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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-34803

 

 

Qlik Technologies Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware   20-1643718

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

150 N. Radnor Chester Road, Suite E220

Radnor, Pennsylvania

  19087
(Address of principal executive offices)   (Zip Code)

(888) 828-9768

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filed, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer.” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of October 29, 2012, there were 85,899,584 shares of the registrant’s common stock issued and outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

  

Item 1. Financial Statements

  

Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011

     1   

Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011

     2   

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2012 and 2011

     3   

Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011

     4   

Notes to Unaudited Consolidated Financial Statements

     5   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     13   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     29   

Item 4. Controls and Procedures

     30   

PART II – OTHER INFORMATION

  

Item 1. Legal Proceedings

     30   

Item 1A. Risk Factors

     30   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     31   

Item 3. Defaults Upon Senior Securities

     31   

Item 4. Mine Safety Disclosures

     31   

Item 5. Other Information

     31   

Item 6. Exhibits

     32   

SIGNATURES

     33   


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

QLIK TECHNOLOGIES INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

     September 30,     December 31,  
     2012     2011  
     (unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 193,111      $ 177,413   

Accounts receivable, net of allowance for doubtful accounts of $1,223 and $891, respectively

     75,002        111,710   

Prepaid expenses and other current assets

     11,851        10,194   

Income tax receivable

     13,831        —     

Deferred income taxes

     747        753   
  

 

 

   

 

 

 

Total current assets

     294,542        300,070   

Property and equipment, net

     15,351        10,766   

Intangible assets, net

     5,995        198   

Goodwill

     7,483        2,800   

Deferred income taxes

     1,458        2,303   

Deposits and other noncurrent assets

     2,376        1,571   
  

 

 

   

 

 

 

Total assets

   $ 327,205      $ 317,708   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Line of credit

   $ 45      $ 326   

Accounts payable

     5,967        4,847   

Deferred revenue

     64,838        63,914   

Accrued payroll and other related costs

     26,800        30,572   

Accrued expenses

     18,075        18,391   
  

 

 

   

 

 

 

Total current liabilities

     115,725        118,050   

Long-term liabilities:

    

Deferred revenue

     1,677        3,202   

Other long-term liabilities

     5,453        6,921   
  

 

 

   

 

 

 

Total liabilities

     122,855        128,173   

Commitments and contingencies

    

Stockholders’ equity:

    

Preferred stock, $0.0001 par value, 10,000,000 authorized, none issued and outstanding at September 30, 2012 and December 31, 2011

     —          —     

Common stock, $0.0001 par value, 300,000,000 shares authorized; 85,886,943 shares issued and outstanding at September 30, 2012 and 84,397,823 shares issued and outstanding at December 31, 2011

     9        8   

Additional paid-in-capital

     201,982        180,058   

Retained earnings (accumulated deficit)

     (249     9,177   

Accumulated other comprehensive income

     2,608        292   
  

 

 

   

 

 

 

Total stockholders’ equity

     204,350        189,535   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 327,205      $ 317,708   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

1


Table of Contents

QLIK TECHNOLOGIES INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2012     2011     2012     2011  

Revenue:

        

License revenue

   $ 48,805      $ 45,537      $ 145,172      $ 128,751   

Maintenance revenue

     30,587        22,991        85,589        64,148   

Professional services revenue

     6,704        6,976        20,291        19,666   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     86,096        75,504        251,052        212,565   

Cost of revenue:

        

License revenue

     1,193        918        2,547        2,610   

Maintenance revenue

     1,969        1,678        6,049        5,114   

Professional services revenue

     6,963        5,863        20,437        17,559   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     10,125        8,459        29,033        25,283   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     75,971        67,045        222,019        187,282   

Operating expenses:

        

Sales and marketing

     47,712        42,503        147,982        129,057   

Research and development

     9,776        6,427        25,421        18,763   

General and administrative

     20,253        16,058        60,518        46,015   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     77,741        64,988        233,921        193,835   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (1,770     2,057        (11,902     (6,553

Other income (expense), net:

        

Interest income, net

     25        86        124        146   

Foreign exchange gain (loss) and other income (expense), net

     (1,701     761        (3,079     (352
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     (1,676     847        (2,955     (206
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (3,446     2,904        (14,857     (6,759

Benefit (provision) for income taxes

     3,597        (1,697     5,431        181   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 151      $ 1,207      $ (9,426   $ (6,578
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share:

        

Basic

   $ 0.00      $ 0.01      $ (0.11   $ (0.08

Diluted

     0.00        0.01        (0.11     (0.08

Weighted average number of common shares:

        

Basic

     85,655,059        83,171,163        85,236,449        81,391,156   

Diluted

     88,132,646        87,634,196        85,236,449        81,391,156   

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

2


Table of Contents

QLIK TECHNOLOGIES INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2012      2011     2012     2011  

Net income (loss)

   $ 151       $ 1,207      $ (9,426   $ (6,578

Other comprehensive income (loss):

         

Foreign currency translation

     3,217         (2,739     2,316        (731
  

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

   $ 3,368       $ (1,532   $ (7,110   $ (7,309
  

 

 

    

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

3


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QLIK TECHNOLOGIES INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

     Nine Months Ended September 30,  
     2012     2011  

Cash flows from operating activities

    

Net loss

   $ (9,426   $ (6,578

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation and amortization

     4,156        2,017   

Stock-based compensation expense

     13,963        6,359   

Excess tax benefit from stock-based compensation

     (3,280     —     

Other non-cash items

     3,130        1,613   

Changes in assets and liabilities:

    

Accounts receivable

     36,326        13,873   

Prepaid expenses and other assets

     (1,735     1,286   

Income taxes

     (15,469     (14,133

Deferred revenue

     (1,390     2,060   

Accounts payable and other liabilities

     (843     4,497   
  

 

 

   

 

 

 

Net cash provided by operating activities

     25,432        10,994   

Cash flows from investing activities

    

Acquisitions, net of cash acquired

     (10,792     —     

Captial expenditures

     (7,649     (6,473
  

 

 

   

 

 

 

Net cash used in investing activities

     (18,441     (6,473

Cash flows from financing activities

    

Proceeds from exercise of common stock options

     4,682        7,228   

Excess tax benefit from stock-based compensation

     3,280        —     

Borrowings (payments) on line of credit

     (312     195   

Payments on contingent consideration

     (202     (179
  

 

 

   

 

 

 

Net cash provided by financing activities

     7,448        7,244   

Effect of exchange rates on cash

     1,259        (360
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     15,698        11,405   

Cash and cash equivalents, beginning of period

     177,413        158,712   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 193,111      $ 170,117   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid during the period for income taxes

   $ 6,334      $ 12,952   
  

 

 

   

 

 

 

Non-cash investing activities:

    

Leasehold improvement allowance received under operating lease

   $ —        $ 1,764   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

4


Table of Contents

QLIK TECHNOLOGIES INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(1) Description of Business

Qlik Technologies Inc. (“We”, “QlikTech” or the “Company”) has pioneered a powerful, user-driven business intelligence solution that enables its customers to make better and faster business decisions, wherever they are. The QlikView business discovery platform, or QlikView, helps people create and share insights and analysis in groups and across organizations. Business users can explore data, ask and answer their own stream of questions and follow their own path to insight on their own and in teams and groups. Through its wholly owned subsidiaries, the Company sells software solutions that are powered by QlikView’s in-memory engine which maintains associations in data and calculates aggregations rapidly, as needed. QlikView is designed to give customers significant improvements in usability, flexibility and performance at lower costs compared to traditional business intelligence solutions.

(2) Significant Accounting Policies

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K (file number 001-34803), filed with the Securities and Exchange Commission (“SEC”) on February 28, 2012. Since the date of those financial statements, there have been no material changes to the Company’s significant accounting policies.

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated. Prior year amounts have been reclassified where appropriate to conform to the current year classification for comparative purposes.

Interim Financial Statements

These interim consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) on the same basis as the audited consolidated financial statements for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 28, 2012 and, in the opinion of management, include all adjustments of a normal recurring nature considered necessary to present fairly the Company’s financial position at September 30, 2012, the results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011 and cash flows for the nine months ended September 30, 2012 and 2011. The results of operations for the three and nine months ended September 30, 2012 and 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or any other future periods. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted under the SEC’s rules and regulations. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2011. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to the Quarterly Report on Form 10-Q and, therefore, do not include all information and footnotes required by U.S. GAAP for complete financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

The Company evaluates its estimates, including those related to the accounts receivable allowance, useful lives of long-lived assets, the recoverability of goodwill and other intangible assets, assessing fair values of assets and liabilities acquired in business acquisitions, assumptions used for the purpose of determining stock-based compensation expense and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying value of assets and liabilities as well as reported revenue and expenses during the periods presented.

 

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Table of Contents

Foreign Currency Translation

The financial statements of the Company’s foreign operations are measured using the local currency as the functional currency. The local currency assets and liabilities are translated at the rate of exchange to the U.S. dollar on the balance sheet date and the local currency revenues and expenses are translated at average rates of exchange to the U.S. dollar during the reporting periods. Foreign currency transaction gains (losses) have been reflected as a component of the Company’s consolidated statements of operations and foreign currency translation gains (losses) have been included as a component of the consolidated statements of comprehensive income (loss). Gains and losses from foreign currency transactions are included as a component of other income (expense), net.

Business Combinations

The Company recognizes assets acquired, liabilities assumed and any contingent consideration related to business combinations at their fair value on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, with respect to intangible assets acquired, estimated contingent consideration payments and pre-acquisition contingencies assumed. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results. All subsequent changes to a valuation allowance or uncertain tax position related to the acquired company that occur within the measurement period and are based on facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill.

Acquisition-related transaction costs, including legal and accounting fees and other external costs directly related to the acquisition, are recognized separately from the acquisition and expensed as incurred in general and administrative expenses in the unaudited consolidated statements of operations.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable, other current assets and accounts payable approximate fair value, due to their short-term nature.

Stock-Based Compensation

The Company recognizes the cost of stock-based compensation over the requisite service period based on the fair value of those awards at the date of grant. The Company uses the Black-Scholes-Merton (“Black-Scholes”) option pricing model to determine the fair value of common stock option awards. The fair value of a restricted stock unit is determined by using the fair market value of the Company’s common stock on the date of grant. The estimated fair value of Maximum Value Stock-Settled Stock Appreciation Rights (“MVSSSARs”) is determined by utilizing a lattice model under the option pricing method. Stock-based compensation plans, related expenses and assumptions used in the Black-Scholes option pricing model and the lattice model under the option pricing method are more fully described in Note 9 to these unaudited consolidated financial statements. The estimated fair value of stock-based compensation awards on the date of grant is amortized on a straight-line basis over the requisite service period. Stock-based compensation expense is recorded within cost of revenue, sales and marketing, research and development and general and administrative expenses in the unaudited consolidated statements of operations.

