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EX-31.2 - EXHIBIT 31.2 - QLIK TECHNOLOGIES INC | c05107exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - QLIK TECHNOLOGIES INC | c05107exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - QLIK TECHNOLOGIES INC | c05107exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010 |
OR |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number 001-34803
Qlik Technologies Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
20-1643718 (I.R.S. Employer Identification No.) |
|
150 N. Radnor Chester Road Suite E220 |
||
Radnor, Pennsylvania (Address of principal executive offices) |
19087 (Zip Code) |
(888) 828-9768
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes o No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Date File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filed, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As
of August 16, 2010, there were 77,134,723 shares of the registrants common stock issued
and outstanding.
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
QLIK TECHNOLOGIES INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, | June 30, | |||||||
2009 | 2010 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 24,852 | $ | 35,840 | ||||
Accounts receivable, net of allowance for doubtful account of $1,171 and $1,258, respectively |
63,729 | 49,037 | ||||||
Prepaid expenses and other current assets |
3,970 | 6,531 | ||||||
Deferred income taxes |
810 | 810 | ||||||
Total current assets |
93,361 | 92,218 | ||||||
Property and equipment, net |
3,244 | 3,384 | ||||||
Intangible assets, net |
417 | 458 | ||||||
Goodwill |
1,308 | 2,648 | ||||||
Deferred income taxes |
4,207 | 4,207 | ||||||
Deposits and other noncurrent assets |
430 | 656 | ||||||
Total assets |
$ | 102,967 | $ | 103,571 | ||||
Liabilities, convertible preferred stock and stockholders deficit |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt |
$ | 3,022 | $ | 2,774 | ||||
Line of credit |
242 | | ||||||
Income taxes payable |
3,203 | 2,667 | ||||||
Accounts payable |
5,232 | 4,253 | ||||||
Deferred revenue |
35,575 | 35,524 | ||||||
Accrued payroll and other related costs |
18,818 | 14,751 | ||||||
Accrued expenses |
10,015 | 10,967 | ||||||
Stock warrant liability |
2,425 | 2,042 | ||||||
Total current liabilities |
78,532 | 72,978 | ||||||
Long-term liabilities: |
||||||||
Long-term debt |
3,777 | 2,081 | ||||||
Deferred taxes |
326 | 383 | ||||||
Other long-term liabilities |
3,322 | 3,100 | ||||||
Stock warrant liability |
2,212 | 4,174 | ||||||
Total liabilities |
88,169 | 82,716 | ||||||
Commitments and contingencies |
||||||||
Convertible preferred stock: |
||||||||
Series A convertible preferred stock ($0.0001 par value, 20,320,561 shares authorized; 19,846,279
issued and
outstanding (liquidation preference of $12,499 at June 30, 2010) |
12,082 | 12,082 | ||||||
Series AA convertible preferred stock ($0.0001 par value, 26,875,145 shares authorized, issued,
and outstanding (liquidation preference of $16,926 at June 30, 2010) |
11,819 | 11,819 | ||||||
Total convertible preferred stock |
23,901 | 23,901 | ||||||
Stockholders deficit: |
||||||||
Common stock, $0.0001 par value, 78,068,237 shares authorized; 16,629,146 and 17,482,296 issued
and outstanding at December 31, 2009 and June 30, 2010, respectively |
2 | 2 | ||||||
Additional paid-in-capital |
5,743 | 9,021 | ||||||
Accumulated deficit |
(13,383 | ) | (9,964 | ) | ||||
Accumulated other comprehensive loss |
(1,465 | ) | (2,105 | ) | ||||
Total stockholders deficit |
(9,103 | ) | (3,046 | ) | ||||
Total liabilities, convertible preferred stock and stockholders deficit |
$ | 102,967 | $ | 103,571 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
1
Table of Contents
QLIK TECHNOLOGIES INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Revenue: |
||||||||||||||||
License revenue |
$ | 20,045 | $ | 32,544 | $ | 34,804 | $ | 58,766 | ||||||||
Maintenance revenue |
9,478 | 13,519 | 17,447 | 26,588 | ||||||||||||
Professional services revenue |
3,322 | 5,067 | 6,998 | 9,541 | ||||||||||||
Total revenue |
32,845 | 51,130 | 59,249 | 94,895 | ||||||||||||
Cost of revenue: |
||||||||||||||||
License revenue |
614 | 1,178 | 1,201 | 1,857 | ||||||||||||
Maintenance revenue |
455 | 1,013 | 831 | 1,708 | ||||||||||||
Professional services revenue |
2,589 | 3,554 | 5,406 | 6,466 | ||||||||||||
Total cost of revenue |
3,658 | 5,745 | 7,438 | 10,031 | ||||||||||||
Gross profit |
29,187 | 45,385 | 51,811 | 84,864 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
23,214 | 27,751 | 42,776 | 53,164 | ||||||||||||
Research and development |
2,152 | 2,980 | 4,375 | 5,644 | ||||||||||||
General and administrative |
6,530 | 8,813 | 13,749 | 18,206 | ||||||||||||
Total operating expenses |
31,896 | 39,544 | 60,900 | 77,014 | ||||||||||||
Income (loss) from operations |
(2,709 | ) | 5,841 | (9,089 | ) | 7,850 | ||||||||||
Other income (expense): |
||||||||||||||||
Interest expense, net |
(218 | ) | (185 | ) | (381 | ) | (443 | ) | ||||||||
Change in fair value of warrants |
(145 | ) | (1,408 | ) | (290 | ) | (1,962 | ) | ||||||||
Foreign exchange gain (loss) and other
income, net |
(508 | ) | 664 | 470 | (698 | ) | ||||||||||
Total other expense, net |
(871 | ) | (929 | ) | (201 | ) | (3,103 | ) | ||||||||
Income (loss) before provision for income taxes |
(3,580 | ) | 4,912 | (9,290 | ) | 4,747 | ||||||||||
Benefit (provision) for income taxes |
884 | (1,374 | ) | 2,293 | (1,328 | ) | ||||||||||
Net income (loss) |
$ | (2,696 | ) | $ | 3,538 | $ | (6,997 | ) | $ | 3,419 | ||||||
Net income (loss) per common share: |
||||||||||||||||
Basic |
$ | (0.17 | ) | $ | 0.02 | $ | (0.44 | ) | $ | 0.02 | ||||||
Diluted |
$ | (0.17 | ) | $ | 0.02 | $ | (0.44 | ) | $ | 0.02 | ||||||
Weighted average number of common shares: |
||||||||||||||||
Basic |
16,118,189 | 17,222,001 | 16,055,753 | 17,035,083 | ||||||||||||
Diluted |
16,118,189 | 24,711,969 | 16,055,753 | 24,150,670 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
2
Table of Contents
QLIK TECHNOLOGIES INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS DEFICIT
(in thousands, except for per share data)
Convertible Preferred Stock | Stockholders Deficit | |||||||||||||||||||||||||||||||||||||||
Additional Paid- | Accumulated Other | |||||||||||||||||||||||||||||||||||||||
Series A Preferred | Series AA Preferred | Common | in- | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Total | |||||||||||||||||||||||||||||||
Balance at December 31, 2009 |
19,846,279 | $ | 12,082 | 26,875,145 | $ | 11,819 | 16,629,146 | $ | 2 | $ | 5,743 | $ | (13,383 | ) | $ | (1,465 | ) | $ | (9,103 | ) | ||||||||||||||||||||
Exercise of stock options |
| | | | 733,150 | | 872 | | | 872 | ||||||||||||||||||||||||||||||
Stock compensation expense |
| | | | | | 1,049 | | | 1,049 | ||||||||||||||||||||||||||||||
Excess tax benefit from stock-based
compensation |
| | | | | | 656 | | | 656 | ||||||||||||||||||||||||||||||
Payments for stock options |
| | | | | | 79 | | | 79 | ||||||||||||||||||||||||||||||
Shares issued for acquisition |
| | | | 120,000 | | 622 | | | 622 | ||||||||||||||||||||||||||||||
Net income |
| | | | | | | 3,419 | | 3,419 | ||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | | | (640 | ) | (640 | ) | ||||||||||||||||||||||||||||
Comprehensive income |
| | | | | | | | | 2,779 | ||||||||||||||||||||||||||||||
Balance at June 30, 2010 |
19,846,279 | $ | 12,082 | 26,875,145 | $ | 11,819 | 17,482,296 | $ | 2 | $ | 9,021 | $ | (9,964 | ) | $ | (2,105 | ) | $ | (3,046 | ) | ||||||||||||||||||||
The
accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Table of Contents
QLIK TECHNOLOGIES INC. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended | ||||||||
June 30, | ||||||||
2009 | 2010 | |||||||
Cash flows from operating activities |
||||||||
Net income (loss) |
$ | (6,997 | ) | $ | 3,419 | |||
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
||||||||
Non-cash interest expense, including amortization of debt discount |
350 | 27 | ||||||
Depreciation and amortization |
479 | 739 | ||||||
Stock-based compensation expense |
746 | 1,049 | ||||||
Excess tax benefit from stock-based compensation |
| (656 | ) | |||||
Provision for bad debts |
585 | 273 | ||||||
Change in fair value of warrants |
290 | 1,962 | ||||||
Unrealized foreign currency (gain) loss, net |
(90 | ) | 1,169 | |||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
6,912 | 10,148 | ||||||
Prepaid expenses and other assets |
(4,983 | ) | (1,068 | ) | ||||
Other noncurrent assets |
(19 | ) | (277 | ) | ||||
Accounts payable |
(86 | ) | (582 | ) | ||||
Deferred revenue |
2,030 | 2,932 | ||||||
Accrued expenses and other liabilities |
2,264 | (1,748 | ) | |||||
Net cash provided by operating activities |
1,481 | 17,387 | ||||||
Cash flows from investing activities |
||||||||
Acquisition, net of cash acquired |
| 193 | ||||||
Purchase of property and equipment |
(721 | ) | (1,074 | ) | ||||
Net cash used in investing activities |
(721 | ) | (881 | ) | ||||
Cash flows from financing activities |
||||||||
Borrowings (payments) on line of credit, net |
510 | (236 | ) | |||||
Payments on long-term debt |
(966 | ) | (2,074 | ) | ||||
Excess tax benefit on stock-based compensation |
| 656 | ||||||
Payments for deferred offering costs |
| (1,769 | ) | |||||
Proceeds from issuance (repurchase) of stock options |
(439 | ) | 79 | |||||
Proceeds from exercise of common stock options |
263 | 872 | ||||||
Net cash used in financing activities |
(632 | ) | (2,472 | ) | ||||
Effect of exchange rates on cash |
364 | (3,046 | ) | |||||
Net increase in cash and cash equivalents |
492 | 10,988 | ||||||
Cash and cash equivalents, beginning of period |
14,800 | 24,852 | ||||||
Cash and cash equivalents, end of period |
$ | 15,292 | $ | 35,840 | ||||
Supplemental cash flow information: |
||||||||
Cash paid during the period for interest |
$ | 44 | $ | 329 | ||||
Cash paid during the period for income taxes |
$ | 212 | $ | 786 | ||||
Non-cash investing activities: |
||||||||
Common stock issued for acquisition of business |
$ | | $ | 622 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Table of Contents
QLIK TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(1) Description of Business
QlikTech International AB (QlikTech Sweden) was founded in Sweden in 1993. From 1993 until
1999, QlikTech Swedens activities were focused on software research and development that resulted
in the core technology for QlikView, software for business intelligence and data analysis. From
1999 until 2004, QlikTech Sweden focused on the commercialization of this technology primarily in
the Nordic market and limited regions of Europe. In 2004, Qlik Technologies Inc. (We, QlikTech,
or the Company) was incorporated in Delaware, acquired all of the outstanding securities of
QlikTech Sweden and began to broaden these marketing and sales activities in the United States and
to continue this expansion in Europe. Through its wholly owned subsidiaries, the Company sells
software solutions that deliver fast, powerful, and affordable data analysis and reporting
solutions. QlikView is built upon techniques which offer greater flexibility for the user than
traditional analysis software.
(2) Basis of Presentation
Basis of Presentation and Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All material intercompany balances and transactions have been
eliminated.
Foreign Currency Translation
The financial statements of the Companys foreign operations are measured using the local
currency as the functional currency. The local currency assets and liabilities are translated at
the rate of exchange to the U.S. dollar on the balance sheet date and the local currency revenues
and expenses are translated at average rates of exchange to the U.S. dollar during the reporting
periods. Foreign currency transaction gains (losses) have been reflected as a component of the
Companys results of operations and foreign currency translation gains (losses) have been included
as a component of accumulated other comprehensive income (loss). Gains and losses from foreign
currency transactions are included as a component of other income (expense).
Interim Financial Statements
The accompanying interim unaudited consolidated financial statements and related disclosures
are unaudited and have been prepared in accordance with U.S. generally accepted accounting
principles (GAAP) on the same basis as the audited consolidated financial statements for the year
ended December 31, 2009 included in the Companys Registration Statement on Form S-1, as amended
(File No. 333-165844), which was declared effective by the Securities and Exchange Commission
(SEC) on July 15, 2010 and, in the opinion of management, include all adjustments of a normal
recurring nature considered necessary to present fairly the Companys financial position, results
of its operations, and cash flows for the three and six months ended June 30, 2009 and 2010. The
Companys initial public offering of common stock (IPO) was completed on July 21, 2010. The
results of operations for the three and six months ended June 30, 2010 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2010 or any other
future periods. Certain information and note disclosures normally included in the financial
statements prepared in accordance with U.S. GAAP have been condensed or omitted under the SECs
rules and regulations. These unaudited interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and accompanying notes for the year
ended December 31, 2009. The consolidated balance sheet as of December 31, 2009 was derived from
our audited consolidated financial statements at that date and does not include all of the
information and disclosures required by GAAP for the complete financial statements.
