.
• Alteryx Server. Oursecureandscalableserver-basedproductforscheduling,sharing,andrunninganalyticprocessesandapplicationsinaweb-basedenvironment.
• Alteryx Connect. Ourcollaborativedataexplorationplatformfordiscoveringinformationassetsandsharingrecommendationsacrosstheenterprise.• Alteryx Promote. Ouradvancedanalyticsmodelmanagementproductfordatascientistsandanalyticsteamstobuild,manage,monitor,anddeploy
predictivemodelsintoreal-timeproductionapplications.
Inaddition,AlteryxAnalyticsGallery,ourcloud-basedcollaborationoffering,isakeyfeatureofourplatformallowinguserstoshareworkflowsinacentralizedrepository,andAlteryxCommunityallowsuserstogainvaluableinsightsfromoneanother,collaborateandsharetheirexperiencesandideas,andinnovatearoundourplatform.WithAlteryxAnalyticsGallery,userscanshareworkflowswithversioncontroltoenableeffectiveandsecurecollaborationwithinandacrossorganizations,createanalyticappsandmacrosthatcanbesharedbothprivatelyandpublicly,anddiscovernewanalyticappsandmacrostoleveragebestpracticesortobeusedastheblueprintforacustomizedpurpose-builtanalyticworkflow.
WesellAlteryxDesignerassingleseatlicensesaswellasthroughbroadenterprise-levelagreements.AlteryxServerisdeployedinlargerscaleenvironmentsandistypicallysoldonaper-CPUcorebasisorpartofbroadenterprise-levelagreementsasanextensionofAlteryxDesigner.AlteryxConnectissoldasanextensionofAlteryxServerandistypicallylicensedonaperserverbasis.AlteryxPromoteissoldaspartofourplatformorasastandalonesolutionandislicensedonaper-CPUcorebasisoraspartofbroadenterprise-levelagreements.
Alteryx Designer
AlteryxDesigner,ourself-servicedataprofiling,preparation,blending,andanalyticsproduct,allowsbusinessanalyststoperformanalysisontheirowninamatterofhoursorevenminutes.Inadditiontodramaticallyreducingthetimeandresources
required,AlteryxDesignerdeliversmoreaccurate,transparent,andsophisticatedresults.TheabilitytoshareworkflowsandanalyticoutputsthroughtheAlteryxAnalyticsGalleryallowstheanalyticpowerofAlteryxDesignertobeconsumedbyanyoneinanorganization.Keycapabilitiesinclude:
• Data profiling . Empowersdataworkersandanalyststoindependentlyassessthehealthandqualityofadatasetpriortobuildinganalyticmodels.Foralargenumberofanalysts,assessingdataqualityoftenrequiresturningtostatisticiansordatascientists,delayingthemodeldevelopmentanddecisionmakingprocess.Automateddataprofilingacceleratesthedatapreparationandinsightdevelopmentprocess,andcanenabletheanalyststomaintaincontroloftheentireanalyticprocess.
• Data preparation and blending. Providestheabilitytoeasilyconnect,clean,transform,andfilterdatasignificantlyfasterthantraditionalanalytictools.Businessanalystscaneasilyblendstructured,unstructured,andsemi-structureddatasourceswithoutcomplexprogrammingrequirements.Businessanalystsuseasimplevisualworkspaceandstraightforwarddrag-and-droptoolstocleanandcombinedataandcreatearepeatableworkflow.Onceaworkflowisassembled,itautomatestheanalyticprocessandcanbereruninseconds.
• Advanced analytics. Enablesbusinessanalyststocreateanalyticmodelsrangingfrombasictohighlycomplex.Ourplatformsupportscleansing,calculations,aggregations,andadvancedanalyticsfunctionsincludingthoseusedtounderstanddatarelativetospatialcriteriaormoreadvancedtoolsusedtoapplystatisticalalgorithmsforpredictiveanalysis.Businessanalystscanleverageawiderangeofcode-freetoolswithintheproducttocreateadatasetoptimizedforaspecificanalysis,runabroadsetofanalytics,andsharetheresultsinavarietyofformats.DatascientistscanalsoincorporateRandPythonmodelsusingDesigner’scode-friendlytoolstobringmoreadvancedanalyticmodelingintotherepeatableworkflows.Additionally,ourplatformembedsasuiteoftutorialsandpre-builtanalytictemplates,andtheexpertiseofthousandsofanalystsfromAlteryxCommunitywithintheinterfacetohelpfamiliarizeuserswithourplatform’scapabilities,enablingbusinessanalyststoadoptsophisticatedanalyticmethodologieswithoutsignificanttraining.
• Visualytics. Introducesvisual,interactivechartingandreportingintoeverystepofarepeatableworkflowwithinAlteryxDesignertoenablemoreinsightsthroughouttheentireanalyticprocess.VisualyticsinteractivechartsandreportscanbepublishedinAlteryxServerandAlteryxAnalyticsGalleryforbroaderconsumptionandcollaborationacrosstheentireorganization.
• Analytic application creation. Offersnativedrag-and-dropapp-buildingcapabilitiesforbusinessanalyststocreate,publish,andshareapplicationsforanyusertoexecute.Theseapplicationscanalsobeconfiguredtosharetheresultsinavarietyofformats,includingvisualizationanddashboardprogramssuchasthoseofferedbyMicrosoft,Qlik,orTableau,ortowritebacktoadatabase.Businessanalystscanuseworkflowswithinotherworkflowsasbuildingblockstoleveragefunctionalitythathasalreadybeenbuilt.TheseworkflowscanalsobeutilizedasreusableblueprintsfordesigninganddeployinganalyticalapplicationstoAlteryxServerorAlteryxAnalyticsGallery.
Alteryx Server
AlteryxServerisacomprehensiveandscalableserver-basedproductthatenablesbusinessanalyststoshareandrunanalyticapplicationsinaweb-basedenvironment.AlteryxServeroffersenterprise-classdatascalability,distribution,andsecuritydesignedtomaximizethevalueenterprisescanachievefromtheiranalytics.Keycapabilitiesinclude:
• Collaboration. Enablesbusinessanalyststoeasilycreate,publish,share,andreferenceanalyticworkflowsorapplicationsandcollaboratewithothersacrosstheirorganizations.Businessanalystscanalsodevelopanalyticapplicationsthatactasfront-endinterfacesfortheirworkflows,andtheseanalyticresultscanbesharedpubliclyandprivatelyinAlteryxAnalyticsGallery.
• Workload scaling. Allowsfordata-intensiveworkloadstobeoffloadedfromuserdesktopstoaserverorclusterofservers,harnessinggreatercomputingpower.Businessanalystscanscheduleandexecuteworkflowstorefreshdatasetsandanalyticoutputsautomatically,withoutslowingdowntheworkprocess.
• Analytic application consumption. Allowsbusinessanalyststoaccesspreviouslybuiltmacrosoranalyticmodelsinasecure,customapplicationlibrary.Businessanalystscanalsoextendtheanalytictoolstheyhavebuiltdirectlyintootherapplicationsusingourapplicationprograminterfaces,orAPIs,andmacros.
• Enterprise-compliant governance. Restrict,create,edit,orrevokeaccesstoappropriatedatawithcorporateauthentication,permission,andencryptionprotocolsthroughacentralizeddataconnectionmanagerfordataaccesscontrolandgovernance.Workflowsarestoredcentrallywithversioncontrolandgovernancecapabilities,allowingmultipleuserstobuild,run,andreferencethesameworkflowallwithintheconfinesofexistingITgovernancecontrols.Detailedusagereporting,auditing,andstandardizedloggingtoolsenablesystemadministratorstoproperlycontrolaccessandsecurityandmeetservicelevelagreements.
Alteryx Connect
AlteryxConnectisacollaborativedataexplorationplatformfortheenterprise.AlteryxConnectempowersbusinessanalyststofind,manage,understand,andcollaborateonthedatathatresidesintheirorganization.AlteryxConnectcombinesdatacatalogingwithsocialcollaborationtoaccelerateinsightsbyconnectingtodata,analytics,andcontent.Keycapabilitiesinclude:
• Asset catalog . Allowsbusinessanalyststoassembleinformationinoneplacebycollectingmetadatafrominformationsystems,businessintelligencereports,visualizations,andworkflowsinacomprehensiveandfullyindexeddatastore.
• Business glossary. Definesstandardbusinesstermswithinanorganizationinadatadictionaryandlinksthemtoassetsinthecatalogtoensureconsistentuse,aswellasidentifyrelevantsourcesforeachitem.
• Data discovery. Allowsuserstorunacomprehensivesearchofcontentinthesystemandsortresultsbycertificationoruserrating.• Data enrichment and collaboration . Unlocksknowledgeinanorganizationusingsocialtechniquestogatherinformationaboutdatasystems.Annotates,
discusses,andratesinformationassetstoprovidebusinesscontextandenablestheorganizationwithrelevantdata.• Certification and trust. Understandsthetrustworthinessofdataandinformationassetsthroughcertification,lineage,andversioning.
Alteryx Promote
AlteryxPromoteisananalyticsmodelmanagementproductfortheenterprise.AlteryxPromotemakesdeploying,managing,andmonitoringpredictivemodelseasierandfaster.AlteryxPromoteallowsdatascientistsandanalyticsteamstobuild,manage,anddeploypredictivemodelstoproductionfasterandmorereliablyviaacode-friendlyandcode-freeenvironment.Keycapabilitiesinclude:
• Model deployment .Deployspredictivemodelseasilyforusers,includingdatascientistsandbusinessanalysts,byutilizingthecode-freeenvironmentofAlteryxDesignertobuildanddeploymodels.Code-friendlymodeldeploymentisalsosupportedallowingdatascientiststhefreedomofchoiceforRandPython-basedmodels.
• Embed models . EmbedspredictivemodelsinanybusinessapplicationcapableofmakingRESTAPIrequests,includingCRMapplications,webandmobileapplications,andinternalapplications.DeploysRandPythonmodelsthroughstandardRESTAPIwithoutrecoding,makingmodelsquicklyaccessible.
• Real-time scoring. Executesreal-timepredictionsinconsumer-facingapplicationsorusesbatchmodeforscoringfromwithinotherworkflows.• Model management . Ensuresthatanalyticmodelsdeliverqualityandinsightsbyusingmodelversioningthroughouttheproductionprocess,from
developmenttostagingandproduction.• Monitoring. Understandstheongoingperformanceandhealthofproduction-basedanalyticmodelstoensuretheireffectiveness.
Our Technology
Underpinningourplatformisasetoftechnologicalinnovationsthatmakerobustdataanalyticseasythroughanin-memoryengine,sophisticatedanalyticmodels,andanopenandmodularcore:
In-Memory Engine
Ourin-memoryengineisoptimizedtoprocessdatawithinRAMandcanutilizedisk,whennecessary,astemporaryvirtualmemory.Thisfacilitatessignificantlyfasterandmoresecureprocessingofdatathantraditionaldisk-basedmechanismswhileensuringthatthesourcedataremainsunalteredandisnotduplicated.Inadditiontoourhighspeedin-memoryprocessingcapabilities,ourplatformenablesin-databaseprocessingtotakeadvantageofcomputingresourceswherethedataresidesforcertainusecasesinvolvinglargedatasets.Keyfeaturesofourengineinclude:
• Connected. Businessanalystscanrapidlyconnecttodatainexistingformatsandlocations,reducingtheneedfortime-consumingdatatransformationprocessesthattypicallyrequireITpersonnel.
• Non-persisted. Ourengineleveragesnon-persisteddatapipelinestoenableuserstoprocesslargeamountsofdatasecurelywhileapplyingcomplexlogiceverytimetheyrunananalyticworkflow.
• Scaled-out. Whilemostworkflowscanberunonanysingledesktoporlaptop,whengreaterprocessingcapabilityisrequired,workloadscanbepushedtoaserverorclusterofservers,includingHadooporSparkclusters.
Sophisticated Analytic Models
Weenablebusinessanalysts,datascientistsandcitizendatascientiststoproduceanalyticsrangingfrombasictohighlycomplex,includingpredictive,prescriptive,andspatial.Specifically,weenablepredictiveanalyticsthroughutilizationofR,anopensourceprogramminglanguageandsoftwareenvironmentforstatisticalcomputing,andPython,apopularprogramminglanguageforanalyticswithmanypubliclyavailablepackages.OurcapabilitiesallowtransparencyandeditingoftheRandPythoncodewithoutrequiringpriorcodingexperience.Inaddition,in-databaseprocessingenablesanalyststoscalepredictiveanalyticsandharnessthevalueoflargesetsofdatawithoutmovingthedataoutofadatabase,improvingpredictivemodeldevelopmentperformanceovertraditionalapproaches.Deepgeo-spatialtools,suchasadrivetimeengine,createthebasisforperforminglocation-basedanalysis.
Open and Modular Core
Ourplatformisbuiltwithanopenandmodularcorethatenablesadditionalfunctionsandprogrammingmodelstointeractwithit.Forexample,ourplatformcanutilizeRforadvancedanalyticswhileprovidingasimpledrag-and-dropinterfacethatabstractsthecomplexityoftheunderlyingcode.Forsophisticatedbusinessanalysts,theunderlyingcodeisavailableforreviewandadjustment.TheintegrationofourplatformwithRandPythontakesadvantageofsegmented,butintegratedmain-memoryresourcestoensureseamless,fastoperations.Morerecently,weintroducedtheJavaScriptV8engineforourplatforminasimilarcapacity.ThisenablestheintroductionofnewHTML5UI,Server-sideJavaScript,andJSON/RESTAPIstoallfueltheinnovationbeingdrivenfromourplatform.
Our Customers
Organizationsofallsizesandacrossawidevarietyofindustrieshaveadoptedourplatform.AsofDecember31,2018,weservedcustomersinmorethan70countries,includingover500oftheGlobal2,000companies.Ourcustomerbasehasgrownfrom1,398customersasofDecember31,2015toapproximately4,700customersasofDecember31,2018.
OurcustomersincludeBarclaysPLC,TheCoca-ColaCompany,DubaiElectricityandWaterAuthority,FordMotorCompany,KaiserFoundationHealthPlan,Inc.,MicrosoftCorporation,Nike,Inc.,SouthwestAirlinesCo.,TableauSoftware,Inc.,andtheUnitedStatesDepartmentofDefense.OurplatformisalsoleveragedbyleadingmanagementconsultingorganizationssuchasAccentureplc,Bain&Company,andBostonConsultingGroup.
Nocustomerrepresentedmorethan10%ofourrevenueineachoftheyearsendedDecember31,2018,2017,and2016.
Support and Training
Althoughourplatformisdesignedtooperateonaself-servicebasis,wealsoprovidetechnicalsupport,instruction,andcustomerservicetofurtherourcustomerexperience.Ourcustomersupportteamisavailabletoassistwithquestionsaboutinstallation,licensing,workflowdevelopment,technicalandfunctionalmatters,andourAPIsandsoftwaredevelopmentkit.Additionally,weprovideourcustomerswithsupportfivedaysaweekacrossmultiplegeographiesaswelladditionalsupportofferingstocover24x7requirements.WealsorelyonourengagedusercommunitytoenhancethesupportexperienceofourcustomersthroughAlteryxCommunity.
Inordertofacilitateadoptionandrapidbenefitsfromtheuseofourplatform,weofferfreeonlinetrainingthroughourwebsitethatincludeshundredsofhoursoftrainingvideosandsampleanalyticworkflows.Wealsoprovideavarietyoffee-basedtrainingoptionsrangingfrominstructor-ledcoursesinatraditionalclassroomsettingtoonlinecourses.
Our Community
Wehavebuiltastrongandgrowingcommunityofemployees,users,customers,potentialcustomers,andchannelpartnerswhoarepassionateaboutourplatformandmission.ThepurposeofAlteryxCommunityistocreateasupportchannelforallconstituentstogainvaluableinsightsfromoneanother,collaborateandsharetheirexperiencesandideas,andinnovatearoundourplatform.
AlteryxCommunitycurrentlyoffers:
• discussionsandknowledgebasesthathelpusers,customers,andchannelpartnerslearnabouttopicsofinterest,askquestions,andshareideasandinsights;
• usergroups,whichareindependentvolunteerorganizationsthatprovideaplatformforuserstomeetlocallythroughouttheyearandprovideotheruserswithanopportunitytonetworkwithpeersandshareideas,experiences,andbestpractices;
• anavenueforusers,customers,andchannelpartnerstoshareproductsuggestionswithus;• interactivelessons,livetrainings,weeklychallengesandanopportunitytobecomecertifiedviaAlteryxAcademy;and• blogsandnewsandeventsportals.
Wealsoorganizeeventstoengageandfosterourusercommunity.Atsuchevents,ourusers,customers,potentialcustomers,andchannelpartnershavetheopportunitytonetwork,learnbestpractices,attendtrainingsessionsandworkshops,andpresenttheirquestionsandsuggestionsdirectlytooursoftwaredevelopers,executives,andotheremployees.Wealsohostroadshowsandworkshopsdomesticallyandinternationallywithourchannelpartnerstoteachourusershowself-servicedataanalyticssimplifiesandautomatestheanalysisofdata.
Employees and Culture
Ourcorporatecultureisacriticalcomponentofoursuccess.Ouremployees,whowerefertoasassociates,arethelifebloodofourcompanyandwestrivetocreateanenvironmentwheretheycanadvancetheircareers,workhard,andhavefunatthesametime.Ourculturefocusesonfosteringanenvironmentofgrowthanddevelopmentandweofferaseriesofcollaborativeactivitiesforouremployeesincludingleadershipactivitiesandteambuildingworkshops.Eachdayouremployeesbringpassionandenergytowardsfurtherdevelopingourplatformandservingourcustomersbyexemplifyingthefollowingcorevalues:customer-centric;innovative;accountable;character;andcompassion.
Our“AlteryxforGood”programprovidesouremployeeswiththeopportunitytousevolunteerhourseachyeartopartnerwithcharityorganizationsoftheirchoicetomakeadifference.Theprogramalsoprovidesuniversities,not-for-profitorganizations,andgovernmententitiestheopportunitytoobtainalicensetouseourplatformtohelpthemachievetheirgoals.
AsofDecember31,2018,wehadover800full-timeemployees,includingapproximately200employeeslocatedoutsidetheUnitedStates.Noneofouremployeesarerepresentedbyalaborunionorcoveredbyacollectivebargainingagreement.Wehavenotexperiencedanyworkstoppages,andweconsiderourrelationswithouremployeestobegood.
Sales and Marketing
Oursalesandmarketingteamsworkcloselytogethertoincreasemarketawareness,drivedemandforourplatform,andcultivatecustomerrelationshipstodriverevenuegrowth.
Sales
Wesellourplatformthroughourdirectsalesorganizationandindirectchannelpartnersbothinternationallyanddomestically.Oursalesstrategyreliesona“landandexpand”model.ProspectivecustomerscandownloadafullyfunctionalfreetrialofAlteryxDesignerfromourwebsiteand,asaresult,becomeleadsforoursalesandmarketingteams.Ourinitialdeploymentswithnewcustomersaretypicallyindividualbusinessanalystsfocusedonasingleusecasesuchasdatapreparationanddatablending.Theseinitialdeploymentsfrequentlyexpandacrossdepartments,divisions,andgeographiesasadditionalusecasesareidentifiedanddeployed,andthroughword-of-mouth,collaboration,andstandardizationofbusinessprocesses.Asourplatformexpandsthroughoutorganizationsandbecomesincreasinglystrategicinnature,ourplatformisrecognizedbycorporateexecutives,ITpersonnel,andorganizationleadersasthesolutiontotheiranalyticsneeds.
Oursalesorganizationiscomprisedofinsidesalesteamsdedicatedtosellingtonewcustomersanddirectfieldsalesteamsresponsibleforidentifyingandmaximizingfutureexpansionopportunitieswithourexistingcustomers.Ourinsidesalesanddirectfieldsalesteamsaretightlyintegratedtopromoteanefficientcustomeracquisitionmodelandseamlessgrowthforexpansionopportunities.Ourcustomersuccessandsupportorganizationsareresponsibleforpost-salestrainingandsupport,maintainingcustomerrelationships,andrenewingexistingcontracts.
Themajorityofourdomesticsalesarethroughourdirectsalesorganization.WeserveAsia-Pacific,Europe,theMiddleEast,andAfrica,andLatinAmericaregions,andselectotheremergingcountriesthroughourdirectsalesorganizationandavarietyofchannelpartners,includingVARsandmanagementconsultingfirms.
Marketing
Ourmarketingorganizationisresponsibleforincreasingawarenessofandgeneratingdemandforourplatform,creatinghighqualityleadsforoursalesforcethroughamixofvolumedemandgenerationandaccount-basedmarketing,andfosteringourcommunityofusers.Acentralfocusofourmarketingeffortsistodriveawarenessofourplatformandincreasewebsitetraffic.Thesegoalsareintendedtoincreasedownloadsofourfreetrialsofourplatformandencourageuseofourfreeonlinetraining,whichareintegralpartsofourcustomeracquisitionprocess.Weutilizeawiderangeofonlineandofflinemarketinginitiativesincludingourwebsite,socialmedia,paidsearch,email,webinars,channelpartnerevents,andfieldeventsoftenwithanalyticleadersanddatascientists.OurannualU.S.andEuropeanInspireuserconferencesplayakeyroleinprovidingcurrentandprospectivecustomerswithabetterunderstandingofourplatformthroughinteractionswithpeers,training,andthehighlightingofcustomerusecasesandbestpractices.
Strategic Partnerships
Wehavecultivatedstrongrelationshipswithchannelpartnerstohelpusextendthereachofoursalesandmarketingefforts,especiallyinternationally.Ourpartnershipsareprimarilywithtechnologyalliances,systemintegrators,managementconsultingfirms,andagrowingnetworkofVARs.
Technology Alliances
Ourtechnologypartnerecosystemconsistsofindependentsoftwarevendors,cloudanddataplatforms,andofferingsthatenhanceandextendourplatform.Weworkcloselywithover20technologypartnerstodeliveraseamlessanalyticuserexperience.Wehaveoptimizedconnectorsformorethan80datasources,includingmanyfromAmazonWebServices,Inc.,Cloudera,Inc.,Databricks,Inc.,Google,LLC,InternationalBusinessMachinesCorporation,MicrosoftCorporation,MongoDB,Inc.,OracleCorporation,salesforce.com,inc.SAPSE,andSnowflakeComputing,Inc.WenativelysupportoutputtomostvisualformatssuchasthoseofferedbyMicrosoft,Qlik,orTableauandalsotoautomodelingsolutionssuchasthoseofferedbyDataRobot,Inc.andH2O.ai,Inc.
System Integrators and Management Consulting Firms
Systemsintegratorsandmanagementconsultingfirmsprovideadvisory,managed,andimplementationservicestoourcustomersacrossallmarketsegments.Over60ofoursystemsintegratorsandmanagementconsultingfirmsasofDecember31,2018leveragetheirdeepanalyticexpertiseinconcertwithustosolvecomplexbusinesschallengeswhilegeneratingreusableanalyticintellectualproperty.
Value Added Resellers
VARsbringproductexpertiseandimplementationbestpracticestoourcustomersglobally.AsofDecember31,2018,wehadover200VARsthatcreatescaleforourplatformthroughtheirnetworkoftrainedconsultants,on-pointanalyticservices,anddeepdomainexpertise.Theyprovideverticalexpertiseandtechnicaladviceinadditiontoresellingorbundlingoursoftware.Ourresellerprogramisdesignedtoscalegrowth,helpgeneratenewopportunities,optimizecustomerexperienceandcare,increaseprofitability,andincreasesalesefficiency.
Research and Development
Ourresearchanddevelopmenteffortsfocusonimprovingcurrenttechnology,developingnewtechnologiesincurrentandadjacentmarkets,andsupportingexistingcustomerdeployments.Ourresearchanddevelopmentteam,whichconsistedof212employeesasofDecember31,2018locatedprimarilyinBroomfield,Canada,Colorado,theCzechRepublic,Ukraine,andtheUnitedKingdom,iscomprisedofdedicatedresearchemployees,softwareengineers,qualityassuranceengineers,userexperienceexperts,siteandsiteoperationsengineers,andproductmanagers.Weleverageagiledevelopmentmethodologiesandworkwiththelatesttechnologies,resultinginadynamic,stateoftheart,automatedsoftwaredevelopmentprocessthathasallowedustodeliverhigh-qualityproductsandservicesandadapttomarketchangesandnewrequirementsquickly.
Competition
Themarketforself-servicedataanalyticssolutionsisnewandrapidlyevolving.Inmanycases,ourprimarycompetitorsaremanual,spreadsheet-drivenprocessesandcustom-builtapproachesinwhichpotentialcustomershavemadesignificantinvestments.Inaddition,wecompetewithlargesoftwarecompanies,includingprovidersoftraditionalbusinessintelligencetoolsthatofferoneormorecapabilitiesthatarecompetitivewithourplatform.Thesecapabilitiesincludedatapreparationand/oradvancedanalyticmodelingtoolsfromInternationalBusinessMachinesCorporation,MicrosoftCorporation,OracleCorporation,SAPSE,andSASInstituteInc.Additionally,datavisualizationcompanieswhichalreadyofferproductsandservicesinadjacentmarketshaverecentlyintroducedproductsandservicesthatmaybecomecompetitivewithourofferingsinthefuture.Wecouldalsofacecompetitionfromnewmarketentrants,someofwhommightbeourcurrenttechnologypartners.Inaddition,somebusinessanalyticssoftwarecompaniesoffernichedatapreparationoptionsthatarecompetitivewithsomeofthefeatureswithinourplatform,suchasDataikuInc.,MicroStrategy,TalendInc.,Tableau,TIBCOSoftwareandTrifacta,Inc.
Manyofourcurrentandpotentialcompetitors,particularlythelargesoftwarecompaniesnamedabove,havelongeroperatinghistories,significantlygreaterfinancial,technical,marketing,distribution,professionalservices,orotherresourcesandgreaternamerecognitionthanus.Weexpectcompetitiontoincreaseasotherestablishedandemergingcompaniesentertheself-servicedataanalyticssoftwaremarket,ascustomerrequirementsevolve,andasnewproductsandservicesandtechnologiesareintroduced.
Webelievetheprincipalcompetitivefactorsinourmarketinclude:
• easeofuse;• platformfeatures,quality,functionality,reliability,performance,andeffectiveness;• abilitytoautomateanalyticaltasksorprocesses;• abilitytointegratewithothertechnologyinfrastructures;• visionforthemarketandproductinnovation;• softwareanalyticsexpertise;• totalcostofownership;• adherencetoindustrystandardsandcertifications;• strengthofsalesandmarketingefforts;• brandawarenessandreputation;and• customerexperience,includingsupport.
Webelievewecompetefavorablywithourcompetitorsonthebasisofthefactorsdescribedabove.Ourabilitytoremaincompetitivewilllargelydependonourongoingperformanceandqualityofourplatform.
Intellectual Property
Intellectualpropertyisanimportantaspectofourbusiness,andweseekprotectionforourintellectualpropertyasappropriate.Wecurrentlyrelyonacombinationofcopyrights,trademarks,tradesecrets,confidentialityprocedures,contractualcommitments,andotherlegalrightstoprotectourintellectualproperty.WealsocurrentlyhavefourpatentapplicationspendingintheUnitedStates.WepursuetheregistrationofourdomainnamesandtrademarksandservicemarksintheUnitedStatesandincertainlocationsoutsidetheUnitedStates.Additionally,wegenerallyrequireemployees,consultants,customers,suppliers,andchannelpartnerstoexecuteconfidentialityagreementswithusthatrestrictthedisclosureofourintellectualproperty.Wealsogenerallyrequireouremployeesandconsultantstoexecuteemployeeintellectualpropertyprotectionagreementswithusthatprotectourintellectualpropertyrights.
Intellectualpropertylaws,procedures,andrestrictionsprovideonlylimitedprotectionandanyofourintellectualpropertyrightsmaybechallenged,invalidated,circumvented,infringed,ormisappropriated.Further,thelawsofcertaincountriesdonotprotectproprietaryrightstothesameextentasthelawsoftheUnitedStatesand,therefore,incertainjurisdictions,wemaybeunabletoprotectourproprietarytechnology.Despiteoureffortstoprotectourproprietarytechnologyandourintellectualpropertyrights,unauthorizedpartiesmayattempttocopyorobtainanduseourtechnologytodevelopapplicationswiththesamefunctionalityasourapplications.Policingunauthorizeduseofourtechnologyandintellectualpropertyrightsisdifficult.
Weexpectthatsoftwareandotherapplicationsinourindustrymaybesubjecttothird-partyinfringementclaimsasthenumberofcompetitorsgrowsandthefunctionalityofapplicationsindifferentindustrysegmentsoverlaps.Anyofthesethirdpartiesmightmakeaclaimofinfringementagainstusatanytime.
Corporate Information
WewereorganizedinCaliforniainMarch1997asSRC,LLC.WechangedournametoAlteryx,LLCinMarch2010andconvertedintoaDelawarecorporationinMarch2011underthenameAlteryx,Inc.Ourprincipalexecutiveofficesarelocatedat3345MichelsonDrive,Suite400,Irvine,California92612,andourtelephonenumberis(888)836-4274.Ourwebsiteaddressiswww.alteryx.com.Theinformationcontainedon,orthatcanbeaccessedthrough,ourwebsiteisnotincorporatedbyreferenceinto,andisnotapartof,thisAnnualReport.
Unlessthecontextindicatesotherwise,theterms“Alteryx,”“theCompany,”“we,”“us,”and“our”refertoAlteryx,Inc.,aDelawarecorporation,togetherwithitsconsolidatedsubsidiaries,unlessotherwisenoted.
Alteryx,theAlteryxlogo,AlteryxDesigner,AlteryxServer,AlteryxAnalyticsGallery,AlteryxConnect,AlteryxPromote,Semanta,Yhat,andotherregisteredorcommonlawtradenames,trademarks,orservicemarksofAlteryxappearinginthisAnnualReportarethepropertyofAlteryx.ThisAnnualReportcontainsadditionaltradenames,trademarks,andservicemarksofothercompaniesthatarethepropertyoftheirrespectiveowners.Wedonotintendouruseordisplayofothercompanies’tradenames,trademarksorservicemarkstoimplyarelationshipwith,orendorsementorsponsorshipofus,bytheseothercompanies.Solelyforconvenience,ourtrademarksandtradenamesreferredtointhisAnnualReportappearwithoutthe®andTMsymbols,butthosereferencesarenotintendedtoindicate,inanyway,thatwewillnotassert,tothefullestextentunderapplicablelaw,ourrights,ortherightoftheapplicablelicensor,tothesetrademarksandtradenames.
Available Information
WefileannualreportsonForm10-K,quarterlyreportsonForm10-Q,currentreportsonForm8-K,andamendmentstoreportsfiledorfurnishedpursuanttoSections13(a),14and15(d)oftheExchangeAct.TheSecuritiesandExchangeCommission,orSEC,maintainsawebsiteathttp://www.sec.govthatcontainsreports,andotherinformationregardingusandothercompaniesthatfilematerialswiththeSECelectronically.CopiesofourreportsonForms10-K,Forms10-QandForms8-K,maybeobtained,freeofcharge,electronicallythroughourcorporatewebsiteatwww.alteryx.comassoonasreasonablypracticableafterwefilesuchmaterialelectronicallywith,orfurnishto,theSEC.
Item 1A. Risk Factors.
AninvestmentinourClassAcommonstockinvolvesahighdegreeofrisk.YoushouldcarefullyconsidertherisksdescribedbelowandtheotherinformationinthisAnnualReportandinourotherpublicfilingsbeforemakinganinvestmentdecision.Ourbusiness,prospects,financialcondition,oroperatingresultscouldbeharmedbyanyoftheserisks,aswellasotherrisksnotcurrentlyknowntousorthatwecurrentlyconsiderimmaterial.Ifanyofsuchrisksanduncertaintiesactuallyoccurs,ourbusiness,prospects,financialcondition,oroperatingresultscoulddiffermateriallyfromtheplans,projections,andotherforward-lookingstatementsincludedinthesectiontitled“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”andelsewhereinthisAnnualReportandinourotherpublicfilings.ThetradingpriceofourClassAcommonstockcoulddeclineduetoanyoftheserisks,and,asaresult,youmayloseallorpartofyourinvestment.
Risks Related to Our Business and Industry
We have a history of losses, anticipate increasing our operating expenses in the future, and may not sustain profitability.
PriortotheyearendedDecember31,2018,weincurrednetlossesineachfiscalyearsinceourinception,includingnetlossesof$17.5millionand$24.3millionintheyearsendedDecember31,2017and2016,respectively.AlthoughweexperiencednetincomeintheyearendedDecember31,2018,weexpectouroperatingexpensestoincreasesubstantiallyintheforeseeablefutureasweimplementinitiativesdesignedtogrowourbusiness,includingincreasingouroverallcustomerbaseandexpandingsaleswithinourcurrentcustomerbase,continuingtopenetrateinternationalmarkets,investinginresearchanddevelopmenttoimprovethecapabilitiesofourplatform,growingourdistributionchannelsandchannelpartnerecosystem,deepeningourusercommunity,hiringadditionalemployees,expandingouroperationsandinfrastructure,bothdomesticallyandinternationally,andinconnectionwithlegal,accounting,andotheradministrativeexpensesrelatedtooperatingasapubliccompany.Theseeffortsmayprovemoreexpensivethanwecurrentlyanticipate,andwemaynotsucceedinincreasingourrevenuesufficiently,oratall,tooffsetthesehigherexpensesandtosustainprofitability.Growthofourrevenuemaysloworrevenuemaydeclineforanumberofpossiblereasons,includingadecreaseinourabilitytoattractandretaincustomers,afailuretoincreaseournumberofchannelpartners,increasingcompetition,decreasinggrowthofouroverallmarket,andaninabilitytotimelyandcost-effectivelyintroducenewproductsandservicesthatarefavorablyreceivedbycustomersand
partners.Ifweareunabletomeettheserisksandchallengesasweencounterthem,ourbusinessandoperatingresultsmaybeadverselyaffected.
We have been growing rapidly and expect to continue to invest in our growth for the foreseeable future. If we are unable to manage our growth effectively, ourrevenue and profits could be adversely affected.
Wehaveexperiencedrapidgrowthinarelativelyshortperiodoftime.OurrevenueasrecognizedunderAccountingStandardsCodification,orASC,605,RevenueRecognition,orASC605,grewfrom$85.8millionfortheyearendedDecember31,2016to$131.6millionfortheyearendedDecember31,2017to$204.3millionfortheyearendedDecember31,2018.Ournumberoffull-timeemployeeshasincreasedsignificantlyoverthelastyear,from555employeesasofDecember31,2017toover800employeesasofDecember31,2018.WehavealsoestablishedandexpandedouroperationsinanumberofcountriesoutsidetheUnitedStates.
Weplantocontinuetoexpandouroperationsandheadcountsignificantly,andweanticipatethatfurthersignificantexpansionwillberequired.Inaddition,welicenseourplatformtocustomersinmorethan70countriesandhaveemployeesintheUnitedStates,Australia,Austria,Canada,CzechRepublic,France,Germany,Japan,Netherlands,Singapore,Ukraine,theUnitedArabEmiratesandtheUnitedKingdom.Weplantocontinuetoexpandouroperationsintoothercountriesinthefuture,whichwillplaceadditionaldemandsonourresourcesandoperations.Ourfutureoperatingresultsdependtoalargeextentonourabilitytomanagethisexpansionandgrowthsuccessfully.Sustainingourgrowthwillplacesignificantdemandsonourmanagementaswellasonouradministrative,operational,andfinancialresources.Tomanageourgrowth,wemustcontinuetoimproveouroperational,financial,andmanagementinformationsystemsandexpand,motivate,andmanageourworkforce.Ifweareunabletomanageourgrowthsuccessfullywithoutcompromisingourqualityofserviceorourprofitmargins,orifnewsystemsthatweimplementtoassistinmanagingourgrowthdonotproducetheexpectedbenefits,ourrevenueandprofitscouldbeharmed.Risksthatwefaceinundertakingfutureexpansioninclude:
• effectivelyrecruiting,integrating,training,andmotivatingalargenumberofnewemployees,includingourdirectsalesforceandengineeringanddevelopmentemployees,whileretainingexistingemployees,maintainingthebeneficialaspectsofourcorporateculture,andeffectivelyexecutingourbusinessplan;
• satisfyingexistingcustomersandattractingnewcustomers;• successfullyimprovingandexpandingthecapabilitiesofourplatformandintroducingnewproductsandservices;• expandingourchannelpartnerecosystem;• controllingexpensesandinvestmentsinanticipationofexpandedoperations;• implementingandenhancingouradministrative,operational,andfinancialinfrastructure,systems,andprocesses;• addressingnewmarkets;and• expandingoperationsintheUnitedStatesandinternationalregions.
Afailuretomanageourgrowtheffectivelycouldharmourbusiness,operatingresults,financialcondition,andabilitytomarketandsellourplatform.
Further,duetoourrecentrapidgrowth,wehavelimitedexperienceoperatingatourcurrentscaleandpotentiallyatalargerscale,andasaresult,itmaybedifficultforustofullyevaluatefutureprospectsandrisks.Ourrecentandhistoricalgrowthshouldnotbeconsideredindicativeofourfutureperformance.Wehaveencounteredinthepast,andwillencounterinthefuture,risksanduncertaintiesfrequentlyexperiencedbygrowingcompaniesinrapidlychangingindustries.Ifourassumptionsregardingtheserisksanduncertainties,whichweusetoplanandoperateourbusiness,areincorrectorchange,orifwedonotaddresstheseriskssuccessfully,ourfinancialconditionandoperatingresultscoulddiffermateriallyfromourexpectations,ourgrowthratesmayslowandourbusinesswouldbyadverselyimpacted.
Our revenue growth and ability to sustain profitability depends on being able to expand our direct sales force and increase the productivity of our sales forcesuccessfully.
Todate,themajorityofourrevenuehasbeenattributabletotheeffortsofourdirectsalesforceintheUnitedStates.Inordertoincreaseourrevenueandsustainprofitability,wemustincreasethesizeofourdirectsalesforce,bothintheUnitedStatesandinternationally,togenerateadditionalrevenuefromnewandexistingcustomers.Weintendtosubstantiallyfurtherincreaseournumberofdirectsalesprofessionals.
Webelievethatthereissignificantcompetitionforsalespersonnelwiththeskillsandtechnicalknowledgethatwerequire.Ourabilitytoachievesignificantrevenuegrowthwilldepend,inlargepart,onoursuccessinrecruiting,training,andretainingsufficientnumbersofdirectsalespersonneltosupportourgrowth.Newhiresrequiresignificanttrainingandtypicallytakesixmonthsormoretoachievefullproductivity.Ourrecenthiresandplannedhiresmaynotbecomeproductiveasquickly
asweexpectandifournewsalesemployeesdonotbecomefullyproductiveonthetimelinesthatwehaveprojectedoratall,ourrevenuewillnotincreaseatanticipatedlevelsandourabilitytoachievelongtermprojectionsmaybenegativelyimpacted.Wemayalsobeunabletohireorretainsufficientnumbersofqualifiedindividualsinthemarketswherewedobusinessorplantodobusiness.Furthermore,hiringsalespersonnelinnewcountriesrequiresadditionalsetupandupfrontcoststhatwemaynotrecoverifthesalespersonnelfailtoachievefullproductivity.Inaddition,aswecontinuetogrowrapidly,alargepercentageofoursalesforcewillbenewtoourcompanyandourplatform,whichmayadverselyaffectoursalesifwecannottrainoursalesforcequicklyoreffectively.Attritionratesmayincrease,andwemayfaceintegrationchallengesaswecontinuetoseektoaggressivelyexpandoursalesforce.Ifweareunabletohireandtrainsufficientnumbersofeffectivesalespersonnel,orthesalespersonnelarenotsuccessfulinobtainingnewcustomersorincreasingsalestoourexistingcustomerbase,ourbusinesswillbeadverselyaffected.
Weperiodicallychangeandmakeadjustmentstooursalesorganizationinresponsetomarketopportunities,competitivethreats,managementchanges,productintroductionsorenhancements,acquisitions,salesperformance,increasesinsalesheadcount,costlevelsandotherinternalandexternalconsiderations.Anyfuturesalesorganizationchangesmayresultinatemporaryreductionofproductivity,whichcouldnegativelyaffectourrateofgrowth.Inaddition,anysignificantchangetothewaywestructureourcompensationofoursalesorganizationmaybedisruptiveandmayaffectourrevenuegrowth.
If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute toour success, and our business may be harmed.
Webelievethatourcorporateculturehasbeenvitaltooursuccess,includinginattracting,developing,andretainingpersonnel,aswellasourcustomers.Aswecontinuetogrowandfaceindustrychallenges,itmaybecomemorechallengingtomaintainthatculture.Inaddition,weplantoexpandourinternationaloperationsintoothercountriesinthefuture,whichmayimpactourcultureasweseektofind,hire,andintegrateadditionalemployeeswhilemaintainingourcorporateculture.Ifweareunabletomaintainourcorporateculture,wecouldlosetheinnovation,passion,anddedicationofourteamandasaresult,ourbusinessandabilitytofocusonourcorporateobjectivesmaybeharmed.
We have a limited operating history under our current business model, which makes it difficult to evaluate our business and prospects and increases the risksassociated with your investment.
Althoughwehavebeenoperatingourbusinesssince1997,wechangedourbusinessmodelsignificantlyandfirstlaunchedoursoftwareplatformin2010.Further,since2013,wehavelicensedourplatformtocustomersunderasubscription-basedmodel.Asaresult,ourbusinessmodelhasnotbeenfullyproven,andwehaveonlyalimitedoperatinghistorywithournewbusinessmodeltoevaluateourbusinessandfutureprospects,whichsubjectsustoanumberofuncertainties,includingourabilitytoplanforandmodelfuturegrowth.Ourhistoricalrevenuegrowthshouldnotbeconsideredindicativeofourfutureperformance.Wehaveencounteredandwillcontinuetoencounterrisksanddifficultiesfrequentlyexperiencedbygrowingcompaniesinrapidlychangingindustries,includingachievingmarketacceptanceofourplatform,attractingandretainingcustomers,growingpartnershipsanddistributionofourplatform,increasingcompetition,andincreasingexpensesaswecontinuetogrowourbusiness.Wecannotassureyouthatwewillbesuccessfulinaddressingtheseandotherchallengeswemayfaceinthefutureandifwedonotmanagetheseriskssuccessfully,ourbusinessmaybeadverselyaffected.Inaddition,wemaynotachievesufficientrevenuetomaintainpositivecashflowfromoperationsorprofitabilityinanygivenperiod.
If the market for analytics products and services fails to grow as we expect, or if businesses fail to adopt our platform, our business, operating results, andfinancial condition could be adversely affected.
Nearlyallourrevenuehascomefromlicensesofoursubscription-basedsoftwareplatform,andweexpectthesesalestoaccountforalargeportionofourrevenuefortheforeseeablefuture.Althoughdemandforanalyticsproductsandserviceshasgrowninrecentyears,themarketforanalyticsproductsandservicescontinuestoevolveandthesecularshifttowardsself-serviceanalyticsmaynotbeassignificantasweexpect.Wecannotbesurethatthismarketwillcontinuetogrowor,evenifitdoesgrow,thatbusinesseswilladoptourplatform.Ourfuturesuccesswilldependinlargepartonourabilitytofurtherpenetratetheexistingmarketforbusinessanalyticssoftware,aswellasthecontinuedgrowthandexpansionofwhatwebelievetobeanemergingmarketforanalyticsproductsandservicesthatarefaster,easiertoadopt,easiertouse,andmorefocusedonself-servicecapabilities.Ourabilitytofurtherpenetratethebusinessanalyticsmarketdependsonanumberoffactors,includingthecost,performance,andperceivedvalueassociatedwithourplatform,aswellascustomers’willingnesstoadoptadifferentapproachtodataanalysis.Wehavespent,andintendtokeepspending,considerableresourcestoeducatepotentialcustomersaboutanalyticsproductsandservicesingeneralandourplatforminparticular.However,wecannotbesurethattheseexpenditureswillhelpourplatformachieveanyadditionalmarketacceptance.Furthermore,potentialcustomersmayhavemadesignificantinvestmentsinlegacyanalyticssoftwaresystemsandmaybeunwillingtoinvestinnewproductsandservices.Inaddition,resistancefromconsumerandprivacygroupstoincreasedcommercialcollectionanduseofdataonspendingpatternsandotherpersonalbehaviorandgovernmentalrestrictionsonthecollectionanduseofpersonaldatamay
impairthefurthergrowthofthismarketbyreducingthevalueofdatatoorganizations,asmayotherdevelopments.Ifthemarketfailstogroworgrowsmoreslowlythanwecurrentlyexpectorbusinessesfailtoadoptourplatform,ourbusiness,operatingresults,andfinancialconditioncouldbeadverselyaffected.
We derive a large portion of our revenue from our software platform, and our future growth is dependent on its success.
Nearlyallofourrevenuehascomefromsalesofoursubscription-basedsoftwareplatformandbecauseweexpectthesesalestoaccountforalargeportionofourrevenuefortheforeseeablefuture,thecontinuedgrowthinmarketdemandforourplatformiscriticaltoourcontinuedsuccess.Withinthelasteighteenmonths,weannouncedtwonewproductsforoursoftwareplatform,AlteryxConnectandAlteryxPromote,butcannotbecertainthateitherproductwillgeneratesignificantrevenue.Inaddition,AlteryxConnectisdesignedtobeusedwithourAlteryxServerproductandwillnotbesoldindependently.Accordingly,ourbusinessandfinancialresultswillcontinuetobesubstantiallydependentonoursinglesoftwareplatform.
If we are unable to attract new customers and expand sales to existing customers, both domestically and internationally, our revenue growth could be slowerthan we expect and our business may be harmed.
Ourfuturerevenuegrowthdependsinpartuponincreasingourcustomerbase.Ourabilitytoachievesignificantgrowthinrevenueinthefuturewilldepend,inlargepart,upontheeffectivenessofourmarketingefforts,bothdomesticallyandinternationally,andourabilitytoattractnewcustomers.Inparticular,wearedependentuponleadgenerationstrategiestodriveoursalesandrevenue.Ifthesemarketingstrategiesfailtocontinuetogeneratesufficientsalesopportunitiesnecessarytoincreaseourrevenueandtotheextentthatweareunabletosuccessfullyattractandexpandourcustomerbase,wewillnotrealizetheintendedbenefitsofthesemarketingstrategiesandourabilitytogrowourrevenuemaybeadverselyaffected.
Demandforourplatformbynewcustomersmayalsobeaffectedbyanumberoffactors,manyofwhicharebeyondourcontrol,suchascontinuedmarketacceptanceofourplatformforexistingandnewusecases,thetimingofdevelopmentandnewreleasesofoursoftware,technologicalchange,growthorcontractioninouraddressablemarket,andaccessibilityacrossoperatingsystems.Inaddition,ifcompetitorsintroducelowercostordifferentiatedproductsorservicesthatareperceivedtocompetewithourproductsandservices,ourabilitytosellourproductsandservicesbasedonfactorssuchaspricing,technologyandfunctionalitycouldbeimpaired.Asaresult,wemaybeunabletoattractnewcustomersatratesorontermsthatwouldbefavorableorcomparabletopriorperiods,whichcouldnegativelyaffectthegrowthofourrevenue.Attractingnewcustomersmayalsobeparticularlychallengingwhereanorganizationhasalreadyinvestedsubstantialpersonnelandfinancialresourcestointegratetraditionaldataanalyticstoolsintoitsbusiness,assuchorganizationmaybereluctantorunwillingtoinvestinnewproductsandservices.Ifwefailtoattractnewcustomersandmaintainandexpandthosecustomerrelationships,ourrevenuewillgrowmoreslowlythanexpectedandourbusinesswillbeharmed.
Evenifwecontinuetoattractnewcustomers,thecostofnewcustomeracquisitionmayprovesohighastopreventusfromsustainingprofitability.Ourfuturerevenuegrowthalsodependsuponexpandingsalesandrenewalsofsubscriptionstoourplatformwithexistingcustomers.Ifourcustomersdonotpurchaseadditionallicensesorcapabilities,ourrevenuemaygrowmoreslowlythanexpected,maynotgrowatallormaydecline.Additionally,increasingincrementalsalestoourcurrentcustomerbaserequiresincreasinglysophisticatedandcostlysaleseffortsthataretargetedatseniormanagement.Weplantocontinueexpandingoursalesefforts,bothdomesticallyandinternationally,butwemaybeunabletohirequalifiedsalespersonnel,maybeunabletosuccessfullytrainthosesalespersonnelthatweareabletohire,andsalespersonnelmaynotbecomefullyproductiveonthetimelinesthatwehaveprojectedoratall.Additionally,althoughwededicatesignificantresourcestosalesandmarketingprograms,includingInternetandotheronlineadvertising,thesesalesandmarketingprogramsmaynothavethedesiredeffectandmaynotexpandsales.Wecannotassureyouthatoureffortswouldresultinincreasedsalestoexistingcustomers,andadditionalrevenue.Ifoureffortstoupselltoourcustomersarenotsuccessful,ourbusinessandoperatingresultswouldbeadverselyaffected.
Ourcustomersgenerallyenterintolicenseagreementswithonetothreeyearsubscriptiontermsandhavenoobligationorcontractualrighttorenewtheirsubscriptionsaftertheexpirationoftheirinitialsubscriptionperiod.Moreover,ourcustomersthatdorenewtheirsubscriptionsmayrenewforlowersubscriptionamountsorforshortersubscriptionperiods.Customerrenewalratesmaydeclineorfluctuateasaresultofanumberoffactors,includingthebreadthofearlydeployment,reductionsinourcustomers’spendinglevels,ourpricingorpricingstructure,thepricingorcapabilitiesofproductsorservicesofferedbyourcompetitors,ourcustomers’satisfactionordissatisfactionwithourplatform,ortheeffectsofeconomicconditions.Ifourcustomersdonotrenewtheiragreementswithus,orrenewontermslessfavorabletous,ourrevenuemaydecline.
If we are unable to develop and release product and service enhancements and new products and services to respond to rapid technological change in a timelyand cost-effective manner, our business, operating results, and financial condition could be adversely affected.
Themarketforourplatformischaracterizedbyrapidtechnologicalchange,frequentnewproductandserviceintroductionsandenhancements,changingcustomerdemands,andevolvingindustrystandards.Theintroductionofproductsandservicesembodyingnewtechnologiescanquicklymakeexistingproductsandservicesobsoleteandunmarketable.Analyticsproductsandservicesareinherentlycomplex,anditcantakealongtimeandrequiresignificantresearchanddevelopmentexpenditurestodevelopandtestneworenhancedproductsandservices.Thesuccessofanyenhancementsorimprovementstoourplatformoranynewproductsandservicesdependsonseveralfactors,includingtimelycompletion,competitivepricing,adequatequalitytesting,integrationwithexistingtechnologiesandourplatform,andoverallmarketacceptance.Wecannotbesurethatwewillsucceedindeveloping,marketing,anddeliveringonatimelyandcost-effectivebasisenhancementsorimprovementstoourplatformoranynewproductsandservicesthatrespondtotechnologicalchangeornewcustomerrequirements,norcanwebesurethatanyenhancementsorimprovementstoourplatformoranynewproductsandserviceswillachievemarketacceptance.Anynewproductsthatwedevelopmaynotbeintroducedinatimelyorcost-effectivemanner,maycontainerrorsordefects,ormaynotachievethebroadmarketacceptancenecessarytogeneratesufficientrevenue.Moreover,evenifweintroducenewproductsandservices,wemayexperienceadeclineinrevenueofourexistingproductsandservicesthatisnotoffsetbyrevenuefromthenewproductsorservices.Forexample,customersmaydelaymakingpurchasesofnewproductsandservicestopermitthemtomakeamorethoroughevaluationoftheseproductsandservicesoruntilindustryandmarketplacereviewsbecomewidelyavailable.Somecustomersmayhesitatemigratingtoanewproductorserviceduetoconcernsregardingthecomplexityofmigrationandproductorserviceinfancyissuesonperformance.Further,wemaymakechangestoourplatformthatcustomersdonotfindusefulandwemayalsodiscontinuecertainfeaturesorincreasethepriceorpricestructureforourplatform.Inaddition,wemayloseexistingcustomerswhochooseacompetitor’sproductsandservicesratherthanmigratetoournewproductsandservices.Thiscouldresultinatemporaryorpermanentrevenueshortfallandadverselyaffectourbusiness.
Further,theemergenceofnewindustrystandardsrelatedtoanalyticsproductsandservicesmayadverselyaffectthedemandforourplatform.ThiscouldhappenifnewInternetstandardsandtechnologiesornewstandardsinthefieldofoperatingsystemsupportemergedthatwereincompatiblewithcustomerdeploymentsofourplatform.Forexample,ifweareunabletoadaptourplatformonatimelybasistonewdatabasestandards,theabilityofourplatformtoaccesscustomerdatabasesandtoanalyzedatawithinsuchdatabasescouldbeimpaired.Inaddition,becausepartofourplatformiscloud-based,weneedtocontinuallyenhanceandimproveourplatformtokeeppacewithchangesinInternet-relatedhardware,software,communications,anddatabasetechnologiesandstandards.
Anyfailureofourplatformtooperateeffectivelywithfutureinfrastructureplatformsandtechnologiescouldreducethedemandforourplatform.Ifweareunabletorespondtothesechangesinatimelyandcost-effectivemanner,ourplatformmaybecomelessmarketable,lesscompetitive,orobsolete,andouroperatingresultsmaybeadverselyaffected.
