Form 424B4 WalkMe Ltd.

June 16, 2021 5:26 PM EDT

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Filed pursuant to Rule 424(b)(4)
Registration No. 333-256219

 

9,250,000 Shares

 

 

LOGO

Ordinary Shares

 

 

WalkMe Ltd. is offering 9,250,000 ordinary shares. This is the initial public offering, and no public market exists for our ordinary shares. The initial public offering price is $31.00 per share.

 

 

Our ordinary shares have been approved for listing on the Nasdaq Global Select Market under the symbol “WKME.”

 

 

We are both an “emerging growth company” and a “foreign private issuer” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements. See “Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer.”

 

 

Investing in our ordinary shares involves risks. See “Risk Factors” beginning on page 16.

 

 

PRICE $31.00 A SHARE

 

 

 

    

Price to Public

    

Underwriting
Discounts  and
Commissions

    

Proceeds to
Company(1)

 

Per share

   $ 31.00      $ 2.015      $ 28.985  

Total

   $ 286,750,000      $ 18,638,750      $ 268,111,250  

 

(1)

We have agreed to reimburse the underwriter for certain expenses in connection with this offering. See “Underwriting.”

The underwriters have the option to purchase up to an additional 1,387,500 ordinary shares from us at the initial public offering price, less the underwriting discounts and commissions, for a period of 30 days after the date of this prospectus.

 

 

The Securities and Exchange Commission and state regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

We have requested that the underwriters make issuer directed allocations in the aggregate of 1,774,192 ordinary shares to entities affiliated with Insight Partners and Vitruvian Partners, which are affiliated with certain of our directors. However, because these issuer directed allocations represent our request, and do not constitute a binding agreement or commitment on behalf of Insight Partners or Vitruvian Partners, these shareholders may determine to purchase more, fewer or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these shareholders as they will on any other shares sold to the public in this offering.

The underwriters expect to deliver the ordinary shares to purchasers on or about June 18, 2021.

 

 

 

MORGAN STANLEY   GOLDMAN SACHS & CO. LLC   CITIGROUP

 

WELLS FARGO SECURITIES   BARCLAYS   BMO CAPITAL MARKETS

 

JMP SECURITIES   KEYBANC CAPITAL MARKETS   NEEDHAM & COMPANY

June 15, 2021

 


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LOGO

Walk me
Digital Adoption Platform
Reach Exponential value with technology.


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LOGO

“Humans are at the heart of digital transformation and change is happening too fast.
Without a mutual relationship, it just doesn’t work.
Walkme is completely changing the way humans interact with technology –
This is the essence of digital adoption.”
Dan Adika.
Co-founder & CEO.
WalkMe
Rafael Sweary,
Co-founder & President,
WalkMe


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LOGO

Digital adoption platform.
Create data-driven experiences
Gain visibility into the tech stack as you measure,
Driven, and act to ultimately maximize the impact of your digital transformation strategy.
Drive users to success
Drive user adoption of your digital assets on any device across your tech stack


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LOGO

Financial highlights
$ 178 m ARR(1
~2000 Serving Customers
34% 34% LTM Total Revenue/LTM Subscription Revenue YoY Growth (2)
368 Customer with >$100k in ARR 31% YoY Growth(1)
22 Customers with >$1M in ARR 58% YoY Growth(1)
118% Dollar Based Net Retention Rate >500 Employee Customer(1)
All data as of march 31,2021 unless otherwise indicated.
(1) See “ management’s Discussion and Analysis of Financial Condition and Result of Operation _key Bussiness and Financial metrics” for addition information regarding Annualized Recuring Revenue (“ARR”) and Dollar Rased Net Retention Rate, including how we defined and use these metrics.
(2) Represents the twelve months ended march 31, 2020. During the twelve months ended March 31, 2020 and 2021, we had net losses of $49.6 million and $46.2 million, respectively.


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LOGO

Annualized Recurring Revenue
ARR(1)
$93m    Q1-19
$103M    Q2-19
$117M    Q3-19
$131M    Q4-19
$138M    Q1-20
$146M    Q2-20
$154M    Q3-20
$164M    Q4-20
$178M    Q1-21
We had net losses of $12.8 million, $12.2 million, $13.4 million and $11.7 million for the three months ended March 31, June 30, September 30 and December 31, 2019, respectively; $12.3 million, $3.5 million, $13.2 million and $16.0 million for the three months ended March 31, June 30, September 30 and December 31, 2020 respectively; and $13.4 million for the three months ended March 31, 2021.
(1) See “ management’s Discussion and Analysis of Financial Condition and Result of Operation _key Bussiness and Financial metrics” for addition information regarding Annualized Recuring Revenue (“ARR”) and Dollar Rased Net Retention Rate , including how we defined and use these metric.


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LOGO

Walk me
Total Economic
Impact™ of WalkMe.
368% ROI
Over three years
< 3 Month Payback Period
60% Reduction in training
Time on application*
50% savings in IT support calls
And Help Desk tickets*
20% Savings in software
Licensing fees*
Benefits from Employee-Facing Apps
35% Increase in customer retention*
10% Growth upsell opportunities from existing customers over three years*
50% Savings in customer support call costs
Benefits from Customer-facing Services
*According to a October 2020 Forrester Consulting study, The total Economic impact™ of WalkMe Digital Adoption platform, a study commissioned by WalkMe.


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LOGO

WalkMe’s
Industry Recognition
Awards Analyst Recognition Parents*
Forbes the cloud100 2016|2017|2018|2019|2020
JMP HOT 100 software companies 2018
Forbes 2021 AMERICA’S BEST STARTUP EMPLOYERS
POWERED BY
2019 BEST COMPANY OUTLOOK
Deloitte.
Technology Fast
500™
Deloitte’s technology fast 500™ north America
Deloitte’s technology fast 500™ emea 2016|2018|2019
Remote tech speakthrough awars
Overall remotetech solution of the year,2020
Everest group
The leader in Everest group’s digital adoption platform (dap)
Products peak matrix® assessment 2020
Gartner
Gartner cool vendor
2013
451 research
Firestarter
451 research firestarter award 2020
Frost Sullivan
Frost & Sullivan 2020 global digital transformation optimization platforms company of the year
6 issued u.s. patents
6 u.s. patent applications
8 foreign patent applications
*patents as march 31,2021


Table of Contents

TABLE OF CONTENTS

 

Basis of Presentation

     ii  

Market and Industry Data

     iii  

Trademarks, Trade Names and Service Marks

     iv  

Summary

     1  

Risk Factors

     16  

Special Note Regarding Forward-Looking Statements

     67  

Use of Proceeds

     69  

Dividend Policy

     70  

Capitalization

     71  

Dilution

     73  

Selected Consolidated Financial Data

     75  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     78  

A Letter from WalkMe’s Founders

     107  

Business

     114  

Management

     137  

Principal Shareholders

     161  

Certain Relationships and Related Party Transactions

     165  

Description of Share Capital and Articles of Association

     168  

Shares Eligible for Future Sale

     177  

Taxation and Government Programs

     181  

Underwriting

     192  

Expenses of the Offering

     202  

Legal Matters

     203  

Experts

     203  

Enforceability of Civil Liabilities

     204  

Where You Can Find Additional Information

     206  

Index to Consolidated Financial Statements

     F-1  

 

 

Neither we nor the underwriters have authorized anyone to provide information different from that contained in this prospectus, any amendment or supplement to this prospectus or in any free writing prospectus prepared by us or on our behalf. Neither we nor the underwriters take any responsibility for, and can provide no assurance as to the reliability of, any information other than the information in this prospectus and any free writing prospectus prepared by us or on our behalf. Neither the delivery of this prospectus nor the sale of our ordinary shares means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy our ordinary shares in any circumstances under which such offer or solicitation is unlawful.

For investors outside the United States: Neither we nor any of the underwriters have taken any action that would permit this offering or the possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

 

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BASIS OF PRESENTATION

Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). We present our consolidated financial statements in U.S. dollars. Certain amounts in this prospectus may not total due to rounding. All percentages have been calculated using unrounded amounts.

As used in this prospectus, unless otherwise noted or the context otherwise requires, references to “WalkMe,” the “Company,” “we,” “us,” “our company” and “our business” refer to WalkMe Ltd., together with its consolidated subsidiaries as a consolidated entity.

Throughout this prospectus, we provide a number of key performance indicators used by our management and often used by competitors in our industry. These and other key performance indicators are discussed in more detail in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business and Financial Metrics.” In this prospectus, we also present Free Cash Flow and Non-GAAP Operating Income (Loss), which are not recognized terms under GAAP. We define these terms as follows:

 

   

“Free Cash Flow” is defined as net cash used in operating activities, less cash used for purchases of property and equipment and capitalized internal-use software costs.

 

   

“Non-GAAP Operating Income (Loss)” is defined as net income (loss) from operations excluding share-based compensation and amortization of acquired intangible assets.

See “Prospectus Summary—Summary Consolidated Financial and Other Data” for a discussion regarding our use of Free Cash Flow and Non-GAAP Operating Income (Loss), including their limitations, and a reconciliation to the most directly comparable GAAP financial measures.

 

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MARKET AND INDUSTRY DATA

Unless otherwise indicated, information in this prospectus concerning economic conditions, our industry, the markets in which we operate and our competitive position is based on a variety of sources, including information from independent industry analysts and publications, as well as our own estimates and research. Certain of these sources were published before the COVID-19 pandemic and therefore do not reflect any impact of COVID-19 on any specific market or globally. Our estimates are derived from publicly available information released by independent third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of our industry and the markets in which we operate, which we believe to be reasonable. Although we believe the data from these third-party sources is reliable, we have not independently verified any such information, and these sources generally state that the information they contain has been obtained from sources believed to be reliable. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by independent third parties and by us.

In particular, certain information identified in this prospectus is contained in the following third-party industry sources:

 

   

Accenture Research, Leaders Wanted: Masters of Change at a Moment of Truth, February 2021

 

   

Blissfully, SaaS Trends 2020, October 2019

 

   

Boston Consulting Group, Flipping the Odds of Digital Transformation Success, October 2020

 

   

Everest Group, Digital Adoption Platform (DAP) Products PEAK Matrix® Assessment with Technology Vendor Landscape 2020, July 2020

 

   

Gartner, Inc. (“Gartner”), Improve Employee Usage, Engagement and Productivity With Digital Adoption Solutions, November 2020

 

   

Gartner, Forecast Alert: IT Spending, Worldwide, 4Q20 Update, January 2021

 

   

IDC Research, Inc., Worldwide Digital Transformation Spending Forecast, 2020–2024, December 2020

 

   

IDC Research, Inc., Worldwide Black Book, February 2021

 

   

Insight Enterprises, Is IT Failing the Cost Optimisation Challenge, November 2020

 

   

KPMG, Going Digital Faster, January 2021

We also identify certain information in this prospectus from the following third-party industry sources, each of which was commissioned by us (not in connection with this offering):

 

   

Forrester Consulting, The Total Economic Impact of WalkMe Digital Adoption Platform, October 2020

 

   

Harvard Business Review Analytic Services, The State of Digital Adoption 2021, March 2021

The Gartner content described herein (the “Gartner Content”) represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, and are not representations of fact. Gartner Content speaks as of its original publication date (and not as of the date of this prospectus), and the opinions expressed in the Gartner Content are subject to change without notice.

The Forrester Consulting study referred to above was based on information provided to Forrester Consulting during interviews they conducted with organizational decision-makers from four representative customers, selected by us, with experience using our Digital Adoption Platform as well as Forrester’s assumptions based on its own research. In selecting customers to participate in the study, we sought to assemble a group of customers

 

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that would provide a fulsome representation of our platform’s capabilities. As a result, we selected customers from diverse industries, each with a diverse portfolio of use cases. All customers we selected to participate in the study agreed to participate. The information provided during these customer interviews was then used by Forrester Consulting to create a modeled composite of representative customers reflecting characteristics of the interviewed organizations in order to examine the return on investment that organizations may potentially realize from deploying our Digital Adoption Platform.

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

This prospectus includes certain trademarks, trade names and service marks that are important to our business, which are protected under applicable intellectual property laws and are our property. This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the “®”, “” or “SM” symbols, but such references are not intended to indicate, in any way, that we or the applicable owner will not assert, to the fullest extent possible under applicable law, our or its rights or the rights of any applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other companies’ trademarks, trade names or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

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SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before deciding to invest in our ordinary shares. You should read the entire prospectus carefully, including the “Risk Factors,” “Business,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus and our consolidated financial statements and notes to those consolidated financial statements included elsewhere in this prospectus before making an investment decision.

Our Vision

Our vision is to fundamentally transform the productivity of humanity by harnessing the power of technology.

In the modern global economy, nearly every industry has been disrupted by the power of technology. We are on a journey to help organizations accelerate their digital transformations by redefining how users interact with software and how organizations measure and execute their technology and business strategies.

Overview

WalkMe is the defining solution enabling organizations to better realize the value of their software investments. Using our cloud-based Digital Adoption Platform, users—employees and customers of organizations—can navigate websites, SaaS applications, and mobile apps through a digital, GPS-like experience to accomplish any task from simple, online transactions, to complex cross-application software processes, to fully autonomous experiences that require no manual clicks or entries.

Our Digital Adoption Platform overlays upon any application with a simple no-code implementation. Once overlaid, our platform provides immediate insights that enable a data-first approach to understand the gaps between user interactions and behavior with technology and an organization’s business goals. With actionable insights, we then enable organizations to create and deliver elegant experiences that enable users to access the full functionality and value of the software, ensuring digital adoption, and ultimately fulfilling the promise of digital transformation.

With a digital adoption strategy powered by WalkMe, employees and customers of organizations can benefit from intuitive and unified technology experiences. Chief information officers (“CIO”) and business leaders gain visibility and insights across the organization’s enterprise technology stack. This allows organizations to become more results driven, agile and innovative, to better compete in today’s ever-changing business environment and to ultimately achieve their objectives.

The digital revolution has fundamentally shifted the core competencies required of successful companies. From remote-first workforces leveraging virtual collaboration for seamless communications to new digitally-enabled business models, technology is impacting all of humanity. To compete in an increasingly digital world, organizations have amassed a patchwork of technologies, investing billions of dollars a year in software applications that promise specific business outcomes to elevate and exceed their key business metrics.

Organizations continue to acquire new technologies to achieve their digital transformation goals, but the more software they acquire, the more complex their enterprise technology stack is to manage, use and maintain. CIOs and business leaders lack visibility into what or how software is being utilized, and whether they are realizing value from their technology investments. Similarly, users—both employees and customers—struggle to navigate a growing number of applications with different interfaces to complete business processes. Users must



 

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continuously relearn new technology functions that may have vastly different and evolving capabilities. Meanwhile, user expectations for digital interactions have also evolved as our day-to-day usage of technology has increased with the consumerization of software, causing users to increasingly demand frictionless and elegant digital experiences.

Our Digital Adoption Platform drives the success of digital transformation initiatives by empowering CIOs and business leaders with critical business insights to increase software adoption and improve user experiences for employees and customers.

 

   

For CIOs and business leaders, our platform provides unified visibility and insights across the organization’s software stack to improve key business processes and drive employees and customers to action. Our data-driven insights offer strategic perspective and provide a competitive advantage to CIOs.

 

   

For Employees, our platform provides a contextual and unified experience that can be seamlessly delivered across any application (third party, proprietary, mobile or desktop) to provide personalized process workflow guidance and automation.

 

   

For Customers, our platform can be deployed on any customer facing website or application to power self-service onboarding, feature engagement, support and more.

We serve a diverse set of customers across all major industries, including some of the world’s largest and most sophisticated enterprises. As of March 31, 2021, we had approximately 2,000 customers including 155 of the Fortune 500 and 243 of the Global 2000, as well as 368 customers with annualized recurring revenue (“ARR”) greater than $100,000 and 22 customers with ARR greater than $1,000,000. We deliver our cloud-native, Digital Adoption Platform on a subscription basis to facilitate broad-based adoption of our technology, and subscription revenue comprised approximately 88% of our total revenue for the year ended December 31, 2020 and 90% of our revenue for the three months ended March 31, 2021.

Our success in helping customers achieve their digital transformation strategies has enabled us to achieve significant growth. For the years ended December 31, 2019 and 2020, our revenue was $105.1 million and $148.3 million, respectively, representing year-over-year growth of 41%. For the three months ended March 31, 2020 and 2021, our revenue was $34.2 million and $42.7 million, respectively, representing year-over-year growth of 25%. For the years ended December 31, 2019 and 2020, our net loss was $50.1 million and $45.0 million, respectively, our operating cash flow was ($48.5) million and ($8.7) million, respectively, and our free cash flow was ($53.0) million and ($11.0) million, respectively. For the three months ended March 31, 2020 and 2021, our net loss was $12.3 million and $13.4 million, respectively, our operating cash flow was ($7.4) million and ($2.9) million, respectively, and our free cash flow was ($8.2) million and ($4.1) million, respectively. See the section titled “—Summary Consolidated Financial and Other Data” for additional information regarding free cash flow, a measure that is not calculated under GAAP.

Key Trends Driving the Need for a Digital Adoption Platform

Digital transformation is a priority for enterprise organizations. According to Gartner, enterprise software spend is expected to increase from $506 billion in 2021 to $715 billion by 2024, as enterprises invest in technology to increase productivity, better compete and grow their businesses. Moreover, global enterprise spend on digital transformation is projected to reach nearly $2.4 trillion within the next four years, representing over 57% of all business spending on technology, according to IDC. According to Gartner, by 2025, 70% of organizations will use digital adoption solutions across the entire technology stack to overcome still insufficient application user experiences.

Digital transformation is dependent on people adopting new software applications. Enterprises are not experiencing the promised returns on their digital transformation investments, largely because their employees are overwhelmed by the increasing number of software applications they are being asked to learn and utilize, and their customers are confused by new digital interactions that are constantly evolving as applications are updated.



 

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Failure to adopt applications has significant costs for organizations. According to Insight Enterprises, over 20% of licensing spend is on software that is not utilized which represents $3.0 million a year in wasted investment for most organizations.

Users need a frictionless software application experience. Employees expect frictionless technology experiences, which is in turn critical for employee retention. Meanwhile, customers experience pain points along their digital journeys, such as difficult to navigate websites, which can lead to lost sales.

Business processes span multiple applications across organizational silos. Employees depend on a vast array of enterprise software applications that often span different departments to perform their job functions. As the number of applications employees must learn grows, a unified user experience becomes critical, especially for workflows that require multiple applications with disparate user interfaces that can be challenging to learn, thus reducing employee productivity and creating user frustration. Moreover, for department-level managers and CIOs overseeing entire organizations, multiple applications and workflows without centralization or machine learning (“ML”)-based analytics do not provide the visibility required for insightful decision-making.

The role of the CIO is evolving from traditional to transformational. As digital transformation has risen in strategic importance, the modern CIO is increasingly expected to broadly influence business strategy across the organization. To be successful, CIOs require unified visibility into their digital portfolio, actionable insights and the ability to deliver frictionless, cross-platform user experiences across the enterprise.

WalkMe’s Digital Adoption Platform

Key benefits of our platform include:

 

   

Provides Insights to Help CIOs and Business Leaders Drive Business Outcomes Horizontally Across the Organization. CIOs and business leaders use our Insights capabilities and integration center technology to gain visibility into the enterprise technology stack, including software usage and user experiences across business processes. This analytics suite delivers tactical and strategic metrics that can be leveraged by CIOs and business leaders.

 

   

Delivers Immediate Value. Our technology provides CIOs and business leaders with immediate visibility into their software stacks and business processes, consolidates user actions on applications and provides detailed guidance on how to use them effectively.

 

   

Optimizes Software Usage and Technology Spend. Our Digital Adoption Platform enables enterprises to make greater use of software more efficiently. With our Digital Adoption Platform, organizations can create easy-to-use business process workflows that facilitate and encourage employees to realize the full benefit of software applications.

 

   

Increases Employee Productivity and Reduces Support Costs. By engaging employees across software applications, employees are able to more easily use the software applications that the enterprise has deployed. This leads to improved productivity, increased data accuracy, reduced support costs and increased employee engagement.

 

   

Improves Customer Engagement. By simplifying the end user experience, our Digital Adoption Platform has been shown to drive an increase of approximately 35% in customer retention, 10% growth in upsell opportunities from existing customers over three years, and 50% savings in customer support call costs, according to a 2020 Forrester Consulting study, The Total Economic Impact of WalkMe Digital Adoption Platform, a study we commissioned.

Market Opportunity

We believe that digital adoption represents a vast, rapidly growing and under penetrated market opportunity today, and we estimate our total addressable market opportunity to be approximately $34 billion. As the pioneer



 

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and market leader in this category, we believe that we are well-positioned to capture a substantial portion of this large opportunity over time.

What Sets Us Apart

We believe our proprietary user interface (“UI”) technology and approach to architecting our platform provides us with several distinguishing advantages:

 

   

Category-defining platform powering digital transformation. We pioneered the digital adoption category and our strong brand awareness increases our opportunities to win new customers and to expand our offerings within our existing customers.

 

   

Broad, rich dataset and AI/ML capabilities provide valuable insights and continuous optimization. By leveraging our extensive user interaction data with machine learning technology, we deliver an integrated platform for discovering and implementing digital transformation to drive continuous optimization and increase our competitive advantage.

 

   

Proprietary AI technology that recognizes user interfaces. Our patented UI recognition and artificial intelligence technology enables our customers to scale their digital transformation strategies by recognizing changes to underlying UI elements and automatically adapting the WalkMe navigation and automation experience.

 

   

Growing ecosystem that positions WalkMe at the center of the digital transformation industry. We are investing to continue to grow our brand awareness and build out WalkMe Beyond, an ecosystem of users, partners, and collaborators with powerful network effects.

 

   

Infrastructure agnostic and extensible technology. Our Digital Adoption Platform can be deployed across any type of application and operating system. Because our platform works everywhere, our customers are able to automate digital processes across their internally built and third-party applications from a single platform.

Our Growth Strategy

Key elements of our growth strategy include:

 

   

Innovate and advance our platform. We will continue to invest in research and development to enhance our platform, including machine-learning, hyper-automation and process mining/discovery technologies.

 

   

Acquire new customers. We intend to accelerate new customer acquisition to continue to grow our customer base across the markets that we serve as well as enter into new market segments by scaling our sales and marketing capabilities and channel relationships.

 

   

Increase usage and spend from our existing customers. We believe our ease of use, depth, breadth of platform and rapid time to value will enable us to increase adoption by our existing customers across their entire organization.

 

   

Expand internationally. We believe there is a global need for our Digital Adoption Platform and that there is a compelling opportunity to expand our offerings internationally.

 

   

Expand our ecosystem and go-to-market partnerships. We intend to continue investing in our ecosystem and partner relationships to extend the functionality of our platform, support new use cases and add new go-to-market channels.



 

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Risk Factors

Investing in our ordinary shares involves risks. You should carefully consider the risks described under the caption “Risk Factors” before making a decision to invest in our ordinary shares. If any of these risks actually occurs, our business, financial condition and results of operations could be materially and adversely affected. In such case, the trading price of our ordinary shares would likely decline, and you may lose all or part of your investment. The following is a summary of some of the principal risks we face:

 

   

We have incurred operating losses in the past, expect to incur operating losses in the future and may never achieve or sustain profitability.

 

   

Our business and operations have experienced rapid growth, and if we do not appropriately manage this growth and any future growth, or if we are unable to improve our systems, processes and controls, our business, financial condition, results of operations and prospects will be adversely affected.

 

   

Our recent growth may not be indicative of our future growth, and we may not be able to sustain our revenue growth rate in the future. Our growth also makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

 

   

The markets for our products are new and evolving and may develop more slowly or differently than we expect. Our future success depends on the growth and expansion of these markets and our ability to adapt and respond effectively to evolving market conditions.

 

   

If we are not able to keep pace with technological and competitive developments or fail to develop or otherwise introduce new products and enhancements to our existing offerings, our products may become less marketable, less competitive, or obsolete, and our business, financial condition and results of operations may be adversely affected.

 

   

If we do not maintain the interoperability of our offerings across devices, operating systems and third-party applications that we do not control, and if we are not able to maintain and expand our relationships with third-party technology partners to integrate our offerings with their products and solutions, our business, financial condition and results of operations may be adversely affected.

 

   

The markets in which we compete are nascent and highly fragmented, and we may not be able to compete successfully against current and future competitors, some of which may have greater financial, technical, and other resources than we do. If we do not compete successfully our business, financial condition and results of operations could be harmed.

 

   

Our Digital Adoption Platform is at the core of our business, and any decline in demand for our Digital Adoption Platform occasioned by malfunction, inferior performance, increased competition or otherwise, will impact our business, financial condition and results of operations.

 

   

Our business depends in part on our existing customers expanding the value of their subscriptions over time and renewing their subscriptions at the end of the applicable subscription period. Any decline in our dollar-based net retention rate may harm our future operating results.

 

   

If we are unable to attract new customers, our business, financial condition and results of operations will be adversely affected.

 

   

We recognize subscription revenue over the term of the relevant subscription period, and as a result, downturns or upturns in sales are not immediately reflected in full in our results of operations.

 

   

If we fail to maintain and enhance our brand, our ability to expand our customer base will be impaired and our business, financial condition and results of operations may suffer.

 

   

If we are unable to manage our fixed and variable costs or expand the scale of our operations and generate a sufficient amount of revenue to offset the associated fixed and variable costs, our business, financial condition and results of operations may be materially and adversely affected.



 

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Our results of operations are likely to fluctuate from quarter to quarter, which could adversely affect our business, financial condition and results of operations.

 

   

The ongoing COVID-19 pandemic could harm our business, financial condition and results of operations.

 

   

We typically provide service-level commitments under our subscription agreements. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service, extended subscription terms or refunds of prepaid amounts equivalent to the credits, any of which could lead to subscription termination or a decrease in customer renewals in future periods.

 

   

If we or our third-party service providers experience a security breach or unauthorized parties otherwise obtain access to our customers’ data, our data or our platform, our solution may be perceived as not being secure, our reputation and market position may be harmed, demand for our platform and products may be reduced, and we may incur significant liabilities.

 

   

Failure to protect or enforce our rights in our proprietary technology, brand and intellectual property could substantially harm our business and results of operations.

Corporate Information

We were formed under the laws of the State of Israel in October 2011 under the name Make Tutorial Ltd. We changed our name to WalkMe Ltd. in March 2012. Our principal executive offices are located at 1 Walter Moses St., Tel Aviv, 6789903, Israel. Our website address is www.walkme.com, and our telephone number is +972-3-763-0333. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus and is not incorporated by reference herein. We have included our website address in this prospectus solely for informational purposes. Our agent for service of process in the United States is WalkMe, Inc., which maintains its principal offices at 71 Stevenson Street, Floor 20, San Francisco, CA 94105. Its telephone number is 855-492-5563.

Implications of Being an Emerging Growth Company and a Foreign Private Issuer

We qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

 

   

the option to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure in this prospectus;

 

   

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002;

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (the “PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

   

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.



 

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We will remain an emerging growth company until the earliest to occur of: (i) the last day of the first fiscal year in which our annual gross revenue equals or exceeds $1.07 billion; (ii) the date that we become a “large accelerated filer,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common equity securities held by non-affiliates is at least $700 million as of the last business day of our most recently completed second fiscal quarter; (iii) the date on which we have issued, during the preceding three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year following the fifth anniversary of the closing of this offering.

Emerging growth companies can also take advantage of the extended transition period provided in Section 13(a) of the Exchange Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period until the earlier of the date we (x) are no longer an emerging growth company, or (y) affirmatively and irrevocably opt out of the extended transition period. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of companies that have adopted the new or revised accounting standards.

In addition, upon the closing of this offering, we will report under the Exchange Act as a “foreign private issuer.” As a foreign private issuer, we may take advantage of certain provisions under the rules of The Nasdaq Stock Market, LLC (“Nasdaq”) that allow us to follow Israeli law for certain corporate governance matters. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

   

the sections of the Exchange Act that regulate the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act that require insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time;

 

   

the rules under the Exchange Act that require the filing with the U.S. Securities and Exchange Commission (the “SEC”) of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events; and

 

   

Regulation Fair Disclosure (“Regulation FD”), which regulates selective disclosures of material information by issuers.

In addition, we will not be required to file annual reports and financial statements with the SEC as promptly as U.S. domestic issuers. Foreign private issuers, like emerging growth companies, also are exempt from certain more stringent executive compensation disclosure rules. Thus, if we remain a foreign private issuer, even if we no longer qualify as an emerging growth company, we will continue to be exempt from the more stringent compensation disclosures required of public companies that are neither an emerging growth company nor a foreign private issuer.