Renaming of Common Stock
On June 29, 2010, the Company effected the renaming of its Series A common stock as common
stock. All common shares and per common share information referenced throughout these unaudited
consolidated financial statements have been retroactively adjusted to reflect such renaming.
Significant Accounting Policies
The Companys significant accounting policies are disclosed in the audited consolidated
financial statements for the year ended December 31, 2009 included in the Companys Registration
Statement on Form S-1, as amended (File No. 333-165844), which was declared effective by the SEC on
July 15, 2010. Since the date of those financial statements, there have been no material changes to
the Companys significant accounting policies.
5
Table of Contents
Comprehensive Income (Loss)
The Company classifies items of other comprehensive income (loss) separately within
stockholders equity (deficit). For the three and six months ended June 30, 2009 and 2010,
comprehensive income (loss) was:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Net income (loss) |
$ | (2,696 | ) | $ | 3,538 | $ | (6,997 | ) | $ | 3,419 | ||||||
Foreign currency
translation gain (loss) |
(234 | ) | (1,054 | ) | (453 | ) | (640 | ) | ||||||||
Comprehensive income (loss) |
$ | (2,930 | ) | $ | 2,484 | $ | (7,450 | ) | $ | 2,779 | ||||||
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
On an ongoing basis, the Company evaluates its estimates, including those related to the
accounts receivable allowance, useful lives of long-lived assets, the recoverability of goodwill
and other intangible assets, the value of common stock and assumptions used for the purpose of
determining stock-based compensation, the value of common and preferred stock warrants, and income
taxes, among others. The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable, the results of which form the basis for making
judgments about the carrying value of assets and liabilities as well as reported revenue and
expenses during the periods presented.
Deferred Offering Costs
The costs directly associated with the Companys IPO have been deferred as incurred. The
Company filed its initial Registration Statement on Form S-1 with the SEC on April 1, 2010 and
completed its IPO on July 21, 2010. These costs will be reclassified as a reduction of the proceeds
received in connection with the IPO in July 2010. As of June 30, 2010, there were approximately
$3.6 million of deferred offering costs included in prepaid expenses and other current assets on
the accompanying consolidated balance sheet.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, other current assets,
and accounts payable approximate fair value, due to their short-term nature. The carrying value of
the warrant liability is the estimated fair value of the liability (See Note 5 to these unaudited
consolidated financial statements).
Stock-Based Compensation
The Company recognizes the cost of employee services received in exchange for stock option
awards, based on the fair value of those awards at the date of grant over the requisite service
period. The Company uses the Black-Scholes-Merton (Black-Scholes) option pricing model to
determine the fair value of stock-option awards. Stock-based compensation plans, related expenses
and assumptions used in the Black-Scholes option pricing model are more fully described in Note 9
to these unaudited consolidated financial statements. The estimated fair value of stock options on
the date of grant is amortized on a straight-line basis over the requisite service period.
Stock-based compensation expense is recorded within cost of revenue, sales and marketing, research
and development, and general and administrative expenses.
The following table sets forth the total stock-based compensation expense included in the
unaudited consolidated statements of operations for the three and six months ended June 30, 2009
and 2010:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Cost of revenue |
$ | 19 | $ | 26 | $ | 38 | $ | 52 | ||||||||
Sales and marketing |
196 | 308 | 353 | 568 | ||||||||||||
Research and development |
23 | 21 | 31 | 42 | ||||||||||||
General and administrative |
168 | 194 | 324 | 387 | ||||||||||||
$ | 406 | $ | 549 | $ | 746 | $ | 1,049 | |||||||||
6
Table of Contents
Net Income (Loss) Attributable to Common Shares
The following table sets forth the computation of basic and diluted net income (loss) per
share for the periods indicated:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Basic net income (loss) per common share calculation: |
||||||||||||||||
Net income (loss) |
$ | (2,696 | ) | $ | 3,538 | $ | (6,997 | ) | $ | 3,419 | ||||||
Less: Undistributed earnings allocated to participating securities |
| (3,129 | ) | | (3,056 | ) | ||||||||||
Net income (loss) attributable to common shares |
(2,696 | ) | 409 | (6,997 | ) | 363 | ||||||||||
Weighted average common shares outstanding |
16,118,189 | 17,222,001 | 16,055,753 | 17,035,083 | ||||||||||||
Basic net income (loss) per share |
$ | (0.17 | ) | $ | 0.02 | $ | (0.44 | ) | $ | 0.02 | ||||||
Diluted net income (loss) per common share calculation: |
||||||||||||||||
Net income (loss) |
$ | (2,696 | ) | $ | 3,538 | $ | (6,997 | ) | $ | 3,419 | ||||||
Less: Undistributed earnings allocated to participating securities |
| (3,129 | ) | | (3,056 | ) | ||||||||||
Net income (loss) attributable to common shares diluted |
(2,696 | ) | 409 | (6,997 | ) | 363 | ||||||||||
Weighted average shares used to compute basic net income (loss)
per share |
16,118,189 | 17,222,001 | 16,055,753 | 17,035,083 | ||||||||||||
Effect of potentially dilutive securities: |
||||||||||||||||
Employee stock options |
| 7,489,968 | | 7,115,587 | ||||||||||||
Warrants |
| | | | ||||||||||||
Weighted average shares used to compute diluted net income (loss)
per share |
16,118,189 | 24,711,969 | 16,055,753 | 24,150,670 | ||||||||||||
Diluted net income (loss) per share |
$ | (0.17 | ) | $ | 0.02 | $ | (0.44 | ) | $ | 0.02 | ||||||
Diluted net income (loss) per share for the periods presented does not reflect the
following potential common shares as the effect would be anti-dilutive:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Stock options and warrants |
12,585,584 | 1,199,282 | 12,585,584 | 1,199,282 | ||||||||||||
Recent Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (FASB) clarified the accounting
guidance for sales of tangible products containing both software and hardware elements and issued
new guidance that amends the criteria for evaluating the individual items in a multiple deliverable
revenue arrangement and how to allocate the consideration received to the individual items. The
guidance is effective for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with early adoption permitted. The Company has evaluated the
potential impact of the revised guidance on the Companys financial position and results of
operations and has concluded that the guidance will not have a material impact on its consolidated
financial statements.
In January 2010, the FASB issued updated guidance related to fair value measurements and
disclosures, which requires a reporting entity to disclose separately the amounts of significant
transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for
the transfers. In addition, in the reconciliation for fair value measurements using significant
unobservable inputs, or Level 3, a reporting entity should disclose separately information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather than on a net
basis). The updated guidance also requires that an entity should provide fair value measurement
disclosures for each class of assets and liabilities and disclosures about the valuation techniques
and inputs used to measure fair value for both recurring and non-recurring fair value measurements
for Level 2 and Level 3 fair value measurements. The updated guidance is effective for interim or
annual financial reporting periods beginning after December 15, 2009, except for the disclosures
about purchases, sales, issuances, and settlements in the roll forward activity in Level 3 fair
value measurements, which are effective for fiscal years beginning after December 15, 2010 and for
interim periods within those fiscal years. The Company has adopted the updated guidance in the
first quarter of 2010, and the impact on the consolidated financial statements was not material.
7
Table of Contents
(3) Acquisitions
On January 22, 2010, the Company completed its acquisition of Syllogic Corporation
(Syllogic) for total consideration of $1.1 million. The purchase price consisted of 120,000
shares of common stock valued at $0.6 million and contingent cash consideration of $0.5 million,
which is estimated to be paid out over a four year period. The total maximum contingent cash
consideration that could be paid pursuant to the agreement is $0.8 million.
Syllogic was a reseller of the Companys QlikView product in Japan. The Company believes the
acquisition of Syllogic gives it a direct sales presence in the country of Japan and access to the
Japanese market.
The acquisition was accounted for under the purchase method of accounting. Assets acquired and
liabilities assumed were recorded at their carrying values as of January 22, 2010, and were
determined to approximate fair value. Included in liabilities assumed were $0.5 million of notes
payable which were paid off during the quarter ended March 31, 2010. The total preliminary purchase
price was $1.1 million, excluding the estimated acquisition related transaction costs of
approximately $0.2 million. Acquisition-related transaction costs include legal and accounting fees
directly related to the acquisition.
Purchase Price Allocation
Under the purchase method of accounting, the total estimated purchase price was allocated
to Syllogics net tangible liabilities and intangible assets based on their estimated fair values
as of January 22, 2010. The excess of the purchase price over the net tangible liabilities and
identifiable intangible assets was recorded as goodwill. The preliminary allocation of the purchase
price as shown in the table below was based upon managements preliminary valuation, which was
based on estimates and assumptions that are subject to change. The preliminary estimated purchase
price is allocated as follows:
Cash and cash equivalents |
$ | 245 | ||
Other current assets |
606 | |||
Liabilities, including notes payable |
(1,472 | ) | ||
Net tangible liabilities acquired |
(576 | ) | ||
Definite-lived intangible assets acquired |
185 | |||
Goodwill |
1,498 | |||
Total purchase price |
$ | 1,107 | ||
Definite-lived intangible assets consist of the value assigned to Syllogics customer
relationships of $0.1 million and trademarks of $0.1 million.
The value assigned to Syllogics customer relationships was determined by discounting the
estimated cash flows associated with the existing customers as of the date the acquisition of
Syllogic was consummated taking into consideration estimated attrition of the existing customer
base. The Company amortizes the value of Syllogics customer relationships on a straight-line basis
over five years. Amortization of customer relationships is not deductible for tax purposes.
The value assigned to Syllogics trademark was determined by utilizing the Relief from Royalty
Method. The royalty rates used to value the trademarks were based on estimates of prevailing
royalty rates paid for the use of similar trade names and trademarks in market transactions
involving license arrangements of companies that operate in the computer software industry. The
Company amortizes the trademarks on a straight-line basis over three years. Amortization of
trademarks is not deductible for tax purposes.
Of the total estimated purchase price, approximately $1.5 million has been allocated to
goodwill and is not deductible for tax purposes. Goodwill represents factors including expected
synergies from combining operations and is the excess of the purchase price of an acquired business
over the fair value of the net tangible and intangible assets acquired.
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(4) Goodwill and Other Intangible Assets
The following table provides information regarding the Companys intangible assets subject to
amortization:
December 31, 2009 | June 30, 2010 | |||||||||||||||||||||||
Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
Purchased technology |
$ | 189 | $ | (114 | ) | $ | 75 | $ | 174 | $ | (122 | ) | $ | 52 | ||||||||||
Customer relationships and
other identified intangible assets |
571 | (229 | ) | 342 | 677 | (271 | ) | 406 | ||||||||||||||||
Total |
$ | 760 | $ | (343 | ) | $ | 417 | $ | 851 | $ | (393 | ) | $ | 458 | ||||||||||
Amortization of intangible assets was de minimis for the three months ended June 30, 2009 and
2010. Amortization of intangible assets amounted to $0.1 million and $0.1 million for the six
months ended June 30, 2009 and 2010, respectively. The estimated aggregate amortization expense for
each of the succeeding years is as follows: $0.1 million for the remainder of 2010; $0.2 million in
2011; and $0.1 million in 2012.
The change in goodwill in the consolidated balance sheet during 2010 was due to the
acquisition of Syllogic and foreign currency translation. The Company evaluates the useful lives of
these assets quarterly and test for impairments whenever events or changes in circumstances occur
that could impact the recoverability of these assets.
(5) Fair Value Measurements
The Company evaluates assets and liabilities subject to fair value measurements on a recurring
and nonrecurring basis to determine the appropriate level to classify them for each reporting
period. This determination requires significant judgments to be made by the Company. The following
table sets forth the Companys assets and liabilities that were measured at fair value as of
December 31, 2009 and June 30, 2010, by level within the fair value hierarchy:
Amounts at | Fair Value Measurement Using | |||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
As of December 31, 2009 |
||||||||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 24,852 | $ | 24,852 | $ | | $ | | ||||||||
Liabilities |
||||||||||||||||
Stock warrant liability |
$ | 4,637 | $ | | $ | | $ | 4,637 | ||||||||
As of June 30, 2010 |
||||||||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 35,840 | $ | 35,840 | $ | | $ | | ||||||||
Liabilities |
||||||||||||||||
Stock warrant liability |
$ | 6,216 | $ | | $ | | $ | 6,216 |
The fair value of the stock warrant liability is based on Level 3 inputs. For this
liability, the Company developed its own assumptions that do not have observable inputs or
available market data to support the fair value. The Company estimated the fair value of the
warrant to purchase 93,981 shares of the Companys common stock at a purchase price of $1.65 per
share held by PC Business Intelligence, S.L. (the PCB Warrant) by utilizing a fair value
methodology which incorporates both the Black Scholes pricing model, as well as the probability of
an IPO occurring by February 1, 2010, estimates of the level of Gross Sales (as defined in the
purchase agreement related to the PCB Warrant) of a subsidiary of the Company for 2009, and an
estimated discount rate. The Company estimated the fair value of its preferred stock warrant
liability by utilizing a Black Scholes based option pricing model, which considered the estimated
fair value of these preferred stock warrants in both an IPO scenario (IPO scenario), in which the
warrants have attributes of common stock warrants, and a merger and acquisition scenario (M&A
scenario), in which the warrants have attributes of preferred stock warrants. In the IPO scenario,
the inputs in the Black Scholes model included an expected term equal to the remaining contractual
life of the warrant, a risk free rate commensurate with the remaining term of the warrant,
volatility of comparable companies for a period consistent with the expected term, and a dividend
yield of 0% as the Company has never paid dividends. In the M&A scenario, the Companys Black
Scholes model included an expected term commensurate with the estimated timing of a liquidity
event, a risk free rate commensurate with the expected term, volatility of comparable companies for
a period consistent with the expected term, and a dividend yield of 0%. The estimates of the fair
value of preferred stock warrants require a significant amount of judgment. As of June 30, 2010,
the Company estimated the fair value of its preferred stock warrant liability under only the IPO
scenario at an offering price of $10.00 per share.