Moreover,software-as-a-service,orSaaS,businessmodelshavebecomeincreasinglydemandedbycustomersandadoptedbyothersoftwareproviders,includingourcompetitors.Whilepartofourplatformiscloud-based,mostofourplatformiscurrentlydeployedonpremiseandtherefore,ifcustomersdemandthatourplatformbeprovidedthroughaSaaSbusinessmodel,wewouldberequiredtomakeadditionalinvestmentstoourinfrastructureinordertobeabletomorefullyprovideourplatformthroughaSaaSmodelsothatourplatformremainscompetitive.Suchinvestmentsmayinvolveexpandingourdatacenters,servers,andnetworksandincreasingourtechnicaloperationsandengineeringteams.
The competitive position of our software platform depends in part on its ability to operate with third-party products and services, and if we are not successful inmaintaining and expanding the compatibility of our platform with such third-party products and services, our business, financial position, and operatingresults could be adversely impacted.
Thecompetitivepositionofoursoftwareplatformdependsinpartonitsabilitytooperatewithproductsandservicesofthirdparties,softwareservicesandinfrastructure.Assuch,wemustcontinuouslymodifyandenhanceourplatformtoadapttochangesinhardware,software,networking,browser,anddatabasetechnologies.Inthefuture,oneormoretechnologycompaniesmaychoosenottosupporttheoperationoftheirhardware,software,orinfrastructure,orourplatformmaynotsupportthecapabilitiesneededtooperatewithsuchhardware,software,orinfrastructure.Inaddition,totheextentthatathirdpartyweretodevelopsoftwareorservicesthatcompetewithours,thatprovidermaychoosenottosupportourplatform.Weintendtofacilitatethecompatibilityofoursoftwareplatformwithvariousthird-partyhardware,software,andinfrastructurebymaintainingandexpandingourbusinessandtechnicalrelationships.Ifwearenotsuccessfulinachievingthisgoal,ourbusiness,financialcondition,andoperatingresultscouldbeadverselyimpacted.
We face intense and increasing competition, and we may not be able to compete effectively, which could reduce demand for our platform and adversely affectour business, revenue growth, and market share.
Themarketforself-servicedataanalyticssolutionsisnewandrapidlyevolving.Inmanycases,ourprimarycompetitorsaremanual,spreadsheet-drivenprocessesandcustom-builtapproachesinwhichpotentialcustomershavemadesignificantinvestments.Inaddition,wecompetewithlargesoftwarecompanies,includingprovidersoftraditionalbusinessintelligencetoolsthatofferoneormorecapabilitiesthatarecompetitivewithourplatform.Thesecapabilitiesincludedatapreparationand/oradvancedanalyticmodelingtoolsfromIBM,Microsoft,Oracle,SAP,andSASInstitute.Additionally,datavisualizationcompanieswhichalreadyofferproductsandservicesinadjacentmarketshaverecentlyintroducedproductsandservicesthatmaybecomecompetitivewithourofferingsinthefuture.Wecouldalsofacecompetitionfromnewmarketentrants,someofwhommightbeourcurrenttechnologypartners.Inaddition,somebusinessanalyticssoftwarecompaniesoffernichedatapreparationoptionsthatarecompetitivewithsomeofthefeatureswithinourplatform,suchasDataiku,MicroStrategy,Talend,Tableau,TIBCOSoftwareandTrifacta.
Manyofourcurrentandpotentialcompetitors,particularlythelargesoftwarecompaniesnamedabove,havelongeroperatinghistories,significantlygreaterfinancial,technical,marketing,distribution,professionalservices,orotherresourcesandgreaternamerecognitionthanus.Weexpectcompetitiontoincreaseasotherestablishedandemergingcompaniesentertheself-servicedataanalyticssoftwaremarket,ascustomerrequirementsevolve,andasnewproductsandservicesandtechnologiesareintroduced.Inaddition,manyofourcurrentandpotentialcompetitorshavestrongrelationshipswithcurrentandpotentialcustomersandextensiveknowledgeofthebusinessanalyticsindustry.Asaresult,ourcurrentandpotentialcompetitorsmaybeabletorespondmorequicklyandeffectivelythanwecantoneworchangingopportunities,technologies,standards,orcustomerrequirementsordevotegreaterresourcesthanwecantothedevelopment,promotion,andsaleoftheirproductsandservices.Moreover,manyofthesecompaniesarebundlingtheiranalyticsproductsandservicesintolargerdealsorsubscriptionrenewals,oftenatsignificantdiscountsaspartofalargersale.Inaddition,somecurrentandpotentialcompetitorsmayofferproductsorservicesthataddressoneoranumberoffunctionsatlowerpricesoratnocost,orwithgreaterdepththanourplatform.Ourcurrentandpotentialcompetitorsmaydevelopandmarketnewtechnologieswithcomparablefunctionalitytoourplatform.Wemayexperiencefewercustomerorders,reducedgrossmargins,longersalescycles,andlossofmarketshare.Thiscouldleadustodecreaseprices,implementalternativepricingstructures,orintroduceproductsandservicesavailableforfreeoranominalpriceinordertoremaincompetitive.Wemaynotbeabletocompetesuccessfullyagainstcurrentandfuturecompetitors,andourbusiness,operatingresults,andfinancialconditionwillbeharmedifwefailtomeetthesecompetitivepressures.
Ourabilitytocompetesuccessfullyinourmarketdependsonanumberoffactors,bothwithinandoutsideofourcontrol.Webelievetheprincipalcompetitivefactorsinourmarketinclude:easeofuse;platformfeatures,quality,functionality,reliability,performance,andeffectiveness;abilitytoautomateanalyticaltasksorprocesses;abilitytointegratewithothertechnologyinfrastructures;visionforthemarketandproductinnovation;softwareanalyticsexpertise;totalcostofownership;adherencetoindustrystandardsandcertifications;strengthofsalesandmarketingefforts;brandawarenessandreputation;andcustomerexperience,includingsupport.Anyfailurebyustocompetesuccessfullyinanyoneoftheseorotherareasmayreducethedemandforourplatform,aswellasadverselyaffectourbusiness,operatingresults,andfinancialcondition.
Moreover,currentandfuturecompetitorsmayalsomakestrategicacquisitionsorestablishcooperativerelationshipsamongthemselvesorwithothers,includingourcurrentorfuturetechnologypartners.Bydoingso,thesecompetitorsmayincreasetheirabilitytomeettheneedsofourcustomersorpotentialcustomers.Inaddition,ourcurrentorprospectiveindirectsaleschannelpartnersmayestablishcooperativerelationshipswithourcurrentorfuturecompetitors.Theserelationshipsmaylimitourabilitytosellorcertifyourplatformthroughspecificdistributors,technologyproviders,databasecompanies,anddistributionchannelsandallowourcompetitorstorapidlygainsignificantmarketshare.Thesedevelopmentscouldlimitourabilitytoobtainrevenuefromexistingandnewcustomers.Ifweareunabletocompetesuccessfullyagainstcurrentandfuturecompetitors,ourbusiness,operatingresults,andfinancialconditionwouldbeharmed.
If we fail to develop, maintain, and enhance our brand and reputation cost-effectively, our business and financial condition may be adversely affected.
Webelievethatdeveloping,maintaining,andenhancingawarenessandintegrityofourbrandandreputationinacost-effectivemannerareimportanttoachievingwidespreadacceptanceofourplatformandareimportantelementsinattractingnewcustomersandmaintainingexistingcustomers.Webelievethattheimportanceofourbrandandreputationwillincreaseascompetitioninourmarketfurtherintensifies.Successfulpromotionofourbrandwilldependontheeffectivenessofourmarketingefforts,ourabilitytoprovideareliableandusefulplatformatcompetitiveprices,theperceivedvalueofourplatform,andourabilitytoprovidequalitycustomersupport.Brandpromotionactivitiesmaynotyieldincreasedrevenue,andeveniftheydo,theincreasedrevenuemaynotoffsettheexpensesweincurinbuildingandmaintainingourbrandand
reputation.Wealsorelyonourcustomerbaseandcommunityofend-usersinavarietyofways,includingtogiveusfeedbackonourplatformandtoprovideuser-basedsupporttoourothercustomers.Ifwefailtopromoteandmaintainourbrandsuccessfullyortomaintainloyaltyamongourcustomers,orifweincursubstantialexpensesinanunsuccessfulattempttopromoteandmaintainourbrand,wemayfailtoattractnewcustomersandpartnersorretainourexistingcustomersandpartnersandourbusinessandfinancialconditionmaybeadverselyaffected.Anynegativepublicityrelatingtoouremployees,partners,orothersassociatedwiththeseparties,mayalsotarnishourownreputationsimplybyassociationandmayreducethevalueofourbrand.Damagetoourbrandandreputationmayresultinreduceddemandforourplatformandincreasedriskoflosingmarketsharetoourcompetitors.Anyeffortstorestorethevalueofourbrandandrebuildourreputationmaybecostlyandmaynotbesuccessful.
We use channel partners and if we are unable to establish and maintain successful relationships with them, our business, operating results, and financialcondition could be adversely affected.
Inadditiontoourdirectsalesforce,weusechannelpartnerssuchastechnologyalliances,systemintegrators,managementconsultingfirms,andvalue-addedresellerstosellandsupportourplatform.Channelpartnersarebecominganincreasinglyimportantaspectofourbusiness,particularlywithregardtoenterprise,governmental,andinternationalsales.Ourfuturegrowthinrevenueandabilitytosustainprofitabilitydependsinpartonourabilitytoidentify,establish,andretainsuccessfulchannelpartnerrelationshipsintheUnitedStatesandinternationally,whichwilltakesignificanttimeandresourcesandinvolvesignificantrisk.Weintendtomakesignificantinvestmentstogrowourindirectsaleschannel.Ifweareunabletomaintainourrelationshipswiththesechannelpartners,orotherwisedevelopandexpandourindirectdistributionchannel,ourbusiness,operatingresults,financialcondition,orcashflowscouldbeadverselyaffected.
Wecannotbecertainthatwewillbeabletoidentifysuitableindirectsaleschannelpartners.Totheextentwedoidentifysuchpartners,wewillneedtonegotiatethetermsofacommercialagreementwiththemunderwhichthepartnerwoulddistributeourplatform.Wecannotbecertainthatwewillbeabletonegotiatecommercially-attractivetermswithanychannelpartner,ifatall.Inaddition,allchannelpartnersmustbetrainedtodistributeourplatform.Inordertodevelopandexpandourdistributionchannel,wemustdevelopandimproveourprocessesforchannelpartnerintroductionandtraining.Ifwedonotsucceedinidentifyingsuitableindirectsaleschannelpartners,ourbusiness,operatingresults,andfinancialconditionmaybeadverselyaffected.
Wealsocannotbecertainthatwewillbeabletomaintainsuccessfulrelationshipswithanychannelpartnersand,totheextentthatourchannelpartnersareunsuccessfulinsellingourplatform,ourabilitytosellourplatformandourbusiness,operatingresults,andfinancialconditioncouldbeadverselyaffected.Ourchannelpartnersmayoffercustomerstheproductsandservicesofseveraldifferentcompanies,includingproductsandservicesthatcompetewithourplatform.Becauseourchannelpartnersgenerallydonothaveanexclusiverelationshipwithus,wecannotbecertainthattheywillprioritizeorprovideadequateresourcestosellingourplatform.Moreover,divergenceinstrategybyanyofthesechannelpartnersmaymateriallyadverselyaffectourabilitytodevelop,market,sell,orsupportourplatform.Wecannotassureyouthatourchannelpartnerswillcontinuetocooperatewithus.Inaddition,actionstakenoromittedtobetakenbysuchpartiesmayadverselyaffectus.Inaddition,werelyonourchannelpartnerstooperateinaccordancewiththetermsoftheircontractualagreementswithus.Forexample,ouragreementswithourchannelpartnerslimitthetermsandconditionspursuanttowhichtheyareauthorizedtoresellordistributeourplatformandoffertechnicalsupportandrelatedservices.Wealsotypicallyrequireourchannelpartnerstorepresenttousthedatesanddetailsoflicensessoldthroughtoourcustomers.Ifourchannelpartnersdonotcomplywiththeircontractualobligationstous,ourbusiness,operatingresults,andfinancialconditionmaybeadverselyaffected.
Inaddition,alloursalestoFederalgovernmententitieshavebeenmadeindirectlythroughourchannelpartners.Governmententitiesmayhavestatutory,contractual,orotherlegalrightstoterminatecontractswithourchannelpartnersforconvenienceorduetoadefault,and,inthefuture,iftheportionofgovernmentcontractsthataresubjecttorenegotiationorterminationattheelectionofthegovernmententityarematerial,anysuchterminationorrenegotiationmayadverselyimpactourfutureoperatingresults.Intheeventofsuchtermination,itmaybedifficultforustoarrangeforanotherchannelpartnertosellourplatformtothesegovernmententitiesinatimelymanner,andwecouldlosesalesopportunitiesduringthetransition.Governmententitiesroutinelyinvestigateandauditgovernmentcontractors’administrativeprocesses,andanyunfavorableauditcouldresultinthegovernmententityrefusingtorenewitssubscriptiontoourplatform,areductionofrevenue,orfinesorcivilorcriminalliabilityiftheaudituncoversimproperorillegalactivities.
We depend on technology and data licensed to us by third parties that may be difficult to replace or cause errors or failures that may impair or delayimplementation of our products and services or force us to pay higher license fees.
Welicensethird-partytechnologiesanddatathatweincorporateinto,usetooperate,andprovidewithourplatform.Wecannotassureyouthatthelicensesforsuchthird-partytechnologiesordatawillnotbeterminatedorthatwewillbeabletolicensethird-partysoftwareordataforfutureproductsandservices.Thirdpartiesmayterminatetheirlicenseswithusforavarietyofreasons,includingactualorperceivedfailuresorbreachesofsecurityorprivacy.Inaddition,wemaybeunabletorenegotiateacceptablethird-partyreplacementlicensetermsintheeventoftermination,orwemaybesubjecttoinfringementliabilityifthird-partysoftwareordatathatwelicenseisfoundtoinfringeintellectualpropertyorprivacyrightsofothers.Inaddition,thedatathatwelicensefromthirdpartiesforpotentialuseinourplatformmaycontainerrorsordefects,whichcouldnegativelyimpacttheanalyticsthatourcustomersperformonorwithsuchdata.Thismayhaveanegativeimpactonhowourplatformisperceivedbyourcurrentandpotentialcustomersandcouldmateriallydamageourreputationandbrand.
Changesinorthelossofthird-partylicensescouldleadtoourplatformbecominginoperableortheperformanceofourplatformbeingmateriallyreducedresultinginourpotentiallyneedingtoincuradditionalresearchanddevelopmentcoststoensurecontinuedperformanceofourplatformoramaterialincreaseinthecostsoflicensing,andwemayexperiencedecreaseddemandforourplatform.
Our long-term success depends, in part, on our ability to expand the licensing of our software platform to customers located outside of the United States andour current, and any further, expansion of our international operations exposes us to risks that could have a material adverse effect on our business, operatingresults, and financial condition.
Wearegeneratingagrowingportionofourrevenuefrominternationallicenses,andconductourbusinessactivitiesinvariousforeigncountries,includingsomeemergingmarketswherewehavelimitedexperience,wherethechallengesofconductingourbusinesscanbesignificantlydifferentfromthosewehavefacedinmoredevelopedmarketsandwherebusinesspracticesmaycreateinternalcontrolrisks.Forexample,weacquiredAlteryxANZinFebruary2018,whichhasoperationsinAustralia.Therearecertainrisksinherentinconductinginternationalbusiness,including:
• fluctuationsinforeigncurrencyexchangerates;• new,orchangesin,regulatoryrequirements;• tariffs,exportandimportrestrictions,restrictionsonforeigninvestments,sanctions,andothertradebarriersorprotectionmeasures;• costsoflocalizingproductsandservices;• lackofacceptanceoflocalizedproductsandservices;• theneedtomakesignificantinvestmentsinpeople,solutionsandinfrastructure,typicallywellinadvanceofrevenuegeneration;• challengesinherentinefficientlymanaginganincreasednumberofemployeesoverlargegeographicdistances,includingtheneedtoimplement
appropriatesystems,policies,benefitsandcomplianceprograms;• difficultiesinmaintainingourcompanyculturewithadispersedanddistantworkforce;• taxissues,includingwithrespecttoourcorporateoperatingstructureandintercompanyarrangements;• weakerintellectualpropertyprotection;• economicweaknessorcurrency-relatedcrises;• theburdenofcomplyingwithawidevarietyoflaws,includingthoserelatingtolabormatters,consumeranddataprotection,privacy,networksecurity,
encryption,andtaxes;• generallylongerpaymentcyclesandgreaterdifficultyincollectingaccountsreceivable;• ourabilitytoadapttosalespracticesandcustomerrequirementsindifferentcultures;• thelackofreferencecustomersandothermarketingassetsinregionalmarketsthatarenewordevelopingforus,aswellasotheradaptationsinour
marketgenerationeffortsthatwemaybeslowtoidentifyandimplement;• dependenceoncertainthirdparties,includingresellerswithwhomwedonothaveextensiveexperience;• corporateespionage;and• politicalinstabilityandsecurityrisksinthecountrieswherewearedoingbusiness.
Forexample,inJune2016,theUnitedKingdomheldareferendumandvotedinfavorofleavingtheEuropeanUnionandinMarch2017theUnitedKingdomprovidednotificationofitsintenttoleavetheEuropeanUnion.Withoutfurtheragreement,theUnitedKingdomwillformallyleavetheEuropeanUnioninMarch2019.Thishascreatedpoliticalandeconomicuncertainty,particularlyintheUnitedKingdomandtheEuropeanUnion,andcouldcausedisruptionsto,andcreateuncertaintysurrounding,ourbusinessintheUnitedKingdomandEuropeanUnion,includingaffectingourrelationshipswithourexistingandprospectivecustomers,partners,andemployees,andcouldhaveamaterialimpactontheregulatoryregimeapplicabletoouroperationsintheUnitedKingdom.
Wehaveundertaken,andmightundertakeadditional,corporateoperatingrestructuringsthatinvolveourgroupofforeigncountrysubsidiariesthroughwhichwedobusinessabroad.Weconsidervariousfactorsinevaluatingtheserestructurings,includingthealignmentofourcorporatelegalentitystructurewithourorganizationalstructureanditsobjectives,theoperationalandtaxefficiencyofourgroupstructure,andthelong-termcashflowsandcashneedsofourbusiness.Ifineffectual,suchrestructuringscouldincreaseourincometaxliabilities,andinturn,increaseourglobaleffectivetaxrate.
Taxlawsaredynamicandsubjecttochangeasnewlawsarepassedandnewinterpretationsofthelawareissuedorapplied.TheU.S.enactedsignificanttaxreforminDecember2017,andwearecontinuingtoevaluateitsimpactasnewguidanceandregulationsarepublished.Inaddition,theOrganizationforEconomicCo-operationandDevelopment,orOECD,issuedfinalactionitemsorproposalsrelatedtoitsinitiativetocombatbaseerosionandprofitshifting,orBEPS.TheOECDurgeditsmemberstoadoptsomeoralloftheproposalstocounteracttheeffectsoftheuseoftaxhavensandpreferentialtaxregimesglobally.OneBEPSproposalredefinesa“permanentestablishment,”andchangeshowprofitswouldbeattributedtothepermanentestablishment.Anotherproposalcallsforinsuringtransferpricingoutcomesarecommensuratewithvaluecreation,adoptingtheviewthecurrentrulesfacilitatethetransferofrisks,capital,andincomeawayfromcountrieswhereeconomicactivitytakesplace.WeexpectmanycountriestoincorporatetheBEPSproposalsintotheirlaws.Severalcountrieshavechangedorproposedchangesthatincorporatesomeoralloftheproposals.
Someoftheseproposals,ifenactedintolawintheUnitedStatesandintheforeigncountrieswherewedobusiness,couldincreasetheburdenandcostsofourtaxcompliance.Moreover,suchchangescouldincreasetheamountoftaxesweincurinthosejurisdictions,andinturn,increaseourglobaleffectivetaxrate.Itisunclearwhether,andtowhatextent,theUnitedStatesandothercountrieswillenactintolawtheaboveorsimilarproposals.
Inaddition,compliancewithforeignandU.S.lawsandregulationsthatareapplicabletoourinternationaloperationsiscomplexandmayincreaseourcostofdoingbusinessininternationaljurisdictions,andourinternationaloperationscouldexposeustofinesandpenaltiesifwefailtocomplywiththeseregulations.Theselawsandregulationsincludeimportandexportrequirementsandanti-briberylaws,suchastheUnitedStatesForeignCorruptPracticesActof1977,asamended,ortheFCPA,theUnitedKingdomBriberyAct2010,ortheBriberyAct,andlocallawsprohibitingcorruptpaymentstogovernmentalofficials.Althoughwehaveimplementedpoliciesandproceduresdesignedtohelpensurecompliancewiththeselaws,wecannotassureyouthatouremployees,partners,andotherpersonswithwhomwedobusinesswillnottakeactionsinviolationofourpoliciesortheselaws.Anyviolationsoftheselawscouldsubjectustocivilorcriminalpenalties,includingsubstantialfinesorprohibitionsonourabilitytoofferourplatforminoneormorecountries,andcouldalsomateriallydamageourreputationandourbrand.Thesefactorsmayhaveanadverseeffectonourfuturesalesand,consequently,onourbusiness,operatingresults,andfinancialcondition.
Because we recognize a portion of the revenue from our subscriptions over the subscription term, downturns or upturns in new sales and renewals may not beimmediately and fully reflected in our operating results and may be difficult to discern.
AsaresultofouradoptionofAccountingStandardsUpdate,orASU,2014-09,RevenuefromContractswithCustomers(Topic606),orASC606,wegenerallyrecognizeaportionofthesubscriptionrevenuefromcustomersatapointintimewhentheplatformisfirstmadeavailabletothecustomer,orthebeginningofthesubscriptionterm,iflater.Revenuerelatedtopost-contractsupport,orPCS,cloud-basedofferings,anddatasubscriptionsisrecognizedratablyoverthesubscriptionterms.PriortoouradoptionofASC606,asignificantportionoftherevenuewereportedineachquarterwasderivedfromtherecognitionofdeferredrevenuerelatingtosubscriptionsenteredintoduringpreviousquarters.Consequently,adeclineinneworrenewedsubscriptionsinanyquartermayhavehadasmallimpactonourrevenueforthatquarter.However,suchadeclinewouldhavenegativelyaffectedourrevenueinfuturequarters.AsaresultofouradoptionofASC606,acomparativelysmallerportionoftherevenuewereportineachquarterisderivedfromtherecognitionofdeferredrevenuerelatingtosubscriptionsenteredintoduringpreviousquarters,butadeclineinneworrenewedsubscriptionsinanyquarterwillnegativelyaffectourrevenueinsuchquarterandwillcontinuetonegativelyaffectrevenueinfuturequarters.Accordingly,theeffectofsignificantdownturnsinsalesandmarketacceptanceofourplatform,andpotentialchangesinourrateofrenewals,maynotbefullyreflectedinouroperatingresultsuntilfutureperiods.Wemayalsobeunabletoreduceouroperatingexpensesintheeventofasignificantdeteriorationinsales.Inaddition,asignificantmajorityofourcostsareexpensedasincurred,whileaportionofourrevenueisrecognizedoverthelifeoftheagreementwithourcustomer.Asaresult,increasedgrowthinthenumberofourcustomerscouldcontinuetoresultinourrecognitionofmorecoststhanrevenueintheearlierperiodsofthetermsofouragreements.
The nature of our business requires the application of complex revenue recognition rules and changes in financial accounting standards or practices maycause adverse, unexpected financial reporting fluctuations and affect our reported operating results.
U.S.generallyacceptedaccountingprinciples,orU.S.GAAP,issubjecttointerpretationbytheFinancialAccountingStandardsBoard,orFASB,theSEC,andvariousbodiesformedtopromulgateandinterpretappropriateaccountingprinciples.Achangeinaccountingstandardsorpracticescanhaveasignificanteffectonourreportedresultsandmayevenaffectourreportingoftransactionscompletedbeforethechangeiseffective,asoccurredinconnectionwithouradoptionofASC606.Newaccountingpronouncementsandvaryinginterpretationsofaccountingpronouncementshaveoccurredandmayoccurinthefuture.Changestoexistingrulesorthequestioningofcurrentpracticesmayadverselyaffectourreportedfinancialresultsorthewayweconductourbusiness.Accountingforrevenuefromsalesofsubscriptionstosoftwareisparticularlycomplex,isoftenthesubjectofintensescrutinybytheSEC,andwillevolveasFASBcontinuestoconsiderapplicableaccountingstandardsinthisarea.
Inparticular,inMay2014,theFASBissuedASC606,whichsupersedestherevenuerecognitionrequirementsinASC605,RevenueRecognition.ThecoreprincipleofASC606isthatanentityshouldrecognizerevenuetodepictthetransferofpromisedgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.ASC606becameeffectiveforourannualreportingperiodfortheyearendedDecember31,2018.TheadoptionofASC606hadamaterialimpactonouroperatingresultsfortheyearendedDecember31,2018asdescribedinmoredetailinNote3,Revenue,inthenotestoourconsolidatedfinancialstatementsincludedelsewhereinthisAnnualReport.ASC606isprinciples-basedandinterpretationofthoseprinciplesmayvaryfromcompanytocompanybasedontheiruniquecircumstances.Itispossiblethatinterpretation,industrypracticeandguidancemayevolve.Ouroperatingresultsmaybeadverselyaffectedifourassumptionschangeorifactualcircumstancesdifferfromthoseinourassumptions,whichcouldcauseouroperatingresultstofallbelowtheexpectationsofsecuritiesanalystsandinvestors,resultinginadeclineinourstockprice.
Wehavealsoimplementedchangestoouraccountingprocesses,internalcontrolsanddisclosurestosupportthenewrevenuerecognitionstandard.Ifweareunsuccessfulinadaptingourbusinesstotherequirementsofthenewrevenuerecognitionstandard,orifchangestoourgo-to-marketstrategycreatenewrisks,thenwemayexperiencegreatervolatilityinourquarterlyandannualoperatingresults,whichmayhaveamaterialadverseeffectonthetradingpriceofourClassAcommonstock.
Inaddition,inFebruary2016,FASBissuedanaccountingstandardsupdateonleases,requiringlessees,amongotherthings,torecognizeleaseassetsandleaseliabilitiesonthebalancesheetforthoseleasesclassifiedasoperatingleasesunderpreviousauthoritativeguidance.Thisupdate,whichbecameeffectivebeginningJanuary1,2019,alsointroducesnewdisclosurerequirementsforleasingarrangements.Wearecurrentlyevaluatingtheimpactofthisupdateontheconsolidatedfinancialstatements,andweexpectthatthisguidancewillhaveamaterialimpacttoourconsolidatedbalancesheets,butisnotexpectedtohaveamaterialimpacttoourconsolidatedstatementsofoperationsandcomprehensiveincome(loss).Othercompaniesinourindustrymayapplytheseaccountingprinciplesdifferentlythanwedo,adverselyaffectingthecomparabilityofourconsolidatedfinancialstatements.Anydifficultiesinimplementingthesepronouncementscouldcauseustofailtomeetourfinancialreportingobligations,whichcouldresultinregulatorydisciplineandharminvestors’confidenceinus.
We have limited experience with respect to determining the optimal prices and pricing structures for our products and services.
Weexpectthatwemayneedtochangeourpricingmodelfromtimetotime,includingasaresultofcompetition,globaleconomicconditions,reductionsinourcustomers’spendinglevelsgenerallyorchangesinhowinformationtechnologyinfrastructureisbroadlyconsumed.Similarly,asweintroducenewproductsandservices,orasaresultoftheevolutionofourexistingproductsandservices,wemayhavedifficultydeterminingtheappropriatepricestructureforourproductsandservices.Inaddition,asnewandexistingcompetitorsintroducenewproductsorservicesthatcompetewithours,orrevisetheirpricingstructures,wemaybeunabletoattractnewcustomersatthesamepriceorbasedonthesamepricingmodelaswehaveusedhistorically.Moreover,aswecontinuetotargetsellingourproductsandservicestolargerorganizations,theselargerorganizationsmaydemandsubstantialpriceconcessions.Asaresult,wemayberequiredfromtimetotimetoreviseourpricingstructureorreduceourprices,whichcouldadverselyaffectourbusiness,operatingresults,andfinancialcondition.
As we continue to pursue sales to large enterprises, our sales cycle, forecasting processes, and deployment processes may become more unpredictable andrequire greater time and expense.
Salestolargeenterprisesinvolverisksthatmaynotbepresentorthatarepresenttoalesserextentwithsalestosmallerorganizationsandaccordingly,oursalescyclemaylengthenaswecontinuetopursuesalestolargeenterprises.Asweseekto
increaseoursalestolargeenterprisecustomers,wefacelongersalescycles,morecomplexcustomerrequirements,substantialupfrontsalescosts,andlesspredictabilityincompletingsomeofoursalesthanwedowithsmallercustomers.Withlargerorganizations,thedecisiontosubscribetoourplatformfrequentlyrequirestheapprovalsofmultiplemanagementpersonnelandmoretechnicalpersonnelthanwouldbetypicalofasmallerorganizationand,accordingly,salestolargerorganizationsmayrequireustoinvestmoretimeeducatingthesepotentialcustomers.Inaddition,largeenterprisesoftenrequireextensiveconfiguration,integrationservices,andpricingnegotiations,whichincreaseourupfrontinvestmentinthesaleseffortwithnoguaranteethatthesecustomerswilldeployourplatformwidelyenoughacrosstheirorganizationtojustifyoursubstantialupfrontinvestment.Purchasesbylargeenterprisesarealsofrequentlysubjecttobudgetconstraintsandunplannedadministrative,processing,andotherdelays,whichmeanswemaynotbeabletocometoagreementonthetermsofthesaletolargeenterprises.Inaddition,ourabilitytosuccessfullysellourplatformtolargeenterprisesisdependentonusattractingandretainingsalespersonnelwithexperienceinsellingtolargeorganizations.Ifweareunabletoincreasesalesofourplatformtolargeenterprisecustomerswhilemitigatingtherisksassociatedwithservingsuchcustomers,ourbusiness,financialposition,andoperatingresultsmaybeadverselyimpacted.Furthermore,ifwefailtorealizeanexpectedsalefromalargecustomerinaparticularquarteroratall,ourbusiness,operatingresults,andfinancialconditioncouldbeadverselyaffectedforaparticularperiodorinfutureperiods.
Our sales are generally more heavily weighted toward the end of each quarter which could cause our billings and revenue to fall below expected levels.
Asaresultofcustomerpurchasingpatterns,ourquarterlysalescyclesaregenerallymoreheavilyweightedtowardtheendofeachquarterwithanincreasedvolumeofsalesinthelastfewweeksanddaysofthequarter.Thisimpactsthetimingofrecognizedrevenueandbillings,cashcollectionsanddeliveryofprofessionalservices.Furthermore,theconcentrationofcontractnegotiationsinthelastfewweeksanddaysofthequartercouldrequireustoexpendmoreintheformofcompensationforadditionalsales,legalandfinanceemployeesandcontractors.Compressionofsalesactivitytotheendofthequarteralsogreatlyincreasesthelikelihoodthatsalescycleswillextendbeyondthequarterinwhichtheyareforecastedtocloseforsomesizeabletransactions,whichmayharmforecastingaccuracyandadverselyimpactnewcustomeracquisitionmetricsforthequarterinwhichtheyareforecastedtoclose.
Our business is affected by seasonality.
Ourbusinessisaffectedbyseasonality.Duetothebudgetingcyclesofourcurrentandpotentialcustomers,historically,weenterintomoreagreementswithnewcustomersandmorerenewedagreementswithexistingcustomersinthefourthquarterofeachcalendaryearthaninanyotherquarter.Further,theadoptionofASC606forrevenuerecognitionwillheightentheseasonalimpactonnewlicensesthataremulti-yearinnaturewithmorerevenuerecognizedatapointintimewhentheplatformisfirstmadeavailabletothecustomers,orthebeginningofthesubscriptionterm,iflater.Additionally,seasonalpatternsmaybeaffectedbythetimingofparticularlylargetransactions.Forexample,wemayachievehigherrevenuegrowthinthefirstfiscalquarterthaninthesecondfiscalquarterduetotheeffectofoneormorelargecontractsthatareenteredintointhefirstfiscalquarter.
Inaddition,wehaveexperiencedincreasedsalesandmarketingexpensesassociatedwithourannualcompanykickoffandourannualU.S.andEuropeanInspireuserconferencesintheperiodinwhicheachoccurs.Ourrapidgrowthinrecentyearsmayobscuretheextenttowhichseasonalitytrendshaveaffectedourbusinessandmaycontinuetoaffectourbusiness.Seasonalityinourbusinesscanalsobeimpactedbyintroductionsofneworenhancedproductsandservices,includingthecostsassociatedwithsuchintroductions.Moreover,seasonalandothervariationsrelatedtoourrevenuerecognitionorotherwisemaycausesignificantfluctuationsinouroperatingresultsandcashflows,maymakeitchallengingforaninvestortopredictourperformanceonaquarterlyorannualbasisandmaypreventusfromachievingourquarterlyorannualforecastsormeetingorexceedingtheexpectationsofresearchanalystsorinvestors,whichinturnmaycauseourstockpricetodecline.Additionally,yearlyorquarterlycomparisonsofouroperatingresultsmaynotbeusefulandouroperatingresultsinanyparticularperiodwillnotnecessarilybeindicativeoftheresultstobeexpectedforanyfutureperiod.
Any failure to offer high-quality technical support may harm our relationships with our customers and have a negative impact on our business and financialcondition.
Onceourplatformisdeployed,ourcustomersdependonourcustomersupportteamtoresolvetechnicalandoperationalissuesrelatingtoourplatform.Ourabilitytoprovideeffectivecustomersupportislargelydependentonourabilitytoattract,train,andretainqualifiedpersonnelwithexperienceinsupportingcustomersonplatformssuchasours.Thenumberofourcustomershasgrownsignificantlyandthathasandwillputadditionalpressureonourcustomersupportteam.Wemaybeunabletorespondquicklyenoughtoaccommodateshort-termincreasesincustomerdemandfortechnicalsupport.Wealsomaybeunabletomodifythefuture,scope,anddeliveryofourtechnicalsupporttocompetewithchangesinthetechnicalsupportprovidedbyourcompetitors.Increasedcustomerdemandforsupport,withoutcorrespondingrevenue,couldincrease
costsandnegativelyaffectouroperatingresults.Inaddition,aswecontinuetogrowouroperationsandexpandinternationally,weneedtobeabletoprovideefficientcustomersupportthatmeetsourcustomers’needsgloballyatscaleandourcustomersupportteamwillfaceadditionalchallenges,includingthoseassociatedwithdeliveringsupport,training,anddocumentationinlanguagesotherthanEnglish.Ifweareunabletoprovideefficientcustomersupportgloballyatscale,ourabilitytogrowouroperationsmaybeharmedandwemayneedtohireadditionalsupportpersonnel,whichcouldnegativelyimpactouroperatingresults.Inaddition,weprovideself-servicesupportresourcestoourcustomers.Someoftheseresources,suchasAlteryxCommunity,relyonengagementandcollaborationbyandwithothercustomers.Ifweareunabletocontinuetodevelopself-servicesupportresourcesthatareeasytouseandthatourcustomersutilizetoresolvetheirtechnicalissuesorifourcustomerschoosenottocollaborateorengagewithothercustomersontechnicalsupportissues,customersmaycontinuetodirectsupportrequeststoourcustomersupportteaminsteadofrelyingonourself-servicesupportresourcesandourcustomers’experiencewithourplatformmaybenegativelyimpacted.Anyfailuretomaintainhigh-qualitysupport,oramarketperceptionthatwedonotmaintainhigh-qualitysupport,couldharmourreputation,ourabilitytosellourplatformtoexistingandprospectivecustomers,andourbusiness,operatingresults,andfinancialcondition.
Failure to protect our intellectual property could adversely affect our business.
Wecurrentlyrelyonacombinationofcopyrights,trademarks,tradesecrets,confidentialityprocedures,contractualcommitments,andotherlegalrightstoprotectourintellectualproperty.WealsohavefourpendingpatentapplicationsintheUnitedStates.Despiteourefforts,thestepswetaketoprotectourintellectualpropertymaybeinadequate.Unauthorizedthirdpartiesmaytrytocopyorreverseengineerportionsofourplatformorotherwiseobtainanduseourintellectualproperty.Inaddition,wemaynotbeabletoobtainsufficientintellectualpropertyprotectionforimportantfeaturesofourplatform,inwhichcaseourcompetitorsmaydiscoverwaystoprovidesimilarfeatureswithoutinfringingormisappropriatingourintellectualpropertyrights.
Anypatentsthatwemayownandrelyoninthefuturemaybechallengedorcircumventedbyothersorinvalidatedthroughadministrativeprocessorlitigation.Ourcurrentandfuturepatentapplicationsmaynotbeissuedwiththescopeoftheclaimsweseek,ifatall.Inaddition,anypatentsissuedinthefuturemaynotprovideuswithcompetitiveadvantages,maynotbeenforceableinactionsagainstallegedinfringersormaybesuccessfullychallengedbythirdparties.
Moreover,recentamendmentstoU.S.patentlaw,developingjurisprudenceregardingU.S.patentlaw,andpossiblefuturechangestoU.S.orforeignpatentlawsandregulationsmayaffectourabilitytoprotectourintellectualpropertyanddefendagainstclaimsofpatentinfringement.Inaddition,thelawsofsomecountriesdonotprovidethesamelevelofprotectionofourintellectualpropertyasdothelawsoftheUnitedStates.Asweexpandourinternationalactivities,ourexposuretounauthorizedcopyinganduseofourplatformandproprietaryinformationwilllikelyincrease.Despiteourprecautions,itmaybepossibleforunauthorizedthirdpartiestoinfringeuponormisappropriateourintellectualproperty,tocopyourplatform,anduseinformationthatweregardasproprietarytocreateproductsandservicesthatcompetewithours.Effectiveintellectualpropertyprotectionmaynotbeavailabletousineverycountryinwhichourplatformisavailable.Forexample,someforeigncountrieshavecompulsorylicensinglawsunderwhichapatentownermustgrantlicensestothirdparties.Inaddition,manycountrieslimittheenforceabilityofpatentsagainstcertainthirdparties,includinggovernmentagenciesorgovernmentcontractors.Inthesecountries,patentsmayprovidelimitedornobenefit.Wemayneedtoexpendadditionalresourcestodefendourintellectualpropertyrightsdomesticallyorinternationally,whichcouldimpairourbusinessoradverselyaffectourdomesticorinternationalexpansion.Ifwecannotprotectourintellectualpropertyagainstunauthorizedcopyingoruse,wemaynotremaincompetitiveandourbusiness,operatingresults,andfinancialconditionmaybeadverselyaffected.
Weenterintoconfidentialityandinventionassignmentagreementswithouremployeesandconsultantsandenterintoconfidentialityagreementswithotherparties.Wecannotassureyouthattheseagreementswillbeeffectiveincontrollingaccessto,useof,anddistributionofourproprietaryinformationorineffectivelysecuringexclusiveownershipofintellectualpropertydevelopedbyouremployeesandconsultants.Further,theseagreementsmaynotpreventourcompetitorsfromindependentlydevelopingtechnologiesthataresubstantiallyequivalentorsuperiortoourplatform.
Inordertoprotectourintellectualpropertyrights,wemayberequiredtospendsignificantresourcestoacquire,maintain,monitor,andprotectourintellectualpropertyrights.Wecannotassureyouthatourmonitoringeffortswilldetecteveryinfringementofourintellectualpropertyrightsbyathirdparty.Litigationmaybenecessaryinthefuturetoenforceourintellectualpropertyrightsandtoprotectourtradesecrets.Litigationbroughttoprotectandenforceourintellectualpropertyrightscouldbecostly,time-consuming,anddistractingtomanagement,andcouldresultintheimpairmentorlossofportionsofourintellectualproperty.Further,oureffortstoenforceourintellectualpropertyrightsmaybemetwithdefenses,counterclaims,andcountersuitsattackingthevalidityandenforceabilityofourintellectualpropertyrights.Ourinabilitytoprotectourproprietarytechnologyagainstunauthorizedcopyingoruse,aswellasanycostlylitigationordiversionofourmanagement’sattentionandresources,coulddelayfurthersalesortheimplementationofourplatform,impairthefunctionality
ofourplatform,delayintroductionsofnewproductsandservices,resultinoursubstitutinginferiorormorecostlytechnologiesintoourplatform,ordamageourbrandandreputation.
Additionally,theUnitedStatesPatentandTrademarkOfficeandvariousforeigngovernmentalpatentagenciesrequirecompliancewithanumberofprocedural,documentary,feepayment,andothersimilarprovisionsduringthepatentapplicationprocessandtomaintainissuedpatents.Therearesituationsinwhichnoncompliancecanresultinabandonmentorlapseofthepatentorpatentapplication,resultinginpartialorcompletelossofpatentrightsintherelevantjurisdiction.Ifthisoccurs,itcouldhaveamaterialadverseeffectonourbusinessoperationsandfinancialcondition.
Our platform may infringe the intellectual property rights of third parties and this may create liability for us or otherwise harm our business.
Thirdpartiesmayclaimthatourcurrentorfutureproductsandservicesinfringetheirintellectualpropertyrights,andsuchclaimsmayresultinlegalclaimsagainstourcustomersandus.Theseclaimsmaydamageourbrandandreputation,harmourcustomerrelationships,andcreateliabilityforus.Weexpectthenumberofsuchclaimswillincreaseasthenumberofproductsandservicesandthelevelofcompetitioninourmarketgrows,thefunctionalityofourplatformoverlapswiththatofotherproductsandservices,andthevolumeofissuedsoftwarepatentsandpatentapplicationscontinuestoincrease.Wegenerallyagreeinourcustomercontractstoindemnifycustomersforexpensesorliabilitiestheyincurasaresultofthirdpartyintellectualpropertyinfringementclaimsassociatedwithourplatform.Totheextentthatanyclaimarisesasaresultofthird-partytechnologywehavelicensedforuseinourplatform,wemaybeunabletorecoverfromtheappropriatethirdpartyanyexpensesorotherliabilitiesthatweincur.
Companiesinthesoftwareandtechnologyindustries,includingsomeofourcurrentandpotentialcompetitors,ownlargenumbersofpatents,copyrights,trademarks,andtradesecretsandfrequentlyenterintolitigationbasedonallegationsofinfringementorotherviolationsofintellectualpropertyrights.Inaddition,manyofthesecompanieshavethecapabilitytodedicatesubstantiallygreaterresourcestoenforcetheirintellectualpropertyrightsandtodefendclaimsthatmaybebroughtagainstthem.Furthermore,patentholdingcompanies,non-practicingentities,andotheradversepatentownersthatarenotdeterredbyourexistingintellectualpropertyprotectionsmayseektoassertpatentclaimsagainstus.Fromtimetotime,thirdparties,includingcertainoftheseleadingcompanies,havecontactedusinvitingustolicensetheirpatentsandmay,inthefuture,assertpatent,copyright,trademark,orotherintellectualpropertyrightsagainstus,ourchannelpartners,ourtechnologypartners,orourcustomers.Wehavereceived,andmayinthefuturereceive,noticesthatclaimwehavemisappropriated,misused,orinfringedotherparties’intellectualpropertyrights,and,totheextentwegaingreatermarketvisibility,wefaceahigherriskofbeingthesubjectofintellectualpropertyinfringementclaims,whichisnotuncommonwithrespecttotheenterprisesoftwaremarket.
Theremaybethird-partyintellectualpropertyrights,includingissuedorpendingpatents,thatcoversignificantaspectsofourtechnologiesorbusinessmethods.Inaddition,ifweacquireorlicensetechnologiesfromthirdparties,wemaybeexposedtoincreasedriskofbeingthesubjectofintellectualpropertyinfringementdueto,amongotherthings,ourlowerlevelofvisibilityintothedevelopmentprocesswithrespecttosuchtechnologyandthecaretakentosafeguardagainstinfringementrisks.Anyintellectualpropertyclaims,withorwithoutmerit,couldbeverytime-consuming,couldbeexpensivetosettleorlitigate,andcoulddivertourmanagement’sattentionandotherresources.Theseclaimscouldalsosubjectustosignificantliabilityfordamages,potentiallyincludingtrebledamagesifwearefoundtohavewillfullyinfringedpatentsorcopyrights,andmayrequireustoindemnifyourcustomersforliabilitiestheyincurasaresultofsuchclaims.Theseclaimscouldalsoresultinourhavingtostopusingtechnologyfoundtobeinviolationofathirdparty’srights.Wemightberequiredtoseekalicensefortheintellectualproperty,whichmaynotbeavailableonreasonabletermsoratall.Evenifalicensewereavailable,wecouldberequiredtopaysignificantroyalties,whichwouldincreaseouroperatingexpenses.Alternatively,wecouldberequiredtodevelopalternativenon-infringingtechnology,whichcouldrequiresignificanttime,effort,andexpense,andmayaffecttheperformanceorfeaturesofourplatform.Ifwecannotlicenseordevelopalternativenon-infringingsubstitutesforanyinfringingtechnologyusedinanyaspectofourbusiness,wewouldbeforcedtolimitorstopsalesofourplatformandmaybeunabletocompeteeffectively.Anyoftheseresultswouldadverselyaffectourbusinessoperationsandfinancialcondition.
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses.
Ouragreementswithcustomersandotherthirdpartiesmayincludeindemnificationprovisionsunderwhichweagreetoindemnifythemforlossessufferedorincurredasaresultofthird-partyclaimsofintellectualpropertyinfringementorotherviolationsofintellectualpropertyrights,damagescausedbyustopropertyorpersons,orotherliabilitiesrelatingtoorarisingfromoursoftware,servicesorothercontractualobligations.Largeindemnitypaymentscouldharmourbusiness,operating
resultsandfinancialcondition.Anydisputewithacustomerwithrespecttosuchobligationscouldhaveadverseeffectsonourrelationshipwiththatcustomerandotherexistingcustomersandnewcustomersandharmourbusinessandoperatingresults.
Our platform contains third-party open source software components, and failure to comply with the terms of the underlying open source software licensescould restrict our ability to sell our platform.
Ourplatformincorporatesopensourcesoftwarecode.Anopensourcelicenseallowstheuse,modification,anddistributionofsoftwareinsourcecodeform.Certainkindsofopensourcelicensesfurtherrequirethatanypersonwhocreatesaproductorservicethatcontains,linksto,orisderivedfromsoftwarethatwassubjecttoanopensourcelicensemustalsomaketheirownproductorservicesubjecttothesameopensourcelicense.Usingsoftwarethatissubjecttothiskindofopensourcelicensecanleadtoarequirementthatourplatformbeprovidedfreeofchargeorbemadeavailableordistributedinsourcecodeform.Althoughwedonotbelieveourplatformincludesanyopensourcesoftwareinamannerthatwouldresultintheimpositionofanysuchrequirement,theinterpretationofopensourcelicensesislegallycomplexand,despiteourefforts,itispossiblethatourplatformcouldbefoundtocontainthistypeofopensourcesoftware.
Moreover,wecannotassureyouthatourprocessesforcontrollingouruseofopensourcesoftwareinourplatformwillbeeffective.Ifwehavenotcompliedwiththetermsofanapplicableopensourcesoftwarelicense,wecouldberequiredtoseeklicensesfromthirdpartiestocontinueofferingourplatformontermsthatarenoteconomicallyfeasible,tore-engineerourplatformtoremoveorreplacetheopensourcesoftware,todiscontinuethesaleofourplatformifre-engineeringcouldnotbeaccomplishedonatimelybasis,topaymonetarydamages,ortomakegenerallyavailablethesourcecodeforourproprietarytechnology,anyofwhichcouldadverselyaffectourbusiness,operatingresults,andfinancialcondition.
Inadditiontorisksrelatedtolicenserequirements,useofopensourcesoftwarecaninvolvegreaterrisksthanthoseassociatedwithuseofthird-partycommercialsoftware,asopensourcelicensorsgenerallydonotprovidewarrantiesorassuranceoftitle,performance,non-infringement,orcontrolsonoriginofthesoftware.Thereistypicallynosupportavailableforopensourcesoftware,andwecannotassureyouthattheauthorsofsuchopensourcesoftwarewillnotabandonfurtherdevelopmentandmaintenance.Manyoftherisksassociatedwiththeuseofopensourcesoftware,suchasthelackofwarrantiesorassurancesoftitleorperformance,cannotbeeliminated,andcould,ifnotproperlyaddressed,negativelyaffectourbusiness.Wehaveestablishedprocessestohelpalleviatetheserisks,includingareviewprocessforscreeningrequestsfromourdevelopmentorganizationsfortheuseofopensourcesoftware,butwecannotbesurethatallopensourcesoftwareisidentifiedorsubmittedforapprovalpriortouseinourplatform.
Respondingtoanyinfringementclaim,regardlessofitsvalidity,ordiscoveringopensourcesoftwarecodeinourplatformcouldharmourbusiness,operatingresults,andfinancialcondition,by,amongotherthings:
• resultingintime-consumingandcostlylitigation;• divertingmanagement’stimeandattentionfromdevelopingourbusiness;• requiringustopaymonetarydamagesorenterintoroyaltyandlicensingagreementsthatwewouldnotnormallyfindacceptable;• causingdelaysinthedeploymentofourplatform;• requiringustostopsellingsomeaspectsofourplatform;• requiringustoredesigncertaincomponentsofourplatformusingalternativenon-infringingornon-opensourcetechnologyorpractices,whichcould
requiresignificanteffortandexpense;• requiringustodiscloseoursoftwaresourcecode,thedetailedprogramcommandsforoursoftware;and• requiringustosatisfyindemnificationobligationstoourcustomers.
Contractual disputes with our customers could be costly, time-consuming, and harm our reputation.
Ourbusinessiscontractintensiveandwearepartytocontractswithourcustomersallovertheworld.Ourcontractscancontainavarietyofterms,includingsecurityobligations,indemnificationandregulatoryrequirements.Contracttermsmaynotalwaysbestandardizedacrossourcustomersandcanbesubjecttodifferinginterpretations,whichcouldresultindisputeswithourcustomersfromtimetotime.Ifourcustomersnotifyusofanallegedcontractbreachorotherwisedisputeanyprovisionunderourcontracts,theresolutionofsuchdisputesinamanneradversetoourinterestscouldnegativelyaffectouroperatingresults.
Additionally,ifcustomersfailtopayusunderthetermsofouragreements,wemaybeadverselyaffectedbothfromtheinabilitytocollectamountsdueandthecostofenforcingthetermsofourcontracts,includinglitigation.Theriskofsuchnegativeeffectsincreaseswiththetermlengthofourcustomerarrangements.Furthermore,someofourcustomersmayseek
bankruptcyprotectionorothersimilarreliefandfailtopayamountsduetous,orpaythoseamountsmoreslowly,eitherofwhichcouldadverselyaffectouroperatingresults,financialposition,andcashflow.
The nature of our platform makes it particularly vulnerable to undetected errors or bugs, which could cause problems with how our platform performs andwhich could, in turn, reduce demand for our platform, reduce our revenue, and lead to product liability claims against us.
Becauseourplatformiscomplex,itmaycontainerrorsordefects,especiallywhennewupdatesorenhancementsarereleased.Oursoftwareisofteninstalledandusedinlarge-scalecomputingenvironmentswithdifferentoperatingsystems,systemmanagementsoftware,andequipmentandnetworkingconfigurations,whichmaycauseerrorsorfailuresofoursoftwareorotheraspectsofthecomputingenvironmentintowhichitisdeployed.Inaddition,deploymentofoursoftwareintothesecomputingenvironmentsmayexposepreviouslyundetectederrors,compatibilityissues,failures,orbugsinoursoftware.Althoughwetestourplatformextensively,wehaveinthepastdiscoveredsoftwareerrorsinourplatformafterintroducingnewupdatesorenhancements.Despitetestingbyusandbyourcurrentandpotentialcustomers,errorsmaybefoundinnewupdatesorenhancementsafterdeploymentbyourcustomers.Realorperceivederrors,failures,vulnerabilities,orbugsinourplatformcouldresultinnegativepublicity,lossofcustomerdata,lossofordelayinmarketacceptanceofourplatform,lossofcompetitiveposition,orclaimsbycustomersforlossessustainedbythem,allofwhichcouldnegativelyimpactourbusinessandoperatingresultsandmateriallydamageourreputationandbrand.Wemayalsohavetoexpendresourcesandcapitaltocorrectthesedefects.Alleviatinganyoftheseproblemscouldrequiresignificantexpendituresofourcapitalandotherresourcesandcouldcauseinterruptions,delays,orcessationinthesaleofourplatform,whichcouldcauseustoloseexistingorpotentialcustomersandcouldadverselyaffectouroperatingresultsandgrowthprospects.
Ouragreementswithcustomerstypicallycontainprovisionsdesignedtolimitourexposuretoproductliability,warranty,andotherclaims.However,theseprovisionsdonoteliminateourexposuretotheseclaims.Inaddition,itispossiblethattheseprovisionsmaynotbeeffectiveunderthelawsofcertaindomesticorinternationaljurisdictionsandwemaybeexposedtoproductliabilitywarranty,andotherclaims.Asuccessfulproductliability,warranty,orothersimilarclaimagainstuscouldhaveanadverseeffectonourbusiness,operatingresults,andfinancialcondition.