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies:

 

   

the majority of our executive officers or directors are U.S. citizens or residents;



 

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more than 50% of our assets are located in the United States; or

 

   

our business is administered principally in the United States.

We have chosen to take advantage of certain of the reduced disclosure requirements and other exemptions described above in the registration statement of which this prospectus forms a part and intend to continue to take advantage of certain exemptions in the future. As a result, the information that we provide may be different than the information you receive from other public companies in which you hold stock. As a result, some investors may find our ordinary shares less attractive than they would have otherwise. The result may be a less active trading market for our ordinary shares, and the price of our ordinary shares may be more volatile. See “Risk Factors—We are an “emerging growth company,” as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors” and “—We will be a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.”



 

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THE OFFERING

 

Ordinary shares offered by us

   9,250,000 ordinary shares.

Option to purchase additional ordinary shares

   We have granted the underwriters a 30-day option to purchase up to 1,387,500 additional ordinary shares at the public offering price, less underwriting discounts and commissions.

Ordinary shares to be outstanding after this offering

   82,652,098 ordinary shares (or 84,039,598 ordinary shares if the underwriters exercise their option to purchase additional ordinary shares in full).

Use of proceeds

  

We estimate that the net proceeds to us from this offering will be approximately $263.6 million (or approximately $303.8 million if the underwriters exercise their option to purchase additional ordinary shares in full), after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our ordinary shares and thereby enable access to the public equity markets for us and our shareholders, and to increase our visibility in the marketplace. We currently intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. See “Use of Proceeds.”

Dividend policy

   We have never declared or paid any dividends on our ordinary shares. We do not anticipate paying any dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and expand our business. Our board of directors has sole discretion regarding whether to pay dividends, subject to the laws of the State of Israel. If our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our directors may deem relevant. See “Dividend Policy.”


 

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Risk factors

   Investing in our ordinary shares involves a high degree of risk. See “Risk Factors” beginning on page 16 and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our ordinary shares.

Listing

   Our ordinary shares have been approved for listing on the Nasdaq Global Select Market under the symbol “WKME.”

Issuer directed allocations

   We have requested that the underwriters make issuer directed allocations in the aggregate of 1,774,192 ordinary shares to entities affiliated with Insight Partners and Vitruvian Partners, which are affiliated with certain of our directors. See “Certain Relationships and Related Party Transactions—Participation in this Offering.”

The number of our ordinary shares to be outstanding after this offering is based on 73,402,098 ordinary shares outstanding as of March 31, 2021, after giving effect to the Preferred Share Conversion (as defined below), and excludes:

 

   

15,009,720 ordinary shares issuable upon the exercise of options outstanding under our Restated 2012 Share Option Plan (the “Restated 2012 Plan”) as of March 31, 2021 at a weighted average exercise price of $6.95 per share, 5,581,064 of which were vested as of such date;

 

   

636,250 additional ordinary shares issuable upon the exercise of options granted under the Restated 2012 Plan after March 31, 2021 at an exercise price of $26.47 per share;

 

   

9,954,480 ordinary shares reserved for future issuance under our 2021 Share Incentive Plan (the “2021 Plan”), which became effective upon the effectiveness of the registration statement of which this prospectus forms a part, as well as any additional ordinary shares that may be reserved for issuance thereunder in the future pursuant to provisions in such plan that automatically increase the ordinary share reserve thereunder; and

 

   

1,824,988 ordinary shares reserved for issuance under our 2021 Employee Share Purchase Plan (“ESPP”), which became effective upon the effectiveness of the registration statement of which this prospectus forms a part, as well as any additional ordinary shares that may be reserved for issuance thereunder in the future pursuant to provisions in such plan that automatically increase the ordinary share reserve thereunder.

In addition, unless otherwise indicated, all information in this prospectus reflects and assumes:

 

   

the automatic conversion of all of our outstanding preferred shares into an aggregate of 59,180,522 ordinary shares immediately prior to the closing of this offering (the “Preferred Share Conversion”);

 

   

the adoption of our amended and restated articles of association (our “Post-IPO Articles”) upon the closing of this offering;

 

   

no exercise of the outstanding options described above after March 31, 2021; and

 

   

no exercise by the underwriters of their option to purchase up to 1,387,500 additional ordinary shares.



 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables summarize our consolidated financial and other data for the periods and as of the dates indicated. We prepare our consolidated financial statements in accordance with GAAP. The summary historical consolidated financial data as of December 31, 2020 and for the years ended December 31, 2019 and 2020 has been derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The summary historical consolidated financial data as of March 31, 2021 and for the three months ended March 31, 2020 and 2021, has been derived from our unaudited consolidated financial statements, which are included elsewhere in this prospectus. In our opinion, the unaudited financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such financial information. Our historical results for any prior period are not necessarily indicative of results expected in any future period and our interim results are not necessarily indicative of the results that may be expected for the full fiscal year or any other future period. You should read the following information in conjunction with the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, the accompanying notes and the other financial information included elsewhere in this prospectus.

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2019     2020     2020     2021  
     (in thousands, except share and per share data)  

Consolidated Statements of Operations:

        

Revenues

        

Subscription

   $ 94,769     $ 130,303     $ 29,652     $ 38,474  

Professional services

     10,360       18,003       4,569       4,180  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     105,129       148,306       34,221       42,654  

Cost of revenues(1)(2)

        

Subscription

     11,947       19,141       4,187       5,689  

Professional services

     18,729       20,017       5,073       5,080  

Total cost of revenue

     30,676       39,158       9,260       10,769  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     74,453       109,148       24,961       31,885  

Operating expenses(1)

        

Research and development

     26,639       31,560       7,613       10,422  

Sales and marketing

     75,004       87,208       23,291       25,135  

General and administrative

     22,095       33,541       5,306       9,373  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     123,738       152,309       36,210       44,930  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (49,285     (43,161     (11,249     (13,045

Financial income (expenses), net

     474       (156     (559     45  

Loss before income taxes

     (48,811     (43,317     (11,808     (13,000
  

 

 

   

 

 

   

 

 

   

 

 

 

Income taxes

     (1,307     (1,708     (469     (404
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (50,118   $ (45,025   $ (12,277   $ (13,404
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to ordinary shareholders: (3)

        

Basic and diluted

   $ (4.15   $ (4.07   $ (1.32   $ (1.71
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute net loss per share attributable to ordinary shareholders: (3) Basic and diluted

     12,011,502       13,217,183       12,791,827       13,995,089  
  

 

 

   

 

 

   

 

 

   

 

 

 


 

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     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2019      2020     2020      2021  
     (in thousands, except share and per share data)  

Pro forma net loss per share: (3)

          

Basic and diluted

      $ (0.75      $ (0.33
     

 

 

      

 

 

 

Weighted average shares used to compute pro forma net loss per share attributable to ordinary shareholders: (3) Basic and diluted

        71,349,900          72,727,164  
     

 

 

      

 

 

 

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2019     2020     2020     2021  
     (in thousands)  

Consolidated Statement of Cash Flows:

        

Net cash (used in) operating activities

   $ (48,544   $ (8,653   $ (7,428   $ (2,882

Net cash (used in) provided by investing activities

     3,522       (45,729     (723     (1,199

Net cash provided by financing activities

     84,849       41,614       3,678       10,671  

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2019     2020     2020     2021  
     (dollar amounts in thousands)  

Selected Other Data:

        

Annualized Recurring Revenue(4)

   $ 131,225     $ 164,343     $ 137,782     $ 177,517  

$100,000+ Customers(5)

     265       347       284       368  

Dollar-Based Net Retention Rate (all customers)(6)

     113     112     115     111

Dollar Based Net Retention Rate (customers having 500 or more employees)(6)

     119     120     121     118

Remaining Performance Obligations(7)

   $  175,541     $  205,146     $ 174,325     $ 237,200  

Free Cash Flow(8)

   $ (53,022   $ (11,005   $ (8,151   $ (4,081

Non-GAAP Operating Income (Loss)(9)

   $ (45,908   $ (29,100   $ (10,424   $ (9,513

 

     As of March 31, 2021  
     Actual     Pro
Forma(10)
    Pro Forma As
Adjusted(11)
 
     (in thousands)  

Consolidated Balance Sheet:

      

Cash and cash equivalents

   $ 68,480     $ 68,480     $ 332,091  

Working capital(12)

     54,737       54,737       318,348  

Total assets

     213,144       213,144       476,755  

Total liabilities

     127,767       127,767       127,767  

Redeemable non-controlling interest

     19,046       19,046       19,046  

Convertible preferred shares

     310,490       —         —    

Additional paid-in capital

     15,098       325,588       589,199  

Accumulated deficit

     (259,072     (259,072     (259,072

Accumulated other comprehensive income

     (185     (185     (185

Total shareholders’ (deficit) equity

     (244,159     66,331       329,942  

 

(1)

Includes share-based compensation expense as follows:



 

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     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2019      2020      2020      2021  
     (in thousands)  

Cost of revenues

   $  41      $  201      $ 34      $ 177  

Research and development

     282        1,596        240        471  

Sales and marketing

     427        1,105        222        793  

General and administrative

     2,330        11,115        285        2,091  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total share-based compensation(a)

   $  3,080      $  14,017      $ 781      $ 3,532  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a)   Share-based compensation expenses for the years ended December 31, 2019 and 2020 and the three months ended March 31, 2020 includes $1.9 million, $8.5 million and $0.2 million, respectively, of compensation expenses related to secondary share purchase transactions as described in note 6 to our consolidated financial statements included elsewhere in this prospectus.

 

(2)

Includes amortization of acquired intangibles as follows:

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2019      2020      2020      2021  
     (in thousands)         

Cost of revenues

   $ (297    $ (44    $ (44    $ —    

 

(3)

See note 9 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate our historical and pro forma basic and diluted net loss per share attributable to ordinary shareholders.

(4)

We use Annualized Recurring Revenue (“ARR”) as a measure of our revenue trend and as an indicator of our future revenue opportunity from existing customer contracts. We define ARR as the annualized value of customer subscription contracts as of the measurement date, assuming any contract that expires during the next 12 months is renewed on its existing terms (including contracts for which we are negotiating a renewal). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business and Financial Metrics—Annualized Recurring Revenue” for additional information on how we define and use this metric.

(5)

We define “$100,000+ Customers” as the number of customers with ARR greater than $100,000. We define a customer as a distinct entity with an active subscription contract as of the measurement date. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business and Financial Metrics—Customers with ARR Greater than $100,000” for additional information on how we define and use this metric.

(6)

Our Dollar-Based Net Retention Rate compares the ARR from the same set of subscription customers across comparable periods. In each of the trailing four quarters, the set of customers identified from 12 months prior is compared to those same customers’ subscription ARR in the respective quarter. The calculation of our Dollar-Based Net Retention Rate in a particular quarter is obtained by averaging the result from that particular quarter with the corresponding results from each of the prior three quarters. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business and Financial Metrics—Dollar-Based Net Retention Rate” for additional information on how we define and use this metric.

(7)

Remaining Performance Obligations represents future revenue from committed contracts that has not been recognized. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business and Financial Metrics—Remaining Performance Obligations” for additional information on how we define and use this metric.

(8)

We define Free Cash Flow as net cash used in operating activities, less cash used for purchases of property and equipment and capitalized internal-use software costs. We believe that Free Cash Flow is a useful indicator of liquidity that provides information to management and investors, even if negative, about the amount of cash used in our business. Free cash flow has limitations as an analytical tool, and it should not



 

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  be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash used in operating activities. Some of the limitations of free cash flow are that this metric does not reflect our future contractual commitments and may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure.

The following is a reconciliation of net cash used in operating activities, the most directly comparable GAAP liquidity measure, to Free Cash Flow for each period presented above and for each quarterly period during the year ended December 31, 2020.

 

    Year Ended
December 31,
    Three Months Ended  
    2019     2020     March 31,
2020
    June 30,
2020
    September 30,
2020
    December 31,
2020
    March 31,
2021
 
    (in thousands)  

Net cash provided by (used in) operating activities

  $ (48,544   $ (8,653   $ (7,428   $ 443     $ 396     $ (2,064   $ (2,882

Less: purchases of property and equipment

    2,463       822       406       151       213       52       488  

Less: capitalized internal-use software costs

    2,015       1,530       317       406       361       446       711  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

  $ (53,022   $ (11,005   $ (8,151   $ (114   $ (178   $ (2,562   $ (4,081
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(9)

We define Non-GAAP Operating Income (Loss) as net income (loss) from operations excluding share-based compensation and amortization of acquired intangible assets. We exclude these items because they occur for reasons that may be unrelated to our core operating performance during the period, and because we believe that such items may obscure underlying business trends and make comparisons of long-term performance difficult. We use Non-GAAP Operating Income (Loss) with traditional GAAP measures to evaluate our financial performance. We believe that Non-GAAP Operating Income (Loss) provides our management and investors with useful supplementary information by facilitating period-to-period comparisons of our results of operations. Non-GAAP Operating Income (Loss) has limitations as an analytical tool, may differ from similarly titled metrics presented by other companies, and should not be considered in isolation or as a substitute for analysis of GAAP financial measures. In addition, we believe it is important for investors to understand that while Non-GAAP Operating Income (Loss) excludes the amortization expense related to acquired intangible assets, these assets contribute to the generation of revenue that is included in Non-GAAP Operating Income (Loss).

The following is a reconciliation of operating loss, the most directly comparable GAAP financial performance measure, to Non-GAAP Operating Income (Loss) for each period presented above and for each quarterly period during the year ended December 31, 2020.

 

    Year Ended
December 31,
    Three Months Ended  
    2019     2020     March 31,
2020
    June 30,
2020
    September 30,
2020
    December 31,
2020
    March 31,
2021
 
    (in thousands)  

Operating loss

  $ (49,285   $ (43,161   $ (11,249   $ (3,515   $ (12,904   $ (15,493   $ (13,045

Add: Share-based compensation

    3,080     14,017     781       617       6,596       6,023       3,532  

Add: Amortization of acquired intangible assets

    297     44     44     $ —       $ —       $ —       $ —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Operating Loss

  $ (45,908   $ (29,100   $ (10,424   $ (2,898   $ (6,308   $ (9,470   $ (9,513
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(10)

Reflects the Preferred Share Conversion and adoption of our Post-IPO Articles immediately prior to the closing of this offering.



 

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(11)

As adjusted information reflects the pro forma adjustments described in footnote (10) above and gives effect to the issuance of 9,250,000 ordinary shares in this offering at the initial public offering price, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(12)

We define working capital as total current assets minus total current liabilities.



 

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RISK FACTORS

You should carefully consider the risks described below before making an investment decision. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of our ordinary shares could decline due to any of these risks, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this prospectus.

Risks Related to Our Business and Industry

We have incurred operating losses in the past, expect to incur operating losses in the future and may never achieve or sustain profitability.

We have incurred annual net losses each year since our formation in October 2011. For the years ended December 31, 2019 and 2020, we had net losses of $50.1 million and $45.0 million, respectively. For the three months ended March 31, 2020 and 2021, we had net losses of $12.3 million and $13.4 million, respectively. We expect to continue to incur additional losses in the foreseeable future and we may not achieve or maintain profitability in the future. As of March 31, 2021, we had an accumulated deficit of $259.1 million. We intend to continue to expend substantial financial and other resources on, among other things:

 

   

innovating and advancing our platform;

 

   

acquiring new customers;

 

   

increasing usage by and spend from our existing customers;

 

   

international expansion; and

 

   

expansion of our ecosystem and go-to-market partnerships.

These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenues sufficiently, or at all, to offset these higher expenses. In addition, to the extent we are successful in increasing our customer base, we may also incur increased losses because the costs associated with acquiring customers are generally incurred up front, while subscription revenue is generally recognized ratably over the subscription term. Additionally, we expect to continue making significant expenditures on sales and marketing efforts, and expenditures to grow our platform and develop new features, integrations, capabilities, and enhancements to our platform. Furthermore, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. If our revenue does not grow at a greater rate than our operating expenses, we will not be profitable in future periods. Our revenue growth may slow or our revenue may decline for a number of possible reasons, many of which are beyond our control, including greater market penetration, increased competition, slowing demand for our platform, a failure by us to continue capitalizing on growth opportunities, the maturation of our business, global economic downturns, or any of the other factors discussed in this “Risk Factors” section. Any failure to increase our revenue as we grow our business could prevent us from achieving profitability at all or on a consistent basis, which would make it more difficult to accomplish our business objectives and could have a material adverse effect on our business, financial condition and results of operations and cause the market price of our ordinary shares to decline.

Our business and operations have experienced rapid growth, and if we do not appropriately manage this growth and any future growth, or if we are unable to improve our systems, processes and controls, our business, financial condition, results of operations and prospects will be adversely affected.

We have experienced rapid growth and increased demand for our products in recent periods, and we plan to make continued investments in the growth and expansion of our business. The growth and expansion of our

 

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business places a continuous significant strain on our management, operational, and financial resources. In addition, as customers adopt our platform and products for an increasing number of use cases, we will need to continue to support increasingly complex commercial relationships. In order to manage our growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our security and compliance requirements, our operating and administrative systems, our relationships with various partners and other third parties, and our ability to manage headcount and processes in an efficient manner.

We may not be able to sustain the pace of improvements to our platform and products successfully or implement systems, processes and controls in an efficient or timely manner or in a manner that does not negatively affect our business, financial condition and results of operations. Our failure to improve our systems, processes, and controls, or their failure to operate in the intended manner, may result in our inability to manage the growth of our business and to forecast our revenue, expenses and earnings accurately, or to prevent losses.

As we expand our business and operate as a public company, we may find it difficult to maintain our corporate culture while managing our employee growth. Any failure to manage our anticipated growth and related organizational changes in a manner that preserves our culture could negatively impact future growth and achievement of our business objectives. Additionally, our productivity and the quality of our offerings may be adversely affected if we do not integrate and train our new employees quickly and effectively. These challenges have been, and likely will continue to be, heightened due to the ongoing COVID-19 pandemic and the related stay-at-home, travel and other restrictions instituted by governments around the world. Failure to effectively manage our growth to date and any future growth could result in increased costs, negatively affect our customers’ satisfaction with our offerings and adversely affect our business, financial condition, results of operations and growth prospects.

Our recent growth may not be indicative of our future growth, and we may not be able to sustain our revenue growth rate in the future. Our growth also makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

Our total revenues for the years ended December 31, 2019 and 2020 were $105.1 million and $148.3 million, respectively, representing year-over-year growth of 41%. Our total revenues for the three months ended March 31, 2020 and 2021 were $34.2 million and $42.7 million, respectively, representing year-over-year growth of 25%. You should not rely on our revenue growth over any historical period as an indication of our future performance. Even if our revenue continues to increase, we expect our revenue growth rate to decline in future periods. Many factors may contribute to declines in our growth rate, including greater market penetration, increased competition, slowing demand for our offerings, a failure by us to continue capitalizing on growth opportunities, the maturation of our business, and global economic downturns, among others. If our growth rate declines, investors’ perceptions of our business and the market price of our ordinary shares could be adversely affected.

In addition, our rapid growth may make it difficult to evaluate our current business and future prospects. Our ability to forecast our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth. We have encountered in the past, and may encounter in the future, risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If we fail to achieve the necessary level of efficiency in our organization as it grows, or if we are not able to accurately forecast future growth, our business would be harmed. Moreover, if the assumptions that we use to plan our business are incorrect or change in reaction to changes in the markets in which we operate, or if we are unable to maintain consistent revenue or revenue growth, our share price could be volatile, and it may be difficult to achieve and maintain profitability.

 

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The markets for our products are new and evolving and may develop more slowly or differently than we expect. Our future success depends on the growth and expansion of these markets and our ability to adapt and respond effectively to evolving market conditions.

The markets for our products are relatively new, rapidly evolving and unproven. Accordingly, it is difficult to predict customer adoption and renewals, demand for our platform and our products, the entry of competitive products, the success of existing competitive products, or the future growth rate, expansion, longevity and the size of our target markets. The expansion of, and our ability to penetrate, these new and evolving markets depends on a number of factors, including widespread awareness among key organizational decision makers of, and the cost, performance, effectiveness and perceived value associated with, digital adoption platforms and technologies. If we or other software and SaaS providers experience security incidents, loss of customer data, or disruptions in delivery or service, the market for these applications as a whole, including our platform and products, may be negatively affected. If digital adoption technologies and software do not continue to achieve market acceptance, or if there is a reduction in demand caused by decreased customer or user acceptance, technological challenges, weakening economic conditions (including in connection with the COVID-19 pandemic), privacy, data protection and data security concerns, governmental regulation, competing technologies and products, decreases in information technology spending or otherwise, or if software providers begin to implement digital adoption solutions natively within their existing products, the markets for our platform and products might not continue to develop or might develop more slowly than we expect, which could adversely affect our business, financial condition and results of operations.

If we are not able to keep pace with technological and competitive developments or fail to develop or otherwise introduce new products and enhancements to our existing offerings, our products may become less marketable, less competitive, or obsolete, and our business, financial condition and results of operations may be adversely affected.

The markets in which we compete are characterized by rapid technological change, frequent introductions of new products, services, features and capabilities, and evolving industry standards and regulatory requirements. Our ability to grow our customer base and increase revenue from existing customers will depend in significant part on our ability to develop or otherwise introduce new product offerings and new features, integrations, capabilities and other enhancements to our existing offerings on a timely basis, as well as on our ability to interoperate across an increasing range of devices, operating systems and third-party applications. The success of any new products or enhancements to our existing offerings will depend on a number of factors including, but not limited to, the timeliness and effectiveness of our research and product development activities and go-to-market strategy, our ability to anticipate customer needs and achieve market acceptance, our ability to manage the risks associated with new product releases, the effective management of development and other spending in connection with the product development process and anticipated demand, and the availability of other newly developed products and technologies by our competitors.

In addition, in connection with our product development efforts, we may introduce significant changes to our existing products, or develop or otherwise introduce new and unproven products or product features, including technologies with which we have little or no prior development or operating experience. These new products, product features and other updates may not perform as expected, may fail to engage our customers or other users of our products, or may otherwise create a lag in adoption of such new or updated products and product features. New products may initially suffer from performance and quality issues that may negatively impact our ability to market and sell such products to new and existing customers. We have in the past experienced bugs, errors, or other defects or deficiencies in new products and product updates and delays in releasing new products, deployment options, and product enhancements and may have similar experiences in the future. As a result, some of our customers may either defer purchasing our products until the next upgrade is released or switch to a competitor if we are not able to keep up with technological developments.

To keep pace with technological and competitive developments, we have in the past invested, and may in the future invest, in the acquisition of complementary businesses, technologies, services, products, and other

 

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assets that expand the products that we can offer our customers. We may make these investments without being certain that they will result in products or enhancements that will be accepted by existing or prospective customers or that will achieve market acceptance. The short- and long-term impact of any major change to our offerings, or the introduction of new products or solutions, is particularly difficult to predict. If new or enhanced offerings fail to engage our customers or other users of our products, or do not perform as expected, we may fail to generate sufficient revenue, operating margin, or other value to justify our investments in such products, any of which may adversely affect our reputation and negatively affect our business in the short-term, long-term, or both. If we are unable to successfully enhance our existing products to meet evolving customer requirements, increase adoption and use cases of our platform and products, develop new products and product features and quickly resolve security vulnerabilities, or if our efforts in any of these areas are more expensive than we expect, then our business, financial condition and results of operations would be adversely affected.

If we do not maintain the interoperability of our offerings across devices, operating systems and third-party applications that we do not control, and if we are not able to maintain and expand our relationships with third-party technology partners to integrate our offerings with their products and solutions, our business, financial condition and results of operations may be adversely affected.

Our success depends in part on our ability to integrate our platform and products with a variety of devices, operating systems and third-party applications that we do not control, and we need to continuously modify and enhance our offerings to adapt to changes in hardware, software, networking, browser and database technologies. Third-party products and services are constantly evolving, and we may not be able to modify our offerings to ensure their compatibility with those of other third parties following development changes. Third-party providers may change the features of their applications and software, restrict our access to their applications and software or alter the terms governing use of their applications and access to those applications and software in an adverse manner. Such changes could functionally limit or eliminate our ability to use these third-party applications and software in conjunction with our products, which could negatively impact customer demand, our competitive position and adversely affect our business. Certain companies with which we currently compete or may in the future compete own, develop, operate or distribute operating systems, cloud hosting services and other software applications, and/or have material business relationships with companies that own, develop, operate or distribute operating systems, application stores, cloud hosting services and other software that our offerings rely on to operate. These companies may be able to disrupt the operation or compatibility of our offerings with their products or services, or exert strong business influence on our ability to, and the terms on which we, operate and distribute our offerings. Moreover, some of these companies may have inherent advantages developing products and services that more tightly integrate with their software and hardware platforms or those of their business partners. Should these or any other third-party providers modify their products or standards in a manner that degrades the functionality of our offerings or gives preferential treatment to competitive products or services, whether to enhance their competitive position or for any other reason, we may not be able to offer the functionality that our customers need, which would negatively impact our ability to generate revenue and adversely affect our business. Furthermore, any losses or shifts in the market position of the providers of these third-party products and services could require us to identify and develop integrations with new third-party technologies. Such changes could consume substantial resources and may not be effective. Any expansion into new geographies may also require us to integrate our offerings with new third-party technologies, products and services and invest in developing new relationships with these providers. If we are unable to respond to changes in a cost-effective manner, our offerings may become less marketable, less competitive, or obsolete, and our business, financial condition and results of operations may be negatively impacted.

Further, we have created mobile applications and mobile versions of our offerings to respond to the increasing number of people who access the internet and cloud-based software applications through mobile devices, including smartphones and handheld tablets or laptop computers. If these mobile applications do not perform well, our business may suffer. We are also dependent on third-party application stores that we do not control, and that may prevent us from timely updating our offerings, building new features, integrations, capabilities or other enhancements, or charging for access. Should any of these companies stop allowing or

 

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supporting access to our offerings, allow access for us only at an unsustainable cost, or make changes to the terms of access in order to make our offerings less desirable or harder to access, whether for competitive reasons or otherwise, it would also have a negative impact on our business.

The markets in which we compete are nascent and highly fragmented, and we may not be able to compete successfully against current and future competitors, some of which may have greater financial, technical, and other resources than we do. If we do not compete successfully our business, financial condition and results of operations could be harmed.

The market for our platform and products is highly fragmented, quickly evolving, and subject to rapid changes in technology. We believe that our ability to compete successfully depends upon many factors both within and beyond our control, including the following:

 

   

breadth of applications and technology integrations supported;

 

   

support for cross-application guidance, automation and analytics;

 

   

expertise in third-party application implementations;

 

   

integration of robust analytics and visualization capabilities;

 

   

cross-platform support for workflows including mobile native applications (iOS and Android) and desktop (Windows and macOS);

 

   

ease of implementation and use;

 

   

performance, security, scalability and reliability;

 

   

quality of customer support;

 

   

total cost of ownership; and

 

   

brand recognition and reputation.

While we do not believe that any of our competitors currently offers a solution that effectively competes with the full functionality of our integrated platform technology solutions, our main sources of competition fall into the following categories:

 

   

Non-adoption from enterprises maintaining the status quo of offline, internally developed, or non-dynamic, FAQ-centric application guidance and workflow support;

 

   

Point solutions embedded natively or as an add-on to software provided by diversified enterprise software companies such as SAP, Oracle, Microsoft, and Salesforce; and

 

   

Providers of software for specific in-app guidance or analytics use cases for SaaS applications.

Additionally, we compete with home-grown, start-up, and open source technologies across the categories described above. With the trend toward distributed and remote workforces (which has accelerated as a result of the COVID-19 pandemic), the passage of time, the introduction of new technologies and the entrance of new market participants, competition has intensified, and we expect it to continue to intensify in the future. Established companies are also developing their own products that compete with ours, and may continue to do so in the future. Established companies may also acquire or establish product integration, distribution or other cooperative relationships with our current competitors. New competitors or alliances among competitors may emerge from time to time and rapidly acquire significant market share due to various factors such as their greater brand name recognition, larger existing user or customer base, customer preferences for their offerings, a larger or more effective sales organization and greater financial, technical, marketing and other resources and experience. Furthermore, with the recent increase in large merger and acquisition transactions in the technology industry, particularly transactions involving cloud-based technologies, there is a greater likelihood that we will

 

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compete with other larger technology companies in the future. Companies resulting from these potential consolidations may create more compelling product offerings and be able to offer more attractive pricing options, making it more difficult for us to compete effectively.

