The following description of risk factors include any material changes to, and
supersedes the description of, risk factors associated with our business previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 28, 2014, under the
heading Risk Factors. Our business, financial condition and operating results can be affected by a number of factors, whether current known or unknown, including but not limited to those described below, any one or more of which could,
directly or indirectly, cause our actual operating results and financial condition to vary materially from past, or anticipated future, operating results and financial condition. Any of these factors, in whole or in part, could materially and
adversely affect our business, financial condition, operating results and the price of our common stock.
The following discussion of risk factors
contains forward-looking statements. These risk factors may be important to understanding any statement in this Quarterly Report on Form 10-Q or elsewhere. The following information should be read in conjunction with the consolidated financial
statements and related notes in Part I, Item 1, Financial Statements and Part I, Item 2, Managements, Discussion and Analysis of Financial Condition and Results of Operations.
Because of the following factors, as well as other factors affecting our financial condition and operating results, past financial performance should not
be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
We target a global marketplace and compete in a rapidly evolving industry which makes our future operating results difficult to predict. If we are
unable to enhance products or acquire new products that respond to rapidly changing customer requirements, technological developments or evolving industry standards, our long-term revenue growth will be harmed.
We target the global business intelligence, or BI, marketplace, which is an industry characterized by rapid technological innovation, changing
customer needs, substantial competition, evolving industry standards and frequent introductions of new products, enhancements and services. Any of these factors can render our existing software products and services obsolete or unmarketable. We
believe that our future success will depend in large part on our ability to successfully:
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support current and future releases of popular hardware, operating systems, computer programming languages, databases and software applications
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develop new products and product enhancements that achieve market acceptance in a timely manner
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meet an expanding range of customer requirements.
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As we encounter increasing competitive pressures, we will likely be required to modify, enhance,
reposition or introduce new products and service offerings. We may not be successful in doing so in a timely, cost-effective and appropriately responsive manner, or at all, which may have an adverse effect on our business, quarterly operating
results and financial condition. All of these factors make it difficult to predict our future operating results which may impair our ability to manage our business.
We may experience quarterly fluctuations in our operating results due to a number of factors which make our future results difficult to predict and
could cause our operating results to fall below expectations or our guidance.
Our operating results may fluctuate due to a variety
of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Our past results should not be relied on as an indication of our future performance. If our revenue
or operating results fall below the expectations of investors or securities analysts or below any guidance we may provide to the market, the price of our common stock could decline substantially.
Our operating results have varied in the past and are expected to continue to do so in the future. In addition to other risk factors listed in
this Risk Factors section, factors that may affect our quarterly operating results, business and financial condition include the following:
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demand for our software products and services and the size and timing of orders
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market acceptance of our current and future products, such as Qlik Sense
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a slowdown in spending on information technology, or IT, and software by our current and/or prospective customers
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sales cycles and performance of our indirect channel partners and original equipment manufacturers (known as OEMs)
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budgeting cycles of our current or potential customers
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the management, performance and expansion of our domestic and international operations
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the rate of renewals of our maintenance agreements
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changes in the competitive dynamics of our markets
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our ability to control and predict costs, including our operating expenses
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customers delaying purchasing decisions in anticipation of new products or product enhancements by us or our competitors
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the timing of recognizing revenue in any given quarter as a result of revenue recognition rules
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the timing and amount of our tax benefits or tax expenses as a result of, among other things, complex tax laws and any changes to such tax laws in the jurisdictions in which we operate
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foreign currency exchange rate fluctuations
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the seasonality of our business
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failure to successfully manage or integrate any acquisitions
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an increase in the rate of product returns
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the outcome or publicity surrounding any pending or threatened lawsuits
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general economic and political conditions in our domestic and international markets.
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addition, we may in the future experience fluctuations in our gross and operating margins due to changes in the mix of our direct and indirect sales, domestic and international revenues, and license, maintenance and professional services revenues.
We may implement changes to our license pricing and licensing model structure for any or all of our products including increased prices,
changes to the types and terms of our licensing structure and maintenance parameters. If these changes are not accepted by our current or future customers, our business, operating results and financial condition could be harmed.
Based upon the factors described above and those described elsewhere in this section entitled Risk Factors, we have a limited
ability to forecast the amount and mix of future revenues and expenses, which may cause our operating results to fall below our estimates or the expectations of public market analysts and investors.
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Product enhancement and new product introductions involve inherent risks.
We compete in a market characterized by rapid technological advances in software development, evolving standards in software technology and
frequent new product introductions and enhancements. To succeed, we must continually expand and refresh our product offerings to include newer features or products, such as Qlik Sense, and enter into agreements allowing integration of third-party
technology into our products. The introduction of new products or updated versions of continuing products has inherent risks, including, but not limited to:
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product quality, including the possibility of software defects
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delays in releasing new products
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customers delaying purchase decisions in anticipation of new products to be released
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customer confusion and extended evaluation and negotiation time
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the fit of the new products and features with the customers needs
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the successful adaptation of third-party technology into our products
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educating our sales, marketing and consulting personnel to work with new products and features
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competition from earlier and more established entrants
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market acceptance of initial product releases
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marketing effectiveness, including challenges in distribution
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the accuracy of assumptions about the nature of customer demand.
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If we are unable to
successfully introduce, market, and sell new products and technologies, enhance and improve existing products in a timely manner, and properly position and/or price our products, our business, results of operations, or financial position could be
materially impacted.
If new industry standards emerge or if we are unable to respond to rapid technological changes, demand for our software
platform may be adversely affected.
We believe that our future success is dependent in large part on our ability:
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to support current and future industry standards, including databases and operating systems
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to maintain technological competiveness and meet an expanding range of customer requirements
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to introduce new products and features for our customers.
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The emergence of new industry
standards in related fields may adversely affect the demand for our existing software products. Our business and results of operations may be adversely affected if new technologies emerged that were incompatible with customer deployments of our
software products. We currently support Open Database Connectivity, or ODBC, and Object Linking and Embedding Database, or OLEDB, standards in database access technology. If we are unable to adapt our software products on a timely basis to new
standards in database access technology, the ability of our software products to access customer databases could be impaired. In addition, the emergence of new server operating systems standards could adversely affect the demand for our existing
software products. Our software products currently require the Windows Server operating system when deployed on a server, as used in most multi-user deployments. If customers are unwilling to use a Windows Server, we may not be able to achieve
compatibility on a timely basis or without substantial research and development and support expense. We currently support all generally available client operating systems that run industry standard web browsers, but we cannot provide assurance that
we will be able to support future client operating systems and web browsers in a timely and cost-effective manner, if at all.