We have experienced, and may in the future experience, security breaches and if unauthorized parties obtain access to our customers’ data, our data, or ourplatform, networks, or other systems, our platform may be perceived as not being secure, our reputation may be harmed, demand for our platform may bereduced, our operations may be disrupted, we may incur significant legal liabilities, and our business could be materially adversely affected.
Aspartofourbusiness,weprocess,store,andtransmitourcustomers’informationanddataaswellasourown,includinginourplatform,networks,andothersystems,andwerelyonthirdpartiesthatarenotdirectlyunderourcontroltodosoaswell.We,andourthird-partypartners,havesecuritymeasuresanddisasterresponseplansinplacetohelpprotectourcustomers’data,ourdata,andourplatform,networks,andothersystemsagainstunauthorizedaccessorinadvertentexposure.However,wecannotassureyouthatthesesecuritymeasuresanddisasterresponseplanswillbeeffectiveagainstallsecuritythreatsandnaturaldisasters.Ourorourthird-partypartners’securitymeasureshaveinthepastbeen,andmayinthefuturebe,breachedasaresultofthird-partyaction,includingintentionalmisconductbycomputerhackers,fraudulentinducementofemployeesorcustomerstodisclosesensitiveinformationsuchasusernamesorpasswords,andemployeeerrorormalfeasance.Suchabreachcouldresultinsomeoneobtainingunauthorizedaccesstoourcustomers’data,ourdata,orourplatform,networks,orothersystems.Althoughwehaveincurredsignificantcostsandexpecttoincuradditionalsignificantcoststopreventunauthorizedaccesstooursystemsanddata,becausetherearemanydifferentsecuritybreachtechniquesandsuchtechniquescontinuetoevolve,weandourthird-partypartnersmaybeunabletoanticipateattemptedsecuritybreachesandimplementadequatepreventativemeasures.Thirdpartiesmayalsoconductattacksdesignedtotemporarilydenycustomersaccesstoourservices.
Anyunauthorizedorinadvertentaccessto,oranactualorperceivedsecuritybreachof,oursystemsornetworks,couldresultinanactualorperceivedlossof,orunauthorizedaccessto,ourdataorthedataofourthird-partypartners,regulatoryinvestigationsandorders,litigation,indemnityobligations,damages,penalties,fines,andothercostsinconnectionwithactualandallegedcontractualbreaches,violationsofapplicablelawsandregulations,andotherliabilities.Anysuchincidentcouldalsomateriallydamageourreputationandharmourbusiness,operatingresults,andfinancialcondition,includingreducingourrevenue,resultinginourcustomersorthird-partypartnersterminatingtheirrelationshipwithus,subjectingustocostlynotificationandremediationrequirements,orharmingourbrand.Wemaintaincyberliabilityinsurancepoliciescoveringcertainsecurityandprivacydamages.However,wecannotbecertainthatourcoveragewillbeadequateforliabilitiesactuallyincurredorthatinsurancewillcontinuetobeavailabletousoneconomicallyreasonableterms,oratall.Forexample,in2018,weweresubjecttolawsuitsfiledagainstusrelatedtopotentialaccesstoacommerciallyavailable,third-partymarketingdatasetthatprovidedconsumermarketinginformationintendedtohelpmarketingprofessionalsadvertiseandselltheir
products.Risksrelatedtocybersecuritywillincreaseaswecontinuetogrowthescaleandfunctionalityofourplatformandprocess,store,andtransmitincreasinglylargeamountsofourcustomers’informationanddata,whichmayincludeproprietaryorconfidentialdataorpersonaloridentifyinginformation.
Business disruptions or performance problems associated with our technology and infrastructure, including interruptions, delays, or failures in service fromour third-party data center hosting facility and other third-party services, could adversely affect our operating results or result in a material weakness in ourinternal controls.
Continuedadoptionofourplatformdependsinpartontheabilityofourexistingandpotentialcustomerstoaccessourplatformwithinareasonableamountoftime.Wehaveexperienced,andmayinthefutureexperience,disruptions,dataloss,outages,andotherperformanceproblemswithourinfrastructureandwebsiteduetoavarietyoffactors,includinginfrastructurechanges,introductionsofnewfunctionality,humanorsoftwareerrors,capacityconstraints,denialofserviceattacks,orothersecurity-relatedincidents.Ifourplatformisunavailableorifourusersandcustomersareunabletoaccessourplatformwithinareasonableamountoftime,oratall,wemayexperienceadeclineinrenewals,damagetoourbrand,orotherharmtoourbusiness.Totheextentthatwedonoteffectivelyaddresscapacityconstraints,upgradeoursystemsasneeded,andcontinuallydevelopourtechnologyandnetworkarchitecturetoaccommodateactualandanticipatedchangesintechnology,ourbusiness,operatingresults,andfinancialconditioncouldbeadverselyaffected.
AsignificantportionofourcriticalbusinessoperationsareconcentratedintheUnitedStates.Inaddition,weserveourcustomersandmanagecertaincriticalinternalprocessesusingathird-partydatacenterhostingfacilitylocatedinColoradoandotherthird-partyservices,includingcloudservices.Weareahighlyautomatedbusiness,andadisruptionorfailureofoursystems,orthethird-partyhostingfacilityorotherthird-partyservicesthatweuse,couldcausedelaysincompletingsalesandprovidingservices.Forexample,fromtimetotime,ourdatacenterhostingfacilityhasexperiencedoutages.Suchdisruptionsorfailurescouldalsoincludeamajorearthquake,blizzard,fire,cyber-attack,actofterrorism,orothercatastrophicevent,oradecisionbyoneofourthird-partyserviceproviderstoclosefacilitiesthatweusewithoutadequatenoticeorotherunanticipatedproblemswiththethird-partyservicesthatweuse,includingafailuretomeetservicestandards.
Interruptionsorperformanceproblemswitheitherourtechnologyandinfrastructureorourdatacenterhostingfacilitycould,amongotherthings:
• resultinthedestructionordisruptionofanyofourcriticalbusinessoperations,controls,orproceduresorinformationtechnologysystems;• severelyaffectourabilitytoconductnormalbusinessoperations;• resultinamaterialweaknessinourinternalcontroloverfinancialreporting;• causeourcustomerstoterminatetheirsubscriptions;• resultinourissuingcreditsorpayingpenaltiesorfines;• harmourbrandandreputation;• adverselyaffectourrenewalratesorourabilitytoattractnewcustomers;or• causeourplatformtobeperceivedasnotbeingsecure.
Anyoftheabovecouldadverselyaffectourbusinessoperationsandfinancialcondition.
Our operating results may fluctuate from quarter to quarter, which makes our future results difficult to predict.
Ourquarterlyoperatingresultshavefluctuatedinthepastandmayfluctuateinthefuture.Additionally,wehavealimitedoperatinghistorywiththecurrentscaleofourbusiness,whichmakesitdifficulttoforecastourfutureresults.Asaresult,youshouldnotrelyuponourpastquarterlyoperatingresultsasindicatorsoffutureperformance.Youshouldtakeintoaccounttherisksanduncertaintiesfrequentlyencounteredbycompaniesinrapidlyevolvingmarkets.Ouroperatingresultsinanygivenquartercanbeinfluencedbynumerousfactors,manyofwhichareunpredictableorareoutsideofourcontrol,including:
• ourabilitytogeneratesignificantrevenuefromnewproductsandservices;• ourabilitytomaintainandgrowourcustomerbase;• ourabilitytoexpandournumberofpartnersanddistributionofourplatform;• thedevelopmentandintroductionofnewproductsandservicesbyusorourcompetitors;• increasesinandtimingofoperatingexpensesthatwemayincurtogrowandexpandouroperationsandtoremaincompetitive;• thetimingofsignificantnewpurchasesorrenewalsbyourcustomers;• seasonalpurchasingpatternsofourcustomers;• thetimingofourInspireuserconferences;
• costsrelatedtotheacquisitionofbusinesses,talent,technologies,orintellectualproperty,includingpotentiallysignificantamortizationcostsandpossiblewrite-downs;
• actualorperceivedfailuresorbreachesofsecurityorprivacy,andthecostsassociatedwithremediatinganyactualfailuresorbreaches;• adverselitigation,judgments,settlements,orotherlitigation-relatedcosts;• changesinthelegislativeorregulatoryenvironment,suchaswithrespecttoprivacy;• theapplicationofneworchangingfinancialaccountingstandardsorpractices,includingtheadoptionofASC606;• fluctuationsincurrencyexchangeratesandchangesintheproportionofourrevenueandexpensesdenominatedinforeigncurrencies;and• generaleconomicconditionsineitherdomesticorinternationalmarkets.
Failure to comply with governmental laws and regulations could harm our business.
Ourbusinessissubjecttoregulationbyvariousfederal,state,localandforeigngovernments.Incertainjurisdictions,theseregulatoryrequirementsmaybemorestringentthanthoseintheUnitedStates.Noncompliancewithapplicableregulationsorrequirementscouldsubjectustoinvestigations,sanctions,mandatoryproductrecalls,enforcementactions,disgorgementofprofits,fines,damages,civilandcriminalpenalties,injunctionsorothercollateralconsequences.Ifanygovernmentalsanctionsareimposed,orifwedonotprevailinanypossiblecivilorcriminallitigation,ourbusiness,operatingresults,andfinancialconditioncouldbemateriallyadverselyaffected.Inaddition,respondingtoanyactionwilllikelyresultinasignificantdiversionofmanagement’sattentionandresourcesandanincreaseinprofessionalfees.Enforcementactionsandsanctionscouldharmourbusiness,reputation,operatingresultsandfinancialcondition.
Changes in laws or regulations relating to privacy or the protection or transfer of personal data, or any actual or perceived failure by us to comply with suchlaws and regulations or our privacy policies, could adversely affect our business.
Componentsofourbusiness,includingourplatform,involveprocessing,storing,andtransmittingconfidentialdata,whichissubjecttoourprivacypoliciesandcertainfederal,state,andforeignlawsandregulationsrelatingtoprivacyanddataprotection.Theamountofcustomerandemployeedatathatwestorethroughourplatform,networks,andothersystems,includingpersonaldata,isincreasing.Inrecentyears,thecollectionanduseofpersonaldatabycompanieshavecomeunderincreasedregulatoryandpublicscrutiny.
Forexample,intheUnitedStates,protectedhealthinformationissubjecttotheHealthInsurancePortabilityandAccountabilityAct,orHIPAA.HIPAAhasbeensupplementedbytheHealthInformationTechnologyforEconomicandClinicalHealthActwiththeresultofincreasedcivilandcriminalpenaltiesfornoncompliance.UnderHIPAA,entitiesperformingcertainfunctionsandcreating,receiving,maintaining,ortransmittingprotectedhealthinformationprovidedbycoveredentitiesandotherbusinessassociatesaredirectlysubjecttoHIPAA.Ifwehaveaccesstoprotectedhealthinformationthroughourplatform,wemaybeobligatedtocomplywithcertainprivacyrulesanddatasecurityrequirementsunderHIPAA.Anysystemsfailureorsecuritybreachthatresultsinthereleaseof,orunauthorizedaccessto,personaldata,oranyfailureorperceivedfailurebyustocomplywithourprivacypoliciesoranyapplicablelawsorregulationsrelatingtoprivacyordataprotection,couldresultinproceedingsagainstusbygovernmentalentitiesorothers.Suchproceedingscouldresultintheimpositionofsanctions,fines,penalties,liabilities,orgovernmentalordersrequiringthatwechangeourdatapractices,anyofwhichcouldhaveamaterialadverseeffectonourbusiness,operatingresults,andfinancialcondition.
Variouslocal,state,federal,andinternationallaws,directives,andregulationsapplytothecollection,use,retention,protection,disclosure,transfer,andprocessingofpersonaldata.Thesedataprotectionandprivacylawsandregulationscontinuetoevolve.Variousfederal,state,andforeignlegislativeorregulatorybodiesmayenactneworadditionallawsorregulationsconcerningprivacyanddataprotectionthatcouldadverselyimpactourbusiness.Complyingwiththesevaryingrequirementscouldcauseustoincursubstantialcostsorrequireustochangeourbusinesspractices,eitherofwhichcouldadverselyaffectourbusinessandoperatingresults.Forexample,theEuropeanCommissionadoptedanewlawregardingdatapracticescalledtheGeneralDataProtectionRegulation,orGDPR,whichbecameeffectiveinMay2018,andsupersedespreviousEUdataprotectionlegislation.TheGDPRimposesnewandmorestringentEUdataprotectionrequirements,whichcouldincreasetheriskofnon-complianceandthecostsofprovidingourproductsandservicesinacompliantmatter.TheGDPRprovidesforgreatermonetarypenaltiesfornoncompliance,includingapenaltyofuptothegreaterof€20millionor4%oftotalworldwideannualturnover.Inaddition,theCaliforniaConsumerPrivacyActwaspassedinJune2018andcreatesnewdataprivacyrightsforusers,effectivein2020.Changingdefinitionsofpersonaldataandinformationmayalsolimitorinhibitourabilitytooperateorexpandourbusiness,includinglimitingstrategicpartnershipsthatmayinvolvethesharingofdata.Also,somejurisdictionsrequirethatcertaintypesofdataberetainedonserverswithinthesejurisdictions.Ourfailuretocomplywithapplicablelaws,directives,andregulationsmayresultinenforcementactionagainstus,includingfines,anddamagetoourreputation,anyofwhichmayhaveanadverseeffectonourbusinessandoperatingresults.
Future litigation could have a material adverse impact on our operating results and financial condition.
Fromtimetotime,wehavebeensubjecttolitigation.Forexample,inDecember2017andJanuary2018,fourputativeconsumerclassactionlawsuitswerefiledagainstusbaseduponclaimswefailedtoproperlysecureonAWSacommerciallyavailable,third-partymarketingdatasetthatprovidedconsumermarketinginformationintendedtohelpmarketingprofessionalsadvertiseandselltheirproducts.ThecomplaintsassertedclaimsforviolationoftheFairCreditReportingAct,15U.S.C.§§1681etseq.andstateconsumer-protectionstatutes,aswellasclaimsforcommonlawnegligence.Theseactionsweredismissedduring2018.Theoutcomeofanylitigation,regardlessofitsmerits,isinherentlyuncertain.Regardlessofthemeritsofanyclaimsthatmaybebroughtagainstus,pendingorfuturelitigationcouldresultinadiversionofmanagement’sattentionandresourcesandwemayberequiredtoincursignificantexpensesdefendingagainsttheseclaims.Ifweareunabletoprevailinlitigation,wecouldincurpaymentsofsubstantialmonetarydamagesorfines,orundesirablechangestoourproductsorbusinesspractices,andaccordinglyourbusiness,financialcondition,orresultsofoperationscouldbemateriallyandadverselyaffected.Wherewecanmakeareasonableestimateoftheliabilityrelatingtopendinglitigationanddeterminethatitisprobable,werecordarelatedliability.Asadditionalinformationbecomesavailable,weassessthepotentialliabilityandreviseestimatesasappropriate.However,becauseofuncertaintiesrelatingtolitigation,theamountofourestimatescouldchange.Anyadversedeterminationrelatedtolitigationcouldrequireustochangeourtechnologyorourbusinesspractices,paymonetarydamagesorfines,orenterintoroyaltyorlicensingarrangements,whichcouldadverselyaffectouroperatingresultsandcashflows,harmourreputation,orotherwisenegativelyimpactourbusiness.
Failure to comply with anti-corruption and anti-money laundering laws, including the FCPA and similar laws associated with our activities outside of theUnited States, could subject us to penalties and other adverse consequences.
WearesubjecttotheFCPA,theU.S.domesticbriberystatutecontainedin18U.S.C.§201,theU.S.TravelAct,theUSAPATRIOTAct,theBriberyAct,andpossiblyotheranti-briberyandanti-moneylaunderinglawsincountriesinwhichweconductactivities.WefacesignificantrisksifwefailtocomplywiththeFCPAandotheranti-corruptionlawsthatprohibitcompaniesandtheiremployeesandthird-partyintermediariesfromauthorizing,offering,orproviding,directlyorindirectly,improperpaymentsorbenefitstoforeigngovernmentofficials,politicalparties,andprivate-sectorrecipientsforthepurposeofobtainingorretainingbusiness,directingbusinesstoanyperson,orsecuringanyadvantage.Inmanyforeigncountries,particularlyincountrieswithdevelopingeconomies,itmaybealocalcustomthatbusinessesengageinpracticesthatareprohibitedbytheFCPAorotherapplicablelawsandregulations.Inaddition,weusevariousthirdpartiestosellourplatformandconductourbusinessabroad.Weorourthird-partyintermediariesmayhavedirectorindirectinteractionswithofficialsandemployeesofgovernmentagenciesorstate-ownedoraffiliatedentitiesandwecanbeheldliableforthecorruptorotherillegalactivitiesofthesethird-partyintermediaries,ouremployees,representatives,contractors,partners,andagents,evenifwedonotexplicitlyauthorizesuchactivities.Wehaveimplementedananti-corruptioncomplianceprogrambutcannotassureyouthatallouremployeesandagents,aswellasthosecompaniestowhichweoutsourcecertainofourbusinessoperations,willnottakeactionsinviolationofourpoliciesandapplicablelaw,forwhichwemaybeultimatelyheldresponsible.
AnyviolationoftheFCPA,otherapplicableanti-corruptionlaws,andanti-moneylaunderinglawscouldresultinwhistleblowercomplaints,adversemediacoverage,investigations,lossofexportprivileges,severecriminalorcivilsanctionsand,inthecaseoftheFCPA,suspensionordebarmentfromU.S.governmentcontracts,whichcouldhaveanadverseeffectonourreputation,business,operatingresults,andprospects.Inaddition,respondingtoanyenforcementactionmayresultinasignificantdiversionofmanagement’sattentionandresourcesandsignificantdefensecostsandotherprofessionalfees.
We are required to comply with governmental export control laws and regulations. Our failure to comply with these laws and regulations could have anadverse effect on our business and operating results.
Ourplatformissubjecttogovernmental,includingUnitedStatesandEuropeanUnion,exportcontrollawsandregulations.U.S.exportcontrollawsandregulationsandeconomicsanctionsprohibittheshipmentofcertainproductsandservicestoU.S.embargoedorsanctionedcountries,governments,andpersons,andcomplyingwithexportcontrolandsanctionsregulationsforaparticularsalemaybetime-consumingandmayresultinthedelayorlossofsalesopportunities.Whilewetakeprecautionstopreventourplatformfrombeingexportedinviolationoftheselaws,ifweweretofailtocomplywithU.S.exportlaws,U.S.Customsregulationsandimportregulations,U.S.economicsanctions,andothercountries’importandexportlaws,wecouldbesubjecttosubstantialcivilandcriminalpenalties,includingfinesforthecompanyandincarcerationforresponsibleemployeesandmanagers,andthepossiblelossofexportorimportprivileges.
Weincorporateencryptiontechnologyintocertainofourproducts.EncryptionproductsmaybeexportedoutsideoftheUnitedStatesonlywiththerequiredexportauthorizationincludingbylicense,alicenseexceptionorotherappropriategovernmentauthorization.Inaddition,variouscountriesregulatetheimportofcertainencryptiontechnology,includingimportpermittingandlicensingrequirements,andhaveenactedlawsthatcouldlimitourabilitytodistributeourproductsorcould
limitourcustomers’abilitytoimplementourproductsinthosecountries.Althoughwetakeprecautionstopreventourproductsfrombeingprovidedinviolationofsuchlaws,wecannotassureyouthatinadvertentviolationsofsuchlawshavenotoccurredorwillnotoccurinconnectionwiththedistributionofourproductsdespitetheprecautionswetake.Governmentalregulationofencryptiontechnologyandregulationofimportsorexports,orourfailuretoobtainrequiredimportorexportapprovalforourproducts,couldharmourinternationalsalesandadverselyaffectouroperatingresults.
Further,ifourchannelorotherpartnersfailtoobtainappropriateimport,export,orre-exportlicensesorpermits,wemayalsobeharmed,becomethesubjectofgovernmentinvestigationsorpenalties,andincurreputationalharm.Changesinourplatformorchangesinexportandimportregulationsmaycreatedelaysintheintroductionofourplatformininternationalmarkets,preventourcustomerswithinternationaloperationsfromdeployingourplatformgloballyor,insomecases,preventtheexportorimportofourplatformtocertaincountries,governments,orpersonsaltogether.Anychangeinexportorimportlawsorregulations,economicsanctions,orrelatedlegislation,shiftintheenforcementorscopeofexistinglawsandregulations,orchangeinthecountries,governments,persons,ortechnologiestargetedbysuchlawsandregulations,couldresultindecreaseduseofourplatformby,orinourdecreasedabilitytoexportorsellourplatformto,existingorpotentialcustomerswithinternationaloperations.Anydecreaseduseofourplatformorlimitationonourabilitytoexportorsellourplatformwouldlikelyharmourbusiness,financialcondition,andoperatingresults.
If we are unable to recruit or retain skilled personnel, or if we lose the services of any of our senior management or other key personnel, our business,operating results, and financial condition could be adversely affected.
Ourfuturesuccessdependsonourcontinuingabilitytoattract,train,assimilate,andretainhighlyskilledpersonnel.Wefaceintensecompetitionforqualifiedindividualsfromnumeroussoftwareandothertechnologycompanies.Wemaynotbeabletoretainourcurrentkeyemployeesorattract,train,assimilate,orretainotherhighlyskilledpersonnelinthefuture.Wemayincursignificantcoststoattractandretainhighlyskilledpersonnel,andwemaylosenewemployeestoourcompetitorsorothertechnologycompaniesbeforewerealizethebenefitofourinvestmentinrecruitingandtrainingthem.Aswecontinuetomoveintonewgeographies,wewillneedtoattractandrecruitskilledpersonnelinthoseareas.Ifweareunabletoattractandretainsuitablyqualifiedindividualswhoarecapableofmeetingourgrowingtechnical,operational,andmanagerialrequirements,onatimelybasisoratall,ourbusinessmaybeadverselyaffected.Volatilityorlackofperformanceinourstockpricemayalsoaffectourabilitytoattractandretainourkeyemployees.
Ourfuturesuccessalsodependsinlargepartonthecontinuedserviceofseniormanagementandotherkeypersonnel.Inparticular,wearehighlydependentontheservicesofourseniormanagementteam,manyofwhomarecriticaltothedevelopmentofourtechnology,platform,futurevision,andstrategicdirection.Werelyonourleadershipteamintheareasofoperations,security,marketing,sales,support,andgeneralandadministrativefunctions,andonindividualcontributorsonourresearchanddevelopmentteam.Ourseniormanagementandotherkeypersonnelareallemployedonanat-willbasis,whichmeansthattheycouldterminatetheiremploymentwithusatanytime,foranyreasonandwithoutnotice.Ifwelosetheservicesofseniormanagementorotherkeypersonnel,ifourseniormanagementteamcannotworktogethereffectively,orifweareunabletoattract,train,assimilate,andretainthehighlyskilledpersonnelweneed,ourbusiness,operatingresults,andfinancialconditioncouldbeadverselyaffected.
If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.
Aswecontinuetoexpandourinternationaloperations,webecomemoreexposedtotheeffectsoffluctuationsincurrencyexchangerates.AlthoughweexpectanincreasingnumberofsalescontractstobedenominatedincurrenciesotherthantheU.S.dollarinthefuture,themajorityofoursalescontractshavehistoricallybeendenominatedinU.S.dollars,andtherefore,mostofourrevenuehasnotbeensubjecttoforeigncurrencyrisk.However,astrengtheningoftheU.S.dollarcouldincreasetherealcostofourplatformtoourcustomersoutsideoftheUnitedStates,whichcouldadverselyaffectourbusiness,operatingresults,financialcondition,andcashflows.Inaddition,weincurexpensesforemployeecompensationandotheroperatingexpensesatournon-U.S.locationsinthelocalcurrency.FluctuationsintheexchangeratesbetweentheU.S.dollarandothercurrenciescouldresultinthedollarequivalentofsuchexpensesbeinghigher.Thiscouldhaveanegativeimpactonouroperatingresults.Althoughwemayinthefuturedecidetoundertakeforeignexchangehedgingtransactionstocoveraportionofourforeigncurrencyexchangeexposure,wecurrentlydonothedgeourexposuretoforeigncurrencyexchangerisks.
We may have exposure to additional tax liabilities.
WearesubjecttocomplextaxlawsandregulationsintheUnitedStatesandavarietyofforeignjurisdictions.Allofthesejurisdictionshaveinthepastandmayinthefuturemakechangestotheircorporateincometaxratesandotherincometaxlawswhichcouldincreaseourfutureincometaxprovision.Forexample,theTaxCutsandJobsActof2017enactedbroadand
complexchangestotheU.S.taxcode,someofwhichareunfavorableandwillapplytous,includingbutnotlimitedto:(i)impositionofincometaxonglobalintangiblelow-taxedincome,orGILTI;(ii)repealofthedeductionfordomesticproductionactivity;(iii)limitingthedeductibilityofcertainexecutivecompensation;and(v)limitingtheuseofforeigntaxcreditstoreduceU.S.incometaxliability.
Ourfutureincometaxobligationscouldbeaffectedbyearningsthatarelowerthananticipatedinjurisdictionswherewehavelowerstatutoryratesandbyearningsthatarehigherthananticipatedinjurisdictionswherewehavehigherstatutoryrates,bychangesinthevaluationofourdeferredtaxassetsandliabilities,changesintheamountofunrecognizedtaxbenefits,orbychangesintaxlaws,regulations,accountingprinciples,orinterpretationsthereof.
OurdeterminationofourtaxliabilityissubjecttoreviewbyapplicableU.S.andforeigntaxauthorities.Anyadverseoutcomeofsuchareviewcouldharmouroperatingresultsandfinancialcondition.Thedeterminationofourworldwideprovisionforincometaxesandothertaxliabilitiesrequiressignificantjudgmentand,intheordinarycourseofbusiness,therearemanytransactionsandcalculationswheretheultimatetaxdeterminationiscomplexanduncertain.Moreover,asamultinationalbusiness,wehavesubsidiariesthatengageinmanyintercompanytransactionsinavarietyoftaxjurisdictionswheretheultimatetaxdeterminationiscomplexanduncertain.Ourexistingcorporatestructureandintercompanyarrangementshavebeenimplementedinamannerwebelieveisincompliancewithcurrentprevailingtaxlaws.However,thetaxingauthoritiesofthejurisdictionsinwhichweoperatemaychallengeourmethodologiesforvaluingdevelopedtechnologyorintercompanyarrangements,whichcouldimpactourworldwideeffectivetaxrateandharmourfinancialpositionandoperatingresults.
Wearealsosubjecttonon-incometaxes,suchaspayroll,sales,use,value-added,networth,property,andgoodsandservicestaxesintheUnitedStatesandvariousforeignjurisdictions.Weareperiodicallyreviewedandauditedbytaxauthoritieswithrespecttoincomeandnon-incometaxes.Taxauthoritiesmaydisagreewithcertainpositionswehavetakenandwemayhaveexposuretoadditionalincomeandnon-incometaxliabilitieswhichcouldhaveanadverseeffectonouroperatingresultsandfinancialcondition.Inaddition,ourfutureeffectivetaxratescouldbefavorablyorunfavorablyaffectedbychangesintaxrates,changesinthevaluationofourdeferredtaxassetsorliabilities,theeffectivenessofourtaxplanningstrategies,orchangesintaxlawsortheirinterpretation.Suchchangescouldhaveanadverseimpactonourfinancialcondition.Forinstance,theUnitedStatesSupremeCourt’sJune2018rulinginSouthDakotav.Wayfair,Inc.couldresultinmorestatesrequiringustocollectsalesorusetaxonsaleswemaketotheirresidents.Thischangeinthelawcouldincreaseourtaxcompliancecostsand/orincreasetheafter-taxpriceofourproductsinsomestates.
Asaresultoftheseandotherfactors,theultimateamountoftaxobligationsowedmaydifferfromtheamountsrecordedinourfinancialstatementsandanysuchdifferencemayharmouroperatingresultsinfutureperiodsinwhichwechangeourestimatesofourtaxobligationsorinwhichtheultimatetaxoutcomeisdetermined.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations which could subject our business to higher taxliability.
Ourabilitytouseournetoperatinglossestooffsetfuturetaxableincomemaybesubjecttocertainlimitationswhichcouldsubjectourbusinesstohighertaxliability.Wemaybelimitedintheportionofnetoperatingloss,orNOL,carryforwardsthatwecanuseinthefuturetooffsettaxableincomeforU.S.federalandstateincometaxpurposes,andfederaltaxcreditstooffsetfederaltaxliabilities.Sections382and383oftheInternalRevenueCodeof1986,asamended,limittheuseofNOLsandtaxcreditsafteracumulativechangeincorporateownershipofmorethan50%occurswithinathree-yearperiod.ThestatutesplaceaformulalimitonhowmuchNOLsandtaxcreditsacorporationcanuseinataxyear.Weconcludedwehadanownershipchangein2015,buttheownershipchangeshouldnotpreventusfromusingallourpre-2018NOLsandtaxcreditsbeforetheyexpire.ForU.S.federalincometaxpurposes,NOLsfromtaxyearsthatbeganafterDecember31,2017donotexpire,butNOLsfromtaxyearsthatbeganbeforeJanuary1,2018expireafter20years.WemayalsoexperienceownershipchangesinthefuturethatfurtherrestricttheuseofourNOLsasaresultofsubsequentshiftsinourstockownership.Furthermore,undertheTaxCutsandJobsActof2017,althoughthetreatmentoftaxlossesgeneratedintaxableyearsendingbeforeDecember31,2017hasgenerallynotchanged,taxlossesgeneratedintaxableyearsbeginningafterDecember31,2017maybeutilizedtooffsetnomorethan80%oftaxableincomeannually.IfwehaveafuturetaxableyearinwhichwegenerateNOLs,thischangemayrequireustopaymorefederalincometaxesinasubsequentyearthanwewouldhavehadtopayunderpre-existinglaw.
Economic uncertainty or downturns, particularly as it impacts particular industries, could adversely affect our business and operating results.
Overthelastdecade,theUnitedStatesandothersignificantmarketshaveexperiencedcyclicaldownturnsandworldwideeconomicconditionsremainuncertain.Economicuncertaintyandassociatedmacroeconomicconditionsmakeitextremelydifficultforourcustomersandustoaccuratelyforecastandplanfuturebusinessactivities,andcouldcauseourcustomerstoslowspendingonourplatform,whichcoulddelayandlengthensalescycles.Furthermore,duringuncertaineconomictimesourcustomersmayfaceissuesgainingtimelyaccesstosufficientcredit,whichcouldresultinanimpairmentoftheirabilitytomaketimelypaymentstous.Ifthatweretooccur,wemayberequiredtoincreaseourallowancefordoubtfulaccountsandourresultswouldbenegativelyimpacted.
Furthermore,wehavecustomersinavarietyofdifferentindustries.Asignificantdownturnintheeconomicactivityattributabletoanyparticularindustry,including,butnotlimitedto,theretailandfinancialindustries,maycauseorganizationstoreactbyreducingtheircapitalandoperatingexpendituresingeneralorbyspecificallyreducingtheirspendingoninformationtechnology.Inaddition,ourcustomersmaydelayorcancelinformationtechnologyprojectsorseektolowertheircostsbyrenegotiatingvendorcontracts.Totheextentpurchasesofourplatformareperceivedbycustomersandpotentialcustomerstobediscretionary,ourrevenuemaybedisproportionatelyaffectedbydelaysorreductionsingeneralinformationtechnologyspending.Also,customersmaychoosetodevelopin-housesoftwareasanalternativetousingourplatform.Moreover,competitorsmayrespondtochallengingmarketconditionsbyloweringpricesandattemptingtolureawayourcustomers.
Wecannotpredictthetiming,strength,ordurationofanyeconomicslowdownoranysubsequentrecoverygenerally,oranyindustryinparticular.Iftheconditionsinthegeneraleconomyandthemarketsinwhichweoperateworsenfrompresentlevels,ourbusiness,financialcondition,andoperatingresultscouldbemateriallyadverselyaffected.
We may require additional capital to fund our business and support our growth, and any inability to generate or obtain such capital may adversely affect ouroperating results and financial condition.
Inordertosupportourgrowthandrespondtobusinesschallenges,suchasdevelopingnewfeaturesorenhancementstoourplatformtostaycompetitive,acquiringnewtechnologies,andimprovingourinfrastructure,wehavemadesignificantfinancialinvestmentsinourbusinessandweintendtocontinuetomakesuchinvestments.Asaresult,wemayneedtoengageinadditionalequityordebtfinancingstoprovidethefundsrequiredfortheseinvestmentsandotherbusinessendeavors.Ifweraiseadditionalfundsthroughequityorconvertibledebtissuances,ourexistingstockholdersmaysuffersignificantdilutionandthesesecuritiescouldhaverights,preferences,andprivilegesthataresuperiortothatofholdersofourcommonstock.Ifweobtainadditionalfundsthroughdebtfinancing,wemaynotbeabletoobtainsuchfinancingontermsfavorabletous.Suchtermsmayinvolverestrictivecovenantsmakingitdifficulttoengageincapitalraisingactivitiesandpursuebusinessopportunities,includingpotentialacquisitions.Ifweareunabletoobtainadequatefinancingorfinancingontermssatisfactorytouswhenwerequireit,ourabilitytocontinuetosupportourbusinessgrowthandtorespondtobusinesschallengescouldbesignificantlyimpairedandourbusinessmaybeadverselyaffected,requiringustodelay,reduce,oreliminatesomeorallofouroperations.
The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain additionalexecutive management and qualified board members.
WearesubjecttothereportingrequirementsoftheExchangeAct,theSarbanes-OxleyActof2002,orSarbanes-OxleyAct,theDodd-FrankWallStreetReformandConsumerProtectionActof2010,orDodd-FrankAct,thelistingrequirementsoftheNewYorkStockExchange,andotherapplicablesecuritiesrulesandregulations.Compliancewiththeserulesandregulationshaveincreasedourlegalandfinancialcompliancecosts,madesomeactivitiesmoredifficult,time-consuming,orcostlyandincreaseddemandonoursystemsandresources.
TheExchangeActrequires,amongotherthings,thatwefileannual,quarterly,andcurrentreportswithrespecttoourbusinessandoperatingresults.TheSarbanes-OxleyActrequires,amongotherthings,thatwemaintaineffectivedisclosurecontrolsandproceduresandinternalcontroloverfinancialreporting.Inordertomaintainand,ifrequired,improveourdisclosurecontrolsandproceduresandinternalcontroloverfinancialreportingtomeetthisstandard,significantresourcesandmanagementoversighthavebeen,andmayinthefuturebe,required.Forexample,ouradoptionofASC606requiredustomakesignificantupdatestoourfinancialinformationtechnologysystemsandsignificantmodificationstoouraccountingcontrolsandproceduresandcontinuestoplaceasignificantburdenonouraccountingandinformationtechnologyteams,bothfinanciallyandthroughtheexpenditureofmanagementtime.Manyoftheseupdatesandmodificationsremaininprocessasweevolveoursystemsandcontrols.WehavebeenabletomaketimelyreportingrequirementsasofthedateofthisAnnualReport;however,thesignificantsystemandprocessupdatesrequiredfortheefficientoperationofourrevenueprocessunderASC606remainanon-goinginitiativewithnoassurancethatwewillcontinuetobesuccessfulinmeetingourfuturereporting
requirements.OurfailuretomeetourreportingobligationscouldhaveamaterialadverseeffectonourbusinessandonthetradingpriceofourClassAcommonstock.Furthermore,duetotheimplementationofASC606andthechangeswehavemadetoourinternalcontrolenvironmenttoadoptASC606,thereisanincreasedriskthatwemayfailtomaintainaneffectiveinternalcontrolenvironment.Ourfailuretomaintainaneffectiveinternalcontrolenvironmentmay,amongotherthings,resultinmaterialmisstatementsinourfinancialstatementsandfailuretomeetourreportingobligations.Asaresultofongoingeffortstomaintainandimproveourdisclosurecontrolsandproceduresandinternalcontroloverfinancialreporting,management’sattentionmaybedivertedfromotherbusinessconcerns,whichcouldadverselyaffectourbusinessandoperatingresults.Althoughwehavealreadyhiredadditionalemployeestocomplywiththeserequirements,wemayneedtohiremoreemployeesinthefutureorengageoutsideconsultants,whichwillincreaseourcostsandexpenses.
Inaddition,changinglaws,regulations,andstandardsrelatingtocorporategovernanceandpublicdisclosurearecreatinguncertaintyforpubliccompanies,increasinglegalandfinancialcompliancecosts,andmakingsomeactivitiesmoretimeconsuming.Theselaws,regulations,andstandardsaresubjecttovaryinginterpretations,inmanycasesduetotheirlackofspecificity,and,asaresult,theirapplicationinpracticemayevolveovertimeasnewguidanceisprovidedbyregulatoryandgoverningbodies.Thiscouldresultincontinuinguncertaintyregardingcompliancemattersandhighercostsnecessitatedbyongoingrevisionstodisclosureandgovernancepractices.Weintendtoinvestresourcestocomplywithevolvinglaws,regulations,andstandards,andthisinvestmentmayresultinincreasedgeneralandadministrativeexpensesandadiversionofmanagement’stimeandattentionfromrevenue-generatingactivitiestocomplianceactivities.Ifoureffortstocomplywithnewlaws,regulations,andstandardsdifferfromtheactivitiesintendedbyregulatoryorgoverningbodiesduetoambiguitiesrelatedtotheirapplicationandpractice,regulatoryauthoritiesmayinitiatelegalproceedingsagainstusandourbusinessmaybeadverselyaffected.
Therulesandregulationsapplicabletopubliccompaniesmakeitmoreexpensiveforustoobtainandmaintaindirectorandofficerliabilityinsurance,andwemayberequiredtoacceptreducedcoverageorincursubstantiallyhighercoststoobtaincoverage.Thesefactorscouldalsomakeitmoredifficultforustoattractandretainqualifiedmembersofourboardofdirectors,particularlytoserveonourauditcommitteeandcompensationcommittee,andqualifiedexecutiveofficers.
Asaresultofdisclosureofinformationinfilingsrequiredofapubliccompany,ourbusinessandfinancialconditionhasbecomemorevisible,whichwebelievemayresultinthreatenedoractuallitigation,includingbycompetitorsandotherthirdparties.Ifsuchclaimsaresuccessful,ourbusinessandoperatingresultscouldbeadverselyaffected,andeveniftheclaimsdonotresultinlitigationorareresolvedinourfavor,theseclaims,andthetimeandresourcesnecessarytoresolvethem,coulddiverttheresourcesofourmanagementandadverselyaffectourbusinessandoperatingresults.
We are obligated to develop and maintain proper and effective internal control over financial reporting. We previously identified a material weakness in ourinternal control over financial reporting. Although we believe the material weakness has since been remediated, we may identify additional materialweaknesses in the future, or otherwise fail to maintain an effective system of internal control over financial reporting in the future, and may not be able toaccurately or timely report our financial condition or operating results, which may adversely affect investor confidence in our company and, as a result, thevalue of our Class A common stock.
Asapubliccompany,wearerequired,pursuanttoSection404oftheSarbanes-OxleyAct,tofurnishareportbymanagementon,amongotherthings,theeffectivenessofourinternalcontroloverfinancialreporting.Effectiveinternalcontroloverfinancialreportingisnecessaryforustoprovidereliablefinancialreportsand,togetherwithadequatedisclosurecontrolsandprocedures,aredesignedtopreventfraud.Anyfailuretoimplementrequiredneworimprovedcontrols,ordifficultiesencounteredintheirimplementation,couldcauseustofailtomeetourreportingobligations.Ineffectiveinternalcontrolscouldalsocauseinvestorstoloseconfidenceinourreportedfinancialinformation,whichcouldhaveanegativeeffectonthetradingpriceofourClassAcommonstock.
Thisassessmentwillneedtoincludedisclosureofanymaterialweaknessesidentifiedbyourmanagementinourinternalcontroloverfinancialreporting,aswellasastatementthatourindependentregisteredpublicaccountingfirmhasissuedanopiniononourinternalcontroloverfinancialreporting.Becausewearenolongeran“emerginggrowthcompany”asofDecember31,2018,Section404(b)oftheSarbanes-OxleyActrequiresourindependentregisteredpublicaccountingfirmtoannuallyattesttotheeffectivenessofourinternalcontroloverfinancialreportingcommencingwiththeyearendedDecember31,2018,whichhas,andwillcontinueto,requireincreasedcosts,expenses,andmanagementresources.Anindependentassessmentoftheeffectivenessofourinternalcontrolscoulddetectproblemsthatourmanagement’sassessmentmightnot.Undetectedmaterialweaknessesinourinternalcontrolscouldleadtofinancialstatementrestatementsandrequireustoincurtheexpenseofremediation.Wearerequiredtodisclosechangesmadeinourinternalcontrolsandproceduresonaquarterlybasis.Tocomplywiththerequirementsofbeingapubliccompany,wehaveundertaken,andmayneedtofurtherundertakeinthefuture,variousactions,suchasimplementingnewinternalcontrolsandproceduresandhiringadditionalaccountingorinternalauditstaff.
InthecourseofpreparingourfinancialstatementsasofandfortheyearendedDecember31,2016,weidentifiedamaterialweaknessinourinternalcontroloverfinancialreporting.Amaterialweaknessisadeficiency,orcombinationofdeficiencies,ininternalcontroloverfinancialreporting,suchthatthereisareasonablepossibilitythatamaterialmisstatementofacompany’sannualorinterimfinancialstatementswillnotbepreventedordetectedonatimelybasis.Thematerialweaknessidentifiedrelatedtotheevaluationoftheaccountingimpactofcertaincontractualtermsrelatedtoourarrangementswithlicenseddataproviders,whichresultedinthemisstatementintherecordingofprepaidandotherassetsandroyaltycoststhatwererecordedincostofrevenueinthefirstthreefiscalquartersof2016.
Inresponsetothismaterialweakness,wemadechangestoourinternalcontroloverfinancialreporting,includingdevelopingimprovedprocessesandcontrolsfortheidentificationandevaluationofthetermsofcontractsweenterintowithlicenseddataprovidersandassessinganddocumentingaccountingimplicationsforcertainarrangementswithlicenseddataproviders.
OurmanagementbelievesthattheseandotheractionstakentoremediatethismaterialweaknesshavebeenfullyimplementedasofMarch31,2018,andthatasofsuchdateourinternalcontroloverfinancialreportingwasoperatingeffectively.Asaresult,wehaveconcludedthatourremediationeffortshavebeensuccessful,andthatthepreviously-identifiedmaterialweaknessinourinternalcontrolshasbeenremediated.However,wecannotassureyouthatthemeasureswehavetakentodate,andarecontinuingtoimplement,oranymeasureswemaytakeinthefuture,willbesufficienttoidentifyorpreventfuturematerialweaknesses.Ifothermaterialweaknessesorotherdeficienciesoccur,ourabilitytoaccuratelyandtimelyreportourfinancialpositioncouldbeimpaired,whichcouldresultinamaterialmisstatementofourfinancialstatementsthatwouldnotbepreventedordetectedonatimelybasis.
Ifweareunabletoassertthatourinternalcontroloverfinancialreportingiseffective,orifourindependentregisteredpublicaccountingfirmisunabletoexpressanopinionontheeffectivenessofourinternalcontrol,includingasaresultofanyidentifiedmaterialweakness,wecouldloseinvestorconfidenceintheaccuracyandcompletenessofourfinancialreports,whichwouldcausethepriceofourClassAcommonstocktodecline,andwemaybesubjecttoinvestigationorsanctionsbytheSEC.Inaddition,ifweareunabletocontinuetomeettheserequirements,wemaynotbeabletoremainlistedontheNewYorkStockExchange.
We recently changed our independent registered public accounting firm due to the possible appearance of a business relationship contrary to auditorindependence standards as a result of the accounting firm’s increased use of, and communications and services related to, our software platform with itsclients and prospective clients in 2018. If our prior registered independent accounting firm were to determine that it was not independent in prior years, wemay be required to have such financial statements audited and reviewed by another independent registered public accounting firm. Moreover, our newregistered independent accounting firm may interpret accounting rules differently than our former firm.
InJanuary2019,wedismissedourformerindependentregisteredpublicaccountingfirm,PricewaterhouseCoopersLLP,orPwC,andengagedanewfirm,Deloitte&ToucheLLP,orDeloitte,toserveinthatrole.PwC,ourpriorindependentregisteredpublicaccountingfirm,haspurchasedourproductsandservicesfromtimetotimeintheordinarycourseofbusinessinarms-lengthtransactions.OursalestoPwCthroughthedateoftheirdismissalhavebeenimmaterial;however,inJanuary2019,followinganinternalreviewbyPwC,PwCnotifiedusthatithadincreaseditsuseof,andcommunicationsandservicesrelatedto,oursoftwareplatformwithitsclientsandprospectiveclientsin2018andthatthiscreatedthepossibleappearanceofabusinessrelationshipcontrarytoauditorindependencestandards.PwCcommunicatedtousthatthisconcerndidnotextendto2017oranyprioryear.Asaresultoftheforegoing,wedismissedPwCasourindependentregisteredpublicaccountingfirminJanuary2019.Inthefuture,ifitweretobedeterminedthatPwCwasnotindependentfor2017orprioryears,thefinancialstatementsauditedbyPwCmayhavetobeauditedandreviewedbyanotherindependentregisteredpublicaccountingfirm.TherecanbenoassurancethatthenewindependentregisteredpublicaccountingfirmwillreachthesameconclusionsasPwCregardingtheapplicationofaccountingstandards,managementestimatesorotherfactorsaffectingourfinancialstatementsinconnectionwithsuchaccountant’sauditandreviewprocess,andthatadjustmentstoorrestatementsofourfinancialstatementsforsuchperiodswillnotberequiredasaresult.
Additionally,Deloitte,ournewindependentregisteredpublicaccountingfirm,willbereviewingandauditingourfinancialstatementsinthefuture.Giventhecomplexitiesofpubliccompanyaccountingrulesandthedifferencesinhowthoserulesareinterpretedbyvariousaccountingfirms,itispossiblethatournewindependentregisteredpublicaccountingfirmwillrequireustocharacterizecertaintransactionsorpresentfinancialdatadifferentlythanwasapprovedbyourformerindependentregisteredpublicaccountingfirm.Similarly,itispossiblethatournewindependentregisteredpublicaccountingfirmwilldisagreewiththewaywehavepresentedfinancialresultsinpriorperiods,inwhichcasewemayberequiredtorestatethosefinancialresults.Ineithercase,thesechangescouldnegativelyimpactourfuturefinancialresultsorpreviouslyreported
financialresults,couldsubjectustotheexpenseandotherconsequencesofrestatingourpriorfinancialstatements,andcouldleadtogovernmentinvestigationorstockholderlitigation.
Our management team has limited experience managing a public company.
Mostmembersofourmanagementteamhavelimitedexperiencemanagingapubliclytradedcompany,interactingwithpubliccompanyinvestors,andcomplyingwiththeincreasinglycomplexlawspertainingtopubliccompanies.Ourmanagementteammaynotsuccessfullyorefficientlymanagethesignificantregulatoryoversightandreportingobligationsofapubliccompanyunderthefederalsecuritieslawsandthecontinuousscrutinyofsecuritiesanalystsandinvestors.Thesenewobligationsandconstituentswillrequiresignificantattentionfromourseniormanagementandcoulddiverttheirattentionawayfromtheday-to-daymanagementofourbusiness,whichcouldadverselyaffectourbusiness,financialcondition,andoperatingresults.
Future acquisitions of, or investments in, other companies, products, or technologies could require significant management attention, disrupt our business,dilute stockholder value, and adversely affect our operating results.
Ourbusinessstrategyhasincluded,andmayinthefutureinclude,acquiringothercomplementaryproducts,technologies,orbusinesses.Forexample,weacquiredAlteryxANZinFebruary2018tofurtherexpandourcustomerreachintoNewZealandandAustralia.Wealsomayenterintorelationshipswithotherbusinessesinordertoexpandourplatform,whichcouldinvolvepreferredorexclusivelicenses,additionalchannelsofdistribution,ordiscountpricingorinvestmentsinothercompanies.Negotiatingthesetransactionscanbetime-consuming,difficult,andexpensive,andourabilitytoclosethesetransactionsmaybesubjecttothird-partyapprovals,suchasgovernmentregulatoryapprovals,whicharebeyondourcontrol.Consequently,wecanmakenoassurancethatthesetransactionsonceundertakenandannounced,willclose.
Thesekindsofacquisitionsorinvestmentsmayresultinunforeseenoperatingdifficultiesandexpenditures.Ifweacquirebusinessesortechnologies,wemaynotbeabletointegratetheacquiredpersonnel,operations,andtechnologiessuccessfully,oreffectivelymanagethecombinedbusinessfollowingtheacquisition.Wealsomaynotachievetheanticipatedbenefitsfromtheacquiredbusinessduetoanumberoffactors,including:
• inabilitytointegrateorbenefitfromacquiredtechnologiesorservicesinaprofitablemanner;• unanticipatedcostsorliabilitiesassociatedwiththeacquisition;• incurrenceofacquisition-relatedcosts;• difficultyintegratingtheaccountingsystems,operations,andpersonneloftheacquiredbusiness;• difficultiesandadditionalexpensesassociatedwithsupportinglegacyproductsandhostinginfrastructureoftheacquiredbusiness;• difficultyconvertingthecustomersoftheacquiredbusinessontoourplatformandcontractterms;• diversionofmanagement’sattentionfromotherbusinessconcerns;• adverseeffectstoourexistingbusinessrelationshipswithbusinesspartnersandcustomersasaresultoftheacquisition;• thepotentiallossofkeyemployees;• useofresourcesthatareneededinotherpartsofourbusiness;and• useofsubstantialportionsofouravailablecashtoconsummatetheacquisition.
Moreover,wecannotassureyouthattheanticipatedbenefitsofanyacquisitionorinvestmentwouldberealizedorthatwewouldnotbeexposedtounknownliabilities.
Inconnectionwiththesetypesoftransactions,wemayissueadditionalequitysecuritiesthatwoulddiluteourstockholders,usecashthatwemayneedinthefuturetooperateourbusiness,incurdebtontermsunfavorabletousorthatweareunabletorepay,incurlargechargesorsubstantialliabilities,encounterdifficultiesintegratingdiversebusinesscultures,andbecomesubjecttoadversetaxconsequences,substantialdepreciation,ordeferredcompensationcharges.Thesechallengesrelatedtoacquisitionsorinvestmentscouldadverselyaffectourbusiness,operatingresults,financialcondition,andprospects.
Our financial statements are subject to change and if our estimates or judgments relating to our critical accounting policies prove to be incorrect, ouroperating results could be adversely affected.
ThepreparationoffinancialstatementsinconformitywithU.S.GAAPrequiresmanagementtomakeestimatesandassumptionsthataffecttheamountsreportedinourconsolidatedfinancialstatementsandrelatednotes.Webaseourestimatesonhistoricalexperienceandonvariousotherassumptionsthatwebelievetobereasonableunderthecircumstances,asprovidedinthesectiontitled“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”inthis
AnnualReport.Theresultsoftheseestimatesformthebasisformakingjudgmentsaboutthecarryingvaluesofassets,liabilities,andequity,andtheamountofrevenueandexpensesthatarenotreadilyapparentfromothersources.Criticalaccountingpoliciesandestimatesusedinpreparingourconsolidatedfinancialstatementsincludethoserelatedtorevenuerecognition,businesscombinations,accountingforincometaxes,andstock-basedcompensationexpense.Ouroperatingresultsmaybeadverselyaffectedifourassumptionschangeorifactualcircumstancesdifferfromthoseinourassumptions,whichcouldcauseouroperatingresultstofallbelowtheexpectationsofsecuritiesanalystsandinvestors,resultinginadeclineinthepriceofourClassAcommonstock.
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
Wereviewourgoodwillandintangibleassetsforimpairmentwheneventsorchangesincircumstancesindicatethecarryingvaluemaynotberecoverable,suchasdeclinesinstockprice,marketcapitalization,orcashflowsandslowergrowthratesinourindustry.Goodwillisrequiredtobetestedforimpairmentatleastannually.Ifwearerequiredtorecordasignificantchargeinourfinancialstatementsduringtheperiodinwhichanyimpairmentofourgoodwillorintangibleassetsisdetermined,thatwouldnegativelyaffectouroperatingresults.
We may be adversely affected by natural disasters and other catastrophic events, and by man-made problems such as terrorism, that could disrupt our businessoperations and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Naturaldisastersorothercatastrophiceventsmayalsocausedamageordisruptiontoouroperations,internationalcommerce,andtheglobaleconomy,andcouldhaveanadverseeffectonourbusiness,operatingresults,andfinancialcondition.Ourbusinessoperationsaresubjecttointerruptionbynaturaldisasters,fire,powershortages,pandemics,andothereventsbeyondourcontrol.Inaddition,actsofterrorismandothergeo-politicalunrestcouldcausedisruptionsinourbusinessorthebusinessesofourpartnersortheeconomyasawhole.Intheeventofanaturaldisaster,includingamajorearthquake,blizzard,orhurricane,oracatastrophiceventsuchasafire,powerloss,ortelecommunicationsfailure,wemaybeunabletocontinueouroperationsandmayenduresysteminterruptions,reputationalharm,delaysindevelopmentofourplatform,lengthyinterruptionsinservice,breachesofdatasecurity,andlossofcriticaldata,allofwhichcouldhaveanadverseeffectonourfutureoperatingresults.Forexample,ourcorporateofficesarelocatedinCalifornia,astatethatfrequentlyexperiencesearthquakes.Additionally,alltheaforementionedrisksmaybefurtherincreasedifwedonotimplementadisasterrecoveryplanorourpartners’disasterrecoveryplansprovetobeinadequate.
