As filed with the
Securities and Exchange Commission on May 31, 2012
Registration
No. 333-176484
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
Amendment No. 6
to
FORM S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Eloqua, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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7372
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98-0551177
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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Eloqua, Inc.
1921 Gallows Road,
Suite 250
Vienna, VA 22182
(703) 584-2750
(Address, including zip code,
and telephone number,
including area code, of
registrants principal executive offices)
Joseph P. Payne
President and Chief Executive
Officer
Eloqua, Inc.
1921 Gallows Road,
Suite 250
Vienna, VA 22182
(703) 584-2750
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Christopher J. Austin, Esq.
David V. Cappillo, Esq.
Gregg L. Katz, Esq.
Goodwin Procter LLP
Exchange Place
53 State Street
Boston, Massachusetts 02109
(617) 570-1000
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Rachel W. Sheridan, Esq.
Brandon J. Bortner, Esq.
Latham & Watkins LLP
555 Eleventh Street, NW
Suite 1000
Washington, DC 20004
(202) 637-2200
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Approximate date of commencement of proposed sale to the
public: as soon as practicable after this registration
statement becomes effective.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities
Act, check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, 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):
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Large
accelerated filer
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Accelerated filer
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Non-accelerated
filer þ
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Smaller reporting company
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(Do not check if a smaller
reporting company)
The Registrant hereby amends this Registration Statement
on such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. Neither we nor the selling stockholders may sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell securities, and
it is not soliciting an offer to buy these securities, in any
state or jurisdiction where the offer or sale is not
permitted.
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Preliminary prospectus, subject to
completion. Dated May 31, 2012
Prospectus
Shares
Eloqua, Inc.
Common Stock
This is the initial public offering of Eloqua, Inc.s
common stock.
We are
selling shares
of common stock. The selling stockholders identified in this
prospectus are selling an
additional shares
of common stock. We will not receive any proceeds from the sale
of shares of common stock by the selling stockholders. The
estimated initial public offering price is between
$ and
$ per share. Currently, no public
market exists for the shares.
We have applied for listing of our common stock on the NASDAQ
Global Market under the symbol ELOQ.
We are an emerging growth company under the
federal securities laws and are eligible for reduced public
company reporting requirements. Investing in our common stock
involves a high degree of risk. See Risk Factors
beginning on page 11.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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Per share
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Total
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Initial public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds to us, before expenses
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$
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$
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Proceeds to the selling stockholders, before expenses
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$
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$
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The underwriters may also purchase up to an
additional shares
of common stock from us and up to an
additional shares
from the selling stockholders, at the initial public offering
price, less the underwriting discounts and commissions, within
30 days from the date of this prospectus. We will not
receive any proceeds from the sale of shares by the selling
stockholders.
The underwriters expect to deliver the shares of common stock on
or
about ,
2012.
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J.P.
Morgan |
Deutsche Bank Securities
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JMP
Securities |
Needham & Company
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Pacific
Crest Securities |
,
2012
TABLE OF
CONTENTS
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1
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11
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39
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40
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41
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42
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43
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44
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46
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48
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81
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105
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113
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137
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138
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141
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146
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149
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153
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159
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159
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159
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F-1
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We have not authorized anyone to provide any information or
to make any representations other than those contained in this
prospectus or in any free writing prospectuses we have prepared.
We take no responsibility for, and can provide no assurance as
to the reliability of, any other information that others may
give you. This prospectus is an offer to sell only the shares
offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
i
PROSPECTUS
SUMMARY
This summary highlights selected information contained
elsewhere in this prospectus and does not contain all of the
information you should consider in making your investment
decision. You should carefully read the entire prospectus,
including the financial statements and related notes and the
section entitled Risk Factors, before deciding
whether to invest in our common stock. Unless otherwise
indicated or the context otherwise requires, references in this
prospectus to, Eloqua, the Company,
our company, we, us, and
our refer to Eloqua, Inc., a Delaware corporation,
and its consolidated subsidiaries. References to any year herein
refer to the 12 months ended December 31 of the year
indicated.
Eloqua,
Inc.
Business
Overview
We are a leading provider of on-demand Revenue Performance
Management, or RPM, software solutions that are designed to
enable businesses to accelerate revenue growth and improve
revenue predictability by automating, monitoring and measuring
their complex marketing and sales initiatives. Our set of RPM
solutions, which we refer to as the Eloqua Platform, is a
software-as-a-service, or SaaS, platform integrating our leading
marketing automation software with our revenue performance
analytics suite. Marketing and sales professionals use the
Eloqua Platform to move prospective buyers more efficiently
through the marketing and sales funnel, identify and predict the
drivers of revenue, provide insights about marketing and sales
programs to senior management and more tightly align marketing
and sales teams to optimize resource allocation and drive
revenue growth.
The Eloqua Platform is designed to improve marketing
effectiveness and efficiency by supporting strategies such as
nurture marketing, segmentation of marketing campaigns, message
targeting and enhanced lead generation. The Eloqua Platform
enables our customers to track and analyze a potential
buyers interactions with various web pages, social media
networks and other communications platforms, which we refer to
as Digital Body Language. We believe this real-time
insight into buyer activity enables sales professionals to more
efficiently convert sales opportunities into revenue.
The Eloqua Platform, which includes both our Marketing
Automation Platform and Revenue Suite solution, includes the
following functionality:
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Lead Management and Sales Intelligence;
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Multi-Channel Campaign Management;
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Buyer Profile Management;
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Integration with Enterprise Solutions and Social Media
Applications;
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Marketing and Sales Measurement; and
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Revenue Performance Analytics.
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We also provide professional services and educational courses to
support our customers implementation and efficient use of
the Eloqua Platform. Our professional services team facilitates
rapid product adoption, integration with existing enterprise
systems, such as customer relationship management, or CRM, and
ongoing customer success with our solutions. Our Eloqua
University offers educational courses to teach customers the
principles and best practices of RPM, which we believe leads to
improved business performance for our customers and increases
customer loyalty.
Our solutions are particularly suited to modeling and supporting
the complex sales processes of both business to business, or
B2B, sales and high-value business to consumer, or B2C, sales.
We
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have over 1,100 customers, encompassing a wide spectrum of
industries, including technology, financial services,
entertainment, manufacturing, business services and
telecommunications. Representative customers from industries we
currently serve include Adobe Systems, American Express, Cummins
Power Generation, Dell, The McGraw-Hill Companies, the Miami
Heat, National Instruments, Nestlé S.A., Siemens AG,
Standard & Poors and VMware, each of which were
in the top half of our customers, by revenue, in 2011. Our ten
largest customers accounted in the aggregate for less than 10%
of our total revenue in each of 2010, 2011 and the three months
ended March 31, 2012, and no single customer accounted for more
than 2% of our total revenue during either of those periods.
We sell our solutions on a subscription basis and our pricing is
structured such that subscription fees increase when the size of
a customers database of potential buyers increases above
the contracted level. Our total revenue increased from
$41.0 million in 2009 to $50.8 million in 2010 and
$71.3 million in 2011, representing
year-over-year
increases of 24% and 40%, respectively. For the three months
ended March 31, 2012, our total revenue increased to
$21.8 million from $15.0 million during the same
period in 2011, representing a 45% increase. Our subscription
and support revenue increased from $37.5 million in 2009 to
$47.2 million in 2010 and $63.2 million in 2011,
representing
year-over-year
increases of 26% and 34%, respectively. For the three months
ended March 31, 2012, our subscription and support revenue
increased to $19.2 million from $13.9 million during
the same period in 2011, representing a 38% increase. We had net
losses of $4.2 million in 2009, $1.5 million in 2010,
$6.2 million in 2011 and $1.5 million for the three
months ended March 31, 2012.
Market
Opportunity
The Internet has led to profound changes in the way consumers
and enterprises choose to communicate, share information,
educate themselves, make decisions and purchase products and
services. This transformation is causing a shift in
marketers spending from traditional media channels, such
as broadcast and print, to emerging interactive channels, such
as web, email, mobile and social media, which we believe creates
a market opportunity for a robust RPM solution capable of
leveraging the available data to enable more effective marketing
and sales programs. Forrester Research, Inc. predicts that
spending on interactive marketing in the United States will
increase from $34.5 billion in 2011, or 16% of overall
U.S. marketing expenditures, to $76.6 billion in 2016,
or 26% of overall U.S. marketing expenditures. Within this
category, spending on email, mobile and social media marketing
is projected to grow from $4.8 billion in 2011 to
$15.7 billion in 2016, representing a compound annual
growth rate, or CAGR, of 27%. Business spending on automating,
analyzing and optimizing marketing and sales functions is also
projected to increase. International Data Corporation, or IDC,
predicts that the marketing automation market will grow from
$3.2 billion in 2010 to $4.8 billion in 2015, while
the CRM analytics market, which includes marketing and sales
analytics, is projected to grow from $2.2 billion in 2010
to $3.4 billion in 2015.
The significant increase in online activity by prospective
buyers has led to a corresponding increase in the amount of
prospect-related digital data. If appropriately analyzed, a
prospects Digital Body Language provides marketing and
sales professionals with valuable information about a
prospects progress through the sales funnel. We believe
enterprises are increasingly realizing that effective sales
execution is dependent upon leveraging the vast quantities of
available data to enable the delivery of a precise, targeted and
timely message that caters to a prospective buyers unique
concerns and desires at each stage of the buying process.
Marketing executives are increasingly confronted with managing
complex constituencies, including internal and outsourced
marketing groups, direct and indirect sales channels and
traditional and online prospective buyers. At the same time,
marketing and sales teams are being asked to demonstrate their
direct impact on revenue generation to justify the value of
marketing and sales expenditures. In
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many cases, marketing and sales teams continue to compete within
organizations for resources and recognition, resulting in a lack
of coordination between the two departments. Businesses are
increasingly recognizing that this divide is counterproductive
and that a companys marketing and sales functions need to
be tightly coordinated and aligned around the same goal of
growing revenue.
Our
Solution
The Eloqua Platforms comprehensive suite of integrated
marketing and sales solutions enables our customers to automate
their marketing and sales functions, which we believe increases
their effectiveness and productivity and leads to overall
enhanced business performance. Key benefits of the Eloqua
Platform include:
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Comprehensive On-Demand Revenue Performance Management
Platform. Single integrated on-demand
platform with
best-in-class
functionality to automate and optimize complex marketing and
sales processes across multiple interactive channels for each
prospective buyer.
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Ability to Track, Capture and Analyze a Potential
Buyers Digital Body Language. Ability
to track, store and analyze potential buyers Digital Body
Language, including their preferences, behavior and
decision-making processes, enabling our customers to more
accurately score and qualify leads and identify high-quality
buyer prospects to sales personnel, thereby shortening the sales
cycle.
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Real-Time Insight to Facilitate Revenue Growth and
Operational Efficiency. Comprehensive
marketing and sales performance reporting tools, including
detailed dashboards, tailored to meet the needs of executives
seeking to fully understand the impact of marketing and sales on
revenue growth.
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Seamless Integration with Other Key Enterprise
Systems. Open platform that integrates with
other enterprise systems and allows third-party developers to
extend the capabilities of their systems to the Eloqua Platform,
thereby facilitating marketers ability to gather valuable
data from disparate sources.
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Differentiated Proprietary Knowledge and Professional
Services. Extensive insights about the
marketing and sales process that we leverage through our
SmartStart onboarding program, our SmartXchange best practices
library and our Eloqua University to provide our customers with
the tools they need to maximize the benefits of our solutions
and apply RPM concepts to their businesses.
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Our Competitive
Strengths
We believe that our position as a market leader results from
several key competitive strengths, including:
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Significant Domain Expertise and Thought Leadership in
Marketing Automation and Revenue Performance
Management. Since our inception in 2000, we
have been an innovator in the marketing software solutions
industry, leading the transition to marketing automation and,
more recently, acting as a pioneer of the RPM category.
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Deep Customer Relationships and Demonstrated Customer
Success. We have deep customer relationships
with what we believe are some of the most successful and fastest
growing companies worldwide, which demonstrates the strength of
our solutions. The depth of our customer relationships is a
function of our focus on revenue generation, which creates many
points of customer engagement, including with multiple members
of our customers senior management, sales and marketing
teams. We believe we earn the trust of our clients by
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working collaboratively with these executives to improve the
effectiveness of their marketing activities.
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Our Partner Network Enables Us to Leverage Our
Platform. We have established an effective
worldwide partner network of strategic consulting and
implementation partners to facilitate the rapid and successful
deployment of the Eloqua Platform.
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On-Demand Software Delivery Model. We
developed the Eloqua Platform as a multi-tenant SaaS solution
from the start, with no hardware or software installation
required by our customers, which results in lower total cost of
ownership, ease of deployment and adoption and improved return
on investment for our customers.
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Highly Attractive Operating Model. We
believe we have a highly attractive operating model due to the
recurring nature of our revenue, the scalability of, and our
ability to leverage, our SaaS platform, our opportunity to
generate additional sales from our existing customers over time
and the diversification of our revenue stream across industries.
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Our Growth
Strategy
We intend to strengthen our position as a leading provider of
on-demand RPM software solutions. The key elements of our growth
strategy include:
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Acquire New Customers Through Education and Increasing
Awareness of RPM. Core to our growth strategy
is continuing to educate chief executive officers, sales
executives, marketers and industry analysts regarding the
benefits and best practices of RPM, which we believe will drive
increased demand for our solutions.
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Continue to Innovate and Expand the Capabilities and
Functionality of our Platform. We plan to
introduce new solutions that enhance the functionality of our
platform to continually address the latest opportunities for and
challenges to business executives.
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Further Expand into Our Existing Customer
Base. Many of our customers initially
purchase only a portion of our solution for a limited number of
users within a specific department or group. We plan to increase
revenue from our existing customers by using the success of the
already-implemented solutions to expand utilization across the
enterprise and to cross-sell other offerings and features.
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Continue to Strengthen and Expand our Direct Sales and
Partner Relationships. We believe that there
are many large enterprises and small and medium-size businesses,
or SMBs, that are potential customers for the Eloqua Platform,
and we are building our direct sales force to capture new
customer opportunities. We plan to leverage our direct sales
force to drive revenue growth and expand our global market
reach, as well as efficiently increase our services delivery
capacity through continued attention to our partner
relationships.
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Expand our International Presence. We
plan to increase our international presence into regions where
we believe customers will recognize the benefits and adopt RPM
solutions, including Europe, South America and the Asia-Pacific
region.
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Selectively Pursue Acquisitions of Complementary
Technologies. In addition to developing
innovative solutions internally, we may selectively acquire
other businesses and technologies that we believe will
strengthen our competitive advantage, accelerate our customer
and revenue growth and provide access to new and emerging
markets.
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4
Summary Risk
Factors
Investing in our common stock involves significant risks and
uncertainties. You should carefully consider the risks and
uncertainties discussed under the heading Risk
Factors elsewhere in this prospectus before making a
decision to invest in our common stock. If any of these risks
and uncertainties occur, our business, financial condition or
results of operations may be materially adversely affected. In
such case, the trading price of our common stock would likely
decline, and you may lose all or a part of your investment.
Below is a summary of some of the principal risks we face:
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we have a history of losses and may not achieve consistent
profitability in the future;
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economic uncertainties or downturns in the general economy or
the industries in which our customers operate could
disproportionately affect the demand for our solutions and
negatively impact our results of operations;
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our future performance will depend in part on the acceptance and
adoption of the new RPM market;
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we have experienced rapid growth in recent periods and our
recent growth rates may not be indicative of our future growth.
If we fail to manage our growth effectively, we may be unable to
execute our business plan, maintain high levels of service and
customer satisfaction or adequately address competitive
challenges;
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we may experience quarterly fluctuations in our operating
results due to a number of factors that make our future results
difficult to predict and could cause our operating results to
fall below expectations;
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our quarterly results reflect seasonality in the sale of our
on-demand software and professional services, which can make it
difficult to achieve sequential revenue growth or could result
in sequential revenue declines; and
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we face significant competition from both established and new
companies offering applications and other marketing software, as
well as internally developed software, which may have a negative
effect on our ability to add new customers, retain existing
customers and grow our business.
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Corporate
Information
We originally commenced operations in Canada in 2000 through
Eloqua Corporation. In 2006, we effected a business
reorganization whereby Eloqua Corporation became a consolidated
subsidiary of Eloqua Limited, a Delaware corporation. In
March 2012, we changed our name from Eloqua Limited to Eloqua,
Inc., which is the entity through which we conduct our
operations in the United States and the issuer of the
shares offered hereby. Our principal executive offices are
located at 1921 Gallows Road, Suite 250 Vienna, VA
22182, and
our telephone number is
(703) 584-2750.
Our website is www.eloqua.com. Information contained on our
website does not constitute a part of this prospectus.
Eloqua, Active Profiles, Digital Body Language, Eloqua Web
Analytics, Eloqua CRM Integration and Eloqua Co-Dynamic Lead
Scoring and other trademarks or service marks of Eloqua
appearing in this prospectus are the property of Eloqua. Trade
names, trademarks and service marks of other companies appearing
in this prospectus are the property of their respective holders.
5
THE
OFFERING
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Common stock offered by us |
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shares |
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Common stock offered by the selling stockholders
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shares |
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Common stock to be outstanding after this offering
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shares |
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Option to purchase additional shares |
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We and the selling stockholders have granted the underwriters an
option to purchase up to an
additional
and shares
of our common stock, respectively, at the initial public
offering price. The underwriters can exercise this option at any
time within 30 days from the date of this prospectus. |
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Use of proceeds |
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We estimate that we will receive net proceeds from the sale of
shares of our common stock in this offering of approximately
$ million, based on an
assumed initial public offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus, after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us. We will not receive any
proceeds from the sale of shares by the selling stockholders. We
intend to use the net proceeds to us from this offering to repay
indebtedness under our term loan and for working capital and
other general corporate purposes. See Use of
Proceeds for additional information. |
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Risk factors |
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You should read carefully Risk Factors in this
prospectus for a discussion of factors that you should consider
before deciding to invest in our common stock. |
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Proposed NASDAQ Global Market symbol
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ELOQ |
The number of shares of our common stock to be outstanding
following this offering is based on 24,577,346 shares of
our common stock outstanding as of March 31, 2012 and excludes:
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8,284,802 shares of common stock issuable upon exercise of
options outstanding as of March 31, 2012 at a weighted
average exercise price of $2.75 per share;
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315,546 shares of common stock issuable upon the exercise
of warrants outstanding as of March 31, 2012 at a weighted
average exercise price of $0.60 per share, which will remain
outstanding after this offering, unless earlier exercised;
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67,500 shares of common stock issuable upon the exercise of
outstanding warrants to purchase Series C preferred stock
as of March 31, 2012 at an exercise price of $3.00 per share,
which will be converted into warrants to purchase an equivalent
number of shares of our common stock upon the completion of this
offering and remain outstanding after this offering, unless
earlier exercised; and
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3,750,000 shares of common stock reserved for future
issuance under our 2012 Stock Option and Incentive Plan
(including an aggregate of 498,317 shares previously
reserved for future issuance under our 2006 Stock Option Plan
and our 2006 U.S. Employee Stock Option Plan, which shares were
added to the shares reserved under our 2012 Stock Option and
Incentive Plan).
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Unless otherwise indicated, all information in this prospectus
reflects or assumes the following:
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the issuance of an aggregate of 3,577,554 shares of our
common stock upon the exchange of all of the outstanding
exchangeable common shares of our subsidiary Eloqua Corporation,
a company organized under the laws of Canada, in connection with
this offering, as described in Description of Capital
StockExchangeable Common Shares elsewhere in this
prospectus;
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the automatic conversion of all outstanding shares of our
preferred stock into an aggregate of 19,828,150 shares of
our common stock immediately prior to the completion of this
offering;
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the conversion, but not the exercise, of all outstanding
warrants to purchase shares of our Series C preferred stock
into warrants to purchase an aggregate of 67,500 shares of
our common stock, effective upon completion of this offering;
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no exercise of outstanding options or outstanding warrants after
March 31, 2012;
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the filing of our amended and restated certificate of
incorporation and the adoption of our amended and restated
by-laws immediately prior to the effectiveness of the
registration statement of which this prospectus forms a part;
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a 1-for-2.5 reverse stock split of our common stock and the
exchangeable common shares of Eloqua Corporation that became
effective on May 3, 2012; and
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no exercise by the underwriters of their option to purchase
additional shares.
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7
SUMMARY
CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated
financial data as of the dates and for the periods indicated.
The summary consolidated financial data as of December 31,
2010 and 2011 and for each of the three years ended
December 31, 2009, 2010 and 2011 have been derived from our
audited consolidated financial statements included elsewhere in
this prospectus. The summary consolidated balance sheet data as
of December 31, 2009 have been derived from our audited
financial statements for such year, which are not included in
this prospectus. The summary consolidated financial data for the
three months ended March 31, 2011 and 2012 have been
derived from our unaudited consolidated financial statements
included elsewhere in this prospectus. The summary consolidated
balance sheet data as of March 31, 2012 have been derived
from our unaudited financial statements for such period,
included elsewhere in this prospectus. In our opinion, these
unaudited consolidated financial statements have been prepared
on a basis consistent with our audited consolidated financial
statements and contain all adjustments, consisting only of
normal and recurring adjustments, necessary for a fair
presentation of such consolidated financial data. Historical
results are not necessarily indicative of the results to be
expected for future periods and operating results for the
three-month period ended March 31, 2012 are not necessarily
indicative of the results that may be expected for the fiscal
year ending December 31, 2012. This summary consolidated
financial data should be read in conjunction with the section
entitled Managements Discussion and Analysis of
Financial Condition and Results of Operations and our
consolidated financial statements and the related notes included
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
2012
|
|
|
|
(in thousands, except share and per share data)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
$
|
37,543
|
|
|
$
|
47,225
|
|
|
$
|
63,222
|
|
|
$
|
13,901
|
|
|
$
|
19,237
|
|
Professional services
|
|
|
3,415
|
|
|
|
3,574
|
|
|
|
8,126
|
|
|
|
1,058
|
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
40,958
|
|
|
|
50,799
|
|
|
|
71,348
|
|
|
|
14,959
|
|
|
|
21,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
|
6,423
|
|
|
|
9,569
|
|
|
|
12,330
|
|
|
|
2,739
|
|
|
|
3,426
|
|
Professional services
|
|
|
5,284
|
|
|
|
6,980
|
|
|
|
10,718
|
|
|
|
2,255
|
|
|
|
2,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
11,707
|
|
|
|
16,549
|
|
|
|
23,048
|
|
|
|
4,994
|
|
|
|
6,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
29,251
|
|
|
|
34,250
|
|
|
|
48,300
|
|
|
|
9,965
|
|
|
|
15,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
8,607
|
|
|
|
10,363
|
|
|
|
11,679
|
|
|
|
2,792
|
|
|
|
3,433
|
|
Marketing and sales(1)
|
|
|
17,321
|
|
|
|
22,147
|
|
|
|
29,481
|
|
|
|
6,851
|
|
|
|
8,175
|
|
General and administrative(1)
|
|
|
7,348
|
|
|
|
7,879
|
|
|
|
12,208
|
|
|
|
2,546
|
|
|
|
4,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
33,276
|
|
|
|
40,389
|
|
|
|
53,368
|
|
|
|
12,189
|
|
|
|
16,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,025
|
)
|
|
|
(6,139
|
)
|
|
|
(5,068
|
)
|
|
|
(2,224
|
)
|
|
|
(1,164
|
)
|
Other expense, net
|
|
|
(107
|
)
|
|
|
(241
|
)
|
|
|
(707
|
)
|
|
|
(123
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit (expense)
|
|
|
(4,132
|
)
|
|
|
(6,380
|
)
|
|
|
(5,775
|
)
|
|
|
(2,347
|
)
|
|
|
(1,221
|
)
|
Income tax benefit (expense)
|
|
|
(81
|
)
|
|
|
4,869
|
|
|
|
(378
|
)
|
|
|
(63
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(4,213
|
)
|
|
|
(1,511
|
)
|
|
|
(6,153
|
)
|
|
|
(2,410
|
)
|
|
|
(1,456
|
)
|
Accretion of redeemable preferred stock(2)
|
|
|
(4,970
|
)
|
|
|
(14,815
|
)
|
|
|
(89,659
|
)
|
|
|
(1,110
|
)
|
|
|
(13,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(9,183
|
)
|
|
$
|
(16,326
|
)
|
|
$
|
(95,812
|
)
|
|
$
|
(3,520
|
)
|
|
$
|
(15,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders, basic
and diluted(3)
|
|
$
|
(36.55
|
)
|
|
$
|
(40.17
|
)
|
|
$
|
(116.74
|
)
|
|
$
|
(5.70
|
)
|
|
$
|
(13.69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
251,246
|
|
|
|
406,402
|
|
|
|
820,734
|
|
|
|
617,715
|
|
|
|
1,120,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share attributable to common
stockholders, basic and diluted(3)
|
|
|
|
|
|
|
|
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average common shares outstanding, basic and
diluted
|
|
|
|
|
|
|
|
|
|
|
24,275,338
|
|
|
|
|
|
|
|
24,526,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(4)
|
|
$
|
(1,597
|
)
|
|
$
|
(3,321
|
)
|
|
$
|
923
|
|
|
$
|
(1,501
|
)
|
|
$
|
1,719
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2012
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
Pro Forma(5)
|
|
|
As Adjusted(6)
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,419
|
|
|
$
|
4,419
|
|
|
$
|
|
|
Working capital, excluding deferred revenue
|
|
|
18,730
|
|
|
|
19,154
|
|
|
|
|
|
Total assets
|
|
|
38,080
|
|
|
|
38,080
|
|
|
|
|
|
Debt, current portion
|
|
|
834
|
|
|
|
834
|
|
|
|
|
|
Deferred revenue (current and long-term)
|
|
|
31,756
|
|
|
|
31,756
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
1,250
|
|
|
|
1,250
|
|
|
|
|
|
Redeemable convertible preferred stock
|
|
|
174,984
|
|
|
|
|
|
|
|
|
|
Stockholders deficit
|
|
|
(181,862
|
)
|
|
|
(6,454
|
)
|
|
|
|
|
|
|
|
(1)
|
|
Total cost of revenue and operating
expenses include stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
57
|
|
|
$
|
125
|
|
|
$
|
284
|
|
|
$
|
50
|
|
|
$
|
108
|
|
Research and development
|
|
|
154
|
|
|
|
203
|
|
|
|
313
|
|
|
|
63
|
|
|
|
99
|
|
Marketing and sales
|
|
|
318
|
|
|
|
364
|
|
|
|
514
|
|
|
|
92
|
|
|
|
166
|
|
General and administrative
|
|
|
336
|
|
|
|
376
|
|
|
|
701
|
|
|
|
135
|
|
|
|
238
|
|
|
|
|
(2)
|
|
Our preferred stock is redeemable
by the holders thereof at any time after September 26,
2013, at the greater of the original issuance price, plus
accumulated dividends, or its fair value. We measure the
redemption amount of the preferred stock and adjust the carrying
amount to the redemption amount at the end of each financial
reporting period. The resulting increase or decrease in the
redemption amount is treated as preferred dividends for purposes
of computing net loss attributable to common stockholders. The
significant increase in the amount of the accretion during the
three months ended March 31, 2012 resulted from an increase
in the fair value of the preferred stock. Upon completion of
this offering, all of the outstanding shares of our preferred
stock will be converted into shares of our common stock on a
2.5-for-1
basis and, upon such conversion, preferred dividends will cease
to accrue and the carrying amount of the preferred stock will be
credited to additional paid-in capital. See note 8 to our
consolidated financial statements for a description of our
preferred stock and the related accretion.
|
|
|
|
(3)
|
|
See note 2 to our consolidated
financial statements for a description of the method to compute
basic and diluted net loss per share attributable to common
stockholders and pro forma basic and diluted net loss per share
attributable to common stockholders.
|
|
(4)
|
|
We use Adjusted EBITDA to evaluate
our performance relative to that of our peers. We prepare
Adjusted EBITDA to eliminate the impact of additional items we
do not consider indicative of ongoing operating performance.
However, Adjusted EBITDA is not a measurement of financial
performance under generally accepted accounting principles in
the United States, or U.S. GAAP, and this metric may not be
comparable to similarly titled measures of other companies.
Adjusted EBITDA represents net income (loss) before interest
expense (income), income tax expense (benefit), depreciation and
amortization and certain other items, including:
(i) certain stock option-based and other equity-based
compensation expenses; (ii) foreign currency transaction
gains or losses; (iii) changes in fair value of our
preferred stock warrant liabilities; and (iv) those deemed
extraordinary, unusual, non-recurring or otherwise not
indicative of our core business operations.
|
|
|
|
We disclose Adjusted EBITDA, which
is a non-GAAP measure, because we believe this metric assists
investors and analysts in comparing our performance across
reporting periods on a consistent basis by excluding items that
we do not believe are indicative of our core operating
performance. We believe this metric is used in the financial
community, and we present these metrics to enhance
investors understanding of our operating performance and
cash flows. You should not consider Adjusted EBITDA as an
alternative to net income (loss), determined in accordance with
U.S. GAAP, as an indicator of operating performance, or as an
alternative to cash provided by operating activities, determined
in accordance with U.S. GAAP, as an indicator of our cash flow.
|
|
|
|
Adjusted EBITDA has limitations as
an analytical tool. Some of these limitations are:
|
|
|
|
Adjusted EBITDA
|
9
|
|
|
|
|
does not reflect our cash expenditures, or future requirements,
for capital expenditures or contractual commitments;
|
|
|
does not reflect changes in, or cash requirements for, our
working capital needs;
|
|
|
does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal
payments, on our debt; and
|
|
|
does not reflect our income tax expense or the cash requirement
to pay our taxes.
|
|
|
|
|
|
although
depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced
in the future, and Adjusted EBITDA does not reflect any cash
requirements for such replacements; and
|
|
|
|
other companies
in our industry may calculate Adjusted EBITDA differently than
we do, limiting its usefulness as a comparative measure.
|
|
|
|
Additionally, non-cash compensation
is and will remain a key element of our overall long-term
incentive compensation package, although we exclude it from
Adjusted EBITDA as an expense when evaluating our ongoing
operating performance for a particular period. Adjusted EBITDA
also does not reflect the impact of certain cash charges
resulting from matters we consider not to be indicative of our
ongoing operations, which charges are included in net income
(loss).
|
|
|
|
Because of these limitations,
Adjusted EBITDA should not be considered in isolation or as a
substitute for performance measures calculated in accordance
with U.S. GAAP. We compensate for these limitations by
relying primarily on our U.S. GAAP results and using
Adjusted EBITDA only supplementally.
|
|
|
|
A directly comparable
U.S. GAAP measure to Adjusted EBITDA is net income (loss).
We reconcile net loss to Adjusted EBITDA as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,213
|
)
|
|
$
|
(1,511
|
)
|
|
$
|
(6,153
|
)
|
|
$
|
(2,410
|
)
|
|
$
|
(1,456
|
)
|
Interest expense
|
|
|
107
|
|
|
|
241
|
|
|
|
247
|
|
|
|
67
|
|
|
|
57
|
|
Income tax expense (benefit)
|
|
|
81
|
|
|
|
(4,869
|
)
|
|
|
378
|
|
|
|
63
|
|
|
|
235
|
|
Depreciation and amortization
|
|
|
1,127
|
|
|
|
1,661
|
|
|
|
1,872
|
|
|
|
424
|
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
(2,898
|
)
|
|
|
(4,478
|
)
|
|
|
(3,656
|
)
|
|
|
(1,856
|
)
|
|
|
(672
|
)
|
Stock-based compensation expense
|
|
|
865
|
|
|
|
1,068
|
|
|
|
1,812
|
|
|
|
340
|
|
|
|
611
|
|
Patent litigation legal costs
|
|
|
|
|
|
|
|
|
|
|
2,748
|
|
|
|
|
|
|
|
1,779
|
|
Foreign currency transaction losses (gains)
|
|
|
436
|
|
|
|
45
|
|
|
|
(245
|
)
|
|
|
(42
|
)
|
|
|
(39
|
)
|
Change in fair value of preferred stock warrant liabilities
|
|
|
|
|
|
|
44
|
|
|
|
264
|
|
|
|
57
|
|
|
|
40
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Adjusted EBITDA
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|
$
|
(1,597
|
)
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|
$
|
(3,321
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)
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|
$
|
923
|
|
|
$
|
(1,501
|
)
|
|
$
|
1,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
(5)
|
|
The pro forma balance sheet as of
March 31, 2012 reflects the conversion of all of our
preferred stock outstanding, the exchange of all of Eloqua
Corporations exchangeable common shares for shares of our
common stock and the conversion of our preferred stock warrants
to common stock warrants in connection with this offering.
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(6)
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|
The pro forma as adjusted balance
sheet data reflects the pro forma adjustments described in
footnote (5) above as adjusted to give effect to receipt by
us of the estimated net proceeds from this offering, based on an
assumed initial public offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus, after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
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10
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
You should carefully consider all the risk factors and
uncertainties described below, together with all of the other
information in this prospectus, including the consolidated
financial statements and the related notes appearing at the end
of this prospectus, before deciding whether to invest in our
common stock. If any of the following risks were to materialize,
our business, financial condition, results of operations and
future growth prospects could be materially and adversely
affected. The trading price of our common stock could decline as
a result of any of these risks, and you could lose part or even
all of your investment in our common stock.
Risks Related to
Our Business
We have a
history of losses and may not achieve consistent profitability
in the future.
We generated net losses of approximately $1.5 million in
2010, $6.2 million in 2011 and $1.5 million for the
three months ended March 31, 2012. As of March 31,
2012, we had an accumulated deficit of approximately
$183.8 million. We will need to generate and sustain
increased revenue levels in future periods in order to become
consistently profitable, and, even if we do, we may not be able
to maintain or increase our level of profitability. We intend to
continue to expend significant funds to expand our marketing and
direct sales force, develop and enhance our solutions and for
general corporate purposes, including marketing, services and
sales operations, hiring additional personnel, upgrading our
infrastructure and expanding into new geographical markets. Our
efforts to grow our business may be more costly than we expect,
and we may not be able to increase our revenue enough to offset
our higher operating expenses. We may incur significant losses
in the future for a number of reasons, including the other risks
described in this prospectus, and unforeseen expenses,
difficulties, complications and delays and other unknown events.
We will need to generate significant additional revenue to
achieve profitability, and we cannot assure any prospective
investor that we will be able to do so. Likewise, we cannot
assure you of our ability to sustain or increase such
profitability on a quarterly or annual basis in the future. If
we are unable to achieve and sustain profitability, the market
price of our common stock may significantly decrease.
Economic
uncertainties or downturns in the general economy or the
industries in which our customers operate could
disproportionately affect the demand for our solutions and
negatively impact our results of operations.
General worldwide economic conditions have experienced a
significant downturn, and market volatility and uncertainty
remain widespread, making it extremely difficult for our
customers and us to accurately forecast and plan future business
activities. In addition, these conditions could cause our
customers or prospective customers to reduce their marketing and
sales budgets, which could decrease corporate spending on our
solutions, resulting in delayed and lengthened sales cycles, a
decrease in new customer acquisition
and/or loss
of customers. Furthermore, during challenging economic times our
customers may face issues in gaining timely access to sufficient
credit or obtaining credit on reasonable terms, which could
impair their ability to make timely payments to us and adversely
affect our revenue. If that were to occur, we may be required to
increase our allowance for doubtful accounts and our financial
results would be harmed. Further, the current challenging
economic conditions also may impair the ability of our customers
to pay for the solutions they have purchased and, as a result,
our reserves, allowances for doubtful accounts and write-offs of
accounts receivable could increase. From 2008 through the first
half of 2010, these conditions impacted our business, as many
businesses cut marketing and sales budgets, resulting in limited
resources for purchasing third-party solutions.
11
We cannot predict the timing, strength or duration of any
economic slowdown or recovery. If the condition of the general
economy or markets in which we operate worsens from present
levels, our business could be harmed. In particular, a downturn
in the technology sector may disproportionately affect us
because a significant portion of our customers are technology
companies. In addition, even if the overall economy improves, we
cannot assure you that the market for revenue performance
management solutions will experience growth or that we will
experience growth.
Our future
performance will depend in part on the acceptance and adoption
of the new revenue performance management market.
The market for revenue performance management, or RPM, solutions
is new and evolving. Although the marketing automation market
has gained traction over the past several years, our recent
shift to focus on RPM exposes us to an additional degree of
uncertainty. For example, we have only recently begun to sell,
and currently have a limited customer base with respect to, our
Revenue Suite product. As a result, at this time we cannot
assure you that our Revenue Suite product will gain further
acceptance with our customer base or our broader addressable
market. Our success will depend to a substantial extent on the
willingness of businesses to accept and adopt RPM principles. We
expect that we will continue to need intensive marketing and
sales efforts to educate prospective customers about the uses
and benefits of our RPM solutions. If businesses do not perceive
the value proposition of RPM in general and our RPM solutions in
particular, then a viable market for our RPM solutions may not
develop, or it may develop more slowly than we expect, either of
which would significantly and adversely affect our business and
operating results.
We have
experienced rapid growth in recent periods and our recent growth
rates may not be indicative of our future growth.
Our revenue has increased substantially since our inception, but
we may not be able to sustain revenue growth consistent with
recent history, or at all. We believe growth of our revenue
depends on a number of factors, including our ability to:
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price our services effectively so that we are able to attract
and retain customers without compromising our profitability;
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attract new customers, increase our existing customers use
of our services and provide our customers with excellent
customer support;
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introduce our services to new markets outside of the United
States;
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increase awareness of our brand on a global basis; and
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leverage and grow our revenue performance management business.
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We cannot assure you that we will be able to successfully
accomplish any of these tasks.
If we fail to
manage our growth effectively, we may be unable to execute our
business plan, maintain high levels of service and customer
satisfaction or adequately address competitive
challenges.
We have experienced, and may continue to experience, rapid
growth and organizational change, which has placed, and may
continue to place, significant demands on our management and our
operational and financial resources. We have also experienced
significant growth in the number of users and transactions and
in the amount data that our SaaS hosting infrastructure
supports. Finally, our organizational structure is becoming more
complex as we improve our operational, financial and management
controls as well as our reporting systems and procedures. We
will require significant
12
capital expenditures and the allocation of valuable management
resources to grow and change in these areas without undermining
our corporate culture of rapid innovation, teamwork and
attention to customer success that has been central to our
growth so far. If we fail to manage our anticipated growth and
change in a manner that preserves the key aspects of our
corporate culture, the quality of our solutions may suffer,
which could negatively affect our brand and reputation and harm
our ability to retain and attract customers.
We have established several international offices, including
offices in the United Kingdom, Canada and Singapore, and we may
continue to expand our international operations into other
countries in the future. Our expansion has placed, and our
expected future growth will continue to place, a significant
strain on our managerial, customer operations, research and
development, marketing and sales, administrative, financial and
other resources. If we are unable to manage our growth
successfully, our operating results could suffer.
Part of the challenge that we expect to face in the course of
our expansion is to maintain a high level of customer service
and customer satisfaction. To the extent our customer base
grows, we will need to expand our account management, customer
service and other personnel, and third-party channel partners,
in order to provide personalized account management and customer
service. If we are not able to continue to provide high levels
of customer service, our reputation, as well as our business,
results of operations and financial condition, could be harmed.
We may
experience quarterly fluctuations in our operating results due
to a number of factors that make our future results difficult to
predict and could cause our operating results to fall below
expectations.
Our quarterly 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 indicative of our future performance. If our revenue
or operating results fall below the expectations of investors or
securities analysts, 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 section, factors that may
affect our quarterly operating results include the following:
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demand for our solutions and related services and the size and
timing of sales;
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customer renewal rates, and the pricing of those agreements that
are renewed;
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customers delaying purchasing decisions in anticipation of new
products or product enhancements by us or our competitors;
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market acceptance of our current and future products and
services;
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changes in spending on marketing services or information
technology and software by our current
and/or
prospective customers;
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budgeting cycles of our customers;
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changes in the competitive dynamics of our industry, including
consolidation among competitors or customers;
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our lengthy sales cycle;
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the addition or loss of larger customers, including through
acquisitions or consolidations;
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the amount and timing of operating expenses, particularly
marketing and sales, related to the maintenance and expansion of
our business, operations and infrastructure;
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13
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network outages or security breaches and any associated expenses;
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foreign currency exchange rate fluctuations;
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write-downs, impairment charges or incurrence of unforeseen
liabilities in connection with acquisitions;
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failure to successfully manage any acquisitions; and
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general economic and political conditions in our domestic and
international markets.
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Based upon all of the factors described above, we have a limited
ability to forecast the amount and mix of future revenue and
expenses, and as a result, our operating results may from time
to time fall below our estimates or the expectations of public
market analysts and investors.
Our quarterly
results reflect seasonality in the sale of our on-demand
software and professional services, which can make it difficult
to achieve sequential revenue growth or could result in
sequential revenue declines.
We have historically experienced seasonal variations in our
signing of new customer contracts. We sign a significantly
higher number of agreements with new customers in the fourth
quarter of each year as compared to the preceding quarters. As a
result, a significantly higher number of renewals occur in the
first quarter of each year, as the terms of most of our customer
agreements are measured in full-year increments and begin upon
our provision of log-in credentials to the customer, which
generally occurs within ten days following the end of the
quarter in which the agreement was executed. We expect this
seasonality to continue in the future, which may cause
fluctuations in certain of our operating results and financial
metrics, and thus limit our ability to predict future results.
Although these seasonal factors can be common in the marketing
sector, historical patterns should not be considered indicative
of our future sales activity or performance.
If we fail to
forecast our revenue accurately, or if we fail to match our
expenditures with corresponding revenue, our results of
operations and financial condition could be adversely
affected.
Because our recent growth has resulted in the rapid expansion of
our business, we do not have a long history upon which to base
forecasts of future operating revenue. Additionally, the lengthy
sales cycle for the evaluation and implementation of our
solutions, which typically extends for several months, may also
cause us to experience a delay between increasing operating
expenses and the generation of corresponding revenue, if any.
Accordingly, we may be unable to prepare accurate internal
financial forecasts or replace anticipated revenue that we do
not receive as a result of delays arising from these factors,
and our results of operations in future reporting periods may be
significantly below the expectations of the public market,
equity research analysts or investors, which could harm the
price of our common stock.
Because we
recognize revenue from subscriptions and support services over
the term of the relevant service period, downturns or upturns in
sales are not immediately reflected in full in our operating
results.
As a SaaS company, we recognize revenue over the term of our
contracts, which is typically 12 to 24 months. As a result,
much of the revenue we report each quarter is the recognition of
deferred revenue from contracts entered into during previous
quarters. Consequently, a shortfall in demand for our solutions
and professional services or a decline in new or renewed
contracts in any one quarter may not significantly reduce our
revenue for that quarter but could negatively affect our revenue
in future quarters. Accordingly, the effect of significant
downturns in new or renewed sales of our
14
services is not reflected in full in our results of operations
until future periods. Our revenue recognition model also makes
it difficult for us to rapidly increase our revenue through
additional sales in any period, as revenue from new customers
must be recognized over the applicable term of the contracts.
If we are
unable to attract new customers or sell additional functionality
and services to our existing customers, our revenue growth will
be adversely affected.
To increase our revenue, we must add new customers, sell
additional functionality to existing customers and encourage
existing customers to renew their subscriptions on terms
favorable to us. As the interactive marketing industry matures,
as interactive channels develop further, or as competitors
introduce lower cost
and/or
differentiated products or services that are perceived to
compete with ours, our ability to compete with respect to
pricing, technology and functionality could be impaired. In such
event, we may be unable to renew our agreements with existing
customers or attract new customers or new business from existing
customers on terms that would be favorable or comparable to
prior periods, which could have a material adverse effect on our
revenue, gross margin and other operating results.
If we fail to
adapt and respond effectively to rapidly changing technology,
evolving industry standards and changing customer needs or
requirements, our revenue performance management solutions may
become less competitive or obsolete.
Our future success will depend on our ability to adapt and
innovate our revenue performance management solutions. To
attract new customers and increase revenue from existing
customers, we will need to enhance and improve our offerings to
meet customer needs, add functionality and address technological
advancements. If we are unable to develop new solutions that
address and advance RPM principles for our customers and
prospective customers, or to enhance and improve our solutions
in a timely manner or to position and price our solutions to
meet market demand, we may not be able to achieve or maintain
adequate market acceptance of our solutions. The success of any
enhancement or new feature depends on several factors, including
timely completion, introduction and market acceptance. If we are
unable to successfully develop or acquire new features or
enhance our existing solutions to meet customer needs, our
business and operating results will be adversely affected.
Our ability to grow is also subject to the risk of future
disruptive technologies. If new technologies emerge that are
able to deliver RPM solutions at lower prices, more efficiently
or more conveniently, such technologies could adversely impact
our ability to compete.
If we fail to
enhance our brand cost-effectively, our ability to expand our
customer base will be impaired and our financial condition may
suffer.
We believe that developing and maintaining awareness of the
Eloqua brand in a cost-effective manner is critical to achieving
widespread acceptance of our existing and future solutions and
is an important element in attracting new customers.
Furthermore, we believe that the importance of brand recognition
will increase as competition in our market increases. Successful
promotion of our brand will depend largely on the effectiveness
of our marketing efforts and on our ability to provide reliable
and useful services at competitive prices. In the past, our
efforts to build our brand have involved significant expenses.
Brand promotion activities may not yield increased revenue, and
even if they do, any increased revenue may not offset the
expenses we incurred in building our brand. If we fail to
successfully promote and maintain our brand, or incur
substantial expenses in an unsuccessful attempt to promote and
maintain our brand, we may fail to attract enough new customers
or retain our existing customers to the extent necessary to
realize a sufficient return on our brand-building efforts, and
our business could suffer.
15
Our brand and
reputation are dependent on the continued participation and
level of service of our third-party service
providers.
We currently utilize a combination of internal support personnel
and third-party service providers, as described elsewhere in
this prospectus under BusinessAlliances. These
third-party service providers, which are not in our control, may
harm our reputation and damage the brand loyalty among our
customer base. In the event that we are not able to maintain our
brand reputation because of the actions of our third-party
service providers, we may face difficulty in maintaining or have
reduced demand for our products, which could negatively impact
our business, results of operations and financial condition. In
addition, if a significant number of third-party providers were
to terminate their contracts, it could materially adversely
impact our business, results of operations and financial
condition.
If we fail to
offer high quality customer support, our business and reputation
would suffer.
Once our solutions are deployed to our customers, our customers
rely on our support services to resolve any related issues.
High-quality education and customer support is important for the
successful marketing and sale of our solutions 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 additional services to
existing customers would suffer and our reputation with existing
or potential customers would be harmed. Also, certain of our
maintenance agreements contain service level agreements under
which we guarantee specified availability of the Eloqua
Platform. Failure to meet these requirements could result in
contractual penalties or the loss of the contract
and/or
customers and materially adversely impact our business, results
of operations and financial condition.
Failure to
effectively develop and expand our marketing and sales
capabilities could harm our ability to increase our customer
base and achieve broader market acceptance of our
solutions.
Our ability to increase our customer base and achieve broader
market acceptance of our solutions will depend to a significant
extent on our ability to expand our marketing and sales
operations. We plan to continue expanding our direct sales force
and engaging additional third-party channel partners, both
domestically and internationally. This expansion will require us
to invest significant financial and other resources. Our
business will be seriously harmed if our efforts do not generate
a correspondingly significant increase in revenue. We may not
achieve anticipated revenue growth from expanding our direct
sales force if we are unable to hire and develop talented direct
sales personnel, if our new direct sales personnel are unable to
achieve desired productivity levels in a reasonable period of
time or if we are unable to retain our existing direct sales
personnel. We also may not achieve anticipated revenue growth
from our third-party channel partners if we are unable to
attract and retain additional motivated third-party channel
partners, if any existing or future third-party channel partners
fail to successfully market, resell, implement or support our
solutions for their customers, or if they represent multiple
providers and devote greater resources to market, resell,
implement and support the products and services of these other
providers.
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
solutions, especially as we further expand our capabilities.
Maintaining adequate research and development resources, such as
the appropriate personnel and development technology, to meet
the demands of the market is essential. If we are unable to
develop solutions internally due to certain constraints, such as
high employee turnover, lack of management ability or a lack of
other research and development resources, we may be forced to
expand into a certain market or
16
strategy via an acquisition for which we could potentially pay
too much or unsuccessfully integrate into our operations. In
addition, our research and development organization is located
primarily in Toronto, Canada and Vienna, Virginia, and we may
have difficulty hiring suitably skilled personnel in these
regions or expanding our research and development organization
to facilities located in other geographic locations. Further,
many of our competitors expend a considerably greater amount of
funds on their respective research and development programs, and
those that do not may be acquired by larger companies that would
allocate greater resources to our competitors 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.
As a result of
our customers increased usage of our on-demand software,
we will need to continually improve our computer network and
infrastructure to avoid service interruptions or slower system
performance.
As usage of our on-demand software grows and as customers use it
for more complicated tasks, we will need to devote additional
resources to improving our computer network, our application
architecture and our infrastructure in order to maintain the
performance of our platform. Any failure or delays in our
computer systems could cause service interruptions or slower
system performance. If sustained or repeated, these performance
issues could reduce the attractiveness of the Eloqua Platform to
customers. These performance issues could result in lost
customer opportunities and lower renewal rates, any of which
could hurt our revenue growth, customer loyalty and reputation.
We may need to incur additional costs to upgrade or expand our
computer systems and architecture in order to accommodate
increased demand if our systems cannot handle current or higher
volumes of usage.
If our
solutions fail to perform properly due to defects or similar
problems, and if we fail to develop an enhancement to resolve
any defect or other software problem, we could lose customers,
become subject to product liability, performance or warranty
claims or incur significant costs, and our business may be
harmed and our results of operations and financial condition
could be materially adversely affected.
Our operations are dependent upon our ability to prevent system
interruption. The software applications underlying our platform
are inherently complex and may contain material defects or
errors, which may cause disruptions in availability or other
performance problems. The costs incurred in correcting any
material defects or errors in our software may be substantial
and could materially adversely affect our operating results. We
have from time to time found defects in our solutions and may
discover additional defects in the future. We may not be able to
detect and correct defects or errors before installing our
solutions. Consequently, we or our customers may discover
defects or errors after our solutions have been implemented. We
implement bug fixes and upgrades as part of our regularly
scheduled system maintenance. If we do not complete this
maintenance according to schedule or if customers are otherwise
dissatisfied with the frequency
and/or
duration of our maintenance services and related system outages,
customers could elect not to renew, or delay or withhold payment
to us, or cause us to issue credits, make refunds or pay
penalties.
The occurrence of any defects, errors, disruptions in service or
other performance problems with our platform, whether in
connection with the
day-to-day
operation, upgrades or otherwise, could result in:
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loss of customers;
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lost or delayed market acceptance and sales of our solutions;
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delays in payment to us by customers;
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17
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solution returns;
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injury to our reputation;
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diversion of our resources;
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legal claims, including warranty and product liability claims,
against us;
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increased service and warranty expenses or financial
concessions; and
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increased insurance costs.
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Interruptions
or delays in service from our single third-party data center
provider could impair our ability to deliver our services to our
customers, resulting in customer dissatisfaction, damage to our
reputation, loss of customers, limited growth and reduction in
revenue.
We currently serve our customers from a single third-party data
center hosting facility located in Toronto, Canada. Our
operations depend, in part, on our third-party facility
providers ability to protect this facility against damage
or interruption from natural disasters, power or
telecommunications failures, criminal acts and similar events.
In the event that our third-party facility arrangement is
terminated, or if there is a lapse of service or damage to this
facility, we could experience interruptions in our service as
well as delays and additional expenses in arranging new
facilities and services.
Any damage to, or failure of, the systems of our third-party
providers could result in interruptions to our service. Despite
precautions taken at our data center, the occurrence of a
natural disaster, an act of terrorism, vandalism or sabotage, a
decision to close the facility without adequate notice, or other
unanticipated problems at this facility could result in lengthy
interruptions in the availability of our on-demand software.
Even with current and planned disaster recovery arrangements,
our business could be harmed.
We design the system infrastructure and procure and own or lease
the computer hardware used for our services. Design and
mechanical errors, spikes in usage volume and failure to follow
system protocols and procedures could cause our systems to fail,
resulting in interruptions in our service. Any interruptions or
delays in our service, whether as a result of third-party error,
our own error, natural disasters or security breaches, whether
accidental or willful, could harm our relationships with
customers and our revenue. Also, in the event of damage or
interruption, our insurance policies may not adequately
compensate us for any losses that we may incur. These factors in
turn could further reduce our revenue, subject us to liability
and cause us to issue credits or cause customers to fail to
renew their subscriptions, any of which could materially
adversely affect our business.
If our
security measures are breached and unauthorized access is
obtained to a customers stored consumer data or any
consumer data that we may store from time to time or if data is
lost due to hardware failures or errors, our solutions may be
perceived as not being secure, customers may curtail or stop
using our solutions and we may incur significant legal liability
and financial exposure.
Our solutions involve the storage and transmission of
customers proprietary information, including certain buyer
data, and security breaches could expose us to a risk of loss or
unauthorized disclosure of this information, litigation and
possible liability, as well as damage our relationships with our
customers. If our security measures are breached as a result of
third-party action, employee error, malfeasance or otherwise, or
during transfer of data to additional data centers or at any
time, and, as a result, someone obtains unauthorized access to
our data or our customers data, our reputation could be
damaged, our business may suffer and we could incur significant
liability.
18
Techniques used to obtain unauthorized access or to sabotage
systems change frequently and generally are not recognized until
launched against a target. As a result, we may be unable to
anticipate these techniques or to implement adequate
preventative measures. If an actual or perceived security breach
occurs, the market perception of our security measures could be
harmed and we could lose sales and customers. Any significant
violations of data privacy could result in the loss of business,
litigation and regulatory investigations and penalties that
could damage our reputation and adversely impact our results of
operations and financial condition. Moreover, if a high profile
security breach occurs with respect to another SaaS provider,
our customers and potential customers may lose trust in the
security of the SaaS business model generally, which could
adversely impact our ability to retain existing customers or
attract new ones.
Additionally, third parties may attempt to fraudulently induce
employees or customers into disclosing sensitive information
such as user names, passwords or other information in order to
gain access to our data or our customers data, which could
result in significant legal and financial exposure and a loss of
confidence in the security of our service and ultimately harm
our future business prospects. A party who is able to compromise
the security of our facilities could misappropriate either our
proprietary information or the personal information of our
customers, or cause interruptions or malfunctions in our
operations. We may be required to expend significant capital and
financial resources to protect against such threats or to
alleviate problems caused by breaches in security.
Furthermore, our ability to collect and report data may be
interrupted by a number of other factors, including our
inability to access the internet, the failure of our network or
software systems or variability in user traffic on customer
websites. In addition, computer viruses may harm our systems
causing us to lose data, and the transmission of computer
viruses could expose us to litigation.
Our errors and omissions insurance may be inadequate or may not
be available in the future on acceptable terms, or at all. In
addition, our policy may not cover any claim against us for loss
of data or other indirect or consequential damages and defending
a suit, regardless of its merit, could be costly and divert
managements attention.
If we are
unable to expand and maintain our relationships with third
parties such as system integrators, marketing service providers,
marketing agencies, complementary software vendors or other
business alliance partners, our revenue or revenue growth and
our results of operations could be materially and adversely
impacted.
Many of our customers were made aware of our solutions by third
parties, including system integrators, marketing service
providers, marketing agencies and complementary software
vendors, with whom we have maintained strategic relationships.
We may not be able to develop or maintain strategic
relationships with these, or other, third parties for a number
of reasons, including their existing relationships with our
competitors or prospective competitors. If we are unsuccessful
in establishing or maintaining our strategic relationships, our
ability to compete in the marketplace or to grow our revenue
could be impaired, and our results of operations would suffer.
Additionally, if we cannot leverage our sales and services
resources through our strategic relationships with third
parties, we may need to hire and train additional qualified
sales personnel and incur additional costs associated with
providing services, which may adversely affect our operating
results. Even if we are successful in establishing and
maintaining these relationships, we cannot assure you that these
will result in increased customers or revenue.
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If we do not
or cannot maintain the compatibility of our solutions with
third-party applications that our customers use in their
businesses, demand for our solutions could
decline.
The functionality of our on-demand software depends, in part, on
our ability to integrate it with third-party applications and
data management systems that our customers use and from which
they obtain buyer data. In addition, we rely on access to
third-party application programming interfaces, or APIs, to
provide our social media channel offerings through social media
platforms. Third-party providers of marketing applications and
APIs may change the features of their applications and
platforms, restrict our access to their applications and
platforms or alter the terms governing use of their applications
and APIs and access to those applications and platforms in an
adverse manner. Such changes could functionally limit or
terminate our ability to use these third-party applications and
platforms with our on-demand software, which could negatively
impact our offerings and harm our business. Further, if we fail
to integrate our software with new third-party applications and
platforms that our customers use for marketing purposes, or to
adapt to the data transfer requirements of such third-party
applications and platforms, we may not be able to offer the
functionality that our customers need, which would negatively
impact our offerings and, as a result, harm our business.
We face
significant competition from both established and new companies
offering applications and other marketing software, as well as
internally developed software, which may have a negative effect
on our ability to add new customers, retain existing customers
and grow our business.
The services we provide are also offered by others and in the
future may be offered by an increasing number of parties. The
market for marketing automation and revenue performance
management software is evolving, highly competitive and
significantly fragmented, and we expect competition to continue
to increase in the future. With the introduction of new
technologies and the influx of new entrants to the market, we
expect competition to persist and intensify in the future, which
could harm our ability to increase sales and maintain our
prices. We face intense competition from software companies that
develop marketing technologies and from marketing services
companies that provide interactive marketing services.
Our competitors vary with each challenge that our solutions
address, but some of these providers include:
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plan and spend management software vendors, such as Oracle
Corporation and SAP AG;
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workflow, project management and brand management vendors, such
as marketing agencies who develop custom systems for their
clients;
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email marketing software vendors, including Responsys, Inc.,
ExactTarget, Inc., Constant Contact, Inc. and numerous other
email marketing companies;
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campaign management software vendors, such as Oracle
Corporation, SAS Institute Inc., Aprimo, Inc. (a division of
Teradata Corporation), and Unica Corporation (a division of
International Business Machines Corporation, or IBM); and
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lead management software vendors, such as Oracle Corporation,
Genius.com, Incorporated, Marketo, Inc., Neolane Inc., Pardot
LLC, SilverPop Systems, Inc., and smartFOCUS Group plc.
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We expect to face additional competition with the continued
development and expansion of the revenue performance management
and marketing automation software markets. We also expect
competition to increase as a result of software industry
consolidation, including through possible mergers or
partnerships of two or more of our competitors or the
acquisition of our competitors by
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larger and better-funded companies. For instance, in December
2010, Teradata completed its acquisition of Aprimo and in
October 2010, IBM completed its acquisition of Unica.
We also expect that new competitors, such as enterprise software
vendors that have traditionally focused on enterprise resource
planning or back office applications, will continue to enter the
marketing automation market with competing products, which could
have an adverse effect on our business, results of operations
and financial condition. For example, due to the growing
popularity of new development models such as SaaS, the
traditional barriers to entry to the marketing automation market
continue to decrease and we expect to face additional
competition from SaaS application vendors. In addition, sales
force automation and customer relationship management system
vendors, such as Microsoft Corporation, NetSuite Inc., Oracle
Corporation, Sage Software, Inc., salesforce.com, inc. and SAP
AG, could acquire or develop solutions that compete with our
offerings.
Our current and potential competitors may have significantly
more financial, technical, marketing and other resources than we
have, are able to devote greater resources to the development,
promotion, sale and support of their products and services, have
more extensive customer bases and broader customer relationships
than we have, and may have longer operating histories and
greater name recognition than we have. As a result, these
competitors may be better able to respond quickly to new
technologies and to undertake more extensive marketing
campaigns. In some cases, these vendors may also be able to
offer interactive marketing applications at little or no
additional cost by bundling them with their existing
applications. If we are unable to compete with such companies,
the demand for our solutions could substantially decline. To the
extent any of our competitors have existing relationships with
potential customers, those customers may be unwilling to
purchase our solutions because of those existing relationships
with that competitor.
Competition could significantly impede our ability to sell
additional solutions on terms favorable to us. Businesses may
continue to enhance their internally developed software, rather
than investing in commercial software solutions such as ours.
Our current and potential competitors may develop and market new
technologies that render our existing or future products
obsolete, unmarketable or less competitive. In addition, if
these competitors develop products with similar or superior
functionality to our solutions, we may need to decrease the
prices for our solutions in order to remain competitive. If we
are unable to maintain our current pricing due to competitive
pressures, our margins will be reduced and our operating results
will be negatively affected. We cannot assure you that we will
be able to compete successfully against current or future
competitors or that competitive pressures will not materially
adversely affect our business, results of operations and
financial condition.
Consolidation
among our competitors and our competitors strategic
partnerships may adversely affect our business.
If one or more of our competitors were to merge or partner with
another of our competitors, the change in the competitive
landscape could adversely affect our ability to compete
effectively. Our competitors may also establish or strengthen
cooperative relationships with our current or future strategic
distribution and technology partners or other parties with whom
we have relationships, thereby limiting our ability to promote
and implement our solutions. Disruptions in our business caused
by these events could reduce our revenue.
Failure or
perceived failure by us to comply with our privacy policy or
legal or regulatory requirements in one or multiple
jurisdictions could result in proceedings, actions or penalties
against us.
The effectiveness of our solutions relies on our customers
storage and use of data concerning their customers. Our
customers collection and use of data for consumer
profiling may raise privacy and
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security concerns and negatively impact the demand for our
solutions. We have implemented various features intended to
enable our customers to better comply with privacy and security
requirements, such as opt-out or opt-in messaging and checking,
the use of anonymous identifiers for sensitive data and
restricted data access, but these security measures may not be
effective against all potential privacy concerns and security
threats. If a breach of customer data security were to occur,
our solutions may be perceived as less desirable, which would
negatively affect our business and operating results.
In addition, governments in some jurisdictions have enacted or
are considering enacting consumer data privacy legislation,
including laws and regulations applying to the solicitation,
collection, processing and use of consumer data. Because many of
the features of our applications use, store and report on
personal information from our customers, any inability to
adequately address privacy concerns, even if unfounded, or
comply with applicable privacy laws, regulations and policies,
could result in liability to us, damage our reputation, inhibit
sales and harm our business. There are numerous lawsuits in
process against various technology companies that collect and
use personal information. If those lawsuits are successful, it
would increase our liability and hurt our business. Furthermore,
the costs of compliance with, and other burdens imposed by, such
laws, regulations and policies that are applicable to the
businesses of our customers may limit the use and adoption of
our on-demand software and reduce overall demand for it. Privacy
concerns, whether or not valid, may inhibit market adoption of
our on-demand software.
If our on-demand software is perceived to cause or is otherwise
unfavorably associated with invasions of privacy, whether or not
illegal, it may subject us or our customers to public criticism.
Existing and potential future privacy laws and increasing
sensitivity of consumers to unauthorized disclosures and use of
personal information may create negative public reactions
related to interactive marketing, including marketing practices
of our customers. Public concerns regarding data collection,
privacy and security may cause some of our customers
customers to be less likely to visit their websites or otherwise
interact with them. If enough consumers choose not to visit our
customers websites or otherwise interact with them, our
customers could stop using our on-demand software. This
discontinuance in use, in turn, would reduce the value of our
service and inhibit or reverse the growth of our business.
The standards
that private entities use to regulate the use of email have in
the past interfered with, and may in the future interfere with,
the effectiveness of our on-demand software and our ability to
conduct business.
Our customers rely on email to communicate with their existing
or prospective customers. Various private entities attempt to
regulate the use of email for commercial solicitation. These
entities often advocate standards of conduct or practice that
significantly exceed current legal requirements and classify
certain email solicitations that comply with current legal
requirements as spam. Some of these entities maintain
blacklists of companies and individuals, and the
websites, internet service providers and internet protocol
addresses associated with those entities or individuals that do
not adhere to those standards of conduct or practices for
commercial email solicitations that the blacklisting entity
believes are appropriate. If a companys internet protocol
addresses are listed by a blacklisting entity, emails sent from
those addresses may be blocked if they are sent to any internet
domain or internet address that subscribes to the blacklisting
entitys service or purchases its blacklist.
From time to time, some of our internet protocol addresses may
become listed with one or more blacklisting entities due to the
messaging practices of our customers. There can be no guarantee
that we will be able to successfully remove ourselves from those
lists. Blacklisting of this type could interfere with our
ability to market our on-demand software and services and
communicate with our customers and, because we fulfill email
delivery on behalf of our customers, could undermine the
effectiveness of our customers email marketing campaigns,
all of which could have a material negative impact on our
business and results of operations.
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Existing
federal, state and foreign laws regulating email and text
messaging marketing practices impose certain obligations on the
senders of commercial emails and text messages, which could
minimize the effectiveness of our on-demand software or increase
our operating expenses to the extent financial penalties are
triggered.
The Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003, or CAN-SPAM Act, establishes certain
requirements for commercial email messages and specifies
penalties for the transmission of commercial email messages that
are intended to deceive the recipient as to source or content.
The CAN-SPAM Act, among other things, obligates the sender of
commercial emails to provide recipients with the ability to opt
out of receiving future emails from the sender. In addition,
some states have passed laws regulating commercial email
practices that are significantly more punitive and difficult to
comply with than the CAN-SPAM Act, particularly Utah and
Michigan, which have enacted do-not-email registries listing
minors who do not wish to receive unsolicited commercial email
that markets certain covered content, such as adult content or
content regarding harmful products. Some portions of these state
laws may not be preempted by the CAN-SPAM Act. The ability of
our customers constituents to opt out of receiving
commercial emails may minimize the effectiveness of our email
marketing solution. Moreover, noncompliance with the CAN-SPAM
Act carries significant financial penalties. We also may be
required to change one or more aspects of the way we operate our
email marketing software solution business.
In addition, certain foreign jurisdictions, such as Australia,
Canada and the European Union, have enacted laws that regulate
sending email, and some of these laws are more restrictive than
U.S. laws. For example, some foreign laws prohibit sending
unsolicited email unless the recipient has provided the sender
advance consent to receipt of such email, or in other words has
opted-in to receiving it. A requirement that
recipients opt into, or the ability of recipients to opt out of,
receiving commercial emails may minimize the effectiveness of
our on-demand software.
In addition, the CAN-SPAM Act and regulations implemented by the
Federal Communications Commission pursuant to the CAN-SPAM Act,
and the Telephone Consumer Protection Act, also known as the
Federal Do-Not-Call law, among other requirements, prohibit
companies from sending specified types of commercial text
messages unless the recipient has given his or her prior express
consent. Non-compliance with these laws and regulations carries
significant financial penalties. If we were found to be in
violation of the CAN-SPAM Act, other federal laws, applicable
state laws not preempted by the CAN-SPAM Act, or foreign laws
regulating the distribution of commercial email or text
messages, whether as a result of violations by our customers or
any determination that we are directly subject to and in
violation of these requirements, we could be required to pay
penalties, which would adversely affect our financial
performance and significantly harm our reputation and our
business.
In addition, U.S., state or foreign jurisdictions may in the
future enact legislation or laws restricting the ability to
conduct interactive marketing activities in mobile, social and
web channels. Any such restrictions could require us to change
one or more aspects of the way we operate our business, which
could impair our ability to attract and retain customers or
increase our operating costs or otherwise harm our business.
Changes in
laws, regulations or governmental policy applicable to our
customers or potential customers may decrease the demand for our
solutions.
The level of our customers and potential customers
activity in the business processes our solutions are used to
support is sensitive to many factors beyond our control,
including governmental regulation and regulatory policies. Many
of our customers and potential customers in the healthcare,
financial and other industries are subject to substantial
regulation and may be the subject of further regulation in the
future. Accordingly, significant new laws or regulations or
changes in, or repeals of,
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existing laws, regulations or governmental policy may change the
way these customers do business and could cause the demand for
and sales of our solutions to decrease. Any change in the scope
of applicable regulations that negatively impacts our
customers use of our solutions would have a material
adverse impact on our business, results of operations and
financial condition. Moreover, we may have to reconfigure our
existing services or develop new services to adapt to new
regulatory rules and policies which will require additional
expense and time. Such changes could adversely affect our
business, results of operations and financial condition.
As internet
commerce develops, federal, state and foreign governments may
propose and implement new taxes and new laws to regulate
internet commerce, which may negatively affect our
business.
As internet commerce continues to evolve, increasing regulation
by federal, state or foreign governments becomes more likely.
Our business could be negatively impacted by the application of
existing laws and regulations or the enactment of new laws
applicable to interactive marketing. The cost to comply with
such laws or regulations could be significant and would increase
our operating expenses, and we may be unable to pass along those
costs to our customers in the form of increased subscription
fees. In addition, federal, state and foreign governmental or
regulatory agencies may decide to impose taxes on services
provided over the internet or via email. Such taxes could
discourage the use of the internet and email as a means of
commercial marketing, which would adversely affect the viability
of our on-demand software.
Evolving
regulations and standards concerning data privacy may restrict
our customers ability to solicit, collect, process,
disclose and use data necessary to conduct effective marketing
campaigns and analyze the results or may increase their costs,
which could harm our business.
Federal, state and foreign governments have enacted, and may in
the future enact, laws and regulations concerning the
solicitation, collection, processing, disclosure or use of
personal information. Such laws and regulations may require
companies to implement privacy and security policies, permit
users to access, correct and delete personal information stored
or maintained by such companies, inform individuals of security
breaches that affect their personal information, and, in some
cases, obtain individuals consent to use personal
information for certain purposes. Other proposed legislation
could, if enacted, impose additional requirements and prohibit
the use of certain technologies that track individuals
activities on web pages or that record when individuals click
through to an internet address contained in an email message.
Such laws and regulations could restrict our customers
ability to collect and use email addresses, page viewing data,
and personal information, which may reduce demand for our
solutions.
If we fail to
adequately protect our proprietary rights, our competitive
position could be impaired and we may lose valuable assets,
generate reduced revenue and incur costly litigation to protect
our rights.
Our success is dependent, in part, upon protecting our
proprietary technology. We rely on a combination of patents,
copyrights, trademarks, service marks, trade secret laws and
contractual restrictions to establish and protect our
proprietary rights in our products and services. However, the
steps we take to protect our intellectual property may be
inadequate. We will not be able to protect our intellectual
property if we are unable to enforce our rights or if we do not
detect unauthorized use of our intellectual property. Despite
our precautions, it may be possible for unauthorized third
parties to copy our products and use information that we regard
as proprietary to create products and services that compete with
ours. Some license provisions protecting against unauthorized
use, copying, transfer and disclosure of our products may be
unenforceable under the laws of certain jurisdictions and
foreign
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countries. Further, the laws of some countries do not protect
proprietary rights to the same extent as the laws of the United
States. To the extent we expand our international activities,
our exposure to unauthorized copying and use of our products and
proprietary information may increase.