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The reconciliation of the stock warrant liability measured at fair value on a recurring basis
using significant unobservable inputs (Level 3) is as follows:
Warrant | ||||
Liability | ||||
Balance at January 1, 2010 |
$ | 4,637 | ||
Impact of foreign currency translation |
(383 | ) | ||
Change in fair value of warrant liability |
1,962 | |||
Balance at June 30, 2010 |
$ | 6,216 | ||
As reported on balance sheet: |
||||
Current |
$ | 2,042 | ||
Non-current |
$ | 4,174 |
(6) Long-Term Debt
The following table summarizes notes payable held by the Company:
December 31, | June 30, | |||||||
2009 | 2010 | |||||||
Note payable to Industrifonden |
$ | 6,921 | $ | 4,950 | ||||
Less current portion |
(3,022 | ) | (2,774 | ) | ||||
Less unaccreted discount |
(122 | ) | (95 | ) | ||||
Total non-current borrowings |
$ | 3,777 | $ | 2,081 | ||||
On July 27, 2010, the Company paid the outstanding principal, interest, and prepayment
fee of the note payable to Stiftelsen Industrifonden (See Note 10). Borrowings under the note
payable were collateralized by shares of the Companys wholly owned Swedish subsidiary.
(7) Income Taxes
The provision for income taxes for the three and six months ended June 30, 2009 and 2010
includes amounts recorded for federal, state, and foreign income taxes. The effective tax rates for
the three and six months ended June 30, 2009 and 2010 reflect the Companys expected tax rate on
reported income (loss) before income tax. The Company operates in an international environment with
significant operations in various locations outside of the United States. Accordingly, the
consolidated income tax rate is a composite rate reflecting the Companys income (losses) and the
applicable tax rate in the various locations where the Company operates. The Companys earnings are
permanently reinvested overseas, and as a result, the reported effective tax rate is less than the
United States statutory rate.
(8) Business and Geographic Segment Information
The Company currently operates in one business segment, namely, the development,
commercialization and implementation of software products and related services. The Company is
managed and operated as one business. A single management team that reports to the chief operating
decision maker comprehensively manages the entire business. The Company does not operate any
material separate lines of business or separate business entities with respect to its products or
product development. Accordingly, the Company views its business and manages its operations as one
reportable segment.
The Companys revenues were generated in the following geographic regions:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
The Americas |
$ | 8,584 | $ | 15,771 | $ | 16,542 | $ | 28,522 | ||||||||
Europe |
21,876 | 31,898 | 38,234 | 59,161 | ||||||||||||
Rest of world |
2,385 | 3,461 | 4,473 | 7,212 | ||||||||||||
Consolidated total |
$ | 32,845 | $ | 51,130 | $ | 59,249 | $ | 94,895 | ||||||||
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(9) Stock Option Plan
The following provides a summary of the option activity for the Company:
Weighted- | ||||||||||||||||
Average | ||||||||||||||||
Weighted- | Remaining | |||||||||||||||
Available for | Average | Contractual | ||||||||||||||
Grant | Number of Shares | Exercise Price | Term (Years) | |||||||||||||
Outstanding as of December 31, 2009 |
1,548,497 | 12,341,473 | $ | 1.51 | 6.83 | |||||||||||
Granted |
(1,250,500 | ) | 1,250,500 | 6.18 | | |||||||||||
Exercised |
| (733,868 | ) | 1.19 | | |||||||||||
Forfeited |
264,621 | (264,621 | ) | 1.47 | | |||||||||||
Outstanding as of June 30, 2010 |
562,618 | 12,593,484 | $ | 2.00 | 6.70 | |||||||||||
Exercisable at June 30, 2010 |
7,032,379 | $ | 1.18 | 5.64 | ||||||||||||
Vested and expected to vest at June 30, 2010 |
12,227,973 | $ | 1.98 | 6.67 |
For the six months ended June 30, 2009 and 2010, the Company issued options exercisable
for 1,605,202 and 1,250,500 shares of common stock, respectively, to employees and non-employee
directors. The grant date weighted average fair value per option for the six months ended June 30,
2009 and 2010 was $1.65 and $6.18, respectively. During the three and six months ended June 30,
2010, the Company issued 725,000 options which have vesting terms that commenced upon the Companys
IPO.
Proceeds from the exercise of options exercised were $0.3 million and $0.9 million for the six
months ended June 30, 2009 and 2010, respectively. The total intrinsic value of the options
exercised during the six month ended June 30, 2009 and 2010 was $0.4 million and $3.7 million,
respectively. The Company recognized an excess tax benefit on such exercises for the six months
ended June 30, 2010 of $0.7 million.
Based on the IPO price of $10.00 per share, the aggregate intrinsic value of options
outstanding as of June 30, 2010 was $100.8 million. The aggregate intrinsic value of options fully
vested as of June 30, 2010 was $62.0 million.
The assumptions used in the Black-Scholes option pricing model are:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Expected dividend yield |
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||
Risk-free interest rate |
2.1% 2.3 | % | 2.4 | % | 1.5% 2.3 | % | 1.9% 2.7 | % | ||||||||
Expected volatility |
45.0% 62.4 | % | 49.22 | % | 44.7% 62.4 | % | 48.7% 50.2 | % | ||||||||
Expected life (Swedish grants, in years) |
4 | 4 | 4 | 4 | ||||||||||||
Expected life (all other grants, in years) |
6.25 | 6.25 | 6.25 | 6.25 | ||||||||||||
Estimated fair value of common stock (per
share) |
$ | 1.65 | $ | 6.91 | $ | 1.65 | $ | 6.18 |
For the three months ended June 30, 2009 and 2010, the Company recorded stock-based
compensation expenses of $0.4 million and $0.5 million, respectively. For the six months ended June
30, 2009 and 2010, the Company recorded stock-based compensation expenses of $0.7 million and
$1.0 million, respectively.
As of June 30, 2010, there was $6.7 million of total unrecognized compensation cost, net of
estimated forfeitures, related to non-vested employee and non-employee director stock options. Of
the $6.7 million of total unrecognized compensation cost, $2.2 million relates to the Companys
issuance of 725,000 options which have vesting terms that commenced upon the Companys IPO. That
remaining cost is expected to be recognized over a weighted-average period of approximately
2.7 years.
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(10) Subsequent Events
On July 21, 2010, the Company completed its IPO of 12,880,000 shares of common stock at an
offering price of $10.00 per share, resulting in net proceeds to the Company of approximately
$115.8 million, after deducting underwriting discounts and estimated offering costs. Effective with
the close of the IPO, the Companys outstanding shares of convertible preferred stock were
automatically converted into an aggregate of 46,721,424 shares of common stock, and all outstanding
warrants to purchase convertible preferred stock were converted into warrants to purchase an
aggregate of 474,282 shares of common stock. The unaudited consolidated financial statements,
including share and per share amounts, do not include the effect of the IPO since it was completed
subsequent to June 30, 2010.
On July 27, 2010, the Company paid in full the outstanding principal, accrued interest and a
prepayment fee on a note payable held by Stiftelsen Industrifonden, which is one of our
stockholders. The Company used the proceeds from its IPO to make this payment. As of the prepayment
date, the note payable had an outstanding principal balance of 38.6 million Swedish kronor
(approximately $5.3 million based on an assumed exchange rate of approximately 0.14 as of the
prepayment date). In addition, the accrued interest and prepayment penalty amounted to 0.5 million
Swedish kronor (approximately $0.1 million based on the same exchange rate).
12
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Item 2. Managements 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 unaudited condensed consolidated
financial statements and the related notes thereto included elsewhere in this
Quarterly Report on Form 10-Q and the audited consolidated
financial statements and notes thereto and management’s discussion and
analysis of financial condition and results of operations for the year ended
December 31, 2009 included in our final prospectus dated July 15,
2010 and filed with the Securities and Exchange Commission, or SEC. This
Quarterly Report on Form 10-Q contains forward-looking statements
including, but not limited to, statements regarding the value and effectiveness
of our products, the introduction of product enhancements or additional
products and our growth, expansion and market leadership, that involve risks,
uncertainties, assumptions and other factors which, if they do not materialize
or prove correct, could cause our results to differ materially from those
expressed or implied by such forward-looking statements. All statements, other
than statements of historical fact, are statements that could be deemed
forward-looking statements, including statements containing the words
“plan,” “expects,” “anticipates,”
“believes,” “goal,” “estimate,”
“potential,” “may”, “will,”
“might,” “could,” and similar words. We intend all such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, and the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those projected in such statements due to various factors, including but
not limited to: risks and uncertainties inherent in our business; our ability
to attract new customers and retain existing customers; our ability to
effectively sell, service and support our products; our ability to manage our
international operations; our ability to compete effectively; our ability to
develop and introduce new products and add-ons or enhancements to existing
products; our ability to continue to promote and maintain our brand in a
cost-effective manner; our ability to manage growth; our ability to attract and
retain key personnel; the scope and validity of intellectual property rights
applicable to our products; adverse economic conditions in general and adverse
economic conditions specifically affecting the markets in which we
operate; and other risks discussed in the
section titled “Risk Factors,” set forth in Part II,
Item 1A of this Quarterly Report on Form 10-Q and elsewhere
in this Report. Past performance is not necessarily indicative of future
results. The forward-looking statements in this Quarterly Report on Form
10-Q represent our views as of the date of this Quarterly Report on
Form 10-Q. We anticipate that subsequent events and developments
will cause our views to change. However, while we may elect to update these
forward-looking statements at some point in the future, we undertake no
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. You should,
therefore, not rely on these forward-looking statements as representing our
views as of any date subsequent to the date of this Quarterly Report on
Form 10-Q.
Introduction
Managements Discussion and Analysis of Financial Condition and Results of Operations is
provided to help provide an understanding of our financial condition and
results of operations. This item of our Quarterly Report on Form 10-Q is organized as follows:
| Overview and Financial
Operations Overview. This section provides a general description of our business, the
financial metrics that we use in assessing our performance and anticipated trends that we
expect to affect our financial condition and results of operations. |
| Critical Accounting Policies and Estimates. This section discusses accounting policies
that are considered important to our financial condition and results of operations. The
accounting policies require significant judgment or require estimates on our part in
applying them. Our significant accounting policies, including those considered to be
critical accounting policies, are summarized in Note 2 to the
accompanying unaudited consolidated
financial statements. |
| Consolidated Results of
Operations. This section provides an analysis of our results of
operations for the three and six months ended June 30, 2009 and 2010. |
| Liquidity and Capital Resources. This section provides an analysis of our cash flows
for the six months ended June 30, 2010, a discussion of our capital requirements and the
resources available to us to meet those requirements. |
Overview
We have pioneered a powerful, easy-to-use business intelligence solution that enables our
customers to make better and faster business decisions. Our software platform, QlikView, combines
enterprise-class analytics and search functionality with the simplicity and ease-of-use found in
office productivity software tools for a broad set of business users. QlikView is powered by our
in-memory associative search technology, which has utilized rapid advances in computing power to
yield significant improvement in flexibility and performance at a lower cost than traditional
business intelligence solutions. We have grown our customer base from over 2,000 customers in 2005
to approximately 15,000 as of June 30, 2010 and increased our revenue at a 58% compound annual
growth rate during the same period. We added an average of 404 new customers per month during
fiscal year 2009. Our solution addresses the needs of a diverse range of customers from middle
market customers to large enterprises such as Campbell Soup Company, Colonial Life, The Dannon
Company, Inc., Heidelberger Druckmaschinen AG, Kraft Foods, ING, Lifetime Brands, National Health
Service (NHS), Qualcomm, Symantec, and Volvo Car UK Limited. We have customers in over 100
countries, and approximately 75% of our revenue for the three and six months ended June 30, 2010
was derived internationally.
We have a differentiated business model designed to accelerate the adoption of our product by
reducing the time and cost to purchase and implement our software. Our low risk approach to product
sales, which offers free product downloads to individuals and a 30-day money back guarantee upon
purchase, provides a needed alternative to costly, all-or-nothing, traditional business
intelligence models. We initially focus on specific business users or departments within a
prospective customers organization and seek to solve a targeted business need. After demonstrating
QlikViews benefits to initial adopters within an organization, we work to expand sales of our
product to other business units, geographies and use cases with the long-term goal of broad
organizational deployment.
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Table of Contents
We license QlikView under perpetual licenses which include one year of maintenance as part of
the initial purchase price of the product. Our customers can renew, and generally have renewed,
their maintenance agreements for a fee that is based upon a percentage of the initial license fee
paid. For the fiscal year ended December 31, 2009, our total revenue was comprised of 64% license
revenue, 26% maintenance revenue, and 10% professional services revenue. For the three months ended
June 30, 2009, our total revenue was comprised of 61% license
revenue, 29% maintenance revenue and 10% professional services revenue. For the three months
ended June 30, 2010, our revenue was comprised of 64% license revenue, 26% maintenance revenue, and
10% professional services revenue. For the six months ended June 30, 2009, our revenue was
comprised of 59% license revenue, 29% maintenance revenue and 12% professional services revenue.