We are exposed to fluctuations in the market values of our investments.
Creditratingsandpricingofourinvestmentscanbenegativelyaffectedbyliquidity,creditdeterioration,financialresults,economicrisk,politicalrisk,sovereignrisk,changesininterestrates,orotherfactors.Asaresult,thevalueandliquidityofourcashandcashequivalentsandinvestmentsmayfluctuatesubstantially.Therefore,althoughwehavenotrealizedanysignificantlossesonourcashandcashequivalentsandinvestments,futurefluctuationsintheirvaluecouldresultinasignificantrealizedloss,whichcouldmateriallyadverselyaffectourfinancialconditionandoperatingresults.
Risks Related to Our Convertible Senior Notes
Although our convertible senior notes are referred to as senior notes, they are effectively subordinated to any of our secured debt and any liabilities of oursubsidiaries.
Theconvertibleseniornotesrankseniorinrightofpaymenttoanyofourindebtednessthatisexpresslysubordinatedinrightofpaymenttotheconvertibleseniornotes;equalinrightofpaymenttoallofourexistingandfutureliabilitiesthatarenotsubordinated;effectivelyjuniorinrightofpaymenttoanyofoursecuredindebtednesstotheextentofthevalueoftheassetssecuringsuchindebtedness;andstructurallyjuniortoallindebtednessandotherliabilities(includingtradepayables)ofourcurrentorfuturesubsidiaries.Intheeventofourbankruptcy,liquidation,reorganization,orotherwindingup,ourassetsthatsecuredebtrankingseniororequalinrightofpaymenttotheconvertibleseniornoteswillbeavailabletopayobligationsontheconvertibleseniornotesonlyafterthesecureddebthasbeenrepaidinfullfromtheseassets,andtheassetsofoursubsidiarieswillbeavailabletopayobligationsontheconvertibleseniornotesonlyafterallclaimsseniortotheconvertibleseniornoteshavebeenrepaidinfull.Theremaynotbesufficientassetsremainingtopayamountsdueonanyoralloftheconvertibleseniornotesthenoutstanding.Theindenturegoverningtheconvertibleseniornotesdoesnotprohibitusfromincurringadditionalseniordebtorsecureddebt,nordoesitprohibitanyofourcurrentorfuturesubsidiariesfromincurringadditionalliabilities.
Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of the convertible senior notes.
Weexpectthatmanyinvestorsin,andpotentialpurchasersof,theconvertibleseniornoteshaveemployedorwillemploy,orseektoemploy,aconvertiblearbitragestrategywithrespecttotheconvertibleseniornotes.InvestorswouldtypicallyimplementsuchastrategybysellingshorttheClassAcommonstockunderlyingtheconvertibleseniornotesanddynamicallyadjustingtheirshortpositionwhilecontinuingtoholdtheconvertibleseniornotes.InvestorsmayalsoimplementthistypeofstrategybyenteringintoswapsonourClassAcommonstockinlieuoforinadditiontoshortsellingtheClassAcommonstock.
TheSECandotherregulatoryandself-regulatoryauthoritieshaveimplementedvariousrulesandtakencertainactions,andmayinthefutureadoptadditionalrulesandtakeotheractions,thatmayimpactthoseengaginginshortsellingactivityinvolvingequitysecurities(includingourClassAcommonstock).SuchrulesandactionsincludeRule201ofSECRegulationSHO,theadoptionbytheFinancialIndustryRegulatoryAuthority,Inc.andthenationalsecuritiesexchangesofa“LimitUp-LimitDown”program,theimpositionofmarket-widecircuitbreakersthathalttradingofsecuritiesforcertainperiodsfollowingspecificmarketdeclines,andtheimplementationofcertainregulatoryreformsrequiredbytheDodd-FrankAct.Anygovernmentalorregulatoryactionthatrestrictstheabilityofinvestorsin,orpotentialpurchasersof,theconvertibleseniornotestoeffectshortsalesofourClassAcommonstock,borrowourClassAcommonstock,orenterintoswapsonourClassAcommonstockcouldadverselyaffectthetradingpriceandtheliquidityoftheconvertibleseniornotes.
Volatility in the market price and trading volume of our Class A common stock could adversely impact the trading price of the convertible senior notes.
WeexpectthatthetradingpriceoftheconvertibleseniornoteswillbesignificantlyaffectedbythemarketpriceofourClassAcommonstock.Thestockmarketinrecentyearshasexperiencedsignificantpriceandvolumefluctuationsthathaveoftenbeenunrelatedtotheoperatingperformanceofcompanies.ThemarketpriceofourClassAcommonstockcouldfluctuatesignificantlyformanyreasons,includinginresponsetotheotherrisksdescribedinthisAnnualReportorforreasonsunrelatedtoouroperations,manyofwhicharebeyondourcontrol,suchasreportsbyindustryanalysts,investorperceptions,ornegativeannouncementsbyourcustomersorcompetitorsregardingtheirownperformance,aswellasindustryconditionsandgeneralfinancial,economicandpoliticalinstability.AdecreaseinthemarketpriceofourClassAcommonstockwouldlikelyadverselyimpactthetradingpriceoftheconvertibleseniornotes.ThemarketpriceofourClassAcommonstockcouldalsobeaffectedbypossiblesalesofourClassAcommonstockbyinvestorswhoviewtheconvertibleseniornotesasamoreattractivemeansofequityparticipationinusandbyhedgingorarbitragetradingactivitythatweexpecttodevelopinvolvingourClassAcommonstock.Thistradingactivitycould,inturn,affectthetradingpriceoftheconvertibleseniornotes.
We may incur substantially more debt or take other actions which would intensify the risks discussed above.
Weandoursubsidiariesmayincursubstantialadditionaldebtinthefuture,subjecttotherestrictionscontainedinourdebtinstruments,someofwhichmaybesecureddebt.Wearenotrestrictedunderthetermsoftheindenturegoverningtheconvertibleseniornotesfromincurringadditionaldebt,securingexistingorfuturedebt,recapitalizingourdebt,ortakinganumberofotheractionsthatarenotlimitedbythetermsoftheindenturegoverningtheconvertibleseniornotesthatcouldhavetheeffectofdiminishingourabilitytomakepaymentsontheconvertibleseniornoteswhendue.
We may not have the ability to raise the funds necessary to settle conversions of the convertible senior notes in cash or to repurchase the convertible senior notes upon a fundamental change, and any future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the convertiblesenior notes.
Holdersoftheconvertibleseniornoteshavetherighttorequireustorepurchasealloraportionoftheirconvertibleseniornotesupontheoccurrenceofafundamentalchangebeforethematuritydateatafundamentalchangerepurchasepriceequalto100%oftheprincipalamountoftheconvertibleseniornotestoberepurchased,plusaccruedandunpaidinterest,ifany.Inaddition,uponconversionoftheconvertibleseniornotes,unlessweelecttodeliversolelysharesofourClassAcommonstocktosettlesuchconversion(otherthanpayingcashinlieuofdeliveringanyfractionalshare),wearerequiredtomakecashpaymentsinrespectoftheconvertibleseniornotesbeingconverted.However,wemaynothaveenoughavailablecashorbeabletoobtainfinancingatthetimewearerequiredtomakerepurchasesofconvertibleseniornotessurrenderedtherefororpaycashwithrespecttoconvertibleseniornotesbeingconverted.
Inaddition,ourabilitytorepurchaseconvertibleseniornotesortopaycashuponconversionsofconvertibleseniornotesmaybelimitedbylaw,regulatoryauthority,oranyagreementsgoverningourfutureindebtedness.Ourfailuretorepurchaseconvertibleseniornotesatatimewhentherepurchaseisrequiredbytheindentureortopayanycashuponconversionsofconvertibleseniornotesasrequiredbytheindenturewouldconstituteadefaultundertheindenture.Adefaultunderthe
indentureorthefundamentalchangeitselfcouldalsoleadtoadefaultunderagreementsgoverninganyfutureindebtedness.Ifthepaymentoftherelatedindebtednessweretobeacceleratedafteranyapplicablenoticeorgraceperiods,wemaynothavesufficientfundstorepaytheindebtednessandrepurchasetheconvertibleseniornotesortopaycashuponconversionsofconvertibleseniornotes.
The conditional conversion feature of the convertible senior notes, if triggered, may adversely affect our financial condition and operating results.
Intheeventtheconditionalconversionfeatureoftheconvertibleseniornotesistriggered,holdersoftheconvertibleseniornoteswillbeentitledtoconverttheirconvertibleseniornotesatanytimeduringspecifiedperiodsattheiroption.Ifoneormoreholderselecttoconverttheirconvertibleseniornotes,unlessweelecttosatisfyourconversionobligationbydeliveringsolelysharesofourClassAcommonstock(otherthanpayingcashinlieuofdeliveringanyfractionalshare),wewouldberequiredtosettleaportionorallofourconversionobligationincash,whichcouldadverselyaffectourliquidity.Inaddition,evenifholdersofconvertibleseniornotesdonotelecttoconverttheirconvertibleseniornotes,wecouldberequiredunderapplicableaccountingrulestoreclassifyalloraportionoftheoutstandingprincipaloftheconvertibleseniornotesasacurrentratherthanlong-termliability,whichwouldresultinamaterialreductionofournetworkingcapital.
The accounting method for convertible debt securities that may be settled in cash, such as the convertible senior notes, could have a material effect on ourreported financial results.
UnderASC470-20,DebtwithConversionandOtherOptions,orASC470-20,anentitymustseparatelyaccountfortheliabilityandequitycomponentsofconvertibledebtinstruments(suchastheconvertibleseniornotes)thatmaybesettledwhollyorpartiallyincashuponconversioninamannerthatreflectstheissuer’seconomicinterestcost.TheeffectofASC470-20ontheaccountingfortheconvertibleseniornotesisthattheequitycomponent,netofissuancecosts,isrequiredtobeincludedintheadditionalpaid-incapitalsectionofstockholders’equityonourconsolidatedbalancesheetattheissuancedateandthevalueoftheequitycomponentistreatedasoriginalissuediscountforpurposesofaccountingfortheliabilitycomponentoftheconvertibleseniornotes.Asaresult,wearerequiredtorecordagreateramountofnon-cashinterestexpenseincurrentperiodspresentedasaresultoftheamortizationofthediscountedcarryingvalueoftheconvertibleseniornotestotheirfaceamountoverthetermoftheconvertibleseniornotes.Wewillreportlargernetlosses(orlowernetincome)inourfinancialresultsbecauseASC470-20requiresinteresttoincludeboththecurrentperiod’samortizationofthedebtdiscountandtheinstrument’snon-convertiblecouponinterestrate,whichcouldadverselyaffectourreportedorfuturefinancialresults,thetradingpriceofourClassAcommonstockandthetradingpriceoftheconvertibleseniornotes.
Inaddition,undercertaincircumstances,convertibledebtinstruments(suchastheconvertibleseniornotes)thatmaybesettledwhollyorpartiallyincashmaybeaccountedforutilizingthetreasurystockmethod,theeffectofwhichisthatthesharesissuableuponconversionofsuchconvertibleseniornotesarenotincludedinthecalculationofdilutedearningspershareexcepttotheextentthattheconversionvalueofsuchconvertibleseniornotesexceedstheirprincipalamount.Underthetreasurystockmethod,fordilutedearningspersharepurposes,thetransactionisaccountedforasifthenumberofsharesofClassAcommonstockthatwouldbenecessarytosettlesuchexcess,ifweelectedtosettlesuchexcessinshares,areissued.Wecannotbesurethattheaccountingstandardsinthefuturewillcontinuetopermittheuseofthetreasurystockmethod.Ifweareunableorotherwiseelectnottousethetreasurystockmethodinaccountingforthesharesissuableuponconversionoftheconvertibleseniornotes,thenourdilutedearningspersharecouldbeadverselyaffected.
The capped call transactions may affect the value of the convertible senior notes and our Class A common stock.
Inconnectionwiththepricingoftheconvertibleseniornotes,weenteredintocappedcalltransactionswiththeoptioncounterparties.Thecappedcalltransactionsareexpectedgenerallytoreducethepotentialdilutionuponanyconversionofconvertibleseniornotesand/oroffsetanycashpaymentswearerequiredtomakeinexcessoftheprincipalamountuponanyconversionofconvertibleseniornotes,withsuchreductionand/oroffsetsubjecttoacap.
TheoptioncounterpartiesortheirrespectiveaffiliatesmaymodifytheirhedgepositionsbyenteringintoorunwindingvariousderivativeswithrespecttoourClassAcommonstockand/orpurchasingorsellingourClassAcommonstockinsecondarymarkettransactionsfollowingthepricingoftheconvertibleseniornotesandpriortothematurityoftheconvertibleseniornotes(andarelikelytodosoduringanyobservationperiodrelatedtoaconversionofconvertibleseniornotesorfollowinganyrepurchaseofconvertibleseniornotesbyusonanyfundamentalchangerepurchasedateorotherwise).ThisactivitycouldalsocauseoravoidanincreaseoradecreaseinthemarketpriceofourClassAcommonstockortheconvertibleseniornotes,whichcouldaffectaholder’sabilitytoconverttheconvertibleseniornotesand,totheextenttheactivityoccursduringanyobservationperiodrelatedtoaconversionofconvertibleseniornotes,itcouldaffecttheamountandvalueoftheconsiderationthataholderwillreceiveuponconversionofsuchconvertibleseniornotes.
Inaddition,ifanysuchcappedcalltransactionsfailtobecomeeffective,theoptioncounterpartiesortheirrespectiveaffiliatesmayunwindtheirhedgepositionswithrespecttoourClassAcommonstock,whichcouldadverselyaffectthevalueofourClassAcommonstockand,iftheconvertibleseniornoteshavebeenissued,thevalueoftheconvertibleseniornotes.
Thepotentialeffect,ifany,ofthesetransactionsandactivitiesonthemarketpriceofourClassAcommonstockortheconvertibleseniornoteswilldependinpartonmarketconditionsandcannotbeascertainedatthistime.AnyoftheseactivitiescouldadverselyaffectthevalueofourClassAcommonstockandthevalueoftheconvertibleseniornotes(andasaresult,theamountandvalueoftheconsiderationthataholderwouldreceiveupontheconversionofanyconvertibleseniornotes)and,undercertaincircumstances,aholder’sabilitytoconverttheirconvertibleseniornotes.
WedonotmakeanyrepresentationorpredictionastothedirectionormagnitudeofanypotentialeffectthatthetransactionsdescribedabovemayhaveonthepriceoftheconvertibleseniornotesorourClassAcommonstock.Inaddition,wedonotmakeanyrepresentationthattheoptioncounterpartiesortheirrespectiveaffiliateswillengageinthesetransactionsorthatthesetransactions,oncecommenced,willnotbediscontinuedwithoutnotice.
We are subject to counterparty risk with respect to the capped call.
Thecappedcallcounterpartiesarefinancialinstitutions,andwewillbesubjecttotheriskthatanyorallofthemmaydefaultunderthecappedcalls.Ourexposuretothecreditriskofthecappedcallcounterpartieswillnotbesecuredbyanycollateral.Globaleconomicconditionshaveintherecentpastresultedin,andmayagainresultin,theactualorperceivedfailureorfinancialdifficultiesofmanyfinancialinstitutions.Ifacappedcallcounterpartybecomessubjecttoinsolvencyproceedings,wewillbecomeanunsecuredcreditorinthoseproceedings,withaclaimequaltoourexposureatthattimeunderourtransactionswiththatoptioncounterparty.Ourexposurewilldependonmanyfactorsbut,generally,anincreaseinourexposurewillbecorrelatedtoanincreaseinthemarketpriceandinthevolatilityofourcommonstock.Inaddition,uponadefaultbyanoptioncounterparty,wemaysuffermoredilutionthanwecurrentlyanticipatewithrespecttoourcommonstock.Wecanprovidenoassurancesastothefinancialstabilityorviabilityoftheoptioncounterparties.
Risks Related to Ownership of Our Class A Common Stock
The market price of our Class A common stock has been, and will likely continue to be, volatile, and you could lose all or part of the value of your investment.
ThemarketpriceofourClassAcommonstockhasbeen,andwilllikelycontinuetobe,volatile.SincesharesofourClassAcommonstockweresoldinourinitialpublicoffering,orIPO,inMarch2017atapriceof$14.00pershare,ourclosingstockpricehasrangedfrom$14.80to$64.42,throughDecember31,2018.InadditiontofactorsdiscussedinthisAnnualReport,themarketpriceofourClassAcommonstockmaycontinuetofluctuatesignificantlyinresponsetonumerousfactors,manyofwhicharebeyondourcontrol,including:
• overallperformanceoftheequitymarkets;• actualoranticipatedfluctuationsinourrevenueandotheroperatingresults;• changesinthefinancialprojectionswemayprovidetothepublicorourfailuretomeettheseprojections;• failureofsecuritiesanalyststoinitiateormaintaincoverageofus,changesinfinancialestimatesbyanysecuritiesanalystswhofollowourcompany,or
ourfailuretomeettheseestimatesortheexpectationsofinvestors;• recruitmentordepartureofkeypersonnel;• theeconomyasawholeandmarketconditionsinourindustry;• negativepublicityrelatedtotherealorperceivedqualityofourplatform,aswellasthefailuretotimelylaunchnewproductsandservicesthatgain
marketacceptance;• rumorsandmarketspeculationinvolvingusorothercompaniesinourindustry;• announcementsbyusorourcompetitorsofsignificanttechnicalinnovations;• acquisitions,strategicpartnerships,jointventures,orcapitalcommitments;• newlawsorregulationsornewinterpretationsofexistinglawsorregulationsapplicabletoourbusiness;• lawsuitsthreatenedorfiledagainstus;• developmentsordisputesconcerningourintellectualpropertyorourplatform,orthird-partyproprietaryrights;• theinclusionofourClassAcommonstockonstockmarketindexes,includingtheimpactofrulesadoptedbycertainindexproviders,suchasS&PDow
JonesIndicesandFTSERussell,thatlimitorprecludeinclusionofcompanieswithmulti-classcapitalstructures;• changesinaccountingstandards,policies,guidelines,interpretations,orprinciples;• othereventsorfactors,includingthoseresultingfromwar,incidentsofterrorism,orresponsestotheseevents;and
• salesofsharesofourClassAcommonstockbyusorourstockholders,includingsalesandpurchasesofanyClassAcommonstockissueduponconversionofourconvertibleseniornotes.
Inaddition,thestockmarketshaveexperiencedextremepriceandvolumefluctuationsthathaveaffectedandcontinuetoaffectthemarketpricesofequitysecuritiesofmanycompanies.Stockpricesofmanycompanies,andtechnologycompaniesinparticular,havefluctuatedinamannerunrelatedordisproportionatetotheoperatingperformanceofthosecompanies.Inthepast,stockholdershaveinstitutedsecuritiesclassactionlitigationfollowingperiodsofmarketvolatility.Ifweweretobecomeinvolvedinsecuritieslitigation,itcouldsubjectustosubstantialcosts,divertresourcesandtheattentionofmanagementfromourbusiness,andadverselyaffectourbusiness.
Sales of substantial amounts of our Class A common stock in the public markets, or the perception that they might occur, could cause the market price of ourClass A common stock to decline.
SalesofasubstantialnumberofsharesofourClassAcommonstockintothepublicmarket,particularlysalesbyourdirectors,executiveofficers,andprincipalstockholders,ortheperceptionthatthesesalesmightoccur,couldcausethemarketpriceofourClassAcommonstocktodecline.Wehadatotalof61.6millionsharesofourClassAandClassBcommonstockoutstandingasofDecember31,2018.Allsharesofourcommonstockarefreelytradable,withoutrestrictionsorfurtherregistrationundertheSecuritiesActof1933,asamended,orSecuritiesAct,exceptthatanysharesheldbyour“affiliates”asdefinedinRule144undertheSecuritiesActwouldonlybeabletobesoldincompliancewithRule144.
Inaddition,certainholdersofourcommonstockare,subjecttocertainconditions,entitled,undercontractsprovidingforregistrationrights,torequireustofileregistrationstatementsforthepublicresaleoftheClassAcommonstockissuableuponconversionofsuchholders’sharesofClassBcommonstockortoincludesuchsharesinregistrationstatementsthatwemayfileforusorotherstockholders.
Salesofoursharespursuanttoregistrationrightsmaymakeitmoredifficultforustosellequitysecuritiesinthefutureatatimeandatapricethatwedeemappropriate.ThesesalesalsocouldcausethetradingpriceofourClassAcommonstocktofallandmakeitmoredifficultforyoutosellsharesofourClassAcommonstock.
Inaddition,wehavefiledaregistrationstatementtoregistersharesreservedforfutureissuanceunderourequitycompensationplans.Subjecttothesatisfactionofvestingconditions,thesharesissueduponexerciseofoutstandingstockoptionsorsettlementofoutstandingrestrictedstockunits,orRSUs,willbeavailableforimmediateresaleintheUnitedStatesintheopenmarket.
Wemayalsoissueoursharesofcommonstockorsecuritiesconvertibleintosharesofourcommonstockfromtimetotimeinconnectionwithafinancing,acquisition,investment,orotherwise.AnyfurthersuchissuancecouldresultinsubstantialdilutiontoourexistingstockholdersandcausethemarketpriceofourClassAcommonstocktodecline.
The dual class structure of our common stock has the effect of concentrating voting control with holders of our Class B common stock, including ourdirectors, executive officers, and 5% stockholders and their affiliates, which limits or precludes your ability to influence corporate matters, including theelection of directors and the approval of any change of control transaction.
OurClassBcommonstockhastenvotespershareandourClassAcommonstockhasonevotepershare.AsofDecember31,2018,ourdirectors,executiveofficers,andholdersofmorethan5%ofourcommonstock,andtheirrespectiveaffiliates,heldasubstantialmajorityofthevotingpowerofourcapitalstock.Becauseoftheten-to-onevotingratiobetweenourClassBcommonstockandClassAcommonstock,theholdersofourClassBcommonstockcollectivelycontrolamajorityofthecombinedvotingpowerofourcommonstockandthereforeareabletocontrolallmatterssubmittedtoourstockholdersforapprovaluntiltheearliestof(i)thedatespecifiedbyavoteoftheholdersofatleast662/3%oftheoutstandingsharesofClassBcommonstock,(ii)March29,2027,or(iii)thedatethesharesofClassBcommonstockceasetorepresentatleast10%oftheaggregatenumberofsharesofClassAcommonstockandClassBcommonstockthenoutstanding.Thisconcentratedcontrollimitsorprecludesyourabilitytoinfluencecorporatemattersfortheforeseeablefuture,includingtheelectionofdirectors,amendmentsofourorganizationaldocuments,andanymerger,consolidation,saleofallorsubstantiallyallofourassets,orothermajorcorporatetransactionrequiringstockholderapproval.Inaddition,thismaypreventordiscourageunsolicitedacquisitionproposalsoroffersforourcapitalstockthatyoumayfeelareinyourbestinterestasoneofourstockholders.
FuturetransfersbyholdersofClassBcommonstockwillgenerallyresultinthosesharesconvertingtoClassAcommonstock,subjecttolimitedexceptions,suchascertainpermittedtransferseffectedforestateplanningpurposes.Theconversionof
ClassBcommonstocktoClassAcommonstockwillhavetheeffect,overtime,ofincreasingtherelativevotingpowerofthoseholdersofClassBcommonstockwhoretaintheirsharesinthelongterm.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A commonstock and trading volume could decline.
ThetradingmarketforourClassAcommonstockdependsinpartontheresearchandreportsthatsecuritiesorindustryanalystspublishaboutusorourbusiness.Iffewsecuritiesanalystscommencecoverageofus,orifindustryanalystsceasecoverageofus,thetradingpriceforourcommonstockwouldbenegativelyaffected.IfoneormoreoftheanalystswhocoverusdowngradeourClassAcommonstockorpublishinaccurateorunfavorableresearchaboutourbusiness,thepriceofourClassAcommonstockwouldlikelydecline.Ifoneormoreoftheseanalystsceasecoverageofusorfailtopublishreportsonusregularly,demandforourClassAcommonstockcoulddecrease,whichmightcauseourClassAcommonstockpriceandtradingvolumetodecline.
We do not intend to pay dividends for the foreseeable future.
Wehaveneverdeclaredorpaidanycashdividendsonourcommonstockanddonotintendtopayanycashdividendsintheforeseeablefuture.Weanticipatethatfortheforeseeablefuturewewillretainallofourfutureearningsforuseinthedevelopmentofourbusinessandforgeneralcorporatepurposes.Anydeterminationtopaydividendsinthefuturewillbeatthediscretionofourboardofdirectors.Accordingly,investorsmustrelyonsalesoftheircommonstockafterpriceappreciation,whichmayneveroccur,astheonlywaytorealizeanyfuturegainsontheirinvestments.
Provisions in our charter documents, Delaware law, and our convertible senior notes could make an acquisition of our company more difficult, limit attemptsby our stockholders to replace or remove our current management, limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us orour directors, officers, or employees, and limit the market price of our Class A common stock.
Provisionsinourrestatedcertificateofincorporationandrestatedbylawsmayhavetheeffectofdelayingorpreventingachangeofcontrolorchangesinourmanagement.Ourrestatedcertificateofincorporationandrestatedbylawsincludeprovisionsthat:
• providethatourboardofdirectorswillbeclassifiedintothreeclassesofdirectorswithstaggeredthree-yearterms;• permittheboardofdirectorstoestablishthenumberofdirectorsandfillanyvacanciesandnewly-createddirectorships;• requiresuper-majorityvotingtoamendsomeprovisionsinourrestatedcertificateofincorporationandrestatedbylaws;• authorizetheissuanceof“blankcheck”preferredstockthatourboardofdirectorscouldusetoimplementastockholderrightsplan;• providethatonlythechairmanofourboardofdirectors,ourchiefexecutiveofficer,president,leadindependentdirector,oramajorityofourboardof
directorswillbeauthorizedtocallaspecialmeetingofstockholders;• provideforadualclasscommonstockstructureinwhichholdersofourClassBcommonstockhavetheabilitytocontroltheoutcomeofmatters
requiringstockholderapproval,eveniftheyownsignificantlylessthanamajorityoftheoutstandingsharesofourcommonstock,includingtheelectionofdirectorsandsignificantcorporatetransactions,suchasamergerorothersaleofourcompanyoritsassets;
• prohibitstockholderactionbywrittenconsent,whichrequiresallstockholderactionstobetakenatameetingofourstockholders;• providethattheboardofdirectorsisexpresslyauthorizedtomake,alter,orrepealourbylaws;and• establishadvancenoticerequirementsfornominationsforelectiontoourboardofdirectorsorforproposingmattersthatcanbeacteduponby
stockholdersatannualstockholdermeetings.
Inaddition,ourrestatedcertificateofincorporationprovidesthattheCourtofChanceryoftheStateofDelawarewillbetheexclusiveforumfor:anyderivativeactionorproceedingbroughtonourbehalf;anyactionassertingabreachoffiduciaryduty;anyactionassertingaclaimagainstusarisingpursuanttotheDelawareGeneralCorporationLaw,orDGCL,ourrestatedcertificateofincorporation,orourrestatedbylaws;oranyactionassertingaclaimagainstusthatisgovernedbytheinternalaffairsdoctrine.Thischoiceofforumprovisionmaylimitastockholder’sabilitytobringaclaiminajudicialforumthatitfindsfavorablefordisputeswithusoranyofourdirectors,officers,orotheremployees,whichmaydiscouragelawsuitswithrespecttosuchclaims.Alternatively,ifacourtweretofindthechoiceofforumprovisioncontainedinourrestatedcertificateofincorporationtobeinapplicableorunenforceableinanaction,wemayincuradditionalcostsassociatedwithresolvingsuchactioninotherjurisdictions,whichcouldharmourbusiness,operatingresults,andfinancialcondition.
Moreover,Section203oftheDGCLmaydiscourage,delay,orpreventachangeofcontrolofourcompany.Section203imposescertainrestrictionsonmergers,businesscombinations,andothertransactionsbetweenusandholdersof15%ormoreofourcommonstock.
Further,thefundamentalchangeprovisionsofourconvertibleseniornotesthataresetforthintheindenturemaydelayorpreventachangeincontrolofourcompany,becausethoseprovisionsallownoteholderstorequireustorepurchasesuchconvertibleseniornotesupontheoccurrenceofafundamentalchange.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
OurcorporateheadquartersarelocatedinIrvine,California,whereweoccupyfacilitiestotalingapproximately70,000squarefeetunderaleaseagreementthatexpiresinAugust2025.WealsomaintainofficesinCalifornia,Colorado,Illinois,NewYorkandTexasintheUnitedStatesandAustralia,Canada,theCzechRepublic,France,Germany,Japan,Singapore,Ukraine,theUnitedArabEmiratesandtheUnitedKingdom.
Weintendtoprocureadditionalspaceasweaddemployeesandexpandgeographically.Webelievethatourfacilitiesareadequatetomeetourneedsfortheimmediatefuture,andthat,shoulditbeneeded,suitableadditionalorsubstitutespacewillbeavailableasneededtoaccommodateanysuchexpansionofouroperations.
Item 3. Legal Proceedings.
Fromtimetotime,weareinvolvedinotherlegalproceedingsarisingintheordinarycourseofourbusiness.Wearenotapartytoanyotherlegalproceedingsthat,ifdeterminedadverselytous,wouldindividuallyortakentogetherhaveamaterialadverseeffectonourbusiness,operatingresults,financialcondition,orcashflows.Regardlessoftheoutcome,litigationcanhaveanadverseimpactonusbecauseofdefenseandsettlementcosts,diversionofmanagementresources,andotherfactors.
Item 4. Mine Safety Disclosures.
Notapplicable.
PART II
Item 5. Markets for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information for Common Stock
OurClassAcommonstockhasbeentradedontheNewYorkStockExchangeunderthesymbol“AYX”sinceMarch24,2017.Priortothattime,therewasnopublicmarketforourcommonstock.
OurClassBcommonstockisnotlistedortradedonanystockexchange.
Holders of Record
AsofFebruary22,2019,therewere51registeredholdersofourClassAcommonstockand36registeredholdersofourClassBcommonstock.BecausemanyofoursharesofClassAcommonstockareheldbybrokersandotherinstitutionsonbehalfofstockholders,weareunabletoestimatethetotalnumberofstockholdersrepresentedbytheserecordholders.
Dividend Policy
Wehaveneverdeclaredorpaidcashdividendsonourcapitalstock.Wedonotexpecttopaydividendsonourcapitalstockfortheforeseeablefuture.Instead,weanticipatethatallofourearningsfortheforeseeablefuturewillbeusedfortheoperationandgrowthofourbusiness.Anyfuturedeterminationtodeclarecashdividendswouldbesubjecttothediscretionofourboardofdirectorsandwoulddependuponvariousfactors,includingouroperatingresults,financialcondition,andcapitalrequirements,restrictionsthatmaybeimposedbyapplicablelaw,andotherfactorsdeemedrelevantbyourboardofdirectors.
Securities Authorized for Issuance under Equity Compensation Plans
TheinformationrequiredbythisitemwillbeincludedinourProxyStatementforthe2019AnnualMeetingofStockholderstobefiledwiththeSECwithin120daysofthefiscalyearendedDecember31,2018,andisincorporatedhereinbyreference.
Stock Performance Graph
Thefollowingperformancegraphandrelatedinformationshallnotbedeemed“filed”forpurposesofSection18oftheExchangeActorincorporatedbyreferenceintoanyofourotherfilingsundertheSecuritiesActortheExchangeAct,exceptasshallbeexpresslysetforthbyspecificreferenceinsuchfiling.
ThechartcomparesthecumulativereturnonourClassAcommonstockwiththatoftheNYSECompositeIndexandtheNASDAQComputerandDataProcessingServicesIndex.Thechartassumes$100wasinvestedatthecloseofmarketonMarch24,2017,whichwasourinitialtradingday,inourClassAcommonstock,theNYSECompositeIndex,andtheNASDAQComputerandDataProcessingServicesIndex,andassumesthereinvestmentofanydividend.Thestockpriceperformancereflectedintheperformancegraphisnotnecessarilyindicativeoffuturestockperformance.
Recent Sales of Unregistered Securities
None.
Use of Proceeds
None.
Issuer Purchases of Equity Securities
None.
Item 6. Selected Financial Data
Thefollowingtablesprovideourhistoricalselectedconsolidatedfinancialdatafortheperiodsindicated.WehavederivedtheselectedconsolidatedstatementsofoperationsdataforthefiscalyearsendedDecember31,2018,2017,and2016andtheselectedconsolidatedbalancesheetdataasofDecember31,2018and2017fromourauditedconsolidatedfinancialstatementsincludedelsewhereinthisAnnualReport.WehavederivedtheselectedconsolidatedstatementsofoperationsdataforthefiscalyearsendedDecember31,2015and2014andtheselectedconsolidatedbalancesheetdataasofDecember31,2016,2015,and2014fromourauditedconsolidatedfinancialstatements,whicharenotincludedinthisAnnualReport.Ourhistoricalresultsarenotnecessarilyindicativeoftheresultsweexpectinthefuture.
WeadoptedASUNo.2014-09,RevenuefromContractswithCustomers(Topic606),orASC606,effectiveJanuary1,2018onamodifiedretrospectivebasis.FinancialresultsfortheyearendedDecember31,2018arepresentedinaccordancewiththisnewrevenuerecognitionstandard.Historicalfinancialresultsforreportingperiodspriorto2018arepresentedinconformitywithamountspreviouslydisclosedunderthepriorrevenuerecognitionstandard,ASC605,RevenueRecognition,orASC605.Thefollowinghistoricalselectedconsolidatedfinancialdatashouldbereadinconjunctionwith,andarequalifiedintheirentiretybyreferenceto,thesectionentitled“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”andourconsolidatedfinancialstatementsandtherelatednotesincludedelsewhereinthisAnnualReport.
Year Ended December 31, 2018 2017 2016 2015 2014 (in thousands)Consolidated Statements of Operations Data: Revenue $ 253,570 $ 131,607 $ 85,790 $ 53,821 $ 37,984Costofrevenue(1)(2) 22,800 21,803 16,026 10,521 8,533Grossprofit 230,770 109,804 69,764 43,300 29,451Operatingexpenses: Researchanddevelopment(1) 43,449 29,342 17,481 11,103 7,787Salesandmarketing(1)(2) 109,284 66,420 57,585 43,244 24,612Generalandadministrative(1) 48,267 32,241 17,720 10,039 17,264Totaloperatingexpenses 201,000 128,003 92,786 64,386 49,663Income(loss)fromoperations 29,770 (18,199) (23,022) (21,086) (20,212)Interestexpense (7,378) — — — —Otherincome(expense),net 3,042 (205) (1,028) (186) (81)Income(loss)beforeprovisionfor(benefitof)incometaxes 25,434 (18,404) (24,050) (21,272) (20,293)Provisionfor(benefitof)incometaxes (2,586) (905) 208 178 36
Netincome(loss) $ 28,020 $ (17,499) $ (24,258) $ (21,450) $ (20,329)
Less:AccretionofSeriesAredeemableconvertiblepreferredstock — (1,983) (6,442) (2,603) (1,669)
Netincome(loss)attributabletocommonstockholders $ 28,020 $ (19,482) $ (30,700) $ (24,053) $ (21,998)Netincome(loss)pershareattributabletocommonstockholders,basic(3) $ 0.46 $ (0.37) $ (0.95) $ (0.76) $ (1.37)Netincome(loss)pershareattributabletocommonstockholders,diluted(3) $ 0.43 $ (0.37) $ (0.95) $ (0.76) $ (1.37)
(1)Amountsincludestock-basedcompensationexpenseasfollows:
Year Ended December 31,2018 2017 2016 2015 2014
(in thousands)Costofrevenue $ 797 $ 485 $ 106 $ 34 $ 34Researchanddevelopment 3,699 1,635 338 239 1,081Salesandmarketing 6,153 2,302 1,281 800 183Generalandadministrative 5,998 4,519 1,559 409 9,379
Total $ 16,647 $ 8,941 $ 3,284 $ 1,482 $ 10,677
(2) Amountsincludeamortizationofintangibleassetsasfollows:
Year Ended December 31,2018 2017 2016 2015 2014
(in thousands)Costofrevenue $ 1,809 $ 1,213 $ — $ — $ —Salesandmarketing 220 12 — — —
Total $ 2,029 $ 1,225 $ — $ — $ —
(3) SeeNote2,SignificantAccountingPolicies,andNote16,BasicandDilutedNetIncome(Loss)PerShare,ofthenotestoourconsolidatedfinancialstatementsincludedelsewhereinthisAnnualReportforanexplanationofthecalculationsofournetlosspershareattributabletocommonstockholders,basicanddiluted.
As of December 31,2018 2017 2016 2015 2014
(in thousands)Consolidated Balance Sheet Data:Cashandcashequivalentsandshort-termandlong-terminvestments $ 426,243 $ 194,066 $ 52,700 $ 61,143 $ 24,642Workingcapital 337,233 111,499 14,861 14,842 9,220Totalassets 618,167 291,416 111,415 97,138 48,669Deferredrevenue-current 84,015 110,213 71,050 44,179 28,927Redeemableconvertiblepreferredstock — — 99,182 92,740 41,618Totalstockholders'equity(deficit) 301,818 153,504 (77,610) (52,911) (31,671)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
YoushouldreadthefollowingdiscussionandanalysisofourfinancialconditionandresultsofoperationstogetherwiththeconsolidatedfinancialstatementsandrelatednotesthatareincludedelsewhereinthisAnnualReport.Thisdiscussioncontainsforward-lookingstatementsbaseduponcurrentexpectationsthatinvolverisksanduncertainties.Ouractualresultsmaydiffermateriallyfromthoseanticipatedintheseforward-lookingstatementsasaresultofvariousfactors,includingthosesetforthunder“RiskFactors,”setforthinPartI,Item1AofthisAnnualReport.See“SpecialNoteRegardingForward-LookingStatements”above.
Overview
Weareimprovingbusinessthroughdatascienceandanalyticsbyenablinganalyticproducers,regardlessoftechnicalacumen,toquicklyandeasilytransformdataintoactionableinsightsanddeliverimproveddata-drivenbusinessoutcomes.Everyday,ourusersleverageourend-to-endanalyticplatformtoquicklyandeasilydiscover,access,prepare,andanalyzedatafromamultitudeofsources,thendeployandshareanalyticsatscale.Theease-of-use,speed,andsophisticationthatourplatformprovidesisenhancedthroughintuitiveandhighlyrepeatablevisualworkflows.
OurplatformincludesAlteryxDesigner,ourdataprofiling,preparation,blending,andanalyticsproductdeployabletothecloudandonpremise,AlteryxServer,oursecureandscalableserver-basedproductforscheduling,sharingandrunninganalyticprocessesandapplicationsinaweb-basedenvironment,AlteryxConnect,ourcollaborativedataexplorationplatformfordiscoveringinformationassetsandsharingrecommendationsacrosstheenterprise,andAlteryxPromote,ouradvancedanalyticsmodelmanagementproductfordatascientistsandanalyticsteamstobuild,manage,monitoranddeploypredictivemodelsintoreal-timeproductionapplications.Inaddition,AlteryxAnalyticsGallery,ourcloud-basedcollaborationoffering,isakeyfeatureofourplatformallowinguserstoshareworkflowsinacentralizedrepository,andAlteryxCommunityallowsuserstogainvaluableinsightsfromoneanother,collaborateandsharetheirexperiencesandideas,andinnovatearoundourplatform.Ourplatformhasbeenadoptedbyorganizationsacrossawidevarietyofindustriesandsizes.AsofDecember31,2018,wehadapproximately4,700customersinmorethan70countries,includingover500oftheGlobal2,000companies.
Wederivealargeportionofourrevenuefromsubscriptionsforuseofourplatform.Oursoftwarecanbelicensedforuseonadesktoporserver,oritcanbedeployedinthecloud.Subscriptionperiodsforourplatformgenerallyrangefromonetothreeyearsandthesubscriptionfeesaretypicallybilledannuallyinadvance.InaccordancewithASC606,whichbecameeffectiveforusasofJanuary1,2018,werecognizeaportionoftherevenuefromcustomersupfrontonthedatewhichtheplatformisfirstmadeavailabletothecustomer,orthebeginningofthesubscriptionterm,iflater,andaportionratablyoverthesubscriptionterm.Revenuefromsubscriptionsrepresentedover95%ofrevenueforeachoftheyearsendedDecember31,2018,2017,and2016.Wealsogeneraterevenuefromprofessionalservices,includingtrainingandconsultingservices.
Weemploya“landandexpand”businessmodel.Ourgo-to-marketapproachoftenbeginswithafreetrialofAlteryxDesignerandisfollowedbyaninitialpurchaseofourplatformofferings.Asorganizationsrealizethebenefitsderivedfromourplatform,usefrequentlyspreadsacrossdepartments,divisions,andgeographiesthroughword-of-mouth,collaboration,and
standardizationofbusinessprocesses.Overtime,manyofourcustomersfindthattheuseofourplatformismorestrategicandcollaborativeinnatureandourplatformbecomesafundamentalelementoftheiroperationalbusinessprocesses.
Wesellourplatformprimarilythroughdirectsalesandmarketingchannelsutilizingawiderangeofonlineandofflinesalesandmarketingactivities.Inaddition,wehavecultivatedstrongrelationshipswithchannelpartnerstohelpusextendthereachofoursalesandmarketingefforts,especiallyinternationally.Ourchannelpartnersincludetechnologyalliances,systemintegrators,managementconsultingfirms,andvalue-addedresellers.Thesechannelpartnersalsoprovidesolution-basedselling,services,andtraininginternationally.
Key Factors Affecting Our Performance
Webelievethatourfutureperformancewilldependonmanyfactors,includingthosedescribedbelow.Whiletheseareaspresentsignificantopportunity,theyalsopresentrisksthatwemustmanagetoachievesuccessfulresults.Formoreinformationabouttheserisks,seethesectiontitled“RiskFactors”includedelsewhereinthisAnnualReport.Ifweareunabletoaddresstheserisks,ourbusinessandoperatingresultscouldbeadverselyaffected.
Expansion and Further Penetration of Our Customer Base .Weemploya“landandexpand”businessmodelthatfocusesonefficientlyacquiringnewcustomersandgrowingourrelationshipswithexistingcustomersovertime.Ourfuturerevenuegrowthandourabilitytomaintainprofitabilityisdependentuponourabilitytocontinuelandingnewcustomersandexpandingtheadoptionofourplatformbyadditionaluserswithintheirorganizations.Webelievesignificantopportunityexistsforustoacquirenewcustomers,aswellasexpandexistingcustomers’useofourplatformbyidentifyingadditionalusecases,departments,anddivisionsforourplatformandincreasingthenumberofuserswithinourexistingcustomers’organizations.Webelievethisexpansionwouldprovideuswithsubstantialoperatingleveragebecausethecoststoexpandsaleswithinexistingcustomersaresignificantlylessthanthecoststoacquirenewcustomers.
International Expansion .Wehaverecentlyincreasedourfocusoninternationalmarkets.FortheyearsendedDecember31,2018,2017,and2016,wederived29%,23%,and19%ofourrevenueoutsideoftheUnitedStates,respectively.Webelievethattheglobalopportunityforself-servicedataanalyticssolutionsissignificant,andshouldcontinuetoexpandasorganizationsoutsidetheUnitedStatesseektoadoptself-serviceplatformsaswehaveexperiencedwithourexistingcustomers.Tocapitalizeonthisopportunity,weintendtocontinuetoinvestingrowingourpresenceinternationally.OurgrowthandthesuccessofourinitiativesinmarketsoutsideoftheUnitedStateswilldependonthecontinuedadoptionofourplatformbyourexistingcustomers,aswellasourabilitytoattractnewcustomers.
Investment in Growth .Weplantocontinueinvestinginourbusinesssothatwecancapitalizeonourmarketopportunity.Weintendtocontinuetoaddheadcounttoourglobalsalesandmarketingteamtoacquirenewcustomersandtoincreasesalestoexistingcustomers.Weintendtocontinuetoaddheadcounttoourresearchanddevelopmentteamtoextendthefunctionalityandrangeofourplatformbybringingnewandimprovedproductsandservicestoourcustomers.Webelievethattheseinvestmentswillcontributetoourlong-termgrowth,althoughtheymayadverselyaffectouroperatingresultsinthenearterm.
Market Adoption of Our Platform .Akeyfocusofoursalesandmarketingeffortsistocontinuecreatingmarketawarenessaboutthebenefitsofourplatform.Whilewecannotpredictcustomeradoptionratesanddemand,thefuturegrowthrateandsizeoftheself-servicedataanalyticsmarket,ortheintroductionofcompetitiveproductsandservices,ourbusinessandoperatingresultswillbesignificantlyaffectedbythedegreetoandspeedwithwhichorganizationsadoptself-servicedataanalyticssolutionsandourplatform.
Acquisitions. Ourbusinessstrategyhasincluded,andmayinthefutureinclude,acquiringothercomplementaryproducts,technologies,orbusinessesthatallowustoreducethetimeorcostsrequiredtodevelopnewtechnologies,incorporateenhancedfunctionalityintoandcomplementourexistingproductofferings,augmentourengineeringworkforce,andenhanceourtechnologicalcapabilities.InJanuary2017,weacquiredSemantatoenhanceourdatagovernancecapabilities,inMay2017,weacquiredYhattoenhanceourcapabilitiesformanaginganddeployingadvancedanalyticmodels,and,inFebruary2018,weacquiredourformerdistributorAlteryxANZ.Theconsolidatedfinancialstatementsincludetheresultsofoperationsoftheacquiredcompaniescommencingasoftheirrespectiveacquisitiondates.SeeNote4,BusinessCombinations,ofthenotestoourconsolidatedfinancialstatementsincludedelsewhereinthisAnnualReportforadditionalinformationrelatedtotheseacquisitions.
Key Business Metrics
Wereviewthefollowingkeybusinessmetricstoevaluateourbusiness,measureourperformance,identifytrendsaffectingourbusiness,formulatebusinessplans,andmakestrategicdecisions:
Number of Customers .Webelievethatourabilitytoexpandourcustomerbaseisakeyindicatorofourmarketpenetration,thegrowthofourbusiness,andourfuturepotentialbusinessopportunities.Wedefineacustomerattheendofanyparticularperiodasanentitywithasubscriptionagreementthatrunsthroughthecurrentorfutureperiodasofthemeasurementdate.Organizationswithfreetrialshavenotenteredintoasubscriptionagreementandarenotconsideredcustomers.Asingleorganizationwithseparatesubsidiaries,segments,ordivisionsthatuseourplatformmayrepresentmultiplecustomers,aswetreateachentitythatisinvoicedseparatelyasasinglecustomer.Incaseswherecustomerssubscribetoourplatformthroughourchannelpartners,eachendcustomeriscountedseparately.
Thefollowingtablesummarizesthenumberofourcustomersateachquarterendfortheperiodsindicated:
As ofMar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
2017 2017 2017 2017 2018 2018 2018 2018Customers 2,565 2,823 3,054 3,392 3,673 3,940 4,315 4,696
Dollar-Based Net Expansion Rate .AsaresultofouradoptionofASC606,webelieveourpreviouskeybusinessmetric,dollar-basednetrevenueretentionrate,nolongerreflectstheperformanceofourbusiness.Therefore,wearenolongerpresentingnetrevenueretentionrateandwillinsteadreportanewkeymetric,dollar-basednetexpansionrate.Ourdollar-basednetexpansionrateisatrailingfour-quarteraverageoftheannualcontractvalue,orACV,whichisdefinedasthesubscriptionrevenuethatwewouldcontractuallyexpecttorecognizeoverthetermofthecontractdividedbythetermofthecontract,inyears,fromacohortofcustomersinaquarterascomparedtothesamequarterintheprioryear.Adollar-basednetexpansionrateequalto100%wouldindicatethatwereceivedthesameamountofACVfromourcohortofcustomersinthecurrentquarteraswedidinthesamequarteroftheprioryear.Adollar-basednetexpansionratelessthan100%wouldindicatethatwereceivedlessACVfromourcohortofcustomersinthecurrentquarterthanwedidinthesamequarteroftheprioryear.Adollar-basednetexpansionrategreaterthan100%wouldindicatethatwereceivedmoreACVfromourcohortofcustomersinthecurrentquarterthanwedidinthesamequarteroftheprioryear.
Tocalculateourdollar-basednetexpansionrate,wefirstidentifyacohortofcustomers,ortheBaseCustomers,inaparticularquarter,ortheBaseQuarter.AcustomerwillnotbeconsideredaBaseCustomerunlesssuchcustomerhasanactivesubscriptiononthelastdayoftheBaseQuarter.WethendividetheACVinthesamequarterofthesubsequentyearattributabletotheBaseCustomers,ortheComparisonQuarter,includingBaseCustomersfromwhichwenolongerderiveACVintheComparisonQuarter,bytheACVattributabletothoseBaseCustomersintheBaseQuarter.Ourdollar-basednetexpansionrateinaparticularquarteristhenobtainedbyaveragingtheresultfromthatparticularquarterbythecorrespondingresultfromeachofthepriorthreequarters.Thedollar-basednetexpansionrateexcludescontractvaluerelatingtoprofessionalservicesfromthatcohort.
Thefollowingtablesummarizesourdollar-basednetexpansionrateforeachquarterfortheperiodsindicated:
Three Months EndedMar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
2017 2017 2017 2017 2018 2018 2018 2018Dollar-basednetexpansionrate 134% 133% 131% 130% 129% 129% 131% 132%
Components of Our Results of Operations
Revenue
Wederiveourrevenueprimarilyfromthesaleofsoftwaresubscriptions.Revenuefromsubscriptionsreflectstherevenuerecognizedfromsalesoflicensestoourplatformtonewcustomersandadditionallicensestoexistingcustomers.Subscriptionfeesarebasedprimarilyonthenumberofusersofourplatform.PriortotheadoptionofASC606effectiveJanuary1,2018,werecognizedsubscriptionrevenueratablyoverthetermofthecontract,commencingwiththedateonwhichtheplatformwasfirstmadeavailabletothecustomer,andwhenallotherrevenuerecognitioncriteriaweremet.FollowingtheadoptionofASC606,werecognizeaportionofsubscriptionrevenueupfrontonthedatewhichtheplatformisfirstmadeavailabletothecustomer,orthebeginningofthesubscriptionterm,iflater,andaportionofrevenueratablyoverthesubscriptionterm.Oursubscriptionagreementsgenerallyhavetermsrangingfromonetothreeyearsandarebilledannuallyinadvance.Subscriptionsaregenerallynon-cancelableduringthesubscriptiontermandsubscriptionfeesarenon-refundable.Oursubscriptionagreementsprovideforunspecifiedfutureupdates,upgrades,enhancements,technicalproductsupport,andaccesstohostedservicesandsupport.Wealsogeneraterevenuefromsellingsubscriptionstothird-partysyndicateddata,whichwerecognizeratablyoverthesubscriptionperiod,aswellasrevenuefromprofessionalservicesfeesearnedforconsultingengagementsrelatedtotrainingcustomersandchannelpartners,andconsultingservices.Revenuefromprofessionalservicesrelatingtotrainingresultsfromcontractstoprovideeducationalservicestocustomersandchannelpartnersregardingtheuseofourtechnologiesandisrecognizedastheservicesareprovided.Revenuefromprofessionalservicesrepresented5%orlessofrevenueforeachoftheyearsendedDecember31,2018,2017,and2016.Overthelongterm,weexpectourrevenuefromprofessionalservicestocontinuetodecreaseasapercentageofourrevenue.Inaddition,duetoour“landandexpand”businessmodel,alargeportionofourrevenueinanygivenperiodisattributabletoourexistingcustomerscomparedtonewcustomers.
Foradescriptionofourrevenuerecognitionpolicies,seethesectiontitled“CriticalAccountingEstimates”withinthisManagement’sDiscussionandAnalysisofFinancialConditionandResultofOperations.
Cost of Revenue
Costofrevenueconsistsprimarilyofemployee-relatedcosts,includingsalariesandbonuses,stock-basedcompensationexpense,andemployeebenefitcostsassociatedwithourcustomersupportandprofessionalservicesorganizations.Italsoincludesexpensesrelatedtohostingandoperatingourcloudinfrastructureinathird-partydatacenter,licensesofthird-partysyndicateddata,amortizationofintangibleassets,andrelatedoverheadexpenses.Themajorityofourcostofrevenuedoesnotfluctuatedirectlywithincreasesinrevenue.
Weallocatesharedoverheadcostssuchasinformationtechnologyinfrastructure,rent,andoccupancychargesineachexpensecategorybasedonheadcountinthatcategory.Assuch,certaingeneraloverheadexpensesarereflectedincostofrevenue.
Weintendtocontinuetoinvestadditionalresourcesinourcloudinfrastructure.Weexpectthatthecostofthird-partydatacenterhostingfeeswillincreaseovertimeaswecontinuetoexpandourcloud-basedoffering.
Gross Profit and Gross Margin
Grossprofitisrevenuelesscostofrevenue.Grossmarginisgrossprofitexpressedasapercentageofrevenue.Ourgrossmarginhasfluctuatedandmayfluctuatefromperiodtoperiodbasedonanumberoffactors,includingthetimingandmixofproductsandserviceswesell,thechannelthroughwhichwesellourproductsandservices,and,toalesserdegree,theutilizationofcustomersupportandprofessionalservicesresources,aswellasthird-partyhostingandsyndicateddatafeesinanygivenperiod.Ourgrossmarginmayfluctuatefromperiodtoperioddependingontheinterplayofthefactorsdiscussedabove.