The following table sets forth the total stock-based compensation expense included in the unaudited consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2012      2011      2012      2011  

Cost of revenue

   $ 397       $ 198       $ 1,065       $ 450   

Sales and marketing

     2,874         1,459         7,713         3,387   

Research and development

     560         281         1,425         414   

General and administrative

     1,684         921         3,760         2,108   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 5,515       $ 2,859       $ 13,963       $ 6,359   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Net Income (Loss) Per Common Share

The following table sets forth the computation of basic and diluted net income (loss) per common share for the periods indicated:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2012      2011      2012     2011  

Basic and diluted net income (loss) per common share calculation:

          

Net income (loss)

   $ 151       $ 1,207         (9,426     (6,578

Weighted average common shares outstanding:

          

Basic

     85,655,059         83,171,163         85,236,449        81,391,156   

Diluted

     88,132,646         87,634,196         85,236,449        81,391,156   

Net income (loss) per common share:

          

Basic

   $ 0.00       $ 0.01       $ (0.11   $ (0.08

Diluted

   $ 0.00       $ 0.01       $ (0.11   $ (0.08

Diluted net income (loss) per common share for the periods presented does not reflect the potential issuance of common shares underlying the following securities as the effect would be anti-dilutive:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2012      2011      2012      2011  

Common stock options

     5,220,922         2,435,118         9,449,641         9,283,114   

Restricted stock units

     22,750         —           258,945         44,812   

MVSSSARs

     587,006         357,361         587,006         357,361   
  

 

 

    

 

 

    

 

 

    

 

 

 
     5,830,678         2,792,479         10,295,592         9,685,287   
  

 

 

    

 

 

    

 

 

    

 

 

 

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In June 2011, the FASB issued an Accounting Standards Update to the Comprehensive Income Topic in the ASC aimed at increasing the prominence of items reported in other comprehensive income (loss) in the financial statements. This update required companies to present comprehensive income (loss) in a single statement below net income (loss) or in a separate statement of comprehensive income (loss) immediately following the statement of operations. This requirement became effective for the Company beginning with the first quarter 2012 Quarterly Report on Form 10-Q and required retrospective application for all periods presented. The Company has adopted separate consolidated statements of comprehensive income (loss) immediately following the consolidated statements of operations for interim periods.

In September 2011, the FASB issued an Accounting Standards Update that amends the accounting guidance on goodwill impairment testing. This update is intended to reduce complexity and costs by allowing companies the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The update also improves previous guidance by expanding upon the examples of events and circumstances that a company should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The update is effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.

(3) Acquisitions

expressor software corporation

        On June 11, 2012, the Company acquired all of the outstanding shares of expressor software corporation (“Expressor”), a provider of data management software, for $10.8 million, net of cash acquired. The acquisition of Expressor is expected to expand the use of QlikView’s Business Discovery platform by providing a metadata intelligence solution designed to help companies know what data is being used and how it is being used, while ensuring consistency and appropriate reuse of common data definitions. The results of operations and financial position of Expressor are included in the Company’s consolidated financial statements from and after the date of acquisition. The inclusion of Expressor did not have a material impact on the Company’s consolidated financial results for the three and nine months ended September 30, 2012. Had the acquisition occurred as of the beginning of the periods presented in these consolidated financial statements, the pro forma statements of operations would not be materially different than the consolidated statements of operations presented. During the three months ended September 30, 2012, the Company finalized the Expressor purchase price allocation with the exception of certain income tax matters which are expected to be finalized during the three months ending December 31, 2012. Based on an estimate of their fair values, the Company allocated $6.3 million of the purchase price to definite-lived intangible assets, which consisted primarily of acquired technology. After allocating the purchase price to the assets acquired and liabilities assumed based on an estimation of their fair values at the date of acquisition, the Company recorded goodwill of $4.7 million related to this acquisition. Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company believes the goodwill related to the acquisition was a result of the expected synergies to be realized from combining operations and is not expected to be deductible for income tax purposes. The Company tests the goodwill for impairment at least annually in accordance with GAAP (See Note 4).

 

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The value assigned to Expressor’s acquired technology was determined by using the excess earnings method. Under this method, the value of the acquired technology is a function of the estimated obsolescence curve of the acquired technology as of the corresponding valuation date, the expected future net cash flows generated by the acquired technology and the discount rate that reflects the level of risk associated with receiving future cash flows attributable to the acquired technology. The Company amortizes the acquired technology on a straight-line basis over an estimated useful life of five years. The amortization of intangible assets is not expected to be deductible for income tax purposes.

(4) Goodwill and Other Intangible Assets

The Company tests goodwill resulting from acquisitions for impairment annually on October 1, or whenever events or changes in circumstances indicate an impairment. The change in goodwill in the unaudited consolidated balance sheet as of September 30, 2012 from December 31, 2011 was due to the acquisition of Expressor, which increased goodwill by $4.7 million, and foreign currency translation.

The following table provides information regarding the Company’s intangible assets subject to amortization:

 

     September 30, 2012      December 31, 2011  
     Gross      Accumulated     Net      Gross      Accumulated     Net  
     Amount      Amortization     Amount      Amount      Amortization     Amount  

Acquired technology

   $ 6,120       $ (562   $ 5,558       $ 200       $ (200   $ —     

Customer relationships and other identified intangible assets

     735         (648     87         735         (537     198   

Trade name

     390         (40     350         —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 7,245       $ (1,250   $ 5,995       $ 935       $ (737   $ 198   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

The cost of finite-lived intangible assets is amortized on a straight-line basis over their estimated useful lives. The estimated useful lives of these assets range from one to five years. The change in finite-lived assets in the unaudited consolidated balance sheet as of September 30, 2012 from December 31, 2011 was largely due to the acquisition of Expressor. The amortization of finite-lived intangible assets was $0.4 million and $0.5 million for the three and nine months ended September 30, 2012, respectively. The amortization of finite-lived intangible assets was $0.1 million and $0.2 million for the three and nine months ended September 30, 2011. The estimated aggregate amortization expense for each of the succeeding years is as follows: $0.4 million for the three months ended December 31, 2012; $1.3 million in 2013; $1.3 million in 2014; $1.2 million in 2015; $1.2 million in 2016 and $0.5 million in 2017. The weighted average amortization period for all intangible assets is 4.8 years.

The Company evaluates the useful lives of these assets on a periodic basis and tests for impairments whenever events or changes in circumstances occur that could impact the recoverability of these assets. As of September 30, 2012, there have been no impairment charges recognized.

(5) Fair Value Measurements

The Company evaluates assets and liabilities subject to fair value measurements on a recurring and nonrecurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by the Company. The Company estimated the fair value of a contingent liability using a probability-weighted discount cash flow model. This fair value was classified as Level 3 because it was based on significant unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions. As of September 30, 2012 and December 31, 2011, the fair value of the contingent liability was $0.3 million and $0.5 million, respectively.

 

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Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets and goodwill. These items are recognized at fair value in the period in which an acquisition is completed, or when they are considered to be impaired. During the nine months ended September 30, 2012, the Company completed the acquisition of Expressor as described in Note 3, and recorded the assets acquired and liabilities assumed at fair value on the acquisition date. There were no other non-recurring fair value adjustments recorded during the nine months ended September 30, 2012, or during the year ended December 31, 2011.

(6) Line of Credit

In 2011, QlikTech India Pvt Ltd, a wholly owned subsidiary, executed a Working Capital Facility General Terms Agreement with an Indian lender, which provides an overdraft facility for borrowings of up to 25.0 million Indian Rupees (“INR”) and is used for the purposes of funding working capital requirements. On January 30, 2012, the Company entered into an amendment with the Indian lender which increased the borrowings available for one year under the overdraft facility to 75.0 million INR (approximately $1.4 million based on an assumed exchange rate of 0.019 as of September 30, 2012). Borrowings under the overdraft facility bear interest at the Indian lender’s base rate (9.5% as of September 30, 2012) plus 2.75% and are payable on the last business day of each calendar month. As of September 30, 2012, outstanding borrowings under the overdraft facility and interest incurred during the three and nine months ended September 30, 2012 was de minimus.

(7) Benefit (Provision) for Income Taxes

The effective tax rate for the three months ended September 30, 2012 was a benefit of 104.4% compared to a provision of 58.4% for the three months ended September 30, 2011. The effective tax rate for the nine months ended September 30, 2012 was a benefit of 36.6% compared to a benefit of 2.7% for the nine months ended September 30, 2011. The Company’s benefit for income taxes for the three and nine months ended September 30, 2012 is based on an estimated annual effective tax rate adjusted for the recognition of discrete items. The Company’s estimated annual effective tax rate primarily includes foreign income taxed at the local jurisdictions rates and the recognition of certain valuation allowances. The Company operates in an international environment with significant operations in various locations outside the U.S.; accordingly the consolidated income tax rate is a composite rate reflecting the Company’s income (loss) and the applicable tax rate in the various locations where the Company operates.

Due to the relative difference in the projected annual distribution of income and losses in jurisdictions in which the Company operates compared to the Company’s actual results for the three and nine months ended September 30, 2012, including the recognition of certain discrete items in the quarters, and due to the Company incurring a loss in a jurisdiction for which the tax benefit cannot be recognized, the year-to-date effective tax rate differs significantly from the Company’s projected full year effective tax rate. The Company’s effective tax rate is also impacted significantly by non-deductible share-based compensation earned in various jurisdictions. As of September 30, 2012, the Company projects a full year effective tax rate of approximately 81%, compared to the effective tax rate of 36.6% for the nine months ended September 30, 2012. As the projection and distribution of income changes throughout the year ending December 31, 2012, the effective tax rate may vary from quarter to quarter.

The income tax benefit for the three and nine months ended September 30, 2012 is attributable to a subsidiary of the Company, QlikTech International AB (“QTIAB”), which generated a pre-tax loss during the periods. The Company believes that the analysis of positive and negative evidence, including a three-year cumulative profit and projected taxable income for future periods, provides a basis to record the related income tax receivable within current assets on the consolidated balance sheet as of September 30, 2012. With the exception of QTIAB and the Company’s consolidated group of U.S. entities (“U.S. Entities”), all other entities were profitable for the three and nine months ended September 30, 2012. In addition, with the exception of the U.S. Entities and QTIAB, all entities are expected to be profitable for the year ending December 31, 2012. A full valuation allowance has been recorded against the deferred tax assets of the U.S. Entities as of September 30, 2012 based upon the negative evidence of a three-year cumulative loss and projected losses for 2012.

(8) Business and Geographic Segment Information

The Company currently operates in one operating business segment, namely, the development, commercialization and implementation of software products and related services. The Company is managed and operated as one business. A single management team that reports to the chief operating decision maker comprehensively manages the entire business. The Company does not operate any material separate lines of business or separate business entities with respect to its products or product development.