We enter into confidentiality and invention assignment
agreements with our employees and consultants and enter into
confidentiality agreements with the parties with whom we have
strategic relationships and business alliances. No assurance can
be given that these agreements will be effective in controlling
access to and distribution of our products and proprietary
information. Further, these agreements do not prevent our
competitors from independently developing technologies that are
substantially equivalent or superior to our solutions.
To date, we have two U.S. patent applications and one
international patent application pending. The process of seeking
patent protection can be lengthy and expensive. Any of our
pending or future patent applications, whether or not
challenged, may not be issued with the scope of the claims we
seek, if at all. We are unable to guarantee that additional
patents will issue from pending or future applications or that,
if patents issue, they will not be challenged, invalidated or
circumvented, or that the rights granted under the patents will
provide us with meaningful protection or any commercial
advantage. Some of our technologies are not covered by any
patent or patent application. The confidentiality agreements on
which we rely to protect certain technologies may be breached
and may not be adequate to protect our proprietary technologies.
In order to protect our intellectual property rights, we may be
required to spend significant resources to monitor and protect
these rights. Litigation may be necessary in the future to
enforce our intellectual property rights and to protect our
trade secrets. Litigation brought to protect and enforce our
intellectual property rights could be costly, time consuming and
distracting to management and could result in the impairment or
loss of portions of our intellectual property. Furthermore, our
efforts to enforce our intellectual property rights may be met
with defenses, counterclaims and countersuits attacking the
validity and enforceability of our intellectual property rights.
Our inability to protect our proprietary technology against
unauthorized copying or use, as well as any costly litigation or
diversion of our managements attention and resources,
could delay further sales or the implementation of our
solutions, impair the functionality of our solutions, delay
introductions of new solutions, result in our substituting
inferior or more costly technologies into our solutions, or
injure our reputation. In addition, we may be required to
license additional technology from third parties to develop and
market new solutions, and we cannot assure you that we could
license that technology on commercially reasonable terms or at
all. Although we do not expect that our inability to license
this technology in the future would have a material adverse
affect on our business or operating results, our inability to
license this technology could adversely affect our ability to
compete.
Our results of
operations may be adversely affected if we are subject to a
protracted infringement claim or a claim that results in a
significant damage award.
We expect that software product developers will increasingly be
subject to infringement claims as the number of products and
competitors grows and the functionality of products in different
industry segments overlaps. Our competitors or other third
parties may challenge the validity or scope of our intellectual
property rights. For instance, we are currently defending
against a patent infringement claim by iHance, Inc., which we
have been defending since May 9, 2011. This litigation has
caused us to expend significant resources to defend against
iHances claims, and is discussed in further detail
elsewhere in this prospectus under BusinessLegal
Proceedings. A claim may also be made relating to
technology that we acquire or license from third parties. If we
were subject to a claim of infringement, regardless of the merit
of the claim or our defenses, the claim could:
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require costly litigation to resolve and the payment of
substantial damages;
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require significant management time;
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cause us to enter into unfavorable royalty or license agreements;
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require us to discontinue the sale of our products;
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require us to indemnify our customers or third-party service
providers; or
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require us to expend additional development resources to
redesign our products.
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We depend, in part, on technology of third parties licensed to
us for our solutions, and the loss or inability to maintain
these licenses or errors in the software we license could result
in increased costs, reduced service levels or delayed sales of
our solutions.
We use open
source software in our products, which could subject us to
litigation or other actions.
We use open source software in our products and may use more
open source software in the future. From time to time, there
have been claims challenging the ownership of open source
software against companies that incorporate open source software
into their products. As a result, we could be subject to
lawsuits by parties claiming ownership of what we believe to be
open source software. Litigation could be costly for us to
defend, have a negative effect on our operating results and
financial condition or require us to devote additional research
and development resources to change our products. In addition,
if we were to combine our proprietary software products with
open source software in a certain manner, we could, under
certain of the open source licenses, be required to release the
source code of our proprietary software products. If we
inappropriately use open source software, we may be required to
re-engineer our products, discontinue the sale of our products
or take other remedial actions.
Future acquisitions, strategic investments, partnerships
or alliances could be difficult to identify and integrate,
divert the attention of key management personnel, disrupt our
business, dilute stockholder value and adversely affect our
results of operations and financial condition.
We may in the future seek to acquire or invest in businesses,
products or technologies that we believe could complement or
expand our application suite, enhance our technical capabilities
or otherwise offer growth opportunities. The pursuit of
potential acquisitions may divert the attention of management
and cause us to incur various expenses in identifying,
investigating and pursuing suitable acquisitions, whether or not
they are consummated. In addition, we do not have any experience
in acquiring other businesses. If we acquire additional
businesses, we may not be able to integrate successfully the
acquired personnel, operations and technologies, or effectively
manage the combined business following the acquisition.
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 an agreement with any one target.
Acquisitions could also result in dilutive issuances of equity
securities or the incurrence of debt, which could adversely
affect our operating results. In addition, if an acquired
business fails to meet our expectations, our operating results,
business and financial condition may suffer.
Changes in tax
laws or regulations that are applied adversely to us or our
customers could increase the costs of our on-demand software and
professional services and adversely impact our
business.
New income, sales, use or other tax laws, statutes, rules,
regulations or ordinances could be enacted at any time. Those
enactments could adversely affect our domestic and international
business operations, and our business and financial performance.
Further, existing tax laws, statutes,
26
rules, regulations or ordinances could be interpreted, changed,
modified or applied adversely to us. These events could require
us or our customers to pay additional tax amounts on a
prospective or retroactive basis, as well as require us or our
customers to pay fines
and/or
penalties and interest for past amounts deemed to be due. If we
raise our prices to offset the costs of these changes, existing
and potential future customers may elect not to continue or
purchase our on-demand software and professional services in the
future. Additionally, new, changed, modified or newly
interpreted or applied tax laws could increase our
customers and our compliance, operating and other costs,
as well as the costs of our on-demand software and professional
services. Further, these events could decrease the capital we
have available to operate our business. Any or all of these
events could adversely impact our business and financial
performance.
We are a
multinational organization faced with increasingly complex tax
issues in many jurisdictions, and we could be obligated to pay
additional taxes in various jurisdictions.
As a multinational organization, we may be subject to taxation
in several jurisdictions around the world with increasingly
complex tax laws, the application of which can be uncertain. The
amount of taxes we pay in these jurisdictions could increase
substantially as a result of changes in the applicable tax
principles, including increased tax rates, new tax laws or
revised interpretations of existing tax laws and precedents,
which could have a material adverse effect on our liquidity and
results of operations. In addition, the authorities in these
jurisdictions could review our tax returns and impose additional
tax, interest and penalties, and the authorities could claim
that various withholding requirements apply to us or our
subsidiaries or assert that benefits of tax treaties are not
available to us or our subsidiaries, any of which could have a
material impact on us and the results of our operations.
Our business
may be subject to additional obligations to collect and remit
sales tax and other taxes, and we may be subject to tax
liability for past sales. Any successful action by state,
foreign or other authorities to collect additional or past sales
tax could adversely harm our business.
States and some local taxing jurisdictions have differing rules
and regulations governing sales and use taxes, and these rules
and regulations are subject to varying interpretations that may
change over time. In particular, the applicability of sales
taxes to our subscription services in various jurisdictions is
unclear. We have recorded sales tax liabilities of
$0.1 million as of March 31, 2012 with respect to
sales and use tax liabilities in various states and local
jurisdictions. It is possible that we could face sales tax
audits and that our liability for these taxes could exceed our
estimates as state tax authorities could still assert that we
are obligated to collect additional amounts as taxes from our
customers and remit those taxes to those authorities. We could
also be subject to audits with respect to states and
international jurisdictions for which we have not accrued tax
liabilities. A successful assertion that we should be collecting
additional sales or other taxes on our services in jurisdictions
where we have not historically done so and do not accrue for
sales taxes could result in substantial tax liabilities for past
sales, discourage customers from purchasing our application or
otherwise harm our business and operating results.
We file sales tax returns in certain states within the United
States as required by law and certain customer contracts
for a portion of the solutions that we provide. We do not
collect sales or other similar taxes in other states and many of
the states do not apply sales or similar taxes to the vast
majority of the solutions that we provide. However, one or more
states or foreign authorities could seek to impose additional
sales, use or other tax collection and record-keeping
obligations on us or may determine that such taxes should have,
but have not been, paid by us. Liability for past taxes may also
include substantial interest and penalty charges. Any successful
action by state, foreign or
27
other authorities to compel us to collect and remit sales tax,
use tax or other taxes, either retroactively, prospectively or
both, could adversely affect our results of operations and
business.
The loss of
key members of our senior management team or software
development personnel could prevent us from executing our
business strategy.
Our success depends largely upon the continued services of our
executive officers and other key personnel. We are also
substantially dependent on the continued service of our existing
development personnel because of the complexity of our services
and technologies. We do not have long-term employment agreements
with any of our key personnel. The loss of one or more of our
key employees, including our engineering and technical staff,
could seriously harm our business.
Competition for qualified personnel is intense and we may not be
successful in attracting and retaining the key personnel that we
need to compete effectively. The value of our common stock may
adversely affect our efforts to motivate the performance of our
key personnel. It may be difficult to retain those employees who
have substantial
in-the-money,
vested options or other equity awards. Conversely, if options
granted to our employees have exercise prices that are
substantially above our then-current share price, it may be
difficult to motivate and retain those employees. Additionally,
if the market price of our common stock does not increase or
declines, it may limit our ability to attract new employees with
equity incentives.
The failure to
attract and retain additional qualified personnel could prevent
us from executing our business strategy.
To execute our business strategy, we must attract and retain
highly qualified personnel. We may not be successful in
attracting and retaining qualified personnel. We have from time
to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and difficulty in
retaining highly skilled employees with appropriate
qualifications.
Many of the companies with which we compete for experienced
personnel have greater resources than we do. In addition, in
making employment decisions, particularly in the software
industry, job candidates often consider the value of the stock
options or other equity incentives they are to receive in
connection with their employment. Significant volatility in the
price of our stock may, therefore, adversely affect our ability
to attract or retain key employees. Furthermore, changes to
generally accepted accounting principles in the United States
relating to the treatment of stock options as a company expense
may discourage us from granting the size or type of stock-based
compensation that job candidates require to join our company,
and may result in our paying additional cash compensation or
other stock-based compensation to job candidates to offset
reduced stock option grants. If we fail to attract new personnel
or fail to retain and motivate our current personnel, our growth
prospects could be severely harmed.
Our
international operations expose us to several risks, such as
significant currency fluctuations and unexpected changes in the
regulatory requirements of multiple jurisdictions.
During 2010 and 2011, revenue generated outside of the
United States and Canada was 11% and 10% of total revenue,
respectively, based on the location of the legal entity of the
customer with which we contracted. Our results of operations and
cash flows are subject to fluctuations in foreign currency
exchange rates, particularly changes in the Canadian dollar, due
to our compensation expenses payable in local currencies.
Although a majority of our revenue and operating expenses is
denominated in U.S. dollars and we prepare our financial
statements in U.S. dollars, a portion of our expenses is
paid in foreign currencies.
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Our primary research and development operations are located in
Toronto, Canada and Vienna, Virginia, but we conduct research
and development in other international locations as well. We
currently have international offices outside of North America in
Singapore, the United Kingdom, Germany and Belgium, which focus
primarily on selling and implementing our solutions in those
regions. In the future, we may expand to other international
locations. Our current international operations and future
initiatives will involve a variety of risks, including:
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localization of our services, including translation into foreign
languages and adaptation for local practices;
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unexpected changes in regulatory requirements, taxes, trade
laws, tariffs, export quotas, custom duties or other trade
restrictions;
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differing labor regulations, especially in the European Union
and Canada, where labor laws are generally more advantageous to
employees as compared to the United States, including deemed
hourly wage and overtime regulations in these locations;
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more stringent regulations relating to data security and the
unauthorized use of, or access to, commercial and personal
information, particularly in the European Union and Canada;
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reluctance to allow personally identifiable data related to
non-U.S. citizens
to be stored in databases within the United States, due to
concerns over the U.S. governments right to access
information in these databases or other concerns;
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changes in a specific countrys or regions political
or economic conditions;
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challenges inherent in efficiently managing an increased number
of employees over large geographic distances, including the need
to implement appropriate systems, policies, benefits and
compliance programs;
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risks resulting from changes in currency exchange rates and the
implementation of exchange controls, including restrictions
promulgated by the Office of Foreign Assets Control of the
U.S. Department of the Treasury, and other trade protection
regulations and measures;
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limitations on our ability to reinvest earnings from operations
in one country to fund the capital needs of our operations in
other countries;
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limited or unfavorable intellectual property protection;
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exposure to liabilities under anti-corruption and anti-money
laundering laws, including the U.S. Foreign Corrupt
Practices Act and similar laws and regulations in other
jurisdictions; and
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restrictions on repatriation of earnings.
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We have limited experience in marketing, selling and supporting
our products and services abroad. Our limited experience in
operating our business internationally increases the risk that
any potential future expansion efforts that we may undertake
will not be successful. If we invest substantial time and
resources to expand our international operations and are unable
to do so successfully and in a timely manner, our business and
operating results will suffer.
Additionally, operating in international markets also requires
significant management attention and financial resources. We
cannot be certain that the investment and additional resources
required in establishing operations in other countries will
produce desired levels of revenue or profitability.
We have not engaged in currency hedging activities to limit risk
of exchange rate fluctuations. Changes in exchange rates affect
our costs and earnings, and may also affect the book value of
our assets located outside the United States and the amount of
our stockholders equity.
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Changes in
financial accounting standards or practices may cause adverse,
unexpected financial reporting fluctuations and affect our
reported results of operations.
Generally accepted accounting principles in the United States
are subject to interpretation by the Financial Accounting
Standards Board, or FASB, the American Institute of Certified
Public Accountants, the SEC and various bodies formed to
promulgate and interpret appropriate accounting principles. A
change in accounting standards or practices can have a
significant effect on our reported results and may even affect
our reporting of transactions completed before the change is
effective. New accounting pronouncements and varying
interpretations of accounting pronouncements have occurred and
may occur in the future. Changes to existing rules or the
questioning of current practices may adversely affect our
reported financial results or the way we conduct our business.
For example, we have recently adopted and applied a new revenue
recognition standard, which may in the future be subject to
varying interpretations that could materially impact how we
recognize revenue. Accounting for revenue from sales of
subscriptions to software is particularly complex, is often the
subject of intense scrutiny by the SEC, and will evolve as FASB
continues to consider applicable accounting standards in this
area.
For example, we recognize subscription revenue in accordance
with Accounting Standards Update
2009-13,
Revenue Recognition (Topic 605)Multiple-Deliverable
Revenue Arrangementsa Consensus of the Emerging Issues
Task Force, or ASU
2009-13
(formerly known as
EITF 08-01).
The American Institute of Certified Public Accountants and the
SEC continue to issue interpretations and guidance for applying
the relevant accounting standards to a wide range of sales
contract terms and business arrangements that are prevalent in
software licensing arrangements. As a result of future
interpretations or applications of existing accounting
standards, including ASU
2009-13, by
regulators or our internal or independent accountants, we could
be required to delay revenue recognition into future periods,
which would adversely affect our operating results.
Certain factors have in the past and may in the future cause us
to defer recognition for license fees beyond delivery. For
example, the inclusion in our software arrangements of customer
acceptance testing, specified upgrades or other material
non-standard terms could require the deferral of license revenue
beyond delivery.
Because of these factors and other specific requirements under
accounting principles generally accepted in the United States
for software revenue recognition, we must have very precise
terms in our software arrangements in order to recognize revenue
when we initially deliver software or perform services.
Negotiation of mutually acceptable terms and conditions can
extend our sales cycle, and we may accept terms and conditions
that do not permit revenue recognition at the time of delivery.
The Investment
Canada Act or the Competition Act (Canada) may apply to prevent
or delay a change of control of our company.
Under the Investment Canada Act, any investment by a
non-Canadian (which includes any entity which is not
controlled or beneficially owned by Canadians) involving the
direct acquisition of control of a Canadian Business
is subject to review by the Investment Review Division of
Industry Canada if, in the case of an investment by or from an
investor from a state that is a member of the World Trade
Organization, the asset value of the entity or entities being
acquired is equal to or exceeds CDN$330 million (indexed
annually to account for inflation). A Canadian
Business is defined to comprise any business carried on in
Canada that has:
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a place of business in Canada;
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one or more employees or self-employed individuals working in
connection with the business; and
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assets in Canada used in carrying out the business.
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Based on this definition, we currently have a Canadian Business
which is operated through our consolidated Canadian subsidiary,
Eloqua Corporation. A reviewable acquisition may not proceed
unless the relevant Minister is satisfied that the investment is
likely to be a net benefit to Canada. An investment by a
non-Canadian involving the acquisition of control of a Canadian
Business that does not meet the CDN$330 million threshold
still requires the acquirer to make a formal notification under
the Investment Canada Act within 30 days after closing.
The sale of our company may also be subject to formal
pre-notification obligations under Canadas Competition Act
if certain thresholds are met. For acquisitions of more than 20%
of the issued and outstanding shares of a public company, the
thresholds are CDN$400 million for the combined size of the
parties to the transaction and their affiliates, and
CDN$77 million for the size of the target company.
Independent of pre-notification obligations, the sale of our
company may also raise competition law issues under the merger
provisions of the Competition Act that could be scrutinized by
the Canadian Commissioner of Competition.
The application of the Investment Canada Act or the Competition
Act (Canada) could prevent or delay an acquisition of control of
our company and may limit strategic opportunities for our
stockholders to sell their common stock.
Risks Related to
this Offering and Ownership of Our Common Stock
There has been
no prior market for our common stock, our stock price may be
volatile or may decline regardless of our operating performance,
and you may not be able to resell your shares at or above the
initial public offering price.
There has been no public market for our common stock prior to
this offering. The initial public offering price for our common
stock will be determined through negotiations between the
underwriters and us and may vary from the market price of our
common stock following this offering. If you purchase shares of
our common stock in this offering, you may not be able to resell
those shares at or above the initial public offering price. An
active or liquid market in our common stock may not develop upon
closing of this offering or, if it does develop, it may not be
sustainable. The trading prices of the securities of technology
companies have been highly volatile. The market price of our
common stock may fluctuate significantly in response to numerous
factors, many of which are beyond our control, including:
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actual or anticipated fluctuations in our revenue and other
operating results;
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the financial projections we may provide to the public, any
changes in these projections or our failure to meet these
projections;
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failure of securities analysts to initiate or maintain coverage
of us, changes in financial estimates by any securities analysts
who follow our company, or our failure to meet these estimates
or the expectations of investors;
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announcements by us or our competitors of significant technical
innovations, acquisitions, strategic partnerships, joint
ventures or capital commitments;
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announcements by us of negative conclusions about our internal
controls and our ability to accurately report our financial
results;
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changes in operating performance and stock market valuations of
software or other technology companies, or those in our industry
in particular;
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price and volume fluctuations in the trading of our common stock
and in the overall stock market, including as a result of trends
in the economy as a whole;
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lawsuits threatened or filed against us;
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new laws or regulations or new interpretations of existing laws
or regulations applicable to our business our industry;
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changes in key personnel;
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sales of common stock by us, members of our management team or
our stockholders;
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the granting or exercise of employee stock options or other
equity awards;
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other events or factors, including those resulting from war,
incidents of terrorism or responses to these events; and
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the realization of any risks described under Risk
Factors.
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In addition, the stock markets have experienced extreme price
and volume fluctuations that have affected and continue to
affect the market prices of equity securities of many technology
companies. Stock prices of many technology companies have
fluctuated in a manner unrelated or disproportionate to the
operating performance of those companies. In the past,
stockholders have instituted securities class action litigation
following periods of market volatility. If we were to become
involved in securities litigation, it could subject us to
substantial costs, divert resources and the attention of
management from our business and adversely affect our business.
We do not
currently intend to pay dividends on our common stock and,
consequently, your ability to achieve a return on your
investment will depend on appreciation in the price of our
common stock.
We have never declared or paid any cash dividends on our common
stock and do not currently intend to do so for the foreseeable
future. In addition, our existing credit facilities prohibit us
from paying cash dividends, and any future financing agreements
may prohibit us from paying any type of dividends. We currently
intend to invest our future earnings, if any, to fund our
growth. Therefore, you are not likely to receive any dividends
on your common stock for the foreseeable future and the success
of an investment in shares of our common stock will depend upon
any future appreciation in its value. Consequently, investors
may need to sell all or part of their holdings of our common
stock after price appreciation, which may never occur, as the
only way to realize any future gains on their investment. There
is no guarantee that shares of our common stock will appreciate
in value or even maintain the price at which our stockholders
have purchased their shares. Investors seeking cash dividends
should not purchase our common stock.
Anti-takeover
provisions in our charter documents and Delaware law may delay
or prevent an acquisition of our company.
Our amended and restated certificate of incorporation, amended
and restated bylaws and Delaware law contain provisions that may
have the effect of delaying or preventing a change in control of
us or changes in our management. Our amended and restated
certificate of incorporation and bylaws, which will become
effective upon the closing of this offering, include provisions
that:
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authorize blank check preferred stock, which could
be issued by the board without stockholder approval and may
contain voting, liquidation, dividend and other rights superior
to our common stock;
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create a classified board of directors whose members serve
staggered three-year terms;
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specify that special meetings of our stockholders can be called
only by our board of directors, the chairperson of the board,
the chief executive officer or the president;
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stockholder action by written consent will be prohibited;
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establish an advance notice procedure for stockholder approvals
to be brought before an annual meeting of our stockholders,
including proposed nominations of persons for election to our
board of directors;
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provide that our directors may be removed only for cause;
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provide that vacancies on our board of directors may be filled
only by a majority of directors then in office, even though less
than a quorum;
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specify that no stockholder is permitted to cumulate votes at
any election of directors;
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our board of directors will be expressly authorized to modify,
alter or repeal our amended and restated bylaws; and
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require supermajority votes of the holders of our common stock
to amend specified provisions of our charter documents.
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These provisions, alone or together, could delay or prevent
hostile takeovers and changes in control or changes in our
management.
In addition, because we are incorporated in Delaware, we are
governed by the provisions of Section 203 of the Delaware
General Corporation Law, which limits the ability of
stockholders owning in excess of 15% of our outstanding voting
stock to merge or combine with us.
Any provision of our amended and restated certificate of
incorporation or amended and restated bylaws or Delaware law
that has the effect of delaying or deterring a change in control
could limit the opportunity for our stockholders to receive a
premium for their shares of our common stock, and could also
affect the price that some investors are willing to pay for our
common stock.
Our ability to
raise capital in the future may be limited, and our failure to
raise capital when needed could prevent us from
growing.
Our business and operations may consume resources faster than we
anticipate. In the future, we may need to raise additional funds
to expand our marketing and sales and product development
efforts or to make acquisitions. Additional financing may not be
available on favorable terms, if at all. If adequate funds are
not available on acceptable terms, we may be unable to fund the
expansion of our marketing and sales and research and
development efforts or take advantage of acquisition or other
opportunities, which could seriously harm our business and
results of operations. If we incur debt, the debt holders would
have rights senior to common stockholders to make claims on our
assets, and the terms of any debt could restrict our operations,
including our ability to pay dividends on our common stock.
Furthermore, if we issue additional equity securities,
stockholders will experience dilution, and the new equity
securities could have rights senior to those of our common
stock. Because our decision to issue securities in any future
offering will depend on market conditions and other factors
beyond our control, we cannot predict or estimate the amount,
timing or nature of our future offerings. As a result, our
stockholders bear the risk of our future securities offerings
reducing the market price of our common stock and diluting their
interest.
Our business
is subject to changing regulations regarding corporate
governance, disclosure controls, internal control over financial
reporting and other compliance areas that will increase both our
costs and the risk of noncompliance.
As a public company, we will be subject to the reporting
requirements of the Securities Exchange Act of 1934, or the
Exchange Act, the Sarbanes-Oxley Act of 2002, or the
Sarbanes-Oxley Act, the
33
recently enacted Dodd-Frank Wall Street Reform and Consumer
Protection Act, or the Dodd-Frank Act, and the rules and
regulations of the NASDAQ Stock Market. The requirements of
these rules and regulations will increase our legal, accounting
and financial compliance costs, will make some activities more
difficult, time-consuming and costly and may also place undue
strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we
maintain effective disclosure controls and procedures and
internal control over financial reporting. Commencing with our
fiscal year ending December 31, 2013, we must 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 compliance with Section 404 of the Sarbanes-Oxley
Act will require that we incur substantial accounting expense
and expend significant management efforts. Prior to this
offering, we have never been required to test our internal
controls within a specified period, and, as a result, we may
experience difficulty in meeting these reporting requirements in
a timely manner, particularly if material weaknesses or
significant deficiencies persist.
We will be required to disclose changes made in our internal
control and procedures on a quarterly basis. However, our
independent registered public accounting firm will not be
required to formally attest to the effectiveness of our internal
control over financial reporting pursuant to Section 404
until the later of the year following our first annual report
required to be filed with the SEC, or the date we are no longer
an emerging growth company as defined in the
recently enacted Jumpstart Our Business Startups Act of 2012, or
the JOBS Act, if we take advantage of the exemption to auditor
attestation required by Section 404(b) of the
Sarbanes-Oxley Act available under the JOBS Act.
If we are not able to comply with the requirements of
Section 404 of the Sarbanes-Oxley Act in a timely manner,
the market price of our stock could decline and we could be
subject to sanctions or investigations by the stock exchange on
which our common stock is listed, the SEC or other regulatory
authorities, which would require additional financial and
management resources.
Any failure to develop or maintain effective controls, or any
difficulties encountered in their implementation or improvement,
could harm our operating results or cause us to fail to meet our
reporting obligations. Any failure to implement and maintain
effective internal controls also could adversely affect the
results of periodic management evaluations regarding the
effectiveness of our internal control over financial reporting
that we will be required to include in our periodic reports
filed with the SEC, beginning for our fiscal year ending
December 31, 2013 under Section 404 of the
Sarbanes-Oxley Act. Ineffective disclosure controls and
procedures or internal control over financial reporting could
also cause investors to lose confidence in our reported
financial and other information, which would likely have a
negative effect on the trading price of our common stock.
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Implementing any appropriate changes to our internal controls
may require specific compliance training of our directors,
officers and employees, entail substantial costs in order to
modify our existing accounting systems, and take a significant
period of time to complete. Such changes may not, however, be
effective in maintaining the adequacy of our internal controls,
and any failure to maintain that adequacy, or consequent
inability to produce accurate financial statements on a timely
basis, could increase our operating costs and could materially
impair our ability to operate our business. In the event that we
are not able to demonstrate compliance with Section 404 of
the Sarbanes-Oxley Act in a timely manner, that our internal
controls are perceived as inadequate or that we are unable to
produce timely or accurate financial statements, investors may
lose confidence in our operating results and our stock price
could decline.
In addition, we expect these rules and regulations to make it
more difficult and more expensive for us to obtain director and
officer liability insurance, and we may be required to incur
substantial costs to maintain appropriate levels of coverage.
These factors could also make it more difficult for us to
attract and retain qualified members of our board of directors,
particularly to serve on our audit committee, and qualified
executive officers.
If we fail to
maintain proper and effective internal controls, our business
and results of operations could be impaired.
Ensuring that we have adequate internal financial and accounting
controls and procedures in place to produce accurate financial
statements on a timely basis is a costly and time-consuming
effort that needs to be re-evaluated frequently. We are in the
process of documenting, reviewing and, if appropriate, improving
our internal controls and procedures in connection with
Section 404 of the Sarbanes-Oxley Act. Although we did not
conduct a formal internal control audit, during the course of
the audit of our financial statements for the year ended
December 31, 2011, three deficiencies in internal control
that were considered to be significant deficiencies were
identified to our audit committee: (i) a lack of process
and controls in place over the review of certain account
reconciliations; (ii) a lack of a formal, documented review
process over entries recorded into the accounting system; and
(iii) inadequate procedures and controls over the timely
processing of accounts payable and the related classification of
expenses.
A significant deficiency is a deficiency, or a combination of
deficiencies, in internal control that is less severe than a
material weakness, yet important enough to merit the attention
by those charged with an entitys governance. Absent
remediation, a significant deficiency adversely affects an
entitys ability to initiate, authorize, record, process or
report financial data reliably in accordance with generally
accepted accounting principles such that there is more than a
remote likelihood that a misstatement of the entitys
financial statements that is more than inconsequential will not
be prevented or detected by the entitys internal control.
We are in the process of addressing each of the deficiencies
identified to our audit committee. Our remediation to date has
included the expansion and enhancement of our accounting
resources and the addition of an internal audit resource. We are
in the process of formalizing the monthly closing and reporting
process and developing formal procedures for the review of the
monthly reconciliations and journal entries. We cannot currently
provide assurances about when the remediation efforts will be
completed or that the steps taken will fully remediate the
deficiencies identified above.
Further, the process of designing and implementing effective
internal controls and procedures is a continuous effort that
requires us to anticipate and react to changes in our business
and economic and regulatory environments. Our testing, or the
subsequent testing by our independent auditors, may reveal
additional deficiencies in our internal controls over financial
reporting, including those deemed to be significant deficiencies
or material weaknesses. If we fail to maintain proper and
effective internal controls, our ability to produce accurate
financial statements could be impaired, which could
35
adversely affect our results of operations, our ability to
operate our business, our stock price and investors views
of us.
We are an
emerging growth company and we cannot be certain if
the reduced disclosure requirements applicable to emerging
growth companies will make our common stock less attractive to
investors.
We are an emerging growth company, as defined in the
JOBS Act, and we may take advantage of certain exemptions from
various reporting requirements that are applicable to other
public companies that are not emerging growth
companies including, but not limited to, not being
required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act, only two years of
audited financial statements in addition to any required interim
financial statements and correspondingly reduced disclosure in
managements discussion and analysis of financial condition
and results of operations, reduced disclosure obligations
regarding executive compensation in our periodic reports and
proxy statements, and exemptions from the requirements of
holding a nonbinding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not
previously approved. We may take advantage of these provisions
for up to five years or such earlier time that we are no longer
an emerging growth company. We would cease to be an
emerging growth company upon the earliest to occur
of: (i) the last day of the fiscal year in which we have
more than $1.0 billion in annual revenues; (ii) the
date we qualify as a large accelerated filer, with
at least $700 million of equity securities; (iii) the
issuance, in any three-year period, by our company of more than
$1.0 billion in non-convertible debt securities held by
non-affiliates; and (iv) the last day of the fiscal year
ending after the fifth anniversary of our initial public
offering. We may choose to take advantage of some but not all of
these reduced reporting burdens. We have not taken advantage of
any of these reduced reporting burdens in this prospectus,
although we may choose to do so in future filings and if we do,
the information that we provide our security holders may be
different than you might get from other public companies in
which you hold equity interests. We cannot predict if investors
will find our common stock less attractive because we may rely
on these exemptions. If some investors find our common stock
less attractive as a result, there may be a less active trading
market for our common stock and our stock price may be more
volatile.
In addition, Section 107 of the JOBS Act provides that an
emerging growth company can take advantage of the
extended transition period provided in Section 7(a)(2)(B)
of the Securities Act for complying with new or revised
accounting standards. In other words, an emerging growth
company can delay the adoption of certain accounting
standards until those standards would otherwise apply to private
companies. However, we are choosing to opt out of
such extended transition period, and as a result, we will comply
with new or revised accounting standards on the relevant dates
on which adoption of such standards is required for non-emerging
growth companies. Section 107 of the JOBS Act provides that
our decision to opt out of the extended transition period for
complying with new or revised accounting standards is
irrevocable.
If you
purchase shares of our common stock in this offering, you will
experience substantial and immediate dilution.
If you purchase shares of our common stock in this offering, you
will experience substantial and immediate dilution in the pro
forma net tangible book value per share after giving effect to
this offering of $ per share as
of ,
based on an assumed initial public offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus, because
the price that you pay will be substantially greater than the
pro forma net tangible book value per share of the common stock
that you acquire. This dilution is due in large part to the fact
that our earlier investors paid substantially less than the
initial public offering price when they purchased their shares
of our capital stock. You will
36
experience additional dilution upon exercise of any warrant,
upon exercise of options to purchase common stock under our
equity incentive plans, if we issue restricted stock to our
employees under our equity incentive plans or if we otherwise
issue additional shares of our common stock. For a further
description of the dilution that you will experience immediately
after this offering, see Dilution.
Participants
in our directed share program who have executed a
lock-up
agreement with the underwriters must hold their shares for a
minimum of 180 days following the date of the final
prospectus related to this offering and accordingly will be
subject to market risks not imposed on other investors in the
offering.
At our request, the underwriters have reserved up
to shares
of the common stock offered hereby for sale to our directors,
officers, employees and certain individuals associated with our
company. Purchasers of these shares who have entered into a
lock-up
agreement with the underwriters will not, subject to exceptions,
be able to offer, sell, contract to sell or otherwise dispose of
or hedge any such shares for a period of 180 days after the
date of the final prospectus relating to this offering, subject
to certain specified extensions. As a result of such
restriction, such purchasers may face risks not faced by other
investors who have the right to sell their shares at any time
following the offering (including other participants in the
directed share program who have not executed a
look-up
agreement with the underwriters). These risks include the market
risk of holding our shares during the period that such
restrictions are in effect.
Future sales
of shares of our common stock by existing stockholders could
depress the market price of our common stock.
If our existing stockholders sell, or indicate an intent to
sell, substantial amounts of our common stock in the public
market after the
180-day
contractual
lock-up and
other legal restrictions on resale discussed in this prospectus
lapse, the trading price of our common stock could decline
significantly and could decline below the initial public
offering price. Based on shares outstanding as of March 31,
2012, upon completion of this offering, we will have outstanding
approximately shares
of common stock,
approximately
of which are subject to the 180-day contractual lock-up referred
to above, assuming no exercise of the underwriters option
to purchase additional shares. J.P. Morgan Securities LLC
and Deutsche Bank Securities Inc. may permit our officers,
directors, employees and current stockholders to sell shares
prior to the expiration of the
lock-up
agreements. See Underwriting.
After the
lock-up
agreements pertaining to this offering expire, and based on
shares outstanding as of March 31, 2012, an
additional shares
of common stock will be eligible for sale in the public market,
19,759,499 of which are held by directors, executive officers
and other affiliates and will be subject to volume limitations
under Rule 144 under the Securities Act. In addition,
the shares
of common stock subject to outstanding options under our equity
incentive plans and
the shares
reserved for future issuance under our equity incentive plans
will become eligible for sale in the public market in the
future, subject to certain legal and contractual limitations.
See Shares Eligible for Future Sale for a more
detailed description of sales that may occur in the future. If
these additional shares are sold, or if it is perceived that
they will be sold, in the public market, the trading price of
our common stock could decline substantially.
The
concentration of our capital stock ownership with insiders upon
the completion of this offering will likely limit your ability
to influence corporate matters including the ability to
influence the outcome of director elections and other matters
requiring stockholder approval.
We anticipate that our executive officers, directors, current
five percent or greater stockholders and affiliated entities
will together beneficially own
approximately percent
of our common stock outstanding after this offering, assuming no
exercise of the underwriters option to purchase
37
additional shares. As a result, these stockholders, acting
together, will have significant influence over all matters that
require approval by our stockholders, including the election of
directors and approval of significant corporate transactions.
Corporate action might be taken even if other stockholders,
including those who purchase shares in this offering, oppose
them. This concentration of ownership might also have the effect
of delaying or preventing a change of control of our company
that other stockholders may view as beneficial.
Our management
will have broad discretion over the use of the proceeds we
receive in this offering and might not apply the proceeds in
ways that increase the value of your investment.
Our management will have broad discretion to use the net
proceeds from this offering, and you will be relying on the
judgment of our management regarding the application of these
proceeds. Our management might not apply the net proceeds of
this offering in ways that increase the value of your
investment. We intend to use the net proceeds from this offering
for working capital and other general corporate purposes,
including financing the development of new solutions, marketing
and sales activities and capital expenditures. We may use a
portion of the net proceeds to us to expand our current business
through acquisitions of other businesses, products and
technologies. Until we use the net proceeds from this offering,
we plan to invest them, and these investments may not yield a
favorable rate of return. If we do not invest or apply the net
proceeds from this offering in ways that enhance stockholder
value, we may fail to achieve expected financial results, which
could cause our stock price to decline.
If securities
or industry analysts do not publish research or publish
misleading or unfavorable research about our business, our stock
price and trading volume could decline.
The trading market for our common stock depends in part on the
research and reports that securities or industry analysts
publish about us or our business. If no or few securities or
industry analysts cover our company, the trading price for our
stock would be negatively impacted. If one or more of the
analysts who covers us downgrades our stock or publishes
incorrect or unfavorable research about our business, our stock
price would likely decline. If one or more of these analysts
ceases coverage of our company or fails to publish reports on us
regularly, or downgrades our common stock, demand for our stock
could decrease, which could cause our stock price or trading
volume to decline.
38
FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements. In some
cases, you can identify forward-looking statements by
terminology such as may, will,
should, expect, intend,
plan, anticipate, believe,
estimate, predict,
potential, continue or the plural or
negative of these terms or other comparable terminology. These
statements are only predictions. We have based these
forward-looking statements largely on our current expectations
and projections about future events and financial trends that we
believe may affect our business, results of operations and
financial condition.
You should not place undue reliance on forward-looking
statements because they involve known and unknown risks,
uncertainties and other factors, which are, in some cases,
beyond our control and which could materially affect results.
Factors that may cause actual results to differ materially from
current expectations include those listed under Risk
Factors and elsewhere in this prospectus. If one or more
of these risks or uncertainties occur, or if our underlying
assumptions prove to be incorrect, actual events or results may
vary significantly from those implied or projected by the
forward-looking statements. No forward-looking statement is a
guarantee of future performance. You should read this prospectus
and the documents that we reference in this prospectus and have
filed with the Securities and Exchange Commission as exhibits to
the registration statement, of which this prospectus is a part,
completely and with the understanding that our actual future
results may be materially different from those expressed or
implied by any forward-looking statements. Forward-looking
statements in this prospectus include, among others, statements
regarding:
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our ability to achieve or maintain consistent profitability in
the future;
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general economic conditions and the conditions in our industry;
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the RPM market;
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competition in our industry and innovation by our competitors;
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our failure to anticipate and adapt to future changes in our
industry;
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uncertainty regarding our solution innovations;
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adverse developments concerning our relationships with existing
customers;
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the anticipated effect on our business of litigation to which we
are a party;
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the increased expenses and administrative workload associated
with being a public company; and
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failure to maintain an effective system of internal controls
necessary to accurately report our financial results and prevent
fraud.
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The forward-looking statements in this prospectus represent our
views as of the date of this prospectus. 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 have
no current intention of doing so except to the extent required
by applicable law. You should, therefore, not rely on these
forward-looking statements as representing our views as of any
date subsequent to the date of this prospectus.
39
INDUSTRY AND
MARKET DATA
We obtained the industry, market and competitive position data
in this prospectus from our own internal estimates and research
as well as from industry and general publications and research,
surveys and studies conducted by third parties, including
Forrester Research, Inc., Gartner, Inc., or Gartner, and IDC.
Industry surveys, publications, surveys and forecasts generally
state that the information contained therein has been obtained
from sources believed to be reliable, but that the accuracy and
completeness of such information is not guaranteed.
The Gartner report described herein, Forecast: Software as
a Service, All Regions,
2010-2015,
1H12 Update, Sharon A. Mertz, Chad Eschinger, Tom Eid,
Chris Pang, Hai Hong Swinehart, Yanna Dharmasthira, Laurie F.
Wurster, Tsuyoshi Ebina, Akimasa Nakao, March 13, 2012,
which we refer to as the Gartner Report, represents data,
research opinions or viewpoints published, as part of a
syndicated subscription service, by Gartner. The Gartner Report
speaks as of its original publication date and not as of the
date of this prospectus.
We do not know what assumptions regarding general economic
growth were used in preparing the forecasts and projections we
cite. Statements as to our market position are based on recently
available data. While we are not aware of any misstatements
regarding industry data presented herein, our estimates involve
risks and uncertainties and are subject to change based on
various factors, including those discussed under Risk
Factors in this prospectus.
40
USE OF
PROCEEDS
We estimate that the net proceeds to us of the sale of the
common stock offered by us will be approximately
$ million, based on an
assumed initial public offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus, after
deducting the underwriting discounts and commissions and
estimated offering expenses payable by us. If the
underwriters option to purchase additional shares is
exercised in full, we estimate the net proceeds payable to us
will be approximately
$ million. We will not
receive any proceeds from the sale of shares of common stock by
the selling stockholders.
A $1.00 increase (decrease) in the assumed initial public
offering price of $ would increase
(decrease) the net proceeds to us from this offering by
$ million, assuming the
number of shares offered by us, as set forth on the cover of
this prospectus, remains the same and after deducting the
underwriting discounts and commissions and estimated offering
expenses payable by us.
We intend to use the net proceeds from this offering as follows:
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approximately $1.9 million for the repayment of
indebtedness under our term loan, which bears interest at a rate
of prime plus 2.0%, subject to a minimum rate of 6.0% (the rate
as of March 31, 2012), and has a maturity date of
September 1, 2014; and
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the balance to fund working capital and other general corporate
purposes, including marketing and sales activities, research and
development and general and administrative expenses.
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We may also use a portion of the net proceeds for the
acquisition of, or investment in, technologies, solutions or
businesses that complement our business, although we have no
present understandings, commitments or agreements to enter into
any such acquisitions or investments.
The amount and timing of our actual expenditures will depend on
numerous factors, including the cash used in or generated by our
operations, the status of our development, and the level of our
product development and our marketing and sales activities. Our
management has discretion over many of these factors. Therefore,
we are unable to estimate the amount of net proceeds from this
offering that will be used for any of the purposes described
above. Our management will have broad discretion over the uses
of the net proceeds from this offering. Pending the above uses,
we intend to invest the net proceeds from this offering in
short-term, investment-grade interest-bearing securities, such
as money market accounts, certificates of deposit, commercial
paper and guaranteed obligations of the U.S. government.
41
DIVIDEND
POLICY
We have never declared or paid dividends on our capital stock.
In addition, we are currently prohibited by our credit agreement
from paying cash dividends without the prior written consent of
the lender. Subject to the foregoing, our board of directors
will have discretion in determining whether to declare or pay
dividends, which will depend upon our results of operations,
financial condition, future prospects and any other factors
deemed relevant by our board of directors. We currently intend
to retain all available funds and any future earnings to fund
the development and growth of our business and do not anticipate
paying any dividends in the foreseeable future. Investors should
not purchase our common stock with the expectation of receiving
cash dividends.
42
CAPITALIZATION
The following table sets forth our cash, cash equivalents and
capitalization as of March 31, 2012, as follows:
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on a pro forma basis to give effect to (i) the issuance of
an aggregate of 3,577,554 shares of our common stock upon
the exchange of each outstanding exchangeable common share of
Eloqua Corporation for one share of our common stock in
connection with this offering, as described in Description
of Capital StockExchangeable Common Shares,
(ii) the conversion of all outstanding shares of our
preferred stock into 19,828,150 shares of common stock
immediately prior to the completion of this offering; and
(iii) the conversion, but not the exercise, of all
outstanding warrants to purchase shares of our Series C
preferred stock into warrants to purchase an aggregate of
67,500 shares of common stock upon completion of this
offering; and
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on a pro forma as adjusted basis to give effect to the pro forma
adjustments listed above and our sale in this offering
of shares
of common stock based on an assumed initial public offering
price of $ per share, the midpoint
of the range set forth on the cover page of this prospectus,
after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us.
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You should read the following table in conjunction with our
consolidated financial statements and related notes and the
sections entitled Selected Consolidated Financial
Data and Managements Discussion and Analysis
of Financial Condition and Results of Operations appearing
elsewhere in this prospectus.
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As of March 31, 2012
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Pro Forma as
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Actual
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Pro Forma
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Adjusted(1)
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(dollars in thousands)
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Cash and cash equivalents
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$
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4,419
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$
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4,419
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$
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Current portion of long-term debt
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$
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834
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$
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834
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$
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Long-term debt, net of current portion
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1,250
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1,250
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Preferred stock warrants
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424
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Redeemable convertible preferred stock:
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Series A preferred stock, $0.0001 par value,
12,124,650 shares authorized, issued and outstanding at
March 31, 2012, and no shares outstanding pro forma
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42,800
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Series B preferred stock, $0.0001 par value,
17,678,926 shares authorized, issued and outstanding at
March 31, 2012 and no shares outstanding pro forma
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62,407
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Series C preferred stock, $0.0001 par value,
21,483,563 shares authorized and 19,766,821 issued and
outstanding at March 31, 2012, and no shares outstanding
pro forma
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69,777
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Stockholders deficit:
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Eloqua, Inc. stockholders deficit:
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Common stock, $0.0001 par value, 90,000,000 shares
authorized, 1,171,642 shares issued and outstanding at
March 31, 2012, and 24,577,346 shares outstanding pro
forma
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6
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Additional paid-in capital
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177,364
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Accumulated deficit
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(183,824
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)
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(183,824
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)
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Total Eloqua, Inc. stockholders deficit:
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(183,824
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)
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(6,454
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)
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Noncontrolling interest
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1,962
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Total stockholders deficit:
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(181,862
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)
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(6,454
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)
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Total capitalization
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$
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(5,204
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)
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$
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(5,204
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)
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$
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(1)
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A $1.00 increase (decrease) in the
assumed initial public offering price of
$ per share of our common stock
would increase (decrease) our pro forma as adjusted cash and
cash equivalents by
$ million, after deducting
the estimated underwriters discounts and commissions and
estimated offering expenses payable by us.
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43
DILUTION
If you invest in our common stock, your investment will be
diluted immediately to the extent of the difference between the
initial public offering price per share of our common stock in
this offering and the pro forma as adjusted net tangible book
value per share of our common stock immediately after completion
of this offering.
Our net tangible book value as of March 31, 2012 was
$(6.9) million, or $(5.89) per share of common stock. Net
tangible book value per share represents the amount of our total
tangible assets less our total liabilities, divided by the
number of shares of common stock outstanding as of
March 31, 2012. Our pro forma net tangible book value as of
March 31, 2012 was $(6.5) million, or $(0.26) per
share of common stock, based on 24,577,346 shares of common
stock outstanding after giving effect to (i) the issuance
of an aggregate of 3,577,554 shares of our common stock
upon the exchange of each outstanding exchangeable common share
of Eloqua Corporation for one share of our common stock in
connection with this offering, as described in Description
of Capital StockExchangeable Common Shares, and
(ii) the conversion of all outstanding shares of our
preferred stock into 19,828,150 shares of common stock
immediately prior to the completion of this offering.
After giving effect to the sale by us
of shares
of common stock in this offering based on the assumed initial
public offering price of $ per
share, the midpoint of the range set forth on the cover page of
this prospectus, and after deducting the underwriting discounts
and commissions and estimated offering expenses payable by us,
our pro forma as adjusted net tangible book value as of
March 31, 2012 would have been approximately
$ million, or approximately
$ per share. This amount
represents an immediate increase in pro forma as adjusted net
tangible book value of $ per share
to our existing stockholders and an immediate dilution of
approximately $ per share to new
investors purchasing shares of common stock in this offering. We
determine dilution by subtracting the pro forma as adjusted net
tangible book value per share after this offering from the
amount of cash that a new investor paid for a share of common
stock.
The following table illustrates this dilution on a per share
basis:
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Assumed initial public offering price per share
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$
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Net tangible book value per share as of March 31, 2012
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$
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(5.89
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)
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Increase per share attributable to conversion of preferred stock
and exchange of exchangeable common shares
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5.61
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Pro forma net tangible book value per share as of March 31,
2012
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(0.26
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)
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Increase per share attributable to this offering
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Pro forma as adjusted net tangible book value per share after
this offering
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Dilution in pro forma net tangible book value per share to new
investors
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$
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A $1.00 increase (decrease) in the assumed initial public
offering price of $ would increase
(decrease) our pro forma as adjusted net tangible book value per
share after this offering by $ per
share and the dilution to new investors by
$ per share, assuming the number
of shares offered by us, as set forth on the cover of this
prospectus, remains the same and after deducting the
underwriting discounts and commissions and estimated offering
expenses payable by us.
The following table summarizes, as of March 31, 2012, the
differences between the number of shares purchased from us, the
total consideration paid to us in cash and the average price per
share that existing stockholders and new investors paid. The
calculation below is based on the assumed initial public
offering price of $ per share, the
midpoint of the range set forth on the cover page of
44
this prospectus, before deducting underwriting discounts and
commissions and estimated offering expenses payable by us:
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Average
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Shares Purchased
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Total Consideration
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Price Per
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Number
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Percent
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|
Amount
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Percent
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Share
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%
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$
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%
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|
$
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Existing stockholders
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New investors
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Totals
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100
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%
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100
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%
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A $1.00 increase (decrease) in the assumed initial public
offering price of $ would increase
(decrease) total consideration paid by new investors, total
consideration paid by all stockholders and the average price
paid by all stockholders by
$ million,
$ million, and
$ million, respectively,
assuming the number of shares offered by us, as set forth on the
cover of this prospectus, remains the same, and without
deducting the estimated underwriting discounts and commissions
and other expenses of the offering.
If the underwriters exercise their option to purchase additional
shares in full, our existing stockholders would
own % and our new investors would
own % of the total number of shares
of our common stock outstanding after this offering.
Sales by selling stockholders in this offering will cause the
number of shares held by existing stockholders to be reduced
to shares
of common stock, or % of the total
number of shares of our common stock outstanding after this
offering.
To the extent that outstanding options or warrants are
exercised, you will experience further dilution. In addition, we
may choose to raise additional capital due to market conditions
or strategic considerations even if we believe we have
sufficient funds for our current or future operating plans. To
the extent that additional capital is raised through the sale of
equity or convertible debt securities, the issuance of these
securities may result in further dilution to our stockholders.
45
SELECTED
CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated
financial and other data as of the dates and for the periods
indicated. The selected consolidated statements of operations
data for the years ended December 31, 2009, 2010 and 2011
and the consolidated balance sheet data as of December 31,
2010 and 2011 have been derived from our audited consolidated
financial statements included elsewhere in this prospectus. The
selected consolidated statements of operations data presented
below for the years ended December 31, 2007 and 2008 and
the selected consolidated balance sheet data presented below as
of December 31, 2007, 2008 and 2009 have been derived from
our audited consolidated financial statements not included in
this prospectus. Our consolidated statements of operations data
for the three months ended March 31, 2011 and 2012 and the
selected consolidated balance sheet data presented below as of
March 31, 2012 have been derived from unaudited
consolidated financial statements included elsewhere in this
prospectus. In our opinion, these unaudited consolidated
financial statements have been prepared on a basis consistent
with our audited consolidated financial statements and contain
all adjustments, consisting only of normal and recurring
adjustments, necessary for a fair presentation of such
consolidated financial data. Historical results are not
necessarily indicative of the results to be expected for future
periods and operating results for the three-month period ended
March 31, 2012 are not necessarily indicative of the
results that may be expected for the fiscal year ending
December 31, 2012. This selected consolidated financial
data should be read in conjunction with the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and the related notes included elsewhere in
this prospectus.
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Years Ended December 31,
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Three Months Ended March 31,
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2007
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2008
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2009
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|
2010
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2011
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2011
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2012
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(in thousands, except share and per share data)
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Consolidated Statements of Operations Data:
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Revenue:
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Subscription and support
|
|
$
|
17,496
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$
|
28,468
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$
|
37,543
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|
|
$
|
47,225
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|
$
|
63,222
|
|
|
$
|
13,901
|
|
|
$
|
19,237
|
|
|
|
|
|
|
|
|
|
Professional services
|
|
|
3,440
|
|
|
|
4,402
|
|
|
|
3,415
|
|
|
|
3,574
|
|
|
|
8,126
|
|
|
|
1,058
|
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
20,936
|
|
|
|
32,870
|
|
|
|
40,958
|
|
|
|
50,799
|
|
|
|
71,348
|
|
|
|
14,959
|
|
|
|
21,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
|
2,501
|
|
|
|
3,536
|
|
|
|
6,423
|
|
|
|
9,569
|
|
|
|
12,330
|
|
|
|
2,739
|
|
|
|
3,426
|
|
|
|
|
|
|
|
|
|
Professional services
|
|
|
3,791
|
|
|
|
5,702
|
|
|
|
5,284
|
|
|
|
6,980
|
|
|
|
10,718
|
|
|
|
2,255
|
|
|
|
2,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
6,292
|
|
|
|
9,238
|
|
|
|
11,707
|
|
|
|
16,549
|
|
|
|
23,048
|
|
|
|
4,994
|
|
|
|
6,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
14,644
|
|
|
|
23,632
|
|
|
|
29,251
|
|
|
|
34,250
|
|
|
|
48,300
|
|
|
|
9,965
|
|
|
|
15,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
5,627
|
|
|
|
7,499
|
|
|
|
8,607
|
|
|
|
10,363
|
|
|
|
11,679
|
|
|
|
2,792
|
|
|
|
3,433
|
|
|
|
|
|
|
|
|
|
Marketing and sales
|
|
|
16,187
|
|
|
|
21,632
|
|
|
|
17,321
|
|
|
|
22,147
|
|
|
|
29,481
|
|
|
|
6,851
|
|
|
|
8,175
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
6,987
|
|
|
|
7,007
|
|
|
|
7,348
|
|
|
|
7,879
|
|
|
|
12,208
|
|
|
|
2,546
|
|
|
|
4,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
28,801
|
|
|
|
36,138
|
|
|
|
33,276
|
|
|
|
40,389
|
|
|
|
53,368
|
|
|
|
12,189
|
|
|
|
16,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(14,157
|
)
|
|
|
(12,506
|
)
|
|
|
(4,025
|
)
|
|
|
(6,139
|
)
|
|
|
(5,068
|
)
|
|
|
(2,224
|
)
|
|
|
(1,164
|
)
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
259
|
|
|
|
60
|
|
|
|
(107
|
)
|
|
|
(241
|
)
|
|
|
(707
|
)
|
|
|
(123
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit (expense)
|
|
|
(13,898
|
)
|
|
|
(12,446
|
)
|
|
|
(4,132
|
)
|
|
|
(6,380
|
)
|
|
|
(5,775
|
)
|
|
|
(2,347
|
)
|
|
|
(1,221
|
)
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
|
99
|
|
|
|
|
|
|
|
(81
|
)
|
|
|
4,869
|
|
|
|
(378
|
)
|
|
|
(63
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(13,799
|
)
|
|
|
(12,446
|
)
|
|
|
(4,213
|
)
|
|
|
(1,511
|
)
|
|
|
(6,153
|
)
|
|
|
(2,410
|
)
|
|
|
(1,456
|
)
|
|
|
|
|
|
|
|
|
Accretion of redeemable preferred stock
|
|
|
(2,649
|
)
|
|
|
(4,970
|
)
|
|
|
(4,970
|
)
|
|
|
(14,815
|
)
|
|
|
(89,659
|
)
|
|
|
(1,110
|
)
|
|
|
(13,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(16,448
|
)
|
|
$
|
(17,416
|
)
|
|
$
|
(9,183
|
)
|
|
$
|
(16,326
|
)
|
|
$
|
(95,812
|
)
|
|
$
|
(3,520
|
)
|
|
$
|
(15,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders, basic
and diluted(1)
|
|
$
|
(3,803.01
|
)
|
|
$
|
(162.31
|
)
|
|
$
|
(36.55
|
)
|
|
$
|
(40.17
|
)
|
|
$
|
(116.74
|
)
|
|
$
|
(5.70
|
)
|
|
$
|
(13.69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
4,325
|
|
|
|
107,304
|
|
|
|
251,246
|
|
|
|
406,402
|
|
|
|
820,734
|
|
|
|
617,715
|
|
|
|
1,120,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share attributable to common
stockholders, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average common shares outstanding, basic and
diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,275,338
|
|
|
|
|
|
|
|
24,526,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,623
|
|
|
$
|
6,821
|
|
|
$
|
8,140
|
|
|
$
|
7,549
|
|
|
$
|
7,240
|
|
|
$
|
9,399
|
|
|
$
|
4,419
|
|
Working capital, excluding deferred revenue
|
|
|
18,102
|
|
|
|
14,657
|
|
|
|
14,028
|
|
|
|
19,195
|
|
|
|
17,648
|
|
|
|
18,797
|
|
|
|
18,730
|
|
Total assets
|
|
|
25,401
|
|
|
|
22,767
|
|
|
|
23,853
|
|
|
|
36,755
|
|
|
|
41,505
|
|
|
|
34,241
|
|
|
|
38,080
|
|
Debt, current portion
|
|
|
807
|
|
|
|
760
|
|
|
|
211
|
|
|
|
446
|
|
|
|
834
|
|
|
|
417
|
|
|
|
834
|
|
Deferred revenue
|
|
|
7,092
|
|
|
|
15,604
|
|
|
|
16,399
|
|
|
|
26,601
|
|
|
|
29,970
|
|
|
|
28,597
|
|
|
|
31,756
|
|
Long-term debt, net of current portion
|
|
|
856
|
|
|
|
315
|
|
|
|
2,174
|
|
|
|
2,375
|
|
|
|
1,458
|
|
|
|
2,083
|
|
|
|
1,250
|
|
Redeemable convertible preferred stock
|
|
|
46,690
|
|
|
|
51,661
|
|
|
|
56,631
|
|
|
|
71,446
|
|
|
|
161,104
|
|
|
|
72,456
|
|
|
|
174,984
|
|
Stockholders deficit
|
|
|
(34,248
|
)
|
|
|
(50,573
|
)
|
|
|
(58,761
|
)
|
|
|
(73,743
|
)
|
|
|
(167,297
|
)
|
|
|
(76,696
|
)
|
|
|
(181,862
|
)
|
|
|
|
(1)
|
|
See note 2 to our consolidated
financial statements for a description of the method to compute
basic and diluted net loss per share attributable to common
stockholders and pro forma basic and diluted net loss per share
attributable to common stockholders.
|
47
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations together with our
consolidated financial statements and the related notes and
other financial information included elsewhere in this
prospectus. Some of the information contained in this discussion
and analysis or set forth elsewhere in this prospectus,
including information with respect to our plans and strategy for
our business, includes forward-looking statements that involve
risks and uncertainties. You should review the Risk
Factors section of this prospectus for a discussion of
important factors that could cause actual results to differ
materially from the results described in or implied by the
forward-looking statements contained in the following discussion
and analysis.
Overview
We are a leading provider of on-demand RPM software solutions
that are designed to enable businesses to accelerate revenue
growth and improve revenue predictability by automating,
monitoring and measuring their complex marketing and sales
initiatives. Our set of RPM solutions, which we refer to as the
Eloqua Platform, is a SaaS platform integrating our leading
marketing automation software with our revenue performance
analytics suite. Marketing and sales professionals use the
Eloqua Platform to move prospective buyers more efficiently
through the marketing and sales funnel, identify and predict the
drivers of revenue, provide insights about marketing and sales
programs to senior management and more tightly align marketing
and sales teams to optimize resource allocation and drive
revenue growth.
We sell subscriptions to our on-demand software and services
primarily through our direct sales force. Our direct sales force
is comprised of a group of enterprise sales professionals who
sell our solutions to larger companies and a group of SMB sales
professionals who sell our solutions to smaller companies. We
also continue to market and sell to existing customers, who may
renew their subscriptions, increase the use of our system over
time, add functionality and broaden the deployment of our
solutions across their organizations. Our solutions can be used
in substantially all industry vertical segments, and a
significant number of our current customers are in the
technology, software and entertainment industries. For 2010,
2011 and the three months ended March 31, 2012, no single
customer accounted for more than 2% of our revenue and our 10
largest customers accounted for less than 10% of our revenue.
We derive most of our revenue from subscriptions to our
on-demand software and related subscription-based services.
Subscription and support revenue accounted for 93.0%, 88.6% and
88.2% of our total revenue during the years ended
December 31, 2010, 2011, and the three months ended
March 31, 2012, respectively. Subscription and support
revenue is driven primarily by the number of customers we have,
the number of prospective buyer profiles our customers manage
with the Eloqua Platform, and the levels of service for which
they contract. To date, revenue generated from our Marketing
Automation Platform has been, and we expect will continue to be
for the foreseeable future, the primary driver of our
subscription and support revenue. We have only recently begun to
sell, and currently have a limited customer base with respect
to, our Revenue Suite product, and we believe that revenue
associated with our Revenue Suite product will grow as revenue
performance management gains further market acceptance.
Professional services revenue accounted for 7.0%, 11.4% and
11.8% of our total revenue during the years ended
December 31, 2010, 2011 and the three months ended
March 31, 2012, respectively. We derive our professional
services revenue primarily from services provided in connection
with the onboarding of new customers onto the Eloqua Platform,
including implementation and integration with
48
our customers sales automation and other marketing
systems, as well as educating the customer on optimal use of our
solutions.
Our revenue growth has been driven by the addition of new
customers and additional revenue from existing customers offset
by reductions resulting from the non-renewal of subscriptions
from existing customers. We generate the majority of our revenue
in the United States and Canada. Our revenue from outside the
United States and Canada as a percentage of total revenue
was 10.8%, 10.4% and 13.3% for the years ended December 31,
2010, 2011 and the three months ended March 31, 2012,
respectively.
We have focused on growing our business to pursue the
significant market opportunity we see for our products and
services, and we plan to continue to invest in building for
growth. As a result, we expect our cost of revenue and operating
expenses will increase in future periods. Marketing and sales
expenses are expected to increase, as we continue to expand our
direct sales teams, increase our marketing activities, and grow
our international operations. Research and development expenses
are expected to increase as we continue to improve and expand
our existing solutions and develop new solutions. We also
believe that we must invest in maintaining a high level of
client service and support as we consider it critical for our
continued success. We plan to continue our policy of
implementing best practices across our organization, expanding
our technical operations and investing in our network
infrastructure and services capabilities in order to support
continued future growth. We also expect to incur additional
general and administrative expenses as a result of both our
growth and transition to becoming a public company.
Key
Metrics
We regularly review a number of metrics to evaluate growth
trends, measure our performance, formulate financial projections
and make strategic decisions. We discuss revenue, gross margin,
the components of operating income and margin and net cash
provided by operating activities below under
Basis of Presentation, and we discuss
our other key metrics, Net Dollar Retention Rate and Adjusted
EBITDA, below.
Net Dollar
Retention Rate
We disclose Net Dollar Retention Rate as a supplemental measure
of our organic revenue growth. We believe Net Dollar Retention
Rate is an important metric that provides insight into the
long-term value of our subscription agreements and our ability
to retain, and grow revenue from, our existing customers.
Net Dollar Retention Rate is a measurement, expressed as a
percentage, of the aggregate contracted minimum subscription
revenue normalized to a monthly basis of our customer base, or
Implied Monthly Recurring Revenue, as of the first day of a
12-month
period in relation to that of the same customer base as of the
last day of such
12-month
period. Our Net Dollar Retention Rate metric is calculated by
dividing (a) Implied Monthly Recurring Revenue at the end
of a
12-month
fiscal period by (b) Implied Monthly Recurring Revenue at
the beginning of the same
12-month
fiscal period. Our Net Dollar Retention Rate exceeded 100% for
each of the
12-month
periods ended December 31, 2010 and 2011 and for the
12-month period ended March 31, 2012.
Adjusted
EBITDA
We disclose Adjusted EBITDA, which is a non-GAAP measure,
because we believe this metric assists investors and analysts in
comparing our performance across reporting periods on a
consistent basis by excluding items that we do not believe are
indicative of our core operating performance. We believe this
metric is used in the financial community, and we present these
metrics to enhance
49
investors understanding of our operating performance and
cash flows. You should not consider Adjusted EBITDA as an
alternative to net income (loss), determined in accordance with
U.S. GAAP, as an indicator of operating performance, or as
an alternative to cash provided by operating activities,
determined in accordance with U.S. GAAP, as an indicator of
our cash flow.
We use Adjusted EBITDA to evaluate our performance relative to
that of our peers. We prepare Adjusted EBITDA to eliminate the
impact of additional items we do not consider indicative of
ongoing operating performance. However, Adjusted EBITDA is not a
measurement of financial performance under generally accepted
accounting principles in the United States, or U.S. GAAP,
and this metric may not be comparable to similarly titled
measures of other companies. Adjusted EBITDA represents net
income (loss) before interest expense (income), income tax
expense (benefit), depreciation and amortization and certain
other items, including: (i) certain stock option-based and
other equity-based compensation expenses; (ii) foreign
currency transaction gains or losses; (iii) changes in fair
value of our preferred stock warrant liabilities; and
(iv) those deemed extraordinary, unusual, non-recurring or
otherwise not indicative of our core business operations. For a
further discussion of Adjusted EBITDA, including a
reconciliation of net income (loss) to Adjusted EBITDA, see
footnote 4 under the heading Prospectus
Summary Summary Consolidated Financial Data
elsewhere in this prospectus.
Basis of
Presentation
Sources of
Revenue
Subscription and
Support Revenue
We derive our subscription and support revenue from
subscriptions to our on-demand marketing automation and revenue
performance management solutions. We generally sell one and two
year contracts, and we typically bill in advance either
annually, semi-annually or quarterly. Pricing for our on-demand
software is principally based on the number of prospective buyer
profiles a customer manages with the Eloqua Platform and by
product configuration. Customers can also subscribe to related
product add-ons, such as sales enablement tools. Our three
primary product configurations of the Eloqua Platform are Eloqua
Enterprise, Eloqua Team and Eloqua Express. All product
configurations are delivered on the Eloqua Platform, which
enables us to leverage development and customer support dollars
by providing the functionality required by any type of customer
on a single platform. Our Enterprise product is targeted at the
large enterprise market, and includes the full functionality of
our platform, including more sophisticated targeting and more
robust consolidated reporting, as well as premier support. Our
Team product, which is targeted at mid-market and smaller
enterprises, has many of the same features as the Enterprise
product, but does not include some of the advanced features
required by larger organizations. Our Express product is
targeted at the SMB market, and has more basic functionality. By
pricing based upon the number of prospective buyer profiles
managed by the Eloqua Platform, our subscription and support
revenue from a given customer generally increases as the
customers database of profiles grows. Subscription fees
are subject to periodic adjustment, to the extent the number of
buyer profiles under management is larger than estimated or
increases.
Customer contracts are typically non-cancellable for a minimum
period that ranges in length from one to two years. The
arrangements with customers do not provide customers with the
right to take possession of the software supporting the
on-demand application service at any time. We generally
recognize revenue from subscriptions ratably over the term of
the agreement. We also offer our customers premium product
support beyond the standard support that is included in the base
subscription. We primarily recognize customer support revenue
ratably over the term of the subscription.
50
Professional
Services Revenue
We offer our customers assistance in implementing our solutions,
deploying the Eloqua Platform and optimizing its use.
Professional services include application configuration, system
integration, business process re-engineering and mapping and
data migration. Services are typically provided either on a
time-and-materials
basis for larger projects, or on a fixed-fee basis for smaller
projects. These services are generally purchased as part of the
subscription arrangement and are typically performed within the
first several months of the arrangement. Since 2011, the revenue
associated with professional services has typically been
recognized as the services are delivered, while prior to 2011
the revenue associated with these services was recognized over
the life of the subscription. See Critical
Accounting Policies and EstimatesRevenue Recognition
below and note 2 to our consolidated financial statements
for a discussion of these changes.
We also provide other services for our customers which include
consultative and training services. These services are either
performed directly by us or through third-party service
providers that we hire. The revenue associated with these
services is generally recognized as the services are delivered.
Cost of
Revenue
Cost of
Subscription and Support Revenue
Cost of subscription and support revenue primarily consists of
direct personnel and related costs, including salaries and
bonuses, benefits and payroll taxes, and stock based
compensation, as well as contract labor of departments managing
the Eloqua Platform and database environment and providing
technical support. Additionally, these costs include software
license fees and amortization expenses associated with
capitalized software hosting costs and depreciation expenses
associated with computer equipment such as servers. In addition,
we allocate a portion of overhead including rent, IT costs, and
depreciation and amortization to cost of revenue based on
headcount. Expenses related to the depreciation associated with
computer equipment, hosting and software license fees are
affected by the number of customers using our on-demand software
and the size of their respective prospective buyer profile
databases, the complexity of their marketing needs and the
volume of transactions processed. We plan to continue to
significantly expand our capacity and to implement more robust
redundancy measures to support our growth, which will result in
higher cost of subscription revenue in absolute dollars, but
which we expect will keep the cost of subscription revenue as a
percentage of revenue roughly the same as it is currently for
the foreseeable future.
Cost of
Professional Services Revenue
Cost of professional services revenue primarily consists of
personnel and related costs, allocated overhead, user
conferences, and third party contractors employed to carry out
our SmartStart onboarding program as well as other business
process or custom services. When we perform our services, we
often supplement our internal resources with third party
partners. Expenses incurred from these partners is deferred and
amortized to correspond with the revenue from fees we receive
for our services.
The cost of client services may fluctuate from quarter to
quarter based on the number of customers that are in the process
of implementation, and also based on the extent to which the
services are implemented by us or a third party. We may
experience large fluctuations in amortized expenses from quarter
to quarter when we engage in large services contracts but
generally our costs of services, mainly from our SmartStart
onboarding program, will show a steady increase along with our
growth. Our costs associated with providing professional
services are significantly higher as a percentage of revenue
than our cost of subscription revenue due to the labor costs
associated with providing professional services.
51
At the end of 2008, in response to the onset of difficult
economic times, we made a decision to reduce our investment in
our professional services personnel and serve the majority of
clients professional service needs through various
partners that we trained and certified. While this led to an
erosion of the margin of those services, it also helped to
accelerate the growth of our network of partners. These partners
are organizations that are actively providing services to
marketing departments and, in addition to performing services on
our behalf, they often discover new sales opportunities for our
solutions. During 2010 and 2011, as the economy improved and our
volume of new business transactions increased, we made the
decision to re-invest in our professional services organization
such that an increasing percentage of our clients
professional service needs would be performed by us rather than
third parties. As our business has grown substantially, we
anticipate the volume of professional services subcontracted to
our partners will remain materially unchanged and the increased
demand will be fulfilled by our own personnel. As a result, we
expect cost of professional services revenue to decrease over
time as a percentage of professional services revenue.
Operating
Expenses
Research and
Development
Research and development expenses consist primarily of personnel
and related expenses for our research and development and
product management staffs, including salaries, benefits, bonuses
and stock-based compensation; the cost of certain third-party
contractors; and allocated overhead. Research and development
costs, other than software development expenses qualifying for
capitalization, are expensed as incurred. We evaluate certain
software development costs to determine if they should be
capitalized. Based on our product development process,
technological feasibility is established upon completion of a
working model. To date, the period between achieving
technological feasibility and general availability of such
software has been short and software costs qualifying for
capitalization have been immaterial. Accordingly, we have not
capitalized any software development costs.