Operating Expenses
Ouroperatingexpensesareclassifiedasresearchanddevelopment,salesandmarketing,andgeneralandadministrative.Foreachofthesecategories,thelargestcomponentisemployee-relatedcosts,whichincludesalariesandbonuses,stock-basedcompensationexpense,andemployeebenefitcosts.Weallocatesharedoverheadcostssuchasinformationtechnologyinfrastructure,rent,andoccupancychargestoeachexpensecategorybasedonheadcountinthatcategory.
Researchanddevelopment.Researchanddevelopmentexpenseconsistsprimarilyofemployee-relatedcosts,includingsalariesandbonuses,stock-basedcompensationexpense,andemployeebenefitcosts,forourresearchanddevelopmentemployees,depreciationofequipmentusedinresearchanddevelopment,third-partycontractors,andrelatedallocatedoverheadcosts.Weexpectresearchanddevelopmentexpensestocontinuetoincreaseinabsolutedollarsfortheforeseeablefutureaswecontinuetoincreasethefunctionalityandotherwiseenhanceourplatformanddevelopnewproductsandservices.However,weexpectresearchanddevelopmentexpensetodecreaseasapercentageofrevenueoverthelongterm,although
researchanddevelopmentexpensemayfluctuateasapercentageofrevenuefromperiodtoperiodduetotheseasonalityofrevenueandthetimingandextentoftheseexpenses.
Salesandmarketing.Salesandmarketingexpenseconsistsprimarilyofemployee-relatedcosts,includingsalariesandbonuses,salescommissions,stock-basedcompensationexpense,andemployeebenefitcosts,foroursalesandmarketingemployees,marketingprograms,andrelatedallocatedoverheadcosts.Oursalesandmarketingemployeesincludequota-carryingheadcount,salesoperations,andadministration,marketing,andmanagement.Marketingprogramsconsistofadvertising,promotionaleventssuchasourU.S.andEuropeanInspireuserconferences,corporatecommunications,brandbuilding,andproductmarketingactivitiessuchasonlineleadgeneration.
Weplantocontinuetoinvestinsalesandmarketingbyexpandingourglobalpromotionalactivities,buildingbrandawareness,attractingnewcustomers,andsponsoringadditionalmarketingevents.Thetimingoftheseevents,suchasourannualcompanykickoffandourannualU.S.andEuropeanInspireuserconferences,willaffectoursalesandmarketingexpenseintheperiodinwhicheachoccurs.WeexpectsalesandmarketingexpensetocontinuetoincreaseinabsolutedollarsfortheforeseeablefutureasweexpandouronlineandofflinemarketingeffortstoincreasedemandforourplatformandawarenessofourbrandandaswecontinuetoexpandourdirectsalesteamandindirectsaleschannelsbothintheUnitedStatesandinternationally,andtocontinuetobeourlargestoperatingexpensecategory.However,weexpectsalesandmarketingexpensetodecreaseasapercentageofrevenueoverthelongterm,althoughsalesandmarketingexpensemayfluctuateasapercentageofrevenuefromperiodtoperiodduetotheseasonalityofrevenueandthetimingandextentoftheseexpenses.
Generalandadministrative.Generalandadministrativeexpenseconsistsprimarilyofemployee-relatedcosts,includingsalariesandbonuses,stock-basedcompensationexpense,andemployeebenefitcosts,forourexecutiveofficersandfinance,legal,humanresources,andadministrativepersonnel,professionalfeesforexternallegal,accounting,andotherconsultingservices,includingthoseincurredinconnectionwithourbusinesscombinations,changesinthefairvalueofcontingentconsideration,andrelatedallocatedoverheadcosts.Weexpectgeneralandadministrativeexpensetocontinuetoincreaseinabsolutedollarsfortheforeseeablefutureaswecontinuetogrowandincurthecostsassociatedwithbeingapubliclytradedcompany,includingincreasedlegal,audit,andconsultingfees.However,weexpectgeneralandadministrativeexpensetodecreaseasapercentageofrevenueoverthelongtermasweimproveourprocesses,systems,andcontrolstoenableourinternalsupportfunctionstoscalewiththegrowthofourbusiness,althoughgeneralandadministrativeexpensemayfluctuateasapercentageofrevenuefromperiodtoperiodduetotheseasonalityofrevenueandthetimingandextentoftheseexpenses.
Interest Expense
Interestexpenseconsistsprimarilyofinterestexpenseonour0.50%ConvertibleSeniorNotesdue2023,orconvertibleseniornotes,includingtheamortizationofthedebtdiscountandissuancecosts.
Other Income (Expense), Net
Otherincome(expense),net,consistsprimarilyofforeignexchangegainsandlossesfromforeigncurrencytransactionsdenominatedincurrencyotherthanthefunctionalcurrency,interestincomefromouravailable-for-saleinvestments,andimpairmentofacostmethodinvestment.
Provision for (Benefit of) Income Taxes
Provisionfor(benefitof)incometaxesconsistsprimarilyofaccruedcurrentanddeferredincometaxesimposedbytheUnitedStatesandforeignjurisdictionsinwhichweconductbusiness.Aswehaveexpandedourinternationaloperations,wehaveincurredincreasedforeigntaxexpense,andweexpectthistrendtocontinue.
Results of Operations for the Years Ended December 31, 2018 , 2017 , and 2016
Revenue
Year Ended December 31, 2018 vs 2017 2017 vs 20162018 2017 2016 $ Change % Change $ Change % Change
(in thousands, except percentages)Revenue $ 253,570 $ 131,607 $ 85,790 $ 121,963 92.7% $ 45,817 53.4%
TheincreaseinrevenueisattributableprimarilytotheadoptionofASC606,increasesinsalestoexistingcustomersand,toalesserextent,theincreaseinourtotalnumberofcustomers.UnderASC606,wenowrecognizeaportionofourrevenueatapointintimewhentheplatformisfirstmadeavailabletothecustomer,orthebeginningofthesubscriptionterm,iflater.Weadoptedtheprovisionsofthisstandardunderthemodifiedretrospectivemethodofadoption,and,asaresult,revenuereportedfortheyearsendedDecember31,2017and2016arenotreflectiveofthenewaccountingstandard.Therefore,aportionoftheincreaseinrevenuefromtheyearendedDecember31,2017toDecember31,2018isdirectlyattributabletotheadoptionofASC606effectiveJanuary1,2018.AsshowninNote3,Revenue,ofthenotestoourconsolidatedfinancialstatementsincludedelsewhereinthisAnnualReport,revenuerecognizedunderASC605wouldhavebeen$204.3millionfortheyearendedDecember31,2018,oranincreaseof$72.7millionor55.2%ascomparedtotheyearendedDecember31,2017.SeeNote3,Revenue,foradditionalinformationregardingtheimpacttorevenueduetotheadoptionofASC606.
TheincreaseinrevenuefortheyearendedDecember31,2017ascomparedtotheyearendedDecember31,2016wasattributableprimarilytoadditionalsalestoexistingcustomersand,toalesserextent,theincreaseinourtotalnumberofcustomers.
Cost of Revenue and Gross Margin
Year Ended December 31, 2018 vs 2017 2017 vs 20162018 2017 2016 $ Change % Change $ Change % Change
(in thousands, except percentages)Costofrevenue $ 22,800 $ 21,803 $ 16,026 $ 997 4.6% $ 5,777 36.0%%ofrevenue 9.0% 16.6% 18.7%Grossmargin 91.0% 83.4% 81.3%
CostofrevenueincreasedfortheyearendedDecember31,2018ascomparedtotheyearendedDecember31,2017primarilyduetoanincreaseinemployee-relatedcosts,includingstock-basedcompensationexpense,of$1.6million,andanincreaseof$1.1millioninITandfacilitiesoverheadexpenses,includingdepreciationassociatedwithhigherheadcount,andanincreaseintheamortizationofintangibleassetsof$0.6millionassociatedwithrecentacquisitions.Thesecostsareoffsetinpartbyadecreaseinroyaltiesassociatedwiththird-partysyndicateddataof$2.3millionduetolowerroyaltyratesforthecurrentyear.AsofDecember31,2018,wehad73incostofrevenuepersonnelcomparedto58asofDecember31,2017.
CostofrevenueincreasedfortheyearendedDecember31,2017ascomparedtotheyearendedDecember31,2016primarilyduetoanincreaseinroyaltiesassociatedwiththird-partysyndicateddatacostsof$3.1million,anincreaseintheamortizationofintangibleassetsacquiredinourrecentacquisitionsof$1.2million,andanincreaseinouruseofthird-partycontractorstoprovideprofessionalservicestoourcustomersof$0.9million.Theuseofthird-partycontractorsalsoresultedinthereductionofheadcountincostofrevenuepersonnelfrom63atDecember31,2016to58atDecember31,2017.
TheincreaseingrossmarginfortheyearendedDecember31,2018ascomparedtotheyearendedDecember31,2017andfortheyearendedDecember31,2017ascomparedtotheyearendedDecember31,2016wastheresultofanincreaseintheproportionofrevenuefromsubscriptionsrelativetorevenuefromprofessionalservices,aswellasanincreaseintheuseofAlteryxCommunityforself-servicesupport,whichreliesonengagementwithotherend-usersandourpartners,resultinginlowersupportcostsasapercentageofrevenue.Inaddition,theincreaseingrossmarginfortheyearendedDecember31,2018ascomparedtotheyearendedDecember31,2017isrelatedtoadecreaseinroyaltiesassociatedwiththird-partysyndicateddataandincreasesinrevenueassociatedwiththeadoptionofASC606asdiscussedaboveandfurtherdiscussedinNote3,Revenue,ofthenotestoourconsolidatedfinancialstatementsincludedelsewhereinthisAnnualReport.
Research and Development
Year Ended December 31, 2018 vs 2017 2017 vs 20162018 2017 2016 $ Change % Change $ Change % Change
(in thousands, except percentages)Researchanddevelopment $ 43,449 $ 29,342 $ 17,481 $ 14,107 48.1% $ 11,861 67.9%%ofrevenue 17.1% 22.3% 20.4%
ResearchanddevelopmentexpenseincreasedfortheyearendedDecember31,2018ascomparedtotheyearendedDecember31,2017primarilyduetoanincreaseinemployee-relatedcosts,excludingstock-basedcompensationexpense,of$7.5millionandanincreaseinstock-basedcompensationexpenseof$2.1millionduetohigherheadcount,anincreaseof$1.8millioninITandfacilitiesoverheadexpenses,includingdepreciation,andanincreaseof$2.7millioninconsultingandprofessionalfees.AsofDecember31,2018,wehad212researchanddevelopmentpersonnelcomparedto160asofDecember31,2017.
ResearchanddevelopmentexpenseincreasedfortheyearendedDecember31,2017ascomparedtotheyearendedDecember31,2016primarilyduetoanincreaseinemployee-relatedcosts,excludingstock-basedcompensationexpense,of$8.2millionduetohigherheadcount,anincreaseinstock-basedcompensationexpenseof$1.3millionduetohigherheadcountandstockawardsissuedinconnectionwiththeacquisitionofYhat,andanincreaseof$1.2millioninITandfacilitiesoverheadexpenses,includingdepreciation.AsofDecember31,2017,wehad160researchanddevelopmentpersonnelcomparedto106asofDecember31,2016.
Sales and Marketing
Year Ended December 31, 2018 vs 2017 2017 vs 20162018 2017 2016 $ Change % Change $ Change % Change
(in thousands, except percentages)Salesandmarketing $ 109,284 $ 66,420 $ 57,585 $ 42,864 64.5% $ 8,835 15.3%%ofrevenue 43.1% 50.5% 67.1%
SalesandmarketingexpenseincreasedfortheyearendedDecember31,2018ascomparedtotheyearendedDecember31,2017primarilyduetoanincreaseinemployee-relatedcosts,excludingstock-basedcompensationexpense,of$26.9millionduetohigherheadcount,anincreaseof$3.9millioninstock-basedcompensationexpense,alsoduetohigherheadcount,anincreaseinITandfacilitiesoverheadexpenses,includingdepreciation,of$3.3million,anincreaseinmarketingprogramsexpenseof$4.8million,andanincreaseinconsultingandprofessionalfeesof$3.8million.Theincreaseinemployee-relatedcostsnotedaboveisinclusiveofa$1.7milliondecreaseduetotheadoptionofASC606.AsfurtherdiscussedinNote3,Revenue,ofthenotestoourconsolidatedfinancialstatementsincludedelsewhereinthisAnnualReport,ASC606impactedtherecognitionofcoststoobtainacontract,principallythetreatmentofsalescommissionsandtheamortizationperiodoverwhichtheyarerecognized.AsofDecember31,2018,wehad398salesandmarketingpersonnelcomparedto252asofDecember31,2017.
SalesandmarketingexpenseincreasedfortheyearendedDecember31,2017ascomparedtotheyearendedDecember31,2016primarilyduetoanincreaseinemployee-relatedcostsof$7.0millionduetohigherheadcountandanincreaseof$1.2millioninITandfacilitiesoverheadexpenses,includingdepreciation.Theincreaseinemployee-relatedcostsincludesadecreaseof$1.2millionforcertaincash-basedperformanceawardsforeligiblesalespersonnelduetoanincreaseintheproportionofthecash-basedperformanceawardsthatweredirectlyrelatedtoaspecificcustomercontractwhichhadbeendeferredandrecognizedoverthetermofthecontractintheyearendedDecember31,2017ascomparedtoDecember31,2016.Inaddition,amajorityoftheemployeeshiredduringtheyearendedDecember31,2017werehiredlaterintheperiod;accordingly,thecorrespondingincreaseinsalesandmarketingexpensewasnotfullyreflectedinemployee-relatedcostsfortheyearendedDecember31,2017.AsofDecember31,2017,wehad252salesandmarketingpersonnelcomparedto190asofDecember31,2016.
General and Administrative
Year Ended December 31, 2018 vs 2017 2017 vs 20162018 2017 2016 $ Change % Change $ Change % Change
(in thousands, except percentages)Generalandadministrative $ 48,267 $ 32,241 $ 17,720 $ 16,026 49.7% $ 14,521 81.9%%ofrevenue 19.0% 24.5% 20.7%
GeneralandadministrativeexpenseincreasedfortheyearendedDecember31,2018ascomparedtotheyearendedDecember31,2017primarilyduetoanincreaseinemployee-relatedcosts,excludingstock-basedcompensationexpense,of$7.9millionduetohigherheadcountaswecontinuetoexpandourinfrastructuretosupportourgrowth,anincreaseinstock-basedcompensationexpenseof$1.5millionduetohigherheadcount,anincreaseof$4.3millioninconsulting,accounting,legalandprofessionalfeesrelatedtoprojectstoexpandourinfrastructureandprocesses,andanincreaseof$3.1millioninITandfacilitiesoverheadexpenses,includingdepreciation,offsetbyadecreaseinexpensesrelatedtoourfollow-onpublicofferingexpenseof$0.7million.AsofDecember31,2018,wehad134generalandadministrativepersonnelcomparedto85asofDecember31,2017.
GeneralandadministrativeexpenseincreasedfortheyearendedDecember31,2017ascomparedtotheyearendedDecember31,2016.Theincreaseingeneralandadministrativeexpensewasprimarilyduetoanincreaseinemployee-relatedcosts,excludingstock-basedcompensationexpense,of$4.1millionduetohigherheadcountaswecontinuetoexpandourinfrastructuretosupportourgrowth,anincreaseinstock-basedcompensationexpenseof$3.0millionduetohigherheadcountandtherecognitionofexpensesrelatedtoRSUstriggeredbyourIPO,anincreaseof$3.2millioninconsulting,accounting,legalandprofessionalfeesrelatedtobecomingapubliccompany,ourrecentacquisitionsandcostsrelatedtoourfollow-onpublicoffering,andanincreaseof$2.5millioninITandfacilitiesoverheadexpenses,includingdepreciation.AsofDecember31,2017,wehad85generalandadministrativepersonnelcomparedto65asofDecember31,2016.
Interest Expense
Year Ended December 31, 2018 vs 2017 2017 vs 2016
2018 2017 2016 $ Change % Change $ Change % Change (in thousands, except percentages)Interestexpense $ (7,378) $ — $ — $ (7,378) * $ — *
* Notmeaningful
TheincreaseininterestexpenseisduetotheissuanceofourconvertibleseniornotesduringtheyearendedDecember31,2018.
Other Income (Expense), Net
Year Ended December 31, 2018 vs 2017 2017 vs 20162018 2017 2016 $ Change % Change $ Change % Change
(in thousands, except percentages)Otherincome(expense),net $ 3,042 $ (205) $ (1,028) $ 3,247 * $ 823 (80.1)%
* Notmeaningful
Theincreaseinotherincome(expense),netfortheyearendedDecember31,2018ascomparedtotheyearendedDecember31,2017wasprimarilyduetoincreasesininterestincomeasaresultofanincreaseinthebalanceofavailable-for-salesecuritiesrelatedtotheissuanceofourconvertibleseniornotes,foreigncurrencytransactiongainsandlossesduetofluctuationsinforeigncurrenciesagainsttheU.S.dollar,andadecreaseinimpairmentcostsof$1.1millionrelatedtotheimpairmentofacostmethodinvestmentintheyearendedDecember31,2017.
Theincreaseinotherincome(expense),netfortheyearendedDecember31,2017ascomparedtotheyearendedDecember31,2016wasprimarilyduetoincreasesininterestincomeasaresultofanincreaseinthebalanceofavailable-for-salesecuritiesandforeigncurrencytransactiongainsandlossesduetofluctuationsinforeigncurrenciesagainsttheU.S.dollar,offsetinpartbya$1.1millionrelatedtotheimpairmentofacostmethodinvestment.
Provision for (Benefit of) Income Taxes
Year Ended December 31, 2018 vs 2017 2017 vs 20162018 2017 2016 $ Change % Change $ Change % Change
(in thousands, except percentages)Provisionfor(benefitof)incometaxes $ (2,586) $ (905) $ 208 $ (1,681) * $ (1,113) *
* Notmeaningful
TheincreaseinbenefitofincometaxesfortheyearendedDecember31,2018ascomparedtotheyearendedDecember31,2017isprimarilyduetotheadoptionofASC606.Inprioryears,underASC605,werecognizedafullvaluationallowanceagainstourU.S.deferredtaxassetsduetoourhistoryoflosses.However,asaresultofASC606,andtheincreaseinrevenuerecognized,asdiscussedabove,werecognizedpre-taxincomeof$25.4millionintheyearendedDecember31,2018,andwillnolongerrecognizeafullvaluationallowance.DuringtheyearendedDecember31,2018werecognizedaprovisionforincometaxesfromourpre-taxU.S.income.Theprovisionforincometaxeswasfullyoffsetbyexcesstaxbenefitsrelatedtostockoptiondeductionsof$8.9M.
TheincreaseinbenefitofincometaxesfortheyearendedDecember31,2017ascomparedtotheyearendedDecember31,2016wasprimarilyduetoataxbenefitof$1.0millionrelatedtoadecreaseinourvaluationallowanceagainstourdeferredtaxassetsrelatedtotheYhatacquisition,offsetinpartbyforeigntaxesasaresultofourglobalexpansionduringtheyearendedDecember31,2017.
Liquidity and Capital Resources
As of December 31,2018 2017 $ Change
(in thousands)Cashandcashequivalentsandshort-termandlong-terminvestments $ 426,243 $ 194,066 $ 232,177Workingcapital 337,233 111,499 225,734
Theincreaseincash,cashequivalentsandshort-termandlong-terminvestmentsisprimarilyrelatedtotheissuanceofourconvertibleseniornotesintheyearendedDecember31,2018.Thenetproceedsfromtheissuanceoftheconvertibleseniornoteswere$224.2millionafterdeductingissuancecosts.AsofDecember31,2018,$9.3millionofourcashandcashequivalentsandshort-termandlong-terminvestmentswereheldbyourforeignsubsidiaries.
Webelievethatourexistingcashandcashequivalentsandshort-terminvestmentsandanypositivecashflowsfromoperationswillbesufficienttosupportourworkingcapitalandcapitalexpenditurerequirementsforatleastthenext12months.Totheextentexistingcashandcashequivalentsandshort-terminvestmentsandcashfromoperationsarenotsufficienttofundfutureactivities,wemayneedtoraiseadditionalfunds.Wemayseektoraiseadditionalfundsthroughequity,equity-linked,ordebtfinancings.Ifweraiseadditionalfundsthroughtheincurrenceofindebtedness,suchindebtednessmayhaverightsthatareseniortoholdersofourequitysecuritiesandcouldcontaincovenantsthatrestrictoperations.Anyadditionalequityorconvertibledebtfinancingmaybedilutivetostockholders.Ifweareunabletoraiseadditionalcapitalwhendesired,ourbusiness,operatingresults,andfinancialconditioncouldbeadverselyaffected.
Ourfuturecapitalrequirementsandtheadequacyofavailablefundswilldependonmanyfactors,includingtherateofourrevenuegrowth,thetimingandextentofourspendingonresearchanddevelopmenteffortsandotherbusinessinitiatives,theexpansionofoursalesandmarketingactivities,thetimingofnewproductandserviceintroductions,marketacceptanceofourplatform,andoveralleconomicconditions.
Cash Flows
Thefollowingtablesetsforthcashflowsfortheperiodsindicated:
Year Ended December 31,2018 2017 2016
(in thousands)Netcashprovidedby(usedin)operatingactivities $ 26,089 $ 19,105 $ (6,030)Netcashprovidedby(usedin)investingactivities (270,858) (66,421) 10,735Netcashprovidedbyfinancingactivities 215,980 135,701 822
Operating Activities
Ournetincome(loss)andcashflowfromoperatingactivitiesaresignificantlyinfluencedbyourinvestmentsinheadcountandinfrastructuretosupportanticipatedgrowth.
FortheyearendedDecember31,2018,netcashprovidedbyoperatingactivitieswas$26.1million.Netcashprovidedbyoperatingactivitiesprimarilyreflectednetincomeof$28.0millionandnetnon-cashactivityof$24.7million,offsetinpartbyachangeinoperatingassetsandliabilitiesof$26.7million.ThechangesinoperatingassetsandliabilitiesprimarilyrelatedtoanincreaseinbillingsduringtheyearendedDecember31,2018ascomparedtotheyearendedDecember31,2017.Theincreaseinbillingsresultedinanincreaseinaccountsreceivableof$45.6million,anincreasetoprepaidandotherassetsof$16.1millionrelatedtocontractassets,andanincreaseindeferredcommissionsof$12.7million,offsetinpartbyanincreasetodeferredrevenueof$29.1millionandaccruedpayrollandpayrollrelatedliabilitiesof$12.9million.Netnon-cashactivityprimarilyconsistedofstock-basedcompensationof$16.6million,amortizationofdebtdiscountandissuancecostsof$6.7millionanddepreciationandamortizationof$3.8million,offsetinpartbythedecreaseindeferredincometaxesof$3.4million.
FortheyearendedDecember31,2017,netcashprovidedbyoperatingactivitieswas$19.1million.Netcashprovidedbyoperatingactivitiesprimarilyreflectedachangeinoperatingassetsandliabilitiesof$22.8millionandnetnon-cashactivityof$13.6million,offsetinpartbyanetlossof$17.5million.ThechangesinoperatingassetsandliabilitiesprimarilyrelatedtoanincreaseinbillingsduringtheyearendedDecember31,2017ascomparedtotheyearendedDecember31,2016.Theincreaseinbillingsresultedinanincreasetodeferredrevenueof$39.8million,offsetinpartbyanincreaseinaccountsreceivableof$15.3millionandanincreaseindeferredcommissionsof$3.7million.Netnon-cashactivityprimarilyconsistedofstock-basedcompensationof$8.9millionanddepreciationandamortizationof$4.0million.
FortheyearendedDecember31,2016,netcashusedinoperatingactivitieswas$6.0million.Netcashusedinoperatingactivitiesprimarilyreflectedournetlossof$24.3million,offsetinpartbynon-cashexpensesthatincluded$3.3millionofstock-basedcompensationand$1.7millionofdepreciationandamortization,andchangesinworkingcapital.Workingcapitalsourcesofcashincludeda$27.8millionincreaseindeferredrevenue,primarilyresultingfromthegrowthinthenumberofcustomersinvoicedduringtheperiod,a$2.1millionincreaseinaccountspayableasaresultoftimingofpaymentstovendors,a$1.2millionincreaseinaccruedpayrollandpayroll-relatedliabilitiesresultingfromthetimingofpaymentsandrelatedexpenses,a$1.1millionincreaseinaccruedexpenses,anda$0.7millionincreaseinotherliabilities.Thesesourcesofcashwerepartiallyoffsetbya$14.2millionincreaseinaccountsreceivableasaresultofincreasedbillingstocustomersconsistentwiththeoverallgrowthofthebusiness,a$4.3millionincreaseinprepaidexpensesprimarilyassociatedwithdeferredroyaltiesonthird-partysyndicateddataandtimingofamortization,anda$1.6millionincreaseindeferredcommissionasaresultofincreasedbillingstocustomersconsistentwiththeoverallgrowthofthebusiness.
Investing Activities
Ourinvestingactivitiesconsistprimarilyofpurchases,salesandmaturitiesofavailable-for-salesecurities,propertyandequipmentpurchases,includingcomputer-relatedequipment,andleaseholdimprovementstoleasedofficefacilities,andcashusedinourbusinessacquisitions.
NetcashusedininvestingactivitiesfortheyearendedDecember31,2018was$270.9million,consistingprimarilyof$260.6millionofnetpurchasesofinvestments,$3.5millionofnetcashpaidinconnectionwithourbusinessacquisitions,and$6.7millionofpurchasesofpropertyandequipment.
NetcashusedininvestingactivitiesfortheyearendedDecember31,2017was$66.4million,consistingprimarilyof$53.6millionofnetpurchasesofinvestments,$9.1millionofnetcashpaidinconnectionwithourbusinessacquisitions,and$3.7millionofpurchasesofpropertyandequipment.
NetcashprovidedbyinvestingactivitiesfortheyearendedDecember31,2016was$10.7million,consistingprimarilyof$20.8millionofmaturitiesofinvestmentsanda$1.0millionchangeinrestrictedcash,offsetinpartby$5.7millionofpurchasesofinvestmentsand$4.3millionofpurchasesofpropertyandequipmentassociatedwithadditionalheadcountandofficelocations.
Financing Activities
Ourfinancingactivitiesconsistprimarilyofproceedsfrom,andcostsassociatedwith,ourIPO,theissuancesofconvertiblepreferredstock,commonstockandconvertibleseniornotes,proceedsfromtheexerciseofstockoptions,andrepurchasesofourcommonstock.
NetcashprovidedbyfinancingactivitiesfortheyearendedDecember31,2018was$216.0million,consistingprimarilyofproceedsfromtheissuanceofourconvertibleseniornotesof$224.2millionand$14.2millionofproceedsfromstockoptionexercisesandpurchasesunderouremployeestockpurchaseplan,offsetinpartbythepurchaseofthecappedcallsrelatedtotheconvertibleseniornotesof$19.1million.
NetcashprovidedbyfinancingactivitiesfortheyearendedDecember31,2017was$135.7million,consistingprimarilyofproceedsfromourIPOof$134.8millionand$4.5millionofproceedsfromstockoptionexercisesandpurchasesunderouremployeestockpurchaseplan,offsetinpartby$2.4millioninpaymentsofIPOcosts,$0.7millioninminimumtaxwithholdingpaidonbehalfofemployeesforsharesissuedpursuanttoRSUs,and$0.3millionofprincipalpaymentsonourcapitallease.
NetcashprovidedbyfinancingactivitiesfortheyearendedDecember31,2016consistedprimarilyofproceedsfromrepaymentofastockholdernoteof$2.2millionand$0.4millionofproceedsfromstockoptionexercises,offsetinpartby$0.9millioninpaymentsofinitialpublicofferingcostsand$0.6millionofcostspaidinconnectionwiththeissuanceofSeriesCconvertiblepreferredstockandarepurchaseofcommonstock.
Contractual Obligations and Commitments
Thefollowingtablesummarizesourcontractualobligations,includinginterest,asofDecember31,2018:
Payments Due by PeriodTotal Less Than 1 Year 1 to 3 Years 3 to 5 Years More Than 5 Years
(in thousands)Capitalleases $ 55 $ 55 $ — $ — $ —Operatingleases(1) 40,362 6,389 13,107 11,439 9,427Convertibleseniornotesandrelatedinterest 235,175 1,150 2,300 231,725 —Purchaseobligations(2) 33,755 11,724 15,431 6,600 —
Total $ 309,347 $ 19,318 $ 30,838 $ 249,764 $ 9,427
(1) Wehaveleasesthatexpireatvariousdatesthrough2025.(2) Purchaseobligationsrelateprimarilytonon-cancellableagreementsforlicenseandroyaltyagreements.
UnrecognizedtaxbenefitsasofDecember31,2018were$6.2million,ofwhich$1.2millionwouldresultinapotentialcashpaymentoftaxesand$5.0millionwouldresultinareductionincertainNOLs.Wearenotincludinganyamountrelatedtouncertaintaxpositionsinthetablepresentedabovebecauseofthedifficultyinmakingreasonablyreliableestimatesofthetimingofsettlementswiththerespectivetaxingauthorities.Inaddition,wehadnoaccrualforinterestorpenaltiesrelatedtouncertaintaxpositionsinourconsolidatedbalancesheetsasofDecember31,2018and2017.
Aportionoftheconsiderationfromrecentacquisitionsissubjecttoearn-outprovisions.AsofDecember31,2018,wehavealiabilityof$2.1millionrelatedtotheseearn-outprovisionsaccruedtootherliabilitiesinourconsolidatedbalancesheet.Thisbalancehasnotbeenincludedinthetableabovebecauseoftheuncertaintyregardingthefinalvalueoftheconsideration,andaportionoftheconsiderationisrequiredtobesettledinsharesofourClassAcommonstockafterDecember31,2018.
Intheordinarycourseofbusiness,weenterintoagreementsinwhichwemayagreetoindemnifyclients,suppliers,vendors,lessors,channelpartners,lenders,stockholders,andotherpartieswithrespecttocertainmatters,includinglossesresultingfromclaimsofintellectualpropertyinfringement,damagestopropertyorpersons,businesslosses,orotherliabilities.Inaddition,wehaveenteredintoindemnificationagreementswithourdirectors,executiveofficers,andotherofficersthatwillrequireustoindemnifythemagainstliabilitiesthatmayarisebyreasonoftheirstatusorserviceasdirectors,officers,oremployees.Therearenoclaimsthatweareawareofthatcouldhaveamaterialeffectonourconsolidatedfinancialstatements.
Off-Balance Sheet Arrangements
AsofDecember31,2018,wedidnothaveanyrelationshipswithunconsolidatedentitiesorfinancialpartnerships,suchasstructuredfinanceorspecialpurposeentities,whichwouldhavebeenestablishedforthepurposeoffacilitatingoff-balancesheetarrangements.
Critical Accounting Estimates
OurconsolidatedfinancialstatementsandtherelatednoteshavebeenpreparedinaccordancewithU.S.GAAP.Thepreparationofourconsolidatedfinancialstatementsrequiresustomakeestimatesandassumptionsthataffectthereportedamountsofassets,liabilities,revenue,costsandoperatingexpenses,provisionforincometaxes,andrelateddisclosures.Generally,webaseourestimatesonhistoricalexperienceandonvariousotherassumptionsinaccordancewithU.S.GAAPthatwebelievetobereasonableunderthecircumstances.Actualresultsmaydifferfromtheseestimates.Totheextentthattherearematerialdifferencesbetweentheseestimatesandouractualresults,ourfuturefinancialstatementswillbeaffected.
Criticalaccountingestimatesarethosethatweconsiderthemostimportanttotheportrayalofourfinancialconditionandoperatingresultsbecausetheyrequireourmostdifficult,subjectiveorcomplexjudgments,oftenasaresultoftheneedtomakeestimatesabouttheeffectofmattersthatareinherentlyuncertain.Ourcriticalaccountingestimatesaredescribedbelow.
Revenue Recognition
Ourrevenueisderivedfromthelicensingofsubscription-basedsoftware,datasubscriptionservices,andprofessionalservices,includingtrainingandconsultingservices.OursubscriptionsaregenerallylicensedfortermsofonetothreeyearsandincludeaccesstohostedservicesandsoftwareandPCS,whichprovidesthecustomertherighttoreceivewhen-and-if-availableunspecifiedfutureupdates,upgradesandenhancements,andtechnicalproductsupport.
Ourcontractswithcustomersoftenincludepromisestotransfermultipleproductsandservicestoacustomer.Determiningwhetherproductsandservicesareconsidereddistinctperformanceobligationsthatshouldbeaccountedforseparatelyversustogethermayrequiresignificantjudgment.Incontractsthatcontainmultipleperformanceobligationsweallocatethetransactionpricetothevariousperformanceobligationsbasedonstandalonesellingprice,orSSP.Certainperformanceobligationsarenotsoldonastand-alonebasis.Therefore,significantjudgmentisrequiredtodetermineSSPforeachdistinctperformanceobligation.WeutilizeseveralinputswhendeterminingSSPincludingsalesofgoodsandservicessoldonastandalonebasis,ouroverallpricingstrategies,marketconditions,includingthegeographiclocationsinwhichtheproductsaresold,andmarketdata.
Weadoptedcertainaccountingpronouncementsduringthefourthquarterof2018thatareretrospectivelyapplicableforourannualreportingperiodfortheyearendedDecember31,2018.Thenewlyadoptedstandardrelatedtorevenuerecognitionhadamaterialimpactonourconsolidatedfinancialstatements.SeeNote2,SignificantAccountingPolicies,andNote3,Revenue,ofthenotestoourconsolidatedfinancialstatementsincludedelsewhereinthisAnnualReportforfurtherdiscussion.
Income Taxes
Ourprovisionforincometaxes,deferredtaxassetsandliabilities,andreservesforunrecognizedtaxbenefitsreflectourbestassessmentofestimatedfuturetaxestobepaid.SignificantjudgmentsandestimatesbasedoninterpretationsofexistingtaxlawsorregulationsintheUnitedStatesandthenumerousforeignjurisdictionswherewearesubjecttoincometaxarerequiredindeterminingourprovisionforincometaxes.Changesintaxlaws,statutorytaxrates,andestimatesofourfuturetaxableincomecouldimpactthedeferredtaxassetsandliabilitiesprovidedforintheconsolidatedfinancialstatementsandwouldrequireanadjustmenttotheprovisionforincometaxes.
Deferredtaxassetsareregularlyassessedtodeterminethelikelihoodtheywillberealizedfromfuturetaxableincome.Avaluationallowanceisestablishedwhenwebelieveitisnotmorelikelythannotallorsomeofadeferredtaxassetwillberealized.Inevaluatingourabilitytorecoverdeferredtaxassetswithinthejurisdictioninwhichtheyarise,weconsiderallavailablepositiveandnegativeevidence.Factorsreviewedincludethecumulativepre-taxbookincomeforthepastthreeyears,scheduledreversalsofdeferredtaxliabilities,ourhistoryofearningsandreliableforecasting,projectionsofpre-taxbookincomeovertheforeseeablefuture,andtheimpactofanyfeasibleandprudenttaxplanningstrategies.
Werecognizetheimpactofataxpositioninourconsolidatedfinancialstatementsonlyifthatpositionismorelikelythannotofbeingsustaineduponexaminationbytaxingauthorities,basedonthetechnicalmeritsoftheposition.Taxauthoritiesmayexamineourreturnsinthejurisdictionsinwhichwedobusinessandweregularlyassessthetaxriskofourreturnfilingpositions.Duetothecomplexityofsomeoftheuncertainties,theultimateresolutionmayresultinpaymentsthataremateriallydifferentfromourcurrentestimateofthetaxliability.Thesedifferences,aswellasanyinterestandpenalties,willbereflectedintheprovisionforincometaxesintheperiodinwhichtheyaredetermined.
Recent Accounting Pronouncements
SeeNote3,Revenue,ofthenotestoourconsolidatedfinancialstatementsincludedelsewhereinthisAnnualReportforadescriptionofrecentaccountingpronouncements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Foreign Currency Exchange Risk
Duetoourinternationaloperations,wehaveforeigncurrencyrisksrelatedtorevenueandoperatingexpensesdenominatedincurrenciesotherthantheU.S.dollar,primarilytheBritishPoundandEuro.Oursalescontractsareprimarilydenominatedinthelocalcurrencyofthecustomermakingthepurchase.Inaddition,aportionofouroperatingexpensesareincurredoutsidetheUnitedStatesandaredenominatedinforeigncurrencieswhereouroperationsarelocated.DecreasesintherelativevalueoftheU.S.dollartoothercurrenciesmaynegativelyaffectrevenueandotheroperatingresultsasexpressedinU.S.dollars.Wedonotbelievethatanimmediate10%increaseordecreaseintherelativevalueoftheU.S.dollartoothercurrencieswouldhaveamaterialeffectonouroperatingresults.
Wehaveexperiencedandwillcontinuetoexperiencefluctuationsinnetlossasaresultoftransactiongainsorlossesrelatedtoremeasuringcertaincurrentassetandcurrentliabilitybalancesthataredenominatedincurrenciesotherthanthefunctionalcurrencyoftheentitiesinwhichtheyarerecorded.Todate,wehavenotenteredintoderivativesorhedgingtransactions,asourexposuretoforeigncurrencyexchangerateshashistoricallybeenpartiallyhedgedasourU.S.dollardenominatedinflowshavecoveredourU.S.dollardenominatedexpensesandourforeigncurrencydenominatedinflowshavecoveredourforeigncurrencydenominatedexpenses.However,wemayenterintoderivativeorhedgingtransactionsinthefutureifourexposuretoforeigncurrencyshouldbecomemoresignificant.
Interest Rate and Market Risk
Wehadcashandcashequivalentsandshort-termandlong-terminvestmentsof$426.2millionasofDecember31,2018.Theprimaryobjectiveofourinvestmentactivitiesisthepreservationofcapital,andwedonotenterintoinvestmentsfortradingorspeculativepurposes.Ahypothetical10%increaseininterestratesduringtheyearendedDecember31,2018wouldnothavehadamaterialimpactonourconsolidatedfinancialstatements.Wedonothavematerialexposuretomarketriskwithrespecttoshort-termandlong-terminvestments,asanyinvestmentsweenterintoareprimarilyhighlyliquidinvestments.
Ourconvertibleseniornotesbearafixedinterestrate,andtherefore,arenotsubjecttointerestraterisk.Wehavenotutilizedderivativefinancialinstruments,derivativecommodityinstrumentsorothermarketrisksensitiveinstruments,positions
ortransactionsinanymaterialfashion,exceptfortheprivatelynegotiatedcappedcalltransactionsenteredintoinMayandJune2018relatedtotheissuanceofourconvertibleseniornotes.SeeNote9,ConvertibleSeniorNotes,ofthenotestoourconsolidatedfinancialstatementsincludedelsewhereinthisAnnualReportforfurtherdiscussion.
Inflation Risk
Wedonotbelievethatinflationhashadamaterialeffectonourbusiness,financialcondition,oroperatingresults.
Item 8. Consolidated Financial Statements and Supplementary Data.
Alteryx, Inc.Index to Consolidated Financial Statements
Page
NumberReportofIndependentRegisteredPublicAccountingFirm 63ConsolidatedFinancialStatements: ConsolidatedStatementsofOperationsandComprehensiveIncome(Loss) 66ConsolidatedBalanceSheets 67ConsolidatedStatementsofRedeemableConvertiblePreferredStockandStockholders’Equity(Deficit) 68ConsolidatedStatementsofCashFlows 70NotestoConsolidatedFinancialStatements 72
Report of Independent Registered Public Accounting Firm
TotheshareholdersandtheBoardofDirectorsofAlteryx,Inc.
Opinion on the Financial Statements and Internal Control over Financial Reporting
WehaveauditedtheaccompanyingconsolidatedbalancesheetofAlteryx,Inc.anditssubsidiaries(the"Company")asofDecember31,2018,therelatedconsolidatedstatementofoperationsandcomprehensiveincome(loss),redeemableconvertiblepreferredstockandstockholders’equity(deficit),andcashflowsfortheyearendedDecember31,2018,andtherelatednotes(collectivelyreferredtoasthe“consolidatedfinancialstatements”).WealsohaveauditedtheCompany'sinternalcontroloverfinancialreportingasofDecember31,2018,basedoncriteriaestablishedinInternalControl-IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).
Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionoftheCompanyasofDecember31,2018,andtheresultsofitsoperationsanditscashflowsfortheyearendedDecember31,2018,inconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.Also,inouropinion,theCompanymaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofDecember31,2018,basedoncriteriaestablishedinInternalControl-IntegratedFramework(2013)issuedbyCOSO.
Change in Accounting Principle
AsdiscussedinNote3totheconsolidatedfinancialstatements,theCompanyhaschangeditsmethodofaccountingforrevenueanddeferredcostsfromcontractswithcustomersin2018duetotheadoptionofthenewrevenuestandard.
Basis for Opinions
TheCompany’smanagementisresponsibleforthesefinancialstatements,formaintainingeffectiveinternalcontroloverfinancialreporting,andforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedintheaccompanyingManagement'sReportonInternalControlOverFinancialReporting.OurresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsandanopinionontheCompany'sinternalcontroloverfinancialreportingbasedonouraudit.WeareapublicaccountingfirmregisteredwiththePublicCompanyAccountingOversightBoard(UnitedStates)(“PCAOB”)andarerequiredtobeindependentwithrespecttotheCompanyinaccordancewiththeU.S.federalsecuritieslawsandtheapplicablerulesandregulationsoftheSecuritiesandExchangeCommissionandthePCAOB.
WeconductedourauditinaccordancewiththestandardsofthePCAOB.Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreeofmaterialmisstatement,whetherduetoerrororfraud,andwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.
Ourauditofthefinancialstatementsincludedperformingprocedurestoassesstherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetoerrororfraud,andperformingproceduresthatrespondtothoserisks.Suchproceduresincludedexamining,onatestbasis,evidenceregardingtheamountsanddisclosuresintheconsolidatedfinancialstatements.Ourauditalsoincludedevaluatingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.Ourauditofinternalcontroloverfinancialreportingincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk.Ourauditalsoincludedperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditprovidesareasonablebasisforouropinion.
Definition and Limitations of Internal Control over Financial Reporting
Acompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthe
company;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
/s/Deloitte&ToucheLLP
LosAngeles,CaliforniaMarch1,2019
WehaveservedastheCompany’sauditorsince2019.
Report of Independent Registered Public Accounting Firm
TotheBoardofDirectorsandStockholdersofAlteryx,Inc.
Opinion on the Financial Statements
WehaveauditedtheconsolidatedbalancesheetofAlteryx,Inc.anditssubsidiaries(the“Company”)asofDecember31,2017,andtherelatedconsolidatedstatementsofoperationsandcomprehensiveincome(loss),redeemableconvertiblepreferredstockandstockholders’equity(deficit),andcashflowsforeachofthetwoyearsintheperiodendedDecember31,2017,includingtherelatednotes(collectivelyreferredtoasthe“consolidatedfinancialstatements”).Inouropinion,theconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionoftheCompanyasofDecember31,2017,andtheresultsofitsoperationsanditscashflowsforeachofthetwoyearsintheperiodendedDecember31,2017inconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.
Basis for Opinion
TheseconsolidatedfinancialstatementsaretheresponsibilityoftheCompany'smanagement.OurresponsibilityistoexpressanopinionontheCompany’sconsolidatedfinancialstatementsbasedonouraudits.WeareapublicaccountingfirmregisteredwiththePublicCompanyAccountingOversightBoard(UnitedStates)(PCAOB)andarerequiredtobeindependentwithrespecttotheCompanyinaccordancewiththeU.S.federalsecuritieslawsandtheapplicablerulesandregulationsoftheSecuritiesandExchangeCommissionandthePCAOB.
WeconductedourauditsoftheseconsolidatedfinancialstatementsinaccordancewiththestandardsofthePCAOB.Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreeofmaterialmisstatement,whetherduetoerrororfraud.
Ourauditsincludedperformingprocedurestoassesstherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetoerrororfraud,andperformingproceduresthatrespondtothoserisks.Suchproceduresincludedexamining,onatestbasis,evidenceregardingtheamountsanddisclosuresintheconsolidatedfinancialstatements.Ourauditsalsoincludedevaluatingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.Webelievethatourauditsprovideareasonablebasisforouropinion.
/s/PricewaterhouseCoopersLLPLosAngeles,CaliforniaMarch7,2018
WeservedastheCompany'sauditorfrom2012to2018.
Alteryx, Inc.Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except per share data)
Year Ended December 31,2018 2017 2016
Revenue $ 253,570 $ 131,607 $ 85,790Costofrevenue 22,800 21,803 16,026Grossprofit 230,770 109,804 69,764Operatingexpenses:
Researchanddevelopment 43,449 29,342 17,481Salesandmarketing 109,284 66,420 57,585Generalandadministrative 48,267 32,241 17,720
Totaloperatingexpenses 201,000 128,003 92,786Income(loss)fromoperations 29,770 (18,199) (23,022)Interestexpense (7,378) — —Otherincome(expense),net 3,042 (205) (1,028)Income(loss)beforeprovisionfor(benefitof)incometaxes 25,434 (18,404) (24,050)Provisionfor(benefitof)incometaxes (2,586) (905) 208Netincome(loss) $ 28,020 $ (17,499) $ (24,258)Less:AccretionofSeriesAredeemableconvertiblepreferredstock — (1,983) (6,442)Netincome(loss)attributabletocommonstockholders $ 28,020 $ (19,482) $ (30,700)Netincome(loss)pershareattributabletocommonstockholders,basic $ 0.46 $ (0.37) $ (0.95)Netincome(loss)pershareattributabletocommonstockholders,diluted $ 0.43 $ (0.37) $ (0.95)Weighted-averagesharesusedtocomputenetincome(loss)pershareattributabletocommonstockholders,basic 60,829 53,006 32,440Weighted-averagesharesusedtocomputenetincome(loss)pershareattributabletocommonstockholders,diluted 64,744 53,006 32,440Othercomprehensiveincome(loss),netoftax:
Netunrealizedholdinggain(loss)oninvestments,netoftax (22) (217) 72Foreigncurrencytranslationadjustments,netoftax (195) (128) —
Othercomprehensiveincome(loss),netoftax $ (217) $ (345) $ 72Totalcomprehensiveincome(loss) $ 27,803 $ (17,844) $ (24,186)
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
Alteryx, Inc.Consolidated Balance Sheets
(in thousands, except par value)
As of December 31,2018 2017
AssetsCurrentassets:
Cashandcashequivalents $ 89,974 $ 119,716Short-terminvestments 239,718 54,386Accountsreceivable,netofallowancefordoubtfulaccountsandsalesreservesof$2,297and$1,714asofDecember31,2018andDecember31,2017,respectively 94,922 49,797Deferredcommissions 10,353 11,213Prepaidexpensesandothercurrentassets 26,846 7,227
Totalcurrentassets 461,813 242,339Propertyandequipment,net 11,729 7,492Long-terminvestments 96,551 19,964Goodwill 9,494 8,750Intangibleassets,net 7,491 7,995Long-termdeferredcommissions 12,038 —Otherassets 18,982 4,263Deferredincomestaxes,net 69 613
Totalassets $ 618,167 $ 291,416Liabilities and Stockholders’ EquityCurrentliabilities:
Accountspayable $ 5,028 $ 522Accruedpayrollandpayrollrelatedliabilities 24,659 11,835Accruedexpensesandothercurrentliabilities 10,878 8,270Deferredrevenue 84,015 110,213
Totalcurrentliabilities 124,580 130,840Convertibleseniornotes,net 173,647 —Deferredrevenue 2,130 3,545Otherliabilities 4,345 3,313Deferredincometax,net 11,647 214
Totalliabilities 316,349 137,912Commitmentsandcontingencies(Note14) Stockholders’equity:
Preferredstock,$0.0001parvalue:10,000sharesauthorizedasofDecember31,2018andDecember31,2017,respectively;nosharesissuedandoutstandingasofDecember31,2018andDecember31,2017,respectively — —Commonstock,$0.0001parvalue:500,000ClassAsharesauthorized,37,832and26,687sharesissuedandoutstanding,asofDecember31,2018andDecember31,2017,respectively;500,000ClassBsharesauthorized,23,748and32,948sharesissuedandoutstandingasofDecember31,2018andDecember31,2017,respectively 6 5Additionalpaid-incapital 315,291 257,399Accumulateddeficit (12,908) (103,546)Accumulatedothercomprehensiveloss (571) (354)
Totalstockholders’equity 301,818 153,504
Totalliabilitiesandstockholders’equity $ 618,167 $ 291,416
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
Alteryx, Inc.Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands)
Redeemable ConvertiblePreferred Stock Common Stock Additional
Paid-in Capital
Notes ReceivableFrom
StockholdersAccumulated
Deficit
Accumulated Other
Comprehensive Income (Loss) Total Shares Amount Shares Amount
Balances at December 31,2015 14,647 $ 92,740 32,258 $ 3 $ 11,193 $ (2,237) $ (61,789) $ (81) $ (52,911)Issuanceofcommonstock — — 2 — 21 — — — 21Repurchaseofcommonstock — — (17) — (6) — — — (6)AccretionofSeriesAredeemableconvertiblepreferredstockissuancecostsandredemptionfeature — 6,442 — — (6,442) — — — (6,442)Exerciseofstockoptions — — 431 — 413 — — — 413Stock-basedcompensation — — — — 3,263 — — — 3,263Excesstaxbenefitfromstock-basedcompensation — — — — 1 — — — 1Repaymentofstockholdernote — — — — — 2,237 — — 2,237Unrealizedgainoninvestments — — — — — — — 72 72Netloss — — — — — — (24,258) — (24,258)Balances at December 31,2016 14,647 99,182 32,674 3 8,443 — (86,047) (9) (77,610)Issuanceofcommonstockininitialpublicoffering,netofissuancecostsof$3,344 — — 10,350 1 131,412 — — — 131,413AccretionofSeriesAredeemableconvertiblepreferredstockissuancecostsandredemptionfeature — 1,983 — — (1,983) — — — (1,983)Conversionredeemableconvertiblepreferredstocktocommonstock (14,647) (101,165) 14,647 1 101,164 — — — 101,165Sharesissuedpursuanttostockawards,netofshareswithheld — — 1,687 — 3,655 — — — 3,655Equityissuedinbusinesscombination — — 265 — 5,285 — — — 5,285Stock-basedcompensation — — — — 8,886 — — — 8,886Equitysettledcontingentconsideration — — 12 — 375 — — — 375Excesstaxbenefitfromstock-basedcompensation — — — — 162 — — — 162Cumulativetranslationadjustment — — — — — — — (128) (128)Unrealizedlossoninvestments — — — — — — — (217) (217)Netloss — — — — — — (17,499) — (17,499)Balances at December 31,2017 — — 59,635 5 257,399 — (103,546) (354) 153,504CumulativeeffectofadoptionofASC606 — — — — — — 64,197 — 64,197Cumulativeeffectofadoptionofotheraccountingstandards — — — — 141 — (1,579) — (1,438)Sharesissuedpursuanttostockawards — — 1,925 1 11,424 — — — 11,425Stock-basedcompensation — — — — 16,647 — — — 16,647Equitysettledcontingentconsideration — — 19 — 656 — — — 656Cumulativetranslationadjustment — — — — — — — (195) (195)
Unrealizedlossoninvestments — — — — — — — (22) (22)Equitycomponentofconvertibleseniornotes,netofissuancecostsandincometax — — — — 43,569 — — — 43,569Purchaseofcappedcalls,netoftaxes — — — — (14,545) — — — (14,545)Netincome — — — — — — 28,020 — 28,020Balances at December 31, 2018 — $ — 61,579 $ 6 $ 315,291 $ — $ (12,908) $ (571) $ 301,818
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
Alteryx, Inc.Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,2018 2017 2016
Cash flows from operating activities:Netincome(loss) $ 28,020 $ (17,499) $ (24,258)Adjustmentstoreconcilenetincome(loss)tonetcashprovidedby(usedin)operatingactivities:
Depreciationandamortization 3,836 3,957 1,677Amortizationofdebtdiscountandissuancecosts 6,652 — —Stock-basedcompensation 16,647 8,886 3,284Provisionfordoubtfulaccounts,netofrecoveries 382 820 432Deferredincometaxes (3,434) (1,425) (27)Impairmentoflong-livedassets — 1,050 —Changeinfairvalueofcontingentconsideration 624 190 —Lossondisposalofassets 18 175 66
Changesinoperatingassetsandliabilities,netofeffectofbusinessacquisitionsAccountsreceivable (45,640) (15,325) (14,248)Deferredcommissions (12,741) (3,663) (1,582)Prepaidexpensesandothercurrentassetsandotherassets (16,077) (3,508) (4,314)Accountspayable 4,530 (1,483) 2,134Accruedpayrollandpayrollrelatedliabilities 12,898 4,047 1,177Accruedexpensesandothercurrentliabilities 671 2,606 1,123Deferredrevenue 29,059 39,835 27,840Otherliabilities 644 442 666
Netcashprovidedby(usedin)operatingactivities 26,089 19,105 (6,030)Cash flows from investing activities:
Purchasesofpropertyandequipment (6,728) (3,669) (4,307)Cashpaidinbusinessacquisitions,netofcashacquired (3,537) (9,097) —Purchasesofinvestments (445,705) (91,517) (5,720)Maturitiesofinvestments 185,112 37,862 20,762
Netcashprovidedby(usedin)investingactivities (270,858) (66,421) 10,735Cash flows from financing activities:
Proceedsfromissuanceofseniorconvertiblenotes,netofissuancecosts 224,246 — —Purchaseofcappedcalls (19,113) — —Proceedsfrominitialpublicoffering,netofunderwritingcommissionsanddiscounts — 134,757 —PaymentsassociatedwithissuanceofSeriesCconvertiblepreferredstock — — (350)Paymentofinitialpublicofferingcosts — (2,396) (948)Repurchaseofcommonstock,netofcostspaid — — (256)Repaymentofloanstostockholders — — 2,237Paymentofholdbackfundsfromacquisition (250) — —Principalpaymentsoncapitalleaseobligations (327) (328) (274)Proceedsfromexerciseofstockoptions 14,154 4,342 413Minimumtaxwithholdingpaidonbehalfofemployeesforrestrictedstockunits (2,730) (674) —
Netcashprovidedbyfinancingactivities 215,980 135,701 822Effectofexchangeratechangesoncashandcashequivalents (166) 25 —Netincrease(decrease)incashandcashequivalents (28,955) 88,410 5,527Cash,cashequivalentsandrestrictedcash—beginningofyear $ 119,916 $ 31,506 $ 25,979
Cash,cashequivalents,andrestrictedcash—endofyear $ 90,961 $ 119,916 $ 31,506
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
Alteryx, Inc.Consolidated Statements of Cash Flows (Continued)
(in thousands)
Year Ended December 31, 2018 2017 2016
Supplemental disclosure of cash flow information: Cashpaidforinterest $ 617 $ — $ —
Cashpaidforincometaxes $ 1,782 $ 333 $ 12
Supplemental disclosure of noncash investing and financing activities: Propertyandequipmentrecordedinaccountspayable $ 720 $ — $ 38Considerationforbusinessacquisitionincludedinaccruedexpensesandothercurrentliabilitiesandotherliabilities $ 1,200 $ 1,660 $ —
Considerationforbusinessacquisitionfromissuanceofcommonstock $ — $ 5,285 $ —
AccretionofSeriesAredeemableconvertiblepreferredstock $ — $ 1,983 $ 6,442
Deferredinitialpublicofferingcostsrecordedinaccountspayableandaccruedexpenses $ — $ — $ 452
Contingentconsiderationsettledthroughissuanceofcommonstock $ 656 $ 375 $ —
ConversionofSeriesAredeemableconvertiblepreferredstocktocommonshares $ — $ 101,165 $ —
Propertyandequipmentfundedbycapitalleaseborrowing $ — $ — $ 987
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
Alteryx, Inc.Notes to Consolidated Financial Statements
1. Organization and Nature of Operations
Alteryx,Inc.wasinitiallyorganizedinCaliforniainMarch1997asSRC,LLC,commencedprincipaloperationsinNovember1997,changeditsnametoAlteryx,LLCinMarch2010,andconvertedintoaDelawarecorporationinMarch2011underthenameAlteryx,Inc.Alteryx,Inc.anditssubsidiaries,orwe,our,orus,areheadquarteredinIrvine,California.