The following geographic data includes revenues generated by subsidiaries located within that geographic area. The Company’s revenues were generated in the following geographic regions for the periods indicated:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

The Americas

   $ 30,503       $ 26,861       $ 85,397       $ 70,233   

Europe

     46,072         41,974         140,726         123,979   

Rest of world

     9,521         6,669         24,929         18,353   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 86,096       $ 75,504       $ 251,052       $ 212,565   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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(9) Stock-Based Compensation

The Company’s 2010 Equity Incentive Plan (“2010 Plan”) took effect on the effective date of the registration statement, July 16, 2010, for the Company’s initial public offering (“IPO”). The Company initially reserved 3,300,000 shares of its common stock for issuance under the 2010 Plan. The number of shares reserved for issuance under the 2010 Plan will be increased automatically on January 1st of each year by a number equal to the smallest of (i) 3,300,000 shares; (ii) 3.75% of the shares of common stock outstanding at that time; or (iii) a number of shares determined by the Company’s board of directors. In February 2012, the Board of Directors of the Company authorized an automatic increase to the 2010 Plan equal to 3,164,918 shares. As of September 30, 2012, there were 3,344,078 shares available for issuance under the 2010 Plan.

Common Stock Options

The following provides a summary of the common stock option activity for the Company for the nine months ended September 30, 2012:

 

     Number of
Shares
    Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
Term (Years)
     Aggregrate
Intrinsic
Value
 

Outstanding as of January 1, 2012

     8,859,651      $ 10.84         7.38      

Granted

     2,696,130      $ 22.68         

Exercised

     (1,466,378   $ 3.19         

Forfeited

     (639,762   $ 17.51         
  

 

 

   

 

 

       

Outstanding as of September 30, 2012

     9,449,641      $ 14.94         7.66       $ 83,060   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at September 30, 2012

     4,240,214      $ 6.90         6.08       $ 68,146   

Vested at September 30, 2012 and expected to vest in future periods

     9,047,116      $ 14.65         7.60       $ 82,584   

The grant date weighted-average fair value per common stock option for the nine months ended September 30, 2012 and 2011 was $10.41 and $12.28, respectively.

Proceeds from the exercise of common stock options were $4.7 million and $7.2 million for the nine months ended September 30, 2012 and 2011, respectively. The total intrinsic value of common stock options exercised during the nine months ended September 30, 2012 and 2011 was $36.4 million and $122.4 million, respectively. As a result of expected full year taxable income in certain tax jurisdictions, the Company recorded an excess tax benefit from stock-based compensation of $3.3 million for the nine months ended September 30, 2012.

The assumptions used in the Black-Scholes option pricing model are:

 

     Three Months Ended September 30,    Nine Months Ended September 30,
     2012    2011    2012    2011

Expected dividend yield..

   0.0%    0.0%    0.0%    0.0%

Risk-free interest rate.

   0.8% - 0.9%    1.1% - 1.9%    0.8% - 1.2%    1.1% - 2.7%

Expected volatility

   47.1% - 47.5%    45.3% - 46.0%    46.7% - 47.5%    45.3% - 47.0%

Expected life (in years)

   6.25    6.25    6.25    6.25

The Company uses the Black-Scholes option-pricing model to value common stock option awards. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected life of the share-based payment awards and stock price volatility. For stock options granted, since the Company’s historical stock data from its IPO in July 2010 is less than the expected life of the stock option, the Company has used a blended volatility to estimate expected volatility. The blended volatility includes a weighting of the Company’s historical volatility from the date of its IPO to the respective grant date and an average of the Company’s peer group historical volatility consistent with the expected life of the option. The Company’s peer group historical volatility includes the historical volatility of companies that are similar in revenue size, in the same industry or are competitors. The Company expects to continue to use a larger proportion of its historical volatility in future periods as it develops additional historical experience of its own stock price fluctuations considered in relation to the expected life of the option.

For the three months ended September 30, 2012 and 2011, the Company recorded stock-based compensation expenses of $4.5 million and $2.5 million, respectively, related to common stock option grants. For the nine months ended September 30, 2012 and 2011, the Company recorded stock-based compensation expenses of $11.7 million and $5.7 million, respectively, related to common stock option grants.

 

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As of September 30, 2012, there was $44.5 million of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested employee and non-employee director common stock options. The remaining cost is expected to be recognized over a weighted-average period of approximately 2.9 years. This amount will be amortized on a straight-line basis over the requisite service period related to the common stock options.

Restricted Stock Units

The following provides a summary of the restricted stock unit activity for the Company as of the nine months ended September 30, 2012:

 

     Number of
Shares
Underlying
Outstanding
Restricted Stock
Units
    Weighted-
Average
Grant Date
Fair Value
 

Outstanding as of January 1, 2012

     86,692      $ 30.02   

Granted

     200,795        22.77   

Vested

     (22,742     31.14   

Forfeited

     (5,800     29.74   
  

 

 

   

Unvested as of September 30, 2012

     258,945      $ 24.30   
  

 

 

   

 

 

 

The Company grants restricted stock unit awards to its non-employee directors and certain employees under the provisions of the 2010 Plan. The cost of a restricted stock unit is determined using the fair value of the Company’s common stock on the date of grant. A restricted stock unit award entitles the holder to receive shares of the Company’s common stock as the award vests. Vesting may be based on length of service, the attainment of performance-based milestones, or a combination of both. Stock-based compensation expense is amortized on a straight-line basis over the vesting period. The value of a restricted stock unit award is determined based on the closing price of the Company’s stock price at the date of grant.

For the three months ended September 30, 2012 and 2011, the Company recorded stock-based compensation expenses of $0.8 million and $0.2 million, respectively, related to restricted stock unit awards. For the nine months ended September 30, 2012 and 2011, the Company recorded stock-based compensation expenses of $1.5 million and $0.5 million, respectively, related to restricted stock unit awards.

As of September 30, 2012, there was $4.7 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted stock units. The remaining cost is expected to be recognized over a weighted-average period of approximately 2.8 years. This amount will be amortized on a straight-line basis over the requisite service period related to the restricted stock unit grants.

Maximum Value Stock-Settled Stock Appreciation Rights

The Company grants Maximum Value Stock-Settled Stock Appreciation Rights (“MVSSSARs”) to its Swedish employees under the provisions of the 2010 Plan. MVSSSARs contain a predetermined cap on the maximum stock price at which point the instrument must be exercised. At exercise, employees holding MVSSSARs will receive shares of the Company’s common stock with a value equal to the difference between the exercise price and the then current market price per share of the Company’s common stock, subject to a predetermined cap. The exercise price of MVSSSARs is determined by using the last sales price of the Company’s common stock on the date of grant. Vesting is based on length of service. Stock-based compensation expense is amortized on a straight-line basis over the vesting period. The estimated fair value of MVSSSARs is determined by utilizing a lattice model under the option pricing method. The key inputs to the lattice model are the current price of the Company’s common stock, the fair value of its common stock at date of grant, the maximum fair value at which the MVSSSARs must be exercised, the vesting period, the contractual term, the volatility, the risk-free interest rate, the employment termination rate and the assumptions with respect to early exercise behavior.

As of September 30, 2012, the Company had an aggregate of 587,006 MVSSSARs issued and outstanding to its employees. The grant date weighted-average fair value per MVSSSAR for the nine months ended September 30, 2012 was $5.79. For the nine months ended September, 30, 2012, the Company did not settle any MVSSSARs with the Company’s common stock. If settlement of all outstanding MVSSSARs were to occur at the predetermined cap on the maximum stock price at which point the instrument must be exercised, the Company would issue 214,154 shares of the Company’s common stock.

For the three and nine months ended September 30, 2012, the Company recorded stock-based compensation expenses of $0.3 million and $0.8 million, respectively, related to MVSSSARs. For the three and nine months ended September 30, 2011, the Company recorded stock-based compensation expenses of $0.2 million related to MVSSSARs.

 

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As of September 30, 2012, there was $3.0 million of total unrecognized compensation cost related to unvested MVSSSARs. The remaining cost is expected to be recognized over a weighted-average period of approximately 2.8 years. This amount will be amortized on a straight-line basis over the requisite service period related to the MVSSSARs.

(10) Commitments and Contingencies

There have been no material changes to the Company’s commitments and contingencies from the information provided in Note 10 to the Notes to the Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data”, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, except as follows:

In June 2012, the Company entered into a software licensing agreement with a third party vendor. The minimum term of the agreement continues through June 30, 2017. During the nine months ended September 30, 2012, the Company made an initial payment of $0.6 million pursuant to the agreement. Additional payments totaling $5.5 million are payable under this software licensing agreement through December 2016.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2011 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 28, 2012. This Quarterly Report on Form 10-Q contains forward-looking statements, including, but not limited to, statements regarding the value and effectiveness of our products, the introduction of product enhancements or additional products and our growth, expansion and market leadership, that involve risks, uncertainties, assumptions, and other factors which, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements containing the words “predicts,” “plan,” “expects,” “anticipates,” “believes,” “goal,” “target,” “estimate,” “potential,” “may,” “will,” “might,” “momentum,” “could,” “seek” and similar words. We intend all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in such statements due to various factors, including but not limited to:

 

   

risk and uncertainties inherent in our business;

 

   

our ability to attract new customers and retain existing customers;

 

   

our ability to effectively sell, service and support our products;

 

   

our ability to manage our international operations;

 

   

our ability to compete effectively;

 

   

our ability to develop and introduce new products and add-ons or enhancements to existing products;

 

   

our ability to continue to promote and maintain our brand in a cost-effective manner;

 

   

our ability to manage growth;

 

   

our ability to attract and retain key personnel;

 

   

currency fluctuations that affect our revenues and costs;

 

   

the scope and validity of intellectual property rights applicable to our products;

 

   

adverse economic conditions in general and adverse economic conditions specifically affecting the markets in which we operate; and

 

   

other risks discussed in the section titled “Risk Factors,” set forth in Part I, Item 1A of our Annual Report on Form 10-K, the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and elsewhere in this Report.

Past performance is not necessarily indicative of future results. There can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Therefore, no assurance can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Introduction

Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided to help provide an understanding of our financial condition and results of operations. This item of our Quarterly Report on Form 10-Q is organized as follows:

 

   

Overview. This section provides a general description of our business.

 

   

Key Financial Metrics and Trends. This section provides the key financial metrics that we use in assessing our performance, and anticipated trends that we expect to affect our financial condition and results of operations.

 

   

Critical Accounting Policies and Estimates. This section discusses accounting policies that are considered important to our financial condition and results of operations. The accounting policies require significant judgment or require estimates on our part in applying them. Our significant accounting policies, including those considered to be critical accounting policies, are summarized in Note 2 to the unaudited consolidated financial statements.

 

   

Consolidated Results of Operations. This section provides an analysis of our results of operations for the three and nine months ended September 30, 2012 and 2011.

 

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Foreign Exchange Rates. This section discusses the impact of foreign exchange rate fluctuations.

 

   

Seasonality. This section discusses the seasonality in the sale of our products and services.

 

   

Liquidity and Capital Resources. This section provides an analysis of our cash flows for the nine months ended September 30, 2012 and 2011, a discussion of our capital requirements, and the resources available to us to meet those requirements.

 

   

Contractual Obligations and Off-Balance Sheet Arrangements. This section discusses contractual obligations and commitments and off-balance sheet arrangements expected to have an impact on our liquidity and cash flow in future periods.

 

   

Inflation. This section discusses inflation that could impact our financial condition and results of operations.