We have focused our research and development efforts on
continuously improving our platform, including feature
innovation as well as platform extension. We believe that our
research and development activities are efficient, because we
benefit from maintaining a single software code base. We expect
research and development expenses to increase in absolute
dollars as we add new functionality to the platform. No
capitalization of these expenses has occurred to date.
Marketing and
Sales
Marketing and sales expenses consist primarily of personnel and
related expenses for our marketing and sales staff, including
salaries, bonuses, stock-based compensation, benefits and
commissions as well as allocated overhead of facilities and IT.
It also includes program costs for campaigns, field marketing,
partner marketing, corporate communications, online marketing,
product marketing and other content and brand-building
activities. Sales commissions on subscription services and
professional services are recorded as prepaid expenses once an
order is booked and the customer is activated on the Eloqua
Platform. The expense for these commissions is recognized over
the term of the subscription period or over the period that the
professional services revenue is recognized.
We intend to continue to invest in marketing and sales in order
to increase awareness of both RPM and marketing automation and
to acquire new customers. We expect spending in these areas to
increase in absolute dollars as we continue to expand our
business both domestically and internationally. We expect
marketing and sales expenses to continue to be among the most
significant components of our operating expenses.
52
General and
Administrative
General and administrative expenses consist primarily of
personnel and related expenses for administrative, finance,
information technology, or IT, legal and human resource staffs,
including salaries, benefits, bonuses and stock-based
compensation; professional fees; insurance premiums; and other
corporate expenses.
We expect our general and administrative expenses to increase as
we continue to expand our operations, hire additional personnel
and transition from being a private company to a public company.
In transitioning to a public company, we expect to incur
increased expenses related to increased outside legal counsel
assistance, accounting and auditing activities, compliance with
SEC requirements and enhancing our internal control environment
through the adoption and administration of new corporate
policies.
Other Income
(Expense)
Other income (expense) primarily consists of interest income and
interest expense. Interest income represents interest received
on our cash and cash equivalents. Interest expense is associated
with our outstanding long-term debt and capital leases. In
addition, other income (expense) includes changes in the fair
value of preferred stock warrant liabilities.
Critical
Accounting Policies and Estimates
Our financial statements and the related notes included
elsewhere in this prospectus are prepared in accordance with
generally accepted accounting principles in the United States.
Our significant accounting policies are more fully described
under the heading Significant Accounting Policies in
note 2 of the notes to the consolidated annual financial
statements included elsewhere in this prospectus. However, we
believe the accounting policies described below are particularly
important to the portrayal and understanding of our financial
position and results of operations and require application of
significant judgment by our management. The preparation of these
financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenue, cost of revenue, operating expenses, other
income and expenses, provision for income taxes and related
disclosures. We base our estimates on historical experience and
on various other assumptions that we believe to be reasonable
under the circumstances. Changes in accounting estimates are
reasonably likely to occur from period to period. Accordingly,
actual results could differ significantly from our estimates. We
evaluate our estimates and assumptions on an ongoing basis. To
the extent that there are material differences between our
estimates and our actual results, our future financial statement
presentation, financial condition, results of operations and
cash flows will be affected.
Revenue
Recognition
We derive our revenue from two sources: (i) subscription
and support revenue, which is comprised of subscription fees
from customers accessing our on demand application service,
customer support beyond the standard support that is included in
the basic subscription fee and other subscription-based
services; and (ii) other professional service revenue,
which is comprised of installation and deployment services and
other non-subscription services, which include our user
conferences. We provide our on-demand application as a service
and follow the provisions of FASB ASC Subtopic
605-25,
Revenue RecognitionMultiple Element Arrangements.
We recognize revenue when all of the following conditions are
met: (i) there is persuasive evidence of an arrangement;
(ii) the service has been provided to the customer;
(iii) the collection of the fees is reasonably
53
assured; and (iv) the amount of fees to be paid by the
customer is fixed or determinable. Our arrangements do not
contain general rights of return.
We enter into arrangements with multiple deliverables that
generally include subscription, support and professional
services.
Prior to January 1, 2011, the deliverables in
multiple-deliverable arrangements were accounted for separately
if the delivered items had standalone value and there was
objective and reliable evidence of fair value for the
undelivered items. If the deliverables in a multiple-deliverable
arrangement could not be accounted for separately, the total
arrangement fee was recognized ratably as a single unit of
accounting over the contracted term of the subscription
agreement. A significant portion of our multiple-deliverable
arrangements were accounted for as a single unit of accounting
because we did not have objective and reliable evidence of fair
value for certain of our deliverables. Additionally, in these
situations, we deferred the direct costs of a professional
service arrangement and amortized those costs over the same
period as the professional services revenue is recognized.
In October 2009, the FASB issued ASU
2009-13,
which amended the previous multiple-deliverable arrangements
accounting guidance. Pursuant to the new guidance, objective and
reliable evidence of fair value of the deliverables to be
delivered is no longer required in order to account for
deliverables in a multiple-deliverable arrangement separately.
Instead, arrangement consideration is allocated to deliverables
based on their relative selling price. The new guidance also
eliminates the use of the residual method.
Under the new accounting guidance, in order to treat
deliverables in a multiple-deliverable arrangement as separate
units of accounting, the deliverables must have standalone value
upon delivery. If the deliverables have standalone value upon
delivery, we account for each deliverable separately.
Subscription services have standalone value as such services are
often sold separately. In determining whether professional
services have standalone value, we consider, for each
professional services agreement, the availability of the
services from other vendors, the nature of the professional
services, the timing of when the professional services contract
was signed in comparison to the subscription service start date,
and the contractual dependence of the subscription service on
the customers satisfaction with the professional services
work. To date, we have concluded that all of the professional
services included in multiple-deliverable arrangements executed
have standalone value.
Under the new accounting guidance, when multiple deliverables
included in an arrangement are separated into different units of
accounting, the arrangement consideration is allocated to the
identified separate units based on a relative selling price
hierarchy. We determine the relative selling price for a
deliverable based on its vendor-specific objective evidence of
selling price, or VSOE, if available, or our best estimate of
selling price, or BESP, if VSOE is not available. We have
determined that third-party evidence, or TPE, is not a practical
alternative due to the unique nature and functionality of our
service offering. The amount of revenue allocated to delivered
items is limited by contingent revenue, if any.
We are not able to demonstrate VSOE of selling price with
respect to our subscription services. We do not have sufficient
instances of separate sales of subscriptions nor are we able to
demonstrate sufficient pricing consistency with respect to such
sales. Therefore, we have determined the best estimated selling
price based on the following:
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Expected discounts from the list price for each service
offering, which represents a component of our current
go-to-market
strategy, as established by senior management taking into
consideration factors such as the competitive and economic
environment.
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An analysis of the historical pricing with respect to both of
our bundled and standalone subscription arrangements.
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54
We have established VSOE of selling price for our professional
services based on an analysis of separate sales of such services.
Subscription and support revenue is recognized ratably over the
contract terms beginning on the activation date of each
contract. Amounts that have been invoiced are recorded in
accounts receivable and in deferred revenue or revenue,
depending on whether the revenue recognition criteria have been
met.
Prior to the adoption of ASU
2009-13,
fees for consulting services that did not qualify for separate
accounting because VSOE or TPE of fair value did not exist, were
recognized ratably over the remaining term of the subscription
contract.
Consulting services, including professional services and
training have stand alone value from the related subscription
services. Following the adoption of ASU
2009-13,
professional services revenue is recognized as the services are
performed. Training revenue is recognized after the service has
been performed.
Revenue related to our user conferences is recognized upon
completion of the user conference.
Deferred
Revenue
Deferred revenue consists of billings or payments received in
advance of revenue recognition from our subscriptions,
professional services and other services described above and are
recognized as revenue when all of the revenue recognition
criteria are met. For subscription arrangements, we generally
invoice our customers in quarterly, semi-annual or annual
installments. Accordingly, the deferred revenue balance does not
represent the total contract value of annual or multi-year,
non-cancelable subscription agreements. The portion of deferred
revenue that we anticipate will be recognized after the
succeeding
12-month
period is recorded as non-current deferred revenue and the
remaining portion is recorded as current deferred revenue.
Deferred
Commissions and Subcontractor Costs
We defer sales commissions paid to our sales force that are
direct and incremental costs associated with non-cancelable
subscription contracts with customers. We generally pay
commissions in the periods we receive payment from the customer
under the associated subscription agreement. The deferred
commission amounts are recoverable through the future revenue
streams under the non-cancelable customer contracts. Commissions
are deferred and amortized to sales expense over the
non-cancelable terms of the related subscription contracts with
our customers, which are typically 12 to 24 months.
During the three months ended March 31, 2012, we deferred
$0.5 million of commission expenditures and we amortized
$0.6 million to sales expense. During the same period in
2011, we deferred $0.4 million of commission expenditures
and we amortized $0.5 million to sales expense. Deferred
commissions on our consolidated balance sheet totaled
$2.1 million at March 31, 2012 and $2.2 million
at December 31, 2011.
When subcontractors are used to provide all or a portion of our
professional services, we defer the direct and incremental
subcontracting costs and amortize those costs over the same
period that the professional service revenue is recognized.
During the three months ended March 31, 2012, we deferred
$0.6 million of subcontracting costs and we amortized
$0.6 million to cost of revenue. During the same period in
2011, we deferred $0.7 million of subcontracting costs and
we amortized $0.8 million to cost of revenue. Deferred
subcontracting costs on our consolidated balance sheet totaled
$0.4 million at March 31, 2012 and $0.6 million
at December 31, 2011.
55
Allowance for
Doubtful Accounts
On a quarterly basis, we evaluate the need to establish an
allowance for doubtful accounts, by analyzing the likelihood of
receiving customer payments. Our evaluation and analysis include
a specific identification and review of all outstanding accounts
receivable balances, review of our historical collection
experience with each customer, and any specific facts and
circumstances that may indicate that a specific customer
receivable is not collectible. We make judgments as to our
ability to collect outstanding receivables and establish an
allowance when collection becomes doubtful.
Accounting for
Stock-Based Compensation
We account for stock-based awards granted to employees and
directors by recording compensation expense based on the
awards estimated fair values. We expect that our expense
related to stock-based compensation will increase over time.
We estimate the fair value of our stock-based awards as of the
date of grant using the Black-Scholes option-pricing model.
Determining the fair value of stock-based awards under this
model requires judgment, including estimating the value per
share of our common stock adjusted for our status as a private
company, estimated volatility, expected term of the awards,
estimated dividend yield and the risk-free interest rate. The
assumptions used in calculating the fair value of stock-based
awards represent our best estimates, based on managements
judgment and subjective future expectations. These estimates
involve inherent uncertainties. If any of the assumptions used
in the model change significantly, stock-based compensation
recorded for future awards may differ materially from that
recorded for awards granted previously.
The determination of the estimated value per share of our common
stock is discussed below. We use the average volatility of
similar publicly traded companies to determine our estimated
volatility. For purposes of determining the expected term of the
awards in the absence of sufficient historical data relating to
stock-option exercises for our company, we apply a simplified
approach in which the expected term of an award is presumed to
be the mid-point between the vesting date and the expiration
date of the award. The risk-free interest rate for periods
within the expected life of an award, as applicable, is based on
the U.S. Treasury yield curve in effect during the period
in which the award was granted. Our estimated dividend yield is
zero, as we have not and do not currently intend to declare
dividends in the foreseeable future.
Once we have determined the estimated fair value of our
stock-based awards, we recognize the portion of that value that
corresponds to the portion of the award that is ultimately
expected to vest, taking estimated forfeitures into account.
This amount is recognized as an expense over the vesting period
of the award using the straight-line method. We estimate
forfeitures based upon our historical experience and, at each
period, review the estimated forfeiture rate and make changes as
factors affecting the forfeiture rate calculations and
assumptions change.
We calculated the fair value of options granted using the
Black-Scholes pricing model with the following weighted average
assumptions:
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Three Months
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Years Ended December 31,
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Ended March 31,
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2009
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2010
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2011
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2012
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Estimated volatility
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76.0
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%
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62.3
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%
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58.5
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%
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59.3
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%
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Estimated dividend yield
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0.0
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%
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0.0
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%
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0.0
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%
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0.0
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%
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Estimated term (years)
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6.1
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6.1
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6.1
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6.1
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Risk-free rate
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2.2
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%
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1.9
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%
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1.9
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%
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1.74
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%
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Significant
Factors, Assumptions and Methodologies Used in Determining Fair
Value of Common Stock
Given the absence of an active market for our common stock, our
board of directors is required to estimate the fair value of our
common stock at the time of each grant of stock-based awards.
Beginning with the fourth quarter of 2007, our management has
regularly commissioned Timan LLC, or Timan, an independent third
party valuation firm, to prepare contemporaneous valuation
analyses near the time of each grant to assist our board of
directors in this determination. In general, our board of
directors received a draft of the Timan valuation report prior
to the board meeting at which options were to be granted. At the
meeting, the board of directors would consider the draft report,
and following the meeting, the valuation report would be
finalized after taking into account any corrections or updates
requested by the board of directors. The board of directors
considered the Timan valuation reports along with other relevant
objective and subjective factors it deemed important in each
valuation, exercising significant judgment and reflecting the
board of directors best estimates at the time. These
factors included:
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independent third-party valuations performed by Timan
contemporaneously or within a short period of time of the grant
date, as applicable;
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the nature and history of our business;
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our operating and financial performance;
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general economic conditions and the specific outlook for our
industry;
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significant new customer wins by us and by our competitors and
our competitive position in general;
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the lack of liquidity for our non-publicly traded common stock;
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the market price of companies engaged in the same or similar
lines of business whose equity securities are publicly traded in
active trading markets;
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the differences between our preferred and common stock in terms
of liquidation preferences, conversion rights, voting rights and
other features; and
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the likelihood of achieving different liquidity events or
remaining a private company.
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We have performed the valuations of our common stock in
accordance with the guidelines outlined in the American
Institute of Certified Public Accountants Practice Aid,
Valuation of Privately-Held-Company Equity Securities
Issued as Compensation. We have used the
Probability-Weighted Expected Return Method, or PWERM, to
estimate the fair value of our common and preferred stock. This
valuation method was considered to be the most appropriate given
the status of our business. Under the PWERM method, management
assigned probabilities and timing estimates to potential
liquidity events for our business based on a variety of factors,
including primarily our recent operating history, the amount of
cash held by us, and our business outlook. Four principal
scenarios were examined: (1) an initial public offering, or
IPO, scenario; (2) a merger, acquisition or sale, or
M&A, scenario; (3) dissolution or liquidation scenario
and (4) a no exit scenario in which the company continues
to operate as a private entity. For each valuation date, we
prepared a financial forecast to be used in the computation of
the enterprise value. The financial forecasts took into account
our past experience and future expectations.
For each of the scenarios, we have applied one or more of the
following generally accepted valuation approaches: (1) the
market-based approach; (2) the asset approach and
(3) the income approach. To arrive at the enterprise value
under the M&A and IPO scenarios, we used a market-multiple
approach, which measures the value of an asset or business
through an analysis of recent sales or offerings of comparable
investments or assets. In our case, we focused on comparing our
57
company to publicly traded comparable companies, or our
benchmarked companies, for the IPO scenario. We analyzed the
business and financial profiles of the selected companies for
relative similarity to us, and once such differences and
similarities were determined and proper adjustments were made,
we selected an appropriate enterprise value multiple.
When considering which companies to include in our benchmarked
companies, we focused on two sets of companies based in the
United States: (1) publicly traded software companies that
primarily deliver software using the SaaS business model similar
to ours and (2) competitors that deliver marketing
automation and revenue performance management applications and
solutions. As the benchmarked companies have either a similar
business model to us, delivering SaaS solutions, or compete for
similar customers, we believe our cost structures are similar.
The selection of benchmarked companies requires us to make
judgments as to the comparability of these companies to us.
While the benchmarked companies are generally larger than us in
terms of total revenue and assets, several of the companies,
like us, are in the investment and growth stage and have
experienced operating losses while they have been growing their
businesses. Also, several of the comparable companies completed
initial public offerings in recent years. The selection of
benchmarked companies changes over time based on whether we
believe the selected companies remain comparable to us. Based on
these considerations, we believe that the companies we selected
are a representative group for purposes of performing valuations.
For the M&A scenario, the future enterprise value was
estimated using projected revenue and revenue multiples
estimated from private companies that have recently sold based
on information from the Mergerstat database and other public
databases.
To arrive at the enterprise value under the dissolution or
liquidation scenario, we used the asset approach, which is based
on the current net asset value and the estimated future net
asset value and the liquidation preferences of the preferred
shareholders.
We estimated our enterprise value under the continuing to
operate as a private entity scenario, or No Exit scenario, using
an income approach through performing a discounted cash flow, or
DCF, analysis. Under the DCF analysis, we forecasted our
expected cash flows and then, discounted them back to the
present using a rate of return derived from comparison companies
of similar type and risk profile. The value of future net cash
flows was calculated by applying a terminal valuation
calculation to our projected cash flow, using projected EBITDA
and median trailing twelve-month EBITDA multiples of publicly
traded comparable companies.
Lastly, we probability-weighted the common stockholder values
under each of the scenarios to arrive at an indication of value
for our common equity. The valuation reports dated November 30,
2008 to February 28, 2011 all assigned the following probability
weights to the various potential outcomes: 45% likelihood of
M&A scenario, 5% likelihood of IPO scenario, 25% likelihood
of liquidation and 25% likelihood of continuing to operate as a
private company in a no exit scenario. The valuation reports
dated June 30, 2011 to August 22, 2011 assigned the following
probability weights to the potential outcomes: 20% probability
of IPO scenario by the end of this year, 20% probability of IPO
scenario by June 2013, 35% probability of M&A scenario, 15%
probability of continuing to operate as a private company in a
no exit scenario and 10% probability of liquidation. The
valuation report dated October 31, 2011 assigned the
following probability weights to the potential outcomes: 10%
probability of IPO scenario by the end of 2011, 30% probability
of IPO scenario by June 2013, 35% probability of M&A
scenario, 15% probability of continuing to operate as a private
company in a no exit scenario and 10% probability of
liquidation. The valuation reports dated January 18, 2012
and March 28, 2012 assigned the following probability
weights to the potential outcomes: 30% probability of IPO
scenario by June 2012, 10% probability of IPO scenario by
December 2012, 35% probability of M&A scenario, 15%
probability of continuing to operate as a private company in a
no exit scenario and 10% probability of liquidation. The
valuation report dated April 25, 2012 assigned the
following probability weights to the potential outcomes:
58
35% probability of IPO scenario by June 2012, 10%
probability of IPO scenario by December 2012, 35% probability of
M&A scenario, 15% probability of continuing to operate as a
private company in a no exit scenario and 5% probability of
liquidation. A discount rate of 35% has been used for all the
scenarios, including calculation of discounted cash flow. The
35% discount rate was provided by Timan, LLC based on its
determination of the risk adjusted rate of return, or discount
rate, that would be expected by a venture capital investor in
order to invest in a company at our stage of development. This
discount rate did not change between January 2009 and April
2012, despite our increased revenues and longer operating
history, because Timan, LLCs analysis determined that
throughout this period the development stage of our company,
middle to late mezzanine-stage, remained unchanged. Timan, LLC
concluded that because our company recognized product revenue
throughout the period from January 2009 to April 2012, but not
operating profitability, the expected risk adjusted return on
capital by a venture capital investor in our company fell
between a 30% and 40% rate. The following table summarizes all
option grants from January 1, 2009 through the date of this
prospectus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Aggregate Grant
|
|
|
Number of
|
|
Per Share
|
|
Fair Value Per Share
|
|
Date Fair Value
|
Grant Date
|
|
Options Granted
|
|
Exercise Price
|
|
at Grant Date
|
|
of Options
|
|
January 27, 2009
|
|
|
56,000
|
|
|
$
|
1.20
|
|
|
$
|
1.20
|
|
|
$
|
47,023
|
|
February 6, 2009
|
|
|
195,000
|
|
|
$
|
1.20
|
|
|
$
|
1.20
|
|
|
$
|
163,944
|
|
April 28, 2009
|
|
|
156,000
|
|
|
$
|
1.20
|
|
|
$
|
1.20
|
|
|
$
|
134,636
|
|
July 21, 2009
|
|
|
505,200
|
|
|
$
|
1.43
|
|
|
$
|
1.43
|
|
|
$
|
523,367
|
|
October 27, 2009
|
|
|
132,000
|
|
|
$
|
1.53
|
|
|
$
|
1.53
|
|
|
$
|
144,386
|
|
January 26, 2010
|
|
|
212,000
|
|
|
$
|
1.55
|
|
|
$
|
1.55
|
|
|
$
|
219,608
|
|
February 8, 2010
|
|
|
260,000
|
|
|
$
|
1.55
|
|
|
$
|
1.55
|
|
|
$
|
269,428
|
|
April 28, 2010
|
|
|
224,000
|
|
|
$
|
1.75
|
|
|
$
|
1.75
|
|
|
$
|
245,736
|
|
July 29, 2010
|
|
|
116,000
|
|
|
$
|
1.90
|
|
|
$
|
1.90
|
|
|
$
|
131,963
|
|
November 10, 2010
|
|
|
371,200
|
|
|
$
|
2.33
|
|
|
$
|
2.33
|
|
|
$
|
512,900
|
|
December 20, 2010
|
|
|
200,000
|
|
|
$
|
2.33
|
|
|
$
|
2.33
|
|
|
$
|
277,511
|
|
February 23, 2011
|
|
|
215,000
|
|
|
$
|
3.23
|
|
|
$
|
3.23
|
|
|
$
|
391,895
|
|
March 4, 2011
|
|
|
300,000
|
|
|
$
|
3.23
|
|
|
$
|
3.23
|
|
|
$
|
546,300
|
|
April 28, 2011
|
|
|
121,000
|
|
|
$
|
4.75
|
|
|
$
|
4.75
|
|
|
$
|
324,782
|
|
July 1, 2011
|
|
|
206,800
|
|
|
$
|
7.15
|
|
|
$
|
7.15
|
|
|
$
|
802,745
|
|
July 27, 2011
|
|
|
48,000
|
|
|
$
|
7.15
|
|
|
$
|
7.15
|
|
|
$
|
185,141
|
|
August 23, 2011
|
|
|
521,000
|
|
|
$
|
7.25
|
|
|
$
|
7.25
|
|
|
$
|
2,004,328
|
|
November 4, 2011
|
|
|
94,000
|
|
|
$
|
7.25
|
|
|
$
|
7.25
|
|
|
$
|
372,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 24, 2012
|
|
|
176,000
|
|
|
$
|
8.13
|
|
|
$
|
8.13
|
|
|
$
|
809,363
|
|
March 30, 2012
|
|
|
580,120
|
|
|
$
|
8.83
|
|
|
$
|
8.83
|
|
|
$
|
2,874,988
|
|
May 1, 2012
|
|
|
245,000
|
|
|
$
|
9.03
|
|
|
$
|
9.03
|
|
|
$
|
1,181,394
|
|
Significant factors contributing to changes in common stock fair
value at the date of each grant beginning in fiscal year 2009
were as follows:
January and
February 2009
On January 27, 2009, our board of directors granted options
to purchase 56,000 shares of common stock with an exercise
price of $1.20. In estimating the fair value of our common stock
to set the exercise price of such options as of January 27,
2009, the board of directors reviewed and considered a draft of
an independent valuation report for our common stock as of
November 30, 2008. The independent valuation report was
finalized on February 6, 2009 and reflected a fair value of
our common stock of $1.20 per share as of November 30,
2008. Our board of directors determined that there were no
significant factors affecting the value of our common stock that
occurred between November 30, 2008 and January 27,
2009.
On February 6, 2009, when our results were similar to the
prior month, the compensation committee of our board of
directors granted options to purchase 195,000 shares of
common stock with an exercise price of $1.20. There had been no
meaningful change in our performance since the last stock option
grant date and therefore our board and management believed that
the estimated fair value of common stock had not changed since
the January 27, 2009 grant.
59
The board and our management considered the relatively flat
performance by the benchmarked companies for the quarter ended
March 30, 2009. In addition, the macro-economic conditions
at the time had deteriorated, with uncertainty as to whether the
overall economy would rebound in 2009 and as to the impact of
the recession on the purchasing patterns of our customer base,
which was slower than both our board-approved operating plan, as
well as our revised goals.
April
2009
On April 28, 2009, our board of directors granted options
to purchase 156,000 shares of common stock with an exercise
price of $1.20. In estimating the fair value of our common stock
to set the exercise price of such options as of April 28,
2009, the board of directors reviewed and considered a finalized
independent valuation report dated April 24, 2009 for our
common stock as of February 28, 2009. The independent
valuation report reflected a fair value of our common stock of
$1.20 per share as of February 28, 2009. Our board of
directors determined that there were no significant factors
affecting the value of our common stock that occurred between
February 28, 2009 and April 28, 2009. The board of
directors considered the continuing economic downturn, which
caused our sales growth to slow. Beginning in early 2009, we
began to cut expenses to deal with slower growth, which caused
our valuation to remain relatively stable for an extended period
of time.
July
2009
On July 21, 2009, our board of directors granted options to
purchase 505,200 shares of common stock with an exercise
price of $1.43. In estimating the fair value of our common stock
to set the exercise price of such options as of July 21,
2009, the board of directors reviewed and considered a draft of
an independent valuation report for our common stock as of
May 31, 2009. The independent valuation report was
finalized on August 19, 2009 and reflected a fair value of
our common stock of $1.43 per share as of May 31, 2009. Our
board of directors determined that there were no significant
factors affecting the value of our common stock that occurred
between May 31, 2009 and July 21, 2009. In determining
the value of our common stock, our board of directors noted that
various benchmarked companies began to show improvements in
their valuation multiples and our financial results began to
stabilize. However, we continued to experience challenges from
the overall economic environment, and to deal with growth that
was slower than our plan.
October
2009
On October 27, 2009, our board of directors granted options
to purchase 132,000 shares of common stock with an exercise
price of $1.53. In estimating the fair value of our common stock
to set the exercise price of such options as of October 27,
2009, the board of directors reviewed and considered a finalized
independent valuation report dated October 24, 2009 for our
common stock as of August 31, 2009. The independent
valuation report reflected a fair value of our common stock of
$1.53 per share as of August 31, 2009. Our board of
directors determined that there were no significant factors
affecting the value of our common stock that occurred between
August 31, 2009 and October 27, 2009. The benchmarked
companies continued to slowly improve their performance on
average. The overall economy continued to slowly recover from
the widespread recession, which caused our potential customers
to continue to be hesitant to purchase our solutions, leading to
slower growth than our business plan had anticipated.
January and
February 2010
On January 26, 2010, our board of directors granted options
to purchase 212,000 shares of common stock with an exercise
price of $1.55. In estimating the fair value of our common stock
to set the exercise price of such options as of January 26,
2010, the board of directors reviewed and
60
considered a draft of an independent valuation report dated
January 21, 2010 for our common stock as of
November 30, 2009. The independent valuation report was
finalized on March 30, 2010 and reflected a fair value of
our common stock of $1.55 per share as of November 30,
2009. Our board of directors determined that there were no
significant factors affecting the value of our common stock that
occurred between November 30, 2009 and January 26,
2010.
On February 8, 2010, when our results were similar to prior
months, the compensation committee of our board of directors
granted options to purchase 260,000 shares of common stock
with an exercise price of $1.55. There had been no meaningful
change in our performance since the last stock option grant date
and therefore our board and management believed that the
estimated fair value of common stock had not changed since the
January 26, 2010 grant. Our board of directors and
management determined that there was no real change in economic
conditions, our results or the performance of the benchmarked
companies since the October 2009 grants.
April
2010
On April 28, 2010, our board of directors granted options
to purchase 224,000 shares of common stock with an exercise
price of $1.75. In estimating the fair value of our common stock
to set the exercise price of such options as of April 28,
2010, the board of directors reviewed and considered a draft of
an independent valuation report dated April 12, 2010 for
our common stock as of February 28, 2010. The independent
valuation report was finalized on June 3, 2010 and
reflected a fair value of our common stock of $1.75 per share as
of February 28, 2010. Our board of directors determined
that there were no significant factors affecting the value of
our common stock that occurred between February 28, 2010
and April 28, 2010. We began to see some recovery in sales
momentum as the economy continued to improve. Therefore, we
began to increase staffing in a number of areas, and expanded
marketing and sales efforts as we sought to regain our sales
momentum.
July
2010
On July 29, 2010, our board of directors granted options to
purchase 116,000 shares of common stock with an exercise
price of $1.90. In estimating the fair value of our common stock
to set the exercise price of such options as of July 29,
2010, the board of directors reviewed and considered a draft of
an independent valuation report dated July 26, 2010 for our
common stock as of May 31, 2010. The independent valuation
report was finalized on August 26, 2010 and reflected a
fair value of our common stock of $1.90 per share as of
May 31, 2010. Our board of directors determined that there
were no significant factors affecting the value of our common
stock that occurred between May 31, 2010 and July 29,
2010. In the first half of 2010, we continued to see improvement
in our operating results as our customers and potential
customers became more willing to purchase our solutions or to
expand their use of our solutions.
November and
December 2010
On November 10, 2010, our board of directors granted
options to purchase 371,200 shares of common stock with an
exercise price of $2.33. In estimating the fair value of our
common stock to set the exercise price of such options as of
November 10, 2010, the board of directors reviewed and
considered a draft of an independent valuation report dated
October 29, 2010 for our common stock as of August 31,
2010. The independent valuation report was finalized on
January 3, 2011 and reflected a fair value of our common
stock of $2.33 per share as of August 31, 2010. Our
operating results continued to improve throughout 2010 in
accordance with our forecasts, leading to an increase in our
valuation, as we logged increased sales while maintaining
expense levels. Our board of directors determined that there
were no significant factors affecting the value of our common
stock that occurred between August 31, 2010 and
November 10, 2010.
61
One month later, on December 20, 2010, when our results
were similar to prior months, the compensation committee of our
board of directors granted options to purchase
200,000 shares of common stock with an exercise price of
$2.33. There had been no meaningful change in our performance
since the last stock option grant date and therefore our board
and management believed that the estimated fair value of common
stock had not changed since the November 10, 2010 grant.
February and
March 2011
On February 23, 2011, our board of directors granted
options to purchase 215,000 shares of common stock with an
exercise price of $3.23. In estimating the fair value of our
common stock to set the exercise price of such options as of
February 23, 2011, the board of directors reviewed and
considered a draft of an independent valuation report dated
February 23, 2011 for our common stock as of
December 31, 2010. The independent valuation report was
finalized on March 4, 2011 and reflected a fair value of
our common stock of $3.23 per share as of December 31,
2010. This increase was due in large part to an increase in the
market-based valuation of comparable public companies and in the
valuations attached to acquisitions of comparable companies
between August 31, 2010 and December 31, 2010. Our
board of directors determined that there were no significant
factors affecting the value of our common stock that occurred
between December 31, 2010 and February 23, 2011.
On March 4, 2011, when our results were similar to prior
months, the compensation committee of our board of directors
granted options to purchase 300,000 shares of common stock
with an exercise price of $3.23. There had been no meaningful
change in our performance since the last stock option grant date
and therefore our board and management believed that the
estimated fair value of common stock had not changed since the
February 23, 2011 grant. The overall market for comparable
companies began to show improvement at the end of 2010 and into
early 2011, as multiples paid for comparable companies increased.
April
2011
On April 29, 2011, our board of directors granted options
to purchase 121,000 shares of common stock with an exercise
price of $4.75. In estimating the fair value of our common stock
to set the exercise price of such options as of April 29,
2011, the board of directors reviewed and considered a draft of
an independent valuation report dated April 20, 2011 for
our common stock as of February 28, 2011. The independent
valuation report was finalized on June 10, 2011 and
reflected a fair value of our common stock of $3.25 per share as
of February 28, 2011. Our board of directors determined
that there were significant factors affecting the value of our
common stock that occurred between February 28, 2011 and
April 29, 2011 including the significantly increased
likelihood that we would be able to complete an initial public
offering in 2011 due to improved equity market conditions and
our planned meetings with investment bankers to discuss an
initial public offering.
July
2011
On July 1, 2011, our board of directors granted options to
purchase 206,800 shares of common stock with an exercise
price of $7.15. In estimating the fair value of our common stock
to set the exercise price of such options as of July 1,
2011, the board of directors reviewed and considered a finalized
independent valuation report dated June 30, 2011 for our
common stock as of June 30, 2011. The independent valuation
report reflected a fair value of our common stock of $7.15 per
share. The main factors contributing to the increase in
valuation between April 29, 2011 and July 1, 2011 were
our continued progress toward an initial public offering and the
continued receptivity of the public markets to initial public
offerings of companies comparable to ours, which both increased
the likelihood that we would pursue an initial public offering
in the relatively near term. In addition, during the same period
there was an increase in the market-based valuation of
comparable public
62
companies, which increased the multiples applied to our revenue
in determining our valuation. Our board of directors determined
that there were no significant factors affecting the value of
our common stock that occurred between June 30, 2011 and
July 1, 2011.
Less than a month later, our board of directors granted options
to purchase 48,000 shares of common stock with an exercise
price of $7.15 on July 27, 2011. In estimating the fair
value of our common stock to set the exercise price of such
options as of July 27, 2011, the board of directors
reviewed and considered a finalized independent valuation report
dated June 30, 2011 for our common stock as of
June 30, 2011 and a draft of an independent valuation
report dated July 26, 2011 for our common stock as of
July 25, 2011. The June 30, 2011 independent valuation
report reflected a fair value of our common stock of $7.15 per
share whereas the July 26, 2011 independent valuation
report reflected a fair value of our common stock of $7.05 per
share based on lower valuations of market comparables. However,
our board of directors determined that despite changes in the
market, the value of our common stock remained the same as
June 30, 2011.
August
2011
On August 23, 2011, our board of directors granted options
to purchase 521,000 shares of common stock with an exercise
price of $7.25. In estimating the fair value of our common stock
to set the exercise price of such options as of August 23,
2011, the board of directors reviewed and considered a finalized
independent valuation report dated August 22, 2011 for our
common stock as of August 22, 2011. The independent
valuation report reflected a fair value of our common stock of
$6.33 per share as of August 22, 2011. Our board of
directors determined that the fair value of our stock was
somewhat higher than in July 2011 as our business continued to
progress in accordance with our expectations, we continued our
progress towards an initial public offering and the sole reason
for the decrease in the 409A valuation performed by Timan was
the significant reduction in market prices of the public
comparables resulting from the recent turmoil in the financial
markets.
November
2011
On November 4, 2011, our board of directors granted options to
purchase 94,000 shares of common stock with an exercise price of
$7.25. In estimating the fair value of our common stock to set
the exercise price of such options as of November 4, 2011, the
board of directors reviewed and considered a draft of an
independent valuation report dated October 31, 2011 for our
common stock as of October 30, 2011. The independent valuation
report reflected a fair value of our common stock of $7.23 per
share as of October 30, 2011. Our board of directors determined
that the fair value of our common stock was $7.25, consistent
with the fair value in August 2011, as there had been no
meaningful change in our performance since August 2011.
January
2012
On January 24, 2012, our board of directors granted options
to purchase 176,000 shares of common stock with an exercise
price of $8.13. In estimating the fair value of our common stock
to set the exercise price of such options as of January 24,
2012, the board of directors reviewed and considered a draft of
an independent valuation report dated January 18, 2012 for
our common stock as of January 17, 2012. The independent
valuation report reflected a fair value of our common stock of
$8.13 per share as of January 17, 2012. The main factors
contributing to the increase in valuation between
November 4, 2011 and January 24, 2012 were our
continued progress toward an initial public offering, higher
valuations of market comparables and revised internal operating
forecasts. Our board of directors determined that there were no
significant factors affecting the value of our common stock that
occurred between January 17, 2012 and January 24, 2012.
63
March
2012
On March 30, 2012, our board of directors granted options
to purchase 580,120 shares of common stock with an exercise
price of $8.83. In estimating the fair value of our common stock
to set the exercise price of such options as of March 30,
2012, the board of directors reviewed and considered a draft of
an independent valuation report dated March 28, 2012 for
our common stock as of March 27, 2012. The independent
valuation report reflected a fair value of our common stock of
$8.83 per share as of March 27, 2012. The main factors
contributing to the increase in valuation between
January 24, 2012 and March 27, 2012 were our continued
progress toward an initial public offering and revised internal
operating forecasts.
May
2012
On May 1, 2012, our board of directors granted options to
purchase 245,000 shares of common stock with an exercise
price of $9.03 per share. In estimating the fair value of our
common stock to set the exercise price of such options as of
May 1, 2012, the board of directors reviewed and considered
a draft of an independent valuation report dated April 25,
2012 for our common stock as of April 25, 2012. The
independent valuation report reflected a fair value of our
common stock of $9.03 per share as of April 25, 2012. The
main factors contributing to the increase in valuation between
March 27, 2012 and April 25, 2012 were our continued
progress toward an initial public offering, higher valuations of
market comparables and revised internal operating forecasts. Our
board of directors determined that there were no significant
factors affecting the value of our common stock that occurred
between April 25, 2012 and May 1, 2012.
Accounting for
Income Taxes
Income taxes are accounted for under the asset and liability
method, under which deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis
and for operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. To the extent that it is not considered to
be more likely than not that a deferred tax asset will be
realized, a valuation allowance is established.
We apply the guidance in FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48)
(included in FASB ASC Topic
740-10,
Income Taxes-Overall), which provides guidance related to
the accounting for uncertain tax positions. In accordance with
FIN 48, we only recognize the tax benefit from an uncertain
tax position if it is more likely than not that the tax position
will be sustained on examination. We have assessed our income
tax positions and recorded tax benefits for all years subject to
examination, based upon our evaluation of the facts,
circumstances and information available at each period end. For
those tax positions where we have determined there is greater
than 50% likelihood that a tax benefit will be sustained, we
have recorded the largest amount of tax benefit which is
more-likely-than-not to be realized upon ultimate settlement
with a taxing authority that has full knowledge of all relevant
information. For those income tax positions where we have
determined there is a less than 50% likelihood that a tax
benefit will be sustained, no tax benefit has been recognized in
our financial statements.
We claim investment tax credits in Canada arising from
qualifying scientific research and experimental development
expenditures. Certain refundable claims resulting from
qualifying costs do not have characteristics of income tax
benefits, and are recorded as a reduction of research and
development expenses on our statement of operations.
Nonrefundable investment tax credits are recorded as a reduction
of income tax expense.
64
New Accounting
Pronouncements
In 2011, the FASB issued ASU
2011-05,
Presentation of Comprehensive Income, which provides
updated guidance for disclosing comprehensive income. The update
is intended to increase the prominence of other comprehensive
income (loss) in the financial statements. The guidance requires
that we present components of comprehensive income in either one
continuous statement or two separate but consecutive statements
and no longer permits the presentation of comprehensive income
in the consolidated statement of stockholders equity. We
adopted this new guidance effective January 1, 2012, as
required. We do not have other comprehensive income to report
and, therefore, there was no impact on our financial statements
as a result of adopting this new standard.
In 2011, the FASB issued ASU
2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs. The new standards do not extend
the use of fair value but, rather, provide guidance about how
fair value should be applied where it already is required or
permitted under IFRS or U.S. GAAP. For U.S. GAAP, most
of the changes are clarifications of existing guidance or
wording changes to align with IFRS. We adopted this new guidance
effective January 1, 2012, as required. The adoption of ASU
2011-04 in
2012 did not have a material impact on our consolidated
financial statements.
The JOBS Act permits an emerging growth company like
us to take advantage of an extended transition period to comply
with new or revised accounting standards applicable to public
companies. We are choosing to opt out of this
provision and, as a result, we will comply with new or revised
accounting standards as required when they are adopted. This
decision to opt out of the extended transition period is
irrevocable.
Results of
Operations
The following tables set forth our statements of operations data
for each of the periods indicated as well as the percentage of
total revenue for each line item shown. The financial
information presented for the interim periods has been prepared
on the same basis as the audited consolidated financial
statements included elsewhere in this prospectus and, in the
opinion of management, includes all adjustments, consisting of
normal recurring adjustments, necessary for the fair
presentation of the results of operations for such periods. This
data should be read in conjunction with the audited consolidated
financial statements and the related notes included elsewhere in
this prospectus. Historical results are not necessarily
indicative of the results to be expected for future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
(dollars in thousands)
|
|
|
Consolidated Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
$
|
37,543
|
|
|
$
|
47,225
|
|
|
$
|
63,222
|
|
|
$
|
13,901
|
|
|
$
|
19,237
|
|
Professional services
|
|
|
3,415
|
|
|
|
3,574
|
|
|
|
8,126
|
|
|
|
1,058
|
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
40,958
|
|
|
|
50,799
|
|
|
|
71,348
|
|
|
|
14,959
|
|
|
|
21,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
|
6,423
|
|
|
|
9,569
|
|
|
|
12,330
|
|
|
|
2,739
|
|
|
|
3,426
|
|
Professional services
|
|
|
5,284
|
|
|
|
6,980
|
|
|
|
10,718
|
|
|
|
2,255
|
|
|
|
2,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
11,707
|
|
|
|
16,549
|
|
|
|
23,048
|
|
|
|
4,994
|
|
|
|
6,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
29,251
|
|
|
|
34,250
|
|
|
|
48,300
|
|
|
|
9,965
|
|
|
|
15,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8,607
|
|
|
|
10,363
|
|
|
|
11,679
|
|
|
|
2,792
|
|
|
|
3,433
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
(dollars in thousands)
|
|
|
Marketing and sales
|
|
|
17,321
|
|
|
|
22,147
|
|
|
|
29,481
|
|
|
|
6,851
|
|
|
|
8,175
|
|
General and administrative
|
|
|
7,348
|
|
|
|
7,879
|
|
|
|
12,208
|
|
|
|
2,546
|
|
|
|
4,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
33,276
|
|
|
|
40,389
|
|
|
|
53,368
|
|
|
|
12,189
|
|
|
|
16,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,025
|
)
|
|
|
(6,139
|
)
|
|
|
(5,068
|
)
|
|
|
(2,224
|
)
|
|
|
(1,164
|
)
|
Other expense, net
|
|
|
(107
|
)
|
|
|
(241
|
)
|
|
|
(707
|
)
|
|
|
(123
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit (expense)
|
|
|
(4,132
|
)
|
|
|
(6,380
|
)
|
|
|
(5,775
|
)
|
|
|
(2,347
|
)
|
|
|
(1,221
|
)
|
Income tax benefit (expense)
|
|
|
(81
|
)
|
|
|
4,869
|
|
|
|
(378
|
)
|
|
|
(63
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,213
|
)
|
|
$
|
(1,511
|
)
|
|
$
|
(6,153
|
)
|
|
$
|
(2,410
|
)
|
|
$
|
(1,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
2012
|
|
|
|
(as a percentage of total revenue)
|
|
|
Consolidated Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
|
91.7
|
%
|
|
|
93.0
|
%
|
|
|
88.6
|
%
|
|
|
92.9
|
%
|
|
|
88.2
|
%
|
Professional services
|
|
|
8.3
|
|
|
|
7.0
|
|
|
|
11.4
|
|
|
|
7.1
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
|
15.7
|
|
|
|
18.8
|
|
|
|
17.3
|
|
|
|
18.3
|
|
|
|
15.7
|
|
Professional services
|
|
|
12.9
|
|
|
|
13.7
|
|
|
|
15.0
|
|
|
|
15.1
|
|
|
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
28.6
|
|
|
|
32.6
|
|
|
|
32.3
|
|
|
|
33.4
|
|
|
|
29.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
71.4
|
|
|
|
67.4
|
|
|
|
67.7
|
|
|
|
66.6
|
|
|
|
70.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
21.0
|
|
|
|
20.4
|
|
|
|
16.4
|
|
|
|
18.7
|
|
|
|
15.7
|
|
Marketing and sales
|
|
|
42.3
|
|
|
|
43.6
|
|
|
|
41.3
|
|
|
|
45.8
|
|
|
|
37.5
|
|
General and administrative
|
|
|
17.9
|
|
|
|
15.5
|
|
|
|
17.1
|
|
|
|
17.0
|
|
|
|
22.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
81.2
|
|
|
|
79.5
|
|
|
|
74.8
|
|
|
|
81.5
|
|
|
|
76.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(9.8
|
)
|
|
|
(12.1
|
)
|
|
|
(7.1
|
)
|
|
|
(14.9
|
)
|
|
|
(5.3
|
)
|
Other expense, net
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
|
(1.0
|
)
|
|
|
(0.8
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit (expense)
|
|
|
(10.1
|
)
|
|
|
(12.6
|
)
|
|
|
(8.1
|
)
|
|
|
(15.7
|
)
|
|
|
(5.6
|
)
|
Income tax benefit (expense)
|
|
|
(0.2
|
)
|
|
|
9.6
|
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(10.3
|
)%
|
|
|
(3.0
|
)%
|
|
|
(8.6
|
)%
|
|
|
(16.1
|
)%
|
|
|
(6.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of
Three Months Ended March 31, 2011 and 2012
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Change
|
|
|
|
2011
|
|
|
2012
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Subscription and Support Revenue
|
|
$
|
13,901
|
|
|
$
|
19,237
|
|
|
$
|
5,336
|
|
|
|
38.4
|
%
|
Percentage of total revenue
|
|
|
92.9
|
%
|
|
|
88.2
|
%
|
|
|
|
|
|
|
|
|
Professional Service Revenue
|
|
$
|
1,058
|
|
|
$
|
2,565
|
|
|
$
|
1,507
|
|
|
|
142.4
|
%
|
Percentage of total revenue
|
|
|
7.1
|
%
|
|
|
11.8
|
%
|
|
|
|
|
|
|
|
|
66
Subscription
and support revenue.
Subscription and support revenue. Subscription
and support revenue for the three months ended March 31,
2012 increased by $5.3 million, or 38.4%, as compared to
the three months ended March 31, 2011. Approximately
$4.8 million of the $5.3 million increase in
subscription and support revenue resulted from the
$17.3 million of subscription and support revenue we
recognized during the first three months of 2012 from contracts
entered into prior to January 1, 2012 as compared to the
$12.5 million of subscription and support revenue we
recognized during the first three months of 2011 from contracts
entered into prior to January 1, 2011. Under our revenue
recognition policy, we generally recognize subscription and
support revenue ratably over the term of a contract and, as a
result, to the extent we enter into a contract during the course
of a fiscal period, revenue under the contract is not fully
recognized during the period. The remaining $0.5 million
increase in subscription and support revenue during the three
months ended March 31, 2012 was attributable to the
$2.0 million of subscription and support revenue we
recognized during the first three months of 2012 from contracts
entered into between January 1, 2012 and March 31,
2012 as compared to the $1.5 million of subscription and
support revenue we recognized during the first three months of
2011 from contracts entered into between January 1, 2011
and March 31, 2011.
Professional services revenue. Professional
services revenue for the three months ended March 31, 2012
increased by $1.5 million, or 142.4%, over the three months
ended March 31, 2011. The increase of $1.5 million of
service revenue was primarily driven by a combination of the
growth in our business in 2012 compared to 2011 and an increase
in the amount of professional services provided by us rather
than third parties, which reflected our increased investment in
our professional services organization.
Cost of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Change
|
|
|
|
2011
|
|
|
2012
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Cost of subscription and support revenue
|
|
$
|
2,739
|
|
|
$
|
3,426
|
|
|
$
|
687
|
|
|
|
25.1
|
%
|
Percentage of subscription and support revenue
|
|
|
19.7
|
%
|
|
|
17.8
|
%
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
11,162
|
|
|
$
|
15,811
|
|
|
$
|
4,649
|
|
|
|
41.7
|
%
|
Cost of professional services revenue
|
|
$
|
2,255
|
|
|
$
|
2,965
|
|
|
$
|
709
|
|
|
|
31.4
|
%
|
Percentage of professional services revenue
|
|
|
213.1
|
%
|
|
|
115.6
|
%
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
$
|
(1,197
|
)
|
|
$
|
(399
|
)
|
|
$
|
798
|
|
|
|
(66.7
|
)%
|
Cost of subscription and support revenue. Cost
of subscription and support revenue for the three months ended
March 31, 2012 increased by $0.7 million, or 25.1%,
over the three months ended March 31, 2011. This increase
was primarily driven by a $0.3 million increase in
personnel and related expenses associated with increased
headcount in the first quarter of 2012 compared to the same
period in 2011. Additionally, in the three months ended
March 31, 2012 we experienced a $0.3 million increase
in production costs, hosting and software maintenance fees
incurred to accommodate growth as compared to the same period in
the prior year.
Cost of professional services revenue. Cost of
professional services revenue for the three months ended
March 31, 2012 increased by $0.7 million, or 31.4%,
over the three months ended March 2011. This increase was
primarily driven by a $0.5 million increase in personnel
and related expenses resulting from an increase in headcount to
support our customer growth in the three months ended
March 31, 2012, which expenses included salaries, bonus and
vacation.
67
Operating
Expenses
Research and
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Change
|
|
|
2011
|
|
2012
|
|
$
|
|
%
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Research and Development
|
|
$
|
2,792
|
|
|
$
|
3,433
|
|
|
$
|
641
|
|
|
|
23.0
|
%
|
Percentage of total revenue
|
|
|
18.7
|
%
|
|
|
15.7
|
%
|
|
|
|
|
|
|
|
|
Research and development expenses for the three months ended
March 31, 2012 increased by $0.6 million, or 23.0%,
over the three months ended March 31, 2011. Approximately
$0.5 million of this increase is attributable to personnel
and related costs incurred in our continuing effort to enhance
and improve the features and functionality of the Eloqua
platform.
Marketing and
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Change
|
|
|
2011
|
|
2012
|
|
$
|
|
%
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Marketing and sales
|
|
$
|
6,851
|
|
|
$
|
8,175
|
|
|
$
|
1,324
|
|
|
|
19.3
|
%
|
Percentage of total revenue
|
|
|
45.8
|
%
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
Marketing and sales expenses for the three months ended
March 31, 2012 increased by $1.3 million, or 19.3%,
over the three months ended March 31, 2011. Approximately
$0.8 million of the increase was driven by increased
personnel related and sales commission costs. Additionally, our
costs related to marketing consulting, internet marketing,
marketing events and marketing related software expenses
increased by $0.3 million in the three months ended
March 31, 2012 as compared to the same period in the prior
year.
General and
Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Change
|
|
|
2011
|
|
2012
|
|
$
|
|
%
|
|
|
(dollars in thousands)
|
|
|
|
|
|
General and Administrative
|
|
$
|
2,546
|
|
|
$
|
4,967
|
|
|
$
|
2,421
|
|
|
|
95.1
|
%
|
Percentage of total revenue
|
|
|
17.0
|
%
|
|
|
22.8
|
%
|
|
|
|
|
|
|
|
|
General and administrative expenses for the three months ended
March 31, 2012 increased by $2.4 million, or 95.1%,
over the three months ended March 31, 2011. This increase
was driven by increased professional service expenses of
$1.9 million. Legal fees related to a pending patent
dispute accounted for $1.8 million of the $1.9 million
increase in professional services. During the three months ended
March 31, 2012, headcount growth resulted in a
$0.6 million increase in salaries, payroll taxes, employee
benefits and stock option compensation as compared to the same
period in the prior year. These increases were offset by a
decrease in bad debt expense of $0.4 million.
Other Income
(Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Change
|
|
|
2011
|
|
2012
|
|
$
|
|
%
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Other Income (Expense), net
|
|
$
|
(123
|
)
|
|
$
|
(57
|
)
|
|
$
|
66
|
|
|
|
(53.7
|
)%
|
Percentage of total revenue
|
|
|
(0.8
|
)%
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
68
Other expense for the three months ended March 31, 2012
decreased $0.1 million, or 53.7%, over the three months
ended March 31, 2011. The decrease was due to a smaller
fair value adjustment of our Series C preferred stock
warrants during the three months ended March 31, 2012 as
compared to the same period in the prior year, which warrants
are adjusted to fair value each reporting period.
Income tax
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Change
|
|
|
2011
|
|
2012
|
|
$
|
|
%
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Income tax expense
|
|
$
|
(63
|
)
|
|
$
|
(235
|
)
|
|
$
|
(172
|
)
|
|
|
273.0
|
%
|
Percentage of total revenue
|
|
|
(0.4
|
)%
|
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
Income tax expense for the three months ended March 31,
2012 increased $0.2 million compared to the three months ended
March 31, 2011. The increase principally resulted from an
increase in non-deductible stock option expense, a lower
estimate for research incentives and an increase in income in
various foreign tax jurisdictions.
Comparison of
Years Ended December 31, 2009, 2010 and 2011
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
Change from
|
|
|
|
Years Ended December 31,
|
|
|
2009 to 2010
|
|
|
2010 to 2011
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support revenue
|
|
$
|
37,543
|
|
|
$
|
47,225
|
|
|
$
|
63,222
|
|
|
$
|
9,682
|
|
|
|
25.8
|
%
|
|
$
|
15,997
|
|
|
|
33.9
|
%
|
Percentage of total revenue
|
|
|
91.7
|
%
|
|
|
93.0
|
%
|
|
|
88.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional services revenue
|
|
$
|
3,415
|
|
|
$
|
3,574
|
|
|
$
|
8,126
|
|
|
$
|
159
|
|
|
|
4.7
|
%
|
|
$
|
4,552
|
|
|
|
127.4
|
%
|
Percentage of total revenue
|
|
|
8.3
|
%
|
|
|
7.0
|
%
|
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support revenue. Subscription
and support revenue increased $16.0 million, or 33.9%, from
2010 to 2011. Approximately $5.9 million of the
$16.0 million increase in subscription and support revenue
resulted from the $35.9 million of subscription and support
revenue we recognized during 2011 from contracts entered into
prior to January 1, 2011 as compared to the
$30.0 million of subscription and support revenue we
recognized during 2010 from contracts entered into prior to
January 1, 2010. Under our revenue recognition policy, we
generally recognize subscription and support revenue ratably
over the term of a contract and, as a result, to the extent we
enter into a contract during the course of a fiscal period,
revenue under the contract is not fully recognized during the
period. The remaining $10.1 million increase in
subscription and support revenue during 2011 was attributable to
the $27.3 million of subscription and support revenue we
recognized during 2011 from contracts entered into during 2011
as compared to the $17.3 million of subscription and
support revenue we recognized during 2010 from contracts entered
into during 2010.
Subscription and support revenue increased $9.7 million, or
25.8%, from 2009 to 2010. Approximately $4.0 million of the
$9.7 million increase in subscription and support revenue
resulted from the $30.0 million of subscription and support
revenue we recognized during 2010 from contracts entered into
prior to January 1, 2010 as compared to the
$26.0 million of subscription and support revenue we
recognized during 2009 from contracts entered into prior to
January 1, 2009. The remaining $5.7 million increase
in subscription and support revenue during 2010 was attributable
to the $17.3 million of subscription and support revenue we
recognized during 2010 from contracts
69
entered into during 2010 as compared to the $11.6 million
of subscription and support revenue we recognized during 2009
from contracts entered into during 2009.
Professional services revenue. Professional
services revenue increased $4.6 million, or 127.4%, from
2010 to 2011. The increase was partially the result of the
adoption of a new accounting standard, as discussed above. Prior
to January 1, 2011, we generally recognized billings
received for our implementation and training service engagements
ratably over the term of the related subscription agreement. As
a result of the new accounting standard, service fees are
generally separated from the related subscription arrangement
and recognized as the services are delivered. In 2011, we
recognized $2.2 million more in services revenue than we
would have under our previous revenue recognition policy. The
remaining increase of $2.4 million in service revenue was
primarily driven by a combination of the growth in our business
in 2011 compared to 2010 and an increase in the amount of
professional services provided by us rather than third parties,
which reflected our increased investment in our professional
services organization.
Professional services revenue increased $0.2 million, or
4.7%, from 2009 to 2010. The increase was driven primarily by an
increase in customer attendance and sponsorship fees related to
our annual user conference and the introduction of a user
conference in Europe in 2010.
Cost of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from
|
|
Change from
|
|
|
Years Ended December 31,
|
|
2009 to 2010
|
|
2010 to 2011
|
|
|
2009
|
|
2010
|
|
2011
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Cost of subscription and support revenue
|
|
$
|
6,423
|
|
|
$
|
9,569
|
|
|
$
|
12,330
|
|
|
$
|
3,146
|
|
|
|
49.0
|
%
|
|
$
|
2,761
|
|
|
|
28.9
|
%
|
Percentage of subscription and support revenue
|
|
|
17.1
|
%
|
|
|
20.3
|
%
|
|
|
19.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
31,120
|
|
|
$
|
37,656
|
|
|
$
|
50,892
|
|
|
$
|
6,536
|
|
|
|
21.0
|
%
|
|
$
|
13,236
|
|
|
|
35.1
|
%
|
Cost of professional services revenue
|
|
$
|
5,284
|
|
|
$
|
6,980
|
|
|
$
|
10,718
|
|
|
$
|
1,696
|
|
|
|
32.1
|
%
|
|
$
|
3,738
|
|
|
|
53.6
|
%
|
Percentage of professional services revenue
|
|
|
154.7
|
%
|
|
|
195.3
|
%
|
|
|
131.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loss
|
|
$
|
(1,869
|
)
|
|
$
|
(3,406
|
)
|
|
$
|
(2,592
|
)
|
|
$
|
(1,537
|
)
|
|
|
(82.2
|
)%
|
|
$
|
814
|
|
|
|
(23.9
|
)%
|
Cost of subscription and support revenue. Cost
of subscription and support revenue increased $2.8 million,
or 28.9%, from 2010 to 2011. The increase was primarily
attributable to a $1.8 million increase in personnel and
related expenses associated with increased headcount in 2011
compared to 2010. In addition, we incurred an increase of
$0.4 million of allocated overhead costs such as rent, IT
costs, depreciation and amortization expenses in order to
accommodate growth in 2011. As a percentage of subscription and
support revenue, these costs decreased slightly from 20.3% in
2010 to 19.5% in 2011. The decrease as a percentage of
subscription and support revenue was a result of primarily fixed
costs applied against an increased revenue base.
Cost of subscription and support revenue increased
$3.1 million, or 49.0%, from 2009 to 2010. The increase was
primarily attributable to a $0.8 million increase in
depreciation and maintenance expenses as well as software and
hosting fees associated with equipment for our data centers. In
addition, we incurred $0.6 million of increased allocated
overhead costs such as rent, IT costs, and depreciation and
amortization expenses incurred in order to accommodate our
growth in 2010. Our personnel and related expenses increased
$1.3 million in 2010 as a result of increased headcount. As
a percentage of subscription and support revenue, these costs
increased from 17.1% in 2009 to 20.3% in 2010. The increase in
cost as a percentage of subscription and support revenue
resulted
70
from higher costs relating to investments we made to better
support existing customers and in anticipation of continued
growth in new customers.
Cost of professional services revenue. Cost of
professional services revenue increased $3.7 million, or
53.6%, from 2010 to 2011. The increase was primarily
attributable to a $1.6 million increase in salary and
related expenses, including bonus, benefits, payroll taxes and
stock based compensation. In addition, we incurred
$1.5 million of increased third-party contractor costs and
$0.3 million of increased travel related costs to implement
new customers on our platform. We incurred an additional
$0.3 million of increased allocated overhead, such as rent,
IT, depreciation and amortization expenses, incurred in order to
accommodate growth in 2011.
Cost of professional services revenue increased
$1.7 million, or 32.1%, from 2009 to 2010. The increase was
primarily attributable to a $0.6 million increase in salary
and related expenses, including bonus, benefits and payroll
taxes, and stock based compensation resulting from an increase
in headcount of our professional services staff that perform
SmartStart and other implementation services in 2010. The
increase was also attributable to a $0.4 million increase
in 2010 in expenses for third-party contractor costs that we
incurred to implement new customers on our platform. As a
percentage of revenue, these costs increased from 154.7% in 2009
to 195.3% in 2010. The increase was due to the utilization of
additional third party contractors in 2010 to deliver a greater
volume of professional services.
Operating
Expenses
Research and
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from
|
|
Change from
|
|
|
Years Ended December 31,
|
|
2009 to 2010
|
|
2010 to 2011
|
|
|
2009
|
|
2010
|
|
2011
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
8,607
|
|
|
$
|
10,363
|
|
|
$
|
11,679
|
|
|
$
|
1,756
|
|
|
|
20.4
|
%
|
|
$
|
1,316
|
|
|
|
12.7
|
%
|
Percentage of total revenue
|
|
|
21.0
|
%
|
|
|
20.4
|
%
|
|
|
16.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses increased by
$1.3 million, or 12.7%, from 2010 to 2011. This increase
was primarily attributable to a $0.8 million increase in
personnel and related costs related to our continuing effort to
enhance and improve the features and functionality of the Eloqua
Platform and a $0.2 million increase in allocated overhead
costs including rent, IT costs, depreciation and amortization
expenses.
Research and development expenses increased $1.8 million,
or 20.4%, from 2009 to 2010. This increase was primarily
attributable to a $1.6 million increase in personnel and
related expenses in 2010 due to the change in the mix of our
employees to add more senior level developers and management in
order to continue to add features and functionality to our
platform. We also continued to supplement our internal
development efforts with third-party contractors resulting in an
additional $0.3 million of expense in 2010 as compared to
2009.
Marketing and
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from
|
|
Change from
|
|
|
Years Ended December 31,
|
|
2009 to 2010
|
|
2010 to 2011
|
|
|
2009
|
|
2010
|
|
2011
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Marketing and sales
|
|
$
|
17,321
|
|
|
$
|
22,147
|
|
|
$
|
29,481
|
|
|
$
|
4,826
|
|
|
|
27.9
|
%
|
|
$
|
7,334
|
|
|
|
33.1
|
%
|
Percentage of total revenue
|
|
|
42.3
|
%
|
|
|
43.6
|
%
|
|
|
41.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and sales expenses increased $7.3 million, or
33.1%, from 2010 to 2011. The increase was attributable to
increases in demand generation marketing programs and the
expansion of our
71
marketing and sales force to address increased opportunity in
new and existing markets. As a result of the increased headcount
in marketing and sales in 2011, we incurred an additional
$3.0 million of personnel and related expense, which
included salaries, payroll taxes and benefits, and stock option
compensation, in 2011 as compared to 2010. Commissions and
bonuses increased by $1.1 million, or 27%, in 2011 as
compared to 2010, as a result of an increase in new customers
acquired and renewed subscription contracts. Our marketing
expenses increased by $1.9 million in 2011 compared to 2010
in support of our expanding domestic and international sales
activities. We also incurred an additional $0.6 million of
travel costs and an additional $0.5 million of increased
allocated overhead such as rent, IT, depreciation and
amortization expenses incurred in order to accommodate our
growth in 2011.
Marketing and sales expenses increased $4.8 million, or
27.9%, from 2009 to 2010. The increase was attributable to
increased expenses related to demand generation marketing
programs and the expansion of our sales force to address
increased opportunities in new and existing markets. As a result
of the increased headcount in marketing and sales in 2010, we
incurred an additional $2.2 million of personnel and
related expenses, which included salaries, payroll taxes and
benefits, and stock option compensation in 2010 as compared to
2009. In addition, in 2010 as compared to 2009, commissions and
sales bonuses increased by $0.9 million, or 26%, as a
result of an increase in new customers acquired and renewed
subscription contracts, and marketing program expenses increased
by $0.4 million to support the expansion of our domestic
and international sales activities. In 2010 as compared to 2009,
travel and entertainment expenses increased by $0.3 million
and allocated overhead costs including rent, IT costs, and
depreciation and amortization expenses increased by
$1.0 million, in each case as a result of our growth.
General and
Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from
|
|
Change from
|
|
|
Years Ended December 31,
|
|
2009 to 2010
|
|
2010 to 2011
|
|
|
2009
|
|
2010
|
|
2011
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
7,348
|
|
|
$
|
7,879
|
|
|
$
|
12,208
|
|
|
$
|
531
|
|
|
|
7.2
|
%
|
|
$
|
4,329
|
|
|
|
54.9
|
%
|
Percentage of total revenue
|
|
|
17.9
|
%
|
|
|
15.5
|
%
|
|
|
17.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses increased by
$4.3 million, or 54.9%, from 2010 to 2011. The increase was
principally due to a $3.0 million increase in professional
services fees for audit, legal and tax. Legal fees related to a
pending patent dispute account for $2.7 million of the
$3.0 million increase in professional service fees.
Headcount growth resulted in a $1.8 million increase in
salaries, payroll taxes, employee benefits and stock option
compensation from 2010 to 2011. Rent expense increased by
$0.3 million from 2010 to 2011. These increases were
partially offset by a $1.4 million increase in overhead
costs allocated from general and administrative expenses to
other expense categories in 2011 compared to 2010.
General and administrative expenses increased $0.5 million,
or 7.2%, from 2009 to 2010. The increase was primarily
attributable to headcount growth in human resources and our
internal information technology support function which
contributed to an overall increase in salaries, payroll taxes
and benefits, and stock option compensation of $1.1 million
from 2009 to 2010. This increase was partially offset by
professional fees for outside legal counsel, which declined by
$0.2 million from 2009 to 2010 as a result of hiring
in-house legal counsel.
72
Other Income
(Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from
|
|
Change from
|
|
|
Years Ended December 31,
|
|
2009 to 2010
|
|
2010 to 2011
|
|
|
2009
|
|
2010
|
|
2011
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
$
|
(107
|
)
|
|
$
|
(241
|
)
|
|
$
|
(707
|
)
|
|
$
|
(134
|
)
|
|
|
*
|
|
|
$
|
466
|
|
|
|
*
|
|
Percentage of total revenue
|
|
|
(0.3
|
)%
|
|
|
(0.5
|
)%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense increased by $0.5 million from 2010 to 2011.
This increase was primarily attributable to a $0.3 million
increase in fair value of our outstanding Series C
preferred stock warrants, which are classified as liabilities
and adjusted to fair value each reporting period, and
approximately $0.2 million of expenses related to the
impairment of equipment.
Other expense increased $0.1 million from 2009 to 2010 and
increased $0.2 million from 2008 to 2009, primarily due to
higher interest expense on our long-term debt and capital lease
obligations.
Income Tax
Benefit (Expense)
We have recorded valuation allowances on the net deferred tax
assets of our U.S. operations and do not anticipate
recording an income tax benefit related to these deferred tax
assets. We will reassess the realization of deferred tax assets
based on accounting standards for income taxes each reporting
period and will be able to reduce the valuation allowance to the
extent that the financial results of these operations improve
and it becomes more likely than not that the deferred tax assets
are realizable.
For the year ended December 31, 2011, we incurred income
tax expenses of approximately $0.4 million on a loss before
income taxes of approximately $5.8 million. Our income tax
expense in 2011 was principally the result of tax expense of our
foreign subsidiaries, which operate primarily to provide
intercompany services to Eloqua, Inc.
For the year ended December 31, 2010, there was an income
tax benefit of approximately $4.9 million on a loss before
income taxes of approximately $6.4 million. The income tax
benefit in 2010 resulted primarily from the release of our
valuation allowance for our non-U.S. deferred tax assets.
The valuation was removed due to a change in managements
assessment of our ability to realize these tax assets due to
changes in the nature of our foreign operations. Prior to 2009,
our foreign operations had significant subscription sales that
generated losses. Beginning in 2009, the primary function of our
foreign operations changed to providing intercompany services to
Eloqua, Inc. The contracts for these services provide that the
foreign operations will be reimbursed for all costs related to
the services plus a markup on those costs. This reimbursement
method assures a profit on services. Although the foreign
operations still incur losses on subscription sales, these
losses are not expected to exceed the profits on services. Based
on two years of pre-tax income from years ended
December 31, 2009 and 2010 ($1.1 million (net of
one-time gain of $14.5 million) and $1.9 million,
respectively) and the expected profits of foreign operations
from intercompany services, we concluded that future income from
services provided by foreign operations will be sufficient to
realize the deferred tax asset in 2010.