The markets
for our software products and services are also characterized by rapid technological and customer requirement changes. In particular, our technology is optimized for servers utilizing the x86 and x64 families of microprocessors. If the speed and
performance of these microprocessor families do not continue to increase at the rates we anticipate, our software may not attain the performance speed and capabilities that we expect. Also, if different microprocessor architecture were to gain
widespread acceptance in server applications, we may not be able to achieve compatibility on a timely basis or without substantial research and development and support expense. Our delay or inability to achieve compatibility with different
microprocessor architecture or other technological change or in satisfying changing customer requirements could render our existing and future products obsolete and unmarketable. As a result, we may not be able to accurately predict the lifecycle of
our software products and services, and they may become obsolete before we receive the amount of revenues that we anticipate from them.
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Our long-term growth depends on our ability to enhance and improve our existing products and to
introduce or acquire new products that respond to these demands. The creation of BI software is inherently complex. The development and testing of new products and product enhancements can require significant research and development expenditures.
As a result, substantial delays in the general availability of such new releases or significant problems in the installation or implementation of such new releases could harm our business, operating results and financial condition. We may not
successfully develop and market product enhancements or new products that respond to technological change or new customer requirements. Even if we introduce a new product, we may experience a decline in revenues of our existing products that is not
fully matched by the new products revenue. For example, customers may delay making purchases of a new product to make a more thorough evaluation of the product, or until industry and marketplace reviews become widely available. In addition, we
may lose existing customers who choose a competitors product rather than to migrate to our new product. This could result in a temporary or permanent revenue shortfall and harm our business, operating results and financial condition. If we are
unable to develop or acquire enhancements to, and new features for, our existing products or acceptable new products that keep pace with rapid technological developments, our products may become obsolete, less marketable and less competitive, and
our business, operating results and financial condition will be harmed.
We depend on revenue from a single software product platform.
Despite our planned release of Qlik Sense, we have and we may continue to be heavily dependent on our QlikView product. Our business would be
harmed by a decline in demand for, or in the price of, our software products as a result of, among other factors:
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any change in our pricing model
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any change in our licensing model
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any change in our go to market model
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support, research and development or other expenditures undertaken in attempts, whether or not successful, to develop new products
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maturation in the markets for our products.
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Our financial results would suffer if the market for BI
software does not continue to grow or if we are unable to further penetrate this market.
Nearly all of our revenues to date have
come from sales of BI software and related maintenance and professional services. We expect these sales to account for substantially all of our revenues for the foreseeable future. Although demand for BI software has grown in recent years, the
market for BI software applications is still evolving. We cannot be sure that this market will continue to grow or, even if it does grow, that customers will purchase our software products or services. We have spent, and intend to keep spending,
considerable resources to educate potential customers about BI software in general and our Business Discovery platform and products in particular. However, we cannot be sure that these expenditures will help our software products achieve any
additional market acceptance or enable us to attract new customers or new users at existing customers. A reduction in the demand for our software products and services could be caused by, among other things, lack of customer acceptance, weakening
economic conditions, competing technologies and services or decreases in software spending. If the market and our market share fail to grow or grow more slowly than we currently expect, our business, operating results and financial condition would
be harmed.
Our operating income could fluctuate and may decline as a percentage of revenue as we make further expenditures to expand our operations
in order to support additional growth in our business.
We have continued to make significant investments in our operations to
support additional growth, such as hiring substantial numbers of new personnel, investing in research and development, investing in new facilities, acquiring other companies or their assets and establishing and broadening our international
operations in order to expand our business. We intend to make additional investments in research and development, systems, infrastructure, marketing and personnel and to continue to expand our operations to support anticipated future growth in our
business. As a result of these investments, our operating income could fluctuate and may decline as a percentage of revenue.
We use indirect
channel partners and if we are unable to maintain successful relationships with them, our business, operating results and financial condition could be harmed.
In addition to our direct sales force, we use indirect channel partners, such as distribution partners, value-added resellers, system
integrators and OEMs to license and support our software products. For the year ended December 31, 2013 and six months ended June 30, 2014, transactions by indirect channel partners accounted for more than 50% of our total product licenses
and first year maintenance billings. We expect to continue to rely substantially on our channel partners in the future.
Our channel
partners may offer customers the products of several different companies, including products that compete with ours. Our channel partners generally do not have an exclusive relationship with us; thus, we cannot be certain that they will prioritize
or provide adequate resources for selling our products. Divergence in strategy or contract defaults by any of these channel partners may harm our ability to develop,
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market, sell or support our software products. In addition, establishing and retaining qualified indirect sales channel partners and training them in our software products and services requires
significant time and resources. In order to develop and expand our distribution channel, we must continue to scale and improve our processes and procedures that support our channel partners, including investment in systems and training. These
processes and procedures may become increasingly complex and difficult to manage as we grow our organization.
Our ability to achieve
revenue growth in the future will depend in part on our success in maintaining successful relationships with our current and future channel partners and their ability to license and support our software products. There can be no assurance that our
channel partners will continue to cooperate with us when our distribution agreements expire, change or are up for renewal. If we are unable to maintain our relationships with these channel partners, our business, operating results and financial
condition could be harmed. Also, in a number of regions we rely on a limited number of resellers, and our business may be harmed if any of these resellers were to fail to effectively license our software in their specified geographic territories.
In addition, we rely on our channel partners to operate in accordance with the terms of their contractual agreements with us. For
example, our agreements with our channel partners limit the terms and conditions pursuant to which they are authorized to resell or distribute our software products and offer technical support and related services. We also typically require our
channel partners to provide us with the dates and details of product license transactions sold to end user customers. If our channel partners do not comply with their contractual obligations to us, our business, results of operations and financial
condition may be harmed.
If we are unable to expand our direct sales capabilities and increase sales productivity, we may not be able to generate
increased revenues.
We may be required to expand our direct sales force in order to generate increased revenue from new and
existing customers. We have and intend to continue to increase our number of direct sales professionals. New hires require training and take time to achieve full productivity. We cannot be certain that recent and future new hires will become as
productive as necessary or that we will be able to hire enough qualified individuals in the future. Failure to hire qualified direct sales personnel and increase sales productivity will preclude us from expanding our business and growing our
revenue, which may harm our business, operating results and financial condition.
As we pursue new enterprise customers, additional OEM
opportunities or more complicated deployments, our sales cycle, forecasting processes and deployment processes may become more unpredictable and require greater time and expense.