For the six months ended June 30, 2010, our revenue was comprised of 62% license revenue, 28%
maintenance revenue and 10% professional services revenue. We have a diversified distribution model
that consists of a direct sales force and a partner network of resellers, OEM relationships and
systems integrators which accounted for approximately 50% of our total license revenue and first
years maintenance billings during fiscal year 2009 and for the three and six months ended June 30,
2010. Additionally, our online QlikCommunity provides us with a loyal and growing network of users
who promote our software, provide support for other users and contribute valuable insights and
feedback for our product development efforts.
To complement QlikView, we have developed a differentiated business model that has the
following attributes:
| Broad User Focus marketing and selling QlikView directly
to the business user by providing an easy-to-use platform
that can be used with minimal training |
||
| Low Risk Rapid Product Adoption providing a low risk
alternative to costly, all-or-nothing, enterprise-wide
deployment requirements |
||
| Land and Expand Customer Penetration initially
targeting business users in an organization to create a
loyal user base that promotes broad adoption of our
software platform across an organization |
||
| Globally Diversified Distribution Model employing a
multi-pronged international sales approach that leverages
a direct sales force and partner network |
||
| Community-Based Marketing and Support augmenting our
development, marketing and support efforts through our
online QlikCommunity |
In evaluating our operating results we focus on the productivity of our sales force, the
effectiveness of our local and corporate level marketing, our ability to close opportunities
generated by our marketing leads and the competitiveness of our technology. In each of these areas,
we have taken steps designed to improve our operating results, including undertaking additional
sales training for our sales representatives, hiring more experienced regional sales management,
investing further in our corporate website to improve its use as an effective lead generative tool,
developing a partner enablement program to focus on the results of our sales partners around the
world and expanding our research and development staff with a focus on testing and quality
assurance.
From a risk perspective we have had to deal with the impact of the recessionary global
environment during the past two years, although we anticipate that the negative impact of these
conditions will continue to moderate. We have faced pricing pressure from some of our larger
competitors to which we have attempted to respond by focusing on the value delivered by QlikView in
comparison to more traditional business intelligence products, and we believe that this has helped
to minimize the loss of potential new business from this pressure. Also, the rapid growth in our
business has required the continued hiring of experienced staff across all of our geographic
territories. To aid this effort we have focused on improving our local recruiting initiatives, as
well as developing further internal training programs to prepare executives for greater
responsibilities.
We were founded in Sweden in 1993. From 1993 until 1999, our activities were focused on
software research and development that resulted in QlikViews core technology, and from 1999 until
2004 we focused on the commercialization of our technology primarily in the Nordic market and
limited regions of Europe. In late 2004, we reincorporated in Delaware and began to broaden our
marketing and sales activities in the United States and continued our expansion globally.
Financial Operations Overview
Revenues
Our revenue is comprised of license, maintenance and professional services revenue. We license
our software under perpetual licenses which include one year of maintenance as part of the initial
purchase price of the product. License revenue reflects the revenue recognized from sales of
licenses to new customers and additional licenses to existing customers. Historically, the majority
of our license revenues have come from new customers. However, going forward we seek to increase
the contribution from existing customers based upon our land and expand sales strategy. Customers
can renew, and generally have renewed, their maintenance agreements for a fee that is based upon a
percentage of the initial license fee paid. Current customers with maintenance agreements are
entitled to receive unspecified upgrades and enhancements when and if they become available. We
have experienced growth in maintenance revenue primarily due to increased license sales and growth
in our customer base and high retention of those customers. In 2009, our annual maintenance renewal
rate was greater than 85%. Professional services revenue is comprised of training, installation and
other consulting revenues. Given the ease of implementation of our product, professional service
revenues have averaged 12% of total revenues during the last three fiscal years. For the three
months ended June 30, 2009 and 2010, professional services revenue was approximately 10% of total
revenue. For the six months ended June 30, 2009 and 2010, professional services revenue was
approximately 12% and 10%. We do not expect that proportion to change significantly during the near
term. Prior to
2009, we generated the majority of sales through our direct sales channel rather than through
our partner network. However, the contribution from our partner network continues to grow, and we
anticipate that over time revenues from partners will be more than 50% of total revenues. Given the
size of the United States market and our limited penetration there, we expect that the United
States will represent our largest market during the near term and will likely be an important
contributor to future revenue growth. Due to the global diversity of our customer base, our results
are impacted by movements in the currencies of the major territories in which we operate. The
primary currencies impacting results are the United States dollar (our functional currency), the
Swedish kronor, the euro, and the British pound. Inflation and changing prices had no material
effect on our sales, revenue or operating income from continuing operations during the three and six months ended June 30, 2009 and 2010.
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Cost of Revenue
Cost of revenue primarily consists of personnel costs, fees paid to subcontractors providing
technical support services, referral fees paid to third parties in connection with software license
sales and other discrete professional services. Personnel costs include salaries, employee benefit
and social costs, bonuses, stock-based compensation and direct overhead.
Operating Expenses
We classify our operating expenses into three categories: sales and marketing, research and
development and general and administrative. Our operating expenses primarily consist of personnel
costs, sales commissions, marketing program costs, legal, accounting, consulting and other
professional service costs and depreciation and amortization. Personnel costs include salaries,
employee benefit and social costs, bonuses, stock-based compensation and direct overhead.
Historically, we have focused on the continued growth of our license revenues, and as a result,
sales and marketing has represented the largest amount of total expenses both in absolute dollar
terms and as a percentage of total revenues. Going forward, we expect to drive greater efficiencies
from this cost base and consequently expect that sales and marketing as a percentage of revenues
will decline in the long term. Conversely, we project that research and development expenses will
remain constant or grow as a percentage of total revenues as we continue to invest in future
product enhancements and new products.
Sales and Marketing. Sales and marketing expenses primarily consist of personnel costs for
our sales, marketing and business development employees and executives; commissions earned by our
sales personnel; facilities costs attributable to our sales and marketing personnel; the cost of
marketing programs; and the cost of business development programs. We expect to continue to hire
additional sales personnel in the United States and in our international locations in 2010.
Research and Development. Research and development expenses primarily consist of personnel
and facility costs for our research and development and product marketing employees. We have
devoted our development efforts primarily to enhancing the functionality and expanding the
capabilities of our software platform, including, for example, the development of our QlikView
mobile client (released in 2009). We expect that our research and development expenses will
continue to increase in absolute dollars and as a percentage of revenue in the long term as we
increase our research and development and product marketing headcount to further strengthen and
enhance our software platform. The vast majority of our research and development staff is based in
Lund, Sweden.
General and Administrative. General and administrative expenses primarily consist of
personnel costs for our executive, finance, legal, human resources and administrative personnel, as
well as the cost of facilities attributable to general and administrative operations, depreciation
and amortization, legal, accounting and other professional service fees and other corporate
expenses. We incurred additional costs in 2009 and the three and six months ended June 30, 2010,
and expect to continue to incur higher costs, associated with being a public company, including
higher legal, corporate insurance and accounting expenses and the additional costs of achieving and
maintaining compliance with Section 404 of the Sarbanes-Oxley Act and related regulations. We also
expect that general and administrative expenses will continue to increase in absolute dollars
because of our efforts to expand our international operations, but we believe over time general and
administrative costs will decline as a percentage of revenues as we expect to derive greater
efficiencies from our corporate infrastructure.
Other Income (Expense)
Other income (expense) primarily consists of net interest, change in the fair value of
warrants, foreign exchange gains (losses) and other income. Net interest represents interest income
received on our cash and cash equivalents and interest expense associated with our outstanding
debt. We expect interest income to increase in periods subsequent to the quarter ended June 30,
2010 due to the proceeds from the Companys IPO which was completed on July 21, 2010. We expect
interest expense to decrease in periods subsequent to the quarter ended June 30, 2010 due to the
repayment of our outstanding long-term debt balance on July 27, 2010. Change in the fair value of
warrants consists of charges recorded to mark our companys outstanding preferred and common stock
warrants to fair value at each reporting date. Following the Companys IPO, our preferred stock
warrants were reclassified to additional paid-in capital, and they are no longer required to be
adjusted to their fair market value each period. Foreign exchange gains (losses) relate to the
re-measurement of certain transactions, primarily our outstanding note payable with a Swedish
financial institution, which was paid in full in July 2010, denominated in currencies other than
our functional currency, the United States dollar. As a result of our business activities in
foreign countries, we expect that foreign exchange gains (losses) will continue to occur due to
fluctuations in exchange rates in the countries where we do business.
Income Tax Expense
Income tax expense primarily consists of corporate income taxes related to profits resulting
from the sale of our software platform by our United States and international subsidiaries.
15
Table of Contents
Impact of Foreign Currency Translation
Approximately
72% and 70% of our operating revenues for the six months ended June 30, 2009 and
2010 were earned in foreign denominated currencies, including the Swedish kronor, euro and British
pound. We expect that our exposure to foreign currency exchange risk will increase to the extent we
are able to continue to expand our business internationally. For purposes of our consolidated
financial statements, local currency assets and liabilities are translated at the rate of exchange
to the United States dollar on the balance sheet date and local currency revenues and expenses are
translated at average rates of exchange to the United States dollar during the reporting period.
Foreign currency transaction gains (losses) have been reflected as a component of our results from
operations and foreign currency translation gains (losses) have been included as a component of
accumulated other comprehensive income (loss).
Our operating results for the six months ended June 30, 2010 were negatively impacted by the
general strengthening of the United States dollar relative to the Swedish kronor, euro and British
pound.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with generally accepted
accounting principles in the United States, or GAAP. The preparation of consolidated financial
statements also requires us to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on
historical experience and on various other assumptions that we believe to be reasonable under the
circumstances. Actual results could differ significantly from the estimates made by our management.
To the extent that there are differences between our estimates and actual results, our future
financial statement presentation, financial condition, results of operations and cash flows will be
affected. The critical accounting policies and estimates should be read in conjunction with the
unaudited consolidated financial statements and the related notes thereto included elsewhere in
this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes
thereto and managements discussion and analysis of financial condition and results of operations
in connection with our IPO included in our registration statement on Form S-1 filed with the
Securities and Exchange Commission (SEC). We believe that the accounting policies are critical to
understanding our historical and future performance, as these policies relate to the more
significant areas involving managements judgments and estimates. There were no material changes to
our critical accounting policies and use of estimates previously
disclosed in our registration statement on Form S-1 filed with the
SEC in connection with our IPO.
Consolidated Results of Operations
The following table sets forth our operating results for the periods indicated as a percentage of
total revenue:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
(unaudited) | ||||||||||||||||
Revenue: |
||||||||||||||||
License revenue |
61.0 | % | 63.6 | % | 58.7 | % | 61.9 | % | ||||||||
Maintenance revenue |
28.9 | 26.4 | 29.4 | 28.0 | ||||||||||||
Professional services revenue |
10.1 | 10.0 | 11.9 | 10.1 | ||||||||||||
Total revenues |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Cost of revenue: |
||||||||||||||||
License revenue |
1.9 | 2.3 | 2.0 | 2.0 | ||||||||||||
Maintenance revenue |
1.4 | 2.0 | 1.4 | 1.8 | ||||||||||||
Professional services revenue |
7.8 | 6.9 | 9.2 | 6.8 | ||||||||||||
Total cost of revenue |
11.1 | 11.2 | 12.6 | 10.6 | ||||||||||||
Gross profit |
88.9 | 88.8 | 87.4 | 89.4 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
70.7 | 54.3 | 72.1 | 56.0 | ||||||||||||
Research and development |
6.6 | 5.8 | 7.4 | 5.9 | ||||||||||||
General and administrative |
19.9 | 17.2 | 23.2 | 19.2 | ||||||||||||
Total operating expenses |
97.1 | 77.3 | 102.7 | 81.2 | ||||||||||||
Income (loss) from operations |
(8.2 | ) | 11.4 | (15.3 | ) | 8.3 | ||||||||||
Other expense |
(2.7 | ) | (1.8 | ) | (0.4 | ) | (3.3 | ) | ||||||||
Income (loss) before benefit for income taxes |
(10.9 | ) | 9.6 | (15.7 | ) | 5.0 | ||||||||||
Benefit (provision) for income taxes |
2.7 | (2.7 | ) | 3.9 | (1.4 | ) | ||||||||||
Net income (loss) |
(8.2 | )% | 6.9 | % | (11.8 | )% | 3.6 | % | ||||||||
16
Table of Contents
Comparison of Three Months Ended June 30, 2009 and 2010
Revenue
The following table sets forth revenue by source:
Three Months Ended | ||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||
2009 | 2010 | |||||||||||||||||||||||
Percentage of | Percentage of | |||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Change | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Revenue: |
||||||||||||||||||||||||
License revenue |
$ | 20,045 | 61.0 | % | $ | 32,544 | 63.6 | % | $ | 12,499 | 62.4 | % | ||||||||||||
Maintenance revenue |
9,478 | 28.9 | % | 13,519 | 26.4 | % | 4,041 | 42.6 | % | |||||||||||||||
Professional services revenue |
3,322 | 10.1 | % | 5,067 | 9.9 | % | 1,745 | 52.5 | % | |||||||||||||||
Total revenue |
$ | 32,845 | 100.0 | % | $ | 51,130 | 100.0 | % | $ | 18,285 | 55.7 | % | ||||||||||||
Revenue was $51.1 million for the three months ended June 30, 2010 compared to
$32.8 million for the three months ended June 30, 2009, an increase of $18.3 million, or 55.7%.
