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Filed Pursuant to 424(b)(4)Registration No. 333-220494Registration No. 333-220682
PROSPECTUS13,432,114 Shares
COMMON STOCK______________________
Cloudera, Inc. is offering 3,000,000 shares of its common stock and the selling stockholders identified in the prospectus are offering 10,432,114 shares of common stock. We will not receive any proceeds from the sale of shares by the selling stockholders.
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Our common stock is listed on the New York Stock Exchange under the symbol “CLDR.” On September 27, 2017, the last reported saleprice of our common stock on the New York Stock Exchange was $16.59 per share.
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We are an “emerging growth company” as defined under the federal securities laws. Investing in our common stockinvolves risks. See “ Risk Factors ” beginning on page 14.
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PRICE $16.45 A SHARE______________________
Price to Public
Underwriting Discounts and
Commissions (1) Proceeds to
Cloudera
Proceeds to Selling
StockholdersPer Share $16.45 $0.658 $15.792 $15.792Total $220,958,275 $8,838,331 $47,376,000 $164,743,944_______________(1) See the section titled “Underwriters” for a description of the compensation payable to the underwriters. .
Specified selling stockholders have granted the underwriters the right to purchase up to an additional 2,014,816 shares of common stock at the public offeringprice less underwriting discount.
The Securities and Exchange Commission and state regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful orcomplete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of common stock to purchasers on or about October 2 , 2017.______________________
MORGAN STANLEY J.P. MORGAN ALLEN & COMPANY LLCBofA MERRILL LYNCH CITIGROUP DEUTSCHE BANK SECURITIES
STIFEL JMP SECURITIES RAYMOND JAMES
September 27 , 2017
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TABLE OF CONTENTS
PageProspectusSummary 1TheOffering 10SummaryConsolidatedFinancialData 12RiskFactors 14SpecialNoteRegardingForward-LookingStatements 42Market,IndustryandOtherData 43UseofProceeds 45MarketPriceofOurCommonStock 46DividendPolicy 47Capitalization 48SelectedConsolidatedFinancialData 50Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations 54Business 83
PageManagement 101ExecutiveCompensation 108CertainRelationshipsandRelated-PartyTransactions 119PrincipalandSellingStockholders 123DescriptionofCapitalStock 126SharesEligibleforFutureSale 132MaterialU.S.FederalIncomeTaxConsiderationsforNon-U.S.HoldersofCommonStock 135Underwriters 140LegalMatters 149Experts 149WhereYouCanFindAdditionalInformation 149IndextoConsolidatedFinancialStatements F-1
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Neitherwe,thesellingstockholders,noranyoftheunderwritershaveauthorizedanyonetoprovideyouwithadditionalinformationorinformationthatisdifferentfromortomakeanyrepresentationsotherthanthosecontainedinthisprospectusorinanyfree‑writingprospectuspreparedbyoronbehalfofustowhichwemayhavereferredyouinconnectionwiththisoffering.We,thesellingstockholdersandtheunderwriterstakenoresponsibilityfor,andcanprovidenoassurancesastothereliabilityof,anyotherinformationthatothersmaygiveyou.Weandthesellingstockholdersareofferingtosell,andseekingofferstobuy,ourcommonstockonlyinjurisdictionswhereoffersandsalesarepermitted.Theinformationcontainedinthisprospectusisaccurateonlyasofthedateofthisprospectus,regardlessofthetimeofdeliveryofthisprospectusorofanysaleofourcommonstock.Ourbusiness,financialcondition,resultsofoperationsandfuturegrowthprospectsmayhavechangedsincethatdate.
Unlessthecontextrequiresotherwise,thewords“we,”“us,”“our,”the“Company”and“Cloudera”refertoCloudera,Inc.anditssubsidiariestakenasawhole.Forpurposesofthisprospectus,unlessthecontextotherwiserequires,theterm“stockholders”shallrefertotheholdersofourcommonstock.
ForinvestorsoutsidetheUnitedStates,neitherwe,thesellingstockholders,noranyoftheunderwritershavedoneanythingthatwouldpermitthisofferingorpossessionordistributionofthisprospectusinanyjurisdictionwhereactionforthatpurposeisrequired,otherthanintheUnitedStates.PersonswhocomeintopossessionofthisprospectusinjurisdictionsoutsidetheUnitedStatesarerequiredtoinformthemselvesaboutandtoobserveanyrestrictionsastothisofferingandthedistributionofthisprospectusandanysuchfree‑writingprospectusoutsidetheUnitedStates.
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PROSPECTUS SUMMARY
This summary highlights information contained in greater detail elsewhere in this prospectus. This summary is not complete and does notcontain all of the information you should consider in making your investment decision. You should read the entire prospectus carefully beforemaking an investment in our common stock. You should carefully consider, among other things, our consolidated financial statements andrelated notes and the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” included elsewhere in this prospectus.
CLOUDERA, INC.
Overview
Clouderaempowersorganizationstobecomedata‑drivenenterprisesinthenewlyhyperconnectedworld.Wehavedevelopedthemodernplatformformachinelearningandanalytics,optimizedforthecloud.Wehaveachievedthispositionthroughextensivecollaborationwiththeglobalopensourcecommunity,continuousinnovationindatamanagementtechnologiesandbyleveragingthelatestadvancesininfrastructureincludingthepubliccloudfor“bigdata”applications.Ourpioneeringhybridopensourcesoftware(HOSS)modelincorporatesthebestofopensourcewithourrobustproprietarysoftwaretoformanenterprise‑gradeplatform.Thisplatformdeliversanintegratedsuiteofcapabilitiesfordatamanagement,machinelearningandadvancedanalytics,affordingcustomersanagile,scalableandcosteffectivesolutionfortransformingtheirbusinesses.Ourplatformenablesorganizationstousevastamountsofdatafromavarietyofsources,includingtheInternetofThings(IoT),tobetterserveandmarkettotheircustomers,designconnectedproductsandservicesandreduceriskthroughgreaterinsightfromdata.Avibrantecosystemhasdevelopedaroundourplatform,andagrowingrangeofapplicationsisbeingbuiltonit.Webelievethatoursolutionisthemostwidelyadoptedbigdataplatform.
Theworldisrapidlybecominginterconnectedthroughmobile,social,internetandsensoractivity.InternationalDataCorporation(IDC)estimatesthatby2020therewillbe30billioninternet‑connectedandmobiledevices.Additionally,thequantityofinformationproducedperyearisexpectedtogrow,withIDCestimatingthatapproximately440timesmoreinformationwillbecreatedin2020thanin2005.Developershavecreateddata‑intensiveapplicationstotakeadvantageofallofthisinformation.Traditionaldatamanagementtechnologiescannottechnologicallyoreconomicallycapturethisdataorsupporttheseapplications.Enterprisesarechallengedtomanageanduserapidlygrowingquantitiesofdataofnewandvaryingtypes.Theyarealsooperatinginincreasinglycompetitiveanddemandingregulatoryenvironments.AccordingtostudiesquotedintheHarvardBusinessReview,lessthanhalfofanorganization’sstructureddataisactivelyusedinmakingdecisions,lessthan1%ofitsunstructureddataisanalyzedorusedatall,morethan70%ofemployeeshaveaccesstodatatheyshouldnotand80%ofanalysts’timeisspentsimplydiscoveringandpreparingdata.Inordertoachievetheirbusinessobjectives,enterprisesmustadoptinformation‑centricstrategiesandadata‑drivenapproachtoproblemsolving.Organizationsacrossallindustriesneedtodeveloptheabilitytoactquicklyandcost‑effectivelyonmassiveamountsofdatainanyformfromanysourcetogaininsight,tocompeteeffectivelyandtocomplywithlawsandregulations.Theyneedtomanageallavailabledata,whereveritmayoriginateorreside.Theyneedamodernopendataarchitecturebuiltonthelatestopensourcetechnologiesanddesignedforpubliccloudinfrastructure.
Inresponse,wehavecreatedoursoftwareplatformandpioneeredthehybridopensourcesoftwaremodel.HOSScombinesthebestopensourcesoftwarewithproprietarysoftwaretomeettheexactingrequirementsoflargeenterprises.Byintegratingrobustproprietarysoftwarewithouropensourceplatform,builtontheleadingdatamanagementandanalyticstechnologies,wedeliversubstantiallygreatervaluetocustomersinmanaging,operatingandsecuringtheirdataanddataarchitectures.OurHOSSmodelalsomeaningfullydifferentiatesoursolutionsfromthoseofourcompetitors,includingopensource“freeriders”whotakefrom,butdonotcontributeto,theopensourcecommunityatlarge.Thisdifferentiationalsobuildslong‑livedcustomerrelationshipsandgeneratestherevenuetosupportsustainedinnovation.
Ourscale‑outdistributedarchitecturedelivershighperformanceoninexpensiveindustry‑standardhardwareorcloudinfrastructure.Weallowenterprisestooperate,manageandmoveworkloadsacrossmultiplearchitectures,mixingon‑premisesandcloudenvironments,includingallmajorpubliccloudinfrastructureproviders–AmazonWebServices,MicrosoftAzureandGoogleCloudPlatform–aswellasmanagedserviceproviders(MSPs).Wealso
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enableenterprises’“multi‑cloud”strategies,allowingthemtomoveworkloadsfromthedatacentertothepubliccloud,amongpubliccloudvendors,andbackagain,thusavoidingcloudlock‑in.Inaddition,ourcustomersdeploy,configureandmonitoralltheirworkloadsatscaleacrosstheseenvironmentsfroma“singlepaneofglass.”Thisflexibilityallowscustomerstoconstantlydetermineandimplementthemostcost‑efficientstrategies.AsofJuly31,2017,approximately21%ofourGlobal8000customersrunourplatforminthecloud.
Themarketfornext‑generationdatamanagement,machinelearningandadvancedanalyticsislargeandrapidlygrowingastheworldincreasinglyconnects.IDCestimatesthatthetotalspendonbigdataandbusinessanalyticsrelatedhardware,softwareandserviceswillgrowatan11.9%compoundannualgrowthratetomorethan$210.0billionby2020.Ourplatformcurrentlyaddressesthreenewtransformativemarketswithinbigdataandbusinessanalytics:(i)DynamicDataManagementSystems;(ii)Cognitive/AISystemsandContentAnalyticsSoftware;and(iii)AdvancedandPredictiveAnalyticsSoftware.IDCestimatesthatinaggregatethesemarketswillgrowfrom$10.6billionin2016to$27.7billionin2021atacombinedcompoundannualgrowthrateof21.2%.Beyondthesenewmarkets,ourplatformcurrentlyaddressesandisdisruptingtraditionalmarkets,includingasignificantportionoftheRelationalDatabaseManagementSystemsandNon‑RelationalDatabaseManagementSystemsmarkets.AddingtogetherIDC’sestimatesofthesenewandtraditionalmarkets,webelieveourtotaladdressableopportunityincludingtheseadditionalmarketsisexpectedtoreach$72.7billionby2021.
Weofferoursoftwareplatformonasubscriptionbasisandfocusoursellingeffortsonthelargest8,000corporateenterprisesglobally(Global8000)aswellaslargepublicsectororganizations.Wetargettheseorganizationsbecausetheycaptureandmanagethemajorityoftheworld’sdataandoperatehighlycomplexITenvironments.Theseorganizationsarelikelytorealizethegreatestvaluefromourenterprise‑gradeplatform.Wehaveachievedsignificantgrowthandglobalscaleinarelativelyshortperiodoftime,andasofJuly31,2017,wehaveapproximately562Global8000customers.ForthefiscalyearendedJanuary31,2017andthesixmonthsendedJuly31,2017,revenuefromourGlobal8000represented73%and74%oftotalrevenue,respectively,basedontheGlobal8000constituentsasofMay1,2017.Forfiscal2017andthesixmonthsendedJuly31,2017,revenuefromourpublicsectorcustomers(includinglargepublicsectorcustomers)represented10%and9%oftotalrevenue,respectively.Ourcustomerscontinuetoexpandtheirusageofourplatform.Thenetexpansionrateforoursubscriptionrevenuewas140%asofJuly31,2017.Agrowing,vibrantecosystemhasdevelopedaroundourplatform,andmanythird‑partydevelopershaveprimarilystandardizedonit,buildingmorethan100industry-specificusecases,orapplications,usingourproprietarytechnology.WerefertotheseasPartnerSolutions.Aspartofthisecosystem,wehavedevelopedastrategicpartnershipwithIntelCorporation,orIntel,tooptimizeoursoftwareforusewithIntelprocessorsandarchitecture.Asaresultofourjointdedicationtothispartnership,ourplatformachievesdifferentiatedperformanceonIntelarchitecturetoday,andisexpectedtoachievedifferentiatedperformanceonfutureIntelplatformtechnologies.Wewillfurtherexpandourcustomeropportunitythroughthecontinuedgrowthinusecasesandpackagedsolutions,theexpansionofourpartnerecosystemandtheproliferationofskills,drivenbyeaseofuseandacceleratingadoptionofthecloud.See“Market,IndustryandOtherData”forhowwedefineGlobal8000,largepublicsectororganizationsandcalculateournetexpansionrate.
ForourfiscalyearsendedJanuary31,2016andJanuary31,2017,ourrevenuewas$166.0millionand$261.0million,respectively,representingyear‑over‑yeargrowthinrevenueof57%forourmostrecentfiscalyear.Overthesameperiod,operatingcashoutflowsincreasedfrom$90.5millionto$116.6millionwhileournetlosseswere$203.1millionand$187.3million,respectively,whichincludes$63.6millionand$21.7million,respectively,ofstock‑basedcompensationexpense,andanon‑cashchargeof$21.6millioninconnectionwiththedonationofcommonstocktotheClouderaFoundationforfiscal2017.ForthesixmonthsendedJuly31,2016and2017,ourrevenuewas$120.9millionand$169.4millionrespectively,representingperiod‑over‑periodgrowthinrevenueof40%.Overthesameperiod,operatingcashoutflowsdecreasedfrom$52.1millionto$17.9millionwhileournetlosseswere$81.8millionand$286.5million,respectively,whichincludes$11.2millionand$230.5million,respectively,ofstock‑basedcompensationexpense.
Industry Background
Successfulorganizationshavealwayscollectedandanalyzeddata.Theyhaveusedittounderstandtheircustomers,designandbuildtheirproducts,andaddressopportunitiesandmanageriskintheirbusinesses.
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Today,largeorganizationsareawashinvastlymoredatathaneverbefore.Theycollectreal‑timeandstreamingdataoneventsandtransactions,socialandinteractiondataabouttheircustomers,newsandmarketdataaboutthemselvesandtheircompetition,andmuchmore.Theyarealsooperatinginincreasinglycompetitiveanddemandingregulatoryenvironments.Toachievetheirbusinessobjectives,theymustcapture,secure,prepare,analyzeandactonallofthatdataquickly.
Thisfloodofdataoverwhelmsdatamanagementsystemscreatedinearlierdecades.Thosesystemsweredesignedforthedatavolumesandfortheanalyticalproblemsofanearlierday.Theywereneverintendedtohandlethethousand‑foldorgreaterincreaseinvolume,nortoday’scombinationandcomplexityofdataandnewdatatypes.Thosesystemspredatedpowerfulnewanalytictechniquessuchasmachinelearningandnaturallanguageprocessing.
Thefirstorganizationsconfrontedwiththiscombinationofvolume,complexityandanalyticchallengeswereweb‑scaleconsumerinternetcompanieslikeGoogle,FacebookandYahoo.Thosewebpioneerscreatedanewsoftwarearchitectureandacollectionofopensourcesoftwareprojectstosolvetheirdataproblems.Thatsoftwarewassophisticatedandpowerful,butdemandedexceptionaltechnicalandoperationalskillofitsusers.
Today,boardrooms,C‑suitesandline-of-businessleadersacrossallindustriesarefocusedondevelopingtheabilitytousevastamountsofdatafromavarietyofsourcestobetterservecustomers,designproductsandservicesandmanagerisk.Theirorganizationsneedtechnologythatgivesthembetterinsightsthanlegacysystemsallow.Theyneednewsystemstocompeteeffectivelyandtocomplywiththelawsandregulationsthatgovernthem.Theyneedanenterprise‑gradesolutiontomanageandactonallavailabledata,whereveritmayoriginateorreside.Theyneedthepowerandsophisticationoftheweb‑scaleconsumerinternetleaders,packagedforconsumptionbyordinaryenterprises.Enterprisesrequireamoderndatamanagement,machinelearningandanalyticsplatform.
Factors affecting the development of next ‑‑ generation data management, machine learning and advanced analytics
Amodernplatformformachinelearningandanalyticsisvaluablebecausemoredataoftenyieldsbetteranswerstohardquestions.Itenablesenterprisestolookatproblemsatmuchhigherresolution.Itpermitsqueriestoexaminenotjustthelastmonthorquarter,butthelastyearordecadeofcustomerbehavior.Usingpowerfulmachinelearningalgorithms,itcanexaminehistoricaldataandfindpatternsthatmoreaccuratelypredictfuturetrends.Suchaplatformallowsenterprisestoextractmorevaluefromtheirdataandeffectdigitaltransformation.
Themainfactorsdrivingcomplexityandchallengesinextractingvaluefromdataare:
• The rise of the interconnected world and the Internet of Things (IoT) ,whichiscontributingtoanincreasinglyconnectedworldandacceleratingdatagenerationasnewtypesofsensorscontinuetoproliferateandarealmostalwaysconnectedtoanetwork;
• The explosion of new data ,asorganizationsareundergoingdigitaltransformationandaredigitalizinganincreasingnumberofbusinessactivitiestoimproveandtransformoperations,functionsandprocesses,producingdataatanunprecedentedscale;
• The proliferation of machine learning and artificial intelligence ,asorganizationsrealizethevaluethatpredictiveandadvancedalgorithmscanprovideinadiversearrayofapplications;and
• The modernization of enterprise infrastructure ,asorganizationsseektotakeadvantageofthelatesttechnologicaldevelopments.Inparticular,therearetwocoretrendsthatlargeenterprisesareembracingtoday:
– Opensourcesoftwareisplayinganincreasinglycentralroleinenterprises’technologyarchitecturesasenterprisesvaluetherapidityofinnovation,agilitystemmingfromanopenecosystemandavoidanceofvendorlock‑in;and
– Publiccloudinfrastructureisthefastestgrowingtypeofinfrastructuretodaywithorganizationsenticedbytheelasticityandflexibilityitoffers.
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Requirements of the Modern Data Management and Analytics Platform
Organizationsneedamoderndataplatformwith:
• The ability to deploy on-premises or in the public cloud – or both. Manyenterpriseshavedataon‑premisesforlong‑livedworkloadsandrelyonpubliccloudinfrastructurefortransientworkloads.Asaresult,enterprisesrequireasolutionthatprovidestheflexibilitytostoreandanalyzetheirdatainamixedinfrastructureenvironment.Inaddition,enterprisesrequiretheabilitytorunnativelyondifferentpubliccloudplatforms,ormulti‑cloudcapability,sothattheycanchooseamongcompetingpubliccloudplatformsandmoveworkloadsamongthemtoavoidcloudlock‑in.
• Access to the latest open source technologies. Collaboratingacrossbordersandcompanylines,theglobalopensourcesoftwarecommunityinnovatesquickly.Thisinnovationcanleadtocompetingsoftwareprojects,whichcreatescomplexityandriskforenterprisesthatsimplywanttousethebestandmostappropriateopensourcesoftware.Enterprisesneedatrustedpartnertoplayanactiveroleinthecommunity,contributingsignificantlytoopensourcedevelopmentandcontinuouslycuratingthevariousprojectstocreateahighlyintegrated,secureandhigh‑performanceplatform.
• Support for machine learning. Distributedsystemstogetherwithlargeamountsofdataallowenterprisestousemachinelearningtounderstandthepastandtopredictthefuture.Toperformmachinelearning,adataplatformmustsupportflexibleschemaandmultipledatasciencelanguages.Itmustalsosupportanewclassofanalyticalgorithmsasmachinelearningusessophisticatedalgorithmstoexaminedataandtoextractpatterns.Enterprisesrequireamoderndatamanagementandanalyticsplatformthatpowersthealgorithmstoapplymachinelearningtorealbusinessproblemsandrealbusinessdata.
• Enterprise-grade performance, features and functionality. Enterprisesrequireaplatformsuitedtooperatinginhighlycomplextechnology,businessandregulatoryenvironments,including:
– Scalability and performance. Legacydatamanagementsystemsdonotmeettheperformancedemandsofmoderndataapplications.Thesesystemsdependonasingleorlimitednumberofexpensive,centralizedcomputerstohandlestorageandprocessing.HugequantitiesofdataaccessedbymanyusersrunningacombinationofSQLqueries,textsearchesandmachinelearningtechnologiescansimplyoverwhelmlegacysystems.Themoderndataplatformrequiresascale‑outarchitecture–whichcombinesmanysmall,inexpensivecomputersandpoolstheirstorageandprocessingpower–tomeetperformancedemands.
– Operate and manage resources across environments at scale. Asdataandprocessingneedsgrow,enterprisesrequiretechnologythatoffersvisibilityacrosssystemsandworkloadswithoutregardtowhetherthoseassetsaredeployedon‑premisesorinthecloud.Asenterprisesystemsscale,centralizedmonitoringandmanagementinanyinfrastructureenvironmentbecomescriticaltodataarchitectureoperations,aswellastoregulatoryandpolicycompliance.
– Data security and governance. Dataisstrategic,andenterprisesareretainingmoreofitforlonger–evenpermanently.Alargeconcentrationofdatacreatesuniqueandsignificantsecurityconcerns.Businesspolicy,legalandregulatoryregimesimposerulesastowhomayusedata,forwhatpurposesandhowitissafeguarded.Policysetting,enforcementandmonitoringforcompliancepurposesdemanddatagovernancetechnologythatreportsonusage,tracksdatalineageandensuresthatenterprisescanmeetthestrictprivacyandothercontrolsthatapply.Toappropriatelysafeguarddataandcomplywithlegalandregulatoryrequirements,enterprisesmustensureproperauthentication,authorizationandaccessateverylevel.
– Low total cost of ownership. Theamountofdataavailableforanalysishasgrownexponentially,butITbudgetshavenot.Eveniflegacydatamanagementtechnologiescould addressthechallengesof“bigdata,”theywouldbecostprohibitive.Enterprisesrequiretheabilitytomanagetheirdataarchitectureatscaleandtheflexibilitytousetheinfrastructurethatismostcostefficientandappropriateforeachusecase.
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Our Market Opportunity
Themarketfornext‑generationdatamanagement,machinelearningandadvancedanalyticsislargeandrapidlygrowingastheworldincreasinglyconnects.IDCestimatesthatthetotalspendonbigdataandbusinessanalyticsrelatedhardware,softwareandserviceswillgrowatan11.9%compoundannualgrowthratetomorethan$210.0billionby2020.Ourplatformcurrentlyaddressesthreenewtransformativemarketswithinbigdataandbusinessanalytics:(i)DynamicDataManagementSystems;(ii)Cognitive/AISystemsandContentAnalyticsSoftware;and(iii)AdvancedandPredictiveAnalyticsSoftware.Technologieswithinthefirstmarkethelpenterprisescaptureandmanagetheincreasingvolumeandcomplexityofnewdata.Technologieswithinthelattertwomarketshelpenterprisesgenerateinsightsandderivevaluefromtheirdata.IDCestimatesthatinaggregatethesemarketswillgrowfrom$10.6billionin2016to$27.7billionin2021atacombinedcompoundannualgrowthrateof21.2%.
Beyondthesenewmarkets,ourplatformcurrentlyaddressesandisdisruptingtraditionalmarkets,includingasignificantportionoftheRelationalDatabaseManagementSystemsandNon‑RelationalDatabaseManagementSystemsmarkets.Technologieswithinthesemarketsrepresenttraditionalsystemsusedbyenterprisestomanagetheirdata.AddingtogetherIDC’sestimatesofthesenewandtraditionalmarkets,webelieveourtotaladdressableopportunityincludingtheseadditionalmarketsisexpectedtoreach$72.7billionby2021.
Our Solution
Clouderaempowersorganizationstobecomedata‑drivenenterprisesinthenewlyhyperconnectedworld.Wehavedevelopedthemodernplatformformachinelearningandanalytics,optimizedforthecloud.Buildingontheapproachofweb‑scaleconsumerinternetcompanies,wehavecollaboratedwiththeglobalopensourcecommunitytoinnovateanddeliverourcloud‑nativeplatform.Ourscale‑outdistributedarchitecturedelivershighperformanceoninexpensive,industry‑standardhardwareorcloudinfrastructure.Weallowenterprisestooperate,manageandmoveworkloadsacrossmultiplearchitectures,mixingon‑premisesandcloudenvironments,includingallmajorpubliccloudinfrastructureproviders.Webelievethatoursolutionisthemostwidelyadoptedbigdataplatform,withagrowingrangeofapplicationsbeingbuiltonit.
Wehavepioneeredthehybridopensourcesoftwaredevelopmentmodel,orHOSS.Ourmodelisbasedonactiveparticipationandleadershipintheopensourcedatamanagementecosystemandsoftwaredevelopmentprocess,andutilizationoftheverybestopensourcetechnologies.Asauthorsandparticipants,wecontributenewprojectsandenhanceexistingprojects.Wealsoidentifythebestprojectsthataregrowinginpopularityamongdevelopersandinadoptionbyenterprises.Thisinvolvementhelpsusrecognizeandchampionemergingstandards,aswedidwhenweledthemarketbyembracingSparkasacomplementtotheoriginalMapReducedataprocessingengine.
Todelivertheagilityandinnovationofopensourcesoftwaretoourcustomers,ourplatformintegrates26distinctopensourceprojects,18ofwhichwerecreatedbyourengineers.Wecombinethosecuratedopensourceprojectswithourrobustproprietarysoftwaretoformanenterprise‑gradeplatform.Weprovideafullandintegratedsuiteofdatamanagement,machinelearningandadvancedanalyticcapabilities,affordingenterprisesasingleplatformthatisagile,scalableandcosteffectivefortransformingtheirbusinesses.
Webelieveourapproachhasaprofoundimpactbothonourcustomersandontheopensourcecommunity.OurHOSSmodeldeliverssubstantiallygreatervaluetocustomersinmanaging,operatingandsecuringtheirdataanddataarchitectures.Inaddition,ourrobustproprietarysoftwaremeaningfullydifferentiatesoursolutionsfromthoseofourcompetitors,includingopensource“freeriders”whotakefrom,butdonotcontributeto,theopensourcecommunityatlarge.Thisdifferentiationdrivestherevenuetosustaininvestmentinfurtherinnovationintheopensourcedatamanagementecosystemtoaddressabroadeningsetofenterprisedataneeds.
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Key Benefits and Differentiators
Thesearethekeybenefitsanddifferentiatorsofoursolution:
• Deployable on-premises or in the public cloud – or both. Withouragnosticapproachtoinfrastructure,enterprisesstoreandanalyzetheirdataintheenvironmentthatbestmeetstheirperformanceandefficiencygoals.Oursolutionallowsenterprisestomanagebothlong‑livedandtransientworkloadsacrossenvironments,mixingon‑premisesandpubliccloudinfrastructure,includingallmajorpubliccloudvendors–AmazonWebServices,MicrosoftAzureandGoogleCloudPlatform.Weenableenterprises’multi‑cloudstrategies,allowingthemtomoveworkloadsfromthedatacentertothepubliccloud,amongpubliccloudvendors,andbackagain.Customersmaintainandcontrolaccesstotheirdata,andtheyarebetterabletoobtainattractivetermsandavoidcloudvendorlock‑in.
• Leverages the latest open source innovation . Ourplatformintegratesthelatestinnovationsinopensourcedatamanagementtechnology.Inadditiontoourcontributionstonewprojectinnovationandexistingprojectenhancement,weareabletoleveragethemostsignificantinnovationsofthebroaderglobalcommunity.Forexample,wewerethefirstdataplatformvendortoincorporateSpark,integratingitintoourplatformin2013,enhancingbatchprocessingandenablingreal‑time,streamingandmachinelearningworkloads.ThiscurationandintegrationisacontinuouscommitmentasdemonstratedbyouradoptionofprojectssuchasSolr,Kafka,ImpalaandKudu.Asaresult,weservecustomersbetterandcapitalizeasabusinessonthelatestopensourcetechnologiestodeliverahighlyintegrated,secureandhigh‑performanceplatform.
• Enables machine learning. Ourplatformisuniquelydesignedtoenabletherapidlygrowingdatasciencecommunityandmachinelearningapplications.ThroughourintegrationofSparkandpopulardatasciencelanguageslikePythonandR,ourplatformsupportsbatch,real‑timeandadvancedanalytics.Weprovidethecapabilitiestoreliablyrunmassivelyiterativealgorithms,includingmachinelearningalgorithms,overlargevolumesofdata,tosupportadiverserangeofrelationalandnon‑relationalschemasandtoexpressanalyticworkloadsinmultipledevelopmentanddatasciencelanguages.Thesecapabilitiesallowenterprisestoidentifytrendsinhistoricaldata,torecognizeeventsincurrentorstreamingdataandtopredicteventsinthefuture,continuouslyimprovingwithexperience.
• Delivers enterprise-grade performance, features and functionality. Ourplatformmeetstheexactingrequirementsoflargeenterpriseson-premisesandinthepubliccloud,including:
– Scalability and high performance. Ourdistributedarchitectureallowsourcustomerstoeasilyandinexpensivelyincreasecapacitytomeetthespeedandthroughputdemandsofenterpriseapplications.Combiningmanysmall,inexpensivecomputersandpoolingtheirstorageandprocessingpowerinoneormore“clusters,”ourplatformcandelivertentimesorgreaterperformanceimprovementsoverlegacysystemsatlowercost.Asdatavolumesorperformancerequirementsincrease,addingmorecapacityorcomputingpowerisassimpleasaddingadditionalcomputerstothecluster.Capacityandperformanceexpandlinearlywithclustersize.Withjustoneinstallationofourplatform,acustomercanscaletohundredsofpetabytesofdataundermanagement.
– Integrated management at scale and across environments. Ourcustomerscandeploy,configureandmonitoralltheirclustersandworkloadsatscalefromacentralizedinterfaceacrossanymixofpubliccloudoron‑premisesenvironments.Weofferconfigurablemonitoringandreportingandintuitive,robusttroubleshootingtoprovidecomprehensivemanagementoflarge,growingdatasetsandconcurrentusecases.
– Data security and governance. Ourplatformusesproprietaryauthentication,networkisolation,user‑androle‑basedpermissions,accesslogging,auditing,lineageandencryptionincludingsophisticatedkeymanagementtoprovidecomprehensive,enterprise‑gradedatasecurityacrosstheplatform.Inaddition,ourplatformenablesregulatoryandindustry‑specificcompliancethroughcomprehensivedatagovernance,includingdatadiscovery,datalineage,metadatataggingandpolicyenforcement.
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– Low total cost of ownership. Ourscale‑outarchitecturedelivershighperformanceoninexpensiveindustry‑standardhardwareorcloudinfrastructure.Thisarchitectureallowsorganizationstogaininsightsandrealizevaluefromdataatmuchlowercostthantraditionaldatamanagementplatforms.Ourproprietarycloudautomation,systemsmanagementanddatamanagementcapabilitiesreducethepersonnelrequiredtooperateclustersandworkloadswhilemeetingcompliancestandards.Ourplatformallowscustomerstoselecttheinfrastructureenvironmentthatismostcost‑effectiveandappropriateforeachusecase.Additionally,thenativesecurityfeaturesofourplatformrequirenoadditionalthirdpartylicenses,furtherreducingcoststocustomers.
Recent Developments
Sinceourinitialpublicoffering,wehavecontinuedtoinnovateanddevelopnewtechnologiesandsolutionstoextendourmarketleadershipandenhanceourplatformformachinelearningandanalytics,optimizedforthecloud.Therearefournotableadditionstoourofferings:
• Cloudera Altus. ClouderaAltusisourplatform-as-a-service(PaaS)offering.Altusisacloudservicethatisdesignedtosimplifytheuseofourplatformbyeliminatingtheneedtoinstall,manageandupdateoursoftware.ThefirstserviceonAltusisClouderaAltusDataEngineering,aconvenient,user-drivenserviceforbuildingandmaintainingproductiondataengineeringjobsinAmazonWebServices.WithAltus,Clouderacanaddressanewsetofelasticandtransientworkloadsthatwouldotherwisebeimpracticaltoruninthedatacenter.Overtime,weexpectAltustosupporttherestofourplatformofferingsandadditionalpubliccloudproviders.
• Cloudera Data Science Workbench. ClouderaDataScienceWorkbenchenablesfast,easy,andsecureself-servicedatasciencefortheenterprise.DataScienceWorkbenchisamulti-user,multi-languagedevelopmentenvironmentfordatascienceandmachinelearningapplications.Ithelpsstreamlinethevariousstepsofthemodeldevelopmentlifecycleincludingversioning,dependencymanagement,scheduling,multi-usercollaborationandtrainingmodelsondisparatetypesofcompute.Byenablingcollaborationandsimplifyingapplicationdevelopmentfordatascientists,DataScienceWorkbenchspeedsmachinelearningworkloadsintoproductiononourplatform.
• Fast Forward Labs. OurrecentacquisitionofFastForwardLabs,Inc.enablesustoprovideourcustomerswiththeleadingappliedresearchinmachinelearningandartificialintelligence.ClouderaFastForwardLabssurveysacademicandindustrialresearchfordevelopmentsinthefield,enablingcustomerstobenefitfromthelatestadvancesinappliedmachinelearningandartificialintelligence.Throughoursoftwareandsystemsintegrationpartnersandourownservicesorganization,weareabletodeploythosetechniquesinproductionsolutions,solvingcriticalbusinesschallengesforlargeenterprises.OvertimeweexpectthesecapabilitiestodriveincreasedconsumptionofClouderaDataScienceWorkbenchandourplatform,bothon-premisesandinthepubliccloud.
• Cloudera SDX. ClouderaSDXisamodularsoftwareframeworkthatenablesourcustomerstohavea“shareddataexperience.”Byapplyingacentralized,consistentframeworkforschema,security,governance,dataingestandmore,SDXmakesitpossiblefordozensorhundredsofdifferentcustomerapplicationstorunagainstsharedoroverlappingsetsofdata.SDXmakesmulti-disciplinarydataapplicationseasiertodevelop,lessexpensivetodeployandmoreconsistentlysecure.SDXsupportsmultiplepubliccloud,privatecloudandbaremetalconfigurations.
Our Strategy
Keyelementsofourstrategyinclude:
• leadingcloudinnovationforbigdata,extendingouroriginalcloud‑nativearchitecture;
• growingouraddressablemarketbyexpandingtherangeofapplicationsourplatformcansupport;
• extendingourpositionastheleaderinhybridopensourcesoftware;
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• continuingtorapidlyacquirenewcustomers;
• acceleratingexistingcustomerexpansion;
• leveragingourpartnerecosystem;
• showcasingadata‑drivenbusinesswithourownoperations;and
• cultivatingapassionforsolvingtheworld’sgreatestchallengesthroughdata.
Risks Related to Our Business and Investment in Our Common Stock
Investinginourcommonstockinvolvesahighdegreeofrisk.Youshouldcarefullyconsidertheriskshighlightedinthesectiontitled“RiskFactors”immediatelyfollowingthisprospectussummarybeforemakinganinvestmentdecision.Wemaybeunableformanyreasons,includingthosethatarebeyondourcontrol,toimplementourbusinessstrategysuccessfully.Theserisksinclude:
• wehaveahistoryoflosses,andwemaynotbecomeprofitableinthefuture;
• wehaveashortoperatinghistory,whichmakesitdifficulttopredictourfutureresultsofoperations;
• themarketforourdatamanagementandanalyticsplatformmaydevelopmoreslowlythanweexpect;
• wefaceintensecompetitionandcouldlosemarketsharetoourcompetitors;
• ourcustomersmaynotreneworexpandtheirsubscriptions,ormaydosoonunfavorableterms;
• oursalescyclescanbelongandunpredictable,particularlywithrespecttolargesubscriptions,andoursaleseffortsrequireconsiderabletimeandexpense;
• wedonothaveanadequatehistorywithoursubscriptionorpricingmodelstoaccuratelypredictthelong‑termrateofcustomeradoptionorrenewal,ortheimpactthesewillhaveonourrevenueoroperatingresults;
• ourresultsmayfluctuatesignificantlyfromperiodtoperiod;
• wefacerisksbecausewederivesubstantiallyallofourrevenuefromasinglesoftwareplatform,andwemayfailtosatisfycustomerdemandsorachieveincreasedmarketacceptance;
• wehavebeen,andmayinthefuturebe,subjecttointellectualpropertyrightsclaimsbythirdparties,andwemayfailtoadequatelyprotectconfidentialinformationandourintellectualpropertyrights;and
• ourdirectors,executiveofficersandstockholderswhoowngreaterthan5%ofouroutstandingcommonstock,andtheiraffiliates,whoafterthisofferingwillcollectivelyholdapproximately42.6%ofouroutstandingcommonstock,basedonthenumberofsharesoutstandingasofAugust31,2017,willhavetheabilitytoinfluenceorcontroltheoutcomeofmatterssubmittedtoourstockholdersforapproval.
Ifweareunabletoadequatelyaddresstheseandotherrisksweface,ourbusiness,financialcondition,operatingresultsandprospectsmaybeadverselyaffected.
Corporate History and Information
WewereincorporatedinDelawarein2008,andwehad1,606full‑timeemployeesasofJuly31,2017.Ourprincipalexecutiveofficesarelocatedat395PageMillRoad,PaloAlto,California94306andourtelephonenumberis(650)362‑0488.Ourwebsiteaddressiswww.cloudera.com.Theinformationon,orthatcanbeaccessedthrough,ourwebsitesarenotincorporatedbyreferenceintothisprospectusandshouldnotbeconsideredpartofthisprospectus.
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InMay2014,inconjunctionwithformingourstrategicpartnershipwithIntel,Intelinvestedapproximately$741.8millioninourcapitalstock,includingpurchasingapproximately$370.9millionfromusandanaggregateofapproximately$370.9millionfromsomeofourstockholders.Subsequently,Intelhaspurchasedadditionalsharesofourcapitalstockfromsomeofourstockholdersaswellasfromusinourinitialpublicoffering,bringingIntel’saggregateinvestmentinourcapitalstocktoapproximately$784.5millionasofAugust31,2017.Aftercompletionofthisoffering,Intelwillholdapproximately18.7%ofouroutstandingcommonstockbasedonthenumberofsharesoutstandingasofAugust31,2017.See“Business—IntelStrategicPartnership”and“CertainRelationshipsandRelated‑PartyTransactions.”
Cloudera isaregisteredtrademarkoftheCompany.Cloudera Navigator ,Cloudera Navigator Audit and Lineage, Cloudera NavigatorOptimizer, Cloudera Navigator Encrypt, Cloudera Navigator Key Trustee, Cloudera Essentials, Cloudera Enterprise Data Hub, Cloudera DataScience and Engineering, Cloudera Operational DB, Cloudera Analytics DB, Cloudera Atlus, Cloudera Data Science Workbench, ClouderaManager and Cloudera Director aresomeofourtrademarksusedinthisprospectus.Solelyforconvenience,ourtrademarks,tradenamesandservicemarksreferredtointhisprospectusappearwithoutthe®,™andSMsymbols,butthosereferencesarenotintendedtoindicate,inanyway,thatwewillnotassert,tothefullestextentunderapplicablelaw,ourrightstothesetrademarksandtradenames.
Othertrademarksappearinginthisprospectusarethepropertyoftheirrespectiveholders.Forexample,ApacheAvro,ApacheFlume,ApacheHadoop,ApacheHadoopYARN,ApacheHBase,ApacheHive,ApacheImpala(incubating),ApacheKafka,ApacheKudu,ApachePig,ApacheSentry,ApacheSolr,ApacheSpark,ApacheSpot(incubating)andApacheSqooparetrademarksoftheApacheSoftwareFoundation.AllreferencestoAvro,Flume,Hadoop,HadoopYARN,HBase,Hive,Impala,Kafka,Kudu,Pig,Sentry,Solr,Spark,SpotandSqooparetothecorrespondingApacheproject.
Implications of Being an Emerging Growth Company
Asacompanywithlessthan$1.07billioninrevenueduringourlastcompletedfiscalyear,wequalifyasan“emerginggrowthcompany”asdefinedintheJumpstartOurBusinessStartupsActof2012.Anemerginggrowthcompanymaytakeadvantageofspecifiedreducedreportingrequirementsthatareotherwiseapplicablegenerallytopubliccompanies.Thesereducedreportingrequirementsinclude:
• anexemptionfromcompliancewiththeauditorattestationrequirementontheeffectivenessofourinternalcontroloverfinancialreporting;
• anexemptionfromcompliancewithanyrequirementthatthePublicCompanyAccountingOversightBoardmayadoptregardingasupplementtotheauditor’sreportprovidingadditionalinformationabouttheauditandthefinancialstatements;
• reduceddisclosureaboutourexecutivecompensationarrangements;
• anexemptionfromtherequirementstoobtainanon‑bindingadvisoryvoteonexecutivecompensationorastockholderapprovalofanygoldenparachutearrangements;and
• extendedtransitionperiodsforcomplyingwithneworrevisedaccountingstandards.
Wewillremainan“emerginggrowthcompany”uptothelastdayofthefiscalyearendingafterthefifthanniversaryofourinitialpublicoffering.However,amongotherfactors,ifthemarketvalueofourcommonstockthatisheldbynon‑affiliatesexceeds$700millionasofanyJuly31afterourfirstannualreport,wewouldceasetobean“emerginggrowthcompany”asofthefollowingJanuary31.
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THE OFFERING
Commonstockofferedbyus 3,000,000sharesCommonstockofferedbythesellingstockholders 10,432,114sharesTotalcommonstockoffered 13,432,114sharesOptiontopurchaseadditionalsharesofferedbythesellingstockholdersexercisablefor30daysfromthedateofthisprospectus 2,014,816sharesCommonstocktobeoutstandingafterthisoffering 139,289,042sharesUseofproceeds Weintendtouseournetproceedsfromthisofferingtoraisecapital
toreplacecashwewilluseforfundingtaxwithholdingobligationsweincurreduponthenetsettlementofequityawards,thesettlementandwithholdingofwhichwasconcurrentwiththepricingofthisoffering.Wewillnotreceiveanyproceedsfromthesaleofsharesbythesellingstockholders.See“UseofProceeds.”
Riskfactors See“RiskFactors”beginningonpage14andotherinformation
includedinthisprospectusforadiscussionoffactorsthatyoushouldconsidercarefullybeforedecidingtoinvestinourcommonstock.
NewYorkStockExchangetickersymbol “CLDR”
Thenumberofsharesofcommonstocktobeoutstandingafterthisofferingisbasedon131,250,336sharesofcommonstockoutstandingasofJuly31,2017,andexcludes:
• 22,211,442sharesofourcommonstockissuableupontheexerciseofstockoptionsoutstandingasofJuly31,2017,withaweighted‑averageexercisepriceof$4.73pershare;
• 24,197,948sharesofourcommonstocksubjecttorestrictedstockunits(RSUs)outstandingasofJuly31,2017;
• 1,251,206sharesofourcommonstocksubjecttoRSUsgrantedafterJuly31,2017throughSeptember27,2017;
• 8,100sharesofourcommonstockissuableupontheexerciseofstockoptionsgrantedafterJuly31,2017throughSeptember27,2017withanexercisepriceof$17.32pershare;
• 358,206sharesofourcommonstockissuedinconnectionwithstrategictransactionsafterJuly31,2017throughSeptember27,2017;and
• 32,848,932sharesofourcommonstockreservedforfutureissuanceunderourequitycompensationplans,consistingof:
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– 29,848,932sharesofourcommonstockreservedforfutureissuanceunderour2017EquityIncentivePlan,or2017Plan,asofJuly31,2017(whichnumberofsharesispriortotheRSUsandstockoptionsgrantedafterJuly31,2017);and
– 3,000,000sharesofourcommonstockreservedforfutureissuanceunderour2017ESPP.
Thesharesavailableforissuanceunderour2017Planincludethesharesthatwerepreviouslyreservedforissuanceunderour2008EquityIncentivePlan,orthe2008Plan,onApril27,2017,whenour2017Planbecameeffectiveandwhenweceasedgrantingawardsunderthe2008Plan.Our2017Planand2017ESPPalsoprovideforautomaticannualincreasesinthenumberofsharesreservedthereunder.Seethesectiontitled“ExecutiveCompensation-EmployeeBenefitPlans”foradditionalinformation.The3,080,027shareswithheldtosatisfywithholdingtaxobligationsinconnectionwiththesettlementofRSUsconcurrentlywiththisofferingwillbeavailableforissuanceunderour2017Plan.
Exceptasotherwiseindicated,allinformationinthisprospectusassumes:theissuanceof5,038,706sharesofcommonstocksubjecttothesettlementofRSUs,thesettlementofwhichwasconcurrentwiththepricingofthisoffering,aftergivingeffecttothecancellationandforfeitureof3,080,027shareswithheldtosatisfytheassociatedwithholdingtaxobligations;
• noexerciseorcancellationofoutstandingoptionsorvestingofRSUssubsequenttoJuly31,2017;and
• noexercisebytheunderwritersoftheiroptiontopurchaseuptoanadditional2,014,816sharesofourcommonstockfromspecifiedsellingstockholdersinthisoffering.
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SUMMARY CONSOLIDATED FINANCIAL DATA
WehavederivedthesummaryconsolidatedstatementofoperationsdatafortheyearsendedJanuary31,2016and2017andthesummaryconsolidatedbalancesheetdataasofJanuary31,2017fromourauditedconsolidatedfinancialstatementsincludedelsewhereinthisprospectus.WehavederivedthesummaryconsolidatedstatementofoperationsdatafortheyearendedJanuary31,2015fromourauditedconsolidatedfinancialstatementsthatarenotincludedinthisprospectus.WehavederivedthesummaryconsolidatedstatementofoperationsdataforthesixmonthsendedJuly31,2016and2017andthesummaryconsolidatedbalancesheetdataasofJuly31,2017fromourunauditedinterimconsolidatedfinancialstatementsincludedelsewhereinthisprospectus.OurunauditedinterimconsolidatedfinancialstatementshavebeenpreparedinaccordancewithU.S.generallyacceptedaccountingprinciples,orU.S.GAAP,onthesamebasisasourauditedannualconsolidatedfinancialstatementsand,intheopinionofmanagement,reflectalladjustments,consistingonlyofnormal,recurringadjustments,thatarenecessaryforthefairstatementofourconsolidatedfinancialpositionasofJuly31,2017andourconsolidatedresultsofoperationsforthesixmonthsendedJuly31,2016and2017.Youshouldreadthefollowingsummaryconsolidatedfinancialdatainconjunctionwith“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”andourconsolidatedfinancialstatementsandrelatednotesincludedelsewhereinthisprospectus.Ourhistoricalresultsarenotnecessarilyindicativeoftheresultstobeexpectedforanyotherperiodinthefuture,andtheresultsforthesixmonthsendedJuly31,2017arenotnecessarilyindicativeoftheresultstobeexpectedforthefullyearoranyotherperiod.
Year EndedJanuary 31, Six Months Ended
July 31,
2015 2016 2017 2016 2017
(in thousands, except per share data)
Consolidated Statements of Operations Data: Revenue: Subscription $ 72,615 $ 119,150 $ 200,252 $ 91,360 $ 138,657
Services 36,503 46,898 60,774 29,581 30,767
Totalrevenue 109,118 166,048 261,026 120,941 169,424Costofrevenue:(1)(2)(4) Subscription 18,314 30,865 38,704 19,057 41,687Services 32,148 44,498 48,284 23,317 50,395
Totalcostofrevenue 50,462 75,363 86,988 42,374 92,082Grossprofit 58,656 90,685 174,038 78,567 77,342Operatingexpenses:(1)(2)(3)(4)
Researchanddevelopment 66,431 99,314 102,309 51,150 138,675
Salesandmarketing 103,736 161,106 203,161 93,044 172,578
Generalandadministrative 25,041 34,902 55,907 16,676 54,114
Totaloperatingexpenses 195,208 295,322 361,377 160,870 365,367
Lossfromoperations (136,552) (204,637) (187,339) (82,303) (288,025)
Interestincome,net 327 2,218 2,756 1,448 2,089
Otherincome(expense),net (490) 386 (547) (15) 839
Netlossbeforebenefitfrom(provisionfor)incometaxes (136,715) (202,033) (185,130) (80,870) (285,097)
Benefitfrom(provisionfor)incometaxes 1,285 (1,110) (2,187) (970) (1,451)
Netloss (135,430) (203,143) (187,317) (81,840) (286,548)Deemeddividendtopreferredstockholders (43,207) — — — —
Netlossattributabletocommonstockholders $ (178,637) $ (203,143) $ (187,317) $ (81,840) $ (286,548)
Netlosspershareattributabletocommonstockholders,basicanddiluted $ (6.53) $ (6.21) $ (5.15) $ (2.27) $ (3.28)
Weighted-averagesharesusedincomputingnetlosspershareattributabletocommonstockholders,basicanddiluted(5) 27,348 32,724 36,406 36,090 87,293
Other Financial Statement Data: Non-GAAPoperatingloss(6) $ (100,431) $ (137,592) $ (140,331) $ (69,232) $ (55,607)
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___________(1) Amountsincludestock‑basedcompensationexpenseasfollows:
Year EndedJanuary 31, Six Months Ended
July 31,
2015 2016 2017 2016 2017
(in thousands)
Costofrevenue–subscription $ 996 $ 3,363 $ 1,426 $ 708 $ 19,393
Costofrevenue–services 1,376 4,301 1,803 931 24,227
Researchanddevelopment 11,687 23,048 5,606 3,013 81,029
Salesandmarketing 11,530 19,187 5,757 3,033 72,678
Generalandadministrative 8,477 13,691 7,122 3,556 33,206
Totalstock-basedcompensationexpense $ 34,066 $ 63,590 $ 21,714 $ 11,241 $ 230,533
(2) Amountsincludeamortizationofacquiredintangibleassetsasfollows:
Year EndedJanuary 31, Six Months Ended
July 31,
2015 2016 2017 2016 2017
(in thousands)
Costofrevenue–subscription $ 906 $ 1,732 $ 1,997 $ 969 $ 1,024
Salesandmarketing 1,149 1,723 1,723 861 861
Totalamortizationofacquiredintangibleassets $ 2,055 $ 3,455 $ 3,720 $ 1,830 $ 1,885
(3) InJanuary2017,wedonated1,175,063sharesofcommonstocktotheClouderaFoundation.Werecordedanon‑cashchargeof$21.6millionforthefairvalueofthedonatedshares,whichwasrecognizedingeneralandadministrativeexpensefortheyearendedJanuary31,2017.SeeNote12toourconsolidatedfinancialstatementsincludedelsewhereinthisprospectusforfurtherdiscussion.
(4) OnApril27,2017,theeffectivedateofourinitialpublicoffering,theliquidityevent‑relatedperformanceconditionwasachievedforthemajorityofourRSUsandbecameprobableofbeingachievedfortheremainingRSUs.Werecognizedstock‑basedcompensationexpenseusingtheacceleratedattributionmethodwithacumulativecatch‑upofstock‑basedcompensationexpenseintheamountof$181.5millionduringthesixmonthsendedJuly31,2017,attributabletoservicepriortosucheffectivedate.SeeNote10toourconsolidatedfinancialstatementsincludedelsewhereinthisprospectusforfurtherdiscussion.
(5) SeeNotes2and14toourconsolidatedfinancialstatementsincludedelsewhereinthisprospectusforanexplanationofthecalculationsofourbasicanddilutednetlosspershareattributabletocommonstockholders,andtheweighted‑averagenumberofsharesusedinthecomputationofthepershareamounts.
(6) Wedefinenon‑GAAPoperatinglossaslossfromoperationsbeforestock‑basedcompensationexpense,amortizationofacquiredintangibleassetsanddonationofcommonstocktotheClouderaFoundation.Formoreinformationaboutournon‑GAAPoperatinglossandareconciliationofournon‑GAAPoperatinglosstolossfromoperations,themostdirectlycomparablefinancialmeasurecalculatedandpresentedinaccordancewithU.S.generallyacceptedaccountingprinciples(GAAP),seethesectiontitled“SelectedConsolidatedFinancialData—Non‑GAAPFinancialMeasure.”
As of July 31, 2017
Actual As
Adjusted (1)
(in thousands)
Consolidated Balance Sheet Data: Cashandcashequivalents $ 68,936 $ 63,364Marketablesecurities,currentandnoncurrent 406,816 406,816Workingcapital 248,492 242,920Totalassets 649,817 644,245Deferredrevenue,currentandnoncurrent 231,121 231,121Totalstockholders’equity 355,388 349,816___________(1) Reflects(i)thesalebyusof3,000,000sharesofcommonstockinthisofferingatthepublicofferingpriceof$16.45pershare,afterdeductingtheunderwriting
discountsandcommissionsandestimatedofferingexpensespayablebyusandtheapplicationofthenetproceedsofthisofferingasdescribedin“UseofProceeds,”and(ii)theissuanceof5,038,706sharesofcommonstocksubjecttothesettlementofrestrictedstockunits(RSUs),thesettlementofwhichwasconcurrentwiththepricingofthisoffering,aftergivingeffecttothecancellationandforfeitureof3,080,027shareswithheldtosatisfytheassociatedwithholdingtaxobligations.
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in thisprospectus, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could materially andadversely affect our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock coulddecline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently believe are not materialmay also impair our business, financial condition, results of operations and growth prospects .
Risks Related to our Business
We have a history of losses, and we may not become profitable in the future.
Wehaveincurrednetlossessinceourfoundingin2008,includingnetlossesof$135.4million,$203.1million,$187.3millionand286.5millionfortheyearsendedJanuary31,2015,2016and2017andthesixmonthsendedJuly31,2017,respectively,andexpecttocontinuetoincurnetlossesfortheforeseeablefuture.Asaresult,wehadanaccumulateddeficitof$962.5millionatJuly31,2017.Theselossesandaccumulateddeficitreflectthesubstantialinvestmentswemadetoacquirenewcustomers,commercializeourplatform,participateintheopensourcedevelopmentcommunityanddevelopourproprietarysoftwarecomponentsunderourhybridopensourcesoftware(HOSS)model,andcontinuetodevelopourplatform.Furthermore,totheextentwearesuccessfulinincreasingourcustomerbase,wemayalsoincurincreasedlossesbecausecustomeracquisitioncostsandupfrontcostsassociatedwithnewcustomersarehigherinthefirstyearthantheaggregaterevenuewerecognizefromthosenewcustomersinthefirstyear.
Weexpecttocontinuetomakesignificantfutureexpendituresrelatedtothedevelopmentandexpansionofourbusiness,including:
• investmentsinourresearchanddevelopmentteamandinthedevelopmentofnewsolutionsandenhancementsofourplatform,includingcontributionstotheopensourcedatamanagementecosystem;
• investmentsinsalesandmarketing,includingexpandingoursalesforce,increasingourcustomerbase,increasingmarketawarenessofourplatformanddevelopmentofnewtechnologies;
• expandingofouroperationsandinfrastructure,includinginternationally;
• hiringadditionalemployees;and
• incurringcostsassociatedwithgeneraladministration,includinglegal,accountingandotherexpensesrelatedtobeingapubliccompanyuponcompletionofthisoffering.
Asaresultoftheseincreasedexpenses,wewillhavetogenerateandsustainincreasedrevenuetobeprofitableinfutureperiods.Further,infutureperiods,ourrevenuegrowthratecoulddecline,andwemaynotbeabletogeneratesufficientrevenuetooffsethighercostsandachieveorsustainprofitability.Ifwefailtoachieve,sustainorincreaseprofitability,ourbusinessandoperatingresultscouldbeadverselyaffected.
We have a short operating history, which makes it difficult to predict our future results of operations.
Wehaveashortoperatinghistory,whichlimitsourabilitytoforecastourfutureresultsofoperationsandsubjectsustoanumberofuncertainties,includingourabilitytoplanforandanticipatefuturegrowth.Ourhistoricalrevenuegrowthshouldnotbeconsideredindicativeofourfutureperformance.Further,infutureperiods,ourrevenuegrowthcouldsloworourrevenuecoulddeclineforanumberofreasons,includingslowingdemandforoursolutions,increasingcompetition,adecreaseinthegrowthofouroverallmarket,orourfailure,foranyreason,tocontinuetocapitalizeongrowthopportunities.Wehavealsoencounteredandwillencounterrisksanduncertaintiesfrequentlyexperiencedbygrowingcompaniesinrapidlychangingindustries,suchasdeterminingappropriateinvestmentsofourlimitedresources,marketreceptionofourplatformandHOSSmodel,competitionfromother
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companies,attractingandretainingcustomers,hiring,integrating,trainingandretainingskilledpersonnel,developingnewsolutionsandunforeseenexpenses.Ifourassumptionsregardingtheserisksanduncertainties,whichweusetoplanourbusiness,areincorrectorchange,orifwedonotaddresstheseriskssuccessfully,ouroperatingandfinancialresultscouldbeadverselyaffected.
If the market for our data management, machine learning and analytics platform develops more slowly than we expect, our growth may slow or stall, and ouroperating results could be harmed.
Themarketforadatamanagement,machinelearningandanalyticsplatformisrelativelynew,rapidlyevolvingandunproven.Ourfuturesuccesswilldependinlargepartonourabilitytopenetratetheexistingmarketfordatamanagement,machinelearningandanalyticsplatforms,aswellasthecontinuedgrowthandexpansionofthatmarket.Itisdifficulttopredictcustomeradoptionandrenewalsofoursubscriptions,customerdemandforourplatform,thesize,growthrateandexpansionofthismarket,theentryofcompetitiveproductsorthesuccessofexistingcompetitiveproducts.Ourabilitytopenetratetheexistingmarketfordatamanagement,machinelearningandanalyticsplatformsandanyexpansionofthatmarketdependsonanumberoffactors,includingthecost,performanceandperceivedvalueassociatedwithourplatform,aswellaspotentialcustomers’willingnesstoadoptanalternativeapproachtodatacollection,storageandprocessing.Ifweorotherdatamanagementprovidersexperiencesecurityincidents,lossofcustomerdata,disruptionsindeliveryorotherproblems,themarketfordatamanagement,machinelearningandanalyticsplatformsasawhole,includingoursolutions,maybenegativelyaffected.Furthermore,manypotentialcustomershavemadesignificantinvestmentsinlegacydatacollection,storageandprocessingsoftwareandmaybeunwillingtoinvestinnewsolutions.Ifdatamanagement,machinelearningandanalyticsplatformsdonotachievewidespreadadoption,orthereisareductionindemandcausedbyalackofcustomeracceptance,technologicalchallenges,weakeningeconomicconditions,securityorprivacyconcerns,competingtechnologiesandproducts,decreasesincorporatespendingorotherwise,itcouldresultindecreasedrevenueandourbusinesscouldbeadverselyaffected.
We face intense competition and could lose market share to our competitors, which could adversely affect our business, financial condition and results ofoperations.
Themarketfordatamanagement,machinelearningandanalyticsplatformsisintenselycompetitiveandcharacterizedbyrapidchangesintechnology,customerrequirements,industrystandardsandfrequentnewproductintroductionsandimprovements.Weanticipatecontinuedchallengesfromcurrentcompetitors,whichinmanycasesaremoreestablishedandenjoygreaterresourcesthanus,aswellasbynewentrantsintotheindustry.Ifweareunabletoanticipateoreffectivelyreacttothesecompetitivechallenges,ourcompetitivepositioncouldweaken,andwecouldexperienceadeclineinourgrowthrateorrevenuethatcouldadverselyaffectourbusinessandresultsofoperations.
Ourmainsourcesofcurrentandpotentialcompetitionfallintofourcategories:
• legacydatamanagementproductproviderssuchasHP,IBM,OracleandTeradata;
• publiccloudproviderswhoincludeproprietarydatamanagement,machinelearningandanalyticsofferings,suchasAmazonWebServices,GoogleCloudPlatformandMicrosoftAzure;
• strategicandtechnologypartnerswhomayalsoofferourcompetitors’technologyorotherwisepartnerwiththem,includingourstrategicpartnerswhoprovidePartnerSolutions(see“Business—PartnersandStrategicAlliances”)astheymayofferasubstantiallysimilarsolutionbasedonacompetitor’stechnology;and
• opensourcecompanies,includingHortonworksandMapR,aswellasinternalITorganizationsthatprovideopensourceself‑supportfortheirenterprises.
Manyofourexistingcompetitorshave,andsomeofourpotentialcompetitorscouldhave,substantialcompetitiveadvantagessuchas:
• greaternamerecognition,longeroperatinghistoriesandlargercustomerbases;
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• largersalesandmarketingbudgetsandresourcesandthecapacitytoleveragetheirsaleseffortsandmarketingexpendituresacrossabroaderportfolioofproducts;
• broader,deeperorotherwisemoreestablishedrelationshipswithtechnology,channelanddistributionpartnersandcustomers;
• widergeographicpresenceorgreateraccesstolargercustomerbases;
• greaterfocusinspecificgeographies;
• lowerlaborandresearchanddevelopmentcosts;
• largerandmorematureintellectualpropertyportfolios;and
• substantiallygreaterfinancial,technicalandotherresourcestoprovidesupport,tomakeacquisitionsandtodevelopandintroducenewproducts.
Inaddition,someofourlargercompetitorshavesubstantiallybroaderandmorediverseproductandserviceofferingsandmaybeabletoleveragetheirrelationshipswithdistributionpartnersandcustomersbasedonotherproductsorincorporatefunctionalityintoexistingproductstogainbusinessinamannerthatdiscouragesusersfrompurchasingourplatform,includingbysellingatzeroornegativemargins,productbundlingorofferingclosedtechnologyplatformssuchasIBMWatson.Potentialcustomersmayalsoprefertopurchasefromtheirexistingsuppliersratherthananewsupplierregardlessofplatformperformanceorfeatures.Asaresult,evenifthefeaturesofourplatformaresuperior,customersmaynotpurchaseoursolutions.Theselargercompetitorsoftenhavebroaderproductlinesandmarketfocusorgreaterresourcesandmaythereforenotbeassusceptibletoeconomicdownturnsorothersignificantreductionsincapitalspendingbycustomers.Ifweareunabletosufficientlydifferentiateoursolutionsfromtheintegratedorbundledproductsofourcompetitors,suchasbyofferingenhancedfunctionality,performanceorvalue,wemayseeadecreaseindemandforthosesolutions,whichcouldadverselyaffectourbusiness,operatingresultsandfinancialcondition.
Inaddition,newinnovativestart‑upcompanies,andlargercompaniesthataremakingsignificantinvestmentsinresearchanddevelopment,mayintroduceproductsthathavegreaterperformanceorfunctionality,areeasiertoimplementoruse,orincorporatetechnologicaladvancesthatwehavenotyetdevelopedorimplementedormayinventsimilarorsuperiorproductsandtechnologiesthatcompetewithourplatform.Ourcurrentandpotentialcompetitorsmayalsoestablishcooperativerelationshipsamongthemselvesorwiththirdpartiesthatmayfurtherenhancetheirresources.
Someofourcompetitorshavemadeorcouldmakeacquisitionsofbusinessesorenterintopartnershipsthatallowthemtooffermorecompetitiveandcomprehensivesolutions.Asaresultofsucharrangements,ourcurrentorpotentialcompetitorsmaybeabletoacceleratetheadoptionofnewtechnologiesthatbetteraddresscustomerneeds,devotegreaterresourcestobringtheseproductsandservicestomarket,initiateorwithstandsubstantialpricecompetition,ordevelopandexpandtheirproductandserviceofferingsmorequicklythanwedo.Thesecompetitivepressuresinourmarketorourfailuretocompeteeffectivelymayresultinfewerorders,reducedrevenueandgrossmarginsandlossofmarketshare.Inaddition,itispossiblethatindustryconsolidationmayimpactcustomers’perceptionsoftheviabilityofsmallerorevenmid‑sizesoftwarefirmsandconsequentlycustomers’willingnesstopurchasefromsuchfirms.
Wemaynotcompetesuccessfullyagainstourcurrentorpotentialcompetitors.Ifweareunabletocompetesuccessfully,orifcompetingsuccessfullyrequiresustotakecostlyactionsinresponsetotheactionsofourcompetitors,ourbusiness,financialconditionandresultsofoperationscouldbeadverselyaffected.Inaddition,companiescompetingwithusmayhaveanentirelydifferentpricingordistributionmodel.Increasedcompetitioncouldresultinfewercustomerorders,pricereductions,reducedoperatingmarginsandlossofmarketshare.Further,wemayberequiredtomakesubstantialadditionalinvestmentsinresearch,development,marketingandsalesinordertorespondtosuchcompetitivethreats,andwecannotassureyouthatwewillbeabletocompetesuccessfullyinthefuture.
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Because of the characteristics of open source software, there may be fewer technology barriers to entry in the hybrid open source market by new competitorsand it may be relatively easy for new and existing competitors with greater resources than we have to compete with us.
Oneofthecharacteristicsofopensourcesoftwareisthatthegoverninglicensetermsgenerallyallowliberalmodificationsofthecodeanddistributionthereoftoawidegroupofcompaniesand/orindividuals.Asaresult,otherscouldeasilydevelopnewsoftwareproductsbaseduponthoseopensourceprogramsthatcompetewithexistingopensourcesoftwarethatwesupportandincorporateintoourplatform.Suchcompetitionwithuseoftheopensourceprojectsthatweutilizecanmaterializewithoutthesamedegreeofoverheadandleadtimerequiredbyus,particularlyifthecustomersdonotvaluethedifferentiationofourproprietarycomponents.Itispossiblefornewandexistingcompetitorswithgreaterresourcesthanourstodeveloptheirownopensourcesoftwareorhybridproprietaryandopensourcesoftwareofferings,potentiallyreducingthedemandfor,andputtingpricepressureon,ourplatform.Inaddition,somecompetitorsmakeopensourcesoftwareavailableforfreedownloadanduseormaypositioncompetingopensourcesoftwareasalossleader.Wecannotguaranteethatwewillbeabletocompetesuccessfullyagainstcurrentandfuturecompetitorsorthatcompetitivepressureand/ortheavailabilityofopensourcesoftwarewillnotresultinpricereductions,reducedoperatingmarginsandlossofmarketshare,anyoneofwhichcouldseriouslyharmourbusiness.
If our customers do not renew or expand their subscriptions, or if they renew on less favorable terms, our future revenue and operating results will be harmed.
Ourfuturesuccessdepends,inpart,onourabilitytosellrenewalsofsubscriptionsandexpandthedeploymentofourplatformwithexistingcustomers.Whilewegenerallyoffersubscriptionsofuptothreeyearsinlength,ourcustomerstypicallypurchaseone-yearsubscriptionswhichgenerallydonotprovideforautomaticrenewalorarighttoterminatethesubscriptionearly.Ourcustomersmaynotreneworexpandtheuseoftheirsubscriptionsaftertheexpirationoftheircurrentsubscriptionagreements.Inaddition,ourcustomersmayoptforalower‑pricededitionofourplatformordecreasetheirusageofourplatform.Ourexistingcustomersgenerallyhavenocontractualobligationtoexpandorrenewtheirsubscriptionsaftertheexpirationofthecommittedsubscriptionperiodandgivenourlimitedoperatinghistory,wemaynotbeabletoaccuratelypredictcustomerrenewalrates.Ourcustomers’renewaland/orexpansionpricingratesmaydeclineorfluctuateasaresultoffactors,including,butnotlimitedto,theirsatisfactionwithourplatformandourcustomersupport,thefrequencyandseverityofsoftwareandimplementationerrors,ourplatform’sreliability,thepricingofoursubscriptionsandservices,orcompetingsolutionsorservices,theeffectsofglobaleconomicconditionsandtheirabilitytocontinuetheiroperationsandspendinglevels.Ifourcustomersrenewtheirsubscriptions,theymayrenewforshortercontractlengths,lessusageoronothertermsthatarelesseconomicallybeneficialtous.Wehavelimitedhistoricaldatawithrespecttoratesofcustomersubscriptionrenewals,sowemaynotaccuratelypredictfuturerenewaltrends.Wecannotassureyouthatourcustomerswillreneworexpandtheirsubscriptions,andifourcustomersdonotrenewtheiragreementsorrenewonlessfavorabletermsorforlessusage,ourrevenuemaygrowmoreslowlythanexpectedordeclineandourbusinesscouldsuffer.
Achievingrenewalorexpansionofsubscriptionsmayrequireustoincreasinglyengageinsophisticatedandcostlysaleseffortsthatmaynotresultinadditionalsales.Inaddition,therateatwhichourcustomersexpandthedeploymentofourplatformdependsonanumberoffactors,includinggeneraleconomicconditions,thefunctioningofoursolutions,theabilityofourfieldorganization,togetherwithourpartnerecosystem,toassistourcustomersinidentifyingnewusecases,modernizingtheirdataarchitectures,andachievingsuccesswithdata‑driveninitiativesandourcustomers’satisfactionwithourcustomersupport.Ifoureffortstoexpandpenetrationwithinourcustomersarenotsuccessful,ourbusinessmaysuffer.
Our sales cycles can be long, unpredictable and vary seasonally, particularly with respect to large subscriptions, and our sales efforts require considerable timeand expense.
Ourresultsofoperationsmayfluctuate,inpart,becauseoftheresource‑intensivenatureofoursalesefforts,thelengthandvariabilityofthesalescycleforourplatformandthedifficultyinmakingshort‑termadjustmentstoouroperatingexpenses.Thetimingofoursalesisdifficulttopredict.Thelengthofoursalescycle,frominitialevaluationtopaymentforoursubscriptionsisgenerallyfourtoninemonths,butcanvarysubstantiallyfrom
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customertocustomer.Oursalescyclecanextendtomorethan18monthsforsomecustomers.Oursaleseffortsinvolveeducatingourcustomersabouttheuse,technicalcapabilitiesandbenefitsofourplatform,solutionsandHOSSmodel.Customersoftenundertakeaprolongedevaluationprocess,whichfrequentlyinvolvesnotonlyourplatformbutalsothoseofothercompanies.Someofourcustomersinitiallydeployourplatformonalimitedbasis,withnoguaranteethatthesecustomerswilldeployourplatformwidelyenoughacrosstheirorganizationtojustifyoursubstantialpre‑salesinvestment.Asaresult,itisdifficulttopredictexactlywhen,orevenif,wewillmakeasaletoapotentialcustomerorifwecanincreasesalestoourexistingcustomers.Largeindividualsaleshave,insomecases,occurredinquarterssubsequenttothoseweanticipated,orhavenotoccurredatall.Ifoursalescyclelengthensoroursubstantialupfrontinvestmentsdonotresultinsufficientrevenuetojustifyourinvestments,ouroperatingresultscouldbeadverselyaffected.
Wehaveseasonalandend-of-quarterconcentrationofoursales,whichimpactsourabilitytoplanandmanagecashflowsandmargins.Oursalesvarybyseasonwiththefourthquartertypicallybeingourlargest.Inaddition,withineachquarter,mostsalesoccurinthelastmonthofthatquarter.Therefore,itisdifficulttodeterminewhetherweareachievingourquarterlyexpectationsuntilneartheendofthequarter,withseasonalitymagnifyingthedifficultyfordeterminingwhetherwewillachieveannualexpectations.Mostofourexpensesarerelativelyfixedorrequiretimetoadjust.Therefore,ifexpectationsforourbusinessarenotaccurate,wemaynotbeabletoadjustourcoststructureonatimelybasisandmarginsandcashflowsmaydifferfromexpectations.
We do not have an adequate history with our subscription or pricing models to accurately predict the long-term rate of customer adoption or renewal, or theimpact these will have on our revenue or operating results.
Wehavelimitedexperiencewithrespecttodeterminingtheoptimalpricesandpricingmodelsforoursolutions.Asthemarketsforoursolutionsmature,orasnewcompetitorsintroducenewproductsorservicesthatcompetewithours,wemaybeunabletoattractnewcustomersatthesamepriceorbasedonthesamepricingmodelaswehaveusedhistorically.Moreover,largecustomers,whicharethefocusofoursalesefforts,maydemandgreaterpriceconcessions.Additionally,therenewalrateofourlargecustomersmayhavemoresignificantimpactperiodtoperiodonourrevenueandoperatingresults.Asaresult,inthefuturewemayberequiredtoreduceourprices,whichcouldadverselyaffectourrevenue,grossmargin,profitability,financialpositionandcashflow.Inaddition,asanincreasingamountofourbusinessmaymovetoourcloud‑basedsolutionsfortransientworkloadsandtheuseofourconsumption‑basedpricingmodelmayrepresentagreatershareofourrevenue,ourrevenuemaybelesspredictableormorevariablethanourhistoricalrevenuefromatimeperiod‑basedsubscriptionpricingmodel.Moreover,aconsumption‑basedsubscriptionpricingmodelmayultimatelyresultinlowertotalcosttoourcustomersovertime,ormaycauseourcustomerstolimitusageinordertostaywithinthelimitsoftheirexistingsubscriptions,reducingoverallrevenueormakingitmoredifficultforustocompeteinourmarkets.
Our results may fluctuate significantly from period to period, which could adversely impact the value of our common stock.
Ourresultsofoperations,includingourrevenue,netrevenueexpansionrate,grossmargin,profitabilityandcashflows,mayvarysignificantlyinthefuture,andperiod‑to‑periodcomparisonsofouroperatingresultsmaynotbemeaningful.Accordingly,ourresultsforanyparticularperiodshouldnotberelieduponasanindicationoffutureperformance.Ourfinancialresultsmayfluctuatefromperiodtoperiodasaresultofavarietyoffactors,manyofwhichareoutsideofourcontrol.Fluctuationinperiodicresultsmayadverselyimpactthevalueofourcommonstock.Factorsthatmaycausefluctuationsinourperiodicfinancialresultsinclude,withoutlimitation,thoselistedelsewhereinthis“RiskFactors”sectionandthoselistedbelow:
• thebudgetingcyclesandpurchasingpracticesofourcustomers,includingtheirtendencytopurchaseinthefourthquarterofourfiscalyear,andneartheendofeachquarter;
• theachievementofmilestonesinconnectionwithdeliveryofservices,impactingthetimingofservicesrevenuerecognition;
• subscriptionsfromtheGlobal8000andotherlargeenterprises;
• pricecompetition;
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• ourabilitytoattractandretainnewcustomers;
• ourabilitytoexpandpenetrationwithinourexistingcustomerbase;
• thetimingandsuccessofnewsolutionsbyusandourcompetitors;
• changesincustomerrequirementsormarketneedsandourabilitytomakecorrespondingchangestoourbusiness;
• changesinthecompetitivelandscape,includingconsolidationamongourcompetitorsorcustomers;
• generaleconomicconditions,bothdomesticallyandinourforeignmarkets;
• thetimingandamountofcertainpaymentsandexpenses,suchasresearchanddevelopmentexpenses,salescommissionsandstock‑basedcompensation,includingtherecordingofstock‑basedcompensationexpenseasaresultofthevestingandsettlementofrestrictedstockunits(RSUs)includinginconnectionwiththisoffering;
• ourinabilitytoadjustcertainfixedcostsandexpenses,particularlyinresearchanddevelopment,forchangesindemand;
• increasesordecreasesinourrevenueandexpensescausedbyfluctuationsinforeigncurrencyexchangerates,asanincreasingportionofourrevenueiscollectedandexpensesareincurredandpaidincurrenciesotherthantheU.S.dollar;
• thecostofandpotentialoutcomesofexistingandfutureclaimsorlitigation,whichcouldhaveamaterialadverseeffectonourbusiness;
• futureaccountingpronouncementsandchangesinouraccountingpolicies;and
• changesintaxlawsortaxregulations.
Anyoneofthefactorsaboveorthecumulativeeffectofsomeofthefactorsabovemayresultinsignificantfluctuationsinouroperatingresults.Thisvariabilityandunpredictabilitycouldresultinourfailuretomeetourrevenueorotheroperatingresultexpectationsorthoseofinvestorsforaparticularperiod.Thefailuretomeetorexceedsuchexpectationscouldhaveamaterialadverseeffectonourbusiness,resultsofoperationsandfinancialconditionthatcouldultimatelyadverselyaffectourstockprice.
Because we derive substantially all of our revenue from a single software platform, failure of this platform to satisfy customer demands or to achieve increasedmarket acceptance could adversely affect our business, results of operations, financial condition and growth prospects.
Wederiveandexpecttocontinuetoderivesubstantiallyallofourrevenuefromourdatamanagement,machinelearningandanalyticsplatform.Assuch,themarketacceptanceofourplatformiscriticaltoourcontinuedsuccess.Demandforourplatformisaffectedbyanumberoffactorsbeyondourcontrol,includingcontinuedmarketacceptance,thetimingofdevelopmentandreleaseofnewproductsbyourcompetitors,technologicalchange,anydevelopmentsordisagreementswiththeopensourcecommunityandgrowthorcontractioninourmarket.Weexpectthegrowthandproliferationofdatatoleadtoanincreaseinthedataanalysesdemandsofourcustomers,andourplatformmaynotbeabletoscaleandperformtomeetthosedemandsormaynotbechosenbyusersforthoseneeds.Ifweareunabletocontinuetomeetcustomerdemandsortoachievemorewidespreadmarketacceptanceofourplatformandsolutions,ourbusinessoperations,financialresultsandgrowthprospectswillbemateriallyandadverselyaffected.
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We have been, and may in the future be, subject to intellectual property rights claims by third parties, which are extremely costly to defend, could require us topay significant damages and could limit our ability to use certain technologies.
Companiesinthesoftwareandtechnologyindustries,includingsomeofourcurrentandpotentialcompetitors,ownlargenumbersofpatents,copyrights,trademarksandtradesecretsandfrequentlyenterintolitigationbasedonallegationsofinfringementorotherviolationsofintellectualpropertyrights.Inaddition,manyofthesecompanieshavethecapabilitytodedicatesubstantiallygreaterresourcestoenforcetheirintellectualpropertyrightsandtodefendclaimsthatmaybebroughtagainstthem.Thelitigationmayinvolvepatentholdingcompaniesorotheradversepatentownersthathavenorelevantproductrevenueandagainstwhichourpatentsmaythereforeprovidelittleornodeterrence.Fromtime‑to‑time,thirdparties,includingcertainothercompanies,haveassertedandmayassertpatent,copyright,trademarkorotherintellectualpropertyrightsagainstus,ourpartnersorourcustomers.Weorourcustomershavereceived,andmayinthefuturereceive,noticesthatclaimwehavemisappropriated,misusedorinfringedotherparties’intellectualpropertyrights,and,totheextentwegaingreatermarketvisibility,wefaceahigherriskofbeingthesubjectofintellectualpropertyinfringementclaims,whichisnotuncommonwithrespecttotheenterprisesoftwaremarket.Asanexample,onMay26,2017,PlaintiffsUniversityofTennesseeResearchFoundationandSaintMathewResearchLLC(Plaintiffs),filedalawsuitagainstusintheU.S.DistrictCourtfortheMiddleDistrictofTennessee.Thesuitallegesthatcertainsoftwareproductsthataremade,usedorsoldbyClouderainfringeU.S.PatentNos.7,454,411and8,099,733.Plaintiffsseekdamages,anawardofenhanceddamages,andrecoveryofattorney’sfeesandcostsincurredinthesuit.
Theremaybethird‑partyintellectualpropertyrights,includingissuedorpendingpatents,thatcoversignificantaspectsofourtechnologies,thetechnologiesinourplatformorbusinessmethods.Wemaybeexposedtoincreasedriskofbeingthesubjectofintellectualpropertyinfringementclaimsasaresultofacquisitionsandourincorporationofopensourcesoftwareintoourplatform,as,amongotherthings,wehavealowerlevelofvisibilityintothedevelopmentprocesswithrespecttosuchtechnologyorthecaretakentosafeguardagainstinfringementrisks.Anyintellectualpropertyclaims,withorwithoutmerit,couldbeverytime‑consuming,couldbeexpensivetosettleorlitigateandcoulddivertourmanagement’sattentionandotherresources.Theseclaimscouldalsosubjectustosignificantliabilityfordamages,potentiallyincludingtrebledamagesifwearefoundtohavewillfullyinfringedpatentsorcopyrights.Theseclaimscouldalsoresultinourhavingtostopusing,distributingorsupportingtechnologyfoundtobeinviolationofathirdparty’srights.Wemightberequiredtoseekalicensefortheintellectualproperty,whichmaynotbeavailableonreasonabletermsoratall.Evenifalicensewereavailable,wecouldberequiredtopaysignificantroyalties,whichwouldincreaseouroperatingexpenses.Asaresult,wemayberequiredtodevelopalternativenon‑infringingtechnology,whichcouldrequiresignificanteffortandexpense.Ifwecannotlicenseordeveloptechnologyforanyinfringingaspectofourbusiness,wecouldbeforcedtolimitorstopsalesofourofferingsandmaybeunabletocompeteeffectively.Anyoftheseresultscouldadverselyaffectourbusinessoperationsandfinancialresults.
Thirdpartiesmayalsoassertsuchclaimsagainstourcustomersorpartnerswhomwetypicallyindemnifyagainstclaimsthatoursolutionsinfringe,misappropriateorotherwiseviolatetheintellectualpropertyrightsofthirdparties,includinginthethird‑partyopensourcecomponentsincludedinourplatform,aswellasourownopensourceandproprietarycomponents.Asthenumbersofproductsandcompetitorsinourmarketincreaseandoverlapsoccur,claimsofinfringement,misappropriationandotherviolationsofintellectualpropertyrightsmayincrease.Also,totheextentwehirepersonnelfromcompetitors,wemaybesubjecttoallegationsthattheyhavebeenimproperlysolicitedorhavedivulgedproprietaryorotherconfidentialinformation.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.
Oursuccessdepends,inpart,onourabilitytoprotectproprietarymethodsandtechnologiesthatwedevelopunderpatentandotherintellectualpropertylawsoftheUnitedStatesandotherjurisdictionsoutsideoftheUnitedStatessothatwecanpreventothersfromusingourinventionsandproprietaryinformation.Ifwefailtoprotectourintellectualpropertyrightsadequately,ourcompetitorsmaygainaccesstoourtechnology,andourbusinessmaybeharmed.Inaddition,defendingourintellectualpropertyrightsmayentailsignificantexpense.Anyofourpatents,trademarksorotherintellectualpropertyrightsmaybechallengedbyothersorinvalidatedthroughadministrative
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processorlitigation.Whilewehavepatentsandpatentapplicationspending,wemaybeunabletoobtainpatentprotectionforthetechnologycoveredinourpatentapplicationsorthepatentprotectionmaynotbeobtainedquicklyenoughtomeetourbusinessneeds.Inaddition,ourexistingpatentsandanypatentsissuedinthefuturemaynotprovideuswithcompetitiveadvantages,ormaybesuccessfullychallengedbythirdparties.
Moreover,despiteoureffortstoprotectourproprietaryrights,unauthorizedpartiesmayattempttocopyaspectsofourplatformorofferingsorobtainanduseinformationthatweregardasproprietary.Wegenerallyenterintoconfidentialityorlicenseagreementswithouremployees,consultants,vendorsandcustomers,andgenerallylimitaccesstoanddistributionofourproprietaryinformation.However,wecannotbecertainthatwehaveenteredintosuchagreementswithallpartieswhomayhaveorhavehadaccesstoourconfidentialinformationorthattheagreementswehaveenteredintowillnotbebreached.Wecannotguaranteethatanyofthemeasureswehavetakenwillpreventmisappropriationofourtechnology.Becausewemaybeanattractivetargetforcybersecurityattacks,wemayhaveagreaterriskofunauthorizedaccessto,andmisappropriationof,ourproprietaryinformation.