Many of our competitors have, and additional potential competitors may have, greater financial, technical, and other resources, greater brand recognition, larger sales forces and marketing budgets, broader distribution networks, more diverse product and services offerings, larger and more mature intellectual property portfolios, more established relationships in the industry and with customers, lower cost structures and greater customer experience resources. These competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards and customer requirements. They may also be able to leverage these resources to gain business in a manner that discourages customers from purchasing our offerings. Potential customers may also prefer to purchase from companies with which they have an existing relationship rather than a new supplier, regardless of product performance or features. Furthermore, we expect that our industry will continue to attract new companies, including smaller emerging companies, which could introduce new offerings or alternative solutions to the problems we address. We may also expand into new markets and encounter additional competitors in such markets. The numerous and evolving competitive pressures in the markets in which we operate, or our failure to respond effectively to such pressures, may result in price reductions, fewer customers, reduced revenue, gross profit and gross margins, increased net losses and loss of market share, any of which could significantly and adversely affect our business, financial condition and results of operations.

Our Digital Adoption Platform is at the core of our business, and any decline in demand for our Digital Adoption Platform occasioned by malfunction, inferior performance, increased competition or otherwise, will impact our business, financial condition and results of operations.

Our Digital Adoption Platform is at the core of our business and all of our customer subscriptions. Customer subscriptions to our Digital Adoption Platform accounted for approximately 90% and 88% of our total revenue for the years ended December 31, 2019 and 2020, respectively, with the remainder of our revenue being derived from associated professional services. For the three months ended March 31, 2020 and 2021, customer subscriptions to our Digital Adoption Platform accounted for approximately 87% and 90% of our total revenue, respectively, with the remainder of our revenue being derived from associated professional services. Accordingly, market acceptance of our Digital Adoption Platform is critical to our success. If demand for our Digital Adoption Platform declines, the demand for the associated professional services will also decline. Demand for our Digital Adoption Platform is affected by a number of factors, many of which are beyond our control, such as continued market acceptance of digital adoption platforms and technologies by customers for existing and new use cases, the timing of development and release of new features, functionality, and lower cost alternatives introduced by our competitors, technological changes and developments within the markets we serve, including the potential introduction of native digital adoption solutions within software providers’ existing products, and growth or contraction in our addressable markets. If we are unable to continue to meet customer demand, or if our Digital Adoption Platform fails to compete effectively, achieve more widespread market acceptance, or meet statutory, regulatory, contractual, or other applicable requirements, then our business, financial condition and results of operations would be harmed.

Our business depends in part on our existing customers expanding the value of their subscriptions over time and renewing their subscriptions at the end of the applicable subscription period. Any decline in our Dollar-Based Net Retention Rate may harm our future operating results.

Our future success depends in part on our ability to expand the value of our existing customers’ subscriptions over time, and on our customers renewing their subscriptions when the contract term expires. The terms of our subscription agreements are typically for a period of one to three years, and our customers are under no obligation to renew their subscriptions after the expiration of the applicable subscription period. As a result, we cannot guarantee that customers will renew their subscriptions for a similar contract period or with a similar or greater scope of applications, users, features, capabilities or other terms that are equally or more beneficial to us, if they renew at all.

 

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We may not accurately predict future renewal trends and cannot accurately predict our Dollar-Based Net Retention Rate given the diversity of our customer base in terms of size, industry and geography. Customer renewals, and our Dollar-Based Net Retention Rate, may decline or fluctuate as a result of a number of factors, including customer satisfaction with our products and our customer support, the frequency and severity of product outages, our product uptime or latency, the pricing and value proposition of our offerings compared to those of our competitors, additional new features, integrations, capabilities or other enhancements that we may develop or otherwise introduce from time to time, updates to our products as a result of updates by technology partners, mergers and acquisitions affecting our customer base, and consolidation of affiliates’ multiple into a single account. Customer renewals have been and may in the future also be impacted by general economic conditions (including in connection with the COVID-19 pandemic), strengths and weaknesses in our customers’ underlying businesses, and other factors, many of which are beyond our control, that reduce customers’ spending levels. In addition, customers may renew for fewer subscriptions, renew for shorter contract lengths if they were previously on multi-year contracts, or switch to lower cost offerings on our platform. These factors may also be exacerbated if our customer base continues to grow to encompass larger enterprises, which generally require more sophisticated and costly sales efforts. If our customers do not expand the value of their subscriptions over time, or if our customers fail to renew their subscriptions or renew on less economically beneficial terms, our revenue may decline or grow less quickly than anticipated and our business, financial condition and results of operations may be harmed.

If we are unable to attract new customers, our business, financial condition and results of operations will be adversely affected.

To increase our revenue, we must continue to attract new customers. Our success will depend to a substantial extent on the widespread adoption of our platform and products. Many enterprises may view digital adoption platforms and technologies such as ours as new and unproven, and may be reluctant or unwilling to migrate to our Digital Adoption Platform. Further, the adoption of SaaS business software may be slower in industries with heightened data security interests or business practices requiring highly customizable application software. In addition, as our target markets mature, our products evolve, and competitors introduce lower cost or differentiated products that are perceived to compete with our platform and products, our ability to sell subscriptions for our products could be impaired. Similarly, our subscription sales could be adversely affected if customers or users within these organizations perceive that features incorporated into competitive products reduce the need for our products, or if they prefer to purchase other products that are bundled with solutions offered by other companies that operate in adjacent markets and compete with our products. As a result of these and other factors, we may be unable to attract new customers, which may have an adverse effect on our business, financial condition and results of operations.

We recognize subscription revenue over the term of the relevant subscription period, and as a result, downturns or upturns in sales are not immediately reflected in full in our results of operations.

We generate revenue primarily through sales of subscriptions to our Digital Adoption Platform, and we recognize our subscription revenue ratably over the term of the relevant subscription period. As a result, a significant portion of the revenue we report each fiscal quarter is the recognition of deferred revenue from subscription contracts entered into during previous fiscal quarters. Consequently, a decline in new or renewed subscriptions in any one fiscal quarter will not be fully or immediately reflected in revenue in that fiscal quarter and will negatively affect our revenue in future fiscal quarters. Accordingly, the effect of significant downturns in new or renewed sales of our subscriptions is not reflected in full in our results of operations until future periods.

 

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Our ability to achieve customer renewals and increase sales of our products is dependent on the quality of our customer support, and our failure to offer effective customer support would have an adverse effect on our reputation, business, financial condition and results of operations.

Our customers depend on our customer support professionals, which we refer to as our customer success team, to resolve issues and realize the full benefits relating to our platform and products. If we do not succeed in helping our customers quickly resolve implementation and/or post-deployment issues or provide effective ongoing support and education, our ability to renew subscriptions with existing customers and to expand the value of those subscriptions would be adversely affected and our reputation with potential customers could also be damaged. In addition, a significant portion of our existing customer base consists of large enterprises, which generally have more complex IT environments and require higher levels of support than smaller customers. If we fail to meet the requirements of these customers, it may be more difficult to grow sales or maintain our relationships with them.

Additionally, it can take several months to recruit, hire and train qualified engineering-level customer support employees, and we may not be able to hire such resources fast enough to keep up with demand. To the extent we are unsuccessful in hiring, training and retaining adequate support resources, our ability to provide adequate and timely support to our customers, and our customers’ satisfaction with our platform and products, will be adversely affected. Our failure to provide and maintain effective support services would have an adverse effect on our business, financial condition, results of operations and reputation.

If we fail to maintain and enhance our brand, our ability to expand our customer base will be impaired and our business, financial condition and results of operations may suffer.

We believe that maintaining and enhancing the WalkMe brand is important to support the marketing and sale of our existing and future products to new customers and to expanding sales of our products to existing customers. We also believe that brand recognition will become increasingly important as competition in our target markets increases. Successfully maintaining and enhancing our brand will depend largely on the effectiveness of our marketing efforts, our ability to provide reliable products that continue to meet the needs of our customers at competitive prices, our ability to maintain our customers’ trust, our ability to continue to develop new functionality and use cases, and our ability to successfully differentiate our products and platform capabilities from those of our competitors. Our brand promotion activities may not generate customer awareness or yield increased revenue, and even if they do, any increased revenue may not offset the marketing expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, we may fail to attract new customers and retain existing customers as necessary to realize a sufficient return on our brand-building efforts, and may fail to achieve the widespread brand awareness that is critical for broad customer adoption of our offerings.

If we are unable to manage our fixed and variable costs or expand the scale of our operations and generate a sufficient amount of revenue to offset the associated fixed and variable costs, our business, financial condition and results of operations may be materially and adversely affected.

SaaS businesses like ours tend to involve certain fixed costs, and our ability to achieve desired operating margins depends largely on our success in maintaining a scale of operations and generating a sufficient amount of revenue to offset these fixed costs and other variable costs. Our fixed costs typically include compensation of employees, cloud-based computing services, data storage and related expenses and office rental expenses. Our variable costs typically include sales and marketing expenses and payment processing fees. These costs can be difficult to manage, particularly as we continue to grow. If we are unable to effectively manage these costs or achieve economies of scale, our operating margin may decrease and our business, financial condition, results of operations and prospects could be materially and adversely affected.

 

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Our results of operations are likely to fluctuate from quarter to quarter, which could adversely affect our business, financial condition and results of operations.

Our results of operations, including our revenue, cost of revenue, gross margin, operating expenses, cash flow, and deferred revenue, have fluctuated from quarter to quarter in the past and may continue to vary significantly in the future so that period-to-period comparisons of our results of operations may not be meaningful. Accordingly, our financial results in any one quarter should not be relied upon as indicative of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, may be difficult to predict, and may or may not fully reflect the underlying performance of our business. Factors that may cause fluctuations in our quarterly financial results include:

 

   

our ability to attract and retain new customers and expand sales within our existing customer base;

 

   

the loss of existing customers;

 

   

subscription renewals and the timing of such renewals;

 

   

fluctuations in customer usage of our products from period to period;

 

   

customer satisfaction with our products and platform capabilities and customer support;

 

   

mergers and acquisitions or other transactions affecting our customer base, including the consolidation of affiliates’ multiple accounts into a single account;

 

   

mix of our revenue between subscription and professional services;

 

   

our ability to gain new partners and retain existing partners, and any changes in the economic terms of our agreements with such partners;

 

   

increases or decreases in the number of users or applications in our subscriptions or pricing changes upon any renewals of customer agreements;

 

   

fluctuations in share-based compensation expense;

 

   

decisions by potential customers to purchase alternative solutions or develop in-house technologies as alternatives to our products;

 

   

the amount and timing of operating expenses related to the maintenance and expansion of our business and operations, including investments in research and development, sales and marketing, including the capacity of our sales team, and general and administrative resources;

 

   

our ability to manage our cloud services infrastructure costs;

 

   

technical disruptions or network outages;

 

   

developments or disputes concerning our intellectual property or proprietary rights, our platform or products, or third-party intellectual property or proprietary rights;

 

   

negative publicity about our company, our offerings or our partners, including as a result of actual or perceived breaches of, or failures relating to, privacy, data protection or data security;

 

   

the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies;

 

   

general economic, industry and market conditions;

 

   

the impact of the ongoing COVID-19 pandemic, or any other pandemic, epidemic, outbreak of infectious disease or other global health crises on our business, the businesses of our customers and partners and general economic conditions;

 

   

the impact of political uncertainty or unrest;

 

   

changes in our pricing policies or those of our competitors;

 

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fluctuations in the growth rate of the overall markets that our products address;

 

   

seasonality in the underlying businesses of our customers, including budgeting cycles and purchasing practices, and any changes in customer spending patterns;

 

   

the business strengths or weakness of our customers;

 

   

our ability to collect timely on invoices or receivables;

 

   

the cost and potential outcomes of litigation or other disputes;

 

   

future accounting pronouncements or changes in our accounting policies;

 

   

our overall effective tax rate, including impacts caused by any reorganization in our corporate tax structure and any new legislation or regulatory developments;

 

   

our ability to successfully expand our business in the U.S. and internationally;

 

   

fluctuations in foreign currency exchange rates;

 

   

legal and regulatory compliance costs in new and existing markets; and

 

   

the timing and success of new products or product features introduced by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or partners.

The impact of one or more of the foregoing or other factors may cause our results of operations to vary significantly. Such fluctuations could cause us to fail to meet the expectations of investors or securities analysts, which could cause the trading price of our ordinary shares to fall substantially, and we could face costly lawsuits, including securities class action suits. Additionally, the rapid growth we have experienced in recent years may have masked the full effects of these seasonal factors on our business to date, and as such, these factors may have a greater effect on our results of operations in future periods.

The ongoing COVID-19 pandemic could harm our business, financial condition and results of operations.

In December 2019, a novel coronavirus disease (“COVID-19”) was reported in China and began to spread across the globe. In March 2020, the World Health Organization (“WHO”) declared COVID-19 a global pandemic. Since that time, this contagious disease outbreak has continued to spread, impacting worldwide economic activity and financial markets. As a result of the COVID-19 pandemic, government authorities around the world have ordered schools and businesses to close, imposed restrictions on non-essential activities and required people to remain at home while implementing significant limitations on business activities, travel and social gatherings. These conditions have caused disruptions in global demand and global supply chains, increasing rates of unemployment, and have adversely affected companies across a variety of industries, including many of our customers and partners.

In light of the uncertain and rapidly evolving situation relating to the spread of COVID-19, as well as government mandates, we took precautionary measures intended to minimize the risk of the virus to our employees, our customers, our partners and the communities in which we operate. As part of this response, we enabled our entire work force to work remotely, paused hiring and implemented travel restrictions. We also implemented a short-term hiring freeze across our company, which limited our sales capacity and, together with the impact on spending across much of the global economy, led to longer sales cycles in the second quarter of 2020.

Though we began reinvesting in our sales capacity in the second half of 2020 and have started to see a reversal of these trends, we cannot guarantee that this recovery will continue. In addition, given the continued spread of COVID-19 and the resultant personal, economic and governmental reactions, we may have to take additional actions in the future that could harm our business, financial condition, and results of operations. While

 

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we have a distributed workforce and our employees are accustomed to working remotely or working with other remote employees, our workforce was not trained to be fully remote, and it is possible that continued widespread remote work arrangements may have a negative impact on our operations, the execution of our business plans, the productivity and availability of key personnel and other employees necessary to conduct our business, and on third-party service providers who perform critical services for us, or otherwise cause operational failures due to changes in our normal business practices. If a natural disaster, power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The increase in remote working may also result in privacy, data protection, data security and increased fraud risks, and our understanding of applicable legal and regulatory requirements, as well as the latest guidance from regulatory authorities, may be subject to legal or regulatory challenge, particularly as regulatory guidance evolves in response to future developments. Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance become available, the effects of suspending travel and doing business in-person over the long-term, as well as the continued disruption to the operations of our customers and partners, may also negatively affect our customer success efforts, sales and marketing efforts, challenge our ability to enter into customer contracts in a timely manner, slow down our recruiting efforts, and create operational or other challenges, any of which could harm our business, financial condition and results of operations. The COVID-19 pandemic has also resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.

It is not possible at this time to estimate the long-term impact that COVID-19 could have on our business, financial condition and results of operations as the impact will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the outbreak of COVID-19 has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future. Furthermore, because of our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations and overall financial condition until future periods.

Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity, and entrepreneurial spirit we have worked to foster, which could harm our business and growth prospects.

We believe that our culture has been and will continue to be a key contributor to our success. We expect to continue to hire aggressively as we expand, and we will need to maintain our culture among a larger number of employees, dispersed across various geographic regions. If we do not continue to maintain our corporate culture as we grow, we may be unable to foster the innovation, creativity and entrepreneurial spirit we believe we need to support our growth. The continued growth and expansion of our business and our transition from a private company to a public company may also result in changes to our corporate culture, which could harm our ability to attract, recruit and retain employees, as well as our business and our prospects for future growth.

We typically provide service-level commitments under our subscription agreements. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service, extended subscription terms or refunds of prepaid amounts equivalent to the credits, any of which could lead to subscription termination or a decrease in customer renewals in future periods.

Our subscription agreements typically contain service-level commitments. If we are unable to meet the stated service-level commitments, including failure to meet the uptime and response time requirements under our customer subscription agreements, we may be contractually obligated to provide these customers with credits for future service, extended subscription terms or refunds of prepaid amounts equivalent to the credits, any of which could lead to subscription termination or a decrease in customer renewal. Accordingly, failure to meet our

 

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service-level commitments could significantly affect our revenue in the periods in which the failure occurs and the credits are applied or the refunds paid out. In addition, subscription terminations and any reduction in renewals resulting from service-level failures could significantly affect both our current and future revenue. Any service-level failures could also create negative publicity and damage our reputation, which may discourage prospective customers from adopting our offerings. In addition, if we modify the terms of our service-level commitments in future customer agreements in a manner that customers perceive to be unfavorable, demand for our offerings could be reduced. Any of these events could adversely affect our business, financial condition and results of operations.

We target enterprise customers, and sales to these customers involve risks that may not be present or that are present to a lesser extent with sales to smaller entities.

Our sales and marketing organization is increasingly focused on large enterprise customers. Sales to large customers involve risks that may not be present or that are present to a lesser extent with sales to smaller entities, such as longer sales cycles, more complex customer requirements, substantial upfront sales costs, and less predictability in completing some of our sales. For example, enterprise customers may require considerable time to evaluate and test our solutions and those of our competitors prior to making a purchase decision and placing an order. Moreover, large enterprise customers often begin to deploy our products on a limited basis, but nevertheless demand configuration, integration services and pricing negotiations, which increase our upfront investment in the sales effort with no guarantee that these customers will deploy our products widely enough across their organization to justify our substantial upfront investment.

We depend on our executive leadership team and other key employees, and the loss of one or more of these employees or an inability to attract and retain highly skilled employees could harm our business.

Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. The loss of the services of any of our key personnel, the inability to attract or retain qualified personnel, or delays in hiring required personnel, particularly in engineering, research and development, sales or customer support, may seriously harm our business, financial condition and results of operations. Although we have entered into employment agreements with our key personnel, some of which include notice periods with which the employee is required to comply prior to terminating their employment with us, their employment is for no specific duration. We are also substantially dependent on the continued service of our existing engineering personnel because of the complexity of our products.

Our future performance also depends on the continued services and continuing contributions of our executive leadership team, including our co-founders Dan Adika, who currently serves as our Chief Executive Officer, and Rafael Sweary, who currently serves as our President, to execute on our business plan and to identify and pursue new opportunities and product innovations. The loss of services of our executive leadership team, particularly Mr. Adika or Mr. Sweary, could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition and results of operations.

Additionally, the industry in which we operate is generally characterized by significant competition for skilled personnel as well as high employee attrition. There is currently a high demand for experienced software industry personnel, particularly for engineering, research and development, sales and support positions, and we may not be successful in attracting, integrating or retaining qualified personnel to fulfill our current or future needs and, even if our efforts are successful, such personnel may not become as productive as we expect. This intense competition has resulted in increasing wages, especially in Israel, where most of our research and development positions are located, and in the San Francisco Bay Area, where we have a significant presence, which may make it more difficult for us to attract and retain qualified personnel, as many of the companies against which we compete for personnel have greater financial resources than we do. These competitors may also actively seek to hire our existing personnel away from us, even if such employee has entered into a non-compete agreement. We may be unable to enforce these agreements under the laws of the jurisdictions in which our

 

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employees work. For example, Israeli labor courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer that have been recognized by the courts, such as the protection of a company’s confidential information or other intellectual property, taking into account, among other things, the employee’s tenure, position, and the degree to which the non-compete undertaking limits the employee’s freedom of occupation. We may not be able to make such a demonstration. Also, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited, that they have divulged proprietary or other confidential information, or that their former employers own their inventions or other work product developed while employed by us.

In addition, in making employment decisions, particularly in the internet and high-technology industries, job candidates often consider the value of the equity they are to receive in connection with their employment. Employees may be more likely to leave us if the shares they own or the shares underlying their equity incentive awards have significantly appreciated or significantly reduced in value. Many of our employees may receive significant proceeds from sales of our equity in the public markets after this offering, which may reduce their motivation to continue to work for us and could lead to employee attrition. If we fail to attract new personnel, or fail to retain and motivate our current personnel, our business, financial condition, results of operations and growth prospects could be harmed.

The failure to effectively develop and expand our sales and marketing capabilities, including third-party resources, could harm our ability to increase our customer base and achieve broader market acceptance of our offerings.

Our ability to increase our customer base and achieve broader market acceptance of our platform and products will depend to a significant extent on our ability to expand our sales and marketing operations. As part of our growth strategy, we plan to continue to invest in growing our direct sales force. If we are unable to hire a sufficient number of qualified sales personnel in the near term, our business and growth prospects will be adversely impacted. Identifying and recruiting qualified sales representatives and training them is time-consuming and resource-intensive, and they may not be fully trained and productive for a significant amount of time. We also plan to continue to dedicate significant resources to our marketing programs. All of these efforts will require us to invest significant financial and other resources. Our business will be harmed if our efforts do not generate a correspondingly significant increase in revenue. We will not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop, motivate and retain talented sales personnel, if new sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective. In addition, because we rely primarily on a direct sales model, our customer acquisition costs are higher than those of organizations that rely primarily on a self-service model, which may limit our ability to cut costs in response to changing economic and competitive conditions.

In addition to our direct sales force, we also leverage reseller and other partner relationships to help market and sell our offerings to customers around the world, particularly in jurisdictions in which we have a limited presence. Though we expect that we will need to maintain and expand our network of partners as we continue to expand our presence in international markets, these relationships subject us to certain risks. Some of our partners, mainly system integrators, offer a wide array of software and services in addition to ours. Because most of their revenue is derived from selling professional services, they may prioritize sales of other more professional-services heavy solutions instead of ours. Moreover, we may face channel conflicts with producers of software that our customers use in addition to ours. If such producers perceive our solutions as a competitive threat to their products, our ability to maintain or establish partnerships with third parties may be adversely affected. In addition, recruiting and retaining qualified partners and training them in our technology and offerings requires significant time and resources If we decide to further develop and expand our indirect sales channels, we must continue to scale and improve our processes and procedures to support these channels, including investing in systems and training. Many partners may not be willing to invest the time and resources required to train their staff to effectively market and sell our offerings.

 

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The sales prices of our products may change, which may reduce our revenue and gross profit and adversely affect our financial results.

The sales prices for our products may be subject to change for a variety of reasons, including competitive pricing pressures, discounts, anticipation of the introduction of new products, general economic conditions, or changes in our marketing, customer acquisition and technology costs and, as a result, we anticipate that we will need to change our pricing model from time to time. In the past, including in connection with the COVID-19 pandemic, we have sometimes adjusted our prices for individual customers in certain situations, and expect to do so from time to time in the future. Moreover, demand for our offerings is price-sensitive. Competition continues to increase in the market segments in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors with more diverse offerings may reduce the price of offerings that compete with ours or may bundle them with other offerings and provide for free. Similarly, certain competitors may use marketing strategies that enable them to acquire users more rapidly or at a lower cost than us, or both, and we may be unable to attract new customers or grow and retain our customer base based on our historical pricing. As we develop and introduce new offerings, as well as features, integrations, capabilities and other enhancements, we may need to, or choose to, revise our pricing. We may also face challenges setting prices for new and existing offerings in any new geographies into which we expand. There can be no assurance that we will not be forced to engage in price-cutting initiatives or to increase our marketing and other expenses to attract customers in response to competitive or other pressures. Any decrease in the sales prices for our products, without a corresponding decrease in costs, increase in volume or increase in revenue from our other offerings, would adversely affect our revenue and gross profit. We cannot assure you that we will be able to maintain our prices and gross profits at levels that will allow us to achieve and maintain profitability.

The length of our sales cycle can be unpredictable, particularly with respect to sales to enterprise customers, and our sales efforts may require considerable time and expense.

Our results of operations may fluctuate, in part, because of the length and variability of the sales cycle of our subscriptions and the difficulty in making short-term adjustments to our operating expenses. Our results of operations depend in large part on sales to new enterprise customers and increasing sales to existing customers. The length of our sales cycle, from initial contact from a prospective customer to contractually committing to one or more of our offerings, can vary substantially from customer to customer based on a number of factors, including deal complexity, implementation time and the need for our customers to satisfy their own internal requirements and processes, as well as whether a sale is made directly by us or by one of our resellers or other partners. It is difficult to predict exactly when, or even if, we will make a sale to a potential customer, or if and when we can increase sales to our existing customers. As a result, large individual sales have, in some cases, occurred in quarters subsequent to those we anticipated, or have not occurred at all. Because a substantial proportion of our expenses are relatively fixed in the short term, our results of operations will suffer if revenue falls below our expectations in a particular quarter, which could cause the price of our ordinary shares to decline.

Expansion into markets outside the United States is important to the growth of our business, and if we do not manage the business and economic risks of international expansion effectively, it could materially and adversely affect our business, financial condition and results of operations.

Our future success depends, in part, on our ability to sustain and expand our penetration of the international markets in which we currently operate and to expand into additional international markets. Our ability to expand internationally will depend upon our ability to deliver functionality and other features that reflect the needs and preferences of the international customers that we target and to successfully navigate the risks inherent in operating a business internationally. The continued expansion of our international operations will subject us to new risks and may increase risks that we currently face, including risks associated with:

 

   

recruiting and retaining talented and capable employees outside of Israel and the United States, and maintaining our company culture across all of our offices;

 

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providing our platform and operating our business across a significant distance, in different languages and among different cultures, including the potential need to modify our platform and features to reflect local languages and to ensure that they are culturally appropriate and relevant in different countries;

 

   

slower than anticipated availability and adoption of cloud and technology infrastructures by international businesses;

 

   

the applicability of evolving and potentially inconsistent international laws and regulations, including laws and regulations with respect to tariffs, privacy, data protection, data security, consumer protection and unsolicited email, and the risk of penalties to our customers, users and individual members of our executive leadership team or other employees if our practices are deemed to be out of compliance;

 

   

operating in jurisdictions that do not protect intellectual property rights to the same extent as does the United States;

 

   

our need to rely on local partners, including in connection with joint venture or other arrangements like our Japanese subsidiary, WalkMe K.K., to penetrate certain geographic regions, which may make us dependent on such local partners to implement our growth strategy. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Commitments and Contractual Obligations—WalkMe K.K”;

 

   

compliance by us and our business partners with anti-corruption laws, import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory limitations on our ability to provide our platform in certain international markets;

 

   

political and economic instability;

 

   

fluctuations in currency exchange rates;

 

   

double taxation of our international earnings and potentially adverse tax consequences due to changes in the income and other tax laws of Israel, the United States or the international jurisdictions in which we operate, including the complexities of foreign value added tax (or other tax) systems, and restrictions on the repatriation of earnings;

 

   

higher costs of doing business internationally, including increased accounting, travel, infrastructure and legal compliance costs;

 

   

different labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;

 

   

the ongoing COVID-19 pandemic, or any other pandemic, epidemic or outbreak of infectious disease, including uncertainty regarding what measures the United States or foreign governments will take in response;

 

   

the implementation of exchange controls, including restrictions promulgated by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), and other similar trade protection regulations and measures in the United States, Israel or in other jurisdictions;

 

   

reduced ability to timely collect amounts owed to us by our customers in countries where our recourse may be more limited;

 

   

limitations on our ability to reinvest earnings from operations derived from one country to fund the capital needs of our operations in other countries;

 

   

potential changes in laws, regulations, and costs affecting our UK operations and personnel due to Brexit;

 

   

as an Israeli company, we are subject to Israeli laws concerning governmental access to data and the risk, or perception of risk, of such access may making our platform less attractive to organizations

 

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outside Israel, and compliance with such Israeli laws may conflict with legal obligations that we, or other organizations on our platform, may be subject to in other countries; and

 

   

exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, and similar applicable laws and regulations in other jurisdictions.

While we have invested, and expect to continue to invest, significant resources in our international operations and expansion, it is possible that returns on such investments will not be achieved in the near future or at all in these less familiar competitive and regulatory environments. Compliance with laws and regulations applicable to our global operations could substantially increase our cost of doing business in international jurisdictions, and any violations could result in enforcement actions, fines, civil and criminal penalties, damages, injunctions, or reputational harm. If we are unable comply with these laws and regulations or manage the difficulties and challenges described above and any other problems we encounter in connection with our international operations and expansion, our business, financial condition and results of operations could be materially and adversely affected.

We expect our revenue mix to vary over time, which could harm our gross margin and results of operations.