Our sales cycle may lengthen as we pursue new enterprise customers. Enterprise customers may undertake a significant evaluation process in
regard to enterprise software which can last from several months to a year or longer. If our sales cycle were to lengthen in this manner, events may occur during this period that affect the size or timing of a purchase or even cause cancellations,
and this may lead to more unpredictability in our business and operating results. Additionally, sales cycles for sales of our software products tend to be longer, ranging from three to 12 months or more which may make forecasting more complex
and uncertain. We may spend substantial time, effort and money on our sales efforts without any assurance that our efforts will produce any sales. We may spend substantial time, effort, and money in our sales efforts without being successful in
generating any sales. In addition, product purchases by large enterprises are frequently subject to budget constraints, multiple approvals, and unplanned administrative, processing, and other delays. Finally, large enterprises typically have longer
implementation cycles, require greater product functionality and scalability and a broader range of services, demand that vendors take on a larger share of risks, sometimes require acceptance provisions that can lead to a delay in revenue
recognition, and expect greater payment flexibility from vendors. All of these factors can add further risk to business conducted with these end-customers. If we fail to realize an expected sale from a large end-customer in a particular quarter or
at all, our business, operating results, and financial condition could be materially and adversely affected.
In addition, we may face
unexpected deployment challenges with enterprise customers or more complicated installations of our software products. It may be difficult to deploy our software products if the customer has unexpected database, hardware or software technology
issues. Additional deployment complexities may occur if a customer hires a third party to deploy our software products or if one of our indirect channel partners leads the implementation of our solution. Any difficulties or delays in the initial
implementation could cause customers to reject our software or lead to the delay or non-receipt of future orders, in which case our business, operating results and financial condition would be harmed.
Managing our international operations is complex and our failure to do so successfully could harm our business, operating results and financial
condition.
We receive a significant portion of our total revenues from international sales from foreign direct and indirect
operations. International revenues accounted for approximately 72% of our total revenues for the six months ended June 30, 2014, approximately 70% of our total revenues for the year ended December 31, 2013, approximately 72% of our total
revenues for the year ended December 31, 2012 and approximately 73% of our total revenues for the year ended December 31, 2011. We have facilities located in Australia, Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France,
Germany, Hong Kong, India, Italy, Japan, the Netherlands, Norway, Poland, Portugal, Russia, Singapore, Spain, Sweden, Switzerland, the United Arab Emirates and the United Kingdom. We expect to continue to add personnel in these and additional
countries. Our international operations require significant management attention and financial resources.
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There are certain risks inherent in our international business activities including, but not
limited to:
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managing and staffing international offices and the increased costs associated with multiple international locations
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maintaining relationships with indirect channel partners outside the U.S., whose sales and lead generation activities are very important to our international operations
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multiple legal systems and unexpected changes in legal requirements
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tariffs, export restrictions, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets
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trade laws and business practices favoring local competition
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costs of localizing products and potential lack of acceptance of localized versions
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potential tax issues, including restrictions on repatriating earnings and multiple, conflicting, changing and complex tax laws and regulations
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employer payroll tax withholdings with respect to exercises by employees of options to purchase common stock
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weaker intellectual property protection in some countries
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difficulties in enforcing contracts and collecting accounts receivable, longer sales cycles and longer payment cycles, especially in emerging markets
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the significant presence of some of our competitors in certain international markets
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our ability to adapt to sales practices and customer requirements in different cultures
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political instability, including war and terrorism or the threat of war and terrorism
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adverse economic conditions, including the stability and solvency of business financial markets, financial institutions and sovereign nations.
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We believe that, over time, a significant portion of our revenues and costs will continue to be denominated in foreign currencies. To the
extent such denomination in foreign currencies does occur, gains and losses on the conversion to the U.S. dollar of accounts receivable, accounts payable and other monetary assets and liabilities arising from international operations may contribute
to fluctuations in our results of operations. Although we have entered into foreign currency hedging transactions and foreign exchange hedging transactions to cover a portion of our foreign currency transaction exposure, our policies do not allow
speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading purposes and we are not a party to any leveraged
derivatives. We monitor underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as needed. If we are not effective in any future foreign exchange hedging transactions in which we engage,
our business, operating results and financial condition could be harmed.
In addition, compliance with foreign and U.S. laws and
regulations that are applicable to our international operations is complex and may increase our cost of doing business in international jurisdictions, and our international operations could expose us to fines and penalties if we fail to comply with
these regulations. These laws and regulations include import and export requirements, U.S. laws such as the Foreign Corrupt Practices Act and anti-money laundering regulations, and local laws prohibiting corrupt payments. Although we have
implemented policies and procedures designed to help ensure compliance with these laws, there can be no assurance that our employees, partners and other persons with whom we do business will not take actions in violation of our policies or these
laws. Any violations of these laws could subject us to civil or criminal penalties, including substantial fines or prohibitions on our ability to offer our products and services in one or more countries, and could also materially damage our
reputation, our brand and our international business.
Our failure to manage any of these risks successfully could harm our international
operations, business operating results and financial condition and reduce our international sales.
Our business depends on customers renewing their
annual maintenance contracts and our ability to collect renewal fees.
Any decline in maintenance renewals could harm our future
operating results. We currently sell our software products pursuant to a perpetual license with a fixed upfront fee which ordinarily includes one year of maintenance as part of the initial price. Our customers have no obligation to renew their
maintenance agreements after the expiration of this initial period, and they may not renew these agreements. We may be unable to predict future customer renewal rates accurately. Our customers renewal rates may decline or fluctuate as a result
of a number of factors, including their level of satisfaction with our software products, the prices of our software products, the prices of products and services offered by our competitors, reductions in our customers spending levels or
general, industry-specific or local economic conditions. If our customers do not renew their maintenance arrangements or if they renew them on less favorable terms, our revenues may decline, our operating and financial condition will be harmed and
our business will suffer. A substantial portion of our quarterly maintenance revenue is attributable
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to maintenance agreements entered into during previous quarters. As a result, if there is a decline in renewed maintenance agreements in any one quarter, only a small portion of the decline will
be reflected in our maintenance revenue recognized in that quarter and the rest will be reflected in our maintenance revenue recognized in the following four quarters or more. In addition, we may have difficulties collecting renewal fees from our
customers, especially in regards to customers located in emerging international markets or markets experiencing slowed growth, recessions or other adverse economic conditions. If we are unable to collect renewal fees from customers, our business,
results of operations and financial condition will be harmed.