Quarterly Results
of Operations
The following tables set forth selected unaudited quarterly
consolidated statements of operations data for the last eight
quarters, as well as the percentage of total revenue for each
line item shown. The financial information presented for the
interim periods has been prepared on the same basis as the
audited consolidated financial statements included elsewhere in
this prospectus and, in the opinion of management, includes all
adjustments, consisting of normal recurring adjustments,
necessary for the fair presentation of the results of operations
for such periods. This data should be
73
read in conjunction with the audited consolidated financial
statements and the related notes included elsewhere in this
prospectus. These quarterly operating results are not
necessarily indicative of our operating results to be expected
for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
$
|
11,187
|
|
|
$
|
12,416
|
|
|
$
|
13,138
|
|
|
$
|
13,901
|
|
|
$
|
14,970
|
|
|
$
|
16,426
|
|
|
$
|
17,925
|
|
|
$
|
19,237
|
|
Professional services
|
|
|
676
|
|
|
|
647
|
|
|
|
1,618
|
|
|
|
1,058
|
|
|
|
1,764
|
|
|
|
1,923
|
|
|
|
3,382
|
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
11,863
|
|
|
|
13,063
|
|
|
|
14,756
|
|
|
|
14,958
|
|
|
|
16,734
|
|
|
|
18,349
|
|
|
|
21,307
|
|
|
|
21,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
|
2,318
|
|
|
|
2,399
|
|
|
|
2,771
|
|
|
|
2,739
|
|
|
|
3,148
|
|
|
|
3,252
|
|
|
|
3,191
|
|
|
|
3,426
|
|
Professional services
|
|
|
1,364
|
|
|
|
1,662
|
|
|
|
2,734
|
|
|
|
2,255
|
|
|
|
2,474
|
|
|
|
2,574
|
|
|
|
3,415
|
|
|
|
2,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
3,682
|
|
|
|
4,061
|
|
|
|
5,505
|
|
|
|
4,994
|
|
|
|
5,622
|
|
|
|
5,826
|
|
|
|
6,606
|
|
|
|
6,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
8,181
|
|
|
|
9,002
|
|
|
|
9,251
|
|
|
|
9,965
|
|
|
|
11,112
|
|
|
|
12,523
|
|
|
|
14,701
|
|
|
|
15,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,699
|
|
|
|
2,611
|
|
|
|
2,468
|
|
|
|
2,792
|
|
|
|
2,716
|
|
|
|
2,964
|
|
|
|
3,207
|
|
|
|
3,433
|
|
Marketing and sales
|
|
|
5,222
|
|
|
|
5,161
|
|
|
|
6,471
|
|
|
|
6,851
|
|
|
|
6,862
|
|
|
|
7,697
|
|
|
|
8,071
|
|
|
|
8,175
|
|
General and administrative
|
|
|
1,982
|
|
|
|
1,898
|
|
|
|
2,188
|
|
|
|
2,546
|
|
|
|
2,238
|
|
|
|
2,939
|
|
|
|
4,485
|
|
|
|
4,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9,903
|
|
|
|
9,670
|
|
|
|
11,127
|
|
|
|
12,189
|
|
|
|
11,816
|
|
|
|
13,600
|
|
|
|
15,763
|
|
|
|
16,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,722
|
)
|
|
|
(668
|
)
|
|
|
(1,876
|
)
|
|
|
(2,224
|
)
|
|
|
(704
|
)
|
|
|
(1,077
|
)
|
|
|
(1,062
|
)
|
|
|
(1,164
|
)
|
Other expense, net
|
|
|
(82
|
)
|
|
|
(62
|
)
|
|
|
(52
|
)
|
|
|
(123
|
)
|
|
|
(291
|
)
|
|
|
(55
|
)
|
|
|
(237
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit (expense)
|
|
|
(1,804
|
)
|
|
|
(730
|
)
|
|
|
(1,928
|
)
|
|
|
(2,347
|
)
|
|
|
(995
|
)
|
|
|
(1,132
|
)
|
|
|
(1,299
|
)
|
|
|
(1,221
|
)
|
Income tax benefit (expense)
|
|
|
(11
|
)
|
|
|
(29
|
)
|
|
|
4,920
|
|
|
|
(63
|
)
|
|
|
(91
|
)
|
|
|
(122
|
)
|
|
|
(102
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,815
|
)
|
|
$
|
(759
|
)
|
|
$
|
2,992
|
|
|
$
|
(2,410
|
)
|
|
$
|
(1,086
|
)
|
|
$
|
(1,254
|
)
|
|
$
|
(1,401
|
)
|
|
$
|
(1,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
(as a percentage of total revenue)
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
|
94.3
|
%
|
|
|
95.0
|
%
|
|
|
89.0
|
%
|
|
|
92.9
|
%
|
|
|
89.5
|
%
|
|
|
89.5
|
%
|
|
|
84.1
|
%
|
|
|
88.2
|
%
|
Professional services
|
|
|
5.7
|
|
|
|
5.0
|
|
|
|
11.0
|
|
|
|
7.1
|
|
|
|
10.5
|
|
|
|
10.5
|
|
|
|
15.9
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
|
19.5
|
|
|
|
18.4
|
|
|
|
18.8
|
|
|
|
18.3
|
|
|
|
18.8
|
|
|
|
17.7
|
|
|
|
15.0
|
|
|
|
15.7
|
|
Professional services
|
|
|
11.5
|
|
|
|
12.7
|
|
|
|
18.5
|
|
|
|
15.1
|
|
|
|
14.8
|
|
|
|
14.0
|
|
|
|
16.0
|
|
|
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
31.0
|
|
|
|
31.1
|
|
|
|
37.3
|
|
|
|
33.4
|
|
|
|
33.6
|
|
|
|
31.7
|
|
|
|
31.0
|
|
|
|
29.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
69.0
|
|
|
|
68.9
|
|
|
|
62.7
|
|
|
|
66.6
|
|
|
|
66.4
|
|
|
|
68.3
|
|
|
|
69.0
|
|
|
|
70.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
22.8
|
|
|
|
20.0
|
|
|
|
16.7
|
|
|
|
18.7
|
|
|
|
16.2
|
|
|
|
16.2
|
|
|
|
15.1
|
|
|
|
15.7
|
|
Marketing and sales
|
|
|
44.0
|
|
|
|
39.5
|
|
|
|
43.9
|
|
|
|
45.8
|
|
|
|
41.0
|
|
|
|
41.9
|
|
|
|
37.9
|
|
|
|
37.5
|
|
General and administrative
|
|
|
16.7
|
|
|
|
14.5
|
|
|
|
14.8
|
|
|
|
17.0
|
|
|
|
13.4
|
|
|
|
16.0
|
|
|
|
21.0
|
|
|
|
22.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
83.5
|
|
|
|
74.0
|
|
|
|
75.4
|
|
|
|
81.5
|
|
|
|
70.6
|
|
|
|
74.1
|
|
|
|
74.0
|
|
|
|
76.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(14.5
|
)
|
|
|
(5.1
|
)
|
|
|
(12.7
|
)
|
|
|
(14.9
|
)
|
|
|
(4.2
|
)
|
|
|
(5.9
|
)
|
|
|
(5.0
|
)
|
|
|
(5.3
|
)
|
Other expense, net
|
|
|
(0.7
|
)
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
|
(0.8
|
)
|
|
|
(1.7
|
)
|
|
|
(0.3
|
)
|
|
|
(1.1
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income benefit (expense)
|
|
|
(15.2
|
)
|
|
|
(5.6
|
)
|
|
|
(13.1
|
)
|
|
|
(15.7
|
)
|
|
|
(5.9
|
)
|
|
|
(6.2
|
)
|
|
|
(6.1
|
)
|
|
|
(5.6
|
)
|
Income tax benefit (expense)
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
33.3
|
|
|
|
(0.4
|
)
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
|
|
(0.5
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(15.3
|
)%
|
|
|
(5.8
|
)%
|
|
|
20.3
|
%
|
|
|
(16.1
|
)%
|
|
|
(6.5
|
)%
|
|
|
(6.8
|
)%
|
|
|
(6.6
|
)%
|
|
|
(6.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In general, our revenues have increased as a result of an
increase in the number of customers operating on our platform.
In most of the quarters presented, increases in operating
expenses
74
reflected the addition of marketing and sales personnel to focus
on adding new customers and to increase sales within our
existing customer base and also added technical support,
services, research and development and administrative personnel
to support our growth.
Our gross profit in absolute dollars increased sequentially in
every quarter presented. Our cost to run our infrastructure is
generally fixed within a given quarter and therefore, when
applied against our generally fixed costs, higher revenue in a
quarter results in higher overall gross profits.
Research and development expenses in absolute dollars increased
sequentially in every quarter presented except for the quarters
ended September 30, 2010, December 31, 2010 and
June 30, 2011, which increases primarily resulted from
increasing headcount to maintain and improve the functionality
of our platform. Research and development expenses varied as a
percentage of revenue throughout the periods presented.
Marketing and sales expenses in absolute dollars increased
sequentially in every quarter presented except the quarters
ended June 30, 2010 and September 30, 2010, which
increases primarily resulted from increasing headcount in our
direct and channel sales teams, as well as increased marketing
programs and events and timing of these programs. Marketing and
sales expenses as a percentage of revenue varied from quarter to
quarter primarily due to the timing of implementation of
marketing programs but generally stayed stable year over year as
marketing and sales expenses grew along with our revenue growth.
General and administrative expenses in absolute dollars
increased sequentially in every quarter presented except for the
quarters ended September 30, 2010 and June 30, 2011,
which increases primarily resulted from increasing headcount to
support the growth of our business. General and administrative
expenses as a percentage of revenue increased from an average
rate of approximately 16% for the first four quarters presented
to an average rate of approximately 17% for the last four
quarters presented. This increase in general and administrative
expenses as a percentage of revenue was primarily a result of
increased professional service and personnel costs incurred
during the quarter ended March 31, 2012 in connection with
a pending patent dispute and to accommodate the growth of our
business.
During the quarter ended December 31, 2010 we recorded an
income tax benefit primarily resulting from the release of our
valuation allowance for our non U.S. deferred tax assets.
The valuation was removed due to a change in managements
assessment of our ability to realize these tax assets due to
changes in the nature of our foreign operations.
More generally, our quarterly operating results have fluctuated
in the past and may continue to fluctuate in the future based on
a number of factors, many of which are beyond our control. Such
factors include, in addition to those in the Risk
Factors section of this prospectus:
|
|
|
|
|
factors affecting the number of buyer profiles in our
customers databases;
|
|
|
|
our ability to attract new customers;
|
|
|
|
the timing, committed subscription levels and revenue share
rates at which we enter into contracts for our solutions with
new customers;
|
|
|
|
the extent to which our existing clients renew their
subscriptions for our solutions and the timing and terms of
those renewals;
|
|
|
|
our ability to manage growth, including increases in the number
of customers on our platform and new geographies;
|
|
|
|
the timing and success of competitive solutions offered by our
competitors;
|
75
|
|
|
|
|
changes in our pricing policies and those of our competitors;
|
|
|
|
the purchasing and budgeting cycles of our customers;
|
|
|
|
the financial condition of our customers; and
|
|
|
|
general economic and market conditions.
|
One or more of these factors may cause our operating results to
vary widely. As such, we believe that our quarterly results of
operations may vary significantly in the future and that
period-to-period
comparisons of our operating results may not be meaningful and
should not be relied upon as an indication of future performance.
Liquidity and
Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Years Ended December 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
1,134
|
|
|
$
|
1,065
|
|
|
$
|
2,737
|
|
|
$
|
(2,348
|
)
|
Net cash used in investing activities
|
|
|
(1,450
|
)
|
|
|
(1,851
|
)
|
|
|
(2,898
|
)
|
|
|
(460
|
)
|
Net cash provided by (used in) financing activities
|
|
|
1,440
|
|
|
|
202
|
|
|
|
(83
|
)
|
|
|
(48
|
)
|
Effect of foreign exchange rate changes on cash and equivalents
|
|
|
195
|
|
|
|
(7
|
)
|
|
|
(65
|
)
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and equivalents
|
|
$
|
1,319
|
|
|
$
|
(591
|
)
|
|
$
|
(309
|
)
|
|
$
|
(2,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To date, we have financed our operations primarily through
private placements of preferred stock and common stock, proceeds
from equipment financings and cash from operating activities. As
of March 31, 2012, we had $4.4 million of cash and
cash equivalents. A substantial source of our cash provided by
operating activities is our deferred revenue, which is included
on our consolidated balance sheet as a liability. Deferred
revenue consists of the unearned portion of billed fees for our
on-demand software and professional services, which is amortized
into revenue in accordance with our revenue recognition policy.
We assess our liquidity, in part, through an analysis of the
anticipated amortization of deferred revenue into revenue
together with our other sources of liquidity. As of
March 31, 2012, we had a working capital deficit of
$11.6 million, which included $30.3 million of
deferred revenue recorded as a current liability as of
March 31, 2012, representing the unearned portion of billed
fees for our on-demand software and professional services for
succeeding periods, generally three to 12 months. This
deferred revenue will be recognized as revenue when all of the
revenue recognition criteria are met.
We believe our current cash and cash equivalents, cash flow from
operations, amounts available under our credit facility and net
proceeds of this offering will be sufficient to meet our working
capital and capital expenditure requirements for at least the
next 12 months. We do not believe that any legal
proceedings we are involved in will individually or in the
aggregate have a material adverse effect on our business,
operating results, financial condition or cash flows.
Net cash provided by operating
activities. Cash provided by operating activities
is significantly influenced by the amount of cash we invest in
personnel and infrastructure to support the anticipated growth
of our business, the increase in the number of customers using
our on-demand software and services and the amount and timing of
customer payments. Cash provided by operations has historically
resulted from net income driven by sales of subscriptions to our
on-demand software and
76
services and adjusted for non-cash expense items such as
depreciation and amortization of property and equipment and
stock-based compensation.
Our cash used in operating activities during the three months
ended March 31, 2012 primarily reflected our net loss of
$1.5 million, offset by $0.5 million of depreciation
and amortization and $0.6 million in stock-based
compensation. Working capital sources of cash included a
$1.1 million decrease in accounts receivable as we
collected receivables invoiced during the prior quarters and a
$1.5 million increase in deferred revenue due to additional
customers invoiced in advance during the prior quarters. These
sources of cash were offset by a $1.0 million increase in
prepaid expenses and other assets and a $4.3 million
decrease in accounts payable and accrued and other current
liabilities.
Our cash provided by operating activities during 2011 primarily
reflects our net loss of $6.2 million, offset by
$4.5 million in non-cash expenses that included
$1.9 million of depreciation and amortization and
$1.8 million in stock-based compensation. Working capital
sources of cash included a $3.5 million increase in
deferred revenue due to additional customers invoiced in advance
during the prior quarters and a $5.2 million increase in
accounts payable and accrued and other liabilities due to a
higher level of expenses consistent with the overall growth of
the business. These sources of cash were partially offset by a
$2.1 million increase in prepaid expenses and other assets
and a $2.4 million increase in accounts receivable.
Our cash provided by operating activities during 2010 primarily
reflects our net loss of $1.5 million, offset by
$2.2 million in non-cash expenses that included a
$4.9 million deferred tax benefit, partially offset by
$1.7 million of depreciation and amortization and
$1.1 million in stock-based compensation. Working capital
sources of cash included a $10.3 million increase in
deferred revenue due to additional customers invoiced in advance
during the fourth quarter and a $2.4 million increase in
accounts payable and accrued liabilities due to a higher level
of expenses consistent with the overall growth of our business.
These sources of cash were offset in part by a $6.2 million
increase in accounts receivable due to higher customer billing
volume compared to the prior year, a $0.8 million increase
in prepaid expenses and other assets and a $0.9 million
increase in deferred commissions and other deferred costs.
Our cash provided by operating activities during 2009 primarily
reflects our net loss of $4.2 million, offset by
$1.8 million in non-cash expenses that included
$1.1 million of depreciation and amortization and
$0.9 million in stock-based compensation, offset by
$0.2 million in foreign currency transaction gains. Working
capital sources of cash included a $1.4 million decrease in
accounts receivable as we collected receivables invoiced during
the prior quarters, a $1.1 million increase in deferred
revenue due to additional customers invoiced in advance during
the fourth quarter and a $1.9 million increase in accounts
payable and accrued liabilities due to a higher level of
expenses consistent with the overall growth of our business.
These sources of cash were offset in part by a $0.6 million
increase in prepaid expenses and other assets and a
$0.3 million increase in deferred commissions and other
deferred costs.
Net cash used in investing activities. Our
primary investing activities have consisted of capital
expenditures to purchase computer equipment and furniture and
fixtures in support of expanding our infrastructure and
workforce. As our business grows, we expect our capital
expenditures and our investment activity to continue to increase.
For the three months ended March 31, 2012, and the years
ended December 31, 2011, 2010, and 2009, cash used in
investing activities consisted of $0.5 million,
$2.9 million, $1.9 million, and $1.5 million,
respectively, for purchases of property and equipment. In
general, our purchases of property and equipment are primarily
for data center equipment and network infrastructure to support
our customer base, as well as equipment for supporting our
increasing employee headcount.
Net cash provided by (used in) financing
activities. Our primary financing activities have
consisted of capital raised to fund our operations as well as
proceeds from and payments on
77
equipment debt obligations entered into to finance our property
and equipment, primarily equipment used in our data centers. As
our business grows, we expect to continue to finance our capital
expenditures through equipment debt vehicles.
For the three months ended March 31, 2012, cash used in
financing activities consisted primarily of $0.2 million in
proceeds from the issuance of common stock due to the exercise
of stock options offset by $0.2 million in repayment of
long-term debt.
For the year ended December 31, 2011, cash used in
financing activities consisted primarily of $0.4 million in
proceeds from the issuance of common stock due to the exercise
of stock options and warrants offset by $0.5 million in
repayment of principal obligations under capital leases and
long-term debt.
For the year ended December 31, 2010, cash provided by
financing activities consisted primarily of $2.5 million in
proceeds from borrowings under the term loan offset by a
$2.0 million repayment under the working capital line of
credit. In addition, we received $0.3 million in proceeds
from the issuance of common stock due to the exercise of stock
options and warrants offset by $0.6 million in repayment of
principal obligations under capital leases.
For the year ended December 31, 2009, cash provided by
financing activities consisted primarily of a $2.0 million
draw under the revolving line of credit offset by a
$0.6 million repayment of long-term debt.
Contractual
Obligations and Commitments
Our principal commitments consist of obligations under our
outstanding term loan, operating leases for our office space,
and contractual commitments for hosting and other support
services. The following table summarizes our contractual
obligations at December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(in thousands)
|
|
|
Term loan
|
|
$
|
2,292
|
|
|
$
|
834
|
|
|
$
|
1,458
|
|
|
$
|
|
|
|
$
|
|
|
Operating lease obligations
|
|
|
5,293
|
|
|
|
1,624
|
|
|
|
2,989
|
|
|
|
680
|
|
|
|
|
|
Contractual commitments
|
|
|
4,195
|
|
|
|
2,687
|
|
|
|
1,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,780
|
|
|
$
|
5,145
|
|
|
$
|
5,955
|
|
|
$
|
680
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have various contractual agreements with third parties that
provide us with co-location hosting services, software licenses,
maintenance and support for our operations which typically range
from 12 to 36 months. The agreements require payment of a
minimum amount per annum or per month for a fixed period of
time. All agreements expire by 2014.
We have an outstanding credit facility that provides for a
$10 million working capital line of credit and a
$2.5 million term loan. The line of credit bears interest
at prime plus 1.5%, subject to a minimum rate of 5.5%, and
matures on December 28, 2012. The term loan bears interest
at prime plus 2.0%, subject to a minimum rate of 6.0%, and calls
for monthly principal payments over 36 months beginning in
October 2011. The line of credit and term loan are
collateralized by all of our assets and also contains various
covenants that limit, amongst other things, indebtedness,
investments, liens, transactions, and certain mergers and sales
of assets. At March 31, 2012, we had available borrowings
under our line of credit of $9.3 million (after giving
effect to $0.7 million of issued but undrawn letters of
credit). At March 31, 2012, we were in compliance with all
covenants under our line of credit facility.
78
In June 2011, we renewed two contractual agreements with third
parties to provide software licenses, maintenance and support
for our operations. The agreements require payment of a minimum
amount per annum or per month for a fixed period of time of
36 months. The agreements expire by 2014.
Off-Balance Sheet
Arrangements
During the periods presented, we did not have any relationships
with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special
purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes.
Quantitative and
Qualitative Disclosures about Market Risk
We have operations both within the United States and
internationally, and we are exposed to market risks in the
ordinary course of our business. These risks primarily include
interest rate, foreign exchange and inflation risks, as well as
risks relating to changes in the general economic conditions in
the countries where we conduct business. To reduce certain of
these risks, we monitor the financial condition of our large
clients and limit credit exposure by collecting in advance and
setting credit limits as we deem appropriate. In addition, our
investment strategy currently has been to invest in financial
instruments that are highly liquid and readily convertible into
cash and that mature within three months from the date of
purchase. To date, we have not used derivative instruments to
mitigate the impact of our market risk exposures. We have also
not used, nor do we intend to use, derivatives for trading or
speculative purposes.
Interest Rate
Risk
We are exposed to market risk related to changes in interest
rates. Our investments are considered cash equivalents and
primarily consist of money market funds backed by
U.S. Treasury Bills and certificates of deposit. At
March 31, 2012, we had cash and cash equivalents of
$4.4 million. The carrying amount of our cash equivalents
reasonably approximates fair value, due to the short maturities
of these instruments. The primary objectives of our investment
activities are the preservation of capital, the fulfillment of
liquidity needs and the fiduciary control of cash and
investments. We do not enter into investments for trading or
speculative purposes. We do not believe our investments are
exposed to significant market risk due to a fluctuation in
interest rates.
We do not believe our cash equivalents have significant risk of
default or illiquidity. While we believe our cash equivalents do
not contain excessive risk, we cannot provide absolute assurance
that in the future our investments will not be subject to
adverse changes in market value. In addition, we maintain
significant amounts of cash and cash equivalents at one or more
financial institutions that are in excess of federally insured
limits. We cannot be assured that we will not experience losses
on these deposits.
Our principal interest rate exposure relates to borrowings under
our credit facility, which bear interest at a variable rate. See
Contractual Obligations and Commitments. At
March 31, 2012, we had borrowings outstanding under the
term loan of $2.1 million and available borrowings under
our $10 million line of credit of $9.3 million (after
giving effect to $0.7 million issued but undrawn letters of
credit). The term loan bears interest at prime plus 2.0%,
subject to a floor of 6.0%. The interest rate under the term
loan at March 31, 2012 was 6.0%. Borrowings under the line
of credit bear interest at a rate of prime plus 1.5%, subject to
a minimum rate of 5.5% (the applicable rate at
March 31, 2012). If there is a rise in interest rates,
our debt service obligations on the borrowings under our credit
facility would increase even if the amount borrowed remained the
same, which would affect our results of operations, financial
condition and liquidity. At our current borrowing rates as of
March 31, 2012,
79
annual cash interest expense, including fees under our credit
facility, would have been approximately $0.7 million if our
line of credit was fully drawn. If variable interest rates were
to change by 1.0%, our interest expense would fluctuate
approximately $0.02 million per year based on borrowings at
March 31, 2012 or $0.12 million per year if our line
of credit was fully drawn, in each case, without taking into
account interest rate floors.
Foreign
Currency Exchange Risk
We have foreign currency risks related to our revenue and
operating expenses denominated in currencies other than the
U.S. dollar. Our customer contracts are generally
denominated in the currencies of the countries in which the
customer is located. Our historical revenue has been denominated
in U.S. dollars and Canadian dollars. The effect of an
immediate 10% adverse change in foreign exchange rates on
foreign-denominated accounts receivable at March 31, 2012
would have a 1.6% adverse impact on our total accounts
receivable balance at March 31, 2012. Our operating
expenses are generally denominated in the currencies of the
countries in which our operations are located, primarily the
United States and Canada. More than half of our employees are
located in Canada. Increases and decreases in our foreign
denominated revenue from movements in foreign exchange rates are
partially offset by the corresponding decreases or increases in
our foreign-denominated operating expenses.
As our international operations grow, our risks associated with
fluctuation in currency rates will become greater, and we will
continue to reassess our approach to managing this risk. In
addition, currency fluctuations or a weakening U.S. dollar
can increase the costs of our international expansion. To date,
we have not entered into any foreign currency hedging contracts,
since exchange rate fluctuations have not had a material impact
on our operating results and cash flows. Based on our current
international structure, we do not plan on engaging in hedging
activities in the near future.
Inflation
Risk
We do not believe that inflation has had a material effect on
our business, financial condition or results of operations.
Nonetheless, if our costs were to become subject to significant
inflationary pressures, we may not be able to fully offset such
higher costs through price increases. Our inability or failure
to do so could harm our business, financial condition and
results of operations.
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BUSINESS
Overview
We are a leading provider of on-demand Revenue Performance
Management, or RPM, software solutions that are designed to
enable businesses to accelerate revenue growth and improve
revenue predictability by automating, monitoring and measuring
their complex marketing and sales initiatives. Our set of RPM
solutions, which we refer to as the Eloqua Platform, is a
software-as-a-service, or SaaS, platform integrating our leading
marketing automation software with our revenue performance
analytics suite. Marketing and sales professionals use the
Eloqua Platform to move prospective buyers more efficiently
through the marketing and sales funnel, identify and predict the
drivers of revenue, provide insights about marketing and sales
programs to senior management and more tightly align marketing
and sales teams to optimize resource allocation and drive
revenue growth.
The Eloqua Platform is designed to improve marketing
effectiveness and efficiency by supporting strategies such as
nurture marketing, segmentation of marketing campaigns, message
targeting and enhanced lead generation. A key capability of the
Eloqua Platform is its ability to enable our customers to track
and analyze a potential buyers interactions with various
web pages, social media networks and other communications
platforms, which interactions we refer to as Digital Body
Language. We believe this real-time insight into buyer
activity enables sales professionals to more efficiently convert
sales opportunities into revenue.
The Eloqua Platform, which includes both our Marketing
Automation Platform and Revenue Suite solution, includes the
following functionality:
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Lead Management and Sales Intelligence. Allows
our customers to increase sales effectiveness by using
sophisticated lead scoring, routing processes and sales
enablement features that integrate with customer relationship
management, or CRM, systems such as salesforce.com.
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Multi-Channel Campaign Management. Helps
marketers target, execute, automate, streamline, measure and
benchmark marketing campaigns, from simple email execution and
outbound social media communication to automated multi-channel
marketing campaigns.
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Buyer Profile Management. Enables
organizations to aggregate, track and analyze lead information,
including a potential buyers Digital Body Language.
Empowers organizations to better understand potential buyers by
combining contact management with lead scoring functionality,
enabling more effective and robust segmentation of marketing
campaigns.
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Integration. Integrates with and leverages
enterprise software solutions such as sales force automation and
web analytics, as well as email, social media and other
communication channels to help organizations understand, measure
and intelligently respond to each step in the customer
acquisition process.
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Marketing and Sales Measurement. Allows our
customers to model and understand the stages of the buying
process by tracking and measuring the performance and revenue
impact of their marketing programs and campaigns. Enables
automatic monitoring of key revenue drivers with campaign
reporting, website and social media analytics, dashboards and
alerts.
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Revenue Performance Analytics. Provides senior
executives with actionable, revenue-generating intelligence,
including the impact of marketing and sales programs on revenue
performance and the ability to benchmark the effectiveness of
their marketing programs against industry data.
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We also provide professional services and educational courses to
support our customers implementation and efficient use of
the Eloqua Platform. Our professional services team facilitates
rapid product adoption, integration with existing enterprise
systems, such as CRM, and ongoing customer success with our
solutions. Our Eloqua University offers educational courses to
teach customers the principles and best practices of RPM, which
we believe leads to improved business performance for our
customers and increases customer loyalty.
Our solutions are particularly suited to modeling and supporting
the complex sales processes of both B2B sales and B2C sales. We
have a diverse, global base of over 1,100 customers encompassing
a wide spectrum of industries, including technology, financial
services, entertainment, manufacturing, business services and
telecommunications. Representative customers from industries we
currently serve include Adobe Systems, American Express, Cummins
Power Generation, Dell, The McGraw-Hill Companies, the Miami
Heat, National Instruments, Nestlé S.A., Siemens AG,
Standard & Poors and VMware, each of which were
in the top half of our customers, by revenue, in 2011. Our ten
largest customers accounted in the aggregate for less than 10%
of our total revenue in each of 2010, 2011 and the three months
ended March 31, 2012, and no single customer accounted for
more than 2% of our total revenue during either of those
periods. We sell the Eloqua Platform on a subscription basis,
generally pursuant to either one- or two-year contracts, with
subscription fees paid quarterly, semi-annually or annually. We
price our solutions such that subscription fees increase when
the size of a customers database of potential buyers
increases above the contracted level. Our SaaS subscription
revenue model provides us visibility into our future operating
results through increased revenue predictability, which enhances
our ability to manage our business. Our total revenue increased
from $41.0 million in 2009 to $50.8 million in 2010
and $71.3 million in 2011, representing
year-over-year
increases of 24% and 40%, respectively. For the three months
ended March 31, 2012, our total revenue increased to
$21.8 million from $15.0 million during the same
period in 2011, representing a 45% increase. Our subscription
and support revenue increased from $37.5 million in 2009 to
$47.2 million in 2010 and $63.2 million in 2011, representing
year-over-year increases of 26% and 34%, respectively. For the
three months ended March 31, 2012, our subscription and
support revenue increased to $19.2
million from $13.9 million during the same period in 2011,
representing a 38% increase. We had net losses of
$4.2 million in 2009, $1.5 million in 2010,
$6.2 million in 2011 and $1.5 million for the three months
ended March 31, 2012.
Our
Industry
Marketing executives are increasingly confronted with managing
complex constituencies, including internal and outsourced
marketing groups, direct and indirect sales channels and
traditional and online prospective buyers. At the same time,
marketing and sales teams are being asked to demonstrate their
direct impact on revenue generation to justify the value of
marketing and sales expenditures. In addition, senior executives
are demanding better visibility into the efficacy of marketing
campaigns in order to assess the overall revenue pipeline in
connection with strategic operational planning. In many cases,
marketing and sales teams continue to lack the interdepartmental
coordination required to effectively execute campaigns and, as a
result, lack the ability to efficiently utilize related
marketing and sales expenditures to increase revenue. At the
same time, despite widespread adoption and integration of
enterprise applications such as enterprise resource planning, or
ERP, and CRM systems, many marketing and sales teams continue to
rely on traditional point solutions, internally-developed
solutions or manual processes to manage marketing processes and
their impact on revenue. Faced with increasing levels of
complexity while lacking effective solutions to align marketing
and sales teams around the goal of growing revenue, marketing
professionals struggle to efficiently collaborate across their
constituencies, build effective content and marketing assets,
track expenditures and measure return on investment and maintain
brand and channel consistency.
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The proliferation of digital media and the rise of social media
have transformed the traditional relationship between buyer and
seller. Today, buyers have instant access to vast amounts of
product information through Internet searches, social media
networks and company websites. As a result, rather than purely
relying on vendors or mass broadcast messages for information
and education about products and services, buyers are
increasingly researching and educating themselves about a
companys products and services online, comparing offerings
and soliciting feedback from trusted peers through social
networks long before engaging with the sales personnel of a
vendor. This shift has fundamentally changed the way businesses
of all sizes and across all industries need to market to and
communicate with buyers.
The significant increase in online activity by prospective
buyers has led to a corresponding increase in the amount of
prospect-related digital data. If appropriately analyzed, a
prospects Digital Body Language provides marketing and
sales professionals with valuable information about a
prospects progress through the sales funnel. We believe
enterprises are increasingly realizing that effective sales
execution is dependent upon leveraging the vast quantities of
available data to enable the delivery of a precise, targeted and
timely message that caters to a prospective buyers unique
concerns and desires at each stage of the buying process.
Market
Opportunity for Revenue Performance Management
The Internet has led to profound changes in the way consumers
and enterprises choose to communicate, share information,
educate themselves, make decisions and purchase products and
services. This transformation is causing a shift in
marketers spending from traditional media channels, such
as broadcast and print, to emerging interactive channels, such
as web, email, mobile and social media, which we believe creates
a market opportunity for a robust RPM solution capable of
leveraging the data from these interactive channels to enable
more effective marketing and sales programs. Forrester Research,
Inc. predicts that spending on interactive marketing in the
United States will increase from $34.5 billion in 2011, or
16% of overall U.S. marketing expenditures, to
$76.6 billion in 2016, or 26% of overall
U.S. marketing expenditures. Within this category, spending
on email, mobile and social media marketing is projected to grow
from $4.8 billion in 2011 to $15.7 billion in 2016,
representing a compound annual growth rate, or CAGR, of 27%.
Business spending on automating, analyzing and optimizing
marketing and sales functions is also projected to increase. IDC
predicts that the marketing automation market will grow from
$3.2 billion in 2010 to $4.8 billion in 2015, while
the CRM analytics market, which includes marketing and sales
analytics, is projected to grow from $2.2 billion in 2010
to $3.4 billion in 2015.
The increased adoption of SaaS solutions to automate business
processes has further enhanced our market opportunity.
Traditionally, enterprises have relied on internal IT resources
and on-premise software applications to handle their most
sensitive data and business processes. As the SaaS market has
matured and the benefits of SaaS solutions, including ease of
deployment and use, cost-effectiveness and scalability, have
become more widely recognized, enterprises have grown
increasingly comfortable utilizing SaaS solutions for critical
business processes. Gartner predicts that the Enterprise
Application Software segment of the global SaaS market will grow
from $10.0 billion in 2010 to $22.1 billion in 2015,
representing a CAGR of 17%. Within the global CRM market, which
includes marketing software, IDC predicts that on-demand CRM
software solutions will grow from $3.3 billion in 2010 to
$7.2 billion in 2015, representing a CAGR of 17%, while
on-premise software solutions are only projected to grow at a
CAGR of 4% during the same period.
Challenges with
Traditional Solutions
Despite increasing demands for accountability of and return on
investment from their marketing functions, as well as the
growing complexity in the marketing ecosystem, few businesses
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effectively automated their marketing organizations with
advanced software solutions. The most common automation methods
include internally developed solutions, expensive and
resource-intensive on-premise software solutions and simple
software tools that automate only the most tactical functions,
each generally with minimal effect on realizing revenue growth
and operational efficiencies. These solutions have proven
inadequate in the following ways:
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Not Designed for Interactive Marketing
Needs. Traditional solutions have a limited
ability to deliver personalized or interest-specific marketing
campaigns, resulting in ineffective mass-marketing messages
distributed without regard to the identity or needs of the
recipients.
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Lack of Comprehensive, Integrated Marketing Automation
Platforms. Point solutions such as email
marketing, office productivity tools such as spreadsheets and
internally-developed systems have addressed discrete problems,
but the usefulness of the output is limited without the ability
to leverage, aggregate and analyze data from disparate sources.
Further, existing solutions lack a single integrated platform
capable of interacting with and executing dynamic campaigns
across all interactive channels.
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Inability to Track and Monitor Pre-Sales Buyer
Behavior. Traditional marketing solutions
lack the ability to track or analyze historical and real-time
data related to a prospective buyers Digital Body Language
and interactions across media channels. Without this
information, marketing and sales professionals cannot target
each individual involved in the decision-making process for a
prospective buyer with relevant information or offers via
campaigns or with informed and timely sales calls or emails. In
addition, a sales forces effectiveness is often further
reduced because they have limited insight into the quality of a
lead and, as a result, frequently spend excessive time on buyers
not yet ready to make the purchasing decision.
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Inability to Demonstrate Effectiveness and Impact of
Individual Marketing Campaigns on Revenue
Growth. Traditional marketing solutions
cannot effectively measure the success of individual campaigns
in leading to closed deals, or even prospective buyers
responses and reactions to campaigns.
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Lack of Consolidated View of Marketing and
Sales. Most traditional software solutions
treat marketing and sales as two completely different functions
within an enterprise, often with very limited integration
between the marketing solution residing in the marketing
department and the sales force automation solution residing in
the sales department. The interdependency between
marketings discovery and nurturing of new customer leads
and the sales forces success in converting those leads to
closed business is often insufficiently understood and focused
upon, leading to the continuation of inefficient marketing
campaigns and missed revenue opportunities.
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In order to adequately track and measure the effectiveness of
complex, multi-channel, data-driven campaigns on diverse
audiences, companies need an integrated platform capable of
tracking buyers through the buying process and monitoring their
Digital Body Language to determine their stage and interest as a
buyer.
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Our
Solution
We are a leading provider of on-demand RPM software solutions
that are designed to enable businesses to accelerate revenue
growth and improve revenue predictability by automating,
monitoring and measuring their complex marketing and sales
initiatives. The Eloqua Platform is a SaaS solution that
integrates our leading marketing automation software with our
revenue performance analytics suite. The following diagram
depicts the application of the Eloqua Platforms features
across the marketing and sales funnel:
We also provide professional services and educational courses to
ensure the successful integration of the Eloqua Platform and to
optimize the marketing and sales functions of our customers. We
believe that customers leveraging our proprietary knowledge and
expertise have achieved demonstrable improvement in their
business performance as a result of the increased effectiveness
and efficiency of their marketing and sales functions.
Key benefits of our solutions include:
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Comprehensive On-Demand Revenue Performance Management
Platform. We have a single integrated
on-demand platform with
best-in-class
functionality to automate and optimize complex marketing and
sales processes across multiple interactive channels for each
prospective buyer. The Eloqua Platform provides contact
management, campaign management, lead management and marketing
measurement, and allows our customers to perform advanced
analytics on data captured across disparate sources and multiple
channels, providing the necessary visibility into marketing and
sales activities to optimize investments and drive revenue
growth.
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Ability to Track, Capture and Analyze a Potential
Buyers Digital Body Language. The
Eloqua Platform provides the ability to track, store and analyze
potential buyers Digital Body Language, including their
preferences, behavior and decision-making processes throughout
the sales funnel. This actionable information enables our
customers to score and qualify leads
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more accurately and identify high-quality buyer prospects to
sales personnel, thereby shortening the sales cycle.
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Real-Time Insight to Facilitate Revenue Growth and
Operational Efficiency. The comprehensive
marketing and sales performance reporting tools included in our
solutions, including detailed dashboards, are tailored to meet
the needs of executives seeking to fully understand the impact
of marketing and sales on revenue growth. Our platforms
reporting and analytical capabilities provide instant visibility
into the performance of individual assets and campaigns. This
allows for the development of more efficient and effective
marketing campaigns by enabling our customers to easily identify
materials and campaigns that have the most impact at each stage
of the buying cycle, measure the impact that specific programs
have on revenue, and determine the time it takes for various
marketing programs to demonstrate value.
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Seamless Integration with Other Key Enterprise
Systems. Our platform can be integrated with
other enterprise systems, including sales force automation and
CRM systems such as salesforce.com, Microsoft Dynamics CRM,
Oracle CRM and NetSuite CRM, as well as web analytics systems
from Webtrends and Omniture (a division of Adobe). In addition,
our open platform allows third-party developers to extend the
capabilities of their systems to the Eloqua Platform, thereby
facilitating marketers ability to gather valuable customer
data from disparate sources. These integration applications
developed by Eloqua and third-party developers, which we call
Eloqua Cloud Connectors, are available through the Eloqua
AppCloud marketplace.
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Differentiated Proprietary Knowledge and Professional
Services. As one of the original architects
of marketing automation and as a pioneer of the RPM category, we
have gained extensive insights into the marketing and sales
process. Our SmartStart onboarding program and our SmartXchange
best practices library leverage our marketing domain knowledge
to help our customers quickly benefit from the Eloqua Platform.
In addition, Eloqua University leverages the domain expertise of
our dedicated professionals to deliver courses that help our
customers maximize the benefits of our solutions and become
experts in applying best practices and concepts of RPM to their
businesses.
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Our Competitive
Strengths
We believe that our position as a market leader results from
several key competitive strengths, including:
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Significant Domain Expertise and Thought Leadership in
Marketing Automation and Revenue Performance
Management. Since our inception in 2000, we
have been an innovator in the marketing software solutions
industry, leading the transition to marketing automation and,
more recently, acting as a pioneer of the RPM category. Our
extensive domain expertise helps us develop and improve our
marketing technology, which we believe promotes customer loyalty
by providing them with unique marketing insights that enhance
their productivity. We have introduced into the Eloqua Platform
a series of advanced executive-level dashboards that analyze and
report on key standards and metrics that demonstrate the impact
marketing activities have on revenue. The tangible metrics we
use as revenue performance indicators, or RPIs, include the
value of our customers pipeline, velocity of the sales
funnel and conversion rates of prospects.
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Deep Customer Relationships and Demonstrated Customer
Success. We have deep customer relationships
with what we believe are some of the most successful and fastest
growing companies worldwide, which demonstrates the strength of
our solutions. The depth of our customer relationships is a
function of our focus on revenue generation, which creates
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many points of customer engagement, including with multiple
members of our customers senior management, sales and
marketing teams. We believe we earn the trust of our clients by
working collaboratively with these executives to improve the
effectiveness of their marketing activities. In turn, our
current base of over 1,100 customers in key industries provides
us with strong references that enable us to effectively market
to new prospective customers.
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Our Partner Network Enables Us to Leverage Our
Platform. We have established an effective
worldwide network of strategic consulting and implementation
partners to facilitate the rapid and successful deployment of
the Eloqua Platform. By creating an ecosystem of partners, we
have broadened the adoption of our solutions without incurring
the expense of maintaining and managing a large services
organization. We partner with firms such as Capgemini and
Astadia for implementation and delivery services. We also are
able to extend the value of our solutions through seamless
integrations with salesforce.com, Microsoft, Oracle, Omniture,
Webtrends and dozens of other third-party solutions.
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On-Demand Software Delivery Model. We
developed the Eloqua Platform as a multi-tenant SaaS solution
from the start, with no hardware or software installation
required by our customers. As a SaaS solution, our customers
automatically receive software upgrades and releases as soon as
those upgrades become available. This approach results in lower
total cost of ownership, ease of deployment and adoption and
improved return on investment for our customers. In addition,
the low-cost deployment of our solutions is particularly
attractive to SMBs that might otherwise refrain from executing
complex multi-channel marketing campaigns.
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Highly Attractive Operating Model. We
believe we have a highly attractive operating model due to the
recurring nature of our subscription revenue, the scalability
of, and our ability to leverage our SaaS platform, our
opportunity to generate additional sales from our existing
customers over time and the diversification of our revenue
stream across industries.
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Concurrent Growth with Our Customers. Our
pricing model is designed so that subscription fees increase
when the size of a customers database increases above the
contracted level, which aligns our financial interests with the
growth and success of our customers.
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Recurring Revenue Model. Our
subscription-based model results in greater visibility and
predictability of future revenue, enhancing our ability to
effectively manage our business.
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Scalable Software Business Model. We have
designed our SaaS business model to accommodate significant
additional business volumes with limited incremental costs,
providing us with opportunities to improve our operating margins
and operating cash flows.
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Our Growth
Strategy
We intend to strengthen our position as a leading provider of
on-demand RPM software solutions. The key elements of our growth
strategy include:
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Acquire New Customers Through Education and Increasing
Awareness of RPM. We believe our customer
base currently represents only a small fraction of the
organizations that could benefit from our solutions, creating a
large opportunity to grow our customer base as we replace
custom-developed, in-house software and point solutions with our
integrated marketing software solutions. Core to our growth
strategy is continuing to educate chief executive officers,
sales executives, marketers and industry analysts regarding the
benefits and best practices of RPM. We have pursued a wide range
of strategies to educate the market and accelerate RPM adoption,
including writing and publishing books (Revenue Engine in
2011 and Digital Body Language in 2009), writing RPM
white-papers, publishing customer case-studies focused on RPM
implementation, creating videos and blog posts about various
aspects of RPM, developing
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industry RPM benchmarks and establishing online communities
where marketers can share ideas and best practices. We believe
that by educating the marketplace about the benefits of RPM, we
can drive increased demand for our solutions.
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Continue to Innovate and Expand the Capabilities and
Functionality of our Platform. We plan to
introduce new solutions that enhance the functionality of our
platform to continually address the latest opportunities for and
challenges to business executives. We also plan to continue
investing in new solutions that will create additional entry
points with our prospective customers and generate significant
cross-selling opportunities within our existing customer base.
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Further Expand into our Existing Customer
Base. Many of our customers initially
purchase only a portion of our solutions for a limited number of
users within a specific department or group. As they derive
value from our products, many customers decide to expand their
use of our RPM solutions, thereby providing us with a
substantial opportunity to increase the lifetime value of the
customer relationship. We plan to increase revenue from our
existing customers by using the success of already-implemented
solutions to expand utilization across the enterprise and to
cross-sell other offerings and features. Recurring revenue from
existing customers grows as they purchase additional solutions
and store more customer and prospect records in their databases.
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Continue to Strengthen and Expand our Direct Sales Force
and Partner Relationships. We believe that
there are many large enterprises and SMBs that are potential
customers for the Eloqua Platform, and we are expanding our
direct sales force to capture new customer opportunities. We
have also developed strategic relationships with systems
integrators, marketing service providers, marketing agencies and
complementary software vendors to increase the distribution and
market awareness of our solutions. We believe we have a
significant opportunity to leverage our direct sales force to
drive revenue growth and expand our global market reach, as well
as efficiently increase our services delivery capacity through
continued attention to our partner relationships.
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Expand our International Presence. We
plan to increase our international presence into regions where
we believe customers will recognize the benefits and adopt RPM
solutions. We believe there is significant international demand
for our solutions, because the Internet has transformed buyer
behavior globally. In 2011, we generated approximately 10% of
our revenue from outside the United States and Canada. We intend
to grow our sales in Europe, South America and the Asia-Pacific
region by expanding our direct sales force and partner
relationships in these locations.
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Selectively Pursue Acquisitions of Complementary
Technologies. In addition to developing
innovative solutions internally, we may selectively acquire
other businesses and technologies that we believe will
strengthen our competitive advantage, accelerate our customer
and revenue growth and provide access to new and emerging
markets.
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Our
Offerings
Our comprehensive Eloqua Platform combines the features and
functionality of our leading Marketing Automation Platform with
the next-generation capabilities of our Revenue Suite, and is
supported by our Professional Services.
We currently offer three product configurations of the Eloqua
Platform, which we call Eloqua Enterprise, Eloqua Team and
Eloqua Express. Each of these product configurations is
delivered on the Eloqua Platform, which enables us to leverage
our development and support expenditures by
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providing the functionality required by any type of customer on
a single platform. Our Enterprise product is targeted at the
large enterprise market, and includes the full functionality of
our platform, including more sophisticated targeting, more
robust consolidated reporting and premier support. Our Team
product, which is targeted at mid-market and smaller
enterprises, has many of the same features as the Enterprise
product, but does not include some of the advanced features
required by larger organizations. Finally, our Express offering
is targeted at the SMB market, featuring more basic
functionality and designed for easier configuration and launch.
Marketing
Automation Platform
Our Marketing Automation Platform offers the following
capabilities across each of the Eloqua Platforms product
configurations.
Campaign Management. Our Marketing Automation
Platform allows marketers to quickly and efficiently design,
test and launch repeatable event-triggered, personalized
multi-step campaigns through the following key functions.
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Lead Nurturing. Our solution provides improved
lead flow as marketing teams are able to automate nurture
campaigns, immediately track and score lead behavior, and pass
on purchase-ready leads to sales teams based on commonly-agreed
definitions.
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Event Management. Through our open platform,
our event management solution integrates with many of the
leading providers of webinar and event management software to
streamline the event marketing process by increasing awareness
of events, capturing registrations, automating
follow-up
and increasing attendance.
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Multi-Channel Campaign Management. Our hosted
platform simplifies the planning, development and execution of
marketing campaigns for delivery across various channels,
including email, social media, online events and mobile. With
our solution, marketing teams can automate time-intensive
delivery and routing tasks, enabling them to focus on larger
strategic and creative initiatives.
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Lead Management. Our Marketing Automation
Platform provides real-time lead management, from lead capture
and distribution to sophisticated lead scoring and routing
processes that support larger channel and sales organizations
through the following key functions.
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Eloqua Co-Dynamic Lead Scoring. Our Eloqua
Co-Dynamic Lead Scoring technology transforms lead scoring from
a subjective process to an analytical approach. Utilizing common
lead quality definitions such as BANT (Budget, Authority, Need
and Timeline), as well as key qualification data, including lead
response, social media activity and behavior, sales leads can be
objectively ranked and prioritized.
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Lead Routing. Our platform enables marketers
to assign and route leads automatically to their sales
counterparts in real-time based on complex parameters. Critical
conversion rates in the process of providing leads to sales
teams can be compared against a benchmark of the same conversion
rates in our combined customer base.
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CRM Integration. Our solutions integrate with
leading CRM systems for data, lead and process flow. We
integrate with multiple on-demand CRM systems including
salesforce.com, Microsoft Dynamics CRM, Oracle CRM and NetSuite
CRM. We also offer an application programming interface, or API,
through which the Eloqua Platform can be integrated with other
third-party CRM systems including Siebel, SAP, Oracle and
internal databases.
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Contact Management. Our Marketing Automation
Platform enables our customers to better profile their prospects
by capturing and tracking lead information, campaign response
and web
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activity, and then providing marketing teams with the ability to
segment and personalize campaigns based on this data through the
following key functions.
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Segmentation. We provide the ability to build
segments based on contact, account, campaign, purchase history,
social media activity, and other related custom data about
prospects and existing clients.
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Data Cleansing. We provide the ability to
cleanse and standardize data, leveraging data tools built into
the application or through extensions of the open platform.
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Subscription Management. Customers can build
and manage a subscription center so that prospects and clients
can opt in and select specific areas of interest.
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Database Management. Customers can improve the
quality of their contact lists, track and analyze
prospects online behavior and benchmark their marketing
performance against the performance of similar companies. As of
March 31, 2012, we managed the profiles of potential buyers
in nearly three billion buying processes and processed an
average of over eight billion database transactions per day
on behalf of our customers, including website views, social
media interactions, emails and many other online transactions.
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Marketing Effectiveness. Our Marketing
Automation Platform includes marketing campaign measurement
applications to help our customers track and measure marketing
program performance and revenue impact through the following key
functions.
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Marketing Campaign Effectiveness. Enables
customers to create reports on standard email metrics like
opens, click-through rates, form conversions and website
activity, as well as understand who is actually performing these
activities at a named level. Each of these metrics can be
benchmarked against the performance of similar companies.
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Database Health Reporting. Enables our
customers to measure, monitor and improve the quality of their
data and the completeness and accuracy of their contact profiles.
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Lead Quality Analysis. Helps our customers
understand the quality of leads and where they are coming from,
as well as identify the lead profiles that are converting the
fastest into opportunities for the sales team.
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Improved Campaign Return on Investment
Functionality. Allows customers to track return
on investment more easily across multi-step campaigns and
enables marketers to attribute revenue to specific campaigns
more easily and reliably.
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Social Media Automation. Our Marketing
Automation Platform allows customers to take advantage of the
growth in social media. Our customers are able to track, extend
and improve the performance of their sales and marketing efforts
across the Social Web by using the key following tools:
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Social to Revenue. Tracks how prospects
engaged in social media channels are progressing through the
sales and marketing pipeline, demonstrating the impact of social
media on revenue growth.
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Social Sharing. Our platform makes it easy for
our customers to organically increase the reach and influence of
promotions and other marketing content by allowing their
prospects to share content with their peers. Using embedded
social buttons, recipients of marketing materials
can share content within their social networks with a push of a
button.
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Social for Sales. We provide sales
professionals with the ability to monitor the impact of content
and conversations on social networks, allowing them to
understand what interests and
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motivates individual prospects. With this data they can
strategically determine how to engage leads in conversation.
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Eloqua Cloud Connectors. Marketing and sales
professionals are employing a growing number of applications to
discover and influence prospects throughout the marketing and
sales funnel. These applications perform a wide variety of
functions such as webinars, text messaging, data management,
online community management, social media monitoring and direct
mail. Each function provides highly-desired data about buyer
behavior. However, insufficient communication between such
applications can result in disparate data and an incomplete view
of how prospects are encountering and engaging with an
organizations marketing and sales efforts.
Our Marketing Automation Platforms open architecture
allows independent application providers to integrate their
individual solutions with our platform, enabling applications to
share the data collected in a central place. For instance, a
business might first identify a prospect who downloaded a
presentation on a particular topic, subsequently attended a
sponsored webinar on the same subject and later continued the
conversation on a social network. Eloqua Cloud Connectors bring
these various data points together, extending the
organizations view of the prospect across the entire
marketing and sales process.
Eloqua Cloud Connectors are featured in the Eloqua AppCloud, an
online marketplace where independent vendors applications
can seamlessly integrate. Since launching in June 2011, more
than 40 connectors have been added, including Adobe, WebEx,
ON24, Jigsaw, Demandbase, Rapleaf, StrikeIron, SlideShare, Jive
and Lithium. The Eloqua Cloud Connectors help marketers
consolidate their view of a prospective buyer into a single
system. Eloqua Cloud Connectors enable our customers to perform
a variety of functions, including:
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query social or classic data sources to deepen our
customers understanding of the buyer across their various
online and social identities;
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read data from marketing systems such as event or webinar
providers in order to extend their understanding of buyers
Digital Body Language; and
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trigger marketing actions such as text messaging, direct mailing
or social messaging.
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Eloqua for Sales. Our Marketing Automation
Platform includes Eloqua for Sales, which provides sales people
with a suite of intelligence and productivity applications
designed to help them quickly identify opportunities and analyze
critical information about prospects, thereby improving their
effectiveness when communicating with prospects through the
following key functions.
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Eloqua Discover for salesforce.com. Provides a
prioritized view of the most engaged prospects and accounts,
enabling sales representatives to allocate their resources more
efficiently.
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Eloqua Profiler. Our graphical summary of a
prospects online behaviors allows sales representatives to
focus conversations on topics that are most likely to resonate
with buyers.
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Eloqua Engage. Alleviates the need to
constantly re-create emails that are frequently used throughout
the sales process, ensuring sales professionals are using
marketing-approved messaging, branding and content, while also
allowing for personalization and tracking of each email template
sent. Eloqua Engage is available through the web, via different
CRM solutions or on an iPad.
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Web Visit Alerts. We email real-time
comprehensive alerts directly to sales representatives when hot
prospects visit our customers websites.
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Revenue
Suite
Revenue Suite is at the core of the Eloqua Platform. It builds
on our award-winning Marketing Automation Platform to provide
significantly more robust reporting and analytics. Whereas the
Marketing Automation Platform serves as a bridge between
marketing and sales, our Revenue Suite is intended to provide
actionable revenue-generating intelligence directly to the
senior management team. Just as many organizations operate and
optimize their core business functions with Key Performance
Indicators, or KPIs, the Eloqua Platform enables our customers
to manage and optimize their own customer acquisition process
through various key marketing and sales metrics, which we refer
to as Revenue Performance Indicators. Utilizing RPIs, our
customers can track the effectiveness of their marketing and
sales functions in real time, measuring their impact on
influencing prospective buyer behavior and, ultimately, their
contribution to revenue. We have worked extensively with
industry experts and customers to distill the key metrics that
we believe help companies grow their revenue, and a benchmark
index to allow our customers to gauge their performance across
the following key indicators:
Revenue Suite is currently comprised of the following products:
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Revenue Architect. Provides our customers the
ability to build an integrated marketing and sales funnel, with
standard stages and business rules on how buyers move through
the purchasing process.
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Revenue Insight. Our RPIs supply executives
with the latest data on which marketing initiatives are driving
top-line growth.
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Revenue Benchmark Index. We believe we are the
only company to provide customers with real-time marketing
benchmark data across our universe of customers, allowing them
to gauge their performance against their peers.
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Professional
Services
We complement our on-demand software platform with a range of
professional services that are designed to assist our customers
in re-engineering their business processes to facilitate greater
automation of their marketing workflow and progression towards
their utilization of RPM. We believe these services help
demonstrate to our customers the valuable insights provided by
the Eloqua Platform and, as a result, our platforms value
proposition to an enterprise. We have devoted considerable time
to developing industry-specific methodologies and best
practices, and educational
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classes and certifications to improve the effectiveness of our
customers marketing and sales programs as their
sophistication grows. These services include:
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Education and Certification. We offer
our clients access to ongoing educational programs through our
Eloqua University. As the pioneer of the RPM category, we
created our Eloqua University to educate our clients on best
practices in the areas of RPM, social media, marketing
measurement and lead management. In addition, we provide
certifications on Revenue Lifecycle Management, or RLC, best
practices and the Eloqua Platform via our RLC Masters and Eloqua
Masters certification programs. Eloqua Universitys
dedicated professionals currently offer 25 courses, including
Eloqua Fundamentals, Eloqua Insight, Eloqua Multi-Touch
Campaigns, and Eloqua Social Media. Our worldwide team of
instructors delivers more than 150 classes every quarter. We
believe that our systematic approach to educating our customers
is a competitive advantage and creates a high degree of customer
engagement and loyalty.
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Implementation. Our professional
services team is organized to deliver services designed to
ensure rapid
time-to-value,
product adoption and ongoing customer success. With our
on-demand subscription model, we have eliminated the need for
lengthy and complex implementation services such as customizing
code, deploying equipment, and managing unique network and
application environments for each customer. Instead, we focus
our services offerings on strategic marketing best practices and
automating business processes.
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Through our onboarding services, we help our customers implement
our solution rapidly, often in a matter of days or weeks. We
also provide follow-on services designed to help our clients
gain greater visibility, alignment and results from their
investment. Our SmartStart onboarding methodology is designed
specifically to give SMBs platform functionality without a
lengthy implementation timeframe or large investment.
With the SmartStart onboarding approach, our clients enjoy the
following benefits:
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Time Savings. Rapid results by establishing
campaigns, advanced segmentation, nurturing and CRM integration
generally in less than five days;
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Add Strategic Value. Our average customer
automates 25% of their campaigns in the first year, freeing up
time to focus on strategic marketing initiatives; and
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Guaranteed Success. We offer a
money-back guarantee to our customers who complete
SmartStart, agreeing to release them from the remaining balance
of their contract if at any time within six months of their
contract, they notify us that they wish to terminate.
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We also understand that large enterprise organizations may
require more flexibility, strategic program design and phased
deployment alternatives. We offer both packaged service options
and tailored projects for our enterprise customers. Both
approaches leverage our Accelerate implementation
methodology, which is based upon an iterative configuration
approach designed to deliver value quickly and empower customer
team members to take control of their system. We have used this
methodology on hundreds of projects and believe it provides the
series of steps, activities and deliverables necessary for a
successful implementation.
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Integration. Our Eloqua Cloud
Connectors provide an open platform for third-party developers
to extend their capabilities to the Eloqua Platform. We offer a
variety of services offerings to support each type of
integration. Professional services related to CRM integration
focus on the process requirements for aligning a marketing and
sales organization and the flow of a lead as it is qualified,
handed to sales, and then accepted or rejected.
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Customers
We have over 1,100 customers with users in more than 40
countries, encompassing a wide spectrum of attractive vertical
markets, including the technology, financial services,
entertainment, manufacturing, business services and
telecommunications industries. We define our enterprise
customers as those customers with revenue of greater than
$300 million per year, and customers with revenue less than
$300 million per year as our SMB customers. Our enterprise
customers represented approximately 37% of our customer base and
generated approximately 62% of our total revenue during the
three months ended March 31, 2012, while our SMB customers
represented approximately 63% of our customer base, and
generated about 38% of our total revenue during the same period.
The following is a representative sample of our current
customers across the various industries we currently serve, with
each industry indicated below including customers that vary in
size (both in reference to the amount of revenue we derive from
the customers and the size of the customers businesses):
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Technology/Manufacturing Affymetrix AMD Applied Biosystems Cisco Dell HP Iogear Lenovo Liebert National Instruments NETGEAR SACHEM Seagate
Financial Services Deutsche Bank Digital Insurance Fidelity Investments Franklin Templeton Investments Platts Schroders Standard & Poors Trust Company of America WisdomTree Wolters Kluwer
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Software ArcSight Avid Cognos Endeca GXS Informatica Manhattan Associates McAfee NetApp Netezza Nuance Perkin Elmer Rosetta Stone Schooldude.com Siemens Software AG Solarwinds Sybase TrialPay VMware Winshuttle
Entertainment Golden State Warriors Miami Heat Sacramento Kings Washington Capitals WGBH
Telecommunications Comcast LifeSize Savvis Telstra Terremark
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SaaS/Cloud Blackboard Brightcove Concur Cornerstone OnDemand LinkedIn Mindbody SuccessFactors Taleo Telligent Zoominfo
Business Services ADP American Express Aon BAASS Business Solutions Booz Allen Hamilton Corporate Executive Board D&B Fujitsu Harvard Business School Publishing Iron Mountain NIIT (USA) Inc. TriNet
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We employ a global team of dedicated customer success managers
who are solely responsible for helping clients achieve their
growth objectives. Our customer success managers leverage our
methodology, which we call Success Plan, a
12-month
milestone-based plan, matched to customer objectives, to drive
rapid value from our solution. This Success Plan also includes a
health check every six months that benchmarks the
customers performance against a comparable segment of our
more than 1,100 customers.
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Customer Case
Studies
The information and outcomes discussed in the customer case
studies below have been derived from our discussions with, and
surveys and questionnaires provided to us by, our customers and
are only being provided as an example of the application and
utility of our solutions with respect to the customers
identified. While we believe that these case studies are
demonstrative of our customers use and the efficacy of the
Eloqua Platform, we make no assurances as to the future
performance of our solutions for these or other customers or the
indicative nature of these case studies with respect to the
utility of our solutions for our customers generally.
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While using
Eloqua RPM, Platts increased qualified leads from approximately
30% to over 70%
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Platts is a division of The McGraw-Hill Companies, and is a
leading global provider of energy information for the physical
and futures markets. Platts uses the Eloqua Platform to power
its RPM strategy, and to improve visibility and alignment across
marketing and sales teams to increase revenue. In order to
determine how effective marketing was at sourcing qualified
leads for sales, our Customer Success Management team worked
with Platts to set up and track various metrics, such as percent
of leads contacted within 24 hours, total percent contacted
and closed/won conversion ratios. Automating the data
integration between the Eloqua Platform and Oracle CRM on Demand
allowed Platts to provide actionable data to the sales team.
Platts discovered that its sales team would be more effective
handling fewer but more qualified leads. While using our revenue
performance analytics solution, Platts decreased the number of
leads provided by marketing to sales by 64%, but improved the
quality of the leads provided by implementing Eloqua Co-Dynamic
Lead Scoring. This led to an increase in the sales
follow-up
rate on qualified leads from approximately 30% in 2009 to over
70% in 2010 (and as high as 90% in some regions). As a result of
these changes, the conversion rate of marketing qualified leads
to sales opportunities increased from 23% to 31% from 2009 to
2010.
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Siemens PLM
deployed Eloqua Platform globally, decreasing cost per lead from
as high as $300 to less than $30
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Siemens PLM Software is a leader in product lifecycle management
software, and has deployed the Eloqua Platform to provide
marketing automation across its global operations. Siemens PLM
Software developed an initial communications campaign around the
stages of the buying process using a series of web pages, emails
and search analysis. The Eloqua Platform allowed them to
maintain global brand consistency, while dynamically tailoring
messages to meet the language and content preferences of
recipients. The preferences could be continually refined with
prospect profile and activity information captured by the Eloqua
Platform.
As the Siemens PLM team became more proficient in leveraging the
capabilities of the Eloqua Platform, our solutions enabled
Siemens to automatically personalize a global marketing
campaign, and in the process reduced the number of required
landing pages from hundreds to just two. This simplification
enabled Siemens to reduce the amount of time required to design
and personalize a campaign from approximately 100 hours to
approximately 10 hours. The Eloqua Platform also enabled
Siemens PLM to capture all lead data in a single unified global
database. The increased efficiency ultimately both helped
increase the number of leads, and decreased the cost per lead
from as high as $300 to less than $30.
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Eloqua
Platform enables Golden State Warriors to implement a
multi-channel social campaign and generate over $400,000 in
revenue
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The NBAs Golden State Warriors implemented the Eloqua
Platform to power their season ticket marketing efforts. In
2010, the Warriors launched their Warriors Draft
Challenge using the Eloqua Platform to fully integrate a
variety of social media channels such as Facebook, Twitter and
YouTube, while collecting actionable data on those who
participated. As part of the promotion, the Warriors used the
Eloqua Platform to create campaigns such as a contest with daily
challenges, the successful completion of which filled in pieces
to an online puzzle. Fans were incentivized with daily prizes,
including the chance to win season tickets. The Warriors
reported the following measurable results from this social media
driven promotion:
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increased web site traffic by 66% year over year during the
promotion;
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increased Facebook Fans count by 175%, from 39,000 to 107,000;
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increased Twitter followers over 250% from 4,000 to
15,000; and
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generated over $400,000 in ticket revenue through sales to
contest participants.
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Eloqua
Platform enables Avid to achieve high open and click-through
rates from a multi-pronged email campaign
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Avid creates the digital audio and video technology used to make
some of the most listened to, most watched and most loved media
in the world and uses the Eloqua Platform for its global
marketing activities. Avid was embarking on a major launch of
its flagship audio editing software for independent and
professional musicians and wanted to properly support the launch
in order to maximize revenue for this key product initiative,
targeting existing customers as well as prospects. Avid believed
that an instrumental element to its success would be strong
engagement with its targets and developed multiple paths to
nurture prospective buyers and segmented its targets into the
appropriate nurture campaign. By using the Eloqua Platform to
target customers with unique messaging and price points based
upon purchase history, more than 50% of emails in its campaign
were opened (as compared to the estimated industry average of
24%) and more than 11% of emails sent caused recipients to click
through to get additional information (as compared to the
estimated industry average of 3%).
During the same product launch, Avid also leveraged the Eloqua
integration with Omniture to capture certain information
regarding shopping cart abandonments and dropped these potential
buyers into a separate nurturing campaign. This innovative
program caused more than 75% of emails sent to be opened, and
7.5% of recipients actually closed a purchase based on the new
campaign, driving meaningful revenues from these otherwise
potentially lost sales.
Marketing and
Sales
Marketing
Our marketing activities are designed to build broad brand
awareness, generate thought leadership and create demand and
leads for the sales organization within our target markets. Our
marketing programs target the decision-maker in a sales cycle,
including the chief marketing officer, the chief information
officer, the chief financial officer, the functional heads of
marketing and other key technology managers. Additionally, we
focus on industry analysts, consulting firms, marketing service
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providers, marketing agencies, business and trade press, and
other industry pundits who exert considerable influence in our
market.
We use our own Eloqua Platform to run our global marketing
operations, providing us fully integrated marketing solutions
for:
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managing our marketing spend;
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streamlining our marketing workflows and agency collaboration;
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storing and re-using our brand assets for global access and
localization;
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executing our multi-channel marketing campaigns and events;
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collecting online responses and converting anonymous website
visitors to known prospects;
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moving prospects through a nurturing, scoring and qualification
process; and
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automatically distributing qualified leads into our sales force
automation system.
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Sales
We principally sell through our direct sales force, which
accounted for 91% of our new business in 2011. We also use
regional market makers who sell our product as resellers. The
reseller channel represented 9% of our 2011 sales. Our direct
sales force is comprised of a group of enterprise sales
professionals who sell our solutions to larger companies and a
group of SMB sales professionals who sell our solutions to
smaller companies. These groups are primarily responsible for
new customer acquisition and expanding our business
relationships. Our customer success managers are primarily
responsible for ensuring that our customers value
attainment is meeting their expectations, along with supporting
our customers renewal process and desire for incremental,
add-on software and services orders. In line with our core value
of cultivating customer success and loyalty, every Eloqua
customer is supported by a customer success manager. Our sales
efforts are supported by a dedicated pre-sales application
consulting team.
Our partners are also an important element of our sales process.
They provide us with new sales leads, positively influence the
outcome of sales opportunities where we are already engaged and
enhance our value proposition with complementary offerings. We
support our partners with our channel sales managers and our
partner advocacy team.
Alliances
We have a number of non-exclusive strategic relationships, both
formal and informal, in which we partner with industry
participants to facilitate, among other things, system
integration, consulting and marketing services and referrals. In
many cases we have written agreements with these partners, and
these agreements generally have one-year terms and allow
termination for convenience by either party after a notice
period.
Strategic
Partners
Our strategic partnerships include global systems integrators
and agencies such as Accenture, Capgemini,
Harte-Hanks,
and Ogilvy One. These firms provide our customers consulting
services and in some cases embed the Eloqua Platform in other
SaaS solution offerings. Our strategic partners provide global
capabilities with a focus on our enterprise clients. We have
written agreements with each of these companies. Strategic
partners generally have the ability to purchase our products at
a discount and resell those products on an embedded or
stand-alone basis. There are no minimum fees or sales volumes
required.
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Marketing
Agencies and Consulting Firms
We have contracts with many regional marketing agencies and
consulting firms. These include partners from the salesforce.com
ecosystem such as Astadia, DemandGen and eVariant, which
complement their growing CRM installed base with our RPM
solution. We also have contracts with many regional demand
generation and marketing outsourcing agencies that provide
marketing services and can help our mutual customers use the
Eloqua Platform for a broad range of sophisticated projects.
These relationships expand our delivery capabilities and
geographic presence. We provide a formal training and
certification process to support client success. Marketing
agencies and consulting firms generally have the ability to
purchase our products at a discount and resell those products on
an embedded or stand-alone basis. There are no minimum sales
volumes required.
Referral
Partners and Marketing Ambassadors
We have contracts with a growing network of referral partners,
including technology firms and data providers that we
incentivize for introductions to potential customers. Referral
partners receive a fee when customers sign contracts with us as
a result of the referral. Marketing ambassadors are generally
also referral partners and only receive the referral fee as
their remuneration. Marketing ambassadors are thought leaders
and typically host marketing events and other promotional
activities pursuant to contractual arrangements.
Technology
Partners
We have technology relationships with large CRM and sales force
automation vendors such as salesforce.com and Microsoft. We also
work with web analytics providers such as Adobe, through its
Omniture subsidiary, and Webtrends. We generally do not have
written agreements with these sales force automation and web
analytics companies, but rather our products and the products of
our technology partners are integrated and promoted as working
together for the benefit of our mutual customers. In addition,
our Eloqua AppCloud includes links to companies providing web
conferencing solutions to data providers and to other companies
with marketing-oriented products. These companies include
data.com (salesforce.com), ON24 and WebEx. Companies
participating in our Cloud Connector program agree to certain
terms of use particular to the program, and the program does not
require any payments.
Industry
Organizations
We participate in a number of industry organizations, such as
the Email Sender and Provider Coalition (ESPC) and the Messaging
Anti-Abuse Working Group (MAAWG), which aim to develop and
implement industry-wide improvements in spam protection and
solutions to prevent inadvertent blocking of legitimate
commercial emails. We also act as educational advisors to
privacy and data governance coalitions like International
Association of Privacy Professionals (IAPP) and participate in
the FBIs InfraGard program, which is an association of
businesses, academic institutions, state and local law
enforcement agencies, and other participants dedicated to
sharing information and intelligence to prevent hostile acts
against the United States.
Research and
Development
Our research and development organization is responsible for
planning and managing the design, development and quality of our
software solutions. Specific functions within research and
development include product and project management, software
engineering, quality control and assurance and documentation. As
of March 31, 2012, we had 66 employees in our research
and development organization.
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Our staff monitors and tests our software on a regular basis,
and maintains a regular release processes to refine and update
our solutions. We typically deploy new releases and updates
multiple times per year.
Our research and development expenses were $8.6 million,
$10.4 million and $11.7 million in 2009, 2010 and
2011, respectively. Our significant investment in research and
development over these years reflects our commitment to
broadening and deepening our solutions to drive growth across
our business.
Technology
The Eloqua Platform is designed with an on-demand, multi-tenant
SaaS architecture to be accessed via a web browser. Our solution
has been designed and built with the following capabilities in
mind:
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Intuitive User Experience. The Eloqua
Platform is designed to create an intuitive, interactive and
consistent user experience. The goal of our design is to
minimize the need for extended product training.
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Scalability and Reliability. Our
architecture provides the scalability to meet the needs of the
most demanding marketing and sales organizations in the world.
We believe we deliver world-class reliability while processing
billions of transactions per day on behalf of our customers,
including website views, social media interactions, emails and
many other online transactions.
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Security. We pursue and conform to
rigorous security and auditing standards required by both the
industry and our customers. We employ the fundamental principle
of security by design, which enables comprehensive
and flexible security throughout our application.
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Configurability. Our solutions provide
flexibility for the user to configure the Eloqua Platform
according to their needs.
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Integration. As part of the Eloqua
Platform, we provide standard, pre-built integrations with
leading CRM systems. We also enable additional custom
integration for our customers and partners through our Web
Services API.
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Open Platform. Our platform is
extensible by third-party technology partners to provide maximum
benefit to marketers who use a variety of solutions to interact
with their prospective buyers.
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The Eloqua Platform is designed and deployed with a
multi-tenant, multi-user architecture, providing each client
with a separate instance of the database while maintaining a
common schema across all clients. This particular multi-tenancy
model allows the dual benefit of physical data abstraction and
data model consistency, which is paramount for both security and
manageability.
The Eloqua solution is an open, n-tier, component-based
architecture to enable the use of
best-in-class
technologies. The component-based architecture promotes reuse,
functional extensibility and on-going maintainability of the
code-base.
The software stack is comprised of a combination of Microsoft
Windows, IIS and SQL Server with a suite of support
services deployed on Linux. Our server code is primarily based
on the Microsoft .NET technologies. This includes the data-tier,
which employs MS-SQL Server as the relational database
management system. The user interface tier, designed for user
interactivity, employs a combination of Javascript and HTML5
technologies.