License revenue grew by approximately $12.5 million, or 62.4%. All territories reported strong
revenue growth, particularly the Americas and Nordic regions, which grew by 84% and 32% and
collectively contributed an incremental $9.4 million in total revenue. In addition, revenue
increased due to our acquisition in January 2010 of a reseller in Japan which provided $0.6 million
in incremental revenue during the quarter. There was no material increase in the pricing for our
product during the three month periods. Revenue growth was achieved primarily due to volume growth
as more customers acquired our product for the first time, along with additional license purchases
by our existing customers. Amounts invoiced to existing customers represented a larger share of
total billings, approximately 60%, resulting from our land and expand sales strategy. In
addition, we experienced greater productivity from our sales representatives with revenue per
representative growing 47%. We believe that an improving global economic outlook during the three
months ended June 30, 2010 also contributed to higher revenues as customer demand and their
willingness to invest in information technology continued to grow compared to the same period last
year. Maintenance revenues grew by approximately 42.6% driven by annual maintenance renewal rates
of greater than 85%. Professional service revenue grew by 52.5% in the three months ended June 30,
2010 compared to the three months ended June 30, 2009 due to growth in consulting and training
revenue, resulting from an increase in our customer base. Although we expect revenue growth to
continue, the revenue growth in the three months ended June 30, 2010 as compared to the three
months ended June 30, 2009 may not be indicative of our future revenue growth.
17
Table of Contents
Cost of Revenue and Gross Profit
The following table sets forth cost of revenue and gross profit for each revenue source:
Three Months Ended | ||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||
2009 | 2010 | |||||||||||||||||||||||
Percentage of | Percentage of | |||||||||||||||||||||||
Related | Related | |||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Change | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Cost of Revenue: |
||||||||||||||||||||||||
Cost of license revenue |
$ | 614 | 3.1 | % | $ | 1,178 | 3.6 | % | $ | 564 | 91.9 | % | ||||||||||||
Cost of maintenance revenue |
455 | 4.8 | % | 1,013 | 7.5 | % | 558 | 122.6 | % | |||||||||||||||
Cost of professional services revenue |
2,589 | 77.9 | % | 3,554 | 70.1 | % | 965 | 37.3 | % | |||||||||||||||
Total cost of revenue |
$ | 3,658 | 11.1 | % | $ | 5,745 | 11.2 | % | $ | 2,087 | 57.1 | % | ||||||||||||
Gross Profit: |
||||||||||||||||||||||||
License revenue |
$ | 19,431 | 96.9 | % | $ | 31,366 | 96.4 | % | $ | 11,935 | 61.4 | % | ||||||||||||
Maintenance revenue |
9,023 | 95.2 | % | 12,506 | 92.5 | % | 3,483 | 38.6 | % | |||||||||||||||
Professional services revenue |
733 | 22.1 | % | 1,513 | 29.9 | % | 780 | 106.4 | % | |||||||||||||||
Total gross profit |
$ | 29,187 | 88.9 | % | $ | 45,385 | 88.8 | % | $ | 16,198 | 55.5 | % | ||||||||||||
Cost of revenue was $5.7 million for the three months ended June 30, 2010 compared to
$3.7 million for the three months ended June 30, 2009, an increase of $2.1 million, or 57.1%.
Overall cost of revenue as a percentage of revenue was flat for the three months ended June 30,
2010 as compared to the three months ended June 30, 2009. In anticipation of continued growth in
our installed customer base, we increased headcount in our support organization which increased
costs by $0.6 million for the three months ended June 30, 2010 as compared to the same period in
2009. Fees paid to referral partners for license revenues increased by $0.6 million for the three
months ended June 30, 2010 compared to the three months ended June 30, 2009. Cost of professional
services revenue increased by $1.0 million but decreased as a percentage of professional services
revenue from 77.9% for the three months ended June 30, 2009 to 70.1% for the three months ended
June 30, 2010 due to higher utilization rates in our professional services organization. The growth
in our gross profit in the three months ended June 30, 2010 as compared to the three months ended
June 30, 2009 may not be indicative of our future gross profit growth, if any.
Operating Expenses
The following table sets forth operating expenses as a percentage of revenue:
Three Months Ended | ||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||
2009 | 2010 | |||||||||||||||||||||||
Percentage of | Percentage of | |||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Change | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Operating expense: |
||||||||||||||||||||||||
Sales and marketing |
$ | 23,214 | 70.7 | % | $ | 27,751 | 54.3 | % | $ | 4,537 | 19.5 | % | ||||||||||||
Research and development |
2,152 | 6.6 | % | 2,980 | 5.8 | % | 828 | 38.5 | % | |||||||||||||||
General and
administrative |
6,530 | 19.9 | % | 8,813 | 17.2 | % | 2,283 | 35.0 | % | |||||||||||||||
Total operating expenses |
$ | 31,896 | 97.1 | % | $ | 39,544 | 77.3 | % | $ | 7,648 | 24.0 | % | ||||||||||||
Sales and Marketing. Sales and marketing expenses increased $4.5 million, or 19.5%, but
declined as a percentage of revenues, reflecting an increase in revenue achieved per sales
representative, an increased percentage of sales from existing customers and an increased
percentage of sales from partners. The increase in sales and marketing expenses was primarily
attributable to an increase in personnel and commission costs of $4.0 million (including a
$0.1 million increase in stock-based compensation) and an increase in costs related to travel
expenses of $0.7 million.
18
Table of Contents
Research and Development. Research and development expenses grew by approximately
$0.8 million or 38.5% during the three months ended June 30, 2010 as compared to the three months
ended June 30, 2009. The increase was attributable to higher personnel costs of $0.3 million as a
result of the increase in our headcount in research and development and an increase in
infrastructure and other expenses related to the expanded research and development function of $0.3
million. The remaining increase of $0.2 million was due to changes in the value of the Swedish
kronor as the vast majority of our research and development staff is based in Lund, Sweden.
General and Administrative. General and administrative expenses were $8.8 million for the
three months ended June 30, 2010 compared to $6.5 million for the three months ended June 30, 2009,
an increase of $2.3 million, or 35.0%. This increase was due primarily to a $1.3 million increase
in personnel costs to build out our corporate level functions to support anticipated global growth
and prepare for being a publicly traded company. This increase was also due to a $0.2 million
increase in travel expenses and a $0.5 million increase in facility and infrastructure costs to
support international expansion and an increase in depreciation and amortization of $0.2 million
related in part to additional investment in property and equipment due to our increased headcount.
Other Expense. Other expense was $0.9 million for the three months ended June 30, 2010
compared to $0.9 million for the three months ended June 30, 2009. The change in the fair value of
the stock warrants increased by $1.3 million for the three months ended June 30, 2010 as compared
to the three months ended June 30, 2009 in a manner consistent with the increased estimated fair
value in our common stock. We had a $0.7 million foreign exchange gain for the three months ended
June 30, 2010 compared to a loss of $0.5 million for the three months ended June 30, 2009. The
change is principally due to the foreign currency impact of our outstanding debt as a result of the
United States dollar generally strengthening relative to the Swedish kronor during the three months
ended June 30, 2010 compared to generally weakening during the three months ended June 30, 2009.
Income Tax Benefit. We have applied a projected 28.0% effective tax rate to our results of
operations for the three months ended June 30, 2010 which results in a provision for income taxes
of approximately $1.4 million during the period. The estimated effective tax rate increased from
the 2009 annual effective tax rate of 24.7% due primarily to a change in the amount of income
earned in the various locations where we operated in the respective periods. This caused a change in
our composite income tax rate. The estimated effective tax rate for the three months ended June 30,
2009 of 24.7% differs from the actual annual effective tax rate for 2009 due to certain discrete
items recognized during 2009, including the release of a valuation allowance and tax on repatriated
earnings. We operate in an international environment with significant operations in various
locations outside of the United States. Accordingly, the consolidated income tax rate is a
composite rate reflecting our earnings (losses) and the applicable tax rates in the various
locations where we operate.
Comparison of Six Months Ended June 30, 2009 and 2010
Revenue
The following table sets forth revenue by source:
Six Months Ended | ||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||
2009 | 2010 | |||||||||||||||||||||||
Percentage of | Percentage of | |||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Change | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Revenue |
||||||||||||||||||||||||
License revenue |
$ | 34,804 | 58.7 | % | $ | 58,766 | 61.9 | % | $ | 23,962 | 68.8 | % | ||||||||||||
Maintenance revenue |
17,447 | 29.4 | % | 26,588 | 28.0 | % | 9,141 | 52.4 | % | |||||||||||||||
Professional services revenue |
6,998 | 11.8 | % | 9,541 | 10.1 | % | 2,543 | 36.3 | % | |||||||||||||||
Total revenue |
$ | 59,249 | 100.0 | % | $ | 94,895 | 100.0 | % | $ | 35,646 | 60.2 | % | ||||||||||||
Revenue was $94.9 million for the six months ended June 30, 2010 compared to $59.2 million for
the six months ended June 30, 2009, an increase of $35.6 million, or 60.2%. License revenue grew by
approximately $24.0 million, or 68.8%. All territories reported strong revenue growth, particularly
the Americas and Nordic regions, which grew by 72% and 48% and contributed an incremental
$17.8 million in total revenue. In addition, revenue increased due to our acquisition in January
2010 of a reseller in Japan which provided $1.7 million in incremental revenue during the six
months ended June 30, 2010. There was no material increase in the pricing for our product during
the six month periods. Revenue growth was achieved primarily due to volume growth as more customers
acquired our product for the first time, along with additional license purchases by our existing
customers. Amounts invoiced to existing customers represented a larger share of total billings,
approximately 62%, resulting from our land and expand sales strategy. In addition, we experienced
greater productivity from our sales representatives with revenue per representative growing 51%. We
believe that an improving global economic outlook during the six months ended June 30, 2010 also
contributed to higher revenues as customer demand and their willingness to invest in information
technology continued to grow compared to the same period last year. Maintenance revenues grew by
approximately 52.4% driven by annual maintenance renewal rates of greater than 85%. Professional
service revenues grew by 36.3% in the six months ended June 30, 2010 compared to the six months
ended June 30, 2009 due to growth in consulting and training revenue, resulting from an increase in
our customer base. The revenue growth in the six months ended June 30, 2010 as compared to the six
months ended June 30, 2009 may not be indicative of our future revenue growth, if any.
19
Table of Contents
Cost of Revenue and Gross Profit
The following table sets forth cost of revenue for each revenue source:
Six Months Ended | ||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||
2009 | 2010 | |||||||||||||||||||||||
Percentage of | Percentage of | |||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Change | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Cost of Revenue: |
||||||||||||||||||||||||
Cost of license revenue |
$ | 1,201 | 3.5 | % | $ | 1,857 | 3.2 | % | $ | 656 | 54.6 | % | ||||||||||||
Cost of maintenance revenue |
831 | 4.8 | % | 1,708 | 6.4 | % | 877 | 105.5 | % | |||||||||||||||
Cost of professional services revenue |
5,406 | 77.3 | % | 6,466 | 67.8 | % | 1,060 | 19.6 | % | |||||||||||||||
Total cost of revenue |
$ | 7,438 | 12.6 | % | $ | 10,031 | 10.6 | % | $ | 2,593 | 34.9 | % | ||||||||||||
Gross Profit: |
||||||||||||||||||||||||
License revenue |
$ | 33,603 | 96.5 | % | $ | 56,909 | 96.8 | % | $ | 23,306 | 69.4 | % | ||||||||||||
Maintenance revenue |
16,616 | 95.2 | % | 24,880 | 93.6 | % | 8,264 | 49.7 | % | |||||||||||||||
Professional services revenue |
1,592 | 22.7 | % | 3,075 | 32.2 | % | 1,483 | 93.2 | % | |||||||||||||||
Total gross profit |
$ | 51,811 | 87.4 | % | $ | 84,864 | 89.4 | % | $ | 33,053 | 63.8 | % | ||||||||||||
Cost of revenue was $10.0 million for the six months ended June 30, 2010 compared to
$7.4 million for the six months ended June 30, 2009, an increase of $2.6 million, or 34.9%. Overall
cost of revenue declined as a percentage of revenue from 12.6% for the six months ended June 30,
2009 to 10.6% for the six months ended June 30, 2010. In anticipation of continued growth in our
installed customer base, we increased headcount in our support organization which increased costs
by $0.9 million for the six months ended June 30, 2010 as compared to the same period in 2009. Fees
paid to referral partners for license revenues increased by $0.7 million for the six months ended
June 30, 2010 compared to the six months ended June 30, 2009. Cost of professional services revenue
increased by $1.1 million but decreased as a percentage of professional services revenue from 77.3%
for the six months ended June 30, 2009 to 67.8% for the six months ended June 30, 2010 due to
higher utilization rates in our professional services organization. The growth in our gross profit
in the six months ended June 30, 2010 as compared to the six months ended June 30, 2009 may not be
indicative of our future gross profit growth, if any.
Operating Expenses
The following table sets forth operating expenses as a percentage of revenue:
Six Months Ended | ||||||||||||||||||||||||
June 30, | ||||||||||||||||||||||||
2009 | 2010 | |||||||||||||||||||||||
Percentage of | Percentage of | |||||||||||||||||||||||
Amount | Revenue | Amount | Revenue | Change | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Operating expense: |
||||||||||||||||||||||||
Sales and marketing |
$ | 42,776 | 72.2 | % | $ | 53,164 | 56.0 | % | $ | 10,388 | 24.3 | % | ||||||||||||
Research and development |
4,375 | 7.4 | % | 5,644 | 5.9 | % | 1,269 | 29.0 | % | |||||||||||||||
General and
administrative |
13,749 | 23.2 | % | 18,206 | 19.2 | % | 4,457 | 32.4 | % | |||||||||||||||
Total operating expenses |
$ | 60,900 | 102.8 | % | $ | 77,014 | 81.2 | % | $ | 16,114 | 26.5 | % | ||||||||||||
Sales and Marketing. Sales and marketing expenses increased $10.4 million, or 24.3%, but
declined as a percentage of revenues, reflecting an increase in revenue achieved per sales
representative, an increased percentage of sales from existing customers and an increased
percentage of sales from partners. The increase in sales and marketing expenses was primarily
attributable to an increase in personnel and commission costs of $9.1 million (including a
$0.2 million increase in stock-based compensation) and an increase in travel expenses of $1.2
million.