Furthermore,legalstandardsrelatingtothevalidity,enforceabilityandscopeofprotectionofintellectualpropertyrightsareuncertain,andwealsomayfaceproposalstochangethescopeofprotectionforsomeintellectualpropertyright.Effectivepatent,trademark,copyrightandtradesecretprotectionmaynotbeavailabletousineverycountryinwhichourproductsorservicesareavailable.ThelawsofsomecountriesmaynotbeasprotectiveofintellectualpropertyrightsasthoseintheUnitedStates,andmechanismsforenforcementofintellectualpropertyrightsmaybeinadequate.Also,ourinvolvementinstandardsettingactivityortheneedtoobtainlicensesfromothersmayrequireustolicenseourintellectualproperty.Accordingly,despiteourefforts,wemaybeunabletopreventthirdpartiesfromusingourintellectualproperty.
Wemayberequiredtospendsignificantresourcestomonitorandprotectourintellectualpropertyrightsandwemayconcludethatinatleastsomeinstancesthebenefitsofprotectingourintellectualpropertyrightsmaybeoutweighedbytheexpense.Wemayinitiateclaimsorlitigationagainstthirdpartiesforinfringementofourproprietaryrightsortoestablishthevalidityofourproprietaryrights.Anylitigation,whetherornotitisresolvedinourfavor,couldresultinsignificantexpensetousanddiverttheeffortsofourtechnicalandmanagementpersonnel.
We do not control and may be unable to predict the future course of open source technology development, including the ongoing development of open sourcecomponents used in our platform, which could reduce the market appeal of our platform and damage our reputation.
Wedonotcontrolmanyaspectsofthedevelopmentoftheopensourcetechnologyinourplatform.Differentgroupsofopensourcesoftwareprogrammerscollaboratewithoneanothertodevelopthesoftwareprojectsinourplatform.Giventhedisparateinputsfromvariousdevelopers,wecannotcontrolentirelyhowanopensourceprojectdevelopsandmatures.Also,differentopensourceprojectsmayoverlaporcompetewiththeonesthatweincorporateintoourplatform.Thetechnologydevelopedbyonegroupforoneprojectmaybecomemorewidelyusedthanthatdevelopedbyothers.Ifweacquireoradoptanewtechnologyandincorporateitintoourplatformbutacompetingtechnologybecomesmorewidelyusedoraccepted,themarketappealofourplatformmaybereducedandthatcouldharmourreputation,diminishourbrandandresultindecreasedrevenue.
If open source software programmers, many of whom we do not employ, or our own internal programmers do not continue to develop and enhance opensource technologies, we may be unable to develop new technologies, adequately enhance our existing technologies or meet customer requirements forinnovation, quality and price.
Werelytoasignificantdegreeonanumberofopensourcesoftwareprogrammers,orcommittersandcontributors,todevelopandenhancecomponentsofourplatform.Additionally,membersofthecorrespondingApacheSoftwareFoundationProjectManagementCommittees(PMCs)manyofwhomarenotemployedbyus,areprimarilyresponsiblefortheoversightandevolutionofthecodebasesofimportantcomponentsoftheopensourcedatamanagementecosystem.Iftheopensourcedatamanagementcommittersandcontributorsfailtoadequatelyfurtherdevelopandenhanceopensourcetechnologies,orifthePMCsfailtooverseeandguidetheevolutionofopensourcedatamanagementtechnologiesinthemannerthatwebelieveisappropriatetomaximizethemarketpotentialofoursolutions,thenwewouldhavetorelyonotherparties,orwewouldneedtoexpendadditionalresources,todevelopandenhanceourplatform.Wealsomustdevoteadequateresourcestoourowninternalprogrammerstosupporttheircontinueddevelopmentandenhancementofopensourcetechnologies,andifwedo
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notdoso,wemayhavetoturntothirdpartiesorexperiencedelaysindevelopingorenhancingopensourcetechnologies.Wecannotpredictwhetherfurtherdevelopmentsandenhancementstothesetechnologieswouldbeavailablefromreliablealternativesources.Ineitherevent,ourdevelopmentexpensescouldbeincreasedandourtechnologyreleaseandupgradeschedulescouldbedelayed.Delaysindeveloping,completingordeliveringneworenhancedcomponentstoourplatformcouldcauseourofferingstobelesscompetitive,impaircustomeracceptanceofoursolutionsandresultindelayedorreducedrevenueforoursolutions.
Our software development and licensing model could be negatively impacted if the Apache License, Version 2.0 is not enforceable or is modified so as tobecome incompatible with other open source licenses.
ImportantcomponentsofourplatformhavebeenprovidedundertheApacheLicense2.0.Thislicensestatesthatanyworkofauthorshiplicensedunderit,andanyderivativeworkthereof,maybereproducedanddistributedprovidedthatcertainconditionsaremet.Itispossiblethatacourtwouldholdthislicensetobeunenforceableorthatsomeonecouldassertaclaimforproprietaryrightsinaprogramdevelopedanddistributedunderit.Anyrulingbyacourtthatthislicenseisnotenforceable,orthatopensourcecomponentsofourplatformmaynotbereproducedordistributed,maynegativelyimpactourdistributionordevelopmentofalloraportionofoursolutions.Inaddition,atsometimeinthefutureitispossiblethatimportantcomponentsoftheopensourceprojectsinourplatformmaybedistributedunderadifferentlicenseortheApacheLicense2.0,whichgovernsHadoop,Sparkandothercurrentelementsofourplatform,maybemodified,whichcould,amongotherconsequences,negativelyimpactourcontinuingdevelopmentordistributionofthesoftwarecodesubjecttothenewormodifiedlicense.
Further,fullutilizationofourplatformmaydependonsoftware,applications,hardwareandservicesfromvariousthirdparties,andtheseitemsmaynotbecompatiblewithourplatformanditsdevelopmentoravailabletousorourcustomersoncommerciallyreasonableterms,oratall,whichcouldharmourbusiness.
Our use of open source software in our solutions could negatively affect our ability to sell our platform and subject us to possible litigation.
Oursolutionsincludesoftwarecoveredbyopensourcelicenses,whichmayinclude,bywayofexample,GNUGeneralPublicLicenseandtheApacheLicense.Wedonotownalloftheopensourcetechnologyinourplatformandtheownershipoftheopensourcetechnologyinourplatformmaynotbeeasilydeterminablebyus.Rather,werelyontheApacheSoftwareFoundation(ASF)aswellascertainotherthirdpartyopensourcecontributorstoensurethattheopensourcecontributionstoourplatformareproperlyownedbythecommittersandcontributorswhocontributetheopensourcetechnologyandthatsuchcontributionsdonotinfringeonotherparties’intellectualpropertyrights.Moreover,thetermsofcertainoftheopensourcelicenseshavenotbeeninterpretedbyUnitedStatesorothercourts,andthereisariskthatsuchlicensescouldbeconstruedinamannerthatisincompatiblewithourcurrentbusinessmodel,imposingunanticipatedconditionsorrestrictionsonourabilitytomarketoursolutions.We,ourcustomersandtheASFmayhavereceivedormayinthefuturereceive,noticesthatclaimwehavemisappropriated,misusedorinfringedotherparties’intellectualpropertyrights,and,totheextentproductsbasedontheopensourcedatamanagementecosystemgaingreatermarketvisibility,we,ourcustomers,andtheASF,faceahigherriskofbeingthesubjectofintellectualpropertyinfringementclaims.Inaddition,weorourcustomerscouldbesubjecttolawsuitsbypartiesclaimingownershipof(orthatdifferentlicensetermsapplyto)whatwebelievetobeopensourcesoftware,orseekingtoenforcethetermsofanopensourcelicense.Bythetermsofcertainopensourcelicenses,wecouldberequiredtoreleasethesourcecodeofourproprietarysoftware,andtomakeourproprietarysoftwareavailableunderopensourcelicenses,ifwecombineourproprietarysoftwarewithopensourcesoftwareinacertainmanner.Intheeventthatportionsofourproprietarysoftwarearedeterminedtobeimpactedbyanopensourcelicense,wecouldberequiredtopubliclyreleasetheaffectedportionsofoursourcecode,re‑engineeralloraportionofourtechnologies,orotherwisebelimitedinthelicensingofourtechnologiesandservices,eachofwhichcouldreduceoreliminatethevalueofourtechnologiesandcauseustohavetosignificantlyalterourcurrentbusinessmodel.Theseclaimscouldalsoresultinlitigation(includinglitigationagainstourcustomersorpartners,whichcouldresultinusbeingobligatedtoindemnifyourcustomersorpartnersagainstsuchlitigation),requireustopurchaseacostlylicenseorrequireustodevoteadditionalresearchanddevelopmentresourcestochangeoursolutions,anyofwhichcouldhaveanegativeeffectonourbusinessandoperatingresults.Inaddition,ifthelicensetermsfortheopensourcecodechange,wemaybeforcedtore‑engineeroursolutionsorincuradditionalcoststofindalternativetools.
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Inadditiontorisksrelatedtolicenserequirements,usageofopensourcesoftwarecanleadtogreaterrisksthanuseofthird‑partycommercialsoftware,asopensourcelicensorsgenerallydonotprovidewarranties,support,indemnityorassuranceoftitleorcontrolsonoriginofthesoftware.Further,someopensourceprojectshaveknownvulnerabilitiesandarchitecturalinstabilitiesandareprovidedonan“as‑is”basis.Manyoftheserisksassociatedwithusageofopensourcesoftware,suchasthelackofwarrantiesorassurancesoftitle,cannotbeeliminated,andcould,ifnotproperlyaddressed,negativelyaffecttheperformanceofourplatformandourbusiness.Inaddition,weareoftenrequiredtoabsorbtheserisksinourcustomerandpartnerrelationshipsbyagreeingtoprovidewarranties,supportandindemnificationwithrespecttosuchthirdpartyopensourcesoftware.Whilewehaveestablishedprocessesintendedtoalleviatetheserisks,wecannotassurethatthesemeasureswillreducetheserisks.
Because our business relies on the Apache Software Foundation, our business could be harmed by the decisions made by the ASF or claims or disputesdirected at or reputational harm otherwise suffered by the ASF.
OurbusinessreliesontheASF,anon‑profitcorporationthatsupportsApacheopensourcesoftwareprojects.WedonotcontrolnorcanwepredictthedecisionstheASFwillmakewithrespecttothefurtherdevelopmentandenhancementofopensourcetechnologieswhichmayimpactourbusiness.Forexample,thereductionoreliminationofsupportofHadoop,SparkorothertechnologiesbytheASF,themigrationofHadoop,SparkandotheropensourcedatamanagementtechnologytoanorganizationotherthantheASF,oranyotheractionstakenbytheASFortheHadoopprojectmayimpactourbusinessmodel.Moreover,iftheASFissubjecttoclaims,disputesorotherwisesuffersreputationalharm,ourbusiness,resultsofoperations,financialconditionandgrowthprospectscouldbeharmedifcustomersperceiveoursolutionstoberiskyorinferiortodatamanagementsolutionswhichdonotrelyontheASFforcontinueddevelopmentandenhancementofopensourcetechnologies.
Security and privacy breaches may hurt our business.
Anysecuritybreach,includingthoseresultingfromacybersecurityattack,oranyunauthorizedaccess,unauthorizedusage,virusorsimilarbreachordisruptioncouldresultinthelossofconfidentialinformation,damagetoourreputation,earlyterminationofourcontracts,litigation,regulatoryinvestigationsorotherliabilities.Ifoursecuritymeasuresorthesecuritymeasureswehaveprovidedtocustomersarebreachedasaresultofthird‑partyaction,employeeerror,malfeasanceorotherwiseand,asaresult,someoneobtainsunauthorizedaccesstoourcustomers’confidentialinformation,ourreputationmaybedamaged,ourbusinessmaysufferandwecouldincursignificantliability.
Techniquesusedtoobtainunauthorizedaccessortosabotagesystemschangefrequentlyandgenerallyarenotrecognizeduntillaunchedagainstatarget.Asaresult,wemaybeunabletoanticipatethesetechniquesortoimplementadequatepreventativemeasures.Ifanactualorperceivedsecuritybreachoccurs,themarketperceptionofoursecuritymeasurescouldbeharmedandwecouldlosesalesandcustomers.
Inaddition,manyofourcustomersuseourplatformtostoreandprocessvastquantitiesofprivateandotherwisesensitivedatathatarecriticaltotheirbusinesses.Theymayhaveagreatersensitivitytosecuritydefectsinourproductsthantodefectsinother,lesscritical,softwareproducts.Anactualorperceivedsecuritybreachortheftofthebusiness‑criticaldataofoneofourcustomers,regardlessofwhetherthebreachisattributabletothefailureofourproductsorservices,couldadverselyaffectthemarket’sperceptionofoursecurityproducts.Moreover,ifahigh‑profilesecuritybreachoccurswithrespecttoanotherdatamanagement,machinelearningandanalyticsplatformprovider,ourcustomersandpotentialcustomersmaylosetrustinthesecurityofdatamanagement,machinelearningandanalyticsplatformsgenerally,whichcouldadverselyimpactourabilitytoretainexistingcustomersorattractnewones.
Real or perceived errors, failures, bugs or disruptions in our platform and solutions could adversely affect our reputation and business could be harmed.
Ourplatformandsolutionsareverycomplexandhavecontainedandmaycontainundetecteddefectsorerrors,especiallywhensolutionsarefirstintroducedorenhanced.Inaddition,ourplatformemploysopensourcesoftwareandtotheextentthatoursolutionsdependuponthesuccessfuloperationofopensourcesoftwareinconjunctionwithoursolutions,anyundetectederrorsordefectsinthisopensourcesoftwarecouldpreventthedeploymentor
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impairthefunctionalityofoursolutions,delaynewsolutionsintroductions,resultinafailureofoursolutions,resultinliabilitytoourcustomers,andinjureourreputation.
Ifourplatformisnotimplementedorusedcorrectlyorasintended,inadequateperformanceanddisruptioninservicemayresult.Moreover,asweacquirecompaniesandintegratenewopensourcedatamanagementprojects,wemayencounterdifficultyinincorporatingthenewly‑obtainedtechnologiesintoourplatformandmaintainingthequalitystandardsthatareconsistentwithourreputation.
Sinceourcustomersuseourplatformandsolutionsforimportantaspectsoftheirbusiness,anyerrors,defects,disruptionsinserviceorotherperformanceproblemscouldhurtourreputationandmaydamageourcustomers’businesses.Furthermore,defectsinourplatformandsolutionsmayrequireustoimplementdesignchangesorsoftwareupdates.Anydefectsorerrorsinourplatformandsolutions,ortheperceptionofsuchdefectsorerrors,couldresultin:
• expenditureofsignificantfinancialandproductdevelopmentresourcesineffortstoanalyze,correct,eliminateorworkarounderrorsordefects;
• lossofexistingorpotentialcustomersorchannelpartners;
• delayedorlostrevenue;
• delayorfailuretoattainmarketacceptance;
• delayinthedevelopmentorreleaseofnewsolutionsorservices;
• negativepublicity,whichwillharmourreputation;
• warrantyclaimsagainstus,whichcouldresultinanincreaseinourprovisionfordoubtfulaccounts;
• anincreaseincollectioncyclesforaccountsreceivableortheexpenseandriskoflitigation;and
• harmtoourresultsofoperations.
Althoughwehavecontractualprotections,suchaswarrantydisclaimersandlimitationofliabilityprovisions,inourstandardtermsandconditionsofsale,theymaynotfullyoreffectivelyprotectusfromclaimsbycustomers,partnersorotherthirdparties.Anyinsurancecoveragewemayhavemaynotadequatelycoverallclaimsassertedagainstus,orcoveronlyaportionofsuchclaims.Inaddition,evenclaimsthatultimatelyareunsuccessfulcouldresultinourexpenditureoffundsinlitigationanddivertmanagement’stimeandotherresources.
If we are unable to hire, retain, train and motivate qualified personnel and senior management, our business could be harmed.
Ourfuturesuccessdepends,inpart,onourabilitytocontinuetoattract,integrateandretainqualifiedandhighlyskilledpersonnel.Inparticular,wearesubstantiallydependentonthecontinuedserviceofourexistingengineeringpersonnelbecauseofthecomplexityofourplatformandarealsohighlydependentonthecontributionsofourexecutiveteam.Thelossofanykeypersonnelcouldmakeitmoredifficulttomanageouroperationsandresearchanddevelopmentactivities,reduceouremployeeretentionandrevenueandimpairourabilitytocompete.Althoughwehaveenteredintoemploymentofferletterswithourkeypersonnel,theseagreementshavenospecificdurationandconstituteat‑willemployment.Wedonotmaintainkeypersonlifeinsurancepoliciesonanyofouremployees.Thelossofoneormoreofourkeyemployeescouldseriouslyharmourbusiness.Ifweareunabletoattract,integrate,orretainthequalifiedandhighlyskilledpersonnelrequiredtofulfillourcurrentorfutureneeds,ourbusiness,financialconditionandoperatingresultscouldbeharmed.
Competitionforhighlyskilledpersonnelisoftenintense,especiallyintheSanFranciscoBayAreawherewehaveasubstantialpresenceandneedforhighlyskilledpersonnel.Wemaynotbesuccessfulinattracting,integratingorretainingqualifiedpersonneltofulfillourcurrentorfutureneeds.Wehavefromtimetotimeexperienced,andweexpecttocontinuetoexperience,difficultyinhiringandretaininghighlyskilledemployeeswithappropriatequalifications.Inaddition,jobcandidatesandexistingemployeesoftenconsiderthevalueoftheequityawardsthey
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receiveinconnectionwiththeiremployment.Iftheperceivedvalueofourcommonstockdeclines,itmayadverselyaffectourabilitytohireorretainhighlyskilledemployees.Inaddition,wemayperiodicallychangeourequitycompensationpractices,whichmayincludereducingthenumberofemployeeseligibleforequityawardsorreducingthesizeofequityawardsgrantedperemployee.Ifwefailtoattractnewpersonnelorfailtoretainandmotivateourcurrentpersonnel,ourbusinessandfuturegrowthprospectscouldbeharmed.
We have experienced rapid growth in recent periods and expect our growth to continue. If we fail to effectively manage our growth, our business and operatingresults could be adversely affected.
Wehaveexperiencedandmaycontinuetoexperiencerapidgrowthinourheadcountandoperations,whichhasplacedandwillcontinuetoplacesignificantdemandsonourmanagerial,administrative,operational,financialandotherresources.Forexample,ouremployeeheadcountincreasedfrom1,140employeesasofJanuary31,2016to1,470employeesasofJanuary31,2017to1,606employeesasofJuly31,2017.Thisgrowthhasplaced,andanyfuturegrowthwillplace,significantdemandsonourmanagementandouroperationalandfinancialinfrastructure.Tomanagethisgrowtheffectively,wemustcontinuetoimproveouroperational,financialandmanagementsystemsandcontrolsby,amongotherthings:
• recruiting,training,integratingandretainingnewemployees,particularlyforoursalesandresearchanddevelopmentteams;
• developingandimprovingourinternaladministrativeinfrastructure,particularlyourfinancial,operational,compliance,recordkeeping,communicationsandotherinternalsystems;
• managingourinternationaloperationsandtherisksassociatedtherewith;
• maintaininghighlevelsofsatisfactionwithourplatformamongourcustomers;and
• effectivelymanagingexpensesrelatedtoanyfuturegrowth.
Ifwefailtomanageourgrowth,orifwefailtoimplementimprovementsormaintaineffectiveinternalcontrols,ourcostsandexpensesmayincreasemorethanweplanandourabilitytoexpandourcustomerbase,enhanceourplatform,developnewsolutions,expandpenetrationwithinexistingcustomers,respondtocompetitivepressuresorotherwiseexecuteourbusinessplan,ourbusinessandoperatingresultscouldbeadverselyaffected.
Because we recognize subscription revenue from our platform over the subscription term, downturns or upturns in new sales and renewals will not beimmediately reflected in our operating results.
Wegenerallyrecognizesubscriptionrevenueratablyoverthetermofthesubscriptionperiod.Asaresult,mostoftherevenuewereportineachquarterarederivedfromtherecognitionofdeferredrevenuerelatingtosubscriptionsenteredintoduringpreviousquarters.Consequently,adeclineinneworrenewedsubscriptions,orareductioninexpansionrates,inanysinglequartercouldhaveonlyasmallimpactonourrevenueresultsduringthatquarterorsubsequentperiod.Suchadeclineordeceleration,however,willnegativelyaffectourrevenueorrevenuegrowthratesinfuturequarters.Accordingly,theeffectofthesechangesoreventsmaynotbefullyreflectedinourresultsofoperationsuntilfutureperiods.Giventheratablenatureofourrevenuerecognition,oursubscriptionmodelalsomakesitdifficultforustorapidlyincreaseourrevenuethroughadditionalsalesinanyperiod.Wemaybeunabletoadjustourcoststructuretoreflectthechangesinrevenue.Inaddition,asignificantmajorityofourcostsareexpensedasincurred,whilerevenueisgenerallyrecognizedoverthelifeofthecustomeragreement.Asaresult,increasedgrowthinthenumberofourcustomerscouldresultinourrecognitionofmorecoststhanrevenueintheearlierperiodsofthetermsofouragreements.
Our revenue growth depends in part on the success of our strategic relationships with third parties and their continued performance.
Weseektogrowourpartnerecosystemasawaytogrowourbusiness.Togrowourbusiness,weanticipatethatwewillcontinuetoestablishandmaintainrelationshipswiththirdparties,suchasresellers,OEMs,systemintegrators,independentsoftwareandhardwarevendorsandplatformandcloudserviceproviders.Forexample,in2014,weenteredintoastrategiccollaborationandoptimizationagreementwithIntel.Inaddition,weworkclosely
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withselectvendorstodesignsolutionstospecificallyaddresstheneedsofcertainindustryverticalsorusecaseswithinthoseverticals,whichwerefertoasPartnerSolutions.Asouragreementswithstrategicpartnersterminateorexpire,wemaybeunabletoreneworreplacetheseagreementsoncomparableterms,oratall.Moreover,wecannotguaranteethatthecompanieswithwhichwehavestrategicrelationshipswillcontinuetodevotetheresourcesnecessarytoexpandourreach,increaseourdistributionandincreasethenumberofPartnerSolutionsandassociatedusecases.Inaddition,customersatisfactionwithPartnerSolutionsmaybelessthananticipated,negativelyimpactinganticipatedrevenuegrowthandresultsofoperations.Further,someofourstrategicpartnersoffercompetingproductsandservicesoralsoworkwithourcompetitors.Asaresultofthesefactors,manyofthecompanieswithwhichwehavestrategicalliancesmaychoosetopursuealternativetechnologiesanddevelopalternativeproductsandservicesinadditiontoorinlieuofourplatform,eitherontheirownorincollaborationwithothers,includingourcompetitors.Ifweareunsuccessfulinestablishingormaintainingourrelationshipswiththirdparties,ourabilitytocompeteinthemarketplaceortogrowourrevenuecouldbeimpairedandouroperatingresultsmaysuffer.Evenifwearesuccessfulinestablishingandmaintainingtheserelationshipswiththirdparties,wecannotassureyouthattheserelationshipswillresultinincreasedcustomerusageofourplatformorincreasedrevenue.
The sum of our revenue and changes in deferred revenue may not be an accurate indicator of business activity within a period.
Investorsoranalystssometimeslooktothesumofourrevenueandchangesindeferredrevenueasanindicatorofbusinessactivityinaperiodforbusinessessuchasours,sometimesreferredtoas“estimatedbillings.”However,thesemeasuresmaysignificantlydifferfromunderlyingbusinessactivityforanumberofreasonsincluding:
• arelativelylargenumberoftransactionsoccurattheendofthequarter.Invoicingofthosetransactionsmayormaynotoccurbeforetheendofthequarterbasedonanumberoffactorsincludingreceiptofinformationfromthecustomer,volumeoftransactionsandholidays.Ashiftofafewdayshaslittleeconomicimpactonourbusiness,butwillshiftdeferredrevenuefromoneperiodintothenext;
• multi‑yearupfrontbillingsmaydistorttrends;
• subscriptionsthathavedeferredstartdates;and
• servicesthatareinvoicedupondelivery.
Accordingly,wedonotbelievethatestimatedbillingsisanaccurateindicatoroffuturerevenueforanygivenperiodoftime.However,manycompaniesthatprovidesubscriptionsreportchangesinestimatedbillingsasakeyoperatingorfinancialmetric,anditispossiblethatanalystsorinvestorsmayviewthismetricasimportant.Thus,anychangesinourestimatedbillingscouldadverselyaffectthemarketpriceofourcommonstock.
The forecasts of market growth included in this prospectus may prove to be inaccurate, and, even if the markets in which we compete achieve the forecastedgrowth, we cannot assure you our business will grow at similar rates, if at all.
Growthforecastsaresubjecttosignificantuncertaintyandarebasedonassumptionsandestimatesthatmaynotprovetobeaccurate.Theforecastsinthisprospectusrelatingtotheexpectedgrowthinthemarketforourplatformwerepreparedbyathirdpartybasedontheirresearch,estimatesandassumptions.Whilethesefactorsmayseemreasonabletothemandus,theresultingforecastsmayprovetobeinaccurate.Evenifthismarketexperiencestheforecastedgrowthdescribedinthisprospectus,wemaynotgrowourbusinessatsimilarrates,oratall.Ourgrowthissubjecttomanyfactors,includingoursuccessinimplementingourbusinessstrategy,whichissubjecttomanyrisksanduncertainties.Accordingly,theforecastsofmarketgrowthincludedinthisprospectusshouldnotbetakenasindicativeofourfuturegrowth.
If our new components and enhancements to our platform do not achieve sufficient market acceptance, our financial results and competitive position willsuffer.
Wespendsubstantialamountsoftimeandmoneytoresearchanddevelopnewcomponentsandenhancementsofourplatformstoincorporateadditionalfeatures,improvefunctionalityorotherenhancementsinordertomeetour
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customers’rapidlyevolvingdemands.Whenwedevelopanewcomponentorenhancementtoourplatform,whetheropensourceorproprietary,wetypicallyincurexpensesandexpendresourcesupfronttodevelop,marketandpromotethenewcomponent.Therefore,whenwedevelopandintroducenewcomponentsorenhancementstoourplatform,theymustachievehighlevelsofmarketacceptanceinordertojustifytheamountofourinvestmentindevelopingandbringingthemtomarket.Forexample,ifournewfilesystembasedontheopensourceKuduprojectdoesnotgarnerwidespreadmarketadoptionandimplementation,ourgrowthprospects,futurefinancialresultsandcompetitivepositioncouldsuffer.
Ournewcomponentsorenhancementstoourplatformandchangestoourplatformcouldfailtoattainsufficientmarketacceptanceformanyreasons,including:
• ourfailuretopredictmarketdemandaccuratelyintermsofplatformfunctionality,includingcuratingnewopensourceprojects,andtosupplyaplatformthatmeetsthisdemandinatimelyfashion;
• delaysinreleasingtothemarketournewcomponentsorenhancementstoourplatformtothemarket;
• defects,errorsorfailures;
• complexityintheimplementationorutilizationofthenewcomponentsandenhancements;
• negativepublicityabouttheirperformanceoreffectiveness;
• introductionoranticipatedintroductionofcompetingplatformsbyourcompetitors;
• poorbusinessconditionsforourend‑customers,causingthemtodelayITpurchases;and
• reluctanceofcustomerstopurchaseplatformsincorporatingopensourcesoftwareortopurchasehybridplatforms.
Ifournewcomponentsorenhancementsandchangesdonotachieveadequateacceptanceinthemarket,ourcompetitivepositionwillbeimpaired,andourrevenuewillbediminished.Theadverseeffectonourfinancialresultsmaybeparticularlyacutebecauseofthesignificantresearch,development,marketing,salesandotherexpenseswewillhaveincurredinconnectionwiththenewsolutionsorenhancements.
If we do not effectively hire, retain, train and oversee our direct sales force, we may be unable to add new customers or increase sales to our existingcustomers, and our business may be adversely affected.
Wecontinuetobesubstantiallydependentonourdirectsalesforcetoobtainnewcustomersandincreasesaleswithexistingcustomers.Thereissignificantcompetitionforsalespersonnelwiththeskillsandtechnicalknowledgethatwerequire.Ourabilitytoachievesignificantrevenuegrowthwilldepend,inlargepart,onoursuccessinrecruiting,trainingandretainingsufficientnumbersofsalespersonneltosupportourgrowth,particularlyininternationalmarkets.Inaddition,alargepercentageofoursalesforceisnewtoourcompany.Newhiresrequiresignificanttrainingandmaytakesignificanttimebeforetheyachievefullproductivity.Ourrecenthiresandplannedhiresmaynotbecomeproductiveasquicklyasweexpect,andwemaybeunabletohireorretainsufficientnumbersofqualifiedindividualsinthemarketswherewedobusinessorplantodobusiness.Inaddition,growthofourdirectsalesforceleadstoincreasingdifficultyandcomplexityinitsorganization,managementandleadership,atwhichwemayproveunsuccessful.Ifweareunabletohireandtrainasufficientnumberofeffectivesalespersonnel,weareineffectiveatoverseeingagrowingsalesforce,orthesalespersonnelwehireareotherwiseunsuccessfulinobtainingnewcustomersorincreasingsalestoourexistingcustomerbase,ourbusinesswillbeadverselyaffected.
We may acquire or invest in companies and technologies, which may divert our management’s attention, and result in additional dilution to our stockholders.We may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions or investments.
Aspartofourbusinessstrategy,wehaveacquiredcompaniesinthepastandmayevaluateandconsiderpotentialstrategictransactions,includingacquisitionsof,orinvestmentsin,businesses,technologies,services,productsandotherassetsinthefuture.Forexample,weacquiredGazzang,Inc.inJune2014andXplain.io,Inc.in
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February2015.Wealsomayenterintorelationshipswithotherbusinessestoexpandoursolutionsorourabilitytoprovideservices.Anacquisition,investmentorbusinessrelationshipmayresultinunforeseenoperatingdifficultiesandexpenditures.Inparticular,wemayencounterdifficultiesassimilatingorintegratingthebusinesses,technologies,products,personneloroperationsoftheacquiredcompanies,particularlyifthekeypersonneloftheacquiredcompanychoosenottoworkforus,theirtechnologyisnoteasilyadaptedtoworkwithours,orwehavedifficultyretainingthecustomersofanyacquiredbusinessduetochangesinownership,managementorotherwise.Negotiatingthesetransactionscanbetime‑consuming,difficultandexpensive,andourabilitytoclosethesetransactionsmayoftenbesubjecttoconditionsorapprovalsthatarebeyondourcontrol.Consequently,thesetransactions,evenifundertakenandannounced,maynotclose.
Evenifweareabletocompleteacquisitionsorenterintoalliancesandjointventuresthatwebelievewillbesuccessful,suchtransactionsareinherentlyrisky.Acquisitionsinvolvemanyrisks,includingthefollowing:
• anacquisitionmaynegativelyimpactourresultsofoperationsbecauseit:
– mayrequireustoincurcharges,includingintegrationandrestructuringcosts,bothone‑timeandongoing,aswellassubstantialdebtorliabilities,includingunanticipatedandunknownliabilities,
– maycauseadversetaxconsequences,substantialdepreciationordeferredcompensationcharges,
– mayresultinacquiredin‑processresearchanddevelopmentexpensesorinthefuturemayrequiretheamortization,write‑downorimpairmentofamountsrelatedtodeferredcompensation,goodwillandotherintangibleassets,or
– maynotgeneratesufficientfinancialreturnsforustooffsetouracquisitioncosts;
• wemayencounterdifficultiesorunforeseenexpendituresinintegratingthebusiness,technologies,products,personneloroperationsofanycompanythatweacquire,particularlyifkeypersonneloftheacquiredcompanydecidenottoworkforus;
• anacquisitionandintegrationprocessiscomplex,expensiveandtimeconsuming,andmaydisruptourongoingbusiness,divertresources,increaseourexpensesanddistractourmanagement;
• anacquisitionmayresultinadelayorreductionofcustomerpurchasesforbothusandthecompanyacquiredduetocustomeruncertaintyaboutcontinuityandeffectivenessofservicefromeithercompany;
• anacquisitionmayresultinincreasedregulatoryandcompliancerequirements;
• anacquisitionmayresultinincreaseduncertaintyifweenterintobusinesses,marketsorbusinessmodelsinwhichwehavelimitedornopriorexperienceandinwhichcompetitorshavestrongermarketpositions;
• wemayencounterdifficultiesinmaintainingthekeybusinessrelationshipsandthereputationsofthebusinessesweacquire,andwemaybedependentonunfamiliaraffiliatesandpartnersofthecompaniesweacquire;
• wemailfailtomaintainsufficientcontrols,policiesandprocedures,includingintegratinganyacquiredbusinessintoourcontrolenvironment;
• wemayfailtoachieveanticipatedsynergies,includingwithrespecttocomplementarysoftwareorservices;
• wemayobtainunanticipatedorunknownliabilities,includingintellectualpropertyorotherclaims,orbecomeexposedtounanticipatedrisksinconnectionwithanyacquisition;and
• anacquisitionmayinvolvetheentryintogeographicorbusinessmarketsinwhichwehavelittleornopriorexperience.
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Ifweareunabletoaddressthesedifficultiesandchallengesorotherproblemsencounteredinconnectionwithanyfutureacquisitionorinvestment,wemightnotrealizetheanticipatedbenefitsofthatacquisitionorinvestment,wemightincurunanticipatedliabilitiesorwemightotherwisesufferharmtoourbusinessgenerally.
Totheextentwepaytheconsiderationforanyfutureacquisitionsorinvestmentsincash,thepaymentwouldreducetheamountofcashavailabletousforotherpurposes.Futureacquisitionsorinvestmentscouldalsoresultindilutiveissuancesofourequitysecuritiesortheincurrenceofdebt,contingentliabilities,amortizationexpenses,orimpairmentchargesagainstgoodwillonourbalancesheet,anyofwhichcouldharmourfinancialconditionandnegativelyimpactourstockholders.
As we expand internationally, our business will become more susceptible to risks associated with international operations.
Wehaverecentlyexpandedinternationally,andintendtocontinuesuchinternationalexpansion.Forexample,wesellthevariouseditionsofourplatformthroughourdirectsalesforce,whichiscomprisedofinsidesalesandfieldsalespersonnel,andislocatedinavarietyofgeographicregions,includingtheUnitedStates,EuropeandAsia,andhavecustomerslocatedinover67countriesasofJuly31,2017.Weintendtocontinuetoexpandinternationally.
ConductinginternationaloperationssubjectsustorisksthatwehavenotgenerallyfacedintheUnitedStates.Theserisksinclude:
• challengescausedbydistance,language,culturalandethicaldifferencesandthecompetitiveenvironment;
• heightenedrisksofunethical,unfairorcorruptbusinesspractices,actualorclaimed,incertaingeographiesandofimproperorfraudulentsalesarrangementsthatmayimpactfinancialresultsandresultinrestatementsof,andirregularitiesin,financialstatements;
• foreignexchangerestrictionsandfluctuationsincurrencyexchangerates,includingthat,becauseamajorityofourinternationalcontractsaredenominatedinU.S.dollars,anincreaseinthestrengthoftheU.S.dollarmaymakedoingbusinesswithuslessappealingtoanon‑U.S.dollardenominatedcustomer;
• applicationofmultipleandconflictinglawsandregulations,includingcomplicationsduetounexpectedchangesinforeignlawsandregulatoryrequirements;
• risksassociatedwithtraderestrictionsandforeignimportrequirements,includingtheimportation,certificationandlocalizationofoursolutionsrequiredinforeigncountries,aswellaschangesintrade,tariffs,restrictionsorrequirements;
• newanddifferentsourcesofcompetition;
• potentiallydifferentpricingenvironments,longersalescyclesandlongeraccountsreceivablepaymentcyclesandcollectionsissues;
• managementcommunicationandintegrationproblemsresultingfromculturaldifferencesandgeographicdispersion;
• potentiallyadversetaxconsequences,includingmultipleandpossiblyoverlappingtaxstructures,thecomplexitiesofforeignvalue‑addedtaxsystems,restrictionsontherepatriationofearningsandchangesintaxrates;
• greaterdifficultyinenforcingcontracts,accountsreceivablecollectionandlongercollectionperiods;
• theuncertaintyandlimitationofprotectionforintellectualpropertyrightsinsomecountries;
• increasedfinancialaccountingandreportingburdensandcomplexities;
• lackoffamiliaritywithlocalslaws,customsandpractices,andlawsandbusinesspracticesfavoringlocalcompetitorsorpartners;and
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• political,socialandeconomicinstabilityabroad,terroristattacksandsecurityconcernsingeneral.
Theoccurrenceofanyoneoftheseriskscouldharmourinternationalbusinessand,consequently,ourresultsofoperations.Additionally,operatingininternationalmarketsrequiressignificantmanagementattentionandfinancialresources.Wecannotbecertainthattheinvestmentandadditionalresourcesrequiredtooperateinothercountrieswillproducedesiredlevelsofrevenueorprofitability.
Someofourbusinesspartnersalsohaveinternationaloperationsandaresubjecttotherisksdescribedabove.Evenifweareabletosuccessfullymanagetherisksofinternationaloperations,ourbusinessmaybeadverselyaffectedifourbusinesspartnersarenotabletosuccessfullymanagetheserisks.
Our business in countries with a history of corruption and transactions with foreign governments increase the risks associated with our international activities.
Asweoperateandsellinternationally,wearesubjecttotheForeignCorruptPracticesAct(FCPA),theUnitedKingdomBriberyActof2010,ortheUKBriberyAct,andotherlawsthatprohibitimproperpaymentsoroffersofpaymentstoforeigngovernmentsandtheirofficialsandpoliticalpartiesforthepurposeofobtainingorretainingbusiness.Wehaveoperations,dealwithandmakesalestogovernmentalcustomersincountriesknowntoexperiencecorruption,particularlycertainemergingcountriesinAfrica,EastAsia,EasternEurope,SouthAmericaandtheMiddleEast.Ouractivitiesinthesecountriescreatetheriskofunauthorizedpaymentsoroffersofpaymentsbyoneofouremployees,consultants,salesagentsorchannelpartnersthatcouldbeinviolationofvariousanti‑corruptionlaws,eventhoughthesepartiesmaynotbeunderourcontrol.Whilewehaveimplementedpoliciesandcontrolsintendedtopreventthesepracticesbyouremployees,consultants,salesagentsandchannelpartners,ourexistingsafeguardsandanyfutureimprovementsmayprovetobelessthaneffective,andouremployees,consultants,salesagentsorchannelpartnersmayengageinconductforwhichwemightbeheldresponsible.ViolationsoftheFCPA,theUKBriberyActandotherlawsmayresultinseverecriminalorcivilsanctions,includingsuspensionordebarmentfromU.S.governmentcontracting,andwemaybesubjecttootherliabilities,whichcouldnegativelyaffectourbusiness,operatingresultsandfinancialcondition.
We are subject to governmental export control, sanctions and import laws and regulations that could subject us to liability or impair our ability to compete ininternational markets.
Becauseweincorporateencryptionfunctionalityintoourplatform(includinganyproductscomprisingtheplatform),wearesubjecttocertainU.S.exportcontrollawsthatapplytoencryptionitems.Assuch,ourplatformmaybeexportedoutsidetheUnitedStatesthroughanexportlicenseexception;anexportlicenseisrequiredtocertaincountries,end‑usersandend‑uses.IfweweretofailtocomplywithsuchU.S.exportcontrolslaws,U.S.customsregulations,U.S.economicsanctions,orothersimilarlaws,wecouldbesubjecttobothcivilandcriminalpenalties,includingsubstantialfines,possibleincarcerationforemployeesandmanagersforwillfulviolations,andthepossiblelossofourexportorimportprivileges.Obtainingthenecessaryexportlicenseforaparticularsaleorofferingmaynotbepossibleandmaybetime‑consumingandmayresultinthedelayorlossofsalesopportunities.Furthermore,U.S.exportcontrollawsandeconomicsanctionsprohibittheexportofproductstocertainU.S.embargoedorsanctionedcountries,governmentsandpersons,aswellasforprohibitedend‑uses.MonitoringandensuringcompliancewiththesecomplexU.S.exportcontrollawsisparticularlychallengingbecauseourplatformandrelatedservicesarewidelydistributedthroughouttheworldandareavailablefordownloadwithoutregistration.Eventhoughwetakeprecautionstoensurethatweandourresellerpartnerscomplywithallrelevantexportcontrollawsandregulations,anyfailurebyusorourresellerpartnerstocomplywithsuchlawsandregulationscouldhavenegativeconsequencesforus,includingreputationalharm,governmentinvestigationsandpenalties.
Inaddition,variouscountriesregulatetheimportofcertainencryptiontechnology,includingthroughimportpermitandlicenserequirements,andhaveenactedlawsthatcouldlimitourabilitytodistributeourplatformorcouldlimitourend‑customers’abilitytoimplementourproductsinthosecountries.Changesinourproductsorchangesinexportandimportregulationsinsuchcountriesmaycreatedelaysintheintroductionofourplatformintointernationalmarkets,preventourend‑customerswithinternationaloperationsfromdeployingourproductsgloballyor,insomecases,preventordelaytheexportorimportofourplatformtocertaincountries,governmentsorpersonsaltogether.Anychangeinexportorimportlawsorregulations,economicsanctionsorrelatedlegislation,shiftinthe
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enforcementorscopeofexistingexport,importorsanctionslawsorregulations,orchangeinthecountries,governments,persons,ortechnologiestargetedbysuchexport,importorsanctionslawsorregulations,couldresultindecreaseduseofourplatformby,orinourdecreasedabilitytoexportorsellourplatformto,existingorpotentialend‑customerswithinternationaloperations.Anydecreaseduseofourplatformorlimitationonourabilitytoexporttoorsellourplatformininternationalmarketscouldadverselyaffectourbusiness,financialconditionandoperatingresults.
We are exposed to fluctuations in currency exchange rates, which could negatively affect our operating results.
OursalescontractsareprimarilydenominatedinU.S.dollars,andthereforesubstantiallyallofourrevenueisnotsubjecttoforeigncurrencyrisk.However,astrengtheningoftheU.S.dollarcouldincreasetherealcostofourplatformtoourcustomersoutsideoftheUnitedStates,whichcouldadverselyaffectouroperatingresults.Inaddition,anincreasingportionofouroperatingexpensesisincurredandanincreasingportionofourassetsisheldoutsidetheUnitedStates.Theseoperatingexpensesandassetsaredenominatedinforeigncurrenciesandaresubjecttofluctuationsduetochangesinforeigncurrencyexchangerates.Ifwearenotabletosuccessfullyhedgeagainsttherisksassociatedwithcurrencyfluctuations,ouroperatingresultscouldbeadverselyaffected.
Our failure to raise additional capital could reduce our ability to compete and could harm our business.
Weexpectthatourexistingcashandcashequivalents,togetherwithournetproceedsfromthisoffering,willbesufficienttomeetouranticipatedcashneedsfortheforeseeablefuture.Howeverifwechangeourbusinessstrategy,wemayneedtoraiseadditionalfundsinthefuture,andwemaynotbeabletoobtainadditionaldebtorequityfinancingonfavorableterms,ifatall.Ifweraiseadditionalequityfinancing,ourstockholdersmayexperiencesignificantdilutionoftheirownershipinterestsandthepersharevalueofourcommonstockcoulddecline.Furthermore,ifweengageindebtfinancing,theholdersofdebtwouldhavepriorityovertheholdersofcommonstock,andwemayberequiredtoaccepttermsthatrestrictourabilitytoincuradditionalindebtedness.Wemayalsoberequiredtotakeotheractionsthatwouldotherwisebeintheinterestsofthedebtholdersandforceustomaintainspecifiedliquidityorotherratios,anyofwhichcouldharmourbusiness,operatingresultsandfinancialcondition.
We are exposed to the credit risk of some of our resellers and customers and to credit exposure in weakened markets, which could result in material losses.
Mostofoursalesareonanunsecuredbasis.Althoughweseektomitigatetheserisks,wecannotbecertainthattheseeffortswillbeeffectiveinreducingourcreditrisks,especiallyasweexpandourbusinessinternationally.Ifweareunabletoadequatelycontroltheserisks,ourbusiness,resultsofoperationsandfinancialconditioncouldbeharmed.
Federal, state, foreign government and industry regulations, as well as self‑‑regulation related to privacy and data security concerns, pose the threat of lawsuitsand other liability.
Wecollectandutilizedemographicandotherinformation,includingpersonallyidentifiableinformation,fromandaboutouremployeesandourexistingandpotentialcustomersandpartners.Suchinformationmaybecollectedfromourcustomersandpartnerswhentheyvisitourwebsiteorthroughtheiruseofourproductsandinteractionswithourcompanyandemployeessuchaswhensigningupforcertainservices,registeringfortrainingseminars,participatinginasurvey,participatinginpollsorsigninguptoreceivee‑mailnewsletters.
Awidevarietyofdomesticandinternationallawsandregulationsapplytothecollection,use,retention,protection,disclosure,transferandotherprocessingofpersonaldata.Thesedataprotectionandprivacy‑relatedlawsandregulationsareevolvingandmayresultinregulatoryandpublicscrutinyandescalatinglevelsofenforcementandsanctions.Ourfailuretocomplywithapplicablelawsandregulations,ortoprotectsuchdata,couldresultinenforcementactionagainstus,includingfines,claimsfordamagesbycustomersandotheraffectedindividuals,damagetoourreputationandlossofgoodwill(bothinrelationtoexistingcustomersandprospectivecustomers),anyofwhichcouldhaveamaterialadverseeffectonouroperations,financialperformanceandbusiness.EvolvingandchangingdefinitionsofpersonaldataandpersonalinformationwithintheEuropeanUnion,theUnitedStates,andelsewheremaylimitorinhibitourabilitytooperateorexpandourbusiness.Eventheperceptionofprivacy
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concerns,whetherornotvalid,mayharmourreputation,inhibitadoptionofourproductsbycurrentandfuturecustomersoradverselyimpactourabilitytoattractandretainworkforcetalent.
Loss,retentionormisuseofcertaininformationandallegedviolationsoflawsandregulationsrelatingtoprivacyanddatasecurity,andanyrelevantclaims,mayexposeustopotentialliabilityandmayrequireustoexpendsignificantresourcesondatasecurityandinrespondingtoanddefendingsuchallegationsandclaims.Inaddition,futurelaws,regulations,standardsandotherobligations,andchangesintheinterpretationofexistinglaws,regulations,standardsandotherobligationscouldimpairourcustomers’abilitytocollect,useordisclosedatarelatingtoindividuals,whichcoulddecreasedemandforourplatform,increaseourcostsandimpairourabilitytomaintainandgrowourcustomerbaseandincreaseourrevenue.
A portion of our revenue is generated by sales to government entities and heavily regulated organizations, which are subject to a number of challenges andrisks.
Aportionofoursalesaretogovernmentalentities.Additionally,manyofourcurrentandprospectivecustomers,suchasthoseinthefinancialservicesandhealthcareindustries,arehighlyregulatedandmayberequiredtocomplywithmorestringentregulationsinconnectionwithsubscribingtoanddeployingourplatform.Sellingtotheseentitiescanbehighlycompetitive,expensiveandtimeconsuming,oftenrequiringsignificantupfronttimeandexpensewithoutanyassurancethattheseeffortswillresultinasale.Governmentandhighlyregulatedentitiesoftenrequirecontracttermsthatdifferfromourstandardarrangementsandimposecompliancerequirementsthatarecomplicated,requirepreferentialpricingor“mostfavorednation”termsandconditions,orareotherwisetimeconsumingandexpensivetosatisfy.Ifweundertaketomeetspecialstandardsorrequirementsanddonotmeetthem,wecouldbesubjecttoincreasedliabilityfromourcustomersorregulators.Evenifwedomeetthem,theadditionalcostsassociatedwithprovidingourservicestogovernmentandhighlyregulatedcustomerscouldharmourmargins.Moreover,changesintheunderlyingregulatoryconditionsthataffectthesetypesofcustomerscouldharmourabilitytoefficientlyprovideourservicestothemandtogrowormaintainourcustomerbase.
Additionally,governmentcertificationrequirementsforplatformslikeoursmaychangeandindoingsorestrictourabilitytosellintocertaingovernmentsectorsuntilwehaveattainedtherevisedcertification.Governmentdemandandpaymentforoursolutionsmaybeimpactedbypublicsectorbudgetarycyclesandfundingauthorizations,withfundingreductionsordelaysadverselyaffectingpublicsectordemandforoursolutions.Additionally,governmententitiesroutinelyinvestigateandauditgovernmentcontractors’administrativeprocesses,andanyunfavorableauditcouldresultinthegovernmententityrefusingtocontinuebuyingoursolutions,areductionofrevenue,finesorcivilorcriminalliabilityiftheaudituncoversimproperorillegalactivities,whichcouldadverselyimpactouroperatingresults.Furthermore,engaginginsalesactivitiestoforeigngovernmentsintroducesadditionalcompliancerisksspecifictotheFCPA,theUKBriberyActandothersimilarstatutoryrequirementsprohibitingbriberyandcorruptioninthejurisdictionsinwhichweoperate.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executivemanagement and qualified board members.
Asapubliccompany,wearesubjecttothereportingrequirementsoftheSecuritiesExchangeActof1934,ortheExchangeAct,theSarbanes‑OxleyActof2002,ortheSarbanes‑OxleyAct,theDodd‑FrankWallStreetReformandConsumerProtectionActof2010,ortheDodd‑FrankAct,therulesandregulationsofthelistingstandardsoftheNewYorkStockExchangeandotherapplicablesecuritiesrulesandregulations.Compliancewiththeserulesandregulationsincreasesourlegalandfinancialcompliancecosts,makessomeactivitiesmoredifficult,time‑consumingorcostlyandincreasesdemandonoursystemsandresources,particularlyafterwearenolongeran“emerginggrowthcompany.”TheExchangeActrequires,amongotherthings,thatwefileannual,quarterlyandcurrentreportswithrespecttoourbusinessandoperatingresults.TheSarbanes‑OxleyActrequires,amongotherthings,thatwemaintaineffectivedisclosurecontrolsandproceduresandinternalcontroloverfinancialreporting.Inordertomaintainand,ifrequired,improveourdisclosurecontrolsandproceduresandinternalcontroloverfinancialreportingtomeetthisstandard,significantresourcesandmanagementoversightmayberequired.Asaresult,management'sattentionmaybedivertedfromotherbusinessconcerns,whichcouldadverselyaffectourbusinessandoperatingresults.Althoughwehavealreadyhiredadditionalemployeestocomplywiththeserequirements,we
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mayneedtohiremoreemployeesinthefutureorengageoutsideconsultants,whichwillincreaseourcostsandexpenses.
Inaddition,changinglaws,regulationsandstandardsrelatingtocorporategovernanceandpublicdisclosurearecreatinguncertaintyforpubliccompanies,increasinglegalandfinancialcompliancecostsandmakingsomeactivitiesmoretimeconsuming.Theselaws,regulationsandstandardsaresubjecttovaryinginterpretations,inmanycasesduetotheirlackofspecificity,and,asaresult,theirapplicationinpracticemayevolveovertimeasnewguidanceisprovidedbyregulatoryandgoverningbodies.Thiscouldresultincontinuinguncertaintyregardingcompliancemattersandhighercostsnecessitatedbyongoingrevisionstodisclosureandgovernancepractices.Weintendtoinvestresourcestocomplywithevolvinglaws,regulationsandstandards,andthisinvestmentmayresultinincreasedgeneralandadministrativeexpensesandadiversionofmanagement'stimeandattentionfromrevenue‑generatingactivitiestocomplianceactivities.Ifoureffortstocomplywithnewlaws,regulationsandstandardsdifferfromtheactivitiesintendedbyregulatoryorgoverningbodiesduetoambiguitiesrelatedtotheirapplicationandpractice,regulatoryauthoritiesmayinitiatelegalproceedingsagainstusandourbusinessmaybeadverselyaffected.
However,foraslongasweremainan“emerginggrowthcompany”asdefinedintheJumpstartourBusinessStartupsActof2012,ortheJOBSAct,wemaytakeadvantageofcertainexemptionsfromvariousreportingrequirementsthatareapplicabletootherpubliccompaniesthatarenot“emerginggrowthcompanies”including,butnotlimitedto,notbeingrequiredtocomplywiththeauditorattestationrequirementsofSection404oftheSarbanes‑OxleyAct,reduceddisclosureobligationsregardingexecutivecompensationinourperiodicreportsandproxystatementsandexemptionsfromtherequirementsofholdinganonbindingadvisoryvoteonexecutivecompensationandstockholderapprovalofanygoldenparachutepaymentsnotpreviouslyapproved.Wemaytakeadvantageofthesereportingexemptionsuntilwearenolongeran“emerginggrowthcompany.”
Further,theJOBSActexemptsemerginggrowthcompaniesfrombeingrequiredtocomplywithneworrevisedfinancialaccountingstandardsuntilprivatecompanies(thatis,thosethathavenothadaSecuritiesActof1933,asamended,orSecuritiesAct,registrationstatementdeclaredeffectiveordonothaveaclassofsecuritiesregisteredundertheExchangeAct)arerequiredtocomplywiththeneworrevisedfinancialaccountingstandards.TheJOBSActprovidesthatacompanycanelecttooptoutoftheextendedtransitionperiodandcomplywiththerequirementsthatapplytonon‑emerginggrowthcompaniesbutanysuchelectiontooptoutisirrevocable.Wehaveelectednottooptoutofsuchextendedtransitionperiodwhichmeansthatwhenastandardisissuedorrevisedandithasdifferentapplicationdatesforpublicorprivatecompanies,we,asanemerginggrowthcompany,canadopttheneworrevisedstandardatthetimeprivatecompaniesadopttheneworrevisedstandard.Thismaymakecomparisonofourfinancialstatementswithanotherpubliccompanywhichisneitheranemerginggrowthcompanynoranemerginggrowthcompanywhichhasoptedoutofusingtheextendedtransitionperioddifficultbecauseofthepotentialdifferencesinaccountingstandardsused.
Wewillremainan“emerginggrowthcompany”foruptofiveyears.However,amongotherfactors,ifthemarketvalueofourcommonstockthatisheldbynon‑affiliatesexceeds$700millionasofanyJuly31afterourfirstannualreport,wewouldceasetobean“emerginggrowthcompany”asofthefollowingJanuary31.
Thesenewrulesandregulationswillmakeitmoreexpensiveforus,asapubliccompany,toobtaindirectorandofficerliabilityinsurance,andwemayberequiredtoacceptreducedcoverageorincursubstantiallyhighercoststoobtaincoverage.Thesefactorscouldalsomakeitmoredifficultforustoattractandretainqualifiedmembersofourboardofdirectors,particularlytoserveonourauditcommitteeandcompensationcommittee,andqualifiedexecutiveofficers.
Asaresultofdisclosureofinformationinthisprospectusandinfilingsrequiredofapubliccompany,ourbusinessandfinancialconditionaremorevisible,whichwebelievemayresultinthreatenedoractuallitigation,includingbycompetitorsandotherthirdparties.Ifsuchclaimsaresuccessful,ourbusinessandoperatingresultscouldbeadverselyaffected,andeveniftheclaimsdonotresultinlitigationorareresolvedinourfavor,theseclaims,andthetimeandresourcesnecessarytoresolvethem,coulddiverttheresourcesofourmanagementandadverselyaffectourbusinessandoperatingresults.
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If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicableregulations could be impaired.
Asapubliccompany,wearesubjecttothereportingrequirementsoftheExchangeAct,theSarbanes‑OxleyAct,andtherulesandregulationsofthelistingstandardsoftheNewYorkStockExchange.Weexpectthattherequirementsoftheserulesandregulationswillcontinuetoincreaseourlegal,accounting,andfinancialcompliancecosts,makesomeactivitiesmoredifficult,time‑consuming,andcostly,andplacesignificantstrainonourpersonnel,systems,andresources.
TheSarbanes‑OxleyActrequires,amongotherthings,thatwemaintaineffectivedisclosurecontrolsandproceduresandinternalcontroloverfinancialreporting.WearecontinuingtodevelopandrefineourdisclosurecontrolsandotherproceduresthataredesignedtoensurethatinformationrequiredtobedisclosedbyusinthereportsthatwewillfilewiththeSecuritiesandExchangeCommission(SEC)isrecorded,processed,summarized,andreportedwithinthetimeperiodsspecifiedinSECrulesandformsandthatinformationrequiredtobedisclosedinreportsundertheExchangeActisaccumulatedandcommunicatedtoourprincipalexecutiveandfinancialofficers.Wearealsocontinuingtoimproveourinternalcontroloverfinancialreporting.Inordertomaintainandimprovetheeffectivenessofourdisclosurecontrolsandproceduresandinternalcontroloverfinancialreporting,wehaveexpended,andanticipatethatwewillcontinuetoexpend,significantresources,includingaccounting‑relatedcostsandsignificantmanagementoversight.
Ourcurrentcontrolsandanynewcontrolsthatwedevelopmaybecomeinadequatebecauseofchangesinconditionsinourbusiness.Further,weaknessesinourdisclosurecontrolsandinternalcontroloverfinancialreportingmaybediscoveredinthefuture.Anyfailuretodevelopormaintaineffectivecontrolsoranydifficultiesencounteredintheirimplementationorimprovementcouldharmouroperatingresultsorcauseustofailtomeetourreportingobligationsandmayresultinarestatementofourfinancialstatementsforpriorperiods.AnyfailuretoimplementandmaintaineffectiveinternalcontroloverfinancialreportingalsocouldadverselyaffecttheresultsofperiodicmanagementevaluationsandannualindependentregisteredpublicaccountingfirmattestationreportsregardingtheeffectivenessofourinternalcontroloverfinancialreportingthatwewilleventuallyberequiredtoincludeinourperiodicreportsthatwillbefiledwiththeSEC.Ineffectivedisclosurecontrolsandproceduresandinternalcontroloverfinancialreportingcouldalsocauseinvestorstoloseconfidenceinourreportedfinancialandotherinformation,whichcouldhaveanegativeeffectonthetradingpriceofourcommonstock.Inaddition,ifweareunabletocontinuetomeettheserequirements,wemaynotbeabletoremainlistedontheapplicablestockexchange.WearenotcurrentlyrequiredtocomplywiththeSECrulesthatimplementSection404oftheSarbanes‑OxleyActandarethereforenotrequiredtomakeaformalassessmentoftheeffectivenessofourinternalcontroloverfinancialreportingforthatpurpose.Asapubliccompany,wearerequiredtoprovideanannualmanagementreportontheeffectivenessofourinternalcontroloverfinancialreportingcommencingwithoursecondannualreportonForm10‑K.
Ourindependentregisteredpublicaccountingfirmisnotrequiredtoformallyattesttotheeffectivenessofourinternalcontroloverfinancialreportinguntilafterwearenolongeran“emerginggrowthcompany”asdefinedintheJOBSAct.Atsuchtime,ourindependentregisteredpublicaccountingfirmmayissueareportthatisadverseintheeventitisnotsatisfiedwiththelevelatwhichourinternalcontroloverfinancialreportingisdocumented,designed,oroperating.Anyfailuretomaintaineffectivedisclosurecontrolsandinternalcontroloverfinancialreportingcouldhaveamaterialandadverseeffectonourbusinessandoperatingresultsandcouldcauseadeclineinthepriceofourcommonstock.
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will makeour common stock less attractive to investors.
Wearean“emerginggrowthcompany,”asdefinedintheJOBSAct,andweintendtotakeadvantageofcertainexemptionsfromvariousreportingrequirementsthatareapplicabletootherpubliccompaniesthatarenot“emerginggrowthcompanies,”includingnotbeingrequiredtocomplywiththeauditorattestationrequirementsofSection404oftheSarbanes‑OxleyAct,reduceddisclosureobligationsregardingexecutivecompensationinourperiodicreportsandproxystatements,exemptionsfromtherequirementsofholdinganonbindingadvisoryvoteonexecutivecompensationandstockholderapprovalofanygoldenparachutepaymentsnotpreviouslyapprovedandexemptions
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fromcomplyingwithneworrevisedfinancialaccountingstandardsuntilprivatecompaniesarerequiredtocomplywiththeneworrevisedaccountingstandards.Wemaytakeadvantageoftheseexemptionsforsolongaswearean“emerginggrowthcompany,”whichcouldbeaslongasfiveyearsfollowingtheeffectivenessofourinitialpublicofferingbutweexpecttonotbean“emerginggrowthcompany”sooner.Wecannotpredictifinvestorswillfindourcommonstocklessattractivebecausewewillrelyontheseexemptions.Ifsomeinvestorsfindourcommonstocklessattractiveasaresult,theremaybealessactivetradingmarketforourcommonstockandthepriceofourcommonstockmaybemorevolatile.
Our financial results may be adversely affected by changes in accounting principles applicable to us.
GenerallyacceptedaccountingprinciplesintheUnitedStates(GAAP)aresubjecttointerpretationbytheFinancialAccountingStandardsBoard(FASB),theSEC,andothervariousbodiesformedtopromulgateandinterpretappropriateaccountingprinciples.Forexample,inMay2014,theFASBissuedaccountingstandardsupdateNo.2014‑09(Topic606),RevenuefromContractswithCustomers,whichsupersedesnearlyallexistingrevenuerecognitionguidanceunderGAAP.Wewillberequiredtoimplementthisguidanceinfiscal2020.Wehavenotselectedatransitionmethodandcontinuetoevaluatewhateffect,ifany,theamendmentsandtransitionalternativescouldhaveonourfinancialpositionandresultsofoperations.Regardlessofthetransitionmethodselected,applicationofTopic606maysignificantlyimpacttheamountandtimingofrevenuerecognition,suchasrecognizingrevenuefromexistingcontractsinperiodsotherthanwhenhistoricallyreportedunderexistingGAAPortherevenuerecognizedunderexistingGAAPcouldbeeliminatedaspartoftheeffectofadoption.Further,adoptionofTopic606couldresultinchangestotheperiodswhenrevenueisrecognizedinthefuturecomparedwithmanagement’scurrentexpectationsunderexistingGAAP.Inaddition,Topic606maysignificantlychangethetimingofwhenexpenserecognitionwilloccurrelatedtocoststoobtainandfulfillcustomercontracts.WhiletheadoptionofTopic606doesnotchangethecashflowsreceivedfromourcontractswithcustomers,theadoptionofTopic606couldhaveamaterialadverseeffectonourfinancialpositionorresultsofoperations.
Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.
WearesubjecttoincometaxationintheUnitedStatesandnumerousforeignjurisdictions.Determiningourprovisionforincometaxesrequiressignificantmanagementjudgment.Inaddition,ourprovisionforincometaxesissubjecttovolatilityandcouldbeadverselyaffectedbymanyfactors,including,amongotherthings,changestoouroperatingorholdingstructure,changesintheamountsofearningsinjurisdictionswithdifferingstatutorytaxrates,changesinthevaluationofdeferredtaxassetsandliabilitiesandchangesintaxlaws.Wecouldbesubjecttotaxexaminationsinvariousjurisdictions.Taxauthoritiesmaydisagreewithouruseofresearchanddevelopmenttaxcredits,intercompanycharges,cross‑jurisdictionaltransferpricingorothermattersandassessadditionaltaxes.Whileweregularlyassessthelikelyoutcomesoftheseexaminationstodeterminetheadequacyofourprovisionforincometaxes,therecanbenoassurancethattheoutcomesofsuchexaminationswillnothaveamaterialimpactonouroperatingresultsandcashflows.
Inaddition,wemaybesubjecttotheexaminationofourincometaxreturnsbytheU.S.InternalRevenueServiceandothertaxauthorities.Weregularlyassessthelikelihoodofadverseoutcomesresultingfromtheseexaminationstodeterminetheadequacyofourprovisionforincometaxes.Therecanbenoassurancethattheoutcomesfromthesecontinuousexaminationswillnothaveanadverseeffectonourresultsofoperations.
The enactment of legislation implementing changes in the United States of taxation of international business activities or the adoption of other tax reformpolicies could materially impact our financial position and results of operations.
RecentchangestoUnitedStatestaxlaws,includinglimitationsontheabilityoftaxpayerstoclaimandutilizeforeigntaxcreditsandthedeferralofcertaintaxdeductionsuntilearningsoutsideoftheUnitedStatesarerepatriatedtotheUnitedStates,aswellaschangestoUnitedStatestaxlawsthatmaybeenactedinthefuture,couldimpactthetaxtreatmentofourforeignearnings.Duetoexpansionofourinternationalbusinessactivities,anychangesintheUnitedStatestaxationofsuchactivitiesmayincreaseourworldwideeffectivetaxrateandadverselyaffectourfinancialpositionandresultsofoperations.
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Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
Ingeneral,underSection382oftheUnitedStatesInternalRevenueCodeof1986,asamended,ortheCode,acorporationthatundergoesan“ownershipchange”issubjecttolimitationsonitsabilitytoutilizeitspre‑changenetoperatinglosses(NOLs)tooffsetfuturetaxableincome.IfourexistingNOLsaresubjecttolimitationsarisingfrompreviousownershipchanges,ourabilitytoutilizeNOLscouldbelimitedbySection382oftheCode.Forexample,werecentlyperformedananalysistodeterminewhetheranownershipchangehadoccurredsinceourinceptionwhichidentifiedtwohistoricalownershipchanges.WhiletheselimitationsdidnotresultinamaterialrestrictionontheuseofourNOLs,futurechangesinourstockownership,someofwhichareoutsideofourcontrol,couldresultinanownershipchangeunderSection382oftheCode.Furthermore,ourabilitytoutilizeNOLsofcompaniesthatwemayacquireinthefuturemaybesubjecttolimitations.Thereisalsoariskthatduetoregulatorychanges,suchassuspensionsontheuseofNOLs,orotherunforeseenreasons,ourexistingNOLscouldexpireorotherwisebeunavailabletooffsetfutureincometaxliabilities.Forthesereasons,wemaynotbeabletoutilizeaportionoftheNOLsreflectedonourbalancesheet,evenifweattainprofitability.
We have business and customer relationships with certain entities who are stockholders or are affiliated with our directors, or both, and conflicts of interestmay arise because of such relationships.
Someofourcustomersandotherbusinesspartnersareaffiliatedwithcertainofourdirectorsorholdsharesofourcapitalstock,orboth.Forexample,wehaveenteredintostrategicrelationshipsand/orcustomerrelationshipswithIntelCorporation,orIntel.Ourformerdirector,KimStevenson,whoresignedinFebruary2017,wasanemployeeofIntel,andIntelisastockholder.Webelievethatthetransactionsandagreementsthatwehaveenteredintowithrelatedpartiesareontermsthatareatleastasfavorableascouldreasonablyhavebeenobtainedatsuchtimefromthirdparties.However,theserelationshipscouldcreate,orappeartocreate,potentialconflictsofinterestwhenourboardofdirectorsisfacedwithdecisionsthatcouldhavedifferentimplicationsforusandtheseotherpartiesortheiraffiliates.Inaddition,conflictsofinterestmayarisebetweenusandtheseotherpartiesandtheiraffiliates.Theappearanceofconflicts,evenifsuchconflictsdonotmaterialize,mightadverselyaffectthepublic’sperceptionofus,aswellasourrelationshipwithothercompaniesandourabilitytoenterintonewrelationshipsinthefuture,includingwithcompetitorsofsuchrelatedparties,whichcouldharmourbusinessandresultsofoperations.
Adverse economic conditions may negatively impact our business.
Ourbusinessdependsontheoveralldemandforinformationtechnologyandontheeconomichealthofourcurrentandprospectivecustomers.AnysignificantweakeningoftheeconomyintheUnitedStatesorEuropeandoftheglobaleconomy,morelimitedavailabilityofcredit,areductioninbusinessconfidenceandactivity,decreasedgovernmentspending,economicuncertaintyandotherdifficultiesmayaffectoneormoreofthesectorsorcountriesinwhichwesellourapplications.Globaleconomicandpoliticaluncertaintymaycausesomeofourcustomersorpotentialcustomerstocurtailspending,andmayultimatelyresultinnewregulatoryandcostchallengestoourinternationaloperations.Inaddition,astrongdollarcouldreducedemandforourproductsincountrieswithrelativelyweakercurrencies.Theseadverseconditionscouldresultinreductionsinsalesofourapplications,longersalescycles,reductionsinsubscriptiondurationandvalue,sloweradoptionofnewtechnologiesandincreasedpricecompetition.Anyoftheseeventscouldhaveanadverseeffectonourbusiness,operatingresultsandfinancialposition.
Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by man‑‑made problems suchas terrorism.
Asignificantnaturaldisaster,suchasanearthquake,fireoraflood,orasignificantpoweroutagecouldhaveamaterialadverseimpactonourbusiness,financialconditionandresultsofoperations.OurcorporateheadquartersarelocatedinPaloAlto,California,inaregionknownforseismicactivity,andwehavesignificantofficesinSanFrancisco,NewYorkCityandAustinintheUnitedStatesandinternationallyinBudapest,LondonandSingapore.Further,ifanaturaldisasterorterroristeventoccursinaregionfromwhichwederiveasignificantportionofourrevenue,customersinthatregionmaydelayorforegopurchasesofourproducts,whichmaymateriallyandadverselyimpactourresultsofoperationsforaparticularperiod.Forexample,thewestcoastoftheUnitedStatescontainsactiveearthquakezonesandtheeasternseaboardissubjecttoseasonalhurricaneswhileNewYorkandthe
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UnitedKingdomhavesufferedsignificantterroristattacks.Additionally,werelyonournetworkandthird‑partyinfrastructureandenterpriseapplications,internaltechnologysystemsandourwebsiteforourdevelopment,marketing,finance,customersupport,operationalsupport,hostedservicesandsalesactivities.Intheeventofamajorearthquake,hurricaneorcatastrophiceventsuchasfire,powerloss,floods,telecommunicationsfailure,cyber‑attack,warorterroristattack,wemaybeunabletocontinueouroperationsandmayenduresysteminterruptions,reputationalharm,delaysinourdevelopmentofsolutions,lengthyinterruptionsinourservices,breachesofdatasecurityandlossofcriticaldata,allofwhichcouldhaveanadverseeffectonouroperatingresults.Alloftheaforementionedrisksmaybeaugmentedifthebusinesscontinuityplansforusandourserviceprovidersprovetobeinadequate.Totheextentthatanyoftheaboveresultsindelaysorcancellationsofcustomerorders,orthedelayinthedeploymentofourproducts,ourbusiness,financialconditionandresultsofoperationscouldbeadverselyaffected.
Risks Related to Ownership of Our Common Stock and this Offering
The stock price of our common stock has been, and may continue to be, volatile or may decline regardless of our operating performance, and you may not beable to resell your shares at or above the public offering price.
Themarketpriceforourcommonstockhasbeen,andmaycontinuetobe,volatile.SincesharesofourcommonstockweresoldinourinitialpublicofferinginApril2017atapriceof$15.00pershare,ourstockpricehasrangedfrom$15.00to$23.35,throughSeptember27,2017.Themarketpriceofourcommonstockmaycontinuetofluctuatesignificantlyinresponsetonumerousfactors,manyofwhicharebeyondourcontrol,includingthefactorsincludedinthisRiskFactorssectionaswellas:
• overallperformanceoftheequitymarkets;
• actualoranticipatedfluctuationsinouroperatingresultsornetrevenueexpansionrate;
• changesinthefinancialprojectionswemayprovidetothepublicorourfailuretomeettheseprojections;
• failureofsecuritiesanalyststoinitiateormaintaincoverageofus,changesinfinancialestimatesbyanysecuritiesanalystswhofollowourcompany,orourfailuretomeettheseestimatesortheexpectationsofinvestors,evenifwemeetourownprojections;
• recruitmentordepartureofkeypersonnel;
• theeconomyasawholeandmarketconditionsinourindustry;
• rumorsandmarketspeculationinvolvingusorothercompaniesinourindustry;
• announcementsbyusorourcompetitorsofsignificanttechnicalinnovations,acquisitions,strategicpartnerships,jointventures,orcapitalcommitments;
• actualoranticipateddevelopmentsinourbusinessorourcompetitors’businessesorthecompetitivelandscapegenerally;
• developmentsordisputesconcerningourintellectualpropertyorourofferings,orthird‑partyproprietaryrights;
• announcedorcompletedacquisitionsofbusinessesortechnologiesbyusorourcompetitors;
• changesinoperatingperformanceandstockmarketvaluationsofothertechnologycompaniesgenerally,orthoseinourindustryinparticular;
• changesinaccountingstandards,policies,guidelines,interpretationsorprinciples;
• newlawsorregulationsornewinterpretationsofexistinglawsorregulationsapplicabletoourbusiness;
• lawsuitsthreatenedorfiledagainstus;
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• othereventsorfactors,includingthoseresultingfromwar,incidentsofterrorism,orresponsestotheseevents;
• theexpirationofcontractuallock‑upormarketstandoffagreements;and
• salesofsharesofourcommonstockbyusorourstockholders.
Inaddition,thestockmarketshaveexperiencedextremepriceandvolumefluctuationsthathaveaffectedandcontinuetoaffectthemarketpricesofequitysecuritiesofmanycompanies.Stockpricesofmanycompanieshavefluctuatedinamannerunrelatedordisproportionatetotheoperatingperformanceofthosecompanies.Inthepast,stockholdershaveinstitutedsecuritiesclassactionlitigationfollowingperiodsofmarketvolatility.Ifweweretobecomeinvolvedinsecuritieslitigation,itcouldsubjectustosubstantialcosts,divertresourcesandtheattentionofmanagementfromourbusiness,andadverselyaffectourbusiness.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volumecould decline.
Thetradingmarketforourcommonstockdependsinpartontheresearchandreportsthatsecuritiesorindustryanalystspublishaboutusorourbusiness.Wedonothaveanycontrolovertheseanalysts.Ifoneormoreoftheanalystsinitiateresearchwithanunfavorableratingordowngradeourcommonstock,provideamorefavorablerecommendationaboutourcompetitors,publishinaccurateorunfavorableresearchaboutourbusinessorceasecoverageofusorfailtopublishreportsonusregularly,demandforourcommonstockcoulddecrease,whichmightcauseourcommonstockpriceandtradingvolumetodecline.
Our directors, executive officers and principal stockholders will continue to have substantial control over us after this offering, which could limit your abilityto influence the outcome of key transactions, including a change of control.
Ourdirectors,executiveofficersandourstockholderswhoowngreaterthan5%ofouroutstandingcommonstock,togetherwiththeiraffiliates,willbeneficiallyown,intheaggregate,approximately42.6%ofouroutstandingcommonstockafterthisoffering,basedonthenumbersharesoutstandingasofAugust31,2017.Asaresult,thesestockholders,ifactingtogether,willbeabletoinfluenceorcontrolmattersrequiringapprovalbyourstockholders,includingtheelectionofdirectorsandtheapprovalofmergers,acquisitionsorotherextraordinarytransactions.Inaddition,thesestockholders,actingtogether,wouldhavetheabilitytocontrolthemanagementandaffairsofourcompany.Theymayalsohaveintereststhatdifferfromyoursandmayvoteinawaywithwhichyoudisagreeandwhichmaybeadversetoyourinterests.Thisconcentrationofownershipmayhavetheeffectofdelaying,preventingordeterringachangeofcontrolofourcompany,coulddepriveourstockholdersofanopportunitytoreceiveapremiumfortheircommonstockaspartofasaleofourcompanyandmightultimatelyaffectthemarketpriceofourcommonstock.
Inaddition,Intelwillholdapproximately18.7%ofouroutstandingcommonstockafterthisoffering,basedonthenumbersharesoutstandingasofAugust31,2017.Assuch,Intelcouldhaveconsiderableinfluenceovermatterssuchasapprovingapotentialacquisitionofus.Intel’sinvestmentinandpositioninourcompanycouldalsodiscourageothersfrompursuinganypotentialacquisitionofus,whichcouldhavetheeffectofdeprivingtheholdersofourcommonstockoftheopportunitytoselltheirsharesatapremiumovertheprevailingmarketprice.
We have broad discretion in the use of the net proceeds that we receive in this offering.
Theprincipalpurposesofthisofferingaretoraisecapitaltoreplacecashusedforfundingtaxwithholdingobligationsweincurreduponthenetsettlementofequityawards,thesettlementandwithholdingofwhichwasconcurrentwiththisoffering,andtofacilitateanorderlydistributionofsharesforthesellingstockholdersinthisoffering,includingcertainemployeesforpurposessuchassatisfyinganyincome,employmentorsocialtaxwithholdingandremittanceobligationsinconnectionwiththevestingofrestrictedstockunits(RSUs)andotherpurposes.Wewillnotreceiveanyproceedsfromthesaleofsharesbythesellingstockholders.Accordingly,ourmanagementwillhavebroaddiscretionoverthespecificuseofthenetproceedsthatwereceiveinthisofferingandmightnotbeabletoobtainasignificantreturn,ifany,oninvestmentofthesenetproceeds.Investorsinthisoffering
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willneedtorelyuponthejudgmentofourmanagementwithrespecttotheuseofproceeds.Ifwedonotusethenetproceedsthatwereceiveinthisofferingeffectively,ourbusiness,operatingresultsandfinancialconditioncouldbeharmed.
Sales of substantial amounts of our common stock in the public markets, or the perception that they might occur, including when the lock-up or market stand-off period ends, could cause the market price of our common stock to decline.
Salesofasubstantialnumberofsharesofourcommonstockintothepublicmarket,particularlysalesbyourdirectors,executiveofficers,andprincipalstockholders,ortheperceptionthatthesesalesmightoccur,couldcausethemarketpriceofourcommonstocktodeclineandmaymakeitmoredifficultforyoutosellyourcommonstockatatimeandpricethatyoudeemappropriate.Basedon131,250,336sharesofourcommonstockoutstandingasofJuly31,2017,wewillhave139,289,042sharesofourcommonstockoutstandingafterthisoffering.
Substantiallyallofoursecuritiesoutstandingpriortothisofferingarecurrentlyrestrictedfromresaleasaresultoflock‑upandmarketstandoffagreements.Seethesectiontitled“SharesEligibleforFutureSale”foradditionalinformation.Inconnectionwithourinitialpublicoffering,we,allofourdirectorsandexecutiveofficers,andtheholdersofsubstantiallyallofouroutstandingequitysecuritiesagreed,subjecttocertainexceptions,nottooffer,sell,oragreetosell,directlyorindirectly,anysharesofcommonstockforaperiodof180daysfromthedateofourinitialpublicoffering.Inconnectionwiththisoffering,MorganStanley&Co.LLC,onbehalfoftheunderwriters,hasconsentedtothereleaseoftheselock-uprestrictionswithrespectto12,446,930sharesofcommonstocktobesoldinthisofferingbythesellingstockholders(including2,014,816sharesofcommonstockthatmaybesoldbycertainsellingstockholdersuponexerciseoftheunderwriters’optiontopurchaseadditionalshares),including7,116,150sharesbeneficiallyownedbyourdirectorsandexecutiveofficersortheiraffiliatedentities.Thereleasewilltakeeffectonthepricingofthisoffering.
Inaddition,inconnectionwiththisoffering,subjecttocertainexceptions,we,allofourdirectorsandexecutiveofficers,thesellingstockholdersandcertainotherholdersofourcommonstock,includingAccel,whichasofAugust31,2017beneficiallyowned18,409,144sharesofourcommonstock,GreylockPartners,whichasofAugust31,2017beneficiallyowned14,199,711sharesofourcommonstock,andIntel,whichasofAugust31,2017beneficiallyowned26,065,827sharesofourcommonstock,agreedthat,withoutthepriorwrittenconsentofMorganStanley&Co.LLConbehalfoftheunderwritersandsubjecttocertainexceptions,weandtheywillnotoffer,sell,oragreetosell,directlyorindirectly,anysharesofcommonstockuntil(i)withrespecttoalldirectors,Intel,andthesellingstockholdersexceptforAccelandGreylock,thecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendedOctober31,2017and(ii)withrespecttoourexecutiveofficersandAccelandGreylock,withrespecttothenumberofsharesofcommonstockequaltofiftypercentofthecommonstockheldbythemimmediatelybeforetheconsummationofthisoffering,lessanysharessoldinthisoffering,afterthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendedOctober31,2017andwithrespecttotheremainingfiftypercentofthecommonstockheldbythemimmediatelybeforetheconsummationofthisoffering,afterthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendedJanuary31,2018.
Whentheapplicablelock-upandmarketstandoffperiodsdescribedaboveexpire,weandoursecurityholderssubjecttoalock-upagreementormarketstand-offagreementwillbeabletoselloursharesinthepublicmarket.Additionally,MorganStanley&Co.LLCmay,initsdiscretion,permitoursecurityholderstosellsharespriortotheexpirationoftherestrictiveprovisionscontainedinthelock‑upagreements.Sharesheldbydirectors,executiveofficers,andotheraffiliateswillalsobesubjecttovolumelimitationsunderRule144undertheSecuritiesActandvariousvestingagreements.
Inaddition,asofJuly31,2017,wehadoptionsoutstandingthat,iffullyexercised,wouldresultintheissuanceof22,211,442sharesofcommonstockandRSUsthat,iffullysettled,wouldresultintheissuanceof24,197,948sharesofcommonstock.SubsequenttoJuly31,2017throughSeptember27,2017,wealsograntedRSUssettleablefor1,251,206sharesofourcommonstockandstockoptionsexercisablefor8,100sharesofourcommonstockandissued358,206sharesofourcommonstockinconnectionwithstrategictransactions.AllofthesharesofcommonstockissuableupontheexerciseofstockoptionsorsettlementofRSUs,andthesharesreservedforfutureissuance
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underourequityincentiveplansareregisteredforpublicresaleundertheSecuritiesAct.Accordingly,theseshareswillbeabletobefreelysoldinthepublicmarketuponissuancesubjecttoexistinglock‑upormarketstandoffagreementsandapplicablevestingrequirements.
Immediatelyfollowingthisoffering,theholdersofapproximately73.0millionsharesofourcommonstockwillhaverights,subjecttosomeconditions,torequireustofileregistrationstatementsforthepublicresaleofthecommonstockissuableuponconversionofsuchsharesortoincludesuchsharesinregistrationstatementsthatwemayfileforusorotherstockholders.
Wemayalsoissueoursharesofcommonstockorsecuritiesconvertibleintosharesofourcommonstockfromtimetotimeinconnectionwithafinancing,acquisition,orinvestment,orotherwise.Anysuchissuancecouldresultinsubstantialdilutiontoourexistingstockholdersandcausethemarketpriceofourcommonstocktodecline.
We do not intend to pay dividends for the foreseeable future.
Wehaveneverdeclaredorpaidanycashdividendsonourcommonstockanddonotintendtopayanycashdividendsintheforeseeablefuture.Weanticipatethatwewillretainallofourfutureearningsforuseinthedevelopmentofourbusinessandforgeneralcorporatepurposes.Anydeterminationtopaydividendsinthefuturewillbeatthediscretionofourboardofdirectors.Accordingly,investorsmustrelyonsalesoftheircommonstockafterpriceappreciation,whichmayneveroccur,astheonlywaytorealizeanyfuturegainsontheirinvestments.
Defensive measures in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, moredifficult and may prevent attempts by our stockholders to replace or remove our current management.