Our gross margins and results of operations could be harmed by changes in our revenue mix between subscription and professional services and associated costs resulting from any number of factors, including an increase in the number of partner-assisted sales; entry into new markets or growth in lower margin markets; entry into markets with different pricing and cost structures; pricing discounts; and increased price competition. Any one of these factors or the cumulative effects of certain of these factors may result in significant fluctuations in our gross margin and results of operations. This variability and unpredictability could result in our failure to meet internal expectations or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our ordinary shares could decline.

Catastrophic events, or man-made problems such as terrorism, may disrupt our business.

A significant natural disaster, such as an earthquake, fire, flood, or significant power outage could have an adverse impact on our business, financial condition and results of operations. A number of our executive officers and other employees, as well as our customers and partners, are located in the San Francisco Bay Area, a region known for seismic activity and increasingly, wildfires. In the event our or our customers’ or partners’ operations are hindered by any of the events discussed above, sales could be delayed, resulting in missed financial targets for a particular reporting period. In addition, acts of terrorism, pandemics, such as the ongoing COVID-19 pandemic or any other pandemic, epidemic, outbreak of infectious disease or other public health crisis, protests, riots and other geo-political unrest could cause disruptions in our business or the businesses of our customers, partners, or the economy as a whole. Any disruption in the businesses of our customers or partners that affects sales in a given fiscal quarter could have a significant adverse impact on our quarterly results for that and future quarters. All of the aforementioned risks may be further increased if our disaster recovery plans or those of our customers or partners prove to be inadequate.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

Our functional currency is the U.S. dollar and our revenue and expenses are primarily denominated in U.S. dollars. However, a significant portion of our headcount related expenses, consisting principally of salaries and related personnel expenses as well as leases and certain other operating expenses, are denominated in NIS. This foreign currency exposure gives rise to market risk associated with exchange rate movements of the U.S. dollar against the New Israeli Shekels (NIS). Furthermore, we anticipate that a material portion of our expenses will continue to be denominated in NIS.

 

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In addition, increased international sales in the future may result in greater foreign currency denominated sales, increasing our foreign currency risk. Moreover, operating expenses incurred outside the United States and denominated in foreign currencies are increasing and are subject to fluctuations due to changes in foreign currency exchange rates. If we are not able to successfully hedge against the risks associated with currency fluctuations, our financial condition and results of operations could be adversely affected. While we may decide to continue to enter into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and results of operations.

We may need to raise additional funds to finance our future capital needs, which may dilute the value of our outstanding ordinary shares or, if we are unable to raise sufficient additional funds, may prevent us from growing our business.

Historically, we have funded our operations and capital expenditures primarily through our operating cash flows and the net proceeds we have received from sales of equity securities. Although we believe that our existing cash and cash equivalents and short-term bank deposits, together with cash flow from operations and net proceeds from sales of committed equity securities, will be sufficient to support our liquidity and capital requirements for at least the next 12 months, we may need to raise additional funds to finance our existing and future capital needs, including developing new services and technologies, and to fund ongoing operating expenses. If we raise additional funds through the sale of equity securities, these transactions may dilute the value of our outstanding ordinary shares. We may also decide to issue securities, including protected securities, that have rights, preferences and privileges senior to our ordinary shares. We may also incur debt. Any debt financing would increase our level of indebtedness and could negatively affect our liquidity and restrict our operations. We also can provide no assurances that the funds we raise will be sufficient to finance any future capital requirements. We may be unable to raise additional funds on terms favorable to us or at all. In particular, the widespread COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which may reduce our ability to access capital. If we are unable to raise additional capital or generate sufficient cash flows, we may be unable to fund our future needs. This may prevent us from increasing our market share, capitalizing on new business opportunities or remaining competitive in our industry, which could materially and adversely affect our business, prospects, financial condition and results of operations.

Our executive leadership team has limited experience managing a public company, and the requirements of being a public company may strain our resources, divert the attention of our executive leadership team, and affect our ability to attract and retain qualified board members.

As a public company listed in the United States, we will incur significant additional legal, accounting, and other expenses. In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and Nasdaq, may increase legal and financial compliance costs, and make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.

Most members of our executive leadership team have no or limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies in the United States. Our executive leadership team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the U.S. federal securities laws and the continuous scrutiny of securities analysts and investors. We also intend to invest resources to comply with evolving laws, regulations, and standards, and these new obligations and constituents will require significant attention from our executive leadership team and could divert their attention away from the day-to-day management of our business. If, notwithstanding our efforts, we fail to comply with new laws, regulations, and standards, regulatory authorities may initiate legal proceedings against us and our business, financial condition and results of operations may be harmed.

 

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Failure to comply with these rules might also make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events would also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of our executive leadership team.

Sales to government entities and highly regulated organizations are subject to a number of challenges and risks.

We sell to U.S. federal, state, and local, as well as foreign, governmental agency customers, as well as to customers in highly regulated industries such as financial services, telecommunications and healthcare. Sales to such entities are subject to a number of challenges and risks. Selling to such entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government contracting requirements may change and in doing so restrict our ability to sell into the government sector until we have attained the revised certification. Government demand and payment for our products are affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products. Additionally, any actual or perceived privacy, data protection, or data security incident, or even any perceived defect with regard to our practices or measures in these areas, may negatively impact public sector demand for our products.

We also often provide technical support services to certain of our government entity customers to resolve any issues relating to our products. If we do not effectively assist our government entity customers in deploying our products, succeed in helping our government entity customers quickly resolve post-deployment issues, or provide effective ongoing support, our ability to sell additional products to new and existing government entity customers would be adversely affected and our reputation could be damaged.

Further, governmental and highly regulated entities may demand contract terms that differ from our standard arrangements and are less favorable than terms agreed with private sector customers. Such entities may have statutory, contractual, or other legal rights to terminate contracts with us for convenience or due to a default, and any such termination may adversely affect our future results of operations. Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our subscriptions, a reduction of revenue, or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely affect our results of operations in a material way.

We are exposed to credit risk and fluctuations in the market values of our investment portfolio.

Given the global nature of our business we have diversified U.S. and non-U.S. investments. Credit ratings and pricing of our investments can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk, or other factors. As a result, the value and liquidity of our investments may fluctuate substantially. Therefore, although we have not realized any significant losses on our investments, future fluctuations in their value could result in a significant realized loss.

Risks Related to Information Technology, Intellectual Property and Data Security and Privacy

If we or our third-party service providers experience a security breach or unauthorized parties otherwise obtain access to our customers’ data, our data or our platform, our solution may be perceived as not being secure, our reputation may be harmed, demand for our platform and products may be reduced, and we may incur significant liabilities.

Our platform and products involve the collection, storage, processing, transmission and other use of data, including certain confidential, sensitive, and personal information. More generally, in the ordinary course of our

 

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business, we collect, store, transmit and otherwise process large amounts of sensitive corporate, personal and other information, including intellectual property, proprietary business information, and other confidential information. Any security breach, data loss, or other compromise, including those resulting from a cybersecurity attack, phishing attack, or any unauthorized access, unauthorized usage, virus or similar breach or disruption could result in the loss or destruction of or unauthorized access to, or use, alteration, disclosure, or acquisition of, data, damage to our reputation, loss of intellectual property protection, claims and litigation, regulatory investigations, or other liabilities. We may become the target of cyber-attacks by third parties seeking unauthorized access to our or our customers’ data or to disrupt our ability to provide our services. These attacks may come from individual hackers, criminal groups, and state-sponsored organizations. Additionally, companies have, in general, experienced an increase in phishing, social engineering and other attacks from third parties in connection with the COVID-19 pandemic, and the increase in remote working further increases these and other security threats. We experience cyber-attacks and other security incidents of varying degrees from time to time, though none which individually or in the aggregate has led to costs or consequences which have materially impacted our operations or business. If our security measures are breached as a result of third-party action, employee error or negligence, a defect or bug in our offerings or those of our third-party service providers, malfeasance or otherwise and, as a result, someone obtains unauthorized access to any data, including our confidential, sensitive, or personal information or the confidential, sensitive, or personal information of our customers, or other persons, or any of these types of information is lost, destroyed, or used, altered, disclosed, or acquired without authorization, or if any of the foregoing is perceived to have occurred, our reputation may be damaged, our business may suffer, and we could incur significant liability, including under applicable data privacy and security laws and regulations. Even the perception of inadequate security may damage our reputation and market position, negatively impacting our ability to win new customers and retain and receive timely payments from existing customers. Further, we could be required to expend significant capital and other resources to protect against and address any data security incident or breach, which may not be covered or fully covered by our insurance and which may involve payments for investigations, forensic analyses, regulatory compliance, breach notification, legal advice, public relations advice, system repair or replacement, or other services. We and our third-party vendors and service providers also may face difficulties or delays in identifying or responding to, and remediating and otherwise responding to, cyberattacks and other security breaches and incidents. We have incurred substantial costs in efforts to protect against and address potential impacts of security breaches and incidents, and anticipate doing so in the future.

In addition, we do not directly control content that our customers transmit to or with, or store in, our products. If our customers use our products for the transmission or storage of personally identifiable information or other sensitive information and our security measures are or are believed to have been breached as a result of third party action, employee error, malfeasance or otherwise, our reputation could be damaged, our business may suffer, and we could incur significant liability.

We engage third-party vendors and service providers to store and otherwise process some of our and our customers’ data, including personal, confidential, sensitive, and other information about individuals. Our vendors and service providers may also be the targets of cyberattacks, malicious software, phishing schemes, and fraud. Our ability to monitor our vendors and service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, misuse, acquisition, disclosure, loss, alteration, or destruction of our and our customers’ data, including confidential, sensitive, and other information about individuals.

Where a security incident involves a breach of security leading to the accidental or unlawful destruction, loss, alternation, unauthorized disclosure of, or access to, personal data, this could result in fines of up to EUR 20 million or 4% of annual global turnover under the General Data Protection Regulation 2016/679 (the “GDPR”) or £17 million and 4% of total annual revenue in the case of the UK General Data Protection Regulation and the UK Data Protection Act 2018 (together, the “UK GDPR”). We may also be required to notify such breaches to regulators and/or individuals and operate to mitigate damages, which may result in us incurring additional costs. Techniques used to sabotage or obtain unauthorized access to systems or networks are

 

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constantly evolving and, in some instances, are not identified until after they have been launched against a target. We and our service providers may be unable to anticipate these techniques, react in a timely manner, or implement adequate preventative and mitigating measures. If we are unable to efficiently and effectively maintain and upgrade our system safeguards, we may incur unexpected costs and certain of our systems may become more vulnerable to unauthorized access or disruption. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, market position, and reputation.

A real or perceived defect, security vulnerability, error, or performance failure in our products could cause us to lose revenue, damage our reputation, and expose us to liability.

Our products are inherently complex and, despite extensive testing and quality control, have in the past and may in the future contain defects or errors, especially when first introduced, or not perform as contemplated. These defects, security vulnerabilities, errors, or performance failures could cause damage to our reputation, loss of customers or revenue, subscription cancellations, service terminations, or lack of market acceptance of our products. As the use of our products among new and existing customers expands, particularly to more sensitive, secure, or mission critical uses, we may be subject to increased scrutiny, potential reputational risk, or potential liability should our products fail to perform as contemplated in such deployments. We have in the past and may in the future need to issue corrective releases of our products to fix these defects, errors or performance failures, which could require us to allocate significant research and development and customer support resources to address these problems. Despite our efforts, such corrections may take longer to develop and release than we or our customers anticipate and expect.

Any limitation of liability provisions that may be contained in our customer, user, third-party vendor, service provider, partner and other agreements may not be enforceable or adequate or effective as a result of existing or future applicable law or unfavorable judicial decisions, and they may not function to limit our liability arising from regulatory enforcement. In addition, some of our customer, user, third-party vendor, service provider, partner and other agreements are not capped or limited, either generally or, in some cases, with respect to certain liabilities. The sale and support of our products entail the risk of liability claims, which could be substantial in light of the use of our products in enterprise-wide environments. In addition, our insurance against any such liability may not be adequate to cover a potential claim, and may be subject to exclusions, or subject us to the risk that the insurer will deny coverage as to any future claim or exclude from our coverage such claims in policy renewals, increase our fees or deductibles or impose co-insurance requirements. Any such bugs, defects, security vulnerabilities, errors, or other performance failures in our platform or products, including as a result of denial of claims by our insurer or the successful assertion of claims by others against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition, results of operations and reputation.

Incorrect use of, or our customers’ failure to update, our products could result in customer dissatisfaction and negatively affect our business, operations, financial results, and growth prospects.

Our products are often operated in large scale, complex IT environments. Our customers require training and experience in the proper use of, and the benefits that can be derived from, our products to maximize their potential. If users of our products do not implement, use, or update them correctly or as intended, then actual or perceived performance inadequacies and/or security vulnerabilities may result. Because our customers rely on our products to manage a wide range of operations, the incorrect implementation or use of, or our customers’ failure to update, our products, or our failure to train customers on how to use our products, may result in customer dissatisfaction and negative publicity, which may adversely affect our reputation and brand. Our customers’ failure to be effectively trained or implement our products could result in lost opportunities for follow-on sales to these customers and decrease subscriptions by new customers, which would adversely affect our business, financial condition, results of operations and growth prospects.

 

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Insufficient investment in, or interruptions or performance problems associated with, our technology and infrastructure, and our reliance on technologies from third parties, including third-party cloud providers, may adversely affect our business, financial condition and results of operations.

Our continued growth depends in part on the ability of our existing and potential customers to access our platform at any time, within an acceptable timeframe and without interruption or degradation of performance. We have experienced, and may in the future experience, disruptions, outages, and other performance problems, which may be caused by a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, denial of service attacks, or other security related incidents. If our products and platform capabilities are unavailable or if our customers or other users are unable to access our products and platform capabilities within a reasonable amount of time or at all, we may experience a loss of customers, lost or delayed market acceptance of our platform and products, delays in payment to us by customers, injury to our reputation and brand, legal claims against us, and the diversion of our resources. In addition, to the extent that we do not effectively upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, financial condition and results of operations may be adversely affected.

In addition, the operation of our platform depends on third-party cloud providers, hosting services and other third-party service providers. Our cloud providers run their own platforms that we access, and we are therefore vulnerable to their service interruptions and any changes in their product offerings. Any limitation on the capacity of our third-party hosting services could impede our ability to onboard new customers or expand the usage of our existing customers, which could adversely affect our business, financial condition and results of operations. In addition, any incident affecting our third-party cloud providers’ infrastructure, including cyber-attacks, computer viruses, malware, systems failures or other technical malfunctions, natural disasters, fire, flood, severe storm, earthquake, power loss, telecommunications failures, terrorist or other attacks, protests or riots, and other similar events beyond our control, could negatively affect our offerings. It is also possible that our customers and regulators would seek to hold us accountable for any breach of security affecting a third-party cloud provider’s infrastructure and we may incur significant liability in investigating such an incident and responding to any claims, investigations, or proceedings made or initiated by those customers, regulators, and other third parties. We may not be able to recover a material portion of such liabilities from any of our third-party cloud providers. In addition, it may become increasingly difficult to maintain and improve our performance, especially during peak usage times, as our products becomes more complex and the usage of our products increases. Moreover, our insurance may not be adequate to cover such liability and may be subject to exclusions. Any of the above circumstances or events may adversely affect our business, financial condition and results of operations.

Furthermore, our website and internal technology infrastructure may experience performance issues due to a variety of factors, including infrastructure changes, human or software errors, website or third-party hosting disruptions, capacity constraints, technical failures or natural disasters, or fraud, denial-of-service or other security attacks. Our use and distribution of open source software may increase this risk, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code, including with respect to security vulnerabilities or bugs. If our website is unavailable or our customers are unable to order subscriptions or services or download our offerings within a reasonable period of time or at all, our business could be adversely affected. We expect to continue to make significant investments to maintain and improve website performance and to enable rapid releases of new features, integrations, capabilities and other enhancements for our offerings. To the extent that we do not effectively upgrade our systems as needed and continually develop our technology to accommodate actual and anticipated changes in technology, our business, financial condition and results of operations may be adversely affected.

In the event that our service agreements with our third-party hosting services are terminated, or there is a lapse of service, elimination of services or features that we utilize, interruption of internet service provider connectivity or damage to our providers’ facilities, we could experience interruptions in access to our platform as well as significant delays and additional expense in arranging or creating new facilities and services and/or

 

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re-architecting our offerings for deployment on a different cloud infrastructure service provider, which could adversely affect our business, financial condition and results of operations. Upon the termination or expiration of such service agreements, we cannot guarantee that adequate third-party hosting services will be available to us from the same or different hosting services providers on commercially acceptable terms or within adequate timelines or at all.

We also rely on cloud technologies from third parties in order to operate critical functions of our business, including financial management services, relationship management services, and lead generation management services. If these services become unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms or prices, our expenses could increase, our ability to manage our finances could be interrupted, our processes for managing sales of our products and supporting our customers could be impaired, and our ability to generate and manage sales leads could be weakened until equivalent services are identified, obtained, and implemented. Even if such services are available, we may not be able to identify, obtain and implement such services in time to avoid disruption to our business, and such services may only be available on a more costly basis or otherwise less favorable terms. Any of the foregoing could have a material adverse effect on our business, including our financial condition, results of operations and reputation.

Failure to protect or enforce our rights in our proprietary technology, brand and intellectual property could substantially harm our business and results of operations.

Our success depends to a significant degree on our ability to protect our rights in our proprietary technology, methodologies, know-how, and brand. We rely on a combination of trademark, copyright, patent, trade secret and other intellectual property laws as well as contractual restrictions and confidentiality procedures to establish and protect our proprietary rights. However, we currently make certain components of our products available under open source licenses and release internal software projects under open source licenses, and anticipate doing so in the future in order to, among other things, encourage and develop a marketplace where third parties can create complementary products that will be able to connect to our Digital Adoption Platform. Because the source code of the components that we distribute under open source licenses is publicly available, our ability to monetize and protect our intellectual property rights with respect to such source code may be limited or, in some cases, lost entirely. Our competitors could access such source code and use it to create software and service offerings that compete with ours.

Further, the steps we take to protect and enforce our intellectual property rights may be inadequate. We may not be able to register our intellectual property rights in all jurisdictions where we conduct or anticipate conducting business, and may experience conflicts with third parties who contest our applications to register our intellectual property. Even if registered or issued, we cannot guarantee that our trademarks, patents, copyrights or other intellectual property or proprietary rights will be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Not all of our key intellectual property is eligible for patent protection or can otherwise be registered. We will not be able to protect our intellectual property rights if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property rights. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create offerings that compete with ours. If we fail to defend and protect our intellectual property rights adequately, our competitors and other third parties may gain access to our proprietary technology, information and know-how, reverse-engineer our products, and infringe upon or dilute the value of our brand, and our business may be harmed. In addition, obtaining, maintaining, defending, and enforcing our intellectual property rights might entail significant expense. Any patents, trademarks, copyrights, or other intellectual property rights that we have or may obtain may be challenged by others or invalidated through administrative process or litigation. Even if we continue to seek patent protection in the future, we may be unable to obtain further patent protection for our technology. In addition, any patents issued in the future may not provide us with competitive advantages, may be designed around by our competitors, or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain.

 

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We may be unable to prevent third parties from acquiring domain names or trademarks that are similar to, infringe upon, dilute or diminish the value of our trademarks and other proprietary rights. Additionally, our trademarks may be opposed, otherwise challenged or declared invalid, unenforceable or generic, or determined to be infringing on or dilutive of other marks. We may not be able to protect our rights in these trademarks, which we need in order to build name recognition with customers. If third parties succeed in registering or developing common law rights in such trademarks and we are not successful in challenging such third-party rights, or if our trademark rights are successfully challenged, we may not be able to use our trademarks to commercialize our products in certain relevant jurisdictions.

Effective patent, trademark, copyright, and trade secret protection may not be available to us in every country in which our products are available. The laws of some countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. As we continue to expand our international activities, our exposure to unauthorized copying and use of our products and proprietary information will likely increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, diluting, misappropriating or otherwise violating our intellectual property rights.

We enter into confidential, non-compete, proprietary, and inventions assignment agreements with our employees and consultants and enter into confidentiality agreements with other parties. No assurance can be given that these agreements will grant all necessary rights to any inventions that may have been developed by the employees or consultants party thereto or be effective in controlling access to and distribution of our proprietary information, especially in certain states and countries, including Israel, that are less willing to enforce such agreements in certain cases. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products.

Policing and defending against unauthorized use of our know-how, technology and intellectual property is difficult, costly, time-consuming and may not be effective. Third parties may knowingly or unknowingly infringe our intellectual property rights. We may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to our executive leadership team and other employees, and could result in substantial royalties, license fees or other damages, or in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of the attention and resources of our executive leadership team or other employees, could delay further sales or the implementation of our products, require us to reengineer or impair the functionality of our products, delay introductions of new products, result in our substituting inferior or more costly technologies into our products, or injure our reputation. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations and growth prospects.

We could incur substantial costs and other harm to our business and results of operations as a result of any claim of infringement, misappropriation or other violation of another party’s intellectual property rights.

In recent years, there has been significant litigation involving patents and other intellectual property rights in our industry. Compared to many larger, more established companies in our industry, we do not currently have a broad patent portfolio, which could prevent us from deterring patent infringement claims through our own patent portfolio, and our competitors and others may now and in the future have significantly broader and more mature patent portfolios than we have. There is a risk that our operations, platform or individual solutions may infringe or otherwise violate, or be alleged to infringe or otherwise violate, the intellectual property rights of third parties. We could incur substantial costs in defending any intellectual property litigation. If we are sued by a third party that claims that our products infringe, misappropriate or otherwise violate their intellectual property rights, the

 

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litigation could be expensive and could divert our attention and resources of our executive leadership team or other employees. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our ordinary shares.

Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, regardless of the merit of the claim or our defense, may require us to do one or more of the following:

 

   

cease selling or using products or technology that incorporate or cover the intellectual property rights that we allegedly infringe, misappropriate or otherwise violate;

 

   

make substantial payments for royalty or license fees, legal fees, settlement payments or other costs or damages;

 

   

obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology or intellectual property; or

 

   

redesign the allegedly infringing products or technology to avoid infringement, misappropriation or other violation, which could be costly, time-consuming or impossible.

Moreover, any such litigation could also affect the use of our platform by our customers, partners, affiliates and other third parties, which may result and substantial damages to them and to us (including indemnification obligations). If we are required to make substantial payments or undertake or suffer any of the other actions and consequences noted above as a result of any intellectual property infringement, misappropriation or violation claims against us or any obligation to indemnify our customers for such claims, such payments, actions and consequences could materially and adversely affect our business, financial condition, results of operations and growth prospects.

Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, misappropriation, violation, and other losses.

Our agreements with customers and other third parties may include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, misappropriation or other violation, damages caused by us to property or persons, or other liabilities relating to or arising from our products, services or other contractual obligations. Large indemnity payments could harm our business, financial condition and results of operations. Although we normally seek to contractually limit our liability with respect to such indemnity obligations, we do not and may not in the future have a cap on our liability in certain agreements, which could result in substantial liability, and we may still incur significant liability under agreements that do have such a cap. Moreover, even if contractually capped or limited, such limitations and caps may not always be enforceable. Any dispute with a customer or other third party with respect to such obligations could have adverse effects on our relationship with that customer, other existing customers and new customers, and other parties, and could harm our reputation, business, financial condition and results of operations.

We are subject to stringent and changing laws, regulations, standards, and contractual obligations related to privacy, data protection, and data security. Our actual or perceived failure to comply with such obligations could result in significant liability or reputational harm to our business.

We receive, collect, store, process, transfer, and use personal information and other data relating to customers and end users of our products, our employees and contractors, and other persons. We have legal and contractual obligations regarding the protection of confidentiality and appropriate use of certain data, including personal information. We are subject to numerous laws, directives and regulations in multiple jurisdictions and territories regarding privacy, data protection, and data security and the collection, storing, sharing, use,

 

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processing, transfer, disclosure, and protection of personal information and other data, the scope and extent of which are changing, subject to differing interpretations, and may be inconsistent among jurisdictions or conflict with other legal and regulatory requirements. We are also subject to certain contractual obligations to third parties related to privacy, data protection and data security, and may comply with, or face asserted or actual obligations to comply with, self-regulatory frameworks and other standards. We strive to comply with our applicable policies and applicable laws, regulations, contractual obligations, and other actual and alleged legal obligations relating to privacy, data protection, and data security to the extent possible. However, the regulatory framework for privacy, data protection and data security worldwide is, and is likely to remain for the foreseeable future, uncertain and complex, and it is possible that these or other actual or alleged obligations may be interpreted and applied in a manner that we do not anticipate or that is inconsistent from one jurisdiction to another and may conflict with other legal obligations or our practices. Further, any significant change to applicable laws, regulations or industry practices regarding the collection, use, retention, security or disclosure of data, or their interpretation, or any changes regarding the manner in which the consent of users or other data subjects for the collection, use, retention or disclosure of such data must be obtained, could increase our costs and require us to modify our services and features, possibly in a material manner, which we may be unable to complete, and may limit our ability to store and process user data or develop new services and features.

If we were found in violation of any applicable laws or regulations relating to privacy, data protection, or security, or faced claims or accusations of such violations, our business may be materially and adversely affected and we would likely have to change our business practices and potentially the services and features available through our platform. In addition, these laws and regulations could impose significant costs on us and could constrain our ability to use and process data in manners that may be commercially desirable. In addition, if a breach of data security or security incident were to occur or to be alleged to have occurred, if any violation of laws and regulations relating to privacy, data protection or data security were to be alleged, or if we had any actual or alleged defect in our safeguards or practices relating to privacy, data protection, or data security, our solutions may be perceived as less desirable and our business, financial condition, market position, reputation, results of operations and growth prospects could be materially and adversely affected.

We also expect that there will continue to be new laws, regulations, and industry standards concerning privacy, data protection, and data security proposed and enacted in various jurisdictions. For example, the California Consumer Privacy Act (“CCPA”), which came into force in 2020, provides new data privacy rights for California consumers and new operational requirements for covered companies. Specifically, the CCPA mandates that covered companies provide new disclosures to California consumers and afford such consumers new data privacy rights that include, among other things, the right to request a copy from a covered company of the personal information collected about them, the right to request deletion of such personal information, and the right to request to opt-out of certain sales of such personal information. The California Attorney General can enforce the CCPA, including seeking an injunction and civil penalties for violations. The CCPA also provides a private right of action for certain data breaches that is expected to increase data breach litigation. Additionally, a new privacy law, the California Privacy Rights Act (“CPRA”), was approved by California voters in the November 3, 2020 election. The CPRA generally takes effect on January 1, 2023 and significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. Some observers have noted the CCPA and CPRA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could also increase our potential liability and adversely affect our business. For example, the CCPA has encouraged “copycat” or other similar laws to be considered and proposed in other states across the country, such as in Virginia, New Hampshire, Illinois and Nebraska. On March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act (“CDPA”), a comprehensive privacy statute that shares similarities with the CCPA, CPRA, and legislation proposed in other states. The CDPA will require us to incur additional costs and expenses in an effort to comply with it before it becomes effective on January 1, 2023. Broad federal privacy legislation also has been proposed. Recent and new state and federal legislation relating to privacy may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional

 

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investment in resources to compliance programs, could impact strategies and availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.

Various U.S. federal privacy laws are potentially relevant to our business, including the Federal Trade Commission Act, Controlling the Assault of Non-Solicited Pornography and Marketing Act, the Family Educational Rights and Privacy Act, the Children’s Online Privacy Protection Act, and the Telephone Consumer Protection Act. Any actual or perceived failure to comply with these laws could result in a costly investigation and claims and litigation resulting in potentially significant liability, injunctions and other consequences, loss of trust by our users, harm to our reputation and market position and a material and adverse impact on our reputation and business.

We are also subject to data privacy and security laws in jurisdictions outside of the United States. We are subject to, among other laws and regulations, the GDPR, and the UK GDPR. The data protection landscape in the European Union (the “EU”) is continually evolving, resulting in possible significant operational costs for internal compliance and risks to our business. The GDPR and the UK GDPR contain numerous requirements, including the requirement to provide detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily accessible form); demonstrating that an appropriate legal basis is in place or otherwise exists to justify data processing activities; granting new rights for data subjects in regard to their personal data (including the right to be “forgotten” and the right to data portability), as well as enhancing data subject rights (e.g., data subject access requests); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; defining for the first time pseudonymized (i.e., key-coded) data; imposing limitations on retention of personal data; maintaining a record of data processing; and complying with the principal of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit. Compliance with the GDPR and the UK GDPR may require us to modify our data processing practices and policies and incur substantial compliance-related costs and expenses and these changes may lead to other additional costs and increase our overall risk exposure.