20
Table of Contents
Research and Development. Research and development expenses grew by approximately
$1.3 million or 29.0% during the six months ended June 30, 2010 as compared to the six months ended
June 30, 2009. The increase was attributable to higher personnel costs of $0.5 million as a result
of the increase in our headcount in research and development and an increase in infrastructure and
other expenses related to a larger research and development function of $0.4 million. The remaining
increase of $0.4 million was due to changes in the value of the Swedish kronor as the vast majority
of our research and development staff is based in Lund, Sweden.
General and Administrative. General and administrative expenses were $18.2 million for the
six months ended June 30, 2010 compared to $13.7 million for the six months ended June 30, 2009, an
increase of $4.5 million, or 32.4%. This increase was due primarily to a $2.3 million increase in
personnel costs to build out our corporate level functions to support anticipated global growth and
prepare for being a publicly traded company. This increase was also due to a $1.0 million increase
in travel expenses primarily related to our annual employee summit, a $0.7 million increase in
facility and infrastructure costs to support international expansion and an increase in
depreciation and amortization of $0.3 million related in part to additional investment in property
and equipment due to our increased headcount.
Other Expense. Other expense was $3.1 million for the six months ended June 30, 2010 compared
to expense of $0.2 million for the six months ended June 30, 2009. The change consisted of
increased interest expense, charges for our common and preferred stock warrants and a foreign
exchange loss in 2010. Interest expense increased due to amortization of a loan fee related to our
line of credit. The change in the fair value of the stock warrants increased by $1.7 million for
the six months ended June 30, 2010 as compared to the six months ended June 30, 2009 in a manner
consistent with the increased estimated fair value in our common stock. We had a $0.7 million
foreign exchange loss for the six months ended June 30, 2010 compared to a gain of $0.5 million for
the six months ended June 30, 2009. The change is principally due to the foreign currency impact of
our intercompany balances as a result of the euro and British pound generally weakening relative to
the Swedish kronor during the six months ended June 30, 2010 compared to generally strengthening
during the six months ended June 30, 2009.
Income Tax Benefit. We have applied a projected 28.0% effective tax rate to our results of
operations for the six months ended June 30, 2010 which results in a provision for income taxes of
approximately $1.3 million during the period. The estimated effective tax rate increased from the
2009 annual effective tax rate of 24.7% due primarily to a change in the amount of income earned in
the various locations where we operated in the respective periods. This caused a change in our
composite income tax rate. The estimated effective tax rate for the six months ended June 30, 2009
of 24.7% differs from the actual annual effective tax rate for 2009 due to certain discrete items
recognized during 2009, including the release of a valuation allowance and tax on repatriated
earnings. We operate in an international environment with significant operations in various
locations outside of the United States. Accordingly, the consolidated income tax rate is a
composite rate reflecting our earnings (losses) and the applicable tax rates in the various
locations where we operate.
Seasonality
Our quarterly results reflect seasonality in the sale of our products and services.
Historically, a pattern of increased license sales in the fourth quarter has positively impacted
sales activity in that period which can make it difficult to achieve sequential revenue growth in
the first quarter. Similarly, our gross margins and operating income have been affected by these
historical trends because the majority of our expenses are relatively fixed in the near-term. The
timing of revenues in relation to our expenses, much of which does not vary directly with revenue,
has an impact on the cost of revenue, sales and marketing expense, research and development
expense, and general and administrative expense as a percentage of revenue in each calendar quarter
during the year. The majority of our expenses are personnel-related and include salaries,
stock-based compensation, benefits, and incentive-based compensation plan expenses. As a result, we
have not experienced significant seasonal fluctuations in the timing of expenses from period to
period, other than an increase in general and administrative expenses during the first quarter of
each year as a result of our annual employee summit and an increase in sales and marketing expenses
in the second quarter of each year due to our annual partner event. On a quarterly basis, we have
usually generated the majority of our revenues in the final month of each quarter and a significant
amount in the last two weeks of a quarter. We believe this is due to customer buying patterns
typical in this industry. Although these seasonal factors are common in the technology sector,
historical patterns should not be considered a reliable indicator of our future sales activity or
performance.
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Liquidity and Capital Resources
Since our inception, we have financed our operations through the sale of preferred stock and
common stock, cash flows generated by operations and borrowings under debt instruments. As of June
30, 2010, we had cash and cash equivalents totaling $35.8 million, net accounts receivable of
$49.0 million and $19.2 million of working capital. As of June 30, 2010, we owed a balance of
38.6 million Swedish kronor (approximately $5.0 million based on an assumed exchange rate of
approximately 0.13 as of June 30, 2010) under a note payable held by a financial institution
which is one of our stockholders. On July 27, 2010, we paid in full the outstanding principal and
accrued interest and paid the applicable prepayment fee on this note
payable (See Note 10 to the
unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form
10-Q). We have an asset based line of credit facility with a Swedish bank under which we may borrow
up to 60 million Swedish kronor (approximately $7.7 million as of June 30, 2010 based on an assumed
exchange rate of approximately 0.13) which had no outstanding balance as of June 30, 2010. The line
of credit matures on September 30, 2010. We are currently in discussions to renew or replace this
line of credit upon its expiration.
We estimate our capital expenditures for 2010 to be approximately $2.0 million, comprised
primarily of additional leasehold improvements, furniture and fixtures and computer equipment. We
believe that our existing cash and cash equivalents and our cash flow from operations will be
sufficient to fund our operations and our capital expenditures for at least the next 12 months. Our
future capital requirements will depend on many factors, including our rate of revenue growth, the
expansion of our sales and marketing activities, the timing and extent of spending to support
product development efforts and expansion into new territories, the timing of introductions of new
software products and enhancements to existing software products and the continuing market
acceptance of our software offerings. Although we are not currently a party to any agreement or
letter of intent regarding potential investments in, or acquisitions of, complementary businesses,
applications or technologies, we may enter into these types of arrangements, which could require us
to seek additional equity or debt financing. Additional funds may not be available on terms
favorable to us or at all.
We will also incur costs as a public company that we have not previously incurred, including,
but not limited to, costs and expenses for directors fees, increased directors and officers
insurance, investor relations fees, expenses for compliance with the Sarbanes-Oxley Act of 2002 and
rules implemented by the SEC and Nasdaq, on which our common stock is listed, and various other
costs. The Sarbanes-Oxley Act of 2002 requires that we maintain effective disclosure controls and
procedures and internal controls.
The following table shows selected balance sheet data as well as our cash flows from operating
activities, investing activities, and financing activities for the stated periods:
December 31, | June 30 | |||||||
2009 | 2010 | |||||||
(unaudited) | ||||||||
(dollars in thousands) | ||||||||
Cash and cash equivalents |
$ | 24,852 | $ | 35,840 | ||||
Accounts receivable, net |
63,729 | 49,037 |
Six Months Ended June 30, | ||||||||
2009 | 2010 | |||||||
(unaudited) | ||||||||
(dollars in thousands) | ||||||||
Cash flow activities |
||||||||
Net cash provided by operating activities |
$ | 1,481 | $ | 17,387 | ||||
Net cash used in investing activities |
(721 | ) | (881 | ) | ||||
Net cash used in financing activities |
(632 | ) | (2,472 | ) |
Cash and Cash Equivalents
Our cash and cash equivalents at June 30, 2010 were held for working capital purposes and were
invested primarily in cash and money market accounts. We do not enter into investments for trading
or speculative purposes.
Accounts Receivable, net
Our accounts receivable balance fluctuates from period to period which affects our cash flow
from operating activities. The fluctuations vary depending on the timing of our service delivery
and billing activity, cash collections and changes to our allowance for doubtful accounts. Our
allowance for doubtful accounts represents our best estimate of the amount of probable credit
losses. To date, we have not incurred any write-offs of accounts receivable significantly different
than accounts reserved.
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Cash Flows
Cash Provided by Operating Activities
Net cash provided by operating activities was $1.5 million and $17.4 million, which includes a
net income (loss) of ($7.0 million) and $3.4 million for the six months ended June 30, 2009 and
2010. The reasons for the increase in net cash provided by operating activities for the six months
ended June 30, 2010 include the increase in net income. We incurred non-cash expenses totaling
$2.4 million and $4.6 million for the six months ended June 30, 2009 and 2010. Non-cash expenses
primarily consisted of stock-based compensation expense, provisions for bad debt, change in the
fair value of warrants, excess tax benefit from stock-based compensation, unrealized foreign
currency gains and losses, and depreciation and amortization expense.
The change in certain assets and liabilities resulted in a net source of cash of $6.1 million
and $9.4 million for the six months ended June 30, 2009 and 2010. Cash provided by operating
activities is driven by sales of our software offerings. Collection of accounts receivable from the
sales of our software offerings is a significant component of our cash flows from operating
activities, as is the change in deferred revenue related to these sales. We experienced a positive
cash flow impact during the six months ended June 30, 2010 as compared to the six months ended June
30, 2009 related to collection of accounts receivable, as the accounts receivable balance was
significantly higher at December 31, 2009 compared to December 31, 2008.
Cash Used in Investing Activities
Net cash used in investing activities was $0.7 million and $0.9 million for the six months
ended June 30, 2009 and 2010. Cash used in investing activities for the six months ended June 30,
2009 was primarily for capital expenditures related to property and equipment as we continued to
expand our infrastructure and workforce. During the six months ended June 30, 2010 we acquired
Syllogic which resulted in a source of cash of approximately $0.2 million. This net cash acquired
partially offset capital expenditures for property and equipment of $1.1 million during the six
months ended June 30, 2010.
Cash Used in Financing Activities
Net cash used in financing activities was $0.6 million and $2.5 million for the six months
ended June 30, 2009 and 2010. Net cash used in financing activities for the six months ended June
30, 2009 was primarily related to payments made under our previous long-term note payable of $1.0
million and the repurchase of stock options of $0.4 million. These payments were offset by
borrowings on our line of credit of $0.5 million and proceeds from the exercise of stock options of
$0.3 million. Net cash used in financing activities for the six months ended June 30, 2010
primarily resulted from payments under our long-term note payable of $2.1 million, payment of
deferred offerings costs of $1.8 million, and payments on our line of credit of $0.2 million.
These payments were offset by proceeds from the exercise of stock options of $0.9 million, an
excess tax benefit from stock-based compensation of $0.6 million, and proceeds from the issuance of
stock options of $0.1 million.
Contractual Obligations and Commitments
We generally do not enter into long-term minimum purchase commitments. Our principal
commitments, in addition to those related to our long-term debt discussed above, consist of
obligations under facility leases for office space. As of June 30, 2010, there had been no material
change in the obligations since December 31, 2009 other than scheduled payments.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated organizations or financial partnerships,
such as structured finance or special purpose entities that would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes.
Recent Accounting Pronouncements
See Note 2 to the unaudited consolidated financial statements in Part I, Item 1 of this
Quarterly Report on Form 10-Q.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse
changes in financial market prices and rates. Our market risk exposure is primarily a result of
fluctuations in interest rates. We do not hold financial instruments for trading purposes.
Interest Rate Sensitivity
We had cash and cash equivalents of $24.9 million at December 31, 2009 and $35.8 million at
June 30, 2010. We held these amounts primarily in cash or money market funds.
We hold cash and cash equivalents for working capital purposes. We do not have material
exposure to market risk with respect to investments, as our investments consist primarily of highly
liquid investments purchased with original maturities of three months or less. We do not use
derivative financial instruments for speculative or trading purposes; however, we may adopt
specific hedging strategies in the future. Any declines in interest rates, however, will reduce
future interest income.
We had total outstanding debt of $7.0 million at December 31, 2009 and $4.9 million at June
30, 2010. The interest rate on our outstanding debt at June 30, 2010 is fixed at 10%.
Foreign Currency Risk
We
market our products in the Americas, Europe, the Asia-Pacific Regions
and Africa and develop our products in Europe. As a result of our business activities in foreign
countries, our financial results could be affected by factors such as changes in foreign currency
exchange rates or economic conditions in foreign markets, and there is no assurance that exchange
rate fluctuations will not harm our business in the future. We sell our products in certain
countries in the local currency for the respective country. In addition, our product development
activities are principally based at our facility in Lund, Sweden. This provides some natural
hedging because most of our subsidiaries operating expenses are denominated in their local
currencies. Regardless of this natural hedging, our results of operations may be adversely impacted
by the exchange rate fluctuation. Although we will continue to monitor our exposure to currency
fluctuations and, where appropriate, may use financial hedging techniques in the future to minimize
the effect of these fluctuations, we are not currently engaged in any financial hedging
transactions.
Foreign currency risk exposures arise from transactions denominated in a currency other than
our functional currency and from foreign denominated revenue and profit translated into United
States dollars. Approximately 72% and 70% of our operating revenues were denominated in currencies
other than the United States dollar for the six months ended June 30, 2009 and 2010. The principal
foreign currencies in which we conduct business are the Swedish kronor, the British pound and the
euro. The translation of currencies in which we operate into the United States dollar may affect
consolidated revenues and gross profit margins as expressed in United States dollars. A weakening
of the United States dollar versus other currencies in which we operate may increase our
consolidated revenues and gross profit margins while the strengthening of the United States dollars
versus these currencies may have an opposite effect on our consolidated results expressed in United
States dollars.