Our software products could contain undetected errors, or bugs, which could cause
problems with product performance and which could in turn reduce demand for our software products, reduce our revenue and lead to product liability claims against us.
Software products like ours, which consist of hundreds of thousands of lines of code and incorporate licensed software from third parties, may
contain errors and/or defects. Although we test our software, we have in the past discovered software errors in our products after their introduction. Despite testing by us and by our current and potential customers, errors may be found in new
products or releases after deployment begins. This could result in lost revenue, damage to our reputation or delays in market acceptance which could harm our business, operating results and financial condition. We may also have to expend resources
to correct these defects and the resulting effects of these defects.
Our license agreements with customers typically contain provisions
designed to limit our exposure to product liability, warranty and other claims. It is possible, however, that these provisions may not be effective as a result of existing or future laws of certain domestic or international jurisdictions or
unfavorable judicial decisions in such jurisdictions, and we may be exposed to product liability, warranty and other claims. If these claims are made, our potential exposure may be substantial given the use of our products in business-critical
applications. A successful product liability claim against us could harm our business, operating results and financial condition.
We face intense
competition which may lead to reduced revenue and loss of market share.
The markets for BI software, analytical applications and
information management are intensely competitive and subject to rapidly changing technology and evolving standards. In addition, many companies in these markets are offering, or may soon offer, products and services that may compete with our
software products.
We face competitors in several broad categories, including BI software, analytical processes, query, search and
reporting tools. We compete with large software corporations, including suppliers of enterprise resource planning software that provide one or more capabilities that are competitive with our software platform, such as IBM (which acquired Cognos in
2008), Microsoft, Oracle (which acquired Hyperion Solutions in 2007) and SAP AG (which acquired Business Objects in 2008), and with open source BI vendors, including Pentaho and JasperSoft (which was acquired by TIBCO in 2014). Open source
software is software that is made widely available by its authors and is licensed as is for a nominal fee or, in some cases, at no charge. As the use of open source software becomes more widespread, certain open source technology could
become competitive with our proprietary technology, which could cause sales of our products to decline or force us to reduce the fees we charge for our products. We also compete, or may increasingly in the future compete, with various independent
competitors that are primarily focused on BI products, such as Actuate, Information Builders, MicroStrategy, the SAS Institute, Tableau Software and TIBCO. We expect additional competition as other established and emerging companies or open source
vendors enter the BI software market and new products and technologies are introduced.
Many of our competitors have longer operating
histories, significantly greater financial, technical, marketing or other resources and greater name recognition than we do. In addition, many of our competitors have strong relationships with current and potential customers and extensive knowledge
of the BI industry. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products than us. Increased
competition may lead to price cuts, fewer customer orders, reduced gross margins, longer sales cycles and loss of market share. We may not be able to compete successfully against current and future competitors, and our business, operating results
and financial condition will be harmed if we fail to meet these competitive pressures.
Current and future competitors may also make
strategic acquisitions or establish cooperative relationships among themselves or with others. By doing so, these competitors may increase their ability to meet the needs of our current or potential customers. Our current or prospective indirect
channel partners may establish cooperative relationships with our current or future competitors. These relationships may limit our ability to sell our software products through specific distribution channels. Accordingly, new competitors or
alliances among current and future competitors may emerge and rapidly gain significant market share. These developments could limit our ability to obtain revenues from new customers and to sustain maintenance revenues from our installed customer
base. If we are unable to compete successfully against current and future competitors, our business, operating results and financial condition would be harmed.
If customers demand BI software to be provided via a software as a service business model, our business could be harmed.
Software as a service, or SaaS, is a model of software deployment where a software provider typically licenses an application to customers for
use as a service on demand through web browser technologies. A SaaS business model can require a vendor to undertake substantial capital investments and related sales and support resources and personnel. If customers were to require BI software like
ours to be provided via a SaaS deployment, we would need to undertake significant investments in order to implement this alternative business model. If the prevalence of cloud-based data increases, current and prospective customers may increasingly
demand SaaS-based BI software platforms. In addition, we would be obligated to apply new revenue recognition policies. Even if we undertook these investments, we may be unsuccessful in implementing a SaaS business model. These factors could harm our
business, operating results and financial condition.
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If we fail to develop and maintain our brand cost-effectively, our business may be harmed.
We believe that developing and maintaining awareness and integrity of our brand in a cost-effective manner are important to achieving
widespread acceptance of our Business Discovery platform and our existing and future products and are important elements in attracting new customers and maintaining existing customers. We believe that the importance of brand recognition will
increase as competition in our market further intensifies. In January 2014, we rebranded our company under the name Qlik. Successful promotion of our brand will depend on the effectiveness of our marketing efforts and on our ability to
provide reliable and useful products and services at competitive prices. Brand promotion activities may not yield increased revenue, and even if they do, the increased revenue may not offset the expenses we incur in building and maintaining our
brand. We also rely on our customer base and community of end-users in a variety of ways, including to give us feedback on our products and to provide user-based support to our other customers. If we fail to promote and maintain our brand
successfully or to maintain loyalty among our customers and Qlik Community, our user community, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract new customers or retain our
existing customers and our business may be harmed.
If we are unable to manage our growth effectively, our revenues and profits could be adversely
affected.
We plan to continue to expand our operations and employee headcount significantly, and we anticipate that further
significant expansion will be required. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Sustaining our growth will place significant demands on our management as well as on our
administrative, operational and financial resources. To manage our growth, we must continue to improve our operational, financial and management information systems and expand, motivate and manage our workforce. If we are unable to manage our growth
successfully without compromising our quality of service or our profit margins, or if new systems that we implement to assist in managing our growth do not produce the expected benefits, our revenues and profits could be harmed. Risks that we face
in undertaking future expansion include:
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training new personnel to become productive and generate revenue
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enabling partners to sell our software products
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controlling expenses and investments in anticipation of expanded operations
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implementing and enhancing our administrative, operational and financial infrastructure, systems and processes
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expanding operations in the U.S. and international regions.
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A failure to manage our growth
effectively could harm our business, operating results, financial condition and ability to market and sell our software products and maintenance services.
If we are unable to recruit or retain skilled personnel, or if we lose the services of any of our key personnel, our business, operating results and
financial condition could be harmed.
Our future success depends on our continuing ability to attract, train and retain highly
skilled personnel, and we face intense competition for these employees. We may not be able to retain our current key employees or attract, train or retain other highly skilled personnel in the future. If we lose the services of one or all of our key
employees, or if we are unable to attract, train and retain the highly skilled personnel we need, our business, operating results and financial condition could be harmed.