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Operations
Our platform is hosted in a Tier 1 Verizon datacenter in
Toronto, Canada. This facility provides physical security
including
around-the-clock
manned security, video surveillance, biometric access controls,
redundant power and environmental controls as well as redundant
Internet connection points. Within the datacenter, we manage all
systems and services that make up the platform infrastructure in
a secure cage.
All servers in our network are connected to at least two network
switches to provide a resilient network infrastructure with high
levels of uptime. Our network also employs load balancing for
scalability and reliability. In addition, our deployment
architecture enables us to extend our capacity on-demand and in
a cost-effective manner. We perform security assessments of our
application and infrastructure once a year. Our security posture
is further enhanced by submitting not only our datacenter
facilities, but also our internal business process, to a SAS70,
Type II audit on an annual basis. Our cross-functional
security team covers all aspects of security from physical
access to sites and sensitive areas to code and system level
controls. The security team, reporting through our chief
security officer, manages security events through a well
established incident management policy and process.
We use a number of third party services, including content
delivery network and DNS management.
Competition
Our market is evolving, highly competitive and fragmented, and
we expect competition to increase in the future. We believe the
principal factors that generally determine a companys
competitive advantage in our market include the following:
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marketing focus and domain expertise;
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breadth and depth of product functionality;
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vision for market and product strategy;
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scalable, open architecture and ease of integration;
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integrated application platform leveraging a unified code base
and re-usable component services;
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flexibility to configure application to customers unique
marketing processes;
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time to value and total cost of ownership;
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availability and quality of implementation consulting services;
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strong customer and partners relationships; and
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name recognition and brand reputation.
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We face competition from businesses that develop their software
internally and from other software vendors and service
providers. Our competitors vary for each of our solutions, and
some of these providers include:
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plan and spend management software vendors, such as Oracle
Corporation and SAP AG;
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workflow, project management and brand management vendors, such
as marketing agencies who develop custom systems for their
clients;
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email marketing software vendors, including Responsys, Inc.,
ExactTarget, Inc., Constant Contact, Inc. and numerous other
email marketing companies;
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100
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campaign management software vendors, such as Oracle
Corporation, SAS Institute Inc., Aprimo, Inc. (a division of
Teradata Corporation), and Unica Corporation (a division of
International Business Machines Corporation); and
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lead management software vendors, such as Oracle Corporation,
Genius.com, Incorporated, Marketo, Inc., Neolane Inc., Pardot
LLC, Silverpop Systems, Inc. and smartFOCUS Group plc.
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We expect that new competitors will continue to enter the
marketing automation and RPM markets with competing products. In
addition, we expect competition to increase as a result of
software industry consolidation, including through possible
mergers or partnerships of two or more of our competitors. We
also expect that new competitors, such as enterprise software
vendors that traditionally have focused on enterprise resource
planning or back office applications, will continue to enter the
marketing automation and RPM markets with competing products. In
addition, sales force automation and customer relationship
management system vendors, such as Microsoft Corporation,
NetSuite Inc., Oracle Corporation, Sage Software, Inc.,
salesforce.com, inc. and SAP AG, could acquire or develop
solutions that compete with our offerings.
Intellectual
Property
Our success depends in part on our ability to protect our core
technology and intellectual property. To accomplish this, we
rely upon a combination of patent, copyright, trade secret and
trademark laws and non-disclosure and other contractual
arrangements to protect our proprietary rights.
To date, we have two U.S. patent applications and one
international patent application pending. Our patent strategy is
designed to provide a balance between the need for coverage in
our strategic markets and the need to maintain costs at a
reasonable level. We do not know whether our patent applications
will result in the issuance of patents or whether the
examination process will require us to narrow the scope of our
claims. To the extent either application proceeds to issuance,
it may be opposed, contested, circumvented, designed around by a
third party, or found to be invalid or unenforceable. In
addition, any future patent applications may not be issued with
the scope of the claims sought by us, if at all, or the scope of
claims we are seeking may not be sufficiently broad to protect
our proprietary technologies. Others may develop technologies
that are similar or superior to our proprietary technologies,
duplicate our proprietary technologies or design around patents
owned or licensed by us. If our products are found to conflict
with any patent held by third parties, we could be prevented
from selling our products or our patent applications may not
result in issued patents.
We own numerous registered trademarks, including Eloqua, Active
Profiles, Digital Body Language, Eloqua Web Analytics, Eloqua
CRM Integration and Eloqua Co-Dynamic Lead Scoring. In addition,
we generally control access to and use of our proprietary
software and other confidential information through the use of
internal and external controls, including contractual
protections with employees, contractors, end users and channel
partners. We rely in part on U.S., Canadian and international
copyright laws to protect our software. All employees and
consultants are required to execute confidentiality agreements
in connection with their employment and consulting relationships
with us. We also require them to agree to disclose and assign to
us all inventions conceived or made in connection with the
employment or consulting relationship. We cannot provide any
assurance that employees and consultants will abide by the
confidentiality or invention assignment terms of their
agreements. Despite our efforts to protect our intellectual
property through patents, trademarks and confidentiality
agreements, unauthorized parties may copy or otherwise obtain
and use our software and proprietary technology.
We have in the past and may in the future license third-party
software products to be incorporated into our software
solutions. We are not materially dependent upon these
third-party
101
software licenses, and we believe that the licensed software in
our product is generally replaceable, by either licensing
similar software from other vendors or building the
functionality ourselves.
Government
Regulation
Email/Communications
Our customers use our RPM solutions to perform a variety of
tasks that involve communications across email, mobile, social
and/or
web-based channels. These communications are governed by a
variety of U.S. federal, state, and foreign laws and
regulations. With respect to email campaigns, for example, in
the United States, the Controlling the Assault of Non-Solicited
Pornography and Marketing Act of 2003, or the CAN-SPAM Act,
establishes certain requirements for the distribution of
commercial email messages for the primary purpose of
advertising or promoting a commercial product, service, or
Internet website and provides for penalties for transmission of
commercial email messages that are intended to deceive the
recipient as to source or content or that do not give opt-out
control to the recipient. The U.S. Federal Trade
Commission, a federal consumer protection agency, is primarily
responsible for enforcing the CAN-SPAM Act, and the
U.S. Department of Justice, other federal agencies, State
Attorneys General, and Internet service providers also have
authority to enforce certain of its provisions.
The CAN-SPAM Acts main provisions include:
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prohibiting false or misleading email header information;
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prohibiting the use of deceptive subject lines;
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ensuring that recipients may, for at least 30 days after an
email is sent, opt out of receiving future commercial email
messages from the sender, with the opt-out effective within
10 days of the request;
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requiring that commercial email be identified as a solicitation
or advertisement unless the recipient affirmatively assented to
receiving the message; and
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requiring that the sender include a valid postal address in the
email message.
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The CAN-SPAM Act preempts most state restrictions specific to
email marketing. Moreover, some foreign jurisdictions, such as
Australia, Canada and the European Union, have also enacted laws
that regulate sending email, some of which are more restrictive
than the CAN-SPAM Act. For example, some foreign laws prohibit
sending unsolicited email unless the recipient has provided the
sender advance consent to receipt of such email, or in other
words has opted-in to receiving it. Violations of
the CAN-SPAM Acts provisions can result in criminal and
civil penalties, including statutory penalties that can be based
in part upon the number of emails sent, with enhanced penalties
for commercial email senders who harvest email addresses, use
dictionary attack patterns to generate email addresses,
and/or relay
emails through a network without permission.
With respect to text message campaigns, for example, the
CAN-SPAM Act and regulations implemented by the
U.S. Federal Communications Commission pursuant to the
CAN-SPAM Act, and the Telephone Consumer Protection Act, also
known as the Federal Do-Not-Call law, among other requirements,
prohibit companies from sending specified types of commercial
text messages unless the recipient has given his or her prior
express consent.
Additionally, our customers collect and use personal information
about consumers to conduct their marketing campaigns, which
subjects them to federal, state and foreign privacy laws that
regulate the use, collection and disclosure of consumers
personal information. In European Union member states and
certain other countries outside the United States, data
protection is more highly regulated and rigidly enforced as
privacy regulations and not email regulations. Non-compliance
with these laws and regulations carries significant financial
penalties.
102
We are strong advocates of permission-based email marketing and
our terms and conditions and acceptable use policies require
that our customers comply with all applicable laws, including,
among others, the CAN-SPAM Act and other privacy regulations
around the globe, in the use of our RPM solutions and hold them
liable for any violations of such laws. If we become aware that
a customer has violated a law applicable to its marketing
activities while using our RPM solutions
and/or
breached our terms and conditions, we can suspend or terminate
its use of our RPM solutions and professional services.
We have taken additional steps to facilitate our clients
compliance with many of the email regulations around the world
through the adoption of our Acceptable Use Policy which provides
that our clients:
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use our software only to send emails to customers and prospects
that have consented to receiving their email;
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will not use our system to send unsolicited email; and
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agree that we retain the right to use auditing methods such as
complaint and email failure monitoring to verify that clients
are abiding by our Acceptable Use Policy. However, our clients
are ultimately responsible for compliance with laws, regulations
and our policies.
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Privacy/Data
Security
We are subject to a number of federal, state, and foreign laws
and regulations regarding data governance and the privacy and
protection of member data that affect companies conducting
business on the Internet. In the area of information security
and data protection, many governments, states and countries have
passed laws requiring notification to users when there is a
security breach of their sensitive personal data, such as the
2002 amendment to Californias Information Practices Act,
or requiring the adoption of minimum information security
standards to protect data as it is in transit. The costs of
compliance with these laws will increase in the future as a
result of changes in interpretation and continued data breaches
bring further requirements on the online industry. Furthermore,
any failure on our part to comply with these laws may subject us
to significant liabilities and fines to our customers and us.
Employees
As of March 31, 2012, we had 355 employees worldwide,
of whom 153 were located in the United States, 174 were
located in Canada, and 28 were located overseas. These employees
included 118 in marketing and sales, 79 in product development,
52 in customer support, 56 in professional services and 50 in
general and administrative positions. None of our employees are
represented by a union or are party to a collective bargaining
agreement. We believe we have good relations with our employees.
Facilities
Our principal executive offices are located in Vienna, Virginia,
where we occupy approximately 22,000 square feet of space
under a lease expiring in 2016. In addition, we maintain a
regional office in Toronto, Ontario, where we occupy
approximately 34,000 square feet of space under a lease
expiring in 2015. We also maintain smaller leased regional
offices in Cambridge, Massachusetts, San Francisco,
California, Austin, Texas, London, England, Brussels, Belgium,
Frankfurt, Germany and Singapore. We believe that our facilities
are generally suitable to meet our needs for the foreseeable
future; however, we will continue to seek additional space as
needed to accommodate our growth.
103
Legal
Proceedings
From time to time, we may become involved in legal proceedings
arising in the ordinary course of our business. We are currently
involved in one lawsuit as a defendant. On May 9, 2011,
iHance, Inc. filed a complaint against us and Eloqua
Corporation, our subsidiary, in the United States District Court
for the Eastern District of Virginia, alleging that the Eloqua
for Microsoft Outlook product, or ELMO, infringes
U.S. Patent Nos. 7,072,947 and 7,076,533 and seeking
declaratory judgment of willful infringement as well as
injunctive and monetary relief. On June 28, 2011, we filed
an answer to the complaint, denying iHances infringement
allegations and asserting a counterclaim for a declaratory
judgment of non-infringement and invalidity.
From July 2006, the date of issuance of the iHance patents, to
December 31, 2011, we generated approximately
$2.7 million of revenue from sales of the ELMO product. As
of December 31, 2011, we no longer sell the ELMO product,
and we do not intend to sell the ELMO product in the future.
We have investigated the claims alleged in the complaint and
believe that we have good defenses to the claims. iHance has
claimed damages in excess of the amount of revenue we have
generated from the allegedly infringing products, but based on
the information currently available to us including
our belief in the strength of our defenses to the
plaintiffs claims; our discontinuation of ELMO sales and
the launch of our Eloqua Engage product; the amount of revenue
generated by our sales of the ELMO product; and the fact that
even if we were found to infringe, legal damages in patent cases
are generally limited to reasonable lost profits and/or a
reasonable royalty we do not believe that this
matter will have a material adverse effect on our business,
financial position or liquidity. However, regardless of the
merits of this or other intellectual property litigation, when
we are forced to defend against infringement or misappropriation
claims, whether they are with or without merit, are settled out
of court, or are determined in our favor, we may be required to
expend significant management time and financial resources on
the defense of such claims, which could harm our business or
results of operations.
Trial on the iHance matter has been scheduled for July 2012. We
intend to continue to vigorously defend this matter. The legal
cost of this litigation is not estimable at this time, and we
are continuing to expense the cost of the litigation as it is
incurred.
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MANAGEMENT
Executive
Officers, Key Employees and Directors
The following table sets forth information regarding our
executive officers, key employees and directors, including their
ages as of March 31, 2012.
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Name
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Age
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Position
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Executive Officers:
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Joseph P. Payne
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47
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Chairman of the Board, President and Chief Executive Officer
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Don E. Clarke
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52
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Chief Financial Officer and Treasurer
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Alex P. Shootman
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46
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Chief Revenue Officer
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Heidi M. Melin
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46
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Chief Marketing Officer
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Andre H.S. Yee
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48
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Senior Vice President, Product Development
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Stephen E. Holsten
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45
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Vice President, General Counsel and Secretary
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Key Employees:
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Jonathan D. Hamovitch
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57
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Senior Vice President, Human Resources
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Karen A. Pisha
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50
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Senior Vice President, Professional Services
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Steven K. Woods
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36
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Chief Technology Officer
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Paul M. Teshima
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39
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Senior Vice President, Product Management
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Robert V. Brewster
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45
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Senior Vice President, Business Development
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Non-Management Directors:
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Byron B. Deeter(3)
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37
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Director
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Neal Dempsey(1)
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71
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Director
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John J. McDonnell, Jr.(3)
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74
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Director
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Thomas Reilly(1)(2)
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49
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Director
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Stephen M. Swad(3)
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50
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Director
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Bradford D. Woloson(1)(2)
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43
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Director
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(1) |
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Member of the compensation committee. |
(2) |
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Member of the nominating and corporate governance committee. |
(3) |
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Member of the audit committee. |
Joseph P. Payne has served as our president and chief
executive officer and a member of our board of directors since
June 2007, and as chairman of the board since August 2011.
Mr. Payne also served as our interim president and chief
executive officer from January 2007 to June 2007 and, prior to
joining Eloqua, served as an executive for a number of
technology companies. Mr. Payne served as president of
Qualys, Inc. during October 2006 and as president and chief
operating officer of iDefense, a VeriSign company, from April
2005 to October 2006. Prior to joining iDefense, he served as
president and chief executive officer of eSecurity Inc., eGrail,
Inc. and IntelliData Technologies, Inc. Mr. Payne has also
held a number of marketing roles at companies including
MicroStrategy, Inc. (where he served as chief marketing
officer), The
Coca-Cola
Company, The Procter & Gamble Company, and Royal Crown
Company. Mr. Payne holds an M.B.A. and an A.B. in Public
Policy from Duke University. We believe that
Mr. Paynes operational and historical expertise
gained from serving
105
as our president and chief executive officer, as well as his
varied marketing experience, qualify him to serve as a member of
our board of directors.
Don E. Clarke has served as our chief financial officer
since March 2008. Prior to joining Eloqua, Mr. Clarke
served as chief financial officer of Cloakware, Inc. from August
2006 to February 2008 and has served as chief financial officer
of a number of companies, including Visual Networks, Inc.,
eCommerce Industries, Inc. ReturnBuy, Inc. and Net2000
Communications, Inc. He has served as a board member for several
private companies, has been on various committees of the
Northern Virginia Technology Council and the Technology Council
of Maryland and is a member of the American Institute of
Certified Public Accountants. Mr. Clarke holds a B.S. in
Accounting from Virginia Tech.
Alex P. Shootman has served as our chief revenue officer
since July 2009. Prior to joining Eloqua, Mr. Shootman
served as senior vice president of worldwide sales and services
of Vignette Corporation from October 2006 to November 2008 and
as executive vice president of sales and marketing at TeleTech
Holdings, Inc. from July 2005 to October 2006. Mr. Shootman
has held sales positions at a number of companies, including BMC
Software, Inc. and IBM Corporation. Mr. Shootman holds a
Bachelor of Business Administration from the University of Texas
at Austin.
Heidi M. Melin has served as our chief marketing officer
since May 2012. Prior to joining Eloqua, Ms. Melin served
as chief marketing officer of the following companies: Taleo
Corporation from May 2011 to April 2012; Polycom, Inc. from
September 2007 to February 2011; and Hyperion Solutions
Corporation from June 2005 to June 2007. Between 1996 and 2005,
Ms. Melin held various marketing positions with PeopleSoft,
Inc. Ms. Melin holds a B.A. in Political Science from
Willamette University.
Andre H.S. Yee has served as our senior vice president,
product development since March 2008. Prior to joining Eloqua,
Mr. Yee served as an independent consultant from March 2007
to March 2008 and as president and chief executive officer of
NFR Security, Inc. from September 2003 until its acquisition by
Check Point Software Technologies Ltd. in January 2007.
Previously, Mr. Yee served as vice president, research and
development of SAGA Software and in senior management roles in
several other companies. Mr. Yee holds a B.S. in Computer
and Electronics Engineering from George Mason University.
Stephen E. Holsten has served as our vice president and
general counsel since April 2010. Prior to joining Eloqua,
Mr. Holsten served in a number of positions with VeriSign,
Inc. from January 2002 to April 2010, including most recently as
director, legal from 2005 to January 2009 and as director,
policy & compliance from January 2009 to April 2010.
Prior to VeriSign, Mr. Holsten served as director,
commercial and legal operations at Winstar Communications, Inc.
and worked for several law firms in private practice, including
Greenberg Traurig LLP. Mr. Holsten holds a J.D. from the
UCLA School of Law and a B.A. in Economics from Williams College.
Jonathan D. Hamovitch has served as our senior vice
president, human resources since December 2010. Prior to joining
Eloqua, Mr. Hamovitch served as vice president,
international human resources of AOL Inc. from March 2007 to
October 2010 and as vice president, human resources of AOL
Canada Corp. from June 2001 to February 2007. Previously,
Mr. Hamovitch served as vice president of human resources
for Derivion Corporation and for Wal-Mart Canada. He also held
senior positions at Dylex Limited, Mercer Consulting and
Imperial Oil/Esso. Mr. Hamovitch currently serves as the
chair of the Provincial Partnership Council (PPC), an advisory
committee comprised of leaders from the private, public and
voluntary sectors, focused on promoting Passport to Prosperity,
a program designed to increase employer participation in
providing school-work programs for students. Mr. Hamovitch
holds a B.A. in Industrial Relations from McGill University.
106
Karen A. Pisha has served as our senior vice president,
professional services since September 2010. Prior to joining
Eloqua, Ms. Pisha served as vice president, global services
of ServiceMax, Inc. from June 2009 to September 2010 and as
global vice president, professional services of SuccessFactors,
Inc. from July 2005 to June 2009. Previously, Ms. Pisha
worked for PeopleSoft, Inc. in a variety of professional
services roles, including as vice president of HCM consulting.
Steven K. Woods is one of our founders and has served as
our chief technology officer since our inception in 2000. Prior
to founding our company, Mr. Woods worked in corporate
strategy at Bain & Company and engineering at
Celestica Inc. Mr. Woods hold a Bachelors of Applied
Science in Engineering Physics from Queens University.
Paul M. Teshima has served in a variety of roles since
joining Eloqua in September 2000, including as our senior vice
president, product management since July 2011. Mr. Teshima
previously served as our senior vice president, customer
strategy and success from November 2005 to June 2011, vice
president, client services from February 2002 to October 2005
and business development manager from September 2000 to January
2002. Prior to joining Eloqua, Mr. Teshima served as
manager, new product implementation of the Rogers@Home division
of Rogers Communications. Mr. Teshima holds a Masters
degree in Engineering from the University of British Columbia
and a B.Sc.E. in Physics from Queens University.
Robert V. Brewster has served as our senior vice
president, business development since May 2008. Prior to joining
Eloqua, Mr. Brewster served in several roles, including
vice president, alliances and senior director, at salesforce.com
from June 2005 to May 2008. Previously, Mr. Brewster served
in business development roles at a number of companies,
including Siebel Systems, Inc., BEA Systems, Inc., Epiphany,
Inc. and IntelliCorp, Inc. Mr. Brewster holds a B.S. in
Information Systems from the University of Phoenix.
Byron B. Deeter has served as a member of our board of
directors since September 2007. Mr. Deeter is a partner of
Bessemer Venture Partners, a venture capital firm, where he has
held various positions since he joined the firm in 2005, and is
presently a managing member of the firms management
company. Prior to joining Bessemer Venture Partners,
Mr. Deeter was a director at International Business
Machines Corporation from April 2004 to April 2005. Before that,
Mr. Deeter held various positions in Trigo Technologies,
Inc., including president and chief executive officer, from
January 2000 to November 2000, and vice president, business
development, from November 2000 to April 2004. Prior to Trigo,
Mr. Deeter worked as an associate with TA Associates, a
private equity firm, from June 1998 to January 2000, and as an
analyst at McKinsey & Company, a management consulting
firm, from September 1996 to June 1998. Mr. Deeter
currently serves as a director of Cornerstone OnDemand, Inc.
Mr. Deeter holds a B.A. with honors from the University of
California, Berkeley in Political Economies of Industrial
Societies. We believe that Mr. Deeters experience in
the venture capital industry, particularly with SaaS and
marketing companies, qualifies him to serve as a member of our
board of directors.
Neal Dempsey has served as a member of our board of
directors since August 2006. Mr. Dempsey has been a general
partner of Bay Partners, a venture capital firm, since May 1989,
and the managing general partner since July 2002.
Mr. Dempsey joined Bay Partners after a varied business
career including five years as chief executive officer of Qubix
Graphics Systems, one year as chief executive of Envision
Technology, and several senior management positions with Zentec
and Harris Corporation. He currently serves as a director of
Guidewire Software, Inc. and Enphase Energy, Inc. and is a
former director of Brocade Communications Systems.
Mr. Dempsey holds a B.A. in Business from the University of
Washington. We believe that Mr. Dempseys experience
in the venture capital industry, particularly with SaaS
companies, combined with his experience in the management and
operations of businesses, qualify him to serve as a member of
our board of directors.
107
John J. McDonnell, Jr. has served as a member of our
board of directors since January 2009. Mr. McDonnell has
served as chairman and chief executive officer of Phoenix
Managed Networks since February 2010, and previously served as
chairman and chief executive officer of ExaDigm Inc. from
October 2008 to February 2010. Mr. McDonnell is the founder
of TNS, Inc., a leading provider of data communications services
to processors of credit card, debit card and ATM transactions
worldwide. Mr. McDonnell served as chairman and chief
executive officer and a director of TNS, Inc. from April 2001 to
September 2006 and previously from 1990 to 1999 (when the
company was Transaction Network Services, Inc.). He served as
chairman and chief executive officer of PaylinX Corp., a
software provider for transaction processing, from November 1999
until it was sold to CyberSource Corporation in September 2000.
Mr. McDonnell served as a director of CyberSource from
September 2000 until its sale to Visa Inc. in July 2010.
Mr. McDonnell currently serves as a director of DealerTrack
Holdings, Inc. and several privately-held companies. He was the
recipient of KPMG Peat Marwick LLPs 1997 High Tech
Entrepreneur Award and the Rensselaer Polytechnic Institute 2002
Entrepreneur of the Year Award. Mr. McDonnell holds a B.S.
in Electrical Engineering from Manhattan College, an M.S.E.E.
from Renssalaer Polytechnic Institute and an Honorary Doctorate
of Humane Letters from Marymount University. We believe that
Mr. McDonnells experience as a chairman and chief
executive officer of a public company and experience managing
high-growth companies qualify him to serve as a member of our
board of directors.
Thomas Reilly has served as a member of our board of
directors since April 2012. From October 2010 to May 2012, Mr.
Reilly served as vice president and general manager of HP
Enterprise Security Products. He served as chief executive
officer, president and director of ArcSight, Inc. from
October 2008, August 2007 and June 2008,
respectively, until its acquisition by HP in October 2010.
Mr. Reilly also previously served as the chief operating officer
of ArcSight, Inc. from November 2006 to September 2008.
From April 2004 to November 2006, Mr. Reilly served as
vice president of business information services of IBM, and from
November 2000 until its acquisition by IBM in April 2004,
Mr. Reilly served as chief executive officer of Trigo
Technologies, Inc., a product information management software
company. Prior to Trigo Technologies, Mr. Reilly held various
general management and sales leadership roles at IBM, Lotus
Development, and BroadQuest. He holds a B.S. in Mechanical
Engineering from the University of California, Berkeley. We
believe Mr. Reillys experience as chief executive officer
of a public company and 20 years of general management
experience in enterprise software businesses ranging from
start-up to public companies qualify him to serve as a member of
our board of directors.
Stephen M. Swad has served as a member of our board of
directors since August 2011. Mr. Swad has served as
president and chief executive officer and as a director of
Rosetta Stone, Inc. since February 2012. From November 2010
to February 2012, Mr. Swad served as chief financial officer of
Rosetta Stone, Inc. Mr. Swad previously served as executive
vice president and chief financial officer of Comverse
Technology, Inc. from May 2009 to October 2010 and as special
advisor to the chief executive officer of Comverse from October
2010 to November 2010. From May 2007 to August 2008,
Mr. Swad served as executive vice president and chief
financial officer of Federal National Mortgage Association
(Fannie Mae), a federally chartered provider of funding for the
secondary housing mortgage market. On September 6, 2008,
the board of directors of Fannie Mae adopted a resolution
consenting to the appointment of the Federal Housing Finance
Agency as conservator of Fannie Mae, which appointment was
effected the same day. Mr. Swad previously served as
executive vice president and chief financial officer of AOL LLC,
a global web services company, from February 2003 to February
2007. Mr. Swad also served as executive vice president of
finance and administration at Turner Entertainment Group, and
vice president, financial planning and analysis at Time Warner.
Mr. Swad, a certified public accountant in the State of
Michigan and former partner of KPMG LLP, also served as deputy
chief accountant at the SEC. Mr. Swad is a former director
of Verint Systems Inc. Mr. Swad holds a B.B.A. degree from
the University of Michigan. We believe Mr. Swads
experience with financial
108
accounting matters for complex organizations and oversight of
the financial reporting process of public companies qualify him
to serve as a member of our board of directors.
Bradford D. Woloson has served as a member of our board
of directors since August 2006. Since 1994, Mr. Woloson has
served in several positions at JMI Equity Fund, a venture
capital firm, including currently as general partner.
Mr. Woloson is a director of several private companies and
a former director of Unica Corporation. Prior to joining JMI
Equity Fund in 1994, Mr. Woloson was a financial analyst in
the Technology Group at Alex. Brown. Prior to Alex. Brown,
Mr. Woloson was a fixed income analyst at
Kidder Peabody International, Inc. in London.
Mr. Woloson holds an A.B. in Economics from Harvard
University. We believe that Mr. Wolosons experience
in the venture capital industry working with technology
companies qualifies him to serve as a member of our board of
directors.
Each of our executive officers is elected by, and serves at the
discretion of, our board of directors. There are no family
relationships among any of our directors or executive officers.
Corporate
Governance and Board Composition
We currently have seven directors, each of whom was elected as a
director under the board composition provisions of a
stockholders agreement and our by-laws. The holders of a
majority of our shares of preferred and common stock, voting
together as a single class on an as-converted basis, have
designated Joseph P. Payne, John J. McDonnell, Jr., Thomas
Reilly and Stephen M. Swad for election to our board of
directors. The holders of a majority of our shares of
Series A preferred stock, voting as a separate class, have
designated Bradford D. Woloson for election to our board of
directors. The holders of a majority of our shares of
Series B preferred stock, voting as a separate class, have
designated Neal Dempsey for election to our board of directors.
The holders of a majority of our shares of Series C
preferred stock, voting as a separate class, have designated
Byron B. Deeter for election to our board of directors. The
board composition provisions of the stockholders agreement will
terminate upon the closing of this offering. Upon the
termination of these provisions, we will not be bound by
contractual obligations regarding the election of our directors.
Following the closing of this offering, our nominating and
corporate governance committee and board of directors may
consider a broad range of factors relating to the qualifications
and background of nominees, which may include diversity and is
not limited to race, gender or national origin. We have no
formal policy regarding board diversity. Our nominating and
corporate governance committees and board of
directors priority in selecting board members is
identification of persons who will further the interests of our
company through his or her established record of professional
accomplishment, the ability to contribute positively to the
collaborative culture among board members, and professional and
personal experiences and expertise relevant to our growth
strategy.
Independent
Directors
Our board of directors has determined that Messrs. Deeter,
Dempsey, McDonnell, Reilly, Swad and Woloson are independent, as
determined in accordance with the rules of NASDAQ and the
Securities and Exchange Commission. Upon the closing of this
offering, we expect that the composition and functioning of our
board of directors and each of our committees will comply with
all applicable requirements of NASDAQ and the rules and
regulations of the Securities and Exchange Commission.
Classified
Board
Immediately prior to the closing of this offering, our board of
directors will be divided into three staggered classes of
directors of the same or nearly the same number and each will be
assigned to one of the three classes. At each annual meeting of
the stockholders, a class of directors will be
109
elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. Our directors will be
divided among the three classes as follows:
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Class I, which will consist of Messrs. Dempsey and Woloson,
whose term will expire at our annual meeting of stockholders to
be held in 2013;
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Class II, which will consist of Messrs. Deeter and
McDonnell, whose term will expire at our annual meeting of
stockholders to be held in 2014; and
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Class III, which will consist of Messrs. Payne, Reilly and
Swad, whose term will expire at our annual meeting of
stockholders to be held in 2015.
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Our amended and restated certificate of incorporation and
amended and restated by-laws, which will be effective upon the
completion of this offering, provide that the number of our
directors shall be fixed from time to time by a resolution of
the majority of our board of directors. Any additional
directorships resulting from an increase in the number of
directors will be distributed among the three classes so that,
as nearly as possible, each class shall consist of one third of
the board of directors. The division of our board of directors
into three classes with staggered three-year terms may delay or
prevent stockholder efforts to effect a change of our management
or a change in control.
Leadership
Structure and Risk Oversight
Mr. Payne serves as our president and chief executive
officer and as chairman of the board. The board of directors
believes that having our president and chief executive officer
as chairman of the board facilitates the board of
directors decision-making process because Mr. Payne
has first-hand knowledge of our operations and the major issues
facing us. This also enables Mr. Payne to act as the key
link between the board of directors and other members of
management. To assure effective independent oversight, the board
of directors annually appoints a lead independent director.
Mr. Dempsey currently serves as our lead independent
director. In this role, Mr. Dempsey serves as chairman of
the executive sessions of the independent directors and assists
the board in assuring effective corporate governance. Executive
sessions of the independent directors are held following each
regularly scheduled in-person meeting of the board of directors.
Our board of directors oversees the management of risks inherent
in the operation of our business and the implementation of our
business strategies. Our board of directors performs this
oversight role by using several different levels of review. In
connection with its reviews of the operations and corporate
functions of our company, our board of directors addresses the
primary risks associated with those operations and corporate
functions. In addition, our board of directors reviews the risks
associated with our companys business strategies
periodically throughout the year as part of its consideration of
undertaking any such business strategies.
Each of our board committees also oversees the management of our
companys risk that falls within the committees areas
of responsibility. In performing this function, each committee
has full access to management, as well as the ability to engage
advisors. Our chief financial officer reports to the audit
committee and is responsible for identifying, evaluating and
implementing risk management controls and methodologies to
address any identified risks. In connection with its risk
management role, our audit committee meets privately with
representatives from our independent registered public
accounting firm and our chief financial officer. The audit
committee oversees the operation of our risk management program,
including the identification of the primary risks associated
with our business and periodic updates to such risks, and
reports to our board of directors regarding these activities.
110
Board
Committees
Our board of directors has established an audit committee, a
compensation committee and a nominating and corporate governance
committee. Each committee will operate under a separate charter
adopted by our board of directors. Upon the closing of this
offering, the composition and functioning of all of our
committees will comply with all applicable requirements of
NASDAQ, the Sarbanes-Oxley Act of 2002 and the Securities and
Exchange Commission rules and regulations.
Audit
Committee
Our audit committee is currently comprised of
Messrs. Deeter, McDonnell and Swad, with Mr. Swad
serving as chairman of the committee. Our board of directors has
determined that Messrs. Deeter, McDonnell and Swad meet the
independence requirements of
Rule 10A-3
under the Exchange Act and the applicable listing standards of
NASDAQ. Our board of directors has determined that Mr. Swad
is an audit committee financial expert within the
meaning of the SEC regulations and listing standards of NASDAQ.
The audit committee is responsible for, among other things:
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appointing, retaining, terminating and approving the
compensation of, and assessing the independence of our
independent registered public accounting firm;
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overseeing the qualifications and performance of our independent
registered public accounting firm;
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pre-approving audit and permissible non-audit services, and the
terms of such services, to be provided by our independent
registered public accounting firm;
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reviewing and discussing with management and the independent
registered public accounting firm our annual and quarterly
financial statements and related disclosures;
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meeting independently with our independent registered public
accounting firm;
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coordinating the oversight and reviewing the adequacy of our
internal control over financial reporting;
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establishing policies and procedures for the receipt and
retention of accounting related complaints and the confidential
submission by our employees of concerns regarding questionable
accounting or auditing matters;
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conducting an appropriate review and approval of all
related-party transactions for potential conflict of interest
situations on an ongoing basis;
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making regular reports to our board of directors;
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preparing the audit committee report required by SEC rules to be
included in our annual proxy statement;
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reviewing and assessing the adequacy of the audit committee
charter; and
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evaluating its own performance and reporting the results of such
evaluation to our board of directors.
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Compensation
Committee
Our compensation committee is currently comprised of
Messrs. Dempsey, Reilly and Woloson, with Mr. Woloson
serving as chairman of the committee. Our board of directors has
determined that
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Messrs. Dempsey, Reilly and Woloson are independent as
defined under the applicable listing standards of NASDAQ. The
compensation committee is responsible for, among other things:
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discharging the responsibilities of our board of directors
relating to compensation of our directors and executives;
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overseeing our overall compensation programs;
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administering our equity and bonus plans;
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reviewing and approving the terms of any employment agreements,
severance arrangements and change in control agreements; and
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preparing the compensation committee report required to be
included in our annual proxy statement.
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Nominating and
Corporate Governance Committee
Our nominating and corporate governance committee is currently
comprised of Messrs. Reilly, and Woloson, with
Mr. Reilly serving as chairman of the committee. Our board
of directors has determined that Messrs. Reilly and Woloson
are independent as defined under the applicable listing
standards of NASDAQ. The nominating and corporate governance
committee is responsible for, among other things:
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identifying individuals qualified to become board members;
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developing and recommending to the board criteria for selecting
board and committee membership;
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recommending that our board of directors select the director
nominees for election at each annual meeting of stockholders;
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developing and recommending to the board a code of business
conduct and ethics and a set of corporate governance guidelines;
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evaluating the performance of our directors on the board and its
committees; and
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periodically reviewing and recommending any changes to our
corporate governance guidelines to our board of directors.
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Compensation
Committee Interlocks and Insider Participation
None of the members of our compensation committee has at any
time during the prior three years been one of our officers or
employees. None of our executive officers currently serves, or
in the past fiscal year has served, as a member of the board of
directors or compensation committee of any entity that has one
or more executive officers serving on our board of directors or
compensation committee.
Code of Business
Conduct and Ethics
We have adopted a code of business conduct and ethics that
applies to all of our employees, officers and directors,
including those officers responsible for financial reporting.
Upon the closing of this offering, our code of business conduct
and ethics will be available on our website at www.eloqua.com.
We intend to disclose any amendments to the code, or any waivers
of its requirements, on our website.
112
EXECUTIVE
COMPENSATION
The following discussion and analysis of compensation
arrangements should be read with the compensation tables and
related disclosures set forth below. This discussion contains
forward-looking statements that are based on our current plan
and expectations regarding future compensation programs. Actual
compensation programs and changes to any such programs that we
adopt may differ materially from currently planned programs and
compensation changes to such programs.
Compensation
Discussion and Analysis
In this Compensation Discussion and Analysis, we address the
compensation determinations and the rationale for those
determinations relating to our named executive officers for the
year ended December 31, 2011 and the compensation programs
we have implemented for our current executive officers. Our
named executive officers for the year ended December 31,
2011 were:
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Joseph P. Payne, president and chief executive officer;
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Don E. Clarke, chief financial officer;
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Alex P. Shootman, chief revenue officer;
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Brian E. Kardon, chief marketing officer; and
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Andre H.S. Yee, senior vice president, product development.
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Background and
Overview of Our Executive Compensation Objectives, Policies and
Procedures
Our primary objective with respect to executive compensation is
to attract and retain individuals who possess knowledge,
experience and skills that we believe are important to our
business, which focuses on enabling businesses to accelerate
revenue growth and improve revenue predictability by automating,
monitoring and measuring their complex marketing and sales
initiatives.
Specifically our compensation programs are designed to:
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attract and retain individuals with superior ability and
managerial experience;
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align executive officers incentives with our corporate
strategies, business objectives and the long-term interests of
our stockholders; and
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increase the incentive to achieve key strategic performance
measures by linking incentive award opportunities to the
achievement of performance objectives and by providing a portion
of total compensation for executive officers in the form of
ownership in our company.
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To achieve these objectives, we seek to provide a competitive
compensation package that ties a substantial portion of the
executives overall compensation to achievement of company
objectives and the executives individual performance. We
generally participate in or purchase compensation surveys to
track our competitive positioning. To aid the compensation
committee in its compensation determinations made in March 2011,
we participated in the Culpepper Compensation Survey, which
focuses on the software industry, and obtained data from the
Venture Capital Executive Compensation Survey. At that time, the
compensation committee did not benchmark compensation nor did it
set specific compensation targets for our named executive
officers as compared to market data.
Following the establishment of compensation packages for our
named executive officers in March 2011, the compensation
committee retained Compensia in June 2011 as its independent
compensation consultant to advise the compensation committee in
matters related to executive officer compensation going forward.
Compensia does not provide any services to us other than the
executive
113
compensation services provided to the compensation committee.
Compensia provided to the compensation committee proprietary
survey data with respect to compensation for both pre-IPO and
public companies, as well as compensation data for the chief
executive officers and chief financial officers of the following
17 publicly-traded companies, selected because of these
companies similarities to us in industry, revenue, number
of employees and lifecycle stage relative to an initial public
offering:
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comScore
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Constant Contact
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Convio
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Cornerstone OnDemand
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DemandTec
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Envestnet
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IntraLinks
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Keystone Systems
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Live Person
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LogMeIn
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LoopNet
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Marchex
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MediaMind Technologies
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Responsys
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Saba Software
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SPS Commerce
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Vocus
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In July 2011, the compensation committee determined that our
compensation philosophy going forward would be to target total
cash compensation for our named executive officers at the
75th percentile among pre-IPO companies and at the
50th percentile among public companies, allowing for
variances based on performance. Based on the survey and peer
group data described above, the compensation committee reviewed
the compensation packages of our named executive officers in
August 2011. The compensation committee determined that
Mr. Paynes total target cash compensation (including
Mr. Paynes June 2011 base salary increase described
below) was below both target percentiles, at approximately the
50th percentile for pre-IPO companies and approximately the
25th percentile among public companies. Given the disparity
between Mr. Paynes then-current total cash
compensation and the going-forward targets, as well as the fact
that Mr. Paynes stock options were fully vested as of
July 2011, our board of directors granted Mr. Payne an
additional 400,000 stock options in August 2011 in lieu of a
further increase to Mr. Paynes cash compensation
package. After review of the total cash compensation packages
for our other named executive officers as compared to the survey
and peer group data, the compensation committee made no changes
to their total cash compensation packages for 2011. The
compensation committee noted that Mr. Clarkes target
total cash compensation was above the 75th percentile among
pre-IPO companies, but below the 50th percentile among
chief financial officers of public companies.
Mr. Shootmans total target cash compensation exceeded
the percentile targets identified above for both pre-IPO and
public companies; the compensation committee noted that part of
the disparity is due to the fact that Mr. Shootmans
responsibilities exceed the responsibilities of executives with
similar titles, as in addition to sales he is responsible for
both our business development and customer support functions.
Mr. Kardons total target cash compensation exceeded
both the 75th percentile among pre-IPO companies and the
50th percentile among public company executives with
similar titles and responsibilities. Finally,
Mr. Yees total target cash compensation exceeded the
75th percentile among pre-IPO companies, but was below the
50th percentile among public company executives with
similar titles and responsibilities.
Base salary increases are generally tied to individual
performance, while annual performance bonuses are generally tied
to achievement of pre-set performance metrics. We believe that
both base salary and bonuses should be linked to competitive
market conditions to be able to attract and retain strong
talent. Equity awards are primarily used to promote long-term
stockholder value and employee retention through the use of
multi-year vesting schedules that provide an incentive to the
executive to remain in our employ through the end of the vesting
period in order to share in any increase in our company value
over time.
Our compensation committee oversees our compensation and benefit
plans and policies, administers our equity incentive plans and
reviews and approves all compensation decisions relating
114
to all executive officers. In addition to the external
compensation surveys, the compensation committee worked with our
senior vice president, human resources to consider performance
and review competitive market data in making
compensation-related decisions for our president and chief
executive officer and other named executive officers. In 2011,
the compensation committee retained Compensia, Inc. as its
independent compensation consultant to advise the compensation
committee going forward in matters related to executive officer
and director compensation.
In reviewing compensation levels of our executive officers for
2011, our compensation committee considered our financial
status, and worked with our president and chief executive
officer to understand the contributions that members of our
management team made to our business, their collective knowledge
of compensation trends in the industry in which we compete, and
their experiences and business judgment. The compensation
committee also directly reviewed the performance of our
president and chief executive officer.
Following the closing of this offering, as we gain experience as
a public company, we expect that the specific direction,
emphasis and components of our executive compensation program
will evolve. We expect our compensation committee will continue
to be primarily responsible for overseeing our compensation
policies and approving the compensation for all of our executive
officers. Our compensation committee may review the compensation
packages offered by other similar companies based on aggregate
survey data. In addition, while market data and reports from
third-party consultants provide useful starting points for
compensation decisions, our compensation committee may also take
into account factors such as level of responsibility, prior
experience and individual performance in arriving at final
compensation decisions.
Recent
Compensation Actions
In connection with Mr. Kardons departure from the
Company in January 2012, he received five months of his
base salary, 100% of his target bonus for 2011 and payments for
health benefits. See Employment
Agreements Brian E. Kardon below.
Executive
Compensation Components
Our executive compensation consists of the following components:
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base salary;
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annual cash performance bonuses;
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long-term equity incentive compensation; and
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broad-based benefits programs.
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As discussed below, we have also entered into employment
agreements with each of our named executive officers that
provide for payment of severance upon certain terminations of
employment. Each of the elements of our executive compensation
is discussed in detail below, including a description of the
particular element and how it fits into our overall executive
compensation and a discussion of the amounts of compensation
paid to our named executive officers in 2011 under each of these
elements.
Although we have not adopted any formal guidelines for
allocating total compensation between long-term and short-term
cash compensation and non-cash compensation, or among different
forms of non-cash compensation, we intend to implement and
maintain compensation plans that tie a substantial portion of
our executives overall compensation to the achievement of
corporate goals and value-creating milestones, such as revenue
growth, product development, and Adjusted EBITDA.
115
Annual Cash
Compensation
Base
Salary
Base salaries for our named executive officers are intended to
be competitive with those received by other individuals in
similar positions at the companies with which we compete for
talent. Base salaries are originally established at the time the
executive is hired based on our understanding of what executives
at other similar companies are being paid at such time, the
experience they bring to the role and independent negotiation
with these executives. The base salaries of our named executive
officers are reviewed annually by the compensation committee and
may be adjusted to reflect individual roles and contribution to
our performance. This process is supported by annual performance
reviews conducted by our president and chief executive officer
with respect to his direct reports (including each other named
executive officer) and the review the compensation committee
undertakes with respect to our president and chief executive
officer. We may also increase the base salary and equity
opportunity of an executive officer at other times due to market
conditions or if a change in the scope of the officers
responsibilities justifies such consideration. We believe that a
competitive base salary is a necessary element of any
compensation program that is designed to attract and retain
talented and experienced executives. We also believe that
attractive base salaries can motivate and reward executives for
their overall performance.
In connection with setting the 2011 base salaries for our named
executive officers, the compensation committee considered the
prevailing market conditions, individual performance, and our
financial position, and chose to increase the base salaries for
Messrs. Payne, Clarke and Shootman. Mr. Paynes 2011
base salary was increased to reflect both his individual
performance and the scope of complexity of his role as our
company grows and matures. Mr. Clarkes 2011 base
salary was increased in recognition of the changes to the
complexity of the role as we approached the IPO.
Mr. Shootmans base salary was increased to reflect
the leadership he provided in significantly growing revenue.
The base salaries of our named executive officers for the year
ending December 31, 2010 and the year ended
December 31, 2011 are summarized in the table below:
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Name
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2010 Base Salary
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2011 Base Salary
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Percent Increase
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Joseph P. Payne
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$
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287,000
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$
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310,000
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(1)
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8.0
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%
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Don E. Clarke
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$
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225,000
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$
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235,000
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4.4
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%
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Alex P. Shootman
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$
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225,000
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$
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235,000
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4.4
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%
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Brian E. Kardon
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$
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215,000
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$
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215,000
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Andre H.S. Yee
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$
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225,000
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$
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225,000
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Mr. Paynes base salary was increased to $300,000 as
of January 1, 2011. In June 2011, Mr. Paynes
base salary was further increased to $310,000 to align internal
pay equity among our executive officers. |
Cash Performance
Bonuses
We believe that a significant portion of annual cash
compensation for our named executive officers should be
contingent upon successful company performance. Therefore, our
named executive officers are eligible to receive annual cash
incentive compensation that is generally tied to achievement of
pre-established company-wide, individual and, in some cases,
department-specific
performance metrics. Under our cash incentive compensation
program, our compensation committee has the authority to award
annual performance-based cash bonuses to our executive officers
and non-executive employees. Each of the named executive
officers has a target cash bonus amount that is based on a
prescribed lump sum payment tied to the achievement of pre-set
metrics.
Under this program, each named executive officer other than our
president and chief executive officer has an annual performance
bonus target recommended by our president and chief executive
officer and
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reviewed and approved by the compensation committee. Our
president and chief executive officers annual performance
bonus target is set by the compensation committee. The annual
performance bonus targets are denominated as dollar amounts,
rather than a percentage of annual base salary, and were
initially established within each executives employment
agreement through negotiations with our company. The target
bonuses are revisited annually by the compensation committee,
and the compensation committee has the discretion to award cash
bonuses that are greater than or less than the bonus that would
have been earned by the executive based on achievement of the
relevant performance goals.
In 2011, bonus opportunities were increased for Mr. Payne,
Clarke, Shootman, and Kardon as compared to 2010.
Mr. Paynes 2011 bonus opportunity was increased to
reflect both his individual performance and the scope of
complexity of his role as our company grows and matures.
Mr. Clarkes 2011 bonus opportunity was increased in
recognition of the changes to the complexity of the role as we
approached our initial public offering. Mr. Shootmans
bonus opportunity was increased to reflect the leadership he
provided in significantly growing revenue.
Mr. Kardons bonus opportunity was increased to
reflect new challenges in his role as the marketing landscape
became more competitive. Each named executive officers
target annual cash performance bonus for 2010 and 2011 is set
forth in the tables below:
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2010 Target
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2011 Target
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Name
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Bonus
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Bonus
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Joseph P. Payne
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$
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153,000
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$
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170,000
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Don E. Clarke
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$
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110,000
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$
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120,000
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Alex P. Shootman
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$
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225,000
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$
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235,000
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Brian E. Kardon
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$
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120,000
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$
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130,000
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Andre H.S. Yee
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$
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85,000
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$
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85,000
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Performance bonus awards for 2011 were determined based on
achievement of a number of measurable performance goals
established at the beginning of the year by the compensation
committee. These goals are based on our corporate objectives for
the year, and different goals were assigned a different relative
weight for each named executive officer based on his role and
responsibilities within the company, as well as the importance
of his position to the achievement of each particular goal.
Every executives bonus is measured based on performance in
the same two specific company-wide metrics that we have
determined to be important to our business, as well as on
individualized performance goals. The bonus for Mr. Yee is also
measured based on
department-specific
metrics, as described below.
The 2011 performance bonus metrics were as follows:
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Revenue. The Revenue metric consists of a
target for our revenue, as reflected on our financial statements.
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Customer Satisfaction. The Customer
Satisfaction percentage was determined by our president and
chief executive officer and reviewed with the compensation
committee and was based on a combination of upsells, renewals
and the results of customer surveys.
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Management by Objectives (MBO). The MBO metric
consists of individual objectives for each named executive
officer, established on an annual basis and for which the named
executive officer will have significant responsibility for
delivering the results of the objective.
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Product Development. The Product Development
metric was only applicable to Mr. Yee and was based on his
achievement of various internal and confidential product
development milestones.
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For 2011, relative weighting by named executive officer for the
performance metrics listed above was as follows:
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Customer
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Product
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Name
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Revenue
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Satisfaction
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MBO
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Development
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Joseph P. Payne
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60
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%
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20
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%
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20
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%
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Don E. Clarke
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60
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%
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
|
|
Alex P. Shootman
|
|
|
80
|
%
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
|
|
Brian E. Kardon
|
|
|
60
|
%
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
|
|
Andre H.S. Yee
|
|
|
40
|
%
|
|
|
20
|
%
|
|
|
10
|
%
|
|
|
30
|
%
|
The relative weighting of these performance metrics is
determined based on each executives duties and
responsibilities. As we believe that Revenue is an important
measure of our business, a significant portion of each
executives bonus for 2011 was tied to this metric. Because
Mr. Shootman is responsible for revenue, the majority of
his bonus is tied to the Revenue metric. Every executives
bonus is also measured based on achievement of the Customer
Satisfaction targets. Additionally, during 2011,
Mr. Yees duties focused on rolling out a new product,
and a significant portion of Mr. Yees bonus was based
on its successful rollout and implementation.
Our Revenue target for 2011 was $68,581,000, and the Customer
Satisfaction target for 2011 was 100%. As the Product
Development targets are highly confidential, we do not publicly
disclose them. Disclosing these targets would provide
competitors and other third parties with insights into our
internal confidential strategic and planning processes, product
development processes, marketing and sales strategies and other
confidential matters, which might allow our competitors to
predict certain business strategies, thereby causing competitive
harm. Each of the Product Development targets were positioned to
be aggressive, but achievable.
The 2011 achievement of each performance metric (other than MBO)
compared to the applicable target for each metric is set forth
below:
|
|
|
|
|
|
|
Achievement
|
Performance Metric
|
|
Percentage
|
|
Revenue(1)
|
|
|
101.8
|
%
|
Customer Satisfaction
|
|
|
95.0
|
%
|
Product Development
|
|
|
87.0
|
%
|
|
|
|
(1) |
|
For determining achievement of the Revenue metric, the
compensation committee adjusted our actual 2011 Revenue to
approximately $69.827 million to reverse the impact of our
adoption of ASU 2009-13 during the year ended December 31, 2011.
The compensation committee determined that this adjustment was
warranted because the target Revenue was set using our prior
revenue recognition policy. |
The MBO objectives were set, and achievement was determined, by
our president and chief executive officer for each named
executive officer other than himself, and by the compensation
committee for our president and chief executive officer. The
objectives for Mr. Payne were to drive our financial
performance, manage our Executive Committee, communicate
appropriate information to our board of directors, and develop
strategic plans to position us for the future. The objectives
for Mr. Clarke were to continue to mature our general and
administrative functions, assist in the growth of the business,
and prepare our finance, accounting, and legal departments for
this offering. The objectives for Mr. Shootman were to drive
revenue, restructure our sales and customer support teams to
better support our customers, and manage two newly-integrated
departments. The objectives for Mr. Kardon were to continue to
improve branding and content, feed our customer pipeline by
driving sales opportunities, and host successful user
conferences. The objectives for Mr. Yee were to continue to
improve the quality of our products, complete development of a
new user interface, and hire several senior-level managers.
118
The 2011 achievement for the MBO performance metric for each of
our named executive officers is set forth below:
|
|
|
|
|
|
|
MBO
|
|
|
Achievement
|
Name
|
|
Percentage
|
|
Joseph P. Payne
|
|
|
100
|
%
|
Don E. Clarke
|
|
|
100
|
%
|
Alex P. Shootman
|
|
|
100
|
%
|
Brian E. Kardon(1)
|
|
|
100
|
%
|
Andre H.S. Yee
|
|
|
90
|
%
|
|
|
|
(1) |
|
Mr. Kardon received 100% of his target bonus pursuant to
the terms of his separation from the Company in January 2012. |
In 2011, the payout amounts for the performance metrics varied.
If Revenue achievement was lower than $2,000,000 below the
target, no bonus would be paid with respect to that metric. If
Revenue achievement was higher than $2,000,000 less than the
target, the bonus payout would be based on a sliding scale with
100% of the target yielding a payout of 100% of the target
amount and a maximum payout of 200%. For each of the Customer
Satisfaction and MBO metrics, the bonus payout was equal to the
percentage of the target achieved. Bonus payouts with respect to
the Product Development targets for Mr. Yee were determined
based on achievement of highly confidential product development
milestones, with a maximum payout of 150% for each target.
Based on the achievement of the performance metrics established
for 2011, our named executive officers received the cash bonus
amounts with respect to the year ended December 31, 2011
set forth below. These bonuses were paid to our named executive
officers in February 2012.
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
Percentage of
|
Name
|
|
Bonus Paid
|
|
Target
|
|
Joseph P. Payne
|
|
$
|
182,580
|
|
|
|
107.4
|
%
|
Don E. Clarke
|
|
$
|
128,880
|
|
|
|
107.4
|
%
|
Alex P. Shootman
|
|
$
|
260,145
|
|
|
|
110.7
|
%
|
Brian E. Kardon(1)
|
|
$
|
130,000
|
|
|
|
100.0
|
%
|
Andre H.S. Yee
|
|
$
|
84,745
|
|
|
|
99.7
|
%
|
|
|
|
(1) |
|
Mr. Kardon received 100% of his target bonus pursuant to
the terms of his separation from the Company in January 2012. |
The compensation committee also awarded additional discretionary
performance bonuses of $25,000 to each of Messrs. Payne and
Shootman in recognition of their achievement of significant
business and operational milestones during 2011.
Equity
Incentive Compensation
Each of our named executive officers has received stock options
to purchase shares of common stock in connection with their
initial employment with us. We grant equity incentive
compensation to our executive officers because we believe doing
so will motivate the executive by aligning the executives
interests more closely with the companys and provide an
incentive to the executive to remain in our employ through the
end of the vesting period in order to share in any increase in
our company value over time.
119
Prior to this offering, equity incentive grants to our
executives and other employees were made at the discretion of
our board of directors under our 2006 Stock Option Plan, or the
2006 Plan. In connection with this offering in 2012, our board
of directors adopted a new equity incentive plan, the 2012 Stock
Option and Incentive Plan, or the 2012 Plan. Following this
offering, our executives, non-employee directors and employees
will be eligible to receive awards under the 2012 Plan.
Option awards are typically made to employees and executives
initially as new-hire grants and subsequently, in the discretion
of the compensation committee, based on an executives
annual performance review and vesting schedule. The compensation
committee also considers an executives mission critical
roles and unique skill sets when determining whether to grant an
option award (and the size of such award) to an executive. Under
the 2006 Plan, we may grant equity incentive awards only in the
form of stock options; however, the 2012 Plan provides us with
flexibility to grant various types of equity-based securities.
Although following this offering we expect that our compensation
committee will have the authority to approve all grants under
the 2012 Plan, our board of directors historically has approved
all stock option grants. Our board of directors grants of
stock options have not been strictly formula-based but have been
based on ranges and the recommendation of the compensation
committee, which generally takes into account the compensation
committees subjective determination of a mixture of the
following qualitative factors that are not weighted: the
executives level of responsibility, the competitive market
for the executives position, vesting schedule and the
executives potential contribution to the advancement of
our business. Typically, larger awards have been made to the
executive officers who have areas of responsibility and
functions that are more likely to build long-term stockholder
value as determined by how directly linked their areas of
responsibility are to our growth.
We currently have an equity award grant program that provides
ranges outlining how we will grant equity-based awards to our
officers and employees. The program outlines recommended ranges
by position/level for new hire grants. From time to time,
however, we may need to exceed the recommended ranges in order
to attract top talent
and/or
accommodate market norms in specific geographic locations.
In March 2011, the board of directors granted options to the
following named executive officers, at an exercise price of
$3.23 per share:
|
|
|
|
|
|
|
Number of
|
Name
|
|
Options
|
|
Don E. Clarke
|
|
|
10,000
|
|
Alex P. Shootman
|
|
|
30,000
|
|
Brian E. Kardon
|
|
|
8,000
|
|
The board of directors determined to grant the option award to
Mr. Clarke in recognition of the importance of his role in
helping us prepare for our initial public offering; to
Mr. Shootman in recognition of his role in continuing to
drive increased revenue for the business; and to Mr. Kardon
in recognition of his role in branding our company against key
new competition.
In August 2011, the board of directors granted options to the
following named executive officers, at an exercise price of
$7.25 per share:
|
|
|
|
|
|
|
Number of
|
Name
|
|
Options
|
|
Joseph P. Payne
|
|
|
400,000
|
|
Don E. Clarke
|
|
|
40,000
|
|
The board of directors determined to grant these awards in order
to motivate and to align our senior executives incentives
as we continued to prepare for an initial public offering. In
particular,
120
Mr. Payne has been our president and chief executive
officer for more than four years, and all of his options were
vested. Our board of directors determined that it was necessary
and appropriate for Mr. Payne to have unvested options as
an additional incentive to continue as our president and chief
executive officer. In addition, as described above, this option
grant increased Mr. Paynes total compensation package
in lieu of increasing his cash compensation for 2011 following a
review of the total cash compensation of chief executive
officers at comparable companies.
In connection with this offering, we are also introducing an
employee stock purchase plan. For a description of this employee
stock purchase plan, see Equity Incentive
Plans2011 Employee Stock Purchase Plan.
Severance and
Change in Control Arrangements
Our goal in providing severance benefits is to offer sufficient
cash continuity protection such that our executives will focus
their full time and attention on the requirements of the
business rather than the potential implications for their
respective positions. We prefer to have certainty regarding the
potential severance amounts payable to the named executive
officers under certain circumstances, rather than negotiating
severance at the time that a named executive officers
employment terminates. We have also determined that accelerated
vesting provisions in connection with a termination following a
change in control are appropriate because they will encourage
option holders, including our named executive officers, to stay
focused in such circumstances, rather than the potential
implications for them. In addition, named executive officers are
provided with severance packages in consideration for delivering
to us a confidential information and non-disclosure agreement,
described below, which includes non-solicitation,
non-competition and other restrictive covenants. We believe the
severance package enhances the enforceability of these
non-competition and non-solicitation covenants. The compensation
committee believes that such agreements serve to reduce the
likelihood that competitors will seek to hire our named
executive officers who have significant knowledge about our
operations and short- and long-term strategies. For a
description of the terms and conditions of these employment
agreements, see Employment Agreements; Potential
Payments upon Termination or Change in Control.
CEO Life
Insurance Arrangement
We reimburse the annual premiums on a $1 million life
insurance policy on our president and chief executive officer.
His wife is the beneficiary of this policy.
CEO and CFO
Tax Preparation
Our president and chief executive officer and chief financial
officer are entitled to receive reimbursement of reasonable fees
and expenses of an accountant in connection with the preparation
of federal and state income tax returns. We paid $3,000 in 2011
for tax services for our president and chief executive officer
in connection with the preparation of federal and state income
tax returns.
Other
Compensation
We currently maintain broad-based benefits and perquisites that
are provided to all employees, including health insurance, life
and disability insurance, dental insurance and a 401(k) plan. We
do not match employee contributions under the 401(k) plan. We
may in the future choose to make matching contributions or
additional contributions to our 401(k) plan in amounts
determined annually. Except for the life insurance and tax
preparation arrangements with our president and chief executive
officer described above and the arrangements with our chief
financial officer described under Tax and
121
Accounting Considerations below, our named executive
officers participate in the same benefits program to the same
extent as all other employees.
Proprietary
Information and Inventions Agreements
Each of our named executive officers has entered into a standard
form agreement with respect to proprietary information and
inventions, assignment of rights to works and non-solicitation
and
non-competition
provisions. Among other things, this agreement obligates each
named executive officer to refrain from disclosing any of our
proprietary information received during the course of employment
and, with some exceptions, to assign to us any inventions
conceived or developed during the course of employment. These
agreements also prohibit the executive from soliciting our
customers and employees and from competing with our company for
a defined period following the termination of the
executives employment.
Pension
Benefits and Nonqualified Deferred Compensation
We do not provide a pension plan for our employees and none of
our named executive officers participated in a nonqualified
deferred compensation plan during the year ended
December 31, 2011.
Tax and
Accounting Considerations
We have not provided any executive officer or director with a
gross-up or
other reimbursement for tax amounts the executive might pay
pursuant to Section 280G or Section 409A of the
Internal Revenue Code of 1986, as amended, or the Code. Pursuant
to his employment agreement, each of Messrs. Payne and
Clarke will be entitled to an annual tax
gross-up
payment in the event and to the extent that his total income and
employment tax liability, as a result of allocating his
compensation from our company between the United States and
Canada is greater than his tax liability if he had been employed
for the entire year in the United States. No such
gross-up
payments were made to Messrs. Payne or Clarke during 2011.
Section 162(m) of the Code imposes a $1 million cap on
federal income tax deduction for compensation paid to our Chief
Executive Officer and to certain other highly compensated
officer during any fiscal year unless the compensation is
performance-based under Section 162(m). Under a
special Section 162(m) exception, certain compensation paid
pursuant to a compensation plan in existence before the
effective date of this public offering will not be subject to
the $1,000,000 limitation until the earliest of: (i) the
expiration of the compensation plan, (ii) a material
modification of the compensation plan (as determined under
Section 162(m)), (iii) the issuance of all the
employer stock and other compensation allocated under the
compensation plan, or (iv) the first meeting of
stockholders at which directors are elected after the close of
the third calendar year following the year in which the public
offering occurs. While the compensation committee cannot predict
how the deductibility limit may impact our compensation program
in future years, the compensation committee intends to maintain
an approach to executive compensation that strongly links pay to
performance. In addition, while the compensation committee has
not adopted a formal policy regarding tax deductibility of
compensation paid to our named executive officers, the
accounting and tax treatment of compensation pursuant to
Section 162(m) and other applicable rules are factors in
determining the amounts of compensation for named executive
officers.
Risk Oversight
of Compensation Programs
Our compensation committee does not believe that our
compensation programs are structured to be reasonably likely to
present a material adverse risk to us because we structure our
pay to include both fixed and variable compensation, our cash
incentive compensation program uses a variety of
122
metrics in order to provide a balanced approach, and our board
of directors has the authority to exercise discretion under our
incentive plans if it determines that changes are appropriate.
Summary
Compensation Table
The following table sets forth information with respect to
compensation for the years ended December 31, 2010 and 2011
earned by or awarded to our named executive officers.
SUMMARY
COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
Compensation
|
|
All Other
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
(1)
|
|
(2)
|
|
Compensation
|
|
Total
|
|
Joseph P. Payne
|
|
|
2011
|
|
|
$
|
310,000
|
|
|
$
|
25,000
|
|
|
$
|
1,586,753
|
|
|
$
|
182,580
|
|
|
$
|
5,190
|
(3)
|
|
$
|
2,109,523
|
|
President and Chief
|
|
|
2010
|
|
|
$
|
287,000
|
|
|
|
|
|
|
|
|
|
|
$
|
156,366
|
|
|
$
|
4,690
|
|
|
$
|
448,056
|
|
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Don E. Clarke
|
|
|
2011
|
|
|
$
|
235,000
|
|
|
|
|
|
|
$
|
174,154
|
|
|
$
|
128,880
|
|
|
|
|
|
|
$
|
538,034
|
|
Chief Financial Officer
|
|
|
2010
|
|
|
$
|
225,000
|
|
|
|
|
|
|
$
|
10,363
|
|
|
$
|
112,420
|
|
|
|
|
|
|
$
|
347,783
|
|
Alex P. Shootman
|
|
|
2011
|
|
|
$
|
235,000
|
|
|
$
|
25,000
|
|
|
$
|
55,554
|
|
|
$
|
260,145
|
|
|
|
|
|
|
$
|
575,699
|
|
Chief Revenue Officer
|
|
|
2010
|
|
|
$
|
225,000
|
|
|
|
|
|
|
|
|
|
|
$
|
234,000
|
|
|
|
|
|
|
$
|
459,000
|
|
Brian E. Kardon(4)
|
|
|
2011
|
|
|
$
|
215,000
|
|
|
|
|
|
|
$
|
14,814
|
|
|
$
|
130,000
|
|
|
|
|
|
|
$
|
359,814
|
|
Chief Marketing Officer
|
|
|
2010
|
|
|
$
|
215,000
|
|
|
|
|
|
|
|
|
|
|
$
|
101,568
|
|
|
|
|
|
|
$
|
316,568
|
|
Andre H.S. Yee
|
|
|
2011
|
|
|
$
|
225,000
|
|
|
|
|
|
|
|
|
|
|
$
|
84,745
|
|
|
|
|
|
|
$
|
309,745
|
|
Senior Vice President,
|
|
|
2010
|
|
|
$
|
225,000
|
|
|
|
|
|
|
$
|
10,363
|
|
|
$
|
72,930
|
|
|
|
|
|
|
$
|
308,293
|
|
Product Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the grant date fair value of option awards calculated
in accordance with ASC Topic 718, formerly Statement of
Financial Accounting Standards No. 123R. For information
regarding assumptions underlying the valuation of equity awards,
see note 2 to our consolidated financial statements
included elsewhere in this prospectus. |
(2) |
|
Represents annual cash performance bonus paid to each executive
under our cash incentive compensation program. See
Compensation Discussion and AnalysisAnnual
Cash CompensationCash Performance Bonuses. |
|
(3) |
|
Consists of a $2,190 premium reimbursement for a life insurance
policy and a $3,000 payment for tax preparation services. See
Compensation Discussion and AnalysisCEO
Life Insurance Arrangement and CEO Tax
Preparation above. |
|
(4) |
|
Mr. Kardon resigned as Chief Marketing Officer effective
January 27, 2012. |
123
Grants of
Plan-Based Awards
The following table presents information on plan-based awards
for the fiscal year ended December 31, 2011 to our named
executive officers:
GRANTS OF PLAN
BASED AWARDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Price of
|
|
Grant
|
|
|
|
|
Estimated Future Payouts Under
|
|
Securities
|
|
Option
|
|
Date Fair
|
|
|
|
|
Non-Equity Incentive Plan
|
|
Underlying
|
|
Award
|
|
Value of
|
|
|
Grant
|
|
Awards(1)
|
|
Options
|
|
($ per
|
|
Option
|
Name
|
|
Date
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
(#)
|
|
share)
|
|
Awards(2)
|
|
Joseph P. Payne
|
|
|
|
|
|
$
|
20,400
|
|
|
$
|
170,000
|
|
|
$
|
272,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
$
|
7.25
|
|
|
$
|
1,586,753
|
|
Don E. Clarke
|
|
|
|
|
|
$
|
14,400
|
|
|
$
|
120,000
|
|
|
$
|
192,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
$
|
3.23
|
|
|
$
|
18,518
|
|
|
|
|
8/23/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
$
|
7.25
|
|
|
$
|
155,636
|
|
Alex P. Shootman
|
|
|
|
|
|
$
|
37,600
|
|
|
$
|
235,000
|
|
|
$
|
423,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
3.23
|
|
|
$
|
55,554
|
|
Brian E. Kardon
|
|
|
|
|
|
$
|
15,600
|
|
|
$
|
130,000
|
|
|
$
|
208,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
$
|
3.23
|
|
|
$
|
14,814
|
|
Andre H.S. Yee
|
|
|
|
|
|
$
|
6,800
|
|
|
$
|
85,000
|
|
|
$
|
131,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the threshold, target and maximum amounts potentially
payable to each executive under our incentive bonus plan
described in detail under the heading Compensation
Discussion and AnalysisAnnual Cash CompensationCash
Performance Bonuses. The threshold column represents
amounts potentially payable with respect to the Revenue
performance metric if achievement was at $2,000,000 below the
target, the minimum amount at which each executive becomes
eligible for a bonus under such metric. |
(2) |
|
Represents the grant date fair value of option awards granted in
2011 calculated in accordance with ASC Topic 718, formerly
Statement of Financial Accounting Standards No. 123R. For
information regarding assumptions underlying the valuation of
equity awards, see note 2 to our consolidated financial
statements included elsewhere in this prospectus. |
124
Outstanding
Equity Awards at Fiscal Year End
The following table sets forth certain information concerning
the number of outstanding equity awards held by our named
executive officers that are exercisable and unexercisable or
vested and not vested at December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
|
|
|
Options (#)
|
|
Options (#)
|
|
Exercise
|
|
Expiration
|
Name
|
|
Grant Date
|
|
Exercisable
|
|
Unexercisable
|
|
Price ($)
|
|
Date
|
|
Joseph P. Payne
|
|
|
4/24/2007
|
|
|
|
129,091
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
1/16/2017
|
|
|
|
|
7/19/2007
|
|
|
|
36,909
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
7/19/2017
|
|
|
|
|
7/19/2007
|
|
|
|
1,427,371
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
7/19/2017
|
|
|
|
|
8/23/2011
|
|
|
|
20,425
|
|
|
|
219,575
|
(1)
|
|
$
|
7.25
|
|
|
|
8/23/2021
|
|
|
|
|
8/23/2011
|
|
|
|
|
|
|
|
160,000
|
(2)
|
|
$
|
7.25
|
|
|
|
8/23/2021
|
|
Don E. Clarke
|
|
|
3/11/2008
|
|
|
|
300,000
|
|
|
|
20,000
|
(3)
|
|
$
|
1.58
|
|
|
|
3/11/2018
|
|
|
|
|
2/8/2010
|
|
|
|
4,583
|
|
|
|
5,417
|
(4)
|
|
$
|
1.55
|
|
|
|
2/8/2020
|
|
|
|
|
3/4/2011
|
|
|
|
1,875
|
|
|
|
8,125
|
(5)
|
|
$
|
3.23
|
|
|
|
3/4/2021
|
|
|
|
|
8/23/2011
|
|
|
|
3,333
|
|
|
|
36,667
|
(5)
|
|
$
|
7.25
|
|
|
|
8/23/2021
|
|
Alex P. Shootman
|
|
|
7/21/2009
|
|
|
|
195,750
|
|
|
|
117,450
|
(6)
|
|
$
|
1.43
|
|
|
|
7/21/2019
|
|
|
|
|
3/4/2011
|
|
|
|
5,625
|
|
|
|
24,375
|
(5)
|
|
$
|
3.23
|
|
|
|
3/4/2021
|
|
Brian E. Kardon(9)
|
|
|
7/22/2008
|
|
|
|
266,500
|
|
|
|
45,500
|
(7)
|
|
$
|
1.63
|
|
|
|
7/22/2018
|
|
|
|
|
3/4/2011
|
|
|
|
1,500
|
|
|
|
6,500
|
(5)
|
|
$
|
3.23
|
|
|
|
3/4/2021
|
|
Andre H.S. Yee
|
|
|
4/15/2008
|
|
|
|
255,000
|
|
|
|
17,000
|
(8)
|
|
$
|
1.58
|
|
|
|
4/15/2018
|
|
|
|
|
10/21/2008
|
|
|
|
18,750
|
|
|
|
1,250
|
(8)
|
|
$
|
1.35
|
|
|
|
10/21/2018
|
|
|
|
|
2/6/2009
|
|
|
|
14,166
|
|
|
|
5,834
|
(4)
|
|
$
|
1.20
|
|
|
|
2/6/2019
|
|
|
|
|
2/8/2010
|
|
|
|
4,583
|
|
|
|
5,417
|
(4)
|
|
$
|
1.55
|
|
|
|
2/8/2010
|
|
|
|
|
(1) |
|
This option vests over approximately four years, at a rate of
1/47 per month. |
(2) |
|
This option vests over a four-year period, in equal monthly
installments commencing on the first anniversary of the grant. |
(3) |
|
This option vests over approximately four years, at a rate of
twenty-five percent (25%) on March 11, 2009, and in equal
monthly installments thereafter. |
(4) |
|
This option vests over a four-year period, at a rate of
twenty-five percent (25%) on the first anniversary of the grant,
and in equal monthly installments thereafter. |
(5) |
|
This option vests over a four-year period in equal monthly
installments. |
(6) |
|
This option vests over approximately four years, at a rate of
twenty-five percent (25%) on June 29, 2010, and in equal
monthly installments thereafter. |
(7) |
|
This option vests over approximately four years, at a rate of
twenty-five percent (25%) on July 21, 2009, and in equal
quarterly installments thereafter. |
(8) |
|
This option vests at a rate of twenty-five percent (25%) on
March 24, 2009, and in equal quarterly installments
thereafter. |
(9) |
|
Upon his departure from our company in January 2012, all of Mr.