At December 31, 2009 and June 30, 2010, we have a note payable that is denominated in Swedish
kronor that is re-measured at each reporting date with foreign currency gains (losses) recognized
in other income (expense). We recognized a loss in 2009 due to the general weakening of the United
States dollar relative to the Swedish kronor. A hypothetical 10% change in the foreign exchange
rate at December 31, 2009 and June 30, 2010 would have resulted in a $0.7 million and $0.5 million
impact on net income. On July 27, 2010, we prepaid the outstanding principal and accrued interest
of this note payable and any applicable prepayment fees with the proceeds of the IPO (See Note
10 to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on
Form 10-Q).
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) of the Securities Exchange Act of 1934, as Amended (the Exchange Act)) as of the
end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the
period covered by this report were effective at a reasonable assurance level in ensuring that
information required to be disclosed by us in reports that we file or submit under the Exchange Act
is recorded, processed, summarized, and reported within the time periods specified in the SECs
rules and forms. We believe that a control system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the control system are met, and no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any,
within a company have been detected.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not a party to, and none of our property is the subject of, any pending legal
proceedings other than routine litigation that is incidental to our business. To our knowledge, no
governmental authority is contemplating initiating any such proceedings.
ITEM 1A. RISK FACTORS.
Our business is
subject to numerous risks. You should carefully consider the risks described
below together with the other information set forth in this Quarterly Report on
Form 10-Q and in our registration statement filed with the SEC in
connection with our IPO, which could materially affect our business, financial
condition and future results. The risks described below are not the only risks
facing our company. Risks and uncertainties not currently known to us or that
we currently deem to be immaterial also may materially adversely affect our
business, financial condition and operating results.
Risks Related to Our Business and Industry
We have limited experience in targeting a global marketplace and compete in a rapidly
evolving industry which makes our future operating results difficult to predict.
We have limited experience in targeting the global business intelligence marketplace. In
addition, we have a limited operating history in an industry characterized by rapid technological
innovation, changing customer needs, evolving industry standards and frequent introductions of new
products, enhancements and services. Any of these factors can render our existing software platform
and services obsolete or unmarketable. We believe that our future success will depend in large part
on our ability:
| to support current and future releases of popular hardware, operating
systems, computer programming languages, databases and software applications |
| to develop new products that achieve market acceptance in a timely manner |
| to meet an expanding range of customer requirements |
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. All of these
factors make it difficult to predict our future operating results which may impair our ability to
manage our business and your ability to assess our prospects.
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. You should not rely on our past results 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. 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:
| demand for our software platform and services and the size and timing of orders |
| market acceptance of our current and future products |
| a slowdown in spending on information technology and software by our current and/or prospective customers |
| sales cycles and performance of our indirect channel partners and original equipment manufacturers (known as OEMs) |
| budgeting cycles of our customers |
| the management, performance and expansion of our international operations |
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| the rate of renewals of our maintenance agreements |
| changes in the competitive dynamics of our markets |
| our ability to control costs, including our operating expenses |
| customers delaying purchasing decisions in anticipation of new products or product enhancements by us or our competitors |
| the outcome or publicity surrounding any pending or threatened lawsuits |
| the timing of recognizing revenue in any given quarter as a result of revenue recognition rules |
| an increase in the rate of product returns |
| foreign currency exchange rate fluctuations |
| failure to successfully manage any acquisitions |
| general economic and political conditions in our domestic and international markets |
In 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 and service revenues.
We may implement changes to our license pricing structure for all of our products including
increased prices and modified licensing 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 all of the factors described above, we have a limited ability to forecast the
amount and mix of future revenues and expenses, and it is likely that at some time our operating
results will fall below our estimates or the expectations of public market analysts and investors.
We depend on revenue from a single product platform.
We are dependent on a single product platform, QlikView. Our business would be harmed by a
decline in demand for, or in the price of, our software platform as a result of, among other
factors:
| any change in our pricing model |
| increased competition |
| support, research and development or other expenditures undertaken in
attempts, whether or not successful, to develop new products |
| a maturation in the markets for our products |
Our financial results would suffer if the market for business intelligence 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 business intelligence software and
related maintenance services. We expect these sales to account for substantially all of our
revenues for the foreseeable future. Although demand for business intelligence software has grown
in recent years, the market for business intelligence 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 platform or services. We have spent, and intend to keep spending,
considerable resources to educate potential customers about business intelligence software in
general and our software platform in particular. However, we cannot be sure that these expenditures
will help our software platform 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 services and
software platform 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.
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 strategic indirect channel partners such as
distribution partners, value-added resellers, system integrators and OEMs to license and support
our software platform. For the six months ended June 30, 2010, transactions by indirect channel
partners accounted for approximately 50% of our total product licenses revenues and first years
maintenance billings.
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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, market, sell or support our software platform. In
addition, establishing and retaining qualified indirect sales channel partners and training them in
our software platform and services require 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, 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 channel partners. There can be no assurance that our
channel partners will continue to cooperate with us when our distribution agreements expire 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. In addition, there can be no
assurance that actions taken or not taken by such parties will not harm us. 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 address 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 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, we may not be able to generate increased
revenues.
In order to succeed, we must expand our direct sales force to generate increased revenue from
new customers. As of June 30, 2010, we had a team of 130 dedicated direct sales professionals, and
we intend to increase our number of direct sales professionals. New hires will require training and
will take time to achieve full productivity. We cannot be certain that 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 will preclude us from expanding our business and
growing our revenue.
As we pursue new enterprise customers, additional OEM opportunities or more complicated
deployments, our sales cycle and deployment processes may become more unpredictable and require
greater time and expense.
We anticipate that 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 platform to OEMs tend
to be longer, ranging from three to 12 months or more, and may involve convincing a partners
entire organization that our software platform is the appropriate software for its applications. We
may spend substantial time, effort and money on our sales efforts without any assurance that our
efforts will produce any sales.
In addition, we may face unexpected deployment challenges with enterprise customers or more
complicated installations of our software platform. It may be difficult to deploy our software
platform 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 platform 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 77% of our total
revenues for each of the years ended December 31, 2007, 2008 and 2009, and 76% and 75% for the six
months ended June 30, 2009 and 2010. We have facilities located in Australia, Austria, Belgium,
Denmark, Finland, France, Germany, India, Italy, Japan, the Netherlands, Portugal, Singapore,
Spain, Sweden, Switzerland and the United Kingdom. We expect to continue to add personnel in
additional countries. Our international operations require significant management attention and
financial resources.
There are certain risks inherent in our international business activities including, but not
limited to:
| managing and staffing international offices and the increased costs associated with multiple international locations |
| maintaining relationships with indirect channel partners outside the United States, whose sales and lead generation activities
are very important to our international operations |
| multiple legal systems and unexpected changes in legal requirements |
| 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 |
| costs of localizing products and potential lack of acceptance of localized versions |
| potential tax issues, including restrictions on repatriating earnings and multiple and conflicting tax laws and regulations |
| weaker intellectual property protection in some countries |
| difficulties in enforcing contracts and collecting accounts receivable, longer sales cycles and longer payment cycles,
especially in emerging markets |
| the significant presence of some of our competitors in certain international markets |
| our ability to adapt to sales practices and customer requirements in different cultures |
| political and economic instability, including war and terrorism or the threat of war and terrorism |
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 United States dollars 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 may in the future decide to
undertake foreign exchange hedging transactions to cover a portion of our foreign currency
transaction exposure, we currently do not hedge any foreign currency exposure. 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 United States 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, United States laws such as the Foreign Corrupt Practices Act, and local
laws prohibiting corrupt payments to governmental officials. 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 to one or more countries, and could also materially damage our reputation,
our brand and our international expansion efforts.
Our failure to manage any of these risks successfully could harm our international operations
and reduce our international sales.
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 will depend in large part on our ability:
| to support current and future industry standards, including databases and operating systems |
| to maintain technological competiveness and meet an expanding range of customer requirements |
| to introduce new products and features for our customers |
The emergence of new industry standards in related fields may adversely affect the demand for
our existing software platform. This could happen, for example, if new technologies emerged that
were incompatible with customer deployments of our software platform. 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 platform on a timely basis to
new standards in database access technology, the ability of our software platform 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 platform. Our platform
currently requires the Windows Server operating system when deployed on a server, as used in most
multi-user deployments. If customers are unwilling to use 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 assure you 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 platform 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. Difficulty by us in
achieving 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 platform and services, and they may become obsolete before we receive the
amount of revenues that we anticipate from them.
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Business intelligence 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 migrate to our new product. This could
result in a temporary or permanent revenue shortfall and harm our business.
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 sell our
software platform 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 platform, the prices of our software platform, the
prices of products and services offered by our competitors or reductions in our customers spending
levels. If our customers do not renew their maintenance and support arrangements or if they renew
them on less favorable terms, our revenue may decline and our business will suffer. A substantial
portion of our quarterly maintenance revenue is attributable to maintenance and support 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. If we are unable to collect renewal fees from customers, our business will
be harmed.
Our software platform could contain undetected errors, or bugs, which could cause problems with
product performance and which could in turn reduce demand for our software platform, 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 extensively, 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 commercial shipment or 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.
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 business intelligence 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 platform.
We face competitors in several broad categories, including business intelligence 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 products, 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 business intelligence vendors, including Pentaho and
JasperSoft. 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 business intelligence products,
such as Actuate, Information Builders, MicroStrategy, the SAS Institute and TIBCO. We expect
additional competition as other established and emerging companies or open source vendors enter the
business intelligence 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 business intelligence 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.
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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 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 platform 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 maintain technical support 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 business intelligence 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
business intelligence software like QlikView to be provided via a SaaS deployment, we would need to
undertake these investments in order to implement this alternative business model. 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.
If we fail to develop 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 existing and future
products and are important elements in attracting new customers. We believe that the importance of
brand recognition will increase as competition in our market further intensifies. Successful
promotion of our brand will depend on the effectiveness of our marketing efforts and on our ability
to provide reliable and useful products 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 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 QlikCommunity, 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 to 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 have recently expanded 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 and 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:
| training new personnel to become productive and generate revenue |
| controlling expenses and investments in anticipation of expanded operations |
| implementing and enhancing our administrative infrastructure, systems and processes |
| addressing new markets |
| expanding operations in the United States and new international regions |
A failure to manage our growth effectively could harm our ability to market and sell our
software platform 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 these individuals, 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.
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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 platform. This is particularly true as we further expand our
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 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 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. Further, if we are unable to develop products internally due to
certain constraints, such as high employee turnover, lack of management ability or a lack of other
development resources, this may force us to expand into a certain market or strategy via an
acquisition for which we could potentially pay too much or unsuccessfully integrate into our
operations.
If we fail to offer high quality customer support, our business would suffer.
Once our software platform and solutions 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 platform 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
platform and services to existing customers would suffer and our reputation with existing or
potential customers would be harmed. Also, our maintenance agreements contain service level
agreements under which we guarantee specified response times. If we fail to meet our service level
obligations under these agreements, we may be subject to penalties which could result in higher
than expected costs, decreased revenue and decreased operating margins.
We currently utilize a combination of internal support personnel and third party support
organizations, and we cannot assure you that actions taken or not taken by our third party support
organization will not harm our reputation or business. As we expand our sales, 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 overestimate revenue, we may be unable to reduce our expenses to avoid or minimize harm to
our results of operations.
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 over time as we make investments in our business. 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, reductions in amount or cancellation
of customers purchases or an increase in the number of customers exercising our 30-day money back
guarantee on our software platform 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 solutions 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 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 product, our
software could be found to contain this type of open source software.
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Responding to any infringement claim, regardless of its validity, or discovering open source
software in our product could harm our business, operating results and financial condition, by,
among other things:
| resulting in time-consuming and costly litigation |
| diverting managements time and attention from developing our business |
| requiring us to pay monetary damages or enter into royalty and licensing agreements that we would not normally find acceptable |
| causing product shipment or deployment delays |
| requiring us to stop selling certain of our products |
| 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 |
| requiring us to disclose our software source code, the detailed program commands for our software program |
| requiring us to satisfy indemnification obligations to our customers |
Our intellectual property rights are valuable, and any inability to protect them could reduce the
value of our software platform, services and brand.
We currently have three issued United States patents and one pending United States patent
expiring at various times ranging from 2015 to 2029 and 17 issued and eight pending foreign patents
expiring at various times ranging from 2015 to 2029. 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 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 platform 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.
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 platform. 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, manufacturing, distribution 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 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.
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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 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:
| the effect of the acquisition on our financial and strategic position and reputation |
| 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 |
| 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 |
| the assumption of certain known or unknown liabilities of the acquired business, including litigation-related liabilities |
| 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 |
| a lack of experience in new markets, new business culture, products or technologies or an initial dependence on unfamiliar
distribution partners |
| the possibility that we will pay more than the value we derive from the acquisition |
| the impairment of relationships with customers, partners or suppliers of the acquired business or our customers |
| the potential loss of key employees of the acquired company |
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 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. 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
information technology 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 increased 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 and the Nasdaq Global Market (Nasdaq) impose 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, we expect these rules and regulations to substantially increase
our legal and financial compliance costs and to make some activities more time-consuming and
costly. We also expect these rules and regulations to make it more difficult and more expensive for
us to obtain director and officer liability insurance, and we may be required to 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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We may need additional capital in the future and it may not be available on acceptable terms, if at
all.