In addition, we must successfully integrate new employees into our operations and generate sufficient revenues to justify the costs associated
with these employees. If we fail to successfully integrate employees or to generate the revenue necessary to offset employee-related expenses, our business and financial results could be adversely affected.
The success of our business is also heavily dependent on the leadership of key management personnel, including Lars Björk, Chief Executive Officer,
and other members of our senior management team. The loss of one or more key employees could adversely affect our continued operations.
Our future success depends in a large part upon the continued service of key members of our senior management team. In particular, Lars
Björk, our Chief Executive Officer, is critical to the overall management of our organization, as well as the development of our brand, our technology, our culture and our strategic direction.
We have experienced significant changes, and may experience additional changes in the future, to our senior management team. For us to compete
successfully and grow, we must retain, recruit and develop key personnel who can provide the needed expertise for our industry and products. However, the market for qualified personnel is competitive and we may not succeed in recruiting additional
senior management
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personnel or may fail to replace current senior management personnel effectively who depart without qualified or effective successors. Any successors that we hire from outside of our company
would likely be unfamiliar with our business model and industry and may therefore require significant time to understand and appreciate the important aspects of our business or fail to do so altogether. Our effort to retain and develop personnel may
also result in significant additional expenses, which could adversely affect our profitability. The loss of any of our management or key personnel could seriously harm our business.
Future product development is dependent on adequate research and development resources.
In order to remain competitive, we must continue to develop new products, applications and enhancements to our existing software products. This
is particularly true as we strive to further expand our Business Discovery platform and product capabilities. Maintaining adequate research and development resources, such as the appropriate personnel, talent and development technology, to meet the
demands of the market is essential. Our research and development organization is primarily located in Lund, Sweden, and we may have difficulty hiring suitably skilled personnel in this region or expanding our research and development organization to
facilities located in other geographic locations. In addition, many of our competitors expend a considerably greater amount of resources on their respective research and development programs. Our failure to maintain adequate research and development
resources or to compete effectively with the research and development programs of our competitors would present an advantage to such competitors.
If we fail to offer high quality customer support, our business would suffer.
Once our software products are deployed to our customers, our customers rely on our support services to resolve any related issues. High
quality customer support is important for the successful marketing and sale of our software products and services and for the renewal of existing customers. The importance of high quality customer support will increase as we expand our business and
pursue new enterprise customers. If we do not help our customers quickly resolve post-deployment issues and provide effective ongoing support, our ability to sell our software products and professional services to existing customers would suffer and
our reputation with existing or potential customers would be harmed.
We currently utilize a combination of internal support personnel and
third party support organizations, and we cannot provide assurance that actions taken or not taken by our third party support organization will not harm our reputation or business. As we expand our sales infrastructure, we will be required to engage
and train additional support personnel and resources. Further, our support organization will face additional challenges as we enter new international markets, including challenges associated with delivering support, training and documentation in
languages required by new customers. If we fail to maintain high quality customer support or to grow our internal and external support organization to match any future sales growth, our business will suffer.
If we do not meet our revenue forecasts, we may be unable to reduce our expenses to avoid or minimize harm to our results of operations
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Our revenues are difficult to forecast and are likely to fluctuate significantly from period to period. We base our operating expense budgets
on expected revenue trends, and many of our expenses, such as office and equipment leases and personnel costs, will be relatively fixed in the short term and will increase as we continue to make investments in our business and hire additional
personnel. In the event we alter our licensing model, our ability to forecast revenue and expenses may be further hampered. Our estimates of sales trends may not correlate with actual revenues in a particular quarter or over a longer period of time.
Variations in the rate and timing of conversion of our sales prospects into actual licensing revenues could cause us to plan or budget inaccurately and those variations could adversely affect our financial results. In particular, delays or
reductions in amount or cancellation of customers purchases of our software products would adversely affect the overall level and timing of our revenues, and our business, results of operations and financial condition could be harmed. Due to
the relatively fixed nature of many of our expenses, we may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall.
In the course of our sales to customers, we may encounter difficulty collecting accounts receivable and could be exposed to risks associated
with uncollectible accounts receivable. In the event we are unable to collect on our accounts receivable, it could negatively affect our cash flows, operating results and business.
Our methodologies and software products may infringe the intellectual property rights of third parties or be found to contain unexpected open source
software, and this may create liability for us or otherwise harm our business.
Third parties may claim that our current or future
products infringe their intellectual property rights, and such claims may result in legal claims against our customers and us. These claims may damage our reputation, harm our customer relationships and create liability for us. We expect the number
of such claims will increase as the number of products and the level of competition in our industry segments grow, the functionality of products overlap and the volume of issued software patents and patent applications continues to increase. We
generally agree in our customer contracts to indemnify customers for expenses or liabilities they incur as a result of third party intellectual property infringement claims associated with our products or services. To the extent that any claim
arises as a result of third party technology we have licensed for use in our product, we may be unable to recover from the appropriate third party any expenses or other liabilities that we incur.
In addition, software products like ours that contain hundreds of thousands of lines of software code at times incorporate open source
software code. The use of open source software code is typically subject to varying forms of software licenses, called copyleft or open source licenses. These types of licenses may require that any person who creates a software product that
redistributes or modifies open source software that was subject to an open source license must also make their own software product subject to the same open source license. This can lead to a requirement that the newly created software product be
provided free of charge or be made available or distributed in source code form. Although we do not believe our software includes any open source software that would result in the imposition of any such requirement on portions of our software
products, our software could be found to contain this type of open source software.
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Moreover, we cannot assure you that our processes for controlling our use of open source software
in our products will be effective. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third parties to continue offering our products on terms that are not economically feasible,
to re-engineer our products, to discontinue the sale of our products if re-engineering could not be accomplished on a timely basis, or to make generally available, in source code form, our proprietary code, any of which could adversely affect our
business, operating results, and financial condition.
In addition to risks related to license requirements, usage of open source software
can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or assurance of title, non-infringement or controls on origin of the software. In addition, many of the risks
associated with usage of open source software, such as the lack of warranties or assurances of title, cannot be eliminated, and could, if not properly addressed, negatively affect our business. We have established processes to help alleviate these
risks, including a review process for screening requests from our development organizations for the use of open source software, but we cannot be sure that all open source software is submitted for approval prior to use in our products.