Ouramendedandrestatedcertificateofincorporationandamendedandrestatedbylaws,whichwereapprovedbyourstockholderspriortoourinitialpublicoffering,containprovisionsthatcoulddelayorpreventachangeincontrolofourcompany.Theseprovisionscouldalsomakeitdifficultforstockholderstoelectdirectorswhoarenotnominatedbythecurrentmembersofourboardofdirectorsortakeothercorporateactions,includingeffectingchangesinourmanagement.Theseprovisionsinclude:
• aclassifiedboardofdirectorswiththree‑yearstaggeredterms,whichcoulddelaytheabilityofstockholderstochangethemembershipofamajorityofourboardofdirectors;
• theabilityofourboardofdirectorstoissuesharesofpreferredstockandtodeterminethepriceandothertermsofthoseshares,includingpreferencesandvotingrights,withoutstockholderapproval,whichcouldbeusedtosignificantlydilutetheownershipofahostileacquirer;
• theexclusiverightofourboardofdirectorstoelectadirectortofillavacancycreatedbytheexpansionofourboardofdirectorsortheresignation,deathorremovalofadirector,whichpreventsstockholdersfrombeingabletofillvacanciesonourboardofdirectors;
• aprohibitiononstockholderactionbywrittenconsent,whichforcesstockholderactiontobetakenatanannualorspecialmeetingofourstockholders;
• therequirementthataspecialmeetingofstockholdersmaybecalledonlybythechairmanofourboardofdirectors,ourchiefexecutiveofficer,ourleaddirector,oramajorityvoteofourboardofdirectors,whichcoulddelaytheabilityofourstockholderstoforceconsiderationofaproposalortotakeaction,includingtheremovalofdirectors;
• therequirementfortheaffirmativevoteofholdersofatleast662/3%ofthevotingpowerofallofthethenoutstandingsharesofthevotingstock,votingtogetherasasingleclass,toamendtheprovisionsofouramendedandrestatedcertificateofincorporationrelatingtotheissuanceofpreferredstockandmanagementofourbusinessorouramendedandrestatedbylaws,whichmayinhibittheabilityofanacquirertoeffectsuchamendmentstofacilitateanunsolicitedtakeoverattempt;
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• theabilityofourboardofdirectorstoamendthebylaws,whichmayallowourboardofdirectorstotakeadditionalactionstopreventanunsolicitedtakeoverandinhibittheabilityofanacquirertoamendthebylawstofacilitateanunsolicitedtakeoverattempt;
• therequirementthatinorderforastockholdertobeeligibletoproposeanominationorotherbusinesstobeconsideredatanannualmeetingofourstockholders,suchstockholdermusthavecontinuouslybeneficiallyownedatleast1%ofouroutstandingcommonstockforaperiodofoneyearbeforegivingsuchnotice,whichmaydiscourage,delayordeterstockholdersorapotentialacquirerfromconductingasolicitationofproxiestoelectthetheirownslateofdirectorsorotherwiseattemptingtoobtaincontrolofusorinfluenceoverourbusiness;and
• advancenoticeprocedureswithwhichstockholdersmustcomplyinordertonominatecandidatestoourboardofdirectorsortoproposematterstobeacteduponatastockholders’meeting,whichmaydiscourage,delayordeterstockholdersorapotentialacquirerfromconductingasolicitationofproxiestoelectthetheirownslateofdirectorsorotherwiseattemptingtoobtaincontrolofusorinfluenceoverourbusiness.
Inaddition,ourrestatedcertificateofincorporationprovidesthattheCourtofChanceryoftheStateofDelawareistheexclusiveforumfor:anyderivativeactionorproceedingbroughtonourbehalf;anyactionassertingabreachoffiduciaryduty;anyactionassertingaclaimagainstusarisingpursuanttotheDelawareGeneralCorporationLaw,ourrestatedcertificateofincorporation,orourrestatedbylaws;oranyactionassertingaclaimagainstusthatisgovernedbytheinternalaffairsdoctrine.Thischoiceofforumprovisionmaylimitastockholder’sabilitytobringaclaiminajudicialforumthatitfindsfavorablefordisputeswithusoranyofourdirectors,officers,orotheremployees,whichmaydiscouragelawsuitswithrespecttosuchclaims.Alternatively,ifacourtweretofindthechoiceofforumprovisioncontainedinourrestatedcertificateofincorporationtobeinapplicableorunenforceableinanaction,wemayincuradditionalcostsassociatedwithresolvingsuchactioninotherjurisdictions,whichcouldharmourbusiness,operatingresultsandfinancialcondition.
Inaddition,becauseweareincorporatedinDelaware,wearegovernedbytheprovisionsoftheanti‑takeoverprovisionsoftheDelawareGeneralCorporationLaw,whichmaydiscourage,delayorpreventachangeincontrolbyprohibitingusfromengaginginabusinesscombinationwithaninterestedstockholderforaperiodofthreeyearsafterthepersonbecomesaninterestedstockholder,evenifachangeofcontrolwouldbebeneficialtoourexistingstockholders.Althoughwebelievetheseprovisionscollectivelyprovideforanopportunitytoobtaingreatervalueforstockholdersbyrequiringpotentialacquirerstonegotiatewithourboardofdirectors,theywouldapplyevenifanofferrejectedbyourboardwasconsideredbeneficialbysomestockholders.Inaddition,theseprovisionsmayfrustrateorpreventanyattemptsbyourstockholderstoreplaceorremoveourcurrentmanagementbymakingitmoredifficultforstockholderstoreplacemembersofourboardofdirectors,whichisresponsibleforappointingthemembersofourmanagement.
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SPECIAL NOTE REGARDING FORWARD‑‑LOOKING STATEMENTS
Thisprospectuscontainsforward‑lookingstatements.Allstatementscontainedinthisprospectusotherthanstatementsofhistoricalfact,includingstatementsregardingourfutureresultsofoperations,financialposition,marketsizeandopportunity,ourbusinessstrategyandplans,thefactorsaffectingourperformanceandourobjectivesforfutureoperations,areforward‑lookingstatements.Thewords“believe,”“may,”“will,”“estimate,”“continue,”“anticipate,”“intend,”“could,”“would,”“expect,”“objective,”“plan,”“potential,”“seek,”“grow,”“target,”“if”andsimilarexpressionsareintendedtoidentifyforward‑lookingstatements.Wehavebasedtheseforward‑lookingstatementslargelyonourcurrentexpectationsandprojectionsaboutfutureeventsandtrendsthatwebelievemayaffectourfinancialcondition,resultsofoperations,businessstrategy,short‑termandlong‑termbusinessoperationsandobjectivesandfinancialneeds.Theseforward‑lookingstatementsaresubjecttoanumberofrisks,uncertaintiesandassumptions,includingthosedescribedinthe“RiskFactors.”Moreover,weoperateinaverycompetitiveandrapidlychangingenvironment.Newrisksemergefromtimetotime.Itisnotpossibleforourmanagementtopredictallrisks,norcanweassesstheimpactofallfactorsonourbusinessortheextenttowhichanyfactor,orcombinationoffactors,maycauseactualresultstodiffermateriallyfromthosecontainedinanyforward‑lookingstatementswemaymake.Inlightoftheserisks,uncertaintiesandassumptions,thefutureeventsandtrendsdiscussedinthisprospectusmaynotoccurandactualresultscoulddiffermateriallyandadverselyfromthoseanticipatedorimpliedintheforward‑lookingstatements.Forward‑lookingstatementscontainedinthisprospectusinclude,butarenotlimitedto,statementsabout:
• ourexpectationsregardingourresultsofoperations,financialconditionandcashflows;
• ourexpectationsregardingthedevelopmentandexpansionofourbusiness;
• ourabilitytosuccessfullyenternewmarketsandmanageourinternationalexpansion;
• ourabilitytoexpandourcustomerbase,renewsubscriptionsandexpandpenetrationofexistingcustomers;
• anticipatedtrendsandchallengesinourbusinessandinthemarketsinwhichweoperate;
• ourabilitytodevelopnewfeaturesandfunctionalitythatmeetmarketneedsandachievemarketacceptance;
• theanticipatedbenefitsassociatedwiththeuseofourplatform,includingrecentdevelopments;
• ourabilitytoretainandhirenecessaryemployeesandstaffouroperationsappropriately;
• thetimingandamountofcertainexpenses;
• ourabilitytomaintain,protectandenhanceourintellectualproperty;and
• worldwideeconomicconditionsandtheirimpactonenterprisesoftwarespending.
Wecautionyouthattheforegoinglistmaynotcontainalloftheforward‑lookingstatementsmadeinthisprospectus.Inaddition,inlightoftheserisksanduncertainties,themattersreferredtointheforward‑lookingstatementscontainedinthisprospectusmaynotoccur.
Youshouldnotrelyuponforward‑lookingstatementsaspredictionsoffutureevents.Theeventsandcircumstancesreflectedintheforward‑lookingstatementsmaynotbeachievedoroccur.Althoughwebelievethattheexpectationsreflectedintheforward‑lookingstatementsarereasonable,wecannotguaranteefutureresults,levelsofactivity,performanceorachievements.Weareundernodutytoupdateanyoftheseforward‑lookingstatementsafterthedateofthisprospectusortoconformthesestatementstoactualresultsorrevisedexpectations.
YoushouldreadthisprospectusandthedocumentsthatwereferenceinthisprospectusandhavefiledwiththeSecuritiesandExchangeCommissionasexhibitstotheregistrationstatementofwhichthisprospectusisapartwiththeunderstandingthatouractualfutureresults,levelsofactivity,performanceandeventsandcircumstancesmaybemateriallydifferentfromwhatweexpect.
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MARKET, INDUSTRY AND OTHER DATA
Introduction
Thisprospectuscontainsestimatesandinformationconcerningourindustry,ourbusiness,andthemarketforoursolutions,includingmarketposition,marketsizeandgrowthratesofthemarketsinwhichweparticipate,thatarebasedonindustrypublications,surveysandreports.Althoughwehavenotindependentlyverifiedtheaccuracyorcompletenessofthedatacontainedintheseindustrypublications,surveys,andreports,webelievethepublications,surveysandreportsaregenerallyreliable,althoughsuchinformationisinherentlysubjecttouncertaintiesandimprecise.Theindustryinwhichweoperateissubjecttoahighdegreeofuncertaintyandriskduetovarietyoffactors,includingthosedescribedinthe“RiskFactors.”Theseandotherfactorscouldcauseresultstodiffermateriallyfromthoseexpressedinthesepublicationsandreports.
Thesourceofcertainstatisticaldata,estimates,andforecastscontainedinthisprospectusarethefollowingindependentindustrypublicationsorreports:
• BlackDuckSoftwareandNorthBridge,2015FutureofOpenSourceSurvey,2015
• InternationalDataCorporation,WorldwideInternetofThingsForecastUpdate,May2016
• InternationalDataCorporation,WorldwideSemiannualSoftwareTracker,May2017
• InternationalDataCorporation,WorldwideSoftwareTrackerTaxonomy,August2016
Global 8000
Werefertothelargest8,000corporateenterprisesgloballyastheGlobal8000.ForpurposesofdefiningtheGlobal8000,thetop2,000enterprisesintheGlobal8000arebasedontheFORBESGlobal2000ranking.TheFORBESGlobal2000isanannualrankingofthetop2,000publiccompaniesintheworldbyForbesmagazine.Therankingisbasedonamixoffourmetrics:sales,profit,assetsandmarketvalue.TheremainderoftheGlobal8000constituentsisbasedonentitieslistedinData.comashavingthehighestannualrevenue,excludingthosethatarelistedintheFORBESGlobal2000.Data.comisaserviceofferedbysalesforce.com,inc.thatweusetocategorizecompaniesbyindustry.
Forpurposesofcustomercount,acustomerisdefinedasanentitywithauniqueFORBESGlobal2000orData.comidentifierandquarterlysubscriptionrevenueasofthemeasurementdate.TheGlobal8000customercountasofJanuary31,2017andJuly31,2017presentedelsewhereinthisprospectusisbasedontheGlobal8000constituentsasofMay1,2017.
WeperiodicallyupdatetheGlobal8000listbasedontheFORBESGlobal2000listandinformationfromData.com.TheFORBESGlobal2000isupdatedannuallyinthesecondquarterofthecalendaryear.CurrentandpriorperiodGlobal8000customercountsarebasedonthemostrecentFORBESGlobal2000listforcomparabilitypurposes.WesimilarlyupdatetheremainderoftheGlobal8000basedonData.cominformation.Data.comcontinuouslyupdatesthislistofentities,andtherelevantGlobal8000constituentsareobtainedandprocessedduringthethirdmonthofthepriorfiscalquarterandfinalizedonthefirstdayofthenewfiscalquarter.Ourcustomercountissubjecttoadjustmentsforacquisitions,spin‑offsandothermarketactivity.Wheretheseadjustmentsoccur,previouslydisclosednumbersofcustomersarerestatedtoallowforcomparability.Forexample,weaddaGlobal8000customerwhenaGlobal8000companythatisnotourcustomeracquiresacompanyinourexistingcustomerbasethatisnotaGlobal8000company.WhenweenterintoacontractwithaGlobal8000parentcompany,oranyofitsrelatedsubsidiaries,oranycombinationofentitieswithinaGlobal8000company,wecountonlyoneGlobal8000customer.WedonotcountfurtherpenetrationintoentitieswithinagivenGlobal8000customerasanewcustomerintheGlobal8000customercount.WemakeexceptionsforholdingcompaniesandotherorganizationsforwhichtheFORBESGlobal2000orData.comidentifierinourjudgmentdoesnotaccuratelyrepresenttheClouderacustomer.
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Forpurposesofdeterminingthetoptenenterprisesinvarioussectors,wegrouptheFORBESGlobal2000categoriesintoindustryverticals,includingasfollows:
Industry Vertical FORBES Global 2000 Categories
BanksMajorBanksRegionalBanks
HealthcareandLifeSciences
BiotechsHealthcareServicesMedicalEquipment&SuppliesPharmaceuticals
Technology
CommunicationsEquipmentComputerHardwareComputerServicesSemiconductorsSoftware&Programming
Telecommunications TelecommunicationServices
ForpurposesofdeterminingthetoptenenterprisesintheFORBESGlobal2000bankcategory,wehaveexcludedstate‑controlledbanks.
Public Sector Organization
Wedefine“publicsectororganization”toincludethevariousdepartments,agenciesandotherorganizationsoftheU.S.federal,stateandlocalgovernments,aswellassimilarorganizationsofforeigngovernmentsandsubdivisions.Wealsoincludebothpublicandprivateeducationalinstitutionsandschooldistrictsaspublicsectororganizations.Duetothevarietyofambiguities,judgmentsanddistinctionsthatcouldbemade,andthelackofawidelyacceptedstandard,inhowsuchcustomersarecounted,wecurrentlydonotincludepublicsectororganizationsinourGlobal8000customercount.
Net Expansion Rate
Wehaveprovidedananalysisofournetexpansionrate.Ourquarterlynetsubscriptionrevenueexpansionrateequals:
• thesubscriptionrevenueinagivenquarterfromendusercustomersthathadsubscriptionrevenueinthesamequarteroftheprioryear,
divided by
• thesubscriptionrevenueattributabletothatsamegroupofcustomersinthatpriorquarter.
Ournetexpansionrateequalsthesimplearithmeticaverageofourquarterlynetsubscriptionrevenueexpansionrateforthefourquartersendingwiththemostrecentlycompletedfiscalquarter.WehaveexcludedIntelfromourcalculationofnetexpansionrate,asitisarelatedparty.
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USE OF PROCEEDS
Weestimatethatournetproceedsfromthesaleofthesharesofcommonstockthatwearesellinginthisofferingwillbeapproximately$45.8million,basedonthepublicofferingpriceof$16.45pershare,afterdeductingtheunderwritingdiscountsandcommissionsandestimatedofferingexpensespayablebyus.Wewillnotreceiveanyproceedsfromthesaleofsharesofourcommonstockbythesellingstockholders.
Theprincipalpurposesofthisofferingaretoraisecapitaltoreplacecashwewilluseforfundingtaxwithholdingobligationsweincurreduponthenetsettlementofequityawards,thesettlementandwithholdingofwhichwasconcurrentwiththepricingofthisoffering,andtofacilitateanorderlydistributionofsharesforthesellingstockholdersinthisoffering,includingcertainemployeesforpurposessuchassatisfyinganyincome,employmentorsocialtaxwithholdingandremittanceobligationsinconnectionwiththevestingandsettlementofrestrictedstockunits(RSUs)andotherpurposes.TofundthewithholdingandremittanceobligationsinconnectionwiththevestingandsettlementofRSUs,wearesellingcommonstockinthisofferinginanamountthatissubstantiallyequivalenttothenumberofsharesofcommonstockthatwewithholdinconnectionwiththesenetsettlements.Atotalof8,118,733sharesunderlyingRSUsnetsettledconcurrentwiththepricingofthisoffering,whichincludesthecancellationandforfeitureof3,080,027shareswithheldand5,038,706sharesissuedsubjecttothesettlementofRSUs.Basedontheapplicableincometaxrateforcertainofouremployeesfromwhomwewillwithholdtaxes,wewillpayapproximately$51.3milliontosatisfythesetaxwithholdingobligations.
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MARKET PRICE OF OUR COMMON STOCK
OurcommonstockhasbeenlistedontheNewYorkStockExchangeunderthesymbol“CLDR”sinceApril28,2017.Priortothatdate,therewasnopublictradingmarketforourcommonstock.ThefollowingtablesetsforthfortheperiodsindicatedthehighandlowsalepricespershareofourcommonstockasreportedontheNewYorkStockExchange:
High Low
Fiscal Year 2018 FirstFiscalQuarter(fromApril28,2017) $19.33 $17.73SecondFiscalQuarter(endedJuly31,2017) 23.35 15.40ThirdFiscalQuarter(throughSeptember27,2017) 22.40 16.06
OnSeptember27,2017,thelastreportedsalepriceofourcommonstockontheNewYorkStockExchangewas$16.59pershare.AsofJuly31,2017,wehad822holdersofrecordofourcommonstock.Theactualnumberofstockholdersisgreaterthanthisnumberofrecordholdersandincludesstockholderswhoarebeneficialownersbutwhosesharesareheldinstreetnamebybrokersandothernominees.
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DIVIDEND POLICY
Wehaveneverdeclaredorpaidanycashdividendsonourcapitalstock,andwedonotcurrentlyintendtopayanycashdividendsaftertheofferingorfortheforeseeablefuture.Weexpecttoretainfutureearnings,ifany,tofundthedevelopmentandgrowthofourbusiness.Anyfuturedeterminationtopaydividendsonourcommonstockwillbeatthediscretionofourboardofdirectorsandwilldependupon,amongotherfactors,ourfinancialcondition,operatingresults,currentandanticipatedcashneeds,plansforexpansionandotherfactorsthatourboardofdirectorsmaydeemrelevant.
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CAPITALIZATION
Thefollowingtablesetsforthourcash,cashequivalents,andmarketablesecuritiesandcapitalizationasofJuly31,2017onan:
• actualbasis;and
• asadjustedbasistogiveeffectto(i)thesaleandissuanceof3,000,000sharesofourcommonstockbyusinthisoffering,baseduponthereceiptbyusoftheestimatednetproceedsfromthisofferingatthepublicofferingpriceof$16.45pershare,andafterdeductingtheunderwritingdiscountsandcommissionsandestimatedofferingexpensespayablebyusandtheapplicationofthenetproceedsfromthisofferingasdescribedin“UseofProceeds,”and(ii)theissuanceof5,038,706sharesofcommonstocksubjecttothesettlementofrestrictedstockunits(RSUs),thesettlementofwhichwasconcurrentwiththepricingofthisoffering,aftergivingeffecttothecancellationandforfeitureof3,080,027shareswithheldtosatisfytheassociatedwithholdingtaxobligations.
Youshouldreadthisinformationtogetherwithourconsolidatedfinancialstatementsandrelatednotesappearingelsewhereinthisprospectusandtheinformationsetforthin“SelectedConsolidatedFinancialData”and“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations.”
July 31, 2017
Actual As Adjusted (in thousands, except share and per share data)Cash,cashequivalentsandmarketablesecurities $475,752 $470,180Stockholders’equity: Preferredstock,$0.00005parvaluepershare;20,000,000sharesauthorized,nosharesissuedandoutstanding,
actualandasadjusted — —Commonstock,$0.00005parvaluepershare,1,200,000,000sharesauthorized,131,250,336sharesissuedand
outstanding,actual;1,200,000,000sharesauthorized,139,289,042sharesissuedandoutstanding,asadjusted 7 7
Additionalpaid‑incapital 1,318,447 1,312,875Accumulatedothercomprehensiveloss (521) (521)Accumulateddeficit (962,545) (962,545)
Totalstockholders’equity 355,388 349,816
Totalcapitalization $355,388 $349,816
Thenumberofsharesofourcommonstockissuedandoutstandinginthetableabovedoesnotincludethefollowingshares:
• 22,211,442sharesofourcommonstockissuableupontheexerciseofstockoptionsoutstandingasofJuly31,2017,withaweighted‑averageexercisepriceof$4.73pershare;
• 24,197,948sharesofourcommonstocksubjecttorestrictedstockunits(RSUs)outstandingasofJuly31,2017;
• 1,251,206sharesofourcommonstocksubjecttoRSUsgrantedafterJuly31,2017throughSeptember27,2017;
• 8,100sharesofourcommonstockissuableupontheexerciseofstockoptionsgrantedafterJuly31,2017throughSeptember27,2017withanexercisepriceof$17.32pershare;
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• 358,206sharesofourcommonstockissuedinconnectionwithstrategictransactionsafterJuly31,2017throughSeptember27,2017;and
• 32,848,932sharesofourcommonstockreservedforfutureissuanceunderourequitycompensationplans,consistingof:
– 29,848,932sharesofourcommonstockreservedforfutureissuanceunderour2017EquityIncentivePlan,or2017Plan,asofJuly31,2017(whichnumberofsharesispriortotheRSUsandstockoptionsgrantedafterJuly31,2017);and
– 3,000,000sharesofourcommonstockreservedforfutureissuanceunderour2017ESPP.
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SELECTED CONSOLIDATED FINANCIAL DATA
TheselectedconsolidatedstatementofoperationsdatafortheyearsendedJanuary31,2016and2017,andtheselectedconsolidatedbalancesheetdataasofJanuary31,2016and2017,havebeenderivedfromourauditedconsolidatedfinancialstatementsincludedelsewhereinthisprospectus.TheselectedconsolidatedstatementofoperationsdatafortheyearendedJanuary31,2015,andtheselectedconsolidatedbalancesheetdataasofJanuary31,2015,havebeenderivedfromourauditedconsolidatedfinancialstatementsthatarenotincludedinthisprospectus.TheselectedconsolidatedstatementofoperationsdataforthesixmonthsendedJuly31,2016and2017andtheselectedconsolidatedbalancesheetdataasofJuly31,2017havebeenderivedfromourunauditedinterimconsolidatedfinancialstatementsincludedelsewhereinthisprospectus.OurunauditedinterimconsolidatedfinancialstatementshavebeenpreparedinaccordancewithU.S.generallyacceptedaccountingprinciples,orU.S.GAAP,onthesamebasisasourauditedannualconsolidatedfinancialstatementsand,intheopinionofmanagement,reflectalladjustments,consistingonlyofnormal,recurringadjustments,thatarenecessaryforthefairstatementofourconsolidatedfinancialpositionasofJuly31,2017andourconsolidatedresultsofoperationsforthesixmonthsendedJuly31,2016and2017.Youshouldreadthefollowingselectedconsolidatedfinancialdatainconjunctionwithourconsolidatedfinancialstatementsandtheaccompanyingnotesandtheinformationin“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”containedelsewhereinthisprospectus.Ourhistoricalresultsarenotnecessarilyindicativeoftheresultsthatmaybeexpectedforanyotherperiodinthefuture,andtheresultsforthesixmonthsendedJuly31,2017arenotnecessarilyindicativeoftheresultstobeexpectedforthefullyearoranyotherperiod.
Year Ended January 31, Six Months Ended
July 31,
2015 2016 2017 2016 2017
(in thousands, except per share data)
Consolidated Statements of Operations Data: Revenue: Subscription $ 72,615 $ 119,150 $ 200,252 $ 91,360 $ 138,657
Services 36,503 46,898 60,774 29,581 30,767
Totalrevenue 109,118 166,048 261,026 120,941 169,424
Costofrevenue:(1)(2)(4) Subscription 18,314 30,865 38,704 19,057 41,687
Services 32,148 44,498 48,284 23,317 50,395
Totalcostofrevenue 50,462 75,363 86,988 42,374 92,082
Grossprofit 58,656 90,685 174,038 78,567 77,342
Operatingexpenses:(1)(2)(3)(4) Researchanddevelopment 66,431 99,314 102,309 51,150 138,675
Salesandmarketing 103,736 161,106 203,161 93,044 172,578
Generalandadministrative 25,041 34,902 55,907 16,676 54,114
Totaloperatingexpenses 195,208 295,322 361,377 160,870 365,367
Lossfromoperations (136,552) (204,637) (187,339) (82,303) (288,025)
Interestincome,net 327 2,218 2,756 1,448 2,089
Otherincome(expense),net (490) 386 (547) (15) 839
Netlossbeforebenefitfrom(provisionfor)incometaxes (136,715) (202,033) (185,130) (80,870) (285,097)
Benefitfrom(provisionfor)incometaxes 1,285 (1,110) (2,187) (970) (1,451)
Netloss (135,430) (203,143) (187,317) (81,840) (286,548)
Deemeddividendtopreferredstockholders (43,207) — — — —
Netlossattributabletocommonstockholders $ (178,637) $ (203,143) $ (187,317) $ (81,840) $ (286,548)
Netlosspershareattributabletocommonstockholders,basicanddiluted $ (6.53) $ (6.21) $ (5.15) $ (2.27) $ (3.28)
Weighted-averagesharesusedincomputingnetlosspershareattributabletocommonstockholders,basicanddiluted(5) 27,348 32,724 36,406 36,090 87,293
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___________(1) Amountsincludestock‑basedcompensationexpenseasfollows:
Year Ended January 31, Six Months Ended
July 31,
2015 2016 2017 2016 2017
(in thousands)
Costofrevenue–subscription $ 996 $ 3,363 $ 1,426 $ 708 $ 19,393
Costofrevenue–services 1,376 4,301 1,803 931 24,227
Researchanddevelopment 11,687 23,048 5,606 3,013 81,029
Salesandmarketing 11,530 19,187 5,757 3,033 72,678
Generalandadministrative 8,477 13,691 7,122 3,556 33,206
Totalstock-basedcompensationexpense $ 34,066 $ 63,590 $ 21,714 $ 11,241 $ 230,533
(2) Amountsincludeamortizationofacquiredintangibleassetsasfollows:
Year Ended January 31, Six Months Ended
July 31,
2015 2016 2017 2016 2017
(in thousands)
Costofrevenue–subscription $ 906 $ 1,732 $ 1,997 $ 969 $ 1,024
Salesandmarketing 1,149 1,723 1,723 861 861
Totalamortizationofacquiredintangibleassets $ 2,055 $ 3,455 $ 3,720 $ 1,830 $ 1,885
(3) InJanuary2017,wedonated1,175,063sharesofcommonstocktotheClouderaFoundation.Werecordedanon‑cashchargeof$21.6millionforthefairvalueofthedonatedshares,whichwasrecognizedingeneralandadministrativeexpensefortheyearendedJanuary31,2017,seeNote12toourconsolidatedfinancialstatementsincludedelsewhereinthisprospectusforfurtherdiscussion.
(4) OnApril27,2017,theeffectivedateofourinitialpublicoffering,theliquidityevent‑relatedperformanceconditionwasachievedforthemajorityofourRSUsandbecameprobableofbeingachievedfortheremainingRSUs.Werecognizedstock‑basedcompensationexpenseusingtheacceleratedattributionmethodwithacumulativecatch‑upofstock‑basedcompensationexpenseintheamountof$181.5millionduringthesixmonthsendedJuly31,2017,attributabletoservicepriortosucheffectivedate.SeeNote10toourconsolidatedfinancialstatementsincludedelsewhereinthisprospectusforfurtherdiscussion.
(5) SeeNotes2and14toourconsolidatedfinancialstatementsincludedelsewhereinthisprospectusforanexplanationofthecalculationsofourbasicanddilutednetlosspershareattributabletocommonstockholders,andtheweighted‑averagenumberofsharesusedinthecomputationofthepershareamounts.
As of
January 31, As of
July 31,
2015 2016 2017 2017 (in thousands)Consolidated Balance Sheet Data: Cashandcashequivalents $ 359,814 $ 35,966 $ 74,186 $ 68,936Marketablesecurities,currentandnoncurrent 138,448 362,279 181,480 406,816Workingcapital 387,096 142,717 110,616 248,492Totalassets 575,239 512,887 442,544 649,817Deferredrevenue,currentandnoncurrent 116,089 158,175 217,424 231,121Redeemableconvertiblepreferredstock 657,687 657,687 657,687 —Totalstockholders’equity(deficit) (222,640) (343,509) (483,756) 355,388
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Non‑‑GAAP Financial Measure
InadditiontoourresultsdeterminedinaccordancewithU.S.generallyacceptedaccountingprinciples(GAAP),webelievethefollowingnon‑GAAPfinancialmeasureisusefulinevaluatingouroperatingperformance.
Year Ended January 31,
Six Months Ended July 31,
2015 2016 2017 2016 2017 (in thousands)
Other Financial Statement Data:
Non‑GAAPoperatingloss $ (100,431) $ (137,592) $ (140,331) $ (69,232) $ (55,607)
Wedefinenon‑GAAPoperatinglossaslossfromoperationsbeforestock‑basedcompensationexpense,amortizationofacquiredintangibleassetsanddonationofcommonstocktotheClouderaFoundation.Webelievethatthisnon‑GAAPfinancialmeasure,whentakentogetherwiththecorrespondingGAAPfinancialmeasure,providesmeaningfulsupplementalinformationregardingourperformancebyexcludingcertainitemsthatmaynotbeindicativeofourbusiness,operatingresultsorfutureoutlook.Ourmanagementuses,andbelievesthatinvestorsbenefitfromreferringto,thisnon‑GAAPfinancialmeasureinevaluatingouroperatingresults,aswellaswhenplanning,forecasting,budgetingandanalyzingfutureperiods.Wealsousenon‑GAAPoperatinglossinconjunctionwithtraditionalGAAPmeasurestocommunicatewithourboardofdirectorsconcerningourfinancialperformance.
Webelievenon‑GAAPoperatinglossprovidesinvestorsandotherusersofourfinancialinformationconsistencyandcomparabilitywithourpastfinancialperformanceandfacilitatesperiodtoperiodcomparisonsofoperations.Webelievenon‑GAAPoperatinglossisusefulinevaluatingouroperatingperformancecomparedtothatofothercompaniesinourindustryasthismetricgenerallyeliminatestheeffectsofcertainitemsthatmayvaryfordifferentcompaniesforreasonsunrelatedtooveralloperatingperformance.Ourdefinitionmaydifferfromthedefinitionsusedbyothercompaniesandthereforecomparabilitymaybelimited.Inaddition,othercompaniesmaynotpublishthisorsimilarmetrics.Thus,ournon‑GAAPoperatinglossshouldbeconsideredinadditionto,notasasubstitutefororinisolationfrom,measurespreparedinaccordancewithGAAP.
Wecompensatefortheselimitationsbyprovidinginvestorsandotherusersofourfinancialinformationareconciliationofnon‑GAAPoperatinglosstolossfromoperations,therelatedGAAPfinancialmeasure.Weencourageinvestorsandotherstoreviewourfinancialinformationinitsentirety,nottorelyonanysinglefinancialmeasureandtoviewnon‑GAAPoperatinglossinconjunctionwithlossfromoperations.Thefollowingtableprovidesareconciliationoflossfromoperationstonon‑GAAPoperatingloss:
Year Ended January 31,
Six Months Ended July 31,
2015 2016 2017 2016 2017 (in thousands)
Lossfromoperations $ (136,552) $ (204,637) $ (187,339) $ (82,303) $ (288,025)
Stock‑basedcompensationexpense 34,066 63,590 21,714 11,241 230,533Amortizationofacquiredintangibleassets 2,055 3,455 3,720 1,830 1,885DonationofcommonstocktotheClouderaFoundation — — 21,574 — —
Non‑GAAPoperatingloss $ (100,431) $ (137,592) $ (140,331) $ (69,232) $ (55,607)
Forthereasonssetforthbelow,webelievethatexcludingthecomponentsdescribedbelowprovidesusefulinformationtoinvestorsandothersinunderstandingandevaluatingouroperatingresultsandfutureprospectsinthesamemanneraswedoandincomparingourfinancialresultsacrossaccountingperiodsandtofinancialresultsofpeercompanies.
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• Stock‑Based Compensation Expense. Weexcludestock‑basedcompensationexpensefromournon‑GAAPfinancialmeasureconsistentwithhowweevaluateouroperatingresultsandprepareouroperatingplans,forecastsandbudgets.Further,whenconsideringtheimpactofequityawardgrants,wefocusonoverallstockholderdilutionratherthantheaccountingchargesassociatedwithsuchequitygrants.Theexclusionoftheexpensefacilitatesthecomparisonofresultsandbusinessoutlookforfutureperiodswithresultsforpriorperiodsinordertobetterunderstandthelongtermperformanceofourbusiness.
• Amortization of Acquired Intangible Assets. Weexcludetheamortizationofacquiredintangibleassetsfromournon‑GAAPfinancialmeasure.Althoughthepurchaseaccountingforanacquisitionnecessarilyreflectstheaccountingvalueassignedtointangibleassets,ourmanagementteamexcludestheGAAPimpactofacquiredintangibleassetswhenevaluatingouroperatingresults.Likewise,ourmanagementteamexcludesamortizationofacquiredintangibleassetsfromouroperatingplans,forecastsandbudgets.Theexclusionoftheexpensefacilitatesthecomparisonofresultsandbusinessoutlookforfutureperiodswithresultsforpriorperiodsinordertobetterunderstandthelongtermperformanceofourbusiness.
• Donation of common stock to the Cloudera Foundation. Duringthefourthquarteroffiscal2017,weissued1,175,063sharesofcommonstocktotheClouderaFoundationfornoconsideration.Thisresultedinaone‑timenon‑cashchargeof$21.6million,whichwasrecordedingeneralandadministrativeexpensesontheconsolidatedstatementofoperations.OurmanagementteamdoesnotconsiderthisexpensewhenevaluatingouroperatingperformanceandwedonotexpecttomakefuturegrantsofsharestotheClouderaFoundationandthereforeconsiderthischargenon‑recurringandexcludetheGAAPimpactofthedonationwhenevaluatingouroperatingresults.Theexclusionoftheexpensefacilitatesthecomparisonofresultsandbusinessoutlookforfutureperiodswithresultsforpriorperiodsinordertobetterunderstandthelong‑termperformanceofourbusiness.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “SelectedConsolidated Financial Data” and the consolidated financial statements and related notes thereto included elsewhere in this prospectus. This discussion containsforward‑looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause orcontribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere inthis prospectus. Our fiscal year end is January 31, and references throughout this prospectus to a given fiscal year are to the twelve months ended on that date.
Overview
Clouderaempowersorganizationstobecomedata‑drivenenterprisesinthenewlyhyperconnectedworld.Wehavedevelopedthemodernplatformformachinelearningandanalytics,optimizedforthecloud.Wehaveachievedthispositionthroughextensivecollaborationwiththeglobalopensourcecommunity,continuousinnovationindatamanagementtechnologiesandbyleveragingthelatestadvancesininfrastructureincludingthepubliccloudfor“bigdata”applications.Ourpioneeringhybridopensourcesoftware(HOSS)modelincorporatesthebestofopensourcewithourrobustproprietarysoftwaretoformanenterprise‑gradeplatform.Thisplatformdeliversanintegratedsuiteofcapabilitiesfordatamanagement,machinelearningandadvancedanalytics,affordingcustomersanagile,scalableandcost‑effectivesolutionfortransformingtheirbusinesses.Offeredonasubscriptionbasis,ourplatformenablesorganizationstousevastamountsofdatafromavarietyofsources,includingtheInternetofThings(IoT),tobetterserveandmarkettotheircustomers,designconnectedproductsandservicesandreduceriskthroughgreaterinsightfromdata.Webelievethatoursolutionisthemostwidelyadoptedbigdataplatform,withagrowingrangeofapplicationsbeingbuiltonit.
Sinceourfounding,ourcollaborationwiththeopensourcecommunityandourproprietarysoftwareinnovationhaveenabledustogrowourtechnology,platformofferingsandcustomerbaserapidly.Thegraphicbelowprovidesanoutlineofselectedmilestones.
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Wefocusoursellingeffortsonthelargest8,000corporateenterprisesglobally(Global8000)aswellaslargepublicsectororganizations.Wetargettheseorganizationsbecausetheycaptureandmanagethemajorityoftheworld’sdataandoperatehighlycomplexITenvironments.Theseorganizationsarelikelytorealizethegreatestvaluefromutilizingourenterprise‑gradeplatform.See“Market,IndustryandOtherData”forhowwedefineGlobal8000.
Tomaintainourstrongpartnerecosystem,wewillcontinuetoestablishandmaintainrelationshipswiththirdparties.Todate,over2,800resellers,systemsintegrators,independentsoftwarevendorsandplatformandcloudprovidershaveregisteredunderourClouderaConnectpartnerprogramtogainaccesstomarketing,sales,trainingandsupportresources.WehavealsodevelopedastrategicpartnershipwithIntelCorporation,orIntel,tooptimizeoursoftwareforusewithIntelprocessorsandarchitecture.Asaresultofourjointdedicationtothispartnership,ourplatformachievesdifferentiatedperformanceonIntelarchitecturetoday,andisexpectedtoachievedifferentiatedperformanceonfutureIntelplatformtechnologies.
Wehaveachievedsignificantgrowthoverouroperatinghistory.ForourfiscalyearsendedJanuary31,2016andJanuary31,2017,ourrevenuewas$166.0millionand$261.0million,respectively,representingyear‑over‑yeargrowthinrevenueof57%forourmostrecentfiscalyear.Overthesameperiod,operatingcashoutflowsincreasedfrom$90.5millionto$116.6millionwhileournetlosseswere$203.1millionand$187.3million,respectively,whichincludes$63.6millionand$21.7million,respectively,ofstock‑basedcompensationexpense,andanon‑cashchargeof$21.6millioninconnectionwiththedonationofcommonstocktotheClouderaFoundationforfiscal2017.ForthesixmonthsendedJuly31,2016and2017,ourrevenuewas$120.9millionand$169.4millionrespectively,representingperiod‑over‑periodgrowthinrevenueof40%.Overthesameperiod,operatingcashoutflowsdecreasedfrom$52.1millionto$17.9millionwhileournetlosseswere$81.8millionand$286.5million,respectively,whichincludes$11.2millionand$230.5million,respectively,ofstock‑basedcompensationexpense.
Our Hybrid Open Source Software (HOSS) Business Model
Wehavecreatedoursoftwareplatformandpioneeredthehybridopensourcesoftwaremodel.HOSScombinesthebestopensourcesoftwarewithproprietarysoftwaretomeettheexactingrequirementsoflargeenterprises.Byintegratingrobustproprietarysoftwarewithouropensourceplatform,builtontheleadingdatamanagementandanalyticstechnologies,wedeliversubstantiallygreatervaluetocustomersinmanaging,operatingandsecuringtheirdataanddataarchitectures.Thisapproachalsocreatesmeaningfuldifferentiationthatdriveslong‑livedcustomerrelationships,aswellastherevenuetosupportsustainedinnovation.
Subscription Model
Weofferterm‑basedsubscriptionsofourplatformgenerallyonapernodebasis,whetherdeployedon‑premisesorinthecloud.Wealsoofferconsumption‑basedpricingforcloud‑baseddeployments,aswellaspricingonaperuserbasisinsomecases.AsofJuly31,2017,approximately21%ofourGlobal8000customersrunourplatforminthecloud.Wealsogeneraterevenuefromprofessionalservicesandtraining.
Weoffer subscriptions for five editions of our platform, ranging fromCloudera Essentials to the industry leading Cloudera Enterprise. Other editions aredesigned to address the most common and critical data challenges enterprises face: Cloudera Data Science and Engineering for programmatic preparation,predictive modelingandmachinelearning; Cloudera Operational DBfor online, streamingandreal‑timeapplications; andCloudera Analytics DBfor businessintelligenceandSQLanalytics.
Operating Model
Wemarketandsellourplatformtoabroadrangeoforganizations,althoughwefocusoursellingeffortsonlargeenterprises,primarilytheGlobal8000,aswellaslargepublicsectororganizations.Wetargettheseorganizationsbecausetheycaptureandmanagethevastmajorityoftheworld’sdataandoperatehighlycomplexITenvironments,andourenterprise‑gradeplatformhasthegreatestopportunitytobenefittheseorganizations.OurtotalnumberofGlobal8000customersgrewfrom500asofJanuary31,2017to562asofJuly31,2017.ForthefiscalyearendedJanuary31,2017andforthesixmonthsendedJuly31,2017,revenuefromourGlobal8000customersrepresented73%and74%oftotalrevenue,respectively,basedontheGlobal8000constituentsasofMay
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1,2017.Forfiscal2017andforthesixmonthsendedJuly31,2017,revenuefromourpublicsector,includinglargepublicsector,customersrepresented10%and9%oftotalrevenue,respectively.See“Market,IndustryandOtherData—Global8000.”
Wehaveabroadcustomerbasethatspansindustriesandgeographies.Forfiscal2016andfiscal2017andthesixmonthsendedJuly31,2017,nocustomeraccountedformorethan10%ofourtotalrevenue.Wehavesignificantrevenueinthebankingandfinancialservices,technology,businessservices,telecommunications,publicsector,consumerandretail,andhealthcareandlifesciencesverticals,andcontinuetoexpandourpenetrationacrossmanyotherdata‑intensiveindustries.Wehaveasubstantialandgrowinginternationalpresencewithmorethan25%ofourrevenuegeneratedoutsideoftheUnitedStatesinfiscal2017.
Wemarketourplatformprimarilythroughadirectsalesforcewhilebenefitingfrombusinessdrivenbyourecosystemoftechnologypartners,resellers,OEMs,MSPs,independentsoftwarevendorsandsystemsintegrators.Thesizeandgrowthofourpartnerecosystemaffordsusreachandgreaterdistributionofoursoftware,enhancingourfieldorganizations’efforts.Moreover,weworkcloselywithselectvendorstodesignsolutionstospecificallyaddresstheneedsofcertainindustryverticalsorusecases,whichwerefertoasPartnerSolutions.See“Business—PartnersandStrategicAlliances”and“Business—IntelStrategicPartnership.”
Ourbusinessmodelisbasedona“landandexpand”strategydesignedtousetheinitialsaleasafootholdtoincreaserevenuepercustomerbyincreasingtheamountofdataandnumberofusecaseseachcustomerrunsthroughourplatform.Afteraninitialpurchaseofourplatform,weworkwithourcustomerstoidentifynewusecasesthatcanbedevelopedonormovedtoourplatform,ultimatelyincreasingtheamountofdatamanagedonourplatformaswellasthenumberandsizeofourplatformdeployments.
Tofurtherillustratetheeconomicsofourcustomerrelationships,wehaveprovidedananalysisofournetexpansionrate.Ourquarterlynetsubscriptionrevenueexpansionrateequals:
• thesubscriptionrevenueinagivenquarterfromendusercustomersthathadsubscriptionrevenueinthesamequarteroftheprioryear,
divided by
• thesubscriptionrevenueattributabletothatsamegroupofcustomersinthatpriorquarter.
Ournetexpansionrateequalsthesimplearithmeticaverageofourquarterlynetsubscriptionrevenueexpansionrateforthefourquartersendingwiththemostrecentlycompletedfiscalquarter.WehaveexcludedIntelfromourcalculationofnetexpansionrate,asitisarelatedparty.Ourexperiencehasbeenthatnetexpansionratesaregenerallyconsistentacrosscustomercohorts,irrespectiveoftheageofthecohort.Inparticular,ournetexpansionrateasofJuly31,2017was140%.
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Sinceourfounding,wehaveinvestedheavilytogrowourbusiness.Wehaveincreasedourheadcountfrom1,140employeesasofJanuary31,2016to1,470employeesasofJanuary31,2017to1,606employeesasofJuly31,2017.Wemakesignificantinvestmentsinresearchanddevelopment.Weexpendengineeringresourcestodriveinnovationintheopensourcecommunity,integratethelatestopensourcetechnologies,andcreateproprietarysoftwaretoconstantlyimprovethefunctionalityandperformanceofourplatform.Wemaketheseinvestmentstomeettheevolvingneedsofourcustomersandcapitalizeonthegrowingmarketfordatamanagement,machinelearningandanalyticssoftware.Weintendtocontinuethisinvestmentasweaimtoexpandourcategoryleadershipinopensourcedatamanagement.
Wealsoremaincommittedtoinvestinginoursalesandmarketingactivities,includingexpandingourstrategicpartnershipsandalliances,toacquirenewcustomersandincreasepenetrationamongexistingcustomers.Ourbusinessmodelfocusesonmaximizingthelifetimevalueofacustomerrelationship.Werecognizesubscriptionrevenueratablyoverthetermofthesubscriptionperiod,andrecognizeconsumption‑basedrevenueasprocessorhoursareconsumed.Ingeneral,customeracquisitioncostsandupfrontcostsassociatedwithnewcustomersarehigherinthefirstyearthantheaggregaterevenuewerecognizefromthosenewcustomersinthefirstyear.Overthelifetimeofthecustomerrelationship,wealsoincursalesandmarketingcoststoreneworincreaseusagepercustomer.However,thesecosts,asapercentageofrevenue,aresignificantlylessthanthoseinitiallyincurredtoacquirethecustomer.Asaresult,theprofitabilityofacustomertoourbusinessinanyparticularperioddependsinpartuponhowlongacustomerhasbeenasubscriberandthedegreetowhichtheyhaveexpandedtheirusageofourplatform.Webelievethat,overtime,asourcustomerbasegrowsandarelativelyhigherpercentageofoursubscriptionrevenueisattributabletorenewalsorgreaterusageamongexistingcustomersrelativetonewcustomers,associatedsalesandmarketingexpensesandotherallocatedupfrontcostsasapercentageofrevenuewilldecrease,subjecttoinvestmentswemaymakeinourbusiness.
Infiscal2017,forendusercustomerswhogeneratedmorethan$1,000,000ofsubscriptionrevenue,salesandmarketingexpenseattributabletothosecustomersrepresentedapproximately30%ofsubscriptionrevenuefromthem.Forendusercustomerswhogeneratedbetween$500,000and$1,000,000insubscriptionrevenue,salesandmarketingexpenseattributabletothosecustomersrepresentedapproximately54%ofoursubscriptionrevenuefromthem.Salesandmarketingexpenseattributabletoendusercustomerswhogeneratedlessthan$500,000insubscriptionrevenueinfiscal2017aregenerallygreaterthansubscriptionrevenuefromthesecustomers.Forthesepurposes,wecalculatesalesandmarketingexpensesallocatedtoacustomerasestimatedpersonnelcostsassociatedwithourfieldorganizationthatsupportssuchcustomer,suchassalariesandcommissions,andallocatedmarketingandoverheadexpenses.ThesecalculationsexcludeIntel,asitisarelatedparty,andstock-basedcompensationexpense.Endusercustomerswhogeneratedmorethan$500,000ofsubscriptionrevenuerepresentedapproximately60%ofourtotalsubscriptionrevenueinfiscal2017,ofwhich65%wasfromendusercustomerswhogenerated
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morethan$1,000,000insubscriptionrevenueand35%wasfromendusercustomerswhogeneratedbetween$500,000and$1,000,000insubscriptionrevenue.
Factors Affecting Our Performance
Acquiring New Customers
Webelievethattheshiftfromlegacydatamanagementsystemstoamoderndataplatformisjustbeginning.WeintendtotargetnewGlobal8000customersbycontinuingtoinvestinourfieldorganization,bothdomesticallyandinternationally.Wearealsocommittedtoextendingandstrengtheningrelationshipswithinourpartnerecosystemtoexpandourreach,increaseourdistributionandincreasethenumberofPartnerSolutions.Webelievethisstrategywillallowustomaximizeleverageforoursalesforce.OurbusinessandresultsofoperationswilldependonourabilitytocontinuetoaddnewGlobal8000customers.
Expanding Penetration within Our Existing Customer Base
Ourexistingcustomerbaseislargeandgrowing,andweremaincommittedtoensuringourcustomersfullyutilizethecapabilitiesofourplatform.Ourcustomersoftenstartwithsmalldeploymentsandthenexpandtheirusagesignificantlyastheyderivevaluefromtheirdatausingourplatform.Ourfieldorganization,togetherwithourpartnerecosystem,assistsourcustomersinidentifyingnewusecases,modernizingtheirdataarchitecturesandachievingsuccesswithdata‑driveninitiatives.Webelievethisallowsourcustomerstofullyrealizethestrategicvalueoftheirdata.OurbusinessandresultsofoperationswilldependonourabilitytodrivehigherusageofourplatformwithinourgrowingbaseofGlobal8000customers.
Investments in Future Growth
WebelievethatweareonlybeginningtopenetrateourmarketopportunitywithGlobal8000companiesandpublicsectorentities,andweintendtocontinuetoinvestinourfuturegrowth.Asdiscussedabove,weexpecttocontinuetomakesignificantinvestmentsinresearchanddevelopmentaswellassalesandmarketingactivities.Wealsoplantocontinuetoinvestinoperationalandadministrativefunctionstosupportourexpectedgrowthandourtransitiontoapubliccompany.Weexpecttousetheproceedsfromourinitialpublicofferingtofundthesegrowthstrategiesanddonotexpecttobeprofitableinthenearfuture.Asdiscussedin“—OurHybridOpenSourceSoftwareBusinessModel—OperatingModel,”theseinvestmentswillbeunprofitableintheshorttermuntilourcustomerbasegrowstoincludeahigherpercentageofsubscriptionrevenuethatisattributabletorenewalsandgreaterusageofourplatform.
Components of Results of Operations
Revenue
Wegeneraterevenueprimarilyfromthesaleofsubscriptionsforourplatformthatourcustomersdeployeitheron‑premisesorinthecloud,aswellasthesaleofservices.Subscriptionrevenuerelatestoterm(ortime‑based)subscriptionstoourplatform,whichincludesbothopensourceandproprietarysoftware.Oursubscriptionarrangementsaretypicallyonetothreeyearsinlengthandwerecognizesubscriptionrevenueratablyoverthetermofthesubscriptionperiod.Oursubscriptionincludesinternet,emailandphonesupport,bugfixesandtherighttoreceiveunspecifiedsoftwareupdatesandupgradesreleasedwhenandifavailableduringthesubscriptionterm.Servicesrevenuerelatestoprofessionalservicesfortheimplementationanduseofoursubscriptions,customertrainingandeducationservices,andrelatedreimbursabletravelcosts.
Cost of Revenue
Costofrevenueforsubscriptionsprimarilyconsistsofpersonnelcostsincludingsalaries,bonuses,travelcosts,benefitsandstock‑basedcompensationforemployeesprovidingtechnicalsupportforoursubscriptioncustomers,allocatedsharedcosts(includingrentandinformationtechnology)andamortizationofacquiredintangibleassetsfrombusinesscombinations.Costofrevenueforservicesprimarilyconsistsofpersonnelcostsincludingsalaries,bonuses,benefitsandstock‑basedcompensation,feestosubcontractorsassociatedwithservicecontracts,travelcostsandallocatedsharedcosts(includingrentandinformationtechnology).Weexpectcostofrevenuetoincrease
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inabsolutedollarsfortheforeseeablefutureaswecontinuetoobtainnewcustomersandexpandourrelationshipwithexistingcustomers.Asdiscussedindetailbelow,see“—SignificantImpactsofStock‑basedCompensationExpense,”duringthesixmonthsendedJuly31,2017ourinitialpublicofferingwasdeclaredeffectiveandtheperformance-basedconditionfortheRSUswaseitherachievedorprobableofbeingachieved.Assuchwerecognizedacumulativecatch‑upofstock‑basedcompensationexpenseattributabletoservicepriortosucheffectivedateforRSUs.
Operating Expenses
Research and Development. Researchanddevelopmentexpensesprimarilyconsistofpersonnelcostsincludingsalaries,bonuses,travelcosts,benefitsandstock‑basedcompensationforourresearchanddevelopmentemployees,contractorfees,allocatedsharedcosts(includingrentandinformationtechnology),supplies,anddepreciationofequipmentassociatedwiththecontinueddevelopmentofourplatformpriortoestablishmentoftechnologicalfeasibilityandtherelatedmaintenanceoftheexistingtechnology.Weexpectourresearchanddevelopmentexpensestoincreaseinabsolutedollarsfortheforeseeablefutureaswecontinuetoenhanceandaddnewtechnologies,featuresandfunctionalitytooursubscriptions.WealsoexpectallocatedsharedcoststoincreaseintheperiodsfollowingthecommencementoftheleaseforournewheadquartersinPaloAltoinJuly2017.Asdiscussedindetailbelow,see“—SignificantImpactsofStock‑basedCompensationExpense,”duringthesixmonthsendedJuly31,2017ourinitialpublicofferingwasdeclaredeffectiveandtheperformance-basedconditionfortheRSUswaseitherachievedorprobableofbeingachieved.Asaresult,werecognizedacumulativecatch‑upofstock‑basedcompensationexpenseattributabletoservicepriortosucheffectivedateforRSUs.
Sales and Marketing. Salesandmarketingexpensesprimarilyconsistofpersonnelcostsincludingsalaries,bonuses,travelcosts,sales‑basedincentives,benefitsandstock‑basedcompensationforoursalesandmarketingemployees.Inaddition,salesandmarketingexpensesalsoincludescostsforadvertising,promotionalevents,corporatecommunications,productmarketingandotherbrand‑buildingactivities,allocatedsharedcosts(includingrentandinformationtechnology)andamortizationofacquiredintangibleassetsfrombusinesscombinations.Sales‑basedincentivesareexpensedasincurred.Weexpectoursalesandmarketingexpensestoincreaseinabsolutedollarsaswecontinuetoinvestinsellingandmarketingactivitiestoattractnewcustomersandexpandourrelationshipwithexistingcustomers.WealsoexpectallocatedsharedcoststoincreaseintheperiodsfollowingthecommencementoftheleaseforournewheadquartersinPaloAltoinJuly2017.Asdiscussedindetailbelow,see“—SignificantImpactsofStock‑basedCompensationExpense,”duringthesixmonthsendedJuly31,2017ourinitialpublicofferingwasdeclaredeffectiveandtheperformance-basedconditionfortheRSUswaseitherachievedorprobableofbeingachieved.Asaresult,werecognizedacumulativecatch‑upofstock‑basedcompensationexpenseattributabletoservicepriortosucheffectivedateforRSUs.
General and Administrative. Generalandadministrativeexpensesprimarilyconsistofpersonnelcostsincludingsalaries,bonuses,travelcosts,benefitsandstock‑basedcompensationforourexecutive,finance,legal,humanresources,informationtechnologyandotheradministrativeemployees.Inaddition,generalandadministrativeexpensesincludefeesforthird‑partyprofessionalservices,includingconsulting,legalandaccountingservicesandothercorporateexpenses,andallocatedsharedcosts(includingrentandinformationtechnology).Weexpectourgeneralandadministrativeexpensestoincreaseinabsolutedollarsduetotheanticipatedgrowthofourbusinessandrelatedinfrastructureaswellaslegal,accounting,insurance,investorrelationsandothercostsassociatedwithbecomingapubliccompany.WealsoexpectallocatedsharedcoststoincreaseintheperiodsfollowingthecommencementoftheleaseforournewheadquartersinPaloAltoinJuly2017.Asdiscussedindetailbelow,see“—SignificantImpactsofStock‑basedCompensationExpense,”duringthesixmonthsendedJuly31,2017ourinitialpublicofferingwasdeclaredeffectiveandtheperformance-basedconditionfortheRSUswaseitherachievedorprobableofbeingachieved.Asaresult,werecognizedacumulativecatch‑upofstock‑basedcompensationexpenseattributabletoservicepriortosucheffectivedateforRSUs.
Interest Income, net
Interestincomeprimarilyrelatestoamountsearnedonourcashandcashequivalentsandmarketablesecurities.
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Other Income (Expense), net
Otherincome(expense),netprimarilyrelatestoforeigncurrencytransactions,realizedgainsandlossesonourmarketablesecurities,andothernon‑operatinggainsorlosses.
Provision for Income Taxes
Provisionforincometaxesprimarilyconsistsofstateandforeignincometaxes.Duetocumulativelosses,wemaintainavaluationallowanceagainstourdeferredtaxassets.Weconsiderallavailableevidence,bothpositiveandnegative,inassessingtheextenttowhichavaluationallowanceshouldbeappliedagainstourdeferredtaxassets.
Significant Impacts of Stock‑‑based Compensation Expense
WehavegrantedRSUstoouremployeesandmembersofourboardofdirectorsunderour2008EquityIncentivePlan,orthe2008Plan.TheemployeeRSUsvestuponthesatisfactionofbothaservice‑basedconditionandaliquidityevent‑relatedperformancecondition.Theservice‑basedvestingconditionfortheseawardsisgenerallysatisfiedpro‑rataoverfouryears.Theliquidityevent‑relatedperformancevestingconditionissatisfiedupontheoccurrenceofaqualifyingevent,suchastheeffectivedateofaninitialpublicoffering,orsixmonthsfollowingtheeffectivedateofaninitialpublicoffering.
Theliquidityevent‑relatedperformanceconditionwasachievedforthemajorityofourRSUsandprobableofbeingachievedfortheremainingRSUsonApril27,2017,theeffectivedateofourinitialpublicoffering.Werecognizedstock‑basedcompensationexpenseusingtheacceleratedattributionmethodwithacumulativecatch‑upofstock‑basedcompensationexpenseintheamountof$181.5millionduringthesixmonthsendedJuly31,2017,attributabletoservicepriortosucheffectivedate.Theshareswillbeissuedonadatetobedeterminedbytheboardofdirectorsthatwillbeonorafterthesecondtradingdayfollowingthereleaseofearningsbyusforthesecondquarteroffiscal2018.
Thetotalstock‑basedcompensationexpenserecordedontheeffectivedateofourinitialpublicofferingassociatedwiththeachievementoftheliquidityevent‑relatedperformanceconditionwasasfollows(inthousands):
Costofrevenue–subscription $ 15,292Costofrevenue–services 19,695Researchanddevelopment 65,250Salesandmarketing 58,219Generalandadministrative 23,080
Totalstock‑basedcompensationexpense $ 181,536
Tender Offer
InMay2015,anunrelatedthirdpartyinitiatedacashtenderofferwhichwascompletedinJuly2015forthepurchaseofourcommonstockfromspecifiedcategoriesofcurrentandformeremployeeswhichhadasignificantimpactonourstock‑basedcompensationexpensefortheyearendedJanuary31,2016,andspecificallyinoursecondquarteroffiscal2016.Sellersparticipatinginthetenderoffersoldatotalof4,079,131sharesofcommonstocktotheunrelatedthirdparty.Thepurchasepricepershareinthetenderofferwasinexcessofthefairvalueofouroutstandingcommonstockatthetimeofthetransactionandaccordingly,uponthecompletionofthetransaction,werecorded$16.6millionasstock‑basedcompensationexpenserelatedtotheexcessofthesellingpricepershareofcommonstockpaidtoouremployeesoverthefairvalueofthetenderedshares.
Additionally,thecompletionofthetenderofferwasaqualifyingliquidityevent,suchthattheperformance‑basedvestingrequirementwassatisfiedforthoseRSUsthathadmettheservice‑basedconditionatthisdate.Uponthecompletionofthetransaction,werecorded$19.7millionofstock‑basedcompensationexpensefortheRSUsforwhichboththeservice‑basedconditionandthequalifyingliquidityeventhadbeenachieved.
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Thetotalstock‑basedcompensationexpenserelatedtothetenderofferimpactedourfiscal2016asfollows(inthousands):
Costofrevenue–subscription $ 1,954Costofrevenue–services 2,514Researchanddevelopment 16,179Salesandmarketing 9,481Generalandadministrative 6,191
Totalstock‑basedcompensationexpense $ 36,319
Results of Operations
Thefollowingtablesetsforthourresultsofoperationsfortheperiodsindicated:
Year EndedJanuary 31,
Six Months EndedJuly 31,
2016 2017 2016 2017 (in thousands)Revenue: Subscription $ 119,150 $ 200,252 $ 91,360 $ 138,657Services 46,898 60,774 29,581 30,767
Totalrevenue 166,048 261,026 120,941 169,424Costofrevenue:(1)(2) Subscription 30,865 38,704 19,057 41,687Services 44,498 48,284 23,317 50,395
Totalcostofrevenue 75,363 86,988 42,374 92,082Grossprofit 90,685 174,038 78,567 77,342Operatingexpenses:(1)(2)(3)
Researchanddevelopment 99,314 102,309 51,150 138,675Salesandmarketing 161,106 203,161 93,044 172,578Generalandadministrative 34,902 55,907 16,676 54,114
Totaloperatingexpenses 295,322 361,377 160,870 365,367Lossfromoperations (204,637) (187,339) (82,303) (288,025)Interestincome,net 2,218 2,756 1,448 2,089Otherincome(expense),net 386 (547) (15) 839Netlossbeforeprovisionforincometaxes (202,033) (185,130) (80,870) (285,097)Provisionforincometaxes (1,110) (2,187) (970) (1,451)
Netloss $ (203,143) $ (187,317) $ (81,840) $ (286,548)
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___________(1) Amountsincludestock‑basedcompensationexpenseasfollows:
Year EndedJanuary 31,
Six Months EndedJuly 31,
2016 2017 2016 2017 (in thousands)
Costofrevenue–subscription $ 3,363 $ 1,426 $ 708 $ 19,393
Costofrevenue–services 4,301 1,803 931 24,227
Researchanddevelopment 23,048 5,606 3,013 81,029
Salesandmarketing 19,187 5,757 3,033 72,678
Generalandadministrative 13,691 7,122 3,556 33,206
Totalstock‑basedcompensationexpense $ 63,590 $ 21,714 $ 11,241 $ 230,533
(2) Amountsincludeamortizationofacquiredintangibleassetsasfollows:
Year Ended January 31,
Six Months EndedJuly 31,
2016 2017 2016 2017
(in thousands)
Costofrevenue–subscription $ 1,732 $ 1,997 $ 969 $ 1,024
Salesandmarketing 1,723 1,723 861 861
Totalamortizationofacquiredintangibleassets $ 3,455 $ 3,720 $ 1,830 $ 1,885
(3) InJanuary2017,wedonated1,175,063sharesofcommonstocktotheClouderaFoundation.Werecordedanon‑cashchargeof$21.6millionforthefairvalueofthedonatedshares,whichwasrecognizedingeneralandadministrativeexpensefortheyearendedJanuary31,2017,seeNote12toourconsolidatedfinancialstatementsincludedelsewhereinthisprospectusforfurtherdiscussion.
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Thefollowingtablesetsforthselectedconsolidatedstatementsofoperationsdataforeachoftheperiodsindicatedasapercentageoftotalrevenue:
Year Ended January 31,
Six Months EndedJuly 31,
2016 2017 2016 2017
Revenue: Subscription 72% 77% 76% 82%Services 28 23 24 18
Totalrevenue 100 100 100 100Costofrevenue(1)(2):
Subscription 18 15 16 24Services 27 18 19 30
Totalcostofrevenue 45 33 35 54Grossmargin 55 67 65 46Operatingexpenses(1)(2)(3):
Researchanddevelopment 60 39 42 82Salesandmarketing 97 78 77 102Generalandadministrative 21 21 14 32
Totaloperatingexpenses 178 138 133 216Lossfromoperations (123) (72) (68) (170)Interestincome,net 1 1 1 1Otherincome(expense),net — — — 1Netlossbeforeprovisionforincometaxes (122) (71) (67) (168)Provisionforincometaxes (1) (1) (1) (1)
Netloss (123)% (72)% (68)% (169)%___________(1) Amountsincludestock‑basedcompensationexpenseasapercentageoftotalrevenueasfollows:
Year Ended January 31,
Six Months EndedJuly 31,
2016 2017 2016 2017Costofrevenue–subscription 2% 1% 1% 11%
Costofrevenue–services 3 1 1 14
Researchanddevelopment 14 2 2 48
Salesandmarketing 11 1 2 43
Generalandadministrative 8 3 3 20
Totalstock‑basedcompensationexpense 38% 8% 9% 136%
(2) Amountsincludeamortizationofacquiredintangibleassetsasapercentageoftotalrevenueasfollows:
Year Ended January 31,
Six Months EndedJuly 31,
2016 2017 2016 2017Costofrevenue–subscription 1% 1% 1% 1%
Salesandmarketing 1 — 1 —
Totalamortizationofacquiredintangibleassets 2% 1% 2% 1%
(3) Asapercentageofrevenue,thenon‑cashexpenserecognizedforthedonationofcommonstocktotheClouderaFoundationfortheyearendedJanuary31,2017was8%.
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Six Months Ended July 31, 2016 and 2017
Revenue
Six Months Ended
July 31, Change
2016 2017 Amount % (dollars in thousands)
Subscription $ 91,360 $ 138,657 $ 47,297 52%Services 29,581 30,767 1,186 4%
Totalrevenue $ 120,941 $ 169,424 $ 48,483 40%
Asapercentageoftotalrevenue: Subscription 76% 82% Services 24% 18%
Totalrevenue 100% 100%
TheincreaseinsubscriptionrevenueforthesixmonthsendedJuly31,2017,ascomparedtothesameperiodsayearago,wasprimarilyattributabletovolumedrivenincreasesinsubscriptionsalestonewandexistingcustomers.OurnetexpansionratefortheperiodendedJuly31,2017was140%ascomparedto137%forthesameperiodayearago.
OurservicesrevenueforthesixmonthsendedJuly31,2017increased,ascomparedtothesameperiodsayearago,atalowerratecomparedtotheincreaseinoursubscriptionrevenueprimarilyduetooureffortstodeveloprelationshipswithpartners,systemintegratorsandtrainingvendors,resultinginashiftoftheprovisionofsuchservicestothesepartners.Customersbenefitfromtheincreasedchoiceinpartners,andweanticipatethatourservicesrevenuewillcontinuetodecreaseasapercentageoftotalrevenueinfutureperiods.
Cost of Revenue, Gross Profit and Gross Margin
Six Months Ended
July 31, Change
2016 2017 Amount % (dollars in thousands)
Costofrevenue: Subscription $ 19,057 $ 41,687 $ 22,630 119%Services 23,317 50,395 27,078 116%
Totalcostofrevenue $ 42,374 $ 92,082 $ 49,708 117%
Grossprofit $ 78,567 $ 77,342 $ (1,225) (2)%
Grossmargin: Subscription 79% 70% Services 21% (64)%
Totalgrossmargin 65% 46%
Costofrevenue,asapercentageoftotalrevenue: Subscription 16% 24% Services 19% 30%
Totalcostofrevenue 35% 54%
TheincreaseincostofrevenueforsubscriptionforthesixmonthsendedJuly31,2017ascomparedtothesameperiodayearagowasprimarilyduetoanincreaseof$18.7millioninstock‑basedcompensationexpenseresulting
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fromtheachievementoftheliquidityevent‑relatedperformanceconditionontheeffectivedateoftheinitialpublicofferingandanincreaseof$3.2millioninsalariesandbenefitsrelatedtogrowthinemployeeheadcounttosupportouroverallexpansionincustomers.
Subscriptiongrossmargindeclinedfrom79%to70%inthesixmonthsendedJuly31,2017ascomparedtothesameperiodayearagoduetotherecordingofstock‑basedcompensationexpenseresultingfromtheachievementoftheliquidityevent‑relatedperformanceconditionontheeffectivedateoftheinitialpublicoffering.
TheincreaseincostofrevenueforservicesforthesixmonthsendedJuly31,2017ascomparedtothesameperiodayearagowasprimarilyduetoanincreaseof$23.3millioninstock‑basedcompensationexpenseresultingfromtheachievementoftheliquidityevent‑relatedperformanceconditionontheeffectivedateoftheinitialpublicofferingandanincreaseof$3.0millioninsalariesandbenefitsrelatedtogrowthinemployeeheadcount.
Servicesgrossmargindeclinedfrom21%tonegative64%inthesixmonthsendedJuly31,2017ascomparedtothesameperiodayearagoduetotherecordingofstock‑basedcompensationexpenseresultingfromtheachievementoftheliquidityevent‑relatedperformanceconditionontheeffectivedateoftheinitialpublicoffering.
Operating Expenses
Six Months Ended
July 31, Change
2016 2017 Amount % (dollars in thousands)
Researchanddevelopment $ 51,150 $ 138,675 $ 87,525 171%Salesandmarketing 93,044 172,578 79,534 85%Generalandadministrative 16,676 54,114 37,438 225%
Totaloperatingexpenses $ 160,870 $ 365,367 $ 204,497 127%
Operatingexpenses,asapercentageoftotalrevenue: Researchanddevelopment 42% 82% Salesandmarketing 77% 102% Generalandadministrative 14% 32%
Totaloperatingexpenses 133% 216%
Research and Development
TheincreaseinresearchanddevelopmentexpensesforthesixmonthsendedJuly31,2017ascomparedtothesameperiodayearagowasprimarilyduetoanincreaseof$78.0millioninstock‑basedcompensationexpenseresultingfromtheachievementoftheliquidityevent‑relatedperformanceconditionontheeffectivedateoftheinitialpublicofferingandanincreaseof$7.7millioninemployee‑relatedcostsincludingsalaries,benefitsandtravelcosts,associatedwiththegrowthinemployeeheadcount.
Sales and Marketing
TheincreaseinsalesandmarketingexpensesforthesixmonthsendedJuly31,2017ascomparedtothesameperiodayearagowasprimarilyduetoanincreaseof$69.6millioninstock‑basedcompensationexpenseresultingfromtheachievementoftheliquidityevent‑relatedperformanceconditionontheeffectivedateoftheinitialpublicofferingandanincreaseof$9.5millioninemployee‑relatedcostsincludingsalaries,incentive‑basedcompensation,benefitsandtravelcosts,associatedwiththegrowthinemployeeheadcounttosupportouroverallsalesactivities.
General and Administrative
TheincreaseingeneralandadministrativeexpensesforthesixmonthsendedJuly31,2017ascomparedtothesameperiodayearagowasprimarilyduetoanincreaseof$29.7millioninstock‑basedcompensationexpenseresultingfromtheachievementoftheliquidityevent‑relatedperformanceconditionontheeffectivedateofthe
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initialpublicoffering,anincreaseof$4.7millioninemployee‑relatedcostsincludingsalaries,benefitsandtravelcosts,associatedwiththegrowthinemployeeheadcounttosupportouroverallexpansion,andacashdonationof$2.4million,or1%ofthenetproceedsfromtheinitialpublicoffering,tofundtheClouderaFoundation.
Provision for Income Taxes
Six Months Ended
July 31, Change
2016 2017 Amount % (dollars in thousands)
Provisionforincometaxes $ (970) $ (1,451) $ (481) 50%
ProvisionforincometaxesincreasedinthesixmonthsendedJuly31,2017,ascomparedtothesameperiodayearago,primarilyduetoanincreaseinpre‑taxincomeandtaxwithholdingsinourforeignlocationsdrivenbyourcontinuedinternationalexpansionintonewcountries.
Year Ended January 31, 2016 and 2017
Revenue
Year Ended January 31, Change
2016 2017 Amount % (dollars in thousands)
Subscription $ 119,150 $ 200,252 $ 81,102 68%Services 46,898 60,774 13,876 30%
Totalrevenue $ 166,048 $ 261,026 $ 94,978 57%
Asapercentageoftotalrevenue: Subscription 72% 77% Services 28% 23%
Totalrevenue 100% 100%
Theincreaseinsubscriptionrevenuewasprimarilyattributabletovolumedrivenincreasesinsubscriptionsalestonewandexistingcustomers.OurnetexpansionratefortheperiodendedJanuary31,2017was142%.
Ourservicesrevenueincreasedatalowerratecomparedtotheincreaseinoursubscriptionrevenueprimarilyduetoourexistingcustomersincreasingexperiencewiththetechnologyandoureffortstodeveloprelationshipswithpartnersandothersystemintegrators,resultinginashiftoftheprovisionofsuchservicestothesepartners.
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Cost of Revenue, Gross Profit and Gross Margin
Year Ended January 31, Change
2016 2017 Amount % (dollars in thousands)
Costofrevenue: Subscription $ 30,865 $ 38,704 $ 7,839 25%Services 44,498 48,284 3,786 9%
Totalcostofrevenue $ 75,363 $ 86,988 $ 11,625 15%
Grossprofit $ 90,685 $ 174,038 $ 83,353 92%
Grossmargin: Subscription 74% 81% Services 5% 21%
Totalgrossmargin 55% 67%
Costofrevenue,asapercentageoftotalrevenue: Subscription 18% 15% Services 27% 18%
Totalcostofrevenue 45% 33%
Theincreaseincostofrevenueforsubscriptionwasprimarilyduetoanincreaseof$8.0millioninsalariesandbenefitsrelatedtogrowthinemployeeheadcounttosupportouroverallexpansionincustomersandanincreaseof$1.1millioninallocatedsharedcosts,partiallyoffsetbyadecreaseof$1.9millioninstock‑basedcompensationexpensemainlyduetothetenderofferinJuly2015,whichwasnotrepeatedinfiscal2017.
Subscriptiongrossmarginimprovedfrom74%to81%intheyearendedJanuary31,2017ascomparedtothesameperiodayearago.
Theincreaseincostofrevenueforserviceswasprimarilyduetoanincreaseof$4.1millioninsalariesandbenefitsrelatedtogrowthinemployeeheadcountandanincreaseof$1.3millioninfeestosubcontractorsasaresultofhigherdemandofservicesbyourcustomers,offsetbyadecreaseof$2.5millioninstock‑basedcompensationexpensemainlyduetothetenderofferinJuly2015,whichwasnotrepeatedinfiscal2017.
Servicesgrossmarginimprovedfrom5%to21%intheyearendedJanuary31,2017ascomparedtothesameperiodayearago.
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Operating Expenses
Year Ended January 31, Change
2016 2017 Amount % (dollars in thousands)
Researchanddevelopment $ 99,314 $ 102,309 $ 2,995 3%Salesandmarketing 161,106 203,161 42,055 26%Generalandadministrative 34,902 55,907 21,005 60%
Totaloperatingexpenses $ 295,322 $ 361,377 $ 66,055 22%
Operatingexpenses,asapercentageoftotalrevenue: Researchanddevelopment 60% 39% Salesandmarketing 97% 78% Generalandadministrative 21% 21%
Totaloperatingexpenses 178% 138%
Research and Development
Theincreaseinresearchanddevelopmentexpenseswasprimarilyduetoanincreaseof$15.8millioninemployee‑relatedcostsincludingsalaries,benefitsandtravelcosts,associatedwiththegrowthinemployeeheadcount,anincreaseof$0.9millionindepreciationexpenseofequipmenttosupportourresearchanddevelopmentactivitiesandanincreaseof$1.7millioninallocatedsharedcosts,partiallyoffsetbyadecreaseof$17.4millioninstock‑basedcompensationexpensemainlyduetothetenderofferinJuly2015whichwasnotrepeatedinfiscal2017.
Sales and Marketing
Theincreaseinsalesandmarketingexpenseswasprimarilyduetoanincreaseof$46.5millioninemployee‑relatedcostsincludingsalaries,incentive‑basedcompensation,benefitsandtravelcosts,associatedwiththegrowthinemployeeheadcounttosupportouroverallsalesactivitiesandanincreaseof$2.9millioninallocatedsharedcosts,offsetbyadecreaseof$13.4millioninstock‑basedcompensationexpensemainlyduetothetenderofferinJuly2015whichwasnotrepeatedinfiscal2017.
General and Administrative
Theincreaseingeneralandadministrativeexpenseswasprimarilyduetoa$21.6millionnon‑cashchargerelatedtothedonationof1,175,063sharesofcommonstocktotheClouderaFoundationinthefourthquarteroffiscal2017andanincreaseof$8.6millioninemployee‑relatedcostsincludingsalaries,benefitsandtravelcosts,associatedwiththegrowthinemployeeheadcounttosupportouroverallexpansion,offsetbyadecreaseof$6.6millioninstock‑basedcompensationexpensemainlyduetothetenderofferinJuly2015whichwasnotrepeatedinfiscal2017anddecreasesinthirdpartyconsultingandprofessionalservicecosts.
Interest Income, net
Year Ended January 31, Change
2016 2017 Amount % (dollars in thousands)
Interestincome,net $ 2,218 $ 2,756 $ 538 24%
Interestincome,netincreasedprimarilyasaresultofhigherinterestratesobtainedfrominvestingmoreofourcashandcashequivalentsinmarketablesecuritiesduringtheyearendedJanuary31,2017ascomparedtoayearago.
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Other Income (Expense), net
Year Ended January 31, Change
2016 2017 Amount % (dollars in thousands)
Otherincome(expense),net $ 386 $ (547) $ (933) notmeaningful
Otherincome(expense),netdecreasedprimarilyasaresultofanescrowclaimadjustmentinfiscal2016of$0.8millionrelatedtoafiscal2015acquisitionoutsideofthemeasurementperiod.
Provision for Income Taxes
Year Ended January 31, Change
2016 2017 Amount % (dollars in thousands)
Provisionforincometaxes $ 1,110 $ 2,187 $ 1,077 97%
Provisionforincometaxesincreasedprimarilyduetoanincreaseinpre‑taxincomeinourforeignlocationsdrivenbyourcontinuedinternationalexpansionintonewcountries.
Seasonality
Wehaveseasonalandend‑of‑quarterconcentrationofoursales,whichimpactsourabilitytoplanandmanagecashflowsandmargins.Oursalesvarybyseasonwiththefourthquartertypicallybeingourlargest.Inaddition,withineachquarter,mostsalesoccurinthelastmonthofthatquarter.See“RiskFactors—Oursalescyclescanbelong,unpredictableandvaryseasonally,particularlywithrespecttolargesubscriptions,andoursaleseffortsrequireconsiderabletimeandexpense.”
Quarterly Results of Operations
ThefollowingtablessetforthourunauditedquarterlyconsolidatedstatementsofoperationsdataforeachofthetenquartersintheperiodendedJuly31,2017.Wehavepreparedthequarterlyresultsofoperationsdataonabasisconsistentwithourauditedconsolidatedfinancialstatementsincludedinthisprospectus.Intheopinionofmanagement,thefinancialinformationreflectsalladjustmentsconsistingofonlynormalrecurringadjustments,whichweconsidernecessaryforafairpresentationofthisdata.Ourhistoricalresultsarenotnecessarilyindicativeoftheresultsthatmaybeexpectedinanyfutureperiod.Thefollowingquarterlyfinancialdatashouldbereadinconjunctionwithourauditedconsolidatedfinancialstatementsandrelatednotesincludedinthisprospectus.
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Three Months Ended
Consolidated Statements of Operations:April 30,
2015 July 31, 2015 October 31,
2015 January 31, 2016 April 30,
2016 July 31, 2016 October 31,
2016 January 31, 2017 April 30,
2017 July 31, 2017
(in thousands)
Revenue:
Subscription $ 23,170 $ 27,641 $ 31,613 $ 36,726 $ 40,672 $ 50,688 $ 52,733 $ 56,159 $ 64,671 $ 73,986
Services 10,575 10,631 12,039 13,653 15,813 13,768 14,525 16,668 14,925 15,842
Totalrevenue 33,745 38,272 43,652 50,379 56,485 64,456 67,258 72,827 79,596 89,828
Costofrevenue(1)(2)(3):
Subscription 6,234 8,630 7,289 8,712 9,351 9,706 9,787 9,860 26,472 15,215
Services 9,794 13,180 10,160 11,364 11,684 11,633 12,652 12,315 33,640 16,755
Totalcostofrevenue 16,028 21,810 17,449 20,076 21,035 21,339 22,439 22,175 60,112 31,970
Grossprofit 17,717 16,462 26,203 30,303 35,450 43,117 44,819 50,652 19,484 57,858
Operatingexpenses(1)(2)(3):
Researchanddevelopment 18,944 37,560 21,316 21,494 24,515 26,635 25,968 25,191 95,831 42,844
Salesandmarketing 30,253 46,289 39,676 44,888 46,142 46,902 54,206 55,911 110,443 62,135
Generalandadministrative 6,601 14,138 6,716 7,447 8,309 8,367 8,633 30,598 35,550 18,564
Totaloperatingexpenses 55,798 97,987 67,708 73,829 78,966 81,904 88,807 111,700 241,824 123,543
Lossfromoperations $ (38,081) $ (81,525) $ (41,505) $ (43,526) $ (43,516) $ (38,787) $ (43,988) $ (61,048) $ (222,340) $ (65,685)
Other Financial Data:
Non-GAAPoperatingloss $ (31,006) $ (36,963) $ (32,736) $ (36,887) $ (36,968) $ (32,264) $ (37,726) $ (33,373) $ (30,314) $ (25,293)
___________(1) Amountsincludestock‑basedcompensationexpenseasfollows:
Three Months Ended
April 30, 2015 July 31,
2015 October 31, 2015 January 31,
2016 April 30, 2016 July 31,
2016 October 31, 2016 January 31,
2017 April 30, 2017 July 31,
2017
(in thousands)
Costofrevenue–subscription $ 287 $ 2,279 $ 442 $ 355 $ 334 $ 374 $ 343 $ 375 $ 15,700 $ 3,693
Costofrevenue–services 437 2,963 462 439 474 457 432 440 20,337 3,890
Researchanddevelopment 1,820 17,838 1,822 1,568 1,555 1,458 1,313 1,280 67,901 13,128
Salesandmarketing 1,987 12,247 3,286 1,667 1,559 1,474 1,463 1,261 60,541 12,137Generaland
administrative 1,663 8,377 1,899 1,752 1,741 1,815 1,766 1,800 26,603 6,603
Totalstock‑basedcompensationexpense $ 6,194 $ 43,704 $ 7,911 $ 5,781 $ 5,663 $ 5,578 $ 5,317 $ 5,156 $ 191,082 $ 39,451
(2) Amountsincludeamortizationofacquiredintangibleassetsasfollows:
Three Months Ended
April 30, 2015 July 31,
2015 October 31, 2015 January 31,
2016 April 30, 2016 July 31,
2016 October 31, 2016 January 31,
2017 April 30, 2017 July 31,
2017
(in thousands)
Costofrevenue–subscription $ 451 $ 427 $ 427 $ 427 $ 455 $ 514 $ 514 $ 514 $ 514 $ 510
Salesandmarketing 430 431 431 431 430 431 431 431 430 431Totalamortizationof
acquiredintangibleassets $ 881 $ 858 $ 858 $ 858 $ 885 $ 945 $ 945 $ 945 $ 944 $ 941
(3) InJanuary2017,wedonated1,175,063sharesofcommonstocktotheClouderaFoundation,withtheapprovaloftheboardofdirectors.Werecordedanon‑cashchargeof$21.6millionforthefairvalueofthedonatedshares,whichwasrecognizedingeneralandadministrativeexpenseforthethreemonthsendedJanuary31,2017,seeNote12toourconsolidatedfinancialstatementsincludedelsewhereinthisprospectusforfurtherdiscussion.