 

   

Recent Accounting Pronouncements. This section provides for recent accounting pronouncements that could impact our financial condition and results of operations.

Overview

We have pioneered a powerful, user-driven Business Intelligence (“BI”) solution that enables our customers to make better and faster business decisions, wherever they are. The QlikView Business Discovery platform, QlikView, helps people create and share insights and analysis in groups and across organizations. Business users can explore data, ask and answer their own stream of questions and follow their own path to insight on their own and in teams and groups.

The QlikView user experience is powered by our in-memory engine which maintains associations in data and calculates aggregations rapidly, as needed. Our software platform is designed to give our customers significant improvements in usability, flexibility and performance at lower costs compared to traditional BI solutions.

We have grown our customer base to over 26,000 active customers as of September 30, 2012 and increased our revenue at a 35% compound annual growth rate from 2008 through September 30, 2012. We added an average of approximately 500 new customers per month during fiscal year 2011. Our solution addresses the needs of a diverse range of customers from middle market customers to large enterprises such as Autodesk, The Dannon Company, Inc., Heidelberger Druckmaschinen AG, Hertz, ING, Kraft Foods, L’Oreal, Lifetime Brands, Lockton Insurance, National Health Service (NHS), Panasonic, Qualcomm, Sony Europe, Symantec, U.S. Department of Veterans Affairs and Volvo Car UK Limited. We currently have customers in over 100 countries, and approximately 72% of our revenue for both the three and nine months ended September 30, 2012 and approximately 70% and 72% of our revenue for the three and nine months ended September 30, 2011, respectively, were derived internationally.

We have a differentiated business model designed to accelerate the adoption of our product to reduce the time and cost to purchase and implement our software platform. Our low risk approach to product sales provides a needed alternative to costly, all-or-nothing, traditional business intelligence models. We initially focus on specific business users or departments within a prospective customer’s organization and seek to solve a targeted business need. After demonstrating QlikView’s benefits to initial adopters within an organization, we work to expand sales of our product to other business units, geographies and use cases with the long-term goal of broad organizational deployment.

We license QlikView under perpetual licenses which generally include one year of maintenance as part of the initial purchase price of the product. Our customers can renew, and generally have renewed, their maintenance agreements for a fee that is based upon a percentage of the initial license fee paid. For the nine months ended September 30, 2012, our total revenue was comprised of 58% license revenue, 34% maintenance revenue and 8% professional services revenue. For the year ended December 31, 2011, our total revenue was comprised of 64% license revenue, 28% maintenance revenue and 8% professional services revenue. We have a diversified distribution model that consists of a direct sales force and a partner network of resellers, OEM relationships and systems integrators. Total billings from our partner network were 55% and 54% of our total billings for the nine months ended September 30, 2012 and 2011, respectively. Included in our partner network are our OEM relationships which accounted for approximately 6% and 7% of our total billings during the nine months ended September 30, 2012 and 2011, respectively. Additionally, our online QlikCommunity provides us with a loyal and growing network of users who promote our software, provide support for other users and contribute valuable insights and feedback for our product development efforts.

To complement QlikView, we have developed a differentiated business model that has the following attributes:

 

   

Broad User Focus – marketing and selling QlikView directly to the business user by providing an easy-to-use platform that can be used with minimal training.

 

   

Low Risk Rapid Product Adoption – providing a low risk alternative to costly, all-or-nothing, enterprise-wide deployment requirements.

 

   

“Land and Expand” Customer Penetration – initially targeting business users in an organization to create a loyal user base that promotes broad adoption of our software platform across an organization.

 

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Globally Diversified Distribution Model – employing a multi-pronged international sales approach that leverages a direct sales force and partner network.

 

   

Community-Based Marketing and Support – augmenting our development, marketing and support efforts through our online QlikCommunity.

In evaluating our operating results, we focus on the productivity of our sales force, the effectiveness of our local and corporate level marketing, our ability to close opportunities generated by our marketing leads and the competitiveness of our technology. In each of these areas, we have taken steps designed to improve our operating results, including undertaking additional sales training for our sales representatives, hiring more experienced regional sales management, investing further in our corporate website to improve its use as an effective lead generative tool, developing a partner enablement program to focus on the results of our sales partners around the world and expanding our research and development staff with a focus on testing and quality assurance.

From a risk perspective, we have had to deal with the impact of the recessionary global environment during the past several years, and the unsettled global economic environment could continue to affect our operating results in future periods. Approximately 72% of our revenue during the nine months ended September 30, 2012 was derived internationally, of which 56% was derived in Europe. Approximately 73% of our revenue during the year ended December 31, 2011 was derived internationally, of which 59% was derived in Europe. We have faced pricing pressure from some of our competitors and we minimize the impact by demonstrating the value delivered by QlikView in comparison to these other BI products. Also, the recent growth in our business has required the continued hiring of experienced staff across all of our geographic territories. To aid this effort we have focused on improving our local recruiting initiatives, as well as on developing further internal training programs to prepare employees for greater responsibilities.

We believe global economic conditions have continued to deteriorate and have resulted in an increase in the average length of time in our sales cycle. In addition, these conditions may result in an increase in the average length of time it takes to collect outstanding accounts receivable.

We were founded in Sweden in 1993. From 1993 until 1999, our activities were focused on software research and development that resulted in QlikView’s core technology, and from 1999 until 2004 we focused on the commercialization of our technology primarily in the Nordic market and limited regions of Europe. In late 2004, we reincorporated in Delaware and began to broaden our marketing and sales activities in the U.S. and continued our expansion globally.

Key Financial Metrics and Trends

Revenues

Our revenue is comprised of license, maintenance and professional services. We license our software under perpetual licenses which generally include one year of maintenance as part of the initial purchase price of the product. License revenue reflects the revenue recognized from sales of licenses to new customers and additional licenses to existing customers. Historically, the majority of our license revenues have come from new customers. However, we continue to see an increase in the contribution from existing customers based upon our “land and expand” sales strategy. Customers can renew, and generally have renewed, their maintenance agreements for a fee that is based upon a percentage of the initial license fee paid. Current customers with maintenance agreements are entitled to receive unspecified software upgrades and enhancements when and if they become available. We have experienced growth in maintenance revenue primarily due to increased license sales and growth in our customer base and high retention of those customers. During the year ended December 31, 2011 and the nine months ended September 30, 2012, our annual maintenance renewal rates exceeded 85%. Professional services revenue is comprised of training, installation and other consulting revenues. Given the ease of implementation of our product and our relationship with our partners, professional services revenue for the nine months ended September 30, 2012 and 2011 were 8% and 9%, respectively, of total revenues. We do not expect that proportion to change significantly during the near term. The contribution from our partner network continues to grow, and we anticipate that revenues from partners will continue to be more than 50% of total revenues. Given the size of the U.S. market and our current limited penetration there, we expect that the U.S. will represent our largest growth opportunity during the near term and will likely be an important contributor to future revenue growth. Due to the global diversity of our customer base, our results are impacted by movements in the currencies of the major territories in which we operate. The primary currencies impacting results are the U.S. dollar (our reporting currency), the Swedish kronor, the euro and the British pound. Inflation and changing prices had no material effect on our sales, revenue or income (loss) from operations during the three and nine months ended September 30, 2012 and 2011.

 

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Cost of Revenue

Cost of revenue primarily consists of personnel costs, fees paid to subcontractors providing technical support services, referral fees paid to third parties in connection with software license sales, amortization of intangible assets and other discrete professional services. Personnel costs include salaries, employee benefit and social costs, bonuses, stock-based compensation and direct overhead.

Operating Expenses

We classify our operating expenses into three categories: sales and marketing, research and development and general and administrative. Our operating expenses primarily consist of personnel costs, travel costs, sales commissions, marketing program costs, facilities, legal, accounting, consulting, the cost of our annual employee summit, other professional services costs and depreciation and amortization. Personnel costs include salaries, employee benefit and social costs, bonuses, stock-based compensation and direct overhead. Historically, we have focused on the continued growth of our license revenues, and as a result, sales and marketing has represented the largest amount of total expenses both in absolute dollar terms and as a percentage of total revenues. Going forward, we expect to drive greater efficiencies from this cost base and consequently expect that sales and marketing as a percentage of revenues will decline in the long term.

Sales and Marketing. Sales and marketing expenses primarily consist of personnel costs for our sales, marketing and business development employees and executives; commissions earned by our sales personnel; travel costs; facilities costs attributable to our sales and marketing personnel; the cost of marketing programs; the cost of employee training programs for our sales and marketing personnel; and the cost of business development programs. We have and will continue to hire additional sales personnel in the U.S. and in our international locations during 2012.

Research and Development. Research and development expenses primarily consist of personnel and facility costs for our research and development and product marketing employees. We have devoted our development efforts primarily to enhancing the functionality and expanding the capabilities of our software platform. We expect that our research and development expenses will continue to increase in absolute dollars and as a percentage of revenue in the long term as we increase our research and development and product marketing headcount to further strengthen and enhance our software platform. The vast majority of our research and development staff is based in Lund, Sweden.

General and Administrative. General and administrative expenses primarily consist of personnel costs for our executive, finance, legal, human resources and administrative personnel, as well as the cost of facilities attributable to general and administrative operations, the cost of employee training programs, depreciation and amortization, legal, accounting, other professional services fees and other corporate expenses. We also expect that general and administrative expenses will continue to increase in absolute dollars because of our efforts to expand our international operations, but we believe over time general and administrative costs will decline as a percentage of revenues as we expect to derive greater efficiencies from our corporate infrastructure.

Stock-Based Compensation. Stock-based compensation expense is based on the fair value of those awards at the date of grant. We use the Black-Scholes-Merton (“Black-Scholes”) option pricing model to determine the fair value of common stock option awards. The fair value of a restricted stock unit is determined by using the fair market value of our common stock on the date of grant. The estimated fair value of Maximum Value Stock-Settled Stock Appreciation Rights (“MVSSSARs”) is determined by utilizing a lattice model under the option pricing method. The estimated fair value of stock-based compensation awards on the date of grant is amortized on a straight-line basis over the requisite service period. Stock-based compensation expense is recorded within cost of revenue, sales and marketing, research and development and general and administrative expenses.

Other Income (Expense), net

Other income (expense), net primarily consists of net interest, foreign exchange gains (losses) and other income or expense. Net interest represents interest income received on our cash and cash equivalents and interest expense associated with outstanding debt. Foreign exchange gains (losses) relate to the business activities in foreign countries and the re-measurement of intercompany transactions denominated in currencies other than our functional reporting currency, the U.S. dollar. As a result of our business activities in foreign countries, we expect that foreign exchange gains (losses) will continue to occur due to fluctuations in exchange rates in the countries where we do business.

Benefit (Provision) for Income Taxes

Benefit (provision) for income taxes primarily consists of corporate income taxes related to income at our U.S. and international subsidiaries. The provision includes amounts for U.S. federal, state and foreign income taxes.

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 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. A valuation allowance is provided for those deferred tax assets for which it is more likely than not that the related tax benefit will not be realized. The factors used to assess the likelihood of realization are the forecast of future taxable income, the remaining time period to utilize any tax operating losses and tax credits and available tax planning strategies that could be implemented to realize deferred tax assets.