Responding to any infringement claim, regardless of its validity, or discovering open source software code in our products could harm our
business, operating results and financial condition, by, among other things:
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resulting in time-consuming and costly litigation
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diverting managements time and attention from developing our business
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requiring us to pay monetary damages or enter into royalty and licensing agreements that we would not normally find acceptable
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causing product shipment or deployment delays
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requiring us to stop selling certain of our products
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requiring us to redesign certain of our products using alternative non-infringing or non-open source technology or practices, which could require significant effort and expense
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requiring us to disclose our software source code, the detailed program commands for our software
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requiring us to satisfy indemnification obligations to our customers.
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Our intellectual property rights
are valuable, and any inability to protect them could reduce the value of our software products, services and brand.
As of
June 30, 2014, we had seven issued U.S. patents and ten pending applications for U.S. patents expiring at various times ranging from 2015 through 2033 and 21 issued and 19 pending applications for foreign patents expiring at various times
ranging from 2015 through 2031. We rely on a combination of copyright, trademark, patent, trade secrets, confidentiality procedures and contractual commitments to protect our proprietary information. For example, we license our software products
pursuant to click-wrap or signed license agreements that impose certain restrictions on a licensees ability to utilize the software. We also seek to avoid disclosure of our intellectual property, including by requiring those persons with
access to our proprietary information to execute confidentiality agreements with us and by restricting access to our source code.
Despite
our efforts, these measures can only provide limited protection. Unauthorized third parties may try to copy or reverse engineer portions of our software products or may otherwise obtain and use our intellectual property. Any patents owned by us may
be invalidated, circumvented or challenged. Any of our pending or future patent applications, whether or not being currently challenged, may not be issued with the scope of the claims we seek, if at all. Legal standards relating to the validity,
enforceability and scope of protection of intellectual property rights in other countries are uncertain and may afford little or no effective protection for our services, software, methodology and other proprietary rights. Consequently, we may be
unable to prevent our intellectual property rights from being exploited abroad, which could require costly efforts to protect them. Policing the unauthorized use of our proprietary rights is expensive, difficult and, in some cases, impossible.
Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial
costs and diversion of management resources, either of which could harm our business. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. If we cannot
protect our proprietary technology against unauthorized copying or use, we may not remain competitive.
Furthermore, many of our current
and potential competitors have the ability to dedicate substantially greater resources to developing and protecting their technology or intellectual property rights than we do. In addition, our attempts to protect our proprietary technology and
intellectual property rights may be further limited as our employees may be recruited by our current or future competitors and may take with them significant knowledge of our proprietary information. Consequently, others may develop services and
methodologies that are similar or superior to our services and methodologies or may design around our intellectual property.
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Computer hackers may damage our systems, services and products, and breaches of data protection
could impact our business.
Computer programmers and hackers may be able to penetrate our network security and misappropriate our
confidential information or that of third parties, create system disruptions or cause interruptions or shutdowns of our internal systems and services. If successful, any of these events could damage our computer systems or those of our customers and
could disrupt or prevent us from providing timely maintenance and support for our software products. Computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our
products or otherwise exploit any security vulnerabilities of our products. The costs to us to eliminate or alleviate security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and the
efforts to address these problems could result in interruptions, delays, cessation of service and loss of existing or potential customers and may impede our sales and other critical functions.
In the course of our regular business operations and providing maintenance and support services to our customers, we process and transmit
proprietary information and sensitive or confidential data, including personal information of employees, customers and others. Breaches in security could expose us, our employees, our customers or the individuals affected to a risk of loss or misuse
of this information, which could result in potential regulatory actions, litigation and potential liability for us, as well as the loss of existing or potential customers and damage to our brand and reputation.
Prolonged economic uncertainties or downturns could materially harm our business.
We are subject to risks arising from changes and uncertainty in domestic and global economies. Our operations and performance depend
significantly on worldwide economic conditions. Current or future economic downturns could harm our business and results of operations. Negative trends in the general economy in the U.S., Europe and the other jurisdictions in which we do business,
including trends resulting from actual or threatened military action, terrorist attacks and financial, credit market fluctuations and changes in tax laws, could cause a decrease in corporate spending on BI software in general and negatively affect
the rate of growth of our business and our results of performance.
General worldwide economic conditions have experienced a significant
downturn. For instance, the macroeconomic condition of some countries in which we operate has been hindered by unemployment, budget deficits, high public debt, the risk of defaults on sovereign debt and potential or actual private bank failures.
These conditions make it extremely difficult for our customers and us to accurately forecast and plan future business activities, and they could cause our customers to slow spending on our products and services which would delay and lengthen sales
cycles. Furthermore, during challenging economic times our customers may face issues in gaining timely access to sufficient credit which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may be
required to increase our allowance for doubtful accounts and our operating results would be harmed.
We maintain operating or other bank
accounts at financial institutions in the U.S., Sweden and other regions. In particular, a significant amount of our cash balances in the U.S. and Sweden are in excess of the insurance limits of the U.S. governments Federal Deposit Insurance
Corporation, or FDIC, and Swedish governments Swedish Deposit Insurance Scheme, or Insättningsgarantin. The FDIC insures deposits in most banks and savings associations located in the U.S. and protects depositors against the loss of their
deposits if an FDIC-insured bank or savings association fails, subject to specified monetary ceilings. Similarly, the Swedish Deposit Insurance Scheme is a state-provided guarantee of deposits in accounts at Swedish banks, subject to specified
monetary ceilings. We could incur substantial losses if the underlying financial institutions in these or other regions fail or are otherwise unable to return our deposits.
We have a significant number of customers in the consumer products and services, healthcare, retail, manufacturing and financial services
industries. A substantial downturn in these industries may cause organizations to react to worsening conditions by reducing their capital expenditures in general or by specifically reducing their spending on IT. Customers in these industries may
delay or cancel IT projects or seek to lower their costs by renegotiating vendor contracts. Also, customers with excess IT resources may choose to develop in-house software solutions rather than obtain those solutions from us. Moreover, competitors
may respond to market conditions by lowering prices and attempting to lure away our customers. In addition, the increased pace of consolidation in certain industries may result in reduced overall spending on our products.
We cannot predict the timing, strength or duration of any economic slowdown or recovery, generally or in the consumer products and services,
manufacturing and financial services industries. During challenging and uncertain economic times and in tight credit markets, many customers delay or reduce technology purchases. Contract negotiations may become more protracted or difficult if
customers institute additional internal approvals for technology purchases or require more negotiation of contract terms and conditions. These economic conditions, and uncertainty as to the general direction of the macroeconomic environment, are
beyond our control and could result in reductions in sales of our products, longer sales cycles, difficulties in collection of accounts receivable or delayed payments, slower adoption of new technologies, increased price competition and reductions
in the rate at which our customers renew their maintenance agreements and procure consulting services.