Weareimprovingbusinessthroughdatascienceandanalyticsbyenablinganalyticproducers,regardlessoftechnicalacumen,toquicklyandeasilytransformdataintoactionableinsightsanddeliverimproveddata-drivenbusinessoutcomes.Everyday,ourusersleverageourend-to-endanalyticplatformtoquicklyandeasilydiscover,access,prepare,andanalyzedatafromamultitudeofsources,thendeployandshareanalyticsatscale.Theease-of-use,speed,andsophisticationthatourplatformprovidesisenhancedthroughintuitiveandhighlyrepeatablevisualworkflows.
2. Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
OurconsolidatedfinancialstatementsarepresentedinaccordancewithaccountingstandardsgenerallyacceptedintheUnitedStatesofAmerica,orU.S.GAAP,andincludetheaccountsofAlteryx,Inc.anditswhollyownedsubsidiariesaftereliminationofintercompanytransactionsandbalances.
PriortoDecember31,2018,wemetthedefinitionofanemerginggrowthcompany,orEGC,undertheJumpstartOurBusinessStartupsAct,ortheJOBSAct.WhilewemaintainedEGCstatus,wewereallowedundertheJOBSActtodelayadoptionofneworrevisedaccountingpronouncementsapplicabletopubliccompaniesuntilsuchpronouncementsweremadeapplicabletoprivatecompaniesandweelectedtousethisextendedtransitionperiod.EffectiveasofDecember31,2018wenolongerqualifiedasanEGCandcouldnolongertakeadvantageofthisextendedtransitionperiod.Asaresult,weadoptedcertainaccountingpronouncementsduringthefourthquarterof2018whichareapplicableforourannualreportingperiodfortheyearendedDecember31,2018.
Weadoptedthenewrevenuerecognitionaccountingstandard,codifiedasAccountingStandardsCodification,orASC606,RevenuefromContractswithCustomers,orASC606,effectiveJanuary1,2018onamodifiedretrospectivebasis(seeRecentlyAdoptedAccountingPronouncements).Financialresultsforreportingperiodsduring2018arepresentedincompliancewiththenewrevenuerecognitionstandard.Historicalfinancialresultsforreportingperiodspriorto2018arepresentedinconformitywithamountspreviouslydisclosedunderthepriorrevenuerecognitionstandard,ASC605,RevenueRecognition,orASC605.ThesefinancialstatementsincludeadditionalinformationregardingtheimpactsfromtheadoptionofthenewrevenuerecognitionstandardonourfinancialresultsfortheyearendedDecember31,2018andalsoincludethepresentationoffinancialresultsfortheyearendedDecember31,2018underASC605forcomparisontotheprioryear.
Use of Estimates
ThepreparationofconsolidatedfinancialstatementsinconformitywithU.S.GAAPrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,disclosureofcontingentliabilitiesatthedateoftheconsolidatedfinancialstatements,andthereportedamountsofrevenueandexpensesduringthereportingperiod.Actualresultscoulddifferfromtheseestimatesandassumptions.
Onanongoingbasis,ourmanagementevaluatesestimatesandassumptionsbasedonhistoricaldataandexperience,aswellasvariousotherfactorsthatourmanagementbelievestobereasonableunderthecircumstances,theresultsofwhichformthebasisformakingjudgmentsaboutthecarryingvalueofassetsandliabilities.
Concentration of Risk
Financialinstruments,whichsubjectustoconcentrationsofcreditrisk,consistprimarilyofcashandcashequivalents,investments,andtradeaccountsreceivable.WemaintainourcashandcashequivalentsandinvestmentswiththreemajorfinancialinstitutionsandaportionofsuchbalancesexceedorarenotsubjecttoFederalDepositInsuranceCorporation,orFDIC,insurancelimits.
Weextenddifferinglevelsofcredittocustomers,donotrequirecollateraldeposits,and,whennecessary,maintainreservesforpotentialcreditlossesbasedupontheexpectedcollectabilityofaccountsreceivable.Wemanagecreditriskrelatedtoourcustomersbyfollowingcreditapprovalprocesses,establishingcreditlimits,performingperiodicevaluationsofcreditworthinessandapplyingothercreditriskmonitoringprocedures.
AccountsreceivableincludeamountsduefromcustomerswithprincipaloperationsprimarilyintheUnitedStates.
AsofDecember31,2018oneofourdistributorsmadeup10.1%ofourtotalaccountsreceivablebalance.Noothercustomersaccountedfor10%ormoreofouraccountsreceivablebalanceor10%ormoreofourrevenueinanyyearspresented.
Fair Value of Financial Instruments
Weutilizevaluationtechniquesthatmaximizetheuseofobservableinputsandminimizetheuseofunobservableinputstotheextentpossible.Wedeterminefairvaluebasedonassumptionsthatmarketparticipantswoulduseinpricinganassetorliabilityintheprincipalormostadvantageousmarket.Whenconsideringmarketparticipantassumptionsinfairvaluemeasurements,thefollowingfairvaluehierarchydistinguishesbetweenobservableandunobservableinputs,whicharecategorizedinoneofthefollowinglevels:
Level1 Unadjustedquotedpricesinactivemarketsforidenticalassetsorliabilitiesatthemeasurementdate.
Level2 InputsotherthanLevel1thatareobservable,eitherdirectlyorindirectly,suchasquotedpricesforsimilarassetsorliabilities;quotedpricesinmarketsthatarenotactivenearthemeasurementdate;orotherinputsthatareobservableorcanbecorroboratedbyobservablemarketdataforsubstantiallythefulltermoftheassetsorliabilities.
Level3 Unobservableinputsthataresupportedbylittleornomarketactivityandthataresignificanttothefairvalueoftheassetsor
liabilities.
Thefairvalueofourmoneymarketfundswasdeterminedbasedon“Level1”inputs.
Thefairvalueofcertificatesofdeposit,U.S.Treasuryandagencybonds,andcorporatebondsweredeterminedbasedon“Level2”inputs.Thevaluationtechniquesusedtomeasurethefairvalueofcertificatesofdepositincludedobservablemarket-basedinputsforsimilarassets,whichprimarilyincludeyieldcurvesandtime-to-maturityfactors.ThevaluationtechniquesusedtomeasurethefairvalueofU.S.Treasuryandagencybondsandcorporatebondsincludedstandardobservableinputs,includingreportedtrades,quotedmarketprices,matrixpricing,benchmarkyields,broker/dealerquotes,issuerspreads,two-sidedmarketsorbenchmarksecuritiesanddataprovidedbythirdpartiesasmanyofthebondsarenotactivelytraded.
Therewerenomarketablesecuritiesmeasuredonarecurringbasisinthe“Level3”category.
WehavenotelectedthefairvalueoptionasprescribedbyASC825,TheFairValueOptionforFinancialAssetsandFinancialLiabilities,forourfinancialassetsandliabilitiesthatarenototherwiserequiredtobecarriedatfairvalue.UnderASC820,FairValueMeasurementsandDisclosures,orASC820,materialfinancialassetsandliabilitiesnotcarriedatfairvalue,suchasourconvertibleseniornotesandaccountsreceivableandpayable,arereportedattheircarryingvalues.
Cash and Cash Equivalents and Restricted Cash
Weconsidercashandcashequivalentstoincludeshort-term,highlyliquidinvestmentsthatarereadilyconvertibletoknownamountsofcashandsoneartheirmaturitythattheypresentaninsignificantriskofchangesinthevalue,includinginvestmentsthatmaturewithinthreemonthsfromthedateoforiginalpurchase.Amountsreceivablefromacreditcardprocessorofapproximately$0.4millionand$0.7millionasofDecember31,2018and2017,respectively,areconsideredcashequivalentsbecausetheywerebothshort-termandhighlyliquidinnatureandaretypicallyconvertedtocashwithinthreedaysofthesalestransaction.
Wehadrestrictedcashof$1.0millionand$0.2millionasofDecember31,2018and2017,respectively.Thisbalance,presentedinotherassetsontheconsolidatedbalancesheet,relatestoamountsrequiredtoberestrictedastousebyourletterofcreditassociatedwithoneofourleasesandbyourcreditcardprocessor.
Investments in Marketable Securities
Ourinvestmentsconsistofavailable-for-salemarketablesecurities.Theclassificationofinvestmentsisdeterminedatthetimeofpurchaseandreevaluatedateachbalancesheetdate.Weclassifyinvestmentsascurrentornon-currentbasedonthenatureofthesecuritiesaswellastheirstatedmaturities.Investmentsarestatedatfairvalue.Thenetunrealizedgainsorlossesonavailable-for-salesecuritiesarerecordedasacomponentofaccumulatedothercomprehensiveloss,netofincometaxes.
Ateachbalancesheetdate,weassessavailable-for-salesecuritiesinanunrealizedlosspositiontodeterminewhethertheunrealizedlossisotherthantemporary.Weconsiderfactorsincludingthesignificanceofthedeclineinvalueascomparedtothecostbasis,underlyingfactorscontributingtoadeclineinthepricesofsecuritiesinasingleassetclass,howlongthemarketvalueofthesecurityhasbeenlessthanitscostbasis,thesecurity’srelativeperformanceversusitspeers,sectororassetclass,expectedmarketvolatility,andthemarketandeconomyingeneral,and,ifdeterminedtobeotherthantemporary,willrecordanotherthantemporaryimpairmentcharge.
Accounts Receivable, Allowance for Doubtful Accounts, and Sales Reserves
Ouraccountsreceivableconsistofamountsduefromcustomersandaretypicallyunsecured.Accountsreceivablearerecordedattheinvoicedamountandarenon-interestbearing.
Theallowancefordoubtfulaccountsisestimatedandestablishedbyassessingindividualaccountsreceivableoveraspecificageanddollarvalue,andallotherbalancesarepooledbasedonhistoricalcollectionexperience.Additionstotheallowancearechargedtogeneralandadministrativeexpenses.Accountsreceivablearewrittenoffagainsttheallowancewhenanaccountbalanceisdeemeduncollectible.
Weestimateasalesreservebaseduponthehistoricaladjustmentsmadetocustomerbillings.Suchreserveisrecordedasareductionofrevenueanddeferredrevenue.
Assets Recognized from the Costs to Obtain a Contract with a Customer
Werecordanassetfortheincrementalcostsofobtainingacontractwithacustomer,including,forexample,salescommissionsandpartnerreferralfeesthatareearneduponexecutionofcontracts.Wepaycommissionsfornewproductsalesaswellasforrenewalsofexistingcontracts,andpartnerreferralfeesonlyfornewproductsales.Forcustomercontractsinwhichthecommissionspaidonnewbusinessandrenewalsarecommensurate,wegenerallyamortizethesecostsoverthecontractualtermofthecontract,consistentwiththepatternofrevenuerecognitionforeachperformanceobligation.Forcustomercontractsinwhichthecommissionspaidonnewbusinessandrenewalsarenotcommensurateandforpartnerreferralfees,weamortizethecostsonnewbusinessoveranexpectedperiodofbenefit,whichwehavedeterminedtobeapproximatelyfouryears.Theexpectedperiodofbenefitwasdeterminedbytakingintoconsiderationourcustomercontracts,thedurationofourrelationshipswithourcustomersandtheusefullifeofourtechnology.Incapitalizingandamortizingdeferredcommissionsandpartnerreferralfees,wehaveelectedtoapplyaportfolioapproach.Weincludeamortizationofdeferredcommissionsandpartnerreferralfeesinsalesandmarketingexpenseinourconsolidatedstatementsofoperations.FortheyearsendedDecember31,2018,2017,and2016,weamortizedtosalesandmarketingexpenseapproximately$18.5million,$11.3million,and$9.4million,respectively.SeefurtherdiscussionregardingtheadoptionoftheprovisionsofASC606,includingtheprovisionsofsubtopic340-40,underRecentlyAdoptedAccountingPronouncementsbelow.
Royalties
Wepayroyaltiesassociatedwithlicensedthird-partysyndicateddatasoldwithourplatformandwerecognizeroyaltyexpensetocostofrevenuewhenincurred.FortheyearsendedDecember31,2018,2017,and2016,werecognizedroyaltyexpenseofapproximately$7.2million,$9.4million,and$6.0millionrespectively.Undercertainofourcontractualarrangementsweprepayroyalties.
Property and Equipment
Propertyandequipmentarestatedathistoricalcost,lessaccumulateddepreciationandamortization.Depreciationofpropertyandequipmentiscalculatedusingthestraight-linemethodovertheestimatedusefullivesoftheassets.Leaseholdimprovementsareamortizedonastraight-linebasisovertheshorteroftheirestimatedusefullivesorleaseterms.Usefullivesbyassetcategoryareasfollows:
Computerequipment 3yearsFurnitureandfixtures 3to7yearsLeaseholdimprovement Shorterofusefullifeorleaseterm
Repairsandmaintenancecostsarechargedtoexpenseasincurred.Uponthesaleorretirementofpropertyandequipment,thecostandtherelatedaccumulateddepreciationoramortizationareremovedfromtheaccounts,withanyresultinggainorlossincludedinourconsolidatedstatementsofoperationsandcomprehensiveincome(loss).
Intangible Assets
Intangibleassetsconsistprimarilyofacquireddevelopedtechnology.Wedeterminetheappropriateusefullifeofourintangibleassetsbyperformingananalysisofexpectedcashflowsoftheacquiredassets.Intangibleassetsareamortizedovertheirestimatedusefullivesoftwotoeightyears,usingthestraight-linemethod,whichapproximatesthepatterninwhichtheeconomicbenefitsareconsumed.
Impairment of Long-Lived Assets
Wereviewourlong-livedassetsforimpairmentwhenevereventsorchangesincircumstancesindicatethecarryingamountofsuchassetsmaynotbefullyrecoverable.Recoverabilityoftheseassetsisdeterminedbycomparingtheforecastedundiscountedcashflowsattributabletosuchassetstotheircarryingvalue.Ifthecarryingvalueoftheassetsexceedstheforecastedundiscountedcashflows,thentheassetsarewrittendowntotheirfairvalue.Fairvalueisdeterminedbasedondiscountedcashflowsorappraisedvalues,dependinguponthenatureoftheassets.
Business Combinations
Theresultsofbusinessesacquiredinabusinesscombinationareincludedinourconsolidatedfinancialstatementsfromthedateoftheacquisition.Weallocatedthepurchaseprice,includingthefairvalueofanynon-cashandcontingentconsideration,totheidentifiableassetsandliabilitiesoftherelevantacquiredbusinessattheiracquisitiondatefairvalues.Anyexcessconsiderationoverthefairvalueofassetsacquiredandliabilitiesassumedisrecognizedasgoodwill.
Contingentconsiderationpayableincashorafixeddollaramountsettleableinavariablenumberofsharesisclassifiedasaliabilityandrecordedatfairvalue,withchangesinfairvaluerecordedingeneralandadministrativeexpenseseachperiod.Transactioncostsassociatedwithbusinesscombinationsareexpensedasincurred,andareincludedingeneralandadministrativeexpenseintheconsolidatedstatementsofoperationsandcomprehensiveincome(loss).
Weperformvaluationsofassetsacquired,liabilitiesassumed,andcontingentconsiderationandallocatethepurchasepricetoitsrespectiveassetsandliabilities.Determiningthefairvalueofassetsacquired,liabilitiesassumed,andcontingentconsiderationrequiresustousesignificantjudgmentandestimatesincludingtheselectionofvaluationmethodologies,estimatesoffuturerevenue,costsandcashflows,discountrates,theprobabilityoftheachievementofspecifiedmilestones,andselectionofcomparablecompanies.Weengagetheassistanceofvaluationspecialistsinconcludingonfairvaluemeasurementsinconnectionwithdeterminingfairvaluesofassetsacquired,liabilitiesassumed,andcontingentconsiderationinabusinesscombination.
Goodwill
Goodwillrepresentstheexcessofthepurchasepriceoverthefairvalueofnetassetsacquiredinabusinesscombination.WetestgoodwillforimpairmentinaccordancewiththeprovisionsofASC350,Intangibles–GoodwillandOther,ASC350.Goodwillistestedforimpairmentatleastannuallyatthereportingunitlevelorwhenevereventsorchangesincircumstancesindicatethatgoodwillmightbeimpaired.Eventsorchangesincircumstanceswhichcouldtriggeranimpairmentreviewincludeasignificantadversechangeinlegalfactorsorinthebusinessclimate,unanticipatedcompetition,lossofkeypersonnel,significantchangesintheuseoftheacquiredassetsorourstrategy,significantnegativeindustryoreconomictrends,orsignificantunderperformancerelativetoexpectedhistoricalorprojectedfutureresultsofoperations.
ASC350providesthatanentityhastheoptiontofirstassessqualitativefactorstodeterminewhethertheexistenceofeventsorcircumstancesleadstoadeterminationthatitismorelikelythannotthatthefairvalueofareportingunitislessthanitscarryingamount.If,afterassessingthetotalityofeventsorcircumstances,anentitydeterminesitisnotmorelikelythannotthatthefairvalueofareportingunitislessthanitscarryingamount,thenadditionalimpairmenttestingisnotrequired.However,ifanentityconcludesotherwise,thenitisrequiredtoperformanimpairmenttest.
Theimpairmenttestinvolvescomparingtheestimatedfairvalueofareportingunitwithitsbookvalue,includinggoodwill.Iftheestimatedfairvalueexceedsbookvalue,goodwillisconsiderednottobeimpaired.If,however,thefairvalueofthereportingunitislessthanbookvalue,thenanimpairmentlossisrecognizedinanamountequaltotheamountthatthebookvalueofthereportingunitexceedsitsfairvalue,nottoexceedthetotalamountofgoodwillallocatedtothereportingunit.
Wehaveonereportingunitandwetestforgoodwillimpairmentannuallyduringthefourthquarterofeachcalendaryear.AtDecember31,2018,wedeterminedourgoodwillwasnotimpairedasourfairvaluesignificantlyexceededthecarryingvalueofournetassets.
Revenue Recognition - ASC 606
Ourrevenueisderivedfromthelicensingofsubscription-basedsoftware,datasubscriptionservices,andprofessionalservices,includingtrainingandconsultingservices.Thesubscription-basedlicenseincludesaccesstohostedservicesandsoftwareandpost-contractsupport,orPCS,whichprovidesthecustomertherighttoreceivewhen-and-if-availableunspecifiedfutureupdates,upgradesandenhancements,andtechnicalproductsupport.WeimplementedtheprovisionsofASC606,andallrelatedappropriateguidance,effectiveasofJanuary1,2018underthemodifiedretrospectivemethod.ThecoreprincipleofASC606istorecognizerevenueuponthetransferofgoodsorservicestoourcustomersinanamountthatreflectstheconsiderationtowhichweexpecttobeentitled.Inordertoadheretothiscoreprinciple,weapplythefollowingfive-stepapproach:
• identifythecontractwithacustomer;• identifytheperformanceobligationsinthecontract;• determinethetransactionprice;• allocatethetransactionpricetotheperformanceobligationsinthecontract;and• recognizerevenuewhen(oras)wesatisfyaperformanceobligation.
Weonlyapplythefive-stepmodeltocontractswhenitisprobablethatwewillcollecttheconsiderationweareentitledtoinexchangeforgoodsorserviceswetransfertothecustomer.
Revenueismeasuredbasedonconsiderationspecifiedinacontractwithacustomer,andexcludesanytaxeswecollectconcurrentwithrevenue-producingactivities.Mostofourcontractscontainafixedtransactionprice.Oursubscriptionagreementstypicallyrangefromonetothreeyearsandarebilledannuallyinadvancewithnetpaymenttermsof60daysorless.Theprimarypurposeofourpaymentandinvoicingtermsistoprovidecustomerswithpredictablewaystopurchaseoursoftwareandservices,andnottoprovidecustomerswithfinancing.
Ourcontractswithcustomerstypicallycontainmultipleperformanceobligations.Aperformanceobligationisapromiseinacontracttotransferadistinctgoodorservicetothecustomer.Allofourlicensesaresoldassubscription-based,on-premise,licensesandarebundledwithmaintenanceandsupport,orPCS,andcloud-basedofferings.Inadditiontoouron-premiselicenses,wesellsubscriptionstothird-partysyndicateddataandprovideprofessionalserviceofferingsprimarilyrelatedtotrainingsforourcustomers.Weallocatethetransactionpriceofthecontracttoeachperformanceobligationusingtherelativestandalonesellingprice,orSSP,ofeachdistinctgoodorserviceinthecontract.WedetermineestimatesofSSPbasedonsalesofgoodsandservicessoldonastandalonebasis,ouroverallpricingstrategies,marketconditions,includingthegeographiclocationsinwhichtheproductsaresold,andmarketdata.WereviewtheSSPforeachofourperformanceobligationsatleasteveryfinancialreportingperiodandupdateitwhenappropriatetoensurethatthepracticesemployedreflectourrecentpricingexperienceandmaximizetheuseofobservabledata.
Werecognizerevenuewhenwesatisfyaperformanceobligationbytransferringcontrolofagoodorservicetoacustomer.Revenuerelatedtooursubscription-basedlicensesisrecognizedatapointintimewhentheplatformisfirstmadeavailabletothecustomer,orthebeginningofthesubscriptionterm,iflater.RevenuerelatedtoPCS,cloud-basedofferings,anddatasubscriptionsisrecognizedratablyoverthesubscriptionterms.Professionalservicesrevenueisrecognizedwhentheservicesareprovidedtothecustomer,orwhentheyexpire.
Revenue Recognition - ASC 605
WeappliedtheprovisionsofASC605torevenuerecognizedduringeachoftheyearsendedDecember31,2017and2016.InNote3,Revenue,wehavepresentedacomparisonoftheresultsunderASC606andASC605fortheyearendedDecember31,2018.
Revenueisrecognizedwhenallfourrevenuerecognitioncriteriahavebeenmet:persuasiveevidenceofanarrangementexists,theproducthasbeendeliveredortheservicehasbeenperformed,thefeeisfixedordeterminable,andcollectionisprobableorreasonablyassured.Determiningwhetherandwhensomeofthesecriteriahavebeensatisfiedofteninvolves
exercisingjudgmentandusingestimatesandassumptionsthatcanhaveasignificantimpactonthetimingandamountofrevenuethatisrecognized.Invoicedamountshavebeenrecordedinaccountsreceivableandindeferredrevenueorrevenue,dependingonwhethertherevenuerecognitioncriteriahavebeenmet.
WeaccountforrevenuefromsoftwareandrelatedproductsandservicesinaccordancewithASC985-605,Software,orASC985-605.Forthedurationofthelicenseterm,thecustomerreceivescoterminousPCS.WedonotprovidePCSonastandaloneorrenewalbasisunlessthecustomerrenewsthesoftwaresubscriptionlicenseand,assuch,weareunabletodeterminevendorspecificobjectiveevidenceoffairvalue,orVSOE,ofPCS.Accordingly,revenueforthesubscription-basedsoftwarelicensesandPCSisrecognizedratablybeginningonthedatethelicenseisfirstmadeavailabletothecustomerandcontinuingthroughtheendofthesubscriptionterm.
Wealsorecognizerevenuefromthesaleofahostedversionofourplatformwhichisdeliveredpursuanttoahostingarrangement.Revenuefromhostedservicesisrecognizedratablybeginningonthedatetheservicesarefirstmadeavailabletothecustomerandcontinuingthroughtheendofthecontractualserviceterm.HostedrevenuearrangementsareoutsidethescopeofASC986-605softwarerevenuerecognitionguidanceascustomersdonothavetherighttotakepossessionofthesoftwarecodeunderlyingourhostedsolutions.
Ourarrangementsmayincludetheresaleofthird-partysyndicateddatacontentpursuanttosubscriptionarrangements,andprofessionalservices.Datasubscriptionsprovidethecustomertherighttoreceivedatathatisupdatedperiodicallyoverthetermofthelicenseagreement,andrevenueisrecognizedratablyoverthecontractperiodoncethecustomerhasaccesstothedata.Werecognizerevenuefromtheresaleofthird-partysyndicateddataonagrossbasiswhen(i)wearetheprimaryobligor,(ii)wehavelatitudetoestablishthepricecharged,and(iii)webearcreditriskinthetransaction.Revenuefromprofessionalservices,whichiscomprisedprimarilyoftrainingandconsultingservices,isrecognizedastheservicesareprovided.
Multiple Element Arrangements
Weenterintomultipleelementrevenuearrangementsinwhichacustomermaypurchaseacombinationofsoftware,data,andservices.
Formultipleelementarrangementsthatcontainonlysoftwareandsoftware-relatedelements,revenueisallocatedanddeferredfortheundeliveredelementsbasedontheirVSOE.InsituationswhereVSOEexistsforallelements(deliveredandundelivered),therevenuetobeearnedunderthearrangementamongthevariouselementsisallocatedbasedontheirrelativefairvalue.ForarrangementswhereVSOEexistsonlyfortheundeliveredelements,thefullfairvalueoftheundeliveredelementsisdeferredandthedifferencebetweenthetotalarrangementfeeandtheamountdeferredfortheundelivereditemsisrecognizedasrevenue.IfVSOEdoesnotexistforanundeliveredserviceelement,therevenuefromtheentirearrangementisrecognizedovertheserviceperiod,onceallserviceshavecommenced.Changesinassumptionsorjudgmentsorchangestotheelementsinasoftwarearrangementcouldcauseamaterialincreaseordecreaseintheamountofrevenuerecognizedinaparticularperiod.
VSOEisdeterminedforeachelement,oragroupofelementssoldonacombinedbasis,suchasoursoftwareandPCS,basedonhistoricalstandalonesalestothirdpartiesorthepricetobechargedwhentheproductorservice,orgroupofproductsorservices,isavailable.IndeterminingVSOE,asubstantialmajorityofthesellingpriceforaproductorservicemustfallwithinareasonablynarrowpricingrange.
Revenuerelatedtothedeliveredproductsorservicesisrecognizedonlyif(i)theaboverevenuerecognitioncriteriaaremet,(ii)anyundeliveredproductsorservicesarenotessentialtothefunctionalityofthedeliveredproductsandservices,(iii)paymentforthedeliveredproductsorservicesisnotcontingentupondeliveryoftheremainingproductsorservices,and(iv)thereisanenforceableclaimtoreceivetheamountdueintheeventthattheundeliveredproductsorservicesarenotdelivered.
Formultiple-elementarrangementsthatcontainbothsoftwareandnon-softwareelements,revenueisallocatedonarelativefairvaluebasistosoftwareorsoftware-relatedelementsasagroupandanynon-softwareelementsseparatelybasedonthesellingpricehierarchy.ThesellingpriceforeachdeliverableisdeterminedusingVSOEofsellingprice,ifitexists,orthird-partyevidenceoffairvalue,orTPE.IfneitherVSOEnorTPEexistforadeliverable,bestestimateofsellingprice,orBESP,isused.Oncerevenueisallocatedtosoftwareorsoftware-relatedelementsasagroup,revenueisrecognizedinaccordancewithsoftwarerevenueaccountingguidance.Revenueallocatedtonon-softwareelementsisrecognizedinaccordancewithSECStaffAccountingBulletinTopic13,RevenueRecognition.Revenueisrecognizedwhenrevenuerecognitioncriteriaaremetforeachelement.
JudgmentisrequiredtodetermineVSOEorBESP.ForVSOE,weconsidermultiplefactorsincluding,butnotlimitedto,producttypes,geographies,saleschannels,andcustomersizesand,forBESP,wealsoconsidermarketconditions,competitivelandscape,internalcosts,grossmarginobjectives,andpricingpractices.Pricingpracticestakenintoconsiderationincludehistoriccontractuallystatedprices,volumediscounts,whereapplicable,andpricelists.BESPisgenerallyusedforofferingsthatarenottypicallysoldonastandalonebasisorwhenthesellingpricesforaproductorservicedonotfallwithinareasonablynarrowpricingrange.
Revenuegeneratedfromsalesarrangementsthroughdistributorsisrecognizedinaccordancewithourrevenuerecognitionpoliciesasdescribedaboveattheamountinvoicedtothedistributor.Werecognizerevenueatthenetamountinvoicedtothedistributor,asopposedtothegrossamountthedistributorinvoicestheirendcustomer,aswehavedeterminedthat(i)wearenottheprimaryobligorinthesearrangements,(ii)wedonothavelatitudetoestablishthepricechargedtotheend-customer,and(iii)wedonotbearcreditriskinthetransactionwiththeend-customer.
Deferred Revenue
Deferredrevenueincludesamountscollectedorbilledinexcessofrevenuerecognized.Werecognizesuchamountsasrevenueoverthelifeofthecontractuponmeetingtherevenuerecognitioncriteria.Deferredrevenuethatwillberecognizedduringthesucceeding12-monthperiodisrecordedascurrentdeferredrevenueandtheremainingportionisrecordedasnon-currentdeferredrevenueinourconsolidatedbalancesheet,asadjustedforASC606effectiveJanuary1,2018.
Cost of Revenue
CostofrevenueisaccountedforinaccordancewithASC705,CostofSalesandServices,andconsistsofemployee-relatedcosts,includingsalariesandbonuses,stock-basedcompensationexpense,andemployeebenefitcostsassociatedwithourcustomersupportandprofessionalservicesorganizations,expensesrelatedtohostingandoperatingourcloudinfrastructureinathird-partydatacenter,licensesofthird-partysyndicateddata,amortizationofacquiredcompletedtechnologyintangibleassets,andrelatedoverheadexpenses.Out-of-pockettravelcostsrelatedtothedeliveryofprofessionalservicesaretypicallyreimbursedbythecustomersandareaccountedforasbothrevenueandcostofrevenueintheperiodinwhichthecostisincurred.
Research and Development
Researchanddevelopmentexpenseconsistsprimarilyofemployee-relatedcosts,includingsalariesandbonuses,stock-basedcompensationexpense,andemployeebenefitscosts,depreciationofequipmentusedinresearchanddevelopmentforourresearchanddevelopmentemployees,third-partycontractorcosts,andrelatedallocatedoverheadcosts.Productdevelopmentexpenses,otherthansoftwaredevelopmentcostsqualifyingforcapitalization,areexpensedasincurred.
Software Development Costs
CostsincurredinthedevelopmentofnewsoftwareproductsandenhancementstoexistingsoftwareproductstobeaccountedforundersoftwarerevenuerecognitionguidanceareaccountedforinaccordancewithASC985-20,CostsofSoftwaretobeSold,Leased,orMarketed,orASC985-20.Thesecosts,consistingprimarilyofsalariesandrelatedpayrollcosts,areexpensedasincurreduntiltechnologicalfeasibilityhasbeenestablished.Aftertechnologicalfeasibilityisestablished,costsarecapitalizedinaccordancewithASC985-20.Becauseourprocessfordevelopingsoftwareiscompletedconcurrentlywiththeestablishmentoftechnologicalfeasibility,nointernallygeneratedsoftwaredevelopmentcostshavebeencapitalizedasofDecember31,2018,and2017.
Weaccountforcoststodeveloporobtaininternal-usesoftwareinaccordancewithASC350-40,Internal-UseSoftware,orASC350-40.WealsoaccountforcostsofsignificantupgradesandenhancementsresultinginadditionalfunctionalityunderASC350-40.Thesecostsareprimarilysoftwarepurchasedforinternal-use,purchasedsoftwarelicenses,implementationcosts,anddevelopmentcostsrelatedtoourhostedproductwhichisaccessedbycustomersonasubscriptionbasis.Costsincurredformaintenance,training,andminormodificationsorenhancementsareexpensedasincurred.Internal-usesoftwareisamortizedonastraight-linebasisoveritsestimatedusefullife,whichisgenerallythreeyears.Managementevaluatestheusefullivesoftheseassetsonanannualbasisandtestsforimpairmentwhenevereventsorchangesincircumstancesoccurthatcouldimpacttherecoverabilityoftheseassets.Developmentcostsrelatedtointernal-usesoftwarewereinsignificantduringtheyearsendedDecember31,2018,and2017and,therefore,havenotbeencapitalized.
Advertising Costs
Advertisingcostsareexpensedasincurred.Weincurredadvertisingcostsofapproximately$9.1million,$5.5million,and$5.0millionfortheyearsendedDecember31,2018,2017,and2016,respectively.Suchcostsprimarilyrelatetoourannualcustomerconferences,onlineandprintadvertisingaswellassponsorshipofpublicmarketingevents,andarereflectedinsalesandmarketingexpenseinourconsolidatedstatementsofoperationsandcomprehensiveincome(loss).
Stock-Based Compensation
Werecognizestock-basedcompensationexpenseinaccordancewiththeprovisionsofASC718,Compensation—StockCompensation,orASC718.ASC718requiresthemeasurementandrecognitionofcompensationexpenseforallstock-basedpaymentawardsmadetoemployeesanddirectorsbasedonthegrantdatefairvaluesoftheawards.WeusetheBlack-Scholesoption-pricingmethodforvaluingstockoptionsandsharesgrantedundertheemployeestockpurchaseplan.Restrictedstockunits,orRSUs,arevaluedbasedonthefairvalueofourcommonstockonthedateofgrant,lessourexpecteddividendyield.Forawardsthatvestsolelybasedoncontinuedservicethefairvalueofanawardisrecognizedasanexpenseovertherequisiteserviceperiodonastraight-linebasis.Forawardsthatcontainperformanceconditions,thefairvalueofanawardisrecognizedbasedontheprobabilityoftheperformanceconditionbeingmetusingthegradedvestingmethod.Stock-basedcompensationexpenseisincludedincostofrevenueandoperatingexpenseswithinourconsolidatedstatementsofoperationsandcomprehensiveincome(loss)basedontheclassificationoftheindividualearningtheaward.
Thedeterminationofthegrantdatefairvalueofstock-basedawardsisaffectedbytheestimatedfairvaluepershareofourcommonstockaswellasotherhighlysubjectiveassumptions,including,butnotlimitedto,theexpectedtermofthestock-basedawards,expectedstockpricevolatility,risk-freeinterestrates,andexpecteddividendsyields,whichareestimatedasfollows:
• Fairvaluepershareofourcommonstock.Priortoourinitialpublicoffering,inMarch2017,giventheabsenceofanactivemarketforourcommonstock,ourboardofdirectorsdeterminedthefairvalueofourcommonstockatthetimeofgrantforeachstock-basedawardbaseduponseveralfactors,includingconsiderationofinputfrommanagementandcontemporaneousthird-partyvaluations.ThefairvalueofourcommonstockwasdeterminedinaccordancewithapplicableelementsofthepracticeaidissuedbytheAmericanInstituteofCertifiedPublicAccountants,ValuationofPrivatelyHeldCompanyEquitySecuritiesIssuedasCompensation.Eachfairvalueestimatedwasbasedonavarietyoffactors,includingtheprices,rights,preferencesandprivilegesofourpreferredstockrelativetothoseofourcommonstock,pricingandtimingoftransactionsinourequity,thelackofmarketabilityofourcommonstock,ouractualoperatingandfinancialperformance,developmentsandmilestonesinourcompany,themarketperformanceofcomparablepubliclytradedcompanies,thelikelihoodofachievingaliquidityevent,andU.S.andglobalcapitalmarketconditions,amongotherfactors.Subsequenttoourinitialpublicoffering,thefairvalueofourcommonstockisbasedontheclosingpriceofourClassAcommonstock,asreportedontheNewYorkStockExchange,onthedateofgrant.
• Expectedterm.Wedeterminetheexpectedtermoftheawardsusingthesimplifiedmethod,whichestimatestheexpectedtermbasedontheaverageofthevestingperiodandcontractualtermofthestockoption.
• Expectedvolatility.Weestimatetheexpectedvolatilitybasedonthevolatilityofsimilarpubliclyheldentities(referredtoas“guidelinecompanies”)overaperiodequivalenttotheexpectedtermoftheawards.Inevaluatingthesimilarityofguidelinecompaniestous,weconsideredfactorssuchasindustry,stageoflifecycle,size,andfinancialleverage.Weintendtocontinuetoconsistentlyapplythisprocessusingthesameorsimilarguidelinecompaniestoestimatetheexpectedvolatilityuntilsufficienthistoricalinformationregardingthevolatilityofthesharepriceofourcommonstockbecomesavailable.
• Risk-freeinterestrate.Therisk-freeinterestrateusedtovalueourstock-basedawardsisbasedontheU.S.Treasuryyieldineffectatthetimeofgrantforaperiodconsistentwiththeexpectedtermoftheaward.
• Estimateddividendyield.Theexpecteddividendwasassumedtobezeroaswehaveneverdeclaredorpaidanycashdividendsanddonotcurrentlyintendtodeclaredividendsintheforeseeablefuture.
Inaddition,priorto2018,wewererequiredtoestimateatthetimeofgranttheexpectedforfeiturerateandonlyrecognizeexpenseforthosestock-basedawardsexpectedtovest.Ourestimatedforfeitureratewasbasedonourestimateofpre-vestingawardforfeitures.AsaresultofouradoptionofAccountingStandardsUpdate,orASU,2016-09effectiveJanuary1,2018,wenowaccountforforfeituresastheyoccurratherthanestimatingaforfeiturerateatthetimeofgrant.
Theassumptionsusedincalculatingthefairvalueofstock-basedawardsrepresentourbestestimates,buttheseestimatesinvolveinherentuncertaintiesandtheapplicationofjudgment.Asaresult,iffactorschangeorweusedifferentassumptions,stock-basedcompensationexpensecouldbemateriallydifferentinthefuture.
Foreign Currency Remeasurement and Transactions
Thefunctionalcurrencyofourwhollyownedsubsidiariesisthecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates.Assetsandliabilitiesdenominatedincurrenciesotherthanthefunctionalcurrencyareremeasuredusingthecurrentexchangerateformonetaryaccountsandhistoricalexchangeratesfornonmonetaryaccounts,withexchangedifferencesonremeasurementincludedinotherexpenseinourconsolidatedstatementsofoperationsandcomprehensiveincome(loss).OurforeignsubsidiariesthatutilizeforeigncurrencyastheirfunctionalcurrencytranslatesuchcurrencyintoU.S.dollarsusing(i)theexchangerateonthebalancesheetdatesforassetsandliabilities,(ii)theaverageexchangeratesprevailingduringtheperiodforrevenuesandexpenses,and(iii)historicalexchangeratesforequity.Anytranslationadjustmentsresultingfromthisprocessareshownseparatelyasacomponentofaccumulatedothercomprehensiveincome(loss)withinstockholder’sequity(deficit)intheconsolidatedbalancesheets.
TransactionsdenominatedincurrenciesotherthantheU.S.dollarmayresultintransactiongainsorlossesattheendoftheperiodandwhentherelatedreceivableorpayableissettled,whicharerecordedinotherincome(expense),net.Transactionlosseswere$1.5million,$0.3million,and$0.5millionfortheyearsendedDecember31,2018,2017,and2016,respectively.
Income Taxes
WeapplytheprovisionsofASC740,IncomeTaxes,orASC740.UnderASC740,weaccountforourincometaxesusingtheassetandliabilitymethodwherebydeferredtaxassetsandliabilitiesaredeterminedbasedontemporarydifferencesbetweenthebasesusedforfinancialreportingandincometaxreportingpurposes.Deferredincometaxesareprovidedbasedontheenactedtaxratesandlawsthatwillbeineffectatthetimesuchtemporarydifferencesareexpectedtoreverse.Avaluationallowanceisprovidedfordeferredtaxassetsifitismorelikelythannotthatwewillnotrealizethosetaxassetsthroughfutureoperations.
WealsoutilizetheguidanceinASC740toaccountforuncertaintaxpositions.ASC740containsatwo-stepapproachtorecognizingandmeasuringuncertaintaxpositions.Thefirststepistoevaluatethetaxpositionforrecognitionbydeterminingiftheweightofavailableevidenceindicatesitismorelikelythannotthatthepositionwillbesustainedonaudit,includingresolutionofrelatedappealsorlitigationprocesses,ifany.Thesecondstepistomeasurethetaxbenefitasthelargestamountwhichismorelikelythannottoberealizedandeffectivelysettled.Weconsidermanyfactorswhenevaluatingandestimatingourtaxpositionsandtaxbenefits,whichmayrequireperiodicadjustmentsandwhichmaynotaccuratelyreflectactualoutcomes.Werecognizeinterestandpenaltiesonunrecognizedtaxbenefitsasacomponentofincometaxexpenseinourconsolidatedstatementsofoperationsandcomprehensiveincome(loss).
Net Income (Loss) Per Share Attributable to Common Stockholders
Inperiodsinwhichwehavenetincome,andacontingenteventhasbeenmet,weapplythetwo-classmethodforcalculatingearningspershare.Underthetwo-classmethod,netincomeisattributedtocommonstockholdersandparticipatingsecuritiesbasedontheirparticipationrights.Participatingsecuritiesincludeconvertiblepreferredstockandourseniorconvertiblenotes.Inperiodsinwhichwehavenetlossesafteraccretionofconvertiblepreferredstock,wedonotattributelossestoparticipatingsecuritiesastheyarenotcontractuallyobligatedtoshareourlosses.
Underthetwo-classmethod,basicnetincome(loss)pershareattributabletocommonstockholdersiscomputedbydividingthenetincome(loss)attributabletocommonstockholdersbytheweighted-averagenumberofsharesofcommonstockoutstandingduringtheperiod.Netincome(loss)attributabletocommonstockholdersiscalculatedasnetincome(loss)includingcurrentperiodconvertiblepreferredstockaccretion.
Dilutedearningspershareattributabletocommonstockholdersadjustsbasicearningspershareforthepotentiallydilutiveimpactofstockoptionsandconvertiblepreferredstock.Inperiodsinwhichweincurredanetloss,allpotentiallydilutivesecuritiesareantidilutiveandaccordingly,basicnetlosspershareequalsdilutednetlosspershare.
Recently Adopted Accounting Pronouncements
InJanuary2017,theFinancialAccountingStandardsBoard,orFASB,issuedASU2017-04,SimplifyingtheTestforGoodwillImpairment,orASU2017-04,whichsimplifiesthesubsequentmeasurementofgoodwillbyremovingtherequirementtoperformahypotheticalpurchasepriceallocationtocomputetheimpliedfairvalueofgoodwilltomeasureimpairment.Instead,anygoodwillimpairmentwillequaltheamountbywhichareportingunit’scarryingvalueexceedsitsfairvalue,nottoexceedthecarryingamountofgoodwill.Further,theguidanceeliminatestherequirementsforanyreportingunitwithazeroornegativecarryingamounttoperformaqualitativeassessmentand,ifitfailsthatqualitativetest,toperformStep
2ofthegoodwillimpairmenttest.AspermittedbyASU2017-04,wehaveelectedtoearlyadoptthisguidanceforour2018goodwillimpairmenttest,whichwasperformedduringthefourthquarterof2018.Theadoptionofthisguidancedidnothaveamaterialimpactonourconsolidatedfinancialstatements.
InJanuary2017,theFASBissuedASU2017-01,ClarifyingtheDefinitionofaBusiness,whichnarrowstheapplicationofwhenanintegratedsetofassetsandactivitiesisconsideredabusinessandprovidesaframeworktoassistentitiesinevaluatingwhetherbothaninputandasubstantiveprocessarepresenttobeconsideredabusiness.Itisexpectedthatthenewguidancewillreducethenumberoftransactionsthatwouldneedtobefurtherevaluatedandaccountedforasabusiness.WeadoptedthisguidanceforourannualreportingperiodfortheyearendedDecember31,2018.Theadoptionofthisguidancedidnothaveamaterialimpactonourconsolidatedfinancialstatements.
InNovember2016,theFASBissuedASU2016-18,RestrictedCash,whichrequiresthatrestrictedcashbeincludedwithcashandcashequivalentswhenreconcilingthebeginningandendingtotalamountsshownonthestatementofcashflows.WeadoptedthisguidancefortheyearendedDecember31,2018usingaretrospectivetransitionmethodforeachperiodpresented.Wepreviouslypresentedchangesinrestrictedcashwithininvestingactivities.Accordingly,theadoptionofthisguidanceresultedinchangesinnetcashflowsfrominvestingactivitiesandtocertainbeginningandendingcashandcashequivalenttotalsshownonourconsolidatedstatementofcashflows.
InOctober2016,theFASBissuedASU2016-16,Intra-EntityTransfersofAssetsOtherThanInventory,orASU2016-16.ThisguidanceremovestheprohibitioninASC740,againsttheimmediaterecognitionofthecurrentanddeferredincometaxeffectsofintra-entitytransfersofassetsotherthaninventory.ThisguidanceisintendedtoreducethecomplexityofU.S.GAAPanddiversityinpracticerelatedtothetaxconsequencesofcertaintypesofintra-entityassettransfers,particularlythoseinvolvingintellectualproperty.TheimpactofadoptingASU2016-16isrecordedusingthemodifiedretrospectivetransitionbasisthroughacumulative-effectadjustmenttoaccumulateddeficitasofthebeginningoftheperiodofadoption.WeearlyadoptedASU2016-16effectiveJanuary1,2018,resultingintheeliminationof$1.4millionofdeferredtaxchargesincludedinotherassetsinourconsolidatedbalancesheetatJanuary1,2018.WerecordedtheeliminationofthedeferredchargetoaccumulateddeficitasofJanuary1,2018.
InAugust2016,theFASBissuedASU2016-15,ClassificationofCertainCashReceiptsandCashPayments,whichaddresseseightspecificcashflowissueswiththeobjectiveofreducingtheexistingdiversityinpractice,includingpresentationofcashflowsrelatingtocontingentconsiderationpayments,proceedsfromthesettlementofinsuranceclaims,anddebtprepaymentordebtextinguishmentcosts,amongothermatters.WeadoptedthisguidanceretrospectivelyfortheyearendedDecember31,2018.Theadoptionofthisguidancedidnothaveamaterialimpactonourconsolidatedfinancialstatements.
InMarch2016,theFASBissuedASU2016-09,Compensation—StockCompensation(Topic718):ImprovementstoEmployeeShare-BasedPaymentAccounting,orASU2016-09,whichsimplifiesseveralaspectsoftheaccountingforshare-basedpaymenttransactionsandrelatedtaximpacts,theclassificationofexcesstaxbenefitsonthestatementofcashflows,statutorytaxwithholdingrequirements,andotherstock-basedcompensationclassificationmatters.WeadoptedASU2016-9effectiveJanuary1,2018,andelectedthemodifiedretrospectivetransitionmethod.Accordingly,werecognizedabenefit,recordedasacumulativeeffectadjustmenttoaccumulateddeficitatJanuary1,2018of$2.4millionrelatedtopreviouslyunrecognizedexcesstaxbenefitsfromthesettlementofdomesticstockawards.Immediatelypriortoadoption,wehadnounrecognizedexcesstaxbenefitsrelatedtostockawardsinjurisdictionsoutsidetheUnitedStates.Allfutureexcesstaxbenefitsanddeferredtaxdeficienciesfromthesettlementofstockawardswillberecordedtoincometaxexpense.Additionally,uponadoption,wechangedouraccountingpolicytoaccountforforfeitureswhentheyoccurratherthanestimateaforfeiturerate,theresultofwhichwasrecordedusingthemodifiedretrospectivetransitionbasisthroughacumulative-effectadjustmenttoaccumulateddeficitandadditionalpaid-in-capitalof$0.1millionasofJanuary1,2018.
InMay2014,theFASBissuedASU2014-09,RevenuefromContractswithCustomers,orASU2014-09.Thisguidancereplacesmostexistingrevenuerecognitionguidance.Itprovidesprinciplesforrecognizingrevenueforthetransferofpromisedgoodsorservicestocustomerswiththeconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.InAugust2015,theFASBissuedASU2015-14,whichdeferredtheeffectivedateofASU2014-09byoneyear.During2016and2017,theFASBcontinuedtoissueadditionalamendmentstothisnewrevenueguidance.
Weadoptedthenewrevenuerecognitionaccountingstandard,ASC606,effectiveJanuary1,2018.Thenewrevenuerecognitionstandardchangedthewaywerecognizerevenue,includingtheidentificationofcontractualperformanceobligationsandtheallocationoftransactionprice,todepictthetransferofpromisedgoodsorservicestocustomersattheamountthatreflectstheconsiderationtowhichweexpecttobeentitledinexchangeforthosegoodsorservices.WeadoptedthenewrevenuerecognitionstandardonamodifiedretrospectivebasisandappliedthenewrevenuerecognitionstandardonlytocontractsthatwerenotcompletedcontractspriortoJanuary1,2018.Uponadoption,werecordedanadjustmentof$65.4
milliontoouraccumulateddeficit.Theadjustmentwasoffsetbya$55.6millionreductiontodeferredrevenue,theadditionofa$17.2millioncontractasset,primarilyrelatedtoouron-premisessubscriptionlicenseagreements,andanincreasetoourdeferredtaxliabilitiesof$7.4million.
Thenewrevenuerecognitionstandardmateriallyimpactsthetimingofrevenuerecognitionrelatedtoouron-premisessubscriptionlicenseagreements.Priortoouradoptionofthenewrevenuerecognitionstandard,wehistoricallyrecognizedrevenuerelatedtoouron-premisessubscriptionlicenseagreementsratablyoverthetermofthelicensingagreement.Underthenewrevenuerecognitionstandard,revenueallocabletothelicenseportionofthearrangementisrecognizedatapointintimewhentheplatformisfirstmadeavailabletothecustomer,orthebeginningofthesubscriptionterm,iflater.Post-contractservicerevenue,orPCS,relatedtoon-premisessubscriptionagreements,hostedservicesandsupportandsubscriptionstothird-partysyndicateddatacontinuetoberecognizedratablyoverthetermofthelicensingagreement.Underthenewrevenuerecognitionstandard,weallocatetotaltransactionpricetoperformanceobligationsbasedonSSP,whichimpactsthetimingofrevenuerecognitiondependingonwheneachperformanceobligationisrecognized.Thesechangestothetimingofrevenuerecognitionalsoaffectourdeferredrevenuebalances.
Thenewrevenuerecognitionstandardrequiresthecapitalizationofcertainincrementalcostsofobtainingacontract,whichimpactstheperiodinwhichwerecordoursalescommissionsexpense.Priortoouradoptionofthenewrevenuerecognitionstandard,wecapitalizedsalescommissionsexpenseandamortizedtheexpenseoverthecontractterm.Underthenewrevenuerecognitionstandard,forcommissionspaidoncustomercontractsinwhichthecommissionspaidonnewbusinessandrenewalsarenotcommensurate,weamortizethecommissionspaidonnewbusinessoveranexpectedperiodofbenefit,whichwillgenerallybelongerthanthencontractterm.Uponadoptionofthenewrevenuerecognitionstandard,weincreasedouraccumulateddeficitby$1.2millionandreducedourassetfordeferredsalescommissionsrelatedtocontractsthatwerenotcompletedcontractspriortoJanuary1,2018.