In addition, the GDPR/UK GDPR regulate the transfer of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the U.S. Recent legal developments in the EU have created complexity and uncertainty regarding such transfers. For instance, on July 16, 2020, the Court of Justice of the European Union (the “CJEU”) invalidated the EU-U.S. Privacy Shield Framework (the “Privacy Shield”) under which personal data could be transferred from the EEA to U.S. entities that had self-certified under the Privacy Shield scheme. While the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism and potential alternative to the Privacy Shield), it made clear that reliance on such clauses alone may not necessarily be sufficient in all circumstances. Use of the standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, including, in particular, applicable surveillance laws and rights of individuals, and additional measures and/or contractual provisions may need to be put in place; however, the nature of these additional measures is currently uncertain. The CJEU also states that if a competent supervisory authority believes that the standard contractual clauses cannot be complied with in the destination country and that the required level of protection cannot be secured by other means, such supervisory authority is under an obligation to suspend or prohibit that transfer. We previously relied on our own, as well as vendors’, Privacy Shield certifications for the purposes of transferring personal data from the EEA to the U.S. in compliance with the GDPR’s data export conditions. These recent developments require us to review and amend the legal mechanisms by which we make and/or receive personal data transfers to the U.S. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.

 

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In addition, the withdrawal of the United Kingdom (the “UK”) from the EU means that the UK will become a “third country” for the purposes of data transfers from the EU to the UK following the expiration of the four to six-month personal data transfer grace period (from 1 January 2021) set out in the EU and UK Trade and Cooperation Agreement, unless a relevant adequacy decision is adopted in favor of the UK, which would allow data transfers without additional measures. These changes may require us to find alternative solutions for the compliant transfer of personal data into the UK. The relationship between the UK and the EU in relation to certain aspects of data protection law remains unclear, including, for example, the role of the UK’s Information Commissioner’s Office following the end of the transitional period. These changes could lead to additional costs and increase our overall risk exposure.

Failure to comply with the GDPR and the UK GDPR could result in penalties for noncompliance (including possible fines of up to the greater of €20 million and 4% of our global annual turnover for the preceding financial year for the most serious violations (in the case of the GDPR) or £17.5 million and 4% of total annual revenue (in the case of the UK GDPR). In addition to the foregoing, a breach of the GDPR or UK GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our processing of our data, enforcement notices, and/or assessment notices (for a compulsory audit). We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm.

We are also subject to evolving EU and UK privacy laws on cookies and e-marketing. In the EU and the UK, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem, and current national laws that implement the ePrivacy Directive are highly likely to be replaced by an EU regulation known as the ePrivacy Regulation which will significantly increase fines for non-compliance. In the EU and the UK, informed consent is required for the placement of a cookie or similar technologies on a user’s device and for direct electronic marketing. The GDPR also imposes conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology While the text of the ePrivacy Regulation is still under development, a recent European court decision and recent regulatory guidance are driving increased attention to cookies and tracking technologies. If regulators start to enforce the strict approach provided for in recent guidance, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities. Regulation of cookies and similar technologies may lead to broader restrictions on our marketing and personalization activities and may negatively impact our efforts to understand users, adversely affect our margins, increase costs, and subject us to additional liabilities.

In addition, we are subject to the Israeli Privacy Protection Law 5741-1981 (the “PPL”), and its regulations, including the Israeli Privacy Protection Regulations (Data Security) 2017 (“Data Security Regulations”), which impose obligations with respect to the manner personal data is processed, maintained, transferred, disclosed, accessed and secured, as well as the guidelines of the Israeli Privacy Protection Authority and Amendment No. 40 to the Communications Law (Telecommunications and Broadcasting), 5742-1982. The Data Security Regulations may require us to adjust our data protection and data security practices, information security measures, certain organizational procedures, applicable positions (such as an information security manager) and other technical and organizational security measures. Failure to comply with the PPL, its regulations and guidelines issued by the Israeli Privacy Protection Authority may expose us to administrative fines, civil claims (including class actions) and in certain cases criminal liability. Current pending legislation may result in a change of the current enforcement measures and sanctions. The Israeli Privacy Protection Authority may initiate administrative inspection proceedings, from time to time, without any suspicion of any particular breach of the PPL, as it has done in the past with respect to dozens of Israeli companies in various business sectors. In addition, to the extent that any administrative supervision procedure is initiated by the Israeli Privacy Protection Authority and reveals certain irregularities with respect to our compliance with the PPL, in addition to our

 

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exposure to administrative fines, civil claims (including class actions) and in certain cases criminal liability, we may also need to take certain remedial actions to rectify such irregularities, which may increase our costs.

In addition to the laws, directives and regulations discussed above, we are and may be subject to additional laws, directives and regulations in any jurisdiction or territory in which we, our partners and/or our affiliates operate and/or make our offerings available, and may be subject to actual or asserted obligations under self-regulatory frameworks or other standards, in addition to contractual obligations relating to privacy, data protection and data security. Some countries are also considering or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our services. Any failure or perceived failure by us to comply with our posted privacy policies, our privacy-related obligations to users or other third parties, or any other legal obligations or regulatory requirements relating to privacy, data protection, or data security, may result in governmental investigations or enforcement actions, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our users to lose trust in us, and otherwise materially and adversely affect our reputation and business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, other obligations, and policies that are applicable to the businesses of our customers and other users may limit the adoption and use of, and reduce the overall demand for, our platform. Additionally, if third parties we work with violate applicable laws, regulations or contractual obligations, such violations may put our users’ data at risk, could result in governmental investigations or enforcement actions, fines, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our users to lose trust in us, and otherwise materially and adversely affect our reputation and business. Further, public scrutiny of, or complaints about, technology companies or their data handling or data protection practices, even if unrelated to our business, industry or operations, may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional regulatory requirements, or to modify their enforcement or investigation activities, which may increase our costs and risks. Any of the foregoing could materially and adversely affect our business, financial condition and results of operations.

Our use of open source software could negatively affect our ability to sell our products and subject us to possible litigation.

We use “open source” software in connection with the development and deployment of our products, including in our products, and we expect to continue to use open source software in the future. Few of the licenses applicable to certain open source software that we use have been interpreted by courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. For example, some open source licenses may subject us to requirements that we make available, in certain cases and if the component subject of the open source license is used in a particular manner, the source code for modifications or derivative works we create based upon, incorporating, linking to or using the open source software (which could include valuable proprietary code), and that we license such modifications or derivative works under the terms of applicable open source licenses. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our products that contain the open source software and required to comply with onerous conditions or restrictions on these products, which could disrupt the distribution and sale of these products. In addition, there have been claims challenging the ownership rights in open source software against companies that incorporate open source software into their products, and the licensors of such open source software provide no warranties or indemnities with respect to such claims. In any of these events, we and our customers could be required to seek licenses from third parties in order to continue offering our products, and to re-engineer our products or discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis or at all. We and our customers may also be subject to suits by parties claiming infringement, misappropriation or other violation of third-party intellectual property rights due to the reliance by our solutions on certain open source software, and such litigation could be costly for us to defend and subject us to an injunction, payments for damages and other liabilities and obligations.

 

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Further, in addition to risks related to license requirements, use of certain open source software carries greater technical and legal risks than does the use of third-party commercial software. For example, open source software is generally provided without any support or warranties or other contractual protections regarding infringement or the quality of the code, including the existence of security vulnerabilities. Some open source projects provided on an “as is” basis have known or unknown vulnerabilities and architectural instabilities which, if not properly addressed, could negatively affect the performance of any product incorporating the relevant software. To the extent that our platform depends upon the successful operation of open source software, any undetected errors or defects in open source software that we use could prevent the deployment or impair the functionality of our systems and injure our reputation. In addition, the public availability of such software may make it easier for others to compromise our platform. Any of the foregoing could result in lost revenue, require us to devote additional research and development resources to re-engineer our solutions, cause us to incur additional costs and expenses, and result in customer dissatisfaction, any of which could adversely affect our business, financial condition and results of operations.

We rely on software and services licensed from other parties. The loss of software or services from third parties could increase our costs and limit the features available in our platform and products.

Components of our offerings include various types of software and services licensed from unaffiliated parties. If any of the software or services we license from others or functional equivalents thereof were either no longer available to us or no longer offered on commercially reasonable terms, we would be required to either redesign the offerings that include such software or services to function with software or services available from other parties or develop these components ourselves, which we may not be able to do without incurring increased costs, experiencing delays in our product launches and the release of new offerings. Furthermore, we might be forced to temporarily limit the features available in our current or future products. If we fail to maintain or renegotiate any of these software or service licenses, we could face delays and diversion of resources in attempting to license and integrate functional equivalents.

Risks Related to Other Legal, Regulatory and Tax Matters

Our business is subject to a variety of laws and regulations, both in the United States and internationally, many of which are evolving.

We are subject to a wide variety of laws and regulations. Laws, regulations and standards governing issues such as worker classification, employment, payments, worker confidentiality obligations, intellectual property, consumer protection, taxation, privacy, data protection and data security are often complex and subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may change or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies, such as federal and state administrative agencies. Many of these laws were adopted prior to the advent of the internet and mobile and related technologies and, as a result, do not contemplate or address the unique issues of the internet and related technologies. Other laws and regulations may be adopted in response to internet, mobile and related technologies. New and existing laws and regulations (or changes in interpretation of existing laws and regulations) may also be adopted, implemented, or interpreted to apply to us and other technology companies. As the geographic scope of our business expands, regulatory agencies or courts may claim that we, or our customers or users, are subject to additional requirements, or that we are prohibited from conducting our business in or with certain jurisdictions.

In addition, recent financial, political and other events may increase the level of regulatory scrutiny on technology companies generally. Regulatory agencies may enact new laws or promulgate new regulations that are adverse to our business, or they may view matters or interpret laws and regulations differently than they have in the past or in a manner adverse to our business. Such regulatory scrutiny or action may create or further exacerbate different or conflicting obligations on us from one jurisdiction to another.

 

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As a result of the foregoing, we may incur increased costs, be exposed to increased risk of liability and face additional challenges expanding our business operations, any of which would adversely affect our business, financial condition, results of operations and growth prospects.

Legal, political, and economic uncertainty surrounding the exit of the United Kingdom from the EU may be a source of instability to international markets, create significant currency fluctuations, adversely affect our operations in the United Kingdom and pose additional risks to our business, financial condition and results of operations.

In connection with Brexit, the United Kingdom formally withdrew from the European Union and ratified a trade and cooperation agreement governing its future relationship with the European Union. The agreement, which is being applied provisionally from January 1, 2021 until it is ratified by the European Parliament and the Council of the European Union, addresses trade, economic arrangements, law enforcement, judicial cooperation and a governance framework including procedures for dispute resolution, among other things. Because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between the United Kingdom and the European Union as both parties continue to work on the rules for implementation, significant political and economic uncertainty remains about how the precise terms of the relationship between the parties will differ from the terms before withdrawal.

These developments and the continued uncertainty regarding the terms of the relationship between the United Kingdom and the European Union post-Brexit have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit ratings have been and may continue to be subject to increased market volatility. Lack of clarity about future UK laws and regulations as the United Kingdom determines which EU laws to replace or replicate, including financial laws and regulations, tax and free trade agreements, tax and customs laws, intellectual property rights, environmental, health and safety laws and regulations, immigration laws, employment laws and transport laws could increase the costs of doing business in the United Kingdom and depress economic activity. Additionally, the need to comply with any applicable regulatory changes will likely increase costs for us and our existing and potential customers located in the United Kingdom, which could negatively affect demand for our offerings and the ability of customers to make payments under their agreements with us. Any of these factors could have a significant adverse effect on our business, financial condition, results of operations and prospects.

We are subject to various governmental export control, trade sanctions, and import laws and regulations that could impair our ability to compete in international markets or subject us to liability if we violate these controls.

In some cases, our products are subject to export control laws and regulations, including the Export Administration Regulations administered by the U.S. Department of Commerce, and the Israeli Control of Products and Services Decree (Engagement in Encryption), 5735-1974, and our activities may be subject to trade and economic sanctions, including those administered or governed by OFAC, the Israeli Trade with the Enemy Ordinance, 1939 and sanction laws of the European Union and other applicable jurisdictions (collectively, “Trade Controls”). As such, a license may be required to export or re-export our products, or provide related services, to certain countries, customers and other users, as well as for certain end uses. Further, our products that incorporate encryption functionality may be subject to special controls applying to encryption items and/or certain reporting requirements.

While we are in the process of implementing additional procedures designed to ensure our compliance with Trade Controls, we cannot guarantee that we have not made accessible, or will not make accessible, inadvertently our services to persons in violation of Trade Controls, or that our customers have not permitted or, despite these procedures, will not in the future permit our services to be used by parties in countries or territories subject to Trade Controls. For example, we recently implemented geo-location blocking through a third party to prevent

 

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content created by our customers using our tools from being accessed by users of our customers from IP addresses potentially linked to countries subject to Trade Controls, but we cannot be certain that this technique will work in all circumstances. In addition, prior to implementation of these geo-location blocking techniques, some users of our customers, while not having access to our platform, have had access from IP addresses potentially linked to countries subject to Trade Controls to customer created content, such as application guides or walkthrus created by the customer using our tools. The failure to comply with Trade Controls could subject us to both civil and criminal penalties, including substantial fines, possible incarceration of responsible individuals for willful violations, possible loss of our export or import privileges, and reputational harm. Further, the process for obtaining necessary licenses may be time-consuming or unsuccessful, potentially causing delays in sales or losses of sales opportunities. Trade Controls are complex and dynamic regimes, and monitoring and ensuring compliance can be challenging, particularly given that our products are widely distributed throughout the world and are available for download without registration. Any failure by us or our partners to comply with applicable laws and regulations would have negative consequences for us, including reputational harm, government investigations, and penalties.

In addition, various countries regulate the import of certain encryption technology, including through import permit and license requirements, and have enacted laws that could limit our ability to distribute our offerings or the ability of our customers or their employees or end customers to implement our offerings in those countries. Changes in our offerings or changes in export and import regulations in such countries may create delays in the introduction of our offerings into international markets, prevent our end-customers with international operations from deploying our offerings globally or, in some cases, prevent or delay the export or import of our offerings to certain countries, governments, or persons altogether. Any change in export or import laws or regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing export, import or sanctions laws or regulations, or change in the countries, governments, persons, or technologies targeted by such export, import or sanctions laws or regulations, could result in decreased use of our offerings by, or in our decreased ability to export or sell our offerings to, existing or potential customers with international operations. Any decreased use of our offerings or limitation on our ability to export to or sell our offerings in international markets could adversely affect our business, financial condition and results of operations, and our ability to execute our growth strategy.

Changes in laws and regulations related to the internet, changes in the internet infrastructure itself, or increases in the cost of internet connectivity and network access may diminish the demand for our offerings and could harm our business.

The future success of our business depends upon the continued use of the internet as a primary medium for commerce, communication, and business applications. Federal, state, or foreign governmental bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the internet as a commercial medium. The adoption of any laws or regulations that could reduce the growth, popularity, or use of the internet, including laws or practices limiting internet neutrality, could decrease the demand for our offerings, increase our cost of doing business, and adversely affect our results of operations. Changes in these laws or regulations could require us to modify our offerings, or certain aspects of our offerings, in order to comply with these changes. In addition, government agencies or private organizations have imposed and may impose additional taxes, fees, or other charges for accessing the internet or commerce conducted via the internet. These laws or charges could limit the growth of internet-related commerce or communications generally or result in reductions in the demand for internet-based products such as ours. In addition, the use of the internet as a business tool could be harmed due to delays in the development or adoption of new standards and protocols to handle increased demands of internet activity, security, reliability, cost, ease-of-use, accessibility, and quality of service. Further, our platform depends on the quality of our customers’ and other users’ access to the internet.

On June 11, 2018, the repeal of the Federal Communications Commission’s (the “FCC”), “net neutrality” rules took effect and returned to a “light-touch” regulatory framework. The prior rules were designed to ensure that all online content is treated the same by internet service providers and other companies that provide broadband services. Additionally, on September 30, 2018, California enacted the California internet Consumer

 

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Protection and Net Neutrality Act of 2018, making California the fourth state to enact a state-level net neutrality law since the FCC repealed its nationwide regulations, mandating that all broadband services in California must be provided in accordance with state net neutrality requirements. The U.S. Department of Justice has sued to block the law going into effect, and California has agreed to delay enforcement until the resolution of the FCC’s repeal of the federal rules. A number of other states are considering legislation or executive actions that would regulate the conduct of broadband providers. We cannot predict whether the FCC order or state initiatives will be modified, overturned, or vacated by legal action of the court, federal legislation or the FCC. With the repeal of net neutrality rules in effect, we could incur greater operating expenses, which could harm our results of operations.

As the internet continues to experience growth in the number of users, frequency of use, and amount of data transmitted, the internet infrastructure that we and our customers and other users rely on may be unable to support the demands placed upon it. The failure of the internet infrastructure that we or our customers and other users rely on, even for a short period of time, could adversely affect our business, financial condition and results of operations. In addition, the performance of the internet and its acceptance as a business tool has been harmed by “viruses,” “worms” and similar malicious programs and the internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If the use of the internet is adversely affected by these issues, demand for our offerings could decline.

Internet access is frequently provided by companies that have significant market power and the ability to take actions that degrade, disrupt, or increase the cost of customers’ access to our offerings. As demand for online media increases, there can be no assurance that internet and network service providers will continue to price their network access services on reasonable terms. We could incur greater operating expenses and our customer acquisition and retention could be negatively impacted if network operators:

 

   

implement usage-based pricing;

 

   

discount pricing for competitive products;

 

   

otherwise materially change their pricing rates or schemes;

 

   

charge us to deliver our traffic at certain levels or at all;

 

   

throttle traffic based on its source or type;

 

   

implement bandwidth caps or other usage restrictions; or

 

   

otherwise try to monetize or control access to their networks.

We have limited or no control over the extent to which any of these circumstances may occur, and if network access or distribution prices rise, our business, financial condition and results of operations would likely be adversely affected.

Failure to comply with anti-bribery, anti-corruption, anti-money laundering laws, and similar laws, could subject us to penalties and other adverse consequences.

We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the United Kingdom Bribery Act 2010, the Proceeds of Crime Act 2002, Chapter 9 (sub-chapter 5) of the Israeli Penal Law, 5737-1977, the Israeli Prohibition on Money Laundering Law, 5760–2000 and additional anti-bribery or anti-corruption laws, regulations, or rules of the countries in which we operate. These laws generally prohibit companies and their employees and third-party partners, representatives, and agents from engaging in corruption and bribery, including by offering, promising, giving, or authorizing the provision of anything of value, either directly or indirectly, to a government official or commercial party to influence official action, direct business to any person, gain any improper advantage, or obtain or retain business. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly.

 

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We sometimes leverage third parties to sell our products and conduct certain aspects of our business abroad. We and our third-party partners may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for inaccurate or incomplete accounting records, internal accounting controls deemed inadequate by applicable regulatory authorities, and corrupt or other illegal activities of our employees, affiliates, third-party partners, representatives, and agents, even if we do not explicitly authorize such activities. We cannot assure you that our employees and other agents, or those of our partners, will not take actions in violation of applicable law, for which we may be ultimately held responsible. As we increase our international sales and business operations, our risks under these laws are likely to increase.

Any actual or alleged violation of the FCPA or other applicable anti-bribery, anti-corruption or anti-money laundering laws could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines, damages, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, financial condition, results of operations, and prospects. Responding to any investigation or action will likely result in a materially significant diversion of the attention and resources of our executive leadership team and other employees and cause us to incur significant defense costs and other professional fees. In addition, the U.S. government may seek to hold us liable for FCPA violations committed by companies that we invest in or acquire.

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could expose us to greater than anticipated tax liabilities.

The tax laws applicable to our business, including the laws of Israel, the United States, and other jurisdictions, are subject to interpretation and certain jurisdictions may aggressively interpret their laws in an effort to raise additional tax revenue. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements or our revenue recognition policies, which could increase our worldwide effective tax rate and harm our financial position and results of operations. It is possible that tax authorities may disagree with certain positions we have taken and any adverse outcome of such a review or audit could have a negative effect on our financial position and results of operations. Further, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made.

Our corporate structure and intercompany arrangements are subject to the tax laws of various jurisdictions, and we could be obligated to pay additional taxes, which would harm our results of operations.

Based on our current corporate structure, we are subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents. The authorities in these jurisdictions could review our tax returns or require us to file tax returns in jurisdictions in which we are not currently filing, and could impose additional tax, interest, and penalties. These authorities could also claim that various withholding requirements apply to us or our subsidiaries, assert that benefits of tax treaties are not available to us or our subsidiaries, or challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing. The relevant taxing authorities may determine that the manner in which we operate our business does not achieve the intended tax consequences. If such a disagreement was to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties. Such authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries. Any increase in the amount of taxes we pay or that are imposed on us could increase our worldwide effective tax rate and harm our business, financial condition and results of operations.

 

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We could be required to collect additional sales, use, value added, digital services or other similar taxes or be subject to other liabilities that may increase the costs our clients would have to pay for our products and adversely affect our results of operations.

We collect sales, value added and other similar taxes in a number of jurisdictions. One or more U.S. states or countries may seek to impose incremental or new sales, use, value added, digital services, or other tax collection obligations on us. Further, an increasing number of U.S. states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state companies. Additionally, the Supreme Court of the United States has ruled that online sellers can be required to collect sales and use tax despite not having a physical presence in the state of the customer, thus permitting a wider enforcement of such sales and use tax collection requirements against non-U.S. companies that have historically not been responsible for state or local tax collection unless they had physical presence in the U.S. customer’s state. As a result, U.S. states and local governments may adopt, or begin to enforce, laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions, even if we have no physical presence in that jurisdiction. A successful assertion by one or more U.S. states requiring us to collect taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial liabilities, including taxes on past sales, as well as interest and penalties. Furthermore, certain jurisdictions, such as the United Kingdom and France, have recently introduced a digital services tax, which is generally a tax on gross revenue generated from users or customers located in in those jurisdictions, and other jurisdictions have enacted or are considering enacting similar laws. A successful assertion by a U.S. state or local government, or other country or jurisdiction that we should have been or should be collecting additional sales, use, value added, digital services or other similar taxes could, among other things, result in substantial tax payments, create significant administrative burdens for us, discourage potential customers from subscribing to our platform due to the incremental cost of any such sales or other related taxes, or otherwise harm our business.

Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.

As of December 31, 2020, we had net operating loss carryforwards of $200.2 million in Israel, which may be utilized against future income taxes. Limitations imposed by the applicable jurisdictions on our ability to utilize net operating loss carryforwards, including with respect to the net operating loss carryforwards of companies that we have acquired or may acquire in the future, could cause income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such net operating loss carryforwards to expire unused, in each case reducing or eliminating the benefit of such net operating loss carryforwards. Furthermore, we may not be able to generate sufficient taxable income to utilize our net operating loss carryforwards before they expire. If any of these events occur, we may not derive some or all of the expected benefits from our net operating loss carryforwards. Also, any available net operating loss carryforwards would have value only to the extent there is income in the future against which such net operating loss carryforwards may be offset. For these reasons, we may not be able to realize a tax benefit from the use of our net operating loss carryforwards, whether or not we attain profitability. We have recorded a full valuation allowance related to our carryforwards due to the uncertainty of the ultimate realization of the future benefits of those assets.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

The accounting rules and regulations that we must comply with are complex and subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. Recent actions and public comments from the FASB and the SEC have focused on the integrity of financial reporting and internal controls. In addition, many companies’ accounting policies are being subject to heightened scrutiny by regulators and the public. Further, the accounting rules and regulations are continually changing in ways that could materially impact our financial statements.

 

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Though we cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward, any such change in these principles or how they are interpreted could have a significant effect on our reported results of operations and could affect the reporting of transactions already completed before the announcement of a change.

We are not, and do not intend to become, regulated as an “investment company” under the Investment Company Act of 1940, as amended (“Investment Company Act”), and if we were deemed an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

An entity generally will be deemed to be an “investment company” for purposes of the Investment Company Act if:

 

   

it is an “orthodox” investment company because it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or

 

   

it is an inadvertent investment company because, absent an applicable exemption, (i) it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, or (ii) it owns or proposes to acquire investment securities having a value exceeding 45% of the value of its total assets (exclusive of U.S. government securities and cash items) and/or more than 45% of its income is derived from investment securities on a consolidated basis with its wholly owned subsidiaries.

We are engaged primarily in the business of providing clients with our cloud-based Digital Adoption Platform, which enables organizations to better realize the value of their software investments. We hold ourselves out as a cloud-based technology company and do not propose to engage primarily in the business of investing, reinvesting or trading in securities. Accordingly, we do not believe that we are, or following this offering will be, an “orthodox” investment company as defined in Section 3(a)(1)(A) of the Investment Company Act and described in the first bullet point above. Furthermore, we believe that on a consolidated basis less than 45% of our total assets (exclusive of U.S. government securities and cash items) are composed of, and less than 45% of our income is derived from, assets that could be considered investment securities. Accordingly, we do not believe that we are, or following this offering will be, an inadvertent investment company by virtue of the 45% tests in Rule 3a-1 of the Investment Company Act as described in the second bullet point above. In addition, we believe that we are not an investment company under Section 3(b)(1) of the Investment Company Act because we are primarily engaged in a noninvestment company business.

The Investment Company Act and the rules thereunder contain detailed parameters for the organization and operation of investment companies. Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, generally prohibit the issuance of options and impose certain governance requirements. We intend to conduct our operations so that we will not be deemed to be an investment company under the Investment Company Act or otherwise conduct our business in a manner that does not subject us to the registration and other requirements of the Investment Company Act. In order to ensure that we are not deemed to be an investment company, we may be limited in the assets that we may continue to own and, further, may need to dispose of or acquire certain assets at such times or on such terms as may be less favorable to us than in the absence of such requirement. In particular, as is common in Israel, much of our marketable securities and some of our cash is held in the form of time-based depositary accounts, which may be considered securities under the Investment Company Act, and we could be required to invest our cash into accounts that yield a lower return in order to avoid becoming an investment company. If anything were to happen which would cause us to be deemed to be an investment company under the Investment Company Act, the requirements imposed by the Investment Company Act could make it impractical for us to continue our business as currently conducted, which would materially adversely affect our business, financial condition and results of operations. In addition, if we were to become inadvertently subject to the Investment Company Act, any violation of the Investment Company Act could subject us to material adverse consequences, including potentially significant regulatory penalties.

 

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Risks Related to Our Ordinary Shares and this Offering

Our share price may be volatile, and you may lose all or part of your investment.

The initial public offering price for the ordinary shares sold in this offering will be determined by negotiation between us and the representatives of the underwriters. This price may not reflect the market price of our ordinary shares following this offering and the price of our ordinary shares may decline. In addition, the market price of our ordinary shares could be highly volatile and may fluctuate substantially as a result of many factors, including:

 

   

actual or anticipated changes or fluctuations in our results of operations;

 

   

the guidance we may provide to the public, and any changes in, or our failure to perform in line with, such guidance;

 

   

announcements by us or our competitors of significant business developments, new offerings or new or terminated significant contracts, commercial relationships or capital commitments;

 

   

industry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC;

 

   

rumors and market speculation involving us or other companies in our industry;

 

   

future sales or expected future sales of our ordinary shares;

 

   

investor perceptions of us and the industries and markets in which we operate;

 

   

price and volume fluctuations in the overall stock market from time to time;

 

   

changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

 

   

failure of industry or financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

 

   

actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;

 

   

litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

 

   

developments or disputes concerning our intellectual property rights or our solutions, or third-party proprietary rights;

 

   

announced or completed acquisitions of businesses or technologies by us or our competitors;

 

   

actual or perceived breaches of, or failures relating to, privacy, data protection or data security;

 

   

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

 

   

actual or anticipated changes in our executive leadership team or our board of directors;

 

   

general economic conditions and slow or negative growth of our target markets; and

 

   

other events or factors, including those resulting from pandemics, war, incidents of terrorism or responses to these events.

In addition, the stock markets have experienced extreme price and volume fluctuations. Broad market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance, which may limit or prevent investors from readily selling their shares and may otherwise negatively

 

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affect the liquidity of our ordinary shares. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. If we were involved in any similar litigation we could incur substantial costs and our attention and resources of our executive leadership team and other employees could be diverted.

There has been no prior public market for our ordinary shares, and an active trading market may not develop.