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Our business could be harmed as a result of the risks associated with our acquisitions.
As part of our business strategy, we may from time to time seek to acquire businesses or assets that provide us with additional intellectual
property, customer relationships and geographic coverage. We can provide no assurances that we will be able to find and identify desirable acquisition targets or that we will be successful in entering into a definitive agreement with any one target.
In addition, even if we reach a definitive agreement with a target, there is no assurance that we will complete any future acquisition.
Any acquisitions we undertake will likely be accompanied by business risks which may include, among other things:
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the effect of the acquisition on our financial and strategic position and reputation
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the failure of an acquisition to result in expected benefits, which may include benefits relating to enhanced revenues, technology, human resources, costs savings, operating efficiencies, goodwill and other synergies
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the difficulty, cost and management effort required to integrate the acquired businesses, including costs and delays in implementing common systems and procedures and costs and delays caused by communication
difficulties
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the assumption of certain known or unknown liabilities of the acquired business, including litigation-related liabilities
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the reduction of our cash available for operations and other uses, the increase in amortization expense related to identifiable assets acquired, potentially dilutive issuances of equity securities or the incurrence of
debt
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a lack of experience in new markets, new business culture, products or technologies or an initial dependence on unfamiliar distribution partners
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the possibility that we will pay more than the value we derive from the acquisition
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the impairment of relationships with customers, partners or suppliers of the acquired business or our customers
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the potential loss of key employees of the acquired company.
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These factors could harm our
business, results of operations or financial condition.
In addition to the risks commonly encountered in the acquisition of a business or
assets as described above, we may also experience risks relating to the challenges and costs of closing a transaction. The risks described above may be exacerbated as a result of managing multiple acquisitions at once.
Business disruptions could affect our operating results.
A significant portion of our research and development activities and certain other critical business operations are concentrated at a single
facility in Sweden. In addition, a significant amount of our management operations are concentrated in a single facility in Radnor, Pennsylvania. We are also a highly automated business and a disruption or failure of our systems could cause delays
in completing sales and providing services. A major natural disaster, fire, act of terrorism or other catastrophic event that results in the destruction or disruption of any of our critical business operations or IT systems could severely affect our
ability to conduct normal business operations and, as a result, our future operating results could be harmed.
Future litigation could harm our
results of operation and financial condition.
In addition to intellectual property litigation, from time to time, we may be
subject to other litigation. We record a related liability when we can make a reasonable estimate of the liability relating to pending litigation and determine that it is probable. As additional information becomes available, we assess the potential
liability and revise estimates as appropriate. However, because of uncertainties relating to litigation, the amount of our estimates could be wrong. In addition to the related cost and use of cash, pending or future litigation could cause the
diversion of managements attention and resources.
We are incurring significant costs and demands upon management as a result of complying
with the laws and regulations affecting public companies, which could harm our operating results.
As a public company, we are
incurring significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, the Financial Industry Regulatory Authority,
Inc. (FINRA) and the Nasdaq Stock Exchange Global Select Market (NASDAQ) imposes various requirements on public companies, including requirements with respect to corporate governance practices. Our management and other
personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have substantially increased our legal and financial compliance costs and made some activities more time-consuming and costly. We
also expect these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantial costs to
maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
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If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our
ability to manage and grow our business may be harmed. A failure or disruption in these services would materially and adversely affect our ability to manage our business effectively.
We have experienced rapid growth over the last several years. We rely heavily on information technology systems to help manage critical
functions, such as order processing, sales forecasts and employee data. Our ability to successfully implement our business plan and comply with regulations, including the Sarbanes-Oxley Act, requires an effective planning and management process. We
expect that we will need to continue to improve existing, and implement new, operational and financial systems, procedures and controls to manage our business effectively in the future. In 2014, we plan to continue to transition from legacy systems
and implement a SaaS enterprise resource planning software. If we experience a significant deficiency, material weakness or any other delay in the implementation of, or disruption in the transition to, new or enhanced system, procedures or controls,
our ability to record and report financial and management information on a timely and accurate basis could be impaired. In addition, if one or more of our technology-related hardware or software providers suffer an interruption in their business, or
experience delays, disruptions or quality control problems in their operations, or we have to change or add additional systems and services, our ability to manage our business would suffer.
If we fail to maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business
could be harmed.
The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal control
over financial reporting and disclosure controls and procedures. Under the SECs current rules, we are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report
on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our independent registered public accounting firm is also required to report on our internal control over financial
reporting. Our testing and our independent registered public accounting firms testing may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses and render our internal control over
financial reporting ineffective. Due to the extent of our international operations, our financial reporting requires substantial international activities, resources and reporting consolidation. We are also subject to complex tax laws, regulations,
accounting principles and interpretations thereof. We have and expect to continue to incur substantial accounting and auditing expense and to expend significant management time in complying with the requirements of Section 404. If we are not
able to maintain compliance with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be
material weaknesses, the market price of our stock could decline and we could be subject to investigations or sanctions by the SEC, FINRA, NASDAQ or other regulatory authorities. In addition, we could be required to expend significant management
time and financial resources to correct any material weaknesses that may be identified or to respond to any regulatory investigations or proceedings.
Our results of operations may be adversely affected by changes in or interpretations of accounting standards.
We prepare our unaudited consolidated financial statements in conformity with generally accepted accounting principles in the United States
(U.S. GAAP). These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting standards. It is possible that future requirements, including the recently proposed
implementation of International Financial Reporting Standards (IFRS), could change our current application of U.S. GAAP, resulting in a material adverse impact on our financial position or results of operations. Our accounting policies
that recently have been or may be affected by changes in the accounting rules are as follows:
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software revenue recognition
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accounting for income taxes
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accounting for business combinations and related goodwill
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accounting for stock-based awards issued to employees
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assessing fair value of financial and non-financial assets
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application, if any of IFRS.
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We continuously review our compliance with all applicable new
and existing revenue recognition accounting pronouncements. Depending upon the outcome of these ongoing reviews and the potential issuance of further accounting pronouncements, implementation guidelines and interpretations, we may be required to
modify our reported results, revenue recognition policies or business practices which could harm our results of operations.
We may have exposure to
additional tax liabilities.
We are subject to complex taxes in the U.S. and a variety of foreign jurisdictions. All of these
jurisdictions have in the past and may in the future make changes to their corporate income tax rates and other income tax laws which could increase our future income tax provision.