We have historically relied on outside financing and cash flow from operations to fund our
operations, capital expenditures and expansion. However, we may require additional capital in the
future to fund our operations and acquisitions, finance investments in equipment or personnel or
respond to competitive pressures. We cannot assure you that additional financing will be available
on terms acceptable to us. In
addition, the terms of available financing may place limits on our financial and operational
flexibility. If we are unable to obtain sufficient capital in the future, we may not be able to
continue to meet customer demand for service quality, availability and competitive pricing. We also
may be forced to reduce our operations or may not be able to expand or acquire complementary
businesses, develop new services or otherwise respond to changing business conditions or
competitive pressures.
Prolonged economic uncertainties or downturns could materially harm our business.
Current or future economic downturns could harm our business and results of operations.
Negative trends in the general economy both in the United States and abroad, including trends
resulting from actual or threatened military action by the United States, terrorist attacks on the
United States, Europe or elsewhere, and financial and credit market fluctuations, could cause a
decrease in corporate spending on business intelligence software in general and negatively affect
the rate of growth of our business.
General worldwide economic conditions have experienced a significant downturn. 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 results would be harmed.
We maintain operating bank accounts at financial institutions in the United States, Sweden and
other regions. In particular, a significant amount of our cash balances in the United States and
Sweden are in excess of the insurance limits of the United States governments Federal Deposit
Insurance Corporation (FDIC) and Swedish governments Swedish Deposit Insurance Scheme
(Insättningsgarantin). The FDIC insures deposits in most banks and savings associations located
in the United States 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, manufacturing
and financial services industries. A substantial downturn in these industries may cause firms to
react to worsening conditions by reducing their capital expenditures in general or by specifically
reducing their spending on information technology. Customers in these industries may delay or
cancel information technology projects or seek to lower their costs by renegotiating vendor
contracts. Also, customers with excess information technology 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. If the economic conditions of the general economy or markets in which we operate worsen
from present levels, our business, financial condition and results of operations could be harmed.
If we fail to establish and 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, beginning with the year ending December 31, 2011, we will be 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 will also be required to report on our internal control over financial reporting. Our testing
and our auditors 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 expect 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 comply 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, the Financial Industry Regulatory Authority, Inc., known as
FINRA, 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.
We have previously identified material weaknesses in our internal control over financial reporting,
and if we are unable to achieve and maintain effective internal control over financial reporting,
this could have a material adverse effect on our business and common stock price.
We produce our consolidated financial statements in accordance with the requirements of United
States generally accepted accounting principles, or GAAP, but our internal accounting controls may
not currently meet all standards applicable to companies with publicly traded securities. Effective
internal controls are necessary for us to provide reliable financial reports to help mitigate the
risk of fraud and to operate successfully as a publicly traded company.
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In connection with the preparation of our consolidated financial statements for the year ended
December 31, 2009, we identified a material weakness in the design and operation of our internal
controls over financial reporting relating to the accounting for expenses in one of our European
operating subsidiaries. A material weakness is defined as a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of a companys annual or interim financial statements
will not be prevented or detected on a timely basis by the companys internal controls.
Specifically, we determined that we had insufficient reconciliation and oversight of our accounting
for accrued and prepaid expenses in one of our European operating subsidiaries during our financial
statement close process which would have resulted in the overstatement of our assets and
liabilities in the consolidated balance sheet and an overstatement of operating expenses and
understatement of net income. During 2010 we have implemented procedures and controls designed to
improve communication and overview of financial reporting by our geographic territories, including
the affected operating subsidiary noted above, during our reporting consolidation processes. These
procedures and controls include a monthly review of each of our territorys financial results by
financial controllers outside of the respective territory; increased communications, including
monthly videoconferences among all regional financial controllers to address any material topics;
and a quarterly requirement for all reporting territories to provide detailed commentary and
analysis of material balance sheet positions and operating results for internal review purposes. We
believe we have remediated this material weakness. In addition, our plans include the expansion of
our finance staff in the affected territory with the hiring of a local senior financial executive
which is currently in process.
In connection with the preparation of our consolidated financial statements for the year ended
December 31, 2008, we identified a material weakness in our formal financial statement closing
process. We remediated this material weakness during 2009 by implementing additional controls,
including increasing our corporate accounting staff, implementing additional system controls and
establishing a formalized closing calendar.
Although we believe we have addressed the internal control deficiencies that led to the
material weaknesses, the measures we have taken may not be effective given our global operations
and distribution capabilities in over 100 countries, and we may not be able to implement and
maintain effective internal control over financial reporting in the future. If we have these or
other material weaknesses in the future, it could affect the financial results that we report or
create a perception that those financial results do not fairly state our financial condition or
results of operations. Either of those events could have an adverse effect on the value of our
common stock.
Our results of operations may be adversely affected by changes in or interpretations of accounting
standards.
We prepare our consolidated financial statements in conformity with accounting principles
generally accepted in the United States. These principles are subject to interpretation by the SEC
and various bodies formed to interpret and create appropriate accounting standards. Our accounting
policies that recently have been or may be affected by changes in the accounting rules are as
follows:
| software revenue recognition |
| accounting for income taxes |
| accounting for business combinations and related goodwill |
| accounting for stock issued to employees |
| assessing fair value of financial and non-financial assets |
| application, if any, of international financial reporting standards |
We continuously review our compliance with all 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.
Our results of operations could be harmed by changes in tax rates or negative tax rulings.
We are subject to taxes in the United States 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.
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
under FASB ASC Topic No. 740, Income Taxes, or by changes in tax laws, regulations, accounting
principles or interpretations thereof.
Our determination of our tax liability is subject to review by applicable United States 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 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 uncertain.
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.
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Risks Related Ownership of Our Common Stock
An active trading market for our common stock may not develop or be sustained and investors may not
be able to resell their shares at or above the price at which they purchased them.
We have a limited history as a public company. An active trading market for our shares may
never develop or be sustained. In the absence of an active trading market for our common stock,
investors may not be able to sell their common stock at or above the price they paid or at the time
that they would like to sell. In addition, an inactive market may impair our ability to raise
capital by selling shares and may impair our ability to acquire other companies or technologies by
using our shares as consideration, which, in turn, could harm our business.
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 will 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 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 is likely to be highly volatile and may fluctuate
substantially due to the following factors (in addition to the other risk factors described in this
section):
| quarterly variations in our results of operations or those of our competitors |
| announcements by us or our competitors of acquisitions, new products, significant contracts or commercial relationships |
| our ability to respond to changing industry standards, technological developments or customer requirements on a timely basis |
| commencement of, or our involvement in, litigation |
| any major change in our board of directors or management |
| recommendations by securities analysts or changes in earnings estimates |
| announcements about our earnings that are not in line with analyst expectations |
| announcements by our competitors of their earnings that are not in line with analyst expectations |
| the volume of shares of our common stock available for public sale |
| sales of stock by us or by our stockholders |
| short sales, hedging and other derivative transactions involving shares of our common stock |
| adoption of new accounting standards affecting the software industry |
| general economic conditions in the United States and abroad and slow or negative growth of related markets |
| general political conditions in the United States and abroad, including terrorist attacks, war or threat of terrorist attacks or war |
In addition, the stock market in general, and 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, you might be unable to resell your shares at
or above the price you paid. In addition, in the past, following periods of volatility in the
overall market and 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.
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We currently do not intend to pay dividends on our common stock, and consequently, your only
opportunity to achieve a return on your 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. 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.
A substantial number of shares of our common stock could be sold into the public market in the near
future, which could depress our stock price.
Sales of substantial amounts of our common stock in the public market could reduce the
prevailing market prices for our common stock. On July 21, 2010 we completed our initial public
offering of 12,880,000 shares of common stock on Nasdaq. Approximately 89% of our total
outstanding shares and options immediately prior to the closing of our initial public offering were
subject to a lock-up agreement with the underwriters until January 11, 2011, or depending on the
timing of our next earnings release, announcement of an earnings release or other material event,
up to 18 days thereafter. In addition, substantially all of our total outstanding shares and
options immediately prior to our initial public offering were subject to a lock-up agreement with
our company until January 11, 2011. When the lock-up agreements expire, substantially all of our
outstanding common stock will become eligible for sale as will common stock issuable under vested
and exercisable stock options. If our existing stockholders sell a large number of shares of our
common stock, or the public market perceives that existing stockholders might sell shares of common
stock, the market price of our common stock could decline significantly. These sales might also
make it more difficult for us to sell equity securities at a time and price that we deem
appropriate.
Our management will have broad discretion over the use of our cash reserves, if any, and might not
apply this cash in ways that increase the value of your investment.
Our management will have 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 your investment. We expect to use our cash
reserves for general corporate purposes, including working capital, capital expenditures,
acquisitions and further development of our 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. You will not have the opportunity to influence our decisions on how to use
our cash reserves.
Concentration of ownership among our existing executive officers, directors and their affiliates
may prevent new investors from influencing significant corporate decisions.
As of August 1, 2010, our executive officers and directors and their affiliates beneficially
owned a majority of our outstanding common stock. As a result, these stockholders will be able to
exercise significant influence over all matters requiring stockholder approval, including the
election of directors, amendment of our restated certificate of incorporation and approval of
significant corporate transactions. This control could have the effect of delaying or preventing a
change of control of our company or changes in management and will make the approval of certain
transactions difficult or impossible without the support of these stockholders.
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:
| authorize the issuance of blank check preferred stock that could be issued by our board of directors to thwart a
takeover attempt |
| 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 |
| 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 |
| 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 |
| limit who may call special meetings of stockholders |
| prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders |
| 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 |
Our ability to utilize our net operating losses may be limited if cumulative changes in ownership
of our capital stock exceed 50% during certain periods.
If over a rolling three-year period, the cumulative change in our ownership exceeds 50%, our
ability to utilize our net operating losses to offset future taxable income may be limited. We have
exceeded this 50% cumulative change threshold during 2000 and 2004. We have not yet
determined the amount of the cumulative change in our ownership resulting from our initial
public offering. The effect of our initial public offering on our cumulative change in ownership
may limit or otherwise negatively affect the benefits of engaging in financing and other
transactions in the future. Furthermore, it is possible that transactions in our stock that may not
be within our control may cause us to exceed the 50% cumulative change threshold and may impose a
limitation on the utilization of our net operating losses in the future. In the event the usage of
these net operating losses is subject to limitation and we are profitable, our future cash flows
could be adversely impacted due to our increased tax liability.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In the three months ended June 30, 2010, we issued 446,126 shares of unregistered common stock
for an aggregate purchase price of $0.7 million upon the exercise of previously granted options.
The securities described in this paragraph were issued pursuant to written compensatory plans or
arrangements with our employees, directors, and consultants in reliance on the exemptions provided
by either Section 4(2) of the Securities Act or Rule 701 promulgated under Section 3(b) of the
Securities Act. All securities described in this paragraph are deemed restricted securities for
purposes of the Securities Act. The instruments representing such issued securities included
appropriate legends setting forth that the securities had not been registered and the applicable
restrictions on transfer.
Use of Proceeds
On July 21, 2010, we closed our IPO, in which 12,880,000 shares of common stock were sold at a
price to the public of $10.00 per share for an aggregate offering price of $128.8 million. The
offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to
a registration statement on Form S-1 (File No. 333-165844), which was declared effective by the SEC
on July 15, 2010. The offering commenced as of July 15, 2010 and did not terminate before all of
the securities registered in the registration statement were sold. The syndicate of underwriters
was led by Morgan Stanley & Co. Incorporated, Citigroup Global Markets Inc., and J.P. Morgan
Securities Inc. as joint book-running managers for the offering, Jefferies & Company, Inc. and
Stifel Nicolaus Weisel served as co-managers for the offering. We raised approximately $115.8
million in net proceeds after deducting underwriting discounts and commissions of $7.8 million and
other estimated offering costs of $4.0 million. No payments were made by us to directors, officers
or persons owning ten percent or more of our common stock or to their associates, or to our
affiliates, other than payments in the ordinary course of business to officers for salaries and to
non-employee directors as compensation for board committee service. There has been no material
change in the planned use of proceeds from our IPO as described in our registration statement on
Form S-1 filed with the SEC in connection with the IPO.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
Exhibit | ||||
Number | Description of Document | |||
31.1 | Certification of Chief Executive Officer pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 |
|||
31.2 | Certification of Chief Financial Officer pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 |
|||
32.1 | Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
* | The certification attached as Exhibit 32.1 is not deemed filed with the SEC and is not to be
incorporated by reference into any filing of the registrant under the Securities Act of 1933 or the
Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of
any general incorporation language contained in such filing, except to the extent that the
registrant specifically incorporates it by reference. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
QLIK TECHNOLOGIES INC. |
||||
August 19, 2010 | By: | /s/ LARS BJÖRK | ||
Lars Björk | ||||
President, Chief Executive Officer, and Director (Principal Executive Officer) |
||||
August 19, 2010 | By: | /s/ WILLIAM G. SORENSON | ||
William G. Sorenson | ||||
Chief Financial Officer, Treasurer, and Secretary (Principal Financial and Accounting Officer) |
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EXHIBIT INDEX
Exhibit | ||||
Number | Description of Document | |||
31.1 | Certification of Chief Executive Officer pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 |
|||
31.2 | Certification of Chief Financial Officer pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 |
|||
32.1 | Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
* |
The certification attached as Exhibit 32.1 is not deemed filed with the SEC and is not to be
incorporated by reference into any filing of the registrant under the Securities Act of 1933 or the
Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of
any general incorporation language contained in such filing, except to the extent that the
registrant specifically incorporates it by reference.
|
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