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Thefollowingtableprovidesareconciliationoflossfromoperationstonon‑GAAPoperatingloss:
Three Months Ended
April 30, 2015 July 31,
2015 October 31, 2015 January 31,
2016 April 30, 2016 July 31,
2016 October 31, 2016 January 31,
2017 April 30, 2017 July 31,
2017
(in thousands)
Lossfromoperations $ (38,081) $ (81,525) $ (41,505) $ (43,526) $ (43,516) $ (38,787) $ (43,988) $ (61,048) $ (222,340) $ (65,685)Stock-basedcompensation
expense 6,194 43,704 7,911 5,781 5,663 5,578 5,317 5,156 191,082 39,451Amortizationofacquired
intangibleassets 881 858 858 858 885 945 945 945 944 941Donationofcommonstockto
theClouderaFoundation — — — — — — — 21,574 — —
Non-GAAPoperatingloss $ (31,006) $ (36,963) $ (32,736) $ (36,887) $ (36,968) $ (32,264) $ (37,726) $ (33,373) $ (30,314) $ (25,293)
Thefollowingtablesetsforthselectedconsolidatedstatementsofoperationsdataforeachoftheperiodsindicatedasapercentageoftotalrevenue:
Three Months Ended
Consolidated Statements ofOperations:
April 30, 2015 July 31,
2015 October 31, 2015 January 31,
2016 April 30, 2016 July 31,
2016 October 31, 2016 January 31,
2017 April 30, 2017 July 31,
2017
Revenue:
Subscription 69% 72% 72% 73% 72% 79% 78% 77% 81% 82%
Services 31 28 28 27 28 21 22 23 19 18
Totalrevenue 100 100 100 100 100 100 100 100 100 100
Costofrevenue(1)(2)(3):
Subscription 18 23 17 17 16 15 15 14 33 17
Services 29 34 23 23 21 18 18 16 43 19
Totalcostofrevenue 47 57 40 40 37 33 33 30 76 36
Grossprofit 53 43 60 60 63 67 67 70 24 64
Operatingexpenses(1)(2)(3): Researchanddevelopment 56 98 49 42 43 41 39 35 120 48
Salesandmarketing 90 121 91 89 82 73 80 76 139 69Generalandadministrative 19 37 15 15 15 13 13 42 44 20
Totaloperatingexpenses 165 256 155 146 140 127 132 153 303 137
Lossfromoperations (113)% (213)% (95)% (86)% (77)% (60)% (65)% (84)% (279)% (73)%
Other Financial Data: Non-GAAPoperatingloss (92)% (97)% (75)% (73)% (65)% (50)% (56)% (46)% (38)% (28)%
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___________(1) Amountsincludestock‑basedcompensationexpenseasapercentageoftotalrevenueasfollows:
Three Months Ended
April 30, 2015 July 31,
2015 October 31, 2015 January 31,
2016 April 30, 2016 July 31,
2016 October 31, 2016 January 31,
2017 April 30, 2017 July 31,
2017
Costofrevenue–subscription 1% 6% 1% 1% —% 1% 1% 1% 20% 4%
Costofrevenue–services 1 8 1 1 1 1 1 1 26 4
Researchanddevelopment 5 46 4 3 3 2 2 2 85 15
Salesandmarketing 6 32 8 3 3 2 2 1 76 14Generalandadministrative 5 22 4 3 3 3 2 2 33 7
Totalstock‑basedcompensationexpense 18% 114% 18% 11% 10% 9% 8% 7% 240% 44%
(2) Amountsincludeamortizationofacquiredintangibleassetsasapercentageoftotalrevenueasfollows:
Three Months Ended
April 30, 2015 July 31,
2015 October 31, 2015 January 31,
2016 April 30, 2016 July 31,
2016 October 31, 2016 January 31,
2017 April 30, 2017 July 31,
2017
Costofrevenue–subscription 2% 1% 1% 1% 1% 1% 1% 1% 1% 1%
Salesandmarketing 1 1 1 1 1 — — — — —Totalamortizationofacquiredintangibleassets 3% 2% 2% 2% 2% 1% 1% 1% 1% 1%
(3) Asapercentageofrevenue,thenon‑cashexpenserecognizedforthedonationofcommonstocktotheClouderaFoundationinthethreemonthsendedJanuary31,2017was29%.
Quarterly Trends in Revenue
Quarterlysubscriptionandservicesrevenueeachincreasedsequentiallyeachquarter,exceptforservicesrevenueduringthethreemonthsendedJuly31,2016andthethreemonthsendedApril30,2017.TheincreaseswereprimarilyduetovolumedrivenincreasesinsubscriptionsalestonewandexistingcustomersincludinganincreaseinthenumberofGlobal8000customers.ThedecreaseinservicesrevenueduringthethreemonthsendedJuly31,2016andthethreemonthsendedApril30,2017wasmainlyduetotheattainmentofamilestoneforalargeservicesprojectinthepreviousquarter.
Quarterly Trends in Cost of Revenue
Costofrevenueincreasedsequentiallyeachquarter,exceptcostofrevenueforthethreemonthsendedJuly31,2015wasslightlyhigherthanmostotherperiodspresenteddueto$4.5millionofstock‑basedcompensationexpenserelatedtothetenderofferinJuly2015,andcostofrevenueforthethreemonthsendedOctober31,2016wasslightlyhigherduetoexpensesassociatedwithsendingserviceemployeestoourlargestuserconference,StrataDataConference,duringthethirdquarteroffiscal2017.CostofrevenueforthethreemonthsendedApril30,2017andJuly31,2017washigherthanotherperiodsduetostock‑basedcompensationexpenseof$36.0millionand$7.6million,respectively,primarilyduetotheperformance-basedconditionfortheRSUsbeingeitherachievedorprobableofbeingachievedontheeffectivedateoftheinitialpublicoffering.Otherquarter-over-quarterincreaseswereprimarilyduetoanincreaseinsalariesandbenefitsasaresultofheadcountgrowthtosupportincreasesinnewcustomersandtheexpansionofourrelationshipwithexistingcustomers.
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Quarterly Trends in Operating Expenses
Operatingexpensesincreasedsequentiallyeachquartergenerally,exceptoperatingexpensesforthethreemonthsendedJuly31,2017.OperatingexpensesforthethreemonthsendedJuly31,2015wereslightlyhigherthanmostotherperiodspresenteddueto$31.8millionofstock‑basedcompensationexpenserelatedtothetenderofferinJuly2015.OperatingexpensesforthethreemonthsendedApril30,2017andJuly31,2017werehigherthanmostotherperiodsprimarilyduetostock‑basedcompensationexpenseresultingfromtheperformance-basedconditionfortheRSUsbeingeitherachievedorprobableofbeingachievedontheeffectivedateoftheinitialpublicoffering.ThedecreaseinresearchanddevelopmentexpensesforthethreemonthsendedOctober31,2016wasmainlyduetoareductionincloudcomputingcosts.TheslightdecreaseinresearchanddevelopmentexpensesforthethreemonthsendedJanuary31,2017wasduetoexpensesassociatedwithaninternalconferenceforresearchanddevelopmentemployeesthatoccurredduringthepreviousquarter.Otherquarter-over-quarterincreaseswereprimarilyduetoanincreaseinsalariesandbenefitsasaresultofanincreaseinheadcounttosupportouroverallgrowthandanincreaseinsalesandmarketinginitiatives.
Net Expansion Rate
Wereviewournetexpansionratetoevaluateandmeasureourcustomerrelationships.Thefollowingtablesetsforthournetexpansionrateasoftheendofeachofthelasteightfiscalquarters:
As of
October 31, 2015 January 31,
2016 April 30, 2016 July 31,
2016 October 31, 2016 January 31,
2017 April 30, 2017 July 31,
2017
Netexpansionrate 134% 130% 134% 137% 143% 142% 142% 140%
Ourquarterlynetsubscriptionrevenueexpansionrateequals:
• thesubscriptionrevenueinagivenquarterfromendusercustomersthathadsubscriptionrevenueinthesamequarteroftheprioryear,
divided by
• thesubscriptionrevenueattributabletothatsamegroupofcustomersinthatpriorquarter.
Ournetexpansionrateequalsthesimplearithmeticaverageofourquarterlynetsubscriptionrevenueexpansionrateforthefourquartersendingwiththemostrecentlycompletedfiscalquarter.WehaveexcludedIntelfromourcalculationofnetexpansionrate,asitisarelatedparty.Ourexperiencehasbeenthatnetexpansionratesaregenerallyconsistentacrosscustomercohorts,irrespectiveoftheageofthecohort.
Liquidity and Capital Resources
AsofJuly31,2017,ourprincipalsourcesofliquiditywerecash,cashequivalentsandmarketablesecuritiestotaling$475.8millionwhichwereheldforworkingcapitalpurposes.Ourcashequivalentsarecomprisedprimarilyofmoneymarketfunds,commercialpaper,andreverserepurchaseagreements,andourmarketablesecuritiesarecomprisedofU.S.agencyobligations,asset‑backedsecurities,corporatenotesandobligations,municipalsecurities,certificatesofdepositandU.S.treasurysecurities.Todate,ourprincipalsourcesofliquidityhavebeenthenetproceedswereceivedthroughprivatesalesofequitysecurities,aswellaspaymentsreceivedfromcustomersforoursubscriptionsandservices.
Webelieveourexistingliquiditywillbesufficienttomeetourworkingcapitalandcapitalexpenditureneedsforatleastthenexttwelvemonths.Ourfuturecapitalrequirementsmayvarymateriallyfromthosecurrentlyplannedandwilldependonmanyfactors,includingournetexpansionrate,thetimingandextentofspendingonresearchanddevelopmentefforts,theexpansionofsalesandmarketingactivities,thecontinuingmarketacceptanceofoursubscriptionsandservicesandongoinginvestmentstosupportthegrowthofourbusiness.Wemayinthefutureenterintoarrangementstoacquireorinvestincomplementarybusinesses,servicesandtechnologiesandintellectualpropertyrights.Fromtimetotime,wemayexploreadditionalfinancingsourceswhichcouldincludeequity,equity-
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linkedanddebtfinancingarrangements.Wecannotassureyouthatanyadditionalfinancingwillbeavailableontermsfavorabletous,oratall.Ifadequatefundsarenotavailableonacceptableterms,oratall,wemaynotbeabletoadequatelyfundourbusinessplansanditcouldhaveanegativeeffectonouroperatingcashflowsandfinancialcondition.
Thefollowingtablesummarizesourcashflowsfortheperiodsindicated:
Year Ended January 31,
Six Months EndedJuly 31,
2016 2017 2016 2017 (in thousands)Cashusedinoperatingactivities $ (90,497) $ (116,561) $ (52,099) $ (17,866)Cashprovidedby(usedin)investingactivities (242,682) 168,586 65,073 (228,323)Cashprovidedbyfinancingactivities 9,663 1,538 1,633 243,618Effectofexchangeratechanges (334) 75 34 (77)
Netincrease(decrease)incash,cashequivalentsandrestrictedcash $ (323,850) $ 53,638 $ 14,641 $ (2,648)
Cash Used in Operating Activities
DuringthesixmonthsendedJuly31,2017,cashusedinoperatingactivitieswas$17.9millionwhichwasduetoanetlossof$286.5millionoffsetbynon‑cashadjustmentsof$237.9millionandadecreasefromnetchangeinoperatingassetsandliabilitiesof$30.7million.Non‑cashadjustmentsconsistedof$7.0millionofdepreciationandamortization,$230.5millionofstock‑basedcompensation,and$0.4millioninaccretionandamortizationofmarketablesecurities.Thenetchangeinoperatingassetsandliabilitieswasduetoanincreaseindeferredrevenueof$13.7millionduetothetimingofamountsbilledtocustomerscomparedtorevenuerecognizedduringthesameperiod,anincreaseinaccountspayableandaccruedexpensesandotherliabilitiesof$4.6millionduetotimingofpaymentstovendors,adecreaseinprepaidexpensesandotherassetsof$0.6million,adecreaseinaccountsreceivableof$16.7millionduetothetimingofinvoicingcomparedtothereceiptofcashfromcustomers,offsetbyadecreaseinaccruedcompensationof$5.0millionduetothetimingofbonusandincentive-basedcompensationpayments.
DuringthesixmonthsendedJuly31,2016,cashusedinoperatingactivitieswas$52.1millionwhichwasduetoanetlossof$81.8millionpartiallyoffsetbynon‑cashadjustmentsof$18.2millionandadecreasefromnetchangeinoperatingassetsandliabilitiesof$11.6million.Non‑cashadjustmentsconsistedof$5.0millionofdepreciationandamortization,$11.2millionofstock‑basedcompensationand$2.0millioninaccretionandamortizationofmarketablesecurities.Thenetchangeinoperatingassetsandliabilitieswasduetoanincreaseindeferredrevenueof$8.6millionduetothereceiptofcashfromcustomersinadvanceofrevenuerecognition,anincreaseinaccountspayableandaccruedexpensesandotherliabilitiesof$2.9millionduetogrowthinoperationsandtimingofpaymentstovendors,adecreaseinaccountsreceivableof$4.0millionduetothetimingofinvoicingcomparedtothereceiptofcashfromcustomers,offsetbyanincreaseof$0.8millioninprepaidexpensesandotherassets,adecreaseinaccruedcompensationof$3.1millionduetothetimingofbonusandincentive-basedcompensationpayments.
DuringtheyearendedJanuary31,2017,cashusedinoperatingactivitieswas$116.6millionwhichwasduetoanetlossof$187.3millionpartiallyoffsetbynon‑cashadjustmentsof$56.3millionandanincreasefromnetchangeinoperatingassetsandliabilitiesof$14.5million.Non‑cashadjustmentsconsistedof$10.1millionofdepreciationandamortization,$21.7millionofstock‑basedcompensation,$21.6millionofexpenseforthedonationofcommonstocktotheClouderaFoundationand$2.9millioninaccretionandamortizationofmarketablesecurities.Thenetchangeinoperatingassetsandliabilitieswasduetoanincreaseindeferredrevenueof$59.2millionduetothetimingofamountsbilledtoorcollectedfromcustomers,providedtherelatedsubscriptionandserviceshascommenced,inadvanceofrevenuerecognition,anincreaseinaccountspayableandaccruedexpensesandotherliabilitiesof$0.6millionduetogrowthinoperationsandtimingofpaymentstovendors,an
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increaseinaccruedcompensationof$11.2millionduetoanincreaseinheadcount,offsetbyanincreaseinprepaidexpensesandotherassetsof$3.3millionandanincreaseinaccountsreceivableof$52.1millionduetothetimingofinvoicingcomparedtothereceiptofcashfromcustomers.
DuringtheyearendedJanuary31,2016,cashusedinoperatingactivitieswas$90.5millionwhichwasduetoanetlossof$203.1millionpartiallyoffsetbynon‑cashadjustmentsof$75.8millionandanincreasefromnetchangeinoperatingassetsandliabilitiesof$36.9million.Non‑cashadjustmentsconsistedof$8.6millionofdepreciationandamortization,$63.6millionofstock‑basedcompensationand$3.6millioninaccretionandamortizationofmarketablesecurities.Thenetchangeinoperatingassetsandliabilitieswasduetoanincreaseindeferredrevenueof$42.1millionduetothereceiptofcashfromcustomersinadvanceofrevenuerecognition,anincreaseinaccountspayableandaccruedexpensesandotherliabilitiesof$6.2millionduetogrowthinoperationsandtimingofpaymentstovendors,anincreaseinaccruedcompensationof$9.4millionduetoanincreaseinheadcount,partiallyoffsetbyanincreaseinaccountsreceivableof$19.0millionduetothetimingofinvoicingcomparedtothereceiptofcashfromcustomers,andanincreaseof$1.8millioninprepaidexpensesandotherassets.
Cash Provided by (Used in) Investing Activities
DuringthesixmonthsendedJuly31,2017,cashusedininvestingactivitieswas$228.3millionwhichwasduetopurchasesofmarketablesecuritiesof$387.2millionandcapitalexpendituresforthepurchaseofpropertyandequipmentof$2.0million,offsetbysalesandmaturitiesofmarketablesecuritiesof$160.8million.
DuringthesixmonthsendedJuly31,2016,cashprovidedbyinvestingactivitieswas$65.1millionwhichwasduetosalesandmaturitiesofmarketablesecuritiesof$164.3million,offsetbypurchasesofmarketablesecuritiesof$90.4million,cashusedinbusinesscombinations,netofcashacquired,of$2.7million,andpurchasesofpropertyandequipmentof$6.1million.
DuringtheyearendedJanuary31,2017,cashprovidedbyinvestingactivitieswas$168.6millionwhichwasduetosalesandmaturitiesofmarketablesecuritiesof$282.4million,partiallyoffsetbypurchasesofmarketablesecuritiesof$103.8million,capitalexpendituresforthepurchaseofpropertyandequipmentof$7.4millionandcashusedinbusinesscombinations,netofcashacquired,of$2.7million.
DuringtheyearendedJanuary31,2016,cashusedininvestingactivitieswas$242.7millionwhichwasduetopurchasesofmarketablesecuritiesof$411.5million,cashusedinbusinesscombinations,netofcashacquired,of$8.9million,purchasesofpropertyandequipmentof$5.5million,partiallyoffsetbysalesandmaturitiesofmarketablesecuritiesof$183.3million.
Cash Provided by Financing Activities
DuringthesixmonthsendedJuly31,2017,cashprovidedbyfinancingactivitieswas$243.6millionwhichwasduetothenetproceedsfromtheissuanceofcommonstockintheinitialpublicofferingof$237.7millionandproceedsfromtheexerciseofstockoptionsandESPPwithholdingsof$5.9million.
DuringthesixmonthsendedJuly31,2016,cashprovidedbyfinancingactivitieswas$1.6millionwhichwasduetoproceedsfromtheexerciseofstockoptions.
DuringtheyearendedJanuary31,2017,cashprovidedbyfinancingactivitieswas$1.5millionwhichwasduetoproceedsfromtheissuanceofcommonstockuponexerciseofstockoptionsof$3.6million,offsetbypaymentofdeferredofferingcostsof$2.1million.
DuringtheyearendedJanuary31,2016,cashprovidedbyfinancingactivitieswas$9.7millionwhichwasduetonetproceedsof$10.9millionfromtheexerciseofstockoptions,offsetby$1.2millioninpaymentsfornetsharesettlementofRSUsrelatedtoemployeetaxes.
Off ‑Balance Sheet Arrangements
Wehavenotenteredintoanyoff‑balancesheetarrangementsanddonothaveanyholdingsinvariableinterestentities.
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Contractual Obligations and Commitments
Thefollowingtablesummarizesournon‑cancelablecontractualobligationsasofJuly31,2017:
Payments Due By Period
Total Less than 1 Year 1‑‑2 Years 3‑‑5 Years More than 5
Years (in thousands)
Operatingleases(1) $ 296,705 $ 22,378 $ 33,276 $ 95,239 $ 145,812
Totalcontractualobligations $ 296,705 $ 22,378 $ 33,276 $ 95,239 $ 145,812___________(1) Weleaseourfacilitiesunderlong‑termoperatingleases,whichexpireatvariousdatesthrough2027.Theleaseagreementsfrequentlyincludeprovisionswhichrequireus
topaytaxes,insurance,ormaintenancecosts.
InJune2017,weenteredintoanewnon‑cancelableoperatingleaseagreementtorentofficespaceinSanFrancisco,California.Theleasehasan87‑monthterm,commencesinJanuary2018andendsinApril2025withanoptiontorenewforanadditional60months.Totalminimumleasepaymentsundertheleaseagreement,includedinthetableabove,are$34.5million,ofwhich$0.4millionwasrequiredtobeprepaiduponexecutionoftheleaseagreement.TherewerenoothermaterialchangestoourcontractualobligationsandcommitmentsduringthesixmonthsendedJuly31,2017fromthecontractualobligationsandcommitmentsasofJanuary31,2017.
Deferred Revenue and Unbilled Deferred Revenue
Ourdeferredrevenueconsistsofamountsthathavebeeninvoicedbutthathavenotyetbeenrecognizedasrevenueasoftheendofareportingperiod.
Unbilleddeferredrevenuerepresentsfuturenon‑cancelablecustomercommitmentsunderoursubscriptionagreementsthathavenotbeeninvoicedand,accordingly,arenotrecordedindeferredrevenue.Forourannualormultiple‑yearsubscriptioncontractswetypicallyinvoiceaninitialannualamountatcontractsigningfollowedbysubsequentannualinvoicesoverthecontractterm.Untiltheseamountsareinvoiced,theyarenotrecordedinrevenue,deferredrevenue,accountsreceivableorelsewhereinourconsolidatedfinancialstatements,andareconsideredbyustobeunbilleddeferredrevenue.Weexpectunbilleddeferredrevenuetofluctuatefromperiodtoperiodforseveralreasons,includingthetiminganddurationofcustomercontracts,varyingbillingcyclesandthetiminganddurationofcustomerrenewals.Unbilleddeferredrevenuedoesnotincludeminimumrevenuecommitmentsfromresellersaswerecognizerevenueanddeferredrevenueuponsell‑throughtoanendusercustomer.
OurtotaldeferredrevenueandunbilleddeferredsubscriptionrevenueasofJanuary31,2017was$378.3million.
Quantitative and Qualitative Disclosures about Market Risk
WehaveoperationsbothwithintheUnitedStatesandinternationally,andweareexposedtomarketrisksintheordinarycourseofourbusiness.Ourmarketriskexposureisprimarilyaresultoffluctuationsininterestratesandforeigncurrencyexchangerates.Informationrelatingtoquantitativeandqualitativedisclosuresaboutthesemarketsrisksisdescribedbelow.
Interest Rate Risk
Ourprimaryexposuretomarketriskrelatestointerestratechanges.Wehadcashandcashequivalentsandmarketablesecuritiestotaling$255.7millionand$475.8millionasofJanuary31,2017andJuly31,2017,respectively,whichwereheldforworkingcapitalpurposes.Ourcashequivalentsarecomprisedprimarilyofmoneymarketfunds,commercialpaper,andreverserepurchaseagreements,andourmarketablesecuritiesarecomprisedofU.S.agencyobligations,asset‑backedsecurities,corporatenotesandobligations,municipalsecurities,certificatesofdepositandU.S.treasurysecurities.Ourinvestmentsaremadeforcapitalpreservationpurposes.Wedonothold
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orissuefinancialinstrumentsfortradingorspeculativepurposes.Ahypothetical100basispointchangeininterestrateswouldchangethefairvalueofourinvestmentsinmarketablesecuritiesby$1.8millionand$4.1millionasofJanuary31,2017andJuly31,2017,respectively.
Foreign Currency Risk
OurrevenueandexpensesareprimarilydenominatedinU.S.dollars.Forournon‑U.S.operations,themajorityofourrevenueandexpensesaredenominatedinothercurrenciessuchasEuro,BritishPoundSterling,AustralianDollarandChineseYuan.FortheyearendedJanuary31,2017,approximately10%ofourrevenueandapproximately17%ofaggregatecostofsalesandoperatingexpensesweregeneratedincurrenciesotherthanU.S.dollars.ForthesixmonthsendedJuly31,2017,approximately11%ofourrevenueandapproximately10%ofaggregatecostofsalesandoperatingexpensesweregeneratedincurrenciesotherthanU.S.dollars.
FortheyearendedJanuary31,2017,werecordedalossonforeignexchangetransactionsof$0.7million.ForthesixmonthsendedJuly31,2017,werecordedagainonforeignexchangetransactionsof$0.8million.Todate,wehavenothadaformalhedgingprogramwithrespecttoforeigncurrency,butwemaydosointhefutureifourexposuretoforeigncurrencyshouldbecomemoresignificant.A10%increaseordecreaseincurrentexchangeratescouldhavea$1.1millionimpactonourfinancialresults.
Critical Accounting Policies and Estimates
OurconsolidatedfinancialstatementsarepreparedinaccordancewithgenerallyacceptedaccountingprinciplesintheUnitedStates(GAAP).Thepreparationofthesefinancialstatementsrequiresourmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassets,liabilities,revenue,costsandexpensesandrelateddisclosures.Ourestimatesarebasedonourhistoricalexperienceandonvariousotherfactorsthatwebelievearereasonableunderthecircumstances,theresultsofwhichformthebasisformakingjudgmentsaboutthecarryingvalueofassetsandliabilitiesthatarenotreadilyapparentfromothersources.Actualresultsmaydifferfromthesejudgmentsandestimatesunderdifferentassumptionsorconditionsandanysuchdifferencesmaybematerial.Webelievethatoursignificantaccountingpolicies,whicharediscussedinNote2toourconsolidatedfinancialstatements,andtheaccountingpoliciesdiscussedbelow,involveagreaterdegreeofcomplexity,involvingmanagement’sjudgmentsandestimates.Accordingly,thesearethepolicieswebelievearecriticaltounderstandingourfinancialconditionandhistoricalandfutureresultsofoperations.
Revenue Recognition
Wegeneraterevenuefromsubscriptionsandservices.Subscriptionarrangementsaretypicallyonetothreeyearsinlengthbutmaybeuptosevenyearsinlimitedcases.Arrangementswithourcustomerstypicallydonotincludegeneralrightsofreturn.Incrementaldirectcostsincurredrelatedtotheacquisitionororiginationofacustomercontractareexpensedasincurred.
Revenuerecognitioncommenceswhenallofthefollowingcriteriaaremet:(i)persuasiveevidenceofanarrangementexists;(ii)deliveryhasoccurred;(iii)thefeeisfixedordeterminable;and(iv)collectionisprobable.
Subscription revenue
Subscriptionrevenuerelatestoterm(ortime‑based)subscriptionagreementsforbothopensourceandproprietarysoftware.Subscriptionsincludeinternet,emailandphonesupport,bugfixes,andtherighttoreceiveunspecifiedsoftwareupdatesandupgradesreleasedwhenandifavailableduringthesubscriptionterm.Revenueforsubscriptionarrangementsisrecognizedratablyoverthecontractualtermofthearrangementbeginningonthedateaccesstothesubscriptionismadeavailabletothecustomer.
Services revenue
Servicesrevenuerelatestoprofessionalservicesfortheimplementationanduseofoursubscriptions,trainingandeducationservicesandrelatedreimbursabletravelcosts.
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Fortimeandmaterialsandfixedfeearrangements,revenueisrecognizedastheservicesareperformedoruponacceptance,ifapplicable.Formilestone‑basedarrangements,revenueisrecognizeduponacceptanceorsubsequenttocompletionanduponthelapseofanyacceptanceperiod.
RevenuefortrainingandeducationservicesisrecognizedupondeliveryexceptforOn‑DemandTraining,whichisrecognizedratablyoverthecontractualterm.
Multiple-element arrangements
Arrangementswithourcustomersgenerallyincludemultipleelements(e.g.,subscriptionandservices).Weallocaterevenuetoeachelementofthearrangementbasedonvendor‑specificobjectiveevidenceofeachelement’sfairvalue(VSOE)whenwecandemonstratesufficientevidenceofthefairvalue.VSOEforelementsofanarrangementisbaseduponthenormalpricinganddiscountingpracticesforthoseelementswhensoldseparatelyonastand‑alonebasis.
WehaveestablishedVSOEforsomeofourservices.IfVSOEforoneormoreundeliveredelementsdoesnotexist,revenuerecognitiondoesnotcommenceuntildeliveryofboththesubscriptionandserviceshavecommenced,orwhenVSOEoftheundeliveredelementshasbeenestablished.Oncerevenuerecognitioncommences,revenueforthearrangementisrecognizedratablyoverthelongestserviceperiodinthearrangement.
Reseller arrangements
Wealsorecognizesubscriptionrevenueforsalesthroughresellersorotherindirectsaleschannels.Subscriptionrevenuefromthesesalesisgenerallyrecognizeduponsell‑throughtoanendusercustomer.Subscriptionrevenuefromthesesalesdoesnotcommenceuntilcashiscollectedwherepaymentstousarebelievedtobecontingentuponpaymentbytheendusertothereseller.
Deferred revenue
Deferredrevenueconsistsofamountsbilledtoorcollectedfromcustomersunderabindingagreementprovideddeliveryoftherelatedsubscriptionandserviceshascommenced.
Business Combinations, Goodwill and Intangible Assets
Weallocatethefairvalueofpurchaseconsiderationinabusinesscombinationtotangibleassets,liabilitiesassumedandintangibleassetsacquiredbasedontheirestimatedfairvalues.Theexcessofthefairvalueofpurchaseconsiderationoverthefairvaluesoftheseidentifiableassetsandliabilitiesisallocatedtogoodwill.Theallocationofthepurchaseconsiderationrequiresmanagementtomakesignificantestimatesandassumptions,especiallywithrespecttointangibleassets.Theseestimatescaninclude,butarenotlimitedto,futureexpectedcashflowsfromacquiredcustomersandacquiredtechnologyfromamarketparticipantperspective,usefullivesanddiscountrates.Management’sestimatesoffairvaluearebaseduponassumptionsbelievedtobereasonablebutwhichareinherentlyuncertainandunpredictable,and,asaresult,actualresultsmaydifferfromestimates.Duringthemeasurementperiod,whichisuptooneyearfromtheacquisitiondate,wemayrecordadjustmentstotheassetsacquiredandliabilitiesassumedwiththecorrespondingoffsettogoodwill.Upontheconclusionofthemeasurementperiod,anysubsequentadjustmentsarerecordedtoearnings.
Weassessgoodwillforimpairmentatleastannuallyandwhenevereventsorchangesincircumstancesindicatethatthecarryingvalueoftheassetmaynotberecoverable.Wetestgoodwillusingthetwo‑stepprocess.Inthefirststep,wecomparethecarryingamountofthereportingunittothefairvaluebasedonthefairvalueofourcommonstock.Ifthefairvalueofthereportingunitexceedsthecarryingvalue,goodwillisnotconsideredimpairedandnofurthertestingisrequired.Ifthecarryingvalueofthereportingunitexceedsthefairvalue,goodwillispotentiallyimpairedandthesecondstepoftheimpairmenttestmustbeperformed.Inthesecondstep,wewouldcomparetheimpliedfairvalueofthegoodwilltoitscarryingamounttodeterminetheamountofimpairmentloss,ifany.
Acquiredfinite‑livedintangibleassetsareamortizedovertheirestimatedusefullives.Weevaluatetherecoverabilityofourintangibleassetsforpossibleimpairmentwhenevereventsorcircumstancesindicatethatthecarryingamountofsuchassetsmaynotberecoverable.Recoverabilityoftheseassetsismeasuredbyacomparison
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ofthecarryingamountstothefutureundiscountedcashflowstheintangibleassetsareexpectedtogenerate.Ifsuchreviewindicatesthatthecarryingamountofourintangibleassetsisnotrecoverable,thecarryingamountofsuchassetsisreducedtofairvalue.Wehavenotrecordedanysuchimpairmentchargeduringtheperiodspresented.
Stock-based Compensation
Werecognizestock‑basedcompensationexpenseforallstock‑basedpayments.Employeestock‑basedcompensationcostisestimatedatthegrantdatebasedonthefairvalueoftheequityforfinancialreportingpurposesandisrecognizedasexpense,netofestimatedforfeitures,overtherequisiteserviceperiod.
WecalculatethefairvalueofoptionsbasedontheBlack‑Scholesoption‑pricingmodel.TheBlack‑Scholesmodelrequirestheuseofvariousassumptionsincludingexpectedoptionlifeandexpectedstockpricevolatility.Weestimatetheexpectedtermforstockoptionsusingthesimplifiedmethodduetothelackofhistoricalexerciseactivity.Thesimplifiedmethodcalculatestheexpectedtermasthemidpointbetweenthevestingdateandthecontractualexpirationdateoftheaward.Weestimatevolatilityusingvolatilitiesofagroupofpubliccompaniesinasimilarindustry,stageoflifecycle,andsize.Theinterestrateisderivedfromgovernmentbondswithasimilartermtotheoptiongranted.Wehavenotdeclarednordoweexpecttodeclaredividends.Therefore,thereisnodividendimpactonthevaluationofoptions.Weusethestraight‑linemethodforemployeeexpenseattributionforstockoptions.
WehavegrantedRSUstoouremployeesandmembersofourboardofdirectorsunderthe2008Plan.TheemployeeRSUsvestuponthesatisfactionofbothaservice‑basedvestingconditionandaliquidityevent‑relatedperformancevestingcondition.Theservice‑basedconditionforthemajorityoftheseawardsisgenerallysatisfiedpro‑rataoverfouryears.Theliquidityeventrelatedperformanceconditionissatisfiedupontheoccurrenceofaqualifyingliquidityevent,suchastheeffectivedateofaninitialpublicoffering,orsixmonthsfollowingtheeffectivedateofaninitialpublicoffering.DuringthequarterendedApril30,2017,themajorityofRSUsweremodifiedsuchthattheliquidityeventrelatedperformanceconditionissatisfiedupontheeffectivedateofaninitialpublicoffering,ratherthansixmonthsfollowinganinitialpublicoffering.ThemodificationestablishedanewmeasurementdateforthesemodifiedRSUs.Theliquidityeventrelatedperformanceconditionisviewedasaperformancebasedcriterionforwhichtheachievementofsuchliquidityeventisnotdeemedprobableforaccountingpurposesuntiltheeventoccurs.TheliquidityeventrelatedperformanceconditionwasachievedforthemajorityofourRSUsandbecameprobableofbeingachievedfortheremainingRSUsonApril27,2017,theeffectivedateofourinitialpublicoffering.Werecognizedstockbasedcompensationexpenseusingtheacceleratedattributionmethodwithacumulativecatchupofstockbasedcompensationexpenseintheamountof$181.5millionattributabletoservicepriortosucheffectivedate.SharessubjecttoRSUsinwhichtheliquidityevent‑relatedperformanceconditionwassatisfiedupontheeffectivedateoftheinitialpublicofferingwillbeissuedonthepricingdateofthisoffering.
Stock‑basedcompensationexpenseisrecordedbasedonawardsthatareultimatelyexpectedtovest,andsuchexpensehasbeenreducedforestimatedforfeitures.Whenestimatingforfeitures,weconsidervoluntaryterminationbehaviorsaswellastrendsoftheactualoptionforfeitures.
Wealsorecordstock‑basedcompensationexpensewhenaholderofaneconomicinterestinourcompanypurchasessharesfromanemployeeforanamountinexcessofthefairvalueofthecommonstockatthetimeofthepurchase.Werecognizeanyexcessvaluetransferredinthesetransactionsasstock‑basedcompensationexpenseinthestatementofoperations.
WeestimatedthefairvalueofoptionsandotherequityawardsgrantedtononemployeesusingtheBlack‑Scholesmethod.Theseawardsaresubjecttoperiodicre‑measurementovertheperiodduringwhichservicesarerendered.Werecognizethestock‑basedcompensationexpensefornon‑employeeoptionsandotherequityawardsoverthevestingperiodusingthestraight‑linemethod.
Common Stock Valuations
Priortoourinitialpublicoffering,giventheabsenceofapublictradingmarketofourcommonstock,andinaccordancewiththeAmericanInstituteofCertifiedPublicAccountantsPracticeGuide,ValuationofPrivatelyHeld
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CompanyEquitySecuritiesIssuedasCompensation,ourboardofdirectorsexercisedreasonablejudgmentandconsiderednumerousandsubjectivefactorstodeterminethebestestimateoffairvalueofourcommonstock,including,butnotlimitedto:
• relevantprecedenttransactionsinvolvingourcapitalstock;
• contemporaneousvaluationsperformedbythirdpartyspecialists;
• rights,preferences,andprivilegesofourredeemableconvertiblepreferredstockrelativetothoseofourcommonstock;
• actualoperatingandfinancialperformance;
• currentbusinessconditionsandfinancialprojections;
• likelihoodofachievingaliquidityevent,suchasaninitialpublicofferingorasaleofourbusiness;
• thelackofmarketabilityofourcommonstock,andtheilliquidityofstock‑basedawardsinvolvingsecuritiesinaprivatecompany;
• recentsecondarystocksales;
• marketmultiplesofcomparablepublicly‑tradedcompanies;
• stageofdevelopment;
• industryinformationsuchasmarketsizeandgrowth;and
• U.S.andglobalcapitalandmacroeconomicconditions.
Wedeterminedthefairvalueofourcommonstockforfinancialreportingpurposes,takingintoaccountthefactorsdescribedabove,usingacombinationofvaluationmethodologieswithvaryingweightingappliedtoeachmethodology.OnevaluationmethodologyusedwastheProbabilityWeightedExpectedReturnMethod(PWERM)underwhichthevalueofourcommonstockwasestimatedbaseduponananalysisofvaluesfortheCompanyassuminganinitialpublicofferingasapossiblefutureevent.Weappliedadiscountforlackofmarketabilitytoaccountforalackofaccesstoanactivepublicmarket.
InadditiontothePWERM,weutilizedthearm’s‑lengthtransactionsofourequitysecuritiesinthesecondarymarketandaswellasatenderoffercompletedinfiscal2016.Theweightingusedineachperiodforthesecondarytransactionsforpurposesofdeterminingthevaluationofourcommonstockconsideredfactorsincludingthenumberofsharessold,relationshipofthepartiesinvolved,timingofthetransactionsinrelationtothevaluationdateandourfinancialcondition.
Followingourinitialpublicoffering,itisnolongernecessarytodeterminethefairvalueofourcommonstockusingthesevaluationapproachesassharesofourcommonstockaretradedinthepublicmarket.
Basedonthepublicofferingpriceof$16.45pershare,theaggregateintrinsicvalueofstockoptionsoutstandingasofJuly31,2017was$262.6million,with$256.6millionrelatedtovestedstockoptions,andtheaggregateintrinsicvalueofRSUsoutstandingasofJuly31,2017was$398.1million.
JOBS Act Accounting Election
Weareanemerginggrowthcompany,asdefinedintheJumpstartOurBusinessStartupsActof2012,ortheJOBSAct.UndertheJOBSAct,emerginggrowthcompaniescandelayadoptingneworrevisedaccountingstandardsissuedsubsequenttotheenactmentoftheJOBSActuntilsuchtimeasthosestandardsapplytoprivatecompanies.Wehaveelectedtousethisextendedtransitionperiodforcomplyingwithneworrevisedaccountingstandardsthathavedifferenteffectivedatesforpublicandprivatecompaniesuntiltheearlierofthedatewe(i)arenolongeranemerginggrowthcompanyor(ii)affirmativelyandirrevocablyoptoutoftheextendedtransition
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periodprovidedintheJOBSAct.Asaresult,ourfinancialstatementsmaynotbecomparabletocompaniesthatcomplywithneworrevisedaccountingpronouncementsasofpubliccompanyeffectivedates.
Recent Accounting Pronouncements
Recently Adopted Accounting Standards
InMarch2016,theFinancialAccountingStandardsBoard(FASB)issuedASUNo.2016‑09,Compensation – Stock Compensation (Topic 718):Improvements to Employee Share‑Based Payment Accounting ,orASU2016‑09,whichsimplifiestheaccountingandreportingofshare‑basedpaymenttransactions,includingadjustmentstohowexcesstaxbenefitsandpaymentsfortaxwithholdingsshouldbeclassifiedandprovidestheelectiontoeliminatetheestimateforforfeitures.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2016,includinginterimperiodswithinthatreportingperiod.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2017,andinterimperiodswithinannualperiodsbeginningafterDecember15,2018.Earlyadoptionispermittedforanyentityinanyinterimorannualperiodforwhichfinancialstatementshavenotbeenissuedormadeavailableforissuance.Wehaveearlyadoptedthisstandardinthefirstquarteroffiscal2018.Asaresultofthisadoption,wehaveelectedtoaccountforforfeituresastheyoccur.Theadoptionofthisstandarddidnothaveamaterialimpactonourconsolidatedfinancialstatements.
Recently Issued Accounting Standards
InMay2014,theFASBissuedASUNo.2014‑09,Revenue from Contracts with Customers (Topic 606) ,orASU2014‑09,whichamendedtheexistingFASBAccountingStandardsCodification.ASU2014‑09establishesaprincipleforrecognizingrevenueuponthetransferofpromisedgoodsorservicestocustomers,inanamountthatreflectstheexpectedconsiderationreceivedinexchangeforthosegoodsorservicesandalsoprovidesguidanceontherecognitionofcostsrelatedtoobtainingandfulfillingcustomercontracts.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2017,includinginterimperiodswithinthatreportingperiod.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2018,andinterimperiodswithinannualperiodsbeginningafterDecember15,2019.Earlyadoptionispermitted,butmaynotbeadoptedbyusanyearlierthanFebruary1,2017.
Wearecurrentlyintheprocessofassessingtheadoptionmethodology,whichallowsASU2014‑09tobeappliedeitherretrospectivelytoeachpriorperiodpresentedorwiththecumulativeeffectrecognizedasofthedateofinitialapplication.Ourfinaldeterminationwilldependonanumberoffactors,suchasthesignificanceoftheimpactofthenewstandardonourfinancialresults,systemreadiness,includingthatofsoftwareprocuredfromthird‑partyproviders,andourabilitytoaccumulateandanalyzetheinformationnecessarytoassesstheimpactonpriorperiodfinancialstatements,asnecessary.
WearealsocurrentlyevaluatingtheimpactASU2014‑09willhaveonourconsolidatedfinancialstatements.WeareintheinitialstagesofourevaluationoftheimpactofASU2014‑09onouraccountingpolicies,processes,andsystemrequirements.Wehaveassignedinternalresourcesinadditiontoengagingthirdpartyserviceproviderstoassistintheevaluation.WhilewecontinuetoassessallpotentialimpactsunderASU2014‑09,thereisthepotentialforsignificantimpactstothetimingofourrevenuerecognitionandcontractacquisitioncosts,suchassalescommissions.AccountingforsalescommissionsunderASU2014‑09isdifferentthanourcurrentaccountingpolicywhichistoexpensesalescommissionsasincurredwhereassuchcostswillbedeferredandamortizedunderASU2014‑09.Additionally,wepreliminarilybelievethattheamortizationperiodforsuchdeferredcommissioncostswillbelongerthanthecontractterm,asASU2014‑09requiresentitiestodeterminewhetherthecostsrelatetospecificanticipatedcontracts.
WhilewecontinuetoassessthepotentialimpactsofASU2014‑09,includingtheareasdescribedabove,andanticipateASU2014‑09couldhaveamaterialimpactonourconsolidatedfinancialstatements,wedonotknoworcannotreasonablyestimatethequantitativeimpactonourfinancialstatementsatthistime.
InFebruary2016,theFASBissuedASUNo.2016‑02,Leases (Topic 842) ,orASU2016‑02,whichrequireslesseestorecordmostleasesontheirbalancesheetsbutrecognizetheexpensesontheirincomestatementsinamannersimilartocurrentpractice.ASU2016‑02statesthatalesseewouldrecognizealeaseliabilityforthe
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obligationtomakeleasepaymentsandaright‑to‑useassetfortherighttousetheunderlyingassetfortheleaseterm.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2018,includinginterimperiodswithinthatreportingperiod.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2019,andinterimperiodswithinannualperiodsbeginningafterDecember15,2020.Earlyadoptionispermitted.Wearecurrentlyevaluatingtheimpactthatthisstandardwillhaveonourconsolidatedfinancialstatements.
InJune2016theFASBissuedASUNo.2016‑13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments ,orASU2016‑13.ASU2016‑13requiresthemeasurementofallexpectedcreditlossesforfinancialassetsheldatthereportingdatebasedonhistoricalexperience,currentconditions,andreasonableandsupportableforecasts.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2019,includinginterimperiodswithinthatreportingperiod.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2020,includinginterimperiodswithinthatreportingperiod.Earlieradoptionispermittedinourfirstinterimperiodinfiscal2020.Wearecurrentlyevaluatingtheimpactthatthisstandardwillhaveonourconsolidatedfinancialstatements.
InAugust2016,theFASBissuedASUNo.2016‑15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ,orASU2016‑15.ASU2016‑15identifieshowcertaincashreceiptsandcashpaymentsarepresentedandclassifiedintheStatementofCashFlows.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2017,includinginterimperiodswithinthatreportingperiod.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2018,andinterimperiodswithinannualperiodsbeginningafterDecember15,2019.Thisstandardshouldbeappliedretrospectivelyandearlyadoptionispermitted,includingadoptioninaninterimperiod.Wearecurrentlyevaluatingtheimpactthatthisstandardwillhaveonourconsolidatedfinancialstatements.
InOctober2016,theFASBissuedASUNo.2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory ,orASU2016-16.ASU2016-16requiresentitiestorecognizetheincometaxconsequencesofanintra-entitytransferofanasset,otherthaninventory,whenthetransferoccurs.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2017.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2018.Earlyadoptionispermittedasofthebeginningofanannualperiod.Wearecurrentlyevaluatingtheimpactthatthisstandardwillhaveonourconsolidatedfinancialstatements.
InJanuary2017,theFASBissuedASUNo.2017‑04,Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, orASU2017‑04.ASU2017‑04simplifieshowanentityisrequiredtotestgoodwillforimpairmentbyeliminatingStep2fromthegoodwillimpairmenttest.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2019,includinginterimperiodswithinthatreportingperiod.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2021.EarlyadoptionispermittedforinterimorannualgoodwillimpairmenttestsperformedontestingdatesafterJanuary1,2017.Wearecurrentlyevaluatingtheimpactthatthisstandardwillhaveonourconsolidatedfinancialstatements.
InMay2017,theFASBissuedASUNo.2017-09,Compensation -Stock Compensation (Topic 718): Scope of Modification Accounting ,orASU2017-09,whichclarifieswhentoaccountforachangetothetermsorconditionsofashare-basedpaymentawardasamodification.UnderASU2017-09,modificationaccountingisrequiredonlyifthefairvalue,thevestingconditions,ortheclassificationoftheaward(asequityorliability)changesasaresultofthechangeintermsorconditions.ThisstandardiseffectiveforallentitiesforannualreportingperiodsbeginningafterDecember15,2017,includinginterimperiodswithinthatreportingperiod.Earlyadoptionispermitted.Wearecurrentlyevaluatingtheimpactthatthisstandardwillhaveonourconsolidatedfinancialstatements.
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BUSINESS
Overview
Clouderaempowersorganizationstobecomedata‑drivenenterprisesinthenewlyhyperconnectedworld.Wehavedevelopedthemodernplatformformachinelearningandanalytics,optimizedforthecloud.Wehaveachievedthispositionthroughextensivecollaborationwiththeglobalopensourcecommunity,continuousinnovationindatamanagementtechnologiesandbyleveragingthelatestadvancesininfrastructureincludingthepubliccloudfor“bigdata”applications.Ourpioneeringhybridopensourcesoftware(HOSS)modelincorporatesthebestofopensourcewithourrobustproprietarysoftwaretoformanenterprise‑gradeplatform.Thisplatformdeliversanintegratedsuiteofcapabilitiesfordatamanagement,machinelearningandadvancedanalytics,affordingcustomersanagile,scalableandcosteffectivesolutionfortransformingtheirbusinesses.Ourplatformenablesorganizationstousevastamountsofdatafromavarietyofsources,includingtheInternetofThings(IoT),tobetterserveandmarkettotheircustomers,designconnectedproductsandservicesandreduceriskthroughgreaterinsightfromdata.Avibrantecosystemhasdevelopedaroundourplatform,andagrowingrangeofapplicationsisbeingbuiltonit.Webelievethatoursolutionisthemostwidelyadoptedbigdataplatform.
Theworldisrapidlybecominginterconnectedthroughmobile,social,internetandsensoractivity.InternationalDataCorporation(IDC)estimatesthatby2020therewillbe30billioninternet‑connectedandmobiledevices.Additionally,thequantityofinformationproducedperyearisexpectedtogrow,withIDCestimatingthatapproximately440timesmoreinformationwillbecreatedin2020thanin2005.Developershavecreateddata‑intensiveapplicationstotakeadvantageofallofthisinformation.Traditionaldatamanagementtechnologiescannottechnologicallyoreconomicallycapturethisdataorsupporttheseapplications.Enterprisesarechallengedtomanageanduserapidlygrowingquantitiesofdataofnewandvaryingtypes.Theyarealsooperatinginincreasinglycompetitiveanddemandingregulatoryenvironments.AccordingtostudiesquotedintheHarvardBusinessReview,lessthanhalfofanorganization’sstructureddataisactivelyusedinmakingdecisions,lessthan1%ofitsunstructureddataisanalyzedorusedatall,morethan70%ofemployeeshaveaccesstodatatheyshouldnotand80%ofanalysts’timeisspentsimplydiscoveringandpreparingdata.Inordertoachievetheirbusinessobjectives,enterprisesmustadoptinformation‑centricstrategiesandadata‑drivenapproachtoproblemsolving.Organizationsacrossallindustriesneedtodeveloptheabilitytoactquicklyandcost‑effectivelyonmassiveamountsofdatainanyformfromanysourcetogaininsight,tocompeteeffectivelyandtocomplywithlawsandregulations.Theyneedtomanageallavailabledata,whereveritmayoriginateorreside.Theyneedamodernopendataarchitecturebuiltonthelatestopensourcetechnologiesanddesignedforpubliccloudinfrastructure.
Inresponse,wehavecreatedoursoftwareplatformandpioneeredthehybridopensourcesoftwaremodel.HOSScombinesthebestopensourcesoftwarewithproprietarysoftwaretomeettheexactingrequirementsoflargeenterprises.Byintegratingrobustproprietarysoftwarewithouropensourceplatform,builtontheleadingdatamanagementandanalyticstechnologies,wedeliversubstantiallygreatervaluetocustomersinmanaging,operatingandsecuringtheirdataanddataarchitectures.OurHOSSmodelalsomeaningfullydifferentiatesoursolutionsfromthoseofourcompetitors,includingopensource“freeriders”whotakefrom,butdonotcontributeto,theopensourcecommunityatlarge.Thisdifferentiationalsobuildslong‑livedcustomerrelationshipsandgeneratestherevenuetosupportsustainedinnovation.
Ourscale‑outdistributedarchitecturedelivershighperformanceoninexpensiveindustry‑standardhardwareorcloudinfrastructure.Weallowenterprisestooperate,manageandmoveworkloadsacrossmultiplearchitectures,mixingon‑premisesandcloudenvironments,includingallmajorpubliccloudinfrastructureproviders–AmazonWebServices,MicrosoftAzureandGoogleCloudPlatform–aswellasmanagedserviceproviders(MSPs).Wealsoenableenterprises’“multi‑cloud”strategies,allowingthemtomoveworkloadsfromthedatacentertothepubliccloud,amongpubliccloudvendors,andbackagain,thusavoidingcloudlock‑in.Inaddition,ourcustomersdeploy,configureandmonitoralltheirworkloadsatscaleacrosstheseenvironmentsfroma“singlepaneofglass.”Thisflexibilityallowscustomerstoconstantlydetermineandimplementthemostcost‑efficientstrategies.AsofJuly31,2017,approximately21%ofourGlobal8000customersrunourplatforminthecloud.
Themarketfornext‑generationdatamanagement,machinelearningandadvancedanalyticsislargeandrapidlygrowingastheworldincreasinglyconnects.IDCestimatesthatthetotalspendonbigdataandbusinessanalytics
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relatedhardware,softwareandserviceswillgrowatan11.9%compoundannualgrowthratetomorethan$210.0billionby2020.Ourplatformcurrentlyaddressesthreenewtransformativemarketswithinbigdataandbusinessanalytics:(i)DynamicDataManagementSystems;(ii)Cognitive/AISystemsandContentAnalyticsSoftware;and(iii)AdvancedandPredictiveAnalyticsSoftware.IDCestimatesthatinaggregatethesemarketswillgrowfrom$10.6billionin2016to$27.7billionin2021atacombinedcompoundannualgrowthrateof21.2%.Beyondthesenewmarkets,ourplatformcurrentlyaddressesandisdisruptingtraditionalmarkets,includingasignificantportionoftheRelationalDatabaseManagementSystemsandNon‑RelationalDatabaseManagementSystemsmarkets.AddingtogetherIDC’sestimatesofthesenewandtraditionalmarkets,webelieveourtotaladdressableopportunityincludingtheseadditionalmarketsisexpectedtoreach$72.7billionby2021.
Weofferoursoftwareplatformonasubscriptionbasisandfocusoursellingeffortsonthelargest8,000corporateenterprisesglobally(Global8000)aswellaslargepublicsectororganizations.Wetargettheseorganizationsbecausetheycaptureandmanagethemajorityoftheworld’sdataandoperatehighlycomplexITenvironments.Theseorganizationsarelikelytorealizethegreatestvaluefromourenterprise‑gradeplatform.Wehaveachievedsignificantgrowthandglobalscaleinarelativelyshortperiodoftime,andasofJuly31,2017,wehaveapproximately562Global8000customers.ForthefiscalyearendedJanuary31,2017andthesixmonthsendedJuly31,2017,revenuefromourGlobal8000represented73%and74%oftotalrevenue,respectively,basedontheGlobal8000constituentsasofMay1,2017.Forfiscal2017andthesixmonthsendedJuly31,2017,revenuefromourpublicsectorcustomers(includinglargepublicsectorcustomers)represented10%and9%oftotalrevenue,respectively.Ourcustomerscontinuetoexpandtheirusageofourplatform.Thenetexpansionrateforoursubscriptionrevenuewas140%asofJuly31,2017.Agrowing,vibrantecosystemhasdevelopedaroundourplatform,andmanythird‑partydevelopershaveprimarilystandardizedonit,buildingmorethan100industry-specificusecases,orapplications,usingourproprietarytechnology.WerefertotheseasPartnerSolutions.Aspartofthisecosystem,wehavedevelopedastrategicpartnershipwithIntelCorporation,orIntel,tooptimizeoursoftwareforusewithIntelprocessorsandarchitecture.Asaresultofourjointdedicationtothispartnership,ourplatformachievesdifferentiatedperformanceonIntelarchitecturetoday,andisexpectedtoachievedifferentiatedperformanceonfutureIntelplatformtechnologies.Wewillfurtherexpandourcustomeropportunitythroughthecontinuedgrowthinusecasesandpackagedsolutions,theexpansionofourpartnerecosystemandtheproliferationofskills,drivenbyeaseofuseandacceleratingadoptionofthecloud.See“Market,IndustryandOtherData”forhowwedefineGlobal8000,largepublicsectororganizationsandcalculateournetexpansionrate.
ForourfiscalyearsendedJanuary31,2016andJanuary31,2017,ourrevenuewas$166.0millionand$261.0million,respectively,representingyear‑over‑yeargrowthinrevenueof57%forourmostrecentfiscalyear.Overthesameperiod,operatingcashoutflowsincreasedfrom$90.5millionto$116.6millionwhileournetlosseswere$203.1millionand$187.3million,respectively,whichincludes$63.6millionand$21.7million,respectively,ofstock‑basedcompensationexpense,andanon‑cashchargeof$21.6millioninconnectionwiththedonationofcommonstocktotheClouderaFoundationforfiscal2017.ForthesixmonthsendedJuly31,2016and2017,ourrevenuewas$120.9millionand$169.4millionrespectively,representingperiod‑over‑periodgrowthinrevenueof40%.Overthesameperiod,operatingcashoutflowsdecreasedfrom$52.1millionto$17.9millionwhileournetlosseswere$81.8millionand$286.5million,respectively,whichincludes$11.2millionand$230.5million,respectively,ofstock‑basedcompensationexpense.
Industry Background
Successfulorganizationshavealwayscollectedandanalyzeddata.Theyhaveusedittounderstandtheircustomers,designandbuildtheirproducts,andaddressopportunitiesandmanageriskintheirbusinesses.
Today,largeorganizationsareawashinvastlymoredatathaneverbefore.Theycollectreal‑timeandstreamingdataoneventsandtransactions,socialandinteractiondataabouttheircustomers,newsandmarketdataaboutthemselvesandtheircompetition,andmuchmore.Theyarealsooperatinginincreasinglycompetitiveanddemandingregulatoryenvironments.Toachievetheirbusinessobjectives,theymustcapture,secure,prepare,analyzeandactonallofthatdataquickly.
Thisfloodofdataoverwhelmsdatamanagementsystemscreatedinearlierdecades.Thosesystemsweredesignedforthedatavolumesandfortheanalyticalproblemsofanearlierday.Theywereneverintendedtohandle
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thethousand‑foldorgreaterincreaseinvolume,nortoday’scombinationandcomplexityofdataandnewdatatypes.Thosesystemspredatedpowerfulnewanalytictechniquessuchasmachinelearningandnaturallanguageprocessing.
Thefirstorganizationsconfrontedwiththiscombinationofvolume,complexityandanalyticchallengeswereweb‑scaleconsumerinternetcompanieslikeGoogle,FacebookandYahoo.Thosewebpioneerscreatedanewsoftwarearchitectureandacollectionofopensourcesoftwareprojectstosolvetheirdataproblems.Thatsoftwarewassophisticatedandpowerful,butdemandedexceptionaltechnicalandoperationalskillofitsusers.
Today,boardrooms,C‑suitesandline-of-businessleadersacrossallindustriesarefocusedondevelopingtheabilitytousevastamountsofdatafromavarietyofsourcestobetterservecustomers,designproductsandservicesandmanagerisk.Theirorganizationsneedtechnologythatgivesthembetterinsightsthanlegacysystemsallow.Theyneednewsystemstocompeteeffectivelyandtocomplywiththelawsandregulationsthatgovernthem.Theyneedanenterprise‑gradesolutiontomanageandactonallavailabledata,whereveritmayoriginateorreside.Theyneedthepowerandsophisticationoftheweb‑scaleconsumerinternetleaders,packagedforconsumptionbyordinaryenterprises.Enterprisesrequireamoderndatamanagement,machinelearningandanalyticsplatform.
Factors affecting the development of next ‑‑ generation data management, machine learning and advanced analytics
Amodernplatformformachinelearningandanalyticsisvaluablebecausemoredataoftenyieldsbetteranswerstohardquestions.Itenablesenterprisestolookatproblemsatmuchhigherresolution.Itpermitsqueriestoexaminenotjustthelastmonthorquarter,butthelastyearordecadeofcustomerbehavior.Usingpowerfulmachinelearningalgorithms,itcanexaminehistoricaldataandfindpatternsthatmoreaccuratelypredictfuturetrends.Suchaplatformallowsenterprisestoextractmorevaluefromtheirdataandeffectdigitaltransformation.
Themainfactorsdrivingcomplexityandchallengesinextractingvaluefromdataare:
• The rise of the interconnected world and the Internet of Things (IoT). Anincreasinglyconnectedworldisacceleratingthepaceofdatageneration.Moreandmoredataiscreatedfrommobile,socialandinternetconnecteddevices,andbusinessactivityisincreasinglydigitallyinstrumented.Newtypesofsensorscontinuetoproliferate,andtheyareusuallyconnectedtoanetworktoday.Asaresult,todaywehaveconnectedhomes,connectedcars,connectedpatients,connectedmachinesandconnectedsupplychainsthatexpandthetypesofdataproduced,includingstreaming,image,audioandvideo.By2020,IDCestimatesthattherewillbe30billioninternet‑connectedandmobiledevices.
• The explosion of new data. Dataiscreatedinsharplyincreasingvolumesasenterprisesseektodigitallytransform.Enterprisesaredigitalizinganincreasingnumberofbusinessactivitiestoimproveandtransformoperations,functionsandprocesses,producingdataatanunprecedentedscale.IDCestimatesthatapproximatelyeighttimesasmuchinformationwascreatedin2015thanin2010and90timesasmuchinformationwascreatedin2015thanin2005.Thisquantityofinformationisexpectedtocontinuetogrow,withIDCestimatingthatapproximately440timesmoreinformationwillbecreatedin2020thanin2005.
• The proliferation of machine learning and artificial intelligence. Toidentifytrendsinhistoricaldataandtorecognizeeventsincurrentdataandpredicttheminthefuture,organizationsprocesslargedatasetswithadvancedalgorithmsthatrecognizethetrendsandthatimprovewithexperience.Thiscapabilityiscommonlyreferredtoasmachinelearning.Theriseofbigdataenhancesthequalityofmachinelearningalgorithmsbyprovidinglarger,morecomprehensivedatasetsuponwhichtolearnandimprove.Greateravailabilityofdata,lowercomputecosts,significantbusinessopportunityandgreateroperationalcomplexityareincreasingthedemandformachinelearningandartificialintelligenceapplications.Machinelearningandartificialintelligencearebeingusedinabroadanddiversearrayofapplicationssuchasfraudprevention,mediaplacement,cropplanting,equipmentmaintenance,storemerchandisingandcybersecurity.
• The modernization of enterprise infrastructure. Organizationsareincreasinglyupdatingtheirinfrastructuretotakeadvantageofthelatesttechnologicaldevelopmentsandmeetdemandsoftheir
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executivemanagement,employeesandcustomers.Inadditiontotheregularcycleofnewhardwareandsoftwarepurchasesinthedatacenter,therearetwocoretrendsthatlargeenterprisesareembracingtoday:
– Open source software. Opensourcesoftwareisplayinganincreasinglycentralroleinenterprises’technologyarchitectures.Ithasproliferatedasdevelopersandbusinessownersembraceitsdistributedandcollaborativeapproachtosoftwaredevelopment.Thisapproachacceleratesinnovationavailabletoenterprises,vendorsandcommunityparticipants.Enterprisescanquicklyadvancetheirinfrastructureinitiativesthroughdirectcontributionsorsimplemodificationstoopensourceprojects.Inaddition,enterprisesareespeciallyattractedtoopensourcesoftwareasamechanismforreducingthethreatofvendorlock‑in.Accordingtoa2015marketsurveybyBlackDuckSoftwareandNorthBridgeVenturePartners,morethan78%ofenterprisesrunonopensourcesoftware.
– Public cloud infrastructure. Publiccloudinfrastructureprovidestheabilitytoquicklyspinsystemsupanddownandtodynamicallygrowandshrinktheirprocessingpower.Enticedbythiselasticity,aswellasflexibility,usagepricingandminimalsetuptimeandcosts,organizationsofallsizesareincreasinglyadoptingpubliccloudarchitecturesforstorageandcomputingneeds.Publiccloudisthefastestgrowingtypeofinfrastructuretoday.Maturingpubliccloudserviceshaveequippedtoday’sbusinessleaderswitharangeofITarchitecturealternatives,enhancingtheirabilitytoselecttheoptimalinfrastructurefortheperformanceandcostrequirementsofspecificapplicationsorworkloads,suchasusingcloudinfrastructurefortransientworkloads.
Limitations of Legacy Data Management Technology
Inpriordecades,organizationsboughtdedicatedtechnologytosolvespecificdata‑relatedbusinessproblems.Theyuseddocumentmanagementsystemsforstoringresumesandcontracts,controlsystemsforrunningfactoriesandrelationaldatabasesforback‑officereportingandbilling.Whileeachofthesesystemswasuseful,theywereisolated,notintegrated.Itwasdifficultorimpossibletocombinedatafromthesesystemsforacomprehensiveviewofthebusiness.
Therapidexpansioninthevolumeandvelocityofdatageneratesmoredynamicinformationsets,makingthesespecial‑purposelegacyarchitecturesevenmoreexpensiveandcumbersometouse.Enterprisesneedsystemsthatoperateonall theirdata.TheiranalyticrequirementsdemandthattheyrunnotonlySQL,butalsotheflexible,iterativealgorithmsthatarethebasisformachinelearningapplications.Furthermore,theproliferationofimages,audio,video,geo‑locationdata,clickstreamdataandsensordatacreatesopportunitiesfornewanalysesandapplications.Thesiloedsystemsofthepastareincompatiblewithwhattoday’sorganizationsneedfortoday’sdata:flexibility,scalability,elasticityandagilityfromarichcollectionofintegratedanalyticcapabilitiesandanopenecosystem.
The Evolution of the Open Source Data Management Ecosystem
Web‑scaleconsumerinternetcompanieswereamongthefirsttoencounterthechallengeofprocessingimmensevolumesofdiversedata.Withnocommercialalternative,thesecompaniescreatedthescalablestorageandprocessinginfrastructurethatservesasthefoundationforthemoderndatamanagementandanalyticsplatform.InDecember2004,Googlepublishedawhitepaperdescribingitsapproachfordevelopingsuchaplatform.Independently,twosoftwaredevelopers,DougCuttingandMikeCafarella,werestrugglingtobuildweb‑scalesystemsatthetime.BuildingontheideasbehindGoogle’sapproach,theycreatedthebeginningofanopensourcedatastorageandprocessingsolution.Cuttingnamedthissoftware“Hadoop,”afterastuffedtoyelephantthatbelongedtohisyoungson.
CuttingandCafarellahopedtoinitiateavibrantopensourcecommunityaroundtheirwork,sotheydonatedthecodetotheApacheSoftwareFoundationin2005.Nowknownas“ApacheHadoop,”thissoftwareprojecthasspawnedarichecosystemofopensourceandproprietarysoftwarefornextgenerationdatamanagement.
Hadoopwasoriginallydesignedtoprovidehighperformance,low‑costprocessingofcomplexdataatscale.ItcomprisedtheopensourcetechnologiesknownasHDFSandMapReduce.Sincethen,anopensourcedatamanagementecosystemhasdevelopedthatnowcomprisesmorethan40majorprojects,includingthosetwooriginal
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Hadoopprojects,aswellasSpark,Impala,KuduandKafka.Astheecosystemhasgrown,sohavecomplexityandrisk.Theseprojectstacklecomplementaryproblemsincollecting,processingandanalyzingdata.Together,theyofferunprecedentedpowerandflexibility.Theirproliferation,though,increasesthechallengeforenterprisesthatneedtousethem,astheyaresometimesoverlapping,competingorinconsistentinapproach.Inaddition,someprojectsmaynotbeenterprisequalityoracceptedasopensourcestandards.Withtheconsistentandon‑goingexpansionoftheopensourcedatamanagementecosystem,drivenbytherapidinnovationoftheglobalopensourcecommunity,enterprisescanspendsignificanttimeandresourcesunderstanding,deployingandusingthesetechnologies.
Requirements of the Modern Data Management and Analytics Platform
Organizationsneedamoderndataplatformwith:
• The ability to deploy on-premises or in the public cloud – or both. Manyenterpriseshavedataon‑premisesforlong‑livedworkloadsandrelyonpubliccloudinfrastructurefortransientworkloads.Asaresult,enterprisesrequireasolutionthatprovidestheflexibilitytostoreandanalyzetheirdatainamixedinfrastructureenvironment.Inaddition,enterprisesrequiretheabilitytorunnativelyondifferentpubliccloudplatforms,ormulti‑cloudcapability,sothattheycanchooseamongcompetingpubliccloudplatformsandmoveworkloadsamongthemtoavoidcloudlock‑in.
• Access to the latest open source technologies. Collaboratingacrossbordersandcompanylines,theglobalopensourcesoftwarecommunityinnovatesquickly.Thisinnovationcanleadtocompetingsoftwareprojects,whichcreatescomplexityandriskforenterprisesthatsimplywanttousethebestandmostappropriateopensourcesoftware.Enterprisesneedatrustedpartnertoplayanactiveroleinthecommunity,contributingsignificantlytoopensourcedevelopmentandcontinuouslycuratingthevariousprojectstocreateahighlyintegrated,secureandhigh‑performanceplatform.
• Support for machine learning. Distributedsystemstogetherwithlargeamountsofdataallowenterprisestousemachinelearningtounderstandthepastandtopredictthefuture.Toperformmachinelearning,adataplatformmustsupportflexibleschemaandmultipledatasciencelanguages.Itmustalsosupportanewclassofanalyticalgorithmsasmachinelearningusessophisticatedalgorithmstoexaminedataandtoextractpatterns.Enterprisesrequireamoderndatamanagementandanalyticsplatformthatpowersthealgorithmstoapplymachinelearningtorealbusinessproblemsandrealbusinessdata.
• Enterprise-grade performance, features and functionality. Enterprisesrequireaplatformsuitedtooperatinginhighlycomplextechnology,businessandregulatoryenvironments,including:
– Scalability and performance. Legacydatamanagementsystemsdonotmeettheperformancedemandsofmoderndataapplications.Thesesystemsdependonasingleorlimitednumberofexpensive,centralizedcomputerstohandlestorageandprocessing.HugequantitiesofdataaccessedbymanyusersrunningacombinationofSQLqueries,textsearchesandmachinelearningtechnologiescansimplyoverwhelmlegacysystems.Themoderndataplatformrequiresascale‑outarchitecture–whichcombinesmanysmall,inexpensivecomputersandpoolstheirstorageandprocessingpower–tomeetperformancedemands.
– Operate and manage resources across environments at scale. Asdataandprocessingneedsgrow,enterprisesrequiretechnologythatoffersvisibilityacrosssystemsandworkloadswithoutregardtowhetherthoseassetsaredeployedon‑premisesorinthecloud.Asenterprisesystemsscale,centralizedmonitoringandmanagementinanyinfrastructureenvironmentbecomescriticaltodataarchitectureoperations,aswellastoregulatoryandpolicycompliance.
– Data security and governance. Dataisstrategic,andenterprisesareretainingmoreofitforlonger–evenpermanently.Alargeconcentrationofdatacreatesuniqueandsignificantsecurityconcerns.Businesspolicy,legalandregulatoryregimesimposerulesastowhomayusedata,forwhatpurposesandhowitissafeguarded.Policysetting,enforcementandmonitoringforcompliancepurposesdemanddatagovernancetechnologythatreportsonusage,tracksdatalineageandensures
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thatenterprisescanmeetthestrictprivacyandothercontrolsthatapply.Toappropriatelysafeguarddataandcomplywithlegalandregulatoryrequirements,enterprisesmustensureproperauthentication,authorizationandaccessateverylevel.
– Low total cost of ownership. Theamountofdataavailableforanalysishasgrownexponentially,butITbudgetshavenot.Eveniflegacydatamanagementtechnologiescould addressthechallengesof“bigdata,”theywouldbecostprohibitive.Enterprisesrequiretheabilitytomanagetheirdataarchitectureatscaleandtheflexibilitytousetheinfrastructurethatismostcostefficientandappropriateforeachusecase.
Our Market Opportunity
Themarketfornext‑generationdatamanagement,machinelearningandadvancedanalyticsislargeandrapidlygrowingastheworldincreasinglyconnects.IDCestimatesthatthetotalspendonbigdataandbusinessanalyticsrelatedhardware,softwareandserviceswillgrowatan11.9%compoundannualgrowthratetomorethan$210.0billionby2020.Ourplatformcurrentlyaddressesthreenewtransformativemarketswithinbigdataandbusinessanalytics:(i)DynamicDataManagementSystems;(ii)Cognitive/AISystemsandContentAnalyticsSoftware;and(iii)AdvancedandPredictiveAnalyticsSoftware.Technologieswithinthefirstmarkethelpenterprisescaptureandmanagetheincreasingvolumeandcomplexityofnewdata.Technologieswithinthelattertwomarketshelpenterprisesgenerateinsightsandderivevaluefromtheirdata.IDCestimatesthatinaggregatethesemarketswillgrowfrom$10.6billionin2016to$27.7billionin2021atacombinedcompoundannualgrowthrateof21.2%.
Beyondthesenewmarkets,ourplatformcurrentlyaddressesandisdisruptingtraditionalmarkets,includingasignificantportionoftheRelationalDatabaseManagementSystemsandNon‑RelationalDatabaseManagementSystemsmarkets.Technologieswithinthesemarketsrepresenttraditionalsystemsusedbyenterprisestomanagetheirdata.AddingtogetherIDC’sestimatesofthesenewandtraditionalmarkets,webelieveourtotaladdressableopportunityincludingtheseadditionalmarketsisexpectedtoreach$72.7billionby2021.
Our Solution
Clouderaempowersorganizationstobecomedata‑drivenenterprisesinthenewlyhyperconnectedworld.Wehavedevelopedthemodernplatformformachinelearningandanalytics,optimizedforthecloud.Buildingontheapproachofweb‑scaleconsumerinternetcompanies,wehavecollaboratedwiththeglobalopensourcecommunitytoinnovateanddeliverourcloud‑nativeplatform.Ourscale‑outdistributedarchitecturedelivershighperformanceoninexpensive,industry‑standardhardwareorcloudinfrastructure.Weallowenterprisestooperate,manageandmoveworkloadsacrossmultiplearchitectures,mixingon‑premisesandcloudenvironments,includingallmajorpubliccloudinfrastructureproviders.Webelievethatoursolutionisthemostwidelyadoptedbigdataplatform,withagrowingrangeofapplicationsbeingbuiltonit.
Wehavepioneeredthehybridopensourcesoftwaredevelopmentmodel,orHOSS.Ourmodelisbasedonactiveparticipationandleadershipintheopensourcedatamanagementecosystemandsoftwaredevelopmentprocess,andutilizationoftheverybestopensourcetechnologies.Asauthorsandparticipants,wecontributenewprojectsandenhanceexistingprojects.Wealsoidentifythebestprojectsthataregrowinginpopularityamongdevelopersandinadoptionbyenterprises.Thisinvolvementhelpsusrecognizeandchampionemergingstandards,aswedidwhenweledthemarketbyembracingSparkasacomplementtotheoriginalMapReducedataprocessingengine.
Todelivertheagilityandinnovationofopensourcesoftwaretoourcustomers,ourplatformintegrates26distinctopensourceprojects,18ofwhichwerecreatedbyourengineers.Wecombinethosecuratedopensourceprojectswithourrobustproprietarysoftwaretoformanenterprise‑gradeplatform.Weprovideafullandintegratedsuiteofdatamanagement,machinelearningandadvancedanalyticcapabilities,affordingenterprisesasingleplatformthatisagile,scalableandcosteffectivefortransformingtheirbusinesses.
Webelieveourapproachhasaprofoundimpactbothonourcustomersandontheopensourcecommunity.OurHOSSmodeldeliverssubstantiallygreatervaluetocustomersinmanaging,operatingandsecuringtheirdataand
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dataarchitectures.Inaddition,ourrobustproprietarysoftwaremeaningfullydifferentiatesoursolutionsfromthoseofourcompetitors,includingopensource“freeriders”whotakefrom,butdonotcontributeto,theopensourcecommunityatlarge.Thisdifferentiationdrivestherevenuetosustaininvestmentinfurtherinnovationintheopensourcedatamanagementecosystemtoaddressabroadeningsetofenterprisedataneeds.
Key Benefits and Differentiators
Thesearethekeybenefitsanddifferentiatorsofoursolution:
• Deployable on-premises or in the public cloud – or both. Withouragnosticapproachtoinfrastructure,enterprisesstoreandanalyzetheirdataintheenvironmentthatbestmeetstheirperformanceandefficiencygoals.Oursolutionallowsenterprisestomanagebothlong‑livedandtransientworkloadsacrossenvironments,mixingon‑premisesandpubliccloudinfrastructure,includingallmajorpubliccloudvendors–AmazonWebServices,MicrosoftAzureandGoogleCloudPlatform.Weenableenterprises’multi‑cloudstrategies,allowingthemtomoveworkloadsfromthedatacentertothepubliccloud,amongpubliccloudvendors,andbackagain.Customersmaintainandcontrolaccesstotheirdata,andtheyarebetterabletoobtainattractivetermsandavoidcloudvendorlock‑in.
• Leverages the latest open source innovation . Ourplatformintegratesthelatestinnovationsinopensourcedatamanagementtechnology.Inadditiontoourcontributionstonewprojectinnovationandexistingprojectenhancement,weareabletoleveragethemostsignificantinnovationsofthebroaderglobalcommunity.Forexample,wewerethefirstdataplatformvendortoincorporateSpark,integratingitintoourplatformin2013,enhancingbatchprocessingandenablingreal‑time,streamingandmachinelearningworkloads.ThiscurationandintegrationisacontinuouscommitmentasdemonstratedbyouradoptionofprojectssuchasSolr,Kafka,ImpalaandKudu.Asaresult,weservecustomersbetterandcapitalizeasabusinessonthelatestopensourcetechnologiestodeliverahighlyintegrated,secureandhigh‑performanceplatform.
• Enables machine learning. Ourplatformisuniquelydesignedtoenabletherapidlygrowingdatasciencecommunityandmachinelearningapplications.ThroughourintegrationofSparkandpopulardatasciencelanguageslikePythonandR,ourplatformsupportsbatch,real‑timeandadvancedanalytics.Weprovidethecapabilitiestoreliablyrunmassivelyiterativealgorithms,includingmachinelearningalgorithms,overlargevolumesofdata,tosupportadiverserangeofrelationalandnon‑relationalschemasandtoexpressanalyticworkloadsinmultipledevelopmentanddatasciencelanguages.Thesecapabilitiesallowenterprisestoidentifytrendsinhistoricaldata,torecognizeeventsincurrentorstreamingdataandtopredicteventsinthefuture,continuouslyimprovingwithexperience.
• Delivers enterprise-grade performance, features and functionality. Ourplatformmeetstheexactingrequirementsoflargeenterpriseson-premisesandinthepubliccloud,including:
– Scalability and high performance. Ourdistributedarchitectureallowsourcustomerstoeasilyandinexpensivelyincreasecapacitytomeetthespeedandthroughputdemandsofenterpriseapplications.Combiningmanysmall,inexpensivecomputersandpoolingtheirstorageandprocessingpowerinoneormore“clusters,”ourplatformcandelivertentimesorgreaterperformanceimprovementsoverlegacysystemsatlowercost.Asdatavolumesorperformancerequirementsincrease,addingmorecapacityorcomputingpowerisassimpleasaddingadditionalcomputerstothecluster.Capacityandperformanceexpandlinearlywithclustersize.Withjustoneinstallationofourplatform,acustomercanscaletohundredsofpetabytesofdataundermanagement.
– Integrated management at scale and across environments. Ourcustomerscandeploy,configureandmonitoralltheirclustersandworkloadsatscalefromacentralizedinterfaceacrossanymixofpubliccloudoron‑premisesenvironments.Weofferconfigurablemonitoringandreportingandintuitive,robusttroubleshootingtoprovidecomprehensivemanagementoflarge,growingdatasetsandconcurrentusecases.
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– Data security and governance. Ourplatformusesproprietaryauthentication,networkisolation,user‑androle‑basedpermissions,accesslogging,auditing,lineageandencryptionincludingsophisticatedkeymanagementtoprovidecomprehensive,enterprise‑gradedatasecurityacrosstheplatform.Inaddition,ourplatformenablesregulatoryandindustry‑specificcompliancethroughcomprehensivedatagovernance,includingdatadiscovery,datalineage,metadatataggingandpolicyenforcement.
– Low total cost of ownership. Ourscale‑outarchitecturedelivershighperformanceoninexpensiveindustry‑standardhardwareorcloudinfrastructure.Thisarchitectureallowsorganizationstogaininsightsandrealizevaluefromdataatmuchlowercostthantraditionaldatamanagementplatforms.Ourproprietarycloudautomation,systemsmanagementanddatamanagementcapabilitiesreducethepersonnelrequiredtooperateclustersandworkloadswhilemeetingcompliancestandards.Ourplatformallowscustomerstoselecttheinfrastructureenvironmentthatismostcost‑effectiveandappropriateforeachusecase.Additionally,thenativesecurityfeaturesofourplatformrequirenoadditionalthirdpartylicenses,furtherreducingcoststocustomers.
Our Strategy
Keyelementsofourstrategyinclude:
• Leading cloud innovation for big data. Ouroriginalarchitecturewasdesignedforthecloud.Itcomprisesinexpensiveindustrystandardhardwareandscale‑outdistributedtechnologythatdeliverselasticity,agilityandflexibility.Wehaveinnovatedsinceourinceptionusingcloudtechnologiestodevelopadvancedanalytictechniques,includingmachinelearning,security,datagovernance,lineageandcompliance.Weintendtocontinuetoleadincloudinnovationforbigdata.
• Growing our addressable market by expanding the range of applications our platform can support. Weintendtocontinuetodevelopourplatform’sarchitectureinordertosupportawiderrangeofdatatypes,accesspatternsandusecases.Forexample,wecreatedImpalatoenablehigh‑performance,self‑servebusinessintelligenceapplications.Similarly,wehaveincorporatedSparkintoourplatformtohandlestreamingandmachinelearning,supportingIoTandreal‑timedataapplications.Inaddition,wepartnerwithselectvendorstodesignsolutionsthataddresstheneedsofindustryverticalsandspecificusecases,whichwerefertoasPartnerSolutions.AsofJuly31,2017,therewereover100PartnerSolutionsapplicationsdeliveredbypartnersusingourproprietarytechnology.Thisinnovationandcollaborationgrowsouravailablemarketandallowsustosupportadditionalapplicationsandusecasestogainnewcustomersandexpandexistingcustomerrelationships.
• Extending our position as the leader in hybrid open source software. WeintendtocontinuetopioneertheHOSSmodel,innovatinginourproprietarysoftwareconcurrentlywithourworkinopensource.Webelievethatcreatingdifferentiationinbothdimensionsisasignificantcompetitiveadvantage.Wededicatesubstantialengineeringresourcestocollaboratewiththecommunityinopensourcesoftwaredevelopmentandinnovation.Weplayacentralroleinfoundingandpopularizingopensourceprojectsthatgoontobecomeindustrystandards.Clouderaengineershavefounded18opensourcedatamanagementprojects,includingmanyofthemostcommerciallysignificantonesandtheoriginalHadooptechnologies.OurHOSSmodelallowsustodelivermorevaluetoourcustomers,achievemeaningfulproductdifferentiation,andmakeitmoredifficultforcompetitorsto“freeride”onopensourceinnovation.
• Continuing to rapidly acquire new customers. Wefocusourgo‑to‑marketeffortsonlargeenterprises,primarilytheGlobal8000,aswellaslargepublicsectororganizations.Wetargettheseorganizationsbecausetheycaptureandmanagethemajorityoftheworld’sdataandoperatehighlycomplexITenvironments.Theseorganizationsarelikelytorealizethegreatestvaluefromutilizingourenterprise‑gradeplatform.AsofJuly31,2017,wehavepenetrated7%oftheGlobal8000.Benefitingfromacceleratingcloudadoption,easeofuseandproliferationof“bigdata”technologyskills,overtimewewillexpandourcustomerfocusbeyondtheGlobal8000.Weintendtocontinueoursalesandmarketinginvestmentstoacquirenewcustomers.Furthermore,wearecommittedtodeepeningourpresenceinthe29countriesinwhichwecurrentlyoperateandtoexpandingourinternationalcustomerbase.
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• Accelerating existing customer expansion. Ourgoalistoenablecustomerstoaccessallavailabledataandtoextractgreatervaluefromit.Weintendtobroadenourrelationshipswithexistingcustomersbyhelpingthemsolvemoreproblemsandprovidingbest‑in‑classsupport.Ourfieldorganization,togetherwithourpartnerecosystem,assistsourcustomersinidentifyingnewusecases,modernizingtheirdataarchitecturesandgainingmoreinsightfromtheirdata.Inaddition,ascustomers’datagrowsandmoreuserstakeadvantageofeachusecase,morecomputationalpowerandstorage(orresourceconsumptioninthecloud)isrequired,andoureconomicrelationshipwitheachcustomerexpands.Ourlargeandexperiencedsupportorganizationusesthemachinelearningcapabilitiesofourplatformtopredictproblemsbeforetheyoccurandtoproactivelyhelpourcustomersachievetheirobjectives,drivingsatisfactionandexpandedutilizationofourplatform.
• Leveraging our partner ecosystem. Over2,800resellers,systemsintegrators,independentsoftwarevendorsandplatformandcloudprovidershaveregisteredunderourClouderaConnectpartnerprogramtogainaccesstomarketing,sales,trainingandsupportresources.Inaddition,agrowing,vibrantecosystemisdevelopingaroundourplatform,andmanythird‑partydevelopershaveprimarilystandardizedonitinbuildingapplications.Thesepartnersalsoenhanceourfieldorganization’seffortsacrossindustryverticalsandgeographies.Weintendtomaintainstrongengagementwithourpartnerecosystemtogainincreasedreachandgreaterdistributionofoursoftware,developnewapplications,acceleratecustomerexpansionandpenetratenewmarkets.