Kardons unvested options were forfeited. |
125
Option Exercises
and Stock Vested for Fiscal Year Ended December 31,
2011
The following table sets forth information regarding options
exercised by our named executive officers during the fiscal year
ended December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of Shares
|
|
Value
|
|
|
Acquired on
|
|
Realized on
|
|
|
Exercise (#)
|
|
Exercise ($)
|
|
Joseph P. Payne
|
|
|
20,000
|
|
|
|
|
(1)
|
Don E. Clarke
|
|
|
|
|
|
|
|
|
Alex P. Shootman
|
|
|
|
|
|
|
|
|
Brian E. Kardon
|
|
|
|
|
|
|
|
|
Andre H.S. Yee
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the difference between the exercise price and the
fair market value of the common stock on the date of exercise.
There was no public market for our common stock on the date of
exercise. Accordingly, the value of accelerated equity awards
has been estimated based on an assumed initial public offering
price of $ per share, the midpoint
of the estimated price range set forth on the cover page of this
prospectus. |
Pension
Benefits
None of our named executive officers participates in or has
account balances in qualified or
non-qualified
defined benefit plans sponsored by us.
Non-Qualified
Deferred Compensation
None of our named executive officers participates in or has
account balances in non-qualified defined contribution plans or
other deferred compensation plans maintained by us.
Employment
Agreements
Joseph P.
Payne
On April 15, 2008, we entered into an employment agreement
with Mr. Payne, our president and chief executive officer,
which sets forth the terms and conditions of
Mr. Paynes employment. The employment agreement has
no specified term and constitutes at-will employment.
Mr. Paynes base salary was originally set at $262,500
per year, subject to annual review and increases as part of the
normal salary review process. The agreement also provides for
payment of an annual performance bonus target for Mr. Payne
of up to $150,000 based on achievement of performance objectives
established under the applicable bonus plan, and that
Mr. Payne may be awarded a bonus in excess of this amount
if performance objectives are exceeded. Furthermore, he is
eligible to participate in our employee benefits program and is
entitled to receive reimbursement for the cost of a
life-insurance policy maintained by Mr. Payne, not to
exceed $2,200 per year. At any time during the term of the
agreement, in the event Mr. Paynes employment is
terminated by us without cause (as defined in the
employment agreement) or if Mr. Payne terminates his
employment with good reason (as defined in the
employment agreement), Mr. Payne will be entitled to
receive a lump-sum severance payment equal to $187,500 and
payment for his health benefits for up to 12 months (but
not if such termination occurred in connection with a change in
control). Under the agreement, in the event of a
Transaction (as defined in the 2006 Plan), all of
Mr. Paynes unvested options granted under the
agreement will immediately vest. Pursuant to his employment
agreement, Mr. Payne will be entitled to an annual tax
gross-up
payment in the event and to the extent that
Mr. Paynes total income and employment tax
126
liability, as a result of allocating his compensation from our
company between the United States and Canada, is greater than
his tax liability if he had been employed for the entire year in
the United States.
If amounts payable to Mr. Payne, whether under
Mr. Paynes employment agreement or otherwise, give
rise to the excise tax imposed by Section 4999 of the Code,
Mr. Payne will receive the greater after-tax amount of
either (A) the full payment minus the sum of all excise,
federal, state and local income and employment taxes, or
(B) a reduced payment that does not give rise to the excise
tax imposed by Section 4999 of the Code minus the sum of
all federal, state and local income and employment taxes.
Don E.
Clarke
On February 15, 2008, we entered into an employment
agreement with Mr. Clarke, our chief financial officer,
which sets forth the terms and conditions of
Mr. Clarkes employment. The employment agreement has
no specified term and constitutes at-will employment.
Mr. Clarkes base salary was originally set at
$225,000 per year, subject to annual review and increases as
part of the normal salary review process. The agreement also
provides for payment of an annual performance bonus target for
Mr. Clarke of up to $100,000 based on achievement of
performance objectives established under the applicable bonus
plan, and that Mr. Clarke may be awarded a bonus in excess
of this amount if performance objectives are exceeded.
Furthermore, he is eligible to participate in our employee
benefits program. At any time during the term of the agreement,
in the event Mr. Clarkes employment is terminated by
us without cause (as defined in the employment
agreement) or if Mr. Clarke terminates his employment with
good reason (as defined in the employment
agreement), Mr. Clarke will be entitled to receive
severance payments equal to six months of base salary and
benefits. Under the agreement, in the event of a
Transaction (as defined in the 2006 Plan), all
unvested options granted to Mr. Clarke under the agreement
will immediately vest. Pursuant to his employment agreement,
Mr. Clarke will be entitled to an annual tax
gross-up
payment in the event and to the extent that
Mr. Clarkes total income and employment tax
liability, as a result of allocating his compensation from our
company between the United States and Canada, is greater than
his tax liability if he had been employed for the entire year in
the United States.
Alex P.
Shootman
On June 22, 2009, we entered into an employment agreement
with Mr. Shootman, our chief revenue officer, which sets
forth the terms and conditions of Mr. Shootmans
employment. The employment agreement has no specified term and
constitutes at-will employment. Mr. Shootmans base
salary was originally set at $225,000 per year, subject to
annual review and increases as part of the normal salary review
process. The agreement also sets forth a target annual bonus for
Mr. Shootman of $225,000, and established a minimum bonus
for 2009 of $75,000. Thereafter, the agreement provided that
Mr. Shootmans bonus will be determined by the Board
based on achievement of performance objectives established under
the applicable bonus plan and may exceed
Mr. Shootmans target bonus if performance objectives
under the plan are exceeded. Furthermore, he is eligible to
participate in our employee benefits program. At any time during
the term of the agreement, in the event Mr. Shootmans
employment terminates in connection with an involuntary
termination (as defined in the employment agreement),
Mr. Shootman will be entitled to receive severance payments
equal to six months continued base salary and benefits, provided
that if after such six-month period, Mr. Shootman remains
unemployed, severance will be extended for up to three
additional months. Mr. Shootman will also be entitled to
receive a pro-rated bonus for the year of termination provided
the relevant performance metrics for such year are achieved.
Under the agreement, in the event of a Transaction
(as defined in the 2006 Plan), all unvested options granted to
Mr. Shootman under the agreement will immediately vest.
127
Brian E.
Kardon
On July 19, 2008, we entered into an employment agreement
with Mr. Kardon, our former chief marketing officer, which
set forth the terms and conditions of Mr. Kardons
employment. The employment agreement had no specified term and
constituted at-will employment. Mr. Kardons base
salary was originally set at $215,000 per year, subject to
review and increases as part of the normal salary review
process. The agreement also provided for payment of an annual
performance bonus target for Mr. Kardon for his initial
year of employment of $120,000 based on achievement of
performance milestones established under the applicable bonus
plan. Furthermore, he was eligible to participate in our
employee benefits program. The agreement provided that, in the
event Mr. Kardons employment terminated in connection
with an involuntary termination (as defined in the
employment agreement), Mr. Kardon would be entitled to
receive severance payments equal to four months continued base
salary. Under the agreement, in the event of a
Transaction (as defined in the 2006 Plan),
50 percent of Mr. Kardons unvested options
granted under the agreement would immediately vest, and any
remaining unvested stock options granted under the agreement
would vest 12 months after the close of the transaction, or
earlier if Mr. Kardons employment was terminated
without cause during this
12-month
period. Upon Mr. Kardons departure from our company in
January 2012, he received a severance payment of $89,583, or
five months of his base salary, 100% of his target bonus, and
health benefits in the amount of $2,439, and all unvested
options were forfeited.
Andre H.S.
Yee
On March 14, 2008, we entered into an employment agreement
with Mr. Yee, our Senior Vice President, Product
Development, which sets forth the terms and conditions of
Mr. Yees employment. The employment agreement has no
specified term and constitutes at-will employment.
Mr. Yees base salary was originally set at $215,000
per year, subject to review and increases as part of the normal
salary review process. The agreement also provides for payment
of an annual performance bonus target for Mr. Yee for his
initial year of employment of $65,000 based on achievement of
performance milestones established under the applicable bonus
plan. Furthermore, he is eligible to participate in our employee
benefits program. At any time during the term of the agreement,
in the event Mr. Yees employment terminates in
connection with an involuntary termination (as
defined in the employment agreement), Mr. Yee will be
entitled to receive severance payments equal to six months
continued base salary. Under the agreement, in the event of a
Transaction (as defined in the 2006 Plan),
50 percent of Mr. Yees unvested options granted
under the agreement will immediately vest, and any remaining
unvested stock options granted under the agreement will vest
12 months after the close of the transaction.
Potential
Payments Upon Termination or Change in Control
The table below reflects, as applicable, cash severance, option
acceleration and continuation of health benefits payable to our
named executive officers in connection with (1) the
termination of his employment relationship without cause (or for
good reason or in connection with an
involuntary termination, as applicable),
(2) upon a change in control of our company and (3) in
connection with a
128
termination of employment described in (1), above following a
change in control, and assuming, in each case, that the
applicable triggering event(s) occurred on December 31,
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
without Cause in
|
|
|
|
|
Termination
|
|
Change in
|
|
Connection with a
|
Name
|
|
Benefit
|
|
without Cause
|
|
Control
|
|
Change in Control
|
|
Joseph P. Payne
|
|
Cash Severance
|
|
$
|
187,500
|
|
|
|
|
|
|
$
|
187,500
|
|
|
|
Option Acceleration
|
|
|
|
|
|
$
|
|
(2)
|
|
$
|
|
(2)
|
|
|
Health Benefits
|
|
$
|
15,385
|
|
|
|
|
|
|
$
|
15,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
202,885
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Don E. Clarke
|
|
Cash Severance
|
|
$
|
117,500
|
(1)
|
|
|
|
|
|
$
|
117,500
|
(1)
|
|
|
Option Acceleration
|
|
|
|
|
|
$
|
|
(2)
|
|
$
|
|
(2)
|
|
|
Health Benefits
|
|
$
|
7,692
|
|
|
|
|
|
|
$
|
7,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
125,192
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alex P. Shootman
|
|
Cash Severance
|
|
$
|
377,645
|
(3)
|
|
|
|
|
|
$
|
377,645
|
(3)
|
|
|
Option Acceleration
|
|
|
|
|
|
$
|
|
(2)
|
|
$
|
|
(2)
|
|
|
Health Benefits
|
|
$
|
7,643
|
|
|
|
|
|
|
$
|
7,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
385,288
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian E. Kardon(5)
|
|
Cash Severance
|
|
$
|
71,667
|
(4)
|
|
|
|
|
|
$
|
71,667
|
(4)
|
|
|
Option Acceleration
|
|
|
|
|
|
$
|
|
(2)
|
|
$
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71,667
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andre H.S. Yee
|
|
Cash Severance
|
|
$
|
112,500
|
(6)
|
|
|
|
|
|
$
|
112,500
|
(5)
|
|
|
Option Acceleration
|
|
|
|
|
|
$
|
|
(2)
|
|
$
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112,500
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
Represents six months of Mr. Clarkes base salary. |
(2) |
|
Represents the
in-the-money
value of the unvested portion of such executives equity
awards that will vest in connection with the applicable
triggering event. There was no public market for our common
stock at December 31, 2011. Accordingly, the value of
accelerated equity awards has been estimated based on an assumed
initial public offering price of $
per share, the midpoint of the estimated price range set forth
on the cover page of this prospectus. |
(3) |
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Represents six months of Mr. Shootmans base salary
and a pro-rated bonus for 2011. |
(4) |
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Represents four months of Mr. Kardons base salary. |
(5) |
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Mr. Kardon received a severance payment of $89,583, or five
months of his base salary, 100% of his target bonus, and health
benefits in the amount of $2,439 upon the termination of his
employment effective January 27, 2012. |
(6) |
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Represents six months of Mr. Yees base salary. |
Equity Incentive
Plans
Below is a description of the equity incentive plans in which
our employees, including our named executive officers are
entitled to participate:
2012 Stock
Option and Incentive Plan
On May 1, 2012, our Board of Directors adopted our 2012
Stock Option and Incentive Plan, or 2012 Plan, which was
subsequently approved by our stockholders. Our 2012 Plan
provides flexibility to our compensation committee to use
various equity-based incentive awards as compensation tools to
motivate our workforce.
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We have reserved 3,750,000 shares of our common stock for
the issuance of awards under the 2012 Plan (including an
aggregate of 498,317 shares previously reserved for future
issuance under the 2006 Plan and the 2006 U.S. Employee
Plan, which shares were added to the shares reserved under the
2012 Plan). The 2012 Plan provides that the number of shares
reserved and available for issuance under the 2012 Plan will
automatically increase each January 1, beginning in 2013 by
4% of the outstanding number of shares of our common stock on
the immediately preceding December 31 or such lesser number of
shares as determined by our compensation committee on or prior
to such immediately preceding December 31. This number is
subject to adjustment in the event of a stock split, stock
dividend or other change in our capitalization. The shares we
issue under the 2012 Plan will be authorized but unissued shares
or shares that we reacquire. The shares of common stock
underlying any awards that are forfeited, canceled, held back
upon exercise or settlement of an award to satisfy the exercise
price or tax withholding, reacquired by us prior to vesting,
satisfied without any issuance of stock, expire or are otherwise
terminated (other than by exercise) under the 2012 Plan, the
2006 Plan and the 2006 U.S. Employee Plan are added back to the
shares of common stock available for issuance under the 2012
Plan.
The 2012 Plan is administered by our compensation committee. Our
compensation committee has full power to select, from among the
individuals eligible for awards, the individuals to whom awards
will be granted, to make any combination of awards to
participants, and to determine the specific terms and conditions
of each award, subject to the provisions of the 2012 Plan.
Persons eligible to participate in the 2012 Plan will be those
full or part-time officers, employees, non-employee directors
and other key persons (including consultants and prospective
employees) as selected from time to time by our compensation
committee in its discretion.
The 2012 Plan permits the granting of both options to purchase
common stock intended to qualify as incentive stock options
under Section 422 of the Code and options that do not so
qualify. The option exercise price of each option will be
determined by our compensation committee but may not be less
than 100% of the fair market value of the common stock on the
date of grant. The term of each option will be fixed by our
compensation committee and may not exceed ten years from the
date of grant. Our compensation committee will determine at what
time or times each option may be exercised.
Our compensation committee may award stock appreciation rights
subject to such conditions and restrictions as we may determine.
Stock appreciation rights entitle the recipient to shares of
common stock, or cash, equal to the value of the appreciation in
our stock price over the exercise price. The exercise price is
the fair market value of the common stock on the date of grant.
Our compensation committee may award restricted shares of common
stock and restricted stock units to participants subject to such
conditions and restrictions as we may determine. These
conditions and restrictions may include the achievement of
certain performance goals
and/or
continued employment with us through a specified vesting period.
Our compensation committee may also grant shares of common stock
that are free from any restrictions under the 2012 Plan.
Unrestricted stock may be granted to participants in recognition
of past services or other valid consideration and may be issued
in lieu of cash compensation due to such participant.
Our compensation committee may grant performance share awards to
participants which entitle the recipient to receive shares of
common stock upon the achievement of certain performance goals
and such other conditions as our compensation committee shall
determine.
Our compensation committee may grant dividend equivalent rights
to participants which entitle the recipient to receive credits
for dividends that would be paid if the recipient had held a
specified number of shares of common stock.
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Our compensation committee may grant cash bonuses under the 2012
Plan to participants, subject to the achievement of certain
performance goals.
Our compensation committee may grant awards of restricted stock,
restricted stock units, performance shares or cash-based awards
under the 2012 Plan that are intended to qualify as
performance-based compensation under
Section 162(m) of the Code. Those awards would only vest or
become payable upon the attainment of performance goals that are
established by our compensation committee and related to one or
more performance criteria. The performance criteria that would
be used with respect to any such awards include: earnings before
interest, taxes, depreciation and amortization, net income
(loss) (either before or after any of interest, taxes,
depreciation
and/or
amortization), changes in the market price of our common stock,
economic value-added, funds from operations or similar measure,
sales or revenue, acquisitions or strategic transactions,
operating income (loss), cash flow (including, but not limited
to, operating cash flow and free cash flow), cash balance,
return on capital, assets, equity, or investment, stockholder
returns, return on sales, gross or net profit levels,
productivity, expense, margins, operating efficiency, customer
satisfaction, working capital, earnings (loss) per share of our
common stock, monthly reoccurring revenue, sales qualified
opportunities, product development, marketing expense, product
development, sales or market shares and number of customers, any
of which may be measured either in absolute terms or as compared
to any incremental increase or as compared to results of a peer
group. From and after the time that we become subject to
Section 162(m) of the Code, stock options or stock
appreciation rights with respect to no more than
800,000 shares of common stock may be granted to any
individual grantee during any one calendar year period.
The 2012 Plan provides that in the case of subject to the
consummation of a sale event as defined in the 2012
Plan, all stock options and stock appreciation rights will
automatically terminate, unless the parties to the sale event
agree that such awards will be assumed or continued by the
successor entity. In the event of such termination, participants
holding options and stock appreciation rights will be permitted
to exercise such options and stock appreciation rights prior to
the sale event. In addition, in connection with a sale event, we
may make or provide for a cash payment to participants holding
options and stock appreciation rights equal to the difference
between the per share cash consideration payable to stockholders
in the sale event and the exercise price of the options or stock
appreciation rights.
Our board of directors may amend or discontinue the 2012 Plan
and our compensation committee may amend or cancel outstanding
awards for purposes of satisfying changes in law or any other
lawful purpose, but no such action may adversely affect rights
under an award without the holders consent. Certain
amendments to the 2012 Plan require the approval of our
stockholders.
No awards may be granted under the 2012 Plan after the date that
is 10 years from the date of stockholder approval. No
awards under the 2012 Plan have been made prior to the date
hereof.
2012 Employee
Stock Purchase Plan
Our 2012 Employee Stock Purchase Plan was adopted by our board
of directors and approved by our stockholders in May 2012
and will become effective upon closing of this offering. Our
2012 Employee Stock Purchase Plan authorizes the initial
issuance of up to a total of 760,000 shares of our common stock
to participating employees. Our 2012 Employee Stock Purchase
Plan also provides that the number of shares reserved and
available for issuance automatically increase each
January 1, beginning in 2013 by 1% of the outstanding
number of shares of our common stock on the immediately
preceding December 31 or such lesser number of shares as
determined by our compensation committee on or prior to such
immediately preceding December 31, subject to an overall
overhang limit of 300,000 shares.
131
All employees who have been employed by us or our designated
subsidiaries for at least 90 days and whose customary
employment is for more than 24 hours a week are eligible to
participate in our 2012 Employee Stock Purchase Plan. Any
employee who owns, or would own upon such purchase under our
2012 Employee Stock Purchase Plan, 5% or more of the voting
power or value of our stock is not eligible to purchase shares
under our 2012 Employee Stock Purchase Plan.
We will make one or more offerings each year to our employees to
purchase stock under our 2012 Employee Stock Purchase Plan. The
first offering will begin on the date of the closing of this
offering and will end on December 31, 2012. Subsequent
offerings will usually begin on each January 1 and July 1 and
will continue for six-month periods, referred to as offering
periods. Each employee eligible to participate on the date of
the closing of this offering shall automatically be deemed to be
a participant in the initial offering period.
Each employee who is a participant in our 2012 Employee Stock
Purchase Plan may purchase shares by authorizing payroll
deductions of up to 10% of his or her base compensation during
an offering period. Unless the participating employee has
previously withdrawn from the offering, his or her accumulated
payroll deductions will be used to purchase common stock on the
last business day of the offering period at a price equal to 85%
of the fair market value of the common stock on the first
business day or the last business day of the offering period,
whichever is lower, provided that no more than 1,200 shares
of common stock may be purchased by any one employee during each
offering period. Under applicable tax rules, an employee may
purchase no more than $25,000 worth of common stock, valued at
the start of the purchase period, under our 2012 Employee Stock
Purchase Plan in any calendar year.
The accumulated payroll deductions of any employee who is not a
participant on the last day of an offering period will be
refunded. An employees rights under our 2012 Employee
Stock Purchase Plan terminate upon voluntary withdrawal from the
plan or when the employee ceases employment for any reason.
Our 2012 Employee Stock Purchase Plan may be terminated or
amended by our board of directors at any time. An amendment that
increases the number of shares of our common stock that is
authorized under our 2012 Employee Stock Purchase Plan and
certain other amendments require the approval of our
stockholders.
2006 Stock
Option Plan
Our 2006 Plan was approved by our board of directors on
July 21, 2006 and subsequently approved by our
stockholders. As of December 31, 2011, we have reserved an
aggregate of 10,054,246 shares of our common stock for the
issuance of options under the 2006 Plan. This number is subject
to adjustment in the event of a stock split, stock dividend or
other change in our capitalization. Effective upon the closing
of this offering, our board of directors decided not to grant
any further awards under our 2006 Plan.
The shares we issue under the 2006 Plan will be authorized but
unissued shares or shares we reacquire. The shares of common
stock underlying any options that are forfeited, canceled,
repurchased, expire or are otherwise terminated (other than by
exercise) under the 2006 Plan are currently added back to the
shares of common stock available for issuance under the 2006
Plan. Upon the closing of this offering, such shares will be
added to the shares of common stock available for issuance under
the 2012 Plan.
Our board of directors has acted as administrator of the 2006
Plan; however, in connection with this offering, the board of
directors has delegated its administrative powers under the 2006
Plan to the compensation committee. The administrator has full
power to select, from among the individuals
132
eligible for option awards, the individuals to whom option
awards will be granted, and to determine the specific terms and
conditions of each award, subject to the provisions of the 2006
Plan. Persons eligible to participate in the 2006 Plan will be
those full or part-time officers, employees, directors and other
key persons (including consultants and certain prospective
employees) of the Company and its subsidiaries as selected from
time to time by the administrator in its discretion.
The 2006 Plan permits the granting of (1) options to
purchase common stock intended to qualify as incentive stock
options under Section 422 of the Code and (2) options
that do not so qualify. The option exercise price of each option
will be determined by the administrator but may not be less than
100% of the fair market value of the common stock on the date of
grant. The term of each option will be fixed by the
administrator and may not exceed ten years from the date of
grant. The administrator will determine at what time or times
each option may be exercised, provided that, if no terms with
respect to vesting are exercisability are specified in an award
agreement, the option award shall vest with respect to 25% of
the award on the first anniversary of the grant date and in 36
equal monthly installments thereafter.
The 2006 Plan provides that upon the occurrence of a
Transaction as defined in the 2006 Plan, all
outstanding stock options will terminate at the effective time
of such Transaction, unless the parties to the Transaction agree
that such awards will be assumed or continued by the successor
entity. If options under the 2006 Plan will terminate, the
optionees will be provided an opportunity to exercise their
options prior to the consummation of the Transaction. In the
case of a Transaction in which our stockholders will receive
cash consideration, the administrator has the right to provide
for cash payment to holders of vested options in an amount equal
to the difference between the per share cash consideration and
the exercise price of such options.
No awards may be granted under the 2006 Plan after the date that
is 10 years from the date the 2006 Plan was approved by the
stockholders.
2006 US
Employee Stock Option Plan
Our 2006 US Employee Stock Option Plan, or 2006 US Employee
Plan, was approved by our Board of Directors on July 21,
2006 and subsequently approved by our stockholders. As of
December 31, 2011, we have reserved an aggregate of
193,926 shares of our common stock for the issuance of
options under the 2006 US Employee Plan. This number is subject
to adjustment in the event of a stock split, stock dividend or
other change in our capitalization. The shares of common stock
underlying any options that are forfeited, canceled,
repurchased, expire or are otherwise terminated (other than by
exercise) under the 2006 US Employee Plan are currently added
back to the shares of common stock available for issuance under
the 2006 Plan. Upon the closing of this offering, such shares
will be added to the shares of common stock available for
issuance under the 2012 Plan. Our board of directors has not
granted any awards under the 2006 US Employee Plan since 2006
and does not expect to grant any further awards under this plan.
The only awards outstanding under the 2006 US Employee Plan are
options that were issued to participants in exchange for options
to purchase shares of Eloqua Corporation in connection with our
2006 reorganization.
Our board of directors has acted as administrator of the 2006 US
Employee Plan; however, in connection with this offering, the
board of directors has delegated its administrative powers under
the 2006 US Employee Plan to the compensation committee. The
administrator has sole and complete authority to select, from
among the individuals eligible for option awards, the
individuals to whom option awards will be granted, and to
determine the specific terms and conditions of each award,
subject to the provisions of the 2006 US Employee Plan. Persons
eligible to participate in the 2006 US Employee Plan will be
those full or part-time officers, employees, directors and other
key persons
133
(including consultants and certain prospective employees) of the
Company and our subsidiaries as selected from time to time by
the administrator in its discretion.
The 2006 US Employee Plan permits the granting of
(1) options to purchase common stock intended to qualify as
incentive stock options under Section 422 of the Code and
(2) options that do not so qualify. The option exercise
price of each option will be determined by the compensation
committee but may not be less than 100% of the fair market value
of the underlying common stock. The term of each option will be
fixed by the administrator and may not exceed ten years from the
date of grant. The administrator will determine at what time or
times each option may be exercised.
The 2006 US Employee Plan provides that in connection with a
Take-over Bid as defined in the 2006 US Employee
Plan, we may permit participants to exercise outstanding options
(whether vested or unvested) within a specified time following
delivery of notice to participants of such Take-over Bid.
Senior Executive
Incentive Bonus Plan
On May 1, 2012, our board of directors adopted our Senior
Executive Incentive Bonus Plan, or Bonus Plan, which will govern
the cash incentive bonuses for certain of our eligible
executives including our named executive officers. The Bonus
Plan provides for bonus payments based upon the attainment of
performance targets established by the compensation committee
and related to financial and operational metrics with respect to
us or our subsidiaries, or the Performance Goals. The
Performance Goals from which the compensation committee may
select include the following: earnings before interest, taxes,
depreciation and amortization, net income (loss) (either before
or after any of interest, taxes, depreciation and/or
amortization), changes in the market price of our common stock,
economic value-added, funds from operations or similar measures,
sales or revenue, acquisitions or strategic transactions,
operating income (loss), cash flow (including, but not limited
to, operating cash flow and free cash flow), cash balance,
return on capital, assets, equity or investment, stockholder
returns, return on sales, gross or net profit levels,
productivity, expense, margins, operating efficiency, customer
satisfaction, working capital, earnings (loss) per share of our
common stock, monthly reoccurring revenue, sales qualified
opportunities, product development, marketing expense, product
development, sales or market shares and number of customers, any
of which may be measured in absolute terms or compared to any
incremental increase, measured in terms of growth, compared to
another company or companies or to results of a peer group,
measured against the market as a whole and/or according to
applicable market indices, measured against our performance as a
whole or a segment of the company and/or measured on a pre-tax
or post-tax basis (if applicable). Further, any Performance
Goals may be used to measure the performance of the company as a
whole or a business unit, division, group or other segment of
the company, or one or more product lines or specific markets
and may be measured relative to a peer group or index. The
Performance Goals may differ among our executives.
Any bonuses paid under the Bonus Plan will be based upon
objectively determinable bonus formulas that tie such bonuses to
one or more performance targets relating to the Performance
Goals. The bonus formulas will be adopted in each performance
period by the compensation committee and communicated to each
executive. No bonuses will be paid under the Bonus Plan unless
and until the compensation committee makes a determination with
respect to the attainment of the performance objectives.
Notwithstanding the foregoing, we may adjust or pay bonuses
under the Bonus Plan based on achievement of individual
performance goals or pay bonuses (including, without limitation,
discretionary bonuses) to executives under the Bonus Plan based
upon such other terms and conditions as the compensation
committee may in its discretion determine.
Each executive will have a targeted bonus opportunity set for
each performance period. The Performance Goals will be measured
at the end of each performance period after our financial
reports
134
have been published or such other appropriate time as the
compensation committee shall determine. If the Performance Goals
are met, payments will be made as soon as practicable following
the end of each performance period. Subject to the rights
contained in any agreement between the executive and us, an
executive must be employed by us on the bonus payment date in
order to be eligible to receive a bonus payment.
Director
Compensation
Prior to July 2011, we compensated our non-employee directors
with one-time grants of stock options upon initial election to
our board of directors. None of our non-employee directors
received a stock option grant during 2010.
On July 1, 2011, our board of directors adopted a
non-employee director compensation policy that is designed to
provide a total compensation package that enables us to attract
and retain, on a long-term basis, high caliber non-employee
directors and to align the directors interests with the
long-term
interests of our stockholders. Under the policy, all
non-employee directors will be paid cash compensation from and
after the completion of this offering, as set forth below:
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Annual Retainer
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Board of Directors:
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All non-employee members
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$
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25,000
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Audit Committee:
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Chairman
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$
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20,000
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Non-Chairman members
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$
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7,000
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Compensation Committee:
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Chairman
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$
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10,000
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Non-Chairman members
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$
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5,000
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Nominating and Corporate Governance Committee:
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Chairman
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$
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5,000
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Non-Chairman members
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$
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3,000
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Under the non-employee director compensation policy, each person
who is initially appointed or elected to the board of directors
will be eligible for an option grant to purchase
24,000 shares of common stock under our stock option plan
on the date he or she first becomes a non-employee director in
accordance with our equity grant policy, which will vest monthly
over a three-year period. In addition, each director will be
entitled to an annual option grant to purchase
12,000 shares of common stock, which will vest monthly over
a one-year period. All of the foregoing options will be granted
at fair market value on the date of grant.
Indemnification
of Officers and Directors
As permitted by the Delaware General Corporation Law, we have
adopted provisions in our amended and restated certificate of
incorporation and amended and restated by-laws to be in effect
at the closing of this offering that limit or eliminate the
personal liability of our directors. Consequently, a director
will not be personally liable to us or our stockholders for
monetary damages for any breach of fiduciary duty as a director,
except for liability for:
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any breach of the directors duty of loyalty to us or our
stockholders;
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any act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law;
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any unlawful payments related to dividends or unlawful stock
repurchases, redemptions or other distributions; or
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any transaction from which the director derived an improper
personal benefit.
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In addition, our by-laws provide that:
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we will indemnify our directors, executive officers and, in the
discretion of our board of directors, employees to the fullest
extent permitted by the Delaware General Corporation
Law; and
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we will advance expenses, including attorneys fees, to our
directors and, in the discretion of our board of directors, to
executive officers and employees, in connection with legal
proceedings, subject to limited exceptions.
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We have entered into indemnification agreements with each of our
directors and executive officers. These agreements provide that
we will indemnify these directors and executive officers to the
fullest extent permitted by law and our certificate of
incorporation and by-laws, and advance expenses to each
indemnitee in connection with any proceeding in which
indemnification is available.
We also maintain a general liability insurance which covers
certain liabilities of our directors and officers arising out of
claims based on acts or omissions in their capacities as
directors or officers, including liabilities under the
Securities Act of 1933. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be
permitted to directors or officers of our company, or persons
controlling our company pursuant to the foregoing provisions, we
have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is therefore unenforceable.
Our indemnification and insurance arrangements may discourage
stockholders from bringing a lawsuit against our directors for
breach of their fiduciary duty. These provisions may also have
the effect of reducing the likelihood of derivative litigation
against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders.
Furthermore, a stockholders investment may be adversely
affected to the extent we pay the costs of settlement and damage
awards against directors and officers pursuant to these
indemnification provisions. We believe that these provisions,
the indemnification agreements and the insurance are necessary
to attract and retain talented and experienced directors and
officers.
At present, there is no pending litigation or proceeding
involving any of our directors or officers where indemnification
will be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim
for such indemnification.
Rule 10b5-1
Sales Plans
Our directors and executive officers may adopt written plans,
known as
Rule 10b5-1
plans, in which they will contract with a broker to buy or sell
shares of our common stock on a periodic basis. Under a
Rule 10b5-1
plan and subject to the
lock-up
agreements described under Underwriting, a broker
executes trades pursuant to parameters established by the
director or officer when entering into the plan, without further
direction from them. The director or officer may amend or
terminate the plan in some circumstances. Our directors and
executive officers may also buy or sell additional shares
outside of a
Rule 10b5-1
plan when they are not in possession of material non-public
information.
136
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Other than the executive officer and director compensation
arrangements discussed above under Executive
Compensation, and the arrangements described below, there
were no transactions since January 1, 2009 to which we have
been a participant, in which the amount involved in the
transaction exceeds or will exceed $120,000 and in which any of
our directors, executive officers or holders of more than 5% of
our capital stock, or any immediate family member of, or person
sharing the household with, any of these individuals, had or
will have a direct or indirect material interest.
Employment
Agreements
We have entered into employment agreements with our executive
officers that provide for certain salary, bonus and severance
compensation. For more information regarding the employment
agreements with our named executive officers, see
Executive CompensationEmployment Agreements
and Executive CompensationPotential Payments upon
Termination or Change in Control.
Stock Option
Awards
For more information regarding stock options awarded to our
named executive officers, see Executive
CompensationOutstanding Equity Awards at Fiscal Year
End.
Indemnification
Agreements
We have agreed to indemnify our directors and officers in
certain circumstances. See Executive
CompensationIndemnification of Officers and
Directors.
Registration
Rights
Certain of our directors, executive officers and holders of more
than 5% of our common stock are party to agreements providing
for rights to register under the Securities Act the resale of
certain shares of our capital stock. For more information
regarding these agreements, see Description of Capital
StockInvestor Rights.
Policies for
Approval of Related Person Transactions
We have adopted a related person transaction approval policy
that will govern the review of related person transactions
following the closing of this offering. Pursuant to this policy,
if we want to enter into a transaction with a related person or
an affiliate of a related person, our general counsel will
review the proposed transaction to determine, based on
applicable NASDAQ and SEC rules, if such transaction requires
pre-approval by the audit committee
and/or board
of directors. If pre-approval is required, such matters will be
reviewed at the next regular or special audit committee
and/or board
of directors meeting. We may not enter into a related person
transaction unless our general counsel has either specifically
confirmed in writing that no further reviews are necessary or
that all requisite corporate reviews have been obtained.
137
PRINCIPAL AND
SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership
information of our common stock at March 31, 2012 and as
adjusted to reflect the sale of the shares of common stock in
this offering, for:
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each person known to us to be the beneficial owner of more than
5% of our common stock;
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each of our named executive officers;
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each of our directors;
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all of our executive officers and directors as a group; and
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each selling stockholder.
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We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the
persons and entities named in the table below have sole voting
and investment power with respect to all shares of common stock
reflected as beneficially owned, subject to applicable community
property laws. We have based our calculation of the percentage
of beneficial ownership prior to this offering on
24,577,346 shares of common stock outstanding on
March 31, 2012, assuming the conversion of our outstanding
preferred stock into 19,828,150 shares of common stock, and
the issuance of an aggregate of 3,577,554 shares of our
common stock upon the exchange of each outstanding exchangeable
common share of Eloqua Corporation for one share of our common
stock in connection with this offering, as described in
Description of Capital StockExchangeable Common
Shares. We have based our calculations of the percentage
of beneficial ownership after this offering
on shares
of our common stock outstanding immediately after the completion
of this offering.
In computing the number of shares of common stock beneficially
owned by a person and the percentage ownership of that person,
we deemed outstanding shares of common stock subject to options
or warrants held by that person that are currently exercisable
or exercisable within 60 days of March 31, 2012. We
did not deem these shares outstanding, however, for the purpose
of computing the percentage ownership of any other person.
Unless otherwise indicated, the address of each beneficial owner
listed in the table below is
c/o Eloqua,
Inc., 1921 Gallows Road, Suite 250, Vienna, VA 22182.
138
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Beneficial
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|
Ownership Prior to
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Address of Beneficial Owner
|
|
this Offering
|
|
|
Offered
|
|
|
Beneficial Ownership After this Offering
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Percent
|
|
|
Number
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
(Assuming No
|
|
|
(Assuming No
|
|
|
(Assuming Full
|
|
|
(Assuming Full
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of
|
|
|
Exercise of
|
|
|
Exercise of
|
|
|
Exercise of
|
|
|
|
|
|
|
|
|
|
|
|
|
Option to
|
|
|
Option to
|
|
|
Option to
|
|
|
Option to
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
Purchase
|
|
|
Purchase
|
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Additional
|
|
|
Additional
|
|
|
Additional
|
|
|
|
Number
|
|
|
Percent
|
|
|
|
|
|
Shares)
|
|
|
Shares)
|
|
|
Shares)
|
|
|
Shares)
|
|
|
5% or Greater Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities affiliated with JMI Equity(1)
|
|
|
8,316,251
|
|
|
|
33.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Entities affiliated with Bay Partners(2)
|
|
|
6,259,314
|
|
|
|
25.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Entities affiliated with Bessemer Venture Partners(3)
|
|
|
5,163,934
|
|
|
|
21.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Steven K. Woods(4)
|
|
|
1,367,263
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Named Executive Officers and Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph P. Payne(5)
|
|
|
1,659,328
|
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Don E. Clarke(6)
|
|
|
336,041
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Alex P. Shootman (7)
|
|
|
244,125
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian E. Kardon(8)
|
|
|
274,665
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Andre H.S. Yee(9)
|
|
|
314,125
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Byron B. Deeter(3)
|
|
|
5,163,934
|
|
|
|
21.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Neal Dempsey(2)
|
|
|
6,259,314
|
|
|
|
25.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
John J. McDonnell, Jr.(10)
|
|
|
68,000
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Reilly
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen M. Swad(11)
|
|
|
18,666
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Bradford D. Woloson(1)
|
|
|
8,316,251
|
|
|
|
33.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
All executive officers and directors as a group
(12 persons)(12)
|
|
|
17,257,850
|
|
|
|
63.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
Other Selling Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Indicates beneficial ownership of less than one percent. |
|
(1) |
|
Consists of 7,706,011 shares held by JMI Equity
Fund IV, L.P. and 610,240 shares held by JMI Equity
Fund IV (AI), L.P. (collectively referred to as the
JMI Entities). JMI Associates IV, L.L.C. is the
general partner of each of the JMI Entities and may be deemed
the beneficial owner of the shares held by the JMI Entities.
Charles E. Noell III, Harry S. Gruner, Paul V. Barber, Robert F.
Smith, Bradford D. Woloson and Peter C. Arrowsmith are managing
members of JMI Associates IV, L.L.C. and may be deemed the
beneficial owners of the shares beneficially owned by JMI
Associates IV, L.L.C. Messrs. Noell, Gruner, Barber, Smith,
Woloson and Arrowsmith disclaim beneficial ownership of the
shares beneficially owned by JMI Associates IV, L.L.C. and the
JMI Entities, except to the extent of their respective pecuniary
interests therein. The address for the JMI Entities is 100
International Drive, Suite 19100, Baltimore, Maryland 21202. |
|
(2) |
|
Consists of 5,930,700 shares held by Bay Partners X, LP and
328,614 shares held by Bay Partners X Entrepreneurs Fund,
LP (collectively referred to as the Bay Entities).
Neal Dempsey and Stuart G. Phillips are the co-Managers of Bay
Management Company X, LLC, the general partner of each of the
Bay Entities. Messrs. Dempsey and Phillips share voting and |
139
|
|
|
|
|
dispositive power over the shares held by the Bay Entities and
disclaim beneficial ownership of such shares except to the
extent of their respective pecuniary interest therein. The
address for the Bay Entities is 490 S. California
Avenue, Suite 200, Palo Alto, California 94306. |
|
|
|
(3) |
|
Consists of 4,440,984 shares held by Bessemer Venture
Partners VII L.P. and 722,950 shares held by Bessemer
Venture Partners VII Institutional L.P. Deer VII & Co.
L.P. is the general partner of each of Bessemer Venture Partners
VII L.P. and Bessemer Venture Partners VII Institutional L.P.
(collectively referred to as the Bessemer Venture Partners
Entities). Deer VII & Co. Ltd is the general
partner of Deer VII & Co. L.P. J. Edmund Colloton,
David J. Cowan, Byron B. Deeter, Robert P. Goodman, Jeremy S.
Levine and Robert M. Stavis are the directors of Deer
VII & Co. Ltd and share voting and dispositive power
over the shares held by the Bessemer Venture Partners Entities,
and each disclaims beneficial ownership of the shares identified
in this footnote except to the extent of his respective
proportionate pecuniary interest in such shares. The address for
Bessemer Venture Partners Entities is 1865 Palmer Avenue,
Suite 104, Larchmont, New York 10538. |
|
|
|
(4) |
|
Includes (i) options to purchase 150,002 shares
exercisable within 60 days of March 31, 2012; and
(ii) warrants to purchase 12,038 shares exercisable
within 60 days of March 31, 2012. |
|
(5) |
|
Includes options to purchase 1,639,328 shares exercisable
within 60 days of March 31, 2012. |
|
(6) |
|
Consists of options to purchase 336,041 shares exercisable
within 60 days of March 31, 2012. |
|
(7) |
|
Consists of options to purchase 244,125 shares exercisable
within 60 days of March 31, 2012. |
|
(8) |
|
Consists of options to purchase 274,665 shares exercisable
within 60 days of March 31, 2012. |
|
(9) |
|
Consists of options to purchase 314,125 shares exercisable
within 60 days of March 31, 2012. |
|
|
|
(10) |
|
Consists of options to purchase 68,000 shares exercisable
within 60 days of March 31, 2012. |
|
|
|
(11) |
|
Consists of options to purchase 18,666 shares exercisable within
60 days of March 31, 2012. |
|
|
|
(12) |
|
Includes options to purchase 2,662,285 shares exercisable
within 60 days of March 31, 2012. |
140
DESCRIPTION OF
CAPITAL STOCK
General
Upon completion of this offering, our authorized capital stock
will consist of 100,000,000 shares of common stock, par
value $0.0001 per share, and 5,000,000 shares of preferred
stock, par value $0.0001 per share. The following description of
our capital stock is intended as a summary only and is qualified
in its entirety by reference to our amended and restated
certificate of incorporation and amended and restated by-laws to
be in effect at the closing of this offering, which are filed as
exhibits to the registration statement, of which this prospectus
forms a part, and to the applicable provisions of the Delaware
General Corporation Law. We refer in this section to our amended
and restated certificate of incorporation as our certificate of
incorporation, and we refer to our amended and restated by-laws
as our by-laws.
Common
Stock
As of March 31, 2012, there were 24,577,346 shares of
our common stock outstanding and held of record by approximately
175 stockholders, assuming the conversion of all outstanding
shares of preferred stock and the exchange of all of the
outstanding exchangeable common shares of Eloqua Corporation for
shares of our common stock.
Holders of our common stock are entitled to one vote for each
share of common stock held of record for the election of
directors and on all matters submitted to a vote of
stockholders. Holders of our common stock are entitled to
receive dividends ratably, if any, as may be declared by our
board of directors out of legally available funds, subject to
any preferential dividend rights of any preferred stock then
outstanding. Upon our dissolution, liquidation or winding up,
holders of our common stock are entitled to share ratably in our
net assets legally available after the payment of all our debts
and other liabilities, subject to the preferential rights of any
preferred stock then outstanding. Holders of our common stock
have no preemptive, subscription, redemption or conversion
rights. The rights, preferences and privileges of holders of
common stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future. Except as
described below in Provisions of our Certificate of
Incorporation and By-Laws and Delaware Anti-Takeover Law,
a majority vote of common stockholders is generally required to
take action under our certificate of incorporation and by-laws.
Preferred
Stock
Upon completion of this offering, our board of directors will be
authorized, without action by the stockholders, to designate and
issue up to an aggregate of 5,000,000 shares of preferred
stock in one or more series. The board of directors can fix the
rights, preferences and privileges of the shares of each series
and any of its qualifications, limitations or restrictions. Our
board of directors may authorize the issuance of preferred stock
with voting or conversion rights that could adversely affect the
voting power or other rights of the holders of common stock. The
issuance of preferred stock, while providing flexibility in
connection with possible future financings and acquisitions and
other corporate purposes could, under certain circumstances,
have the effect of delaying or preventing a change in control of
our company and might harm the market price of our common stock.
Our board of directors will make any determination to issue such
shares based on its judgment as to our best interests and the
best interests of our stockholders. We have no current plans to
issue any shares of preferred stock.
Certain of our stockholders hold, as of the date of this
prospectus, 12,124,650 shares of our Series A preferred
stock, 17,678,926 shares of our Series B preferred
stock and 19,766,821 shares of
141
our Series C preferred stock. Upon completion of this
offering, each share of Series A, Series B and
Series C preferred stock outstanding will be converted into
our common stock on a
2.5-for-1
basis. Holders of substantially all of the shares of our
preferred stock are subject to lock-up agreements with the
underwriters that restrict the sale of our securities for
180 days following the date of this prospectus. See
Underwriting for a description of these lock-up
agreements.
Exchangeable
Common Shares
Certain of our stockholders hold, as of the date of this
prospectus, 3,577,554 exchangeable common shares of Eloqua
Corporation. Initially, certain of these exchangeable shares
were issued, for certain stockholders, to defer the imposition
of certain taxes under Canadian law until such time as the
stockholders elect to exchange or are required to exchange their
exchangeable shares for our common stock as described below. In
connection with this offering, each exchangeable common share of
Eloqua Corporation will be exchanged for one share of our common
stock. This exchange will be triggered by the election of at
least 70% in interest of the outstanding exchangeable common
shares and shares of our common stock that were issued upon
conversion of exchangeable common shares, voting as a single
class. We have received the necessary percentage of irrevocable
elections to exchange, and the exchange will be a condition to
the consummation of this offering. Holders of substantially all
of the exchangeable common shares are subject to
lock-up
agreements with the underwriters that restrict the sale of our
securities for 180 days following the date of this
prospectus. See Underwriting for a description of
these
lock-up
agreements.
Warrants
As of March 31, 2012, warrants to purchase a total of
315,546 shares of our common stock were outstanding with a
weighted average exercise price of $0.60 per share. These
warrants expire beginning in November 2012.
As of March 31, 2012, warrants to purchase a total of
168,750 shares of our Series C preferred stock were
outstanding with an exercise price of $1.20 per share. Warrants
to purchase 75,000 Series C preferred shares, which
will be converted into warrants to purchase 30,000 shares of
common stock upon completion of this offering, are exercisable
immediately and expire at the later of June 2014, or three years
from the date of an initial public offering occurring before
June 2014. Warrants to purchase 93,750 Series C
preferred shares, which will be converted into warrants to
purchase 37,500 shares of common stock upon completion of this
offering, are exercisable immediately and expire in December
2017.
Investor
Rights
We entered into a second amended and restated investor rights
agreement, dated as of September 27, 2007, with the holders
of shares of our common stock issuable upon conversion of the
shares of preferred stock, who we refer to collectively as
holders of registrable shares. These shares will
represent approximately % of our
outstanding common stock after this offering,
or % if the underwriters exercise
their option to purchase additional shares in full. These shares
also may be sold under Rule 144 under the Securities Act,
depending on their holding period and subject to restrictions in
the case of shares held by persons deemed to be our affiliates.
Under this second amended and restated investor rights
agreement, holders of registrable shares can demand that we file
a registration statement or request that their shares be
included on a registration statement that we are otherwise
filing, in either case, registering the resale of their shares
of common stock. These registration rights are subject to
conditions and limitations, including the right, in certain
circumstances, of the underwriters of an offering to limit the
number of shares
142
included in such registration and our right, in certain
circumstances, not to effect a requested registration within
120 days following any offering of our securities,
including this offering.
Demand
Registration Rights
Following the six month anniversary of the closing of this
offering, the holders of at least 50% of our registrable shares
may require us to file a registration statement under the
Securities Act on a
Form S-1,
or S-3, if
available, at our expense with respect to the resale of their
registrable shares, and we are required to use our best efforts
to effect the registration.
Piggyback
Registration Rights
Following the six month anniversary of the closing of this
offering, if we propose to register any of our securities under
the Securities Act for our own account or the account of any
other holder, the holders of registrable shares are entitled to
notice of such registration and to request that we include
registrable shares for resale on such registration statement,
subject to the right of any underwriter to limit the number of
shares included in such registration.
We will pay all registration expenses, other than underwriting
discounts and commissions, related to any demand or piggyback
registration. The registration rights agreement contains
customary
cross-indemnification
provisions, pursuant to which we are obligated to indemnify the
selling stockholders in the event of material misstatements or
omissions in the registration statement attributable to us, and
they are obligated to indemnify us for material misstatements or
omissions attributable to them.
Stockholders
Agreement
We entered into an amended and restated stockholders agreement,
dated as of September 27, 2007, with certain holders of our
preferred and common stock and holders of exchangeable common
shares of Eloqua Corporation. This agreement provides for
certain rights and obligations, such as board composition
requirements, stock transfer restrictions and call rights. This
agreement will terminate upon the completion of this offering;
however, the lock-up provision will survive termination pursuant
to the terms of the agreement. See Shares Eligible for
Future SalesLock-Up Agreements.
Anti-Takeover
Provisions
Certificate of
Incorporation and By-laws
Our amended and restated certificate of incorporation and
amended and restated by-laws will, upon completion of this
offering, include a number of provisions that may have the
effect of encouraging persons considering unsolicited tender
offers or other unilateral takeover proposals to negotiate with
our board of directors rather than pursue non-negotiated
takeover attempts. These provisions include the items described
below.
Board Composition and Filling Vacancies. In
accordance with our certificate of incorporation, our board is
divided into three classes serving staggered three-year terms,
with one class being elected each year. Our certificate of
incorporation also provides that directors may be removed only
for cause and then only by the affirmative vote of the holders
of 75% or more of the shares then entitled to vote at an
election of directors. Furthermore, any vacancy on our board of
directors, however occurring, including a vacancy resulting from
an increase in the size of our board, may only be filled by the
affirmative vote of a majority of our directors then in office
even if less than a quorum.
143
No Written Consent of Stockholders. Our
certificate of incorporation provides that all stockholder
actions are required to be taken by a vote of the stockholders
at an annual or special meeting, and that stockholders may not
take any action by written consent in lieu of a meeting.
Blank Check Preferred Stock. Our certificate
of incorporation provides for 5,000,000 authorized shares of
preferred stock. The existence of authorized but unissued shares
of preferred stock may enable our board of directors to render
more difficult or to discourage an attempt to obtain control of
us by means of a merger, tender offer, proxy contest or
otherwise. For example, if in the due exercise of its fiduciary
obligations, our board of directors were to determine that a
takeover proposal is not in the best interests of us or our
stockholders, our board of directors could cause shares of
preferred stock to be issued without stockholder approval in one
or more private offerings or other transactions that might
dilute the voting or other rights of the proposed acquirer or
insurgent stockholder or stockholder group. In this regard, our
certificate of incorporation grants our board of directors broad
power to establish the rights and preferences of authorized and
unissued shares of preferred stock. The issuance of shares of
preferred stock could decrease the amount of earnings and assets
available for distribution to holders of shares of common stock.
The issuance may also adversely affect the rights and powers,
including voting rights, of these holders and may have the
effect of delaying, deterring or preventing a change in control
of us.
Amendment to By-Laws and Certificate of
Incorporation. As required by the Delaware
General Corporation Law, any amendment of our certificate of
incorporation must first be approved by a majority of our board
of directors and, if required by law or our certificate of
incorporation, thereafter be approved by a majority of the
outstanding shares entitled to vote on the amendment, and a
majority of the outstanding shares of each class entitled to
vote thereon as a class, except that the amendment of the
provisions relating to stockholder action, directors, limitation
of liability and the amendment of our by-laws and certificate of
incorporation must be approved by not less than 75% of the
outstanding shares entitled to vote on the amendment, and not
less than 75% of the outstanding shares of each class entitled
to vote thereon as a class. Our by-laws may be amended by the
affirmative vote of a majority vote of the directors then in
office, subject to any limitations set forth in the by-laws, and
may also be amended by the affirmative vote of at least 75% of
the outstanding shares entitled to vote on the amendment, or, if
the board of directors recommends that the stockholders approve
the amendment, by the affirmative vote of the majority of the
outstanding shares entitled to vote on the amendment, in each
case voting together as a single class.
Meetings of Stockholders. Our by-laws provide
that only a majority of the members of our board of directors
then in office may call special meetings of stockholders and
only those matters set forth in the notice of the special
meeting may be considered or acted upon at a special meeting of
stockholders. Our by-laws limit the business that may be
conducted at an annual meeting of stockholders to those matters
properly brought before the meeting.
Advance Notice Requirements. Our by-laws
establish advance notice procedures with regard to stockholder
proposals relating to the nomination of candidates for election
as directors or new business to be brought before meetings of
our stockholders. These procedures provide that notice of
stockholder proposals must be timely given in writing to our
corporate secretary prior to the meeting at which the action is
to be taken. Generally, to be timely, notice must be received at
our principal executive offices not less than 90 days nor
more than 120 days prior to the first anniversary date of
the annual meeting for the preceding year. The notice must
contain certain information specified in our amended and
restated by-laws. These provisions may have the effect of
precluding the conduct of certain business at a meeting if the
proper procedures are not followed. These provisions may also
discourage or deter a potential acquirer from conducting a
solicitation of proxies to elect the acquirers own slate
of directors or otherwise attempting to obtain control of our
company.
144
Delaware
Law
Upon completion of this offering, we will be subject to the
provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a
business combination with an interested
stockholder for a
three-year
period following the time that this stockholder becomes an
interested stockholder, unless the business combination is
approved in a prescribed manner. A business
combination includes, among other things, a merger, asset
or stock sale or other transaction resulting in a financial
benefit to the interested stockholder. An interested
stockholder is a person who, together with affiliates and
associates, owns, or did own within three years prior to the
determination of interested stockholder status, 15% or more of
the corporations voting stock. Under Section 203, a
business combination between a corporation and an interested
stockholder is prohibited unless it satisfies one of the
following conditions:
|
|
|
|
|
before the stockholder became interested, the board of directors
approved either the business combination or the transaction
which resulted in the stockholder becoming an interested
stockholder;
|
|
|
|
upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the voting stock
outstanding, shares owned by persons who are directors and also
officers, and employee stock plans, in some instances; or
|
|
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at or after the time the stockholder became interested, the
business combination was approved by the board of directors of
the corporation and authorized at an annual or special meeting
of the stockholders by the affirmative vote of at least
two-thirds of the outstanding voting stock which is not owned by
the interested stockholder.
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A Delaware corporation may opt out of these
provisions with an express provision in its original certificate
of incorporation or an express provision in its certificate or
incorporation or bylaws resulting from a stockholders
amendment approved by at least a majority of the outstanding
voting shares. We have not opted out of these provisions. As a
result, mergers or other takeover or change in control attempts
of us may be discouraged or prevented.
NASDAQ Global
Market Listing
We have applied to have our common stock listed on the NASDAQ
Global Market under the trading symbol ELOQ.
Transfer Agent
and Registrar
The transfer agent and registrar for our common stock is
American Stock Transfer & Trust Company, LLC.
145
SHARES ELIGIBLE
FOR FUTURE SALE
Immediately prior to this offering, there was no public market
for our common stock. Future sales of substantial amounts of
common stock in the public market, or the perception that such
sales may occur, could adversely affect the market price of our
common stock. Although we have applied to have our common stock
approved for listing on the NASDAQ Global Market, we cannot
assure you that there will be an active public market for our
common stock.
Upon completion of this offering, we will have outstanding an
aggregate
of shares
of common stock, assuming no exercise by the underwriters of
their option to purchase additional shares and no other exercise
of options or the outstanding warrants
after ,
2012 and giving effect to
(1) shares
of our common stock to be newly issued and sold by us in this
offering; (2) the issuance of an aggregate of
3,577,554 shares of our common stock upon the exchange of
all of the outstanding exchangeable common shares of Eloqua
Corporation, as described in Description of Capital
StockExchangeable Common Shares elsewhere in this
prospectus; and (3) the automatic conversion of all
outstanding shares of our preferred stock into an aggregate of
19,828,150 shares of our common stock in connection with
this offering. Of these
shares, shares
sold in this offering will be freely tradable without
restriction or further registration under the Securities Act,
except for any shares purchased by our affiliates,
as that term is defined in Rule 144 under the Securities
Act, whose sales would be subject to certain limitations and
restrictions described below. The
remaining shares
of common stock outstanding after this offering will be
restricted as a result of securities laws or
lock-up
agreements as described below. Following the expiration of the
lock-up
period, all shares will be eligible for resale in compliance
with Rule 144 or Rule 701. Restricted
securities as defined under Rule 144 were issued and
sold by us in reliance on exemptions from the registration
requirements of the Securities Act. These shares may be sold in
the public market only if registered or pursuant to an exemption
from registration, such as Rule 144 or Rule 701 under
the Securities Act.
Lock-Up
Agreements
We, as well as each of our directors and executive officers, the
selling stockholders and substantially all of our other
stockholders, who collectively own, as
of ,
2012, shares
of our common stock, or % of our
outstanding shares of common stock, have agreed that, without
the prior written consent of J.P. Morgan Securities LLC and
Deutsche Bank Securities Inc. on behalf of the underwriters, we
and they will not, subject to limited exceptions, during the
period ending 180 days after the date of this prospectus,
subject to extension in specified circumstances:
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offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or
exercisable or exchangeable for common stock; or
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enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of our common stock,
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whether any transaction described above is to be settled by
delivery of our common stock or such other securities, in cash
or otherwise. J.P. Morgan Securities LLC and Deutsche Bank
Securities Inc. on behalf of the underwriters will have
discretion in determining if, and when, to release any shares
subject to
lock-up
agreements.
In addition, the 180-day restricted period described above will
also be extended if:
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during the last 17 days of the
180-day
restricted period we issue a release regarding earnings or
regarding material news or events relating to us; or
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146
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prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event. See
Underwriting.
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We do not currently expect any release of shares subject to
lock-up
agreements prior to the expiration of the applicable
lock-up
periods. Upon the expiration of the applicable
lock-up
periods, substantially all of the shares of common stock subject
to such
lock-up
restrictions will become eligible for sale, subject to the
limitations described below.
In addition, pursuant to each of our amended and restated
stockholders agreement and second amended and restated investor
rights agreement, the parties thereto have agreed that, if
requested in writing by the managing underwriters of an initial
public offering of our securities, they will not sell, make any
short sale of, grant any option for the purchase of, or
otherwise dispose of any shares of our stock during the same
180-day restricted period (and any extension thereof) referred
to above. We expect the managing underwriters of this offering
to invoke this written request prior to the completion of this
offering and, accordingly, that the parties to these agreements
will be subject to the related transfer restrictions (including
any extensions thereof).
Holders of approximately 24,865,560 shares of common stock
(including shares of our preferred stock that will be converted
into shares of our common stock upon completion of this
offering), or 99.8% of our outstanding shares of common stock on
an as converted basis, are, collectively, subject to lock-up
restrictions as parties to these agreements or lock-up
agreements with the underwriters.
Rule 144
In general, under Rule 144, once we have been subject to
public company reporting requirements for at least 90 days,
a person who is not deemed to have been one of our affiliates
for purposes of the Securities Act at any time during the
90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least six months, including
the holding period of any prior owner other than our affiliates,
is entitled to sell those shares without complying with the
manner of sale, volume limitation or notice provisions of
Rule 144, subject to compliance with the public information
requirements of Rule 144. If such a person has beneficially
owned the shares proposed to be sold for at least one year,
including the holding period of any prior owner other than our
affiliates, then that person is entitled to sell those shares
without complying with any of the requirements of Rule 144.
In general, under Rule 144, our affiliates or persons
selling shares on behalf of our affiliates are entitled to sell
upon the expiration of the
lock-up and
market standoff agreements described below, within any
three-month period beginning 90 days after the date of this
prospectus, a number of shares that does not exceed the greater
of:
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1% of the number of shares of our common stock then outstanding,
which will equal
approximately shares
immediately after this offering; or
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the average weekly trading volume in our common stock on the
NASDAQ Global Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to such
sale.
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Sales under Rule 144 by our affiliates or persons selling
shares on behalf of our affiliates are also subject to certain
manner of sale provisions and notice requirements and to the
availability of current public information about us.
147
Rule 701
In general, under Rule 701, any of our employees,
consultants or advisors who purchase shares from us in
connection with a compensatory stock or option plan or other
written agreement in a transaction before the effective date of
this offering that was completed in reliance on Rule 701
and complied with the requirements of Rule 701 will,
subject to the restrictions described below, be eligible to
resell such shares 90 days after the date of this
prospectus in reliance on Rule 144, but without compliance
with certain restrictions, including the holding period,
contained in Rule 144.
Stock
Options
We intend to file one or more registration statements on
Form S-8
under the Securities Act to register all shares of common stock
subject to outstanding stock options and common stock issued or
issuable under our stock plans.
Registration
Rights
Upon completion of this offering, the holders of
approximately shares
of our common stock will be eligible to exercise certain rights
with respect to the registration of these shares under the
Securities Act. See Description of Capital
StockInvestor Rights. In addition, the holders of
warrants to purchase 168,750 shares of our Series C
preferred stock (which will be converted into warrants to
purchase 67,500 shares of common stock upon completion of
this offering) will have piggyback registration rights
equivalent to those set forth in our second amended and restated
investor rights agreement and described in Description of
Capital StockInvestor Rights. Upon the effectiveness
of a registration statement covering these shares, the shares
would become freely tradable.
148
MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal
income tax considerations relating to the acquisition, ownership
and disposition of common stock pursuant to this offering. This
summary deals only with common stock held as a capital asset
(within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended, or the Code) by a stockholder, and
does not discuss the U.S. federal income tax considerations
applicable to a stockholder that is subject to special treatment
under U.S. federal income tax laws, including, but not
limited to: a dealer in securities or currencies; a financial
institution; a regulated investment company; a real estate
investment trust; a tax-exempt organization; an insurance
company; a person holding common stock as part of a hedging,
integrated, conversion or straddle transaction or a person
deemed to sell common stock under the constructive sale
provisions of the Code; a trader in securities that has elected
the
mark-to-market
method of accounting; a person liable for alternative minimum
tax; an entity that is treated as a partnership for
U.S. federal income tax purposes; a person that received
such common stock in connection with services provided; a
U.S. person whose functional currency is not
the U.S. dollar; a controlled foreign
corporation; a passive foreign investment
company; or a U.S. expatriate.
This summary is based upon provisions of the Code, and
applicable U.S. Treasury regulations promulgated
thereunder, published rulings and judicial decisions, all as in
effect as of the date hereof. Those authorities may be changed,
perhaps retroactively, or may be subject to differing
interpretations, so as to result in U.S. federal income tax
consequences different from those discussed below. This summary
does not address all aspects of U.S. federal income tax,
does not deal with all tax considerations that may be relevant
to stockholders in light of their personal circumstances and
does not address the Medicare tax imposed on certain investment
income or any state, local, foreign, gift, estate or alternative
minimum tax considerations.
For purposes of this discussion, a U.S. holder
is a beneficial holder of common stock that is: an individual
citizen or resident of the United States; a corporation (or any
other entity treated as a corporation for U.S. federal
income tax purposes) created or organized in or under the laws
of the United States, any state thereof or the District of
Columbia; an estate the income of which is subject to
U.S. federal income taxation regardless of its source; a
trust if it (1) is subject to the primary supervision of a
court within the United States and one or more U.S. persons
have the authority to control all substantial decisions of the
trust or (2) has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a
U.S. person.
For purposes of this discussion a
non-U.S. holder is a beneficial holder of
common stock that is neither a U.S. holder nor a
partnership (or any other entity or arrangement that is treated
as a partnership) for U.S. federal income tax purposes.
However, neither the term U.S. holder nor the term
non-U.S. holder includes any entity or other person that is
subject to special treatment under the Code.
If a partnership (or an entity or arrangement that is treated as
a partnership for U.S. federal income tax purposes) holds
common stock, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the
partnership. A partner of a partnership holding common stock is
urged to consult its own tax advisors.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THEIR PARTICULAR U.S. FEDERAL INCOME
TAX CONSEQUENCES IN LIGHT OF THEIR SPECIFIC SITUATIONS, AS WELL
AS THE TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR
NON-U.S. TAX
LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS (INCLUDING THE
U.S. FEDERAL ESTATE AND GIFT TAX LAWS).
149
U.S.
Holders
Distributions on our Common
Stock. Distributions with respect to common
stock, if any, will be includible in the gross income of a
U.S. holder as ordinary dividend income to the extent paid
out of current or accumulated earnings and profits, as
determined for U.S. federal income tax purposes. Any
portion of a distribution in excess of current or accumulated
earnings and profits will be treated as a return of capital and
will first be applied to reduce the holders tax basis in
its common stock, but not below zero. Any remaining amount will
then be treated as gain from the sale or exchange of the common
stock and will be treated as described under the section
entitled Disposition of our Common Stock
below. Under current law, if certain requirements are met, a
maximum 15% U.S. federal income tax rate will apply to any
dividends paid to a holder of common stock who is a
U.S. individual and that is included in the
U.S. holders income prior to January 1, 2013.
Distributions constituting dividends for U.S. federal
income tax purposes to U.S. holders that are corporations
may qualify for the 70% dividends received deduction, or DRD,
which is generally available to corporate stockholders that own
less than 20% of the voting power or value of the outstanding
stock of the distributing corporation. A U.S. holder that
is a corporate stockholder holding 20% or more of the
distributing corporation may be eligible for an 80% DRD. No
assurance can be given that we will have sufficient earnings and
profits (as determined for U.S. federal income tax
purposes) to cause any distributions to be treated as dividends
eligible for a DRD. In addition, a DRD is available only if
certain holding periods and other taxable income requirements
are satisfied. The length of time that a stockholder has held
stock is reduced by any period during which the
stockholders risk of loss with respect to the stock is
diminished by reason of the existence of certain options,
contracts to sell, short sales, or other similar transactions.
Also, to the extent that a corporation incurs indebtedness that
is directly attributable to an investment in the stock on which
the dividend is paid, all or a portion of the DRD may be
disallowed. In addition, any dividend received by a corporation
may also be subject to the extraordinary distribution provisions
of the Code.
Disposition of our Common Stock. A
U.S. holder of common stock will generally recognize gain
or loss on the taxable sale, exchange, or other disposition of
such stock in an amount equal to the difference between such
U.S. holders amount realized on the sale and its tax
basis in the common stock sold. A U.S. holders amount
realized will generally equal the amount of cash and the fair
market value of any property received in consideration of its
stock. The gain or loss will generally be capital gain or loss
if the U.S. holder holds the common stock as a capital
asset, and will generally be
long-term
capital gain or loss if the common stock is held for more than
one year at the time of disposition. Capital loss can generally
only be used to offset capital gain (individuals may also offset
excess capital losses against up to $3,000 of ordinary income
per tax year). Under current law, long-term capital gain
recognized by an individual U.S. holder prior to
January 1, 2013 is subject to a maximum 15%
U.S. federal income tax rate (currently scheduled to
increase to 20% after December 31, 2012).
Non-U.S.
Holders
Distributions on our Common
Stock. Distributions with respect to common
stock, if any, generally will constitute dividends for
U.S. federal income tax purposes to the extent paid out of
current or accumulated earnings and profits, as determined for
U.S. federal income tax purposes. Any portion of a
distribution in excess of current or accumulated earnings and
profits will be treated as a return of capital and will first be
applied to reduce the holders tax basis in its common
stock, but not below zero. Any remaining amount will then be
treated as gain from the sale or exchange of the common stock
and will be treated as described under the section entitled
Disposition of our Common Stock below.
150
Distributions treated as dividends that are paid to a
non-U.S. holder,
if any, with respect to the shares of common stock will be
subject to U.S. federal withholding tax at a rate of 30%
(or lower applicable income tax treaty rate) of the gross amount
of the dividends unless the dividends are effectively connected
with the
non-U.S. holders
conduct of a trade or business in the United States. If a
non-U.S. holder
is engaged in a trade or business in the United States and
dividends with respect to the common stock are effectively
connected with the conduct of that trade or business and, if
required by an applicable income tax treaty, are attributable to
a U.S. permanent establishment, then although the
non-U.S. holder
will generally be exempt from the 30% U.S. federal
withholding tax provided certain certification requirements are
satisfied, the
non-U.S. holder
will be subject to U.S. federal income tax on those
dividends on a net income basis at the regular graduated
U.S. federal income tax rates in the same manner as if such
holder were a resident of the United States. Any such
effectively connected income received by a foreign corporation
may, under certain circumstances, be subject to an additional
branch profits tax equal to 30% (or lower applicable income tax
treaty rate) of its effectively connected earnings and profits
for the taxable year, as adjusted under the Code. To claim the
exemption from withholding with respect to any such effectively
connected income, the
non-U.S. holder
must generally furnish to us or our paying agent a properly
executed IRS
Form W-8ECI
(or applicable successor form).