 

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In evaluating our ability to realize deferred tax assets, we consider all available positive and negative evidence regarding our forecasted taxable income using both historical and projected future operating results, projected income for the full year 2012, a history of losses during interim periods followed by profitability for the full year, the reversal of existing taxable temporary differences, taxable income in prior carry-back years and the availability of tax planning strategies. Our negative evidence includes historical taxable losses generated by certain of our subsidiaries. Our positive evidence includes historical taxable income at certain subsidiaries as well as projected future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. There can be no guarantee that our assumptions will be correct.

Impact of Foreign Currency Translation

Approximately 69% and 68% of our revenues for the nine months ended September 30, 2012 and 2011 were earned in foreign denominated currencies, including the euro, the British pound and the Swedish kronor. We seek to manage our foreign exchange risk in part through operational means, including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. As we operate in multiple foreign currencies, changes in those currencies relative to the U.S. dollar will impact our revenues and expenses. If the U.S. dollar weakens against a specific foreign currency, our revenues will increase having a positive impact on net income, and our overall expenses will increase, having a negative impact on net income. Likewise, if the U.S. dollar strengthens against a specific foreign currency, our revenues will decrease having a negative impact on net income, and our overall expenses will decrease, having a positive impact on net income. Therefore, significant shifts in foreign currencies can impact our short-term results, as well as our long-term forecasts and targets.

Total revenue for the three months ended September 30, 2012 was negatively impacted by approximately $4.8 million due to the general strengthening of the U.S. dollar relative to the euro, the British pound and the Swedish kronor compared to the same period in 2011. Total cost of revenue and operating expenses for the three months September 30, 2012 were positively impacted by approximately $3.5 million due to the general strengthening of the U.S. dollar relative to the euro, the British pound and the Swedish kronor compared to the same period in 2011. Total revenue for the nine months ended September 30, 2012 was negatively impacted by approximately $13.0 million due to the general strengthening of the U.S. dollar relative to the euro, the British pound and the Swedish kronor compared to the same period in 2011. Total cost of revenue and operating expenses for the nine months September 30, 2012 were positively impacted by approximately $10.9 million due to the general strengthening of the U.S. dollar relative to the euro, the British pound and the Swedish kronor compared to the same period in 2011.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. We believe that these accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. There were no material changes to our critical accounting policies and use of estimates during the year ended December 31, 2011. Our significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2011 included in our Annual Report on Form 10-K, filed with the SEC on February 28, 2012. Since the date of those financial statements, there have been no material changes to our critical accounting policies and use of estimates.

 

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Consolidated Results of Operations

Comparison of the Three Months Ended September 30, 2012 and 2011

Revenue

The following table sets forth revenue by source:

 

     Three Months Ended September 30,              
     2012     2011              
     Amount      Percentage  of
Revenue
    Amount      Percentage  of
Revenue
    Period to Period Change  
    

(unaudited)

(dollars in thousands)

             

Revenue:

              

License revenue

   $ 48,805         56.7   $ 45,537         60.3   $ 3,268        7.2

Maintenance revenue

     30,587         35.5     22,991         30.5     7,596        33.0

Professional services revenue

     6,704         7.8     6,976         9.2     (272     -3.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Total revenue

   $ 86,096         100.0   $ 75,504         100.0   $ 10,592        14.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Revenue was $86.1 million for the three months ended September 30, 2012 compared to $75.5 million for the three months ended September 30, 2011, an increase of $10.6 million, or 14.0%. The increase in revenue from the prior year period was primarily driven by revenue growth in the Americas (includes North America and South America), Rest of World (includes Asia-Pacific, Middle East and Africa), Benelux (includes the Netherlands, Belgium, Luxembourg and Eastern Europe) and the United Kingdom, which grew by 14%, 43%, 28% and 20%, respectively, and contributed an incremental $9.5 million in total revenue. License revenue grew by approximately $3.3 million, or 7.2% for the three months ended September 30, 2012 compared to the three months ended September 30, 2011. There was no material difference in the pricing for our product during the three months ended September 30, 2011 compared to the three months ended September 30, 2012. Revenue growth was achieved primarily due to volume growth as more customers acquired our product for the first time, along with additional license purchases by our existing customers. In addition, during the three months ended September 30, 2012, we closed 86 contracts that had total license and first year’s maintenance exceeding $100,000, compared to 105 contracts for the same period last year. Amounts invoiced to existing customers during the three months ended September 30, 2012 represented a larger share of total billings, approximately 74%, resulting from our “land and expand” sales strategy. During the three months ended September 30, 2011, amounts invoiced to existing customers represented approximately 69% of total billings. Billings from our indirect partner channel for license and first year maintenance were 61% and 52% of total license and first year maintenance billings for the three months ended September 30, 2012 and 2011, respectively. Maintenance revenues grew by approximately 33.0% in the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 driven by an increase in our customer base and annual maintenance renewal rates of greater than 85%. Professional services revenue decreased 3.9% in the three months ended September 30, 2012 compared to the three months ended September 30, 2011 due to the lower utilization of our employees resulting in a decrease in consulting and training revenue which we believe is the result of less demand. The total revenue growth in the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 may not be indicative of our future revenue growth, if any.

 

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Cost of Revenue and Gross Profit

The following table sets forth cost of revenue and gross profit for each revenue source:

 

     Three Months Ended September 30,              
     2012     2011              
     Amount     Percentage  of
Related
Revenue
    Amount      Percentage  of
Related
Revenue
    Period to Period Change  
    

(unaudited)

(dollars in thousands)

             

Cost of Revenue:

             

Cost of license revenue

   $ 1,193        2.4   $ 918         2.0   $ 275        30.0

Cost of maintenance revenue

     1,969        6.4     1,678         7.3     291        17.3

Cost of professional services revenue

     6,963        103.9     5,863         84.0     1,100        18.8
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

Total cost of revenue

   $ 10,125        11.8   $ 8,459         11.2   $ 1,666        19.7
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross Profit:

             

License revenue

   $ 47,612        97.6   $ 44,619         98.0   $ 2,993        6.7

Maintenance revenue

     28,618        93.6     21,313         92.7     7,305        34.3

Professional services revenue

     (259     -3.9     1,113         16.0     (1,372     -123.3
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

Total gross profit

   $ 75,971        88.2   $ 67,045         88.8   $ 8,926        13.3
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cost of revenue was $10.1 million for the three months ended September 30, 2012 compared to $8.4 million for the three months ended September 30, 2011, an increase of $1.7 million, or 19.7%. Cost of license revenue increased $0.3 million for the three months ended September 30, 2012 compared to same period in 2011. Cost of license revenue largely consists of referral fees paid to third parties in connection with software license sales and the amortization of intangible assets due to the acquisition of expressor software corporation (“Expressor”). Referral fees decreased $0.1 million and amortization of intangible assets increased $0.4 million for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 due to the acquisition of Expressor. Cost of maintenance revenue increased $0.3 million for the three months ended September 30, 2012 as compared to the same period in 2011. In anticipation of continued growth in our current customer base, we increased headcount in our support organization which increased personnel costs by $0.3 million (including a $0.1 million increase in stock-based compensation) for the three months ended September 30, 2012 as compared to the same period in 2011. Cost of professional services revenue increased by $1.1 million in the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 largely due to increased personnel costs of $1.4 million (including a $0.1 million increase in stock-based compensation) offset by a decrease in consulting and other cost of professional services of $0.3 million. The increase in our total gross margin during the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 may not be indicative of our future gross margin.

Operating Expenses

The following table sets forth operating expenses as a percentage of revenue:

 

     Three Months Ended September 30,               
     2012     2011               
     Amount      Percentage  of
Revenue
    Amount      Percentage  of
Revenue
    Period to Period Change  
    

(unaudited)

(dollars in thousands)

              

Operating expenses:

               

Sales and marketing

   $ 47,712         55.4   $ 42,503         56.3   $ 5,209         12.3

Research and development

     9,776         11.4     6,427         8.5     3,349         52.1

General and administrative

     20,253         23.5     16,058         21.3     4,195         26.1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total operating expenses

   $ 77,741         90.3   $ 64,988         86.1   $ 12,753         19.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Sales and Marketing. Sales and marketing expenses increased $5.2 million, or 12.3%, for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011, reflecting increased personnel costs related to higher employee headcount and higher variable compensation resulting from increased license revenue. The increase in sales and marketing expenses was primarily attributable to an increase in personnel and commission costs of $5.8 million (including a $1.4 million increase in stock-based compensation) for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011. In addition, we had an increase in facilities costs of $0.2 million to support international expansion. These increases were offset by decreases in marketing costs of $0.4 million and consulting and other sales and marketing costs of $0.4 million. During the first half of 2011, we formed our European inside sales team, which represented incremental costs of $0.8 million during the three months ended September 30, 2012 as compared to the three months ended September 30, 2011.

Research and Development. Research and development expenses grew by approximately $3.4 million, or 52.1%, during the three months ended September 30, 2012 as compared to the three months ended September 30, 2011. The increase was attributable to higher personnel costs of $2.3 million (including a $0.3 million increase in stock-based compensation) as a result of the increase in our headcount in research and development, and the acquisition of Expressor, as we seek to further strengthen and enhance our software platform. This increase in personnel costs included a decrease of $0.1 million due to the change in the value of the Swedish kronor as the vast majority of our research and development staff is based in Lund, Sweden. In addition, there was an increase of $1.1 million in other research and development expenses such as facilities and travel related to a larger research and development function.

General and Administrative. General and administrative expenses were $20.3 million for the three months ended September 30, 2012 compared to $16.1 million for the three months ended September 30, 2011, an increase of $4.2 million, or 26.1%. This increase was largely due to an increase in personnel costs of $2.7 million (including a $0.8 million increase in stock-based compensation) and an increase of $1.9 million in information technology costs as we continue to expand our infrastructure to support anticipated global growth. The increase was also due to an increase in travel expenses of $0.4 million largely due to the increase in the number of our general and administrative personnel. These increases were offset by a decrease in other general and administrative costs of $0.8 million.

Other Income (Expense), net. Other expense, net was $1.7 million for the three months ended September 30, 2012 compared to other income, net of $0.8 million for the three months ended September 30, 2011. During the three months ended September 30, 2012, we had foreign exchange losses of $1.7 million and during the three months ended September 30, 2011, we had foreign exchange gains of $0.7 million and net interest income of $0.1 million.

Benefit (Provision) for Income Taxes. The effective tax rate for the three months ended September 30, 2012 was a benefit of 104.4% compared to a provision of 58.4% in the prior-year period. Our benefit for income taxes for the period is based on our estimated annual effective tax rate adjusted for the recognition of discrete items. Our estimated annual effective tax rate principally includes foreign income taxed at the local jurisdictions rates and the recognition of certain valuation allowances. We operate in an international environment with significant operations in various locations outside the U.S.; accordingly the consolidated income tax rate is a composite rate reflecting our income (loss) and the applicable tax rate in the various locations where we operate. During the three months ended September 30, 2012 and 2011, our Swedish operations had a significant impact on our effective tax rate, as our intellectual property is held by our Swedish holding company, QlikTech International AB (“QTIAB”), which results in a significant portion of our pre-tax income (loss) being taxed at the Swedish corporate tax rate.