• Showcasing a data‑‑driven business with our own operations. Thewayweoperateourbusinessreflectsourbeliefinthedata‑drivenenterprise.Weuseourownplatformtocapture,processandanalyzeinformationacrossourorganizationtoimproveourengineering,sales,supportandfinancefunctions.
• Cultivating a passion for solving the world’s greatest challenges through data. Asaglobalsociety,wefacetremendouschallenges.Theworld’spopulationwillgrowsignificantlyoverthenextthirtyyears.Billionsmoreofuswillneedfood,cleanwaterandcleanenergy.Climatechange,diseaseandterrorismthreatenglobalhealthandwelfare.Werelyontechnologythatissubjecttosophisticatedcyber‑attacks.Dataanalysisandmachinelearningarepowerfultoolsforsolvingalloftheseproblems,andwebelievewecanmakeasubstantialcontributiontowarddeliveringthesecapabilities.Weaimtocreateacultureandbuildpassionamongouremployees,ourpartnersandourcustomersforusingdatatosolvetheworld’sbiggestproblems.
Our Platform Editions
Weoffersubscriptionsforfiveeditionsofourplatform,rangingfromClouderaEssentialstotheindustryleadingClouderaEnterprise.Othereditionsaredesignedtoaddressthemostcommonandcriticaldatachallengesenterprisesface:ClouderaDataScienceandEngineeringforprogrammaticpreparation,predictivemodelingandmachinelearning;ClouderaOperationalDBforonline,streamingandreal‑timeapplications;andClouderaAnalyticsDBforbusinessintelligenceandSQLanalytics.
Our Technology
WehavepioneeredtheHOSSmodel,opensourcesoftwarethatiscombinedwithproprietarysoftware,forspecificapplicationsandtomeetenterprise‑graderequirements.Byintegratingrobustproprietarysoftwarewithouropensourceplatformbuiltontheleadingdatamanagement,machinelearningandadvancedanalyticstechnologiessuchasHadoopandSpark,wedeliveraunique,high‑performanceandcost‑effectiveplatformtoourcustomersformanaging,analyzingandsecuringtheirdata.
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Differentiated Open Source
Ourplatformofferingsarebasedonopensourcecomponentsdevelopedinpartnershipwiththebroaderopensourcecommunity.Ourengineersareactivelyinvolvedinthedevelopmentoftheopensourceelementsincludedinourplatformandcarefullycuratewhichopensourceprojectsareintegratedintotheplatform,ensuringinteroperabilityandoptimizingperformance.TheprecisecompositionoftheplatforminitsintegratedformisuniquetoClouderaandhighlydifferentiated.
• Integrate. Datacomesfromanincreasingvarietyofsourcesinanincreasingnumberoftypes.Ourplatformenablescustomerstocapturedigitalinformationinanyformfromanysourceandcollectithoweveritarrives–streamingcontinuouslyorinbatchesfromexternaldatabasesorothersources–andinanyformat,whetherstructuredorunstructured.Thisflexibilityprovidesorganizationswiththeabilitytodrawinsightsfromalloftheirdatairrespectiveofvolume,formorspeedatwhichitisgenerated.
• Store. Wedeliverstoragesoftwaretechnologiesthatareoptimizedforavarietyofdatatypes,accesspatternsandperformancerequirements.Thesestorageenginesprovideourcustomerswiththescalabilityandcostefficiencytomeetthedataandsizerequirementsofbothon‑premisesandcloudarchitectures.ThesestorageenginesincludeHDFS,whichprovidesvastscalability,aswellastheNoSQLstore(HBase)fordatarequiringmorefrequentupdates.Wenowalsoofferanin‑memorycolumnarrelationalstore(Kudu),technologyfoundedandcontributedtotheopensourcecommunitybyClouderaengineers,designedespeciallyforIoTandcomplexqueryworkloads.Forclarity,Clouderadoesnotprovidethe
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underlyingstorageinfrastructureforthedata.Werelyonhardwarepartnersandweintegratewiththeobjectstorageservicesofthemajorpubliccloudvendors,suchasAmazon’sSimpleStorageService(S3)andMicrosoft’sAzureDataLakeService(ADLS).
• Unified Services. Ourplatformprovidesaunifiedsetofservicesincludingresourcemanagementandsecurityforenterprisemanagement,scalabilityandfunctionality.Ourresourcemanagementcapabilitiesscheduleworkloadsandoptimizetheallocationofcomputeandmemorycapacitytomaximizeefficiencyindataanalysis,allowingcustomerstoextractvaluefasterandatlowercost.Oursecurityframework(Sentry)controlsdataaccessdowntothetable,columnorrowandisbackedbystrong,centralizedauthentication.Alldatainourplatformcanbeencrypted,andweprovideenterprise‑gradekeymanagementtoprotectinformationwithoutsacrificingfunctionalityorperformance.
• Process, analyze and serve. Ourplatformisabletoprocess,analyzeandconsistentlydeliverdataathighlevelsofperformance.Byprovidinghighperformancepernode,ourcustomerscanruntheirapplicationsathigherratesofinteractivityandoperateatlowercost.Weofferfast,flexiblebatchprocessing(theSpark,Hive,PigandMapReduceprojects)aswellasrapidquerying(Impala)andfacetedsearch(Solr).Ourplatformalsoutilizesavarietyofdatasciencelanguagesforpredictiveanalysisandmachinelearning(Spark).Moreover,weoffertheabilitytoanalyzestreamingdataandcompareitagainstreferencedatatogenerateinsightsandresponsesinrealtime.
Differentiated Proprietary Software
Inadditiontotheopensourceelementsincludedinourplatform,wedevelopproprietary,robustsystemsmanagement,datagovernance,andcloudautomationcomponentstoscale,secureandoptimizeourplatformfortheenterprise.
• Operations. Cloudera Manager allowsourcustomerstomanagealloftheirclustersandworkloadsfroma“singlepaneofglass.”Itautomatestheoperationalaspectsofourplatformincludingpatching,updating,upgrading,tuning,reconfiguring,monitoring,alertingandusagereporting.UsingCloudera Manager ,customerscaneasilysetupautomateddeploymentofclustersandconfigurationswiththeabilitytomanagemultipledevelopment,testandproductionclusters.Weprovidecompletevisibilitywithadvancedmonitoringcapabilitiesaswellasinformationonjobsandqueryperformance.Additionally,Cloudera Manager offersacustomizabledashboardwiththeabilitytocreateadvancedchartsforhistoricalmonitoringandcustomtriggersandthresholdsforeachcustomer’senvironment.Finally,withcomprehensiveautomationforrollingupgradesandbuilt‑inbackupanddisasterrecovery,Cloudera Manager requiresminimaldowntimeformaintenance.
• Cloud enablement. Cloudera Director simplifiesorganizations’abilitytotakeadvantageofpubliccloudinfrastructurefordatamanagement,machinelearningandadvancedanalyticsandenablesmixedarchitecturalenvironments.Cloudera Director automatesandabstractsclusterinteractionswithcloudinfrastructureproviders,includingAmazonWebServices,MicrosoftAzureandGoogleCloudPlatform,providingcloudautomationandorchestrationthroughanintuitiveuserinterface.UsingCloudera Director ,customerscancreatelargescaleproductionclustersinthecloudinamatterofminutes.Cloudera Director providescloudautomationfortransientworkloads(disposable,single‑purposeclusters)andforelasticworkloads(long‑livedclustersthatgroworshrinkovertime).Cloudera Director isdeeplyintegratedwithourplatformanddirectlylinkedtoCloudera Manager foraconsistentadministrativeexperience.
• Data management. OurCloudera Navigato rfamilyofcomponentsprovidesacompletedatagovernancesystemforthedatamanagedinClouderaclusters,offeringcriticalcapabilitiessuchasdatadiscovery,workloadmigrationandoptimization,audit,lineage,metadatatagginganddatapolicyautomation.Thisenablesenterprisestotrack,classifyandlocatedatatocomplywithbusinessgovernanceandcompliancerulesquicklyandeasily.
– Cloudera Navigator Audit and Lineage providesafullauditablehistoryofalldataaccesseswithaunifiedsearchableauditdashboardwhich,combinedwithintegratedbackupanddisasterrecovery,
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makescomplianceandbusinesscontinuityeasy.Itallowscustomerstofindkeydataassetswhenneededandtosatisfythedemandsofbusinesspolicyandregulatoryoversight.
– Cloudera Navigator Optimizer analyzestheSQLqueriesthatcustomersuse,whetheragainsttraditionalenterprisedatawarehousesortheirClouderainstallation.Itdeducesthestructuresandschemaofdatamanagedbythesystemandcanofferadvicetodatabaseadministratorsforoptimizingdatalayoutinordertoimprovesystemperformance.Mostimportantly,itsimplifiesthemigrationoftraditionalrelationalworkloadsfromlegacysystemstoourplatformsothatcustomerscandeterminetheoptimaltechnologytorunqueriesandstoredatatoreducecostsandimproveperformance.
– Cloudera Navigator Encrypt and Key Trustee aretwocomplementary,andessential,componentsofoursecuritycapability.Ourencryptiontechnologyallowscustomerstosetandenforcethepoliciesgoverningdataencryptioninthesystem.ItusesthenativecapabilitiesoftheIntelArchitecturesystemsthatourcustomersuse,whenavailable,toperformstrongencryptionofdataatverylowoverhead.Ourkeymanagementfunctionalitykeepstheencryptionkeysphysicallyremotefromtheencrypteddata,minimizingthechancethatasystemsbreachcouldcaptureboth.Itallowsanadministratortoeasilygrantandrevokekeyprivilegesforanyuserandtoenforcesecuritydiscipline.
Ourresearchanddevelopmentexpensesforfiscal2015,2016and2017were$66.4million,$99.3millionand$102.3million,respectively.OurresearchanddevelopmentexpensesforthesixmonthsendedJuly31,2016and2017were$51.2millionand$138.7million,respectively.
Recent Developments
Sinceourinitialpublicoffering,wehavecontinuedtoinnovateanddevelopnewtechnologiesandsolutionstoextendourmarketleadershipandenhanceourplatformformachinelearningandanalytics,optimizedforthecloud.Therearefournotableadditionstoourofferings:
• Cloudera Altus. ClouderaAltusisourplatform-as-a-service(PaaS)offering.Altusisacloudservicethatisdesignedtosimplifytheuseofourplatformbyeliminatingtheneedtoinstall,manageandupdateoursoftware.ThefirstserviceonAltusisClouderaAltusDataEngineering,aconvenient,user-drivenserviceforbuildingandmaintainingproductiondataengineeringjobsinAmazonWebServices.WithAltus,Clouderacanaddressanewsetofelasticandtransientworkloadsthatwouldotherwisebeimpracticaltoruninthedatacenter.Overtime,weexpectAltustosupporttherestofourplatformofferingsandadditionalpubliccloudproviders.
• Cloudera Data Science Workbench. ClouderaDataScienceWorkbenchenablesfast,easy,andsecureself-servicedatasciencefortheenterprise.DataScienceWorkbenchisamulti-user,multi-languagedevelopmentenvironmentfordatascienceandmachinelearningapplications.Ithelpsstreamlinethevariousstepsofthemodeldevelopmentlifecycleincludingversioning,dependencymanagement,scheduling,multi-usercollaborationandtrainingmodelsondisparatetypesofcompute.Byenablingcollaborationandsimplifyingapplicationdevelopmentfordatascientists,DataScienceWorkbenchspeedsmachinelearningworkloadsintoproductiononourplatform.
• Fast Forward Labs. OurrecentacquisitionofFastForwardLabs,Inc.enablesustoprovideourcustomerswiththeleadingappliedresearchinmachinelearningandartificialintelligence.ClouderaFastForwardLabssurveysacademicandindustrialresearchfordevelopmentsinthefield,enablingcustomerstobenefitfromthelatestadvancesinappliedmachinelearningandartificialintelligence.Throughoursoftwareandsystemsintegrationpartnersandourownservicesorganization,weareabletodeploythosetechniquesinproductionsolutions,solvingcriticalbusinesschallengesforlargeenterprises.OvertimeweexpectthesecapabilitiestodriveincreasedconsumptionofClouderaDataScienceWorkbenchandourplatform,bothon-premisesandinthepubliccloud.
• Cloudera SDX. ClouderaSDXisamodularsoftwareframeworkthatenablesourcustomerstohavea“shareddataexperience.”Byapplyingacentralized,consistentframeworkforschema,security,governance,dataingestandmore,SDXmakesitpossiblefordozensorhundredsofdifferentcustomer
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applicationstorunagainstsharedoroverlappingsetsofdata.SDXmakesmulti-disciplinarydataapplicationseasiertodevelop,lessexpensivetodeployandmoreconsistentlysecure.SDXsupportsmultiplepubliccloud,privatecloudandbaremetalconfigurations.
Customer Support, Services and Education
Wehavebuiltacompanyculturethatfocusesonconsistentlydeliveringvalueforourcustomersandensuringtheirsuccessandsatisfaction.Wedeliverexceptionalsupport,professionalservicesandtrainingtoensureourcustomersgetthemostoutofourtechnology.Weoffertechnicalassistancethroughourlargeandexperiencedglobalsupportorganization.Builtonpowerfulpredictiveanalyticsusingourowntechnology,weproactivelymonitorourcustomers’platformstopreventissuesbeforetheyarise,avoidcommonclustermisconfigurations,andsuggestoptimizationbasedonsimilarcasesatothercustomers.Ourpredictiveanalyticsallowustoproactivelyinitiateasubstantialfractionofoursupportengagementsforcustomers,beforetheyrealizethattheyhaveaproblemthemselves.
Inaddition,ourteamsofexperiencedsolutionarchitects,businessvalueconsultantsandtrainingprofessionalsaredesignedtoenhancethecustomerexperiencewithpersonalizedassistance,fromimplementationandbestpracticestoeducationandonlinetraining.Webelievethatwecanfurtheradvancethecommunity’sgoalsthrougheducation.Inadditiontoofferingonlinetraining,wehavetrainedover39,000individualsinpersonthroughJuly31,2017.ThroughtheClouderaAcademicProgram,weprovideaccesstocurriculum,softwareandtrainingtocollegesanduniversitiestoacceleratetheadoptionoftheplatform.Webelievewearetheleadingmoderndatamanagementeducator.
Customers
Wefocusonthelargest8,000corporateenterprisesglobally(Global8000)aswellaslargepublicsectororganizationsbecausetheseorganizationscaptureandmanagethevastmajorityoftheworld’sdataandoperatehighlycomplexITenvironments.Theseorganizationsarelikelytorealizethegreatestvaluefromutilizingourenterprise‑gradeplatform.Largeenterprisesarerapidlyadoptingourplatform.AsofJuly31,2017,wehadmorethan1,000customers,includingapproximately562Global8000customersinmorethan45countries,aswellasthegovernmentsof27countries.Wehavealreadyachievedsignificantpenetrationofthelargestenterprises.AsofJuly31,2017,ourcustomersincluded:
• 7ofthetop10largestbanks,
• 8ofthetop10largesttechnologycompanies,
• 9ofthetop10largesttelecommunicationcompanies,and
• 6ofthetop10largesthealthcareandlifesciencescompanies,
ineachcase,basedontheFORBESGlobal2000ranking.See“Market,IndustryandOtherData—Global8000.”
ForpurposesofdefiningtheGlobal8000,thetop2,000enterprisesintheGlobal8000arebasedontheFORBESGlobal2000rankingandtheremainderisbasedonentitieslistedinData.comashavingthehighestannualrevenue,excludingthosethatarelistedintheFORBESGlobal2000.
Forpurposesofcustomercount,aGlobal8000customerisdefinedasanentitywithauniqueFORBESGlobal2000orData.comidentifierandquarterlysubscriptionrevenueasofthemeasurementdate.WemakeexceptionsforholdingcompaniesandotherorganizationsforwhichtheFORBESGlobal2000orData.comidentifierinourjudgmentdoesnotaccuratelyrepresenttheClouderacustomer.Ourcustomercountissubjecttoadjustmentsforacquisitions,spin‑offsandothermarketactivity.Wheretheseadjustmentsoccur,previouslydisclosednumbersofcustomersarerestatedtoallowforcomparability.See“Market,IndustryandOtherData—Global8000.”
Noindividualcustomerrepresentedmorethan10%ofrevenueinfiscal2016or2017.
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Customer Case Studies
Human Capital Management
Thisleadingproviderofhumancapitalmanagementsolutionshasstrategicallyshiftedinrecentyearsfromprimarilyprocessingtransactionstoalsoprovidinginsight-basedservicesutilizingitsdata.ItslatestservicerunsonClouderaEnterpriseandanalyzesmorethanonepetabyteofinformationaboutmillionsofpeople,basedprimarilyonitsclients’humanresourcerecords.WithCloudera,thiscustomerisabletodeliveravaluableworkforceintelligenceservicetoitsclients.Thissolutionusesmachinelearningtorecognizepatternsanddetectanomaliesinclientdatatohelpidentifyemployeesatriskofturnover.Thecompanyhasrealizedthefollowingbenefitssinceimplementingourplatformin2013:
• Reducedclientemployeeturnoverandfacilitatedsalaryequalityacrossoverhalfamillionclients;
• Identificationofemployeepopulationswithhighestriskofturnover,allowingclientstofocustheirretentioneffortsonemployeesmostlikelytoterminatevoluntarily;and
• Significantgrowthamongitsclientbase,increasingitsrevenueoverall.
Mining Equipment
Thisglobalminingequipmentandservicesproviderspecializesinsolutionsfortheexcavationofenergy,industrialandotherhardrockminerals.Usingoursoftwareplatform,thecompanybuiltacloud-basedIoTanalyticsplatformthatprovidesscalability,performanceandflexibilitytosupportitsglobalserviceteams.Asinglepieceofminingequipmentcangenerate50,000uniquetime-stampedrecordseveryminute.ByanalyzingthisdatainClouderaEnterpriserunningonMicrosoftAzure,thiscustomerisabletocreateamorecompletepictureofmachinehealthandoperationsintheminesinwhichtheirequipmentoperatesandtoenableitsowncustomerstoidentifywaystoimproveequipmentperformanceandutilizationrates.Thecompanyhasreportedthefollowingbenefitsfromitsuseofourplatformsince2016:
• Doublingofequipmentutilization,throughmachinelearningandpredictivemaintenance;
• Improvedproductdesignbasedoninsightgainedfromdataanalysis;and
• Reducedinfrastructurecostsbyconsolidatingdataintoacloud-basedplatform.
National Security/Intelligence
ThisnationalsecurityorganizationusesCloudera’splatformtoidentifypotentiallysuspiciousactivityacrossthewebandsocialmediaplatforms.Theorganizationthenmakesthatinformationavailabletohundredsofothercommercialandfederalorganizations.Thescopeandenormityofthisagency’sworkcausessignificantscalabilityandperformancechallengesforitsinformationtechnology.Theorganizationusesourplatformformachinelearningandanalyticstoovercomethesechallenges.WithCloudera,thisorganizationnowoffersreal-timeinformationandwarningstoothergovernmentorganizations.TheagencyhasrealizedthefollowingbenefitsusingtheClouderaplatformacrossmultipleyears:
• Abilitytoimmediatelysharerichinformationonmajormalwareoutbreaks;
• Strengthenedprotectionagainstcyber-attacks;and
• Improveddatamanagementscalabilityandperformance.
Medical Testing
Thisleadingproviderofhealthcarediagnosticsproducesover200millionlabresultseachyear.Previously,itsdatawassiloedbyteamand/orbydatawarehouse.ClouderaEnterpriseenabledittoeasilycombinestructureddatafromitsdatawarehouseswithunstructureddatafromavarietyofothersources.WithitsdataontheClouderamachinelearningandanalyticsplatform,thecompanyhasbeenabletobegindeliveringnewdata-driveninsights,
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supportinghealthcareproviderstoimprovepatientcare.Thecompanyhasreportedthefollowingbenefitssinceimplementingourplatformin2015:
• Greateragilityindeliveringnewproducts;
• Newinsightsgainedonover60millionuniquepatientstoimprovepatientcareandsupporthealthierlifestyles;and
• DemonstratedcompliancewithHealthInsurancePortabilityandAccountabilityAct(HIPAA)requirementsfordatasecuritywithcomprehensiveauditandencryptioncapabilities.
Financial Services
Thislargefinancialinstitutionoffersafullrangeoffinancialproductsandservicestoover20millioncustomersworldwide.Itsgoalwastodeploymachinelearningandengageindataexplorationandsentimentanalysisacrossfinancialproducts,eventsandinitiatives.ImplementingCloudera’smachinelearningandanalyticsplatform,itnowingestsdatafromover100corporatesystemsandsupportsmorethanadozenusecases,includingfrauddetectionandriskmanagement.Theplatformsimplifiescommonmodeldevelopmenttaskstofacilitatethedeliveryofcomplexpredictivemodeling.Thecompanyhasrealizedthefollowingbenefitsfromitsuseofourplatformsince2014:
• Identificationofcustomeraffinitiestoprovideproductrecommendationsfor10millioncustomersinminutes;
• PredictionofcustomersthataremorelikelytoacquireMutualFundsastheirnextactionthroughsequenceanalysisoncustomerjourney;and
• Reductionindatamanagementcostsbyhalfandstoragecostsbyover95%perGB.
Sales and Marketing
Weprimarilysellthroughourdirectsalesforce,whichiscomprisedoffieldandinsidesalespersonnelandareorganizedbyenterprisesizeandgeography.
Oursalesforceissupportedbysalesengineerswithdeeptechnicalexpertiseandresponsibilityforpre‑salestechnicalsupport,solutionsengineeringforourend‑customers,andtechnicaltrainingforourchannelandstrategicpartners.
Wegeneratecustomerleads,acceleratesalesopportunities,andbuildbrandawarenessthroughourmarketingprogramsandthroughourstrategicpartnerrelationships.OurmarketingprogramstargetboththeC‑suiteandthelineofbusinessowners,technologyprofessionalsandriskprofessionals,aswellassoftwaredevelopersanddatascientists.Ourprincipalmarketingprogramsinclude:
• webinars,userconferencesandeventsthatwesponsor,suchasStrataDataConference;
• cooperativemarketingeffortswithpartners;and
• useofourwebsite.
Partners and Strategic Alliances
Webelievethatstrongengagementwithourpartnerecosystemaffordsusincreasedreachandgreaterdistributionofoursoftware,enhancingourfieldorganization’sefforts.Wehavedevelopedalargepartnernetworkinordertofacilitatetheestablishmentofindustrystandards,ensureanopenecosystemforourcustomers,acceleratetheadoptionofourplatformandextendoursalescapabilitiesandcoverage.Over2,800vendors–avarietyofsystemsintegrators,resellers,softwareandOEMpartners,datasystemsvendors,andcloudandplatformvendors–haveregisteredunderourClouderaConnectpartnerprogramtogainaccesstomarketing,sales,trainingandsupportresources.
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Ourpartnersandstrategicalliancesinclude:
• Systems integrators and resellers. Hundredsofsystemsintegratorsofferprofessionalservicestocreatecustomsolutionsbuiltonourplatformfortheircustomersacrossavarietyofindustryverticals.Resellersofferourplatformtotheircustomersincombinationwiththeirproducts.Thesechannelpartnerscreatesignificantleverageforourfieldsalesorganization,improvingnewcustomeracquisitionandexistingcustomerpenetrationthroughusecaseexpansion.
• Software and OEM partners. Ourtechnologypartnersoffersolutionsdesignedtoworkwithorbuiltonourplatform.Hundredsofcertifiedsolutionshavebeentestedandvalidatedtorunonourplatform,acceleratingadoptionofourcombinedsolutions.
• Data systems vendors. Weensurethatourplatformisinteroperablewithavarietyoftraditionaldatasystemsvendors.Theseintegrationsprovideourcustomerswithaccesstotheirdatastoredinthosesystemsforuseinourplatform.
• Platform and cloud vendors. Toensureourcustomerscanrunoursoftwareinanyenvironment,wenurturerelationshipswithpubliccloudprovidersandotherenterpriseplatformstoachievethehighestinteroperabilityacrossarchitectures.
Manythird‑partydevelopershaveprimarilystandardizedonourplatformandweworkcloselywithselectpartnerstodesignsolutionsthatspecificallyaddresstheneedsofcertainindustryverticalsorusecaseswithinthoseverticals,whichwerefertoasPartnerSolutions.AsofJuly31,2017,therewereover100PartnerSolutionsapplicationsdeliveredbypartnersusingourproprietarytechnology.Forexample,theAccentureCyberIntelligencePlatformmarriesadvancesinchipprocessortechnologywithaproprietarycombinationofartificialintelligence,machinelearningandstreaminganalyticstohelporganizationsidentifyneverbeforeseen,network‑borncybersecuritythreatsinnearreal‑time,utilizingourplatform.
Intel Strategic Partnership
Intelbelievesthatbigdataapplicationswillbeoneofthelargestdriversofdatacenterutilization,whetherinthecloud,privatecloudortraditionaldatacentersinthefuture.In2014,inconnectionwithanequityinvestmentinthecompany,weenteredintoastrategiccollaborationandoptimizationagreementwithIntel.See“CertainRelationshipsandRelated‑PartyTransactions.”ConsistentwithIntel’sdatacenterandIoTtechnologyinitiatives,theprimaryobjectiveoftheagreementistoensurethatoursolutionsdeliveroptimalperformanceandsecuritywithIntelprocessorsandplatformtechnology.IntelandClouderamaintainajointproductroadmap,andeachcompanydedicatessubstantialresourcestofulfillingthisobjective.Asaresult,ourplatformachievesdifferentiatedperformanceonIntelarchitecturetoday,andisexpectedtoachievedifferentiatedperformanceonfutureIntelplatformtechnologiesimmediatelyuponreleasetocustomers.Amongmanytangibleexamplesofjointdevelopment,IntelandClouderacollaboratedonoptimizeddataencryptionspeedthroughuseofarithmeticaccelerationbuiltintotheIntelArchitecture.IntelandClouderaalsocollaboratedtodevelopSpot(incubatingproject),anopensourcecybersecurityanalyticsplatformbuiltonopendatamodelsthatprovidesadvancedthreatdetectionusingbigdataanalyticsandmachinelearning.
Competition
Weoperateinanintenselycompetitivedatamanagement,machinelearningandanalyticsmarketthatischaracterizedbytheconstantdevelopmentofnewproductsandcontinuedinnovation,particularlyintheopensourcecommunity.Ourmainsourcesofcurrentandpotentialcompetitionfallintofourcategories:
• legacydatamanagementproductproviders;
• publiccloudproviderswhoincludeproprietarydatamanagementandanalyticsofferings;
• strategicandtechnologypartnerswhomayalsoofferourcompetitors’technologyorotherwisepartnerwiththem;and
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• opensourcecompanies,aswellasinternalITorganizationsthatprovideopensourceself‑supportfortheirenterprises.
Asthemarketfordatamanagementandanalyticsplatformscontinuestogrowandofferingsbasedontheopensourcedatamanagementecosystemcontinuetogaintraction,weexpectmorehighlyspecializedvendorswillenterthemarketorlargercompetitorswillbundlesolutionswiththeirproductsmoreeffectively.
Theprincipalcompetitivefactorsinourmarketinclude:
• abilitytodeployinavarietyofinfrastructureenvironments,includingmulti‑cloudcapability;
• abilitytoidentifyandleverageinnovativeopensourcetechnologies;
• enablementofmachinelearningandotheradvancedtechnologies;
• enterprise‑gradeperformanceandfeaturessuchasscalability,security,costofownershipandeaseofdeploymentanduseofapplications;
• breadth,depthandqualityofapplicationfunctionality;
• domainexpertiseandunderstandingofcustomerrequirementsacrossverticals;
• abilitytoinnovateandrespondtocustomerneedsrapidly;
• qualityandresponsivenessofservicesandsupportorganizationsandlevelofcustomersatisfaction;
• brandawarenessandreputation;
• sizeofcustomerbaseandlevelofuseradoption;and
• abilitytointegratewithlegacyandotherenterpriseinfrastructuresandthird‑partyapplications.
Webelievethatwecompetefavorablyonthebasisofthesefactors.Ourabilitytoremaincompetitivewilllargelydependonourongoingperformanceintheareasofcloudandintegrationofopensourceandadvancedtechnologies.
Intellectual Property
Intellectualpropertyisanimportantaspectofourbusiness,andweseekprotectionforourintellectualpropertyasappropriate.Toestablishandprotectourproprietaryrights,werelyuponacombinationofpatent,copyright,tradesecretandtrademarklawsandcontractualrestrictionssuchasconfidentialityagreements,licensesandintellectualpropertyassignmentagreements.Wemaintainapolicyrequiringouremployees,contractors,consultantsandotherthirdpartiestoenterintoconfidentialityandproprietaryrightsagreementstocontrolaccesstoourproprietaryinformation.Theselaws,proceduresandrestrictionsprovideonlylimitedprotection,andanyofourintellectualpropertyrightsmaybechallenged,invalidated,circumvented,infringedormisappropriated.Furthermore,thelawsofcertaincountriesdonotprotectproprietaryrightstothesameextentasthelawsoftheUnitedStates,andwethereforemaybeunabletoprotectourproprietarytechnologyincertainjurisdictions.Moreover,ourplatformincorporatessoftwarecomponentslicensedtothegeneralpublicunderopensourcesoftwarelicensessuchastheApache2.0SoftwareLicense.Weobtainmanycomponentsfromsoftwaredevelopedandreleasedbycontributorstoindependentopensourcecomponentsofourplatform.Opensourcelicensesgrantlicenseesbroadpermissionstouse,copy,modifyandredistributeourplatform.Asaresult,opensourcedevelopmentandlicensingpracticescanlimitthevalueofoursoftwarecopyrightassets.
AsofJuly31,2017,wehadbeengranted18U.S.patentsandhad15U.S.patentapplicationspending.Ourpatentsexpirebetween2030and2035.Wealsohad4issuedpatentsand6patentapplicationspendinginforeignjurisdictions.Wecontinuallyreviewourdevelopmenteffortstoassesstheexistenceandpatentabilityofnewintellectualproperty.Wepursuetheregistrationofourdomainnames,trademarksandservicemarksintheUnited
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StatesandincertainlocationsoutsidetheUnitedStates.Toprotectourbrand,wefiletrademarkregistrationsinsomejurisdictions.
Legal Proceedings
Fromtimetotime,weareapartytooractasanindemnitortoourcustomersorpartnersonvariouslitigationmatters,andweorourcustomersorpartnersaresubjecttoclaimsthatariseintheordinarycourseofbusiness.Inaddition,weorourcustomersorpartnershavereceived,andmayinthefuturereceive,varioustypesofclaimsincludingpotentialclaimsfromthirdpartiesasserting,amongotherthings,infringementoftheirintellectualpropertyrights.Forexample,onMay26,2017,plaintiffsUniversityofTennesseeResearchFoundationandSaintMathewResearchLLC,filedalawsuitagainstusintheU.S.DistrictCourtfortheMiddleDistrictofTennessee.Thesuitallegesthatcertainsoftwareproductsthataremade,usedorsoldbyClouderainfringeU.S.PatentNos.7,454,411and8,099,733.Theplaintiffsseekdamages,anawardofenhanceddamages,andrecoveryofattorney’sfeesandcostsincurredinthesuit.
Futurelitigationmaybenecessarytodefendourselves,orourcustomersorpartnersonindemnitymatters,bydeterminingthescope,enforceabilityandvalidityofthird‑partyproprietaryrightsortoestablishourproprietaryrights.Further,theultimateoutcomeofanylitigationisuncertainand,regardlessofoutcome,litigationcanhaveanadverseimpactonusbecauseofdefensecosts,potentialnegativepublicity,diversionofmanagementresourcesandotherfactors.Accordingly,therecanbenoassurancethatexistingorfuturelegalproceedingsarisingintheordinarycourseofbusinessorotherwisewillnothaveamaterialadverseeffectonourbusiness,consolidatedfinancialposition,resultsofoperationsorcashflows.
Facilities
Wecurrentlyleaseapproximately225,000squarefeetofspaceforourcurrentcorporateheadquartersinPaloAlto,Californiaunderaleaseagreementthatexpiresin2027withanoptiontorenewforanadditional84months.Inaddition,weenteredintoafiveyearsubleaseagreementwithathirdpartysubtenantforapproximately105,000squarefeetofthisspace.Wealsolease54,000squarefeetofspaceinPaloAlto,California,andweenteredintoafour‑yearsubleaseagreementwithathirdpartysubtenantforapproximately54,000squarefeetofthisspace.WehaveadditionalofficesinSanFrancisco,NewYorkCityandAustinintheUnitedStatesandinternationallyinBudapest,LondonandSingaporeunderleasesthatexpireatvaryingtimesbetween2018and2024.Webelievethatourcurrentfacilitiesaresufficientforourcurrentneeds.Weintendtoaddnewfacilitiesorexpandexistingfacilitiesasweaddstafforexpandourgeographicmarkets,andwebelievethatsuitableadditionalspacewillbeavailableasneededtoaccommodateanysuchexpansionofourorganization.
Employees
AsofJuly31,2017,wehad1,606full‑timeemployees.Oftheseemployees,1,140areintheUnitedStatesand466areinourinternationallocations.Noneofouremployeesisrepresentedbyalaborunionorcoveredbycollectivebargainingagreements.Wehavenotexperiencedanyworkstoppages.Weconsiderourrelationshipwithouremployeestobegood.
Cloudera Foundation
InJanuary2017,weestablishedtheClouderaFoundationasanindependentnon‑profitorganizationandissued1,175,063sharesofourcommonstocktoit.Inconjunctionwiththeinitialpublicoffering,wecontributed1%ofthenetproceedsofourinitialpublicoffering,or$2.4million,tofundtheClouderaFoundation.TheClouderaFoundationwascreatedtousethepowerofdatatoimprovethelivesofpeoplearoundtheworldbyprovidingourproducts,skillsandpeople.WebelievethattheClouderaFoundationfostersemployeemorale,strengthensourcommunitypresenceandprovidesincreasedbrandvisibility.
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MANAGEMENT
Executive Officers and Directors
ThefollowingtableprovidesinformationregardingourexecutiveofficersanddirectorsasofJuly31,2017:
Name Age Position(s)ThomasJ.Reilly 55 ChiefExecutiveOfficerandDirectorMichaelA.Olson 55 ChiefStrategyOfficerandChairmanJimFrankola 52 ChiefFinancialOfficerMartinCole(1)(2)(3) 61 DirectorKimberlyL.Hammonds(2)(3) 50 DirectorPingLi(2) 45 DirectorSteveJ.Sordello(1) 48 DirectorMichaelA.Stankey(1)(3) 58 Director___________(1) Memberoftheauditcommittee(2) Memberofthecompensationcommittee(3) Memberofthenominatingandgovernancecommittee
Executive Officers
Thomas J. Reilly hasservedasamemberofourboardofdirectorsandasourChiefExecutiveOfficersinceJune2013.PriortoCloudera,Mr.ReillyservedasVicePresidentandGeneralManagerofEnterpriseSecurityatHewlett‑PackardCompanyfromNovember2010toMay2012.FromDecember2006toMay2011,Mr.ReillyservedasChiefExecutiveOfficerofArcSight,Inc.,anenterprisesecuritycompany,whichHPacquiredin2010.PriortoArcSight,fromApril2004toOctober2006,Mr.ReillywasVicePresidentofBusinessInformationServicesforInternationalBusinessMachinesCorporation(IBM),acomputertechnologycompany,followingitsacquisitionofTrigoTechnologies,Inc.,aproductinformationcompany,whereMr.ReillyservedastheChiefExecutiveOfficer.Mr.ReillycurrentlyservesontheboardofdirectorsofJiveSoftware,Inc.,anenterprisesoftwarecompany,andontheboardsofdirectorsofseveralprivatecompanies.HepreviouslyservedontheboardsofdirectorsofArcSightfromJune2008toOctober2010andofEloqua,Inc.fromJune2012toFebruary2013.Mr.ReillyholdsaB.S.inmechanicalengineeringfromtheUniversityofCalifornia,Berkeley.Mr.ReillywasselectedtoserveasamemberofourboardofdirectorsduetotheperspectiveandexperiencehebringsasourChiefExecutiveOfficer,andduetohisextensiveexperiencemanagingtechnologycompanies,rangingfromstart‑uptolargepubliccompanies.
Michael A. Olson isourco‑founderandhasservedastheChairmanofourboardofdirectorssinceApril2009andasourChiefStrategyOfficersinceJune2013.Previously,Mr.OlsonservedasourChiefExecutiveOfficerfromAugust2008toJune2013.PriortoCloudera,fromFebruary2006toJanuary2008,Mr.OlsonwasVicePresidentofEmbeddedTechnologiesatOracleCorporation,asoftwareanddatamanagementdeveloper.Beginningin1998,Mr.OlsonservedasVicePresidentofSalesandMarketingofSleepycatSoftware,Inc.,asoftwarecompany,andlaterservedasChiefExecutiveOfficerfrom2000untilitsacquisitionbyOraclein2006.Mr.OlsonholdsaB.A.incomputerscienceandM.S.inelectricalengineeringandcomputersciencefromtheUniversityofCalifornia,Berkeley.Mr.Olsonwasselectedtoserveasamemberofourboardofdirectorsduetotheperspectiveandexperiencehebringsasourco‑founder,ChiefStrategyOfficerandourformerChiefExecutiveOfficer.
Jim Frankola hasservedasourChiefFinancialOfficersinceOctober2012.FromJune2010toSeptember2012,Mr.FrankolaservedasChiefFinancialOfficerofYodlee,Inc.adataaggregationanddataanalyticsplatformcompany.PriortoYodlee,Mr.FrankolaservedasChiefFinancialOfficerofAriba,Inc.,asoftwareandinformationtechnologyservicescompany.Mr.Frankolahasalsoheldvariousotherseniorlevelfinancialandbusinessmanagementpositionsatseveralcompanies,includingIBMandAveryDennisonCorporation.Mr.FrankolaholdsaB.S.inaccountingfromPennStateUniversityandanM.B.A.fromNewYorkUniversitySternSchoolofBusinessandisaCertifiedPublicAccountant.
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Non‑‑Employee Directors
Martin Cole hasservedasamemberofourboardofdirectorssinceSeptember2014.PriortoretiringinAugust2014,Mr.ColeheldvariousrolesatAccenture,aprofessionalservicescompany,wherehehadworkedsince1980.Mostrecently,Mr.ColeservedastheChiefExecutiveoftheTechnologyGroupfrom2012to2014,ChiefExecutiveoftheCommunications,Media&TechnologyOperatingGroupfrom2007to2012,ChiefExecutiveoftheGovernmentOperatingGroupfrom2004to2006,ManagingPartneroftheOutsourcingandInfrastructureDeliveryGroupfrom2002to2004,andPartnerintheOutsourcingandGovernmentPracticesGroupfrom1989to2002,inadditiontonumerousotherleadershippositionsduringhistenureatAccenture.Mr.ColecurrentlyservesontheboardsofdirectorsoftheWesternUnionCompanyandWesternDigitalCorporation.Mr.ColeholdsaB.A.inliberalartsfromDartmouthCollegeandanM.A.inpublicaffairsfromtheUniversityofTexasatAustin.Mr.Colewasselectedtoserveasamemberofourboardofdirectorsduetohisextensiveexperienceasaformerexecutiveofficerofamultinationalmanagementconsulting,technologyservicesandoutsourcingcompanyandhisexperienceservingontheboardsofdirectorsofpubliccompanies.
Kimberly L. Hammonds hasservedasamemberofourboardofdirectorssinceMarch2017.Ms.HammondsisaMemberoftheManagementBoardandtheGroupChiefOperatingOfficerofDeutscheBankAG,aglobalfinancialservicescompany.ShejoinedDeutscheBankasGlobalChiefInformationOfficerandGlobalCo-HeadofGroupTechnology&OperationsinNovember2013.PriortoDeutscheBank,Ms.HammondsservedastheChiefInformationOfficerofTheBoeingCompany,aglobalaerospacecompany.BeforeBoeing,Ms.HammondsheldseniormanagementpositionsatDellCorporation,atechnologycompany,andFordMotorCompany,amultinationalautomaker,inproductengineering,manufacturing,marketingandinformationtechnology.Ms.HammondsservesontheboardofdirectorsofRedHat,Inc.,asoftwarecompany.Ms.HammondshasaB.S.inmechanicalengineeringfromtheUniversityofMichiganandanM.B.A.fromWesternMichiganUniversity.Ms.Hammondswasselectedtoserveonourboardofdirectorsduetoherexperienceworkingwithinformationtechnologycompanies.
Ping Li hasservedasamemberofourboardofdirectorssinceOctober2008.Mr.LiisaPartneratAccel,aventurecapitalfirm,wherehehasworkedsince2004.PriortoAccel,Mr.LiwasaseniorProductLineManagerandDirectorofCorporateDevelopmentatJuniperNetworks,Inc.from2000to2004.Mr.LihasalsopreviouslyworkedasastrategyconsultantforMcKinsey&Company,advisingtechnologyclientsintheirgrowthstrategies,from1998to1999.Mr.Licurrentlyservesontheboardsofdirectorsofseveralprivatecompanies,andpreviouslyservedontheboardsofdirectorsofNimbleStorage,Inc.,aflashstoragesolutionscompanyandYuMe,Inc.,avideoadvertisingcompany.Mr.LiholdsaA.B.ineconomicsfromHarvardUniversityandanM.B.A.fromStanfordUniversity.Mr.Liwasselectedtoserveonourboardofdirectorsduetohisinvestmentexperienceintheinformationtechnologyanddatastorageindustriesandandhisexperienceservingontheboardsofdirectorsofpubliccompanies.
Steve J. Sordello hasservedasamemberofourboardofdirectorssinceSeptember2014.Mr.SordelloiscurrentlyChiefFinancialOfficerofLinkedinCorporation,aprofessionalsocialnetworkingplatform,wherehehasworkedsinceJuly2007.PriortoLinkedin,Mr.SordellowasChiefFinancialOfficerofTiVoCorporation,adigitalrecordingcompany,fromAugust2006toJuly2007,andservedastheChiefFinancialOfficerofAsk.com(originallyknownasAskJeeves),awebsearchengine,fromMay1999toOctober2005.Mr.SordelloalsoservesontheboardofdirectorsofAtlassianCorporationPLC,anenterprisesoftwarecompany,andasamemberoftheBoardofTrusteesatSantaClaraUniversity.Mr.SordelloholdsaB.S.inmanagementandanM.B.A.fromSantaClaraUniversity.Mr.Sordellowasselectedtoserveasamemberofourboardofdirectorsduetohisoperationalandfinancialexpertisegainedasanexecutiveatseveralcompanies.
Michael A. Stankey hasservedasamemberofourboardofdirectorssinceFebruary2017.Mr.StankeyiscurrentlytheViceChairmanofWorkday,Inc.,acloud‑basedenterprisesoftwarecompany,apositionhehasheldsinceJune2015.HepreviouslyservedasWorkday'sPresidentandChiefOperatingOfficerfromSeptember2009toJune2015.PriortoWorkday,Mr.StankeywasaPartneratGreylockPartners,aventurecapitalfirm,fromOctober2007toSeptember2009.Mr.StankeyalsoservedastheChairmanandChiefExecutiveOfficerofPolyServe,Inc.,astoragevirtualizationsoftwarecompany,fromDecember2001untilitsacquisitionbyHPinApril2007.FromApril1993toDecember2001,Mr.Stankeyheldanumberofseniormanagementpositions,includingSeniorVicePresidentofNorthAmericanSales,atPeopleSoft,Inc.,anenterprisesoftwarecompany.
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Mr.StankeycurrentlyservesontheboardofdirectorsofWorkdayandofOkta,Inc.,twopubliccompanies,andofCode42Software,Inc.,aprivatecompany.Mr.StankeyholdsaB.B.A.fromtheUniversityofWisconsin‑EauClaire.Mr.Stankeywasselectedtoserveonourboardofdirectorsduetohisexperienceintheinformationtechnologyindustryandhisexperienceservingontheboardofdirectorsofapubliccompany.
Election of Officers
Ourexecutiveofficersareelectedby,andserveatthediscretionof,ourboardofdirectors.Therearenofamilyrelationshipsamonganyofourdirectorsorexecutiveofficers.
Board Composition
Thenumberofdirectorsisfixedbyourboardofdirectors,subjecttothetermsofourrestatedcertificateofincorporationandrestatedbylaws.Ourboardofdirectorscurrentlyconsistsofninememberswithtwovacancies.Currentlyservingmembersofourboardofdirectorswillcontinuetoserveasdirectorsuntiltheirresignationsoruntiltheirsuccessorsaredulyelectedbytheholdersofourcommonstock.Pursuanttoavotingandstandstillagreement,datedMarch28,2017,wehaveagreedthatourboardofdirectorswillnominateforelectionadirectordesignatedbyIntelateachannualmeetingofthestockholdersatwhichthetermofsuchdesigneeends.See“DescriptionofCapitalStock—CommonStock—VotingRights”and“CertainRelationshipsandRelated-PartyTransactions—VotingandStandstillAgreement.”
Ourrestatedcertificateofincorporationprovidesthatourboardofdirectorsisdividedintothreeclasseswithstaggeredthree‑yearterms.Uponexpirationofthetermofaclassofdirectors,directorsforthatclasswillbeelectedforthree-yeartermsattheannualmeetingofstockholdersintheyearinwhichthattermexpires.Asaresult,onlyoneclassofdirectorswillbeelectedateachannualmeetingofourstockholders,withtheotherclassescontinuingfortheremainderoftheirrespectivethree-yearterms.Eachdirector’stermcontinuesuntiltheelectionandqualificationofhisorhersuccessor,orhisorherearlierdeath,resignation,orremoval.Ourdirectorsaredividedamongthethreeclassesasfollows:
• ClassIdirectors,whoseinitialtermexpiresattheannualmeetingofstockholderstobeheldin2018,consistsofMr.Cole,Mr.ReillyandMr.Stankey;
• ClassIIdirectors,whoseinitialtermexpiresattheannualmeetingofstockholderstobeheldin2019,consistsofMr.OlsonandMr.Li;and
• ClassIIIdirectors,whoseinitialtermexpiresattheannualmeetingofstockholderstobeheldin2020,consistsofMr.SordelloandMs.Hammonds.
Inaddition,ourrestatedcertificateofincorporationandrestatedbylawsauthorizethatonlyourboardofdirectorsmayfillvacancies,includingnewlycreatedseats,ontheboardofdirectorsuntilthenextannualmeetingofstockholders,subjecttolimitedexceptions.Anyadditionaldirectorshipsresultingfromanincreaseinthenumberofdirectorswillbedistributedamongthethreeclassessothat,asnearlyaspossible,eachclasswillconsistofone‑thirdofthetotalnumberofdirectors.
Thisclassificationoftheboardofdirectorsandtheprovisionsdescribedabovemayhavetheeffectofdelayingorpreventingchangesinourcontrolormanagement.Ourrestatedcertificateofincorporationfurtherprovidesfortheremovalofadirectoronlyforcauseandbytheaffirmativevoteoftheholdersoftwo‑thirdsormoreofthesharesthenentitledtovoteatanelectionofourdirectors.See“DescriptionofCapitalStock—DefensiveMeasures—RestatedCertificateofIncorporationandRestatedBylawProvisions.”
Board Independence
OurcommonstockislistedontheNewYorkStockExchange.Thelistingrulesofthisstockexchangegenerallyrequirethatamajorityofthemembersofalistedcompany’sboardofdirectorsbeindependentwithinspecifiedperiodsfollowingthecompletionofaninitialpublicoffering.Inaddition,thelistingrulesgenerallyrequirethat,subjecttospecifiedexceptions,eachmemberofalistedcompany’saudit,compensationandgovernancecommitteesbeindependent.
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AuditcommitteemembersmustalsosatisfytheindependencecriteriasetforthinRule10A‑3undertheSecuritiesExchangeActof1934,asamended,orExchangeAct.InordertobeconsideredindependentforpurposesofRule10A‑3,amemberofanauditcommitteeofalistedcompanymaynot,otherthaninhisorhercapacityasamemberoftheauditcommittee,theboardofdirectors,oranyotherboardcommitteeaccept,directlyorindirectly,anyconsulting,advisory,orothercompensatoryfeefromthelistedcompanyoranyofitssubsidiaries,orbeanaffiliatedpersonofthelistedcompanyoranyofitssubsidiaries.CompensationcommitteemembersmustalsosatisfytheindependencecriteriaasrequiredbyRule10C‑1undertheExchangeAct.
OurboardofdirectorshasdeterminedthatnoneofthemembersofourboardofdirectorsotherthanMessrs.ReillyandOlsonhasarelationshipthatwouldinterferewiththeexerciseofindependentjudgmentincarryingouttheresponsibilitiesofadirectorandthateachofthemembersofourboardofdirectorsotherthanMessrs.ReillyandOlsonis“independent”asthattermisdefinedundertherulesoftheNewYorkStockExchange.
Lead Director
OurboardofdirectorshasappointedMr.ColetoserveasourLeadDirector.AsLeadDirector,Mr.Colehasthefollowingrolesandresponsibilities:
• callingmeetingsofourindependentdirectorsasmaybenecessaryfromtimetotime;
• presidingexecutivesessionsofourindependentdirectors;
• advisingourChiefExecutiveOfficer,Chairmanandothermembersofseniormanagementonbusinessstrategyandleadershipdevelopment,asappropriate;
• servingasprincipalliaisonbetweenourindependentdirectorsandourChiefExecutiveOfficerandChairman;
• discussinganysignificantconclusionsorrequestsarisingfromtheindependentdirectorsessionswithourChiefExecutiveOfficerorChairman,andotherwisecommunicatingfromtimetotimewithourChiefExecutiveOfficerandChairman;
• disseminatinginformationtotherestofourboardofdirectorsasappropriate;
• beingavailable,asappropriate,forcommunicationwithstockholders;
• providingleadershiptoourboardofdirectorsifcircumstancesariseinwhichtheroleofourChiefExecutiveOfficerorChairmanmaybe,ormaybeperceivedtobe,inconflict;
• reviewingandapprovingagendasandmeetingschedulestoassurethatthereissufficienttimefordiscussionofallagendaitems,andinformationprovidedtoourboardofdirectors;and
• performingotherdutiesasmaybe,fromtimetotime,setforthinourrestatedbylawsorrequestedbyourboardofdirectorstoassistitinthefulfillmentofitsresponsibilities,byindividualdirectors,byourChiefExecutiveOfficerorbyourChairman.
OurboardleadershipstructureallowsustoleveragetheexperienceofourChiefExecutiveOfficer,expertiseandlong‑termperspectiveofourChairmanandtheindependentperspectiveofourLeadDirector.Webelievethatthisstructure,combinedwithourstrongcommitteesystem,meetsthecurrentcorporategovernanceneedsandoversightresponsibilitiesoftheboardofdirectors.
Board Committees
Ourboardofdirectorshasestablishedanauditcommittee,acompensationcommitteeandanominatingandgovernancecommittee.Thecompositionandresponsibilitiesofeachcommitteearedescribedbelow.Copiesofthechartersforeachcommitteeareavailableontheinvestorrelationsportionofourwebsite,www.cloudera.com.Membersserveonthesecommitteesuntiltheirresignationsoruntilotherwisedeterminedbytheboardofdirectors.
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Audit Committee
OurauditcommitteeiscomprisedofMr.Sordello,whoisthechairoftheauditcommittee,Mr.Cole,andMr.Stankey.ThecompositionofourauditcommitteemeetstherequirementsforindependenceunderthecurrentNewYorkStockExchangelistingstandardsandSecuritiesandExchangeCommission(SEC)rulesandregulations.Eachmemberofourauditcommitteeisfinanciallyliterate.Inaddition,ourboardofdirectorshasdeterminedthatMr.SordelloisanauditcommitteefinancialexpertwithinthemeaningofItem407(d)ofRegulationS‑KoftheSecuritiesAct.
Allauditservicestobeprovidedtousandallpermissiblenon‑auditservicestobeprovidedtousbyourindependentregisteredpublicaccountingfirmwillbeapprovedinadvancebyourauditcommittee.Ourauditcommitteerecommended,andourboardofdirectorsadopted,acharterforourauditcommittee.Ourauditcommittee,amongotherthings:
• selectsafirmtoserveastheindependentregisteredpublicaccountingfirmtoauditourfinancialstatements;
• helpstoensuretheindependenceoftheindependentregisteredpublicaccountingfirm;
• discussesthescopeandresultsoftheauditwiththeindependentregisteredpublicaccountingfirm,andreviews,withmanagementandtheindependentaccountants,ourinterimandyear‑endoperatingresults;
• developsproceduresforemployeestoanonymouslysubmitconcernsaboutquestionableaccountingorauditmatters;and
• considerstheadequacyofourinternalaccountingcontrolsandauditprocedures.
Compensation Committee
OurcompensationcommitteeiscomprisedofMr.Li,whoisthechairofthecompensationcommittee,Mr.ColeandMs.Hammonds.ThecompositionofourcompensationcommitteemeetstherequirementsforindependenceundercurrentNewYorkStockExchangelistingstandardsandSECrulesandregulations.Atleasttwomembersofthiscommitteearealsonon‑employeedirectors,asdefinedpursuanttoRule16b‑3promulgatedundertheExchangeAct,andeachmemberofthiscommitteeisanoutsidedirector,asdefinedpursuanttoSection162(m)oftheInternalRevenueCodeof1986,asamended,ortheCode.Thepurposeofourcompensationcommitteeistodischargetheresponsibilitiesofourboardofdirectorsrelatingtocompensationofourexecutiveofficers.Ourboardofdirectorsadoptedacharterforourcompensationcommittee.Ourcompensationcommittee,amongotherthings:
• reviewsanddeterminesthecompensationofourexecutiveofficersandrecommendstoourboardofdirectorsthecompensationforourdirectors;
• administersourstockandequityincentiveplans;
• reviewsandmakesrecommendationstoourboardofdirectorswithrespecttoincentivecompensationandequityplans;and
• establishesandreviewsgeneralpoliciesrelatingtocompensationandbenefitsofouremployees.
Nominating and Governance Committee
ThenominatingandgovernancecommitteeiscomprisedofMr.Cole,whoisthechairofthenominatingandgovernancecommittee,Ms.HammondsandMr.Stankey.ThecompositionofournominatinggovernancecommitteemeetstherequirementsforindependenceunderthecurrentNewYorkStockExchangelistingstandardsandSECrulesandregulations.Ourcompensationcommitteerecommended,andourboardofdirectorsadopted,acharterforournominatingandgovernancecommittee.Ournominatingandgovernancecommittee,amongotherthings:
• identifies,evaluatesandrecommendsnomineestoourboardofdirectorsandcommitteesofourboardofdirectors;
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• conductssearchesforappropriatedirectors;
• evaluatestheperformanceofourboardofdirectorsandofindividualdirectors;
• considersandmakesrecommendationstotheboardofdirectorsregardingthecompositionoftheboardanditscommittees;
• reviewsdevelopmentsincorporategovernancepractices;
• evaluatestheadequacyofourcorporategovernancepracticesandreporting;and
• makesrecommendationstoourboardofdirectorsconcerningcorporategovernancematters.
Code of Business Conduct and Ethics
Thefulltextofourcodeofbusinessconductandethicsispostedontheinvestorrelationssectionofourwebsite.Weintendtodisclosefutureamendmentstocertainprovisionsofourcodeofbusinessconductandethics,orwaiversoftheseprovisions,onourwebsiteand/orinpublicfilings.
Compensation Committee Interlocks and Insider Participation
SinceFebruary1,2016,thefollowingmembersorformermembersofourboardofdirectorshaveatonetimebeenmembersofourcompensationcommittee:Mr.Li,Mr.Cole,Ms.HammondsandformerdirectorsRichardH.WilliamsandScottDietzen.Noneofthemhasatanytimebeenoneofourofficersoremployees.Noneofourexecutiveofficersservesorinthepasthasservedasamemberoftheboardofdirectorsorcompensationcommitteeofanyentitythathasoneormoreofitsexecutiveofficersservingonourboardofdirectorsorourcompensationcommittee.
Director Compensation
Ourboardofdirectorshasadoptedacompensationprogramwithrespecttothecompensationofournon‑employeedirectorswhoarenotservingduetoanaffiliationwithourinvestors.Pursuanttothisprogram,eachboardmemberreceivesannualcashcompensationof$35,000,andtheleaddirectorreceivesannualcashcompensationof$25,000.Additionally,annualcashcompensationforcommitteemembershipisasfollows:
• auditcommitteechair:$20,000;
• auditcommitteemember:$10,000;
• compensationcommitteechair:$15,000;
• compensationcommitteemember:$7,500;
• nominatingandgovernancecommitteechair:$10,000;and
• nominatingandgovernancecommitteemember:$5,000.
Inaddition,eachnewnon‑employeedirectoriseligibletoreceive$450,000worthofrestrictedstockunits(RSUs),withone‑thirdoftheRSUsvestingonthefirstannualanniversaryofthevestingcommencementdateandtheremainingRSUsvestingquarterlyoverthesubsequenttwoyears,andeachcontinuingdirectoriseligibletoreceive$230,000worthofRSUsannually,withalloftheunitsvestingonthefirstannualanniversaryofthevestingcommencementdate.Uponachangeofcontrolofourcompany,allofunvestedequityawardsgrantedtomembersofourboardofdirectorswillimmediatelyvest.
Messrs.ReillyandOlson,ourChiefExecutiveOfficerandChiefStrategyOfficer,respectively,receivednocompensationfortheirserviceasdirectors.Mr.LiandAneelBhusri,aformerdirector,alsoreceivednocompensationfortheirservicesasdirectors.Mr.BhusriandDr.DietzenresignedfromourboardofdirectorsonDecember14,2016.
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Thefollowingtablepresentsthetotalcompensationforeachpersonwhoservedasanon‑employeememberofourboardofdirectorsduringtheyearendedJanuary31,2017.
Name
FeesEarned or
Paid in Cash RSU
Awards (1) Total
MartinCole $37,000 $241,020 $278,010ScottDietzen(2) 30,000 476,983(3) 506,983StevenJ.Sordello 50,000 241,020 291,020KimberlyS.Stevenson(4) 30,000(5) —(6) 30,000RichardH.Williams(7) 45,000 241,020 286,020___________(1) Theamountsreportedinthiscolumnrepresenttheaggregategrantdatefairvalueofequityawardsgrantedunderour2008EquityIncentivePlantoourdirectorsduringthe
yearendedJanuary31,2017ascomputedinaccordancewithFASBASCTopic718.TheassumptionsusedincalculatingthedollaramountrecognizedforfinancialstatementreportingpurposesoftheequityawardsreportedinthiscolumnaresetforthinNote10toourconsolidatedfinancialstatementsincludedinthisprospectus.Notethattheamountsreportedinthiscolumnreflecttheaccountingcostfortheseequityawardsanddonotcorrespondtotheactualeconomicvaluethatmaybereceivedbyourdirectorsfromtheequityawards.
(2) Dr.DietzenresignedfromtheboardofdirectorsonDecember14,2016.(3) Includestheincrementalfairvalueof$235,963associatedwiththeaccelerationofvestingofalloutstandingRSUawardsonDecember14,2016inconnectionwithDr.
Dietzen’sresignation.(4) Ms.StevensonresignedfromtheboardofdirectorsonFebruary3,2017.(5) FeepaidtoIntelinrespectofMs.Stevenson’sservice.(6) Ms.Stevensonwaivedherrighttoreceiveanyequitycompensationinconnectionwithherdirectorship.(7) Mr.WilliamsresignedfromtheboardofdirectorsonMarch23,2017.
Inconnectionwiththeirappointmentstoourboard,wegranted25,210RSUstoeachofMr.StankeyandMs.Hammondspursuanttoourdirectorcompensationprogram.
Ournon‑employeedirectorswhoreceivedcompensationfortheirservicesinaccordancewiththecompensationprogramdescribedaboveheldthefollowingnumberofstockoptionsandRSUsasofJanuary31,2017.
Name OutstandingRSU Awards
Shares subject toOutstanding
Options
MartinCole 16,830 —ScottDietzen — 164,644StevenJ.Sordello 16,830 —KimberlyS.Stevenson — —RichardH.Williams 11,205 174,000
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EXECUTIVE COMPENSATION
Summary Compensation Table
Thefollowingtableprovidesinformationconcerningallplanandnon‑plancompensationawardedto,earnedbyorpaidtoourChiefExecutiveOfficerandeachofourtwoothermosthighlycompensatedofficers,whomwecollectivelyrefertoas“namedexecutiveofficers,”duringtheyearsendedJanuary31,2016and2017.
Name and Principal Position FiscalYear Salary Bonus
StockAwards (1)
OptionAwards (2)
Non‑‑Equity IncentivePlan Compensation Total
ThomasJ.Reilly 2017 $341,667(4) $ — $ 4,302,000 $ — $269,167(3) $ 4,643,667Chief Executive Officer
2016
$300,000
$ —
$ 5,520,690
$ 1,421,330
$138,000(5)
$ 7,380,020
JimFrankola 2017 $337,919(6) $ — $ 2,516,670 $ — $137,594(3) $ 2,854,589Chief Financial Officer
2016
$268,750(7)
$ —
$ —
$ —
$78,000(5)
$ 346,750
MichaelA.Olson 2017 $250,000 $ — $ 2,151,000 $ — $100,938(3) $ 2,401,000
Chief Strategy Officer
2016$250,000
$ —
$ —
$ —
$72,000(5)
$ 322,000
___________(1) Theamountsreportedinthiscolumnrepresenttheaggregategrantdatefairvalueoftherestrictedstockunits(RSUs)grantedunderour2008StockIncentivePlantoour
namedexecutiveofficersinfiscal2016andfiscal2017ascomputedinaccordancewithFASBASCTopic718.TheassumptionsusedincalculatingthedollaramountrecognizedforfinancialstatementreportingpurposesoftheequityawardsreportedinthiscolumnaresetforthinNote10toourconsolidatedfinancialstatementsincludedinthisprospectus.Notethattheamountsreportedinthiscolumnreflecttheaccountingvaluefortheseequityawardsanddonotcorrespondtotheactualeconomicvaluethatmaybereceivedbyournamedexecutiveofficersfromtheequityawards.
(2) Theamountsreportedinthiscolumnrepresenttheaggregategrantdatefairvalueofthestockoptionsgrantedunderour2008StockIncentivePlantoournamedexecutiveofficersinfiscal2016ascomputedinaccordancewithFASBASCTopic718.TheassumptionsusedincalculatingthedollaramountrecognizedforfinancialstatementreportingpurposesoftheequityawardsreportedinthiscolumnaresetforthinNote10toourconsolidatedfinancialstatementsincludedinthisprospectus.Notethattheamountsreportedinthiscolumnreflecttheaccountingvaluefortheseequityawardsanddonotcorrespondtotheactualeconomicvaluethatmaybereceivedbyournamedexecutiveofficersfromtheequityawards.
(3) TheseamountsreflectbonusesearnedbyMessrs.Reilly,FrankolaandOlsonbaseduponourachievementoffinancialobjectivesandmilestones.Mr.Reillywaseligibletoearnatargetbonusof$316,667.Mr.Frankolawaseligibletoearnatargetbonusof$161,875.Mr.Olsonwaseligibletoearnatargetbonusof$118,750.
(4) Mr.Reilly’sbasesalarywasincreasedto$350,000effectiveApril1,2016.(5) TheseamountsreflectbonusesearnedbyMessrs.Reilly,FrankolaandOlsonbaseduponourachievementoffinancialobjectivesandmilestones.Mr.Reillywaseligibleto
earnatargetbonusof$150,000.Mr.Frankolawaseligibletoearnatargetbonusof$84,688.Mr.Olsonwaseligibletoearnatargetbonusof$78,125.(6) Mr.Frankola’sbasesalarywasincreasedto$350,000effectiveApril1,2016.(7) Mr.Frankola’sbasesalarywasincreasedto$275,000effectiveMay1,2015.
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2017 Outstanding Equity Awards at Year‑‑End Table
ThefollowingtableprovidesinformationregardingtheunexercisedstockoptionsandunvestedRSUsheldbyournamedexecutiveofficersasofJanuary31,2017.
Option Awards Stock Awards
GrantDate (1)
Number of SecuritiesUnderlying Unexercised
Options Exercise
Price
Expiration
Date
Number ofShares thatHave NotVested (2)
MarketValue of
Shares thatHave NotVested (3)Name Exercisable Unexercisable
ThomasJ.Reilly 6/28/2013(4) 7,335,907 — $ 3.21 6/27/2023 3/26/2015(5) — 89,000 16.24 3/25/2025 3/26/2015(6) 207,000 $ 3,405,150 3/17/2016(7) 200,000 3,290,000JimFrankola 10/9/2012(8) 526,470 — 1.72 10/8/2022 11/8/2013(9) 54,166 45,834 3.64 11/7/2023 11/8/2013(10) 29,166 70,834 3.64 11/7/2023 1/31/2015(11) — 41,000 16.02 1/30/2025 1/31/2015(12) 95,000 1,562,750 3/17/2016(13) 117,000 1,924,650MichaelA.Olson 3/30/2012(14) 165,300 — 1.68 3/29/2022 6/28/2013(15) 1,374,999 208,335 3.21 6/27/2023 1/31/2015(16) — 41,000 16.02 1/30/2025 1/31/2015(17) 95,000 1,562,750 3/17/2016(18) 100,000 1,645,000___________(1) Alloftheoutstandingequityawardsweregrantedunderour2008StockIncentivePlanandaresubjecttoaccelerationofvestingasdescribedin“—TerminationorChange
inControlArrangements”below.(2) TheoutstandingRSUsweremodifiedasofMarch2017.See“Management’sDiscussionandAnalysisofFinancialConditionsandResultsofOperations‑Significant
ImpactsofStock‑basedCompensationExpense‑RestrictedStockUnits.”(3) Themarketvalueforourcommonstockisbasedonthepublicofferingpriceofourcommonstockof$16.45pershare.(4) 1/4thoftheoptionvestedonJune18,2014and1/48thvestsmonthlythereafter.(5) 1/24thoftheoptionvestsmonthlybeginningonJune18,2017.(6) OurboardofdirectorsapprovedthisawardonMarch26,2015.TheseRSUsvestandaresettleduponthesatisfactionofbothaservice‑basedrequirementandaliquidity
eventrequirement.Thevestingcommencementdate(VCD)fortheseRSUsisJune15,2017.Theservice‑basedrequirementwillbesatisfiedwithrespectto1/8thoftheRSUsoneachquarterlyanniversaryoftheVCD.TheliquidityeventrequirementwassatisfieduponMr.Reilly’scontinuedemploymentthroughApril27,2017,theeffectivedateofourinitialpublicoffering.Onthatdate,thoseRSUsforwhichtheservice‑basedvestingrequirementhasbeensatisfiedvestedand1/8thoftheRSUswillcontinuetovestoneachquarterlyanniversarytheVCDthereafter.
(7) OurboardofdirectorsapprovedthisawardonMarch17,2016.TheseRSUsvestandaresettleduponthesatisfactionofbothaservice‑basedrequirementandaliquidityeventrequirement.TheVCDfortheseRSUsisMarch15,2017.Theservice‑basedrequirementwillbesatisfiedwithrespectto1/12thoftheRSUsoneachquarterlyanniversaryoftheVCD.TheliquidityeventrequirementwassatisfieduponMr.Reilly’scontinuedemploymentthroughApril27,2017,theeffectivedateofourinitialpublicoffering.Onthatdate,thoseRSUsforwhichtheservice‑basedvestingrequirementhasbeensatisfiedvestedand1/12thoftheRSUswillcontinuetovestoneachquarterlyanniversarytheVCDthereafter.
(8) 1/4thoftheoptionvestedatOctober1,2013andanadditional1/48thvestedmonthlythereafter.(9) 1/48thoftheoptionvestsmonthlybeginningonDecember1,2014.(10) 1/48thoftheoptionvestsmonthlybeginningonDecember1,2015.(11) 1/24thoftheoptionvestsmonthlybeginningonJanuary1,2017.(12) OurboardofdirectorsapprovedthisawardonJanuary31,2015.TheseRSUsvestandaresettleduponthesatisfactionofbothaservice‑basedrequirementandaliquidity
eventrequirement.TheVCDfortheseRSUsisDecember15,2016.Theservice‑basedrequirementwillbesatisfiedwithrespectto1/8thoftheRSUsoneachquarterlyanniversaryoftheVCD.The
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liquidityeventrequirementwassatisfieduponMr.Frankola’scontinuedemploymentthroughApril27,2017,theeffectivedateofourinitialpublicoffering.Onthatdate,thoseRSUsforwhichtheservice‑basedvestingrequirementhasbeensatisfiedvestedand1/8thoftheRSUswillcontinuetovestoneachquarterlyanniversaryoftheVCDthereafter.
(13) OurboardofdirectorsapprovedthisawardonMarch17,2016.TheseRSUsvestandaresettleduponthesatisfactionofbothaservice‑basedrequirementandaliquidityeventrequirement.TheVCDfortheseRSUsisMarch15,2016.Theservice‑basedrequirementwillbesatisfiedwithrespectto1/16thoftheRSUsoneachquarterlyanniversaryoftheVCD.TheliquidityeventrequirementwassatisfieduponMr.Frankola’scontinuedemploymentthroughApril27,2017,theeffectivedateofourinitialpublicoffering.Onthatdate,thoseRSUsforwhichtheservice‑basedvestingrequirementhasbeensatisfiedvestedand1/16thoftheRSUswillcontinuetovestoneachquarterlyanniversaryoftheVCDthereafter.
(14) 1/4thoftheoptionvestedonMarch29,2013and1/48thvestedmonthlythereafter.(15) 1/48thoftheoptionvestsmonthlybeginningonJune27,2013.(16) 1/24thoftheoptionvestsmonthlybeginningonJanuary1,2017.(17) OurboardofdirectorsapprovedthisawardonJanuary31,2015.TheseRSUsvestandaresettleduponthesatisfactionofbothaservice‑basedrequirementandaliquidity
eventrequirement.TheVCDfortheseRSUsisDecember15,2016.Theservice‑basedrequirementwillbesatisfiedwithrespectto1/8thoftheRSUsoneachquarterlyanniversaryoftheVCD.TheliquidityeventrequirementwassatisfieduponMr.Olson’scontinuedemploymentthroughApril27,2017,theeffectivedateofourinitialpublicoffering.Onthatdate,thoseRSUsforwhichtheservice‑basedrequirementhasbeensatisfiedvestedand1/8thoftheRSUswillcontinuetovestoneachquarterlyanniversarytheVCDthereafter.
(18) OurboardofdirectorsapprovedthisawardonMarch17,2016.TheseRSUsvestandaresettleduponthesatisfactionofbothaservice‑basedrequirementandaliquidityeventrequirement.TheVCDfortheseRSUsisMarch15,2017.Theservice‑basedrequirementwillbesatisfiedwithrespectto1/12thoftheRSUsoneachquarterlyanniversaryoftheVCD.TheliquidityeventrequirementwassatisfieduponMr.Olson’scontinuedemploymentthroughApril27,2017,theeffectivedateofourinitialpublicoffering.Onthatdate,thoseRSUsforwhichtheservice‑basedrequirementhasbeensatisfiedvestedand1/12thoftheRSUswillcontinuetovestoneachquarterlyanniversarytheVCDthereafter.
Employment, Severance and Change of Control Arrangements
Offer Letters and Employment Agreements
WehaveenteredintoofferletterswithMessrs.ReillyandMr.OlsonandanemploymentagreementwithMr.Frankola.Eachofthesearrangementsprovideforat‑willemploymentandgenerallyincludethenamedexecutiveofficer’sinitialbasesalary,anindicationofeligibilityforanannualcashincentiveawardopportunityandequityawards.Inaddition,eachofournamedexecutiveofficershasexecutedaformofourstandardconfidentialinformationandinventionassignmentagreement.Anypotentialpaymentsandbenefitsdueuponaterminationofemploymentorachangeincontrolofusarefurtherdescribedin“—
TerminationorChangeinControlArrangements”below.
Thomas J. Reilly
WeenteredintoanofferletterwithMr.Reilly,ourChiefExecutiveOfficer,onMay22,2013.Pursuanttotheofferletter,Mr.Reilly’sinitialbasesalarywasestablishedat$300,000peryear.Inaddition,Mr.Reillyiseligibletoreceiveanannualcashbonusofupto$150,000basedontheachievementofmutuallyagreed‑uponobjectives.OnJune28,2013,inaccordancewiththetermsofhisofferletter,Mr.Reillywasgrantedastockoptiontopurchase7,335,907sharesofourcommonstockatanexercisepriceof$3.21pershare,whichwasequaltothefairmarketvalueofourcommonstockonthedatetheoptionwasgrantedasdeterminedbyourboardofdirectors.Thisoptionvestedwithrespectto25%ofthesharessubjecttoitonJune18,2014,and1/48thofthesharessubjecttotheoptionvestedor,subjecttoMr.Reilly’scontinuedservice,willcontinuetovestratablyonthefirstdayofeachmonthlyanniversaryoverthefollowing36monthperiod.
WhileMr.Reilly’sofferletterprovidesthathisemploymentisatwillandmaybeterminatedatanytime,withorwithoutcause,hisofferletteralsoprovidesthathewouldbeentitledtoseverancebenefitsintheeventweterminatehisemploymentwithoutcause(asdefinedintheofferletter)orheresignsforgoodreason(asdefinedintheofferletter).However,onDecember13,2016,Mr.ReillyenteredintoaSeveranceandChangeinControlAgreement,whichsupersedestheseverancebenefitsMr.Reillywouldhaveotherwisebeenentitledtoreceiveunderhisofferletter.ThetermsoftheseverancebenefitsundertheSeveranceandChangeinControlAgreementwithMr.Reillyaredescribedin“—TerminationorChangeinControlArrangements”below.
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Jim Frankola
WeenteredintoanemploymentagreementwithMr.Frankola,ourChiefFinancialOfficer,onSeptember10,2012.Pursuanttotheagreement,Mr.Frankola’sinitialbasesalarywasestablishedat$250,000peryear.Inaddition,Mr.Frankolawasinitiallyeligibletoreceiveanannualcashbonusofupto$50,000basedontheachievementofcertainperformancegoals,whicharesetbytheboardofdirectorsafterconsultingwithMr.Frankola.OnOctober9,2012,inaccordancewiththetermsofhisagreement,Mr.Frankolawasgrantedastockoptiontopurchase1,026,470sharesofourcommonstockatanexercisepriceof$1.72pershare,whichwasequaltothefairmarketvalueofourcommonstockonthedatetheoptionwasgrantedasdeterminedbyourboardofdirectors.Thisoptionvestedwithrespectto25%ofthesharessubjecttoitonOctober1,2013and1/48thofthesharessubjecttotheoptionvestedonthefirstdayofeachmonthlyanniversaryratablyoverthefollowing36monthperiod.
WhileMr.Frankola’semploymentagreementprovidesthathisemploymentisatwillandmaybeterminatedatanytime,withorwithoutcause,hisemploymentagreementalsoprovidesthathewouldbeentitledtoseverancebenefitsintheeventhisemploymentisterminatedbytheCompanywithoutcause(asdefinedintheemploymentagreement)orheresignsforgoodreason(asdefinedintheemploymentagreement).However,onDecember5,2016,Mr.FrankolaenteredintoaSeveranceandChangeinControlAgreement,whichsupersedestheseverancebenefitsMr.Frankolawouldhaveotherwisebeenentitledtoreceiveunderhisemploymentagreement.ThetermsoftheseverancebenefitsundertheSeveranceandChangeinControlAgreementwithMr.Frankolaaredescribedin“—TerminationorChangeinControlArrangements”below.
Michael A. Olson
WeenteredintoanofferletterwithMr.Olson,ourco‑founder,ChairmanandChiefStrategyOfficer,inOctober2008.Pursuanttotheofferletter,Mr.OlsoninitiallyservedasourPresidentandChiefExecutiveOfficerwithaninitialbasesalarytobemutuallyagreed.OnAugust22,2008,pursuanttothetermsofhisofferletter,Mr.Olsonwasgrantedtherighttopurchase5,000,000sharesofrestrictedstockfor$0.000025pershare,whichwasequaltothefairmarketvalueofourcommonstockonthedatethesharesweregrantedasdeterminedbyourboardofdirectors.Thisrestrictedstockawardvestedwithrespectto15%ofthesharessubjecttoitonthefirstdayofeachmonthlyanniversaryratablyoverthefollowing36monthperiod.
WhileMr.Olson’sofferletterprovidesthathisemploymentisatwillandmaybeterminatedatanytime,withorwithoutcause,hisofferletteralsoprovidesthathewouldbeentitledtoseverancebenefitsintheeventhisemploymentisterminatedbytheCompanywithoutcause(asdefinedintheofferletter)orheresignsonaccountofaconstructivetermination(asdefinedintheofferletter).However,onDecember5,2016,Mr.OlsonenteredintoaSeveranceandChangeinControlAgreement,whichsupersedestheseverancebenefitsMr.Olsonwouldhaveotherwisebeenentitledtoreceiveunderhisofferletter.ThetermsoftheseverancebenefitsundertheSeveranceandChangeinControlAgreementwithMr.Olsonaredescribedin“—TerminationorChangeinControlArrangements”below.
Termination or Change in Control Arrangements
WeenteredintoSeveranceandChangeinControlAgreementswitheachofthenamedexecutiveofficersinDecember2016.Pursuanttotheseagreements,wehaveagreedtomakecertainpaymentsandprovidecertainbenefitsuponterminationofemploymentbyuswithoutcause(asdefinedintheapplicableSeveranceandChangeinControlAgreement)orbytheemployeeforgoodreason(asdefinedintheapplicableSeveranceandChangeinControlAgreement).Thesepaymentsandbenefitsdependonwhetherornotsuchterminationoccursinconnectionwithachangeincontrol(asdefinedintheapplicableSeveranceandChangeinControlAgreement)andwillbesubjecttothenamedexecutiveofficer’sexecutionandnon‑revocationofageneralreleaseofclaimsinaformprescribedbyus.
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Iftheterminationofanamedexecutiveofficeroccursduringtheperiodcommencingthreemonthspriortoandendingtwelvemonthsfollowingachangeincontrol,thenamedexecutiveofficerwillbeentitledtoreceive:
(i) alumpsumpaymentequaltothesumof:
(a) hisannualbasesalary,
(b) hisannualtargetbonus(calculatedasifallapplicablebonustargetswereachieved)and
(c) aproratedportionofhisannualtargetbonus(calculatedasifallapplicablebonustargetswereachievedandbasedonthenumberofdaysworkedduringthebonusperiod);
(ii) twelvemonthsofCOBRApremiums(orataxablepaymentinanamountequaltosuchpremiums);
(iii) acceleratedvestingof100%ofalloutstandingequityawards;and
(iv) atwelvemonthpost‑terminationexercisewindowforalloutstandingnon‑qualifiedstockoptions.
Iftheterminationofanamedexecutiveofficerdoesnotoccurduringtheperiodcommencingthreemonthspriortoandendingtwelvemonthsfollowingachangeincontrol,thenamedexecutiveofficerwillbeentitledtoreceive:
(i) alumpsumpaymentequaltothesumof:
(a) hisannualbasesalaryand
(b) aproratedportionofhisannualtargetbonus(calculatedasifallapplicablebonustargetswereachievedandbasedonthenumberofdaysworkedduringthebonusperiod);
(ii) twelvemonthsofCOBRApremiums(orataxablepaymentinanamountequaltosuchpremiums);and
(iii) atwelvemonthpost‑terminationexercisewindowforalloutstandingnon‑qualifiedstockoptions.
PursuanttotheSeveranceandChangeinControlAgreements,eachofnamedexecutiveofficershasalsoagreedtorefrainfromcompetingwithuswhileemployedwithourcompanyandtorefrainfromsolicitinganyofouremployeesorconsultantsduring,andfortheone‑yearperiodfollowing,hisemployment.
Employee Benefit Plans
2008 Equity Incentive Plan
Ourboardofdirectorsadoptedour2008EquityIncentivePlan,or2008Plan,onAugust22,2008,whichourstockholdersalsoapprovedonAugust22,2008,andwhichhasbeenamendedfromtimetotimethereafter.Our2017EquityIncentivePlan,or2017Plan,becameeffectiveonApril27,2017,theeffectivedateofourinitialpublicoffering.The2008Planterminatedconcurrentlywiththeeffectivenessofour2017Planand,asaresult,wehavenotgranted,andwillnotgrant,anyadditionalawardsunderthe2008Planfollowingthatdate.However,anyoutstandingstockoptionsorRSUsgrantedunderthe2008Planremainoutstanding,subjecttothetermsofour2008Planandapplicableawardagreements,untilsuchsharesareissuedunderthoseawards(byexerciseofstockoptionsorsettlementofRSUs)oruntiltheawardsterminateorexpirebytheirterms.
Our2008Planprovidedforthegrantofincentivestockoptions,withinthemeaningofSection422oftheInternalRevenueCodeof1986,asamended,ortheCode,toouremployeesoranyparentorsubsidiary’semployeesandforthegrantofnonstatutorystockoptionstoouremployees,directors,consultantsandanyparentorsubsidiary’semployeesandconsultants.RSUs,stockappreciationrights,stockawards,andrestrictedstockmayalsohavebeengrantedunderthe2008Plan.WegrantedonlyRSUsandstockoptionsunderour2008Plan.Theexercisepriceofstockoptionsgrantedunderour2008Planmustbeatleastequaltothefairmarketvalueofourcommonstockonthedateofgrantandthetermofthestockoptionsmaynotexceedtenyears.Withrespecttoincentivestockoptionsgrantedtoanyemployeewhoowns10%ormoreofthevotingpowerofallclassesofouroutstandingstockasofthegrantdate,thetermoftheoptionmustnotexceedfiveyearsandtheexercisepricemustequalatleast
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110%ofthefairmarketvalueofourcommonstockonthegrantdate.RSUsgrantedunderour2008Planrepresenttherighttoreceivesharesofourcommonstockorcashpaymentataspecifiedfuturedateandmaybesubjecttocontinuousserviceorperformancevestingorliquidity‑eventvestingrequirements.
Intheeventofcertaineventsthatresultinachangetoourcorporateorcapitalstructure,includingastockdividend,stocksplit,recapitalizationorothersimilarevent,withoutthereceiptofapplicableconsiderationandotherthananormalcashdividend,ourboardofdirectorsshallmakeproportionaladjustmentstothemaximumnumberandkindofsecuritiesthataresubjecttoanyoutstandingawardsunderour2008EquityIncentivePlan.
Ifweexperienceacompanytransaction(asdefinedinour2008Plan)thatisnotarelatedpartytransaction(asdefinedinour2008Plan),unlessourboardotherwisedetermineswithrespecttoaparticularawardintheagreementevidencingtheawardorinawrittenemployment,servicesorotheragreement,outstandingawardsunderour2008Plan,includinganyvestingprovisions,maybeassumedorsubstitutedbythesuccessorcompany.Thevestingofoutstandingawardsthatarenotassumedorsubstitutedwillbeacceleratedandthenwillterminateupontheclosingofthecompanytransaction.Alternatively,upontheclosingofacompanytransaction,ourboardofdirectorsmayinsteadelecttoterminateanyoutstandingoptionorstockappreciationrightinexchangeforacashpaymentequalto,foreachshareofcommonstocksubjecttosuchaward(eithertotheextentthenvestedandexercisableorwhetherornotthenvestedandexercisable),thefairmarketvalueoftheconsiderationreceivablebyholdersofcommonstockforeachsharelesstheexercisepricepershare.