Forfurtherdiscussionregardingtheimpactsofadoptingthenewrevenuerecognitionstandard,seeNote3,Revenue,ofthesenotestoourconsolidatedfinancialstatements.
Recently Issued Accounting Pronouncements
InAugust2018,theFASBissuedASU2018-15,Customer’sAccountingforImplementationCostsIncurredinaCloudComputingArrangementThatIsaServiceContract,whichalignstherequirementsforcapitalizingimplementationcostsincurredinahostingarrangementthatisaservicecontractwiththerequirementsforcapitalizingcostsincurredtodeveloporobtaininternal-usesoftware.ThisguidancewillbeeffectiveforusforannualreportingperiodsbeginningafterDecember15,2019andforinterimperiodswithinthoseannualperiods,andcanbeappliedeitherretrospectivelyorprospectivelytoallimplementationcostsafterthedateofadoption.Earlyadoptionispermitted.Weareevaluatingthepotentialimpactofthisguidanceonourconsolidatedfinancialstatements.
InFebruary2016,theFASBissuedASU2016-02,Leases,orASU2016-02,creatingTopic842,whichrequireslesseestorecordtheassetsandliabilitiesarisingfromallleasesinthestatementoffinancialposition.UnderASU2016-02,lesseeswillrecognizealiabilityforleasepaymentsandaright-of-useasset.Whenmeasuringassetsandliabilities,alesseeshouldincludeamountsrelatedtooptionterms,suchastheoptionofextendingorterminatingtheleaseorpurchasingtheunderlyingasset,thatarereasonablycertaintobeexercised.Forleaseswithatermof12monthsorless,lesseesarepermittedtomakeanaccountingpolicyelectiontonotrecognizeleaseassetsandliabilities.Thisguidanceretainsthedistinctionbetweenfinanceleasesandoperatingleasesandtheclassificationcriteriaremainssimilar.Forfinancingleases,alesseewillrecognizetheinterestonaleaseliabilityseparatefromamortizationoftheright-of-useasset.Inaddition,repaymentsofprincipalwillbepresentedwithinfinancingactivities,andinterestpaymentswillbepresentedwithinoperatingactivitiesinthestatementofcashflows.Foroperatingleases,alesseewillrecognizeasingleleasecostonastraight-linebasisandclassifyallcashpaymentswithinoperatingactivitiesinthestatementofcashflows.ThisguidancewillbeeffectiveforusforannualreportingperiodsbeginningafterDecember15,2018,includinginterimperiodswithinthoseannualperiods,andisrequiredtobeappliedusingamodifiedretrospectiveapproachwithanoptiontorecognizethecumulativeeffectofapplyingthenewstandardasanadjustmenttotheopeningbalanceofaccumulateddeficitonthedateofadoption.Earlyadoptionispermitted.Basedonourevaluation,ourleasesprimarilyconsistofoperatingleasesrelatedtoofficespace.Weareintheprocessofcompletingourevaluationandrefiningthepotentialimpactofthisguidanceonourconsolidatedfinancialstatements.
Weexpectthatthisguidancewillhaveamaterialimpacttoourconsolidatedbalancesheetsasaresultoftherecognitionofright-of-useassetsandleaseliabilitiesforouroperatingleases,butisnotexpectedtohaveamaterialimpacttoourconsolidatedstatementsofoperationsandcomprehensiveincome(loss).
3. Revenue
Weadoptedthenewrevenuerecognitionaccountingstandard,ASC606,effectiveJanuary1,2018onamodifiedretrospectivebasisandappliedthenewstandardonlytocontractsthatwerenotcompletedcontractspriortoJanuary1,2018.SeeNote2,SignificantAccountingPolicies,ofthesenotestoourconsolidatedfinancialstatementsforadescriptionofourASC606revenuerecognitionaccountingpolicy.Financialresultsforreportingperiodsduring2018arepresentedinaccordancewiththenewrevenuerecognitionstandard,includingretroactiverestatementofquarterlyinformationincludedinNote18,SelectedQuarterlyFinancialData(Unaudited).Historicalfinancialresultsforreportingperiodspriorto2018havenotbeenretroactivelyrestatedandarepresentedinconformitywithamountspreviouslyreportedunderASC605.ThisnoteincludesadditionalinformationregardingtheimpactsfromtheadoptionofthenewrevenuerecognitionstandardonourfinancialresultsfortheyearendedDecember31,2018andalsoincludesthepresentationoffinancialresultsfortheyearendedDecember31,2018underASC605forcomparisontotheprioryear.TherewerenochangestotheASC605policyusedinthecomparisondisclosureduringtheyearendedDecember31,2018.
Consolidated Statements of Operations - Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard
ThefollowingtablesummarizestheimpactsfromtheadoptionofthenewrevenuerecognitionstandardonourconsolidatedstatementsofoperationsfortheyearDecember31,2018(inthousands):
Year Ended December 31,2018 2017
As Reported (ASC 606)
Impacts fromAdoption
Without Adoption (ASC 605)
As Reported (ASC 605)
Revenue(1) $ 253,570 $ 49,266 $ 204,304 $ 131,607Costofrevenue 22,800 — 22,800 21,803Grossprofit 230,770 49,266 181,504 109,804Operatingexpenses:
Researchanddevelopment 43,449 — 43,449 29,342Salesandmarketing 109,284 (1,943) 111,227 66,420Generalandadministrative 48,267 — 48,267 32,241
Totaloperatingexpenses 201,000 (1,943) 202,943 128,003Income(loss)fromoperations 29,770 51,209 (21,439) (18,199)Interestexpense (7,378) — (7,378) —Otherincome(expense),net 3,042 160 2,882 (205)Income(loss)beforeprovisionfor(benefitof)incometaxes 25,434 51,369 (25,935) (18,404)Provisionfor(benefitof)incometaxes(1) (2,586) 5,497 (8,083) (905)Netincome(loss) $ 28,020 $ 45,872 $ (17,852) $ (17,499)Less:AccretionofSeriesAredeemableconvertiblepreferredstock $ — $ — $ — $ (1,983)Netincome(loss)attributabletocommonstockholders $ 28,020 $ 45,872 $ (17,852) $ (19,482)Netincome(loss)pershareattributabletocommonstockholders,basic $ 0.46 $ 0.75 $ (0.29) $ (0.37)Netincome(loss)pershareattributabletocommonstockholders,diluted $ 0.43 $ 0.72 $ (0.29) $ (0.37)
(1)Theincreaseinrevenue,andresultingdecreaseinbenefitofincometaxes,isduetothechangeintimingofwhenwerecognizerevenueunderASC606.
Consolidated Balance Sheets - Reconciliation of the Impacts from the Adoption of the New Revenue Recognition StandardThefollowingtablesummarizestheimpactsfromtheadoptionofthenewrevenuerecognitionstandardonourconsolidatedbalancesheetsasofDecember
31,2018(inthousands):
Year Ended December 31,
2018 2017
As Reported
(ASC 606) Impacts from
Adoption
WithoutAdoption (ASC 605)
As Reported (ASC 605)
Assets Currentassets:
Cashandcashequivalents $ 89,974 $ — $ 89,974 $ 119,716Short-terminvestments 239,718 — 239,718 54,386Accountsreceivable,netofallowancefordoubtfulaccountsandsalesreserves 94,922 (163) 95,085 49,797Deferredcommissions(1) 10,353 (11,474) 21,827 11,213Prepaidexpensesandothercurrentassets(2) 26,846 10,991 15,855 7,227
Totalcurrentassets 461,813 (646) 462,459 242,339Propertyandequipment,net 11,729 — 11,729 7,492Long-terminvestments 96,551 — 96,551 19,964Goodwill 9,494 (129) 9,623 8,750Intangibleassets,net(3) 7,491 (1,477) 8,968 7,995Long-termdeferredcommissions(1) 12,038 12,038 — —Otherassets(2) 18,982 16,480 2,502 4,263Deferredincomestaxes,net 69 (764) 833 613Totalassets $ 618,167 $ 25,502 $ 592,665 $ 291,416Liabilities and Stockholders’ Equity
Currentliabilities: Accountspayable $ 5,028 $ — $ 5,028 $ 522Accruedpayrollandpayrollrelatedliabilities 24,659 — 24,659 11,835Accruedexpensesandothercurrentliabilities 10,878 297 10,581 8,270Deferredrevenue(2) 84,015 (95,326) 179,341 110,213
Totalcurrentliabilities 124,580 (95,029) 219,609 130,840Convertibleseniornotes,net 173,647 — 173,647 —Deferredrevenue(2) 2,130 (1,383) 3,513 3,545
Otherliabilities 4,345 214 4,131 3,313Deferredincometax,net(2) 11,647 11,647 — 214Totalliabilities 316,349 (84,551) 400,900 137,912Stockholders’equity: Preferredstock — — — —Commonstock 6 — 6 5Additionalpaid-incapital 315,291 — 315,291 257,399
Accumulateddeficit (12,908) 110,069 (122,977) (103,546)Accumulatedothercomprehensiveloss (571) (16) (555) (354)Totalstockholders’equity 301,818 110,053 191,765 153,504
Totalliabilitiesandstockholders’equity $ 618,167 $ 25,502 $ 592,665 $ 291,416
(1) Thedecreaseindeferredcommissionsandincreaseinlong-termcommissionsisduetothechangeintheperiodoverwhichweamortizeourdeferredsalescommissions.
(2) Theincreaseinprepaidexpensesandothercurrentassetsandotherassets,andthedecreaseindeferredrevenueisduetothechangeintimingofwhenwerecognizerevenueunderASC606.
(3) Thedecreaseinintangibleassets,netandgoodwillisduetothechangeinthevaluationofcertainassetsacquiredintheacquisitionofANZinFebruary2018.SeefurtherdiscussioninNote4,BusinessCombinations.
Disaggregation of RevenueThedisaggregationofrevenuebyregion,typeofperformanceobligation,andtimingofrevenuerecognitionwasasfollows(inthousands):
Year Ended December 31,
Revenue by type region: 2018 2017 2016
UnitedStates $ 178,774 $ 101,932 $ 69,420International 74,796 29,675 16,370
Total $ 253,570 $ 131,607 $ 85,790
Revenue by type of performance obligation: Subscription-basedsoftwarelicense $ 124,669 * *PCSandservices 128,901 * *
Total $ 253,570 $ 131,607 $ 85,790
Costs by type of performance obligation: Subscription-basedsoftwarelicense $ 1,505 * *PCSandservices 21,295 * *
Total $ 22,800 $ 21,803 $ 16,026
*WeadoptedASC606underthemodifiedretrospectivemethod,andthereforewedidnotretrospectivelyapplytheguidancetotheyearsendedDecember31,2017andDecember31,2016.Asaresult,thisinformationisnotavailableforpriorperiods.
RevenueattributabletotheUnitedKingdomcomprised10.2%oftotalrevenuefortheyearendedDecember31,2018.OtherthantheUnitedKingdomintheyearendedDecember31,2018,noothercountryoutsidetheUnitedStatescomprisedmorethan10%ofrevenueforanyoftheperiodspresented.OuroperationsoutsidetheUnitedStatesincludesalesofficesinAustralia,Canada,theCzechRepublic,France,Germany,Japan,Singapore,theUnitedArabEmiratesandtheUnitedKingdom,andaresearchanddevelopmentcenterinUkraineandtheCzechRepublic.Revenuebylocationisdeterminedbythebillingaddressofthecustomer.
Revenuerecognizedonoursubscription-basedsoftwarelicensesisrecognizedatapointintimewhentheplatformisfirstmadeavailabletothecustomer,orthebeginningofthesubscriptionterm,iflater.Revenuerecognizedrelatedtopost-contractsupport,service,andhostedservicesisrecognizedratablyoverthesubscriptionterm,withtheexceptionofprofessionalservicesrelatedtotrainingservices.Revenuerelatedtoprofessionalservicesisrecognizedatapointintimeastheservicesareperformed,andrepresentslessthan5%oftotalrevenueforallperiodspresented.
Contract Assets and Contract LiabilitiesTimingmaydifferbetweenthesatisfactionofperformanceobligationsandtheinvoicingandcollectionofamountsrelatedtoourcontractswithcustomers.
Contractassetsprimarilyrelatetounbilledamountsforcontractswithcustomersforwhichtheamountofrevenuerecognizedexceedstheamountbilledtothecustomer,.Contractassetsaretransferredtoaccountsreceivablewhentherighttoinvoicebecomesunconditional.Contractliabilities,ordeferredrevenue,arerecordedforamountsthatarecollectedinadvanceofthesatisfactionofperformanceobligations.Theseliabilitiesareclassifiedascurrentandnon-currentdeferredrevenue.
AsofDecember31,2018,ourcontractassetsareexpectedtobetransferredtoreceivableswithinthenext12to24monthsand,withrespecttothesecontractassets,$11.2millionisincludedinprepaidexpensesandothercurrentassetsand$16.5millionisincludedinotherassetsonourconsolidatedbalancesheet.TherewerenoimpairmentsofcontractassetsduringtheyearendedDecember31,2018.
DuringtheyearendedDecember31,2018werecognized$56.3millionofrevenuerelatedtoamountsthatwereincludedindeferredrevenueasofJanuary1,2018.
Assets Recognized from the Costs to Obtain our Contracts with CustomersWerecognizeanassetfortheincrementalcostsofobtainingacontractwithacustomerifweexpectthebenefitofthosecoststobelongerthanoneyear.We
amortizethesedeferredcostsproportionatewithrelatedrevenuesoverthebenefitperiod.AsummaryoftheactivityimpactingourdeferredcontractcostsduringtheyearendedDecember31,2018ispresentedbelow(inthousands):
BalancesatDecember31,2017 $ 11,213AdoptionofASC606 (1,154)Additionalcontractcostsdeferred 30,828Amortizationofdeferredcontractcosts (18,496)
BalancesatDecember31,2018 $ 22,391
AsofDecember31,2018,$10.4millionofourdeferredcontractcostsareexpectedtobeamortizedwithinthenext12monthsandthereforeareincludedinothercurrentassets.Theremainingamountofourdeferredcontractcostsareincludedinotherlong-termassets.TherewerenoimpairmentsofassetsrelatedtodeferredcontractcostsduringtheyearendedDecember31,2018.TherewerenoassetsrecognizedrelatedtothecoststofulfillcontractsduringtheyearendedDecember31,2018asthesecostswerenotmaterial.
Remaining Performance ObligationsAsofDecember31,2018,wehadanaggregatetransactionpriceof$223.1million,allocatedtounsatisfiedperformanceobligationsrelatedprimarilytoPCS,
cloud-basedofferings,andsubscriptionstothird-partysyndicateddata.Weexpecttorecognize$196.4millionasrevenueoverthenext24monthswiththeremainingamountrecognizedthereafter.
4. Business Combinations
Acquisition of Alteryx ANZ Pty Limited
InFebruary2018,weacquired100%oftheoutstandingequityofAlteryxANZPtyLimited,orANZ,inSydney,Australia,ourexclusivemasterdistributorinAustraliaandNewZealand.Thetotalpurchaseconsiderationfortheacquisitionwasapproximately$5.7millionconsistingof(i)$3.3millionincashconsideration,(ii)$1.2millionincontingentconsiderationpayableincash,and(iii)$1.2millionforthesettlementofpreexistingrelationships.
Theconsolidatedfinancialstatementsincludetheresultsofoperationsoftheacquiredcompanycommencingasoftheacquisitiondate.Theallocationofthetotalpurchasepriceforthisacquisitionwas$3.2millionofnettangibleassets,$1.6millionofidentifiableintangibleassets,consistingofcustomercontractsandrelationships,and$0.9millionofresidualgoodwill,whichwasnottaxdeductible.
Wedeterminedthefairvalueofthecustomercontractsandrelationshipsacquiredintheacquisitionusingthemultipleperiodexcessearningsmodel.Thismodelutilizescertainunobservableinputs,includingdiscountedcashflows,historicalandprojectedfinancialinformation,andcustomerattritionrates,classifiedasLevel3measurementsasdefinedbyASC820.Basedonthevaluationmodels,wedeterminedthefairvalueofthecustomercontractsandrelationshipstobe$1.6millionwithaweighted-averageamortizationperiodofsevenyears.
Aportionoftheconsiderationfortheacquisitionissubjecttoearn-outprovisions.Additionalcontingentearn-outconsiderationofupto$1.5millionmaybepaidouttotheformershareholderofANZovertwoyearsupontheachievementofspecifiedmilestones.Weutilizedaprobabilityweightedscenario-basedmodeltodeterminethefairvalueofthecontingentconsideration.Basedonthisvaluationmodel,wedeterminedthefairvalueofthecontingentconsiderationtobe$1.2millionasoftheacquisitiondate.SeeNote5,FairValueMeasurements,ofthesenotestoourconsolidatedfinancialstatementsforadditionalinformationoncontingentearn-outconsideration.
TheconsolidatedfinancialstatementsincludetheresultsofoperationsofANZcommencingasoftheacquisitiondate.AcquisitionrelatedcostswerenotmaterialandareincludedingeneralandadministrativeexpenseintheconsolidatedstatementsofoperationsfortheyearendedDecember31,2018.RevenueandoperatingresultsofANZfortheyearendedDecember31,2018werenotmaterialtotheconsolidatedfinancialstatements.
Acquisition of Semanta s.r.o. and Yhat Inc.
InJanuary2017,weacquired100%oftheoutstandingequityofSemanta,s.r.o.,orSemanta.Thetotalpurchaseconsiderationwasapproximately$5.6million.TheacquisitionofSemantaincludedcashconsiderationheldbackforcustomaryindemnificationmattersforaperiodof24-monthsfollowingtheacquisitiondate.
AportionoftheconsiderationfortheSemantaacquisitionissubjecttoearn-outprovisions.Additionalcontingentearn-outconsiderationofupto$2.3millioninsharesofourClassAcommonstockmaybepaidouttotheformershareholdersofSemantaovertwoyearsupontheachievementofspecifiedmilestones.Thenumberofsharesthatwillbeissuedwillbedeterminedbasedonthetotaldollarvalueofconsiderationearnedupontheachievementofaparticularmilestonedividedbytheprior20-dayaveragetradingvalueofourClassAcommonstockcalculatedatthetimeoftheissuance.Weutilizedaprobabilityweightedscenario-basedmodeltodeterminethefairvalueofthecontingentconsideration.Basedonthisvaluationmodelwedeterminedthefairvalueofthecontingentconsiderationtobe$1.2millionasoftheacquisitiondate.
InMay2017,weacquired100%oftheoutstandingequityofYhatInc.,orYhat.Thetotalpurchaseconsiderationwasapproximately$10.8million.AportionofthecashconsiderationintheYhatacquisitioniscurrentlyheldinescrowpursuanttothetermsoftheacquisitionagreementandisreflectedingoodwill.
Thetotalpurchaseconsiderationfortheseacquisitionswasapproximately$16.4millionandconsistedof$9.2millionincompletedtechnology,$8.7millionofgoodwilland$1.5millionofnetliabilitiesassumed.WedeterminedthefairvalueofthecompletedtechnologyacquiredintheacquisitionsofYhatandSemantaduringtheyearendedDecember31,2017usingthemultipleperiodexcessearningsandthereplacementcostmodels.ThesemodelsutilizecertainunobservableinputsclassifiedasLevel3measurementsasdefinedbyASC820.Keyinputsutilizedinthemodelsincludediscountratesrangingfrom35%to45%,amarketparticipanttaxrateof40%,anestimatedleveloffuturecashflowsbasedoncurrentproductandmarketdata,andestimatedcoststorecreatethetechnology.Basedonthevaluationmodels,wedeterminedthefairvalueofthecompletedtechnologytobe$9.2millionwithaweighted-averageamortizationperiodof5.7years.
Theconsolidatedfinancialstatementsincludetheresultsofoperationsoftheacquiredcompaniescommencingasoftheirrespectiveacquisitiondates.AcquisitionrelatedcostswerenotmaterialandareincludedingeneralandadministrativeexpenseintheconsolidatedstatementsofoperationsfortheyearendedDecember31,2017.RevenueandoperatingresultsoftheacquiredcompaniesfortheyearendedDecember31,2017werenotmaterialtotheconsolidatedfinancialstatements.
Goodwillrepresentstheexcessofthepurchaseconsiderationoverthefairvalueoftheunderlyingintangibleassetsandnetliabilitiesassumed.WebelievetheamountofgoodwillresultingfromtheacquisitionsduringtheyearsendedDecember31,2018and2017,areprimarilyattributabletoexpectedsynergiesfromanassembledworkforce,increaseddevelopmentcapabilities,increasedofferingstocustomers,andenhancedopportunitiesforgrowthandinnovation.Thegoodwillresultingfromtheacquisitionsisnottaxdeductible.
ProformainformationandrevenueandoperatingresultsofthecompaniesacquiredduringtheyearsendedDecember31,2018and2017havenotbeenpresentedfortheseacquisitionsastheimpactisnotsignificanttoourconsolidatedfinancialstatements.
5. Fair Value Measurements
InstrumentsMeasuredatFairValueonaRecurringBasis.Thefollowingtablespresentourcashandcashequivalentsandinvestments’costs,grossunrealizedgains(losses),andfairvaluebymajorsecuritytyperecordedascashandcashequivalentsorshort-termorlong-terminvestmentsasofDecember31,2018andDecember31,2017(inthousands):
As of December 31, 2018
Cost
Gross Unrealized
Losses Fair Value
Cash and Cash
EquivalentsShort-term Investments
Long-term Investments
Cash $ 78,194 $ — $ 78,194 $ 78,194 $ — $ —Level1:
Moneymarketfunds 11,780 — 11,780 11,780 — —Subtotal 11,780 — 11,780 11,780 — —
Level2:Commercialpaper 1,313 — 1,313 — 1,313 —Certificatesofdeposit 6,101 — 6,101 — 5,351 750U.S.Treasuryandagencybonds 220,135 (139) 219,996 — 158,204 61,792Corporatebonds 108,968 (110) 108,858 — 74,850 34,008
Subtotal 336,517 (249) 336,268 — 239,718 96,550Level3 — — — — — —
Total $ 426,491 $ (249) $ 426,242 $ 89,974 $ 239,718 $ 96,550
As of December 31, 2017
Cost
Gross Unrealized
Losses Fair Value
Cash and Cash
EquivalentsShort-term Investments
Long-term Investments
Cash $ 100,651 $ — $ 100,651 $ 100,651 $ — $ —Level1:
Moneymarketfunds 19,065 — 19,065 19,065 — —Subtotal 19,065 — 19,065 19,065 — —
Level2:U.S.Treasuryandagencybonds 44,968 (176) 44,792 — 25,923 18,869Corporatebonds 29,608 (50) 29,558 — 28,463 1,095
Subtotal 74,576 (226) 74,350 — 54,386 19,964Level3 — — — — — —
Total $ 194,292 $ (226) $ 194,066 $ 119,716 $ 54,386 $ 19,964
TherewerenotransfersbetweenLevel1,Level2,orLevel3securitiesduringtheyearendedDecember31,2018.Wereviewourmarketablesecuritiesonaregularbasistoevaluatewhetherornotanysecurityhasexperiencedanother-than-temporarydeclineinfairvalue.Weconsiderfactorssuchasthelengthoftimeandextenttowhichthemarketvaluehasbeenlessthanthecost,thefinancialconditionandnear-termprospectsoftheissuerandourintenttosell,andwhetheritismorelikelythannotwewillberequiredtoselltheinvestmentbeforerecoveryoftheinvestment’samortizedcostbasis.Wehavedeterminedthegrossunrealizedlossesof$0.2millionasofDecember31,2018wereduetochangesinmarketrates,andwehavedeterminedthelossesaretemporaryinnature.
Allthelong-terminvestmentshadmaturitiesofbetweenoneandtwoyearsindurationasofDecember31,2018.Cashandcashequivalents,restrictedcash,andinvestmentsasofDecember31,2018andDecember31,2017helddomesticallywereapproximately$417.9millionand$181.3million,respectively.
ContingentConsideration.Contingentconsiderationinconnectionwithacquisitionsismeasuredatfairvalueeachreportingperiodbasedonsignificantunobservableinputs,classifiedasLevel3measurement.SeeNote4,BusinessCombinations,ofthesenotestoourconsolidatedfinancialstatementsforadditionalinformationonthevaluationofthecontingentconsiderationasoftheacquisitiondate.Thecontingentearn-outconsiderationhasbeenrecordedinaccruedliabilitiesandotherliabilitiesinouraccompanyingconsolidatedbalancesheetwithanychangesinfairvalueeachreportingperiodrecordedingeneralandadministrativeexpensesinourconsolidatedstatementsofoperationsandcomprehensiveincome(loss).Changesinfairvaluedependonseveralfactorsincludingestimatesofthetimingandabilitytoachievethemilestones.
Thefollowingtablepresentsareconciliationofthebeginningandendingbalancesofacquisition-relatedaccruedcontingentconsiderationusingsignificantunobservableinputs(Level3)(inthousands):
Year Ended December 31,
2018 2017Beginningbalance $ 975 $ —
Obligationsassumed 1,200 1,160Changeinfairvalue 624 190Settlement (656) (375)
Endingbalance $ 2,143 $ 975
UpontheachievementofcertainmilestonesinconnectionwithouracquisitionofSemanta,wereleased18,869sharesand12,492sharesofClassAcommonstocktotheformershareholdersofSemantaintheyearsendedDecember31,2018andDecember31,2017,respectively.Inaddition,10,205shareswereearned,butheldbackforcustomaryindemnificationmattersinaccordancewiththeacquisitionagreement,andthevalueofthesharesispresentedwithinadditionalpaid-incapitalintheconsolidatedbalancesheetasofDecember31,2018.Subjecttoanyindemnificationclaimsthatmayariseduringtheindemnificationperiod,theseshareswillbeissuedtotheformershareholdersuponthecompletionoftheindemnificationperiod.
InstrumentsNotRecordedatFairValueonaRecurringBasis.Weestimatethefairvalueofourconvertibleseniornotescarriedatfacevaluelessunamortizeddiscountandissuancecostsquarterlyfordisclosurepurposes.TheestimatedfairvalueofourconvertibleseniornotesisdeterminedbyLevel2inputsandisbasedonobservablemarketdataincludingpricesforsimilarinstruments.AsofDecember31,2018,thefairvalueofourconvertibleseniornoteswas$343.2million.Thecarryingamountsofourfinancialinstruments,includingcash,accountsreceivable,prepaidexpensesandothercurrentassets,accountspayable,andaccruedliabilitiesapproximatetheircurrentfairvaluebecauseoftheirnatureandrelativelyshortmaturitydatesordurations.
AssetsandLiabilitiesRecordedatFairValueonaNon-RecurringBasis.Thefairvalueofassetsacquiredandliabilitiesassumedinabusinessacquisition,andgoodwillandotherlonglivedassetswhentheyareheldforsaleordeterminedtobeimpaired.SeeNote4,BusinessCombinations,andNote5,FairValueMeasurements,ofthesenotestoourconsolidatedfinancialstatementsforfairvaluemeasurementsofcertainassetsandliabilitiesrecordedatfairvalueonanon-recurringbasis.
6. Allowance for Doubtful Accounts
Thefollowingtablesummarizesthechangesintheallowancefordoubtfulaccountsincludedinaccountsreceivableinourconsolidatedbalancesheets(inthousands):
Year Ended December 31,2018 2017 2016
Beginningbalance $ 1,455 $ 670 $ 280Charge-offs (884) (337) (97)Recoveries (693) (783) (283)Provision 1,961 1,905 770
Endingbalance $ 1,839 $ 1,455 $ 670
7. Property and Equipment
Propertyandequipment,netconsistedofthefollowing(inthousands):
Year Ended December 31,2018 2017
Computerequipment&software $ 8,909 $ 5,852Furnitureandfixtures 3,685 1,812Leaseholdimprovements 5,398 2,229Constructioninprocess 834 1,493
$ 18,826 $ 11,386Less:Accumulateddepreciationandamortization (7,097) (3,894)
Totalpropertyandequipment,net $ 11,729 $ 7,492
DepreciationandamortizationexpensefortheyearsendedDecember31,2018,2017,and2016wasapproximately$3.2million,$2.3million,and$1.7million,respectively.
8. Goodwill and Intangible Assets
ThechangeincarryingamountofgoodwillfortheyearendedDecember31,2018wasasfollows(inthousands):
GoodwillatDecember31,2016 $ —Goodwillrecordedinconnectionwithacquisition 8,724Effectsofforeigncurrencytranslation 26GoodwillasofDecember31,2017 $ 8,750Goodwillrecordedinconnectionwithacquisition 854Effectsofforeigncurrencytranslation (110)GoodwillasofDecember31,2018 $ 9,494
Intangibleassetsconsistedofthefollowing(inthousands,exceptyears):
As of December 31, 2018Weighted Average
Useful Life in Years
Gross Carrying Value
Accumulated Amortization
Net Carrying Value
CustomerRelationships 6.9 $ 1,554 $ (221) $ 1,333CompletedTechnology 5.7 9,180 (3,022) 6,158
$ 10,734 $ (3,243) $ 7,491
As of December 31, 2017
Weighted Average Useful
Life in Years Gross Carrying
Value Accumulated Amortization
Net Carrying Value
CustomerRelationships 2.0 $ 40 $ (12) $ 28CompletedTechnology 5.7 9,180 (1,213) 7,967
$ 9,220 $ (1,225) $ 7,995
Weclassifiedintangibleassetamortizationexpenseintheaccompanyingconsolidatedstatementsofoperationsandcomprehensiveincome(loss)asfollows(inthousands):
Year Ended December 31,
2018 2017 2016Costofrevenue $ 1,809 $ 1,213 $ —Salesandmarketing 220 12 —
Total $ 2,029 $ 1,225 $ —
Thefollowingtablepresentsourestimatesofremainingamortizationexpenseforeachofthefivesucceedingfiscalyearsandthereafterforfinite-livedintangibleassetsatDecember31,2018(inthousands):
2019 $ 2,0332020 1,7192021 1,5092022 9632023 603Thereafter 664Totalamortizationexpense $ 7,491
9. Convertible Senior Notes
InMayandJune2018,wesold$230.0millionaggregateprincipalamountofour0.50%ConvertibleSeniorNotesdue2023,ortheconvertibleseniornotes,includingtheinitialpurchasers’exerciseinfulloftheiroptiontopurchaseanadditional$30.0millionoftheconvertibleseniornotes,inaprivateofferingtoqualifiedinstitutionalbuyerspursuanttoRule144ApromulgatedundertheSecuritiesActof1933,asamended,ortheAct.Theconvertibleseniornoteswereissuedinaccordancewithanindenture,ortheIndenture,betweenusandU.S.BankNationalAssociation,astrustee.Thenetproceedsfromtheissuanceoftheconvertibleseniornoteswere$224.2millionafterdeductingissuancecosts.
Theconvertibleseniornotesareoursenior,unsecuredobligations,andinterestof0.50%peryearispayablesemi-annuallyinarrearsonJune1andDecember1ofeachyearbeginningDecember1,2018.TheconvertibleseniornoteswillmatureonJune1,2023,unlessrepurchasedorconvertedinaccordancewiththeirtermspriortosuchdate.PriortothecloseofbusinessonthebusinessdayimmediatelyprecedingMarch1,2023,theconvertibleseniornotesareconvertibleattheoptionofholdersonlyuponsatisfactionofcertainconditionsandduringcertainperiods,andthereafter,atanytimeuntilthecloseofbusinessonthesecondscheduledtradingdayimmediatelyprecedingthematuritydate.Theconvertibleseniornoteshaveaninitialconversionrateof22.5572sharesofourClassAcommonstockper$1,000principalamountofconvertibleseniornotes,whichisequivalenttoaninitialconversionpriceofapproximately$44.33pershareofClassAcommonstock.TheconversionrateissubjecttocustomaryadjustmentsforcertaineventsasdescribedintheIndenture.Uponconversion,theconvertibleseniornotesmaybesettledinsharesofourClassAcommonstock,cashoracombinationofcashandsharesofourClassAcommonstock,atourelection.Itisourcurrentintenttosettletheprincipalamountoftheconvertibleseniornoteswithcash.AsofDecember31,2018,theif-convertedvalueoftheconvertibleseniornotesexceededitsprincipalamountby$78.5million.
PriortothecloseofbusinessonthebusinessdayimmediatelyprecedingMarch1,2023,theconvertibleseniornotesareconvertibleattheoptionoftheholdersunderthefollowingcircumstances:
• duringanycalendarquartercommencingafterthecalendarquarterendingonJune30,2018(andonlyduringsuchcalendarquarter),ifthelastreportedsalepriceoftheClassAcommonstockforatleast20tradingdays(whetherornotconsecutive)duringaperiodof30consecutivetradingdaysendingonthelasttradingdayoftheimmediatelyprecedingcalendarquarterisgreaterthanorequalto130%oftheconversionpriceoftheconvertibleseniornotesoneachapplicabletradingday;
• duringthe5businessdayperiodafterany5consecutivetradingdayperiodinwhichthetradingpriceper$1,000principalamountofconvertibleseniornotesforeachdayofthat10dayconsecutivetradingdayperiodwaslessthan98%oftheproductofthelastreportedsalepriceofourClassAcommonstockandtheconversionrateoftheconvertibleseniornotesonsuchtradingday;or
• upontheoccurrenceofspecifiedcorporateeventsdescribedintheIndenture.
Wemaynotredeemtheconvertibleseniornotespriortothematuritydate.Holdersoftheconvertibleseniornoteshavetherighttorequireustorepurchaseforcashalloraportionoftheirconvertibleseniornotesat100%oftheirprincipalamount,plusanyaccruedandunpaidinterest,upontheoccurrenceofafundamentalchangeasdefinedintheIndenture.Wearealsorequiredtoincreasetheconversionrateforholderswhoconverttheirconvertibleseniornotesinconnectionwithcertaincorporateeventsoccurringpriortothematuritydate.
Theconvertibleseniornoteswillbeourseniorunsecuredobligationsandwillrankseniorinrightofpaymenttoanyofourindebtednessthatisexpresslysubordinatedinrightofpaymenttotheconvertibleseniornotesandequalinrightofpaymenttoallofourexistingandfutureliabilitiesthatarenotsubordinated.Theconvertibleseniornotesareeffectivelyjuniortoanyofoursecuredindebtednesstotheextentofthevalueoftheassetssecuringsuchindebtednessandstructurallyjuniortoallindebtednessandotherliabilities(includingtradepayables)ofourcurrentorfuturesubsidiaries.
Inaccountingfortheissuanceoftheconvertibleseniornotes,weseparatedtheconvertibleseniornotesintoliabilityandequitycomponents.Thecarryingamountoftheliabilitycomponentwascalculatedbyestimatingthefairvalueofsimilarliabilitiesthatdonothaveassociatedconvertiblefeatures.Thecarryingamountoftheequitycomponent,representingtheconversionoption,wasdeterminedbydeductingthefairvalueoftheliabilitycomponentfromtheprincipalamountoftheconvertibleseniornotes.Thedifferencebetweentheprincipalamountoftheconvertibleseniornotesandtheliabilitycomponentisamortizedtointerestexpenseoverthetermoftheconvertibleseniornotesusingtheeffectiveinterestmethod.Theequitycomponent,netofissuancecostsanddeferredtaxeffects,ispresentedwithinadditionalpaid-in-capitalinourconsolidatedbalancesheet,andwillnotberemeasuredaslongasitcontinuestomeettherequirementsforequityclassification.
Theconvertibleseniornotesconsistedofthefollowing(inthousands):
As of December 31, 2018
Liability: Principal $ 230,000Less:debtdiscount,netofamortization (56,353)
Netcarryingamount $ 173,647
Equity,netofissuancecosts $ 57,251
Thefollowingtablesetsforthinterestexpenserecognizedrelatedtotheconvertibleseniornotes(inthousands,excepteffectiveinterestrate):
Year Ended December 31, 2018
Contractualinterestexpense $ 712Amortizationofdebtissuancecostsanddiscount 6,652
Total $ 7,364
Effectiveinterestrateoftheliabilitycomponent 7.00%
Capped Call
Inconnectionwiththepricingoftheconvertibleseniornotes,weenteredintoprivatelynegotiatedcappedcalltransactionswithanaffiliateofoneoftheinitialpurchasersoftheconvertibleseniornotesandotherfinancialinstitutions.Thecappedcalltransactionsareexpectedgenerallytoreduceoroffsetpotentialdilutiontoholdersofourcommonstockand/oroffsetthepotentialcashpaymentsthatwecouldberequiredtomakeinexcessoftheprincipalamountuponanyconversionoftheconvertibleseniornotesundercertaincircumstances,withsuchreductionand/oroffsetsubjecttoacapbasedonthecapprice.Underthecappedcalltransactions,wepurchasedcappedcalloptionsthatintheaggregaterelatetothetotalnumberofsharesofourClassAcommonstockunderlyingtheconvertibleseniornotes,withaninitialstrikepriceofapproximately$44.33pershare,whichcorrespondstotheinitialconversionpriceoftheconvertibleseniornotesandissubjecttoanti-dilutionadjustmentssubstantiallysimilartothoseapplicabletotheconversionrateoftheconvertibleseniornotes,andhaveacappriceof$62.22pershare.Thecostofthepurchasedcappedcallsof$19.1millionwasrecordedasareductiontoadditionalpaid-in-capitalinourconsolidatedbalancesheet.
WeelectedtointegratethecappedcalloptionswiththeconvertibleseniornotesforfederalincometaxpurposespursuanttoapplicableU.S.TreasuryRegulations.Accordingly,the$19.1milliongrosscostofthepurchasedcallswillbedeductiblefor
incometaxpurposesasoriginaldiscountinterestoverthetermoftheconvertibleseniornotes.Werecordedadeferredtaxassetof$4.6million,whichrepresentsthetaxbenefitofthesedeductionswithanoffsettingentrytoadditionalpaid-incapital.
10. Accrued Expenses and Other Current Liabilities
Accruedcommissionsofapproximately$8.6millionand$4.9millionasofDecember31,2018and2017,respectively,wereincludedinaccruedpayrollandpayroll-relatedliabilitiesinourconsolidatedbalancesheets.
11. Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Redeemable Convertible Preferred Stock
UpontheclosingofourinitialpublicofferinginMarch2017,allsharesofourthen-outstandingconvertiblepreferredstockautomaticallyconvertedonaone-for-onebasisintosharesofClassBcommonstock.
Reverse Stock Split
InFebruary2017,weeffecteda2-to-1reversestocksplitofouroutstandingcommonandpreferredstockandacorrespondingreductioninthenumberofauthorizedsharesofpreferredstock.Allshareandpershareamountsforallperiodspresentedintheseconsolidatedfinancialstatementsandnoteshavebeenadjustedretrospectivelytoreflectthisreversestocksplit.
Dual Class Common Stock Structure
InFebruary2017,weimplementedadualclasscommonstockstructureinwhicheachthenexistingshareofcommonstockconvertedintoashareofClassBcommonstockandwealsoauthorizedanewclassofcommonstock,theClassAcommonstock.TheClassAcommonstockisentitledtoonevotepershareandtheClassBcommonstockisentitledtotenvotespershare.TheClassAcommonstockandClassBcommonstockhavethesamedividendandliquidationrights,andtheClassBcommonstockconvertstoClassAcommonstockatanytimeattheoptionoftheholder,orautomaticallyuponthedatethatistheearliestof(i)thedatespecifiedbyavoteoftheholdersofatleast662/3%oftheoutstandingsharesofClassBcommonstock,(ii)March29,2027,and(iii)thedatethatthetotalnumberofsharesofClassBcommonstockoutstandingceasetorepresentatleast10%oftheaggregatenumberofsharesofClassAcommonstockandClassBcommonstockthenoutstanding.Inaddition,eachshareofClassBcommonstockwillconvertautomaticallyintooneshareofClassAcommonstockuponanytransfer,exceptforcertainpermittedtransfersdescribedinourrestatedcertificateofincorporation,ortheRestatedCertificate.UponthecreationofthedualclasscommonstockstructurealloutstandingoptionstopurchasecommonstockbecameoptionstopurchaseanequivalentnumberofsharesofClassBcommonstock,andallRSUs,becameRSUsforanequivalentnumberofsharesofClassBcommonstock.
UpontheeffectivenessoftheRestatedCertificateinMarch2017,thenumberofsharesofcapitalstockthatwereauthorizedtobeissuedconsistedof500,000,000sharesofClassAcommonstock,$0.0001parvaluepershare,500,000,000sharesofClassBcommonstock,$0.0001parvaluepershare,and10,000,000sharesofundesignatedpreferredstock,$0.0001parvaluepershare.
Preferred Stock
Ourboardofdirectorsisauthorized,subjecttolimitationsprescribedbyDelawarelaw,toissuepreferredstockinoneormoreseries,toestablishfromtimetotimethenumberofsharestobeincludedineachseries,andtofixthedesignation,powers,preferences,andrightsofthesharesofeachseriesandanyofitsqualifications,limitations,orrestrictions,ineachcasewithoutfurthervoteoractionbyourstockholders.AsofDecember31,2018,nosharesofpreferredstockwereoutstanding.
12. Equity Awards
Amended and Restated 2013 Stock Plan
WegrantedoptionsandRSUsunderourAmendedandRestated2013StockPlan,or2013Plan,untilMarch22,2017,whentheplanwasterminatedinconnectionwithourIPO.Accordingly,nosharesareavailableforfutureissuanceunderthe2013PlanfollowingtheIPO.The2013Plancontinuestogovernoutstandingequityawardsgrantedthereunder.
2017 Equity Incentive Plan
InFebruary2017,ourboardofdirectorsadopted,andourstockholdersapproved,the2017EquityIncentivePlan,or2017Plan.The2017PlanbecameeffectiveonMarch22,2017andisthesuccessorplantothe2013Plan.Underthe2017Plan,weinitiallyreserved(i)5.1millionsharesofClassAcommonstockforfutureissuanceand(ii)0.5millionsharesofClassAcommonstockequaltothenumberofClassBsharesreservedbutnotissuedunderthe2013Planasoftheeffectivedateofthe2017Plan.ThenumberofsharesofClassAcommonstockreservedforissuanceunderour2017PlanwillincreaseautomaticallyonthefirstdayofJanuaryofeachof2018through2027bythelesserof(a)5%ofthetotaloutstandingsharesofourClassAandClassBcommonstockasoftheimmediatelyprecedingDecember31and(b)thenumberofsharesdeterminedbyourboardofdirectors.Thesharereservemayalsoincreasetotheextentthatoutstandingawardsunderour2013Planexpireorterminate.AsofDecember31,2018,anaggregateof6.9millionsharesofClassAcommonstockwerereservedforissuanceunderthe2017Plan.
2017 Employee Stock Purchase Plan
InFebruary2017,ourboardofdirectorsadopted,andourstockholdersapproved,the2017EmployeeStockPurchasePlan,or2017ESPP.The2017ESPPbecameeffectiveonMarch23,2017.Underthe2017ESPP,wereserved1.1millionsharesofClassAcommonstockforfutureissuance.ThenumberofsharesofClassAcommonstockreservedforissuanceunderour2017ESPPwillincreaseautomaticallyonthefirstdayofJanuaryofeachof2018through2027bythelesserof(a)1%ofthetotaloutstandingsharesofourClassAandClassBcommonstockasoftheimmediatelyprecedingDecember31and(b)thenumberofsharesdeterminedbyourboardofdirectors.Theaggregatenumberofsharesissuedoverthetermofthe2017ESPPmaynotexceed11,000,000sharesofClassAcommonstock.
Underthe2017ESPP,eligibleemployeesareallowedtopurchasesharesofourClassAcommonstockatadiscountthroughpayrolldeductionsofupto15%oftheireligiblecompensation,subjecttoplanlimitations.Exceptforthefirstofferingperiod,whichbeganonthedateourRegistrationStatementonFormS-1coveringtheinitialpublicofferingofoursharesofClassAcommonstockwasdeclaredeffectivebytheSEC,purchaseperiodsareapproximatelysixmonthsindurationstartingonthefirsttradingdateonorafterFebruary15thandAugust15thofeachyear.ParticipantsareabletopurchasesharesofourClassAcommonstockat85%ofthelowerofitsfairmarketvalueon(i)thefirstdayofthepurchaseperiodoron(ii)thepurchasedate,whichisthelastdayofthepurchaseperiod.
In2018,employeespurchased0.1millionsharesofClassAcommonstockatapricepershareof$21.44.AsofDecember31,2018,1.5millionsharesofClassAcommonstockwereavailableforfutureissuanceunderthe2017ESPP.
Stock Options
Stockoptionsgenerallyvestoverfouryearsandexpiretenyearsfromthedateofgrant.Vestedstockoptionsgenerallyexpirethreemonthsafterterminationofemployment.Weallowforearlyexerciseofcertainstockoptiongrants.
Stockoptionactivity,excludingactivityrelatedtotheESPP,duringtheyearendedDecember31,2018consistedofthefollowing(inthousands,exceptweighted-averageinformation):
Options Outstanding
Weighted- Average Exercise
PriceAggregate Intrinsic
Value
Weighted-AverageRemaining Contractual
Term (Years)OptionsoutstandingatDecember31,2017 5,196 $ 8.70 $ 86,108 7.8
Granted 672 28.26Exercised (1,632) 6.85 $ 56,943Cancelled/forfeited (187) 13.29
OptionsoutstandingatDecember31,2018 4,049 $ 12.48 $ 190,277 7.2Exercisable 2,363 $ 6.96 $ 124,068 6.3Vestedandexpectedtovest 4,049 $ 12.48 $ 190,277 7.2
ThetotalintrinsicvalueofoptionsexercisedintheyearsendedDecember31,2018,2017,and2016was$56.9million,$25.7million,and$4.1million,respectively.Theintrinsicvaluerepresentstheexcessofthefairmarketvalueofourcommonstockonthedateofexerciseovertheexercisepriceofeachoption.
AsofDecember31,2018,therewas$13.2millionofunrecognizedcompensationcostrelatedtounvestedstockoptions,whichisexpectedtoberecognizedoveraweighted-averageperiodof2.5years.
Valuation Assumptions
Thefollowingtablepresentstheweighted-averageassumptionsusedforstockoptionsgrantedforeachoftheyearsindicated:
Stock Options Employee Stock Purchase Plan2018 2017 2016 2018 2017 2016
Expectedterm(inyears) 6.1 6.1 6.0 0.5 0.4 —Estimatedvolatility 41% 42% 41% 52% 29% —Risk-freeinterestrate 2% 2% 2% 2% 1% —Estimateddividendyield — — — — — —Weightedaveragefairvalue $ 12.09 $ 7.53 $ 4.47 $ 12.13 $ 4.02 $ —
Restricted Stock Units
RSUsgrantedunderthe2017Plangenerallyvestoverfouryearsandexpiretenyearsfromdateofgrant.RSUswillbeforfeitedincaseofaterminationofemploymentorservicebeforethesatisfactionofthevestingschedule.RSUactivityduringtheyearendedDecember31,2018consistedofthefollowing(inthousands,exceptweighted-averageinformation):
Awards Outstanding
Weighted- Average
Grant Date Fair Value Aggregate Intrinsic Value
RSUsoutstandingatDecember31,2017 464 $ 16.81Granted 1,037 35.51Vested (202) 16.33 $ 9,778Cancelled/forfeited (84) 30.13
RSUsoutstandingatDecember31,2018 1,215 $ 31.93 $ 72,266
AsofDecember31,2018,totalunrecognizedcompensationexpenserelatedtounvestedRSUswasapproximately$31.0million,whichisexpectedtoberecognizedoveraweighted-averageperiodof3.2years.
Weclassifiedstock-basedcompensationexpenseintheaccompanyingconsolidatedstatementsofoperationsandcomprehensiveincome(loss)asfollows(inthousands):
Year Ended December 31,
2018 2017 2016Costofrevenue $ 797 $ 485 $ 106Researchanddevelopment 3,699 1,635 338Salesandmarketing 6,153 2,302 1,281Generalandadministrative 5,998 4,519 1,559
Total $ 16,647 $ 8,941 $ 3,284
13. Retirement Plan
WeestablishedasavingsplanthatqualifiesasadefinedcontributionplanunderSection401(k)oftheInternalRevenueCodeof1986,asamended,ortheCode,forthebenefitofouremployees.Ourcontributionstothesavingsplanarediscretionaryandvestimmediately.Wecontributedapproximately$2.4million,$1.6millionand$1.1milliontothesavingsplanfortheyearsendedDecember31,2018,2017,and2016,respectively.
14. Commitments and Contingencies
TheCompany’scontractualobligationsandcommitmentsasofJuly31,2018areasfollows
OurcontractualobligationsandcommitmentsasofDecember31,2018wereasfollows(inthousands):
Lease ObligationsPurchase
Obligations
Convertible SeniorNotes and Related
Interest
Year Ended December 31, Total
2019 $ 6,389 $ 11,724 $ 1,150 $ 19,2632020 6,781 8,864 1,150 16,7952021 6,326 6,567 1,150 14,0432022 6,276 6,600 1,150 14,0262023 5,163 — 230,575 235,738Thereafter 9,427 — — 9,427
Totalminimumleasepayments $ 40,362 $ 33,755 $ 235,175 $ 309,292
Leases
Wehavevariousnon-cancelableoperatingleasesforouroffices.Theseleasesexpireatvarioustimesthrough2025.Certainleaseagreementscontainrenewaloptions,rentabatement,andescalationclauses.Werecognizerentexpenseonastraight-linebasisovertheleaseterm,commencingwhenwetakepossessionoftheproperty.Totalrentexpenseunderoperatingleaseswasapproximately$6.4million,$4.1millionand$2.7millionfortheyearsendedDecember31,2018,2017,and2016,respectively.
Indemnification
Intheordinarycourseofbusiness,weenterintoagreementsinwhichwemayagreetoindemnifyotherpartieswithrespecttocertainmatters,includinglossesresultingfromclaimsofintellectualpropertyinfringement,damagestopropertyorpersons,businesslosses,orotherliabilities.Inaddition,wehaveenteredintoindemnificationagreementswithourdirectors,executiveofficers,andcertainotheremployeesthatwillrequireustoindemnifythemagainstliabilitiesthatmayarisebyreasonoftheirstatusorserviceasdirectors,officers,oremployees.Thetermoftheseindemnificationagreementswithourdirectors,executiveofficers,andotheremployees,aregenerallyperpetualafterexecutionoftheagreement.Themaximumpotentialamountoffuturepaymentswecouldberequiredtomakeundertheseindemnificationprovisionsisunlimited;however,wemaintaininsurancethatreducesourexposureandenablesustorecoveraportionofanyfutureamountspaid.AsofDecember31,2018andDecember31,2017,wehavenotaccruedaliabilityfortheseindemnificationprovisionsbecausethelikelihoodofincurringapaymentobligation,ifany,inconnectionwiththesearrangementsisnotprobableorreasonablyestimable.
Litigation
Fromtimetotime,wemaybeinvolvedinlawsuits,claims,investigations,andproceedings,consistingofintellectualproperty,commercial,employment,andothermatters,whichariseintheordinarycourseofbusiness.Otherthanthemattersdescribedbelow,wearenotcurrentlypartytoanymateriallegalproceedingsorclaims,norareweawareofanypendingorthreatenedlitigationorclaimsthatcouldhaveamaterialadverseeffectonourbusiness,operatingresults,cashflows,orfinancialconditionshouldsuchlitigationorclaimberesolvedunfavorably.
Warranty
Wewarranttocustomersthatourplatformwilloperatesubstantiallyinaccordancewithitsspecifications.Historically,nosignificantcostshavebeenincurredrelatedtoproductwarrantiesandnoneareexpectedinthefutureand,assuch,noaccrualsforproductwarrantycostshavebeenmade.