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Our future income tax obligations could be affected by earnings that are lower than anticipated
in jurisdictions where we have lower statutory rates and by earnings that are higher than anticipated in jurisdictions where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, changes in the
amount of unrecognized tax benefits or by changes in tax laws, regulations, accounting principles or interpretations thereof.
Our
determination of our tax liability is subject to review by applicable U.S. and foreign tax authorities. Any adverse outcome of such a review could harm our operating results and financial condition. The determination of our worldwide provision for
income taxes and other tax liabilities requires significant judgment and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is complex and uncertain. Moreover, as a multinational
business, we have subsidiaries that engage in many intercompany transactions in a variety of tax jurisdictions where the ultimate tax determination is complex and uncertain.
We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes in the
United States and various foreign jurisdictions. We are regularly audited by tax authorities with respect to these non-income taxes and may have exposure to additional non-income tax liabilities which could have an adverse effect on our results of
operations and financial condition. In addition, our future effective tax rates could be favorably or unfavorably affected by changes in tax rates, changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws or their
interpretation. Such changes could have an adverse impact on our financial results.
As a result of these and other factors, the ultimate
amount of tax obligations owed may differ from the amounts recorded in our financial statements and any such difference may harm our financial results in future periods in which we change our estimates of our tax obligations or in which the ultimate
tax outcome is determined.
We may be subject to increased income taxes, and other restrictions and limitations, if we were to decide to repatriate
any of our foreign cash balances to the United States.
As of June 30, 2014, we held approximately $89.8 million, or
approximately 35.2%, of our cash and cash equivalents, outside of the United States (after consideration of intercompany settlements). We use our foreign held cash by reinvesting it in our foreign operations. Our current intention is to continue to
reinvest our foreign earnings in our foreign operations. Our current plans do not anticipate a need to repatriate cash to fund our domestic operations. In the event cash from foreign operations is needed to fund operations in the U.S. or our foreign
cash balance continues to grow such that we are unable to reinvest such cash outside of the U.S., it may become increasingly likely that we would repatriate some of our foreign cash balances to the U.S. In such event, we would be subject to
additional income taxes in the U.S.
Additionally, if we were to repatriate foreign held cash to the U.S., we would use a portion of our
domestic net operating loss carryforward which could result in us being subject to cash income taxes on the earnings of our domestic business sooner than would otherwise have been the case.
If securities or industry analysts do not publish research or reports or publish unfavorable research or reports about our business, our stock price and
trading volume could decline.
The trading market for our common stock may be influenced by the research and reports that
securities or industry analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us adversely change their recommendation regarding our stock or products, or provide more favorable relative
recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, interest in our stock could decrease, which could cause
our stock price or trading volume to decline.
The price of our common stock may be volatile and fluctuate substantially.
The market price of our common stock could be highly volatile and may fluctuate substantially due to the following factors (in addition to the
other risk factors described in this section):
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quarterly variations in our results of operations or those of our competitors
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announcements by us or our competitors of acquisitions, new products, significant contracts or commercial relationships
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our ability to respond to changing industry standards, technological developments or customer requirements on a timely basis
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commencement of, or our involvement in, litigation
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any major change in our board of directors or management
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financial guidance or business updates we may provide
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recommendations by securities analysts or changes in earnings estimates
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announcements about our earnings that are not in line with analyst expectations or guidance we may provide
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changes in our licensing or go to business models
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announcements by our competitors of their earnings that are not in line with analyst expectations
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the volume of shares of our common stock available for public sale
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sales of stock by us or by our stockholders
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short sales, hedging and other derivative transactions involving shares of our common stock
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adoption of new accounting standards or tax laws or regulations
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general economic conditions in the U.S. and abroad and slow or negative growth of related markets
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general political conditions in the U.S. and abroad, including terrorist attacks, war or threat of terrorist attacks or war.
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In addition, the stock market in general, NASDAQ and the market for technology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. These broad market and industry factors may materially harm the market price irrespective of our operating
performance. As a result of these factors, an investor might be unable to resell their shares at or above the price paid. In addition, in the past, following periods of volatility in the overall market or the market price of a companys
securities, securities class action litigation has often been instituted against the affected company. This type of litigation, if instituted against us, could result in substantial costs and a diversion of our managements attention and
resources.
Future sales of our common stock in the public market, including sales by our stockholders with significant holdings, may depress our
stock price.
The market price of our common stock could drop due to sales of a large number of shares or the perception that such
sales could occur, including sales or perceived sales by our directors, officers or large stockholders. These sales could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem
appropriate to raise funds through future offerings of equity securities.
Our management has broad discretion over the use of our cash reserves, if
any, and might not apply this cash in ways that increase the value of an investment.
Our management has broad discretion to use
our cash reserves, if any, and you will be relying on the judgment of our management regarding the application of this cash. They might not apply our cash in ways that increase the value of an investment. We expect to use our cash reserves for
general corporate purposes, including working capital, capital expenditures, acquisitions and further development of our products, services and solutions. We have not allocated this cash for any specific purposes. Our management might not be able to
yield any return on the investment and use of this cash.
We currently do not intend to pay dividends on our common stock, and consequently, your
only opportunity to achieve a return on investment is if the price of our common stock appreciates and you sell your shares at a price above your cost.
We currently do not intend to declare or pay dividends on shares of our common stock in the foreseeable future. See Dividend Policy
for more information. Consequently, your only opportunity to achieve a return on your investment in our company will be if the market price of our common stock appreciates and you sell your shares at a price above your cost. There is no guarantee
that the price of our common stock will ever exceed the price that you pay. Investors seeking cash dividends should not purchase our common stock.
Anti-takeover provisions in our certificate of incorporation and bylaws and in Delaware law could prevent or delay a change in control of our company.
We are a Delaware corporation, and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or
prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder even if a change of control would be beneficial to
our existing stockholders. In addition, our restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our restated
certificate of incorporation and amended and restated bylaws:
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authorize the issuance of blank check preferred stock that could be issued by our board of directors to thwart a takeover attempt
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do not provide for cumulative voting in the election of directors which would allow holders of less than a majority of the stock to elect some directors
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establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual
meeting following their election
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require that directors only be removed from office for cause
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provide that vacancies on the board of directors, including newly-created directorships, may be filled only by a majority vote of directors then in office
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limit who may call special meetings of stockholders
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prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders
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establish advance notice requirements for nominating candidates for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
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