AsofJuly31,2017,thereremainedoutstandingunderour2008Plan,(i)optionstopurchase22,127,917sharesofourcommonstockand(ii)RSUsthatmaybesettledfor22,841,098sharesofourcommonstock.TheoptionsoutstandingasofJuly31,2017hadaweighted-averageexercisepriceof$4.72pershare.
Gazzang 2008 Stock Purchase and Option Plan
InconnectionwithouracquisitionofGazzang,Inc.inJune2014,ourboardofdirectorsapprovedtheassumptionofunvestedstockoptionsheldbycontinuingemployeesintheacquisition.Effectiveasoftheclosingoftheacquisition,theassumedstockoptionsrepresentedstockoptionstopurchasesharesofourcommonstock.Thesestockoptionswereassumedonsubstantiallythesametermsandconditionsasappliedtosuchstockoptionsimmediatelypriortotheconsummationoftheacquisition,exceptthatthenumberofsharesofourcommonstocksubjecttoeachoptionandtheexercisepriceofeachstockoptionwereadjustedinaccordancewiththetermsofthemergeragreement.Inaddition,eachassumedstockoptionwastreatedfortaxpurposesasanonqualifiedstockoption.
UponclosingoftheacquisitionofGazzang,Inc.andafterapplicationoftheadjustmentstothenumberofsharesofcommonstocksubjecttotheassumedstockoptionsinconnectionwiththeacquisition,64,574sharesofourcommonstockweresubjecttotheassumedstockoptions.AsofJuly31,2017,optionstopurchase1,008shareshadbeenexercised,optionstopurchase10,341shareshadexpiredunexercisedandoptionstopurchase53,225sharesremainedoutstanding.Anysharessubjecttotheassumedoptionsthatarecanceled,repurchasedorforfeiteddonotagainbecomeavailableforgrantunderthe2017Plan.Sincetheclosingoftheacquisition,wehavenotgrantedandwillnotgrantanystockoptionsorotherawardsundertheGazzang,Inc.AmendedandRestated2008StockPurchaseandOptionPlan,orGazzangPlan.
Additional Provisions
Ourboardofdirectorshastheauthoritytoamend,suspendorterminatetheGazzangPlan,providedthatnoamendmentmaymateriallyoradverselyaffectawardsalreadygrantedwithoutthewrittenconsentoftheholderoftheaffectedaward.
Capitalization Adjustments
Intheeventofcertaineventsthatresultinanychangetoourcommonstock,includingastockdividend,stocksplit,recapitalizationorothersimilarevent,withoutthereceiptofapplicableconsiderationandotherthananormalcashdividend,ourboardofdirectorsshallmakeproportionaladjustmentstothemaximumnumberandkindofsecuritiesthataresubjecttoanyoutstandingawardsundertheGazzangPlan.
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Corporate Transaction
Ifweexperienceacorporatetransaction(asdefinedintheGazzangPlan),unlessotherwiseprovidedintheagreementbetweenusandtheoptionholderevidencingthetermsandconditionsoftheoptiongrant,outstandingoptionsundertheGazzangPlanmaybeassumedorsubstitutedbythesuccessorcompany.Thevestingofoutstandingawardsthatarenotassumedorsubstitutedandthatareheldbycurrentemployeesattheeffectivetimeofthecorporatetransactionwillbeacceleratedinfullandthenwillterminateupontheclosingofthetransactiontotheextentnotexercised.Thevestingofoutstandingawardsthatarenotassumedorsubstitutedandthatarenotheldbycurrentemployeesattheeffectivetimeofthechangeincontroltransactionwillnotbeacceleratedandwillterminateupontheclosingofthetransactiontotheextentnotexercised.Alternatively,upontheclosingofacorporatetransaction,ourboardofdirectorsmayinsteadelecttoterminateanyoutstandingoptioninexchangeforacashpaymentequaltotheexcess,ifany,of(A)thevalueofthepropertytheoptionholderwouldhavereceivedupontheexerciseoftheoptionover(B)theexerciseprice,ifany,payablebysuchoptionholdertoexercisetheoption.
2017 Equity Incentive Plan
Ourboardofdirectorsadoptedour2017EquityIncentivePlan,or2017Plan,inMarch2017,whichourstockholdersapprovedinMarch2017.Our2017EquityIncentivePlanbecameeffectiveonApril27,2017,theeffectivedateofourinitialpublicoffering,andservesasthesuccessortoour2008Plan.
Share Reserve
AsofJuly31,2017,therewerereserved30,000,000sharesofourcommonstockunderour2017Planplusanyreservedsharesnotissuedorsubjecttooutstandinggrantsunderthe2008Planasoftheeffectivedateofthe2017Plan.Additionally,the3,080,027shareswithheldtosatisfywithholdingtaxobligationsinconnectionwiththesettlementofRSUsconcurrentlywiththisofferingwillbeavailableforissuanceunderour2017Plan.Thenumberofsharesofcommonstockreservedforissuanceunderour2017PlanwillincreaseautomaticallyonthefirstdayofFebruaryofeachcalendaryearduringthetermoftheplanbyanumberofsharesofcommonstockequaltothelesserof(i)5%ofthetotaloutstandingsharesourcommonstockasoftheimmediatelyprecedingJanuary31stor(ii)anumberofsharesdeterminedbyourboardofdirectors.Inaddition,thefollowingsharesofourcommonstockwillbeavailableforgrantandissuanceunderour2017Plan:(i)sharessubjecttoawardsgrantedunderour2017Planthatceasetobesubjecttotheawardsforanyreasonotherthanexerciseofstockoptionsorstockappreciationrights;(ii)sharesissuedorsubjecttoawardsgrantedunderour2017Planthataresubsequentlyforfeitedorrepurchasedbyusattheoriginalissueprice;(iii)sharessubjecttoawardsgrantedunderour2017Planthatotherwiseterminatewithoutsharesbeingissued;(iv)sharessurrendered,canceled,orexchangedforcashoradifferentaward(orcombinationthereof);(v)sharessubjecttoawardsunderthe2017Planthatareusedtopaytheexercisepriceofanawardorwithheldtosatisfythetaxwithholdingobligationsrelatedtoanyaward;(vi)sharesthataresubjecttooutstandingawardsunderthe2008Planwhichceasetobesubjecttosuchawardsbyforfeitureorotherwise,(vii)sharesissuedunderthe2008Planwhichareforfeitedorrepurchasedattheiroriginalissueprice,and(viii)sharessubjecttoawardsunderthe2008Planthatareusedtopaytheexercisepriceofanoptionorwithheldtosatisfythetaxwithholdingobligationsrelatedtoanyaward.
Term
The2017Planterminatestenyearsfromthedateofitsapprovalbyourboardofdirectors,unlessearlierterminatedbyourboardofdirectors.
Eligibility
The2017Planprovidesfortheawardofstockoptions,restrictedstockawards,stockbonusawards,stockappreciationrights,RSUsandperformanceawards.Nopersonwillbeeligibletoreceivemorethan10,000,000sharesinanycalendaryearunderour2017Planotherthananewemployeeofours,whowillbeeligibletoreceivenomorethan20,000,000sharesunderour2017Planinthecalendaryearinwhichtheemployeecommencesemployment.Allawardsotherthanincentivestockoptionsmaybegrantedtoouremployees,directors,consultants,independentcontractorsandadvisors,providedtheconsultants,independentcontractorsandadvisorsrenderservices
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notinconnectionwiththeofferandsaleofsecuritiesinacapital‑raisingtransaction.Incentivestockoptionsmaybegrantedonlytoouremployees.
Administration
The2017Planisadministeredbythecompensationcommitteeofourboardofdirectors,allofthemembersofwhicharenon‑employeedirectorsunderapplicablefederalsecuritieslawsandoutsidedirectorsasdefinedunderapplicablefederaltaxlaws,orbyourboardofdirectorsactinginplaceofourcompensationcommittee.Ourcompensationcommitteehastheauthoritytoconstrueandinterpretour2017Plan,grantawardsandmakeallotherdeterminationsnecessaryoradvisableforitsadministration.Awardsunderthe2017Planmaybemadesubjectto“performancefactors”andothertermsinordertoqualifyasperformance‑basedcompensationforthepurposesofSection162(m)oftheCode.
The2017Planprovidesforthegrantingofstockoptions(bothincentivestockoptionsandnonstatutorystockoptions),restrictedstock,stockappreciationrights,RSUs,performanceawardsandstockbonuses.Abriefdescriptionofeachtypeofawardissetforthbelow.
Stock Options
Astockoptionistheright,butnottheobligation,topurchaseashareofourcommonstockatacertainpriceanduponcertainconditions.Theexercisepriceofeachstockoptionmustbeatleastequaltothefairmarketvalueofourcommonstockonthedateofgrant.Theexercisepriceofincentivestockoptionsgrantedto10%stockholdersmustbeatleastequalto110%ofthefairmarketvalueonthedateofgrant(andhaveatermthatdoesnotexceedfiveyears).Ourcompensationcommitteemayprovideforoptionstobeexercisedonlyastheyvestortobeimmediatelyexercisablewithanysharesissuedonexercisebeingsubjecttoourrightofrepurchasethatlapsesasthesharesvest.Themaximumtermofoptionsgrantedunderour2017Planistenyears.
Restricted Stock
Arestrictedstockawardisanofferbyustosellsharesofourcommonstocksubjecttorestrictions.Theprice(ifany)ofarestrictedstockawardwillbedeterminedbyourcompensationcommittee.Unlessotherwisedeterminedbyourcompensationcommitteeatthetimeofaward,vestingwillceaseonthedatetheparticipantnolongerprovidesservicestousandunvestedshareswillbeforfeitedtoorrepurchasedbyus.
Stock Appreciation Rights
Stockappreciationrightsprovideforapayment,orpayments,incashorsharesofourcommonstock,totheholderbaseduponthedifferencebetweenthefairmarketvalueofourcommonstockonthedateofexerciseandthestatedexerciseprice.Stockappreciationrightsmayvestbasedontimeorachievementofperformanceconditions.
Restricted Stock Units (RSUs)
AnRSUisanawardthatcoversanumberofsharesofourcommonstockthatmaybesettleduponvestingincash,bytheissuanceoftheunderlyingsharesoracombinationofboth.Theseawardsaresubjecttoforfeiturepriortosettlementbecauseofterminationofemploymentorfailuretoachieveperformanceconditions.
Performance Awards
Performanceawardscoveranumberofsharesofourcommonstockthatmaybesettleduponachievementofpre‑establishedperformanceconditionsincashorbyissuanceoftheunderlyingsharesorotherproperty(oranycombinationthereof).Theseawardsaresubjecttoforfeiturepriortosettlementbecauseofterminationofemploymentorfailuretoachieveperformanceconditions.
Stock Bonus Awards
Stockbonusawardsmaybegrantedasadditionalcompensationforservicesorperformance,andtherefore,maynotbeissuedinexchangeforcash.
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Additional Provisions
Awardsgrantedunderour2017Planmaynotbetransferredinanymannerotherthanbywillorbythelawsofdescentanddistribution,orasdeterminedbyourcompensationcommittee.Unlessotherwiserestrictedbyourcompensationcommittee,awardsthatarenonstatutorystockoptionsmaybeexercisedduringthelifetimeoftheoptioneeonlybytheoptionee,theoptionee’sguardianorlegalrepresentative,afamilymemberoftheoptioneewhohasacquiredtheoptionbyapermittedtransfer,oraftertheoptionee’sdeath,bythelegalrepresentativeoftheoptionee’sheirsorlegatees.Awardsthatareincentivestockoptionsmaybeexercisedduringthelifetimeoftheoptioneeonlybytheoptionee,theoptionee’sguardianorlegalrepresentative,or,aftertheoptionee’sdeath,bythelegalrepresentativeoftheoptionee’sheirsorlegatees.Stockoptionsgrantedunderour2017Plangenerallymaybeexercisedforaperiodofthreemonthsaftertheterminationoftheoptionee’sservicetous,exceptinthecaseofdeathorpermanentdisability,inwhichcasetheoptionsgenerallymaybeexercisedforuptotwelvemonthsfollowingterminationoftheoptionee’sservicetous.Awardsgrantedunderour2017Planmaybesubjecttoclawbackorrecoupmentpursuanttoanyapplicablecompensationclawbackorrecoupmentpolicyadoptedbyourboardofdirectorsorasrequiredbyapplicablelaw.
Change of Control
Ifweexperienceachangeofcontroltransaction,outstandingawards,includinganyvestingprovisions,maybeassumedorsubstitutedbythesuccessorcompany.Thevestingofoutstandingawardsthatarenotassumedorsubstitutedwillbeacceleratedunlessotherwisedeterminedbyourboardofdirectorsandthenwillexpireupontheclosingofachangeincontroltransaction.
AsofJuly31,2017,thereremainedoutstandingunderour2017Plan,(i)optionstopurchase30,300sharesofourcommonstockand(ii)RSUsthatmaybesettledfor1,356,850sharesofourcommonstock.TheoptionsoutstandingasofJuly31,2017hadaweighted-averageexercisepriceof$21.50pershare.
2017 Employee Stock Purchase Plan
Weadoptedour2017EmployeeStockPurchasePlan,or2017ESPP,inMarch2017,anditwasapprovedbyourstockholdersinMarch2017,inordertoenableeligibleemployeestopurchasesharesofourcommonstockatadiscountfollowingthedateofourinitialpublic.Purchaseswillbeaccomplishedthroughparticipationindiscreteofferingperiods.Our2017ESPPisintendedtoqualifyasanemployeestockpurchaseplanunderSection423oftheCode.
Share Reserve
Weinitiallyreserved3,000,000sharesofourcommonstockforissuanceunderour2017ESPP.Thenumberofsharesreservedforissuanceunderour2017ESPPwillincreaseautomaticallyonFebruary1stofeachofthefirst10calendaryearsfollowingthefirstofferingdatebythenumberofsharesequaltothelesserofeither1%ofthetotaloutstandingsharesofourcommonstockasoftheimmediatelyprecedingJanuary31st(roundedtothenearestwholeshare)oranumberofsharesofourcommonstockdeterminedbyourboardofdirectorsorcompensationcommittee.Theaggregatenumberofsharesissuedoverthetermofour2017ESPPwillnotexceed30,000,000sharesofourcommonstock.
Offering Periods
Thefirstofferingperiodandpurchaseperiodunderour2017ESPPbeganonApril27,2017andwillendonDecember20,2017(orsuchotherdatedeterminedbyourboardofdirectorsorourcompensationcommittee).Eachsubsequentofferingperiodwillbeforsixmonths(commencingeachJune21andDecember21)andwillconsistofonesix‑monthpurchaseperiod,unlessotherwisedeterminedbyourboardofdirectorsorourcompensationcommittee.
Eligibility and Participation
Ouremployeesgenerallyareeligibletoparticipateinour2017ESPPiftheyareemployedbyusforatleast20hoursperweekandmorethanfivemonthsinacalendaryear.Employeeswhoare5%stockholders,orwould
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become5%stockholdersasaresultoftheirparticipationinour2017ESPP,areineligibletoparticipateinour2017ESPP.Wemayimposeadditionalrestrictionsoneligibility(withinthelimitspermittedbyapplicablelaw).Onceanemployeeisenrolledinour2017ESPP,participationwillbeautomaticinsubsequentofferingperiods.Anemployee’sparticipationautomaticallyendsuponterminationofemploymentforanyreason.
Payment for Shares and Purchase Price
Underour2017ESPP,eligibleemployeesareabletoacquiresharesofourcommonstockbyaccumulatingfundsthroughpayrolldeductions.Oureligibleemployeesareabletoselectarateofpayrolldeductionbetween1%and15%oftheirbasecashcompensation.Thepurchasepriceforsharesofourcommonstockpurchasedunderour2017ESPPis85%ofthelesserofthefairmarketvalueofourcommonstockon(i)thefirsttradingdayoftheapplicableofferingperiodand(ii)thelasttradingdayofeachpurchaseperiodintheapplicableofferingperiod.
Administration and Term
Ourcompensationcommitteeadministersour2017ESPP.Thecompensationcommitteeorourboardofdirectorsalsohastherighttoamendorterminateour2017ESPPatanytime.Our2017ESPPterminatesonthetenthanniversaryofthelastdayofthefirstpurchaseperiod,unlessitisterminatedearlierbyourboardofdirectorsorallsharesofcommonstockreservedforissuanceunderour2017ESPPhavebeenissued.
Share Limitations
Noparticipanthastherighttopurchasesharesofourcommonstockinanamount,whenaggregatedwithpurchaserightsunderallouremployeestockpurchaseplansthatarealsoineffectinthesamecalendaryear(s),thathasafairmarketvalueofmorethan$25,000,determinedasofthefirstdayoftheapplicablepurchaseperiod,foreachcalendaryearinwhichthatrightisoutstanding.Inaddition,noparticipantispermittedtopurchasemorethan2,500sharesduringanyonepurchaseperiodorsuchlesseramountdeterminedbyourcompensationcommitteeorourboardofdirectors.
Change in Control
Ifweexperienceachangeincontroltransaction,eachoutstandingrighttopurchasesharesunderour2017ESPPmaybeassumedoranequivalentoptionsubstitutedbythesuccessorcorporation.Intheeventthatthesuccessorcorporationrefusestoassumeorsubstitutetheoutstandingpurchaserights,anyofferingperiodthatcommencedpriortotheclosingoftheproposedchangeincontroltransactionwillbeshortenedandterminatedonanewpurchasedate.Thenewpurchasedatewilloccuronorpriortotheclosingoftheproposedchangeincontroltransactionandour2017ESPPwillthenterminateontheclosingoftheproposedchangeincontrol.
401(k) Plan
Wemaintainaretirementplanforthebenefitofouremployees.Theplanisintendedtoqualifyasatax‑qualified401(k)plansothatcontributionstothe401(k)plan,andincomeearnedonsuchcontributions,arenottaxabletoparticipantsuntilwithdrawnordistributedfromthe401(k)plan(exceptinthecaseofcontributionsunderthe401(k)plandesignatedasRothcontributions).The401(k)planprovidesthateachparticipantmaycontributeupto100%ofhisorherpre‑taxcompensation,uptoanannualstatutorylimit.Participantswhoareatleast50yearsoldcanalsocontributeadditionalamountsbasedonstatutorylimitsfor“catch‑up”contributions.Underthe401(k)plan,eachemployeeisfullyvestedinhisorherdeferredsalarycontributions.Employeecontributionsareheldandinvestedbytheplan’strusteeasdirectedbyparticipants.Our401(k)planprovidesfordiscretionarymatchingofemployeecontributions.
Limitation of Liability and Indemnification of Directors and Officers
OurrestatedcertificateofincorporationcontainsprovisionsthatlimittheliabilityofourdirectorsformonetarydamagestothefullestextentpermittedbyDelawarelaw.Consequently,ourdirectorswillnotbepersonallyliabletousorourstockholdersformonetarydamagesforanybreachoffiduciarydutiesasdirectors,exceptliabilityforthefollowing:
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• foranybreachoftheirdutyofloyaltytousorourstockholders;
• foranyactoromissionnotingoodfaithorthatinvolvesintentionalmisconductoraknowingviolationoflaw;
• unlawfulpaymentsofdividendsorunlawfulstockrepurchasesorredemptionsasprovidedinSection174oftheDelawareGeneralCorporationLaw;or
• foranytransactionfromwhichtheyderivedanimproperpersonalbenefit.
Ourrestatedbylawsprovidethatweshallindemnify,tothefullestextentpermittedbylaw,anypersonwhoisorwasapartyoristhreatenedtobemadeapartytoanyaction,suitorproceeding,byreasonofthefactthatheorsheisorwasoneofourdirectorsorofficersorisorwasservingatourrequestasadirectororofficerofanothercorporation,partnership,jointventure,trustorotherenterprise.Ourrestatedbylawsprovidethatwemayindemnifyouremployeesoragents.Ourrestatedbylawsalsoprovidethatwemustadvanceexpensesincurredbyoronbehalfofadirectororofficerinadvanceofthefinaldispositionofanyactionorproceeding,subjecttolimitedexceptions.
Wehaveinsurancepoliciesunderwhich,subjecttothelimitationsofthepolicies,coverageisprovidedtoourdirectorsandofficersagainstlossarisingfromclaimsmadebyreasonofbreachoffiduciarydutyorotherwrongfulactsasadirectororofficer,includingclaimsrelatingtopublicsecuritiesmatters,andtouswithrespecttopaymentsthatmaybemadebyustotheseofficersanddirectorspursuanttoourindemnificationobligationsorotherwiseasamatteroflaw.
WehaveenteredintoindemnificationagreementswitheachofourdirectorsandexecutiveofficersthatmaybebroaderthanthespecificindemnificationprovisionscontainedintheDelawareGeneralCorporationLaw.Theseindemnificationagreementsrequireus,amongotherthings,toindemnifyourdirectorsandexecutiveofficersagainstliabilitiesthatmayarisebyreasonoftheirstatusorservice.Theseindemnificationagreementsalsorequireustoadvanceallexpensesincurredbythedirectorsandexecutiveofficersininvestigatingordefendinganysuchaction,suitorproceeding.Webelievethattheseagreementsarenecessarytoattractandretainqualifiedindividualstoserveasdirectorsandexecutiveofficers.
Atpresent,wearenotawareofanypendinglitigationorproceedinginvolvinganypersonwhoisorwasoneofourdirectors,officers,employeesorotheragentsorisorwasservingatourrequestasadirector,officer,employeeoragentofanothercorporation,partnership,jointventure,trustorotherenterprise,forwhichindemnificationissought,andwearenotawareofanythreatenedlitigationthatmayresultinclaimsforindemnification.
Theunderwritingagreementprovidesforindemnificationbytheunderwritersofusandourofficers,directorsandemployeesforcertainliabilitiesarisingundertheSecuritiesActof1933,asamended,ortheSecuritiesAct,orotherwise.
InsofarasindemnificationforliabilitiesarisingundertheSecuritiesActmaybepermittedtodirectors,officersorpersonscontrollingourcompanypursuanttotheforegoingprovisions,wehavebeeninformedthat,intheopinionoftheSecuritiesandExchangeCommission,suchindemnificationisagainstpublicpolicyasexpressedintheSecuritiesActandisthereforeunenforceable.
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CERTAIN RELATIONSHIPS AND RELATED‑‑PARTY TRANSACTIONS
Inadditiontothecompensationarrangements,includingemployment,terminationofemploymentandchangeofcontrolarrangementsandindemnificationarrangementsdescribedin“ExecutiveCompensation”andtheregistrationrightsdescribedin“DescriptionofCapitalStock—RegistrationRights,”thefollowingisadescriptionofeachtransactionsinceFebruary1,2014andeachcurrentlyproposedtransactioninwhich:
• wehavebeenoraretobeaparticipant;
• theamountinvolvedexceeds$120,000;and
• anyofourdirectors,executiveofficersorholdersofmorethan5%ofourcapitalstock,oranyimmediatefamilymemberoforpersonsharingthehouseholdwithanyoftheseindividuals,hadorwillhaveadirectorindirectmaterialinterest.
Series F‑‑1 Preferred Stock Financing
InMay2014,wesoldanaggregateof11,994,668sharesofourSeriesF‑1preferredstockatapurchasepriceof$30.92persharetoIntelCorporation,orIntel,foranaggregatepurchasepriceofapproximately$370.9million.Ms.Stevenson,oneofourformerdirectors,isaformerCorporateVicePresidentofIntel.Aftercompletionofthisoffering,entitiesaffiliatedwithIntelwillholdapproximately18.7%ofouroutstandingcapitalstockbasedonthenumberofsharesoutstandingasofAugust31,2017.ThepurchasepriceoftheSeriesF‑1preferredstockwasdeterminedbasedonanumberoffactors,includingthestatusofourbusinessandresultsofoperations,ourexpectationsforthefuture,discussionsbetweenthirdpartiesandmanagementwithrespecttopricesatwhichsuchthirdpartieswouldbewillingtopurchaseourSeriesF‑1preferredstockandnegotiationsbetweenourmanagement,boardofdirectorsandIntel.PriortothesaleofourSeriesF‑1preferredstock,Inteldidnotholdanyequityinterestinus,nordidanyofitsaffiliatesserveasamemberofourboardofdirectors.EachshareofourSeriesF‑1preferredstockconvertedautomaticallyintooneshareofourcommonstockuponthecompletionofourinitialpublicoffering.
InconnectionwiththeSeriesF‑1financing,weenteredintoaconfidentialityagreementwithIntel,underwhichIntelhasagreedtokeepconfidentialtheinformationprovidedtoIntelasaresultofIntel’snotice,informationandinspectionrightsasastockholderofourcompany,aswellastheinformationprovidedtoIntel’srepresentativeonourboardofdirectorsasaresultofhisorherpositionasamemberoftheboardofdirectors.Moreover,withspecifiedexceptions,IntelwillnotseektoobtainconfidentialinformationfromIntel’srepresentativeonourboardofdirectorsthattherepresentativehasreceivedinhisorhercapacityasamemberoftheboardofdirectors.
2014 Tender Offer
InApril2014,inconnectionwiththeSeriesF‑1financing,weagreedtowaivecertaintransferrestrictionsinconnectionwith,andassistintheadministrationof,atenderofferthatIntelproposedtocommence.InMay2014,Intelcommencedatenderoffertopurchasesharesofourcapitalstockfromspecifiedsecurityholders,includingAccel,GreylockPartnersandtheirrespectiveaffiliates.Abroadclassofsecurityholders,whichincludedemployees,wereeligibletoparticipateinthetenderoffer.Amongothersellers,Mr.Olson,oneofourdirectorsandexecutiveofficers,andMr.Frankola,oneofourexecutiveofficers,alsosoldsharesofcapitalstockinthetenderoffer.Anaggregateof11,994,666sharesofourcapitalstockweretenderedto,andpurchasedby,Intelpursuanttothetenderofferatapriceofapproximately$30.92pershare,aggregatingapproximately$370.9millionforatotalinvestmentbyIntelof$741.8million,includingitsinvestmentintheSeriesF‑1financing.
Investor Rights Agreement
Weenteredintoaninvestorrightsagreement,asamended,withcertainholdersofourconvertiblepreferredstock,includingentitieswithwhichcertainofourdirectorsareaffiliated,whichbecameeffectiveuponcompletionofourinitialpublicoffering.Mr.Li,oneofourdirectors,isapartneratAccel;entitiesaffiliatedwithAccelholdsharesofourcommonstock,and,priortothecompletionourourinitialpublicoffering,heldsharesofourSeriesAconvertiblepreferredstock,SeriesBconvertiblepreferredstock,SeriesCconvertiblepreferredstock,SeriesDconvertiblepreferredstockandSeriesEconvertiblepreferredstock.Mr.Bhusri,oneofourformerdirectors,isan
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advisorypartneratGreylockPartnersandamemberoftheboardofdirectorsofIntel;entitiesaffiliatedwithGreylockholdsharesofourcommonstock,and,priortothecompletionofourinitialpublicoffering,heldsharesofourSeriesBconvertiblepreferredstock,SeriesCconvertiblepreferredstock,SeriesDconvertiblepreferredstockandSeriesEconvertiblepreferredstock.Ms.Stevenson,oneofourformerdirectors,wasaCorporateVicePresidentatIntel,andentitiesaffiliatedwithIntelholdsharesofourcommonstock,and,priortothecompletionofourinitialpublicoffering,heldsharesofourSeriesAconvertiblepreferredstock,SeriesBconvertiblepreferredstock,SeriesCconvertiblepreferredstock,SeriesDconvertiblepreferredstock,SeriesEconvertiblepreferredstockandSeriesF‑1convertiblepreferredstock.Formoreinformationontheseentities,see“PrincipalandSellingStockholders.”ThesestockholdersareentitledtorightswithrespecttotheregistrationoftheirsharesundertheSecuritiesAct.Foradescriptionoftheseregistrationrights,see“DescriptionofCapitalStock—RegistrationRights.”Underthisagreement,IntelalsohasaspecialFormS‑3registrationright.AtanytimeafterweareeligibletofilearegistrationstatementonFormS‑3,IntelcanrequestthatweregisteralloraportionoftheirsharesonFormS‑3.Thisrightislimitedtooneregistrationstatementfilinginanytwelvemonthperiod.WemaypostponethefilingofaregistrationstatementforIntel’sregistrablesecuritiesonFormS‑3onetimeinatwelvemonthperiodforupto90daysifourboardofdirectorsdeterminesthatsuchafilingwouldbemateriallydetrimentaltousandourstockholders.TheseregistrationrightswillterminateupontheearliertooccuroftheclosingofadeemedliquidationeventorwhenthesharesheldbyandissuabletoIntelanditsaffiliatesmaybesoldwithoutregistrationincompliancewithRule144oftheSecuritiesAct.IntelanditsaffiliateshaveenteredintoagreementswiththeunderwritersnottomakeanydemandfororexercisetheirregistrationrightsuntilthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendedOctober31,2017.Foradescriptionoftheseagreements,see“Underwriters.”
Voting and Standstill Agreement
WeenteredintoavotingandstandstillagreementwithIntel,whichbecameeffectiveuponthecompletionofourinitialpublicoffering.Pursuanttothetermsofthisagreement,wehaveagreedthatourboardofdirectorswillnominateforelectionadirectordesignatedbyIntelateachannualmeetingofthestockholdersatwhichthetermofsuchdesigneeends.Thisrightterminatesuponspecifiedcircumstances,includingIntelanditsaffiliatesceasingtoholdatleast10%ofourfully‑dilutedshares,subjecttospecifieddeferralsandexceptions;Intelmateriallybreachingthecollaborationandoptimizationagreementdiscussedbelow;theconsummationofanacquisitionofourcompany;andtheconsummationofadirectoranindirectinvestmentbyInteloritsaffiliatesofequitysecuritiesissuedbyspecifiedcompetitors,ortheacquisitionofsuchacompetitor’sbusinessorassets(subjecttospecifiedexceptions).
ThisagreementalsoprovidesrestrictionsonIntel’sabilitytoacquireoursecuritiesandassets.Theserestrictionsinclude,butarenotlimitedto,Intel’sabilitytoacquiremorethan20%ofourfullydilutedcapitalstock,whichwerefertoastheIntelMaximumPercentage,andIntel’sabilitytoacquireanyassets,indebtednessorbusinessesofourcompany;proposeoreffectanytenderorexchangeoffersinvolvingourcompany;anyrecapitalization,restructuring,reorganization,liquidationordissolutioninvolvingourcompany;anysolicitationofproxiesorconsentstovotewithrespecttothevotingofthesecuritiesofourcompany;orotherwiseact,aloneorinconcertwithothers,toseekrepresentationonortocontrolorinfluenceourmanagement,boardofdirectorsorpolicies.However,theserestrictionsdonot:
• limittheInteldesignateddirectorinfulfillinghisorherfiduciarydutiesasadirectorinhisorhergoodfaithjudgment,
• precludeIntelfromengaginginprivatediscussionswithus,includingwithrespecttoapotentialmutuallyagreedacquisitionofClouderameetingspecifiedcriteria,or
• precludeIntelfrommakinganoffertousthatprovidesforthefullacquisitionofCloudera,whetherbymerger,tenderofferorotherwise,andengaginginatenderofferforafullacquisitionofClouderameetingspecifiedcriteria.
Intheeventthatanotherinvestor(includingitsaffiliates),otherthanapurelyfinancialinvestor,acquiresagreaterpercentageofourfully‑dilutedsharesthantheIntelMaximumPercentage,orOtherStrategicHolder,Intel’sMaximumPercentageshallincreasetothepercentageheldbysuchOtherStrategicHolder.Apurelyfinancialinvestorisaninvestorthathasacquiredoursecuritiesintheordinarycourseofbusinessandnotwiththepurpose
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norwiththeeffectofchangingorinfluencingthecontrolofourcompanyordoesnothaveanystrategicorcommercialrelationshipwithus.Inaddition,ifsuchOtherStrategicHolderisnotsubjecttostandstillterms,orissubjecttostandstilltermsmorefavorabletosuchOtherStrategicHolderthanthetermsapplicabletoIntel,theserestrictionswillbesuspendedand,ifapplicable,replacedbysuchmorefavorableterms(ornorestriction,iftheOtherStrategicHolderisnotsubjecttostandstillterms).
Further,theserestrictionswillbesuspendedifa“person”(asdefinedbySection13(d)(3)oftheExchangeAct)or“group”(asdefinedbySection13(d)(3)oftheExchangeAct):
• entersintoanagreementwithusprovidingfortheacquisitionofClouderaorthepurchaseorotheracquisitionofallorsubstantiallyallofourassets,
• entersintoanagreementwithusprovidingforthepurchaseorotheracquisitionof,includingbywayoftenderoffer,orpurchasesorotherwiseacquires,beneficialownershipofsecuritiesrepresentingamajorityofthevotingpowerofourcapitalstock,or
• fileswiththeSECaScheduleTOcoveringatenderofferprovidingforthepurchaseorotheracquisitionofbeneficialownershipofsecuritiesrepresentingamajorityofthevotingpowerofourcapitalstock;
untilsuchagreementortenderofferhaslapsed,isabandoned,terminatedorisotherwisenolongerpending.Additionally,pursuanttothisagreement,Intelhasagreedtorestrictionsonitsvotingpower.Intelalsoexecutedanirrevocablevotingproxytouswhichwaseffectiveuponthecompletionofourinitialpublicoffering.See“DescriptionofCapitalStock—CommonStock—VotingRights”foradescriptionoftheserestrictions.
Intel Enterprise Subscription Agreement
WeenteredintoanEnterpriseSubscriptionAgreement(ESA)withIntel pursuant towhichIntel becameourcustomer. UndertheESA,Intel mayuseourplatforminsupportofitsbigdatainitiativesandotherinternalneeds.TheESAtermiseffectivefromApril2014andexpiresinMay2018.Wehavereceivedapproximately$2.2million,$5.3million,$8.3millionand$5.3millionfortheyearsendedJanuary31,2015,2016and2017,andthesixmonthsendedJuly31,2017,respectively,inpaymentsfromIntelforsubscriptionsandservicesundertheESA.Weanticipatereceiving$9.0millioninfuturepaymentsfromIntelunderthetermsoftheESA.
Intel Collaboration and Optimization Agreement
InconjunctionwiththeSeriesF‑1preferredstockfinancing,weenteredintoacollaborationandoptimizationagreementwithIntel,whichwasamendedandrestatedasofMarch21,2017.ThisagreementgovernsourcollaborationwithIntelonthedevelopment,marketinganddistributionofspecifiedopensourcedatamanagementsoftware,includingtheoptimizationofsuchsoftwareforusewithIntel’sprocessorsandarchitecture.Eitherpartymayterminatetheagreementundercertaincircumstances,includingifthepartiesfailtomeetcertaincollaborationgoals.Moreover,IntelmayterminatetheagreementwithorwithoutcauseupontwelvemonthswrittennoticeatanytimeafterMarch21,2018.TheagreementautomaticallyrenewsfollowingtheexpirationoftheinitialtermonMarch21,2018foranadditionaltwelvemonthterm,andthereafterwillbeautomaticallyextendedforadditionaltwelvemonthperiods,unlesseitherpartyprovideswrittennoticeofnon‑renewalatleast180daysbeforetheexpirationoftherenewalterm.
Marketing and Miscellaneous Cooperation with Intel
Wehavereceivedapproximately$0.8millionfromInteloverthepast24monthsformiscellaneousmarketing,servicesandotheritemsrelatedtotheoperationofthestrategicpartnership.
Deutsche Bank AG
Wehavereceivedapproximately$0.7million,$3.1million,$4.8millionand$4.5millionfortheyearsendedJanuary31,2015,2016and2017,andthesixmonthsendedJuly31,2017,respectively,inpaymentsfromDeutscheBankAGforsubscriptionsandservicesintheordinarycourseofbusiness.OurboardofdirectorsincludesKimberlyL.Hammonds,MemberoftheManagementBoardandGroupChiefOperatingOfficerofDeutscheBankAG.
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Executive Compensation and Employment Arrangements
Pleasesee“ExecutiveCompensation”forinformationoncompensationarrangementswithourexecutiveofficers,includingrestrictedstockunitandoptiongrantsandagreementswithexecutiveofficers.Pleasesee“ExecutiveCompensation—TerminationorChangeinControlArrangements”forinformationonterminationarrangementswithexecutiveofficers.
Indemnification of Directors and Officers
See“ExecutiveCompensation—LimitationofLiabilityandIndemnificationofDirectorsandOfficers”forinformationonourindemnificationarrangementswithourdirectorsandexecutiveofficers.
Restricted Stock Unit (RSU) and Stock Option Grants
See“ExecutiveCompensation”forinformationoncertainRSUgrantsandstockoptiongrantstoourexecutiveofficersandrelatedgrantpolicies.
Participation in Our Initial Public Offering
CertainentitiesaffiliatedwithIntel,aholderofmorethan5%ofourcommonstock,purchased1,200,000sharesofourcommonstockinourinitialpublicofferingattheinitialpublicofferingpriceof$15.00pershare.
Review, Approval or Ratification of Transactions with Related Parties
Ourwrittenrelatedpersontransactionspolicyprovidesthatourexecutiveofficers,directors,nomineesforelectionasadirector,beneficialownersofmorethan5%ofourcommonstockandanymembersoftheimmediatefamilyofandanyentityaffiliatedwithanyoftheforegoingpersonsarenotpermittedtoenterintoamaterialrelatedpersontransactionwithuswithoutthereviewandapprovalofourauditcommitteeoracommitteecomposedsolelyofindependentdirectorsintheeventitisinappropriateforourauditcommitteetoreviewsuchtransactionduetoaconflictofinterest.Thepolicyprovidesthatanyrequestforustoenterintoatransactionwithanexecutiveofficer,director,nomineeforelectionasadirector,beneficialownerofmorethan5%ofourcommonstockorwithanyoftheirimmediatefamilymembersoraffiliates,inwhichtheamountinvolvedexceeds$120,000willbepresentedtoourauditcommitteeforreview,considerationandapproval.Inapprovingorrejectinganysuchproposal,weexpectthatourauditcommitteewillconsidertherelevantfactsandcircumstancesavailableanddeemedrelevanttotheauditcommittee,including,butnotlimitedto,whetherthetransactionisontermsnolessfavorablethantermsgenerallyavailabletoanunaffiliatedthirdpartyunderthesameorsimilarcircumstancesandtheextentoftherelatedperson’sinterestinthetransaction.
Priortotheadoptionofourrelatedpersontransactionspolicy,wehadnoformal,writtenpolicyforthereviewandapprovaloftransactionswithrelatedpersons.However,ourboardofdirectorshashistoricallyreviewedandapprovedanytransactionwhereadirectororofficerhadafinancialinterest,includingallofthetransactionsdescribedabove.Priortoapprovingsuchatransaction,thematerialfactsastoadirector’sorofficer’srelationshiporinterestastotheagreementortransactionweredisclosedtoourboardofdirectors.Ourboardofdirectorswouldtakethisinformationintoaccountwhenevaluatingthetransactionandindeterminingwhethersuchtransactionwasfairtoourcompanyandinthebestinterestofallofourstockholders.
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PRINCIPAL AND SELLING STOCKHOLDERS
ThefollowingtablepresentsinformationastothebeneficialownershipofourcommonstockasofAugust31,2017,andasadjustedtoreflectthesaleofcommonstockbyusandthesellingstockholdersinthisoffering,by:
• eachstockholderknownbyustobethebeneficialownerofmorethan5%ofourcommonstock;
• eachofourdirectors;
• eachofournamedexecutiveofficers;
• allofourdirectorsandexecutiveofficersasagroup;and
• eachsellingstockholder.
BeneficialownershipisdeterminedinaccordancewiththerulesoftheSecuritiesandExchangeCommissionandthusrepresentsvotingorinvestmentpowerwithrespecttooursecurities.Unlessotherwiseindicatedbelow,toourknowledge,thepersonsandentitiesnamedinthetablehavesolevotingandsoleinvestmentpowerwithrespecttoallsharesbeneficiallyowned,subjecttocommunitypropertylawswhereapplicable.Sharesofourcommonstocksubjecttooptionsthatarecurrentlyexercisableorexercisablewithin60daysofAugust31,2017aswellassharesofourcommonstockissuableuponthesettlementofrestrictedstockunits(RSUs)occurringwithin60daysofAugust31,2017aredeemedtobeoutstandingandtobebeneficiallyownedbythepersonholdingtheoptionsorRSUsforthepurposeofcomputingthepercentageownershipofthatpersonbutarenottreatedasoutstandingforthepurposeofcomputingthepercentageownershipofanyotherperson.
Percentageownershipofourcommonstockbeforethisofferingisbasedon131,481,143sharesofourcommonstockoutstandingonAugust31,2017andassumestheissuanceof5,038,706sharesofcommonstocksubjecttothesettlementofRSUs,thesettlementofwhichwasconcurrentwiththepricingofthisoffering,aftergivingeffecttoshareswithheldtosatisfytheassociatedwithholdingtaxobligations.Percentageownershipofourcommonstockafterthisoffering(assumingnoexerciseoftheunderwriters’optiontopurchaseadditionalshares)alsoassumestheforegoing,thesaleof3,000,000sharesbyusand10,432,114sharesbythesellingstockholdersinthisoffering,andtheissuanceof5,038,706sharesofcommonstocksubjecttothesettlementofRSUs,thesettlementofwhichwasconcurrentwiththepricingofthisoffering,aftergivingeffecttothecancellationandforfeitureof3,080,027shareswithheldtosatisfytheassociatedwithholdingtaxobligations.Unlessotherwiseindicated,theaddressofeachoftheindividualsandentitiesnamedbelowisc/oCloudera,395PageMillRoad,PaloAlto,California94306.
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Name of Beneficial Owner
Number of SharesBeneficially OwnedBefore the Offering
Percent of SharesBeneficially OwnedBefore the Offering
Number of SharesOffered
Number of SharesBeneficially OwnedAfter the Offering
Percent of SharesBeneficially OwnedAfter the Offering
Named Executive Officers and Directors:
ThomasJ.Reilly(1) 7,403,405 5.1% — 7,403,405 5.0%
JimFrankola(2) 1,171,034 * — 1,171,034 *
MichaelA.Olson(3) 5,166,112 3.7% 587,288 4,578,824 3.2%
MartinCole(4) 35,352 * — 35,352 *
KimberlyHammonds(5) — * — — *
PingLi(6) 18,409,144 13.5% 5,297,866 13,111,278 9.4%
StevenJ.Sordello(7) 35,352 * — 35,352 *
MichaelA.Stankey(8) — * — — *Allexecutiveofficersanddirectorsasagroup(8persons)(9) 32,220,399 22.0% 5,885,154 26,335,245 17.7%
5% Stockholders:
IntelCorporation(10) 26,065,827 19.1% — 26,065,827 18.7%
EntitiesaffiliatedwithAccel(6) 18,409,144 13.5% 5,297,866 13,111,278 9.4%
EntitiesaffiliatedwithGreylockPartners(11) 14,199,711 10.4% 2,979,441 11,220,270 8.0%
Other Selling Stockholders:
DouglassCutting(12) 1,601,653 1.2% 31,535 1,570,118 1.1%
Employeeshiredin2008(13) 481,279 * 33,252 448,027 *
Employeeshiredin2009(13) 1,209,346 * 65,931 1,143,415 *
Employeeshiredin2010(13) 1,124,193 * 96,645 1,027,548 *
Employeeshiredin2011(13) 923,475 * 80,007 843,468 *
Employeeshiredin2012(13) 1,090,309 * 131,120 959,189 *EmployeeshiredfromJanuary1,2013toJune30,2013(13) 663,218 * 104,324 558,894 *
EmployeeshiredfromJuly1,2013toDecember31,2013(13) 1,036,836 * 112,765 924,071 *
Employeeshiredin2014(13) 597,882 * 188,811 409,071 *
Employeeshiredin2015(13) 1,071,309 * 553,476 517,833 *
Employeeshiredin2016(13) 241,060 * 169,653 71,407 *___________* Representsbeneficialownershipoflessthan1%ofouroutstandingsharesofcommonstock.(1) Consistsof(a)7,350,740sharessubjecttooptionsthatareexercisablewithin60daysofAugust31,2017and(b)52,665sharessubjecttothesettlementofrestrictedstock
units(RSUs),thesettlementofwhichwasconcurrentwiththepricingofthisoffering,aftergivingeffecttoshareswithheldtosatisfytheassociatedwithholdingtaxobligations.
(2) Consistsof(a)552,000shares,(b)562,677sharessubjecttostockoptionsthatareexercisablewithin60daysofAugust31,2017,and(c)56,357sharessubjecttothesettlementofRSUs,thesettlementofwhichwasconcurrentwiththepricingofthisoffering,aftergivingeffecttoshareswithheldtosatisfytheassociatedwithholdingtaxobligations.
(3) Consistsof(a)9,700sharesheldbyMr.Olson,(b)3,350,820sharesheldbytheMichaelandTeresaOlsonRevocableTrustdatedMay24,2001,ofwhichMr.Olsonistrustee,(c)1,764,009sharessubjecttostockoptionsthatareexercisablewithin60daysofAugust31,2017and(d)41,583subjecttothesettlementofRSUs,thesettlementofwhichwasconcurrentwiththepricingofthisoffering,aftergivingeffecttoshareswithheldtosatisfytheassociatedwithholdingtaxobligations.
(4) Consistsof(a)33,477sharesand(b)1,875RSUswhicharesubjecttovestingconditionsexpectedtooccurwithin60daysofAugust31,2017.(5) KimberlyHammondsjoinedourboardofdirectorsinMarch2017.(6) Consistsof(a)3,018,220sharesheldbyAccelGrowthFundIIL.P.,orAGFII,(b)218,537sharesheldbyAccelGrowthFundIIStrategicPartnersL.P.,orAGFII
Strategic,(c)293,736sharesheldbyAccelGrowthFundInvestors2012L.L.C.,orAGFI,(d)1,316,887sharesheldbyAccelInvestors2008L.L.C.,orAI2008,(e)1,382sharesheldbyAccelInvestors2013L.L.C.,orAI2013,(f)12,592,182sharesheldbyAccelXL.P.,orAccelX,(g)954,215sharesheldbyAccelXStrategicPartnersL.P.,orAccelXStrategic,(h)978sharesheldbyAccelXIStrategicPartnersL.P.,orAccelXIStrategicand(i)13,007sharesheldbyAccelXI,L.P.,orAccelXI.AccelGrowthFundIIAssociatesL.L.C.,orAGFIIAssociates,isthegeneralpartnerofAGFIIandAGFIIStrategicandhasthesolevotingandinvestmentpower.AndrewG.Braccia,
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SameerK.Gandhi,PingLi,TracyL.Sedlock,RyanJ.SweeneyandRichardP.WongaretheManagingMembersofAGFIIAssociatesandAGFIandsharevotingandinvestmentpowersoversuchshares.AccelXAssociatesL.L.C.,orAccelXAssociates,isthegeneralpartnerofAccelXandAccelXStrategicandhasthesolevotingandinvestmentpower.AndrewG.Braccia,KevinJ.Efrusy,SameerK.Gandhi,PingLi,TracyL.SedlockandRichardP.WongaretheManagingMembersofAccelXAssociatesandAI2008andsharevotingandinvestmentpowersoversuchshares.AccelXIAssociatesL.L.C.,orAccelXIAssociates,istheGeneralPartnerofAccelXIandAccelXIStrategicandhasthesolevotingandinvestmentpower.AndrewG.Braccia,SameerK.Gandhi,PingLi,TracyL.SedlockandRichardP.WongaretheManagingMembersofAccelXIAssociatesandAI2013andsharevotingandinvestmentpowersoversuchshares.Iftheoptiontopurchaseadditionalsharesisexercisedbytheunderwritersinfull,anadditional1,230,996sharesofcommonstockwillbesoldbyentitiesaffiliatedwithAccel,afterwhichentitiesaffiliatedwithAccelwillbeneficiallyown11,880,282sharesofcommonstock,whichrepresents8.5%ofthetotalvotingpowerafterthisoffering.TheprincipalbusinessaddressforallentitiesandindividualsaffiliatedwithAccelis428UniversityAvenue,PaloAlto,California94301.
(7) Consistsof(a)33,477sharesand(b)1,875RSUswhicharesubjecttovestingconditionsexpectedtooccurwithin60daysofAugust31,2017.(8) MichaelA.StankeyjoinedourboardofdirectorsinFebruary2017.(9) Consistsof(a)22,388,618shares,(b)9,677,426sharessubjecttostockoptionsthatareexercisablewithin60daysofAugust31,2017,(c)3,750RSUswhicharesubjectto
vestingconditionsexpectedtooccurwithin60daysofAugust31,2017,and(d)142,369sharessubjecttothesettlementofRSUs,thesettlementofwhichwasconcurrentwiththepricingofthisoffering,aftergivingeffecttoshareswithheldtosatisfytheassociatedwithholdingtaxobligations,eachofwhichareheldbyourdirectorsandofficersasagroup.
(10) Consistsof26,065,827sharesheldbyIntel.TheprincipalbusinessaddressforIntelis2200MissionCollegeBlvd.,SantaClara,California95054.(11) Consistsof(a)12,140,760sharesheldbyGreylockXIILimitedPartnership,orGreylockXII,(b)709,983sharesheldbyGreylockXIIPrincipalsLLC,GreylockXIILLC
and(c)1,348,968sharesheldbyGreylockXII‑ALimitedPartnership,orGreylockXII‑A.GreylockXIIGPLLC,orGreylockGP,servesasthegeneralpartnerofGreylockXIIandGreylockXII‑A.WilliamW.HelmanandAneelBhusriaretheseniormanagingmembersofGreylockGPandassuch,eachofthemmaybedeemedtosharevotingpowerandinvestmentcontroloverthesharesheldofrecordbyGreylockXIIandGreylockXII‑A.ThesharesregisteredinthenameofGreylockXIILLCareheldinnomineeformonlyandasaresult,GreylockXIILLCdoesnothavevotingpowerorinvestmentcontroloversuchshares.EachofthebeneficiariesforwhichGreylockXIILLCactsasnomineeretainssolevotingpowerandinvestmentcontrolwithrespecttothesharesheldontheirbehalf.Assuch,GreylockXIIPLLCdisclaimsbeneficialownershipwithrespecttoallsuchshares.Iftheoptiontopurchaseadditionalsharesisexercisedbytheunderwritersinfull,anadditional783,820sharesofcommonstockwillbesoldbyentitiesaffiliatedwithGreylock,afterwhichentitiesaffiliatedwithGreylockwillbeneficiallyown10,436,450sharesofcommonstock,whichrepresents7.5%ofthetotalvotingpowerafterthisoffering.TheprincipalbusinessaddressforallentitiesandindividualsaffiliatedwithGreylockPartnersis2550SandHillRoad,MenloPark,California94025.
(12)Consistsof(a)804,621shares,(b)765,497sharessubjecttooptionsthatareexercisablewithin60daysofAugust31,2017and(c)31,535sharessubjecttothesettlementRSUs,thesettlementofwhichwasconcurrentwiththepricingofthisoffering,aftergivingeffecttoshareswithheldtosatisfytheassociatedwithholdingtaxobligations.
(13) Consistsofsellingstockholdersnototherwiselistedinthistablewhomwithinthegroupsindicatedcollectivelyownlessthan1%ofourcommonstock.Theamountsdonotincludeadditionalequityawardsforcommonstockthatarenotexercisable,orforwhichanyserviceconditionwouldnotbesatisfied,within60daysofAugust31,2017.
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DESCRIPTION OF CAPITAL STOCK
Ourauthorizedcapitalstockconsistsof1,200,000,000sharesofcommonstock,$0.00005parvaluepershare,and20,000,000sharesofundesignatedpreferredstock,$0.00005parvaluepershare.Thefollowingdescriptionsummarizesthemostimportanttermsofourcapitalstock.Becauseitisonlyasummary,itdoesnotcontainalltheinformationthatmaybeimportanttoyou.Foracompletedescription,youshouldrefertoourrestatedcertificateofincorporationandrestatedbylaws,whichareincludedasexhibitstotheregistrationstatementofwhichthisprospectusformsapart,andtotheprovisionsofapplicableDelawarelaw.
Common Stock
AsofJuly31,2017,therewere131,250,336sharesofourcommonstockoutstanding,heldbyapproximately822stockholdersofrecord,andnosharesofpreferredstockoutstanding.BasedonthenumberofsharesoutstandingasofJuly31,2017,therewillbeapproximately139,289,042sharesofourcommonstockoutstandingafterthisoffering,assumingtheissuanceof5,038,706sharesofcommonstocksubjecttothesettlementofRSUs,thesettlementofwhichwasconcurrentwiththepricingofthisoffering,aftergivingeffecttoshareswithheldtosatisfytheassociatedwithholdingtaxobligations.
Dividend Rights
Subjecttopreferencesthatmayapplytosharesofpreferredstockoutstandingatthetime,theholdersofoutstandingsharesofourcommonstockareentitledtoreceivedividendsoutoffundslegallyavailableatthetimesandintheamountsthatourboardofdirectorsmaydetermine.
Voting Rights
Eachholderofcommonstockisentitledtoonevoteforeachshareofcommonstockheldonallmatterssubmittedtoavoteofstockholders.Cumulativevotingfortheelectionofdirectorsisnotprovidedforinourrestatedcertificateofincorporation,whichmeansthattheholdersofamajorityofoursharesofcommonstockcanelectallofthedirectorsthenstandingforelection.
WehaveenteredintoavotingandstandstillagreementwithIntel,whichbecameeffectiveuponcompletionofourinitialpublicoffering,pursuanttowhichIntelhasagreedtocertainrestrictionsonitsvotingpower.TheserestrictionsincludealimitationofIntel’sindependentvotingrightsto20%oftheaggregatevotingrightsoftheaggregateoutstandingvotingcapitalstockofthecompany.Inaddition,Intelanditsaffiliatesarerequiredtocasttheircollectivevotingpowerinexcessofthe20%limitation(ExcessVotingPower)“for”or“against”thematterbeingvotedupon,includingmattersthatrequirethevoteofanyseparateseriesorclassvote,inthesameratioandinthesameproportionasthecompany’sotherstockholders,otherthanIntelanditsaffiliates,collectivelyvoted“for”or“against”suchmatter.Pursuanttothevotingandstandstillagreement,IntelexecutedanirrevocablevotingproxytouswithrespecttotheExcessVotingPower,tobeeffectiveuponthecompletionofthisoffering.Further,ifIntelanditsaffiliatescollectivelyhold66%ormoreofthevotingpowerwithrespectanymatterrequiringaseparateseriesorclassvoteunderSection242ofDelawareGeneralCorporationLaw,underrestatedcertificateofincorporationorotherwise,thenIntelanditsaffiliateswillberequiredtovotefororagainstsuchmatterasrecommendedbyourboardofdirectors.Intel’sproxyalsogivesusthepowertoeffectuatethisprovision.See“CertainRelationshipsandRelated‑PartyTransactions—VotingandStandstillAgreement”formoreinformation.
No Preemptive or Similar Rights
Ourcommonstockisnotentitledtopreemptiverightsandisnotsubjecttoconversionorredemption.
Right to Receive Liquidation Distributions
Uponourliquidation,dissolutionorwinding‑up,theassetslegallyavailablefordistributiontoourstockholderswouldbedistributableratablyamongtheholdersofourcommonstockandanyparticipatingpreferredstockoutstandingatthattimeafterpaymentofliquidationpreferences,ifany,onanyoutstandingsharesofpreferredstockandpaymentofotherclaimsofcreditors.
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Preferred Stock
Ourboardofdirectorsisauthorized,subjecttolimitationsprescribedbyDelawarelaw,toissuepreferredstockinoneormoreseries,toestablishfromtimetotimethenumberofsharestobeincludedineachseries,tofixthedesignation,powers,preferencesandrightsofthesharesofeachseriesandanyofitsqualifications,limitationsorrestrictions,ineachcasewithoutfurtheractionbyourstockholders.Ourboardofdirectorscanalsoincreaseordecreasethenumberofsharesofanyseriesofpreferredstock,butnotbelowthenumberofsharesofthatseriesthenoutstanding,unlessapprovedbytheaffirmativevoteoftheholdersofamajorityofourcapitalstockentitledtovote,orsuchothervoteasmayberequiredbythecertificateofdesignationestablishingtheseries.Ourboardofdirectorsmayauthorizetheissuanceofpreferredstockwithvotingorconversionrightsthatcouldadverselyaffectthevotingpowerorotherrightsoftheholdersofthecommonstock.Theissuanceofpreferredstock,whileprovidingflexibilityinconnectionwithpossibleacquisitionsandothercorporatepurposes,could,amongotherthings,havetheeffectofdelaying,deferringorpreventingachangeinourcontrolandmightadverselyaffectthemarketpriceofourcommonstockandthevotingandotherrightsoftheholdersofourcommonstock.Wehavenocurrentplantoissueanysharesofpreferredstock.
Options
AsofJuly31,2017,wehad(i)outstandingoptionstopurchaseanaggregateof22,181,142sharesofourcommonstock,withaweighted‑averageexercisepriceof$4.71pershareunderour2008PlanandtheGazzangPlanand(ii)outstandingoptionstopurchaseanaggregateof30,300sharesofourcommonstock,withaweighted‑averageexercisepriceof$21.50pershareunderour2017Plan.
Restricted Stock Units (RSUs)
AsofJuly31,2017,wehad(i)outstandingRSUsthatmaybesettledforanaggregateof22,841,098sharesofourcommonstockgrantedpursuanttoour2008Planand(ii)outstandingRSUsthatmaybesettledforanaggregateof1,356,850sharesofourcommonstockgrantedpursuanttoour2017Plan.
Registration Rights
Followingthisoffering,theholdersofapproximately73.0millionsharesofourcommonstockwillbeentitledtorightswithrespecttotheregistrationofthesesharesundertheSecuritiesAct,asdescribedbelow.
Demand Registration Rights
Atanytimeaftertheearlierof(i)March24,2017or(ii)180daysaftertheeffectivedateofourinitialpublicoffering,theholdersofatleastamajorityofthethen‑outstandingshareshavingregistrationrightscanrequestthatwefilearegistrationstatementcoveringatleastamajorityoftheregistrablesecuritiesthen‑outstandingwithananticipatedaggregateofferingpriceofgreaterthan$15.0million,netofanyunderwriters’discountsandcommissions.Wewillonlyberequiredtofiletworegistrationstatementsuponexerciseofthesedemandregistrationrights.Wemaypostponethefilingofaregistrationstatementforupto90daysonceinatwelvemonthperiodifourboardofdirectorsdeterminesthatthefilingwouldbeseriouslydetrimentaltousorourstockholders.
Piggyback Registration Rights
Ifweregisteranyofoursecuritiesforouraccountortheaccountofastockholder,thestockholderswithregistrationrightswillhavetherighttoincludetheirsharesintheregistrationstatement.However,thisrightdoesnotapplytoaregistrationrelatingtoanyofouremployeebenefitplans,acorporatereorganization,aregistrationthatrequiresinformationthatisnotsubstantiallythesameoraregistrationinwhichtheonlycommonstockbeingregisterediscommonstockissuableuponconversionofdebtsecuritiesthatarealsobeingregistered.Theunderwritersofanyunderwrittenofferingwillhavetherighttolimit,duetomarketingreasons,thenumberofsharesregisteredbytheseholders,inwhichcasethenumberofsharestoberegisteredwillbeapportionedprorataamongtheseholders,accordingtothetotalnumberofregistrablesecuritiesownedbyeachholder,orinamannermutuallyagreeduponbytheholders.However,thenumberofsharestoberegisteredbytheseholderscannotbereducedunlessallothersecurities(otherthansecuritiestobesoldbyourcompany)areexcludedentirelyandmaynotbe
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reducedbelow30%ofthetotalsharescoveredbytheregistrationstatement,exceptforinconnectionwithaninitialpublicoffering,inwhichcasetheunderwritersmayexcludetheseholdersentirely.
Form S-3 Registration Rights
Theholdersofatleast30%ofthethen‑outstandingshareshavingregistrationrightscanrequestthatweregisteralloraportionoftheirsharesonFormS‑3ifweareeligibletofilearegistrationstatementonFormS‑3andtheaggregatepricetothepublicofthesharesofferedisequaltoorgreaterthan$1,000,000,netofanyunderwriters’discountsandcommissions.ThisrightonlysurvivesfortwoFormS‑3registrationseffectedpursuanttothisright.WemaypostponethefilingofaregistrationstatementonFormS‑3forupto90daysonceinatwelvemonthperiodifourboardofdirectorsdeterminesthatthefilingwouldbeseriouslydetrimentaltousorourstockholders.Wewillnotberequiredtofilesucharegistrationstatementduringtheperiodthatis60daysbeforeand180daysaftertheeffectivedateofaregistrationinitiatedbyus.
TheseregistrationrightswillterminateupontheearliertooccuroftheclosingofadeemedliquidationeventorwhenthesharesheldbyandissuabletoIntelanditsaffiliatesmaybesoldwithoutregistrationincompliancewithRule144oftheSecuritiesAct.IntelanditsaffiliateshaveenteredintoagreementswiththeunderwritersprohibitingtheexerciseoftheirregistrationrightsuntilthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendedOctober31,2017.Foradescriptionoftheseagreements,see“Underwriters.”
Intel Corporation Form S-3 Registration Rights
AtanytimeafterweareeligibletofilearegistrationstatementonFormS‑3,IntelcanrequestthatweregisteralloraportionoftheirsharesonFormS‑3.Thisrightislimitedtooneregistrationstatementfilinginanytwelvemonthperiod.WemaypostponethefilingofaregistrationstatementforIntel’sregistrablesecuritiesonFormS‑3onetimeinatwelvemonthperiodforupto90daysifourboardofdirectorsdeterminesthatsuchafilingwouldbemateriallydetrimentaltousandourstockholders.Wewillnotberequiredtofilesucharegistrationstatementduringtheperiodthatis60daysbeforeand180daysaftertheeffectivedateofaregistrationinitiatedbyus.
TheseregistrationrightswillterminateupontheearliertooccuroftheclosingofadeemedliquidationeventorwhenthesharesheldbyandissuabletoIntelanditsaffiliatesmaybesoldwithoutregistrationincompliancewithRule144oftheSecuritiesAct.IntelanditsaffiliateshaveenteredintoagreementswiththeunderwritersnottomakeanydemandfororexercisetheirregistrationrightsuntilthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendedOctober31,2017.Foradescriptionoftheseagreements,see“Underwriters.”
Registration Expenses
Wewillpayallexpensesincurredinconnectionwitheachoftheregistrationsdescribedabove,exceptforunderwriters’andbrokers’discountsandcommissions.However,wewillnotpayforanyexpensesofanydemandregistrationorFormS‑3registrationiftherequestissubsequentlywithdrawnbyamajorityoftheholdersrequestingthatwefilesucharegistrationstatement,subjecttolimitedexceptions.
Termination of Registration Rights
Theregistrationrightswillterminateupontheearliertooccuroftheclosingofadeemedliquidationeventor,withrespecttoaparticularholderofregistrablesecurities,whenthesharesheldbyandissuabletosuchholdermaybesoldwithoutregistrationincompliancewithRule144oftheSecuritiesAct.
Defensive Measures
CertainprovisionsofDelawarelaw,ourrestatedcertificateofincorporationandourrestatedbylawsmayhavetheeffectofdelaying,deferringordiscouraginganotherpersonfromacquiringcontrolofourcompany.Theseprovisions,whicharesummarizedbelow,areexpectedtodiscouragecertaintypesofcoercivetakeoverpracticesandinadequatetakeoverbidsandencouragepersonsseekingtoacquirecontrolofourcompanytofirstnegotiatewithourboardofdirectors.
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Section 203 of the Delaware General Corporation Law
WearesubjecttotheprovisionsofSection203oftheDelawareGeneralCorporationLaw.Ingeneral,Section203prohibitsapubliclyheldDelawarecorporationfromengagingina“businesscombination”withan“interestedstockholder”forathree‑yearperiodfollowingthetimethatthisstockholderbecomesaninterestedstockholder,unlessthebusinesscombinationisapprovedinaprescribedmanner.UnderSection203,abusinesscombinationbetweenacorporationandaninterestedstockholderisprohibitedunlessitsatisfiesoneofthefollowingconditions:
• beforethestockholderbecameinterested,ourboardofdirectorsapprovedeitherthebusinesscombinationorthetransactionwhichresultedinthestockholderbecominganinterestedstockholder;
• uponconsummationofthetransactionwhichresultedinthestockholderbecominganinterestedstockholder,theinterestedstockholderownedatleast85%ofthevotingstockofthecorporationoutstandingatthetimethetransactioncommenced,excludingforpurposesofdeterminingthevotingstockoutstanding,sharesownedbypersonswhoaredirectorsandalsoofficers,andemployeestockplansinsomeinstances,butnottheoutstandingvotingstockownedbytheinterestedstockholder;or
• atorafterthetimethestockholderbecameinterested,thebusinesscombinationwasapprovedbyourboardofdirectorsandauthorizedatanannualorspecialmeetingofthestockholdersbytheaffirmativevoteofatleasttwo‑thirdsoftheoutstandingvotingstockwhichisnotownedbytheinterestedstockholder.
Section203definesabusinesscombinationtoinclude:
• anymergerorconsolidationinvolvingthecorporationandtheinterestedstockholder;
• anysale,transfer,lease,pledgeorotherdispositioninvolvingtheinterestedstockholderof10%ormoreoftheassetsofthecorporation;
• subjecttoexceptions,anytransactionthatresultsintheissuanceoftransferbythecorporationofanystockofthecorporationtotheinterestedstockholder;
• subjecttoexceptions,anytransactioninvolvingthecorporationthathastheeffectofincreasingtheproportionateshareofthestockofanyclassorseriesofthecorporationbeneficiallyownedbytheinterestedstockholder;and
• thereceiptbytheinterestedstockholderofthebenefitofanyloans,advances,guarantees,pledgesorotherfinancialbenefitsprovidedbyorthroughthecorporation.
Ingeneral,Section203definesaninterestedstockholderasanyentityorpersonbeneficiallyowning15%ormoreoftheoutstandingvotingstockofthecorporationandanyentityorpersonaffiliatedwithorcontrollingorcontrolledbytheentityorperson.
Restated Certificate of Incorporation and Restated Bylaw Provisions
Ourrestatedcertificateofincorporationandourrestatedbylawsincludeanumberofprovisionsthatmayhavetheeffectofdeterringhostiletakeovers,ordelayingorpreventingchangesincontrolofourmanagementteamorchangesinourboardofdirectorsorourgovernanceorpolicy,includingthefollowing:
• Board of Directors Vacancies .Ourrestatedbylawsandcertificateofincorporationauthorizegenerallyonlyourboardofdirectorstofillvacantdirectorshipsresultingfromanycauseorcreatedbytheexpansionofourboardofdirectors.Inaddition,thenumberofdirectorsconstitutingourboardofdirectorsmaybesetonlybyresolutionadoptedbyamajorityvoteofourentireboardofdirectors.Theseprovisionspreventastockholderfromincreasingthesizeofourboardofdirectorsandgainingcontrolofourboardofdirectorsbyfillingtheresultingvacancieswithitsownnominees.
• Classified Board .Ourrestatedcertificateofincorporationandrestatedbylawsprovidethatourboardisclassifiedintothreeclassesofdirectors.Theexistenceofaclassifiedboardcoulddelayasuccessfultender
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offerorfromobtainingmajoritycontrolofourboardofdirectors,andtheprospectofthatdelaymightdeterapotentialofferor.
• Stockholder Action .Ourrestatedcertificateofincorporationprovidesthatourstockholdersmaynottakeactionbywrittenconsent,butmayonlytakeactionatannualorspecialmeetingsofourstockholders.Stockholderswillnotbepermittedtocumulatetheirvotesfortheelectionofdirectors.Ourrestatedbylawsfurtherprovidethatspecialmeetingsofourstockholdersmaybecalledonlybyamajorityofourentireboardofdirectors.Ourbylawslimitthebusinessthatmaybeconductedatanannualmeetingofstockholderstothosemattersproperlybroughtbeforethemeeting.
• Holding Requirements for Stockholder Proposals and Director Nominations .Ourrestatedbylawsrequirecontinuous,beneficialownershipof1%ofourcommonstockforoneyearforstockholdersseekingtobringbusinessbeforeourannualmeetingofstockholdersortonominatecandidatesforelectionasdirectorsatourannualmeetingofstockholders.Ourbylawsalsorequirethatspecifiedinformationbeprovidedregardinganynominee(s),aswellastheproponent,andrequiresthenominee(s)toagreetobeboundbyourcorporategovernanceandcompliancepoliciesandguidelines,includingourinsidertrading,confidentialityandotherpolicies.Theseprovisionsmaydelayorprecludeourstockholdersfrombringingmattersbeforeourannualmeetingofstockholdersandfrommakingnominationsfordirectorsatourannualmeetingofstockholders.
• Advance Notice Requirements for Stockholder Proposals and Director Nominations .Ourrestatedbylawsprovideadvancenoticeproceduresforstockholdersseekingtobringbusinessbeforeourannualmeetingofstockholdersortonominatecandidatesforelectionasdirectorsatourannualmeetingofstockholders.Ourrestatedbylawsalsospecifycertainrequirementsregardingtheformandcontentofastockholder’snotice.Theseprovisionsmayprecludeourstockholdersfrombringingmattersbeforeourannualmeetingofstockholdersorfrommakingnominationsfordirectorsatourannualmeetingofstockholders.
• Amendment to Certificate of Incorporation and Bylaws .Certainamendmentstoourcertificateofincorporationrequireapprovalbytheholdersofatleasttwo‑thirdsofouroutstandingcommonstock.Anamendmenttoourbylawsrequirestheapprovalofamajorityofourentireboardofdirectorsorapprovalbytheholdersofatleasttwo‑thirdsofouroutstandingcommonstock.
• Issuance of Undesignated Preferred Stock .Ourboardofdirectorshastheauthority,withoutfurtheractionbythestockholders,toissueupto20,000,000sharesofundesignatedpreferredstockwithrightsandpreferences,includingvotingrights,designatedfromtimetotimebytheboardofdirectors.Theexistenceofauthorizedbutunissuedsharesofpreferredstockenablesourboardofdirectorstorendermoredifficultortodiscourageanattempttoobtaincontrolofusbymeansofamerger,tenderoffer,proxycontestorotherwise.
Choice of Forum
OurrestatedcertificateofincorporationprovidesthattheCourtofChanceryoftheStateofDelawareistheexclusiveforumforanyderivativeactionorproceedingbroughtonourbehalf;anyactionassertingabreachoffiduciaryduty;anyactionassertingaclaimagainstusarisingpursuanttotheDelawareGeneralCorporationLaw,ourrestatedcertificateofincorporationorourrestatedbylaws;anyactiontointerpret,apply,enforceordeterminethevalidityofourrestatedcertificateofincorporationorbylaws;oranyactionassertingaclaimagainstusthatisgovernedbytheinternalaffairsdoctrine.Theenforceabilityofsimilarchoiceofforumprovisionsinothercompanies’certificatesofincorporationhasbeenchallengedinlegalproceedingsanditispossiblethatacourtcouldfindthesetypesofprovisionstobeinapplicableorunenforceable.
Stock Exchange Listing
OurcommonstockislistedontheNewYorkStockExchangeunderthesymbol“CLDR.”
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Transfer Agent and Registrar
ThetransferagentandregistrarforourcommonstockisAmericanStockTransfer&TrustCompany,LLC.Thetransferagent’saddressisOperationsCenter,620115thAvenue,Brooklyn,NY11219,anditstelephonenumberis(800)937‑5449.
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SHARES ELIGIBLE FOR FUTURE SALE
Futuresalesofsubstantialamountsofourcommonstock,includingsharesissueduponexerciseofoutstandingoptions,inthepublicmarketafterthisofferingcouldadverselyaffectmarketpricesprevailingfromtimetotimeandcouldimpairourabilitytoraisecapitalthroughthesaleofourequitysecurities.
Uponthecompletionofthisoffering,basedonthenumberofsharesoutstandingasofJuly31,2017,wewillhave139,289,042sharesofcommonstockoutstanding.Oftheseoutstandingshares,allofthe13,432,114sharessoldinthisofferingwillbefreelytradable,exceptthatanysharespurchasedbyouraffiliates,asthattermisdefinedinRule144undertheSecuritiesAct,mayonlybesoldincompliancewiththelimitationsdescribedbelow.
TheremainingoutstandingsharesofourcommonstockwillbedeemedrestrictedsecuritiesasdefinedunderRule144.RestrictedsecuritiesmaybesoldinthepublicmarketonlyifregisteredoriftheyqualifyforanexemptionfromregistrationunderRule144orRule701promulgatedundertheSecuritiesAct,whichrulesaresummarizedbelow.Inaddition,allofourstockholdershaveenteredintomarketstandoffagreementswithusorlock‑upagreementswiththeunderwritersunderwhichtheyagreed,subjecttospecificexceptions,nottosellanyoftheirstockasdescribedbelow.SubjecttotheprovisionsofRule144orRule701,sharesareorwillbeavailableforsaleinthepublicmarketasfollows:
• onthedateofthisprospectus,29,482,114sharesofourcommonstock(includingall13,432,114sharesofourcommonstocksoldinthisoffering,whichincludes10,432,114sharesofcommonstocktobesoldinthisofferingbysellingstockholdersthatMorganStanley&Co.LLC,onbehalfoftheunderwriters,hasreleasedfromlock-uprestrictions,including5,885,154sharesbeneficiallyownedbyourdirectorsandexecutiveofficersandtheiraffiliatedentities,andall16,050,000sharesofourcommonstocksoldinourinitialpublicofferingtonon-affiliates)areavailableforsaleinthepublicmarket,exceptforthesharespurchasedbyaffiliatesinthisofferingwhicharesubjecttothevolumeandotherrestrictionsofRule144aswellasthelock-upagreementrestrictionsdescribedbelow;
• 50,164,654shareswillbeeligibleforsaleonOctober25,2017inthepublicmarketupontheexpirationoflock‑upagreementsenteredintoinconnectionwithourinitialpublicoffering,ofwhich10,951,361sharesareheldbypersonssubjecttoourinsidertradingpolicyandaresubjecttoquarterly“black-out”restrictionsontradinguntilafterthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendingOctober31,2017;
• 31,317,935additionalshareswillbecomeeligibleforsaleinthepublicmarketupontheexpirationoflock‑upagreementsenteredintoinconnectionwiththisofferingafterthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendingOctober31,2017,ofwhich26,065,827shareswillbeheldbyIntelandsubjecttothevolumeandotherrestrictionsofRule144,asdescribedbelow;
• 29,891,858additionalshareswillbeeligibleforsaleinthepublicmarketupontheexpirationoflock-upagreementsenteredintoinconnectionwiththisofferingasfollows:withrespecttothenumberofsharesofcommonstockequalto50%ofthecommonstock(includingsecuritiesconvertibleinto,andexercisablefor,sharesofourcommonstock)heldbytheholderimmediatelybeforetheconsummationofthisoffering,lessanysharessoldinthisoffering,afterthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendingOctober31,2017and(b)withrespecttotheremaining50%oftheseshares(includingsecuritiesconvertibleinto,andexercisablefor,sharesofourcommonstock)heldbytheholderimmediatelybeforetheconsummationofthisoffering,afterthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendingJanuary31,2018,ofwhich18,671,588shareswillbeheldbyaffiliatesandsubjecttothevolumeandotherrestrictionsofRule144,asdescribedbelow;and
• theremainderoftheshareswillbeeligibleforsaleinthepublicmarketfromtimetotimethereafter,subjectinsomecasestothevolumeandotherrestrictionsofRule144,asdescribedbelow.
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Lock‑‑Up Agreements
Inconnectionwithourinitialpublicoffering,allofourdirectors,executiveofficers,theholdersofsubstantiallyallofourthencommonstockandsecuritiesconvertibleintoorexchangeableforourcommonstockenteredintolock‑upagreementswiththeunderwriterspriortothecommencementofthisofferingpursuanttowhicheachofthesepersonsorentities,withlimitedexceptions,untilOctober25,2017,maynot,withoutthepriorwrittenconsentofMorganStanley&Co.LLC,offer,pledge,sell,contracttosell,sellanyoptionorcontracttopurchase,purchaseanyoptionorcontracttosell,grantanyoption,rightorwarranttopurchase,lendorotherwisetransferordisposeof,directlyorindirectly,anysharesofourcommonstockoranysecuritiesconvertibleintoorexercisableorexchangeableforourcommonstock.See“Underwriters”foradditionalinformation.
Inaddition,inconnectionwiththisoffering,we,alldirectorsandexecutiveofficers,thesellingstockholdersandcertainotherholdersofourcommonstock,includingAccel,GreylockPartnersandIntel,agreedthat,withoutthepriorwrittenconsentofMorganStanley&Co.LLConbehalfoftheunderwritersandsubjecttocertainexceptions,weandtheywillnot,offer,sell,oragreetosell,directlyorindirectly,anysharesofcommonstockuntil(i)withrespecttoalldirectors,IntelandthesellingstockholdersexceptforAccelandGreylock,thecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendedOctober31,2017and(ii)withrespecttoourexecutiveofficersandAccelandGreylock,withrespecttothenumberofshareofcommonstockequaltofiftypercentofthecommonstockheldbythemimmediatelybeforetheconsummationofthepublicoffering,lessanysharessoldinthisoffering,afterthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendedOctober31,2017andwithrespecttotheremainingfiftypercentofthecommonstockheldbythemimmediatelybeforetheconsummationofthepublicoffering,afterthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendedJanuary31,2018.See“Underwriters”foradditionalinformation.
Rule 144
Ingeneral,underRule144ascurrentlyineffect,apersonwhoisnotdeemedtohavebeenoneofouraffiliatesforpurposesoftheSecuritiesActatanytimeduringthe90daysprecedingasaleandwhohasbeneficiallyownedthesharesproposedtobesoldforatleastsixmonths,includingtheholdingperiodofanypriorownerotherthanouraffiliates,isentitledtosellthoseshareswithoutcomplyingwiththemannerofsale,volumelimitationornoticeprovisionsofRule144,subjecttocompliancewiththepublicinformationrequirementsofRule144.Ifsuchapersonhasbeneficiallyownedthesharesproposedtobesoldforatleastoneyear,includingtheholdingperiodofanypriorownerotherthanouraffiliates,thenthatpersonisentitledtosellthoseshareswithoutcomplyingwithanyoftherequirementsofRule144.
Ingeneral,underRule144,ascurrentlyineffect,ouraffiliatesorpersonssellingsharesonbehalfofouraffiliatesareentitledtoselluponexpirationofthelock‑upagreementsdescribedabove,withinanythree‑monthperiodbeginning90daysafterthedateofthisprospectus,anumberofsharesthatdoesnotexceedthegreaterof:
• 1%ofthenumberofsharesofcommonstockthenoutstanding,whichwillequalapproximately1,392,890sharesimmediatelyafterthisoffering;or
• TheaverageweeklytradingvolumeofthecommonstockduringthefourcalendarweeksprecedingthefilingofanoticeonForm144withrespecttothatsale.
SalesunderRule144byouraffiliatesorpersonssellingsharesonbehalfofouraffiliatesarealsosubjecttocertainmannerofsaleprovisionsandnoticerequirementsandtotheavailabilityofcurrentpublicinformationaboutus.
Rule 701
Rule701generallyallowsastockholderwhopurchasedsharesofourcommonstockpursuanttoawrittencompensatoryplanorcontractandwhoisnotdeemedtohavebeenanaffiliateofourcompanyduringtheimmediatelypreceding90daystosellthesesharesinrelianceuponRule144,butwithoutbeingrequiredtocomplywiththepublicinformationandholdingperiodrequirementsofRule144.Rule701alsopermitsaffiliatesofour
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companytoselltheirRule701sharesunderRule144withoutcomplyingwiththeholdingperiodrequirementsofRule144.
Registration Statement
WehavefiledaregistrationstatementonFormS‑8undertheSecuritiesActcoveringallofthesharesofourcommonstocksubjecttooutstandingstockoptionsandRSUsandreservedforfutureissuanceunderourequityincentiveplans.However,thesharesregisteredonFormS‑8maybesubjecttothevolumelimitationsandthemannerofsale,notice,andpublicinformationrequirementsofRule144andwillnotbeeligibleforresaleuntilexpirationoftheapplicablelock‑upagreementsandmarketstandoffprovisionstowhichtheyaresubject.
Registration Rights
Wehavegranteddemandregistrationrights,rightstoparticipateinofferingsthatweinitiateandFormS‑3registrationrightstocertainofourstockholderstosellourcommonstock.Forafurtherdescriptionoftheserights,see“DescriptionofCapitalStock—RegistrationRights.”
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON‑‑U.S. HOLDERS OF COMMON STOCK
ThissectionsummarizesthematerialU.S.federalincometaxconsiderationsrelatingtotheacquisition,ownershipanddispositionofourcommonstockacquiredinthisofferingby“non‑U.S.holders”(asdefinedbelow).ThissummarydoesnotprovideacompleteanalysisofallpotentialU.S.federalincometaxconsiderationsrelatingthereto.TheinformationprovidedbelowisbaseduponprovisionsoftheInternalRevenueCodeof1986,asamended,ortheCode,Treasuryregulationspromulgatedthereunder,administrativerulings,andjudicialdecisionscurrentlyineffect.Theseauthoritiesmaychangeatanytime,possiblyretroactively,ortheInternalRevenueService(IRS)mightinterprettheexistingauthoritiesdifferently.Ineithercase,thetaxconsiderationsofowningordisposingofourcommonstockcoulddifferfromthosedescribedbelow.Asaresult,wecannotassureyouthatthetaxconsequencesdescribedinthisdiscussionwillnotbechallengedbytheIRSorwillbesustainedbyacourtifchallengedbytheIRS.
Thissummarydoesnotaddressthetaxconsiderationsarisingunderthelawsofanynon‑U.S.,stateorlocaljurisdiction,or,excepttothelimitedextentprovidedbelow,underU.S.federalestateandgifttaxlaws.Inaddition,thisdiscussiondoesnotaddresstaxconsiderationsapplicabletoaninvestor’sparticularcircumstancesortoinvestorsthatmaybesubjecttospecialtaxrules,including,withoutlimitation:
• banks,insurancecompaniesorotherfinancialinstitutions;
• corporationsthataccumulateearningstoavoidU.S.federalincometax;
• personssubjecttothealternativeminimumtaxortheMedicarecontributiontax;
• taxexemptorganizationsortaxqualifiedretirementplans;
• controlledforeigncorporationsorpassiveforeigninvestmentcompanies;
• personswhoacquiredourcommonstockascompensationforservices;
• dealersinsecuritiesorcurrencies;
• tradersinsecuritiesthatelecttouseamarktomarketmethodofaccountingfortheirsecuritiesholdings;
• personsthatown,oraredeemedtoown,morethan5%ofourcapitalstock(excepttotheextentspecificallysetforthbelow);
• certainformercitizensorlongtermresidentsoftheUnitedStates;
• personswhodonotholdourcommonstockasacapitalassetwithinthemeaningofSection1221oftheCode(generally,forinvestmentpurposes);
• personswhoholdourcommonstockasapositioninahedgingtransaction,“straddle,”“conversiontransaction”orotherriskreductiontransaction;or
• personsdeemedtosellourcommonstockundertheconstructivesaleprovisionsoftheCode.
Inaddition,ifapartnershiporentityclassifiedasapartnershipforU.S.federalincometaxpurposesisabeneficialownerofourcommonstock,thetaxtreatmentofapartnerinthepartnershiporanowneroftheentitywilldependuponthestatusofthepartnerorotherownerandtheactivitiesofthepartnershiporotherentity.Accordingly,thissummarydoesnotaddresstaxconsiderationsapplicabletopartnershipsthatholdourcommonstock,andpartnersinsuchpartnershipsshouldconsulttheirtaxadvisors.
INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORSREGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS ANDTHE CONSEQUENCES OF FOREIGN, STATE OR LOCAL LAWS, AND TAX TREATIES.
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Non‑‑U.S. Holder Defined
Forpurposesofthissummary,a“non‑U.S.holder”isanybeneficialownerofourcommonstock,otherthanapartnership,thatisnot,forU.S.federalincometaxpurposes,anyofthefollowing:
• anindividualwhoisacitizenorresidentoftheUnitedStates;
• acorporation,orotherentitytaxableasacorporationforU.S.federalincometaxpurposes,createdororganizedunderthelawsoftheUnitedStates,anystatethereinortheDistrictofColumbia;
• atrustifit(i)issubjecttotheprimarysupervisionofaU.S.courtandoneofmoreU.S.personshaveauthoritytocontrolallsubstantialdecisionsofthetrustor(ii)hasavalidelectionineffectunderapplicableU.S.TreasuryregulationstobetreatedasaU.S.person;or
• anestatewhoseincomeissubjecttoU.S.incometaxregardlessofsource.
Ifyouareanindividualwhoisanon‑U.S.citizen,youmay,insomecases,bedeemedtobearesidentalien,asopposedtoanonresidentalien,byvirtueofbeingpresentintheUnitedStatesforatleast31daysinthecalendaryearandforanaggregateofatleast183daysduringathree‑yearperiodendinginthecurrentcalendaryear.Forthesepurposes,allthedayspresentinthecurrentyear,one‑thirdofthedayspresentintheimmediatelyprecedingyear,andone‑sixthofthedayspresentinthesecondprecedingyeararecounted.ResidentaliensaresubjecttoU.S.federalincometaxasiftheywereU.S.citizens.SuchanindividualisurgedtoconsulthisorherowntaxadvisorregardingtheU.S.federalincometaxconsequencesoftheownershipordispositionofourcommonstock.
Dividends
Wedonotexpecttodeclareormakeanydistributionsonourcommonstockintheforeseeablefuture.Ifwedopaydividendsonsharesofourcommonstock,however,suchdistributionswillconstitutedividendsforU.S.federalincometaxpurposestotheextentpaidfromourcurrentoraccumulatedearningsandprofits,asdeterminedunderU.S.federalincometaxprinciples.Distributionsinexcessofourcurrentandaccumulatedearningsandprofitswillconstituteareturnofcapitalthatisappliedagainstandreduces,butnotbelowzero,anon‑U.S.holder’sadjustedtaxbasisinsharesofourcommonstock.Anyremainingexcesswillbetreatedasgainrealizedonthesaleorotherdispositionofourcommonstock.See“—SaleofCommonStock”below.
Anydividendpaidtoanon‑U.S.holderonourcommonstockthatisnoteffectivelyconnectedwithanon‑U.S.holder’sconductofatradeorbusinessintheUnitedStateswillgenerallybesubjecttoU.S.withholdingtaxata30%rate.Thewithholdingtaxmightapplyatareducedrate,however,underthetermsofanapplicableincometaxtreatybetweentheUnitedStatesandthenon‑U.S.holder’scountryofresidence.Youshouldconsultyourowntaxadvisorsregardingyourentitlementtobenefitsunderarelevantincometaxtreaty.Generally,inorderforusorourpayingagenttowithholdtaxatalowertreatyrate,anon‑U.S.holdermustcertifyitsentitlementtotreatybenefits.Anon‑U.S.holdergenerallycanmeetthiscertificationrequirementbyprovidingaFormW‑8BEN,W‑8BENEorotherappropriateform(oranysuccessororsubstituteformthereof)tousorourpayingagent.Ifthenon‑U.S.holderholdsthestockthroughafinancialinstitutionorotheragentactingontheholder’sbehalf,theholderwillberequiredtoprovideappropriatedocumentationtotheholder’sagent.Theholder’sagentwillthenberequiredtoprovidecertificationtousorourpayingagent,eitherdirectlyorthroughotherintermediaries.IfyouareeligibleforareducedrateofU.S.federalwithholdingtaxunderanincometaxtreaty,youmayobtainarefundorcreditofanyexcessamountswithheldbyfilinganappropriateclaimforarefundwiththeIRSinatimelymanner.
Dividendsreceivedbyanon‑U.S.holderthatareeffectivelyconnectedwithaU.S.tradeorbusinessconductedbythenon‑U.S.holder,andifrequiredbyanapplicableincometaxtreatybetweentheUnitedStatesandthenon‑U.S.holder’scountryofresidence,areattributabletoapermanentestablishmentmaintainedbythenon‑U.S.holderintheUnitedStates,arenotsubjecttoU.S.withholdingtax.Toobtainthisexemption,anon‑U.S.holdermustprovideusorourpayingagentwithanIRSFormW‑8ECIproperlycertifyingsuchexemption.Sucheffectivelyconnecteddividends,althoughnotsubjecttowithholdingtax,aretaxedatthesamegraduatedratesapplicabletoU.S.persons,netofcertaindeductionsandcredits.Inadditiontobeingtaxedatgraduatedtaxrates,dividendsreceivedbyacorporatenon‑U.S.holderthatareeffectivelyconnectedwitha
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U.S.tradeorbusinessofthecorporatenon‑U.S.holdermayalsobesubjecttoabranchprofitstaxatarateof30%orsuchlowerrateasmaybespecifiedbyanapplicabletaxtreaty.
Seealsothesectionbelowtitled“—ForeignAccountTaxComplianceAct”foradditionalwithholdingrulesthatmayapplytodividendspaidtocertainforeignfinancialinstitutionsornon-financialforeignentities.
Sale of Common Stock
SubjecttothediscussionbelowregardingBackupWithholdingandInformationReportingandtheForeignAccountTaxComplianceAct,non‑U.S.holderswillgenerallynotbesubjecttoU.S.federalincometaxonanygainsrealizedonthesale,exchangeorotherdispositionofourcommonstockunless:
• thegain(i)iseffectivelyconnectedwiththeconductbythenon‑U.S.holderofaU.S.tradeorbusinessand(ii)ifrequiredbyanapplicableincometaxtreatybetweentheUnitedStatesandthenon‑U.S.holder’scountryofresidence,isattributabletoapermanentestablishmentmaintainedbythenon‑U.S.holderintheUnitedStates(inwhichcasethespecialrulesdescribedbelowapply);
• thenon‑U.S.holderisanindividualwhoispresentintheUnitedStatesfor183daysormoreinthetaxableyearofthesale,exchangeorotherdispositionofourcommonstock,andcertainotherrequirementsaremet(inwhichcasethegainwouldbesubjecttoaflat30%tax,orsuchreducedrateasmaybespecifiedbyanapplicableincometaxtreaty,whichmaybeoffsetbyU.S.sourcecapitallosses,eventhoughtheindividualisnotconsideredaresidentoftheUnitedStates);or
• therulesoftheForeignInvestmentinRealPropertyTaxAct(FIRPTA)treatthegainaseffectivelyconnectedwithaU.S.tradeorbusiness.
TheFIRPTArulesmayapplytoasale,exchangeorotherdispositionofourcommonstockifweare,orwerewithintheshorterofthefive‑yearperiodprecedingthedispositionandthenon‑U.S.holder’sholdingperiod,a“U.S.realpropertyholdingcorporation”(USRPHC).Ingeneral,wewouldbeaUSRPHCifinterestsinU.S.realestatecomprisedatleasthalfofthevalueofourbusinessassets.WedonotbelievethatweareaUSRPHCandwedonotanticipatebecomingoneinthefuture.EvenifwebecomeaUSRPHC,gainrealizedbyaNonU.S.HolderonadispositionofourcommonstockwillnotbesubjecttoU.S.federalincometaxsolongas(1)theNonU.S.Holderowned,directly,indirectlyorconstructively,nomorethanfivepercentofourcommonstockatalltimeswithintheshorterof(i)thefiveyearperiodprecedingthedispositionor(ii)theholder’sholdingperiodand(2)ourcommonstockisregularlytradedonanestablishedsecuritiesmarket.
Ifanygainfromthesale,exchangeorotherdispositionofourcommonstock,(i)iseffectivelyconnectedwithaU.S.tradeorbusinessconductedbyanon‑U.S.holderand(ii)ifrequiredbyanapplicableincometaxtreatybetweentheUnitedStatesandthenon‑U.S.holder’scountryofresidence,isattributabletoapermanentestablishmentmaintainedbysuchnon‑U.S.holderintheUnitedStates,thenthegaingenerallywillbesubjecttoU.S.federalincometaxatthesamegraduatedratesapplicabletoU.S.persons,netofcertaindeductionsandcredits.Ifthenon‑U.S.holderisacorporation,undercertaincircumstances,thatportionofitsearningsandprofitsthatiseffectivelyconnectedwithitsU.S.tradeorbusiness,subjecttocertainadjustments,generallywouldbesubjectalsotoa“branchprofitstax”atarateof30%orsuchlowerrateasmaybespecifiedbyanapplicableincometaxtreaty.
U.S. Federal Estate Tax
TheestatesofnonresidentalienindividualsgenerallyaresubjecttoU.S.federalestatetaxonpropertywithaU.S.situs.BecauseweareaU.S.corporation,ourcommonstockwillbeU.S.situspropertyandthereforewillbeincludedinthetaxableestateofanonresidentaliendecedent,unlessanapplicableestatetaxtreatybetweentheUnitedStatesandthedecedent’scountryofresidenceprovidesotherwise.Theterms“resident”and“nonresident”aredefineddifferentlyforU.S.federalestatetaxpurposesthanforU.S.federalincometaxpurposes.InvestorsareurgedtoconsulttheirowntaxadvisorsregardingtheU.S.federalestatetaxconsequencesoftheownershipordispositionofourcommonstock.
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Backup Withholding and Information Reporting
TheCodeandtheTreasuryregulationsrequirethosewhomakespecifiedpaymentstoreportthepaymentstotheIRS.Amongthespecifiedpaymentsaredividendsandproceedspaidbybrokerstotheircustomers.TherequiredinformationreturnsenabletheIRStodeterminewhethertherecipientproperlyincludedthepaymentsinincome.Thisreportingregimeisreinforcedby“backupwithholding”rules.Theserulesrequirethepayorstowithholdtaxfrompaymentssubjecttoinformationreportingiftherecipientfailstocooperatewiththereportingregimebyfailingtoprovidehistaxpayeridentificationnumbertothepayor,furnishinganincorrectidentificationnumber,orfailingtoreportinterestordividendsonhisreturns.Thebackupwithholdingtaxrateiscurrently28%.Thebackupwithholdingrulesdonotapplytopaymentstoforeigncorporations,providedtheyestablishsuchexemption.
Paymentstonon‑U.S.holdersofdividendsoncommonstockgenerallywillnotbesubjecttobackupwithholding,andpaymentsofproceedsmadetonon‑U.S.holdersbyabrokeruponasaleofcommonstockwillnotbesubjecttoinformationreportingorbackupwithholding,ineachcasesolongasthenon‑U.S.holdercertifiesitsnonresidentstatus(andweortheapplicablepayingagentdonothaveactualknowledgeorreasontoknowtheholderisaU.S.personorthattheconditionsofanyotherexemptionarenot,infact,satisfied)orotherwiseestablishesanexemption.Thecertificationprocedurestoclaimtreatybenefitsdescribedunder“— Dividends”abovewillgenerallysatisfythecertificationrequirementsnecessarytoavoidthebackupwithholdingtax.WemustreportannuallytotheIRSanydividendspaidtoeachnon‑U.S.holderandthetaxwithheld,ifany,withrespecttothesedividends.Copiesofthesereportsmaybemadeavailabletotaxauthoritiesinthecountrywherethenon‑U.S.holderresides.
UndertheTreasuryregulations,thepaymentofproceedsfromthedispositionofsharesofourcommonstockbyanon‑U.S.holdermadetoorthroughaU.S.officeofabrokergenerallywillbesubjecttoinformationreportingandbackupwithholdingunlessthebeneficialownercertifies,underpenaltiesofperjury,amongotherthings,itsstatusasanon‑U.S.holder(andthebrokerdoesnothaveactualknowledgeorreasontoknowtheholderisaU.S.person)orotherwiseestablishesanexemption.Thepaymentofproceedsfromthedispositionofsharesofourcommonstockbyanon‑U.S.holdermadetoorthroughanon‑U.S.officeofabrokergenerallywillnotbesubjecttobackupwithholdingandinformationreporting.Informationreporting,butnotbackupwithholding,however,willapplytoapaymentofproceeds,evenifthatpaymentismadeoutsideoftheUnitedStates,ifyousellourcommonstockthroughanon‑U.S.officeofabrokerthatis:
• aU.S.person(includingaforeignbranchorofficeofsuchperson);
• a“controlledforeigncorporation”forU.S.federalincometaxpurposes;
• aforeignperson50%ormoreofwhosegrossincomefromcertainperiodsiseffectivelyconnectedwithaU.S.tradeorbusiness;or
• aforeignpartnershipifatanytimeduringitstaxyear(a)oneormoreofitspartnersareU.S.personswho,intheaggregate,holdmorethan50%oftheincomeorcapitalinterestsofthepartnershipor(b)theforeignpartnershipisengagedinaU.S.tradeorbusiness;
unlessthebrokerhasdocumentaryevidencethatthebeneficialownerisanon‑U.S.holderandcertainotherconditionsaresatisfied,orthebeneficialownerotherwiseestablishesanexemption(andthebrokerhasnoactualknowledgeorreasontoknowtothecontrary).
Backupwithholdingisnotanadditionaltax.AnyamountswithheldfromapaymenttoaholderofcommonstockunderthebackupwithholdingrulescanbecreditedagainstanyU.S.federalincometaxliabilityoftheholder,ifany,andmayentitletheholdertoarefund,providedthattherequiredinformationisfurnishedtotheIRSinatimelymanner.
Foreign Account Tax Compliance Act
Inadditionto,andseparatelyfromthewithholdingrulesdescribedabove,U.S.federalwithholdingtaxesmayapplyundertheForeignAccountTaxComplianceAct(FATCA)oncertaintypesofpayments,includingdividendsandthegrossproceedsofadispositionofourcommonstock,madetonon‑U.S.financialinstitutionsandcertain
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othernon‑U.S.entities.Specifically,a30%withholdingtaxmaybeimposedondividendson,orgrossproceedsfromthesaleorotherdispositionof,ourcommonstockpaidtoa“foreignfinancialinstitution”ora“non‑financialforeignentity”(eachasdefinedintheCode),unless(1)theforeignfinancialinstitutionundertakescertaindiligenceandreportingobligations,(2)thenon‑financialforeignentityeithercertifiesitdoesnothaveany“substantialUnitedStatesowners”(asdefinedintheCode)orfurnishesidentifyinginformationregardingeachsubstantialUnitedStatesowner,or(3)theforeignfinancialinstitutionornon‑financialforeignentityotherwisequalifiesforanexemptionfromtheserules.The30%federalwithholdingtaxdescribedinthisparagraphcannotbereducedunderanincometaxtreatywiththeUnitedStates.Ifthepayeeisaforeignfinancialinstitutionandissubjecttothediligenceandreportingrequirementsin(1)above,itmustenterintoanagreementwiththeU.S.DepartmentoftheTreasuryrequiring,amongotherthings,thatitundertaketoidentifyaccountsheldbycertain“specifiedUnitedStatespersons”or“UnitedStates‑ownedforeignentities”(eachasdefinedintheCode),annuallyreportcertaininformationaboutsuchaccounts,andwithhold30%oncertainpaymentstonon‑compliantforeignfinancialinstitutionsandcertainotheraccountholders.ForeignfinancialinstitutionslocatedinjurisdictionsthathaveanintergovernmentalagreementwiththeUnitedStatesgoverningFATCAmaybesubjecttodifferentrules.
UnderapplicableTreasuryRegulationsandIRSguidance,FATCAwithholdingasdescribedabovecurrentlyapplytopaymentsofdividendsonourcommonstock,andwillalsoapplytopaymentsofgrossproceedsfromthesaleorotherdispositionofourcommonstockmadeonorafterJanuary1,2019.
ProspectiveinvestorsshouldconsulttheirtaxadvisorsregardingthepotentialapplicationofwithholdingunderFATCAtotheirinvestmentinourcommonstock.
THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION PURPOSES ONLY. IT ISNOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULARU.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMONSTOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
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UNDERWRITERS
Underthetermsandsubjecttotheconditionscontainedinanunderwritingagreement,theunderwritersnamedbelow,forwhomMorganStanley&Co.LLCandJ.P.MorganSecuritiesLLCareactingasrepresentatives,haveseverallyagreedtopurchase,andweandthesellingstockholdershaveagreedtoselltothem,severally,thenumberofsharesindicatedbelow:
Name Number of Shares
MorganStanley&Co.LLC 4,298,277J.P.MorganSecuritiesLLC 2,955,066Allen&CompanyLLC 2,014,817MerrillLynch,Pierce,Fenner&Smith
Incorporated 1,343,211CitigroupGlobalMarketsInc. 1,343,211DeutscheBankSecuritiesInc. 1,074,569Stifel,Nicolaus&CompanyIncorporated 134,321JMPSecuritiesLLC 134,321RaymondJames&Associates,Inc. 134,321
Total: 13,432,114
Theunderwritersandtherepresentativesarecollectivelyreferredtoasthe“underwriters”andthe“representatives,”respectively.Theunderwritersareofferingthesharesofcommonstocksubjecttotheiracceptanceofthesharesfromusandthesellingstockholdersandsubjecttopriorsale.Theunderwritingagreementprovidesthattheobligationsoftheseveralunderwriterstopayforandacceptdeliveryofthesharesofcommonstockofferedbythisprospectusaresubjecttotheapprovalofcertainlegalmattersbytheircounselandtocertainotherconditions.Theunderwritersareobligatedtotakeandpayforallofthesharesofcommonstockofferedbythisprospectusifanysuchsharesaretaken.However,theunderwritersarenotrequiredtotakeorpayforthesharescoveredbytheunderwriters’optiontopurchaseadditionalsharesdescribedbelow.
Theunderwritersinitiallyproposetoofferpartofthesharesofcommonstockdirectlytothepublicattheofferingpricelistedonthecoverpageofthisprospectusandparttocertaindealersatapricethatrepresentsaconcessionnotinexcessof$0.3948pershareunderthepublicofferingprice.Aftertheinitialofferingofthesharesofcommonstock,theofferingpriceandothersellingtermsmayfromtimetotimebevariedbytherepresentatives.SalesofcommonstockmadeoutsideoftheUnitedStatesmaybemadebyaffiliatesoftheunderwriters.
Thesellingstockholdershavegrantedtotheunderwritersanoption,exercisablefor30daysfromthedateofthisprospectus,topurchaseupto2,014,816additionalsharesofcommonstockatthepublicofferingpricelistedonthecoverpageofthisprospectus,lessunderwritingdiscountsandcommissions.Totheextenttheoptionisexercised,eachunderwriterwillbecomeobligated,subjecttocertainconditions,topurchaseaboutthesamepercentageoftheadditionalsharesofcommonstockasthenumberlistednexttotheunderwriter’snameintheprecedingtablebearstothetotalnumberofsharesofcommonstocklistednexttothenamesofallunderwritersintheprecedingtable.
Thefollowingtableshowsthepershareandtotalpublicofferingprice,underwritingdiscountsandcommissions,andproceedsbeforeexpensestousandthesellingstockholders.Theseamountsareshownassumingbothnoexerciseandfullexerciseoftheunderwriters’optiontopurchaseupto2,014,816additionalshares.
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Total
Per Share No Exercise Full Exercise
Publicofferingprice $ 16.450 $ 220,958,275 $ 254,101,999
Underwritingdiscountsandcommissionstobepaidby: Us 0.658 1,980,000 1,980,000
Thesellingstockholders 0.658 6,885,195 8,214,974
Proceeds,beforeexpenses,tous 15.792 47,370,000 47,370,000
Proceeds,beforeexpenses,tothesellingstockholders $ 15.792 $ 164,723,080 $ 196,537,025
Theestimatedofferingexpenses,exclusiveoftheunderwritingdiscountsandcommissions,areapproximately$1.6million.WehaveagreedtoreimbursetheunderwritersfortheirexpensesrelatingtoclearanceofthisofferingwiththeFinancialIndustryRegulatoryAuthority(FINRA)upto$15,000.Theunderwritershaveagreedtoreimburseus,orwillpayandnotseekreimbursementfromus,forcertainexpensesincurredbyusinconnectionwiththisoffering.
Inaddition,inconnectionwithherappointmenttoourboardofdirectors,KimberlyHammonds,whoisaffiliatedwithDeutscheBankSecuritiesInc.,receivedagrantof25,210restrictedstockunits(RSUs).
Theunderwritershaveinformedusthattheydonotintendsalestodiscretionaryaccountstoexceed5%ofthetotalnumberofsharesofcommonstockofferedbythem.
OurcommonstockislistedontheNewYorkStockExchangeunderthetradingsymbol“CLDR.”
Inconnectionwithourinitialpublicoffering,we,allofourdirectorsandofficers,andtheholdersofsubstantiallyallofouroutstandingequitysecuritieshaveagreedthat,subjecttocertainexceptions,withoutthepriorwrittennoticeofMorganStanley&Co.LLConbehalfoftheunderwriters,weandtheywillnotoffer,sell,oragreetosell,transferordisposeof,directlyorindirectly,anysharesofcommonstockwithoutthepermissionofMorganStanley&Co.LLCuntilOctober25,2017.MorganStanley&Co.LLC,onbehalfoftheunderwriters,hasconsentedtothereleaseoftheselock-uprestrictionswithrespectto12,446,930sharesof common stock to be sold by the selling stockholders (including 2,014,816shares of common stock that may be sold by certain selling stockholders uponexerciseoftheunderwriters’optiontopurchaseadditionalshares),including7,116,150sharesbeneficiallyownedbyourdirectorsandexecutiveofficersortheiraffiliatedentities.Thereleasewilltakeeffectonthepricingofthisoffering.
Inaddition,inconnectionwiththisoffering,we,alldirectorsandexecutiveofficers,thesellingstockholdersandcertainotherholdersofourcommonstock,includingAccel,whichasofAugust31,2017beneficiallyowned18,409,144sharesofourcommonstock,GreylockPartners,whichasofAugust31,2017beneficiallyowned14,199,711sharesofourcommonstock,andIntel,whichasofAugust31,2017beneficiallyowned26,065,827sharesofourcommonstock,agreedthat,withoutthepriorwrittenconsentofMorganStanley&Co.LLConbehalfoftheunderwritersandsubjecttocertainexceptions,weandtheywillnotoffer,sell,oragreetosell,directlyorindirectly,anysharesofcommonstockuntil(i)withrespecttoalldirectors,IntelandthesellingstockholdersexceptAccelandGreylock,thecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendedOctober31,2017,and(ii)withrespecttoourexecutiveofficersandAccelandGreylock,withrespecttothenumberofsharesofcommonstockequaltofiftypercentofthecommonstockheldbythemimmediatelybeforetheconsummationofthepublicoffering,lessanysharessoldinthisoffering,afterthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendedOctober31,2017andwithrespecttotheremainingfiftypercentofthecommonstockheldbythemimmediatelybeforetheconsummationofthepublicoffering,afterthecloseoftradingonthesecondfulltradingdayfollowingthepublicreleaseofourearningsforthequarterlyperiodendedJanuary31,2018,thedateortherestrictedperiod:
• offer,pledge,sell,contracttosell,sellanyoptionorcontracttopurchase,purchaseanyoptionorcontracttosell,grantanyoption,rightorwarranttopurchase,lendorotherwisetransferordisposeof,directlyor
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indirectly,anysharesofcommonstockoranysecuritiesconvertibleintoorexercisableorexchangeableforsharesofcommonstock;
• fileanyregistrationstatementwiththeSecuritiesandExchangeCommissionrelatingtotheofferingofanysharesofcommonstockoranysecuritiesconvertibleintoorexercisableorexchangeableforcommonstock;or
• enterintoanyswaporotherarrangementthattransferstoanother,inwholeorinpart,anyoftheeconomicconsequencesofownershipofthecommonstock;whetheranysuchtransactiondescribedaboveistobesettledbydeliveryofcommonstockorsuchothersecurities,incashorotherwise.Inaddition,weandeachsuchpersonagreesthat,withoutthepriorwrittenconsentofMorganStanley&Co.LLC,onbehalfoftheunderwriters,weorsuchotherpersonwillnot,duringtherestrictedperiod,makeanydemandfor,orexerciseanyrightwithrespectto,theregistrationofanysharesofcommonstockoranysecurityconvertibleintoorexercisableorexchangeableforcommonstock.
Therestrictionsintheimmediatelyprecedingparagraphdonotapplyto:
• transactionsbyasecurityholderrelatingtosharesofcommonstockorothersecuritiesacquiredinopenmarkettransactionsafterthecompletionoftheofferingoftheshares,providedthatnofilingunderSection16(a)oftheSecuritiesExchangeActof1934,ortheExchangeAct,isrequiredorvoluntarilymadeinconnectionwithsubsequentsalesofcommonstockorothersecuritiesacquiredinsuchopenmarkettransactions;
• thesaleofsharesofcommonstockpursuanttotheunderwritingagreement;
• transfersofsharesofcommonstockoranysecuritiesconvertibleintoorexercisableorexchangeableforcommonstockbyasecurityholder(i)asabonafidegift,orgifts,orforbonafideestateplanningpurposes,(ii)bywillorintestacyor(iii)toanimmediatefamilymemberoratrustforthedirectorindirectbenefitofthesecurityholder;
• transfersordistributionsofsharesofcommonstockoranysecuritiesconvertibleintoorexercisableorexchangeableforcommonstockbya(i)securityholderthatisacorporation,partnership,limitedliabilitycompanyorotherbusinessentity(A)toanothercorporation,partnership,limitedliabilitycompanyorotherbusinessentitythatcontrols,iscontrolledbyormanagedbyorisundercommoncontrolwithsuchsecurityholderor(B)aspartofadistributiontoanequityholderofsuchsecurityholder;
• theexerciseorsettlementofoptionsorrestrictedstockunits(RSUs)grantedunderastockincentiveplanorotherequityawardplandescribedinthisprospectus,ineachcasebyasecurityholderprovidedthatthesharesofcommonstockdelivereduponsuchexercisearesubjecttotherestrictionssetforthaboveandnofilingunderSection16(a)oftheExchangeActisrequiredorvoluntarilymadeinconnectionwithsuchexerciseorsettlementwithinsixtydaysafterthedateofthisprospectus,andaftersuchsixtiethday,anyfilingunderSection16(a)oftheExchangeActshallclearlyindicateinthefootnotestheretothat(i)thefilingrelatestotheexerciseorsettlementofoptionsorRSUsgrantedunderastockincentiveplanorotherequityawardplan,(ii)nosharesweresoldbythereportingpersonand(iii)thesharesreceiveduponexerciseorsettlementoftheoptionorRSUorexerciseofwarrantsaresubjecttotherestrictionssetforthabove;
• thetransferordispositionbyasecurityholderofsharesofcommonstockoranysecuritiesconvertibleintocommonstockbyasecurityholdertousuponavestingorsettlementeventofoursecuritiesorupontheexerciseofoptions,RSUsorwarrantstopurchaseoursecurities,ineachcaseona“cashlessexercise”or“netexercise”basistotheextentpermittedbytheinstrumentsrepresentingsuchoptions,RSUsorwarrantssolongassuch“cashlessexercise”or“netexercise”iseffectedsolelybythesurrenderofoutstandingoptions,RSUsorwarrantstousandourcancellationofalloraportionthereoftopaytheexercisepriceand/orwithholdingtaxandremittanceobligations,providednofilingunderSection16(a)oftheExchangeActisrequiredorvoluntarilymadeinconnectionwithsuchtransferordispositionwithinsixtydaysafterthedateofthisprospectus,andaftersuchsixtiethday,anyfilingunderSection16(a)oftheExchangeAct
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shallclearlyindicateinthefootnotestheretothat(i)thefilingrelatestothetransferordispositiondescribedinthisparagraphand(ii)nosharesweresoldbythereportingperson;
• theexerciseofwarrantsoutstandingdescribedinthisprospectus,providedthatthesharesofcommonstockdelivereduponsuchexercisearesubjecttotherestrictionssetforthaboveandnofilingunderSection16(a)oftheExchangeActisrequiredorvoluntarilymadeduringtheapplicablerestrictedperiod;
• theestablishmentofatradingplanpursuanttoRule10b5-1undertheExchangeActforthetransferofsharesofcommonstock,providedthatsuchplandoesnotprovideforthetransferofcommonstockduringtherestrictedperiodundertheagreementandnopublicannouncementorfilingundertheExchangeActregardingtheestablishmentofsuchplanshallberequiredoforvoluntarilymadebyoronbehalfofthesecurityholderorusandthesaleofsharesofcommonstockpursuanttoa10b5-1tradingplan,provided thatsuchplanwasestablishedpriortotheexecutionofthelock-upagreementbythestockholderandthatanyfilingunderSection16(a)oftheExchangeActthatismadeinconnectionwithanysuchsalesduringtherestrictedperiodshallstatethatsuchsaleshavebeenexecutedundera10b5-1tradingplanandshallalsostatethedatesuchplanwasadopted;
• transfersofsharesofcommonstockoranysecuritiesconvertibleintoorexercisableorexchangeableforcommonstocktoaspouse,formerspouse,partner,formerpartner,child,otherdependent,orsimilarpersonthatoccurspursuanttoasettlementagreementnotinvolvingadispositionforvalue,relatedtothedistributionofassetsinconnectionwiththedissolutionofamarriageorcivilunion,byoperationoflawpursuanttoaqualifieddomesticorderinconnectionwithadivorceorotherdomesticsettlementorpursuanttoanyothercourtorderprovidedthatthesharesofcommonstockdelivereduponsuchtransferaresubjecttotherestrictionssetforthaboveandnofilingunderSection16(a)oftheExchangeActisrequiredorvoluntarilymadeduringtheapplicablerestrictedperiodunlesssuchfilingclearlyindicatesinthefootnotestheretothatsuchtransferoccurredbyoperationoflawandpursuanttoaqualifieddomesticorderorinconnectionwithadivorcesettlement;
• thetransferbyasecurityholderofsharesofourcommonstockoranysecurityconvertibleintoorexercisableorexchangeableforcommonstocktous,pursuanttoagreementsunderwhichwehavetheoptiontorepurchasesuchshares;and
• thetransferbyasecurityholderofsharesofourcommonstockoranysecurityconvertibleintoorexercisableorexchangeableforcommonstockpursuanttoabonafidethirdpartytenderoffer,merger,consolidationorothersimilartransactionmadetoallholdersofthecommonstockinvolvingachangeofcontrolofus,providedthatsuchtransactionhasbeenapprovedbyourboardofdirectorsandprovidedfurtherthatifthetenderoffer,merger,consolidationorothersuchtransactionisnotcompleted,thecommonstockownedbythesecurityholdershallremainsubjecttotherestrictionssetforthabove;provided thatinthecaseofanytransferordistributionpursuanttothethirdandfourthbulletsabove,itshallbeaconditionofthetransferordistributionthateachtransferee,doneeordistributeeshallsignanddeliveracopyofthelock‑upagreementpriortooruponsuchtransferandnofilingunderSection16(a)oftheExchangeAct(otherthan,inthecaseofthethirdbulletabove,aForm5)reportingareductioninbeneficialownershipofsharesofcommonstockshallberequiredorshallbemadevoluntarilyduringtheapplicablerestrictedperiod.
MorganStanley&Co.LLC,initssolediscretion,mayreleasethecommonstockandothersecuritiessubjecttothelock‑upagreementsdescribedaboveinwholeorinpartatanytime,withorwithoutnotice,providedthat,whenandasrequiredbyFINRARule5131,atleasttwobusinessdaysbeforethereleaseorwaiverofanylock-upenteredintoinconnectionwithourinitialpublicoffering,MorganStanley&Co.LLCwillnotifyusoftheimpendingreleaseorwaiverandannouncetheimpendingreleaseorwaiverthroughamajornewsservice,exceptwherethereleaseorwaiveriseffectedsolelytopermitatransferofsecuritiesthatisnotforconsiderationandwherethetransfereehasagreedinwritingtobeboundbythesamelock-upagreementtermsinplaceforthetransferor.
Inordertofacilitatetheofferingofthecommonstock,theunderwritersmayengageintransactionsthatstabilize,maintainorotherwiseaffectthepriceofthecommonstock.Specifically,theunderwritersmaysellmoresharesthantheyareobligatedtopurchaseundertheunderwritingagreement,creatingashortposition.Ashortsaleis
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coverediftheshortpositionisnogreaterthanthenumberofsharesavailableforpurchasebytheunderwritersundertheiroptiontopurchaseadditionalsharesdescribedabove.Theunderwriterscancloseoutacoveredshortsalebyexercisingtheoptiontopurchaseadditionalsharesorpurchasingsharesintheopenmarket.Indeterminingthesourceofsharestocloseoutacoveredshortsale,theunderwriterswillconsider,amongotherthings,theopenmarketpriceofsharescomparedtothepriceavailableundertheoptiontopurchaseadditionalsharesofcommonstock.Theunderwritersmayalsosellsharesinexcessoftheiroptiontopurchaseadditionalsharesofcommonstock,creatinganakedshortposition.Theunderwritersmustcloseoutanynakedshortpositionbypurchasingsharesintheopenmarket.Anakedshortpositionismorelikelytobecreatediftheunderwritersareconcernedthattheremaybedownwardpressureonthepriceofthecommonstockintheopenmarketafterpricingthatcouldadverselyaffectinvestorswhopurchasesharesofcommonstockinthisoffering.Asanadditionalmeansoffacilitatingthisoffering,theunderwritersmaybidfor,andpurchase,sharesofcommonstockintheopenmarkettostabilizethepriceofthecommonstock.Theseactivitiesmayraiseormaintainthemarketpriceofthecommonstockaboveindependentmarketlevelsorpreventorretardadeclineinthemarketpriceofthecommonstock.Theunderwritersarenotrequiredtoengageintheseactivitiesandmayendanyoftheseactivitiesatanytime.
We,thesellingstockholdersandtheunderwritershaveagreedtoindemnifyeachotheragainstcertainliabilities,includingliabilitiesundertheSecuritiesAct.
Aprospectusinelectronicformatmaybemadeavailableonwebsitesmaintainedbyoneormoreunderwriters,orsellinggroupmembers,ifany,participatinginthisoffering.Therepresentativesmayagreetoallocateanumberofsharesofcommonstocktounderwritersforsaletotheironlinebrokerageaccountholders.InternetdistributionswillbeallocatedbytherepresentativestounderwritersthatmaymakeInternetdistributionsonthesamebasisasotherallocations.
Theunderwritersandtheirrespectiveaffiliatesarefullservicefinancialinstitutionsengagedinvariousactivities,whichmayincludesecuritiestrading,commercialandinvestmentbanking,financialadvisory,investmentmanagement,investmentresearch,principalinvestment,hedging,financingandbrokerageactivities.Certainoftheunderwritersandtheirrespectiveaffiliateshave,fromtimetotime,performed,andmayinthefutureperform,variousfinancialadvisoryandinvestmentbankingservicesforus,forwhichtheyreceivedorwillreceivecustomaryfeesandexpenses.Alloftheunderwritersinthisofferingwereunderwritersinourinitialpublicoffering.
Inaddition,intheordinarycourseoftheirvariousbusinessactivities,theunderwritersandtheirrespectiveaffiliatesmaymakeorholdabroadarrayofinvestmentsandactivelytradedebtandequitysecurities(orrelatedderivativesecurities)andfinancialinstruments(includingbankloans)fortheirownaccountandfortheaccountsoftheircustomersandmayatanytimeholdlongandshortpositionsinsuchsecuritiesandinstruments.Suchinvestmentandsecuritiesactivitiesmayinvolveoursecuritiesandinstruments.Theunderwritersandtheirrespectiveaffiliatesmayalsomakeinvestmentrecommendationsorpublishorexpressindependentresearchviewsinrespectofsuchsecuritiesorinstrumentsandmayatanytimehold,orrecommendtoclientsthattheyacquire,longorshortpositionsinsuchsecuritiesandinstruments.
Intheordinarycourseofbusiness,wesold,andmayinthefuturesell,solutionstooneormoreoftheunderwritersortheirrespectiveaffiliatesinarms‑lengthtransactionsonmarketcompetitiveterms.
Selling Restrictions
European Economic Area
InrelationtoeachMemberStateoftheEuropeanEconomicAreawhichhasimplementedtheProspectusDirective,eachaRelevantMemberState,anoffertothepublicofanysharesofourcommonstockmaynotbemadeinthatRelevantMemberState,exceptthatanoffertothepublicinthatRelevantMemberStateofanysharesofourcommonstockmaybemadeatanytimeunderthefollowingexemptionsundertheProspectusDirective,iftheyhavebeenimplementedinthatRelevantMemberState:
(a) toanylegalentitywhichisaqualifiedinvestorasdefinedintheProspectusDirective;
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(b) tofewerthan100or,iftheRelevantMemberStatehasimplementedtherelevantprovisionofthe2010PDAmendingDirective,150,naturalorlegalpersons(otherthanqualifiedinvestorsasdefinedintheProspectusDirective),aspermittedundertheProspectusDirective,subjecttoobtainingthepriorconsentoftherepresentativesforanysuchoffer;or
(c) inanyothercircumstancesfallingwithinArticle3(2)oftheProspectusDirective,providedthatnosuchofferofsharesofourcommonstockshallresultinarequirementforthepublicationbyusoranyunderwriterofaprospectuspursuanttoArticle3oftheProspectusDirective.
Forthepurposesofthisprovision,theexpressionan“offertothepublic”inrelationtoanysharesofourcommonstockinanyRelevantMemberStatemeansthecommunicationinanyformandbyanymeansofsufficientinformationonthetermsoftheofferandanysharesofourcommonstocktobeofferedsoastoenableaninvestortodecidetopurchaseanysharesofourcommonstock,asthesamemaybevariedinthatMemberStatebyanymeasureimplementingtheProspectusDirectiveinthatMemberState,theexpression“ProspectusDirective”meansDirective2003/71/EC(andamendmentsthereto,includingthe2010PDAmendingDirective,totheextentimplementedintheRelevantMemberState),andincludesanyrelevantimplementingmeasureintheRelevantMemberState,andtheexpression“2010PDAmendingDirective”meansDirective2010/73/EU.
United Kingdom
Eachunderwriterhasrepresentedandagreedthat:
(a) ithasonlycommunicatedorcausedtobecommunicatedandwillonlycommunicateorcausetobecommunicatedaninvitationorinducementtoengageininvestmentactivity(withinthemeaningofSection21oftheFinancialServicesandMarketsAct2000(FSMA)receivedbyitinconnectionwiththeissueorsaleofthesharesofourcommonstockincircumstancesinwhichSection21(1)oftheFSMAdoesnotapplytous;and
(b) ithascompliedandwillcomplywithallapplicableprovisionsoftheFSMAwithrespecttoanythingdonebyitinrelationtothesharesofourcommonstockin,fromorotherwiseinvolvingtheUnitedKingdom.
Canada
Thesharesofcommonstockmaybesoldonlytopurchaserspurchasing,ordeemedtobepurchasing,asprincipalthatareaccreditedinvestors,asdefinedinNationalInstrument45-106Prospectus Exemptions orsubsection73.3(1)oftheSecurities Act (Ontario),andarepermittedclients,asdefinedinNationalInstrument31-103Registration Requirements, Exemptions and Ongoing Registrant Obligations .Anyresaleofthesharesofcommonstockmustbemadeinaccordancewithanexemptionfrom,orinatransactionnotsubjectto,theprospectusrequirementsofapplicablesecuritieslaws.
SecuritieslegislationincertainprovincesorterritoriesofCanadamayprovideapurchaserwithremediesforrescissionordamagesifthisprospectus(includinganyamendmentthereto)containsamisrepresentation,providedthattheremediesforrescissionordamagesareexercisedbythepurchaserwithinthetimelimitprescribedbythesecuritieslegislationofthepurchaser’sprovinceorterritory.Thepurchasershouldrefertoanyapplicableprovisionsofthesecuritieslegislationofthepurchaser’sprovinceorterritoryforparticularsoftheserightsorconsultwithalegaladvisor.
Pursuanttosection3A.3(or,inthecaseofsecuritiesissuedorguaranteedbythegovernmentofanon-Canadianjurisdiction,section3A.4)ofNationalInstrument33-105Underwriting Conflicts (NI33-105),theunderwritersarenotrequiredtocomplywiththedisclosurerequirementsofNI33-105regardingunderwriterconflictsofinterestinconnectionwiththisoffering.
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Hong Kong
ThesharesofcommonstockhavenotbeenofferedorsoldandwillnotbeofferedorsoldinHongKong,bymeansofanydocument,otherthan(a)to“professionalinvestors”asdefinedintheSecuritiesandFuturesOrdinance(Cap.571)ofHongKongandanyrulesmadeunderthatOrdinance;or(b)inothercircumstanceswhichdonotresultinthedocumentbeinga“prospectus”asdefinedintheCompanies(WindingUpandMiscellaneousProvisions)Ordinance(Cap.32)ofHongKongorwhichdonotconstituteanoffertothepublicwithinthemeaningofthatOrdinance.Noadvertisement,invitationordocumentrelatingtothesharesofcommonstockhasbeenormaybeissuedorhasbeenormaybeinthepossessionofanypersonforthepurposesofissuance,whetherinHongKongorelsewhere,whichisdirectedat,orthecontentsofwhicharelikelytobeaccessedorreadby,thepublicofHongKong(exceptifpermittedtodosounderthesecuritieslawsofHongKong)otherthanwithrespecttosharesofcommonstockwhichareorareintendedtobedisposedofonlytopersonsoutsideHongKongoronlyto“professionalinvestors”asdefinedintheSecuritiesandFuturesOrdinanceandanyrulesmadeunderthatOrdinance.
Singapore
ThisprospectushasnotbeenregisteredasaprospectuswiththeMonetaryAuthorityofSingapore.Accordingly,thisprospectusandanyotherdocumentormaterialinconnectionwiththeofferorsale,orinvitationforsubscriptionorpurchase,ofthesharesofcommonstockmaynotbecirculatedordistributed,normaythesharesofcommonstockbeofferedorsold,orbemadethesubjectofaninvitationforsubscriptionorpurchase,whetherdirectlyorindirectly,topersonsinSingaporeotherthan(i)toaninstitutionalinvestorunderSection274oftheSecuritiesandFuturesAct,Chapter289ofSingapore,ortheSFA,(ii)toarelevantpersonpursuanttoSection275(1),oranypersonpursuanttoSection275(1A),andinaccordancewiththeconditionsspecifiedinSection275,oftheSFA,or(iii)otherwisepursuantto,andinaccordancewiththeconditionsof,anyotherapplicableprovisionoftheSFA.
WherethesharesofcommonstockaresubscribedorpurchasedunderSection275oftheSFAbyarelevantpersonwhichis:
(a) acorporation(whichisnotanaccreditedinvestor(asdefinedinSection4AoftheSFA))thesolebusinessofwhichistoholdinvestmentsandtheentiresharecapitalofwhichisownedbyoneormoreindividuals,eachofwhomisanaccreditedinvestor;or
(b) atrust(wherethetrusteeisnotanaccreditedinvestor)thesolepurposeofwhichistoholdinvestmentsandeachbeneficiaryofthetrustisanindividualwhoisanaccreditedinvestor,securities(asdefinedinSection239(1)oftheSFA)ofthatcorporationorthebeneficiaries’rightsandinterest(howsoeverdescribed)inthattrustshallnotbetransferredwithinsixmonthsafterthatcorporationorthattrusthasacquiredthesharesofcommonstockpursuanttoanoffermadeunderSection275oftheSFAexcept:
(a) toaninstitutionalinvestorortoarelevantpersondefinedinSection275(2)oftheSFA,ortoanypersonarisingfromanofferreferredtoinSection275(1A)orSection276(4)(i)(B)oftheSFA;
(b) wherenoconsiderationisorwillbegivenforthetransfer;
(c) wherethetransferisbyoperationoflaw;
(d) asspecifiedinSection276(7)oftheSFA;or
(e) asspecifiedinRegulation32oftheSecuritiesandFutures(OffersofInvestments)(SharesandDebentures)Regulations2005ofSingapore.
Japan
NoregistrationpursuanttoArticle4,paragraph1oftheFinancialInstrumentsandExchangeLawofJapan(LawNo.25of1948,asamended),ortheFIEL,hasbeenmadeorwillbemadewithrespecttothesolicitationoftheapplicationfortheacquisitionofthesharesofcommonstock.
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Accordingly,thesharesofcommonstockhavenotbeen,directlyorindirectly,offeredorsoldandwillnotbe,directlyorindirectly,offeredorsoldinJapanorto,orforthebenefitof,anyresidentofJapan(whichtermasusedhereinmeansanypersonresidentinJapan,includinganycorporationorotherentityorganizedunderthelawsofJapan)ortoothersforre-offeringorre-sale,directlyorindirectly,inJapanorto,orforthebenefitof,anyresidentofJapanexceptpursuanttoanexemptionfromtheregistrationrequirements,andotherwiseincompliancewith,theFIELandtheotherapplicablelawsandregulationsofJapan.
For Qualified Institutional Investors, or QII
Pleasenotethatthesolicitationfornewly-issuedorsecondarysecurities(eachasdescribedinParagraph2,Article4oftheFIEL)inrelationtothesharesofcommonstockconstituteseithera“QIIonlyprivateplacement”ora“QIIonlysecondarydistribution”(eachasdescribedinParagraph1,Article23-13oftheFIEL).Disclosureregardinganysuchsolicitation,asisotherwiseprescribedinParagraph1,Article4oftheFIEL,hasnotbeenmadeinrelationtothesharesofcommonstock.ThesharesofcommonstockmayonlybetransferredtoQIIs.
For Non-QII Investors
Pleasenotethatthesolicitationfornewly-issuedorsecondarysecurities(eachasdescribedinParagraph2,Article4oftheFIEL)inrelationtothesharesofcommonstockconstituteseithera“smallnumberprivateplacement”ora“smallnumberprivatesecondarydistribution”(eachasisdescribedinParagraph4,Article23-13oftheFIEL).Disclosureregardinganysuchsolicitation,asisotherwiseprescribedinParagraph1,Article4oftheFIEL,hasnotbeenmadeinrelationtothesharesofcommonstock.Thesharesofcommonstockmayonlybetransferredenblocwithoutsubdivisiontoasingleinvestor.
Australia
Noplacementdocument,prospectus,productdisclosurestatementorotherdisclosuredocumenthasbeenlodgedwiththeAustralianSecuritiesandInvestmentsCommission,orASIC,inrelationtotheoffering.Thisprospectusdoesnotconstituteaprospectus,productdisclosurestatementorotherdisclosuredocumentundertheCorporationsAct2001,ortheCorporationsAct,anddoesnotpurporttoincludetheinformationrequiredforaprospectus,productdisclosurestatementorotherdisclosuredocumentundertheCorporationsAct.
AnyofferinAustraliaofthesharesmayonlybemadetopersons,ortheExemptInvestors,whoare“sophisticatedinvestors”(withinthemeaningofsection708(8)oftheCorporationsAct),“professionalinvestors”(withinthemeaningofsection708(11)oftheCorporationsAct)orotherwisepursuanttooneormoreexemptionscontainedinsection708oftheCorporationsActsothatitislawfultooffertheshareswithoutdisclosuretoinvestorsunderChapter6DoftheCorporationsAct.
ThesharesappliedforbyExemptInvestorsinAustraliamustnotbeofferedforsaleinAustraliaintheperiodof12monthsafterthedateofallotmentundertheoffering,exceptincircumstanceswheredisclosuretoinvestorsunderChapter6DoftheCorporationsActwouldnotberequiredpursuanttoanexemptionundersection708oftheCorporationsActorotherwiseorwheretheofferispursuanttoadisclosuredocumentwhichcomplieswithChapter6DoftheCorporationsAct.AnypersonacquiringsharesmustobservesuchAustralianon-salerestrictions.
Thisprospectuscontainsgeneralinformationonlyanddoesnottakeintoaccounttheinvestmentobjectives,financialsituationorparticularneedsofanyparticularperson.Itdoesnotcontainanysecuritiesrecommendationsorfinancialproductadvice.Beforemakinganinvestmentdecision,investorsneedtoconsiderwhethertheinformationinthisprospectusisappropriatefortheirneeds,objectivesandcircumstances,and,ifnecessary,seekexpertadviceonthosematters.
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Dubai International Financial Centre
ThisprospectusrelatestoanExemptOfferinaccordancewiththeOfferedSecuritiesRulesoftheDubaiFinancialServicesAuthority,orDFSA.ThisprospectusisintendedfordistributiononlytopersonsofatypespecifiedintheOfferedSecuritiesRulesoftheDFSA.Itmustnotbedeliveredto,orreliedonby,anyotherperson.TheDFSAhasnoresponsibilityforreviewingorverifyinganydocumentsinconnectionwithExemptOffers.TheDFSAhasnotapprovedthisprospectusnortakenstepstoverifytheinformationsetforthhereinandhasnoresponsibilityfortheprospectus.Thesharestowhichthisprospectusrelatesmaybeilliquidand/orsubjecttorestrictionsontheirresale.Prospectivepurchasersofthesharesofferedshouldconducttheirownduediligenceontheshares.Ifyoudonotunderstandthecontentsofthisprospectusyoushouldconsultanauthorizedfinancialadvisor.
Switzerland
ThesharesofcommonstockmaynotbepubliclyofferedinSwitzerlandandwillnotbelistedontheSIXSwissExchange,orSIX,oronanyotherstockexchangeorregulatedtradingfacilityinSwitzerland.
Thisdocumenthasbeenpreparedwithoutregardtothedisclosurestandardsforissuanceprospectusesunderart.652aorart.1156oftheSwissCodeofObligationsorthedisclosurestandardsforlistingprospectusesunderart.27ff.oftheSIXListingRulesorthelistingrulesofanyotherstockexchangeorregulatedtradingfacilityinSwitzerland.NeitherthisdocumentnoranyotherofferingormarketingmaterialrelatingtothesharesortheofferingmaybepubliclydistributedorotherwisemadepubliclyavailableinSwitzerland.Neitherthisdocumentnoranyotherofferingormarketingmaterialrelatingtotheoffering,us,ortheshareshavebeenorwillbefiledwithorapprovedbyanySwissregulatoryauthority.Inparticular,thisdocumentwillnotbefiledwith,andtheofferofshareswillnotbesupervisedby,theSwissFinancialMarketSupervisoryAuthorityFINMA,orFINMA,andtheofferofshareshasnotbeenandwillnotbeauthorizedundertheSwissFederalActonCollectiveInvestmentSchemes,orCISA.TheinvestorprotectionaffordedtoacquirersofinterestsincollectiveinvestmentschemesundertheCISAdoesnotextendtoacquirersofshares.
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LEGAL MATTERS
Fenwick&WestLLP,MountainView,Californiawillpassuponthevalidityoftheissuanceofthesharesofcommonstockofferedbythisprospectus.GundersonDettmerStoughVilleneuveFranklin&Hachigian,LLP,RedwoodCity,California,isrepresentingtheunderwritersinthisoffering.
EXPERTS
Ernst&YoungLLP,independentregisteredpublicaccountingfirm,hasauditedourconsolidatedfinancialstatementsatJanuary31,2016and2017,andfortheyearsthenended,assetforthintheirreport.WehaveincludedourfinancialstatementsintheprospectusandelsewhereintheregistrationstatementinrelianceonErnst&YoungLLP’sreport,givenontheirauthorityasexpertsinaccountingandauditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
WehavefiledwiththeSECaregistrationstatementonFormS‑1undertheSecuritiesActwithrespecttothesharesofcommonstockofferedhereby.Thisprospectus,whichconstitutesapartoftheregistrationstatement,doesnotcontainalloftheinformationsetforthintheregistrationstatement,someitemsofwhicharecontainedinexhibitstotheregistrationstatementaspermittedbytherulesandregulationsoftheSEC.Forfurtherinformationwithrespecttousandourcommonstock,wereferyoutotheregistrationstatement,includingtheexhibitsandtheconsolidatedfinancialstatementsandnotesfiledasapartoftheregistrationstatement.Statementscontainedinthisprospectusconcerningthecontentsofanycontractoranyotherdocumentarenotnecessarilycomplete.Ifacontractordocumenthasbeenfiledasanexhibittotheregistrationstatement,pleaseseethecopyofthecontractordocumentthathasbeenfiled.Eachstatementinthisprospectusrelatingtoacontractordocumentfiledasanexhibitisqualifiedinallrespectsbythefiledexhibit.Theexhibitstotheregistrationstatementshouldbereviewedforthecompletecontentsofthesecontractsanddocuments.Acopyoftheregistrationstatement,includingtheexhibitsandthefinancialstatementsandnotesfiledasapartoftheregistrationstatement,maybeinspectedwithoutchargeattheSEC’sPublicReferenceRoomat100FStreet,N.E.,Washington,D.C.20549,andcopiesofalloranypartoftheregistrationstatementmaybeobtainedfromtheSECuponthepaymentoffeesprescribedbyit.YoumaycalltheSECat1‑800‑SEC‑0330formoreinformationontheoperationofthepublicreferencefacilities.TheSECmaintainsawebsiteathttp://www.sec.govthatcontainsreports,proxyandinformationstatementsandotherinformationregardingcompaniesthatfileelectronicallywithit.
Asaresultofthisoffering,wewillbecomesubjecttotheinformationandreportingrequirementsoftheExchangeActand,inaccordancewiththislaw,willfileperiodicreports,proxystatementsandotherinformationwiththeSEC.Theseperiodicreports,proxystatementsandotherinformationwillbeavailableforinspectionandcopyingattheSEC’spublicreferencefacilitiesandthewebsiteoftheSECreferredtoabove.
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CLOUDERA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PageReportofIndependentRegisteredPublicAccountingFirm F-2ConsolidatedBalanceSheets F-3ConsolidatedStatementsofOperations F-4ConsolidatedStatementsofComprehensiveLoss F-6ConsolidatedStatementsofRedeemableConvertiblePreferredStockandStockholders’Equity(Deficit) F-7ConsolidatedStatementsofCashFlows F-9NotestoConsolidatedFinancialStatements F-11
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheBoardofDirectorsandStockholdersCloudera,Inc.
WehaveauditedtheaccompanyingconsolidatedbalancesheetsofCloudera,Inc.asofJanuary31,2016and2017,andtherelatedconsolidatedstatementsofoperations,comprehensiveloss,redeemableconvertiblepreferredstockandstockholders’deficitandcashflowsfortheyearsthenended.ThesefinancialstatementsaretheresponsibilityoftheCompany’smanagement.Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudits.
WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.WewerenotengagedtoperformanauditoftheCompany’sinternalcontroloverfinancialreporting.Ourauditsincludedconsiderationofinternalcontroloverfinancialreportingasabasisfordesigningauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheCompany’sinternalcontroloverfinancialreporting.Accordingly,weexpressnosuchopinion.Anauditalsoincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements,assessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,andevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion.
Inouropinion,thefinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,theconsolidatedfinancialpositionofCloudera,Inc.atJanuary31,2016and2017,andtheconsolidatedresultsofitsoperationsanditscashflowsfortheyearsthenended,inconformitywithU.S.generallyacceptedaccountingprinciples.
/s/Ernst&YoungLLP
RedwoodCity,CaliforniaMarch31,2017
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CLOUDERA, INC.
Consolidated Balance Sheets(in thousands, except share and per share data)
As of
January 31, As of
July 31,
2016 2017 2017
(unaudited)
ASSETS CURRENTASSETS:
Cashandcashequivalents $ 35,966 $ 74,186 $ 68,936Short-termmarketablesecurities 216,584 160,770 325,744Accountsreceivable,net 49,410 101,549 84,805Prepaidexpensesandothercurrentassets 8,799 13,197 17,509
Totalcurrentassets 310,759 349,702 496,994Propertyandequipment,net 12,882 13,104 13,027Marketablesecurities,noncurrent 145,695 20,710 81,072Intangibleassets,net 9,036 7,051 5,166Goodwill 30,551 31,516 31,516Restrictedcash 28 15,446 18,048Otherassets 3,936 5,015 3,994
TOTALASSETS $ 512,887 $ 442,544 $ 649,817LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’
EQUITY (DEFICIT) CURRENTLIABILITIES:
Accountspayable $ 4,080 $ 3,550 $ 6,326Accruedcompensation 22,154 33,376 32,254Otheraccruedliabilities 11,173 9,918 15,670Deferredrevenue,currentportion 130,635 192,242 194,252
Totalcurrentliabilities 168,042 239,086 248,502Deferredrevenue,lesscurrentportion 27,540 25,182 36,869Otherliabilities 3,127 4,345 9,058TOTALLIABILITIES 198,709 268,613 294,429Commitmentsandcontingencies(Note7) Redeemableconvertiblepreferredstock,$0.00005parvalue;74,907,415sharesauthorized,issued,andoutstandingatJanuary31,2016and2017;$670,875aggregateliquidationpreferenceatJanuary31,2016and2017;nosharesauthorized,issued,andoutstandingatJuly31,2017(unaudited) 657,687 657,687 —
STOCKHOLDERS’EQUITY(DEFICIT): Preferredstock,$0.00005parvalue;nosharesauthorized,issuedandoutstanding,atJanuary31,2016and2017;20,000,000sharesauthorized,nosharesissuedandoutstandingatJuly31,2017(unaudited) — — —
Commonstock,$0.00005parvalue;150,000,000,160,000,000and1,200,000,000sharesauthorizedatJanuary31,2016and2017andJuly31,2017(unaudited),respectively;35,775,694,38,156,688and131,250,336sharesissuedandoutstandingatJanuary31,2016and2017andJuly31,2017(unaudited),respectively 1 2 7
Additionalpaid-incapital 145,914 192,795 1,318,447Accumulatedothercomprehensiveloss (744) (556) (521)Accumulateddeficit (488,680) (675,997) (962,545)
TOTALSTOCKHOLDERS’EQUITY(DEFICIT) (343,509) (483,756) 355,388TOTALLIABILITIES,REDEEMABLECONVERTIBLEPREFERREDSTOCKANDSTOCKHOLDERS’EQUITY(DEFICIT) $ 512,887 $ 442,544 $ 649,817
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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CLOUDERA, INC.
Consolidated Statements of Operations(in thousands, except per share data)
Year Ended January 31,
Six Months EndedJuly 31,
2016 2017 2016 2017
(unaudited)Revenue:
Subscription $ 119,150 $ 200,252 $ 91,360 $ 138,657Services 46,898 60,774 29,581 30,767
Totalrevenue 166,048 261,026 120,941 169,424Costofrevenue:(1)(2)
Subscription 30,865 38,704 19,057 41,687Services 44,498 48,284 23,317 50,395
Totalcostofrevenue 75,363 86,988 42,374 92,082Grossprofit 90,685 174,038 78,567 77,342Operatingexpenses:(1)(2)(3)
Researchanddevelopment 99,314 102,309 51,150 138,675Salesandmarketing 161,106 203,161 93,044 172,578Generalandadministrative 34,902 55,907 16,676 54,114
Totaloperatingexpenses 295,322 361,377 160,870 365,367Lossfromoperations (204,637) (187,339) (82,303) (288,025)Interestincome,net 2,218 2,756 1,448 2,089Otherincome(expense),net 386 (547) (15) 839Netlossbeforeprovisionforincometaxes (202,033) (185,130) (80,870) (285,097)Provisionforincometaxes (1,110) (2,187) (970) (1,451)
Netlossattributabletocommonstockholders $ (203,143) $ (187,317) $ (81,840) $ (286,548)
Netlosspershareattributabletocommonstockholders,basicanddiluted $ (6.21) $ (5.15) $ (2.27) $ (3.28)Weighted-averagesharesusedincomputingnetlosspershareattributabletocommonstockholders,basicanddiluted 32,724 36,406 36,090 87,293
___________(1) Amountsincludestock‑basedcompensationexpenseasfollows(inthousands):
Year Ended January 31,
Six Months Ended July 31,
2016 2017 2016 2017
(unaudited)
Costofrevenue–subscription $ 3,363 $ 1,426 $ 708 $ 19,393
Costofrevenue–services 4,301 1,803 931 24,227
Researchanddevelopment 23,048 5,606 3,013 81,029
Salesandmarketing 19,187 5,757 3,033 72,678
Generalandadministrative 13,691 7,122 3,556 33,206
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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CLOUDERA, INC.
Consolidated Statements of Operations(in thousands, except per share data)
(2) Amountsincludeamortizationofacquiredintangibleassetsasfollows(inthousands):
Year Ended January 31,
Six Months Ended July 31,
2016 2017 2016 2017
(unaudited)
Costofrevenue–subscription $ 1,732 $ 1,997 $ 969 $ 1,024
Salesandmarketing 1,723 1,723 861 861
(3) InJanuary2017,wedonated1,175,063sharesofcommonstocktotheClouderaFoundation.Werecordedanon‑cashchargeof$21.6millionforthefairvalueofthedonatedshares,whichwasrecognizedingeneralandadministrativeexpensefortheyearendedJanuary31,2017.SeeNote12forfurtherdiscussion.
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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CLOUDERA, INC.
Consolidated Statements of Comprehensive Loss(in thousands)
Year Ended January 31,
Six Months EndedJuly 31,
2016 2017 2016 2017
(unaudited)Netloss $ (203,143) $ (187,317) $ (81,840) $ (286,548)Othercomprehensiveincome(loss),netoftax:
Foreigncurrencytranslationgains(losses) (334) 75 33 (26)Unrealizedgain(loss)oninvestments (187) 113 353 61
Totalothercomprehensiveincome(loss),netoftax (521) 188 386 35
Comprehensiveloss $ (203,664) $ (187,129) $ (81,454) $ (286,513)
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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CLOUDERA, INC.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)(in thousands, except share data)
Redeemable Convertible
Preferred Stock Common Stock AdditionalPaid-InCapital
AccumulatedOther
ComprehensiveLoss
AccumulatedDeficit
TotalStockholders’
Deficit Shares Amount Shares Amount BalanceasofJanuary31,2015 74,907,415 $ 657,687 28,815,224 $ 1 $ 63,119 $ (223) $ (285,537) $ (222,640)
Stockoptionexercises — — 5,838,389 — 10,865 — — 10,865Vestedrestrictedstockunitsconvertedintoshares — — 799,552 — — — — —
Stock-basedcompensationexpense — — — — 63,590 — — 63,590
Sharesissuedrelatedtobusinesscombination — — 358,735 — 9,542 — — 9,542
Shareswithheldrelatedtonetsharesettlementofrestrictedstock — — (36,206) — (1,202) — — (1,202)
Unrealizedlossoninvestments — — — — — (187) — (187)
Foreigncurrencytranslationadjustment — — — — — (334) — (334)
Netloss — — — — — — (203,143) (203,143)BalanceasofJanuary31,2016 74,907,415 657,687 35,775,694 1 145,914 (744) (488,680) (343,509)Stockoptionexercises — — 1,157,625 1 3,593 — — 3,594Vestedrestrictedstockunitsconvertedintoshares — — 48,306 — — — — —
Stock-basedcompensationexpense — — — — 21,714 — — 21,714
DonationofcommonstocktotheClouderaFoundation — — 1,175,063 — 21,574 — — 21,574
Unrealizedgainoninvestments — — — — — 113 — 113
Foreigncurrencytranslationadjustment — — — — — 75 — 75
Netloss — — — — — — (187,317) (187,317)BalanceasofJanuary31,2017 74,907,415 657,687 38,156,688 2 192,795 (556) (675,997) (483,756)Stockoptionexercises(unaudited) — — 895,118 — 2,072 — — 2,072
Vestedrestrictedstockunitsconvertedintoshares(unaudited) — — 41,115 — — — — —
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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CLOUDERA, INC.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)(in thousands, except share data)
Conversionofredeemableconvertiblepreferredstocktocommonstockinconnectionwithinitialpublicoffering(unaudited) (74,907,415) (657,687) 74,907,415 4 657,683 — — 657,687
Issuanceofcommonstockinconnectionwithinitialpublicoffering,netofofferingcosts(unaudited) — — 17,250,000 1 235,364 — — 235,365
Stock-basedcompensationexpense(unaudited) — — — — 230,533 — — 230,533
Unrealizedgainoninvestments(unaudited) — — — — — 61 — 61
Foreigncurrencytranslationadjustment(unaudited) — — — — — (26) — (26)
Netloss(unaudited) — — — — — — (286,548) (286,548)BalanceasofJuly31,2017(unaudited) — $ — 131,250,336 $ 7 $ 1,318,447 $ (521) $ (962,545) $ 355,388
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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CLOUDERA, INC.
Consolidated Statements of Cash Flows(in thousands)
Year Ended January 31,
Six Months EndedJuly 31,
2016 2017 2016 2017
(unaudited)CASH FLOWS FROM OPERATING ACTIVITIES Netloss $ (203,143) $ (187,317) $ (81,840) $ (286,548)Adjustmentstoreconcilenetlosstonetcashusedinoperatingactivities:
Depreciationandamortization 8,586 10,134 4,953 6,994Stock-basedcompensation 63,590 21,714 11,241 230,533DonationofcommonstocktotheClouderaFoundation — 21,574 — —Accretionandamortizationofmarketablesecurities 3,605 2,867 1,966 414Lossondisposaloffixedassets 3 — — —Changesinassetsandliabilities:
Accountsreceivable (19,015) (52,139) 4,011 16,744Prepaidexpensesandotherassets (1,795) (3,300) (784) 639Accountspayable 1,455 (281) 1,872 1,674Accruedcompensation 9,374 11,222 (3,128) (4,983)Accruedexpensesandotherliabilities 4,757 (284) 1,006 2,970Deferredrevenue 42,086 59,249 8,604 13,697
Netcashusedinoperatingactivities (90,497) (116,561) (52,099) (17,866)CASH FLOWS FROM INVESTING ACTIVITIES
Purchasesofmarketablesecurities (411,524) (103,776) (90,409) (387,154)Salesofmarketablesecurities 71,379 74,655 34,372 43,198Maturitiesofmarketablesecurities 111,913 207,792 129,945 117,604Cashusedinbusinesscombinations,netofcashacquired (8,911) (2,700) (2,700) —Capitalexpenditures (5,539) (7,385) (6,135) (1,971)
Netcashprovidedby(usedin)investingactivities (242,682) 168,586 65,073 (228,323)CASH FLOWS FROM FINANCING ACTIVITIES
Netproceedsfrom(paymentsfor)issuanceofcommonstockininitialpublicoffering — (2,056) — 237,686Shareswithheldrelatedtonetsharesettlementofrestrictedstockunits (1,202) — — —Proceedsfromemployeestockplans 10,865 3,594 1,633 5,932
Netcashprovidedbyfinancingactivities 9,663 1,538 1,633 243,618Effectofexchangeratechanges (334) 75 34 (77)Netincrease(decrease)incash,cashequivalentsandrestrictedcash (323,850) 53,638 14,641 (2,648)Cash,cashequivalentsandrestrictedcash—Beginningofperiod 359,844 35,994 35,994 89,632
Cash,cashequivalentsandrestrictedcash—Endofperiod $ 35,994 $ 89,632 $ 50,635 $ 86,984
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
F-9
TableofContents
CLOUDERA, INC.
Consolidated Statements of Cash Flows(in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cashpaidforincometaxes $ 1,131 $ 1,689 $ 654 $ 1,352
Cashpaidforinterest $ 1 $ 1 — —SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
FINANCING ACTIVITIES Purchasesofpropertyandequipmentinotheraccruedliabilities $ 793 $ 44 $ 570 $ 3,054
Fairvalueofcommonstockissuedasconsiderationforbusinesscombinations $ 9,542 $ — $ — $ —
Deferredofferingcostsinaccountspayableandotheraccruedliabilities $ — $ 747 $ — $ 264
Conversionofredeemableconvertiblepreferredstocktocommonstock $ — $ — $ — $ 657,687
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
F-10
TableofContents
CLOUDERA, INC.
Notes to Consolidated Financial Statements(information as of July 31, 2017 and for the six months ended July 31, 2017 and 2016 is unaudited)
1. Organization and Description of Business
Cloudera,Inc.wasincorporatedinthestateofDelawareonJune27,2008andisheadquarteredinPaloAlto,California.Wesellsubscriptionsandservicesforourmachinelearningandanalyticsplatform,optimizedforthecloud.Thisplatformdeliversanintegratedsuiteofcapabilitiesfordatamanagement,machinelearningandadvancedanalytics,affordingcustomersanagile,scalableandcost‑effectivesolutionfortransformingtheirbusinesses.
Unlessthecontextrequiresotherwise,thewords“we,”“us,”“our,”the“Company”and“Cloudera”refertoCloudera,Inc.anditssubsidiariestakenasawhole.
AsofJanuary31,2017andJuly31,2017,wehadanaccumulateddeficittotaling$676.0millionand$962.5million,respectively.Wehavefundedouroperationsprimarilywiththenetproceedswereceivedthroughthesaleofourcommonstockinourinitialpublicoffering(IPO),privatesalesofequitysecuritiesandproceedsfromthesaleofoursubscriptionsandservices.Managementbelievesthatcurrentlyavailableresourceswillbesufficienttofundourcashrequirementsforatleastthenexttwelvemonths.
Initial Public Offering
OnMay3,2017,wecompletedourIPOinwhichweissuedandsold17,250,000sharesofcommonstock,inclusiveoftheunderwriters’over-allotmentoption,atapublicofferingpriceof$15.00pershare.Wereceivednetproceedsof$235.4millionafterdeductingunderwritingdiscountsandcommissionsof$18.1millionandotherissuancecostsof$5.3million.InconjunctionwiththeIPO,wedonated$2.4million,or1%,ofthenetproceeds,tofundtheClouderaFoundation’sactivities.ImmediatelypriortotheclosingoftheIPO,all74,907,415sharesofourthen-outstandingredeemableconvertiblepreferredstockautomaticallyconvertedintosharesofcommonstockandwereclassified$657.7millionfromtemporaryequitytoadditionalpaidincapitalonourconsolidatedbalancesheet.
2. Summary of Significant Accounting Policies
Basis of Consolidation
TheconsolidatedfinancialstatementsincludetheaccountsofCloudera,Inc.anditswhollyownedsubsidiarieswhicharelocatedinvariouscountries,includingtheUnitedStates,Australia,China,Germany,HungaryandtheUnitedKingdom.Allintercompanybalancesandtransactionshavebeeneliminateduponconsolidation.ThefinancialstatementsarepreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates(GAAP).
Fiscal Year
OurfiscalyearendsonJanuary31.Referencestofiscal2017,forexample,referstothefiscalyearendedJanuary31,2017.
Unaudited Interim Financial Information
TheaccompanyinginterimconsolidatedbalancesheetasofJuly31,2017,theinterimconsolidatedstatementsofoperations,comprehensivelossandcashflowsforthesixmonthsendedJuly31,2016and2017andtheinterimconsolidatedstatementofredeemableconvertiblepreferredstockandstockholders’equity(deficit)forthesixmonthsendedJuly31,2017areunaudited.Thefinancialdataandinformationdisclosedinthesenotestotheconsolidatedfinancialstatementsrelatedtothatdateandtheseperiodsarealsounaudited.Theunauditedinterimconsolidatedfinancialstatementshavebeenpreparedonthesamebasisastheannualconsolidatedfinancialstatementsand,intheopinionofmanagement,reflectalladjustments,whichincludeonlynormalrecurringadjustments,necessarytopresentfairlyourfinancialpositionasofJuly31,2017andtheresultsofouroperationsandcashflowsforthesixmonthsendedJuly31,2016and2017.Theconsolidatedresultsofoperationsforthesix
F-11
monthsendedJuly31,2017arenotnecessarilyindicativeoftheresultstobeexpectedfortheentireyearendingJanuary31,2018,orforanyotherfutureannualorinterimperiod.
Use of Estimates
ThepreparationoffinancialstatementsinconformitywithGAAPrequiresmanagementtomakeestimatesandassumptionsthataffecttheamountsreportedinthefinancialstatementsandaccompanyingnotes.Significantitemssubjecttosuchestimatesincluderevenuerecognition,theusefullivesofpropertyandequipmentandintangibleassets,allowancefordoubtfulaccounts,stock‑basedcompensationexpense,annualbonusattainment,self‑insurancecostsincurred,thefairvalueoftangibleandintangibleassetsacquiredandliabilitiesassumedresultingfrombusinesscombinations,thefairvalueofcommonstockpriortoourIPO,theassessmentofelementsinamulti‑elementarrangementandthevaluationassignedtoeachelement,andcontingencies.Theseestimatesandassumptionsarebasedonmanagement’sbestestimatesandjudgment.Managementregularlyevaluatesitsestimatesandassumptionsusinghistoricalexperienceandotherfactors;however,actualresultscoulddiffersignificantlyfromtheseestimates.
Segments
Weoperateastwooperatingsegments–subscriptionandservices.Operatingsegmentsaredefinedascomponentsofanenterpriseforwhichseparatefinancialinformationisevaluatedregularlybythechiefoperatingdecisionmaker,whoisourchiefexecutiveofficer,indecidinghowtoallocateresourcesandassessperformance.
Foreign Currency Translation
Thefunctionalcurrencyofourforeignsubsidiariesisthelocalcurrency.Thegainsandlossesresultingfromtranslatingourforeignsubsidiaries’financialstatementsintoU.S.dollarshavebeenreportedinaccumulatedothercomprehensivelossontheconsolidatedbalancesheet.Assetsandliabilitiesaretranslatedatexchangeratesineffectatthebalancesheetdate.Equityistranslatedatthehistoricalratesfromtheoriginaltransactionperiod.Revenueandexpensesaretranslatedataverageexchangeratesineffectduringtheperiod.Foreigncurrencytransactiongainsandlossesareincludedinotherincome,netonthestatementofoperations.
Cash, Cash Equivalents and Restricted Cash
Cashequivalentsconsistofshort-term,highlyliquidinvestmentswithoriginalmaturitiesofthreemonthsorlessfromthedateofpurchase.Restrictedcashrepresentscashondepositwithfinancialinstitutionsinsupportoflettersofcreditoutstandinginfavorofcertainlandlordsforofficespace,whichincludes$14.7millioninrestrictedcashrelatedtoanewnon‑cancelableoperatingleaseagreementtorentofficespaceinPaloAlto,CaliforniathatwasenteredintoinSeptember2016.
Cashasreportedontheconsolidatedstatementsofcashflowsincludestheaggregateamountsofcashandcashequivalentsandtherestrictedcashasshownontheconsolidatedbalancesheets.Cashasreportedontheconsolidatedstatementsofcashflowsconsistsofthefollowing(inthousands):
As of
January 31, As of
July 31,
2016 2017 2016 2017
(unaudited)Cashandcashequivalents $ 35,966 $ 74,186 $ 50,609 $ 68,936Restrictedcash 28 15,446 26 18,048
Cash,cashequivalentsandrestrictedcash $ 35,994 $ 89,632 $ 50,635 $ 86,984
Marketable Securities
Wehaveinvestmentsinvariousmarketablesecuritieswhichareclassifiedasavailableforsale.Wedeterminetheappropriateclassificationofmarketablesecuritiesatthetimeofpurchaseandreevaluatesuchdeterminationateachbalancesheetdate.Theinvestmentsareadjustedforamortizationofpremiumsanddiscountstomaturityand
F-12
suchamortizationisincludedininterestincome,netonthestatementofoperations.Changesinmarketvalueconsideredtobetemporaryarerecordedasunrealizedgainsorlossesinothercomprehensiveloss.Realizedgainsandlossesanddeclinesinvaluejudgedtobeotherthantemporaryonavailable‑for‑salesecuritiesareincludedinotherincome(expense),netonthestatementofoperations.Thecostofsecuritiessoldisbasedonthespecific‑identificationmethod.
Strategic Investments
Weowninterestsinnon‑marketableequityanddebtsecurities,whichconsistofminorityequityanddebtinvestmentsinprivately‑heldcompanies.Wereporttheseinvestmentsatcostormarkeddowntofairvaluewhenaneventorcircumstanceindicatesanother‑than‑temporarydeclineinvaluehasoccurred.Theseinvestmentsarevaluedusingsignificantunobservableinputsordatainaninactivemarketwhichrequiresjudgmentduetotheabsenceofmarketpricesandinherentlackofliquidity.
Concentration of Credit Risk and Significant Customers
Financialinstrumentsthatsubjectustoconcentrationsofcreditriskconsistprimarilyofcashandcashequivalents,marketablesecurities,restrictedcash,andaccountsreceivable.Ourcashisdepositedwithhighcreditqualityfinancialinstitutions.AttimessuchdepositsmaybeinexcessoftheFederalDepositoryInsuranceCorporationinsuredlimits.Wehavenotexperiencedanylossesonthesedeposits.
AtJanuary31,2016,nosinglecustomerrepresentedmorethan10%ofaccountsreceivable.AtJanuary31,2017andJuly31,2017,onecustomerrepresented21%andanother,18%,respectively,ofaccountsreceivable.FortheyearendedJanuary31,2016and2017andthesixmonthsendedJuly31,2016and2017,nosinglecustomeraccountedfor10%ormoreofrevenue.
Accounts Receivable and Allowance for Doubtful Accounts
Accountsreceivablearerecordedattheinvoicedamount.Wegenerallydonotrequirecollateralandestimatetheallowancefordoubtfulaccountsbasedontheageofoutstandingreceivables,customercreditworthinessandexistingeconomicconditions.Ifeventsorchangesincircumstancesindicatethatspecificreceivablebalancesmaybeimpaired,furtherconsiderationisgiventothecollectabilityofthosebalancesandanallowanceisrecordedaccordingly.Past‑duereceivablebalancesarewrittenoffwheninternalcollectioneffortshavebeenunsuccessfulincollectingtheamountdue.AsofbothJanuary31,2016andJanuary31,2017,theallowancefordoubtfulaccountswas$0.1million.AsofJuly31,2017,theallowancefordoubtfulaccountswas$0.2million.Themovementsintheallowancefordoubtfulaccountswerenotsignificantforanyoftheperiodspresented.
Property and Equipment, Net
Propertyandequipmentarestatedatcost,netofaccumulateddepreciationandamortization.Depreciationandamortizationofpropertyandequipmentiscalculatedusingastraight‑linemethodovertheestimatedusefullivesoftherespectiveassets.Maintenanceandrepairsthatdonotextendthelifeorimprovetheassetareexpensedwhenincurred.
TheestimatedusefullivesoftheCompany’sassetsareasfollows:
Computersoftware 2yearsComputerequipment 2-3yearsFurnitureandofficeequipment 3yearsLeaseholdimprovements Shorterofremainingleasetermorestimatedusefullife
Wereviewpropertyandequipmentforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamountoftheassetsmaynotberecoverable.Animpairmentlossisrecognizedwhenthetotalofestimatedundiscountedfuturecashflowsexpectedtoresultfromtheuseoftheassetanditseventualdispositionislessthanitscarryingamount.Impairment,ifany,wouldbeassessedusingdiscountedcashflowsorother
F-13
appropriatemeasuresoffairvalue.TherewasnoimpairmentofpropertyandequipmentduringtheyearsendedJanuary31,2016or2017orthesixmonthsendedJuly31,2016and2017.
Goodwill and Intangible Assets
Goodwillrepresentstheexcessofthepurchasepriceinabusinesscombinationoverthefairvalueofnettangibleandintangibleassetsacquired.Goodwillamountsarenotamortized,butrathertestedforimpairmentatleastannuallyinNovemberormoreoftenifandwhencircumstancesindicatethatthecarryingvaluemaynotberecoverable.
Intangibleassetsareamortizedovertheirusefullives.Eachperiodweevaluatetheestimatedremainingusefullifeofourintangibleassetsandwhethereventsorchangesincircumstanceswarrantarevisiontotheremainingperiodofamortization.
Weevaluatetherecoverabilityofourlong‑livedassets,includingintangibleassets,forpossibleimpairmentwhenevereventsorcircumstancesindicatethatthecarryingamountofsuchassetsmaynotberecoverable.Recoverabilityoftheseassetsismeasuredbycomparisonofthecarryingamountofeachassettothefutureundiscountedcashflowstheassetisexpectedtogenerate.Iftheundiscountedcashflowsusedinthetestforrecoverabilityarelessthanthecarryingamountoftheseassets,thenthecarryingamountofsuchassetsisreducedtofairvalue.
TherewerenoimpairmentsofgoodwillorintangibleassetsduringtheyearsendedJanuary31,2016or2017orthesixmonthsendedJuly31,2016and2017.
Business Combinations
Weuseourbestestimatesandassumptionstoassignfairvaluetotangibleandintangibleassetsacquiredandliabilitiesassumedattheacquisitiondate.Suchestimatesareinherentlyuncertainandsubjecttorefinement.Wecontinuetocollectinformationandreevaluatetheseestimatesandassumptionsandrecordanyadjustmentstothepreliminaryestimatestogoodwillprovidedthatwearewithinthemeasurementperiod.Upontheconclusionofthemeasurementperiodorfinaldeterminationofthefairvalueofassetsacquiredorliabilitiesassumed,whichevercomesfirst,anysubsequentadjustmentsarerecordedtotheconsolidatedstatementsofoperations.
Capitalized Software Costs
Capitalizationofsoftwaredevelopmentcostsforproductstobesoldtothirdpartiesbeginsupontheestablishmentoftechnologicalfeasibilityandceaseswhentheproductisavailableforgeneralrelease.Thereisgenerallynosignificantpassageoftimebetweenachievementoftechnologicalfeasibilityandtheavailabilityofoursoftwareforgeneralrelease,andthemajorityofoursoftwareisopen‑source.Therefore,wehavenotcapitalizedanysoftwarecoststhroughJanuary31,2016or2017orJuly31,2017.Allsoftwaredevelopmentcostshavebeenchargedtoresearchanddevelopmentexpenseintheconsolidatedstatementsofoperationsasincurred.
Deferred Offering Costs
Deferredofferingcosts,whichconsistofdirectincrementallegal,consulting,bankingandaccountingfeesrelatingtoanticipatedequityofferings,arecapitalizedandhavebeenoffsetagainstproceedsofourIPOonMay3,2017.AsofJanuary31,2017therewere$2.8millionofcapitalizeddeferredofferingcostsinotherassetsontheconsolidatedbalancesheet.AsofJuly31,2017,alldeferredofferingcostshadbeenrecordedagainstthegrossproceedsfromtheIPO.
Comprehensive Loss
Comprehensivelossrepresentsthenetlossfortheperiodplustheresultsofcertainchangestostockholders’deficitthatarenotreflectedintheconsolidatedstatementsofoperations.
F-14
Revenue Recognition
Wegeneraterevenuefromsubscriptionsandservices.Subscriptionarrangementsaretypicallyonetothreeyearsinlengthbutmaybeuptosevenyearsinlimitedcases.Arrangementswithourcustomerstypicallydonotincludegeneralrightsofreturn.Incrementaldirectcostsincurredrelatedtotheacquisitionororiginationofacustomercontractareexpensedasincurred.
Revenuerecognitioncommenceswhenallofthefollowingcriteriaaremet:(i)persuasiveevidenceofanarrangementexists;(ii)deliveryhasoccurred;(iii)thefeeisfixedordeterminable;and(iv)collectionisprobable.