Due to the relative difference in the projected annual distribution of income and losses in jurisdictions in which we operate compared to our actual results for the three months ended September 30, 2012, including the recognition of certain discrete items in the quarter, and due to incurred losses in a jurisdiction for which the tax benefit cannot be recognized, the year-to-date effective rate differs significantly from our projected full year effective rate. Our effective tax rate is also impacted significantly by non-deductible share-based compensation earned in various jurisdictions. As of September 30, 2012, we project a full year effective tax rate of approximately 81%, compared to the quarter-to-date effective tax rate of 104.4%. As the projection and distribution of income changes throughout 2012, the year-to-date effective rate will change from quarter to quarter.

The income tax benefit for the three months ended September 30, 2012 is attributable to our subsidiary, QTIAB, which generated a pre-tax loss during the period. We believe that the analysis of positive and negative evidence, including a three-year cumulative profit and projected taxable income for future periods, provides a basis to record the related income tax receivable included within current assets on the consolidated balance sheet as of September 30, 2012. With the exception of QTIAB, and our consolidated group of U.S. entities (“U.S. Entities”), all other entities were profitable for the three months ended September 30, 2012. In addition, with the exception of the U.S. Entities and QTIAB, all entities are expected to be profitable for the year ending December 31, 2012. A full valuation allowance has been recorded against the deferred tax assets of the U.S. Entities as of September 30, 2012 based upon the negative evidence of a three-year cumulative loss and projected losses for 2012.

 

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Comparison of the Nine Months Ended September 30, 2012 and 2011

Revenue

The following table sets forth revenue by source:

 

     Nine Months Ended September 30,               
     2012     2011               
     Amount      Percentage  of
Revenue
    Amount      Percentage  of
Revenue
    Period to Period Change  
    

(unaudited)

(dollars in thousands)

              

Revenue:

               

License revenue

   $ 145,172         57.8   $ 128,751         60.5   $ 16,421         12.8

Maintenance revenue

     85,589         34.1     64,148         30.2     21,441         33.4

Professional services revenue

     20,291         8.1     19,666         9.3     625         3.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total revenue

   $ 251,052         100.0   $ 212,565         100.0   $ 38,487         18.1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Revenue was $251.1 million for the nine months ended September 30, 2012 compared to $212.6 million for the nine months ended September 30, 2011, an increase of $38.5 million, or 18.1%. The increase in revenue from the prior year period was primarily driven by revenue growth in the Americas (includes North America and South America), the United Kingdom, Rest of World (includes Asia-Pacific, Middle East and Africa) and the German region (includes Germany, Austria and Switzerland), which grew by 22%, 31%, 36% and 15%, respectively, and contributed an incremental $32.3 million in total revenue. License revenue grew by approximately $16.4 million, or 12.8% for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. There was no material difference in the pricing for our product during the nine months ended September 30, 2011 compared to the nine months ended September 30, 2012. Revenue growth was achieved primarily due to volume growth as more customers acquired our product for the first time, along with additional license purchases by our existing customers. In addition, during the nine months ended September 30, 2012, we closed 281 contracts that had total license and first year’s maintenance exceeding $100,000, compared to 291 contracts for the same period last year. Amounts invoiced to existing customers during the nine months ended September 30, 2012 represented a larger share of total billings, approximately 76%, resulting from our “land and expand” sales strategy. During the nine months ended September 30, 2011, amounts invoiced to existing customers represented approximately 67% of total billings. Billings from our indirect partner channel for license and first year maintenance were 58% and 52% of total license and first year maintenance billings for the nine months ended September 30, 2012 and 2011, respectively. Maintenance revenues grew by approximately 33.4% in the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 driven by an increase in our customer base and annual maintenance renewal rates of greater than 85%. Professional services revenue grew by 3.2% in the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 due to growth in consulting and training revenue, resulting from an increase in our customer base. The total revenue growth in the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 may not be indicative of our future revenue growth, if any.

 

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Cost of Revenue and Gross Profit

The following table sets forth cost of revenue and gross profit for each revenue source:

 

     Nine Months Ended September 30,              
     2012     2011              
     Amount     Percentage  of
Related
Revenue
    Amount      Percentage  of
Related
Revenue
    Period to Period Change  
    

(unaudited)

(dollars in thousands)

             

Cost of Revenue:

             

Cost of license revenue

   $ 2,547        1.8   $ 2,610         2.0   $ (63     -2.4

Cost of maintenance revenue

     6,049        7.1     5,114         8.0     935        18.3

Cost of professional services revenue

     20,437        100.7     17,559         89.3     2,878        16.4
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

Total cost of revenue

   $ 29,033        11.6   $ 25,283         11.9   $ 3,750        14.8
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross Profit:

             

License revenue

   $ 142,625        98.2   $ 126,141         98.0   $ 16,484        13.1

Maintenance revenue

     79,540        92.9     59,034         92.0     20,506        34.7

Professional services revenue

     (146     -0.7     2,107         10.7     (2,253     -106.9
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

Total gross profit

   $ 222,019        88.4   $ 187,282         88.1   $ 34,737        18.5
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cost of revenue was $29.0 million for the nine months ended September 30, 2012 compared to $25.3 million for the nine months ended September 30, 2011, an increase of $3.8 million, or 14.8%. Cost of license revenue did not materially change for the nine months ended September 30, 2012 compared to same period in 2011. Cost of license revenue largely consists of referral fees paid to third parties in connection with software license sales and the amortization of intangible assets due to the acquisition of Expressor. Referral fees decreased $0.4 million and amortization of intangible assets increased $0.4 million for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 due to the acquisition of Expressor. Cost of maintenance revenue increased $0.9 million for the nine months ended September 30, 2012 as compared to the same period in 2011. In anticipation of continued growth in our current customer base, we increased headcount in our support organization which increased personnel costs by $1.0 million (including a $0.2 million increase in stock-based compensation) offset by a decrease in other cost of maintenance revenue of $0.1 million for the nine months ended September 30, 2012 as compared to the same period in 2011. Cost of professional services revenue increased by $2.9 million in the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 largely due to increased personnel costs of $3.8 million (including a $0.4 million increase in stock-based compensation) offset by a decrease in consulting and other cost of professional services of $0.9 million. The increase in our total gross margin during the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 may not be indicative of our future gross margin.

Operating Expenses

The following table sets forth operating expenses as a percentage of revenue:

 

     Nine Months Ended September 30,               
     2012     2011               
     Amount      Percentage  of
Revenue
    Amount      Percentage  of
Revenue
    Period to Period Change  
    

(unaudited)

(dollars in thousands)

              

Operating expenses:

               

Sales and marketing

   $ 147,982         58.9   $ 129,057         60.7   $ 18,925         14.7

Research and development

     25,421         10.1     18,763         8.8     6,658         35.5

General and administrative

     60,518         24.1     46,015         21.6     14,503         31.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total operating expenses

   $ 233,921         93.2   $ 193,835         91.2   $ 40,086         20.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Sales and Marketing. Sales and marketing expenses increased $18.9 million, or 14.7%, for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011, reflecting increased personnel costs related to higher employee headcount and higher variable compensation resulting from increased license revenue. The increase in sales and marketing expenses was primarily attributable to an increase in personnel and commission costs of $18.6 million (including a $4.3 million increase in stock-based compensation) for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011. We had an increase in travel expenses of $1.0 million for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 largely due to the increase in the number of our sales and marketing personnel. In addition, we had an increase in facilities costs of $0.9 million to support international expansion. These increases were offset by decreases in consulting and other sales and marketing costs of $0.9 million and marketing costs of $0.7 million. During the first half of 2011, we formed our European inside sales team, which represented incremental costs of $2.5 million during the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011.

Research and Development. Research and development expenses grew by approximately $6.7 million, or 35.5%, during the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011. The increase was attributable to higher personnel costs of $5.0 million (including a $1.0 million increase in stock-based compensation) as a result of the increase in our headcount in research and development, and the acquisition of Expressor, as we seek to further strengthen and enhance our software platform. This increase in personnel costs included the effect of a $0.5 million decrease due to the change in the value of the Swedish kronor as the vast majority of our research and development staff is based in Lund, Sweden. In addition, there was an increase of $1.7 million in other research and development expenses such as facilities and travel related to a larger research and development function.

General and Administrative. General and administrative expenses were $60.5 million for the nine months ended September 30, 2012 compared to $46.0 million for the nine months ended September 30, 2011, an increase of $14.5 million, or 31.5%. This increase was largely due to an increase in personnel costs of $8.0 million (including a $1.7 million increase in stock-based compensation) and an increase of $4.7 million in information technology costs as we continue to expand our infrastructure to support anticipated global growth. In addition, we had an increase in other general and administrative costs of $2.9 million, primarily due to an increase in professional fees. The increase was also due to an increase in travel expenses of $1.1 million largely due to the increase in the number of our general and administrative personnel. These increases were offset by a decrease of $2.2 million due to a lease termination fee incurred in the prior year period related to our previous leased facility in Lund, Sweden.

Other Expense, net. Other expense, net was $3.0 million for the nine months ended September 30, 2012 compared to other expense, net of $0.2 million for the nine months ended September 30, 2011. During the nine months ended September 30, 2012, we had foreign exchange losses of $3.1 million offset by net interest income of $0.1 million. During the nine months ended September 30, 2011, we had foreign exchange losses and other expenses of $0.4 million offset by net interest income of $0.2 million.

Benefit (Provision) for Income Taxes. The effective tax rate for the nine months ended September 30, 2012 was a benefit of 36.6% compared to a benefit of 2.7% in the prior-year period. Our benefit for income taxes for the period is based on our estimated annual effective tax rate adjusted for the recognition of discrete items. Our estimated annual effective tax rate principally includes foreign income taxed at the local jurisdictions rates and the recognition of certain valuation allowances. We operate in an international environment with significant operations in various locations outside the U.S.; accordingly the consolidated income tax rate is a composite rate reflecting our income (loss) and the applicable tax rate in the various locations where we operate. During the nine months ended September 30, 2012 and 2011, our Swedish operations had a significant impact on our effective tax rate, as our intellectual property is held by our Swedish holding company, QTIAB, which results in a significant portion of our pre-tax income (loss) being taxed at the Swedish corporate tax rate.

Due to the relative difference in the projected annual distribution of income and losses in jurisdictions in which we operate compared to our actual results for the nine months ended September 30, 2012, including the recognition of certain discrete items in the quarter, and due to incurred losses in a jurisdiction for which the tax benefit cannot be recognized, the year-to-date effective rate differs significantly from our projected full year effective rate. Our effective tax rate is also impacted significantly by non-deductible share-based compensation earned in various jurisdictions. As of September 30, 2012, we project a full year effective tax rate of approximately 81%, compared to effective tax rate of 36.6% for the nine months ended September 30, 2012. As the distribution of income changes throughout 2012, the year-to-date effective tax rate will change from quarter to quarter.