Prior to this offering, there has been no public market for our ordinary shares. An active trading market may not develop following the closing of this offering or, if developed, may not be sustained. The lack of an active market may also reduce the fair value of your shares or impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. An inactive market may also impair our ability to raise capital by selling ordinary shares and may impair our ability to acquire other companies by using our shares as consideration.

If we do not meet the expectations of equity research analysts, if they do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline.

The price of our ordinary shares and trading volume may be heavily influenced by the way analysts and investors interpret our financial information and other disclosures. If securities or industry analysts do not publish research or reports about our business, delay publishing reports about our business, or publish negative reports about our business, regardless of accuracy, the market price and trading volume of our ordinary shares could decline.

If a trading market for our ordinary shares develops, the trading market will be influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a newly public company, we may be slow to attract research coverage and the analysts who publish information about our ordinary shares will have had relatively little experience with us or our industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our ordinary shares, the price of our ordinary shares could decline. The share prices of many companies in the technology industry have declined significantly after those companies have failed to meet, or significantly exceed, the financial guidance they have publicly announced or the expectations of analysts and investors. If our financial results fail to meet, or significantly exceed, our announced guidance or the expectations of analysts or investors, analysts could downgrade our ordinary shares or publish unfavorable research about us. Furthermore, if one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our share price or trading volume to decline.

Even if our ordinary shares are actively covered by analysts, we do not have any control over the analysts or the measures that analysts or investors may rely upon to forecast our future results. Over-reliance by analysts or investors on any particular metric to forecast our future results may lead to forecasts that differ significantly from our own.

We are an “emerging growth company,” as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of specified reduced disclosure and other requirements that are applicable to public companies that are not emerging growth companies. These provisions include:

 

   

the option to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure in this prospectus;

 

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not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002;

 

   

not being required to comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

   

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

In addition, while we are an emerging growth company we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period and, as a result, our operating results and financial statements may not be comparable to the operating results and financial statements of companies who have adopted the new or revised accounting standards.

We may remain an emerging growth company until the earliest to occur of: (i) the last day of the first fiscal year in which our annual gross revenue equals or exceeds $1.07 billion; (ii) the date that we become a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act, which will occur if the market value of our common equity securities held by non-affiliates is at least $700 million as of the last business day of our most recently completed second fiscal quarter; (iii) the date on which we have issued, during the preceding three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the closing of this offering.

Investors may find our ordinary shares less attractive to the extent we rely on the exemptions and relief granted by the JOBS Act. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and the price of our ordinary shares may decline or become more volatile.

We will be a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

Upon the closing of this offering, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer, we may take advantage of certain provisions under the Nasdaq corporate governance rules that allow us to follow Israeli law for certain corporate governance matters. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time;

 

   

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events; and

 

   

Regulation Fair Disclosure (“Regulation FD”), which regulates selective disclosures of material information by issuers.

 

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In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign private issuers, like emerging growth companies, also are exempt from certain more stringent executive compensation disclosure rules. Thus, if we remain a foreign private issuer, even if we no longer qualify as an emerging growth company, we will continue to be exempt from the more stringent compensation disclosures required of public companies that are neither an emerging growth company nor a foreign private issuer. As a result of all of the above, you may not have the same protections afforded to shareholders of a company that is not a foreign private issuer.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act that are applicable to U.S. domestic public companies. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2021. In the future, we would lose our foreign private issuer status if more than 50% of our outstanding voting securities are owned by U.S. residents and any of the following three circumstances applies: (1) the majority of our directors or executive officers are U.S. citizens or residents, (2) more than 50% of our assets are located in the United States, or (3) our business is administered principally in the United States. If we lose our foreign private issuer status, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq listing rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer.

As we are a foreign private issuer and intend to follow certain home country corporate governance practices, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all corporate governance requirements.

As a foreign private issuer, we have the option to follow certain home country corporate governance practices rather than the Nasdaq corporate governance rules, provided that we disclose and describe the requirements we are not following and the Israeli practices we are following. We intend to rely on this “foreign private issuer exemption” with respect to the quorum requirement for shareholder meetings, and may in the future elect to follow home country practices with regard to other matters. As a result, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.

The market price of our ordinary shares could be negatively affected by future sales of our ordinary shares or the perception that such sales may occur.

Sales by us or our shareholders of a substantial number of ordinary shares in the public market following this offering, or the perception that these sales might occur, could cause the market price of our ordinary shares to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities. Following this offering, based on the number of ordinary shares outstanding as of March 31, 2021, and after giving effect to the Preferred Share Conversion, we will have an aggregate of 82,652,098 ordinary shares outstanding. This includes the ordinary shares being sold in this offering, which we expect will

 

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be freely tradable without restriction or further registration under the Securities Act, except for any shares acquired by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. Substantially all of the remaining shares are currently restricted as a result of securities laws, or restrictions in market stand-off provisions or the lock-up agreements described elsewhere in this prospectus under the caption “Underwriting” (which may be waived at any time, with or without notice, by Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC). Unless earlier released (including pursuant to the partial release provisions described elsewhere in this prospectus under the caption “Underwriting”), all of the ordinary shares subject to such market stand-off provisions or lock-up agreements will be able to be sold following the 180th day after the date of this prospectus unless held by one of our affiliates, in which case the resale of those securities will be subject to volume limitations and other requirements under Rule 144 of the Securities Act; provided that if the 180th day after the date of this prospectus occurs during or within five trading days prior to the commencement of a regularly scheduled trading blackout period under our insider trading policy, the lock-up period will expire on the sixth trading day immediately preceding the commencement of such blackout period. See “Shares Eligible for Future Sale.”

In addition, following the closing of this offering and the expiration of the lock-up period described above, we expect that holders of an aggregate of approximately 61,368,628 ordinary shares, based on the number of ordinary shares outstanding as of March 31, 2021 (after giving effect to the Preferred Share Conversion), and 6,677,295 additional ordinary shares issuable upon the exercise of options outstanding as of March 31, 2021, will be entitled to certain rights with respect to the registration of these shares under the Securities Act pursuant to our Investor’s Rights Agreement. We also intend to file a registration statement on Form S-8 under the Securities Act registering the ordinary shares that we may issue from time to time under our incentive plans. Ordinary shares issued upon exercise of a share option and registered under the Form S-8 registration statement will, subject to vesting provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately after the lock-up agreements and market stand-off provisions expire.

The market price of our ordinary shares may decline significantly when the restrictions on resale by our existing shareholders lapse or when we are required to register the sale of our shareholders’ remaining ordinary shares. A decline in the trading price of our ordinary shares might impede our ability to raise capital through the issuance of additional ordinary shares or other equity securities and may impair your ability to sell your shares at a price higher than the price you paid for them or at all.

The issuance of additional shares in connection with financings, acquisitions, investments, our share incentive plans or otherwise will dilute all other shareholders.

Our Post-IPO Articles will authorize us to issue up to 900,000,000 ordinary shares. Subject to compliance with applicable rules and regulations, we may issue ordinary shares or securities convertible into ordinary shares from time to time in connection with a financing, acquisition, investment, our share incentive plans or otherwise. Any such issuance could result in substantial dilution to our existing shareholders and cause the market price of our ordinary shares to decline.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ordinary shares.

We would be classified as a passive foreign investment company (“PFIC”) for any taxable year if, after the application of certain look-through rules, either: (i) 75% or more of our gross income for such year is “passive income” (as defined in the relevant provisions of the Internal Revenue Code of 1986, as amended), or (ii) 50% or more of the value of our gross assets (determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income (the “asset test”). For these purposes, cash and other assets readily convertible into cash are categorized as passive assets, and the company’s goodwill and other unbooked intangibles are generally taken into account. Passive income generally includes, among other things, rents, dividends, interest, royalties, gains from the disposition of passive assets and gains from commodities and securities transactions. For purposes of this test, we will be treated as owning a

 

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proportionate share of the assets and earning a proportionate share of the income of any other corporation of which we own, directly or indirectly, more than 25% (by value) of the stock. Based on the currently expected market capitalization, and anticipated composition of our income, assets and operations, we do not expect to be classified as a PFIC in respect of our current taxable year. However, our status as a PFIC requires a factual determination that depends on, among other things, our income, assets and operations in each year, and can only be made after the close of each taxable year. Fluctuations in the market price of our ordinary shares may cause our classification as a PFIC for the current or future taxable years to change because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to the market price of our shares from time to time (which may be volatile). In estimating the value of our goodwill and other unbooked intangibles, we have taken into account our anticipated market capitalization immediately following the close of this offering. Among other matters, if our market capitalization is less than anticipated or if it subsequently declines, it may make our classification as a PFIC more likely for the current or future taxable years. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering. Therefore, there can be no assurance that we will not be treated as a PFIC for our current taxable year or any future taxable year.

Certain adverse U.S. federal income tax consequences could apply to a U.S. Holder (as defined in “Taxation and Government Programs—U.S. Federal Income Tax Considerations”) if we are treated as a PFIC for any taxable year during which such U.S. Holder holds our ordinary shares. U.S. Holders should consult their tax advisors regarding the application of PFIC rules to their investment in our ordinary shares. See “Taxation and Government Programs—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.”

If a United States person is treated as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.

If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ordinary shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” (“CFC”) in our group (if any). Because our group includes a U.S. subsidiary, certain of our non-U.S. subsidiaries will be treated as CFCs (regardless of whether or not we are treated as a CFC). A United States shareholder of a CFC may be required to report

annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by CFC, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist investors in determining whether we are or any of our non-U.S. subsidiaries is treated as a CFC or whether any investor is treated as a United States shareholder with respect to any such CFC or furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. The United States Internal Revenue Service has provided limited guidance on situations in which investors may rely on publicly available information to comply with their reporting and taxpaying obligations with respect to foreign-controlled CFCs. A United States investor should consult its advisors regarding the potential application of these rules to an investment in our ordinary shares.

You will experience immediate and substantial dilution in the net tangible book value of the ordinary shares you purchase in this offering.

The initial public offering price of our ordinary shares substantially exceeds the pro forma as adjusted net tangible book value per share of our ordinary shares immediately after this offering. Therefore, if you purchase our ordinary shares in this offering, you will suffer immediate dilution of $27.53 per share (or $27.11 per share if the underwriters exercise in full their option to purchase additional ordinary shares), representing the difference

 

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between our pro forma as adjusted net tangible book value per share as of March 31, 2021 and the initial public offering price of our ordinary shares set forth on the cover page of this prospectus. If outstanding options to purchase our ordinary shares are exercised in the future, you will experience additional dilution.

This dilution is due to the substantially lower price paid by our investors who purchased shares prior to this offering as compared to the price offered to the public in this offering. See the section entitled “Dilution” for additional information.

Provisions of Israeli law and our Post-IPO Articles may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or assets.

Provisions of Israeli law, including the Israeli Companies Law, 5759-1999 (the “Companies Law”), and our Post-IPO Articles could have the effect of delaying or preventing a change in control and may make it more difficult for a third-party to acquire us or our shareholders to elect different individuals to our board of directors, even if doing so would be considered to be beneficial by some of our shareholders, and may limit the price that investors may be willing to pay in the future for our ordinary shares. Among other things:

 

   

the Companies Law regulates mergers and requires that a tender offer be effected when more than a specified percentage of shares in a company are purchased;

 

   

the Companies Law requires special approvals for certain transactions involving directors, officers or certain significant shareholders and regulates other matters that may be relevant to these types of transactions;

 

   

the Companies Law does not provide for shareholder action by written consent for public companies, thereby requiring all shareholder actions to be taken at a general meeting of shareholders;

 

   

our Post-IPO Articles divide our directors into three classes, each of which is elected once every three years, and accordingly, each of our directors serves until the third annual general meeting following his or her election or re-election or until he or she is removed;

 

   

an amendment to our Post-IPO Articles will generally require, in addition to the approval of our board of directors, a vote of the holders of a majority of our outstanding ordinary shares entitled to vote and present and voting on the matter at a general meeting of shareholders (referred to as simple majority), and the amendment of a limited number of provisions, such as the provision dividing our directors into three classes, requires a vote of the holders of at least 65% of the total voting power of our shareholders;

 

   

our Post-IPO Articles do not permit a director to be removed except by a vote of the holders of at least 65% of the total voting power of our shareholders and any amendment to such provision shall require the approval of at least 65% of the total voting power of our shareholders; and

 

   

our Post-IPO Articles provide that director vacancies may be filled by our board of directors.

Israeli tax considerations may also make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of up to two years from the date of the transaction during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.

Furthermore, under the Encouragement of Research, Development and Technological Innovation in the Industry Law, 5744-1984, and the regulations, guidelines, rules, procedures, and benefit tracks thereunder

 

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(collectively, the “Innovation Law”), to which we are subject due to our receipt of grants from the Israeli National Authority for Technological Innovation, or the Israeli Innovation Authority (the “IIA”), a recipient of IIA grants such as our company must report to the IIA regarding any change in the holding of means of control of our company which transforms any non-Israeli citizen or resident into an “interested party,” as defined in the Israeli Securities Law, 5728-1968 (the “Israeli Securities Law”), and such non-Israeli citizen or resident shall execute an undertaking in favor of IIA, in a form prescribed by IIA.

We have broad discretion over the use of proceeds we receive in this offering and may not apply the proceeds in ways that increase the value of your investment.

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our ordinary shares and thereby enable access to the public equity markets for us and our shareholders, and to increase our visibility in the marketplace. We currently intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. Accordingly, our management will have broad discretion in the application of the net proceeds from this offering, and you will not have the opportunity as part of your investment decision to assess whether such net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment, and the failure by our management to apply these funds effectively could harm our business. Pending their use, we intend invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, or other securities. These investments may not yield a favorable return for us. If we do not invest or apply the net proceeds from this offering in ways that enhance shareholder value, we may fail to achieve expected results, which could cause our share price to decline.

We do not intend to pay dividends in the foreseeable future. As a result, your ability to achieve a return on your investment will depend on appreciation in the price of our ordinary shares.

We have never declared or paid any cash dividends on our ordinary shares. We currently intend to retain all available funds and any future earnings to finance the operation and expansion of our business and do not anticipate paying any dividends on our ordinary shares in the foreseeable future. Consequently, investors who purchase ordinary shares in this offering may be unable to realize a gain on their investment except by selling such shares after price appreciation, which may never occur.

Our board of directors has sole discretion regarding whether to pay dividends. If our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our directors may deem relevant. The Israeli Companies Law, 5759-1999 (the “Companies Law”) imposes restrictions on our ability to declare and pay dividends. See the section titled “Description of Share Capital and Articles of Association—Dividend and Liquidation Rights” for additional information. Generally, payments of dividends are subject to Israeli withholding taxes. See the section titled “Taxation and Government Programs—Israeli Tax Considerations and Government Programs” for additional information.

We will incur increased costs as a result of operating as a public company, and our executive leadership team and other employees will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our executive leadership team and other personnel will need to devote a substantial amount of time to these

 

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compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and could also make it more difficult for us to attract and retain qualified members of our board.

We are evaluating these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act (“Section 404”) and therefore are not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a publicly traded company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our annual reports and provide an annual management report on the effectiveness of control over financial reporting. Though we will be required to disclose material changes in internal control over financial reporting on an annual basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. Additionally, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. We currently have limited accounting personnel and we have begun the process of evaluating the adequacy of our accounting personnel staffing level and other matters related to our internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses once we are a public company, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. As a result, the market price of our ordinary shares could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

After this offering, our principal shareholders will continue to have significant influence over us.

After the closing of this offering, our principal shareholders each holding more than 5% of our outstanding ordinary shares will collectively beneficially own approximately 69.3% of our outstanding ordinary shares. See “Principal Shareholders.” As a result, these shareholders will be able to exert significant influence over us and, acting together, will have control over most matters that require approval by our shareholders, including matters such as adoption of the financial statements, the appointment and dismissal of directors, terms of compensation of our directors and chief executive officer, capital increases, amendment to our articles of associations, and approval of significant corporate transactions. The interests of these shareholders may not always coincide with, and in some cases may conflict with, our interests and the interests of our other shareholders. For instance, these shareholders could attempt to delay or prevent a change in control of our company, even if such change in control would benefit our other shareholders, which could deprive our shareholders of an opportunity to receive a

 

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premium for their ordinary shares. This concentration of ownership may also affect the prevailing market price of our ordinary shares due to investors’ perceptions that conflicts of interest may exist or arise. As a result, this concentration of ownership may not be in your best interests. In addition, we have requested that the underwriters make issuer directed allocations in the aggregate of 1,774,192 ordinary shares to entities affiliated with Insight Partners and Vitruvian Partners, which are affiliated with certain of our directors. However, because these issuer directed allocations represent our request, and do not constitute a binding agreement or commitment on behalf of Insight Partners or Vitruvian Partners, these shareholders may determine to purchase more, fewer or no shares in this offering. The foregoing discussion does not give effect to any potential purchases by these shareholders in this offering.

If we are unable to satisfy the requirements of Section 404 as they apply to us, or our internal controls over financial reporting are not effective, the reliability of our financial statements may be questioned and the price of our ordinary shares may suffer.

We are subject to the requirements of the Sarbanes-Oxley Act in light of the listing of our ordinary shares on the Nasdaq Global Select Market. Section 404 of the Sarbanes-Oxley Act, or Section 404, requires companies subject to the reporting requirements of the United States securities laws to complete a comprehensive evaluation of its and its subsidiaries’ internal controls over financial reporting. To comply with this statute, we will be required to document and test our internal control procedures and our management will be required to assess and issue a report concerning our internal controls over financial reporting. Pursuant to the JOBS Act, we will be classified as an “emerging growth company.” Under the JOBS Act, emerging growth companies are exempt from certain reporting requirements, including the independent auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. Under this exemption, our independent auditor will not be required to attest to and report on management’s assessment of our internal controls over financial reporting during a five-year transition period. We will need to prepare for compliance with Section 404 by strengthening, assessing and testing our system of internal controls to provide the basis for our report. However, the continuous process of strengthening our internal controls and complying with Section 404 is complicated and time-consuming. Furthermore, we believe that our business will grow both domestically and internationally, in which case our internal controls will become more complex and will require significantly more resources and attention to ensure our internal controls remain effective overall. During the course of its testing, our management may identify material weaknesses or significant deficiencies, which may not be remedied in a timely manner to meet the deadline imposed by the Sarbanes-Oxley Act. If our management cannot favorably assess the effectiveness of our internal controls over financial reporting, or our independent registered public accounting firm identifies material weaknesses in our internal controls, investor confidence in our financial results may weaken, and the market price of our securities may suffer.

Our Post-IPO Articles designate the federal district courts of the United States as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders.

Our Post-IPO Articles provide that, unless we consent in writing to the selection of an alternative forum, the U.S. federal district courts shall be the sole and exclusive forum for any claim asserting a cause of action arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. We note that investors cannot waive compliance with U.S. federal securities laws and the rules and regulations thereunder. This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may increase the costs associated with such lawsuits, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our Post-IPO Articles inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition. Any person or entity purchasing or otherwise acquiring any interest

 

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in our share capital shall be deemed to have notice of and to have consented to the choice of forum provisions of our articles of association described above. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.

Risks Related to Our Incorporation and Location in Israel

Conditions in Israel could materially and adversely affect our business.

Many of our employees, including certain members of our executive leadership team, operate from our offices that are located in Tel Aviv, Israel. In addition, a number of our officers and directors are residents of Israel. Accordingly, political, economic, and military conditions in Israel and the surrounding region may directly affect our business and operations. In recent years, Israel has been engaged in sporadic armed conflicts with Hamas, an Islamist terrorist group that controls the Gaza Strip, with Hezbollah, an Islamist terrorist group that controls large portions of southern Lebanon, and with Iranian-backed military forces in Syria. In addition, Iran has threatened to attack Israel. Some of these hostilities were accompanied by missiles being fired from the Gaza Strip against civilian targets in various parts of Israel, including areas in which some employees and consultants are located, and negatively affected business conditions in Israel. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations.

Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.

Further the State of Israel and Israeli companies have been from time to time subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business. A campaign of boycotts, divestment and sanctions has been undertaken against Israel, which could also adversely impact our business.

In addition, many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups. Such disruption could materially adversely affect our business, prospects, financial condition and results of operations.

It may be difficult to enforce a U.S. judgment against us, and our officers and directors named in this prospectus, in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors.

Not all of our directors or officers are residents of the United States and most of their and our assets are located outside the United States. Service of process upon us or our non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against us or our non-U.S. our directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse to hear

 

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a claim based on a violation of U.S. securities laws against us or our non-U.S. officers and directors because Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Under certain circumstances, Israeli courts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our non-U.S. officers and directors. For more information, see “Enforceability of Civil Liabilities.”

Your rights and responsibilities as our shareholder will be governed by Israeli law, which differ in some respects from the rights and responsibilities of shareholders of U.S. corporations.

We are incorporated under Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our Post-IPO Articles and the Companies Law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, pursuant to the Companies Law each shareholder of an Israeli company has to act in good faith and in a customary manner in exercising his or her rights and fulfilling his or her obligations toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among other things, in voting at the general meeting of shareholders on amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and certain transactions requiring shareholders’ approval under the Companies Law. In addition, a controlling shareholder of an Israeli company or a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or who has the power to appoint or prevent the appointment of a director or officer in the company or has other powers toward the company has a duty of fairness toward the company. However, Israeli law does not define the substance of this duty of fairness. There is little case law available to assist in understanding the implications of these provisions that govern shareholder behavior.

We (or companies we have acquired) have received Israeli government grants for certain research and development activities. The terms of these grants may require us to satisfy specified conditions in order to develop and transfer technologies supported by such grants outside of Israel. In addition, in some circumstances, we may be required to pay penalties in addition to repaying the grants.

A company we acquired in 2017 was previously financed, in part, through grants from the IIA. As part of the acquisition transaction, we assumed all rights, restrictions and obligation towards the IIA in respect of such grants. From its inception through 2017, that company conducted projects with the IIA’s support and received grants totaling $0.3 million from the IIA, of which $0.2 million has been repaid to the IIA. The grants received from the IIA bear an annual interest rate based on the 12-month London Interbank Offered Rate.

The Innovation Law requires, inter alia, that the products developed as part of the programs under which the grants were given be manufactured in Israel and restricts the ability to transfer know-how funded by IIA outside of Israel. Transfer of IIA-funded know-how outside of Israel requires prior approval and is subject to payment of a redemption fee to the IIA calculated according to a formula provided under the Innovation Law. A transfer for the purpose of the Innovation Law is generally interpreted very broadly and includes, inter alia, any actual sale of the IIA-funded know-how, any license to develop the IIA-funded know-how or the products resulting from such IIA-funded know-how or any other transaction, which, in essence, constitutes a transfer of IIA-funded know-how. We cannot be certain that any approval of the IIA will be obtained on terms that are acceptable to us, or at all. We may not receive the required approvals should we wish to transfer IIA-funded know-how and/or development outside of Israel in the future.

Subject to prior approval of the IIA, we may transfer the IIA-funded know-how to another Israeli company. If the IIA-funded know-how is transferred to another Israeli entity, the transfer would still require IIA approval but will not be subject to the payment of the redemption fee. In such case, the acquiring company would have to

 

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assume all of the applicable restrictions and obligations towards the IIA (including the restrictions on the transfer of know-how and manufacturing capacity, to the extent applicable, outside of Israel) as a condition to IIA approval.

We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.

A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967 (the “Patent Law”), inventions conceived by an employee in the course and as a result of or arising from his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee (the “Committee”), a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his or her inventions. Case law clarifies that the right to receive consideration for “service inventions” can be waived by the employee. The Committee will examine, on a case-by-case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. Further, the Committee has not yet determined one specific formula for calculating this remuneration, but rather uses the criteria specified in the Patent Law. Although we generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals waive their right to remuneration for service inventions, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.

Our Post-IPO Articles provide that unless we consent otherwise, the competent courts of Tel Aviv, Israel shall be the sole and exclusive forum for substantially all disputes between us and our shareholders under the Companies Law and the Israeli Securities Law, which could limit our shareholders’ ability to bring claims and proceedings against, as well as obtain a favorable judicial forum for disputes with, us and our directors, officers and other employees.

Unless we consent in writing to the selection of an alternative forum, the competent courts of Tel Aviv, Israel shall be the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law. This exclusive forum provision is intended to apply to claims arising under Israeli Law and would not apply to claims brought pursuant to the Securities Act or the Exchange Act or any other claim for which U.S. federal courts would have exclusive jurisdiction. Such exclusive forum provision in our Post-IPO Articles will not relieve us of our duties to comply with U.S. federal securities laws and the rules and regulations thereunder, and shareholders will not be deemed to have waived our compliance with these laws, rules and regulations. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees.

General Risk Factors

If we are unable to consummate acquisitions at acceptable prices, and to enter into other strategic transactions and relationships that support our long-term strategy, our growth rate and our business, financial condition and results of operations could be negatively affected. These transactions and relationships also subject us to certain risks.

As part of our business strategy, we may acquire or make investments in complementary companies, products or technologies, and enter into other strategic transactions and relationships in the ordinary course. Our ability to grow our revenues, earnings and cash flow at or above our historic rates depends in part upon our

 

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ability to identify and successfully acquire and integrate businesses at acceptable prices, realize anticipated synergies and make appropriate investments that support our long-term strategy. We may not be able to consummate acquisitions at rates similar to the past, which could adversely impact our growth rate and our business, financial condition and results of operations. Promising acquisitions, investments and other strategic transactions are difficult to identify and complete for a number of reasons, including high valuations, competition among prospective buyers, the availability of affordable funding in the capital markets and the need to satisfy applicable closing conditions and obtain applicable antitrust and other regulatory approvals on acceptable terms. In addition, competition for acquisitions, investments and other strategic transactions may result in higher purchase prices or other terms less economically favorable to us. Changes in accounting or regulatory requirements or instability in the credit markets could also adversely impact our ability to consummate these transactions on acceptable terms or at all.

In addition, even if we are able to consummate acquisitions and enter into other strategic transactions and relationships, these transactions and relationships involve a number of financial, accounting, managerial, operational, legal, compliance and other risks and challenges, including the following, any of which could negatively affect our growth rate and the trading price of our ordinary shares, and may have a material adverse effect on our business, financial condition and results of operations:

 

   

Any business, technology, product or solution that we acquire or invest in could under-perform relative to our expectations and the price that we paid or not perform in accordance with our anticipated timetable, or we could fail to operate any such business or deploy any such technology, product or solution profitably.

 

   

We may incur or assume significant debt in connection with our acquisitions and other strategic transactions and relationships, which could also cause a deterioration of our credit ratings, result in increased borrowing costs and interest expense and diminish our future access to the capital markets.

 

   

Acquisitions and other strategic transactions and relationships could cause our financial results to differ from our own or the investment community’s expectations in any given period, or over the long-term.

 

   

Pre-closing and post-closing earnings charges could adversely impact operating results in any given period, and the impact may be substantially different from period to period.

 

   

Acquisitions and other strategic transactions and relationships could create demands on our management, operational resources and financial and internal control systems that we are unable to effectively address.

 

   

We could experience difficulty in integrating personnel, operations and financial and other controls and systems and retaining key employees and customers.

 

   

We may be unable to achieve cost savings or other synergies anticipated in connection with an acquisition or other strategic transaction or relationship.

 

   

We may assume unknown liabilities, known contingent liabilities that become realized, known liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting from the acquired company’s or investee’s activities and the realization of any of these liabilities or deficiencies may increase our expenses, adversely affect our financial position and/or cause us to fail to meet our public financial reporting obligations.

 

   

In connection with acquisitions and other strategic transactions and relationships, we often enter into post-closing financial arrangements such as purchase price adjustments, earn-out obligations and indemnification obligations, which may have unpredictable financial results.

 

   

As a result of our acquisitions, we have recorded significant goodwill and other assets on our balance sheet and if we are not able to realize the value of these assets, or if the fair value of our investments declines, we may be required to incur impairment charges.

 

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We may have interests that diverge from those of our strategic partners and we may not be able to direct the management and operations of the strategic relationship in the manner we believe is most appropriate, exposing us to additional risk.

Investing in or making loans to early-stage companies often entails a high degree of risk, and we may not achieve the strategic, technological, financial or commercial benefits we anticipate; we may lose our investment or fail to recoup our loan; or our investment may be illiquid for a greater-than-expected period of time.

Unfavorable conditions in our industry or the global economy or reductions in information technology spending could limit our ability to grow our business and negatively affect our results of operations.

Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers. Current or future economic uncertainties or downturns could adversely affect our business and results of operations. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial, and credit market fluctuations, political turmoil, natural catastrophes, the ongoing COVID-19 pandemic, any other pandemic, epidemic or outbreak of infectious disease, warfare, protests and riots, and terrorist attacks on the United States, Europe, the Middle East, the Asia Pacific region, or elsewhere, could cause a decrease in business investments by our customers and potential customers, including spending on information technology, and negatively affect the growth of our business. To the extent our products are perceived by customers and potential customers as discretionary, our revenue may be disproportionately affected by delays or reductions in general information technology spending. Also, customers may choose to develop in-house software as an alternative to using our products. Moreover, competitors may respond to market conditions by lowering prices. We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry. If the economic conditions of the general economy or markets in which we operate do not improve, or worsen from present levels, our business, results of operations, and financial condition could be adversely affected.

The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, or at all.

The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate. Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate, including as a result of any of the risks described in this prospectus.

The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of addressable users or companies covered by our market opportunity estimates will purchase our products at all or generate any particular level of revenue for us. In addition, our ability to expand in any of our target markets depends on a number of factors, including the widespread awareness among key organizational decision makers of, and the cost, performance, and perceived value associated with, our platform and products and those of our competitors. Even if the markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Following the closing of this offering, we will be subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and

 

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communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our ordinary shares.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as discussed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue, and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our ordinary shares.

Our business activities subject us to litigation risk that could materially and adversely affect us by subjecting us to significant money damages and other remedies, causing unfavorable publicity or increasing our litigation expense.

We are, from time to time, the subject of complaints or litigation, including user claims, contract claims, employee allegations of improper termination and discrimination and claims related to violations of applicable government laws regarding religious freedom, advertising and intellectual property. The number and significance of these potential claims and disputes may increase as our business expands. Any such claim could be expensive to defend and, regardless of its merit, may divert time, money, management’s attention and other valuable resources away from our operations, harm our reputation, and, thereby, adversely affect our business. Further, our insurance may not cover all potential claims made against us or be sufficient to indemnify us for all liability that may be imposed. Additionally, a substantial judgment against us could materially and adversely affect our business, financial condition, results of operations and prospects.

Our insurance may not provide adequate levels of coverage against claims.

We believe that we maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Moreover, any loss incurred could exceed policy limits and policy payments made to us may not be made on a timely basis.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains estimates and forward-looking statements, principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Dividend Policy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” All statements other than statements of historical facts contained in this prospectus may be estimates or forward-looking statements. In some cases, these statements can be identified by words or phrases such as “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “seek,” “believe,” “estimate,” “predict,” “potential,” “continue,” “contemplate,” “possible” or similar words.

Our estimates and forward-looking statements are based on our current expectations and estimates of future events and trends which affect or may affect our business, operations and industry. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to numerous risks, uncertainties and other important factors (including those discussed elsewhere in this prospectus under “Risk Factors”) that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross margin, operating expenses, cash flow and deferred revenue;

 

   

our ability to manage our growth effectively, sustain our historical growth rate in the future or achieve or maintain profitability;

 

   

the impact of the COVID-19 pandemic on our business, financial condition and results of operations;

 

   

the growth and expansion of the markets for our offerings and our ability to adapt and respond effectively to evolving market conditions;

 

   

our estimates of, and future expectations regarding, our market opportunity;

 

   

our ability to keep pace with technological and competitive developments and develop or otherwise introduce new products and solutions and enhancements to our existing offerings;

 

   

our ability to maintain the interoperability of our offerings across devices, operating systems and third-party applications and to maintain and expand our relationships with third-party technology partners;

 

   

the effects of increased competition in our target markets and our ability to compete effectively;

 

   

our ability to attract and retain new customers and to expand within our existing customer base;

 

   

the success of our sales and marketing operations, including our ability to realize efficiencies and reduce customer acquisition costs;

 

   

the percentage of our remaining performance obligations that we expect to recognize as revenue;

 

   

our ability to meet the service-level commitments under our customer agreements and the effects on our business if we are unable to do so;

 

   

our relationships with, and dependence on, various third-party service providers;

 

   

our dependence on our management team and other key employees;

 

   

our ability to maintain and enhance awareness of our brand;

 

   

our ability to offer high quality customer support;

 

   

our ability to effectively develop and expand our marketing and sales capabilities;

 

   

our ability to maintain the sales prices of our offerings and the effects of pricing fluctuations;

 

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the sustainability of, and fluctuations in, our gross margin;

 

   

risks related to our international operations and our ability to expand our international business operations;

 

   

the effects of currency exchange rate fluctuations on our results of operations;

 

   

challenges and risks related to our sales to government entities;

 

   

our ability to consummate acquisitions at our historical rate and at acceptable prices, to enter into other strategic transactions and relationships, and to manage the risks related to these transactions and arrangements;

 

   

our ability to protect our proprietary technology, or to obtain, maintain, protect and enforce sufficiently broad intellectual property rights therein;

 

   

our ability to maintain the security and availability of our platform, products and solutions;

 

   

our ability to comply with current and future legislation and governmental regulations to which we are subject or may become subject in the future;

 

   

changes in applicable tax law, the stability of effective tax rates and adverse outcomes resulting from examination of our income or other tax returns;

 

   

risks related to political, economic and security conditions in Israel;

 

   

the effects of unfavorable conditions in our industry or the global economy or reductions in information technology spending; and

 

   

factors that may affect the future trading prices of our ordinary shares.

The forward-looking statements contained in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from estimates or forward-looking statements. The estimates and forward-looking statements contained in this prospectus speak only as of the date of this prospectus. Except as required by applicable law, we undertake no obligation to publicly update or revise any estimates or forward-looking statements whether as a result of new information, future events or otherwise, or to reflect the occurrence of unanticipated events. We qualify all of our estimates and forward-looking statements by reference to these cautionary statements.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering will be approximately $263.6 million (or approximately $303.8 million if the underwriters exercise their option to purchase additional ordinary shares in full), after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our ordinary shares and thereby enable access to the public equity markets for us and our shareholders, and to increase our visibility in the marketplace. We currently intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. We may also use a portion of the net proceeds we receive from this offering to acquire or invest in businesses, products, services or technologies that complement our business. However, we do not have binding agreements or commitments for any material acquisitions or investments at this time.

As of the date of this prospectus, we cannot specify with certainty the specific allocations or all of the particular uses for the net proceeds to be received by us upon the completion of this offering. The expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions, which could change in the future as our plans and business conditions evolve. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application and specific allocations of the net proceeds of this offering. Pending the uses described above, we intend to invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments or other securities. We cannot predict whether the proceeds invested will yield a favorable return for us.

 

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DIVIDEND POLICY

We have never declared or paid any dividends on our ordinary shares. We do not anticipate paying any dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance our operations and expand our business. Our board of directors has sole discretion regarding whether to pay dividends, subject to the laws of the State of Israel. If our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our directors may deem relevant.

The Companies Law imposes restrictions on our ability to declare and pay dividends. See “Description of Share Capital and Articles of Association—Dividend and Liquidation Rights” for additional information.

Payment of dividends may be subject to Israeli withholding taxes. See “Taxation and Government Programs—Israeli Tax Considerations and Government Programs” for additional information.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2021, as follows:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to (i) the Preferred Share Conversion and (ii) adoption of our Post-IPO Articles immediately prior to the closing of this offering; and

 

   

on a pro forma as adjusted basis to give further effect to the issuance and sale of 9,250,000 ordinary shares in this offering at the initial public offering price set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma and pro forma as adjusted information below is illustrative only. You should read this information in conjunction with the sections titled “Use of Proceeds,” “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the accompanying notes thereto included elsewhere in this prospectus.

 

     As of March 31, 2021  
     Actual     Pro Forma     Pro Forma As
Adjusted
 
     (in thousands, except share and per
share amounts)
 

Cash and cash equivalents

   $  68,480     $ 68,480     $ 332,091  
  

 

 

   

 

 

   

 

 

 

Redeemable non-controlling interest

   $ 19,046     $ 19,046     $ 19,046  

Convertible preferred shares, no par value per share; 59,216,788 shares authorized, 59,180,522 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted(1)

     310,490              

Shareholders’ (deficit) equity:

      

Ordinary shares, no par value per share: 89,631,512 shares authorized, 14,221,576 shares issued and outstanding, actual; 900,000,000 shares authorized, 73,402,098 shares issued and outstanding, pro forma; 900,000,000 shares authorized, 82,652,098 shares issued and outstanding, pro forma as adjusted(1)

                  

Deferred shares, no par value per share; 4,103,500 shares authorized, no shares issued or outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted(1)

                  

Additional paid-in capital

     15,098       325,588       589,199  

Accumulated other comprehensive income

     (185     (185     (185

Accumulated deficit

     (259,072     (259,072     (259,072
  

 

 

   

 

 

   

 

 

 

Total shareholders’ (deficit) equity

     (244,159     66,331       329,942  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 85,377     $ 85,377     $ 348,988  
  

 

 

   

 

 

   

 

 

 

 

(1)

On March 4, 2021, our shareholders approved a change of share capital from NIS 0.01 par value to no par value. On May 11, 2021, our shareholders approved a change in share capital, converting all of the Company’s authorized and unissued deferred shares into 4,103,500 authorized ordinary shares of no par value.

 

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The number of ordinary shares set forth in the table above does not include:

 

   

15,009,720 ordinary shares issuable upon the exercise of options outstanding under our Restated 2012 Plan as of March 31, 2021 at a weighted average exercise price of $6.95 per share, 5,581,064 of which were vested as of such date;

 

   

636,250 additional ordinary shares issuable upon the exercise of options granted under the Restated 2012 Plan after March 31, 2021 at an exercise price of $26.47 per share;

 

   

9,954,480 ordinary shares reserved for future issuance under our 2021 Plan, which became effective upon the effectiveness of the registration statement of which this prospectus forms a part, as well as any additional ordinary shares that may be reserved for issuance thereunder in the future pursuant to provisions in such plan that automatically increase the ordinary share reserve thereunder; and

 

   

1,824,988 ordinary shares reserved for issuance under our ESPP, which became effective upon the effectiveness of the registration statement of which this prospectus forms a part, as well as any additional ordinary shares that may be reserved for issuance thereunder in the future pursuant to provisions in such plan that automatically increase the ordinary share reserve thereunder.

 

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DILUTION

If you invest in our ordinary shares in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per ordinary share after this offering.

Our net tangible book value as of March 31, 2021 was ($20.18) per ordinary share. Net tangible book value per share represents the book value of our total tangible assets less the book value of our total liabilities, redeemable non-controlling interest and convertible preferred shares, divided by the number of our ordinary shares outstanding as of March 31, 2021.

Our pro forma net tangible book value as of March 31, 2021 was $0.32 per ordinary share. Pro forma net tangible book value per share represents our net tangible book value divided by the number of our ordinary shares outstanding as of March 31, 2021, after giving effect to the Preferred Share Conversion immediately prior to the closing of this offering.

After giving further effect to our sale of 9,250,000 ordinary shares in this offering at the initial public offering price set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value on a pro forma as adjusted basis as of March 31, 2021 would have been approximately $3.47 per ordinary share. This amount represents an immediate increase in pro forma net tangible book value of $3.15 per ordinary share to our existing shareholders and an immediate dilution of $27.53 per ordinary share to new investors purchasing ordinary shares in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for an ordinary share in this offering.

The following table illustrates this dilution:

 

Initial public offering price per share

                         $     31.00  

Net tangible book value per share as of March 31, 2021

  $ (20.18)    

Pro forma increase in net tangible book value per share

    20.50    
 

 

 

   

Pro forma net tangible book value per share as of March 31, 2021

    0.32    

Increase in pro forma net tangible book value per share attributable to new investors participating in this offering

    3.15    
 

 

 

   

Pro forma as adjusted net tangible book value per share after this offering

    $ 3.47  
   

 

 

 

Dilution per share to new investors in this offering

    $ 27.53  
   

 

 

 

If the underwriters exercise in full their option to purchase additional ordinary shares in this offering, the pro forma as adjusted net tangible book value after the offering would be $3.89 per share, the increase in pro forma net tangible book value to existing shareholders would be $3.57 per share, and the dilution to new investors would be $27.11 per share.

 

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The following table summarizes, on the pro forma as adjusted basis described above, as of March 31, 2021, the difference between our existing shareholders and new investors purchasing ordinary shares in this offering with respect to the number of ordinary shares purchased from us, the total consideration paid to us in cash and the average price per share paid by such existing shareholders or new investors, as the case may be. The calculation below is based on the initial public offering price set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent  

Existing shareholders

     73,402,098        88.8   $ 313,644,591        52.2   $ 4.27  

New investors

     9,250,000        11.2       286,750,000        47.8       31.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     82,652,098        100     600,394,591        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

If the underwriters’ option to purchase additional ordinary shares is exercised in full, our existing shareholders would own 87.3% and our new investors would own 12.7% of the total number of ordinary shares outstanding upon the completion of this offering.

The number of our ordinary shares to be outstanding after this offering is based on 73,402,098 ordinary shares outstanding as of March 31, 2021, after giving effect to the Preferred Share Conversion, and excludes:

 

   

15,009,720 ordinary shares issuable upon the exercise of options outstanding under our Restated 2012 Plan as of March 31, 2021 at a weighted average exercise price of $6.95 per share, 5,581,064 of which were vested as of such date;

 

   

636,250 additional ordinary shares issuable upon the exercise of options granted under the Restated 2012 Plan after March 31, 2021 at an exercise price of $26.47 per share;

 

   

9,954,480 ordinary shares reserved for future issuance under our 2021 Plan, which became effective upon the effectiveness of the registration statement of which this prospectus forms a part, as well as any additional ordinary shares that may be reserved for issuance thereunder in the future pursuant to provisions in such plan that automatically increase the ordinary share reserve thereunder; and

 

   

1,824,988 ordinary shares reserved for issuance under our ESPP, which became effective upon the effectiveness of the registration statement of which this prospectus forms a part, as well as any additional ordinary shares that may be reserved for issuance thereunder in the future pursuant to provisions in such plan that automatically increase the ordinary share reserve thereunder.

To the extent any new options are issued or we issue additional ordinary shares or other equity or convertible debt securities in the future, there will be further dilution to investors participating in this offering. If all of the outstanding options described above had been exercised as of March 31, 2021, the pro forma as adjusted net tangible book value per share after this offering would be $4.73, and dilution per share to new investors would be $26.27.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following tables present our selected consolidated financial data for the periods and as of the dates indicated. We prepare our consolidated financial statements in accordance with GAAP. The selected historical consolidated financial data as of December 31, 2019 and 2020 and for the years ended December 31, 2019 and 2020 has been derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The selected historical consolidated financial data as of March 31, 2020 and 2021 and for the three months ended March 31, 2020 and 2021 has been derived from our unaudited consolidated financial statements, which are included elsewhere in this prospectus. In our opinion, the unaudited financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such financial information. Our historical results for any prior period are not necessarily indicative of results expected in any future period and our interim results are not necessarily indicative of the results that may be expected for the full fiscal year or any other future period. The financial data set forth below should be read in conjunction with, and is qualified by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus.

 

     Year Ended December 31,      Three Months Ended
March 31,
 
     2019      2020      2020      2021  
     (in thousands, except share and per share data)  

Consolidated Statements of Operations:

           

Revenues

           

Subscription

   $  94,769      $  130,303      $  29,652      $ 38,474  

Professional services

     10,360        18,003        4,569        4,180  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     105,129        148,306        34,221        42,654  

Cost of revenues(1)(2)

           

Subscription

     11,947        19,141        4,187        5,689  

Professional services

     18,729        20,017        5,073        5,080  

Total cost of revenue

     30,676        39,158        9,260        10,769  
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     74,453        109,148        24,961        31,885  

Operating expenses(1)

           

Research and development

     26,639        31,560        7,613        10,422  

Sales and marketing

     75,004        87,208        23,291        25,135  

General and administrative

     22,095        33,541        5,306        9,373  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     123,738        152,309        36,210        44,930  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating loss

     (49,285      (43,161      (11,249      (13,045

Financial income (expenses), net

     474        (156      (559      45  

Loss before income taxes

     (48,811      (43,317      (11,808      (13,000
  

 

 

    

 

 

    

 

 

    

 

 

 

Income taxes

     (1,307      (1,708      (469      (404
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

   $ (50,118    $ (45,025    $ (12,277    $ (13,404
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to non-controlling interest

     (696      (1,311      (457      (246

Adjustment attributable to non-controlling interest

     475        5,487        481        10,816  

Deemed dividend to ordinary shareholders

            4,569        4,569         

Net loss attributable to WalkMe Ltd.

     (49,897      (53,770      (16,870      (23,974

Net loss per share attributable to ordinary shareholders: (3)

           

Basic and diluted

   $ (4.15    $ (4.07    $ ( 1.32    $ (1.71
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     Year Ended December 31,      Three Months Ended
March 31,
 
     2019      2020      2020      2021  
     (in thousands, except share and per share data)  

Weighted average shares used to compute net loss per share attributable to ordinary shareholders: (3)

                              

Basic and diluted

     12,011,502        13,217,183        12,791,827        13,995,089  
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma net loss per share: (3)

           

Basic and diluted

      $ (0.75       $ (0.33
     

 

 

       

 

 

 

Weighted average shares used to compute pro forma net loss per share attributable to ordinary shareholders: (3) Basic and diluted

        71,349,900           72,727,164  
     

 

 

       

 

 

 

 

     As of December 31,      As of March 31,  
     2019      2020      2020      2021  
     (in thousands)  

Consolidated Balance Sheet:

           

Cash and cash equivalents

   $ 74,184      $ 62,328      $ 69,699      $ 68,480  

Working capital(4)

     49,051        59,602        41,179        54,737  

Total assets

     149,740        184,288        142,337        213,144  

Total liabilities

     75,673        99,410        75,814        127,767  

Redeemable non-controlling interest

     2,041        8,647        2,053        19,046  

Convertible preferred shares

     261,955        300,490        265,490        310,490  

Additional paid-in capital

     7,636        21,524        12,688        15,098  

Accumulated deficit

     (197,631      (245,914      (214,020      (259,072

Total shareholders’ deficit

     (189,969      (224,259      (201,020      (244,159

 

(1)   Includes share-based compensation expense as follows:

           

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2019      2020      2020      2021  
     (in thousands)  

Cost of revenues

   $  41      $  201      $ 34      $ 177  

Research and development

     282        1,596        240        471  

Sales and marketing

     427        1,105        222        793  

General and administrative

     2,330        11,115        285        2,091  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total share-based compensation(a)

   $  3,080      $  14,017      $ 781      $ 3,532  

 

(a)   Share-based compensation expenses for the years ended December 31, 2019 and 2020 and the three months ended March 31, 2020 includes $1.9 million, $8.5 million and $ 0.2 million, respectively, of compensation expenses related to secondary share purchase transactions as described in note 6 to our consolidated financial statements included elsewhere in this prospectus.

 

(2)

Includes amortization of acquired intangibles as follows:

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2019      2020      2020      2021  
     (in thousands)  

Cost of revenues

   $ (297    $ (44    $ (44    $  

 

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(3)

See note 9 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate our historical and pro forma basic and diluted net loss per share attributable to ordinary shareholders.

 

(4)

We define working capital as total current assets minus total current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis and set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. You should review the sections of this prospectus titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of the key risks, uncertainties and assumptions relating to our forward-looking statements and the important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this prospectus.

Overview

WalkMe is the defining solution enabling organizations to better realize the value of their software investments. Once overlaid, our platform provides immediate insights that enable a data-first approach to understand the gaps between user interactions and behavior with technology and an organization’s business goals. With actionable insights, we then enable organizations to create and deliver elegant experiences that enable users to access the full functionality and value of the software, ensuring digital adoption, and ultimately fulfilling the promise of digital transformation.

Our success in helping customers achieve their digital transformation strategies has enabled us to achieve significant growth. In response to the COVID-19 pandemic, we implemented a short-term hiring freeze across our company, which limited our sales capacity and, together with the impact on spending across much of the global economy, led to longer sales cycles in the second quarter of 2020 and have impacted our recent results. For the years ended December 31, 2019 and 2020, our revenue was $105.1 million and $148.3 million, respectively, representing year-over-year growth of 41%. For the three months ended March 31, 2020 and 2021, our revenue was $34.2 million and $42.7 million, respectively, representing year-over-year growth of 25%. For the years ended December 31, 2019 and 2020, our net loss was $50.1 million and $45.0 million, respectively, our operating cash flow was ($48.5) million and ($8.7) million, respectively, and our free cash flow was ($53.0) million and ($11.0) million, respectively. For the three months ended March 31, 2020 and 2021, our net loss was $12.3 million and $13.4 million, respectively, our operating cash flow was ($7.4) million and ($2.9) million, respectively, and our free cash flow was ($8.2) million and ($4.1) million, respectively. See the section titled “Prospectus Summary—Summary Consolidated Financial and Other Data” for additional information regarding free cash flow, a measure that is not calculated under GAAP.

Key Company Milestones

WalkMe was founded in Israel in 2011 to make software easier to use and deploy. Since our inception, we have achieved a number of key milestones as we built our Digital Adoption Platform, along the way creating an entire new category of enterprise software.

 

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Milestones

 

LOGO

Our Business Model

We generate revenue by selling subscriptions to our cloud-based Digital Adoption Platform, as well as associated professional services. Our contracts are typically for a period of one to three years. We have seen a trend towards multi-year contracts as our customers deepen their investment in WalkMe as a strategic platform underlying their digital transformation strategies. We primarily bill our customers annually in advance. Subscription revenue comprised approximately 90% and 88% of our total revenue for 2019 and 2020, respectively, and approximately 87% and 90% of our total revenue for the three months ended March 31, 2020 and 2021.

We price our subscriptions based on the number of applications on which WalkMe is deployed, the number of users, and the breadth of the capabilities of our Digital Adoption Platform to which our customers choose to subscribe. Our customers often expand their subscriptions as they grow the number of users that engage with our Digital Adoption Platform, the number of applications on which WalkMe is deployed and the breadth of the capabilities to which they subscribe. When customers move to an enterprise-wide model, our pricing changes to a price per user for unlimited applications.

We have a diverse customer base consisting of organizations of various sizes across all major industries, and our largest customer accounted for less than 2.0% and 1.6% of our ARR in the three months ended December 31, 2019 and 2020, respectively, and less than 2.5% and 3.3% of our ARR in the three months ended March 31, 2020 and 2021. Our go-to-market strategy is increasingly focused on enterprise customers within the Global 2000, as those customers have larger employee and customer bases, many with a greater need to transform digitally and a significant opportunity to benefit from the deployment of our Digital Adoption Platform as many of them have a need to accelerate their digital transformations. As of March 31, 2021, our customers included 155 of the Fortune 500 and 243 of the Global 2000, illustrating the applicability of our Digital Adoption Platform for some of the world’s largest and most sophisticated enterprises, as well as our potential for future growth. In addition, as of March 31, 2021, we had 368 customers with ARR greater than $100,000, increasing from 284 as of March 31,

 

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2020 and 193 as of March 31, 2019. These customers represented 71% of our ARR as of March 31, 2021, increasing from 63% as of March 31, 2020 and 54% as of March 31, 2019. Also, 5, 13 and 22 customers had ARR of $1,000,000 or more as of March 31, 2019, 2020 and 2021, respectively, which customers represented 9%, 16% and 22% of our ARR, respectively, as of such dates. Of our 155 Fortune 500 customers, 105 had ARR greater than $100,000 and 11 had ARR of $1,000,000 or more as of March 31, 2021. Furthermore, of our 243 Global 2000 customers, 135 had ARR greater than $100,000 and 11 had ARR of $1,000,000 or more as of March 31, 2021. Our revenue from customers outside of the United States represented approximately 29% of our total revenue in the years ended December 31, 2019 and 2020 and approximately 34% and 30% of our total revenue in the three months ended March 31, 2020 and 2021, respectively.

Key Factors Affecting Our Performance

We believe that the growth and future success of our business depends on many factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations.

Customer Acquisition and Expansion

We are focused on continuing to acquire new customers to support our long-term growth and increasingly have optimized our customer acquisition efforts to target customers with greater than 500 employees that we believe can yield greater expansion opportunities over time as compared to less than 500 employee customer accounts. As of March 31, 2021 we had 1,984 total customers and 986 customers with 500 or more employees. As of March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 2020, we had 1,936, 1,964, 1,966, and 1,997 total customers, respectively. Also, as of March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 2020, we had 907, 920, 922, and 956 customers with 500 or more employees, respectively. As of March 31, 2019, June 30, 2019, September 30, 2019, and December 31, 2019, we had 1,705, 1,760, 1,859, and 1,945 total customers, respectively. Also, as of March 31, 2019, June 30, 2019, September 30, 2019, and December 31, 2019 we had 746, 792, 840, and 880 customers with 500 or more employees, respectively.

We define a customer as a distinct entity with an active subscription contract as of the measurement date. For new customers, we typically land in a specific geography or departmental use case such as HR, ERP or CRM. We then aim to grow within that customer’s organization by expanding across other departments, use cases and geographies. For some customers, we offer enterprise-wide subscriptions that enable them to use our Digital Adoption Platform on any application and across any department or geography within their organization. We believe enterprise-wide subscription agreements such as this encourage our customers to consume more of our platform and ultimately can result in greater long-term value to us. We intend to continue to invest in our go-to-market strategy to address new customers and use cases across all industries and customer sizes. Our results will depend in part on the degree to which these efforts are successful.

The chart below illustrates the expansion we have historically experienced within our existing customer base over time by presenting the total ARR of each cohort over the periods presented, with each cohort representing customers who made their first purchase from us in a given fiscal year. For example, the 2018 cohort includes all customers that made their first purchase from us between January 1, 2018 and December 31, 2018. Our ARR from customers for the 2015 cohort, 2016 cohort, 2017 cohort, 2018 cohort, 2019, and 2020 cohort as of March 31, 2021 represented an increase over each cohort’s initial aggregate ARR by 2.2x, 1.0x, 1.6x, 1.2x, 1.2x, and 1.0x, respectively. Our ARR from customers with 500 or more employees for the 2015 cohort, 2016 cohort, 2017 cohort, 2018 cohort, 2019, and 2020 cohort as of March 31, 2021 represented an increase over each cohort’s initial aggregate ARR by 4.3x, 1.8x, 2.7x, 1.5x, 1.4x, and 1.1x, respectively. These ARR multiples reflect both decreases in customer contract values and customer cancellations that have occurred since the comparative ARR calculation date. We track ARR within each customer cohort because we believe it provides useful information to management and investors regarding our ability to retain and expand ARR from our existing customers over time, and for identifying trends in customer use cycles and gauging the success of our customer expansion efforts over the long-term, which assists us in planning for and managing the growth of our business.

 

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LOGO

Investing for Growth

Our investments for growth encompass multiple critical areas, including international growth, enterprise sales, and product expansion. We also intend to continue to expand our sales and go-to-market efforts in existing markets, increase our sales territories, and broaden our partner ecosystem. We also plan to continue our investment into research and development to extend our technology leadership, product functionality and grow the emerging Digital Adoption category.

We continue to evolve our technology to ensure that we are best serving our customers’ needs. We believe this will lead to continued expansion within our current customers’ organizations and increase sales to new customers. We continue to invest in research and development to drive product innovation and development.

Ecosystem Expansion

In February 2021, we launched WalkMe Beyond, our solution ecosystem which includes components such as Digital Adoption Platform professionals, a marketplace and community, product and technology integrations, open API, and a training institute. We have strong partnerships with strategic systems integrators such as Accenture, Cognizant, Deloitte, IBM and PwC, among others. We expect our partnerships to extend our sales reach and provide implementation leverage both in the United States and internationally. We intend to continue to invest in our partnership expansion and integration development efforts to build a healthy ecosystem that will contribute to the long-term growth and sustainability of our business.

Impact of COVID-19

In December 2019, COVID-19 was first reported in China; in January 2020, the WHO declared it a Public Health Emergency of International Concern; and in March 2020, the WHO declared it a pandemic. This contagious disease outbreak has continued to spread across the globe, impacting worldwide economic activity and financial markets.

In response to the COVID-19 pandemic, we took immediate action following global shelter-in-place orders to reduce our operating expenses while we monitored global economic conditions. As part of this response, we

 

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enabled our entire workforce to work remotely and implemented travel restrictions. The changes we have implemented to date to enable remote working have not materially affected and are not expected to materially affect our ability to operate our business, including our financial reporting systems. The conditions caused by the pandemic also adversely affected, among other things, demand, new customer acquisitions and existing customer renewals, largely driven by changes in customer spending habits and IT budgets. In response to the pandemic, we implemented a short-term hiring freeze across our company, which limited our sales capacity and, together with the impact on spending across much of the global economy, led to longer sales cycles in the second quarter of 2020. As a result of our actions, our operating loss was less than expected.