Subscription revenue
Subscriptionrevenuerelatestoterm(ortime‑based)subscriptionagreementsforbothopensourceandproprietarysoftware.Subscriptionsincludeinternet,emailandphonesupport,bugfixes,andtherighttoreceiveunspecifiedsoftwareupdatesandupgradesreleasedwhenandifavailableduringthesubscriptionterm.Revenueforsubscriptionarrangementsisrecognizedratablyoverthecontractualtermofthearrangementbeginningonthedateaccesstothesubscriptionismadeavailabletothecustomer.
Services revenue
Servicesrevenuerelatestoprofessionalservicesfortheimplementationanduseofoursubscriptions,trainingandeducationservicesandrelatedreimbursabletravelcosts.
Fortimeandmaterialsandfixedfeearrangements,revenueisrecognizedastheservicesareperformedoruponacceptance,ifapplicable.Formilestone‑basedarrangements,revenueisrecognizeduponacceptanceorsubsequenttocompletionuponthelapseofanyacceptanceperiod.
Revenuefortrainingandeducationservicesisrecognizedupondelivery,exceptforOn‑DemandTraining,whichisrecognizedratablyoverthecontractualterm.
Multiple ‑element arrangements
Arrangementswithourcustomersgenerallyincludemultipleelementssuchassubscriptionandservices.Weallocaterevenuetoeachelementofthearrangementbasedonvendor‑specificobjectiveevidenceofeachelement’sfairvalue(VSOE)whenwecandemonstratesufficientevidenceofthefairvalue.VSOEforelementsofanarrangementisbaseduponthenormalpricinganddiscountingpracticesforthoseelementswhensoldseparatelyonastand‑alonebasis.
WehaveestablishedVSOEforsomeofourservices.IfVSOEforoneormoreundeliveredelementsdoesnotexist,revenuerecognitiondoesnotcommenceuntildeliveryofboththesubscriptionandserviceshavecommenced,orwhenVSOEoftheundeliveredelementshasbeenestablished.Oncerevenuerecognitioncommences,revenueforthearrangementisrecognizedratablyoverthelongestserviceperiodinthearrangement.
Reseller arrangements
Werecognizesubscriptionrevenueforsalesthroughresellersorotherindirectsaleschannels.Subscriptionrevenuefromthesesalesisgenerallyrecognizeduponsell‑throughtoanendusercustomer.Wherepaymentstousarebelievedtobecontingentuponpaymentbytheendusertothereseller,subscriptionrevenueisnotrecognizeduntilcashiscollected.
Deferred revenue
Deferredrevenueconsistsofamountsbilledtoorcollectedfromcustomersunderabindingagreementprovideddeliveryoftherelatedsubscriptionandserviceshascommenced.
F-15
Cost of Revenue
Costofrevenueforsubscriptionsandservicesisexpensedasincurred.Costofrevenueforsubscriptionsprimarilyconsistsofpersonnelcostssuchassalaries,bonusesandbenefitsandstock‑basedcompensationforemployeesprovidingtechnicalsupportforoursubscriptioncustomers,allocatedsharedcosts(includingrentandinformationtechnology)andamortizationofacquiredintangibleassets.Costofrevenueforservicesprimarilyconsistsofpersonnelcostsforemployeesandsubcontractorsassociatedwithservicecontracts,travelcostsandallocatedsharedcosts.
Research and Development
Researchanddevelopmentcostsareexpensedasincurredandprimarilyincludepersonnelcosts,contractorfees,allocatedsharedcosts,supplies,anddepreciationofequipmentassociatedwiththedevelopmentofnewfeaturesforoursubscriptionspriortotheestablishmentoftheirtechnologicalfeasibility.
Advertising Costs
Advertisingcostsareexpensedasincurred.Advertisingcostswere$0.7millionand$0.8millionfortheyearsendedJanuary31,2016and2017,respectively,and$0.4millionand$0.3millionforthesixmonthsendedJuly31,2016and2017,respectively.
Stock‑‑Based Compensation
Werecognizestock‑basedcompensationexpenseforallstock‑basedpayments.Employeestock‑basedcompensationcostisestimatedatthegrantdatebasedonthefairvalueoftheequityforfinancialreportingpurposesandisrecognizedasexpenseovertherequisiteserviceperiod.PriortoourIPO,fairvalueofourcommonstockforfinancialreportingpurposeswasdeterminedconsideringobjectiveandsubjectivefactorsandrequiredjudgmenttodeterminethefairvalueofcommonstockforfinancialreportingpurposesasofthedateofeachequitygrantormodification.Theseobjectiveandsubjectivefactorsincluded,butwerenotlimitedto:
• relevantprecedenttransactionsinvolvingourcapitalstock;
• contemporaneousvaluationsperformedbythirdpartyspecialists;
• rights,preferences,andprivilegesofourredeemableconvertiblepreferredstockrelativetothoseofourcommonstock;
• actualoperatingandfinancialperformance;
• currentbusinessconditionsandfinancialprojections;
• likelihoodofachievingaliquidityevent,suchasanIPOorasaleofourbusiness;
• thelackofmarketabilityofourcommonstock,andtheilliquidityofstock‑basedawardsinvolvingsecuritiesinaprivatecompany;
• recentsecondarystocksales;
• marketmultiplesofcomparablepublicly‑tradedcompanies;
• stageofdevelopment;
• industryinformationsuchasmarketsizeandgrowth;and
• U.S.andglobalcapitalmarketandmacroeconomicconditions.
WehaveelectedtocalculatethefairvalueofoptionsbasedontheBlack‑Scholesoption‑pricingmodel.TheBlack‑Scholesmodelrequirestheuseofvariousassumptionsincludingexpectedoptionlifeandexpectedstockpricevolatility.Weestimatetheexpectedtermforstockoptionsusingthesimplifiedmethodduetothelackof
F-16
historicalexerciseactivity.Thesimplifiedmethodcalculatestheexpectedtermasthemidpointbetweenthevestingdateandthecontractualexpirationdateoftheaward.Weestimatetheoptions’volatilityusingvolatilitiesofagroupofpubliccompaniesinacomparableindustry,stageoflifecycle,andsize.Theinterestrateisderivedfromgovernmentbondswithasimilartermastheoptions’expectedlives.Wehavenotdeclarednordoweexpecttodeclaredividends.Therefore,thereisnodividendimpactonthevaluationofoptions.Weareusingthestraight‑line(single‑option)methodforemployeeexpenseattributionforstockoptions.
WehavegrantedRSUstoouremployeesandmembersofourboardofdirectorsunderthe2008EquityIncentivePlan(2008Plan).TheemployeeRSUsvestuponthesatisfactionofbothaservice‑basedvestingconditionandaliquidityevent‑relatedperformancecondition.Theservice‑basedconditionforthemajorityoftheseawardsisgenerallysatisfiedpro‑rataoverfouryears.Theliquidityevent‑relatedperformanceconditionissatisfiedupontheoccurrenceofaqualifyingliquidityevent,suchastheeffectivedateofanIPO,orsixmonthsfollowingtheeffectivedateofanIPO.DuringthequarterendedApril30,2017,themajorityofRSUsweremodifiedsuchthattheliquidityevent‑relatedperformanceconditionissatisfiedupontheeffectivedateofanIPO,ratherthansixmonthsfollowinganIPO.ThemodificationestablishedanewmeasurementdateforthesemodifiedRSUs.Theliquidityevent‑relatedperformanceconditionisviewedasaperformance‑basedcriterionforwhichtheachievementofsuchliquidityeventisnotdeemedprobableforaccountingpurposesuntiltheeventoccurs.Theliquidityevent‑relatedperformanceconditionwasachievedforthemajorityofourRSUsandbecameprobableofbeingachievedfortheremainingRSUsonApril27,2017,theeffectivedateofourIPO.Werecognizedstock‑basedcompensationexpenseusingtheacceleratedattributionmethodwithacumulativecatch‑upofstock‑basedcompensationexpenseintheamountof$181.5millionforthesixmonthsendedJuly31,2017,attributabletoservicepriortosucheffectivedate.SharessubjecttoRSUsinwhichtheliquidityevent-relatedperformanceconditionwassatisfiedupontheeffectivedateoftheIPOwillbeissuedonadatetobedeterminedbytheboardofdirectorsthatwillbeafterthesecondfulltradingdayfollowingthereleaseofearningsbyusforthesecondquarteroffiscal2018totheextenttheservice‑basedconditionhasbeenmet.
PriortoourIPO,stock‑basedcompensationexpensewasalsorecordedwhenaholderofaneconomicinterestinClouderapurchasedsharesfromanemployeeforanamountinexcessofthefairvalueofthecommonstockatthetimeofthepurchase.Werecognizedanyexcessvaluetransferredinthesetransactionsasstock‑basedcompensationexpenseintheconsolidatedstatementofoperations.
Optionsandotherequityawardsgrantedtonon‑employeesareaccountedforattheirestimatedfairvalueusingtheBlack‑Scholesmethod.Theseawardsaresubjecttoperiodicre‑measurementovertheperiodduringwhichservicesarerendered.Stock‑basedcompensationexpenseisrecognizedoverthevestingperiodonastraight‑linebasis.
Income Taxes
Weaccountforincometaxesundertheliabilitymethod,wherebydeferredtaxassetsandliabilitiesaredeterminedbasedonthedifferencebetweenthefinancialstatementandtaxbasisofassetsandliabilitiesusingenactedtaxratesineffectfortheyearinwhichthedifferencesareexpectedtoaffecttaxableincome.Avaluationallowanceisestablishedwhen,inmanagement’sestimate,itismorelikelythannotthatthedeferredtaxassetwillnotberealized.
Anyliabilityrelatedtouncertaintaxpositionsisrecordedonthefinancialstatementswithinotherliabilities.Penaltiesandinterestexpenserelatedtoincometaxes,includinguncertaintaxpositions,areclassifiedasacomponentofprovisionforincometaxes,asnecessary.
Net Loss Per Share Attributable to Common Stockholders
Wefollowthetwo‑classmethodwhencomputingnetlosspercommonshareasweissuesharesthatmeetthedefinitionofparticipatingsecurities.Thetwo‑classmethoddeterminesnetincome(loss)percommonshareforeachclassofcommonstockandparticipatingsecuritiesaccordingtodividendsdeclaredoraccumulatedandparticipationrightsinundistributedearnings.Thetwo‑classmethodrequiresincomeavailabletocommonstockholdersfortheperiodtobeallocatedbetweencommonstockandparticipatingsecuritiesbasedupontheirrespectiverightstoreceivedividendsasifallincomefortheperiodhadbeendistributed.Priortotheautomaticconversionintoshares
F-17
ofcommonstockasaresultofourIPO,ourredeemableconvertiblepreferredstockcontractuallyentitledtheholdersofsuchsharestoparticipateindividends,butdidnotcontractuallyrequiretheholdersofsuchsharestoparticipateinourlosses.Forperiodsinwhichwehavereportednetlosses,dilutednetlosspercommonshareattributabletocommonstockholdersisthesameasbasicnetlosspercommonshareattributabletocommonstockholders,becausepotentiallydilutivecommonsharesarenotassumedtohavebeenissuediftheireffectisanti‑dilutive.
Commitments and Contingencies
Liabilitiesforlosscontingenciesarisingfromclaims,assessments,litigation,finesandpenaltiesandothersourcesarerecordedwhenitisprobablethataliabilityhasbeenorwillbeincurredandtheamountoftheliabilitycanbereasonablyestimated.Legalcostsincurredinconnectionwithlosscontingenciesareexpensedasincurred.
JOBS Act Accounting Election
Weareanemerginggrowthcompany,asdefinedintheJumpstartOurBusinessStartupsActof2012(JOBSAct).UndertheJOBSAct,emerginggrowthcompaniescandelayadoptingneworrevisedaccountingstandardsissuedsubsequenttotheenactmentoftheJOBSActuntilsuchtimeasthosestandardsapplytoprivatecompanies.Wehaveelectedtoretaintheabilitytousethisextendedtransitionperiodforcomplyingwithneworrevisedaccountingstandardsthathavedifferenteffectivedatesforpublicandprivatecompaniesuntiltheearlierofthedatewe(i)arenolongeranemerginggrowthcompanyor(ii)affirmativelyandirrevocablyoptoutoftheextendedtransitionperiodprovidedintheJOBSAct.Asaresult,ourfinancialstatementsmaynotbecomparabletocompaniesthatcomplywithneworrevisedaccountingpronouncementsasofpubliccompanyeffectivedates.
Recently Adopted Accounting Standards
InNovember2015,theFinancialAccountingStandardsBoard(FASB)issuedAccountingStandardsUpdate,orASU,No.2015‑17,Balance SheetClassification of Deferred Taxes ,orASU2015‑17,whichsimplifiesthepresentationofdeferredincometaxes.ASU2015‑17providespresentationrequirementstoclassifydeferredtaxassetsandliabilitiesasnoncurrentinaclassifiedstatementoffinancialposition.Forpublicbusinessentities,thisstandardiseffectiveforfinancialstatementsissuedforannualperiodsbeginningafterDecember15,2016,andinterimperiodswithinthoseannualperiods.Forallotherentities,thisstandardiseffectiveforfinancialstatementsissuedforannualperiodsbeginningafterDecember15,2017,andinterimperiodswithinannualperiodsbeginningafterDecember15,2018.Earlyadoptionispermittedforallentitiesasofthebeginningofaninterimorannualreportingperiod.Weearlyadoptedthisstandardprospectivelyinfiscal2017whichdidnothaveamaterialimpactonourconsolidatedfinancialstatements.
InNovember2016,theFASBissuedASUNo.2016‑18,Statement of Cash Flows (Topic 230): Restricted Cash ,orASU2016‑18.ASU2016‑18requiresthatthestatementofcashflowsexplainsthechangeduringtheperiodinthetotalcash,cashequivalents,andrestrictedcash.Forpublicentities,thisstandardiseffectiveforfiscalyearsbeginningafterDecember15,2017,andinterimperiodswithinthosefiscalyears.Forallotherentities,thisstandardiseffectiveforfiscalyearsbeginningafterDecember15,2018,andinterimperiodswithinfiscalyearsbeginningafterDecember15,2019.Thisstandardshouldbeappliedretrospectivelyandearlyadoptionispermitted,includingadoptioninaninterimperiod.Weearlyadoptedthisstandardinfiscal2017andhaveretroactivelyadjustedtheconsolidatedstatementsofcashflowsforallperiodspresented.
InMarch2016,theFinancialAccountingStandardsBoard(FASB)issuedASUNo.2016‑09,Compensation – Stock Compensation (Topic 718):Improvements to Employee Share‑Based Payment Accounting ,orASU2016‑09,whichsimplifiestheaccountingandreportingofshare‑basedpaymenttransactions,includingadjustmentstohowexcesstaxbenefitsandpaymentsfortaxwithholdingsshouldbeclassifiedandprovidestheelectiontoeliminatetheestimateforforfeitures.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2016,includinginterimperiodswithinthatreportingperiod.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2017,andinterimperiodswithinannualperiodsbeginningafterDecember15,2018.Earlyadoptionispermittedforanyentityinanyinterimorannualperiodforwhichfinancialstatementshavenotbeenissuedormadeavailableforissuance.Weearlyadoptedthisstandardin
F-18
thefirstquarteroffiscal2018.Asaresultofthisadoption,wehaveelectedtoaccountforforfeituresastheyoccur.Theadoptionofthisstandarddidnothaveamaterialimpactonourconsolidatedfinancialstatements.
Recently Issued Accounting Standards
InMay2014,theFASBissuedASUNo.2014‑09,Revenue from Contracts with Customers (Topic 606) ,orASU2014‑09,whichamendedtheexistingFASBAccountingStandardsCodification.ASU2014‑09establishesaprincipleforrecognizingrevenueuponthetransferofpromisedgoodsorservicestocustomers,inanamountthatreflectstheexpectedconsiderationreceivedinexchangeforthosegoodsorservicesandalsoprovidesguidanceontherecognitionofcostsrelatedtoobtainingandfulfillingcustomercontracts.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2017,includinginterimperiodswithinthatreportingperiod.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2018,andinterimperiodswithinannualperiodsbeginningafterDecember15,2019.Earlyadoptionispermitted.
Wearecurrentlyintheprocessofassessingtheadoptionmethodology,whichallowsASU2014‑09tobeappliedeitherretrospectivelytoeachpriorperiodpresentedorwiththecumulativeeffectrecognizedasofthedateofinitialapplication.Ourfinaldeterminationwilldependonanumberoffactors,suchasthesignificanceoftheimpactofthenewstandardonourfinancialresults,systemreadiness,includingthatofsoftwareprocuredfromthird‑partyproviders,andourabilitytoaccumulateandanalyzetheinformationnecessarytoassesstheimpactonpriorperiodfinancialstatements,asnecessary.
WearealsocurrentlyevaluatingtheimpactASU2014‑09willhaveonourconsolidatedfinancialstatements.WeareintheinitialstagesofourevaluationoftheimpactofASU2014‑09onouraccountingpolicies,processes,andsystemrequirements.Wehaveassignedinternalresourcesinadditiontoengagingthirdpartyserviceproviderstoassistintheevaluation.WhilewecontinuetoassessallpotentialimpactsunderASU2014‑09,thereisthepotentialforsignificantimpactsonthetimingofourrevenuerecognitionandcontractacquisitioncosts,suchassalescommissions.AccountingforcertainsalescommissionsunderASU2014‑09isdifferentthanourcurrentaccountingpolicywhichistoexpensesalescommissionsasincurredwhereassuchcostswillbedeferredandamortizedunderASU2014‑09.Additionally,wepreliminarilybelievethattheamortizationperiodforsuchdeferredcommissioncostswillbelongerthanthecontractterm,asASU2014‑09requiresentitiestodeterminewhetherthecostsrelatetospecificanticipatedcontracts.
WhilewecontinuetoassessthepotentialimpactsofASU2014‑09,includingtheareasdescribedabove,andanticipateASU2014‑09couldhaveamaterialimpactonourconsolidatedfinancialstatements,wedonotknowandcannotreasonablyestimatethequantitativeimpactonourfinancialstatementsatthistime.
InFebruary2016,theFASBissuedASUNo.2016‑02,Leases (Topic 842) ,orASU2016‑02,whichrequireslesseestorecordmostleasesontheirbalancesheetsbutrecognizetheexpensesontheirincomestatementsinamannersimilartocurrentpractice.ASU2016‑02statesthatalesseewouldrecognizealeaseliabilityfortheobligationtomakeleasepaymentsandaright‑to‑useassetfortherighttousetheunderlyingassetfortheleaseterm.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2018,includinginterimperiodswithinthatreportingperiod.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2019,andinterimperiodswithinannualperiodsbeginningafterDecember15,2020.Earlyadoptionispermitted.Wearecurrentlyevaluatingtheimpactthatthisstandardwillhaveonourconsolidatedfinancialstatements.
InJune2016theFASBissuedASUNo.2016‑13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,orASU2016‑13.ASU2016‑13requiresthemeasurementofallexpectedcreditlossesforfinancialassetsheldatthereportingdatebasedonhistoricalexperience,currentconditions,andreasonableandsupportableforecasts.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2019,includinginterimperiodswithinthatreportingperiod.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2020,includinginterimperiodswithinthatreportingperiod.Earlieradoptionispermittedinourfirstinterimperiodinfiscal2020.Wearecurrentlyevaluatingtheimpactthatthisstandardwillhaveonourconsolidatedfinancialstatements.
F-19
InAugust2016,theFASBissuedASUNo.2016‑15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ,orASU2016‑15.ASU2016‑15identifieshowcertaincashreceiptsandcashpaymentsarepresentedandclassifiedintheStatementofCashFlows.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2017,includinginterimperiodswithinthatreportingperiod.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2018,andinterimperiodswithinannualperiodsbeginningafterDecember15,2019.Thisstandardshouldbeappliedretrospectivelyandearlyadoptionispermitted,includingadoptioninaninterimperiod.Wearecurrentlyevaluatingtheimpactthatthisstandardwillhaveonourconsolidatedfinancialstatements.
InOctober2016,theFASBissuedASUNo.2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory ,orASU2016-16.ASU2016-16requiresentitiestorecognizetheincometaxconsequencesofanintra-entitytransferofanasset,otherthaninventory,whenthetransferoccurs.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2017.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2018.Earlyadoptionispermittedasofthebeginningofanannualperiod.Wearecurrentlyevaluatingtheimpactthatthisstandardwillhaveonourconsolidatedfinancialstatements.
InJanuary2017,theFASBissuedASUNo.2017‑04,Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, orASU2017‑04.ASU2017‑04simplifieshowanentityisrequiredtotestgoodwillforimpairmentbyeliminatingStep2fromthegoodwillimpairmenttest.Forpublicentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2019,includinginterimperiodswithinthatreportingperiod.Forallotherentities,thisstandardiseffectiveforannualreportingperiodsbeginningafterDecember15,2021.EarlyadoptionispermittedforinterimorannualgoodwillimpairmenttestsperformedontestingdatesafterJanuary1,2017.Wearecurrentlyevaluatingtheimpactthatthisstandardwillhaveonourconsolidatedfinancialstatements.
InMay2017,theFASBissuedASUNo.2017-09,Compensation -Stock Compensation (Topic 718): Scope of Modification Accounting ,orASU2017-09,whichclarifieswhentoaccountforachangetothetermsorconditionsofashare-basedpaymentawardasamodification.UnderASU2017-09,modificationaccountingisrequiredonlyifthefairvalue,thevestingconditions,ortheclassificationoftheaward(asequityorliability)changesasaresultofthechangeintermsorconditions.ThisstandardiseffectiveforallentitiesforannualreportingperiodsbeginningafterDecember15,2017,includinginterimperiodswithinthatreportingperiod.Earlyadoptionispermitted.Wearecurrentlyevaluatingtheimpactthatthisstandardwillhaveonourconsolidatedfinancialstatements.
Reclassifications
CertainreclassificationstotheconsolidatedstatementofoperationsfortheyearendedJanuary31,2016weremadetoconformtothecurrentyearpresentation.Thesereclassificationsincludecostofrevenueandoperatingexpenses.
F-20
3. Cash Equivalents and Marketable Securities
ThefollowingarethefairvaluesofourcashequivalentsandmarketablesecuritiesasofJanuary31,2016(inthousands):
Amortized
Cost Unrealized
Gains Unrealized
Losses Estimated Fair Value
Cashequivalents:(1) Moneymarketfunds $ 22,434 $ — $ — $ 22,434Commercialpaper 7,999 — (1) 7,998
Marketablesecurities: U.S.agencyobligations 6,039 — (4) 6,035Asset-backedsecurities 71,026 11 (46) 70,991Corporatenotesandobligations 214,535 31 (231) 214,335Commercialpaper 15,989 — — 15,989Municipalsecurities 33,869 21 (9) 33,881U.S.treasurysecurities 21,064 7 (23) 21,048
Totalcashequivalentsandmarketablesecurities $ 392,955 $ 70 $ (314) $ 392,711
ThefollowingarethefairvaluesofourcashequivalentsandmarketablesecuritiesasofJanuary31,2017(inthousands):
Amortized
Cost Unrealized
Gains Unrealized
Losses Estimated Fair Value
Cashequivalents:(1) Moneymarketfunds $ 49,390 $ — $ — $ 49,390U.S.agencyobligations 3,249 — — 3,249Corporatenotesandobligations 2,050 — — 2,050Commercialpaper 3,998 — — 3,998
Marketablesecurities: Asset-backedsecurities 39,281 — (17) 39,264Corporatenotesandobligations 105,698 5 (116) 105,587Municipalsecurities 16,128 — (23) 16,105Certificateofdeposit 15,500 20 — 15,520U.S.treasurysecurities 5,004 — — 5,004
Totalcashequivalentsandmarketablesecurities $ 240,298 $ 25 $ (156) $ 240,167
F-21
ThefollowingarethefairvaluesofourcashequivalentsandmarketablesecuritiesasofJuly31,2017(inthousands):
Amortized
Cost Unrealized
Gains Unrealized
Losses Estimated Fair Value
(unaudited)Cashequivalents:(1)
Moneymarketfunds $ 6,173 $ — $ — $ 6,173Corporatenotesandobligations 4,000 — — 4,000Commercialpaper 15,097 — — 15,097Municipalsecurities 6,000 — (1) 5,999
Reverserepurchaseagreements(2) 9,000 — — 9,000
Marketablesecurities: U.S.agencyobligations 17,816 — (4) 17,812Asset-backedsecurities 45,521 — (22) 45,499Corporatenotesandobligations 192,811 47 (105) 192,753Commercialpaper 80,554 1 (1) 80,554Municipalsecurities 14,348 13 (3) 14,358Certificatesofdeposit 49,850 7 (3) 49,854U.S.treasurysecurities 5,985 1 — 5,986
Totalcashequivalentsandmarketablesecurities $ 447,155 $ 69 $ (139) $ 447,085
___________(1) Includedin“cashandcashequivalents”intheaccompanyingconsolidatedbalancesheetasofJanuary31,2016and2017andJuly31,2017.
(2) Aspartofourcashmanagementstrategy,weinvestinreverserepurchaseagreements.Suchreverserepurchaseagreementsaretri-partyrepurchaseagreementsandhavematuritiesofthreemonthsorlessatthetimeofinvestmentandarecollateralizedbyU.S.treasurysecuritiesat102%oftheprincipalamount.Inatri-partyrepurchaseagreement,athird-partycustodianbankfunctionsasanindependentintermediarytofacilitatetransferofcashandholdingthecollateralonbehalfoftheunderlyinginvestorforthetermoftheagreementtherebyminimizingriskandexposuretobothparties.Thesereverserepurchaseagreementsareincludedwithincashequivalentsduetotheirhighliquidityandrelativelylowrisk.
MaturitiesofournoncurrentmarketablesecuritiesgenerallyrangefromoneyeartofouryearsatbothJanuary31,2016and2017andJuly31,2017.
AsofJanuary31,2016,thefollowingmarketablesecuritieswereinanunrealizedlossposition(inthousands):
Less than 12 months Greater than 12 months Total
Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses
U.S.agencyobligations $ 6,035 $ (4) $ — $ — $ 6,035 $ (4)
Asset-backedsecurities 42,184 (46) — — 42,184 (46)
Corporatenotesandobligations 161,385 (219) 16,662 (12) 178,047 (231)
Commercialpaper 11,997 (1) — — 11,997 (1)
Municipalsecurities 7,021 (9) — — 7,021 (9)
U.S.treasurysecurities 13,044 (23) — — 13,044 (23)
Total $ 241,666 $ (302) $ 16,662 $ (12) $ 258,328 $ (314)
NomarketablesecuritiesheldasofJanuary31,2017hadbeeninacontinuousunrealizedlosspositionformorethantwelvemonths.
F-22
AsofJuly31,2017,thefollowingmarketablesecuritieswereinanunrealizedlossposition(inthousands):
Less than 12 months Greater than 12 months Total
Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses (unaudited)
U.S.agencyobligations $ 17,813 $ (4) $ — $ — $ 17,813 $ (4)
Asset-backedsecurities 44,278 (21) 1,221 (1) 45,499 (22)
Corporatenotesandobligations 106,474 (86) 8,391 (19) 114,865 (105)
Commercialpaper 14,980 (1) — — 14,980 (1)
Municipalsecurities 11,001 (3) 1,974 (1) 12,975 (4)
Certificatesofdeposit 20,997 (3) — — 20,997 (3)Total $ 215,543 $ (118) $ 11,586 $ (21) $ 227,129 $ (139)
Theunrealizedlossforeachofthesefixedratemarketablesecuritiesrangedfromlessthan$1,000to$28,000asofJanuary31,2016andlessthan$1,000to$26,000asofJanuary31,2017and$1,000to$15,000asofJuly31,2017.Wedonotbelieveanyoftheunrealizedlossesrepresentanother‑than‑temporaryimpairmentbasedonourevaluationofavailableevidenceasofJanuary31,2016and2017andJuly31,2017.Weexpecttoreceivethefullprincipalandinterestonallofthesemarketablesecuritiesandhavetheabilityandintenttoholdtheseinvestmentsuntilarecoveryoffairvalue.
Realizedgainsandrealizedlossesonourcashequivalentsandmarketablesecuritiesareincludedinotherincome(expense),netontheconsolidatedstatementofoperationsandwerenotmaterialfortheyearsendedJanuary31,2016and2017andthesixmonthsendedJuly31,2016and2017.
ReclassificationadjustmentsoutofaccumulatedothercomprehensivelossintonetlosswerenotmaterialfortheyearsendedJanuary31,2016and2017andthesixmonthsendedJuly31,2016and2017.
4. Fair Value Measurement
Ourfinancialassetsandliabilitiesconsistprincipallyofcashandcashequivalents,marketablesecurities,restrictedcash,accountsreceivable,andaccountspayable.Wemeasureandrecordcertainfinancialassetsandliabilitiesatfairvalueonarecurringbasis.Theestimatedfairvalueofaccountsreceivableandaccountspayableapproximatestheircarryingvalueduetotheirshort‑termnature.Cashequivalents,marketablesecuritiesandrestrictedcasharerecordedatestimatedfairvalue.
AllofourcashequivalentsandmarketablesecuritiesareclassifiedwithinLevel1orLevel2becausethecashequivalentsandmarketablesecuritiesarevaluedusingquotedmarketpricesoralternativepricingsourcesandmodelsutilizingobservablemarketinputs.
Wefollowathree‑levelvaluationhierarchyfordisclosureoffairvaluemeasurementsasfollows:
Level1 Inputsareunadjustedquotedpricesinactivemarketsforidenticalassetsorliabilitiesatthemeasurementdate.
Level2 Inputs(otherthanquotedmarketpricesincludedinLevel1)areeitherdirectlyorindirectlyobservablefortheassetorliabilitythroughcorrelationwithmarketdataatthemeasurementdateandforthedurationoftheinstrument’santicipatedlife.
Level3 Inputsreflectmanagement’sbestestimateofwhatmarketparticipantswoulduseinpricingtheassetorliabilityatthemeasurementdate.Considerationisgiventotheriskinherentinthevaluationtechniqueandtheriskinherentintheinputstothemodel.
F-23
Thefollowingtablerepresentsourfinancialassetsandliabilitiesaccordingtothefairvaluehierarchy,measuredatfairvalueasofJanuary31,2016(inthousands):
Level 1 Level 2 Level 3 Total
Cash equivalents: Moneymarketfunds $ 22,434 $ — $ — $ 22,434Commercialpaper — 7,998 — 7,998
Marketable securities: U.S.agencyobligations — 6,035 — 6,035Asset-backedsecurities — 70,991 — 70,991Corporatenotesandobligations — 214,335 — 214,335Commercialpaper — 15,989 — 15,989Municipalsecurities — 33,881 — 33,881U.S.treasurysecurities — 21,048 — 21,048
Restricted cash: Moneymarketfunds 28 — — 28
Totalfinancialassets $ 22,462 $ 370,277 $ — $ 392,739
Thefollowingtablerepresentsourfinancialassetsandliabilitiesaccordingtothefairvaluehierarchy,measuredatfairvalueasofJanuary31,2017(inthousands):
Level 1 Level 2 Level 3 Total
Cash equivalents: Moneymarketfunds $ 49,390 $ — $ — $ 49,390U.S.agencyobligations — 3,249 — 3,249Corporatenotesandobligations — 2,050 — 2,050Commercialpaper — 3,998 — 3,998
Marketable securities: Asset-backedsecurities — 39,264 — 39,264Corporatenotesandobligations — 105,587 — 105,587Municipalsecurities — 16,105 — 16,105
Certificateofdeposit 15,520 15,520U.S.treasurysecurities — 5,004 — 5,004
Restricted cash: Moneymarketfunds 15,446 — — 15,446
Totalfinancialassets $ 64,836 $ 190,777 $ — $ 255,613
F-24
Thefollowingtablerepresentsourfinancialassetsandliabilitiesaccordingtothefairvaluehierarchy,measuredatfairvalueasofJuly31,2017(inthousands):
Level 1 Level 2 Level 3 Total (unaudited)Cash equivalents:
Moneymarketfunds $ 6,173 $ — $ — $ 6,173Corporatenotesandobligations — 4,000 — 4,000Commercialpaper — 15,097 — 15,097Municipalsecurities — 5,999 — 5,999Reverserepurchaseagreement — 9,000 — 9,000
Marketable securities: U.S.agencyobligations — 17,812 — 17,812Asset-backedsecurities — 45,499 — 45,499Corporatenotesandobligations — 192,753 — 192,753Commercialpaper — 80,554 — 80,554Municipalsecurities — 14,358 — 14,358Certificatesofdeposit — 49,854 — 49,854U.S.treasurysecurities — 5,986 — 5,986
Restricted cash: Moneymarketfunds 14,672 — — 14,672
Totalfinancialassets $ 20,845 $ 440,912 $ — $ 461,757
WevalueourLevel1assetsusingquotedpricesinactivemarketsforidenticalinstruments.WevalueourLevel2assetswiththehelpofathird‑partypricingserviceusingquotedmarketpricesforsimilarinstruments,nonbindingmarketpricesthatarecorroboratedbyobservablemarketdata,orpricingmodelssuchasdiscountedcashflowtechniques.Weusesuchpricingdataastheprimaryinput,towhichwehavenotmadeanymaterialadjustmentsduringtheperiodspresented,tomakeourdeterminationandassessmentsastotheultimatevaluationoftheseassets.
TherewerenotransfersintooroutofLevel1,Level2orLevel3assetsandliabilitiesfortheyearsendedJanuary31,2016and2017andthesixmonthsendedJuly31,2016and2017.
5. Balance Sheet Components
Property and Equipment, Net
Thecostandaccumulateddepreciationandamortizationofpropertyandequipmentareasfollows(inthousands):
As of
January 31, As of
July 31,
2016 2017 2017
(unaudited)Computerequipmentandsoftware $ 17,054 $ 17,981 $ 18,165Officefurnitureandequipment 3,462 4,350 5,956Leaseholdimprovements 7,088 8,468 9,400Constructioninprogress — — 2,310
Propertyandequipment,gross 27,604 30,799 35,831Less:accumulateddepreciationandamortization (14,722) (17,695) (22,804)
Propertyandequipment,net $ 12,882 $ 13,104 $ 13,027
F-25
ConstructioninprogressprimarilyconsistsofleaseholdimprovementsthathavenotbeenplacedintoserviceasofJuly31,2017.
Depreciationexpensewas$5.2millionand$6.4millionfortheyearsendedJanuary31,2016and2017,respectively,and$3.1millionand$5.1millionforthesixmonthsendedJuly31,2016and2017,respectively.
Intangible Assets
IntangibleassetsconsistedofthefollowingasofJanuary31,2016(dollarsinthousands):
Gross Fair
Value Accumulated Amortization
Net Book Value
Weighted AverageRemaining Useful
Life (in years)
Developedtechnology $ 8,420 $ (2,575) $ 5,845 3.5
Customerrelationshipsandotheracquiredintangibleassets 6,125 (2,934) 3,191 1.8
Total $ 14,545 $ (5,509) $ 9,036 2.9
IntangibleassetsconsistedofthefollowingasofJanuary31,2017(dollarsinthousands):
Gross Fair
Value Accumulated Amortization
Net Book Value
Weighted AverageRemaining Useful
Life (in years)
Developedtechnology $ 10,155 $ (4,548) $ 5,607 2.9
Customerrelationshipsandotheracquiredintangibleassets 6,125 (4,681) 1,444 0.8
Total $ 16,280 $ (9,229) $ 7,051 2.5
IntangibleassetsconsistedofthefollowingasofJuly31,2017(dollarsinthousands):
Gross Fair
Value Accumulated Amortization
Net Book Value
Weighted AverageRemaining Useful
Life (in years)
(unaudited)
Developedtechnology $ 10,155 $ (5,563) $ 4,592 2.5
Customerrelationshipsandotheracquiredintangibleassets 6,125 (5,551) 574 0.3
Total $ 16,280 $ (11,114) $ 5,166 2.3
Amortizationexpenseforintangibleassetswas$3.5millionand$3.7millionduringtheyearsendedJanuary31,2016and2017,respectivelyand$1.8millionand$1.9millionforthesixmonthsendedJuly31,2016and2017,respectively.
F-26
TheexpectedfutureamortizationexpenseoftheseintangibleassetsasofJuly31,2017isasfollows(inthousands,byfiscalyear)(unaudited):
Remainingsixmonthsoffiscal2018 $ 1,5902019 2,0312020 1,1402021 3472022 58
Totalintangibleassets,net $ 5,166
Goodwill
Thefollowingtablerepresentsthechangestogoodwill(inthousands):
BalanceatJanuary31,2015 $ 13,801Additionsfromanacquisition 16,750
BalanceatJanuary31,2016 30,551Additionsfromanacquisition 965
BalanceatJanuary31,2017 31,516Additionsfromacquisitions(unaudited) —
BalanceatJuly31,2017(unaudited) $ 31,516
TherewasnoimpairmentofgoodwillduringtheyearsendedJanuary31,2016or2017andsixmonthsendedJuly31,2016and2017.Goodwillisattributableentirelytooursubscriptionoperatingsegment.
Accrued Compensation
Accruedcompensationconsistsofthefollowing(inthousands):
As of
January 31, As of
July 31,
2016 2017 2017
(unaudited)Accruedsalariesandbenefits $ 1,610 $ 2,330 $ 3,234Accruedbonuses 9,924 15,338 10,369Accruedcommissions 8,094 11,856 7,896Employeestockpurchaseplanwithholdings — — 3,861Accruedcompensationrelatedtaxesandother 2,526 3,852 6,894
Totalaccruedcompensation $ 22,154 $ 33,376 $ 32,254
F-27
Other Accrued Liabilities
Otheraccruedliabilitiesconsistsofthefollowing(inthousands):
As of
January 31, As of
July 31,
2016 2017 2017
(unaudited)Accruedtaxes $ 965 $ 1,585 $ 2,241Deferredrealestatecosts 338 47 523Accruedprofessionalcosts 2,448 2,147 2,196Customerdeposits 256 301 252Deferredsubleaseincome — 861 1,266Accruedself-insurancecosts 1,407 746 938Other 5,759 4,231 8,254
Totalotheraccruedliabilities $ 11,173 $ 9,918 $ 15,670
Otherincludesamountsowedtothird‑partyvendorsthatprovidemarketing,corporateeventplanningandcloud‑computingservices.
6. Business Combinations
Xplain
InFebruary2015,weacquiredalloutstandingequityofXplain.io,Inc.,orXplain,aproviderofaself‑serviceanalyticstool.WeacquiredXplainfortheassembledworkforceandexpectedsynergieswithourcurrentofferings.WehaveincludedthefinancialresultsofXplainintheconsolidatedfinancialstatementsfromthedateofacquisition.TheamountofrevenueandearningsincludedintheconsolidatedfinancialstatementsforthisacquisitionwerenotdeterminablebecausewehaveintegratedXplain’sself‑servicetechnologyanalyticswithourcurrentofferings.Weconcludedthatthisacquisitionrelatestooursubscriptionoperatingsegment.TheacquisitiondatefairvalueoftheconsiderationtransferredforXplainwasapproximately$19.7million,whichconsistedofthefollowing(inthousands,exceptsharedata):
Fair Value
Cash $ 10,153Commonstock(358,735sharesofcommonstock) 9,542
Total $ 19,695
Thefollowingtablesummarizestheestimatedfairvaluesofassetsacquiredandliabilitiesassumedasofthedateofacquisition(dollarsinthousands):
Fair Value Estimated Useful Life
Nettangibleassets $ 1,181 n/aDevelopedtechnologyandotheracquiredintangibleassets 1,764 5yearsGoodwill 16,750 n/a
Netassetsacquired $ 19,695
Theexcessofpurchaseconsiderationoverthefairvalueofnettangibleandidentifiableintangibleassetsacquiredwasrecordedasgoodwill.Thefairvaluesassignedtotangibleandidentifiableintangibleassetsacquiredandliabilitiesassumedwerebasedonmanagement’sestimatesandassumptions.
F-28
TheamountrecordedfordevelopedtechnologyrepresentstheestimatedfairvalueofXplain’sself‑serviceanalyticstechnology.ThegoodwillbalanceisprimarilyattributedtotheassembledworkforceandexpandedmarketopportunitieswhenintegratingXplain’sself‑serviceanalyticstechnologyandexpertisewithourotherofferings.ThegoodwillbalanceisdeductibleforU.S.incometaxpurposes.
Fiscal 2017 Business Combination
InMarch2016,weacquiredaproviderofaplatformfordatascienceandanalytics.Weconcludedthatthisacquisitionrelatestooursubscriptionoperatingsegmentandisaccountedforasabusinesscombination.Theestimatedpurchasepriceconsiderationtransferredwasapproximately$2.7millionincash.
Thefollowingtablesummarizestheestimatedfairvalueofassetsacquiredasofthedateofacquisition(dollarsinthousands):
Fair Value Estimated Useful Life
Developedtechnology $ 1,735 5yearsGoodwill 965 n/a
Netassetsacquired $ 2,700
Theexcessofpurchaseconsiderationoverthefairvalueoftheidentifiableintangibleassetacquiredwasrecordedasgoodwill.Thefairvalueassignedtoidentifiableintangibleassetswasbasedonmanagement’sestimatesandassumptions.
Theamountrecordedfordevelopedtechnologyrepresentstheestimatedfairvalueoftheacquiredcompany’sdatascienceandanalyticsplatformtechnology.Thegoodwillbalanceisprimarilyattributedtotheassembledworkforceandexpandedmarketopportunitieswhenintegratingtheacquiredcompany’sdatascienceandanalyticsplatformandexpertisewithourcurrentofferings.ThegoodwillbalanceisdeductibleforU.S.incometaxpurposes.
7. Commitments and Contingencies
Letters of Credit
AsofJanuary31,2016and2017andJuly31,2017,wehadatotalof$2.5million,$16.8millionand$19.9million,respectively,inlettersofcreditoutstandinginfavorofcertainlandlordsforofficespace.Theselettersofcreditrenewannuallyandexpireatvariousdatesthrough2027.
Operating Leases
Weleasefacilitiesspaceundernon‑cancelableoperatingleaseswithvariousexpirationdates.Futureminimumleasepaymentsandsubleaseproceedsundernon-cancelableoperatingleasesatJanuary31,2017areasfollows(inthousands):
YearEndingJanuary31:Minimum Lease
Payments Sublease Rental
Proceeds Net Minimum Lease
Payments
2018 $ 11,842 $ (5,321) $ 6,5212019 28,064 (9,284) 18,7802020 28,590 (9,560) 19,0302021 28,756 (9,845) 18,9112022 25,802 (10,141) 15,6612023andthereafter 142,966 (4,278) 138,688
Total $ 266,020 $ (48,429) $ 217,591
F-29
Futureminimumleasepaymentsandsubleaseproceedsundernon-cancelableoperatingleasesatJuly31,2017areasfollows(inthousands,byfiscalyear):
Minimum Lease
Payments Sublease Rental
Proceeds Net Minimum Lease
Payments (unaudited)Remainingsixmonthsoffiscal2018 $ 7,131 $ (5,361) $ 1,7702019 31,903 (13,295) 18,6082020 33,525 (13,693) 19,8322021 33,562 (14,101) 19,4612022 30,700 (10,861) 19,8392023andthereafter 159,884 (4,278) 155,606
Total $ 296,705 $ (61,589) $ 235,116
OnFebruary8,2017,weenteredintoanewsubleaseagreementtosubletofficespaceinPaloAlto,California.Thesubleasehasa45monthtermcommencinginthethirdquarteroffiscal2018.Rentalproceedscommittedunderthissubleasearereflectedaboveintheamountsof$1.6millioninfiscal2018,$4.0millioninfiscal2019,$4.1millioninfiscal2020,$4.3millioninfiscal2021and$0.7millioninfiscal2022.
InJune2017,weenteredintoanewnon‑cancelableoperatingleaseagreementtorentofficespaceinSanFrancisco,California.Theleasehasan87monthterm,commencesinJanuary2018andendsinApril2025withanoptiontorenewforanadditional60months.Totalminimumleasepaymentsundertheleaseagreement,includedinthetableabove,are$34.5million,ofwhich$0.4millionwasrequiredtobeprepaiduponexecutionoftheleaseagreement.
Rentalexpenserelatedtoournon‑cancelableoperatingleaseswasapproximately$7.2millionand$8.4millionfortheyearendedJanuary31,2016and2017,respectively,and$4.1millionand$5.7millionforthesixmonthsendedJuly31,2016and2017,respectively.
Deferred rent
Weaccountforoperatingleasescontainingpredeterminedfixedincreasesofthebaserentalrateduringtheleasetermonastraight‑linebasisovertheleaseterm.Werecordedthedifferencebetweenamountschargedtooperationsandamountspayableunderouroperatingleasesasdeferredrentintheconsolidatedbalancesheets.
Indemnification
Fromtimetotime,weenterintocertaintypesofcontractsthatcontingentlyrequireustoindemnifyvariouspartiesagainstclaimsfromthirdparties.Thesecontractsprimarilyrelateto(i)certainrealestateleasesunderwhichwemayberequiredtoindemnifypropertyownersforenvironmentalandotherliabilitiesandotherclaimsarisingfromouruseoftheapplicablepremises,(ii)ourbylaws,underwhichwemustindemnifydirectorsandexecutiveofficers,andmayindemnifyotherofficersandemployees,forliabilitiesarisingoutoftheirrelationshipwithus,(iii)contractsunderwhichwemustindemnifydirectorsandcertainofficersforliabilitiesarisingoutoftheirrelationshipwithus,(iv)contractsunderwhichwemayberequiredtoindemnifycustomersorpartnersagainstcertainclaims,includingclaimsfromthirdpartiesasserting,amongotherthings,infringementoftheirintellectualpropertyrights,and(v)procurement,consulting,orlicenseagreementsunderwhichwemayberequiredtoindemnifyvendors,consultantsorlicensorsforcertainclaims,includingclaimsthatmaybebroughtagainstthemarisingfromouractsoromissionswithrespecttothesuppliedproducts,technologyorservices.Fromtimetotime,wemayreceiveindemnificationclaimsunderthesecontractsinthenormalcourseofbusiness.Inaddition,underthesecontractswemayhavetomodifytheaccusedinfringingintellectualpropertyand/orrefundamountsreceived.
Intheeventthatoneormoreofthesemattersweretoresultinaclaimagainstus,anadverseoutcome,includingajudgmentorsettlement,maycauseamaterialadverseeffectonourfuturebusiness,operatingresultsorfinancial
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condition.Itisnotpossibletodeterminethemaximumpotentialamountunderthesecontractsduetothelimitedhistoryofpriorindemnificationclaimsandtheuniquefactsandcircumstancesinvolvedineachparticularagreement.
Wemaintaindirectorandofficerinsurance,whichmaycovercertainliabilitiesarisingfromourobligationtoindemnifyourdirectorsandcertainofficers.
Todate,wehavenotincurredanymaterialcosts,andhavenotaccruedanyliabilitiesintheconsolidatedfinancialstatementsasaresultoftheseprovisions.
Contingencies
Intheordinarycourseofbusiness,weareormaybeinvolvedinavarietyoflitigationmatters,suits,investigations,andproceedings,includingactionswithrespecttointellectualpropertyclaims,governmentinvestigations,laborandemploymentclaims,breachofcontractclaims,tax,andothermatters.Regardlessoftheoutcome,theselitigationmatterscanhaveanadverseimpactonusbecauseofdefensecosts,diversionofmanagementresources,harmtoreputation,andotherfactors.Inaddition,itispossiblethatanunfavorableresolutionofoneormoresuchlitigationmatterscould,inthefuture,materiallyandadverselyaffectourfinancialposition,resultsofoperations,andcashflowsinaparticularperiodorsubjectustoaninjunctionthatcouldseriouslyharmourbusiness.
Werecordaprovisionforcontingentlosseswhenitisbothprobablethataliabilityhasbeenincurredandtheamountofthelosscanbereasonablyestimated.Withrespecttoouroutstandinglegalmattersmanagementbelievesthattheamountorestimablerangeofpossiblelosswillnot,eitherindividuallyorintheaggregate,haveamaterialadverseeffectonourbusiness,consolidatedfinancialposition,resultsofoperations,orcashflows.However,theoutcomeoflitigationisinherentlyuncertain.Therefore,ifoneormoreoftheselegalmatterswereresolvedagainstusforamountsinexcessofmanagement’sexpectations,ourresultsofoperationsandfinancialconditionincludinginaparticularreportingperiod,couldbemateriallyadverselyaffected.
8. Redeemable Convertible Preferred Stock
Theauthorized,issued,andoutstandingsharesofredeemableconvertiblepreferredstockasofJanuary31,2016and2017areasfollows(inthousands,exceptshares):
Shares Authorized,Issued
and Outstanding Aggregate Liquidation
Preference Net Carrying
Value
SeriesA 12,936,594 $ 5,000 $ 4,909SeriesB 12,314,006 6,000 5,945SeriesC 8,951,868 24,000 23,899SeriesD 8,965,178 40,000 39,902SeriesE 8,756,093 65,000 64,891SeriesF 10,989,008 160,000 155,039SeriesF-1 11,994,668 370,875 363,102
74,907,415 $ 670,875 $ 657,687
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ImmediatelypriortotheclosingoftheIPO,onMay3,2017,all74,907,415sharesofourthen-outstandingredeemableconvertiblepreferredstockautomaticallyconvertedintosharesofcommonstockandwereclassified$657.7millionfromtemporaryequitytoadditionalpaidincapitalonourconsolidatedbalancesheet.
Theholdersofredeemableconvertiblepreferredstock,orpreferredstock,havevariousrightsandpreferencesasfollows:
Dividends
Theholdersofsharesofpreferredstockareentitledtoreceivedividendsattherateof8%perannumofthepreferredstockpricepershareoneachoutstandingshareofpreferredstock(asadjustedforanystockdividends,combinations,orsplitswithrespecttosuchshares).Dividendsarepayableinpreferenceandprioritytoanypaymentofanydividendonourcommonstock.Suchdividendsarepayableonlywhenandifdeclaredbytheboardofdirectors,butonlyoutoffundsthatarelegallyavailable,andarenon‑cumulative.Thereafter,anydividendsorothernon‑liquidatingdistributionbyustoourstockholdersshallbedistributedamongtheholdersofthesharesofcommonstockandpreferredstockonanasconvertedbasis.NodividendshavebeendeclaredthroughJanuary31,2017.
Conversion
Eachshareofpreferredstockisconvertible,attheoptionoftheholder,intoanumberoffullypaidandnon‑assessablesharesofcommonstockonaone‑for‑onebasis.Theconversionrateissubjecttoadjustmentfromtimetotimefortheeffectofastocksplit,stockdividend,orothersimilardistribution.Additionally,conversionisautomaticupontheclosingofaqualifiedpublicofferingofcommonstock,withnetproceedsofatleast$50.0millionaftercommissionsandunderwritingdiscounts.
Liquidation
Intheeventofourliquidation,sale,dissolution,orwindingup,whethervoluntaryorinvoluntary,theholdersofpreferredstockareentitledtoreceive,priorandinpreferencetoanydistributionofourassetstotheholdersofcommonstock,anamountequaltotheliquidationpreferencepershare,plusanydeclaredbutunpaiddividendswithrespecttosuchshares.Iftheproceedsarelessthantheliquidationamount,thepaymentswillbeallocatedtoeachSeriesinproportiontotherespectiveliquidationpreferenceamountsifpaidinfull.
Afterpaymenthasbeenmadetotheholdersofpreferredstockofthefullamountstowhichtheyareentitled,theholdersofcommonstockshallbeentitledtoreceiveourremainingassetsproratabasedonthenumberofsharesofcommonstockheldbyeachholder.
Voting
Theholdersofpreferredstockareentitledtoonevoteforeachshareofcommonstockthatwouldbeheld,onanas‑convertedbasis.Generally,preferredstockholdersvotewithcommonstockholdersasasingleclass.TheSeriesA,B,andF‑1preferredstockholders,eachasaseparateclass,electadirector.Thecommonstockholdersasaclasselecttwodirectors.Allotherdirectorsareelectedbyallstockholders,bothpreferredandcommon,votingtogetheronanas‑convertedbasis.
Redemption
Althoughourpreferredstockisnotmandatorilyorcurrentlyredeemable,theyareclassifiedoutsideofstockholders’deficitbecausetheyarepotentiallyredeemableuponcertaineventsoutsideofourcontrol,includingagreaterthan50%changeincontrolorourliquidation,sale,dissolution,orwindingup.Thecarryingvaluesofpreferredstockhavenotbeenaccretedtotheirredemptionvaluesastheseeventsarenotconsideredprobableofoccurrence.Subsequentadjustmentsofthecarryingvaluestoredemptionvalueswillbemadeonlyifandwhenitbecomesprobableredemptionwilloccur.
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9. Common Stock
Thefollowingtablesummarizesourauthorized,issued,reservedandoutstandingcommonstockasofJanuary31,2017:
Authorized
Preferred Stock Preferred
Issued Common Reserved
Common Issued
Common Issued or Reserved for
Issuance
SeriesA 12,936,594 12,936,594 12,936,594 — 12,936,594SeriesB 12,314,006 12,314,006 12,314,006 — 12,314,006SeriesC 8,951,868 8,951,868 8,951,868 — 8,951,868SeriesD 8,965,178 8,965,178 8,965,178 — 8,965,178SeriesE 8,756,093 8,756,093 8,756,093 — 8,756,093SeriesF 10,989,008 10,989,008 10,989,008 — 10,989,008SeriesF-1 11,994,668 11,994,668 11,994,668 — 11,994,668Commonoutstanding — — — 38,156,688 38,156,6882008EquityIncentivePlan: Restrictedstockunitsandoptionsoutstanding — — 44,560,246 — 44,560,246
Sharesavailableforgrant — — 581,084 — 581,084AmendedandRestated2008StockPurchaseandOptionPlan(fromprioracquisition):
Optionsoutstanding — — 53,455 — 53,455Undesignated — — 1,741,112 — 1,741,112
74,907,415 74,907,415 121,843,312 38,156,688 160,000,000
Thefollowingtablesummarizesourauthorized,issued,reservedandoutstandingcommonstockasofJuly31,2017:
Common Reserved
Common Issued
Common Issued or Reserved for
Issuance (unaudited)Commonoutstanding — 131,250,336 131,250,3362017EquityIncentivePlan: Restrictedstockunitsandoptionsoutstanding 1,387,150 — 1,387,150Sharesavailableforgrant 29,848,932 — 29,848,932
2017EmployeeStockPurchasePlan: Sharesavailableforgrant 3,000,000 — 3,000,000
2008EquityIncentivePlan: Restrictedstockunitsandoptionsoutstanding 44,969,015 — 44,969,015
AmendedandRestated2008StockPurchaseandOptionPlan(fromprioracquisition):
Optionsoutstanding 53,225 — 53,225Undesignated 989,491,342 — 989,491,342
1,068,749,664 131,250,336 1,200,000,000
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10. Stock Option Plans
Wemaintaintwoshare-basedcompensationplans:the2017EquityIncentivePlan(2017Plan),andthe2008EquityIncentivePlan(2008Plan)andcollectivelywiththe2017Plan,theStockPlans.InMarch2017,ourboardofdirectorsadoptedour2017Plan,whichourstockholdersapprovedinMarch2017.The2017PlanbecameeffectiveonApril27,2017,theeffectivedateofourIPO,andservesasthesuccessortoour2008Plan.Wedonotexpecttograntanyadditionalawardsunderthe2008Plan.Outstandingawardsunderthe2008Plancontinuetobesubjecttothetermsandconditionsofthe2008Plan.
InMarch2017,weincreasedthenumberofsharesofcommonstockreservedforgrantunderthe2008Planby2,000,000shares.
InMarch2017,weadoptedthe2017Planwithareserveof30,000,000sharesofourcommonstockforissuanceunderour2017Plan,plusanadditionalnumberofsharesofcommonstockequaltoanysharesreservedbutnotissuedorsubjecttooutstandingawardsunderour2008Planontheeffectivedateofour2017Plan,plus,onandaftertheeffectivedateofour2017Plan,(i)sharesthataresubjecttooutstandingawardsunderthe2008Planwhichceasetobesubjecttosuchawards,(ii)sharesissuedunderthe2008Planwhichareforfeitedorrepurchasedattheiroriginalissueprice,and(iii)sharessubjecttoawardsunderthe2008Planthatareusedtopaytheexercisepriceofanoptionorwithheldtosatisfythetaxwithholdingobligationsrelatedtoanyaward.Thenumberofsharesreservedforissuanceunderour2017PlanwillincreaseautomaticallyonthefirstdayofFebruaryofeachcalendaryearduringthetermofthe2017Planbyanumberofsharesofcommonstockequaltothelesserof(i)5%ofthetotaloutstandingsharesourcommonstockasoftheimmediatelyprecedingJanuary31stor(ii)anumberofsharesdeterminedbyourboardofdirectors.
AsofJuly31,2017thereare79,258,322,sharesofcommonstockwerereservedandavailableforfutureissuanceunderthetheStockPlans.
TheStockPlansprovidesforstockoptionstobegrantedatanexercisepricenotlessthan100%ofthefairmarketvalueatthegrantdateasdeterminedbyourboardofdirectors,unless,withrespecttoincentivestockoptions,theoptioneeisa10%stockholder,inwhichcasetheoptionpricewillnotbelessthan110%ofsuchfairmarketvalue.Optionsgrantedgenerallyhaveamaximumtermoftenyearsfromthegrantdate,areexercisableuponvestingunlessotherwisedesignatedforearlyexercisebytheboardofdirectorsatthetimeofgrant,andgenerallyvestoverafouryearperiod,with25%vestingafteroneyearandthenratablyonamonthlybasisfortheremainingthreeyears.
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Thefollowingtablessummarizestockoptionactivityandrelatedinformation:
Options Outstanding
Shares Available for Grant
Options Outstanding
Weighted- Average Exercise
Price
Weighted-AverageRemaining Contractual
Term (Years)
Aggregate Intrinsic
Value
(in thousands)Balance—January31,2015 1,017,709 30,848,554 $ 3.59 — —
Additionalsharesreserved 5,858,469 — — — —Restrictedstockactivity,net (6,749,712) — — — —Granted (1,318,890) 1,318,890 17.94 — —Exercised — (5,838,389) 1.87 — —Canceled 1,493,769 (1,493,769) 6.28 — —Sharesinlieuoftaxes 36,206 — — — Plansharesexpired (854) — — —
Balance—January31,2016 336,697 24,835,286 4.60 6.9 $ 497,338Additionalsharesreserved 10,001,250 — — — —Restrictedstockactivity,net (10,193,963) — — — Granted (370,480) 370,480 17.85 — —Exercised (1,157,625) 3.10 — —Canceled 808,462 (808,462) 10.74 — —Plansharesexpired (882) — — —
Balance—January31,2017 581,084 23,239,679 $ 4.67 6.0 $ 319,016Additionalsharesreserved(unaudited) 32,000,000 — — — —Restrictedstockactivity,net(unaudited) (2,865,041) — — — Granted(unaudited) (39,300) 39,300 20.67 — —Exercised(unaudited) (895,118) 2.31 — —Canceled(unaudited) 172,419 (172,419) 12.30 — —Plansharesexpired(unaudited) (230) — — —
Balance—July31,2017(unaudited) 29,848,932 22,211,442 $ 4.73 5.4 $ 279,685
Exercisable—January31,2017 19,434,627 $ 3.61 5.7 $ 286,994
Vestedorexpectedtovest—January31,2017 22,975,081 $ 4.56 5.9 $ 317,798
Exercisable—July31,2017(unaudited) 20,312,954 $ 3.86 5.2 $ 272,663Vestedorexpectedtovest—July31,2017(unaudited) 22,211,442 $ 4.73 5.4 $ 279,685
AsofJanuary31,2016and2017andJuly31,2017,therewerenounvestedoptionsexercisable.
ThetotalintrinsicvalueofoptionsexercisedduringtheyearsendedJanuary31,2016and2017was$160.0millionand$18.3million,respectively,andduringthesixmonthsendedJuly31,2016and2017was$12.4millionand$12.2million,respectively.Theintrinsicvalueisthedifferencebetweenthecurrentfairmarketvalueof
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thestockforaccountingpurposesatthetimeofexerciseandtheexercisepriceofthestockoption.Aswehaveaccumulatednetoperatinglosses,nofuturetaxbenefitrelatedtooptionexerciseshasbeenrecognized.
Theweighted‑averagegrant‑datevalueofemployeeoptionsgrantedduringtheyearsendedJanuary31,2016and2017was$15.54and$9.37persharefor,respectively,andforthesixmonthsendedJuly31,2016and2017was$10.24and$8.83,respectively.Thevalueofemployeeoptionsforstock‑basedcompensationexpensepurposesisestimatedatthegrantdateusingtheBlack‑Scholesoption‑pricingmodelwiththefollowingweighted‑averageassumptions:
Year Ended January 31,
Six Months EndedJuly 31,
2016 2017 2016 2017
Volatility 44.3% 47.9% 47.9% 45.5%Risk-freeinterestrate 1.7% 2.0% 1.4% 2.0%Expectedterm(inyears) 6.1years 6.0years 6.0years 6.1yearsExpecteddividends —% —% —% —%
Theunamortizedstock‑basedcompensationexpenseforoptionsof$27.3millionand$18.5millionatJanuary31,2017andJuly31,2017,respectively,willberecognizedovertheaverageremainingvestingperiodof1.5yearsand1.7years,respectively.
WeissueRSUstoemployeesanddirectors.Fornewemployeegrants,theRSUsgenerallymeettheservice‑basedconditionoverafour-yearperiod,with25%metafteroneyearandthenratablyonaquarterlybasisfortheremainingthreeyears.Forcontinuingemployeegrants,theRSUsgenerallymeettheservice‑basedconditionpro‑rataquarterlyoverthefour‑yearperiod(withoutaone‑yearcliff).
TheemployeeRSUsissuedpriortoourIPOunderthe2008Planhavetwovestingconditions:(1)aservice‑basedconditionand(2)aliquidityevent‑relatedperformanceconditionwhichisconsideredaperformance‑basedcondition.OnMarch8,2017,ourboardofdirectorsmodifiedthetermsofthemajorityofourRSUs.Priortothemodification,iftheliquidityevent‑relatedperformanceconditionwasanIPO,employeeswererequiredtocontinuetoprovideserviceforsixmonthsfollowingtheeffectivedateofanIPO.Themodificationremovedtherequirement,forthemajorityofRSUs,thattheRSUrecipientmustcontinuetoprovideserviceforsixmonthsfollowingtheeffectivedateofanIPOinordertovestintheaward,withsuchsharestobeissuedonadatetobedeterminedbyourboardofdirectors.AllothersignificanttermsoftheRSUsremainedunchanged.ThemodificationestablishedanewmeasurementdateforthesemodifiedRSUs.
Theliquidityevent‑relatedperformanceconditionwasachievedforthemajorityofourRSUsandbecameprobableofbeingachievedfortheremainingRSUsonApril27,2017,theeffectivedateofourIPO.Werecognizedstock‑basedcompensationexpenseusingtheacceleratedattributionmethodwithacumulativecatch‑upofstock‑basedcompensationexpenseintheamountof$181.5millionforthesixmonthsendedJuly31,2017,attributabletoservicepriortosucheffectivedate.
ThetotalfairvalueofRSUsvestedandconvertedtoshareswas$22.5millionand$1.0millionfortheyearsendedJanuary31,2016and2017,respectively,and$0.5millionand$0.7millionforthesixmonthsendedJuly31,2016and2017,respectively.
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Restrictedstockactivityisasfollows:
Restricted Stock Units Outstanding
Number of Restricted Stock Units
Weighted- Average
Grant Date Fair Value Per Share
Balance—January31,2015 5,278,205 $ 25.80Granted 7,559,269 26.16Canceled (809,557) 23.99Vestedandconvertedtoshares (799,552) 25.82
Balance—January31,2016 11,228,365 26.17Granted 12,152,584 19.25Canceled (1,958,621) 25.03Vestedandconvertedtoshares (48,306) 24.85
Balance—January31,2017 21,374,022 22.36Granted(unaudited) 3,531,520 16.55Canceled(unaudited) (666,479) 16.43Vestedandconvertedtoshares(unaudited) (41,115 ) 22.38
Balance—July31,2017(unaudited) 24,197,948 $ 15.25
ThenumberofRSUsoutstandingatJuly31,2017inthetableaboveincludes6,025,651sharesofcommonstocksubjecttoRSUsthatvesteduponorsubsequenttotheeffectivedateofourIPOandwillbeissuedonadatetobedeterminedbyourboardofdirectors.
Theunamortizedstock‑basedcompensationexpenseforRSUswas$477.0millionatJanuary31,2017.Thisunamortizedstock‑basedcompensationexpenserelatestotheexpenseassociatedwiththeemployeeRSUsbecausetherewasaperformance‑basedrequirementforvesting.Theunamortizedstock‑basedcompensationexpenseforRSUsof$153.2millionatJuly31,2017willberecognizedovertheaverageremainingvestingperiodof1.6years.
InMay2015,anunrelatedthirdpartyinitiatedacashtenderofferwhichwascompletedinJuly2015forthepurchaseofsharesofourcommonstockfromspecifiedcategoriesofcurrentandformeremployeeswhosoldatotalof4,079,131sharesofourcommonstocktotheunrelatedthirdparty.Thepurchasepricepershareinthetenderofferwasinexcessofthefairvalueofourcommonstockatthetimeofthetransactionandaccordingly,uponcompletionofthetransaction,werecorded$16.6millionasstock‑basedcompensationexpenserelatedtotheexcessofthesellingpricepershareofcommonstockpaidtoouremployeesoverthefairvalueofthetenderedshares.
Thistenderofferwasaqualifyingliquidityeventunderthe2008PlangoverningRSUs,meaningtheperformanceconditionwasachievedforthoseRSUsthathadmettheservice‑basedconditionasofthisdate.Uponthecloseofthetransaction,werecorded$19.7millionofstock‑basedcompensationexpense,usingtheacceleratedattributionmethod,fortheRSUsforwhichbothvestingconditionshadbeenachieved.
2017 Employee Stock Purchase Plan
InMarch2017,weadoptedour2017EmployeeStockPurchasePlan(ESPP).TheESPPbecameeffectiveonApril27,2017,theeffectivedateofourIPO.OurESPPisintendedtoqualifyasanemployeestockpurchaseplanunderSection423oftheUnitedStatesInternalRevenueCodeof1986,asamended(Code).Purchaseswillbeaccomplishedthroughparticipationindiscreteofferingperiods.ThefirstofferingperiodandpurchaseperiodbeganonApril27,2017andwillendonDecember20,2017(orsuchotherdatedeterminedbyourboardofdirectorsorourcompensationcommittee).Eachsubsequentofferingperiodwillbeforsixmonths(commencingeachJune21andDecember21)andwillconsistofonesix‑monthpurchaseperiod,unlessotherwisedeterminedbyourboardofdirectorsorourcompensationcommittee.
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UnderourESPP,eligibleemployeeswillbeabletoacquiresharesofourcommonstockbyaccumulatingfundsthroughpayrolldeductions.OuremployeesgenerallyareeligibletoparticipateinourESPPiftheyareemployedbyusforatleast20hoursperweekandmorethanfivemonthsinacalendaryear.Employeeswhoare5%stockholders,orwouldbecome5%stockholdersasaresultoftheirparticipationinourESPP,areineligibletoparticipateinourESPP.Wemayimposeadditionalrestrictionsoneligibility.Oureligibleemployeesareabletoselectarateofpayrolldeductionbetween1%and15%oftheirbasecashcompensation.ThepurchasepriceforsharesofourcommonstockpurchasedunderourESPPis85%ofthelesserofthefairmarketvalueofourcommonstockon(i)thefirsttradingdayoftheapplicableofferingperiodand(ii)thelasttradingdayofeachpurchaseperiodintheapplicableofferingperiod.Noparticipanthastherighttopurchasesharesofourcommonstockinanamount,whenaggregatedwithpurchaserightsunderallouremployeestockpurchaseplansthatarealsoineffectinthesamecalendaryear(s),thathasafairmarketvalueofmorethan$25,000,determinedasofthefirstdayoftheapplicablepurchaseperiod,foreachcalendaryearinwhichthatrightisoutstanding.Inaddition,noparticipantispermittedtopurchasemorethan2,500sharesduringanyonepurchaseperiodorsuchlesseramountdeterminedbyourcompensationcommitteeorourboardofdirectors.OnceanemployeeisenrolledinourESPP,participationwillbeautomaticinsubsequentofferingperiods.Anemployee’sparticipationautomaticallyendsuponterminationofemploymentforanyreason.
Weinitiallyreserved3,000,000sharesofourcommonstockforissuanceunderourESPP.ThenumberofsharesreservedforissuanceunderourESPPwillincreaseautomaticallyonFebruary1stofeachofthefirst10calendaryearsfollowingthefirstofferingdatebythenumberofsharesequaltothelesserofeither(i)1%ofthetotaloutstandingsharesofourcommonstockasoftheimmediatelyprecedingJanuary31st(roundedtothenearestwholeshare)or(ii)anumberofsharesofourcommonstockdeterminedbyourboardofdirectors.AsofJuly31,2017,$3.9millionhasbeenwithheldonbehalfofemployeesforafuturepurchaseundertheESPPandisrecordedinotheraccruedcompensation.
11. Income taxes
Thedomesticandforeigncomponentsoflossbeforeprovisionforincometaxesconsistedofthefollowing(inthousands):
Year EndedJanuary 31,
2016 2017
Domestic $ (204,713) $ (187,905)Foreign 2,680 2,775
Netlossbeforeincometaxes $ (202,033) $ (185,130)
Thecomponentsofprovisionforincometaxesareasfollows(inthousands):
Year EndedJanuary 31,
2016 2017
Current: Federal $ — $ —State (177) (140)Foreign (940) (2,011)
Totalcurrenttaxexpense (1,117) (2,151)Deferred: Federal — (108)State — —Foreign 7 72
Totaldeferredtaxexpense 7 (36)Totalprovisionforincometaxes $ (1,110) $ (2,187)
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Oureffectivetaxratesubstantiallydifferedfromthefederalstatutorytaxrateof34%primarilyduetothechangeinthevaluationallowanceforourdeferredtaxassets.Areconciliationofincometaxesatthestatutoryfederalincometaxratetotheprovisionforincometaxesincludedintheconsolidatedstatementsofoperationsisasfollows(inthousands):
Year EndedJanuary 31,
2016 2017
U.S.federalstatutoryincometaxat34% $ 68,691 $ 62,944Researchtaxcredits 1,605 2,235Stock-basedcompensation (11,060) (4,340)Changeinvaluationallowance (60,318) (54,823)DonationofcommonstocktotheClouderaFoundation — (7,335)Other (28) (868)
Provisionforincometaxes $ (1,110) $ (2,187)
Thedeferredtaxassetsandliabilitieswereasfollows(inthousands):
As of
January 31,
2016 2017
Deferredtaxassets: Accrualsandreserves $ 9,076 $ 12,282Deferredrevenue 19,978 26,509Netoperatinglosscarryforward 124,302 165,873Researchanddevelopmentcreditsandothercredits 7,718 12,009Stock-basedcompensation 7,308 9,923Grossdeferredtaxassets 168,382 226,596
Lessvaluationallowance (165,536) (225,495)Totaldeferredtaxassets 2,846 1,101
Deferredtaxliabilities: Depreciationandamortization (2,689) (872)
Grossdeferredtaxliabilities (2,689) (872)
Netdeferredtaxassets $ 157 $ 229
WehavenotrecordedaprovisionfordeferredUnitedStatestaxexpenserelatedto$3.1millionand$4.8millionofourundistributedearningsofourforeignsubsidiariesasofJanuary31,2016and2017,respectively,becausetheseearningsareintendedtobepermanentlyreinvestedinoperationsoutsideoftheUnitedStates.Wehavedeterminedtheunrecognizeddeferredtaxliabilitiesassociatedwiththeseearningsarenotmaterial.
Avaluationallowanceisprovidedwhenitismorelikelythannotthatthedeferredtaxassetswillnotberealized.WehaveestablishedavaluationallowancetooffsetnetdeferredtaxassetsatJanuary31,2016and2017duetotheuncertaintyofrealizingfuturetaxbenefitsfromournetoperatinglosscarryforwardsandotherdeferredtaxassets.ThenetchangeinthetotalvaluationallowancefortheyearsendedJanuary31,2016and2017wasanincreaseofapproximately$66.6millionand$60.0million,respectively.
AtJanuary31,2017,wehavefederal,Californiaandotherstatenetoperatinglosscarryforwardsofapproximately$586.2million,$188.4millionand$179.0million,respectively,expiringbeginningfiscal2029,forfederalandCaliforniapurposesandfiscal2019forotherstates’purposes.
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Theexcesstaxbenefitsassociatedwithstockoptionexercisesarerecordeddirectlytostockholders’equityonlywhensuchbenefitsarerealizedfollowingthetaxlaworderingapproach.Asaresult,theexcesstaxbenefitsincludedinnetoperatinglosscarryforwardsbutnotreflectedindeferredtaxassetsforfiscal2017are$53.5million.Theexcesstaxbenefitassociatedwithstockoptionexerciseswillonlyberecordedtoequitywhentheyreducecashtaxespayable.
AtJanuary31,2017,wehavefederalandstateresearchcreditcarryforwardsofapproximately$11.6millionand$10.6million,respectively,expiringbeginningincalendaryear2029forfederalpurposes.Thestatecreditscanbecarriedforwardindefinitely.
FederalandstatetaxlawsmayimposesubstantialrestrictionsontheutilizationofthenetoperatinglossandcreditcarryforwardattributesintheeventofanownershipchangeasdefinedinSection382oftheInternalRevenueCode.Accordingly,ourabilitytoutilizethesecarryforwardsmaybelimitedasaresultofsuchoneormoreownershipchanges.Suchalimitationcouldresultintheexpirationofcarryforwardsbeforetheyareutilized.Thecompanyhasperformedananalysistodeterminewhetheranownershipchangehasoccurredsinceinception.Theanalysisidentifiedtwohistoricalownershipchanges,howeverthelimitationsdidnotresultinamaterialrestrictionontheuseofourcarryforwards.Intheeventweexperienceanysubsequentchangesinownership,theavailabilityofourcarryforwardsinanytaxableyearcouldchange.
Forbenefitstoberecorded,ataxpositionmustbemorelikelythannottobesustaineduponexamination.Theamountrecognizedismeasuredasthelargestamountofbenefitthatisgreaterthan50%likelyofbeingrealizeduponsettlement.Thefollowingtablereflectsthechangesinthegrossunrecognizedtaxbenefits(inthousands):
Year EndedJanuary 31,
2016 2017
Balanceasofbeginningofyear $ 4,200 $ 6,500Taxpositionstakenincurrentperiod Grossincreases 2,300 3,100
Balanceasofendofyear $ 6,500 $ 9,600
Werecognizeinterestandpenaltiesrelatedtoincometaxmattersintheprovisionforincometaxes.AsofJanuary31,2017,wehadnoaccruedinterestandpenaltiesrelatedtouncertaintaxpositions.WearesubjecttotaxesintheUnitedStatesandotherforeignjurisdictions.Inthenormalcourseofbusiness,wearesubjecttoexaminationbyvariousfederal,stateandlocaltaxingauthorities.WearenotcurrentlyunderauditbytheInternalRevenueServiceoranyothertaxauthority.Alltaxyearsremainopentoexaminationbymajortaxingjurisdictionsinwhichwefilereturns.
Ourquarterlyincometaxesreflectanestimateofourcorrespondingyear’sannualeffectivetaxrateandinclude,whenapplicable,adjustmentsfordiscreteitems.ForthesixmonthsendedJuly31,2017,ourtaxprovisionwas$1.5million,comparedto$1.0millionforthesameperiodayearago.ThetaxprovisionforthesixmonthsendedJuly31,2017primarilyrelatestoincometaxesofournon-U.S.operationsasourU.S.operationswereinalosspositionandwemaintainafullvaluationallowanceagainstourU.S.deferredtaxassets.
12. Related Party Transactions
Intel Corporation
WehavebeenengagedincommercialtransactionswithIntelCorporation,aholderofourcommonstock,representingapproximately22%and20%ofoutstandingsharesasofJanuary31,2017andJuly31,2017,withtherighttodesignateapersonthatourboardofdirectorsmustnominateforelection,ornominateforre-election,toourboardofdirectors,includingamulti‑yearsubscriptionandservicesagreement,andacollaborationandoptimizationagreement.Theaggregaterevenuewerecognizedfromthiscustomerwas$5.4millionand$8.3millionfortheyearsendedJanuary31,2016and2017,respectively,and$3.9millionand$5.3millionforthesixmonthsendedJuly31,2016and2017,respectively.Therewas$1.5million,$2.3millionand$3.0millioninaccountsreceivableduefrom
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thiscustomerasofJanuary31,2016and2017andJuly31,2017,respectively.Therewas$1.5million,$2.1millionand$2.8millionindeferredrevenueasofJanuary31,2016and2017andJuly31,2017,respectively.
Cloudera Foundation
InJanuary2017,theClouderaFoundation,anindependentnon‑profitorganization,wascreatedtoprovideourproducts,skillsandpeople,tohelpsolveimportantsocialproblemsaroundtheworld.Wedonated1,175,063sharesofourcommonstocktotheClouderaFoundationduringthefourthquarteroffiscal2017.Werecordedanon‑cashchargeof$21.6millionforthefairvalueofthedonatedshares,whichwasrecordedingeneralandadministrativeexpenseintheaccompanyingconsolidatedstatementsofoperations.InconjunctionwiththeIPO,wedonated$2.4million,or1%ofthenetproceeds,tofundtheClouderaFoundation’sactivities.WedonotcontroltheClouderaFoundation’sactivities,andaccordingly,wedonotconsolidatethefinancialstatementsoftheClouderaFoundation.
Other related parties
Certainmembersofourboardofdirectorscurrentlyserveontheboardofdirectorsorasanexecutiveoftwocompaniesthatareourcustomers.Theaggregaterevenuewerecognizedfromthesecustomerswas$2.4millionand$5.5millionfortheyearsendedJanuary31,2016and2017,respectively,and$2.1millionand$3.4millionforthesixmonthsendedJuly31,2016and2017,respectively.Therewas$1.0million,$4.5millionand$0.6millioninaccountsreceivableduefromthesecustomersasofJanuary31,2016and2017andJuly31,2017,respectively.Therewas$3.0million,$5.5millionand$5.7millionindeferredrevenueasofJanuary31,2016and2017andJuly31,2017,respectively.
13. Segment Information
TheresultsofthereportablesegmentsarederiveddirectlyfromourmanagementreportingsystemandarebasedonourmethodsofinternalreportingwhicharenotnecessarilyinconformitywithGAAP.Managementmeasurestheperformanceofeachsegmentbasedonseveralmetrics,includingcontributionmargin,asdefinedbelow.Managementdoesnotuseassetinformationtoassessperformanceandmakedecisionsregardingallocationofresources.Therefore,depreciationandamortizationexpenseisnotallocatedamongsegments.
Contributionmarginisused,inpart,toevaluatetheperformanceof,andallocateresourcesto,eachofthesegments.Segmentcontributionmarginincludessegmentrevenuelesstherelatedcostofsalesexcludingcertainoperatingexpensesthatarenotallocatedtosegmentsbecausetheyareseparatelymanagedattheconsolidatedcorporatelevel.Theseunallocatedcostsincludestock‑basedcompensationexpense,amortizationofacquiredintangibleassets,directsalesandmarketingcosts,researchanddevelopmentcosts,corporategeneralandadministrativecosts,suchaslegalandaccounting,interestincome,interestexpense,andotherincome(expense).
Financialinformationforeachreportablesegmentwasasfollows(inthousands):
Year EndedJanuary 31,
Six Months EndedJuly 31,
2016 2017 2016 2017
(unaudited)Revenue:
Subscription $ 119,150 $ 200,252 $ 91,360 $ 138,657Services 46,898 60,774 29,581 30,767
Totalrevenue $ 166,048 $ 261,026 $ 120,941 $ 169,424
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Year EndedJanuary 31,
Six Months EndedJuly 31,
2016 2017 2016 2017
(unaudited)Contributionmargin:
Subscription $ 93,380 $ 164,971 $ 73,980 $ 117,387Services 6,701 14,293 7,195 4,599
Totalsegmentcontributionmargin $ 100,081 $ 179,264 $ 81,175 $ 121,986
Thereconciliationofsegmentfinancialinformationtoourlossfromoperationsisasfollows(inthousands):
Year EndedJanuary 31,
Six Months EndedJuly 31,
2016 2017 2016 2017
(unaudited)Segmentcontributionmargin $ 100,081 $ 179,264 $ 81,175 $ 121,986Amortizationofacquiredintangibleassets (3,455) (3,720) (1,830) (1,885)Stock-basedcompensationexpense (63,590) (21,714) (11,241) (230,533)DonationofcommonstocktotheClouderaFoundation — (21,574) — —Corporatecosts,suchasresearchanddevelopment,corporategeneralandadministrativeandother (237,673) (319,595) (150,407) (177,593)
Lossfromoperations $ (204,637) $ (187,339) $ (82,303) $ (288,025)
SalesoutsideoftheUnitedStatesrepresentedapproximately21%,and25%ofourtotalrevenuefortheyearsendedJanuary31,2016and2017,respectively,and24%and27%forthesixmonthsendedJuly31,2016and2017,respectively.Allrevenuesfromexternalcustomersareattributedtoindividualcountriesonanend‑customerbasis,basedondomicileofthepurchasingentity,ifknown,orthelocationofthecustomer’sheadquartersifthespecificpurchasingentitywithinthecustomerisunknown.
AsofJanuary31,2016andJanuary31,2017andJuly31,2017,assetslocatedoutsidetheUnitedStateswere1%,3%and2%oftotalassets,respectively.
14. Net Loss Per Share Attributable to Common Stockholders
Thefollowingtablesetsforththecalculationofbasicanddilutednetlosspershareattributabletocommonstockholdersduringtheperiodspresented(inthousands,exceptpersharedata):
Year Ended January 31,
Six Months EndedJuly 31,
2016 2017 2016 2017
(unaudited)Numerator: Netloss $ (203,143) $ (187,317) $ (81,840) $ (286,548)
Denominator: Weighted-averagesharesusedincomputingnetlossattributabletocommonstockholders,basicanddiluted 32,724 36,406 36,090 87,293
Netlosspershareattributabletocommonstockholders,basicanddiluted $ (6.21) $ (5.15) $ (2.27) $ (3.28)
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Thefollowingoutstandingsharesofcommonstockequivalentswereexcludedfromthecomputationofthedilutednetlosspershareattributabletocommonstockholdersfortheperiodspresentedbecausetheireffectwouldhavebeenanti‑dilutive(inthousands):
As of
January 31, As of July 31,
2016 2017 2016 2017
(unaudited)Redeemableconvertiblepreferredstockonanas-ifconvertedbasis 74,907 74,907 74,907 —Stockoptionstopurchasecommonstock 24,835 23,240 23,819 22,211Restrictedstockunits 11,228 21,374 14,017 18,172SharesissuablepursuanttotheESPP — — — 1,004
Total 110,971 119,521 112,744 41,388
15. Subsequent Events
InpreparingtheconsolidatedfinancialstatementsasofJanuary31,2017andfortheyearthenended,weevaluatedsubsequenteventsforrecognitionandmeasurementpurposesthroughMarch31,2017,thedatetheindependentauditors’reportwasoriginallyissuedandtheauditedannualconsolidatedfinancialstatementswereavailableforissuance.
16. Subsequent Events (unaudited)
InSeptember2017,weacquiredFastForwardLabs,aleadingmachinelearningandappliedartificialintelligenceresearchcompanybasedinNewYork.Thisacquisitionwillbeaccountedforasabusinesscombination.Theestimatedpurchasepriceisnotmaterial.
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