A
non-U.S. holder
of shares of common stock who wishes to claim the benefit of an
exemption or reduced rate of withholding tax under an applicable
treaty must furnish to us or our paying agent a valid IRS
Form W-8BEN
(or applicable successor form) certifying such holders
qualification for the exemption or reduced rate. If a
non-U.S. holder
is eligible for a reduced rate of U.S. withholding tax
pursuant to an income tax treaty, it may obtain a refund of any
excess amounts withheld by filing an appropriate claim for
refund with the Internal Revenue Service.
Non-U.S. holders
are urged to consult their tax advisors regarding their
entitlement to benefits under a relevant income tax treaty.
Disposition of our Common
Stock. Non-U.S. holders
may recognize gain upon the sale, exchange, redemption or other
taxable disposition of common stock. Such gain generally will
not be subject to U.S. federal income tax unless:
(i) that gain is effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States (and, if
required by an applicable income tax treaty, is attributable to
a U.S. permanent establishment maintained by the
non-U.S. holder);
(ii) the
non-U.S. holder
is a non-resident alien individual who is present in the United
States for 183 days or more in the taxable year of that
disposition, and certain other conditions are met; or
(iii) we are or have been a U.S. real property
holding corporation, or USRPHC, for U.S. federal
income tax purposes, at any time during the shorter of the
five-year period preceding the date of disposition or the
holders holding period for our common stock, and certain
other requirements are met. We believe that we are not and we do
not anticipate becoming a U.S. real property holding
corporation for U.S. federal income tax purposes.
If a
non-U.S. holder
is an individual described in clause (i) of the preceding
paragraph, the
non-U.S. holder
will generally be subject to tax on a net income basis at the
regular graduated U.S. federal individual income tax rates
in the same manner as if such holder were a resident of the
United States, unless an applicable income tax treaty provides
otherwise. If the
non-U.S. holder
is an individual described in clause (ii) of the preceding
paragraph, the
non-U.S. holder
will generally be subject to a flat 30% tax on the gain, which
may be offset by U.S. source capital losses even though the
non-U.S. holder
is not considered a resident of the United States, provided that
the
non-U.S. holder
has timely filed U.S. federal income tax returns with
respect to such losses. If a
non-U.S. holder
is a foreign corporation that falls under clause (i) of the
preceding paragraph, it will be subject to tax on a net income
basis at the regular graduated U.S. federal corporate
income tax rates in the same manner as if it were a resident of
the United States and, in addition, the
non-U.S. holder
may be subject to the branch profits tax at a rate equal to 30%
(or lower applicable income tax treaty rate) of its effectively
connected earnings and profits.
151
Information
Reporting and Backup Withholding Tax
We report to our U.S. holders and the IRS the amount of
dividends paid during each calendar year, and the amount of any
tax withheld. All distributions to holders of common stock are
subject to any applicable withholding. Under U.S. federal
income tax law, interest, dividends, and other reportable
payments may, under certain circumstances, be subject to
backup withholding at the then applicable rate
(currently 28%). Backup withholding generally applies to a
U.S. holder if the holder (i) fails to furnish its
social security number or other taxpayer identification number,
or TIN, (ii) furnishes an incorrect TIN, (iii) fails
to properly report interest or dividends, or (iv) under
certain circumstances, fails to provide a certified statement,
signed under penalty of perjury, that the TIN provided is its
correct number and that it is a U.S. person that is not
subject to backup withholding. Backup withholding is not an
additional tax but merely an advance payment, which may be
refunded to the extent it results in an overpayment of tax and
the appropriate information is timely supplied to the IRS.
Certain persons are exempt from backup withholding, including,
in certain circumstances, financial institutions.
We also report to our
non-U.S. holders
and the IRS the amount of dividends paid during each calendar
year, and the amount of any tax withheld. These information
reporting requirements apply even if no withholding was required
because the distributions were effectively connected with the
non-U.S. holders
conduct of a United States trade or business, or withholding was
reduced or eliminated by an applicable income tax treaty. This
information also may be made available under a specific treaty
or agreement with the tax authorities in the country in which
the
non-U.S. holder
resides or is established. Backup withholding, however,
generally will not apply to distributions to a
non-U.S. holder
of our common stock provided the
non-U.S. holder
furnishes to us or our paying agent the required certification
as to its
non-U.S. status,
such as by providing a valid IRS
Form W-8BEN
or IRS
Form W-8ECI,
or certain other requirements are met. Notwithstanding the
foregoing, backup withholding may apply if either we or our
paying agent has actual knowledge, or reason to know, that the
holder is a U.S. person that is not an exempt recipient.
New Legislation
Relating to Foreign Accounts
Newly enacted legislation may impose withholding taxes on
certain types of payments made to foreign financial
institutions and certain other
non-U.S. entities.
Under this legislation, the failure to comply with additional
certification, information reporting and other specified
requirements could result in withholding tax being imposed on
payments of dividends and sales proceeds to U.S. holders
who own the shares through foreign accounts or foreign
intermediaries and certain
non-U.S. holders.
The legislation imposes a 30% withholding tax on dividends on,
and gross proceeds from the sale or other disposition of, our
common stock paid to a foreign financial institution or to a
foreign non-financial entity, unless (i) the foreign
financial institution undertakes certain diligence and reporting
obligations or (ii) the foreign non-financial entity either
certifies it does not have any substantial United States owners
or furnishes identifying information regarding each substantial
United States owner. If the payee is a foreign financial
institution, it must enter into an agreement with the United
States Treasury requiring, among other things, that it undertake
to identify accounts held by certain United States persons or
United States-owned foreign entities, annually report certain
information about such accounts, and withhold 30% on payments to
account holders whose actions prevent it from complying with
these reporting and other requirements. Although this
legislation currently applies to applicable payments made after
December 31, 2012, in recent guidance, the IRS has
indicated that Treasury regulations will be issued providing
that the withholding provisions described above will apply to
payments of dividends on our common stock made on or after
January 1, 2014 and to payments of gross proceeds from a
sale or other disposition of such common stock on or after
January 1, 2015. Prospective investors should consult their
tax advisors regarding this legislation.
152
UNDERWRITING
We and the selling stockholders are offering the shares of
common stock described in this prospectus through a number of
underwriters. J.P. Morgan Securities LLC and Deutsche Bank
Securities Inc. are acting as joint book-running managers of the
offering and as representatives of the underwriters. We and the
selling stockholders have entered into an underwriting agreement
with the underwriters. Subject to the terms and conditions of
the underwriting agreement, we and the selling stockholders have
agreed to sell to the underwriters, and each underwriter has
severally agreed to purchase, at the public offering price less
the underwriting discounts and commissions set forth on the
cover page of this prospectus, the number of shares of common
stock listed next to its name in the following table:
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Number
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of
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Name
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Shares
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J.P. Morgan Securities LLC
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Deutsche Bank Securities Inc.
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JMP Securities LLC
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Needham & Company, LLC
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Pacific Crest Securities LLC
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Total
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The underwriters are committed to purchase all the common shares
offered by us and the selling stockholders if they purchase any
shares. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting
underwriters may also be increased or the offering may be
terminated.
The underwriters propose to offer the common shares directly to
the public at the initial public offering price set forth on the
cover page of this prospectus and to certain dealers at that
price less a concession not in excess of
$ per share. Any such dealers may
resell shares to certain other brokers or dealers at a discount
of up to $ per share from the
initial public offering price. After the initial public offering
of the shares, the offering price and other selling terms may be
changed by the underwriters. Sales of shares made outside of the
United States may be made by affiliates of the underwriters.
The underwriters have an option to buy up
to
additional shares of common stock from us and up to an
additional shares
from the selling stockholders to cover sales of shares by the
underwriters that exceed the number of shares specified in the
table above. The underwriters have 30 days from the date of
this prospectus to exercise this option to purchase additional
shares. If any shares are purchased with this option to purchase
additional shares, the underwriters will purchase shares in
approximately the same proportion as shown in the table above.
If any additional shares of common stock are purchased, the
underwriters will offer the additional shares on the same terms
as those on which the shares are being offered.
The underwriting fee is equal to the public offering price per
share of common stock less the amount paid by the underwriters
to us and the selling stockholders per share of common stock.
The underwriting fee is $ per
share. The following table shows the per share and total
underwriting discounts and commissions that we and the selling
stockholders are to pay to the underwriters in connection with
this offering. These amounts are shown assuming both no exercise
and full exercise
153
of the underwriters option to
purchase
additional shares from us
and
additional shares from the selling stockholders,
or
additional shares in the aggregate.
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Paid by the
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Paid by Us
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Selling Stockholders
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Total
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No
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Full
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No
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Full
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No
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Full
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Exercise
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Exercise
|
|
Exercise
|
|
Exercise
|
|
Exercise
|
|
Exercise
|
|
Per share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
We estimate that the total expenses of this offering, including
registration, filing and listing fees, printing fees and legal
and accounting expenses, but excluding the underwriting
discounts and commissions, will be approximately
$ .
A prospectus in electronic format may be made available on the
web sites maintained by one or more underwriters, or selling
group members, if any, participating in the offering. The
underwriters may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the representatives to underwriters and selling
group members that may make Internet distributions on the same
basis as other allocations.
We have agreed that we will not (i) offer, pledge, announce
the intention to sell, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or
otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement
under the Securities Act relating to, any shares of our common
stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, or publicly
disclose the intention to make any offer, sale, pledge,
disposition or filing, or (ii) enter into any swap or other
arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any shares of
common stock or any such other securities (regardless of whether
any of these transactions are to be settled by the delivery of
shares of common stock or such other securities, in cash or
otherwise), in each case without the prior written consent of
J.P. Morgan Securities LLC and Deutsche Bank Securities
Inc. for a period of 180 days after the date of this
prospectus, other than the shares of our common stock to be sold
hereunder and any shares of our common stock issued upon the
exercise of options granted under our existing equity
compensation plans outstanding as of the date hereof.
Notwithstanding the foregoing, if (1) during the last
17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to our company occurs; or
(2) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
Our directors and executive officers, and substantially all of
our stockholders have entered into
lock-up
agreements with the underwriters prior to the commencement of
this offering pursuant to which each of these persons or
entities, with limited exceptions, for a period of 180 days
after the date of this prospectus, may not, without the prior
written consent of J.P. Morgan Securities LLC and Deutsche
Bank Securities Inc., (1) offer, pledge, announce the
intention to sell, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of
our common stock or any securities convertible into or
exercisable or exchangeable for our common stock (including,
without limitation, common stock or such other securities which
may be deemed to be beneficially owned by such directors,
executive officers, managers and members in accordance with the
rules and regulations of the SEC and securities which may be
issued upon exercise of a stock
154
option or warrant) or (2) enter into any swap or other
agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the common stock or such
other securities, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery
of common stock or such other securities, in cash or otherwise,
or (3) make any demand for or exercise any right with
respect to the registration of any shares of our common stock or
any security convertible into or exercisable or exchangeable for
our common stock. Notwithstanding the foregoing, if
(1) during the last 17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to our company occurs; or
(2) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
The restrictions in the previous paragraph do not apply to:
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|
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the sale of shares to the underwriters in connection with the
offering;
|
|
|
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transfers of shares of our common stock or other securities as a
bona fide gift or gifts;
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transfers of shares of our common stock or other securities to a
trust or limited family partnership for the direct or indirect
benefit transferor or the immediate family of the transferor;
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transfers of shares of our common stock or other securities by
will, other testamentary document or intestate succession to the
legal representative, heir, beneficiary or a member of the
immediate family of the transferor in a transaction not
involving a disposition for value;
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the exercise, including by net exercise, of any
options or warrants to acquire shares of our common stock or the
conversion of any convertible security into our common stock;
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|
|
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the sale or transfer to our company of such number of shares of
our common stock acquired in connection with the exercise of
options or warrants on a net exercise basis
described in the foregoing bullet necessary to generate only
such amount of cash needed for the payment of taxes (including
estimated taxes) due as a result of the exercise of such options
or warrant;
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transfers or distributions of shares of our common stock to
members, limited partners, stockholders or affiliates of, or any
investment fund or other entity that controls or manages, the
party to the
lock-up
agreement, provided that the transfer or distribution shall not
involve a disposition for value;
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transactions relating to shares of our common stock or any
security convertible into our common stock acquired in open
market transactions after the completion of this offering,
provided that no filing under Section 16(a) of the Exchange
Act is required or shall be made during the
180-day
period referred to above (including any extension thereof) in
connection with subsequent sales of our common stock or any
security convertible into our common stock acquired in such open
market transactions; and
|
|
|
|
the issuance and sale by our company of shares of our common
stock in connection with bona fide acquisitions in an aggregate
amount not to exceed 5% of the issued and outstanding shares of
our common stock immediately following this offering;
|
provided that in the case of any transfer or distribution
pursuant to the second, third, fourth, seventh and ninth bullets
above, each donee, distributee or transferee, as applicable,
shall execute and deliver to J.P. Morgan Securities LLC and
Deutsche Bank Securities Inc. a
lock-up
agreement; and provided, further, that in the case of any
transfer or distribution pursuant to the second, third, fourth
and seventh bullets above, no filing by any party (donor, donee,
transferor or transferee) under the Exchange Act
155
or other public announcement shall be required or shall be made
voluntarily in connection with such transfer or distribution
(other than a filing on a Form 5 made after the expiration
of the
180-day
period referred to above).
In addition, pursuant to each of our amended and restated
stockholders agreement and second amended and restated investor
rights agreement, the parties thereto have agreed that, if
requested in writing by the managing underwriters of an initial
public offering of our securities, they will not sell, make any
short sale of, grant any option for the purchase of, or
otherwise dispose of any shares of our stock during the same
180-day
restricted period (and any extension thereof) referred to above.
Holders of approximately 24,865,560 shares of common stock
(including shares of our preferred stock that will be converted
into shares of our common stock upon completion of this
offering), or 99.8% of our outstanding shares of common stock on
an as-converted basis, are, collectively, parties to these
agreements. In addition to the
lock-up
agreements with the underwriters referred to above, we expect
the managing underwriters of this offering to invoke this
written request prior to the completion of this offering and,
accordingly, that the parties to these agreements will be
subject to the related transfer restrictions (including any
extensions thereof).
At our request, the underwriters have reserved for sale, at the
initial public offering price, up
to % of the shares offered by this
prospectus for sale to some of our directors, officers,
employees and certain other persons who are otherwise associated
with us through a directed share program. If these persons
purchase reserved shares, this will reduce the number of shares
available for sale to the general public. The transfer
restrictions contained in the
lock-up
agreements with the underwriters referred to above shall also
apply to any shares purchased in the directed share program.
However, participants in the directed share program who are not
officers, directors, employees or current stockholders of our
company will not be required to enter into a lock-up agreement
with the underwriters relating to the shares so purchased. Any
reserved shares that are not purchased will be offered by the
underwriters to the general public on the same terms as the
other shares offered by this prospectus.
The representatives of the underwriters in their sole discretion
may release any of the securities subject to such
lock-up
agreements at any time which, in the case of officers and
directors, shall be with notice.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933.
We have applied to have our common stock approved for
listing/quotation on the NASDAQ Global Market under the symbol
ELOQ.
In connection with this offering, the underwriters may engage in
stabilizing transactions, which involves making bids for,
purchasing and selling shares of common stock in the open market
for the purpose of preventing or retarding a decline in the
market price of the common stock while this offering is in
progress. These stabilizing transactions may include making
short sales of the common stock, which involves the sale by the
underwriters of a greater number of shares of common stock than
they are required to purchase in this offering, and purchasing
shares of common stock on the open market to cover positions
created by short sales. Short sales may be covered
shorts, which are short positions in an amount not greater than
the underwriters option to purchase additional shares
referred to above, or may be naked shorts, which are
short positions in excess of that amount. The underwriters may
close out any covered short position either by exercising their
option to purchase additional shares, in whole or in part, or by
purchasing shares in the open market. In making this
determination, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market compared to the price at which the underwriters may
purchase shares through the option to purchase additional
shares. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the
156
price of the common stock in the open market that could
adversely affect investors who purchase in this offering. To the
extent that the underwriters create a naked short position, they
will purchase shares in the open market to cover the position.
The underwriters have advised us that, pursuant to
Regulation M of the Securities Act of 1933, they may also
engage in other activities that stabilize, maintain or otherwise
affect the price of the common stock, including the imposition
of penalty bids. This means that if the representatives of the
underwriters purchase common stock in the open market in
stabilizing transactions or to cover short sales, the
representatives can require the underwriters that sold those
shares as part of this offering to repay the underwriting
discount received by them.
These activities may have the effect of raising or maintaining
the market price of the common stock or preventing or retarding
a decline in the market price of the common stock, and, as a
result, the price of the common stock may be higher than the
price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue
them at any time. The underwriters may carry out these
transactions on the NASDAQ Global Market, in the
over-the-counter
market or otherwise.
Prior to this offering, there has been no public market for our
common stock. The initial public offering price will be
determined by negotiations between us, the selling stockholders
and the representatives of the underwriters. In determining the
initial public offering price, we, the selling stockholders and
the representatives of the underwriters expect to consider a
number of factors including:
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the information set forth in this prospectus and otherwise
available to the representatives;
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our prospects and the history and prospects for the industry in
which we compete;
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an assessment of our management;
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our prospects for future earnings;
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the general condition of the securities markets at the time of
this offering;
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|
the recent market prices of, and demand for, publicly traded
common stock of generally comparable companies; and
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|
other factors deemed relevant by the underwriters, the selling
stockholders and us.
|
Neither we, the selling stockholders nor the underwriters can
assure investors that an active trading market will develop for
our common shares, or that the shares will trade in the public
market at or above the initial public offering price.
Other than in the United States, no action has been taken by us
or the underwriters that would permit a public offering of the
securities offered by this prospectus in any jurisdiction where
action for that purpose is required. The securities offered by
this prospectus may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering
material or advertisements in connection with the offer and sale
of any such securities be distributed or published in any
jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that
jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and to observe any
restrictions relating to the offering and the distribution of
this prospectus. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities offered
by this prospectus in any jurisdiction in which such an offer or
a solicitation is unlawful.
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities,
157
and other persons to whom it may lawfully be communicated,
falling with Article 49(2)(a) to (d) of the Order (all
such persons together being referred to as relevant
persons). The securities are only available to, and any
invitation, offer or agreement to subscribe, purchase or
otherwise acquire such securities will be engaged in only with,
relevant persons. Any person who is not a relevant person should
not act or rely on this document or any of its contents.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), from and including the date
on which the European Union Prospectus Directive (the EU
Prospectus Directive) is implemented in that Relevant
Member State (the Relevant Implementation Date) an
offer of securities described in this prospectus may not be made
to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the shares which has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the EU Prospectus
Directive, except that it may, with effect from and including
the Relevant Implementation Date, make an offer of shares to the
public in that Relevant Member State at any time:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the EU Prospectus Directive) subject to
obtaining the prior consent of the book-running managers for any
such offer; or
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in any other circumstances which do not require the publication
by the Issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
|
For the purposes of this provision, the expression an
offer of securities to the public in relation to any
securities in any Relevant Member State means the communication
in any form and by any means of sufficient information on the
terms of the offer and the securities to be offered so as to
enable an investor to decide to purchase or subscribe for the
securities, as the same may be varied in that Member State by
any measure implementing the EU Prospectus Directive in that
Member State and the expression EU Prospectus Directive means
Directive 2003/71/EC and includes any relevant implementing
measure in each Relevant Member State.
Certain of the underwriters and their affiliates have provided
in the past to us and our affiliates and may provide from time
to time in the future certain commercial banking, financial
advisory, investment banking and other services for us and such
affiliates in the ordinary course of their business, for which
they have received and may continue to receive customary fees
and commissions. In addition, from time to time, certain of the
underwriters and their affiliates may effect transactions for
their own account or the account of customers, and hold on
behalf of themselves or their customers, long or short positions
in our debt or equity securities or loans, and may do so in the
future.
158
LEGAL
MATTERS
Goodwin Procter LLP, Boston, Massachusetts, will pass upon the
validity of the shares of common stock offered hereby.
Latham & Watkins LLP, Washington, District of
Columbia, will pass upon legal matters relating to this offering
for the underwriters.
EXPERTS
The consolidated financial statements and schedule of Eloqua,
Inc. and subsidiaries as of December 31, 2011 and 2010 and
for each of the years in the three-year period ended
December 31, 2011 have been included herein and in the
registration statement in reliance on the report of KPMG LLP, an
independent registered public accounting firm, appearing
elsewhere herein, and upon the authority of said firm as experts
in accounting and auditing.
Timan, LLC, an independent valuation services firm, has given
its opinion, set forth in its valuation reports described in
this prospectus as to the fair value of our common stock as of
the dates set forth in the valuation reports. Additionally,
Timan, LLC has consented to the references in this registration
statement and to its valuation reports.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act that registers the shares of our common
stock to be sold in this offering. This prospectus does not
contain all of the information set forth in the registration
statement and the exhibits and schedules filed as part of the
registration statement. For further information with respect to
us and our common stock, we refer you to the registration
statement and the exhibits and schedules filed as a part of the
registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document
are not necessarily complete. If a contract or document has been
filed as an exhibit to the registration statement, we refer you
to the copy of the contract or document that has been filed.
Each statement in this prospectus relating to a contract or
document filed as an exhibit is qualified in all respects by the
filed exhibit. The reports and other information we file with
the SEC can be read and copied at the SECs Public
Reference Room at 100 F Street, NE, Washington D.C.
20549. Copies of these materials can be obtained at prescribed
rates from the Public Reference Section of the SEC at the
principal offices of the SEC, 100 F Street, NE,
Washington D.C. 20549. You may obtain information regarding the
operation of the public reference room by calling
1-(800)-SEC-0330. The SEC also maintains a web site
(www.sec.gov) that contains reports, proxy and information
statements and other information regarding issuers like us that
file electronically with the SEC.
Upon completion of this offering, we will become subject to the
reporting and information requirements of the Securities
Exchange Act of 1934, as amended, and, as a result, will file
periodic reports, proxy statements and other information with
the SEC. These periodic reports, proxy statements and other
information will be available for inspection and copying at the
SECs public reference room and the web site of the SEC
referred to above.
159
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
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Page
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F-2
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F-3
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F-4
|
|
|
|
|
F-5
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|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
Consolidated Balance Sheets as of March 31, 2012 (unaudited)
|
|
|
F-32
|
|
Consolidated Statements of Operations for the three months ended
March 31, 2011 and 2012 (unaudited)
|
|
|
F-33
|
|
Consolidated Statements of Cash Flows for the three months ended
March 31, 2011 and 2012 (unaudited)
|
|
|
F-34
|
|
Notes to Consolidated Financial Statements for the three months
ended March 31, 2011 and 2012 (unaudited)
|
|
|
F-35
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F-44
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Eloqua, Inc.:
We have audited the accompanying consolidated balance sheets of
Eloqua, Inc. and subsidiaries as of December 31, 2010 and
2011, and the related consolidated statements of operations,
stockholders deficit and cash flows for each of the years
in the three-year period ended December 31, 2011. In
connection with our audits of the consolidated financial
statements, we also have audited financial statement
Schedule II. These consolidated financial statements and
financial statement schedule are the responsibility of the
companys management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Eloqua, Inc. and subsidiaries as of
December 31, 2010 and 2011, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2011, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
McLean, Virginia
March 29, 2012
(except as to the fifth paragraph in
Note 11 to the consolidated financial statements,
which is as of May 3, 2012)
F-2
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2010
|
|
|
2011
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,549
|
|
|
$
|
7,240
|
|
Accounts receivable, net of reserve of $950 and $725,
respectively
|
|
|
15,866
|
|
|
|
18,228
|
|
Deferred commissions and other deferred costs
|
|
|
2,641
|
|
|
|
2,680
|
|
Deferred tax asset
|
|
|
722
|
|
|
|
781
|
|
Prepaid expenses and other assets
|
|
|
2,051
|
|
|
|
4,153
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
28,829
|
|
|
|
33,082
|
|
Property and equipment (note 3), net of depreciation and
amortization
|
|
|
2,868
|
|
|
|
3,721
|
|
Deferred commissions and other deferred costs
|
|
|
882
|
|
|
|
902
|
|
Deferred tax asset
|
|
|
4,176
|
|
|
|
3,800
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
36,755
|
|
|
$
|
41,505
|
|
|
|
|
|
|
|
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|
|
Liabilities, redeemable preferred stock, and
stockholders deficit
|
|
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|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,823
|
|
|
$
|
3,263
|
|
Accrued and other current liabilities
|
|
|
7,365
|
|
|
|
11,337
|
|
Deferred revenue
|
|
|
25,371
|
|
|
|
28,863
|
|
Current portion of long-term debt (note 4)
|
|
|
208
|
|
|
|
834
|
|
Current portion of obligations under capital leases (note 5)
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
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|
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35,005
|
|
|
|
44,297
|
|
Long-term debt, net of current portion (note 4)
|
|
|
2,292
|
|
|
|
1,458
|
|
Obligations under capital leases, net of current portion
(note 5)
|
|
|
83
|
|
|
|
|
|
Noncurrent deferred revenue and other liabilities
|
|
|
1,672
|
|
|
|
1,943
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
39,052
|
|
|
|
47,698
|
|
|
|
|
|
|
|
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|
Redeemable convertible preferred stock (notes 7 and 8):
|
|
|
|
|
|
|
|
|
Series A preferred stock, $0.0001 par value,
12,124,650 shares authorized, issued and outstanding at
December 31, 2010 and 2011; liquidation preference of
$39,406 at December 31, 2011
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|
|
15,641
|
|
|
|
39,406
|
|
Series B preferred stock, $0.0001 par value,
17,678,926 shares authorized, issued and outstanding at
December 31, 2010 and 2011; liquidation preference of
$57,456 at December 31, 2011
|
|
|
22,806
|
|
|
|
57,456
|
|
Series C preferred stock, $0.0001 par value,
21,483,563 shares authorized and 19,766,821 issued and
outstanding at December 31, 2010 and 2011; liquidation
preference of $64,242 at December 31, 2011
|
|
|
32,999
|
|
|
|
64,242
|
|
|
|
|
|
|
|
|
|
|
Total redeemable convertible preferred stock
|
|
|
71,446
|
|
|
|
161,104
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit (notes 6, 7 and 8):
|
|
|
|
|
|
|
|
|
Eloqua, Inc. stockholders deficit:
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 90,000,000 share
authorized, 571,524 and 1,063,368 shares issued and
outstanding at December 31, 2010 and 2011
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(75,733
|
)
|
|
|
(169,259
|
)
|
|
|
|
|
|
|
|
|
|
Total Eloqua, Inc. stockholders deficit:
|
|
|
(75,733
|
)
|
|
|
(169,259
|
)
|
Noncontrolling interest
|
|
|
1,990
|
|
|
|
1,962
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit:
|
|
|
(73,743
|
)
|
|
|
(167,297
|
)
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (notes 9 and 11)
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable preferred stock and
stockholders deficit
|
|
$
|
36,755
|
|
|
$
|
41,505
|
|
|
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
$
|
37,543
|
|
|
$
|
47,225
|
|
|
$
|
63,222
|
|
Professional services
|
|
|
3,415
|
|
|
|
3,574
|
|
|
|
8,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
40,958
|
|
|
|
50,799
|
|
|
|
71,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
|
6,423
|
|
|
|
9,569
|
|
|
|
12,330
|
|
Professional services
|
|
|
5,284
|
|
|
|
6,980
|
|
|
|
10,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
11,707
|
|
|
|
16,549
|
|
|
|
23,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
29,251
|
|
|
|
34,250
|
|
|
|
48,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8,607
|
|
|
|
10,363
|
|
|
|
11,679
|
|
Marketing and sales
|
|
|
17,321
|
|
|
|
22,147
|
|
|
|
29,481
|
|
General and administrative
|
|
|
7,348
|
|
|
|
7,879
|
|
|
|
12,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
33,276
|
|
|
|
40,389
|
|
|
|
53,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,025
|
)
|
|
|
(6,139
|
)
|
|
|
(5,068
|
)
|
Other expense, net
|
|
|
(107
|
)
|
|
|
(241
|
)
|
|
|
(707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit (expense)
|
|
|
(4,132
|
)
|
|
|
(6,380
|
)
|
|
|
(5,775
|
)
|
Income tax benefit (expense) (note 10)
|
|
|
(81
|
)
|
|
|
4,869
|
|
|
|
(378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(4,213
|
)
|
|
|
(1,511
|
)
|
|
|
(6,153
|
)
|
Accretion of redeemable preferred stock
|
|
|
(4,970
|
)
|
|
|
(14,815
|
)
|
|
|
(89,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(9,183
|
)
|
|
$
|
(16,326
|
)
|
|
$
|
(95,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders, basic
and diluted
|
|
$
|
(36.55
|
)
|
|
$
|
(40.17
|
)
|
|
$
|
(116.74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
251,246
|
|
|
|
406,402
|
|
|
|
820,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share attributable to common
stockholders, basic and diluted
|
|
|
|
|
|
|
|
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average common shares outstanding, basic and
diluted
|
|
|
|
|
|
|
|
|
|
|
24,275,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eloqua, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Non-Controlling
|
|
|
Stockholders
|
|
|
|
Stocks
|
|
|
Amount
|
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Equity (Deficit)
|
|
|
Balance, December 31, 2008
|
|
|
155,768
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
(52,563
|
)
|
|
$
|
1,990
|
|
|
$
|
(50,573
|
)
|
Issuance of common stocks on exercise of stock options
|
|
|
147,374
|
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
130
|
|
Compensation expense on stock options
|
|
|
|
|
|
|
|
|
|
|
|
865
|
|
|
|
|
|
|
|
|
|
|
|
865
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
(995
|
)
|
|
|
(3,975
|
)
|
|
|
|
|
|
|
(4,970
|
)
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,213
|
)
|
|
|
|
|
|
|
(4,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
303,142
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,751
|
)
|
|
|
1,990
|
|
|
|
(58,761
|
)
|
Issuance of common stocks on exercise of stock options and
warrants
|
|
|
268,382
|
|
|
|
|
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
276
|
|
Compensation expense on stock options
|
|
|
|
|
|
|
|
|
|
|
|
1,068
|
|
|
|
|
|
|
|
|
|
|
|
1,068
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
(1,344
|
)
|
|
|
(13,471
|
)
|
|
|
|
|
|
|
(14,815
|
)
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,511
|
)
|
|
|
|
|
|
|
(1,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
571,524
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,733
|
)
|
|
|
1,990
|
|
|
|
(73,743
|
)
|
Issuance of common stocks on exercise of stock options and
warrants
|
|
|
441,726
|
|
|
|
|
|
|
|
|
446
|
|
|
|
|
|
|
|
|
|
|
|
446
|
|
Compensation expense on stock options
|
|
|
|
|
|
|
|
|
|
|
|
1,812
|
|
|
|
|
|
|
|
|
|
|
|
1,812
|
|
Conversion of exchangeable stock
|
|
|
50,118
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
Accretion of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
(2,286
|
)
|
|
|
(87,373
|
)
|
|
|
|
|
|
|
(89,659
|
)
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,153
|
)
|
|
|
|
|
|
|
(6,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
1,063,368
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
(169,259
|
)
|
|
$
|
1,962
|
|
|
$
|
(167,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,213
|
)
|
|
$
|
(1,511
|
)
|
|
$
|
(6,153
|
)
|
Depreciation and amortization
|
|
|
1,127
|
|
|
|
1,661
|
|
|
|
1,872
|
|
Stock compensation expense
|
|
|
865
|
|
|
|
1,068
|
|
|
|
1,812
|
|
Foreign currency transaction (gain) loss
|
|
|
(195
|
)
|
|
|
7
|
|
|
|
65
|
|
Deferred income taxes
|
|
|
|
|
|
|
(4,895
|
)
|
|
|
264
|
|
Loss on disposal of fixed assets
|
|
|
|
|
|
|
|
|
|
|
173
|
|
Change in fair value of Series C Warrants
|
|
|
|
|
|
|
|
|
|
|
264
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
1,408
|
|
|
|
(6,164
|
)
|
|
|
(2,362
|
)
|
Prepaid expenses and other assets
|
|
|
(583
|
)
|
|
|
(804
|
)
|
|
|
(2,102
|
)
|
Deferred commissions and other deferred costs
|
|
|
(269
|
)
|
|
|
(925
|
)
|
|
|
(59
|
)
|
Accounts payable and accrued and other current liabilities
|
|
|
1,852
|
|
|
|
2,360
|
|
|
|
5,200
|
|
Deferred revenue
|
|
|
455
|
|
|
|
9,677
|
|
|
|
3,492
|
|
Noncurrent deferred revenues and other liabilities
|
|
|
687
|
|
|
|
591
|
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations
|
|
|
1,134
|
|
|
|
1,065
|
|
|
|
2,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(1,450
|
)
|
|
|
(1,851
|
)
|
|
|
(2,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
|
|
|
(1,450
|
)
|
|
|
(1,851
|
)
|
|
|
(2,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in long-term debt
|
|
|
2,000
|
|
|
|
2,500
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
(605
|
)
|
|
|
(2,000
|
)
|
|
|
(208
|
)
|
Principal obligations under capital lease
|
|
|
(85
|
)
|
|
|
(574
|
)
|
|
|
(321
|
)
|
Common stock issued
|
|
|
130
|
|
|
|
276
|
|
|
|
446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
|
|
|
1,440
|
|
|
|
202
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
195
|
|
|
|
(7
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
1,319
|
|
|
|
(591
|
)
|
|
|
(309
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
6,821
|
|
|
|
8,140
|
|
|
|
7,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
8,140
|
|
|
$
|
7,549
|
|
|
$
|
7,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
121
|
|
|
$
|
251
|
|
|
$
|
255
|
|
Capital lease
|
|
$
|
239
|
|
|
$
|
510
|
|
|
$
|
|
|
Income taxes paid
|
|
$
|
30
|
|
|
$
|
22
|
|
|
$
|
114
|
|
See accompanying notes to consolidated financial statements.
F-6
ELOQUA, INC.
December 31,
2010 and 2011
|
|
(1)
|
Description of
Business
|
Eloqua, Inc. (the Company) provides on-demand
Revenue Performance Management software solutions that are
designed to enable businesses to accelerate revenue growth and
improve revenue predictability by automating, monitoring and
measuring their complex marketing and sales initiatives. The
Companys set of Revenue Performance Management solutions
is a software-as-a-service platform integrating its marketing
automation software with its revenue performance analytics suite.
The Company was incorporated under the laws of Delaware on
June 9, 2006 as Eloqua Limited and was formed to effect a
re-organization of its corporate structure whereby the
pre-existing legal entity, Eloqua Corporation, became a
consolidated subsidiary of the Company (notes 7 and 8(b)).
Eloqua Corporation was incorporated under the Ontario Business
Corporations Act on January 11, 2000. The Companys
business is a continuation of Eloqua Corporation. The Company
changed its name from Eloqua Limited to Eloqua, Inc. on
March 26, 2012.
(2) Significant
Accounting Policies
(a) Basis
of Presentation
These consolidated financial statements include the accounts of
the Company and subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
These consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States.
(b) Use
of Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions relating to the reported amounts of assets and
liabilities and disclosures in the Companys financial
statements and notes thereto. Significant estimates and
assumptions made by management include valuation allowances for
receivables and deferred tax assets, application of appropriate
revenue recognition standards, estimated useful lives of
property and equipment, and share-based compensation. The
current economic environment has increased the degree of
uncertainty inherent in those estimates and assumptions. Actual
results could differ from those estimates.
(c) Cash
and Cash Equivalents
The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents. Cash equivalents are recorded at cost, which
approximates fair market value.
(d) Fair
Value of Financial Instruments
The Company applies the principles of FASB Accounting Standards
Codification (ASC) Topic 820, Fair Value Measurements and
Disclosures, to all financial and
non-financial
assets and liabilities. Statement 157 defines fair
value in the context of accounting and financial reporting
and establishes a framework for measuring fair value under
generally accepted accounting standards. As of
F-7
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
December 31, 2011, the Company did not have any significant
nonfinancial assets or liabilities measured or disclosed at fair
value for which the provisions of ASC 820 have been applied.
The fair value hierarchy is based on three levels of inputs, of
which the first two are considered observable and the last
unobservable, that may be used to measure fair value which are
the following:
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Level 1Quoted prices (unadjusted) in active markets
for identical assets or liabilities that we have the ability to
access at the measurement date.
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Level 2Inputs other than quoted prices included
within Level 1 that are observable for the asset or
liability, either directly or indirectly.
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Level 3Unobservable inputs.
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The Companys financial instruments include cash and cash
equivalents, accounts receivable, accounts payable and
short-term and long-term debt. The carrying values of cash and
cash equivalents, accounts receivable, and accounts payable on
the consolidated balance sheet approximate their fair value,
based on their short-term nature. The carrying value of the
Companys long-term debt at December 31, 2011
approximates fair value based on discounted cash flow analyses
using appropriate current discount rates (Level 2 within
the fair value hierarchy).
At December 31, 2011, the Companys warrants to
purchase Series C convertible preferred stock were measured
using unobservable inputs that required a high level of judgment
to determine fair value, and thus were classified as
Level 3 inputs (note 8(c)(ii)). The fair value of the
warrants was estimated using a Black-Scholes options pricing
model. The following assumptions were used at December 31,
2011 to value the warrants that were issued in June 2007 to
purchase 75,000 shares of Series C convertible
preferred stock: risk-free rate of 0.36%; estimated volatility
of 58.61%; term of 3.0 years; and zero dividend yield. The
following assumptions were used to value the warrants issued on
December 28, 2010 to purchase 93,750 shares of
Series C convertible preferred stock: risk-free rate of
1.35%; estimated volatility of 58.60%; term of 6.0 years;
and zero dividend yield.
(e) Accounts
Receivable and Significant Customers
Accounts receivable represent amounts due from customers. No
single customer accounted for more than 10% of the total
accounts receivable as of December 31, 2010 and 2011, and
no single customer accounted for more than 10% of total revenue
during 2009, 2010 or 2011.
(f) Concentration
of Credit Risk
The Companys financial instruments that are exposed to
concentration of credit risk consist primarily of cash and cash
equivalents and trade account receivables. The Company maintains
an allowance for doubtful accounts receivable based upon
historical loss patterns, the number of days billings past due
and an evaluation of the potential risk of loss associated with
specific accounts.
(g) Investment
Tax Credits
The Company claims investment tax credits in Canada arising from
qualifying scientific research and experimental development
expenditures. Certain refundable claims resulting from
qualifying costs do not have characteristics of income tax
benefits, and are recorded as a reduction of research and
F-8
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
development expenses. Nonrefundable investment tax credits are
recorded as a reduction of income tax expense.
The claims prepared by management are subject to review by the
Canada Revenue Agency and the relevant provincial ministries
and, as a result, reported amounts may change if any adjustments
are made upon review.
The Company recognizes the investment tax credits when a
reasonable estimate can be made. In 2009, 2010 and 2011, net
refundable investment tax credits of approximately $39,000,
$420,000 and $179,000, respectively, were recognized in the
consolidated financial statements. As of December 31, 2011,
the Company has accumulated refundable credits recognized, but
not received, of approximately $304,000.
(h) Deferred
Commissions
Deferred commissions are the incremental costs that are directly
associated with subscription contracts with customers and
consist of sales commissions paid to the Companys direct
sales force. Commission charges are deferred and amortized over
the terms of the related customer contracts consistent with the
related subscription revenue. Amortization of deferred
commissions is included in marketing and sales expense in the
accompanying consolidated statements of operations.
(i) Property
and Equipment
Property and equipment are stated at cost, net of accumulated
depreciation and amortization and are amortized over their
estimated useful lives as follows:
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Basis
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Useful Life
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Equipment under capital leases
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Straight line method
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Shorter of useful life or term of lease
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Computer equipment
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Straight line method
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3 years
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Software licenses
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Straight line method
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3 years
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Furniture and fixtures
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Straight line method
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5 years
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Leasehold improvements
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Straight line method
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Shorter of useful life or term of lease
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(j) Impairment
of Long-Lived Assets
The Company evaluates the recoverability of its long-lived
assets in accordance with Impairment or Disposal of Long-Lived
Assets Subsections of FASB ASC Subtopic
360-10,
Property, Plant, and EquipmentOverall. Long-lived
assets are reviewed for possible impairment whenever events or
circumstances indicate that the carrying amount of such assets
may not be recoverable. If such review indicates that the
carrying amount of long-lived assets is not recoverable from
future undiscounted cash flows, the carrying amount of such
assets is reduced to the lower of the carrying value or fair
value.
In addition to the recoverability assessment, the Company
routinely reviews the remaining estimated lives of its
long-lived assets. Any reduction in the useful life assumption
will result in increased depreciation and amortization expense
in the period when such determinations are made, as well as in
subsequent periods. There was no impairment of long-lived assets
during 2009, 2010 or 2011.
F-9
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
(k) Capital
Leases
Computer equipment leases are capitalized when the Company
assumes substantially all risks and benefits of ownership of the
computer equipment. Accordingly, the Company records the asset
and obligation at an amount equal to the lesser of the fair
market value of the computer equipment or the net present value
of the minimum lease payments at the beginning of the lease.
Leased computer equipment is amortized using the straight-line
basis over the shorter of its estimated useful life or the lease
term.
(l) Deferred
Tax Assets and Liabilities
Income taxes are accounted for under the asset and liability
method, under which deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and for operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. To the extent that it is not considered to
be more likely than not that a deferred tax asset will be
realized, a valuation allowance is established. The Company
applies the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48)
(included in FASB ASC Subtopic
740-10,
Income TaxesOverall), which provides guidance
related to the accounting for uncertain tax positions. In
accordance with FIN 48, the Company only recognizes the tax
benefit from an uncertain tax position if it is more-likely
than-not that the tax position will be sustained on examination.
(m) Revenue
Recognition
The Company derives its revenue from four
sources: (i) subscription revenue relating to
subscription fees from customers accessing its on-demand
application service; (ii) customer support beyond the
standard support that is included in the basic subscription fee;
(iii) installation and deployment services; and
(iv) other professional service revenue from consultation
and training fees. The Company provides its on-demand
application as a service and follows the provisions of FASB ASC
Subtopic
605-25,
Revenue Recognition Multiple-Element
Arrangements. The Company recognizes revenue when all of the
following conditions are met:
(i) There is persuasive evidence of an arrangement;
(ii) The service has been provided to the customer;
(iii) The collection of the fees is reasonably
assured; and
(iv) The amount of fees to be paid by the customer is
fixed or determinable.
The Companys arrangements do not contain general rights of
return.
The Company adopted the provisions of FASB ASU
2009-13,
Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements (EITF Issue
No. 08-1,
Revenue Arrangements with Multiple Deliverables) with
respect to its multiple-element arrangements entered into or
significantly
F-10
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
modified on or after January 1, 2011. ASU
2009-13
amends
ASC 605-25
to eliminate the requirement that all undelivered elements have
vendor specific objective evidence of selling price (VSOE) or
third party evidence of selling price (TPE) before an entity can
recognize the portion of an overall arrangement fee that is
attributable to items that already have been delivered.
In the absence of VSOE and TPE for one or more delivered or
undelivered elements in a multiple-element arrangement, the
Company estimates the selling prices of those elements. The
overall arrangement fee of the Companys multiple element
arrangements are allocated to each element (both delivered and
undelivered items) based on their relative selling prices,
regardless of whether those selling prices are evidenced by VSOE
or TPE or are based on the entitys estimated selling price.
The Company is not able to demonstrate VSOE or TPE of selling
price with respect to its subscription services. The Company
does not have sufficient instances of separate sales of
subscriptions nor is it able to demonstrate sufficient pricing
consistency with respect to such sales. The Company also
considers that no other vendor sells similar subscriptions given
the unique nature and functionality of its service offering, and
therefore has determined that it is not able to establish TPE of
selling price. Therefore, the Company has determined the best
estimated selling price based on the following:
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Expected discounts from the list price for each service
offering, which represents a component of the Companys
current
go-to-market
strategy, as established by senior management taking into
consideration factors such as the competitive and economic
environment.
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An analysis of the historical pricing with respect to both of
the Companys bundled and standalone subscription
arrangements.
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The Company has established VSOE of selling price for its
professional services based on an analysis of separate sales of
such services.
The Companys multiple-element arrangements includes the
sale of a subscription with one or more associated professional
service offerings, each of which are individually considered
separate units of accounting. The Company allocated revenue to
each element in a multiple-element arrangement based upon the
relative selling price of each deliverable.
Subscription and support revenue is recognized ratably over the
contract terms beginning on the activation date of each
contract. Amounts that have been invoiced are recorded in
accounts receivable and in deferred revenue or revenue,
depending on whether the revenue recognition criteria have been
met.
Consulting services, including professional services and
training have stand alone value from the related subscription
services. Professional services, including implementation
services and other standard professional services are generally
provided under fixed price, short-term arrangements. These
services are generally performed beginning at the point of
subscription activation and spanning over periods of
approximately 60, 90, or 120 days, depending on the nature
of the services. Revenues relating to these services are
recognized ratably over the period that the services are
provided. Certain other standard professional service and
non-standard professional service arrangements include customer
acceptance provisions. Services provided under arrangements that
include customer acceptance provisions are generally provided
under fixed price, short-term arrangements, and the
F-11
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
revenue is deferred and recognized upon customer acceptance of
the service deliverable. Training revenue is recognized after
the service has been performed. Revenue related to our user
conference is recognized upon completion of the conference.
Prior to the adoption of ASU
2009-13,
fees for consulting services that did not qualify for separate
accounting because VSOE or TPE of fair value did not exist, were
recognized ratably over the remaining term of the subscription
contract.
Prior to the adoption of ASU
2009-13,
when subcontractors were used to provide all or a portion of
consulting services, the Company deferred the direct and
incremental subcontracting costs related to the consulting
arrangement and amortized those costs over the same time period
as the consulting revenue was recognized, which generally was
over the term of the related subscription period. After adoption
of ASU
2009-13,
subcontractor costs are recognized as those services are
performed, which coincides with the period over which the
consulting service revenue is recognized. These deferred costs
are included in deferred commissions and other deferred costs on
the consolidated balance sheet.
The adoption of ASU
2009-13
results in more professional services fees being recognized as
revenue as those services are performed. Previously, a
substantial portion of the professional service fees had been
deferred and recognized over the remaining term of the related
subscription services arrangement. During 2011, the Company
recognized approximately $2.2 million more of professional
services revenue than would have been recognized prior to the
adoption of ASU
2009-13.
During 2011, the Company recognized approximately
$0.7 million more of subcontractor costs than would have
been recognized prior to the adoption of ASU
2009-13. Net
loss during 2011 would have been higher by approximately
$1.5 million prior to the adoption of ASU
2009-13.
(n) Deferred
Revenue
Deferred revenue primarily consists of billings or payments
received in advance of revenue recognition from the
Companys subscription services described above and is
recognized as the revenue recognition criteria are met. The
Company generally invoices its customers in annual or quarterly
installments. Deferred revenue also includes certain deferred
professional services fees which are recognized as revenue
ratably over the subscription contract term. The Company defers
the professional service fees in situations where the
professional services and subscription contracts are accounted
for as a single unit of accounting. Deferred revenue that will
be recognized during the succeeding
12-month
period is recorded as current deferred revenue and the remaining
portion is recorded as noncurrent.
(o) Cost
of Revenue
The cost of subscription and support revenue primarily consists
of hosting costs, data communication expenses, depreciation
expenses associated with computer equipment, personnel and
related costs, including salaries, bonuses, payroll taxes,
recruiting fees and stock compensation, software license fees
and amortization expense associated with capitalized software,
as well as an allocation of overhead such as rent, IT costs,
depreciation and amortization and employee benefit costs, to
cost of revenue based on headcount. Cost of professional
services revenue primarily consists of personnel and related
costs, third party contractors and allocated overhead.
F-12
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
(p) Other
Income (Expense)
Other income (expense) primarily consists of interest income,
interest expense, and the change in fair value of the warrants
to purchase Series C convertible preferred stock warrants.
The year ended December 31, 2011 also includes expense of
approximately $0.2 million related to the disposal of
equipment.
(q) Research
and Development
Research and development expenditures are expensed as incurred.
The Company evaluates certain software development costs to
determine if they should be capitalized. Based on the
Companys product development process, technological
feasibility is established upon completion of a working model.
To date, the period between achieving technological feasibility
and general availability of such software has been short and
software costs qualifying for capitalization have been
immaterial. Accordingly, the Company has not capitalized any
software development costs.
(r) Stock-Based
Compensation Plans
The Company accounts for its employee stock-based compensation
awards in accordance with FASB ASC Topic 718,
CompensationStock Compensation. FASB ASC Topic 718
requires that all employee stock-based compensation is
recognized as a cost in the financial statements and that for
equity-classified awards such cost is measured at the grant date
fair value of the award. The Company estimates grant date fair
value using the Black-Scholes option-pricing model.
Determining the fair value of stock-based compensation awards
under this model requires judgment, including estimating the
value per share of the Companys common stock, estimated
volatility, risk free rate, expected term and estimated dividend
yield. The assumptions used in calculating the fair value of
stock-based compensation awards represent the Companys
best estimates, based on management judgment. The estimate of
the value per share of the Companys common stock used in
the option-pricing model is based on contemporaneous valuations
performed with the assistance of an unrelated third party
valuation specialist. The estimated dividend yield is zero since
the Company has not issued dividends to date and does not
anticipate issuing dividends. The risk-free interest rate is
based on the implied yield currently available on
U.S. Treasury zero coupon issues with an equivalent
remaining term. The Company estimates volatility for option
grants by evaluating the average historical volatility of a peer
group of similar public companies. The expected term of the
Companys option plans represent the period that its
stock-based awards are expected to be outstanding. For purposes
of determining the expected term in the absence of sufficient
historical data relating to stock-option exercises, the Company
applies the simplified approach, in which the expected term of
an award is presumed to be the mid-point between the vesting
date and the expiration date of the award.
The Company accounts for stock-based grants issued to
non-employees at fair value, in accordance with the provisions
of FASB ASC Topic 505, Equity, Subtopic-50, Equity
Based Payments to Nonemployees
(EITF 96-18,
Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services). The measurement date relating to such
awards generally occurs when the awards vest. Compensation
expense relating to such awards is recognized over the
applicable service period of the options in accordance with the
method prescribed by ASC Topic
505-50-55-32.
F-13
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
(s) Foreign
Currency Transactions
The functional currency of the Company and its subsidiaries is
the U.S. dollar. Accounts receivable or payable that are
denominated in foreign currencies are translated into
U.S. dollars at rates of exchange in effect at the balance
sheet date. Revenue and expenses related to transactions
denominated in foreign currencies are translated at the average
exchange rate during the period. Exchange gains and losses on
foreign currency transactions are included in general and
administrative expenses on the consolidated statements of
operations and amounted to approximately $436,000, and $45,000
in losses for 2009 and 2010, respectively, and approximately
$245,000 in gains for 2011.
(t) Comprehensive
Income
There was no difference between net loss presented in the
consolidated statements of operations and comprehensive net loss
for 2009, 2010 and 2011.
(u) Redeemable
Convertible Preferred Stock
The Company applies the guidance in FASB ASC Subtopic
480-10,
Distinguishing Liabilities from EquityOverall, to
its redeemable convertible preferred stock. The Company
classifies its redeemable convertible preferred stock in between
liabilities and permanent equity on the balance sheet since
redemption is not solely within the control of the Company. On
issuance, the Company records the preferred stock at fair value
which is normally the issue price. On each balance sheet date,
the Company measures the estimated redemption price and records
an accretion change to accrete the preferred stock carrying
value to the estimated redeemable value. The Companys
policy is to recognize changes in the redemption value
immediately as they occur and adjust the carrying value to the
redemption value at each balance sheet date. The resulting
increases or decreases in the carrying amount of redeemable
convertible preferred stock are treated in the same manner as
dividends on nonredeemable stock and are charged against
additional
paid-in capital
to the extent it exists, or else against accumulated deficit.
(v) Warranties
and Indemnification
The Companys service is typically warranted to operate in
substantial conformity with the Companys applicable
documentation.
The Companys arrangements generally include certain
provisions for indemnifying customers against liabilities if its
products or services infringe a third-partys intellectual
property rights. To date, the Company has not incurred any
material costs as a result of such indemnifications and has not
accrued any liabilities related to such obligations in the
accompanying consolidated financial statements.
The Company has entered into service level agreements with a
number of its customers agreeing to certain levels of uptime
reliability and performance and permitting those customers to
receive credits or terminate their agreements in the event that
the Company fails to meet those levels. The Company has not
granted any material level of credits under such clauses.
The Company has also agreed to indemnify its directors and
executive officers for costs associated with any fees, expenses,
judgments, fines and settlement amounts incurred by any of
F-14
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
these persons in any action or proceeding to which any of those
persons is, or is threatened to be, made a party by reason of
the persons service as a director or officer, including
any action by the Company, arising out of that persons
services as the Companys director or officer or that
persons services provided to any other company or
enterprise at the Companys request. The Company maintains
director and officer insurance coverage that would generally
enable the Company to recover a portion of any future amounts
paid.
(w) Segment
Reporting
The Company is organized and operates in one reportable segment.
The Companys chief operating decision maker, the chief
executive officer, reviews financial information presented on a
consolidated basis for purposes of making operating decisions
and assessing financial performance.
Revenue by geographic region is based on the billing address of
the customer. Subscription and professional services revenue by
geographic region approximates the following:
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Years Ended December 31,
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2009
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2010
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2011
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(in thousands)
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Revenue:
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Americas
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$
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37,569
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$
|
45,328
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$
|
63,897
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Europe
|
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2,777
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|
4,262
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6,167
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Asia Pacific
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612
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|
1,209
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|
1,284
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|
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|
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Total revenue
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$
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40,958
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$
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50,799
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$
|
71,348
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Property and equipment by geographic region approximates the
following:
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As of December 31,
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2010
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2011
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(in thousands)
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Americas
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$
|
2,731
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$
|
3,616
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Europe
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|
137
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|
|
105
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Asia Pacific
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Total property and equipment, net
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$
|
2,868
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$
|
3,721
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(x) Noncontrolling
Interest
Eloqua, Inc. holds the majority voting interest and consolidates
its subsidiary, Eloqua Corporation. Eloqua Corporation has
outstanding certain common stock (exchangeable common stock)
held by parties other than Eloqua, Inc. Eloqua
Corporations exchangeable common stock can be converted
into shares of Eloqua, Inc. common stock, at any time, at the
option of the holder. The exchangeable common stock, by its
terms, entitle their holders to rights to receive dividends,
rights on liquidation, voting rights, and other rights
economically equivalent to the Eloqua, Inc. common stock
(notes 7 and 8(b)). However, in legal form, the
exchangeable common stock represents shares of the
Companys subsidiary, Eloqua Corporation. Accordingly, the
Company has classified the exchangeable common stock as a
noncontrolling interest on the consolidated balance sheet, based
on the provisions of FASB Statement No. 160 (FASB ASC Topic
810-10,
Consolidation).
F-15
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
The exchangeable common stock does not participate in the
dividends of Eloqua Corporation, but instead participates in
dividends of Eloqua, Inc. The exchangeable common stock is a
participating security under the provisions of FASB
ASC 260-10-45,
Earnings Per Share, for purposes of allocating income
(loss) to common stockholders and computing earnings per share
on the statement of operations (note 2(y)).
The amount of equity initially allocated to the noncontrolling
interest was based on the exchangeable common stockholders
proportional share of the historical carrying amount of the net
assets of Eloqua Corporation at the time that the exchangeable
common stock was issued. The Company has generated consolidated
losses since the issuance of the exchangeable common stock.
Since the exchangeable common stock is considered to be a
participating security, no allocation of the Companys net
losses has been allocated to the noncontrolling interest from
its issuance through December 31, 2011, as the impact would
be anti-dilutive to the calculation of loss per share.
(y) Net
loss per share attributable to common stockholders
Basic net loss per share of common stock is calculated by
dividing the net loss attributable to common stockholders by the
weighted average number of shares of common stock outstanding
for a period. Because holders of the Companys convertible
preferred stock and holders of the exchangeable common stock are
entitled to participate in dividends and earnings of the
Company, the Company applies the two-class method in calculating
our earnings per share for periods when the Company generates
net income. The two-class method requires net income to be
allocated between the common stockholders, exchangeable common
stockholders and preferred stockholders based on their
respective rights to receive dividends. Because the preferred
stockholders and the exchangeable common stockholders are not
contractually obligated to share in the Companys losses,
no such allocation was made for any period presented given the
Companys net losses. Diluted loss per share attributable
to common stockholders adjusts the basic weighted average number
of shares of common stock outstanding for the potential dilution
that could occur if stock options, warrants, exchangeable common
stock and convertible preferred stock were exercised or
converted into common stock. Diluted loss per share attributable
to common stockholders is the same as basic loss per share
attributable to common stockholders for all periods presented
because the effects of potentially dilutive items were
anti-dilutive.
The following table presents the weighted average number of
anti-dilutive shares excluded from the calculation of diluted
net loss attributable to common stockholders for each period
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Options to purchase common stock
|
|
|
6,319
|
|
|
|
6,809
|
|
|
|
7,426
|
|
Common stock warrants
|
|
|
555
|
|
|
|
516
|
|
|
|
354
|
|
Series C preferred stock warrants
|
|
|
30
|
|
|
|
30
|
|
|
|
68
|
|
Exchangeable common stock
|
|
|
3,628
|
|
|
|
3,628
|
|
|
|
3,626
|
|
Conversion of convertible preferred stock
|
|
|
19,828
|
|
|
|
19,828
|
|
|
|
19,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
30,360
|
|
|
|
30,811
|
|
|
|
31,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
(z) Unaudited
Pro Forma Information
All of the outstanding shares of convertible preferred stock
will convert into common stock on the closing of an initial
public offering of common stock under the Securities Act of
1933, in which the Company receives at least $25 million in
gross proceeds and the offering price is at least $8.75 per
common share. In addition, upon the closing of this initial
public offering, the Company expects to have obtained the
necessary votes required to ensure that the exchangeable common
stock of Eloqua Corporation will convert into common stock on
the closing of an initial public offering. For purposes of pro
forma net loss per share attributable to common stockholders,
all shares of convertible preferred stock and exchangeable
common stock have been treated as though they have converted to
common stock of the Company at the beginning of the respective
periods.
The following table sets forth the computation of pro forma
basic and diluted net loss per share of common stock for the
year ended December 31, 2011:
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Net loss attributable to common stockholders:
|
|
$
|
(95,812
|
)
|
Pro forma adjustment to reverse accretion of redeemable
convertible preferred stock
|
|
|
89,659
|
|
|
|
|
|
|
Net loss used in computing pro forma net loss per share
attributable to common stockholders
|
|
$
|
(6,153
|
)
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
820,734
|
|
Pro forma adjustment to reflect conversion of convertible
preferred stock
|
|
|
19,828,150
|
|
Pro forma adjustment to reflect conversion of exchangeable
common stock
|
|
|
3,626,454
|
|
|
|
|
|
|
Pro forma weighted average common shares outstanding, basic and
diluted
|
|
|
24,275,338
|
|
|
|
|
|
|
Pro forma net loss per share attributable to common
stockholders, basic and diluted
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
(aa) Recently
Issued Accounting Standards
In 2011, the FASB issued ASU
2011-05,
Presentation of Comprehensive Income, which provides
updated guidance for disclosing comprehensive income. The update
is intended to increase the prominence of other comprehensive
income (loss) in the financial statements. The guidance requires
that the Company present components of comprehensive income in
either one continuous statement or two separate but consecutive
statements and no longer permits the presentation of
comprehensive income in the consolidated statement of
stockholders equity. The Company will adopt this new
guidance effective January 1, 2012, as required.
In 2011, the FASB issued ASU
2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs. The new standards do not extend
the use of fair value but, rather, provide guidance about how
fair value should be applied where it already is required or
permitted under IFRS or U.S. GAAP. For U.S. GAAP, most
of the changes are clarifications of existing guidance or
wording changes to align with IFRS. A public entity is required
to apply the ASU prospectively for interim and annual periods
beginning after December 15, 2011. The Company expects that
the adoption of ASU
2011-04 in
2012 will not have a material impact on its consolidated
financial statements.
F-17
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
|
|
(3)
|
Property and
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment under capital leases
|
|
$
|
2,675
|
|
|
$
|
2,367
|
|
|
$
|
308
|
|
Computer equipment
|
|
|
3,034
|
|
|
|
1,395
|
|
|
|
1,639
|
|
Software licenses
|
|
|
794
|
|
|
|
678
|
|
|
|
116
|
|
Furniture and fixtures
|
|
|
545
|
|
|
|
235
|
|
|
|
310
|
|
Leasehold improvements
|
|
|
1,134
|
|
|
|
639
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,182
|
|
|
$
|
5,314
|
|
|
$
|
2,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment under capital leases
|
|
$
|
2,675
|
|
|
$
|
2,675
|
|
|
$
|
|
|
Computer equipment
|
|
|
4,561
|
|
|
|
2,530
|
|
|
|
2,031
|
|
Software license
|
|
|
986
|
|
|
|
768
|
|
|
|
218
|
|
Furniture and fixtures
|
|
|
730
|
|
|
|
378
|
|
|
|
352
|
|
Leasehold improvements
|
|
|
2,011
|
|
|
|
891
|
|
|
|
1,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,963
|
|
|
$
|
7,242
|
|
|
$
|
3,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
Long-Term Debt
and Line of Credit
|
On June 15, 2009, the Company entered into a new credit
facility agreement for a $5,000,000 working capital line of
credit and drew down $2,000,000 on this line of credit. The line
of credit bore interest at prime plus 1.0%, subject to a minimum
rate of 6.0%, and was collateralized by all assets of the
Company.
On December 28, 2010, the Company entered into a loan
modification agreement with the lender to increase the working
capital line of credit to $10,000,000 and add a $2,500,000 term
loan. The company used the proceeds from the term loan to repay
the $2,000,000 balance under the line of credit. The modified
line of credit facility bears interest at prime plus 1.5%,
subject to a minimum rate of 5.5%. The term loan bears interest
at prime plus 2.0%, subject to a minimum rate of 6.0%. The line
of credit and term loan are collateralized by all assets of the
Company. Net of certain letters of credit outstanding, the
Company has $9.5 million of available funding under the
line of credit at December 31, 2011. The line of credit
facility matures in December 2012. The term loan calls for
monthly payments over 36 months beginning in October 2011.
In connection with the loan modification, the Company issued
warrants to purchase 93,750 shares of Series C
convertible preferred stock (which shares are convertible into
37,500 shares of common stock) to the lender on
December 31, 2010 (note 8(c)(ii)). The fair value of the
warrants on the date of issuance of approximately $76,000
results in a discount on the related debt that will be amortized
over the term of the debt as additional interest expense.
Subsequent
F-18
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
changes in the fair value of the warrants will be recognized in
the statement of operations each reporting period.
The long-term debt outstanding was as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Total debt
|
|
$
|
2,500
|
|
|
$
|
2,292
|
|
Less current portion
|
|
|
(208
|
)
|
|
|
(834
|
)
|
|
|
|
|
|
|
|
|
|
Long term debt
|
|
$
|
2,292
|
|
|
$
|
1,458
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2011 future minimum payments under the term
loan facility are as follows:
|
|
|
|
|
|
|
(in thousands)
|
|
2012
|
|
$
|
834
|
|
2013
|
|
|
833
|
|
2014
|
|
|
625
|
|
|
|
|
|
|
Total
|
|
$
|
2,292
|
|
|
|
|
|
|
(5) Obligations
under Capital Leases
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Computer equipment under capital leases
|
|
$
|
321
|
|
|
$
|
|
|
Less amounts payable within one year
|
|
|
(238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
83
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company extinguished its capital lease obligations in 2011.
Prior to August 25, 2006, Eloqua Corporation granted
options to purchase common shares under its then existing stock
option plan (the Prior Plan). Under the Prior Plan,
options to purchase common shares could be granted to employees,
directors and consultants at an exercise price of not less than
the market value on the effective date of the grant. Options
generally vested over four years. Upon the reorganization
(note 7), all outstanding options under the Prior Plan were
exchanged for options under, (i) in the case of
U.S. holders of options, the newly established Eloqua
Limited 2006 U.S. Employee Stock Option Plan (the
2006 U.S. Employee Plan) and (ii) in the
case of all other optionholders, the newly established Eloqua
Limited 2006 Stock Option Plan (the 2006 Plan) and
the Prior Plan was dissolved. The 2006 U.S. Employee Plan
is restricted in number to those options granted to
U.S. residents under the Prior Plan and who, pursuant to
the reorganization, exchanged such options for options under the
2006 U.S. Employee Plan. Since the reorganization, the
Company has and intends to continue to grant options only
pursuant to the 2006 Plan. The 2006 Plan allows for options to
purchase common stock to be issued to employees, directors and
consultants of the Company. As of December 31, 2011,
10,054,246 shares of common stock have been reserved for
F-19
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
issuance under the 2006 Plan, and 193,926 shares of common
stock have been reserved for issuance under the 2006
U.S. Employee Plan. At December 31, 2011, there were
1,359,699 shares of common stock available for future grant
under the 2006 Plan and the 2006 U.S. Employee Plan.
Options generally vest 25% on the first anniversary of the date
of grant and
1/36
over the following successive 36 months. Options have a
maximum life of 10 years. The option exercise price shall
be no less than the fair value of the common stock on the date
of grant. The Company has elected the straight-line attribution
method as its accounting policy for recognizing stock-based
compensation expense for all awards.
Summary of weighted average assumptions used in the valuation of
stock-based awards under the Black-Scholes model were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended Dec. 31
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Expected term
|
|
|
6.1 years
|
|
|
|
6.1 years
|
|
|
|
6.1 years
|
|
Volatility
|
|
|
76.0%
|
|
|
|
62.3%
|
|
|
|
58.5%
|
|
Risk-free interest rate
|
|
|
2.2%
|
|
|
|
1.9%
|
|
|
|
1.9%
|
|
The following table summarizes the stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Options outstanding, December 31, 2009
|
|
|
6,375,334
|
|
|
$
|
1.20
|
|
|
|
5.6 years
|
|
|
$
|
2,231
|
|
Granted
|
|
|
1,383,200
|
|
|
|
1.93
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(166,875
|
)
|
|
|
1.13
|
|
|
|
|
|
|
|
|
|
Canceled, expired or forfeited
|
|
|
(333,997
|
)
|
|
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2010
|
|
|
7,257,662
|
|
|
$
|
1.35
|
|
|
|
5.6 years
|
|
|
$
|
13,608
|
|
Granted
|
|
|
1,505,800
|
|
|
|
5.65
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(360,706
|
)
|
|
|
1.20
|
|
|
|
|
|
|
|
|
|
Canceled, expired or forfeited
|
|
|
(643,580
|
)
|
|
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2011
|
|
|
7,759,176
|
|
|
$
|
2.15
|
|
|
|
5.5 years
|
|
|
$
|
46,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2011
|
|
|
5,293,146
|
|
|
$
|
1.33
|
|
|
|
4.0 years
|
|
|
$
|
35,973
|
|
The weighted average grant date fair value of options granted
during the years 2009, 2010 and 2011 was $0.98, $1.05 and $3.10,
respectively. The total intrinsic value of options exercised
during the years ended December 31, 2009, 2010 and 2011,
was approximately $66,000, $142,000 and $1,306,000, respectively.
The Company recorded stock-based compensation expense relating
to the issuance of stock options to employees of approximately
$865,000, $1,068,000 and $1,687,000 during 2009, 2010, and 2011,
respectively. At December 31, 2011, there was approximately
$5,426,000 of total unrecognized compensation costs related to
nonvested share-based compensation arrangements granted under
the 2006 Plan. That cost is expected to be recognized over a
weighted average period of 2.2 years. The total fair value
of options vested during the years ended December 31, 2009,
2010, and 2011 was approximately $1,028,000, $1,598,000 and
$1,518,000, respectively.
F-20
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
During 2010, the Company issued options to non-employees to
purchase 46,000 shares of common stock. The options were
awarded as compensation for certain advisory services to be
provided to the Company and vest quarterly over a three-year
period. The fair value of the options granted to non-employees
is estimated each period until vesting occurs using the
Black-Scholes model. The total estimated fair value of the
unvested awards as of December 31, 2011 was approximately
$146,000. The related compensation expense recognized during the
year ended December 31, 2010, was not material to the
Companys financial statements. The related compensation
expense recognized during the year ended December 31, 2011
was approximately $125,000. There were no options granted to
non-employees during 2009 or 2011.
Compensation expense related to stock options granted to
employees and non-employees is included in the following line
items in the accompanying consolidated statement of operations
for the years ended December 31, 2009, 2010, and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Cost of revenue
|
|
$
|
57
|
|
|
$
|
125
|
|
|
$
|
284
|
|
Research and development expense
|
|
|
154
|
|
|
|
203
|
|
|
|
313
|
|
Marketing and sales
|
|
|
318
|
|
|
|
364
|
|
|
|
514
|
|
General and administrative
|
|
|
336
|
|
|
|
376
|
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
865
|
|
|
$
|
1,068
|
|
|
$
|
1,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7) Corporate
Reorganization
Eloqua Corporation was incorporated on January 11, 2000
under the laws of Ontario, Canada. On March 16, 2005,
Eloqua Corporation completed its Series A financing and
issued 12,124,650 shares of Class A Preferred Shares
for net proceeds of approximately $4,668,000.
In December 2005, Eloqua Corporation raised approximately
$13.1 million in a Series B financing. One of the
requirements of this financing was that Eloqua Corporation would
reorganize itself such that the Series B investment was
being made into a parent company that was a Delaware corporation.
The Company was incorporated as a new Delaware corporation,
under the name Eloqua Limited, on June 9, 2006 and pursuant
to a series of transactions occurring on August 22, 2006,
Eloqua Corporation was reconstituted on a tax-free basis as
Eloqua Limited with Eloqua Corporation becoming its subsidiary.
Immediately following the reorganization, the Class A
Preferred Shares of Eloqua Corporation were reconstituted as
Series A Preferred Stock of the Company. Each common
shareholder of Eloqua Corporation possessed exchangeable common
shares of Eloqua Corporation, which are exchangeable under
certain circumstances into designated shares of the Company, and
a pro rata interest in a trust. The trust holds one share of
Special Voting Stock of the Company which represents the number
of votes in the Companys common stock equal to the number
of outstanding exchangeable common shares of Eloqua Corporation
held by the trust.