The income tax benefit for the nine months ended September 30, 2012 is attributable to our subsidiary, QTIAB, which generated a pre-tax loss during the period. We believe that the analysis of positive and negative evidence, including a three-year cumulative profit and projected taxable income for future periods, provides a basis to record the related income tax receivable included within current assets on the consolidated balance sheet as of September 30, 2012. With the exception of QTIAB, and our consolidated group of U.S. Entities, all other entities were profitable for the nine months ended September 30, 2012. In addition, with the exception of the U.S. Entities and QTIAB, all entities are expected to be profitable for the year ending December 31, 2012. A full valuation allowance has been recorded against the deferred tax assets of the U.S. Entities as of September 30, 2012 based upon the negative evidence of a three-year cumulative loss and projected losses for 2012.

 

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Foreign Exchange Rates

We conduct business in our foreign operations in local currencies. Accordingly, our revenue and operating expense results presented above are affected by changes in foreign exchange rates. Income and expense accounts are translated at the average monthly exchange rates during the period. Total revenue for the three months ended September 30, 2012 was negatively impacted by approximately $4.8 million due to the general strengthening of the U.S. dollar relative to the euro, the British pound and the Swedish kronor compared to the same period in 2011. Total cost of revenue and operating expenses for the three months ended September 30, 2012 were positively impacted by approximately $3.5 million due to the general strengthening of the U.S. dollar relative to the euro, the British pound and the Swedish kronor compared to the same period in 2011. Total revenue for the nine months ended September 30, 2012 was negatively impacted by approximately $13.0 million due to the general strengthening of the U.S. dollar relative to the euro, the British pound and the Swedish kronor compared to the same period in 2011. Total cost of revenue and operating expenses for the nine months ended September 30, 2012 were positively impacted by approximately $10.9 million due to the general strengthening of the U.S. dollar relative to the euro, the British pound and the Swedish kronor compared to the same period in 2011.

Seasonality

Our quarterly results reflect seasonality in the sale of our products and services. Historically, a pattern of increased license sales in the fourth quarter has positively impacted sales activity in that period which can make it difficult to achieve sequential revenue growth in the first quarter. In addition, our European operations occasionally provide lower revenues in the summer months because of the generally reduced level of economic activity in Europe during those months. Similarly, our gross margins and operating income have been affected by these historical trends because the majority of our expenses are relatively fixed in the near-term. The timing of revenues in relation to our expenses, much of which does not vary directly with revenue, has an impact on the cost of revenue, sales and marketing expense, research and development expense and general and administrative expense as a percentage of revenue in each calendar quarter during the year. The majority of our expenses is personnel-related and includes salaries, stock-based compensation, benefits and incentive-based compensation plan expenses. As a result, we have not experienced significant seasonal fluctuations in the timing of expenses from period to period, other than an increase in total operating expenses during the first quarter of each year as a result of our annual employee summit and an increase in sales and marketing expenses in the second quarter of each year due to our annual partner event. On a quarterly basis, we have usually generated the majority of our revenues in the final month of each quarter and a significant amount in the last two weeks of a quarter. We believe this is due to customer buying patterns typical in this industry. Although these seasonal factors are common in the technology sector, historical patterns should not be considered a reliable indicator of our future sales activity or performance.

Liquidity and Capital Resources

Since our inception, we have financed our operations through the sale of preferred stock and common stock, cash flows generated by operations and borrowings under debt instruments. As of September 30, 2012, we had cash and cash equivalents totaling $193.1 million, net accounts receivable of $75.0 million and $178.8 million of working capital. Our cash and cash equivalents held domestically were $107.7 million as of September 30, 2012. We believe that our cash and cash equivalents balances in the U.S. are currently sufficient to fund our U.S. operations. As of September 30, 2012, cash and cash equivalents held by foreign subsidiaries were $85.4 million, which include undistributed earnings of foreign subsidiaries indefinitely invested outside of the U.S. of $31.6 million. Except as required under U.S. tax law, we do not accrue for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since we intend to continue to invest such undistributed earnings outside of the U.S. If these funds are needed for our operations in the U.S., we would be required to accrue and, subsequent to the full utilization of our existing net operating loss carryforwards, pay U.S. taxes to repatriate these funds.

Our capital expenditures for the nine months ended September 30, 2012 were $7.6 million, comprised primarily of additional leasehold improvements, furniture and fixtures and computer equipment. In addition, during the nine months ended September 30, 2012, we acquired all of the outstanding shares of Expressor which resulted in a cash expenditure of approximately $10.8 million.

We believe that our existing cash and cash equivalents and our cash flow from operations will be sufficient to fund our operations and our capital expenditures for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing and extent of spending to support product development efforts and expansion into new territories, the timing of introductions of new software products and enhancements to existing software products and the continuing market acceptance of our software offerings. We may from time to time enter into agreements, arrangements or letters of intent regarding potential investments in, or acquisitions of, complementary businesses, applications or technologies. If we enter into these types of arrangements, it could require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all.

 

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The following table shows selected balance sheet data as well as our cash flows from operating activities, investing activities, and financing activities for the stated periods:

 

     September 30,
2012
    December 31,
2011
 
     (unaudited)        
     (dollars in thousands)  

Cash and cash equivalents

   $ 193,111      $ 177,413   

Accounts receivable, net

     75,002        111,710   

Deferred revenue, including current portion

     66,515        67,116   

Working capital

     178,817        182,020   
     Nine Months Ended September 30,  
     2012     2011  
    

(unaudited)

(dollars in thousands)

 

Cash flow activities

    

Net cash provided by operating activities

   $ 25,432      $ 10,994   

Net cash used in investing activities

     (18,441     (6,473

Net cash provided by financing activities

     7,448        7,244   

Cash and Cash Equivalents

Our cash and cash equivalents at September 30, 2012 were held for working capital purposes and were invested primarily in bank deposits and money market accounts having less than 90 day maturities. We do not enter into investments for trading or speculative purposes. These balances could be impacted if the underlying depository institutions or the guarantors fail or could be subject to adverse conditions in the financial markets. We can provide no assurances that access to our funds will not be impacted by adverse conditions in the financial markets.

Cash Flows

Operating Activities

Net cash provided by operating activities was $25.4 million for the nine months ended September 30, 2012. We incurred non-cash expenses totaling $21.2 million for the nine months ended September 30, 2012. Non-cash expenses primarily consisted of stock-based compensation expense, provisions for bad debt, unrealized foreign currency gains and losses and depreciation and amortization expense. In addition, we incurred an excess tax benefit from stock-based compensation of $3.3 million for the nine months ended September 30, 2012.

The change in certain assets and liabilities resulted in a net source of cash of $16.9 million for the nine months ended September 30, 2012. Net cash provided by operating activities is driven by sales of our products. Collection of accounts receivable from the product sales is a significant component of our cash flows from operating activities, as is the change in deferred revenue related to these sales. In addition, net cash provided by operating activities reflects income tax payments made of $6.3 million.

Net cash provided by operating activities was $11.0 million for the nine months ended September 30, 2011. We incurred non-cash expenses totaling $10.0 million for the nine months ended September 30, 2011. Non-cash expenses primarily consisted of stock-based compensation expense, provisions for bad debt, change in the fair value of warrants, unrealized foreign currency gains and losses, and depreciation and amortization expense.

The change in certain assets and liabilities resulted in a net source of cash of $7.6 million for the nine months ended September 30, 2011. Net cash provided by operating activities is driven by sales of our software offerings. Collection of accounts receivable from the sales of our software offerings is a significant component of our cash flows from operating activities, as is the change in deferred revenue related to these sales. In addition, net cash provided by operating activities includes income tax payments made of $13.0 million.

 

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Investing Activities

Net cash used in investing activities was $18.4 million for the nine months ended September 30, 2012. During the nine months ended September 30, 2012, we acquired Expressor which resulted in a use of cash of approximately $10.8 million. In addition, cash used in investing activities for the nine months ended September 30, 2012 included $7.6 million for capital expenditures related to leasehold improvements and computer equipment as we continued to expand our infrastructure and workforce. During the nine months ended September 30, 2012, we began to occupy a new office in Winnersh, United Kingdom. Our capital expenditures during the nine months ended September 30, 2012 related to this new office were approximately $2.2 million for leasehold improvements and computer equipment.

Net cash used in investing activities was $6.5 million for the nine months ended September 30, 2011. Cash used in investing activities for the nine months ended September 30, 2011 was primarily for capital expenditures related to leasehold improvements and computer equipment as we expanded our infrastructure and workforce.

Financing Activities

Net cash provided by financing activities was $7.5 million for the nine months ended September 30, 2012. Net cash provided by financing activities resulted from an excess tax benefit from stock-based compensation of $3.3 million and the proceeds from the exercise of common stock options of $4.7 million. These proceeds were offset by payments on contingent consideration of $0.2 million for the achievement of certain financial targets related to the acquisition of Syllogic Corporation in January 2010 and payments under one of our subsidiary’s line of credit of $0.3 million during such period.

Net cash provided by financing activities was $7.2 million for the nine months ended September 30, 2011. Net cash provided by financing activities resulted from the proceeds from the exercise of common stock options of $7.2 million and borrowings under our subsidiary’s line of credit of $0.2 million during such period. These proceeds were offset by payments on contingent consideration of $0.2 million for the achievement of certain financial targets related to the acquisition of Syllogic Corporation in January 2010.

Non-GAAP Financial Measures

We use measures of non-generally accepted accounting principles (“Non-GAAP”) income (loss) from operations, Non-GAAP net income (loss), Non-GAAP net income (loss) per basic and diluted common share and constant currency. We believe that the Non-GAAP financial information provided can assist investors in understanding and assessing our on-going core operations and prospects for the future. This Non-GAAP financial information provides an additional tool for investors to use in comparing our financial results with other companies in our industry, many of which present similar Non-GAAP financial measures to investors. In addition, we believe that these Non-GAAP financial measures are useful to investors because they allow for greater transparency into the indicators used as a basis for our internal budgeting and operational decision making.

For the three and nine months ended September 30, 2012 and 2011, Non-GAAP income from operations is determined by taking income (loss) from operations and adding back stock-based compensation expense, employer payroll taxes related to stock transactions, amortization of intangible assets and lease termination costs. Non-GAAP net income is determined by taking income (loss) before (benefit) provision for income taxes and adding back stock-based compensation expense, employer payroll taxes on stock transactions, amortization of intangible assets, lease termination costs and the result is tax affected at an estimated long-term effective tax rate of 32%. We believe that our Non-GAAP adjustments provide useful information to both management and investors for the following reasons:

Stock-based compensation. Although stock-based compensation is an important aspect of the compensation of our employees, executives and directors, determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the future exercise or termination of the related stock-based awards. Furthermore, unlike cash compensation, the value of stock-based compensation is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. We believe it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies.

Employer payroll taxes on stock transactions. The amount of employer payroll taxes on stock transactions is dependent on our stock price and other factors that are beyond our control and which we believe do not correlate to the operation of our business.