15. Income Taxes
Thecomponentsofincome(loss)beforeprovisionfor(benefitof)incometaxeswereasfollows(inthousands):
Year Ended December 31,2018 2017 2016
Domestic $ 27,849 $ 24,460 $ (24,741)Foreign (2,415) (42,864) 691
Total $ 25,434 $ (18,404) $ (24,050)
Thecomponentsoftheprovisionfor(benefitof)incometaxeswereasfollows(inthousands):
Year Ended December 31, 2018 2017 2016
Current: Federal $ (14) $ 38 $ —State 314 70 6Foreign 587 297 229
Totalcurrentincometaxexpense $ 887 $ 405 $ 235Deferred:
Federal $ (2,321) $ (1,564) $ —State (869) — —Foreign (283) 254 (27)
Totaldeferredincometaxbenefit: $ (3,473) $ (1,310) $ (27)Total $ (2,586) $ (905) $ 208
Thefollowingtablereconcilesourprovisionfor(benefitof)incometaxesatthestatutoryratetothatattheeffectivetaxrate,usingaU.S.federalstatutorytaxrateof21%for2018,and34%for2017and2016(inthousands):
Year Ended December 31,2018 2017 2016
Incometaxatfederalstatutoryrate $ 5,341 $ (6,257) $ (8,177)Increase/(decrease)intaxresultingfrom:
Stateincometaxexpense,netoffederal (438) 1,428 (716)Foreignratedifferential 853 15,375 (88)Stock-basedcompensation (7,916) (1,086) 602Changeinvaluationallowance 510 (20,500) 8,449Taximpactduetotaxlawchange — 2,627 —Changeinuncertaintaxpositionreserves — 7,854 —Currentyearresearchcredits (1,563) (965) —Prioryearsresearchcredits — (1,284) —Other 627 1,903 138
Total $ (2,586) $ (905) $ 208
Thefollowingtableshowsthesignificantcomponentsofdeferredincometaxassets(liabilities)(inthousands):
As of December 31,2018 2017
Deferredrevenue $ 577 $ 764Netoperatinglosses 3,424 5,655Accrualsandreserves 3,039 1,022Statetaxes 440 (212)Deferredcommissions (4,595) (2,467)Stock-basedcompensation 3,361 1,572Fixedassets&intangibles (953) (1,327)Research&othercredits 5,185 2,407Convertibledebt (8,499) —Effectsofnewaccountingstandard (13,113) —Other 695 289Valuationallowance (1,138) (7,304)
Netnon-currentdeferredtaxassets $ (11,577) $ 399
Wehaveevaluatedtheavailablepositiveandnegativeevidencesupportingtherealizationofourgrossdeferredtaxassets,includingourcumulativelosses,andtheamountandtimingoffuturetaxableincome.WiththeadoptionofASC606effectiveJanuary1,2018,weplantofilepropertaxformstochangeourmethodofaccountingforU.S.federalandstateincometaxreportingpurposes.Wewilldeferandrecognizeoverfourtaxyears,thetaxableportionoftheincomewerecognizedandrecordedtotheaccumulateddeficitatJanuary1,2018,fromadoptingASC606.Asaresult,werecordedarelateddeferredtaxliability,representingasourceofsignificantfuturetaxableincomeandconstitutingpersuasivepositiveevidencesupportingrealizationofourgrossdeferredassets.Onthatbasis,wehaveconcludeditismorelikelythannotthatwewillrealizeasubstantialportionofourdeferredtaxassetsatJanuary1,2018.Accordingly,wereleased$6.7millionofour$7.3millionvaluationallowanceatJanuary1,2018.ThereleaseoftheU.S.valuationallowanceresultedinataxbenefitthatisapartofthecumulativeeffectadjustmenttoaccumulateddeficitatJanuary1,2018.OurvaluationallowanceatDecember31,2018pertainstodeferredtaxassetsthatwearenotmorelikelythannottorealize,consistingofforeigntaxcreditsandacapitallosscarryforward.
Thefollowingtableshowsthechangesinourvaluationallowance(inthousands):
Year Ended December 31,2018 2017 2016
Beginningbalance $ 7,304 $ 27,804 $ 19,355DecreaseinvaluationallowanceduetoYhatacquisition — (998) —DecreaseinvaluationallowanceduetoadoptionofASC606 (6,676) — —Increase(decrease)invaluationallowance 510 (19,502) 8,449
Endingbalance $ 1,138 $ 7,304 $ 27,804
AsofDecember31,2018,wehadU.S.federalandstateincometaxnetoperatinglosscarryforwardsofapproximately$32.9millionand$17.6million,respectively.TheU.S.federalandstatenetoperatinglosseswillbegintoexpirein2035and2025,respectively,unlesspreviouslyutilized.
UnderSections382and383oftheCode,annualuseofournetoperatinglosscarryforwardsandtaxcreditsmaybelimitedifacumulativechangeinownershipofmorethan50%occurswithinathree-yearperiod.Wedeterminedthatsuchanownershipchangeoccurredin2015.Thisownershipchangelimitsthefutureannualuseofournetoperatinglosscarryforwardsandtaxcredits,butdidnotpermanentlydisallowanyofthosetaxattributes.
OnDecember22,2017,theTaxCutsandJobsActof2017,ortheTaxActbecamelaw.ThelegislationadoptssignificantchangestotheCodethatinclude,amongotherthings,reductionoftheU.S.federalcorporateincometaxratefrom35%to21%,effectivefortaxyearsbeginningafterDecember31,2018,thetransitionofU.S.internationaltaxationfromaworldwide
taxsystemtoaterritorialsystem,andimpositionofaone-timetransitiontaxoncumulativeforeignearningsatDecember31,2018.UndertheTaxAct,weremeasuredourU.S.deferredtaxassetsandliabilitiesthatwouldreverseafterDecember31,2017,atthereducedU.S.federalcorporateincometaxrateof21%.Asaresult,wereducedournetU.S.deferredtaxassetandourvaluationallowanceby$2.6million,whichresultedinnonetincometaxexpensefortheyearendedDecember31,2017.WehadnocumulativeforeignearningsatDecember31,2017,andasaresult,werenotimpactedbytheone-timetransitiontaxincludedintheTaxAct.AsofDecember31,2017,wecompletedouraccountingfortheincometaxeffectsoftheTaxAct,includingourelectionofanaccountingpolicy,theperiodcostmethod,whichrecognizesthetaxeffectsoffutureinclusionsofglobalintangiblelow-taxedincome,orGILTI,intheperiodwebecomesubjecttoGILTI.TheTaxActhadminimalimpactonourincometaxprovisionandincometaxaccrualsasofandfortheyearendedDecember31,2018.
OtherprovisionsintheTaxActthattookeffectin2018,suchasthoserelevanttouspertainingtoGILTI,coveringforeignincomeearnedinlow-taxcountries,andthedeductionforforeignderivedintangibleincome,orFDII,hadnoimpactonourincometaxprovisionandincometaxaccrualsasofandfortheyearendedDecember31,2018.However,weexpecttheGILTItaxandtheFDIIdeductiontoimpactourincometaxprovisionandaccrualsafter2018.
WehavenotaccruedU.S.stateincometaxesorforeignwithholdingtaxesontheearningsofourforeignsubsidiaries,astheseamountsareintendedtobeindefinitelyreinvestedinoperationsoutsidetheUnitedStates.AsofDecember31,2018,thereareimmaterialcumulativeamountsofundistributedearningsatourforeignsubsidiaries.
WearesubjecttotaxationintheUnitedStatesandvariousstatesandinternationaljurisdictions.OurU.S.federaltaxreturnsareopenforexaminationfortaxyears2015andforward,andourstatetaxreturnsareopenforexaminationfortaxyears2014andforward.Ourtaxreturnsforinternationaljurisdictionsareopenforexaminationfortaxyears2014andforward.However,netoperatinglossandothertaxattributecarryforwardsutilizedinsubsequentyearscontinuetobesubjecttoexaminationbythetaxauthoritiesuntiltheyeartowhichthenetoperatinglossand/orothertaxattributesarecarriedforwardisnolongersubjecttoexamination.Neitherwenoranyofoursubsidiariesarecurrentlyunderexaminationfromtaxauthoritiesinthejurisdictionsinwhichwedobusiness.
AtDecember31,2018,wehadapproximately$6.2millionofunrecognizedtaxbenefitspertainingtotransferpricing.Iffullyrecognized,$5.7millionoftheunrecognizedtaxbenefitswouldreduceoureffectivetaxrate.Inthenext12months,wedonotexpectourunrecognizedtaxbenefitstodecrease.WehadnoaccrualsforinterestorpenaltiesrelatedtoouruncertaintaxpositionsatDecember31,2018,2017,and2016.
Thefollowingtableshowstheactivityingrossunrecognizedtaxbenefits:
Year Ended December 31
2018 2017 2016
Balanceatbeginningofyear $ 5,794 $ — $ —Additionsbasedontaxpositionrelatedtothecurrentyear 391 5624 —Additionsfortaxpositionsofprioryears 49 170 —
Balanceatendofyear $ 6,234 $ 5,794 $ —
16. Basic and Diluted Net Income (Loss) Per Share
Thefollowingtablepresentsthecomputationofnetincome(loss)pershare:
Year Ended December 31,
2018 2017 2016
Numerator: Netincome(loss)attributabletocommonstockholders $ 28,020 $ (19,482) $ (30,700)
Denominator: Weighted-averagesharesusedtocomputenetincome(loss)pershareattributabletocommonstockholders,basic 60,829 53,006 32,440Effectofdilutivesecurities:
Convertibleseniornotes 409 — —Employeestockawards 3,506 — —
Weighted-averagesharesusedtocomputenetincome(loss)pershareattributabletocommonstockholders,diluted 64,744 53,006 32,440Netincome(loss)pershareattributabletocommonstockholders,basic $ 0.46 $ (0.37) $ (0.95)Netincome(loss)pershareattributabletocommonstockholders,diluted $ 0.43 $ (0.37) $ (0.95)
Thefollowingweighted-averageequivalentsharesofcommonstockwereexcludedfromthedilutednetincome(loss)persharecalculationbecausetheirinclusionwouldhavebeenanti-dilutive(inthousands):
Year Ended December 31,2018 2017 2016
Stockawards 510 6,312 5,516Conversionofconvertiblepreferredstock — 3,290 14,647Contingentlyissuableshares — 7 —Totalsharesexcludedfromnetlosspershare 510 9,609 20,163
Itisourcurrentintenttosettletheprincipalamountoftheconvertibleseniornoteswithcash,andtherefore,weusethetreasurystockmethodforcalculatinganypotentialdilutiveeffectoftheconversionoptionondilutednetincome(loss)pershare.TheconversionoptionmayhaveadilutiveimpactonnetincomepershareofcommonstockwhentheaveragemarketpricepershareofourClassAcommonstockforagivenperiodexceedstheinitialconversionpriceoftheconvertibleseniornotesof$44.33pershare.Thedilutiveimpactoftheconvertibleseniornotesisincludedinthetablesabove.
17. Segment and Geographic Information
Operatingsegmentsaredefinedascomponentsofanenterpriseforwhichseparatefinancialinformationisevaluatedregularlybythechiefoperatingdecisionmaker,orCODM,whoisourchiefexecutiveofficer,indecidinghowtoallocateresourcesandassessourfinancialandoperationalperformance.OurCODMevaluatesourfinancialinformationandresourcesandassessestheperformanceoftheseresourcesonaconsolidatedandaggregatedbasis.Asaresult,wehavedeterminedthatourbusinessoperatesinasingleoperatingsegment.
AsofDecember31,2018and2017,substantiallyallofourpropertyandequipmentwaslocatedintheUnitedStates.
18. Selected Quarterly Financial Data (Unaudited)
ThefollowingtablesetsforthunauditedquarterlyfinancialinformationfortheyearsendedDecember31,2018and2017.AsdiscussedinNote2,SignificantAccountingPolicies,weadoptedASC606asofJanuary1,2018onamodifiedretrospectivebasis.ThequarterlyinformationforthethreemonthsendedMarch31,2018,June30,2018andSeptember30,2018havebeenrecasttoreflecttheadoptionofASC606.Amountspresentedforfiscalyear2017arepresentedunderASC605.Wehavepreparedtheunauditedquarterlyconsolidatedstatementsofoperationsdataonabasisconsistentwiththeauditedannualconsolidatedfinancialstatements.Intheopinionofmanagement,thefinancialinformationinthistablereflectsalladjustments,consistingofnormalandrecurringadjustments,necessaryforthefairstatementofthisdata(inthousandsexceptpersharedata):
2018Quarter Ended
March 31 (1) June 30 (1) September 30 (1) December 31Revenue $ 50,329 $ 51,502 $ 62,589 $ 89,150Grossmargin 45,325 46,233 56,779 82,433Income(loss)fromoperations 2,683 (3,425) 9,394 21,118Netincome(loss) 4,897 (4,239) 10,821 16,541Dilutedincome(loss)pershare 0.08 (0.07) 0.17 $ 0.25
2017Quarter Ended
March 31 June 30 September 30 December 31Revenue $ 28,545 $ 30,319 $ 34,155 $ 38,588Grossmargin 23,719 25,025 28,730 32,330Lossfromoperations (5,614) (8,138) (2,563) (1,884)Netloss (5,667) (6,994) (3,299) (1,539)Dilutedlosspershare (0.22) (0.12) (0.06) (0.03)
(1)TheamountsforthethreemonthsendedMarch31,2018,June30,2018andSeptember30,2018havebeenadjustedfrompreviouslyreportedamountsasaresultoftheadoptionofASC606.Refertothetablesbelowforareconciliationofthepreviouslyreportedamountstotheadjustedamounts.
Quarter Ended March 31, 2018
As Reported ASC 606 Adjustment As Adjusted
Revenue $ 42,821 $ 7,508 $ 50,329Grossmargin 37,817 7,508 45,325Income(loss)fromoperations (5,848) 8,531 2,683Netincome(loss) (5,186) 10,083 4,897Dilutedincome(loss)pershare (0.09) 0.17 0.08
Quarter Ended June 30, 2018
As Reported ASC 606 Adjustment As Adjusted
Revenue $ 46,796 $ 4,706 $ 51,502Grossmargin 41,527 4,706 46,233Lossfromoperations (8,927) 5,502 (3,425)Netloss (5,295) 1,056 (4,239)Dilutedlosspershare (0.09) 0.02 (0.07)
Quarter Ended September 30, 2018
As Reported ASC 606 Adjustment As Adjusted
Revenue $ 54,179 $ 8,410 $ 62,589Grossmargin 48,369 8,410 56,779Income(loss)fromoperations (371) 9,765 9,394Netincome(loss) (244) 11,065 10,821Dilutedincome(loss)pershare — 0.17 0.17
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Reporting.
AspreviouslyreportedonourForm8-K,datedJanuary24,2019,atameetingheldonJanuary24,2019,theauditcommitteeapprovedthedismissalofPricewaterhouseCoopersLLPasourindependentregisteredpublicaccountingfirm,effectiveJanuary24,2019,andtheappointmentofDeloitte&ToucheLLP(“Deloitte”)asourindependentregisteredpublicaccountingfirm,effectiveJanuary24,2019,toperformindependentauditservicesforthefiscalyearendedDecember31,2018.PricewaterhouseCoopersLLP’sreportsonourfinancialstatementsfortheyearsendedDecember31,2017and2016didnotcontainanadverseopinionoradisclaimerofopinion,andwerenotqualifiedormodifiedastouncertainty,auditscope,oraccountingprinciples.DuringourtwomostrecentfiscalyearsendedDecember31,2017and2016andthesubsequentinterimperiodthroughJanuary24,2019,therewerenodisagreements,withinthemeaningofItem304(a)(1)(iv)ofRegulationS-KpromulgatedundertheExchangeAct,orRegulationS-K,andtherelatedinstructionsthereto,withPricewaterhouseCoopersLLPonanymatterofaccountingprinciplesorpractices,financialstatementdisclosure,orauditingscopeorprocedure,whichdisagreements,ifnotresolvedtothesatisfactionofPricewaterhouseCoopersLLP,wouldhavecausedittomakereferencetothesubjectmatterofthedisagreementsinconnectionwithitsreports.Alsoduringthissameperiod,therewerenoreportableeventswithinthemeaningofItem304(a)(1)(v)ofRegulationS-Kandtherelatedinstructionsthereto,exceptforthematerialweaknessinourinternalcontroloverfinancialreportingrelatedtotheevaluationoftheaccountingimpactofcertaincontractualtermsincertainarrangementswithlicenseddataproviders.WeconcludedthismaterialweaknesswasremediatedasofMarch31,2018asdisclosedinourForm10-Qfortheperiodthenended.
DuringourtwomostrecentfiscalyearsendedDecember31,2017and2016,andthesubsequentinterimperiodthroughJanuary24,2019,neitherwenoranyoneactingonourbehalfconsultedwithDeloitte&ToucheLLPregardinganyofthemattersdescribedinItems304(a)(2)(i)and(ii)ofRegulationS-K.
DuringthetwomostrecentfiscalyearsendedDecember31,2017and2016andduringthesubsequentperiodthroughthedateoftheengagementofDeloitte,neitherwenoranyoneactingonourbehalfhasconsultedwithDeloitteregarding:
(i) Theapplicationofaccountingprinciplestoaspecifiedtransaction,eithercompletedorproposed,or
(ii)
Thetypeofauditopinionthatmightberenderedonourfinancialstatements,andeitherawrittenreportwasprovidedtousororaladvicewasprovidedthatDeloitteconcludedwasanimportantfactorconsideredbyusinreachingadecisionastoanaccounting,auditingorfinancialreportingissue;or
(iii)Anymatterthatwaseitherthesubjectofadisagreementorareportableevent,aseachtermisdefinedinItems304(a)(1)(iv)or(v)ofRegulationS-K,respectively.
TherewerenodisagreementswithDeloitteonaccountingandfinancialdisclosuremattersfromthedateoftheengagementofDeloittethroughthedateofthisreport.
WeprovidedPwCwiththestatementswemadeinresponsetoItem304(a)ofRegulationS-KpriortoitsfilingwiththeSecuritiesandExchangeCommission(“SEC”)andrequestedthatPwCprovideuswithaletteraddressedtotheSECstatingwhetherPwCagreeswiththestatementswemadeinresponsetoItem304(a)ofRegulationS-K.Acopyofthisletter,datedJanuary24,2019,furnishedbyPwCinresponsetoourrequest,isfiledasExhibit16.1tothisreport.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Ourmanagement,withtheparticipationofourChiefExecutiveOfficerandChiefFinancialOfficer,evaluatedtheeffectivenessofourdisclosurecontrolsandproceduresasdefinedinRules13a-15(e)and15d-15(e)undertheSecuritiesExchangeActof1934,asamended,ortheExchangeAct,asofDecember31,2018.OurdisclosurecontrolsandproceduresaredesignedtoprovidereasonableassurancethatinformationwearerequiredtodiscloseinthereportswefileorsubmitundertheExchangeActisaccumulatedandcommunicatedtoourmanagement,includingourChiefExecutiveOfficerandChiefFinancialOfficer,asappropriatetoallowtimelydecisionsregardingrequireddisclosures,andisrecorded,processed,summarized,andreportedwithinthetimeperiodsspecifiedintheSEC’srulesandforms.Basedonthisevaluation,ourChiefExecutiveOfficerandChiefFinancialOfficerconcludedasofDecember31,2018thatourdisclosurecontrolsandprocedureswereeffectiveatthereasonableassurancelevel.
Management's Report on Internal Control Over Financial Reporting
Ourmanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting,assuchtermisdefinedinExchangeActRules13a-15(f)and15d-15(f).OurmanagementconductedanevaluationoftheeffectivenessofourinternalcontroloverfinancialreportingasofDecember31,2018basedonthecriteriaestablishedinInternalControl-IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.Basedontheresultsofitsevaluation,managementconcludedthatourinternalcontroloverfinancialreportingwaseffectiveasofDecember31,2018.TheeffectivenessofourinternalcontroloverfinancialreportingasofDecember31,2018hasbeenauditedbyDeloitteandToucheLLP,anindependentregisteredpublicaccountingfirm,asstatedinitsreportwhichisincludedinPartII,Item8oftheAnnualReportonForm10-K.
Changes in Internal Control over Financial Reporting
ExceptfortheimplementationofcertaininternalcontrolsrelatedtotheadoptionofASC606,therewasnochangeinourinternalcontroloverfinancialreportingthatoccurredduringthequarterendedDecember31,2018thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.
Limitations on the Effectiveness of Disclosure Controls and Procedures
Ourmanagement,includingourChiefExecutiveOfficerandChiefFinancialOfficer,doesnotexpectthatourdisclosurecontrolsandproceduresorinternalcontroloverfinancialreportingwillpreventallerrorsandallfraud.Acontrolsystem,nomatterhowwelldesignedandimplemented,canprovideonlyreasonable,notabsolute,assurancethatthecontrolsystem’sobjectiveswillbemet.Further,thedesignofacontrolsystemmustreflectthefactthatthereareresourceconstraintsandthebenefitsofcontrolsmustbeconsideredrelativetotheircosts.Becauseoftheinherentlimitationsinallcontrolsystems,noevaluationofcontrolscanprovideabsoluteassurancethatallcontrolissueswithinacompanyaredetected.Theinherentlimitationsincludetherealitiesthatjudgmentsindecision-makingcanbefaultyandthatbreakdownscanoccurbecauseofsimpleerrorsormistakes.Controlscanalsobecircumventedbytheindividualactsofsomepersons,bycollusionoftwoormorepeople,orbymanagementoverrideofthecontrols.Becauseoftheinherentlimitationsinacost-effectivecontrolsystem,misstatementsduetoerrororfraudmayoccurandmaynotbedetected.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditionsorthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers, and Corporate Governance.
TheinformationrequiredbythisitemwillbeincludedinourDefinitiveProxyStatementforthe2019AnnualMeetingofStockholderstobefiledwiththeSEC,within120daysofthefiscalyearendedDecember31,2018,andisincorporatedhereinbyreference.
Item 11. Executive Compensation.
TheinformationrequiredbythisitemwillbeincludedinourDefinitiveProxyStatementforthe2019AnnualMeetingofStockholderstobefiledwiththeSECwithin120daysofthefiscalyearendedDecember31,2018,andisincorporatedhereinbyreference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
TheinformationrequiredbythisitemwillbeincludedinourDefinitiveProxyStatementforthe2019AnnualMeetingofStockholderstobefiledwiththeSECwithin120daysofthefiscalyearendedDecember31,2018,andisincorporatedhereinbyreference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
TheinformationrequiredbythisitemwillbeincludedinourDefinitiveProxyStatementforthe2019AnnualMeetingofStockholderstobefiledwiththeSECwithin120daysofthefiscalyearendedDecember31,2018,andisincorporatedhereinbyreference.
Item 14. Principal Accounting Fees and Services.
TheinformationrequiredbythisitemwillbeincludedinourDefinitiveProxyStatementforthe2019AnnualMeetingofStockholderstobefiledwiththeSECwithin120daysofthefiscalyearendedDecember31,2018,andisincorporatedhereinbyreference.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
ThefollowingdocumentsarefiledaspartofthisAnnualReport:
1 FinancialStatements
Ourconsolidatedfinancialstatementsarelistedinthe“IndextoConsolidatedFinancialStatements”underPartII,Item8,ofthisAnnualReport.
2 FinancialStatementSchedules
Allfinancialstatementscheduleshavebeenomittedbecausetheyarenotrequiredorarenotapplicable,ortherequiredinformationisshowninourconsolidatedfinancialstatementsorthenotesthereto.
3 Exhibits
ExhibitNumber Exhibit Title
Incorporated by Reference FiledHerewithForm File No. Exhibit Filing Date
3.1 RestatedCertificateofIncorporation. 10-Q 001-38034 3.1 May11,2017 3.2 RestatedBylaws. 10-Q 001-38034 3.2 May11,2017 4.1 FormofClassAcommonstockcertificate. S-1/A 333-216237 4.1 March13,2017 4.2
SecondAmendedandRestatedInvestors’RightsAgreementbyandamongtheRegistrantandcertainsecurityholdersoftheRegistrant,datedSeptember24,2015,asamended. S-1 333-220342 4.2 September5,2017
4.3IndenturedatedMay18,2018betweenAlteryx,Inc.andU.S.BankNationalAssociation. 8-K 001-38034 4.1 May18,2018
10.1* FormofIndemnityAgreement. S-1 333-216237 10.1 February24,2017 10.2*
AmendedandRestated2013StockPlanandformsofawardagreements. S-1 333-216237 10.2 February24,2017
10.3*2017EquityIncentivePlanandformsofawardagreements. S-1 333-216237 10.3 February24,2017
10.4*2017EmployeeStockPurchasePlanandformofsubscriptionagreement. S-1 333-216237 10.4 February24,2017
10.5* Alteryx2018DiscretionaryBonusPlan X10.6*
AmendedandRestatedOfferLetterbyandbetweentheRegistrantandDeanA.Stoecker,datedFebruary22,2017. S-1 333-216237 10.6 February24,2017
10.7*AmendedandRestatedOfferLetterbyandbetweentheRegistrantandRobertS.Jones. 10-K 001-38034 10.9 March8,2018
10.8*AmendedandRestatedOfferLetterbyandbetweentheRegistrantandLangleyEide. X
10.9*
AmendedandRestatedOfferLetterbyandbetweentheRegistrantandChristopherM.Lal.
X
ExhibitNumber Exhibit Title
Incorporated by Reference FiledHerewithForm File No. Exhibit Filing Date
10.10*AmendedandRestatedOfferLetterbyandbetweentheRegistrantandKevinRubin. X
10.11LeasebyandbetweentheRegistrantandLBAIV-PPI,LLC,datedDecember7,2015. S-1 333-216237 10.9 February24,2017
10.12
FirstAmendmenttoMulti-TenantOfficeLeasebyandbetweentheRegistrantandLBGIV-PPO,LLC,datedDecember11,2017. 10-K 001-38034 10.11 March8,2018
10.13
SecondAmendmenttoMulti-TenantOfficeLeasebyandbetweentheRegistrantandLBGIV-PPO,LLC,datedAugust6,2018. 10-Q 001-38034 10.1 November8,2018
10.14
ThirdAmendmenttoMulti-TenantOfficeLeasebyandbetweentheRegistrantandLBGIV-PPO,LLC,datedSeptember27,2018. 10-Q 001-38034 10.2 November8,2018
10.15*FormofSeveranceandChangeinControlAgreement. S-1 333-216237 10.10 February24,2017
16.1
LetterfromPricewaterhouseCoopersLLPtotheSecuritiesandExchangeCommission,datedJanuary24,2019. 8-K 001-38034 16.1 January24,2019
21.1 ListofSubsidiaries. X23.1
ConsentofPricewaterhouseCoopersLLP,independentregisteredpublicaccountingfirm. X
23.2ConsentofDeloitte&Touche,LLP,independentregisteredpublicaccountingfirm. X
24.1PowerofAttorney(includedonsignaturepagestoAnnualReport).
31.1
CertificationofDeanA.Stoecker,ChiefExecutiveOfficer,pursuanttoRule13a-14(a)/15d-14(a),asadoptedpursuanttoSection302oftheSarbanes-OxleyActof2002. X
31.2
CertificationofKevinRubin,ChiefFinancialOfficer,pursuanttoRule13a-14(a)/15d-14(a),asadoptedpursuanttoSection302oftheSarbanes-OxleyActof2002. X
32.1#
CertificationofDeanA.Stoecker,ChiefExecutiveOfficer,pursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002. X
32.2#
CertificationofKevinRubin,ChiefFinancialOfficer,pursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002. X
101.INS XBRLInstanceDocument. X101.SCH XBRLTaxonomyExtensionSchemaDocument. X101.CAL
XBRLTaxonomyExtensionCalculationLinkbaseDocument. X
ExhibitNumber Exhibit Title
Incorporated by Reference FiledHerewithForm File No. Exhibit Filing Date
101.DEFXBRLTaxonomyExtensionDefinitionLinkbaseDocument. X
101.LABXBRLTaxonomyExtensionLabelsLinkbaseDocument. X
101.PREXBRLTaxonomyExtensionPresentationLinkbaseDocument. X
* Indicatesamanagementcontractorcompensatoryplan.
# Thiscertificationisdeemednotfiledforpurposesofsection18oftheExchangeAct,orotherwisesubjecttotheliabilityofthatsection,norshallitbedeemedincorporatedbyreferenceintoanyfilingundertheSecuritiesActortheExchangeAct.
SIGNATURES
PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,asamended,theregistranthasdulycausedthisAnnualReportonForm10-Ktobesignedonitsbehalfbytheundersignedthereuntodulyauthorized.
Alteryx, Inc.
By: /s/DeanA.Stoecker
DeanA.StoeckerChairmanoftheBoardofDirectorsand
ChiefExecutiveOfficer
Date:March1,2019
POWER OF ATTORNEY
KNOWALLPERSONSBYTHESEPRESENTS,thateachpersonwhosesignatureappearsbelowherebyconstitutesandappointsDeanA.StoeckerandKevinRubin,andeachofthem,ashisorhertrueandlawfulattorneys-in-fact,proxies,andagents,eachwithfullpowerofsubstitution,forhimorherinanyandallcapacities,tosignanyandallamendmentstothisAnnualReportonForm10-K,andtofilethesame,withallexhibitstheretoandotherdocumentsinconnectiontherewith,withtheSecuritiesandExchangeCommission,grantinguntosaidattorneys-in-fact,proxies,andagentsfullpowerandauthoritytodoandperformeachandeveryactandthingrequisiteandnecessarytobedoneinconnectiontherewith,asfullyforallintentsandpurposesashemightorcoulddoinperson,herebyratifyingandconfirmingallthatsaidattorneys-in-fact,proxies,andagents,ortheirorhisorhersubstituteorsubstitutes,maylawfullydoorcausetobedonebyvirtuehereof.
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisAnnualReportonForm10-Khasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedatesindicated.
Name Title Date
/s/DeanA.Stoecker ChairmanoftheBoardofDirectorsandChiefExecutiveOfficer
(PrincipalExecutiveOfficer)
March1,2019
DeanA.Stoecker
/s/KevinRubin ChiefFinancialOfficer(PrincipalFinancialandAccountingOfficer)
March1,2019
KevinRubin
/s/KimberlyE.Alexy Director
March1,2019
KimberlyE.Alexy
/s/MarkAnderson Director
March1,2019
MarkAnderson
/s/JohnBellizzi Director
March1,2019
JohnBellizzi
/s/CharlesR.Cory Director
March1,2019
CharlesR.Cory
/s/JeffreyL.Horing Director
March1,2019
JeffreyL.Horing
/s/TimothyI.Maudlin Director
March1,2019
TimothyI.Maudlin
/s/EileenM.Schloss Director
March1,2019
EileenM.Schloss
Exhibit 10.5
Alteryx2018DiscretionaryBonusPlan
1. Purpose
Toprovideaperformance-basedincentivebonusplanthatwill:
• aligntheinterestsofourcompany,ourassociatesandourinvestors;
• enableAlteryxtoachieveandexceedspecifiedfinancialgoals;
• attractandretainassociatestoenhanceourleadershippositionwithintheindustry;and
• recognizeandrewardemployeesfortheirindividualcontributionstooursuccess.
2. Performance Period
TheperformanceperiodisJanuary1,2018throughDecember31,2018.
3. Eligibility
EligibleparticipantsareAlteryxemployeesandemployeesofitswhollyownedsubsidiarieswho:
• wereemployedpriortoOctober1,2018
• areinpositionsdeemedasbonuseligible
• areactivelyemployed,ingoodstanding,onthedatethatbonuspaymentsaremadeandarenotonaperformanceimprovementplan;and
• arenoteligibleforanotherincentive,commission,orvariablecompensationplan(e.g.,sales/servicescommissionplans).
4. Payments
Thepaymentscheduleforthebonusplanwillbeasfollows:
• PayablewiththenormalpayrollpaymentonorbeforeMarch15,2019
5. Eligible Compensation
Eligiblecompensationforpurposesofcalculatinganemployee’sbonuspaymentwillbetheemployee’sannualbasesalaryineffectonDecember31,2018.
EligibleemployeesstartingafterMarch31,2018willbeeligibleforaproratedbonusbasedontheiremploymentstartdate.
ForemployeesonLeaveofAbsenceduringtheperformanceperiod,eligiblebonuswillbeproratedforthenumberofdaysonactivestatus.
6. Company Performance Metrics
CompanyperformancewillbedeterminedbyachievementofspecificRevenuetargets.
RevenueistherevenueAlteryxrecognizesinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates,includingorexcludingcertainadjustmentsasdeterminedbytheChiefFinancialOfficer.
Anemployee’sbonusawardcalculatedontheaboveperformancemetricmaybeincreasedordecreasedatthediscretionofmanagementtoreflectindividualperformanceorextraordinaryevents.
7. Bonus Pool Funding
TheCompanymustachieveaminimumperformancethresholdofRevenueforthebonuspooltobefundedandpaid.
At100%achievementofRevenueperformancetargets,thebonuspoolwillbefundedat100%oftarget.IfRevenueisaboveorbelowthetarget,thebonuspoolfundingamountwillbeinterpolatedasexemplifiedonthechartshownbelow.
Measurement: Full YearRevenue
TargetAchievement Pool
Funding<80% $0100% 100%115% 150%
Thechartisforillustrativepurposesonlytosummarizebonuspoolfundingandmaychangebasedoncompanygoals.
8. Participant’s Target Bonus
Aparticipant’stargetbonusawardisdeterminedbyhisorherjoblevelandisexpressedaseitherasapercentageofbasesalaryoraflatdollaramount.Thefinalawardisdeterminedbytheamountavailablefordisbursement(seeSection7),Companyperformance,andanyadjustmentsforindividualperformancepursuanttoSection9.
9. Individual Performance
Basedonperformanceandtheachievementofindividualgoals(MBOs),modificationtoaparticipant’stargetawardcanrangefrom0%to150%.However,thetotalofallbonusawardsforanyDepartmentcannotexceed100%oftheavailablepoolunlessapprovedbytheChiefFinancialOfficer.
Revenuevs.Target X
IndividualPerformance
%=
IndividualBonusAward
10. Administration
ThebonusprogramwillbeadministeredbyAlteryx’sCompensationCommittee,withday-to-daymanagementtobeconductedbyHumanResourcesandtheChiefFinancialOfficer.
TheCommitteehasauthority,amongotherthings,to:
• determineeligibilityforparticipationinthebonusprogram;
• determineperformancemeasures,performancetargets,awardopportunitiesandearnedawards;and
• interpretthebonusprogramandexerciseitspowertoprescribe,amend,suspendorrescindthetermsofthebonusprogram.
11. General Provisions
Alteryxmaydeductanytaxesrequiredbylawtobewithhelduponpaymentofanybonusunderthisprogram.
Bonusawardsgrantedundertheprogramwillnotbetransferrableotherthanbywillorlawsofdescentanddistribution.
Nothingintheprogramorinanybonusawardgrantedwillconferonanindividualanyrighttoanaward,ortocontinueintheemployofthecompanyoranyofitssubsidiariesordeterinanywaytherightofthecompanyoranysubsidiarytoterminateanyemployment.
Exhibit 10.8March14,2017
LangleyEideAlteryx,Inc.3345MichelsonDrive,Suite400Irvine,CA92612
DearLangley:
ThisletteragreementamendsandrestatestheofferletterenteredintobetweenyouandAlteryx,Inc.(the“Company ”),datedApril21,2015,asamendedFebruary8,2016(the“Prior Agreement ”).
YouwillcontinuetoworkintheroleofSeniorVicePresident,StrategyandOperations,reportingtotheChiefExecutiveOfficer.
1. Compensation .
a.Base Wage .Inthisposition,theCompanywillpayyouanannualbasesalaryof$232,700.00peryear,payableinaccordancewith the Company’s standard payroll schedule. Your pay will be periodically reviewed as a part of the Company’s regular reviews ofcompensation.
b. Bonus . You will be eligible to receive a discretionary annual bonus of up to 45%of your base salary, subject to and inaccordancewiththetermsoftheCompany’sbonusplan.Pleasenotethatbonusprograms,payoutsandcriterionaresubjecttochangeoradjustmentasthebusinessneedsattheCompanymayrequire.
c. Equity Awards . The Company acknowledges that it has previously issued equity awards to you under the Company’sAmendedandRestated2013StockPlan.Nothinginthisletteragreementwillamendoraffectthetermsofsuchawards.
2. Employee Benefits .YouwillbeeligibletoparticipateinanumberofCompany-sponsoredbenefitstotheextentthatyoucomplywith the eligibility requirements of each such benefit plan. The Company, in its sole discretion, may amend, suspend or terminate itsemployeebenefitsatanytime,withorwithoutnotice.Inaddition,youwillbeentitledtopaidvacationinaccordancewiththeCompany’svacationpolicy,asineffectfromtimetotime.
3. Confidentiality Agreement . By signing this letter agreement, you reaffirm the terms and conditions of the ConfidentialInformationandInventionAssignmentAgreementbyandbetweenyouandtheCompany.
4. No Conflicting Obligations .Youunderstandandagreethatbysigningthisletteragreement,yourepresenttotheCompanythatyourperformancewillnotbreachanyotheragreementtowhichyouareapartyandthatyouhavenot,andwillnotduringthetermofyouremployment with the Company, enter into any oral or written agreement in conflict with any of the provisions of this letter or theCompany’s policies. Youare not to bringwith youto the Company, or use or disclose to anypersonassociatedwith the Company, anyconfidential or proprietary information belonging to any former employer or other person or entity with respect to which you owe anobligationofconfidentialityunderanyagreementorotherwise.TheCompanydoesnotneedandwillnotusesuchinformationandwewillassistyouinanywaypossibletopreserveand
protecttheconfidentialityofproprietaryinformationbelongingtothirdparties.Also,weexpectyoutoabidebyanyobligationstorefrainfromsolicitinganypersonemployedbyorotherwise
associatedwithanyformeremployerandsuggestthatyourefrainfromhavinganycontactwithsuchpersonsuntilsuchtimeasanynon-solicitationobligationexpires.
5. Outside Activities . WhileyourenderservicestotheCompany,youagreethat youwill notengageinanyotheremployment,consultingorotherbusinessactivitywithoutthewrittenconsentoftheCompany.Inaddition,whileyourenderservicestotheCompany,you will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring anyemployeesorconsultantsoftheCompany.
6. General Obligations .Asanemployee,youwillbeexpectedtoadheretotheCompany’sstandardsofprofessionalism,loyalty,integrity, honesty, reliability and respect for all. You will also be expected to comply with the Company’s policies and procedures. TheCompanyisanequalopportunityemployer.
7. At-Will Employment .EmploymentwiththeCompanyisfornospecificperiodoftime.YouremploymentwiththeCompanywill beonan“at will”basis, meaningthat eitheryouortheCompanymayterminateyouremploymentat anytimeforanyreasonornoreason.TheCompanyalsoreservestherighttomodifyoramendthetermsofyouremploymentatanytimeforanyreason.Anycontraryrepresentationswhichmayhavebeenmadetoyouaresupersededbythisletteragreement.ThisisthefullandcompleteagreementbetweenyouandtheCompanyonthisterm.Althoughyourjobduties,title,compensationandbenefits,aswellastheCompany’spersonnelpoliciesand procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express writtenagreementsignedbyyouandtheCompany’sChiefExecutiveOfficer.
8. Withholdings .AllformsofcompensationpaidtoyouasanemployeeoftheCompanyshallbelessallapplicablewithholdings.
[SIGNATUREPAGEFOLLOWS]
Thisletteragreementsupersedesandreplacesanypriorunderstandingsoragreements,whetheroral,writtenorimplied,betweenyouandtheCompanyregardingthemattersdescribedinthisletter,including,withoutlimitation,thePriorAgreement.ThislettershallbeeffectiveonthefirstdateonwhichtheRegistrationStatementonFormS-1fortheinitialpublicofferingoftheCompany’sClassACommonStockisdeclaredeffectivebytheUnitedStatesSecuritiesandExchangeCommission,or,iflater,thedatethatthisletterissigned.ThisletterwillbegovernedbythelawsofCalifornia,withoutregardtoitsconflictoflawsprovisions.
Verytrulyyours,
ALTERYX,INC.
/s/DeanA.StoeckerBy:DeanStoecker,ChiefExecutiveOfficer
ACCEPTEDANDAGREED:
LANGLEYEIDE
/s/LangleyEide
Signature
[SIGNATUREPAGETORESTATEDOFFERLETTER]
Exhibit 10.9March14,2017
ChristopherM.LalAlteryx,Inc.3345MichelsonDrive,Suite400Irvine,CA92612
DearChris:
ThisletteragreementamendsandrestatestheofferletterenteredintobetweenyouandAlteryx,Inc.(the“Company ”),datedJuly13,2016(the“Prior Agreement ”).
YouwillcontinuetoworkintheroleofSeniorVicePresident,GeneralCounselandCorporateSecretary,reportingtotheChiefExecutiveOfficer.
1. Compensation .
a.Base Wage .Inthisposition,theCompanywillpayyouanannualbasesalaryof$265,000.00peryear,payableinaccordancewith the Company’s standard payroll schedule. Your pay will be periodically reviewed as a part of the Company’s regular reviews ofcompensation.
b.Bonus .Youwillbeeligibletoreceiveadiscretionaryannualbonusofupto35%ofyourbasesalary,subjecttoandinaccordancewiththetermsoftheCompany’sbonusplan.Pleasenotethatbonusprograms,payoutsandcriterionaresubjecttochangeoradjustmentasthebusinessneedsattheCompanymayrequire.
c. Equity Awards . The Company acknowledges that it has previously issued equity awards to you under the Company’sAmendedandRestated2013StockPlan.Nothinginthisletteragreementwillamendoraffectthetermsofsuchawards.
2. Employee Benefits .YouwillbeeligibletoparticipateinanumberofCompany-sponsoredbenefitstotheextentthatyoucomplywith the eligibility requirements of each such benefit plan. The Company, in its sole discretion, may amend, suspend or terminate itsemployeebenefitsatanytime,withorwithoutnotice.Inaddition,youwillbeentitledtopaidvacationinaccordancewiththeCompany’svacationpolicy,asineffectfromtimetotime.
3. Confidentiality Agreement . By signing this letter agreement, you reaffirm the terms and conditions of the ConfidentialInformationandInventionAssignmentAgreementbyandbetweenyouandtheCompany.
4. No Conflicting Obligations .Youunderstandandagreethatbysigningthisletteragreement,yourepresenttotheCompanythatyourperformancewillnotbreachanyotheragreementtowhichyouareapartyandthatyouhavenot,andwillnotduringthetermofyouremployment with the Company, enter into any oral or written agreement in conflict with any of the provisions of this letter or theCompany’s policies. Youare not to bringwith youto the Company, or use or disclose to anypersonassociatedwith the Company, anyconfidential or proprietary information belonging to any former employer or other person or entity with respect to which you owe anobligationofconfidentialityunderanyagreementorotherwise.TheCompanydoesnotneedandwillnotusesuchinformationandwewillassistyouinanywaypossibletopreserveand
protecttheconfidentialityofproprietaryinformationbelongingtothirdparties.Also,weexpectyoutoabidebyanyobligationstorefrainfromsolicitinganypersonemployedbyorotherwise
associatedwithanyformeremployerandsuggestthatyourefrainfromhavinganycontactwithsuchpersonsuntilsuchtimeasanynon-solicitationobligationexpires.
5. Outside Activities . WhileyourenderservicestotheCompany,youagreethat youwill notengageinanyotheremployment,consultingorotherbusinessactivitywithoutthewrittenconsentoftheCompany.Inaddition,whileyourenderservicestotheCompany,you will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring anyemployeesorconsultantsoftheCompany.
6. General Obligations .Asanemployee,youwillbeexpectedtoadheretotheCompany’sstandardsofprofessionalism,loyalty,integrity, honesty, reliability and respect for all. You will also be expected to comply with the Company’s policies and procedures. TheCompanyisanequalopportunityemployer.
7. At-Will Employment .EmploymentwiththeCompanyisfornospecificperiodoftime.YouremploymentwiththeCompanywill beonan“at will”basis, meaningthat eitheryouortheCompanymayterminateyouremploymentat anytimeforanyreasonornoreason.TheCompanyalsoreservestherighttomodifyoramendthetermsofyouremploymentatanytimeforanyreason.Anycontraryrepresentationswhichmayhavebeenmadetoyouaresupersededbythisletteragreement.ThisisthefullandcompleteagreementbetweenyouandtheCompanyonthisterm.Althoughyourjobduties,title,compensationandbenefits,aswellastheCompany’spersonnelpoliciesand procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express writtenagreementsignedbyyouandtheCompany’sChiefExecutiveOfficer.
8. Withholdings .AllformsofcompensationpaidtoyouasanemployeeoftheCompanyshallbelessallapplicablewithholdings.
[SIGNATUREPAGEFOLLOWS]
Thisletteragreementsupersedesandreplacesanypriorunderstandingsoragreements,whetheroral,writtenorimplied,betweenyouandtheCompanyregardingthemattersdescribedinthisletter,including,withoutlimitation,thePriorAgreement.ThislettershallbeeffectiveonthefirstdateonwhichtheRegistrationStatementonFormS-1fortheinitialpublicofferingoftheCompany’sClassACommonStockisdeclaredeffectivebytheUnitedStatesSecuritiesandExchangeCommission,or,iflater,thedatethatthisletterissigned.ThisletterwillbegovernedbythelawsofCalifornia,withoutregardtoitsconflictoflawsprovisions.
Verytrulyyours,
ALTERYX,INC.
/s/DeanA.StoeckerBy:DeanStoecker,ChiefExecutiveOfficer
ACCEPTEDANDAGREED:
CHRISTOPHERM.LAL
/s/ChristopherM.Lal
Signature
[SIGNATUREPAGETORESTATEDOFFERLETTER]
Exhibit 10.10February22,2017
KevinRubinAlteryx,Inc.3345MichelsonDrive,Suite400Irvine,CA92612
DearKevin:
ThisletteragreementamendsandrestatestheofferletterenteredintobetweenyouandAlteryx,Inc.(the“Company ”),datedonoraboutFebruary18,2016(the“Prior Agreement ”).
YouwillcontinuetoworkintheroleofChiefFinancialOfficer,reportingtotheChiefExecutiveOfficer.
1. Compensation .
a.Base Wage .Inthisposition,theCompanywillpayyouanannualbasesalaryof$310,000.00peryear,payableinaccordancewiththeCompany’sstandardpayrollschedule.YourpaywillbeperiodicallyreviewedasapartoftheCompany’sregularreviewsofcompensation.
b.Bonus .Youwillbeeligibletoreceiveadiscretionaryannualbonusofupto50%ofyourbasesalary,subjecttoandinaccordancewiththetermsoftheCompany’sbonusplan.Pleasenotethatbonusprograms,payoutsandcriterionaresubjecttochangeoradjustmentasthebusinessneedsattheCompanymayrequire.
c. Equity Awards . The Company acknowledges that it has previously issued equity awards to you under the Company’sAmendedandRestated2013StockPlan.Nothinginthisletteragreementwillamendoraffectthetermsofsuchawards.
2. Employee Benefits .YouwillbeeligibletoparticipateinanumberofCompany-sponsoredbenefitstotheextentthatyoucomplywiththeeligibilityrequirementsofeachsuchbenefitplan.TheCompany,initssolediscretion,mayamend,suspendorterminateitsemployeebenefitsatanytime,withorwithoutnotice.Inaddition,youwillbeentitledtopaidvacationinaccordancewiththeCompany’svacationpolicy,asineffectfromtimetotime.
3. Confidentiality Agreement .Bysigningthisletteragreement,youreaffirmthetermsandconditionsoftheConfidentialInformationandInventionAssignmentAgreementbyandbetweenyouandtheCompany.
4. No Conflicting Obligations .Youunderstandandagreethatbysigningthisletteragreement,yourepresenttotheCompanythatyourperformancewillnotbreachanyotheragreementtowhichyouareapartyandthatyouhavenot,andwillnotduringthetermofyouremploymentwiththeCompany,enterintoanyoralorwrittenagreementinconflictwithanyoftheprovisionsofthisletterortheCompany’spolicies.YouarenottobringwithyoutotheCompany,oruseordisclosetoanypersonassociatedwiththeCompany,anyconfidentialorproprietaryinformationbelongingtoanyformeremployerorotherpersonorentitywithrespecttowhichyouoweanobligationofconfidentialityunderanyagreementor
otherwise.TheCompanydoesnotneedandwillnotusesuchinformationandwewillassistyouinanywaypossibletopreserveandprotecttheconfidentialityofproprietaryinformationbelongingtothirdparties.Also,weexpectyoutoabidebyanyobligationstorefrainfromsolicitinganypersonemployed
byorotherwiseassociatedwithanyformeremployerandsuggestthatyourefrainfromhavinganycontactwithsuchpersonsuntilsuchtimeasanynon-solicitationobligationexpires.
5. Outside Activities .WhileyourenderservicestotheCompany,youagreethatyouwillnotengageinanyotheremployment,consultingorotherbusinessactivitywithoutthewrittenconsentoftheCompany.Inaddition,whileyourenderservicestotheCompany,youwillnotassistanypersonorentityincompetingwiththeCompany,inpreparingtocompetewiththeCompanyorinhiringanyemployeesorconsultantsoftheCompany.
6. General Obligations .Asanemployee,youwillbeexpectedtoadheretotheCompany’sstandardsofprofessionalism,loyalty,integrity,honesty,reliabilityandrespectforall.YouwillalsobeexpectedtocomplywiththeCompany’spoliciesandprocedures.TheCompanyisanequalopportunityemployer.
7. At-Will Employment .EmploymentwiththeCompanyisfornospecificperiodoftime.YouremploymentwiththeCompanywillbeonan“atwill”basis,meaningthateitheryouortheCompanymayterminateyouremploymentatanytimeforanyreasonornoreason.TheCompanyalsoreservestherighttomodifyoramendthetermsofyouremploymentatanytimeforanyreason.Anycontraryrepresentationswhichmayhavebeenmadetoyouaresupersededbythisletteragreement.ThisisthefullandcompleteagreementbetweenyouandtheCompanyonthisterm.Althoughyourjobduties,title,compensationandbenefits,aswellastheCompany’spersonnelpoliciesandprocedures,maychangefromtimetotime,the“atwill”natureofyouremploymentmayonlybechangedinanexpresswrittenagreementsignedbyyouandtheCompany’sChiefExecutiveOfficer.
8. Withholdings .AllformsofcompensationpaidtoyouasanemployeeoftheCompanyshallbelessallapplicablewithholdings.
[SIGNATUREPAGEFOLLOWS]
Thisletteragreementsupersedesandreplacesanypriorunderstandingsoragreements,whetheroral,writtenorimplied,betweenyouandtheCompanyregardingthemattersdescribedinthisletter,including,withoutlimitation,thePriorAgreement.ThisletterwillbegovernedbythelawsofCalifornia,withoutregardtoitsconflictoflawsprovisions.
Verytrulyyours,
ALTERYX,INC.
/s/DeanA.StoeckerBy:DeanStoecker,ChiefExecutiveOfficer
ACCEPTEDANDAGREED:
KevinRubin
/s/KevinRubin
Signature
[SIGNATUREPAGETORESTATEDOFFERLETTER]
Exhibit 21.1
Subsidiaries of Alteryx, Inc.
Name of Subsidiary Jurisdiction
AlteryxANZHoldingsPtyLimited AustraliaAlteryxANZPtyLimited AustraliaAlteryxCanadaInc. CanadaAlteryxCayman CaymanIslandsAlteryxCaymanII CaymanIslandsAlteryxCzechRepublics.r.o. CzechRepublicAlteryxFranceSARL FranceAlteryxGmbH GermanyAlteryxMEAFZ-LLC UnitedArabEmiratesAlteryxJapanGK JapanAlteryxSingaporePte.Ltd. SingaporeAlteryxUKLtd EnglandandWalesAlteryxUkraineLLC UkraineYhat,LLC Delaware
Exhibit 23.1
CONSENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
WeherebyconsenttotheincorporationbyreferenceintheRegistrationStatementsonFormS-8(No.333-223511andNo.333-216931)ofAlteryx,Inc.ofourreportdatedMarch7,2018relatingtothefinancialstatements,whichappearsinthisForm10-K.
/s/PricewaterhouseCoopersLLPLosAngeles,CaliforniaMarch1,2019
1
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
WeconsenttotheincorporationbyreferenceinRegistrationStatementNo.333-223511andNo.333-216931onFormS-8,ofourreportdatedMarch1,2019,relatingtotheconsolidatedfinancialstatementsofAlteryx,Inc.andsubsidiaries(the“Company”)andtheeffectivenessoftheCompany’sinternalcontroloverfinancialreporting,appearinginthisAnnualReportonForm10-KoftheCompanyfortheyearendedDecember31,2018.
/s/DELOITTE&TOUCHELLP
LosAngeles,CaliforniaMarch1,2019
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OFTHE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002
I,DeanA.Stoecker,certifythat:
1. IhavereviewedthisAnnualReportonForm10-KofAlteryx,Inc.;
2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4. Theregistrant’sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
a. Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
b. Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.
c. Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
d. Disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant’smostrecentfiscalquarter(theregistrant’sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant’sinternalcontroloverfinancialreporting;and
5. Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant’sauditorsandtheauditcommitteeoftheregistrant’sboardofdirectors(orpersonsperformingtheequivalentfunctions):
a. Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreporting,whicharereasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,process,summarizeandreportfinancialinformation;and
b. Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant’sinternalcontroloverfinancialreporting.
Date:March1,2019
/s/DeanA.StoeckerDeanA.StoeckerChiefExecutiveOfficer(PrincipalExecutiveOfficer)
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OFTHE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002
I,KevinRubin,certifythat:
1. IhavereviewedthisAnnualReportonForm10-KofAlteryx,Inc.;
2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4. Theregistrant’sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
a. Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
b. Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.
c. Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
d. Disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant’smostrecentfiscalquarter(theregistrant’sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant’sinternalcontroloverfinancialreporting;and
5. Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant’sauditorsandtheauditcommitteeoftheregistrant’sboardofdirectors(orpersonsperformingtheequivalentfunctions):
a. Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreporting,whicharereasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,process,summarizeandreportfinancialinformation;and
b. Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant’sinternalcontroloverfinancialreporting.
Date:March1,2019
/s/KevinRubinKevinRubinChiefFinancialOfficer(PrincipalFinancialandAccountingOfficer)
Exhibit 32.1
CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I,DeanA.Stoecker,ChiefExecutiveOfficerofAlteryx,Inc.(the“Company”),doherebycertify,pursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002,thattothebestofmyknowledge:
• theAnnualReportonForm10-KoftheCompanyforthefiscalyearendedDecember31,2018(the“Report”)fullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934,asamended;and
• theinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompany.
Date:March1,2019
/s/DeanA.StoeckerDeanA.StoeckerChiefExecutiveOfficer(PrincipalExecutiveOfficer)
Exhibit 32.2
CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I,KevinRubin,ChiefFinancialOfficerofAlteryx,Inc.(the“Company”),doherebycertify,pursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002,thattothebestofmyknowledge:
• theAnnualReportonForm10-KoftheCompanyforthefiscalyearendedDecember31,2018(the“Report”)fullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934,asamended;and
• theinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompany.
Date:March1,2019
/s/KevinRubinKevinRubinChiefFinancialOfficer(PrincipalFinancialandAccountingOfficer)