F-21
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
(8) Stockholders
Equity
The Company is authorized to issue 141,287,139 shares of
stock, of which 90,000,000 shares are designated as Common Stock
with a par value of $0.0001 and 51,287,139 shares are designated
as Redeemable Convertible Preferred Stock with a par value of
$0.0001 per share.
(a) Preferred
Stock
The Preferred Stock carries the following designations:
|
|
|
|
(i)
|
12,124,650 shares are designated Series A
Preferred Stock;
|
|
|
(ii)
|
17,678,926 shares are designated Series B
Preferred Stock; and
|
|
|
|
|
(iii)
|
21,483,563 shares are designated Series C
Preferred Stock.
|
The shares of Preferred Stock are voting and entitled to
cumulative dividends, whether or not declared by the Board, at a
rate per annum of $0.0461971, $0.0884533, and $0.144 calculated
from the day of first issue for each of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred
Stock, respectively. In addition, the Series A Preferred
Stock is entitled to a stated dividend of $0.0680898. The
Company is under no obligation to pay such accruing dividends
unless declared by the Board, except (i) upon the
occurrence of certain events such as liquidation, dissolution or
winding up, including a sale or merger, or (ii) redemption
by the holders. The Preferred Stock shall participate with the
Common Stock on an as-converted basis with respect to all other
dividends.
In the event of a liquidation, winding up or dissolution of the
Company (a Liquidation), Holders of Series C Preferred
Stock are entitled to receive in preference to the holders of
Common Stock, Series A Preferred Stock and Series B
Preferred Stock an amount per share equal to the greater of
(i) $1.20 per share, plus all accrued (whether or not
declared) but unpaid dividends and any other declared but unpaid
dividends on such shares, or (ii) the amount payable as if
the Series C Preferred Stock had converted into Common
Stock. Holders of Series A Preferred Stock and
Series B Preferred Stock are entitled to receive, on a pari
passu basis, and in preference to holders of Common Stock, an
amount per share equal to the greater of (i) $0.384976 for
Series A Preferred Stock and $0.737111 for Series B
Preferred Stock, plus all accrued (whether or not declared) but
unpaid dividends and any other declared but unpaid dividends on
such stocks including, in the case of Series A Preferred
Stock, the stated dividend of $0.0680898, or (ii) the
amount payable as if the Series A Preferred Stock and
Series B Preferred Stock had converted into Common Stock.
Holders of Series C Preferred Stock shall be paid accrued
dividends and any other declared but unpaid dividends on a pari
passu basis with payments made to the holders of the
Series A Preferred Stock and Series B Preferred Stock.
Thereafter, the remaining assets will be paid to holders of
Common Stock. A merger, consolidation, reorganization,
acquisition or other transaction, representing a material change
in ownership, assets or business of the Company, would
constitute an event of liquidation, winding up or dissolution of
the Company.
Each share of Preferred Stock may be converted on a
2.5-for-1
basis into a share of Common Stock at any time, at the option of
the holder subject to adjustment in the event of a capital
reorganization or dilutive financing of the Company. Each share
of Preferred Stock shall automatically convert into Common Stock
immediately prior to the earlier of (i) the closing of a
firm commitment underwritten public offering of shares of Common
Stock at an offering price per share of at least
F-22
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
$8.75 and aggregate proceeds (after underwriter commissions and
expenses) of at least $25,000,000 (a) in the United States
pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or (b) in Canada,
pursuant to a filing or qualification of a prospectus with
respect to an offering under the Securities Act (Ontario), as
amended, that, if consummated, would not result in the holders
of Common, Preferred or any other securities of the Company
being subject to any restrictions on transfer other than as
contemplated by the Stockholders Agreement, or
(ii) the consent of holders of at least a majority of the
Series A, Series B and Series C, respectively.
Under the original terms, any time after September 26,
2012, the holders of at least a majority of the Preferred Stock,
voting together as a single class, on an as-converted basis,
could request that the Company redeem all of the Preferred
Stock. On March 26, 2012, the holders of the Series A,
Series B and Series C Preferred Stock agreed to a
modification of the Preferred Stock agreements to defer the
redemption date until anytime after September 26, 2013.
Upon receipt of the redemption request, the Company shall redeem
out of funds legally available therefore at a price per share
equal to the greater of (i) $0.384976 for the Series A
Preferred Stock, $0.737111 for the Series B Preferred Stock
and $1.20 for the Series C Preferred Stock, plus an amount
equal to all accruing and stated dividends unpaid thereon
(whether or not declared), or (ii) the fair market value of
each such share to be payable in two annual installments. In the
event the Company fails to redeem any of the outstanding shares
of the Preferred Stock, the holders of the then outstanding
shares of Preferred Stock shall be entitled to elect a majority
of the Board of Directors.
The redemption of the Companys redeemable convertible
preferred stock is not solely within the control of the Company
as the preferred stockholders could force redemption through
obtaining control of the Companys Board of Directors if
the Company fails to redeem any of the outstanding shares of
preferred stock. The redeemable convertible preferred stock are
not currently redeemable; however, the Company has determined
that it is probable that the securities will become redeemable
with the passage of time. Generally accepted accounting
principles require redeemable convertible preferred stock whose
redemption is outside the control of the Company and which are
probable of becoming redeemable to be measured at the redemption
amount with the changes in the redemption value being charged
over the period from the date of issuance to the earliest
redemption date of the security. Changes in the value of the
preferred stock classified as equity is charged against
additional
paid-in
capital to the extent it exists, or else against accumulated
deficit.
The following table summarizes the redemption values and the
activity of the preferred stock for 2009, 2010, and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
Series B
|
|
|
Series C
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
|
(dollars in thousands)
|
|
|
Balance at December 31, 2008
|
|
|
12,124,650
|
|
|
$
|
7,687
|
|
|
|
17,678,926
|
|
|
$
|
16,667
|
|
|
|
19,766,821
|
|
|
$
|
27,307
|
|
Accretion of preferred stock
|
|
|
|
|
|
|
560
|
|
|
|
|
|
|
|
1,564
|
|
|
|
|
|
|
|
2,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
12,124,650
|
|
|
|
8,247
|
|
|
|
17,678,926
|
|
|
|
18,231
|
|
|
|
19,766,821
|
|
|
|
30,153
|
|
Accretion of preferred stock
|
|
|
|
|
|
|
7,394
|
|
|
|
|
|
|
|
4,575
|
|
|
|
|
|
|
|
2,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
12,124,650
|
|
|
$
|
15,641
|
|
|
|
17,678,926
|
|
|
$
|
22,806
|
|
|
|
19,766,821
|
|
|
$
|
32,999
|
|
Accretion of preferred stock
|
|
|
|
|
|
|
23,765
|
|
|
|
|
|
|
|
34,650
|
|
|
|
|
|
|
|
31,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
12,124,650
|
|
|
$
|
39,406
|
|
|
|
17,678,926
|
|
|
$
|
57,456
|
|
|
|
19,766,821
|
|
|
$
|
64,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
(b) Common
Stock
The Company has designated 89,999,999 shares of standard
common stock (common stock) and one share of special common
voting stock.
The holders of common stock are entitled to dividends only as
declared by the Board after the prior payment of accrued
dividends to the holders of preferred stock.
Each share of common stock shall have one vote. In the event of
a liquidation, each share of common stock shall be entitled to
its share of proceeds remaining after payment due under the
terms and conditions of each preferred stock.
Other than the voting rights set forth below, the holder of the
one share of special common voting stock shall have no rights,
preferences or privileges. The holder of the one share of
special common voting stock shall be entitled to that number of
votes equal to the number of exchangeable common shares of
Eloqua Corporation then outstanding and shall have voting rights
and powers equal to the voting rights and powers of the
Companys common stock. As of December 31, 2010 and
2011, there were outstanding exchangeable common shares of
Eloqua Corporation of 3,627,672 and 3,577,554, respectively,
which are exchangeable into an equivalent number of shares of
common stock of Eloqua, Inc. During 2011, 50,118 exchangeable
common shares were converted, by the holders, into an equivalent
number of shares of common stock of Eloqua, Inc.
Exchangeable
Common Stock
The exchangeable common stock, by its terms, entitle their
holders to rights to receive dividends, rights on liquidation
and other rights economically equivalent to the Eloqua, Inc.
common stock. In connection with the corporate reorganization
(note 7), which resulted in the issuance of the
exchangeable common stock, the Company and Eloqua Corporation
entered into certain ancillary agreements and other arrangements
designed to establish the economic equivalence of the
exchangeable common stocks and Eloqua, Inc. common stock and
provide ancillary rights to the holders of exchangeable common
stocks. One of these agreements, the Voting
Trust Agreement, provides that Gowlings Canada Inc. holds
one share of special voting stock as trustee for, and votes such
stock on instructions received from, the holders of the
exchangeable common stock. Under the Voting
Trust Agreement, the holders of exchangeable common stock
have voting rights in the Companys common stock
substantially equivalent to the voting rights they would
otherwise receive if they held Eloqua, Inc. common stock
directly.
Eloqua Corporation exchangeable common stock is exchangeable for
Eloqua, Inc. common stock at any time through a series of
transactions contemplated in the stock provisions and an
Exchange Rights Agreement between the Company and Eloqua
Corporation. In certain instances, however, Eloqua Corporation,
the Company or a subsidiary of the Company may have the right,
but not an obligation, to satisfy the redemption obligation by
delivering cash equal to the fair market value of the Eloqua,
Inc. common stock, which would otherwise have been delivered.
Although holders of exchangeable common stock of Eloqua
Corporation will generally determine when the stock exchange
takes place, in certain circumstances, the Company will have the
right to require an earlier redemption of the exchangeable
common stock. Generally, an early redemption may occur if:
(a) there is an event that constitutes a change of control
of the Company, Eloqua Corporation or other material subsidiary;
(b) the Company completes an initial public offering and,
among other
F-24
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
things, holders of a minimum of 70% in interest have not
delivered a notice to Eloqua Corporation that the exchangeable
common stock should not be redeemed; (c) there is a
liquidation event in respect of the Company; (d) less than
30% of the exchangeable common stock issued on the certificate
date of the Second Articles of Amendment remain outstanding; or
(e) at least 70% in interest vote to approve or consent to
such an early redemption.
(c) Warrants
The following table summarizes the warrant activity:
|
|
|
|
(i)
|
Standard common stock warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average grant
|
|
|
|
Warrants
|
|
|
date value
|
|
|
Warrants outstanding, December 31, 2009
|
|
|
540,201
|
|
|
|
0.23
|
|
Granted
|
|
|
|
|
|
|
|
|
Canceled, expired or forfeited
|
|
|
(42,128
|
)
|
|
|
|
|
Exercised
|
|
|
(101,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding, December 31, 2010
|
|
|
396,566
|
|
|
$
|
0.30
|
|
Granted
|
|
|
|
|
|
|
|
|
Canceled, expired or forfeited
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(81,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding, December 31, 2011
|
|
|
315,546
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
The warrants are exercisable immediately and upon exercise, the
warrant holders receive one share of common stock of the
Company. The total intrinsic value of the warrants exercised
during 2010 and 2011 was approximately $125,000 and $517,000
respectively. The total intrinsic value of the warrants
outstanding at December 31, 2011 is approximately
$2,376,000. Twenty thousand of the outstanding warrants expire
in April 2018 and the remainder expire in November 2012.
|
|
|
|
(ii)
|
Series C redeemable convertible preferred stock warrants:
|
In June 2007, in connection with the issuance of the
Series C redeemable convertible preferred Stock, the
Company issued warrants purchase 75,000 shares of
Series C redeemable convertible preferred stock, which
shares are convertible into 30,000 shares of common stock, with
an exercise price of $1.20. The warrants are exercisable
immediately and expire at the later of June 2014, or three years
from the date of an initial public offering occurring before
June 2014. On December 28, 2010, in connection with the
modification of the Companys long-term debt agreement, the
Company issued warrants to purchase 93,750 shares of
Series C redeemable convertible preferred stock, which
shares are convertible into 37,500 shares of common stock, with
an exercise price of $1.20. The warrants are exercisable
immediately and expire in December 2017.
Under FASB ASC Subtopic
480-10,
Distinguishing Liabilities from EquityOverall, the
warrants to purchase Series C redeemable convertible
preferred stock are required to be classified as a liability at
fair value on the consolidated balance sheet, with changes in
fair value recognized as gains or losses on the statement of
operations. The fair value of the
F-25
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
outstanding warrants was not material prior to 2010. The
following presents the change in fair value of the warrants
during 2010 and 2011 (based on level 3 inputs
(note 2(d)):
|
|
|
|
|
|
|
Estimated Fair
|
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
December 31, 2009
|
|
$
|
|
|
Issuance of warrants
|
|
|
76
|
|
Change in fair value of warrants
|
|
|
44
|
|
|
|
|
|
|
December 31, 2010
|
|
|
120
|
|
Change in fair value of warrants
|
|
|
264
|
|
|
|
|
|
|
December 31, 2011
|
|
$
|
384
|
|
|
|
|
|
|
(9) Commitments
and Contingencies
(a) Lease
Commitments
As of December 31, 2011, the Company had an approximately
$154,000 letter of credit outstanding in favor of its landlord
for office space in Vienna, Virginia, and an approximately
$79,000 letter of credit outstanding in favor of its landlord
for office space in Toronto, Canada. These letters of credit
renew annually and mature at various dates through November 2015.
Future aggregate minimum lease payments under noncancelable
operating leases are as follows:
|
|
|
|
|
|
|
(in thousands)
|
|
|
2012
|
|
$
|
1,624
|
|
2013
|
|
|
1,592
|
|
2014
|
|
|
1,397
|
|
2015
|
|
|
680
|
|
2016
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total minimum payments
|
|
$
|
5,293
|
|
|
|
|
|
|
Total rent expense under operating leases was approximately
$1,077,000, $1,268,000, and $1,563,000, for 2009, 2010, and
2011, respectively.
(b) Legal
Matters
From time to time, the Company may become involved in legal
proceedings arising in the ordinary course of its business. The
Company is currently involved in one lawsuit as a defendant. On
May 9, 2011, iHance, Inc. filed a complaint against the
Company and Eloqua Corporation, its subsidiary, in the United
States District Court for the Eastern District of Virginia,
alleging that the Eloqua for Microsoft Outlook product, or ELMO,
infringes U.S. Patent Nos. 7,072,947 and 7,076,533 and
seeking declaratory judgment of willful infringement as well as
injunctive and monetary relief. On June 28, 2011, the
Company filed an answer to the complaint, denying iHances
infringement allegations and asserting a counterclaim for a
declaratory judgment of non-infringement and invalidity.
From July 2006, the date of issuance of the iHance patents, to
December 31, 2011, the Company generated approximately
$2.7 million of revenue from sales of the ELMO product. As
of December 31,
F-26
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
2011, the Company no longer sells the ELMO product, and the
Company does not intend to sell the ELMO product in the future.
The Company has investigated the claims alleged in the complaint
and believes that it has good defenses to the claims, and has
not accrued a loss related to this matter as the Company does
not believe that it is probable that a loss will be incurred.
iHance has claimed damages in excess of the amount of revenue
the Company has generated from the allegedly infringing
products, but based on the information currently available to
the Company including its belief in the strength of
its defenses to the plaintiffs claims; its discontinuation
of ELMO sales and the launch of its Eloqua Engage product; the
amount of revenue generated by its sales of the ELMO product;
and the fact that even if it were found to infringe, legal
damages in patent cases are generally limited to reasonable lost
profits and/or a reasonable royalty the Company does
not believe that this matter will have a material adverse effect
on its business, financial position, results of operations or
cash flows. Notwithstanding the fact that the Company considers
a negative outcome to not be probable, and has consequently not
recorded a loss contingency, the Company believes if it is not
successful in defending the litigation, it is reasonably
possible that a loss could be ultimately incurred in the range
from a de minimis amount up to $2.7 million.
Trial on the iHance matter has been scheduled for July 2012. The
Company intends to continue to vigorously defend this matter.
The legal cost of this litigation is not estimable at this time,
and the Company is continuing to expense the cost of the
litigation as it is incurred.
(10) Income
Taxes
The Companys income before taxes was taxed as indicated in
the following jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Pretax income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Non U.S
|
|
$
|
15,603
|
|
|
$
|
1,894
|
|
|
$
|
2,236
|
|
U.S.
|
|
|
(19,735
|
)
|
|
|
(8,274
|
)
|
|
|
(8,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss before taxes
|
|
$
|
(4,132
|
)
|
|
$
|
(6,380
|
)
|
|
$
|
(5,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
The components of the provision for income taxes attributable to
continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Current income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
U.S. State
|
|
|
65
|
|
|
|
5
|
|
|
|
10
|
|
Non U.S.
|
|
|
16
|
|
|
|
21
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax provision (benefit)
|
|
|
81
|
|
|
|
26
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
U.S. State
|
|
|
|
|
|
|
|
|
|
|
|
|
Non U.S.
|
|
|
|
|
|
|
(4,895
|
)
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax benefit
|
|
|
|
|
|
|
(4,895
|
)
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit)
|
|
$
|
81
|
|
|
$
|
(4,869
|
)
|
|
$
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total provision differs from the amount that would be
recorded applying the 34% U.S. federal statutory rate to
income (loss) before income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
U.S. Federal tax expense at statutory rates
|
|
$
|
(1,405
|
)
|
|
$
|
(2,169
|
)
|
|
$
|
(1,963
|
)
|
Effect of foreign tax rates
|
|
|
(2,165
|
)
|
|
|
(191
|
)
|
|
|
(149
|
)
|
Nondeductible expense
|
|
|
48
|
|
|
|
84
|
|
|
|
104
|
|
Change in valuation allowance
|
|
|
6,046
|
|
|
|
(1,868
|
)
|
|
|
2,028
|
|
Other
|
|
|
(355
|
)
|
|
|
(237
|
)
|
|
|
40
|
|
State taxes (net of Federal benefit)
|
|
|
(1,244
|
)
|
|
|
(352
|
)
|
|
|
(344
|
)
|
Equity based compensation
|
|
|
244
|
|
|
|
333
|
|
|
|
406
|
|
Research incentives
|
|
|
|
|
|
|
(469
|
)
|
|
|
(302
|
)
|
Tax effect of change in subsidiary capital structure
|
|
|
|
|
|
|
|
|
|
|
558
|
|
Capital gain exclusion
|
|
|
(1,088
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
81
|
|
|
$
|
(4,869
|
)
|
|
$
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has not provided for U.S. deferred income taxes
on the cumulative unremitted earnings of its
non-U.S. affiliates as the Company plans to permanently
reinvest cumulative unremitted foreign earnings outside the
U.S. and in those jurisdictions in which the earnings were
made. These cumulative unremitted earnings in 2010 and 2011
relate primarily to ongoing operations in foreign jurisdictions
and are required to fund foreign operations, capital
expenditures, and expansion requirements. Both the unremitted
earnings and unrecognized deferred income tax liabilities are
immaterial in 2010 and 2011.
F-28
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
Significant components of the Companys deferred tax assets
and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(in thousands)
|
|
|
Current deferred tax assets:
|
|
|
|
|
|
|
|
|
Tax loss carryforwards
|
|
$
|
534
|
|
|
$
|
535
|
|
Tax credits
|
|
|
|
|
|
|
86
|
|
Accrued expenses
|
|
|
1,110
|
|
|
|
652
|
|
Other
|
|
|
512
|
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax assets
|
|
|
2,156
|
|
|
|
1,752
|
|
|
|
|
|
|
|
|
|
|
Long term deferred tax assets:
|
|
|
|
|
|
|
|
|
Tax loss carryforwards
|
|
|
13,277
|
|
|
|
14,695
|
|
Deferred research expenditures
|
|
|
397
|
|
|
|
1,441
|
|
Tax credits
|
|
|
1,093
|
|
|
|
1,396
|
|
Property and equipment
|
|
|
2,028
|
|
|
|
939
|
|
Other
|
|
|
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
Total long term deferred tax assets
|
|
|
16,795
|
|
|
|
18,781
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
18,951
|
|
|
$
|
20,533
|
|
Total long term deferred tax liabilities
|
|
|
(132
|
)
|
|
|
(52
|
)
|
Valuation allowance
|
|
|
(13,924
|
)
|
|
|
(15,952
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
4,895
|
|
|
$
|
4,529
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes.
In assessing the Companys ability to realize the future
benefit associated with its deferred tax assets, management
considers whether it is more likely than not that some portion
or all of the deferred tax assets may not be realized. The
ultimate realization is dependent on the generation of taxable
income within the periods that those temporary differences
become deductible. Due to this uncertainty, management provided
for a full valuation allowance against all of its deferred tax
assets as of December 31, 2009. During 2010, the valuation
allowance for its non-U.S. deferred tax assets was removed
due to a change in managements assessment of the
Companys ability to realize these tax assets due to
changes in the nature of its foreign operations, resulting in
the reduction of the valuation allowance on its non
U.S. deferred tax assets of approximately $4,590,000 offset
by an increase of the valuation allowances of approximately
$2,722,000 on its U.S. federal and state deferred tax
assets. Prior to 2009, the Companys foreign operations had
significant subscription sales that generated losses. Beginning
in 2009, the primary function of the Companys foreign
operations changed to providing intercompany services to Eloqua,
Inc. The contracts for these services provide that the foreign
operations will be reimbursed for all costs related to the
services plus a markup on those costs. This reimbursement method
assures a profit on services. Although the foreign operations
still incur losses on subscription sales, these losses are not
expected to exceed the profits on services. Based on two years
of pre-tax income from years ended December 31, 2009 and
2010 ($1.1 million (net of one-time gain of
$14.5 million) and $1.9 million, respectively) and the
expected profits of foreign operations from intercompany
services, the Company concluded that future income
F-29
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
from services provided by foreign operations will be sufficient
to realize the deferred tax asset in 2010. The foreign pre-tax
income for the year ended December 31, 2011 was
$2.2 million.
As of December 31, 2011, the Company continues to provide a
full valuation allowance against all of its U.S. federal and
state deferred tax assets. During 2011, the valuation allowance
increased by approximately $2,028,000 as a result of an increase
in the Companys U.S. federal and state deferred tax assets.
As of December 31, 2011, the Company has the following
U.S. net operating tax losses available to reduce future
years income for U.S. income tax purposes expiring in
the following years:
|
|
|
|
|
|
|
(in thousands)
|
|
2027
|
|
$
|
58
|
|
2028
|
|
|
6,487
|
|
2029
|
|
|
9,378
|
|
2030
|
|
|
9,812
|
|
2031
|
|
|
11,079
|
|
|
|
|
|
|
|
|
$
|
36,814
|
|
|
|
|
|
|
As of December 31, 2011, the Company has the following
Canadian net operating tax losses available to reduce future
years income for Canadian income tax purposes expiring in
the following years:
|
|
|
|
|
|
|
(in thousands)
|
|
2027
|
|
$
|
6,308
|
|
2028
|
|
|
2,099
|
|
|
|
|
|
|
|
|
$
|
8,407
|
|
|
|
|
|
|
Under Section 382 of the Internal Revenue Code, the
Companys ability to use its existing accumulated
U.S. net operating losses in the United States may be
reduced if there is a significant change in ownership of shares
of the Company.
As of December 31, 2011, the Company has accumulated
unclaimed Scientific Research and Experimental Development
expenditures available to reduce future Canadian and Ontario
taxable income of approximately $5,765,000. These amounts do not
expire. In addition, it has accumulated Canadian investment tax
credits of approximately $1,147,000 that are available to reduce
future years income taxes payable and expire beginning in
2026.
The Company applies the guidance in FASB ASC Subtopic
740-10 on
accounting for uncertainty in income taxes, which provides a
minimum recognition threshold that a tax position is required to
meet before being recognized in the financial statements. The
guidance also provides standards for derecognition, measurement,
and classification of the effects of a tax position, recognition
of interest and penalties, and disclosure.
The Company has unrecognized tax benefits of approximately
$275,000 at December 31, 2011 relating to certain Canadian
investment tax credits. The Companys policy is to classify
interest and penalties on uncertain tax positions as a component
of tax expense. There were no unrecognized tax
F-30
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2010 and 2011
benefits during 2009 and 2010. The following is a rollforward of
the Companys total gross unrecognized tax benefits:
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Tax Benefit
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2009
|
|
$
|
|
|
Additions for tax positions related to the current year
|
|
|
230
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
230
|
|
Decreases for tax positions related to prior years
|
|
|
(30
|
)
|
Additions for tax positions related to the current year
|
|
|
75
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
$
|
275
|
|
|
|
|
|
|
The Company is subject to U.S. federal income tax as well
as to income tax in multiple U.S. state jurisdictions for
all post-2008 tax years, none of which have been examined by
taxing authorities. The tax losses arising in 2007 may be
reduced in determining the proper amount of net operating loss
available to be carried forward. The Companys Canadian tax
filings are subject to examination for all post-2005 tax years.
No prior years have been reviewed by Canadian taxing
authorities. The Company is also subject to tax in the United
Kingdom and Singapore for post-2007 tax years and all filings
are subject to examination in those jurisdictions.
(11) Subsequent
Events
On January 24, 2012, the Company granted options to
purchase 176,000 shares of common stock at an exercise
price of $8.13 per share. The options vest over four years. The
aggregate grant date fair value of these awards of approximately
$809,300 is expected to be recognized over the vesting period.
On February 17, 2012, the Company entered into the
Second Amendment to Deed of Lease (the
Amendment) for its Vienna, Virginia lease. The
Amendment extends the term of the lease from May 31, 2015
to May 31, 2016 and expands the space by 7,267 additional
square feet. Base rent payments for the expansion space will
begin in April 2012 and the total estimated additional base rent
payments under the Amendment are $1,494,000.
On March 26, 2012, the Company changed its name to Eloqua,
Inc.
On March 26, 2012, the holders of the Series A,
Series B and Series C Preferred Stock agreed to a
modification of the Preferred Stock agreements to defer the
redemption date until anytime after September 26, 2013.
On May 1, 2012, the Companys Board of Directors
authorized a reverse stock split of its outstanding common stock
and exchangeable common stock at a ratio of
1-for-2.5.
On May 3, 2012, the effective date of the reverse stock
split, (i) each 2.5 shares of outstanding common stock
were reduced to one share of common stock and each
2.5 shares of exchangeable common stock were reduced to one
share of exchangeable common stock; (ii) the number of
shares of common stock into which each outstanding share of our
Series A, B and C redeemable, convertible preferred stock,
and our outstanding warrants or options to purchase common stock
is exercisable were proportionately reduced; and (iii) the
exercise price of each outstanding warrant or option to purchase
common stock were proportionately increased. All share and per
share information has been retroactively adjusted to reflect the
stock split.
F-31
ELOQUA, INC.
Consolidated
Balance Sheets
(in
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
March 31,
|
|
|
|
March 31, 2012
|
|
|
2012
|
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,419
|
|
|
|
|
|
Accounts receivable, net of reserve of $722
|
|
|
17,108
|
|
|
|
|
|
Deferred commissions and other deferred costs
|
|
|
2,458
|
|
|
|
|
|
Deferred tax asset
|
|
|
781
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
5,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
29,905
|
|
|
|
|
|
Property and equipment, net of depreciation and amortization
|
|
|
3,689
|
|
|
|
|
|
Deferred commissions and other deferred costs
|
|
|
870
|
|
|
|
|
|
Deferred tax asset
|
|
|
3,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
38,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable preferred stock and
stockholders deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,405
|
|
|
$
|
2,405
|
|
Accrued and other current liabilities
|
|
|
7,936
|
|
|
|
7,512
|
|
Deferred revenue
|
|
|
30,349
|
|
|
|
30,349
|
|
Current portion of long-term debt
|
|
|
834
|
|
|
|
834
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
41,524
|
|
|
|
41,100
|
|
Long-term debt, net of current portion
|
|
|
1,250
|
|
|
|
1,250
|
|
Non current deferred revenue and other liabilities
|
|
|
2,184
|
|
|
|
2,184
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
44,958
|
|
|
|
44,534
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock:
|
|
|
|
|
|
|
|
|
Series A preferred stock, $0.0001 par value,
12,124,650 shares authorized,
|
|
|
|
|
|
|
|
|
issued and outstanding at March 31, 2012, and no shares
outstanding pro forma (unaudited); liquidation preference of
$42,800 at March 31, 2012
|
|
|
42,800
|
|
|
|
|
|
Series B preferred stock, $0.0001 par value,
17,678,926 shares authorized,
|
|
|
|
|
|
|
|
|
issued and outstanding at March 31, 2012, and no shares
outstanding pro forma (unaudited); liquidation preference of
$62,407 at March 31, 2012
|
|
|
62,407
|
|
|
|
|
|
Series C preferred stock, $0.0001 par value,
21,483,563 shares authorized
|
|
|
|
|
|
|
|
|
and 19,766,821 issued and outstanding at March 31, 2012,
and no shares outstanding pro forma (unaudited); liquidation
preference of $69,777 at March 31, 2012
|
|
|
69,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total redeemable convertible preferred stock
|
|
|
174,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit
|
|
|
|
|
|
|
|
|
Eloqua, Inc. stockholders deficit:
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 90,000,000 shares
authorized,
|
|
|
|
|
|
|
|
|
1,171,642 shares issued and outstanding at March 31,
2012, and 24,577,346 shares outstanding pro forma
(unaudited)
|
|
|
|
|
|
|
6
|
|
Additional paid-in capital
|
|
|
|
|
|
|
177,364
|
|
Accumulated deficit
|
|
|
(183,824
|
)
|
|
|
(183,824
|
)
|
|
|
|
|
|
|
|
|
|
Total Eloqua, Inc. stockholders deficit:
|
|
|
(183,824
|
)
|
|
|
(6,454
|
)
|
Noncontrolling interest
|
|
|
1,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit:
|
|
|
(181,862
|
)
|
|
|
(6,454
|
)
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 4)
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable preferred stock and stockholders
deficit
|
|
$
|
38,080
|
|
|
$
|
38,080
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-32
ELOQUA, INC.
Consolidated Statements of Operations
Three months ended March 31, 2011 and 2012
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2012
|
|
|
|
(unaudited)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
$
|
13,901
|
|
|
$
|
19,237
|
|
Professional service
|
|
|
1,058
|
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
14,959
|
|
|
|
21,802
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Subscription and support
|
|
|
2,739
|
|
|
|
3,426
|
|
Professional service
|
|
|
2,255
|
|
|
|
2,965
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
4,994
|
|
|
|
6,391
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
9,965
|
|
|
|
15,411
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,792
|
|
|
|
3,433
|
|
Marketing and sales
|
|
|
6,851
|
|
|
|
8,175
|
|
General and administrative
|
|
|
2,546
|
|
|
|
4,967
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
12,189
|
|
|
|
16,575
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,224
|
)
|
|
|
(1,164
|
)
|
|
|
|
|
|
|
|
|
|
Other expense, net:
|
|
|
(123
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
|
|
|
(2,347
|
)
|
|
|
(1,221
|
)
|
Income tax expense
|
|
|
(63
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,410
|
)
|
|
$
|
(1,456
|
)
|
Accretion of redeemable preferred stock
|
|
|
(1,110
|
)
|
|
|
(13,880
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(3,520
|
)
|
|
$
|
(15,336
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders, basic
and diluted
|
|
$
|
(5.70
|
)
|
|
$
|
(13.69
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
617,715
|
|
|
|
1,120,475
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share attributable to common
shareholders, basic and diluted
|
|
|
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average common shares outstanding, basic and
diluted
|
|
|
|
|
|
|
24,526,179
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-33
ELOQUA, INC.
Consolidated Statements of Cash Flows
Three months ended March 31, 2011 and 2012
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2012
|
|
|
|
(unaudited)
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,410
|
)
|
|
$
|
(1,456
|
)
|
Depreciation and amortization
|
|
|
424
|
|
|
|
492
|
|
Stock compensation expense
|
|
|
340
|
|
|
|
611
|
|
Foreign currency transaction gain
|
|
|
(32
|
)
|
|
|
(35
|
)
|
Change in fair value of Series C Warrants
|
|
|
57
|
|
|
|
40
|
|
Deferred income taxes
|
|
|
42
|
|
|
|
198
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
4,940
|
|
|
|
1,120
|
|
Prepaid expenses and other assets
|
|
|
(441
|
)
|
|
|
(985
|
)
|
Deferred commissions and other deferred costs
|
|
|
103
|
|
|
|
253
|
|
Accounts payable and accrued and other current liabilities
|
|
|
(2,528
|
)
|
|
|
(4,313
|
)
|
Deferred revenue
|
|
|
2,031
|
|
|
|
1,486
|
|
Noncurrent deferred revenues and other liabilities
|
|
|
(281
|
)
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operations
|
|
|
2,245
|
|
|
|
(2,348
|
)
|
|
|
|
|
|
|
|
|
|
Investing:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(469
|
)
|
|
|
(460
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
|
|
|
(469
|
)
|
|
|
(460
|
)
|
Financing:
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
|
|
|
|
(208
|
)
|
Principal obligations under capital lease
|
|
|
(85
|
)
|
|
|
|
|
Common stock issued
|
|
|
127
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
|
|
|
42
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalent
|
|
|
32
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
1,850
|
|
|
|
(2,821
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
7,549
|
|
|
|
7,240
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
9,399
|
|
|
$
|
4,419
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
68
|
|
|
$
|
59
|
|
Income taxes paid
|
|
$
|
6
|
|
|
$
|
1
|
|
See accompanying notes to consolidated financial statements.
F-34
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2011 and 2012
|
|
(1)
|
Significant
Accounting Policies
|
|
|
(a)
|
Basis of
Presentation
|
The financial information presented in the accompanying
unaudited consolidated financial statements as of March 31,
2012, and for the three month periods ended March 31, 2011
and 2012 has been prepared in accordance with accounting
principles generally accepted in the United States (GAAP) and in
accordance with rules and regulations of the SEC. Accordingly,
they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the
opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments,
consisting of only normal recurring accruals, necessary for a
fair presentation of the financial position as of March 31,
2012, and the results of operations and cash flows for the three
months ended March 31, 2011 and 2012. These unaudited
condensed consolidated financial statements should be read in
conjunction with the annual audited consolidated financial
statements and notes thereto.
|
|
(b)
|
Fair Value of
Financial Instruments
|
Fair value represents the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants
on the measurement date. Valuation techniques used to measure
fair value must maximize the use of observable inputs and
minimize the use of unobservable inputs. The fair value
hierarchy is based on the following three levels of inputs, of
which the first two are considered observable and the last one
is considered unobservable:
|
|
|
|
|
Level 1 Quoted prices (unadjusted) in active
markets for identical assets or liabilities that we have the
ability to access at the measurement date.
|
|
|
|
Level 2 Inputs other than quoted prices
included within Level 1 that are observable for the asset
or liability, either directly or indirectly.
|
|
|
|
Level 3 Unobservable inputs.
|
The Companys financial instruments include cash and cash
equivalents, accounts receivable, accounts payable and
short-term and long-term debt. The carrying values of cash and
cash equivalents, accounts receivable, accounts payable on the
consolidated balance sheet approximate their fair value, based
on their short-term nature. The carrying value of the
Companys long-term debt at March 31, 2012
approximates fair value based on discounted cash flow analyses
using appropriate current discount rates (Level 2 within
the fair value hierarchy).
At March 31, 2012, the Companys warrants to purchase
168,750 shares of Series C convertible preferred stock
were measured using unobservable inputs that required a high
level of judgment to determine fair value, and thus were
classified as Level 3 inputs. The fair value of the
warrants to purchase 75,000 shares of Series C
convertible preferred stock were estimated using a Black-Scholes
options pricing model using the following assumptions: risk-
free rate of 0.51%; estimated volatility of 51.88%; term of
3.0 years; and zero dividend yield. The fair value of the
warrants to purchase 93,750 shares of Series C
convertible preferred stock were estimated using a Black-Scholes
options pricing model using the following assumptions: risk-free
rate of 1.61%; estimated volatility of 59.34%;
F-35
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2011 and 2012
term of 5.75 years; and zero dividend yield. The changes in
the fair value of the warrants are summarized below:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
Beginning fair value
|
|
$
|
120
|
|
|
$
|
384
|
|
Change in fair value recorded through the statement of operations
|
|
|
57
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Ending fair value
|
|
$
|
177
|
|
|
$
|
424
|
|
|
|
|
|
|
|
|
|
|
The Company derives its revenue from four
sources: (i) subscription revenue relating
to subscription fees from customers accessing its on-demand
application service; (ii) customer support beyond the
standard support that is included in the basic subscription fee;
(iii) installation and deployment services; and
(iv) other professional service revenue from consultation
and training fees. The Company provides its on-demand
application as a service and follows the provisions of FASB ASC
Subtopic
605-25,
Revenue Recognition Multiple-Element Arrangements.
The Company recognizes revenue when all of the following
conditions are met:
(i) There is persuasive evidence of an arrangement;
(ii) The service has been provided to the customer;
(iii) The collection of the fees is reasonably
assured; and
(iv) The amount of fees to be paid by the customer is
fixed or determinable.
The Companys arrangements do not contain general rights of
return.
The Company adopted the provisions of FASB ASU
2009-13,
Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements (EITF Issue
No. 08-1,
Revenue Arrangements with Multiple Deliverables) with respect to
its multiple-element arrangements entered into or significantly
modified on or after January 1, 2011. ASU
2009-13
amends
ASC 605-25
to eliminate the requirement that all undelivered elements have
vendor specific objective evidence of selling price (VSOE) or
third party evidence of selling price (TPE) before an entity can
recognize the portion of an overall arrangement fee that is
attributable to items that already have been delivered.
In the absence of VSOE and TPE for one or more delivered or
undelivered elements in a multiple-element arrangement, the
Company estimates the selling prices of those elements. The
overall arrangement fee of the Companys multiple element
arrangements are allocated to each element (both delivered and
undelivered items) based on their relative selling prices,
regardless of whether those selling prices are evidenced by VSOE
or TPE or are based on the entitys estimated selling price.
The Company is not able to demonstrate VSOE or TPE of selling
price with respect to its subscription services. The Company
does not have sufficient instances of separate sales of
subscriptions nor is it able to demonstrate sufficient pricing
consistency with respect to such sales. The Company also
considers that no other vendor sells similar subscriptions given
the unique nature and functionality of its service offering, and
therefore has determined that it is not able to establish
F-36
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2011 and 2012
TPE of selling price. Therefore, the Company has determined the
best estimated selling price based on the following:
|
|
|
|
|
Expected discounts from the list price for each service
offering, which represents a component of the Companys
current
go-to-market
strategy, as established by senior management taking into
consideration factors such as the competitive and economic
environment.
|
|
|
|
An analysis of the historical pricing with respect to both of
the Companys bundled and standalone subscription
arrangements.
|
The Company has established VSOE of selling price for its
professional services based on an analysis of separate sales of
such services.
The Companys multiple-element arrangements includes the
sale of a subscription with one or more associated professional
service offerings, each of which are individually considered
separate units of accounting. The Company allocated revenue to
each element in a multiple-element arrangement based upon the
relative selling price of each deliverable.
Subscription and support revenue is recognized ratably over the
contract terms beginning on the activation date of each
contract. Amounts that have been invoiced are recorded in
accounts receivable and in deferred revenue or revenue,
depending on whether the revenue recognition criteria have been
met.
Consulting services, including professional services and
training have stand alone value from the related subscription
services. Professional services, including implementation
services and other standard professional services are generally
provided under fixed price, short-term arrangements. These
services are generally performed beginning at the point of
subscription activation and spanning over periods of
approximately 60, 90, or 120 days, depending on the nature
of the services. Revenues relating to these services are
recognized ratably over the period that the services are
provided. Certain other standard professional service and
non-standard professional service arrangements include customer
acceptance provisions. Services provided under arrangements that
include customer acceptance provisions are generally provided
under fixed price, short-term arrangements, and the revenue is
deferred and recognized upon customer acceptance of the service
deliverable. Training revenue is recognized after the service
has been performed. Revenue related to our user conference is
recognized upon completion of the conference.
There was no difference between net loss presented in the
consolidated statements of operations and comprehensive net loss
for the three months ended March 31, 2011 or 2012.
|
|
(e)
|
Net loss per
share attributable to common stockholders
|
The weighted average shares and share equivalents used to
calculate basic and diluted loss per share for the three months
ended March 31, 2011 and 2012 are presented on the
consolidated statement of operations. Basic net loss per share
of common stock is calculated by dividing the net loss
attributable to common stockholders by the weighted average
number of shares of common stock outstanding for a period.
Because holders of the Companys convertible preferred
stock and holders of the exchangeable common stock are entitled
to participate in dividends and earnings of the Company,
F-37
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2011 and 2012
the Company applies the two-class method in calculating our
earnings per share for periods when the Company generates net
income. The two-class method requires net income to be allocated
between the common stockholders, exchangeable common
stockholders and preferred stockholders based on their
respective rights to receive dividends. Because the preferred
stockholders and the exchangeable common stockholders are not
contractually obligated to share in the Companys losses,
no such allocation was made for any period presented given the
Companys net losses. Diluted loss per share attributable
to common stockholders adjusts the basic weighted average number
of shares of common stock outstanding for the potential dilution
that could occur if stock options, warrants, exchangeable common
stock and convertible preferred stock were exercised or
converted into common stock. Diluted loss per share attributable
to common stockholders is the same as basic loss per share
attributable to common stockholders for all periods presented
because the effects of potentially dilutive items were
anti-dilutive.
The following table presents the weighted average number of
anti-dilutive shares excluded from the calculation of diluted
net loss attributable to common stockholders for each period
presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
Options to purchase common stock
|
|
|
7,135
|
|
|
|
7,774
|
|
Common stock warrants
|
|
|
396
|
|
|
|
315
|
|
Series C preferred stock warrants
|
|
|
68
|
|
|
|
68
|
|
Exchangeable common stock
|
|
|
3,628
|
|
|
|
3,578
|
|
Conversion of convertible preferred stock
|
|
|
19,828
|
|
|
|
19,828
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
31,055
|
|
|
|
31,563
|
|
|
|
|
|
|
|
|
|
|
|
|
(f)
|
Unaudited Pro
Forma Information
|
All of the outstanding shares of convertible preferred stock
will convert into common stock on the closing of an initial
public offering of common stock under the Securities Act of
1933, in which the Company receives at least $25 million in
gross proceeds and the offering price is at least $8.75 per
common share, and the outstanding preferred stock warrants will
convert to common stock warrants. In addition, upon the closing
of this initial public offering, the Company expects to have
obtained the necessary votes required to ensure that the
exchangeable common stock of Eloqua Corporation will convert
into common stock on the closing of an initial public offering.
The pro forma balance sheet information assumes the conversion
of the preferred stock to common stock, the conversion of the
preferred warrants to common stock warrants, and the conversion
of exchangeable common stock to common stock as of
March 31, 2012. For purposes of pro forma net loss per
share attributable to common stockholders, all shares of
convertible preferred stock and exchangeable common stock have
been treated as though they have converted to common stock of
the Company at the beginning of the respective periods.
F-38
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2011 and 2012
The following table sets forth the computation of pro forma
basic and diluted net loss per share of common stock for the
three months ended March 31, 2012:
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2012
|
|
|
|
(in thousands, except share
|
|
|
|
and per share data)
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(15,336
|
)
|
Pro forma adjustment to reverse accretion of redeemable
convertible preferred stock
|
|
|
13,880
|
|
|
|
|
|
|
Pro forma net loss attributable to common stockholders
|
|
$
|
(1,456
|
)
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
1,120,475
|
|
Pro forma adjustment to reflect conversion of convertible
preferred stock
|
|
|
19,828,150
|
|
Pro forma adjustment to reflect conversion of exchangeable
common stock
|
|
|
3,577,554
|
|
|
|
|
|
|
Pro forma weighted average common shares outstanding, basic and
diluted
|
|
|
24,526,179
|
|
|
|
|
|
|
Pro forma net loss per share attributable to common
stockholders, basic and diluted
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
Prior to August 25, 2006, Eloqua Corporation granted
options to purchase common shares under its then existing stock
option plan (the Prior Plan). Under the Prior Plan,
options to purchase common shares could be granted to employees,
directors and consultants at an exercise price of not less than
the market value on the effective date of the grant. Options
generally vested over four years. Upon the reorganization, all
outstanding options under the Prior Plan were exchanged for
options under, (i) in the case of U.S. holders of
options, the newly established Eloqua Limited 2006
U.S. Employee Stock Option Plan (the 2006
U.S. Employee Plan) and (ii) in the case of all
other optionholders, the newly established Eloqua Limited 2006
Stock Option Plan (the 2006 Plan) and the Prior Plan
was dissolved. The 2006 U.S. Employee Plan is restricted in
number to those options granted to U.S. residents under the
Prior Plan and who, pursuant to the reorganization, exchanged
such options for options under the 2006 U.S. Employee Plan.
Since the reorganization, the Company has and intends to
continue to grant options only pursuant to the 2006 Plan. The
2006 Plan allows for options to purchase common stock to be
issued to employees, directors and consultants of the Company.
As of March 31, 2012, 10,054,246 common shares have been
reserved for issuance under the 2006 Plan, and 193,926 common
shares have been reserved for issuance under the 2006
U.S. Employee Plan. At March 31, 2012, there were
725,770 shares of common stock available for future grant
under the 2006 Plan and the 2006 U.S. Employee Plan.
Options generally vest 25% on the first anniversary of the date
of grant and 1/36 over the following successive 36 months.
Options have a maximum life of 10 years. The option
exercise price shall be no less than the fair value of the
common stock on the date of grant.
The Company has elected the straight-line attribution method as
its accounting policy for recognizing stock-based compensation
expense for all awards.
F-39
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2011 and 2012
Summary of assumptions used in the valuation of stock-based
awards under the Black-Scholes model were as follows:
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2012
|
|
|
Expected term
|
|
|
6.1 years
|
|
Volatility
|
|
|
59.34
|
%
|
Risk-free interest rate
|
|
|
1.74
|
%
|
Dividend yield
|
|
|
|
|
The following table summarizes the stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Options outstanding, December 31, 2011
|
|
|
7,759,176
|
|
|
$
|
2.15
|
|
|
|
5.5 years
|
|
|
$
|
46,361
|
|
Granted
|
|
|
756,120
|
|
|
|
8.65
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(108,303
|
)
|
|
|
1.48
|
|
|
|
|
|
|
|
|
|
Canceled, expired or forfeited
|
|
|
(122,191
|
)
|
|
|
2.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, March 31, 2012
|
|
|
8,284,802
|
|
|
$
|
2.75
|
|
|
|
5.6 years
|
|
|
$
|
50,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2012
|
|
|
5,460,280
|
|
|
$
|
1.40
|
|
|
|
4.0 years
|
|
|
$
|
40,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of options granted
during the three months ended March 31, 2012 was $4.85. The
total intrinsic value of options exercised during the three
months ended March 31, 2012 was approximately $679,000.
The Company recorded stock-based compensation expense relating
to the issuance of stock options of approximately $611,000 and
$340,000, during the three months ended March 31, 2012 and
2011, respectively. At March 31, 2012, there was
approximately $5,897,000 of total unrecognized compensation
costs that is expected to be recognized over a weighted average
period of 1.7 years.
|
|
(3)
|
Series C
Preferred Stock Warrants
|
In June 2007, in connection with the issuance of the
Series C redeemable convertible preferred Stock, the
Company issued warrants to purchase 75,000 shares of
Series C redeemable convertible preferred stock, which
shares are convertible into 30,000 shares of common stock,
with an exercise price of $1.20. The warrants are exercisable
immediately and expire at the later of June 2014, or three years
from the date of an initial public offering occurring before
June 2014. On December 28, 2010, in connection with the
modification of the Companys long-term debt agreement, the
Company issued warrants to purchase 93,750 shares of
Series C redeemable convertible preferred stock, which
shares are convertible into 37,500 shares of common stock,
with an exercise price of $1.20. The warrants are exercisable
immediately and expire in December 2017.
Under FASB ASC Subtopic
480-10,
Distinguishing Liabilities from Equity
Overall, the warrants to purchase Series C redeemable
convertible preferred stock are required to be classified as a
liability at fair value on the consolidated balance sheet, with
changes in fair value recognized as gains or losses on the
statement of operations.
At March 31, 2012, the estimated fair value of the warrants
was approximately $424,000.
F-40
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2011 and 2012
From time to time, the Company may become involved in legal
proceedings arising in the ordinary course of its business. The
Company is currently involved in one lawsuit as a defendant. On
May 9, 2011, iHance, Inc. filed a complaint against the
Company and Eloqua Corporation, its subsidiary, in the United
States District Court for the Eastern District of Virginia,
alleging that the Eloqua for Microsoft Outlook product, or ELMO,
infringes U.S. Patent Nos. 7,072,947 and 7,076,533 and
seeking declaratory judgment of willful infringement as well as
injunctive and monetary relief. On June 28, 2011, the
Company filed an answer to the complaint, denying iHances
infringement allegations and asserting a counterclaim for a
declaratory judgment of non-infringement and invalidity.
From July 2006, the date of issuance of the iHance patents, to
December 31, 2011, the Company generated approximately
$2.7 million of revenue from sales of the ELMO product. As
of December 31, 2011, the Company no longer sells the ELMO
product, and the Company does not intend to sell the ELMO
product in the future.
The Company has investigated the claims alleged in the complaint
and believes that it has good defenses to the claims, and has
not accrued a loss related to this matter as the Company does
not believe that it is probable that a loss will be incurred.
iHance has claimed damages in excess of the amount of revenue
the Company has generated from the allegedly infringing
products, but based on the information currently available to
the Company including its belief in the strength of
its defenses to the plaintiffs claims; its discontinuation
of ELMO sales and the launch of its Eloqua Engage product; the
amount of revenue generated by its sales of the ELMO product;
and the fact that even if it were found to infringe, legal
damages in patent cases are generally limited to reasonable lost
profits
and/or a
reasonable royalty the Company does not believe that
this matter will have a material adverse effect on its business,
financial position, results of operations or cash flows.
Notwithstanding the fact that the Company considers a negative
outcome to not be probable, and has consequently not recorded a
loss contingency, the Company believes if it is not successful
in defending the litigation, it is reasonably possible that a
loss could be ultimately incurred in the range from a de
minimis amount up to $2.7 million.
Trial on the iHance matter has been scheduled for July 2012. The
Company intends to continue to vigorously defend this matter.
The legal cost of this litigation is not estimable at this time,
and the Company is continuing to expense the cost of the
litigation as it is incurred.
The Company is subject to U.S. federal income tax, state
income tax and various foreign income taxes. The effective
income tax rate for the three months ended March 31, 2012
reflects various foreign income taxes and the non-realizable net
deferred tax assets in the U.S. In assessing the
Companys ability to realize the future benefit associated
with its deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred
tax assets may not be realized. The ultimate realization is
dependent on the generation of taxable income within the periods
that those temporary differences become deductible. The Company
has not recorded a valuation allowance for its non
U.S. deferred tax assets due to managements
assessment that it is more-likely-than-not that the
Companys will be able to realize these tax assets.
F-41
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2011 and 2012
The Company has recorded valuation allowances on the net
deferred tax assets of the Companys U.S. operations
and does not anticipate recording an income tax benefit related
to these deferred tax assets. The Company will reassess the
realization of deferred tax assets based on accounting standards
for income taxes each reporting period and will be able to
reduce the valuation allowance to the extent that the financial
results of these operations improve and it becomes more likely
than not that the deferred tax assets are realizable.
The Company has unrecognized tax benefits of approximately
$291,000, at March 31, 2012, relating to certain Canadian
investment tax credits. The Companys policy is to classify
interest and penalties on uncertain tax positions as a component
of tax expense. The following is a rollforward of the
Companys total gross unrecognized tax benefits during 2011.
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Tax Benefit
|
|
|
|
(in thousands)
|
|
|
Balance at December 31, 2011
|
|
$
|
275
|
|
Additions for tax positions related to the current year
|
|
|
16
|
|
|
|
|
|
|
Balance at March 31, 2012
|
|
$
|
291
|
|
|
|
|
|
|
|
|
(6)
|
Recently Adopted
Accounting Standards
|
In 2011, the FASB issued ASU
2011-05,
Presentation of Comprehensive Income, which provides updated
guidance for disclosing comprehensive income. The update is
intended to increase the prominence of other comprehensive
income (loss) in the financial statements. The guidance requires
that the Company present components of comprehensive income in
either one continuous statement or two separate but consecutive
statements and no longer permits the presentation of
comprehensive income in the consolidated statement of
stockholders equity. The Company adopted this new guidance
effective January 1, 2012, as required. The Company does
not have other comprehensive income to report and, therefore,
there was no impact on its financial statements as a result of
adopting
ASU 2011-05.
In 2011, the FASB issued ASU
2011-04,
Fair Value Measurement (Topic 820): Amendments to Achieve Common
Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs. The new standards do not extend the
use of fair value but, rather, provide guidance about how fair
value should be applied where it already is required or
permitted under IFRS or U.S. GAAP. For U.S. GAAP, most
of the changes are clarifications of existing guidance or
wording changes to align with IFRS. The Company adopted this new
guidance effective January 1, 2012, as required. The
Companys adoption of this new guidance effective
January 1, 2012 did not have a material impact on its
consolidated financial statements.
On May 1, 2012, the Company granted options to purchase
245,000 shares of common stock at an exercise price of $9.03 per
share. The options vest between one and four years. The
aggregate grant date fair value of these awards of approximately
$1,181,400 is expected to be recognized over the vesting period.
F-42
ELOQUA, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31,
2011 and 2012
On May 1, 2012, the Companys Board of Directors
authorized a reverse stock split of its outstanding common stock
and exchangeable common stock at a ratio of
1-for-2.5.
On May 3, 2012, the effective date of the reverse stock
split, (i) each 2.5 shares of outstanding common stock
were reduced to one share of common stock and each
2.5 shares of exchangeable common stock were reduced to one
share of exchangeable common stock; (ii) the number of
shares of common stock into which each outstanding share of our
Series A, B and C redeemable, convertible preferred stock,
and our outstanding warrants or options to purchase common stock
is exercisable were proportionately reduced; and (iii) the
exercise price of each outstanding warrant or option to purchase
common stock were proportionately increased. All share and per
share information has been retroactively adjusted to reflect the
stock split.
F-43
SCHEDULE IIVALUATION
AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Charged to
|
|
Charged
|
|
|
|
Balance at
|
|
|
Beginning of
|
|
Costs and
|
|
to Other
|
|
|
|
End of
|
Description
|
|
Period
|
|
Expenses
|
|
Accounts
|
|
Deductions
|
|
Period
|
|
|
(In thousands)
|
|
Year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,400
|
|
|
$
|
480
|
|
|
$
|
|
|
|
$
|
818
|
|
|
$
|
1,062
|
|
Deferred tax asset valuation allowance
|
|
$
|
9,747
|
|
|
$
|
6,044
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,791
|
|
Year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,062
|
|
|
$
|
404
|
|
|
$
|
|
|
|
$
|
516
|
|
|
$
|
950
|
|
Deferred tax asset valuation allowance
|
|
$
|
15,791
|
|
|
$
|
(1,867
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13,924
|
|
Year ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
950
|
|
|
$
|
426
|
|
|
$
|
|
|
|
$
|
651
|
|
|
$
|
725
|
|
Deferred tax asset valuation allowance
|
|
$
|
13,924
|
|
|
$
|
2,028
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,952
|
|
F-44
Shares
Eloqua, Inc.
Common Stock
|
|
J.P.
Morgan |
Deutsche Bank Securities |
|
|
|
JMP
Securities |
Needham & Company |
Pacific Crest Securities |
Through and
including ,
2012 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealers obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other Expenses of
Issuance and Distribution
|
The following table sets forth the costs and expenses, other
than the underwriting discount, payable by us in connection with
the sale of common stock being registered. All amounts are
estimated except the SEC registration fee and the FINRA filing
fees.
|
|
|
|
|
SEC registration fee
|
|
$
|
11,610
|
|
FINRA filing fee
|
|
|
10,500
|
|
NASDAQ Global Market listing fee
|
|
|
*
|
|
Printing and engraving expenses
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Blue Sky fees and expenses (including legal fees)
|
|
|
*
|
|
Roadshow related expenses
|
|
|
*
|
|
Transfer agent and registrar fees and expenses
|
|
|
*
|
|
Miscellaneous
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
|
|
|
|
|
* |
|
To be provided by amendment. |
|
|
Item 14.
|
Indemnification
of Directors and Officers
|
Section 145(a) of the Delaware General Corporation Law
provides, in general, that a corporation may indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation), because he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including
attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding, if he or she
acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
Section 145(b) of the Delaware General Corporation Law
provides, in general, that a corporation may indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor
because the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys fees)
actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suit if he or
she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made with
respect to any claim, issue or matter as to which he or she
shall have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery or other
adjudicating court determines that, despite the adjudication of
liability but in view of
all of the circumstances of the case, he or she is fairly and
reasonably entitled to indemnity for such expenses which the
Court of Chancery or other adjudicating court shall deem proper.
Section 145(g) of the Delaware General Corporation Law
provides, in general, that a corporation may purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any
such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify
the person against such liability under Section 145 of the
Delaware General Corporation Law.
Article VII of our amended and restated certificate of
incorporation (the Charter), provides that no
director of our company shall be personally liable to us or our
stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (1) for any breach
of the directors duty of loyalty to us or our
stockholders, (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, (3) in respect of unlawful dividend payments or
stock redemptions or repurchases, or (4) for any
transaction from which the director derived an improper personal
benefit. In addition, our Charter provides that if the Delaware
General Corporation Law is amended to authorize the further
elimination or limitation of the liability of directors, then
the liability of a director of our company shall be eliminated
or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Article VII of the Charter further provides that any repeal
or modification of such article by our stockholders or amendment
to the Delaware General Corporation Law will not adversely
affect any right or protection existing at the time of such
repeal or modification with respect to any acts or omissions
occurring before such repeal or modification of a director
serving at the time of such repeal or modification.
Article V of our amended and restated by-laws (the
By-Laws), provides that we will indemnify each of
our directors and officers and, in the discretion of our board
of directors, certain employees, to the fullest extent permitted
by the Delaware General Corporation Law as the same may be
amended (except that in the case of amendment, only to the
extent that the amendment permits us to provide broader
indemnification rights than the Delaware General Corporation Law
permitted us to provide prior to such the amendment) against any
and all expenses, judgments, penalties, fines and amounts
reasonably paid in settlement that are incurred by the director,
officer or such employee or on the directors,
officers or employees behalf in connection with any
threatened, pending or completed proceeding or any claim, issue
or matter therein, to which he or she is or is threatened to be
made a party because he or she is or was serving as a director,
officer or employee of our company, or at our request as a
director, partner, trustee, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, if he or she acted in good
faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of our company and, with
respect to any criminal proceeding, had no reasonable cause to
believe his or her conduct was unlawful. Article V of the
By-Laws further provides for the advancement of expenses to each
of our directors and, in the discretion of the board of
directors, to certain officers and employees.
In addition, Article V of the By-Laws provides that the
right of each of our directors and officers to indemnification
and advancement of expenses shall be a contract right and shall
not be exclusive of any other right now possessed or hereafter
acquired under any statute, provision of the Charter or By-Laws,
agreement, vote of stockholders or otherwise. Furthermore,
Article V of the By-Laws authorizes us to provide insurance
for our directors, officers and employees, against any
liability, whether or not
II-2
we would have the power to indemnify such person against such
liability under the Delaware General Corporation Law or the
provisions of Article V of the By-Laws.
In connection with the sale of common stock being registered
hereby, we intend to enter into indemnification agreements with
each of our directors and our executive officers. These
agreements will provide that we will indemnify each of our
directors and such officers to the fullest extent permitted by
law and the Charter and By-Laws.
We also maintain a general liability insurance policy which
covers certain liabilities of directors and officers of our
company arising out of claims based on acts or omissions in
their capacities as directors or officers.
In any underwriting agreement we enter into in connection with
the sale of common stock being registered hereby, the
underwriters will agree to indemnify, under certain conditions,
us, our directors, our officers and persons who control us
within the meaning of the Securities Act of 1933, as amended,
against certain liabilities.
|
|
Item 15.
|
Recent Sales of
Unregistered Securities
|
In the three years preceding the filing of this registration
statement, we have issued the following securities that were not
registered under the Securities Act:
Grants and
Exercises of Stock Options
Since January 1, 2009, we have granted stock options to
purchase an aggregate of 4,934,320 shares of our common
stock at exercise prices ranging from $1.20 to $9.03. Since
January 1, 2009, we have issued an aggregate of
1,057,837 shares of our common stock upon exercise of stock
options granted pursuant to our 2006 Stock Option Plan and our
2006 US Employee Stock Option Plan for aggregate consideration
of $1,363,420. The option grants and the issuances of common
stock upon exercise of the options were exempt either pursuant
to Rule 701, as a transaction pursuant to a compensatory
benefit plan, or pursuant to Section 4(2), as a transaction
by an issuer not involving a public offering. The shares of
common stock issued upon exercise of options are deemed
restricted securities for the purposes of the Securities Act.
Grants and
Exercises of Warrants
In December 2010, we issued a warrant to purchase
93,750 shares of our Series C preferred stock to an
accredited investor at an exercise price of $1.20 per share.
Since January 1, 2009, we have issued an aggregate of
182,524 shares of our common stock upon exercise of common
stock warrants for aggregate consideration of $105,528. The
warrant issuance and the issuances of common stock upon exercise
of the warrants were exempt pursuant to Section 4(2), as a
transaction by an issuer not involving a public offering. The
shares of common stock issued upon exercise of warrants are
deemed restricted securities for the purposes of the Securities
Act.
Issuances of
Capital Stock
On December 14, 2011, we issued an aggregate of
50,118 shares of our common stock to two stockholders in
exchange for an equal number of exchangeable common shares of
our subsidiary Eloqua Corporation held by those stockholders.
The issuances of our common stock were exempt pursuant to
Section 4(2) of the Securities Act as a transaction by an
issuer not involving a public offering. The shares of common
stock are deemed restricted securities for the purposes of the
Securities Act.
II-3
(a)
|
|
|
|
|
Number
|
|
Description
|
|
|
1
|
.1*
|
|
Form of Underwriting Agreement
|
|
3
|
.1**
|
|
Second Amended and Restated Certificate of Incorporation of the
Registrant (as amended and currently in effect)
|
|
3
|
.2**
|
|
Form of Third Amended and Restated Certificate of Incorporation
of the Registrant (to be effective upon the completion of the
offering)
|
|
3
|
.3**
|
|
By-laws of the Registrant (as currently in effect)
|
|
3
|
.4**
|
|
Amended and Restated By-laws of the Registrant (to be effective
upon the completion of the offering)
|
|
4
|
.1
|
|
Specimen Common Stock Certificate
|
|
4
|
.2**
|
|
Second Amended and Restated Investor Rights Agreement, dated
September 27, 2007
|
|
4
|
.3**
|
|
Amended and Restated Stockholders Agreement, dated
September 27, 2007, as amended
|
|
4
|
.4**
|
|
Warrant to Purchase Stock issued June 29, 2007 to Comerica
Bank
|
|
4
|
.5**
|
|
Warrant to Purchase Stock issued December 28, 2010 to
Silicon Valley Bank
|
|
4
|
.6**
|
|
Form of Common Stock Warrant
|
|
5
|
.1*
|
|
Opinion of Goodwin Procter LLP
|
|
10
|
.1**
|
|
2006 Stock Option Plan and forms of award agreements thereunder
|
|
10
|
.2**
|
|
2006 U.S. Employee Stock Plan and forms of award agreements
thereunder
|
|
10
|
.3**
|
|
2012 Employee Stock Purchase Plan
|
|
10
|
.4**
|
|
2012 Stock Option and Incentive Plan and forms of award
agreements thereunder
|
|
10
|
.5**
|
|
Form of Indemnification Agreement between the Registrant and
each of its Executive Officers and Directors
|
|
10
|
.6**
|
|
Loan and Security Agreement between Silicon Valley Bank and the
Registrant, dated June 15, 2009, as amended
|
|
10
|
.7**
|
|
Deed of Lease between Tysons International Plaza I &
II, L.P. and the Registrant, dated as of June 25, 2009, as
amended
|
|
10
|
.8**
|
|
Lease between 674951 Ontario Limited and Eloqua Corporation,
dated as of February 10, 2005, as amended
|
|
10
|
.9*
|
|
Employment Agreement, dated April 15, 2008 by and between
the Registrant and Joseph P. Payne, as amended
December 29, 2008
|
|
10
|
.10*
|
|
Employment Agreement, dated February 15, 2008 by and
between the Registrant and Don E. Clarke, as amended
December 24, 2008
|
|
10
|
.11*
|
|
General Employment Offer Letter, dated June 22, 2009, by
and between the Registrant and Alex P. Shootman
|
|
10
|
.12*
|
|
General Employment Offer Letter, dated July 19, 2008, by
and between the Registrant and Brian E. Kardon, as amended
December 28, 2008
|
|
10
|
.13*
|
|
General Employment Offer Letter, dated March 14, 2008, by
and between the Registrant and Andre H.S. Yee, as amended
December 13, 2008
|
|
10
|
.14*
|
|
General Employment Offer Letter, dated April 30, 2012, by
and between the Registrant and Heidi M. Melin
|
|
10
|
.15*
|
|
General Employment Offer Letter, dated March 24, 2010, by
and between the Registrant and Stephen E. Holsten
|
|
10
|
.16**
|
|
Senior Executive Incentive Bonus Plan
|
|
21
|
.1**
|
|
List of Subsidiaries of the Registrant
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
23
|
.2*
|
|
Consent of Goodwin Procter LLP (included in Exhibit 5.1)
|
|
23
|
.3**
|
|
Consent of Timan, LLC
|
|
24
|
.1**
|
|
Power of Attorney (included on signature page)
|
|
|
|
* |
|
To be filed by amendment |
(b) Financial Statement Schedules
See page F-43 for financial statement schedules included in the
Registration Statement, which are incorporated by reference
herein.
II-4
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) If the registrant is subject to Rule 430C, each
prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in
a document incorporated or deemed incorporated by reference into
the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or
prospectus that was part of the registration statement or made
in any such document immediately prior to such date of first use.
(4) For the purpose of determining liability of the
registrant under the Securities Act to any purchaser in the
initial distribution of the securities:
(i) that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell such
securities to such purchaser:
(A) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
II-5
(B) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
(C) The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
(D) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this amendment
no. 6 to registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of
Vienna, Commonwealth of Virginia on the 31st day of
May, 2012.
ELOQUA, INC.
Joseph P. Payne
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this amendment no. 6 to registration statement has
been signed by the following persons in the capacities indicated
on May 31, 2012:
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|
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Signature
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Title(s)
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/s/ Joseph
P. Payne
Joseph
P. Payne
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Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer)
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/s/ Don
E. Clarke
Don
E. Clarke
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Chief Financial Officer,
Treasurer and Secretary (Principal Financial and Principal
Accounting Officer)
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*
Byron
B. Deeter
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Director
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*
Neal
Dempsey
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Director
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*
John
J. McDonnell, Jr.
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Director
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*
Thomas
Reilly
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Director
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*
Stephen
M. Swad
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Director
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*
Bradford
D. Woloson
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Director
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*By:
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/s/ Joseph
P. Payne
Joseph
P. Payne
Attorney-in-fact
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II-7
EXHIBIT INDEX
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Number
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Description
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1
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.1*
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Form of Underwriting Agreement
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3
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.1**
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Second Amended and Restated Certificate of Incorporation of the
Registrant (as amended and currently in effect)
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3
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.2**
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|
Form of Third Amended and Restated Certificate of Incorporation
of the Registrant (to be effective upon the completion of the
offering)
|
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3
|
.3**
|
|
By-laws of the Registrant (as currently in effect)
|
|
3
|
.4**
|
|
Amended and Restated By-laws of the Registrant (to be effective
upon the completion of the offering)
|
|
4
|
.1
|
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Specimen Common Stock Certificate
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|
4
|
.2**
|
|
Second Amended and Restated Investor Rights Agreement, dated
September 27, 2007
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|
4
|
.3**
|
|
Amended and Restated Stockholders Agreement, dated
September 27, 2007, as amended
|
|
4
|
.4**
|
|
Warrant to Purchase Stock issued June 29, 2007 to Comerica
Bank
|
|
4
|
.5**
|
|
Warrant to Purchase Stock issued December 28, 2010 to
Silicon Valley Bank
|
|
4
|
.6**
|
|
Form of Common Stock Warrant
|
|
5
|
.1*
|
|
Opinion of Goodwin Procter LLP
|
|
10
|
.1**
|
|
2006 Stock Option Plan and forms of award agreements thereunder
|
|
10
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.2**
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|
2006 U.S. Employee Stock Plan and forms of award agreements
thereunder
|
|
10
|
.3**
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|
2012 Employee Stock Purchase Plan
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|
10
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.4**
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|
2012 Stock Option and Incentive Plan and forms of award
agreements thereunder
|
|
10
|
.5**
|
|
Form of Indemnification Agreement between the Registrant and
each of its Executive Officers and Directors
|
|
10
|
.6**
|
|
Loan and Security Agreement between Silicon Valley Bank and the
Registrant, dated June 15, 2009, as amended
|
|
10
|
.7**
|
|
Deed of Lease between Tysons International Plaza I &
II, L.P. and the Registrant, dated as of June 25, 2009, as
amended
|
|
10
|
.8**
|
|
Lease between 674951 Ontario Limited and Eloqua Corporation,
dated as of February 10, 2005, as amended
|
|
10
|
.9*
|
|
Employment Agreement, dated April 15, 2008 by and between
the Registrant and Joseph P. Payne, as amended
December 29, 2008
|
|
10
|
.10*
|
|
Employment Agreement, dated February 15, 2008 by and
between the Registrant and Don E. Clarke, as amended
December 24, 2008
|
|
10
|
.11*
|
|
General Employment Offer Letter, dated June 22, 2009, by
and between the Registrant and Alex P. Shootman
|
|
10
|
.12*
|
|
General Employment Offer Letter, dated July 19, 2008, by
and between the Registrant and Brian E. Kardon, as amended
December 28, 2008
|
|
10
|
.13*
|
|
General Employment Offer Letter, dated March 14, 2008, by
and between the Registrant and Andre H.S. Yee, as amended
December 13, 2008
|
|
10
|
.14*
|
|
General Employment Offer Letter, dated April 30, 2012, by
and between the Registrant and Heidi M. Melin
|
|
10
|
.15*
|
|
General Employment Offer Letter, dated March 24, 2010, by
and between the Registrant and Stephen E. Holsten
|
|
10
|
.16**
|
|
Senior Executive Incentive Bonus Plan
|
|
21
|
.1**
|
|
List of Subsidiaries of the Registrant
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
23
|
.2*
|
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Consent of Goodwin Procter LLP (included in Exhibit 5.1)
|
|
23
|
.3**
|
|
Consent of Timan, LLC
|
|
24
|
.1**
|
|
Power of Attorney (included on signature page)
|
|
|
|
* |
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To be filed by amendment |