Despite these initial headwinds, demand for our offerings accelerated in the second half of 2020 and we began reinvesting in our sales capacity and resumed hiring, the benefits of which we began to see in the fourth quarter of 2020 as new business growth returned to pre-pandemic levels. We attribute this recovery in part to the stabilization of the global economy, as well as to the rapid transition to remote work in the wake of COVID-19, which reinforced, in part, the value proposition of a digital adoption strategy for enterprises transitioning to remote work forces. While there can be no assurance that these trends will continue, we believe these factors show that long-term demand for our offerings remains strong.

Although we believe our business is well-suited to navigate the current environment, the full extent to which the COVID-19 pandemic will impact our business, financial condition and results of operations is still unknown and will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent pre-COVID-19 economic and operating conditions resume. For additional information regarding the potential impact of the COVID-19 pandemic on our business, see “Risk Factors—Risks Related to Our Business and Industry—The ongoing COVID-19 pandemic could harm our business, financial condition and results of operations.”

Key Business and Financial Metrics

We review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

Annualized Recurring Revenue (“ARR”)

We use ARR as a measure of our revenue trend and as an indicator of our future revenue opportunity from existing customer contracts. We define ARR as the annualized value of customer subscription contracts as of the measurement date, assuming any contract that expires during the next 12 months is renewed on its existing terms (including contracts for which we are negotiating a renewal). Our calculation of ARR is not adjusted for the impact of any known or projected future events (such as customer cancellations, upgrades or downgrades, or price increases or decreases) that may cause any such contract not to be renewed on its existing terms. In addition, the amount of actual revenue that we recognize over any 12-month period is likely to differ from ARR at the beginning of that period, sometimes significantly. This may occur due to new bookings, cancellations, upgrades, downgrades or other changes in pending renewals, as well as the effects of professional services revenue and acquisitions or divestitures. As a result, ARR should be viewed independently of, and not as a substitute for or forecast of, revenue and deferred revenue. Our calculation of ARR may differ from similarly titled metrics presented by other companies. As of December 31, 2020, customers having 500 or more employees represented 83% of our ARR, compared to 80% of our ARR as of December 31, 2019. As of March 31, 2021, customers having 500 or more employees represented 86% of our ARR, compared to 81% of our ARR as of March 31, 2020.

 

     As of
December 31,
     As of
March 31,
 
     2019      2020      2020      2021  

Annualized Recurring Revenue (millions)

   $ 131.2      $ 164.3      $ 137.8      $ 177.5  

 

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Customers with ARR Greater than $100,000

We measure the number of customers with ARR greater than $100,000 (“$100,000+ Customers”). We believe our ability to increase these customers is an indicator of our market penetration, strategic demand for our Digital Adoption Platform, the growth of our business, and our potential future business opportunities. Our calculation of this metric may differ from similarly titled metrics presented by other companies.

 

     As of
December 31,
     As of
March 31,
 
     2019      2020      2020      2021  

$100,000+ Customers

     265        347        284        368  

We also measure the number of customers within our $100,000+ Customers who have purchased enterprise-wide subscriptions or who have department-wide usage of our Digital Adoption Platform across four or more applications. We believe these customers are an indication of the success of our customer acquisition and expansion strategy and demonstrate the strategic demand for our Digital Adoption Platform, the growth of our business and our potential future business opportunities. Our calculation of this metric may differ from similarly titled metrics presented by other companies. As of December 31, 2019 and 2020, we had 38 and 77, respectively, of these customers, and as of March 31, 2020 and 2021, we had 44 and 88 of these customers. As of December 31, 2020, these customers represented 25% of our ARR, compared to 15% of our ARR as of December 31, 2019. As of March 31, 2021, these customers represented 32% of our ARR, compared to 15% of our ARR as of March 31, 2020. Additionally, as of March 31, 2021, these customers had an average ARR of $0.6 million, compared to $0.5 million as of March 31, 2020. Further, as of March 31, 2021, the customer with the greatest ARR had an ARR of $5.8 million, compared to $2.6 million as of March 31, 2020.

Dollar-Based Net Retention Rate

We use our Dollar-Based Net Retention Rate to measure our ability to retain and expand ARR from our existing customers on a trailing four-quarter basis. Our Dollar-Based Net Retention Rate compares the ARR from the same set of subscription customers across comparable periods. In each of the trailing four quarters, the set of customers identified from 12 months prior is compared to those same customers’ subscription ARR in the respective quarter. ARR in the trailing four quarters includes customer renewals, expansion, contraction and churn. The calculation of our Dollar-Based Net Retention Rate in a particular quarter is obtained by averaging the result from that particular quarter with the corresponding results from each of the prior three quarters. Our calculation of Dollar-Based Net Retention Rate may differ from similarly titled metrics presented by other companies. Our dollar-based net retention rate for all customers for the years ended December 31, 2019 and 2020 was 113% and 112%, respectively, and for the three months ended March 31, 2020 and 2021 was 115% and 111%, respectively. Our dollar-based net retention rate for customers having 500 or more employees for the years ended December 31, 2019 and 2020 was 119% and 120%, respectively, and for the three months ended March 31, 2020 and 2021 was 121% and 118%, respectively.

 

     As of
December 31,
    As of
March 31,
 
     2019     2020     2020     2021  

Dollar-Based Net Retention Rate (all customers)

     113     112     115     111

Dollar Based Net Retention Rate (customers having 500 or more employees)

     119     120     121     118

Remaining Performance Obligations

Our Remaining Performance Obligations represents future revenue from committed contracts that has not been recognized. This calculation includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenue in future periods. Subscription contracts with termination for convenience and without any penalty are excluded. We expect to recognize 60% of our Remaining Performance Obligations as of

 

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March 31, 2021 as revenue over the next twelve months, and the remainder thereafter, in each case, in accordance with our revenue recognition policy; however, we cannot guarantee that any portion of our Remaining Performance Obligations will be recognized as revenue within the timeframe we expect or at all.

 

     As of
December 31,
     As of
March 31,
 
     2019      2020      2020      2021  

Remaining Performance Obligations (millions)

   $ 175.5      $ 205.1      $ 174.3      $ 237.2  

Non-GAAP Financial Measures

In addition to our financial results reported in accordance with GAAP, we believe that Free Cash Flow and Non-GAAP Operating Income (Loss), both of which are non-GAAP financial measures, are useful in evaluating the performance of our business.

Free Cash Flow

We define Free Cash Flow as net cash used in operating activities, less cash used for purchases of property and equipment and capitalized internal-use software costs. We believe that Free Cash Flow is a useful indicator of liquidity that provides information to management and investors, even if negative, about the amount of cash used in our business. Free Cash Flow has limitations as an analytical tool, may differ from similarly titled metrics presented by other companies, and should not be considered in isolation or as a substitute for analysis of net cash used in operating activities, the most directly comparable GAAP liquidity measure, or any other GAAP financial measures. Our Free Cash Flow may vary from period to period and be impacted as we continue to invest for growth in our business. The following table sets forth our net cash used in operating activities and our Free Cash Flow for each period presented. See “Prospectus Summary—Summary Consolidated Financial and Other Data” for additional information regarding how we use Free Cash Flow, its limitations, and a reconciliation of Free Cash Flow to net cash used in operating activities for each period presented below.

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2019      2020      2020      2021  

Net Cash Used in Operating Activities (millions)

   $ (48.5    $ (8.7    $ (7.4    $ (2.9

Free Cash Flow (millions)

   $ (53.0    $ (11.0    $ (8.2    $ (4.1

Non-GAAP Operating Income (Loss)

We define Non-GAAP Operating Income (Loss) as net income (loss) from operations excluding share-based compensation and amortization of acquired intangible assets. We use Non-GAAP Operating Income (Loss) with traditional GAAP measures to evaluate our financial performance. We believe that Non-GAAP Operating Income (Loss) provides our management and investors with useful supplementary information by facilitating period-to-period comparisons of our results of operations. Non-GAAP Operating Income (Loss) has limitations as an analytical tool, may differ from similarly titled metrics presented by other companies, and should not be considered in isolation or as a substitute for analysis of operating loss, the most directly comparable GAAP financial performance measure, or any other GAAP financial measures. The following table sets forth our operating loss, as determined in accordance with GAAP, and our Non-GAAP Operating Loss for each period presented. See “Prospectus Summary —Summary Consolidated Financial and Other Data” for additional information regarding how we use Non-GAAP Operating Income (Loss), its limitations, and a reconciliation of Non-GAAP Operating Income (Loss) to operating loss for each period presented below.

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2019      2020      2020      2021  

Operating Loss (millions)

   $ (49.3    $ (43.2    $ (11.2    $ (13.0

Non-GAAP Operating Loss (millions)

   $ (45.9    $ (29.1    $ (10.4    $ (9.5

 

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Components of Our Results of Operations

Revenue

Subscription Revenue

Subscription revenue primarily consists of subscription fees from our cloud-based Digital Adoption Platform. We recognize subscription revenue ratably over the subscription period, which typically varies from one to three years. Our customers are generally billed upfront, and amounts that have been billed are initially recorded as deferred revenue until recognized in accordance with our revenue recognition policy. Consequently, a portion of the revenue that we report in each period is attributable to the recognition of deferred revenue relating to subscriptions that we entered into during previous periods.

Professional Services Revenue

Professional services consist of services provided to our customers to help them maximize our platform capabilities in highly complex operational environments. Professional services are priced on a time and material basis and, accordingly, revenues are recognized as services are delivered.

Cost of Revenue and Gross Margin

Cost of Revenue

Cost of subscription revenue primarily consists of costs related to third-party cloud infrastructure providers for hosting our platform, employee-related costs for operations and global support (including salaries, benefits, bonuses and share-based compensation), and depreciation and amortization related to acquired intangibles and internal-use software. Cost of professional services revenue primarily consists of employee-related costs (such as salaries, bonuses and share-based compensation) and subcontractor costs associated with the delivery of these services. Additionally, we allocate certain overhead costs to each of these costs of revenue.

We intend to continue to invest additional resources in our platform and our customer support organization as we grow our business. The level and timing of investment in these areas will affect our cost of revenue in the future.

Gross Margin

Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as a result of the timing and amount of investments to expand our hosting capacity, and our continued efforts to build platform support and professional services teams.

Operating Expenses

Research and Development

Research and development expenses consist primarily of employee-related costs (including salaries, benefits, bonuses and share-based compensation) and subcontractor costs associated with our engineering team responsible for the design, development, and testing of our products, the cost of development environments and tools, and allocated overhead. We expect that our research and development expenses will increase in absolute dollars as our business grows, particularly as we continue to invest in the development of our platform. We expect research and development expenses may fluctuate as a percentage of revenues from period to period due to the timing and extent of these expenses.

Sales and Marketing

Sales and marketing expenses primarily consist of employee-related costs (such as salaries, sales commissions, bonuses and share-based compensation expenses), costs associated with marketing programs to promote our brand and awareness, demand generating activities, customer events, other sales expenses and allocated overhead.

 

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We expect sales and marketing expenses to increase in absolute dollars as we continue to make significant investments in our sales and marketing organizations to drive additional revenues, further penetrate our target markets, and expand our global customer base. As a percentage of revenues, we expect our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

General and Administrative

General and administrative expenses consist of employee-related costs (such as salaries, bonuses and share-based compensation) for executive, finance, legal, human resources, IT and other administrative personnel, professional services fees, consulting services and allocated overhead.

Following the completion of this offering, we expect to incur additional costs associated with operating as a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with SEC and stock exchange requirements, director and officer insurance costs, and investor and public relations costs. Accordingly, we expect general and administrative expenses to increase in absolute dollars for the foreseeable future. We expect general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

Finance Income (Expenses), Net

Finance income (expenses), net primarily consists of finance expenses such as bank fees, foreign exchange gains and losses and interest income earned on our cash investments.

Income Tax Expenses

Income tax expenses primarily consist of income taxes related to U.S. and other jurisdictions in which we conduct business. We maintain a full valuation allowance for net deferred tax assets as we believe that it is more likely than not that the deferred tax assets will not be realized. Our effective tax rate is affected by tax rates in the jurisdictions in which we conduct business and the relative amounts of income we earn in those jurisdictions, as well as non-deductible expenses and changes in our valuation allowance.

 

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Results of Operations

The results of operations presented below should be reviewed in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. The following table presents selected data from our audited consolidated statements of operations for the years ended December 31, 2019 and 2020 and our unaudited consolidated statements of operations for the three months ended March 31, 2020 and 2021:

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2019     2020     2020     2021  
     (in thousands)  

Revenues

        

Subscription

   $ 94,769     $ 130,303     $ 29,652     $ 38,474  

Professional Services

     10,360       18,003       4,569       4,180  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     105,129       148,306       34,221       42,654  

Cost of revenues(1)(2)

        

Subscription

     11,947       19,141       4,187       5,689  

Professional services

     18,729       20,017       5,073       5,080  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     30,676       39,158       9,260       10,769  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     74,453       109,148       24,961       31,885  

Operating expenses(1)

        

Research and development

     26,639       31,560       7,613       10,422  

Sales and marketing

     75,004       87,208       23,291       25,135  

General and administrative

     22,095       33,541       5,306       9,373  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     123,738       152,309       36,210       44,930  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (49,285     (43,161     (11,249     (13,045

Financial income (expenses), net

     474       (156     (559     45  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (48,811     (43,317     (11,808     (13,000

Income tax expense

     (1,307     (1,708     (469     (404
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (50,118   $ (45,025   $ (12,277   $ (13,404
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes share-based compensation expense as follows:

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2019      2020      2020      2021  
     (in thousands)  

Cost of revenues

   $  41      $  201      $ 34      $ 177  

Research and development

     282        1,596        240        471  

Sales and marketing

     427        1,105        222        793  

General and administrative

     2,330        11,115        285        2,091  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total share-based compensation(a)

   $  3,080      $  14,017      $  781      $ 3,532  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a)   Share-based compensation expenses for the years ended December 31, 2019 and 2020 and the three months ended March 31, 2020 includes $1.9 million, $8.5 million and $ 0.2 million, respectively, of compensation expenses related to secondary share purchase transactions as described in note 6 to our consolidated financial statements included elsewhere in this prospectus.

 

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(2)

Includes amortization of acquired intangibles as follows:

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2019      2020      2020      2021  
                   (in thousands)  

Cost of revenues

   $ (297    $ (44    $ (44    $  

The following table sets forth our results of operations as a percentage of total revenue for each period presented above.

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2019     2020     2020     2021  

Revenues

        

Subscription

     90     88     87     90

Professional Services

     10     12     13     10
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     100     100     100     100

Cost of revenues

        

Subscription

     11     13     12     13

Professional services

     18     13     15     12
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     29     26     27     25
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     71     74     73     75

Operating expenses

        

Research and development

     25     21     22     24

Sales and marketing

     71     59     68     59

General and administrative

     21     23     16     22
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     117     103     106     105
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (46 )%      (29 )%      (33 )%      (31 )% 

Financial income (expenses), net

     *       *       2     *  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (46 )%      (29 )%      (35 )%      (31 )% 

Income tax expense

     (1 )%      (1 )%      (1 )%      (1 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (47 )%      (30 )%      (36 )%      (32 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

*

represents less than 1%

Comparison of the Three Months Ended March 31, 2020 and 2021

Revenue

 

     Three Months Ended
March 31,
     Period-over-Period
Change
 
     2020      2021      Dollar      Percentage  
     (in thousands, except percentages)  

Subscription revenues

   $ 29,652      $ 38,474      $ 8,822        30

Professional services revenues

     4,569        4,180        (389      (9
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 34,221      $ 42,654      $ 8,433        25
  

 

 

    

 

 

    

 

 

    

 

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The following table presents our subscription revenues and professional services revenues as a percentage of our total revenue for each period presented above.

 

     Three Months Ended
March 31,
 
         2020             2021      

Subscription revenues

     87     90

Professional services revenues

     13       10  
  

 

 

   

 

 

 

Total revenue

     100     100
  

 

 

   

 

 

 

Subscription Revenues

Subscription revenues increased by $8.8 million, or 30%, to $38.5 million for the three months ended March 31, 2021 compared to $29.7 million for the three months ended March 31, 2020. This increase was primarily due to customer additions as well as expansion from existing customers within and across lines of business.

Professional Services Revenues

Professional services revenues decreased by $0.4 million, or 9%, to $4.2 million for the three months ended March 31, 2021 compared to $4.6 million for the three months ended March 31, 2020. This decrease was primarily attributable to a decrease in the number of professional service hours performed during the quarter.

Cost of Revenues and Gross Margin

 

     Three Months Ended
March 31,
    Period-over-Period
Change
 
     2020     2021     Dollar      Percentage  
     (in thousands, except percentages)  

Cost of revenues:

         

Cost of subscription revenues

   $ 4,187       $5,689     $ 1,502        36

Cost of professional services revenues

     5,073       5,080       7        *
  

 

 

   

 

 

   

 

 

    

 

 

 

Total cost of revenues

   $ 9,260     $ 10,769     $ 1,509        16
  

 

 

   

 

 

   

 

 

    

Gross margin:

         

Subscription

     86     85     

Professional services

     (11     (22     

Total gross margin

     73     75     

 

*

represents less than 1%

Cost of Subscription Revenues

Cost of subscription revenues increased by $1.5 million, or 36%, to $5.7 million for the three months ended March 31, 2021 compared to $4.2 million for the three months ended March 31, 2020. This increase was primarily attributable to an increase of $1.3 million in third-party cloud hosting costs and $0.4 million in employee-related costs as a result of increased headcount. These increases were partially offset by a $0.2 million decrease in amortization and depreciation expense.

Gross Margin—Subscription

Our gross margin for subscription revenue remained substantially consistent during the three months ended March 31, 2021, compared to the three months ended March 31, 2020. While our gross margins for subscription revenue may fluctuate in the near-term as we invest in our growth, we expect our subscription revenue gross margin to improve over the long-term as we achieve additional economies of scale.

 

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Cost of Professional Services Revenues

Cost of professional services revenues remained substantially consistent during the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

Gross Margin—Professional Services

Our gross margin for professional services revenue decreased primarily due to lower utilization of professional services personnel.

Operating Expenses

Research and Development

 

     Three Months Ended
March 31,
     Period-over-Period
Change
 
     2020      2021      Dollar      Percentage  
     (in thousands, except percentages)  

Research and development

   $ 7,613      $ 10,422      $ 2,809        37

Research and development expenses increased by $2.8 million, or 37%, to $10.4 million for the three months ended March 31, 2021 compared to $7.6 million for the three months ended March 31, 2020. The increase was primarily attributable to an increase of $2.0 million in employee-related costs as a result of increased headcount, $0.2 million in share-based compensation expense and $0.6 million in subcontractors, professional fees and other expenses.

Sales and Marketing

 

     Three Months Ended
March 31,
     Period-over-Period
Change
 
     2020      2021      Dollar      Percentage  
     (in thousands, except percentages)  

Sales and marketing

   $ 23,291      $ 25,135      $ 1,844        8

Sales and marketing expenses increased by $1.8 million, or 8%, to $25.1 million for the three months ended March 31, 2021 compared to $23.3 million for the three months ended March 31, 2020. The increase in sales and marketing expenses was primarily attributable to an increase of $7.5 million in employee-related costs as a result of increased headcount and variable compensation for our sales personnel and $0.6 million in share-based compensation expense. These increases were partially offset by a $3.8 million in deferred contract acquisition costs driven by an increase in total sales, $1.4 million decrease in online marketing activities due to performance improvements and processes optimization and $1.1 million decrease in travel costs driven largely by the COVID-19 pandemic.

General and Administrative

 

     Three Months Ended
March 31,
     Period-over-Period
Change
 
     2020      2021      Dollar      Percentage  
     (in thousands, except percentages)  

General and administrative

   $ 5,306      $ 9,373      $ 4,067        77

General and administrative expenses increased by $4.1 million, or 77%, to $9.4 million for the three months ended March 31, 2021 compared to $5.3 million for the three months ended March 31, 2020. The increase was primarily attributable to an increase of $1.8 million in employee-related costs as a result of increased headcount, $1.8 million in share-based compensation expense and increase of $0.5 million in outsourcing and professional services.

 

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Financial Income (Expense), Net

 

     Three Months Ended
March 31,
     Period-over-Period
Change
 
     2020     2021      Dollar      Percentage  
     (in thousands, except percentages)  

Financial income (expense), net

   $ (559   $ 45      $ 604        108

Financial income, net increased by approximately $0.6 million, or 108%, to $ 0.1 million of income for the three months ended March 31, 2021 compared to $(0.5) million of expense for the three months ended March 31, 2020. This increase was primarily attributable to an increase in foreign currency exchange rates income.

Income Tax Expenses

 

     Three Months Ended
March 31,
     Period-over-Period
Change
 
     2020      2021      Dollar     Percentage  
     (in thousands, except percentages)  

Income tax expenses

   $ 469      $ 404      $ (65     (14 )% 

Income tax expenses decreased by $0.1 million, or 14%, to $0.4 million for the three months ended March 31, 2021 compared to $0.5 million for the three months ended March 31, 2020. The decrease in provision for income taxes was primarily due to a decrease in taxable income from our operations in the United States.

Comparison of the Years Ended December 31, 2019 and 2020

Revenue

 

     Year Ended December 31,      Period-over-Period
Change
 
     2019      2020      Dollar      Percentage  
     (in thousands, except percentages)  

Subscription revenues

   $ 94,769      $ 130,303      $ 35,534        37

Professional services revenues

     10,360        18,003        7,643        74  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 105,129      $ 148,306      $ 43,177        41
  

 

 

    

 

 

    

 

 

    

The following table presents our subscription revenues and professional services revenues as a percentage of our total revenue for each period presented above.

 

     Year Ended
December 31,
 
         2019             2020      

Subscription revenues

     90     88

Professional services revenues

     10       12  
  

 

 

   

 

 

 

Total revenue

     100     100
  

 

 

   

 

 

 

Subscription Revenues

Subscription revenues increased by $35.5 million, or 37%, to $130.3 million for the year ended December 31, 2020 compared to $94.8 million for the year ended December 31, 2019. This increase was primarily due to expansion from existing customers within and across lines of business, as well as new customer additions. Approximately 59% of the increase in revenue was attributable to the growth from existing customers, and the remaining increase in revenue was attributable to new customers.

 

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Professional Services Revenues

Professional services revenues increased by $7.6 million, or 74%, to $18.0 million for the year ended December 31, 2020 compared to $10.4 million for the year ended December 31, 2019. This increase was primarily attributable to an increase in the number of professional service hours performed as we expanded our professional services organization to help our customers further realize the benefits of our platform.

Cost of Revenues and Gross Margin

 

     Year Ended
December 31,
    Period-over-Period
Change
 
     2019     2020     Dollar      Percentage  
     (in thousands, except percentages)  

Cost of revenues:

         

Cost of subscription revenues

   $ 11,947     $ 19,141     $ 7,194        60

Cost of professional services revenues

     18,729       20,017       1,288        7
  

 

 

   

 

 

   

 

 

    

 

 

 

Total cost of revenues

   $ 30,676     $ 39,158     $ 8,482        28
  

 

 

   

 

 

   

 

 

    

Gross margin:

         

Subscription

     87     85     

Professional services

     (81     (11     

Total gross margin

     71     74     

Cost of Subscription Revenues

Cost of subscription revenues increased by $7.2 million, or 60%, to $19.1 million for the year ended December 31, 2020 compared to $11.9 million for the year ended December 31, 2019. This increase was primarily attributable to an increase of $3.7 million in third-party cloud hosting costs, $1.5 million in employee-related costs as a result of increased headcount, $1.2 million in amortization and depreciation expense, and $0.8 million allocated overhead and other costs.

Gross Margin—Subscription

Our gross margin for subscription revenue remained substantially consistent during the year ended December 31, 2020, compared to the year ended December 31, 2019. While our gross margins for subscription revenue may fluctuate in the near-term as we invest in our growth, we expect our subscription revenue gross margin to improve over the long-term as we achieve additional economies of scale.

Cost of Professional Services Revenues

Cost of professional services revenues increased by $1.3 million, or 7%, to $20.0 million for the year ended December 31, 2020 compared to $18.7 million for the year ended December 31, 2019. This increase was primarily attributable to an increase of $0.9 million in employee-related costs as a result of increased headcount and $0.4 million in allocated overhead costs.

Gross Margin—Professional Services

Our gross margin for professional services revenue increased primarily due to higher utilization of professional services personnel.

 

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Operating Expenses

Research and Development

 

     Year Ended
December 31,
     Period-over-Period
Change
 
     2019      2020      Dollar      Percentage  
     (in thousands, except percentages)  

Research and development

   $ 26,639      $ 31,560      $ 4,921        18

Research and development expenses increased by $4.9 million, or 18%, to $31.6 million for the year ended December 31, 2020 compared to $26.6 million for the year ended December 31, 2019. The increase was primarily attributable to an increase of $3.0 million in employee-related costs as a result of increased headcount, $1.3 million in share-based compensation expense and $0.6 million in subcontractors, professional fees and other expenses.

Sales and Marketing

 

     Year Ended
December 31,
     Period-over-Period
Change
 
     2019      2020      Dollar      Percentage  
     (in thousands, except percentages)  

Sales and marketing

   $ 75,004      $ 87,208      $ 12,204        16

Sales and marketing expenses increased by $12.2 million, or 16%, to $87.2 million for the year ended December 31, 2020 compared to $75.0 million for the year ended December 31, 2019. The increase in sales and marketing expenses was primarily attributable to an increase of $9.5 million in employee-related costs as a result of increased headcount and variable compensation for our sales personnel, $2.8 million in deferred contract acquisition costs driven by an increase in total sales, $0.5 million in allocated overhead costs, and $0.7 million in share-based compensation expense. These increases were partially offset by a $1.3 million decrease in online marketing activities due to performance improvements and processes optimization.

General and Administrative

 

     Year Ended
December 31,
     Period-over-Period
Change
 
     2019      2020      Dollar      Percentage  
     (in thousands, except percentages)  

General and administrative

   $ 22,095      $ 33,541      $ 11,446        52

General and administrative expenses increased by $11.4 million, or 52%, to $33.5 million for the year ended December 31, 2020 compared to $22.1 million for the year ended December 31, 2019. The increase was primarily attributable to an increase of $8.8 million in share-based compensation expense and $1.6 million in employee-related costs as a result of increased headcount, partially offset by a $0.6 million decrease in travel and personnel-related costs due to COVID-19. General and administrative expenses for the year ended December 31, 2019 were reduced by $1.6 million following a legal settlement. For additional information, please refer to note 5 to the consolidated financial statements included elsewhere in this prospectus.

Financial Income (Expense), Net

 

     Year Ended
December 31,
    Period-over-Period
Change
 
     2019      2020     Dollar     Percentage  
     (in thousands, except percentages)  

Financial income (expense), net

   $ 474      $ (156   $ (630     (133 )% 

 

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Financial expense, net increased by approximately $0.6 million, or 133%, to $(0.2) million of expense for the year ended December 31, 2020 compared to $0.5 million of income for the year ended December 31, 2019. This increase was primarily attributable to an increase in foreign currency exchange rates expenses and bank fees, partially offset by an increase in interest income.

Income Tax Expenses

 

     Year Ended
December 31,
     Period-over-Period
Change
 
     2019      2020      Dollar      Percentage  
     (in thousands, except percentages)  

Income tax expenses

   $ 1,307      $ 1,708      $ 401        31

Income tax expenses increased by $0.4 million, or 31%, to $1.7 million for the year ended December 31, 2020 compared to $1.3 million for the year ended December 31, 2019. The increase in income tax expenses was primarily due to an increase in tax on our operations in the United States.

 

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Quarterly Results of Operations

The following tables set forth our unaudited quarterly consolidated statements of operations and other data for each of the quarters indicated, as well as the percentage that each line item in such consolidated statements of operations represents of our total revenue for each quarter presented. The unaudited quarterly consolidated statements of operations data for each quarter has been prepared on a basis consistent with our audited consolidated financial statements included in this prospectus, and reflects, in the opinion of management, all adjustments, consisting only of normal, recurring adjustments, that are necessary for a fair statement of this financial information. Our historical results are not necessarily indicative of the results that may be expected in the future. The following quarterly financial and other data should be read in conjunction with the other information set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the information set forth in our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. Our results for any quarter are not necessarily indicative of results that may be expected for a full year or any other period.

 

    Three Months Ended  
    June 30,
2019