Amortization of intangible assets. A portion of the purchase price of our acquisitions is generally allocated to intangible assets, such as intellectual property, and is subject to amortization. However, we do not acquire businesses on a predictable cycle. Additionally, the amount of an acquisition’s purchase price allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition. Therefore, we believe that the presentation of Non-GAAP financial measures that adjust for the amortization of intangible assets provides investors and others with a consistent basis for comparison across accounting periods.

Lease termination costs. Lease termination costs include termination costs to settle lease obligations related to facilities that are no longer occupied as well as the write-off of leasehold improvements related to those facilities that are no longer in use. We believe that these costs are generally non-recurring and do not correlate to the on-going operation of our business.

 

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The following is a reconciliation of Non-GAAP income from operations, Non-GAAP net income and Non-GAAP net income per common share to the most comparable U.S. generally accepted accounting principles (“U.S. GAAP”) measure for the periods indicated (in thousands, except share and per share data):

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2012     2011     2012     2011  
    (unaudited)     (unaudited)  

Reconciliation of Non-GAAP income from operations:

       

GAAP income (loss) from operations

  $ (1,770   $ 2,057      $ (11,902   $ (6,553

Stock-based compensation expense

    5,515        2,859        13,963        6,359   

Employer payroll taxes on stock transactions

    119        314        1,849        2,114   

Amortization of intangible assets

    401        —          401        —     

Lease termination costs

    —          —          —          2,236   
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP income from operations

  $ 4,265      $ 5,230      $ 4,311      $ 4,156   
 

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of Non-GAAP net income:

       

GAAP net income (loss)

  $ 151      $ 1,207      $ (9,426   $ (6,578

Stock-based compensation expense

    5,515        2,859        13,963        6,359   

Employer payroll taxes on stock transactions

    119        314        1,849        2,114   

Amortization of intangible assets

    401        —          401        —     

Lease termination costs

    —          —          —          2,236   

Income tax adjustment (1)

    (4,426     (248     (5,865     (1,445
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

  $ 1,760      $ 4,132      $ 922      $ 2,686   
 

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of Non-GAAP income (loss) per share:

       

Non-GAAP net income per common share—basic

  $ 0.02      $ 0.05      $ 0.01      $ 0.03   
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income per common share—diluted

  $ 0.02      $ 0.05      $ 0.01      $ 0.03   
 

 

 

   

 

 

   

 

 

   

 

 

 

GAAP net income (loss) per common share—basic

  $ 0.00      $ 0.01      $ (0.11   $ (0.08
 

 

 

   

 

 

   

 

 

   

 

 

 

GAAP net income (loss) per common share—diluted

  $ 0.00      $ 0.01      $ (0.11   $ (0.08
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP weighted average number of common shares outstanding—basic

    85,655,059        83,171,163        85,236,449        81,391,156   
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP weighted average number of common shares outstanding—diluted

    88,132,646        87,634,196        87,718,320        85,826,880   
 

 

 

   

 

 

   

 

 

   

 

 

 

GAAP weighted average number of common shares outstanding—basic

    85,655,059        83,171,163        85,236,449        81,391,156   
 

 

 

   

 

 

   

 

 

   

 

 

 

GAAP weighted average number of common shares outstanding—diluted

    88,132,646        87,634,196        85,236,449        81,391,156   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Income tax adjustment is used to adjust the U.S. GAAP benefit for income taxes to a Non-GAAP benefit or provision for income taxes utilizing an estimated long-term tax rate of 32%.

The following table reflects the impact of changes in foreign currency exchange rates from the prior year periods on the reported amounts of total revenue for the three and nine months ended September 30, 2012. To determine the revenue growth rates on a constant currency basis for the three and nine months ended September 30, 2012, revenue from entities reporting in foreign currencies was translated into U.S. dollars using the comparable prior year period’s foreign currency exchange rates.

 

     Three months ended September 30,            Nine Months ended September 30,         
     2012      2011      % change     2012      2011      % change  
     (unaudited)            (unaudited)         

Constant currency reconciliation:

                

Total revenue, as reported

   $ 86,096       $ 75,504         14   $ 251,052       $ 212,565         18

Estimated impact of foreign currency fluctuations

           6           6
        

 

 

         

 

 

 

Total revenue constant currency growth rate

           20           24
        

 

 

         

 

 

 

 

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Contractual Obligations and Commitments and Off-Balance Sheet Arrangements

In June 2012, we entered into a software licensing agreement with a third party vendor. The minimum term of the agreement continues through June 30, 2017. During the nine months ended September 30, 2012, we made an initial payment of $0.6 million pursuant to the agreement. Additional payments totaling $5.5 million are payable under this software licensing agreement through December 2016.

There have been no other material changes to our contractual obligations from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

We had no off-balance sheet arrangements, as defined in Item 303(a)(4) of the Securities and Exchange Commission’s Regulation S-K, as of September 30, 2012 and December 31, 2011.

Inflation

Normally, inflation does not have a significant impact on our operations as our products are not generally sold on long-term contracts. Consequently, we can adjust our selling prices, to the extent permitted by competition, to reflect cost increases caused by inflation.

Recent Accounting Pronouncements

See Note 2 to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates. We do not hold financial instruments for trading purposes.

Market Risk

We are exposed to certain financial risks, including fluctuations in foreign currency exchange rates and interest rates. We manage our exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. Our policies do not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading purposes and we are not a party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as needed.

Interest Rate Sensitivity

We had cash and cash equivalents of $193.1 million at September 30, 2012 and $177.4 million at December 31, 2011. We held these amounts primarily in cash or money market funds.

We hold cash and cash equivalents for working capital purposes. We do not have material exposure to market risk with respect to investments, as our investments consist primarily of highly liquid investments purchased with original maturities of three months or less. We do not use derivative financial instruments for speculative or trading purposes; however, we may adopt specific hedging strategies in the future. Any declines in interest rates, however, will reduce future interest income.

Foreign Exchange Risk

We market our products in the Americas, Europe, the Asia-Pacific Region, and Africa and develop our products in Europe and the United States. As a result of our business activities in foreign countries, our financial results could be affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets, and there is no assurance that exchange rate fluctuations will not harm our business in the future. We sell our products in certain countries in the local currency of the respective country. There is a risk that we will have to adjust local currency product pricing due to the competitive pressure when there has been significant volatility in foreign exchange rates. In addition, our research and development activities are principally based at our facility in Lund, Sweden. This provides some natural hedging because most of our subsidiaries’ operating expenses are denominated in their local currencies. Regardless of this natural hedging, our results of operations may be adversely impacted by the exchange rate fluctuation. Although we will continue to monitor our exposure to currency fluctuations and, where appropriate, may use financial hedging techniques in the future to minimize the effect of these fluctuations, we are not currently engaged in any financial hedging transactions. We may choose not to hedge certain foreign exchange exposure for a variety of reasons, including accounting considerations and the prohibitive economic cost of hedging particular exposure.

Foreign exchange risk exposures arise from transactions denominated in a currency other than our functional currency and from foreign denominated revenue and profit translated into U.S. dollars. Approximately 69% and 68% of our operating revenues for the nine months ended September 30, 2012 and 2011, respectively, were earned in foreign denominated currencies other than the U.S. dollar. The principal foreign currencies in which we conduct business are the euro, the Swedish kronor and the British pound. The translation of currencies in which we operate into the U.S. dollar may affect our consolidated revenues and gross profit margins as expressed in U.S. dollars. We seek to manage our foreign exchange risk in part through operational means, including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. As we operate in multiple foreign currencies, changes in those currencies relative to the U.S. dollar will impact our revenues and expenses. If the U.S. dollar weakens against a specific foreign currency, our revenues will increase having a positive impact on net income (loss), and our overall expenses will increase, having a negative impact on net income (loss). Likewise, if the U.S. dollar strengthens against a specific foreign currency, our revenues will decrease having a negative impact on net income (loss), and our overall expenses will decrease, having a positive impact on net income (loss). Therefore, significant shifts in foreign currencies can impact our short-term results, as well as our long-term forecasts and targets.

Our actual future gains and losses may differ materially due to the inherent limitations with the timing and amount of changes in foreign currency exchange rates and our actual exposure and positions.

 

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Item 4. Controls and Procedures

Evaluation of Disclosure and Control Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d and 15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information require to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriated to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2012, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-(f) under the Exchange Act) occurred during the quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are party to legal proceedings in the ordinary course of business and we may from time to time become subject to additional proceedings or additional claims or remedies sought in current proceedings. These actions typically seek, among other things, breach of contract or employment-related damages, intellectual property claims for damages, punitive damages, civil penalties or other losses or declaratory relief. Although there can be no assurance as to the outcome of any such proceedings, we do not believe any of the proceedings currently pending, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, operating results or financial condition. See risks discussed in the section titled “Risk Factors” for more information.

Our intellectual property is an essential element of our business. We own registered trademarks for the “Qlik” and “QlikView” name. We rely on a combination of copyright, trademark, trade dress and trade secrecy laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights both domestically and abroad. These laws, procedures and restrictions provide only limited protection. As of September 30, 2012, we had six issued U.S. patents and had seven pending applications for U.S. patents. In addition, as of September 30, 2012, we had 19 issued and 15 pending applications for foreign patents. Any future patents issued to us may be challenged, invalidated or circumvented. Any patents that might be issued in the future, with respect to pending or future patent applications may not provide sufficiently broad protection or may not prove to be enforceable in actions against alleged infringers. We endeavor to enter into agreements with our employees and contractors and with parties with whom we do business in order to limit access to and disclosure of our proprietary information.

ITEM 1A. RISK FACTORS

In our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the SEC on February 28, 2012, we identify under Part I, Item 1A important factors which could affect our business, financial condition, results of operations and future operations and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report on Form 10-Q. There have been no material changes to the risk factors subsequent to the filing of our Annual Report on Form 10-K for the year ended December 31, 2011. However, the risks described in our Form 10-K are not the only risks we face. Additional risks and uncertainties that we currently deem to be immaterial or not currently known to us, as well as other risks reported from time to time in our reports to the SEC, also could cause our actual results to differ materially from our anticipated results or other expectations.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

 

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ITEM 6. EXHIBITS

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:

 

Exhibit
Number
  

Description of Document

31.1    Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101    Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended September 30, 2012, furnished in XBRL (eXtensible Business Reporting Language)).

 

* The certification attached as Exhibit 32.1 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on November 2, 2012.

 

QLIK TECHNOLOGIES INC.
By:   /s/ LARS BJÖRK
 

Lars Björk

President, Chief Executive Officer and Director

(Principal Executive Officer)

  /s/ WILLIAM G. SORENSON
 

William G. Sorenson

Chief Financial Officer and Treasurer

(Principal Financial Officer)

  /s/ DENNIS E. JOHNSON
 

Dennis E. Johnson

 

Chief Accounting Officer

(Principal Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit
Number
  

Description of Document

31.1    Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101    Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended September 30, 2012, furnished in XBRL (eXtensible Business Reporting Language)).

 

* The certification attached as Exhibit 32.1 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

 

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